Contracts II Outline

Damages

§347:

Formula for computing Ps expectation damages:

General Measure = loss in value + other loss – cost avoided – loss avoided

Only the first 2 terms apply in a partial breach.

Loss in value:

the value to the injured party of the goods that were to have been tendered
Other loss:

Incidental damages: additional costs incurred after the breach in a reasonable attempt to avoid loss,
even if unsuccessful.
Consequential damages: injury to person or property caused by the breach.
Cost avoided:

Breach may have had a beneficial effect on the “injured” party by saving further expenditures that
would have otherwise been incurred.
Loss avoided:

Beneficial effect by allowing the party to avoid some loss by salvaging and reallocating some or all of
the resources that otherwise is would have had to devote to performance of the contract. (Leftover
materials)

Hypo:

Contract to sell computer for $450.

Computer is delivered, no payment is made.

$450 will be given to the seller.

Payment is made, computer is not delivered.

Value of the computer + (any other loss)

Market value is higher than contract price.

Entitled to get the market value.

Payment is not made at the time of the seller’s breach.

Difference between the market value of the computer and the contract price. (Value – savings)

Turner v. Benson (Tennessee 1984)

Ps entered into a contract to sell their house that was used for a daycare for $75, D failed to show up at
the closing. Ps sued for specific performance filed, house sold to a 3rd party for $76T.
The proper amount of damages for a breach of contract in a real estate contract is the difference
between the contract price and the fair market value at the time of the breach. Any other damages must
have been within the contemplation of the parties at the time the contract was formed.
General Damages: difference between the contract price and the fair market value.
Special Damages: other losses.

UCC 2-708:

Seller’s damages are for the difference between the market price and the contract price together with
incidental damages (2-710), but less the expenses saved from the breach.
UCC 2-713:

Buyer’s damages are for the difference between the market price and the contract price together with
any incidental and consequential damages (2-715), but less expenses saved.
UCC 2-706 (1): Seller’s resale:

Damages measured by difference between contract price and resale price.

UCC 2-712 (1):

Buyer to “cover” her loss by purchasing substitute goods and to measure her damages by the difference
between that price and the contract price.

Cover allows for a more concrete idea of what the value of the substitute is. Must be bought in good
faith and in a reasonable manner, does not matter if in hindsight the purchase was the cheapest.

Handicapped Children’s Education Board v. Lukaszewski

D worked for the P for 10,760, she then took a job closer to home for 13T, P refused to let the D out of
her contract. D then had health problems because of it. D left, Ps had to hire another person for about
1T more and sued for damages.
Non-breaching party is entitled to full compensation for the loss of their bargain.

As long as the damages were within contemplation of the parties at the time of the contract formation.

American Standard, Inc. v. Schectman

Ps hired the Ds to complete grading of land and to take down certain foundations. Ds did not do this
and claim that the proper value of damages is the difference in price between the property value and the
fair market value without the completion.
Where the contractor’s performance has been defective or incomplete, the reasonable cost of
replacement or completion is the measure. §346.
When there has been substantial performance of the contract made in food faith, but defects exist,
which would result in economic waste, the damages should be measured as the value of the property as
constructed and the value if performance has been properly completed.

Must be in good faith.

Factors: for determining cost to complete or difference in value.

1. Idiosyncratic Value

More value cuts in favor of awarding cost to complete damages.

2. Deliberateness of the Breach
3. Whether the breach was incidental.
4. Economic Waste

Practicability of repairing.

§348(2):

If the loss in value to the injured party is not proved with sufficient certainty, damages may be
measured by either (a) the diminution in market value or (b) by the reasonable cost of completing
performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss
in value to him.

FORESEEABILITY

Hadley v. Baxendale

Ps broke one of their crank shafts, employed the D to get them a new one and told them they needed it
immediately. D did not deliver immediately. P is suing for lost profits.
The amount which would have been received if the contract had been kept, is the measure of damages
if the contract is broken.

Either must arise naturally from such breach of the contract itself, or such as may reasonably be
supposed to have been in the contemplation of both parties, at the time they made the contract.

General Damages:

Damages that occur naturally as a result of the breach. (Difference in contract price and fair market
value, etc.)
Consequential Damages:

Damages that flow specially. (lost profits, injury to person or property, etc.)
§351 and UCC §2-715(2)

Recoverability of consequential damages depends on whether such damages were in the contemplation
of the parties at the time they made the contract. Must have a “reason to know.”
Based upon the breacher’s knowledge and foreseeability.
Only necessary that the type of loss be foreseeable, and not the manner in which the loss occurs.
Must be foreseeable and probable in case of a breach.

Florafax International, Inc. v. GTE Market Resources, Inc.

There must be a preponderance of the evidence to suggest that such damages were actually suffered.
§351(3)

A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing
recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice
so requires in order to avoid disproportionate compensation.

DUTY TO MITIGATE

Rockingham County v. Luten Bridge Co.

P and D entered into a contract to build a bridge, shortly after construction, P changed their minds, but
the Ds continued to build the bridge and sued for breach and damages incurred even after the contract
was breached.
After the breach of a contract, the non-breaching party has a duty to mitigate damages, instead of
continuing the contract.

Hypo:

A and B enter into a contract for B to paint As house for $300. Expenses incurred at the time of breach
is $120, but B continues to work and completes it. Can B sue A for $300?

B should not be able to “pile on” damages. B will only get the expenses incurred up to the breach and
the profit he would have realized, $180.
§350:

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

Boehm v. American Broadcasting Co

An employer can cut off their liability if they unconditionally offer the same or a comparable job to the
P and the P rejects it.

HYPO:

A is employed by B as a bus driver under a 1 year contract for $36T. 6 months into the contract B fires
A without justification. After a week a rich man offers him a job to work as a chauffer job for a salary
of $30T per year. A turns that job down. What damages can he get from the school district?

B will argue that the position offered us a substantially similar situation. A would then get $3T in
damages.
A will argue that the jobs were dissimilar and would therefore be entitled to $18T is damages.

EFFICIENT BREACH

Hypo:

A to sell computer to B for $450. C offers $1000 for the computer. Cover price $600.
B should be able to get $150 from A. A would still get $850 from the second contract. $400 more than
the original contract.
Hypo:

I order 100,000 widgets to be custom ground. After I get 10,000, my machine collapses.
Supplier is notified before he has begun the grinding of the other 90,000. He intends to continue the
grinding.

Would waste resources. Seller would not be compensated for any further work through the mitigation
of damages.
Hypo:

100,000 widgets ordered, after 50,000 production is suspended. I insist that the original supplier
complete his performance.

Supplier will have to make arrangements with other suppliers to complete the transaction.

RELIANCE AND RESTITUTION

Walser v. Toyota Motor Sales, USA, Inc.

P was the open a car dealership and entered into negotiations. P was told that he was formally
approved. Mistake was made and letter was not approved. P then sued under promissory estopple.
Damages in a promissory estoppel claim will be limited to out of pocket expenses incurred.

Hypo:

A is offered a job by B. Starting date 1-1. She moves to NY, finds an apartment, shows up on the first
day of work only to be told that the law firm no longer can hire her. Can she sue them for breach of
contract?

If her job is an at will employment contract, then there is no expectation damages.

She would need to sue based on reliance.

Moved to NY and incurred expenses.

United States ex. rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc

Blair entered into a contract with the USA to build a naval hospital. Blair hired Coastal Steel as a
subcontractor. Coastal terminated performance after 28% was done. Blair hired a new subcontractor to
finish the job.
A subcontractor who justifiably stops work on a contract may recover under quantum meruit.

§373:

1. Where the other party has repudiated or breached, then the non-breaching party can either sue in
restitution or for total breach of the contract. Subject to:
2. The injured party cannot sue in restitution if its performance under the contract is complete and the
only thing left to do is collect monetary compensation.

Lancellotti v. Thomas

P agreed to buy a business and equipment from the D for $25T payable on signing, and the promise
that he would own and operate the business, and would build an addition 16x16 for at least $15T. P
was unable to get the permit to build it and did not pay rent for one of the months. D is suing.
A defaulting purchaser of a business who has also entered into a related lease for the property can
recover part of his payments made prior to the breach under §374.

§374:

1. The party in breach is entitled to restitution for any benefit that he has conferred by way of part
performance or reliance in excess of the loss that he has caused by his own breach
2. Party is not entitled to restitution if the value of the performance as liquidated damages is reasonable
in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss.
UCC 2-716: Buyer’s right to specific performance or replevin:

1. Specific performance may be decreed where the goods are unique or in other proper circumstances.
2. The decree for specific performance may include such terms and conditions as to payment of the
price, damages, or other relief as the court may deem just.
3. May recover if he cannot “cover” his purchase in a reasonable fashion.

SPECIFIC PERFORMANCE

City Stores v. Ammerman

D was the promoter of a shopping center opening and told the P that he would enter into a contract with
them if he got the permit. D got the permit, but took Sears instead because it was a better offer. P sued
for specific performance.
The rule that contracts are void when material details are lacking does not apply to options. The option
in a binding contract.
An option for a construction contract is specifically enforceable where damages would be inadequate or
impracticable, and the harm to the P were specific performance be denied outweighs an equity court’s
traditional reluctance to supervise the construction of buildings.

Hypo:

Contract between a buyer and seller of steel. Seller to sell 5 tons to buyer for $500 per ton. After the
contract is executed, but before delivery, the market price for steel triples. Seller repudiates the
contract. Can buyer get specific performance on these facts?

Most likely will not be decreed. There is a way to determine damages.

Suppose it was a 10 year output contract for steel.

It would be difficult to estimate damages with a reasonable amount of certainty.

§367:
Personal service contracts will not be specifically enforced.
If the judge took the view that issuing the negative injunction would force the employee to work for the
employer, then the court will not issue the negative injunction.

LIQUIDATED DAMAGES

Wasserman’s Inc. v. Township of Middleton

P had leased municipally owned commercial property for 25 years before selling its business. When the
D canceled the lease, the new owners were forced to vacate the premises and they, jointly with P, sued
for breach of contract, seeking in part damages under the terms of the lease.
D counterclaimed, seeking a declaration of invalidity of that part of the cancellation clause that
required the D to pay as damages 25% of the lessees gross receipts and value of improvements.
Generally, liquidated damages provisions are prima facie valid, and the party challenging the contract
carries with it the burden of proving that the stipulated amount of damages is grossly disproportionate
to the actual harm, and thus unreasonable.

§356:

Damages can be liquidated 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.

Hypo:

B rents a truck from A. Contract provides that the truck will be rented for 1 year. The liquidated
damages clause that says if B cancels the lease, A will be entitled to 100% of the rent that would have
been due. Contract broken 4 months in. Is the clause enforceable?

Concern with a clause like this is mitigation.

Argument would be that the liquidated damages clause is not enforceable because it does not take into
account mitigation.
Argument would also be that other damages may be suffered, resulting in loss.

INTERPRETATION OF CONTRACT TERMS

Joyner v. Adams

Contract stated that certain rents would continue to increase, and if the plots to be developed were not
developed in a specific amount of time. All of the lots were developed and ready for lease, except for
one that did not have a building on it. The rents were increased and the P filed suit.
Where one party knows or had reason to know what the other party means by certain language and the
other party does not know or have reason to know of the meaning attached to the disputed language by
the first party, the court will enforce the contract in accordance with the innocent parties’ meaning.

§201: Modified Objective Approach

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

A. that party did not know of any different meaning attached by the other, and the other knew the
meaning attached by the first party, or:
B. that party had no reason to know of any different meaning attached by the other, and the other had
reason to know that meaning attached by the first party.
3. Except as stated in this Section, neither party is bound by the meaning attached by the other, even
though the result may be a failure of mutual assent.

Hypo:

Contract for $300 to paint “my house.” A thinks house means vacation home in WI, while painter
thinks it is for a house in Evanston.

Court would likely find that the house in Evanston would be more reasonable because A would have
likely reason to know of the mistake.

Frigaliment Importing Co. v. International Sale Corp.

P and D entered into contracts for the sale of “chicken.” P claimed the chickens called for were to be
young, making that size appropriate, while the D claimed that he read the contract to mean “US Fresh
Frozen Chicken, Grade A, Government Inspected.” According to the US Dept. of Agriculture.
P has the burden of proving that the term chicken was to be used in the narrower sense, but the P did
not do this.
When one party is not a member of the trade or other circle, his acceptance of the standard must be
made to appear by proving either that he had actual knowledge of the usage or that the usage is so
generally known in the community that his actual individual knowledge of it may be inferred.

4 Factors in Determining Interpretation:

1. Express contract language.

2. K negotiations
3. Trade Usage
4. Course of Conduct.

Patent Ambiguity: appears on the face of the instrument. (FRIGAILMENT)

Latent Ambiguity: Arises from extraneous or collateral facts

Hypo:

Sims is selling Banks horsemeat scraps for $50 a ton, or $45 a ton if the scraps contain <50% protein.
A certain quantity has been delivered and Banks only pays $45 per ton because the scraps contain
49.5% protein.
Literal language suggests that he should only pay $45 per ton.
Sims submits evidence that in the horsemeat trade it is typical to round up. To what extent should it be
permissible to introduce evidence that makes this term ambiguous?
Court allowed the evidence of trade usage to be introduced.

PAROL EVIDENCE RULE

Operates to exclude evidence, preventing one party from introducing into court extrinsic evidence (or
collateral).
Complete integration:

A writing that is intended to be a final and exclusive expression of the agreement of the parties.
Partial integration:

A writing that is intended to be final but not complete because it deals with some but not all aspects of
a transaction between the parties.

PER does not apply to evidence offered to explain the meaning of the agreement.
PER does not apply to agreements, whether oral or written, made after the execution of the writing.
PER does not apply to evidence offered to show that effectiveness of the agreement was subject to an
oral condition precedent.

Conditioned on financing, for example. Normally would fall within the PER, courts have established an
exception for this situation. Entire contract will not come into existence until a specified event.
PER does not apply to evidence offered to show that the agreement is invalid for any reason, such as
fraud, duress, undue influence, incapacity, mistake, or illegality.
PER does not apply to evidence that is offered to establish a right to an “equitable” remedy, such as
“reformation” of the contract.
PER does not apply to evidence introduced to establish a “collateral” agreement between the parties.

Falling outside the scope of the writing.

§213: PER

1. A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with
them.
2. A binding completely integrated agreement discharges prior agreements to the extent that they are
within its scope.
3. An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior
agreement. But an integrated agreement, even though not binding, may be effective to render
inoperative a term which would have been part of the agreement if it had not been integrated.
§216: Consistent Additional Terms:

1. Evidence of a consistent additional term is admissible to supplement an integrated agreement unless

the court finds that the agreement was completely integrated.
2. An agreement is not completely integrated if the writing omits a consistent additional agreed term
which is:

A. agreed to for separate consideration, or

B. such a term as in the circumstances might naturally be omitted from the writing.

ALL AGREEMENTS

/\

Integrated Not Integrated

/\|

Complete Partial No Restrictions

/|

Cannot Supplement Cannot Contradict

If it contradicts, then the writing wins.

If you’re talking about supplementing, if the court finds that the parties intended to include.
Hypo:

A to sell B an apartment for 100T. During negotiations, B has an interest in a stereo system that is set
up in the apartment and asks whether the stereo will be included. A says that it will be. There is no
mention in the contract to the stereo system.

Can B hold A to the stereo?

Would PER bar evidence of this promise?
What is the effect of the statement made? Contradict or supplement?

Supplementing in this situation.

What did the written contract say?

Was there a list of fixtures?

Completely or partially integrated?

There is no clear test.

R2d§216.
If at the time the conversation took place B agreed to pay and extra $400 for the stereo, then §216
would deem this to be separately enforced.

Where the oral promise fills a gap in the writing, that is another situation where it is reasonable to
incorporate the verbal promise into the writing.
Merger clause:

Shows that the contract is integrated and shows the entire agreement of the parties.

Classical Modern

Whether integrated Look to 4 corners R2d §214

Completely

Interpretation Plain meaning rule Taylor→

Exclude unless ambiguous Allow unless

It contradicts.

Thompson v. Libby

Parties entered into a contract for the sale of logs. Provided that “all logs marked H.C.A, and cut in the
winters of 1882 and 1883, were to be sold for $10 per 1000 feet.” Original action was brought for the
purchase money, the D then pleaded a warranty of the quality of the logs, alleged to have been made at
the time of sale.

D offered oral testimony, which was admitted over the objection of the P (the contract was in writing).
Parol evidence may not be introduced when the court finds as a matter of law that the entire contract
was committed to paper.

Taylor v. State Farm Insurance Co

P was insured by the D and was involved in a car accident. P sued the D claiming that the D did not
settle within the policy limits and for bad faith. D claimed that the P relinquished his claims against the
D through a written release and $15T in uninsured motorist coverage.
A judge must first consider the offered evidence and, if he or she finds that the contract language is
“reasonably susceptible” to the interpretation offered by the proponent, the evidence is admissible to
determine the meaning intended by the parties.

Sherrodd, Inc. v. Morrison-Knudsen Co.

P was a subcontractor of the D, a general contractor. P contended that the D told him there were 25,000
cubic yards of excavation. The work was going to greatly exceed the 25,000 cubic yards. P sued to
recover the value of work completed to date under quantum meruit. P also alleged both actual and
contractive fraud and breach of the covenant of good faith and fair dealing.
A written contract may be altered only by a subsequent contract in writing or by an executed oral
agreement.

Nanakuli Paving & Rock Co. v. Shell Oil Co.

P and the D were under 2 long term supply contracts from 1963-1974. P is suing for breach of the 1969
contract by failing to price protect the P on 7200 tons of asphalt and raising the price from $44 to $76.
Trade custom and usage and past course dealings may establish contract terms.
Good Faith in Setting Price:

D could not have exercised good faith in carrying out its 1969 contract with the P when it raised its
price by $32

Universal practice of notice in the asphalt trade.

Merchant must observe commercially reasonable standards of fair dealing.

D gave no notice.

IMPLIED TERMS

Wood v. Lucy, Lady Duff-Gordon

Employed the P to help her to turn her name into profit by giving him the exclusive rights to her
indorsements of clothing. D continued to use her name without sharing the profits. P sued.
While the contract did not expressly state that the P would use reasonable efforts to place the
endorsement and market her designs, such a promise can be implied otherwise he would not have made
any money.

UCC §2-306: Output, Requirements and Exclusive Dealings:

1. A term which measures the quantity by the output of the seller or the requirements of the buyer
means such actual output or requirements as may occur in good faith, except that no quantity
unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any
normal or otherwise comparable prior output or requirements may be tendered or demanded.
A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods
concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the
goods and by the buyer to use best efforts to promote their sale.

Hypo:

Contract between Ballantine beer and Falstaff beer for B to sell most their assets in the business for
$4M plus a royalty of 50 cents per barrel that was sold between 1972 and 1978, in addition, the
contract also had an express condition in the contract that F would have to use best efforts to market the
B beer. F then slashed the advertising for B to 1/10 of what it originally was. Bs sales fell much more
dramatically than other brands. B sued F for breach of the obligation of using best efforts.

Used the standard of what a competent brewer was doing in that situation.
Court said that because of the contractual obligation to make reasonable effort that B did not plummet
in its sales. F did not have to go into bankruptcy, but they did have to protect B.

Empire Gas Corp. v. American Bakeries Co.

D agreed to buy all of the propane they would need for 4 years from the P. Soon after, D decided not to
convert its trucks to propane and cancelled the agreement due to second thoughts.
A buyer in a requirements contract may decide to buy less than the contract estimate, or even buy
nothing, so long as the buyer acts in good faith, but good faith requires more than mere second thoughts
about the terms of the contract.

Donahue v. Federal Express Corp

P was an employee of D for 18 years, during which time he questioned numerous company practices
which he claimed to be improper. He then filed suit for wrongful termination.
An employee cannot, as a matter of law, maintain an action for the breach of an implied duty of good
faith and fair dealing insofar as the underlying claim is for the termination of an at-will employment
relationship.
Unless the contract specifies a term, or states that the employee can only be let go for cause, then there
must be good faith. No term or clause, then it is an at-will relationship.

Limitations:

For a term
Express terms
Reliance
Public Policy
Fraud/Conduct that may not be governed by a statute, but looks like a tort behavior.

MATERIAL BREACH

Jacob & Youngs, Inc. v. Kent

P built a country home. Almost a year after completion, D discovered that not all pipe in the home was
of Reading manufacture as specified in the contract. P refused to pay for the rest of the contract.
Where the significance of the default or omission is grievously out of proportion to the oppression of
the forfeiture, the breach is considered to be trivial and innocent, and the obligation to pay is not
discharged.

Hypo:

Buyer’s obligation to buy a house is conditioned on getting financing at 6% interest. If this does not
happen, then the buyer is excused from the contract.
Hypo:

A to paint Bs house for $300. If B never shows up to do the work, A should not have to pay.
What if A breaches in a way that the court finds there was no substantial performance, and B is
discharged from paying the contract. Is A completely out of luck?

Sue under restitution.

Constructive Condition:

One that a court will read into the contract if it is not expressly stated.
Can be satisfied even if the condition is substantially performed.

(Does the job without enthusiasm)

A hires B to baby sit her son. $100 if B stays for 10 hours. B never shows up. Should A have to pay her
$100?

Should not have to pay because A’s performance is excused because payment is constructively
conditioned on B fulfilling her end of the bargain.
Express Conditions:
Strictly construed. Entire condition must be met until the party because obligated under the contract.

Sackett v. Spindler

D was the owner and majority stock holder of S & S newspapers. D went to sell the stock to the P, P
tried to pay, payments went wrong, D took the offer off the table, P sued for breach.
A party may repudiate a contract when the other party has materially breached the contract.

ANTICIPATORY REPUDIATION

Truman L. Flatt & Sons Co. v. Schupf

P had contracted with D to purchase some land for $160T, contingent upon rezoning of the property. Ps
request was denied and he contacted the D offering a lower price for the land. Offer not accepted, P
tried to accept the original offer.
An anticipatory repudiation may be retracted by the repudiating party unless the other party has, before
the withdrawal, manifested an election to rescind the contract, or changed his position in reliance on the
repudiation.
Language has to be clear that the party is not going to perform the contract for it to be a repudiating.
Definite and unequivocal = Standard of law.

Hornell Brewing Co. v. Spry

D was granted the exclusive right to purchase Ps beverages. D failed to pay for some shipments, P
requested assurances, was given none.
One party’s failure to respond to a request for adequate assurance of due performance constitutes a
breach of the agreement, entitling the other party to suspend performance and terminate the agreement.

UCC §2-609:

A contract for sale imposes an obligation on each party that the other’s expectation of receiving due
performance will not be impaired. If reasonable grounds for insecurity arise with respect to the
performance of either party, the other may demand in a record adequate assurance of due performance
and until the party receives the assurance may if commercially reasonable suspend any performance for
which it has not already received the agreed return.
Between merchants, the reasonableness of ground for insecurity and the adequacy of any assurance
offered shall be determined according to commercial standards.
Acceptance of any improper delivery or payment does not prejudice the aggrieved party’s right to
demand adequate assurance of future performance.
After receipt of a justified demand, failure to provide within a reasonable time not exceeding 30 days
such assurance of due performance as is adequate under the circumstances of the particular case is a
repudiation of the contract.

Hypo:

Sims to sell Banks his extra bread crumbs for 6 months. Delivery is to be on the 5th of each month. On
April 1st, Sims’ bread crumb machine breaks down and anticipates some production delays.

Can Banks treat that as a repudiation?

This is not a definite statement of intent
Banks can ask for assurance of due performance. After receipt, if Sims does not provide the goods in a
reasonable amount of time, then it can be treated as a repudiation of the contract.

EXPRESS CONDITIONS

Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co.

P entered into a conditional letter agreement with D to sublease Ps former office space. Agreement
provided that the proposed sublease would be executed only upon the satisfaction of certain conditions.
Conditions were not met.
Substantial performance is not applicable to excuse the nonoccurrence of an express condition
precedent.
Constructive conditions can be met if substantial performance is present. Express conditions are strictly
construed and have to be satisfied.

Ambiguities: courts typically construe as constructive conditions.

Prevention of Condition:

A condition is excused if the promisor wrongfully hinders or prevents the condition from occurring.

A to sell real estate to B for $100T. Subject to B obtaining loan financing at 6% or lower. B does
nothing (eats chocolates and doesn’t apply for the loan). Can she get out of the condition?

Non-occurrence may be excused and B is still on the hook.

A agrees to build a house for B, and will pay subject to the architect issuing a certificate of completion.
B goes to the architect and says “do not issue the certificate.”

B is still on the hook to pay.

Waiver of a condition:

A to sell real estate to B. B has to get the loan at 6%. B is told she can get the financing for 7%. B
would be able to invoke the non-occurrence. B decides to wave the non-occurrence of the condition
and go ahead with the contract.

May still be obligated to pay.

In order for the waiver to be enforceable, it must be of a non-material condition.

If it is not supported by separate consideration or reliance, then the waiver may not be enforceable if
for a material condition.
Under certain circumstances the waiver may be retracted.

Cannot retract if the other party has relied to their detriment on it.
If the deadline for the occurrence of the condition has already passed.

J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.

P and D’s lease terms were amended to provide for a 24-year renewal option on six-month notice by D.
6 months approached, P did not remind of the renewal requirement and entered into negotiations with
another. D sued because they had put $15T into the building.
Equity will protect a tenant who negligently fails to exercise a renewal option if failure to do so will
result in forfeiture.

Hypo:

Contract between A and B to sell an option for $, must be exercised by 5/1. 5/1 comes and goes, B does
not exercise her option. Can she turn around and say that the nonoccurrence of the condition should be
excused and she should be able to buy the apartment?

The buyer in this case has not put the same reliance in on the space and the nature of the forfeiture is
not great.

Moren Building Products Co. v. Baystone Construction, Inc.

D subcontracted with the P to install aluminum siding as part of a construction project. General
Motor’s agent rejected the siding due to its appearance. D had another do the job and refused to pay the
P. P sued.
The majority rule is that where the contract in question involves performance of commercial quality, an
objective, reasonable person standard will be used in determining whether performance was adequate.

Hypo:

A sets up an easel on Michigan Ave and offers to pain portraits. B walks by and agrees to have her
portrait painted for $20, satisfaction guaranteed. Portrait is painted, B doesn’t like it. Can A hold B to
an obligation for the portrait?

Since to condition was not met, A cannot recover the $20.

Courts will imply into satisfaction conditions good faith on the obligator. (Must act reasonably)
R2d§228: Satisfaction Condition:

Practicable to determine what a reasonable person would do, then satisfaction should be determined by
reasonable satisfaction, if not then the standard is good faith.
A to sell grocery store tomatoes to the store’s satisfaction subject to payment. $4 a pound. Before
delivery the price falls to $2 a pound. Store rejects the tomatoes. What standard to be held?

This would be a reasonableness standard, it does not involve aesthetics, only money stuff.

Hypo:

Seller agrees to sell Buyer for $65T conditioned on “zoning clearance” for the sale to go through.

Buyer does not get the zoning clearance, Seller sells proper to a third party for $60T. Buyer liable?

Buyer is not liable because the agreement was conditioned on the zoning requirement. It was an
express condition.
Buyer makes application, is given a bunch of other documents, but never completes them. Tells Seller
that he was denied. Seller sells to third party for $60T. Buyer liable?

Buyer is liable. Under the doctrine of prevention (condition is in control of the buyer, must make a
good faith effort). If a party obstructs or is in active in achieving the condition, then it constitutes a
breach by not making reasonable efforts.
Buyer applies, gets a set of applications, buyer files them, one of the forms is a sheet for neighbors to
fill out, Seller is a neighbor and makes a complaint. The application is denied. Seller sells for $75T. Is
Seller liable?

This is the prevention doctrine again. Seller is liable for their bad faith. Non-occurrence of the
condition is excused. Seller should still be on the hook to sell for $60T.
Application is denied in early May. Buyer enters into an agreement to sell the property for $75T,
closing to take place in late June conditioned on Seller selling to Buyer. Buyer requests that closing
take place on June 15th. Seller tells Buyer the closing will not take place. Seller sells to the third party
for $70T. Is anyone liable to anyone?

If it is a condition only to Buyer’s obligation to buy, then Buyer could waive the condition and be free
to buy the property from Seller. Through the letter, it seems that Buyer waived the condition to Seller.
Seems that Buyer went forward on the original terms.
Third party seems to have acted in bad faith by going behind the Buyer’s back.

IMPRACTICABILITY AND FRUSTRATION

Taylor v Caldwell.

D leased a music hall and surrounding gardens to P for $100 a day for four days for a festival.
Before the date of the festival, the music hall was consumed by fire.

Performance is excused when someone dies, is incapacitated, destroyed, or damaged.

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

During an economic downturn, D sold its unprofitable farm equipment division to a competitor. The
competitor had many franchises in areas also served by D franchises. P was the Ds franchise in such an
area, and when the competitor decided not to do business with him, he had no supplier. P sued D. D
claimed impracticability.
R2d:

“Where performance has been made impracticable due to the occurrence of an event the nonoccurrence
of which was a basic assumption on which the contract was made, or where the principal purpose of a
contract is frustrated by such an event, performance may be excused.”
§261, Comments B and D show that the discontinuance of existing market conditions is not an event of
this kind.

§261: Impracticability:

Substantial reduction of the value of the contract

Because of the occurrence of the event, the nonoccurrence of which was a basic assumption.
Without the party’s fault
Party seeking relief does not bear the risk of that occurrence.

Unless the language or the circumstances indicated in the contrary.

Foreseeability:

The more foreseeable it is, implicitly, the parties might have contracted around it.
Have to look at the foreseeability and foreshadowing to determine whether the parties contracted
around that event as part of their understanding.
Hypos:

A enters into a contract with B (grocery) to deliver tomatoes for payment. After the contract is entered
into, A’s crop is destroyed by drought.

Should the drought excuse A’s obligation?

Would depend on whether the tomatoes were specific tomatoes on this part of the land, or just
tomatoes. Specified would be a basis for excuse.
Market price changes;:

He should bear the risk or a fluctuating market price.

Sims sells breadcrumbs to Banks, Banks to sell them to a restaurant. Sims breaks down, Banks cannot
deliver.

If Banks was going to sell from specifically Sims, then he is excused. If not, then he is on the hook.

Mel Frank Tool & Supply, Inc. v. Di-Chem Co.

D was a distributor of chemicals, ordinance passed by the city outlawing certain hazardous materials. D
stopped using the leased space claiming frustration. Lessor sued.
§265:

After a contract is made, a party’s principal purpose is substantially frustrated without his fault by the
occurrence of an event the nonoccurrence of which was a basic assumption on which the contract was
made, his remaining duties to render performance are discharged unless the language of the
circumstances indicate the contrary.

Frustration:

Purpose of a contract is substantially frustrated, then the paying party might be able to argue.
Related to a basic assumption of the contract.
Party should not bear the risk.

THIRD PARTY RIGHTS

Vogan v. Hayes Appraisal Associates, Inc.

D was hired by a bank to monitor the progress of a new home construction for the Ps who had obtained
a construction loan from the bank. The reports were wrong and the Ps sued for breach under a third
party claim.
There was an intent to benefit the Ps in this case and the D had reason to know that they were being
benefited.

Hypo:

Lash lends $100 to Hughes. A week later, Hughes gives $100 to Fehl and tells her just to promise to
pay the $100 to Lash directly.

No privity of contract between Lash and Fehl.

Parties intended to benefit lash in this situation, she would be able to bring suit against Fehl.
Hughes then tells Fehl to pay him instead and not Lash.

§311: Variation of a duty to a beneficiary.

Cannot modify the duty if the contract does not allow the parties to do so.
In the absence of such a term, the promisor and promisee are then able to modify as the would like,
unless:

Beneficiary relies, sues to enforce, or manifests assent to it by request of the promisor or promisee.

Incidental Beneficiary:

Not intended to be a beneficiary. Intended ones are vested with the ability to bring suit.
§302:

A party will be found to be an intended beneficiary if:

1. There is a recognized right of standing to effectuate the intention of the promisor and promisee.

A benefit was to be conferred on Lash.

2. There is an intention to confer a benefit on the beneficiary.
Creditor Beneficiary:

Make a promise to another.

Zigas v. Superior Court

HUD helped finance certain apartments. In exchange, the landlords contracted that they would adhere
to certain rent schedules. Landlords did not adhere to this and the tenants filed suit.
Where the benefits are incidental, the third party may not so enforce the contract. The question is
therefore whether the Ps are intended to be beneficiaries.

R2d §313:
Promisor who contracts with the government to render services to the public is not subject to liability to
a member of the public for consequential damages unless the contract provides for it.

Hypo:

Water Co. enters into contract with town to provide water in exchange for payment. Water Co. does not
maintain the water level at the level called for in the contract. Fire hydrant is not working properly,
Cross’ house burns to the ground.

This is a claim for consequential damages and therefore the Water Co. will not be held liable for the
damages as long as there is no language of it in the K.

ASSIGNMENT AND DELEGATION

Herzog v. Irace

Jones who was injured in a motorcycle accident hired Irace and Lowry (Ds) to represent him in a
personal injury action. Could not pay his bills, told his lawyers to pay the doctor, then told them to pay
him. Doctor sued lawyers.
The letter directing payment to be made directly to P clearly and unequivocally demonstrated Jones’
intent to relinquish his control over any money received for his personal injury claim. Ds were duly
notified of this assignment and therefore the settlement money should have been paid to P.

Hypo:

Grocery to buy tomatoes from Forrest. If Forrest assigns, then the right assigned is to get payment, and
the duty would be to sell tomatoes. Forrest then assigns his right to payment to the bank to secure a
loan.

Forrest’s right is the extinguished. (Passing a football)

Delegation of a duty is like catching a cold. Forrest would still be liable if he delegated his duty and
they breached.

§317.
If the obligor receives notice that the right has been assigned, the obligor will remain liable under the
contract if the Grocery pays Forrest and not the bank.
In order for the assignment to be effective, proper language must be used.

Must manifest “present transfer” of the right. Eg. “I hereby assign…”f

Restrictions on Assignment:

Language in an original contract cannot be assigned.

Unless the assignment will have a material adverse effect on the obligor.
Hypo:

Ice cream Co. entered into a 3 year requirements contract with an Ice Supplier in exchange for
payment. After contract was concluded, but before the contract was up, the IC Co. merged into
Hagendas. Was this a valid assignment? Must the I Co. perform?
Buyer cannot balloon its requirements. Must be made in good faith.

Sally Beauty Co. v. Nexxus Products Co.

D contracted with Best Barber & Beauty Supply Co. for the latter to serve as exclusive distribution
agent for D product in most of the TX market. BB&BS was purchased by P, a direct competitor, and D
abrogated the contract. P sued.
A distribution agreement may be abrogated by the manufacturer if the distributor is purchased by a
direct competitor or the manufacturer.

UCC §2-210:

1. A contractual right may be assigned except where the obligee has a substantial interest in having his
original promisor perform or control the acts pertaining to the contract.

Essentially an oblige should not have to accept, via delegation, a bargain to which he did not agree.

Duty can be delegated unless:

Language of the contract is specifically limiting it, or

The obligee has a substantial interest in having the original person do it.
Hypo:

Sims to sell Banks bread crumbs. Sometime later Sims sells the business to JB and assigning the
contracts that Sims is a party to. (Rights and duties). No issue as to whether this duty can be delegated.
JB screws up and breaches. Can Banks sue Sims for breach of the duty?
Sims is the obligor, Banks is obligee, JB is delegate.
Duty is not extinguished in Sims.

Banks can sue Sims for breach.

Can Banks sue JB?

He can sue by stating that he is the intended beneficiary of the contract between Sims and JB. If it is
done in pursuance of an express assumption of duties.
Novation:

Banks expressly releases Sims to take JB. Sims is then not liable.