Contracts Ii

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Whena Term Is Unenforceable on Grounds of Public Policy

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legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.

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Groundsof Public Policy - interest in the enforcement

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(a) the parties' justified expectations,

(b) any forfeiture that would result if enforcement were denied, and

(c) any special public interest in the enforcement of the particular term.

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Groundsof Public Policy - public policy against enforcement

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(a) the strength of that policy as manifested by legislation or judicial decisions,

(b) the likelihood that a refusal to enforce the term will further that policy,

(c)the seriousness of any misconduct involved and the extent to which it was deliberate,and

(d) the directness of the connection between that misconduct and the term.

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Unconscionability - Factorsthat the courts have focused upon in determining whether there was a lack ofmeaningful choice are:

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(1) unequal bargaining power (e.g., big corporation vs. consumer);

(2) no notice(fine print, language buried or hidden);

(3) no understanding (language is legalistic and not comprehensible by non-lawyers,e.g. “Eschew Obfuscation”);

(4) no choice(customer cannot go to another source who will not impose the same requirements);

(5) importance of item contracted for basic human survival (food, clothing, shelter vs. luxury items, e.g. an iPod).

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beneficiaries were classified as

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– creditor beneficiaries,

– donee beneficiaries and

– incidental beneficiaries.

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incidental” beneficiary

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have no independent right to sue.

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Creditor Beneficiary

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A person was a creditor beneficiary if performance of the promise would satisfy an asserted or supposed duty owed to the beneficiary by the promisee.

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Donee Beneficiary

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A person was a donee beneficiary if the purpose of the promisee in obtaining the promise was to confer a gift on the beneficiary or to confer a right against the promisor to some performance

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An obligor can delegatethe obligor's duties or obligations undera contract unless:

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(a) the delegation is contrary to public policy;or

(b) the delegation is contrary to the terms of the obligor’s promise; or

(c) the obligee has a substantial interest in having the obligor perform or control the actspromised.

The third limitation prohibits the delegation of contracts of a personal nature.

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consents to the delegation and either expressly orimpliedly agrees only to look to the delegate for responsibility forperformance.

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This would be known as a novation.

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A contractual right can be assigned unless:

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(a) the assignment would

• materially change the duty of the obligor,

• materially increase the burden or risk imposed on the obligor by the contract,

• materially impair the obligor’s chance of obtaining a return performance, or materially reduce its value to the obligor; or

(b) the assignment is forbidden by statute or violates public policy; or

(c) is validly prohibited by the contract.

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The Parol Evidence Rule

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applies when one of the parties to a written contract is attempting to introduce oral or written evidence of prior or contemporaneous negotiations about the contract in order to supplement or contradict the written contract

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ambiguity

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The written agreement lends itself to two different interpretations

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Partial Intergration?

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- Parol Evidence allowed to supplement

- Evidence not allowed to Contradict

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Context Rule

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This means that the language will be reviewed in the context in which the contract was made

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rememberthis language (extrensic evidence)

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If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, is fairly susceptible of either one of the two interpretations contended for, extrinsic evidence relevant to prove either of such meaning is admissible.

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Agreementsand negotiations prior to or contemporaneous with the adoption of a writing areadmissible in evidence to establish

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(a) that the writing is or is not an integrated agreement;

(b) that the integrated agreement, if any, is completely or partially integrated;

(c) the meaning of the writing, whether or not integrated;

(d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;

(e)ground for granting or denying rescission, reformation, specific performance,or other remedy.

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burden of proof and persuasion on the issue of thedivergent meanings (P or D?)

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Plaintiff

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UCC: Parol Or ExtrinsicEvidence: may be explained or supplemented

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by course of performance, course of dealing, or usage of trade

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Trade Usage

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any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question.

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Prior Course of Dealing

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A sequence of conduct concerning previous transactions between the parties to a particulartransaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

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Course of Performance

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A sequence of conduct between the parties to a particular transaction that exists if:

(1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and

(2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.

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DivergentMeanings

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(2) Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made

(a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or

(b) that party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.

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“PlainMeaning” Rule

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Two stage process for determining the admissibility of extrinsic evidence.

• 1st Is the written contract ambiguous? • 2nd If language is not ambiguous, then extrinsic evidence is not allowed. If it is ambiguous, extrinsic evidence is allowed.

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What is “Best Efforts”?

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The obligation to use such efforts as are reasonable in the light of the party's ability and the means at its disposal and of the other party's reasonable expectations. It may be judged objectively.

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Specific Relief is only granted when....

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plaintiff has no adequate remedy at law. (money damages can't remedy P's harm from the breach)

Real Estate All real estate is presumed to be unique, thus it a non-rebuttable presumption that money damages will not suffice to remedy for promise to convey real estate.

Personal Services Specific Performance is never ordered for a contract for personal services.

Goods It is presumed that goods are readily fungible and that an award of money damages would allow a disappointed party to purchase goods from another source. Therefore, if the contract involves goods, it is presumed that there is an adequate remedy at law.

Injunction as Remedy Injunction may be available to prohibit the person from providing the services to others, if you can show that their services are uniqueor extraordinary.

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Exception for goods (UCC 2-716)

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(1) inability to cover (find a substitute); (2) inability to ascertain the damages with any certainty.

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UCC Damages- Buyer

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• Buyer may cover or take damages based on the market price for the goods.

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UCC Damages- Seller

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Seller may resale or take damages based on the market price for the goods.

recover damages for non‑acceptance

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"Cover”; Buyer’s Procurement ofSubstitute Goods

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After a breach within the preceding section the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.

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Seller's Remedies In General

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Resell and recover damages as hereafter provided ;

recover damages for non‑acceptance

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Remedy for Loss Volume Seller

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If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit(including reasonable overhead which the seller would have made from full performance by the buyer, together with any incidental damages, due allowance for costs reasonably incurred and due credit for payments or proceeds of resale [generally courts disregard the language dealing with “resale.”]

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Seller's Damages For Non‑Acceptance OrRepudiation

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(1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market price, the measure of damages for non‑acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages, but less expenses saved in consequence of the buyer's breach.

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Alternatives to Loss in Value of Performance

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if a breach results in defective or unfinished construction and the loss in value to the injured party is not provided with sufficient certainty, the injured party may recover damages based on:

(a) the diminution in the market price of the property caused by the breach, or

(b) the reasonable cost of completing performance or remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.

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Limitations on Damages - avoidability

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damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.

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Buyer’s Remedies =

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Cover Price –Contract Price

or

Market Price –Contract Price

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Seller’s Remedies =

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Contract Price –Resale Price

or

Contract Price –Market Price

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Limitations on Damages - foreseeability

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(1) Damages are not recoverable for loss that the party in breach did not have reason to foreseeas a probable result of the breach when the contract was made.

(2) Loss may be foreseeable because it follows from the breach:

(a) in the ordinary course of events; or

(b) as a result of special circumstances beyond the ordinary course of events, that the party in breach had reason to know

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Expectation damages =

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= Loss in value +Other losses – Costs avoided – Loss avoided

•Loss in value typically arises in the ordinary course of events

• Other losses will include:
•Incidental damages that arise in the ordinary course of events and
•Consequential damages resulting as a result of special circumstances

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Limitations on Damages - Certainty

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Damages will not be granted for loss beyond an amount that the evidence permits to be established with reasonable certainty.

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IDENTIFYING THE DEFENDANT’S BREACH

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1. that party must have incurred an obligation to perform under the contract and failed to perform (or at least given the other party a reasonable basis for anticipating that such party would not perform its part of the contract when the obligation becomes due) in some material respect.

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express conditions

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If a party's performance under a contract is subject to a condition, such party has no obligation to perform until the occurrence of the condition

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constructive conditions

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courts may imply conditions in order to assure that certain obligations are performed in a particular order.

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mitigating doctrines:

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substantial performance (which precludes nitpicking); divisibility and restitution

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anticipatoryrepudiation

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If a party has a reasonable basis for concluding that the other party will commit a material breach when its obligations become due. This allows them to terminate a contract prior to the actual breach and to sue for damages

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mitigating principles

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prevention, waiver,estoppel and election and disproportionate forfeiture

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Mitigating Doctrines (for Constructive Conditions)- Substantial Performance

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Performance that meets the “essential purpose of the contract"

What Payment is Owed? If the party has substantially performed they are entitled to the contract amount minus damages resulting from the failure to completely perform.

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Perfect Tender Rule

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UCC provision that allows purchaser of goods to insist on strict compliance with the contract

Note softening of the rule:

- Cure if time for performance has not passed(Testable)

- Obligation of good faith and fair dealing (Testable)

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Mitigating Doctrines (for Constructive Conditions) - Divisibility

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Whether the performances can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents.

The apportionment may be done explicitly by the parties,e.g., a price is given per item sold or purchased.

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CircumstancesSignificant In Determining Whether A Failure Is Material

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According to the section, materiality is determined by:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;

(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;

(c) the extent to which 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 to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

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anticipatoryrepudiation

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allows the non-breaching party to declare that the other party has repudiated the agreement.

The repudiation can either be by:
· A statement that the party will commit a material breach when the time for performance arrives; or

· Some voluntary act that renders the contracting party unable or apparently unable to perform without such a breach

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request for adequate assurance of performance

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The non-breaching may do this when reasonable grounds exist to believe that the other party will commit a total breach by nonperformance of their obligations.

The non-breaching party may suspend performance of its own obligations pending the giving of the adequate assurance of performance.

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Effect of Repudiation

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• Non-breaching party can sue immediately and does not need to wait until the time for performance to bring suit.

• Non-breaching party may also make other arrangements and not have to remain ready willing an able to perform their part of the bargain.