LAW 506-002 – Contracts II


Statute of Frauds
Does this type of contract require a memorandum?

UCC § 2-201 requires a writing for a sale of good worth more than $500 unless they are specially manufactured for the buyer, the buyer admits that a contract was made, or the goods have been paid for or delivered.

If the contract is a class in R2C § 110(1), it is within the statute of frauds, and requires a writing.

Restatement Second of Contracts § 110(1)

Classes of Contracts Covered

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  1. The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception:
    1. a contract of an executor or administrator to answer for a duty of his decedent (the executoradministrator provision);
    2. a contract to answer for the duty of another (the suretyship provision);
    3. a contract made upon consideration of marriage (the marriage provision);
    4. a contract for the sale of an interest in land (the land contract provision);
    5. a contract that is not to be performed within one year from the making thereof (the one-year provision).
Suretyship Provision
  1. The following classes of contracts are subject to . . . the Statute of Frauds, forbidding enforcement unless there is a written memorandum . . . .
    1. a contract to answer for the duty of another (the suretyship provision);
Surety
A surety is one who, at the request of another, and for the purpose or securing to him a benefit, becomes responsible for the performance by the latter of some act in favor of a third person

e.g., A promises B that A will pay C's debt. C only has an obligation to B.

Promising the obligor that you'll pay off his debt is not a suretyship.

Co-signing a loan makes you a co-obligor, not a surety.

A novation is not a surety.

Restatement Second of Contracts § 112

Requirement of Suretyship

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A contract is not within the Statute of Frauds as a contract to answer for the duty of another unless the promisee is an obligee of the other's duty, the promisor is a surety for the other, and the promisee knows or has reason to know of the suretyship relation.

Exception:

Restatement Second of Contracts § 116

Main Purpose; Advantage to Surety

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A contract that all or part of a duty of a third person to the promisee shall be satisfied is not within the Statute of Frauds as a promise to answer for the duty of another if the consideration for the promise is in fact or apparently desired by the promisor mainly for his own economic advantage, rather than in order to benefit the third person. If, however, the consideration is merely a premium for insurance, the contract is within the Statute.

Marriage Provision
  1. The following classes of contracts are subject to . . . . the Statute of Frauds, forbidding enforcement unless there is a written memorandum . . .
    1. a contract made upon consideration of marriage (the marriage provision);
Restatement Second of Contracts § 124

Contract Made Upon Consideration of Marriage

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A promise for which all or part of the consideration is either marriage or a promise to marry is within the Statute of Frauds, except in the case of an agreement which consists only of mutual promises of two persons to marry each other.

Land Contract Provision
  1. The following classes of contracts are subject to . . . . the Statute of Frauds, forbidding enforcement unless there is a written memorandum . . .
    1. a contract for the sale of an interest in land (the land contract provision);
Restatement Second of Contracts § 125

Contract to Transfer, Buy, or Pay for an Interest in Land

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  1. A promise to transfer to any person any interest in land is within the Statute of Frauds.
  2. A promise to buy any interest in land is within the Statute of Frauds, irrespective of the person to whom the transfer is to be made.
  3. When a transfer of an interest in land has been made, a promise to pay the price, if originally within the Statute of Frauds, ceases to be within it unless the promised price is itself in whole or in part an interest in land.
  4. Statutes in most states except from the land contract and one-year provisions of the Statute of Frauds short-term leases and contracts to lease, usually for a term not longer than one year.
Restatement Second of Contracts § 127

Interest in Land

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An interest in land within the meaning of the Statute is any right, privilege, power or immunity, or combination thereof, which is an interest in land under the law of property and is not "goods" within the Uniform Commercial Code.

Exception:

Restatement Second of Contracts § 129

Action in Reliance; Specific Performance

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A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement.

One-Year Provision
  1. The following classes of contracts are subject to . . . . the Statute of Frauds, forbidding enforcement unless there is a written memorandum . . .
    1. a contract that is not to be performed within one year from the making thereof (the one-year provision).
Restatement Second of Contracts § 130

Contract Not to Be Performed Within a Year

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  1. Where any promise in a contract cannot be fully performed within a year from the time the contract is made, all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance.
  2. When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties.

Exception:

Restatement Second of Contracts § 139

Enforcement by Virtue of Action in Reliance

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  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 the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.
  2. In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:
    1. the availability and adequacy of other remedies, particularly cancellation and restitution;
    2. the definite and substantial character of the action or forbearance in relation to the remedy sought;
    3. the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;
    4. the reasonableness of the action or forbearance;
    5. the extent to which the action or forbearance was foreseeable by the promisor.
Is there a sufficient writing?

UCC § 2-201

While the common law requires the essential terms with reasonable certainty, UCC § 2-201 only requires the quantity, price, and some indication that a deal has been made.

UCC § 2-201 has four exceptions:

  • Between two merchants, the plaintiff can enforce a contract signed only by him as long as it's "sufficient against the sender"—meaning it meets the other requirements of paragraph 1.
  • Statute of frauds does not apply if the goods have begun to be specially manufactured for the buyer or materials therefore have been committed to become acquired before notice of repudiation is received.
  • When the defendant admits in court that a contract for sale was made, the contract is validated for the goods admitted to.
  • "Partial performance" as a substitute for the required memorandum can validate the contract for goods which have been accepted or for which payment has been made and accepted, but only those goods.
Restatement Second of Contracts § 131

General Requisites of a Memorandum

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Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which

  1. reasonably identifies the subject matter of the contract,
  2. is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and
  3. states with reasonable certainty the essential terms of the unperformed promises in the contract.
Restatement Second of Contracts § 132

Several Writings

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The memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction.

Restatement Second of Contracts § 133

Memorandum Not Made as Such

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Except in the case of a writing evidencing a contract upon consideration of marriage, the Statute may be satisfied by a signed writing not made as a memorandum of a contract.

Restatement Second of Contracts § 134

Signature

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The signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.

Restatement Second of Contracts § 135

Who Must Sign

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Where a memorandum of a contract within the Statute is signed by fewer than all parties to the contract and the Statute is not otherwise satisfied, the contract is enforceable against the signers but not against the others.

Restatement Second of Contracts § 136

Time of Memorandum

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A memorandum sufficient to satisfy the Statute may be made or signed at any time before or after the formation of the contract.

Restatement Second of Contracts § 137

Loss or Destruction of a Memorandum

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The loss or destruction of a memorandum does not deprive it of effect under the Statute.

Is there an exception?
UCC § 2-107

Goods to Be Severed From Realty: Recording.

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  1. A contract for the sale of minerals or the like (including oil and gas) or a structure or its materials to be removed from realty is a contract for the sale of goods within this Article if they are to be severed by the seller but until severance a purported present sale thereof which is not effective as a transfer of an interest in land is effective only as a contract to sell.
  2. A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance without material harm thereto but not described in subsection (1) or of timber to be cut is a contract for the sale of goods within this Article whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties can by identification effect a present sale before severance.
  3. The provisions of this section are subject to any third party rights provided by the law relating to realty records, and the contract for sale may be executed and recorded as a document transferring an interest in land and shall then constitute notice to third parties of the buyer's rights under the contract for sale.
UCC § 2-209

Modification, Rescission and Waiver.

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  1. An agreement modifying a contract within this Article needs no consideration to be binding.
  2. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
  3. The requirements of the statute of frauds section of this Article ( [UCC § 2-201]) must be satisfied if the contract as modified is within its provisions.
  4. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
  5. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.
Parol Evidence Rule
Is it integrated?
UCC § 2-202

Final Written Expression: Parol or Extrinsic Evidence.

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Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

  1. by course of dealing or usage of trade ([UCC § 1-205]) or by course of performance ([UCC § 2-208]); and
  2. by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.
Restatement Second of Contracts § 209

Integrated Agreements

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  1. An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
  2. Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.
  3. Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.
Restatement Second of Contracts § 210

Completely and Partially Integrated Agreements

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  1. A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.
  2. A partially integrated agreement is an integrated agreement other than a completely integrated agreement.
  3. Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.
Completely Integrated

In a completely integrated agreement, extrinsic evidence of prior negotiations or agreements is not allowed to supplement or to contradict.

UCC § 2-202 calls this a "complete and exclusive statement of the terms of the agreement."

See also: R2C § 209 and R2C § 210

Partially Integrated

In a partially integrated agreement, also known as simply an integrated agreement, extrinsic evidence of prior negotiations or agreements is allowed to supplement, but not to contradict.

UCC § 2-202 calls this a "final expression of the parties' agreement."

See also: R2C § 209 and R2C § 210

What is the effect? (Is it partial or complete?)
Restatement Second of Contracts § 213

Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)

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  1. A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.
  2. A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.
  3. An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.
Restatement Second of Contracts § 215

Contradiction of Integrated Terms

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Except as stated in the preceding Section, where there is a binding agreement, either completely or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible in evidence to contradict a term of the writing.

Restatement Second of Contracts § 216

Consistent Additional Terms

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  1. Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated.
  2. An agreement is not completely integrated if the writing omits a consistent additional agreed term which is
    1. agreed to for separate consideration, or
    2. such a term as in the circumstances might naturally be omitted from the writing.
Is there an exception?
Restatement Second of Contracts § 214

Evidence of Prior or Contemporaneous Agreements and Negotiations

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Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish

  1. that the writing is or is not an integrated agreement;
  2. that the integrated agreement, if any, is completely or partially integrated;
  3. the meaning of the writing, whether or not integrated;
  4. illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause;
  5. ground for granting or denying rescission, reformation, specific performance, or other remedy.

The parol evidence rule only applies to past or contemporaneous negotiations or agreements, not subsequent agreements.

Restatement Second of Contracts § 217

Integrated Agreement Subject to Oral Requirement of a Condition

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Where the parties to a written agreement agree orally that performance of the agreement is subject to the occurrence of a stated condition, the agreement is not integrated with respect to the oral condition.

Interpretation
Restatement Second of Contracts § 202

Rules in Aid of Interpretation

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  1. Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.
  2. A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together.
  3. Unless a different intention is manifested,
    1. where language has a generally prevailing meaning, it is interpreted in accordance with that meaning;
    2. technical terms and words of art are given their technical meaning when used in a transaction within their technical field.
  4. Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement.
  5. Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.
Restatement Second of Contracts § 203

Standards of Preference in Interpretation

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In the interpretation of a promise or agreement or a term thereof, the following standards of preference are generally applicable:

  1. an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect;
  2. express terms are given greater weight than course of performance, course of dealing, and usage of trade, course of performance is given greater weight than course of dealing or usage of trade, and course of dealing is given greater weight than usage of trade;
  3. specific terms and exact terms are given greater weight than general language;
  4. separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated.
Restatement Second of Contracts § 206

Interpretation Against the Draftsman

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In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds.

UCC § 1-303

Course of Performance, Course of Dealing, and Usage of Trade

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  1. A "course of performance" is a sequence of conduct between the parties to a particular transaction that exists if:
    1. the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and
    2. the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces in it without objection.
  2. A "course of dealing" is a sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.
  3. A "usage of trade" is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage must be proved as facts. If it is established that such a usage is embodied in a trade code or similar record, the interpretation of the record is a question of law.
  4. A course of performance or course of dealing between the parties or usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware is relevant in ascertaining the meaning of the parties' agreement, may give particular meaning to specific terms of the agreement, and may supplement or qualify the terms of the agreement. A usage of trade applicable in the place in which part of the performance under the agreement is to occur may be so utilized as to that part of the performance.
  5. Except as otherwise provided in subsection (f), the express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable:
    1. express terms prevail over course of performance, course of dealing, and usage of trade;
    2. course of performance prevails over course of dealing and usage of trade; and
    3. course of dealing prevails over usage of trade.
  6. Subject to [UCC § 2-209], a course of performance is relevant to show a waiver or modification of any term inconsistent with the course of performance.
  7. Evidence of a relevant usage of trade offered by one party is not admissible unless that party has given the other party notice that the court finds sufficient to prevent unfair surprise to the other party.
Course of Performance

Course of performance is how the parties in this contract have interpreted the term in the current contract.

Course of Dealing

Course of dealing is how the parties in this contract have interpreted the term in different contracts.

Use of Trade

Use of trade is how the industry usually interprets the term.

Ambiguity

A term is ambiguous when there are two reasonable interpretations of it.

There are two approaches to determining whether or not a contract is ambiguous:

  1. Four Corners Test

    The older four corners test says an ambiguity only exists if an ambiguity exists in within the four corners of the document.

  2. Corbin Approach

    The Corbin approach, followed by the Restatement, says that a court should admit all evidence to determine the intent of the parties and whether or not the agreement is ambiguous.

[A] usage should be allowed to modify the apparent agreement, as seen in the written terms, as long as it does not totally negate it.
Implied Terms

See page 790.

Warranty
Express Warranty
UCC § 2-313

Express Warranties by Affirmation, Promise, Description, Sample.

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  1. Express warranties by the seller are created as follows:
    1. Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
    2. Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
    3. Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.
  2. It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.
Implied Warranty
Implied Warranty of Merchantability
UCC § 2-314

Implied Warranty: Merchantability; Usage of Trade.

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  1. Unless excluded or modified ([UCC § 2-316]), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
  2. Goods to be merchantable must be at least such as
    1. pass without objection in the trade under the contract description; and
    2. in the case of fungible goods, are of fair average quality within the description; and
    3. are fit for the ordinary purposes for which such goods are used; and
    4. run, within the variations permitted by the agreement, of even kind, quality and quantity
    5. within each unit and among all units involved; and
    6. are adequately contained, packaged, and labeled as the agreement may require; and
    7. conform to the promise or affirmations of fact made on the container or label if any.
  3. Unless excluded or modified ([UCC § 2-316]) other implied warranties may arise from course of dealing or usage of trade.

Koken.

Implied Warranty of Fitness for a Particular Purpose
UCC § 2-315

Implied Warranty: Fitness for Particular Purpose.

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Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.

Lewis.

Exclusions:

There are two ways to exclude warranties:

UCC § 2-316

Exclusion or Modification of Warranties.

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  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 ([UCC § 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."
  3. Notwithstanding subsection (2)
    1. 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
    2. 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
    3. an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.
  4. Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy ([UCC § 2-718] and [UCC § 2-719]).
UCC § 2-719

Contractual Modification or Limitation of Remedy.

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  1. Subject to the provisions of subsections (2) and (3) of this section and of the preceding section on liquidation and limitation of damages,
    1. 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
    2. 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.
Limit Remedy
Good Faith

Every contract carries an implied covenant of good faith and fair dealing.

Restatement Second of Contracts § 205

Duty of Good Faith and Fair Dealing

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Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.

UCC § 1-304

Obligation of Good Faith.

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Every contract or duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement.

UCC § 1-201(b)(20)

General Definitions.

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  1. "Good faith," except as otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing.
UCC § 2-306(2)

Output, Requirements and Exclusive Dealings.

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  1. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
"'[U]nder the covenant of good faith and fair dealing, a party [exercising discretion must] refrain from doing anything that will have the effect of frustrating the right of the other party to receive the fruits of the contract between them.'" This means that each party must "do nothing to destroy the rights of the other party to enjoy the fruits of the contract and [] do everything that the contract presupposes they will do to accomplish its purpose." In addition, the obligation to act in good faith and deal fairly prohibits a party from terminating its contract (or otherwise exercising its discretion) to "recapture" an opportunity that it lost upon entering the contract. . . . [T]he obligation of good faith and fair dealing requires a party exercising discretion to do so in accordance with the "reasonable expectations" of the other party.

Questar.

UCC § 2-209

Modification, Rescission and Waiver.

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  1. An agreement modifying a contract within this Article needs no consideration to be binding.
  2. A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
  3. The requirements of the statute of frauds section of this Article ( [UCC § 2-201]) must be satisfied if the contract as modified is within its provisions.
  4. Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
  5. A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.
Condition
Restatement Second of Contracts § 224

Condition Defined

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A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.

Restatement Second of Contracts § 225

Effects of the Non-Occurrence Of a Condition

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  1. Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused.
  2. Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur.
  3. Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur.
Restatement Second of Contracts § 226

How an Event May Be Made a Condition

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An event may be made a condition either by the agreement of the parties or by a term supplied by the court.

Restatement Second of Contracts § 227

Standards of Preference with Regard to Conditions

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  1. In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk.
  2. Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether
    1. a duty is imposed on an obligee that an event occur, or
    2. the event is made a condition of the obligor's duty, or
    3. the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control.
  3. In case of doubt, an interpretation under which an event is a condition of an obligor's duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it has become a duty to perform.
Restatement Second of Contracts § 245

Effect of a Breach by Non-Performance As Excusing the Non-Occurrence Of a Condition

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Where a party's breach by non-performance contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused.

Express Condition

Three mitigating doctrines of express conditions:

  • Doctrine of Conditions
    Restatement Second of Contracts § 227

    Standards of Preference with Regard to Conditions

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    1. In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk.
    2. Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether
      1. a duty is imposed on an obligee that an event occur, or
      2. the event is made a condition of the obligor's duty, or
      3. the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control.
    3. In case of doubt, an interpretation under which an event is a condition of an obligor's duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it has become a duty to perform.
  • Waiver
  • Restatement Second of Contracts § 229

    Excuse of a Condition to Avoid Forfeiture

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    To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.

Constructive Condition

The presumption is that so long as a breach is material, the constructive condition of exchange is not met and the other party does not have to perform.

If immaterial, constructive condition of exchange is met and the other party still has to perform.

Constructive conditions of exchange are implied conditions that connect contract performances together through conditional relationships implied from the agreement, thereby determining the parties' order of performance.

If the performances can be completed simultaneously, they will be implied to be required to be. If they cannot, the one that takes longer will be implied to be required first. R2C § 234.

Three mitigating doctrines of constructive conditions:

  • Substantial Performance

    For there to be substantial performance, there must not be an uncured material breach.

    Material Breach
    Common Law
    Restatement Second of Contracts § 241

    Circumstances Significant in Determining Whether a Failure Is Material

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    In determining whether a failure to render or to offer performance is material, the following circumstances are significant:

    1. the extent to which the injured party will be deprived of the benefit which he reasonably expected;
    2. the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
    3. the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
    4. 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;
    5. 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.
    • Factors (a) & (b) are about the non-breaching party.
    • Factors (c) & (d) are about the breaching party.
    • Factor (e) is about a party acting in bad faith.
    Total Breach

    If a material breach is not cured, the aggrieved party can elect to treat the breach as total or as partial.

    Electing to treat a breach as total will terminate the contract.

    Electing to treat a breach as partial will still allow the aggrieved party to withhold its performance until the conditions for it are met, but still obligates both parties to fulfill their obligations.

    Restatement Second of Contracts § 242

    Circumstances Significant in Determining When Remaining Duties Are Discharged

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    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 [R2C § 237 and R2C § 238], the following circumstances are significant:

    1. those stated in [R2C § 241];
    2. the extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements;
    3. 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.
    Restatement Second of Contracts § 237

    Effect on Other Party's Duties of a Failure to Render Performance

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    Except as stated in [R2C § 240], it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time.

    Sales of Goods under the UCC
    Perfect Tender Rule
    UCC § 2-601

    Buyer's Rights on Improper Delivery.

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    Subject to the provisions of this Article on breach in installment contracts ([UCC § 2-612]) and unless otherwise agreed under the sections on contractual limitations of remedy ([UCC § 2-718 and UCC § 2-719]), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may

    1. reject the whole; or
    2. accept the whole; or
    3. accept any commercial unit or units and reject the rest.
    Official Comment

    . . .

    1. . . . Partial acceptance is permitted whether the part of the goods accepted conforms or not. The only limitation on partial acceptance is that good faith and commercial reasonableness must be used to avoid undue impairment of the value of the remaining portion of the goods. . . . In this respect, the test is not only what unit has been the basis of contract, but whether the partial acceptance produces so materially adverse an effect on the remainder as to constitute bad faith.
    UCC § 2-602

    Manner and Effect of Rightful Rejection.

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    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. Subject to the provisions of the two following sections on rejected goods ([UCC § 2-603 and UCC § 2-604]),
      1. after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and
      2. if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article ([UCC § 2-711(3)]), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but
      3. the buyer has no further obligations with regard to goods rightfully rejected.
    3. The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this Article on Seller's remedies in general ([UCC § 2-703]).
    Tender

    Tender is a formal offer to buy or sell something.

    UCC § 2-503

    Manner of Seller's Tender of Delivery.

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    1. Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this Article, and in particular
      1. tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but
      2. unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods.
    2. Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions.
    3. Where the seller is required to deliver at a particular destination tender requires that he comply with subsection (1) and also in any appropriate case tender documents as described in subsections (4) and (5) of this section.
    4. Where goods are in the possession of a bailee and are to be delivered without being moved
      1. tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; but
      2. tender to the buyer of a non-negotiable document of title or of a record directing the bailee to deliver is sufficient tender unless the buyer seasonably objects, and except as otherwise provided in Article 9 receipt by the bailee of notification of the buyer's rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender.
    5. Where the contract requires the seller to deliver documents
      1. he must tender all such documents in correct form, except as provided in this Article with respect to bills of lading in a set ([UCC § 2-323(2)]); and
      2. tender through customary banking channels is sufficient and dishonor of a draft accompanying or associated with the documents constitutes non-acceptance or rejection.
    UCC § 2-307

    Delivery in Single Lot or Several Lots.

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    Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.

    UCC § 2-504

    Shipment by Seller.

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    Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must

    1. put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and
    2. obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and
    3. promptly notify the buyer of the shipment.

    Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues.

    UCC § 2-507

    Effect of Seller's Tender; Delivery on Condition.

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    1. Tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract.
    2. Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.
    UCC § 2-511

    Tender of Payment by Buyer; Payment by Check.

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    1. Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery.
    2. Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.
    3. Subject to the provisions of this Act on the effect of an instrument on an obligation ( Section 3-310), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.
    Exceptions to the Perfect Tender Rule
    1. Bad Faith
    2. Cure
      • UCC § 2-508

        Cure by Seller of Improper Tender or Delivery; Replacement.

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        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.
    3. Installment Contract
      • UCC § 2-612

        "Installment Contract"; Breach.

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        1. An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent.
        2. The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.
        3. Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments.
    4. Acceptance
      • UCC § 2-606

        What Constitutes Acceptance of Goods.

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        1. Acceptance of goods occurs when the buyer
          1. 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
          2. fails to make an effective rejection ([UCC § 2-602(1)]), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or
          3. 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.
        UCC § 2-607

        Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over.

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        1. The buyer must pay at the contract rate for any goods accepted.
        2. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity.
        3. Where a tender has been accepted
          1. the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and
          2. if the claim is one for infringement or the like ([UCC § 2-312(3)]) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation.
        4. The burden is on the buyer to establish any breach with respect to the goods accepted.
        5. Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over
          1. he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound.
          2. if the claim is one for infringement or the like ([UCC § 2-312(3)]) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred.
        6. The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like ([UCC § 2-312(3)]).
        • Unless later revoked
          UCC § 2-608

          Revocation of Acceptance in Whole or in Part.

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          1. The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it
            1. on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or
            2. without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.
          2. Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.
          3. A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.
    UCC § 2-605

    Waiver of Buyer's Objections by Failure to Particularize.

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    1. The buyer's failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach
      1. where the seller could have cured it if stated seasonably; or
      2. between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely.
    2. Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent in the documents.
  • Divisibility
    Restatement Second of Contracts § 240

    Part Performances as Agreed Equivalents

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    If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party's performance of his part of such a pair has the same effect on the other's duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised.

    If the parties treat the items as equal, their values can be treated as equivalent. The values must be in the contract—extrinsic evidence cannot be used.

  • Restitution

    Restitution is an obligation imposed by law on ground of justice and equity. Its purpose is to prevent unjust enrichment. Unlike express contracts or contracts implied in fact, restitution does not rest upon the assent of the contracting parties.

    Restitution is also known as "quantum meruit," "quasi-contract," and "implied in law contract."

    Officious Intermeddler Doctrine

    The "officious intermeddler doctrine" holds that where a person performs labor for another without the latter's request or implied consent, however beneficial such labor may be, he cannot recover therefor.

    An exception is that of emergency aid, where the service is needed to prevent the others' bodily harm and the helper is a doctor and therefor doesn't give the implication of gratuitousness.

    Restatement Third of Restitution § 1

    Restitution and Unjust Enrichment

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    A person who is unjustly enriched at the expense of another is subject to liability in restitution.

    Restatement Third of Restitution § 2

    Limiting Principles

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    1. The fact that a recipient has obtained a benefit without paying for it does not of itself establish that the recipient has been unjustly enriched.
    2. A valid contract defines the obligations of the parties as to matters within its scope, displacing to that extent any inquiry into unjust enrichment.
    3. There is no liability in restitution for an unrequested benefit voluntarily conferred, unless the circumstances of the transaction justify the claimant's intervention in the absence of contract.
    4. Liability in restitution may not subject an innocent recipient to a forced exchange: in other words, an obligation to pay for a benefit that the recipient should have been free to refuse.
Breach

An aggrieved party always has a right to damages caused by a breach.

Material Breach
Common Law
Restatement Second of Contracts § 241

Circumstances Significant in Determining Whether a Failure Is Material

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In determining whether a failure to render or to offer performance is material, the following circumstances are significant:

  1. the extent to which the injured party will be deprived of the benefit which he reasonably expected;
  2. the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
  3. the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
  4. 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;
  5. 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.
  • Factors (a) & (b) are about the non-breaching party.
  • Factors (c) & (d) are about the breaching party.
  • Factor (e) is about a party acting in bad faith.
Total Breach

If a material breach is not cured, the aggrieved party can elect to treat the breach as total or as partial.

Electing to treat a breach as total will terminate the contract.

Electing to treat a breach as partial will still allow the aggrieved party to withhold its performance until the conditions for it are met, but still obligates both parties to fulfill their obligations.

Restatement Second of Contracts § 242

Circumstances Significant in Determining When Remaining Duties Are Discharged

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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 [R2C § 237 and R2C § 238], the following circumstances are significant:

  1. those stated in [R2C § 241];
  2. the extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements;
  3. 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.
Restatement Second of Contracts § 237

Effect on Other Party's Duties of a Failure to Render Performance

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Except as stated in [R2C § 240], it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time.

Sales of Goods under the UCC
Perfect Tender Rule
UCC § 2-601

Buyer's Rights on Improper Delivery.

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Subject to the provisions of this Article on breach in installment contracts ([UCC § 2-612]) and unless otherwise agreed under the sections on contractual limitations of remedy ([UCC § 2-718 and UCC § 2-719]), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may

  1. reject the whole; or
  2. accept the whole; or
  3. accept any commercial unit or units and reject the rest.
Official Comment

. . .

  1. . . . Partial acceptance is permitted whether the part of the goods accepted conforms or not. The only limitation on partial acceptance is that good faith and commercial reasonableness must be used to avoid undue impairment of the value of the remaining portion of the goods. . . . In this respect, the test is not only what unit has been the basis of contract, but whether the partial acceptance produces so materially adverse an effect on the remainder as to constitute bad faith.
UCC § 2-602

Manner and Effect of Rightful Rejection.

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  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. Subject to the provisions of the two following sections on rejected goods ([UCC § 2-603 and UCC § 2-604]),
    1. after rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and
    2. if the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article ([UCC § 2-711(3)]), he is under a duty after rejection to hold them with reasonable care at the seller's disposition for a time sufficient to permit the seller to remove them; but
    3. the buyer has no further obligations with regard to goods rightfully rejected.
  3. The seller's rights with respect to goods wrongfully rejected are governed by the provisions of this Article on Seller's remedies in general ([UCC § 2-703]).
Tender

Tender is a formal offer to buy or sell something.

UCC § 2-503

Manner of Seller's Tender of Delivery.

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  1. Tender of delivery requires that the seller put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this Article, and in particular
    1. tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but
    2. unless otherwise agreed the buyer must furnish facilities reasonably suited to the receipt of the goods.
  2. Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions.
  3. Where the seller is required to deliver at a particular destination tender requires that he comply with subsection (1) and also in any appropriate case tender documents as described in subsections (4) and (5) of this section.
  4. Where goods are in the possession of a bailee and are to be delivered without being moved
    1. tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer's right to possession of the goods; but
    2. tender to the buyer of a non-negotiable document of title or of a record directing the bailee to deliver is sufficient tender unless the buyer seasonably objects, and except as otherwise provided in Article 9 receipt by the bailee of notification of the buyer's rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the non-negotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender.
  5. Where the contract requires the seller to deliver documents
    1. he must tender all such documents in correct form, except as provided in this Article with respect to bills of lading in a set ([UCC § 2-323(2)]); and
    2. tender through customary banking channels is sufficient and dishonor of a draft accompanying or associated with the documents constitutes non-acceptance or rejection.
UCC § 2-307

Delivery in Single Lot or Several Lots.

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Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.

UCC § 2-504

Shipment by Seller.

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Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must

  1. put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and
  2. obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and
  3. promptly notify the buyer of the shipment.

Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues.

UCC § 2-507

Effect of Seller's Tender; Delivery on Condition.

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  1. Tender of delivery is a condition to the buyer's duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract.
  2. Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.
UCC § 2-511

Tender of Payment by Buyer; Payment by Check.

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  1. Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery.
  2. Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.
  3. Subject to the provisions of this Act on the effect of an instrument on an obligation ( Section 3-310), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.
Exceptions to the Perfect Tender Rule
  1. Bad Faith
  2. Cure
    • UCC § 2-508

      Cure by Seller of Improper Tender or Delivery; Replacement.

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      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.
  3. Installment Contract
    • UCC § 2-612

      "Installment Contract"; Breach.

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      1. An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent.
      2. The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the non-conformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment.
      3. Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments.
  4. Acceptance
    • UCC § 2-606

      What Constitutes Acceptance of Goods.

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      1. Acceptance of goods occurs when the buyer
        1. 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
        2. fails to make an effective rejection ([UCC § 2-602(1)]), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or
        3. 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.
      UCC § 2-607

      Effect of Acceptance; Notice of Breach; Burden of Establishing Breach After Acceptance; Notice of Claim or Litigation to Person Answerable Over.

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      1. The buyer must pay at the contract rate for any goods accepted.
      2. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity.
      3. Where a tender has been accepted
        1. the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and
        2. if the claim is one for infringement or the like ([UCC § 2-312(3)]) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation.
      4. The burden is on the buyer to establish any breach with respect to the goods accepted.
      5. Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over
        1. he may give his seller written notice of the litigation. If the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound.
        2. if the claim is one for infringement or the like ([UCC § 2-312(3)]) the original seller may demand in writing that his buyer turn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred.
      6. The provisions of subsections (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like ([UCC § 2-312(3)]).
      • Unless later revoked
        UCC § 2-608

        Revocation of Acceptance in Whole or in Part.

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        1. The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it
          1. on the reasonable assumption that its non-conformity would be cured and it has not been seasonably cured; or
          2. without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller's assurances.
        2. Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it.
        3. A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them.
UCC § 2-605

Waiver of Buyer's Objections by Failure to Particularize.

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  1. The buyer's failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach
    1. where the seller could have cured it if stated seasonably; or
    2. between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely.
  2. Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent in the documents.
Anticipatory Repudiation

Anticipatory repudiation occurs if a promisor, prior to the time set for performance, indicates that he will not substantially perform when the time comes.

While repudiation does not have to be in words, it must be sufficiently positive to be reasonably interpreted to mean that the party will not perform.

Common Law
Restatement Second of Contracts § 250

When a Statement or an Act Is a Repudiation

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A repudiation is

  1. a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach under [R2C § 243], or
  2. a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such a breach.
Restatement Second of Contracts § 253

Effect of a Repudiation as a Breach and on Other Party's Duties

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  1. Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.
  2. Where performances are to be exchanged under an exchange of promises, one party's repudiation of a duty to render performance discharges the other party's remaining duties to render performance.
Assurance
Restatement Second of Contracts § 251

When a Failure to Give Assurance May Be Treated as a Repudiation

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  1. Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach under [R2C § 243], the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance.
  2. 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 of the particular case.
Comments:

. . .

  1. Nature and time of assurance. Whether an assurance of due performance is "adequate" depends on what it is reasonable to require in a particular case taking account of the circumstances of that case. The relationship between the parties, any prior dealings that they have had, the reputation of the party whose performance has been called into question, the nature of the grounds for insecurity, and the time within which the assurance must be furnished are all relevant factors.
UCC § 2-609

Delegation of Performance; Assignment of Rights.

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  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.
Restatement Second of Contracts § 243

Effect of a Breach by Non-Performance As Giving Rise to a Claim for Damages for Total Breach

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  1. With respect to performances to be exchanged under an exchange of promises, a breach by non-performance gives rise to a claim for damages for total breach only if it discharges the injured party's remaining duties to render such performance, other than a duty to render an agreed equivalent under [R2C § 240].
  2. Except as stated in Subsection (3), a breach by non-performance accompanied or followed by a repudiation gives rise to a claim for damages for total breach.
  3. Where at the time of the breach the only remaining duties of performance are those of the party in breach and are for the payment of money in installments not related to one another, his breach by non-performance as to less than the whole, whether or not accompanied or followed by a repudiation, does not give rise to a claim for damages for total breach.
  4. In any case other than those stated in the preceding subsections, a breach by non-performance gives rise to a claim for total breach only if it so substantially impairs the value of the contract to the injured party at the time of the breach that it is just in the circumstances to allow him to recover damages based on all his remaining rights to performance.

A borrower's failure to make unrelated installment payments does not constitute a total breach when that is the only performance remaining in the contract.

Acceleration Clause

An acceleration clause in a lending agreement says that if the borrower defaults under any obligation, including failing to make a payment on time, the lender has the right to accelerate the entire loaned amount to be due, also called "calling the loan."

Restatement Second of Contracts § 254

Effect of Subsequent Events on Duty to Pay Damages

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  1. A party's duty to pay damages for total breach by repudiation is discharged if it appears after the breach that there would have been a total failure by the injured party to perform his return promise.
  2. A party's duty to pay damages for total breach by repudiation is discharged if it appears after the breach that the duty that he repudiated would have been discharged by impracticability or frustration before any breach by non-performance.
Restatement Second of Contracts § 255

Effect of a Repudiation as Excusing the Non-Occurrence Of a Condition

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Where a party's repudiation contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused.

Restatement Second of Contracts § 256

Nullification of Repudiation or Basis for Repudiation

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  1. The effect of a statement as constituting a repudiation under [R2C § 250] or the basis for a repudiation under [R2C § 251] is nullified by a retraction of the statement if notification of the retraction comes to the attention of the injured party before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final.
  2. The effect of events other than a statement as constituting a repudiation under [R2C § 250] or the basis for a repudiation under [R2C § 251] is nullified if, to the knowledge of the injured party, those events have ceased to exist before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final.
Restatement Second of Contracts § 257

Effect of Urging Performance in Spite of Repudiation

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The injured party does not change the effect of a repudiation by urging the repudiator to perform in spite of his repudiation or to retract his repudiation.

Sales of Goods under the UCC
UCC § 2-610

Anticipatory Repudiation.

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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

  1. for a commercially reasonable time await performance by the repudiating party; or
  2. resort to any remedy for breach ([UCC § 2-703] or [UCC § 2-711]), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and
  3. 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 ([UCC § 2-704]).
UCC § 2-611

Retraction of Anticipatory Repudiation.

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  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 ([UCC § 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.
Assurance
Restatement Second of Contracts § 251

When a Failure to Give Assurance May Be Treated as a Repudiation

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  1. Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach under [R2C § 243], the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance.
  2. 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 of the particular case.
Comments:

. . .

  1. Nature and time of assurance. Whether an assurance of due performance is "adequate" depends on what it is reasonable to require in a particular case taking account of the circumstances of that case. The relationship between the parties, any prior dealings that they have had, the reputation of the party whose performance has been called into question, the nature of the grounds for insecurity, and the time within which the assurance must be furnished are all relevant factors.
UCC § 2-609

Delegation of Performance; Assignment of Rights.

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  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.
Excuse Defense

The excuse doctrine allows certain defenses to be raised for a breach when there is a change as to a basic assumption on which the contract was formed.

Impracticability

Impracticability, traditionally called impossibility, is is a doctrine that discharges a party's duty of performance (usually the seller's in a sale of goods case) due to additional circumstances that have impeded his performance.

It is similar to the doctrine of mistake, except mistake is when there would be a material effect, not a legal impossibility. Also, mistake is measured at the contract's formation, while impracticability comes later.

The doctrines are not exclusive, but mistake is much more likely to be present.

Mistake
Restatement Second of Contracts § 151

Mistake Defined

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A mistake is a belief that is not in accord with the facts.

Restatement Second of Contracts § 152

When Mistake of Both Parties Makes a Contract Voidable

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  1. Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in [R2C § 154].
  2. In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.

A mistake must be about the nature of the good exchanged, not merely the value.

Only the party disadvantaged by the mistake can raise the defense.

Restatement Second of Contracts § 153

When Mistake of One Party Makes a Contract Voidable

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Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in [R2C § 154], and

  1. the effect of the mistake is such that enforcement of the contract would be unconscionable, or
  2. the other party had reason to know of the mistake or his fault caused the mistake.

Restatement Second of Contracts § 154

When a Party Bears the Risk of a Mistake

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A party bears the risk of a mistake when

  1. the risk is allocated to him by agreement of the parties, or
  2. he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
  3. the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

Restatement Second of Contracts § 157

Effect of Fault of Party Seeking Relief

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A mistaken party's fault in failing to know or discover the facts before making the contract does not bar him from avoidance or reformation under the rules stated in this Chapter, unless his fault amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.

To find the performance of a contract impracticable, three steps must have occurred:

  1. Unforeseeable Contingency
  2. Unallocated Risk
  3. Impracticability

(From Transatlantic)

Common Law
Restatement Second of Contracts § 261

Discharge by Supervening Impracticability

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Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

Restatement Second of Contracts § 262

Death or Incapacity of Person Necessary for Performance

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If the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

Restatement Second of Contracts § 263

Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for Performance

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If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

Restatement Second of Contracts § 264

Prevention by Governmental Regulation or Order

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If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made.

Restatement Second of Contracts § 266

Existing Impracticability or Frustration

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  1. Where, at the time a contract is made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary.
  2. Where, at the time a contract is made, a party's principal purpose is substantially frustrated without his fault by a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty of that party to render performance arises, unless the language or circumstances indicate the contrary.
Restatement Second of Contracts § 269

Temporary Impracticability or Frustration

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Impracticability of performance or frustration of purpose that is only temporary suspends the obligor's duty to perform while the impracticability or frustration exists but does not discharge his duty or prevent it from arising unless his performance after the cessation of the impracticability or frustration would be materially more burdensome than had there been no impracticability or frustration.

Restatement Second of Contracts § 270

Partial Impracticability

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Where only part of an obligor's performance is impracticable, his duty to render the remaining part is unaffected if

  1. it is still practicable for him to render performance that is substantial, taking account of any reasonable substitute performance that he is under a duty to render; or
  2. the obligee, within a reasonable time, agrees to render any remaining performance in full and to allow the obligor to retain any performance that has already been rendered.

To find contracts impracticable due to increased cost, it must become excessive and unreasonable. The dissent in City of Vernon points out that this usually requires it to be on the order of 10 or 12 times as expensive.

Sales of Goods under the UCC
UCC § 2-613

Casualty to Identified Goods.

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Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a "no arrival, no sale" term ([UCC § 2-324]) then

  1. if the loss is total the contract is avoided; and
  2. if the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller.
UCC § 2-614(1)

Substituted Performance.

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  1. Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted.
UCC § 2-615

Excuse by Failure of Presupposed Conditions.

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Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:

  1. Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
  2. Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
  3. The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.

Official Comments:

. . .

  1. Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section.
UCC § 2-616

Procedure on Notice Claiming Excuse.

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  1. Where the buyer receives notification of a material or indefinite delay or an allocation justified under the preceding section he may by written notification to the seller as to any delivery concerned, and where the prospective deficiency substantially impairs the value of the whole contract under the provisions of this Article relating to breach of installment contracts ([UCC § 2-612]), then also as to the whole,
    1. terminate and thereby discharge any unexecuted portion of the contract; or
    2. modify the contract by agreeing to take his available quota in substitution.
  2. If after receipt of such notification from the seller the buyer fails so to modify the contract within a reasonable time not exceeding thirty days the contract lapses with respect to any deliveries affected.
  3. The provisions of this section may not be negated by agreement except in so far as the seller has assumed a greater obligation under the preceding section.
UCC § 2-509

Risk of Loss in the Absence of Breach.

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  1. Where the contract requires or authorizes the seller to ship the goods by carrier
    1. if it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation ([UCC § 2-505]); but
    2. if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery.
  2. Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer
    1. on his receipt of possession or control of a negotiable document of title covering the goods; or
    2. on acknowledgment by the bailee of the buyer's right to possession of the goods; or
    3. after his receipt of possession or control of a non-negotiable document of title or other direction to deliver in a record, as provided in [UCC § 2-503(4)(b)].
  3. In any case not within subsection (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery.
  4. The provisions of this section are subject to contrary agreement of the parties and to the provisions of this Article on sale on approval ([UCC § 2-327]) and on effect of breach on risk of loss ([UCC § 2-510]).
UCC § 2-510

Effect of Breach on Risk of Loss.

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  1. Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance.
  2. Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning.
  3. Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time.

A partial failure of a seller's source of supply has generally been treated as a foreseeable contingency, and the assumed risk thereof has been allocated to the seller accordingly.

Frustration of Purpose
Common Law
Restatement Second of Contracts § 265

Discharge by Supervening Frustration

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Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

Restatement Second of Contracts § 266

Existing Impracticability or Frustration

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  1. Where, at the time a contract is made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary.
  2. Where, at the time a contract is made, a party's principal purpose is substantially frustrated without his fault by a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty of that party to render performance arises, unless the language or circumstances indicate the contrary.
Restatement Second of Contracts § 257

Effect of Urging Performance in Spite of Repudiation

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The injured party does not change the effect of a repudiation by urging the repudiator to perform in spite of his repudiation or to retract his repudiation.

Restatement Second of Contracts § 268

Effect on Other Party's Duties of a Prospective Failure Justified by Impracticability or Frustration

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  1. A party's prospective failure of performance may, except as stated in Subsection (2), discharge the other party's duties or allow him to suspend performance under the rules stated in [R2C § 251(1)] and [R2C § 253(2)] even though the failure would be justified under the rules stated in this Chapter.
  2. The rule stated in Subsection (1) does not apply if the other party assumed the risk that he would have to perform in spite of such a failure.
Restatement Second of Contracts § 269

Temporary Impracticability or Frustration

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Impracticability of performance or frustration of purpose that is only temporary suspends the obligor's duty to perform while the impracticability or frustration exists but does not discharge his duty or prevent it from arising unless his performance after the cessation of the impracticability or frustration would be materially more burdensome than had there been no impracticability or frustration.

Restatement Second of Contracts § 272

Relief Including Restitution

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  1. In any case governed by the rules stated in this Chapter, either party may have a claim for relief including restitution under the rules stated in [R2C § 240] and [R2C § 377].
  2. In any case governed by the rules stated in this Chapter, if those rules together with the rules stated in Chapter 16 will not avoid injustice, the court may grant relief on such terms as justice requires including protection of the parties' reliance interests.
Sales of Goods under the UCC

Frustration of purpose is not mentioned in the UCC. However UCC § 2-615 is interpreted as the defense.

Remedy
Damages

When a breach has occurred, the aggrieved party is entitled to seek remedies. While equitable remedies can be sought, courts usually prefer to award monetary damages if adequate.

There are three methods of calculating damages:

Seller's Remedies
UCC § 2-703

Seller's Remedies in General.

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Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract ([UCC § 2-612]), then also with respect to the whole undelivered balance, the aggrieved seller may

  1. withhold delivery of such goods;
  2. stop delivery by any bailee as hereafter provided ([UCC § 2-705]);
  3. proceed under the next section respecting goods still unidentified to the contract;
  4. resell and recover damages as hereafter provided ([UCC § 2-706]);
  5. recover damages for non-acceptance ([UCC § 2-708]) or in a proper case the price ([UCC § 2-709]);
  6. cancel.
UCC § 2-706

Seller's Resale Including Contract for Resale.

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  1. Under the conditions stated in[UCC § 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 ([UCC § 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.
  4. Where the resale is at public sale
    1. 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
    2. 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
    3. 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
    4. the seller may buy.
  5. A purchaser who 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 ([UCC § 2-707]) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined ([UCC § 2-711(3)]).
UCC § 2-708

Seller's Damages for Non-acceptance or Repudiation.

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  1. Subject to subsection (2) and to the provisions of this Article with respect to proof of market price ([UCC § 2-723]), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article ([UCC § 2-710]), but 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 ([UCC § 2-710]), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.
UCC § 2-709

Action for the Price.

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  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
    1. 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
    2. 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 ([UCC § 2-610]), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section.
UCC § 2-710

Seller's Incidental Damages.

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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.

Buyer's Remedies
UCC § 2-711

Buyer's Remedies in General; Buyer's Security Interest in Rejected Goods.

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  1. Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract ([UCC § 2-612]), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid
    1. "cover" and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or
    2. recover damages for non-delivery as provided in this Article ([UCC § 2-713]).
  2. Where the seller fails to deliver or repudiates the buyer may also
    1. if the goods have been identified recover them as provided in this Article ([UCC § 2-502]); or
    2. in a proper case obtain specific performance or replevy the goods as provided in this Article ([UCC § 2-716]).
  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 ([UCC § 2-706]).
UCC § 2-712

"Cover"; Buyer's Procurement of Substitute Goods.

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  1. After a breach within the preceding section 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 ([UCC § 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.
UCC § 2-713

Buyer's Damages for Non-delivery or Repudiation.

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  1. Subject to the provisions of this Article with respect to proof of market price ([UCC § 2-723]), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article ([UCC § 2-715]), but 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.
UCC § 2-714

Buyer's Damages for Breach in Regard to Accepted Goods.

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  1. Where the buyer has accepted goods and given notification ([UCC § 2-607(3)]) 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.
UCC § 2-715

Buyer's Incidental and Consequential Damages.

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  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
    1. 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
    2. injury to person or property proximately resulting from any breach of warranty.
UCC § 2-717

Deduction of Damages From the Price.

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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.

UCC § 2-723

Proof of Market Price: Time and Place.

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  1. If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods, any damages based on market price ([UCC § 2-708] or [UCC § 2-713]) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.
  2. If evidence of a price prevailing at the times or places described in this Article is not readily available the price prevailing within any reasonable time before or after the time described or at any other place which in commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the cost of transporting the goods to or from such other place.
  3. Evidence of a relevant price prevailing at a time or place other than the one described in this Article offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise.
UCC § 2-724

Admissibility of Market Quotations.

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Whenever the prevailing price or value of any goods regularly bought and sold in any established commodity market is in issue, reports in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of such market shall be admissible in evidence. The circumstances of the preparation of such a report may be shown to affect its weight but not its admissibility.

Expectation Damages

Expectation damages attempt to put the aggrieved party into the position it would be in if the full performance was made.

Expectation damages are the preferred form of damages, on the theory that the aggrieved party should be given the "benefit of the bargain."

Expectation damages include both direct and indirect damages.

Direct Damages

Direct damages are equal to the difference in value between the value directly received by full performance and that actually received.

Where a seller anticipatorily repudiates a contract for the sale of goods, and the buyer does not cover, fair market value for damages is calculated at the time the buyer learns of the breach plus a commercially reasonable period of time.

Indirect Damages

Indirect damages are the amounts awarded for secondary losses resulting from a breach.

Indirect damages are classified as either incidental or consequential.

Incidental Damages

Incidental damages are extra costs incurred by an aggrieved party in dealing with a breach, such as return shipping or time spent finding a replacement.

UCC § 2-710

Seller's Incidental Damages.

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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.

UCC § 2-715

Buyer's Incidental and Consequential Damages.

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  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
    1. 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
    2. injury to person or property proximately resulting from any breach of warranty.
Although attorney's fees would conceptually be incidental damages, they are not recoverable unless they are specified as recoverable in the contract, they are granted by statute, or the lawsuit is frivolous or in bad faith.
Consequential Damages

Consequential damages are any other losses incurred as a result of a breach that are not incidental damages, such as lost profit or causing a breach of another contract.

Expectation damages are calculated as: direct loss + extra loss − cost avoided − loss avoided or mitigated

Restatement Second of Contracts § 347

Measure of Damages in General

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Subject to the limitations stated in [R2C § 350, R2C § 351, R2C § 352, & R2C § 353], the injured party has a right to damages based on his expectation interest as measured by

  1. the loss in the value to him of the other party's performance caused by its failure or deficiency, plus
  2. any other loss, including incidental or consequential loss, caused by the breach, less
  3. any cost or other loss that he has avoided by not having to perform.
Restatement Second of Contracts § 348

Alternatives to Loss in Value of Performance

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  1. If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property.
  2. If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on
    1. the diminution in the market price of the property caused by the breach, or
    2. the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.
  3. If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of breach.

There are three limiting factors to recovery:

  1. Foreseeability
    Restatement Second of Contracts § 351

    Unforeseeability and Related Limitations on Damages

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    1. Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.
    2. Loss may be foreseeable as a probable result of a breach because it follows from the breach
      1. in the ordinary course of events, or
      2. as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.
    3. A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.
    • Determined at the time the contract was entered into
  2. Certainty
    Restatement Second of Contracts § 352

    Uncertainty as a Limitation on Damages

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    Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.

  3. Avoidability
    Restatement Second of Contracts § 350

    Avoidability as a Limitation on Damages

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    1. Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.
    2. The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
Examples
9-1

Employer hires employee for two-year contract at $50,000/year, but employer wrongfully terminates him six months in. Employee looks for new job for three months unsuccessfully, then hires an employment agency for $1,000 and finds a new job paying $45,000 per year.

Employee's damages would be $31,000:

  • Direct loss: $50,000 × 1½ = $75,000
  • Extra loss: $1,000
  • Cost avoided: $0
  • Loss avoided: ($45,000 × 1) = $45,000
  • $75,000 + $1000 - $0 - $45,000 = $31,000

If the employee did not look for work, he could not recover for that time, as there is a duty to mitigate damages.

9-3

Employer hires employee for two-year contract at $50,000/year, but employee wrongfully quits six months in. Employer looks for a replacement for three months unsuccessfully, then hires an employment agency for $2,000 and finds a temp replacement for $30,000 for three months, then hires a permanent replacement for $55,000 per year.

Employer's damages would be $24,500:

  • Direct loss: $50,000 × 1½ = $75,000 (value of employee to employer)
  • Extra loss: $2,000 + $30,000 + ($55,000 × 1) = $87,000
  • Cost avoided: $50,000 × 1¾ = $75,000 (cost of paying employee)
  • Loss avoided: $50,000 × 1½ = $62,500 (value of work covered by other workers)
  • $75,000 + $87,000 - $75,000 - $62,500 = $24,500

Some damages will not fit this formula exactly though.

Reliance Damages

Reliance damage attempt to put the aggrieved party into the position that it would have been in if the parties had not entered into the contract.

Reliance damages compensate for expenses incurred by the aggrieved party in reliance on the existence of the contract, as well as lost opportunity costs, if provable.

While expectation damages are preferred, reliance damages may be used if there are no identifiable expectation damages or when the promise is enforced based on reliance.

Reliance
Restatement Second of Contracts § 90

Promise Reasonably Inducing Action or Forbearance

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  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 a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

Reliance, also known as promissory estoppel, requires doing something to one's own detriment due to someone else's promise.

Such reliance must be reasonable.

Restatement Second of Contracts § 349

Damages Based on Reliance Interest

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As an alternative to the measure of damages stated in [R2C § 347], the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.

Restitution Damages

Restitution damages attempt to put the aggrieved parties into position that they were in before the contract was entered into.

Restitution

Restitution is an obligation imposed by law on ground of justice and equity. Its purpose is to prevent unjust enrichment. Unlike express contracts or contracts implied in fact, restitution does not rest upon the assent of the contracting parties.

Restitution is also known as "quantum meruit," "quasi-contract," and "implied in law contract."

Officious Intermeddler Doctrine

The "officious intermeddler doctrine" holds that where a person performs labor for another without the latter's request or implied consent, however beneficial such labor may be, he cannot recover therefor.

An exception is that of emergency aid, where the service is needed to prevent the others' bodily harm and the helper is a doctor and therefor doesn't give the implication of gratuitousness.

Restatement Third of Restitution § 1

Restitution and Unjust Enrichment

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A person who is unjustly enriched at the expense of another is subject to liability in restitution.

Restatement Third of Restitution § 2

Limiting Principles

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  1. The fact that a recipient has obtained a benefit without paying for it does not of itself establish that the recipient has been unjustly enriched.
  2. A valid contract defines the obligations of the parties as to matters within its scope, displacing to that extent any inquiry into unjust enrichment.
  3. There is no liability in restitution for an unrequested benefit voluntarily conferred, unless the circumstances of the transaction justify the claimant's intervention in the absence of contract.
  4. Liability in restitution may not subject an innocent recipient to a forced exchange: in other words, an obligation to pay for a benefit that the recipient should have been free to refuse.
Restatement Second of Contracts § 272

Relief Including Restitution

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  1. In any case governed by the rules stated in this Chapter, either party may have a claim for relief including restitution under the rules stated in [R2C § 240] and [R2C § 377].
  2. In any case governed by the rules stated in this Chapter, if those rules together with the rules stated in Chapter 16 will not avoid injustice, the court may grant relief on such terms as justice requires including protection of the parties' reliance interests.
Restatement Second of Contracts § 374

Restitution in Favor of Party in Breach

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  1. Subject to the rule stated in Subsection (2), if a party justifiably refuses to perform on the ground that his remaining duties of performance have been discharged by the other party's breach, the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach.
  2. To the extent that, under the manifested assent of the parties, a party's performance is to be retained in the case of breach, that party is not entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss.
Restatement Second of Contracts § 373

Restitution When Other Party Is in Breach

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  1. Subject to the rule stated in Subsection (2), on a breach by non-performance that gives rise to a claim for damages for total breach or on a repudiation, the injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance.
  2. The injured party has no right to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance.
Restatement Second of Contracts § 371

Damages Based on Reliance Interest

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If a sum of money is awarded to protect a party's restitution interest, it may as justice requires be measured by either

  1. the 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
  2. the extent to which the other party's property has been increased in value or his other interests advanced.
Liquidated Damages
UCC § 2-718

Liquidation or Limitation of Damages; Deposits.

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  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. A term fixing unreasonably large liquidated damages is void as a penalty.
  2. Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds
    1. the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or
    2. 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
    1. a right to recover damages under the provisions of this Article other than subsection (1), and
    2. 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 ([UCC § 2-706]).
Restatement Second of Contracts § 356

Liquidated Damages and Penalties

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  1. Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.
  2. A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence.
Restatement Second of Contracts § 361

Effect of Provision for Liquidated Damages

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Specific performance or an injunction may be granted to enforce a duty even though there is a provision for liquidated damages for breach of that duty.

Punitive Damages
Restatement Second of Contracts § 355

Punitive Damages

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Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.

Restatement Second of Contracts § 353

Loss Due to Emotional Disturbance

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Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.

Equitable Remedy

Equitable remedies are reserved for instances in which there is no adequate remedy at law because damages are inadequate and plaintiff would suffer irreparable harm without equitable relief.

Three types of equitable remedies are specific performance, prohibitory injunction, and specific restitution.

Specific Performance

Specific performance is a remedy by which the court orders a party to perform the unfulfilled promises in the contract, rather than ordering payment of the value of those performances.

Specific performance is most common in real estate contracts. Because real estate is understood to be unique in most cases, specific performance will usually be the remedy used.

It may also be ordered in contracts for the purchase of rare or sentimental items which are unique and irreplaceable.

Restatement Second of Contracts § 357

Availability of Specific Performance and Injunction

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  1. Subject to the rules stated in §§ 359-69, specific performance of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty.
  2. Subject to the rules stated in §§ 359-69, an injunction against breach of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty if
    1. the duty is one of forbearance, or
    2. the duty is one to act and specific performance would be denied only for reasons that are inapplicable to an injunction.
Restatement Second of Contracts § 359

Effect of Adequacy of Damages

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  1. Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party.
  2. The adequacy of the damage remedy for failure to render one part of the performance due does not preclude specific performance or injunction as to the contract as a whole.
  3. Specific performance or an injunction will not be refused merely because there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion under the rule stated in [R2C § 357].
Restatement Second of Contracts § 360

Factors Affecting Adequacy of Damages

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In determining whether the remedy in damages would be adequate, the following circumstances are significant:

  1. the difficulty of proving damages with reasonable certainty,
  2. the difficulty of procuring a suitable substitute performance by means of money awarded as damages, and
  3. the likelihood that an award of damages could not be collected.
Restatement Second of Contracts § 362

Effect of Uncertainty of Terms

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Specific performance or an injunction will not be granted unless the terms of the contract are sufficiently certain to provide a basis for an appropriate order.

Restatement Second of Contracts § 364

Effect of Unfairness

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  1. Specific performance or an injunction will be refused if such relief would be unfair because
    1. the contract was induced by mistake or by unfair practices,
    2. the relief would cause unreasonable hardship or loss to the party in breach or to third persons, or
    3. the exchange is grossly inadequate or the terms of the contract are otherwise unfair.
  2. Specific performance or an injunction will be granted in spite of a term of the agreement if denial of such relief would be unfair because it would cause unreasonable hardship or loss to the party seeking relief or to third persons.
Restatement Second of Contracts § 365

Effect of Public Policy

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Specific performance or an injunction will not be granted if the act or forbearance that would be compelled or the use of compulsion is contrary to public policy.

Restatement Second of Contracts § 366

Effect of Difficulty in Enforcement or Supervision

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A promise will not be specifically enforced if the character and magnitude of the performance would impose on the court burdens in enforcement or supervision that are disproportionate to the advantages to be gained from enforcement and to the harm to be suffered from its denial.

Restatement Second of Contracts § 367

Contracts for Personal Service or Supervision

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  1. A promise to render personal service will not be specifically enforced.
  2. A promise to render personal service exclusively for one employer will not be enforced by an injunction against serving another if its probable result will be to compel a performance involving personal relations the enforced continuance of which is undesirable or will be to leave the employee without other reasonable means of making a living.
UCC § 2-716

Buyer's Right to Specific Performance or Replevin.

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  1. Specific performance may be decreed where the goods are unique or in other proper circumstances.
  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 for goods identified to the contract if after reasonable effort he 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. In the case of goods bought for personal, family, or household purposes, the buyer's right of replevin vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver.
Prohibitory Injunction

In addition to ordering a "positive injunction" requiring parties to complete a contract, a court may also issue a negative prohibitory injunction, forbidding a party from doing a particular action in violation of a contract.

Like with other equitable remedies, a plaintiff must show that he would suffer irreparable harm without the injunction and that damages are not adequate.

Specific Restitution

Specific restitution is a remedy to place the parties in the positions they would have been in had the contract not been entered into by disgorging unjust enrichment gained by the contract. It is available if restitution relief should be awarded,but restiutionary damages are not adequate. Usually it involves a rare or sentimental item being restored to the plaintiff.

Assignment and Delegation
Assignment
Restatement Second of Contracts § 317

Assignment of a Right

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  1. An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance.
  2. A contractual right can be assigned unless
    1. the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or
    2. the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or
    3. assignment is validly precluded by contract.

Conditional rights are assignable. R2C § 320.

Future rights are assignable. R2C § 321.

  • A mere anti-assignment provision does not prevent the effectiveness of an assignment; it makes it a breach. Strong language limits the power to assign and will void it. Weak language only limits the right to assign and will not void it. R2C § 322.

Generally, assigning part of a right is treated as if that part is a separate right, and all people that a right has been assigned to are required to be joined if possible. R2C § 326.

An assignor can reduce an obligor's duty until the obligor is notified of the assignment, but not after. R2C § 338(1). Afterwards, the assignee can. R2C § 338(3).

If a right is conditional upon the assignor's return performance, the assignor and obligor can modify the contract in good faith accordance with reasonable commercial standards. R2C § 338(2).

Delegation
Restatement Second of Contracts § 318

Delegation of Performance of Duty

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  1. An obligor can properly delegate the performance of his duty to another unless the delegation is contrary to public policy or the terms of his promise.
  2. Unless otherwise agreed, a promise requires performance by a particular person only to the extent that the obligee has a substantial interest in having that person perform or control the acts promised.
  3. Unless the obligee agrees otherwise, neither delegation of performance nor a contract to assume the duty made with the obligor by the person delegated discharges any duty or liability of the delegating obligor.

Conditional duties are delegable. R2C § 319.

Third-Party Beneficiary
Restatement Second of Contracts § 302

Intended and Incidental Beneficiaries

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  1. Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
    1. the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
    2. the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
  2. An incidental beneficiary is a beneficiary who is not an intended beneficiary.
Intended Beneficiary

Intended third-party beneficiaries have rights.

For one to to be an intended third-party beneficiary, he must be one of:

  1. Creditor Beneficiary

    A creditor beneficiary is an intended third-party beneficiary that the promisee has an obligation to that the performance of the promise will satisfy.

  2. Donee Beneficiary

    A donee beneficiary is an intended third-party beneficiary that the promisee intended to give the benefit of the promisor's performance.

    To be a donee beneficiary, the promisee must intend to "confer a right" against the promisor upon the third party.

Restatement Second of Contracts § 304

Creation of Duty to Beneficiary

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A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty.

An intended beneficiary may remove himself from being one within a reasonable time after learning of it and not assenting. R2C § 306.

Restatement Second of Contracts § 307

Remedy of Specific Performance

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Where specific performance is otherwise an appropriate remedy, either the promisee or the beneficiary may maintain a suit for specific enforcement of a duty owed to an intended beneficiary.

Restatement Second of Contracts § 309

Defenses Against the Beneficiary

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  1. A promise creates no duty to a beneficiary unless a contract is formed between the promisor and the promisee; and if a contract is voidable or unenforceable at the time of its formation the right of any beneficiary is subject to the infirmity.
  2. If a contract ceases to be binding in whole or in part because of impracticability, public policy, nonoccurrence of a condition, or present or prospective failure of performance, the right of any beneficiary is to that extent discharged or modified.
  3. Except as stated in Subsections (1) and (2) and in [R2C § 311] or as provided by the contract, the right of any beneficiary against the promisor is not subject to the promisor's claims or defenses against the promisee or to the promisee's claims or defenses against the beneficiary.
  4. A beneficiary's right against the promisor is subject to any claim or defense arising from his own conduct or agreement.
Restatement Second of Contracts § 311

Variation of a Duty to a Beneficiary

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  1. Discharge or modification of a duty to an intended beneficiary by conduct of the promisee or by a subsequent agreement between promisor and promisee is ineffective if a term of the promise creating the duty so provides.
  2. In the absence of such a term, the promisor and promisee retain power to discharge or modify the duty by subsequent agreement.
  3. Such a power terminates when the beneficiary, before he receives notification of the discharge or modification, materially changes his position in justifiable reliance on the promise or brings suit on it or manifests assent to it at the request of the promisor or promisee.
  4. If the promisee receives consideration for an attempted discharge or modification of the promisor's duty which is ineffective against the beneficiary, the beneficiary can assert a right to the consideration so received. The promisor's duty is discharged to the extent of the amount received by the beneficiary.
Restatement Second of Contracts § 313

Government Contracts

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  1. The rules stated in this Chapter apply to contracts with a government or governmental agency except to the extent that application would contravene the policy of the law authorizing the contract or prescribing remedies for its breach.
  2. In particular, a promisor who contracts with a government or governmental agency to do an act for or render a service to the public is not subject to contractual liability to a member of the public for consequential damages resulting from performance or failure to perform unless
    1. the terms of the promise provide for such liability; or
    2. the promisee is subject to liability to the member of the public for the damages and a direct action against the promisor is consistent with the terms of the contract and with the policy of the law authorizing the contract and prescribing remedies for its breach.
Incidental Beneficiary

Incidental third-party beneficiaries are beneficiaries who do not have rights that can be enforced.

Restatement Second of Contracts § 315

Effect of a Promise of Incidental Benefit

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An incidental beneficiary acquires by virtue of the promise no right against the promisor or the promisee.