Contracts – Memo Three In-Class Review

Contracts – Section A – Madison
28 Nov 2018
A quick and dirty outline of issues and analysis in the D v P hypothetical for memo assignment # 3

May Disco terminate the contract with Paw Paw?

P failed to deliver an adequate prototype. D argues that failure to deliver an adequate prototype constitutes material breach of the entire contract by P. P’s material breach justifies nonperformance of the entire contract by D and D’s termination of the K.

Is D right?

[I] D’s rights depend on the deal. What was the deal?
What were Pat’s expectations regarding the contract? What were D’s expectations?
• P promises (express) to create/submit prototype
• D promises (implied) to exercise good faith in approving prototype(s) submitted by P
• On approval, D promises to pay 1.5mm (express)

[II] D could claim that P’s nonperformance was material, thus excusing D from further performance. Sacket v Spindler: Jacob & Youngs v Kent.

a. D would argue: (extent to which D is likely to obtain the full benefit that D reasonably expected – quality work on the prototype, and more important, likelihood of delivery of full, final, perfect product).

b. D could ask for further assurances of performance. He is not required to. Practically speaking, if D wanted to salvage the relationship with P and try to resolve their differences, this would be a legally and practically permissible approach.

c. P would argue: performance by P relative to prototype was excused by D’s failure to perform an implied condition of P’s performance – D’s promise to act in good faith in reviewing P’s prototypes.

[III] P’s nonperformance re the prototype may be excused by D’s nonperformance of the implied covenant of good faith. Locke.

a. What does the implied covenant require, in this context? Is D expected to behave in accordance with objective industry standards, or is this a contract in which D’s subjective good faith is sufficient?

(i) P has the burden of proof regarding the nonexistence of good faith. There is little public evidence of an absence of subjective good faith, but P may have an easier time showing noncompliance with an objective reasonableness standard, in light of industry practices.

(ii) What were the expectations of the parties at the time they entered into the contract?

Compliance with industry standards or adherence (per Locke) to a subjective good faith approach in aesthetic industries?

[IV] On balance, D [or P] has the stronger of the legal arguments, given some clarity and some uncertainty regarding the facts. Therefore, I advise D to …

Other topics:
• Efficient breach? (Much more difficult to apply than to describe, in practice)
• Did Denny fraudulently misrepresent their intent in entering into the agreement? (Possibly relevant but unlikely to be a practical priority)