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OUTLINE DETAILS: Author: Anonymous School:University of Michigan Law School Course: Contracts Year: Fall, 2003 Professor: James J. White Text: James J. White Coursepack (Fall 2003) Text Authors: James J. White
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CONTRACTS OUTLINE
I. A Roadmap for Contract Law.................................................................................................................. II. The Bargain Theory of Contract.............................................................................................................. A. Consideration....................................................................................................................................... B. Reliance................................................................................................................................................ C. The Restitution Interest....................................................................................................................... III. Negotiation and the Contract................................................................................................................... A. The Role of the Courts......................................................................................................................... B. Offer and Acceptance.......................................................................................................................... C. Negotiation and Closure...................................................................................................................... D. Good Faith in Contract Formation...................................................................................................... E. Problems with Standard Form Contracts............................................................................................ F. The Statute of Frauds........................................................................................................................... IV. The Content of a Contract........................................................................................................................ A. The Parol Evidence Rule and Reformation......................................................................................... B. Interpreting the Terms of the Contract................................................................................................ C. Implied Terms and the Implied Covenant of Good Faith................................................................... D. Express and Implied Warranties.......................................................................................................... E. Modifications....................................................................................................................................... V. Legal Regulation of Contracts................................................................................................................. A. Mistake of Fact.................................................................................................................................... B. Public Policy and Illegality.................................................................................................................. C. Unconscionability................................................................................................................................ VI. Remedies.................................................................................................................................................. A. Expectation Damages.......................................................................................................................... B. Mitigation............................................................................................................................................. C. Reliance Damages................................................................................................................................ D. Restitution Damages............................................................................................................................ E. Specific Performance........................................................................................................................... F. Liquidated Damages and Agreed Remedies....................................................................................... VII. Conditions................................................................................................................................................ A. Express Conditions.............................................................................................................................. B. Implied or Constructive Conditions.................................................................................................... C. Impossibility, Impracticability, and Frustration.................................................................................. VIII. Third Party Rights and Responsibilities.................................................................................................. A. The Assignment of Rights and Delegation of Responsibilities.......................................................... B. Suretyship and Guaranty Contracts.....................................................................................................
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Cases A.Z. v. B.Z., 431 Mass. 150............................................................................................46 Alabama Football v. Wright, 452 F.Supp 182.................................................................62 Angel v. Murray, 322 A.2d 630.......................................................................................42 Ardente v. Horan, 117 R.I. 254.......................................................................................20 Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584....................................22 Bailey v. West, 105 R.I. 61..............................................................................................17 Baker v. Bailey, 240 Mont. 139.......................................................................................32 Bank One v. Coates, 125 F.Supp.2d 819.........................................................................48 Board of Control of Eastern Michigan University v. Burgess, 45 Mich. App. 183........14 Brookside Farms v. Mama Rizzos, Inc, 873 F.Supp 1029.............................................43 C & J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169.........................27 C.R. Klewin, Inc. v Flagshp Properties, Inc., 220 Conn. 569.........................................29 Carnival Cruise Lines v. Shute, 499 U.S. 585.................................................................26 Carpenter v. Chrysler Corp., 853 S.W.2d 346.................................................................40 Centronics Corp. v. Genitron Corp., 132 N.H. 133.........................................................38 City of Kenai v. Ferguson, 732 P.2d 184........................................................................23 City Stores Co. v. Ammerman, 266 F.Supp. 766............................................................54 Clouse v. Myers, 753 S.W.2d 316...................................................................................45 Cohen v. Cowles Media Company, 479 N.W.2d 387.....................................................16 ConAgra, Inc. v. Nierenberg, 301 Mont. 55....................................................................29 Contemporary Mission v. Famous Music Corp., 557 F.2d 918......................................64 Davis v. Satrom, 383 N.W.2d 831...................................................................................19 Delchi Carrier SpA. v. Rotorex Corp., 71 F.3d 1024........................................................7 Donahue v. Federal Express Corp., 753 A.2d 238..........................................................39 Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333.........................................39 ePlus Group, Inc. v. Panoramic Comm., 50 UCC 2d 213 (2003)...................................56 Fertico Belgium v. Phosphate Chemicals Export Assn, 501 N.Y.S.2d 867...................51 Fiege v. Boehm, 210 Md. 352.........................................................................................13 Fisher v. Jackson, 142 Conn. 734....................................................................................14 Ford Motor Credit Co. v. Russell, 519 N.W.2d 460........................................................18 Freund v. Washington Square Press, 34 N.Y.2d 379......................................................49 Gardner Zemke Co. v. Dunham Bush, Inc., 115 N.M. 260.............................................25 Hadley v. Baxendale, 9 Exch 341 (1845)........................................................................51 Haines v. City of New York, 41 N.Y.2d 769..................................................................37 Hamer v. Sidway, 124 N.Y. 538......................................................................................13 Hamilton Bancshares, Inc. v. Leroy, 131 Ill. App. 3d 907..............................................21 Harrington v. Taylor, 225 N.C. 690.................................................................................15 Hill v. Gateway 2000, 105 F.3d 1147..............................................................................27
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Statutes Magnussen-Moss.............................................................................................................63 Restatement 145.............................................................................................................63 Restatement 261.............................................................................................................59 Restatement 346 (1)(a)(ii)..............................................................................................50 Restatement 346(1)(a)(i)................................................................................................50 Restatement 71(a)..........................................................................................................20 Restatement 76...............................................................................................................12 Restatement 76(b)..........................................................................................................13 Restatement 79...............................................................................................................12 Restatement 2d 1............................................................................................................12 Restatement 2d 110........................................................................................................28 Restatement 2d 131........................................................................................................29 Restatement 2d 139........................................................................................................30 Restatement 2d 151........................................................................................................44 Restatement 2d 152........................................................................................................44 Restatement 2d 153........................................................................................................44 Restatement 2d 154........................................................................................................44 Restatement 2d 175........................................................................................................13 Restatement 2d 20..........................................................................................................20 Restatement 2d 202........................................................................................................34 Restatement 2d 204........................................................................................................32 Restatement 2d 205..................................................................................................23, 38 Restatement 2d 211(3)...................................................................................................27 Restatement 2d 217........................................................................................................32 Restatement 2d 227(1)...................................................................................................59 Restatement 2d 230........................................................................................................37 Restatement 2d 237........................................................................................................60 Restatement 2d 24..........................................................................................................18 Restatement 2d 26 comment (c)....................................................................................19 Restatement 2d 30(1).....................................................................................................20 Restatement 2d 356........................................................................................................55 Restatement 2d 36..........................................................................................................19 Restatement 2d 360........................................................................................................53 Restatement 2d 42..........................................................................................................21 Restatement 2d 45..........................................................................................................21 Restatement 2d 45(1).....................................................................................................21 Restatement 2d 45(2).....................................................................................................21 Restatement 2d 59..........................................................................................................19
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Case Hamer v. Sidway Williams v. WalkerThomas Wood v Lucy Laclede Gas v Amoco
Key Terms Forbearance from a legal right Illusory No free way out Output K Requirement K Implied good faith effort At will employment Mitigation Foreseeability (Hadley v. Baxendale)
Expectation Damages
Buyer: 2-712- 2-716 Seller: 703; 704; 706; 708; 709 Buyer: Cost to complete Diminution in value Seller: ukp-cost avoided
Injunction (money insufficient) Unique good- cant be priced LDC 356; 2-718 Penalty Reasonable time period Put in position before K Break even rationale 20 201 219,220,221,222,232 24 41, 39, 59, 37, 30 2-207 Express terms Course of Performance Course of Dealing Trade Usage Mail box rule Auctions Bid chopping/shopping Counteroffer Notice Silence Past dealings Benefit conferred Integration Merger Clause
Offer Acceptance
Parol Evidence
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Issue Mistake
Case Sherwood v Walker (barren cow) Lenawee v Messerly (septic tank) Unilateral Mistake Lanci v. Met Ins. Co. Substantial Jacob &Young v. Performance Kent (wrong pipes)
Rule 152, 154, 2-313, 2-314, 2-315 153 2-601 (perfect tender); 2-508 (cure); 2-608 (revocation of acceptance); 2-612 (installment K) 227 (condition v. promise); 241; 242
Implied promise to meet condition- good faith Subjective and objective standard Implied promise to meet condition Material breach Substantial performance Mitigation, cover
Howard v. Fed. Crop Ins. (tobacco crop) K & G Construction co. v. Harris (workmanlike manner); Taylor v. Johnston
0100090000037800000002001c00000000000400000003010800050000000b0200000000050000000c02 8209da09040000002e0118001c000000fb021000070000000000bc02000000000102022253797374656d0 009da0900003f4600008c38110004ee8339c86820000c020000040000002d01000004000000020101001c 000000fb02c4ff0000000000009001000000000440001254696d6573204e657720526f6d616e0000000000 000000000000000000000000040000002d010100050000000902000000020d000000320a360000000100 040000000000d8097e0920d31b00040000002d0100000300000000000100090000037800000002001c00 000000000400000003010800050000000b0200000000050000000c028209da09040000002e0118001c00 0000fb021000070000000000bc02000000000102022253797374656d0009da0900003f4600008c3811000 4ee8339c86820000c020000040000002d01000004000000020101001c000000fb02c4ff000000000000900 1000000000440001254696d6573204e657720526f6d616e00000000000000000000000000000000000400 00002d010100050000000902000000020d000000320a360000000100040000000000d8097e0920d31b00 040000002d010000030000000000
2.Restatement
a)Restatement 2d 71(1) to find consideration there must be a performance or return promise which has been bargained for by the parties. b)Restatement 76 - Any consideration that is not a promise is sufficient to satisfy the requirement of 19 (c), except the following: (1)(a) An act or forbearance required by a legal duty that is neither doubtful nor the subject of honest and reasonable dispute if the duty is owed either to the promisor or to the public, or, if imposed by the law of torts or crimes, is owed to any person; (2)(b) The surrender of, or forbearance to assert an invalid claim or defense by one who has not an honest and reasonable belief in its possible validity; (3)(c) The transfer of money or fungible goods as consideration for a promise to transfer at the same time and place a larger amount of money or goods of the same kind and quality. c)Restatement 79 A promise or apparent promise which reserves by its terms to the promisor the privilege of alternative courses of conduct is insufficient consideration if any of these courses of conduct would be insufficient consideration if it alone were bargained for. (1)See Petroleum Refractionating Corp. v. Kendrick Oil Co., infra. d)Restatement 2d 77 Comment (a) Words of promise which by their terms make performance entirely optional with the promisor do not constitute a promise. e)Restatement 2d 79 - If the requirement of consideration is met, there is no additional requirement of 12
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(1)(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or (2)(b) equivalence in the values exchanged; or (3)(c) "mutuality of obligation." f)Restatement 2d 175 a contract is voidable by the victim if that partys manifestation of assent is induced by improper threat by the other party that leaves the victim no reasonable alternative. g)UCC 2-306 Output, Requirements, and Exclusive Dealings (1)A term that measures the quantity by output or requirements means actual output or requirements as may occur in good faith, cannot be disproportionate to a stated or implied estimate.
(3)Held: A benefit to the promisor () or a detriment to the promisee () is a sufficient consideration for a contract. Under Restatement 79, both need to be sufficient when promisor has alternative courses of conduct. got oil, and gave up the right to discontinue producing that grade of oil. Giving up a right is adequate consideration.
4.Options Contracts
a)Firm Offers under UCC 2-205 (1)An offer by a merchant which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the stated time (or reasonable time if not stated, no more than 3 months). Must be signed. b)Restatement 2d 87(a) (1)An offer is binding as an option contract if it
(a)is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or (b)is made irrevocable by statute.
(2)An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice. c)Board of Control of Eastern Michigan University v. Burgess, 45 Mich. App. 183 (1973) (1)Facts: entered a contract with for a nominal fee for the option to purchase s land. never actually tendered the money. When tried to execute the option, refused. (2)Issue: Is there consideration for the option? (3)Held: a dollar is valid consideration for options for the purchase of land. However, no consideration was received, so there was no option, but simply an offer by to sell, which is revocable.
5.Employment at Will
a)Permanent Employment is terminable at the will of either party without liability to the other. b)Fisher v. Jackson, 142 Conn. 734 (1955)
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(1)Facts: told to give up his job and work for (for less money) under an oral contract for life or until he was physically unable to work. complied and then was discharged. acts to recover damages. says the employment was not for life, but a permanent position as was advertised. (2)Result: giving up a job is not adequate consideration, but an incident necessary to accept the offer. (3)JJ suggests that the plaintiffs lawyer could have made more of the fact that he was giving up some salary. That could be consideration.
B.Reliance
1.Definitions
a)Equitable Estoppel is strictly, an estoppel which arises out of a persons statement of fact, or out of his silence, acts, or omissions, rather than from a deed or record or written contract. Equitable estoppel is available when one party knowingly misrepresents material facts that are then predictably relied upon by the other. The misrepresenting party is estopped from asserting facts that contradict its misrepresentations. b)Promissory Estoppel an equitable doctrine declaring that a promise which the promisor should reasonably expect [will] induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. Restatement 2d 90.
2.Holmes on Reliance
a)It would cut up the doctrine of consideration by the roots, if a promisee could make a gratuitous promise binding by subsequently acting in reliance on it. b)Some have argued that this prophecy has come true.
(2)Charitable subscriptions: A written promise to make a charitable contribution will generally be binding without consideration, under the P.E. doctrine. Here, the doctrine is watered down: usually the charity does not need to show detrimental reliance. (But oral promises to make charitable contributions usually will not be enforceable unless the charity relies on the promise to its detriment.) (3)Gratuitous bailments and agencies: If a person promises to take care of another's property (a "gratuitous bailment") or promises to carry out an act as another person's agent (gratuitous agency), the promisor may be held liable under P.E. if he does not perform at all. (However, courts are hesitant to apply P.E. to promises to procure insurance for another.) c)Quasi-contract - One party has something they were not entitled to in the first place, and in good conscience he should either return it or pay its value (doctor charging for reviving a person who passes out on the floor). The law implies a contract where no contract existed previously and dispenses relief according to that implied contract. The contract implied-in-law is a legal fiction imposed by the court to remedy injustice. d)Ricketts v. Scothorn, 57 Neb. 51 (1898) (1)Facts: is the executor. Testator promised to pay $2000 on demand so she wouldnt have to work.
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(2)Issue: There was no consideration, but relied on the money and quit her job. (3)Result: Because it would be grossly inequitable to permit to resist payment, should receive the payment. (4)JJ notes that while the court tries to fit this case to Equitable Estoppel, they actually created Promissory Estoppel because had misrepresented no facts. (5)Restatement 90 was borne in part from this case. e)Cohen v. Cowles Media Company, 479 N.W.2d 387 (1992) (1)Facts: gave facts pertinent to a story to when assured that would not share s identity. then printed s name in the paper, and was fired from his office. (2)Held: Although there was no contract, promissory estoppel barred from using s name, so damages are due.
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2.Sun Printing & Publishing Co. v. Remington Pulp & Paper Co., 235 N.Y. 338 (1923)
a)Facts: agreed to buy paper from for a period of months with the price for some months and the term of that price to be determined in the future. The price would not be higher than the current price listed by a particular third party. b)Held: was not bound because the fallback on the price term in the absence of agreement did not make up for the absence of a time limit. The contract was too indefinite. (Cardozo) c)Dissent (Strongly worded): The price was indeed definable. If on the deadline to determine a new price, could offer the 3rd party price, and is bound. The term issue could be resolved month-to-month and be within the contracts specs. (Crane)
2.Offers
a)An offer creates, in the offeree, a legal power of acceptance. b)Advertisements
(1)An advertisement constitutes an offer when it is clear, definite, explicit, and leaves nothing open for negotiation. (2)Ford Motor Credit Co. v. Russell, 519 N.W.2d 460 (1994)
(a)Facts: sold a car with a higher APR than was advertised. defaulted on the payments and sued for breach when gave them the higher APR. This is s countersuit. (b)Issue: Is an advertisement an offer? (c)Held: An advertisement is not an offer. Because not everyone qualifies for financing, and did not have an unlimited number of the car in question to sell, it was unreasonable for to believe that the advertisement was an offer binding the advertiser.
c)Quotes (1)Restatement 2d 26 comment (c): A quotation of a price is usually a statement of price per unit of quantity; it may omit the quantity to be sold, time and place of delivery, and other terms The word quote is commonly understood as inviting an offer rather than making one, even when directed to a particular customer In determining whether an offer is made, relevant factors include the terms of previous inquiries, completeness of the terms of the suggested bargain, and the number of people to whom the communication is addressed.
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(3)Both the UCC and the CISG are more liberal. d)Davis v. Satrom, 383 N.W.2d 831 (1986) (1)Facts: and were negotiating the sale of a mobile home park. sent an offer to who made mods and returned it to . and went back and forth again, and s final letter included a clause accepting the offer conditioned on his attorneys recommendation. sends a check to begin performance, but returns the check. wants specific performance. (2)Result: s mods resulted in a counteroffer, not an acceptance. s final response to s final response constituted the only acceptance, and those became the terms of the contract, including the attorney provision which was enforceable. Specific performance denied.
c)Oswald v. Allen, 417 F.2d 43 (1969) (1)Facts: tried to buy some of s coins. thought he was buying all the Swiss coins in her collection. thought she was selling the collection she calls Swiss Coin Collection, but not the Swiss coins that are parts of other collections. and entered a contract, but reneged when it was discovered that tried to collect more coins than she was selling. wants specific performance. (2)Held: There was no meeting of the minds, and thus no contract.
b)An offer may invite or require acceptance to be made by affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance. Restatement 2d 30(1). c)Revisit counteroffers and the mirror image rule, supra. d)Mailbox rule: the offer is effective upon proper dispatch. (1)An acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offerees possession, without regard to wheter it ever reaches the offeror Restatement 2d 63(a). e)Ardente v. Horan, 117 R.I. 254 (1976) (1)Facts: bid on s house for sale. After stated the offer was acceptable, prepared a sale agreement and sent it to along with a check. also sent a letter asking if certain furnishings were included. then refused to sell, returning the check. wants specific performance (2)Issue: was the letter a counteroffer, or an acceptance? (3)Held: s letter of acceptance was conditional, and therefore a counteroffer rejecting s offer. No contractual obligation was created.
6.Revocability of Offers
a)Restatement 2d 42 says an offerees power of acceptance is terminated when the offeree receives form the offeror a manifestation of an intention not to enter into the proposed contract. b)Look out for Firm Offer issues in UCC 2-205 however. c)Hamilton Bancshares, Inc. v. Leroy, 131 Ill. App. 3d 907 (1985) (1)Facts: and entered into two option contracts for stock for $1. While the $1 was never received, paid earnest money as a deposit towards purchasing the shares. claimed to withdraw the options, but moved to exercise them. wants specific performance for two stock options. (2)Issue: since $1 wasnt received, was this an offer (revocable) or a contract? (3)Held: The earnest money put as a deposit was consideration supporting the contract because it was detrimental to to do so. gave up the right to use that money elsewhere.
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(1)Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. Restatement 2d 45(1). (2)The offerors duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer. Restatement 2d 45(2). (3)The consequence of this is that the offeror is bound to the offer while the offeree is not. b)Offers Ambiguous as to Manner of Acceptance (1)An offer to make a contract shall be construed to invite acceptance in any reasonable manner. UCC 2-206(1)(a). (2)An offer to buy goods if ambiguous can be accepted either by a prompt promise to ship or by the prompt or current shipment of goods. UCC 2206(1)(b). (3)Where the beginning of a requested performance is a reasonable mode of acceptance, an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. UCC 2-206(2). (4)When an offer is ambiguous as to whether a promise or a performance constitutes acceptance, not only does the beginning or tender of performance c)Pavel Enterprises, Inc. v. A.S. Johnson Co., Inc., 342 Md. 143 (1996) (1)Facts: C solicited subcontractor bids to enter its own bid for a contract. S gave them a bid which C relied on in the creation of its bid. C initially lost the bid, but was awarded it when the winner couldnt perform. S then notified C that its bid was erroneous and too low and did not feel compelled to correct the error because C had not won the contract when the error was discovered. C sued to cover damages between the contract price and the price of a substitute subcontractor. (2)Issue: Is Ss bid revocable? (3)Result: Neither traditional K theory nor detrimental reliance theory upheld Cs request for damages. (4)Many states adopted Traynors view that a subs bid is irrevocable under R2d 90 (Promissory Estoppel) although the rule was criticized for its lack of symmetry, allowing the general contractor to bid shop. (5)CISG Art. 16(2)(b) holds an offer irrevocable if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. (No time limit!)
2.Agreements to Agree
a)Arnold Palmer Golf Co. v. Fuqua Industries, Inc., 541 F.2d 584 (1976) (1)Facts: solicited to merge. and negotiated and drafted a memorandum to be distributed by the press stating in part that counsel for and will proceed to make a definitive agreement containing details, and conditions obligation on completing such a definitive agreement. then declined to go forward with the deal. complains of breach of contract. (2)Issue: Is it a breach when there is simply an agreement to agree? (3)Result: The agreement to agree is upheld, obligating the two parties to make the detailed agreement. (Remanded for trial to see if the intentions were to be bound.)
3.Open Terms
a)Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. UCC 2-204(3) b)A contract can be valid even though the price term is left open, or is sbject to determination by one party or by a third party. UCC 2-305. c)City of Kenai v. Ferguson, 732 P.2d 184 (1987)
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(1)Facts: leased a plot of land from the city, for a term of 55 years where the rent was set by an escalation clause. The clause allowed for renegotiation every 5 years. For 10 years, the rent remained constant, and then the city demanded a 500+% increase (the highest use value) without negotiation. When didnt pay, sued for breach. (2)Held: Good faith is implied in every contract with open terms, and did not act in good faith. had the duty to negotiate, and the highest use value was inappropriate.
3.New England Insulation Co. v. General Dynamics Corp., 26 Mass. App. Ct. 28 (1988)
a)Facts: was invited by to bid on a contract. designed a solution to fit the needs that included confidential engineering ideas. then made s bid available to a 3rd company that got kickbacks from. b)Result: remanded for trial reversing the dismissal. The court held that the implied contract to perform in good faith meant that did not have the right to give the contents of the bid to third parties, and that they had the obligation to judge the bids fairly.
(3)Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
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d)There seems to be general agreement that 2-207 has not been a success. e)Important pieces: (1)Definite acceptance, or written confirmation (2)Does not expressly limit acceptance to the terms proposed (no conditional acceptance) (3)Does not materially alter the offer (4)Objection not received in a reasonable time (5)Conduct by both parties suggests a contract was intended (6)No unwillingness to proceed absent the terms f)Prototypical case: Gardner Zemke Co. v. Dunham Bush, Inc., 115 N.M. 260 (1993) (1)Facts: entered a K with to provide chillers for s DOEnergy contract. provided an offer on standard form, and responded with another standard form. s chillers were not to spec, sues for damages, but claims that their version of the K is controlling. (2)Issue: in using two different forms, was s acknowledgement of the K a counteroffer or an acceptance? (3)Result: Remanded to address questions that
(a) could reasonably believe that a K had been formed (b)When the offerees acceptance lists a term in conflict with the offer, neither is part of the contract, and general rules of fairness prevail.
c)Offer discusses an issue on which the acceptance is silent d)Acceptance and Offer deal with a particular issue in conflicting (different) ways (1)Majority view: KNOCKOUT RULE conflicting clauses knock each other out. Neither gets into the K. A UCC gap-filler is used in its place if available. Criticism: the knockout theory strips the offeror of writing the terms to which he will do business. (2)Minority view second forms term fails to have any effect. e)Acceptance recites terms that diverge so much from those contained in the offer (1)No contract is formed (2)In the usual purchase order-acknowledgement context the forms do not fail to give rise to a contract if they do not diverge as to price, quality, quantity, or delivery terms, but only as to the usually unbargained terms on the reverse side concerning remedies, arbitration and the like. f)Oral agreement, then one or both sends a confirmation which adds to or conflicts with the oral agreement (1)Additional terms in confirmation are treated just the same as if the offer was written. (2)Different terms the court will almost certainly say that the different term in the confirmation does not enter the contract. The Knockout rule will not be applied. g)The parties dont use forms, but exchange custom-drafted documents that differ. (1)No contract is formed
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5.Rolling Contracts
a)A Rolling Contract is one where a consumer orders and pays for goods before seeing most of the terms, which are contained on or in the packaging of goods. b)Hill v. Gateway 2000, 105 F.3d 1147 (1997) (1)Facts: orders and purchases a computer from by phone. Upon its arrival, the computer has a list of terms limiting liability that the customer must assent to or return the computer. When the computer doesnt work, complains of breach of warranty, and notes the arbitration clause. ( does not want to arbitrate.) (2)Issue: Since the terms were not read prior to purchase, are the terms controlling? (3)Result: By keeping the computer for more than 30 days, accepted the additional terms, and must go through arbitration. (4)This is a policy ruling and is very flawed. It uses ProCD as precedent (written by the same judge) and will not distinguish its facts from the instant case. Murray observes: The [7th Circuit] has provided particularly valuable insights in the interpretation of various provisions of UCC Article 2, many of which are cited elsewhere in this volume. The most charitable statement that can be made concerning the ProCD/Hill analysis, however, is that, even Homer nods. (Ouch.)
6. Reasonable Expectations
a)Largely confined to insurance cases.
b)Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement. Restatement 2d 211(3). c)C & J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169 (1975) (1)Facts: s business was burglarized and tries to recover their loss from , their insurer. and intended to exclude liability for inside jobs. The door was found to not be locked after the burglary. In small type, burglary was defined such that this loss was not covered. (2)Held: That had reasonable expectation to believe this was covered when he purchased the policy. Also, it was unconscionable that the fine print would overrule the reasonable meaning of the dickered terms. (3)Dissent: didnt read the contract, and thus shouldnt be liable for s lack of understanding.
2.UCC 2-201
a)Codifies the common law Statute, but adds that a contract for the sale of goods for the price of over $500 is not enforceable unless in writing and signed by the party against whom the enforcement is sought. (The new version set the limit at $5000.) b)2-201(1) adds that a writing is not insufficient because it omits or incorrectly states a term agreed upon but the quantity of goods transferred cannot be enforced beyond what is actually written in the contract.
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c)2-201(2) adds that between merchants, a confirmation in writing received in a reasonable amount of time when the party receiving it has reason to know its contents will satisfy the statute unless notice of objection is remitted within 10 days. (1)Illustration: Two parties, S and B, agree over the telephone the purchase of goods. S sends B a memo confirming the order. That memo is good against S for breach. That memo is also good against B if he is a merchant. The reason is that it would be unfair to S that he be bound to his word, but not B. B would be able to play the market otherwise with impunity. d)2-201(3) adds exceptions where the contract is enforceable even if it violates 2201(1) (1)if the goods are specially manufactured for the buyer that arent suitable for another buyer (2)if the party against whom enforcement is sought admits that a contract for sale was made (limited to the actual quantity in the writing) (3)if the payment has been made and accepted or received and accepted. (UCC 2-606)
d)The writing must state with reasonable certainty the essential terms of the unperformed promises in the contract. Restatement 2d 131. e)Migerobe, Inc. v. Certina USA, Inc., 924 F.2d 1330 (1991) (1)Facts: contracted to buy watches from for an afterThanksgiving sale. later backed out, and sued for breach of the oral contract and won. On appeal, argues that the Statute was violated. (2)Result: Court found that the integration of three documents, including two signed by were adequate to prove a contract had been formed and the Statute was not violated.
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(1)Facts: had a longstanding relationship with to provide oil based products. encouraged and assisted s entering the asphalt business and purchased all its asphalt from . When prices for asphalt went up during the oil crisis, promised that they would only raise prices on new Ks with . then raised prices anyway for existing Ks. (2)Result: Since the promise was not in writing, and the court will not allow promissory estoppel to trump the Statute, the court ruled for .
2.UCC 2-202
a)Final Written Expression: Parol or Extrinsic Evidence (1)Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
(a)By course of dealing or usage of trade or by course of performance (see UCC 2-208) and (b)By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.
b)Dont be fooled! The Parol Evidence Rule does not keep out terms that are added after the agreement is written.
3.Integration
a)Restatement 2d 210 says
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(1)A Completely Integrated Agreement is adopted by the parties as a complete and exclusive statement of the terms of the agreement. (2)A Partially Integrated Agreement is an integrated agreement other than a completely integrated agreement (3)Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of question of interpretation or to application of the parol evidence rule. b)Willistons view (1)Merger clause will conclusively establish that the document is a total integration, unless the doc is obviously incomplete. (2)Rest of Writing without a merger clause, if the doc is obviously incomplete, it is a partial integration, allowing consistent terms to be submitted from oral evidence. (3)Four Corners reasonable person standard looking just at the document. Would a reasonable person have put the terms of the alleged oral agreement in the document? c)Corbins view (1)The actual intention of the parties should be looked to in answering if it is a partial or total integration. (2)Corbin places less importance on the actual writing and more on the intent. The Corbin view comes close to eviscerating the parol evidence rule.
c)The term must not be contradictory to a term in the written document. A test in the 2-201 official comment is if the additional terms are such that, if agreed upon, they would certainly have been included in the document tin the view of the court, then evidence of their alleged making must be kept from the trier of fact. d)Masterson v. Sine, 68 Cal. 2d 222 (1968) (1)Facts: sells his interest in a TIC to a relative with the option to repurchase it later for the same price as given. then goes into bankruptcy. s trustee sues his relative to enforce the option. (2)Result: Parol evidence was allowed to determine what was meant by the unclear terms in the written contract. (3)IN CALIFORNIA, the parol evidence rule was greatly limited by this ruling. e)Hunt Foods & Industries, Inc. v. Doliner, 26 A.D.2d 41 (1966) (1)Facts: entered negotiations to purchase and agreed on all but a few points. When negotiations were recessed, and agreed to grant the option to purchase all of s stock to prevent from shopping for a higher bid. While not part of the contract, assured that the option was only to be used in the event solicited another bid, but then executed the option anyways. (2)Held: Additional terms, while oral, were not contradictory, but explanatory. Therefore, the parol evidence was allowed and s summary judgment denied.
6.Reformation
a)In an action for reformation of a contract, parol evidence is admissible to show the parties intent and a mutual mistake. The parol evidence rule is not applicable in suits for rescission or reformation of contracts. (Williston) b)Reformation of a written instrument will be decreed when the words that it contains do not correctly express the meaning that the parties agreed upon, as the court finds to be convincingly proved. (Corbin) c)Thompson v. Estate of Coffield, 894 P.2d 1065 (1995) (1)Facts: sold his land to retaining royalties for coal found under current valid, recorded leases. However, none of the current leases had been recorded. urges that reformation of the deed is required because the deed did not conform to the negotiations, intent, and knowledge of the parties. (2)Result: the case was remanded to determine what the true intent of the parties was. Parol evidence will be allowed.
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7.In sum
Is there an integrated agreement? NO Then Jury can hear the evidence YES Does the oral term directly contradict the written agreement? YES Then Jury can NOT hear the evidence NO Would the oral term naturally be omitted from (or is it in reasonable harmony with) the written agreement? YES Then Jury can hear the evidence NO Then Jury can NOT hear the evidence
2.Restatements
a)The restatements offer a lot of insight in interpretation. b)Restatement 2d 202 Rules in Aid of Interpretation (1)Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight. (2)A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together. (3)Unless a different intention is manifested,
(a)Where language has a generally prevailing meaning, it is interpreted in accordance with that meaning (b)Technical terms and words of art are given their technical meaning when used in a transaction within their technical field
(4)Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted to acquiesced in without objection is given great weight in the interpretation of the agreement. (5)Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade. c)Restatement 2d 203(a) an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.
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4.Parol Evidence
a)Parol Evidence is admissible to ascertain the true intent of the contractual parties even where the writing seems clear and unambiguous. b)Pacific Gas & Elec. v. G.W. Thomas Drayage & Rigging, 69 Cal. 2d 33 (1968) (1)Facts: promised to purchase insurance to indemnify [] against all loss, damage, expense, and liability resulting from injury to property, arising out of or in any way connected with the performance of this contract. damages the equipment, and sues for the insured damages. TC ruled for . (2)Issue: How should the court interpret the indemnity clause? Specific to 3rd parties damages, or inclusive of s? (3)Held: Traynor: The exclusion of s equipment could be justified only if it were feasible to determine the meaning the parties gave to the words from the instrument alone. Looking only at the plain meaning of contractual language ignored the possibility that the parties had contrary intentions. (4)Criticism: Kozinski of the 9th C complained that even when the transaction is sizeable and the parties are sophisticated, and the result is unambiguous, costly litigation cannot be avoided if one party has a strong enough motive to challenge the K.
5.Insurance Policies
a)Insurance companies will be held to higher standards in this case as well. Any ambiguity in the policy will be construed to favor the insured. Contra Proferentem b)Z.R.L. Corp. v. Great Cent. Ins. Co., 156 Ill. App. 3d 856 (1987) (1)Facts: operates a club that is insured by . A racial discrimination suit is brought against by a 3rd party for wrongful eviction and seeks to force to pay for the suit. (2)Held: Where language in an insurance policy is subject to different interpretations, such ambiguity is to be construed to favor the insured () not the insurance company, which drafted the policy.
(3)Course of dealing how a party has performed on similar contracts in the past can imply the meaning of how the contract was meant to be performed. (4)Trade practice local customs can imply terms in a contract. b)The risks of waiving your performance on express terms of the contract are great. If you do it systematically, it becomes your course of dealing. c)Nanakuli Paving & Rock Co. v. Shell Oil Co., Inc., 664 F.2d 772 (1981) (1)Facts: had a longstanding K with for the sale of asphalt supplies. (1963-1974). twice raised prices, but gave a warning and held the price constant for a few months. (2)Issue: Can local customs imply terms in a contract? (3)Held: Yes. There was overwhelming evidence that it was customary to practice price protection in the asphalt industry in Hawaii (Trade Practices). In past dealings, had price protected and given warning when the price was to go up. (Course of Performance). Ruled for . UCC 2-202 (4)Note: now the question becomes how prevalent must a practice be before it becomes a trade practice?
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2.Missing Terms
a)When a term is missing, a reasonable term may be inserted by the court, i.e. reasonable time is implied when a temporal term is missing. b)It is generally agreed that where a duration may be fairly and reasonably supplied by implication, a contract is not terminable at will. Restatement 2d 230. c)A contract is not voided by conditions that arise outside the contemplation of the parties after execution. d)Haines v. City of New York, 41 N.Y.2d 769 (1977) (1)Facts: was a developer that wanted to add a sewer system outside NYC in a town that had contracted with NYC in 1923 that all costs of construction and subsequent operation maintenance and repair shall be at the expense of NYC. The K also stated that it required NYC to extend the sewer lines when necessitated by future growth and building up of the communities. The sewer system is now at capacity, and further additions would be impossible without building a new plant. (2)Issue: K did not say for how long the K would be in effect, or what to do when it becomes impossible to add sewer lines. NYC argues it can terminate the K at will. (3)Held: The contracts missing time term should be added to be the reasonable time required to perform the contract. NYC is obligated to maintain the existing plant, but not to expand it.
(3)the price term is to be fixed to some 3rd party price index or market standard. c)Good faith rules apply. d)If the parties agree not to be bound without a price, there is no contract. Buyer must return all goods received or pay the reasonable value if unreasonable to return them. Seller must return prepaid money.
4.Good Faith
a)Summers: the obligation of good faith performance is better understood simply as excluding behavior inconsistent with common standards of decency, fairness, and reasonableness, and with the parties agreed-upon common purposes and justified expectations. b)Burton: Bad faith is the exercise of discretion for the purpose of recapturing opportunities forgone or bargained away at the time of contracting, with the identification of such forgone opportunities depending on objective analysis of the parties expectations as they may be inferred from the express contract terms in light of the ordinary course of business. c)Centronics Corp. v. Genitron Corp., 132 N.H. 133 (1989) (1)Facts: agreed to sell biz assets to . The purchase price was pegged at a value that arbitration was to determine. An escrow account held money from DD pending the results of the arbitration. (2)Issue: charged that was breaching the implied covenant of good faith when would not allow any money to be removed from the escrow before arbitration ended even though that money was going to be s after arbitration and that was belaboring the arbitration. (3)Held: had not asked for any clause in the K to allow them to pull any money out in the event of a long arbitration. had good faith reasons to want to keep the money in escrow until the end of arbitration. d)Four question test (1)Does the agreement ostensibly allow to or confer upon a degree of discretion in performance tantamount to a power to deprive the plaintiff of a substantial proportion of the agreements value? (2)If the ostensible discretion is of that requisite scope, does competent evidence indicate that the parties intended by their agreement to make a legally enforceable contract? (3)Assuming an intent to be bound, has s exercise of discretion exceeded the limits of reasonableness?
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(4)Is the cause of the damage complained of s abuse of discretion, or does it result from events beyond the control of either party, against which has no obligation to protect ? e)CISG contains no clause requiring good faith in the international sale of goods by merchants but most European codes have clauses closely following Restatement 2d 205 which implies the duty of good faith and fair dealing in every contract.
(2)Issue: argues that did not act in good faith in s termination and that P supplied sufficient additional consideration to be classed differently than an at-will employee. (3)Held: As a matter of law, an employee cannot maintain action for breach of implied duty of good faith and fair dealing insofar as underlying claim is for termination of an at-will employment. Superior performance is not good enough to be classed differently than an at-will employee because that is what is expected.
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(3)Note: look out for statute of frauds or parol evidence problems. This case had no SoF problems because it was a written contract with an oral supplement. No Parol Evidence problem because the written instrument was not a full integration. (4)The dealer could have protected himself from salesmens slips by putting an integration clause into the contract.
3.Implied warranties
a)UCC 2-314 on Implied Warranty of Merchantability and Usage of Trade (1)Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. See the statute for a description of what makes goods merchantable. b)UCC 2-315 on Implied warranty on Fitness for purpose (1)Where the seller at the time of contracting has reason to know any particular purpose for which the buyer is purchasing the goods and that the buyer is relying on the sellers judgment, there is, unless modified, an implied warranty that the goods will fit that purpose. c)Vlases v. Montgomery Ward & Co., 377 F.2d 846 (1967) (1)Facts: purchased 2000 chicks from . The chicks were then found to carry a disease that left them unsuitable for use. (2)Held: UCC 314 and UCC 315 hold. It doesnt matter that could not have known that the chicks were sick nor that took care in ensuring that the goods were quality. All that is important is that the goods were not. is in breach.
(1)Facts: approached about purchasing their electrodepositing system. then contracted to build the system. then experienced problems with the system that was unable to fix, including altering the original consumables. then removed s consumables and replaced them with another companys. then sues . (2)Result: is awarded $$. Reliance interest was formed when accepted the offer to provide a system. 2-316(2) applies as the implied warranty of fitness was cumulative to and not excluded by the express warranty. relied on s expertise in the area. 2-315. The question of the parties intent was a proper issue to reach the jury. e)Massey-Ferguson, Inc. v. Utley, 439 S.W.2d 57 (1969) (1)Facts: s dealer sold a combine. put $675 down, and financed the rest for $534.52 a year for the next 3 years. defaulted on the first payment and brings suit to recover the deferred payments. defends on breach of implied warranties of fitness in UCC 2-316. (2)Result: Affirmed the ruling for because the language that limited the implied warranties was not conspicuous enough. (3)Note: why is the manufacturer/financier losing? The court states that its conduct put it in the status of a seller and that its status as a seller outweighed its status as an assignee, and therefore did not entitle them to the protection of an assignee against defenses that derived from its actions as a seller.
E.Modifications
1.Generally
a)Usually, modifications of contracts are contracts themselves requiring consideration. (1)Preexisting duty rule: an agreement modifying a contract is not supported by consideration if one of the parties to the agreement does or promises to do something that he is legally obligated to do. (2)Courts are hesitant to apply this rule when unanticipated difficulties arise and the other party, not influenced by coercion or duress, voluntarily agrees to the amendments. b)UCC 2-209(1). (1)An agreement modifying a contract [for the sale of goods] needs no consideration to be binding. (2)A signed agreement which excludes modification or rescission except by a signed writing cannot otherwise be modified or rescinded, but except as between merchants, such a requirement on a form supplied by the merchant must be separately signed by the other party. 46
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(3)The requirements of the statute of frauds must be satisfied if the contract as modified is within its provisions (4)Although an attempt at modification or rescission does not satisfy the requirements of (2) or (3) it can operate as a waiver. (5)A party who has made a waiver affecting an an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. c)Angel v. Murray, 322 A.2d 630 (1974) (1)Facts: entered a K with the city to collect garbage for a fee. later asked the city to increase the fee paid to him to cover an unexpected increase in garbage to be collected. The city obliged. , a citizen of the city, sues , a garbage collector company for repayment of fees paid to the latter by the city claiming a lack of consideration. (2)Issue: is consideration necessary for modification? (3)Result: The volume of garbage had risen unexpectedly and substantially. The modification to the contract was made during a time when the contract had not been fully performed. Therefore, the decision to pay the additional fees was fair and equitable.
2.Oral Modifications
a)Oral modifications of contracts within the Statute of Frauds are not enforceable. b)Oral modifications that do not materially alter the underlying obligations may not be barred. Where one party relies on the other to reduce an oral agreement to writing, failure to do so will not prevent the relying party from taking the modification out of the statute of frauds. c)An oral modification may be valid on estoppel or statutory grounds. d)Brookside Farms v. Mama Rizzos, Inc, 873 F.Supp. 1029 (1995) (1)Facts: entered K with to sell basil as required. agreed to buy a minimum over a year. and agreed to a series of modifications over the months as s needs and financial situation changed. then bounced a payment check. brings suit because did not purchase the minimum amount over the year. counters that raised the prices in violation of the Ks express language that no modifications would be made unless in written form. (2)Held: While the Ks no waiver clause prevents oral modification, other legal theories (noted in (b) and (c)) allow for the modifications. breached, so is awarded damages.
2.Reformation
a)A court may reform the contract if parties orally agree to a deal and then mistakenly draft a document that incorrectly reflects the terms of the deal. b)A partys negligence does not prevent him from obtaining relief, even if he didnt read the contract. c)Parol Evidence may be allowed.
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(2)Held: Because and were violating the law when they entered the K, the action is denied. (see (a) above.)
2.Covenant Enforceability
a)A noncompetition covenant is okay if the enforcing agent can prove it is necessary for business interests. b)A covenant cannot deprive a community of a unique skill. c)A covenant cannot impose undue hardship on the terminating worker d)Geography constraints are upheld when the business serves a limited geographical area e)Time constraints should be reasonable related to the legitimate interest which the employer is seeking to protect. f)Hopper v. All Pet Animal Clinic, 861 P.2d 531 (1993) (1)Facts: worked for for a time under a K that disallowed her working as a small animal veterinarian within the 5 miles surrounding the city for 3 years. left and then worked at another animal hospital and depleted some of s business. (2)Issue: Are covenants such as these enforceable? (3)Result: The Court held that the 3 year duration was unreasonable, and reduced it to 1 year. The Court affirmed the remaining terms of the covenant.
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C.Unconscionability
1.Definition
a)Something is unconscionable if it is so unreasonably detrimental to the interest of a contracting party as to render the contract unenforceable. b)Procedural Unconscionability is concerned with unfair surprise, fine print clauses, mistakes, or ignorance of important facts or other things that mean bargaining did not proceed as it should. c)Substantive Unconscionability is an unjust or one-sided contract. d)An Adhesion Contract is one so heavily restrictive of one party, while so nonrestrictive of another, that doubts arise as to its representation as a voluntary and uncoerced agreement. Often a standard form printed contract prepared by one party and submitted to the other on a take it or leave it basis.
2.UCC
a)UCC 2-302 official comment The basic test is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses are so involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. b)Unconscionability is generally recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. c)Williams v. Walker-Thomas Furniture Co., 121 U.S. App. D.C. 315 (1965) (1)Facts: entered a contract with stating that payments on rent-to-own merchandise are to be applied equally to the outstanding balance of all debts owed pro rata. defaulted on a payment, and used this clause to repossess all the belongings with any outstanding debt, some having owed less than a dollar remaining. (2)Held: This is classic unconscionability. d)Many courts hold that there must be both procedural and substantive unconscionability present to establish a claim. e)Maxwell v. Fidelity Fin. Servs., Inc., 184 Ariz. 82 (1995)
(1)Facts: financed s purchase of a water heater for their $40k home. The heater cost $6500, and with 19% financing for 10 years, cost $15k. The heater didnt work. When financing was renewed, the balance was down to $5733. The K called for securing the payments with the home. argues unconscionability. argues novation and passing the statute of limitations. (2)Held: No one should be able to repossess a $40k house for nonpayment on a $6500 heater. This is substantively unconscionable. This court does not require both procedural and substantive unconscionability though.
3.Bargaining power
a)Courts are reluctant to accept pleas of unconscionability between merchants. (similar bargaining power) b)When gross inequality of bargaining power and a misunderstanding or unawareness of a provision is present, a court may invoke unconscionability. c)Langemeier v. National Oats Co., Inc, 775 F.2d 975 (1985) (1)Facts: entered a K to grow popcorn for . The K provided that could reject popcorn with defects including damage due to freezing weather. got s permission to proceed and plant. After a freeze damaged the corn, refused it, and sold it to another firm. had not told that the crop required an extra 20 days in the field, exposing it to the frost damage. (2)Held: the clause stating could reject the popcorn was unconscionable. (3)JJ: isnt this odd? Shouldnt you avoid using this case on the final? J Hint Hint
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VI.REMEDIES
A.Expectation Damages
1.Definitions:
a)This is a measure of the money damages available to plaintiff in an action for breach of contract based on the value of the benefit he would have received from the contract if had not breached, but had completed the performance as agreed. b)The amount is generally the monetary value of full performance minus the costs plaintiff avoided by not performing his own part of the contract. D = VFullPerformance Cavoided c)When the buyer breaches, the sellers expectation damages will ordinarily be the contract price less the cost saved. D = K - Cavoided d)When the seller breaches, the buyers expectation damages will be measured by the fair market value of the performance at the time and place of promised performance. D = VFairMarket
2.UCC Provisions
a)UCC 2-712 cover damages, damages for replacement goods b)UCC 2-713 damages for goods not delivered c)UCC 2-714 damages for goods delivered not to spec d)UCC 2-715 damages incidental to main e)UCC 2-715(2) damages consequential to main (as a result of bad goods, extra damages occurred) (Hadley v. Baxendale rule) f)UCC 2-717 - the buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.
3.General rules
a)No speculative damages. has to prove his damages with reasonable certainty.
b)The injured party should not recover more from the breach than he would have gained had the contract been fully performed. c) Common law alert: the common law did not recognize cover as a remedy. d)Specific performance is only awarded when damages are not adequate. e)Freund v. Washington Square Press, 34 N.Y.2d 379 (1974) (1)Facts: contracted with to publish his manuscript with a $2k advance upon receipt of the work and royalties on the copies. then decides not to produce his book. finds a different publisher and pays then to publish. sues for specific performance (denied at TC) and damages. (2)Issue: argues his promotion was delayed, he lost royalties, and he make other arrangements. (3)Result: Nominal damages only. was promoted anyways, royalties were speculative at best, and on the cost of publication, the injured party should not recover more from the breach than he would have gained had the contract been fully performed.
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6.Cost Plus
a)KGM Harvesting Co. v. Fresh Network, 42 Cal. Rptr. 2d 286 (1995) (1)Facts: S contracted to sell lettuce to B which would pass the lettuce to another buyer at cost plus. During a period of skyrocketing lettuce prices, S refuses to supply B with lettuce, forcing B to find another, more expensive supplier. (2)Issue: Why should B recover damages when they suffer no consequences of the breach? (3)Held: B should get the benefit of the bargain in all situations. (4)See Dorans note above.
7.Incidental Damages
a)Fertico Belgium v. Phosphate Chemicals Export Assn, 501 N.Y.S.2d 867 (1)Facts: B contracts with S to deliver fertilizer to Belgium which will then go to Iraq in two shipments paid by letter of credit. The first shipment will arrive late, so the second shipment is canceled. The first shipment is covered for $700k more. B then sells the first shipment when it arrives for $450k profit. (2)Result: B has to subtract the profit on the resale because he never would have had that profit were it not for the breach.
8.Consequential Damages
a)A plaintiff can only recover consequential damages when (1)They arise naturally from the breach itself (2)They arise from the special circumstances under which the contract was actually made if the special circumstances were communicated by to . Hadley v. Baxendale, infra. b)Hadley v. Baxendale, 9 Exch 341 (1845) (1)Facts: operated a mill that suffered a broken shaft. Manufacturer asked to send them the shaft. delayed in sending the shaft and as a result the mill was inoperable for longer than it had to be. (2)Issue: is liable for the lost profits suffered from their delay in shipment? (3)Result: owed no damages by the famous rule noted above that is now represented in UCC 2-715(2)
B.Mitigation
1.Definition
a)Mitigation of Damages is a requirement that one injured by reason of anothers breach of an agreement exercise reasonable diligence and ordinary care to avoid aggravating the injury or increasing the damages.
2.When Applicable
a)In general, the party that did not breach has the duty to mitigate in lessening the damages incurred by the other party, and not increasing their damages. b)UCC 2-709(1) Action for the Price when the buyer fails to pay, the seller may recover the price of goods accepted or of conforming goods lost or damaged within a reasonable time after risk of loss has passed to the buyer or goods identified to the contract if the seller cant reasonably resell them. c)A seller only has the duty to mitigate when loss could be avoided with reasonable effort and without undue risk, expense, or humiliation.
3.Siemens Energy & Automation v. Coleman Elec. Supply Co, 46 F.Supp.2d 217 (1999)
a)Facts: was a distributor of s products. was late on its payments to . tried to return some goods to , but refused them in favor of money. sues for such money. argues that their duty to mitigate suggests they should have to recover the goods.
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b)Issue: does have the duty to mitigate? c)Result: No. UCC 2-709(1) holds.
C.Reliance Damages
1.Definitions
a)Incidental damages include losses reasonably incident to a claim for actual damages. These would include things like expenses incurred in inspection, receipt, transportation, and care and custody of goods rightfully rejected(UCC 2-715 buyers) or any commercially reasonable charges, expenses, or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyers breach in connection with return or resale of the goods (UCC 2-710 sellers) b)Consequential damages are those which are caused by an injury but which are not a necessary result of the injury. Because they do not necessarily flow from the injury, they must be specially pleaded and proven.
2.Availability
a)Reliance Damages may be limited to the expectation of complete performance.
3.UCC
a)UCC 2-715 Buyers Incidental and Consequential Damages. (1)Incidental damages resulting from Sellers breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected. (2)Consequential damages resulting from the sellers breach include
(a)Any loss resulting from general or particular requirements and needs that the seller was told or would have reason to know (b)Injury to person or property proximately resulting from any breach of warranty.
b)UCC 2-710 - Sellers Incidental Damages (1)Incidental damages to an aggrieved seller may include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care, and custody of goods after the buyers breach, in connection with return or resale of gods or otherwise resulting from the breach.
D.Restitution Damages
1.
E.Specific Performance
1.Definition
a)This is an equitable remedy available to an aggrieved party when the partys remedy at law is inadequate forcing the party in breach to undertake to perform or complete performance as prescribed by the contract.
2.Availability
a)Specific Performance is only available in common law jurisdictions when other remedies are inadequate or where damages are impractical. In civil law jurisdictions however, it is usually available before other remedies are used. b)Contract has to describe a performance so specific that other remedies would be inadequate. Having indefinite terms however does not bar a courts use of specific performance. (See City Stores, infra.) c)Common law usually decrees specific performance for land contracts because each plot of land is considered unique unless the difficulties of supervision outweigh the importance of specific performance to the P. (Especially true for construction on D controlled land because P cannot employ another contractor at Ds expense.)
3.Restatement
a)Restatement 2d 360 says: In determining whether the remedy in damages would be adequate, the following circumstances are significant: (1)the difficulty of proving damages with reasonable certainty, (2)the difficulty of procuring a suitable substitute performance by means of money awarded as damages, and (3)the likelihood that an award of damages could not be collected.
4.UCC
a)UCC 2-716 says that (1) Specific Performance may be decreed when goods are unique. Additionally, (3) the buyer has the right of replevin goods identified to the contract if cover is attainable with reasonable effort, or if circumstances reasonably indicate that such effort will be of no avail.
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2.Enforceability
a)In order for such a provision to be enforceable, the liquidated damages must be reasonable in light of (1)A forecast of the damages likely to actually result from the breach (2)Difficulties in proof of loss (3)Inconvenience or infeasibility of otherwise obtaining an adequate remedy b)If these conditions are met, liquidated damages clauses establish a maximal liability. c)If these conditions are not met or if it otherwise appears that the clause was included to deter a breach rather than by a good faith effort to estimate probable damages, the provision will be considered punitive and unenforceable. (This does not exclude normal damage calculations.)
3.Restatement
a)Restatement 2d 356 (1)Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty. (2)A term in a bond providing for an amount of money as a penalty for nonoccurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such nonoccurrence. b)
4.UCC
a)UCC 2-718 (1)Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm, the difficulties in proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. Unreasonably large liquidated damages are void as a penalty. b)UCC 2A-504 Liquidation of Damages (leases) (1)Damages payable by either party for default, or any other act or omission, including indemnity for loss or diminution of anticipated tax benefits or loss or damage to lessor's residual interest, may be liquidated in the lease agreement but only at an amount or by a formula that is reasonable in light of the then anticipated harm caused by the default or other act or omission. (2)If the lease agreement provides for liquidation of damages, and such provision does not comply with subsection (1), or such provision is an exclusive or limited remedy that circumstances cause to fail of its essential purpose, remedy may be had as provided in this Article. (3)If the lessor justifiably withholds or stops delivery of goods because of the lessee's default or insolvency (Section 2A-525 or 2A-526), the lessee is entitled to restitution of any amount by which the sum of his [or her] payments exceeds:
(a) the amount to which the lessor is entitled by virtue of terms liquidating the lessor's damages in accordance with subsection (1); or (b) in the absence of those terms, 20 percent of the then present value of the total rent the lessee was obligated to pay for the balance of the lease term, or, in the case of a consumer lease, the lesser of such amount or $500.
(4)A lessee's right to restitution under subsection (3) is subject to offset to the extent the lessor establishes:
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(a)a right to recover damages under the provisions of this Article other than subsection (1); and (b)the amount or value of any benefits received by the lessee directly or indirectly by reason of the lease contract.
c)UCC 2A-528 - Lessor's Damages for Non-acceptance, Failure to Pay, Repudiation, or Other Default. (1)Except as otherwise provided with respect to damages liquidated in the lease agreement (2A-504) or otherwise determined pursuant to agreement of the parties (1-102(3) and 2A-503), if a lessor elects to retain the goods or a lessor elects to dispose of the goods and the disposition is by lease agreement that for any reason does not qualify for treatment under 2A-527(2), or is by sale or otherwise, the lessor may recover from the lessee as damages for a default of the type described in Section 2A-523(1) or 2A-523(3)(a), or, if agreed, for other default of the lessee, (i) accrued and unpaid rent as of the date of default if the lessee has never taken possession of the goods, or, if the lessee has taken possession of the goods, as of the date the lessor repossesses the goods or an earlier date on which the lessee makes a tender of the goods to the lessor, (ii) the present value as of the date determined under clause (i) of the total rent for the then remaining lease term of the original lease agreement minus the present value as of the same date of the market rent at the place where the goods are located computed for the same lease term, and (iii) any incidental damages allowed under Section 2A-530, less expenses saved in consequence of the lessee's default. (2)If the measure of damages provided in subsection (1) is inadequate to put a lessor in as good a position as performance would have, the measure of damages is the present value of the profit, including reasonable overhead, the lessor would have made from full performance by the lessee, together with any incidental damages allowed under Section 2A-530, due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition. d)Liquidated damages should not put the lessor in a better position than it would have been in had the lease been fully performed. UCC 2A-504 e)A contract aloowing the lessor to collect the present value of all future rent and the present value of the equipments fair market value at the end of the lease while permitting the lessor to sell the repossessed equipment immediately without providing the lessee with any credit for the proceeds of the sale violates UCC 2A-504. f)ePlus Group, Inc. v. Panoramic Comm., 50 UCC 2d 213 (2003) (1)Facts: entered a master lease agreement with with a K that included a liquidated damages clause. The lease was then modified to include a co-lessee. eventually breached. sues for $1.1M, reduced from $1.2M by a credit for the releases and sale of returned equipment.
(2)Issue: the liquidated damages clause stated that will credit the Net Proceeds to damages owed by . Damages were the amount of money left on the lease, while net proceeds were the value or re-leasing or selling the equipment. The value left on the lease was much greater than the value in re-leasing or selling the equipment. (3)Result: The court ruled that the liquidated damages clause may be unreasonable (so refused to grant summary judgment on its enforceability).
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VII.CONDITIONS
A.Express Conditions
1.Definitions
a)A condition is something attached to an agreement, the occurrence of which will trigger the performance of a legal obligation. A condition is not a promise. Failure to meet a condition is not a breach. b)A condition precedent is a fact which must exist or occur before a duty of immediate performance of a promise arises. The party to whom a duty is owed must prove the occurrence in order to compel the other party to perform. c)A condition subsequent is a fact which will extinguish a duty to make compensation for a breach of contract after the breach has occurred. d)A concurrent condition is a condition precedent which exists only when parties to a contact are found to render performance at the same time. The party owing the duty must prove the condition has occurred to discharge the duty.
3.Restatement view
a)See Howard v. Federal Crop Insurance Corp., 520 F.2d 695, on p.99 (1)Facts: Due to heavy rains, s tobacco crop was damaged and unusable. plowed and disked the land so he could plant a cover crop. When tried to get an insurance claim, , his insurer denied the claim because they had not inspected the damage. The K said in one paragraph it shall be a condition precedent to the payment of any loss [that the insured provide info regarding the loss] and in the next [the crops] shall not be destroyed until the Corporation makes an inspection.
(2)Issue: Is the latter paragraph a promise or a condition? If it is a condition, its violation results in s forfeiture of coverage. If it is a promise, may recover damages from for the elimination of the crop but does not cause a forfeiture of the policy. (3)Held: If the policy was intended for the latter paragraph to be a condition, it would have been labeled as such like the other paragraphs were. Therefore, this paragraph is a promise, and has not forfeited the policy. b)Restatement 261: Promises and Conditions: Where it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise; but the same words may sometimes mean that one party promises a performance and that the other party's promise is conditional on that performance. Illustration: An insurance company A issues B a policy containing the clause In the event of disagreement as to the amount of loss it shall be ascertained by two appraisers and an umpire. The loss shall not be payable until 60 days after the award of the appraisers when such an appraisal is required. This provision is a promise to arbitrate AND makes the award conditioned on As duty to pay upon disagreement.
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(1)Issue: Did the contractor have the right to refuse progress payments when a condition of the contract was not met? Did the subcontractor have the right to refuse to perform when the contractor stopped paying them? (2)Held: Mutually dependent promises. Contractors refusal to pay did not relieve Subs duty because it was the Sub that breached in the first place. c)Restatement 2d 237: Except as stated in 240, it is a condition of each partys remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. Illustration: A contracts to build a house for B for some amount, with progress payments while A is building. For no reason, B fails to remit a progress payment, and A opts to suspend building. Bs failure is an uncured material failure. A is not in breach, and B has no claim against A. A has a claim against B if it is damaged by the delay. However, if B makes a delayed payment and it is not too late to cure the material breach, As duties are not discharged.
b)This is covered under UCC 2-609: (1) a contract for sale imposes an obligation on each party that the others expectation of receiving due performance will not be impaired. So, when a party has reason to believe that the contracts performance is in jeopardy, he may demand in writing assurance, and may if commercially reasonable, suspend performance for which he has not already received the agreed return. Merchants must use commercial standards as grounds for reasonableness. 2609(2). Acceptance of improper delivery or payment does not preclude the use of this in the future. (No waiver.) 2-609(3). A party receiving such a demand has repudiated the contract if he does not respond with assurances in a reasonable time not exceeding 30 days. 2-609(4). This clause was an attempt to battle problems with anticipatory repudiation. A lawyer may erroneously signal to his client that the other party has breached, and instruct him to cover his losses. At that point, his client may have breached if the other party actually hadnt. (1)Pros: instead of immediately putting the client in a situation where he may cause a breach, a lawyer can force the other party to give assurances that he will continue to perform as contracted, and then wait the month. (2)Cons: introduces problematic concepts that may extend the weaseling a couple more moves.
(a)What are reasonable grounds for insecurity? (b)When has a party given an adequate assurance of due performance? (c)When is it commercially reasonable to suspend performance while awaiting assurance? (Remember the repudiatee is only authorized the suspension of performance for which he has not already received the agreed return.
c)See Koch Materials Co. v. Shore Slurry Seal, Inc., 205 F.Supp.2d 324. (1)Facts: D, a construction company has entered a contract with P to provide asphalt as required. Then, D writes P saying that he is selling the company to a third party. P demands assurances that D will continue the contract, and D does not respond with assurances. (2)Result: P had good reason to ask for assurances under 2-609, and D violated it when he did not respond. Summary judgment is granted.
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2.UCC 2-614
a)Substituted Performance when the agreed performance is unavailable due to unforeseeable contingency, but another alternative is available, the substitute must be tendered and accepted. (1)Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted. (2)If the agreed means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyer's obligation unless the regulation is discriminatory, oppressive or predatory. b)But, take note that the buyer of services can say that fixed fees inherently are allocation of risks and as such, the buyer should not have to pay more for the services substituted for the services.
3.UCC 2-615
a)Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable. c)The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer. d)What is impracticable? (1) e)But, again, take note that the buyer of services can say that fixed fees inherently are allocation of risks and as such, the buyer should not have to pay more for the services substituted for the services.
4.Long term contracts are the ones that will cause this affect the most. 5.Alabama Football v. Wright, 452 F.Supp. 182 (1975)
a)Facts: hired to play football for them, and gave a $75k signing bonus. When and the league folded, requested remit the $75k. countersued that failed to provide him with a forum to perform the contract. b)Result: was allowed to keep the $75k as it was consideration for a performance actually did: sign the contract. was not granted any damages in the countersuit because it was impossible.
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Magnussen-Moss
Fill in Later
UCC 2-318
A natural person is a human. A person as compared to a natural person may include a corporation. Three options to the states in implementation: A sellers warranty (express or implied) extends Alternative A: to the immediate family or household or guest of the buyer if it is reasonable that such person would be injured by breach. (Seller cannot exclude.) Alternative B: to any natural person who would reasonably be expected to use the goods and could be injured by breach. (Seller cannot exclude.) Alternative C: to anyone who would reasonably be expected to use the goods and could be injured by breach. (A seller may not exclude or limit the operation of this section with respect to injury to the person of an individual to whom the warranty extends.)
2.Assignment of payment
a)Usually no one will mind if the rights to payment are assigned. (This is the usual case.) b)An exception may be an assignment of payments from a manufacturer to a bank. (1)If the recipient of goods has a problem with the goods, they may lose their ability to sway the manufacturer to fix the problem if the payment had been assigned. Holding back payment as a threat wont work against a bank; they will just repossess the goods.
3.Delegation of Duties
a)A party delegating is contractual duties is still liable to the original party it contracted with if the delegated party does not perform correctly. b)Contemporary Mission v. Famous Music Corp., 557 F.2d 918 (1977) (1)Facts: , a group producing music sold its rights in return for royalties to , a distributor. then assigned its record division (and s music) to a 3rd party. When the 3rd party refused to participate in part of the contract, sued . (2)Issue: Who is liable for the breach? (3)Held: is liable for any obligation that was not fulfilled, even after assigning responsibilities or performance to the 3rd party. c)A party may assign but the new party must grant adequate assurance that it will perform under the agreement. d)UCC 2-210 deals with assignment of duties. (1)Also look at UCC 9-404 (p 806) in short is that the assignee takes subject to the defenses that the assignor had. So, the assignee needs to make sure the assignor performs in some cases. e)UCC 3-305 Defenses and Claims in Recoupment (under Negotiable Instruments)
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(1)Except where otherwise provided in this section, the right to enforce the obligation of a party and pay an instrument is subject to the following:
(a)Infancy of the obliger, duress, lack of legal capacity, or illegality of the transaction, fraud, insolvency
f)In re Nedwick Steel Co., 289 B.R. 95 (2003) (1)Facts: before bankruptcy, B was the exclusive distributor for N. Now bankrupt N wants to assign its duties of performance to a third party W whence the original creditor B does not want the assignment to occur because it feels W is a competitor to B. (2)Held: W was a direct competitor to B thus clearly increasing the risk imposed on B. B had the right to refuse the assignment, and did so. (3)Borrowed: Sally Beauty, 801 F.2d 1001, 1006, held that the duty of performance under an exclusive distributorship cannot be delegated to a direct competitor without the obligors consent because such an agreement does not bargain for best efforts of his competitor when the contract was entered into.
2.Beware of statute of frauds issues with surety contracts. UCC 2-201 3.If the underlying obligation is secured by a security interest in collateral and the oblige impairs the value of that interest, the secondary obligation is discharged to the extent that such impairment would otherwise increase the difference between the maximum amount recoverable by the secondary obligor pursuant to its subrogation rights and the value of the secondary obligors interest in the collateral. Restatement 3d 42 (Suretyship) 4.National Surety Corp. v. United States, 118 F.3d 1542 (1997)
a)Facts: backed the performance of D for the government. When D failed to perform, completed the work as contracted. As part of Ds contract, D was required to have 10% retainage kept from his payment until satisfactory performance was completed. Government did not actually keep the retainage, but since there was no completion, is suing the government for the retainage which it was entitled to. b)Result: Govt was liable for improper release of retainage; release did not implicitly modify the contract; failure to notify govt of Ds default did not affect s right of subrogation; damages were not to be based on full retainage amount but on s actual damages.
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