Contracts Outline - Fall 2011

CONTRACT TYPES...........................................................................................................................................................................................................2 NO COMPULSORY CONTRACTS...........................................................................................................................................................................................2 DEBTOR AGAINST HIS WILL..............................................................................................................................................................................................2 CONTRACT TYPES...........................................................................................................................................................................................................2 UNILATERAL, BILATERAL, & REQUIREMENTS K.........................................................................................................................................................................2 OFFER.............................................................................................................................................................................................................................2 INVITATION TO MAKE AN OFFER: ADVERTISEMENTS & \...............................................................................................................................................3 REVOCATION/ MODIFICATION........................................................................................................................................................................................3 FIRM OFFERS / OPTIONS.................................................................................................................................................................................................3 Merchants Written Offer to Another Merchant, Option K, & Detrimental Reliance............................................................................................3 FLAGPOLE RULE............................................................................................................................................................................................................3 Part Performance:................................................................................................................................................................................................3 ACCEPTANCE..................................................................................................................................................................................................................4 MIRROR IMAGE RULE......................................................................................................................................................................................................4 2-207 UCC............................................................................................................................................................................................................4 MAILBOX RULE.............................................................................................................................................................................................................4 REJECTION/COUNTER-OFF..............................................................................................................................................................................................5 CONSIDERATION............................................................................................................................................................................................................5 ADEQUACY..................................................................................................................................................................................................................5 Conditions, Seal, & Main Purpose Rule................................................................................................................................................................5 GRATUITOUS PROMISE.....................................................................................................................................................................................................5 90 Reliance (Promissory Estoppel) & Inducement............................................................................................................................................5 MORAL CONSIDERATION/RENEWED PROMISE & MATERIAL BENEFIT.................................................................................................................................................6 ILLUSORY PROMISES & GOOD FAITH.............................................................................................................................................................................6 STATUTE OF FRAUDS.....................................................................................................................................................................................................7 FRAUD......................................................................................................................................................................................................................8 SURETYSHIP: MAIN PURPOSE RULE......................................................................................................................................................................................8 SATISFACTION BY PART PERFORMANCE: RELIANCE.....................................................................................................................................................................8 UNCONSCIONABILITY.....................................................................................................................................................................................................9 READJUSTMENT OF GOING DEALS.................................................................................................................................................................................9 MUTUALLY RESCIND + NEW K: DOCTRINE
OF

EXCUSE, ADVANCED PAYMENT, IMPOSSIBLE

TO

PERFORM, & DURESS........................................................................................9

PAROL EVIDENCE RULE (AND RULES OF INTERPRETATION)........................................................................................................................................10 MERGER CLAUSES & COLLATERAL AGREEMENTS.....................................................................................................................................................................11 THIRD PARTY BENEFICIARY..........................................................................................................................................................................................11 ASSIGNMENT & DELEGATION.......................................................................................................................................................................................13 NOVATION................................................................................................................................................................................................................13 PROBLEMS OF PERFORMANCE.....................................................................................................................................................................................14 MISTAKE, IMPRACTICALITY, FRUSTRATION, CONDITIONS: SUBSTANTIAL PERFORMANCE, PERFECT TEDNER, QUANTUM MERUIT, & MATERIAL BREACH...................................................14 READJUSTMENT OF GOING DEALS...............................................................................................................................................................................15 MUTUALLY RESCIND + NEW K: DOCTRINE
OF

EXCUSE, ADVANCED PAYMENT, IMPOSSIBLE

TO

PERFORM, & DURESS......................................................................................16

READJUSTMENT OF GOING DEALS...............................................................................................................................................................................16 EQUITABLE REMEDIES..................................................................................................................................................................................................19 INJUNCTION & SPECIFIC PERFORMANCE................................................................................................................................................................................19 SALE OF GOODS (UCC REMEDIES)...............................................................................................................................................................................21 LOST-VOLUME
SELLER,

BUYER'S REMEDIES, SELLER REMEDIES, ANTICIPATORY BREACH, NERVOUSNESS, MITIGATION, CONTROLLING LIABILITY..........................................................21

UCC PROVISIONS..........................................................................................................................................................................................................21

Contracts Outline - Fall 2011 I. Contract

A. What is a Contract? A contract is formed in any transaction in which one or both parties make a legally enforceable promise. A promise is a commitment or undertaking that a given event will or will not occur in the future and may be express or implied from conduct or language and conduct. A promise is legally enforceable where: There is an Offer, Acceptance, and Consideration which was bargained for, or If there is no consideration, reasonably induced the promisee to rely on the promise to his detriment; or is deemed enforceable by a statute despite the lack of consideration. B. 3 Clichs First of all, I think it is important you understood some basics of my advice to you. I will be referring to three fundamental principles which the laws of contacts were founded on. Your hardest issues to resolve will be when the law clashes with these principles because there is uncertainty in outcome when principles collide. Many judges in the past have settled these types of collisions with what we call thaumatrope anlalytics, which is simply when one imperfect principle is used to give the allusion that all principles are in balance and there is no collision, when in fact this is just an illusion, just like the illusion of a bird in a cage in a thaumatrope. There may appear to be a bird inside a cage, but each side of the card only contains one of those objects, not both. These three principles are quite rational. They are: 1. There are No Compulsory Contracts which means acceptance must be volitional (cant be silence). (Hurley v. Eddingfield) a. Not entirely true - in your paycheck the government takes out taxes. This is compulsory. 2. There must be a Meeting of the Minds between the parties so they both agree there is a contract, and if they do agree, theyre agreeing to the same terms. This principle is that the Intentions of the Parties Control. The courts do acknowledge that there is always asymmetry in knowledge between the parties, however, so this will not prevent enforcement of the K. Current law favors an objective standard for determining a party's intent to be contractually bound. Thus, in general, communications are given the meaning that the recipient of the communication should have reasonably understood.The courts will use a reasonableness standard to interpret your actions. This means they will ask what the reasonable person would have thought you meant or intended. Your subjective intent is mostly unnecessary. a. Unless information one party lacks is such that there isnt really assent to agreement (continuum btwn meeting of minds & mistake) 3. Lastly, no party can make another a Debtor Against his Will (Noble v. Williams). Mutuality Principle - until both are bound, neither is bound b. Not entirely true: in Somners (made the school board a debtor) and Cotnam v. Wisdom (Wisdom made the estate a debtor) B. Main Rule Now, onto the actual laws contracts, the basic formula is that a contract is a legally enforceable agreement. A contract requires there be an offer, acceptance, and consideration to be legally binding. Without one of these elements, there can be no contract

II. Contract Types

A. Unilateral K - an exchange of a promise for performance B. Bilateral K - an exchange of promises (The modern view: Assume all bilateral unless expressly stated in offer or offer for reward) C. Requirements K - A requirement contract is one in which the term of quantity to be delivered is measured by the needs of the buyer. In such contracts, the buyer is not permitted to buy from a third-party supplier; the seller must deliver the required amount of product to the buyer but any excess produced may be sold to third parties. (Explicit amount not required); 1. The purchaser operating a business with predictable requirements (seller could reasonably estimate how much needs to be supplied), and 2. The purchaser acts in good faith regarding amount required (May be minimum and maximum req. (stronger case = Reasonable estimate)) 3. If neither (a) nor (b), then the buyer is not actually required to do anything, therefore it lacks mutuality & is an illusory promise. D. Output k - An output contract measures the contract quantity by the output of the seller. The seller is not permitted to sell any of its products to a third party; the buyer must purchase all of the seller's output but may purchase from third party suppliers any excess it needs beyond the seller's output. E. Types of Contracts Contract may be of the following types: 1) Express an agreement manifested by words 2) Implied-in-fact an agreement manifested by conduct 3) Implied-in-law ("quasi-contract") not a true contract but an obligation imposed by a court despite the absence of a promise in order to avoid an injustice

III.

Offer
A. Main Rule An offer is something that creates the power of acceptance and is clear, definite, and explicit such that when the offeree accepts, a reasonable person knows what there is a contact is for. B. Only the offeree can accept the offer. However, offeree cannot accept if they are aware that the offer is no longer 1. Need reliable info it has been 1) accepted by someone else, 2) revoked, 3) offeree knows he is not included, or 4)

open.

know oor joking/crazy

Contracts Outline - Fall 2011

C. Invitation to make an offer: broad, general offer, kind of at large (to a large group of people or the public, like a silent auction, in which case the person making the invitation to offer is not bound by any of the acceptances he might get to his original invitation, because they are all just offers, which he may accept or reject, rather than acceptances of his offer. If ambiguous, it must be interpreted to the offerees advantage. D. The more terms that are left open, the less likely it will be construed as an offer. When parties fail to limit quantity, it is not likely to be construed as an offer. Same goes for failure to limit recipients. Public proposals, like advertisements, are also usually not offers, but might be if the proposal itself limits liability, like 10 available, first come first served. (Exception: Requirements K). The objective standard is used to identify any missing terms. E. Offeror is the master of his offer, however he cannot specify that his offer is to be accepted by silence (unless by custom). Cannot offer to do something already performed, already has the duty to perform, or future promise (tomorrow I will promise to sell you X). F. If it is contested as to whether the offeror meant his statement to be an offer, under the subjective theory, it is a question of intent, resolved by asking if a reasonable person would have thought an offer was extended. However, any time the offeror says it was not meant to be an offer, it can be interpreted that it is not an offer, and the court is often reluctant to construe it as a binding offer. G. Offer may invite acceptance by promise or performance. Where an offer invites A by performance, can be accepted only by performance, not a promise H. An offer can be revoked before A initiated. (cant refuse to A performance when oee shows up to tender performance, having already begun to do so) 1. An offer is valid upon receipt, including when offeree is told of it by another person (if its a reliable source). I. In the sale of goods, the purchaser is the offeror, in general. J. Duration of Offer: If the offer has a stated time within which the acceptance must be made, any attempted acceptance after the expiration of that time will fail and will merely constitute a counteroffer by the offeree. If no specific time is stated within which the offeree must accept, it is assumed that the offeror intended to keep the offer open for a reasonable period of time, to be determined based on the nature of the proposed contract, trade usage, prior dealings and other circumstances of which the offeree knows or should know. 1. Generally, the time for accepting an offer begins to run from the time it is received by the offeree. If there was a delay in delivery of the offer of which the offeree is aware, the usual inference is that the time runs from the date on which the offeree would have received the offer under ordinary circumstances.

IV.

Revocation/ Modification

A. Main Rule Until the moment of A, the offeror has power of revocation and power to modify his offer (though he cannot make changes after A). B. Revocation - Terminates the offerees power of acceptance and is effective upon receipt or when published. 1. Must be reasonably calculated to reach the offeree. This requires it be communicated in same or superior manner than offer 2. Can be communicated by Offeror OR a 3rd party, but it must be reliable information (rumors/suspicions do not count) 3. Firm Offers / Options a. A merchants written offer to another merchant is irrevocable for a reasonable or expressly stated time, without consideration. b. An option K is irrevocable provided that the promise to keep the offer open is supported by additional consideration. c. Detrimental Reliance Substitute for the additional consideration in an otherwise unenforceable option: where a party has reasonably and foreseeably detrimentally relied upon the belief that the offer would be open for a certain time. [Carbolic Smokeball Co.] 4. Flagpole Rule [Perez Example] a. In a unilateral contract, the offer becomes irrevocable once the performance has begun & offerors power of revocation is suspended for a reasonable amount of time to allow completion; however, the offeree may terminate any time. 1. Upon commencement of performance, the offeror must give the offeree the amount of time specified in the offer (or, in the absence of a specified time, a reasonable time) in which to complete the bargained-for promise. However, the offeree's mere preparation to perform does not preclude the offeror from revoking. b. Part Performance: preparation to perform does not constitute part performance; however, if reasonably foreseeably relied to your detriment on the O of a unilat. contract, that reliance substitutes for the C that would have occurred with performance. C. Modification - Offeror can modify his offer before acceptance, but cant after acceptance propose new or arbitrary conditions not in the original offer

Contracts Outline - Fall 2011 V. Acceptance

A. Main Rule Acceptance occurs when an offeree assents to the terms of the offer by actual communication. There are various ways to accept. In general, the offeree must accept in a manner provided by the offeror because the offeror is the Master of the Offer and can dictate how the offeree accepts. We must look to what the offer said. B. Mutuality Principle Until BOTH are bound, NEITHER is bound C. Offeree can not accept if they aware that the offer is no longer open: 1. Does the offeree have reliable information that the offer a. 1) has been accepted by someone else, b. 2) revoked, or c. 3) offeree knows he is not included 2. Is the offeror serious/crazy (and does the offeree know it?) D. Means of Acceptance 1. There must be actual acceptance (word, written or spoken, or some overt act) to be considered a valid acceptance. 2. Bilateral K a. In a bilateral contract, the offers empower the offeree to only accept by return promise. Bilateral contracts are formed upon the giving of the promise to perform an obligation in the future, and failure to fulfill such promise results in breach. b. To accept, do what offeror specifies c. If no mode of acceptance specified, accept in a mode reasonable calculated to reach offeror i. Always reasonable if in same mode as offer ii. Generally reasonable if in more reliable mode to offer iii. Likely not reasonable if less reliable than the offer. d. Any objective manifestation of the offerees counter-promise through words or acts is sufficient e. UCC must communicate acceptance. 3. Unilateral K a. In a unilateral contract, the offer empowers the offeree to only accept by complete performance of the promise. The offeree's failure to perform does not constitute a breach since no contract is formed until the offeree renders full performance. b. Performance is acceptance and no notification is necessary, unless: i. There is no way that the offeror could have known about acceptance/performance, OR ii. If the offeror expressly requires notification 4. When uncertainty arises whether the oor sought promise or performance, one must examine his actions/words first, but most times Bilateral a. 2nd restatement abandoned distinction between Unilateral and Bilateral (because its not helpful) i. Presumption that mode of acceptance is a promise, and not an act ii. Creates contract at earliest moment, immediately protecting both parties (mutuality principle) b. In all cases, an offeree is required to accept in a manner prescribed by an offeror (always reasonable manner) E. Mirror Image Rule (Common Law) 1. The offerees acceptance must literally mirror that offer, otherwise it is a rejection & counteroffer. a. Mirror Image Rule an acceptance must conform to the terms set forth in the offer. No contract is formed if the acceptance contains terms that are different from or additional to those set forth in the offer. Such communication merely constitutes a counter-offer. The formation of a contract is generally precluded even if the discrepancy is trivial, although courts are now increasingly giving effect to an acceptance if the additional or different terms relate to an immaterial detail. F. 2-207 UCC (Modern Law) - Eliminate Mirror Image Rule - abolishes last shot doctrine (FOR SALE OF GOODS ONLY!) 1. (Applies to Everyone) In contracts where at least one party is a non-merchant, if the offeree unambiguously accepts but states additional terms, the terms are construed as mere proposals for modification and the terms of the existing contract are those set forth in the offer. a. UNLESS A is expressly made conditional on assent to the additional terms 2. (Applicable to Merchants ONLY) Where both parties are merchants, the additional terms become part of the a. O expressly limits A to terms of O b. Proposals materially alter O c. Notification of objection to proposals has already been given or is given within reasonable time after notice

contract unless:

of them is received 3. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract. a. In such a case the terms of the particular K consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. G. Method of acceptance 1. Acceptance should be made either by the same method as the offer was communicated, or by a method that was invited by the offer. H. Mailbox Rule 1. Acceptance is effective upon DISPATCH (the magic moment at which both parties are bound) 2. Valid only when acceptance sent first 3. If offeree sends an acceptance, and then a rejection, the acceptance is effective a. UNLESS Offeror receives the rejection first and relies on it to their detriment (not liable for breach)

Contracts Outline - Fall 2011

4. EXCEPTION: If Rejection or Counter-Offer sent FIRST (or at same time as A), whichever gets there first is effective (Mailbox not apply)

VI.

Rejection/Counter-Offer
A. Rejection 1. Once an offer has been rejected, the Offeree no longer has the power of acceptance 2. Effective upon receipt B. Counter-Offer - Where the acceptance does not mirror the offer, it functions as rejection & counteroffer. 1. Exception - Option K a. Option keeps the offer open for a specific period time, the offer is not terminated by the counteroffer b. Offeree can still accept the original terms of the offer within a reasonable time.

Consideration C = (BP(benefit to promisor) (or) DPe (Detriment to promisee) and BF (bargained for) A. Main Rule The purpose of consideration is to show that the parties intended to be bound. Consideration is either a benefit to the promisor or a detriment to the promisee and is bargained for. A benefit is receiving something you are not entitled to (warm fuzzies dont count), and a detriment is doing something you do not have to do or refraining from something you are entitled to do. Lastly, bargained for means to induce another to do something. 1. Should be able to flip these around and find benefit/detriment on the other side 2. Past Consideration is no consideration because that consideration doesn't induce the party to act or contract 3. If it is a unilateral contract, then there is only ONE promisor, but there still needs to be a benefit/detriment on each side B. Adequacy 1. Main Rule - Courts of law do not normally inquire into the value of the consideration, thus consideration can be nominal a. EXCEPTION: this is NOT permitted where the value of what is exchanged is determinate and Promisors intention is to enforce a gratuitous promise with nominal consideration (i.e., exchanging $1 for $100) (destroys freedom for promise and Intentions of Parties Control) b. Motive of promisor in making the exchange is not of central concern as long as it is apparent that he intended to exchange his promise for something else (promise of skiis in exchange for promise to quit smoking) 2. Conditions of a gratuitous promise cannot be consideration either. Where the act requested is merely a condition necessary to receive the promise, like holding out your hand (or coming to FL), the action is not bargained for or sought to be induced by the promisor. In determining if a requested action is consideration or merely condition, ask if the action benefits the Por (Would a reasonable person conclude that the satisfaction of the Pors apparent desire is being fulfilled; ex: asking street statue to hold out hand). The ultimate deciding factor though, is whether the act is what was bargained for. 3. Even when the thing being bargained for has no real value, if it is what the promisor really wants, because he falsely believes it has value or for any other reason, it can be sufficient consideration. Court can rule either way = 1) No consideration because there never was a valid claim, or 2) There was C, because promisor wanted it. 4. Seal or putting an agreement in writing can substitute for consideration, which is to show deliberateness and to deter imprudence when entering a contract, a. Consideration is as much a form as a seal b. It can at least show presumptive evidence of intention to be bound, and if someone clearly desires to be bound, should be able to. c. Merchants are usually bound by promises in writing? 5. Main purpose rule- If main purpose of a promise is to benefit oneself, then theres a benefit to promisor for consideration. If the promise is just roughly equivalent to a gratuitous transfer, then main purpose is not to promisor, and therefore is no consideration (at least no benefit, may still be detriment) (Ex is if you back up a loan on a business you will get if principal borrower defaults, so you make the promise for a potential benefit for self, rather than just for benefit of principal borrower.) VII.
C. Gratuitous Promise

1.

90 Reliance - Promissory Estoppel Main Rule -

a.

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or marriage settlement is binding under Sub. (1) without proof the promise induced action or forbearance. Reliance can include taking action under the promise or foregoing action that one might have otherwise taken.

b.

Contracts Outline - Fall 2011 c. d. e. f. g. h.

Promissory Estoppel is the idea that this reliance makes an otherwise gratuitous promise an enforceable, binding contract, despite a lack of consideration. It estops the promisor from claiming a lack of consideration as a defense for being bound by the K. If a person promises to do something or agrees to enter into a trust, he is not bound to fulfill that promise; but once he begins to perform or enters the trust, he is bound to perform what he agreed to, because the other person is relying on him to do so. A claim of reliance is strengthened when the action taken was specifically requested by the promisor. Where the Pee relies on a promise by doing an act the Por has requested (going to Europe), he can usually recover.

Counter-principle to reliance, at least for non-commercial agreements, like family, is that it uproots consideration, and cannot be acknowledged. Consideration must exist. Similar to reliance, when the Pee subjects itself to a duty at the request or implied request of the Por, the K becomes binding, whether from reliance, or from a bilateral K, since promises have been made by both, even though one was implied. Three circumstances under which reliance would NOT have been justified 1. When there is no promise 2. When pee knows or has reason to know the bid is a mistake

3. 2.

when the por states or clearly implies that the bid is revokable

Inducement related to gratuitous promises a. When parties are already legally bound, a promise between them to induce action is void, because they were already bound to do it.

A promise made to another person can have consideration though, when it is to forego the right to mutually rescind their agreement. While one party may be bound to the other, they can mutually rescind together, and agreement to forego this right produces new consideration. D. Moral Consideration/Renewed Promise 1. Generally promises made only out of a sense of moral responsibility are NOT enforceable a. Actions must be done at D's request b. Promise must INDUCE action i. Ex. Promise to support ones child is insufficient because didn't take on any greater responsibility & por didn't have to pay 2. Past Consideration is no consideration because that consideration doesn't cause the party to act or contract a. If acts have been previously performed by the promisee at the promisors request, a new promise will be enforceable. 3. Preexisting legal obligation which has been made inoperable by law is consideration for a new promise (ex: statute of limitations does not destroy debt) a. Need evidence of New Promise i. A person makes a part payment of the debt, where this part payment can be construed as acknowledgement of the debt. ii. New Promise to pay only a portion of the debt is enforceable iii. Measure of liability determined by the new promise and not the old debt iv. Confession, acknowledgment, or denying not enough v. These subsequently enforceable promises should be made in writing and signed. b. A new promise supported by contemporaneous consideration need not be in writing 4. Material Benefit a. Moral obligation is sufficient consideration to support executory promise where an actual material benefit is received and is one he has promised to pay for (exception to past consideration) b. Where promisee cares for, improves, and preserves property or the promisor, done without request, it is sufficient consideration i. Ex. Saving someone's life and suffering as a result (savee promises to pay rest of life)

b.

VIII. Illusory Promises & Good Faith

A. Illusory Promises 1. Main Rule When the promise is conditional on an event or performance is entirely within the promisors control, and the contract imposes no apparent obligation on him, it is said to be illusory, lacking mutuality and therefore unenforceable. a. Lack of Mutuality (counter Intentions of the Parties Control) 2 Possible Outcomes: a. Traditional holding There is no K, since the Por would not be liable if they did nothing. b. New trend (Cardozo) Intention to make K enforceable is recognized, requiring:

Contracts Outline - Fall 2011

i. Good Faith effort, or ii. Even an implied return promise of reasonable efforts by Por to perform his part of the agreement (=Mutually Liable) 3. If K appears illusory, always argue under O that it was not C, D, & E B. Good Faith 1. Main Rule Every contract for the sale of goods imposes an obligation of good faith dealing on all parties in its performance and enforcement. [UCC 1-203] All parties, including nonmerchants, are subject to UCC 1-201(19) which defines "good faith" as "honesty in fact in the conduct or transaction concerned." Merchants are subject to an additional good faith standard, set forth in UCC 2-103(1)(b), which requires "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." 2. A promisor cant take advantage of the promisees failure to perform if the promisor is the principal reason the promisee was unable to perform the contract. a. Promisor must give the Promisee an opportunity to perform when he attempts to tender payment or performance b. If promisee knows promisor joking, which is to say if both parties to the contract know that the offer is meant in jest or is in no way reasonable, then there is no contract, and the one cant hold the other liable for it c. Contracts made within the marriage relationship, and related to it, cannot be sued on.

IX.

Statute of Frauds

A. Main Rule Agreements that appear enforceable are sometimes not, so in order to prevent parties from denying valid contracts, or asserting nonexistent contracts, they must comply with the statute of frauds, which requires certain contracts to be in writing. This includes: 1. Promises of executors pertaining to debts of estates 2. Promises to pay the debt of another (suretyship provision) 3. In consideration of marriage 4. Transfer of land (sale or lease) 5. Contracts not performable within one year 6. Contract for sale of goods in excess of $500 (according to the UCC) B. Texas SoF (Section 26.01) 8 categories: 1) executor; 2) pay debts of another; 3) marriage; 4) sale of real estate; 5) K for lease of RE that lasts longer than a year; 6) agreements not performable in 1 yr; 7) obligation to pay commissions for oil/gas/mineral leases; 8) K for health care.(+ sale of goods > $500) C. Requirements to Satisfy the Statute 1. Form of Memorandum a. Must contain central terms of agreement b. Any writing or series of writings. c. Can be made before or after the formation of the K. d. Must include: i. Identify the parties to the K. ii. Indicate nature of K and subject matter. iii. State essential elements of the K (quantity, duration, etc.) 2. Signature a. Must sign (NOT enough to promise to sign must actually do it) b. If a promise to sign is written and signed, then the original agreement is enforceable too c. Must at least be signed by party against whom enforcement is sought. d. May be made by the partys agent. e. If memo consists of series of several writings, signature requirement must be met with respect to the entire memo. This applies if: i. All memos are signed and relate to same transaction, or ii. If one signed memo incorporates or specifically refers to other writings to show connection, or iii. If only one of several is signed, but there is a sufficient connection between the papers established by a reference in them to the same subject matter or transaction. (Crabtree v. Elizabeth Arden) D. If an agreement is within the Statute of Frauds, it is enforceable by the Statute of Frauds E. Modifications: 1. If a promise has to be in writing to be enforceable, then that promise is within the statute. The fact that a promise is within statute, doesnt mean every modification to it must also be in writing. (Imperator Realty Co. v. Tull) 2. Test for determining whether a modification has to be in writing is whether its effect on original obligation is to move it into or outside of the statute. If it pulls the agreement out of statute, it doesnt have to be in writing. If it takes something that was outside of statute and puts it in, then it does have to be in writing. If modification is made to contract already within SOF, and then, after modification the contract is

Contracts Outline - Fall 2011

still in SOF, the modification has to be in writing too. a. Exception: Where effect of modification is to eliminate all rights and duties under original rule. If it eliminates all elements within statute, oral agreement is enforceable. 3. Mutual rescission of a K is not within the SOF. So a K that is in the statute can be mutually rescinded without writing (usually). F. Fraud 1. Designed to counteract denial that promises had been made or assertion of promises never made. No cause of action will lie if not in writing. 2. Argue against its use in fraud case: purpose of the statute, to avoid fraud, and argue that pretty much any action should be taken, if it avoids fraud, and that any action that allows the statute to perpetuate fraud is misusing the statute, and should not be upheld in ct. G. Suretyship 1. A promise to answer for the duty of another. a. Promise must be made to the lender to guarantee the principle b. Effect is that both Surety AND principle are liable. 2. Examples that are NOT suretyships: a. I promise to pay Neil if he mows Dustins lawn. I alone am liable, and I am not a surety for Dustin if he doesnt pay, because hes not a principal. b. If Dustin owes Neil a debt and I promise to pay his debt or otherwise satisfy it for him, there is no suretyship, because Dustin is no longer principally liable, but I am solely liable now, because this is a novation. c. When the promise is made directly to the borrower. It is a suretyship if the promise is made to the lender, but not if its made to the borrower. 3. Examples that are suretyships, but are not within statute: a. When obligee (to whom debt is owed) neither knew nor had reason to know that promisor was a surety. b. If surety is already under a duty to render the specified performance irrespective of a promise to be a surety. 4 Main Purpose Rule a. If the main purpose is an economic advantage to the surety rather than the benefit of the principal, contract doesnt have to be in writing (Not under the SoF). This is because the advantage sought is consideration for the promise, so a writing is not needed to show intent to be bound. b. If main purpose is to benefit the principal, (consistent with consideration rule) it has to be in writing (if its gratuitous) (Is under SoF). H. One Year Provision 1. Contracts that are to take more than a year to complete, from making of the contract to completion of performance. If any promise of either party cannot be performed within a year, the contract is within the statute. a. Relates only to whether, by the terms of the K, promise can be performed within a year. If K is to cut down all the trees in California, this cant realistically be done in a year, but since that possibility is not negated by the terms of the K, its not within statute. If the K is of indefinite duration but performance within a year is possible by its terms (whether practically possible or not) then the K is not within the statute. c. If performance can be rendered in 2 or more ways, K is not in statute if any of them can be done w/in a year under terms. d. If K relies on an event that may occur in a year, it is not in statute. Ex: K to insure for 5 years is not in SOF, because the fire may happen within a year. This always includes Ks contingent on death, which can occur any time. i. The doctrine of excuse is related to this. Where the promise is a negative one, one to refrain from doing something, rather than to do something, it is never within the statute, because if the party should die, he would have fulfilled the K. Another way of saying this is that if death will leave the K unperformable, it is in the statute, but if death would leave it fully performed, it is not. (Doyle v. Dixon). I. Satisfaction by Part Performance land only 1. In exceptional situations, part performance can be taken to provide the evidence of the agreement that the statute was designed to provide, and in turn give the party an argument for recovery in spite of the statute. (dropping legal charges.) a. Where consideration has changed hands, this act may be taken as admission of an agreement, preventing use of the statute to nullify the agreement, since this would be counter to its purpose. i. Reliance is in the next section, but it is far less certain where no consideration has changed hands. If consideration has been given and accepted, the party should be able to recover in spite of the SOF.

b.

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b. If only part of the goods in an agreement are accepted, the party might only be held liable for that part of the accepted goods. If it is not clearly divisible, the party may be held liable for the whole contract. c. Reliance I. A party is generally only allowed to recover whatever they have lost directly to the defendant, and not other expenses incurred to third parties or elsewhere. If the defendant did not directly benefit (i.e. was not unjustly enriched), then the plaintiff may not be able to recover. II. When no restitution would otherwise be available, the party might be able to argue for the court to estop the defendant from using the statute to bar enforcement. This seems to fundamentally and completely undermine the statute, but it also is said to prevent the statute from opposing its purpose by allowing people to deny Ks that were made.

X.

Unconscionability

III. Reliance traditionally requires equitable estoppel to bar the statute, which is reliance based on misrepresentation. However, prom. estoppel is used sometimes, when injustice can be avoided only by enforcement of promise.

A. Main Rule A contract may appear enforceable, but sometimes it isnt because it is unconscionable, whereby the offeree lacks meaningful choice and the terms of the contract unreasonably favor one party. Factors include dramatically unequal bargaining power, hidden or difficult to understand terms, and a perception that one party is taking advantage of another party in a way that was not necessary for a party to protect its economic interests. The result is something like the inverse of a quasi-contract: there are all the elements of a contract, but it is so unreasonable that courts may refuse to enforce it. B. POLICY counter-argument: There must always be Freedom of Contract, and both parties volitionally entered into it, so it should be enforced. C. Requires: 1. Lack of meaningful choice a. determined by deciding if the party had an alternative. While there is always the option not to buy or enter the K, necessary goods might leave no alternative, or there might be nowhere that you could buy the goods without unfair terms. This leaves the question of which goods are necessary open to subjective discussion. i.e. All airlines have $50 bag fees. 2. Unreasonably favorable terms to the one party (no formula) Difficult to tell. In order to assess, you might look at: a. Radically unequal bargain (gross overpricing may not be enough though need more signs of unfair oppression ) b. Really complicated agreement (or tiny print) (that even strikes judge as an obscure provision) c. Some flavor of predatory behavior by seller to take advantage of buyer D. UCC Section:2-302 provides for a moral sense of community in commercial transactions and if a clause of a contract is unconscionable at the time it was made, the court may refuse to enforce the contract. The UCC applies to the price term of a contract. E. Contract of Adhesion: Where the terms of the contract are set and there is no negotiating, take it or leave it. i.e: Credit Card applications, etc.

XI.

Readjustment of Going Deals

A. Main Rule A contract may be changed and still have consideration so as to be enforceable, despite past consideration being no consideration, if the parties do one of a few things to show that there is consideration for the new terms B. Method to argue around Consideration problem 1. Mutually rescind + new agreement - They must know what they were doing and manifested their intent to readjust a. Prove that the original contract was mutually rescinded and the new agreement is a new contract 2. Doctrine of Excuse - Excused from performance due to circumstances out of ones control that makes performance impossible. (Mistake/Impos) a. A person can argue that due to some set of circumstances, like members of a ships crew abandoning the ship, the job he signed up for (1/10th of the crew duties) no longer exists because his job has become 1/5th of the duties, so he is excused from that job, and in its place assumes a new responsibility, which is the 1/5th of the duties, which must have a new agreement, with new consideration. 3. Advanced Payment - Person in debt may accept a lesser sum of money because money paid in advance may be just as beneficial

Contracts Outline - Fall 2011

4. Impossible to Perform - Rescind as a matter of law because contract is impossible to perform C. Duress 1. A party is not permitted to overwhelm a persons will and extract a bargain he would be unable to extract without overwhelming his will. Duress exists when a party is induced to make a contract under circumstances which deprive him of his free will. 2. Some courts insist that duress suffered must have its source solely in the threat of the other party, and not be rooted in the circumstances of the person being threatened, and that if they are in the difficult position due to their own plight then duress cannot exist. a. If something is obtained by duress, then it has no consideration, because the action was not bargained for, since the action of the Pee was not induced by the promise of the Por, but rather by the threat of the Por. This goes against the reasoning of who is at fault for the circumstances leading to duress though, since in that instance the agreement is still without induced consideration. An offer you cant refuse may not be an offer at all. b. Counter - Another problem with that view is that it takes us back to the subjective approach of the will or position of the parties in their intent, since we must know what position each is in to gage the existence of duress.

XII.

Parol Evidence Rule (and Rules of Interpretation)

A. Main Rule (WRITTEN Ks only) Because virtually all language is ambiguous, the parol evidence rule uses integration, roughly equivalent to completeness, to determine how a written contract shall be interpreted. A fully integrated contract is one that is a final and complete expression of all the terms agreed upon between the parties. The written agreement must explain itself and stand alone. Therefore, if the contract is deemed to be fully integrated, evidence, Parol or otherwise, of any prior or contemporaneous negotiations will not be admitted, not even to explain the document (intent usually apparent by a merger clause). A partially integrated contract is one that is a final and complete expression of all the terms contained in that agreement, but not a final and complete expression of all the terms agreed upon between the parties. Therefore, if the contract is only partially integrated, parol evidence is admissible to supplement or explain the contract, though not to contradict it. If the contract is not integrated, the rule bars no evidence. B. Determine Level of Integration - Two Views: 1. Look at four corners of the K, to see if the contract looks on its face to be complete and exclusive statement of terms (Willistons View), OR 2. All circumstances, including prior negotiations, should be included in determining the level of integration (Corbins view) C. Breakdown: 1. Fully (Completely) Integrated - Parties have intended written agreement to be a complete and exclusive expression of all terms a. If Fully Int., NO parol (extrinsic) evidence allowed (best evidenced by merger clause Farnsworth thinks no Merger Clause = part. int. ) b. Collateral and subsequent evidence allowed (antecedent is NOT allowed) 2. Partially Integrated Parties do not intend it to be complete and exclusive, but rather a final expression of the terms it contains a. If Partially Integrated, extrinsic evidence is ALLOWED, but only as a supplement to explain or clarify, not to contradict a term of the written agreement. This must be consistent with the written agreement 3. Unintegrated Neither above applies - If Unint., parol evidence can be used to supplement or contradict (if unint., obligations can be added) D. Where Parol Evidence CAN be used:

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1. Fraud, accident, or mistake - PROBLEM: fraud exception could swallow the rule any agreement that is clear could still be avoided a. Ex: Ct upheld home sale where seller claimed he had not inspected/no damage to his knowledge 2. Clear up ambiguities (ambiguities are just ONE criteria to determine degree of integration) a. Patent Ambiguities - Omissions where the writing is incomplete on its face (essential term should always be included is missing) b. Latent Ambiguities - Not obviously ambiguous without parol evidence, and these may or may not be admitted 3. Other exceptions: if parties created K intending to leave out terms/different from real agreement to deceive someone else, PER Permitted. (Zell v. American Seating Co.) E. Where Parol Evidence can not be used: 1. Subsequent agreements (party can always argue that after written agreement was executed, question of fact uninfluenced by PER) 2. Assertions by the one side or the other side that there is not in fact a K at all F. POLICY- The rule of substantive K law operates by preventing parties from coming forward with certain kinds of evidence 1. Like SoF, purpose is prevent fraud or injury by baring proof of prior agreements, negotiations, or understandings (v. if you signed it, you read it) 2. Corbin view Parol Evidence grew out of skepticism over a jurys ability accurately to assess credibility a. Main issue is intent, which is normally a fact issue, but Parol Ev. Issues are questions of law (avoid jury) b. Application of rules can be determined on the basis of pleadings (dont need evidence) c. In Corbins view, until the Court decides whether its fully, partially, or unintegrated, PE rule doesnt operate at all. This has been embraced in Jurisdictions hostile to PE rule, and rejected in jurisdictions disposed to using PE rule. G. Merger Clauses 1. Clause in a K stating that the contract is final, complete, and exclusive expression of all terms, thereby designating itself as fully integrated a. Best evidence of Fully Integrated (theres no more, we agree to this writing and that is IT!) b. Bars Parol Evidence. c. Upheld as long as they are conspicuous (bold, large font)??? 2. Fraud this has been overruled in instances of fraud (=make offer you know will & does induce a person; and it was untrue and you know it) a. Policy reasons to deny evidence of fraud would undermine the policy the rule was created to combat b. Not always so mere assertions of fraud that allow you to introduce otherwise inadmissible, banned evidence c. Crawford rule (allow PER for hotel construction overbilling) was very narrow and anything broader (like sale of house with no damage) would undermine the purpose of parole evidence rule. d. Some judges think that fraud in inception affects everything that follows, so its always assertable, even if it undermines PER H. Collateral Agreements 1. Parol agreements made independent of the written agreement with separate consideration 3. Where it is made wholly or partly in consideration of the simultaneous written agreement, the two may be necessarily bound together. 4. It can be used even if agreement is fully integrated, and substance rather than form is the test: a. Separate C? (0+A+C) if YES, then it is probably collateral b. Not contradict express or implied provisions in the written contract c. Would a reasonable jurist expect the parties to have included terms of this agreement within 4 corners of the main k? (intent Q) 5. POLICY (Farmsworth) Collateral Agreements should only apply where there is merger clause (If none, you can prevail on Partially Integrated) I. Interpretations [Look up Mistake] 1. Goal is to discern what the parties meant when the K was made, not what they say it means at the time of the dispute 2. If Strictly Objectivist point of view is taken matters not they meant, just what words mean, or what reas. person would interpret it to mean a. Problem might make the K mean one thing, but both parties meant something else (conflict with Intentions of the parties control) 3. If both parties mean the same thing then that is what it will mean in the K 4. If one party knows they have different things in mind, or should know, and doesnt clear it up, hes subject to notion of the other party in the K 5. When parties mean different things and neither knows: a. View 1 - there is no K, for lack of assent b. View 2 person bringing suit has the burden to show the word meant what he says it meant (same outcome as above, just different rationale.)

XIII. Third Party Beneficiary

[Use Parole Evidence to prove 3PB intent] A. Main Rule A third party beneficiary is created when the contract between two parties is made with the intention of benefiting and therefore creating an enforceable right in that third party.

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B. Requirements: 1. Parties must have intended to create an enforceable right in the party outside the contract at the time of the agreement a. Beneficiary need not be identified when agreement is made to be intended, just must be identified by time of performance b. Threshold to establish this intent is very high/ there is a powerful presumption 3PB are unintended/incidental rather than intended 2. 3PB CAN have a K with one party But does NOT need a K to be 3PB (If K btwn 3PB & party in the K, they might be considered an ASSIGNEE.

i.

C. Types of Beneficiaries 1. Intended ( listed below is used today as more of a criteria for showing intent) a. Creditor - Parties have an understanding that promisor is paying promisees debt to someone else (Lawrence v. Fox) i. Promisee agrees to pay the debt to someone else. Obligee k1 (obligor ) k2 ii. There is always a promise between the obligee (3PB) and the promisee (obligor) 3rd party Pee Por b. Donee beneficiary of a Gratuitous Promise (intended at time of benefit) i. The two parties must intend to benefit the third party and the 3PB is created. ii. The expression of the intention has to be 100% clear. 2. Incidental a. Anyone who is not an intended beneficiary - Incidental beneficiaries acquire no rights b. In determining whether a person was an intended beneficiary, it might be helpful to ask if the Pors action was to be taken directly to the beneficiary, or just to the Pee. D. 3PB would want: 1. One of the parties to support his claim and say it was intended 2. Actions or words by the parties that show (objectively) they were aware and meant it to be 3PB 3. Parol evidence If intent is not governed by their express words in the K, use Parol Evidence (if applicable) to determine if 3PB was intended 4. ARGUMENT AGAINST: If 3PB, missing C in some cases, but even if you have C, there is no O and A. E. Rights of the Parties 1. Rights of the 3PB a. Third party has a right against the promisor, and can enforce that right without joining with the promisee b. Third party also maintains his right he had against the promisee before the K was made with the promisor c. 3PB can recover against either against por or psee because no duties are discharged in the K between the Por and the Pee, i. 3PB can get both, but is only entitled to one satisfaction d. 3PB also not subject to the claims against the party whos shoes theyre standing in. e. 3PBs may be able to recover for negligence when the party who was to perform the act to benefit them fails to do so properly 2. Rights of Promisee Promisee maintains his rights against the promisor 3. Modifying/Rescinding The two original parties can rescind the agreement and 3PB cannot stop it (screwed) a. BUT, cannot rescind if intended to create 3PB and the 3PB materially changed their position because they relied to their detriment i. LIMIT: material change of position only relevant when 3PB already informed and THEN others decided to change or end K ii. Always argue against: you cant rely on a promise that you have no ability to insure remains enforceable 3. Defenses to 3PB Claims: a.3PBs claim IS subject to the defenses that por has against pee IN THE FORMATION OF the K (b/c 3PB steps into Pees shoes in that K only) i. Includes: lack of consideration, policy, SoF, incapacity, mistake, duress, misrepresentation, etc (IDEA: if no K, no 3PB!!) ii. Exception: if 3PB was reasonably not aware of the lack of a K, there is a good chance he will not be subject to defenses iii. Exception: if the other parties let the K go on anyway, and then later tried to raise a defense, 3PB not subject A. LATCHES if you sit on a claim for so long, you cannot claim it later (equitable doctrine) b. 3PBs claim is NOT subject to the defenses that por has personally against pee OUTSIDE THE K or in PERFORMING the K i. includes: partial consideration, actions/breaches of other contracts, etc F. Policy reasons for the limitations on 3PB (Intended/Incidental rules):

It is much better to be a 3PB rather than Assignee because Assignee can only sue the assignor, 3PB can sue both parties.

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1. Unlike other developments, 3PB was sudden and complete it sprung into existence in 1859 no development (It satisfies urge to be moral) 2. Policy Counter-argument: Its hard to reconcile with no compulsory contracts because its forcing an agreement that it is not a party to a. This violates the mutuality principle/symmetry principle (until both are bound, neither is bound) b. We should just deal with the injury to 3rd party in other areas of law c. This is the socialization of contract law steady erosion of the autonomy principle i. Autonomy principle: parties deciding when they enter into a contractual relationship, and they determine the terms d. 1st part seems to be true (decide if they want to be in a K); but the 2nd part eroded (law tells what duties to assume and what to do) e. PROBLEM: 3PB has potential to swallow up the rest of the toolbox could destroy K law. NEED LIMITS i. LIMIT: material change of position only relevant when 3PB already informed and THEN others decided to change or end K Obligee k1 (obligor ) k2 3rd party Pee Por Third-Party Beneficiary Contracts: Rights and Defenses Rights & Defenses Intended Donee/Creditor Beneficiary Inciden tal Can the 3PB sue the P/or? Yes (can do so without joining promisee) No Can the 3PB sue the P/ee? Yes (for rights he had before the new K) No Can the P/or assert against the Depends N/A 3PB the Yes - defenses to formation (hes aware of) of the K (SoF, C, defenses that the P/or could fraud, duress, etc) have No defenses outside of the K (from prior Ks/personal matters asserted against the P/ee? outside this K)

XIV. Assignment & Delegation

[Use Third Party Beneficial in suing delegee and Parol Evidence in intent] A. Main Rule A third party can be assigned rights or delegate duties by an original party to a contract. If the assignment works, is an effective assignment, or an effective delegation. Even when there is an effective delegation, the delegator continues to have a performance obligation to the obligee. Original obligee can sue either one and theyre both fully liable generally. 1. You can reject delegation, but cant reject an assignment unless it would significantly burden you to pay other party rather than original party. 2. Parties must have intended to create an enforceable right in the party outside the contract at the time of the agreement B. Assignment Obligor k1 (obligee ) k2 (new obligee) 1. Rights of an Assignee Asor Asee a. Do you have more rights as a assignee? NO - You have same rights as the person whos shoes youre in. b. Normally, if there is only assignment, either assignee or assignor can sue the original obligor directly, but only one can recover. 2. Exception: Novation: Transferring a contract right to a third party. This right can be for all or part of the performance due by the obligor. a. This transfer is not a promise to pay the asee once the asor has been paid, not a promise to assign later, not an order for obligor to directly pay third person debt owed to obee, but it is the transfer of a right of direct performance to be made to the asee. b. When an effective assignment is made, the assignee has a right against the obligor - same right assignor had c. If theres a novation, obligee cannot sue obligor, because he has no rights to performance. Only assignee can sue obligor now. 3. Limitations a. Cannot materially change the duties of the obligor (besides just the fact that he now was to perform for a different party). b. Cannot material change the burden or risk of obligor, even if it doesnt material change his duty. c. The terms of the K can prohibit assignment. 4. Assignment of Future Rights a. Assignment to a right expected to arise out of an existing employment or other continuing business relationship is effective in the same way as an assignment of an existing right. b. Except as stated immediately above, a purported assignment of a right expected to arise under a K not in existence operates only as a promise to assign the right when it arises as a power to enforce it. 5. Liabilities a. The assignee steps perfectly into assignors shoes, and is subject to same defenses (he is not subject to suit for breach if duties not delegated to him, in next section).

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i. Assignee is also subject to any claims to recoup whatever Oor might owe him only to the extent that it diminishes or extinguishes the assignees claim, but they cant be used to impose liability on the assignee unless duties were delegated C. Delegation Obligee k1 (obligor ) k2 (new obligor) 1. Conferring the power to perform a duty to another person. Deor Deee 2. Normally, original obligee can sue the delegatee or the original obligor if there is only a delegation a. Becaues hes now an intended 3PB from the contract between the obligor and the delegatee. 3. Exception: Two circumstances where Obee loses ability to act against original Obor: a. K1 Discharged: The duty defined by K1 is discharged (in fact performed) b. Novation: When (around time K2 is executed), obligee agrees that it will look only to the delagee for performance. This is a novation. i. Novation is like a modification of K1 PROBLEM: Lack Consideration??? ii. When theres novation, the obligee can only sue the new obligor and not the original obligor who delegated duty away 4. Certain duties are not delegable: (if it is not an effective delegation, the obligee is entitled to insist on performance by the delegating party) a. Deor dissolving business (hell be insolvent so not fair to obee b/c he cant sue) (if delegated, THEN goes bnkrpt, can sue Deee) b. Obee contracted to have duty performed by a particular person (Delectus persone choice (ice) OR reas. Person stan.(van gogh)) c. Obee has a setoff available to it that would not be available to it that would not be available to Obor i. ex: J assigns Deb right to get paid 100 for mowing, but J has a set off with Talia, he CANT assign to Deb cuz shed get < 100 d. Proving: Most sure way to express intent is words in the contract. If, not apparent of face of agreement, try to use Parol Evidence. 5. Liabilities a. The delagee steps perfectly into delagors shoes, and is subject to same defenses and is subject to suit for breach of not performing. i. Delagee is subject to obligees claims, which can be used to impose liability on the delagee becaues duties were delegated D. Rule 2-210. Delegation of Performance; Assignment of Rights. (1) A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach. (2) Unless otherwise agreed all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise. (3) Unless the circumstances indicate the contrary a prohibition of assignment of "the contract" is to be construed as barring only the delegation to the assignee of the assignor's performance. (4) An assignment of "the contract" or of "all my rights under the contract" or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract. (5) The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (Section 2-609).

XV.

[Use Interpretation of PER & Excuse Readj. Of Going Deals for Mitake/Impossibility] A. Conditions - Main Rule A condition is a predicate to a partys obligation. It is something that must occur before a duty can arise. 1. Must not be something certain to occur. So if a condition does not occur, performance is not due. 2. Ex: if my dog loses in a footrace to your pig, I will sell the dog to you for $2. If it doesnt lose, then I have no duty to sell it. B. Mistake [Look up Interpretation under Parol Evidence] + [Readj. Of Going Deals] 1. Main Rule Parties have varying assumptions concerning facts that exist at the time a contract is made, so different mistakes can be made. 2. Mutual Mistake a. Main Rule If both parties are under the same erroneous perception of the facts, a mutual mistake has been made. In a mutual mistake, a party may avoid the contract if the mistake goes to the very basic assumption on which the contract was made, had a material effect on the fairness of the deal, and the party trying to rescind did not bear the risk of this mistake.

Problems of Performance/Breach

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b. A party more likely to be allowed to avoid the contract if it would have a particularly adverse effect on one

party and

mistake

excessively advantageous to other. (Sherwood v Walker) (not Wood v. Boynton b/c knew risk & sold anyway) 3. Unilateral Mistake a. Main Rule When only one party is mistaken, courts will generally not allow them to escape from the contract because asymmetrical knowledge is to be expected in all transactions. They would have to show the same requirements for mutual mistake and enforcement of the contract is unconscionable, OR the other party had reason to know of the mistake or caused it. i. If the other party represents that something exists which does not exist, and they know or should know from reasonable diligence that it does not exist, there is an enforceable contact and they cannot void the contact for mistake (theyve breached) 4. In analyzing the intentions of the parties control, note there is a Continuum btwn meeting of minds &

C. Impossibility [Use Interpretation of PER and Doctrine of Excuse Readj. Of Going Deals for Mitake/Impossibility] 1. Main Rule A party is excused from performance when some superseding act or event makes performance impossible or impracticable. 2. Illegal or Death - if the contracted performance becomes illegal before time for performance has come, or if someone dies. (por is excused) 3. Destruction of Implied Condition - something necessary to performance is destroyed or otherwise ceases to exist, without the fault of either party, before the risk of loss passes to the promisee. The continued existence of the thing becomes an implied condition of the thing, which, once impossible to be fulfilled because of the things destruction, excuses the party. (Taylor - no more music hall) 4. Failure of a Third Person Middleman can not get his source to supply goods he needs for the buyer, he might be able to argue impossibility. If the K specifies a source, more likely to show impossibility. If K does not specify a source or middleman fails to make a K with a stated source, the middleman has born the risk he would be unable to procure goods. (Canadian didnt supply molasses, but bore risk) 5. Impracticality Main Rule Performance is excused when made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made. To excuse, the event or condition must: a. Make performance as agreed impracticable. i. Not more difficult or more expensive, but impracticable (which may include extreme increased expense) ii. Multiple alternatives for performance = impracticability of one of them will not excuse him if others available (Suez Canal) b. The nonoccurrence must have been a basic assumption on which the contract was made. (must be shared by both parties) c. The impracticability must result without being the fault of the party seeking to be excused (burning your own crops) 6. If the event relegating performance impracticable is reasonably foreseeable, then the party will not be excused (Controlling Liability) D. Frustration Main Rule If the objective of the contract is frustrated, in that the reason or purpose for the contract no longer exists, a party is excused even if performance is not impossible. 1. The event or nonoccurrence of the event must have substantially frustrated the parties principal purpose in entering the contract. a. The less foreseeable the event, the more likely performance will be excused b. If the parties implicitly allocated the risk to the promisor, the court will not excuse performance c. The more complete the thwarting of benefit, the more likely the court is to excuse performance d. Major fault on the part of the party seeking discharge will normally bar use of the defense E. Controlling Liability 1. Parties can sign away warranties or transfer liability, but to do so legally they must be aware or have a reasonable opportunity to be aware (by big bold letters or something) of their act. They cant sign away liability without knowing they are doing so and intending to do so, or at least have an opportunity to know and intend such. 2. This is an exception to if you sign it youve read it. 3. Like 3PBs, you can sue someone you dont even have a K with if you have a K with their agent, who stands in their shoes. (Chrysler)D.

XVI. Readjustment of Going Deals (Option to Modify if Problem Arises)

A. Main Rule A contract may be changed and still have consideration so as to be enforceable, despite past consideration being no consideration, if the parties do one of a few things to show that there is consideration for the new terms

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B. Method to argue around Consideration problem 1. Mutually rescind + new agreement - They must know what they were doing and manifested their intent to readjust 2. Doctrine of Excuse - Excused from performance due to circumstances out of ones control, but still need new agreement w/ new C (Mist/Impos) 3. Advanced Payment - Person in debt may accept a lesser sum of money because money paid in advance may be just as beneficial C. Duress A party is not permitted to overwhelm a persons will and extract a bargain he would be unable to extract without overwhelming his will. 1. Some courts insist that duress suffered must have its source solely in the threat of the other party, not just your circumstances a. If something is obtained by duress, then it has no C, b/c action was not bargained for. An O you cant refuse may not be an O at all. 2. Counter - Problem w/ view is that it takes us back to the subjective approach of the will or position of the parties in their intent

XVII. Breach & Post-Breach Options

A. Material vs. Immaterial Breach (Tautology= if material breach, then by definition cant be Sub. Per) 1. Material Breach: Obligations under K can be suspended. If breach continues long enough, other party can terminate K altogether. a. In order to suspend the performance though, the breach must be sufficient to warrant such a response. (big Dow) b. If injured party terminates the K, he is said to treat the other partys breach as total. If not terminate, breach is partial. 2. Bound to pay at the end of a K - If performed good or service is not exactly as directed (Jacobs v Young), party can only refuse performance where the breach was material, meaning significant enough to amount to the nonoccurrence of a constructive condition of exchange. a. If it is immaterial, he cant suspend, and may only claim damages for partial breach. i. If a party interrupts performance by suspending performance due to a mere immaterial breach, he committing a breach. ii. Material breach is the converse of substantial performance. Sub Perf is performance without a material breach, and a material breach results in performance that is not substantial. 3. There are big terms, small terms, and no terms. If a term is big, then the breach of that term gives the Pee the right to stop performance (excuses his performance (norrington v wright)) Small terms, when breached, do not excuse performance, but still supports an action for breach. If no term, cant sue and win or stop performance. 4. Issues: 1) Waited too long, cant sue (Latches); 2) only a small term was breached (nominal damages); 3) big term = susp/terminate (sue big) a. Is no principle to decide whats a big term and what is small, and if it really matters, you should put the gravity of the term in the K. B. Perfect Tender Rule (UCC 2-601) 1. Performance must be given exactly as outlined in the agreement, or else the Pee can reject the performance. 2. This is subject to a number of exceptions, and can also be subject to the seller's right to cure under U.C.C. 2508. 3. Different from Breach? dont need to prove they brought it home or level of importance (material) to reject it 4. Options under Perfect Tender Rule: a. Buyer can reject, but seller still has the opportunity to cure (Take it away! I dont want that shit!) b. Buyer can partially accept (Ill take the good shit, but send me replacements for the bad shit promptly) C. Substantial Performance Rule (Tautology= if sub. Per, then by definition cant be a material breach) 1a. Performance must substantially meet the terms of K in order to comply, and can only be rejected if they fail to do so. D. Assurance about Whether Other Party Will Perform Imperfect Solution): a. (2-609 : adequate assurance of performance: one may suspend performance until he has received adequate assurance of performance. After receipt of justified demand, failure to exchange within reasonable time (not to exceed 20 days) constitutes repudiation. So they can cover. However, if you fraudulently assure performance, and later repudiate, you will be held liable for exemplary damages. b. 2-316. Exclusion or Modification of Warranties (1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that "There are no warranties which extend beyond the description on the face hereof."

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(3) Notwithstanding subsection (2)

(a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like "as is", "with all faults" or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and (b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.

performance

E. Repudiation (UCC 2-610) a. Main Rule Telling other party that you will not or cannot make performance still due under the K, or conduct that says the same. b. Requirements: i. Must be sufficiently positive to understand that breach will actually occur, not just expression of doubt. ii. Must be communicated to a party of the K, not just to some stranger, and done so before the time of performance (if @ performance = breach) iii. Must be deliberate and purposeful rather than inadvertent or beyond the promisors control (really apply when he does nothing at all, but a change in circumstances makes it likely that a breach will occur. [E&E, not Dow] c. Nonbreacher can respond by: i. Treating contract as terminated and claim damages, even if he told repudiator he would await their ii. Attempting to save deal iii. Ignore repudiation and await time of performance for a commercially reasonable time d. Rights and Duties of Injured Party: i. Must show, absent repudiation, he could have performed as required. ii. Nonbreacher no longer has to perform once repudiation is communicated. All his duties are discharged by the repudiation. iii. Nonbreacher can treat it as a mere rescindment, and can allow it to be final, or: iv. Usually, injured party can sue as soon as he learns of the repudiation, even before the time of performance has come. v. The ant. Breachers ability to retract is lost as soon as injured party notifies that the repudiation has been accepted.[E&E, not Dow] A. This notice isnt even necessary if injured party takes action in reliance on the ant. Breach. [E&E, not Dow] vi. This is not always the case though, and sometimes ct may rule that no action can be brought until after time for performance, when there has been official breach, which is often adhered to with respect to sale of real estate. vii. He can also sue after the time for performance has come, BUT HE IS PUNISHED as he cannot receive ALL damages (see below) viii. Damages: If a person continues performance after the K has been clearly repudiated, he can receive no more damages for work done after communication insisting that performance cease, but can only receive damages available to him at the time the repudiation was communicated. e. UCC 2-610. Anticipatory Repudiation. When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) for a commercially reasonable time await performance by the repudiating party; or (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and (c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704). F. Rejection 2-602 a. Must do so in a reasonable amount of time time, or else he is deemed to have accepted the goods. b. To reject, buyer must seasonably notify seller of rejection and reason for rejection. d. Cannot reject after you accept, but can only sue for breach. e. Rejection for Breach of Warranty i. If goods are rejected effectively for breach of warranty, burden of proof that warranty was satisfied is on are accepted, burden of breach of warranty is on buyer.

seller, but if they

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ii. If a seller gets a banks letter of credit with an absolute obligation to pay, he is insulated from rejection by under the perfect tender rule, because the bank has to pay him on delivery without inspection no

the buyer matter what,

inspect)

and can only bring suit for breach later. G. Cure 2508 (only used if the contractual delivery date has NOT passed) a. Serves to mitigate the harshness of the perfect tender rule by giving the seller a second chance to bring the goods into conformity with the K. (1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. b. If right to cure is not available, argue the buyer didnt operate under Good Faith and fair dealing when he rejected the goods. H. Acceptance of the Goods/tender 2-606 a. Automatically are said to accept if fail to inspect goods/tell seller they conform within reasonable time b. Automatically are said to accept if fail to make an effective rejection (but still have a reasonable chance to

c. Automatically are said to accept if act is inconsistent with the sellers ownership d. Buyer must pay the K price for the goods (U.C.C. 2-607(1)), less any damages to which it is entitled by virtue of the breach, unless it revokes A. e. Revoke: The buyer may revoke its acceptance only if the seller's tender substantially impairs the value of the goods to the buyer (U.C.C. 2-608), a rule comparable to the common law rule excusing counter-performance only if a breach is material. I. Mitigation a. However, the injured party is required to mitigate the damages by seeking to reallocate his resources to avoid loss in good faith. The party may only be able to recover whatever he would have lost had he obtained substitute performance on the open market at the earliest reasonable time after learning of the anticipated breach C. BUYERS REMEDIES a. Main Rule After breach, buyer has an option to cover (buy elsewhere). According to 2-712, they can do so by making in good faith (objective and subjective component honesty in fact and behaving in accordance of commercial standards of reasonableness) and without delay any reasonable purchase of substitute goods. This gives the buyers damages measured by the difference between contract price and the price he actually paid in covering together with both incidental and consequential damages. However, the buyer does not have to cover, but 2-715 may bar him from consequential damages if he does not recover. b. Buyer Covers (UCC 2-712) i. If buyer covers, by making a reasonable purchase or K to purchase goods in substitution, if made without reasonable delay and in good faith, buyer may recover from seller the difference between the cost of cover and the K price. May also recover both incidental and consequential damages, less expenses saved in consequence of sellers breach. ii. Consequential: (UCC 2-715) Consequential damages include: (a) any loss resulting from general or particular requirements and needs, that the seller had reason to know (foreseeable) of at the time of the K, and could not be prevented by cover; **lost profits**; (b) injury to person or property proximately resulting from any breach of warranty. iii. Incidental: Incidental damages include expenses reasonably incurred as a result of sellers breach, including for inspection, receipt, transport and care & custody of an goods rightfully rejected, and any commercially reasonable charges, expenses or commissions in connection with affecting cover. c. Buyer DOES NOT Cover (UCC 2-713) i. If the buyer does not cover, buyer may recover the difference between the K price and the market price at place of tender, at the time buyer learned of the breach and any incidental damages, less expenses saved in consequence of sellers breach. ii. So if no cover, then no consequential damages (easy part) iii. If no cover, what about the Holmes and Hadley test? (hard part) sounds more like the Hadley Test only (reas. and foreseeable). iv. WHEN DO YOU LEARN OF THE BREACH?! TWO MOMENTS on timeline

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T1 K price =100 b) 200 T2 T3 repudiate; mkt price =150 T4 Mkt=160

delivery date = mkt price a) 90

*If buyer waits until T4 but learned at T2, cant get cons. Dam. [big risk go up b) ?, go down a) ? Doesnt know!!] (damages = K price- price at T2) **If you havent learned until T4, then: a) you have no damages at all if K price is $90 OR b) you get $100 recovery if it is $200. -Where buyer breaches & seller justifiably does not deliver goods, buyer may still recover restitution damages, less sellers damages under 2-708 (which is either the difference is market price and the K price, or lost profits) d. Buyer Breaches (UCC 2-708) i. Where buyer breaches & seller justifiably does not deliver goods, buyer may still recover restitution damages, less sellers damages under 2-708 (which is either the difference is market price and the K price, or lost profits) e. GLOBE RULE? D. SELLERS REMEDIES a. Main Rule Seller may either resell or not resell the goods. b. Seller Resells the Goods (UCC 2-706) i. Seller may resell the goods (in good faith & in a commercially reasonably manner) and then recover the difference between the resale price and original K price, along with any incidental damages, less expenses saved in consequence of buyers breach. c. Seller DOES NOT Resell the Goods i. If the seller does not resell the goods he can recover the difference between market price at the time and place of tender & the original K price, along With any incidental damage, but less expenses saved in consequence of buyers breach. d. However, where the above damages are not enough to put the seller in as good a position as performance would have, then the measure of damages is lost profits, together with any incidental damages. i. Where seller seeks to recover lost profits, these must be sufficiently certain, not speculative. e. Symmetrical to buyers remedies. See above diagram if instead buyer announces they will not purchase the goods, the seller has the same options at T2 that buyer has on buying side. (Sellers remedies in 2-702, 2-703, 704, 705, 706, 707, 708, 709)

XVIII. Equitable Remedies A. Injunction & Specific Performance(Equitable Relief) a. Legal Realist Rule Legal realists would say that inadequate damages are amounts that would be insufficient

because no judge would award the amount the person really wants for a specific good- doesnt make any rational economic sense. I. Would be crazy for court to award it in money damages (cuz its so much) 1) prove that it requires tons of $ and 2) court has to believe you

Main Rule Specific performance/Injunctions will only be granted if the remedy in damages would be inadequate/insufficient/impractical to protect the injured party. This does not mean difficult to calculate, it means impractical. It is an equitable remedy (Dow) I. Can be granted when goods are unique, which means without a substitute or equivalent. (perfect ex: land) II. In testing whether traditional damages are adequate, one may examine whether that partys expectation losses can be estimated with sufficient certainty (Supp). III. Specific performance /injunction is also more likely when the task to be performed is one of specific skill, taste, or sentiment. B. Specific Performance a. Can money buy a substitute for the promised performance? If not, specific performance may be available. b. Courts rarely order Specific Performance for personal services (akin to slavery) C. Injunction

b.

a. If its a service to be performed, likely use injunction rather than specific performance (cant force girl to sing)
(against free will) [Lumley v. Wagner] b. Non-competition clause in employment Ks, must not restrict the former employee too much

XIX. Legal Remedies

A. Generally a.Expectation Damages [(Y-Z)]

i.

Main Rule Expectation damages are used to put the injured party in as good of place as hed have been in had the K been fulfilled (economic Benefit of the bargain). This is measured by the value he would have gotten from performance at the time performance was due.

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Contracts Outline - Fall 2011 ii. Loss must be proved with reasonable certainty and have been foreseeable. (to show lost profits, etc) b.Reliance Damages [(X-Z) + Out of pocket paid to outside parties] i.
ii. iii. Main Rule Reliance damages are designed to put the non-breaching party back in the position hed have been in had the K never been made, including out of pocket damages he did not make to the breaching party Economic damages suffered in reliance on the promises (money spent relying on the promise, much like restitution, where money goes out of nonbreachers pocket to other party, reliance comes out of nonbreachers pocket to some other party) Does not include foregoing opportunities to make other Ks (except maybe lost volume).

Includes expenses you incurred in anticipation on the contract (breacher will try to argue lack of a causal relationship) v. Two prong test: Either 1) reasonable amount test (security stove), or 2) expectancy driven test (expectancy measure determine if you can recover reliance aka: prove your profits to justify reliance expenses) What you bargained c. Restitution Damages [Out of pocket between parties only]

iv.

i.
ii. iii.

Main Rule Damages non-breacher is out of pocket & paid to breaching party Return of any benefit conferred on breaching party by non-breaching party. What you had Prevents unjust enrichment.

for

If set-offs doesnt effected calc/, but breacher can sue later to get it back d.Sum of Reliance and Restitution = Total out of Pocket

iv.

B.

Money Damages (Legal Relief) a.Only need to be Foreseeable v. Brought Home

What you got

i. ii.

Hadley Rule- Damages must arise naturally out of the contract breach, reasonably foreseeable, and known by the breaching party.

Holmes test- Damages must be brought home to breaching party, more strict than Hadley test. (use Parol Evidence.if not in K) iii. If it satisfies the Holmes, it already satisfies Hadley. If you want to make sure that you can recover, you should put the seriousness or weight of the action in the contract, to bring it home. iv. The more obscure/unpredictable the potential losses, the more detailed/specific they must be in the contract. b. Must be shown with reasonable certainty. c. Nonbreacher must not have neglected to take reasonable steps to avoid loss.

d.

Must not create gross economic waste (Cardozos thaumatrope)

i.

Generally, the measure of damages for breach will be the cost of replacement or performance. However, if replacement or fixing the breach is grossly and unfairly out of proportion to the good to be attained, then the measure is the difference in what it would cost to complete fixing the breach and what the thing to be fixed is worth. (Coal mining). The key to deciding between the two rules is whether the performance rule would cause unreasonable economic waste.

1.

The idea that sometimes, sticking strictly to the facts ignores the very purpose of the law in the first place was best said by Justice Cardozo in the Reading Pipe case: Those who think more of symmetry and logic in the development of legal rules than of practical adaptation to the attainment of a just result will be troubled by a classification where the lines of division are so wavering and blurred. Dissent: The economic waste language of Restatement I dropped from RII, so allowing such a breach is like a twisted use of Cardozos thaumatrope. However, the court will likely find that this argument, while passionate, is unreasonable because gross economic waste, while not explicitly in the 2nd Restatement, is still widely established, unlike promissory estoppel in Cardozos Allegheny College case.

It can also be measured by the difference in what it would cost to complete fixing the breach versus how much harm is done by the breach. (Pipe in house) (Substantial Performance) e. The rule on lost profits is that you can recover lost profits, where market price formula (K price Mkt price @ delivery) isnt adequate to put seller in position hed have been in where K had been performed, but you can recover them only when proof of them is sufficiently certain, not speculative. f. Reliance Damages

2.

i.
ii.

Recovery of expenses made in reliance on performance; Only recovered if known of by breacher, under either hadley or holmes test. It is possible for a court to rule that these may be had even if they would have been incurred had the K not been breached, if he would otherwise be able to receive no damages, or they may be disallowed under these same circumstances. The official statement is as follows: 1. Pee may recover his outlay in preparation for the performance, subject to the privilege of the Por to reduce it by as much as he can show that the Pee would have lost had the K been performed.

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Contracts Outline - Fall 2011 iii. XX.

It may be disallowed on the theory that the P cannot recover for money spent in reliance on performance of the K if he would have spent that money anyway, even if the K had been performed. Under this theory, reliance damages are reduced by the amount that the seller can prove the buyer would have spent anyway. (P will still be entitled to restitution, just not reliance)

Sale of Goods (UCC Remedies)

A. Methods of Measuring Damages a. Market Rule- Price of goods in contract minus price at time of performance (time and place of delivery) on the open market b. An alternative method is the difference in the contract price and the price at the time the party is notified or becomes aware of the breach, B. Lost-volume seller a. When seller has theoretically unlimited goods, the breach of one sale cannot be compensated by contract-market differential, because he has not recovered his losses by selling to someone else, but would have had two sales, so he can only be compensated by full recovery of his lost profit from the breached contract. UCC 2-715 b. Consequential Damages- should be awarded because the buyer/seller would not adequately be compensated without also being awarded losses suffered that flowed out of breach. These are damages other than those included in the market measure of damages, however, the additional economic loss must be proved with reasonable certainty, and you cant get this if you dont cover. c. Incidental Damages- Expenses reasonably incurred in inspection, receipt, transportation, care, and custody of goods rightfully rejected, and expenses in connection with covering and any other reasonable expenses incident to the delay. You get these if you do cover. iv. Cover- Buyers procurement of substitute goods when the seller nondelivers or repudiates. v. Must be done without unreasonable delay and in good faith. J. Quantum Meruit a. Even where one breaches a K, he can recover under this theory for work already done for (and thus accepted by) the other party. i. Although he breaches, his services have already been accepted, and benefited from. So even though there is no longer a K, he can recover for services rendered up until his breach under QM. ii. If the nature of the agreement be such that, after breach, the party can reject what has been done, and not accept any benefit from it, he can do so. iii. The amount of recovery is the amount of the actions performed minus the damages suffered by the non-breaching party. b. QM is much like restitution, except for the breaching party, but restitution is within a K, and QM is outside a K. When a party accepts the benefit of the labor or goods of another, the laborer can sue in QM even though there is no K, kind of like a quasi-K, or implied-in-law K, where the remedy a court gives to party is measured by a K measure of damages. Here there is no K, either missing O or A, but its unjust to let the party who has conferred benefit on another to not be able to recover, so we imply a K, and get the value of what he conferred (quasi-contract). This is a lot like QM, but has a small dif, which is that the breaching party can recover in QM, and in quasi-K, the performing party is the one who is allowed to recover on constructed terms of a made-up K.

XXI. UCC Provisions Perfect Tender Rule

2-601 Buyer's Rights on Improper Delivery
Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest.

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Summary: The perfect tender rule: (UCC) requires seller of goods to deliver EXACTLY as promised. Any deviation causes a breach of contract. The doctrine of substantial performance: requires the buyer to pay under the agreement if the seller has substantially performed. The opportunity to cure: where the seller has the opportunity to cure through future shipments.

2-602 Rejection of Goods

(1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller.

2-508 Cure
(1) Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

2-606 What Constitutes Acceptance of Goods

(1) Acceptance of goods occurs when the buyer (a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or (b) fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or (c) does any act inconsistent with the seller's ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. (2) Acceptance of a part of any commercial unit is acceptance of that entire unit.

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Repudiation
2-609 Assurance of Performance
(1) 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. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance. (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.

2-610 Anticipatory Repudiation

When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) for a commercially reasonable time await performance by the repudiating party; or (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and (c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).

2-611 Retraction of Anticipatory Repudiation

(1) Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2-609). (3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

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Sellers Damages
2-708 Seller's Damages for Non-acceptance or Repudiation
(1) Subject to subsection (2) and to Section 2-723: (a) the measure of damages for nonacceptance by the buyer is the difference between the contract price and the market price at the time and place for tender together with any incidental or consequential damages provided in Section 2-710, but less expenses saved in consequence of the buyer's breach; and (b) the measure of damages for repudiation by the buyer is the difference between the contract price and the market price at the place for tender at the expiration of a commercially reasonable time after the seller learned of the repudiation, but no later than the time stated in paragraph (a), together with any incidental or consequential damages provided in Section 2-710, less expenses saved in consequence of the buyer's breach. (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.

2-709 Action for the Price

(1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price (a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. (2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold. (3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610), a seller that is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section.

2-710 Seller's Incidental Damages

(1) Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach. (2) Consequential damages resulting from the buyer's breach include any loss resulting from general or particular requirements and needs of which the buyer at the time of contracting had reason to know and which could not reasonably be prevented by resale or otherwise. (3) In a consumer contract, a seller may not recover consequential damages from a consumer.

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Buyers Damages
2-712 "Cover"
(1) If the seller wrongfully fails to deliver or repudiates or the buyer rightfully rejects or justifiably revokes acceptance, the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller's breach. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy.

2-713 Buyer's Damages for Non-delivery or Repudiation

(1) Subject to Section 2-723, if the seller wrongfully fails to deliver or repudiates or the buyer rightfully rejects or justifiably revokes acceptance: (a) the measure of damages in the case of wrongful failure to deliver by the seller or rightful rejection or justifiable revocation of acceptance by the buyer is the difference between the market price at the time for tender under the contract and the contract price together with any incidental or consequential damages under Section 2-715, but less expenses saved in consequence of the seller's breach; and (b) the measure of damages for repudiation by the seller is the difference between the market price at the expiration of a commercially reasonable time after the buyer learned of the repudiation, but no later than the time stated in paragraph (a), and the contract price together with any incidental or consequential damages provided in this Article (Section 2--715), less expenses saved in consequence of the seller's breach. (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

2-714 Buyer's Damages for Breach in Regard to Accepted Goods

(1) Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable. (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered.

2-715 Buyer's Incidental and Consequential Damages

(1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach. (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 (b) injury to person or property proximately resulting from any breach of warranty.

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2-716 Buyer's Right to Specific Performance or Replevin
(1) Specific performance may be decreed if the goods are unique or in other proper circumstances. In a contract other than a consumer contract, specific performance may be decreed if the parties have agreed to that remedy. However, even if the parties agree to specific performance, specific performance may not be decreed if the breaching party's sole remaining contractual obligation is the payment of money. (2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just. (3) The buyer has a right of replevin or similar remedy for goods identified to the contract if after reasonable effort the buyer 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. (4) The buyer's right under subsection (3) vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver.

2-717 Deduction of Damages From the Price

The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract.

2-718 Liquidation or Limitation of Damages; Deposits

(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. Section 2-719 determines the enforceability of a term that limits but does not liquidate damages. (2) If the seller justifiably withholds delivery of goods or stops performance because of the buyer's breach or insolvency, the buyer is entitled to restitution of any amount by which the sum of the buyer's payments exceeds the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1) (a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller. (3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes: (a) a right to recover damages under the provisions of this Article other than subsection (1), and (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract. (4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller (Section 2-706).

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All Remedies Sections

2-701. Remedies for Breach of Collateral contracts Not Impaired. Remedies for breach of any obligation or promise collateral or ancillary to a contract for sale are not impaired by the provisions of this Article. 2-702. Seller's Remedies on Discovery of Buyer's Insolvency. (1) Where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this Article (Section 2-705). (2) Where the seller discovers that the buyer has received goods on credit while insolvent, the seller may reclaim the goods upon demand made within a reasonable time after the buyer's receipt of the goods. Except as provided in this subsection, the seller may not base a right to reclaim goods on the buyer's fraudulent or innocent misrepresentation of solvency or of intent to pay. (3) The seller's right to reclaim under subsection (2) is subject to the rights of a buyer in ordinary course of business or other good -faith purchaser for value under Section 2-403. Successful reclamation of goods excludes all other remedies with respect to them. 2-703. Seller's Remedies in General. (1) A breach of contract by the buyer includes the buyer's wrongful rejection or wrongful attempt to revoke acceptance of goods, wrongful failure to perform a contractual obligation, failure to make a payment when due, and repudiation. (2) If the buyer is in breach of contract the seller, to the extent provided for by this Act or other law, may: (a) withhold delivery of such goods; (b) stop delivery of the goods under Section 2-705; (c) proceed under Section 2-704 with respect to goods unidentified to the contract or unfinished; (d) reclaim the goods under Section 2-507(2) or 2-702(2); (e) require payment directly from the buyer under Section 2-325(c); (f) cancel; (g) resell and recover damages under Section 2-706; (h) recover damages for non-acceptance or repudiation under (Section 2-708(1) or in a proper case the price (Section 2-709); (j) recover the price under Section 2-709; (k) obtain specific performance under Section 2-716; (l) recover liquidated damages under Section 2-718; (m) in other cases, recover damages in any manner that is reasonable under the circumstances. (3) If the buyer becomes insolvent, the seller may: (a) withhold delivery under Section 2-702(1);

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(b) stop delivery of the goods under Section 2-705; (c) reclaim the goods under Section 2-702(2). 2-704. Seller's Right to Identify Goods to the Contract Notwithstanding Breach or to Salvage Unfinished Goods. (1) An aggrieved seller under the preceding section may (a) identify to the contract conforming goods not already identified if at the time he learned of the breach they are in his possession or control; (b) treat as the subject of resale goods which have demonstrably been intended for the particular contract even though those goods are unfinished. (2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner. 2-705. Seller's Stoppage of Delivery in Transit or Otherwise. (1) The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent (Section 2-702) or if the buyer repudiates or fails to make a payment due before delivery or if for any other reason the seller has a right to withhold or reclaim the goods. (2) As against such buyer the seller may stop delivery until (a) receipt of the goods by the buyer; or (b) acknowledgment to the buyer by any bailee of the goods except a carrier that the bailee holds the goods for the buyer; or (c) such acknowledgment to the buyer by a carrier by reshipment or as a warehouse; or (d) negotiation to the buyer of any negotiable document of title covering the goods. (3)(a) To stop delivery the seller must so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods. (b) After such notification the bailee must hold and deliver the goods according to the directions of the seller but the seller is liable to the bailee for any ensuing charges or damages. (c) If a negotiable document of title has been issued for goods the bailee is not obliged to obey a notification to stop until surrender of possession or control of the document. (d) A carrier that has issued a non-negotiable bill of lading is not obliged to obey a notification to stop received from a person other than the consignor. 2-706. Seller's Resale Including Contract for Resale. (1) Under the conditions stated in Section 2-703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach. (2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be at public or private sale including sale by way of one or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence or that any or all of them have been identified to the contract before the breach. (3) Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell.

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(4) Where the resale is at public sale (a) only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and (b) it must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and (c) if the goods are not to be within the view of those attending the sale the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and (d) the seller may buy. (5) A purchaser that buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. (6) The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2-707) or a buyer that has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection (3) of Section 2-711). 2-707. "Person in the Position of a Seller". (1) A "person in the position of a seller" includes as against a principal an agent that has paid or become responsible for the price of goods on behalf of his principal or anyone that otherwise holds a security interest or other right in goods similar to that of a seller. (2) A person in the position of a seller has the same remedies as a seller under this Article. 2-708. Seller's Damages for Non-acceptance or Repudiation. (1) Subject to subsection (2) and to Section 2-723: (a) the measure of damages for nonacceptance by the buyer is the difference between the contract price and the market price at the time and place for tender together with any incidental or consequential damages provided in Section 2-710, but less expenses saved in consequence of the buyer's breach; and (b) the measure of damages for repudiation by the buyer is the difference between the contract price and the market price at the place for tender at the expiration of a commercially reasonable time after the seller learned of the repudiation, but no later than the time stated in paragraph (a), together with any incidental or consequential damages provided in Section 2-710, less expenses saved in consequence of the buyer's breach. (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. 2-709. Action for the Price. (1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price (a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. (2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold.

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(3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610), a seller that is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section. 2-710. Seller's Incidental Damages. (1) Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach. (2) Consequential damages resulting from the buyer's breach include any loss resulting from general or particular requirements and needs of which the buyer at the time of contracting had reason to know and which could not reasonably be prevented by resale or otherwise. (3) In a consumer contract, a seller may not recover consequential damages from a consumer. 2-711. Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods. (1) A breach of contract by the seller includes the seller's wrongful failure to deliver or to perform a contractual obligation, making of a nonconforming tender of delivery or performance, and repudiation. (2) If the seller is in breach of contract under subsection (1), the buyer, to the extent provided for by this Act or other law, may: (a) in the case of rightful cancellation, rightful rejection, or justifiable revocation of acceptance, recover so much of the price as has been paid; (b) deduct damages from any part of the price still due under Section 2-717; (c) cancel; (d) cover and have damages under Section 2-712 as to all goods affected whether or not they have been identified to the contract; (e) recover damages for nondelivery or repudiation under Section 2-713; (f) recover damages for breach with regard to accepted goods or breach with regard to a remedial promise under Section 2-714; (g) recover identified goods under Section 2-502; (h) obtain specific performance or obtain the goods by replevin or similar remedy under Section 2-716; (i) recover liquidated damages under Section 2-718; (j) in other cases, recover damages in any manner that is reasonable under the circumstances. (3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (Section 2-706). 2-712. "Cover"; Buyer's Procurement of Substitute Goods. (1) If the seller wrongfully fails to deliver or repudiates or the buyer rightfully rejects or justifiably revokes acceptance, the buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller's breach.

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(3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. 2-713. Buyer's Damages for Non-delivery or Repudiation. (1) Subject to Section 2-723, if the seller wrongfully fails to deliver or repudiates or the buyer rightfully rejects or justifiably revokes acceptance: (a) the measure of damages in the case of wrongful failure to deliver by the seller or rightful rejection or justifiable revocation of acceptance by the buyer is the difference between the market price at the time for tender under the contract and the contract price together with any incidental or consequential damages under Section 2-715, but less expenses saved in consequence of the seller's breach; and (b) the measure of damages for repudiation by the seller is the difference between the market price at the expiration of a commercially reasonable time after the buyer learned of the repudiation, but no later than the time stated in paragraph (a), and the contract price together with any incidental or consequential damages provided in this Article (Section 2--715), less expenses saved in consequence of the seller's breach. (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival. 2-714. Buyer's Damages for Breach in Regard to Accepted Goods. (1) Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller's breach as determined in any manner which is reasonable. (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered. 2-715. Buyer's Incidental and Consequential Damages. (1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach. (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 (b) injury to person or property proximately resulting from any breach of warranty. 2-716. Buyer's Right to Specific Performance or Replevin. (1) Specific performance may be decreed if the goods are unique or in other proper circumstances. In a contract other than a consumer contract, specific performance may be decreed if the parties have agreed to that remedy. However, even if the parties agree to specific performance, specific performance may not be decreed if the breaching party's sole remaining contractual obligation is the payment of money. (2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just. (3) The buyer has a right of replevin or similar remedy for goods identified to the contract if after reasonable effort the buyer 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.

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(4) The buyer's right under subsection (3) vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver. 2-717. Deduction of Damages From the Price. The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract. 2-718. Liquidation or Limitation of Damages; Deposits. (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. Section 2-719 determines the enforceability of a term that limits but does not liquidate damages. (2) If the seller justifiably withholds delivery of goods or stops performance because of the buyer's breach or insolvency, the buyer is entitled to restitution of any amount by which the sum of the buyer's payments exceeds the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1) (a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller. (3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes: (a) a right to recover damages under the provisions of this Article other than subsection (1), and (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract. (4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller (Section 2-706). 2-719. Contractual Modification or Limitation of Remedy. (1) Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer's remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and (b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act. (3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.

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