Contracts Issues

• Why courts step in:
•   Disparity in bargaining power
•   Monopolies taking advantage of public
•   Public policy

• Cases:  McKinnon, Tuckwiller, Black
• Auth:  208; 1-304, 205

• Cases:  O'Callaghan, Graham, Carnival Cruise
• Auth: 2-302

Determined from circumstances when K was made.

• Procedural v. Substantial
• P: fault or unfairness in bargaining PROCESS
• S: fault or unfairness in bargaining OUTCOME

Sliding Scale:  If lots of procedural unfairness, only needs to be minimal substantive...and vice versa.

• Cases: Williams, Jones, Armendariz, Scott
• Auth: 2-302, 208

• Cases: Dalton, Eastern Air Lines, Market Street, Bloor, Lockewill
• Auth: 205, 1-201(19), 2-103(1)(b)

• 2 main concerns:
•   Every K made for or about any matter prohibited by statute is void.
•   Only those Ks that disserve general public interest as indicated by legislature are void.

• Factors for enforcement of illegality:
•   Nature of K
•   Extent of Public Harm Involved
•   Moral Quality of Parties' Conduct
•   Do Parties Know
•   Who would be unjustly enriched and to who's detriment?

• Considerations to determine illegality:
•   Does it render K void?
•   Would recovery still be had?
•   Relative culpability
•   Bargaining power involved
•   Knowledge of parties of K
•   Public policy

If loss of K would severely harm one party, it is likely to be enforced.

In Pari Delicto:  If both parties are responsible for illegal K, ct won't enforce.  If once side is more culpable, ct will likely help less culpable party.

• Cases: Bovard, XLO, Hopper
• Auth: 178, 181, 186, 187, 188

• At-Will Employment - Lawful discharge rule is that they can be discharged for any reason.
• EXCEPTION: if enforcing lawful discharge rule would violate public policy.

• Cases: Balla, Sheets
• Auth:  187, 188

Cases:  Simeone, Baby M

• Professional whose license is revoked can not be paid no matter what.
• This protects public welfare.

Auth:  181

Promise is unenforceable if it restrains trade.

Promise to refrain from competition that imposes restraint not connected to otherwise valid transaction is unreasonable restraint.

• Non-compete agreements are reasonable if:
•   No undue hardship on employee;
•   It is necessary;
•   Distance is not ridiculous;
•   Time period is not too long (as related to industry)

• Cases: Hopper
• Auth: 186-188

Available ONLY when there is NO adequate remedy at law ($ damages).

Courts are reluctant to make people finish performance b/c they don't want to babysit.

• Cases: Campbell, Pepsi, Morris, Laclede, Walgreen
• Auth:  2-716, 357, 359-362

Expectation Damages:  Puts parties in position they would have been in had breach not occurred.

K$ - Cost Saved/Avoided + Other Losses

Auth: 347

• Direct Costs:  Vary from K to K
• Overhead Costs:  All other costs that don't change from K.

• Case: Vitex
• Auth: 2-711

When K is breached and buyer is forced to buy same product at higher price, buyer can recover for difference in price.

• Case: Laredo Hides
• Auth: 2-712, 2-713

Seller has to show that they would sell to another buyer regardless of the breach and would still sustain a profit.

Car deal is quintessential LVS.

LVS has burden of proof to show they are.

Requirement of profitability is JX sensitive.

• Case: Diasonics
• Auth: 2-708

When goods and services are provided and unintended consequence is that cost of performing the K would be greater than profit.

• Would not sue for damages if party suing would incur a loss.
• Instead bring suit in quantum meruit (reasonable value of services)
•   Recover is undiminished by any loss which would have been incurred by complete performance.
•   Restitution awarded of reasonable value for benefit conferred.
•   Sue to get restitution of amount that is already completed.

Total amount spent / Finishing cost x K$

Case: Algernon Blair

• Liquidated Damages Enforcement:
•   Allow parties to control their own exposure to risk.
•   Avoids uncertainty, delay and expense of judicial process.
•   Economically efficient.
•   Corrects potential inadequate judicial remedies.

Disfavored b/c it may infer unfairness if in excess of injury and public law, not private law, typically determines remedies.

• Case:  Wasserman
• Auth:  356

Condition Precedent: Factor or event which parties intend must exist or take place before there is a right to performance.

"If so long as..."

• Condition is not a duty.
• Does not create new liability.
• Only limits existing duty.
• Language of express duty may be strictly complied with.

• To establish a condition in K:
•   Due Diligence 
•   Express Condition of Notice
•   Divisibility of K 
•   Don't be Ambiguous
•   Express Right of Refusal

Cases (in relative order from above): Luttinger, Internatio, RS 240, Peacock, Gibson

Auth:  204, 224-229, 234

Waiver:  Agreement that condition doesn't have to occur.  Despite this, K can still completed.

Waiver can be retracted if it was waived BEFORE time for occurrence, UNLESS other party has substantially relied on waiver.

If there is reliance, estoppel will preclude retraction.  Retraction CAN NOT happen AFTER time for occurrence regardless of reliance.

• Election:  When time for condition to occur has expired, party whose duty it conditional makes choice to --
•   Take advantage of non-occurence so duty is discharged; OR
•   Disregard and treat duty as unconditional.
• Reliance plays no role, election is a binding decision.

Auth: 84

Types of Conditions:

Mutual & Independent - either side may recover if other party breaches a covenant where there is no excuse for D to allege breach of covenants on a party or plaintiff.

Dependent - Performance of one depends on prior performance of another.

Same Time Performance - Both must be performed at the same time.

Factors to determine whether performance was substantial and nonetheless breached.

• Purpose to be served
• Desire to be gratified
• Excuse for deviation
• Cruelty of enforced adherence

• When can a party do this?
•   Was there uncured breach by other party?
•   Is it breach of duty of performance that was exchanged under exchange of promises? 232
•   Did breach go to performance that was to be rendered at earlier time than that of aggrieved party?  237
•   Is breach serious enough to justify self-help of suspension of termination?

• Was it material? 241
•   Injured party deprived of reasonably expected benefit.
•   Extent adequate party can be reasonably compensated.
•   Extent party failing to perform will suffer forfeiture.
•   Likelihood party failing to perform will cure his failure.
•   Whether party failing to perform comports w/ good faith and fair dealing.

• Is it partial or total breach?
•   If not material, partial.  Party can get damages, but no termination of K.
•   If material, aggrieved party can continue performance and treat breach as only partial, OR stop performance and treat as total breach.

• Language of repudiation must be sufficiently positive to be reasonably interpreted to mean the party will not or cannot perform.
• 2-610, 250

AR can only occur before time has arrived.

• Renunciation by one party frees other party from future obligations to perform.
• Hochster

Cases: Hochster, Kanavos, McCloskey, C.L. Maddox, Cosden, Seacoast

Where there is material, mutual mistake, that is a reason not to enforce deal.

If mistake is over something's worth, materiality is questionable.

• Cases: Stees, Renner
• Auth: 152, 158

Maj: Party is not excused from performance if act is not impossible to perform, even if party becomes unable to perform.

Min: If something was basis of agreement, and performance depends on it, performance is excused by difficulty of performance or by the fact he becomes unable to perform.

Performance may be impracticable b/c extreme or unreasonable difficulty, expense, injury, or loss to one of the parties involved.

May also be impracticable b/c it will involve risk of injury to person or property that is disproportionate to the ends to be attained by performance.

• Cases:  Mineral Park Land, Taylor
• Auth: 261, 263

• RS 265, Comment A: Discharge by Supervening Frustration
•   Purpose frustrated must have principle purpose of that party in making K.
•   Frustration must be so severely substantial that its not fairly to be regarded as w/in risk assumed under K.
•   Non-occurrence of frustrating event must be a basic assumption to K.
•       Foreseeability is factor in determination, but just b/c event was foreseeable doesn't mean non-occurrence was not such a basic assumption.
•       Remember the Foreseeability Spectrum!

• Standards for impracticability:
•   Something unexpected must have occurred.
•   Risk of unexpected occurrence must not have been allocated either by agreement or by custom.
•   Occurrence of contingency must have rendered performance impracticable.
• Transatlantic, 2-509(3)

• Risk Bearing Analysis:  Look at who is in better position to bear the risk.
•   Partial failure to seller's source of supply is generally a foreseeable contingency, and risk is allocated to seller w/o specific provision to the contrary in K.
• Selland Pontiac-GMC, 2-615

Escape clauses that remove liability if you expressly state it in K.

Must be carefully drafted b/c general phrases are usually limited to terms already mentioned.

Don't use language "anything similar or dissimilar."

Cases:  Canadian Alcohol, Eastern Air Lines

Where there is an unforeseen later occurrence that leaves the possibility to perform, but the underlying premise of K does not exist.

• Necessary Elements for Frustration:
•   Some supervening act or event leading to frustration;
•   At the time of entering into K, parties did not reasonably foresee act or event occurring;
•   Purpose of K has been completely or almost completely destroyed by act or event; AND
•   Purpose of K was realized by both parties at time of making the K.

• Efficiency
• Adequacy of Legal Remedy
• Hardship to Defendant
• Balance of the Equities
• Practicality of Enforcement
• Need for Clarity in K/Order
• Specific Performance as Partial Remedy
• Plaintiff's Return Performance