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Monday, March 4, 2002 (Class 21) (Assignments 16-17)
Johnson Farms v. McEnroe?
[568 N.W.2d 920] 1997 North Dakota Supreme Court (cb285)
- Statue of Frauds exception--UCC § 2-201(3)(a): if seller has custom made goods for buyer, can get around statute of frauds.
Monarco v. Lo Greco
[220 P.2d 737] 1950 California Supreme Court (cb291)
- Castiglias purchased farm in California. Natale and Carmela tell Christie he will get farm if he doesn't get education and stays and works on farm for life.
- Natale and Carmela each executed a will for land to go to Christie--thus this part was in writing. But Christie's consideration (of staying on farm) was not in writing.
- Plaintiff is Natale's grandson (Monarco). Before Natale died, he changed his will to give property to his grandson Monarco. Monarco is bringing suit to force Carmela and Christie off land; they counterclaim that Christie should have land; Monarco claims statute of frauds.
- Justice Traynor finds reliance and unjust enrichment to justify lifting the bar of the statute of frauds.
- Traynor finds that Monarco cannot bring statute of frauds defense on basis of estoppel.
- Previous estoppel cases relied on party making representation that statute of frauds does not apply (or would not be used)--this element not present in this case.
- Traynor explains, however, that basis of earlier estoppel cases is reliance on promise (i.e., where that promise includes statement about statute not applying).
- Why does Traynor use estoppel rather than unjust enrichment as basis of decision?
- Unjust enrichment would require restitution damages, very hard to calculate--how much was Monarco benefitted by Christie working on farm for life?
- Why not say Natale's will was consideration for Carmela's will?
- UCC § 2-201 (3)(b): resembles estoppel; can't claim there was no contract, once you have admitted in pleadings that there was a contract for sale but not beyond the quantity of goods admitted.
- UCC § 1-103: traditional equitable principles apply (including estoppel) unless displaced by other provisions of UCC. So: can broader principles of estoppel be applied under UCC, beyond that provided by § 2-201 (3)(b)? Does § 2-201 (3)(b) displace estoppel principle?
Halstead v. Murray
[547 A.2d 202] 1988 New Hampshire Supreme Court (cb296)
- Halstead sued Murray for zoning violation on his property. Settlement was made where Murray would sell property to Halstead. Halstead signs contract, then Murray refuses, wants more money for land.
- Murray claims statute of frauds--contract for sale of land needs to be in writing.
- Writing was only executed by Murray's attorney, and there is no writing authorizing Murray's attorney to act as Murray's agent.
- Substantially all statutes of fraud require agent authorization to be in writing if represented person does not sign contract himself.
- Court suggests unity theory--no need for written authorization in this case. If Murray doesn't like decision of his agent, he can sue his attorney.
- Dissent: suggests floodgate of litigation against people's attorneys. Unlikely to really happen, though.
Capacity to Contract
- Barriers to Contract--you either have the right to contract or not
- Analogous to Civil Procedure: either have standing or not.
- Constitutional Law: citizenship barriers. Graded (resident aliens, etc..), but sets up right to 'enter' legal system vs. not.
- Criminal Law: capacity to commit a crime.
Kiefer v. Fred Howe Motors, Inc.
[158 N.W.2d 288] 1968 Wisconsin Supreme Court (cb301)
- Kiefer, under 21 and married with child, wants to recover price of car he purchased after it malfunctioned. Contract had statement that he represented himself to be 21.
- Void vs. voidable contract. Voidable contract allows minor to terminate contract (once he is of majority) at his option. Voidable contract gives option to minor. Party dealing with minor assumes risk that contract may be reversed. If contract is void, then either side can argue that there is no contract.
- Minor was emancipated--how does interact with capacity to contract?
- General exception to minor's lack of capacity: necessities.
- Court wanted to find way to disaffirm the contract since the car was defective, thus interprets necessary in very narrow way.
Tomorrow: finish capacity to contract and do next section. Read assignment 18. Justin Calverone's group is 'on'.
Tuesday, March 5, 2002 (Class 22) (Assignments 17-18)
Kiefer v. Fred Howe Motors, Inc.
[158 N.W.2d 288] 1968 Wisconsin Supreme Court (cb301)
- Court suggests a legislative solution would be better.
Ortelere v. Teachers' Retirement Board
[250 N.E.2d 460] 1969 New York Court of Appeals
- Ortelere, close to death, change benefits to receive increased pension compensation, in turn giving up death benefits for her spouse. Died two months later.
- Husband sues, claiming election was invalid, because decedent lacked mental capacity to make change in policy.
- Court reverses lower court, allowing husband to claim benefits, saying the Retirement Board knew or should have known that Ortelere did not have capacity to make decision.
- Test is not whether person knew what they were doing, but whether they had capacity to do otherwise. Borrowed standard from criminal law 'capacity to crimes'.
Cundick v. Broadbent
[388 F.2d 157] 1967 10th Circuit Court of Appeals
- Cundicks claim that he was mentally incompetent; he sold his property for much less than it was worth.
- Court not convinced.
McKinnon? v. Benedict
[157 N.W.2d 665] 1968 Wisconsin Supreme Court
- Benedicts promised to McKinnon? not to cut down trees, make any improvements close to McKinnon?'s property, in return for small loan ($5,000) to start resort.
- Benedicts' resort failed, then while McKinnons? were aware Benedicts decided to build trailer park.
- Supreme Court is reversing trial court's injunction, based on equities of parties.
- Court finds inadequate consideration, disparate bargaining power. Benedict was retail jeweler, McKinnon? had worked for the government.
- Court seems to be manipulating certain facts in defendant's favor.
- Suit for equitable relief--thus court 'weighs the equities'.
Tuckwiller v. Tuckwiller
[413 S.W.2d 274] 1967 Missouri Supreme Court
- Mrs. Tuckwiller agreed to take care of Mrs. Morrison for the rest of her life in return for will of estate.
- Mr. Tuckwiller is Mrs. Morrison's nephew.
- Mrs. Tuckwiller quits job to take care of Mrs. Morrison for the rest of her life, but it turns out Mrs. Morrison doesn't live very long, died before new will was executed with attorney, although Mrs. Morrison said she wanted agreement to be followed on the way to hospital.
- Court wants to look at situation prospectively--how fair it was at the time, not in retrospect (when they knew how short Mrs. Morrison would live.)
Read 401-402 and 409-413 in casebook as additional material.
- Read assignment #19 (chapter 4-3-a). Ryan Polk's TA group will be 'on' for Friday.
Friday, March 8, 2002 (Class 23) (Assignments 17-18)
- Anterior vs. posterior evaluation of fairness. Tuckwiller court looked
§ 2-302. Unconscionable contract or Clause.
(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
- Eisenberg (cb402): Two different tracks for unconscionability, one being fairness, the other efficiency. Eisenberg would classify something as unconscionable if it is neither fair nor efficient.
Jones v. Star Credit Corp.
[298 N.Y.S.2d 264] 1969 New York Superior Court (cb409)
- Travelling salesman sold freezer for $900 to couple on welfare (up to $1234 with taxes). Couple had already paid about half at time of suit. Freezer only had value of $300.
- Return on investment tends to be lower in city than in suburbs, hence argument for charging higher price in city.
- Unconscionability might have been remedied had saleman informed couple of lower price of freezer in suburbs.
Black Industries, Inc. v. Bush
[110 F.Supp. 801] 1953 United States District Court New Jersey (cb320)
- Hoover had contract with United States government during Korean War, contracting with Black Industries for parts who subcontracted with Bush to produce the parts.
- Black billed Hoover, but parts were shipped from Bush to Hoover.
- Black claims that Bush was receiving excessive profits, against public policy since costs would be passed on to federal government in time of war.
- Middleman in this case performs some risk assumption/risk shifting function, also puts buyer and seller together.
- Absent fraud, there is no reason not to enforce this contract between two parties.
- Why is duress a problem? We want to know people actually agreed to contract of their own free will. (either under subjective or objective theory). Also violates pareto superior economic model, where at least one of the parties is better off and the other is at least not worse off.
- Pre-existing duty: no consideration, since you've already agreed to do what is supposed to serve as consideration.
- Corbin: suggests we should allow courts to separate honest from dishonest party rather than trying to fit into the pre-existing duty rule.
Alaska Packers' Ass'n v. Domenico
[117 Fed. 99] 1902 9th Circuit Court of Appeals
- Group of workers to go to Alaska for $50 for season, workers demand $100 or they will go home.
- Workers were told they would get $100, but at end of season only got $50. Lower court awarded packers $100, court of appeals overturns, because they were already obligated under pre-existing contract to work for $50.
Watkins & Son v. Carrig
[21 A.2d 591] 1941 New Hampshire Supreme Court
- Watkins & Son (plaintiff) agreed to excavate a cellar for Carrig, then discovers there is rock rather than stone under house, asks for higher price which Carrig agrees at that point to pay but later reneges.
- Carrig agrees pre-existing duty rule--Watkins had already agreed to excavate cellar, thus argues that there was no consideration.
- Wouldn't the contractor have assumed the risk that there might be rock under house?
Monday: complete pressure in bargaining (assignment 19) and finish concealment & misrepresentation (assignment 20).
Monday, March 11, 2002 (Class 24) (Assignments 19-20)
- Review of duress/pre-existing duty rule. UCC does away with consideration for contractal modifications, but preserves defenses of duress, etc..
- Court in Watkins and Sons was essentially saying pre-existing duty rule comes from the principle of duress. In this case, even though there was a pre-existing duty of some sort, the new agreement was not arrived at under duress, thus court will upheld contract modification absent additional consideration.
- 'Legal' solution (rather than equitable/justice-based) would be to suggest that there was a brand new contract, although court rejects this reasoning.
- Pre-existing duty rule provides form of 'self-help' specific remedy. By agreeing at the time and then challenging it later, the party gets specific performance that for irreplaceable contract, and later recovers any damages.
- UCC rules for specific performance:
- § 2-716. Buyer's Right to Specific Performance or Replevin.
- Specific performance may be decreed where the goods are unique or in other proper circumstances.
- 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.
- The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered.
Austin v. Loral Corporation
[272 N.E.2d 533] 1971 New York Court of Appeals
- Loral had contract with Navy for radar sets, subcontracted with Austin to manufacture gear component. Loral won second navy contract, asked for bids. Loral wanted only those parts on which Austin was the lowest bidder from Austin; Austin refused to follow through on first contract unless it was awarded contract to make all parts, not just ones on which they were lowest bidder. Austin also demanded increased price on earlier contract.
- Loral agreed to Austin's demands as it was unable to find replacement subcontractor who could provide parts on time.
- Loral was subject to penalties (liquidated damages) if it did not make deliveries on time.
- Likely that a majority of Loral's business was with government, thus risk was not only this contract, but most of its business.
- Court discusses issue of economic duress--it finds that Loral did not have another option for contract, thus it had no choice but to submit, thus this was not a valid modification. UCC § 2-209 does permit modification absent consideration, as long as party has free will to make decision.
- Dissent (following lower courts): found against Loral on the basis that it had not proved it had no other choice.
Foakes v. Bear Problem
- Problem of someone who pays part of debt with note 'paid in full' and party accepts amount but then sues for remaining debt. Accord and satisfaction.
- UCC § 1-207: party can write "without prejudice" or "under protest" in accepting payment without giving away rights. But--amendment says this section does not apply to accord and satisfaction--in this case go to common law or § 3-311 in case of negotiable instrument.
- § 3-311: If party is tendering lesser amount is in good faith, and amount owed is unliquidated or subject to bona fide dispute, and claimant obtained payment of instrument (i.e., other party cashed check), then party is discharged from debt.
- Unliquidated means exact amount cannot be determined, or there is a dispute about amount. Thus, by accepting payment, B is getting benefit of settling the matter.
Odorizzi v. Bloomfield School District
[246 Cal. App. 2d 123] 1966 California Court of Appeals
- Teacher had been charged with homosexual activity, school district threatened to publicize his arrest if he didn't resign. Thus, he resigned but was later acquitted of charges, and seeks to have position restored.
- Court found school board exerted excessive pressure on teacher to force him to resign--exerted overpersuasion.
- Court discusses patterns of undue influence, finds many of the elements present.
Concealment and Misrepresentation
Vokes v. Murray
[212 So. 2d 906] 1968 Florida Court of Appeals
- Elderly widow was convinced to sign up for and pay for many extra classes at dance studio after telling her that she was making great progress and was very talented.
- Although case in categorized as misrepresentation case, it seems that fact that she had signed up for many years of dance lessons was important in court's decision. Perhaps this should be categorized as undue influence rather than misrepresentation.
Tomorrow: do two legitimate cases on concealment and misrepresentation and go on to assignment #21 (up to page 400). Ryan Schiff's TA group is 'on'.
Tuesday, March 12, 2002 (Class 25) (Assignments 22-23)
- Read to end of assignment 23 (page 450) for Friday.
- After Assignment 23, skip to assignment 29 (finding the law of contract--page 555).
- Ideally, when A contracts with B, there is equal knowledge, skill, status, no bad behavior, and consideration. How far away from this idealistic paradigm must we get before a court will intervene?
- Swinton and Kannavos Cases: Both deal with situation where parties have different knowledge. Issue of default rule.
- Ideal world might have rule of disclosure. Arguments both for and against disclosure exist.
- Caveat Emptor: suggests an autonomy principle--buyer beware.
- Difficulty of having workable rule -- where do you circumscribe disclosure requirements?
- Advantage of having default rule for disclosure
- Property right of having information--person should not be forced to give it away
- Behavioral theories: what will encourage the most efficient/good work (i.e., gathering useful information)
- Another consideration: Which rule would have the least cost?
Swinton v. Whitinsville Sav. Bank
[42 N.E.2d 808] 1942 Massachusetts Supreme Judicial Court (cb354)
- Bank sold Swintons house that was infested with termites without revealing the defect.
- Question was whether Bank had duty to disclose presence of termites--although there was no disclosure otherwise.
- Termites are not common in Massachusetts, thus court thinks Swintons would not be likely to ask.
- Sensible default rule: whether information known to one side would be suspected by other side.
- If there had been a fiduciary duty, court would be more likely to find duty to disclose.
- Court thinks duty to disclose is too idealistic--rules that contract was valid.
- There does not really seem to be a disincentive for seller to discover termites; they would have other reasons other than for setting price to sell house.
- Possible difference for new home builders: duty to disclose--resembles implied warranty of merchantability.
Kannavos v. Annino
[247 N.E.2d 708] 1969 Massachusetts Supreme Judicial Court (cb357)
- Apartment building, in violation of zoning code, is sold, advertised as having $9,600 yearly rental income.
- Recognizes autonomy principle--anyone can find out law--but still finds duty to disclose that house is in violation of zoning.
- Case can be distinguished from Swinton in that this is not a case of bare nondisclosure--in fact, there was some disclosure.
- Once there is some disclosure, it can't be misleading.
- Disclosure needs to be material: would person have made same decision had information been disclosed?
Fina Supply, Inc. v. Abilene Nat. Bank
[726 S.W.2d 537] 1987 Texas Supreme Court (cb362)
- Sometimes statements made, even after purchase has been made, can become express warranties.
- Reasons for Standardized Contracts
- Standardized contracts allow learning from past mistakes
- Reduce uncertainty (increased level of certainty)--saves time and trouble
- Simplify planning, make superior drafting skills widely available
- Take-it-or-leave-it proposition
- Can advantage one party who has time/expert advice in preparing form
- Standardize contracts as private law
For next class, Ryan Schiff's group is 'on', then in afternoon, Karen Goldenberg's group is 'on'.
Friday, March 15, 2002 (Class 26) (Assignments 21-22)
- Different continua for deciding whether or not courts will intervene:
- Bargaining Power
O'Callaghan v. Waller & Beckwith Realty Co.
[155 N.E.2d 545] 1958 Illinois Supreme Court (cb370)
- Tenant fell while crossing paved courtyard, sued for negligence. Lease included exculpatory clause, plaintiff wants court to find contract unconscionable.
- Court holds for defendant landlord--found tenant made no effort to find other apartment with other lease.
- Case for government intervention in common carrier cases is much stronger, since government is giving carrier a monopoly but granting a license. Housing market is not regulated in the same way as common carriers.
- Exculpatory clause (similar to forum-selection clause in Carnival Cruise Lines, Inc. v. Shute) can benefit customer too: risk is reduced, expected return is increased, customer (tenant) can benefit from lower cost.
- Dissent: because of housing market (shortage), demand will not go down nor will price go up--rent control is in effect at this time.
- Does exculpatory clause promote negligence? Judge Schaefer's response: this is exactly what insurance does.
- Difference with insurance:
- Premiums can increase if you are negligent
- Insurance company can manage risk, which individual tenant cannot
- Currently, most states will strike down exculpatory clauses, either by statute or judicial decision.
- Generally expect a ticket, for example, in return for a coat check, to be a receipt. But company wants ticket to count as contract.
Graham v. Scissor-Tail
[171 Cal.Rptr. 604] 1990 (cb377)
- Question as to whether arbitration provision should be enforced, based on breach of contract and losses from a concert
- Graham, producer of concert, files suit, since only one of four concerts made money. Graham probably wanted declaratory judgment since he is party not paying money.
- Graham had entered into this sort of contract many times, thus he must have been familiar with it.
- Key is not that this is adhesion contract, but that forum would be union's Executive Board, thus not likely to be fair to Graham.
Henningsen v. Bloomfield Motors, Inc.
[161 A.2d 69] 1960 New Jersey Supreme Court (cb380)
- Plaintiff was injured after steering mechanism failed in Chrysler, defendant claims fine print provision of purchase limited liability to period of 90 days.
- UCC requires exclusion of implied warranty to be conspicuously noted.
- UCC § 2-719: if remedy falls short of essential purpose, remedy may be provided by UCC.
- Consequential damages may be limited unless unconscionable--particularly if limitation applies to injury to the person.
Continue at 12pm with question of whether disclosure really works.
Friday, March 15, 2002 (Class 27) (Assignments 22)
- Magnuson-Moss Warranty Act (cb385): administered by Federal Trade Commission, regulates warranty. Almost no warranty says full warranty under Magnuson-Moss Act.
- Disclosure discussion.
Carnival Cruise Lines, Inc. v. Shute
[499 U.S. 585] 1991 United States Supreme Court (cb389)
- Different from Hennigton Case in that this is not a necessity -- cruise.
- Court found that there could be a legitimate business purpose in forum-selection clause.
- Majority assumes Shutes had notice before they even bought a ticket, thus it was fair. Or: didn't have notice before they purchased tickets, but did when they purchased tickets and had ability to return tickets for refund.
- 'Provided you have proper notice of what you're buying', then forum selection clause is part of what you're buying.
Note 1 (cb396): forum selection clause says action needs to happen in Greece. Court upheld forum selection clause. No showing that Greek law wouldn't have been fair law.
Views on Unconscionability
- Procedural unconscionability is okay, but not substantive unconscionability. Judges should not go into details of deal, just make sure the process was okay.
- Leff's distinction is not tenable. Sets forth continuum of conscionability.
- Makes Posner seem like a 'flaming liberal', University of Chicago faculty.
- Freedom to contract--anything that interferes, includig unconscionability norm, is carried too far
Williams v. Walker-Thomas Furniture Co.
[350 F.2d 445] 1965 DC Circuit Court of Appeals (cb403)
- Provision in sales contract that says that whenever new item is purchased, payments are credited on all outstanding items, making it difficult to pay off any single item.
- Buyer only gets title when they've paid for every thing they've purchased; until then seller has security to take back item.
- Payment was allocated with respect to the unpaid portion of the purchase price, in ratio that reflected outstanding balance of each. Thus there is no point at which you've paid up any item until you've paid up all of the items.
- UCC allows for case law to determine how secured transactions work in consumer context; allows for this sort of allocation in business context.
Monday, March 18, 2002 (Class 28) (Assignments 22-23)
Armendariz v. Foundation Health Psychcare Services, Inc.
[6 P.3d 669] 2000 California Supreme Court (cb416)
- As condition of employment, employee had to sign contract requiring arbitration of wrongful termination disputes.
- Plaintiff employees claims sexual harassment/discrimination and want to sue in Court.
- Disagreement between trial and appeals court on whether arbitration provision is severable.
- Agreements now tend to have severability clause. Still depends on how integral provision is to agreement.
- Agreements included ceiling on damages to back-pay, part of unconscionability.
- Issue of procedural vs. substantive unconscionability. If one is particularly strong, the other doesn't need to be as present, but both should be present in some degree.
- Employer wasn't required to arbitrate while employee was. Lacks fairness and mutuality to some degree.
- Advantages of arbitration: more efficient. But when only available to one party, suggests that efficiency is not the motivation.
- Employee could argue that she signed contract for arbitration because she expected she might be terminate for performance rather than sexual harrasment. Would expect to arbitrate performance disputes, but not harrasment.
- Employer might be suing for trade secrets; could then be suing more than just former employee, thus arbitration would not work.
- Foundation claimed they would bring wrongful termination case to arbitrator as well. Not explicit, however, thus court discounted this claim.
- Problem with arbitration and sexual harrasment: often need multiple plaintiffs.
- To revise contracts, would want to have arbitration bind both parties on similar issues.
- Not unique to these cases--at some level, court takes into account public policy in all cases.
- Grounds for Public Policy Rulings:
Bovard v. American Horse Enterprises, Inc.
[201 Cal.App.3d 832] 1988 California Court of Appeals (cb425)
- Plaintiff was to sell 'American Horse Enterprises' to James Ralph, which manufactures marijuana paraphenelia.
- Ralph wrote promisory note to Bovard, Bovard conveyed business to Ralph.
- Ralph wants to invalidate promisory note on basis that business manufactures illegal products
- Gambling contracts often invalidated because they are illegal
- Plaintiff claims contract doesn't violate public policy, because manufacturing drug paraphenelia itself was not illegal when contract was made, precedent Moran v. Harris [182 Cal.Rptr. 519] where particular rule in agreement was not prohibited until after contract was made.
- No unjust enrichment by leaving parties where they stand--by self help, Bovard took back a lot of what he sold.
- In Pari Delicto: when both parties are at fault, defendant is in better position.
- Example: broker tells clients they should purchase company's stock because company has discovered gold but market doesn't know yet. Turns out to be false, clients sue broker. Defense: In Pari Delicto--clients shouldn't have been trading on insider information to begin with.
- Court didn't find players at equal fault in this case: broker is repeat player who you more likely want to penalize.
- Clean Hands: Traditional doctrine that 'if you have unclean hands, you can't come into a court of equity'. Intent of doctrine is to maintain legitimacy of court/government.
X.L.O. Concrete Corp. v. Rivergate Corp.
[634 N.E.2d 158] 1994 New York Court of Appeals (cb429)
- X.L.O., subcontractor plaintiff, is suing Rivergate, contractor plaintiff, claiming Rivergate failed to pay X.L.O. for subcontract work.
- Public policy defense is that this would violate Donnelly Act (bid-rigging anti-trust statute). Plaintiff's behavior Donnelly act, and Plaintiff's agreement with defendant implicated this public policy.
- Plaintiffs were last concrete contractors to join 'the club'. Thus plaintiffs are actually 'trying as best they can'--court is not believing characterization of plaintiffs as 'all bad'.
- Not per se case of public policy violation--unlike jurisdictions where gambling is illegal.
Tomorrow: assignment 29 -- 'determining subject matter to be interpreted'.
Tuesday, March 19, 2002 (Class 29) (Assignments 23, 29)
- Where does Court get its source for public policy?
- Hierarchy of sources:
- Constitutional, statutory, and administrative law
- Common law policies. Historically, policy was more enshrined in case law that in legislation; balance has shifted towards legislation today.
- Issue of covenants not to compete
Hopper v. All Pet Animal Clinic
[861 P.2d 531] 1993 Wyoming Supreme Court (cb436)
- All Pet Animal Clinic sued for injunction and damages against vet (Hopper) for violating covenant not to compete.
- Court considers two competing goals: freedom to contract vs. freedom to work.
- Court holds that neither policy is dominant, but rather that both are valid and modifies agreement to respect both policies.
- Competing Interests
- Interests of employer
- Needs to be valid business reason apart from wanting to cut off competition.
- Employer has property interest in its customers.
- Hopper was new vet when employed by clinic, thus firm should be rewarded for their investment in person without risking that their investment will be jeopardized by immediate competition.
- Interests of employee: Could enforce covenant without unfairly limiting employee's choices, because there are a great number of animal practices (i.e., large animal practice) in Wyoming that wouldn't violate agreement.
- Interests of public
- Free competition, keeps costs down
- Court found it was not reasonable to restrict competition for three years, thus reduced duration to one year.
- One year had already lapsed, however, thus defendant 'won'.
- Court finds one year to be reasonable balance of three interests. Empirical judgment.
- Implied reasoning: if customers continue to take their small animals to vet for one year after vet leaves, they are unlikely to change once the agreement expires.
Central Adjustment Bureau, Inc. v. Ingram
[678 S.W.2d 28] 1984 Tennessee Supreme Court (cb442)
- Earlier in course, we dealt with issue of whether there was consideration for covenant not to compete, for employees who had signed covenant after beginning employment. Now question is whether lower court was correct in revising covenant to reduced time period.
- Original covenant said employees could not take any client that had been client of firm ever, court revised agreement to include only clients that had been with firm at time employees left.
- Court also narrowed geographic scope of agreement (previously nationwide).
- Public interest: competition, efficiency of allowing people with skills to work in their industry.
- Court just enforces agreement to the degree it is 'reasonable'--i.e., rewrites agreement as judge thinks would be reasonable.
- Alternative solution: 'Blue pencil' technique--simply eliminate unreasonable provisions. Very difficult to do within same clause of contract.
DeMuth? v. Miller
[652 A.2d 891] 1995 Pennsylvania Superior Court (cb440)
- Non-compete clause includes provision for former employee to pay 125% of previous 12 month's charges, so as to present disincentive from violating agreement (otherwise people might violate agreement and hope not to get caught, since worst result would be lose gains otherwise).
- Miller was fired for appearing on television representing a gay and lesbian coalition. 'Cause' in non-compete agreement included homosexuality.
- Court would not recognize protection of discrimination against gays and lesbians and would not enforce covenant.
- Case suggests that there are hierarchies of sources of public policy. The higher the source, the more likely the court will recognize it in making decision.
- Today case might be decided differently--even public opinion counts in court's hierarchy of 'public policy'.
Simeone v. Simeone
[581 A.2d 162] 1990 Pennsylvania Supreme Court (cb445)
- 23-year-old nurse involved with 39-year-old neurosurgeon. They sign pre-nuptial agreement limiting what wife could get in divorce to $25,000
- 7 years later, they are separated, then divorced. Wife sues for alimony. Question is whether pre-nuptial agreement is enforceable by the court.
- Majority opinion empathizes with men, concurrence empathizes with women, dissent likes marriage.
- Public policies: unconscionability, protection of spouses, freedom to contract, preservation of marriage and family relationship.
- Dissent believes people are less likely to get divorced if court won't honor prenuptial agreements.
- Majority: prenuptial agreement is contract and should be treated as such.
- Courts are now recognizing that both parties are served by prenuptial agreement. Given high divorce rate and multiple marriages with multiple children from different marriage, prenuptial agreements can serve to protect other children.
- Concurrence: wife had access to counsel.
Assignment for Friday: Parole Evidence.
Friday, March 22, 2002 (Class 30) (Assignment 29)
- Justifications for Parol Evidence Rule
- Prevents fraud
- Check on juries that are too sympathetic to underdog
- Behavioral effect -- incentive to put in writing
Gianni v. R. Russell & Co.
[281 Pa. 320] 1924 Pennsylvania Supreme Court (cb556)
- Tenant in office building renewed lease; new lease did not allow tenant to sell tobacco. Tenant claimed that he was offered exclusive right to sell soda, although this was not in the lease agreement.
- Court finds evidence of exclusive right to sell soda is barred by Parol Evidence Rule.
Materson v. Sine
[436 P.2d 561] 1968 California Supreme Court (cb560)
- Dallas and Rebecca, husband and wife, own ranch as tenants in common, convey ranch to Medora and Lu (Medora = Dallas' sister) with option to repurchase ranch for particular price plus value of improvements minus depreciation.
- Dallas is now bankrupt. Trustee is acting to protect unsecured creditors. Rebecca is siding with trustee, because she will get half of property.
- Defendants claim that option provision is 'too uncertain to be enforced'--i.e., depreciation is not clearly defined. Other argument is that court didn't allow enough evidence--that option was 'personal' to keep ranch within family.
- Dissent: this is form of fraud on creditors.
- UCC test: as liberal towards admitting evidence as any parol evidence test.
- Fact finder is this case is not a jury but lower court, thus 'subjective jury' justification for parol evidence rule doesn't apply (although since the rule is being changed here, it will be changed also in cases with a jury).
- Generally with land transfers, law especially requires written record, even though Traynor is allowing non-written evidence here.
- Inconsistency with Traynor's opinion: options are, by default, assignable, thus the fact that parties did not include provision as to whether or not option was assignable doesn't necessarily mean they didn't contract one way or the other on it--rather, you would assume they meant in the contract that the option was assignable.
- Integration or merger clause: provision in contract to state parties' intention that everything be embodied in this writing.
- Lots of cases where integration clauses work, lots of cases where they don't, but it does increase the probability substantial that a court will not allow in parol evidence.
For Monday, finish up Parol Evidence, will do Assignment 30. Shawn Farrell's group is 'on'.
Monday, March 25, 2002 (Class 31) (Assignments 29-30)
- Tuesday, April 2, and Tuesday, April 9, class will start at 1:30pm to accommodate presentations from decanal candidates.
- UCC Parol Evidence Rule:
- Is contract 'final' writing?
- If so, it can't be contradicted, but it can be supplemented. (thus, in Gianni, evidence as to the promise of the exclusive right to sell beverages would be admissible).
- Under Materson v. Sine, however, the UCC rule would be a closer call. On one hand, the restriction on the option that the property had to stay within the family could be seen as supplementing the option. On the other hand, could argue that an option is, by default, alienable, thus the restriction would be considered contradictory.
- Parol Evidence rule continues, however, with the exception if writing was intended to be complete and exclusive terms of agreement.
- Merger/integration clauses are often sloppily written and don't answer the questions as to whether the writing is final and complete and exclusive terms of agreement.
- Collateral agreements are exempt from this rule--that is, agreements which deal with a 'completely separate' subject matter.
MCC-Marble Ceramic Center v. Ceramica Nuova d'Agostino
[144 F.3d 1384] 1998 11th Circuit Court of Appeals (cb566)
- Contract was done in Italian, American buyer did not speak Italian.
- Buyer, plaintiff, is suing under breach of warranty, probably breach of express warranty, breach of failure to deliver.
- Seller relies on clause on back of standard forms, requiring complaints to be made by certified mail not more 10 days after receipt of tiles and that seller had right to cancel for default in payment.
- Plaintiff claims he subjectively did not intend to agree to these clauses.
- CISG -- International Guidelines for Commercial Contracts -- allow party's subjective intent to be considered. Most international transactions, however, go to arbitration rather than a jury, thus less of a justification for parol evidence rule.
Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co.
[229 A.2d 741] 1967 Pennsylvania Supreme Court (cb567)
- Plaintiff was getting paid so defendant could dump construction waste on his land.
- Plaintiff alleges that under original oral argument consturction waste would be buried under topsoil. Originally defendant was doing this, but eventually stopped, presumably to save money.
- Defendant was also removing and replacing topsoil with neighboring landowners.
- Evidence suggests that agreement to replace topsoil was omitted by mutual mistake (or worse, by defendant's fraud), in either case not favorable to defendant.
- Court rules for plaintiff, saying evidence could supplement written agreement.
- UCC allows for no-oral modification clauses. § 2-209(2): A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded...
- No-oral modification clause helps reduce uncertainty, particularly with agents of business who might be saying different things out in the field.
- Ambiguous and vague terms--different issue, but similar question as to how much extrinsic evidence is admissible in interpretting terms of a contract.
Frigaliment Importing Co. v. B.N.S. International Sales Corp.
[190 F.Supp. 116] 1960 United States District Court SDNY (cb574)
- Plaintiff, buyer of chickens in Switzerland, defendant is seller of chickens in United States.
- Disagreement as to what 'chicken' means in contract for sale. Buyer claims it means young chicken for broiling and frying, seller claims it means any chicken that meets other terms of contract.
- In this case, seller already has money, thus buyer needs to come to the United States and sue for breach of warranty.
- 1.5-2 pound birds were young anyway, issue was whether heavier birds needed to be young as well. Plaintiff argues that chickens were supposed to be the same type in lower and heavier weight.
- Defendant responds that contract for apples that includes lighter and heavier apples does not necessarily imply that they will all be the same type of apple. Furthermore, argues that agreement incorporates USDA standards, which do not specify that 'chicken' needs to be 'young chicken'.
- Plaintiff argues that trade usage is for 'chicken' to mean 'young chicken', introduces witnesses who contradict themselves.
- Plaintiff has burden to prove breach of warranty, Court is not persuaded that young chicken was meant in contract.
Raffles v. Wichelhaus
[159 Eng.Rep 375] 1864 Court of Exchequer (cb582)
- Contract for sale of cotton that was to be delivered by Peerlees ship sailing from Bombay. Buyer refused to purchase, seller is suing for damages.
- There were two Peerless ships sailing from Bombay, buyer claims he contracted to purchase earlier ship, seller claims later ship.
- Court finds there was ambiguity as to which term, thus there is 'no meeting of the minds' and no contract.
For tomorrow, finish off this section of the chapter (p604). Michael Haven's TA group is 'on'.
Tuesday, March 26, 2002 (Class 32)
Oswald v. Allen
[417 F.2d 43] 1969 2d Circuit Court of Appeals (cb584)
- Swiss coin collector intended to purchase all of Allen's Swiss coins, while she in fact had two collections, the 'Swiss Coin Collection' and the 'Rarity Coin Collection', and she only intended to sell the former.
- Court holds that there is no contract because parties did not mean the same thing in referring to the collection.
Principles for Allocating Loss -- Decreasing Principles of Culpability
- Intention Principle
- Played out through fraud doctrine. Pin loss on party who commits fraud.
- If one party knows that they should not do something, they will be assigned loss.
- Strict Liability
- Where neither of the two parties has acted intentionally, knowingly, or negligently, then allocate to loss to party who with least cost could have avoided the loss.
W.W.W. Associates, Inc. v. Giancontieri
[566 N.E.2d 639] 1990 New York Court of Appeals (cb586)
- Buyer suing seller of real property. During negotiations, clause was added stating that if litigation was unresolved by June 1, 1987, then contract could be cancelled by either party. Defendants cancelled contract on June 2.
- May 13, buyer said they were willing to go through with purchase regardless of pending litigation.
- Plaintiff claimed that clause was inserted for protection of the plaintiff, thus they could waive their rights to cancellation, therefore eliminating option.
- Contract included merger clause, however, and evidence that clause was added for the benefit of plaintiff was not material to contract.
- Contract was complete and final on its face, thus judge doesn't not go beyond the 'four corners' of the document.
- With real property in particular, it is important that writings be accurate and followed.
- Other paragraphs of contract suggest that parties gave absolote rights to one party or the other in some cases, they could have done it in this case.
- Parties were both sophisticated business people, not using form contract.
- Other arguments: rewards careful drafting, may reduce litigation.
- Arguments for plaintiff: if real benefit was supposed to flow to plaintiff, then plaintiff had right to waive it. Response: clause benefits both parties.
Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.
[442 P.2d 641] 1968 California Supreme Court (cb592)
- Plaintiff's property was damaged while defendant was doing work on turbine. Contract for work included provision that defendant would work "at its own risk and expense" and "indemnify" plaintiff "against all loss, damage, expense and liability resulting from injury to property, arising out of or in any way conected with the performance of this contract."
- Issue is whether contract covered plaintiff's property or just indemnified the plaintiff against lawsuits from third parties, which is usually how this sortof clause is used.
- Traynor argues against 'four corners' or 'plain meaning' rule, takes into account evidence of how indemnity is usually used.
- Doesn't believe that verbal precision is actually possible.
- If you don't look at context of words, won't be true to the intent of the parties, since the parties are using the words 'in context'.
Hurst v. W.J. Lake & Co.
[16 P.2d 627] 1932 Oregon Supreme Court (cb601)
- Defendant contract to purchase 350 tons of horsemeat scraps from plaintiff. Included provision for discount on tons with less than 50% protein.
- Defendant contends that less than 50% protein has trade usage meaning less than 49.5%.
- Court allowed evidence of trade usage, even though word was 'nonambiguous upon its face'.
- Ejusdem generis: of the same kind--if there is a generality followed by a number of specifics, interpret the generality on basis of specifics
- Exclusio alterius: expression of one thing is exclusion of the other. ('negative implication').
- Noscitur a sociis: it is known from its associates.
Tucker v. Forty-Five Twenty-Five
[199 So.2d 522] 1967 Florida Court of Appeals (cb603)
- Cantor was hired for seder, with contract requiring cantor to work for second night if there were a second seder.
- Ended up being no second seder, Cantor, who was orthodox, where there is always second seder, but service was reform, thus second seder was not assumed.
- Since contract was a union form, more likely used by musicians rather than hotel, perhaps reason court interpretted it 'against its author'.
By next Monday, read through 638.
Tuesday, April 2, 2002 (Class 34) (Assignments 31-32)
- Good Faith is contextually defined.
- Franchise Agreements
- Advantage to franchisor: since people own their own franchise, they have higher motivation to make profit (rather than when just by manager).
- Different allocation of risk and responsibility.
Eastern Air Lines, Inc. v. Gulf Oil Corporation
[415 F.Supp. 429] 1975 Southern District of Florida (cb610)
- Requirements/outputs contracts. UCC § 2-306(1).
- Output contract: obligates buyer to purchase all seller's output.
- Requirements contract: obligates seller to purchase what the buyer needs.
- Relates to doctrines of indefiniteness and that promise cannot be illusory. These contracts don't fail for mutuality of obligation, because we are implying good faith obligation on both sides (in setting requirements or output).
- Requirements/output contracts can help deal with uncertainty in markets.
- Contract must be determined in context of course of dealing, course of performance, and usage of trade. § 1-205, § 2-208
- Usage of Trade: industry-wide practice
- Course of Dealing: practice in prior contracts between parties
- Course of Performance: dealings within history of contract (almost always present in requirements/output contracts).
- Hierarchy: course of dealing takes precedence over usage of trade. Course of performance takes precedence over both.
- In these case, fuel freighting (filling up where it is advantageous) was common in industry, thus not bad faith.
Market Street Associates v. Frey
[941 F.2d 588] 1991 (cb613)
- Market Street Associates, plaintiff, successor to J.C. Penney.
- Sale/lease-back transactions: where you sell your property to someone else who leases it back to you. Can be used to get capital; also may help with tax codes in that depreciation can be deducted.
- Posner, judge in this case, favors the 'four corners' rule--doesn't want to go outside of text.
- Distinction between using superior knowledge and opportunistic exploitation/'sharp dealing'.
- Posner is very concerned about economic behavioral effect of rules: wants people to go out and amass information. Won't happen unless you reward them and give them a quasi-property right, so they don't have to share information with others.
- In this case, there was no information for Orenstein to acquire, however.
- Posner finds no duty of candor in formation of contract, but duty of candor in performance of contract. At a minimum person should have said they were requesting a loan under paragraph 34 of lease, which imposed harsh penalty for failing to negotiate on repurchase.
Dickey v. Philadelphia Minit-Man Corp.
[105 A.2d 580] 1954 Pennsylvania Supreme Court (cb617)
- Landlord complaining that tenant business has changed its business, generating less revenue for landlord, wants tenant to be ejected so he can get new tenant.
- Tenant has legitimate business purpose, however, which negates 'bad faith'. Courts frequently find negation of 'bad faith' sufficient to establish 'good faith.'
- Next two cases: beyond requirements/output/relational contracts, exclusive dealing contract, where party is only party that may be dealt with. Rather than good faith requirement, UCC imposes best faith efforts.
For Friday, read through end of chapter. Dimple's group is 'on' for Friday.
Friday, April 5, 2002 (Class 34)
Bloor v. Falstaff Brewing Company
[601 F.2d 609] US Ct App 1979 (cb619)
- Best efforts to maintain high level of sales. Trustee in bankruptcy (for Ballantine) claims Falstaff breached best efforts thus triggering the liquidated damages clause. Falstaff is keeping the beer alive so that it only has to pay minimal royalties instead of damages. Falstaff claims they were losing money on the beer.
- Contract explicitly said "best efforts" so the court took this case to be highpoint. Also, Judge Friendly was considered one of the leading judges of the last generation.
- Even if you're losing money you have to make an effort. What's the sense behind it? You don't have to go into bankruptcy, but you will have to incur losses. How do we understand this:
- Allocation of risk in the contract based on uncertainty in the market. This is true even in non-relational contracts such as forward contracts. I contract for oil delivery 6 months from now based on guestimate-but we know it's unlikely to be on the mark. But the contract still serves a purpose of protecting the buyer/seller. We don't allow Falstaff's defense in other contracts, so we're not going to allow it here.
- Measure of damages: tacked on to sales of similarly situated beers.
Notes: Best efforts
- UNIDROIT principles: International convention for the sale of goods. UNIDROIT is the European analogue to American Restatements, applicable if the parties drawing up the contract insert statement of applicability. US companies generally more comfortable with UNIDROIT.
- Posner's idea of best efforts: treating all customers the same, including the non-complaining ones. Olympia Hotels Corp. v. Johnson Wax Dev. (1990).
- Lucas v. Hamm (1961): law is so complicated, one hasn't committed malpractice by not knowing it.
- "As if a single firm": Professors Goetz & Scott theory of joint- maximization criterion. Parties stop once marginal cost exceeds marginal benefit (marginal revenues).
- Why don't we have situation instead where: (1) manufacturer distributes its own product. Idea behind exclusive dealing is that you take the manufacturer's cost and distributors cost (less than the manufacturer on its own) and the total cost is less. Thus, more efficient and more competitive in the market. Taking advantage of capacities and efficiencies of two parties which are in the aggregate cheaper.
- What should NOT be counted as a cost? The $.50/barrel because it was an intra-firm exchange-the marginal costs curve (taking into account exclusive contracts) should exclude the cost therefore going out a lot further on the marginal revenues than in other arrangements.
- Why do we need a legal standard? To coach you to go beyond the point you voluntarily go to. The dispute is how much beyond must you go? Best efforts are as if was an integrated firm.
- What underlies this case: (1) Falstaff got its benefit at the beginning of the deal when it bought out one of its competitors. Now seeking to not have to pay for up-front benefit. (2) Aggregate purchase price in part based on number barrels sold, based on a minimum. Effectively trying to deny Ballantine the benefit of the bargain by keeping it alive just as long as doesn't have to pay the liquidated damages.
Zilig v. Prentice-Hall, Inc.
[717 F.2d 671] 1983 2nd Circuit Court of Appeals (cb626)
- Good faith used in publishing industry; maximizing interest of both parties.
- Author wrote a scandalous book about DuPont? and PH agreed to publish at its expense. PH reserved right to set sales & determine adv. & then decided it was too controversial & would not sell it anymore. Not governed by Article 2, b/c it's not sale of goods, it's sale of intellectual property.
- R/H: Court can't imply best efforts when conflicts with existing terms of contract; PH used good faith/best business judgment
- Rationale: stayed true to the party's intents and their relationship and associated risks.
- Default Rule: Good Faith & reasonable efforts in publishing industry, or publishers won't agree given the uncertainties in the industry.
- Is this standard only good for the publisher? Not according to the court-finds that the lower court was wrong in "best efforts"; this is good for both, because we want publishers to accept books (and since they lose money on many of the books they publish). This is good for the publishing industry as a whole.
Monday, April 8, 2002 (Class 35)
- Class tomorrow starts at 1:35pm in order to end for Dean presentation.
- Goal for today: finish chapter, to start remedies tomorrow.
Bak-A-Lum Corp. of America v. Alcoa Building Products, Inc.
[351 A.2d 349] 1976 New Jersey Supreme Court (cb634)
- Bak-A-Lum claims Alcoa has violated exclusively distributorship arrangement on aluminum siding, seeking injunction and damages.
- Understanding that Bak-A-Lum would make best efforts to sell Alcoa's aluminum siding (standard rule under UCC).
- Alcoa kept termination of exclusive distributorship arrangement secret from Bak-A-Lum for as long as possible, so Bak-A-Lum would continue to sell as much as possible.
- Court holds that 7 months wasn't sufficient advanced warning; 20 months would have been.
Lockewill, Inc. v. United States Shoe Corp.
[547 F.2d 1024] 1976 8th Circuit Court of Appeals (cb638)
- Williams had exclusive distributorship with United States Shoe Corp.
- No written contract as to duration or termination.
- General rule: when parties perform without duration/termination agreement, then contract is 'at will', thus no requirement of formal notice of cancellation.
- How to distinguish Lockewill from Bak-A-Lum?
- New Jersey court, like California court, was very active in this period in changing rules.
- Difference in kind of notice given to parties in both cases
- Key part of Lockewill facts: Williams invested significantly in arrangement, but has recouped investment with eight years of selling shoes. Vs. Bak-A-Lum where plaintiff was expanding with expectation that it would still be the dealer of Alcoa products. Furthermore, Alcoa sales people urged Bak-A-Lum to stock up more.
- Difference in reliance interest on exclusive distributorship agreement in two cases.
- More evidence of bad faith on the part of Alcoa, much more ambiguity in Lockewill.
Sheets v. Teddy's Frosted Foods
[427 A.2d 385] 1980 Connecticut Supreme Court (cb642)
- Plaintiff, Sheets, claiming he was wrongly dismissed as quality control director, by defendant employer, Teddy's Frosted Foods.
- Lower court found employment was employment at will and thus employer has right to terminate employee without cause.
- Supreme Court decides case under tort law, rather than contract law. Grants 'tort' of unlawful discharge.
- Defendant had drawn employer's attention to numerous violations of FDA regulations in labelling, claims he was fired for attempting to insure compliance with FDA.
- Publicy Policy consideration: want to promote adherence to FDA rules.
- Difference between tort and contract doctrine of wrongful discharge:
- Damages--intentional torts can give rise to punitive damages.
- Don't want to disturb too much existing contract doctrine.
- Collateral source rule: in torts, don't consider other sources in reducing damages, whereas in contract, damages are reduced by other sources.
- By switching from contract to tort law, Court puts burden of proof on employee--needs to show that employer had malicious reason for termination, and then prove it.
- Gilmore's 'death of contract'--thesis that tort law is subsuming contract law. Court is not necessarily subsuming contract with tort, but is finding this to be appropriate place to apply tort law rather than contract law. (Judge and Gilmore were on Yale faculty simultaneously).
- Different use of pubic policy: in previous cases we've looked at, public policy has been used defensively (contract should not be enforced because it would violate public policy). In this case, public policy is being used affirmatively, to craft new tort/give cause of action.
- Arguments against wrongful discharge tort:
- Frivolous litigation
- Threats to employers
- Overturning contract law and right of employer to fire someone at will
Burnham v. Karl & Gelb
[745 A.2d 178] 2000 Connecticut Supreme Court (cb647)
- Plaintiff was dismissed after reporting office's violation of Dental Association Rules, relying on Connecticut whistleblower statute.
- Court upheld dismissal of plaintiff's claim, saying whistleblower statute only covered reporting of violations of rules from any public body, and State Dental Association was not public body.
- Law develops by analogical application, however, which would have allowed analogy of Public Body to Dental Association for whistleblower rule.
Public policy issues: economic impact of wrongful discharge doctrine--possibly much greater than actual damages in lawsuits (because of avoidance behavior).
Balla v. Gambro
[584 N.E.2d 104] 1991 Illinois Supreme Court (cb648)
- Balla went to lengths to prevent employer from purchasing dialysis equipment that was not in keeping with FDA regulations.
- Court is reluctant to extend retaliatory discharge tort doctrine to attorneys, would adversely effect attorney-client privilege.
- Inappropriate for client to bear cost of attorney adhering to Rules of Professional Conduct.
- Rule followed in Jacobson v. Knepper & Moga, [706 N.E.2d 491] (cb650), allowing no retaliatory discharge tort for attorney who reported his firm's illegal practices.
Nanakuli Paving & Rock Co. v. Shell Oil Co.
[664 F.2d 772] 1981 9th Circuit Court of Appeals (cb651)
- Nanakuli bought all asphalt requirements from Shell under long-term contract.
- Claims that price-protection is a usage of trade in Hawaii and that Nanakuli failed to protect it.
- Issue of which trade usage is being defined for: Nanakuli argues that price-protection should go across trade barriers--i.e., supplying to asphalt trade, but Shell is not defined by asphalt trade. Should usage of trade applying to trade of buyer or seller?
- Events occurred during oil embargo. Oil is key ingredient in asphalt product. To what extent should 'unanticipated' rise in price of raw commodity be shared by customer?
- Court is protecting reliance interest, since Nanakuli had given firm price for its work on the basis of expected price from Shell.
Columbia Nitrogen Corp. v. Royster Co.
[451 F.2d 3] 1971 4th Circuit Court of Appeals (cb660)
- Contract where someone agreed to take 31,000 tons of phosphate a year, only took 10% of that, claims trade usage is that this is estimate.
- Court agrees to trade usage argument.
Will start remedy discussion tomorrow, assignment #24, Eric Slagle's TA group is 'on'.
Tuesday, April 9, 2002 (Class 36) (Assignment 24)
- Next four assignments will be shortened into two assignments
- No class next Monday for patriot's day
- Instead of Assignments 25 and 26, read these pages, for Friday:
- Next assignments, combine assignments 27-28 (for Tuesday):
- Other materials/assignments will be posted to TWEN website
- Remedies for Breach of Contract
- Part 7 of Article 2 of UCC
- Parallel sections for buyer's remedies and seller's remedies for breach of contract
- § 2-703: Catalog of Seller's Remedies, § 2-711: Catalog of Buyer's Remedies
- § 2-706: Substitute Performance for Seller (resale), §2-712: Substitute Performance for Buyer (cover)
- § 2-708 (1): Market based damages for seller, §2-713: market based damages for buyer (when price has moved from contract price, damages can be difference between market and contract price)
- 'Lost Profits'--remedy only available to seller. UCC § 2-708 (2)
- 'Accepted Goods'--remedy only available to buyer with respect to defective accepted goods. UCC § 2-714.
- § 2-709: action for the price, seller's remedy to force performance, § 2-716: buyer's right to specific performance/replevin.
- § 2-710: 'incidental damages', seller's remedy, § 2-715: 'incidental and consequential damages', buyer's remedy
- § 2-718: 'liquidated damages' for both seller and buyer.
- What are circumstances where court will go beyond monetary damages?
Klein v. PepsiCo?, Inc.
[845 F.2d 76] 1988 4th Circuit Court of Appeals (cb453)
- Klein was going to buy a jet through UJS from PepsiCo?.
- PepsiCo? argues that agreement never resulted in definitive document signed by both parties and parties planned to create definitive written agreement, thus claims no contract.
- UCC Statute of Frauds, however, is 'bare bones'--telexes, down payment, performances, etc., satisfy claim that contract existed.
- Pepsi agreed to make necessary repairs, thus court finds that condition of repair was satisfied.
- Court overrules lower court's verdict of specific performance, however, finding that airplane was not unique as defined under the Virginia Commercial Code (same as UCC § 2-716 in this case).
- Historical circumstances of division between equity and chancery courts no longer apply but still influence preference for damages over specific performance.
Northearn Delaware Industrial Development Corp. v. E.W. Bliss Co.
[245 A.2d 431] 1968 Delaware Chancery Court (cb464)
- Plaintiff is trying to get specific formance to force Bliss to hire more workers to finish work faster since mill is being shut down for longer than contract specified.
- Impractible for court to supervise additional hiring; might not even be more effective.
- Courts have become more willing to apply specific relief since this case, however. Sometimes injunction is not more work than calculating damages; also sometimes it is easier to settle things at once with court supervision (Brown v. Board) rather than years and years of damages cases.
Laclede Gas Co. v. Amoco Oil Co.
[522 F.2d 33] 1975 8th Circuit Court of Appeals (cb459)
- Laclede Gas Company provided propane gas to communities, had requirements contract with Amoco.
- Amoco raised price, Laclede contested price change, then Amoco wrote to terminate contract for 'lack of mutuality'.
- Contract allowed Laclede to terminate the agreement but not Amoco, thus lower court found lack of mutuality and thus no contract.
- But Laclede wants to buy Amoco's gas, thus claim that promise was illusory is overruled.
- Four arguments against specific performance:
- No mutuality of remedy
- Supervision of court
- Contract is indefinite and uncertain
- Remedy at law is adequate
- Court reasoned that specific performance was necessary because it would be difficult for Laclede to get another long term contract similar to the one it had with Amoco.
- Court holds that 'specific performance may be defeated by remedy at law'--reversing the typical burden (assuming specific performance, putting onus on part to establish that remedy at law is adequate).
- Finally, public policy argument, that oil should be delivered to customers as a community necessity.
Walgreen Co. v. Sara Creek Property Co.
[966 F.2d 273] 1992 7th Circuit Court of Appeals (cb465)
- Sara Creek agreed to not lease space to any other pharmacy in lease with Walgreen.
- Mall lost anchor tenant, Sara Creek wanted to lease to Phar-Mor, which included pharmacy.
- Plaintiff's counsel seems to be making law and economics argument, appealing to Posner's other writings.
- Argument: no so bad to breach contracts, providing the result is more efficient--can make aggrieved party whole and goods end up with better party.
- Posner does not agree with efficient breach theory, in this case, however: with either specific performance or damages you can have 'efficient breach'--parties can then negotiate the cost of terminating the contract, rather than having the court figure out damages.
- Damages decided in court are also inaccurate. Private/market forces are more likely to come up with reliable estimate of damages.
Justin Calvarone's TA group is 'on' for Friday.
Friday, April 12, 2002 (Class 37) (Assignments 25-26)
- Two main actions available to seller:
- UCC § 2-706
- Seller can recover difference between contract price and resale price
- UCC § 2-708
- Seller can recover difference between contract price and market price
- Reason to use market price: shouldn't make aggrieved party have to go through trouble of finding another buyer.
- Reason to use contract price: avoids difficulty of proving market price.
- Example: contract price $1000, seller resells for $900, market price was only $800. How much recovery to permit?
- Courts will often award the greater difference, between contract and market. Gives seller choice of which remedy it wants, although some scholars argue would be more efficiet to use the same measure always.
- UCC § 2-704 (2): When manufacture is not complete, seller may either complete the manufacture and use § 2-706 or § 2-708 to get damages, or may halt maufacture and sell scrap, and then sue for profit on deal.
R.E. Davis Chemical Corp. v. Diasonics, Inc.
[826 F.2d 568] 1987 7th Circuit Court of Appeals (cb480)
- Diasonics well selling medical diagnostic equipment to Davis.
- Plaintiff buyer had contract with medical facility where equipment was going to be used, and as a consequence Davis breached its contract with Diasonics.
- Defendant ended up selling equipment to another party for same price. Under § 2-706 (1), no remedy to seller, because there is no contract-resale differential. Also, under § 2-708 (1) if there is no market-contract differential, also no recovery.
- Plaintiff buyer had to put down $300,000 deposit, suing to recover deposit.
- Common Law largely adopted the replacement theory, and did not allow sellers to recover for lost profits.
- Defendant could argue that it would have made both sales if Davis hadn't breached, thus it shouldn't return deposit.
- Majority of courts allow for lost volume recovery.
- Defendant claims standard should be if they had the capacity to fulfill both orders, they should be allowed lost volume recovery.
- Court holds it should be a question of profitability, however, not capacity. Would it have been profitable for defendant to fulfill both orders? If so, then plaintiff cannot recover deposit.
Laredo Hides Co., Inc. v. H & H Meat Products Co., Inc.
- Laredo Hides was buyer, H & H was seller. Had to go to Mexican tannery for product.
- Suing for cover, what they had to pay for alternative hides minus the contract price.
- Seller's defense: didn't prove that buyer's bought hides at market price, therefore differential is not recoverable.
- Court does not accept defense; permits recovery under § 2-712, which relieves buyer from proving market price.
Will continue on Tuesday and do additional assignment on liquidate damages and foreseeability. Ryan Polk's TA group is 'on'.
Tuesday, April 16, 2002 (Class 38) (Assignment 27-28)
- Next Assignment, for Friday:
- UCC 2-507, 2-511, 2-601, 2-608
- Allowed exam materials:
- Statutory supplement or photocopy
- Non-commercial outlines (but not class notes or casebook)
- Exam will be 3-5 essay-type questions, based on actual cases
Laredo Hides Co., Inc. v. H & H Meat Products Co., Inc.
[513 S.W.2d 210] 1974 Texas Court of Appeals (cb476)
- Buyer has two possible remedies under UCC:
- § 2-712: Cover
- § 2-713: Market
- Seller claimed buyer had not covered with market price; but court responds that buyer doesn't need to get market price. The point of § 2-712 is not to impose too much burden on buyer of finding market price when seller breaches.
Tongish v. Thomas
[840 P.2d 471] 1992 Kansas Supreme Court (cb495)
- Tongish, farmer, was going to sell seeds at $13 for large and $8 for small.
- Market price increased over contract price. Tongish breached contract and sold to another buyer at higher price.
- Original buyer (Coop) was going to resell seeds with small handling fee to another party.
- Buyer was awarded $455 in damages, based on its loss of handling charges.
- Buyer wants damages under § 2-713, which would award it difference between market price and contract price.
- Seller's conduct in this case, as contrasted with Allied case, was more culpable--court is more willing to assign greater damages based on market prices because Tongish's breach of contract was more intentional.
- 'Permanent Editorial Board' of UCC: current comments to 2-713 suggest that, where buyer has covered, court should use cover as remedy.
- Case where buyer does not cover immediately, but does over time: § 2-712 talks about covering without unreasonable delay. Courts will generally still permit market damages.
- Market based damages are usually fixed at time buyer learns of breach rather than when contract would have been performed (time of tender).
- UCC was drafted with idea that often the buyer would learn of breach after time of tender, thus damage calculation would go back to time of tender. See UCC § 2-723. Also, analogous seller's remedies (§ 2-706, § 2-708): market-based damages that seller gets are at time and place for tender.
- Statute on its face, however, assesses damages when the buyer learned of breach.
- Llewelyn may have meant that damages should be assessed whenever buyer learns of breach, regardless of whether it is after time of tender.
- Three Mitigations on Damages
- Non-aggrieved party must be avoid intentionally increasing damages
- Damages must be foreseeable
- Damages must be calculable with some degree of certainty
Rockingham County v. Luten Bridge Co.
[35 F.2d 301] 1929 4th Circuit Court of Appeals (cb492)
- Aggrieved party continued to build bridge after County breached contract and said they did not want bridge to be built.
- Court will not award damages to seller based on the damages they created for themselves by continuing work after county cancelled order.
- UCC § 2-704 permits seller to complete manufacture after breach to avoid loss; however, a bridge cannot be resold to another party unlike manufactured goods.
Parker v. Twentieth Century-Fox Film Corp.
[474 P.2d 689] 1970 California Supreme Court (cb500)
- Shirley MacLaine? had contract to star in 'Bloomer Girl', studio cancelled contract but offered her role in 'Big Country, Big Man', which was to be filmed in Australia with somewhat different terms, but same payment.
- Court does not impose objective test of reasonableness. As long as replacement contract is different and arguably inferior, aggrieved party has no further duty to avoid damages.
- Current equivalent: if Drew Bledsoe is offered position for another team, and he refuses to take offer, team could cleam Bledsoe is refusing to mitigate.
Jacob & Youngs v. Kent
[129 N.E. 889] 1921 New York Court of Appeals (cb507)
- Contractor built a house, specifications called for a pipe made by Reading. Plumber subcontractor installed another brand of pipe, unbeknowst to contractor. Other pipe is of comparable quality, but different brand.
- Buyer refuses to pay remaining amount as architect cannot certify that house is built to specifications, since different brand of pipe is used.
- Argument as to whether promises are dependent or independent. Contractor claims promises are independent--buyer still has to pay for construction, and then can sue for damages if they want. Buyer claims he doesn't have to pay if work is not done as specified.
- Cardozo says promises are independent, and that damages should be calculated based on difference in value, rather than on cost of removing installed pipes and replacing them with Reading pipes.
- Cardozo is trying to avoid waste, mitigate damages. In construction contracts, there is a rule of 'substantial performance'. When contractor substantially performs, he is entitled to contract price, and buyer is entitled to any damages resulting from difference in value.
Friday, April 19, 2002 (Class 39) (Assignment 38)
- Assignment for Monday
- UCC § 2-609, 2-612
- Assignment 39
Hadley v. Baxendale
[156 Eng.Rep. 145] 1854 Court of Exchequer (cb521)
- Defendants had agreed to return equipment to plaintiff by certain date, failed to do so, causing Plaintiff's mill to stop working for five days.
- Plaintiff seeks lost profits for five days of mill being shut down, and wages that were paid during that time.
- Court finds that mill shut down would not have been foreseeable; defendant might have expected mill to have extra reserve cranks.
- UCC § 2-715, adopts Baxendale rule
- (2) Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
- Ruling 'reigns in' unlimited liability.
- Also: suggests that burden of producing information should fall on party who knows of special requirements. If you impart this information, then other side will know it and be responsible for it.
- Issue of Certainty
- Bulk of cases dealing with uncertainty in damages concern future profits
- Particular hard with new businesses where it is very hard to calculate profits
Wasserman's Inc. v. Township of Middletown
[645 A.2d 100] 1994 New Jersey Supreme Court (cb543)
- Liquidated damages clause provides means for calculating damages if contract is breached.
- Questions posed:
- Are damages functioning to penalize party?
- Who has authority?
- Advantages of Enforcing Liquidated Damages
- Avoids uncertainty
- Economically efficient
- Disadvantages of Enforcing Liquidated Damages
- Public law should define remedies, not 'private law'
- Court applies 'reasonableness' test to determine whether to use liquidated damages clause
- Liquidated damages can't go too far best what damages might have been (influenced by Article 2 of UCC)
- 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 caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
- First two criteria are in tension with each other:
- Liquidated damages are often used when it's very hard to calculate what damages will be
- So how do you determine whether damages are reasonable with respect to actual damages?
- Also tension between anticipated harm and actual harm. Has to be reasonable with respect to either.
- Trend towards respected liquidated damages provisions.
- Implied (constructive conditions)
- Look at obligations of one party, then on the other, and state that they are conditioned upon each other, even if it is not found in contract.
Luttinger v. Rosen
[316 A.2d 757] 1972 Connecticut Supreme Court (cb665)
- Will start with this case on Monday
- Rachel Crusan's group will be 'on' for Monday
Monday, April 22, 2002 (Class 40) (Assignments 34-35)
- Conditions can be express within contract:
Luttinger v. Rosen
[316 A.2d 757] 1972 Connecticut Supreme Court (cb665)
- Purchase of House was conditioned on obtaining mortgage at 8.5% interest.
- Buyer could only get mortgage at 8.75%, seller offered to make up the difference, buyer refused.
- Court found buyer had not breached contract.
- How could seller make up the difference?
- Reduce the purchase price so monthly payments would be the same. Since interest payments are tax-deductible, would not necessarily have to discount the total difference.
- Seller could help with down payment, guarantee the loan, or provide financing themselves.
- Buyer did not explore any the sellers offer to help, just claimed that contract was breached and failed to follow through.
- Question of how much effort buyer had made in getting mortgage?
- Spectrum from good faith to reasonable efforts to due diligence to best efforts.
- Contract in question required due diligence.
- Most lawyers interpreted due diligence to quite close to best efforts.
Doubleday & Co., Inc. v. Curtis
[763 F.2d 495] 1985 2d Circuit Court of Appeals (cb679)
- Doubleday made contract for two novels with Tony Curtis, on second novel received criticisms from editor but declined to have revisions reviewed 'piecemeal'.
- Doubleday found novel unpublishable, sued for return of $50,000 advance, Curtis counterclaimed for breach of contract.
- Condition in contract was that novel would be "satisfactory to publisher in content in form."
- Curtis claims that editor was not the one he wanted; publisher claims that Curtis refused to accept editorial suggestions.
- Court requires publisher to act in good faith but will not require editor to perform skillfully (presumably higher standard than reasonableness). Doesn't want jury to have decide whether editing is 'skillful'.
- Curtis should bear some or all of risk of 'lack of skillful editing'. Writer can 'shop around' for different publishers.
- Many contracts have condition of third-party's satisfaction.
- Frequently used in construction industry, subject to architect's or engineer's approval.
- Jacobs & Young case, contract sued for last payment, payment required certificate from architect because different brand of pipe was used, and architect wouldn't issue certificate.
- Third Party is often associated with one of the parties, however.
- Third Party usually has expert knowledge that party to contract lacks.
- Third Party may have professional reputation that depends on neutrality/professionalism.
- Third Party may also be more likely to work with other party in the future (i.e., architect works for home owner, passing judgment on work of contractor, does not want to undermine ability to get future jobs.)
Peacock Construction Co. v. Modern Air Conditioning, Inc.
[353 So.2d 840] 1977 Florida Supreme Court (cb674)
- Subcontractors suing general contractor, general contractor claims he doesn't have to pay because owner went bankrupt and didn't pay general contractor.
- Contract included provision that payment would be due to subcontractor "within 30 days after the completion of the work included in this subcontractor, written acceptance by the Architect and full payment therefor by the Owner."
- Court held that provision addressed 'when payment would be made' rather than 'whether payment would be made'.
- Court doesn't want to put burden on subcontractors, since they will be put out of business if they have to bear burden of non-payment.
- Same contract was used for both subcontractors, thus was drafted by general contractor, so if ambiguous should be interpreted against author.
- Also, subcontractor doesn't deal with developer/owner at all, general contractor on the other hand can require bond or guarantee.
- Contract does not explicit condition one party's duty on other party's performance, but Court imposes constructive conditions of exchange.
- Best example in UCC § 2-507 (1) and UCC § 2-511 (1): buyer's duty to pay is conditional on seller's tender of delivery
- Sometimes give harsh results, causing forfeiture, resulting in some mitigating doctrinee:
- Payment for work is conditioned on architect's approval; if party pays prior to approval, may have waived condition.
- Buyer's obligation is conditional on obtaining certain mortgage terms. Buyer doesn't get terms, but goes ahead with purchase. Buyer is electing to obligate itself regardless of condition being fulfilled.
- Strict vs. Substantial Performance
- UCC § 2-601: If goods or tender of delivery fail with respect to any part of contract, buyer doesn't have to accept and pay for goods.
- Much easier to resell goods than property, thus permitting buyer to refuse purchase is not unfair.
- UCC § 2-508: Allows seller to remedy improper tender or delivery if buyer rejects under § 2-601.
- Acceptance is not necessarily congruent with possession.
- Acceptance: § 2-606: buyer has reasonable opportunity to inspect goods, reports nonconformity, or acts inconsistent with seller's ownership.
- Revoking acceptance: reverses transaction. If there is substantial impairment of value to buyer, acceptance may be revocable. Becomes harder as time goes on. Subjective test used by courts--looks at particular buyer in question.
- Sometimes easier to revoke acceptance than reject initially.
- Material for tomorrow:
- Contracts often allocate risk between parties. As time passes, there is less uncertainty. Assessement of risk may differ substantially; one party might not have agreed had they known at time of contracting what they now know. If we allow people to get out of contracts because circumstances have changed, you are subverting allocation of risk. Next cases give situation where parties are allowed to get out of contract because circumstances or facts have changed.
Tuesday, April 23, 2002 (Class 41)
- Contracts allocate risk of future change. E.g., price, but also may other factors.
- As performance approaches, uncertainty goes down, additional information becomes available.
- To what extent, if at all, do we allow parties to get out of commitments in light of new facts?
- UCC § 2-609 (1):
- Right to Adequate Assurance of Performance
- A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
- If you have reasonable grounds to believe you might not get return performance, but there is risk of being found in breach yourself if you withhold performance. Can request adequate assurance of due performance if you have reasonable grounds.
- UCC § 2-609 (4):
- After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.
- If assurance of due performance is not received within 30 days, then other party is in breach.
Mutual Mistake of Fact
Stees v. Leonard
[20 Minn. 494] 1874 Minnesota Supreme Court (cb786)
- Builders keep on building on quicksand, owner sues.
- Soil was very different from what both parties thought soil would be. Question is who should legitimately bear risk of this happening?
- Today respective positions of owner and architect might be shifted.
Renner v. Kehl
[722 P.2d 262] 1986 Arizona Supreme Court (cb789)
- Plaintiffs purchased land for growing jojoba, but later discovered there wasn't sufficient water for growing jojoba, plaintiffs sue for recission on basis of mutual mistake.
- Courts are likely to allow mutual mistake of fact if parties are left exactly where they would have been before contract.
- Unusual in this case that court is not leaving parties where they were--it is allowing recission of deal.
- Mutual Mistake of Fact seems to be another way of getting to result when there is no warranty available to court.
Estate of Nelson
- Seller has more information than buyer, has made mistake, thus court is less charitable towards seller, since it could have gotten information.
Diamond in the Rough/Pregnant?-Cow Case
- Other circumstances where future facts mean promise doesn't need to fulfilled--more mutual mistake of fact cases.
Impracticability of Performance
- Extension of impossibility of performance.
Taylor v. Caldwell
[122 Eng. Rep. 309] 1863 King's Bench (cb801)
- Taylor contracted with Caldwell to give concerts for four days. Included condition that hall be in condition for concert.
- Fire occurred that was not fault of either party, making hall unfit for performance.
- Taylor, plaintiff who leased hall for concert, sues defendant for breach of contract.
- Problem: there was no hall at this point, it was destroyed by fire.
- When it is impossible to perform, party is excused from performance.
- Modern contract law has expanded doctrine to include impracticability.
- Problem with impracticability doctrine: subverts contract's role as allocation of risk.
- On the other hand, impossibility may be too rigid a doctrine, courts need some flexibility to change deal.
- UCC § 2-615:
- Excuse by Failure of Presupposed Conditions
- Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance...
- (force majeur clause, condition by which seller can get out of contract, e.g., seller shall not be responsible for acts of God, acts of war, etc..)
- Compare UCC § 2-509:
- Risk of Loss in the Absence of Breach
- (4): the provisions of this section are subject to contrary agreement of the parties...
- § 2-615 doesn't seem to allow parties to 'provide otherwise'. Seller can only get out of greater obligations, not lesser.
- § 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.
- A basic assumption upon which the contract was made did not turn out that way.
- Assumption must have been extraordinarily basic to the contract.
- Must be unforseeable--if it was foreseeable, then that was the purpose of contract.
Transatlantic Financing Corporation v. United States
[363 F.2d 312] 1966 United States D.C. Court of Appeals (cb805)
- United States chartered vessel to carry cargo from United States to Iran.
- Usual route was through Suez Canal, but because of trouble in Canal, trip incurred increased cost.
- Plaintiff sued to recover additional cost.
- Elements of impracticability:
- Something unexpected must have occurred
- Risk must not have been allocated by agreement or by custom.
- Occurrence must have rendered performance commercially impracticable.
- Court holds that only one element was satisfied--that something unexpected occurred.
- Holds that alternative route shows that risk was allocated by custom.
- 10% additional cost of voyage is not sufficient to be commercially impracticable.
Eastern Air Lines, Inc. v. Gulf Oil Corporation
[415 F.Supp. 429] 1975 Southern District of Florida (cb823)
- Gulf claims that West Texas Sour index is commercially impracticable; but Gulf was still using index for other transactions.
- Court holds Gulf has no impracticability claim.
- Friday will do third party beneficiaries. James Todd's TA group is 'on'.
- Will not cover half measures.
Friday, April 26, 2002 (Class 42)
- General Problem: How do we deal with increasing information as time of performance nears?
- Contract serves purpose of allocating risk; lack of information at time of contract is part of the contract.
- If there is a very basic assumption that turns out to be wrong (both parties are fundamentally mistaken), courts will put both parties back where they were. Mutual mistake of fact.
- Impossibility of Performance--expanded to impracticability. Often claim is that 'it will cost a lot more', but contracts allocate price risk, so usually this claim is viewed skeptically.
Frustration of Purpose
- Issue of whether buyer can get out of contract because of supervening events between time of contracting and time of performance.
- Frustration of purpose applies primarily to buyer.
- UCC § 2-615: Impracticability of performance has become contract doctrine allowing seller to get out of contracts, even outside of Article 2 cases. Has lead courts to adopt frustration of purpose doctrine, to allow buyer to get out of contract. Although not in UCC, most courts will supplement UCC with frustration doctrine under UCC § 1-103.
- Example of frustration of purpose:
- Contracted to rent vacation home for month of August on Martha's vineyard for purpose of sitting on beach. By August, hurricanes have already hit and no longer possible to sit on beach. Purpose has been frustrated--should buyer get out?
- If intervening event was foreseeable (as in bad weather on Martha's Vineyard), then court is less likely to allow claim of frustration of purpose because parties could have included event in contract.
- If person leasing house on the cape advertised specifically on the vacationing issue, and that seemed to be at the heart of the contract, might be able to get out of it under frustration of purpose. I.e., if promisee is involved in very basic assumption that turns out to be false. This might not be true in Martha's Vineyard case--people might have other reasons for wanting to go there than to sit on the beach.
- Under which circumstances do people get lost profits? Court avoids question by saying buyer can get out of contract under frustration of purpose in Chase Precast Corp. v. John J. Paonessa Co.. Aggressive use of doctrine.
- Much more 'stingy' use of doctrine in Posner's opinion in Northern Indiana Public Service Co. v. Carbon County Coal Co..
- Prime issues in course:
- What promises will the law enforce?
- How do we interpret those promises?
- What do we mean by enforce?
- Are there circumstances under which the law will allow people to get out of promises?
- Who may enforce the promise?
- Similarity between third-party beneficiary issue and other legal issues:
- Tort Law: To whom are duties owed?
- Civil Procedure: Who has standing to bring suit?
- Regulatory Law: Can someone bring an action under a statute that doesn't explicitly grant a cause of action? (ask whether the legislature intended to benefit class of people who are bringing suit)
- Pros and Cons of Third-Party Beneficiaries
- Promisee may be dead, Seaver v. Ransom [120 N.E. 639] 1918 New York Court of Appeals (cb865). Third-party is only party who can bring suit.
- Judicial Efficiency: rather than having one party sue another, who sues another, can permit recovery directly.
- Traditional notion of reciprocity in contract: Party 1 should not be able to sue Party 2, if Party 2 cannot sue Party 1.
- Judicial efficiency plays in as 'con', as well, since it permits more parties to sue.
- Under First Restatement, creditor and donee beneficiaries could sue. But could not sue as incidental beneficiary.
- Modern terminology allows intended beneficiaries to sue.
Septembertide Publishing, B.V. v. Stein & Day, Inc.
[884 F.2d 675] 1989 2d Circuit Court of Appeals (cb878)
- Septembertide was successor to corporation that was equivalent to author of book--Higgins.
- Higgins contracted with Stein & Day for softcover version, S & D would make payments to Higgins.
- Stein & Day contracted to market softcover to New American Library, NAL would make payments to Stein & Day. This contract was made first, in contemplation of Higgins contract.
- One of S & D's secured creditors was Bookcrafters USA. Bookcrafters was perfected secured party, could claim assets of S & D owed to others.
- Higgins wants to get beyond S & D (since its assets can be claimed by Bookcrafters), so attempt to pursue NAL directly, so payments don't get to S & D. Sues NAL on Third-Party Beneficiary theory.
- Court allows 3rd-party beneficiary claim, finding both parties intended benefit.
- Intent that satisfies court is knowledge. Actual knowledge may not even be necessary, simply 'chargability of knowledge' can satisfy third-party beneficiary.
Grigerik v. Sharpe
[721 A.2d 526] 1998 Connecticut Supreme Court (cb871)
- Buyer told seller he wouldn't purchase property if he couldn't build on it. Engineer got Sharpe (engineering company) to do tests, showing that buyer could put in septic tank.
- Buyer purchased property, then was told by town that he couldn't put in septic tank.
- Court holds that both parties needed to have intent to benefit third-party.
- Foreseeability does not suffice for intent