REMEDIES

BASIC PRINCIPLES
I. § 235. Effect Of Performance As Discharge And Of Non-Performance As Breach
a. Full performance of a duty under a contract discharges the duty.
b. When performance of a duty under a contract is due any non-performance is a breach.
II. Actionable Breaches.
a. Failure to perform w/o justification at time agreed upon
b. Repudiation of the promise or bargain
i. § 250. When A Statement Or An Act Is a Repudiation: (a) a statement indicating
that the obligor will commit a breach that would of itself give the obligee a claim
for damages for total breach. (b) A voluntary affirmative act which renders the
obligor unable or apparently unable to perform without such a breach.
c. Bad faith in the form of preventing or hindering the other party's performance or
failing to cooperate
III. Material and non-material breaches
a. Material breach: non-breaching party given option to suspend its performance or
cancel contract and sue for damages. However, problem might be if this action is taken
and court subsequently decides it was not a material breach. Then that suspension of
performance or cancellation is a material breach.
i. § 241. Circumstances Significant In Determining Whether A Failure Is Material
1. Extent that injured will be deprived of the benefit which he reasonably
expected;
2. Extent that injured can be adequately compensated
3. Extent that failing party will suffer forfeiture
4. likelihood that he can cure his failure, looking at all circumstances and any
reasonable assurances
5. extent that party is comporting with standards of good faith and fair
dealing
b. Non-material breach, no option to cancel, but aggrieved party can recover.
IV. Policies in getting breach remedies:
a. P must prove that breach was substantial cause of the loss complained of and the
amount of the loss caused with reasonable certainty
b. Provable losses must have been reasonably foreseeable to D at time of contract
formation
c. Pl has “duty” to mitigate damages
V. Interest - In addition to compensatory damages, P can also recover interest of $ withheld
and maybe costs of litigation. P cannot recover transaction costs (like attorney's fees or costs
of delay) unless in agreement, or if a statute, etc.
VI.

REMEDIAL RESPONSES TO PROSPECTIVE BREACH OR

INABILITY
I. Anticipatory Repudiation

Page 1
 a. § 2-610. Anticipatory Repudiation. Repudiation of K when performance not yet due.
Aggrieved party may wait a reasonable time for performance or resort to a remedy
even if they told the breaching party that they’re waiting for performance & have asked
them to retract the repudiation.
b. § 2-611. Retraction of Anticipatory Repudiation. Can still retract until time of
performance is due, unless other party has relied and changed their position (by
cancelling, etc.). Retraction can be made in any way that clearly indicates to other
party its intent, plus give assurances if justifiably demanded.
II. Right to cancel upon prospective breach
a. When promisor, by words or conduct, repudiates a performance not yet due under the
agreed exchange. If both parties still have obligations under the K, remedies can be
invoked before the time set or performance.
i. § 253. Effect Of A Repudiation As A Breach And On Other Party's Duties. Where
there is repudiationbefore breach, this gives rise to a claim for damages for total
breach. One party's repudiation of a duty to render performance discharges the
other party's remaining duties to render performance.
b. Hochster v. De La Tour
i. Facts: K for Pl to work for Df. Df repudiated (before Pl began). Pl sued before
actual reach (time K said that work would begin). Pl found another job.
ii.Rule/Analysis: When a party clearly repudiates a material promise in advance,
the other may treat this as a breach immediately and can seek relief for breach
without delay. Pl allowed to seek employment (w/o it being a breach itself) after
Df repudiated b/c Pl is absolved from performance of the K. Pl mitigated
damages by seeking other employment.

III. Right to Cancel upon prospective inability/Failure to give assurance

a. If circumstances or the promisor's words or conduct create doubt that promisor will
perform, but there is no breach yet, the promisee may suspend performance and
"demand adequate assurance" from the promisor
i. § 2-609. Right to Adequate Assurance of Performance. If one party has
reasonable insecurity that other party will not be able to fulfill the K, they may in
writing demand assurances of due performance, and until they receive it, they
can suspend their own performance. If not rec’d within reasonable time (max 30
days), it’s a repudiation of the K.
ii.§ 251. When A Failure To Give Assurance May Be Treated As a Repudiation. Same
as UCC.
iii.§ 252. Effect Of Insolvency. Where the obligor's insolvency gives the obligee
reasonable grounds to believe that the obligor will commit a breach, the obligee
may suspend any performance for which he has not already received the agreed
exchange until he receives assurance in the form of performance itself, an offer
of performance, or adequate security. (insolvency – not paying debts /
bankruptcy)
iv.AMF, Inc. v. McDonald’s Corp.
1. Facts: Df has Ks with Pl to buy computers. Pl acting very irresponsible. Df
doesn’t think they can fulfill their needs, and cancels K. Pl sues.
2. Rule/Analysis: Df allowed to cancel b/c they had reasonable insecurity
that Pl couldn’t fulfill K. Pl never gave assurances when they were
demanded.

Page 2
 MEASURING & COMPENSATING LOSS RESULTING FROM
BREACH
I. Expectation Damages –compensate the injured party for the benefit he would have
received had the contract not been breached, minus any amount he would have spent in
performance of the contract. Such damages must be proven with certainty, and may be
measured by the contract price, loss in value, or lost profits.
II. Restitution Damages – compensates a party for the benefit conferred on the other party
as a result of partial performance or reliance, and is aimed at preventing unjust
enrichment.
a. Restitution damages may be measured by:
i. the reasonable value of the benefit received in terms of what it would have
cost to obtain such benefit from another source
ii.the extent to which the value of the party's property has been increased or
his other interests advanced.
III. Reliance Damages - compensate the injured party for expenses or loss incurred in
reasonable reliance on the contract that was breached. Reliance damages are only
awarded when expectation damages cannot be proven, and may not exceed the
anticipated benefit of the bargain.
IV. Sullivan v. O'Connor
a. Facts: Plastic surgery gone bad. Dr. promised Pl she would look good (so able to
bring breach of K claim). Dr. found not liable for negligence.
b. Analysis: She is awarded reliance damages, including restitution and all other
damages that flowed from the breach (including her psychological injuries). Goal is
to put aggrieved party back into position as if no breach -and psychological
damages are part of the equation.
i. Restitution - Giving the plaintiff back what she gave the defendant – costs of
surgery
ii.Reliance Damages - Putting the plaintiff in the position that she’d been in if
she’d never entered the contract. The whole difference in value between the
promised and present conditions.
1. the difference between what she has and what she’d have had if she’d not
had the surgery, and kept her average nose
2. Pain/suffering/mental anguish – only awarded to the extent that it went
beyond what was expected per the K. Here, Pl entitled to recover for
worsened condition, and pain, etc. of additional procedure to correct it.

PUNITIVE DAMAGES
I. Mental Anguish and Punitive Damages
a. § 353. Loss Due To Emotional Disturbance. Recovery excluded unless breach also
caused bodily harm, or if it was very foreseeable that an emotional disturbance would
likely result from a breach.
b. § 355. Punitive Damages. Punitive damages are generally not recoverable for breach of
contract, but if the conduct that causes the breach also constitutes a tort, punitive
damages may be awarded.
i. To award punitive damages, breach must constitute an independent and willful
tort accompanied by fraud, malice, wantonness or oppression.
c. Bohac v. Department of Agriculture

Page 3
 i. Facts: Pl got fired. Pl asks for $14k pecuniary damages, $150K non-pecuniary
damages. For Mental anguish, damages to personal & professional reputation.
ii.Rule/Analysis: Consequential damages relates to foreseeability at the time the K
is executed, not at the time of breach. Pecuniary damages are most likely to be
foreseeable at the time of contracting. Non-pecuniary damages are more
dependent on the circumstances of the individual at the time of breach (not at
the time of K, which is required for consequential damages). Can’t get non-
pecuniary damages.
d. Acquista v. New York Life Insurance
i. Facts: Acquista has disability insurance. He gets sick, but insurance company
denies the claims. Acquista alleges bad faith conduct in the assessment of his
claims. NY does not recognize this sort of conduct as a tort, but only a breach of
K (some states say this is a tort).
ii.Rule: Where an insurer in bad faith denies a claim, damages are not limited to
amount due under the policy. Damages could include consequential damages
such as mental distress, or aggravation and inconvenience.
1. Otherwise insurance companies would have no motivation not to breach
2. Goal of K damages is to put aggrieved in same position as if no breach. No
money from insurance can cause a lot to happen b/c insured doesn’t
necessarily have the funds to take care of problems now, then sue later.
3. These non-economic losses would be compensable only in circumstances
where they were a foreseeable result of a breach at time of contracting.
e. Boise Dodge, Inc. v. Clark
i. Facts: Pl bought a car described as “new.” Actually, the car was used, and the
odometer had been set back to take off the mileage. Court awarded punitive
damages.
ii.Because there was intentional deceit and fraud involved (tortious conduct),
punitive damages would be allowed. Reasoning: Someone who engages in a
calculated, fraudulent scheme would not be deterred if the only punishment is to
pay the Pl for actual loss (compensatory damages only returns to Pl amount Df
took); they would have no motivation not to engage in this type of behavior.
1. The award of punitive damages must not be grossly out of proportion to
the severity of the offense.

BREACH OR REPUDIATION BY BUYER

I. Buyer’s Breach and Seller’s Remedies: (UCC 2-703)
a. Breach - A buyer breaches a contract for the sale of goods by:
i. wrongfully rejecting the goods
ii.wrongfully revoking acceptance of goods
iii.failing to make a payment when due
iv.repudiation
b. Remedies - In the case of a buyer's breach, the seller may:
i. withhold or stop delivery of goods
ii.resell the goods and recover damages for the breach
iii.recover damages for non-acceptance or repudiation
iv.recover lost profits
v.recover the contract price
vi.obtain specific performance
vii.recover liquidated damages
viii.reclaim the goods

Page 4
II. Resale of Goods (UCC §2-706) - The seller may, in good faith and in a commercially
reasonable manner, resell goods that the buyer wrongfully does not accept.
a. Damages are diff btwn resale & K price, plus incidental expenses, less expenses
saved.
b. Private sale – must give buyer reasonable notice. Public sale – governed by more
rules (2-706(4)).
III. Damages for Buyer's Non-acceptance or Repudiation (UCC § 2-708)
a. Where buyer wrongfully rejects goods, or unjustifiably revokes acceptance,
damages are:
i. The diff btwn market price at time & place for tender & K price plus any
incidental or consequential damages, less expenses saved.
b. Where buyer repudiates, damages are:
i. Diff btwn market price at time & place for tender up to a reasonable time
after seller learned of the repudiation, plus any incidental or consequential
damages, less expenses saved.
IV. Contract Price (UCC § 2-709)
a. When buyer fails to pay when due, seller may recover (along with incidental
damages), the price:
i. of accepted or conforming goods lost or damaged within a reasonable time
after risk of their loss has passed to the buyer; and
ii.of goods identified to the K if seller is unable after reasonable effort to resell
at a reasonable price, or if circumstances reasonably indicate that such effort
will be unavailing
b. Where seller sues for the price, he must hold the goods that are in the K & that are
still in his control, except where it becomes possible to resell them at any time prior
to collection of judgment. Damages awarded will be less this net sale, but seller still
entitled for damages on goods not resold.
V. Seller’s Incidental Damages (UCC § 2-710(1)) - Includes any reasonable charges
expenses or commissions incurred b/c of breach
VI. Seller’s Consequential Damages (UCC § 2-710(2)) – includes any loss resulting from
general or particular requirements and needs of which buyer at time of contracting had
reason to know and which could not be reasonably prevented by resale or otherwise.
a. (UCC § 2-710(3)) Seller may not recover consequential damages from a consumer.
VII. American Mechanical Corp. v. Union Machine Co. of Lynn, Inc.
a. Facts: Pl in financial difficulty, Df knew. K to sell property to Df, but Df repudiated.
Bank takes Pl’s property and sells for a lot less in order to pay off mortgage owed. Pl
sues for breach.
b. Analysis: If we useUCC §2-708(b), the measure of damages is diff btwn market price
& K price. Problem is that the diff would be nominal, but actual damages caused by
breach were a lot more (since foreclosure caused sale of well below market). Court
says that in this case, we can use actual price sold for to measure the damages.
Reasoning behind this is that the point of awarding damages is to put aggrieved
party in position they would be in if there were no breach. Can only do this if we
use actual damages.
VIII.Lost Volume Seller
a. UCC 2-708(2) - If measure of damages (under 2-708(1)) is inadequate to put seller
in as good a position as performance would have done, then entitled to damages
measured by the profit (incl. reasonable overhead) which seller would have made
from the deal, plus incidental & costs reasonably incurred, less expenses saved.
i. When seller is able to resale goods for basically the same price - under this
measure, seller can keep proceeds of resale and recover the profit that would
have been made on the first sale.

Page 5
 ii.Reasoning: The breach cost the seller an additional profitable transaction, in
addition to those he would have made anyway (he would have sold the 2nd
unit even if no breach).
b. Locks v. Wade
i. Facts: K for lease of jukebox. Df repudiated K. Pl subsequently rented
jukebox to others.
ii.The court held that the proper measure of damages was the difference
between the contract price and the cost of performing the contract because
the supply in the market for jukeboxes was not limited. Therefore, if buyer
didn’t breach, he could have made profit on that sale, and for any other
customers. The breach cost the seller a deal (an additional profitable
transaction).
IX. Breach of Construction Contract and the “Components” Approach
a. When owner breaches while contractor in midst of performing - Unless the contract
is divisible or contractor has substantially performed, can’t get the agreed price as
damages.
b. What damages can a contractor recover? – A plaintiff could collect either in
quantum meruit for what had been finished, or in contract for what plaintiff had lost
(k price, plus incidental and consequential, less paid, less expenses saved – UCC 2-
708).
i. New Era Homes Corp. v. Forster
1. Facts: K for home improvements, where Df pays Pl for the work in
installments. Pl did work, and when time to get payment came, Pl
didn’t pay. Pl stopped work and sued for entire balance.
2. Analysis: Majority interpreted the K to be a whole K (not severable),
where the full payment was consideration for the work done, and the
installments were only a device used for convenience. So the remedy
should be the value of what Pl had lost (the K price, less payments
rec’d, less expenses save – or cost of completion).
X. Reliance Damages or Restitution in Losing Contracts
a. Reliance Alterative - If contractor can’t prove lost profits, still can get reliance
damages, which includes reliance expenses in preparation or part-performance.
b. Losing Contracts – If Df can prove that there would have been a loss to contractor if
K were performed, contractor if foreclosed from recovering any profit and the
reliance expenditures should be adjusted downward in proportion to the projected
loss.
i. In a case w/ a losing K, can contractor get restitution damages for the benefit
incurred on Df?
1. Issue with this: Restitution is getting back whatever benefit you
incurred on Df, but whole point in K damages is to put Pl in position
they would have been in if no breach. But in losing Ks, Pl would have
been a worse position if no breach.
XI. Collateral Source Rule – In contract law, any compensation a Pl may get from another
source (like insurance) is deducted from damages, because the purpose of contract
damages is to place the plaintiff in as good a position as if there were no breach.
a. Inchaustegui v. 666 5th Avenue Limited Partnership
i. Facts: Tenant failed to procure liability insurance w/ landlord as additional
insured as specified in lease. Landlord gets sued, and brings tenant in as 3rd
party b/c of this breach.
ii.Usual Rule: If the tenant fails to procure the necessary insurance, they are
liable for consequential damages to the landlord (b/c they should expect that
this may result in economic injury to the landlord).

Page 6
 iii.Collateral Source Rule: However, if the landlord purchased insurance
equivalent to that which the tenant was contractually obligated to do, the
landlord's only damages are contract damages, equivalent to the costs of
procuring the insurance policy.
XII.Employee’s Remedies for Breach of Employment Contract
a. When employer repudiates K before work commences, or terminates employment while
work is underway
i. When not a divisible K, the usual rule allows damages based upon the "loss in
the value to him of the other party's performance … less … any cost or other
loss that he has avoided by not having to perform."
b. The discharged employee is not required to prove what savings were realized by the
breach in order to establish damages. The employer, on the other hand, has the
burden of proving that the employee failed to mitigate damages
c. To show that employee failed to mitigate damages (by getting another job, etc.),
employer must show that the substitution was comparable, or substantially similar. If
different or inferior, employee's failure to accept or seek may not be used to mitigate
damages.
d. If after discharge, employee gets another job, the employer can deduct the income
from the damages if but for the breach, employee wouldn’t have taken that job. If
employee already had another job, can’t deduct.
e. Collateral Source Rule - If employee cannot get a suitable job, and gets benefits
(unemployment), probably can’t deduct from damages. Justified both by the need for
deterrence, and by the feeling that mere indemnity for his net economic loss does not
compensate the employee for all his injury, emotional as well as pecuniary.

BREACH OF CONTRACT BY SUPPLIER OF GOODS, SERVICES

OR CONSTRUCTION
I. Seller’s Breach & Buyer’s Remedies (UCC § 2-711)
a. Seller’s Breach
i. wrongfully failing to make delivery
ii.wrongfully failing to perform a contractual obligation
iii.making a non-conforming tender of goods
iv.repudiation
b. Buyer’s Remedies
i. recovery of price paid
ii.deduction of damages from outstanding payments due
iii.cancellation of the contract
iv."cover"
v.specific performance and replevin
vi.liquidated damages
vii.expectation, incidental, and consequential damages
II. Cover (UCC § 2-712) – If seller breaches, buyer may “cover” by making in good faith *
w/o reasonable delay, any reasonable purchase of substitute goods. Damages would be
diff btwn cost of cover & K price, plus any incidental or consequential damages, less
expenses saved. As long as cover made in good faith, the price doesn’t have to be the
lowest, and goods don’t have to be exact. Failure by buyer to cover doesn’t bar him from
another remedy.
III. Damages for Non-delivery or Repudiation (UCC § 2-713)

Page 7
 a. When seller fails to deliver or buyer rightfully rejects or revokes, damages is diff
btwn market price at time of tender and K price, plus incidental/consequential, less
expenses saved.
b. When seller repudiates, damages is diss btwn market price at time buyer learned of
repudiation (or reasonable time after), and K price, plus incidental/consequential,
less expenses saved.
IV. Buyer’s Damages for breach in Regard to Accepted Goods (UCC § 2-714)
a. When buyer accepts goods & gives notification, he may recover damages for non-
conformity where loss resulted from seller’s breach, and determined in any manner
which is reasonable.
b. Measure of damages for breach of warranty is diff at the time and place of
acceptance btwn the value of goods accepted & value they would have been as
warranted, unless special circumstances show damages of a diff amount.
V. Resale and Offset (UCC § 2-711(3)) – on rightful rejection or revocation, buyer may
resell goods in his possession, or control to offset any payments made on their price & any
incidental expenses.
VI. Deduction of Damages from Payment Due (UCC § 2-717) – buyer can deduct
damages resulting from any balance they owe to seller; must notify
VII.Buyer’s Incidental & Consequential Damages (UCC § 2-715)
a. Incidental includes expenses reasonably incurred as a result in breach (like
transportation, care, cover)
b. Consequential includes any foreseeable loss (from general or particular reqs that
seller had reason to know), & which could not be prevented by cover or otherwise,
-and- injury to person or property proximately caused by breach of warranty.
VIII.Cardozo’s Difference in Value Rule
f. Jacob & Youngs v. Kent (Reading Pipe case) - *see more in avoidance of forfeiture
i. Rule: (Cardozo) Difference in value rule as here used, only applies when
builder's failure to perform under a construction K is both trivial and innocent.
Under this rule, damages are measured by the diminution in value of the
building rather than the cost repairing or replacing the structure (of correcting
it).
g. Rivers v. Deane
i. Facts: Construction K for addition to Pl’s home. Structure built was unsafe &
unusable. Court awarded damages based on Cardozo’s difference in value rule.
ii.Outcome: The difference in value rule only applies when builder's failure to
perform under a construction K is "both trivial and innocent". Here, however, the
defect arising from the breach "is so substantial as to render the finished
building partially unusable and unsafe." So the measure of damages is instead
the market price of completing or correcting the performance.
II. Subjective Value Test and the Difference (Diminution) in Value Rule
a. § 347 - adopts a partially subjective test for the measurement of damages based on
the expectation interest.
i. Damages are loss in value to the Pl caused by the breach, plus incidental and
consequential damages, less costs saved (Objective view of UCC looks at
market/cover price to compare).
b. § 348 - where the breach results in defective or unfinished construction, but the value
to Pl (347, subjective test), is not proved with sufficient certainty.
i. Damages may be recovered based on the diminution in value, or reasonable cost
of correcting defects or completing it
ii.If it happens that the cost of correcting a defect is disproportionate to the
probable loss in value to the Pl (where the cost of correcting is much more than
the increase in value to the Pl - subjective), the award shouldn’t be made.

Page 8
 1. This is b/c if Pl would be awarded these damages, the Pl will not pay to
correct the defects, b/c it will cost him more to do that than the resulting
increase in value to Pl.
2. So instead, the damages would be the objective diminution in value of
market price.
c. Peevyhouse v. Garland Coal & Mining Company
i. Facts: Pl leased farm to Df for strip mining. K said Df had to fix the land after,
but Df breached. Cost of completing the work is $25k, but value of property only
increase by $300.
ii.Analysis: In k law, no one should be awarded more than he would have gained if
there was no breach. The value Pl would have gained is only $300, so
1. § 348- where the cost of correcting is much more than the increase in
value to the Pl (subjective test), the award should not be made. This is b/c
if Pl would be awarded these damages, the Pl will not pay to correct the
defects b/c it will cost him more to do that than the resulting increase in
value to Pl.
iii.Rule: Where the breach of a construction K causes a defect and the cost of
correction is more than the increase in value of the structure, damages should
be measured by the diminution in value, not the cost of performance.
iv.Dissent: talks about the importance of the negotiations to get the specific
provision in K.
d. American Standard, Inc. v. Schectman
i. Facts: K for Df to grade Pl’s land (make it look nice so they can sell). Grading
cost $90k, diminution in value of the property only $3k (they sold it for only $3k
less than “market” price).
ii.Rule: The owner has a right to make "improvements" on his value, even if doing
so would diminish its market value.
1. The Df can't say this his performance would not be beneficial to the Pl.
The Pl specifically contracted to have this done, so there is a value.
iii.(from Jacobs and Young case) to use the diminution in value rule, the contract
must not have been breached intentionally and must show substantial
performance made in good faith.
1. Here, breached in bad faith.
2. Can’t be substantial performance if cost to complete grading $90k.
III. Buyer’s Remedies for Seller’s Breach of Warranty under the UCC (Default Rules; can
be K’d otherwise)
a. UCC provides 3 types of warranty that help to fill the gaps of the agreement
i. 2-313 an express warranty
ii.2-314 an implied warranty of merchantability
iii.2-315 an implied warranty of fitness for a particular purpose
b. If defect is discovered before acceptance:
i. Buyer has right to inspect to make sure goods conform to express warranty
before accepting (2-513(1))
ii.If non-conforming, buyer may reject the goods (2-601, 2-602(2))
iii.After a "rightful" rejection, seller has a limited "right" to cure the defects (2-508)
iv.If not cured, buyer may pursue remedies which include cancellation, "cover" or
damages (incl. consequential) (2-711, 2-715(2))
c. If defect is discovered after acceptance:
i. Acceptance UCC 2-606 - Acceptance of goods precludes the remedy of rejection,
makes the buyer liable for the price and puts the burden of proving a breach of
warranty on the buyer. (2-607)

Page 9
 ii.Remedy: (2-608) - Revocation of acceptance which gives the buyer the same
remedial options as if the goods had been rejected
1. Will be denied if defect is insubstantial, or the buyer should have
discovered it before acceptance or notice is given after an unreasonable
time has elapsed since the defect was or should have been discovered.
d. If buyer can neither "rightfully" reject the goods, nor "justifiably" revoke acceptance
i. UCC 2-607(3)(a) - if timely notice of breach is given, the buyer may recover
damages for breach in regard to accepted goods (2-714), and for incidental and
consequential damages (2-715).
1. In this situation, buyer must keep the goods and pay the agreed price, but
the price will be adjusted downward to reflect the loss of bargain from the
breach (2-717)
IV. Restitution of Down Payment by Payor as Remedy for Breach by Performer
a. Sales of Goods– (UCC 2-711(1)) buyer who cancels after seller’s breach may recover so
much of the price as buyer has paid. This is in addition to expectation damages. Also
UCC 2-718(2) permits a breaching buyer to recover in restitution the amt in payments
made that exceed seller’s damages.
b. Real Property – buyer must establish that (1) he is not in default, (2) the breach is
material, and (3) legal remedies are inadequate.

INCIDENTAL DAMAGES
I. Incidental Damages for Buyer’s breach (UCC § 2-710) - include any commercially
reasonable charges, expenses or commissions incurred by:
a. the stoppage of delivery
b. the transportation, care and custody of goods after the buyer's breach
c. the return or resale of the goods
d. actions otherwise resulting from the buyer's breach.
II. Incidental Damages for Seller’s Breach (UCC § 2-715(1)) - include expenses
reasonably incurred in:
a. inspection, receipt, transportation and care and custody of goods rightfully rejected
b. any commercially reasonably changes, expenses, or commissions in connection with
effecting cover
c. any other reasonable expense incident to the delay or other seller's breach.

CONSEQUENTIAL DAMAGES
I. Foreseeability - The loss had to be a foreseeable consequence of breach at time of
contracting
a. Hadley v. Baxendale
i. Facts: Pl is mill operator, and crankshaft broke. Can’t operate w/o it. Df to deliver
for repair. Df didn’t delivery on time, and Pl lost profits.
ii.Rule/Analysis: Court said can only recover consequential damages for losses that
are foreseeable (naturally arising), or is Pl’s special circumstances were
communicated to Df (in contemplation of the parties at time of contracting).
b. UCC §2-715(2) - Consequential damages resulting from the seller's breach include (a)
any loss resulting from general or particular requirements and needs of which the seller

Page
10
 at the time of contracting has reason to know and which could not reasonably be
prevented by cover or otherwise
c. Rest §351: Damages are not recoverable for loss that the party in breach did not have
reason to foresee as the probable result of the breach when the contract was made.
Loss may be foreseeable as a probable result of a breach because it follows from the
breach (a) in the ordinary course of events, or (b) as a result of special circumstances,
beyond the ordinary course of events, that the party in breach has reason to know.
i. General damages - are the natural and probable consequences of a breachand
are deemed to have been within the contemplation of the breaching party. A
party seeking general damages need not offer further proof that the damages
were foreseeable.
ii.“Special” or particular damages arise from the special facts and circumstances
of the case and are not deemed to be within the contemplation of the breaching
party unless he was made aware of such specific facts and circumstances. A
party seeking consequential damages must demonstrate that the damages were
foreseeable at the time the contract was formed.
d. When parties enter into a K which provides that the time of performance is to be fixed
at a later date, the knowledge of the consequences of a failure to perform is to be
imputed to the defaulting party as of the time the parties agreed upon the date of
performance.
i. Spang Industries, Inc., Fort Pitt Bridge Division v. Aetna Casualty & Surety Co.
1. Facts: K for subcontractor to delivery steel to contractor. K said date of
delivery to be “mutually agreed upon.” Delivery date finally agreed on,
but subcontractor delivered steel late, causing contractor to incur
additional costs. Subcontractor argues that the consequences weren’t
foreseeable at time of K
a. In contemplation of the parties when they entered into the K – The
knowledge of the consequences of a failure to perform is to be
imputed to the defaulting party as of the time the parties agreed
upon the date of performance.
b. Reasonably foreseeable – Subcontractor experienced in this area.
They knew or should have known the process, and therefore, the
consequences of breach. These are damages that must necessarily
follow, and also that are likely to follow.
c. Mitigation of damages - If contractor would have delayed the work,
they would have incurred much higher costs. Therefore, they
mitigated the damages as best they could, and in good faith.
II. Mitigation – could the Pl have reasonably mitigated damages by purchasing substitute
goods on the open market or continuing to deal with the breaching party?
a. UCC §2-715(2) - Consequential damages resulting from the seller's breach include (a)
any loss resulting from general or particular requirements and needs of which the seller
at the time of contracting has reason to know and which could not reasonably be
prevented by cover or otherwise
III. Ascertainable – Can Pl prove what profits were lost with reasonable certainty?
a. If profits are too speculative, can the Pl recover the reliance expenditures as an
alternative?
i. Can the Pl recover both lost profits and reliance expenditures?
IV. Enforceability of clauses "excluding" consequential damages caused by breach.
a. Hydraform Products Corp. v. American Steel & Aluminum Corp.
i. Facts: Df to supply steel to Pl for manufacturing woodstoves. Df knew timing
was very important to Pl – Pl had to get woodstoves out by certain time in order
to make their profits. Df delivered late and defective materials. Pl realized Df

Page
11
 couldn’t perform as agreed, and tried to get materials from other suppliers, but
was unable to get what they needed in time. There was a clause that if would
not be liable for consequential damages.
1. Held: Clause was unenforceable, b/c it failed of its essential purpose, as it
provided Hydraform with no effective remedy – it did not address the
problem of late shipment. Hydraform allowed to recover consequential
damages.
2. Consequential damages must be reasonably foreseeable, ascertainable
(cannot be speculative), and unavoidable (could not be mitigated).
a. Lost profits for that season - reasonably foreseeable, Df knew of Pl’s
needs. It was ascertainable b/c there is enough support to conclude
that Hydraform would have sold the woodstoves they would have
manufactured if Df had not been late in delivery. Tried to mitigate,
but could find no alternative seller.
b. Any lost sales beyond that first season and the loss of the business
were not foreseeable by Df. Cannot recover for the lost profits of
subsequent seasons. Also, those profits were not ascertainable.
b. Calculating lost profits – using the “new business rule”
i. New business – can’t really prove what profits would have been (merely
anticipatory), but an existing business can show profits from previous years

EQUITABLE REMEDIES
I. Equitable remedies are available only when there’s no adequate remedy at law
a. Factors affecting the adequacy of damages (§360)
i. The difficulty of proving damages with reasonable certainty
ii.The difficulty of procuring suitable substitute performance by means of
money awarded as damages, and
iii.The likelihood that an award of damages could not be collected
b. Injunction: is an equitable where a party is required to do, or to refrain from doing,
certain acts.
i. If you don’t follow an injunction, you can be held in contempt. May be fined or
go to jail if you don’t perform. B/c we concluded long ago that we do not
imprison ppl for failure to pay damages (if they have no assets), you can’t be
held in contempt for failure to pay damages, b/c money damages are not an
in personam remedy - remedy that effects a person (b/c we go after the
assets, not the person).
c. Specific Performance - is a remedy in the form of a court order that the breaching
party renders performance of the contract. Specific performance is not available if
expectation damages are adequate to put the aggrieved party in as good a position
as he would have been had the contract been fully performed.
d. § 364 Effect of Unfairness – even if no adequate remedy at law, court may deny
equitable remedy if it would be unfair. Maybe b/c there was mistake or unfair
practices. Or if it’s unconscionable/oppressive – exchange is grossly inadequate, or
relief would cause unreasonable hardship
II. Sales of Goods:
a. UCC § 2-716: Expectation damages are deemed to be an inadequate remedy, (1)
where the subject matter is unique (Inability to cover or irreparable harm) (2) in real
property transactions, or (3)in goods contracts, "where goods are unique or in other
proper circumstances," e.g., where the goods are in short supply.

Page
12
 i. The buyer may have a right of replevin for goods identified in the contract if,
after reasonable effort, the buyer is unable to effect cover or circumstances
indicate that such an effort will be unavailing. UCC doesn’t mention what
rights seller has
b. Sliding scale of impracticability to cover. If it’s pretty easy to cover - give money
and they can buy any goodsthey want. But it doesn’t seem fair to say they would
have to travel far to get it. Difficult to estimate this cost. Also not fair to the party to
put them through the hassle of trying to cover. But if it isn't very hard to get
another one, then we would prefer for the person to go out and get another one.
c. Curtice Brothers Co. v. Catts
i. Facts: Pls can tomatoes, and give the Df cash for their entire crop of
tomatoes. Dfs breach, and the Pls seek specific performance of K.
ii.Rule/Analysis:Specific performance can be ordered in Ks for the sales of
personal property if no adequate remedy at law exists. B/c Pls depends on
the availability of tomatoes of certain quantity and quality for successful
operation of their business, specific performance may be ordered.
d. Laclede Gas Co. v. Amoco Oil Co.
i. Facts: Laclede (distributor) contracted with Amoco (supplier) to provide
propane for its commercial customer. Amoco terminated the agreement.
Laclede sued for injunction against termination.
ii.Rule: A court may award specific performance where goods are unique and it
is difficult to procure a suitable substitute.
III. Law & Economics: The Cost Benefit Analysis of Granting an Injunction
a. Northern Indiana Public Service Co. v. Carbon County Coal Co.
i. Facts: K to purchase coal at set price and quantity (coal overpriced). Oil price
collapses, and Df breaches – this is a classic example of an efficient breach. They
would save more money b breaching (& paying damage) than performing the K.
Pl awarded $181mm, but wants specific performance.
ii.Court denies specific performance (Posner uses a law & economics approach)
1. This was not a profitable business, and so this was an efficient breach
(costs more to take coal out of the ground than what market price is).
2. This would be inefficient (highest and best use) – essentially make Df pay
to keep the mine open, when the free market wouldn’t.
3. Posner forecasts that if he did grant the injunction, the 2 parties would
just negotiate for Df to buy out the injunction (Pl would want out b/c not
profitable business). The compromise would be between the $181mm
and cost of injunction.
b. Walgreen Co. v. Sara Creek Property Co.
i. Facts: Landlord sought to lease a space in mall to a pharmacy. Pl is a pharmacy,
and is suing for breach of an exclusivity clause on their K w/ landlord (no other
pharmacy – competition).
ii.Cost/Benefit Analysis of granting an Injunction - Posner uses an economic
efficiency argument to imply that the injunction will lead to Phar-More trying to
buy out Walgreens.
1. Benefits
a. Shifts burden of calculating damages to the parties (instead of
court)
b. Private estimate better – generally, we think parties come to a
better estimate of the value that courts will; parties will reach a
more accurate judgment.
2. Costs
a. Supervisory Time
Page
13
 i. Negative injunction – easier to supervise
ii.Positive injunctions – takes a lot of court’s time; also court
can’t tell if person is doing it right or not (court is not the
best judge of this – but parties would be).
b. Bilateral monopoly – they can only negotiate with each other; the
bigger the bargaining range, the more parties spend on
negotiations – waste of resources.
iii.Posner not worried about supervisory time. We’re dealing with 10 years of
profits - very hard to determine the profits. In cases where damages would be
difficult to calculate and an injunction would foster reasonable negotiations and
require minimal judicial oversight, it may be the preferred remedy.
IV. Personal Services Contracts
a. Courts are reluctant to grant equitable relief for personal services (§ 367):
i. It is undesirable to compel the continuation of a personal relationship after a
dispute has undercut confidence and loyalty
ii.Very difficult to for court to supervise the performance (§366)
iii.The difficulties inherent in passing judgment on the quality of what
frequently is a subjective performance are too great
iv.Unconstitutional - An award requiring performance may impose a form of
involuntary servitude that is prohibited by the 13th amendment.
b. Availability of injunctive relief
i. There can be negative enforcement if specific performance is unavailable
(easier for courts to enforce b/c Pl will be enforcing by making sure Df isn’t
doing something)
ii.An injunction, whose primary purpose is protect the Pl from unfair
competition from a K breacher whose unique services cannot easily be
replaced, is available whether or not an express negative covenant has been
made
iii.An injunction against competition is proper of the competition "will do
additional irreparable injury to the Pl, and if the injunction may induce proper
performance of the entire K by economic pressure without at the same time
creating harmful personal relations.
c. Employment Contracts
i. Only when there's a non-compete, there's tortious behavior, or if employee
still under the K, i.e. still working there. However, courts may not enforce this
if by doing so, the Df cannot reasonably earn a living (other than by working
for Pl).
ii.Court will only enforce a covenant for non-compete if it’s reasonable
(reasonableness depends on each situation):
1. time (20 years is unreasonable),
2. Space (can't be anywhere in the U.S., etc),
3. Scope - can't be too broad. Only enforce as to specific unique talents
the employee has
iii.Public policy argument:
1. We like competition - we want the most efficient allocation of
resources. Public policy of free competition
2. We don’t want to deprive anyone of their livelihood (§ 367)
d. American Broadcasting Companies v. Wolf
i. Facts: Breach of a renewal (non-compete) clause in employment K; employee
is a unique TV personality.
ii.Court says although they breached, equitable remedies are inappropriate

Page
14
 1. Rule:During period of employment & is furnishing unique services - if
they have expressly or by clear implication agreed not to compete for
the duration of the K, and employer is exposed to irreparable injury, it
may be appropriate to restrain employee from competing until K
expires. What courts may do is order a "negative enforcement," in
that; they can't offer those services to someone else during the
duration of the K, when the services are very unique.
a. K is expired, so no negative enforcement warranted.
2. Rule: After K has expired - equitable relief may only be available from
tortious behavior or to enforce a non-compete.
a. There is no express non-compete provision that employee is
violating, nor is the employee committing tortious acts (like
exploitation of trade secrets) that may cause special injury to
ABC (other than competition).
3. Rule: Public policy favors healthy competition. So absent something
unfair (like a tort or non-compete) courts wont grant equitable relief for
personal services K.

LIQUIDATED DAMAGES & OTHER AGREED REMEDIES

I. Liquidated Damages - At the time the contract is formed, the parties may agree to a
fixed sum of money or a set formula for setting damages in the event of a breach.
Stipulated damages will be enforced if they reflect an honest effort to anticipate the harm
caused by a breach. Stipulated damages will be deemed invalid if they represent an
attempt to punish the breaching party, such as in the case of unreasonably large
damages.
a. § 2-718. Liquidation or Limitation of Damages; Deposits. - Damages for
breach may be liquidated in the agreement, but the amount must be reasonable in
light of:
i. the anticipated or actual harm caused by breach,
ii.where it is difficult to prove the loss, and
iii.the inconvenience or impossibility of otherwise obtaining an adequate
remedy.
b. A term fixing unreasonably large liquidated damages is unenforceable on grounds
of public policy as a penalty."
c. § 356 Liquidated Damages and Penalties – (common law) Damages may be
liquidated in K, but only a reasonable amount in light of anticipated or actual loss
caused by breach & difficulties of proof of loss. Unreasonably large liq. damages are
unenforceable on grounds of public policy as a penalty.
d. § 361 Effect of Provision for Liquidated Damages - Specific performance or an
injunction may be granted to enforce a duty even though there is a provision for
liquidated damages for breach of that duty.
e. Time of Contracting Test – look at reasonableness at the time of contracting. The
actual losses don’t matter. The point of liquidated damages is to protect against
very high or very low actual loss.
i. Ex: if the liquidated damages ends up being less than actual loss, breaching
party is protected in only paying what liquidated damages are in the K, but
non-breaching doesn’t get full compensation for their loss. This is the trade-
off – limits/allocates the risk.

Page
15
 ii.However, sometimes a liquidated damages clause serves the interest of one
party over the other, and is a result of unequal bargaining power. In this
situation, it may be more appealing to look at the actual damages.
iii.Southwest Engineering Co. v. United States
1. Facts: Gov’t K, w/ liquidated damages provision which calculated such
damage at a rate per day. Pl was 97 days late, and gov’t subtracted
the liquidated damages from payment to Pl. Pl suing to recover this
amount, alleging that it’s an unenforceable penalty; govt suffered no
harm.
2. Conclusion: The amount of the liquidated damages forecasted at K
creation was reasonable, and the harm that may be caused was
unmeasurable at time of K creation, so it is an enforceable liquidated
damages clause. The absence of actual damages at the time of breach
of K or thereafter does not bar recovery of liquidated damages.
f. United Air Lines, Inc. v. Austin Travel Corp.
i. Facts: United leased its CRS program to Austin. Austin breaches K, which had
liquidated damages. Austin says unenforceable b/c it’s a penalty.
ii.The amount is a reasonable proportion to probable loss– Didn’t matter if the
actual loss is less, all that’s required is that it’s a reasonable forecast. Also
pointed out that the liquidated damages more generous than those of
competitors – proves more than reasonable.
iii.Df argued that these were penalties b/c it provided for same amt of damages
no matter how insignificant the breach (non-material), which would make
damages punitive & unenforceable.
1. Court says no b/c K law says you can’t terminate for non-material.
United would have only been able to collect liq damages for material
breach (determined this was a material breach).
g. Leeber v. Deltona Corp
i. Facts: Pl signed K for purchase of condo and put down as deposit 15% of
total price. This deposit would be liq damages in case of breach. When Pl
failed to close (breach), Df terminated K, kept deposit & resold property for
more to someone else.
ii.Florida law says that if the enforcement of a liq damages clause was
unconscionable, then it won’t be enforced. The 15% was a reasonable
amount forecasted as a loss at time of contracting. The issue here was that
lower court looked at actual loss, & since Df was able to sell for more after,
court only compensated Dfs for actual, incurred losses.
iii.The court here said this was wrong b/c the whole point of liq damages is for
allocation of risk, and otherwise it would just be damages for breach of K, but
parties had contracted otherwise. The point to have this type of provision is
to predetermine a way to handle breach of K ahead of time, so as to avoid
litigation and to equitably resolve conflicts, and this should be encouraged.

________________________________________

I. Agreed Remedies - In addition to liquidated damages, there are other ways parties may
attempt to settle in advance what the remedy will be in the event of breach.
a. UCC 2-719 provides that
i. A K may have an agreed remedy established in addition or in substitution of any
others. Those agreed terms may limit or alter any damages that you would have
anyway.

Page
16
 ii.Using the remedy provided in the term is optional unless it is expressly agreed to
be exclusive (then would only be the sole remedy).
iii.When circumstances cause an exclusive or limited remedy to fail of its essential
purpose, any other remedy may be had.
iv.Consequential damages may be limited or excluded unless the limitation or
exclusion is unconscionable. Limitation of consequential damages for injury to
the person in the case of consumer goods is prima facie unconscionable but
limitation of damages where the loss is commercial is not.
b. Lewis Refrigeration Co. v. Sawyer Fruit, Vegetable and Cold Storage Co.
i. Facts: Sale of freezer, and warranty guaranteeing freezer would work to certain
specs. K stipulated an exclusive remedy for seller to repair or replace promptly,
or rescission. Freezer didn’t perform as stated under warranty.
ii.The remedies in K failed of its essential purpose (UCC 2-719(2)), so remedy may
be had otherwise. It was impractical to carry out agreed remedies. Jury decided
that seller couldn’t repair/replace in time to meet buyer’s needs. Rescind failed
too b/c buyer would have experienced severe financial loss if rescinded.
iii.UCC 2-719(3) says that limitation of consequential damages is valid unless it’s
unconscionable. Lower court failed to make that determination. They need to
b/c this is the supervening provision (over 2-719(2), which was only provision
lower court discussed). Particular governs general, so must see if 2-719(3)
permits consequential damages.

Page
17
 _______________________________________________________________
THE BARGAIN RELATIONSHIP
I. Incomplete and Deferred Agreement
a. Open Terms Other than Price
i. 2-204(3) gap filler: Even tough one or more terms are left open a contract for
sale does not fail for indefiniteness if the parties have intended to make a
contract and there is a reasonably certain basis for giving an appropriate
remedy.
ii.The parties are free to work out the terms of K, as long as it is fair and
conscionable. Failure to agree on each and every term doesn’t make the K
unenforceable. UCC has default rules as gap fillers.
b. How Should the Law Set “Default” Rules?
i. Majoritarian approach - infer what most contractors in a particular situation
would have agreed upon. (Qty default is 0, from the statute of frauds)
ii.Contra proferentem rule - penalizes sloppy K drafting by interpreting the
contract against the drafting party. Furthers equity and efficiency - provides
incentive to create an express K
1. Forces the more knowledgeable party to provide information b/c otherwise
the default rule makes the contract unappealing
2. Make default unattractive so knowledgeable party comes forward.
c. Objective manifestation of intent needed. Must look at the whole letter to find intent to
be bound.
i. Empro Manufacturing Co., Inc. v. Ball-Co Manufacturing, Inc.
1. Facts: Empro sent Ball letter of intent, proposing an agreement, but left
open terms to be decided later, and a provision that said any agreement
to be approved by directors. Parties negotiating, can’t agree. Ball starts
negotiating w/ someone else, Empro sues.
2. Empro made clear in letter of intent that it was free until a formal K
written up & approved. No option that would commit Ball. Letter merely
started negotiations - Agreement to agree only. Empro claiming reliance
expenditures, but that’s normal with negotiations. Good faith not
necessary in negotiations, only in performance of K.

________________________________________

II. Remedies Where Agreement Incomplete or Indefinite

a. Usually good faith duty not imposed for negotiations. In Hoffman, court held that a
party can be found liable w/o a K, if they induced reliance on part of the other party
prior to making a K. Promissory estoppel can be sued to recover damages, but limited
to “those necessary to avoid injustice.”
i. Hoffman v. Red Owl Stores, Inc.
1. Facts: Hoffman wants to open up Red Owl store. Red Owl assures him that
he can do this with $18k cash. Hoffman, in reliance, sold bakery, and later
sold small grocery prematurely to get this money. Red Owl kept changing
amt Hoffman needs. Hoffman backed out of negotiations and sues.
2. No actually K, damages based on reliance on promises. But since no K,
damages limited to that necessary to avoid injustice. Awarded damages

Page
18
 associated with selling store in reliance (sell quickly to get cash) & moving
costs. No damages for lost profits, b/c no K (expectation damages).

AVOIDANCE OF CONTRACTS
Mistake, Fraud, misrepresentation, undue influence, constructive fraud, duress, bad faith &
unconscionability. If any of these are present, court may grant relief from contractual duties.

INFANCY AND MENTAL INCOMPETENCE

I. Infancy
a. §14. "Unless a statute provides otherwise, a natural person has the capacity to incur
only voidable contractual duties until the beginning of the day before the person's 18th
birthday"
b. Those who deal with minors do so at their own risk, and knowing of the fact that the
minor can void the contract at any time, but they (adult) cannot.
II. Mental Incompetence
a. §15. Mental Illness of Defect - a person incurs only voidable K duties if mentally
incompetent.
i. Unable to understand nature and consequences of transaction
ii.Unable to act in reasonable manner in relation to transaction & other party
knows

UNILATERAL AND MUTUAL MISTAKE

I. A mistake can provide the basis for rescinding a contract. Courts rarely void contracts due
to mistake - b/c unlike intentional fraud, etc., the mistake may not be the defendant's
fault.
II. Unilateral Mistake
a. Boise Junior College District v. Mattefs Construction
i. Facts: Bids for construction K, costs estimated at $150k. Df places bid for
$141k + promise to pay diff with next lowest bid if they refuse to perform. Df
bid very low due to mistake. Next lowest bidder $149k. Pl sues to recover diff.
ii.Court uses a 5-part test to decide whether a mistake in bidding in public
works K can be rescinded for mistake: don’t need to know this test.
1. Mistake is material? – omission of an item represents 14% of total cost
– yes.
2. Unconscionable to enforce? – Cost for Df is $151. – yes.
3. Mistake due to violation of positive legal duty or culpable negligence?
Clerical error. –No
4. Party to whom bid is submitted will not be prejudiced except by loss of
bargain? Pl expected to pay $150k, next lowest $149k. –No hardship.
5. Prompt notice of error given? Notice before Pl could accept. –Yes.

Page
19
 III. Mutual Mistake
a. Beachcomber Coins, Inc. v. Boskett
i. Facts: Pl purchases rare dime from Df. Both parties believe it is genuine and
worth $500 (price); no fraud. 3rd party wants to buy dime from Pl for $700,
provided it’s authentic. Then discovered it’s counterfeit. Pl sues to rescind K.
ii.No one assumed the risk; both thought it was real. Court decides to use
industry custom of a “return privilege” for altered coins. Pl can return & get
money back.
b. Substance vs. quality as a basic assumption - Party excused from performance
if there is a mistake about the very nature/character of the thing being bargained
over. No relief if it is just a disagreement or mistaken belief over the quality or
value.
i. Sherwood v. Walker
1. Facts: Pl wants to buy cow from Df, and chooses one that both parties
believe is barren, and only worth price of its beef $80. Df discovers cow
is not barren and worth $750+, and refuses to sell.
2. Substance (nature/character) vs. quality
a. Substance - (majority view). Mistake made on what was actually
sold – the beef or the breeding cow.
b. Quality (dissent) – b/c it was the same cow, whether it was
barren or breeding
c. “As is” Clauses – Buyer is assuming the risk
i. Lenawee County Board of Health v. Messerly
1. Facts: Pickles buys property from Messerly. Neither party knew that
there was an illegal septic tank there. K said that buyer has inspected
property & accepts in present condition. Board of health subsequently
obtains an injunction & says it’s uninhabitable by humans until sewage
fixed. Pickle seeks to rescind/avoid K based on the mutual mistake.
2. Contract can’t be rescinded due to a mutual mistake as to the nature
of the property when the K included an “as is” clause b/c buyer had
assumed the risk.
IV. Who bears the risk?
a. When a Party bears the risk of mistake (§ 154)
i. When by agreement risk is allocated to him
ii.He is aware, at time K made, that he has only limited knowledge with respect
to facts to which the mistake relates but treats his limited knowledge as
sufficient
iii.Court allocates risk b/c it’s reasonable to do so.
b. Ayer v. Western Union Telegraph Co.
i. Facts: Pl sends offer for sale to buyer via telegraph (Df). Df makes a mistake
in transmission, and offer sent to buyer for less than Pl wanted. Pl still sold to
buyer, then sues Df for diff in value.
ii.The person who chose the means of communication bears the risk.

§152. Mutual Mistake §153. Unilateral Mistake

Mistake by both parties Mistake by one party
Mistake made at time K is made Mistake made at time of K
Mistake as to the basic assumption on which the K Mistake as to the basic assumption on which he
was made made the K

Page
20
Has a material effect on the agreed exchange of Has a material effect on the agreed exchange of
performances performances that is adverse to him
K voidable by adversely affected party K voidable by adversely affected party
Unless adversely affected party bears the risk Unless adversely affected party bears the risk
In determining whether the mistake has a -AND (any of these) -
material effect on the agreed exchange of Unconscionable to enforce
performances, account is taken of any relief by -OR-
way of reformation, restitution, or otherwise. Non-mistaken party knew or had reason to know of
the mistake,
-OR-
Non-mistaken party's fault caused the mistake
V. Unilateral Mistake
a. Boise Junior College District v. Mattefs Construction
i. Facts: Bids for construction K, costs estimated at $150k. Df places bid for
$141k + promise to pay diff with next lowest bid if they refuse to perform. Df
bid very low due to mistake. Next lowest bidder $149k. Pl sues to recover diff.
ii.Court uses a 5-part test to decide whether a mistake in bidding in public
works K can be rescinded for mistake: don’t need to know this test.
1. Mistake is material? – omission of an item represents 14% of total cost
– yes.
2. Unconscionable to enforce? – Cost for Df is $151. – yes.
3. Mistake due to violation of positive legal duty or culpable negligence?
Clerical error. –No
4. Party to whom bid is submitted will not be prejudiced except by loss of
bargain? Pl expected to pay $150k, next lowest $149k. –No hardship.
5. Prompt notice of error given? Notice before Pl could accept. –Yes.
VI. Mutual Mistake
a. Beachcomber Coins, Inc. v. Boskett
i. Facts: Pl purchases rare dime from Df. Both parties believe it is genuine and
worth $500 (price); no fraud. 3rd party wants to buy dime from Pl for $700,
provided it’s authentic. Then discovered it’s counterfeit. Pl sues to rescind K.
ii.No one assumed the risk; both thought it was real. Court decides to use
industry custom of a “return privilege” for altered coins. Pl can return & get
money back.
b. Substance vs. quality as a basic assumption - Party excused from performance
if there is a mistake about the very nature/character of the thing being bargained
over. No relief if it is just a disagreement or mistaken belief over the quality or
value.
i. Sherwood v. Walker
1. Facts: Pl wants to buy cow from Df, and chooses one that both parties
believe is barren, and only worth price of its beef $80. Df discovers cow
is not barren and worth $750+, and refuses to sell.
2. Substance (nature/character) vs. quality
a. Substance - (majority view). Mistake made on what was actually
sold – the beef or the breeding cow.
b. Quality (dissent) – b/c it was the same cow, whether it was
barren or breeding
c. “As is” Clauses – Buyer is assuming the risk
i. Lenawee County Board of Health v. Messerly

Page
21
 1. Facts: Pickles buys property from Messerly. Neither party knew that
there was an illegal septic tank there. K said that buyer has inspected
property & accepts in present condition. Board of health subsequently
obtains an injunction & says it’s uninhabitable by humans until sewage
fixed. Pickle seeks to rescind/avoid K based on the mutual mistake.
2. Contract can’t be rescinded due to a mutual mistake as to the nature
of the property when the K included an “as is” clause b/c buyer had
assumed the risk.
VII.Who bears the risk?
a. When a Party bears the risk of mistake (§ 154)
i. When by agreement risk is allocated to him
ii.He is aware, at time K made, that he has only limited knowledge with respect
to facts to which the mistake relates but treats his limited knowledge as
sufficient
iii.Court allocates risk b/c it’s reasonable to do so.
b. Ayer v. Western Union Telegraph Co.
i. Facts: Pl sends offer for sale to buyer via telegraph (Df). Df makes a mistake
in transmission, and offer sent to buyer for less than Pl wanted. Pl still sold to
buyer, then sues Df for diff in value.
ii.The person who chose the means of communication bears the risk.

FRAUD AND THE DUTY TO DISCLOSE

I. When Misrepresentation makes a K Voidable – not necessary that misrepresentation
was intentional; a negligent or even innocent misrepresentation may be sufficient to make a K
voidable if it is material.
a. § 164. When A Misrepresentation Makes A Contract Voidable - when it induces a party
to assent and:
i. When one party makes a fraudulent or material misrep, on which other party
justifiably relies
ii.When a 3rd party makes a fraudulent or material misrep, on which a party
justifiably relies, unless the other party to the transaction in good faith & w/o
reason to know of misrep gives value or relies materially on the transaction.
b. § 162. When A Misrepresentation Is Fraudulent Or Material – when it induces a party to
assent, and:
i. He knows or believes that the assertion is no in accord with the facts, or
ii.He does not have the confidence that he states or implies in the truth of the
assertion, or
iii.He knows that he does not have the basis that he states or implies for the
assertion.
II. When Reliance is Justified - Must show that you in fact relied, and that it was justifiable.
However, if misrep is intentional, may not need to show reliance is justifiable.
a. Not justified when it’s an assertion of Intention only, as long as intention is consistent
with reasonable standards of fair dealing. (§ 171(1))
b. If reasonable, promisee may interpret a promise as an assertion that promisor intends
to perform (§ 171(2))
c. A recipient's fault in not knowing or discovering the facts before making the contract
does not make his reliance unjustified unless it amounts to a failure to act in good faith
and in accordance with reasonable standards of fair dealing. (§ 172)
III. Non-Disclosure as a Misrepresentation and the Duty to Disclose
Page
22
 a. Non-disclosure does not necessarily amount to fraud, but one cannot falsely impose
information on the other party (or if there is silence in bad faith). If the information is
in the public domain where one party could have obtained it with due diligence, then
there is no duty to disclose.
i. Laidlaw v. Organ
1. Facts: Pl to sell tobacco to Df. News spread that War of 1812 is over, and
price of tobacco expected to go up once war was over. Buyer calls seller
next day and wants to buy the tobacco. Seller didn’t know war is over, but
asked buyer if there was any news. Buyer silent; purchase made.
2. News was in public domain & both parties had access to info. Df had no
duty to disclose. However, you cannot by implying or acting in a certain
way to impose on the other party so that they would interpret it in a
certain way. Jury would need to decide if silence made in bad faith.
b. Even in contractual situations where a party to a transaction owes no duty to disclose
facts within his knowledge or to answer inquiries respecting such facts, the law is if he
undertakes to do so he must disclose the whole truth.
c. § 161. When Non-Disclosure Is Equivalent To An Assertion
i. Where he knows that it is necessary to correct a previous statement or false
impression
ii.Where he knows that disclosure would correct a mistake made by other party as
to a basic assumption on which K made, & if non-disclosure made in bad faith.
iii.Where he knows the disclosure would correct a mistake made by other party as
to a writing
iv.If there is a special relationship of trust& confidence btwn the parties.
d. Failure to Correct a Mistake (§161(b)) – If one party knows that the other is making a
mistake as to a basic assumption, failure to correct that misunderstanding will
constitute a misrepresentation if the non-disclosure amounts to a “failure to act in good
faith” or to act “in accordance with reasonable standards of fair dealing.”
i. Hill v. Jones
1. Facts: Pl wants to buy house from Df. Looking at house, Pl sees something
that looks like termite damages & asks Df if it is, Df answered that its
water damage. House passes a termite inspection, and Pl buys the house.
Then Pl finds out there had been termite infestation in the past, causing
$5k in damages, and sellers knew and never told anyone.
2. If Hill hadn't asked about the ripple, then probably no duty to disclose. But
they asked. Saying it is water damage may be factual, but he probably
knows that he is misleading them into believing that there are no termite
problems by that statement. He knew they were making a mistake
(§161(b)), and didn’t correct that mistake. But court still has to decide if
the misrepresentation was material or not.
e. Positive Concealment § 160.– when you act in a way that is intended or you know it’s
likely to prevent the other from learning a fact, even though it’s not verbal. (Ex: Maybe
in Hill they put boxes on termite holes specifically so that inspector wouldn’t have seen
it).
f. Half-Truths (§ 159 comment b) – Of part of the truth is told, but another portion is not,
so as to create an overall misleading impression, this may constitute
misrepresentation.
IV. Misrepresentation of Fact vs. Opinion
a. Misrepresentation must be of fact, rather than opinion (which is usually merely
“puffing”). However, there are special circumstances that make an assertion of opinion
actionable.
i. § 169. – Reliance on an opinion is not justified unless:

Page
23
 1. When there is a special relationship of trust & confidence, that recipient
reasonably relies
2. Recipient reasonably believes that, as compared with himself, the person
whose giving the opinion has a special skill, judgment or objectivity with
respect to the subject matter
3. Recipient is for some other reason particularly susceptible to a misrep of
the type involved.
ii.A statement of a party having superior knowledge may be regarded as a
statement of fact although it would be considered as opinion if the parties were
dealing on equal terms.
1. Vokes v. Arthur Murray, Inc.
a. Facts: Pl bought a whole bunch of dance lessons and is alleging that
Df induced her into buying them by telling her she was a wonderful
dancer, and encouraging her that she should keep progressing,
when in fact this was not true.
b. Dfs were experts in the field (they had superior knowledge), so their
opinion mattered, and Pl takes it at face value (& they’re not
dealing on equal terms). Df believed the opposite of what they
actually told her (he lied). Although Df had no duty to disclose,
once he decides to disclose, he must tell the truth.
iii.§ 168. Reliance On Assertions Of Opinion– An opinion is one of belief, w/o
certainty as to the existence of a fact or expresses a judgment on something. A
recipient may interpret that the assertion is not incompatible with his actual
opinion, and that he knows enough facts to justify in him forming the opinion.

DURESS AND UNDUE INFLUENCE

I. Duress Generally – Defense of duress is available if Df can show that he was unfairly
coerced into entering into the contract, or into modifying it. The essential rule is that duress
consists of “any wrongful act or threat with overcomes the free will of a party.
a. § 175 When Duress by Threat Makes a Contract Voidable - Whereassent is induced by
an improper threat by other party that leaves victim with no reasonable alternative.
i. Also if it’s a 3rd party who threatens, unless the other party enters in good faith,
doesn’t know of duress, and gives value or relies materially on the transaction.
b. Subjective standard: Look at the subjective to determine if someone’s free will has
been overcome. Moral compulsion or psychological pressure may constitute duress if
the subject of the pressure is overborne and he is deprived of the exercise of his free
will. Also you would take into account if a person of ordinary firmness would have also
been coerced in the situation.
i. Rubenstein v. Rubenstein
1. Facts: Under duress by his wife, Pl conveyed to her property. She
threatened to poison him w/ arsenic etc., plus her dad in jail for murdering
ppl w/arsenic, so this shows he really believed she would do it.
2. This court used a subjective standard: the party’s state of mind is relevant
in determining whether there is an interference of free will in contracting
(eggshell plaintiff).
II. When a threat is improper (§ 176)
a. Threat is improper if what is threatened or the threat itself is a crime or tort, if criminal
prosecution is threatened, if you threaten to sue, but no basis so in bad faith, or the
threat is a breach of the duty of good faith and fair dealing under a K with the recipient.

Page
24
III. Economic Duress – there will be duress if the threatened breach would, if carried out, result
in irreparable injury that could not be avoided by a lawsuit or other means, and the threat is
made in “breach of the duty of good faith and fair dealing.”
a. Austin Instrument, Inc. v. Loral Corp.
i. Facts: Loral got a govt K, and contracted with Austin for some goods it needed
for the govt K. Then Austin threatened to breach unless Loral agrees to some
new K’s and a raise in the price of the existing K.
ii.To find economic duress in a business K:
1. There is a wrongful threat to breach
2. It overcomes free will
3. There are no alternative sources of goods,
4. Ordinary remedies doesn’t cover the loss
b. Machinery Hauling, Inc. v. Steel of West Virginia
i. Facts: Pl contracted to buy steel from Df, and have it delivered to a 3rd party. 3rd
party rejected the steel b/c it was defective, and told Pl to return remaining
undelivered loads. Df told Pl that if it did not pay $31k, price of undelivered
loads, it would cease doing business with Pl (this potential loss was over
$1mm/year).
ii.Df has not obligation to Pl - no legal duty to do business w/Pl, and no K exists for
future business.No duty of good faith in negotiations. The threat to not do
business in the future is not economic duress.

UNCONSCIONABILITY
I. § 2-302. Unconscionable contract or Term.
a. Provides that if the court as a matter if law finds the contract or any clause to have
been unconscionable at the time of was made, the court may refuse to enforce the K,
or may only enforce part of it w/o unconscionable terms, or may limit the application of
it to avoid an unconscionable result.
b. No definition of unconscionability – this gives courts discretion
i. Policy: to prevent oppression and unfair surprise
II. Consumer Transactions - The defense of unconscionability is mainly used by consumers
a. Williams v. Walker-Thomas Furniture Co.
i. Facts: Buyer enters into installment Ks for sale of furniture. K had a provision
where debt incurred at time of purchase would be added onto outstanding debts,
so until everything paid off, it extended a security interest to everything she
bought (even though she might have paid that balance already). She defaults,
and store wants to get all her stuff.
ii.Ordinarily one who signs a K w/o full knowledge of its terms might be held to
assume that risk. But when a party of little bargaining power (no real choice)
signs a commercially unreasonable contract with little or no knowledge of its
terms, it is hardly likely that consent was really given to those terms. In such a
case, the court should consider whether the terms of the contract are so unfair
that enforcement should be withheld (is it unconscionable?).
iii.“Unconscionability has generally been recognized to include an absence of
meaningful choice on the part of one of the parties together with contract terms
which are unreasonably favorable to the other party.”
III. Contracts of Adhesion - contracts that have a standardized form and are presented on a
take it or leave it basis

Page
25
 a. At common law these Ks have been "presumptively enforceable" - excuse only when P
able to show that the drafter actively caused the misrepresentation.
b. §211- if a party has reason to know that the other party wouldn't assent to a particular
term, that term won’t be part of the K.
c. Basically, they are enforceable, unless unconscionable
IV. Procedural and Substantive Unconscionability - For K to be unconscionable there must
be procedural and substantive unconscionability (although a greater degree of one can make
up for less of the other).
a. K can be procedurally (manner in which K was enacted) unconscionable if there is
oppression or surprise (unequal bargaining power; lacks meaningful choice).
b. K can be substantively unconscionable where the actual terms of the agreement are so
one-sided they shock the conscious (party benefits from unreasonably favorable
terms).
c. Ferguson v. Countrywide Credit Industries, Inc.
i. Facts: Pl brings tort claims against employer. Df says K has an arbitration clause.
ii.Standardized K is enforceable unless it’s unconscionable – pattern of one-sided
terms
1. There was procedural unconscionability – oppression; wouldn’t have a
choice if you want the job; no negotiations
2. There was substantive unconscionability – terms so one-sided it shocks
the conscious
a. One-sided coverage of claim (those that employee would bring
covered, those that employer would bring not covered)
b. Arbitration fees may be unconscionable if costs more than normal
litigation
c. One-sided discovery provision – Df had certain advantages

ILLEGALITY
I. Illegality: Agreements Unenforceable on Grounds of Public Policy - Although all
the conditions of a K are satisfied, a K can be held unenforceable if there's something in
the bargain, performance or objectives that are "illegal" or against "public policy."
II. Illegality: Where both Parties are guilty of Illegality – the court will do nothing; no
one can recover. This may be unfair because one party will benefit at the loss of another.
However, the denial of K's enforceability would help public policy by deterring parties from
entering into these types of agreements b/c of the lack of judicial protection. However,
sometimes a guilty party ends up being rewarded for engaging in the illegal transaction. In
this type of situation, the courts may allow restitution.
a. Sinnar v. Le Roy
i. Facts: Store owner denied beer license. He agrees with his friend that,
through a 3rd party, to get him a beer license for $450. Couldn’t get license, Pl
(owner) wants money back (3rd party has it).
ii.Clearly illegal b/c only state can give you this type of license. Pl cannot
recover; we want to discourage people from entering into illegal agreements.
III. Unenforceable on Grounds of Public Policy
a. Hard to define public policy; also would be an argument of last resort
i. "Public policy … is but a shifting and variable notion appealed to only when
no other argument is available, and which, if relied upon today, may be
utterly repudiated tomorrow."

Page
26
 b. Court may decide that there is a public policy strong enough to deny enforcement of
the K, but not deny restitution. Court will look at a legislative mandate to direct.
When none available, the promise or term is unenforceable if the "interest in its
enforcement is clearly outweighed in the circumstances by a public policy against
the enforcement of such terms."
i. Factors in weighing this interest:
1. The parties' justified expectations
2. Any forfeiture that would result if enforcement were denied, and
3. Any special public interest in the enforcement of a particular term.
ii.Watts v. Watts
1. Facts: Parties lived together for 13 years, but never married. When
relationship ends, she’s left with nothing. She files suit to get a portion
of property accumulated during their relationship.
2. Df argues that relationship was immoral & illegal, so recognition would
be against public policy. Court points out that where the sole
consideration was the illicit relationship, then yes, it would not be
enforceable. However, the illicitness was not what was bargained for.
The claim here would be unjust enrichment where Pl did a lot of work
to help build the couple’s wealth.
c. Non-Compete Agreements Unenforceable on grounds of public policy because
overbroad
i. In general, courts focus upon 2 aspects of the covenant:
1. Whether it protects some legitimate interest of the promisee,
2. Whether it is reasonable in scope
ii.Data Management, Inc. v. Greene
1. Facts: Suit for breach of non-compete. Clause says that for 5 years
after termination, employee will not perform any other similar services
for any person or firm in the state of Alaska.
2. Court proposes three methods with approaching overbroad covenants:
a. Strict Method – if overbroad, then it’s unconscionable & won’t be
enforced
b. Blue Pencil method – Just strike out certain words that make it
unconscionable
c. Rule of Reasonableness – If found to have been written in good
faith, reasonably alter the covenants to make I enforceable.
Court uses this method.
IV. Validity of a Contract Limiting Liability for Negligence - Limiting liability for
negligence may be okay. When bargaining power is not unequal, contracting against
liability for negligence is just a way to allocate risks. (Can’t K against liability for
intentional stuff – against public policy).
a. Exceptions to contractually limiting liability for negligence (§ 195 (2):
i. it exempts an employer from liability to an employee for injury in the course
of his employment;
ii.exempts one charged with a duty of public service from liability to one to
whom that duty is owed for compensation for breach of that duty, or
iii.the other party is similarly a member of a class protected against the class
to which the first party belongs.
b. Where the agreement is of an adhesion type between parties with disproportionate
bargaining power, there may be a conceptual overlap of "illegality" and
"unconscionability."

Page
27
 c. Parties can make K's exculpating one from negligence and providing for
indemnification, but it must be done knowingly and willingly as in insurance Ks
made for that very purpose.
d. § 195(3) – Can’t exempt a seller from a tort liability or physical harm to user of his
product, unless it’s fairly bargained for. Where a seller's breach causes economic
loss rather than damage to person or property, "disclaimers" of warranty and
limitations upon remedy are enforceable if not unconscionable.

PERFORMANCE

DETERMINING SCOPE AND CONTENT OF OBLIGATION

________________________________________

I. Integrated Writings and the Parol Evidence Rule

a. Parole evidence Rule: provides that when the parties to a contract reduce their
agreement to a writing, that writing is presumed to be the final repository of all prior
negotiations. So all evidence of any prior agreements that are not contained in the
writing are barred.
i. However this depends if the parties intended the writing to be integrated (final)
or not
b. UCC §2-202
i. If a writing is a final expression of the parties’ agreement (an integration), it may
not be contradicted by evidence of any prior agreement, whether written or oral,
nor any oral agreement that is contemporaneous with the writing.
ii.Even a final expression may, however, be “explained or supplemented” by:
1. Evidence of a course of dealing, trade usage, and course of performance,
and by,
2. Evidence of “consistent additional terms,” unless the court concludes that
the writing was intended not only as a final statement, but also as a
“complete and exclusive statement.”
II. Integrated Writing (§209) – a writing(s) constituting a final expression of all terms of the
agreement
a. Complete Integration – document is intended by the parties to include all the details of
their agreement. The effect of completely integrated K on prior agreements is that it (§
213):
i. Discharges prior agreements to extent that they are inconsistent to integrated
writing
ii.Discharges prior agreements to the extent that they are within the scope of the
writing
1. Mitchell v. Lath

Page
28
 a. Facts: Lath selling house to Mitchell. Before the sale, Mitchell
promises to remove an icehouse. K did not specify this would be
done. Mitchell buys house, but Lath doesn’t remove it.
b. Since K was completely integrated, would the removal of the
icehouse be something that would be you would ordinarily expect
to be included in the K? To be within the scope it must not be too
closely connected to the principle transaction. Here, court decides
that if parties had intended the removal to have been part of the K,
they would have put it in.
b. Partial Integration – not intended by the parties to include all details of the agreement
i. evidence extrinsic to the writing of other agreed terms will be admitted
ii.Prior evidence may be admitted only if it doesn’t contradict a term of the writing.
(§213)
III. Complete vs Partial (§210) – Whether an agreement is completely or partially integrated is
to be determined by the court in determining a question of interpretation or to apply the
parole evidence rule.
a. §214 – You can submit evidence of prior or contemporaneous agreements or
negotiations to establish whether or not it is integrated or not, whether it’s complete or
partial integration, the meaning of the writing (whether or not integrated), anything
that might make K voidable, or whether there’s a ground for denying a remedy.
b. Luther Williams, Jr., Inc. v. Johnson
i. Facts: Parties enter into K with an integration clause for improvements on Df’s
house. Df told Pl that their getting improvements depended on getting financing.
Df ended up hiring someone else. Df is trying to enter the oral agreement about
financing as extrinsic evidence.
ii.Rule - Judge says to determine if it is in fact integrated, we must first look
outside the 4 corners of the document. So Judge will then decide if the extrinsic
evidence should be permitted in. “what is intended to cover will not be known
until we know what there was to cover.”
iii.Outcome: It’s an integrated K, but there is no provision in the K that mentions
financing. Therefore, it doesn’t contradict anything in the K.
IV. Contemporaneous and subsequent expressions
a. § 216. Consistent Additional Terms
i. Evidence of a consistent additional term is admissible to supplement an
integrated agreement unless the court finds that the agreement was completely
integrated.
ii.An agreement is not completely integrated if the writing omits a consistent
additional agreed term which is agreed to for separate consideration, -or- such a
term as in the circumstances might naturally be omitted from the writing (not in
the scope of K).
1. Masterson v. Sine
a. Facts: Pl conveys property to Sine, with a 10-year buy back option.
Masterson files for bankruptcy, and bankruptcy trustee tries to
enforce the option. Sine attempts to bring extrinsic evidence that
showed option was personal to Masterson, and cannot be assigned
to trustee.
b. Precedent is to use the parole evidence rule, where that extrinsic
evidence would not be allowed. Judge here says you can’t just
always do that – you need to look at other evidence to see if it
would be relevant, and to decide if it is, in fact, an integrated
writing. The collateral agreement about the assignability of the
option is one that might naturally be made as a separate

Page
29
 agreement (not within the scope of the primary transaction), so it
can be used.
b. § 217. Integrated Agreement Subject To Oral Requirement Of A Condition - Where the
parties to a written agreement agree orally that performance of the agreement is
subject to the occurrence of a stated condition, the agreement is not integrated with
respect to the oral condition.
V. Warranties, Disclaimers and the Parole Evidence Rule
a. A warranty made may be very difficult to take away by a disclaimer
i. Express warranties - impossible; words or conduct creating an express warranty
cannot be negated by words or conduct limiting the warranty
b. Parole evidence rule does not apply at all if representations were fraudulent
i. Maybe - if a total integration was intended, the oral representations may not be
excluded if the buyer was surprised by an "unexpected and unbargained-for"
exclusion.

________________________________________

I. Interpretation of the Meaning of a writing – (if unambiguous, then Judge will interpret)
a. Ambiguous terms in writing – extrinsic evidence must be allowed, and would be
evaluated by a jury
i. § 212. Interpretation Of Integrated Agreement – question of interpretation is
determined by trier of fact, if it depends on extrinsic evidence. Otherwise,
determined as a question of law.
b. How a Judge determines existence of ambiguity:
i. The “four corners” rule – only look at writing to determine if the term is
ambiguous. No extrinsic evidence permitted. Very strict rule – very few courts
use it.
ii.The “plain meaning” rule – court will not hear evidence about the parties’
preliminary negotiations, however, the court will hear evidence about the
circumstances, or “context” surrounding the making of the K.
1. A. Kemp Fisheries, Inc. v. Castle & Cooke, Inc.
a. Facts: Parties negotiated where Pl was to charter a vessel for fishing
from Df, and Pl gave $50k deposit. Df then sent final K for Pl to sign,
and Pl noticed that it didn’t include some provisions they had
negotiated on (all warranties were disclaimed, they negotiated
otherwise), but still signed it. Problem with vessel; Pl lost a lot of
money & suing Df.
b. Judge uses reasoning similar to plain meaning rule to figure if it’s
integrated. Found that it was integrated. The collateral agreements
on warranty would be those that would naturally come up in the K,
and also K contradicted the oral negotiations (disclaimer on
warranty).
iii.The “Liberal” rule – evidence of prior negotiations is admissible for the limited
purposes of enabling the trial judge to determine whether the language in
dispute lacks the required degree of clarity.
1. Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.
a. Facts: Parties entered into K, where Df to do work for Pl. During the
work, there was damage resulting in a cost of repair for $25k.
There was a clause that Df performed work at its own risk, and
indemnified Pl against any liability that resulted. The issue was the
interpretation of the clause, whether or covered Pl’s losses or only
3rd party losses.

Page
30
 b. Basically, Judge is saying, let's bring in outside evidence, and see if
the language in the K, in light of the outside evidence, means
something else than what is apparent.
c. So even though jury may not hear the extrinsic evidence, the judge
HAS to hear it to see if it is relevant, b/c you can never know the
actual meaning just from the words.
II. §202. Rules in Aid of Interpretation
a. Primary purpose rule – if the primary purpose of the parties in making the K can be
ascertained, that purpose is given “great weight.”
b. A writing interpreted as a whole, and all writings that are part of same transaction
interpreted together.
c. Unless diff intention, where language has a certain prevailing meaning, that’s what’s
used
d. Use prior dealings and course of performance to interpret.
III. § 203. Standards Of Preference In Interpretation
a. Reasonable lawful and effective meanings preferred over the opposites.
b. Preference in order of hierarchy: Express terms in K, then course of performance, then
course of dealing, then usage of trade.
c. Specific over the general
d. Negotiated terms preferred over standardized terms
IV. The Hierarchy of Interpretation Rules
a. What to look at to help in interpretation, in order of most important.
i. Start with Contract terms
ii.Surrounding circumstances
iii.Course of performance – refers to how parties’ have conducted themselves w/
dealing with the K at hand
iv.Course of dealing – refers to parties’ history and their conduct; the pattern of
dealings (past Ks)
v.Trade usage – the practice in this type of dealing that would justify that a certain
expectation would be observed in the K at hand.
vi.Specific rules of construction
vii.General Rules
viii.General duties of good faith & fair dealing
b. Frigaliment Importing Co. v. B.N.S. International Sales Corp.
i. Facts: K for sale of “chicken.” K didn’t specify whether chickens are old or
young. Seller sent older chickens rather than young. Question on interpretation
of the word “chicken” to mean boiler or fryer (young chickens), rather than older
ones that are termed “fowl.”
ii.Court looks at different things to help in interpretation (see hierarchy of the
rules). Since not clear from K, they look outside, to decide the meaning of
“chicken.”

THE DUTY OF GOOD FAITH

I. Scope and Content of Good Faith Duty
a. § 205. Duty Of Good Faith And Fair Dealing - Every contract imposes upon each party a
duty of good faith and fair dealing in its performance and its enforcement.
i. Only in performance, not in negotiation. Always implied in a K, can’t disclaim it.
b. What is good faith?

Page
31
 i. Good faith means honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade.
c. Centronics Corporation v. Genicom Corporation
i. Facts: Centronics selling assets to Genicom, but can’t agree on value of the
assets. Per K, they agree to have arbitration, and meanwhile, money held in
escrow until value determined by arbitrator. Both parties agree it’s worth at least
$5mm, so Centronics asking from money that’s undisputed, b/c they’ll get this
amount anyway, and Centronics really needs this money. Genicom refuses, and
Centronics alleging bad faith (that Genicom knows they are in dire need of the
money, and they’re practicing opportunism in taking advantage that they will
agree for less just to end the dispute).
ii.Outcome - Judgesays K is clear – there’s no duty to release money from escrow
until arbitration settles their dispute. He looks at the business purpose – parties
want arbitration to go quicker. So an incentive to speed up arbitration is that no
one gets money until dispute is settled, so no one is dragging their feet.

________________________________________

II. Prevention, Hindrance, and the Duty of Cooperation – In every K, there is an implicit
understanding that neither party will intentionally do anything to prevent the other party from
carrying out his part of the agreement. It is likewise implied in every K that there is a duty of
cooperation on the part of both parties. Thus, whenever, the cooperation of the promisee is
necessary for the performance of the promise, there is a condition implied that the
cooperation will be given.
a. Market Street Associates Limited Partnership v. Frey
i. Facts: JC Penney sells their property, and leases it back. K has a clause that if
they want to build a store for at least $250k, pension trust will act in good faith
to lend them the money, and if not, JC Penney has the option to buy back the
property for a stipulated price. 20 years later, JC Penney requests a loan, but
they deny it saying they only give loans for at least $7mm. JC Penney never
mentioned the clause, and so demanded it can buy back property as per K,
which was a lot less than what it was worth. Trust saying they were being
tricked, but we don’t know, maybe they really just wanted the loan, and anyway
trust should have read the K.
ii.The court pointed out that the essential issue was Orenstein’s state of mind (guy
requesting the loan)
iii.Judge Posner suggests that even corp’s make mistake and the contracting
partner should not be allowed to exploit these mistakes if they could correct the
mistake at a very little cost. This imposes a duty of good faith dealing in
performance (not necessarily negotiation). Remanded for jury.

________________________________________

III. Exercise of Reserved Discretion

a. Lender Liability and scope of the Duty to Act in Good Faith - Lenders may be found
liable where there is a bad faith refusal to honor commitment to finance.
i. Three standards:
1. Limited – a prohibition of intentional dishonesty
2. Expansive – community standards of decency and fairness
a. One of the purposes/values of a contract is to fix things, to make
them certain and predictable. To use the expansive definition would
be to make things uncertain, open the door for virtually unrestricted
interpretation by each judge hearing a case.

Page
32
 3. Intermediate – prohibition on opportunistic behavior

ii.Provisions giving the lender sole discretion whether to continue funding and to
call any amounts outstanding are best understood as bonding mechanisms used
by the borrower to obtain more favorable credit terms. Trade-off:
1. Interest rates are set to reflect the risks banks are taking.
2. If banks have more discretion to cut off loan, then rates would be lower
(less risk)
b. Feld v. Henry S. Levy & Sons, Inc.
i. 1yr K for Df to sell all bread crumbs it produces to Pl; K says must have a 6mo
cancellation notice. Df stops producing b/c not economically feasible to continue.
ii.Implied promise to try in good faith to keep producing. So, must determine
whether Df stopped production in good faith. Court says bad faith b/c if you stop
producing just b/c profits aren’t as high as you expected. It would only be good
faith if they would have incurred losses that were more than “trivial.” Factfinder
has to determine which happened here.
c. Effect of “Best Efforts” Agreement on Contracts for Indefinite Quantity
i. Just b/c parties entered an output or requirements K, doesn’t mean best efforts is
implied. To impose this obligation, parties must agree to use best efforts in
addition to satisfying their obligation to perform their K in good faith.
ii.However, exclusive dealings imply best efforts. UCC 2-306(2): a "lawful
agreement by either the seller or the buyer for exclusive dealing in the kind of
goods concerned imposes unless otherwise agreed an obligation by the seller to
use best efforts to supply the goods and by the buyer to use best efforts to
promote their sale."
iii.What are best efforts? - In most cases, courts use an objective standard, and
ask whether the D has made reasonable efforts in the circumstances

________________________________________

IV. Termination of Contractual Relations for Other than Breach: Employment Contracts
a. Hillesland v. Federal Land Bank Association of Grand Forks
i. Facts: Pl, CEO of bank, discovered customers in financial difficulty & needed to
sell farm, and he proposed that his sons buy it. Then told, conflict of interest,
can’t be involved in transaction, per bank policies. Farm sold to his sons. Then
bank investigated and discharged him b/c he violated standards of conduct,
among other things.
ii.Breach of K – unless by K it says otherwise, default is that it’s an at-will
employment.
iii.Implied covenant of good faith & fair dealing – not unless says so in K. Again,
default is at-will, and court will not look into what the cause of termination was,
unless it violates a statute (like based on discrimination).
b. Erosion of “Employment at Will” Doctrine
i. Historically, the at-will doctrine was firmly adhered to.
1. An employee not subject to a collective bargaining agreement could be
fired for a good reason, a bad reason, or no reason at all.
ii.Recently, employer's power to discharge has been limited by statute & judicial
opinion.
1. Example - based on sexual o racial discrimination

Page
33
 ALLOCATION OF RISK
________________________________________

I. Representations and Warranties of Quality – a warranty is a promise that a

representation is true.
a. Express Warranties (UCC §2-313) – an explicit representation of existing fact by the
seller that the goods will have certain qualities.
i. §2-313(1) Where on the basis of the bargain (buyer relies on warranty) seller
makes a statement:
1. Any affirmation of fact or promise made by the seller to the buyer which
relates to the goods; express warranty that they shall conform to the
affirmation or promise
2. Any description of the goods; express warranty that they’ll conform to the
description
3. A sample or model; express warranty that all goods conform to the
sample/model
ii.“Puffing”: §2-313(2) says not necessary that formal words like warrant or
guarantee are used, but merely that they are an affirmation of fact. Statement of
opinion or commendation doesn’t create a warranty, it is merely “puffing.”
iii.§2-313(4) – This section also includes remedial promises, where there’s a
promise by seller to repair, replace goods, or refund price if some event occurs.
This kind of promise creates an obligation.
iv.§2-313A & §2-313B – clarifies that a manufacturer who makes an express
warranty to the public (either through dealer or through ads), is liable if goods
don’t conform.
b. Implied Warranties
i. Implied warranty of merchantability (§2-314) – Unless excluded or modified, a
warranty that goods are merchantable is implied, if seller is a merchant with
respect to those goods. Goods are 'merchantable' if they meet the following
conditions:
1. Must conform to the standards of the trade as applicable to the contract
for sale.
2. Must be fit for the purposes such goods are ordinarily used, even if the
buyer ordered them for use otherwise.
3. Must be uniform as to quality and quantity, within tolerances of the
contract for sale.
4. Must be packed and labeled per the contract for sale.
5. Must meet the specifications on the package labels, even if not so
specified by the contract for sale.
ii.Fitness for a particular purpose (§2-315) - is a warranty implied by law that if a
seller knows or has reason to know of a particular purpose for which some item
is being purchased by the buyer, the seller is guaranteeing that the item is fit for
that particular purpose.
c. Limitations of Warranties and Remedies - §§2-314 & 2-315 are default rules. Parties free
to K around them
i. Disclaiming an express warranty (§ 2-316(1)) – if the scope of the disclaimer is
clear, and the scope of warranty not as clear, the court should construe the

Page
34
 disclaimer warranty, so that it doesn’t conflict with the disclaimer. But if there’s
no reasonable way to construe the two as consistent with each other, the
disclaimer is ineffective.
ii.Disclaimer of implied warranty (§2-316(2)) – must be conspicuous in the k (can’t
be fine print).
1. If disclaiming warranty of merchantability, you must mention the word
“merchantability,” doesn’t have to be I writing, but if it is, writing must be
conspicuous.
2. If disclaiming warranty for fitness of a particular purpose, must be in
writing, and must be conspicuous. (Ex: No warranties which extend
beyond the description here.)
iii.Implied Limitations (§2-316(3))
1. Language of Sale – all implied warranties are excluded by expressions
such as "as is" or "with all faults," or other language that makes it plain
that there’s no implied warranty.
2. Examination – when buyer has examined, or refused to examine (only
when seller demand that he does, but refuses, not simply when it’s made
available for inspection) the goods, there is no implied warranty on
defects he should have seen on inspection.
3. Implied warranty can be excluded or modified by course of dealing, course
of performance or usage of trade.
iv.Henningsen v. Bloomfield Motors
1. Facts: Pl buys a car for his wife. Wife gets into accident, and discovers it’s
due to mechanical defect or failure. They sue car manufacturer based on a
breach of an implied warranty of merchantability (by the Uniform Sales
Act). Express warranty disclaimed this implied one.
2. The attempted express warranty, which disclaimed the manufacturer of an
implied warranty of merchantability is void, as against public policy; court
doesn’t even look into the validity of the K.
3. Also, manufacturer also liable to buyer’s wife.

________________________________________

II. Express Conditions

a. Nature and Effect– If there’s a K, but Df breach, and an event occurs that impairs the
value of the bargain to the Pl, what protection is available? If K doesn’t specify, then
court will enter “gap-fillers.”
i. §84 – a promise to perform all or part of a conditional duty under an antecedent
K is binding in spite of the non-occurrence of the condition binding, whether the
promise is made before or after the time for the condition to occur, unless
1. occurrence of the condition was a material part of the agreed exchange,
and promisee doesn’t have a duty to make sure it occurs, or
2. uncertainty of the occurrence was a risk assumed by the promisor.
ii.Dove v. Rose Acre Farms, Inc.
1. Facts: Pl works for Df; bonus program where if Pl works certain amount of
time, can never be absent, never late. In the last week Pl got sick, still
went to work, where Df told him he could just stay on the couch, and they
would still count it. But Pl left for the hospital instead.
2. Pl says he substantially performed so he should get the bonus. But the
condition was not met, so he didn’t fulfill the K. The point of the bonus
program was not met. If you don’t meet the condition you cannot recover.
iii.Wal-Noon Corp. v. Hill

Page
35
 1. Facts: D leases property to Pl. Lease says Df responsible for any problem
unless Pl’s negligence. Problem with roof; Pl fixes it. Later Pl realizes Df is
responsible, so wants the money he spent on the roof.
2. Implied condition that Df had to be notified (b/c how else would he know
he’s responsible, and he also needs to know if Pl is negligent). Notice is an
indispensable condition precedent to D's duty to perform under the
covenant to repair.
b. Excuse of Express Conditions – If an express condition has failed, the promisor has
a defense and may be discharged from the K w/o obligation to pay for part-
performance, and whether or not promisor is in fact prejudiced doesn’t matter. But this
can be harsh on the promisee.
i. So some possible grounds for excuse are:
1. an agreement by both parties modifying the K to discharge the condition
a. Modification/Rescission (§2-209) – You can modify the K w/o
consideration. Buyer must agree & sign a disclaimer is K involves
more than $500.
b. § 89 Modification of Executory Contract – promise modifying a duty
under a K not full performed on either side is binding, if (a)
modification is fair & equitable in view of circumstances not
anticipated when K made, or (b) to extent provided by statute, or
(c) to the extent that justice requires enforcement in view of
material change in position in reliance on the promise.
2. Conduct by the party for whose benefit the condition was made that
“waives” the condition
a. Clark v. West
i. Facts: Pl to write law books for Df to publish. K says Pl must
abstain from alcohol to get higher rate. Df knew Pl was
drinking.
ii.Df knew & said ok the Pl drinks. So he implicitly waived that
condition.
3. Changes circumstances that make compliance by promisee with the
condition impracticable
4. Discharge by the court.
5. Ferguson v. Phoenix Assurance Company of New York
a. Facts: Pl insured for loss by burglary, but insurance provision says
there has to be evidence of actual force on both inner & outer door.
Outer door manipulated (no evidence of force), but inner door was
visibly forced open.
b. Despite the provision, still found for Pl. The purpose of the provision
was merely evidentiary – in avoidance of fraudulent claims. But
there is still evidence of force, just not meeting the technicality.
Court says against public policy.
c. Limitations on the Waiver Doctrine
i. Conditions precedent (may be expressed or implied) – are terms of the contract.
Most of the time failure of a condition is not a breach but may provide the
promisor with a defense.
ii.If a promisor waives a condition, it is a unilateral modification to the contract.
________________________________________

III. Constructive Conditions of Exchange: Dependent vs. Independent

Page
36
 a. Historical Development – Previously covenants were defaulted as being independent,
unless K clearly said they were dependent. In Kingston v. Preston, Lord Mansfield
changed default to dependent.
i. Kingston v. Preston
1. Facts: D promises to give his silk business and some stock to Pl. As a
condition precedent, had to pay some money towards the stocks.
2. The Judge looks at the subjective intent, and the objective “sense and
meaning” of the parties to determine whether it’s dependent or
independent. The rule now is that covenants are dependent unless
explicitly indicated otherwise.
ii.Goodison v. Nunn
1. Facts: Pl to sell estate to Df for 210. Df refused to pay, and Pl never gave
property. Pl sues for liquidated damages in K (21).
2. The court held that a Pl must tender his own performance before the Df’s
failure to perform his reciprocal duties will be considered a breach. The
Df’s duty to pay did not arise until the Pl had tendered the property and
counter-performance was not yet due.
iii.Palmer v. Fox
1. Facts: K for sale of property; Df to pay in monthly installments for 5 yrs,
and Pl has to perform some covenants. Df stopped paying, & Pl sued for
balance. Df claims Pl failed to perform covenants of K.
2. Rule: If covenant is dependent, then if one party breaches, the adversary
party gets excused for non-performance.
3. Rule: If covenants are concurrent, then they are dependent.
4. Rule: Even if it is a dependent covenant, there still must be a material
breach in order to for non-breaching party to be excused from
performance.
IV. Independent v. Dependent promises
a. Independent
i. If parties intended that performance by each of them is in no way conditional
upon performance by the other
ii.Parties exchanged promises for promises (not promise of performance for the
performance of a promise)
iii.Failure to perform an independent promise does not excuse non-performance on
the party of the adversary, but each is required to perform his promise, and if he
does not perform, he is liable to the adversary party for such nonperformance
b. Dependent
i. If parties intend performance by one to be conditioned upon performance by the
other
ii.If they are mutually dependent, they may be
1. Precedent - a promise that is performed before a corresponding promise
on the part of the adversary party is to be performed
2. Subsequent - a corresponding promise that is not to be performed until
the other party to the contract has performed a precedent covenant
3. Concurrent - promises that are to be performed at the same time by each
of the parties, who are respectively bound to perform each.
c. Default is dependant. Unless it is clear from the K that the covenants were intended to
be independent.
i. Dependency offers both parties maximum security against disappointment of
their expectations of a subsequent exchange of performances by allowing each
party to defer his own performance until he has been assured the other will
perform.

Page
37
 ii.Dependency avoids placing on either party the burden of financing the other
before the latter has performed.
iii.If covenants are concurrent (to be done at the same time), then they are
dependent.
1. § 234 (1): Where all or part of the performances to be exchanged under an
exchange of promises can be rendered simultaneously, they are to that
extent due simultaneously, unless the language or the circumstances
indicate the contrary.
V. The Avoidance of Forfeiture
a. § 234 (2): Except to the extent stated in (1), 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 language or circumstances indicate the
contrary.
i. Where the contract is made to perform work and no agreement is made as to
payment, the work must be substantially performed before payment can be
demanded.
b. Substantial Performance – is a constructive condition to a party’s duty of performance
that the other party have made a “substantial performance” of the latter’s previous
obligations under the K. If one party fails to substantially perform, the other party’s
remaining duties do not fall due.
i. Jacob & Youngs v. Kent
1. Facts: Pl builds Df’s home. K specifies Reading Pipe to be used. Due to an
oversight unintentional) Pl uses anther brand, but of same quality. Df says
condition of K not met, so doesn’t have to pay Pl. Cost a whole lot to
replace with correct reading pipe, but no change in value.
2. Substantial performance occurs when the contract was not performed
exactly, but was performed to the extent that the difference in the end
result is insubstantial. Where there is substantial performance the harmed
party may not recover the cost of completion, but rather the difference in
market value.
ii.Excuse by Substantial Performance: The breach of the contract must be trivial
and not material. You must look at whether the purpose of the contract has been
served and look at the breach compared to what the person was supposed to do.
iii.Measure of Damages Under Substantial Performance: If the builder has
substantially performed but there are defects in the building there is still a
breach. If you have a breach, then you can sue for damages. Under substantial
performance damages are measured (1) by the cost of completion or
replacement where this can be done without economic waste OR (2) the amount
by which the deficiency lessens the value (a diminution in value). We then
decide which of these is appropriate to the situation.
iv.§241: Circumstances Significant in Determining Whether a Failure is Material:
1. The extent to which the injured party will be deprived of the benefit, which
he reasonably expected.
2. The extent to which the injured party can be adequately compensated for
the part of that benefit of which he will be deprived.
3. The extent to which the party failing to perform or to offer to perform will
suffer forfeiture.
4. The 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.
5. The 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.

Page
38
 c. O.W. Grun Roofing and Construction Co. v. Cope
i. Facts: Df installs new roof for Pl. Dispute that roof not a uniform color and
streaky. Pl refused to pay.
ii.Df says substantial performance. Substantial performance only if breach is not
material. A contractor who tenders a performance so deficient that it can only
be remedied by completely redoing the work for which the contract specified
does not substantially perform his contractual obligation.
d. Doctrine of Divisibility – a K is divisible only when it explicitly states it; i.e. stipulating
compensation for each separate installment as performed. A K under which the whole
performance is divided into 2 parts of the whole performance and the performance of
each part is agreed upon.
i. Lowy v. United Pacific Insurance Co.
1. Facts: Df, contractor to perform excavation and grading work, and also
street improvement work. Df performs 98% of grading, but breaches &
doesn’t do street improvements.
2. Court says this is a divisible K, b/c separate consideration, separate
payments (progressive). So since it’s divisible, first look at 1st part, yes
substantial performance, they should be paid for that w/o looking at 2nd
part where no work was done.
e. Employment Contracts – A hired laborer is entitled to compensation for work actually
performed unless there is an express stipulation to the contrary in the K. Britton v
Turner established this.
i. Britton v. Turner
1. Facts: K for employment; Pl to work for 1 yr and Df to pay him $120. Pl
stopped working after 9.5 months. Df saying he didn’t fulfill K, so can’t pay
him.
2. Under the old rule, a person who only partially completes the K would be
under a worse condition than someone who never performs at all.
Because they would have put time and energy into performing partially.
3. Court feels precedent is bad, and changes this. Entitled to value of work
performed (quantum meruit).

CHANGED CIRCUMSTANCES
I. The Test For Duty Under Impracticability: (1) At the time of the contract (2) performance
is impracticable (3) without fault (4) existing fault, no reason to know or foreseeability (5)
basic assumption.
a. If this test is met then there is no duty to perform and you will not have to pay
damages for the contract UNLESS the facts or circumstances indicate otherwise
because an allocation of risk was obviously on one party.
b. NOTE: that the impracticability has to be extreme and almost impossible to perform,
but if you made this happen or knew/had reason to know of this then you will not have
an excuse.
c. Restatement 456: Existing Impossibility: Unless a contrary intention is shown then a
promise imposes no duty if the performance is impossible because of facts existing
when the promise is made of which the promisor neither knows or has reason to know.
Impossible is defined as strict impossibility and impracticability because of extreme or
unreasonable difficulty.

Page
39
 d. Restatement 460: Where the existence of a specific thing is, either by terms of a
bargain or in contemplation of parties necessary for performance, a duty to perform
the promise never arises if at the time of the bargain is made the existence of the
thing within the time for seasonable performance is impossible.
e. § 2-615. Excuse by Failure of Presupposed Conditions. Delay or non-delivery not a
breach if made impractical by the occurrence or non-occurrence of which was a basic
assumption on which the K was made, or if complying in good faith with a law. Seller
must seasonably notify buyer of delay or non-delivery.
f. § 262 – death or incapacity of party makes performance impracticable
g. §263 – if existence of something necessary for performance of a duty, it’s not existing
(either by destruction or never coming into being), makes performance impracticable.
h. §264 – govt regulation or order can makes something impracticable
i. §269 – temporary impracticability or frustration – suspends duty, doesn’t discharge it.
Unless impracticable to suspend it.
________________________________________

II. Existing Impracticability

a. § 266. Existing Impracticability Or Frustration – At time K made, performance
made impracticable, or principle purpose is frustrated, w/o fault b/c of a fact he had no
reason to know, and it’s a basic assumption on which K made, no duty to perform
arises.
b. A thing is impossible in legal contemplation when it is not practicable; and a thing is
impracticable when it can only be done at an excessive or unreasonable cost
i. Mineral Park Land Co. v. Howard
1. Facts:Requirements K for Df to get all gravel they need from Pl. Took
gravel that was above ground level, then got the rest they needed from
somewhere else. Pl suing says breach of K. But to get the gravel from
below water level (they didn’t know this would have happened), would
cost 10x more.
2. Availability of the gravel, doesn’t mean that’s its practical or reasonable
for Df to extract it. Just b/c not impossible, doesn’t mean it’s not
impracticable.
c. United States v. Wegematic Corp.
i. Facts: Df said they’ll deliver a computer system to Pl, although it wasn’t
designed yet. Deadlines w/ penalties for each day late. Df couldn’t deliver. They
said existing impracticability, where at time K made, it could not be produced,
but they were not aware of this.
ii.The defendant assumed the risk when they guaranteed that they could perform
the contract. He assumed the risk of an underdeveloped product, but he
marketed it as though it was already developed.

________________________________________

III. Supervening Impracticability

a. § 261 Discharge by Supervening Impracticability – Where after K made, performance
made impractical w/o his fault, by occurrence or non-occurrence of an event of which
was a basic assumption on which K made, duty to perform discharged, unless
otherwise said in K.
b. Taylor v. Caldwell

Page
40
 i. Facts: Pl contracts to use Df’s music hall. Music hall burns down. Pl wants
expected profits. No express language in K that says music hall burning down
excuses performance.
ii.Very impractical to put in K expressly for everything that may occur. We need to
imply this.
iii.After K made, performance made impractical b/c hall is burned down, no longer
exists. The music hall being there was a basic assumption.
c. Canadian Industrial Alcohol Co. v. Dunbar Molasses Co.
i. Facts: P contract to buy molasses, but Df delivers only small portion. Df says
impracticable b/c their supplier could not get more.
ii.RULE: Doctrine of Impracticability does not include a normal failure of supply,
unless it is explicitly written in the contract.
d. Dills v. Town of Enfield
i. Facts: Df agrees to sell land on 2 conditions. Impracticable for Pl to meet one
condition, so Pl doesn’t meet the other either.
ii.§270 – partial impracticability – duty to render remaining part is unaffected
iii.One condition independent of the other. Just b/c one is impracticable doesn’t
excuse non-performance of the other.

________________________________________

IV. Frustration of Purpose

a. § 265. Discharge By Supervening Frustration - Where, after a contract is made, a
party's principal purpose is substantially frustrated without his fault by the occurrence
of an event the non-occurrence of which was a basic assumption on which the contract
was made, his remaining duties to render performance are discharged, unless the
language or the circumstances indicate the contrary.
b. Paradine v. Jane
i. Facts: Paradine sues for 3 years back rent; Jane’s defense is that land was under
control of Prince Rupert (invasion).
ii.Risk shifting K - if land wasn’t invaded, he would gain profit from use of the land.
Also a risk that he wouldn’t get a profit out of the land, and this is just a risk
tenant took when he entered K.
iii.He could have contracted with a force majour clause
c. Krell v. Henry
i. Facts: Pl rents out rooms to Df overlooking a street where there was to be a
coronation procession. Never mentioned that coronation was reason for rental.
Coronation canceled.
ii.RULE: The doctrine of frustration may excuse performance when the underlying
value or purpose of the contract has been destroyed.
iii.Although not explicitly mentioned, it was pretty obvious why the rooms were
being rented out.
iv.Also, the non-performance was in contemplation of the parties; they knew it
might happen.
d. Washington State Hop Producers, Inc. v. Goschie Farms, Inc.

Page
41