CONTRACTS II OUTLINE

I. Duty of Good Faith

A. Implied into every contract.
B. Conduct + Motivation (Heart of the Issue: Intent)
C. How does the issue come up?
i. Look at the conduct of one party.
ii. The other party is not happy with that conduct.
iii. Party engaging in the conduct is going to say that there is no
express term prohibiting that conduct and they are well within
their rights; however, their conduct undermines the heart of the
bargain of the contract.
D. Cases: Minimum rent + % of Gross Receipts
i. Goldberg v. Levy: Court implied because tenant deliberately
diverted customers to avoid paying extra rent.
1. Best Efforts (Lucy v. Lady-Duff Gordon): Court says that
lessee must use best efforts to generate gross receipts.
ii. Mutual Life v. Tailored Woman (Fur Coat Case): Moved fur sales
to another floor; No breach.
iii. Stop & Shop v. Ganem
E. Policy: Freedom of contract; Freedom not to contract
F. Goal of the Good Faith Doctrine: Expectancy
II. Implied Warranties
A. Implied Warranty of Merchantability (UCC 2-314): Every goods
transaction comes with an IWM unless disclaimed.
i. Rule: A merchant seller warrants that goods are fit for their
ordinary purpose.
1. Must be a merchant seller
a. UCC 2-104: A merchant seller is anyone in the
business of selling goods of that kind.
2. What are you warranting?
a. Goods will pass in the trade without objection
b. Fit for their ordinary purpose
ii. Defense to the IWM: If you are using something outside of the
ordinary purpose and are injured in some way, there has not been a
breach of warranty.
iii. IWM almost works as a strict liability type of warranty.
B. Implied Warranty of Fitness for a Particular Purpose (UCC 2-315)
i. Requirements:
1. Seller knows or has reason to know the buyers particular
purpose.
2. Buyer relies on sellers skill and judgment.
3. Seller knows or has reason to know reliance.
ii. Any seller of goods can make the IWFPP (does not have to be a
merchant).
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iii. Particular Purpose:

1. Something that is out of the ordinary.
2. Most people define as anything that is within your needs.
C. Damages for breach of warranty (UCC 2-714)
i. Value Received Value Promised
ii. Can also recover for incidental and consequential damages.
D. Policy (behind warranties): Expectancy
III. Express Warranties (UCC 2-313)
A. Seller has to affirmatively create.
B. Elements:
i. Any affirmation of fact, description, sample or model
ii. Has to relate to the goods in question
iii. Must become part of the basis of the bargain
1. Basis of the Bargain: Part of the reason why I decided to
contract.
a. Fact that the seller made a statement of fact is
enough to prove basis of the bargain.
2. Reliance: The fact that you relied on the affirmations led
to creation of the warranty.
a. While not a technical rule requirement, reliance can
be used by the defendant as a defense to basis of
the bargain
C. Argument against express warranties: Seller was just stating his
opinion.
i. Example: This car is brand new and is in great condition.
1. Car being brand new may be an express warranty.
2. Car is in great condition would most likely be viewed as an
opinion (mere puffery).
ii. Policy argument against: Cuts against the expectancy policy.
D. Cases:
i. Royal Business Machines, Inc. v. Lorraine Corp.
ii. CBS, Inc. v. Ziff-Davis Publishing Co. (Focused on reliance;
plaintiff changed its financial position on representations made by
the defendant)
E. When addressing a warranty issue on the EXAM, address all three
elements:
i. Creation
ii. Breach
iii. Disclaimer
IV. Warranty Disclaimer
A. Disclaimer of an IWM (UCC 2-316 (2))
i. Must use the buzz word Merchantability
ii. Can be oral or written
1. If in writing it must be conspicuous
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a. Set apart in some way

B. Disclaimer of an IWFPP (UCC 2-316 (2))
i. No required words; a general disclaimer will suffice.
1. Example: I disclaim all warranties.
ii. Must be in writing and conspicuous.
C. Disclaimer of an Express Warranty (UCC 2-316 (1))
i. Almost impossible to disclaim an express warranty.
ii. In order to do so, the disclaimer language has to be consistent with
the creation language.
1. Way to get around an express warranty is a creation
argument: Because of the parol evidence rule, I never
created the warranty in the first place.
D. As Is or With All Faults (UCC 2-316 (3))
i. Disclaims IWM (without using the word merchantability)
ii. Nothing says this has to be in writing (but courts have interpreted it
that way).
V. Creating Express Conditions
A. Condition (Restatement 224): An event not certain to occur, but that
must occur before a party has duties or obligations under the contract.
B. Pure Condition:
i. Effect if not met (Other party does not have to perform):
1. Condition Precedent: Other partys duties do not arise.
a. Burden of proof is on the
b. Internatio-Rotterdam v. River Brand Rice Mills
2. Condition Subsequent: Other partys duties are
discharged.
a. Did have a duty, but because condition was not met,
duty was discharged.
b. Burden of proof is on the
3. Not performing Breach
4. Obligee is not liable.
ii. Overall Effect: When the condition is not met, no one has
breached.
C. Promissory Condition:
i. Someone has taken on the respon. of making a condition happen.
ii. Implied in every single exchange.
iii. Effect if not met:
1. Party is not required to perform.
a. Not performing Breach
2. Obligor (person making promise) is liable for breach.
iv. Overall Effect: When the condition is not met, someone has
breached.
D. Promise (Restatement 2): A manifestation of intention to act or refrain
from acting in a specified way so made as to justify a promisee in
understanding that commitment has been made.
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i. Effect of a breach: When there is a breach of a promise:

1. The promisor is still liable for the breach.
2. The promisee still has a duty to perform.
a. Example: One side promises to use a particular
brand, and does not do so, does that extinguish the
promisees duty to perform? Generally, the answer
is no.
E. Promise or Condition?
i. General Rule: When it is unclear whether a term is a promise or
condition, then the presumption is that it is a promise.
ii. How to distinguish:
1. Look at the express language of the contract:
a. Condition
i. On condition that
ii. Provided that
iii. If
iv. Subject to
v. When
vi. After
vii. As soon as
b. Promise
i. I will
ii. I promise
iii. I agree
iv. I warrant
2. No express language
a. Look at what the contract is all about.
b. Court will look at the circumstances of the
transaction itself to determine whether it makes
sense for the parties to take on liability.
F. How a condition issue comes up: Someone is not performing and the
other party is saying that the non-performance amounts to a breach.
G. Policy: Assent Policy and Expectancy Policy
VI. Avoiding Express Conditions
A. Waiver: The voluntary giving up of some right.
i. Elements:
1. No reliance requirements
2. Unilateral Action
3. No consideration
4. No mutual assent or agreement
ii. Can occur expressly or impliedly (by your actions).
iii. Only the party for whose benefit the condition has been imposed
can waive it.
iv. Generally happens before the condition has failed.
1. Waiver can occur after failure.
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a. Election: Waiver of the condition post-failure.

v. Not available if the condition was a material part of the bargained
for exchange.
vi. Revocation of a waiver (Restatement 84; UCC 2-209)
1. Can revoke waiver as long as the other side has not
detrimentally relied on the waiver.
vii. How does a waiver issue come up?
1. Beneficiary of the condition decides that the condition is no
longer important and no longer wants their obligations
(duty of performance) to be a condition of performing the
contract.
B. Estoppel: Go to estoppel when waiver is not available.
i. Equitable Estoppel: Someone misstates a fact to you and you
rely on that misstatement to your detriment.
1. Used as a shield: Prevent the normally successful defense
from being successful.
ii. Elements:
1. Reliance
2. Bilateral (One person makes the misstatement of fact, the
other person relies on that misstatement of fact)
3. No consideration
4. No mutual assent or agreement
C. Forfeiture
i. When will forfeiture be an issue: Only if the enforcement of the
condition would result in disproportionate, unfair and harsh
(extraordinary) loss.
ii. Example of forfeiture: Often seen in the insurance policy context
1. Ins. company promises to give benefits if there is a fire.
2. Party receives that benefit (money) for the fire, but was
supposed to give notice prior to receiving the benefit.
3. Timing of premium payments is often at issue. Even
though the payments are late, but are paid, the insurance
company cannot exercise the forfeiture option in refusing to
provide benefits to the insured.
iii. Argument for Forfeiture: When the court allows one party to
essentially breach the express terms of the contract, not allowing
the non-breaching party to exercise the forfeiture option is
essentially re-writing the contract.
iv. Cases:
1. J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.
a. Tenant failed to give notice of desire to renew lease.
b. Tenant made improvements; if not permitted to
renew the landlord would get a windfall; landlord
would be unjustly enriched if condition were
enforced.

c. Failure to meet condition should be excused to

prevent forfeiture.
VII.

Constructive Conditions (Implied)

A. Kingston v. Preston
B. Morton v. Lamb (Corn Case): Payment was a condition of delivery.
i. Buyer argued that because seller did not deliver the corn, seller
was in breach.
ii. Seller argued that because buyer was not ready to pay for the corn,
he did not have a duty to deliver the corn.
iii. Seller wins because buyer had not paid for the corn.
C. Jacob & Youngs v. Kent (Reading Pipe Case)
i. Contract called for particular brand of pipe to be used.
ii. Seller used another brand of pipe Buyer argues he does not have
to pay seller remainder of what is owed (because use of certain
brand of pipe was a condition of the contract).
iii. Court determines that this is only a promise and not a condition.
iv. Measure of damages in this case:
1. Cost of replacement
2. Difference in Value (Value received Value promised)

VIII.

Anticipatory Repudiation (UCC 2-610)

A. Has to be clear and unequivocal
i. Simple request to get out of the contract will not suffice.
B. Aggrieved Party is able to suspend performance Breach
i. Two Options for a Repudiated/Aggrieved Party
1. Sue immediately for breach
2. Wait until time of performance comes due to see if the
other party goes through with the deal, and if they dont,
bring suit then.
C. Different interests at play when talking about a contract:
i. Present Interest: When the time for performance becomes due
you have an interest in getting what you bargained for (what was
promised).
ii. Future Interest: At the time you enter into the contract, you are
expecting that the other side will perform on the date that
performance comes due (At contract formation, there is an
expectation of performance).
1. Anticipatory Repudiation does away with the future
interest. When the future interest gets thwarted, you get
the right to suspend your own performance, without that
suspension amounting to a breach of contract.
D. How does an anticipatory repudiation issue come up?
i. Contract performance is supposed to take place at a certain time.

ii. One party, prior to the date of performance, notifies the other party
that they do not intend to go forward with performance of the
contract.
E. Demand for Adequate Assurance (UCC 2-609)
i. Must be in writing
1. Once the demand is sent you have the right to suspend
performance while you are waiting for a reply.
ii. Can only ask for assurances that the contract terms are going to be
fulfilled.
iii. Must have reasonable grounds for the insecurity.
iv. Reply can be oral or in writing.
v. Reply must be made within 30 days of receipt.
1. NO ANSWER = REPUDIATION OF THE
CONTRACT
IX. Material Breach
A. Material Breach: Almost getting nothing that you contracted for.
i. Is it a material breach?
1. Essence of the contract is not being fulfilled.
2. Must shake your confidence in the contract as a whole.
3. Key question to ask to determine whether there was a
material breach: Was the breach so substantial as to
justify an injured partys regarding the whole transaction as
at an end?
a. Factors:
i. To what extent has the contract been
performed.
ii. Was the breach willful?
iii. How much money will the breach cause in
relation to how much money is still owed
under the contract?
iv. Degree of hardship on the aggrieved party.
v. Adequacy with which the aggrieved party
will be compensated by damages.
ii. Aggrieved party has the right to:
1. Cancel performance/Walk away (extinguish the contract)
a. Suspension of performance Breach
B. Substantial Performance: Basically getting everything you contracted
for, minus some very small items. (Jacobs & Young v. Kent Reading
Pipe Case)
i. Aggrieved party can:
1. Get damages
2. Cannot suspend their performance.
X. Perfect Tender Rule
A. UCC 2-601: Perfect Tender Rule
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i. Has to conform 100% to what was contracted for.

1. Burden is on the seller to show the goods conformed 100%
ii. Buyer has three options:
1. Reject the whole shipment.
a. Can be oral or written (UCC 2-602)
b. Cannot exercise ownership over the goods.
2. Accept the whole shipment.
a. Acceptance (UCC 2-606)
i. Notification (oral or written)
ii. Failing to make a proper rejection amounts
to a technical acceptance of the goods.
iii. Using the goods.
iv. Saying nothing.
b. Acceptance of part = Acceptance of all
c. Once you have accepted the goods, you can no
longer reject them. Your only recourse is to revoke
your acceptance.
3. Accept any commercial unit and reject the rest.
B. UCC 2-508: Right of rejection subject to seller right to cure.
i. Seller has an absolute right to cure prior to the date of
performance.
ii. After the time for contract performance, if the seller reasonably
believes the goods would have been acceptable, and he notifies the
buyer, only then would he have the right to cure the breach.
1. Seller did not know of the breach.
2. Seller sends something better, but it is still considered to be
non-conformity.
C. UCC 2-608: Revocation
i. Can only revoke for substantial impairment.
ii. Occurs after acceptance.
iii. Uses both an objective and subjective test.
iv. Burden is on the buyer to show that the goods substantially
impaired the value.
D. Duty of the Buyer: Take reasonable care of the goods while they are in
your control.
i. Will have the ability to recover whatever the cost is for taking care
of the goods (Definition of Incidental Damages).
XI. DEFENSES (Voidable: will be enforced unless the holder of a valid defense
elects to exercise his or her right to terminate the contract; Have the right to
terminate, but the contract will go forward if that right is not exercised; Void
Contract: Not a contract at all)
A. Deficient Capacity to Contract
i. Incompetence (Rest. 15)
1. Two Tests:

a. Traditional Cognitive Test: Did you understand

or comprehend the nature of the transaction?
i. Subjective Issue: Can be proved by
objective observations and through expert
testimony at trial.
b. Modern Conduct Test: Inability to control ones
conduct because of the mental illness.
i. Restatement: Other party has reason to
know of the inability.
ii. Criticism: Allows the floodgates to open
up and allow for frivolous and false claims.
2. Ortelere v. Teachers Retirement Board of New York
3. Competing Policies: Expectancy vs. Protection of
Incompetent Individuals
ii. Infancy (Rest. 14)
1. Contracts entered into by minors are voidable such that
the minor has the right to exercise their right to
terminate the contract.
a. Minor: Anyone under the age of 18.
b. Have the right to avoid the contract within a
reasonable time after you reach the age of majority.
c. When the contract is avoided, the minor has the
right to get back everything he has turned over to
the adult and vice versa.
2. Exception to the General Rule:
a. If contracting for a necessary then contract cannot
be avoided by a minor.
i. Necessary: If you do not have the ability
to contract for this particular good or
service, then you are going to have to go
without this good or service.
b. Webster Street Partnership, Ltd. v. Sheridan
(Minors contracting for an apartment; Was not a
necessary because minors could still go back
home.)
c. Policy (behind necessary exception):
Encourage adults to enter into this type of contract.
3. Ratification: Minor can reach back and ratify the
contract, thus making it a stand-alone contract that cannot
be voidable.
a. Can happen in writing or by conduct.
4. Policy (behind Infancy defense): Discourage adults from
entering into contracts with infants because there is a
greater chance the adult is going to take advantage of the
minor.
B. Improper Obtainment of Assent
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i. Misrepresentation (Rest. 162)

1. Two types:
a. Material Misrepresentation
i. Misrepresentation of a Material Fact
ii. Cannot be a mere opinion
iii. Must be material: Would it induce a
reasonable person to enter into the contract?
iv. Falsity of statement does not matter
v. Justifiable Reliance
b. Fraudulent Misrepresentation
i. Intent to mislead.
ii. Know or should have known of the falsity of
the statement.
iii. Justifiable Reliance.
2. When does an opinion rise to the level of fraudulent
misrepresentation?
a. Trickery: When you know your opinion is a lie.
b. Close Relationship between the parties
c. Parties not dealing at arms length: One party has
superior knowledge of the issue at hand (other party
is in some way lacking or at a disadvantage).
3. Cases:
a. Halpert v. Rosenthal (Termite case): Innocent
representation rises to the level of fraudulent
misrepresentation (termites were a material fact)
b. Byers v. Federal Land Value Co. (Land Value
Case): Court said value of land was a mere opinion.
c. Vokes v. Arthur Murray, Inc. (Widow Dance Case):
Opinion rises to the level of fraudulent
misrepresentation.
ii. Duress (Rest. 175)
1. Requirements:
a. Improper Threat (Rest. 176)
i. Person making the threat is not going to
benefit in any way from the threat.
ii. Look at the surrounding circumstances.
iii. Even if a party is susceptible to criminal
prosecution, raising that is generally deemed
to be an improper threat.
iv. When a party threatens something that it has
every legal right to do, then that does not
amount to a threat.
b. Inducing the apparent assent of the other party
c. Victim left with no reasonable alternative but to
give assent.

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2. How to spot a duress issue: We had a contract, now all of

a sudden someone is wanting to change the contract, I
assent to the change, but I am looking for a way out of that
assent that I gave (because of economic duress).
a. Hard bargaining vs. economic duress
i. Hard bargaining does not amount to
economic duress.
ii. Being in a difficult financial spot does not
mean you are going to be able to avoid the
contract due to economic duress.
3. Was there economic duress?
a. Did the purported victim assent to pay for
something to which it was already entitled? If
yes, then move on to question 2.
b. Was the request for this assent motivated by a
legitimate business reason that would have been
within the reasonable contemplation of the
parties at contract formation? If no, then
generally that amounts to economic duress. If yes,
then one can argue no economic duress.
4. Cases:
a. Hackley v. Headley (Log weighing Case): Buyer
withholds payment for goods
i. Duress of person vs. Duress of Goods
1. Person: Force or threats (actually
holding a gun to your head).
2. Goods: Holding goods hostage
ii. Simply threatening to withhold payment is
not an improper threat in and of itself (Still
may be a breach).
b. Austin Instrument v. Loral Corp. (Navy radar case):
Two contracts; one party threatens the other party
that they will not fulfill their duties under one
contract unless they are given the business on the
second contract; Classic economic duress case.
5. Doctrine of Good Faith (related to defense of duress):
Did you have a legitimate reason for requesting the contract
modification?
6. Policy: Assent Policy If we allow these contracts to go
forward then you are not exercising your free will.
iii. Undue Influence (Rest. 177)
1. Elements:
a. No improper threat (instead an exertion of undue
influence takes place such that you are trying to
obtain what you want versus what the other party
wants)
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b. Dominant/Serviant Relationship (sets stage for

undue influence to take place)
2. Odorizzi v. Bloomfield School District (Teachers sexual
orientation led to undue influence being applied by school
district; forces resignation)
3. How to spot an undue influence issue: Must be some
relationship of dependency or trust such that one party has
domination ability over another party and the other party is
justified in believing that they would not act contrary to
their interest. The other person abuses that position of trust
by unfairly persuading the victim to enter into the contract.
The contract is generally adverse to the other persons
interest.
iv. Unconscionability (General catch-all defense when duress or
undue influence will not work; Basically a cause-and-effect
situation)
1. Types (once one is found, the other also exists):
a. Procedural Unconscionability: Bargaining
Process
i. Focuses on the bargaining behavior of the
parties.
ii. Purpose is to prevent undue surprise.
iii. Gross inequality of behavior
iv. Good to show that there has been some
pressure, deception and unfair persuasion.
b. Substantive Unconscionability: Resulting terms
of the contract
i. Because of the unfair bargaining, we end up
with unfair, grossly one-sided terms in the
resulting contract itself.
2. Sliding Scale (Balancing Test)
a. High procedural, low substantive
b. Low procedural, high substantive
3. Cases:
a. Williams v. Walker-Thomas Furniture: Contract
terms allowed the furniture company to re-possess
all items purchased under previous contracts should
Ms. Williams default.
b. Gatton v. T-Mobile USA, Inc.:
i. Court separates procedural uncon into two
different aspects:
1. Oppression: Unequal bargaining
power leads to no meaningful choice
2. Surprise: Were you aware of the
terms or were they hidden?

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c. Discover Bank case: One-sided waiver clause

easily amounts to substantive unconscionability.
4. How to spot an unconscionabilty issue: Based on the
resulting term, it appears that someone has taken advantage
of another party to a grossly disproportionate level, such
that you end up with these disproportionate terms.
a. 3 things to look at when determining uncon:
i. Examining the terms (substantive)
ii. Manner of its execution (procedural)
iii. Knowledge and status of the parties
b. Unconscionability does have elements of the other
defenses: Lack of capacity, undue pressure
(influence)
C. Failure of a Basic Assumption
i. Mistake
1. Mutual Mistake of Present Existing Facts
a. Rest. 152:
i. Mistake by both parties.
1. Rest. 151: Definition of Mistake
a belief that is not in accordance
with the facts.
2. Simply having a mistake with
regards to judgment does not qualify
as a mistake.
ii. Present existing fact.
iii. Basic assumption.
iv. Has a material effect on the agreed
exchange.
b. Rest. 154: Risk of Loss - Person asserting the
defense cannot bear the risk of loss
i. Lays out very broad circumstances for when
a party is going to bear the loss for mistake.
1. Risk allocated by agreement between
the parties.
2. Conscious ignorance.
3. Risk allocated by the court.
c. Cases:
i. Sherwood v. Walker (Barren cow case)
1. Difference in substance v.
Difference in quality
a. If the mistake goes to the
heart of the contract, then the
contract can be avoided.
b. If you are only talking about
a difference in quality, then
the contract remains binding.
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2. Largely not followed.

ii. Messerly (land contract with as-is clause):
Cannot avoid due to mistake; buyer bears
the risk of loss.
iii. Wood (Diamond case): Stands for the
Conscious ignorance risk of loss rule.
2. Unilateral Mistake (Rest. 153): What I was contracting
for is significantly impaired by the mistake.
a. Elements
i. One party.
ii. Mistake as to a basic assumption, as held by
the person asserting the defense.
iii. Material adverse effect with regards to the
exchange (on the party asserting the
defense)
iv. Person asserting the defense cannot bear the
risk of loss.
b. Additional Requirements of Unilateral Mistake
(Differences with Mutual Mistake)
i. Enforcement of the Contract =
Unconscionable Result
ii. Other party had reason to know of the
mistake, or
iii. The other party caused the mistake in some
way.
c. Cases:
i. Tyra v. Cheney: Sub did not include part of
the cost in the written contract (was
previously communicated orally); Court
allows for unilateral mistake because if the
contractor received the benefit without
paying for it, then the result would be
unconscionable.
ii. Drennan Case (First Semester): If the
contractor does not have reason to know of
the mistake, then we are not going to allow
the defense of unilateral mistake to come in
and void the contract.
d. Duty to Disclose (and Unilateral Mistake)
i. Laidlaw v. Organ (Tobacco Case): Buyer
contracted for tobacco; treaty was signed
that had an effect on the price; Seller was
not aware treaty was signed; Seller asked
buyer whether he knew of anything that
would cause price to rise; Buyer was silent;

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Buyer does not have a duty to disclose, but

does have a duty not to defraud.
ii. Rest. 161: Limited and exhaustive list of
when a non-disclosure amounts to an
assertion that could be fraudulent or a
material misrepresentation.
1. To correct a prior statement.
2. Knows that the disclosure will
correct a unilateral mistake being
relied upon by the other party, and
not disclosing would mean acting in
bad faith or against fair standards of
dealing.
3. Idea of Mistake: Very similar to the defenses of fraud
(bad faith): You know that there is a mistake, but you take
advantage of that mistake. No real meeting of the minds.
ii. Impossibility/Impracticability
1. Elements:
a. Contingency unexpected occurrence
b. Risk not on the person asserting the defense.
c. Occurrence makes performance of the contract
commercially impracticable.
2. General Rule (Duty): You have the liability to protect
yourself against changed circumstances. If you do not see
fit to protect yourself, then the court is not going to provide
that protection for you.
3. Cases:
a. Paradine v. Jane: Prince invades land; tenant trying
to get out of rent due to changed circumstances;
Court does not allow.
b. Taylor v. Caldwell: Music hall burns down prior to
concert; No express term allowing for partys duties
to be set aside; Court implies a condition in the
contract.
c. Transatlantic Financing Corporation v. US:
Closing of the Suez Canal during voyage caused
to have to take a different route; Cost increased; Not
impossible to perform the contract.
i. Just because something is more expensive
does not mean that it is commercially
impracticable such that the contract can
be set aside.
d. CNA & American Casualty v. Arlyn Phoenix (River
Phoenix dies of drug overdose)
4. How to spot the impossibility/impracticability issue:
Event has caused the costs to increase dramatically and is
15

XII.

against public policy for me to go forward with this

contract.
iii. Frustration of Purpose
1. Elements:
a. Post-contract occurrence.
b. Non-occurrence of the event is a basic assumption
of the contract.
c. Unforeseen event (not in the contemplation of the
parties at the time of contract formation).
d. Adversely impacts the benefit/value of the contract
(benefit you expected to receive under the contract)
e. Frustrating/affecting the central purpose of the
contract.
2. Steps to go through to determine if you have frustration
of purpose:
a. What was the foundation of the contract?
b. Was the performance of the contract prevented?
c. Was the event that prevented the performance of the
contract of such a character that it cannot
reasonably be said to have been in the
contemplation of the parties at the contract date?
3. Cases:
a. Krell v. Henry (Coronation Case): King gets sick;
coronation delayed; Lessor argues frustration of
purpose; Central purpose for leasing the apartment
has been frustrated.
b. Lloyd v. Murphy (Landlord/Tenant Car Dealer
Case): Lease has a restriction of use; Government
changes law and limits tenants use of the property;
landlord changed the lease to accommodate
4. In order to prevail under Frustration of Purpose
defense, the person asserting the defense must show:
a. That the expected value of performance to the party
has been destroyed.
b. Event cannot have been foreseen such that the
parties could not have protected themselves.
5. How to spot Frustration of Purpose: Because of this
event, I am not going to receive any value, or very little
value from this contract.
DAMAGES
A. Expectancy: Put the aggrieved party in the position they would have
been in had the contract been fully performed.
i. Rest. 347: Formula for Expectancy (General Measure)
1. Loss in Value + Other Losses Costs Avoided Losses
Avoided
ii. UCC 714 (2): Breach of Warranty
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1. Value Received Value Promised Incidentals

Consequentials
iii. Cost of Completion v. Diminution in Value
1. Cost of Completion
a. Normally correct measure of damages, unless the
value that is going to be added by the completion is
grossly disproportionate to the cost of completion.
b. Furthers the Expectancy Policy: Had the contract
been fulfilled, you would have gotten what you
originally bargained for.
c. Groves v. John Wunder Co. (Court awarded Cost of
Completion because of a bad faith breach by the )
i. How to spot a good faith issue: Someone
is doing something, or not doing something,
that is not specifically identified in the
contract, but it is still jabbing a stake
through the heart of the contract.
2. Diminution in Value
a. Formula: Value Received Value Promised
b. Furthers the Expectancy Policy: Gets the party
financially to the position they would have been in
had there been completion of the contract.
c. Hawkins v. McGee (Hairy Hand Case)
d. Jacob & Young v. Kent (Reading Pipe Case)
3. EXAM NOTE: Argue both Cost of Completion and
Diminution in Value.
iv. Sellers Remedies under the UCC (UCC 2-703: does not require
resale; seller can elect which remedy they want to come under.)
1. UCC 2-706: Resale
a. Formula: Resale Contract Incidentals +
Expenses Saved
b. In order to recover, you have to have effectuated a
reasonable resale.
2. UCC 2-708 (1): Hypothetical Resale
a. Go to 2-708 (1) when you do not go out and resell
the goods.
b. Formula: Market Price Contract Price
Incidentals + Expenses Save
3. UCC 2-708 (2): Loss Volume Seller Remedy
a. Able to recover lost profits on sale #2.
b. Must be a loss volume seller
i. Unlimited supply of goods that you could
have sold.
ii. Had it not been for the buyers breach, you
would have made two sells instead of one
(and made a profit on both sells).
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iii. When 2-706 or 2-708 (1) results in 0 or a

positive number, then you can come under
2-708 (2).
iv. Neri v. Retail Marine Corp. (Special order
boat; buyer breaches; seller able to recover
under 2-708 (2).
4. UCC 2-709: Action for Price (Sellers Specific
Performance)
a. Goods turned over to the buyer refuses to pay.
b. Court can then force buyer to actually pay.
c. Cannot resell the goods (because goods are unique).
v. Buyers Remedies under the UCC
1. UCC 2-712: Cover
a. Formula: Contract Price Cover Price
Incidentals Consequentials + Expenses
b. Actually go out on the market and buy substitute
goods.
2. UCC 2-713: Hypothetical Cover
a. Formula: Contract Price Market Price
Incidentals Consequentials + Expenses
3. Breach of Warranty (UCC 714-2):
a. Formula: Value Received Value Promised
Consequentials - Incidentals
4. UCC 2-716: Buyers Specific Performance
a. If buyer is going to recover then he:
i. Must show goods are unique, or
1. One of a kind thing that is in and of
itself unique.
ii. In other proper circumstances.
1. Example: Tried to go out on the
market and find substitute goods, but
I could not find it or found it only
with incredible extra expense.
vi. Foreseeability
1. Rest. 351: What makes a damage foreseeable?
a. In the ordinary course of event; Naturally flowing
b. Special circumstance: One party has put the other
party on notice (actual or constructive known or
should have known) as to what can happen because
of the breach of contract.
2. Hadley v. Baxendale (Mechanical shift delay causes plant
shut down) Special Circumstance case; did not have
notice; no recovery for lost profits.
3. Competing interests at play in foreseeabilty:
a. Plaintiffs expectancy

18

b. Defendants expectancy: What did the expect to

be liable for if it breached the contract?
4. Express provisions regarding liability for breach:
Parties often state what liability they are willing to take on
in the event of a breach. When there is the absence of that
term, the court steps in and tries to figure out what the
expectations of the parties were at the time of contract
formation.
5. Tacit Agreement Rule: Not only did you have to be on
notice, but you also have to have agreement to take on the
liability.
a. Going through with the agreement might be
enough.
b. Actual agreement might be enough
c. Morrow v. First National Bank of Hot Springs.
d. Not widely followed because it extends Hadley too
far such that it results in the underenforcement of
contracts.
vii. Certainty (Rest. 352)
1. Damages that are not deemed to be certain are not
recoverable.
a. Certain: Almost impossible to come up with a
hard and fast number of what the damages are going
to be.
b. Chicago Coliseum Club v. Dempsey (Boxing
Contract): Lost profits not recoverable because of
certainty rule.
2. Rest. 349: When you cannot recover expectancy
damages because of certainty (too speculative or too
uncertain to be recovered) that is when you try to come
under reliance.
a. Two situations when you would come under
reliance (instead of expectancy):
i. When you cannot recover expectancy
damages because of certainty (too
speculative or too uncertain to be recovered)
that is when you try to come under reliance.
ii. When you have contracted for, and when
you end up in a losing contract, the
aggrieved party would want to come under
reliance instead of expectancy (Mistletoe
Express Service v. Locke Court allows
reliance expenses even when the aggrieved
party would not have made any money
because they did not have the full year to

19

actually perform, as stipulated by contract,

due to the breach).
3. Liquidated Damages Clause (UCC 2-718): In the event
there is a breach, this clause sets an actual monetary
amount that the aggrieved party will receive. Must be
reasonable in relation to anticipated or actual harm.
a. Will not be enforced if it is deemed to be penalty:
So out of line with what damages would be that
those damages would be deemed to be punishing for
the breach.
b. To determine whether a liquidated damages clause
is enforceable, courts have the discretion as to
whether they want to look at the harm as anticipated
or actual. They usually will look at both.
c. Wassenar v. Towne Hotel: Sliding Scale Test
i. Intent of the Parties
ii. Difficulty in determining what damages
should be.
iii. Reasonable forecast of the harm caused by
the breach.
4. Limitation of Remedy Clause (UCC 2-719)
a. (1) (a): Parties have a right to contract for what
their damages may be.
b. (1) (b): If you want your remedy that you set forth
in 1 to be the exclusive and only remedy, then you
have to explicitly state that in the contract.
i. If not included, then (1) (a) says that you
have the right to all of your UCC damages
(including consequential damages) as well
as to repair and/or replace.
ii. Exclusive cuts out consequential,
incidental and all monetary damages.
c. (3): If you are talking about a personal injury with
regards to a consumer good, the UCC and society
has determined that that kind of a waiver of liability
is per se unconscionable.
5. Policy:
a. Rules vs. Justice
i. Rules: We need hard and fast rules in
contract law; our rules do not always equate
to justice (specifically with regards to the
undercompensation issue).
ii. Justice: Adherence to the rules works an
injustice on behalf of the aggrieved party.
b. Plaintiffs Expectations vs. Defendants Protection

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viii. Avoidability (Mitigation)

1. General Mitigation Rule: Once there has been a breach
of contract, the non-breaching party should endeavor to
avoid any losses.
2. General goal: Do not want the running up expenses and
running up damages that could have been avoided.
3. Real issue is, Who is responsible for the damages?
a. Generally, the is only responsible for the damages
that are caused by their breach.
4. Cases:
a. Rockingham County v. Luten Bridge Co. (Bridge to
Nowhere Case): Seller not able to recover for
damages incurred after notification of intent to
breach (through their own fault)
b. Shirley Maclaine Parker v. Twentieth Century-Fox
Film Corp. (Liberal Actress Case)
i. Actress not required to mitigate by accepting
an inferior job.
5. Policy:
a. Avoid Waste
b. Encourage Commercial Transactions: Encourages
transactions by parties who might breach in
knowing that their damages will be limited should a
breach be necessary.
ix. Specific Performance (Ultimate Expectancy Remedy)
1. Land
a. Why do we award specific performance for
land? Because land is unique. Buyer cannot go out
and purchase that same piece of land.
b. Loveless v. Diehl: Two contracts One for
purchase of the farm; One between buyers and
doctor (money man) Lower court denied specific
performance Higher court reinstates because
specific performance is the default rule in land
contracts.
c. Policy: Encourages contract formation
2. Goods (Default Rule: Monetary Damages)
a. UCC 2-716: Buyers Specific Performance
i. If buyer is going to recover then he:
1. Must show goods are unique, or
a. One of a kind thing that is in
and of itself unique.
2. In other proper circumstances.
a. Example: Tried to go out on
the market and find substitute
goods, but I could not find it
21

or found it only with

incredible extra expense.
b. Cases:
i. Cumbest v. Harris: Hi-Fi Stereo was unique
(spent 15 years creating it one-of-a-kind)
ii. Scholl v. Hartzell: Car was not unique
because it was not difficult to go out and
buy substitute goods on the marketplace.
c. Replevin (UCC 2-716 (3)) vs. Specific
Performance:
i. Replevin: Have already paid for the goods,
but the seller is refusing to turn the goods
over to you.
1. Because the default rule in goods
contracts is monetary damages, you
try to come under replevin first.
ii. Specific Performance: Contracted for the
goods and have not paid, but seller refuses
to turn the goods over to you.
iii. Sedmak v. Charlies Chevrolet, Inc.: Pace
Car Case Example of other proper
circumstances in which court will award
specific performance.
3. Personal Services
a. General Rule: Courts are not going to award
specific performance in personal services contracts.
i. The Case of Mary Clark, A Woman of Color
b. Negative Injunctions:
i. Lumley v. Wagner: Negative Stipulation
Clause included in the contract and court
enforces by not allowing comedian to
perform at theater number 2 after breaching
contract at theater number 1.
ii. Duff v. Russell: Court implies a negative
stipulation clause from the surrounding
circumstances.
iii. Dallas Cowboys v. Harris: If a performer
has exceptional or unique knowledge,
skill and ability, it is appropriate to
enforce this type of injunction.
4. Policy for awarding Specific Performance in Lands and
Goods Contracts: Unable to go out and make yourself
whole.
B. Reliance: Put the promissee in the position they were in prior to the
formation of the contract.

22

i. Just because you have expended money does not mean that you
have conferred a benefit on the other party.
ii. Two situations when you would come under reliance (instead
of expectancy):
1. Certainty Limitation
2. Contract for and end up in a losing contract.
a. Mistletoe Express Service v. Locke Court allows
reliance expenses even when the aggrieved party
would not have made any money because they did
not have the full year to actually perform, as
stipulated by contract, due to the breach.
iii. UCC technically does not allow for reliance expenses.
Restatement can come in to supplement.
iv. Cases:
1. Sullivan v. OConnor (Nose Job It did not work - still
ugly case) Court awards reliance and consequential
damages (other money you had to spend because of the s
breach).
C. Restitution: Put the breaching party in the position they would have been
in prior to contract formation. Take away the benefit that has been
conferred.
i. Non-breaching Party (Rest. 373): If the promisor/breaching
party has been unjustly benefited (given a benefit that they have
not paid for) then you are going to take that benefit away.
ii. Breaching Party (Rest. 374): Non-breaching party has been
unjustly enriched then the breaching party should receive
restitution.
1. Formula: Value of Benefit Conferred Damages they
owe
2. Two ways an aggrieved party can get out of paying
money to the breaching party.
a. Express Agreement
b. If the aggrieved party does not accept the benefit.
iii. Quasi-Contract: Asking the court to imply a contract even though
I know that there was no actual contract, so that I can get paid.
1. Distinction between types of contracts:
a. Actual Contract: Both parties expressly giving
their mutual assent to express terms of the
contract.
2. Contract Implied in Fact:
a. Stems from an actual contract.
b. Court is inferring this contract from the surrounding
circumstances of the contract.
3. Contract Implied in Law:
a. Does not stem from an actual contract.
b. Created by law to promote justice
23

4. Cases:
a. Cotnam v. Wisdom: Doctor sues mans estate to
recover for services rendered after being summoned
to the scene of an accident
i. Rule: When a doctor has been summoned,
they are using their professional skills and
knowledge to provide a service. When that
happens the law says that there is an
expectation of payment and the law will step
in and create this contract implied in law and
allow for the doctors to get paid.
b. Martin v. Little, Brown and Co.: Court refuses to
imply a contract because plaintiff volunteered his
services.
i. General Rule for implying a contract:
When you have one party volunteering their
services to help another person, the court is
not likely to imply a contract between the
parties.
iv. Policy: Fairness and Justice

24