I. Chapter 6 (cont.

)  Supplementing the Agreement: Warranties

a. Warranties
i. UCC §2-313: Express Warranties by Affirmation, Promise,
Description, Sample
1. Any (affirmation, promise, description, sample) made by seller to
buyer which relates to the goods and becomes part of the basis of
the bargain creates an express warranty that the goods shall
conform
2. Concerns quality or nature of the good, but distinguish from
seller’s opinion or commendation
a. Bayliner Marine Corp. v. Crow
i. Prop matrixes did not create express warranty
because they did not relate to boat that Crow
ultimately purchased
ii. UCC §2-314: Implied Warranty – Merchantability; Usage of Trade
1. Applies only to merchants “with respect to goods of that kind”
2. Goods will pass without objection in the trade and are fit for the
ordinary purposes for which such goods are used
a. Bayliner Marine Corp. v. Crow
i. Court rejected breach of implied warranty of
merchantability because there was no standard for
merchantability in the record and lack of evidence
that Crow’s boat would have been objectionable to
a significant portion of the population
iii. UCC §2-315: Implied Warranty – Fitness for a Particular Purpose
1. Applies when goods, though fit for their particular purpose and
lacking defect, are not fit for buyer’s particular purpose
2. Buyer must rely on seller’s skill or judgment in selecting the goods
3. Seller must have reason to know buyer’s particular purpose AND
buyer’s reliance on seller’s skill or judgment
a. Bayliner Marine Corp. v. Crow
i. Argument rejected by court because of lack of
evidence that Crow informed s of his intended use
for the boat
iv. Implied Warranty of Workmanlike Construction
1. Requires that building:
a. Be constructed in a reasonably good and workmanlike
manner (quality of work and materials must meet average
or reasonable standards of the trade), and
b. Be reasonably fit for the intended purpose (safe
habitability)
i. Speight v. Walters Development
1. Issue: Whether court should extend doctrine
to subsequent purchaser of a home after
initial purchaser
2. Policy:
 a. Builders can more efficiently detect
and prevent defects
b. Provides incentives to builders to
establish insurance programs
II. Avoiding Enforcement: Incapacity, Bargaining, Misconduct, Unconscionability,
and Public Policy
a. Minority and Mental Capacity
i. Minority
1. Dodson v. Shrader
a. Issue: Whether π is entitled to a full refund or whether s
are entitled to a set-off of the amount of the decrease in
value of the truck while π owned it
b. Traditional Rule: Contract is voidable at election of minor
even if contract was fully performed except:
i. Where contract is for necessaries, or
ii. Minor has misrepresented his/her age or willfully
destroyed goods
c. Holding: When minor disaffirms contract, amount
recovered by minor will be reduced by value of the use,
depreciation, benefit received, or willful or negligent
damage to purchased article
i. Exception: Fraud, taking unfair advantage of minor,
unfair contract
ii. Mental Incapacity
1. Sparrow v. Demonico
a. Traditional Rule: Cognitive test measured whether the
person was incapable of understanding and deciding upon
the terms of the contract, its effects, and its consequences
b. Affective Test: [Adopted] person may have some level of
understanding of a transaction, but may still be afflicted
with mental disease or defect
i. Takeaway:
1. Person is unable to act in a reasonable
manner in relation to the transaction, and
2. The other party has reason to know of
person’s condition
ii. Medical evidence is necessary to establish – burden
on party seeking to void contract
b. Duress and Undue Influence
i. Duress – Freewill overcome by improper threat that induces the contract
in light of no reasonable alternative
1. Totem Marine v. Alyeska Pipeline
a. Economic Duress: Makes contracts voidable
i. Wrongful or unlawful act or threat
1. May be wrongful in a moral or equitable
sense; bringing legal action in bad faith
 ii. Absence of any reasonable alternative to submission
to the threat, and
1. Alternative sources of goods, services, or
funds; toleration of the threat if only a minor
annoyance
iii. Threat induced making of the contract
1. Threat must substantially contribute to
manifestation of assent; standard is
subjective
ii. Undue Influence – Excessive pressure exerted by dominant party
overcomes will of subsequent party
1. Odorizzi v. Bloomfield School District
a. Undue Influence:
i. Undue susceptibility (mental, emotional, or
physical), and
ii. Excessive pressure directed by dominant party
overcomes will of subservient party
1. Factors to consider:
a. Discussion of transaction at an
unusual or inappropriate time;
b. Consummation of the transaction in
an unusual place;
c. Insistent demand that the business be
finished at once;
d. Extreme emphasis on untoward
consequences of delay;
e. Use of multiple persuaders by
dominant side against a single
servient party;
f. Absence of third-party advisors to
the servient party;
g. Statements that there is no time to
consult financial advisors or
attorneys
c. Misrepresentation and Nondisclosure – Fraud in Inducement (Syester & Hill
– making of false statement that causes other party’s assent to agreement vs.
Fraud in the Execution (Park 100 – misleading a person into signing meaningful
document by making it appear that document is something different from what it
is
i. Misrepresentation – rescission even in the absence of fraudulent intent
1. Syester v. Banta
a. Rule: Contract is voidable if manifestation of assent is
induced by either fraudulent or material misrepresentation
by the other party upon which the recipient is justified in
relying
 i. Fraudulent – intentionally fraudulent statement or
statement made as true but without knowledge or
confidence by maker
ii. Material – if it would be likely to induce a
reasonable person to manifest assent or if maker
knows that it would likely induce recipient to do so
2. Park 100 Investors, Inc. v. Kartes
a. General Rule: Holding those entering into a contract
responsible for reading before signing
i. Exception: Fraud in describing what papers are
during signing
1. Fraudulent omission of a material fact
ii. Nondisclosure
1. Hill v. Jones
a. Rule: Where seller of a home knows material facts
affecting value of property and those facts are neither
observable nor known to the buyer, seller is under duty to
disclose them to buyer
b. Factors where disclosure of material information is
required:
i. Difference in parties’ relative intelligence
ii. Parties’ relationship
iii. Manner in which information is acquired by person
who does not disclose it
iv. Nature of fact – extrinsic and determinable
v. Nature of contract
vi. Importance of fact not disclosed
vii. Conduct of concealer  active concealment?
d. Unconscionability: Unfair bargaining/lack of meaningful choice/procedural
Unconscionability  Unfair contract terms/ Substantive Unconscionability
i. Procedural Unconscionability; AND
1. Disparity in bargaining power between two parties and manner in
which parties entered contract
2. Obfuscated or unintelligible terms
ii. Substantive Unconscionability
1. Harsh or oppressively one sided terms
2. Considers circumstances at the time contract was made
iii. Williams v. Walker-Thomas Furniture Co. (furniture credit)
1. Rule: Absence of meaningful choice on part of one of the parties
together with contract terms which are unreasonably favorable to
the other party
a. Substantive: Dragnet clause; decision to sell item to people
who were heavily in debt and on public assistance
iv. Higgins v. Superior Court of LA County (home makeover show)
 1. Procedural  focused on factors of surprise or oppression: s
made no effort to highlight arbitration clause for unsophisticated
minors
2. Substantive: Arbitration provision was not bilateral in that it only
required πs to submit claims to arbitration, and not TV executives
e. Public Policy
i. Valley Medical Specialists v. Farber
1. Rule: A restriction is unreasonable/unenforceable:
a. If restraint is greater than necessary to protect employer’s
legitimate interest; OR
b. If that interest is outweighed by the hardship to the
employee and the likely injury to the public
2. Public Policy: Court is trying to protect patient’s ability and
freedom to choose a doctor and promote optimal care through
competition among physicians
a. Scope of Restraint: time, duration, geographic reach, and
magnitude of activities prohibited
ii. P.M. v. T.B.
1. Public Policy: Protecting freedom to contract between consenting
adults and agreements also promote families by enabling infertile
couples to raise their own children
III. Justification for Nonperformance: Mistake, Changed Circumstances, and
Contractual Modifications
a. Mistake – disappointment of one or both parties expectations
i. Mutual Mistake – both parties share a common assumption about a vital
existing fact in which they based their bargain and assumption is false
1. Lenawee County Board of Health v. Messerly
a. Contract is voidable where:
i. Mistaken belief relates to basic assumption upon
which contract was made,
ii. Mistake has a material effect upon the agreed
performances of the parties, and
iii. Party seeking avoidance has not assumed the risk of
loss from the mistake
b. Court application here: property was meant to be human
habitable and income producing. However, court did not
provide relief because of “as is” clause in agreement and so
bore the risk of loss
ii. Unilateral Mistake – only one of the parties makes an assumption about a
vital existing fact on which he/she based the bargain and assumption is
false
1. BMW Financial Services LLC v. Deloach
a. Elements for Rescission:
i.  made a mistake as to a basic assumption;
ii. Mistake has a material adverse effect on mistaken
party;
 iii. Party does not bear risk of mistake; and
iv. Enforcement with the mistake would have an
unconscionable effect on mistaken party
b. Issue: Allocation of risk and possible unconscionable effect
of mistake
i. Test for allocation of risk: Party bears risk of
mistake when:
1. Risk is allocated to them by agreement of
the parties, or
2. Party is aware, at time contract is made, that
party has limited knowledge with respect to
facts to which mistake relates but treats
limited knowledge as sufficient, or
3. Risk is allocated to the party by court on the
ground that it is reasonable in the
circumstances to do so
a. Court allocates risk to BMW based
on (3) because mistake was BMW’s
alone and other parties had no fault
or reason to know about mistake
b. Changed Circumstances: Impossibility, Impracticability, and Frustration
i. Impossibility – when a purpose or thing necessary for the performance of
agreement dies or is incapacitated, is destroyed or damaged, duty of
performance is excused
ii. Impracticability (event makes performance unduly burdensome) –
performance hampered by occurrence of an event
1. Hemlock Semiconductor v. Solarwood Industries
a. Issue: Was event (Chinese government subsidizing national
production) a basic assumption of which contract was made
b. Factors:
i. Extreme and unreasonable difficulty, expense,
injury, or loss to one of the parties
ii. Risk of injury to person or property
disproportionate to ends to be attained by
performance
iii. More than a mere increase in degree of difficulty
and/or cost
iv. Must have made reasonable efforts to overcome
obstacles of performance
iii. Frustration (event makes performance pointless) – purpose thwarted by
occurrence of event
1. Mel Frank Tool and Supply v. Di-Chem Co.
a. Rule: (1) Principle purpose of contract; (2) Frustration must
be substantial; (3) Non-occurrence of event must have been
a basic assumption on which contract was made
 b. Court: As long as tenant has serviceable use still available,
fact that government regulation has limited primary use
does invoke frustration of purpose doctrine
i. Contract must be rendered virtually worthless to
warrant relief based on frustration of purpose
c. Modification
i. Common Law: pre-existing duty rule bars enforcement of modification –
requires new consideration; modification enforced if: (1) modification is
fair and equitable in view of unanticipated circumstances; (2) provided by
statute; or (3) material change of position in reliance on promise
1. Alaska Packers Association v. Domenico
a. Issue: Whether May 22 contract was supported by
sufficient consideration
b. Court: Under pre-existing duty rule, a party cannot refuse
to perform under a valid contract and then coerce a promise
from the other party to pay an increased compensation for
doing the same task that they were already legally bound to
perform
ii. UCC §2-209: Modification enforced in absence of consideration
1. Kelsey-Hayes v. Galtaco Redlaw Castings
a. Good Faith – analysis focuses on party’s reasons for
seeking modification and fairness of the modification
2. Brookside Farms v. Mama Rizzos
a. Issue: Whether parties’ oral modification of price provision
of written contract is valid.
b. Exceptions to Statute of Frauds:
i. Oral modification does not materially alter the
obligations under agreement, or
ii. One party reasonably relies on the other party’s
oral promise to put the agreement in writing
(promissory estoppel)
iii. Parties course of performance indicates a waiver of
SOF or no oral modification clause
iii. Accord and Satisfaction (modification through settlement) – creditor
accepts an amount less than what the debtor owes as full payment and
later claims that they are owed full balance
1. Accord – agreement to accept a substituted or different
performance from a debtor other than what is due to creditor
2. Satisfaction – performance of the new agreement
a. Marton Remodeling v. Jenson
i. Court: Claim Jenson was collecting was one single
un-liquidated claim, therefore entire amount owed
was un-liquidated which made acceptance of check
binding under Accord and Satisfaction
b. Douthwright v. NE Corridor Foundations
 i. Court rejects Accord and Satisfaction claim because
there was no basis for a good faith dispute that
about amount owed – settlement agreement entitled
π to immediate payment and statute proves π was
entitled to interest for any delay in payment
IV. Consequences of Nonperformance: Express Conditions, Material Breach, and
Anticipatory Repudiation
a. Express Conditions – Created by agreement of the parties; will often be a
condition to the obligation of only one party
i. Condition v. Promise
1. Promise  breach of contract
2. Condition  Failure of condition to occur allows for
nonperformance of other party
a. EnXco Development Corp. v. Northern States Power Co.
i. Condition: π acquiring certificate for site project
was to be built on.
ii. Court: Rejects π arguments on impracticability and
disproportionate forfeiture because:
1. Impracticability requires performance be
made impracticable not by π’s own fault
b. J.N.A Realty Corp. v. Cross Bay Chelsea, Inc.
i. Issue: Whether  would suffer forfeiture if π is
permitted to enforce notice provision regarding
exercise of option to renew
ii. Holding: Equitable relief excusing tenant’s failure
to comply with notice condition for exercise of a
renewal option may be granted where:
1. Tenant would suffer forfeiture;
2. No prejudice to the LL; and
3. Tenant’s failure to comply was due to
honest mistake, excusable fault and not
willful or gross negligence or culpable
misconduct
b. Material Breach
i. Types of Breaches:
1. Partial – Breaching party has met substantial performance
standard; may be liable in damages, but non-breaching party is not
discharged from obligations under contract
a. Jacob and Youngs Inc. v. Kent
i. Issue(s): Whether breach from π was significantly
insufficient in relation to the project such that π
could be deemed to have substantially performed
and receive payment
1. Court: Installation of pipes that were not the
ones specified in agreement is not a material
 breach because defect is insignificant
compared to the project
a. Limitation: Transgression must be
unintentional
b. Breach v. Material Breach;
Important v. Trivial
2. Damages: Difference in value between pipes
installed and pipes expressed in contract,
NOT the cost of replacement
2. Material – Failure to perform a significant performance
obligation; non-breaching party’s performance obligation is
suspended until breach is cured
a. Sackett v. Spindler
i. Breach was material because π failed to pay $55K
of $85K owed;  does not obtain substantial benefit
which he could have reasonably anticipated
1. Factors for materiality on p. 844
3. Total Material – Material breach that has not been cured after the
expiration of a reasonable amount of time; non-breaching party is
discharged from its obligations under the contract
a. Sackett v. Spindler
i. There was total material breach from π because
after failing to make payment, it appeared unlikely
that he would ever make payment
1.  discharged from obligations under the
contract
4. Constructive Conditions – recognition that one party’s failure to
perform may have an effect on other party’s obligation to perform
c. Anticipatory Repudiation – occurs when one party advises the other that no
performance will be forthcoming or takes an action that will render substantial
performance of its duties impossible
i. Truman L. Flatts and Sons v. Schupf
1. Issue: Whether π’s May 21 letter to  repudiated contract, and if
so, whether π successfully retracted repudiation in June 14 letter
2. Standard: Party must clearly manifest a definite and unequivocal
intention not to perform a contract on date of performance
a. Court: Request or suggestion of modification does not
amount to repudiation
3. Retracting Repudiation
a. Actions aggrieved party can take to preclude other party
from retracting repudiation:
i. Indicate to other party that it is electing to treat
contract was rescinded by:
1. Bringing action for breach; notification that
its treated as repudiation
 ii. Materially change its position in reliance on
repudiation
ii. Hornell Brewing Co. v. Spry
1. Factors from creating reasonable grounds for insecurity:
a. Buyer’s words/actions
b. Course of dealing or course of performance
c. Nature of sale contract and industry
d. Buyer falling behind in its account with seller
2. Failure to give such assurances constitutes an anticipatory
repudiation of the contract
a. UCC 2-609: 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
V. Expectation Damages: Principles and Limitations
a. Computing Value of π’s Expectation
i. Expectation Interest
1. Benefit of the bargain that injured party would have realized if the
contract had been performed
a. Goal is to place injured party in as good a position as they
would have been if the contract had been performed
b. FORMULA: Damages for Total Breach = (loss in value +
other loss) – (cost avoided-loss avoided)
ii. Crabby’s Inc. v. Hamilton
1. Waiving rights under a contract:
a. Express declaration; or
b. Conduct in the form of a clear, unequivocal waiver
i. Court:  conduct after closing date was inconsistent
with termination
c. Formula used by court: difference between contract price
(290K) and fair market value of property on date of breach
(235K)
iii. Handicapped Childrens v. Lukaszewski
1. Issue: Finding a breach of employment contract, whether π
suffered recoverable damages
a. Court of App.: π did not suffer damages because they
received benefit of a more experienced teacher; Court
overturns this reasoning
2. Measure of Damages: difference between the costs of replacement
services and contract price
a. Court: Board lost benefit of its bargain; Board neither
expected nor wanted a more experienced teacher who had
to be paid more money, replacement was imposed on Board
iv. American Standard v. Schectman
 1. Issue: Measure of damages
a. π: cost of completion of promised performance
b. : difference of value of property with and without
promised performance (market value rule)
2. Usual recovery for defective or incomplete construction:
reasonable cost of replacement of defective materials or reasonable
cost of completion of incomplete portion
a. Applying Market Value Rule:
i. Breach is incidental to main purpose of the contract
and completion would be disproportionately costly
ii. Breach is unintentional and contract has been
substantially performed in good faith and such cost
would cause economic waste
b. Restricting Recovery of Expectation Damages: Foreseeability, Certainty, and
Causation
i. Foreseeability:
1. Standard is not the expectation of an “average”, “typical”, or
“reasonable” person  subjective standard
a. Hadley v. Baxendale
i. Recoverable Damages:
1. General/Direct: Arising naturally; according
to the usual course of things
2. Consequential: May reasonably have been
supposed to have been in contemplation of
both parties at time they made contract, as
the probable result of breach
a. Stems from reason to know that π
will be unable to mitigate damages
ii. Limitation to special damages:
1. If special circumstances were known, the
parties could have provided for the breach of
the contract by special terms as to the
damages in that case
iii. Foreseeability: Determined at the time parties made
contract
1. All that must be foreseeable is the type of
loss that would result if breach occurred, not
breach itself
2. Focus of foreseeability is on breaching party
3. Loss need only have been foreseeable as
probable and not as certain or inevitable
c. Restricting Recovery of Expectation Damages: Mitigation of Damages
i. Mitigation (Doctrine of Avoidable Consequences)
1. Restatement (Second) of Contracts 350 (1)
a. [Damages] are not recoverable for loss that the injured
party could have avoided without undue risk, burden, or
humiliation
i. Regards recovery of consequential damages
b. Rockingham County v. Luten Bridge
i. Trial Judge: Awarded full contract amount to Luten
to protect their expectation interest; placed π in
position had  not repudiated the contract
ii. Justifications for Doctrine:
1. Prevention of infliction of damage upon 
without benefit to π
2. Economic efficiency by providing non-
breaching party with an incentive not to
engage in conduct that would produce a
waste of resources
iii. Rule: π who receives notice of a breach has a duty
to do nothing to increase the damages flowing from
the breach because they cannot recover for damages
that need not have been incurred
c. Maness v. Collins
i. Duty of Mitigation for Employment Contracts:
reasonable efforts to obtain other employment that
was substantially equivalent to the position lost
because of termination
1. Burden of Proof: Employer  failure to
mitigate is an affirmative defense
a. Test:
i. Availability of suitable and
comparable substitute
employment
ii. Lack of due diligence on
part of employee in seeking
alternate employment
d. Jetz Service Co. v. Salina Properties
i. π sues to recover lost profits at termination of lease
with s
1. Lost Volume Lessee or Seller: Refers to
sellers whose inventory or capacity is so
large that they can sell to as many buyers
who wish to buy from them such that if one
buyer breaches a contract, a sale to a
different buyer is not a substitute for the
missed sale because breach did not create
the new opportunity
a. Elements:
 i. π possessed capacity to
make additional sale;
ii. It would have been
profitable for π to make
additional sale; and
iii. π probably would have
made an additional sale in
the absence of buyer’s
breach
ii. Limitation on mitigation principle:
1. Contract entered into after a breach will be
considered to be a mitigating one only if the
breach of the original contract made
performance of the second possible
2. If non-breaching party could have
performed both contracts, second contract
will not be considered to be a mitigating one
VI. Alternatives to Expectation Damages: Reliance and Restitutionary Damages,
Specific Performance, and Agreed Remedies
a. Reliance Damages
i. Reliance Interest – (1) alternative to expectation when expectation
damages are speculative or difficult to calculate; (2) used where liability is
founded on promissory estoppel and not breach of contract
1. Addressing injured party’s change in position in reliance on
breaching party’s promise
a. Looks to what position of the π would have been if they did
not make contract with 
2. Wartzman v. Hightower Productions, LTD
a. Measure of Reliance Damages:
i. Reliance Damages = (expenditures made in
preparation for or in performance of the contract) –
(any loss the injured party would have suffered if
the contract had been performed, provided the
breaching party can prove the loss with reasonable
certainty)
3. Walser v. Toyota Motor Sales, USA
a. Issue: Whether Trial Judge was correct in jury instruction
that damages on promissory estoppel claim were limited to
out-of-pocket expenses and therefore no recovery for of
lost profits
i. Limiting damages is discretionary – many courts
take view that when basis of recovery is promissory
estoppel, judge has discretion to award expectation
or reliance damages and will only be overturned if
there is clear error in judgment
b. Restitutionary Damages
i. Restitution Interest  basis of liability is unjust enrichment
1. Prevention of unjust enrichment where injured party has conferred
some benefit on the defaulting party; measured by value of
performance conferred to 
a. Utilized in situations where contract is held to be
unenforceable but one or both of the parties had already
partially performed
2. Coastal Steel Erectors v. Algernon Blair
a. Issue: Whether π could receive restitution for value of
benefit conferred despite the loss it would have suffered if
the contract had been fully performed
i. Court: π conferred benefit onto , who did not pay
for them and then breached contract thus entitling π
to restitution
b. Measure of Recovery: reasonable value of the performance
i. Market Value Restitution: the amount for which
such services could have been purchased from one
in the π’s position at the time and place services
were rendered
1. Recovery not reduced by any loss π would
have incurred by complete performance
c. Limitations on use of Restitution:
i. Election of remedy may only be used when 
commits total breach or repudiation
ii. If π completed their performance, and only
remaining duty owed by  is payment of a definite
sum of $, π may not elect restitution and is limited
to expectation damages
1. Full Performance Exception: protects non-
breaching party expectation interest and also
eliminates judicial determination of market
value of performance
3. Lancellotti v. Thomas
a. Issue: Whether π, who breached contract, could recover in
restitution any of the payments made to 
i. Common Law Rule: Breaching party cannot recover
either on the contract or in restitution for the value
of their performance
1. Modern Rule: permits breaching party to
recover for value of any benefits conferred
on non-breaching party minus any harm
caused by the breach
a. Restatement 374: “party in breach is
entitled to restitution for any benefit
that they conferred by way of part
performance or reliance in excess of
 the loss that he has caused by his
own breach
4. Ventura v. Titan Sports, Inc.
a. Court: Benefit conferred on  were IP rights of using π’s
likeness
i. Restitutionary measure of recovery based on the
value of the services rendered and not the increase
in recipient’s wealth
c. Specific Performance
i. Limitations:
1. Money damages must be inadequate to compensate injured party
2. Equitable relief is discretionary and therefore courts take equitable
factors such as hardship on breaching party into account
3. Courts take into account practical difficulties in shaping and
enforcing a decree for specific performance in deciding whether to
grant such remedy
a. City Stores Co. v. Ammerman
i. Conditions of option contract:
1.  had to secure zoning for the Tysons
Corner tract where it planned to build
shopping center
2.  had to enter into leases with other major
tenants for stores in shopping center 
those leases would provide the terms for
lease between π and 
ii. Impediments to Money Damages:
1. Speculative – difficult to calculate a precise
measure of $ damages for breach for a long
term lease of a store in a shopping center
2. Inadequacy – π would not be adequately
compensated for right to participate in the
center and for future advantages associated
with extending its operations
iii. Court: Adopts balancing test that construction
contracts should be specifically enforced unless the
difficulties of supervision outweigh the importance
of specific performance to π
b. Reir Broadcasting Co. v. Kramer
i. Issue: Whether, when dealing with a personal
services contract, MT code prohibited the court
from enjoining one of the contracting parties from
performing services somewhere else during the life
of the contract
ii. Court: π claims to be seeking to enforce a negative
covenant, not to enforce an affirmative obligation
under the agreement
 1. MT statute prohibited court from enjoining a
party to a personal services contract from
performing services elsewhere while
contract was still in effect
iii. Traditional Rule: Affirmative specific performance
of personal services contract will not be granted:
1. Because it is difficult to compel the
performance of personal service;
2. Because such relief suggests involuntary
servitude
d. Agreed Remedies – contract provision whereby parties agree in advance on a
fixed sum as remedy for breach
i. Limitation: parties cannot provide for a penalty in the event of a breach,
but only for compensation
1. Advantage: avoidance of litigation costs and saving time of courts
a. Barrie School v. Patch
i. Issue: Whether π had a duty to mitigate damages
where parties had contractually agreed to a valid
sum of liquidated damages in the event of a breach
ii. Holding: No duty to mitigate damages when there
was a valid liquidated damages clause
1. Does not require mitigation of damages
because when parties have agreed in
advance to stipulated sum, that sum replaces
any determination of actual damages, and
duty to mitigate would require determination
of a damages amount which means more
and costly litigation
iii. Test for validating liquidated damages clause:
1. Damages anticipated from breach must be
uncertain in amount or difficult to prove
2. Parties must have intended clause to
liquidated damages and not to operate as a
penalty
3. Amount set forth in liquidated damages
clause must be a reasonable forecast of the
just compensation for the harm following
breach
b. Kelly v. Marx
i. Possible tests for liquidated damages clause:
1. Circumstances at time of contract formation
(single approach), or
2. Circumstances when the breach occurred
ii. Rationale for single look approach:
1. Matches parties’ expectations and helps to
resolve disputes efficiently because it avoids
 necessity of having to prove damages from
breach of contract
VII. Rights and Duties of Third Parties
a. Rights of Third Parties as Contract Beneficiaries
i. Terminology
1. Third Party Beneficiary (π) – the one who seeks to enforce the
promise
2. Promisee (typically not a party) – the one to whom the promise
being sued on by the third party beneficiary was made
3. Promisor () – the one whose promise the third party beneficiary
seeks to enforce
ii. Vogan v. Hayes Appraisal Associates, Inc.
1. Issue: Whether π’s were third party beneficiaries of the contract
between Mid-America and Hayes Appraisal
a. Primary question: whether contract manifests an intent to
benefit a third party beneficiary
2. Determining Intent:
a. Dual intent of promisor and promisee to confer a benefit on
3d party
b. Intent of the promisee to confer benefit
c. Intent of the promisee to confer a benefit coupled with
promisor’s reason to know of promisee’s intent
iii. Chen v. Chen
1. Issue: Whether a child is an intended or incidental beneficiary of a
parents’ separation agreement
2. Holding: Court characterizes as a standing requirement and refuses
to enable a child to enforce parents’ settlement agreement where
the court provides for support payments to custodial parent
a. Special Circumstances:
i. Death/Inability of parent, or
ii. Direct designation in agreement that benefit be paid
to the child
b. Assignment and Delegation of Contractual Rights and Duties
i. Assignment of Rights: Major purpose of this transaction is to provide
liquidity to businesses that generate accounts receivable
1. Herzog v. Irace
a. Making a valid assignment:
i. Assignor must make clear his intention to relinquish
the rights to assignee; and
ii. Assignor must not retain any control over the right
assigned or any power of revocation
b. Limitations on Assignments:
i. Assignment has a material adverse effect on
obligor’s duty, risk, or chance of obtaining a return
performance;
 ii. Assignment is forbidden by statute or conflicts with
public policy; or
iii. Contract precludes the assignment
ii. Delegation of Duties: Delegation of duties does not relieve the delegating
party of responsibility for performance
1. Sally Beauty Co. v. Nexxus Products
a. : Agreement was a personal services contract and so is not
delegable
i. Court: UCC 2-210 applies because contract was for
the sale of goods and 2-210 addresses delegation of
contractual duties
1. UCC 2-210: A party may perform his duty
through a delegate unless otherwise agreed
to or unless the other party has a substantial
interest in having his original promisor
perform or control acts required by the
contract
2. Holding: In an exclusive distributorship
agreement, oblige has a substantial interest
in having the original obligor perform under
the contract where obligee seeks to delegate
the performance to a competitor of the
obligee or to wholly owned subsidiary of a
competitor of the obligee
iii. Both: Purchaser succeeds to all rights of the seller and also promises to
perform all the obligations of the seller