CONTRACTS II OUTLINE

CONTRACTS II Schooner Spring 20111

THE MEANING OF THE AGREEMENTI. PRINCIPLES OF INTERPRETATION

a. Assume an enforceable K exists or at least have a bargain

b. Three basic theories:

i. Subjective

1. Meeting of the minds

a. What parties thinking at moment they entered into K

b. About protecting autonomy

2. Raffles v. Wichelhaus (Eng.)a. Big K for delivery of cotton; two ships called Peerless

b. P thought cotton was coming on earlier Peerless

c. Holding: no meeting of minds so no K

3. Problems:

a. Often prevents Ks from being enforced, not what most want

b. Doesnt recognize words that have certain meaning in normal usageii. Objective

1. What reasonable person would conclude based on words and conduct of parties

2. Sophisticated business and attorneys often like, judges favor as well

3. Problem:

a. Neither party may have thought what reasonable person thought

4. Lands End Hypo:

a. Specific industry definition of red

b. You didnt get red you wanted and Lands End red doesnt follow industry definitioniii. Modified-objective

1. Most identified w/ Prof. Corbin

2. Three step approach R 201:

a. (1) If parties attach same meaning to term it has that meaning

b. (2) A is the innocent party, use As interpretation when:

i. If A didnt know B thought different, but B knew what A thought

ii. If A had no reason to know B thought different, but B did have reason to know what A thought

c. (3) If neither knows what other was thinking then no K existsd. Knowledge at the time agreement was made!c. Joyner v. Adams (NC)i. P Joyner originally K w/ Brown Investment Co. to develop office park

1. Brown has financial difficulties, lease amended to substitute D Adams

ii. K includes term if fail to develop by end of Sept., then rent escalates under price index formula

1. Parties disagree as to what development means

iii. Adams claims developed means get lots ready for construction (water, sewage, etc)

1. All lots developed, but one has no building

iv. Joyner claims development means constructing buildings on all lots

v. Trial court: MSJ granted for D Adams

1. Reversed and remanded to determine parties intent

a. Trial ct. then said no meeting of minds on rent escalation term

i. Takes subjective approach

ii. Ambiguity should be resolved against D Adams as drafter of amended leasevi. Both parties on appeal disagreed that there was no meeting of the minds

vii. Memo from accountant saying Adams agreed to completion of buildings w/in five yrs or rent escalates

viii. D Adams talks about trade usage; sophisticated parties in real estate business understand develop means get lots ready for construction

ix. Holding: reversed and remanded; trial court didnt error in finding no meeting of the minds on rent escalation term

1. But need to determine what parties knew about each others meaning

a. Court takes side of innocent party

b. Modified-objective approach of R 201(2)

2. Rejects interpreting term against drafter (contra proferentem); R 206a. Ambiguous as to who chose the language for the rent term

b. Not an adhesion K, both parties wrote K and arms length negotiation

x. On remand:

1. Found in favor of D Adams b/c neither knew nor had reason to know development meant starting construction on all buildings

2. P Joyners testimony reveals two versions of her meaning

3. P lack of communication w/ negotiations didnt give D reason to know

4. Lack of evidence D assented to K in reliance on completed building meaning

a. D rejected completed building language

b. None of Ps negotiators informed D that P knew of rejection, disagreed w/ it, or would not accept it

5. Extensive experience w/ real estate gave D no reason to know development meant construction

d. Maxims of Interpretation (not in order of importance, shouldnt be used all at once)

i. Noscitur a sociis: meaning of word affected by others in same series

ii. Ejusdem generis: general term + more specific terms includes only like specific termsiii. Expressio unius exclusio alterius: if one or more specific times listed w/ more general terms, other items, although similar in kind, are excluded

iv. Ut magis valeat quam pereat: prefer interpreation that makes K valid

v. Contra proferentem: if two reasonable meanings, interpret against drafter

vi. Interpret K as whole

vii. Purpose of parties

viii. Specific provision qualifies more general one (states exception to it)

ix. Handwritten or typed provisions control printed provisions

x. Public interest preferred

xi. R 203(a): prefer interpretation makes agreement reasonable, lawful, and effective

1. Posner: common sense approach

e. If courts finds failure to agree on material term, may be appropriate to find no K; R 33

i. Other cases, may supply reasonable term; R 204f. Frigaliment Importing v. Intl Sales Co. (NY)

i. Issue: what is a chicken?

1. P Frigaliment says chicken means young chicken, broiler

2. D Intl Sales Co says chicken means any bird of genus meeting K specifications

ii. Action for breach of warrant on second K

1. First K: 75,000 lbs. 2.5-3 lbs @ $33 and 25,000 1.5-2 lbs. @ $36.50

2. Second K: same except 50,000 lbs. of heavier chicken called for, price of smaller birds $37

3. Both for US Fresh Frozen Chicken, Grade A, Government Inspected

iii. Holding: P Frigaliments complaint dismissed; failed to meet burden showing chicken used in narrower rather than broader sense1. Plain language: in cables P used English word chicken instead of German, Huhn, which includes both Brathuhn (broilers) and Suppenhuhn (stewing chicken)

a. D asked if meant any kind of chickens, and P said yes

2. Trade usage: P claims chicken means young chicken

a. No evidence seller knew about trade usage

b. One witness says when he wants broiler he says broiler

c. Defendants witness says a chicken is everything except a goose, a duck, and a turkey

3. Legal standard: D claims government regulation should be dictionary; has several categories of chicken

a. K doesnt say if in doubt use agriculture regulations

4. Price: D claims impossible to obtain broilers at $33

a. P must have expected D to make some profit

b. Schooner: not really good argument b/c Ks are taken for a loss

5. Course of performance: D points out that after it received 1st shipment of larger birds, D confirmed it wanted 2d shipment

a. If P sincere, wouldnt have allowed 2d shipment

6. Ds subjective intent coincides w/ objective meaning of chicken

iv. Using R 201(2)(b):

1. No objective evidence seller had reason to know buyer meant young chicken

2. Given statements, government regulation, and price, buyer had reason to know D meant larger chicken

v. Parol evidence rule wouldnt apply b/c parties didnt intend writing to be final expression of agreement

g. Ambiguity & Extrinsic Evidence

i. Courts often state plain meaning of K should govern, and extrinsic evidence (surrounding circumstances) admissible only if court finds K ambiguous

ii. Modern contextual approach:

1. R 202(1) rejects ambiguity as prerequisite for extrinsic evidencea. Words and conduct interpreted in light of all circumstancesi. Limited by parol evidence rule (see below)2. Unless different intention manifested R 202(3):a. Words given generally prevailed meaningb. Technical terms and words of art favored if transaction in technical fieldiii. Latent ambiguity: not apparent from words alone, some courts allow extrinsic evidence to uncover

1. PA only allows extrinsic evidence if court finds it could be used to support a reasonable alternative interpretation

a. If yes, then fact finder chooses among competing interpretations

2. 7th Cir.: allows objective extrinsic evidence to establish latent ambiguity (disinterested parties, trade usage, etc)

a. Doesnt allow subjective extrinsic evidence (parties intent)

iv. All courts allow use of extrinsic evidence to interpret K w/ patent ambiguityh. Regulations

i. Modern view: definitions in statutes or administrative regulations not determinative

i. Trade Usage (see below)i. Existence of relevant trade usage can overcome even apparently unambiguous plain meaning of K languageii. UCC 1-205 defines usage of trade, says relevant to interpretation of agreementj. C & J Fertilizer v. Allied Mutual (IA)i. Action to recover for burglary loss on two separate insurance Ks

ii. K required visible marks of force and violence made by tools, etc. on exterior iii. Guy allegedly broke in and stole fertilizer chemicals

1. Evidence of forced entry on interior door, no visible marks on exterior

2. Truck tire tread marks visible in mud in driveway leading to and from Plexiglas door entrance to warehouse

3. Front door could be opened w/ leaving marks

iv. Agent told 37-yr. old farmer there had to be visible evidence, but didnt say visible marks on front

1. Even agent thought P was covered

v. Farmer didnt recall reading fine print

vi. Trial court: found for D, policy unambiguous, nothing in record to find door entered by actual force and violence

vii. Holding: reversed and remanded; applies reasonable expectations doctrine b/c adhesion K1. Interprets non-dickered terms wrt to reasonable expectations of non-drafting party

a. Even if express language contradicts those expectations!2. Adhesion K:

a. Boilerplate language or standard form

i. Not all form Ks (e.g., real estate form)

ii. Insurance policy

b. Disparity in bargaining power

i. 37-yr. old farmer w/ high school education

c. Take-it or leave-it language (cant edit)

3. Defeats reasonable expectations if:

a. Eliminates dominant purpose of transaction

i. Policy for burglaries that doesnt cover burglaries

b. Bizarre or oppressive

i. Odd for coverage to depend on skill of burglar

c. Eviscerates non-standard terms explicitly agreed to

i. Not applicable here

4. Court suggests sympathy to farmer, definition doesnt comport w/ laymans concept or legal interpretation ( not reasonable 5. Doctrine doesnt apply to terms they dickered for

a. Coverage on chemicals and equipment

b. Inside job clause

i. Some conversation b/w agent and farmer

c. Majority claims visible mark clause wasnt dickered for

6. Dissent: no evidence P believed wrong coverage

a. Not fine print ( must be objectively reasonable std.

b. Purpose of clause to stop inside jobs

c. Farmer knew disputed provision in policy b/c just like one I have on my farm

viii. Seven Characteristics of Adhesion K1. Printed form w/ many terms + meant to be a K

2. Drafted by only one party

3. Transaction is routine for drafter

4. Implicit or explicit that only those terms allowed

5. Document signed by innocent party post-dickering

6. Innocent party enters into few of these type transactions (compared to drafter)

7. Innocent partys obligation is pay $

ix. Reasonable Expectations Doctrine

1. Adopted by more than half of states

2. Three variations: a. Many Js limit by requiring presence of ambiguity

i. Ambiguous policy should be construed against insurer

b. Fine print undermines more prominent expectations

c. When overall circumstance suggest reasonable expectations negated

3. As C & J shows, doctrine may involve court refusing to apply exclusion unambiguously stated

4. R 211(3): standard form + other party knows party wouldnt manifest assent if knew term

a. Narrower than full-fledged doctrine (insurers perspective)

II. PAROL EVIDENCE RULE

a. R 209-218; UCC 2-202

b. Give legal effect to intention to make writing final and perhaps complete expression of agreement; R 209(1)i. If parties had this intention, then agreement integrated and bars evidence of prior or contemporaneous communications introduced to add to or contradict a written agreement

ii. Finality is first gate ( get past integration before deciding if complete and partial; R 209(2)1. Is there a written agreement?2. Is it final or can add to agreement?3. Preliminary to Qs of interpretation and parol evidence; R 209(2)c. Complete v. Partial Integrationi. R 209(1); UCC 2-202ii. Partial: everything that isnt completely integrated; R 210(2)1. Cant contradict written agreement; R 2152. May supplement w/ additional consistent terms R 216; UCC 2-202iii. Complete: adopted by parties as a complete and exclusive statement of the terms of the agreement; R 210(1); UCC 2-2021. Cant even supplement the agreement! R 216(1); UCC 2-202(b)d. Determining Integrationi. Strict classical approach: figure out if integrated or not by reading it; Willistons four-corners approachii. Today merger clauses commonly used to indicate complete integrationiii. Liberal modern approach: writing cannot prove its own completeness; R 210 1. Even if language doesnt appear unclear on its face (latent ambiguity); R 214(a)2. Corbin: finding integration should depend on intention of partiesa. Should consider all facts and circumstances surrounding execution of contract, as well as writing3. Merger clause doesnt necessarily controle. Purpose

i. Certainty, take written agreements more seriously, prevent fraud, deters rewriting or rethinking agreements w/ hindsight

ii. Substantive rule (can reverse on appeal for improperly admitting parol evidence)

f. Thompson v. Libby (MN)

i. Libby buying logs from Thompson

ii. Libby not paying, claims oral warranty agreement not in writing

1. Warranty: agreement that logs would be of certain quality

iii. Sold all my logs marked HCA in winters of 1982 and 1983 for ten dollars a thousand feet, boom scale at Minneapolis

iv. Contradiction: perhaps, K says all logs marked HCA

1. Saying all marked HCA of good quality may contradict

v. Holding: lower ct. erred in admitting parol evidence, strict four corners approach1. Writing completely integrated b/c doesnt seem informal or incomplete on its face

a. Therefore, exclude all parol evidence unless exception

2. Warranty term of sale, not separate K ( not collateral agreementa. Doesnt relate to subject distinct from writing

3. Extrinsic evidence admissible if necessary to apply K to its subject matter or in order to a more perfect understanding of its language

vi. Hypo: assume Libby and Thompson talk about warranty, Thompson sends follow-up letter promising logs of certain quality

1. Seems letter isnt prior or contemporaneous to agreement

a. Evidence shouldnt be barred

2. What if Thompson says he will send letter before K signed, but never gets around to it?

a. Helpful to deciding if agreement partially integrated or not

g. Exceptions to Rule

i. Interpret or explain meaning of agreement; R 214(c); UCC 2-202 comment 2

1. Periods of time included in phrase winters of 1982 and 1983

2. What meant by term boom scale

ii. Oral or written agreements after writingiii. Show agreement wouldnt take effect unless some specified event occurred; R 217iv. Invalid for fraud, duress, undue influence, incapacity, mistake, or illegality; R 214(d)1. Some courts limit fraud exception to fraud in the execution

2. Most courts will extend to fraud in inducement

a. Some limit exception for fraud in inducement if alleged misrepresentation contradicts a term in writing (Sherrod)

v. Right to equitable remedy

1. However, most cases reject use of promissory estoppel to avoid rule

2. Reformation of Kvi. Collateral agreements

1. R 216(2)a. Separate and independent consideration

i. Like going to Best Buy and being offered chance to buy warranty

ii. Where was consideration for warranty on logs?

b. Term in circumstances would ordinarily be omitted from writing

2. UCC 2-202(b):

a. More admissible, only exclude if find that if terms had actually been agreed upon would certainly have been included in writingh. Taylor v. State Farm (AZ)

i. Bobby Sid Taylor in accident and mad at his insurance company

ii. Didnt settle w/ other parties w/in amount of his policy, now has judgment against him for $25 million

iii. Claiming company refused to settle in bad faith

iv. Taylor gets some uninsured motorists money for a release of future claims

1. In full satisfaction of all contractual claims, causes of action he has or may have against State Farm and all subsequent matters

v. Taylor argues didnt intend release to limit tort claims, only K claims

vi. Trial judge found release ambiguous ( allowed parol evidence

vii. Appellate court said not ambiguous

viii. Issue: decide if release language reasonably susceptible to Taylors proffered interpretation in light of evidence relevant to parties intent

ix. Holding: reversed and remanded; language reasonably susceptible to Taylors proffered interpretation in light of evidence relevant to parties intent

1. AZ adopts Corbin view:

a. (1) Examine all evidence to determine integration and intent of parties

b. (2) Use parol evidence rule to exclude evidence that would vary or contradict the meaning of the written words

c. Judge may stop listening if proffered interpretation highly improbable

2. Legal character of bad faith not universally established so release could be reasonably interpreted as Taylor asserts

3. Parol evidence to support Taylors interpretation:

a. State Farm apparently didnt insist that release contain broad language ( suggests knew Taylor wouldnt sign if it did

b. State Farm knew large size of bad faith claim, Taylor would seek something more than $15,000 to release claim

c. Parties used limiting language in release, confining it to contractual and subsequent matters

4. Substantial evidence supports State Farms interpretation as well

x. Concurrence: rule amorphous, only this court can make final determination in K

i. Comparing Thompson with Taylor (approaches to parol evidence rule and interpretation)i. Thompson = supplementation; trying to add warranty term

ii. Taylor = interpretation; extrinsic evidence didnt show separate agreement

1. Showed conduct and background circumstances Taylor claimed were relevant to issue of whether release covered bad faith tort claim

iii. Cases demonstrate tension b/w views of parol evidence rule:

1. Classical Willistonian view: great weight to formal writing (both to parol evidence rule and questions of interpretation)

2. Modern Corbinian view: much greater use of extrinsic evidence in determining the completeness and meaning of written K

iv. Cases show relationship b/w four corners approach to integration under parol evidence rule and plain meaning approach to interpretation:

1. Courts relying on facial completeness of written K to conclude complete integration more likely to rely on plain meaning of words to bar extrinsic evidence to aid interpretationa. Occurs even though parol evidence rule explicitly states rule doesnt bar use of extrinsic evidence to explain or interpret!

b. Existence of merger clause may further compel such courts to assign plain meaning to words

2. Plain meaning doesnt allow extrinsic evidence to uncover latent ambiguity (see above)

v. Modern approach in Taylor allows use of extrinsic or parol evidence if disputed language reasonably susceptible to different proffered meanings

1. In making determination, court will consider at least preliminarily extrinsic evidence and need not find agreement patently ambiguous

2. Endorsed by R 214(c)j. Sherrod v. Morrison-Knudsen (MT)i. Sherrod sub w/ COP who is sub for Morrison-Knudsen

ii. Constructing family housing under government contract for Army

iii. Disagree about amount of earth that needs to be moved

iv. Sherrod thought it wouldve to move 25,000 cubic yards to get $97,500

v. Problem: didnt say in K that it was $390 per cubic yard as in Thompson where it was $10 per 1000 feet

1. Here, bargain $97,500 for lump sum of dirt

vi. Both parties agree LS means lump sum, controversy over how much LS is

vii. Merger clause barred verbal agreement w/ any agent either before or after K

viii. Sherrod claims Morrison rep. told him 25,000 cubic yards

ix. Sherrods bid accepted, started work, then found out double amount of dirt

x. COP threatened to w/hold payment unless K signed, Sherrod claimed COP officer verbally promised deal would be worked to pay for more than sum in K

xi. Sherrod brought suit to set aside price provision, recover quantum meruit, and tort damages, claimed fraud and breach of good faith

xii. Trial ct.: summary judgment for D Morrison

xiii. Holding: affirms summary judgment for D

1. Fraud exception to parol evidence rule only applies when alleged fraud doesnt relate directly to subject of K

a. Here, Sherrod claims fraud over amount of dirt to be moved

2. Oral promise directly contradicts express terms, parol evidence rule applies

a. Here, contention that $97,500 covered only 25,000 cubic yards contradicts merger clause and work done is lump sum

3. Since parol evidence rule applies, bad faith claim fails as well

xiv. Dissent: acknowledges fraud claim and focuses on injustice to parties

1. Prime has better information

2. Sherrod lost its credit and bonding, went out of business

3. Majority eliminated fraud exception

xv. Unilateral mistake, not clear bilateral mistake

1. Morrison: no mistake, told them what they were getting into!

xvi. Less strict parol evidence rule of Taylor would allow fraud evidence 214(d)

k. Nanakuli v. Shell Oil (9th Cir.)i. Nanakuli second largest asphaltic paver in HI (only two co. in HI though)

ii. Two long term supply Ks b/w buyer Nanakuli and seller Shell for asphalt

1. Five yr. K in 1963 for asphalt at reduced prices

iii. Breach of 1969 K for asphalt in Q

1. Price term as stated in K was Shells posted price at the time of delivery

a. Price and quantity

iv. Price remained the same until 1974 when Shell began to charge market price

1. Shell management changed in 1974

2. Arab oil embargo

3. Increasing price allowed by K

v. Nanakuli Pres. claims Shell promised never to charge more than Chevron chargedvi. Trial ct: granted JNOV in favor of D Shell b/c posted price term in K unambiguous ( exclude parol evidence 1. Excluded evidence on Shells course of dealing w/ Nanakuli vii. Buyer Nanakulis breach of K theories:1. Trade usage of price protection

a. Evidence all aggregate suppliers routinely price protected in 1960s and 1970s in HI, including largest supplier, Chevron

2. Good Faith requires price protection

a. Price protected in past in 1970 and 1971 for four and three months ( good faith requires it to continue

b. At very least good faith requires more notice of price change

viii. Seller Shells Arguments:

1. Shouldnt expand trade usage to include suppliers

2. Waiving K Term 2x doesnt = course of performance

a. UCC 2-208 comment 4: one instance not COP, but ambiguous whether two instances = COP

b. Difference b/w interpreting K a certain way and reading K to mean X, but willing to do Y this one time (waiver)

c. Interpret as a waiver when the parties acts are ambiguous

3. Price protection is not consistent w/ express K term

ix. Holding: reverse; trade usage of price protection was reasonably consistent w/ K terms ( enough evidence for reasonable jury to find for Nanakuli

1. Accepting Nanakulis broad definition of trade usage; includes both asphaltic pavers and asphalt suppliers in HI2. UCC 1-205(2): practice of dealing having regularity of observance in place, vocation or trade as to justify expectation of observance

3. UCC 1-205(3): court interprets to mean usage doesnt have to be one in partys trade as long as so common in locale should be aware of it

a. Nanakuli showed more than just regular observance b/c evidence all aggregate suppliers price protectedl. Standards of preference in interpretation; UCC 2-208(2); R 203(b)i. Express K terms

ii. Course of performance; UCC 2-208; R 202(4)1. Must be consistent w/ express terms

2. Here, evidence Shell price protected Nanakuli in 1970 and 1971 (see above)

iii. Course of dealing; UCC 1-205(1); R 2231. Sequence of previous conduct b/w parties fairly regarded as establishing common basis of understanding for interpreting expressions and conduct

iv. Trade Usage; UCC 1-205(2); R 2221. Existence and scope Q of fact, but if based on writing Q of law; R 222(2)2. Must establish that usage exists:

a. Clear and convincing evidence

b. Doesnt need to be universal, but well settled

c. Known or shouldve known3. May even add terms to agreement; UCC 1-205(3); R 222(3)m. Possible to write term to exclude course of dealings, course of performance, and/or trade usage when interpreting the contract; UCC 2-202 comment 2n. Three approaches to COP, COD, and TU:

i. Restrictive approach: all are inadmissible

ii. Middle ground approach: must be consistent w/ express terms

1. If inconsistent, intent of parties is unclear

2. If unreasonable, express terms = parties intent3. Prof. Kirst article cited in Nanakuliiii. Modern approach: almost always admissible, unless it cuts down express terms

o. Nanakuli embraces contextualism: interpret and enforce in light of commercial setting, parties aims and real-world context

SUPPLEMENTING THE AGREEMENTI. THE RATIONALE FOR IMPLIED TERMSa. Implied by law, not the parties

b. Why would a party enter into an agreement w/o terms?

i. Cost of negotiating every term outweighs benefits

ii. Determine how much time to put into K based on experiencec. Default rules (justifications) for implied rules:

i. Tailored: what parties wouldve agreed to if they had actually bargained

1. Assumes rational ppl. wouldve decided on X v Y

ii. Untailored: used to save time; economic efficiency

1. Example: implied warranties

iii. Fairness and public policy reasons for imposing regardless of what parties want

d. UCC wants K to be fulfilled, so courts have power to imply terms

i. No price term? Court usually uses market value

1. Standard: reasonable priceii. No quantity? Not likely to imply; UCC 2-201 comment 11. Driven by needs of parties, not markete. Wood v. Lucy, Lady Duff-Gordon (NY)

i. K signed by both P and D giving P the exclusive right to use Ds name on fashion items that he finds and then promote the sale of those items

1. D gets half of all revenues and profits

ii. Breach: D began to promote herself through Sears

1. D says agreement is not a K b/c no consideration; P didnt have a performance minimum ( no mutuality

iii. Trial ct. denied Ds motion for judgment; appellate ct. reversed

iv. Holding: reversed; court reads in a garden variety best efforts requirement1. An implied obligation to use reasonable efforts will prevent a somewhat indefinite promise from being illusory2. Must imply terms for K to have business efficacy

a. Otherwise Wood could do nothing, while at same time represent whomever else he wants

3. Cardozo believes promise to pay = promise to use reasonable efforts

a. Why would P bind himself if he wouldnt benefit?

i. Implies term b/c believes reflects intention of parties

v. What if it was a non-exclusive agreement? One sided ( no Kf. UCC 2-306(2): duty to use best efforts to supply goods or promote sale where K is for an exclusive deali. How exclusive unclear

ii. MDC Corp v. John H Harland Co.1. Holding: even though seller permitted to maintain certain relationships, sufficiently exclusive to obligate buyer to generate a market for sellers goodsg. Leibel v. Raynor (KY)

i. Dealer-distributor relationship for garage doors

ii. Dealer is Leibel; Raynor is the manufacturer and supplier of the garage doors

iii. Dealer has exclusive right to sell Raynors garage doors for indefinite time periodiv. Sales decrease over two yrs.

1. Supplier contacts dealer and terminates dealership (effective immediately), informing dealer that he is giving the exclusive right to another dealer

v. Supplier says he can terminate at will

vi. Dealer agrees, but says he is entitled to a reasonable amount of noticevii. Holding: summary judgment vacated; written notice was not reasonable; what constitutes reasonable is a question of fact for a jury

1. Reasonable = acceptable commercial conduct based on nature, purpose, and circumstances

viii. UCC 2-3091. (2) If indefinite in duration; valid for reasonable time

2. (3) Termination, except on happening of agreed upon event, requires reasonable notification be received by other party

a. Parties can agree to terminate w/o advance notice as long as it would not be unconscionable to dispense w/ notification 3. Comment 8 interprets (3) in light good faith, need time to:

a. Get rid of current inventory

i. Enough time to recoup the initial $ they put into it

b. Seek a substitute agreement (find another manufacturer to go into business with)

ix. Distribution relationships generally covered by UCC; Princess Cruises (Coakley):

1. Language

a. Not clear from facts

2. Nature of business

a. Distribution relationship, but overall purpose is sale of garage doors, not about being paid commissions3. Intrinsic worth

a. Not clear from facts, but sales primary essence

II. THE IMPLIED OBLIGATION OF GOOD FAITHa. UCC 1-203: obligation of good faith performance and enforcement for every K covered

b. UCC 1-201(19): honesty in fact in the conduct or transaction concerned

c. UCC 2-103(1)(b): for merchant good faith = honesty in fact and observance of reasonable commercial standards of fair dealing in the tradei. Subjective: honesty

ii. Objective: reasonable; can be wrong, but not intentionally

d. R 205: every K imposes upon each party duty of good faith and fair dealing

e. Good faith: intangible, abstract, no technical meaning, no statutory definition

i. Honest belief, absence of malice and fraud or seek unconscionable advantageii. Spirit of the Kiii. NY: depriving right of other party to receive fruits of KForm of Bad Faith ConductMeaning of Good Faith Conduct

1 Seller concealing a defectFully disclosing material facts

2 Builder willfully failing to perform in full (substantial performance)Substantial performance w/o knowingly deviating from specs

3 Openly abusing bargaining power to coerce increase in K priceRefraining from abuse of bargaining power

4 Hire broker; deliberately prevent consummation of dealActing cooperatively

5 Conscious lack of diligence in mitigating damagesActing diligently

6 Arbitrarily/capriciously exercise power to terminate KActing w/ some reason

7 Adopt overreaching interpretation of K languageInterpret K language fairly

8 Harass for repeated assurance of performanceAccept adequate assurances

f. Seidenberg v. Summit Bank (NJ)

i. Ps owned two brokerage firms; sold them to D Bank in exchange for stock in third co.

1. Ps retained executive positions in the two cos.

ii. Ps took reduced salaries in exchange for a bonus w/ expectation that they would work until age 70

1. K says would work a min of 5 yrs.

2. Bank fires them after 2 yrs.

iii. K said would work together wrt future performance; joint marketing programs

1. Performance linked to Ps compensation

iv. Ps claim bank:

1. Failed to allow close working relationship

2. Failed to develop existing relationships (low hanging fruit)

3. Delayed direct mail campaign

4. Failed to provide information and advice concerning employee benefits

v. Trial ct: dismissed claim

vi. Holding: reversed and remanded; bad faith determined by D state of mind and context

1. Includes the nature of the alleged breach and applicable industry standardsa. Can find a breach even when an express K term was not violated

2. Good faith performance = expectation of parties + purpose of K3. Parol evidence rule ordinarily has no impact on good faith claim b/c implied termvii. Three situations for applying good faith:1. K doesnt provide term necessary to fulfill expectations

a. Expectation relationship end at age 70 based on oral agreement

b. May find breach even when no express term of agreement has been violated (Nanakuli)

2. Bad faith was a pretext for exercising right to terminate K

a. Bank just wanted Ps co. and were willing to make employment agreement in order to get them

3. K expressly provides a party discretion regarding its performance

a. Subjective: imply a term based on reasonableness

b. Dont need to imply when objective

4. Sons of Thunder v. Borden, Inca. When bargaining power is unequal, cannot and should not assume parties acted in good faithi. But only one factor in determining good faith

g. Good Faith and Open Price Terms

i. Subjective: honesty in fact

ii. Objective: commercially reasonable behavior

iii. Can show breach of good faith w/ improper motive even if prices appear reasonableh. Requirements and Output Ks

i. Requirement K: seller agrees to supply whatever buyer needs

ii. Output K: buyer agrees to purchase whatever seller makes

iii. Potentially illusory? (common law said yes, but no more)

1. Exclusiveness is one sided: one party has an exclusive bargain, but other doesnt

2. Indefiniteness raises concern that one party has promised nothing

a. Example: promise to buy all that you produce, but you produce nothing so I buy nothing

iv. UCC 2-3061. Applies to dealers and distributors, as well as manufacturers2. Comment 2 implies good faith outputs and requirements

a. Good faith variations permitted

b. Minimum or maximum sets limits on intended elasticity

i. Morin Building Products v. Baystone Construction (7th Cir.)

i. Owner GM hires prime Baystone to build addition prime contracts sub Morin to build the aluminum siding

1. K said mill finish to match finish and texture of existing metal siding

2. Owner rejects Morins walls; Baystone refuses to pay Morin

ii. Satisfaction clause: if dispute over quality or fitness of materials or workmanship, decision as to acceptability rests strictly w/ owner

1. Work should be first class and what is usual or customary for other buildings is not part of the decision

2. Decision of architect in matters relating to artistic effect final

3. Clauses came out of form K

4. Problem: how much discretion does owner have?

iii. Trial ct.: jury verdict for Morin

iv. Issue: was jury instruction that satisfaction clause be evaluated using an objective, reasonable person standard proper?1. Difference b/w aluminum siding (commercial job) and a portrait painting (personal aesthetics/artistic effect)

a. Buying a portrait to be happyv. R 228: satisfaction of a reasonable person in the obligors position

1. Subjective standard more likely to be applied for personal servicesvi. Holding: K states satisfaction based on aesthetics, but K is ambiguous and probably didnt intend to subject subs work to aesthetic whim1. If it had been about aesthetics, rejection of subs work wouldve been proper even if unreasonable, as long as in good faith

2. GMs objective was to build auto plant, not build piece of art

3. Morin wouldve demanded premium if subjective std.

4. Objective reasonable person std. when K involves commercial quality, operative fitness, or mechanical utility

j. Locke v. Warner Bros (CA)i. Two agreements:

1. Eastwood and Warner Bros

a. Eastwood agreed to pay WB if Locke didnt succeed in getting films produced and developed

b. Locke unaware of this agreement

2. Warner Bros and Locke (agreement in dispute)

a. Locke essentially doesnt need to do anything and WB will pay her $250K/yr for 3 yrs supposed to submit ideas WB can approve or reject

b. Pay or play: if they take on one of her ideas, they can either pay her $750K or use her as the director

ii. Background: Locke and Eastwood divorce

1. Locke sues Eastwood for compensation owed, and Eastwood secures an agreement for Locke w/ WB in return for her dropping the suit against him

iii. Four claims: sex discrimination, breach of good faith, breach of K, fraud

1. Violation of positive law (sex discrimination) doesnt necessarily = breach of K

iv. Trial ct: granted MSJ in favor of D Warner Bros.

v. Holding: reverse MSJ on breach of K and fraud claims

1. Evidence shows that WB may never have intended to accept any of Lockes proposals

a. She was K-ing for opportunity to make movies w/ WB in order to get the experience to make movies elsewhere in the future

b. WB could reject based on subjective dissatisfaction, but can breach K if didnt consider proposals in good faith2. Trial ct. failed to differentiate subjective decision v. right that dissatisfaction be genuineIII. WARRANTIESa. Caveat Emptori. Classical rule: Chandelor v. Lopusii. Now implied warranties in Ks for sale for sake of high speed, high volume commerce

1. Implied by legislature

b. Warranty of merchantability: UCC 2-314i. Goods quality and fit for ordinary purpose

c. Warranty of fitness for a particular purpose: UCC 2-315i. Goods are not fit for the buyers purposesd. Express warranties: UCC 2-313

i. (1)(a) Any affirmation of fact or promise made by seller to buyer that relates to goods and becomes basis of bargainii. (1)(b) Any description of goods made part of basis of bargain

iii. (1)(c) Any sample or model made part of basis or bargain

iv. (2) Doesnt have to use formal words; can be oral1. More than mere puffery

v. Comment 3: buyer doesnt need to rely on fact, just needs to show affirmatione. Warranty of habitability

i. Javins v. First Natl Bank Corp (D.D.C.)

ii. URLTA

f. Bayliner Marine Corp v. Crow (VA)i. Crow bought a boat from Bayliner based on a test run of a model boat and prop matrix stating the boat (w/ 600 lbs. of equipment) would reach 30 mph

ii. His boat is customized (w/ 2000 lbs. of equipment) and only reaches 13 mph

iii. Bayliner repairs boat on multiple occasions and gets speed to reach 24mph once and consistently only 17 mph

iv. Dealer contacts Crow and tells him matrixes misrepresented the max speed, which is really only 23-25 mph

v. Dealer made no express warranties, but buyer felt the prop matrixes were an express warrantyvi. Trial ct: agreed w/ buyer and entered judgment for P

vii. Holding: no express warranty was made to P; prop matrixes were an express warranty limited to those exact makes and models1. Buyer didnt make his intended usage known to seller so there is no implied warranty of fitness for a particular purpose here

2. UCC 2-313: anything express can be an express warranty; dickered aspects of bargain (comment 1)a. (c) If model had a speedometer that could have been an express warranty

b. Representation, description, sample/model

3. UCC 2-314: ordinary purposea. Applies to merchants, but doesnt need to be commercial transaction

i. (2)(a) Pass w/o objection in the trade?

ii. (2)(b) Fungible goods of average, fair quality

iii. (2)(c) Fit for the ordinary purpose for which such goods used

iv. (3) Others may arise from course of dealing, trade usage

b. Comment 4: if not merchant UCC 2-314 serves as guide to resulting express warranty

c. Its a boat and it stays afloat so suitable for fishing

i. Crows intended usage is irrelevant; fulfills the expectation of a reasonable buyer

d. 850 hours of usage suggests it is being used for its ordinary purpose

4. UCC 2-315: particular purpose, not ordinary

a. Buyer must make purpose known to seller for this to apply

b. Not limited to merchant sellers

c. Warranty created only if rely on sellers skill or judgmentg. Disclaimers; UCC 2-316i. Express warranties:

1. UCC 2-316(1): disclaimer of express warranty is inoperative if cannot be construed consistent w/ terms in K that create express warranty

2. Existence may turn on application of parol evidence rule (subject to UCC 2-202)

ii. Implied warranties:

1. Requirements: UCC 2-316(2)a. Merchantability: must mention merchantability and in case of writing must be conspicuous

b. Particular purpose: can be less specific, but must be in conspicuous writing2. Other ways to disclaim: UCC 2-316(3)a. Can exclude w/ as is language

i. Most say have to be conspicuous

b. Can exclude or modify w/ course of dealing or performance and trade usage

i. Example: no warranties extend beyond description on faceh. Caceci v. Di Canio Construction Co (NY)

i. Have to redo foundation of house four yrs. after house built b/c builder built on decomposing soil

1. Builder had guaranteed for one year from title closing; title closed 1977

2. Repairs ($57K) more than house is worth ($55K)ii. Builder does repairs four years after title closes in 1981

1. Hires firm who finds out house placed on bad soil

iii. Holding: adopts implied housing merchant warranty

1. Two components: (may be two separate warranties)

a. Constructed in skillful manner

i. Manner in which work is performed

ii. May include defects that dont render house uninhabitable

b. Free from material defects

i. End result 2. Merger clause, for one year from title closing, has no legal effect wrt latent defects

a. Latent defects would not be exposed through a reasonable inspection

b. Against public policy, illusory, and self-contradictory

3. What reasonable builder shouldve known

a. Sellers knowledge is not important

b. Want to encourage them to find problems

4. Fact that builder came back willingly time and time again to fix floor suggests implied term

5. Disclaimers can be used, but viewed w/ suspicion

iv. Extensions and limitations:

1. Doesnt apply to non-merchant owner who sells home

2. May extend to lenders when involved in construction

3. Divided on whether applies to commercial buildingsIV. AVOIDING ENFORCEMENT

a. Sometimes otherwise enforceable bargains are voidable

i. One party lacked ability to assent b/c of lack of capacity (age/mental infirmities)

ii. Procedural, process unfair to one party (duress, undue influence, misrepresentation, fraud)

iii. So unfair shouldnt enforce (unconscionability)

b. Minority or infancy doctrine

i. Traditionally K voidable by minor, but power to affirm upon reaching majority; R 141. Very restrictive: no restitution unless minor misrepresented age or willfully destroyed the property

2. Justified on ground didnt have judgment to protect themselves in market place

ii. Today less justification given sophistication of teenagers and great involvement in consumer marketplace

1. More minor understood and exploited party, less sympathetic ct.

2. Some Js: minor who misrepresents age can still disaffirm, but may be liable for tort for fraud

iii. Dodson (P) v. Shrader (D) (TN)

1. 16-yr. old Dodson borrowed money from girlfriends grandmother to buy car

2. Runs it into the ground; w/in 9 mo takes in for service, cant afford burnt valve repairs

3. Calls Shraders and wants money back

4. Parks car in parents front yard, gets hit by passing car

a. Originally worth $5000, now worth $500

5. Two rules:

a. Benefit rule

i. Focused on value minor got from K

ii. Lease payments for similar vehicle

b. Use rule

i. Focus on depreciation

ii. What can potentially be returned?

6. Holding: throws rules togethermodified use rulea. If minor hasnt been overreached, no undue influence, K fair and reasonable, minor actually paid, and took and used article,b. Then minor must provide reasonable compensation for use, depreciation, and willful or negligent damage

i. Doesnt apply if fraud or unfair advantage over minorc. Remand

i. Findings on gross negligence wrt valve damage

ii. Review tortious counterclaim

iv. Minor liable for reasonable value of necessaries; R 12 comment f1. Parents responsible if minor cant pay2. Not true rescission b/c cant take them backv. Mere ignorance of minors age no defense to disaffirmance

vi. Minor must disaffirm w/in reasonable time

1. Depends how fast will depreciate

vii. Statutory limits:

1. Still bound to checking account if under 18

2. If statute says age is irrelevant, cannot use minority to avoid K.

viii. Courts split on pre-injury exculpatory agreements

ix. Courts split on effect of marriage and capacity to K

x. Mills v. Wyman reconsidered:

1. Make Levi a minor, different case?

2. Wanted compensation for alcohol, lodging, necessaries

3. Now a K, instead of restitution

c. Mental Incompetence

i. Hauer v. Union State Bank of Wautoma (WI)

1. Motorcycle accident results in brain injury

2. Guardianship eventually terminated after physician writes letter

3. Living off mutual fund of $80K

4. Bank loans Eilbes $7600 to start small business, defaults on loan

a. Suggests to Hauer that she take out short-term loan and invest in company using stocks as collateral

b. Promises to give job, pay interest on loan, and pay loan off when due

5. Schroeder (banker) called Hauers financial advisor

a. Concedes possible told him about Hauers brain damage

b. Was told Hauer needed interest income to live on

6. When loan matured, Hauer sued and tried to disaffirm

a. Jury finds Hauer lacked capacity and bank failed to act in good faith

7. Bank claims lack of evidence, asserts estoppel based on end to guardianship (objective standard)

8. Holding: affirms incompetence; adopts traditional cognitive testa. Whether person involved knew what he or she was doing and nature and consequences of the transaction; 15(1)(a)b. Finds jury had credible evidence

i. Under guardianship one-yr. before loan

ii. Lacked understanding of nature of transaction

1. Thought she was co-signing for Eilbes

iii. Expert found Hauer very gullible

c. Minority doctrine doesnt apply b/c adult incompetents subject to different degrees of infirmity

i. Avoidance must accord w/ equitable principles

1. Traditional rule: K not voidable if parties cant be returned to original positions; R 15(2)a. Exceptions:

i. Breach of good faith

ii. Unfair terms/consideration

iii. Knew or shouldve known of incompetence

d. Breach of good faith tied up in constructive knowledge of Hauers condition

ii. Restatement test:

1. Adopts traditional cognitive test, but also incorporates a reasonable test; 15(1)(b): qualified volitional test

a. Unable to act in reasonable manner wrt transaction and other party has reason to know

b. Person may understand what he is doing, but lack control

c. Did they understand (cognitive)? Were they able to act (volitional)?

2. Example: old lady changes life insurance to no death benefit w/ larger annuity after stroke, unable to change back b/c of nervous breakdown and prospect she will die before husband, company knows about it

iii. Burden of proof generally on party seeking to avoid K; presumption of competencyd. Duress and Undue Influence

i. Legally unenforceable b/c of process by which K was madeii. Traditionally courts refuse recognize undue influence unless confidential relationship

iii. Modern approach: broader definition of threat and undue influence; has been applied to situations where no confidential relationshipiv. Totem Marine Tug v. Alyeska Pipeline (AK)

1. Totem Marine shipping load from Houston to AK via Panama canal2. Supposed to load 6,000 tons of material on West Coast

3. Stopped in Houston and had to reconfigure barge to load 7,200 tons of haphazardly stacked steel beams, etc.

a. Took a long time to load b/c Alyeskas delay in assuring Totem it would pay additional expenses, bad weather, etc.

4. Alyeska unloads barge in CA and terminated K w/ explanation

5. Totem wanted reimbursed for $300K

a. Alyeska admits owes money, says will pay in day to eight mos.

6. Had to take $97.5K from Alyeska or go bankrupt (ultimate threat to co.)

a. Possible accord and satisfactionb. Perfectly legitimate tactic to avoid litigation, unless in bad faith

7. Totem sues to rescind settlement based on economic duress

8. Holding: duress is improper threat that overbears the will

a. Elements:

i. One party involuntarily accepts terms of another

1. Did against will, will being $300K instead of $97.5K

ii. Circumstances permitted no reasonable alternative

1. No time to go to court, bankrupt in 30 days when payments due

iii. Such circumstances result of coercive acts of other party, not Ps necessities

1. No alternative b/c Alyeska was one who terminated K and jerked Totem around by withholding payment

b. Alyeska doesnt have to admit to owing precise sum, just approximately what Totem thought

v. When duress makes K voidable; R 1751. Less emphasis on free will element (involuntary acceptance of terms)

2. (1) Wrongful/improper threat, (2) no reasonable alternative, (3) actual inducement (subjective standard; is this particular victim induced?)

a. Reasonable alternatives:

i. Use of legal action if possible

ii. Alternative sources of goods, services, or funds

iii. Toleration if threat involves minor vexationvi. Improper threat; R 1761. (a) Crime or tort

2. (b) Criminal prosecution

3. (c) Use of civil process in bad faith

4. (d) Threat is breach of duty of good faith and fair dealing under K

5. (2) Resulting exchange not on fair terms, and:

a. (a) Harm recipient w/ no gain for party making threat

b. (b) Effectiveness increased by prior unfair dealing

c. (c) Other illegitimate use of power

vii. K under economic duress voidable rather than void

viii. Most courts require causal link b/w coercive acts and financial hardship

1. Selmer Co. v. Blakeslee (7th Cir.)

a. Posner: just b/c agree to settlement b/c desperately need cash is not basis for duress

ix. Rationale: excessive gain resulting from exploitation of impaired bargaining-power

x. Criticisms:1. Undermines autonomy or free-will that makes economic system work

2. Can only use as band-aid, cant work all the time

3. Settlements or bargains b/w parties w/ disparity in bargaining power not inherently bad in market

e. Odorizzi v. Bloomfield School District (CA)i. Gay bar sweep likely, no facts about being involved w/ student

ii. Day after being arrested and charged w/ homosexual activities, Odorizzi submits written and signed resignation

1. Superintendant and principal came to house, told events wouldnt be publicized if resigned immediately

2. K in question is resignation

iii. Odorizzi claims K voidable b/c of duress, fraud, and undue influence

iv. Holding: no duress or fraud

1. No duress b/c threat of civil action was not in bad faith

a. Initiating dismissal proceedings under education code was not only legal right, but positive duty

2. No fraud b/c Odorizzi failed to allege that school officials knew falsity of statements

a. No constructive fraud b/c no confidential relationship b/w employer and employee (very arms-length)

3. Finds undue influence: over-persuasion that overcomes will w/o convincing the judgment

a. Doesnt require misrepresentation

4. Existence of dominant and servient party is key element; R 177(1)a. Could be lesser weaknesses such as elderly, sick, other forms of lessened capacity

i. Here, exhaustion and emotional turmoil of Odorizzi

b. Often confidential relationship, but trust is important

5. Over-persuasion factors:

a. Discussion of transaction at unusual time

i. Didnt sleep for forty hours

b. Consummation at unusual place

i. Negotiation terms of employment at his house

c. Insistent demand business be finished at once

i. Said he needed to resign immediately

d. Extreme emphasis on untoward consequences of delay

i. If didnt resign at once, they would fire him and publish ( wouldnt get another job

e. Multiple persuaders by dominant party against servient party

i. Principal and superintendant v. Odorizzi

f. Absence of third-party advisors

i. Just Odorizzi

g. Statements no time to consult financial advisors or attorneys

i. Told him there was no time to consult attorney

ii. Like seduction v. rape, manner is important w/ undue influence

v. Odorizzi and duress:

1. Court used much narrower definition than R 176

2. CA duress now encompasses wrongful threats that leave victim w/o reasonable alternatives

a. Dont resign ( never get another job

b. Could threaten lawsuit, but will publicize and get no job still

3. R 176(1): improper threat

a. Bad faith threat of civil process wrt firing (knew charges were going to be dropped?)

b. Breach of duty of good faith wrt employment K (publicizing)

4. R 176(2): resulting agreement unfair (substantive)

a. Odorizzi doesnt want to argue unfair, he doesnt want agreement b/c process unfairf. Misrepresentation and Non-Disclosure

i. At time K is formed!ii. Choice b/w two significant avenues of redress: tort action for damages or right to avoid K by rescissioniii. Rescission can be defense to action to enforce or affirmative action seeking restitution of benefits conferred1. Requires injured party to return any money or property received

2. May not be allowed if injured party unable to return property received

iv. R 164(1) broader than Syster: misrepresentation may be material or fraudulent as long as party justified in relying1. Fraudulent; R162(1): intends assertion to induce assent

a. (a) Knows or believes not in accord w/ facts

b. (b) Doesnt have confidence he states or implies

c. (c) Knows doesnt have basis for assertion

2. Material R 162(2): likely to induce reasonable person or maker knows it will likely induce person

v. Syester v. Banta (IA)

1. Widow living alone who buys 4,000 hours of dance instruction for $33K

2. Syester wants to get out of release, claims fraudulent misrepresentationsa. Can then assert tort claim for damages based on fraud in inducing her to enter dancing Ks

3. 1st release: manager of studio convinces her at home to discharge her counsel and agree to settle for refund of $6,000

4. 2d release: signed note to pay them $4,000!5. Holding: jury needed to find (1) concerted effort, (2) lacking in propriety, to (3) obtain releases as to constitute a fraudulent overreachinga. Evidence was sufficient to find fraudulent representations

i. Mr. Carey told her at her job she still had ability to be professional dancer

ii. Told her she didnt need a lawyer b/c he and studio manager only friends

iii. Implied he had romantic relationship w/ her

b. Two damage options: out of pocket and benefit of bargain

i. Benefit of bargain rule: sounds like K, but many courts may apply in tort

1. Depends on bargain she was seeking

2. Professional dancer or seeking companionship of Mr. Carey?

ii. Out of pocket rule: difference b/w value she paid and what she received 1. No value for what she was seeking (making progress toward becoming professional dancer)

c. Court committed to benefit of bargain rule

i. Verdict for Ms. Syester for $14K

ii. Knowingly overcharged $20K

iii. Possible jury factored in value of Ms. Syesters enjoyment

iv. Also got $40K in punitive damages

vi. Restatement and Syester:

1. Misrepresentation:

a. Fraudulent: told her she could be professional dance and knew it wasnt true; R 162(1)(a)i. Made it w/ intention of inducing her to sign release

b. Material:

i. Knew telling her she could still be professional dancer and hinting at romantic relationship would likely induce her to sign release; R 162(2)

ii. Not reasonable though? She knows already sued them once!

2. Undue influence

a. R 177(1):

i. Mr. Carey dominant party v. Ms. Syester servient party due to romantic overtones

1. Fact that brought Mr. Carey back to persuade her implies dominant/servient relationship

ii. Justified in assuming Mr. Carey wouldnt act inconsistent w/ her welfare?

1. Justified to her given romantic overtones?b. Odorizzi elements:

i. Discussion of transaction at unusual time

1. Mr. Carey showed up at Ms. Syesters workplace

ii. Consummation at unusual place

1. Danced together for 45 minutes right before settlement was signed!

iii. Use of multiple persuaders by dominant party against servient party

1. Mr. Carey and Mr. Theiss in on it together

iv. Statements there is no time to consult financial advisors or attorneys

1. Not no time, but told her she didnt need lawyer

vii. Assertion of opinion; R 1691. Claim just opinion or puffing v. statements of fact?

2. R 168(1): opinion is an implied representation (quality, value, authenticity)

a. R 168(2): if reasonable, party may interpret as assertion that:

i. (a) Facts known are not incompatible w/ his opinion

1. Mr. Carey knew Ms. Syester old lady

2. Admitted Ms. Syester wasnt progressingii. (b) Knows facts sufficient to justify opinion being formed

3. Reliance on opinion not justified unless: R 169a. Relationship of trust and confidence such that reasonable to rely on opinion

i. Romantic relationship, teacher-student relationship

b. Reasonably believes person has special skill, judgment, or objectivity wrt to subject of opinion; ori. Mr. Carey is professional dance teacher

c. Particularly susceptible to misrepresentation of type involved

i. Lonely widow

viii. Hill v. Jones (AZ)

1. Hills enter into K to purchase Jones home for $72K

2. Agreement provided sellers were to pay for and place in escrow a termite inspection report

3. During inspection Mr. Hill asks if ripple in dining room step termite damage ( Mr. Hill had seen such damage before as janitor

a. Mr. Jones said it was water damage

4. Mr. Hill decided that report would establish if damage or not

a. Report came back w/ no termite damage

5. After moving in Hills find out $5,000 in termite damage

a. Also find out that there was past damage and treatment that Jones never disclosed

6. Inspector returned and found out that he didnt find damage b/c boxes and plants were covering the infested areas

7. Want to rescind K (so they can get rid of house), but K included merger clause

a. Jones argue K is completely integrated, misrepresentation after the fact

b. Hills claim not bound by K until satisfactory termite report

8. Holding: seller has duty to disclose material facts; merger clause cannot free one from own fraud (parol evidence exception)

a. R 161(a): non-disclosure is assertion if knows disclosure of fact is necessary to prevent some previous assertion from being a fraudulent or material misrepresentation

b. If Mr. Jones doesnt disclose past termite damage, then assertion that house is free of termites and/or ripple was water damage would be fraudulent and material

i. Fraudulent R 162(1)(a): knows about termite damage past and present

ii. Material R 162(2): knows it would likely to induce them from buying home b/c Mr. Hill said he was going to rely on termite report!

c. More generally, court adopts FL rule: seller of home under duty to disclose facts materially affecting value of property which arent readily observable and unknown to buyer

i. Existence of termite damage past or present is material

ix. R 161

1. (a) Knows fact necessary to prevent previous assertion from being fraudulent or material misrepresentation

2. (b) Knows fact would correct assumption and non-disclosure is breach of good faith and fair dealinga. Broader basis for relief

3. (c) Knows fact would correct mistake as to contents or effect of writing4. (d) Entitled to know b/c of fiduciary relationship5. Doesnt cover innocent non-disclosures!

a. Different case if Jones didnt know about termite damage

b. Possible tort liability for non-disclosures though

x. Laidlaw v. Organ1. 1817 large sum of tobacco

2. War ends, tobacco worth more, seller wants out of K

3. Asked if any information calculated to enhance price or value

a. R 161(b): not responding is bad faith, shouldve written back and told seller to do more research

4. Case shows how courts are inclined to distinguish b/w information that one party shouldve known from information other parties havexi. Prof. Keeton fairness factors: (applied to Hill)

1. Difference in degree of intelligence of parties

2. Relation of parties to each other

3. Manner in which information acquired

a. Hills discovered hard way, didnt hire somebody to do their own research

4. Nature of fact not disclosed (latent defect not reasonably discoverable)

a. Termite damage hard to uncover if not trained eye

5. More likely seller must disclose than buyer

a. Jones were selling home to Hills

6. Nature of K

a. K included requirement of termite report

i. Would expect seller to disclose past termite damage then

7. Importance of fact

a. Wooden home, termite damage

8. Active concealment

a. Evidence used boxes and plants to conceal

xii. Economics

1. Kronman says courts should favor non disclosing information obtained through deliberate and costly investigationa. As opposed to acquiring by chance

xiii. Disclaimer or merger clause

1. Unlike Hill, some courts find if disclaimer is specific then cant rely on oral representations

xiv. Fiduciary relationship; R 161(d)1. Special relationship of trust and confidence; R 173a. Lawyer-client, trustee-beneficiary, etc.b. Mere friendship not enough

i. One party reposes trust, other accepts and fosters

xv. Park 100 Investors v. Kartes (IN)

1. Kartes owned a video store, KVC; Park 100 leases commercial real estate

2. Kartes Ks w/ Park 100 to lease space for growing business.

3. Park 100 brought suit to collect unpaid rent from Kartes under signed personal guaranty

4. Ps rep. came day before lease began for Ds to sign more lease papers

a. Potential issueits been yrs. how do Ds remember exactly what Ps rep told them they were signing?

5. Ds called their lawyers who told them to sign

a. Ds had a rep. negotiate lease for them

6. Ds just leaving to go to daughters wedding rehearsal and were running late

a. Rep. told Ds their signatures were needed in order to move in the following day

7. Ds signed a personal guaranty; Ps rep never told Ds this was what signing

8. After some yrs. go by, P sends D their tenant agreement and Ds refuse to affirm the personal guaranty

9. Ds then sell KVC and buyers fail to pay P; P sues Ds

10. Holding: affirm fraud b/c papers misrepresented to Kartes who relied believing only signing a lease

a. Rep had a duty to inform the Kartes of what they were signing

b. Elements of fraud: (must prove all)

i. (1) Material misrepresentation of past or existing fact by the party charged, which:1. Said more lease papersii. (2) False1. Werent lease papers; was personal guaranteeiii. (3) Knew or shouldve known was false1. Appears knew; did it right before Ds leaving for wedding rehearsaliv. (4) Relied upon

1. Relied on lawyer, not Park 100

v. (5) Proximately caused the complaining partys injury

11. Park 100 is fraud in execution (so was Ray v. Eurice Bros.)

a. Sherrod, Syester, and Hill represent fraud in the inducement

12. Misrepresentation justifies reformation; R 166

a. Recipient justified in relying upon

b. Extent 3d parties as good faith purchasers not unfairly affected13. Dont assume family business = small business (Hilton)

14. Dont assume small businesses are weak or unsophisticated

g. Unconscionabilityi. Procedural and substantive elements1. Minority, mental capacity, duress, undue influence, and misrepresentation are only proceduralii. Does it shock the conscience? 1. Everyone must react the same, must think it is a grossly unfair bargainiii. Must be unconscionable at time K entered into1. R 208:a. Matter of law for judge to decideb. May refuse to enforce whole Kc. May enforce w/o unconscionable termd. May limit application to avoid unconscionable result2. UCC 2-302a. Matter of law for judge to decideb. Opportunity to present evidence regarding commercial setting, purpose, and effectc. Same enforcement options as R 208d. Some courts find unconscionability a defensive conceptiv. Williams v. Walker-Thomas Furniture (DC)1. Store sends sales reps. out to houses of welfare recipients right after welfare checks are received every mo.a. Sold welfare recipient an item more than two times value of welfare check when needs check to pay for necessities for her and her kids2. Purchase items from seller and make mo. payments, but cross collateral provision (add-on clause) in K keeps a balance due on every item purchased until the balance on all items is liquidated3. Buyers defaulted and seller seeks repossession of all items purchased from them; buyers appeal when trial ct. finds in favor of sellera. DC hasnt adopted UCC 2-3024. Holding: reversed and remanded; trial ct. can determine whether unconscionable a. Procedural: absence of meaningful choice for one partyi. All circumstances surrounding transaction1. Shes on welfare $218 per mo.2. Seven kids to feedii. Negated if gross inequality of bargaining power (one-sided bargain)1. Walker-Thomas knew situation a. Almost done paying off and sold her new itemiii. Important terms hidden or minimized1. Hidden in long Kiv. Reasonable opportunity to understand terms1. Education of parties may be significantb. Substantive: K terms unreasonably favorable to other partyi. Outcome of enforcing K term1. Unable to pay her kids will sit on floor b/c going to take all her furnitureii. Fairness of terms considered in light of commercial background and needs of trade1. Nobody wants used furniture; Walker Thomas has to protect itself by getting back before depreciatesc. Dissent: believes policy decision not for court to decidev. Ahern v. Knecht (IL)1. A/C breaks during heat wave and P picks repair co. out of phone book based on claim of honesty 2. Charged $762 when services really only worth $150; demanded check before P left for doctors appointment3. Left A/C inoperable; hired someone else who did it for $724. Holding: K unconscionable; took advantage of condition, circumstances or necessity of other partiesa. Heat wave, P didnt know anything about A/C and relied on repair guy5. Excessive price may be a basis for finding unconscionabilitya. Some empirical evidence under UCC people feel greater than 100% objectively unconscionable b. But in Batsakis ct. refused to consider adequacy of considerationc. Market changes allow rates to increase or decreasevi. Goals of Consumer Protection Legislation:1. Greater disclosure to consumers so they are more informed2. Substantive regulation- unfair K terms are unlawful3. Improve enforcementvii. Higgins v. Los Angeles County (CA)1. Before moms funeral five kids dad dies2. A church family, the Lemoitis, adopts orphans; Extreme Home Makeover contacts family about renovating familys home3. EHM offers K w/ 24 single-spaced pages and 72 numbered paragraphsa. Said in all caps: do not sign this until you have read it completely4. Paragraph 69 included arbitration clause:a. EHM could seek injunctive or other equitable relief while kids cannot b. Contained in last section of K among 12 numbered paragraphs, w/o titles or headingsc. No different font or caps used; didnt contain box to initiali. Six other paragraphs in K had box to initiald. Said I agree, instead of parties agree 5. One orphan, Charles (21-yr. old), served as guardian for three minor orphansa. Told to flip through and sign Kb. Ten minutes b/w being handed K and signingc. Didnt know what arbitration clause was; or other legal terms6. EHM took three-bedroom house and turned it into nine-bedroom house (one bedroom for each orphan, plus familys children); also paid off mortgagea. Show first aired on Easter Sunday; Leomitis said home theirs; kicked orphans out afterwardb. EHM continues to air episode anyway7. Issue: arbitration clause unconscionable?a. Orphans want jury trial b/c more sympathetic party8. Holding: arbitration clause unconscionable a. (1) Adhesion Ki. Form K1. Big company w/ long form; 72 paragraphsii. Disparity in bargaining power1. TV co. v. orphansiii. Take it or leave it language1. If dont sign, dont get on show2. No prior negotiations; told to flip through and signb. (2) Procedural unconscionabilityi. Entire agreement drafted by stronger partyii. Clause appears near end of lengthy, single-spaced document1. Not titled, in miscellaneous sectioniii. Had to initial multiple clauses in K, but not the arbitration clauseiv. Vulnerable and unsophisticated party doing signing1. TV co. knew thisc. (3) Substantive unconscionability i. One sided1. Says, I agree, not the parties agree2. Only requires orphans to submit their claims to arbitration; TV co. free to sue in court 3. Orphans cant appeal arbitrators decision, while TV co. can appeal if lose in courtii. Excessive costs to party requesting relief9. Although ABC is giving the home as a gift, trying to profit off of the most vulnerable ppl. they can findviii. Arbitration clauses look good, but it is actually not as prompt or inexpensive as ppl. think and consumer rarely chooses this method1. Lack of formal rules and preclusion from suing via class action make this not an attractive optionJUSTIFICATION FOR NONPERFORMANCEI. MISTAKEa. Mistaken belief using language w/ same intention (Frigaliment)i. Judicial response usually to choose one of intended meanings and apply itb. Lenawee County v. Messerly (MI)i. Pickles bought 600-square-foot tract of land from Messerlys, w/ three-unit apartment building situated on itii. Barneses assigned all interest in property to Messerlys using quit-claim deediii. Pickles inspected land and purchased it for $25Kiv. Six days after buying land, Pickleses discovered raw sewage seeping out of ground1. Previous owners the Blooms installed nonconforming septic tank w/o permit2. 2500 square-feet of property needed for three-unit dwelling!v. Lenawee County condemned property: injunction prohibiting human habitation until sanitation unit is brought up to codevi. Pickleses stopped paying and Messerlys filed complaint seeking foreclosurevii. Pickleses counterclaimed for rescission, misrepresentation against Barnesesviii. Trial ct.: neither party knew of Blooms mistakes w/ septic tank ( no fraud or misrepresentation 1. Property bought as isix. Appellate ct.: mutual mistake b/w Messerlys and Picklesesx. Holding: mutual mistake, but allocation of risk via as is clause1. Mistake: belief not in accord w/ facts; R 151a. Must relate to fact in existence at time K entered into (execution)!

i. Noncompliant septic tank at time K entered intoii. Income-producing capacity of property in Q?1. Mistake AFTER K signed2. Sewage wasnt seeping out of ground when K executed2. A & M Land Development a. P bought 91 lots, but could only develop 42 b/c couldnt obtain septic tank permits for the other lotsb. Ct. refused to allow rescission: got what K for just less valuable3. Sherwood a. Barren Cow Caseb. Parties agreed to sell cow which both thought was barrenc. Seller found out cow fertiled. Barren = $80; pregnant = $750e. Ct. granted rescission; said animal K for was not in existence4. Court references old common law distinction b/w quality or value v. essence of consideration5. Ultimately goes w/ case-by-case analysis of R 152:a. Mistaken belief at time K entered intoi. Thought that there was compliant septic tank

ii. Blooms installed noncompliant tank w/o permitb. Relates to assumption on which K was made

i. Would be habitable by humans

c. Materially effects agreed performances

i. Land has no value, people cant live there

d. Unless party bears risk of mistake; R 154i. Allocated by agreementii. Examined property and accepts in present conditione. Pickleses stuck w/ as is clause in K R 154(a)i. (b) Aware limited knowledge wrt facts to which mistake relates, but treats as sufficient1. Mr. Pickles asked Barneses about septic tank and they told him they cleaned it once w/o problems 2. Also, quit-claim deed (as is deed)xi. Reasonable under circumstances to bear riskxii. Correctly decided?1. Most people expect reasonable inspection of improvement to real propertya. Not septic tank (unless inspector involved)c. Law and Economics

i. More modern law is if nobody knows put on sellerii. Lack of consistency in mistake casesiii. Gartner v. Eikill (MN)1. Purchaser of land sought rescission by mutual mistake2. Claimed unknown that land was subjected to past zoning restrictiona. K said seller would convey marketable title subject to zoning laws3. Ct. allowed rescission, relying on Sherwood in part!4. Difference b/w Lenawee:a. Put on notice by zoning laws, shouldve checkediv. Possible cases are backwards?1. Could argue everybody shouldve seen it in Gartner

2. Latent in Lenaweev. Risk allocation b/w cases right?d. Conscious Ignorance; R 154(b)i. Nelson v. Rice (AZ)1. Representative of estate sold expensive paintings for $60 w/ getting them appraised, actually worth more than $1 million2. Aware of possibility worth more, but didnt bothere. Mutual Mistake Written Expression i. Remedy is reformation to express intent of partiesii. Exception to parol evidence rule 1. E.g., promissory note fails to state correct interest ratef. Equitable Relief Remedy for Mistakei. Rescission + restitution that is appropriateg. Wil-Freds, Inc. v. Metropolitan Sanitary (IL)i. Wil-Freds answers Metros 11/26 ad w/ sealed bid and $100K1. Rehabilitation of sand drying beds2. Must remove clay pipe and old filter material, then replace w/ plastic pipe and new material3. Pipes must withstand standard construction equipment4. Estimated cost $1.257 millionii. 12/22: addendum changed material to less expensive typeiii. 1/6: bids close: Wil-Freds bid = $882K; next lowest = $1.118 millioniv. Wil-Freds president told chief estimator and Ciaglo to check figures immediately after being notified on 1/6 that bid $235K below next co.v. 1/8: realizes mistake made in sub Ciaglos bid1. Ciaglo thought it could drive heavy construction equipment on filter bed b/c ad said standard equipmentvi. 1/12 sends explanatory letter to Metro1. Used Ciaglo in past, always performed skillful work ( acted reasonably in relying on Ciaglos quoted pricevii. 2/26: after withdrawal denied, Wil-Freds files suit, alleging irreparable injury if required to perform at unconscionably low price1. Wants $100K security deposit backviii. Issue: rescission due to unilateral mistake

ix. Holding: Wil-Freds granted rescission and gets security deposit back1. Elements for rescission due to unilateral mistake:a. Mistake at time K made

i. Ciaglo thought could use heavy equipmentb. Relate to material feature of K

i. Resulted in 17% decrease in Wil-Freds bidii. Severing ramifications v. magnitude1. Other cases (Drennan) combine elements two and threec. Reasonable care exercised

i. Wil-Freds never withdrew bid quote beforeii. Worked w/ Ciaglo on 12 previous ocassionsiii. Ciaglo inspected job site and examined specs. w/ Wil-Freds estimatorsiv. Wil-Freds made two separate reviews of bidd. Enforcement unconscionable

i. Ciaglo not financially able to sustain $150K loss (bankruptcy ii. Wil-Freds would lose $2-3 million in bonding capacity if lost security deposite. Other party can be placed in status quo

i. Mistake discovered w/in 48 hr. of bid opening, Sanitary District awarded K to next lowest bidder2. Mixed mistake of judgment and fact

a. Plastic pipes would support trucks ( judgmentb. But predicated on misleading ad by sanitary district ( factc. Facts surrounding error are what is importantd. Must be genuine + identifiable mistake, not a poor prediction wrt outcome of Kh. Unilateral mistake elements; R 153i. Mistake at time K made

ii. Relates to basic assumption

iii. Material effect on agreed exchange

iv. Doesnt bear risk of mistake under R 154; and either1. Assumption wont back out of bid = bearing risk?v. Unconscionable or;

1. Unconscionable = substantial lossvi. Other party had reason to know or his fault caused mistakei. R 157 doesnt require mistaken party to be nonnegligenti. Only requires good faith and reasonable standards of fair dealing

j. Unilateral Mistake as to Content of Writingi. Generally still bound by K if fail to read (Ray v. Eurice Bros.)ii. Duty to read may be overcome by number of doctrines1. Lack of capacity (Hauer), fraud (Park 100), or unconscionability (Higgins) iii. Nauga v. Westel1. Nauga attorney added to proposed agency agreement clause requiring Westel to pay $250K for settlement of all claims2. Westels attorneys didnt notice and signed3. Court enforced even though seemed harsh4. No ambiguity, fraud, or mutual mistake presentk. Unilateral Mistake in Advertisementi. Donovan v. RRL Corp. (CA)1. Used Jaguar for sale in newspaper ad for $12K less than $38K due to errors made by newspaper2. Ad was considered offer (ads not usually offers though)3. Holding: K, but subject to rescission by unilateral mistakeII. CHANGED CIRCUMSTANCES: IMPOSSIBILITY, IMPRACTICABILITY, AND FRUSTRATIONa. Supervening event after K entered into!

i. Deprives party of apparent benefit fairly expected from original bargainb. Impossibility: R 262-64; UCC 2-613i. Taylor v. Caldwell

1. First exception to rule of strict K liability 2. Fountainhead of impossibility3. Agreed to rent music hall, but burned down shortly before first performanceii. Destruction (casualty): R 262, 263; UCC 2-6131. Easy to apply w/ unique goods (racehorse)2. Harder to apply w/ fungible goodsiii. Impossibility via government action: R 264; UCC 2-615(a) and comment 10c. Frustration of purpose: R 265; UCC 2-615i. Krell v. Henry1. Sudden illness of King forced cancellation of coronation, making room reservation uselessd. Impracticability: R 261; UCC 2-615-16i. Mineral Park Land Co. (CA)1. Agreed to purchase and extract all gravel from land at fixed prices required for construction of concrete bridge2. Removed all gravel from above water line, but removing below would cost 10 to 12 times as much3. Extreme increase in cost justified nonperformancee. Karl Wendt Farm v. Intl Harvester (6th Cir.)i. Severe downturn in farm equipment marketii. 1974 dealer sales and service agreement b/w Karl Wendt and IHiii. IH negotiated an agreement w/ Case and Tenneco to sell farm equipment division1. $479 million paper lossiv. 400 conflicted areas were not given new Case dealership and Karl Wendt onev. Wendt filed suit against IH, alleging breach of IHs dealer agreementvi. IH relied on defenses of impracticability, frustration, and implied covenant limiting duration of Kvii. Jury found for IH on impracticability, but directed verdict for Wendt on frustration of purpose, and implied covenant limiting duration of Kviii. Holding: denies all defenses relied on by IH1. No impracticability under R 261:a. Occurrence of event

i. Fallout in farm equipment marketb. Non-occurrence was basic assumption of K

i. Continuation of strong farm equipment market not basic assumptionc. Unless:

i. His fault1. Not responsible for downturn, but responsible for chosen remedy2. What if economists said FOS farm equipment business going south?ii. Language of K1. Agreement had detailed 6 mo. termination clause; UCC 2-309(3)iii. Circumstances say otherwise1. IH would avoid liability and Case would pick up only dealerships it sees fit2. Windfall for IHd. Must be extreme and unreasonable difficulty, expense, injury, lossi. Mere lack of profit due to market downturn not excuse; R 261 comment b; UCC 2-615 comment 41. IH claims losing $2 million a day and if division not sold wouldve had to declare bankruptcy ii. Severe shortage of raw materials or supplies due to war, embargo, local crop failure, unFOS source shutdown

iii. Different if corp. dead b/c no longer Q of profitability2. No frustration of purpose under R 265:a. Principal purpose

i. Purpose to establish dealer relationship b/w IH and Wendtii. Not mutual profitability iii. That would be principal purpose of every K!b. Substantially frustrated

i. Reduced profitability, but doesnt affect dealership relationshipc. By occurrence of event

i. Severe downturn in farm equipment marketd. Non-occurrence basic assumption of K

i. K didnt assume that market would continue to be stronge. Unless:

i. His fault1. Frustrating event actually IHs decision to sell farm equipment business w/o following termination clauseii. Language of K1. Termination clauseiii. Or circumstances say otherwise1. Purpose of doctrine to apportion risk as parties wouldve for unFOS circumstances3. No implied covenant limiting duration of K:a. IH argued that reserving right to terminate certain lines from dealership agreement = right to go completely out of businessb. K provided for termination for cause!c. Neither party anticipated IH would go out of business completelyd. Places all risk on dealerix. Dissent: Q of fact for jury whether no downturn was basic assumption of K1. But under Restatement Q of law for judgef. War and natural Disaster

i. Generally not allowed as excuses

ii. American Trading v. Shell (2d Cir.)1. Denied relief when prices increased b/c Suez Canal closed due to war2. Route not basic assumption of Kiii. Wolf Trap Foundation (4th Cir.)1. Impracticability allowed when thunderstorm caused power outage at outdoor theater2. Dissent: Wolf Trap failed to provide for auxiliary power equipmentg. Impracticability and Terrorismi. Bush v. ProTravel (NY)1. R 261 comment d: may be impracticable b/c involve risk of injury

2. Sought refund for $1500 deposit on honeymoon safari trip mo. after 9/113. Claimed damage to telephone systems made it nearly impossible to contact travel agents office in Manhattan and NYC under state of emergency4. Ct. said she shouldve been able to prove temporary impossibilityii. Scottsdale Road v. Kuhn Farm Machinery (AZ)1. Good faith apprehension of terrorism danger to conference attendees traveling on airline b/c of 1991 Gulf War2. Not substantial enough for impracticability or frustration3. Perception of danger must be objectively reasonableh. Role of FOSi. Relief under impracticability and frustration not denied just b/c event FOS

ii. R 261 comment c: other factors may explain failure to allocate FOS riskiii. UCC 2-615 comment 1: unFOS supervening circumstances (may deny if FOS?)i. Law and economics i. Posner: allocate risk to superior risk bearerii. Not simply deepest pocket or bigger co.iii. Party in best position to prevent event from occurring iv. Or minimize consequences at lowest cost, usually by purchasing insurancej. Mel Frank Tool v. Di-Chem (IA)i. 1994: three-yr. warehouse lease to Di-Chem to use it for storing chemicalsii. No evidence Mel Frank owner knew hazardous chemicals were going to be stored1. Lease limited Di-Chems use of premises to storage and distributioniii. Had to comply w/ all city ordinancesiv. Also destruction of premises provisionv. 1995: citys fire chief comes and inspects and finds not up to 1994 Uniform Fire Code adopted by cityvi. Hazardous materials have to be removed w/in seven days to eliminate hazardvii. Mel Frank and Di-Chem discussed splitting costs to bring up to code, but Mel Frank thought too expensiveviii. End of Oct. Di-Chem vacates premisesix. Mel Frank sues for breach of lease worth $55K, Di-Chem raises several defensesx. Holding: no impracticability or frustration of purposes1. Frustration due to government regulation (uses R 265 instead of R 264)a. Change in circumstances makes one partys performance worthless to otherb. Both parties understand that w/o object transaction makes little sensei. Mel Frank didnt know about hazardous chemicals 2. Regulation indirectly affected principal purpose

a. Purpose of lease was to store chemicals, not just hazardous chemicals3. No substantial frustration of purpose

a. Not substantial b/c can still store chemicals, not just hazardous onesb. Di-Chem can still store its food additives4. Cant claim impracticability or frustration when serviceable use still available consistent w/ use provision of K

a. Less profitable or unprofitable doesnt = substantial frustration5. Force majeure clause:a. Total destruction of business useb. Purpose of clause is building being damaged, not subsequent government regulation prohibiting a particular usexi. Law and economics: Di-Chem deals in chemicals, should be aware of regulations and K to protect itself if regulations changek. Government Regulation as Excusei. Courts much more willing to grant rescission over war, natural disaster, or market changeii. UCC 2-615 specifically mentions good faith compliance w/ government regulationiii. R 264: performance impracticable b/c supervening regulation1. Regulation goes to basic assumption of K

a. Mel Frank: basic assumption was being able to store chemicals, not just hazardous chemicalsiv. Courts still impose stringent limits1. Frustration must be quite substantial (Mel Frank said virtually worthless)2. May deny relief if supervening regulation FOS or failed to guard againstl. Impracticability and Frustration under UCCi. UCC 2-615 broad enough to encompass both impracticability and frustration1. Addresses sellers breaching, but courts have given relief to buyersa. Buyers K must in reasonable commercial understanding be conditioned on specific venture or assumption

i. Example: war procurement subcontract when prime K subject to termination m. Force Majeure Clausesi. Clauses that anticipate partial or total destruction of propertyii. Windstorm, fire, flood, other acts of God1. Also may include strikes and labor disputesiii. Clauses may be subject good faith, UCC 1-102(3), UCC 1-203, and unconscionability provisions, UCC 2-302n. Remedyi. Normal remedy is rescission + restitution for benefits conferred (same as mistake)ii. Most courts uniformly reject reformation so performance obligation continues1. Aluminum Co. of America v. Essexa. Granted reformation of long-term K for supply of aluminum processing services to account for costs increasesb. Increases not reflected in negotiated price increase formulas 2. No longer binding precedent b/c opinion vacated as part of settlementIII. MODIFICATIONa. Qs to ask:i. Was there separate consideration for the modification?ii. Did the parties agree to the modification under legitimate circumstances?b. Preexisting duty rule; R 73i. Performance of legal duty neither doubtful nor subject to honest dispute is not considerationii. Slightly different performance if reflects more than pretense of bargainc. Modification binding if: R 89i. Equitable b/c unFOS circumstances

1. May apply even if impracticability defense wouldnt workii. Provided by statute

iii. Justice requires due to material change of position in reliance on promise

1. Promise means accepting reformationd. UCC 2-209(1) dismisses pre-existing duty rule

i. Modification must abide by SOFii. Attempt at modification may amount to waiver of limitation on modifications or SOFiii. Can retract waiver w/ reasonable notification that strict performance required1. Unless unjust in view of material change of position

iv. Modification doesnt need consideration to be bindingv. Good faith bar to ext