UCC Provision Elaboration/Common Law Differentiation
1-107: GF applies. Under CL, Accord (offer to accept something new and different) and Satisfaction
(Acceptance) required there be more than just a mutual agreement (signed and in GF) to terminate the
contract—must be a new and different consideration, otherwise, the preexisting duty is violated. A & S
is still valid under the CL (take this instead of this). 1-201: Signed also means electronic signatures;
anything that can reasonably authenticate that it came from a particular source. 1-203: A failure to
perform or enforce in GF, a specific duty or obligation, constitutes a breach. Also consider 1-208
(option to accelerate at will must be done in GF (Deere) 1-205: Important during interpretation (bring in
extrinsic facts, parol evidence). Course of dealing is more important than usage of trade, because the
former shows how the parties treated the contract in the past. 1-207: Under the CL A & S conditional
check scenario, the UCC “reservation of rights” is not valid because an “early” full payment is valid
(based on new & different consideration). 2-104: Merchant: A person who deals in goods or holds
himself out as having knowledge and skill about the goods. 2-105: Goods: All things movable (must be
identified & existing—not a “future good”; a present sale of a future good is a contract to sell) other
than money & investment securities. “Goods” includes unborn animals, growing crops, and things that
can be severed from realty (timber). Also covers tangible copyrights. 2-106: Contract: Limited to the
present or future sale of goods. Sale: Passing of title from seller to buyer for a price. FORMATION OF
A CONTRACT 2-201: Under the CL SOF, the following must be in writing: 1) executor/admin. of a
will promises to pay damages out of his own pocket, 2) a promise to guarantee the debt of another, 3)
sale of land (party to be charged is seller in TN), 4) any agreement incapable of being performed within
a year (must specify a time or it will be considered within SOF, no matter how unlikely). Other
exceptions listed above. Remember, for those contracts required in writing, a sufficient connection
between multiple documents that include the material terms & the party to be charged (person against
whom the contract is sought to be enforced) is sufficient. 2-202: The UCC is broader than the CL; as
long as there is no integration clause, course of dealings and usage of trade can be used for
interpretation. Compare CL, Lath: If there is a written agreement, the ability of the parties to vary the
terms of the “4 corners” with any prior or contemporaneous agreements is limited. If 3 conditions are
met, contemporaneous or pre-existing agreements may be admissible. The agreement must (1) in form
be a collateral one (related but different); (2) it must not contradict express or implied provisions of the
written contract; and (3) it must be one that parties would not ordinarily be expected to embody in the
writing. An integration clause would eliminate this exception (makes acceptance a mirror image of
offer; not favored in consumer setting). If no integration clause, a court will determine whether the
contract was intended to be the full understanding between the parties (can find full or partial).
Remember, if an agreement was made after/subsequent the final integration, the agreement is a
“modification”, which is not subject to the parol evidence rule. Instead, make sure the modification is
supported by consideration and there are no SOF violations. See below. 2-204: Very broad; make sure it
is consistent with 2-201: an oral contract and conduct might indicate a sale of goods over $500 but may
violate SOF. 2-205: Under CL, an ordinary offer can be revoked, retracted, or expire through time (mere
nundum pactum); however, an offer supported by consideration (or estoppel) is irrevocable during the
stated period. 2-206: Under CL, acceptance must mirror the offer, or else it is a counter-offer which can
then be accepted or rejected by the original offeror. 2-207: See above/below. 2-208: See above. 2-209:
Under CL, there must be consideration for a modification. Under the UCC, as long as it is signed by
both parties and done in GF and there are no SOF violations, no consideration is required for the
modification.
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1st SEMESTER: MUTUAL ASSENT: Objective perceived manifestation to be bound is all that
matters. OFFER: An offer is an expression of present willingness of an intention to be bound that is (1)
definite, leaving nothing open to negotiation and (2) enables a reasonable person to believe he can
conclude a bargain simply by saying yes (power of acceptance). Generally, the offer must include the 1)
subject matter of the proposed bargain, 2) the price, and 3) the quantity involved (this one must always
be present). ACCEPTANCE: The general rule is acceptance as well as revocation must be
communicated to be effective. Notice of acceptance is always essential when an offer calls for a return
promise from the offeree. Where an offeror requests an act, the act performed becomes the requisite
overt manifestation of assent if done intentionally (no notice required; part performance makes an offer
irrevocable if full performance completed within a reasonable time). The mailbox rule is the exception
—whenever an acceptance is specified to be made by post or return letter or anything that specifies it
being placed out of the possession of the offeree back to the offeror, when that occurs, acceptance is
effective on dispatch. COUNTER OFFERS: For contracts other than the sale of goods, CL dictates
that an acceptance that does not “mirror” the offer (by different or additional terms) is invalid. It simply
becomes a counter-offer that destroys the initial offer and which can then be accepted or rejected.
BATTLE OF FORMS 2-207: Look for an exchange of forms. Two ways we can perform a contract
under 2-207: 1) oral conversation and then memorandum 2) exchange of non-identical forms—where
the parties agree on certain terms (e.g., price, quality of steel) the terms remain, but where they don’t
agree (breach of warranty, doing away with damages) we treat them as proposals for additional terms.
Additional terms are part of the contract unless 1) the offer expressly limits acceptance to the terms of
the offer 2) the additional terms materially alter it or 3) the offeror notifies the offeree within a
reasonable time that he objects to the additional terms. DEFECTIVE AGREEMENTS: Mistake is
where an expression is susceptible to two reasonable meanings, and each party understands the
expression differently; the offeror offers one thing, the offeree expresses his assent to another.
CONSTRUCTION OF CONTRACTS 2-302: The court may refuse to enforce the contract, enforce it
without the unconscionable clause, or limit it to avoid a certain result. 2-305: Under the CL, the contract
is probably not enforceable unless you can show an appropriate mechanism. Under the UCC, if the
parties intended it to be that way, it can be that way. In such a case, the open price must be a reasonable
price (consider 2-208). 2-306: These contracts normally would not be enforceable because of mutuality
of obligation, but are under the CL and the UCC because of GF. An agreement by either the seller or the
buyer for exclusive dealing imposes unless otherwise agreed an obligation by the seller to use best
efforts to supply the goods and by the buyer to use best efforts to promote their sale.” 2-312: Title
conveyed shall be good; free of security interests. 2-313: Express warranties are created by description,
statement, sample, or model; cannot exclude express warranties under 2-316. 2-314: The good that is
sold must be re-sellable. 2-315: Important; in a consumer context, an express repudiation of this
warranty is invalid; must be fit to serve its purpose. 2-316: See above. BREACH, REPUDIATION,
AND EXCUSE (consider conditions) 2-601: If the goods of delivery fail in any respect to conform to
the contract, the buyer may a) reject or b) accept the whole, and c) accept any unit or units and reject the
rest. 2-602: Rejection of goods must be within a reasonable time after their delivery and buyer must
seasonably notify the seller. 2-603: Buyer must follow reasonable instructions of the seller regarding
rejected goods; buyer entitled to reimbursement for caring and or selling (if perishable or subject to
rapid decline in value) them. 2-606: See above. 2-609: Important; This tells how to put a merchant on
notice that the goods do not comply; the effect is “to box them into repudiation.” 2-610, 2-611:
Important; When a promisor repudiates a contract, the injured party can: 1) treat the repudiation as an
anticipatory breach and immediately seek damages for breach of contract, thereby terminating the
contractual relation between the parties (either 2-703 or 711), 2) or he can treat the repudiation as an
empty threat, wait until the time for performance arrives and exercise his remedies for actual breach if a
breach does in fact occur at such time. However, if the repudiation is retracted prior to the time of
performance, then the repudiation is nullified and the injured party is left with his remedies, if any,
invocable at the time of performance. Misc. Notes: Mere expression of doubt as to inability to perform
is not enough; anticipatory repudiation must be unequivocal; the remedy is “assurance” in this situation.
2-615: The key to excuses is forseeability; if it is, then it is going to be difficult to excuse it. SELLER
REMEDIES 2-702: Upon discovery of insolvency, seller may refuse delivery except for cash including
payment for all goods; or may recover all goods upon demand within 10 days of receipt if payment was
made on credit. 2-703: See Above. 2-708, 2-709: Where the seller has an unlimited number of goods
(unlike a piece of land which is unique, cannot be duplicated), he should have the benefit of every
bargain he receives (because of loss of volume). The recoverable damages in the case of a contract are
such as may reasonably be within the contemplation of the parties. Leases of land and apartments fall
under this section as well. 2-710: Damages for transport, stopping delivery, care of goods after breach
BUYER REMEDIES 2-711: Buyer can cover or seek specific performance. See Above/below. 2-713:
See Above/below. 2-715: Incidental damages involve any expenses incurred in inspection, receipt,
transport, or care of any goods rightfully rejected. Consequential damages include any loss resulting
from requirements that the seller at the time of contracting has reason to know and which could not be
covered by cover or otherwise and any injury resulting from any breach of warranty.
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Where express conditions are involved, waiver is associated with the following recurring fact
patterns, aptly illustrated by insurance contracts: 1) Plaintiff insured has not satisfied an express
condition that notice will be given within 30 days after a covered accident, but Defendant
insurer, with full knowledge, elects to process the claim rather than to deny payment. Because of
the “election” after the condition has failed, the insurer cannot thereafter insist upon the
condition. 2) Immediately after the accident, Defendant insurer tells plaintiff insured not to
worry about the 30 day notice condition. Relying on this, Plaintiff submitted the notice 45 days
of the accident and defendant refused to process the claim. The condition is waived because
Plaintiff materially changed (estoppel) his position in reliance of defendant’s representation. 3)
After the plaintiff has substantially performed the contract, the defendant insists that it will not
insist upon a non-material condition. The condition is waived without “election” or “estoppel.”
More broadly, when one party has promised or represented that he will not insist on express
conditions, “waiver” becomes a judicial device where an agreed modification cannot be found. A
contract term that prohibits a non-written modification can be waived without a writing under
CL and maybe under UCC 2-209. WAYS TO GET BY CONDITIONS: Exceptions: 1) Is it an
independent promise disguised as a condition? 2) Is the contract divisible? (however, the
presumption is that it is a whole contract and not divisible) 2) Substantial performance (GF
requires the payor to use reasonable discretion—must not be illusory) 3) Quantum Merit (but the
party must receive the benefit that they expected) 4) Modification & Waiver 5) condition
precedent does not work with labor contracts (unless contracted) and Excuses: Impracticability
(an event that the parties did not contemplate would occur, the occurrence of which completely
prevents performance): existing (“let’s go to the world trade center today”) & supervening (“we
booked in July 2001”); Force Majeure (contract for specific instances), and Frustration of
Purpose (could do it, but the purpose for the agreement is gone; was the foundation of the event
the contract?). Market fluctuations are no excuse (unless contracted). A divisible contract is
Reformation is preferred, but mutual mistakes are voidable (remember, it must be a 1. material
mistake 2. no element of risk involved or else it is just a bad bargain 3. no as-is clause or else you waive
any implied warranty). Unilateral mistakes are usually not voidable because the unmistaken party would
be disadvantaged. If there is an error in document transmission, the party that selected the means of
communication shall be responsible for the mistake. An unmistaken party has no duty to investigate.
One who errs in preparing a bid for a government works contract is entitled to the equitable relief of
rescission if he can establish the following conditions: (1) the mistake is material; (2) it would be
unconscionable if enforced; (3) the mistake did not result from negligence (instead it was clerical or
inadvertent); (4) the party to whom the bid is submitted will not be prejudiced except by the loss of his
bargain; and (5) prompt notice of the error is given. An apparent bargain will not be enforced if found
too indefinite. However, if the contract is indefinite but there is an intention to be bound (always
consider GF), the courts might fill in the gaps (UCC or otherwise). So, if something is missing “inside
the box” you can look “outside the box” for price (if totally silent), pricing mechanisms (for a “fair
share of the profits”), and time (a reasonable time). CONSIDERATION: Consideration is about (1)
bargained for exchange (in the instant or future) that results in either (2) a benefit or a detriment (in the
instant or future) for one party or the other (courts will not look at the adequacy or attempt to reform
consideration). If one of these elements does not exist, then no consideration. When you have a situation
where you both go in with honest expectations of some benefit, and the benefit does not happen, there is
still consideration. Stated differently, if both parties based a promise or forbearance on a bona fide
question (and thus leading to a bargained for exchange), although it might eventually be found that there
was no fact question at all, then the contract may be enforced on a GF claim and consideration is given.
PREEXISTING DUTY: Even though there is a bargained for exchange for the subsequent contract,
there is no benefit/detriment for that contract because they want to pay X for something they already
had a preexisting duty to do (which was a contract to pay Y). To make the subsequent contract binding,
they should have said, “Well, we are having a hard time and cannot pay the rent, so we will pay the rent
early or wash the floors.” To impose liability on a subsequent contract, a (different) benefit/detriment
must arise to constitute a valid and independent consideration. As long as there is something new and
different, that is all that is required. MUTUALITY OF OBLIGATION/GOOD FAITH: An illusory
promise is a statement that has the form of a promise, but is not a real promise in substance. A real
promise limits one’s future options whereas an illusory promise is an apparent commitment with a “free
way out.” Example: “We have a contract for 2 years, but I can terminate it at anytime.” GF can make an
otherwise illusory contract enforceable because both parties are expected to use their best efforts (real
estate, exclusive dealings contracts). Also consider GF in LOI’s and condition precedents; if you
promise to do something and you do not (bring it to the BOD for review), then you have breached the
duty of GF. MORAL OBLIGATION: Generally, moral obligation is not a valid consideration.
However, it may be binding if there is a preexisting obligation that has become inoperative as a result of
positive law such as debts incurred by infants, the SOF, SOL, and bankruptcy. There had to have been at
one time a preexisting legal obligation such as one implied at law or an express agreement that is now
barred. An express promise thereafter will reaffirm the obligation! In other words, if you say I will
repay that credit card debt after they decide not to collect anymore, then you are morally bound to repay
the amount. Material Benefits Rule: Where the defendants have received something from the promisee
of value in the form of money or other material benefits under such circumstances as to create a moral
obligation to pay for what they received, and later promise to do so, there is consideration for such
promises. The circumstances must be such that it is reasonably to be supposed that the plaintiff expected
to be compensated in some way. Ex: An uncle gives his nephew money for a legal education, and
expects him to come back to town to work. At the end of the schooling, the nephew says I am not
coming back but I’ll reimburse your money, but doesn’t. This agreement, based on that earlier moral
obligation, which materially benefited you, is a perfect example of the material benefit rule.
ESTOPPEL: Promissory estoppel states that a promise (a future one) is binding if the person who
made it could reasonably expect another to rely upon it in a substantial way, and the promisee did rely
on it. The promisor is estopped from denying the existence of a contract, even though it is not
formulated in the normal way. The vital principle of equitable estoppel is that he who by his conduct
(statement of an existing fact or past fact or conduct that one sees—not a promise) leads another to do
what he would not do otherwise have done (makes them change their position), shall not subject such
person to loss or injury by disappointing expectations upon which acted. AVOIDANCE: If the contract
is good (sufficient terms, consideration or its substitute, it is in writing if it needs to be), but the court
will not enforce the contract, it is called avoidance. 3 reasons: 1) something wrong with the parties
(infant, temp. incapacitated, incompetent, drunk) 2) defects in the bargaining process (mistake, fraud),
or 3) impermissible terms in the contract (unconscionable, illegal). Fraud is an intentional and willful
(mens rea) misrepresentation made to deceive which causes the offeree to change their position. You
can also have constructive fraud (lawyer, accountant, etc) where any representation made, even if not
made with willful intent, is not made with great care and is considered to be fraud. Undue influence is
(usually happen with elderly, diminished capacity, doctor/patient situation) where they are going to rely
on anything you say. There is no duty to disclose/fraud if information was open to everyone (and you
did not investigate). There is a duty to disclose when 1) disclosure is necessary to prevent a previous
assertion from being false 2) disclosure would correct a mistake of a basic assumption of the other party
and 3) the other person is entitled to know because of a relationship of trust between them.
FORMATION LIST: Does the offer (definite, nothing open to negotiation, acceptor simply can say
yes) cross tracks with acceptance (timely, before revocation, proper form, no deviation from offer unless
UCC) to form an agreement? If so, does any material defect happen before or exactly at (but not after)
the intersection of offer and acceptance that destroys the contract: fraud, illegality, MISTAKE, capacity,
or undue influence? Finally, ask if there is any glue (consideration, estoppel, GF) that can bind the
tracks and make it enforceable. 2nd SEMESTER: ILLEGALITY: Always can raise illegality;
the court will not knowingly aid an illegal transaction; if plaintiff cannot open his case without
showing illegality, the court will not assist him. Ex: An electrician that wires your house but has
no license; the contract is illegal & void; however, argue unjust enrichment/quantum merit
(reasonable value of services rendered). Agreements beforehand to limit the liability of
inherently dangerous products or harm caused intentionally/recklessly are not enforceable even
if technically valid. Non-compete covenants (employment & sale of businesses); the latter is
often enforced even if broad in geography & time (negotiated consideration). The former often
violates public policy (limits livelihood). However, employers have rights to proprietary
information (customer lists, patented tech.). Courts will uphold these covenants if 1) they are
limited in duration & 2) geography (consider employer coverage). TN uses GF approach: court
remakes & limits to GF expectations of both parties. PAROL EVIDENCE: Parol evidence will
be admitted if you can show 1) there was another agreement (consider Lath), 2) interpretation is
needed because of ambiguity (face or wording), or 3) for showing fraud, illegality, duress,
mistake, or lack of consideration. These are all ways to try to vary “the box.” Under the UCC
version, prior course of dealings is key; a contract is always construed against the drafter; Ex: if
an ambiguity in an insurance adhesion contract, the court will test the meaning of the policy
according to the insured’s reasonable expectation of coverage. CONDITIONS: Not all promises
are conditions, but all conditions are promises, the occurrence or non-occurrence which must
occur 1) before a party has a duty to perform (e.g., get financing) or 2) releases/extinguishes a
party from its duty to perform under a contract (e.g., fix the roof or no payment). Conditions can
be express or implied (e.g. implied notice). To identify a condition, look for terminology that
attempts to allocate risks between the parties; differently, a promise is a promise to restrain or
perform some designated act. If the promise is dependent (my promise to paint is contingent on
you providing supplies—if I don’t perform my promise, you don’t have to perform your
promise) it is a condition (with the longest promise going first); if they are mutual promises
(irrespective of who is supposed to go first) to be performed at the same time (one is selling
property and another buying; one is conditioned upon the other but must happen at same time) it
is a condition; and third, if promises are independent of any obligation, then it is a promise and
not a condition and an error/omission results in damages, not an excuse of performance. Courts
will tend to construe something as a promise if there is serious doubt as to whether it is a
promise or a condition (potential for egregious forfeiture); however, promises in general
(especially in a series) are almost always construed as dependent because a party should not be
forced to pay out his money unless he can get that for which he stipulated; the general rule is full
performance or no payment (e.g., if my promise to build X is independent of your duty to pay,
you would have to pay even if I did not finish the job); ultimately, it depends on the intention of
the parties and how the contract is drafted. CONDITIONS DIFFER FROM WARRANTIES:
A warranty is an independent promise; you are promising that something will be in a certain
condition. In Re Carter: a sale of a business was “warranted” to be in a certain condition (if it
was not in a certain condition, damages could be taken from an escrow). However, there was
also a condition precedent that stated that if and when a buyer elected to consummate a sale, it
waived its right to the warranty. The seller won. CONDITIONS, WAIVERS, &
MODIFICATIONS: Since a condition is a term of the contract, it can be deleted or modified by
a subsequent agreement between the parties. If, however, the condition is a material part of the
agreed exchange, the agreement must satisfy the usual requirements for an enforceable
modification, including, on occasion, consideration (services or sale of land requires something
new and different, but not the sale of goods: 2-209). It is asserted, however, that a condition can
be excused by conduct by one party to the contract which falls short of an agreed upon
modification (put it in the contract, only argue waiver if you have to). A word used to describe
this situation is waiver, which is defined as “the voluntary relinquishment of a known right.”
where a whole performance is divided into two sets (or more) of partial performance, each part
of each set being the agreed exchange for a corresponding part of the set of performances to be
rendered by the other promisor; if payments have been made in the past, the battleground will be
on whether the previous payments were merely convenient times for payment. Foreseeability
eliminates all excuses, including mistake, impracticability, and frustration of purpose—but not
force majeure (because you foresee acts of nature, strikes, etc., but you contract by saying “I am
excused from performance if.” The cutting edge of GF is whether or not there is a duty of GF to
modify the contract in light of changed circumstances (anything under 615). Probably not.
Dunbar case: The defendant is a jobber/wholesaler; he actually owns the commodity and then
resells it to the ultimate buyer (important in asserting warranties). Differently, a broker will not
take title; he will arrange the sale but does not own the commodity—consequently, all the risk
passes completely by him. In this case the defendant/jobber says I will supply you with X tons. A
jobber can be long or short—it just depends what the price is (speculation): long (you contract
for the sale and you have plenty of the commodity) and sometimes you might be short (have less
or none at all at the time of contracting). The defendant/jobber names the manufacturer: the
usual run from a particular company. This is key; if had not done that, he was absolutely short.
By naming the manufacturer it became a condition precedent: I have to get it from this
manufacturer, and if I can’t because they didn’t produce enough, I am excused. Unfortunately,
the condition was not expressly stated in the contract; they argue that it is implied and lose.
Bottom line: name the source! GOOD FAITH: Three times we have GF: 1) formation
(negotiating), 2) termination (agreements, employees), and 3) you deserve discretion in
condition precedent during contract performance. The best example of doing something not in a
GF manner is to do something which violates the honest expectations of the parties. The burden
falls on the party claiming protection under the condition precedent. Reid/John Deere: 1-208 A
term providing that one (1) party or his successor in interest may accelerate payment "at will" or
"when he deems himself insecure" shall be construed to mean that he shall have the power to do
so only if he in GF believes that the prospect of payment is impaired. The burden of establishing
lack of GF is on the party against whom the power is exercised. The UCC makes clear that
acceleration under section 1-208 may not be exercised at the "whim or caprice" of a party; the
GF standard is intended to curb the possibility of abuse. A debtor's proof that the prospect of
payment was not, in fact, impaired will not alone prevent enforcement of an insecurity clause if
the creditor had reasonable grounds to believe that it was. In the absence of material evidence of
a lack of GF, a party's reasonable, honest belief will suffice. Other material factors include
knowledge of the insecure circumstances at the time of contracting, his knowledge of facts that
contradict the negative information acquired, the nature and value of the collateral, any deceit or
outrageous conduct in the course of the whole transaction, including repossession, an abrupt
departure from an established course of dealing, e.g., Reid. The "insecurity clause" in John Deere
and Reid was an after-the-fact defense, not an honest-in-fact motivation. Reid involved a
demand note (immediate compliance), where GF does not apply because its very nature permits
call at any time without reason. How did the court get around this and manage to find there was
a duty of GF? Because the demand note had default provisions. Thus, it was not a demand note
at all; if there is a provision that says that the note can be called on demand, but other language
which talks about reserved discretion or default (conditions that said he would be “in default if”,
which labors against the fact it was a demand clause which could be exercised at the bank’s
whim)—then you risk the chance that it will be converted into some other type of contract.
TERMINATION & GOOD FAITH: Two types: mutual termination (under UCC as long as
they agree in GF (and signed) to mutually terminate, no new consideration required, 1-107
applies to all transactions!; CL still requires consideration); unilateral termination: while there is
a presumption that employment is terminable at will, that presumption may be superseded by a
contract, express or implied, which limits the employer's right to discharge the employee—if you
start adding conditions to employment (similar to Reid), you begin to labor against an employee
at will status. BREACH: See 2-610/611. The non-breaching party has no duty to cover or
mitigate if he does not accept the repudiation and waits for performance. If he does accept it, he
must mitigate or cover. In the event he waits for an ACTUAL breach, the buyer must cover and
sue for direct damages or recover the difference between the contract price and the market price.
McDonalds case (prospective inability to perform) Instead of repudiating the contract outright,
McDonalds deems itself “insecure” to performance. Insecurity must be stated in writing to the
other party that you are worried that they cannot perform. What happens then? You have shifted
the burden to them. They have a reasonable time, up to 30 days, to convince you that they can
perform, and if they cannot, you have boxed them into repudiation. Remember, you cannot
pretend to be worried—in other words, GF applies. You can prove your insecurity by bringing in
an expert. Plotnick case: Seller’s excuse here, if any, must be found in reasonable apprehension
“insecurity” as to the future of the contract engendered by buyer's behavior. A failure to pay
timely one installment, when there is a whole history of a failure to pay one installment and also
a history of a failure to ship on time (a series of waivers), does not become a material breach
when one party sues on that basis. A material breach goes to the heart of the contract.
DAMAGES: Types of compensatory damages: His expectation (called contract damages)
interest, which is his interest in having the benefit of his bargain by being put in as good as a
position as he would have been in had the contract been performed. His reliance interest, which
is his interest in being reimbursed for loss caused by reliance on the contract by being put in as
good a position as he would have been in had the contract not been made, or his restitution
interest, which is his interest in having restored to him any benefit that he has conferred on the
other party. Differently, rescission and reformation are used when contracts are not validly
formed. The general rule is that punitive damages/mental anguish are not allowed in contracts
(unless it was foreseeable). In cases of fraud, it comes down to what the intent was at the time
the performer made the statements (usually during formation); if he later decides to deviate from
the contract, it is not fraud but bad faith. Damages for breach or repudiation by Payor: In order
to get damages, you need to prove them with reasonable certainty (e.g., PV analysis). If you are
representing the seller, you want to communicate that you will be severely injured if the deal
does not go through; this will solidify expectation damages. The measure of damages for the
breach of an agreement to purchase real property is the difference between the contract price and
the fair market value on the date of the breach (CP-MV). New Era case: Service Contracts:
Contract damages = Contract Price (CP) – Cost of Completion (also less any payments already
made). In this case, he was not entitled to contract damages because the whole job was a
condition precedent; thus, he could only sue in quantum meruit (reasonable value of services put
in—which is really restitution). You can only get quantum meruit/restitution by proving that
there was a benefit bestowed upon the other party. Also see loss of volume above. Damages for
breach or repudiation by Performer: The general rule in cases of faulty construction is that the
measure of damages is the market value of the cost to repair (cover) the faulty construction; the
dimunition in value, used in Jacobs & Kent, only applies when there has been substantial
performance on the part of the performer and the error is small and insignificant. Consequential
Damages: Four basic elements: 1) were the losses a foreseeable consequence of the breach at
the time of contracting (prior course of dealings), 2) could damages have been mitigated by
purchasing substitute goods, 3) can damages be proved with reasonable certainty, and 4) if
profits are too speculative, can they recover reliance expenditures? Consequential damages flow
from a breach as a result of the buyer’s particular circumstances (in the ordinary course or in
special circumstances). You must communicate the special circumstances; put them on notice!
Typically, consequential damages consist of lost profits; however, lost profits are recoverable
only if the loss could not be reasonably prevented by cover or otherwise (hard for new
businesses to prove). BAD FAITH & SPECIAL RELIEF: Consider the bad faith buyer case
(buyer competes with her own real estate agent), the not bad buyer case (if you operate “short”,
it is foreseeable you might not be able to perform), and the Penzoil case, intentional interference
with a contract (3rd party will be liable for treble damages). Contract damages are the norm in
contracts, but sometimes you can get an injunction, which is an order by the court to do
something or not (e.g., specific performance). In order to get this, you must show special and
unique circumstances (tomato case). Specific performance is unavailable for personal services
contracts, but you can prevent them from doing the job elsewhere (Wolf). Liquidated damages
will usually be upheld unless they are viewed as penalty. 3rd PARTY INTERESTS: Assignment
of contractual rights is presumed. Consider the risk of the assignment (might cause invalidation
because it varies promisor risk). Personal service contracts are not assignable. Contracts may
limit assignments (restrictive covenants) Types of assignment: 1) A/R (common, car loan,
wages) & 2) A/P (unusual, Fitzroy case). Anti assignment clauses are valid but unusual
(Painter/Allusen case). 3rd PARTY BENEFICIARIES: Anytime the parties agree that a 3rd
party is the intended beneficiary of the agreement, that third party, whether they are aware or
unaware of the original contract, may enforce the agreement. As long as there was an intention to
benefit some person or some class, the beneficiary does not have to be named.