Statute of Frauds

Analysis 1yr / Lifetime (1) Is it w/in the SOF

By its terms the agreement is not to be performed within 1 yr from time of making. Klewin (pg. 270) Looks prospectively has burden If performance can be satised w/in 1 yr, not w/in SOF (lifetime issues) If death satises K - not w/in SOF If death breaches - w/in SOF Any transfer of interest in real property

(2) Are Writing Requirements Met

Signed by party against whom enforcement is sought Essential Terms reqd

(3) Any Exceptions/Defenses to SOF?

Detrimental Reliance - R2d 139 (1) reasonably expect to induce action, does induce, injustice. (2) Factors: other remedies avail? (cancel and restitution), char. of action/forbearance, connection between action and how relates to promise, reasonableness of action, extent action foreseeable Monarco v. Lo Greco (pg. 305) Promissory Estoppel - R2d 90 Part Performance in Reliance Partial performance must unequivocally indicate existence of oral K. Factors considered here: Possession of prop., improvements of, payment of substantial part of purchase price Richard v. Richard (pg. 280) Enforceable despite SOF if: K admitted in pleadings, testimony or otherwise in court (Rule of Effrontery abrogated) Specially made goods not suitable for sale to others if substantially begins to perform or procure before notice of repudiation and under circ. reasonably indicate goods are for buyer payment made and accepted or goods received and accepted From 2-201(3) R2d 139 may also apply (some say no), Sponsors say yes Main Purpose Rule (likely more a not w/in SOF arg) If surety is taken by A, and fair inference is that purpose was to secure benet for itself not previously enured Essentially, not suretyship b/c there consideration ows one way. Here, ows both ways Central Ceilings v. National Amusement pg. 302 Also, R2d 90, 139

Real estate

Signed by both parties Essential Terms [Price, lot, etc]

Sale of Goods ($500+)

Sales of Goods of $500+ UCC 2-201 Impt. to determine if parties are merchant, w/r/t writing requirements Merchant: deals in goods of the kind or holds self out as having know/skill (2-104 pg. 229 in Stat. Supp.)

Terms: Essential not reqd If quantity listed, but wrong, on good up to that quantity Writing: Against whom enforcement is sought BUT Between Merchants: A conrmation of sale memo will obviate writing req if: If w/in reasonable time (all relevant circ., incl. custom and practice of parties) St. Angsar Mills v. Streit (pg. 289) Sufcient against sender Receiving has reason to know of contents, will satisfy writing requirement: Unless: objection by receiver w/in 10 days after receipt.

Suretyship

Promise for A to answer for debts, defaults, miscarriages of B Not Guarantee (Guarantee: predicated upon Bs default) Suretyship liability in tandem Not Novation (Nov. = Creditor releases obligation of B in xchange for obligation of A) Promise must be given to the creditor Langam v. Alumni Assc. of UVA Applies to future obligations

Signed by party against whom enforcement is sought Essential Terms reqd

Court Preferences 1 year, suretyship not favored, construed narrowly. Writing Requirement Conicts: If K falls under 2 or more categories: Majority: Meet both requirements. Minority: Meet only one of the two Other Defenses: Fraud, Misrepresentation,

Steve Udick Contracts II Prof. Rogers Spring 2010

Defenses To Enforceability
Defenses on Capacity
Rule: Contract of minor, other than for necessaries is void or voidable at minors option. Emancipated minor not exception Kiefer v. Fred Howe (pg. 312) Disafrmance after Majority: Can disafrm within reasonable time after turning age of majority (No set rule, but some states provide statutoryi.e. OK 1yr) Effect of Disafrmance May be restitution required each way if unjust enrichment exists (basketball kid) BUT if K for services, not goods, seller may be subject to loss for dealing with minor Right to Disafrmance strong, may trump other defenses. Defenses Necessaries: Food, clothing, health care, education Maybe Housing. Not if other housing option exists. Rivera v. Reading Housing (314n.1) Losing Power to Disafrm Parental Consent: Brooke Shield Case (was statute in NY, though) Later Ratication: Minor ratifying K after reaching age of majority is bound. Judicial Approval: If K is judicially approved at time of making, cant disafrm.

Minority

Mental Inrmity

Rule R2d 15: Person incurs only voidable K duties by entering into transaction if by reason of mental illness or defect 15(1)(a) unable to understand in reasonable manner, nature and consequences of transaction (Old, Cognitive) Weak-mindedness is not mental incapacity Cundick v. Broadbent (Cognitive test, but outline has hypo on non-cognitive test) 15(1)(b) unable to act in reasonable manner in relation to transaction and other party has reason to know of the condition (New, Non-Cognitive) Requires: (1) Medically classied psychosis, (2) other party knew or should have known, (3) no substantial harm to other party Ortele v. Teachers Retirement Board (Non-Cognitive test) Often instance where unequal bargain, and this used as defense. However, see 15(2), where if K has fair terms, and other party without knowledge of inrmity, avoidance terminates to extent K has been performed in whole or in part or circumstances changed such that avoidance would be unjust, where court should look in equity. Will v. Contract: Will can execute during lucid period, but not K. K binds immediately, will could be revised in theory. Law favors devising property through will. Freedom from K

Defenses based on bargaining process: Pre-existing Duty Rule, Undue Inuence, Duress (Including Economic), and Concealment and Misrepresentation
Common Law Rule: Performance of a preexisting legal duty guaranteed by contract is not sufcient consideration to support a promise. Alaska Packers v. Domenico R2d 73: Performance of legal duty owed to promisor which is neither doubtful nor subject of honest dispute is not consideration; but similar performance is consideration if it differs from what was required by the duty in a way which reects more than pretense of bargain [Usually applies to coercion or duress] Pre-existing duty to 3rd party is still pre-existing duty. Jockey case UCC Rule 2-209(1): An agreement modifying a contract within this Article needs no consideration to be binding Good Faith in modication required Comment 2: modications made there under must meet the test of good faith imposed by this act . . . and the extortion of a modication without legitimate commercial reason is ineffective as violation of a duty of good faith Avoiding Pre-existing Duty Rule Rescission & Modication: Where existing K is terminated by consent of both parties and new one executed in its place, not pre-existing duty rule Schwartzreich v. Bauman-Basch (ripping signature case) R2d 89 Modication of Executory K: A promise modifying a duty under a contract not fully performed on either side is binding (1) If modication is fair and equitable in view of circumstances not anticipated by the parties when K was made; or (2) to extent provided by statute; or to extent justice requires enforcement in view of material change of position in reliance on the promise. Not insisting on rights, but relinquishing them, then will be held to new agreement. Watkins & Son v. Carrig (Unlike Alaska Packers, could have found someone else to do work and reject the new contract demand by excavator) New Consideration Rule in Pinnels Case: by no possibility, a lesser sum can be satisfaction to the plaintiff for a greater sum,; but the gift of a horse, hawk, or robe, etc. in satisfaction is good Like 73: Basically not partial payment, but substitute consideration that is more than pretense of bargain. Foakes v. Beer Partial Payment case

Preexisting Duty Rule

Steve Udick Contracts II Prof. Rogers Spring 2010

Defenses based on bargaining process: Pre-existing Duty Rule, Undue Inuence, Duress (Including Economic), and Concealment and Misrepresentation
Duress: impermissible pressure exerted by one party over another during either pre-contractual bargaining or attempted renegotiation of existing deal Standards: Restraint or danger, either actually inicted or impending, which is sufcient in severity or apprehension to overcome mind of person of ordinary rmness Forced to agree by means of a wrongful threat precluded the exercise of free will Objective v. Subjective: Some debate. Recent trend is to take into account attendant circumstances But must have reasonable degree of temerity in the face of the threat Economic Duress Austin Inst v. Loral Courts found economic duress where (1) withheld necessary goods, (2) which could not be obtained elsewhere, (3) and ordinary remedy based on breach of K not adequate given Lorals existing contract with the Navy (that would result in penalties for breach) Is Duress Threats that are criminal or tortious Some threats to business interests Legal threats without legal basis for claim may be Not Duress Threat of lawful action not wrongful Threat of suit with valid legal basis of suit is not duress Note: If duress found, contract can be rescinded or is avoidable, and restitution applies (Action in Equity) Duress Harder to Prove than Pre-existing Duty rule

Duress (In bargaining process)

Undue Inuence

Undue inuence involves status or relationship between parties where two parties not dealing at arms length (Still dealing with bargaining process) That kind of inuence or supremacy of one mind over another by which that other is prevented from acting according to own will or judgement, and whereby will of person is overborne and he is induced to do or forbear to do an act which would not do, or would do, if left to act freely Characteristics of over-persuasion (if number exist, may be characterized as excessive): (1) Discussion of transaction at unusual place or time; (2) consummation of transaction in unusual place; (3) insistent demand that the business be nished at once; (4) extreme emphasis on untoward consequences of delay; (5) use of multiple persuaders by dominant against single servient; (6) absence of third party advisers to servient; (7) statements that no time to consult nancial or legal advisers. Odorizzi v. Bloomeld School Dist. Bare non-disclosure does not create liability Swinton v. Whitinsville Sav. Bank But, where enough is said and done by seller so that seller is bound to disclose more to avoid deception of buyer and did not disclose more, buyer may rescind contract for sellers fraudulent description. Basically, Partial disclosure creates duty for full disclosure. Kannavos v. Annino Misrepresentation must be material Misrepresentation must be of fact, not opinion But, statement of party with superior knowledge may be statement of fact, although it may be opinion among equal parties Does not need to be misrep. of fact where: (1) duciary relationship, (2) some artice or trick employed by representer, (3) parties are not dealing at arms length, (4) where presentee does not have equal opportunity to be appraised of truth or falsity of fact represented. Vokes v. Arthur Murray (Horrible Dancer Case) Misrepresentation of law usually not enough, but if parties have unequal knowledge and in unequal position, may be enough Remedy is rescission, so damages would be unjust enrichment

Concealment and misrepresent

Defenses to Enforcement based on bargain and performance: Unfairness, Standard form/Adhesive Contracts, Unconscionability, Good Faith, and Public Policy
Note: Still underlying these defenses is Freedom of Contract and that existence, not adequacy of consideration is important. But some exceptions, especially in equity Ultimate test is: Whether the contract is reasonable / fair If action is brought in equity (i.e. for specic performance), adequacy of consideration may be measured to determine fairness Most courts look prospectively, and determine if consideration is adequate based on risks assumed at formation Tuckwiller v. Tuckwiller Sometimes looks retrospectively, and measure consideration against benet received. McKinnon v. Benedict Looking at multiple factors: (1) Adequacy of consideration, (2) Measure of benet against consideration, (3) Oppressive/non-oppressive conditions / unconscionability Court may also consider outside issues such as alienability of land, etc... in specic performance claims If action is for damages, adequacy of consideration not relevant in unfairness claim. is bound by familiar terms that relative values of consideration in K between business men dealing at arms length without fraud will not affect validity of K. Black Industries v. Bush Middle-man and proteering usually is not unfairness, but may be subject to statutory provisions, especially w/r/t governmental dealings.

Unfairness

Steve Udick Contracts II Prof. Rogers Spring 2010

Defenses to Enforcement based on bargain and performance: Unfairness, Standard form/Adhesive Contracts, Unconscionability, Good Faith, and Public Policy
Note: Still underlying these defenses is Freedom of Contract and that existence, not adequacy of consideration is important. But some exceptions, especially in equity Benets of Standard form K: reduce uncertainty and save time and trouble; they simplify planning and administration and make superior drafting skills more widely available; and they make risks calculable and [increase] that real security which is the necessary basis of initiative and assumption of foreseeable risk Contract of Adhesion: A standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. Boilerplate v. Dickered Terms Dickered Terms negotiated terms, thus real assent Boilerplate terms Usually standard terms by all members of industry Enforceability of Boilerplate: Lack of Notice may imply lack of mutual assent, and thus no K [Like in coat check stub or valet stub] Doctrine of Reasonable Expectations: Reasonable expectations of the party without the boilerplate should be honored R2d 211(3): Where one party effectively manifests assent to standardized expression of agreement and other party has reason to believe that he would not have assented if he had known that it contained particular term, then that term is not part of the agreement [Also protects parties who do not understand K term] Strict Construction may be way for court to avoid adhesive terms or stipulations Sidewalk; not lawn case Duty to Read / Duty to Disclose: K is generally binding even if party didnt read (Duty to read) But, K must be understandable and meet statutory requirements Remedies: Usually is rescission of K, thus look to restitution interest. Unconscionability: No precise denition, but essentially when contract or clause is so one-sided, so unfair, that could should refuse to enforce as a matter of judicial policy. Principle is one of the prevention of oppression and unfair surprise and not of disturbance of allocation of risks because of superior bargaining power Rules: UCC 2-302 & R2d 208 Essentially the same Unconscionability is matter of law for court to decide If nds contract or clause unconscionable, can: (1) refuse to enforce entire K, or (2) refuse to enforce provision, or (3) reform the provision [including price] Comments to each section provide examples and explanations Procedural Unconscionability: Unfairness in bargaining process Adhesion Ks usually satisfy, because is oppressive Substantive Unconscionability: Unfairness in bargaining outcome (unfairness of terms) Usually need both procedural and substantive, but is on a sliding scale, at least in CA Armendariz v. Foundation Heath If Price is unconscionable, two routes determine reformed price (relates to damages) Common law: Net cost + reasonable prot and charges necessarily incurred + reasonable nance UCC: Focuses on Buyer over Seller: Comparison between what for-credit price and value measured by price at which similar property or services are readily obtainable in credit transaction by like consumers. Unconscionable as to Public Policy / Exculpatory Clauses Class action waiver substantively unconscionable because defeats/frustrates public policy embodied in legislation. Court said no need to nd procedural unconscionability [diff?] Scott v. Cingular Wireless Exculpatory Clause unconscionable, as is class action on grounds that severely handicaps ability to vindicate consumer rights. Scott v. Cingular Wireless Gateway Case: arbitration clause not unconscionable where customers had 30 days to read terms and return/reject product. Court nds not K of adhesion. Not unconscionable. Was duty to read. Test Graham v. Scissor-Tail Music Performer case Step 1: Is the contract one of adhesion? If Yes, step 2; If no, no defense on this ground Note: Adhesive K is not per se invalid Step 2: Adhesive K is not enforceable if: Is a contract or provision that does not fall within reasonable expectation of weaker/adhering party; or Is unduly oppressive or unconscionable K may also be unenforceable on statutory grounds Could be subject to statutory requirements and remedies if requirements breaches Doe v. Great Expectations Examples Forum selection clause enforceable if reasonable. Carnival Cruise v. Shute Exculpatory clause usually not enforceable, but in TX can if accepted knowingly, voluntarily, and for consideration Arbitration Clauses - Depends

Standard Form Contracts And Contracts of Adhesion

Unconscionability

Case Examples Williams v. Walker Thomas (Dragnet Clause) Sub. UnCon dragnet clause keeping balance on all, despite payments. Proc. UnCon If wanted stereo, was only way to obtain Jones v. Star Credit (Really Expensive Freezer) Sub. UnCon Price term unfair, agrmnt was for freezer for $1439.69 after credit charges, yet max retail price was $300 Proc. UnCon Not highly focused on, but merchants preying on customers w/ high pressure sales tactics Franchise Agreements Term at issue is termination clause Shell Oil Case Substantive 10 day notice for termination Procedural gross disparity in bargain power Contra Zapathas v. Dairy Mart Substantive Not uncon, had 90 day notice for term Procedural Not procedural, was dickered term. Graham v. Scissor Tail Substantive Arbitration mandated, and appointed by essentially opposing side. Procedural Oppression - to book performer, required to use Unions contract Armendariz v. Foundation Health Substantive Arbitration clause, no modicum of bilaterality Procedural Employment Ks adhesive, no bargaining power

Steve Udick Contracts II Prof. Rogers Spring 2010

Defenses to Enforcement based on bargain and performance: Unfairness, Standard form/Adhesive Contracts, Unconscionability, Good Faith, and Public Policy
Note: Still underlying these defenses is Freedom of Contract and that existence, not adequacy of consideration is important. But some exceptions, especially in equity

Performing in Good Faith

Common Law and UCC both require good faith R2d 205: Every contract imposes on each party a duty of good faith and fair dealing in its performance and its enforcement UCC 1-304: Every K or duty within UCC imposes a good faith effort in its performance and enforcement In UCC Good faith not independent cause of action, must be tied to something Good Faith in Common Law: Acting with superior knowledge, still good faith | Sharp Dealing is not good faith. Is matter of fact for fact nder Market Street v. Frey pg. 42 Contract Can Dene good faith standard Bloor v. Falstaff Good faith: Reasonable commercial Standard, less exacting than best efforts Best efforts: More exacting standards than good faith. Measured by focusing on performance of targeted party (subjective) Best Efforts implied in UCC where Exclusive Dealing (when good faith is implied, not expressed) Best Efforts also implied on Percentage leases, unless there is a minimum rent set. Reason is leases are exclusive dealings, so may also be implied under common law Good Faith in Termination Often in at-will agreements, notice is implied for termination, and serves as the bargained-for detriment. Notice must be reasonable: I.e. usually time to recoup reasonable outlay in reliance. Notice need not be written, if is actual Lockwell v. US Shoes If contract expresses K of indenite duration, then no notice is required, not terminable at will: I.e. where language has to heirs, executors and assigns Listerine Case Measure of Damages for failure of good faith notice is reliance. Since at will, would likely be a R2d 90 Promissory Estoppel remedy. If contract expressly states terminable w/o liability to the other, then likely that is given effect and no 90 recover. Illegal Contracts Contracts in violation of specic laws: Courts look to code to nd clear legislative expression of policy. R2d 178 Balancing Test For Void As Against Public Policy promise or term unenforceable on public policy if legislation says so or in interest of its enforcement is clearly outweighed in circumstances by public policy against enforcement of such terms In weighing interests in enforcement of term: (a) parties justied expectation, (b) any forfeiture result if enforcement denied, (c) special public interest in enforcement In weighing public policy against enforcement: (a) strength of policy as manifested by legislation or judicial decisions, (b) likelihood refusal to enforce would further that policy, (c) seriousness of misconduct involved and extent it is deliberate, (d) directness of connection between misconduct and that term Burden to show Ks enforcement is violation of settled public policy of state, or injurious to morals of its people on defendant Bovard v. American Horse Bong Case Unclean Hands: He who comes in equity must come with hands clear But, misconduct must bear relations to subject matter of suit In Pari Delicto: In circumstances of equal fault, position of is more compelling Whether the enforcement of K would make courts party to carrying out what is forbidden by law XLO Concrete v. Rivergate The Club Case Equities of both parties important: Forfeiture, relative culpability, bargaining power, and knowledge of parties considered in assessing possibility of unjust enrichment. Inducing ofcial action: Inducing by persuasion OK, by payment is not. Commercial Bribery: K procured by illegal means, likely unenforceable as PP Sirken v. 14th St. Stores K formed legally, but performed illegally probably not against PP, unless nature essentially required illegal performance. McConnell v. Commonweath Pictures Licensing Laws: LIcense for health/safety - unenforce | for revenue - enforceable Judicially Created Public Policy Generally: Court detect or derive policy from judicial or social norms, or refuse to do so on grounds that better left for legislature Restraint of Trade Covenants not to Compete Hopper v. All Pet Animal Clinic R2d 186-187: Covenant not to compete is only valid if restraint is (1) no greater than required for protection of employer, (2) does not impose undue hardship on employee, and (3) is not injurious to the public. Enforcement Approaches Rule of Reason: Absent bad faith of employer, court will enforce to extent they are reasonably necessary to protect employers interest Blue Pen: Unreasonable restriction against competition can be modied and enforced to extent that grammatically meaningful, reasonable restriction remains after words making the restriction are stricken All or nothing: Either reasonable and enforceable in total, or not at all Termination of At-Will Existence of Hobsons Choice may be outcome determinative Underlying issue is that to imply any general standard for termination messes with the generally favored and protected at-will employment If choice is only between reporting and violating statute then claim for wrongful termination may exist. Hobsons Choice Sheets v. Teddy Frosted Foods If up against judicial policy instead of statute, case is weaker No wrongful termination for lawyer, b/c effect on atty-client relationship. True in both a general counsel and rm situation. PR rules eliminate Hobsons Choice. Attorney must report conduct. Balla v. Gambro Family Issues Courts wary to step into familial issues Pre-nup: Parties treated equally; must be full fair disclosure of nancial position, need not be exact, though. Simeone v. Simeone Best interest of 3rd party to litigation (child) may trump a lot of other policies, such as freedom of contract. Surrogacy selling void against PP In the Matter of Baby M

Void as Against Public Policy

Steve Udick Contracts II Prof. Rogers Spring 2010

Mutual Mistake, Impracticability/Impossibility, and Frustration of Purpose

Mutual Mistake
Mutual Mistake: Both parties are mistaken to some basic assumption underlying the contract. For mutual mistake to be effective, must overcome pacta sunt servanda Agreements must be observed R2d 152 Mutual Mistake Where a mistake of both parties at time of contract was made as to basic assumption on which K was made mas a material effect on the agreed exchanges of performances, the contract is voidable by adversely affected party unless he bears risk of mistake under 154. (2) In determining whether mistake has material effect on the agreed exchange of performances, account is taken any relief by way of reformation, restitution or otherwise. R2d 154 Allocation of Risk of Mistake A party bears the risk of mistake when the risk is allocated to him by agreement of parties; or he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufcient. Courts will often nd assumption of risk by a party, thus rescission by mutual mistake very difcult Because of pacta sunt servanda, mere undue hardships are not sufcient for mutual mistake. Stees v. Leonard Collapsing building case. Remedy for mutual mistake is rescission. Each party should be granted restitution. (i.e. benets conferred either way such as improvements or fair rental value while occupying land, as well as payments) Renner v. Kehl jojoba case But, if one party gets more than bargained for, may not be mutual mistake (i.e. Renner, but nd water and oil) Mutual Mistake in Sale of Goods No Art 2 provision, so common law applies Conscious ignorance bars mutual mistake Wood v. Boynton (Diamond Case) But, barren cow substantially different than breeding one Sherwood v. Walker Rose 2d of Aberlone Both cases above, difference is at most who bore the risk

Impossibility, Commercial Impracticability

Impossibility: Where performance depends on the existence of a given thing, and such existence was assumed as basis of the agreement, performance is excused to the extent that the thing ceases to exist or turns out to be nonexistent Courts may use constructive conditions to excuse performance if there is impossibility. Taylor v. Caldwell Theatre Burnt Down Performing by more than ordinary means may be impossibility depending. Mineral Park v. Howard Gravel under water Impracticability: A thing is impossible in legal contemplation when it is not practicable; and a thing in impracticable when it can only be done at an excessive and unreasonable cost. Existing impracticability impracticable because of conditions existing at time of K, but without parties knowledge Mineral Park v. Howard is example Supervening Impracticability impracticable because of conditions after K is formed. Force Majeure Clause: Given effect unless too broad Commercial Impracticability Test UCC 2-615 Transatlantic v. US Suez case First, must be a contingency something unexpected by both parties must have occurred Second Risk of the unexpected occurrence must not have been allocated either by agreement or custom Foreseeability may impact risk allocation, but isnt dispositive Transatlantic v. US Third Occurrence of the contingency must have rendered performance commercially impracticable Looking for costs incredibly disproportionate 34k additional cost on 300k Not C/I Transatlantic Not going to get C/I on loss of prots Eastern v. Gulf Note: Court must nd all three | This is application of UCC as persuasive authority Casualty to Goods Avoidance by buyer only when risk has not passed Subjective v. Objective Impracticability: Objective - thing cannot be done (where C/I usually allowed) Subjective - I cannot do the thing (i.e. pay)(C/I likely not allowed) Stranded Sellers Selland v. Kind Contracts specied source for middle man Canadian Intl Maybe risk assumed that output by single producer would be consistent, or maybe perishable goods. If K is personal death or illness may by C/I Buccini v. Paterno

Frustration of Purpose
Frustration of Purpose: Similar to C/I, but the performance is still possible, but happening of contingency makes performance commercially valueless. Where essential purpose of K is frustrated I.e. renting at to watch coronation, where buyer and seller were aware coronation was why rental occurred, and King got sick, no coronation on that date. Krell v. Henry Not mutual mistake, because mutual mistake must have fundamental misunderstand as to material facts before and at formation

Test: Same as C/I, mostly Step 1: Was there a contingency something unexpected by both parties Step 2: Risk not allocated or assumed by one party Step 3: Occurrence of condition renders performance commercially valueless UCC 2-615 Of no more avail to buyer than common law Govt. restrictions may not be frustration, if seller can divert or ship elsewhere Swift Canadian v. Banet Chase Precast v. Paonessa: K to make concrete barriers Contingency Public protests against barriers Risk Allocation Both parties had dealt with govt., thus were aware of clause allowing deletion of terms/reduction of quantity Frustration: Chase could still make, and Paonessa could still receive the barriers, but Paonessa had nothing to do with them because K for them was gone. Thus, frustration of purpose.

Steve Udick Contracts II Prof. Rogers Spring 2010

Determining Contractual Obligations: What the K requires

Whether parol evidence admissible to show prior or contemporaneous agreement are part of written contract. Collateral vs. Part of K: Whether oral agreement in question relate to same subject matter, so interrelated that would be executed at same time in same K, then scope of subsidiary must be taken to be covered by the writing. Gianni v. R. Russell & Co Matter of Law Exceptions PER is strict, Court may nd way to get around. Some courts, no such thing as wholly integrated and that oral evidence should be allowed, unless fact nder would be mislead. Masterson v. Sine PER does not bar evidence to establish: (1) whether writing is integrated, (2) whether integrated writing is completely or partially integrated, (3) meaning of writing (whether or not integrated), (4) illegality, fraud, duress, mistake, lack of consideration, or other invalidating clause, or (5) ground for granting or denying rescission, reformation, specic performance, or other remedy R2d 214 PER and Conditions PER does not bar evidence to show proof of conditions Such K is not integrated w/r/t that condition. R2d 217 Restatement Approach R2d 209, 210, 215, 216 Is K Integrated - is a nal expression of agreement made in writing? No PER not apply No Partially Integrated: Contradict-No, additional, yes. R2d 209, 215 Yes PER bars contradictory and additional terms R2d 216 Yes Is K wholly Integrated adopted as complete and exclusive of terms? Merger Clause? Defeating/Avoiding PER If you cant get evidence in via PER, attempt Mutual Mistake, but it is difcult. Bollinger v. Central PA Quarry Stripping & Construction Also, check to see if collateral agreement, backed by new or different consideration This is not excluded by PER. Look at Gianni rule Try to make issue interpretive. Merger Clause: Usually effective, and is clause attempting to show K is wholly integrated UCC Notes: COD, COP, UOT ALWAYS comes in, even if K is wholly integrated. Reading K in context of those. No-Oral Modication Clauses Agreements after K is made, not PER technically Common Law likely not enforce UCC 2-209(2) Signed agreement which excludes rescission or modication except by signed writing cannot otherwise be rescinded, but as except by merchants such requirement on form supplied by merchant must be separately signed by other party - Seems to give effect to NOM But: (4) Attempt at rescission or modication may not satisfy (2) [or SOF], it may operate as waiver. So UCC likely as liberal as C/L Interplay between PER and PED: If the additional agreement is prior to or contemporaneous with, then PER, but if additional agreement is after formation, then PED/Rescission, Modication apply

Parol Evidence Rule

UCC Approach UCC 2-202 Terms with respect to which the conrmatory memo of parties agree or which are otherwise set forth in writing intended by parties as nal expression of their agreement w/ r/t such terms are included therein may not be contradicted by evidence of any prior oral agreement or of a contemporaneous oral agreement but may be explained or supplemented (a) By course of dealing, usage of trade, or course of performance (b) by evidence of consistent additional terms, unless court nds writing to be a complete and exclusive statement of terms of agreement

Contract Interpretation

Interpreting the Contract Plain Meaning Rule Step 1: Whether the language in the written agreement, with respect to the dispute in question, admits of only one plausible meaning, or if it is ambiguous. If not ambiguous, extrinsic evidence cannot come in. Diff. Rules on determining whether there is ambiguity. 4 Corners Rule (Majority): Look to the 4 corners of the document only to determine if the language is ambiguous. Silence is not ambiguity Greeneld v. Philles Records Reasonable Susceptibility (CA Rule): Not about whether is plain or unambiguous on face, but if meaning is reasonably susceptible to. Can use evidence to show there is ambiguity. PG&E v. GW Thomas Can use evidence to create ambiguity. Trident v. Conn. Gen. Life Step 2: If language is ambiguous, extrinsic evidence as to its meaning will be admitted to inform courts determination of the K language Interpretation is matter of law WWW Assoc. v. Gianconteire Courts want to control (guard against jury inuence Predictability Court interpretation promotes predictability, efciency in K law

Interpreting In Commercial Setting Under UCC, Seems no ambiguity needed to bring in extrinsic evidence to interpret Express Terms > Course of Performance > Course of Dealing > Usage of Trade UCC 2-202(a): COP, COD, UOT always allowed in to explain Even if unambiguous on face. Hurst v. W. J. Lake (Horse Meat Scraps 50% case) But: Party seeking to interpret term narrower than everyday use bears burden to show, AND when party is new to trade, and other party claiming UOT as method of interpretation, that party must show new partys acceptance of the trade term in use. Frigaliment v. BNS Chicken Case General Notes And Policy Ambiguous v. Vague: Ambiguity: susceptible to 2 different meanings. Vague: Not sure how applies in marginal situations More Precision needed in Formation than performance Performance: agreed to be bound | Formation: Freedom from K. intent at issue contra proferentem Interpreting meaning as against drafter (ambiguity of vague favored against drafter)

Steve Udick Contracts II Prof. Rogers Spring 2010

Supplementing or Qualifying the Agreement

Extrinsic Evidence to Supplement or Qualify UCC 1-303: Course of Performance, Course of Dealing, Usage of Trade Course of Performance: sequence of conduct btwn parties to transaction that exists if: (1) agrmt of parties w/r/t transaction involves repeated occasions for performance by parties and (2) other party, with knowledge of nature of performance and opportunity to object to it, accepts or acquiesces in performance w/out objection. Course of Dealing: sequence of conduct concerning previous transactions btwn parties to particular transaction fairly regarded as establishing common basis for understanding for interpreting their expressions and other conduct Usage of Trade: 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 w/r/t the transaction in question. Existence and Scope must be proved as facts. If established that usage is embodies in trade code or similar record, interpretation of such is matter of law. Can imply either as established member of the trade, or party know or should have known of trade usage. Nanakuli v. Rock Waiver: Subject to 2-209, course of performance is relevant to show waiver or modication of any term inconsistent with course of performance In COP or Waiver, waiver is preferred, but only where acts in question are ambiguous. Nanakuli v. Rock COP, COD, UOT will supplement unless cannot be reasonably construed as consistent with express terms. Nanakuli v. Rock, UCC 2-202 Merger Clause does not effect, this is about interpretation. Columbia v. Royster Under UCC, assumed that parties take into account COD and UOT in K, thus becoming elements of the meaning of the words. Only when K itself expressly negates use of COD & UOT that this assumption is negated. COP also is best indication of what parties intended K to mean. Columbia v. Royster Common law Gap llers, Warranties, & Mandatory Terms Two approaches: Subjective v. Objective Subjective: Filling gap by what common expectation was. If not contemplated or cant ascertain, court will look to what question is what would the parties have done Objective: Fair and Reasonable Man Standard R2d 204. Note: Law and economics beginning to inuence Also, implies Good Faith

Article 2 Gap Fillers Gap llers, Warranties, & Mandatory Terms Price: Reasonable price according to market at the time Good Faith: Honesty in fact in conduct or transaction 1-201(b)(19) Supplied, mandatory: Cant be negotiated away, but can negotiate what good faith requires. Warranties Implied Warranty of Merchantability UCC 2-314(2) Seller Must Be Merchant Two steps for breach: Was good used for ordinary purpose for which the goods are used ( has burden to show) Was good t for purpose vel non Must be reasonable expectation of ordinary user, not subjective expectation. Expert Testimony may be required. has burden to show. Koken v. Black & Veatch Implied Warranty of Fitness for Particular Purpose UCC 2-315 Seller must have reason to know of use for which goods are purchased and that the buyer relies on sellers expertise in supplying proper product, and that the seller knows buyer is relying on it. Exclusion of Implied Warranties UCC 2-316 as-is is term of art for no implied warranties if conspicuous Otherwise, To exclude merchantability, must generally use word merchantability and make it conspicuous. To exclude tness particular purpose, something like no warranties other than in this document is sufcient, and is conspicuous and in writing. Conspicuous if in contrast in print or color So. Car. E&G v. Combustion Express Warranties UCC 2-313 Afrmation of fact or promise relating to goods, and becomes basis of bargain creates express warranty to afrmation or promise. Same with description of goods [subpart b] and sample or model [subpart c] Words warranty or guarantee not required, nor is intent by seller Sales pufng is not a warranty UCC 2-313(2) Exclusions of Warranties may be subject to public policy considerations, especially on adhesive Ks. Henningsen v. Bloomeld Motors Note: Warranties can be dispositive to show breach of performance, thus look for implied and expressed warranties.

Objective Interpretation And Limits

Patent v. Latent ambiguities: Patent: An ambiguity that parties knew or should have known was ambiguous. Latent: Not aware term in question is ambiguous R2d 201 Whose Meaning Prevails When K is not integrated, standard for interpretation is meaning that party making manifestation should reasonably expect other party to give it (standard of reasonable expectation Exceptions: Where there is an ambiguity of a material term: If both parties attach same meaning, meaning holds and contract exists Patent: Where one party has reason to know of ambiguity and other does not, so it will bear meaning given to it be latter, that is the party who is without fault In patent ambiguity, extremely hard time for to win, as will bear burden. Also, has burden on usage of trade. Colfax v. Local No. 458-3M Printer case Latent: If both parties attach different meanings, and neither is aware of the others meaning, there is lack of mutual assent and no contract Especially if latent ambiguity Oswald v. Allen (Swiss Coin Case), Rafes v. Wichelhaus Peerless. If not quite this case, also look for mutual mistake as alternative If no contract on lack of mutual assent, then contract is rescinded, and proceed to look for unjust enrichment by either party Set parties back to before K. Look for this especially in entirely oral agreements

Steve Udick Contracts II Prof. Rogers Spring 2010

Performance and Breach

Express Conditions R2d 224 A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract is due. Express conditions construed strictly Luttinger v. Rosen Mort. clause Non-occurrence of condition precedent entitles party to rescind or treat contractual duties as discharged. Internatio-Rotterdam v. River Rice Good Faith required to attempt to meet condition, but law does not require performance of a futile act (i.e. searching for a lender where known wouldnt nd one, based on expertise). Luttinger v. Rosen Interpretation Issues: Time of essence: If time not of essence, performance after specied date may still be valid performance, satisfying condition precedent. Internatio-Rotterdam v. River Rice Preferences: Where ambiguous, courts prefer to interpret as duty over condition. Standard Interpretation rules apply Where forfeiture really high, courts more unwilling to nd condition, rather nd duty Maybe unless wholly w/in obligees control or risk has been allocated R2d 227 Preferences w/r/t Conditions Remember to consider whether a party has unjustly enriched the other party, as that relates to forfeiture (Painting a painting vs. a barn) Gibson v. Cranage Third Party Satisfactions: Usual test is good faith, as opposed to reasonable satisfaction Three types of implied conditions (covenants) Kingston v. Preston Mutual & independent either party may recover damages from other for injury if breach by other, and no excuse to allege breach by other. Conditional & dependent In which performance of one depends on prior performance of another, and therefore, until prior condition is performed, other party is not liable to an actin on his covenant. Mutual and Simultaneous If one party ready and offered to perform, and other neglected to or refused, he who was ready and offered has fullled, and may maintain action for default of the other Also tender in UCC: offer to perform coupled with readiness. Default Rule: Constructive condition of Substantial Performance required before duty to pay arises. Stewart v. Newbury [not divisible, here] Perfect Tender Rule: Unless goods sold conform completely, buyer has right to reject. [UCC gives seller outs such as ability to cure] See UCC 2-601, 608, 612, 508 Mitigating Doctrines Waiver: Something in which a party whose duty is conditional may decide to perform, even though condition is not met Intentional relinquishment of a known right IF waived a condition precedent, duty may arise But, waiver may be retracted, but if there is reliance on waiver, right to retract is estopped. See R2d 84(2), UCC 2-209(5) Election: Where due to non-occurrence of condition precedent, a party can choose to discharge duties disregarding non-occurrence and treating duty as unconditional, that party is bound to make their performance. (after non-occurrence, unlike waiver) Anti-waiver clause: May contract that no waivers occur. Course of performance may evidence waiver McKenna v. Vernon Parol evidence of condition precedent may come in if condition is precedent to entire written agreement, or if partially integrated and not contradictory [?] Hicks v. Bush [not much law from this case] Use of substantial performance not likely.

Express Conditions

Constructive Conditions

More Mitigation: If substantial performance claim fails or not applicable Restitution: Breaching party sues for unjust enrichment. Usually where there is forfeiture Damages: A - (B+C), A=QM amount, b=amt paid to , C=damage from breach. Britton v. Turner, Kirkland v. Archbold Restitution in Supps: R2d 374, UCC 2-718(2)

Mitigating Doctrines Substantial Performance: Generally, whether performance has met the essential purpose of the contract. Plante v. Jacobs Is a doctrine that attempts to mitigate forfeiture Jacobs & Young v. Kent Substantial performance qualies as meeting condition of performance. Except, may be setoff due for less then full performance Cost to Repair Setoff is cost to repair, unless economic waste Diminution if value Alternative, if cost to repair is economically wasteful. Plante v. Jacobs. Substantial Performance may not apply to very expressed or essential terms. Also, substantial performance usually in construction cases b/c no specic performance remedy available. Divisibility: If part to be performed by one party consists of several and distinct items, and price to be paid for each is either (1) apportioned to each item to be performed, or (2) is left to be implied by law, such contract generally severable. But if consideration to be paid is single and entire, contract must be held to be entire, though subject may consist of several distinct and separate terms. Gill v. Johnstown Lumber As mitigating, ability to fully or merely substantially perform based on facts Construction Ks default not divisible. [but can set periodic payments]

Steve Udick Contracts II Prof. Rogers Spring 2010

Suspending Performance and Terminating Contract, Anticipatory Repudiation

Material Breach: R2d 241: In determining whether a failure to render or to offer performance is material, the following conditions are signicant extent to which injured party will be deprived of benet which he reasonably expected extent to which injured party can be adequately compensated for part of that benet of which he will be deprived extent to which party failing to perform or to offer to perform will suffer forfeiture likelihood that party failing to perform or to offer to perform will cure his failure, taking into account all circumstances including any reasonable assurances extent to which behavior of party failing to perform or to offer to perform comports with standards of good faith and fair dealing Suspending and Terminating Performance Test (R2d apprch) First: Whether there is uncured breach by other party. Second: Whether it is a breach of duty of performance that was exchanged under an exchange of promises (as opposed to duty under a promise on which injured partys promise does not depend) It is presumed that this is the case, unless a contrary intention is clearly manifested. Comment a, R2d 232 Did the breach go to a performance that was to be rendered at earlier time than that of the aggrieved party? R2d 237 Is the breach material R2d 241 If no, then breach is a partial breach, and aggrieved party must continue performance. Gives right to damages, but not suspension or termination If yes, then aggrieved party has choice Treat breach as partial breach and continue performance, later sue for damages Treat breach as material breach, and stop performing fraught with peril A party may have to give breaching party opportunity to cure, if circumstances appropriate [i.e. not time of essence, or otherwise expressly negated] 241 Right to Cure exists in both UCC and CL With total breach, it discharges injured partys remaining duties and it gives rise to claim for damages for total breach. Hinderance and Prevention There is a good faith duty not to interfere, and good faith duty to cooperate. If one party makes performance by other party impossible, non-performance is justied. United States v. Peck But, mere difculty of performance will not excuse breach. Prevention justies non-performance, hinderance doesnt. Iron Trade Product v. Wilkoff Rails case Nature of motive may not be relevant, but still under good faith and fair dealing - so intentional or malicious hinderance may be breach. Evidence to Prove Material Breach Parties may bring in evidence to prove existence of material breach, even if new claims being made, beyond the reason performance was terminated at time of termination BUT if there is reliance on reasons for terminating/suspending, then other claims estopped. New England Structures v. Loranger Anticipatory Repudiation: The afrmative statement that a party will not perform made prior to the time for commencement of performance Gives right for the non-repudiating party to bring lawsuit immediately, even prior to date commencement of performance was to occur. Hochster v. De La Tour But, duty to mitigate damages will exist Exception: Installment contracts, there is no anticipatory repudiation to each [true for all divisible?] But, acceleration clause can counter this. For Non-repudiating party to recover, must show that constructive condition that was ready, willing, and able to perform. Kanavos v. Hancock Burden is on to show he was ready, willing and able to perform Repudiation must be unequivocal McCloskey v. Minweld

Steve Udick Contracts II Prof. Rogers Spring 2010