Contracts II- Kelso

Dispute Resolution: Arbitration Federal Statute

Federal Arbitration Act, 9 U.S.C. § 10 May only be overturned if: §§ a, b, c Procedural malfeasance (corruption, fraud, misconduct, evident partiality) § d Substantive: "Manifest disregard of law," "Exceeded powers"

Damages Market Price (UCC)

UCC 2-713 Place for tender + Time for tender. I.e. The time when tender was supposed to take place, and then note the market price for that time and place.

Duty of Good Faith by Statute

UCC § 1-304 creates an obligation of good faith for performance and enforcement. UCC § 2-306 Duty of good faith for output contracts (no amount unreasonably disproportionate to stated estimate or normally expected amount).

Perfect Tender Rule

UCC § 2-601: Exceptions- 1. Performance Exceptions 2. Breach and Repudiation Exceptions

Assignment Delegation Assigning the Contract

"Assign" rights "Delegate" duties. Assigning a contract presumes that there was both assignment and delegation.

Damages Anticipatory Repudiation "Learns of Repudiation" UCC 2-723 (1)

1) Party actually learns through notification 2) Majority: a commercially reasonable time after one learns of repudiation (to give party time to consider options/alternatives) (5th Circuit [Texas] Cosden Oil case) 3) one doesn't "know" until repudiation occurs—or time of trial (Reliance Cooperage case in book—old case)

Duty of Good Faith under the UCC Entails:

1) honesty in fact (subjective focus on intent) AND 2) reasonable commercial standards of fair dealing (objective evidence of industry standard)

Parol Evidence Merger/Integration Clause:

1. A contractual provision stating that the contract represents the parties' complete and final agreement AND 2. It supersedes all informal understandings and oral agreements relating to the subject matter of the contract.

Damages Limits on Liability Liquidated Damage Clause

1. Active Damages Difficult to Estimate AND 2. Reasonable forecast (at time of K) of just compensation a. Traditional: Anticipated damages b. Modern: Anticipated or Actual Damages (UCC 2-718 adopts this)

Damages Liquidated Damage Clause

1. Active Damages Difficult to Estimate AND 2. Reasonable forecast (at time of K) of just compensation a. Traditional: Anticipated damages b. Modern: Anticipated or Actual Damages (UCC 2-718 adopts this)

Third Party Beneficiary Construction Cases

1. Anchor tenants almost always TPB. E.g. K-mart was TPB of contract between developer and construction comany. 2. Owner of property is possibly the TPB, but vast majority say no.

Anticipatory Repudiation What does not qualify?

1. Anticipating difficulty or reasonable concern regarding performance is not sufficient. (Request assurance of due performance!) 2. IF you wait until time of breach, the other party has the right to retract the repudiation. 3. Being jerked around ≠ anticipatory repudiation

Assignment Delegation Fraudulent Assignment

1. Assignor knew at K formation that non-assigning party was insolvent 2. Assignor assigns to multiple parties for the same collateral.

Parol Evidence Evidence Excluded (Disjunctive)

1. Complete Integration? Yes exclude. 2. OR Contradict final writing? Yes exclude. 3. OR Normally/naturally included in writing? Yes exclude.

Interpretation Hierarchy of Contract Interpretation Listed in Order of Use

1. Contract itself 2. Course of performance (in this K) 3. Course of dealing (earlier Ks) 4. Usage of Trade—industry/custom standard of interpretation

Damages Seller/Payee Damages for Breach

1. Cost to repair 2. Market value

Interpretation Resolving Problems

1. Form documents may create conflicts 2. Courts are more willing to reach agreement after performance has begun.

Assignment Delegation Statutory

1. Future Wages 2. Claims against the U.S. 3. Tort structured settlements (Newer. Some states passed laws already. In 2002, Fed gov't imposed a 40% tax on any assignee of structured settlement rights unless they get preapproval from a court on grounds that it was in the best interest of the torts victim.)

Identifiable Goods UCC § 2-613

1. If, in the manufacture of goods, the loss is total, then K is avoided. 2. If the loss is partial or goods have deteriorated so as not to conform to K, then buyer may inspect and has right to decide whether to accept goods or void K. E.g. Goods with specified serial numbers or K with farmer, K assumes that it is produce grown on that land (and therefore identifiable).

Duty of Good Faith Created

1. Implied in law. E.g. Implied promise (duty) to perform in good faith. 2. Implied in fact. Implied by parties' statements & behavior. 3. By Statute. E.g. UCC § 1-304. 4. Special cases (fiduciary, confidential relationship)

Constructive Conditions

1. Independent 2. Dependent Precedent obligation: A relies on B, so A cannot perform until B does so. E.g. Work, then pay. Concurrent obligation: A and B must perform simultaneously. E.g. Selling a home—all documents signed simultaneously. Substantive performance—condition of work may be met (usually a percentage based on progress in construction, called a progress payment clause). *Modern courts look at preceding and concurrent conditions.

Factors for Determining Payment after Breach

1. Innocent or intentional breach? 2. Substantial performance? 3. Cost to repair v. diminished value

Damages Cost to repair v. Market value award

1. Innocent v. willful breach 2. Minor v. material breach 3. Cost to repair v. Market value (Grossly disproportionate?)

Damages Limitation of Remedy Clause UCC 2-719 (Ayres pp 1026-27)-

1. Liquidated Damages 2. Repair or Replace: (In a reasonable time) Does it fail its essential purpose? 3. Limitation on Consequential Damages except when: a. Unconscionable OR b. Personal injury in consumer goods is prima facie unconscionable

Dispute Resolution

1. Litigation 2. Negotiated Settlement 3. Mediation 4. Arbitration 5. Hybrid methods

Promise, Representation, Warranty Notes

1. May add "limitation of remedy" clause (UCC§2-719), which is usually repair/replace but no damages. 2. Majority of states extends warranty to anyone who would have exposure (family members and guests in home). 3. Does the warranty follow the product when it is sold to a third party? Most states say only direct contractual relationship get the warranty. TX cases say warranty should follow product regardless.

Exception/Excuse for a Promise, Representation, or Warranty

1. Modification (removing condition, with both parties agreeing). BUT Modern court or UCC may allow modification w/out consideration. 2. Waiver (one party waives right): a.)Election (requires action), b.) Estoppel, c.)"Pure waiver"—i.e. say they will not rely before performance, and you okay it. UCC §2-209 retract waiver—may not retract if estoppel, but pure waiver allowed. Requires reasonable Notice. 3. Impracticability 4. Excused by court (public policy) avoids forfeiture. E.g. Requiring clear evidence of marks on all doors—not required under public policy.

Specific Relief Plaintiff must show:

1. Money damages are inadequate 2. Specific relief is warranted

Anticipatory Repudiation What qualifies?

1. Must be a clear, unequivocal statement that a breach will occur (i.e. will not peform) AND 2. must be material.

Damages Actual Damages

1. Must be foreseeable (under Contract Law meaning) 2. May not be speculative, and, therefore, 3. Must prove amounts with reasonable certainty.

Damages Expectation Damages Resale of good

1. Must use good faith. 2. Unreasonable failure to resell goods may be taken into account. 3. Court may presume a reasonable resale price.

Impracticability Doctrine: Nonoccurrence Foreseeability bars Non-occurrence claim-

1. No impracticability when occurrence is foreseeable to parties that problem might occur (even 5%). Reason: a clear risk allocation should have been put in the K, and parties should not be allowed out. 2. The greater the foreseeability, the greater the likelihood, the stronger the evidence against it being an assumption of non-occurrence. Evidence is not determinative-- however. *Kelso puts it around 30% threshold but says 5% might even not hold up.* 3. The greater the foreseeability, the more courts should say that a party should have protected itself in the K. (Implied or allocated by the court.)

Anticipatory Repudiation Assurance of Due Performance "Adequate Assurance"

1. No right to the precise assurance you want. Court decides if it was adequate. 2. Failure to make adequate progress clauses—a little different than simple adequate assurance, but made in the same spirit. May bypass writing requirement and really create whatever stipulations the offeror (in this case the government) wants. (Much like specialized force majeure clauses or any other specially created clause.)

Assignment Delegation Waiver against defense

1. Non-assigning party may sue assigning party (assignor) for nonperformance/breach, BUT 2. If original K allows assignment and has a waiver against defense, then non-assigning party must still pay assignee. 3. Waiver forbidden in consumer credit K under Federal Trade Commission rule.

Assignment Delegation Assignee's Rights

1. Once adequate notice is given to the proper party, the performing party must render performance to the assignee. 2. Until a court rules that the assignment clause is valid, it is "presumptively valid," and party must render performance. 3. Assignee must approve any modification in K because modification requires assent of all parties with a legal interest in the K. Note: Assignee may sue if they do, but may not have any damages.

Parol Evidence Evidence Included (Conjunctive)

1. Partial Integration or Collateral Agreement (Same thing under Restatement.) 2. AND Supplement or complement writing. (Topic covered in the writing—no express contradiction) 3. AND Not normally/naturally included (UCC § 2-202 "certainly" included--lower standard)

Promise, Representation, Warranty: Warranty & Disclaimers

1. Promise or warranty not met—Sue for breach 2. Express Warranty: UCC §2-313(1-2) A. Affirmation of fact, even informal B. Part of the basis of the bargain 3. Implied Warranty UCC §2-312: Passing of title UCC §2-314: Merchantability (by merchant) UCC §2-315: Fitness for particular purpose (may trump puffing) 4. Disclaimer UCC §2-316(2-3): Language must be conspicuous must mention merchantability (may be oral). Disclaimer of fitness must be in writing. "As is" disclaims all implied warranties. IF A DISCLAIMER AND EXPRESS WARRANTY BOTH EXIST, THE WARRANTY APPLIES.

Third Party Beneficiary Four Stances

1. Promisee must intend to benefit the 3rd party. E.g. A intends benefit to C. 2. Promissor must understand that promissee intends to benefit the third party. E.g. B understands A intends to benefit C. 3. Promisor must intend to benefit the third party. E.g. B's performance directly intends to benefit C. 4. Both promisor and promisee itend to benefit the third party. E.g. Both A&B intend to benefit C.

Assignment Delegation Exclusive Dealing

1. Remember: Held to best effort rather than good faith. 2. Party may not assign rights to a competitor, as it materially alters the K. 3. Personal services K that depends on skills and talents of individual performing K, then presumption that assignment materially alters K.

Substantial Frustration of Purpose (Pointlessness) Remedy

1. Rescission + Restituion 2. Reformation (Rare)

Parol Evidence Exceptions to Parol Evidence Rule:

1. Separate Contract 2. Fraud, Mutual Mistake, Accident, or Duress (Defenses) 3. Deficiencies in the Contract (No Contract) 4. Contract Interpretation

Divisible & Separate Contracts: Factors Analyzing Separate Ks

1. Separate consideration for different promises 2. Promises that are related, part of the bargain, or one is the ultimate objective of the rest are usually dependent and non-severable. 3. Form of agreement or agreements. Separate documents may indicate separate Ks. 4. Party's intent. The ultimate guide, but consequences of the finding will be taken into account by the court.

Divisible and Separate Contracts Divisible & Separate Ks

1. Separate provisions 2. Separate consideration 3. One project: Different pieces steps of one project, or are they actually separate projects? UCC §2-307: (p. 791 Note 3) Presumption is that all goods are part of the same K. Exception: installment K.

Assignment Delegation Assignment Valid Unless

1. Valid non-assignment clause 2. Barred by statute 3. Common law: Materially alters or substantially impairs the rights of non-assigning party NB: UCC same as common law.

Interpretation by Usage of Trade Usage of Trade—how people in the industry typically interpret the clause

1. Well-established 2. Other party knows or has reason to know of usage

Interpretation Neither Meaning Prevails RS 201

2 = Failure of mutual assent- Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party or (b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party. (3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

Damages Punitive Damages

3 times compensatory damages = Okay 4-9 times = Possibly unreasonable >10 times = Presumed unreasonable However, see balancing test--egregious acts may justify higher damages.

Specific Relief is Warranted 8 Factors: (Kelso Outline pp. 42

43)- FLIIPPED 1. Fairness/unfairness 2. Liquidate damages 3. Insecurity as to agreed exchange 4. Indefinite terms 5. Public interest/Public Policy 6. Personal services 7. Equitable Maxims 8. Difficulty of Court Supervision

Damages Liquidated Damage Clause: Construction

< 0.1% per diem = probably okay 0.1% - 1% = Gray area > 1% per day = may be a problem *Formula may prorate the amount based on smaller/shorter breaches versus longer/material breaches.

Damages "Off the Contract" Damages Restitution Calculation

Benefit conferred on other party 1. Reasonable value of work, OR 2. Change in market value to property

Parol Evidence Condition Precedent

A party may use parol evidence to establish a condition precedent (except in traditional states like TX) if the condition directly contradicts express writing. Under RS 2d §217b parol evidence still possible even then.

Interpretation Ambiguity

A word or phrase has two or more different meanings. 1. Term ambiguity: Term has two meanings. 2. Syntactical/Grammatical Structure ambiguity: Sentence is ambiguous. E.g. "disease of organs not common to both sexes"--May mean either disease or organs.

Interpretation Vagueness

A word or phrase which has a clear core meaning, but may or may not apply in marginal situations.

Interpretation of the Contract Itself

A. Intrinsic Evidence: Traditional cts prefer literal meaning & verbal maxims; modern cts willing to put greater weight on purpose & policy maxims. 1. Literal or Purpose 2. Verbal Maxims (RS §202) or Policy Maxims (RS §206) B. Extrinsic Evidence 1. Parol evidence (if admissible) 2. Background circumstances

Specific Relief: Money damages inadequate

A. Uniqueness of: 1. Goods 2. Land (Every plot of land is unique.) 3. Service

Verbal Maxims RS § 202 Ejusdem generis

Adjoining terms include those that are of the same genus (alike), which usually leads to restrictive interpretation. E.g. K to sell "cattle, hogs, and other animals" probably does not include family dog. It is not a farm animal--i.e. not the same "genus."

Impracticability Doctrine: Outside Circumstances Force majeure

An event or effect that can be neither anticipated nor controlled. Force majeure clause creates express allocation in the K that protects against unforeseeable events. E.g. Acts of god, strikes/lockouts, interruptions by gov't or court orders, war, riots, insurrections, partial or entire failure of supply/demand over which neither party has control (see Kaiser case).

Perfect Tender Rule UCC § 2-601

Any breach is material if tender is not rendered perfectly.- I.e. Performance not required, may cancel contract. Many exceptions because of harshness.

Parol Evidence Basics

Anything written or discussed before the final writing may be relevant (modern) VS. The idea that final written document is a complete integration of the agreement (traditional). Subsequent oral or written discussion is outside of the parol evidence rule (i.e. after K is formed).

Dispute Resolution: Arbitration

Arbitrator stands in the role of the judge, and both parties argue their sides. Nonbinding or binding Binding may only be thrown out for gross procedural violation or disregard for the law Nonbinding is nearly nonexistent now. Rules of evidence: much more lax arbitrator is a sophisticated trier of fact.

Third Party Beneficiary Attorneys

Attorney cases: TPB for will or trust? Courts split--TX = No, Oregon = Yes.

Specific Relief: Money damages inadequate

B. OR Other proper circumstances 1. Damages too uncertain to measure 2. Other equitable considerations a. Inability to cover (no viable alternative) b. Other

Bad Faith

Bad faith may be: Recapture a lost opportunity Sharp practice, such as arbitrarily delaying

Damages "Off the Contract" Damages Restitution Notes

Breaching party = lesser of the two. May always sue off the K for Restitution if K not fully performed! (Not estoppel/reliance in all jurisdictions.) If fully performed, locked into K (and regular damages).

Output Contracts Duty of Good Faith in Performance and Enforcement

Buy all of production v. requirement contract: all I need. Cannot reduce output because it has become unprofitable, cannot increase output unreasonably just because it is now profitable. Must be REASONABLY PROPORTIONATE to the expectation of the parties.

Perfect Tender Exception (Breach and Repudiation) UCC § 2-608 Acceptance

Buyer should be careful before accepting goods. Acceptance revoked only if: substantially impairs value if the goods were accepted on reasonable assumption of cure OR If acceptance was induced by difficulty of discovering defects or by seller's assurances. If reasonable time has passed, buyer is deemed to have accepted.

Impracticability Doctrine: Outside Circumstances Reopened Clause

Clause allowing parties to reopen negotiation for purposes of modification, arbitrator. May simply be an obligation to bargain in good faith should a difficulty arise. 1. International law: obligation for good faith negotiation throughout entire process. Reopener clause likely. 2. Circumstances may make performance more difficult during long term Ks. May define terms under which this may occur. 3. E.g. Material disadvantage to one party and material advantage to another party. OR Severe/substantial hardship on one party alone without advantage to the other party.

Impracticability Doctrine 4 Rules

Conjunctive Test (Difficult) 1. Performance Impractical AND 2. Non-occurrence—basic assumption of K AND 3. Not fault of party seeking relief AND 4. Party seeking relief does not bear risk of impracticability a. Express Allocation b. Implied Allocation c. Allocated by court See U.S. v. Wegematic (10-15% of loss profit does not make performance impracticable). NB: UCC § 2-615 uses basically same standard § 2-613 Identified goods--may reject even if partial loss.

Damages for Buyer or Payor Breach

Contract price - Resale price + Incidental Cost - Cost Avoided OR Contract price -- Market price + Incidental Cost -- Cost Avoided

Damages Cost to repair v. Market value award

Cost to repair is the starting point. 1 factor that is very strong may be sufficient to sway the court's decision.

Specific Relief Warranted: Personal Services

Courts are careful because it looks like forced servitude.

Parol Evidence Merger Clause Effect

Creates additional argument to exclude parol evidence—very powerful argument in a traditional court but possibly rebuttable in modern courts. (But irrelevant if there is a separate K.)

Damages Expectation Damages UCC Buyer/Payor Breach Formula

DAS = Contract price - Resale price of good + Incidental costs -- Cost avoided OR DAS = Contract Price - Market price + Incidental costs - Cost avoided

Damages Liquidated Damage Clause Notes

Damages for breach are specified in K. Generally enforceable if not unconscionable. Even without liquidated damage clause, sale of goods contracts, if buyer breaches, seller keeps "hassle fee" equal to $500 or 20% of K, whichever is less.

Damages Limitation on Damages

Damages limited to those that were foreseeable at time of contract creation. Theory: encourage parties to share information so they can assess liability and risk calculation as part of the contract.

Lost Volume Seller Definition U. C. C. § 2-708 (2)

Defining Elements: 1. Breach of K. 2. Resale of product is nearly equal to the K price. 3. Seller could have spend the time reselling product in making a new sale.

Damages Market Price (UCC) Exception: Anticipatory Repudiation "Learned of Repudiation"

Different courts hold that "learned of repudiation" means: 1) Party actually learns through notification (minority) 2) Majority: a commercially reasonable time after one learns of repudiation (to give party time to consider options/alternatives) (5th Circuit [Texas] Cosden Oil case) 3) One doesn't "know" until repudiation occurs—or time of trial (old case). Very small minority.

Impracticability Doctrine: Existing Impracticability

Elements for Recovery 1. Mutual mistake by both parties AND 2. was a basic assumption of the contract, AND 3. have a material affect on the agreed exchange, AND 4. Risk is not borne by party seeking relief.

Impracticability Doctrine: Existing Impracticability

Elements for Recovery Risk Allocation Determination 1. Explicit or implicit risk allocation in the K? 2. Mistake concerns a fact about which the party knew he had limited knowledge at time of K formation? OR 3. Risk allocated by courts: a. One party better able to procure insurance b. One party a repeat player better able to spread risk c. Other things being equal, buyer beware (caveat emptor)

Damages Market Price under UCC 2-713

Exception: UCC 2-723(1) (p. 920): Anticipatory Repudiation. Time for measurement is when party learns of repudiation.

Damages Market Price (UCC) Exception: Anticipatory Repudiation

Exception: UCC 2-723(1) Anticipatory Repudiation. Time for measurement is when party learns of repudiation. (Time cannot be calculated normally because it is in the future and will never happen.)

Best Effort in Exclusive Dealing Contracts

Exclusive dealing: granting exclusive rights and therefore total dependence on the efforts of the other party's performance of the K. Also in UCC 2-306(2). Best effort implied as a matter of law. May create disclaimer (but never for good faith).

Damages Expectation Damages

Expectation Damages = Had K been performed - where you ended up THEN, the court may add (often seen by courts as separate element) + Incidental Costs -- Cost avoided THEREFORE Expectation = Reliance losses + Expected profits

Dispute Resolution: Mediation

Facilitates negotiation and settlement between parties. Often mediation is mandated by the court, who wants to get the case off its docket. If there is a mediation clause, then mediation must be done. Like any clause, it may be waived by words, conduct, or a combination, particularly if the other party relies on that waiver. But there may be an anti-waiver clause, which bars implied waivers. In theory, even this can be waived. Limitations on confidentiality: 1. Mediator may breach confidentiality when a person threats to commit a future serious crime. (Which is the same requirement as attorney-client privilege.) 2. Any evidence suggesting child or elderly abuse.

Impracticability Doctrine: Outside Circumstances Force majeure Limitations

Force majeure clause does NOT protect against mere shifts in the market. What would a force majeure clause against failure of supply and demand actually cover? Every clause in a contract ought to have some meaning. In this case, failure of supply is really referencing things such as terrorist attacks on pipeline, fires, or other widespread harm to the community that is not an act of god or insurrection, etc.

Parol Evidence Defense Fraud

Fraud in inducement = tort Fraud in performance = breach of K

Parol Evidence Exception 2 to P.E. Rule: Defenses

Fraud, Mutual Mistake, Accident, Duress. Traditionally: 1. only fraud in the inducement--now (modern) any fraud in misrepresenting promises. 2. Merger clause prevented parol evidence--now equitable considerations may give it less weight (RS 2d § 214) NB: TX is traditional on both counts.

Good faith v. Bad faith

Generally a question of fact, not of law, to be decided by a jury.

Damages Mental Anguish & Emotional Distress

Generally no recovery, except: 1. In contracts likely to cause serious emotional disturbance 2. Bodily harm (may also have a tort claim) 3. Expressly provided for or impliedly contemplated in contract

Perfect Tender Exception (Breach and Repudiation) UCC § 2-605

Good faith duty to state particular reasons for rejection Must particularize grounds for rejection. I.d. May not rely on unstated reasons for rejection if the seller could have cured if told or, between merchants, if seller asks for a particularization.

Best Effort Higher standard than good faith because:

Good faith requires no negative action, but Best effort requires affirmative promoting. UCC § 2-306 Implied duty of best effort in exclusivity dealing Ks. May be disclaimed, but good faith never can.

Verbal Maxims RS § 202 Definition

Grammatical interpretation affects word meaning.

Policy Maxims Generally

Guides to interpretation based upon public policy considerations. E.g. Construe K against drafter, particularly if aided by attorney or it offends public policy.

Future Modification

How to ensure no future modification, even in good faith? Write a clause requiring a clear written modification and/or an anti-waiver clause. Court still may say that there was a waiver of a waiver clause.

Losing Contract Damages

IF other party breaches what for you is a losing K anyway, then may NOT sue under reliance. Normal DAS is expectation DAS if you are suing on the K. It is the COURT that chooses reliance DAS. May, however, sue for restitution (if not performed).

Dispute Resolution: Litigation

If Material/Substantial breach = May stop performance, rescind K, and sue for breach If Minor/Nonmaterial breach = Must continue performance, sue for minor breach (Unless UCC 2-601 Perfect Tender case.)

Perfect Tender Exception Generic Interpretation

If contract lacks "time is of the essence" clause, court may hold that the date was a reasonable guideline. "Ballpark" exception.

Promise, Representation, Warranty Remedies

If not met: Sue for Breach Normal Remedy: Damages Special Circumstances: Specific relief If Material breach: No duty to perform Material breach = lack of substantial performance If Minor breach: Performance still required + sue for relief

Divisible & Separate Contracts: Consequences Independent? Severable? Separate K?

If separate K is found, substantial performance may not apply (e.g. Separate K already completed as part of overall project.) Parties may sue for breach on each separate K.

Verbal Maxims RS § 202 Expressio unis est exclusif alterius

If specific terms are listed without general or inclusive terms, then a strict interpretation is used. E.g. K to sell "cattle and hogs on the farm" excludes sheep because "farm animals" or sheep themselves are not mentioned.

Parol Evidence Exception 1 to P.E. Rule: Separate Contract

If the proposed parol evidence is actually a separate contract, proof of that contract cannot be prevented by relying on the parol evidence rule to interpret a different, but separate, contract.

Anticipatory Repudiation Assurance of Due Performance

If there are "reasonable grounds" to believe there will be a material breach: a. May request an assurance of due performance b. May suspend performance until assurance received c. No assurance = Anticipatory Repudiation RS §251/UCC §2-609 UCC requires request be in writing expectation outside of UCC is the same.

Assignment Delegation Defense with no waiver of defense clause

If there is a defense and no waiver of defense clause, assignee does not receive non-assigning party's performance, so assignee can sue assignor. Assignee may not sue assignor if non-assigning party (obligor) does not pay because of insolvency unless through fraud.

Parol Evidence Definition

If there is a written document then it should be used as the basis of interpreting the K—not discussion. Discussion should be written into the K if it is important and is desired to be included in the K.

Performance & Enforcement Modern

Implicit duty of good faith (except when negotiating in the U.S.)

Damages Liquidated Damage Clause

May not use "one size fits all" amounts because damages are not a reasonable forecast of just compensation. Court must weigh whether the clause was a reasonable forecast for just compensation or effectively punitive.

Third Party Beneficiary Modern v. Traditional

Modern courts take stances 1-2, with 2 being the majority. Traditional courts take stances 3-4, with 3 being the Majority. Texas: 1970s-80s = Test 2 BUT 2005 =Test 3 and none overruled.

Specific Relief Types of Specific Relief

Most to least likely: 1. Injunction Against Breach 2. Receivership 3. Specific Performance Decree

Duty of Good Faith to Minimize Harm/Mitigate Damages

Injured party has obligation to minimize harm by behaving in good faith and fair dealing (reasonable commercial standards). Picking alternatives to maximize damages/recovery through lawsuit = bad faith and unfair dealing.

Perfect Tender Exception (Breach and Repudiation) UCC § 2-612

Installment Contracts- 1. Rejection of installment only if non-conformity (a) substantially impairs value of the shipment or (b) if not cured.

Perfect Tender Exception (Breach and Repudiation) UCC § 2-612

Installment Contracts- Can terminate installment contract for breach of one installment only if such breach impairs substantially the value of the entire contract. In particular, note the waiver or election of remedies feature of UCC § 2-612 (3).

Parol Evidence Peculiarities

Is SUBSTANTIVE for Erie not procedural/evidentiary. Is a question of FACT but decided by the judge and upheld unless clearly erroneous.

Breach Foreseeability

It always foreseeable that a breach is possible to occur. In contracts, must be reasonably certain to occur at contract formation.

Parol Evidence Exception 3 to P.E. Rule: No Contract

Lack of consideration, sham bargain, false recital, no negotiated agreement, illegal K, condition precedent. Think failed contract, so P.E. allowed to salvage possible K.

Impracticability Doctrine: Nonoccurrence Later government action renders K impracticable-

Later government action regulating or outlawing K renders it impracticable. UCC § 2-615(a) Bypasses basic assumption that performance would remain permissible/legal. See also RS2d. § 264.

Interpretation: Style of Interpretation Literal v. Purposive

Literal: Traditional approach. Words given literal meaning if unambiguous, despite consequences. Formalist approach. E.g. "Wife" must mean legal wife. Purposive: Modern approach. Words interpreted in light of the purpose of their utterance. E.g. "Wife" clearly referred to bigamous spouse he was living with at time of death. NB: Traditional will use purposive if literal interpretation is ambiguous or leads to absurd result.

Parol Evidence: Modern Approach

Look at express writing and see if parol evidence contradicts it. If the writing does not address the writing, then parol evidence is merely supplementing or complementing.

Losing Contract

Losing K: did a bad job estimating performance/K price and performance will result in net losses.

Damages Loss of Future Profits

Loss of future profits are speculative and are difficult to prove, particularly for new businesses. Used to be called the "New Business Rule," but is no longer in effect.

Perfect Tender Exception (Performance) UCC § 2-504

Material Loss or Delay- Unless otherwise agreed, seller's problems with shipping or notice to buyer are only a material breach if material loss or delay occurs.

Assignment Delegation Common Law & UCC

Materially alters or substantially impairs the rights of non-assigning party

Performance & Enforcement Traditional

No implied good faith obligation (Texas), BUT A duty not to prevent or hinder other party's performance. NB: Nuisance generally does not hinder to the point of being bad faith or hindering performance.

Duty of Good Faith Generally

No obligation to negotiate in good faith in U.S. BUT Obligation to perform and enforce in good faith. International/European: Obligation to negotiate in good faith. Good faith duty may never be disclaimed under UCC, modern courts, or by other statute.

Damages Punitive Damages

No punitive damages in contract law, except: 1. Independent tort (often egregious conduct or actual malice required) 2. Bad faith refusal to settle (insurance company)

Dispute Resolution: Arbitration Still Binding against normal defenses

Normally, could avoid arbitration and request a court get involved if: 1. Fraud in the inducement 2. Duress 3. Mistake 4. Lacked capacity from onset 5. Illegality 6. Unconscionability However, Supreme Court has held that it is nonetheless a dispute about K creation and is still a question that the arbitrator will decide. Class action law suits do not go to arbitration. 5-4 Supreme Ct decision. Does not favor business.

Verbal Maxims RS § 202 Noscitur a sociis

Noscitur a sociis: word meaning in a series affected by others in the prior word affected by immediate context.

Lost Volume Seller Notes U. C. C. § 2-708 (2)

Note 1: In manufacturing, must prove you could have manufactured enough products to satisfy two Ks. Note 2: Greater costs for second K would be taken into account as well. E.g. Overtime, increased delivery fees. Note 3: if a person owns a single product, then the person is not a Lost Volume Seller. E.g. A particular plot of land

Assignment Delegation Generally

Old Rule: Cannot assign future rights to 3rd party. New Rule: May do so because the assumption is that the corporation will have future clients. Banks and companies routinely make assignments on future accounts. UCC: Assignment for sale of goods is presumptively valid, unless material alteration or a non-assignment clause.

Substantial Frustration of Purpose (Pointlessness)

One could perform, but the entire purpose for performance has become frustrated (pointless). Same 4 elements as impracticability. 1. Performance Impractical/Substantially frustrated 2. Non-occurrence Basic assumption of K 3. Not fault of party seeking relief 4. Party seeking relief does not bear risk a. Express Allocation b. Implied Allocation c. Allocated by court

Perfect Tender Exception (Performance) UCC § 2-508

Opportunity to cure- Party must be given opportunity to cure if: 1. They reasonably believed original shipment would be accepted or 2. if time for performance has not yet passed.

Parol Evidence Before vs. After Contract

Parol evidence is only evidence BEFORE writing. If it's after then it is not parol evidence and usually may be admitted.

Parol Evidence: Traditional Approach

Partial integrations are different parts of the same agreement. Collateral agreement is different but related agreements.

Dispute Resolution: Negotiated Settlement

Parties may negotiate among themselves for settlement. 1. Actually enter a new K—a settlement contract. Official Term: Accord and Satisfaction. Accord = Offer Satisfaction = Acceptance Consideration? Often not a problem since both sides will give up something. Refraining from exercise of right is consideration. Giving up pretty much anything can meet the requirements, remember sham/pretense consideration from Ks I . Normally, paying less than is owed is not consideration. HOWEVER Modification: may settle through modifying K, even if paying less than owed.

Best Effort types of contracts

Percentage leasing Ks Publishing Ks Franchisee Ks Employment Ks (must terminate with good cause) Exclusive dealings

Substandard Performance in Sale of Goods (UCC)

Perfect Tender Rule UCC § 2-601- Tender must be perfect (Perfect Tender Rule UCC § 2-601), so substantial performance is not good enough. No doctrine of substantial performance applies in UCC.

Impracticability Doctrine: Outside Circumstances

Performance NOT impracticable when certain outside circumstances occur E.g. Market 300% higher—not impracticable. RULE: In absence of express language to the contrary, mere shifts in the market will not give an impracticability defense. NOTE: However, one court did find impracticability for market shift when cost was increased by $80 million. This is an extraordinary case—courts will usually not give relief. Not many options. Claiming mistake won't work, not duress because it's not actions of other party, may try good faith modification.

Damages Market Price under UCC 2-713

Place for tender + Time for tender

Damages "Off the Contract" Damages Disgorgement

Plaintiff is paid other party's profit from breach (not just how much P enriched them). NOT a remedy in pure K law. Copyright, patents, and occasionally public policy issues.

Anticipatory Repudiation Rationale

Plaintiff should not have to sit around and wait for the breach, but should be able to make alternative plans (i.e. find another job) so that he is not at the mercy of the defendant changing his mind. Plaintiff may opt to wait.

Damages Expectation Damages Jurisdictional Issues

Post-judgment interest: may lose money between when K was supposed to be performed and the time of the judgment. Many states only give post-judgment. Texas does provide for prejudgment interest in some Ks.

Damages Reliance Damages

Profit figure is NET profit (total overall sales is gross profit). Remember to deduct operating costs from the gross.

Assignment Delegation Definition

Promisor may assign his right to a 3rd party who was not part of the original K. He then becomes the assignor, and the 3rd party is the assignee. Promisor may also delegate duties. Note: May assign rights to one party and assign duties to another—does not have to be both to same person/party.

Third Party Beneficiary Public as TPB

Public is a TPB. Government contracts third party to complete contract to benefit the public. Sometimes yes, sometimes no. Book lists factors (p. 1110?). Considerations: A. How many people could be TPBs? (Potential extra plaintiffs.) Small, well-defined group is far more likely to be TPBs. Large, diffused group is far less likely to be TPBs. B. Remedial scheme. Low liability, consistent with scheme? Likely TPBs. High liability, frustrating scheme? Independent TPBs may frustrate existing scheme.

Lost Volume Seller Qualifying Elements U. C. C. § 2-708 (2)

Qualifying Elements: 1. The person who bought the resold entity would have been solicited by the plaintiff for purchase regardless of breach and resale. 2. Solicitation would have been successful. 3. Plaintiff could have performed that additional K

Restitution Damages: Quantum Merit "As much as he deserves"

Quasi-contract that compensates based on the net benefit conferred on other party 1. Reasonable value of work OR 2. Increase in market value Rule in every court: If there are two different methods of calculating damages, and you are the defaulting party/bad actor, you receive the lesser of the two.

Policy Maxims RS § 207 Interpretation favoring the public

Reasonable meaning of a promise, agreement, or a term thereof, a meaning that serves the public interest is generally preferred.

Policy Maxims RS § 206 Interpretation against draftsman

Reasonable meanings of a promise or agreement or term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds.

Interpretation Resolving Problems

Rephrasing the document Rephrase the document so that it favors one side, then rephrase the document so it favors the other. This will help determine the precise problem. It will also help prove one side's interpretation.

Third Party Beneficiary

Requires parties INTEND the third party as the beneficiary.

Damages "Off the Contract" Damages Restitution

Restitution, aka 1. Unjust enrichment (NOT benefit conferred) 2. Quantum merit

Third Party Beneficiary Rights, Vesting

Rights vest once the K is accepted, adopted, or acted upon by the TPB. Original parties can no longer modify in a way that is detrimental to TPB. Before the 3rd party vests, parties can modify so that TPB cannot sue. Court may find granting TPB within a contract 1) unacceptable under public policy or 2) unconscionable. Otherwise, parties may grant TBP rights in the actual contract.

Assignment Delegation Notice Required

Rule: Adequate notice must be given to original party to K. (Reasonable Person Test) Once notice is given to that party, the party's performance is rendered to the assignee. Notice may come from either the 3rd party or the original party, but it is required regardless.

Conditions Precedent & Subsequent for a Promise, Representation, or Warranty

Rule: Condition not met—don't have to begin or continue to perform. Note: In Ferguson case, visible marks were not condition merely evidence of condition. Condition was actual force/violence. Therefore, meeting purpose but not literal language = possible win in court (in modern courts).

Constructive Conditions for Service or Construction Contracts

Rule: work before pay. However, parties may structure it differently. Historically (about 200 years ago in Europe as late as 100 years ago in the U.S.) promises were viewed as independent promises, regardless of the conditions or performance of the other party. May only need to have substantially performed (Palmer v. Fox).

Damages Expectation Damages UCC Seller/Payee Breach Formula

Seller/Payee Breach DAS = Cover price - K price + IC -- CA OR DAS = Market price - K price + IC -- CA Construction: Cover = cost to repair

Specific Relief Warranted: Public Interest

Sometimes 3rd party consequences to general community are a factor to consider when specific relief is warranted. (NB: Posner says this is never proper.)

Impracticability Doctrine: Supervening Impracticability

Subsequent events have made performance impracticable.

Third Party Beneficiary Rights, Generally

TPB gains the right to directly sue the promisor, whose performance benefits the TPB. TPB NOT required to simply wait and hope for a correct outcome.

Parol Evidence by Jurisdiction

Texas: Often in strong favor of excluding parol evidence to favor big business. England: Created parol evidence but rarely excludes evidence anymore. Most of Europe does the same. CISG: No parol evidence rule at all. All evidence comes in.

Impracticability Doctrine: Existing Impracticability Definition

The thing causing the problem existed at the time of K formation, but both parties were unaware of it. (I.e. Both parties were mistaken—same as mutual mistake.)

Damages, Generally

To get any DAS, must prove them with reasonable certainty. Cannot be too speculative. If the reliance DAS can be measured with sufficient certainty, and not any others, then may allow recovery under that theory. Remember: Appellate court only overturns fact questions if the trial court was clearly erroneous. Damage amounts are questions of fact (jury questions).

Intentional Interference with a Contract

Tort--must show actual malice to get punitive damages. Prospective contract--must have malicious motive to harm

Policy Maxims Traditional v. Modern

Traditional courts favor verbal maxims, but will use established policy maxims, such as construe against the drafter. Modern courts favor policy maxims.

Perfect Tender Exception (Performance) UCC § 2-504 Material Loss or Delay-

Unless otherwise agreed, seller's problems with shipping or notice to buyer are only a material breach if material loss or delay occurs.

Parol Evidence Exception 4 to P.E. Rule: Contract Interpretation

Vagueness, Ambiguity

Anticipatory Repudiation Cautions

Words OR conduct may waive rights. May waive right to sue immediately if you wait. May waive any or all aspects of damage claim if clear unequivocal language.

Duty of Good Faith to Minimize Harm/Mitigate Damages Wrongful Termination

Wrongful termination: one must seek similar employment (mitigate damages). Similar employment means that DAS are reduced by "where you ended up."

Anticipatory Repudiation RS §250 UCC §2-610

a. Sue Immediately (allows for suit prior to breach), OR b. Wait til time for performance (other party may retract repudiation)

Assignment Delegation Valid Non

assignment Clause- Obligation not to assign may be stated as either: Voidable. May seek money damages, but often hard to show. OR Void: May seek specific relief. Injunction, other specific performance.

Specific Relief: Equitable Maxims

must show that you are a good actor who deserves the relief. Is it fair given the circumstances of the K? Is it not so unconscionable?