contracts: march 4 2010 class notes

recap.
express warranty.
can be against public policy.
implied warranty (repairs made to the roof and the lessor did not authorize them; lessor couldn't know if hte lessee's negligence created the disrepair or choose what updates they wanted to make. lessee forfeits right to reimbursement of repair because of the court's reading of an implied warranty)
clark v. west: author, publisher will pay him $2 a page or $6 a page if he doesn't drink. publishers see the early work, approve and tell him not to worry about the drinking. west then won't pay for the book. clark argues successfully that west waived its rights to the drinking clause. it's possible to be entitled to a condition and yet waive the obligations set forth in the condition. it was an oral waiver -- was parole evidence an issue? no: this was not about figuring out the meaning of the bargain or agreement, it was instead about a modification of waiver after the creation.

in exchange of the waiver of condition, does there need to be fresh consideration?

ferguson takeaway: you can have pretty rock hard language and still there are creative ways to pick holes into it. there are some things however that are pretty immutable. this case would have been better resolved as a tort case (SPL) but the problem at the time was one of privity.

performance and constructive conditions of exchange. 
when does the breach of one condition generate an excuse to not perform on the other side?
in other words, when are conditions in/dependent?
when does one party's performance depend on another performance?


kingston v. preston

at what point did the property exchange hands, when the buyer finished his duties of making payments or when the arrangement was reached?
security: giving the security was a condition that had to be fulfilled first. the transfer of the business was contingent on the security being met. if/since it was not, then the seller's ability to transfer the business is excused because the preceeding requirements are not met. there is a sequence due to the nature of hte business relationship: the seller won't transfer without the security, otherwise the security agreement would have no meaning.

palmer v. fox
sale of land where there's a down payment and then monthly payments over a few years, and then a balance is left of $700-ish dollars. the seller's assignee sues for the balance.
the defense is that the assignees failed to make required improvements, which justifies non-payment of the balance.
however, the contract did not say *when* the improvements had to be made. though it *did* specify when the payments had to be made.
doesn't a delay deprive the buyer of value of the use as the seller delays repairs? why didn't the buyer specify a timeline for repairs? why do we construe this ambiguity against the seller in their having to make the improvements? 
fairness.
the plaintiff wants the money even though it hasn't made the repairs. however, the plaintiff didn't make any improvements.
the plaintiff has breached a condition and the obligation to pay was dependent on the condition to improve.
does the court agree with the defendant? how does the case turn out?
do all breaches of dependent conditions automatically excuse performance?
no only MATERIAL BREACH
what makes something material instead of immaterial?

jacob v. kent... exercise of perfect tender
why should it matter if the breach is in good faith instead of willful?

o.w. grun v. cope
can be argued different ways. you can argue that color is different than pipes. that color is material or immaterial to the usability of the product.

contracts: feb 25 2010 class notes

good faith.

what does the implied duty entail? honesty in fact.
witholding escrow money was not in good faith.
competing against your counter-party is bad faith (though 3rd parties can compete in the market against your counter party, that's OK)
intentional interference of C to a contract to which A and B are parties: there's no good faith per se that C owes A, but A may have a tort claim against C.
exercising your rights under a contract is not bad faith.

warranty. a warranty is a guarantee that certain facets of goods or services as factually stated or implied by the seller
express warranty
implied warranty of merchantibility.

henningsen v. bloomfield motors corp. 
there were titles for reimbursement for parts and there was an express warranty.
even with an express waiver of warranty, the implied warranty interests are still covered.
couldn't the henningsens have bought insurance? 3rd party insurance would have taken away a lot of the argument.
public policy argument of the court: we don't like this as a matter of public policy and therefore, the express warranty is voided

clark v. west
what about the parole evidence rule? how may this apply to the agreement?
labor is a post-contractual modification and not an inquiry into the party's original agreements. parole evidence rule concerns extrinsic evidence about the meaning of the agreement.
you can waive something orally after agreeing to it in writing, and that's different than looking at what was stated orally in creating the contract (not interpreting the contract, but changing it)

contracts: april 15 2010 class notes.

remedies recap.

the hydraform case about the stoves. the american was late in its delivery and selling defective steel to hydraform. there was a clause that proported to limited consequential damages. the lower court found the clause to be unconscionable. assuming consequential damages, how far do they go? souter said that the consequential damages ruling, though it goes beyond the clause, is still limited: all that hydraform can get is lost profits on the 150 stoves it didn't sell because american steel was late and provided defective steel. it can't get diminished business value.

bohac v. dep't of agriculture.
not a contracts case, but the appellate court is looking at the meaning of consequential damages and making an inquiry into whether they include nonpecuniary losses. consequential damages does not cover nonpecuniary losses. sharfman calls it the "undertaker's exception": see p.1060 for the restatement... if you do something reeeeeally anguishing like messing up on a body, and that causes grave (haha) emotional disturbance, you may be covered by the remedies doctrine. also innkeepers and carriers are covered.

in the long island case of broken engagement, the court held damages for nonpecuniary loss was not a legally cognizable mental anguish for contract breach remedy.

acquista may be an exception to where nonpecuniary losses may be allowed remedy.
plantiff is seeking damages in excess of the insurance company limits of payout. the theory is that there is some sort of nonpecuniary/emotional/nonfinancial losses associated with the denial of coverage.
the case gives some theories: maybe the doctor was deprived of medical treatment or other therapies that would have made his life better, and now he's suffered damages because of the lack of treatment. this opens the door to a tort claim via contract law: "why not just bring a tort claim here? there's a claim of emo distress and loss of opportunity?" sharfman says that in torts you have IIED but here even if it wasn't intentional, you stillhave rise to distress even without intention, just need breach or unconscionability or reliance under contract.

guy got the car and made payments. then realized the new car was used. stopped payments, and car dealer sued. common law rule: you don't get punitive damages. but this is a case where defendant got them on counter claim. the general rule for punitive damages is that they must have some reasonable relation to the compensatory reward. what does reasonable mean? sharfman says he doesn't know but that it could be like a ratio: J. Kennedy says that a ration more than 10/1 is too high and without due process.

money from amco would not work here because there's some losses to lackleed in this trailer park are dependent on the gas. they would have a claim, and that could potentially not be foreseeable to amco and so the compensatory would not be full under hadley and so amco would be held to specific performance.

go ahead and breach and pay: the economic doctrine under posner
here in walgreens case, the landlord wants to breach the lease and rent to another pharmacy. the landlord wants to pay damages and walgreens wants an injunction because the monetary damages would under compensate. posner was happy with the lower court. for our purposes: if you can come up with the arguments for why the money remedy is likely to under compensate then you're in inadequacy at law territory in which case specific performance/injunction could definitely work. you can try to calculate what walgreens profits would be against pharmor's but there's nothing certain to that about the loss. though it's unclear as to the loss it still is reasonable that the money would undercompensate.

notes: injunction goes pretty far -- the contractor who hasn't even begun to build the mall yet is ordered to build it.

negative injunction case: abc v. dick wolf
this is a labor/employee contract. you can't force someone to perform on an employment contract. you might owe damages, but there's no specific performance. wolf doesn't want to go forward with abc, but instead wants to move to cbs and abc wants a negative injunction to make wolf unable to work for cbs. can't as someone to perform specifically under an employment contract but you can get an injunction to keep them from working with someone else. losses: loss of advertising, loss of viewership, etc.

contracts: april 8 2010 class notes.

compensatory damages recap.

lost sale doctrine.
locks v. wade
jukebox case - renter argues that the jukebox is rented to someone else and so the lessor has mitigated loss and damages are 0. the owner says hell no -- we had additional capacity, we lost these sales. the fact we had other sales is irrelevant (we were gonna hav eother sales anyways). the lessor sale view prevails.

so maybe land is different... 
you have an apt you want to lease to someone, but then you are able to lease to someone else.
but sharfman thinks that that's not always the case (hotel room example: you can rent the hotel to someone else, even though the other hotel rooms may be empty...)

the principle is not between chattel and real property but whether it's excess capacity for the non-breaching party. the fact that there were other sales is immaterial and can't be counted as mitigation towards the breach.

employment. 
if i get another job elsewhere later, does my new job mitigate damages owed by first employer? maybe.
it's not apples to apples though -- if one job is better/worse than another, that will be taken into consideration in offsetting the wages from context to context.

unemployment benefits cannot count in mitigation (collateral source rule, i received some income from a collateral source not my employer). the collateral source cannot be used to mitigate.

if you are able bodied, but just lazy and you didn't accept another job, can the fact that you could have worked be mitigation? in principle, yes - but employement is a complex topic and so the application will be different. in child support cases, the court will apply damages owed against the party who is unemployed but able bodied/ should be working.

the 666 building case.
able landlord, and tenant breaches. the landlord is paranoid and is covered anyway. but is the landlord also hyper-aggressive in that he wants to recover the insurance cost from the tenant? the tenant is only liable for the priium.
hypo: what if L bought insurance anyawy? T could prob argue unjust enrich if he had paid (this only works if the L doesn't know about the T lack of insurance). purchase of insurance can be a mitiagtion technique.

reliance. 
wood for burbon barrels -- did the buyer have a duty to mitigate prior to the date of performance? because the seller could have performed, even though it had announced to the buyer that it would have ot breach. the buyer could have remedied then and bought the wood subsequently. here, the court said that the buyer had no oblig to mitigate prior to time of performance.

in the instance of inefficient performance.
rivers v. dean.
defendant agreed to build the addition onto the P's house. the addition was unusable. what should the damages be?
X -- current value
X+Y -- promised value
Z -- cost of repair
Z> Y
know the comparison to jacob v. kent (you're not entitled to
in this case, the owner of the home has an addition that is not usable - the breach is material and the breacher is not innocent, so the court is not worried about inefficient performance.

peewee house v. cole
the cost of restoration would be Z. the difference in market value is Y. the jury gives a number between Y and Z. and on appeal, the lower figure is awarded (the Y figure) which leaves the peewees with an unrestored farmhouse and stuck in the pits remedy-wise. this case is hard to reconcile with rivers. sharfman thinks it is a bad result.

shackman.
again, Z>Y
the contractors didn't do grating that needed to be done. that is worth 90K (Z) the diminution is Y. the court awards the larger figure to the plaintiff.... sharfman thinks the award differnces relates to different jurisdictions.


hadley v. baxendale

hydraform

bohac... why is this in our book? because the statute uses the term "consequential 

acquista v. new york life insurance
what extra harm does the bad faith do?
insurer is crossing the line from bad faith to tort

boise v. clark
see the notes, which discuss constitutional limits to punitive damages as well
are punitive damages available for breach of contract? -- yes
in idaho: they are available if
1. deceitful/ fraudulent
2. material omission
tortious conduct, but still must bear a relationship to the award (see BMW v. gore, where the actual damage was like $200 but the punitive was like $10M)

laclede
there is an inadequate remedy at law, instead requires more of a remedy at equity perhaps. 
restatement - special interests, though the general rule is that it is hard to grant this kind of remedy. the 8th cir grants specific performance on the contract.
when can you get specific performance?

see p. 1031 problems.
personal services contracts is a general matter where you can't force people to give their services as equitable remedy.

specific performance concerning land...
walgreens v. sara creek 
this is one of posner's favorite cases, and one that distinguishes his law and economics theoretical interpretations

you're only entitled an equitable remedy when there's an inadequate remedy at law.
the doctrine: the number is very speculative when trying to figure out how to calculate 10 year profit loss.
1. harm to the movant
2. harm to non movant
3. efficency arguments

posner's efficiency arguments: he argues efficiency, social costs, and that a

notes following walgreens: courts granting specific performance for a site that hasn't been built yet, but the courts are quick to say that they won't always force someone to build something that hasn't been built yet!

abc v. wolf 
the existing contract allowed him to negotiate in good faith, and that if he did receive an offer, he had to give abc the opportunity of first refusal (give them the chance for abc to match or best the offer)

does abc have the right to stop wolf from working someplace else?
no -- there's no non-compete clause in this case

contracts: feb 4 class notes

recap.
parole evidence rule:
ambiguity in the agreement: see pacific gas, see katrina, see pierless

good faith. 

sju law review article on good faith 


centronics v. genicom
buyer has put a generous amount into escrow to cover the fair value of the property

patterson v. meyerhofer
is it bad faith that meyerhofer is participating in the auction?
the court says meyerhofer impeded on the other party's ability to perform on the contract and so that was not good faith
making bad faith because you are then competing with your should have been business partner at the auction
patterson was reward what he would have made in profit had the contract been performed.
meyerhofer is clearly engaged in bad faith

market street assoc. v. frey
court's position here is a subjective position on bad faith, that the defendant exercised bad faith in not disclosing the computational error and oversight to a provisional clause in the contract.
when a contract is silent on a certain issue, the court assumes hypotheticals about what the parties knew and agreed on to fill the gaps
in market street, the defendants are taking unfair advantage but it's not as clearly and formulaically bad faith

suppose ge had lost its copy of the lease? did market street assoc. have the responsibility to furnish them with a new copy? yes, so that both sides can ensure assent and no ambiguity during the agreement. it's sort of an implicit agreement through the course of a relationship. however, it's guaranteed that you will get a copy of the contract in discovery!

interesting side note at contractsprof's blog on market street assoc.
good faith in contract performance

neumiller farms v. cornett
refusing delivery of chips on the grounds that they were dissatisfactory. but actually, it seems it was a way for avoiding the rising price of potatoes...
can you do that? why did the court determine bad faith?
it's clear that these goods were conforming, and to say that they weren't conforming was bad faith
satisfaction clause in the contract, and that may have inspired comments that
bad faith may up the remedy and satisfy punitive damages

billman v. hensel
the billmans had an agreement contingent on getting financing. the billmans didn't put enough good faith effort into getting financing. stopped payment on a $1k check. but this isn't a typical case; here there's a lack of "honesty in fact" when the billmans say they can't get the money, and in determining the price

feld v. levy
bread crumbs requirements agreement, and the levys are losing money.
stopped making the crumbs without giving notice, but are happy to turn the machines back on for a penny more a crumb.
can they do that? no. if it's going to put the business as a whole in danger, that's not trivial but the agreement does have a six-month clause and it's built in for the protection of the parties.

roth steel v. sharon steel: inflation environment so price of steel is going up and then there's a shortage. sharon sells steel to roth, and asks for a contract modification on the grounds that there's no raw steel available. under duress/coersion, roth agrees to take a lower price. but subsequently, roth learns that sharon has been selling the steel at a higher premium to other customers. therefore, it wants to enforce the original contract because they only renegotiated because sharon misrepresented the facts. the court determines that there was lack of good faith.

nb - you don't need new consideration under the UCC

zapatha v. dairy mart, inc.

hillesland

contracts: jan 28 class notes

recap: mistake.

we want to encourage people to get information and to exploit it so that there's not mistake.

however, price is more effective as a determinative than expertise.

price as evidence of mistake:

boise case - mistake, the bid had mistake where price might be evidence of mistake. a party is entitled to recission due to a unilateral mistake.

lenawee county case - parties inserted an "as is" clause

ayer v. western union - where price is evidence of a mistake paradigm: the price was stated correctly but the telegraph incorrectly transmitted the information (cross reference to hadley)

onebeacon

sherwood

if price is not a factor, then the court will look at the relative information positions of the parties.

parole evidence rule additional information that could shed light on the agreement between the parties is extrinsic to the written contract.

the question is whether or not the additional material is admissible.

mitchill v. lath

can the lath's promise to remove the lunn's ice house be enforced against the written contract formed with the mitchill?

masterson v. sine

pacific gas v. drayage traynor's opinion is not how this material is usually handled

confold v. polaris (interesting secondary read, "who owns your future business?")

confold brings forth the issue with extrinsic evidence raising ambiguity to meaning

frigiliament v. bns (fresh chicken case)

in re katrina (interesting blog article about the 5th circuit and katrina insurance)

see notes p. 688 - the hierarchy of interpretation rules eyal zamir, the inverted hierarchy of contract interpretation and supplementation, 97 Colum. L. Rev. 1710, 1718-19(1997)

masterson v. sine

Masterson v. Sine, 68 Cal.2d 222, 436 P.2d 561, 65 Cal. Rptr. 545 (1968).

Facts: Dallas and Rebecca Masterson (P) owned a ranch as tenants in common which they conveyed by grant deed to Dallas’ sister and her husband (i.e. Sine, D). Masterson reserved an option to repurchase the ranch within ten years in exchange for the consideration paid by Sine, plus the depreciation value of any improvements. Dallas later went bankrupt. Rebecca and Dallas’ trustee in bankruptcy (P1) brought a declaratory judgment action to establish their right to exercise the option.

No jury. At a bench trial the court determined that the parol evidence rule precluded admission of extrinsic evidence offered by Ds to show that the parties wanted the property kept in the Masterson family, and that the option was therefore personal to the grantors and could not be exercised by the trustee in bankruptcy. The court entered judgment in favor of P and D appealed on the grounds that the option provision was too uncertain to be enforced and extrinsic evidence as to meaning should not have been admitted.

Parole evidence can be used to information integrated to the portions of the agreement not reduced to writing. Did the parties intend the written agreement to be the exclusive body of the agreement?

Issues: 1) Under what circumstances should evidence of oral collateral agreements be excluded? 2) How must the court determine whether a collateral agreement is such that it might naturally have been made as a separate agreement?

Holding and Rule (Traynor): 1) Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled. 2) When determining that a collateral agreement is such that it might naturally be made as a separate agreement, the court must look to the actual experience and dealings between the parties as they view the status of such a collateral agreement.

The court held that it was error for the trial court to exclude extrinsic evidence that the option was personal to the grantors and therefore non-assignable. If an agreement is complete, parole evidence cannot be used to vary, contradict, or add to the terms of the contract. If an agreement is partial, parol evidence can be shown to prove the elements of the contract not reduced to writing.

Corbin on Contracts. It must be determined whether the parties intended the written agreement to be the final and complete embodiment of the terms; i.e., whether the agreement was an integration.

The court held that if the contract states that there are no previous understandings or agreements not contained in the writing and thus clearly it expresses the parties’ intentions to nullify antecedent understandings or agreements, it need look no further for merger clauses. Otherwise, any collateral agreement must be examined to determine if the parties intended them to be included in, excluded from, or otherwise be affected by the writing. Circumstances at the time of the writing may be used to determine whether there has been an integration.

Restatement 1st Section 240 (1)(b) permits proof of a collateral agreement if such an agreement would be naturally made by parties similarly situated as were the parties to the written agreement. UCC 2-202 states that parole evidence is not admissible if the additional terms are such that, if agreed upon, they would certainly have been included in the written contract. Thus they would exclude the evidence in still fewer instances. The option contract did not explicitly provide that it contained the complete agreement.

The deed does not address assignability. This was a deed and from the very nature of deeds, the formalized structure does not lend itself to the insertion of collateral agreements and makes it less likely that all the terms of such an agreement were included.

Even when there is no explicit agreement that contractual duties shall be personal, courts will presume that intent if the circumstances indicate that performance by substituted persons would be different from that contracted for (Restatement 150). The court held that under these facts, it appeared that the collateral agreement would have been made as a separate agreement; parol evidence of the issue of assignability must be allowed.

Disposition: Reversed.

Dissent (Burke): The right of an optionee to transfer his option to purchase property is one of the basic rights accompanying the option, unless limited by the language of the option itself. To allow an optionor to resort to parol evidence to support his assertion that the written option is not transferable is to authorize him to limit the option by attempting to restrict and reclaim rights with which he has already parted. There was nothing ambiguous about the granting language of the option and not the slightest suggestion in the document that the option was to be non-assignable. To permit such words of limitation to be added by parol is to contradict the absolute nature of the grant and to directly violate the parol evidence rule.

confold v. polaris

Around 1993, Polaris retained ConFold to conduct a "reverse logistics analysis" to determine whether Polaris should switch from disposable to reusable/returnable containers for shipping its vehicles. 2006 U.S. App. LEXIS 513, at *1-2. Prior to performing any work, ConFold and Polaris entered into a mutual NDA, titled "Mutual Non-Disclosure Agreement – Logistics Consulting Version" (the "Agreement"). Id. at *2-3.

The preamble of the Agreement stated ConFold and Polaris desired to exchange "information for purposes of both companies developing future business with each other." Id. at *7 (emphasis added). Under the Agreement, the parties were not to disclose outside of their respective companies "any information" provided in writing and appropriately designated, and to refrain from using such information except in connection with future transactions between the parties. Agreement at 1. Soon after the Agreement was signed, and before the logistical analysis was completed, Polaris requested ConFold and eight other companies to provide an actual product design proposal. See 2006 U.S. App. LEXIS at *2.

Believing this to be part of the original project, ConFold submitted design plans and drawings to Polaris, but Polaris accepted neither ConFold's proposal or any of the eight others. Id. Two years later, Polaris began selling a reusable shipping container that ConFold claimed was based on the design that ConFold had submitted in response to the request for proposals. Id. ConFold filed suit in Wisconsin federal district to enforce the NDA, and asserted claims for breach of contract and unjust enrichment, but lost on summary judgment.