CONTRACTS II

I. PAROL EVIDENCE RULE

General Principle: o A writing intended by the parties to be a final embodiment of their agreement cannot be modified by evidence that adds to, varies, or contradicts an integrated writing o It is a substantive part of Contract law; not a rule of evidence Policy: The law favors written agreements over oral agreements o Written agreements less susceptible to fraud, etc Issue of credibility of evidence/proof o Usually, later written agreement clearer expression of parties intent than an earlier oral agreements Williston view: o Formal approach o Keep evidence out o Gives a lot of weight to the written document o Proper interpretation of a written agreement is that it explicitly states there is nothing else; it wipes out all previous agreements Corbin view: o Individualized approach o Let evidence in o View of Restatement & UCC First, always look to see if there was an oral agreement, then if there was a subsequent written agreement o If the integrated contract (#2) is oral, any previous or contemporaneous evidence (oral or written) can be introduced to explain it o Must make sure the 2nd agreement was in writing before doing Parol Evidence Rule analysis Agreements are divided into two parts: o 1) Integrated Final, complete expression of one or more terms End of negotiations on certain topics Parol Evidence Rule applies o 2) Partially integrated Cannot be contradicted by parol evidence, but may be supplemented by evidence of consistent additional terms o 3) Not integrated Not final; still under negotiations Parol evidence rule is not applicable, evidence allowed in If there is a binding agreement that is either completely or partially integrated, evidence of prior agreements or negotiations is not admissible to contradict a term of the writing.

A. Process:

o 1) Did the parties intend for agreement #2 to be binding?

If not a binding agreement, PER not applicable (evidence let in) Can put on evidence proving K not binding; show there was fraud, duress, etc Generally, always yes; this step probably wont be a problem

o 2) Did parties intend #2 to be integrated? RS 209 This issue shall be determined by the judge o The K must be integrated for PER to apply Integrated agreement is a writing constituting a final, complete expression of one or more terms Can put on evidence proving not an integrated agreement; otherwise PER applies

o 3) Is #1 agreement inconsistent, or contradicts, with #2?

Usually most difficult question of analysis Must determine/interpret #2 Judge hears the evidence to determine if #1 is inconsistent with #2 Usually excuses jury, if one, to determine this issue If the judge determines the evidence is inconsistent or contradicts an integrated agreement or term, then PER applies and evidence is kept out if consistent, proceed in analysis UCC 2-202 is modern trend of PER To restrict or limit the #2 is not the same things as canceling it; may not be inconsistent A term/agreement is inconsistent when there is an absence of a reasonable harmony in terms of the language and respective obligations of the parties

o 4) Is # 2 a completely integrated agreement?

RS 210 If the whole agreement is integrated, clear, and unambiguous, then there is a total integration: o If the term (of issue) is integrated, clear, and unambiguous, then no evidence admitted relating to that term (partial integration) Term is deemed totally integrated; evidence may be let in regarding other ambiguous, unclear terms Essentially, if, agreement or term at issue, is totally integrated, continue to step 5 (at this stage, evidence kept out) If agreement, or term at issue, is not totally integrated, let evidence in o Judge should probably follow modern trend and look to all relevant evidence to determine if parties intended to have a completely integrated agreement

o 5) Is #1 within the scope of #2?

RS 213 If all previous 4 steps are met, wipes out all prior or contemporaneous agreements within its scope 2

o Evidence not within the scope of #2 is allowed Judge could use as a loophole to allow evidence in o Even if parol evidence let is determined to be admissible; it does not decide the merits of the case Jury still has to decide the credibility; determine if agree with evidence or not B. Exceptions to the Parol Evidence Rule: o Separate consideration: parol agreement admitted if supported by separate consideration o Binding: Evidence usually allowed to show illegality, fraud, duress, mistake, lack of consideration o Evidence usually allowed to show #1 was a separate agreement Collateral Contract Doctrine Restatement & UCC view to generally let evidence in of a collateral contract unless it will mislead the judge or jury Let evidence in as long as it is credible o Jury still has to decide merits; may not agree with evidence Should permit proof of a collateral agreement if it is such an agreement that might naturally be made as a separate agreement by the parties o Condition Precedent: Evidence usually allowed to show the parties orally agreed to a condition precedent to the written agreement; the agreement not integrated in respect to the oral condition RS 217 integrated agreement subject to oral condition precedent o Modification: A subsequent agreement is not subject to the Parol Evidence Rule; but is a modification; evidence of modification is usually allowed; check for N.O.M. & possible waiver o Remedy: Evidence of grounds for granting or denying rescission, reformation, specific performance, or any other remedy o Interpretation: Evidence will be admitted to help clarify the meaning/intention of an ambiguous term Have to make sure evidence wont contradict #2, will only clarify A good way around the PER Court must think #2 or term in #2 susceptible to multiple, reasonable meanings Explored further below (C.) - Did the parties intend for #2 written agreement to wipe out all prior and contemporaneous agreements? o Look at surrounding circumstances to determine intent o If the parties intended for both agreements to exists, then OK Merger Clauses o A provision in the agreement that states the written agreement contains the only agreements between the parties The written contract is the entire expression of the agreement o Merger clauses are not completely controlling, but do create a presumption that the written agreement was intended to be a complete integration Generally, most courts are undecided as to the weight given to a merger clause 3

o If merger clause is a boilerplate provision then courts may find the clause does not represent the intent of the parties; it was not negotiated for o Merger clause may be unconscionable; it may be shocking and sprung on the other party o The more specific & tailored the merger clause is to the situation, the more credibility the court may give a merger clause

No Oral Modification Clause (N.O.M.) o Many contracts contain a provision that the written contract cannot be modified orally; can only be modified in writing Modification concerns subsequent agreements to written agreement o Common law stated that an oral modification was binding despite a NOM o UCC 2-209 (1) Modification of a contract for the sale of good needs no consideration to be binding (2) If contract contains a NOM, than modification must be in writing (4) An attempt at modification that does not satisfy (1) or (2) can operate as a waiver Affect of disregarding NOM (5) Waiver can be rejected with reasonable notification CISG international sale of goods o There is NO PER! o A court interpreting a contract is allowed to consider all relevant evidence, and may even consider prior negotiations

C. Intent (Interpretation) o If a term or intent of parties is reasonably susceptible to different meanings, should extrinsic evidence be admitted to determine meaning of term/intent of parties? o Plain Meaning Rule: (Four Corners Doctrine) Traditional/minority rule If a writing appears to be plain and unambiguous on its face, its meaning must be determined from within the four corners of the instrument without resorting to extrinsic evidence of any nature Seeks to exclude all evidence, even circumstances surrounding the formation of the K o Differs from PER because PER only seeks to exclude evidence or promises not embodied in the written K Rule rejected by the Restatement & UCC o Context Rule: A court may consider surrounding circumstances leading to the execution of the agreement, including the subject matter of the contract as well as subsequent conduct of the parties Generally, only exclude evidence that is not credible 4

Admit evidence to clarify any ambiguity; not to contradict Main goal is to determine the parties intent Corbin like reasoning Can not tell from the writing what the parties meant, must look to all relevant evidence on the meaning of the term A sort of way around PER Try to prove agreement or term ambiguous and offer evidence showing the proper interpretation to help your view o May be able to get your interpretation to have the same affect as a prior agreement that failed to get in because of PER o Modern trend: As long as the term is reasonably susceptible to alternative meanings, extrinsic evidence should be admitted Way to persuade Judge who uses Plain Meaning Rule to allow extrinsic evidence: o The Court should ask whether the provision is reasonably susceptible to different meanings List possible alternate interpretations o If the Contract is reasonably susceptible to one of those interpretations; the court should not try to determine its meaning/parties intent from the four corners of the document List extrinsic evidence that would help clarify meaning Look at market Parties evidence Other potential evidence o Proving the K could have a broader meaning would mean the court or jury should take into account the evidence and determine the meaning of the K UCC 2-202 o A final expression may not be contradicted by evidence of a prior agreement, but may be explained or supplemented by: Course of performance, course of dealing, usage of trade Evidence of consistent additional terms Trade usage, course of performance, course of dealing o Habit or customary practice Generally: will normally govern in an agreement unless the parties made it expressly clear that different rules would govern The contract should be interpreted by the parties actions, and in light of commercial practices and other surrounding circumstances Performance, usage, and dealings are usually always admitted into evidence, even against a complete and final agreement, unless they contradict the express terms of the K o An agreement is interpreted in accordance with relevant trade usage if: Each party knew or had reason to know of the trade usage; AND 5

Neither party knew or had reason to know that the meaning attached by the other party was not consistent with this usage o A trade usage is a regular observance in a trade or course of dealing that justifies an expectation that it will be observed in regards to the particular agreement Whether there was a trade usage, or if it was a justifiable expectation, is a question of fact A question of interpretation is a question of fact for the fact-finder (jury or judge); must determine the credibility of the evidence or chose among reasonable inferences that can be drawn from the evidence o However, if the evidence can only mean one thing, it is a question of law

II. FORM CONTRACTS

Traditional Common Law: o Mirror Image Rule: If the two forms are not a mirror image (identical) to each other, then it is not an acceptance; but is only a counter-offer The counter-offer could be accepted by silence, conduct, etc UCC 2-201(2) retains a version of the common law mirror image rule: Between merchants If there is evidence the party received the counter-offer, did not sign it, not give notice of rejection within 10 days of receipt, it is an indication of acceptance Battle of Forms Result of the Mirror Image Rule o Party would create K with favorable terms for their client and send it to other party; other party would respond with differing terms; the party with the last shot prevailed UCC 1-201 (37) o Definition of signed A broad definition; essentially, any form of authentication Doesnt have to be a signature; can be a symbol UCC 2-207 o (1) A definite and seasonable expression of acceptance or a written confirmation operates as an acceptance to an offer Forms a contract; offerors terms accepted Even if it states terms additional to or different from those offered or agreed upon 6

Unless, acceptance is expressly made conditional on assent to the additional or different terms Expressly conditional clause must clearly indicate the intent that the offeree does not wish to proceed with transaction unless he is assured of offerors assent to the additional or different terms o If that is the case, the acceptance does not constitute an acceptance, AND does NOT constitute a counter-offer o Can look to (3) to see if conduct created K o (2) The additional terms of the offerees response are to be construed as proposals for addition to the K Between merchants, the terms become part of the contract UNLESS: The offeror expressly limits acceptance to the terms of the offer o Very rarely will a buyer limit acceptance; re-creates the mirror image rule The additional terms materially alter the K o Creates a surprise or hardship Notification of objection to the terms is given within a reasonable time after they are received o (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract, even though the writings of the parties do not establish a contract When conduct establishes a contract, the K consists of terms the writings of the parties agree on together with other terms incorporated under the UCC Neither form governs; look to the UCC for governing provisions o Essentially K formed by course of performance Different Terms: o When a contract is formed within 2-207(1), on how to deal with conflicting or different terms (not additional): Knockout Rule (majority) Any conflicting provisions are knocked out and needed provisions are filled by the UCC o Assume both parties object to the conflicting terms There is a K, and both parties obligated to agreeing terms May be good approach by offeree because it knocks out the other parties terms Some court apply the fallout approach Different terms are not governed by (2); therefore, there is no room for their survival They are only proposals for change The offerors terms govern Consumer context: o If a consumer buys goods (accepts) in a box (ex. computer), the purchase is subject to the terms and conditions of the offer (usually located in the box and buyer has no knowledge until purchase) as long as there is a reasonable amount of time to return the goods (rejection of offer) 7

Or, consumer could request a copy of conditions, terms, & warranties before purchase and then decide if want to buy The Magnuson-Moss Warranty Act requires firms to distribute warranty terms on request

III. INTERPRETATION AND UNCONSCIONABILITY

Contracts usually include lots and lots of fine print, which is often not read and difficult for the average person to understand making courts generally sensitive to claims of unconscionability in form contracts or boilerplate provisions o Usually wont allow a corporation to hide behind the fine print UCC 2-302 & RS 208 o When a court finds as a matter of law and clause of a K to be unconscionable, the court may refuse to enforce the K, or enforce the remainder of the K without the unconscionable clause, or may limit the application of the clause Procedural: o Unsophisticated party; take it or leave it Substantive: o Term is bad public policy, overreaching, unreasonably harmful; RS 178 o Exculpatory clauses are generally held to be void as against public policy Cant allow for a party to contract away their own negligence Especially in regards to personal injury

RS 211 (3) o When one party (offeror; merchant; etc.) has reason to believe that the other party (consumer) would NOT assent to the K if he knew the writing contained a particular term Then, the term is not part of the agreement

IV. MISTAKE
Misunderstanding o Chapter 9 Typically involves semantic mistakes o Raffles v. Wichelhaus Misunderstood which boat October boat/December boat Mutual Mistake o RS 152 Where a mistake of both parties as to a basic assumption on which the contract was made has a material affect on the agreement, the K is voidable by the adversely affected party, UNLESS that party bore the risk of the agreement as stated in RS 154 RS 154 8

o A party bears the risk of a mistake when: The risk is allocated to him by agreement as is clause may apply May not have to be an express assumption of risk, but would make it easier He is aware at the time the K is made, that he had only limited knowledge of facts which relates to the mistake but decided to proceed anyway Knew there was the possibility the parties may be mistaken, but continues with agreement Can not repudiate a deal because he made a bad bargain or had poor judgment or gamble didnt pay off Risk is allocated to him by the court on the ground it is reasonable to do so An as is provision may shift the risk to the buyer when the court is trying which innocent party to rule against Unknown contents of the subject matter of a sale that are not essential to its existence or usefulness, but which are merely deposited therein, and which are not within the contemplation of or intention of the contracting parties, do not pass by the sale o Negligence of a party usually wont preclude them from seeking remedy from a mutual mistake Everyone makes a mistake sometimes, but is a factor in determining outcome Often, it is better for the buyer to claim breach of warranty rather than seeking rescission or reformation o If seller gives express warranty as to quality of good, may be able to recover damages if product does not live up to that warranty Ex. Seller promises (honestly believes true) violin is made by X and worth $10,000; but later, buyer finds out it is a mere replica and worth $100; buyer has claim of breach of express warranty RS 2-314 o Implied Warranty of Merchantability: A warranty that the goods shall be merchantable is implied in the contract when sold IF seller is a merchant who deals in goods of that kind Unilateral Mistake Generally, a heavier burden than proving mutual mistake, dont want to create windfall for non-mistaken party o RS 153 When ONE party makes a mistake at the time the K was made as to a basic assumption of the K has a material effect on the exchange of performances, the K is voidable by him if: He has not assumed risk as stated in RS 154; AND EITHER: o Enforcement of the K would be unconscionable; or o The other party knew or had reason to know of the mistake; or An offeree will not be allowed to snap up an offer that is to good to be true o The other party caused the mistake 9

o Sometimes, the mistaken party might not be granted relief if: The other party has reasonably and in good-faith relied on the mistake; or The other party can not be restored to his precontractual position by an award of reliance damages Checklist of factors when dealing with mistake: (Corbin) o Did both parties, or only one, have a mistaken thought? o Did the mistake induce mutual expressions of agreement; or did it merely induce action by one person toward another? o If mutual expressions were induced, were they expressions that agreed in meaning, as interpreted by the parties themselves or by 3rd parties? o What was the fact as to which a mistaken thought existed? o Was the fact of substantial importance? o Did one party know of the others mistake, or have reason to know it? o Did one party cause the others mistake, purposefully or innocently? o Was the mistaken party negligent? o How soon was the mistake discovered and notice given? o Has either party, or a 3rd party, changed his position, so that restoration of his former position is impossible? o Was the risk of such error assumed by one of the parties, by agreement of by custom? o What remedies are available?

Nondisclosure o Misrepresentation is an assertion that is not in accord with the facts A knowing misrepresentation = fraud An innocent misrepresentation can be grounds to set aside K If misrepresentation of a fact that was material, or fraudulent, to the agreement and (plaintiff) relies on it and misrepresentation was expected to be relied upon, can be grounds for rescission o Courts express a general policy promoting honesty and fair dealing in business relationships o RS 161 A partys non-disclosure of fact known to him is equivalent to an assertion that the fact does not exist in the following: i.e. a party has a duty to disclose a known facts if: o Party knows that disclosure is necessary to prevent some previous assertion from being a misrepresentation; or o He knows that disclosure of fact would correct a mistake about a basic assumption of the K AND if the nondisclosure amounts to a failure to act in good-faith and fair dealing; or o He knows the disclosure would correct a mistake as to the contents of the written K; or o The other party is entitle to know the fact because of a relation of trust and confidence between them 10

 May be a question of fact if reasonable people could differ o RS 162 A misrepresentation is fraudulent if he intends the assertion to induce a party to manifest the other partys assent and He knows or believes the assertion is false Lacks confidence that he states or implies the truth Has no basis to make the assertion o Must determine if non-disclosed fact is material to the K A fact is material if it is one to which a reasonable person would attach importance in determining his choice of action in the transaction If the misrepresentation would likely induce a reasonable person to agree to the K o If a partys assent is induced by a fraudulent or material misrepresentation upon which a party is justified in relying upon, the K is voidable o If the misrepresentation is made by a 3rd party, K is still voidable UNLESS other party in good faith, not knowing of misrepresentation, materially relied upon the K Mistake in Reformation; Transcription o General principle: A party seeking reformation must prove by clear and convincing evidence what the true terms/intent of the agreed K was Ex. Insurance company used wrong form in drafting policy; didnt notice until after agreement signed; court can reform the written agreement to reflect the true agreement o Caveat: There is a presumption that an executed written agreement expresses the true intention of the parties and a strong evidence is required to overcome that presumption But, sometimes there may be an easy case where the transcription error is obvious o Reformation: Generally, sought because of the mistake of one party only Usually, an oral agreement, then a party makes a mistake when putting it in writing Because of a mistake in transcription, the K does not reflect that actual agreement between the parties Equity will act to bring the erroneous writing into conformity with the true agreement o Usually aggrieved party will ask court to reform K to conform with original agreement o Remedy of reformation a way around PER

V. EFFECT OF CHANGED CIRCUMSTANCS

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There are always risks inherent to an agreement, but there comes a certain point where there are unforeseeable occurrences that are so far outside the range of risk that it would be impossible or impracticable to render performance. o Must look to all relevant circumstances RS 261 o If a parties performance becomes impracticable by an unforeseen event, not his fault, then the duty of performance is discharged, unless the agreement states otherwise Event = an unforeseen, supervening circumstance that changes the basic assumption on which the K was formed Unforeseen = An event not contemplated by the parties A party can assume the risk of an agreement If not specified; then generally, the seller bears the risk UNLESS performance would be extremely burdensome, then the buyer bears the risk UCC 2-615 o Delay in delivery, or non-delivery, is NOT a breach of a K if performance has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the K was made or in good-faith compliance with a govt. regulation Taylor v. Caldwell (1863) o Origin of the doctrine of UCC 2-615 o K regarding rental of concert hall; destruction by fire of concert hall by neither parties fault excused performance The concert hall was expected to be there; an implied condition Examples of contingencies that render a K impracticable: o RS 262 Death or incapacitation of a person necessary for performance o RS 263 Destruction of thing necessary for performance o RS 264 Prevention of performance by governmental regulation or order Domestic or foreign regulation or order Increased cost of performance alone does NOT excuse performance, UNLESS the increase is due to some unforeseen contingency/event which alters the essential nature of the performance o Usually, neither rise nor fall of market price renders a performance impracticable, especially in oil cases (such a volatile market) The doctrine of impossibility is incorporated by the doctrine of impracticability o A duty is legally impossible if it is impracticable o A duty is impracticable if it can only be done at an excessive or unreasonable cost Impracticability is a broader term than impossibility and impracticability incorporated/language used by the RS & UCC Steps: 12

o 1) Did an unexpected event or a contingency, the non-occurrence of was a basic assumption to the K, occur? o 2) Did the event or contingency effect the partys performance rendering it impracticable? o 3) Is the party seeking relief at fault? o 4) Did the party seeking relief bear the risk of an occurrence of the event or contingency in the K? Side note: o Liquated damages provision in a contract for the government is more likely to be enforceable Government does not operate at a profit Without a liquidated damages clause, the govt. would be at the mercy and good-will of the other party Risk of Loss of Goods o Common law: Risk of loss falls on person who holds title o UCC 2-509 & UCC 2-510 Essentially puts the risk of loss on the party who controls the goods Assumption is that the party in control will be in the best position both to prevent loss and to insure the goods against loss

Builders Risk: o If a party contracted to build a new structure, builder bears the risk of destruction and damage until the work is completed; may not recover for work done Other party not obligated to pay anything for the part performance that was destroyed o If a party contracts to make repairs or additions to an existing structure, then the owner of the structure bears the risk of destruction or damage The builders duty is discharged and he may recover compensation for the work done before the destruction o Contract may state otherwise and place burden of risk on a specific party Sub-contractors Risk: o Generally, where performance by a subcontractor on a contract to work on a new structure is rendered impossible (not his fault), the subcontractor: Can recover for labor and materials used, or wrought-in to the structure Quantum meruit Cannot recover from the general contractor for the expenses incurred in the preparation to perform Failure of source of supply: o Seller may be excused from performance when supplier unable to deliver goods to seller to sell to buyer; must be unforeseeable If contingency foreseeable, seller bears risk 13

 Seller could have taken precautionary steps to ensure performance o Seller may be excused if the K involved a specific brand and that brand goes bankrupt making it impossible to obtain the certain brand o Contract for sale of crops: Case-by-case analysis depending on actual contract; most contracts have applicable provision Modern: If promise to deliver crops from certain acreage, performance may be excused if something occurs (drought, pest) Sometimes, a K may require a farmer to deliver a certain amount: If crop is short of required quota, it is the obligation of the farmer to purchase the remaining amount to fulfill the K o Farmers can protect themselves by purchasing futures of the crop Frustration o An unforeseeable event by either party that substantially affects the value of performance such that it frustrates the Ks central purpose o RS 265 Where, after a K is made, a partys principal purpose is substantially frustrated by an (not his fault) occurrence of an event the non-occurrence of was a basic assumption to the K, his duty to perform is discharged o When an event neither anticipated nor caused by either party, the risk of which was not allocated by the K, destroys the object or purpose of the K, thus destroying the value of performance, the parties are excused from performance Performance remains possible, but the expected value of performance to the party seeking relief has been destroyed by the event o If risk has been allocated by the contract to either party, the doctrine probably cant be used

VI. THIRD PARTY BENEFICIARIES

Definitions: o Third-party beneficiary: A person who is not a party to the contract, but who will benefit from its performance o Promisor: A person who has made a legally enforceable promise, the performance of would benefit a third-party beneficiary o Promisee: The person to whom the promise is made o Always identify the parties first Common law: o When one person creates a contract with another to benefit a 3rd party, the 3rd party (whom is to benefit) may sue for breach of the K 14

Common law distinguished between a donee beneficiary and creditor beneficiary (RS 1st 133)

RS 302 o Intended beneficiary: A person is an intended beneficiary if recognition of a right to performance in the person is appropriate to effectuate the intention of the parties, AND either: The performance of the promise will satisfy an obligation ($) of the promisee to pay money to the beneficiary (debt); or The circumstances indicated that the promisee intends to give the beneficiary the benefit of the promised performance o Incidental beneficiary: Anyone that is not an intended beneficiary May not sue to enforce K RS 304 o An intended beneficiary may sue to enforce the K/duty to perform Promisor has a duty to perform the promise to the intended beneficiary o There is the policy of efficiency to allow the intended beneficiary to directly sue the promisor; otherwise there would be two lawsuits RS 313 Government Contracts o When a promisor has an obligation to the government to do an act or render service to the public, a member of the public cannot sue the promisor for breach of its obligation to the government; unless The terms of the K state otherwise; make the public an intended beneficiary Generally, a factually sensitive test of the circumstances surrounding the formation of the K There may be an equitable remedy if public allowed to sue, which is usually rare List of questions to help determine whether person is an intended beneficiary: o Would the 3rd party be reasonable in relying on the agreement? o Is the promisors performance to be rendered directly to the 3rd party? o Does the K mention the 3rd party by name or classification? o Does the promisee owe a duty to the 3rd party? o Does the promisee intend to make a gift to the 3rd party? o Does the 3rd party or promisee suffer harm because of the breach of the K? If both injured, 3rd party may not have a cause of action; promisee would Alteration of duty to 3rd party o RS 311 Promisee and promisor retain right to modify or change K by subsequent agreement unless K states otherwise

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That power terminates when the beneficiary (rights vest in 3rd party), before he is notified of alteration of K, materially changes his position in justifiable reliance on the promise; or When beneficiary brings suit before notification; or If the beneficiary manifested assent to the original K at the request of the promisor & promisee

Defenses against the beneficiary o RS 309 A contract is not enforceable by a beneficiary if at the time of the formation of the K between promisor and promisee the K was voidable or unenforceable The right of a beneficiary is discharged or modified if K ceases to be binding because of: Impracticability; or Public policy; or Non-occurrence of a condition; or Present or prospective failure of performance The right of the beneficiary against the promisor is not subject to: Promisors claims or defenses against the promisee; or Promisees claims or defenses against the beneficiary A beneficiarys right against the promisor is subject to any claim or defense arising from his own conduct or agreement

VII. ASSIGNMENTS
An assignment is an act or manifestation by the owner of a right (assignor) indicating his intent to transfer that right to another person (assignee) Valid assignment: o The assignor must make clear his intent to relinquish the right to the assignee, and Must not retain any control over the right assigned or any power of revocation Assignor transfers all rights & liability to assignee o The obligor need not accept the assignment for assignment to be valid RS 322 & UCC 2-210 o Provision prohibiting assignment may be ineffective or at least greatly constricted as to not create a great burden on either party Obligor must receive notice of the assignment & made aware as to who the assignee is o RS 238 & UCC 9-318 If the obligor does not receive notice, then payment can be made to assignor (since didnt know of assignee) with no breach Obligor must receive reasonable notice of the assignee Must be aware in order to be responsible Irrevocable assignment: o Non-donative assignment for consideration (written or oral) o Written donative assignment o Donative oral assignment ceases to be revocable if: Payment of obligation; or 16

Judgment against the obligor; or A new K formed with obligor o A gratuitous oral assignment is irrevocable if it has reasonably induced action or forbearance by assignee; as to avoid injustice Revocable assignment: o Gratuitous assignment: Oral donative assignment is revocable by: Assignors death or incapacitation Assignor makes subsequent assignment Notification of revocation by the assignor RS 317 o Most rights are freely assignable unless the assignment: Would materially change the duty of the obligor; or Materially increase the burden or risk imposed upon obligor; or Impair the obligors chance of obtaining return performance; or The law restricts assignment of that specific right o Exception: The K is unassignable when it calls for rendition of personal services based on a relationship of confidence between the parties The duty is personal and an attempt to perform by a substituted party would not discharge the duty o Contract may have a provision prohibiting assignment of a right, but most courts look unfavorably on such a provision o If there is an approval clause for assignability; usually consent can only be withheld where there is a commercially reasonable objection to the assignment Some courts allow an arbitrary refusal of consent of assignment Seems to lack a showing of good faith and fair dealing Delegation of duties: o An delegant cannot free himself from liability by delegating his duties of performance to another Party to whom duty is owed may agree to discharge delegant from liability May for a new contract with delegate by novation Usually unwise to do this If delegee messes up job or fails to perform; the obligee has a claim against both the delegant and the delegee o Most obligations can be delegated: As long as delegation does not vary materially from performance owed by delegant; or the party does not have a substantial interest in having delegant perform duty (ex. famous painter painting portrait) The performance of a duty may not be delegated if delegation against public policy or against the terms of the K o Usually, have to obtain obligees consent to delegate duty, especially in exclusive distributorship situations 17

Defenses: (confusing; may need to look elsewhere) o RS 336: Assignee obtains right against obligor only to the extent that the obligor is under duty to the assignor The right of the assignee is subject to any valid defenses the obligor could have asserted against the assignor/obligee The assignees rights do not rise above the assignors o UCC 9-404 Defenses against assignee The rights of the assignee are subject to: o All the terms of the K between the obligor and assignor and any defense arising out of that K o Any other defense or claim against the assignor which accrues before the obligor receives notice of the assignment A claim can accrue when: (but usually leaves to local jurisdiction to determine) Obligation to pay is incurred Obligation is actually due and payable o Date of notification is crucial because it determines what claims or defenses the assignee is subject to o If the assignment is held to be invalid, the assignee may have a cause of action against the assignor o Commercial context: The rights of the assignee are subject to any terms of the original K The obligor has any defense against the assignee as he would have against the assignor o Consumer context: If assignee has paid consideration in good-faith to assignor & does not know of any applicable defenses against him by the obligor, then can be declared a holder-in-due course (HIDC) HIDC-assignee not subject to any defenses of obligor o Obligor must perform Obligor may have suit for damages against assignor

UCC Article 9 Secured Transaction (* very confusing) (see my blue highlighting on notes) Transactions that create a security interest in personal property; negotiability o If original party holds the note and have a dispute between the parties, then defenses or off-sets can be asserted against that party Have leverage if keep debt between original parties o If created a negotiable instrument, then have to pay the note An unconditional promise to pay a certain amount of money to payee or to the order of payee (fraud is still a defense) Not subject to any defenses of the obligor (except consumer cases) o Federal Trade Commission (FTC) declared it an unfair trade practice to not allow consumer (obligor) to assert defenses against assignee 18

o Negotiability The right to freely assign an obligation from one party to the next Checks are negotiable instruments Can endorse over to other parties o Dont want to create a negotiable instrument when giving it to someone in advance before there has been performance Deprive yourself of defenses would have had if remained non-negotiable o When there are multiple claims, which claim has priority Which creditor gets paid off first A creditors security interest in collateral becomes perfect

VIII. OBLIGATION TO PERFORM IN GOOD FAITH

RS 205 o Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement of the K Express or implied duty of good-faith in every K Good-faith usually defined within the context of the K Any party that causes the breach of the K will be precluded from recovering damages o A party must always try to perform, even if the other party is trying to prevent performance Party not acting in good-faith may be liable for damages An issue of whether a party acted in good-faith is a question of fact for the jury At-will employment: o Cant fire someone in bad-faith Does not do away with at-will employment; just imposes a condition of goodfaith Merely protects parties rights to receive the benefits of their contract; of whatever they agreed upon

IX. SUBSTANTIAL PERFORMANCE

Substantial Performance Doctrine: o If a good-faith attempt to perform does not precisely meet the terms of the K, the K will still be considered complete if the essential purpose of the K is accomplished Generally, courts want to avoid forfeiture SP is an equitable doctrine; main goal is fairness Conditions: o Common law: Conditions were independent Had to pay and then sue for damages; or had to perform and then sue for payment o Modern: Conditions are mutually dependent Sometimes a party doesnt have to perform unless something else takes place o RS 237 19

Essentially, each side has to fulfill their obligation as a condition to the K It is a condition of each partys remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time

Jacob & Young v. Kent (1921) o Owner specified Reading pipe in the K to be installed in house Builder installed Cohoes pipe A brand of equal quality to Reading o Owner wouldnt pay remainder of K unless builder replaced pipe; builder sues claiming substantial performance Builder argues there was a promise; can sue for S.P. Owner argues there was a condition; failure of relieves duty to pay Court held the cost of replacement would be excessive and unreasonable and inefficient use of resources Court knew performance was imperfect, but the court asked; what is, if any, the difference between the actual performance and the contract performance? None. o What is the materiality of failing to perform exactly as K states? Builder substantially performed Did enough to get paid for work done minus difference in value for imperfect performance Courts will look to see if there was a good-faith attempt to substantially perform o Even if there was good-faith, does not mean he will be entitled to substantial performance If no finding of good-faith, builder may be able to recover in quantum meruit Recover for materials and services used; if conferred a benefit at all Substantial performance doctrine reduces opportunistic claims of breach of K by softening the breach/non-breach distinction, thereby removing opportunities to exploit inadvertent or immaterial breaches o Substantial performance often claimed in building contracts Substantial performance should only be granted in cases of incompleteness or construction only when the incomplete details are inconsiderable (not material or to the essence of the K) and not the fault of the builder If failure to perform to perfection is viewed as a condition to the K, and not a promise, automatic forfeiture will occur o If viewed as a promise, party can claim substantial performance to avoid forfeiture Sometimes, especially in the construction of a home, the owners taste or preference may be controlling on specifications of the K; may not be compelled to accept something else o Case-by-case analysis

Contract for Sale of Goods No substantial performance o Traditionally: Perfect Tender Rule: Party can reject goods unless the other party gave you exactly what they asked for 20

 Any tender of delivery that was not perfect could be rejected o UCC nominally preserves the perfect tender rule; however, many other provisions of the UCC strip away most of the significance of this section 2-601 Perfect Tender Rule If the goods fail in any respect to conform to the K, the buyer may: o Reject the whole; or o Accept the whole; or o Accept any commercial unit and reject the rest Unless the agreement states otherwise o parties can contract away requirement of perfection If installment contract subject to 2-612 o Qualifications of UCC 2-601 Perfect Tender Rule: UCC 2-602(1) Rejection of goods must be within a reasonable time after their delivery o Rejection is ineffective unless the buyer seasonably notifies the seller Seasonably: At or within the time agreed, or if no time agreed upon, within a reasonable time Reasonable time: Depends on the nature, purpose, and circumstances Rejection of goods must be made in good-faith Cant reject goods simply because the market shifted and trying to get a better deal UCC 2-508 Seller has a right to cure o Where any delivery is rejected before the time of performance has expired, the seller may seasonably notify his intention to cure and may make a conforming delivery o Where a delivery is rejected after time for performance has expired, seller may have a reasonable amount of additional time to make a conforming delivery, if the seller had reason to believe the first delivery would have been acceptable 1) Buyer must have rejected nonconforming goods 2) Seller must have had reasonable grounds to believe the goods would be acceptable 3) Seller must have seasonably notified the buyer of the intention to delivery conforming goods within a reasonable time o Seller that tries to cure by substitution by tender of chattel not within the agreement or contemplation of the parties is invalid UCC 2-608 Where buyer discovers defect after acceptance of the goods, he may revoke acceptance only if the nonconformity/defect substantially impairs the value of the goods 21

o Must notify seller in a reasonable time from which discover defect or should have discovered defect o Cant use 2-601 if accepted goods, then revoke A buyer who accepts goods knowing of the defect can only revoke acceptance if when accepted goods had an honest reason to believe the defect would be cured and defect has not been cured within a reasonable time UCC 2-612 Installment contracts Buyer can reject an installment, but not the whole K, if: o The installment is non-conforming, and o The nonconformity substantially impairs the value of the installment, and o No cure; there is no adequate assurance installment will be cured Buyer can reject the installment and the whole K if: o Nonconformity substantially impairs the value of the whole K Essentially, the installment defect taints the whole K UCC 2-504 Shipment by seller o Buyer may reject goods only if there was a material delay or loss ensues

X. EXPRESS CONDITIONS
Law of conditions is a controversial part of substantive K law o If a party does not fulfill a condition the other partys obligation to perform does not arise; results is an automatic forfeiture If failure to fulfill a condition, not need to determine materiality Must hit the bulls-eye in order to fulfill a condition o Strict compliance RS 224 o A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a K is due RS 225 o Performance of a duty subject to a condition cannot become due unless the condition occurs or is excused o The nonoccurrence of a condition, unless excused, discharges the duty of the other party Failure to satisfy a condition takes away the remedy of substantial performance; there is automatic forfeiture o Contrast: Failure to perform a promise will not excuse the other partys obligation and may have claim of substantial performance

Interpretation: 22

When in doubt, courts will construe language as a promise to avoid the harshness of a condition This helps avoid forfeiture o Specific, unambiguous language that exhibits the parties clear intent may be deemed an express condition Party seeking to avoid forfeiture can argue: Excuse of condition; or Persuade court to treat provision as a promise o General legal policy opposed to forfeitures Equitable results usually arise from the perception of a promise rather than condition A true condition can NOT be breached o Contract never completed; other partys obligation never arose; no claim for damages Promises can be breached and can give rise to damages Implied condition: o Condition imposed by law to do justice Where the law has imposed the condition, in absence or irrespective of the manifested intention of the parties, the court can deal with its creation as it pleases Can allow substantial performance

Condition precedent: o Where some designated state of events must occur before a party to a contract becomes liable to perform o Obligated by K, but duty to perform does NOT arise until condition precedent fulfilled o Burden of pleading a condition precedent has occurred falls on the plaintiff Condition subsequent: o Where the party has already come under a duty to perform, and will be relieved from that duty by the happening of some designated state of events o Duty to perform is discharged when a condition subsequent occurs o Burden of pleading and proof falls on def. to show event has occurred excusing him from liability Cooperation: o Whenever cooperation of the promisee is necessary for the performance of the promise by the promisor, there is a condition implied-in-fact that cooperation will be given Implied condition of good-faith Conditions of Satisfaction: o Two standards of satisfaction: Objective: Reasonable person o Functional utility Subjective: 23

Personal satisfaction o When K involves personal taste; aesthetic value

o RS 228 When it is a condition that the obligor be satisfied with the other partys performance, it is practicable to determine whether a reasonable person in the position of the obligor would be satisfied Interpretation is preferred under which the condition occurs if a reasonable person in the position of the obligor would be satisfied o Minority: If the language or circumstances surrounding the K reflect that the parties actually intended for one or more party to have the right to reject work for failure to satisfy private, aesthetic taste (subjective) rejection is proper even in unreasonable, but rejection cant be in bad-faith o Satisfaction of a 3rd party The risk to a contractor in condition the owners duty to pay on his satisfaction can be avoided by making the condition the satisfaction of an independent 3rd party Usually, mean honest satisfaction o Rejection may be unreasonable, but has to be honest (goodfaith) o Rejection cant be extremely unreasonable A court can classify the rejection as constructive fraud The rejecting party must always act in good-faith and be honest Cant withhold satisfaction without a good-faith, honest reason Usually rely on 3rd parties judgment as long as they are honest and act in goodfaith and there has been no gross mistake o Even though there may be a forfeiture Conditions of Payment: o Intention of the parties is the controlling factor Usually, courts will interpret a condition of payment as a promise as to avoid forfeiture o Condition of payment can usually be viewed in two ways: Establishing the timing of payment (promise); or Expressly placing the risk on a specific party (condition) Excuse: o RS 229 To the extent that the nonoccurrence of a condition would cause disproportionate forfeiture, a court may excuse the nonoccurrence of that condition unless its occurrence was a material part of the agreement o In appropriate circumstances, a contracting party, despite his own default, may be entitled to relief from the rigorous enforcement of contract provision that would otherwise amount to forfeiture Appropriate circumstances: 24

Weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the K, and the cruelty of strict enforcement o Generally, must look to the materiality of the nonoccurrence RS 241 In determining whether a failure to render or to offer performance is material, the following circumstances are significant: o Extent to which the injured party will be deprived of benefit which he reasonably expected; o Extent to which the injured party can be adequately compensated for the part of the benefit of which he will be deprived; o Extent to which the party failing to perform or to offer to perform will suffer forfeiture; o Likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; o Extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good-faith and fair dealing Ex. An unexcused delay by the insured in giving notice to the insurer of an accident in accordance with the K, does not relieve the insurer of its obligation to defend and indemnify unless the delay operates materially to prejudice the insurers ability to investigate and defend the claim o Essentially, if it can be shown that the insurer suffered no material prejudice from delay of notice, nonoccurrence of the condition of timely notice may be excused

XI. ORDER OF PERFORMANCE

o RS 233 25

Where performances are to be exchanged under a bilateral K, and the whole of one partys performance can be rendered at one time, it is due at one time, unless the language of the K or circumstances indicate to the contrary Where only a part of one partys performance is due at one time, if the other party performance can be so apportioned that there is a comparable part than can also be rendered at that time, it is due at that time, unless language of the K states otherwise o RS 234 Where all or part of the performances to be exchanged under a bilateral K can be rendered simultaneously, they are to that extent due simultaneously, unless the language of the K states otherwise Where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the K states otherwise Ex. A builder must perform all work before the owners duty to perform arises, unless K specifies progress payments This is kind of an implied condition o UCC 2-507 Tender of delivery is a condition to the buyers duty to accept and duty to pay for the goods, unless K states otherwise Tender of the goods entitles seller to payment according to the K o UCC 2-511 Tender of payment is a condition to the sellers duty to tender and complete any delivery, unless K states otherwise Concurrent Conditions o Generally, when performances are due simultaneously, neither party can recover damages, unless he does something to put the other in default Basically, if both are required to perform simultaneously, and neither performs, there has been no breach If neither can perform; neither can recover o It is the general rule that when performance under a K is concurrent, one party cannot put the other in default unless he is ready, able, and willing to perform and has manifested this by some offer of performance; although A tender of performance is not necessary if the other party has shown that cannot or will not tender performance o Majority: Plaintiff has burden to prove his ability to perform his obligations under the K

XII. MATERIAL BREACH

RS 236 o (1) A claim for damages for total breach is one for damages based on all of the injured partys remaining rights to performance Injured party no longer looking to other party for performance, but now looking to them for remedy 26

Can cancel or rescind the whole K; put the K to an end & seek damages Party can chose to not view as a total breach, but as a partial breach o (2) A claim for damages for partial breach is one for damages based on only part of the injured partys remaining rights to performance Injured party can not cancel the K; the K goes on Can seek damages RS 237 o It is a condition of each partys remaining duties that there be no uncured material breach If there is an uncured material breach, the injured party can withhold or suspend performance; not a total breach yet If becomes a persistent, uncured material breach, may become a total breach and aggrieved party can choose to put an end to the K RS 238 o Where performance is due simultaneously, it is a condition of each partys duties to render such performance that the other party render or offer performance of his part of the exchange RS 241 o Circumstances significant in determining whether a failure is material: o Extent to which the injured party will be deprived of benefit which he reasonably expected; o Extent to which the injured party can be adequately compensated for the part of the benefit of which he will be deprived; o Extent to which the party failing to perform or to offer to perform will suffer forfeiture; o Likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; o Extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good-faith and fair dealing o Essentially, how much does this breach hurt? Partial/Minor Breach: o Can only collect damages based on that breach o Can try to use self-help to cure problem and deduct cost from payment o Can not cancel K, or withhold performance Uncured Material Breach: o Can withhold/suspend performance until cured o Can not cancel K o An uncured, persistent material breach may become a total breach Total Breach o Can cancel K o Can collect damages o No duty to perform 27

o Can chose to treat as a partial breach Breach by non-performance gives rise to claim for total breach if it substantially impairs the value of the K to the injured party such that it is just to allow inured party to cancel K and recover damages Goods o The aggrieved party must give notice to the breaching party that the goods are nonconforming and must specify why o UCC 2-717 self-help The buyer, on notifying the seller of his intention to do so, may deduct all or any part of the damages resulting from any breach of the K from any part of the price still due under the K o Need to determine materiality of failure to perform certain part of K Did non-performance substantially impair the value of the K? o UCC 2-508 (PROPOSED) If the time of performance has expired, and the buyer rightfully rejected goods, then the seller has committed a breach by nonperformance Must determine materiality of breach: o Material or minor A party should always take conservative steps when taking action in regards to a breach: o 1) Issue letter describing breach & demand immediate cure o 2) Determine if self-help can cure problem Hire someone to fix problem o 3) Deduct cost of self-help from price left on K o 4) If self-help does not work, issue another demand, and withhold payment o 5) If problem persists, and is material to the K, then may claim total breach Cancel K and seek damages A party should always be wary to proclaim a breach a total breach and cancel the K Such a step is fraught with peril If cancel K and was not a total breach, then you may be in breach giving the other party right to cancel K & seek damages o And, if determine breach is material and withhold/suspend performance (ex. payment), and it turns out it was not a material breach, then you may be in material breach of K Generally: o If a party has substantially performed, then any breach he may have committed is not material; if a party has committed a material breach, his performance cannot be substantial performance This may not always be true: Substantial performance concerns the question, when can a party who has breached a contract nevertheless bring suit under the contract Doctrine of material breach concerns the very different question, when can a party who has not breached a K (i) invoke the sanction of terminating the K because of the other partys breach and (ii) bring suit for damages for total breach 28

Doctrine of material breach may be relevant in cases where substantial performance will not be

XIII. ANTICIPATORY BREACH

RS 250 o A definite, unequivocal, and absolute manifestation of intention on the part of the repudiator that he will NOT render the promised performance when the time fixed for it in the K arrives The manifestation of an intention to repudiate a K may be made and communicated by either words OR conduct RS 253 o A party that repudiates a duty before he has committed a breach by nonperformance and before he has received all of the agreed exchange for it, his repudiation gives rise to a claim for damages for total breach of the K; and Discharges the non-repudiating partys remaining duties to render performance Anticipatory breach has been committed if a party to a K (1) demands of the other party a performance to which he has no right to under the K, and (2) states definitely that unless his demand is complied with he will not render his promised performance o A mere request for a change in the terms or a request for cancellation of the K is NOT in itself enough to constitute a repudiation o A partys expression of doubt as to its willingness or ability to perform does NOT constitute a repudiation A party does not need to continue to perform the K after the other party has repudiated it, but he still must be able to demonstrate that he had a willingness and ability to perform the K before the repudiation o Essentially, the aggrieved party must show that he would have rendered the agreed performance if the def. had not repudiate the K Adopted doctrine of anticipatory repudiation to prevent economic inefficiency o Do not want a party to have to sit around idle, remain willing and able to perform the K, and then sue for damages for nonperformance A waste of time, resources, etc When a promisor repudiates a K, the injured party has option to treat repudiation as: o An anticipatory breach and immediately seek damages and cancel the K (if total breach); or

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o An empty threat and wait for time until performance is due and exercise his remedies for actual breach by nonperformance (determine materiality; total or partial breach) However, if wait until time of performance, the promisor may retract his repudiation before performance is due and the K may go on RS 256 o A statement constituting a repudiation may be nullified by a retraction of the repudiation if the repudiation is before: The injured party materially changes his position in reliance on the repudiation; or Indicates to the repudiating party that he considers the repudiation to be final o Events or conduct constituting a repudiation may be nullified if to the knowledge of the injured party: The events or conduct has ceased to exist before he materially changes his position in reliance on the repudiation; or Indicates to the other party that he considers the repudiation to be final RS 251 o Where reasonable grounds arise (insecurity) to believe that the obligor will commit a breach by non-performance that would of itself give the oblige a claim for damages for total breach, the obligee may demand adequate assurance for due performance and may, if reasonable, suspend any performance until he receives such assurance o The obligee may treat as a repudiation the obligors failure to provide within a reasonable time such assurance of due performance as is adequate under the circumstances Essentially: If there are (1) reasonable grounds (question of fact), to think there will be a (2) total breach, (3) then that allows that party to demand assurance (4) the party at that point can suspend performance o If adequate assurance not given, then can treat as a total breach UCC 609 o (1) When reasonable grounds for insecurity arise with respect to performance of either party the other may in writing demand adequate assurances of performance, and Until he receives such assurance, he may reasonably suspend any performance due for which he has not already received the agreed return performance o (4) If a party, after receipt of a justified demand fails to provide within a reasonable time (not to exceed 30 days) such assurance due, may constitute a repudiation UCC 2-705 o If a seller learns of the buyers insolvency and the seller is selling based on the buyers credit, he can stop delivery/performance Equity insolvency Side bar: Natural gas IS considered a good for purposes of Article II; Electricity is NOT considered a good for the purposes of Article II Exception to anticipatory repudiation (Im not sure we covered this, check) 30

o (1) If promisor repudiates after the other party has fully performed, and (2) the only duty remaining on the other side is to perform a series of separate acts (usually installment payments), (3) then the injured party can only bring suit on the basis of the acts owing at the time of the breach and cannot bring suit on any remaining future act until there is a breach of duty to perform that act Seems to be bad policy: Takes up court time and resources o Force injured party to bring suit after suit to collect on each separate unperformed act (ex. monthly payment) Injured party will not know the status of the repudiating party in the future o May not be able to collect in the future o Two ways to avoid this problem: Acceleration Clause If miss performance of a separate act, injured party may call in entire debt of performance o Ex. Mortgage may call in entire debt if miss a few monthly payments In sophisticated business situations the lender may require the borrower to provide financial information every quarter o If financial status becomes unacceptable and lender reasonably wary of a breach, then may call in entire debt Persuade court to order def. to make payments without having to bring continual suits, which courts will usually do Damages o Most courts have recognized the right of the injured party to sue for damages upon repudiation The aggrieved party should reasonably mitigate damages May create a problem if bring suit before breach by nonperformance The damages may only be speculative o Some courts allow the aggrieved party to rescind the K, but must wait until performance due before allowed to sue for damages o The question must always be asked at what time should damages be assessed; at the time of repudiation or the time of performance Sometimes, in the context of commercial transactions, the court may look to factors of mitigation and risk Mitigation: When the buyer learns early on that the seller will be unable to perform/repudiates, the buyer can wait a commercially reasonable amount of time, but usually should cover if that remedy is available Risk: And, the court will look at who bears the risk

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In the case of a farmer that will be unable to perform, he could have secured his ability to perform by securing futures of the specific crop in case his harvest failed When analyzing the case, the Court may force a buyer to view the anticipatory breach as a total breach after a commercially reasonable time, in that case, measure of damages would be upon repudiation Not all courts would agree with this approach

o UCC 2-610 The injured party of an anticipatory repudiation may: For a commercially reasonable time await performance; or Resort to any remedy for breach, even though has told repudiating party he still expects repudiation and urges retraction; AND In either case, may suspend his own performance o UCC 2-711 If a seller fails to deliver/perform or repudiates, the buyer may cover o Damages would be cost of cover o UCC 2-713 The measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental or consequential damages Market price is to be determined as of the place of tender, or in cases of rejection after arrival or revocation of acceptance, as of the place of arrival o PROPOSED UCC 2-713 (do we need to know this? Did not put of cards) o Majority approach (1) If the seller wrongfully fails to deliver or repudiates or the buyer rightfully rejects acceptance: (b) The measure of damages for repudiation by the seller is the difference between the market price at the expiration of a commercially reasonable time after the buyer learned of the repudiation and the contract price together with any incidental or consequential damages o UCC 2-723 If an action based on anticipatory repudiation comes to trial before the performance is due the damages will be assessed based on the market value at the time of the repudiation

XIV. STATUTE OF FRAUDS

We have spent some time talking about SOL and time limits. The equitable doctrine of laches where a court of equity can say you waited too long to bring your claim and it has prejudiced the D.s ability 32

to defend the case. The SOF may create as much fraud as it prohibits. People are likely to commit fraud regarding written documents as well. The courts have not favored the SOF. Generally, if the Statute gives any leeway, the courts have restricted its meaning and found ways to make oral agreements enforceable. o In most cases, oral contracts are valid; however, by statute, a certain few types of contracts are required to be in a memorandum of writing to be enforceable Stems from the English Statute of Frauds of 1677 Louisiana is the only state that doesnt have a version of the statute of frauds in force Purpose: o Evidentiary: To prevent fraud and perjury of the actual terms of the K; the main purpose Serve as definite evidence of K terms in dispute o To prevent a party from slipping into a legal undertaking without a full appreciation for what he is doing Encourage thought & deliberation in the making of K However, the statute is not rigidly enforced because it is an affirmative defense and if valid, will result in forfeiture In most jurisdictions, a failure by the def. to raise a defense of the Statute of Frauds waives the defense Contracts for the Sale of Land Definition of land is furnished by property law; pretty inclusive o Leases: Usually, a lease does not have to be in writing unless for longer than one year o Conveyances: Any contract for the sale of an interest in land must be evidenced in writing Contract for the Sale of Goods o UCC 2-201 Any contract for the sale of goods for the price of $500 or more, is not enforceable unless there is some writing sufficient to indicate that a K for sale has been made and signed by the party against whom enforcement is sought A writing is not insufficient (is ok) if it omits or incorrectly states a term agreed upon, BUT o The K is not enforceable if a quantity of goods is not shown in the writing The K is enforceable up to the limit of goods specified in memorandum Between merchants There is a requirement that if a party receives a confirmation, and does not object to it within 10 days after it is received, the silence satisfies the statute Exceptions to statute:

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If the goods are to be specially manufactured for the buyer and not suitable for sale to others, the statute may be satisfied; or If the party whom enforcement is sought against admits in court there was a contract for sale of goods, then enforceable without memorandum; or 18 Part performance, where payment has been made and goods accepted, that is evidence of a K and the agreement need not be in memorandum o PROPOSED UCC 2-201 The amount has been raised to $5,000 to account for inflation, and the admissions exception has been broadened to include admissions made out of court under oath, and allows for non-statutory exceptions such as promissory estoppel o CISG Article 11 A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. The agreement may be proved by any means, including witnesses A country can opt-out of the CISG in regards to Article 11 and adopt its own domestic legislation requiring a writing whenever one of the parties to the contract has its place of business in the country The United States has NOT opted-out of Article 11 o Therefore, there is no writing requirement for international sale of goods, unless the non-US parties country has opted out of Article 11, then must satisfy that countries statutory requirements Agreements not to be performed within one year from the making In MS, it is 15 months o Majority: If the K is capable of being performed within one year, then the oral contract is enforceable without a memorandum, even if dont actually complete performance within a year (or 15 months) o Generally, this provision will only be enforced if the K expressly states by its terms that the performance will be longer than a year Suretyship (Bradley said we are not going into this) Generally, when a person enters a special promise to answer for the debt of another, the agreement must be in memorandum o The statute only applies if the agreement is made to the creditor A surety is the person liable for a debt that a second person owes to the creditor If the surety is forced to pay the debt, may have a claim of indemnification o Suretyship is often secured to afford security for a creditor o Exception: Main Purpose Rule: 34

When the main purpose of the surety is to serve a pecuniary interest of his own, then the agreement need not be in writing RS 116 o Whether the consideration given for the promise of the surety is in fact or apparently desired by the promisor mainly for his own economic advantage, rather than in order to benefit the other party

Any executor or administrator that makes an agreement to answer damages out of an estate must be evidenced in writing Any contracts upon the consideration of marriage must be evidence in writing to be enforceable o Typical situation is a marriage settlement where the parents agree to give money to the couple upon their wedding What type of memorandum will satisfy the statute? Sometimes a provision will specify the kind of writing needed o Generally, the statute is satisfied by almost any kind of signed writing that evidences the terms of the parties agreement Signed means a signature, any symbol, etc The terms of the agreement must be stated with reasonable adequacy But, courts do not demand perfection However, the requirement may not be satisfied if the memorandum incorrectly states the agreement Some jurisdictions require that consideration must be stated in the writing, and some say consideration need not be stated at all The memorandum need not be signed by both parties May create a bilateral K enforceable by only one direction The piecing together of writings may suffice A principal will usually be bound by the signature of an authorized agent Some jurisdictions require formal evidence/agreement the agent had authority to enter into agreement on behalf of the principal For the sale of goods: All that is definitely needed is: o Evidence of a K for the sale of goods, must be signed, and it must specify a quantity of goods Electronic Contracting and Statute of Frauds o Uniform Computer Electronics Transactions Act o Has been adopted by several states Section 7 provides: An electronic form or memorandum or confirmation or signature, satisfies the statute of frauds o Global and National Commerce Act o Federal law Applies to states that havent adopted Uniform Act 35

o With respect to any transaction in or affecting interstate or foreign commerce: Electronic signature or record may not be denied legal affect/enforceability Federal e-sign statute- does the same thing as the electronic transactions act Has a provision that says states can adopt their own statutes. Fed law does not preempt the field. State statutes have the principal effect. Reliance o RS 139 A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or 3rd party and which does so in fact, is enforceable notwithstanding the statute of frauds if injustice can be avoided only by enforcement of the promise o Jurisdictions are split as to whether reliance applies to UCC 2-201 Oral Rescission o If there is a contract that is rightfully in writing, and the parties orally rescind the K, it is effective Oral Modification o An oral modification of a contract falls within the statute of frauds, if and only if, the new agreement that results is within the Statute Sale of goods: The Statute must be satisfied if the contract as modified is within the provisions of UCC 2-201 o A majority of courts have held that every contract modification must be in writing as long as it is within the provision of UCC 2-201 o Minority of courts held that a modification only needs to be in writing if the modification changes either the consideration or a term that is required to be in writing Some courts have held that part performance or reliance on an oral modification becomes effective, notwithstanding the Statute, if action has been taken under the modification Parol Evidence Rule and Statute of Frauds The PER does not invalidate a later oral modification of a written agreement o The Statute of Frauds requires the K/agreement to in a writing, and it may be satisfied by writings that do not call into operation the PER Thus, a series of letters may be pieced together to form a K PER does not apply because it is unlikely those letters would constitute an integration o If there is a written K, a party can object claiming the K is incomplete and offer parol evidence to fill in the apparent gap However, must determine whether the evidence would violate the PER And, a serious enough gap may not satisfy the Statute, therefore the evidence would be irrelevant o Reformation is generally not barred if the K falls within the Statute 36

There is some authority for restricting reformation of such contracts where the party seeking reformation has seriously relied on the; reformation may be refused Where the central term of the K is sought to be supplied by reformation, the remedy may be denied Some jurisdictions hold that a written K obligation can be contracted, but never expanded o The normal occasion for reformation arises where the parol evidence cannot be used to correct the mistakes or supply the deficiencies of the written document and it must first be set right by reformation before it can be taken as the definition of the parties rights In such a case, reformation is not sought to satisfy the Statute, and reformation may be allowed However, in a situation where reformation is sought solely to secure a memorandum satisfying the Statue, the remedy of reformation is not available; viewed as going to far THE END

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