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Class 36, Thursday, April 20

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  1. Class 36, Thursday, April 20 Announcements F 779-804; handout on conditions Today’s agenda No Oral Modification Clauses Brookside Farms v. Mama Rizzo’s Problem 8-3 Consequences of nonperformance Material breach Jacob & Youngs, Inc. v. Kent Sackett v. Spindler Anticipatory Repudiation Truman L. Flatt & Sons Co. v. Schupf Hornell Brewing Co. v. Spry Class 36

  2. Today is a good day to cover a lot of material. Class 36

  3. Brookside Farms v. Mama Rizzo’s • NOM clause • common law approach • UCC approach • 2-209(2) • 2-209(3) • 2-209(4) • 2-209(5) • no waiver clause Class 36

  4. Problem 8-3 • sale of goods? • changed circumstances excusing Waller Bros. from having to perform • Modification • UCC 2-209(1); good faith • Restatement 73 & 89(a) and (c) • Duress • no-oral-modification clause • UCC 2-209(2), (4), (5) • common law—generally ineffective Class 36

  5. Note 4, p. 703 • accord and satisfaction • “payment in full” check • point of emphasis—amount in question must be unliquidated for a payment in full check to be effective Class 36

  6. Justifications for nonperformance • A sues B • K • A asserts that B breached a duty owed under K • If K existed, and B owed this duty, and B did not do the duty, B will be liable unless B was justified in not performing because of ____________ • this chapter—justifications include material breach by the other party; anticipatory repudiation by the other party; and the operation of express conditions Class 36

  7. Typical Executory K prelim. executory negotiations period breach -----------------|-------------------------|--------------|------- t K formation performance due (1) mutual assent (2) consideration Class 36

  8. Jacob & Youngs, Inc. v. KentNew York Court of Appeals230 N.Y. 239, 129 N.E. 889 (1921) Class 36

  9. Who is suing whom? For what kind of damages? What is the legal basis for the claim? • What duty does the plaintiff claim that defendant has breached? • On what basis does the defendant justify his failure to pay the balance? Class 36

  10. J & Y’s duties build country residence to specifications “All wrought iron pipe must be well galvanized, lap welded pipe of the grade known as ‘standard-pipe’ of Reading manufacture.” Kent’s duties make progress payments make final payment subject to express condition of Architect’s final certificate K duties Class 36

  11. Are duties in a K independent? dependent? • What’s the difference between the two? Class 36

  12. Cardozo, p. 746, middle • “From the conclusion that promises may not be treated as dependent to the extent of their uttermost minutiae without a sacrifice of justice, the progress is a short one to the conclusion that they may not be so treated without a perversion of intention. Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probable. If something else is in view, it must not be left to implication.” Class 36

  13. substantial performance • bottom of 746-747 • “We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. . . . The willful transgressor must accept the penalty of his transgression.” • Is this an elements or factors analysis? Class 36

  14. Cardozo’s factors, reformulated • 1. effect of breach on non-breaching party’s expectations given the purpose of the K • 2. excuse for deviation/good faith on part of breaching party • 3. forfeiture suffered by breaching party BUT—willful transgressor cannot utilize this doctrine Class 36

  15. What does the doctrine of substantial performance achieve? • lawnmower hypo—A promises to mow B’s lawn; B promises to pay $10. A mows the lawn but misses a small portion of it. May B assert A’s failure to provide full performance to excuse B from her performance obligation (paying $10)? Class 36

  16. A has a duty to mow this duty is a constructive condition of B’s obligation to pay in other words, B’s duty to pay under the K doesn’t come due until A has fully performed without the substantial performance doctrine, this could have harsh results B has a duty to pay Class 36

  17. A has a duty to use Reading Pipe this duty is a constructive condition of B’s obligation to pay in other words, B’s duty to pay under the K doesn’t come due until A has fully performed without the substantial performance doctrine, this could have harsh results B has a duty to pay Class 36

  18. if there is substantial performance by one party, the result is that the other’s performance obligation is due; however, the non-breaching party is entitled to an offset for the breach • issue then turns to damages Class 36

  19. cost to remedyv.difference or diminution in value • Which is the standard remedy in construction cases where there has not been full performance? • Does Cardozo apply the standard remedy? Class 36

  20. Why not? • What test does Cardozo come up with? Class 36

  21. Does the dissent disagree with the doctrine of substantial performance or with its application in this case by the majority? Class 36

  22. If there isn’t substantial performance, even though the non-breaching party’s payment obligation under the contract may not be due, the non-breaching party may owe restitution to the breaching party for the benefit that the non-breaching party received from the breaching party’s performance. Class 36

  23. restitution for the breaching party • hypo—lawnmowing hypo—A agrees to mow B’s lawn; B agrees to pay A $10. A mows half the lawn then runs out of gas. A goes to get gas but then is delayed by one thing after another. Assume that B is justified in hiring someone else to finish mowing the lawn. B pays substitute mower $7 and incurs no other transaction costs. • 1. May A recover under the K? • 2. If not, is A entitled to any recovery? Class 36

  24. the notes following Jacob & Youngs are quite good • note 8, p. 752—restitution and divisibility—we’ll do more on this in a later class Class 36

  25. Sackett v. SpindlerCalifornia District Court of Appeal248 Cal. App. 220, 56 Cal. Rptr. 435 (1967) Class 36

  26. Sackett’s duties pay $6000 by July 10 pay $20,000 by July 14 pay $59,000 by Aug. 15 Spindler’s duties deliver all shares of newspaper when does Spindler’s performance obligation become due? Class 36

  27. Did Sackett fulfill his performance obligations? Class 36

  28. If his failure to make the final payment is breach, what effect does this have on Spindler’s performance obligation? • What argument does Sackett make based on Spindler’s Oct. 5 letter? Class 36

  29. What is a repudiation? • When is a repudiation lawful? Or its corollary—when is a repudiation unlawful? Class 36

  30. Characterizing breach • total or partial • partial and material • partial and immaterial • total Why is it important to characterize the severity of one party’s breach of a contract? Class 36

  31. What are the options of the non-breaching party in the following scenarios? non-breaching breachparty’s options • partial and immaterial • partial and material • total Class 36

  32. How did this court characterize Sackett’s breach? • Was the repudiation in the Oct. 5 letter lawful? • If it wasn’t lawful, would that have affected the outcome in this case? Class 36

  33. § 241. Circumstances Significant In Determining Whether A Failure Is Material In determining whether a failure to render or to offer performance is material, the following circumstances are significant: • (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; • (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; • (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; • (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; • (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. Class 36

  34. § 242. Circumstances Significant In Determining When Remaining Duties Are Discharged In determining the time after which a party's uncured material failure to render or to offer performance discharges the other party's remaining duties to render performance under the rules stated in §§ 237 and 238, the following circumstances are significant: • (a) those stated in § 241; • (b) the extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements; • (c) the extent to which the agreement provides for performance without delay, but a material failure to perform or to offer to perform on a stated day does not of itself discharge the other party's remaining duties unless the circumstances, including the language of the agreement, indicate that performance or an offer to perform by that day is important. Class 36

  35. Truman L. Flatt & Sons v. SchupfAppellate Court of Illinois271 Ill. App. 3d 983, 649 N.E.2d 990 (1995) Class 36

  36. What’s the subject matter of this transaction? • What duty does the plaintiff claim that defendant has breached? • On what basis do the defendants justify their failure to perform? Class 36

  37. chronology • March 1993 K • clause 1 • clause 14 • public meeting re: rezoning • May 21 letter from P • June 9 letter from D • June 14 letter from P • June 23 letter from P • June 30 performance due by P and D?????? • July 6 letter from P • July 8 letter from D Class 36

  38. Typical Executory K prelim. executory anticipatory negotiations period repudiation -----------------|---------------------|----|--------------------- t K formation performance due (1) mutual assent (2) consideration Class 36

  39. what is an anticipatory repudiation? • under early common law, was anticipatory repudiation recognized as breach of contract? • the doctrine’s origins—1853 British case, Hochster v. De La Tour Class 36

  40. was the May 21 letter from P a repudiation? Class 36

  41. if the May 21 letter had been a repudiation, was there a valid retraction of the repudiation? • until when may an anticipatory repudiation be retracted? Class 36

  42. Hornell Brewing Co. v. SprySupreme Court of New York County174 Misc. 2d 451, 664 N.Y.S.2d 698 (1997) Class 36

  43. What contractual relationship does Hornell Brewing Co. create with Spry? • Are the duties embodied in a writing? • Are these agreements by Hornell usually embodied in a detailed writing? • Why do you think Vultaggio didn’t follow normal business procedure? Class 36

  44. What problems ensued for Hornell Brewing? • Did Spry breach the contract? Class 36

  45. What was the severity of the breach? • Did Spry cure the breach at some point? • What did Spry do next? Class 36

  46. How did Hornell Brewing respond to Spry’s large order? • How does the court characterize this demand? Class 36

  47. Under traditional common law, would Hornell have been entitled to make such a demand? Class 36

  48. Which UCC section authorizes Hornell to make such a demand? • What conditions must arise before you can make a demand for assurance of due performance? Class 36

  49. Then, assuming that reasonable grounds for insecurity arose that justify the making of a demand for assurance of performance, what counts as sufficient assurance? Class 36

  50. End of Class Friday 779-804; handout on conditions Class 36