I. Agreed Damages
Definition of an agreed damages clause,1. A contract term specifying a sum of money due upon breach.B. Overview/ policies implicated,1. Freedom of contract because the parties have the right to put any clauses in their contract that they desire and efficiency because by putting in a liquidated damages clause the parties are taking care of things for themselves and keeping things out of court in case of breach.C. Elements,1. Damages were difficult to estimate at the time the contract was made AND2. Amount stated is reasonable (i.e., close) in light of eithera) The estimated damages ORb) The actual damagesII. Specific PerformanceA. What is specific performance?,1. A court order to do something that you promised to do in a contract,B. Policy for favoring or disfavoring,1. Courts disfavor specific performance because it does not want to interfere with the affairs of the public and attempt to run their lives. This creates more work for the court that it does not want to be involved with,C. Basic requirement to get specific performance, (Inadequacy)1. What is it?,a) Damages would be inadequate to make the plaintiff whole (Rest. 2d § 359)2. Common ways to satisfy the requirement - (Rest. 2d § 360,a) Uncertain ORb) Irreplaceable contract subject ORc) Uncollectible3. Rule re requirement as applied to contracts for the purchase or sale of real property,a) Real property is considered an irreplaceable contract subjectD. Discretionary considerations1. Undue hardship on the ∆ (see Van Wagner)a) Basic idea(1) Specific performance should not be an undue hardship and if it is it should not be assigned.b) Balancing test or "balancing the hardships"(1) Compare the gain to the π from a grant of specific performance with the loss to the ∆ from a grant of specific performancec) Schwartz's special hint(1) To be undue, the burden must be more than the burden for which the ∆ bargained.2. Undue burden on the courta) If the order would create unstable personal relationsb) If the order would require excessive court supervision.c) If it is impractical or impossible to craft an enforceable order3. Other Considerationsa) Mistakeb) Unfair bargaining practicesc) Contract is substantively unfaird) Higher degree of certainty of terms required (§ 362) (e.g., length of piano lessons)e) Public policy (§ 365)(1) Equity courts also consider the public policy implications of granting specific relief4. Policy for discretionary considerationsa) Specific performance requires an extra use of public resources because courts have to supervise specific performance. b) Courts are basically choosing between one public good and another. E. Injunctions Against Breach (IAB)1. Difference between Specific Performance and IAB? Why seek an IAB?a) Same requirement of inadequacy and same discretionary considerations granted to courts in regards to Specific Performanceb) Special rules re non-compete clauses (from last semester under illegality)(1) Must be necessary to protect legit interest(2) Cannot be unduly burdensome re geography, duration, and restricted activity2. When faced with an overbroad covenant what should courts do?a) Refuse to enforceb) Make the clause enforceable by selectively striking "words" and "parts" ("Blue Pencil Rule")c) Revise to make reasonableParol Evidence Rule and InterpretationI. Parol Evidence Rule, A. Basic idea 1. What's the point of the PER? What is its function?a) Helps determine which express terms are part of the parties' contract2. Policy for PER,a) Predictability - When parties take the trouble to reduce their agreement to a writing we assume that things that aren't in the writing aren't part of the deal3. How do I spot PER issues?,a) If the term was agreed to prior to the making of the contract and the term was not agreed to for separate considerationb) The PER is an issue if the alleged extra term was oral UNLESS(1) UNLESS it was subsequent OR(2) UNLESS it was agreed to for separate considerationc) The PER is an issue if the alleged term was written UNLESS(1) UNLESS it was contemporaneous or subsequent OR(2) UNLESS it was agreed to for separate considerationB. Step 1: Does the PER apply to the evidence 1. Is the evidence of an oral or of a written term?2. Is the evidence of a term agreed to before the contract was signed, while the contract was being signed or after the contract was signed?3. Was the term agreed to as an exchange for separate consideration?C. Why we care about the degree of integration: basic premises 1. Effect if agreement is deemed not integrated at all:a) All parol evidence is admissible2. Effect if agreement is deemed partially but not completely integrated:a) Parol evidence of consistent terms is admissible3. Effect if agreement is deemed completely integrated:a) No parol evidence is admissibleD. Is the agreement integrated at all? 1. An agreement is integrated if it is in writing AND2. Final as to at least one term.a) Evidence that helps prove the agreement is partially integrated(1) In many documents the subject is the same(2) In many documents the price is the same(3) A merger clauseE. Is the agreement completely integrated?1. Williston testa) Rule (1) Whether an inspection of the writing reveals a full and complete agreement(2) Whether the nature of the contract is such that, if the agreement had been made, it would have been natural to have included it in the writingb) Naturalness factors (Hatley): (Analyze each one and then weigh them against each other)(1) Test used(a) Natural to have included the term in the writing(2) Factors(a) Business sophistication of the parties(b) Participation of counsel(c) Relative bargaining strength(d) Apparent completeness of the writing(i) Lots of details is evidence of completeness(e) Whether the contract, without the term, would lead to an unreasonable result (f) Relationship of the parties(g) How easy it is to accommodate the writing to add the alleged termc) Significance of a merger clause(1) What is a merger clause?(a) A clause communicating that all terms agreed upon are in the writing.(2) What PER issue does such a clause seem to address?(a) Whether contract is completely integrated(3) Effect(a) In a Williston jurisdiction the court will say the agreement is completely integrated and any extrinsic evidence will be barred.2. Corbin testa) Rule(1) A writing is integrated when the parties intend it to be and it means what they intended it to mean.b) Significance of a merger clause in a Corbin test jurisdiction: (1) Evidence of intent to be completely integrated but isn't binding evidence of complete integration.F. Is the term consistent with or contradictory to the writing?1. Mitchell v. Lath testa) Does the term contradict any aspect of the writing?2. Hatley testa) To be inconsistent, the term must negate an express term of the writingG. Is the evidence of a type that is always admissible even if otherwise barred by the PER? (The writing could be completely integrated and the evidence can get in under these defenses.)1. Evidence re K a) Evidence to show any of the contract defenses is admissible even if it otherwise would not be admissible based on the parol evidence rule.2. Mistake in integrationa) If you can prove that the mistake in the agreement affected what the parties agreed to you can bring in evidence to show that the writing should be reformed.b) The mistake has to be mutual3. Evidence re contract meaninga) What makes a contract ambiguous?(1) Williston test—Four Corners test(a) An agreement is ambiguous only if the ambiguity appears on the face (within the four corners) of the writing (i) This will trump a merger clause(ii) In a Williston jurisdiction the court will decide if a contract is ambiguous(2) Corbin test—Reasonable susceptibility test(a) An agreement that is unambiguous on its face can be shown to be ambiguous by extrinsic evidence so long as the agreement is reasonably susceptible of the alleged meaning.4. Evidence of an oral condition precedent to formation of the parties' contractII. Contract interpretationA. How to approach in a hypo1. Identify and explain the ambiguity2. Try to resolve the ambiguityB. Approach to identifying ambiguity1. Latent ambiguitya) By considering the parol evidenceC. Rules of interpretation (from the Schwartz text)1. Course of performance: a) How the parties performed the K at issue (without objection)2. Negotiations between the parties3. Course of dealing:a) How the parties performed past Ks4. Trade usagesa) Two issues(1) Is it a trade usage at all?(a) To be a trade usage it has to be something that has achieved standardized usage in the industry.(2) Only applies to people in the industry5. Interpreting K to make it reasonable and consistent with its purpose6. Interpreting the contract in a way that reconciles apparent inconsistencies among the terms7. Contra proferentema) The agreement should be interpreted against the person who drafted itb) If both parties drafted the agreement together the court typically says the ambiguity cannot be resolved.D. Gap-filling1. What do we mean when we say a contract has a "gap?"a) The contract is silent as to an issue that proves important to the parties2. When gap-filling the UCC fills in what would be reasonable3. Most common implied terms a) Declare the contract fatally uncertainb) Use standard implied terms to fill the gapc) Imply a term that reflects what the parties "must" have intended4. If neither of the above works, how do courts determine what term to imply?a) Courts will sometimes look to the reasonable terms used by the UCC
Why don't courts like specific performance?
It interferes with the public and the court does not want to run people's affiars
What is the basic requirement for Specific Performance
Damages would be inadequate to make the plaintiff whole.
What are the common ways to satisfy the requirement?
If the subject of the K was 1) uncertain, 2) Irreplacable contract subject or 3) Uncollectible
What about Specific Performance regarding the sale of land?
Real Property is considered an irreplaceable contract subject
Discretionary Consideration, Undue hardship on the defendant
Specific Performance should not be an undue hardship and if it is is should not be assigned
How can I tell if the specific performance will create an undue hardship on the defendant
Compare gain of the plaintiff to loss of the defendant
What makes the bured undue?
The burden must be more than the burden for which the defendant bargained
What do you look for to see if specific performance is an undue burden on the court?
a) if the order created unstable personal relations, b) If the order requires excessive court supervision, c) If it is impractical or impossible to craft an enforceable order.
What are other discretionary considerations when talking about Specific Performance
1. Mistake, 2. Unfair bargaining practices, 3. K is substantively unfair 4. Public Policy, 5. Higher degree of certainty of terms
When dealing with specific performance what is the policy for discretionary considerations?
1. Specific Performance requires an extra use of public resources because courts have to supervise specific performance, and 2) Courts are choosing between one public good and another.
What is the difference between Specific Performance and Injunction against Breach?
Both have the same requirements of Inadequacy and Discretionary Considerations, However IAB has special rules regarding non compete clause it must be 1) necessary to protect a legitimate interest, and 2) cannot be unduly burdensome regarding geography, duration, etc.
When faced with an overbroad covenant what should the courts do?
1. Refuse to enfore, 2. Make the clause enforceable by selectively striking words and parts--Blue Pencil Rule or 3. Revise to make reasonable
What is the policy for the Parol Evidence Rule?
Predictability, When the parties take the trouble to reduce their agreement to writing we assume things not in the writing are NOT part of the deal.
How do I spot a Parol Evidence Rule
1. If the term was agreed to prior to the making of the K and the term was not agreed to for seperate consideration.
The Parol Evidence rule is an issue if the alleged extra term was oral unless what?
A)It was subsequent, or B) it was agreed to for seperate consideration.
PER is an issue if he alleged term was written unless what?
A)It was contemporaneous or subsequent or B)if there was seperate consideration.
What is the second step in applying the PER?
Is the evidence of a term agreed to before the K was signed, while the K was signed, or after the K was signed?
What is the third step in appling the PER?
Was the term agreed to as an exchange for seperate consideration?
What is the effect if an agreement is deemed not integrated at all?
All Parol Evidence is admissible
What is the effect if an agreement is deemed partially integrated?
Parol Evidence of consistent terms is admissible.
How do you tell if an agreement is integrated?
An agreement is integrated if it is A) in writing and B) Final as to at least one term.
How do you tell if an agreement is partially integrated?
1) in many documents the subject is the same 2) In many documents the Price is the same and 3) A merger clause
How do you tell if the agreement is completely integrated? Willison Jurisdiction
a) if the writing appears as a complete exclusive statement it is b) unless it is natural for the parties to have omitted the term in question
What factors do you look at to determine the naturalness factors in a williston jurisdiction?
a) business sophistication of the parties b) participation of counsel (more likely terms are included) c) Relative bargaining strength (weak= less likely to have terms/ Strong= more likely to have terms. d) relationship of the parties e) apparent completeness of the writing f) How easy is it to adopt the term into the K, g) A literal reading of the K would lead to an unfari result
What is the test in a Corbin Jurisdiction?
The writing is completely integrated when the parties intend it to be and it means what they intend it to mean.
What is the significance of a merger clause in a Corbin Jurisdiction?
It is evidence of intent to be completely integrated but is not binding evidence of complete integration?
What is step four of the Parol Evidence Rule?
Is the term consistent with or contradictory to the writing?
What is step five of the Parol Evidence Rule
Is the evidence of a type that is alway admissible even if otherwise barred by the PER?
What about mistake in the Parol Evidence Rule?
Mutual Mistake ex: Hoffman case was supposed to be for a smaller parcel of land.
What is the rule if the K is ambigous under Williston
Williston Four Corners Test- an agreement is ambigous only if the ambiguity appears on the face, within the four corners of the writing.
What is the rule in the K is ambigous under Corbin
agreement that is ambigous on its face can be shown to be ambigous by extrinsice evidence so long as the agreement is reasonably susceptible of the alleged meaning.
Contract Interpretation- How do you approach an ambiguity?
1. Identify and explain the ambiguity, 2. Try to resolve the ambiguity.
What does Contra Proferentem mean?
The agreement should be interpreted agains the person who drafted it. B) If both parties drafted the court typically says the ambiguity cannot be resolved.
What is gap filling?
Gap filling is when the K is silent as to an issue that proves important to the parties.
What are the most common implied terms?
A) Declare the K fatally uncertain B) Use standard implied terms to fill the gap, and 3) Imply a term that reflects what the parties "must" have intended.
If no gap filling works under the common law how do courts determine what term to imply?
The courts will sometimes look to the reasonable terms used by the UCC