George Mason Contracts II Outline

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[edit] CONTRACTS II: OUTLINE

[edit] REGULATING THE BARGAINING PROCESS

[edit] UNCONSCIONABILITY

"Adhesion Contract": an imprecise term used to describe a document containing non-bargained for clauses in fine print, complicated, and exceptionally favorable to drafter. Non-drafter typically has little bargaining power.

Contract can be avoided if
1. contract is an "adhesion contract"
2. contract is unconscionable

Procedural' vs. Substantive Unconscionability'
Procedural': party is induced to enter K without meaningful choice, or hidden, deceptive terms.
Substantive: K itself is unduly unfair not the process of arriving at the K. Usually unreasonably favorable and shocks the conscience
NOTE: some Ct’s find that extreme Sub. Unc. proves Proc. Unc.

Unconscionability' Elements'
1. Unreasonable terms (taking advantage of consumer; "shocks the conscience")
2. Injustice
3. Absence of choice
NOTE: Unc. is often a losing argument. Know how to defend against it.

Remedies for unconscionability
Refuse to enforce clause: just strike the offending clause
Reformation: modify offending clause
Refusal to enforce whole contract: rare.
UCC §2-302: if ct. finds K or clause in K is so unfair as to be "unconscionable", it may enforce remainder of K, or limit K as to avoid unconscionable result.

Cases
COMMON LAW: Williams v. Walker-Thomas Furniture Co. (poor woman must pay for all Ks before she owns anything)
FACTS: Ms Williams can’t read and on welfare enters into rent-to-own K where she owned nothing until she’d paid for everything.
RULE: Ct. found K was unconscionable under common law because there was absence of meaningful choice (limited contracting options, semi-monopolistic power) and the K terms were unreasonably favorable to one party (e.g. shocks the conscience; unfair surprise terms)

UCC: Seabrook v. Commuter Housing Co. (apartments not complete rent starts when building is ready)
FACTS: P agrees to rent apartment. Building construction is late and P tries to get out. Construction clause says he can’t.
RULE: Ct. finds clauses unconscionable''''' and says §2-302 (protecting against unfair surprise) applies by analogy. Landlord was under affirmative duty to set forth a reasonable time limit and to bring the construction clause to P’s attention.

UCC: Henningsen v. Bloomfield Motors, Inc. (car dealers in semi-monopoly have limited warranty clause)
FACTS: P bought car and signed pre-printed order form limiting warranty. "Any other warranties express or implied were expressly disavowed."
RULE: Clause found to be unconscionable. Buyer "unjustly taken advantage of". Buyer could not negotiate for better protection. Semi-monopoly. Clause was hidden and deceptive.

[edit] STATUTE OF FRAUDS

Purpose: while most K’s are valid even if they are oral some K’s are unenforceable unless they are in writing to prevent parties from defrauding the court. K’s that are unenforceable unless in writing are said to fall "within the Statute of Frauds." If the statute applies to the K it is "within the SOF" and that means you have to "satisfy the SOF" by showing a signed writing.

Categories of K’s that Must be in writing
1. Suretyship – answering for the debt or duty of another.
2. Marriage – K made upon consideration of marriage
3. Land – K for sale of land
4. One Year – K that cannot be performed within one year of its making
5. UCC: Sale of goods – K for sale of goods for price of > $500.

One Year' Provision'
General Rule: if K cannot be fully performed in a year after making K, K must be in writing.
Time runs from making of K: usually measured from time of execution of K not the time it will take parties to perform. (e.g. I promise to do 1 days work 1.5 years from now is unenforceable unless in writing).
Impossibility: Ct’s don’t like to apply SOF. Therefore, only applied if performance is impossible within one year. Performance being highly unlikely is not enough.
Termination: Ct’s are split about whether at-will K’s and K’s with termination clauses permitting termination in less than a year will remove the K from the 1-year provision.

COMMON LAW CASE: Mercer v. C.A. Roberts Co. (employer changes bonus plan halfway through year)

1. FACTS: P and D have oral employment agreement in which P would receive incentive compensation in addition to salary. 4 years later P was informed of change in formula retroactive to January 1 of that year. P sues and loses.

2. RULE: employment contract was unenforceable b/c of Statute of Frauds. While typically performance of at-will K’s were performable in one-year, in this case trial court found agreement was not performable in one year so SOF applies.

3. DISSENT: P fully performed agreement upon which he sues (just months for which he was employed and fulfilled his obligations) _i agree with dissent.

NOTE: FULL PERFORMANCE by one-party can prevent SOF from being applied.
Applies to all K’s

K for Sale of Goods
General Rule: UCC §2-201(1) says "a K for the sale of goods for the price of $500 or more is not enforceable…unless there is some writing sufficient to indicate that K has been made". Oral K’s for sale of goods >$500 are not enforceable.
Exceptions
Specially manufactured goods: UCC §2-201(3)(a) – if they aren’t suitable for others.
Goods accepted or paid for: If I sell you a $600 good and you send me a check, as soon as I deposit the check I lose my SOF defense.

EXCEPTION: Promissory' Estoppel & Part Performance': P who has relied on unenforceable promise may use doctrine of promissory estoppel to enforce the agreement notwithstanding SOF if he reasonably relies to his detriment.

COMMON LAW CASE: McIntosh v. Murphy (moves to Hawaii for at-will job but gets fired)
FACTS: P moves to Hawaii for at-will K for a few years. P was discharged after a few months. D moved for directed verdict saying the oral employment agreement was in violation of SOF.
RULE: sufficient reliance of P breaks SOF defense for D. §139 2ndRestatement: promise which promisor should reasonably expect to induce action or forbearance…which does induce act. or forb. Is enforceable notwithstanding SOF if injustice can be avoided only by enforcement of promise. P moved 2200 miles away and is owed damages.
RULE2: courts often say that if K ends with death of party, then K is performable within a year.

COMMON LAW CASE: Schwedes v. Romain (oral promise to sell land to P; instead sells to X)
FACTS: D promised to sell land to P but then sold it to X.
RULE: no enforceable K existed and no reliance or part performance. Preparing to perform (e.g. getting financing in order) is not sufficient part performance to preclude SOF defense.

1. NOTE: sufficient PART PERFORMANCE can preclude SOF defense

CASE: Monetti v. Anchor Hocking Corp (P gives D exclusive rights to sell plastic plates but negotiations fail)
FACTS: P makes plastic trays. Entered negotiations with D’s D sent telex requesting exclusive formalized K. In response, P terminated its distributors and informed customers that D had become exclusive distributor. P turned over trade secrets, know-how, inventory records, and other assets to D. Memo was written confirming the arrangement but before formal K relationship deteriorated.
RULE: K is enforceable and SOF does not apply b/c turning over company constituted partial performance exception to SOF and because, regardless, the memo satisfied the writing requirement.
RULE2: UCC does not abolish the partial performance exception to SOF. However, UCC does "not treat partial delivery by party seeking to enforce an oral K as partial performance for entire K, allowing enforcement of delivery of undelivered goods."

COMMON LAW CASE: Mercer v. C.A. Roberts Co. (employer changes bonus plan halfway through year)
Above. NOTE: FULL PERFORMANCE by one-party can prevent SOF from being applied.

Writing Construed Liberally: §131 2^nd Restatement: "any writing, signed by or on behalf of party charged, which
(a) reasonably identifies the subject matter of K,
(b) is sufficient to indicate K had been made, and
(c) states with reasonable certainty the essential terms of the unperformed promises
CASE: Monetti v. Anchor Hocking Corp (P gives D exclusive rights to sell plastic plates but negotiations fail)
Facts above. RULE: a memo that precedes the actual formation of the K can constitute the writing required by SOF under UCC. It is solid evidence of existence of K.

[edit] IDENTIFYING & INTERPRETING TERMS OF AGREEMENT

GENERAL ORDER OF ANALYSIS:

Is the agreement integrated? (merger clause, natural omission test, certain inclusion test)
Are proffered additional terms inconsistent w/ written agreement?
Bringing new terms is a question of parol evidence, not interpretation.
CONCLUSION: If K is not integrated at all, there’s no K. If fully integrated, no question of consistency. If partially integrated, if evidence is not inconsistent with terms, evidence is allowed in.

[edit] IDENTIFYING TERMS: THE PAROL EVIDENCE RULE

General: parol evidence rule limits extent to which party may establish discussions or writings prior to signed written K should be taken as part of the agreement. Rule bars jury from considering evidence of certain preliminary agreements not contained in final writing.
UCC §2-202 "a writing intended by the parties as a final expression of their agreement…may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement"
§213 2^nd Restatement:
Partially integrated: "a binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them."
Fully integrated: "a binding completely integrated agreement discharges prior agreements to the extent that they are within its scope."

INTEGRATION: Is the written contract Integrated?
Definition: document is "integrated" if it is a final expression of the parties’ agreement.
§209 2^nd Restatement: "an integrated agreement is a writing constituting a final expression of one or more terms of an agreement"
Partial Integration: a "partial" integration is intended to be final, but that it is not intended to include all details of the parties agreement. no evidence of prior agreements or negotiations may be admitted if the evidence is inconsistent with the writing.
Full Integration: not only a final expression of agreement, but also intended to include all details of the agreement. No evidence of prior agreements or negotiations may be admitted if evidence is inconsistent or would add to the writing. (Exception for proving fraud and mistake)
Tests for Integration:
Common Law: "Natural Omissions Test" – note, only tests for integration regarding that particular clause.
UCC "Certain Inclusion Test"

1. UCC §2-202 (comment): - tracks the common law rule closely but is slightly more liberal. Instead of using "natural omission" test, a comment in this section uses the certain inclusion test saying that only if term "would certainly have been included" but wasn’t will a Ct. find full integration and exclude parol terms. This is so liberal that almost no K’s will be fully integrated.

Merger Clause: most courts use merger clauses merely as evidence that K was fully integrated.

CASES: Natural Omission Test

1. Mitchell v. Lath (icehouse case)

FACTS: P buys farm from D but says there is a collateral agreement that D would remove icehouse from their yard in consideration for entering into K.
RULE: Natural omission' test - when collateral K is closely related to main K that it would naturally have been included, Ct. will exclude parol evidence of it.
DISSENT: this was standard form for real estate purchase. There would be no place to include the icehouse requirement.

2. Masterson v. Sine (sells land with buy-back option)

FACTS: P gives D land but reserves option to buy it back. P goes bankrupt but his trustee tries to exercise the option. D says there is a parol term that option was personal to P and non-assignable to trustee b/c P and D wanted to keep land in the family.
RULE: Ct. doesn’t talk about integration but finds the proffered term is consistent with written agreement and allows evidence. REJECTS "Four Corners Rule" b/c assignability term is something you would naturally omit.
DISSENT: Option is presumed to be integrated and non-assignability isn’t something you would naturally omit.

CASES: Merger Clauses

1. Merger Clauses – if K includes clause stating intent of parties is to have written agreement represent full and exclusive terms of agreement, then K is fully integrated. No need to ask about consistency. However, the minority opinion would still look at extrinsic evidence to determine whether parties meant to agree to merger clause.

UAW-GM Human Resource Center v. KSL Recreation Corp (hotel & only union employees)
FACTS: P contracts for use of D’s hotel and K includes a merger clause. K does not require hotel employees to be unionized. D replaces its union employees. P says there was a parol term that hotel employees had to be in union.
RULE: Even when there’s a merger clause, parol evidence is allowed to show fraud or mistake but not fraud as to the alleged parol term that is made moot by the merger clause.

CONSISTENCY: only ask if the terms are consistent if the K is partially' integrated. UCC§2-202(b) the writing may be supplemented "by evidence of consistent additional terms unless the court finds the writing to have been intended as a complete and exclusive statement of the terms of the agreement."

Hunt Foods v. Doliner (P exercises stock during recess and D says he can’t)
FACTS: P makes offer to buy stock from D. Before completing they take a break from negotiation but. P gets option to buy stock. After negotiations restart and fail, P tries to exercise option. D says there is a parol term that option was to be exercised only if he tried to sell to third party during recess period.
RULE: Ct. doesn’t mention integration but says the proffered term is not inconsistent with written agreement and allows evidence. Held for D that under UCC §2-202 parol evidence of an additional term that is consistent' with the writing and wouldn’t certainly be included therein is admissible.

EXCEPTIONS
Fraud, mistake or other voidability: parol evidence never prevents introduction of evidence that would show that no valid contract exists.
Conditional Agreement: §217 2^nd Restatement: if parties agree orally that K is subject to occurrence of a stated condition, the agreement is "not integrated wrt the oral condition". Condition has to be such that both parties’ obligations don’t come into effect until condition happens.
Collateral Agreement: an oral agreement supported by separate consideration may be demonstrated, even though it occurred prior to what seems to be total integration. NOTE: this requires separate consideration.

[edit] INTERPRETING TERMS OF AN AGREEMENT

INTERPRETING TERMS: COMMON LAW: Before parol evidence is allowed in to interpret an ambiguous term, it must be decided that a term is in fact ambiguous. NOTE: in none of the rules are prior negotiations allowed to contradict a term. Two dueling rules for this:

Plain Meaning Rule (PMR)
Traditional PMR: "Four Corners Rule" – judge may not consult extrinsic evidence to determine if term is ambiguous. Determined solely by K itself. This rule is pretty much defunct now.

1. CASE: In re Soper’s Estate (meaning of "wife")

FACTS: Deceased abandoned first wife and remarried then left his estate to his "wife". First wife sues.
RULE: Traditional "Plain Meaning" Rule is rejected. How would we know which wife it is? The Ct. looks to enforce the intention of the parties at the time K was made. In this case, "wife" clearly meant "second wife".

Modern PMR: Ct’s are willing to allow in context, but not prior negotiations, to determine whether there is ambiguity in a term. Context here means things like usage of trade, prior dealings. It allows objective over subjective extrinsic evidence.

Modern Contextualism Rule: more liberal modern rule that allows in all extrinsic evidence to see if there is ambiguity, even if the writing is integrated'.
Extrinsic Evidence for Ambiguous Terms: all Ct’s allow extrinsic evidence to determine meaning of term trial ct. finds to be ambiguous. If judge finds term is unambiguous it is for the judge to instruct the jury as to what it means.

CASE: Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. (steam turbine indemnity clause)

1. FACTS: D agrees to fix steam turbine. K had "indemnity clause" that D would indemnify P against all loss, damages, etc. to the property arising out of performance of K. D took out insurance for this purpose. D claims clause was only meant for P’s loss from third parties, not from D.

2. RULE: Modern contextualism approach where even if K looks unambiguous, test is whether proffered evidence is relevant to prove a meaning which is not inconsistent with the writing. Court said test for admissibility was not whether it appears clear and unambiguous on its face (PMR'), but whether evidence can prove a meaning to which the writing is "reasonably susceptible."

CASE: Trident Center v. Connecticut General Life Insurance Co. (Kozinski goes to far admitting evidence w/o ambiguity)

1. FACTS: P (law firms) get loan from D w/ clause saying P can’t prepay, but that if P becomes insolvent D can demand prepayment w/ 10% penalty. P sues saying it could prepay as long as it paid the penalty.

2. RULE: J. Kozinski uses Pac. Gas rule to find that extrinsic evidence needs to be let in even though there is no ambiguity as to the meaning (summary judgment is appropriate). He misinterprets the rule and should have first looked for ambiguity. Since there is none, summary judgment is appropriate.

CASE: Frigaliment Importing Co. v. B.N.S. International Sales Corp. (meaning of "chicken")

1. FACTS: P and D enter into K for "chickens" but each has a diff meaning (stewing vs. broiling chickens). K said they should be gov. inspected chickens, so ct. uses regulations as dictionary.

2. RULE: Stands for proposition that you allow in usage of trade to define ambiguous' terms. However, this case is also sort of like Peerless in which there probably wasn’t a meeting of the minds.

INTERPRETING TERMS: UCC - UCC §2-202: rejects common law PMR and ambiguity requirement for admission of extrinsic evidence of the meaning of a term. States that even a fully integrated document may be explained or supplemented by usage of trade, course of performance and course of dealing as long as it is consistent with the terms of the final writing.
UCC §2-202 (comment) - "Certain Inclusion Test" - Under UCC almost all Ks are partially integrated
CASES
Columbia Nitrogen Corp. v. Royster Co. (K with ceiling but no floor; argument over "minimum")
FACTS: P was long-term customer of D but in this K D was a customer of P. D agreed to buy a minimum at set price with a clause that price would escalate with market but no de-escalation clause (no floor). Prices plummet and D buys less than the minimum. P sues and D wants to introduce prior dealings evidence showing that "minimum" means that amount or less.
RULE: As long as evidence doesn’t contradict written' terms, it is admissible so Ct. admits it. However, this seems to contradict! Ct ignores a merger clause saying it doesn’t expressly state that course of dealing and usage of trade can’t be used to supplement written K.

Southern Concrete Services v. Mableton Contractors, Inc. (~70 cubic yards != 12 cubic yards)
FACTS: D agrees to buy "approximately 70 cubic yards" of concrete from P and only buys 12. P sues. D says evidence shows approx. 70 can mean 12.
RULE: Ct says "you can’t allow in extrinsic evidence of trade usage that would eviscerate the writing". This meaning is not consistent with the writing and is therefore not allowed. It says Columbia is limited to its facts and that in this case there were no prior dealings.

[edit] MISTAKE & EXCUSE

[edit] MISTAKEN FACTS: EXCUSE BASED ON MISTAKE

Definition: §151 2^nd Restatement: a "mistake" is a "belief that is not in accord with the facts." The doctrine is applicable only to mistaken beliefs about an 'existing fact', not an erroneous belief about what will happen in the future.
Mutual mistake: parties are mistaken about the same belief.
Unilateral: only one party has the mistaken belief.
Anderson Brothers Corp. v. O’Meara (dredge doesn’t work for P’s purpose)
FACTS: D had dredge for sale. P purchased dredge for purposes that it turns out dredge couldn’t do. D didn’t know what P wanted it for. P finds out his unilateral mistake and sues D.
RULE: There was no mutual' mistake, at best two unilateral mistakes. Knowledge by one party to a K that other is laboring under a mistake concerning subject matter of K renders it voidable but here D does not know. It was P’s fault for not making sure the dredge would work and he assumes the risk.
RULE2: The party with the unusual desire bears the risk. If you want something out of the ordinary, and you don’t specify it as a buyer, you bear the risk.

***************Raffles v. Wichelhaus (PROVIDED IN CLASS)************************
FACTS:
RULE:

[edit] MISAKEN FACTS: MUTUAL MISTAKE & REFORMATION

Definition: §152 2^nd Restatement – "where a mistake of both parties at time a K is made as to a basic assumption on which K was made has a material effect on the agreed exchange of performances, the K is voidable by the adversely affected party unless he bears the risk of the mistake."

Three Requirements for Avoidance: Three requirements must be satisfied before adversely-affected party may avoid the K on account of mutual' mistake.
1) Basic Assumption: mistake must concern a basic assumption on which the K was made.
CASE: Sherwood v. Walker (cow is w/ calf)

1. FACTS: P and D think D’s cow is barren. They agree on sale for $80. Turns out cow is with calf and worth ~$1k. D refuses to hand over.

2. RULE: Both parties were mistaken about the same thing, that the cow was barren and farrow. This is a basic assumption that has a material' effect on the K price. No one was assuming the risk that it was not.

3. DISSENT: P didn’t buy the cow for beef. He was gambling on it being able to breed. Risk allocated to D. This test is wrong. Test is above elements…

Atlas Corp. v. United States (uranium is dangerous. who knew?)

1. FACTS: P sells uranium to D. Later uranium is discovered to be bad and P has to pay more than expected to clean it up per new laws. P sues D for clean-up costs that weren’t in K b/c of mutual mistake (that Uranium was not dangerous) and asks for reformation.

2. RULE: When neither party is aware of existence of a fact (that uranium is bad), they can’t have a belief about it, so they can’t be mistaken about this belief. This is not a basic assumption so there is no mutual mistake.

3. RULE2: Reformation is available only to modify existing Ks to make them conform to parties intent. Parties couldn’t have intended anything here b/c facts were unknown.

2) Material effect: mistake must have a material effect on the agreed exchange of performance.
CASE: Sherwood v. Walker (cow is w/ calf) - above

CASE: ALCOA v. Essex Group, Inc. (Greenspan formula fails b/c OPEC)

1. FACTS: P enters into K w/ D where they intend to keep price within narrow range per Greenspan’s formula. Formula fails during OPEC and D gets a windfall. P sues on mutual mistake and asks for reformation.

2. RULE: Intent of parties was a narrow price range and Ct. finds there was a mutual mistake about whether the formula would work to keep the price in that range. P didn’t assume the risk b/c it didn’t enter into the K in a state of conscious ignorance (like the dredge guy in Anderson). It didn’t ask for price floor b/c both parties thought the formula would work. Ct. reforms K w/ new price formula that sticks to original intent.

3) Risk: adversely-affected party must not be the one on whom the K implicitly imposed the risk of the mistake. Often the K does not make clear the party who bears the risk of the mistake so the Ct. allocates this risk in the way in finds reasonable. §154 2^nd Restatement (risk can be allocated 1) in agreement; 2) if party is aware he has limited knowledge about mistake but treats it as sufficient; 3) court allocates risk to him on grounds that it is reasonable to do so)
Anderson Brothers Corp. v. O’Meara (dredge doesn’t work for P’s purpose)

1. FACTS: above. RULE2: The party with the unusual desire bears the risk. If you want something out of the ordinary, and you don’t specify it as a buyer, you bear the risk.

ALCOA v. Essex Group, Inc. (Greenspan formula fails b/c OPEC)

1. FACTS: above: RULE: Intent of parties was a narrow price range and Ct. finds there was a mutual mistake about whether the formula would work to keep the price in that range. P didn’t assume the risk b/c it didn’t enter into the K in a state of conscious ignorance (like the dredge guy in Anderson).

[edit] IMPOSSIBILITY: TRADITIONAL IMPOSSIBILITY

Generally: If Ct. concludes performance of K has been rendered "impossible" by events occurring after K was created, Ct. will generally discharge the parties.
Three classes: 1) destruction of subject matter; 2) failure of the agreed-upon means of performance; 3) death or incapacity of a person.

1) Destruction of Subject Matter: if performance involves goods (e.g. building) essential to performance of K and through no fault of either party it is destroyed the contract is discharged.

Specifically referred to: if property performing party expected to use is destroyed, party is discharged only if destroyed party was 'specifically referred to in the K. §263 2^nd Restatement: "if the existence of a specific thing is necessary for the performance of a duty, its…destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the K was made."

1. CASE: Taylor v. Caldwell (Concert hall burns down)

FACTS: D agrees to rent music hall to P for concert but it burns down before concert
RULE: In Ks where performance depends on continued existence of a person or thing, a condition is implied (risk assigned) that the impossibility of performance (assuming it is without fault) excuses performance.

2. CASE: Howell v. Coupland (potato farm undersupplies)

FACTS: P enters into K to buy 200 tons of potatoes from D’s land. Through no fault of D his land only produces 80 tons. The express condition was "from D’s land."
RULE: applying Taylor rule, D wins.

Construction K vs. Repair of Buildings: builder in K to construct a building that burns down when partially completed may not use impossibility whereas party w/ K to repair an existing building can use the defense to discharge K.

1. CASE: Carroll v. Bowersock (house burns down in the middle of reflooring)

FACTS: P is reflooring D’s warehouse which burns down before completion. P sues for impossibility.
RULE: Impossibility as a sword b/c P wants D to rebuild the warehouse so it can perform…strange. Ct says P gets only portion of the work that had already provided value to D.

Sale of Goods: UCC §2-615(a) – unless otherwise agreed, "delay in delivery or non-delivery…is not a breach of duty under K for sale if performance as agreed has been made impracticable by occurrence of a contingency the non-occurrence of which was a basic assumption' on which the K was made…"

1. Seitz v. Mark-O-Lite Sign Contractors (diabetes sign guru gets sick)

FACTS: D agrees to sell P a neon sign but his neon sign maker falls ill from diabetes and can’t work.
RULE: P wins b/c D didn’t contract for a particular person to do it, just to deliver the sign. It is not impossible for D to perform, just more expensive. Diabetes guy being healthy was not a basic assumption' of the K.

2) Impossibility of essential mode of performance: it an essential and intangible aspect of the K becomes impossible, K can be discharged
Impossibility due to failure of third parties: where a middleman K’s to supply goods he is procuring from a 3^rd party and 3^rd party fails to deliver, middleman’s use of impossibility depends on the situation

1. Source Not Specified in K: if K does not specify source, seller whose source doesn’t pan out cannot use impossibility.

2.

3. Seller’s Supply K is breached: many Ct’s will allow impossibility if seller has K with 3^rd party and 3^rd party breaches.

CASE: Canadian Indus. Alcohol v. Dunbar Molasses (middleman fails to deliver b/c supplier reduces production)
FACTS: P agrees to buy molasses from D on condition that they be from Refinery X. X cuts back on production so D can’t deliver as promised.
RULE: No impossibility b/c Dunbar assumed the risk. Dunbar should have Kd with refinery to ensure amount of molasses. If he had, many Ct’s would have found impossibility.

4. 3^rd party excused by impossibility: similarly, if seller makes K with supplier and supplier is excused b/c of impossibility, seller probably also will be discharged.

3) Death or Illness: If K specifically provides performance done by particular person, that person’s death or incapacity will discharge both parties.

Death or illness of 3^rd party: K may similarly be discharged by death or illness of 3^rd party necessary to perform K even if he is not a party to K.

1. CASE: Seitz v. Mark-O-Lite Sign Contractors (diabetes sign guru gets sick) – NOT APPLICABLE b/c P didn’t K for diabetes guy to do the work, just for the completed sign.

[edit] COMMERCIAL IMPRACTICABILITY: MODERN EXCUSE DOCTRINE

Test for Impracticability
1. Contingency occurred
2. Risk not allocated by agreement or custom and was not foreseeable
3. condition must have rendered performance commercially impracticable because it is excessively costly

Modern View: courts generally equate "extreme impracticability" with impossibility. Therefore, if performance would be infeasible from a commercial viewpoint, promisor may be excused.
UCC: UCC §2-615(a) – provides that seller’s non-delivery is excused "if performance as agreed has been made impracticable by occurrence of a contingency the non-occurrence of which was a basic assumption' on which the K was made…" Complete cut-offs of supplies due to war, crop failure, strike, etc. are often found to be covered under this.

Eastern Air Lines v. Gulf Oil Corp. (requirements K for jet fuel screwed up by OPEC)

1. FACTS: P and D enter into long-term K for jet fuel. They fix price to index but OPEC screws it up. Gulf gets screwed b/c it is selling at less than it could be. Commercial impracticability was one of Gulf’s claims.

2. RULE: Ct says UCC§2-615 (excuse for commercial impracticability) to apply there must be a failure of a presupposed condition, that was unforeseeable, and that the risk was not allocated. The excess cost must also be "more than merely onerous or expensive. It must be positively unjust…". Not the case here.

Cost Increases: most impracticability cases relate to extreme cost increases suffered by sellers who have signed fixed-price contracts. Sellers here generally lose because they have implicitly assumed the risk of cost increases. It is especially likely seller will lose where the cost increase was foreseeable.

CASE: Eastern Air Lines v. Gulf Oil Corp. (requirements K for jet fuel screwed up by OPEC)

1. FACTS: above. RULE: Ct says the excess cost must also be "more than merely onerous or expensive. It must be positively unjust…"

CASE: Transatlantic Financing Corp. v. United States (suez canal closed so K more costly)

1. FACTS: P agrees to take D’s cargo from TX to Iran. Best route is through Suez Canal, but when P got there it was blocked so it went around Africa at extra cost of $44k for which it sues.

2. RULE: D wins b/c risk was foreseeable to P and the extra cost was not excessively costly for P to perform.

CASE: ALCOA v. Essex Group, Inc. FACTS: above. RULE: above.

[edit] FRUSTRATION OF PURPOSE

Generally: where a party’s joint purpose in entering the K is destroyed by supervening events, most courts will discharge him from performing. §265 2^nd Restatement – "where, after a K is made, a party’s principal purpose is substantially frustrated w/o his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the K was made, his duties to perform are discharged."

Distinguished from impossibility: In frustration cases, person seeking discharge is not claiming he "cannot" perform. Rather, she is claiming that it makes no sense for her to perform, because what she will get in return does not have the value she originally expected at time of K formation.

CASE: Krell v. Henry (coronation of king)

1. FACTS: P leases D room w/ view to coronation. King gets ill and coronation is canceled. D could still sit in empty room (performance not impossible), but purpose is frustrated b/c no coronation. D is excused.

2. RULE: Kings coronation was a basic assumption' on which K was made that was unforeseeable to both parties so they didn’t assign the risk. P got to keep the deposit.

Factors to be considered: two main factors should be considered to determine when to use doctrine of frustration:
Foreseeability: the less foreseeable the event, the more likely Ct. will allow frustration defense.
Totality: The more totally frustrated the party is, the more likely he is to be allowed to use the defense.
CASE: Krell v. Henry (coronation of king) – king’s illness was unforeseeable and D’s purpose was totally frustrated.

CASE: Lloyd v. Murphy (selling cars during war)

1. FACTS: P leases D a locale to be used only for selling cars. Wartime restrictions on car sales come into effect. As sign of good intent, P waives the car sale purpose and subleasing restrictions. D still leaves the premises and claims frustration. Court doesn’t buy it.

2. RULE: K’s value had not been completely frustrated for D b/c he still could have used the locale commercially. Wartime restrictions were foreseeable to both parties.

[edit] CONDUCT CONSTITUTING BREACH

[edit] ANTICIPATORY BREACH

General Rule: If party makes it clear, even before performance is due, that he cannot or will not perform, he has anticipatorily repudiated the K. All states but Mass. Allow victim of repudiation to sue before repudiator’s time for performance has arrived.

CASE: Hochster v. De La Tour (travel job canceled – P can mitigate sue)
FACTS: P agrees to be D’s travel companion. D cancels trip. P mitigates by getting work during time of cancelled trip. P sues D for anticipatory breach.
RULE: Rather than have to continue to prepare for a non trip, P can mitigate and sue for damages (from which mitigation is subtracted) without waiting for time of performance.

If other party breaches you can?
1) Wait until breach and sue for full damages…(********what about duty to mitigate*************)
2) Treat K as repudiated and sue for damages immediately
3) Seek reassurance from the other party and if you don’t get it, change your position in the interim.

TYPES OF REPUDIATION
"Express Repudiation" by Statement: sometimes repudiation takes form of a statement. However, stating vague doubts about ability to perform is not enough. You must show unwillingness to perform.
CASE: Taylor v. Johnston (K for stud to service mares) – facts below: sending letter canceling K was repudiation.

CASE: Truman L. Flatt & Sons Co. v. Sara Lee Schupf (rezoning application retracted)

1. FACTS: D sells land to P in K that has option for P to cancel if city council rejects rezoning. P retracts rezoning app and offers less money to D. D says no. P says OK, we’ll pay original amount. D says P had anticipatorily repudiated and they won’t sell. P sues for specific performance.

2. RULE: P never repudiated b/c it did not make a clear statement that it wouldn’t perform, just offered less money. Even if it did, it retracted it timely by assuring it would pay the full amount once D rejected the lower offer. D never materially changed its position in reliance of P’s repudiation until after the retraction.

"Implied Repudiation" by Voluntary Acts: repudiation may occur by means of an act by promisor that makes his performance impossible. Must be "impossible" not just difficult.

CASE: Taylor v. Johnston (K for stud to service mares) – facts below: selling the stud was "implied repudiation"

Prospective inability to perform: something analogous to anticipatory repudiation occurs when it becomes evident promisor will be unable to perform, even though he desires to do so. Ct’s typically allow promisee to suspend her performance but courts are split about whether promise may immediately sue for breach.
Insolvency: promisor’s insolvency usually is not considered to be anticipatory repudiation. However, promisee probably can request assurances (UCC §2-609(1) – "reasonable grounds for insecurity") and if promisor doesn’t give them, then that is anticipatory repudiation.

RETRACTION of Repudiation: Repudiation may normally be retracted until some event occurs to make the repudiation final. UCC§2-611(1) – "until the repudiating party’s next performance is due that party can retract the repudiation unless the aggrieved party has since the repudiation canceled or materially changed position or otherwise indicated that the repudiation is final."
Final acts: in most courts, repudiator’s time to retract ends as soon as the party does one of the following.
1. sues for breach
2. changes her position materially in reliance of repudiation
3. States that she regards the repudiation as final

CASE: Taylor v. Johnston (K for stud to service mares)
FACTS: D books stud to service P’s mares. D sells his stud (1^st repudiation), then writes to P saying K is cancelled (2^nd Repudiation). P demands performance (rejection of repudiation). D arranges for it (retraction). D jerks around P and P ultimately doesn’t allow performance. D wins b/c he retracted and ultimately didn’t breach.
RULE: This case is about retraction and how it can suck. P should have sued for anticipatory breach when D repudiated.

CASE: Truman L. Flatt & Sons Co. v. Sara Lee Schupf (rezoning application retracted)
FACTS: above…
RULE: P never repudiated b/c it did not make a clear statement that it wouldn’t perform, just offered less money. Even if it did, it retracted it timely by assuring it would pay the full amount once D rejected the lower offer. D never materially changed its position in reliance of P’s repudiation until after the retraction.

MITIGATION REQUIRED: after repudiation, aggrieved party may not simply ignore the repudiation if this will aggravate damages. They must mitigate their damages by securing an alternative K, if one is reasonably available.
UCC§2-610(a) – expresses this mitigation requirement saying that party may "for a commercially reasonable time await performance by the repudiating party…"
Meaning: by choosing the time to have to mitigate, the Ct. affects damages and therefore affects the incentive structure for the non-breaching party.

REPUDIATION DAMAGES
UCC Damages for Repudiation:
UCC§2-713(1) "measure of damages for…repudiation by the seller is the difference between market price at the time when the buyer learned of the breach and the K price, together with any incidental and consequential damages."

1. Meaning: this meaning is ambiguous. Most courts hold that this means "time when the buyer learned of the repudiation + commercially reasonable time. This is consistent w/ UCC§2-610(a).

Two Incentive Structures
Time of Performance: If damages are set at time of performance, aggrieved party has no incentive to cover at what might be the most efficient time.
Time of Repudiation: If damages are set at time of repudiation, seller could turn buyer into the breacher by vaguely repudiating and making it cover.

Buyer vs. Seller
Seller repudiates and buyer has to cover: If buyer chooses to cover in commercially reasonable way, they will get damages based on how they covered (Price they paid to cover – K price). If cover price is less, they may get nominal damages.
Seller repudiates and buyer doesn’t cover: If buyer doesn’t cover in a proper way, then difference of price when buyer learns of breach and K price. "learned of breach" usually means repudiation + comm. reasonable time.
Buyer Repudiates and seller is left with goods: Depends on whether what is sold is fungible or unique.

CASES

CASE: Cosden Oil & Chemical Co. v. Karl O. Helm Aktiengesellschaft (polystyrene buyer)

1. FACTS: Seller repudiates sale of goods K. Buyer wants mitigation time set at time of performance. Seller wants it at repudiation time.

2. RULE: Ct. says it is time of repudiation + comm. reasonable time. UCC§2-713 referenced.

Roye Realty v. Arkla, Inc. (gas – "take&pay" vs. "pay")

1. FACTS: Buyer had sequential alternative K with seller to take a minimum amt of gas (take & pay) or, if not, to pay a minimum amt of money (pay). Buyer repudiates. Seller wants damages calculated on minimum cash payment, buyer wants market-based minimum (take & pay).

2. RULE: In sequential alternative K, if buyer rejects first option the K is now only for the 2^nd option. So if buyer breaches, damages are based on the 2^nd option (pay). EXCEPTION: When the 2^nd option is just money, this turns it into a liquidated damages clause. To prevent this (b/c it would make giving damages the same as giving specific performance), the Ct. in this situation uses the cheaper option.

3. RULE2: Once buyer repudiates its obligation to take & pay, seller’s inability to physically deliver gas has no bearing on the measure of damages.

Liquidated Damages – ct’s don’t like because 1) give someone an incentive not to breach when it would be efficient; 2) overcompensation will prevent efficient breach; 3) more litigation b/c there is more incentive to claim breach.

ASSURANCES: RIGHT TO DEMAND – a party’s speech or conduct will sometimes not constitute an unequivocal repudiation, but will give the other party reasonable grounds for insecurity about whether there will be performance. In this situation, party who is insecure has the right to demand assurances from the other party that they will perform. If they fail to provide insurances, this will be considered anticipatory repudiation.

§251 2^nd Restatement: (actually a suggestion not a restatement – slowly being adopted) "the obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances…"
UCC§2-609(1): when reasonable grounds for insecurity arise wrt the performance of either party the other may in writing demand adequate' assurance of due performance…"

******add section on common law of this from review session*********

CASE: National Farmers Organization (NFO) v. Bartlett Grain (multiple existing Ks – 4 future Ks)
FACTS: Seller and buyer have multiple Ks. Seller begins to fall short on some of them. Instead of asking for assurances, buyer begins to default on those K’s saying that they won’t go through with future K’s unless they get delivery on current ones. This is a condition precedent and counted as repudiation.
RULE: Buyer was allowed under UCC§2-609(1) to take bad performance on existing Ks as reasonable insecurity of other K’s and could have demanded assurance. He did not have the right to modify future Ks with a condition precedent.

CASE: Norcon Power Partners v. Niagara Mohawk Power Corp ($610 million at end of K)
FACTS: Under strange K, P (seller) would have owed D $610 million at the end of K. D requests assurance that P would perform (probably trying to trigger breach) and P sues saying D can’t ask for one.
RULE: Ct says P could request assurance and that UCC§2-609 applies by analogy (even though this is service). He says it works for oil (goods) and therefore should work for electricity (service). This is the minority view b/c D didn’t do enough to create "reasonable grounds for insecurity".

[edit] REMEDIES

[edit] REMEDIES: EXPECTATION DAMAGES

General: In most breach cases, P will seek and receive protection for her "expectation' interest". Here, the Ct. tries to put the P in the position he would have been in had the contract been performed. This would include any profits she would have made.
Calculation: P’s expectation damages are equal to value of D’s promised performance (usually K price) minus whatever benefits P has received from not having to complete his own performance.

Cost of Completion vs Decrease in Value: When D has defectively performed, P can recover the cost of completion. Cost of completion is the default. However, if the cost of remedying performance is clearly disproportionate to the loss in market value, P will only recover the loss in market value.
Economic Waste: the reason for this rule is to prevent economic waste.

1. If someone has in bad faith done something that will require economic waste to fix, they can’t use economic waste defense.

In general, if K is commercial and injured party intends to buy and sell the thing, their object is profit so they should get diminution in value and not cost of completion. Whereas, if one party is not commercial and they intend to keep the thing, you can’t measure the value to them so the rule should be cost of completion.

CASE: American Standard, Inc. v. Schectman (remove stuff & grade land leads to $90k windfall)

1. FACTS: P sells stuff on land to D for $275k AND promise to remove everything and grade the land. Both are commercial parties and P wants land graded so it can sell it. D takes everything away, but doesn’t grade the land. Cost of grading is $90k. P sells land as is for just $3k less than had it been graded. P wins $90k windfall. B: thinks this is decided wrong.

2. RULE: Ct. gives cost of completion rather than diminution in value b/c it says there is no economic waste here b/c nothing has to be destroyed. However, he still should have awarded diminution in value, b/c that is what P expected – just to sell the land.

Peevyhouse v. Garland Coal & Mining Co. (company doesn’t clean up family’s land as promised)

1. FACTS: P leases farm to D so it can strip mine it. D promises to put land back like it was. P isn’t commercial party and probably wants to live on the land. D doesn’t return land to normal. Cost of completion is $29k and diminution in value is just $300. D wins. B: probably decided wrong.

2. RULE: Ct says cost of completion' is default but that there is an exception when the breached K provision was merely incidental to the main purpose'. NOTE: this could be bad b/c it could encourage fraud and misrepresentation on the part of commercial entities K’ing with ordinary ppl.

[edit] REMEDIES: SPECIFIC PERFORMANCE

Specific Performance vs. Injunction: specific performance orders the promisor to render the promised performance whereas an injunction directs a party to refrain from doing a particular act. Both are equitable remedies.
Test:
§359 2^nd Restatement: "specific performance or an injunction will not be ordered if damages would be adequate' to protect the expectation interest of the injured party."
Determining Adequacy of Damages: §360 2^nd Restatement: in determining adequacy of damages vs specific performance, courts look at 1) "difficulty of proving damages with reasonable certainty"; 2) "difficulty of procuring suitable substitute performance by means of money awarded"; 3) "likelihood that an award of damages could not be collected". Therefore, factors include:

1. Object is Unique

2. Damages are uncertain

3. Money can’t buy substitute (e.g. patents; controlling interest in Company)

4. Land

5. Damages can’t be recovered b/c party is insolvent

UCC§2-716(1): "Specific performance may be decreed where the goods are unique or in other proper circumstances"

CASE: Sedmak v. Charlies Chevrolet, Inc. (corvette seller reneges)

1. FACTS: P orders special edition Corvette from D and gives deposit. Later D gives deposit back and says market price has gone up and it can bid with the others. P wins specific performance.

2. RULE: Ct. allows specific performance saying UCC§2-716(1) applies because although car is not unique, its "mileage, condition, ownership, and appearance" would make it difficult to replace w/o considerable expense and delay. (i.e. too difficult to cover).

Klein v. PepsiCo, Inc. (CEO reneges on sale of jet)

1. FACTS: P buys jet from D. D’s CEO thinks twice and reneges. P sues for specific performance and loses.

2. RULE: Jet wasn’t unique b/c there were others on the market. P was just buying to resell so damages are adequate. Ct. says UCC§2-716 does not "abrogate the maxim that specific performance is inappropriate where damages are recoverable and adequate."

Personal Services K’s: Ct’s almost never order specific performance of a K for personal services.
Peevyhouse v. Garland Coal & Mining Co. (company doesn’t clean up family’s land as promised)
FACTS: above. RULE: this is a service K so it is difficult to get specific performance. However, they should have gotten cost of completion not diminution in value.

Sale of Goods: specific performance will sometimes be granted in K’s involving the sale of goods. This is especially likely in the case of output and requirements K’s, or where the item is unique and not in ready supply.

[edit] REMEDIES: RELIANCE DAMAGES

General: Sometimes P receives protection for her reliance' interest. Here the Ct puts P in as good a position as he was in before the K was made. Damages don’t include profits but do include the amount P spent out-of-pocket in performing or preparing to perform.
When Used: Reliance interest is used when:
1) Profit too speculative: it is impossible to measure expectation interest accurately because lost profits are too speculative.

1. CASE: Sullivan v. O’Connor (bad nose job)

FACTS: P got bad nose job from D who promised to make her beautiful.
RULE: Expectation' damages too speculative so Ct. prefers reliance damages (e.g. cost of operation, subsequent care, cost of operation, lost wages

2. CASE: Kizas v. Webster (FBI offers employees better chances at program)

FACTS: D FBI promised P better shot at a job and then cancelled the program. P’s sue for reliance damages b/c they are probably larger than expectation damages.
RULE: Expectation damages would be probability of getting the job times a certain number of years of pay, etc. so P’s prefer reliance damages. Ct. says it is easier to calculate reliance damages so they get it. However, they don’t get everything (like moving costs) b/c they still bore some of the risk.

2) Promissory Estoppel: Where P successfully wins on Promissory Estoppel. Here the court is trying to reduce injustice to it gives P more than nothing but less than expectation damages.

Limits on Reliance Recovery: Ps reliance damages are sometimes limited to a sum less than actual expenditures.
K price as limit: Where D’s only obligation under K is to pay a sum of money, reliance damages will almost always be limited to this K price.
Recovery limited to profits: Courts don’t allow reliance damages to exceed expectation' damages.
Expenditures prior to signing: P usually can’t recover reliance damages for expenditures made before the K was signed because these weren’t in reliance of the K.

[edit] REMEDIES: RESTITUTION

General: Courts sometimes protect P’s off-K restitution' interest. That is, it is the value to the D of the P’s performance. Restitution is designed to prevent unjust enrichment.
When used: Restitution is most commonly used where:
1) non-breaching P has partly performed (on-contract – but in restitution she wouldn’t be limited to K price as she would for expectation and reliance damages)
2) breaching P has not substantially performed, but is allowed to recover the benefit of what he has conferred on D. (off-contract)
Market Value: Restitution is based on value rendered to D, regardless of how much conferring that value costs P. This is usually the sum D would have to pay to acquire Ps performance not the subjective value to D.
§371 2^nd Rest.: restitution interest may be measure by either "reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant’s position" or "extend to which the other party’s property has been increased in value or his other interests advanced."

CASE: United States v. Zara Contracting Co. (bad soil – D uses Ps equipment to finish)
FACTS: P agrees to do grading work for D. Work turns out to be more difficult and costly because of soil and P asks for more money. D denies request and gets fed up with P’s delays and cancels K (breach). Therefore, D breached even though P was a pain in the ass. D finishes job using P’s equipment. P gets expectation damages for work they had done and restitution for rental value of their requipment.
RULE: P bore the risk of bad soil under K. if it had breached it could not recover restitution. However, since D breached, P gets restitution. Calculation is not increase in value to D’s land but how much it would cost P to pay 3^rd party to do this.

Not limited to K price: The main use of restitution is that, in most courts, it is not limited to K price for the non-breaching party.
CASE: United States v. Zara Contracting Co. (bad soil – D uses Ps equipment to finish) – facts above: Susi could get damages above K price for extra work done because they are not the breaching party.

Breaching P: A P who has materially breached may normally bring an off-K suit and recover his restitution' interest, less D’s damages for the breach. This is sometimes called quantum meruit. ("as much as he deserves").

CASE: Britton v. Turner ($120 K for 12 months of work)
FACTS: P agrees to work for D for one year for $120 and right to stay on land. After 10 months, he leaves and doesn’t come back (breach). P (breacher) sues for restitution for the work he performed.
RULE: Breacher can sue for restitution. P gets the value of the work minus damages to D (zero here). Value of the work is measured as actual value to D, not the market value. K price cannot be exceeded.

[edit] REMEDIES: PUNITIVE DAMAGES

Cases
Hibschman Pontiac, Inc. v. Batchelor (punitive damages awarded for bad car)
FACTS: P buys car from D w/ warranty. Car has problems. D jerks around P so that warranty will run out.
RULE: Punitive damages for breach of K are appropriate if it mingles w/ some elements of tort. Ct. can limit punitive award if it seems excessive at first blush. This case is the minority view.

Miller Brewing Co. v. Best Beers of Bloomington, Inc. (no punitive damages for beer distributor)
FACTS: D breaches beer distribution K while trying to muscle out P.
RULE: There are no punitive damages in K b/c compensatory damages compensate you for all the damages resulting from breach. You have to establish independent tort with all elements to get punitive damages.

[edit] LIMITATIONS ON COMPENSATION: CERTAINTY

Certainty: 2^nd Rest. §352: to make an award, P must show
1. the amount of loss with reasonable certainty.
2. D had reason to foresee the damage would occur if he failed to keep his promise.

TEST: Lost Profits? (Drews Co., Inc. v. Ledwith-Wolfe Associates, Inc.)
1. Profits must have been lost as a natural consequence of the breach of the K
2. Foreseeability – lost profits were probable result of breach of K
3. Lost profits established with reasonable certainty both in terms of existence and amount.

Cases
Drews Co., Inc. v. Ledwith-Wolfe Associates, Inc.
FACTS: P breached a K to make D’s building into a restaurant and therefore D lost profits.
RULE: D got direct damages for breach. He asked for consequential damages and ct’ says you need to be reasonably certain the profits would have occurred before giving these damages. Look at 1) similar business, 2) similar business owned by P, 3) financial data and expert testimony.
RULE: "New Business Rule" preventing lost profit claims for new businesses is rejected.

[edit] LIMITATIONS ON COMPENSATION: FORESEEABILITY

2^nd Rest. §351:
UCC § 2-714: says you can recover for goods already accepted from seller.
UCC § 2-715: says buyer can recover for "any loss resulting from general or particular requirements and needs which the seller at the time of contracting had a reason to know"
Particular needs – must be made known to seller
General needs – rarely need to be made known to charge seller w/ having the knowledge

Allocation of Risk: in addition to telling other party of particular needs, they must take on the additional risk. (Fed Ex)

Cases
Hadley v. Baxendale (shaft of mill being fixed – damages don’t include lost profits)
FACTS: P (miller) sends shaft to D for fixing. D’s courier returned it late. What are damages?
RULE: P cannot recover for lost profits. Foreseeability requires that you explain the special circumstance to the other party and that they take on the additional risk.

1. Two options for damages

1. Arising naturally out of the breach.
2. In contemplation of parties at time K was formed

Spang Industries v. Aetna Casualty and Surety Co.
**************FACTS: p1041 & 1042 explains the rule well; READ THIS PART OF THE CASE
RULE:

Cricket Alley Corp. v. Data Terminal Systems, Inc. (new cash registers)
FACTS: P buys registers from D on understanding that they would work with his computer at headquarters, but they don’t. Direct damages – buying new machines that work; Consequential damages – having to pay employees to enter info manually, etc.
RULE: Ct says D is in business and should have reasonably foreseen the consequences its breach would entail and is therefore liable for consequential damages.

[edit] OTHER

Duty to mitigate –
Aggrieved party has to make sure existing damages aren’t increased as long as it is costless for it to mitigate. You have a duty to passively not raise damages, but not to actively reduce damages.