Class Notes

Specific Performance and Negative Injunctions

• Specific performance can be difficult to monitor.
• Restatement 376 states that personal service promises will not be specifically enforced.
• Courts cannot typically order specific performance to render personal services. For example, a court won't force a tutor to tutor someone.
• Negative Injunctions:
  • Courts may prevent a breaching party from rendering the same service for someone else.
  • Commonly used for performers or artists.
  • Courts consider fairness and justness to both parties before ordering a negative injunction.
• Scenario: Party A (performer) agrees to perform for Party B but breaches the contract. Party B can ask the court to prevent Party A from performing for Party C.

Rescission and Cancellation

• Rescission:
  • An equitable remedy that voids a contract from its beginning.
  • The contract is treated as if it never existed.
  • Not available if damages can adequately compensate the non-breaching party.
  • Restatement Third of Restitution and Unjust Enrichment, Section 37 states rescission is not available if the obligation is only to pay money.
• Termination:
  • A party ends the contract based on a provision within the contract.
  • Generally available due to a termination provision after a material breach.
  • UCC 2-106(3) states termination occurs when a party uses a power created by agreement or law to end the contract, other than for breach.
  • Executory obligations are discharged, but rights based on prior breach or performance survive.
• Cancellation:
  • An action ending the contract by the non-breaching party after a material breach.
  • Operates as a matter of law. Party B can cancel if Party A materially breaches.
  • Excuses future performance and allows a suit for damages.
  • UCC 2-106(4) says cancellation occurs when a party ends the contract due to a breach, with the same effect as termination, but the canceling party retains remedies for breach.
  • Material breach entitles the non-breaching party to cancel and sue for damages.

Arbitration

• Arbitration is favored as a matter of public policy because it's more efficient and less expensive than lawsuits.
• Congress supports parties resolving disputes through arbitration.
• AT&T v. Concepcion (2011) and subsequent cases: The Federal Arbitration Act preempts state laws, requiring courts to grant motions to compel arbitration.

Jackson v. Shakespeare Foundation

• Case from Florida (2013).
• The Shakespeare Foundation (nonprofit) wanted to buy land to construct low-income housing.
• Jackson advertised land with no wetlands.
• Wetlands can make property unbuildable.
• Jackson had a report stating 25% of the property was wetlands but did not disclose this in the advertisement.
• The Shakespeare Foundation relied on the advertisement and signed an “as is” contract.
• After tendering full purchase price, the Foundation discovered wetlands (26%).
• The Foundation sued for fraud.
• Jackson moved to dismiss, arguing the arbitration clause required arbitration.
• The trial court granted the motion.
• The intermediate appellate court reversed, stating that the fraud claim arose from a general duty under common law (to tell the truth), not strictly from the contract. Therefore, arbitration was not required.
• Contractual Language: "All controversies, claims, and other matters in question arising out of or relating to this transaction or this contract or its breach will be settled as follows. The parties will resolve the dispute through neutral binding arbitration in the county where the property is located."
• Three Fundamental Elements for Arbitration:
  1. A valid written agreement to arbitrate exists.
  2. An arbitrable issue exists.
  3. The right to arbitration was waived.
• The court states the intent of the parties determines whether a dispute is subject to arbitration.
• Narrow vs. Broad Arbitration Provisions:
  • Narrow: Claims “arising out of” the contract, limiting arbitration to claims directly related to contractual terms.
  • Broad: Claims “arising out of or relating to” the contract, covering claims with a significant relationship to the contract, regardless of tort or contract law.
• Significant Relationship:
  • Requires a contractual nexus between the claim and the contract, more than the mere existence of a contractual relationship.
  • A contractual nexus exists if resolving the issue requires reference to or construction of the contract.
  • A claim has a nexus if it emanates from a duty created by the unique contractual relationship, versus a duty imposed by law or public policy.
• The court concludes that the fraud claim is within the scope of the arbitration provision because it has a contractual nexus and a significant relationship to the contract.
• Reasons for Contractual Nexus:
  1. The fraud claim is intertwined with the circumstances of the transaction and the contract itself.
  2. The misrepresentation was relied upon in entering the contract, and the damages arose from entering the contract.
  3. Resolution requires construction and consideration of duties under the contract and reference to the arbitration provision and the "as is" provision.
• The court distinguishes this case from Seaford, where negligence claims did not require reference to the contract.
• The court acknowledges that limitation on damages (arbitrator cannot alter terms or award remedies not in the contract) could be a waiver of common law remedies, potentially making the arbitration agreement unenforceable, but does not address this issue.
• Ultimately, the court concludes the fraud claim has a contractual nexus and significant relationship with the contract and must be arbitrated.
• The court acknowledges the counterintuitive nature of forcing arbitration in a contract secured through fraud but emphasizes the strong public policy favoring alternative dispute resolution.

Halper v Rosenthal

• If one is induced to enter a contract by a material misrepresentation, they may rescind the contract, regardless of whether the misrepresentation was innocent or fraudulent.
• If the contract never happened there would be no arbitration provision with the contract, so you shouldn't have to arbitrate.
• If you were tricked into signing a contract with an arbitration provision, and then you could compel them to arbitrate based on the fact that you tricked them into signing that agreement.
• Unless you can prove that you were specifically lied to, to agree to the arbitration provision itself, we're gonna say that you have to arbitrate your claim of fraud if it has a contractual nexus.