Question 1

Part a. Seller’s legal claim is that Buyer breached the contract by “canceling” the contract on October 6, the day that he was contractually obligated to pay for the car. The contract was enforceable because there was consideration on both sides of the transaction, with Seller undertaking the obligation to deliver the car to Buyer and Buyer undertaking to pay $2500 for the car. Under 2-706 Seller could re-sell the car to Newbuyer and is entitled to the difference between the contract price ($2500) and the resale price ($2200), damages of $300. Buyer will respond that Seller had failed to comply with the requirements of 2-706. This resale was a private and not a public resale and 2-706(3) required Seller to notify Buyer of his intention to resell. Since Seller failed to give that notice, he is not entitled to recover under 2-706(1). Buyer will say that, therefore, Seller was only entitled to recover under 2-708(1) which measures damages by the difference between the market price and the contract price. Since Seller had only recently purchased the Prius for $2300, Buyer will argue that is the market price and the Seller is only entitled to the difference between the market price ($2300) and the contract price ($2500), damages of $200. If Seller was, however, a dealer in used cars, it is possible that Seller could claim damages as a “lost volume” seller under 2-708(2) and recover, in addition to damages under 2-706(1) or 2-708(1) his lost profit (at least $200).

Part b. Buyer will argue that the contract clause is an invalid liquidated damages clause under 2-718 of the UCC because it fails to be 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. Looked at in terms of actual loss, the liquidated damages clause is clearly “unreasonably large” and therefore an unenforceable penalty under the final sentence of 2-718(1). Looked at at the time of making the contract, it is unreasonable to believe that in the purchase and sale of a $2500 car that there would likely be a loss of $1000 should the buyer breach. Finally, there is no probability at the time of making the contract that it would be difficult to calculate loss in the event of a breach. There is an established market for used cars and establishing market value would never be difficult and, on the facts given, since Seller just purchased this car, the Seller would know that it was not difficult to establish a value were there to be a breach. Seller will answer this argument by pointing to the cases in which courts have accepted the enforceability of these deposit as remedy clauses that have come before the courts. Buyer will respond that these are mostly real property cases where there is a better argument that value may be difficult to establish if there is a breach. Seller will respond that 2002 Prius are comparatively unique among used cars in general and will argue that the intention of 2-718 was to liberalize the enforceability of liquidated damages clauses. Buyer will respond that even applying the more liberal provisions of 2-718, this clause is invalid for the reasons he has stated.

Part c. If common law were applicable here, Newbuyer would argue there is no consideration for the modification and therefore it is unenforceable. Unfortunately for Newbuyer, this matter is governed by the UCC which in 2-209(1) states that an agreement modifying a contract within Article 2 needs no consideration to be binding. That is the Seller’s argument - that there was an agreed upon modification of the contract and that, therefore, the contract price is now $2500. Newbuyer must instead argue that the modification was not made in good faith, a pervasive requirement for the performance of contracts under Article 2. Nothing had happened which justified the price changes - just a change of mind by the Seller about what price he wanted for the car. The intention of 2-209(1) was to provide flexibility in contracting under Article 2 of the UCC, recognizing that changes in circumstances sometimes required modifications of a contract. But here there were no changes in circumstances at all, just a change of mind on the part of the Seller about how much money he thought the car was worth. That should not be sufficient to constitute good faith performance and therefore the court should decline to enforce the modification. Seller will respond that he acquired additional information which made it clear that the original sales terms were not fair to the Seller and he approached the Newbuyer in good faith and the Newbuyer agreed. Thus, the Seller will argue, there is no bad faith and the contract modification is enforceable under 2-109(1). If Newbuyer prevails in that point of view, Seller’s refusal to deliver the car for the original purchase price is a breach; if Seller prevails in its argument that 2-209(1) makes this modification enforceable, then Newbuyer’s refusal to tender $2500 makes Newbuyer the breaching party.

Question 2

• O’s Consideration Analysis

O will argue that L has breached the contract by refusing to come and cut the grass when notified on July 15 that the grass reached 2 inches. O will argue that L’s promise to cut the grass when notified that the grass reached 2 inches was supported by consideration. Although O’s obligation is conditioned on receiving notice, he undertook to cut the grass whenever he received that notice and that is sufficient legal detriment to be regarded by the court as consideration. O will argue that O’s promise to pay $50.00 for each grass mowing if mowed within 1 week or $35.00 if mowed within 2 weeks represents a legal detriment which O undertook in exchange for the legal detriment undertaken by L.

• O’s Breach Analysis

O will argue that when L notified him on July 20 that L would no longer mow O’s grass, that represented a breach of contract by L.

• L’s Consideration Analysis

L will argue that there was no enforceable contract. O’s promise was illusory. If O had never notified L that the grass had reached 2 inches, O would have no obligation to pay L anything. The agreement is lacking in mutual consideration because while L undertook a legal detriment, O had in effect reserved the possibility of having no liability because O did not promise to notify L whenever the grass reached 2 inches.

• L’s Breach Analysis

L will argue that O breached the contract by not notifying L that the grass had reached 2 inches when on June 30 the notice was not given until the grass was 3 inches. The clear performance obligation of the contract, fairly interpreted, was that O had to notify L whenever the grass reached 2 inches. Waiting until the grass was 3 inches deprived L of the promised opportunity to mow the 2 inch grass. Over a summer of grass growth, this would mean fewer opportunities to earn money cutting O’s grass.
L will argue that O breached the contract by not paying the $75 he agreed to pay for mowing the 3 inch grass after the June 30 notice to mow. L will argue that the court should apply to this situation the rule suggested in Restatement of Contracts section 89a because this was an executory contract (much of the grass season remains with L obliged to mow and O obliged to pay), that there were unanticipated circumstances (O was supposed to tell L when the grass reached 2 inches and the contract did not anticipate that there would ever be a mowing of 3 inch grass) and the modification was reasonable in the light of changed circumstances.

L will also argue that O’s tender of $35.00 for mowing the 3 inch grass was a breach of contract. Although it is true that L had not mowed the lawn within the first week after notice, O had waived that condition of the contract by paying $50.00 after both the May 15 notice mowing and the May 30 notice mowing. These were knowing relinquishments by O of a condition included in the agreement for O’s benefit and such a waiver requires no consideration to be binding. Nor does it require reliance, but if the court regards reliance as necessary for waiver, L will argue that when it didn’t respond within 1 week of O’s June 30 notice, that delay in responding was in reliance on the experience of the May 15 and May 30 notice mowings.

• O’s responses to L’s Consideration Argument

O will argue that even though the contract does not contain an affirmative obligation to give notice, the contract would make no sense at all unless such an obligation was found by the court to be implicit in the agreement. After all, the agreement was about mowing and O would never get grass mowed without giving notice and so this argument that O’s obligation is illusory simply contradicts the way any rational person would understand the agreement.

• O’s responses to L’s Breach Arguments

With respect to the claimed $75.00 modification, it was without consideration. There was no change in O’s legal detriment - O was to mow the lawn and the contract obligated O to do that job and this was simply an effort to get more money than the initial contract included. Since it was without consideration, it was not binding on O. The attempted use of RS 89a is unpersuasive. First of all, few jurisdictions have departed from the requirement of consideration for any modification of a contract. Second, the parties certainly both understood that grass grows and the grass growing to 3” before notice was given was not an event which could not have been anticipated at the time the contract was made. Therefore even if the court adopts 89a, this modification does not fall within it and should not be enforced.
With respect to the $35.00 tender for that mowing, that was what the contract called for in the case of a mowing more than 1 week after notice to mow had been given. In each of the 2 earlier payments, O had reminded L of its obligation to come within 1 week to become entitled to the $50.00 payment. Far from being a giving up of a know right, this represented an insistence by O of its rights and certainly L can not argue that it detrimentally relied on O’s alleged relinquishment of a right when each time O had reminded L of O’s right. In the alternative, O will argue that this was not a condition and can not be waived. There were simply alternative performances anticipated by the contract. Either L could mow within 1 week and receive $50.00 or mow in the second week after notice and receive $50.00. Since this was not a condition, it could not be waived; it could only be modified by consideration and there was none offered by L - mowing the lawn was a pre-existing contractual duty.