Introduction to Contracts

Types of Ks:Contracts for sale of goods (UCC), Real estate transactions, construction Ks, employment agmts, and family Ks.

Bases for Enforcing Promises

Cases: Hawkins v. McGee, Bayliner v. Crow, U.S. Naval v Charter, Sullivan v. O’Connor

Hawkins: The question of whether a contract is formed is a factual question and is to be decided based on words spoken, as well as context. The jury had reasonable basis for determining that McGee (D) intended that his words should be taken at face value, and that he meant them to be an inducement (incentive) for consent for surgery.

Calculation of Damages: Value of good/perfect hand, as promised, minus the value of the hand after operation.

Bayliner: Statements that do not relate to particular item purchased, or that merely commend the quality of goods, don’t create express warranties (An informal agreement that is not legally enforceable, because it does not fall within the specific classes of agreements that can support a legal action. • But a pactum could create an exception to or modification of an existing obligation. 2. An agreement that is unenforceable as a contract because it is not “clothed” with consideration) No puffery.

How a Promise May Be Made

A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct.

A warranty created by the overt words or actions of the seller. • UCC § 2–313: an express warranty is created by any of the following: (1) an affirmation of fact or promise made by the seller to the buyer relating to the goods that becomes the basis of the bargain; (2) a description of the goods that becomes part of the basis of the bargain; or (3) a sample or model made part of the basis of the bargain.

U.S. Naval: Courts will not grant punitive damages for a breach of contract. The purpose of damages for breach of contract is to compensate injured party for loss caused by the breach. Those damages are generally measured by plaintiff’s actual loss. Occasionally, a d’s profits are used as a measure of damages, this generally occurs when those profits tend to define the p’s loss. Central object behind system of contract remedies is compensatory, not punitive.

Rule: Only entitled to damages you can prove…there’s no room for “speculation’ damage awards.Actual damages (legal fees are not included in actual damages, unless the contract says so) or compensatory damages are damages sufficient in amount to indemnify the injured person for the loss suffered. — Often shortened to compensatories.

Sullivan: (expectation, reliance, restitution) Clear proof of a doctor’s promise of specific medical results may give rise to an enforceable contract. Courts reluctantly enforce agreements b/w doctors and patients b/c medical practice is inherently uncertain.

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Courts require clear proof of a promise before allowing a breach of contract in a doctor-patient relationship to proceed. Here there was such proof. Under a contract breach, the afflicted party may recover those damages intended to put the plaintiff in the position he would be in if the contract had been performed, or at the plaintiff’s election an amount corresponding to any benefit conferred by the plaintiff upon the defendant in the performance of the contract. P is entitled to recover reliance damages for expenditures made by her and for other detriment that was proximate and foreseeable from D’s failure to carry out his promise. There is no general rule barring recovery for pain, suffering and mental distress in action for a breach of contract. Suffering and distress resulting from a breach going beyond that which was envisaged by the treatment as agreed are compensable on the same ground as the worsening of the patient’s condition.

Bayliner: Statements that don’t relate to the particular item purchased, or that merely commend the quality of goods, don’t create express warranties. (Express Warranty: A warranty created by the overt words or actions of the seller. • Under the UCC, an express warranty is created by any of the following: (1) an affirmation of fact or promise made by the seller to the buyer relating to the goods that becomes the basis of the bargain; (2) a description of the goods that becomes part of the basis of the bargain; or (3) a sample or model made part of the basis of the bargain. UCC § 2–313)

Measures of Damages (White v. Benkowski, US Naval v. Charter Comm.)

Restitution (Disgorgement): D in position he would have been in had contract not been made (disgorge thebenefit). The goal is to prevent unjust enrichment at the expense of P. Restitution damage is usually insufficient, normally used in down payment cases…one only gets back what they put in. So in Sullivan, she would have only received the initial $200 she put in.

Reliance: Position P would have been in had contract not been made.

Expectation: Position P would have been in had contract been performed (giving P thebenefit of the bargain)._ Remedial cost (cost of fixing): Get P to expected position_ Loss in Value: Value of what promised v. what P got_ Expectations primary measure of damages in contract case (Goal of awardingdamages is to rectify the wrong. Expectations damages is the best way to rectify the wrong.

Punitive: White v. Benkowski; US Naval v. Charter Comm: Restatement § 355 Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.

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Contract Formation

Offer: Cases: Owen v. Tunison, Harvey v. Facey, Fairmount Glass v. Crunden, Lefkowitz v. Great Minn. Surplus Store

UCC §2-204: Formation in General:1. Made in any manner sufficient to show agreement, including CONDUCT2. K sufficient even though moment of making is undetermined3. Even if one or more terms is indefinite, if parties intended and remedy is reasonably

certain, will be enforceable.***Per legal lines: 1. Price omitted = market value at time of delivery; 2. place omitted = seller’s place of biz; 3. Time for shipment omitted = reasonable time after contracting; 4. Time of payment omitted – due at time of delivery.

Two parts: The offeror shows a manifest willingness to enter into the contract. One person confers power on the other to close the contract. What the offeror says (“I offer you..” or a less definitive “I am eager to sell”) is less important than what the surrounding circumstances are (bargaining for months, trading proposals and counter-proposals, then “I am eager to sell, but would not take less than . . .” might well be taken as an offer). If no circumstances are there, then “I am eager to sell, but would not take less than . . .” might be seen as first step and imply that it is up to highest bidder. You can only revoke an offer before formal acceptance.

An offer must invite the close of the deal, not merely invite negotiations.o Owen v. Tunison: saying that one “could not sell for less than” was an invite to negotiate, not an offer. Language

is too general, which is a sign that it is not an offer. An offer must invite the close of deal, not merely invite negotiations.

Implied K: Harvey v. Facey The mere statement of lowest price the vendor would sell is not implied K to sell at that rpice to persons asking. Facey’s telegram gives a precise answer to precise question. 1st letter ask about willingness of Facey to sell, the 2nd question asks lowest price and Facey responded to 2nd question only. The difference bw offer and supply of information

Price Quotes are generally NOT binding offers. But, Fairmount Glass states “a price quote may give rise to an enforceable contract, depending upon its language.” Ex: the words for immediate acceptance shows that D probably intended to depart from customary pattern of solicitation and quote mean offer under circumstances.

o For a price quote to be binding, it usually needs to be to a specific buyer at a specific quantity.o Fairmount case doesn’t stand for the proposition that the circulation of price quotes by a supplier

of goods constitutes an offer that can be “accepted” and thus converted to binding contract. Even when prices are quoted to specific inquiry, normal understanding, which may/may not be made explicit, is that orders are subject to available stocks or price change.

o Fairmount Glass: the language of “for immediate acceptance” transformed what would have been just a price quote into a binding offer.

If you know that FG usually gives price quotes and they are not offers, then they could not accept, because it wasn’t an offer and .they knew it

Act evidently without intent to Contract:

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o If you know that the person making the ‘offer’ does not have intent to contract, then the contract is not valid. PepsiCo

o Lucy v. Zehmer: Zehmer did not indicate to Lucy by word or act that he was not in earnest about selling farm. There had been what appeared to be a good faith offer and a good faith acceptance, followed by execution and apparent delivery of written contract. Nothing was said or done to indicate the matter was a joke. The mental assent of the parties isn’t requisite for the formation of a contract. If words or other acts have but one reasonable meaning, then his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to other party. However, there was no evidence of hard bargaining b/w them (where did $50,000 come from?) which is the best indication that buyer and seller were both in earnest. Chirelstein

Advertisements are generally not binding offers. Generally, ads are just invitations to deal, even if ad is specific as to price, quantity, time-limit and other details. In legal terms, it is the customer, not advertiser who is the offeror.

o Policy reas6n what if the store runs out of stock?o New/ Arbitrary conditions cannot be implemented after acceptance (see Lefkowitz v. Great MN Surplus

Store: Without saying “1st come, 1st serve”-identified the offeree specifically-offer would just be ad…The store invited a particular performance ie getting in line first. The store may have intended to restrict offer to women, but restriction didn’t appear in ad and so couldn’t be added after the offer had been accepted.).

o Ads are not an offer unless it is clear, definite, explicit, `and directed at a particular person. Auctions: UCC § 2–328 describes a sale by auction as ‘‘complete when the auctioneer so announces by

the fall of the hammer or in other customary manner Rewards

o Offer for a Unilateral K (promise in exchange for a performance). It invites acceptance by performance.

o Must make reasonable effort to let others who might be concerned know that offer has been revoked.

o If the performer doesn’t know there is a reward, then there cannot be an offer and acceptance.o Broadnax v. Ledbetter – Notice or knowledge to P of existence of reward when recapture is

essential to their right to recover. A reward offer may be accepted by anyone who performs the service called for when acceptor knows that it has been made and acts in performance of it, but not otherwise.

Broadnax: Because he didn’t know about the reward, he wasn’t bound by K to get the reward. Construction Contracts (Elsinore Union Elementary v. Kastorff Mistaken Bids,

o General Contractor’s bid offer is revocable before formal acceptance. Analysis of typical transaction b/w gen. contractor b/w an owner and sub contractor is often useful by analogy in other transactions involving intermediaries.

o Government construction contracts are subject to additional statutory requirements b/c of policy issues like fiscal responsibility to taxpayers

IF: Offeror can be placed back in status quo, the error is clerical (not in bad faith), enforcement of the K would be unconscionable, notice of the mistake is prompt.

Elsinore: General Contractor had the power to revoke until the school formally accepted, as long as there is not reliance. Recission for Mistake - Rescission for Mistake – Kemper Rules: A contractor is allowed to rescind his bid for a mistake of fact if: 1) the other party knows or has reason to know of the contractor’s clerical error; 2) the mistake is material to the contract and was not the result of neglect of a legal duty; 3)

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enforcement of the contract would be unconscionable; 4) the other party can be placed in status quo; 5) the party seeking relief gives prompt notice of the rescission and 6) restores everything of value that he received. Mistakes that are clerical or computational from those that are judgment mistakes are distinguished. When one underestimates the time, money and energy and just “goof” up is not clerical mistake, but judgment.

Subcontractors held to higher standard because of expertise in their specific field.

o Usually, Construction Ks have offers for a Bilateral K, a promise for a promise to finish in a set amount of time.o Mechanics’ Liens: A security interest in the title to property for the benefit of those who have supplied labor or

materials that improve the property. The lien exists for both real property and personal property.

Acceptance: (Internat’l Filter Co. v. Conroe Gin, White v. Corlies, Ever-tire Roofing v. Green, Corlies & Tift, Allied Steel v. Ford Motor, Carbolic Smoke, Corinthian v. Lederle, Hobbs v. Massoit Whip, Ragosta v. Wild, Loring v. City of Boston, Akers) Re 30, 50-69 UCC 2-206, 2-207, 2-204 An acceptance creates contractual relations, and can be made in any manner, unless specified by the contract.

Manner of Acceptance: look at the offer to determine what sort of acceptance is invited.o Acceptance can be made in any reasonable way, unless specified by the K.

For the sale of goods, if you specify a manner of acceptance, it must be unambiguous according to UCC 2-206

o Stays open for a reasonable amount of time under the circumstanceso The offeror is the master and can specify the terms.o Allied Steel v. Ford – An offer which suggests a means of acceptance may become binding by

performance by the offeree. Allied accepted when Allied undertook performance of the work called for by the amendment with the “consent and acquiescence” of Ford. Also, it was well settled that “part performance” would complete the contract.If offerer merely suggests a method of acceptance other methods are not ruled out.If offer requests a return promise and the offeree w/o making promise actually does or presents what he was requested to promise, there is a contract if such performance is completed within the time allowed for accepting by making a promise…so an offer operates as a promise to render complete performance.

Notice of Acceptance o Bilateral K (R2d 56): You must give notice of the acceptance so that the other party knows that

they are bound. Terms of the K can waive the necessity of notice in a bilateral K. International Filter v. Conroe Gin – Rule: The offeror controls the method and means of

acceptance by the language of offero Unilateral K: Generally, notice is not required, unless

White v. Corlies In the absence of express provisions in the offer, an acceptance must be by reasonable means given the circumstances surrounding the offer.

The accepting party knows that the offeror will not find out about the acceptance with reasonable promptness or certainty).

Or, the offeror specifically demands notice. Carbolic Ball (Unilateral) using the ball is performance, getting sick is not performance. You

don’t need to give notice, performing is acceptance of the K..in unilateral Ks. Counter: How was CB to know that Carilill accepted by buying ball? Counter-counter: Ct says CB waived right of notice.Rule: Acceptance based on performance is sufficient w/o notification, unless offer stated that notification of acceptance was required.

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o Acceptance can be made by a performance IF an offer invites acceptance by performance. (White v. Corlies, Ever-Tite v. Green)

In a bilateral K, beginning performance can act as a return promise, except when the offer specifically asks for a promise.

The performance must be clear to indicate to the other party that you accept the contract. It must be material and unlike the usual course of events. White v. Corlies – Rule: In absence of express provisions in the offer, an acceptance must be by reasonable means iven the circumstances surrounding the offer.

Ever-Tite v. Green the offer said you can accept by promise or performance, and if you accept by performance then you promise to complete. Performance implies the promise. Rule: In absence of specific language in an offer, the offeror must allow a reasonable amount of time for acceptance.

Acceptance by a Shipment of Goods (Corinthian Pharmaceutical v. Lederle Lab,o UCC 2-206 The order for a shipment of goods can be accepted by promise to ship or shipment

unless unambiguously indicated by language or circumstances. UCC favors prompt shipment unless the offer asks for notice first. A ministerial conformation (such as a tracking number) is not an acceptance.

o Accomodation UCC 2-206 (1)(b)An accommodation is NOT acceptance.

In Corinthian v. Lederle - If seller ships to buyer non-conforming goods and gives notice that shipment is an accommodation, the seller isn’t in breach of contract and isn’t obligated to deliver goods that conform to buyer’s order. Acceptance can’t be made by computer in lieu of actual communication. An accommodation by buyer, in response to seller’s offer to buy isn’t an acceptance of that offer when goods are nonconforming and buyer clearly communicates to seller that there’s no intention to accept their offer.

UCC 2-206: Offer to buy goods for shipment shall be construed as open until accepted.

Shipment of nonconforming goods doesn’t consitutue an acceptance if the seller takes measure to notify buyer that goods are

offered only as an accommodation. Silence (R2d 69) is generally not an acceptable manner of acceptance, except:

o You get benefit that you know you are going to repay (like when you go to a restaurant and order, you should know you must pay).

o Long history of silence as acceptance in a long term K.o Offer invites acceptance by silence and offeree intends to accept by silence.

Mailbox Rule: (R2d41,42, 63)o Revocation is effective upon receipt.o Acceptance is effective once it is sent in the mail.o In an option K, acceptance is not operative until it is received by the offeror. o §42. REVOCATION BY COMMUNICATION FROM OFFEROR RECEIVED BY OFFEREE

An offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.

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Termination Power of Acceptance: (Dickinson v. Dodds – Option Contract, Ragosta v. Wilder (R2d36, 46, 71 UCC 2-205)

o An offer can lapse after a reasonable amount of time. Akers v. JB Sedberry p168, Loring v. City of Boston p 169, Newman v. Schiff p 170

o Death/Incapacitation of an offeror/offeree terminates the K. o Revocation – Need revocation equal to way offer was given so that it will reach offeree

Classical Rule: Offer is revocable until acceptance Downs mentioned stock option example p 171 Option Contracts (2-207: Special rule for merchants and goods in option contracts)

Dickinson v. Dodds – w/o separate consideration, an offeror may revoke an offer any time before the offeree’s deadline to accept the offer): A promise made by an offeror that effectively limits offeror’s power to revoke. Re 25. Option expresses, directly or indirectly, a fixed period which offeree must exercise, or “pick up” option. W/o separate consideration, an offeror may revoke an offer any time before the offeree’s deadline to accept the offer. An offeror’s promise to keep offer open is called an option. One way to create enforceable option is by giving consideration. W/o consideration, offer is open; wasn’t an irrevocable offerRevocation is the manifestation of intent not to enter into a proposed offer. Re 43.

There are 3 ways that options may be created: (1) Consideration, (2) “firm offers” under UCC, and (3) reliance made by offeree.

o Or by Rejection….

Rejection The Common Law Mirror Image Rule

o Any deviation in the acceptance was a rejection of the offer, and therefore, it was a counter-offer. (R2d39)

When you reject an offer, it is terminated. If you want to reconsider, it is a counter-offer.o Terms that aren’t in the original offer are proposals for addition.o Problems:

Allows a party to get out of the K on a technicality. In Non-UCC cases, apply: Last Shot Rule

Whoever sent the last form could say that his terms were consented to by conduct. (Battle of the Forms)

§ 2-207. Additional Terms in Acceptance or Confirmation.

o UCC 2-207 is a remedy to the common law mirror image rule for merchants.

o (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

o (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

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(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

o (3) Conduct by both parties which recognizes the existence of a K is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

o Cases on UCC 2-207: (often Battle of the Forms cases)

Conditional Acceptance

An acceptance conditional on certain terms

Step- Saver Data Systems, Inc. v. Wyse Technology : Box top license would be sent with the goods, and it materially altered the K, in a disclaimer of warranty. Repeatedly opening the box is not assent. D offered a conditional acceptance (which is a counter offer). Here, it was not a conditional acceptance; it was a K. D needed to show, but failed to, that they would have foregone the K w/o the new condition. However, if the terms materially altered the K, the K will not be enforced. UCC 2-207 is favorable to the buyer.

K formed by conduct:

When the parties writings do not form a K according to 2-207 (1), the parties can form a K by conduct, and the terms are those agreed on and those filled in by the UCC.

In Itoh v. Jordan: Itoh did not assent, but they still sent the goods, so there was a K between the parties by conduct. The arbitration clause is not one of these gap fillers, and therefore is not a part of the K.

Different terms in a K:

If they are not merchants, then they are just proposals.

3 Different ways to deal with different terms:

o UCC gap filler (knockout rule) Majority Rule

Revised UCC uses knockout rule

o First shot rule (offeror’s terms hold)

o Act as though UCC 2-207 included different along with additional terms, and see if there is a material alteration. If there is, they are just proposals. This is the California rule.

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Northrop Corp v. Litronic Industries : The court used a reasonable term (UCC gap filler) by applying the knockout rule.

Rolling K

K is not formed at the moment of purchase.

Buyer accepts after he has had time to inspect and does not reject.

ProCD, Inc. v. Zeidenberg: Notice of the terms on the inside of the box on the outside of the box and an opportunity to return the item is acceptable.

o UCC 2-207 not applied, because the K isn’t agreed to until it was not returned

Hill v. Gateway: UCC 2-207 not applicable because the customer did not object in a timely manner.

The new UCC 2-207 additional or different are dropped out and the terms become agreed terms plus UCC gap fillers.

Judges have to decide whether to follow the reasoning in ProCD or StepSaver. New UCC would fill in with gap fillers.

Efficient Breach

Efficient Breach Theory: Society’s well being will be maximized if resources are allocated to those who value them the most.

We want to encourage people to walk out of contracts in favor of more beneficial Ks. Expectation damages will ensure the benefit is conferred on the breach-ee. Maximizes the net gain. Critiques Doesn’t take externalities into consideration

o it doesn’t take much into consideration other than money, o it doesn’t take uniqueness into consideration, o based on assumptions; assumes everything is fungible with cash, o positive and negative externalities,o it assumes an initial equal allocation of resources.o Doesn’t consider change in fair market value over time or how to know concretely what each buyer really values the

goods at (secret value, no substance)o Isn’t as malleable as reality seems to be

Pareto Superior Transaction: Each side is better off.

Consideration

Consideration Overview:

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Cases: White v. Benkowski, Hamer v. Sidway, Fiege v. Boehm, Fienberg v. Pfeiffer, Mills v. Wyman, Webb v. McGowin, Lake Land Employment v. Columber , D&G Stout v. Bacardi Promise as Consideration: Strong v. Sheffield, Mattei v. Hopper, Eastern Air Lines v. Gulf Oil Corp., Wood v. Lucy Note Cases: Segull v. Spear, Cohen, GM v. Ypsillanti, Alleghany

Classical Consideration (reliance takes the place of consideration in some exceptions)o Marked off boundary between public and private sphereso Contract should give affect to the will of the parties. (even a peppercorn will do).

Restatement § 71. A performance or a returned promise must be bargained for. It is bargained for if sought by promisor in exchange for his promise and the promisee gives his promise or performance in exchange. Re 71 Consideration for a promise:

o An act other than a promiseo A forbearance (Hamer - Unilateral)o Creation/ modification/ destruction of a legal relation.o A return promise

Hamer (Unilateral Contract-Promise in exchange for performance): The party who abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for a promise, gives sufficient consideration to create a legally binding contract. Only need a bargain; consideration is the actual exchange of one thing for another, not on the value of things being exchanged. Peppercorn Theory - Consideration must be sufficient, but courts will not weigh the adequacy of consideration. For instance, agreeing to sell a car for a penny may constitute a binding contract. All that must be shown is that the seller actually wanted the penny. This is known as the peppercorn rule. Otherwise, the penny would constitute nominal consideration, which is insufficient. Parties may do this for tax purposes, attempting to disguise gift transactions as contracts.

Promises can be made to third parties. There must be reciprocal inducement. The bargain includes: the making of a promise and the promise induces furnishing of consideration. The law is not interested in the internal mental state i.e. subjective theory (Lucy v. Zehmer). The law doesn’t inquire into adequacy of consideration, unless it is a gift/ theft

o Inquiry into the adequacy of the contract Benefit to promisor and detriment to promisee required? Courts are split about whether mutuality of obligation matters.

o R2D says neither are required. However, benefit and detriment are often good indications as to the fact that a promise was bargained for.

Exception to nominal consideration rule is the option contract. Mills v. Wyman – Moral obligations is not sufficient consideration. (sometimes moral obligation is

sufficient consid to support express promise, which is broad application of rule, but generally broad rule can’t be supported – Webb v. McGowin-Moral obligation can reach level of consideration when promisor receives a material benefit.)Mere verbal promise, w/o consideration, can’t be enforced by action..promise is only valid when party making promise gains something or loses something. Also, a benefit received before a promise is made doesn’t give “exchange” for the promise.Webb v. McGowin – compensation isn’t only for benefits promisor received, but also for injuries to prop or person of promise by reason of service rendered. Life and preservation of body have material, pecuniary values, measurable in dollars, not just sentimental value i.e. material benefit sufficient to uphold subsequent promise to pay for the servicePOLICY: we hold value of human life over other things)

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Fienberg v. Pfeiffer – (reliance takes place of consideration in some exceptions) She made no promise/agmt to continue working in return for promise to her pension. There lacks mutuality of obligation which is necessary to validity of K.

Lake Land Employment – Noncompete must be reasonable and necessary or it’s not enforceable. Either employer or employee in a pure at-will employment relationship can legally terminate relationship at any time for any reason. Mers v. Dispatch PrintingThe continuation of at-will employment relationship after employment imposes a new requirement on employee is sufficient consideration for employee’s agmt to that requirement. Presentation of noncompetition agmt is a proposal to renegotiate terms of at-will employment. Acceptance of agmts is accepting employmt on new terms, and supported by consideration. Assent to agmt is given in exchange for forbearance from termination employee.Some cases hold that continued employmt isn’t sufficient consideration. By signing noncompete, employee gets no more from employer than he already had, there’s a danger that employer doesn’t need protection, but seeks to impose barriers to prevent employee from securing better job. However, others say continued employment is sufficient consid for noncompete agmt, for ex, the possibility that employee would otherwise have been fired; employee was employed for substantial time after executing K or the employee received additional money or training or was given confidential info after he signed.

Cohen v. Cowles (newspaper story)– Prom estoppel is applicable only where enforcement of promise is required in order to prevent injustice. If a promise is made after “event” in discussion, then there’s no reliance. This case exemplifies the difficult balancing that occurs when considering the equitable issue underlying prom estoppel.

Fiege v. Boehm Re 74 (Unilateral Contract and uses Objective Theory - relies on external acts): There was no proof of fraud or unfairness, must have. shows that forbearance to assert a legal claim that was honest and reasonably believed can be consideration, even if you are wrong. Forbearance to sue for a lawful claim or demands sufficient consideration for a promise if the party forbearing had an honest intention to prosecute litigation which is not frivolous, vexatious, or unlawful, and which he believed to be well-founded. In this case, there was no proof of fraud or unfairness.

Re 74: (1)Forbearance isn’t consideration unless the claim/defense is doubtful b/c of uncertainty as to facts or law or forbearing party believes claim/defense may be fairly determined to be valid. (2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting claim/defense and believes that no valid claim/defense exists.

 Gifts: Cons made spontaneously, in private sphere, etc. Pros moral reasons, it is good to enforce promises. No consideration for gifts, but if it is a mixture of a gift and bargain, then there is consideration (b/c we don’t inquire into

adequacy). There is a fine line between gifts and bargains.

o Tramp no mutual inducemento Tiffany’s mutual inducement: he was induced by seeing her, and she was induced by the ring.

Kirksey majority decided that her behavior was a condition to a gift (gratuitous promise). He was not induced by her losses. They didn’t have legal reliance in 1845

Assent:

Objective v. Subjective Assent: Lucy v. Zehmer

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Although the objective theory of contracts applies in virtually all jurisdictions in the United States, some aspects of subjectivity are nevertheless present in American law. For instance, many of the grounds by which a party or parties may avoid a contract, such as mistake or duress, are based upon the subjective beliefs or intentions of the parties.

Cases: Lucy v. Zehmer: Issue: Can a reasonable person objectively believe the offer was real?Zehmer did not indicate to Lucy by word or act that he was not in earnest about selling farm. There had been what appeared to be a good faith offer and a good faith acceptance, followed by execution and apparent delivery of written contract. Nothing was said or done to indicate the matter was a joke. The mental assent of the parties isn’t requisite for the formation of a contract. If words or other acts have but one reasonable meaning, then his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to other party. However, there was no evidence of hard bargaining b/w them (where did $50,000 come from?) which is the best indication that buyer and seller were both in earnest. ChirelsteinZehmer intended for Lucy not to know he was joking by whispering to wife about joke and not aloud. Counter for Lucy: negotiation went on for only a couple of minutes, though.

A Bargain Requires1. Consideration2. Mutual Assent3. Offer4. Acceptance

1. Assent is determined objectively in order to: Avoid Fraud Practicality Historically, it was intended to make people conform to reasonable standards. If words and acts judge by a reasonable standard manifest an intent to agree, it does not matter what a party’s latent intent

was.Objective Theory: The objective theory of contracts provides that mutual assent to a contract is determined by reference to external acts and manifestations, not by evidence of subjective, internal intention. Stated more simply, contract formation depends on what is communicated, not on what is merely thought. 2 Thus, modern objective theory provides that "objective manifestations of intent of [a] party should generally be viewed from the vantage point of a reasonable person in the position of the other party."

2. Misunderstanding in Mutual Assent §20 No mutual assent if parties attach materially different meanings to their manifestations and

o Neither party knows the meaning (or has reason to) attached by the other.o Each party knows the meaning (or has reason to) attached by the other.

If Lucy had heard Zehmer’s whispers.o It is a contract if A knows or has reason to know B’s meaning, and B knows or has reason to

know A’s meaning. Manifestations of the Parties are operative in accordance with the meaning attached to them if

o Party doesn’t know of a different meaning, and the other knows the other’s meaning (Lucy v. Zehmer)

o No reason to know any different meaning attached, and the other knows the other’s meaning (Lucy v. Zehmer)

o Pepsi-Jet no reasonable person would believe they can buy a jet for 700K with Pepsi points.

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o Embry it was a contract, because the boss’s words manifested an intent to rehire, and his words would be interpreted as an intent by a reasonable person. Things you would want to look at:

Practice of company on question. Industry standard. Past relations in transaction.

Promise for Past Benefit

Promise for Past Benefit:

PAST CONSIDERATION:A K cannot be formed based on a legal right that had already been given up, with a few exceptions. Some modern courts side step this doctrine and enforce promises made after a material benefit has been conveyed. (RST II 86, Webb v. McGowan)

R2d 86 Promise for past benefit is binding only to the extent necessary to prevent injustice, unless it was a gift or the promisor hasn’t been unjustly enriched, or the value is disproportionate to the benefit.

Unjust Enrichment:o Feinberg v. Pfeiffer no consideration for past benefit. It would not have been unjust enrichment to her boss,

because she was paid for her work. She cannot collect on a bargain theory.o Webb v. McGowin It would have been unjust enrichment not to compensate Webb.o Paschall’s Inc. v. Dozier – Paschall's built an extra bathroom on Dozier's house at request of Dozier's daughter Best.

When Paschall tries to collect from Best, turns out she's bankrupt. So Paschall wants $$ from Dozier. Lower court dismisses because “an implied [contract] can

oo not arise against one benefited by the work contracted for by another…” but distinguish because value is received,

but original K is unenforceable…? Doziers have been unjustly enriched, but Best is the one who must pay because Doziers were not a party to the K. An implied undertaking can’t arise against one benefitted by the work performed, where work is done under a special K w/another…however, the situation is dissimilar where a person furnishes materials and labor undera K for benefit of 3rd party, and that K becomes unenforceable/invalid. Furnisher of the materials and labor must have exhausted his remedies against the person w/whom he had contracted, and still has not received the reasonable value of his services.

Past benefit applies when you are reaffirming an obligation that would be a contract but isn’t because of a technicality. (such as the statute of limitations If it runs and a party promises to pay anyway).

Promises to pay when no prior negotiations were possible and not intended as a gift. o Example someone paints your house and you promise to pay them, you would get expectation. Without a

promise, you might only get restitution. o Also, emergencies, as in Webb. Physicians, acting in a professional capacity.

CAB v. Ingram (covenants not to compete) The consideration for them to sign was enough due to the promotions and bonuses they got, but not just for their continued employment. Once the employees got these raises and promotions, they cannot refuse performance of the contracts. An invalid bilateral contract (b/c their contracts are terminable at will, CAB is not giving anything in exchange for Ingram signing) turns into a binding unilateral contract, once the performance is completed (CAB’s performance of the bonuses in exchange for Ingram’s promise not to compete). (59) Some courts say continued employment for at-will employment is consideration, and some say it is not.

Mills No material benefit to him, it was to his son. Bull case (a claim for restitution if there is no promise). When considering when to invoke promise for past benefit: formality of the promise, material benefit of definite and

substantial character, part performance, moral obligation, amount offered is not disproportional, harm to promisee.

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Reliance

Cases: Ricketts v. Scothorn, Feinberg v. Pfeiffer, D & G Stout (General) v. Bacardi,Keweitt, Drennan, Vastoler v. Am. Can. Co.

Reliance Theory, Promissory Estoppel: R2d § 90 (See Rickets as example)A promise that can be

o Reasonably expected to induce action/forbearanceo Induces action/forbearance (except in charity/ marriage settlement, you don’t have to prove that it induced an action

or reliance)o Injustice can only be avoided by enforcement.o The remedy granted is limited as justice requires.

A bargain contract requires both consideration and assent, and promissory estopple allows contractual enforcement when either one is missing.

Reliance comes into play often when consideration does not work, it would be unjust not to enforce the contract (Feinberg given expectation/didn’t receive reliance damages, bc it’s difficult for her to prove what she would’ve lost).

o Estopple precludes you from arguing that there was no consideration.

Expectation is hard to calculate at times, and so we use reliance. Can’t get exp dam in prom estoppel, must get reliance only. (D&G Stout, which extends promissory estoppel into the commercial realm. Prom estop allows recovery of reliance dam and not expectancy. Any promises of future employment are only expect dam, since employment relationship may be terminated by either party at any time. Must figure out if DG was expecting D to continue as supplier or if they were relying on it.)

R2d remedy is limited to “as justice requires” and removes the element of reliance as “definite and substantial character” (now it is just if reliance is reasonable).

Policy: Duty not to lead people on. Against P/E traditional meaning of a K is a bargain, but here there is no bargain. (concern that the only promise that

wouldn’t be enforced under P/E is a wholly executory Ks wouldn’t fall under §90)o However, judges haven’t done this, because they are really just making sure that justice is served. Judges aren’t

using §90 too liberally. Major deviation from a contract as a bargain for exchange. §90 is subject to much judicial discretion.

Ricketts v. Scothorn – while there wasn’t promise on P to do or refrain from doing anything, he gave note as gratuity. He intentionally influenced P to alter her position for the worse on faith of note and it would be grossly inequitable to prevent payment bc promise was given w/o consideration. P got expectation damages ($2k she expected) however, ct didn’t have to give her exp dam per Re 90 (as justice requires)Rule: Where a person changes position in detrimental reliance on a promise, the promisor may be stopped form later denying promise.

King v. Trustees of Boston Univ – either consideration or reliance was required and jury could’ve concluded that University’s efforts in caring for papers constituted reliance on King’s promise to transfer ownership of papers at time of his death.

Restitution

Cases: Cotnam v. Wisdom, Callano v. Oakwood Park Homes, Pyeatte v. Pyeatte

Restitution: restoring a benefit that has been unjustly retained.

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Cases for restitution:o Breaching party is seeking relief

such as a deposito Non-breaching party is seeking relief for losing K

when restitution is more than expectation if someone puts more into a K than they think they will and the other party breaches, you want back what

you already put into it.o When there is no Contract:

To prove unjust enrichment P must confer benefit to D, D must retain it. Benefit must be conferred with an expectation of payment (not a gift, not acting a Good Samaritan).

Professional acting in a Good Samaritan type capacity can be reimbursed. If you go out of your way a great deal to be a Good Samaritan, you can recover.

The P was not acting officiously (such as someone who just decides to paint your house without your knowledge).

o Unenforceable K situations K is void for no statute of frauds, illegal, etc.

o Callano v. Oakwood

Miscellaneous Contracts

Option K: R2d 87o Must have consideration (Dickinson v. Dodds)

A true option will give consideration not to revoke. Even nominal consideration is enough to keep an option alive.

o An offer to sell without consideration can be revoked until accepted (Dickinson v. Dodds)o There must be notice of revocation to the offeree for it to be revocable (indirect or direct).o An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the

part of the offeree before acceptance and which does induce such action or forbearance is binding as an option K to the extent necessary to prevent injustice.

Firm Offerso UCC 2-205 Only merchants can make firm offers as a form of consumer protection.

Offer by merchant to sell or buy goods in a signed writing which gives assurance that it will be held open is not revocable for lack of consideration for a reasonable time.

Firm contracts can’t be revoked by offeror unless time is up Does not require consideration Requires a signed document Can only be held open for a reasonable amount of time (not more than three months).

Part Performance (R2d45): When an offeror invites an offeree to accept by performance, an option K is created when the actor

beings performance.o This part performance is consideration.

The offeror’s duty is conditional on offeree’s completion of performance. Offeror must perform upon completion of the offeree’s performance. A promise is conditional if its performance will become due only if a particular event, known as “condition” occurs. This doesn’t mean that the promise isn’t biding until the vent occurs, but only that the event must occur before the promisor must perform. Like Insurance contracts…express conditions. If a home owner pays $1k in exchange for company’s promise to pay owner $100k if owner’s house is damaged.

The offer must be held open for a reasonable amount of time, in order to allow offeree to complete performance.

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A preparation for a performance is not enough to count as beginning a performance. The performance begun must be that which was bargained for.

The offeree is not obligated to finish (but the offeror must perform if the offeree does finish).o Ragosta v. Wilder: P tried to invoke R2d 45 and failed because beginning to take out loans was not beginning

performance. It was merely preparation for the performance, which is not sufficient. For R2d 45 to apply, one must have begun the performance that was bargained for.

(Since Ragosta didn’t actually perform, option K wasn’t ever created) R2d 45: When offer invites offeree to accept by performance, an option is created when

offeree either performs or begins performance. Performance must be invited by offer. 2-205-Ability to bind an option contract w/o consideration *important* Side note: If there was actual performance bargained for, offeree has right to continue to

finish performance w/o offeror revokingFamily Contracts:

More informal, often lacking detail Traditionally, they didn’t exist, but were seen as altruism or gifts. See Hamer v. Sidway (a contract, because there was bargained for consideration)

Employee handbooks Unilateral contracts: a promise (handbook) in exchange for a performance (employees working). Consideration for

abiding by the handbook is continued employment. Courts are split on handbooks.o Pine River State Bank v. Mettile Handbook is a unilateral contract. Continued performance of duties is

consideration the promises in the handbook.o Bankey Employer may alter terms of employment for existing employees by unilaterally changing its written

policy statements w/o prior notification to employee that it has reserved right to do so.Illusory Contracts

R2d 77: Promise is not consideration if promisor reserves a choice of alternative performances (unless both would have been consideration for the one bargained for).

(Strong v. Sheffield) Bilateral Promise - looks like a contract, but is not one (often for lack of consideration), so it will not be enforced. There is an apparent commitment, but it allows one party a way out. There was no fixed time on when the P would collect the money, just a time whenever he should elect to collect. If he had given a specific time or given up something than it would have had proper consideration to be enforced.

Satisfaction Clauses (Mattei v. Hopper) not illusory. One can only back out based on a good faith standard. These clauses do not invalidate a contract. Based on a subjective standard, unless it is for a sale of goods, and then it is based on an objective standard (reasonable person standards) p73-74 Fancy, taste, judgment standard (subjective standard), meaning a promisor’s determination that he isn’t satisfied, when made in good faith has been held to be a defense to an action on the contract- unrestricted, subjective test. The promisor’s duty to exercise his judgment in good faith is an adequate consideration to support the contract. P’s performance dependent on her satisfaction w/the leases to be obtained by her. There was neither illusory nor lacking in mutuality of obligation bc the parties inserted a provision in their K making P’s performcaance dependent on his satisfaction w/leases to be obtained by him in good faith.

Flexible Terms (both parties must act in good faith). Output Contracts Seller has flexible terms, that is, the buyer promises to buy all the seller produces. Requirements Contracts Buyer has flexible terms, that is, the seller promises to sell all the buyer

needs. (Gulf v. Eastern: Eastern gets spec. perf. b/c they had a req’s K, and they wanted to buy at their estimated cost).

Sidenote UCC 2-306: If one departs too much from an estimate made in the contract, it must be both reasonable and in good faith.

Implied Contracts

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Implied Contract (UCC 2-306(2)) Exclusive Endorsement Contract In an exclusive contract, there is an implied promise to use best efforts. Wood

v. Lucy Lady Duff-Gordon - The implied promise is that Wood would use best efforts to uphold his end of the bargain. Rule: exclusive dealing arrangements impose an obligation by seller to use best efforts to distribute and market goods. If a party can terminate agmt w/o any promise, then it’s illusory. However, if there’s some requirement w/a termination, then some obligation is made. Holding: the D gave an exclusive privilege, she was to have no right for at least 1 yr to place her own endorsements/market own designs, except through agency of P. The mercy of one party was not to be placed at mercy of other – instinct w/ obligation.The acceptance of an exclusive agency created by agmt is assumption of its duties, and a promise by agent to undertake and perform terms of K may be implied even though it’s not expressed in agmt. Phoenix Hermetic v. FiltrineA promise may be lacking and yet the whole writing may be “instinct w/an obligation,” imperfectly expressed. If that is so, there’s a K. McCall Co. v. Wright

Implied in Fact K: Did not agree in words, but it can be inferred from words/ actions/ etc. that you intend to be bound.

o Must have intent to contract o Must have a meeting of the minds.o Promisor may not be bound if promise, whether from content or circumstances of its making, is insufficiently

serious to indicate promisor’s intentSullivan v. O’Connor - Ct expressed concern that “patients may transform statements into firm promises in their own minds. Statemetns made for social purposes or among family members are another category in which promisor may not have intended to make a legally enforceable promise.Mitzel v. Hauck (social agreement) - Mitzel and Hauck as friends went on a hunting trip together. Mitzel drove and had an accident which caused injury to Hauck. Hauck contended that he was not a guest, but rather someone who entered into a contractual agreement to accompany Mitzel on the hunting trip. The Ct ruled that to consider agmt by Mitzel and Hauck to go hunting together as a legally enforceable K would be irresponsible. It would turn similar social affairs into legally enforceable situations.

Expectation damages. Painting house and watching it example.

Quasi-K (implied in law K, unjust enrichment, Quantum Meruit K): Legal Fiction to prevent unjust enrichment (think about Webb). No possible way to have a meeting of the minds and an intent to contract (unlike implied in fact Ks). To recover on a quasi- contract,

o the plaintiff must show that the defendant was unjustly enriched, o that a benefit was conferred, o that the defendant retained it, o and that it would be unjust to retain it.o Callano (nursery/shrubbery recovery from hoem builder, but K existed only w/deceased home owner) there

would’ve been unjust enrichment, but sued the wrong party. There must be a direct relationship. P didn’t expect D to pay. Quasi-contractual recovery isn’t available when an alternative remedy based on an actual contract exists. Quasi K cases involve either some direct relationship bw parties or mistake on part of person giving benefit. A P isn’t entitled to employe legal fiction of quasi-K to “substitute one promisor or debtor for another. Quasi-contract (implied-in-law contract): An obligation created by law for the sake of justice; specif., an

obligation imposed by law because of some special relationship between the parties or because one of them would otherwise be unjustly enriched. • An implied-in-law contract is not actually a contract, but instead is a remedy that allows the plaintiff to recover a benefit conferred on the defendant.

Officious Intermeddler – One whoe performs and then expects payment w/o K. Ex. Someone who plants $5000 w/o agmt and then demands payment.

o § 110 Says that a person who has conferred a benefit on another as the performance of a contract with a third person is not entitled to restitution from the other merely because of the failure of performance by the third person.

Cotnam v. Wisdom: Re 371(a)

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o Professional Good Samaritan, so he will be reimbursed. When dr. renders emergency med services to someone, who due to med or mental condition isn’t capable

of agreeing to treatment, law will imply a K for reasonable value of service. Doctors will be compensated reasonably, on the standard scale. We want to encourage doctors to step in on the behalf of the injured. May be a promise in restitution case, buy may be unenforceable still under certain circumstances. Restitution in general, not necessarily relative to damages. (restitution is to avoid unjust enrichment; not a

substitute to consideration) Restitution cases are usually not tied to exp damages b/c exp dam are used in actual promises. In emergency situations, the measure is what most people in our society as a whole would help or not; alos

whether person helping is “in the business” of event their helping The more time/cost consuming the help is, the more compensation is expected…all w/o promises. The K in question was an implied or quasi contract made since the D was unable to assent or provide a

return promise. The financial condition of a pt can’t be considered where there isn’t a K and recover is sustained on a legal

fiction which raises a K. The services are the same whether pt is poor or rich. Implied K: there’s no promise, mutuality in obligation. An obligation created by law for sake of justice,

specifically, an obligation imposed by law bc some special relationship bw parties or bc one of them would otherwise be unjustly enriched.

Family Contracts:o Only enforced in extraordinary and unilateral benefits.o Pyeatte v. Pyeatte (law school hubby leaves wife after grad)– While ex-spouses aren’t entitled to

restitution for performing usual duties incidental to marriage, restitution is available if spouses had agmt and one spouse made extraordinary efforts which benefited the other solely.

Not an expressed bargain because it was too indefinite. Ct didn’t enforce K b/c it lacked definiteness and certainty. Where both spouses perform usual activities of marital relationship, when dissolving marriage there can’t

be restitution for performance of said activities. But where facts demonstrate n agmt bw spouses and extraordinary or unilateral effort by one spouse which gives benefit solely to other by time of dissolution, then restitution remedy is appropriate.

It wouldn’t have been unjust enrichment if she benefited from becoming a lawyer’s wife. Sex issue courts wouldn’t have enforced this K between a co-habiting unwed couple.

Pre-Contractual Liability

Section 90 Reliance, Promissory Estoppelo Reliance without an Offer

Hoffman v. Red Owl Stores: Here, there is a potential franchise relationship. ROS must reasonably foresee that their actions would induce H’s actions. Justice can only be avoiding by enforcing this contract.

o Reliance without Agreement in Terms

Cyberchron Corp. v. Calldata: Never reached agreement about the terms of the weight, but P was encouraged to continue anyway. P relied to their detriment, and receives reliance damages.

Option K §87

o An offer becomes irrevocable through reliance on an option K.

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o “An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and does so, is binding as an Option K to the extent necessary to avoid injustice.”

Drennan v. Star Paving: D has to hold their offer open for a reasonable amount of time. P relied on D’s bid in making their bid. No other way to place P in status quo perform K. (?)

Four ways to create an Irrevocable Offer

o R2d 45 (part performance)

o Reliance on an Offer creates an Option K (R2d87)

o True Option K

o UCC 2-207 Offer left open for a reasonable amount of time when there is a signed writing.

D&G Stout v. Bacardi: Promissory estoppel allows recovery of reliance damages, not expectancy.

Contractual Requirements

Definiteness

Terms must be definite enough that you can tell when a party has breached and form a remedy and must show the full intention of parties.

R2d 33: Offer cannot be accepted unless the terms of the K are reasonably certain, and they are if they provide a basis for determining breach and an appropriate remedy.

o Varney They say “I will give you a fair share of the profits if you stay.” Not definite enough.

Dissent says this could be determined.

o Definite Method to Reach a Price:

Toys, Inc. v. Burlington, Co.: Definiteness in question with the option to renew the lease. There is a definite and ascertainable method to reach a price, by looking at the mall current leasing rate.

It is not necessary for a K to contain all the terms, so long as the terms can be ascertained.

o Flexible Price Terms

UCC 2-305: K can be concluded without a set price term, and when the parties disagree, the price will be a reasonable one at the time of delivery, when the parties intend to be bound by the K.

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Oglebay Norton Co. v. Armco, Inc.: 2 pricing mechanisms break down. They keep performing, demonstrating intent to remain bound by the K. They had a long relationship that the court wanted to see continue. The court established a reasonable price.

Statute of Frauds

Writing Requirement still renders certain categories of K unenforceable if not commemorated in writing:

o K to guarantee someone’s debt

o Sales of Land

o K to be performed a later after the K formation

o Sales of goods greater than $500 (new UCC says 5K)

o Wills

Loopholes

o K can be enforced if one party wrote it down but the party seeking enforcement did not. A written confirmation following an oral agreement is okay.

o Video/ Audio tape is okay in some jurisdictions.

o It can be multiple, detached documents.

o Writing req. is satisfied if there once were documents that are now lost/ stolen/ destroyed.

o UCC 2-203 (3): if parties admit an oral K, it is enforceable.

o Restitution and Prom. Estop. Are used to enforce promises that are unenforceable under a traditional bargain theory because of statute of frauds.

CR Klewin v. Flagship

Contract Interpretation

Interpreting Contract Language: Express Terms

Evidence to interpret the terms is always admissible. R2d20 Misunderstanding: No mutual assent to an exchange if the parties do not know or do not have reason to

know of the meaning of the other parties or if the parties do know the different meaning of the other.

In interpreting multiple reasonable meanings of the express terms in a contract, look to:

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o First Any clues within the contract (look at interpretation keys below).

o Next Look to course of Performance (course of performing THIS K).

o Then Look at course of dealing (previous conduct b/w the parties).

o Finally Look at trade usage (practice having regulation that will justify its usage, usually expert testimony).

In Frigaliment, D showed that it was beginning in the poultry trade, so when one of the parties is not a member of the trade, that party must be made to be known and agree to the trade usage.

Usually, admit trade usage to interpret analogous cases.

Critique don’t impose terms just b/c they are standard.

Some say newcomers shouldn’t be bound, some say outsiders aren’t bound, and some say once you join the trade you should be bound.

Policies to Interpret Express Terms in a K:

o R2d 202 Rules to Aid Interpretation: Principle purpose of the parties is given great weight. All writings are interpreted together. Unless a different intention is manifested, where lang. has a generally prevailing meaning it will be given that meaning, tech. words or art words are given that meaning when used in that field. Course of Performance is given great weight. When reasonable, interpreted with course of perf., dealing, and trade.

o Contract Construed Against Drafter: Any ambiguities caused by the drafter of the K must be resolved against him.

o Interpret K so as to give effect to its principle purpose.

o Interpret K in accordance with public policy

o Interpret K to be lawful, reasonable, and internally consistent.

o Specific weight should be given to separately added boiler plate terms.

o When a list is given, only other things very similar to it will be included.

o UCC provides that course of perf., dealing, and trade usage are always admissible.

If it is determined that parties mean the same thing, subjective meaning prevails, according to R2d 201; if not, (as in Frigaliment), use the modified objective test.

o If B knows/ has reason to know A’s meaning and A doesn’t know or have reason to know of B’s, use A’s meaning. In Frigaliment, P couldn’t show that his meaning should prevail, so D prevailed.

Case Examples:

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o Frigaliment: Both had reasonable interpretations of chicken. D shows that P’s price interpretation would have been too low, that P continued to perform knowing the price discrepancy, and that P agreed previously to any kind of chicken.

o Raffles: No K here, b/c both parties acted in good faith, and a crucial term was omitted. Honest mutual mistake (R2d 20), they meant two different things.

Interpreting Contract Language: Implied Terms: Filling Gaps

There is an implied duty of good faith and fair dealing in almost every contract, according to UCC 1-203, and R2d 205.

o Good faith is NOT opportunism, interfering with the other party’s conduct, irrational or arbitrary discretion, hiding or lying about changed circumstances, destroying or injuring the other party’s ability to receive benefits of the K.

o UCC 2-103 Honesty in fact and the observance of reasonable standards of fair dealing.

Easterbrook (minority opinion), says you can contract around duty of good faith.

Interpreting the K/ Gap Fillers:

o Open Price Terms (UCC 2-305): A price can be left open, and if nothing is said, or the price is to be set by an agreed standard, or the parties don’t agree, the price will be a reasonable price at the time of delivery. A price fixed by seller/ buyer must be made in good faith.

o Sudden, Unreasonable Demands (UCC 2-306) are unenforceable. No unreasonable quantities, etc.

o Absence Of place of Delivery (UCC 2-308): Usually seller’s business (or home if he has no business)

o Absence Of Time Provisions (UCC 2-309): a reasonable time.

o Open Time for Payment (UCC 2-310): unless otherwise agreed, payment is generally due when buyer is to receive goods.

o Implied Warranty: Merchantability (UCC 2-314): There is an implied warranty that goods will be merchantable. They must pass the trade under the K description, be fit for the purpose, be of avg. quality, etc. MORE

o Implied Warranty, Fitness for a Particular Purpose (UCC 2-315): When seller knows the purpose for which the goods are bought, there is an implied warranty that the goods will be fit for such a purpose. MORE

o INSERT 2-316

Implied Terms, Duty of Good Faith:

o Dalton v. ETS: When P’s score was under review, D violated its good faith obligation to consider and review his new information, as per the K. (Duty of best efforts)

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o Eastern Air v. Gulf: P not violating good faith by fuel freighting. It is an industry standard & has been done in the courses of dealing and performance of this K. Are requirements Ks, in which seller agrees to make good-faith effort to meet all of buyer’s requirements, enforceable? Both parties have assumed some legal obligation. Eastern agreed to purchase all of its required oil and Gulf agreed to make good-faith efforts at meeting these requirements. UCC approves requirements Ks that are based on parties’ good faith. (fungible – Commercially interchangeable w/other prop of same kind ex corn and wheat are fungible goods, land isn’t) Contracts for the sale of goods are usually repeat players who’ve dealt w/eachother over time, so that part understandings and customs/practices w/in trade give added content to agmts. Terms/forms are standardized. In contrast to real prop, goods are fungible. Commercial Impracticability – Occurrence of contingency whose nonoccurrence was an assumption in K, as a result one party can’t perform (excuse by failure of presupposed conditions). Satisfaction promises: matter of taste/judge – fancy test, and commercial satisfaction

o Dickey v. Minit Man: Under the non-complying use provision, there is no implied term in the K for D to maximize the profits for P. D should not have to stick with a business that is bad for them.

o Bak-a-lum v. ALCOA: P was D’s exclusive distributor, and led P to believe that the K would continue, so P acquired new space, relying on D. D violated the implied duty of good faith. D needed to give reasonable notice.

o Sheets v. Teddy’s Frosted Foods: P has to choose between turning in his boss (which would be illegal not to do) and getting fired. Even in an at-will employment K, we don’t want employees to be held hostage, and we want to encourage whistle blowers. P cannot be fired for promoting the public interest.

o Balla v. Gambro: P is in-house counsel, and he reports his boss to the FDA, and is fired. This is not the minority rule (CA does not agree with this case), but it says that all attorneys can be fired at will. There is a confidentiality concern when criminals tell their lawyers about their crimes.

Parol Evidence Rule

o If it applies, it prevents one party from giving evidence of “prior or contemporaneous agreements or negotiations.”

Example: Gianni Written lease to sell soda, candy, etc. P claims there was an oral agreement that he was to be exclusive soda seller as consideration for not selling tobacco. Court determines this was a complete integration of the K, so no evidence to contradict the K is admissible.

o Steps to determine if PER applies:

Is the K an integration? Is it a complete or a partial integration?

To decide if it is complete or partial, 2 views:

o 1. Classical View: Look at the K itself. Only if it appears incomplete is it partial.

o 2. Modern View, R2d (214) says you need to bring in all the available evidence in order to decide if the integration is complete. (Most courts will at least bring in context).

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Note: if you bring a claim of fraud, you can bring in extrinsic evidence to prove that claim.

o Merger Clause can show intent to be an integration, but may not be conclusive in a standardized K.

If it is a complete integration:

o You cannot contradict or supplement it,

If it is a partial integration:

o You cannot contradict it, but you can supplement it.

o Masterson v. Sine: P sells ranch with option to buy it back. Can D bring in evidence that the option was meant to be left in the family? Majority says the K is a partial integration (b/c deeds are likely to be so) and extrinsic oral agreement is consistent (although dissent says the extrinsic evidence is contradictory).

o When arguing to admit evidence mention ambiguity in the agreement (evidence to explain is not barred), evidence offered to establish the K is invalid (such as fraud), evidence that the K was not intended to be an integration, reliance, merger clauses not conclusive.

o Arguments for PER:

Written word is reliable, lower chance of fraud

Makes K law predictable, can rely on the fact that Ks say what they say

Cannot trust jury to weigh evidence correctly.

o Arguments against PER:

Words do not have plain meaning or stable referents

We should allow all evidence to give effect to intent of parties.

We should trust a jury to weight written word more heavily even with extrinsic evidence.

PER leads to lots of legal battles and does not make law more stable.

o Reformation of the Contract and PER

When error in reducing parties negotiations to writing produces writing that does not accurately express party’s agreement, may admit Parol Evidence and Reform the K.

Bollinger admit oral agreement to make a waste sandwich.

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o No Oral Modification clauses

These clauses concern oral agreements that come after the formation of the K. These are often not upheld.

UCC 2-209 allows for NOMs b/w merchants where it is separately signed and agreed to.

If an oral modification is relied on, it can act as a waiver to the NOM.

o Exceptions to PER:

Does not preclude collateral agreements.

Does not exclude evidence of negotiations after written agreement was made, evidence to show no agreement or agreement invalid (defenses), evidence of integration, or evidence to interpret the writing.

UCC 2-202: No contradiction can be admitted, but K can always be explained or supplemented by trade usage, course or dealing, and course of performance.

Merger clauses may not conclusively determine complete integration for standardized K. (R2d211)

o To interpret K, PER bars admission when:

2 steps:

Is lang. ambiguous? If yes, then admit evidence of prior negotiations for interpreting express terms.

Classical Rule says it either is or is not ambiguous.

WWW: Lang. of the K is unambiguous and cannot be made ambiguous by the extrinsic evidence.

Modern Rule says admit extrinsic evidence to determine whether express terms are reasonably susceptible to meaning contended by parties, and if not, then exclude.

PG&E: (Indemnity clause case): look at extrinsic evidence to see if the K is ambiguous.

o Course of Dealing and Trade Usage

Even with a complete integration, you can always admit course of dealing and trade usage for interpretation and for supplementation if consistent.

Nanakuli Price Protection case. P argues course of performance, and trade usage. D says trade usage contradicts express term, and should not be admitted. UCC favors admittance of TU, and trade usage was not a total negation of express terms, so it was admitted.

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Policing Bargains, Defenses

When Ks seem unfair if there is a threat, look to duress. If there is a trust relationship, look to undue influence. General unfairness look to Unconscionable.

Usually, people are trying to void the K, and get restitution damages at best. Ks violating public policy are void.

Incapacity: (defenses to get out of the K.)

o Children do not have the capacity to contract. Minor’s K is void-able at the determination of the minor. Minor’s can’t affirm a contract before they turn 18, but they can after they turn 18. Traditional rule: minor only has to return what is left, not liable in restitution for full benefit received. Exceptions:

Necessities

Minor seeking recovery for cash paid.

In some states, minor’s misrepresenting age. Adult can get full restitution.

o Mental: Test do you know and understand the K entered into if not, the contract is void-able. R2d adds: if you were unable to act with reasonability, and the other party knew, this bars the K.

o Drug/ Intox: void-able only if the other party has reason to know of the incapacity.

Pressure in Bargaining:

o Pre-existing Duty Rule: No consideration for a promise that you already are bound to.

Problem allow for changes in contracts.

Classical rule is expanded to allow for modifications to the K that are made in good faith.

Alaska Packers Ass’n v. Domenico: D was already bound to do the work, and there was no consideration for the higher price they demanded. D acted in bad faith, and P was under duress, because P had no reasonable alternative (a “hold-up” situation).

o Good Faith Modifications to Contracts: R2d 89 Modifications to a bilateral contract are enforceable if it is fair and equitable in light of unanticipated circumstances or if justice can be avoided only by modification, or under UCC 2-209: Modifications in writing w/o consideration are enforceable.

To evaluate the good faith standard: evaluate the state of mind of the person requesting the modification in light of the overall circumstances and the business justifications.

Watkins & Son v. Carrig: Oral agreement to increase the price is enforceable, b/c D did not object and the new price was reasonable in light of unanticipated circumstances. There was good faith.

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o Duress Doctrine: If you were prevented from exercising free will, K not enforceable (the classical rule, a very narrow rule). Duress is an improper threat (a threat that is expressed or implied, that is improper, and must induce the apparent assent, leaving the victim no reasonable alternative) pressure that induces assent to the contract. Forms:

Threat of physical harm (voids the K, according to R2d 174, 175).

Anything that is a crime or a tort.

An offer that cannot be refused.

A threat leaving no reasonable alternative.

A threat of a frivolous lawsuit, made in bad faith.

Breach of duty in bad faith.

Threats that are egregious amount to duress, regardless of the result. (R2d176) The bar will lower for duress if the resulting exchange is really unfair.

o Economic Duress Doctrine: polices situations in which one party is very constrained in their choices due in part to the action of other parties. It deprives a party of free will and provides no reasonable alternative. Normal remedy for breach is inadequate.

Austin v. Loral: P threatened to stop shipment if D didn’t award them the whole K and agree to a new higher price. D agreed because they had no reasonable alternative. This is economic duress, b/c P deprived D of free will, and left D with no reasonable alternatives, but to agree to P’s terms. This is the type of hold up that can occur when one party has a temp. monopoly over the other. Normal remedy for breach was inadequate.

o Undue Influence: One party is under the dominance of the other, or they are in a very special, confidential relationship. One party abused the position of dominance to persuade the subservient party to enter into a disadvantageous contract. (Duress unlawful threat, Undue influence abuse of trust, R2d 177)

Two requirements of undue influence: establish relationship of dependency and trust that they gave the influencing party dominance over you and that justify you in believing that he wouldn’t act contrary to your interests. Establish that they improperly abused the position of trust and psychological advantage by unfairly persuading you to enter into a K that is adverse to your interest.

Odorizzi v. Bloomfield School District: D came to P’s house and threatened to fire him if he did not resign. He was persuasively convinced to resign, without convincing his judgment.

Factors in Undue Influence:

o Presence in home, influenced at an unusual place.

o P cannot consult a lawyer.

o Forced to sign at once.

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o Large group coercion.

o Confidential relations

o Misrepresentation

A misrepresentation is an assertion that is not in accord with the facts. R2d says that if a K is fraudulent (intent to deceive) or material (central term to the making of the K), it can be voided, even if the misrepresentation is not intentional, but it is important to the K. (R2d 162)

Three elements to misrepresentations:

Fraudulent (lie, intentional deceit) or material (important to the deal) assertion

Recipient justifiably relies

Induces assent

Misrepresentation makes the K voidable at the request of the misrepresented party.

The most damages you could get would be restitution (usually, just a voided K); Breach of warranty (implied or express) can provide full damages.

The misrepresenting party can get out of a contract by:

Lying to the other party about what is in the K (some courts require that the parties read the Ks).

In general, an opinion is not a misrepresentation. Exceptions:

o Imbalance of power

o Person is particularly susceptible (and the other party probably knows so)

o Fiduciary relationship (relationship where you rely on their opinion, relationship of trust and confidence)

o Artifice or trick.

Vokes v. Arthur Murray, Inc.: P’s dance abilities were misrepresented. Opinion works in a misrepresentation case here, b/c D is in a superior position of knowledge. D’s fraud tricked P into a lifetime of lessons, and we do not like to enforce extremely long term contracts.

o Sales of Goods:

Go for breach of warranty because you will get more damages.

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UCC 2-314: There is an implied warranty of merchantability with respect to goods of that kind.

UCC 2-315: Where the seller has reason to know that the particular purpose on which the buyer is relying, there is an implied warranty that the goods shall be fit for such a purpose.

o Concealment

Concealment can amount to misrepresentation.

Breach is better than non-disclosure, because you will get damages for breach of K.

You can get incidental/ consequential damages

Insert 161, 162, 163. what are the damages??

Traditional Rule is that: No duty to disclose latent defects (no liability for bare non-disclosure)

Modern Rule: there are Mandatory Disclosures:

It is necessary to correct a mistake of basic assumption, because you have a duty of good faith and fair dealing.

Half-truths

Correct a mistake about a writing

Fiduciary Relationships (relationships of trust and confidence)

Factors to consider:

Most jurisdictions require that deep secrets are revealed.

Courts are split on whether you have to disclose shallow secrets.

Look at deep/ shallow secrets and latent/ blatant defect distinctions.

There is no duty on the part of the buyer to disclose virtues.

Swinton v. Whitinsville Sav. Bank: D knows that the house is infested with termites, but doesn’t say anything. We don’t want to force sellers to say everything. (If they had applied the 1st exception, this case would have turned out differently).

Kannavos v. Annino: If you do not say anything, you are not lying. If you start to say anything, you must tell the whole truth. D misrepresents that the building can be an apt. building, while knowing of the zoning violations. This is a half truth (not bare-non disclosure).

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Public Policies on Policing the Bargain

o Distribute the cost of investigation to the cheapest investigator.

o Favor buyers over sellers who have investigated.

o Breach of warranty claims lead to better recovery than misrep. claims.

Adhesion Contracts and Unconscionability

Classical Approach: Duty to read the K, signed contracts should be enforced. Adhesion Ks: One party creates the K, and the other only has the opportunity to reject or accept it.

There is no bargaining over the terms.

o Some argue that this is a return to status governing the contract.

o The contract is more like a law and less like a bargain.

o Party does not give actual consent, because there is no choice.

Standard Form Ks are mass produced adhesion Ks.

o Tickets/ Stubs:

You would not think that is a contract, so it will not be enforced unless the party makes specific notice of the K.

o Advantages of Standard Form Ks:

Judges can interpret one K, and it can serve as an interpretation for all Ks.

Reduce uncertainty, save time and trouble

Simplify planning and administration, and make superior drafting skill widely available.

Can create good industry standards and reduce transaction costs.

o Disadvantages:

One party can assert it will on an unwilling/ unwitting party.

A party with strong economic power can assert its power over a weak party.

No opportunity to bargain over the terms.

Drafting party has more time to scrutinize the K and understand the terms..

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Unreasonable terms that a party would not assent to aren’t accepted.

R2d 211: In signing a K of adhesion, you agree to the negotiated terms, and all reasonable terms.

o Where the other party has reason to believe that the party would not agree to the K if he knew there was a term in

the that party would not assent to, the K is voidable. (Widely accepted in insurance Ks)

o Terms that are unconscionable can be eliminated, or the whole K can be eliminated.

Henningsen falls in here this term shouldn’t be in the K because it is beyond reasonable expectations.

Standard Form Contracts:

o K law frowns upon exculpatory clauses for liability for negligence.

O’Callaghan: P sued landlord D for negligence, but there was an exculpatory clause in her lease. She said this was a K of adhesion that shouldn’t be enforced because she had to sign in a housing shortage. Majority disagrees, and says there was a competitive market; she could have found other options.

Henningsen: P sued D for implied breach of warranty. There was a liability disclaimer in the mass produced K. Since there was no competition in the market, the K never called attention to the warranty and D tried to hide their terms, and you cannot sign away all liability for a product defect, verdict for P (even though she didn’t read the fine print).

Carnival Cruise Lines: P purchased tix with a forum selection clause. Procedurally, notice was given to P (who knew of the clause), and substantively, everyone saved from the clause. D didn’t operate in bad faith. Even though the tix weren’t refundable, a forum selection clause is w/in a customer’s reasonable expectations.

o Public Policy Concerns:

Hold people to their contracts

Hold people to duty of care

Allow buyers to sue

Substantive ensure fair terms.

Procedural lack of bargaining and competition.

Unconscionability:

o UCC 2-302: (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

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o A term is Unconscionable if:

o Unconscionability occurs where there is an absence of meaningful choice and the terms are unreasonably one-sided.

o Usually, both procedural (unfair surprise, and absence of meaningful choice, fine print and hidden terms, market failure of competition, home sales) and substantive (oppression and one sided terms, unfair result) unconscionability are required. (there is a sliding scale b/w the two)

o A term is unconscionable if it is not w/in the reasonable expectations of the adhering party or if the K is unduly oppressive.

o Price Unconscionability: If the price is really egregious, then there may be intervention.

Williams v. Walker Thomas Furniture: Cross Collateralization clause was unconscionable, because they sold at her house, knew P was very poor, and she did not understand the terms of the K. The cross collateralization clause was an “oppressive and unfair surprise.” (Paternalistic case)

Jones v. Star Credit: Home sale, P is on welfare, charged far over what the product was worth and what was agreed to. Bargaining power is great. Shows the difficulty of determining when a price term alone is unconscionable.

o Arbitration Unconscionability:

Hill v. Gateway: Rolling K: arbitration clause is unconscionable b/c the fees are too high and discourage arbitration. Substantive unconscionability is so high that that alone can render the K unconscionable.

Armendariz: The arbitration agreement is adhesive b/c P could not negotiate it. There is no modicum of bilaterality, because only the employees have to arbitrate. The K is also unconscionable because it does not permit the full recovery of damages for employees.

o Legislative limits precluding unconscionability:

Cooling off periods

Full disclosure of warranty information

Caps on interest rates

No cross-collateralization clauses.

Illegality and Violations of Public Policy

Surrogacy Agreementso States have differing opinions. They can be enforced, criminalized, or made voidable.

o Arguments against Surrogacy Agreements:

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(Family Law): “Baby-selling,” termination of a parental right, revocability.

Children should grow up with their natural parents.

Child should go to the best parents, not the highest bidder.

SurMom is uninformed about what she is giving up.

Exploitation of SurMom (Breeder Class)

Commodification of children.

Most will not allow a surmom to be bound to giving up her child.

o Arguments in favor of Surrogacy Agreements:

Favors the intentional family, the one who wanted the child.

The father is still the natural father, and we encourage his rights.

Freedom of K is encouraged.

Surrogacy was not in mind when adoption statutes were made.

Paternalistic to tell a woman that she cannot enter into this K.

o Baby M: Agreement that surrogate mom would terminate legal rights went sour, and the surmom wanted custody. S.C. said that surrogacy Ks were unenforceable, and gave the baby to the father and his wife, b/c this was in the baby’s best interest.

o Calvert: Under the Uniform Parentage Act, the mom is the birthing or genetic mother. The court looks to intent and determines that the genetic mother should get the child.

Covenants-Not-To-Compete

o California does not ever enforce covenants not to compete.

o Courts construe against the party seeking enforcement.

o Elements in a reasonable Covenant-Not-To-Compete

No more protection than the employer needs.

No undue hardship to the employee.

Not injurious to the public (protect public interest in choosing their co).

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o Arguments against Covenants-Not-To-Compete

Employees should have freedom to work (don’t deprive them of livelihoods)

Employees should have freedom of contract.

o Arguments For Covenants-Not-To-Compete

Employers want to protect their investments

Employers do not want their employees to take away clients.

Employers do not want their employees to take away trade secrets.

Freedom to contract.

o Hopper v. All Pet Animal Clinic: Her K said that she couldn’t have a small pet clinic within five miles for three years. Court ruled that the clause was enforceable, with a modification to a one year time limit. Then, it passed the three point test.

o Court imposed Modifications to Restrictive Ks

Two Approaches:

Blue pencil rule cross out unreasonable terms, and leave the remaining terms to govern the K.

Reasonableness Rule court can take out unreasonable terms and modify them to make more reasonable terms. (There is an argument against this, that employers could just impose unreasonable terms, knowing that either the court will modify them, or there employer will not sue).

Alternatively, they could just reject the entire contract.

CAB: Covenants-Not-To-Compete were too broad. The court imposes it’s own limitations to fit within the 3 point test for a CNTC, according to a reasonableness rule.

Pre-Nuptial Agreements

o Traditionally seen to promote divorce, they are now becoming more enforceable, under the Uniform Premarital Agreements Act.

o Test if Valid: Entered into voluntarily and need a full and fair disclosure of the financial positions of the parties. Without it, a material misrepresentation in the inducement for entering a pre-nup may be asserted.

o Simeone v. Simeone: Important points:

Law should treat Pre-Nups like any contract, and not enquire into the adequacy.

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A full and fair disclosure of the parties financial situation is required.

Not enforcing an unequal K would be paternalistic.

P was not under duress when she signed the agreement.

Dissent says don’t enforce when they are vastly unfair.

o Bonds v. Bonds: Important points:

Lack of independent counsel is one factor in determining voluntariness.

Pre-Nup should be evaluated as b/w a normal K (and therefore do not inquire in to the adequacy) and a marriage settlement.

Conflicting stories, but the court believes she was well informed of what she was waiving.

o California Premarital Agreement Legislation: ensures that the party signs a week before the wedding, have or waive independent counsel, and it is not enforceable it is not entered into voluntarily or if the K is unconscionable.

Mistake, Impracticability, and Frustration

Elements of a Mistake Claim:o Was there a belief not in accord with the facts?

o Was this fact a basic assumption of the K?

o Did the mistake have a material affect?

o Did the adverse party bear the risk? To Decide did the court allocate (according to custom, trade usage, buyer seller distinctions such as rewarding buyers for investigations, etc.) or did the agreement allocate (inferred from the agreement that one of the parties intended to bear the risk).

If not, then…

If it was a mutual mistake, then the K is voidable/ reformable.

If it was a unilateral mistake, then…

o Would enforcement be unconscionable?

o Did the other party know/ HRTK of mistake or was it their fault?

o If yes to either, K is voidable.

Mutual Mistake

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o Cow Case K for a completely different item, voided K (no longer applicable)

o Diamond Case Jeweler benefits. Seller knows there is an issue and doesn’t investigate (although she argues that she did investigate through the jeweler).

o Stees building was built on quicksand and collapses. P would lose on mutual mistake here because both parties discussed draining the land.

o Renner Mistake in that the property was not suitable to grow jojoba. This was a basic assumption of the K and neither party bore the risk, so the K was voided at the determination of the adverse party.

o Baseball card cases consider the buyer/ seller distinctions: we favor buyers who have investigated, sellers usually have had ample opportunity to investigate, reliance interests, conscious ignorance.

Impracticability

o Elements of an Impracticability Claim

Occurrence of an event/ contingency

Non-occurrence of which was a basic assumption of the contract

Not fairly to be regarded as within the risks of the K.

Made performance impracticable.

Is there no real alternative?

o Today, if there is a good alternative, the K has not become impracticable.

By saying that a certain something was an implied condition of the K, then if that thing disappears, you can say the K is impossible to be performed.

Notes

Designation of a Particular crop/ good shifts the risk to the buyer.

Half destruction: companies can allocate goods to whoever they want.

o Classic Doctrine of Impossibility

Taylor v. Caldwell concert hall burns down, and courts insert an implied condition that the music hall is going to continue to exist. K voided.

o Foreseeability and “Bearing the Risk”

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Transatlantic Suez Canal closed, so P had to go around the Cape of Good Hope to make D’s delivery. P wanted money back for extra expenses. Court says P bore risk since the closure was foreseeable. Performance was not impracticable. It was less profitable, but not impracticable

Foreseeability a foreseeable risk is not necessarily allocated to that party, but it is a factor. Not every risk can be provided for, but if the risk is a real possibility it becomes part of the K. Consider if it was foreseen or if parties tacitly agreed on it.

Bearing the Risk To determine if one party bore the risk, look at

o 1. The terms in the K.

Sometimes there will be a force majeure clause, excusing performance for certain acts.

o 2. Other terms of the negotiation, implied terms

o 3. Custom

o 4. Economic Analyses

Eastern v. Gulf D claims impracticability b/c of the energy crisis. However, D could have protected itself in the K, b/c the energy crisis was foreseeable. This court held that since the energy crisis was foreseeable, foreseeability is the test, and therefore D assumed the risk.

Mistake v. Impracticability:

o Mutual Mistake is easier to prove. It only requires showing a material effect. Impracticability requires that there is no real alternative, and that is very hard to prove.

Frustration of Purpose

o Principle purpose is frustrated by the occurrence of an event, the non-occurrence of which was a basic assumption of the K. This is a buyer’s claim (I wanted to buy this from you, but now it is worthless to me…)

Ask who bears the risk, was it foreseeable, was the risk allocated?

UCC does not cover frustration, but adheres to R2d 265 by analogy.

We are more likely to let people out on this defense if there has been no reliance.

o Krell v. Henry: King got sick and the coronation was cancelled. D advertised his apt. as usable during the coronation, and P leased it for that time. However, the principle purpose for which P wanted to use the apt. was frustrated. The non-occurrence of the cancellation was a basic assumption of the K.

Once a seller knows/ HRTK of buyer’s principle purpose, it becomes a basic assumption of the K.

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o Chase v. Paonessa: P was producing medians for D, and stopped at D’s instruction that there was a cancellation in the construction work. P was aware that there might be a cancellation, but D did not allocate the risk b/c they were not aware of the possibility of such a major cancellation.

Conditions

o Express conditions will be read strictly if a condition does not occur, no K.

o Promissory Conditions event is a condition of A’s duty and B has a duty to see that event occurs.

o Condition v. Duty/ Promise

Duty/ Promise If it doesn’t occur, you can sue for breach. You must still perform if the other substantially performs. Can usually be modified.

Condition If a condition does not occur, avoid the K. It discharges a duty to perform. Can be waived or excused by the court.

Promissory Condition If it does not occur, you can get damages, breach, and a discharge of duties to perform.

Remedies

Classic View: What damages would parties have assumed risk for at time of K-ing?Realist: Now that we have this mess, how do we clean it up, equitably?

Restitution Interest: Plaintiff’s interest in having any benefit conferred on the defendant restored to him. Unusual to award restitution Often occurs when returning a deposit. Most commonly applied in construction cases. Sometimes given as an option if it is more than expectation damages.

Reliance Interest: Plaintiff’s interest in being reimbursed for loss caused by being put in as good a position as he would have been if the contract had not been formed.

Sullivan v. O’Connor (or expectation) she is compensated for expenses, pain and suffering of the third surgery, and worsening. The court tries to put her in a pre-op position. It would be too hard to give her expectation here (how much more work would this get her?). Hairy Hand Rule inapplicable in this case because there is no way to quantify expectation damages.

Sometimes given when expectation seems too high. Sometimes given when expectation is hard/ impossible to determine. Pre- contract value – post contract value= reliance damages. (Do not take into account the bargained for costs).

Expectation Interest: Plaintiff’s interest in having the benefit of his bargain by being put in as good a position as he would have been if the contract had been performed.

Expectation damages are the standard for breach of contracts b/c reliance and restitution would over-encourage breach, and punitive damages would under-encourage breach.

A wholly executory K that is breached should be compensated with expectation damages (unless specific performance is appropriate).

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Hawkins v. McGee (Hairy Hand Rule) Gains prevented + loss sustained + value of botched job= expectation damages. Promised value- post contract or present value= damages. If a seller breaches, expectation damages are the fair market value of the promise at the time the promise is made. (Does the

fair market value only matter if the buyer breaches??)

Punitive Damages: Additional money damages meant to punish the defendant rather than benefit the plaintiff. In breach of K, no punitive damages unless there is a tortuous, fraudulent or outrageous misconduct. Extreme effect of punitive damages is specific performance. Werner v. Lewis: awards punitive damages to deter the defendant and other like-situated people. (He is more culpable due to

their relationship and his expertise). Not given because they do not want to get criminality involved, moral reasons.

Specific Performance: Court order for defendant to carry out the contract, rather than pay money damages (only if plaintiff cannot be put in as good a position as the performance of a contract).

Comes out of the courts of equity. Land almost always falls under specific performance. UCC 2-716—goods that are unique or in other proper circumstances. R2d 369--says that spec perf is granted when unique (get a suitable substitute by means of money damages), hard to prove,

or hard/impossible to collect. o Look at adequacy and uniqueness.

Klein v. PepsiCo Inc.: Specific Performance is granted if goods sought are unique or for “other circumstances.” (here, the jet was not unique, as Klein had access to buy another no spec. pref.)

Laclede v. Amoco extended uniqueness to unique contracts. (It was doubtful that Laclede could get another like contract). REPLEVIN—the other goods are out there, they are not unique, but it is unlikely that you can cover.

Walgreen v. Sara Creek: a balance in costs and benefits in an injunction calling for specific performance should be withheld. (here, it is not withheld, b/c the costs of the court monitoring the injunction would be lower than trying to calculate any damages). BILATERAL MONOPOLY they could only compete with each other, which means they aren’t going to be able to bargain for better contracts (discourages bargaining).

No specific performance if expectation damages could be provided, and the goods sought aren’t unique. Likelihood of receiving monetary damages and proving damages with reasonable certainty are also considered in spec pref. Not granted if you can “cover” find a substitute.

o Non-breaching party cannot sue for spec perf unless they try to cover.

Specific Performance vs. Damages: Cons of damages

o Diminished accuracy in determination of values.o Parties expenditures in negotiation of damages.o Timing of court to evaluate damages.

Cons of specific performanceo Courts supervision of injunction is expensive.o Servitude arguments we shouldn’t force people to do things.o English common law, spec pref only got to courts of equity, so spec pref only came out as a last resort.

Posner sets new standard that if the costs and benefits are equal, then you give damage awards. If the costs are less for specific performance, you give specific performance.

Substantial Performanceo When can you withhold your own performance?

If the other party materially breaches, you do not have to perform.

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However, if they substantially perform, you cannot withhold your performance. If you do, you will be guilty of breach.

o Jacob & Young v. Kent D specified a certain pipe, and D used one that was not the same brand but otherwise equal. P stopped payment, citing D’s “breach,” but the court held that D substantially performed.

Factors to consider concerning Substantial Performance

Bad faith

Just results

Purpose to be served

Excuse for deviation

Cruelty of forced adherence

o Plant v. Jacob Misplaced wall case. Court says that contractors do not have to perform to the letter of every K. This was substantial performance by F.

o Non-Conforming Goods, the Perfect Tender Rule

UCC if you get goods that are a little bit different, the buyer can reject them for any non-conformity. (UCC 2-601)

However, seller has the right to cure the defect if the time in the K hasn’t run or if the seller had reason to believe the buyer would accept, the seller can cure w/in a reasonable time. (UCC 2-508)

If buyer has already accepted, buyer can revoke acceptance only if they have substantial impairment. (UCC 2-608)

For installment Ks, you can reject an installment only if the installment is substantially impaired. (UCC 2-612)

Divisibility

o Protect breaching party by making other party pay for the part of the K that was substantially performed.

o For divisibility, price has to be apportioned to the work that has been done that is being paid for. You should not have to guess how much of the K has been performed.

o Gill v. Johnstown Lumber Co.: A flood carried logs that P was moving for D too far. However, since a price had been apportioned to a certain amount of logs, the court can sever what part of the K should be paid for.

Suspending Performance/ Termination of the Contract

o When does breach justify suspending or terminating the K?

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Walker v. Harrison P leased a neon sign to D, w/ monthly payments. P was to maintain the sign, but did not. In turn, D stopped payment. Court decided that P did not materially breach, so D did not have a right to stop payment, and in turn, D breached.

Anticipatory Repudiation

o The time for performance has not yet come, but you put it out of your power to perform. If you receive a clear repudiation, you can go to court immediately.

Kanavos v. Hancock Bank and Trust Co. P had an option to buy stock, and D took it away buy selling to a 3rd party. If P could not have performed anyway, D is not liable even though he repudiated. P has to prove that D’s repudiation caused the failure of the K.

o If injured party receives a repudiation, you cannot wait performance and ignore the repudiation. You are at your peril and in danger of not recovering later.

o A repudiation cannot be withdrawn if the non-breaching party relied on the repudiation.

o The non-breaching party can agree to the repudiation.

o Adequate Assurance of Performance

UCC 2-609: if you have reason to believe that your contracting party may not perform, you can ask for an adequate assurance of performance.

If no assurances w/in a reasonable amount of time, you can consider that a repudiation.

Reasonable grounds for insecurity is judged by commercial standards, such as lack of communication, delays, other customers are suing them, etc.

Maddox is treated this way, even though it is not a UCC case.

Remedies

o Formula for Expectation:

Loss in value- loss avoided- cost avoided + other loss = expectation damages

Lost profit- Loss avoided + reliance costs+ other loss = expectation damages (alt)

Loss in value=difference in what you thought you would get and the value you received.

Loss avoided= what you were able to save by mitigating damages

Cost avoided= saved expenses that would have been incurred had performance continued

Other loss= injury costs by breach (consequential damages) and incidental damages (trying to avoid the loss, delay, inconvenience in avoiding the loss)

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Cover= loss in value + loss avoided

o Vitex v. Caribtex: P reopens plant and sues D when D does not perform. The court decides that overhead should be calculated into P’s recovery.

o Seller’s Remedies:

K price- Resale price – cost avoided + other loss= damages

In general, if a buyer breaches a K, the seller can resell the goods and sue for damages.

If you do not resell: Damages for non-acceptance is the difference b/w K price and market price + C/I –cost avoided. Damages for repudiation is the difference b/w K price and market price at the end of a commercially reasonable time + C/I –cost avoided.

If seller cannot resell, buyer will have to pay full K price. (UCC 2-709)

If the goods are identified to the buyer, you can get an action for price (UCC 2-704)

o Buyer’s Remedies:

Replacement price- K price- cost avoided + other loss= Damages

When seller does not deliver or repudiates, buyer may cancel and cover and have damages, recover damages for non-delivery, or if the goods have been identified the buyer may recover them or obtain specific performance. UCC 2-711

After breach, a buyer may cover and get damages including incidental/ consequential damages. UCC 2-712

Damages for non-delivery when buyer does not cover is the difference b/w market price and K price +C/I damages

Buyer’s damage for breach of accepted goods: once given notification of non-conformity, he can get damages for non-conformity. UCC 2-714

If no cover is possible, specific performance under UCC 2-716

Buyer’s incidental and consequential damages:

Incidental damages include expenses from inspection, receipt, transportation and care of rejected goods, commercially reasonable charges, expenses from effecting cover.

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Consequential damages include loss from requirements of needs of which seller knows at the time and could not reasonably be prevented by cover and injury to person or property.

Laredo Hides: D repudiates output K. Buyer benefited by covering. D bears the burden of showing that cover was unreasonable, and they failed to do so. (Cover better than market price).

Lost Volume Seller: Ask is the subsequent transaction in place of the original K?

o If seller has a big supply, they might say “I could have had both contracts.” If seller has a limitless supply, they could not use lost volume seller.

o UCC 2-708 (2): If normal damages (UCC2-708(1)) are not enough to put seller is as good a position as if the K had been performed, then he should get value of the profit from full performance of a buyer +C/I damages.

o A party claiming lost volume seller must prove:

I could have made both sales and

I would have (it would have been profitable to make both sales).

o Davis v. Diasonics: P paid deposit & breached & wants deposit back. D says it should get lost profit, b/c 2nd K was not a substitute for 1st K. D must show a finite and predictable amount of buyers, you could have made both sales, and would have, show they were looking for other buyers, etc. and they were able to.

Limitations on Remedies

Duty to Mitigate R2d §350: Damages aren’t recoverable for loss that the injured party could have avoided.

If the party makes reasonable but unsuccessful efforts to avoid loss, he can recover.

o Rockingham Co.: D built bridge even after being told not to. This non-movable good could not be resold, so D had a duty to stop performance and mitigate damages. (A good probably could be finished and resold).

o Parker v. Twentieth Century Fox: P did not have to take on alternate role offered to her, under the “different

or inferior” test.

Diminished Value Rule

o Occurs when performance is defective (not that it is incomplete). Part of the cost to remedy the defect will probably be the cost of undoing some of the work already done. Cost to remedy may then exceed the loss in value to the injured party, so that the award based on that loss would be too great.

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o See R2d 348 If a breach results in defective/ unfinished construction and loss in value is not proved w/ sufficient certainty, he can recover damages based on diminution in market value or reasonable cost of completing performance if that cost is clearly not proportionate the loss in value to him.

o Jacobs and Young: Reading pipe case, used diminished value rule.

o Groves: leveling land case, court gave cost

o Peevyhouse: Court gave loss in value; case where D didn’t do restorative work

Reasons for DVR:

Avoid economic waste wasting money by doing something that is not worth being done. (Sometimes applied only to tearing down structures).

Unjust enrichment cost rule would transfer to P more than their subjective value (probably the best argument for DVR).

Cost is disproportionate to the value in these cases.

o Cost would be to require the breaching party to pay the cost of fixing the defective performance.

Reasons for Cost Rule:

Prove market wrong, or it could change over time

Externalities

Paid for value

Went to trouble to specify wanting this in the K

The non-breaching party might have unique personal value of the land.

Foreseeability in Damages:

o R2d 351: Damages aren’t recoverable for loss that the party in breach didn’t have reason to foresee as a probable result of the breach when the K was made. Loss may be foreseeable as a result of breach if it follows in the ordinary course of events of breach or as a result of special circumstances that party has a reason to know. Court discretion as justice requires.

o Hadley: (mill shaft case) damages for mill stoppage not recoverable, because it is unreasonable to think that the mill would come to a stop.

In the case, P said to use extra haste. Court must have disregarded this, because if it hadn’t the case likely would have come out differently.

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o Kenford: D did not allocate risk for damages in profit if stadium not built. Not all foreseeable profits are recoverable.

Certainty in Damages

o R2d 352Uncertainty as a limitation on damages: damages not recoverable beyond what evidence shows is established to a reasonable certainty.

o Fera: K for a lease, experts showed what damages would have been. P got 10 years of profits foregone. This case said that new business rule should not limit recovery.

o Damages for Emotional Distress: often excluded on the grounds of foreseeability and certainty.

Exception: weddings, funerals, special cases about homes.

Liquidated Damages and Penalties

o Ask Is this an enforceable liquidated damages clause, or is it an unenforceable penalties clause?

o UCC 2-718: Damages may be liquidated to a reasonable amount in light of anticipated or actual harm caused by breach and the difficulties of proving loss and inconvenience/ non-feasibility of obtaining and adequate remedy.

We do not allow penalty clauses but allow LDs. UCC increasingly uphold LDs.

If a K-ing party is worried damages will be excluded b/c they are too uncertain, a party might put in a clause for protection.

Wasserman’s: 25% of gross receipts does not seem reasonable. Doesn’t take into account other expenses and is not a good faith estimate of the damages.

Gustafson’s: (closed road case) LD on a sliding scale. Fair way of estimating damages.

o UCC 2-719: K may provide for remedies in addition to/ in substitution for those provided and may limit/ alter damages recoverable as by limiting buyer’s remedies to return of goods and repayment of price and resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive. C damages may be limited/excluded unless unconscionable (limitation for personal injury is unconscionable).

Defendant wants to Limit damages look to foreseeability, causation, mitigation, uncertainty.

Study Group:For exam start off with:

Is it UCC (sale of goods – define “goods”)?Unilateral ambiguity – if there’s ambiguity go to unilateral side Re 32

Re §32.

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Offer Re 24Ask: Is it an offer to all?

A request for offers?....or just expressing interest?Southworth factors: (don’t have to all 4 to be an offer)

(1) Language: Look for words of promise or consideration. If there are none, then still negotiating(2) Reasonable person – would reasonable person consider a promise(3) Specify offeree, general or specific? – who is it?(4) How complete and detailed is the offer?

Joke/Misunderstanding Re 20 Lucy v. ZehmerObjective test (reasonable person)Indication of joke?

Mistake Re 153 Owen v. Tunison, Harvey v. Facey, Fairmount Glass v. CrundenUnconscionable/reason to know – obvious mistakeAdvertisement/price quotes not an offer

Consideration Re 71 (bargain)Bargain – Hawkins v. McGeeWaving legal right as a detriment 79 Hamer v. Sidway, Fiege (baby case)Reliance/estoppel 90

reasonably inducing action or forbearance Ricketts v. Scothorn, Feinberg v. Pfeiffer, Hoffman

Quasi contracts/unjust enrichment/restitution Re 371 Cotnam, Callanocab rideshair cutsdrs. giving help outside of workIf owner pays builder and builder doesn’t pay subs, subs can collect from owner – mechanics

lien. For protection against this, don’t pay builder until he sets up Escrow account

Promise for Benefit Received 86 Webb v. McGowin

Letter of Intent Channel Home Center

Modify Price w/o Consideration 89 Unforeseeable

Illusory Promises Re 77If promisor reserves a choice for alternative consideration then no promise was given.Objective TestSubjective Test (fancy taste in judgment)Pre-existing duty (legal duty) 73

Can’t promise to do crack for something else, bc it’s illegal

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Acceptance Re 50Performance Re 50, 62 Evertite RoofingFPerformance only if offer invites such an acceptance Re 53 White v. CorliesNon-conforming good Re 50 (will most likely be on midterm)

Acceptance and a Breach at the same time Accomodation is NOT acceptance, they must state that it is accommodation Corinthian

Medium of Acceptance (will be on midterm) Re 65A person can offer by mail and accept by phone, but if they send an email, probably ok to use

accept by phone

Silence as Acceptance Re 69

Motive – irrelevant, but if you see ulterior motive, bring it up and say it’s irrelevant – easy points

Time Re 41 Specified or reasonable

Okay International Filtercould mean Okay I acceptOkay let’s talkOkay why should I accept your offer?

Precatory Request Re 61Accept and request something additionally, counts as accepting not negotiatingCounter: It was a negotiation (counter offer) b/c it was adding additional terms

Revocation Re 42/43Reasonable method of Notification (something someone will see)

Indirect Re 43 DickinsonKnowledge/Reliable Source/Inconsistent Action

Re 43: §43. INDIRECT COMMUNICATION OF REVOCATION

An offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires

reliable information to that effect.

Nudum Pactam – An informal agreement that is not legally enforceable, because it does not fall within the specific classes of agreements that can support a legal action. • But a pactum

could create an exception to or modification of an existing obligation. 2. An agreement that is unenforceable as a contract because it is not “clothed” with consideration.

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Counter Offer/Rejection Re 39/38 Change of terms precatory (accepting a wish/request) only? (Tie in with Re 61 Precatory

Request)

Mailbox Rule Re 40Terminates power of acceptance when received. If accepted after rejection it’s a counter offer. If acceptance is sent after rejection but offeror

receives acceptance first, it counts as acceptance.As soon as acceptance leaves (dispatched) is an option K and accepted when it’s received

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