Defenses Against Enforcement

Void v. Voidable
-The legal effects of a contract being deemed voidable as opposed to void are:
1)Where a contract is merely voidable, the innocent party may enforce the contract, but the contract cannot be enforced
against him. If a contract is void, neither party can enforce the contract.

2) Rights in a voidable contract are transferable; rights cannot be transferred in a void contract.

3) If a party improperly transfers property to a bona fide purchaser for value, the injured party may recover the property if the
contract governing the transaction is void but not if it was voidable.

4) Voidable contracts may be ratified by the party with the power to avoid the contract once the reason for such avoidance –
such as minor age, mental impairment, duress, undue influence or mistake – no longer exists. Void contracts cannot be ratified.

Void- not enforceable by either party

Voidable- party has the choice of voiding

-Grounds for avoiding enforcement of an agreement, other than SoF and PER are Incapacity, Bargaining Misconduct,
Unconscionability, and Public Policy
-Policies:
1 - A concern with the competency of parties to make an agreement
2 - With the bargaining process by which an agreement is reached
3 - With the substance of any resulting agreement

-Justifications for “defenses” against enforcement (defenses: looking at the answer the D would be filing)
-The law supports the private aspect of K formation
-K formation assumes that there are voluntary (undue influence & duress) agreements b/t people who are capable (minority &
mental incapacity) of entering into K relationship
-1st justification: procedural failure - defect in the bargaining process-something wrong with the voluntary and
capable aspects of above.
-2nd justification: substantive failure - even if the agreement is voluntary and b/t capable parties, the law can refuse
to enforce the agreement (K) for substantive reasons (i.e., the harm to others)

-Defenses of public policy, illegality

-Ways in which “defenses” can be used
-Affirmative use of defensive doctrines
-Rescission and restitution for any benefits conferred on the other party . (If you rescind or void the K
you are entitled to a restitutionary recovery - the idea is to return the parties back to the
state they were in before the formation of K; both parties can be entitled to restitution)

-Affirmative relief - typically the P is not seeking to rescind the K, they are essentially affirming the K, but
they still want to recover damages in tort (not breach of K) b/c the conduct the D took part in was
tortious and damaging conduct.
-i.e., Breach of fiduciary duty
-Two situations in which a fiduciary duty can arise: as a matter of law (lawyer/client,
etc.), and as a matter of fact (implied - relationship of trust and confidence)
-i.e., Duress

Defenses can be used as a (1) shield; (2) sword; affirmatively to seek recovery particularly for rescission and restitution; (3) for
affirmative recovery: rather than rescission and restitution typically in tort

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Minority
• Traditional rule- allows a minor to disaffirm or avoid a K even if there is full performance, and minor can’t return what was
received in the exchange
• Modern rule- can be rescinded by minor and restitution for money paid
o have to give up anything received but only if still in possession
o if it’s a fair and reasonable K, the minor will be responsible for the use and depreciation of the property’s value
(Dodson)
• Any K entered into before age 18 is subject to this defense and are voidable by the minor; not capable of evaluating,
weighing benefits/costs, not capable of entering valid agreement
• Once the minor reaches the age of majority, they have the power to disaffirm or ratify the K If no action in a reasonable
amount of time then the K is ratified.
• Exceptions:
o Minor liable for reasonable value of necessaries
 food, shelter, clothing, whatever’s necessary to live
o Statutes can make minors liable on certain types of K’s
 wills, banks, deposits, lease of safety deposit box, credit unions,
 minor has the right to ratify the K w/in a reasonable time after reaching the age of majority
o Minor’s ability to disaffirm a contract may be restricted if the minor engages in tortuous conduct, for example when
there’s:
 Misrepresentation of age
 Willful destruction of goods

Incapacity
• Cognitive (traditional) test for mental incapacity § 15 (1)(a) (p. 179)- whether you understand the transaction and its
consequences (cognitive ability)
• Volitional test § 15 (1)(b)- lacks capacity if unable to act in a reasonable manner and other party has reason to know of
condition
o Most courts don’t recognize this!
• no requirement that other party know of condition, but should be obvious that the person doesn’t understand
• A person who is deemed mentally incompetent has the power to void a K
• Law presumes that the adult is competent
o the burden of proof to prove incompetence falls on the person seeking to void the act

Hauer v. Union State Bank of Wautoma

Hauer (P) alleged that she was actually mentally incompetent at the time she entered into an agreement to provide collateral for a
loan from Union State Bank (Δ), and that the Bank failed to act in good faith in granting the loan. A contracting party exposes itself
to a voidable K where it is put on notice or given a reason to suspect the other party’s incompetence such as would indicate to a
reasonably prudent person that inquiry should be made of the party’s mental condition.

Duress
• Economic duress- duress by virtue of economic power; exists where:
o One party involuntarily accepted the terms of another (lack of free will)
o Circumstances permitted no other alternative
 Bankruptcy is not a reasonable alternative
 Bringing lawsuit may be
o Such circumstances were the result of coercive acts of the other party
• Physical duress § 174- conduct that is physically compelled by duress is not effective as a proper manifestation of assent
o Threaten the person to sign the K
• Duress by Threat § 175- if the party’s manifestation of assent is induced by an improper threat which leaves the victim no
reasonable alternative, K is voidable
• When Threat is Improper § 176
(1) threaten crime or tort
(2) threaten criminal prosecution
(3) threaten use of civil process and made in bad faith
(4) threat is a breach of good faith and fair dealing under a K
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 Justification
- There is an increasing recognition of the law’s role in correcting inequitable or unequal exchanges b/t parties of
disproportionate bargaining power and a great willingness to not enforce agreements which were entered into under coercive
circumstances
Totem Marine Tug & Barge, Inc. v. Alyeska
Totem (P) claimed that Alyeska (Δ) had used economic duress to get Totem to sign a binding release of all claims it had against
Alyeska after Alyeska terminated a K w/ Totem. A K can be voided if it was entered into as the result of economic duress.

Undue Influence
• § 177 (p. 194): unfair persuasion of a party who is under domination of the other OR who by virtue of relationship will not
act in a manner inconsistent with his welfare (fiduciary)
o Makes K voidable
• (1) unfair advantage (2) weakness
• duress requires a wrongful threat and undue influence requires persuasive conduct so duress can be more difficult to prove
• Improper influence that deprives the individual freedom of choice or substitutes another’s choice for the persons own choice
• does not have to be a fiduciary relationship
 fiduciary relationship- legal or ethical relationship of confidence or trust between two or more parties
Odorizzi v. Bloomfield School District
Odorizzi (P) was arrested on homosexual charges. Immediately after his releases the School District
(Δ) convinced him to resign. Odorizzi asserted that his resignation was invalid b/c obtained
through undue influence and given at a time when he lacked capacity to make a valid K. When a
party’s will has been overborne, so that in effect his actions are not his own, a charge of undue
influence may be sustained.

- Odorizzi v. Bloomfield School District

- Lists 7 elements of overpersuasion (the combination of excessive pressure + vulnerability)
- 1 - Discussion of the transaction at an unusual or inappropriate time
- 2 - Consummation of the transaction in an unusual place
- 3 - Insistent demand that the business be finished at once
- 4 - Extreme emphasis on untoward consequences of delay
- 5 - The use of multiple persuaders by the dominant side against a single subservient party
- 6 - Absence of third party advisers to the subservient party
- 7 - Statements that there is no time to consult financial advisers or attorneys
- Justification and elements of undue influence
- Elements (RK is a little more narrow than what is listed below, strongly advised to use the formulation from the Odorizzi
case rather than the RK which uses the term domination)
- 1 - Excessive pressure (fiduciary relationship may replace this element?)
- 2 - Particular vulnerability to pressure (not possessed by the ordinary person due to extraordinary/special circumstances)

Comparing Undue Influence + Duress

- Undue influence easier to establish than duress - no wrongful conduct as there is in duress…. there does not
need to be any illegality or wrongful conduct - all you need for undue influence is excessive pressure (which is
not independently wrongful)

Misrepresentation

An party may avoid a contract based on misrepresentation when:

• § 162 : A misrepresentation is fraudulent or material and the person seeking to avoid the contract reasonably relied to his
detriment on such an assertion
1. misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent AND the
maker:
a. knows or believes that the assertion is not in accord with the facts, or
b. does not have the confidence that he states or implies in the truth of the assertion, or
c. knows that he does not have the basis that he states or implies for the assertion
2. A misrepresentation is material if it would likely induce a reasonable person to manifest his assent, or if the maker
knows that it would be likely to induce the recipient to do so.
• § 164(1) (p. 192): When misrepresentation makes a contract voidable
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 o K is voidable if a party's manifestation of assent is induced by either fraudulent or a material misrepresentation by
the other party upon which the recipient is justified in relying
o If a party’s manifestation of assent is induced by either fraudulent or material misrepresentation (even if innocent)
can be grounds for making the k voidable by the recipient
o recipient reasonably relied on the misrepresentation; unless the other party made the misrepresentation in good faith
and w/o reason to know of the misrepresentation and the maker also relied on the misrepresentation when making
the transaction

• Using misrepresentation as a sword (rescission/restitution) or as a tort (fraud or deceit)

• When statements of opinion are actionable misrepresentation:
o Classical: not actionable
 subjective; not reasonable to rely upon opinions
o Modern: opinions can be actionable using misrepresentation as a sword (rescission/restitution) or as a tort (fraud or
deceit)
• When statements of opinion are actionable misrepresentation:
o Classical: not actionable
 subjective; not reasonable to rely upon
o Modern: can be actionable
• § 168 (p. 193): Reliance on Assertions Opinions
1. Opinions- express only a belief, without certainty as to the existence of proof of the assertion
2. Recipient may assume that the facts known to the maker are not incompatible with his opinion and that the maker
knows facts sufficient to justify his opinion.
 truthfully giving opinion
 sufficient facts to justify opinion
• § 169 (p. 193): When reliance on opinions are actionable misrepresentations
It is not reasonable to rely on opinions unless, they are from:
o fiduciary relationships
o expert opinion
o special relationship

2 Choices for a Victim of Misrepresentation

1. Tort action for damages
2. Right to avoid the enforceability of the K by rescission
• Used as a defense or in an affirmative action
• Requires the injured party to return any money or property received
• Party can rescind a K for material misrepresentation even if it was not done w/ a fraudulent intent [Rest.
2nd § 164(1)]

Material Term- a matter is material if it is one which a reasonable person would attach importance in determining his choice of
action in the transaction

P, a senior citizen with no family, paid $29K for 4057 hours of dance instruction, which included 3 “lifetime memberships.” Ds,
whose employees were highly trained in sales and manipulation, promised to make P into a professional dancer. Equity may, if it
is fair to do so, relieve a party from the consequences of a release executed through a mistaken belief of fact and law.

Nondisclosure
• There is no GENERAL duty of disclosure
• There is only a duty when you KNOW of a material fact
• When there Is a duty to disclose, failure is treated as misrepresentation
• § 161 (p. 191-92): Must know of a material fact
o Non-disclosure is equivalent to asserting that the fact doesn’t exist only when:
 disclosure needed to correct previous statement/corrective disclosure
 correct a mistake; good faith and fair dealing (Hill) ( as to a basic assumption on which the contract was
made when non disclosure would violate principles of good faith. Exception to negotiation rule.
 writing has material mistake-obligation to inform- party knows the K is missing an element ( scrivener’s
error)
 fiduciary relationship-special duties (full disclosure, fair dealing)

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 Hill v. Jones
Ps contracted to buy Ds’ home, with part of the agreement being that Ds would conduct a termite inspection at their cost and place
the report in escrow. P asked D if an odd-looking floorboard indicated current termite problems, and D said no. But in fact, the
home had had substantial termite problems in the past, which were recorded in inspection reports which Ds had read. When the
seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known by
the buyer, the seller is under a duty to disclose them.

Unconscionability
• Absence of meaningful choice by weaker party (must look at circumstances) AND K terms which are unreasonably favorable
to stronger party (Williams)
• Primary concern: terms of K considered in light of circumstances when K made
• Unconscionable- term is unduly oppressive or unfair to one party to the k
• What purposes does the clause serve? Is it common in this business?
o Terms considered in light of general commercial backgrounds
• Corbin Test: so extreme as to appear unconscionable according to the mores and business practices of the time and place
• If the court finds a term unconscionable, the court can: § 208 (p. 198); § 2-302 (p. 35)
o Refuse to enforce the K
o Enforce the remainder of the K w/out the unconscionable term
o May limit the application of the unconscionable term to avoid an unconscionable result
o Discretion of the court

Williams v. Walker- Thomas Furniture Co.

Ps purchased various items from D. Included in D’s form K was language that (1) allowed D to repossess items on which Ps
defaulted on a monthly payment, and (2) to combine all balances due on multiple items into one debt, meaning that default in
paying on one item resulted in repossession of all items w/ forfeiture of payments made thus far. The courts have the power to refuse
enforcement of contracts found to be unconscionable. An absence of meaningful choice on the part of one of the parties coupled with
terms that are unreasonable favorable to the other party

Two Prongs:
Procedural unconscionability- either lack of choice by one party or some defect in the bargaining process
Substantive unconscionability- the fairness of the terms of the resulting bargain

The judge makes the decision if a contract is unconscionable.

What kind of evidence do you need for unconscionability?

• The circumstances
• The manner entered into
• Education-reasonable opportunity to understand
• Sales practices
• Nature of the term
Policy arguments:
• Against unconscionability: not judicial role, matters of public policy; need legislative reform; courts don’t have expertise to
deal with these issues
• For unconscionability: court adapted common law to changing circumstances; no reason why you need legislative action or
court action
CISG: need for doctrine of unconscionability is limited

Public Policy
Situations in which although the process of contract formation is untainted, a contract may still yet be unenforceable b/c the contract
itself either violates or runs directly contrary to public policy

Examples of Ks that can violate public policy:

• Covenants not to compete
• Ks in violation of licensing laws
• Surrogacy Ks
Covenants not to compete at common law were void (restrain trade; limit competition) but now can be permissible

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§ 188 (p. 195): Ancillary covenants that restrain competition- covenants tied to a legitimate business relationship
• A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction is
unreasonable restraint on trade if:
o Restraint greater than necessary to protect employer’s legitimate interest
 Time
 Territory/geography
 Substance-nature of restriction
• Hardship to employee and public outweigh employer’s legitimate interests (interferes too substantially with public and their
choice)
• If not ancillary, then unenforceable
• If ancillary and no unreasonable restraint exists, it’s valid

§ 187 (p. 195): Non-ancillary covenants that restrain competition- not tied to any business relationship (= unreasonable restraint on
trade)
• per se unenforceable
• Example: Pure Price Fixing Agreement & Agreement to Divide Markets b/w competitors
o Not ancillary to a legitimate transaction
o Probably a violation of anti-trust laws

Valley Medical Specialists v. Farber

In 1985, Dr. Steven Farber (Δ), an internist and pulmonologist, joined VMS (P). A few years later, Dr. Farber became a
shareholder and a minority officer and director, and entered into stock and employment agreements, which included restrictive
covenants, w/ VMS. In 1994, Dr. Farber left VMS and began practicing in the area defined by the restricted covenant. VMS
brought suit to enforce the restrictive covenant. Court stops short of holding that restrictive covenants b/y physicians will never be
enforced. Will instead continue to judge on case-by-case basis and strictly construe against the party wishing to enforce for the
public good. In light of the public policy interests involved in restrictive covenants not to compete between physicians, each
agreement will be strictly construed for reasonableness.

Test for restrictive covenants: invalid unless it protects some legitimate interest beyond the employer’s desire to protect itself from
competition.
A restriction is unreasonable and not enforced if
• The restraint is greater than necessary to protect the employer’s legitimate interest or
• If that interest is outweighed by the hardship to the employee and the likely injury to the public
• Restrictive Covenant- a promise contained in a deed to limit the uses to which the property will be made

Here, covenant is too broad: prevented “all medical care” (substance) Greater than necessary to protect employer’s legitimate interests
Restraint must be limited to the particular specialty of the present employment Significant interests of patients-difficult to continue to
see Dr. outside of 235 sq miles

Blue Pencil Rule: strike out and insert reasonable language or strike out but can’t write in (works with substance but not time or
territory)
Allows for elimination of grammatically, severable, or unreasonable provisions
• Some courts use this and some don’t
Here, modification goes too far and court of appeals rewrites the K

§ 178 (p. 195): when a term is unenforceable on grounds of public policy

• Legislature provides it is unenforceable (statute)
• Interest in enforcement is clearly outweighed by public policy against enforcement of terms

Surrogacy Ks- family law typically trumps K law b/c of public policy issues in family law situations

Regulatory statutes and revenue raising statutes

Licensing statute

Justifications for Nonperformance

Mutual and Unilateral Mistake

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If a parties expectations are disappointed and it was not the result of a risk that was allocated then they could be granted relief.

Principal purpose of contracts is risk allocation.

§ 151: Mistake
A belief that is not in accord with the facts
• “barren cow” case: mutual mistake; seller and buyer thought the cow was barren but was actually fertile
• barren cow worth $80, fertile worth $750
• mistake as to essence of thing sold, not only value

§ 152: When Mutual Mistake Makes a K Voidable

• mistake of fact by both parties at time K made
• relief sought must relate to a basic assumption on which K was made (forum selection clause, consent to PJ, choice of law);
as opposed to price, land stipulations, etc.
• mistake must have a material effect on the agreed exchange (barren cow case)
• K voidable by adversely affected party when: § 154
o The risk is allocated to him by agreement of the parties, or
o He is aware , at the time the contract is made, that he has only limited knowledge with respect to facts to which
mistake relates but treats limited knowledge as sufficient, or
o the risk is allocated to him by the court on the ground that it is reasonable to do so
o UNLESS he bears the burden

§ 153: When Unilateral Mistake (of one party) Makes a K Voidable

• mistake of one party at time K made
• basic assumption on which K made
• material effect on the agreed exchange
• party seeking relief does not bear risk of the mistake in the K. (See) rule 154
• effect of mistake is such that enforcement would be unconscionable (grossly unfair) or other party had reason to know of
mistake or his fault caused the mistake

Lenawee County Board of Health v. Messerly

Messerlys acquired land with apartment building. Their predecessor, Bloom, installed a septic tank without permit and in violation
of health code. Messerlys used building as investment property until they sold it to Barnes. Land goes to Pickles with clauses to
accept it in its present condition. Pickles discovered sewage problem and the property was condemned. A mutual mistake of fact
does not require rescission of a contract where the party seeks rescission has assumed the risk of loss.

How should a court decide cases of mistake between two equally innocent parties?
Determine which blameless party should assume the loss resulting from the misapprehension they shared.
• Contractual mistake: belief not in accord with the facts
• Rescission not available to relive a party who has assumed the risk of loss in connection with the mistake.
• “as is” clause: refer to those defects unknown at the time the K was executed

Here, elements of mutual mistake:

• Both thought the land could be used for living
• Wouldn’t have bought it for rental property if they had known
• Land condemned because of mistake
• Risk allocation by K; language not sufficient to allocate risk
o Present condition: at time there was no septic tank malfunction
o Examined: can look all you want and with no permit, won’t find tank
o However, court here does not allow rescission

Wil-Fred’s Inc. v. Metropolitan Sanitary District

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WF submitted bid to District based on subcontractor bid. Sent telegram to withdraw bid b/c they underestimated based on assumption
that heavy equipment could be used. WF then received letter stating District would award them the K.
Can Plaintiff rescind its offer based on a unilateral mistake? Yes. In general, rescission is refused for errors in judgment and allowed
for issues resulting from clerical errors, such as mathematical mistakes in calculating bids, etc. However, the facts surrounding the
error should determine whether relief should be granted

Impossibility, Impracticability, and Frustration of Performance

**Circumstances that occur after the K has been entered into**

Impossibility of performance: thing destroyed, person dies (opera singer no longer able to sing) no one can perform
Restatement speaks to impracticable but the courts divide impossibility and impracticability.
§ 262: Death or Incapacity of Person Necessary for Performance will deem K impracticable
§ 263: Destruction, Deterioration or Failure of Something Necessary for Performance makes the K impracticable
UCC § 2-613: casualty to goods; if loss is total then K is avoided
If the K specifies goods when the k is made, and the goods suffer casualty w/o fault of either party before the risk of loss passes to the
buyer then:
a. if the loss is total the k is terminated and
b. if the loss is partial or the goods have so deteriorated that they no longer conform to the k, the buyer may inspect the
goods and decide to treat the k as terminated or accept the goods at a reasonably lower price

Frustration of Purpose: rented rooms to watch King; King killed so customers wanted money back (could no longer fulfill their
purpose since King killed)
§ 265- purposes of the agreement cease to exist when:
1. party’s principal purpose is substantially frustrated
2. w/out fault of the party seeking relief
3. w/ the occurrence of an event the nonoccurrence of which was a basic assumption on which the K was made
4. Unless language of K or circumstances indicate the contrary

Impracticability § 261 makes the subject matter of the K fundamentally more expensive or much less valuable, therefore
impracticable to enforce when: (it is very difficult to perform)
1. Party’s performance rendered impracticable
2. Without fault of party seeking relief
3. Occurrence of an event the nonoccurrence of which was a basic assumption on which the K was made
4. Unless the language of the K or circumstances indicate the contrary
5. Therefore, the duty to render performance is discharged

Force majeure clause: focuses on events that might be basis of relief; can list various events
• K Clause that excuses a party’s liability from “acts of God” or other unforeseeable events
• Remedies you want if such things do happen
• ID kinds of events to be basis of relief; contractually; expand on common law where it would not necessarily give relief
• MAC- material adverse conditions clause
• UCC 615 and 613

Karl Wendt Farm Equipment Co. v. International Harvester Co.

Wendt and IH entered agreement which established Wendt as a dealer of IH goods. Due to economic downturn, IH sold farm
equipment section to Case which already had it’s own dealers in the areas so did not offer Wendt a franchise. Wendt sued IH for
breach and IH asserted defense of impracticability. A party’s performance is not excused for impracticability or frustration of purpose
where the occurrence of a foreseeable event such as a market downtown renders a K unprofitable

Mel Frank Tool and Supply Inc. v. Di-Chem Co.

Di-Chem leased storage facility from MF to use for storage and distribution. Di-Chem later told by fire chief that new ordinance
required removal of hazardous materials. Di-Chem left premises and MF sued for breach of the lease. Court held for MF b/c they
couldn’t have known that some of the chemicals were hazardous. The purpose of storing hazardous materials was never discussed and
the non-hazardous materials could still be stored. A tenant is not relieved from the obligation to pay rent due to a subsequent
governmental regulation which prohibits the tenant from legally using the premises for its originally intended purposes if there is a

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serviceable use still available consistent w/ the use provision in the lease, and the fact that the use of the premises is less valuable or
less profitable or even unprofitable does not necessarily mean the tenant’s use has been substantially frustrated
• If building has been used for nothing but hazardous materials maybe the court would say you have to sublease it
• If K provided no subleasing allowed then maybe frustration of purpose would work
• As long as there is an economic use, even if you lose money, then no frustration of purpose
Lawyering lessons from the case law on these doctrines-
Notes:
Whereas clause- if you want to make sure that in subsequent litigation you to make sure you know/ express the goals of the contract
put it in the whereas clause.

Modification
Pre-existing duty rule: aspect of the consideration doctrine
• Promise to pay more or get paid more for a service that is already obligated to be performed is not justifiable – not grounds
for a new/modified K
• Merely promising to perform an existing obligation will not serve as valid consideration for additional return compensation
from the other party
• § 73: Performance of legal duty will not count as consideration
• What is the rationale? Party may/ could use coercive tactics to get more money
Exceptions to the pre-existing duty rule § 89
1. Discharged duty exception-
• no longer a preexisting duty because the duty has already been discharged.
• Performance was impossible, impracticable ( ship sunk)

2. Changed circumstances ( unforeseen difficulty exception) Restatement 89(a)

a. Does not equal coercive
b. Don’t have to show impracticability
3. Modification of duty exception- obligated duty is changed.
4. Breach by promisor
5. Additional consideration exception
a. § 73: need some additional consideration above what was required under the original K
b. promise to do something more (work one more week; consult about working)
c. so long as you agree to more than K then promise is enforceable
6. Reliance 89(c)- justice required enforcement because of material change in position due to reliance on the promise
7. Mutual rescission- both parties agree to rescend the K and then reenter into a new K.
8. Good faith dispute exception- there is a dispute about the K being breached. A modification where each party gives up their
right as to the dispute and admits there was a dispute they can enter into a new contract in light of the dispute.

Alaska Packers’ Association v. Domenico

Ps entered agreements with APA to receive $50 each for the fishing season and $.02 for each red salmon. Ps then signed new Ks for
$60 each. They then stopped working and demanded $100 each for the same services. Claimed the nets were defective. APA had no
choice but to agree but told Ps that the superintendent who made the new Ks had no power to do so (agency principles). Ps demanded
the $100 and APA refused. The new Ks were not supported by consideration because they were based on P’s agreement to render the
exact same services that they were already under K to render. Apromise to pay a man for doing that which he is already under contract
to do is without consideration.

• Economic duress at the time was not a viable concept but would have worked b/c wrongful threat (pay more or we won’t
work) and absence of reasonable alternative (couldn’t get more fishermen while on the ocean; not useful to sue workers)
• Not enforceable on the grounds of lack of concideration.
• Fishermen were not promising they would do more than they had originally agreed to do. Cannot use past performance as
consideration.

Kelsey Hayes Co. v. Galtaco Redlaw Castings Corp.

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P makes brake assemblies and sells to auto manufacturers. P and D signed 3 year K in which D was to be sole provider of castings. D
ceased operations due to economic stress but offered to continue making castings in exchange for 30% price increase. P had no choice
but to accept then D asked for another 30% increase and P accepted. P failed to pay for 84 shipments ($2 million).
In order to state a claim for economic duress, a buyer coerced into executing a modification of an existing agreement must at least
display some protest against the higher price in order to put the seller on notice that the modification is not freely entered into. A
subsequent contract or modification is invalid and therefore does not supersede an earlier contract when the subsequent contract was
entered into under duress.
• Here, P sufficiently alleged wrongful acts of D (P had no reasonable alternative; P objected to breach of K and its demanded
price increases)

Modification- a change to the terms of a k w/o altering its general purpose

2 part test for good faith modification: (Roth Steel test)

1. unforeseen circumstances would prompt an ordinary merchant to seek a modification to avoid loss.
2. can’t coerce modification by threatening to breach

Why no mention of PED rule? UCC 2-209(1) does not require consideration for modification
• good faith is used
• PED rule does not apply to UCC governed contracts.

CISG: almost nothing about defenses against K enforcement

• Article 4(a)
• Choice of law clauses important

Good Faith Modification

Subsequent to the formation of a contract, the parties may, by mutual assent, modify the
contract. The modification must be a product of good faith and fair dealing. A
modification resulting from an improper threat to breach the contract or to refuse to do
business with the party from whom the modification is sought – referred to as "business
compulsion", "economic duress" or "extortion of a modification" – will be held
unenforceable.
A party to a contract for the sale of goods must have a legitimate reason for seeking a
modification. An example of a legitimate commercial reason to seek a modification may
exist where a market shift would create a loss to the party seeking relief even if such
circumstances would not justify an excuse of performance. [UCC § 2-209,

Rights and Duties of Third Parties

Third Party Beneficiaries

§ 302: Intended and Intentional beneficiaries

(1) Unless otherwise agreed b/t promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a
right to performance in the beneficiary is appropriate to effectuate the intention of the parties, and either:
a. The performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
b. The circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance

• Looks at the intention of the parties for 3rd party to receive benefit from K AND
• Either a creditor beneficiary situation exists OR the promisee intended to give the benefit of the promised performance

Third Party Beneficiary (TPB) only has rights under a K, not duties; does not sign the K

Incidental beneficiary: has received a benefit under a K, but no rights to enforce it (note 3 p. 751)

Intended beneficiary: a third party who is the recipient of the benefit of a transaction undertaken by another
• Have rights under the K

Drafting  use specific language in the K indicating your intent

Lawrence v. Fox: Third Party Creditor/Beneficiary Case

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 • Holly took a loan from Lawrence (TPB) then Holly loaned money to Fox. H told F just pay L the money you owe me.
• Lawrence wants to sue Fox for $$
Rationale: would have 2 lawsuits instead of 1 (efficiency); give additional right to TPB that wouldn’t be present if he could only go
against his immediate debtor

Seaver v. Ransom: Third Party Donee/Beneficiary Case

• Wife had K to compensate niece upon husband’s death
• Niece claiming TPB of K b/t wife and husband
• Wife’s intent was to make a gift/donation to niece; donee/beneficiary relationship

Government Ks: treated specially for TPB rule; rarely recognized

• (HR Moch v. Rensslaer) Municipality has K with water company and C wants to sue water company for breach of K with
municipality
• General rule: NO TPB of government Ks
• Important government interest in being able to control it’s Ks
• Potentially great liability to all citizens of the municipality (great danger to companies)

Vogan v. Hayes Appraisal Associates Inc.

Markely agreed to build the Vogans a house. Vogans obtained a mortgage from MidAmerica and MA Ked with Hayes to do the
initial appraisal and periodic appraisals on the construction. Hayes estimated completion time incorrectly and the Vogans defaulted
on their mortgage and MA sued for foreclosure. Unless otherwise agreed b/t the promisor and promisee, a beneficiary of a
promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the
intention of the parties, and either the performance of the promise will satisfy an obligation of the promisee to pay money to
the beneficiary, or the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promises
performance. Factors in judging intent of the K to benefit a third party: Language and provisions of the agreement; Background of the
K; Considerations of fairness and practicality.

§ 302(1)(b): Intended Beneficiary

• Circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance

Vogan Test: determining if there’s a 3rd party beneficiary

1. promised performance of pecuniary benefit to third party
2. reason to know of the benefit by promisor

**If facts do not fit into either creditor/beneficiary or donee/beneficiary  use the Vogan test**

3 Lines of Authority (note 1 p. 750)

1. intention of both promisor and promisee (Crystal says this is wrong; too narrow)
2. only intention of promisee (Crystal says this is wrong; not adequate weight to promisor)
3. Vogan test is fair and reasonable
a. Focuses on interests of both
i. Intention of promisee to benefit
ii. Only requires promisor know of it
b. Pecuniary benefit

Assignment (rights) and Delegation (duties)

Vocab:
Assinor/ obligee- person transferring the right/ duty
Assignee- person the right is transferred to
Obligor- perons obligted to perform the duty

Delegor- person who will transfer a duty

Delegeee- person who the duty is transferred to.

Transfer of a contract- all duties and obligations are transferred to with the contract.

Examples:

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1. Example of assignment of rights
Commercial financing of accounts receivable by manufacturers and sellers
M or S>>>>>>>>>>>>>>>Financing entity

Retailers

Assignment- an act or manifestation by the owner of a right (the assignor) indicating his intent to transfer that rights to another person
(the assignee)
o Transfer of rights

Contract Right- ability to require the other party to perform or pay such damage
o This ability can be assigned

Assignee- agency on behalf of the assignor, that has K rights to enforce the assigned rights
o Restatement Second §317(2)

Delegation- a person who is subject to a duty of performance may properly "delegate" that duty, that is, may satisfy it by employing
others to perform it on their behalf
o Transfer of duties
o Restatement Second §318(1)
o Procuring a substitute to render performance does not extinguish the duty to perform by the personally originally bound to
perform unless released by the obligee

1. pure assignment situation

a. manufacturer to retail outlets
2. delegation of duties
a. subcontractors are delegated duties
b. General Contractor not relieved of duties b/c of delegation
c. Owner can sue General Contractor, subcontractor, or both
3. both assignment and delegation (Sally Beauty)
a. § 328: unless otherwise indicated, acceptance of k assignment operates as a promise to the assignor to perform the
assignor’s unperformed duties, and the obligor of the assigned rights is an intended beneficiary of the promise
b. § 2-210(5): general assignment an assignment of rights and a delegation of duties and a promise that duties will be
assumed unless otherwise stipulated. Delegation of the duties and acceptance of them constitutes a promise by him
to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract.

What happens if you add a provision to prohibit assignment or delegation?

• Generally enforceable; 2-210(4); 322(1); p. 780
• Exception: assignment of $$ rights are not generally enforceable
Consent will not be unreasonably withheld: party must give consent but can’t unreasonably say no

Herzog v. Irace
Jones in accident and was injured and obtained Irace to represent him. Shortly thereafter, he was injured in an unrelated incident. Dr.
Herzog examined Jones and said he needed surgery but Jones couldn’t pay so he wrote letter to attorneys stating Dr. would get a
portion of his settlement money. Dr. H informed Irace that Jones signed an “assignment of benefits” and was told that was sufficient to
allow firm to pay the Dr. Jones got 20k settlement but instructed his attorneys not to pay Dr. H as he would pay himself. Dr. H filed
against attorneys to enforce assignment. Court found for Dr.
• Assignment is an act of manifestation by the owner of a right indicating his intent to transfer that right to another person. To
be valid, the assignor must make clear his intent to relinquish the right to the assignee and must not retain any control over
the right asserted or any power of revocation.

Client Jones _ Assignor Dr. Herzog Assignee

Irace and Lowery- Obligors

§ 317(2)(a): future rights are freely assignable unless assignment would materially change the duty of the obligor, OR increase the
burden or risk imposed upon obligor by his K
• Limitations on “assignment of rights”:
 Conflicts with statute or public policy

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  There’s a material adverse effect on the other party
 Valid preclusion by contract term

• A contract can be assigned unless "the substitution of a right of the assignee for the right of the assignor would materially
change the duty of the obligor, or materially increase the burden of risk imposed on him by his contract, or materially
impair his chance of obtaining return performance, or materially reduce its value to him"
• ethical obligation: valid assignment must be honored by the attorney in disbursing the funds on client’s behalf; under no
obligation to honor their client’s instruction to disregard a valid assignment

UCC § 2-210(2): Assignment of rights

Limitations on assignment
• materially change duty
• materially increase burden or risk
• impair materially his chance of obtaining return performance

Sally Beauty v. Nexxus Products

Best negotiated with Nexxus about distribution agreement. SB then acquired Best and all the rights and duties to distribute. Nexxus
met with SB to discuss distribution agreement. Nexxus would not allow SB, a wholly owned subsidiary of a direct competitor to
distribute Nexxus products. SB sued Nexxus for breach of K b/c they did not give notice of termination.
• Allow delegation except where delegated performance would be unsatisfactory to the obligee
• Nexxus contracted with Best for “best efforts” and there are questions as to whether SB could performance K as Best would
b/c of the competition
• b/c of taking over of rights and duties; SB was promising Nexxus its “best efforts”
• Delegation can’t have a material adverse effect; looking at impact on other person
• personal service Ks: obligee (Nexxus) would have substantial interest in having Best perform the K
o performance by competitor would be against interest
• if delegation permitted, SB is promising to perform “best efforts”
Delegor/ obligor- Best Delegee- Sally Beauty

Obligee- Nexxus

§ 2-210(1) Delegation
• Party may perform through delegate so long as the other party doesn’t have a substantial interest in having the original party
perform.
• no delegation of performance relieves the party delegating of any duty to perform or any liability for breach.

§ 318: Delegation of Performance of Duty

1) can delegate duty to another person unless delegation is contrary to public policy or the terms of his promise
2) a promise requires performance by a particular person only to the extent to that the obligee has a substantial interest
in having that person perform or control the act promised (common law limitation)
3) neither delegation of performance nor a K to assume the duty made with the obligor by the person delegated
discharges any duty or liability of the delegating obligor

Contractual obligations- if there was a clause that stated that right could not be assigned would this be enforceable.
2-210 (1) if you agree you can prohibit delegation
2-210 (2) assignment
317 (2) assignment
318 deligation

You must be very clear when drafting to insure there is no right to assign or delegate ( this section is designed to void or make invalid
any attempt to assign or delegate.)

Restatement §326- partial assignment-

Restatement § 321 – Assignment of future rights
Drafting point: 780 note 4

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Conditions and Breach

Express Conditions
Breach= Any nonperformance of a contractual duty at a time when that duty is due.
§ 235(2): Non-performance as Breach
Any nonperformance is a breach
2 types of conditions:
1. Express: Substantial performance does not apply; excuse of condition won’t apply; created by agreement of the parties
2. Constructive: created by court decision as matter of fairness and probable intention of the parties. substantial performance
doctrine; implied conditions are to carry about the intentions of the parties or to carry out justice.

A condition is a promise made by one of the parties.

Condition must occur before the party must act.
If the condition does not occur then the party is justified in not performing because of failure of condition. This is not a breach.
An excuse of failure of condition- the party does have to perform notwithstanding the fact that the condition has not occurred. This is
a waiver by one party to a condition.
Obligor- the party whose performance is so conditioned
Obligee- the one whose performance obligation is at issue
Obligor- party that has made the promise that is subject to the condition.
Obligee- party that is subject to performance of the act subject to a condition.

Drafting Principles:
• label it express conditions section to insure clarity
• define whose duty is subject to the conditions (normally, the party benefitted is the one who can waive)
• make clear who can waive
• can be a condition that is even outside the control of that party
• if the conditions are all met, the obligor must perform
• if there is a “failure of condition” and unless that failure of condition is excused on some ground, the obligor is not
required to fulfill performance and is not a breach §225; “discharged”
• conditions are not warranties or promises, just conditions unless otherwise specified- if you want it to be one, specify
that in the k- have separate sections

If all conditions satisfied then obligor must perform; If not all are satisfied then a failure of condition unless excused on some ground,
party subject does not have to perform.

§225: Non-Occurrence of a Condition

1. Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused
2. Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur
3. Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur

Oppenheimer and Co v. Oppenhein, Appel, Dixon and Co

P moved to building with 3 years remaining on existing lease. Letter provided sublease would only be executed upon the satisfaction
of certain conditions and one condition was not met (express condition of approval for tenant work). Doctrine of substantial
performance does NOT apply. Express conditions must be literally performed. Court says you can’t avoid express conditions unless
you do so through waiver, estoppel, forfeiture or impossibility. (p. 788)

Policy justification for express condition strict performance- freedom of contract

Constructive conditions policy-
Excuses of express conditions:
1. waiver: voluntary relinquishment of known right
a. doesn’t require reliance by other party
b. generally limited to technical things; not substance of a bargain (not material part of the K)
c. you can waive by words or conduct
d. waiver must be intentional can’t be from negligence or any other mistake
2. estoppel: by your own conduct, you lead someone to do something and they relied to their detriment
a. can be a material part of the K

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 3. forfeiture: denial of compensation that results with obligee (here, P) loses its right to the agreed exchange after it has relied
substantially
a. no forfeiture in this case b/c P didn’t do anything: wouldn’t be out any $$
b. the doctrine of prevention: a condition is excused if the promisor wrongfully hinders or prevents the condition from
occurring

JNA Realty Corp. v. Cross Bay Chelsea (excuse of condition to avoid forfeiture)
JNA leased to VP with provision that VP could renew with 6 months notice. VP entered K with Cross Bay to assign the lease. JNA
sent Cross Bay letter informing them that taxes were due but did not say anything about renewal due in 2 weeks. Cross Bay didn’t
renew so JNA said they had to vacate.
Tenant entitled to benefit of equitable relief when default in notice has not prejudiced the LL and has resulted from an honest mistake
or excusable fault. (no intentional misconduct)
• Court will excuse the nonoccurrence of a condition where forfeiture is a likely result, unless that condition was material by
showing:
1. forfeiture by tenant
2. at most the tenant was negligent (no willful conduct or gross negligence)
3. lack of prejudice to the LandLord (here, not prejudice to the LL b/c they haven’t lost anything or made a
commitment to another tenant)

Doctrine of Prevention- a condition is excused if the promisor wrongfully hinders or prevents the condition from occurring.

Material Breach

Jacobs and Young v. Kent (substantial performance doctrine)

P built house for D. Specifications for plumbing that Reading pipe was to be used (not an express condition to pay). D learned that
some pipe was not Reading; a large portion of house would have to be torn down to change the pipe. P sued for final payment but D
wouldn’t pay.
• Defect was insignificant in its relation to the project; omission of brand neither fraudulent nor willful
• Must weight the purpose to be served, desire to be gratified, excuse for deviation from the letter, the cruelty of enforced
adherence. If all that was necessary were to remove the old pipe and replace it then it would have to be done.
• Minor immaterial deviations do not count as a failure of a condition

If it had been an express condition then substantial performance wouldn’t apply.

Even if express condition:
• Waiver: has to be intentional; if he didn’t know pipe was different then he didn’t intentionally give anything up
• Forfeiture: P will suffer loss of money; not willful, no prejudice; in support of excusing condition
The P was in breach of the K but that did not excuse the D from paying. D could sue for damages from the breach of the K.
§ 237- Effect on Other Party’s Duties of a failure to Render Performance
Substantial Performance Doctrine - each party's duty of performance is implicitly conditioned on there being no uncured material
failure of performance by the other party

1. Party owed performance perspective: It is a constructive condition to a party’s duty to perform tht thee be no uncured material
failure of performance by the other party.

2. Party required to perform: if a party substantially performs a contract that party is entitled to recover on the contract less any
damages for the failure to perform.

NO rule of strict performance. You have an obligation to substantially perform.

Expressed conditions must be strictly complied with.

Justification for the doctrine: fairness… stops over reaching behavior.

• Each party's duty to perform is "constructively conditioned" on there being no material nonperformance by the party
• Applies when the K language doesn't specify or explicitly say
• Applies to the performance obligations of both parties
• Does not apply to express conditions; applies to constructive conditions
• Won't apply to willful, malicious, or bad faith conduct of nonperformance

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 • Protects against a party that innocently deviated from a constructive condition

Why have this doctrine? If you breach you do have to answer in damages but not breach of condition necessarily if its trivial. Rational
of equity; taken into account that certain materials may not be available at all times and mistakes can be made.

Sackett v. Spindler
Sackett agreed to buy stock in newspapers from Spindler. Sackett makes initial payment and says that he will pay in full but the check
bounced and then he never follows through. Found for Spindler b/c Sackett’s actions constitute a breach.

Total Breach: sufficiently serious to justify discharging the non-breaching party from her obligations to perform the K.
• May be a material breach but person has opportunity to fix it; doesn’t become total until it is not fixed
• Entitled to terminate the K and damages for the entire K
• When check bounced: material breach and if not cured in reasonable time then total breach
o §241 when determining if the breach is material, consider the extent to which:
a. The extent the injured party will be deprived of the benefit which he reasonably expected
b. The extent the injured party can be adequately compensated for the part of that benefit of which he will be
deprived
c. The extent the party failing to perform or to offer to perform will suffer forfeiture
d. 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
e. The extent the behavior of the party failing to perform or to offer to perform comports with standards of
good faith and fair dealing.

Restatement 242 ( Retype)

Total breach (under 241)= mater breach + effect of delay and terms of contract. If there is a total breach the other party is discharged
from the contract and can sue for breach for damages.
Partial Breach: not significance of material breach

• Right to suspend performance.

• Right to damages from partial breach but no right to terminate or damages for breach of entire K
• Not material, therefore not total
• Circumstances when breach is material § 241
• In construction Ks: the normal measure of damages is cost to complete
• In some cases: a difference in market value

Doctrine of Constructive Conditions

§ 234: Order of Performances
1) Where all or part of the performances to be exchanges under an exchange of promises can be rendered simultaneously, they
are to that extent due simultaneously unless the language or circumstances indicate the contrary.
2) 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 the circumstances indicate the contrary.

Anticipatory Repudiation
Repudiation is a breach
AR= Total breach of contract by the AR party. You can sue for whatever remedy you have and you are discharged from you duties
under the K.
§ 253 Consequences of AR
1) Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of
the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.
2) One party’s repudiation of a duty to render performance discharges the other party’s remaining duties to render
performance

§ 2-610 has to be material part of K (use common law concepts for AR b/c definition not given)
1) wait for other party to decide to perform
2) pursue remedies for total breach

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 3) suspend own performance

Truman L Flatt v. Schupf

D agreed to sell P land and K is contingent upon P obtaining zoning permit; K shall be voidable by buyer (P) and if he so elects he
shall receive a refund of $$ paid. P has public opposition to zoning but will still buy property for reduced price. Letter to P that D will
not take price cut and offer is not accepted; P still wants to buy property under fulfillment of the K.
• A repudiation must be clear and unequivocal. P’s letter to D seeking to modify the K was not clear and unequivocal
repudiation.

Test for AR:

• clear manifestation of intent to not perform
• intention must be definite
• can be made by words or conduct

§ 256: retraction of repudiation

Party can retract AR as long as:
• there’s no change in position in reliance ( do damage) OR
• notice is given to other party that he considers repudiation final

§ 250: when a statement or act is a repudiation

Telling you that I’m going to breach this K; conduct such that performance is a practical impossibility (selling property to someone
else)
a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee
a claim for damages for total breach; or
b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform w/out such a breach
Hornell Brewing v. Spry
Spry approached Hornell about being exclusive distributor of Hornell’s beverages in Canada. Spry’s unpaid invoices grew to over
$100k. Spry eventually paid then immediately ordered 30 trailer loads of beverages ($390k+). Hornell learned that Spry had no staff,
empty warehouse, no trucks, sham operation.
Right to demand adequate assurances. Hornell has reasonable grounds to be insecure about Spry’s ability to perform in the future.
Spry’s failure to respond to letter constituted repudiation of the agreement which entitled Hornell to suspend performance and termiate
the K.

When a party has a right to demand adequate assurances of performance:

§ 251: When a Failure to give Adequate Assurances May Be Treated as Repudiation
• reasonable grounds to believe that other party will commit a total breach then you have a right to demand adequate
assurances of performance
• failure to give adequate assurance amounts to a total breach

§ 2-609: When reasonable grounds for insecurity arise with respect to the performance of either party, the other party may in writing
demand adequate assurances of performance commercially reasonable under the circumstances and may suspend any performance for
which he has not already received the agreed return.
• Reasonableness of grounds for insecurity is determined according to commercial standards
• Failure to provide the assurances in 30 days equals a repudiation.

Reasonable grounds in Hornell: late money, empty warehouse, financing problems, no staff, no trucks, past Ks

Types of assurances that may be demanded

• unreliable rumors are not enough
• can’t demand assurances that are essentially rewriting the K
• purpose is to give the party something when the other party has not repudiated but they doubt their ability to fulfill it
• good intermediary step to get other party to perform w/out going to court

Demand for adequate assurance of performance is discretionary- can try to get other party to perform w/out going to court

WUSLT
1. minor nonperformance by a party; partial breach Jacobs and Young
a. cannot terminate or get expectation damages
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 2. material nonperformance plus failure to cure = total breach (termination of K, discharge of duties, remedies for total breach)
3. AR (250a, 250b) = total breach
a. Retracted § 251
4. Conduct that does not constitute total breach
a. Right to demand adequate assurances or performance, § 259, 2-609
b. Failure to provide adequate assurances amounts to total breach

Expectation Damages

§ 344: 3 Basic Interests in Contract Damages

• Expectation Interest- the interest in having the benefit of his bargain by being put in as good a position as he would have
been in had the K been performed (§344a)
• Reliance Interest- interest in being reimbursed for loss caused by reliance on the K by being put in as good a position as he
would have been in had the K not been made (§344b) The benefit of the bargain accomplished through the award of
damages.
o Looks to the past; the situation before the K was made. Ex ante.
• Restitution Interest- interest in having restored to him any benefit that he has conferred on the other party (§344c) Looks to
the benefit received by the breaching party. Disgorge any benefit that the breaching party has received from the contract.

Relationship between remedy and theory of recovery-

Theory of recovery- Remedy
Breach of contract Expectation damages
Reliance or restitutionary
Promissory estoppel Reliance damages
Expectation interest

Restitution Restitutionary damages

Reliance interest

Computing Expectation Damages in General

§ 347: Expectation Damages General Formula=

Loss in value + Other loss – Cost avoided – Loss avoided

1. Loss in value under the contract: direct loss; gross amount (K price) MINUS any partial payments or part performance
100,000 ( building) – 50,000 ( partial payment) = 50,000 ( loss in value)
 loss on this specific K, not on any other K
PLUS

2. Other loss
 Incidental Damages- out of pocket expenses incurred by the non breaching party to deal with the effects of the
breach (after the breach has occurred)
o Commissions are a classic example
 Consequential Damages-
o Commercial consequential damages- lost profit on other K’s
o Injury to person or property - Occur after the beach has occurred
MINUS

3. Cost avoided- costs not incurred to complete the K

 if there’s a breach before full performance, you have saved some costs in not completing; don’t want to
overcompensate injured party ( not payments that have been made. These are payments that would be paid in the
future but were not because of the breach.)
MINUS

4. Loss avoided- mitigation of damages

 use reasonable efforts to try to reduce the damages. Any loss that is avoided or could be avoided through reasonable
efforts. An aspect of good faith.
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 
Example 1
200,000 contract price
180,000 cost
70,000 paid by owner
95,000 spent by builder (before the breach)
10,000 materials sold by builder

Loss in value (200,000 – 70,000)= 130,000

Other loss
Incidental damages= 0
Consequential damages= 0
Cost avoided – 180,000- 95,000= 85,000 ( amount saved by contractor by not having to complete construction)
Loss avoided- 10,000 ( resale of supplies)
Net expectation damages- 35,000

Alternative formula= net expected profits + unreimbursed expenses

(200,000 -180,000) 20,000 + ( 95,000 -70,000 – 10,000) 15,000= 35,000

Example 2
2 year employment contract
50,000 per year
Wrongful discharge after 6 months
Employee looks for work for 3 months
Agency for 1000
Finds job for 45000

Loss in value
100,000-25,000=75,000
+
Other loss
Incidental damge 1000
Consequential dmage 0
76000-
Cost avoided
0
Loss avoided 45,000
Net expectation 31,000

Alternative Formulas (Roesch)

If seller breaches  Market value at the time of breach MINUS K price
If buyer breaches  K Price MINUS Market Value at time of breach
• still have to consider consequential, incidental, mitigation, cost and loss avoided
• use experts to measure Market value
Roesch v. Bray
Roesch entered into $65k K with Bray for sale of their home. Bray then informed Roesch they would not buy the home but Roesch
had already entered into K to buy a new home. Due to breach, Roesch borrowed $65k to buy new home. Eventually resold 1st house
for $63,500. Recovered $1500 and 10% interest from the date of breach.
• Roesch entitled to benefit of their bargain: KP less the actual resale price
• General damages: KP minus MV at time of the breach

Borrow $65k after breach: incidental Ds (out of pocket to deal with breach; the interest on the loan)

Proof of MV requires expert testimony

Resales considered evidence of MV w/in a reasonable time

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Owner testimony exception: owner can testify what they thought was the market value of the property they are considered expert of
own property
Resale price is evidence of the market value.

Prejudgment interest- if you canshow that the amount you were owed is aliqudated sum ( an amount that can be computed
mathematically) then the you can recover prejudgment interst-
Post judgement interest- Note 5 page 856

Expectation Damages’s: Employment and Construction K’s

In Employment K’s, generally use Difference in Market Value Formula

Difference in Market Value: generally, cost to complete to give injured party the benefit of the bargain (protect expectation interests)
o Increase of Market Value if the work had been performed MINUS the Market Value without the working having
been performed.

In Construction K’s, generally use Cost to Complete Formula

Alternative formula for recovery of construction K:

Net expected profit on entire K + Unreimbursed expenses at the time of breach

Exceptions to Cost to Complete Rule (neither apply to American)  use Market Value formula
1. Economic Waste (Jacobs and Young) would be disproportionate to MV
a. destruction of work that has already been done v. the value of the work
2. Collateral agreement/ incidental covenant: not principal purpose; may not apply to cost to complete
a. grading in American was essential part of the K
b. use the difference in market value instead of cost to complete

Handicapped Children’s Education Board v. Lukaszewski (breach of employment K/ MV formula)

Board hired L to be speech therapist for $10,760/year and she was assigned to the school 45 minutes from home. L was offered
another job at a day care closer to home with higher pay (13,000/ year). She submitted letter of resignation but Board refused to
release her from K. L went to Dr. who said she had a hypertension problem which could cause other medical issues and she shouldn’t
drive long distances. Letter of resignation again then began to work at day care. Board looked for replacement; one applicant with
higher qualifications so she had to be paid $1,026 more per year.
• L breached and D’s appropriate. Ds for breach of employment Ks include costs of obtaining other services and foreseeable
consequential Ds.
• Board expected to pay the salary agreed upon
• Forced to hire someone else at higher pay, Board lost the benefit of its bargain, any value of replacement was imposed and
not a benefit, Board did mitigate Ds, Board entitled to have the benefit of its bargain restored

Loss in value= 10,760

Other loss= 1026.64
Cost avoided= 10, 760

American Standard v. Schectman (breach of construction K)  Use Cost to Complete or the exceptions
P operated a pig iron manufacturing plant then closed plant and made a K with D to demolish structures and grade the property. D
failed to perform as agreed; removed stuff but didn’t grade one foot below the surface. P sues for cost to complete the work
($110,500). Difference in MV w/out grading is only $3k. Court award P $90k and affirmed.
• General rule: the injured party may recover those Ds which are the direct, natural and immediate consequence of the breach
and which can reasonable be said to have been in the contemplation of the parties which the K was made.
• Measure of Ds is the cost to complete despite little addition to sale value
• Cost to complete (proper measure of expectation Ds here): would be best way to put the P back in the position they should
have been ( benefit of the bargain)

Land sold for 183,000

3000 less than fair market value
110,500 cost of completion

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Difference in market value is the difference between the value that the property would have had if the work had been done less the
market value that the property has without the work. Difference in market value measure.- onl use whent eh property is beign sold
and there would be economic waste to correct the breach. If the issue is not central to the contract and it would be

Cost to complete measure of damages.

Expectation concept

Restrictions on Expectation Damages: Foreseeability, Certainty, and Causation

Hadley v. Baxendale (Consequential Damages)

Crank shaft broke in P’s mill. P went to D to send shaft for repairs. Delivery was delayed and Ps did not receive new shaft for several
days so mill couldn’t work and they lost profits they otherwise would have made.
RULE: Where two parties have made a K which one of them has broken, the Damages’s which the other party ought to receive in
respect of such breach of K should be such as may fairly and reasonably be considered either arising naturally or such as may
reasonably be supposed to have been in the contemplation of both parties at the time they made the K as the probably result of the
breach of it.

If special circumstances existed and were communicated by P to D, the Damagess would be the amount which would ordinarily
follow from a breach under those circumstances. If special circumstances unknown, he could only be supposed to have had in his
contemplation the general Ds.

Here, D did not know of special circumstances. The loss of profits cannot reasonably be considered such a consequence of the breach
of K as could fairly and reasonably be contemplated by both parties when they made the K.

2 prongs of HvB test: determines is expectation damages are due

1. Damages arising naturally (direct damages) OR
2. Damages in the contemplation of both parties (foreseeable) at the time K made as the probable result of the breach
(consequential damages)

§ 351: Foreseeability & Limitations on Damages’s (modern day description of Hadley)

(1) Damages are not recoverable for loss that the breaching party did not have reason to foresee as a probable result of the breach
when the K was made
(2)Loss is foreseeable and damages are therefore recoverable if:
 It’s in the ordinary course of events, or
 Result from special circumstances that the party in breach had reason to know.
(3) Judicial power to limit Damages (not widely used)

CISG Article 74: damages can be a mere possibility rather than a probable foreseeable result of breach of K.

To protect from consequential damages one should include a disclaimer of liability.

At the time K made  give opportunity to add disclaimer language to cover possible risk, not later circumstances

Florafax v. GTE (modern version of Hadley)

P entered 2 year K with D for D to handle call answering center. P also had K with Bellerose in which P would handle orders and D
knew that services would be provided to others through P. D failed to adequately perform the K. This failure caused Bellerose to
terminate K with P. P sought lost profits it would have earned from the Bellerose K.
Award for damages affirmed ($750k lost profits and $820 other Ds).
• Foreseeability: D had w/in its contemplation the potential for lost profits from P’s association with Bellerose.

Other Limitations on Recovery:

1. arising naturally or in the contemplation of both parties
2. proof with reasonable certainty to avoid speculative claims
a. § 352: Damages are not recoverable for loss beyond an amount that the evidence permits to be established w/
reasonable certainty.
b. Don’t need an exact amount with mathematical certainty.
c. Fact of Damage:
i. If you can factually show existence of damage, you don’t have to specify the amount.
ii. If there’s no evidence of actual damage, no recovery
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 d. Contemporary Mission Inc: lost concert tours too speculative as to whether tours would come about and if they
would make profits; can’t recover for this
3. Causation: breach of K must cause Damages
4. No double recovery- plaintiff cannot be compensated twice for the same damage.
5. § 351(3): judicial power to limit Damages (not widely used)
Loss in value + other loss-cost avoided- loss avoided= damages awarded.

Restrictions: Mitigation (Doctrine of avoidable consequences)

Mitigation: P may not recover for those injurious consequences of the D’s breach, that the P herself could by reasonable action, have
avoided.

§ 350 (1): Damages are not recoverable for loss that the injured party could have avoided w/out undue risk, burden or humiliation

Rockingham County v. Luten Bridge Co.

P entered K with D to build a bridge. D instructed P to stop work but P continued anyway and finished the job. P wanted full KP in
Ds. P had obligation to stop work when told to do so. Appropriate damages are amount sufficient to compensate P for labor and
materials expended and expense incurred in the part performance (unreimbursed expenses; 2nd part of formula) of the K prior to the
repudiation plus the profit that would have been realized had it been carried out.

Court allowed recover of damages up to the repudiation all expenses after the break are non recoverable.

Alternative formula for recovery of construction K:

Net expected profit on entire K ( what is the gross amount we expect to make)
PLUS
Unreimbursed expenses at the time of breach
Employer bears the burden of proof that the employee fail to mitigate damages.

Jetz Service Co v. Salina Properties

P supplied laundry equipment. D leased apartment premises to P for use as a laundry facility. With 16 months remaining on lease, D
disconnected P’s equipment. P retrieved property at a cost of $187.50 (incidental Ds) and 4 of the 5 sets of equipment were released. P
sued D for lost profits for remaining 16 months for all 5 sets of W/D.

P not required to mitigate Ds by using the equipment in another lease and D not relieved of liability to pay Ds.

Lost Volume Measure of Damages- the lost volume of business the non-breaching seller incurs on the buyer's breach. This is an
Exception to the doctrine of avoidable consequences.

P here is a “lost volume seller”

What P has to prove to establish itself as a lost volume seller:
• Seller had capacity to make additional sale or to make both contracts. ( multiple cars to sell)
• Would have been profitable to make additional sales (
• Probably would have made additional sale regardless of the buyer’s breach
You don’t reduce the damages of the additional sale. The concept is that the seller would have made the other sale anyways or made
both sales
UCC 2- 708 (2) Loss volume seller in UCC

Lost Volume: rarely applies to personal service K’s

Personal service v. service by a person

Application of Mitigation to Employment K’s:
1. commonly held that employee need only mitigate with alternative work that is “substantially equivalent to the position lost”
a. if you are an attorney and get fired and the only job you can get is at BK, you do not have to take it
2. burden of proof rests on the employer even if employee breaches
a. affirmative defense of failure to mitigate
b. substantially equivalent work available and employee didn’t take it
3. employer may offer reinstatement to employee
a. employee may not want it but if given the opportunity the employee has obligation to accept
b. Damages decreased by income he could have earned
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 c. Safety concerns may change this if they’re reasonable concerns

• Unemployment compensation will likely reduce your Ds b/c the fund is coming from the employer
• Employee takes inferior job. Will new salary reduce Ds?
o Generally YES: don’t want to overcompensate the employee

Non-recoverable Damages: Attorney Fees, Emotional Distress, Punitive Damages

3 types of damages usually denied to P in ordinary breach of K actions at common law:

1. Damages to compensate the Plaintiff for amounts expended on attorney fees
2. Damages for mental distress (and related types of intangible, "noneconomic" injury)
3. Punitive (or exemplary) damages
 Deter intentional breaches of K

Attorney Fees: “American Rule”: parties pay own attorney fees

Exceptions:
• Statute
o Little Fed Trade Commission Act
o State Statutes
o Policy under minds the expectation principal
• Court rules
o Rule 11: when atty presents pleading in court, atty has grounds that suit is for proper purpose
• K terms
o Specific term to provide atty fees
o As a drafting matter, typically would include such a provision
• Collateral litigation
o A contracts with B for license of intellectual property; A warrants to B that it has the right to license
o C sues B for infringement
o Has to relate to 1st agreement bit is not between original parties
o B incurs litigation expenses from suit with C; can recover these from A as long as consequential damages

Emotional Distress
§ 353: Loss Due to Emotional Distress
• Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the K or the breach is of
such a kind that serious emotional disturbance was a particularly likely result

For breach of K claim, Damages for emotional distress are recoverable when:
• Bodily harm
• Serious emotional distress particularly likely result of breach
Why shouldn’t Ds for emotional distress be generally recoverable? K for a certain thing; don’t expect emotional Ds so shouldn’t have
to pay them

Where emotional distress is a likely result: funeral home handling a body properly; sensitive medical info; K for delivery of messages
concerning death

Tort liability for Ds for emotional distress: mere negligent breach of K does not cover tort liability

Punitive Damages:
§ 355: Punitive damages are not recoverable for a breach of K unless the conduct constituting the breach is also a tort for which
punitive damages are recoverable.
• Not recoverable unless also a tort (See below)
• Should we punish the D for breaching the K? not generally if the P is made whole by expectation Ds

Tortuous Breach of K may be found when:

1. The breach is accompanied by a traditional common law tort, such as fraud or conversion;
 Tortuous conduct in addition to breach of K
2. The means used to breach the contract are tortuous, involving deceit or undue coercion, or

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 3. One party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in
the form of mental anguish, personal hardship, or substantial consequential damages

Erlich v. Menezes
P contracted with D to build a house. House then started leaking. P had home inspected and many problems found due to negligence
of D. Ps suffered emotional distress as a result.
P may not recover Ds for emotional distress based upon breach of K to build a house because the emotional distress did not stem from
the bodily injury.
• Court states that bodily harm must be from negligent construction; must have bodily harm first THEN emotional distress

Buyer’s Remedies Under the UCC

**Can pursue all remedies but can only recover one way**

When is the Seller in Breach?

1. The seller fails to make delivery, or
2. Seller repudiates the contract or the buyer rightfully rejects or justifiable revokes when w/ respect to the goods involved
• Hinges on whether there is acceptance or non-acceptance (rejection or revocation of acceptance)

Damages depend on whether there’s Acceptance or not

1. If they accept, §2-714
2. If they don't accept, all the other remedies

What is acceptance?
• Does NOT equal possession
• § 2-606: 3 ways to show acceptance
o buyer after reasonable opportunity to inspect, signifies to seller that goods are ok or that he will take them despite
non-conformity
o buyer fails to make effective rejection but acceptance does not occur until the buyer has had reasonable opportunity
to inspect them
 Rejection: 2-601, 602 If the goods or tender of delivery do not conform with the k, the
buyer may reject the whole, accept the whole, it accept any commercial unit or units and reject the
rest.
 perfect tender rule: buyer can reject any and all nonconforming goods
 if rejects, follow 2-602: Manner and Effect of Rejection
• notice must be given to the seller within a reasonable time after the tender
o act inconsistent w/ seller’s ownership
• revocation of acceptance: 2-608
o must have substantial defect
o had reason to accept b/c either:
 thought it would be fixed and it isn’t; OR
 don’t know of defect
o reasonable time of revocation

Buyer’s Remedies In General: § 2-711

• Can’t get overcompensation
• 607(1) 2-709 (1) (a) If the buyer has acceptance then they must pay the price.

• Acceptance v. non acceptance (rejection, revocation of acceptance)

• Starting point is to determine if the buyer has the right to reject. § 2-601
• Crucial rule is “fail in any respect” the buyer can 1. Reject the whole, 2. Accept the whole, 3. Accept any commercial unit or
units and reject the rest.
• Exception:
• installment contracts 2-612 if there is a deviation from one of the lots delivered the buyer can only refuse the specify lot
there needs to me a substantional breach to refuse the whole contract.

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 • The right to cure: 2-508 under some circumstances the seller has the right to attempt to cure the problem. If there is
evidence of prior dealings that it is reasonable belief that the buyer would accept a nonconforming delivery then the seller has
the right to cure the offending delivery in a reasonable amount of time. Also is trade useage or common practice was a breach
then the seller would have a right to cure.

There is a differience between possession and acceptance-

2-602 – the manner in which the buyer rejects

Buyer must give reasonable notification to the seller.
after rejection the buyer cannot contintue to use the item.

What amounts to acceptance- 2-606

-After a reasonable opportunity to inspect the good the buyer signifies tho the seller that the goods are conforming or the
buyer will accept them in the way they are.
-The buyer must notify the seller they are accepted
-The buyer has a reasonable opportunity to accept and fails to notify of an objection.
-They buyer rejects but continues to use the property as if accepted.

Revocation of acceptance- 2-608

The burden on the buyer is greater for not acting promply.
The buyer may reject/ acceptance a commercial unit. (1 car, a bundle of steel, barrel of oil)
There must be a substantial non conformity
The buyer can revoke on the reasonable assumption there was to be a cure by the seller and it was not cured.
With out discover of the defect in the goods was not revealed by the initial inspection. Must be a substantial non conformity.
In a reasonable amount of time and before a substantial change in the condition of the item not caused by the defect. Seems
that if the seller can resell the item then it is not a substantial change.
•
o If there is acceptance, then use 2-714 seller liable for any damage that flows from the breach ( breach of warranty
that was later discovered )
o Buyers damage would be direct loss as well as incidental and consequential damages under 2-715. ( foreseeability
test)

o If there is no acceptance, then use all the other remedies

• Cancellation: termination (no breach); rescission
o Different from termination and rescission
 Termination = bring K to an end by its natural time expiration or based on a provision of the K
• Usually no breach here
 Rescission = a party has a right to undo the K bc of fraud, unconscionability, duress, etc…
• Could be based on unlawful conduct, or innocent mistakes
• Not necessarily looking for damages

Cover: § 2-712- Involves the buyer going out on the market and purchasing substitute goods that the seller was supposed to deliver
• Buyer may recover difference b/t cover price and the KP plus incidental and consequential Damages less expenses saved due
to breach
• Cover must be made in good faith and w/out unreasonable delay
• The goods do not need to be identical but commercially reasonable substitutes
• Elective; failure to cover does not bar buyer from any other remedy
• Section must be read in light of mitigation buyers failure to cover will preclude recovery for consequential damages only if
she fails to act reasonably

Market Damages: § 2-713 Buyer’s Damages for Non-delivery or Repudiation

• Use when you don’t cover or don’t qualify for cover Ds
• When the seller wrongfully fails to deliver or repudiates or the buyer rightfully rejects or justifiably revokes acceptance.
• Formula = Difference b/t MP at time when buyer learned of breach and the KP together with incidental and consequential Ds
less expenses saved

Buyers Damages for Accepted Goods: § 2-714

(1):buyer may recover damages that result "in the ordinary course of events from the seller's breach"
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 (2): If the Damages are caused by a Breach in Warranty:
o Measure of damages = "the difference at the time and place of acceptance b/w the value of the goods accepted and
the value they would have had if they had been warranted, unless special circumstances show proximate damages of
a different amount"
(3) Authorizes incidental and consequential damages
• Buyer MUST give notice to seller w/in reasonable time to preserve right to collect remedies
o Notice = 2-607(2)(a)

Specific Performance: § 2-716

• judicial decree compelling breaching party to render performance required by the K
• have to make a special showing; can’t just get it
• must be “unique” or in “other proper circumstances”

Incidental and Consequential Damages: § 2-715

• Incidental: out of pocket expenses incurred by the buyer to deal with the consequences of the seller's breach
• Consequential
o Any loss resulting from general or particular requirements and needs of which the seller at the time of contracting
had reason to know and which could not reasonable be prevented by cover or otherwise
o Injury to person or property proximately resulting from any breach of warranty
• Economic losses are subject to the foreseeability test of Hadley and the mitigation principle

Seller’s Remedies Under the UCC

Seller’s Damages in General: § 2-703 Buyer has breached the contract and not accepted the goods.
• buyer in breach by wrongful rejection, revocation; seller may:
o cancel 2-703(f)
o resale 2-703(d) 2-706 (most important remedy) (expectation remedy)
o public resale (auction), private resale ( advertise for buyers) ( seller is entitled to recover from the buyer as long
buyer wrongfully rejected.)
o withhold delivery of goods 2-703(a)

Resale Damages: § 2-706

• 3 steps for recovery
o seller must identify the goods being resold as the same ones under the K that was breached
o seller must give buyer proper notice of resale
 private sale: seller looks for own buyer
 public sale: people can come in and bid; highest bid wins
o resale must be made in good faith and in a commercially reasonable manner
• recover difference b/t resale price and KP

Market Damages: § 2-708(1) (expectation remedy)

• If seller doesn’t comply w/ resale section
• Seller must prove market damages by expert testimony
• Difference b/t MP at time and place for tender and the unpaid KP together w/ any incidental Ds
o MP MINUS unpaid KP PLUS incidental damages

Lost Profits: § 2-708(2)

• Alternative formula to Market Damages
• Award lost profits if market measure is “inadequate to put the seller in as good a position as performance would have done”
• Applies in 3 situations:
o Lost volume seller (Jetz)
o When a seller who is in the process of assembling a product for sale when the buyer breaches
o “jobber”: middle man who purchases goods for resale

Seller’s Action for the Price: § 2-709

• 2-7091a: if buyer has accepted the goods

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 • 2-7091a: seller may recover price if the goods are damaged after the risk of loss has passed to the buyer
• 2-7091b: force goods on to the buyer if the seller is unable to resell the goods w/ reasonable effort

Incidental and Consequential Damages: § 2-710

Reliance Damages
One seeks reliance damages instead of expectation damages because you cannot prove loss profits.

Damages for money spent on part performance, preparation, or in reliance of a K may be recovered when anticipated profits are too
speculative to be determined. (when you can’t prove expectation Damages with reasonable certainty)

If you cannot prove expectation damages then try reliance. If you can’t prove reliance then restitutionary.

§ 349: Damages based on Reliance Interest (reliance damages)

As an alternative to the measure of damages stated in § 347 (expectation damages), the injured party has a right to damages based on
his reliance interest, including expenditures made in preparation for performance or in performance, less any loss the breaching party
can prove w/ reasonable certainty the injured party would have suffered had the K been performed (more theoretical than practical)

Burden of proof is on the plaintiff.

Principal is to return them to the position they were in before the contract was performed.
Limitations:
• Mitigation: the injured party must mitigate Damage’s (§350)
o Unless “equal opportunity” exception: when both parties have the same opportunity to mitigate the Damages,
therefore P does not have a duty to mitigate Damages
o don’t have to spend a huge amount of $$ when you don’t have it to mitigate
• Foreseeability
o pre-K reliance: expenditures before K entered into
 not foreseeable b/c before K; expenses before K cannot be in reliance on K
• Causation- Damage’s were a direct result
• Certainty

Types of Reliance

1. Consequential reliance; post K reliance Damages

2. Cost of performance
a. legal fees
b. core form of reliance Damages; incurred in performance of the K
c. What you pay to the breaching party
3. Pre-K reliance
a. done before the K has been entered into
b. may or may not be recoverable
4. Foregone opportunities- the profits P could have made on another K had the P not relied on this K
a. gave up something else (lost income from another opportunity you gave up for this)
b. expected to receive and didn’t
c. absent info about this loss, will argue not foreseeable therefore not recoverable
d. Dialist p. 974
Prejudgment Interest: type of consequential damage
• has to be mathematically calculable; must be liquidated

Wartzman v. Hightower Productions

Ps hired Ds to run flagpole sitting project. Ds knew Ps would have to sell stock to raise money but they structured the company
incorrectly so no money could be made. D knew entire project rested on ability to sell stocks; P sold stocks and incurred obligations in
reliance on the K.

• New business rule: can’t prove expectation Ds b/c its too speculative (not strongly followed today)

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 • Not much info on flagpole sitting business; fact of Ds is unclear

Walser v. Toyota
P indicated to D that he would be interested in obtaining a Lexus dealership. Began process but plan did not go though. In the
meantime, P bought land for dealership. Promissory estoppel claim b/c no K.
• Discretionary w/ the court as to the remedy in PE actions; Flexible w/in court
• Remedy for PE may be limited, as justice requires

Restitutionary Damages
Three times this is applicable;
The theory of recovery is not breach of contract it is a theory of restitution.
Core is the benefit conferred on the defendant.

Situations in which Restitutionary Damage’s are available

1. When it is a pure restitution and promissory restitution situation § 86
a. Ex. emergency services cases & promised repayment
b. No contract’s involved
2. Restitution as an alternative remedy for breach of K § 373 (must be a Total Breach)
a. § 373(1): if there is a Total Breach, the injured party is entitled to R for any benefit conferred on the other party by
part performance or reliance (restitutionry/ reliance recovery)
b. § 373(2): limitation
If non-breaching party fully perform the K and only thing left is payment, the non-breaching party can’t
elect a restitutionary recovery
3. Restitution on behalf of breaching party § 374 ( Breaching party is attempting to recover restitution)
a. § 374: The party who committed the breach should be entitled to recover any benefit in excess of the loss that he has
caused by his own breach. The breaching party may recover in R for any benefit that he has conferred on the other
party MINUS any Damage’s other party can prove they suffered.
b. Common law rule: breaching party can’t recover in R; NOW REJECTED
4. Restitution when K is unenforceable § 375-77
a. § 375: Statute of frauds
i. seller can’t keep benefit conferred
b. § 376: when K is voidable
i. can’t keep part performance and rescind K at the same time
ii. undo transaction and put parties back in position
c. § 377: K not enforceable due to impracticability, frustration, non-occurrence of condition or disclaimer by
beneficiary
i. entitled to R so that other party doesn’t receive unjust enrichment
Common theme is the K was unenforceable for some reason.
US Coastal v. Algernon Blair
Blair is General Contractor and Coastal is subcontractor. Coastal began performance and Blair didn’t pay for crane rental so Coastal
terminated performance.
Coastal entitled to benefit in quantum meruit b/c provided Blair w/ labor and equipment; Blair (breaching party) retained benefit
w/out having fully paid for it
• Restitutionary damages are the fair market value of the services rendered
• Fair market value = amount for which such services could have been purchased from one in the P’s position at the time and
place the services were rendered
KP100,000
Cost of Performance 120,000
Net loss 20,000
½ work done , no payments
Expectation measure of damages = loss in value KP 100,000- cost avoided 60,000= under expectation formula P recovers 40,000.
How to measure benefit conferred on defendant in a restitutionary actin.

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Reliance measure= market values of benefit conferred on the Defendant 60,000 (Rest §371)
Other ways to measure
How much was the Defendants wealth increased=
The effect of the contract price on measuring the restitutinary interest?=
1. none
2. ratable portion of the contract that was performed. Note 4 p 587

In a restitutionary action there are many ways to calculate damages. 371

For exam purposes tell that there are many ways to calculate and it is difficult to determine. Then choose an evaluation and go with it.

Lancelloti v. Thomas (breaching party recovers in Restitution)

L to purchase T’s lunchenette business and add addition to building. Addition done incorrectly. L paid $25k initially and now wants it
back. L counterclaimed for $52k.

Common law rule: breaching party can’t recover in R; NOW REJECTED

Modern trend
• § 374: The party who committed the breach should be entitled to recover any benefit in excess of the loss that he has caused
by his own breach
• breaching party recover in R benefit conferred on to her party less any Damages other party can prove they suffered

Specific Performance

SP is NOT the normal remedy for breach of K

Must overcome all of these to get SP (equitable remedies)

1. Historical limitations
a. law (writ) v. equity
b. remedy at law is inadequate, therefore granting SP is justified
c. § 359: SP or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the
injured party
i. CISG 46.1: SP is more readily available under CISG than under common law
d. § 360: situations in which remedy at law would not be adequate
i. difficulty of proving damages w/ reasonable certainty
ii. difficulty of procuring a suitable substitute performance by means of money awarded as damages, and
iii. likelihood that an award of damages could not be collected
iv. CISG 46.1: SP is more readily available under CISG than under common law
2. Practical limitations
a. § 362: uncertainty of terms
i. SP is not granted unless the terms of the K are sufficiently certain to provide a basis for an appropriate
order
b. § 366: difficulty in enforcement or supervision
i. A promise will not be specifically enforced if the character and magnitude of the performance would
impose on the court burdens in enforcement or supervision that are disproportionate to the advantages to be
gained from enforcement and to the harm to be suffered from its denial
3. Discretionary limitations (effect of unfairness)
a. § 364 SP or injunction will be refused if such relief would be unfair:
i. K is induced by mistake or unfair practices
ii. Relief would cause unreasonable hardship or loss to the party in breach or to third persons; or
iii. Exchange is grossly inadequate or the terms of the K are otherwise unfair
b. There are equitable maxims that must be followed

City Stores v. Ammerman

P to lease store space from D at not yet built shopping center. P here entitled to SP despite fact that K was lacking in material
respects.
• The mere fact that a K, definite in material respects, contains some terms which are subject to further negotiation b/t P and D
will not bar a decree for specific performance, if in the court’s discretion SP should be granted (p. 1014)
• Ks should be specifically enforced unless the difficulties of supervision outweigh the importance of SP to the P (p. 1015)

29
 o look at benefits of SP and difficulties of enforcement § 366
• here, granted SP b/c there was no way to calculate their future damages

Lumley v. Wagner (note 2, p. 1028)

Wagner is opera singer; K with P to sing at P’s opera house exclusively during term of K (covenant not to compete). D breached K
and planned to work for competing opera house. P sued for SP and injunction to not perform at competitor
• “have not the means of compelling her to sing” p. 1028

§ 367: Personal Service K’s

Promise to render personal service will not be specifically enforced
• if you don’t have a covenant not to compete there is no ground for injunction; if you have one and not enforceable then again
no injunction

• must show that remedy at law would be inadequate in order to get SP/injunction
• services must be unique: can’t easily get a replacement (singers, athletes, actors/actresses

Specific Performance under U.C.C.

• UCC language (doesn’t apply to personal service Ks but same language)
o 2-716(1): SP may be decreed where the goods are unique or in other proper circumstances
o buyer’s action for SP
o grant even if not unique b/c other proper circumstances
• 2-709: seller’s action for the price; seller requires buyer to pay the price of K
o accepted goods
o loss or destroyed after risk of loss passed to buyer
o goods specially manufactured for the buyer and can’t resell them

An injunction is an equitable remedy in the form of a court order, whereby a party is required to do, or to refrain from doing, certain
acts. The party that fails to adhere to the injunction faces civil or criminal penalties and may have to pay damages or accept sanctions
for failing to follow the court's order. In some cases, breaches of injunctions are considered serious criminal offenses that merit arrest
and possible prison sentences.

Agreed Remedies (”Liquidated Damages”)

Use this to avoid the uncertainty of damages

When this is used:

Limitations on enforceability of agreed remedies:

§ 356(2)
• damages may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual
loss caused by the breach and the difficulties of proof of loss
• no mention of intent
§ 2-718(1)
• amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of
loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy
• A term…..see UCC

Payment and performce bond

Payment bond insurance that the contractor will pay the workers if not the insurance co is called and pays the workers
Erformance band protects the owner that the workers will work. If not they contact the insurance co and inseuranc eco pays for the
work to get finished.

Policy arguments for LD provisions:

• Fairness: in the K
o Freedom of K; parties entered into the K w/ provision
• Efficiency
o Certainty; parties know where they stand and what the damages will be; reduces litigation costs

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Policy arguments against LD provisions:
• Under-compensation
o Parties are generally free to put a cap on damages if they want to
• Fairness:
o Bargaining power may not be fair; adhesion K party may be so afraid that they perform under improper conditions.
• Overcompensation; clause could provide for more damages than would normally be available
• Efficiency against
o Encourage people to fulfill Ks that are inefficient (build a bridge even though not needed or wanted just to get the
damages in the K)

Modern law: LD provision will be enforceable if reasonable but not enforceable if it amounts to a penalty

3 prong test for reasonableness of LD provisions

1. At the time the contract was made was the damage clause a reasonable estimate of future damages. Damages to be
anticipated from the breach must be uncertain in amount or difficult to prove.
2. At the time the contract was breached the parties must have intended the clause to liquidate damages rather than operate as a
penalty.
3. At the time the contract was breached, was the clause a reasonable estimate of the actual damages.

Westhaven Associates v. CC of Madison Inc.

P owns shopping center. Cost Cutters entered a lease w/ P then CC closed w/out P’s approval. Lease rate was $49.58/day. West haven
attempted to find a new tenant and released on December 1, 2000. P sued seeking attorney fees, rent and contract damages.
• Attorney fees not recoverable b/c language limits them to fees associated w/ finding new renter, not litigation
• Provision is reasonable and enforceable

Drafting a liquidated damages clause:

1. intent element: do not put in penalty language; no penalty, no forfeiture
a. the parties intent that this clause will be a reasonable determination of the damages in case of breach; parties
recognize that those could be difficult to measure; clause intended to liquidate damages and not operate as a penalty
2. time of the K; the clause is a reasonable anticipation of damages suffered at time of K; specify types, difficult to prove,
specify a formula (vary depending on extent of the breach)
a. at time K entered, in event of breach, damages may be difficult to prove; as a reasonable forecast, parties agree that
damages will be determined as follows
b. damages will be of the following types
If you want LD clause to be exclusive then say so; if not then some other damages may be available
Specify that mitigation doesn’t reduce LD p. 1043 note Judge Posner

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