CL or UCC? CL UCC - Santa Clara...

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GOVERNING LAW CL or UCC?

CL For services or sale of land

UCC Goods (movable at time of sale)

Predominant Purpose Test to enforce intent FORMATION (does it exist?)

Who is the offeror? Person who sets out the terms that become the basis of the bargain What is the operative offer? Is an ad an offer or invitation to negotiate? RPP test…

To show intent to K must expressly include: • Who (parties) • What (consideration) • When (time of performance) • Where (place of performance) • How (mode of performance)

Intent to K presumed so hard to fail for indefiniteness §2-204

Who is the offeree? Usually named in the offer How long is the offer open to revocation or modification?

• Option §87 o Binding w/ any consideration

and writing • Bilateral (2 promises)

o Binding once return promise is given

o Presumption if ambiguous! • Unilateral (promise for action)

o Binding after part performance

• Firm offer §2-205 o If written, binding even w/out

consideration for stated time or < 3 months

Was there a timely and effective acceptance?

Mirror image rule: • Qualified acceptance ok

o But counters terminate • Part performance usually ok • Reasonable manner w/out offeror

objection ok • Silence usually not ok

• §2-206 = any reasonable manner unless unambiguously otherwise

• §2-207 for Battle of the Forms o If K formed under (1), go to (2)

or use Knock Out Rule o If no K formed but K-like

conduct, go to (3) Was there mutual assent? Must objectively show:

• Intent to K o Not an agreement to agree

• Agreement to same material terms o Unless unilateral

misunderstanding §20

Intent to K presumed, and K won’t fail without mutual assent if conduct recognizes its existence

Was assent compromised? • Duress • Misrepresentation • Unconscionability §2-302

Was K modified? Ex. Accord & Sat. §279

No consideration needed if original is mutually rescinded or good faith under §89

No consideration needed §2-209

Mailbox Rule = offers, counters and revocations effective when received, but acceptance when sent

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SCOPE AND MEANING (can it be enforced?) What terms does the K include?

Parol Evidence Rule • Is it fully integrated?

o CA/Corbin (majority) = look extrinsically

o NY/Williston = stay in the 4 corners

• If only partially integrated allow terms in that are: o Collateral o Non-contradictory and o Would not reasonably have

been included

§2-202: allow non-contradictory and credible evidence of: • Course of dealing • Usage of trade • Course of performance But if fully integrated then no evidence of consistent additional terms

What do the K terms mean? Use extrinsic evidence if allowed by PER

• If ambiguity, then interpret against drafter and in favor of K by looking at:

o Intent and o Custom

• If nonmaterial omission, then allow gap fillers that reflect: o Intent and o Fairness

• If ambiguity, then best evidence of intent is actual performance and industry standards

• If omission, then liberally allow UCC gap fillers b/c hard to fail for indefiniteness

Whose terms control? Offeror’s Offeror’s unless §2-207 PERFORMANCE (must you perform?)

What was the order of performance?

• Absent language that one is precedent, goal is to minimize risk so: o Simultaneous if same length o Sequential with longer first if

not

$ upon delivery absent language to the contrary §2-507, 5-11

Did the parties perform as required?

• Given words and intent, is it a condition (full) or promise? o If ambiguous, promise §261

• Will there be a forfeiture such that condition should be read as promise §229?

• Has there been a waiver?

Right to rejection if not perfect tender §2-601, 602

If not, is there an excuse for nonperformance? Depends: who bears risk? Was it really unforeseeable?

• Suspended for assurance §251 • Mistake • Impossible/impracticable • Frustration of purpose

• Suspended for assurance §2-609 • Mistake or frustration? • Impossible §2-613/impracticable §2-

615

If not, what are the damages?

• Is the term severable? • If substantial performance other party can still deduct damages caused by

lack of complete performance • Materially breaching party can still get QM to avoid UE

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INTRODUCTION

1. What is a contract?

a. = The written version of an agreement between parties to exchange something for something else that is enforceable by law (OFFER + ACCEPTANCE iff MUTUAL ASSENT)

b. Compared to deals

c. How do we know if we have a contract?

i. All about objective manifestation of parties’ intent

2. Conceptual framework

1. Who is the offeror and offeree? 2. What is the operative offer? 3. Was there a timely and effective acceptance? 4. Was there mutual assent or was it compromised? 5. What terms does the contract include? 6. What do the contract terms mean? 7. Did the parties perform as required? 8. If not, is there an unmet condition or an excuse for non-performance? 9. If not, what are the damages in the event of a material breach?

3. Stages of a contract

a. Negotiation b. Agreement = Contract

i. Formation 1. Offer 2. Acceptance

ii. = Mutual assent 1. Intent to contract 2. Assent to the same terms

c. Performance

Aka, is there a contract?

• UCC if for the sale of goods (services/land = common law) o Good = movable (UCC §2-105) when the

titled passes from seller to buyer for a price (aka “sale” under UCC §2-106)

• Can be a mixed contract o Then use the predominant purpose test

(Nim = finish on roll is a service) § Was predominant purpose the sale of

goods w/ labor only incidentally involved (UCC) or vice versa (CL)?

§ Goal is to enforce intent

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AGREEMENT

1. Mutual assent (i.e. “meeting of the minds” where parties understand the agreement in the same way)

a. Both parties must appear to:

i. Intend to contract (i.e. to offer and accept) and ii. Agree to the same material terms (and their intended meaning) at the time

1. Terms in a contract that are considered essential; they describe the goods, fix the price, fix the quantity, and set the delivery date.

b. How we determine parties’ intent? = Objective theory of contracts

i. Would a reasonable person understand there was mutual assent?

ii. Subjective intent doesn’t actually matter b/c not ascertainable (Embry = doesn’t matter if

parties intended to orally renew employment K, just matters if reasonable man would see that from words)

1. Would be chaotic if you allowed people to go back on their actions because of their secret intentions (Lucy = doesn’t matter if D’s acceptance of P’s offer to buy his farm in a bar was serious or not because any jest was secret)

iii. Consider:

1. Words and actions of parties

a. Law imputes to a person intentions corresponding to the reasonable meaning of his words and actions

2. The contract itself

3. Context a. Presumption that familial relationships are intended to be gratuitous, not

contractual (Morrow = no evidence agreement to take care of mom was not gratuitous)

i. Can rebut by subject matter and terms that are usually contractual ii. Expressions of the parties to indicate intent to make it binding

b. Presumption that if subject matter is normally dealt with in enforceable contracts and parties act as if it is enforceable, then nugatory inducements (that exclude all sanctions and remedies) are void (Tilbert = certificate of benefit for employees had to be honored despite no remedy clause)

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c. What about misunderstandings?

Misunderstanding

= no mutual assent (No K) Mistake = mutual assent (agreed to same understanding), but grounds for cessation

Wrong assumption about:

Understanding of material terms and intent (Raffles = two “Peerless” ships come different months, so no mutual assent b/c reasonable different understandings)

Mistaken about the same facts that form basis of K (Sherwood = mistake that cow was barren, not that cow was probably barren, is material and was mutual, so excused from K)

Elements 1. Mutual misunderstanding about

2. Ambiguous and 3. Material terms (§20)

1. Mutual mistake about material facts (§152) or 2. Unilateral mistake about material facts iff (§153):

a. Effect of enforcement is unconscionable or b. Other had reason to know of mistake/was his

fault Unless adversely affected party bears the risk (§154)

Restatement Second § 20

Effect of Misunderstanding (1) There is no manifestation of mutual assent to an exchange if

(2) The manifestation of the parties are operative in accordance with the meaning attached to them by one of the parties if

Parties attach materially different meanings (essential) to their manifestations and (a) Neither party knows or has reason to know the meaning attached by the other OR (b) Both party knows /reason to know meaning attached by other

(a) Party that does not know of any different meaning attached by the other and Other knows meaning attached by first

OR (b) That party has no reason to know of any different meaning attached by the other and Other: reason to know meaning attached by the first

i. Unilateral misunderstandings

1. Normally enforced since your duty to inform other party (Cargill = D accidentally wrote 35,000 instead of 3,500 and then refused to deliver 35,000 even though P had already resold that many. D bears the risk of it since P was reasonable to assume mutual assent)

2. About good faith – (Dickey – if you know and do not inform the other party of mistake à other’s understanding enforced)

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2. Offers

a. = an expression by one party of his assent to certain definite terms, provided that the other party involved in the transaction will likewise express his assent to the identically same terms

i. Create reasonable expectation parties willing to enter into K on basis of offered terms ii. Ask:

1. Was there expression of promise, undertaking, or commitment to enter K? a. Language b. Surrounding circumstances c. Prior practice and relationship of parties d. Method of communication

2. Were there certainty and definiteness in essential terms? 3. Was there communication of the above to the offeree?

iii. Check for: 1. Objective test of intent to make an offer 2. Mode of communication 3. Evidence of intent

b. To be an operative offer it must:

i. Objectively (given the words, acts, context and contract itself),

ii. Include a clear, definite and explicit explanation of the following:

1. Who is contracting (the parties) a. “Anybody” is not specific enough, so ads are not usually offers unless they

specify something like “first person to do x” (Lefkowitz = mink for $1 to first customer)

i. Ads are usually seen as invitations to negotiate (so if you respond then you’re the offeror)

ii. If an ad addressed to the general public shows that some performance was promised in positive terms in return for something requested, then binding

2. What is exchanged (consideration) 3. When (time of performance) 4. Where (place of performance) The terms 5. How (mode of performance)

iii. With nothing left open for negotiation à objectively intended to make acceptable offer

iv. Such that a RP would believe you intended to be bound upon acceptance by offeree

(Southworth = D approached P alone (not a bunch of ppl in a letter which = invitation to bid) w/ definite offer to sell land after they had talked about it, so reasonable to see this as offer and not an invitation to bid)

1. If it’s outlandish in context, it’s not an offer (Pepsico = commercial showing fighter jet for 7 million points is definite but not an offer because no RPP could conclude it was)

2. Consider use of specific language in entire body of correspondence (Courteen = “I am asking X for Y” is not an offer… need to say “I am offering”) (Fairmount = “Immediate acceptance” makes this an offer despite the word “quote”)

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c. Types of offers

i. Option contract (§87) à vs. Firm Offer

1. Irrevocable (open for reasonable time) if: a. Writing signed by offeror that b. Acknowledges exchange of consideration for making the offer of the option

and proposing an exchange on fair terms i. Consideration must be valuable, but need not be adequate (Marsh =

25¢ for option to buy real estate for $100k is ok)

2. “An option…is considered to have a dual nature; ...it is an irrevocable offer, which upon acceptance ripens into a bilateral contract, and … it is a unilateral contract which binds the optionor to perform an underlying agreement upon the optionee’s performance of a condition precedent.”

3. Like a unilateral contract until exercised (i.e. accepted), then new bilateral

ii. UCC Firm offer from a merchant (UCC §2-205) 1. Irrevocable even with no consideration for stated time or < 3 months if:

a. Signed, written offer b. That assures it will be held open

3. Bilateral If ambiguous, then bilateral b/c binds both parties earlier §32

4. Unilateral - (typically employer/employee, ex. work for us for 10 yrs and you get a pension) (§45)

= a promise for a promise (Davis = specifically asking for immediate reply indicates nature of acceptance is promise, not act of coming to care for him) Binding once the promise is given (acts as acceptance)

= a promise for an action (Brackenbury = offer to give P land when D died if P took care of D is unilateral, so can’t revoke after P starts taking care of D) Binding once part performance, but offeror only has to perform once offeree completes performance (aka a condition precedent = operative fact that must occur between acceptance & performance [ex. offer to work with firm provided you pass the bar]) Legal fiction that it’s like an option contract where part performance is consideration that binds offeror to keep the offer open to give you a chance to finish Sufficient if that person has actual knowledge that the person who made the offer has done some act inconsistent with the continuance of the offer such as selling the property to a third person

Note: credit cards form a new contract each time the card is used according to the terms at the time, so subject to modification at will (Garber)

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d. Offeror’s power

i. Set terms

ii. Set manner of acceptance à UCC § 2-206(1)(a)

1. Mailbox Rule = offers, counters, and revocations aren’t effective until received (i.e.

in your mailbox, not when you see it), but acceptance is effective when sent. a. Offeror can specifically state otherwise (Adams = by not stating otherwise,

offeror accepts risk of unreliable mail) b. Definite rule facilitates commerce

iii. Modify before acceptance

e. Duration of offer (aka when offer is terminated and offeree can no longer accept §36)

i. From time offer is received (Mailbox Rule) until:

1. Lapse of time set by offeror,

2. If no time set by offeror, then after an objectively reasonable amount of time

a. All about what a reasonable offeree would assume the duration was given the circumstances (Vaskie = SOL is merely relevant, doesn’t automatically terminate)

i. Rebuttable presumption that offer ends with face-to-face conversation (Akers = boss did not objectively demonstrate intent to take offer to resign under consideration after face-to-face conversation)

3. Offeree fails to comply with any condition of acceptance

4. Offeree counteroffers without reserving acceptance (see below)

5. Offeree rejects

6. Offeror dies (or when offeree dies if offer was personal)

7. Offeree receives (Mailbox Rule) offeror’s effective revocation (§42) of an:

a. Bilateral contract before acceptance (aka when bound)

i. Indirect revocation ok if from a reliable source (Dickinson = offeror revoked before time limit but didn’t tell offeree, but since offeree knew it was still effective)

ii. Exception to Mailbox Rule if equal publication as offer (Shuey = reward in newspapers whose revocation claimant didn’t see)

b. Unilateral contract before part performance that P has reason to know about (Petterson = performance was paying so D can revoke as P walks up to pay him)

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c. Option contract under CL with no consideration before acceptance

d. Construction contract before reasonable reliance (Drennan = custom that

reliance takes the place of consideration so promise of sub is binding option if general uses it in his bid)

i. Prime/Sub – if you use subs’ bids you’re not accepting them, you’re

just incorporating estimate (Baird)

ii. Sub bound to honor bid to Prime (Drennan)

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3. Acceptance

Restatement 2nd §32 Invitation of Promise or Performance

In case of doubt (ambiguity) an offer is interpreted as inviting acceptance via promise or performance as Offeree chooses… What is accomplished by affording the Offeree this flexibility? a. = voluntary manifestation of assent to the terms of an offer made by the offeree in a manner invited

or required by the offer , thereby creating a contract

b. Where offer is not face to face à manifestation = appropriate act in timely manner

c. Acceptance is effective (so there’s a contract) as soon as it is made (compare to Mailbox Rule) i. About efficiency and reliance

d. Common law effective acceptance (last shot where offeree dictates the outcome)

2nd Restatement § 39(2) Offeree’s power of acceptance terminated by counteroffer (unqualified)

Unless offeror manifested contrary intention (allows) or Unless counter-offer manifests a contrary intention of offeree (qualified)

i. Mirror image rule = offeree must communicate definite and unequivocal acceptance of the

offer as is 1. Equivocal, conditional or limited-acceptance is a counter offer (Ardente = saying

you will buy the house as long as it comes with furniture is a counter offer since it does not state unequivocally they will accept even without the condition)

a. Counter offers terminate the original offer

b. BUT ok to make qualified acceptance (counter offer in addition to an acceptance) as long as you are clear you will accept even if counter is denied (Collins = prison inmates’ counteroffer manifested intention to accept first)

2. Exception: part performance in accordance with terms is effective acceptance when offeror is aware of it (§32 and §54) (Allied Steel = P suggested method of acceptance, but when D started performing w/ P’s consent, that was effective acceptance) (White = purchasing materials isn’t eligible part performance b/c doesn’t objectively show intent to accept)

ii. Must be made in manner and in time consistent with offer (Eliason = sending acceptance with return wagon was not arbitrary so acceptance via other wagon is not binding on offeror)

1. Suggestion of permitted manner of acceptance does not preclude another reasonable form if the offeror does not object (Allied Steel = see above)

All about the “magic moment”

of formation

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iii. Silence ≠ acceptance (since a RPP would normally not think it does)

1. §69 exceptions: a. Where offeree takes a benefit he could reject and knows offeror wants

compensation i. But 39 USC § 3009 trumps where unordered merchandise that is not

free or from charity can be treated as a gift

b. Where offeror has given offeree reason to know silence = assent and offeree intends silence to = assent

c. Where previous dealings make it reasonable

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e. UCC §2-207 acceptance (modified first shot rule where offeror usually dictates the outcome)

i. What do you do when merchants exchange conflicting forms without reading the forms, perform as if there is a contract, and then have a dispute? What terms control?

1. There may never be a magic moment! But commerce doesn’t stop for ambiguity ii. Presumption parties intended to contract since they’re acting like it

iii. Process 1. Who made the operative offer?

a. Could be the original offeree if his acceptance was explicitly conditional and therefore a counteroffer

2. Who made the effective acceptance or written confirmation? a. Must be definite, seasonable and sent w/in reasonable time 2-207(1) (Step

Saver = box top treated as written confirmation, but had additional terms that materially altered the contract so not allowed…can’t alter the contract after it is formed!)

b. Can be acceptance despite different or additional terms (Daitom = both forms styled as offers but one incorporated the other so that is the acceptance)

c. If no effective acceptance but actions show intent to K, go to 2-207(3)

3. What are the terms if the agreement is ambiguous? a. If acceptance has additional terms: 2-207(2) b. If acceptance has different (conflicting) terms: 2-207(3) (Daitom = one form

saying “retains all remedies under law” and another saying 1 year SOL = terms are cancelled and UCC 4 year SOL is in effect)

f. If UCC but no conflicting forms, then 2-204 and 2-206 (under agreements to agree and offer)

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Material Terms in a contract that are considered essential; they describe the goods, fix the price, fix the quantity, and set the delivery date

g. Rolling Contracts

i. = consumers pay for goods before opportunity to read most of the terms (on the box) ii. Offeror invites acceptance by conduct (Gateway = shipping the product with the terms

including 30-day return right was an offer, and keeping it for 30 days was an acceptance) iii. Doesn’t matter if you actually read the terms or not

1. About fairness. Terms in the box are common and efficient and traditionally fair

4. Agreements to agree (preliminary agreements, memos of intent, etc.)

a. Relational contracts (ongoing relationship) vs. discrete contracts (little interaction other than contract itself, ex. buying gas)

i. Often no clear offer and acceptance for relational contracts

b. When is it a continuation of negotiation and when is it an agreement that forms a contract?

i. Consider §27 to find a contract implied in fact from parties’ relationship: 1. Whether the contract is of the type to usually be in writing 2. Whether it has enough details (Schumacher = lease renewal clause “at annual rentals

to be agreed upon” is not enforceable because a material term is left for future negotiations…they could have had rent to be decided by an external mechanism like cost of living increase)

3. Amount in controversy 4. Common or unusual contract 5. Standard from 6. Preparation for performance during negotiations

ii. All about objective manifestation of intent under RP test from full writing (intrinsic

evidence), words and actions. A lot of fact finding! (Palmer = reasonable person would find they intended for the Memo of Intent to be binding because they publically said there was a partnership)

1. Extrinsic evidence subject to parol evidence can be included

c. Ambiguous phrases i. “Subject to,” “general terms and conditions,” “subject to approval of the board” = objectively

appears intent is not to be bound (Empro) 1. Always objective not subjective

ii. But note: not always controlling because it could be used carelessly. Look at everything in context

d. Definiteness is required i. Can be ascertained by:

1. Explicit expression 2. Agreed upon methodology 3. Reliance on objection extrinsic event, condition or standard

ii. **Court should imply definiteness despite a few terms being left open if it’s otherwise clear the parties intended to contract UCC § 2-204(3)

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POLICING DOCTRINES

About existence and quality of assent at time of original contract or modifications (Where freedom of contract is undermined b/c you couldn’t properly value consideration)

Address Existence and Quality of Assent OR Substantive Terms of Exchange 1. Duress (remedy = recission)

a. Elements: i. Party is constrained to do what he otherwise would not have done (shouldn’t matter how

that party got in that position) and 1. By:

a. Improper threat with motive to take advantage of party (§ 176) b. Undue influence where pressure is exerted by person enjoying special relation

with victim that makes him especially susceptive to pressure (ex. lawyer and old client)

ii. Party did not have a complete and adequate timely legal remedy 1. Threat to withhold a legal right has an adequate remedy (Standard Box = threat to

refuse performance of a contract to sell boxes at a cheaper price after earthquake is not duress)

b. Business duress if continuing contract between parties (Machinery Hauling = P transited D’s steel to X who rejected it, so D told P to pay or would not work with him in the future, but this is not business duress since no threat to terminate existing contract)

i. Don’t need to be a party to a contract (S.P. Dunham = D’s threat to publicize debt to P’s agent’s clients if P doesn’t enter K as surety is business duress b/c public suit is not an adequate remedy and only reason P paid was to avoid loss of good will)

2. Misrepresentation / Omission / Concealment a. Misrepresentation (not easy to prove)

i. False representation

ii. Intent to induce reliance (Holcomb = realtor told P land was X acres when it was really Y, and buyers are not generally able to judge acreage by the eye and reasonable to rely on realtor)

iii. Other party reasonably relied on it

1. Disclaimers are not controlling but are relevant in determining whether claimant actually relied (Gibb = seller tried to hide termite infestation and sold house “as is” is liable for fraudulent misrepresentation)

iv. And suffered damages as a result

Fraudulent Negligent Innocent Made with purpose of deceiving while knowing it to be false

- Bringing buyer who wants quiet house on Sunday to avoid construction

Made without reasonable basis for knowing it to be true

- Tell buyer house will be quiet when broker doesn’t know about construction

Made with reasonable basis for knowing it to be true Bates = D bought stocks based on ‘s false/innocent representations about value of real estate)

Remember: liable for acts of your agent

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b. Fraudulent Concealment i. ∆ concealed or suppressed material fact

ii. ∆ had knowledge of material fact iii. Material fact not within reasonably diligent attention/observation, judgment of π iv. ∆ suppressed or concealed fact with intent π misled v. π reasonably so misled

vi. π suffered damage

c. Omission: Required disclosures i. Must disclose casually acquired info (costs incurred in acquiring it would have been incurred

in any case) ii. Duty to disclose factual circumstances and information about legal effect of contract terms if:

1. Fine print/hidden terms or 2. One party enjoys superior knowledge so justice demands it, aka fiduciary duty from

position (Weintraub = seller’s silence about roaches at night was fraudulent concealment)

d. Tort if there is a duty, then punitive damages (Restatement of Torts § 552C) (ex. doctor) i. Also sometimes classified as warranties, then expectancy (see last semester)

e. Remedy = Rescission or benefit of the bargain (aka value promised – value received + CD) (Porreco = no rescission where value of engagement ring was misrepresented b/c she could have checked herself) (Holcomb = no rescission b/c didn’t want the land b/c it was X acres)

3. Unconscionability à matter of law

a. Elements i. Absence of meaningful choice at the time of K for one party coupled with

ii. Contract terms unreasonably favorable to the other party (inadequacy of consideration)

(Inudstralease = forced into modification where warranty disclaimers are unconscionable when equipment never operated so equipment is worthless) (Jones = can’t require full payment of $1200 for $300 freezer when buyer is poor and already paid $600) and

iii. Characterized by gross inequality of bargaining power (In re Lisa Fay Allen = ok where P contacted to D to lease a washer/dyer and then filed for bankruptcy since terms were understandable and reasonable)

1. Consider: a. Age b. Status/intelligence / business sophistication / bargaining power c. Explanation (or lack thereof) of terms d. Firmness of seller’s position and speed of transaction (take it or leave it?) e. Availability of alternative sources of supply

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b. UCC § 2-302 (court finds as a matter of law) AT TIME K MADE

i. (1) If the court finds the contract or any clause of the contract to have been unconscionable,

court may 1. Refuse to enforce the contract, or 2. Enforce the remainder of the contract without the unconscionable clause, or i 3. So limit the application of any unconscionable clause as to avoid any unconscionable

result.

ii. (2) When found parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

c. CL types (if one is strong enough that could be sufficient) (basically the same test as UCC)

i. Procedural = bargaining unfairness (Weiner = speed/pressure of deal)

1. Lack of opportunity to understand the terms/business acumen or 2. Adhesive b/c boilerplate/difficult to understand and no meaningful choice

ii. Substantive = outrageous unfairness in consideration (Weiner = old, poor, uneducated man

fearful of losing his home sold it to D but thought he was only renting it) (Weaver = can’t get out of all liability by passing it on to D through indemnity clause where D is not educated and did not read the lease)

1. Courts are reluctant to determine adequacy of consideration, but they do it if does overly harsh/one-sided term does not serve a reasonable purpose/against policy

d. Disclaimers i. Valid under UCC § 2-316 (must be in writing, conspicuous and express àconstrued

wherever reasonable as consistent with each other)

ii. But can never disclaim (UCC §2-102): 1. Good faith 2. Diligence 3. Reasonableness 4. Care

iii. Express Warranty – presumed part of bargain

1. Seller refutes presumption: a. Buyer had actual or independent knowledge or expertise b. Waived right to inspect

i. Buyer wins if defect isn’t discoverable

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e. Standard Form and Adhesion Contracts

i. Useful in business setting but tend to indicate some inequality of bargaining power

ii. An offeree, regardless of apparent manifestation of assent is not bound by inconspicuous contractual provisions of which he/she is unaware, contained in a document whose contractual nature is not obvious

iii. Can’t unknowingly waive constitutional right that’s buried in a form-K

1. Proof of knowing, voluntary and intentional waiver

a. Parties represented by counsel, or b. Evidence of negotiation without substantial inequality in bargaining position,

or c. Waiver provision was conspicuous (written such that a reasonable person

against whom it is to operate ought to have noticed it.

iv. Reasonable Expectations Doctrine (§ 237) 1. A party who adheres to the other party’s standard terms does not assent to a term if

the other party has reason to believe that the adhering party would not have accepted the agreement had he known that the agreement contained the particular term

a. Term is bizarre or oppressive

b. Eviscerates non-standard terms explicitly agreed to

c. Term eliminates the dominant purpose of the transaction.

d. Inference is re-enforced if adhering party had no opportunity to read term, term is illegible or hidden

2. May be shown by prior negotiation

3. Inferred from circumstances or fact that term eliminates the dominant purpose of the transaction

f. CL Remedy =

i. Rescission or

ii. Severance 1. May refuse to enforce the contract, or

2. May enforce the remainder of the contract without the unconscionable term, or

3. May so limit application limit the application of any unconscionable term as to avoid

any unconscionable result

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4. Policing Modifications (all of the above apply here, too)

a. Elements (§89(a) and 2-209(1)) (Angel = ok for trash collector to ask for more from the city b/c of

unexpected increase in number of dwelling units):

i. Before full performance

ii. Because of unanticipated circumstances

iii. Fair and equitable (good faith) 1. Ex: Bad faith – Alaska Packers – party cannot lay foundation of an estoppel on his

own wrong where promise is simply a repetition of a pre-existing duty (there was business duress here)

b. Consideration (Minority to protect from duress. Majority just follows §89 unless proof of duress)

i. Preexisting duty rule: need new consideration to support any changes in existing K (Recker = D said he would go to court unless P paid extra $, so P did, but there is no consideration on P’s extra payment so void) (Foakes = If D would pay some upfront and the rest in installments P would give up right to interest on debt, held for P b/c agreement lacked consideration)

ii. But if the original contract mutually rescinded, then the new contract can be supported by mutual promises (Schwartzreich = employment agreement, then P said he was leaving so D offered him more and said for P to give him old contract since new one would take it’s place. P cannot be discharged before contract is up b/c rescinded and then enforced by mutual promises)

iii. Consideration is not adequate protection because it’s not representative 1. Parties can still agree to something that’s coined as consideration even though it

seems unreasonable (Stump Home Specialties) 2.

c. Accord and Satisfaction = affirmative defense to pay less than original contract (§279) i. Minds must meet

ii. Unmistakable communication to creditor that tender of the lesser sum is upon the condition

that acceptance will constitute satisfaction of underlying obligation

iii. Conditions must be plain, definite and certain = no other interpretation

iv. Offer must be accompanied with acts which the creditor is bound to understand

v. Bonafide dispute, which presupposes both parties’ knowledge that there exists a particular issue as to greater liability than is settled

1. Flowers = P did not know there was greater liability b/c of D’s bad faith, so endorsing checks for lesser amount is not a defense for D to get out of oil K

2. Arroll = dispute needs not rest upon factors arising from sound reason, so when consumer argued about bills and sent in check for less clearly expressing into for A&S, utility is not let off just b/c they were right and didn’t notice the letter b/c of volume of operations)

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INTERPRETATION

1. Parol Evidence (aka what prior/contemporaneous oral/written agreements can be used?)

a. = assumes duties not appearing in final written contract weren’t intended to survive

i. So a total cannot be contradicted or supplemented and a partial can only be supplemented

b. Policy = Promotes efficiency and certainty and serves against perjury/discourages fraud

c. Methodology à Determine what JX you’re in

i. Is the agreement integrated (i.e. intended to be final by both parties)?

ii. If so, is it fully integrated (i.e. intended to be final and complete by both parties)?

1. Note: If parties INTENDED the writing to be the complete with regard to some but not its terms, the writing is PARTIALLY INTEGRATED.

2. Liberal/CA/Corbin (majority) rule: a. JUDGE looks at extrinsic evidence to see if K is only partially integrated (aka

if PER evidence rule applies and extrinsic evidence should be let in for JURY) (Pacific Gas = words are not absolute, so need at least a preliminary consideration of all credible evidence to prove intent of parties)

3. Conservative/NY/Williston (minority) rule: a. JUDGE looks at 4 corners of contract. If appears fully integrated on its face

(and not ambiguous), then don’t look at extrinsic evidence at all (Trident Center = 9th Cir. bemoaning they have to apply Pacific Gas which chips away at legal system since words have to be adequate!)

4. UCC § 2-202: a. Only allow consistent additional terms if does not appear fully integrated

b. Even if fully integrated (and w/out finding ambiguity) can allow non-

contradictory and credible extrinsic evidence of: i. Course of performance = one contract with multiple segments

ii. Course of dealing = multiple contracts between parties over time iii. Usage of trade = industry custom

Merger clause = evidence of intent to be fully integrated (but in 4 corners jx it is proof)

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iii. If not, then it’s partially integrated, so FACTFINDER looks to extrinsic evidence to

interpret:

1. Ambiguities, then can look objectively at extrinsic evidence (QUESTION OF LAW) a. Clear and convincing à Must be ambiguous on its face, aka:

i. Genuinely uncertain and doubtful or ii. Reasonably susceptible to 2 meanings (Eskimo Pie = “non-exclusive”

doesn’t look ambiguous, but court will allow in general usage, custom and circumstances to show what RP would think, (it’s objectively ambiguous) But subjective evidence of secret intent inconsistent with general usage doesn’t matter!)

b. If the agreement on its face is reasonably susceptible to only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity.

2. Omissions, then can bring in evidence that is: a. Collateral

i. = separate, contemporaneous and often distinct agreement between the parties (often separate consideration)

b. Non-contradictory (of express terms) and i. = cannot express opposite of express or implied provisions of K

c. Was not likely to be reasonably included in writing i. = should not be so closely related to the primary transaction that it

should naturally be included (Mitchell = removal of the icehouse is too closely related to purchase of land not to be included in the written contract)(Masterson = difficult to accommodate formalized structure of deed, so likely terms about assignability were not included so can look externally. Only exclude if misleading)

3. Can have a partially integrated K that is fully integrated on the term in question

iv. Exceptions – Parol Evidence always allowed to show: 1. Fraud / misunderstanding / duress (b/c then no K) 2. Condition precedent to formation of contract (b/c then no K yet) 3. Subsequent agreements 4. Promissory estoppel 5. Misleading or deceiving 3rd party

See Interpretation

See Gap Fillers

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2. Interpretation of Ambiguity à how do we use EE to ascertain terms’ meaning?

a. Goal: ascertain parties’ intent at K formation through objective manifestation

b. Look at contract as a whole (harmonize parts if possible) to see if it’s clear on its face when interpreted consistent with ordinary meaning (Berke Moore = “concrete surface included in the bridge deck” is not ambiguous as evidenced by mutual understanding through extrinsic evidence of price estimate)

i. If not, then patent ambiguity (= ambiguous on its face due to inconsistency, obscurity, or

inherent uncertainty of language used) 1. Ex. “chicken” could mean broiler, fryer or roaster

c. Look at extrinsic evidence to determine if there is a latent ambiguity (= clear and intelligible

language suggests a single meaning, but extrinsic evidence suggests another)

i. If so, then look objectively at extrinsic evidence to interpret (Turner Holdings = “under consideration” is not subject to hidden intent of one party, so go with its ordinary meaning)

1. 2 step process like parol evidence that requires peeking outside the K first a. Look outside to see if there is a problem b. If there is, look outside to fix the problem

2. Consider objective manifestations of intent and custom (see below)

3. Ex. “dozen” usually = 12, but a baker’s dozen = 13

ii. UCC (§ 1-203, 205, 2-208)

1. Best evidence of intent is actual performance

2. Usage of trade and course of dealing and performance can be used to contradict written agreements and modify express terms, but not negate them entirely (Nanakuli = parties are bound by usage of trade to which they are or should be aware, universality is not required, so past performance of not objecting to express language implied adoption of custom of price protecting)

a. Express terms prevail over course of performance, course of dealing, and

usage of trade;

b. Course of performance prevails over course of dealing and usage of trade; and c. Course of dealing prevails over usage of trade

d. If 2 meanings, one fair (a RP would make it) and one not, then presumption that the just/rational

interpretation is correct (Sutter Insurance = commercial reasonableness is useful guide) i. If clear both intended particular meaning, that trumps objective meaning (§201)

e. Use punctuation to find clarity (Lewis)

f. Construe ambiguous terms against the drafter

g. Courts always try to enforce the contract and not have to throw it out

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3. Gap Fillers for Omissions

a. Is the gap small enough to be filled?

i. If a crucial term (like duration or price) is omitted, then:

1. CL = the contract fails for indefiniteness (doesn’t cure as many problems as UCC)

2. UCC = may be able to use: a. Industry standard or b. UCC gap fillers (§2-204:

i. Doesn’t fail for indefiniteness if intent to K and ii. Reasonably certain basis for giving remedy

1. Southwest = intended to K and didn’t think delivery term was critical, so gap filler

b. If small enough to be filled, then:

i. Look to intent of parties through objective manifestations (Haines = no duration for sewage contract with NY, so fairly implied by “reasonable time” since would have specified if intent was to be perpetually bound or terminable at will) and/or

ii. Notions of fairness given the circumstances (good faith matters)

1. Consider usage of trade and course of dealing and performance

a. Keppy = K to revitalize pigs failed to specify duration but can be fairly implied by nature, subject matter, and relationship of parties, so not terminable at will

b. Haslund = omitted details about type of stock to be paid can be filled in w/out undue burden by looking at industry custom, but value of company is a sham so $0

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4. Good Faith (// Unconscionability)

a. Common Law (Restatement § 205)

i. If agreement gives one party substantial discretion in performance that deprives another of the benefit of their bargain à good faith applies

1. Does agreement ostensibly allow to or confer upon defendant a degree of discretion in performance tantamount to power to deprive plaintiff of substantial proportion of agreement's value?

2. If so, did parties intend to make enforceable contract?

3. If so, did parties intend to make an enforceable contract?

4. Is cause of damage result of ∆’s abuse of discretion a. Defense: or does it result form events beyond control of either party against

which ∆ has no obligation to protect π

b. UCC i. 1-203 - Every K or duty within act imposes duty of good faith in performance or enforcement

ii. 2-306 - K for output is not too indefinite since it is held to mean actual good faith output

1. Nor does K lack mutuality of obligation since party who will determine quantity

required to per ate plant or conduct business sin good faith and according to commercial standards of fair dealing in trade so that his output will proximate a reasonably foreseeable figure

a. Output K - agreements to sell all goods or services party may produce or perform to another party

2. UCC - output K does NOT lack mutuality and is NOT unenforceable because of indefiniteness in that quantity for term is not specified

a. Exclusive dealing imposes an obligation to use best efforts. b. Parties are bound to reasonable diligence and good faith in their

performance.

iii. 2-306 Output Requirements and Exclusive Dealings 1. (1) term which measures quantity by output of seller or requirements of buyer

means such actual output may occur i good faith except that no quantity unreasonably disproportionate to any stated estimate or in absence of stated estimate to any normal or otherwise comparable prior output or requirement may be tendered too demanded

a. (2) Lawful garment by either side for exclusive dealing in kind of goods concerned imposes unless otherwise agreed, obligation by seller to use best efforts to supply goods and buyer to use best efforts to promote their sale

2. Parties must act in good faith toward one another 3. Good faith cessation of production terminates obligations and excuses further

performance by party discontinuing production

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CONDITIONS

1. Conditions vs. Promises à contract construction is the most important: uniformity!

Condition (ex. satisfaction clause) Promise

What Operative fact occurring after acceptance but before discharge of obligations upon which the rights/duties of parties depend (§ 224)

A declaration made as part of K formation that one party will or will not do something, fulfillment of which occurs after acceptance

Made by Agreement of both parties to qualify start of contract obligations (must be enforced or someone loses value of the deal)

One party to create an obligation or detriment in the Promisor (part of exchange of consideration)

What it does Postpones a duty or other relationship Discharges a duty when fulfilled

Consequences § 225

Non-occurrence prevents discharge of obligations (K never comes to fruition, no CD) Luttinger

Non-fulfillment constitutes breach w/ right to CD (negligible if substantial perform.)

Performance Need complete

Substantial ok (ex. construction contracts)

If ambiguous Presumption it’s a promise to avoid forfeiture (§ 261) (but don’t manufacture ambiguity)

i. How to decide if it’s a condition or a promise

1. Words/phrases (Merritt Hill = undertaking to produce mortgage confirmation at closing is a condition b/c words like “subject to”) (Howard = previous paragraph said “condition precedent” and this is about something not to be done, rather than something to be done, so it’s a promise that P cannot plow field over before D inspects and K is not forfeited)

2. Intent (Glaholm = “vessel to sail on or before X” is a condition precedent b/c that best effects the intent of the parties since entire success depended on date)

ii. Policy to avoid disproportionate forfeiture (= loss of property/right because of failure to perform a duty)

1. Holiday Inn = failure to renew option properly should be afforded relief b/c P would lose yearly payments on 5 year option and no harm to D

a. Can be invoked to avoid forfeiture of the right to exercise option where Optionee:

i. Has paid for option, ii. Remains ready to perform,

iii. Has acted in good faith, and iv. Optionor

1. Hasn’t suffered injury justifying termination, 2. None of Optionor’s reasonable expectations have been

defeated. 3. Optionor receives benefit of bargain

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2. Brown-Marx = where loan if P meets conditions and alternative lower loan if he doesn’t, complete performance of the conditions is required because no risk of forfeiture

3. Can excuse violation of an express condition by interpreting it as a promise (§229) if:

a. It’s not material (aka each party essentially got what they bargained for) (Jacob & Youngs = failure to install specific pipes is violation of a promise b/c trivial and innocent departure from bargained performance)

i. Often the case in construction contracts

b. No detriment to other party

c. Good faith circumstances surrounding violation (JNA = T did not send in option to renew on time b/c of negligence, but didn’t hurt LL and T would have forfeiture by moving restaurant, so relief granted)

d. All about equity

4. Like UE

5. Restatement § 230

a. If under the terms of the contract the occurrence of an event is to terminate an obligor's duty of immediate performance or one to pay damages for breach, that duty is discharged if the event occurs.

b. The obligor's duty is not discharged if occurrence of the event i. Is the result of a breach by the obligor of his duty of good faith and fair

dealing, or ii. Could not have been prevented because of impracticability and

continuance of the duty does not subject the obligor to a materially increased burden.

c. The obligor's duty is not discharged if, before the event occurs, the obligor promises to perform the duty even if the event occurs and does not revoke his promise before the obligee materially changes his position in reliance on it.

iii. Conditions of Satisfaction

1. Unless parties agree otherwise, decision as to whether party is satisfied must be judged by an objective standards

a. Ex otherwise: parties agree to reserve to one party absolute and unqualified freedom of choice in matter not involving fancy, taste or judgment

iv. Qualifications 1. Avoidance via active frustration of condition will not be allowed (Du Pont) 2. Failure to meet unqualified express condition will not be excused (Hanna) 3. Insurer’s express condition requiring proof of loss may be waived by subsequent

course of conduct (CT Fire)

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b. Order of performance (if gap, fill with implied condition fixing order)

i. Simultaneous (concurrent conditions that are mutually dependent)

1. Presumption in favor of simultaneous performance (when each performance takes

about same time) absent language showing intent was otherwise (§234) b/c minimizes risk 1st performing party won’t receive return performance

a. If you agree to simultaneous performance, you can’t just wait and see à you must begin in good faith

2. UCC = tender of payment when delivery is made absent language to contrary (UCC §2-507, 2-511)

ii. Sequential, often to perform work (Stewart = construction contract w/ no payment agreement implies sequential performance where duty to pay matures after substantial performance b/c party whose performance takes longer must start first)

1. Policy = minimize credit risk (employers less risky than employees) a. Ex. colleges and theatres require payment in advance

2. First = precedent/independent covenant (ex. A must build house before B’s duty to

pay matures)

a. Promissory condition = event that is both promised by a party and designated as an express condition to the other party’s duty (ex. A’s promise to mow the law before B pays him = express promissory condition precedent aka independent)

b. Non-promissory condition = event that is an express condition to one party’s duty (ex. the weather or stock market)

3. Second = dependent covenant (only matures when condition precedent is complete)

c. Good faith and condition precedents

i. Objective reasonableness standard is favored when possible unless clearly otherwise

1. Need to try to meet conditions in good faith (Luttinger = condition precedent of

finding X% loan was not met after going to only one bank, but ok b/c good faith that that was the only bank that could have provided that loan)

2. And can’t prevent someone from meeting a condition precedent and then sue a. So even subjective standard must be exercised in good faith (Forman =

contract to purchase property was subject to seller approving buyer’s credit report, but buyer had great credit and seller tried to renegotiate instead of approving so bad faith)

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Language Performance Order Obligation

Express Condition / Promissory Condition

Precedent Independent

Implied Promise (presumption) Subsequent? Dependent

Concurrent conditions with reciprocal duties

Simultaneous (presumption)

Mutually Dependent (presumption)

2. Material Breach (with order and/or quality of performance)

a. = bargained for benefit is not being realized by one of the parties

i. § 275 – Material breach, consider: 1. Extent to which injured party

a. will obtain substantial benefit which he could have reasonable anticipated b. may adequately compensated in damages for lack of complete performance c. party failing to perform has already partly performed or made preparations

for performance 2. Greater or less hardship on party failing to perform in terminating K 3. Willful, negligent or innocent behavior of party failing to perform 4. The greater or less uncertainty that party failing to perform will perform the

remainder of K

ii. Consider: (§241) (Walker = failure to clean cobwebs off signs is not a material breach of service K)

1. Deprivation of expected benefit 2. Availability of compensation 3. Extent breaching party will suffer forfeiture 4. Likelihood breaching party will cure his failure (if partial breach and time, can cure

and must be allowed the opportunity to do so unless also repudiates) 5. Extent breaching party acted in good faith

iii. If substantial or complete performance, then no material breach

1. Trouble with express conditions that are not filled to the letter

a. Plante = house builder misplaced a wall but owner didn’t complain until later, didn’t diminish value, and did everything else, so substantial performance since essential purpose of contract was met) BUT SEE

i. Grun = roof was not one color, owner complained early and often, and could only be fixed by replacing the whole roof (cost of replacement is factor to consider in magnitude of breach), so frustrated the purpose of the contract)

iv. If waiver, then no material breach (MRI = D’s nonpayment was a material breach, but then P’s suspension of the contract (instead of cancellation) implied readiness to continue the contract and thus waived the materiality of the breach. Suspension was not a material breach, either, because right to assurances (see below))

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b. If material breach, then other party’s duties are discharged if breach is not cured within time in which performance was to occur (§237)

i. UCC right to rejection (2-601 = requires perfect tender unless contracted otherwise, 602)

ii. UCC right to revoke acceptance (2-608)

iii. UCC Installment Contracts 1. 2-612(1) - delivery of goods in separate lots to be separately accepted -->

installment K

2. Installment K wrongful

a. 2-612(2) - buyer may reject any installment which is non-conforming if it substantially impairs value of that installment and cannot be cured

b. 2-612(3) - whenever non-conformity or default with respect to one or more installments substantially impairs value of whole K, breach of whole

c. Substantial impairment purpose is to preclude party from canceling K for

trivial defects

3. Anticipatory Repudiation a. Promisor suggests it does not intend to perform or it becomes apparent he cannot perform (§250)

b. Repudiation

i. Statement by the Obligor to the Obligee indicating that the Obligor will commit a breach that would of itself give the Obligee a claim for damages for total breach under § 243, or

ii. Voluntary affirmative act which renders the Obligor unable or apparently unable to perform without such a breach.

c. Requirements i. Must be sufficiently positive and express (Hochester - European trip cancellation)

ii. Promisee can then:

1. Wait until performance is due (but must mitigate) 2. Cancel the contract 3. Act in reliance on the repudiation (Promisor can retract repudiation before this) 4. Immediately bring suit against the Promisor 5. Urge performance

d. Can also cease performance and cancel a contract when:

i. Other party fails to satisfy an express promissory condition or

ii. Other party commits an uncured material breach.

1. But must allow other side opportunity to perform! (Scampoli = buyer wanted new TV while keeping old one but seller was willing to fix the old TV and has not breached until given the opportunity to do so) (Hathaway = concert hall can’t fail to turn on heat b/c they *wrongly* assume performers won’t show b/c of the snow)

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a. If other side can show ability to perform or actual performance, then can sue you for breach for ceasing performance without cause (UCC §§2-610, 2-611)

b. So best to suspend (see below) and wait until performance is due to sue, although mitigation issues might come up… (Kranz = buyer rejected title before closing b/c bld. wasn’t legal, but seller could have fixed by closing so buyer breached)

iii. BUT: default of one or more, no repudiation can amount to anticipatory breach of the rest of the installments not yet due (Greguhn)

e. Can suspend performance under §251 and UCC §2-609 when:

i. Not a party already in breach, ii. Have reasonable grounds for insecurity,

iii. Demand adequate assurance (in writing if UCC) of party’s future performance and iv. Have not received it (b/c that = anticipatory repudiation)

f. But if you don’t demand assurance and instead demand a material change or won’t perform, then

you’re the one breaching

4. Damages a. Severability matters

i. = Depends on intent. If parties assented to all promises as a single whole so there would have been no bargain if any promise were struck out, then not severable (United Advertising = apportioned payment per billboard with a termination and modification clause show intent to be severable)

b. Elements i. Several & distinct items; and

ii. Consideration is apportioned to each item based on its value as a separate unit rather than part of whole...examine:

1. Parties’ intent disclosed by language of agreement, 2. Manner of performance, 3. Method of payment, 4. Circumstances surrounding contract execution & operation

c. Remember that if you substantially perform, other party can deduct damages sustained by lack of

complete performance

d. Where total price for the work is set out in the contract, the work isn’t divisible just because progress payments are made (K&G Construction)

i. So in order to establish liability, the court interprets the parties’ contract to establish:

1. Relationship between promises (dependent or independent); 2. Quality of performance (material breach or substantial performance); 3. Severability of performances; and 4. Injured party’s options in the event of receipt of less than substantial performance 5. (non performance – bulldozer in home) – is treated as reason for with-holding

performance (payment).

e. And if you materially breach you can still get quantum meruit to avoid UE

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EXCUSING PERFORMANCE

1. Mistake – was there mistake? By one or both? Material? Who bears the risk?

a. No doubt parties intended to contract but both are mistaken about a key fact at time of formation

(although there’s mutual assent b/c they have and agreed to same understanding) so excused! (Sherwood = mistake that cow was barren, not that cow was probably barren, is material and was mutual, so excused from K)

i. Compare to misunderstandings above in Mutual Assent

b. Contractual Mistake - belief that is not in accord with the facts i. erroneous belief of one or both parties must relate to fact in existence at time K executed

ii. Belief which is found to be ixn effort may not be in substance a prediction as to future occurrence or nonoccurrence

c. Results i. If mutual and material, then rescission (§152)

ii. If unilateral and material, then rescission iff: (§153) (usually computation errors)

1. Effect of enforcement is unconscionable (ex. clerical error: Donovan) or

2. Other had reason to know of mistake or it was his fault or

3. Notice before reliance (Triple A = bidder for construction contract who contacted

city before bid was accepted and told about unilateral mistake in calculations = rescinded b/c notice before reliance (here dissent, but majority view)) – bidder acted in good faith without negligence, reasonably propmpt in notifying of error, mistake re: material part of K, mistake magnitude = unconscionable, relief returns parties to status quo with

iii. Unless adversely affected party bears the risk (§154) (so don’t sue…) OR

iv. Reliance

d. Who bears the risk? §154 i. Express in K (allocated in a clause or via condition precedent – as-is clause, Lenawee

ii. Implied by intent, fairness or custom on superior risk bearer 1. = one with the better ability to plan for the problem (ex. more knowledge or ability to

get insurance) (ex. steel provider says he’ll provide to Ford, but then a supervening event occurs. The steel provider bears the risk because should have known and prepared)

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2. Impossibility and Impracticability

a. Compared to mistake

i. Mistake occurs at formation of contract ii. Impossibility and impracticability result from unforeseeable intervening events that were

not contemplated at the time they entered into the contract (no allocation of risk!)

b. Impossible = intervening event that makes performance objectively impossible (§§262-263, UCC §2-613)(Taylor = hall destroyed by fire before concert through neither party’s fault and risk not allocated in agreement = both parties excused b/c having a hall is the foundation of the contract, i.e. necessary for performance of duty)

i. Where positive K to do something: contractor must perform or pay damages although in consequence of unforeseen accidence, performance of K has become unexpectedly burdensome or impossible

1. In K where performance depends on continued existence of given person or thing, condition is implied that impossibility of performance arising from perishing of person or thing shall excuse performance

ii. Where risk was foreseeable and under control of one party, court will not relieve performance without notice re: impossibility (Canadian Industrial)

iii. Can still recover quantum meruit for work done before impossible to avoid UE (Bell = building A/C installer was working on burns down before he was done, so can sue for QM but not loss profit…just a way to enforce equity by reading substantial performance by P as condition for full performance by D?)

c. Impractical = intervening event that changes the calculus so much that it ceases to accomplish the

economics bargained for (excessive and unreasonable cost) (UCC §2-615)

i. Rare!

ii. Must be so extreme that it goes against logic of the contract (depends on facts, not $) 1. So basic assumption must be that it will not occur (Mineral Park)

iii. Where party has agreed without qualification, to perform an act which is not in its nature

impossible of performance, he is not excused by difficulty of performance, or by the fact that he becomes unable to perform.

1. HOWEVER When performance depends upon existence of given thing and such existence is assumed as basis of agreement, performance excused to extent that thing ceases to exist

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iv. Something is impossible when it is not practical

1. Impracticable - only done with excessive and unreasonable costs -- our question is when

a. Where difference in cost is so grate and has the effect of making performance impracticable

i. Contingency/something unexpected must occur ii. Risk of unexpected must not have been allocated either by agreement

or by custom 1. Express or implied from agreement or 2. From surrounding circumstances - custom and usages of

trade a. Occurrence of contingency must have rendered

performance commercially impracticable

v. But if risk is expressly allocated, then you’re screwed!

3. Frustration of Purpose

a. = cost of performance does not change (as above), but value of what a party is going to receive drastically decreases because of an unforeseen intervening event (so no mistake) (Krell = LL advertised to rent apt. with view of coronation and T bought, but then King became sick so no coronation and T didn’t want it. No express purpose in K, but court admitted parol evidence showing purpose and found that viewing the procession was the foundation of the contract so T is excused from paying b/c a state of things essential to K performance failed to exist and no risk allocation)

b. Elements i. What was foundation of k?

ii. Was performance prevented? iii. Was event which prevented performance of K of such a character that it cannot reasonably be

said to have been in contemplation of parties at date of K iv. the change in circumstances has made performance different from what was reasonably

expected; v. the risk was unforeseeable; and

vi. the underlying value of the bargained for exchange was destroyed by a supervening event.

c. Compared to impracticability/impossibility

i. There parties assumed cost of performance as bargained, here they assume basis for bargain will continue to exist, but supervening event destroys both so excused!

d. Challenge is drawing line between events sufficiently unforeseeable and serious to justify relief through cessation

i. Ex. renting lot for 5 years to sell new cars then severe restrictions by government on selling new cars, but this was foreseeable during WWII and can still sell some, so ok

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