Contract Case Summaries

Contracts Cases 1. Ray v. Eurice Brothers – The Rays signed a contract, after agreeing to many different specifications, for Eurice Brothers to build a home for the Rays. Ray secured funding to pay Eurice for the work. Eurice thought Ray would be difficult to work with, and refused to perform the work agreed to in the contract. Ray sued and appellate court held that Eurice’s mistake (agreeing to Ray’s specifications) was a unilateral mistake, but did not excuse performance, and the contract existed. 2. Normile v. Miller “you snooze you lose”– Miller listed property for sale. Byer, realtor, assisted Normile in viewing the property. Normile made an offer, to which Miller provided a counteroffer. While Normile waited, Miller then accepted an offer from another buyer. Takeaway: An offer is not changed into a contract until it is unconditionally accepted, any change or additional condition turns that acceptance into a condition or a counteroffer (mirror-image rule) 3. Sateriale v. R.J. Reynolds Tobacco Co. “Camel Cash” – RJR created a “Camel Cash” rewards program, where customers could earn Camel Cash, by purchasing cigarettes, and redeem the Camel Cash for merchandise. RJR announced in October 2006 that Camel Cash would be ending and stopped printing certificates and told customers that no merchandise was left, but gave them until March 2007 to redeem Camel Cash. Takeaway: This case was an exception to the general rule. Ads are not offers. However, here the Court found that RJR offered to enter into unilateral contracts which customers could accept by collecting and redeeming Camel Cash. 4. Quake Construction v. American Airlines, Inc. – AA hired Jones Bro. Construction to hire construction contracts for an expansion at O’Hare. Jones offered Quake to bid on the project, and Quake submitted a bid. Jones orally informed Quake that it would be awarded the contract and sent a letter of intent to Quake. AA informed Quake that its involvement was terminated. Takeaway: The Letter of Intent (and oral confirmation from Jones to Quake) was considered a contract. See RST §27 – a contract does not necessarily have to be in writing. 5. Pennsy Supply, Inc v. American Ash Recycling Corp of Pennsylvania – Consideration – Pennsy = promisee; American Ash = promisor. Pennsy alleges American Ash breached an implied warranty. Pennsy entered K to pave driveways & parking lots for a school. American Ash supplied AggRite (used for paving) to Pennsy for free, which relieved American Ash of paying for disposal of AggRite. After abt one year, pavement developed defects due to the AggRite. Pennsy requested American Ash remove and dispose of the AggRite and American Ash refused. Takeaway: Consideration must exist for a K to be enforceable. Consideration must be bargained for in exchange for a promise. American Ash’s promise to provide the AggRite for free was inducement for Pennsy’s incurring the detriment of taking the AggRite, therefore, there was consideration. 6. Plowman v. Indian Refining Company – Consideration – 18 employees were laid off. The company did not require any work of the former employees, but continued to pay them as long as they picked the checks up from the main office. Employees said they were told these payments would continue the rest of their lives. After 1 yr, the company stopped providing the payments. Employees sued. Takeaway: There was no consideration, employees coming in to pick up the checks did not constitute a detriment to them, sufficient to prove consideration. Past consideration does not constitute consideration, to make a K enforceable. 7. Jannusch v. Naffziger – UCC Sale of Goods – Jannusch contracted (orally) with Naffziger to sell Festival Foods (truck/concessions business) for $150K. Naffziger paid $10K and planned to get a loan for the remaining amount. Meanwhile, they took possession of the truck, then backed out of the agreement. Jannusch sued for breach of K. Court concluded that K was for the sale of goods, so it should be subject to UCC. Takeaway: General rule – Contracts for the sale of goods over $500 must be in writing UCC 2-201 provides exceptions, which this K fell under, therefore the K was valid. It is easier to prove a K under UCC than under common law. 8. Princess Cruises v. General Electric Co. – Hybrid Contract – Battle of the Forms – Princess scheduled repairs to be done by GE. Princess sent GE a purchase order which specified price, terms and conditions, warranties, and stated that it was for “engineering services.” Some goods were to be provided, but most of those goods were needed for GE to complete the repairs. GE provided a final quote, using their form, which limited GE’s liability. Princess sued GE after realizing GE did not clean the ship properly, which damaged the rotor. Takeaway: We want to pick between UCC and common law when the outcome would be different. Under UCC 2-207(1), the counteroffer from GE constitutes acceptance. Under 2-207(2), in a K between merchants, the additional terms become part of the K, UNLESS they materially alter the K (original offer). Princess Cruise gives us a 4 part test (Coakley factors) to determine whether a hybrid K is primarily for goods or services (UCC or common law). a. b. c. d. Language of K Nature of the business of the supplier Intrinsic worth of the materials Nature of the dispute Paul Gottlieb Co. v. Alps S. Corp – Contract Formation Under UCC – Battle of the Forms – Gottlieb entered a contract to supply fabric for prostethic devices that Alps manufactured. Alps sent a purchase offer, and Gottlieb’s acceptance included additional language, limiting Gottlieb’s liability for consequential damages. Alps was not satisfied with Gottlieb’s fabric quality, and Gottlieb used a substitute fabric, which amputees using Alps’ products complained about. Gottlieb sued Alps, for breach of K, once Alps refused to pay. Alps counterclaimed for breach of warranty. In the lower court, Alps received a $700K damage award, including consequential damages. Holding: Reversed. Damages were required to be reduced, to an amount that did not consequential damages. Alps failure to read the additional term (eliminating consequential damages), did not constitute material alteration. Takeaway: UCC does not use the common law mirror image rule, the battle of forms determine which terms become a part of the agreement (UCC§2-207). Under UCC, to prove that a term materially alters an agreement BOTH unreasonable surprise and hardship must be shown. 9. DeFontes v. Dell – Electronic Contracting – Shrinkwrap – DeFontes brought class action against Dell for collecting tax on service contracts. Dell argued that plaintiff was subject to arbitration clause in terms and conditions agreement. The agreement specifically stated that by accepting delivery, purchaser agreed to all terms. The agreement did not state that buyers could reject the terms by returning the computer. Dell argued that the terms were on the website, the invoice, and the packaging. Takeaway: When a product is delivered with a shrinkwrap agreement, additional terms become a part of the K, provided the agreement expressly gives the consumer the right to reject by returning the product for a refund in a reasonable time. Here, customers right to reject was not clear, so they were not subject to the shrinkwrap. 10. Harvey v. Dow – Promissory Estoppel – RST §390(1) – Dows owned 125 acres of land, some of which, they promised to their daughter Teresa Harvey. Harvey installed a mobile home on the property, then once married, built a home. The home cost about $200K, Harvey asked her parents for the deed to the land her home was on, so she could take out a mortgage on the home and use the money. Her parents refused. Harvey sued. Takeaway: Vague promises (we will give you land in the future, but no specific date) are generally not sufficient for promissory estoppel. However, here, the Dows supported and encouraged Harvey’s construction, which constituted an implied promise to give Harvey land. Harvey relied on that promise to invest $200K to build the home. An enforceable promise can be implied from a party’s conduct. Promissory Estoppel RST §390(1) 1. Promise 2. Promisor reasonably expects reliance 3. Promisee relies (restatement says “induces action or forebearance”) 4. Injustice Contract 1. Promise 2. Mutual assent 3. Consideration 11. Katz v. Danny Dare, Inc. – Promissory Estoppel – Katz worked for Danny Dare and was injured on the job. He returned to work after being hospitalized, but had issues. Dare wanted Katz to retire voluntarily, so they negotiated a pension plan with him. Katz accepted the offer and retired at 67. After 3 years, Dare stopped paying Katz. Takeaway: Katz’ retirement = promisee’s reliance AND consideration. This case had all 3 elements requirement to prove there was a K, but the lawyer most likely argued promissory estoppel because many pension cases are argued under promissory estoppel. 12. Berryman v. Kmoch – Option Contracts & Promissory Estoppel – RST §25 – Kmoch entered into an option K to buy land from Berryman. Berryman promised to keep the offer open for 120 days, and in return, Kmoch promised to pay $10 (which he never did). Berryman requested to be released from the option, but that never happened. Berryman sold the property to someone else. Takeaway: Nominal consideration = no consideration. To establish promissory estoppel as a substitute for consideration, evidence must show: (1) promisor reasonably expected promise to rely on the promise; (2) promise acted as expected; (3) a refusal to enforce the promise would sanction a fraud or result in injustice. RST §87 is an exception to RST §25, but not everyone accepts §87. 13. Credit Bureau Enterprises v. Pelo – Restitution – RST §20 and §1 – Pelo left home after an argument with his wife, and checked into a hotel. He called his wife and threatened to harm himself, so she reported it to the police. The police came and took him to the hospital, where he was put on a 48 hour hold. He refused to pay for his hospital stay or authorize his insurance to pay. He signed, but possibly under duress, which we do not recognize as assent. Credit Bureau claimed there was a contract implied in law. Takeaway: RST §20(1) - A person who performs, supplies, or obtains professional services required for the protection of another’s life or health is entitled to restitution from the other as necessary to prevent unjust enrichment, if the circumstances justify the decision to intervene w/o request. 14. Mills v. Wyman – Promissory Restitution – Mills cared for Levi Wyman for 15 days, before he died. Wyman’s father wrote Mills after hearing of his son’s death and promised to pay Mills for caring for Wyman. Later, the father refused to pay and Mills sued. Court held that the promise was unenforceable. Takeaway: This is under promissory restitution because there was no consideration & you can’t bargain for something that was already done. It also wasn’t promissory estoppel because there was no promise that was relied on (care was provided before father’s promise). Court held that this case fell under moral obligation, which could substitute for consideration. However, a promise based on a moral obligation but made without legal consideration does not constitute an enforceable K unless it is tied to a preexisting legal obligation. 15. Beaver v. Brumlow – Statute of Frauds (SOF) – Part Performance (land case) – Brumlows entered an oral K to buy land from Beavers (Michael Brumlow worked for the Beavers at a race track). Brumlows placed a mobile home on the land and spent $85K making improvements to the property. Relationship deteriorated between the Brumlows and Beavers, Beavers no longer wanted to sell the property. Beavers argued in court that enforcement of K was barred by the SOF. Takeaway: Part performance is an exception to SOF. Court concluded that under special cicumstances, an oral contract for the sale of property may be removed from the SOF if it would be an injustice not to enforce the agreement and order specific performance. 16. Buffaloe v. Hart (Tobacco Barns Case) – Statute of Frauds (SOF) – Part performance – Buffaloe rented tobacco barns from Harts. Eventually the parties negotiated sale of barns, Buffaloe orally offered to pay $20K in annual installments of $5K and Harts accepted. Buffaloe paid for repairs to the barns. At some point, Buffaloe made arrangements to sell barns, while still paying the $5K to the Harts. The Harts informed Buffaloe that they sold the barn to someone else and sent him back his check, torn up. Takeaway: Tobacco barns are movable goods, so this falls under UCC. See UCC 2-201(3)(c). The check paid to the Harts was not sufficient to prove partial performance, but other facts, such as improvements Buffaloe made and Buffaloe reimbursing Harts for insurance on the barns, were sufficient to prove partial performance and get an exception to SOF. 17. Frigaliment v. B.N.S. (Chicken Case) – Contract Interpretation – UCC §1-303(c) – K for the sale of chicken. Seller delivers young and old chicken. Seller then stops delivering. Buyer sues seller for breach of warranty. Parties are disputing the meaning of “chicken.” a. Arguments Made: i. Language of K ii. Preliminary negotiations iii. Trade usage – see UCC §1-303(c) iv. Extrinsic source (department of agriculture regulations) – information outside the written contracts v. Course of performance – only 1 shipment was accepted by Buyer vi. Standard of interpretation (maxim) Evidence of subjective meaning 1. Language of K 2. Preliminary negotiations 3. Course of performance Evidence of objective meaning 1. Trade usage 2. Extrinsic sources 18. Thompson v. Libby – Parol Evidence Rule – Thompson agreed to sell logs to Libby. Agreement was later put into a written K, which did not provide for warranty regarding the quality of the logs. Libby argued that K was not integrated and introduced testimony to prove that the parties had orally agreed to a warranty. Takeaway: The Court used the Four Corners approach and only relied on the language in the contract. This approach lends to predictability. Parol evidence was not allowed. If an agreement is complete, a court will not allow evidence to add to the contract, only to explain the contract. 19. Nanakuli Rock Co. v. Shell Oil Co. – Parol Evidence – UCC §1-303 – K was entered for Shell to supply asphalt to Nanakuli, at the price posted by Shell at the time of delivery. For years, the Shell maintained the initial price. Shell later increased the price, giving Nanakuli one day notice of the change. Nanakuli claimed K contained an implied price protection requirement, which was customary in Hawaiian asphalt industry. a. Arguments i. Express Terms (Language of K) – Shell’s posted price at the time of delivery ii. Course of performance – price protection was provided two times before iii. Course of dealing – “guaranteed reduced prices” iv. Usage of trade – price protection Takeaways: Parol Evidence fills in the gaps when there’s questionable consideration or questionable mutual assent. Here the court admitted evidence of customary trade usage and course of performance to demonstrate implied contract terms. 20. Leibel v. Raynor Manufacturing – Implied Terms – Leibel entered K to be exclusive dealer for Raynor’s garage doors in the Lexington, Kentucky area. They did not agree to a date when K would end. After two years, Raynor notified Leibel via letter that it was terminating the agreement immediately. Leibel argued they were entitled to reasonable notice before termination and Raynor argued K could be terminated at will, at any time. This was a hybrid contracts, so 1st we apply Princess Cruise test. Court determines it was predominantly for the sale of goods, therefore subject to UCC. Takeaway: Termination = getting out of the K without breaching it. Common law – when parties do not agree, then it is at will, which means K can be terminated at any time. UCC §2-309 (2) and (3), Comment 8 – Requires reasonable notice (reasonable time) prior to termination. 21. Morin v. Baystone – Satisfaction Clause – RST § 228 – GM hired Baystone to build an addition to its Chevy factory in Indiana. Baystone hired Morin to complete aluminum walls as a part of the project. Morin completed the walls, but they did not have a uniform appearance, which GM disapproved of. Baystone hired another contractor to replace the walls and refused to pay Morin for the remaining $23K agreed to in their K. This case deals with a satisfaction clause, although the K does not have a satisfaction clause. “I do not have to pay unless I am satisfied with your performance.” Takeaway: RST § 228 gives us two standards of satisfaction (objective and subjective). Objective = is promisee satisfied? Subjective = when K is about commercial quality, operative fitness or mechanical utility is what matters. §228 says when it is easy to determine whether a reasonable person would be satisfied, objective standard should be applied. (A selfportrait would use the subjective standard). When using the subjective standard, dissatisfaction must be genuine. 22. Bayliner Marine Corp. v. Crow – Warranties – UCC §2-313, 2-314, 2-315 – Crow purchased a boat from Bayliner for offshore fishing. The sales rep told Crow that the boat had a maximum speed of 30 mph if certain conditions were in place. Crow did not tell the salesman that he required a maximum speed of 30 mph. Crow use the boat for offshore fishing and logged 850 miles within the first few years of owning the boat, which turned out to have a maximum speed of 23-25 mph. Crow sued for breach of express warranty, implied warranty, and fitness for a particular purpose. Court ruled in favor of Bayliner. a. §2-313: Express Warranties i. Crow argued that Bayliner’s prop matrix provided an express warranty. Court says this was simply his opinion, which does not create a warranty. b. §2-314: Implied Warranty of Merchantability – Seller must be a merchant (buyer does not have to be); merchandise has been defined in multiple ways, but the catch-all is at §2-314(2)(c) i. Crow: I couldn’t get to fishing grounds, so boat was not merchantable. ii. Court: Not convinced, boat obviously went to some fishing grounds (he put 850 miles on boat) c. §2-315: Implied Warranty of Fitness for Particular Purpose – Seller must have reasona to know buyer’s particular purpose; applies to any seller of goods i. Crow: My particular purpose was to be able to fish in particular fishing grounds. (arguing implied warranty was: boat goes 30 mph) ii. Court: there is no evidence that this was communicated to the seller & seller must know the buyer relied on warranty to make purchase 23. Sparrow v. Demonico – Mental Incapacity – Frances Sparrow sued her sister and her estranged husband, Susan and David Demonico, in effort to get her half of interest in a home left to her and Susan by their mother. In mediation, Susan agreed to pay Frances $100K from the proceeds of the sale of the property. Later the Demonico’s refused to honor this, claiming that Susan suffered a mental breakdown on the day of mediation. Takeaway: Expert testimony is needed to prove mental incapacity. Two tests for proving mental incapacity: a. Cognitive test (accepted by all courts) – Susan would have to prove she has a mental illness which caused her to be incapable of understanding the transaction b. Affective test (accepted by some courts) – Susan could show that she was unable to act rationally or reasonably during the transaction, but may have understood that she was in mediation over the house 24. Odorizzi v. Bloomfield School District (Gay Teacher Exposed) – Undue Influence – Rescissionary Principles – Rules of Voidability – RST 2nd §177 (1) and (2) – Odorizzi was a teacher for Bloomfield school district, criminally charged for engaging in homosexual activities. Once he was released from jail, the superintendent and principal visited him and told him that if he didn’t resign immediately, they would have suspend him and publicize the dismissal proceeding. They approached him when he had not been to sleep for over 40 hours. Odorizzi agreed to resign. Once the criminal charges against him were dropped, he asked to be reinstated into his position, but Bloomfield refused. He sued alleging duress, menace, fraud, mistake, and undue influence. Takeaway: Undue influence = abuse of power by dominant party (unfair persuasion) RST 2nd §177 (1) & (2) – Contract is voidable if:  Victim’s manifestation of assent is induced by unfair persuasion [AKA excessive pressure] OR by a dominant person (or someone in a confidential relationship) [AKA undue susceptibility] a. Odorizzi Factors – Used to show excessive pressure: i. Discussion of the transaction at an unusual or inappropriate time ii. Consummation of the transaction in an unusual place iii. Insistent demand that the business be finished at once iv. Extreme emphasis on untoward consequences of delay v. Use of multiple persuaders by the dominant side against a single servient party vi. Absence of 3rd party advisors to the servient party vii. Statements that there is no time to consult financial advisors 25. Hill v. Jones (Termite Case) – RST 2nd 161(b) – Misrepresentation – Hills entered K to purchase home from Joneses. Termite inspection was completed before the sale of the home, and the Sellers’ realtor said the home passed the test. Once Hills moved in, they learned that the Joneses had a termite infestation while they owned the home and a new termite inspector found evidence of a termite infestation. The sellers did not disclose this information. Issue: Whether sellers had obligation to disclose prior termite infestation? Takeaway: If the information that was not disclosed is material, then the sellers have a duty to disclose. Court focuses on materiality in accordance with RST §161(b). 26. McFarland v. Wells Fargo Bank – Unconscionability – McFarland refinanced his home when the housing market was thriving to pay debts. He purchased the house for $110K, and it was valued at $202K at the time he refinanced. Once the housing market crashed, McFarland owed significantly more on the home, than the home was worth. He began to struggle to make the payments and brought suit against Wells Fargo to avoid foreclosure. He argued unconscionability, stating that Wells Fargo loaned him too much money and that it was unconscionably induced. Holding: Affirmed in part and vacated and remanded with regard to whether the contract was unconscionably induced. Takeaway: An under-collaterized contract, while it may cause harm, does not meet the standard of being so one-sided that it has an overly harsh effect on the disadvantaged party. Substantive unsconscionability is not a prerequisite to finding that a contract was unconscionably induced, 27. Lenawee County – Mutual Mistake – RST §152(1), §154 – Messerly sold property to Pickleses, who discovered sewage seeping from the land. Lenawee County Board of Health condemned the property for violation of the health code. Sewage had been installed (by owners before Messerly) without permits and in violation of health code. Neither party knew of this at the time of sale. Mistake: Saying the property is inhabitable, rentable, has a working sewage system. RST §152(1) gives the criteria for K to be voided – the facts meet this criteria, but the last section says, “unless he bears the risk of the mistake under §154”. We could argue that the buyer bears the risk, because it was an as-is contract and this is what the Court decides. 28. Hemlock Semiconductor Operations LLC v. Solarwood Industries Saschen – Frustration of Purpose & Impracticability – Parties negotiated a series of long term agreements from 2005 to 2019 to buy/sell polysilicon. K had a pay or play feature. Buyer looks to convince court that it should be let out of K…after 3rd party (government) action changed the market for polysilicon. The Chinese government subsidized the sale of polysilicon, which made it so that the buyer was paying much more than the market price for polysilicon. Takeaway: Start by asking what is the event the nonoccurrence of which was a basic assumption on which K was made. Here, it was Chinese gov subsidizing the production of polysilicon. Court rejects the argument that mutual profitability was the purposed of the K, if that argument were accepted then no K would continue through market fluctuations. 29. Alaska Packers Association v. Domenico – Modification – Alaska Packers Association contracted with group of sailors to sail between San Fran and Alaska, and to perform duties requested by captain or agents of the Association. Each sailor was promised payment of $50 per salmon caught. Once they arrived in Alaska, the sailors demanded $100 per salmon, and stopped worked. The Association could not find replacement sailors, so they signed a contract agreeing to the higher rate. Once the sailors returned, the Association only paid them at the initial rate of $50. The sailors sued for the remaining payment. Holding: Court ruled in favor of the Association, stating that the promise to pay $100 was not enforceable. There was no consideration, the sailors were not required to do anything in addition to what they already had to do. Takeaway: A promise to pay a party what he/she is already obligated to do is not enforceable, because there is no consideration. 30. enXo Development Corporation v. Northern States Power Company – Express Conditions – Parties entered K to construct a wind-energy project. K required the parties to fulfill the terms of the purchase and sale agreement (PSA) before proceeding with the construction agreement. The PSA required enXo to get a certificate of site compatibility (CSC) by a certain date. EnXo failed to do so, by the deadline, despite having 29 months to do so. NSP terminated the K and enXo appealed, arguing impracticability. Holding: Court found for NSP, enXo failed to meet an express condition.  1st – Who is the obligor & obligee? (Look at the obligation at the center of the dispute)  2nd – Is the condition express?  Courts do not accept arguments of substantial performance. Express conditions are held to a standard of strict compliance.  Excuses: o Impracticability RST §261 o Avoid forfeiture RST §229, see comment b o Waiver RST §84 (only if condition is not material) o Prevention RST §245 31. Jacobs & Young v. Kent – Substantial Performance – Jacobs & Young is a contractor that built a residence for Kent for a total of $77K and only piping made in Reading, Pennsylvania was to be used. Kent noticed that some of the piping was manufactured in other places. Jacob insisted that replacement of the pipe would required substantial additional work and costs, refusing to replace it. Kent refused to pay final payment of $3,483. Takeaway: A substantial performance is NOT a material breach, the other side cannot withhold performance. Cardozo held that promise to pay was independent from promise to use Reading pipe. 32. Truman L. Flatt & Sons v. Schupf – Anticipatory Repudiation – Schupf entered K to sell real estate to Truman, but it was contingent upon successful rezoning of the property. Truman sent a letter stating that it would still buy the property, for a lower amount, since rezoning was not done. Schupf (owners) responded and rejected the offer. Truman then sent a letter stating that it still intended to buy the property at the orginal price. Owners responded saying that they considered the request to modify the purchase price to have voided the K. Truman sued for specific performance. Takeway: Anticipatory repudiation requires a clear manifestation of an intent not to perform the contract on the date of performance. A request to modify the K does not constitute anticipatory repudiation. 33. Crabby’s Inc. v. Hamilton – Damages – Hamilton entered K to purchase Crabby’s (a restaurant) for $290K. Contract contained a provision that required Hamilton to use reasonable diligence in obtaining a loan and to provide a written loan commitment within 30 days of obtaining the loan. If Hamilton failed to do this, K terminated automatically. Hamilton secured the loan, utilities were transferred, and repairs were made to the property. Two days before closing, Hamilton sent a letter to the owners, backing out of the transaction altogether. Crabby’s Inc. sold the property a year later for $235K. Crabby’s sued for the difference between contract price and sale price. Takeaways: Measure of damages here is the difference between the purchase price and the fair market value of the property on the date of breach. 34. American Standard, Inc. v. Schectman – Damages – American Standard decided to sell property, and contracted Schectman to demo it. Schechtman did not grade the property as specified in the K. American Standard sued, and Schectman alleged that American Standard did not suffer a loss because they were able to sell the property for $3K less than fair market value. The cost for Schectman to grade the property according to the contract was $90K. Damages were awarded for $90K. Takeaway: Because Schectman failed to complete the work, the measure of damages is the reasonable cost of completion. Whether American Standard did or did not see a diminution in value, is immaterial. 35. Florafax International, Inc. v. GTE Market Resources – Florafax entered agreement with BellaroseFloral, Inc., for Bellarose to handle communication between costumers. Contract was for one year, with automatic renewal on a month to month basis. Either party could terminate with 60 days notice. Florafax entered K with GTE, with GTE performing as a subcontractor for Bellarose. GTE had issues fulfilling its obligations under the K, causing a disaster on Mother’s Day of 1990. Bellarose terminated its agreement with Florafax as a result. Florafax then sued GTE for damages. Takeaway: Injured party may recover lost profits from a 3rd party: (1) if the loss is within the contemplation of the parties at the time the contract was made, (2) if the loss flows directly or proximately from the breach – i.e. if the loss can be said to have been caused by the breach, and (3) if the loss is capable of reasonably accurate measurement or estimate. 36. Maness v. Collins – Obligation to Mitigate Damages – Sammie Maness sold his business, SKM, to Collins and agreed to become an employee, with a 3 year employment contract. Maness had a strict management style, and he fired an employee, who the new owners hired back into the company. Maness became withdrawn and was eventually fired by SKM management. He sued for breach of the 3 year contract. Takeaway: SKM argued that Maness did not seek employment, and should have attempted to mitigate his damages. In order to show that a party failed to mitigate damages, the employer must prove the availability of suitable and comparable employment and a lack of reasonable diligence on the terminated employee’s part. 37. Vogan v. Hayes Appraisal Associates, Inc. – Damages – 3rd Party Beneficiary – Vogans hired contractor to build a home, which they secured a loan from MidAmerica for. MidAmerica entered K with Hayes, to monitor progress of the construction. After Vogans continued to pour additional money into the project, the contractor defaulted on the job. The home was not completed and the Vogans stopped making payments to MidAmerica. MidAmerica attempted to foreclose, and the Vogans made a counterclaim, arguing MidAmerica did not follow its own procedures for retaining at least 30% of the loan proceeds. Vogans also sued Hayes for negligent performance of K between MidAmerica and Hayes. Takeaway: An intended 3rd party beneficiary of a contract may recover damages for a breach of contract. However, an incidental 3rd party beneficiary may not. 38. Herzog v. Irace – Assignment and Delegation of Contractual Rights – Gary Jones was injured in a motorcycle accident, and hired Attorneys Irace and Lowry to represent him. Jones suffered an unrelated injury, and needed to have surgery on his shoulder. Jones did not have the money, so he gave Dr. Herzog (who performed the surgery) a signed letter, assigning payment directly from Jones’ settlement funds, to Dr. Herzog. Jones received a settlement of $25K. He told Irace and Lowry not to pay Dr. Herzog, that he would pay him instead. Jones never paid Dr. Herzog, so Dr. Herzog sued the lawyers (Irace and Lowry). Holding: Court ruled in favor of Dr. Herzog, considering Jones’ letter to be a valid assignment. Takeaway: Once an assignment is effected, the obligor is obligated to the assignee; Jones did not retain rights to revoke the assignment. For an assignment to be enforceable: assignor must express intent to relinquish the right in question; assignor cannot retain any control over the assignment; assignor cannot keep a power of revocation; and obligor must later pay the funds to the assignee. 39. Sally Beauty v. Nexxus Products Co. – Assignment and Delegation of Contractual Rights and Duties – Nexxus entered a contract with Best, for Best to be the exclusive distributor of Nexxus hair care products to barbers and hair stylists throughout most of Texas. The K included language that specified that termination could only occur on the anniversary date of Best’ appointment as a distributor, and 120 days advance notice was required. Best was acquired by Sally Beauty, through a merger. Shortly after the merger, Nexxus informed Sally, that Sally would not be allowed to distribute Nexxus products, cancelling the contract. Sally sued Nexxus for breach of contract. Holding: The contract was not assignable. The lower court held that the contract could not be assigned, because it was a contract for personal services. Court of Appeals did not agree with that rationale, but held that the contract could not be assigned ti the subsidiary of a direct competitor, under UCC §2-210. Takeaway: UCC §2-210(1) recognizes delegation of performance and assignability as normal and permissible incidents of a contract for the sale of goods; EXCEPT where delegation of performance would be unsatisfactory to the obligee. “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 the acts required by the contract.” McFarland refinanced his home when the housing market was thriving to pay debts. He purchased the house for $110K, and it was valued at $202K at the time he refinanced. Once the housing market crashed, McFarland owed significantly more on the home, than the home was worth. He began to struggle to make the payments and brought suit against Wells Fargo to avoid foreclosure. He argued unconscionability, stating that Wells Fargo loaned him too much money and that it was unconscionably induced. Holding: Affirmed in part and vacated and remanded with regard to whether the contract was unconscionably induced. Takeaway: An undercollaterized contract, while it may cause harm, does not meet the standard of being so one-sided that it has an overly harsh effect on the disadvantaged party. Substantive unsconscionability is not a prerequisite to finding that a contract was unconscionably induced,