Contracts II Part 4

Legal Remedies: 3 Kinds of Recovery

-Expectation Damages -Reliance Damages -Restitution Damages

Expectation Damages: Type

-General (Direct) Expectation Damages -Specific (Indirect) Expectation Damages -Incidental Damages -Consequential Damages

Excuse of Defenses: Death or Incapacity of Person Necessary to Performance

-If the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made

Frustration of Purpose Example Case: Krell v. Henry

-The contract was for occupancy of an apartment on Pall Mall in London, overlooking the coronation parade route for King Edward -When the king became ill the parade was cancelled -The owner of the apartment had already received one-third of the agreed price of 75 pounds and sued to recover the balance due -The court said that the coronation parade was the basic foundation of the contract and that its cancellation discharged the parties from the contract

Legal Remedies: Types of Remedies

1. Agreed (Liquidated) Damages: sometimes enforceable sometimes not enforceable 2. Remedies at Law: money damages for a substituted performance 3. Remedies in Equity: injunctions and specific performances 4. Punishment: Punitive Damages and debtors

Excuse of Defenses: Destruction, Deterioration or Failure to come into existence of the thing necessary for performance (Elements)

1. Existence of a specific thing 2. Necessary for performance 3. Destruction, non-existence, or deterioration 4. Performance made impracticable

UCC 2-609: Right to Adequate Assurance of Performance (FOR GOODS) 6 elements

1. Reasonable grounds for insecurity with respect to the performance 2. Written demand for adequate assurance or performance 3. Suspend any performance for which he has not already received the agreed return (If you make demand for assurance to early and without reasonable grounds then you are in breach). 4. Must be commercially reasonable 5. If adequate assurance are not provided within a reasonable time, (may not exceed 30 days) 6. Treat Failure as a repudiation When between merchants: reasonable grounds for insecurity shall be determined according to commercial standards

Cure by Seller of Improper Tender or Delivery; Replacement (UCC 2-508)(FOR GOODS): 2 Scenarios

1. Where any tender or delivery by the seller is rejected because non-conforming and the time of performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery 2. Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable (with or without money allowance) the seller may, if he seasonably notifies the buyer, have a further reasonable time to substitute a conforming tender.

Excuse of Defenses: Discharge of Impracticability Elements

1. Where, after a contract is made, 2. A party's performance is made impracticable 3. Without his fault by the occurrence of an event 4. The non-occurrence of which was a basic assumption on which the contract was made, 5. His duty to render the performance is discharged, 6. Unless the language or the circumstances indicate the contrary

Existing Impracticability or Frustration (at the time the contract was made): 2 Scenarios

1. Where, at the time the contract was made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to known and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary 2. Where, at the time the contract was made, a party's principal purpose is substantially frustrated without his fault by a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty of that party to render performance arises, unless the language or circumstances indicate the contrary *When an unanticipated event has substantially frustrated the principal purpose of the contract, performance is excused

What Constitutes Acceptance of Goods (2-606):

>Acceptance of goods occur when the buyer a. After a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or b. Fails to make an effective rejection but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or c. Does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him >Acceptance of a part of any commercial unit is acceptance of that entire unit

Commercial Frustration Example Case: Adbar v. New Beginning

>Adbar owned the building where new beginnings was trying to lease for their rehab center >Court of appeals said it was foreseeable for new beginning to not obtain funding, since they receive funding from the state, its foreseeably the state will not give them money >New beginnings assumed the risk

Expectation Damages: General (Direct)

>Amounts awarded for injury to or loss of the value of the performance promised under the contract

Expectation Damages: Specific (Indirect)

>Amounts awarded for secondary losses resulting from the breach >Incidental or consequential damages

Repudiation: What is it?

>An absolute and unequivocal refusal to perform >A repudiation is: a. A statement by the obligor to the oblige indicating that the obligor will commit a breach that would of itself give the oblige a claim for damages for total breach b. A voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a beach, making breach inevitable the threatened breach must be one that would qualify as a material breach, partial breach is not a repudiation

Example Repudiation Case: Hochster v De La Tour:

>April 1852 the defendant employed the plaintiff as a courier for a period of three months >Plaintiff service was not scheduled to begin until June 1 >On May 11, the defendant repudiated the contract by informing the plaintiff that his services would not be required >This constituted a total breach and the plaintiff is able to recover damages

Commercial Frustration Example Case: Transatlantic Financing v. U.S. Case

>Closing of the Suez Canal caused additional expense because the ship had to go around Africa >Performance is too expensive >Transatlantic assumed the risk because: -Trouble in Middle East not unexpected -Prospect of canal being closed is not unforeseeable >Could have written it into the contract which they didn't >Could have purchased insurance >Ct said "while it may be an overstatement to say that increased cost and difficulty of performance never constitutes impracticability, to justify relief there must be more of a variation between expected cost and the cost of performing by an available alternative then is present in this case

UCC 2-609: Right to Adequate Assurance of Performance (FOR GOODS) Example Case: Hornell Brewing Company v. Spry

>Distribution deal for Ice Tea >Facts that gave reasonable grounds for insecurity: -Missed payments -Bounced checks -No available financing -Sales were off target >Assurances that Hornell wanted: -Documents to proof of availability of financing >Never got them, Spry breached

Expectation Damages: Incidental

>Extra costs incurred by the aggrieved party in dealing with the breach or mitigating its loses from the breach

Performance and Breaching Under UCC Article 2: Buyer's Rights on Improper Delivery(2-601) (FOR GOODS)

>If the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may a. Reject the whole; or b. Accept the whole; or c. Accept any commercial unit or units and reject the rest >This is called the "Perfect Tender Rule" -Problem with this rule: the buyer can reject the whole if any defect or nonconformity -This rule only applies to single-delivery contracts -Seller has a right to cure (2-508)

Commercial Frustration:

>If the occurrence of an event, not foreseen by the parties and not caused by or under the control of either party, destroys or nearly destroys the value of the performance or the object or purpose of the contract, then the parties are excused from further performance >However, if the event was reasonably foreseeable then the parties should have provided for its occurrence in the contract >In determining foreseeability, the courts consider the terms of the contract and the circumstances surrounding the formation of the contract

Force Majeure Clauses: What is it?

>Language in the contract excusing the parties if unanticipated events occur >It removes any uncertainty about the effect of the specified occurrences, some of which, such as 'strikes", are generally not regarded as an excuse under commercial impracticability >Examples of Force Majeure Language: -Acts of God or the public enemy -Acts of the government -Defaults of subcontractors *Look at problem involving Blizzard on page 1034

Expectation Damages: Consequential

>Losses arising as a consequence of the breach >Ex: loss profits, loss customers

Retraction of Anticipatory Repudiation (UCC 2-611) (FOR GOODS) Example Case: McClosky v Minweld

>McClosky, plaintiff, is the general contractor, Minweld, defendant, is a fabricator and erector of steel >The defendant subcontractor sent a letter to the general contractor seeking the general contractors assistance in obtaining the materials necessary for it to commence work on time >Letter said they were trying to get steel not that they wont >McClosky was trying to get steel joists and deliver by November >Issue is, whether delivery is a material breach or total breach (hinges on factors) >Nothing in the defendants letter indicated that it had "definitely abandoned all hope" of performing without the assistance it sought so not a repudiation

Nullification of Repudiation or Basis for Repudiation statement:

>Nullified by a retraction of the statement if notification of the retraction comes to the attention of the injured party before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation final -The injured party may prevent a subsequent nullification by indicating to the other party that he considers the repudiation final 2. Nullified if, to the knowledge of the injured party, those events have ceased to exist before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final

Cure by Seller of Improper Tender or Delivery; Replacement (UCC 2-508)(FOR GOODS): Ramirez v. Autosport

>Ramirez v. Autosport case: -Ramirez trying to buy a camper van from Autosport -Initial problems with the camper: a)Paint scratched b)Electric and sewer hook ups missing c)No hubcaps -Probably not material breaches besides the hook ups because you wouldn't be able to use the camper the way it was intended -Ramirez has to give Autosport a chance to fix the problem because its nonconforming -If Ramirez accepted and the seller failed to replace the cushions could seller revoke acceptance under (2-608)? =Did the defect substantially impair the value of the van to the buyer? =Have to apply a subjective intent to it

Reasonable Insecurity about Future Performance: When a Failure to Give Assurances May be Treated as a Repudiation (Reasonable Grounds for Belief)

>Reasonable Grounds for Belief- -Conduct by a party that indicates his doubt as to his willingness or ability to perform but that is not sufficiently positive to amount to a repudiation...may give reasonable grounds to amount to a repudiation -Events that indicate a party's apparent inability but do not amount to a repudiation because they are not voluntary acts, may also give reasonable grounds for such belief

Retraction of Anticipatory Repudiation (UCC 2-611) (FOR GOODS): Method of Retraction?

>Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must included any assurance justifiably demanded under the provision of this article (2-609) -Note: An effective retraction must be accompanied by any assurances demanded under the section dealing with right to adequate assurance -After a timely and unambiguous expression of retraction, a reasonable time for the assurance to be worked out should be allowed by the aggrieved party before cancellation

Retraction of Anticipatory Repudiation (UCC 2-611) (FOR GOODS): Effect of Retraction?

>Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation

Revocation of Acceptance in Whole or in Part (UCC 2-608) (FOR GOODS): When can you do it?

>Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods, which is not caused by their own defects. It is not effective until the buyer notifies the seller of it

Revocation of Acceptance in Whole or in Part (UCC 2-608) (FOR GOODS): What can you do?

>The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it: a. On the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or b. Without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery (latent defect) before acceptance or by the sellers assurances >A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them

Frustration and foreseeability:

>The frustrating event might have been foreseeable or even foreseen so long as its occurrence was unexpected >Hypo: Going to Disneyland, buy plane tickets and prepaid reservation at hotel, but Disneyland closes the park. You assumed the risk that the park could be closed so probably wont get the money back

Retraction of Anticipatory Repudiation (UCC 2-611) (FOR GOODS): When/Timing?

>Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final.

Hypos: Whether Repudiation or Not?

>We need your help in getting the joists -Not a repudiation >We cant get the joists w/o your help -Depends on the level of help, maybe, maybe not >We are not sure we can get the joists -No repudiation, as unequivocal as it gets >There are no joists available on the market right now -No repudiation. Key word is "now" could be some tomorrow >We are using all the joists we can obtain on other projects -Yes repudiation

Effect of a Repudiation as a Breach

>When an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it his repudiation alone gives rise to a claim for damages for total breach

Anticipatory Repudiation (UCC 2-610)(FOR GOODS):

>When either party repudiates the contract with respect to a performance not yet due, the loss of which will substantially impair the value of the contract to the other, the aggrieved party may: a. For a commercially reasonable time await performance by the repudiating party. b. Resort to any remedy for the breach, even though he has notified the repudiating party that he would await the latter's performance and has urged retraction. c. Suspend his own performance or proceed in accordance with the provisions on the sellers right to identify goods to the contract notwithstanding breach or to salvage unfinished goods.

Effect of a Repudiation on the Other Party's Duties:

>Where performances are to be exchanged under an exchange of promises, one party's repudiation of a duty to render performance discharges the other party's remaining duties to render performance -Anticipatory breach meaning a breach by anticipatory repudiation because it occurs before there is any breach by non-performance

Reasonable Insecurity about Future Performance: When a Failure to Give Assurances May be Treated as a Repudiation

>Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the oblige a claim for damages for total breach, the oblige may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance >The oblige may treat as a repudiation the obligors failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case

Restitution Damages:

>are designed to avoid unjust enrichment by forcing the party to restore the other party any as yet unpaid for benefits if retained, some cases permit restitution for breaching party

Reliance Damages:

>designed to put the aggrieved party back in the position that it would have been in "today" if the parties had not entered a contract

Excuse of Defenses: Discharge of Impracticability Example case: Taylor v Caldwell

Ex: Taylor V. Caldwell case: -Fire burnt down the concert hall where Taylor was suppose to perform -Cant perform if there is nowhere to perform -Excused the parties from their contract only if performance has become truly impossible

Expectation Damages:

Expectation Damages- designed to put the aggrieved party into the position that it would have been in if it had received the full performance

Excuse of Defenses: Discharge by Supervening Frustration (Elements)

Purpose is frustrated: 1. Event causes it 2. Without fault 3. Non-occurrence 4. Basic assumption on which the contract was made 5. If all is true, then the remaining duty is discharged unless; 6. Language or the circumstances indicate to the contrary