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Home , Accord and satisfaction, Meeting of the minds, Novation

GUIDE TO

NEW JERSEY LAW

(FIFTH EDITION)

EDITOR AND AUTHOR

Clark E. Alpert, Esq.

OWEN HARNEW, ESQ. MELANIE J. ALPERT CHARLOTTE DEMARCO Associate Editors

AMY L. EVANS Assistant

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FOURTH EDITION CONTRIBUTORS

MARCO FERREIRA, ESQ. Associate Editor/Contributing Author

MARK A. ALPERT MELISSA R. ALPERT Executive Copy Editors

SUZETTE MORRISON Assistant

THIRD EDITION CONTRIBUTORS MATTHEW CONO CAPOZZOLI, ESQ. ASSOCIATE EDITOR/CONTRIBUTING AUTHOR

MARK A. ALPERT Executive Copy Editor

SECOND EDITION CONTRIBUTORS: MATTHEW CONO CAPOZZOLI, ESQ. [ASSOCIATE EDITOR/CONTRIBUTING AUTHOR] DAVID N. BUTLER, ESQ. JEREMY WEISS, ESQ.

[CONTRIBUTING AUTHORS]

FIRST EDITION CONTRIBUTORS: Steven Rappoport (SENIOR EDITOR/CONTRIBUTING AUTHOR) Nicholas Bliablias, Esq. John H. Norton, Esq. William Beneduce, Esq. Martin Bearg, Esq. Scott Brown, Esq. Jonathan Dorman, Esq.

DEDICATION

This book is again dedicated to my wife, Mona, and my children Melissa, Mark, and Melanie, and with sincere gratitude to them and all other who contributed to its production. It is my hope that these chapters may help to bring some organization to the sprawling topic of contract law in New Jersey, which is in many ways unique. This Fifth Edition should assist the practitioner further by (1) adding more topics of increasing interest under our developing jurisprudence, (2) again refining pre-existing topics, (3) adding more case examples and correlating prior ones to relevant principles, (4) fine-tuning and updating existing citations, and (5) incorporating analysis of much recent case law, as well as (6) providing many more forms.

Clark E. Alpert, Esq. August, 2020

TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION: BASIC CONCEPTS 1.1 Overview ...... 1 1.2 Definition Of A Contract ...... 2 1.2.1 Quasi-Contract And “Contract-Substitute” Claims Distinguished ...... 2 1.2.2. Differences Between Commercial And Consumer Claims ...... 3 1.2.2.1 Case Examples Of Consumer/Commercial Differences ...... 4 1.2.2.2 Consumer Arbitration Contract Issues ...... 5 1.3 Sources Of Contract Law ...... 6 1.3.1 ...... 6 1.3.2 ...... 6 1.3.2.1 UCC Article 2: Sale Of Goods ...... 7 1.3.3 Other Statutory Sources ...... 8 1.3.4 Involving Highway, Rail Or Ocean Transit Of Goods Require Analysis Of Federal Law ...... 10 1.3.5 United Nations Convention On Contracts For The International Sale Of Goods ...... 11 1.3.6 “E-Sign” And UETA ...... 11 1.3.7 Updated UCC Articles ...... 13 1.4 Classification Of Contracts ...... 14 1.4.1 In General ...... 14 1.4.2 Unilateral And Bilateral ...... 14 1.4.3 Enforceable And Unenforceable Contracts ...... 15 1.4.4 Distinction Between Void And Voidable Contracts ...... 16 1.4.4.1 Arbitration Clauses Severable ...... 18 1.4.5 Express And Implied Contracts...... 18 1.4.6 Exculpatory Contracts ...... 19 1.4.7 Divisible And Indivisible ...... 20 1.5 Of ...... 20 1.6 Remedies ...... 21 1.7 Litigation And Drafting ...... 21 1.8 Applicable Statute Of Limitations ...... 21 CHAPTER 2 FORMATION ESSENTIALS 2.1 Overview ...... 23 2.2 Parties Competent To Contract ...... 24 2.3 Proper Subject Matter ...... 24 2.4 Valid ...... 25 2.4.1 In General ...... 25 i

2.4.2 What Constitutes Consideration ...... 26 2.4.3 The Effectiveness Of Consideration ...... 28 2.4.4 The Adequacy Of Consideration ...... 28 2.4.5 Promissory : Substitute For Consideration ...... 29 2.4.5.1 Relationship Between (1) Fraudulent Of Intent, And (2) Promissory Estoppel ...... 30 2.4.5.2 Case Example: Pop’s Cones ...... 30 2.4.5.3 “Multiple-Theory” Reliance ...... 31 2.4.5.4 Specificity ...... 31 2.4.5.5 Nature Of Reliance ...... 31 2.4.5.6 Limitations Period ...... 32 2.5 Mutuality Of Agreement; ...... 32 2.5.1 In General ...... 32 2.5.1.1 Meeting Of The Minds ...... 32 2.5.2 Offers...... 33 2.5.3 Acceptances...... 33 2.5.4 Case Study: When Is A Signed, Written Contract Not A Contract At All? ...... 34 2.6 Mutuality Of Obligation ...... 36 2.7 Drafting Considerations ...... 36 2.8 Litigation Considerations ...... 36 CHAPTER 3 PROBLEMS IN FORMATION 3.1 Overview ...... 39 3.1.1 Misrepresentation Of Material Facts (Fraudulent Misrepresentation) ...... 39 3.1.2 Of Law Or Fact ...... 40 3.1.3 Illegality/Public Policy ...... 40 3.1.4 Case Study: Interplay Among Issues Of Contractual Illegality, Unclean Hands And ...... 41 3.1.5 Duress ...... 42 3.1.5.1 Case Study: DMS Farm...... 42 3.1.5.2. The Lesson Of The “Horse Cases” ...... 43 3.1.6 ...... 43 3.1.7 Or Lack Of ...... 43 3.2 Misrepresentation ...... 44 3.2.1 In General ...... 44 3.2.2 Elements For Contract Avoidance Or Damages...... 45 A. In General ...... 45 B. Misrepresentation Of Fact ...... 45 C. Fact Must Have Been Material ...... 45 D. Reliance On Representation ...... 46 E. Concealment ...... 46 F. Difficulties In Contracting Away ...... 47

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3.3.3 Insurance Policies ...... 50 3.4 Mistake ...... 51 3.4.1 In General ...... 51 3.4.2 Mistake Of Fact Versus Mistake Of Law ...... 51 3.4.3 Mutual Mistake ...... 52 3.4.4 Unilateral Mistake ...... 52 3.5 Illegality And Unconscionability ...... 53 3.5.1 Contracts In Violation Of Law Or Public Policy ...... 53 3.5.2 Exculpatory Contracts ...... 54 3.5.3 Non-Compete Agreements/Restrictive Covenants ...... 55 3.5.4 Forum Selection Clauses ...... 55 3.5.4.1 Case Study: Besler V. Coluccio: (Practical Example Of Forum Selection Clause)...... 56 3.5.4.2 Case Study: “Floating” Forum Selection Clauses ...... 57 3.5.5 Unconscionability Under The Uniform Commercial Code...... 57 3.6 Duress ...... 58 3.6.1 In General ...... 58 3.6.2 Improper Threats ...... 59 3.6.3 Physical Force ...... 60 3.7 Undue Influence ...... 60 3.8 The Incapacity Of Parties ...... 61 3.8.1 Historical Background...... 61 3.8.2 Modern Notions Of Incapacity ...... 61 3.8.3 Mentally Incompetent Persons ...... 62 3.8.5 Statutory Considerations ...... 63 3.8.4 Under-Age Contracting Partner ...... 63 3.9 Drafting Issues ...... 63 3.10 Litigation Issues ...... 64 3.11 Apparent Authority ...... 64 3.11.1 Case Study: Apparent Authority Must Be Shown Unambiguously ...... 64 CHAPTER 4 ORAL AGREEMENTS; STATUTE OF 4.1 Overview ...... 67 4.1.1 Oral Agreement ...... 67 4.1.2 ...... 68 4.1.3 Revision Of The Statute Of Frauds ...... 69 4.2 The Statute Of Frauds For Real Property ...... 70 4.2.1 In General ...... 70 4.2.2 What Constitutes An Interest In Land ...... 70 4.2.3 Leases ...... 71 4.2.4 Formal Requirements Of Documents ...... 71 4.2.5 Brokers’ Commissions ...... 72 4.3 The Statute Of Frauds For Loans ...... 73 4.3.1 In General ...... 73

iii 4.3.2 Promise To Pay The Debt Of Another ...... 73 4.4 Uniform Commercial Code ...... 75 4.4.1 Overview ...... 75 4.4.2 Contracts For The Sale Of Goods In Excess Of $500 ...... 75 4.4.3 Contracts For The Sale Of Securities ...... 76 4.4.4 Contracts For Grants Of Security Interests ...... 76 4.5 Other Writing Requirements ...... 76 4.5.1 CFA ...... 76 4.5.2 Writing Requirements Regarding Legal Representation ...... 76 4.6 Enforcement Of Non-Complying Contracts ...... 77 4.6.1 The Doctrine Of Part Performance ...... 77 4.6.2 Or Deceit ...... 78 4.6.3 Promissory Estoppel ...... 78 4.6.3.1 Case Study: Interplay Between Promissory Estoppel And Fraud ...... 79 4.6.4 Burden Of Proof ...... 80 4.7 Drafting Considerations ...... 80 4.8 Litigation Considerations ...... 81 4.8.1 What Can Happen If A Significant Business Relationship Develops Without A Master Agreement ...... 81 4.8.1.1 Case Study: What To Do When (1) An Informal Arrangement Becomes Operational, And/Or (2) Agreements Overlap ...... 82 CHAPTER 5 CONTRACT INTERPRETATION AND THE PAROL RULE 5.1 Overview ...... 87 5.2 New Jersey’s Expansive Approach To Background Evidence ...... 88 5.3 Construction By The Court Or The Jury ...... 89 5.3.1 In General ...... 89 5.3.2 Issues Decided As A Matter Of Law ...... 89 5.3.3 Issues Decided As A Matter Of Fact ...... 89 5.3.4 Standards Of Review On Appeal ...... 90 5.4 Rules Of Interpretation ...... 90 5.4.1 Determining And Enforcing The Intent Of The Parties ...... 90 5.4.2. Ambiguities ...... 90 A. What Constitutes An Ambiguity ...... 90 5.4.2.1 Case Studies: Ambiguity Is In The Eye Of The Beholder ...... 91 5.4.2.2 Case Study: Paradigm Of Ambiguity ...... 92 5.4.2.3 Case Studies: Fusaro And Rutigliano: (1) A Contract Can Arise In A Non-Contract Setting; And (2) How Do You Enforce A Mediated ...... 94 5.4.2.4 Can Crystal Clarity Be Achieved In Drafting? ...... 95 5.4.2.5 Case Study: Course Of Performance Cures Ambiguity And Supplies Missing Term .... 96 5.4.2.6 Case Study: Facial Ambiguity Gives Way To Common Sense ...... 96 5.4.2.7 Case Study: Settlement Agreements Invariably Do Not ‘Spell Everything Out’ ...... 98

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H. Must Ambiguities Be Construed Against The Drafter ...... 99 I. Straying From Pacifico ...... 100 J. How To Avoid An Ambiguity ...... 104 K. The Overriding Purpose Of A Contract Clause Helps Determine Whether An Ambiguity Exists, And The Meaning Of The Ambiguity ...... 105 5.4.3 The Contract As The Best (But Perhaps Not Exclusive) Evidence Of The Parties’ Intent ...... 106 5.4.4 Recitals ...... 107 5.4.5 Plain And Ordinary Meaning Precludes Other Interpretations ...... 107 5.4.6 The Parties’ Knowledge Of The Law At The Time Of Contracting ...... 107 5.4.7 Presumption The Parties Have Read And Understood The Contract ...... 108 5.4.8 Disputed Contract Terms: Maxims Of Construction ...... 108 A. The Contract Must Be Read As A Whole ...... 108 B. All Terms Must Be Given Meaning And Effect ...... 109 C. Terms Must Not Be Given Unreasonable Or Unconscionable Meanings Or Yield Absurd Results ...... 109 D. Construction Against Forfeiture And Windfalls ...... 109 E. Construction By Performance ...... 109 F. Unlawful Performance Must Be Avoided ...... 110 G. Greater Weight Must Be Given To Negotiated Instead Of Preprinted Terms ...... 110 H. Expression Of One Thing Implies Exclusion Of Another ...... 111 I. General Words To Be Construed As Applying Only To Those Similar To Specific Examples Provided; Reference to Nearby Words in General ...... 111 J. In Pari Materia: Whether You Want It Or Not ...... 112 5.4.8.1 Case Study: Court Allows Good Deed To Go Unpunished ...... 113 5.4.8.2 Reliance Upon Extrinsic Evidence ...... 114 A. No Requirement Of Ambiguity For The Use Of Extrinsic Evidence...... 114 C. Types Of Extrinsic Evidence Courts Recognize ...... 115 1. Circumstances Of Contracting ...... 115 2. Construction By The Parties ...... 115 3. Other Contracts Between The Parties ...... 115 4. Custom And Usage ...... 116 5. Transmittal/ Letters ...... 117 5.5 The ...... 119 5.5.1 Purpose ...... 119 5.5.2 Arguable Weakening Of The Original Parol Evidence Rule ...... 120 5.5.3 Case Study: A Strong Vote For The Parol Evidence Rule ...... 120 5.5.4 Elements Of The Rule ...... 121 5.5.5 Effect On Agreements And Expressions Of Intent “Outside” The Contract ...... 122 A. In General ...... 122 B. Parol Evidence Allowed As “Intepretative Aid” In Ascertaining Meaning Of An Ambiguous Contract ...... 122 C. Parol Evidence Allowed To Interpret Unambiguous Contract ...... 122 D. Parol Evidence Admissible To Provide Absent Terms ...... 123 5.5.6 Exceptions To Applicability...... 123

v 5.5.7 Prior Contractual Negotiations And The Parol Evidence Rule ...... 124 5.6 The Battle Of The Forms ...... 124 5.6.1 The “Problem” ...... 124 5.6.2 The “Solution”: UCC § 2-207 ...... 125 5.6.3 Supplying Omitted Or Implied Terms ...... 127 A. In General ...... 127 B. Uniform Commercial Code ...... 129 C. Duration Of The Contract ...... 129 D. Time And Other Details Of Performance ...... 129 E. Price...... 130 CHAPTER 6 JOINT AND SEVERAL CONTRACTS 6.1 Overview ...... 131 6.2 Definitions ...... 132 6.2.1 In General ...... 132 6.2.2 Joint Obligations ...... 132 6.2.3 Several Obligations ...... 132 6.2.4 “Joint And Several” Obligations ...... 133 6.3 Determining Whether A Contract Involves Joint, Several, Or Joint And Several Obligations ...... 133 6.4 Actions Against Joint, Several, And Joint And Several Promisors ...... 134 6.4.1 Historical Development...... 134 6.4.2 Court Rules Governing Joinder ...... 135 6.4.3 Judgment For Or Against A Co-Promisor ...... 136 6.4.4 Statute Of Limitations ...... 136 6.4.5 Death Of A Joint Promisor ...... 137 6.5 The Rights Of Co-Promisors Inter Se ...... 138 6.5.1 In General ...... 138 6.5.2 Suretyship ...... 138 6.5.3 Guaranty ...... 139 A. In General ...... 139 B. Must Be Clear ...... 140 C. Waiver Features ...... 140 D. Public Policy ...... 141 6.5.4 Case Study: Confusing Language Ignored Where The Overall Intent Of The Guarantee Was Clear ...... 144 6.5.4.1 Case Study: The End Of A Guarantee ...... 145 6.5.5 ...... 146 6.5.6 Relief To Co-Promisor ...... 147 6.6 Joint, Several, And Joint And Several Promisees ...... 147 6.6.1 Multiple Promisees Of The Same Performance ...... 147 6.6.2 Joinder Of Multiple Promisees ...... 148 6.6.3 Release By A Co-Promisee ...... 148

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6.7 Partnerships ...... 149 6.8 Negotiable Instruments ...... 149 CHAPTER 7 MODIFICATIONS 7.1 Overview ...... 151 7.2 The Meeting Of The Minds Requirement ...... 152 7.3 "Consideration" ...... 153 7.3.1 Contracts Not Subject To The Uniform Commercial Code ...... 153 7.3.2 Contracts Subject To The Uniform Commercial Code ...... 153 7.4 Requirement That Modifications Be Made In Writing ...... 154 7.4.1 Contracts Not Subject To The Statute Of Frauds ...... 154 7.4.2 Contracts Subject To The Statute Of Frauds ...... 155 7.4.3 Contracts Subject To The Uniform Commercial Code ...... 156 7.4.4 Amendments Evidenced By The Conduct Of The Parties ...... 157 7.4.5 Case Study: The Written Contract Is As Clear As Day--And It Was Reaffirmed In Writing--But It Cannot Be Enforced In Light Of Putative Modification ...... 157 7.4.6 Case Study: An Alleged Oral Modification Of A Formal Contract Is Defeated By Summary Judgment ...... 158 7.4.7 Case Study: With Uncertain Documentation, “Fervent” Factual Claim and "Vehement" Denial Yield Triable Issue Of Fact ...... 159 7.4.8 Case Study: Clear Proofs Of Oral Agreements ...... 159 7.4.9 Point Summary ...... 159 7.5 Superseding Agreements As Modifications ...... 160 7.5.1 In General ...... 160 7.5.2 Effect Of Duress ...... 161 7.6 Necessary Parties To Modification ...... 161 CHAPTER 8 THIRD-PARTY BENEFICIARIES 8.1 Overview ...... 163 8.2 General Considerations ...... 164 8.3 Third-Party Beneficiary Contracts Under New Jersey Law ...... 165 8.4 The Uniform Commercial Code And Third-Party Beneficiaries ...... 165 8.5 Remedies ...... 166 8.5.1 Remedies Of The Promisee ...... 166 8.5.2 Remedies Of The Third-Party Beneficiary ...... 167 8.6 The Promisor’s Defenses ...... 167 8.7 Common Applications ...... 167 8.7.1 Construction Contracts ...... 167 8.7.2 Loans ...... 168 8.7.3 Public Contracts ...... 168 8.7.4 Insurance ...... 168

vii 8.7.5 Agreements To Make A Will ...... 169 8.7.6 Divorce Or Separation Settlements ...... 170 8.8 Related Doctrines Distinguished ...... 170 8.8.1 Trusts Or Fiduciary Duties ...... 170 8.8.2 ...... 170 8.8.3 ...... 170 8.8.4 Indemnity ...... 171 8.8.5 Breach Of Warranty And Product Liability ...... 172 8.9 Drafting Considerations ...... 172 8.10 Litigation Considerations ...... 172 CHAPTER 9 ASSIGNMENT AND 9.1 Overview ...... 175 9.2 Assignment Of Rights ...... 177 9.2.1 Requirements For A Valid Assignment ...... 177 A. In General ...... 177 B. Form Of Assignment ...... 177 1. Contracts Subject To Uniform Commercial Code ...... 178 2. Real Contracts ...... 178 3 . Accounts Receivable ...... 178 4. Settlements ...... 178 C. Immediacy Of Effect Of Transfer ...... 180 D. Notice ...... 181 E. Consideration ...... 181 9.2.2 Rights Of The Assignee ...... 182 9.2.3 Limitations On Assignment ...... 182 9.2.4 Assignment Of Particular Rights ...... 183 A. Expectancies ...... 183 B. Wages ...... 184 C. Lottery Winnings ...... 184 D. Causes Of Action...... 184 9.2.5 Defense And Counterclaims Of Promisor Against Assignee ...... 185 9.3 Delegation Of Duties ...... 185 9.3.1 In General ...... 185 9.3.2 Limitations On Delegation ...... 186 9.4 Bankruptcy And Antitrust Issues ...... 187 9.5 Drafting Considerations ...... 187 9.6 Litigation Considerations ...... 187 CHAPTER 10 WARRANTIES, PERFORMANCE, AND 10.1 Overview ...... 189

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10.2 Express Warranties ...... 190 10.2.1 In General ...... 190 10.2.2 Common Law Express Warranties...... 191 10.2.3 Uniform Commercial Code Warranties ...... 194 A. Formation of UCC Warranties ...... 194 1. In General ...... 194 B. Warranty Or Affirmation Of Fact Distinguished From Puffing Or Opinion ...... 194 C. Sample Or Model ...... 197 D. Warranty Of Title To Goods ...... 197 E. Statute Of Limitations ...... 198 10.2.4 Tolling The Contractual Statute Of Limitations; Including Due To Insanity ...... 199 10.2.4.1 Practice Pointers On Insanity Tolling ...... 201 10.2.5 Case Study: Express Warranties ...... 201 10.2.6 Other Statutory Warranties ...... 203 A. New Jersey’s “Lemon Law” ...... 203 B. The Magnuson-Moss Act ...... 203 10.3 Implied Warranties ...... 204 10.3.1 In General ...... 204 10.3.2 The Uniform Commercial Code ...... 205 A. The Of Merchantability ...... 205 1. In General ...... 205 2. Merchant ...... 205 3. Merchantability Standard ...... 206 B. The Implied Warranty Of Fitness For A Particular Purpose...... 207 1. In General ...... 207 2. Non-Merchant ...... 207 3. The Seller’s Knowledge ...... 207 4. Reliance ...... 208 5. The Trade Name Exception ...... 208 10.3.3 New Jersey Consumer Fraud Act ...... 208 10.3.4 Case Study: Business Use; Equitable Tolling; And CFA ...... 211 10.3.5 Common Law Implied Warranties ...... 211 10.4 Disclaimer Of Warranties ...... 213 10.4.1 In General ...... 213 10.4.2 Warranty Limitations ...... 213 A. Express Warranties ...... 213 B. Disclaiming The Implied Warranty Of Merchantability...... 214 C. Disclaiming The Implied Warranty Of Fitness For A Particular Purpose ...... 215 10.4.3 Defeating Disclaimers ...... 215 A. Conspicuousness ...... 215 B. Unconscionability ...... 215 10.5 Limitation Of Remedies And Damages ...... 216 10.5.1 In General ...... 216 10.5.2 ...... 217

ix A. In General ...... 217 10.5.3 Contractual Modification Of Limitation Of Remedies ...... 217 A. In General ...... 217 B. Remedies In Addition To Or Substitution For Those Provided In Article 2 ...... 218 C. Types Of Limiting Provisions ...... 218 D. Repair/Replacement ...... 219 E. Failure Of Essential Purpose ...... 219 F. ...... 220 10.6 Termination For Convenience ...... 222 10.7 Warranties: Drafting Considerations ...... 222 10.7.1 In General ...... 222 10.7.2 Drafting Or Disclaiming Express Warranties ...... 222 10.7.3 Purchase Orders ...... 223 10.7.4 Drafting Effective Warranty Disclaimers ...... 224 10.7.5 Drafting Effective Remedy And Damage Limitations ...... 224 10.8 Litigation Considerations ...... 225 CHAPTER 11 IMPLIED TERMS 11.1 Generally ...... 227 11.2 Covenant Of Good Faith ...... 228 11.2.1 Case Study: Whitman V. Herbert: Discretion And The COGF ...... 229 11.2.2 Mediated Settlement Agreements ...... 230 11.2.3 Point Summary ...... 230 11.2.4 Other Similar-Sounding Covenants ...... 230 11.2.5 Case Study: Violation Of The Duty To Negotiate In Good Faith: "You Know It When You See It' ...... 231 CHAPTER 12 CONTRACT CONDITIONS 12.1 Overview ...... 233 12.2 Nature Of A Condition ...... 234 12.3 Types Of Conditions ...... 234 12.3.1 Condition Precedent ...... 234 12.3.2 Conditions Subsequent ...... 235 12.3.3 Implied Conditions ...... 236 12.4 Satisfaction Of Conditions ...... 237 12.4.1 In General ...... 237 12.4.2 Substantial Performance ...... 237 12.4.3 And Good Faith ...... 238 12.4.4 The Franchise Practices Act ...... 239 12.5 Non-Occurrence Of Conditions ...... 239 12.5.1 In General ...... 239

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12.5.2 Excused Non-Occurrence ...... 240 12.6 Drafting Considerations ...... 242 12.7 Litigation Considerations ...... 243 CHAPTER 13 PERFORMANCE, BREACH, AND EXCUSED NON-PERFORMANCE 13.1 Overview ...... 245 13.2 Performance And Breach ...... 247 13.2.1 In General ...... 247 13.2.1.1 Material Breach; Substantial Performance ...... 248 13.2.1.2 Substantial Performance ...... 248 13.2.1.3 First Material Breach ...... 251 13.2.1.4 Case Study: An Application Of The “First Material Breach” Rule: Strong Justice Against Ostensible Diversion Of Funds Under “First Material Breach” Doctrine ...... 251 13.2.2 Performance Due...... 251 A. In General ...... 251 B. Duty To Comply With The Terms Of The Contract...... 252 1. Full Performance ...... 252 2. Satisfaction, Discretion, And Best Efforts Contracts ...... 252 3. Personal Contracts And Substituted Performance ...... 255 C. Performance Of Contracts Subject To The UCC ...... 256 1. In General ...... 256 2. The Seller’s Duty: Tender Of Delivery ...... 256 3. The Buyer’s Duty And Rights ...... 258 a. Payment And Inspection ...... 258 b. Buyer’s Rejection And Seller’s Right To Cure ...... 259 D. Implied Aspects Of The Performance Terms ...... 262 E. Time For Performance...... 263 13.2.3 Types Of Breach ...... 265 A. Material Breach ...... 265 B. Material Breach: Effect ...... 266 C. Compensation For Material Or Non-Material Breaches ...... 266 D. Anticipatory Breach Or Repudiation ...... 266 E. Executory Contracts ...... 269 F. Termination For Convenience ...... 269 G. Tortious Breach ...... 270 H. Bad Faith Breach ...... 271 13.3 From Complete Performance ...... 272 13.3.1 In General ...... 272 13.3.2 Impossibility ...... 272 A. In General ...... 272 B. Objective Versus Subjective Impossibility ...... 273 C. Acts Of God/ ...... 274 D. Impossibility Under The UCC ...... 276

xi 13.3.3 ...... 276 13.4 Cancellation Or Alteration Of Contract Terms ...... 278 13.4.1 In General ...... 278 13.4.2 Abandonment, Mutual Rescission, And Cancellation ...... 279 A. Abandonment ...... 279 B. Mutual Rescission And Cancellation ...... 283 13.4.3 Novation: Discharge By Superseding Contract ...... 284 13.5 Waiver Of Strict Performance ...... 285 13.5.1 ...... 285 13.5.1.1 Important New Case On Accord And Satisfaction ...... 287 13.5.2 Release And Covenant Not To Sue ...... 288 A. In General ...... 288 B. Release ...... 288 C. Covenant Not To Sue ...... 289 CHAPTER 14 DAMAGES AND OTHER REMEDIES FOR BREACH OF CONTRACT 14.1 Overview ...... 291 14.2 Common Law Measures Of Recovery ...... 291 14.2.1 Compensatory Damages ...... 291 A. In General ...... 291 B. Calculating A Party’s ...... 293 C. Lost Profits ...... 295 D. Present Value ...... 296 E. Medical Treatment ...... 297 F. Mental Suffering ...... 299 14.2.2 Reliance Damages ...... 299 14.2.3 Restitution ...... 300 14.2.4 Punitive Damages ...... 302 14.3 Limitations On Recovery ...... 302 14.3.1 The Contract ...... 302 14.3.2 Causation ...... 302 14.3.3 Foreseeability ...... 303 14.3.4 Certainty ...... 303 14.3.5 Mitigation ...... 304 14.3.6 Economic Loss Doctrine ...... 305 A. Background ...... 305 B. Other Applications Of The Economic Loss Doctrine ...... 316 C. Conclusion...... 319 14.4 Liquidated Damages Clauses ...... 319 14.4.1 In General ...... 319 14.4.2 Reasonableness ...... 320 A. In General ...... 320

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B. Anticipated Or Actual Harm ...... 321 C. Difficulty Of Proof ...... 321 14.4.3 Circumstances Of The Case ...... 322 14.4.4 Fixed Amount ...... 323 14.4.5 Language ...... 323 14.5 Case Studies On Related Topics ...... 324 14.5.1 Case Studies: Stipulations Of Settlement/Late Fees ...... 324 14.5.2 Case Study: (1) Liquidated Damages, And (2) Lost-Volume Sellers ...... 326 14.6 Damages Remedies Under The UCC ...... 327 14.6.1 Introduction ...... 327 14.6.2 Seller’s Damages ...... 327 A. N.J.S.A. 12A:2-706 - Resale Damages ...... 327 B. N.J.S.A. 12A:2-708 - Market Damages And Lost Profits ...... 328 C. N.J.S.A. 12A:2-709 - Action For The Price ...... 328 D. N.J.S.A. 12A:2-710 - Incidental Damages ...... 329 14.6.3 Case Study: Seller Overcomes Missing Documentation To Recover For Goods, Special Orders, Finance Charges, And Attorneys Fees, But Not Collateral Storage Charges ...... 329 14.6.4 Buyer’s Damages ...... 330 A. N.J.S.A. 12A:2-712 - Cover Damages ...... 330 B. N.J.S.A. 12A:2-713 - Market Damages ...... 331 C. N.J.S.A. 12A:2-714 - Nonconformity Of Accepted Goods ...... 331 D. N.J.S.A. 12A:2-715 - Incidental Damages ...... 332 E. N.J.S.A. 12A:2-715 - Consequential Damages ...... 333 CHAPTER 15 OF A CONTRACT 15.1 Overview ...... 335 15.2 The Enforcement Of Performance ...... 335 15.2.1 Prerequisites ...... 335 15.2.2 Effect Of Provision For Liquidated Damages ...... 336 15.3 Defenses ...... 336 15.3.1 Delay: Waiver, Estoppel, Statute Of Limitations, Or Laches ...... 336 15.3.2 Case Study: What Was Probably A Fully Integrated Agreement Was Nonetheless Found Waived By Conduct ...... 337 15.3.3 Unclean Hands ...... 339 15.4 Particular Types Of Contracts ...... 339 15.4.1 Real Estate...... 339 15.4.2 Personal Property ...... 340 15.4.3 Output And Requirement Contracts ...... 340 15.4.4 Service Contracts ...... 341 15.4.5 Insurance ...... 341 15.4.6 Arbitration ...... 341 15.4.7 Arbitration Waiver: A Primer ...... 342 15.4.8 Case Study: Arbitration Waiver Will Not Be Lightly Found ...... 343

xiii 15.4.9 Under A Broad , Everything Except The Validity Of That Clause Is Arbitrable ...... 344 15.4.9.1 Threshold Determination Of Arbitration ...... 344 15.4.9.2 Case Study: Outcome Unpredictable When One Related Agreement Calls For Arbitration, And Others Do Not ...... 345 15.4.9.3 Case Study: Wolf V. Galex: When Are Basic Contract-Formation Issues For The Court In An Arbitration Setting; When Is A Settlement Conditional, And When Is It Binding? ...... 346 15.4.9.4 Case Study:Arbitration Clause Ostensibly Applicable To Components Of Transaction May Not Apply To Master Agreement ...... 347 15.4.9.5 Case Study: Can Parties Agree To Waive The Right To Appeal From An Arbitration Award? ...... 349 15.4.9.6 Case Study:The Intersection Of Arbitration Law And The Consumer Fraud Act ...... 351 15.4.9.7 Case Study: Arbitration Clause Not Applied Retroactively Even To Related Entity ... 352 15.4.9.8 Case Study: Who Are “Agents” For Arbitration Purposes, And When Can Agent Claims Be Forced Into Arbitration? ...... 352 15.5 Variations On The Enforcement Of Performance ...... 353 15.5.1 In General ...... 353 15.5.2 Additional Or Incidental Relief ...... 353 15.5.2.1 Damages ...... 354 CHAPTER 16 THE EQUITABLE REMEDIES OF REFORMATION, RESCISSION, AND RESTITUTION; FURTHER REMEDIES OF INJUNCTION AND DECLATORY JUDGMENT 16.1 Overview ...... 355 16.2 Reformation ...... 356 16.2.1 When Reformation Is Appropriate ...... 356 A. In General ...... 356 B. Mutual Mistake Of Fact ...... 356 C. Unilateral Mistake Involving Fraud Or Unconscionability ...... 356 D. Mistake Of Law ...... 357 16.2.2 Unilateral Mistake Without Fraud ...... 357 16.2.3 Burden Of Proof ...... 358 16.2.4 Election Of Remedies ...... 359 16.2.5 Standard Of Review On Appeal ...... 359 16.3 Rescission ...... 359 16.3.1 When A Contract May Be Rescinded ...... 359 A. Mutual Agreement ...... 359 B. Fraud Or Misrepresentation ...... 360 C. Material Breach ...... 360 D. Invalidity Of Contract ...... 360 1. Illegality Of The Contract ...... 361 2. Duress And Mental Incapacity ...... 361

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E. Unilateral Mistake ...... 362 F. Failure Of Consideration ...... 362 G. Mutual Mistake ...... 363 16.3.2 Requirements For Rescission ...... 364 A. In General ...... 364 B. Clear Notice...... 364 C. Reasonable Time ...... 364 D. Status Quo Ante...... 365 E. Unclean Hands ...... 365 16.3.3 Statutory Provisions Regarding Rescission ...... 366 A. The UCC Generally ...... 366 B. The UCC’s Fraud Exception ...... 366 C. Door-To-Door Home Repair Sales Act ...... 367 16.4 Restitution ...... 367 16.4.1 In General ...... 367 16.4.2 Elements ...... 368 A. In General ...... 368 B. Lack Of An Enforceable Contract ...... 368 C. Unjust Enrichment ...... 369 16.4.3 Measure Of Restitution ...... 370 CHAPTER 17 QUASI-CONTRACT AND CONTRACT-SUBSTITUTE CLAIMS 17.1 Generally ...... 373 17.1.1 Contract Law & Business ...... 373 17.1.2 Quasi-Contract ...... 374 17.1.3 Case Study: Interplay Among Concepts Of (1) Express Contract; (2) Quasi-Substitute Claims Such As ; (3) Breach Of Covenant Of Good Faith; And (4) Punitive Damages ...... 375 17.1.4 Case Study: Minuto V. Genesis ...... 376 17.2 Recap: Quasi-Contract Claims And Contract-Substitute Claims ...... 378 17.3 Other Party’s Professionals ...... 378 17.3.1 Agent For Disclosed Prinicpal Insulated; But Breach Of Contract By A Professional May Not Be Shielded By The Corporate Veil ...... 378 17.3.1.1 Proactive Considerations ...... 379 17.3.1.2 Case Study: Brant Screen ...... 379 17.3.2 Case Study: Contract-Substitute Claims Forbidden Where Contract Clearly Pleaded ...... 380 17.3.3 Case Study: Equitable Fraud (Sometimes Sub Silentio) ...... 380 17.3.4 Case Study: Suarez V. Eastern International College ...... 382 17.4 Case Study: Contract-Substitute Claim Against Company’s Principal ...... 384 17.5 Case Study: Should Quasi-Contractual Relief Be Available When A Statute Precludes Collecting On A Contract? ...... 385 17.6 Alter Ego Claim Limitations ...... 386 17.7 Case Study: Breach Of Contract Claim Can Also Entail Copyright And Joint Venture Issues ...... 387

xv CHAPTER 18 SPECIAL CONTRACT SETTINGS 18.1 Some Types Of Contracts Are Sui Generis ...... 389 18.2 Government Contracts ...... 390 18.2.1 Case Study: Governmental-Settlement Uncertainties ...... 390 18.2.2 Case Study: Another Risk Of Enforcing A Governmental Contract: Potentially Violating The Bidding Statutes ...... 391 18.2.3 Contract Applicators V. Park Ridge: Sui Generis Contract Issues Involving Government (And Construction) ...... 392 18.3 Case Study: An Instructive Opinion In A Governmental Context (But More Boradly Applicable), On (1) Performance “Under Protest" And (2) Prejudgment Interest ...... 393 18.4 Settlements: Generally ...... 393 18.4.1 Case Studies: Rutigliano And Willingboro ...... 394 18.5 Case Study: An Instructive Opinion With Many Twists And Turns Regarding (1) Post-employment Matters and (2) Duress ...... 396 18.6 Construction Contracts ...... 397 CHAPTER 19 PRINCIPLES OF CONTRACT DRAFTING 19.1 Introduction ...... 401 19.1.1 Legal And Tax Issues ...... 402 19.2 Contract Structure ...... 403 19.3 Preliminary Considerations ...... 404 19.3.1 Client Attitudes Toward Contracts ...... 404 19.3.2 The Preliminary Client Conference ...... 405 19.3.3 Preliminary Documents: Letters Of Intent ...... 407 19.3.4 The First Draft Of The Contract ...... 408 19.3.5 Forms And Checklists ...... 410 19.4 Principles Of Drafting ...... 410 19.4.1 Clarity ...... 410 19.4.2 Completeness ...... 412 19.4.3 Case Study: Formalities Count When Transferring Stock As Part Of A Contract ...... 413 19.4.4 Consumer Contracts: New Jersey’s Plain Language Act ...... 413 19.5 Subsequent Drafts Of The Contract ...... 414 19.5.1 The Lawyer’s Role ...... 414 19.5.2 Negotiation Strategy ...... 415 19.6 Typical Contract Structures...... 415 19.6.1 Structure ...... 415 19.6.1.1 Building Blocks ...... 415 19.6.2 Recitals ...... 419 19.6.3 Subject Matter ...... 419 19.6.4 Consideration ...... 420

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19.6.5 Warranties And Representations ...... 420 19.6.6 Risk Allocation ...... 422 19.6.7 Conditions ...... 422 19.6.8 Performance ...... 423 19.6.9 Dates And Term ...... 425 19.6.10 Boilerplate ...... 426 A. The ‘Boilerplate’ Misnomer ...... 426 B. Choice Of Law ...... 426 C. Arbitration Clause ...... 426 D. Attorneys Fees ...... 430 E. Severability ...... 431 F. Choice Of Venue ...... 432 G. Other ADR ...... 432 H. The Irrelevancy Of Headings ...... 432 I. ...... 433 J. No Oral Modification ...... 433 K. Force Majeure ...... 434 L. Jury Trial Waivers ...... 435 M. Boilerplate Forms In General ...... 435 19.6.11 Signatures ...... 440 19.6.12 Interrelated Documents ...... 441 A. Overview ...... 441 B. Special Case: Cover Letters ...... 442 19.7 Further Analysis Of Arbitration Clauses ...... 442 19.7.1 Introduction ...... 442 19.7.2 Case Study: Class-Action Issues Arising From Arbitration Agreeements May Be Different .. 443 19.7.3 Arbitration Pros And Cons ...... 443 19.7.4 Determining The Type Of Arbitration Clause To Include ...... 444 19.7.5 Choices In Drafting Arbitration Clauses ...... 445 19.7.6 More Sample Arbitration Clauses ...... 446 19.7.7 Arbitration Of Employment Claims ...... 448 19.7.7.1 Garfinkel ...... 448 19.7.7.2 AAA Rules, etc...... 449 19.8 Employment Contracts: Special Substantive Considerations ...... 449 19.9 Prenuptial And Palimony Agreements: Special Considerations ...... 450 19.9.1 Standard Prenuptial And Palimony Agreements ...... 450 19.9.2 Drafting Prenuptial And Palimony Agreements ...... 451 CHAPTER 20 LITIGATING CONTRACT DISPUTES 20.1 Overview ...... 453 20.2 Pre-Filing Investigation ...... 453 20.2.1 Factual Investigation ...... 454 20.2.1.1 A Litigating Entity Requires Counsel ...... 454

xvii 20.2.2 Witnesses...... 455 20.2.3 Documents...... 455 20.2.4 Initial Legal Research...... 456 20.3 Pre-Filing Issues ...... 458 20.3.1 Pre-Filing Settlement Possibilities ...... 459 20.3.2 Choice Of Forum ...... 461 20.3.3 Case Studies: Where To Sue On Contract Issues ...... 464 20.3.4 Removal ...... 466 20.3.5 Choice Of Law ...... 467 20.4 Appeals...... 467 20.4.1 Case Study: Contractual Attorneys Fees: When To Appeal ...... 467 20.5 Conclusion ...... 468 Index ...... 469

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