K Case Briefs.

Author: Bram

School: Nova Southeastern

Professor: Grohman

 

enforceable contracts: when promise is entitled to either a money judgment, injunction, or specific                                      performance because of a breach

 

contract is void:  when it produces no legal obligation on the part of the promisor

              (ex: contract which lacks consideration)

 

voidable contract:  if one of the parties has power to elect to avoid the legal relations created by the contract or by                                               ratification to extinguish the power of avoidance

               (given to infants, cases of fraud/mistake, duress)

 

unenforceable contracts:  have some legal consequences but which may not be enforced in an action for damages or                       specific performance in the face of certain defenses  (Statute of Frauds, ststute of limitations)

                    *can also apply to certain contracts tainted by illegality but aren't wholly null and void, or with                             government contracts with immunity (more legal consequences here)

 

express contracts:  when parties mainifest agreement by words

 

implied contracts:  when parties manifest agreement by behavior

                (ex: the plumber and doctor scenarios...both are implied contracts and quasi-contracts in which both                        parties get something for their actions)

 

                *we look to the law of quasi-contracts for reallocation of losses when contracts are avoided for                       incapacity, fraud, mistake, duress, is unenforceable because of impossiblity or frustration

 

 

Intent: was the party bound to the agreement?

Behavior could be determining factor (was person serious when making offer which was accepted, or would an ordinary                                  person in the acceptor's shoes think the offeror was serious)

Objective vs. Subjective approach

objective approach: mental intentions of parties are irrelevant; acts manifesting assent must be done either intentionally or                  negligently; viewed from vantage point of what a reasonable person would think in the same situation

                   (did that person have superior knowledge of the events which took place?)

subjective approach:

 

Parties don't have to intend to be bound

if from statements or conduct of the parties there is no intent to be bound or to have legal consequences, then generally there is no contract...but if parties acted under the agreement and it's unfair not to enforce the agreement, it should be enforced (could result in unjust enrichment, which could represent an additional claim in enforcing the contract)

BUT...this depends on the assumed results of what was to happen from the agreement (ex: if A goes to B's house for dinner and B is not there, A cannot assume anything except that a social scenario was to ensue, unless something previous was indeed discussed)

 

INTENT TO CONTRACT

      Mutual Assent: essential to contract formation; involves offer and acceptance

      (identifying the offer and acceptance can be the method by which mutual assent is established)

   Is the offer revocable?

could be irrevocable if done with option contract

by beginning to perform under an offer that looks to acceptance by performance only

by detrimental reliance

by statute (firm offer UCC 2-205)

by a writing signed by the offeror which recites a purported consideration and proposes a fair exchange

·             

  Was the offeree's power of acceptance terminated?

 by revocation

 rejection (including a counteroffer)

 lapse

death or incapacity of the offeror or offeree

·           (if so, no acceptance is possible)

offer can be accepted by promise or performance

Test: was there a contract between Mary and John?

If a letter was sent to SEVERAL persons including John and Mary had only ONE piece of property, a REASONABLE PERSON in John's position would conclude that her letter was not an offer. Mellon v. Johnson, 76 N.E. 2d 658 (Ma. 1948).

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Example:

On June 10 A signed and delivered to B the following letter:

"I offer to sell Blackacre to B for $80,000. (s) A"

On June 17 at 11:00 A.M., A dies of a heart attack.

In which of the scenarios listed below would a letter of acceptance from B be effective?

Choices: 

(a)  A's letter stated that the offer was to remain open until June 19 and B's letter was mailed on June 18.

(b)  B's letter was placed in the mail at on June 16 but not received until June 19.

(c)   B paid A $20 in exchange for A's promise to keep the offer open until June 18, and B's letter of acceptance was mailed at on June 16 and received on June 19.

(d)  A's offer recited that B had paid $20 to keep the offer open until June 18, but B never paid the $20. B's letter was mailed and received on June 18.

(e)  B paid $20 to A to keep the offer open until June 18. B mails his letter on June 16. B rather than A dies of a heart attack on June 17. B's acceptance letter was received on June 19.

 

Answer: (b) B's letter was placed in the mail at on June 16 but not received until June 19.

The acceptance was effective. The offeree's power of acceptance is terminated by the death or incapacity of the offeror or offeree. Res. 2d Contracts § 36(1)(d). see also Murray p. 111-12. Due to the mailbox rule, the acceptance was effective when it was mailed on 6/16. A's subsequent death could not revoke an offer that had already been accepted.

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OFFER

An offer is defined as a manifestation of willingness to enter into a bargain so made as to justify another person in understanding that her assent to that bargain is invited and will conclude it

(A legally sufficient offer requires a manifestation of present intent, not just of words, but the surrounding circumstances of the intent - orally, written, or by conduct)

Words that indicate a future intent do not normally manifest a present intent.

 

If trying to determine if an offer is revocable:

In answering this question there are three things you must keep in mind:

1. Are offers generally revocable or irrevocable?

2. Is there a time beyond which an offer can no longer be revoked?

3. Are there certain types of offers which are not revocable?

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Example:

On June 30 Byer receives the following letter from Cellar:

"Dear Byer:

I offer to sell you Blackacre for $100,000.

(s) Cellar"

What is the duration of Byer's power of acceptance?

Answer:  The offer will remain open for a reasonable time, because no duration is specified.

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Another problem:   What is a reasonable time is determined by the understanding of a reasonable person in the offeree's position. In each of the scenarios below, decide if the acceptance is effective or not.

Answer:   This is ineffective acceptance.  Absent other circumstances, where parties bargain face to face or over the telephone, the time for acceptance does not ordinarily extend beyond the end of the conversation.

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...And more more for good measure:

A offers a reward for information leading to the arrest and conviction of his son's murderer. B gives the information 1 year later and demands payment.

This is effective acceptance.  To determine if an offer of a reward for the arrest and conviction of a person guilty of a specific crime has lapsed, one should look at the purpose of the reward. If that purpose can no longer be achieved, then the offer has lapsed. Ordinarily, such an offer could not be accepted after the statute of limitations has barred prosecution. In the case of murder,

there generally is no limitations period. Res. 2d Contracts § 41 comm. c and Ill. 1; Murray p 101-02. But see Mitchell v. Abbott, 29 A. 1118 (Maine 1894) holding that 12 years was too long to claim a reward for the murder of a bank treasurer.

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What is a reasonable time is determined by the understanding of a reasonable person in the offeree's position. In the scenario below, decide if the acceptance is effective or not.

After a series of arsons, Big City runs ads every day for a week offering a reward for information leading to the arrest and conviction of anyone who sets fire to any building in the city. H gives information on a fire caused by B three years later and claims the reward.

Answer:  Ineffective time for acceptance.  The court in the case on which this question is based denied the claim, stating the purpose of the reward was to rouse the population to a high state of vigilance and that the exigency under which the offer was made had passed. Loring v. City of Boston, 48 Mass.(met.) 409 (1844). See also Res. 2d Contracts § 41 ill. 2. On the other hand, it has been held that a delay of up to three years, the statute of limitations, was not fatal to a claim for a reward offered for information leading to the arrest and conviction of the persons who burned a specified building. In re Kelly, 39 Conn. 159 (1872).

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What is a reasonable time is determined by the understanding of a reasonable person in the offeree's position. In the following scenario, decide if the acceptance is effective:

A offers to sell B her stock in Big Inc., a closely held company. Two days later, after learning of a sharp rise in the over-the-counter price, B sends a fax accepting the offer.

Answer:  Ineffective acceptance.  The offer has lapsed. The reasonable time for acceptance in a speculative transaction is brief, not only because the offeror does not ordinarily intend to assume the risk that things will change, but also, because she does not intend to give the offeree an extended opportunity for speculation at the offeror's expense. Res. 2d Contracts § 42 comm. f. and ill. 8.

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A revocation occurs (and, thereby terminates the offeree's power of acceptance) when the offeree

1) RECEIVES from the offeror

2) a MANIFESTATION OF INTENTION not to enter into the proposed contract.

There are five ways in which an offer can be made irrevocable:

1. An option contract which is a promise to hold the offer open that meets the requirements for the formation of a contract that limits the promisor's power to revoke. Res. 2d Contracts sec. 25.

2. Beginning to perform under an offer that looks to acceptance by performance only. Res. 2d Contracts sec. 45.

3. An offer in a signed writing that recites a purported consideration for making of the offer and proposes an exchange on fair terms within a reasonable time. Res. 2d Contracts sec. 87(1)(a). But, note that the courts in many jurisdictions will permit the introduction of proof that the consideration was not paid and, if proved, refuse to enforce the promise not to revoke.

4. An offer made irrevocable by statute, e.g. firm offers under U.C.C. 2-205.

5. 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 to extent necessary to prevent injustice. Res. 2d Contracts sec. 87(2).

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Examples:

A leases Blackacre to B for 5 years. After executing the lease A writes to B, " I hereby grant B an option to extend the lease." (revocable)

A offers to sell Blackacre to B. The next day in exchange for B's promise to paint A's barn, A promises not revoke the sale offer for 10 days. (irrevocable)

In a written offer by A to sell Blackacre to B, A states " this offer to hold good for 10 days." (revocable)

In a written offer by A to sell Blackacre to B, A states, "You have 10 days to accept this offer." (revocable)

A, in writing, offers to sell Blackacre to B, stating that the offer will remain open for thirty days and is not subject to countermand. (revocable)

A offers in writing to sell Blackacre to B and gives B 10 days to accept, in exchange for the payment of $10 to A by B. (irrevocable)

A offers in writing to sell Blackacre to B and gives B 10 days to accept, in exchange for B's promise to pay A $10. (irrevocable)

***A binding option may be created by establishing there is a contract to keep the offer open through having:

1. an offer and a promise not to revoke the offer or to keep the offer open,

2. an acceptance of the promise to keep the offer open, and

3. consideration, i.e., some bargained-for exchange, for the promise to keep the offer open.

In some of the offers one of these elements is missing.

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Another example:

On May 1 Able writes to Baker:

"I offer to sell you all my Bruce Singsong CD's for $600. This offer to remain open for 6 months.

(s) Able"

Is the offer revocable for six months?

Not really. The answer depends on whether Able is a merchant. Since this problem involves the sale of goods, Article 2 of the U.C.C. applies. U.C.C. 2-205 permits a MERCHANT to make an irrevocable offer in a signed writing. This is called a firm offer. From the facts it's not clear whether Able is a merchant. If Able is not a merchant, this offer is revocable., because it was not given in exchange for consideration and there is no basis for claiming promissory estoppel.

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On May 1, Ajax Inc. sends Big Co. a purchase order for 1000 widgets at a price of $1 each. The purchase order stated that it would not be withdrawn. Is the offer irrevocable?

Maybe.  An offer by a merchant to buy goods in a SIGNED writing which gives assurances that it will be held open is not revocable for lack of consideration. U.C.C. 2-205. The questions here are whether Ajax is a merchant and whether the purchase order was signed. Since signed does not mean subscribed but merely any symbol executed or adopted by a party with present intent to authenticate a writing U.C.C. 1-201(39), if the P.O. was a printed form which contained the company letterhead it would be "signed" and the offer would be irrevocable.

...now...Assuming the P.O. was signed, would a revocation by Ajax on August 10 be effective?

Yes.  If no time is stated in the firm offer it is irrevocable for a reasonable time, not to exceed three months maximum. U.C.C. 2-205. In this case, the offer would be irrevocable for 3 months, and then would become revocable. U.C.C. 2-205 comm. c. Note the statute says three months, not 90 days. Here, the three months were up on August 1. So, this offer was revocable on August 10, even if this was a firm offer. Of course, if it was not a firm offer, it could have been revoked at any time.

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On May 1, John, the sales manager of Big Co., secures from Ajax Corp. a signed, written order for 1000 widgets at $1.00 each on Big's order form. The order states that it is firm for 30 days. Is this a firm offer, i.e., may this offer not be revoked for 30 days?

Maybe. Protection is afforded against the inadvertent signing of a firm offer when contained in a form prepared by the offeree by requiring that such a clause be separately authenticated. If the offer clause is called to the offeror's attention and he separately signs it, he will be bound; U.C.C. section 2-302 may operate, however, to prevent an unconscionable result which otherwise would flow from other terms appearing in the form. U.C.C. 2-205 comm. 4.

In this case, the form was supplied by the offeree, Big Co. The facts are not clear whether the firm nature of the offer was brought home to Ajax and whether that clause was separately signed.

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On May 1 A delivers to B the following letter:

" In consideration of $1 paid by B, I offer to sell B Blackacre for $ 100,000 if B gives notice of intention to buy within 10 days.

(s) A"

The price and terms of sale are fair.

If B pays A the $1; can A revoke the offer? No, there was already consideration in exchange for the promise.

...AND...

What if the $1 was not paid? May A revoke? Actually, maybe. The decisions are split. Some courts hold that the offer is revocable if the consideration was not in fact paid. Bard v. Kent, 122 P.2d 8 (Calif. 1942), see also Farnsworth p. 186-7. Others have held that the offer is irrevocable. See Farnsworth p. 187.

The Restatement 2d Contracts takes the position that the offer is irrevocable:

"... the giving and recital of nominal consideration performs a formal function only. The signed writing has vital significance as a formality, while the ceremonial manual delivery of a dollar or a peppercorn is an inconsequential formality. In view of the dangers of permitting a solemn written agreement to be invalidated by oral testimony which is easily fabricated, therefore, the option agreement is not invalidated by proof that the recited consideration was not in fact given."

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In which of the scenarios listed to the left does an option contract exist?

A states to B, "If you paint my house, I will pay you $500. In response to A 's offer, B begins to paint A's house. (option)

A says to B, "If you run a 4 minute mile, I'll pay you $1000." B begins to run as requested. (option)

After losing his valuable Bolex watch, A offers a reward to anyone who finds it. In response to this offer, B begins to search for the watch. (option)

A writes to B, his son, "If you come to Ohio and take care of me for the rest of my life, I'll leave you the house. If you don't like the deal you can quit at any time." B moves and begins to care for A.  (option)

A owes B $1000 due to be paid on June 1. A offers to accept $750 on May 1. B raises the money, comes to A's home and states " I have come to pay my debt." A replies, " I revoke." (no option)

Reasoning: Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. Res. 2d sec. 45. Part of the actual performance invited must be given or tendered in order to preclude revocation under this Section.

Beginning preparations, though possibly essential to carrying out the contract or to accepting the offer, is not enough. For instance, the choice involving an offer to let the debtor pay early is based on Petterson v. Pattberg, 161 N.E. 428 (N.Y. 1928). That court held that the debtor's presenting himself at the door and announcing that he had come to pay the debt amounted to preparation to perform. Only an actual tender of the money might have made the offer irrevocable. See also Murray p. 122. Preparations to perform may, however, constitute justifiable reliance sufficient to make the offeror's promise binding under § 87(2).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LUCY V. ZEHMER (1954)

Case Brief:

LUCY V. ZEHMER (1954)

 

Facts:  Lucy and Zehmer were at a bar drinking.  Lucy, in writing, doles out a contract to buy Zehmer's farm for $50K.  Zehmer accepts and signs.  Zehmer thinks it's a joke, but when Lucy asks for a $5 payment in order to bind the contract, Zehmer realizes what he just did and asks out of the deal; Lucy refuses and takes the "contract".  They go to court.

 

Issue: Was Lucy's intention, in fact, absent, when he agreed and signed the contract to sell his farm to Zehmer?  What constitutes intent in this case?

 

Holding:  Lucy found to be right in his assertion there was a binding contract for Zehmer to sell his farm for $50K.  Zehmer was not too drunk as he said to understand what was going on, and Zehmer displayed in his actions those of a person entering into a "serious business transaction."

 

Procedural History:  It is first found Lucy did not establish their right to specific performance and dismissed their bill.  It goes to appeal.

 

Rule: In looking at the circumstances to determine whether the offeror or acceptor in a contract had intent, it must be viewed from the perspective of a reasonable person by the actions of both parties.  In addition, clear evidence is needed in order to show there was no intent to enter into a contract when a contract is signed by both parties and later is in dispute (secret intent does not count).

 

Court's Rationale:   Zehmer claims first of all he was joking.  The court found through the facts of the case since there was in fact a 40 minute conversation where both parties went back and forth on several issues including the names of the parties on the document (Lucy wanted Zehmer's wife to sign it as well), the rewriting to include that renaming, the discussion of what was included in the sale, provision for examining the title, the completeness of the instrument in question, and the taking of possession of the contract by Lucy with no request or suggestion by the Lucys that the contract be given back to them all make this look like a real business transaction.

 

Zehmer's demeanor also further indicates he was not too "high as a Georgia Pine" not to understand what was going on, based on the previous illustration of the details discussed in this contract.  There also was also no evidence, despite Lucy's contention, that there was another contract written as well, or that one was changed to help the Zehmers.

 

Undisclosed intent is also immaterial (as stated in the rule); Zehmer's words and actions on their face depict those of a person who was intending on selling his farm.

 

In other words, what you say things really mean and how they are really done define intent in the court of law

 

 

 

 

II. What is an offer Aug. 19

Topic Notes:

What is an offer?

Promise to do or to refrain from doing some specified thing in the future conditioned on the other party's acceptance

An offer has also been defined as assurance that a thing will or will not be done.

(promisor need not promise action on their part...ex: an assurance it'll rain tomorrow or that a 3rd person shall paint a picture may be a promise)

 

What is a promise?

A manifestation of intent (willingness) to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made.

 

*yet there can be acceptance without a promise being made (p.32 - A tells B he can have his car for $4K; when B pays the $4K, the car is his

 

Another situation where there might be acceptance without a promise occurs in a "reverse unilateral contract"

(no offeror promise, but the offeree promises)

 

The offer empowers the offeree to create a contract by accepting the offer.  Typically, offer is promissory or of character; its acceptance turns the offeror's promise into a contract (unless there is some impediment to this contract)

 

Offers not distinguished from statements that aren't offers

Many expressions which border on promises, but aren't

 

1. Expressions of opinion and predictions: since it isn't a promise, it isn't an offer

(for example doctors aren't bound to promise they are as good as any of their peers; a lack of skill in a particular situation would result in a tort action of negligence, or malpractice.

 

*however, a physician's free to enter into a binding express contract (promise to cure, obtain desired result, administer treatment) and they'd be guilty of a breach of a promise...usually the issue is whether the doctor made a promise or stated an opinion to bolster the patient's confidence (here the reasonable person test would be used)

 

in an emergency, the doctor's words wouldn't be taken as such...but if the statement is only to be taken as a ploy for confidence on the patient's part, it has been instrcuted by courts to treat the statement as a promise

 

In other relationships (lawyer-client, architect-owner) things depend on the words used in the statement...was it indeed an offer or just an expressed opinion? (reasonable person standard)

 

2. Statements of intention, hopes and desires and estimates: no contract if a reasonable person concludes there was an intention on the part of the offeror to the offeree for something

* "will" is a common word used in a promise (will=promise)

 

Yet, it is best to have communication from offeror to offeree (letters of intent are not promises - think recruiting)

 

statements of wishes, hopes and desires are not promises or offers, nor are estimates generally

(reasonable person standard once again...would an estimate be a promise? No, just a guess on something)

only when these things are "firmed up" as offers are they considered promises

 

Equitable estoppel: traditionally requires misrepresentation of fact, reliance and injury (a person is not who they say they are -  like an electrician saying he is an expert when he isn't)

 

3. Inquiry or invitation to make an offer

A question is not an offer (will you sell me this for X dollars?) b/c it only seeks information, not a commitment

 

4. Advertisements, circulars or catalogs

Advertisements and the like must have language of commitment to a reasonable person

(early courts decided newspaper ads were not offers if there was no quantity or language of commitment)

 

HOWEVER, ADVERTISEMENTS CAN CONSTITUTE AN OFFER

(stole for $1500, now for $1 -- FIRST COME, FIRST SERVE...was ruled an offer upon its promissory language)

 

Required: language of promise (ie: "we will pay") and quantity ( or quantity per person/party) for promise to exist...and action by the offeree can solidfy

 

Also a contract if the terms are written or said in such a way that a person's taking part in the sale/advertisement/offer had to do with the deal involved (we will pay for your medicine if it doesn't cure you)

 

At the grocery store, a person who buys a product becomes an option holder who exercises the option at the checkout line,

so when they put the item in their bag, it may be deemed a form of acceptance, with the option to terminate at the checkout line

but the offer from the store/manufacturer is irrevocable

 

5. Auction Sales - who makes the offer?

"what am I bid?"  not offer to sell, rather invitation for purchase (auctioneer can accept or deny bids)

Auctions with reserve: bidder is offeror and contract is complete with the fall of the hammer (but bid may be withdrawan before then)...later bids terminate prior bids, and bids retracted do not bring back the other bids

 

Auctions without reserve: once bid is called for, auctioneer cannot withdraw article from sale -- b/c auctioneer made an irrevocable offer...the bid is a conditional acceptance, subject to higher bid being made

 

(by the way, an agent for a seller is known as a "shill")

 

Prices of sale are determined to help the buyer and protect the interests of all other possible players in he bidding (should there be "puffing" involved or not in the process)

 

Invitation to bid- bid

Similar to "auction with reserve" - request to bid not an offer, but the bid itself is an offer and acceptance on the part of the offeror to do the job

 

(state/municpal gov't bids usually have clauses stipulating the contract is awarded to the lowest responsible bid is accepted)

 

Price quotations - goods and real property

1. With goods: seen usually as an intention to sell, offer is invited

 (communication as a whole rather than the label the party puts on it which must be interpreted)

language of commitment and whether the terms, especially quantity, are sufficiently definite.

 

2. Real Property

Mellen v. Johnson: a bid to several people was not considered an offer, looked at more as an invitation to make an offer

Harvey v. Facey: no question regarding intention/promise to sell (ex: for immediate acceptance), then no offer is made

 

Offer vs. Preliminary Negotiations - Factors to consider

In determining whether a communication is an offer or not, use these factors:

1. Is communication initial as opposed to an offer or inquiry?  Answers to inquiries are more likley to be considered offers.  Language of inquiry also important...does it ask for an offer?

 

2. Are the words used generally associate with promise (or are they non-commital)?

 

3. Are there detailed terms? Do they include quantity/quality terms?

 

4.  Selectivity of Communication: is it clear party sending out communicade is treating with other people the same respect to the same subject matter?

 

5. Does the case involve real property or goods? (courts less likely to deal with decisions on property than similar message on goods)

 

6. Relationship of the party (husband/wife or close bond)?

 

7. Surrounding circumstances (is doctor treating patient under emergency circumstances or not)?

 

8. Usages of the trade, prior practices of the parties ("course of dealing")

 

 

 

 

 

 

 

 

 

 

 

 

 

CRAFT V. ELDER & JOHNSON, CO. (1941)

Case Brief:

Facts: Plaintiff (Craft) tried to purchase a sewing machine for the price of $26, per an advertisement in the Dayton Shipping News.  The advertisement claimed a "Thursday Only Special", where one could purchase said machine for well below its actual selling price ($175).  Said ad was in the January 31, 1940 paper.  Plaintiff went to the Elder & Johnston Co. Store the

following day (February 1, 1940).  Plaintiff contends she is owed for the difference in price she paid for the sewing machine, plus interest.

 

Issue: Did the discounted sewing machine advertised in the newspaper represent a contract, and, if so, did plaintiff have the right to recourse for extra monies spent in the course of purchasing the sewing machine?  Is a newspaper offer a contract?

 

Holding:  Judgment affirmed.  Defendant was only taking part in a unilateral offer and could revoke it at any time.

 

Procedural History: Case was ruled in favor of the defendant in Court of Montgomery County (OH).  Court said ad was not an offer which could be accepted to form a contract.

 

Rule: Any offer made without consideration can be taken back by the seller, since it is a one-way transaction until the buyer enters into the contract by purchasing said item.

 

Court's Rationale: Court goes to what it calls "well-recognized, elementary principles".  Under special circumstances is a newspaper ad an offer, but it is an offer to negotiate according to the court (they used the word "chaffer", which means to bargain or haggle).  The court used the example of a clothing merchant advertising coats for a certain price.  This "offer" is not in fact an offer, but an invitation to enter into a contract upon purchasing the item (consideration for value).

 

There is no guarantee a sale to purchase something will necessarily be available by the seller at any time; they may opt out of the deal at any time as well.  There was no performance promised in advance of the purchase. Nothing mentioned like "...if you arrive at the store first, you get this particular deal".  Again, this case represents merely "expressions of willingness to negotiate". 

 

 

 

 

LEFKOWITZ V. GREAT MINNEAPOLIS (1957)

Case Brief:

Facts: Plaintiff (Lefkowitz) goes to defendant's store (Great Minneapolis) in order to be in line for an advertisement special promoted in the local paper (twice), which read: "1 black lapin stole...beautiful, worth $139.50....$1.00  First Come First Served".  Plaintiff arrives first in line at defendant's store and was denied -- twice for the listed price in the advertisement.  On the first occasion plaintiff was denied based on a "house rule", which said the ad was for women only and not be made to men.  The second denial was based on plaintiff's knowledge of the ""house rule".

 

Issue: Did the store's advertisement in the newspaper constitute an offer?  Does consideration on the part of the customer in advance of the purchase constitute an acceptance in advance of an offer?

 

Holding: Find in favor of the plaintiff, as the advertisement did constitute an offer which was satisfied by the plaintiff's participation in the offer.  There was "...in the conduct of the parties a sufficient mutuality of obligation to constitute a contract of sale."  Plaintiff entitled to purchase coat for $1.

 

Procedural History: Case was originally tried in trial court and disallowed plaintiff's claim for the cost listed of the coat, but nonetheless found for the plaintiff the original amount of the coat minus the $1 quoted purchase price.  Municipal Court of Minneapolis denied motion of the defendant for amended findings of fact, and thus a new trial. 

 

Rule: The test of whether an advertisement could in fact cause a binding agreement is based on whether the facts show some performance promised in positive terms in return for something requested.  To be an offer the advertisement must be clear, definite, and explicit, and leaves nothing open for negotiation.  If the factors are met, then all that's needed  to complete the contract is acceptance.

 

Court's Rationale: Under the above test to determine if the newspaper advertisement was indeed an offer, the major factor involved is the legal intention of the party.  Here, the legal intention of the defendant is clear, definite, explicit and left nothing open to negotiation.

 

Plaintiff managed to be the first one to show up to the store for the advertisement, and since there was already a price offered in exchange for showing up first, he was entitled to performance by the seller (defendant).

 

As to the "house rule", which defendant stated was a policy in determining if plaintiff actually wasn't able to buy the coat, there never was one mentioned in the advertisement either.

 

 

 

 

US V. BRIGGS MANUFACTURING (1972)

Case Brief:

Facts: Appellant (Briggs) used the United States for longshoring, freight, lighterage and terminal charges on a shipment from Seattle to Point Barrow, Alaska.  Barrow claims the appellant should have charged a 3rd party, Toombs, who actually used.  Toombs claims they were quoted "estimated" prices on the above services from the appellant, and Toombs was furthermore told it could rely on the quoted prices.  Toombs claims no responsibility for the charges brought on by the Appellee, and that is instructed to pay the United States, Appellant would be unjustly enriched.

 

Issue: May a third party incur responsibility for charges resulting from a contract between two other parties upon prior acceptance of charges for services rendered?

 

Holding: US Court of Appeals, Ninth Circuit found for both United States and for Toombs, citing they were entiutled to rely on estimate.  The United States was able to establish its claim for reimbursement for charges incurred on its property for shipping charges.

 

Procedural History: In a per curiam decision, the US Court of Appeals, 9th Circuit, upheld a similar decision from a lower court,  instructing Briggs (appellant) to pay for charges to the

United States incurred from freight, lighterage and longshoring, and terminal charges on a shipment from Alaska to Seattle.

 

Rule: A party which enters into a contract with another party may not look to be unjustly enriched by having a third party pay for charges incurred through the course of business with that first party, in addition to charges due to the party doing business with the first party. 

 

Court's Rationale:  "The State of Washington recognizes the doctrine of equitable estoppel."  Estoppel describes the policy that a party is prevented by his own acts from claiming a right to detriment of other party who was entitled to rely on such conduct and has acted accordingly. 

 

Here, Toombs was told they were able to rely on said quotes on charges from Briggs, and both parties acted as though the quoted prices would be the same prices ("reasonably accurate") in the course of business between the two parties.  If a party is entitled to rely on an estimate, then they should not be liable for any other charges incurred through the course of business, unless they were forewarned of the possibility of such extra costs/charges.

 

 

 

 

LONERGAN V. SCOLNICK (1954)

Case Brief:

Style (name of case):  LONERGAN V. STOCK, Dist. Ct. Of Appeal, 4th District, CA

 

Cause of action: Plaintiff claims there was a failure on the part of the defendant to honor and agreement on a parcel of land between the two. 

 

Procedural History: The previous court found no contract had been entered into by the parties.  Case appealed to District Court of Appeals, 4th District of California.

 

Facts: Defendant places an ad in a Los Angeles newspaper: "Joshua Tree vic. 40 acres *** need cash, will sacrifice."  Plaintiff  writes letter to defendant March 26 regarding the said ad in a Los Angeles paper regarding land for sale, and asked for directions and for a basement price the land could be sold for.  Defendant wrote the plaintiff back April 7, telling him $2500 would be the lowest price and gave directions to the land, but also informed plaintiff he expected an offer soon on the land, and noted it was  "a form letter". 

 

Plaintiff asked for more of a description of the land and also suggested a particular escrow agent to use in an April 8 letter.  On April 12, defendant sold said land to a third party for $2500.  Defendant received plaintiff's letter of April 8 on the 14th.  The next day, plaintiff wrote defendant for helping him find the land and that plaintiff would immediately begin the transaction with escrow agent to buy said land based on what he contends was an offer. 

 

Plaintiff started an escrow account with a $100 deposit, agreeing to get the other $2400 later on.  Plaintiff claims he was ready to pay the remainder at any time.

 

Issue(s): Was there an offer from defendant to plaintiff regarding the land for sale?  Did defendant, in fact, intend on selling land in question to plaintiff, instead of to a third party?

 

Court's Rationale/Reasoning: Court looked at the Restatement of Law on Contracts and found the parties must come together in agreement on a specific thing, which is represented by the offer & acceptance process from one party to another.

 

As far as the actual claim of a promise by the defendant, the court decided as the burden of proof the plaintiff must have absolutely known the defendant was giving an expression of assent into a deal and was not interested in doing business with anyone else.

 

The correspondence in one letter used the language, "If you are really interested, you will have to decide really fast, as I expect to have a buyer in the next week or so."  Letter also disclaimed it was a "form letter", which should indicate to any reasonable person there was more than just one person involved in this potential land deal.

 

Referring to the ad in the paper, the desperate terminology didn't mean it was an offer, merely a request for one.

 

All the other letters did were answer questions of the owner of the parcel of land, nothing more. 

 

Rule: A newspaper ad for a sale item must have language in it indicating consideration in exchange for a service, not the implication of consideration for a specific item (ex: money for land).  Intent may also be based on the circumstances involved to determine if assent was involved in a seller's actions.

 

Holding: Court held in favor of the defendant, as he never assented, despite the plaintiff's wanting to assent to the deal for the land.  Court found defendant had a right to sell to a third party because there never was an offer to plaintiff.

 

 

 

FAIRMOUNT GLASS V. GRUNDEN-MARTIN (1899)

Case Brief:

Style (name of case): FAIRMOUNT GLASS WORKS V. GRUNDEN-MARTIN WOODENWARE, CO. (1899), Court of Appeals Kentucky

 

Cause of action: Appellant claims no contract was entered into upon agreement of a prices quoted on several items in a shipping order.

 

Procedural History: Trial court found that plaintiff had the right to assume a contract was formed, finding for the plaintiff.  Defendant appealed the decision insisting the judgment was erroneous. Appellate court affirmed judgment.

 

Facts: Appellee (Fairmount) wrote appellant (Grunden) a letter inquiring for pricing on a shipment of jars.  Appellant answered with a detailed quote of prices, in reference to size, quantity and details as to the packing of the jars.  Appellant also states in the letter they made quotes and contracts  "...based on the contingencies of agencies or transportation."  Appellee returns letter with quotes with another letter accepting the quotes and enters an order with Appellant. 

 

In response to the telegram, appellant sent a telegram back which read they could not complete the order.  No specific relief requested here.

 

Issue(s): Was there a valid offer, and thus a contract upon acceptance by defendant?

 

Court's Rationale/Reasoning: Intent of the the parties is key here.  When appellee said its letter was for immediate acceptance, the appellant sent back a letter of acceptance immediately (the next day). 

 

Also appellee also claimed there was an indefinite character to the quoted price on the sale, due to quantity of items in question.  However, same appellee made sure to inform the appellant of the amount in each jar and monies per unit involved.  Appellee also argued the shipping size was indefinite; court checked up on this point.

 

Court found "10 car loads" is a common expression in the shipping trade as equal to 1,000 gross (100 gross=car load).

 

Since the offer to ship had a deadline of May 15, appellant had the right to change the order only by that time.

 

(offer: manifestation of intent (willingness) to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made)

 

Rule: General quotes are not offers.  If a party responds to a specific inquiry with specific quotes on the inquiry, there is an offer.  If the offer follows with a need to accept immediately, a contract is formed upon acceptance by buyer.

 

Holding: Judgment affirmed. There was a valid offer, which was accepted: hence, there is a valid contract.

 

PARTIES:

Plaintiff in first action and appellee in second action - Grunden-Martin Woodenware Co

Defendant in first action and appellant in second action - Fairmont Glass Works

 

 

 

 

 

 

 

III. Manifested intention

Topic Notes:

Is there a contract with a formal agreement, or is there no contract unless a formal document is adopted by both parties?

(3 possible scenarios)

 

1. Parties say there is no contract unless one is presented, agreed upon, and signed.

2. A "prospective record" simply memorializes the agreement; there's a binding agreement even without a document.

    (a party's refusal to execute the deal at this point would constitute a "breach")

3. No manifestation of intent other than by the fact there will be a record.

    (courts have held the agreement's not binding w/o a formal document; other courts ruled it's an agreement when the agreement is reached)

 

DIFFICULTY OF #3: QUESTION OF INTENT OF THE PARTIES (if one disagrees with another)

so, some important detail questions in light on this for the courts to go over are:

1. The extent to which express agreement has been reached on all terms to be included?

2. Is the contract one which usually is put in writing (or otherwise recorded)?

3. Whether or not it needs formal details?

4. Whether it needs writing or not for its full expression?

5. Are there few or many details?

6. Is the amount large or small?

7. Is this a common or unusual contract?

8. Is a contract used as standard in the particular type of negotiation in question?

9. Does either party take action in preparation for performance during the negotiations?

*also, it should be noted to ask if agreement is reached by correspondence, is the intent to bind the parties upon agreement?

 

INDEFINITENESS

If the content of the agreement is unduly uncertain no contract is formed; it is the contract, not the offer which must be definite!

(a material term which may be left for a third party to decide upon is an example)

 

Material items include: subject matter, price, payment terms, quantity, quality, duration, the work to be done, etc.

Indefiniteness as to an immaterial item is not fatal to a contract (and any monies paid must be given back)

 

An agreement may be enforced even if the terms have not been set forth with "optimal certainty"

meaning, able to perceive the basic obligations of the deal

 

"quantum meruit": a person may recover a reasonable value of services rather than by a share of the profits

 

one way or another, agreement may cure any indefiniteness

(less certainty is required where the action is for damages than in an action for specific performance)

 

PARTIES SILENT AS TO A MATERIAL TERM

Strong chance there may be an implied term  from surrounding circumstances, or to be supplied by the court as a gap-filler

-missing term may be implied from external sources (in this case, courts will assume there was agreement on those terms)

 

but if the gap-filler would require an answering of the above questions (under difficulty of #3) would not be answered

 

DURATION PROBLEMS

When courts disagree whether a gap should be filled

When the duration of franchise agreement is silent as to the duration (courts generally: reasonable time intended)

ex: "permanent employment" would refer to the time a person is capable of doing a  specified job...

If for some reason, they're terminated before that time, courts may look and see if the discharge was contrary to public policy

 

WHERE PARTIES AGREE TO AGREE OR AGREE TO NEGOTIATE

agreement to agree as to a material term (the leaving it indefinite) prevents the formation of a contract

(1) Cannot leave a material term too vague, and (2) it shows a lack of present agreement

HOWEVER, courts have ruled an agreement to agree represents an implied promise to negotiate in good faith

 

...Or, to do what one court called "to do what equity and good conscience requires"

 

In cases of an agreement to agree or to negotiate within situations involving the Uniform Commercial Code, the key issues are: intent, remedy and breach.  The UCC now also states, in short, that despite missing the "particulars of performance to be specified by one of the parties" there is a contract."

 

HAINES V. CITY OF NEW YORK (1977)

Case Brief:

Style (name of case): Haines v. City of New York

 

Cause of action: Breach of contract for failing to maintain and expand on present water sewage system, as agreed to by a 1928 agreement with NYC.

 

Procedural History: Trial court and appellate division held in favor of plaintiff and interveners (town and village) and said while the city wasn't responsible for perpetual performance, they were responsible for constructing the needed extra lines until such a time as the village or town is bound by law to maintain a sewage treatment facility.  Upheld by NY Court of Appeals.

 

Facts: NYC agreed with township of Hunter and village of Tannersville to build a sewage system to serve the village and part of the town.  They needed the treatment facility in order to prevent contaminated water from getting into a local stream.  Upon agreement in 1926, NYC assumed obligation of building the plant, sewer mains and laterals, and further agreed, "all costs of construction and subsequent operation, maintenance and repair of the sewer system would be at the expense of the city".  The city was also bound by the agreement to extend the sewer lines when "necessitated by future growth and building constructions of the respective communities".

 

Plant now running in excess of design capacity; plaintiff, who owns land, wants to build homes there.  His request for connection of his 50 proposed lots to the sewer lines was rebuffed.  NYC refused on grounds it no longer was obligated to further expand the plant, already at full capacity, to "accommodate" this new bunch of homes.

 

Issue(s): Was there an intended amount of time for NYC to take care of the town's sewage lines despite the silence in the material term regarding the length of time of the contract?

 

Court's Rationale/Reasoning: The court ruled, like the ones below, "the law will not imply that a contract calling for continuing performance is perpetual in duration. 

 

However, there's no reason to allow NYC to be allowed to terminate the contract whenever it sees fit because it provides for no express duration.  There are implied terms here, and a reasonable person would determine from the intent of the parties involved in the original deal, and the court has the right to supply the missing term if a duration can be determined by the intent of the parties, through the surrounding circumstances.

 

Rule: It's generally agreed by the courts where duration may be implied fairly and reasonably, a contract cannot be terminable at will.

 

Where parties haven't clearly expressed the duration of a contract, the court will use a reasonable standard, one which was implied by the parties.

 

Holding: From the 1924 agreement, the Court held the parties intended to maintain the sewage disposal facility until such time as the city no longer needed or desired the purified water, which is what the plant was supposed to do.

 

 

 

 

 

 

 

 

 

 

ECKLES V. SHARMAN (1977)

Case Brief:

Style (name of case): Eckles v. Sharman (1977)

 

Cause of action: This suit is for a cause of action for breach of contract against appellee by appellant, who was a head coach of a professional basketball team, and for the assuaging of that breach by the owner of another professional basketball team.

 

Procedural History: The case was tried in the trial court, where a jury verdict was for $250K against the coach and for $175K for the other owner.  Case tried in Us Court of Appeals, 10th Circuit, where it was reversed and remanded with directions.

 

Facts: Eckles (trustee of Mountain Sales Sports, the company which owned ABA team Utah/LA Stars) suing Bill Sharman (one of the NBA's 50 Greatest Players of All Time, for breach of contract).  Sharman signed a 7-year deal to coach the ABA's Los Angeles Stars; the deal was for $55K/year with 5% salary bumps each year.  There were also provisions in the contract for buying options into the team, a pension plan, and if any paragraph of the deal is invalid, that the agreement wouldn't fail by reason of but will be determined the invalid portion was omitted.

 

2 years later, Stars sold to Mountain Sales Sports (plaintiff here) and moved the team to Utah.  In the sale of the deal, there was a provision in the sales agreement which included in part (and paraphrasing) the new owners were not obligated to honor the Sharman contract, but Sharman has already expressed interest in doing so.  Sharman tried to work out details of the pension plan and options to buy in.  Two years later, Sharman resigns to become head coach of the NBA's LA Lakers (where he later set the then league record for most regular season wins (69-13).

 

Plaintiff claims Sharman breached his contract and LA enticed him over and induced him to breach it.  Sharman claims there wasn't a good contract to begin with, since two of the parts of the deal were never handled by the new franchise.

 

Issue(s): Was there in fact, a good contract between Mountain Sports and Bill Sharman, and if so, was he illegally induced into breach of this contract by the LA Lakers?  Were, in this case, the option and pension so much an essential part of the contract, that failing to negotiate these terms made the contract unenforceable?

 

Court's Rationale/Reasoning: The trial court gave the jury incorrect instructions as to the verdict and liability of Sharman and the Lakers.  The US Court of Appeals found it necessary to determine if, in fact, the two terms never completed in negotiations were essential to the formation of a binding contract.  It would also need to be determined the intent of the parties involved as to the breach in question: did Sharman never really intend on using the pension and option; did the Stars ever intend on negotiating?

 

Therefore, if the option and pension were not deemed essential, Sharman would be guilty of breach and liable, as would the Lakers for inducing a breach of contract. 

 

Rule: Once a contract is agreed upon, all which is left is good faith negotiations and/or elaborating non-essential terms.  Essentiality depends on the intent of the parties involved.

 

Holding: Court remanded the case to find if the contract was indeed legal in the United States, and for a trial court not to instruct a jury to base a verdict on liability of Sharman (which was in essence already calling him guilty of breach).

 

 

 

 

 

 

 

 

 

 

JOSEPH MARTIN, JR DELI INC V SCHUMACHER (1981)

Case Brief:

Style (name of case): Joseph Martin, Jr. Delicatessen, Inc., v. Schumacher (1981)

 

Cause of action: This a cause of action not for breach of contract, but for a demand on specific performance of terms implied within the contract, in an agreement to agree on a future rate of rent. 

 

Procedural History: The case was tried at the trial level and ruled for appellee (there was also a countersuit by appellee to evict the tenants (appellant).  Case dismissed by Supreme Court of

New York, and tried at District Court, where the court found in favor of appellant.  In appellate division, court ruled tenant failed to set a reasonable rent..  Appealed to Court of Appeals.

 

Facts: Tenant signs lease with appellee for five years with an upward rate of rent from $500 to $650 a month by the fifth.  The contract also said, tenant could re-up the lease with appellee, provided there was timely notice from tenant.  Tenant gave timely notice, but landlord wanted the new monthly rate of rent to start at $900.  Tenant even went to such extents as to hire an appraiser to see what kind of fair market value the property could or should be offered.  Appellant/tenant wants the rent to start at a "reasonable rate".  Landlord/appellee wants tenant evicted.

 

Issue(s): Should there be a reasonable standard for a material term in a contract when it is agreed to be agreed upon, or may offeror change their mind/up their price?

 

Court's Rationale/Reasoning: A contract is "private 'ordering'", where parties bind themselves to do certain things.  However, there must be specificity on the terms, unless it may be reasonably determined there was intent to settle on those terms at a later time. 

 

In this case, the term was rental rates.  The original deal was specified, with the condition the tenant may come back and ask to renew, with terms to be agreed upon at a later time.  The fact this term in and of itself was too major a term to ignore until such a time as after the end of the lease is a lesser point.  The fact the parties agreed with no specificity at all to agree on terms at a later date is the more important factor.

 

What is meant by the above statement is since there were no specifications on this later agreement to agree, there is no chance of recourse for the tenant.  Nowhere in the earlier 5-year lease was there a term which specified a reasonable rate of rent at the time of lease renewal, or for fair market value, as the appraiser would have settle.

 

Rule: As much as there is a reasonable standard for determining values on gaps of information in contract terms which are "agreed to be agreed on", a material value, such as in this case, a rental rate is too crucial for a court to decide upon.

 

Holding: Court reversed decision of lower court and dismissed the appeal without costs.

 

 

 

 

 

 

 

 

 

 

IV. Unilateral, bilateral & reverse unilateral contracts

A. The classical approach

Topic Notes:

Unilateral, bilateral and reverse unilateral contracts and some of their implications

The classical approach

-If one party makes a promise then only they are bound to a legal obligation...these are unilateral contracts

-If both parties make promises, it's a bilateral contract

-If there are more than 2 parties, the contract is bilateral if one party is both a promisor and promisee

 

A tells B: "if you run the NY Marathon, I'll pay you $1K...A is not asking B for a commitment; A has made an offer though

THIS IS UNILATERAL

 

A asks B: "if you promise to run the NY Marathon, I'll pay you $1K...If B returns the requisite promise, IT IS BILATERAL

 

Contract would also arise with an implied promise...

A promise could be inferred if B started to run the marathon in A's presence; if B started running without A present, there would be no implied promise b/c the requisite communication would be lacking

 

*Where an offer to a bilateral contract is made, no contract is created unless B makes the requested promise either expressly or by implication.

 

ALL OF THIS IS PREMISED BY THE FACT A IS "THE MASTER OF THE OFFER"

-->free to indicate in what manner the offeree can assent

 

***one exception: if offerer asks for a promise to so something and offerree performs the task instead of promising to perform the act, there's some authority as to the effect a contract is formed if performance is completed while the offer is still open and requisite notice of performance is given...

 

AS LONG AS THE OFFEROR PRESECRIBES A PARTICULAR MODE OF ACCEPTANCE, THE OFFER MAY BE ACCEPTED IN ANY REASONABLE MANNER (so, an offer may be phrased to expressly permit an acceptance either by making a promise or by the rendering of performance)

 

Yet, a reverse contract has some different premises...

Example: A pays $500 to State Farm asking them to pay $200K should his home burn down

(acceptance: insurance company's promise to pay in the event of a fire)

 

HOWEVER, if State Farm made the offer to pay if A paid $500, State Farm is the offeror, and A's acceptance would be paying the rate...payment by A creates the unilateral contract, but he can't collect unless his home burns

 

THE UCC

-->an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances

 

-->an order/offer to buy goods is considered a prompt for acceptance if the seller promises to ship or actually ships them, but a shipment of goods doesn't necessarily constitute an acceptance if shipper tells buyer the shipment's offered only as an accomodation to the buyer

 

(more infra pp.68-70)

 

 

 

V. Acceptance

BROADNAX V. LEDBETTER (1907)

Case Brief:

Style (name of case): Broadnax v. Ledbetter (1907)

 

Cause of action: The following is a cause of action for breach of contract based on knowledge of acceptance of a reward.

 

Procedural History: In Appellate Court, appellee argued since appellant didn't know of a reward for capturing a criminal, he was not bound by contract to receive an award.  Ruled in favor of appellee and moved on to the Supreme Court of Texas.

 

Facts: Plaintiff here captured a criminal in defendant's township/city whatnot, and was not aware of a reward for this criminal's capture.  Plaintiff seeks reward promised by defendant, however since there was no knowledge of the reward, there was no acceptance of the deal, despite the fact the task was performed (just without notice of compensation).

 

Issue(s): Was notice or knowledge to plaintiff of the existence of the reward when the recapture was made of the criminal essential to his right to recover?

 

Court's Rationale/Reasoning: Acceptance in this situation would have been upon the time when Broadnax actually captured said criminal.  However, since he did not know of the reward upon this time of alleged acceptance, he is not eligible to collect on the reward.

 

An offer would have created the power of acceptance for the offeree, but since he wasn't aware of an offer, he couldn't have been aware to accept it either.  Ignorance, as it turns out, is not bliss.

 

Rule: Offeree needs notice of the offer at the time of the alleged acceptance.

 

Holding: The court held there had to be knowledge of the reward in order to receive it, and thus answered it's issue question in the affirmative.

 

 

 

 

 

 

 

 

 

 

INDUSTRIAL AMERICA V. FULTON INDUSTRIES (1971)

Case Brief:

Style (name of case): Industrial America, Inc. v. Fulton Industries, Inc. (1971)

 

Cause of action: The following is a cause of action for liability of a guarantee of specific performance on a contract by defendant.

 

Procedural History: Trial court ruled Fulton's knowledge of plaintiff's submission of BH's name was sufficient notice to Fulton of an act constituting acceptance of its offer.  Concurred in Supreme Court of Delaware.

 

Facts: Plaintiff was acting throughits president Deutsch, who was a broker specializing in mergers.  BH Inc wished to complete a merger and told the plaintiff and all other brokers.  Plaintiff tried to negotiate several deals for BH but all fell through.  BH later changes its mind regarding merging but never tells plaintiff.  Then plaintiff finds out defendant is merger-minded and brought the 2 parties together.  Merger happens later on but freezes plaintiff out.  Defendant guaranteed plaintiff all brokers would be fully protected, and so they went to court to settle the dispute regarding the guarantee.

 

Issue(s): Did Fulton's offer of guaranty invite acceptance by performance?

           Whether Deutsch knew of the offer?

           Whether Deutsch's course of action constituted a performance amounting to an acceptance?

 

Court's Rationale/Reasoning: Here Fulton's knowledge of the plaintiff's submission of BH's name to the merger was sufficient  notice to Fulton of an act constituting acceptance of its offer.

 

Rule: Overt manifestation of assent, not subjective intent, controls the formation of a contract.  Only intent of the parties to a contract which is essential is an intent to say the words or do the acts which constitute their manifestation of intent. 

 

The intent was clear on the part of plaintiff; their initiating the merger process with defendant constituted an acceptance of defendant's offer, and any non-performance on the part of defendant could be considered breach.

 

The Supreme Court ruled the jury in the trial court should not have relied upon subjective reliance, as it would be too hard for anyone to know what the parties were thinking individually, and instead would instruct the jury to deliberate using the objective reasonable standard.  Fulton's offer invited acceptance by performance, which constituted an offer of guarantee.

 

Holding: Found the notice to Fulton was enough to say performance on the offer was being performed, and thus an acceptance of the offer occurred, and made defendant liable for breach of contract.  Plaintiff ruled entitled to $125K against BH, Fulton and Allied upon the completion of the remanded proceedings.

 

 

 

 

 

 

 

 

 

 

CARLILL V. CARBOLIC SMOKE BALL, INC. (1893)

Case Brief:

Style (name of case): Carlill c. Carbolic Smoke Ball, Inc. (1893)

 

Cause of action: The following is a cause of action for breach of contract on part of defendant.

 

Procedural History: Court found in favor of plaintiff in lower court, and case was appealed to the Court of Appeal.

 

Facts: Defendant promised anyone who didn't contract the flu would get 100 pounds from this company, which advertised this guarantee in Pall Mall Magazine.  Said advertisement added there were 100 pounds in a specific bank for withdrawal if product didn't perform as promised.  Plaintiff bought the ball and still caught the flu; she demanded payment, and defendant refused. 

 

Issue(s): Was there an offer on defendant's part via its guarantee in the advertisement, and an acceptance upon purchase by defendant, and if so, a breach upon non-performance of product and non-payment on part of defendant?

 

Court's Rationale/Reasoning: The court found Carbolic's advertisement to be unmistakably clear in its guarantee for anyone who received non-performance from the smoke ball.  There were specific instructions on what the requirements were to use the item (3 times a day for two weeks), which were performed; nonetheless, the plaintiff still got sick.  In this event, she is entitled to receiving satisfaction for this guarantee.

 

The linchpin to the argument for the plaintiff, the court finds, is the promise to pay on the part of the defendant, along with the advertised words, "showing our sincerity in the matter".  "Sincerity" is meant by the language of the advertisement, to be sincerity for not having the smoke ball work to the customer's satisfaction.

 

Anybody who performs the specific tasks laid out before them in this offer accepts the offer, and thus the defendants are bound to such an agreement.

 

Rule: If a specific offer is made upon a specific performance (or non-performance), and a buyer complies with the instructions set forth, it is construed as an acceptance on their part, and both parties have entered into a contract.  Just because two minds are apart, they simultaneously mutually assented into this contract.

 

Holding: The court found the advertisement to be sincere in its wording and guarantee, and dismissed the appeal on the part of the defendant.

 

 

 

 

 

 

 

 

 

 

DAY V. CATON (1876)

Case Brief:

Style (name of case): Day v. Caton (1876)

 

Cause of action: The following is a cause of action to recover the value of half a brick wall upon and between two adjoining estates as the result of a breach of contract.

 

Procedural History: The case went to court in the Supreme Judicial Court of Massachusetts, and a jury found in favor of the plaintiff, and neither the judge nor the jury bought the defendant's request to rule there could only be a contract if there were an express agreement.

 

Facts: Plaintiff had valuable interest in a lot 29, and built the wall in question, half in vacant lot 27 in which defendant had an equitable interest.  Plaintiff testified there was an express agreement for defendant to pay plaintiff half the value of the said wall when defendant began building upon his lot..  Defendant denied having the conversation with him; there was no other direct testimony. 

 

Issue(s): Was there an expressed agreement for defendant to pay plaintiff to building the wall separating the two lots, which would constitute a contract, and would refusal to reimburse expenses for the wall result in a breach of contract?

 

Court's Rationale/Reasoning: Court found in favor of the plaintiff once again, on the basis any reasonable person would glean from a man putting together a brick wall in front of defendant's property day after day there might be a concern about reimbursement, if there was indeed no express agreement.  The court found it was the job of the defendant to object to any building of a wall if he indeed didn't want one there. 

 

"Qui tacet consentire videtur (silent consent) is permitted in the event a party is fairly called upon to admit their liability"  But if defendant was silent in the face of the facts which he now denies, he should be silent in the facts in which he speaks.

 

Defendant saw this man over and over again, not just once in a while, so the consent was in essence, defendant's silence and ambivalence to the building of the wall.  This was a question for a jury, who did their job the right way according to the court.

 

Rule: Silence can indeed be deemed as acceptance, when there are chances to revoke the offer or rebut the offer.

 

Holding: There are different sets of circumstances which determine if silence could be the equivalent of an acceptance, but basically it comes to this:  if a person has the knowledge a person is doing work for them with the understanding payment was accepted, there is a acceptance upon silence of the offeree.

 

 

 

 

 

 

 

 

 

 

WILHOTE V. BECK (1967)

Case Brief:

Style (name of case): Wilhote v. Beck (1967)

 

Cause of action: The following is a cause of action for repayment of monies due to appellant for the care of one Ruth Beck for 21 years.

 

Procedural History:  The case was tried in front of a jury, which ruled for damages collected from decedent's estate for $11,368 instead  of the $27,837 which was claimed and requested. 

Appellant's motion for a new trial was overruled and another look at the amount owed to appellee is why the case has come up to this court again.

 

Facts: Decedent showed up to appellant's home one day in 1939 or 1940 unexpected and unannounced, and stayed there until her death...21 years later.  Appellee filed a claim for the amount above for expenses in relation to room, board, care and companionship.  Appellant claims the decision was not with the law, and was not sustained by sufficient evidence.

 

Among the evidence at trial:  no contention there was an express contract between decedent and appellee; the facts of where decedent lived in the home according to her health condition; and decedent's employment status while living in the home.

 

Appellant argues the two were second cousins, and the room and board provided were gratuitous as a family member would do for another.  Appellant further argues appellee was in decedent's will, so she should be taken care of via the estate and not before and after (unjust enrichment?).

 

Issue(s): Was there communication from offeror (decedent) to offeree (appellant) for an exchange of money for care in appellant's home?  How should damages be garnished from the estate if so?

 

Court's Rationale/Reasoning: Judgment was affirmed by the Appellate Court of Indiana.  The court defined family as a group of people who form one household, with one head or domestic control and a group which has "reciprocal, natural or moral duties to support and care for each other."  Here, the court found no such organization: decedent did help around the house, but on her own volition (she wasn't ever asked to do anything), which was the extent of her "support".  Decedent lived in a room by herself, except when she lived with claimant's mother.  Decedent came and went while she pleased and entertained her own guests.  All this things are not what the court found to be a family atmosphere.

 

As far as the expenses go, it is the opinion of the court a request for claims against the estate of the decedent should be paid for before the estate is executed.

 

*It should be noted these cases are treated on an individual basis; there is no set rule for dealing with any of them.

 

Rule: When there is service provided to the effect of care and shelter, an express contract may be assumed, provided the care and shelter are not the result of a "family" setting.

 

Holding: Court held in favor of the plaintiff for claims not to what she initially asked for, but at least some of her expenses.

 

 

 

 

 

 

 

 

 

 

LIVINGSTONE V. EVANS (1925)

Case Brief:

Style (name of case): Livingstone v. Evans (1925)

 

Cause of action: The following is a cause of action for specific performance on a contract for sale of land.

 

Procedural History: This is the first time to my knowledge this case was tried anywhere.

 

Facts: Defendant wrote to plaintiff offering to sell him land for $1800 on terms.  Plaintiff sent letter back saying, "send lowest cash price.  Will give $1600 case."  Defendant immediately responded, "Cannot reduce price."  Immediately upon receipt of letter, plaintiff wrote back accepting. 

 

Issue(s): Was the plaintiff's counter-offer in law a rejection of the defendant's offer which freed them from it?

 

Court's Rationale/Reasoning: The court said no by the express intent of the language used in the letters.  The term "cannot reduce price" was a rebuff of the counter-offer but at the same time an express intent on the part of the defendant he would stand by his original price as an offer, and would be bound to the price upon acceptance.

 

Rule: Express intent in the language or written words of communication may be just as important to glean from as the words of a conversation.  There are several ways for an offer to be offered, a counter-offer to be counter-offered, and an acceptance to be given.

 

Holding: The court found in favor of the defendant, in that his express words were not a rejection breaking off the contract, but a reaffirmation of the original offer, which gave the offeree power to accept, which he did, which bound the parties to the contract for land.

 

 

 

 

 

 

 

 

 

 

 

DICKINSON V. DODDS (1876)

Case Brief:

Style (name of case): Dickinson v. Dodds (1876)

 

Cause of action: The following is a cause of a action for breach of contract on defendant's part for failing to sell property to plaintiff after an offer was on the table and an acceptance had already been made.

 

Procedural History: The original trial court ruled in favor of the plaintiff and held Allan had no interest in the property based on a decree for specific non-performance.

 

Facts: Dodds sent a letter to Dickinson Wednesday of the week offering him the sale of a particular property, to which Dickinson had until 9 AM Friday morning to accept.  Dickinson says he determined to accept the offer the following day.  Thursday, Dickinson found out another fellow, Allan, was interested or even accepting a deal to buy the above land offered, so Dicksinson tried to hunt down Dodd and put in his acceptance of the offer.  Dickinson went to the house of Dodds' mother-in-law and asked to give Dickinson written notice of acceptance to Dodds, which never found its way to him (she forgot).

 

Next day, agent for Dickinson tracks down Dodds at station and hands a copy of same written acceptance to Dickinson, which was rejected, based on his having already sold property to Allan.  Later on, Dodds finds Dickinson and hands him the written acceptance again, which is rebuffed.

 

Issue(s): Was there an express contract based upon the offer to the plaintiff, and if so, was there a breach based on defendant's selling property to another party?

 

Court's Rationale/Reasoning: Court ruled under law the defendant had only offered the property in question to plaintiff, and had the right to revoke it at any time he saw fit.  The time he saw fit was when he got acceptance on his offer.  Plaintiff's situation with his attempts at accepting the deal upon rumor of another party's interest makes him an interested party, but no more.

 

There was no express contract on the part of the defendant by his mere actions.  The deal was left open until a specific time, which gave the offeree power to accept it until then.  It also gave the offeror power to revoke the offer anytime until the point an offer was accepted.

 

Rule: Express contracts may not be implied when one party's intent (offeror) is not concurrent with another (offeree).

 

Holding: The court held in favor of the defendant, finding he (Dodds) had the right at any time until the time the offer expired to take it off the table.  It is also held the plaintiff should have at the point he heard someone else was interested in buying the property and may have been offered it, the plaintiff should have realized this was not a specific party offer anymore.

 

 

 

 

 

 

 

 

 

 

PETTERSON V. PATTBERG (1928)

Case Brief:

Style (name of case): Petterson v. Pattberg (1928)

 

Cause of action: The following is a cause of action for breach of a unilateral contract.

 

Procedural History:   Plaintiff recovered for sum claimed lost as a result of the breach of contract with interest.  On appeal, the claim was dismissed as was the award.

 

Facts: Plaintiff bought property from defendant, and in the process of buying said property (5301 6th Avenue), took out a mortgage supported by a bond.  The parties signed a unilateral contract in which plaintiff was promised a $780 discount on his mortgage if he paid in full the amount owed to the defendant.  Plaintiff came to defendant's home with the full amount owed in hand and asked to clear his debt.  Defendant refused, having already made a contract to sell the the land to a third person free and clear of the mortgage to the defendant; the bond and mortgage were also sold to said third party.

 

Plaintiff demanded recovery for his lost discount on the grounds he performed the consideration begin asked, and the offer was irrevocable.  Defendant claims the offer was revocable.

 

Issue(s): Is a promise irrevocable in a unilateral contract when a promise to perform is attempting to be completed and the offeror withdraws his offer?  Or is there a breach of contract.

 

Court's Rationale/Reasoning: Aside from the general rule (below), the court thought it was an interesting situation when the offeree approaches the offeror with intent to proffer performance but before the tender for payment is made, the offer is withdrawn.  But the court answers this problem by saying no matter how short the actual amount of time between revocation and attempted acceptance, there is still termination of the offer.

 

The statement to Petterson of the selling the mortgage to someone else was notice the promise of the offeror could not be completed.  Thus, there is no reason to determine what might have happened if acceptance occurred before the offer was revoked.

 

Rule: As a general rule, any offer to enter into a unilateral contract may be withdrawn before the act requested to be done has been performed.

 

Holding: A debtor who is promised consideration, namely a discount on the amount owed, in exchange for paying off a mortgage or note for land, cannot hold that offer as a matter of law if the offeror revokes the offer prior to consideration being performed.

 

(the dissent speaks of how there was a time element which defendant made impossible to fulfill because he sold the mortgage before even the plaintiff had a chance to proffer acceptance...since the act was something which enticed the plaintiff to buy the property outright, it could not be completed without defendant assenting to the offer)

 

 

 

 

 

 

 

 

 

 

 

MORRISON V. THOELKE (1963)

Case Brief:

Style (name of case): Morrison v. Thoelke (1963)

 

Cause of action: The following is a cause of action to reverse a lower court decision which voided a contract for the sale of land.  Appellants move for acceptance of the contract, appellees move to dismiss again.

 

Procedural History: Lower court ruled contract null and void.  Appellant contends the lower court erred in its ruling.  Reversed and remanded in District Court of Appeals, Florida, Second Circuit.

 

Facts: Appellant executed a contract for the sale of some land in Orange County.  Appellants executed the contract by placing it in the mails the following day. After the mailing but prior to the receipt of the acceptance, appellees called appellant to revoked their offer.

 

Issue(s):  Is a contract complete and binding when a letter of acceptance is mailed, thus barring rejection prior delivery to the offeror, or when the letter of acceptance is received, thus permitting rejection prior to receipt?  Appellant says it is a contract upon mailing it; appellee says only the receipt of the acceptance makes it a contract.

 

Court's Rationale/Reasoning: The court referred to common law's "deposited acceptance rule", where there is allowed a reasonable amount of time allowed for acceptance to be sent to offeror.  Under this rule, the mail is not seen as the agent for the offeree either, just as a carrier.  There were a few reasons for such a rule to be enacted: to allow a reasonable standard for acceptance through the mails; and to overrule a previous common law decision which stated an offer was revocable any time before acceptance.

 

The court added the appellees failed to distinguish between agency and loss of control in terms of the mails.  Only the offeree had the right to recall his letter of acceptance, not the offeror. 

 

Rule: The right to effectively withdraw and reject an acceptance must be dependant upon the initial determination of when that acceptance is effective and irrevocable.  (reasonableness standard)

 

Holding: Upon the sending of an acceptance to an offer through the mails, it must be determined before a revocation of the offer in question, whether there was a reasonable amount of time allowed for such an offer to be revoked.  A reasonable amount of time regarding receipt of the letter is not the responsibility of the sender/offeree, unless their timeliness in sending out such a letter is not reasonable.

 

 

 

 

 

 

 

 

 

 

 

 

SWIFT & CO. V.SMIGEL (1971)

Case Brief:

Style (name of case): Swift & Co.. v. Smigel (1971)

 

Cause of action: The following is a cause of action for breach of contract to purchase goods purchased by decedent from January 1, 1967 through October 12, 1967.

 

Procedural History: Superior Court dismissed original complaints against defendant and third party Abe Kraig.  Swift appealed summary judgment, and the decision was reversed in the Superior Court of New Jersey, Appellate Division.

 

Facts: Defendant and third party Abe Kraig signed on to an "agreement of guaranty", which made defendants responsible for any products purchased by the then decedent and to cover all liabilities the buyer might incur up to ten days of notice form the guarantor or his legal representatives of the withdrawal of the guaranty.  No notice of such withdrawal was given by defendants.  Meanwhile, decedent made purchases of goods from plaintiff from January 4 through October 12, 1967; all the time decedent was already adjudicated incompetent January 16, 1966.  Defendants claim they had no knowledge of this problem and therefore are not responsible for the bill.

 

Issue(s): Does mental incompetency of the offeror prior to acceptance by the offeree terminate the offer whether or not the offeree had notice of the incompetency at the time of the acceptance?  Does an adjudication of mental incompetency of a guarantor operate automatically to revoke a continuing guarantee?

 

Court's Rationale/Reasoning: The court used this standard in light of the same kind of liability in tort law.  Basically, the court found it simpler to find the rationale of the offeree in this instance, because it is the offeree who did not know  the situation.  The court made sure to mention this test is not to be used for cases in which a guarantor dies, b/c the common law rule has generally been the death of an offeror terminates the offer.

 

Yet in this situation, the guaranteeing  party could have notified all those who decedent did business with, instead of waiting for a cause of action to be filed in court.  It is presumable to think the offeree would have never done business with the defendants unless there was a guarantee of payment of debts like the agreement they signed.

 

Rule: The test for liability of an offer is an objective one, which asks, "What is the scope of the offeree's reasonable expectation?"

 

Holding: Yes.  There is a reasonable standard to be placed in the shoes of the offeree and to ask what their expectations might be in the situation where a decedent was adjudicated incompetent.  If the offeree was expecting payment for any reason, the guarantee of payment stands. (this holding only stands for those who were adjudicated incompetent, not for those who deceased)

 

 

 

 

 

 

 

 

 

 

 

 

PLANTATION KEY DEVELOPERS V. COLONIAL MORTGAGE CO. (1979)

Case Brief:

Style (name of case): Plantation Key Developers, Inc. v. Colonial Mortgage Co. Of Indiana, Inc. (1979)

 

Cause of action: The following is a cause of action for breach of contract and fraud.

 

Procedural History: Jury returned a verdict for $60K in favor of plaintiffs plus interests and costs.  On appeal, defendants contend (the most important of 3 points) the breach of contract issue should not have been submitted to the jury.  Verdict was affirmed by US Court of Appeals, Fifth Circuit.

 

Facts: Plaintiffs were trying to build condos with secured funds by defendants.  The deal they signed had 3 parts for performance in securing moneys for the period from November 1973 to 1975.  The first part was to have interest rates at 9% from November 1973 through December 1974, plus fees.  The second part was an option  to extend the commitment for 6 months on the 

part of plaintiffs with adjustment and interest points to be changed if market conditions warranted.  The third part was another option for six months with the same interest and point adjustments mentioned.

 

The dispute arose over the first option, when defendants tried to up the rate to 9 3/4% and 9 points.  Plaintiffs contended market conditions did not warrant such a change, but defendants disagreed, and the action was brought to court.

 

Issue(s): Were the option contracts still legal if there was not yet a tender of payment (consideration) by optionee in exchange for not revoking the offer?

 

Court's Rationale/Reasoning: Consideration for the contract was the $60K Plantation already paid right off the top.  Plantation was only obligated to pay the additional $30K if they wanted to "exercise their option" and "to bind Colonial" to the quoted rates and points.  Never was the option the optioner's, only the optionee's.  Why should a party who is deciding whether to pay an option should have to before seeing what rates they'd have to pay were.  The jury was ruled correct in deciding the rates and points being offered were not consistent with the idea of the option (market activity).

 

Finally, testimony of mortgage brokers validated plaintiff's claim the rates and points were not consistent with "market conditions" as so agreed to in the contract.

 

Rule: An option contract has two elements: (1) the underlying contract which is not binding until accepted; and (2) the agreement to hold open to the optionee the opportunity to accept.

 

Holding: Yes.  Since there was acceptance of the initial contract by both parties, the agreement to hold open the options at the agreed upon rates and points was accepted upon as well.

 

 

 

 

 

 

 

 

 

 

 

 

A. Must offeree know of the offer

Topic Notes:

Must offeree know of the offer?

Offer creates the power of acceptance in the offeree & permits offeree to transform offer into a contractual obligation

 

*ACCEPTANCE: VOLUNTARY ACT OF THE OFFEREE WHERE THE OFFEREE EXERCISES THE POWER CONFERRED BY THE OFFER AND THEREBY CREATES THE SET OF LEGAL RELATIONS CALLED A CONTRACT

(acceptance of the offer terminates power of revocation that offeror originally had)

 

FOR A CONTRACT TO FORM, OFFEREE MUST KNOW OF OFFER AT TIME OF ALLEGED ACCEPTANCE

(offeree must exchange promise/performance for offeror's promise)

 

-->this binds an offeree if they decide to accept without reading the terms if a reasonable person could rely on the acceptor's promise

 

-->also could happen without a signature: example would be a bill of lading or an airline ticket, where there are provisions contained in them a reasonable person should know without reading it

(would a reasonable person expect to find or understand the words therein?)

 

What if A mailed a unilateral contract to B, but B performed the act called for before opening the letter?

ANSWER: B could not collect on A b/c he didn't know about the offer (no contract)...same thing applies if B doesn't know of offer and even performs act in front of A's presence!!!

 

IDENTICAL CROSS-OFFERS DO NOT CONSTITUTE A CONTRACT EITHER...

A sends offer to B for X amount for something...B in ignorance sends out another letter with the same price...no contract

(however, if both parties assent in advance to identical cross offers, there is a contract based on dual subjective assent of the same deal and there's objective evidence of the same intent)

 

 

 

B. Warranties in a box

Topic Notes:

Warranties in a box; shrinkwrap; clickwrap

(this applies to documents in a bag enclosed with typically an appliance shipped to you)

For example: let's say Dell is sending you a computer...when you agree to purchase the item over the phone, an operator gives you a bunch of statements notifying you of certain limited warranties which accompany the product.  Provided the operator notifies you about the booklet with the warranty upon ordering, there should be no confusion as to warranty

 

However, usually we purchase things from resellers (Dell is a direct seller)...

In these situations, the seller offers such a warranty to buyer during the warranty period, so customer has the option at that point to  sign those papers and be warrantied

 

Software warnings come from the actual software manufacturer generally, not the seller (unless being bought direct)...

Downloading programs include warnings & offer the same results

 

C. Must offeree intend to accept and when

Topic Notes:

Must the offeree intend to accept? When?

The offeree must not not only know of the offer, but manifest intend to accept it.

(a bilateral contract is formed when offeree makes requested promise even if offeree didn't subjectively intend to accept, unless offeror knows or has reason to know the offeree didn't intend to accept)

 

In the situation of a unilateral contract (A says to B, "if you run in the NYC Marathon, I'll pay you $1K, and he does, is there a contract?)

B could be running for the money, or the exercise, or a combo of the both...courts here have allowed for a subjective approach to B's intention

 

Restatement of Contracts defines intent to accept is presumed  in the absence of words or conduct indicating the contrary.  B/C intent to accept is assumed, if offeree manifests an intent not to accept before the offeror performs, the disclaimer's effective and renders offeror's promise inoperative from the beginning...

 

D. Who may accept the offer

Topic Notes:

Who may accept the offer?

Offeror controls person(s) in whom a power of acceptance is created.  It may be the offeree(s) or by an agent.  B/C power of acceptance is personal to offeree, they may not transfer this power to anyone else (until after contract has been made).

 

If A makes offer to B, C may not accept...

 

All this falls under the reasonable person test:

 

If A offers reward for person who catches crook and  B catches him, B gets reward and no one else can accept the reward, b/c under the terms of the contract, only one person was to be rewarded...

 

If A offers anyone who takes medicine and is cured gets a reward, and B, C and D all get rewards after being cured, it is kosher to infer this, as the terms were for anyone who does x, gets y.

 

E. Must offeree give notice of acceptance (unilateral)

Topic Notes:

Must the offeree give notice of acceptance of an offer to a unilateral contract?

An offer to a unilateral contract is a request for deeds, offeree need not give notice of intent to perform, but should he give notice of performance upon completion of the deed?

 

ANSWER: notice helps, b/c it allows the offeror to avoid contracting said deed out with another party.

 

One must answer this question: does the offeree have reason to know the offeror has no adequate means of learning of performance with reasonable promptness and  certitude?

(the duty of inquiry is on the offeror unless inquiry is not reasonably feasible)

 

F. Acceptance of offeror looking to series of contracts

Topic Notes:

Acceptance of an offer looking to a series of contracts

Example: A offers to allow B to borrow from him up to $1000 up to 5 times over the next year...this in exchange for helping him earlier...

 

B borrows once and then again, but on the third go-round, A revokes the offer.  How is this? B/C A made an offer looking to a series of unilateral contracts.  The first advance was the 1st contract, and the 2nd borrowing the second contract. 

BUT this deal is revocable at any time for A (up to language?)

 

It can work with bilateral deals, too:

A promises to sell B a certain amount and type of goods upon ordering them...again, the first request for sale is the first contract, the second request the second contract and so on...the deal may be revoked at any time.

 

If A promises to sell a certain quantity of something to B in 4 equal monthly installments, there is an entry into a bilateral contract once B accepts the deal and specifies the quantity.

 

 

 

G. Necessity of communicating acceptance (bilateral)

Topic Notes:

The necessity of communicating acceptance of an offer to a bilateral contract

Creation of bilateral contract rests on the premise the offeree's promise must be communicated to the offeror, and the offeree should understand the offeror should reasonable expect to know the offeree has made the requested promise so compensation may occur.

 

SHOULD COMMUNICATION COME TO THE OFFEROR'S ATTENTION?

-->as master of offer, offeror may dispense with communication requirement

 

ie A, agent for B, presents C with document for terms of a bilateral agreement...A says contract will be set in motion upon the authorization of an officer for B.  C signs the deal and makes the offer, and upon B's officer signing the document, accepts and enters into a bilateral agreement

 

(so, in essence, the master of the offer has written a script for acceptance of a contract)...failure to give notice of such acceptance under these circumstances would discharge the obligation of the offeror and could be seen as breach of contract

 

H. Acceptance varying from offer

Topic Notes:

The Common Law Rule

Acceptance that adds conditions is considered a "counter-offer" and thereby a rejection of the offer, even if it's on a trivial matter.

(sometimes this is called the "ribbon matching or "mirror-image rule")

 

In the words of one court (paraphrasing): "...acceptance must be positive, unconditional, unequivocal and unambiguous, not changing or adding to the terms of the offer."

 

*yet the courts today are moving to accept more contracts where there is a disparity on very minute and immaterial details*

 

UNDER THE UCC: the last terms given and accepted by the purchaser in a said deal were to be the terms of the contract, which were usually the seller's terms.  The UCC terminology has changed the common law rule.  However now the terms of the contract are sometimes a matter for debate.

 

(more infra UCC 2-207), which deals with ways and means to acceptance: expression or written form unless different from the terms offered or agreed upon)

 

Under the UCC "acceptance" and "confirmation" are 2 different topics...

 

Two other questions raised by section 1 of 2-207:

1) was arguable acceptance definite (diverging significantly from a bargained term) and seasonable (done in a timely manner)?

2) is the arguable acceptance expressly conditional on assent to the additional or different terms?

    (in regard to the 2nd question, it may be settled by the offeror authorizing or assent to the terms of the offeree's form)

 

----->   ex: "subject to all the terms and conditions on the face and reverse side of hereof, including arbitration, all of which are accepted by the offeror..." has been held in very narrow and weak terms, so as to prevent its inability to form a contract

 

If the records form a contract, what are the terms?

Different terms are treated as terms to modify the terms of the offer...If either party is a non-merchant, the terms of the contract constitute the contract without modification...the one exception is if the offeror expressly assents to the special or different term (offeror's silence will not be considered assent to additional/different terms)

 

Additional terms between merchants

Besides the possibility an agreement may be made on terms additional or different from terms of the offer...but aside from this possibility, if the parties are both merchants, the terms become a part of the contract unless:

 

1.  The offer expressly limits acceptance to the terms of the offer

2.  They materially alter it

3.  Notification has been given or is given in a reasonable time after notice of them is received

 

If offeror's form limits acceptance or to the terms of the offer, or if there's notification of objection to any of the terms, the offer provides the terms of the contract and the acceptance provides none of those terms.  Offeree has time to reject any terms within a reasonable time.  A surprise term may be rejected in a reasonable time so as to avoid hardship

 

Different terms between merchants

If the records of both parties form a contract, but the acceptance contains a term different than the offer, which essentially clashes with the offer...these "DIFFERENT" terms are not part of the contract unless accepted by the offeror

(with merchants it would be rejected only if the provisions of UCC 2-207)

 

If the records do not create a contract

Conduct may be formed by conduct -- did the parties behave as if there was a contract?  If yes, then there's a contract!

 

Confirmations

Applies with oral or written communications from one party to another, while another one's communication is formal

Also applies when there are additional terms in the memoranda sent and they conflict with each other, and the parties disagree on the new terms, so they have to agree only on the original terms, the ones "expressly" agreed to.

 

Partly oral, partly written

Previous court (7th circuit) ruled there's no acceptance when an order is placed over the phone and arrives with extra terms

 

If offeree speaks with an automated or computerized agent

If they know they are speaking with a computer or auto-agent, the new "terms" would not exist in the contract

 

 

 

 

 

I. Effect of part performance on an offer to unilateral contract

Topic Notes:

Effect of part performance on an offer to unilateral contract

Could terms of a contract be revoked with after partial performance?

3 views to this:

 

CLASSICAL VIEW:  offer may be revoked at any time prior to completion of the act requested in offer

(the offeree is free to not complete the deal if the offeror can't perform on their end of the agreement)

 

ANOTHER VIEW:  once offeree has started work on their end of the agreement, a new bilateral contract forms when offeree starts to perform (however, this is seen as silly b/c offeror didn't ask

for a promise and there's no indication offeree was going to finish their end of the agreement either)

 

THIRD VIEW (PREVAILING VIEW):  once offeree begins to perform (preparation is not enough), the offer is irrevocable...offeree is not bound to complete the task, but they are bound to some sort of contractual recovery unless performance is already completed, or is excused.  Also, if performance requires cooperation of offeror and and such cooperation is withheld, tender of part performance is the equivalent of part performance.

 

 

 

J. Time of acceptance of an offer to bilateral contract

Topic Notes:

Time of acceptance of an offer to bilateral contract

A revocable offer to bilateral contract may be revoked at any time prior to its acceptance

fortiori:  may be withdrawn before the offeree receives it

 

Acceptance is effective when communicated...it may be mailed..."the mail box rule"

if a party puts it out of reach of themselves, it may be considered agreed upon, but only if they agreed to offeror's terms...

 

If offeror said the offeree must send a telegram to accept the offer, and offeree instead sends a letter, there is no contract, but there is a counter-offer (b/c the telegram is the authorized method in which offeror wants acceptance)....BUT THERE ARE OTHER SOURCES ON THIS

 

The UCC standard is one of reasonableness...so a letter as opposed to a telegram would likely be considered reasonable acceptance of offeror's terms...BUT

 

nonetheless, the offeror remains master of the offer and may insist on a particular medium of acceptance.  Conditions may be in regard to the time, place and method of acceptance...SO:

 

Traditionally, if offeree uses a different method of acceptance than prescribed by offeror, the acceptance comes when it is received by offeror, not sent

 

But under the restatement, it is also under a reasonableness standard...as long as the item is sent out in a reasonable manner, it is considered accepted, provided it arrives in a seasonable amount of time

 

THE OFFEROR HAS THE POWER TO NEGATE THE MAILBOX RULE

 

How about when offeree sends both an acceptance and a rejection?

A rejection is effective when received...

 

Example A: rejection sent, acceptance sent, rejection received, acceptance received

Example B: rejection sent, acceptance sent, acceptance received, rejection received

 

Under the restatement, acceptances dispatched after a rejection has been sent isn't effective until received and only if received prior to the rejection...so example B would be a contract, A would not...

(acceptance has to beat the rejection in the mail)

 

How about example C: acceptance sent, rejection sent, rejection received, acceptance received

Restatement says a contract is formed, otherwise offeree could make offeror wait at their expense to see which outcome is better

 

Parties in the presence of another

If parties are in the presence of one another, acceptance happens only if the offeror hears it or is at fault for not hearing it

(THIS RULE ALSO HAS BEEN ACCEPTED WHEN THE PARTIES ARE ON THE PHONE WITH ONE ANOTHER, BUT DO NOT INVOLVE A BREAK IN THE CONNECTION)

 

If parties are equally blameless there is no contract, otherwise the understanding of the least blameworthy party prevails.

 

 

 

K. Option Contracts - Irrevocable Offers

Topic Notes:

Option Contracts - Irrevocable Offers

What makes an offer irrevocable?

 

Option contract=irrevocable offer

MOST OFFERS ARE REVOCABLE

--->a classic way of rendering an offer irrevocable is by the offeror's acceptance of a consideration in exchange for a promise to keep the offer open, or an "option contract"

 

ex: A makes an offer to B for land and says it's open for 10 days, the offer is revocable

 

HOWEVER, if B pays $100 for A to keep offer open for 10 days, consideration has been exchanged for the offer and it is now IRREVOCABLE

 

An option may be binding even without consideration...the restatement supports an option signed in writing and recites a purported consideration

 

An offer may be become irrevocable under the doctrine of promissory estoppel

 

NATURE OF AN OPTION CONTRACT:  it is a hybrid of sorts, being a contract and an offer.  Once it's determined an option exists, the ordinary rules of offer and acceptance often apply (like terms of acceptance should not vary from terms of the offer)

 

TERMINATION OF IRREVOCABLE OFFERS:  done so by lapse of time, death or destruction of a person or thing essential for the performance of the contract, or supervening legal prohibition of the proposed contract.  Yet, irrevocable offer is not terminated by anything happening to the offeror or offeree.

 

Lapse of time, does however terminate an irrevocable offer.  So, time is of the essence when the offer is irrevocable.  Reason being, there is usually minimal consideration being exchanged for keeping an offer open.

 

Death or destruction, supervening legal prohibition also may terminate what is thought to be an irrevocable offer.

Rejection should not terminate an irrevocable offer b/c consideration has been paid to keep it open.  However, if offeror injuriously relies on the rejection, the offeree should be estopped from accepting it later.  A counter-offer does not normally operate as a rejection where offer is irrevocable.  Yet, a purported acceptance that varies the term of the offer is not a valid acceptance.

 

Supervening death or incapacity of the offeror does not terminate the irrevocable offer, but death or incapacity creates other problems, which are discussed later.

 

When acceptance of irrevocable offer is effective

Offeree of an irrevocable offer doesn't require the protection of a revocable offer where once it is sent, it is accepted.  Under this, acceptance occurs when the acceptance is received, unless the option agreement otherwise provides.

 

VI. Consideration

HAMER V. SIDWAY (1891)

Case Brief:

Style (name of case): Hamer v. Sidway (1891)

 

Cause of action: The following is a cause of action for breach of contract.

 

Procedural History: This is an appeal from the Supreme Court of New York, which reversed a judgment in favor of the plaintiff entered upon a decision of the court on trial at Special Term and granted a new trial.

 

Facts: Uncle promises in front of family and friends if his nephew refrains from tobacco, drinking, swearing, playing cards or billiards for money until turned 21, uncle would pay nephew $5K.  Upon his 21st birthday, nephew wrote a letter to uncle, informing him that he had performed his part of the agreement and was entitled to the money.  Uncle sent back a letter confirming he had the money in the bank for him.  Nephew, upon receiving letter, consented the money was best left in the bank as per the letter.  Uncle died 12 years later, without paying nephew any of the money and the interest promised in the earlier letter. 

 

Defendant contends contract was without consideration to support it and thus invalid.  Defendant further contends the offer was made to the benefit of the acceptor only, so there was no consideration.

 

Issue(s): Was a promise made through the mails 12 years previous which was performed on the part of the offeree, a valid contract which should be honored by the estate of the offeror?

 

Court's Rationale/Reasoning: Defendant's contention there was no consideration was found to be incorrect.  "in general a waiver of any request of another party is a sufficient consideration for a promise."  If the promisee was a user of the said vices above (which he was), he refrained from such behavior "upon the strength of the promise of the (uncle) such behavior would result in a $5K windfall.

 

Offeree performed within the boundaries of the offer...the question of whether there was or wasn't consideration b/c there was no benefit to the promisor is irrelevant.  There was a condition in the offer which offeree assented to, therefore a binding contract occurred.

 

Rule: An acceptance to an offer, whether by performance or by payment, creates a contract.  Little does it matter as to the benefit given to the offeror.

 

Holding: A party who accepts the offer by action assents to the offer and therefore accepts the offer.  Upon the completion of such performance, a contract has been formed.

 

 

 

 

 

 

 

 

 

 

 

 

FIEGE V. BOEHM (1956)

Case Brief:

Style (name of case): Fiege v. Boehm (1956)

 

Cause of action: The following is a cause of action for breach of contract to pay the expenses incident to the birth of his bastard child and to provide for its support upon condition she would refrain from prosecution for bastardy.

 

Procedural History: Defendant demurred to declaration on the ground it failed to allege in Sept. 1953 plaintiff instituted bastardy proceedings against him in criminal court of Baltimore, and he submitted to blood tests which proved he was not the father.  Court sustained demurrer.  Plaintiff amended declaration, and court overruled defendant's demurrer.

 

Facts: Early 1951, defendant had sex with plaintiff, who was unmarried, and plaintiff became pregnant.  Defendant acknowledged he was responsible for pregnancy.  Defendant agreed to pay for medical and miscellaneous expenses to compensate her for loss of income as a result of her losing her job.  Upon placing baby for adoption, she claimed hospital bills,  doctor fees, loss of earnings, and other items for a total of $2895.80.  Defendant paid only $480.  Plaintiff asserts she is owed another 2400 and change. 

 

Blood tests were done upon the bastardy charges, which revealed defendant was not father of plaintiff's baby.  The agreement was 13 years previous to the court proceedings, and was made in exchange for the plaintiff to refrain from bastardy proceedings.

 

Issue(s): Was there a contract made when plaintiff promised not to institute bastardy proceedings in exchange for child support on the part of the defendant?  May plaintiff interpose the defense of good faith in response to a demurrer by defendant?

 

Court's Rationale/Reasoning: Forbearance with an honest intention is sufficient consideration for a promise.  Good faith, under the circumstances, was good enough to show there was a consideration on the part of the plaintiff.

 

Rule: A compromise of a doubtful claim or a relinquishment of a pending suit is good consideration for a promise.  In order to support a compromise, it is sufficient that the parties entering into it thought at the time that there was a bona fide question between them, although it may be found there was in fact no such question.

 

Holding: Plaintiff's agreement with defendant was in fact valid, as there was consideration on the part of both parties due to the fact no one knew a blood test would determine defendant was in fact not the father of plaintiff's baby.

 

 

 

 

 

 

 

 

 

 

 

 

SCHWARTZREICH V. BAUMAN-BASCH (1921)

Case Brief:

Style (name of case): Schwartzreich v. Bauman-Basch, Inc. (1921)

 

Cause of action: The following is a cause of action for breach of contract and damages resulting from the breach.

 

Procedural History: Original court found in favor of plaintiff.  Appellate term set aside verdict of jury and judgment for the plaintiff. 

 

Facts: Owner and worker sign contract to work for $90 a week.  Upon rumor of worker leaving for another company, worker is approached by owner and is asked to confirm or deny rumors.  Upon confirming rumors were true, owner and worker agree to rescind old agreement and sign a new contract, for $100 per week.  Upon getting the new contract, plaintiff gave his copy of the old contract to defendant.  Plaintiff remained in defendant's employment for over another year and sues to recover damages. 

 

Issue(s): Can a contract of employment be set aside or terminated by the parties to it and a new one made or substituted in its place?  If so, is it competent to end the one and make the other at the same time?

 

Court's Rationale/Reasoning: Court found there was such a thing as mutual rescission.  Upon this mutual rescission, there may be a mutual re-assent to a new contract, and the new contract replaces the old one.  It doesn't matter at which time the mutuality occurred to both end the deal and create a new one.

 

Rule: Mutual assent may occur to both create and rescind a contract.

 

Holding: There is no reason why parties to a contract may not come together and agree to cancel and rescind an existing contract, making a new contract in its place.  Both transactions may take place at the same time.

 

 

 

 

 

 

 

 

 

 

 

 

KIBLER V. FRANK L. GARRETT & SONS (1968)

Case Brief:

Style (name of case): Kibler v. Frank L. Garrett & Sons, Inc. (1968)

 

Cause of action: The following is a cause of action for breach of contract.

 

Procedural History: Plaintiff appeals a decision of lower court in which it found defendant was acting in accord and satisfaction of said contract.  Case was remanded to figure whether there was accord on the part of the plaintiff, or if he was overreaching.

 

Facts: Plaintff hired by defendant to harvest his land.  Plaintiff told defendants the price, if the crop proved to be 50 bushels per acre, would be 18 cents per bushel and perhaps more, depending on circumstances.  Plaintiff said the crop was in excess and sent a bill for 25 cents per bushel, then for 20 cents per bushel.  Plaintiff received letter from defendant with a check which broke down to $12 an acre, which they claimed was 50 percent more than they paid last year for the same harvesting service. 

 

Upon receipt of the letter and check, plaintiff took the check to his lawyer and asked if he could deposit it.  Lawyer and he both didn't see the fine print which said by depositing the check he had agreed to the terms of the deal.  Plaintiff brings cause of action to court.

 

Issue(s): Is a check which one party considers payment in full fulfill offeree's obligation to pay when the offeror considers the amount only partial payment?

 

Court's Rationale/Reasoning: Court reversed and remanded for a new trial.  The court began by defining the rules of accord and satisfaction through case law:

 

1. Whether there has been an accord and satisfaction in any given case is generally a mixed question of law and fact.

2. Where the facts are not in controversy, it is purely a question of law for the court.

3. To create an accord and satisfaction  in law, there must be a meeting of the minds of the parties on the subject and an intention on the part of both to make such an agreement.

4. An accord and satisfaction is founded on contract, and a consideration therefore is necessary as for any other contract.

5. Where the debtor pays what in law he is bound to pay and what he admits he owes, such payment by the debtor and its acceptance by the creditor, even though he tendered as payment in full of a larger indebtedness, don't operate as an accord and satisfaction of the entire indebtedness, b/c there is no consideration therefore.

6. Generally, when a debtor sends to his creditor a check in an amount the debtor is willing to pay, and at the same time informs the creditor that the debtor intends the check to be considered as full payment, then by accepting and cashing the check, the creditor agrees to the settlement and cannot thereafter seek additional compensation.

7. Rule number 6 does not apply when there's an agreement that a certain sum shall be paid on account and not in full settlement, and the sending of a check stating that is in full settlement does not, as a matter of law, under such circumstances, effect an accord and satisfaction.

8. Nor does rule number 6 apply where the debt or amount is liquidated or certain and due, unless there is new consideration.

9. Where the amount of the debt or obligation is unliquidated or in dispute, then the tender by the debtor of a certain sum in full payment of the debt, followed by an acceptance and retention of

the amount tendered, establishes an accord and satisfaction; but if the amount be liquidated or undisputed, then such tender and acceptance do not establish an accord and satisfaction.

 

The court found since the claim was unliquidated, so if the check was intended as full payment and was communicated to the plaintiff, the cashing of the check completed the accord.

 

However, the court found the language in the letter which accompanied the check contained information which was determined not to be a refusal of a counter-offer, but an offer to keep negoiation open.  Plaintiff did not attempt further negotiation.

 

The check was found to be a form check, and the fine print included was not directed at plaintiff. 

 

Rule: Payment cannot be accepted in part for services rendered on the part of one person when it is thought to be payment in full by another.  It must be proven there was accord on the part of the party whose acceptance in full is questioned.

 

Holding: The proof in this case did not show an accord and satisfaction, since while the claim was disputed, there was no showing the defendant manifested to the plaintiff his intention to pay no more than the amount which he remitted.

 

 

 

 

 

 

 

 

 

 

 

 

AUSTIN INSTRUMENT V. LORAL CORP. (1971)

Case Brief:

Style (name of case): Austin Instrument v. Loral Corp. (1971)

 

Cause of action: The following is a cause of action for recovery of payment for goods delivered under a contract which it had with the plaintiff.

 

Procedural History: Following a trial, Loral was awarded the sum it requested and Loral's complaint was dismissed.  Appellate Division affirmed.  Remanded by Court of Appeals of New York.

 

Facts: Loral awarded a $6M contract by the Navy for production of radar sets.  The contract contained a schedule of deliveries, a liquidated damages clause, and a cancellation clause in case of default by Loral.  Loral then submitted bids for 40 or so gear components needed to produce the radar sets, and awarded Austin a subcontract for 23 of those parts.

 

Loral awarded a second Naval contract for more radars.  Austin bid on all 40 components, but a rep from Loral informed Austin they'd only get the contracts for those components in which they bid the lowest on.  Austin refused to accept an order for less than all 40 gear parts and that they'd cease delivery of current parts unless Loral acquiesced.  Loral agreed to Austin's terms and they did business together on the next contract.  Upon completion of the second contract, Loral notified Austin they'd be going to court to recover the difference of the price increase from the original price.

 

Issue(s): May a party interpose the claim of economic durress to rebuff a counterclaim for monies owed from another party?

 

Court's Rationale/Reasoning: The law clearly states a contract is voidable on the ground of durress when the threat infringed on the other party's ability to make a decision of free will.  The facts showed Loral was under the gun to honor its first contract and had to succumb to Austin's threat in order to achieve performance on its deal with the Navy.  Austin's threat deprived Loral of its free will, as they had to worry about its contract with the Navy and the possible actions which could be taken by the Navy should Loral fail to honor their agreement.

 

The court found Austin's claim Loral should've contacted the Navy and asked for an extension in time so as to honor its agreement and still appease Austin.  Loral had to get the parts to the Navy on time, and asking for an extension would have been outside the perameters of the main contract.

 

In short, the court found for the defendants, as they went into a new contract with plaintiffs under financial durress.  The remand instructions are to honor the claim of Loral against Austin.

 

Rule: A company may not hold another financially and contractually against the wall in order to get a better deal on a contract.

 

Holding: No. Austin used financial durress in threatening to fail to purposely dishonor its end of a first subcontract in order to get a more substantial deal on a subsequent subcontact with the same party.  Financial durress makes a deal void under contract law, and thus the second contract is void.

 

 

 

 

 

 

 

 

 

 

 

 

TEXAS GAS V. S.A. BARRETT (1970)

Case Brief:

Style (name of case): Texas Gas Utilities Company v. S.A. Barrett (1970)

 

Cause of action: The following is a cause of action for minimum payments under a contract for natural gas service.

 

Procedural History: At the jury trial, it was ruled in response to respondents' motion for judgment that they were entitled to judgment on the jury verdict and as a matter of law.  Petitioner was awarded nothing despite winning, holding the contract was unenforceable for lack of mutuality of obligation.

 

Facts: There was a 5-year contract with an option to renew for another five between parties.  Contract was for supplying of natural gas for use by respondents in fueling irrigation water well pumps on farm properties which they held under a 5-year agricultural lease.  Contract was for annual minimum payment during the life of the contract of $7.50 for each engine installed.  5-mile pipeline installed by petitioner's predecessor.  Respondents were evicted from leased properties by lessors. Successors of respondents occupied the property, whereby natural gas was available at all times.  Gas company billed for the gas used during the in-between time and the time they were in fact on the land before signing contract to successor.  Respondent claims they are not responsible for the monies owed b/c there was no mutuality of obligation.

 

Issue(s): Should respondents be obligated to pay for the amounts prior to successors taking over the property? (Whether the agmt between pl. and def. incorporates mutual obligations so as to form consideration and thus making the contract enforceable)

 

Court's Rationale/Reasoning: Respondents agreed to pay for the gas to help irrigate their land, so Barrett was bound to pay for the performance as long as they were under the contract.  Barrett cannot use the excuse there was only a unilateral promise as a payment for performance, b/c had plaintiff ever canceled on its end of the deal, they would be responsible for breach.  Since the gas company was making its best effort to ensure proper gas flow, the respondents  should honor this performance with its promise to pay.

 

Rule: The promise of one party is a valid consideration for the promise of another party - one party promised the gas would be available at all times with the restrictions as applied to the contract. 

 

Holding: Yes. The court ruled the contract which the petitioner was sued upon is enforceable against respondents b/c they agreed to pay for the service to the land.

 

 

 

 

 

 

 

 

 

 

 

 

WOOD V. LUCY, LADY DUFF-GORDON (1917)

Case Brief:

Style (name of case): Wood v. Lucy, Lady Duff-Gordon (1917)

 

Cause of action: The following is a cause of action for damages resulting from the sale of endorsements on clothing by defendant.

 

Procedural History: The case comes to the New York Court of Appeals on a demurrer from the lower court (appellate Division) which ruled in favor of the defendant.

 

Facts: Defendant employed plaintiff to put endorsements on clothing.  Under the contract they made, plaintiff had exclusive right to place her indorsements on the designs of others, pending approval.  In return, she was to have one-half of "all profits and revenues" derived from any sales/indorsements he might make.  The deal was to last a year and thereafter from year to year unless terminated by notice of 90 days.

 

Plaintiff contends defendant broke her end of the promise; she placed her indorsement on fabrics and other clothes and withheld profits.  Defendant contends the deal lacks the elements of a contract by way of the plaintiff not binding himself to anything.

 

Issue(s): Is a vague agreement indeed a contract if one party acts under the assumption of a bilateral contract of exclusivity?

 

Court's Rationale/Reasoning: The court agreed the plaintiff never bound himself to anything in particular, in regards to the marketing of defendant's designs, but there was an implied promise made.  No longer are formal words the only way a promise may be binding.  "instinct with obligation", the writing of the deal combined with the actions taken by plaintiff formalize the  contract.

 

The deal was furthermore an exclusive one, and bound the defendant to the plaintiff for at least a year.  The plaintiff had an implied promise by which has agreed to give half the profits and

revenues from the sales of any indorsements he might make, which was his consideration in the contract (also his benefit).

 

Rule:  Even if the specific words of a contract don't say a promise word-for-word, yet the writing may be "instinct with obligation", therefore creating a contract.

 

Holding: Yes. The court held the essence of the agreement assumed responsibility on the part of the plaintiff to sell the indorsements on the clothing, to which he paid the defendant one-half of the profits and revenues resulting from this exclusivity.

 

 

 

 

 

 

 

 

 

 

 

 

MEZZANOTTE V. FREELAND (1973)

Case Brief:

Style (name of case): Mezzanotte v. Freeland (1973)

 

Cause of action: The following is a cause of action for specific performance of a contract of sale and damages for breach.

 

Procedural History: No mention.

 

Facts: Plaintiffs tried to enter into an agreement with defendants to buy land.  In exchange for the land, plaintiffs promised to find financing for the deal by taking out a loan with a specific bank on such terms which were considered satisfactory to them so they could finance the deal and to secure additional working capital.  Plaintiff failed to, but not by means of good faith and reasonable practice, secure a loan through a bank.

 

Issue(s): Did denial from a lending institution constitute a non-assent on terms of an agreement and lack of consideration on the part of plaintiffs so a proposed deal could not be binding?

 

Court's Rationale/Reasoning: The court found an implied promise of good faith and reasonable effort may accompany a conditional promise, and it is not illusory.  Because of this implied promise, there is sufficient consideration on the part of the plaintiff in such an agreement, and thus a contract.

 

Since plaintiffs tried in a reasonable manner and with good faith to secure a loan through NCNB, there was a legal enforceability, which provided detriment to the promisor (plaintiff).  As long as there is a reasonable standard a party undertakes in attempting to secure their end of the agreement, there is an consideration on their part.

 

Various courts have held several different manners in which agreements were implied based on "reasonable discretion based upon fair dealing and good faith." (market conditions, times sale obligations, etc.)

 

Rule: Where a K confers on one party a discretionary power affecting the rights of the other, this discretion must be exercised in a reasonable manner based upon good faith and fair play.

 

Holding: No.  The contract included an implied promise by Mezzanotte to use reasonable effort in securing a second mortgage and to exercise good faith in the process of determining whether the terms of the loan were satisfactory.

 

 

 

 

 

 

 

 

 

 

 

 

MIAMI COCA-COLA V. ORANGE CRUSH (1924)

Case Brief:

Style (name of case): Miami Coca-Cola Bottling Co. V. Orange Crush Co. (1924)

 

Cause of action: The following is a cause of action to compel performance of a contract.

 

Procedural History: District Judge ruled the contract was void for lack of mutuality.

 

Facts: The contract in question is a license, whereby appellee grants to the appellant the exclusive right, within designated territory, to manufacture a certain drink called "Orange

Crush", and to bottle and distribute it in bottles under appellee's trademark.  Appellee agreed to also supply its concentrate to be used in the manufacturing of the drink and to do certain advertising.  Appellant agreed to purchase certain amount of concentrate, to maintain the bottling plant, to solicit orders and generally to promote the sale and increase sales.

 

The licensing agreement was perpetual, but contained a clause where the appellant might at any time cancel the contract.  Plaintiff contends they fulfilled their end of the agreement, and defendant didn't, and after about a year after the contract was entered into, they gave written notice they'd no longer be bound.

 

Issue(s): Can a contract where only one party has an obligation to perform be upheld as binding and valid?

 

Court's Rationale/Reasoning: Appellee may be liable to the appellant for damages for the period during which the contract was performed, but the appellant has adequate remedy of law.  The contract was not binding, since only one of the parties had the option to get out whenever they wanted.  Yet the appellant didn't promise to do anything, and could at any time cancel the contract.  Thus such a contract is unenforceable.

 

Rule: A contract in which one party has the option at any time to get out at any time creates a non-binding agreement, and therefore is unenforceable.

 

Holding: No. The contract cannot be upheld upon the theory the appellant had a continuing option, b/c an option to be valid must be supported by a consideration.

 

 

 

 

 

 

 

 

 

 

 

 

A. Introduction

Topic Notes:

"Consideration is the glue that binds the parties to a contract together"

 

Donative promises are generally not enforced...since the injury in this type of process is generally slight & there are no significant costs on the part of the promisee and no enrichment on part of promisor at the expense of the promisee.  These types of promises (ex: gifts) are made usually with little or no deliberation...

 

YET, a formal donative promise has been enforced by the courts...as well as a gratuitous promise injuriously relied upon by promisee may be enforced by the principal of promissory estoppel.

 

DONATIVE PROMISE: promise to make a gift

 

GRATUITOUS PROMISE: where a party gratuitously agrees to raise or lower the contract price to reflect changing market conditions (not technically a gift though)

 

Consideration generally required in executory agreements, but lack of consideration is not a way to get out of an agreement which has been fully performed; promisor doesn't get restitution for performing.  At this point, promisor made transfer of money, property or goods.

 

Oddities of consideration...

Promises are to be made for consideration if they are to be binding.  If promisor received benefit, the promisee should receive ; compensation; or if the promisor performed carelessly; or if promisor failed to perform at all; or detrimental reliance on the promise.

 

What is consideration?

Three elements must occur before a promise is supported by consideration...upon those things, there is a "bargained-for-exchange," a binding transaction.

(a) promisee must suffer legal detriment (to do or promise to do what the promisee was not legally privileged to do)

(b) detriment must induce the promise (promisor must've made the promise b/c promisor wished to exchange it, at least in part, for the detriment to be incurred by the promisee)

(c) the promise must induce the detriment (the promisee must know of the offer and intend to accept)

 

PROMISEE MUST INCUR LEGAL DETRIMENT

---> in actuality it is "either legal detriment to the promisee or legal benefit to the promisor."

 

DETRIMENT MUST INDUCE THE PROMISE

---> promise must be made to induce the conduct of the promisee (promisor manifested offering state of mind looking to acceptance rather than to a gift-giving state of mind")

 

PROMISE MUST INDUCE THE DETRIMENT

---> must induce the promisee to exchange the promisee's conduct for the promise (explains why the oferee must know of the offer and manifest an attempt to accept)

 

ex: surrendering secure union-protected job & taking a management job with same employer isn't consideration for promise unless "promise was given as part of a bargained exchange for employee's relinquishment of his union security"

 

*the essense of consideration is legal detriment which:

1. has been bargained for by the promisor and

2. exchanged by the promisee

3. In return for promisor's promise

 

ex: if b promises to paint a's house for money and then b does so, b incurred legal detriment, although it may be assumed b painted the house without a legal obligation to do so -- we could assume it was a unilateral contract for performance

 

 

 

B. Motive & past events distinguished

Topic Notes:

Motive & past events distinguished

Motive may be evidence on whether an exchange is intended

(if mom says to son "i'll pay you $5K b/c you're the poorest of my sons in 30 days, there is no enforceable promise b/c promisor neither requested nor induced anything in exchange)

 

---> This example has no detriment, therefore no consideration...motive often there to induce action on part of promisee

---> conversely, the motive of the promisee may be to gain what is offered by the promisor

 

ex: mom says to son: "in consideration of the fact you named your child after me, I promise to pay you $5K in 30 days

 

---> this promise is equally unenforceable b/c the promise didn't induce the detriment

(the promisee never knew of any offer nor had any intent to accept when the act was done)

*thus, frequently stated past consideration is not consideration

consideration is generally an exchange...parties can't bargain or exchange for something which has already occurred...if example above were prospective (the promise made before child naming), there was an inducement for parents to name child after mom...and therefore consideration exists

 

 

 

 

 

C. Adequacy of consideration

Topic Notes:

Adequacy of consideration

as a general rule, courts do not review adequacy of consideration...parties make their own bargains

 

economic inadequacy of the detriment is one of the factors to be considered in determining whether the promisor really exchanged the promise in return for a small detriment

 

courts have believed it would be unwarranted interference with freedom of contract of they were to relieve an adult party from a bad exchange...

 

THERE IS, HOWEVER, ONE KIND OF CONTRACT WHERE THE COURT WILL REVIEW THE BALANCE BETWEEN THE VALUE OF CONSIDERATION AND THE PRICE CHARGED FOR IT: THE LAWYER-CLIENT RETAINER

(this reflects directly on the bar)

 

quantum meruit: (translation: as much as he merited) a count in an action grounded on a promise that the defendant would pay to the plaintiff for his service as much as he should deserve.

Economic inqdequacy generally doesn't prevent any bargained-for-detriment from constituting consideration.  On the other hand, economic inadequacy may constitute some circumstantial evidence of fraud, durress, over-reaching, undue influence, mistake, or that the detriment was not in fact bargained for.

 

 

 

 

 

 

D. Surrender of an invalid claim as detriment

Topic Notes:

Surrender of an invalid claim as detriment

A promise to surrender a valid claim constitutes detriment and, if bargained for, constitutes consideration.

 

The surrender of an invalid claim serves as consideration if the claimant has asserted it in good faith and a reasonable person could believe the claim is well founded.  Even if there is good faith, there's no detriment if plaintiff hasn't the shadow of a right as the basis of their claim.

 

A claim is invalid if there is a defense to it, such as if someone makes a deal under a contract which is void, voidable or unenforceable. 

 

Ex: A, owner of property, lost a prior deed from B, and promised to pay B $50 for a 2nd deed in order to failitate obtaining a mortgage loan.

 

E. The pre-existing duty rule

Topic Notes:

The pre-existing duty rule

Definition: The pre-existing duty rule states where a person performs or promises to perform a legal obligation, or promises to refrain from doing or refrains from doing what the person is not legally privileged to do, the person has not incurred detriment.

If a person performs a legal obligation (or less) the person is not incurring legal detriment; no legal privilege is surrendered.

 

Ex: If a landlord promises a tenant he won't evict if he pays past due rent, the landlord may proceed with the eviction even if the tenant pays the rent.

 

PRE-EXISTING DUTY RULE: DUTIES IMPOSED BY LAW:

This rule doesn't only apply to modifications of existing contracts, but to a duty which is not contractual in nature - a duty imposed by law.

 

Ex: If husband promises to pay wife $1K if she fulfills the obligations of the marriage after one year, she would not be entitled to get the money.

 

Also, a witness who's been subpoenaed in consideration of his testimony is not enforceable. 

 

And, if a hotel was mandated by law to store valuables in its safe, a contract signed regarding this would be worth nothing b/c of its pre-existing duty.

 

PRE-EXISTING DUTY RULE: CONTRACT DUTIES

Ex: In August, B hires A at $900 per week for a year, the term to commence in November.  In October, both parties agree to modify the deal to $1K/week.  B's promise to pay the extra $100 a week is not effective b/c B has not incurred detriment.  A here is merely performing an existing duty, (this is an attempted modification without consideration)

 

Yet, if both parties rescinded their old contracts and entered into new ones, the contract is enforceable because A would not have had any contractual obligation to B at the time they entered into the new agreement.  Three agreements in this scenario: the initial agreement, the agreement to rescind, and the agreement to agree on new terms.

 

When the rescission and the subsequent agreement are simultaneous, the pre-existing duty rule is violated b/c the parties clearly intend the rescission to be contingent on the new contract, which, in turn is contingent on the rescission.

 

All that is needed to satisfy the consideration requirement is the slightest change in duties...cases have held if parties agree to an addendum to clarify their contract, no new consideration is required.

 

Another exception to the rule is a modification will be upheld even if it is without consideration if the modification is made after unforeseen difficulties have arisen in the performance of the prior agreement.

 

PRE-EXISTING DUTY RULE: THREE PARTY CASES

Let's say, A, a harness race driver, enters into a bilateral contract with B, the owner of the horse, to ride in a race for $1K and the contract is modified by the parties to provide compensation of $1500...but if C, an outsider, who does not have a right to performance under the contract, but owns a dam of B's horse, and would receive a prize if B's horse wins, promises to pay a bonus of $500 to A if A rides, the modern view says C's promise to pay is enforceable, b/c C's promise is

independent of B's.  Some courts have have held a benefit conferred on the promisor is sufficient even if there is no detriment.

 

Durress, unfair pressure less likely in a 3-party contract than in 2-party cases. 

 

F. Problems arising in bilateral contracts

Topic Notes:

Problems arising in bilateral contracts

CONSIDERATION IN BILATERAL CONTRACTS

--->The uttering of the promise doesn't supply the consideration; rather it's the promised performance that must be scrutinized to determine whether the promise constitutes consideration. 

 

HELD: a promise in bilateral agreement is consideration for the counter-promise only if the promised performance would be consideration.  Example: A says to B: "...if you promise to pay me the 50 bucks you owe me, I'll give you a hat worth 10 bucks back."  This is not enforceable b/c B would just be doing what he was already obligated to do.

*the mere utterance of words of promise does not constitute consideration in a bilateral contract*

 

MUTUALITY OF OBLIGATION

---> best explained by this illustration:  B owes A a liquidated debt for 6 months and B will pay the debt without interest at the end of this period.  If each side of the arrangement were approached as a unilateral arrangement, A's promise is not supported by consideration b/c B is only promising to do what B was legally obligated to do.

 

---> conversely, B's promise should be enforceable b/c A, in forbearing suit, is providing consideration and this is so even though B is only promising to do what B is legally obligated to do.

 

----->BUT THE THEORY OF MUTUALITY OF OBLIGATION concludes that since A is free not to perform, B should equally be free not to perform...

 

So, in a bilateral contract, either both parties are bound to perform, or both parties are bound not to perform

 

This doctrine is not one of mutuality of obligation, but one of mutuality of consideration

 

UNILATERAL CONTRACTS & MUTUALITY

---> in unilateral K there is no mutuality of obligation...at not time has the offeree been bound to do anything and, even if the offeree starts to perform, the offeree is not bound to complete the performance.  Even if offeree should promise to do the act called for, this unsolicited promise would be a nullity.  In most cases, if the offeree performs the act called for, the performance will constitute consideration.  If the performance called for is detrimental and the offeror bargains for it, the offeree's performance is the bargained-for exchange.

 

VOIDABLE AND UNENFORCEBALE PROMISES AND MUTUALITY

---> A voidable or unenforceable promise is consideration for a counter-promise and thus there is mutuality of consideration even though one or both of the parties' promises is voidable or unenforceable.

 

ILLUSORY PROMISES

---> are expressions cloaked in promissory terms, but which, on closer examination, reveals that the promisor is not committed to any act or forbearance...ex: a creditor says to guarantor to forbear "until such time i want my money"

 

CONSIDERATION SUPPLIED BY IMPLIED PROMISES

---> One may circumvent the illusory promise problem by using the defense of good faith or reasonableness...the method of the case is to find a promise by inferences drawn from the facts

 

Under some circumstances the promise inferred is called an implied promise and in other is is referred to as a constructive promise. A constructive promise arises by construction of law only when justice requires it.  An implied promise occurs when the conduct of the parties reasonably indicated that a promise has been made.

 

ARE CONDITIONAL PROMISES AND ALEATORY ILLUSORY?

--->if the condition of the promise is an event that is outside of the promisor's unfettered discretion, such as the promisee's non-performance, or the happening of some event such as a strike, war, decline in business, etc., the promise is not illusory.

 

Aleatory promise: is conditional on the happening of a fortuitous event, or an event supposed by the parties to be fotuitous.  (ex: an insurance company's promise to pay a sum of money in the event of fire or other casualty supplies consideration for the insured's payment of a premium even if no casualty occurs)

 

Parties must be permitted to contract with flexibility to meet the complexities of modern life.

 

A VOID CONTRACT IS NOT NECESSARILY A NULLITY

---> where there has been performance under the void bilateral agreement, life may be breathed into it:

 

"if a K, although not originally binding for want of mutuality, is nevertheless executed by the party not originally bound, so that the party asserting the invalidity of the contract has actually received the benefit contracted for, the latter will be estopped from refusing performance on his part on the ground that the K wasn't originally binding on the other, who has performed."

 

out of a bad bilateral contract, a good unilateral contract can come...and when it goes to court, the party suing for payment for performance has a case by way of breach by party who was to pay after performance was done

 

IF THESE TWO ELEMENTS ARE NOT PRESENT, THERE CAN BE NO FORGING:

1. In cases of indefiniteness, if only the promise which was originally definite is performed, even though the 2 requirements stated are met, the indefinite promise is still indefinite and therefore there is only the possibility of quantum meruit recovery (plaintiff recovers by the argument of innate justice -- doctor rescuing person w/assumption of being paid eventually)

2. In case where plaintiff promises to forbear as long as the plaintiff felt like it, but forebore two years, assuming the 2 prerequisites are met, there is still a question of whether any period of performance is sufficient, but this flies in the face of plaintiff's own choice of words

3. Suppose the party who seeks to use the doctrine has made the requisite promise, starts to perform and the other party attempts to revoke...under the modern approach, the promise will have become irrevocable.

 

G. Requirements & output contracts

Topic Notes:

Requirements & output contracts

In a typical requirements contract, the buyer expressly agrees to buy all of the buyer's requirements of a stated good from the seller who agrees to sell that amount to the buyer...such a contract may arise by implication.

 

In a typical output contract, the seller agrees to sell all of its output from a certain item to the buyer and the buyer agrees to buy that output from he seller.  The quantity term is measured by the requirements of the buyer (requirements contract) or by the output of the seller (output contract)

 

VALIDITY OF REQUIREMENTS CONTRACTS

---> courts have found there to be consideration in contracts on the theory that consideration could be found in the surrender of the buyer's privilege to purchase elsewhere.

 

HOW MUCH IS A REQUIREMENTS BUYER ENTITLED TO DEMAND?

---> under one view the buyer was entitled only to normal requirements

---> under the other view, to actual requirements, provided the buyer acted in good faith

 

DIMINUTION OR TERMINATION OF REQUIREMENTS

---> according to some courts, a buyer was free to go out of business with impunity and free to change the method of doing business at will...

---> another view...the buyer was held liable if it went out of business or changed its method of doing business in bad faith

---> another view...if the buyer went out of business or changed the way of doing business with the effect of lessening its requirements, it had to respond in damages

 

NON-EXCLUSIVE REQUIREMENTS CONTRACTS

---> "requirements" is a sufficient quantity term, and K's may be held to be "non-exclusive requirements contracts". The reasons that support the sufficiency of "requirements" as a quantity term, also support the sufficiency of the description of the obligation of the parties in certain cases.

 

H. Must all of the considerations be valid

Topic Notes:

Must all of the considerations be valid?

If party to a bilateral agreement makes alternative promises, the rule is that each alternative must be detrimental

 

Relating to conjunctive promises...as one of the conjunctive promises is detrimental it will support a counter-promise...

Ex: A says to B: "I promise to give you my black Honda if you promise to pay me the liquidated debt of $500 you owe me and to paint my fence."

(B is not providing consideration, in promising to paint the fence, B is incurring detriment and thus is supplying consideration for A's counter-promise)

 

One consideration will support many promises

sometimes, each party to bilateral K makes a single promise

but often the number of promises made by the two promisors need not be equal

 

ex: if 3 promises of the employer are supported by the one promise of the employee...the rule is that one consideration will support many promises

 

Similarly, 1 consideration will support the promises of more than one promisor. 

Ex: a lease executed by a lessor will support not only the tenant's promise to pay rent, but also the promise of a guarantor guarantying the rent will be paid.

 

VII. Past Obligations on Moral Contracts

Topic Notes:

Past Obligations on Moral Contracts

Not all K's require consideration...some informal types of K are exempt from the required consideration...formal K's under seal can survive in some jurisdictions as well

 

PAST CONSIDERATION AND MORAL OBLIGATION

---> general rule: past consideration is not consideration

Some K's in which an exchange of values occurs may be enforced when a healthy moral force dictates the promise be enforced

 

(1) where the promise relates to a prior contractual or quasi-contractual debt that still exists as an enforceable obligation

(2) where a material benefit was previously received by the promisor

(3) where there was a prior legal obligation that was discharged by operation of law

(4) where there is a promise not to avoid an avoidable duty

(5) where there is a promise based upon a previous unenforceable obligation under the Statute of Frauds

 

 

 

 

 

HARRINGTON V. TAYLOR (1945)

Case Brief:

Style (name of case): Harrington v. Taylor (1945)

 

Cause of action: The following is a cause of action for recovery of loss on a promise to pay for damages inflicted by an axe.

 

Procedural History: Defendant demurred and was sustained.  Plaintiff appealed.  Motion to sustain the demurrer is affirmed.

 

Facts: Defendant husband has previously assaulted his wife and he took refuge in plaintiff's house.  Next day defendant again gained access to the house and started assaulting wife again.  Defendant's wife knocked him down with an axe, and was about to cut his head open or something while he was lying on the floor, when plaintiff intervened, caught the axe as it was about to connect, and the blow intended for the defendant fell upon her hand, but saved the life of the defendant.

 

Defendant orally promised to pay damages for plaintiff's badly mutilated hand, but only paid a fraction.

 

Issue(s): Was there a consideration recognized by law sufficient to support the promise to pay for injuries sustained by an axe?

 

Court's Rationale/Reasoning: However emotionally indebted defendant might be to plaintiff for saving his life, he should pay b/c of "common gratitude" to pay for damages from a life-saving act.  However, since the act was simply voluntary, there is no consideration on the part of the plaintiff.

 

Rule: Voluntary acts are not consideration to be used in exchange for a promise to make a contract.

 

Holding: Voluntary life-saving acts are just that and are not subject to exchange for a retroactive promise in order to create a contract.

 

 

 

 

 

 

 

 

 

 

 

 

WEBB V. MCGOWIN (1935)

Case Brief:

Style (name of case): Webb v. McGowin (1935)

 

Cause of action: The following is a cause of action by plaintiff's executors of an estate against defendant for assumpsit, or an action to recover damages for a breach or nonperformance of a contract or promise, express or implied, oral or in writing not under seal.

Procedural History: From a judgment of nonsuit, plaintiff appeals.  Upon appeal, case was reversed and remanded.

 

Facts: By means of clearing the upper floor of a mill by dropping large blocks onto the ground below.  Blocks weighed 75 pounds approximately.  Appellant Webb saw McGowin standing directly below where his next drop was about to go.  Instead of letting the block drop and see severe injury or even death caused to McGowin, Webb hung onto the block and fell with it so to void McGowin.  Webb badly broke his leg and remains crippled for life and unable to do physical or mental labor, while McGowin was unharmed. 

 

The next month after the accident, in consideration of the appellant having prevented him from severe injury, McGowin agreed to take care of Webb and maintain him for the remainder of his life at the rate of $15 every two weeks from the time he sustained injuries to the end of his life, and the money paid would be for maintenance.  McGowin died January 1, 1934, and payments were paid and continued to pay paid all the way through January 27, 1934. 

 

The suit is to recover payments not made up till the time of the bringing of the suit.

 

Issue(s): Is consideration possible off a moral obligation to care for a person in exchange for a small salary?

 

Court's Rationale/Reasoning: Several things made this a contract.  The agreement to pay McGowin to take care of Webb was a contract.  Moral obligation is sufficient consideration to support a promise on a moral obligation to pay, even though there was no original duty or liability on promisor.  McGowin's express promise to pay appellant for services rendered affirmed/ratified of what appellant/plaintiff had done, therefore presuming the service done by Webb was at McGowin's request.  Under the circumstances, Webb suffered detriment in his crippling and paying money; McGowin received benefit, in both being paid to take care of Webb and having already had his life saved.  This makes consideration on both parts.  There was no gratuitous service on either end of this contract to care for, and acceptance on McGowin's part makes it so.

 

Rule: Where the promisee cares for, improves, and preserves the property of the promisor, though done with their request, it is sufficient consideration for the promisor's subsequent agreement to pay for the service, b/c of the material benefit received.  Life and preservation of the body have material values, measured in dollars and cents. 

 

Holding: Moral obligations are not consideration, but a promise to care for someone for money, because of a moral obligation to do so is consideration.

 

 

 

 

 

 

 

 

 

 

 

 

A. Promises to pay pre-existing debts

Topic Notes:

Promises to pay pre-existing debts

A promise under such circumstances is unsupported by consideration, since the past debt was not exchanged for the subsequent promise...another modern thought is if the past debt is still existing and enforceable, a promise to pay the debt is enforceable, provided that the promise does not exceed the amount of the pre-existing debt.

 

 

 

B. Promises to pay for benefits received

Topic Notes:

Promises to pay for Benefits Received

Today, it is clear if A requests B to perform services, or A accepts services offered by B, unless the services were understood to be gratuitous, A will be liable on the implied promise to pay the reasonable value of the services.  It is also more commonly held a new promise to pay a fixed sum in discharge of a pre-existing legal obligation arising from services or other material benefit rendered at request is enforceable without new consideration and without mutual assent.  The rule doesn't apply where the promise is made in an offer that requires a return promise or performance by the promisee.  This is b/c the offer is a promise conditioned on acceptance.

 

A promise made under a request, but as a favor, without expectation of payment, is generally NOT enforceable.

Also as a general rule, if a promise is made to pay on a previous payment which is not requested, such a promise is not enforceable.

 

In regards to "promissory restitution", the word promise is important (obviously)...if there is no promise, there is no cause of action.

 

Remember: "to the extent necessary to prevent injustice"

 

 

C. Promise to pay discharged debts

Topic Notes:

Promise to pay discharged debts

In regards to pay bankruptcy debts, the new rule is the debt coupled with moral obligation to pay is sufficient consideration to support the new promise to pay

 

The survival of the moral obligation rule has been justified on the ground that the promisor "is only promising to do what (the promisor) should have done without the promise

 

 

D. Promises to pay debts discharged in bankruptcy

Topic Notes:

Promises to pay debts discharged in bankruptcy

By decree, bankruptcy can discharge a debtor's obligation.  Under the Bankruptcy Reform Act of 1978, such promises to pay after bankruptcy were not allowed to be enforced, b/c of perceived abuses by financial institutions

 

E. Effect of new promise on statute of limitations

Topic Notes:

Effect of new promise on statute of limitations

A promise to pay a contractual or quasi-contractual debt has the effect of starting the statute of limitations running anew.  This increases the promisor's creditworthiness as their wealth as well.

 

This rule applies whether the promise is made before or after the debt has been barred by the passage of the statutory period.

 

An acknowledgment of the existence is treated as an implied promise to pay, unless indication of contrary intention.  The creditor's claim in based on the new promise and therefore is limited by the terms of the new promise (this may be in relation to payment schedule, or specified conditions).

 

A promise by one joint obligor does not bind the others if there is no agency relationship, nor does it bind a surety.

 

TWO EXAMPLES:

 

A, a painter, painted B's house at B's request and B subsequently promised to pay for the services, B's subsequent promise will start the statute of limitations running anew even though the obligation is not an uncontested sum certain.

 

However, if A & B enter into a bilateral contract for painting and B breached the contract before A performed, a subsequent promise by B to pay the damages caused by the breach will have no effect upon the statute of limitations.

 

 

F. Promises to Perform Voidable Duties

Topic Notes:

Promises to Perform Voidable Duties

If A is induced by fraud to pay $100 in return for property worth much less, the promise is voidable.  If upon discovering the fraud, A again promises to pay $100, or some lesser sum, the new promise is enforceable without fresh consideration, provided of course, that the new promise is not itself voidable b/c of fraud or some other infirmity.  However, if the second promise is made without knowledge of the fraud, it is not enforceable.

 

 

G. Effect on new promise on the statute of frauds

Topic Notes:

Effect on new promise on the statute of frauds

If A & B enter into such a K that's unenforceable b/c it doesn't meet the statutory requirement, a subsequent oral promise is not enforceable b/c more than the fact it is absent fresh consideration, it flat out violates the statutes, which are there to guide the law.

 

H. Other Promises Supported by Moral Obligation

Topic Notes:

Other Promises Supported by Moral Obligation

Moral and obligations on related grounds, including sureties and indorsers released from payment on technical grounds, promises to repay sums collected by force of an erroneous nature, and promises made to pay for benefits received under an illegal bargain when the illegality does not involve moral turpitude (depravity).

 

 

I. To whom the promise must be made

Topic Notes:

To whom the promise must be made

A new promise to pay an antecedent obligation, to be enforceable, must be made to an obligee of the antecedent duty or a representative of the obligee.

 

A promise made to a stranger has no operative effect unless it can be anticipated that this person will communicate the promise to the obligee.

 

In a few jurisdictions, where a mere admission of the indebtedness is sufficient to revive the debt, an admission or promise made to a third party is sufficient.

 

J. Modification of contracts

Topic Notes:

Modification of contracts

When consideration is not required...

--->under the pre-existing duty rule, an enforceable agreement to modify K requires consideration.  But some states permit modification without consideration.  In NY, it is done so provided the modification is in signed writing or other record to serve not only as evidence, but to show the modification was of free will.

 

Sale contracts can be modified even after the goods have been paid for.  Warranties made after the transaction has closed are enforceable (shipping produce is an example...if goods are damaged somewhat, a modification might be made in regards to the price, or if the buyer was hit with charges he did not foresee and is unable to absorb, they could just go on paying what they used to, b/c there was no acquiescence in the increase on the part of the seller by the buyer).

 

No-oral-modification clauses; statute of frauds...

---> apart from statute, the majority common law is that even when a written modification is not recognized, an oral one (parol) may be made (the UCC has contrary cases, but we won't get into that)

 

K. Modifications under compulsion

Topic Notes:

Modifications under compulsion

The pre-existing duty-rule, which is grounded in the idea no promise is binding unless it is paid for by bargained-for detriment, also has had an important policy rationale -- not allowing a party to take undue advantage of circumstances.

 

As to modifications entered into under other statutory exemptions from the requirement of consideration, the common law doctrine of duress is relevant.  Various kinds of "business compulsion" constitute duress, like a bad faith demand for modification (Austin Instrument v. Loral Corp.)

 

 

L. Release and accord and satisfaction

Topic Notes:

Release and accord and satisfaction

Because of the pre-existing duty concept, a rule that a voluntary discharge of the duty, except in an instrument under seal, is ordinary ineffectual without consideration (claim arising out of breach can be discharged in whole or part by written waiver, signed by aggrieved party).

 

How bout when D, who owes C a liquidated debt, sends C a check for less than the debt and clearly marks it as "accepted as payment in full"?  Under these statutes, C has signed a writing containing language of present discharge.  (although NY courts still hold this to be no good under the pre-existing duty rule)

 

 

 

M. Firm offers

Topic Notes:

Firm offers

Under the UCC and a number of other statutes, an offer may be made irrevocable without consideration, if the statutory formalities are met.

 

N. Moral obligation & guaranties of pre-existing debts

Topic Notes:

Moral obligation & guaranties of pre-existing debts

Past events don't constitute consideration, in the bargain sense, for a promise.

 

Ex: a promise by C to guaranty payment of an existing debt owed by B to A, requires new consideration, and a promise made after an employee's retirement to pay a pension, is unenforceable. 

 

Broader statutes, such as the Model Written Obligations Act, can produce similar results.  A writing requirement is expected to assure the promise is made with deliberation. 

 

O. Stipulation & consideration & formality in stipulations

Topic Notes:

Stipulation & consideration & formality in stipulations

Stipulation: a promise or agreement with reference to a pending judicial proceeding, made by a party to the proceeding or an attorney for a party.

 

Generally, statutes or rules of court provide that a stipulation should be in writing or other record or made in open court.  If made in open court and a record of the stipulation is made by the court reporter, the Statute of Frauds is inapplicable.  Stipulations are enforced without regard to consideration but, as in the case of any other kind of contract, fraud or other vitiating circumstances can be shown to avoid their legal effect.  If there is no prejudice to the other party, a court has the power to relive a party from a stipulation for reasons such as inadvertence, improvidence, or excusable neglect.

 

An oral stipulation made out of court is not a nullity.  It is dishonorable for an attorney to avoid performance of an oral agreement and courts will enforce oral stipulations upon which parties rely to their injury.

 

VIII. Promissory Estoppel

Topic Notes:

Promissory estoppel is a doctrine which provides a remedy for many promises or agreements that fail the test of enforceability under many traditional doctrine.  It is a mender of ailing contracts.

 

IN OTHER WORDS...

 

"A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action of forbearance is binding if injustice can be avoided only be the enforcement of the promise."

 

In order for this doctrine to be used, there must first be a promise.  In other words, a statement of intent to take future action is not sufficient, nor is a beseeching remark, nor is an estimate generally sufficient.  THE PROMISE MUST BE CLEAR!

 

Second, the promise must be one which the promisor should reasonably anticipate will lead the promisee to act or to forbear; this requirement takes into account the expectations of the promisor.  The promisee must be reasonable in relying on the promise.  Their reliance must be of a definite character, using "substantiality" as a quantitative factor.  The conduct in reliance must be foreseeable. 

 

Finally, the promise will be enforced if injustice can be avoided only by the enforcement of the promise.  Accordingly, any recovery under the doctrine of promissory estoppel will be a full contractual recovery and not be limited to reliance damages.  In deciding what is just, one must consider the premise of full recovery and this premise is probably the reason for including the provisions for definite and substantial reliance.

 

The question of avoidance of injustice is one of law; the other elements raise questions of fact.

 

FEINBERG V. PFEIFFER CO. (1959)

Case Brief:

Style (name of case): Feinberg v. Pfeiffer co. (1959)

 

Cause of action: The following is a cause of action for breach of contract.

 

Procedural History: Jury waived in original court, and verdict in favor of plaintiff for $5100, the amount claimed to be due.  Defendant appealed.  Upon appeal, trial verdict affirmed.

 

Facts: The case is based on alleged promise for defendant to pay $200 a month to plaintiff until her retirement.  Plaintiff started at working for defendant company when she was 17, and worked her way up through the ranks until the board, when plaintiff was 47 years old, resolved to increase her salary 50 bucks a month and give her a $200 a month retirement bonus, which kicked in at the time of her retirement, and would be paid until she passed.

 

Upon such a time of her retirement, which was about two more years, plaintiff continued to work, and then retired, to "take a rest."  Upon such time, the check started coming, but five months after her retirement, defendant company's president died, and his wife took over.  After previously grumbling over the retirement bonus checks, the new company president consulted with a lawyer.  After consultation, defendant sent plaintiff a check for $100 saying this would be the new payment, upon which plaintiff brought the action.

 

Plaintiff claims she relied on the bonus upon her retirement, and she lost a chance to either gain more money with her company, or to find a job elsewhere, with her old age and all.

 

Issue(s): Did plaintiff have a right to recover from defendant based upon a legally binding contractual obligation for payment of $200/month for life?

 

Court's Rationale/Reasoning: There is no question in the eyes of the court there was K.  Resolution was passed and plaintiff knew of it the day it was passed.  The resolution was a complete surprise to her, and she still kept working under the same resolution, which also included a salary increase as well.  Although plaintiff lost money by not working for another

employer during the time of her retirement, there was no set time in which to begin receiving payments either.  There was no agreement on part of plaintiff to keep working in exchange for her newly-acquired benefits.

 

However, the defendant promised to $200 a month after her retirement.  Reliance on this promise and failure to pay her estops the defendant, and this should not happen.  When plaintiff resigned she then became dependant on the agreement, thus a failure to pay on defendant's part constituted failure to follow through on a binding promise (breach).  Plaintiff lose money in the fact she would have little or no chance of finding a job to the same quality of the one she retired from, which is where the estoppel comes into play.  Her reliance on the salary is where defendant fails to make a necessary argument.

 

Rule: Failure to pay on an agreed upon amount is breach of contract.

 

Holding: Yes.  A promise voted upon showed an offer to employee, her actions were an assent to the offer and acceptance.  Plaintiff also quit her job under the assumption she would continue to be paid on such resolution.  Failure to pay constituted breach of K.

 

 

 

 

 

 

 

 

 

 

 

 

SALSBURY V. N'WESTERN BELL TEL. CO. (1974)

Case Brief:

Style (name of case): Salsbury v. N'western Bell Tel. Co. (1974)

 

Cause of action: The following is a cause of action for

 

Procedural History: Original court ruled in favor of plaintiff, and Supreme Court of Iowa affirmed.

 

Facts: Plaintiff was the president of a local college and hired a professional fundraiser to get bucks for his school.  This fundraiser got a subscription for $15K from Northwestern Bell telephone Company (defendants), and received confirmation by a letter with the approval of the district manager of the company, after a request was conveyed through a middle management-type.  Plaintiff claimed though he never even saw the letter until right before trial.

 

Failure to pay on part of defendants results in this suit, as plaintiffs say they relied on this money for their fundraiser.

 

Issue(s): Is a promise to pay a donation for a charitable cause or fundraiser a binding contract and does failure to pay estop the defendant?

 

Court's Rationale/Reasoning: Once plaintiff relied on the form of the letter, there provided the consideration needed to form a contract.  The court went to the rule book for this one, and found under the restatement "a charitable subscription settlement...is binding when there is a promise in which the promisor (bell) should reasonably expect to induce action (pay) on the part of the promisee (college) which induces the action or forbearance is injustice can be avoided only by enforcement of the promise."

 

Charitable contributions were ruled to serve the greater good for the most part, and when the subscription is binding, the court ruled they will be enforced as such.  Northwestern Bell promised to pay, and should be forced to.

 

Rule: A charitable subscription is enforceable without consideration and without detrimental reliance.

 

Holding: Yes.  Once a promise to donate is made on part of donor, the donee relies on such a promise in its campaign, and such donor would be estopped if failure to pay occurred.

 

 

 

 

 

 

 

 

 

 

 

 

DRENNAN V. STAR PAVING CO. (1958)

Case Brief:

Style (name of case): Drennan v. Star Paving Co. (1958)

 

Cause of action: The following is a cause of action to recover damages after defendant refused to perform paving duties to plaintiff.

 

Procedural History: Defendant appeals judgment for plaintiff for $3817.60.  Affirmed in Supreme Court of California.

 

Facts: Bids submitted to plaintiff for completion of a paving project, to which defendant submitted lowest bid.  Bid was repeated on the phone to a secretary who submitted it on a special form, making it official.  Upon learning of gaining the contract, defendant refused to perform service of paving, saying they underestimated their expenses.  Plaintiff, after trying for months to get a similar bid to defendant's, had to settle for one approximately $3800 more.

 

Plaintiffs sue to recover monies lost from reliance on a contracted bid.

 

Issue(s): May a contractor refuse to perform a service after realizing its submitted bid to perform the service was incorrect?

 

Court's Rationale/Reasoning: The offer was a promise to perform on defendant's part not only on the action itself, but on the price they quoted to the secretary.  Upon making the offer, defendant was bound to such performance and when it refused, it made the plaintiff have to look for another provider to get the job done.  Plaintiff relied on the original bid, but then had to spend more money in order to get the job it thought it had already secured services for completed.

 

Based on the law of promissory estoppel, the plaintiff had to spend more money out of pocket in order to gain completion of services.  Since plaintiff originally relied on the actions of the defendant, the defendant is responsible for plaintiff having to secure a new bid for completion of services.  There was a promise, and it was not honored, which makes them responsible.

 

Rule: A general contractor is not free to delay acceptance after they have been awarded the general contract in the hope of gaining a better price.

 

Holding: No.  Defendants offer constituted a promise to perform on such conditions based on their bid.  The bid induced action "of a definite and substantial character on the part of the promisee."

 

GROUSE V. GROUP HEALTH PLAN, INC. (1981)

Case Brief:

Style (name of case): Grouse v. Group Health Plan, Inc. (1981)

 

Cause of action: The following is a cause of action for damages resulting from repudiation of an employment offer.

 

Procedural History:  Original court ruled in favor of defendants.  Upon appeal, case reversed and remanded upon the issue of damages for plaintiff.

 

Facts: Plaintiff working as pharmacist, but learns of job opening with defendant.  He applies.  He is interviewed and subsequently hired by the defendant company, upon his resignation from current job.  Upon checking plaintiff's background, defendant confirms plaintiff's resignation from current job, and asks those same employers for a reference, to which they refuse.  Because of such refusal by his current/soon-to-be ex-employers, defendant hires someone else for the job.

 

Defendant apologizes for not hiring plaintiff, but does nothing else, which results in the cause of action.  Plaintiff found it hard to gain full-time employment and sues for losses as a result of wages from previous job and potential new job.

 

Issue(s): Does the issue of lost wages as a result of a revoked job offer terminable at will constitute a cause of action for recovery of damages?

 

Court's Rationale/Reasoning: The court turned to the rule of promissory estoppel here.  Plaintiff trusted defendant's hiring of him, which culminated in his resignation from his previous job.  The defendants even called plaintiff to verify such resignation.  Since the plaintiff relied on a promise

which he thought was valid, it would be unjust to rule in favor of the defendant, and damages may be awarded to compensate such reliance on the promise.

 

Rule:  Promissory estoppel: a promise which the promisor should reasonably expect to induce an action of forbearance...on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise.

 

Holding: Yes. Under the rule of promissory estoppel, Grouse is entitled to recover damages for reliance upon a job he was to receive in exchange for his resignation from previous employer. 

 

 

 

 

 

 

 

 

 

 

 

 

A. The roots of promissory estoppel

Topic Notes:

The roots of promissory estoppel

Equitable estoppel: limited to cases in which one party has misrepresented a fact to another who injuriously relies on the representation.  When this happens, the court bars the party who made the representation from contradicting it.

 

PROMISES IN THE FAMILY

---> uncle gives daughter promissory note in order to free her form the necessity of working...even thought the note didn't stipulate she quit her job, she did...court said there was no consideration on the note, but it was enforced on equitable estoppel.

 

(recognize promissory estoppel as an independent clause for enforcing intrafamily promises)

 

PROMISE TO MAKE A GIFT OF LAND

---> these cases generally also arise in a family context...if the promise is oral, the case involves non-compliance with writing requirements of the Statute of Frauds as well as an absence of consideration

 

A promise to give land, standing alone, is unenforceable as a gift, b/c the lack of delivery of a conveyance to complete the gift.  Not infrequently however, acting in reliance on the gratuitous promise to convey land, the promise, with the knowledge and assent of the promisor, takes possession of the land and makes improvements (promisee usually granted specific performance).

 

GRATUITOUS AGENCIES AND BAILMENTS

---> If the gratuitous promisor takes possession of the goods and fails to carry out the promise to use requisite care, there would be misfeasance and liability has traditionally been found to exist.  If, however, the gratuitous promisor fails to take possession, traditionally there would be nonfeasance and no liability for breach of the gratuitous promise. 

 

Now, most courts have largely abandoned the distinction between misfeasance and nonfeasance in gratuitous agency cases.  The issue now is "injurious reliance". 

 

CHARITABLE SUBSCRIPTIONS AND MARRIAGE SETTLEMENTS

---> There are cases in which the promise to give money to charity is supported by consideration in the strict sense of the term.  The promisor may have bargained for and received a commitment from the charity the "gift" be employed in a specific way or that a memorial be built in the promisor's name (actual case).

 

Usually though, there is no bargain in fact and the promisor manifests a gift-making state of mind.

 

Second restatement says charitable subscription is binding...without proof that the promise induced action or forbearance. Charitable subscriptions have been found by the courts to have consideration where none existed and thus sets forth a rule stating a charitable subscription is enforceable without consideration and without injurious reliance.

 

Marriage settlements pose a problem similar to charitable subscriptions...courts have adopted a policy in favor of sustaining marriage settlements and this led them to find consideration by the use of "strained reasoning."

 

OTHER ROOTS OF THE DOCTRINE

---> where an obligor promised, without consideration, not to plead the statute of limitations.

 

B. Modern evolution of promissory estoppel

Topic Notes:

Modern evolution of promissory estoppel

The doctrine's first quest had been on cases of promises without consideration like in the roots section

 

Section 90 of the restatement has been applied to a promise to make a gift of land, promises relating to gratuitous bailments and agencies, charitable subscriptions, and promises not to plead to the statute of limitations in tort cases.  But promissory estoppel is not limited to those cases...

 

The present tendency is to use the doctrine as a substitute for consideration in cases of gratuitous promises in just about any case where all of the elements for promissory estoppel are present...

 

(for example, the doctrine was applied to a promise that prior service of an employer would be included for certain purposes, to a promise by an insurance company that it would give the plaintiff a full and complete settlement, to a promise by an insurance company that it would be included for certain purposes, to gratuitous advice given by a lawyer...it has also been applied to the discharge of an obligation...

 

Promissory estoppel has come to be a doctrine employed to rescue failing K's where the cause of the failure is not related to consideration.

 

RELIANCE ON OFFERS

---> does a contractor's reliance on a bid when it is revoked prior to acceptance a injurious reliance?  The courts have said yes, provided there was something on which the contractor may justifiably rely, not an estimate, and not if the subcontractor's bid is so palpably low as to indicate that it is based on a mistake.  It also may not be alleged if a subcontractor is looking for a better price or to reopen the negotiations while holding the right to keep the already agreed to price

 

PROMISSORY ESTOPPEL UNDER AN INDEFINITE AGREEMENT

---> Wheeler v. White....plaintiff owned some land with rental buildings but wanted to construct new rental properties on it.  Plaintiff entered into an agreement with the defendant by terms of which the defendant was either to lend the plaintiff $70K or obtain the loan from a 3rd party.  Defendant was to be paid $5K plus 5% of the rent of tenants procured by defendant.  The loan was to be payable in monthly installments over 15 years with interest of not more than 6%.  After the agreement was signed, defendant assured plaintiff that the money would be available and urged plaintiff to demolish the buildings presently on the site.  Plaintiff complied. 

 

Held: the loan arrangement was too vague and indefinite to be enforced b/c of the payment terms of the loan.  It was a void bilateral agreement.  Although the court didn't consider the possibility of forging a good unilateral contract out of a bad bilateral, properly so, b/c the plaintiff's actions amounted to preparation rather than the beginning of the performance.  Yet, the court applied promissory estoppel and allowed a reliance measure of damages based on the value of the improvements destroyed and the lost rental.

 

Another example: guy agrees to work at a place upon his leaving another company...after accepting the offer, guy turns down another offer...when he left and went to work at the other place, they told him someone else had been hired...although he had no action on breach of contract, he was awarded damages on promissory estoppel, measured by his lost opportunity of what he lost by quitting and by turning down another job offer.  Not money on the contract amount with the other company, which in this case was zero, b/c the hiring was at will.

 

PROMISES MADE DURING PRELIMINARY NEGOTIATIONS

---> The cases are different than ones under indefinite agreements.  The assumption is that the parties were still negotiating, had not as yet reached an agreement and did not expect to be bound until some time later.  Promissory estoppel here would work in terms of recovery limited to the amounts expended in reliance on the promise. 

 

Held (in one case): promissory estoppel can sustain a cause of action despite the absence of an intent to be bound.  In a certain court's view, promissory estoppel is more than an equivalent or a substitute for consideration. 

 

AGREEMENTS DISCLAIMING LEGAL CONSEQUENCES

---> Courts have recently overtly applied promissory estoppel to personnel manuals that disclaim legal consequences.  The second restatement covers modifications without consideration.  A modification binding "to the extent that justice requires enforcement in view of a material change of position in reliance on the promise."  A promise may become binding by reliance, but the terms of the original contract may be reinstated as to the future by reasonable notification unless this would be unfair b/c of a change of position.

 

Promissory estoppel may also be used to enforce an unenforceable agreement, as for example a case involving a statute of frauds.  (reliance together with the policy to be attained)

 

 

C. Flexibility of Remedy

Topic Notes:

Flexibility of Remedy

Some courts have decided the remedy need not be as broad as that which would be available for breach of a K founded in consideration.  If reliance on an extremely valuable promise is moderate, courts should not be compelled to choose between full contractual recovery or none at all.  Nonetheless, in the overwhelming majority of cases employing promissory estoppel as a consideration substitute, expectation damages have been granted.

 

The new restatement says remedies for breach of a K based on promissory estoppel should be flexible, in order to award reliance damages to protect the damages to protect the reliance interest but "full-scale enforcement by normal remedies is often appropriate." 

 

It is not a simple matter to determine in a given case which remedy is appropriate.  Also, there may be many difficult problems in determining how reliance damages are "to be measured in the donative-promise context."  Because promissory estoppel us basically an extension of contract law, damages for mental distress are not awardable.

 

IX. The Parol Evidence Rule

Topic Notes:

The Parol Evidence Rule

This comes into play only where the last expression is in writing and is a binding contract.  The parol evidence rule's basic notion is that a writing intended by the parties to be a final embodiment of their agreement should be protected from certain kinds of evidence.  A writing that is final is an integration  of the terms embodied in it. A  writing that is final, but that does not completely express the parties' K is a partial integration.

 

Thus, a partial integration may not be contradicted by what has been called "parol evidence."

 

The parol evidence rule applies to terms agreed upon prior to, or at the same time as, the integration regardless of whether the term is written or oral.  This rule does not apply to subsequent agreements.  As to contemporaneous agreements, one of the parties offers into evidence a term that is not found in the writing but which the party alleges was orally agreed to prior to or contemporaneously with the writing.

 

 

 

 

MITCHILL V. LATH (1928)

Case Brief:

Style (name of case): Mitchill v. Lath (1928)

 

Cause of action: The following is a cause of action for breach of contract based on an oral agreement previous to the signing of the contract.

 

Procedural History: Original court ruled in favor of the

 

Facts: Laths owned a house in which they intended to sell.  Mitchills wanted to buy, but wanted the ice house on the land removed.  Laths orally promised to get rid of it.  In exchange, Mitchiills signed a contract and a lease with various provisions.  Mitchills have spent lots of money trying to fix the property to use as a summer residence, and thus far the Laths have not gotten rid of the ice house, nor do they intend to.

 

Issue(s): May one party's oral agreement with another over the removal of an ice house be enforced in a court of law?  When is  an oral promise a binding promise?

 

Court's Rationale/Reasoning: If one of the agreements was oral (the ice house) and the other was written (the lease and provisions signed by the parties), the problem comes up whether the bond between the two agreements are sufficiently close to prevent proof of the oral agreement.  Not form, but substance is the test according to the restatement.

 

(1) the agreement in form must be a collateral one

(2) it must not contradict express or implied provisions of the written contract

(3) it must be one that parties would not be ordinarily be expected to embody in the writing (in other words it can't be so closely related to the written agreement so that it is part and parcel of it)

 

The court found the agreement to remove the ice house was part in parcel of the signed contract, and therefore could not be proven as a separate agreement in court.  Mitchill signed an agreement for the entire property, and she should have noted the ice house at the time she signed it.

 

Rule: "Parol evidence is a rule of law which defines the limits of the contract to be construed."  It is more than a rule of evidence and testimony even if admitted will not control the written contract.  The rule applies when parties try to modify such a contract by parol (after the fact).  When one agreement is entered into wholly or partly in consideration of the simultaneous agreement to enter into another, the transactions are necessarily bound together.

 

Holding: How closely bound to the contract is the supposed collateral agreement is the decisive factor in each case.

 

Collateral: secondary or to act as a secondary bond. An implied provision concerning further obligations can exist only if "so clearly connected with the principal transaction as to be part and parcel of it

 

 

 

 

 

LEE V. JOESEPH E. SEAGRAM & SONS, INC. (1977)

Case Brief:

Style (name of case): Lee v. Joseph E. Seagram & Sons (1977)

 

Cause of action: The following is a cause of action for breach of an oral contract.

 

Procedural History: The following is an appeal by the defendant of a jury verdict in favor of plaintiff.  Affirmed on appeal.

 

Facts: Lees owned 50 percent interest in Capitol City Liquor Co., a wholesale liquor distributorship.  Other 50 percent owned by Other 50 percent owned by Harold's brother Henry and his nephew Arthur.  Capitol City sold a large number of Seagram's drinks.  Lees and other owners of Capitol wanted to sell their interests in the business and Harold (the father) started talking with EVP of Seagram.  Harold offered to sell Capitol to Seagram's but conditioned the offer to relocate Harold and his sons in a new distributorship of their own in another city.

 

Contract expressed sale provisions but never the oral agreement, which was never performed by defendants.  Lees claim they held up their end of the bargain to sell Capitol, and despite opportunities to move Lee and his sons to another distributorship, they refused to do so.  Claim is failure to honor the separate oral agreement made.

 

Plaintiffs claimed breach of oral K to relocate Lee's sons to another distributorship in another city.

 

Issue(s): May the oral agreement be argued as a part and parcel of the contract signed, so as not to rule it legal on parol evidence?

 

Court's Rationale/Reasoning: The court looked to the parol evidence rule, in order to determine if the written agreement may be superceded by a previous oral agreement which was contingent in the signing of the written agreement, but not along the same lines as the agreement signed.

 

(1) the agreement in form must be a collateral one

(2) it must not contradict express or implied provisions of the written contract

(3) it must be one that parties would not be ordinarily be expected to embody in the writing (in other words it can't be so closely related to the written agreement so that it is part and parcel of it)

 

According to the court, the Lees were trying to make a separate agreement from the one to sell the business (although it would have been nice to include the new distributorship clause in the written deal).  Common business practice dictates here, and shareholder employment is one of those things which typically is a different entity than the sale of a business.  Since the Lees sold their store as consideration for the move to another distributorship, there was a contract, which was never performed on the part of the defendants.

 

Rule: Certain oral agreements are not within the prohibition of the parol evidence rule if they are separate and independent contracts, even though of the same subject, they are allowed to be parol, b/c that's how they were made.

 

Holding: No.  The agreement was a separate and independent contract.

 

RAFFLES V. WICHELHAUS (1864)

Case Brief:

Style (name of case): Raffles v. Wichelhaus (1864)

 

Cause of action: The following is a cause of action for breach of contract.

 

Procedural History: Motion to demurrer granted.  Per curiam judgment for defendants.

 

Facts: Plaintiff and defendant enter into a contract for the sale of cotton bales coming over from India.  Coming over on a ship called the "peerless" but there were two ships of that name.  After the first ship arrived, and the defendant did not appear, plaintiff filed motion for breach.  In actuality, the ship defendant was waiting for was to arrive two months later.

 

Plaintiff claims defendant failed to perform; defendant counter claims there was a material term missing on the contract (which ship it was supposed to be).

 

Issue(s): Is a mistake regarding the ship which was to deliver the cotton bales a valid defense for failure to perform?

 

Court's Rationale/Reasoning: The moment it appears two ships called Peerless were about to sail from Bombay there is latent ambiguity, and parol evidence may be given for the purpose of showing that the defendant meant one Peerless and the plaintiff another. That being so, there was no consensus between the parties and therefore no binding K.  Intention was of no remedy to the court, unless stated at the time of the contract.

Rule: There is no right to contradict by parol evidence a written K good upon the face of it.

 

Holding: No.  Defendant had no right by parol evidence a written contract which was valid on its face. (the court said it was another matter to decide if there were two ships by the same name)

 

 

 

 

 

 

 

 

 

 

 

 

X. Is the writing a total integration

Topic Notes:

Is the writing a total integration?

This comes after the judge decides the writing is an integration.  An incomplete final statement of part of the agreement is only a partial integration, so the writing must be both final AND complete, and MAY NOT be contradicted or supplemented.  Whether or not there is a total integration is where the parol evidence rule comes into play.  So the court has used these rules to determine:

 

(a) the "four corners" rule

--->if an instrument appears complete on its face (determined by trial judge looking at solely the writing on the instrument), the instrument is determined a total integration.  But it is hard to determine something is total by looking solely at the writing.

 

(b) the "collateral contract" rule

---> the existence of a total integration didn't prevent "collateral agreements" (those independent of the writing) to being introduced so long as the main agreement was not contradicted.  This is a problem sometimes for the same reason as its determining factors...sometimes it's just hard to tell which agreements are the main agreement and which is the collateral agreement

 

(c) Williston's Rules

---> 1. if the writing contains a merger clause, or a provision declaring that the writing contains the entire agreement of the parties, this declaration conclusively establishes that the integration is total

---> unless (a) the document is obviously incomplete, or (b) the merger clause was included by a result of fraud or mistake or any other reason to set aside a K...

 

---> 2. In the absence of a merger clause, the determination is made by looking to the writing

 

---> 3. Where the writing appears to be a complete instrument expressing the rights of and obligation of both parties, it is deemed a total integration unless the alleged additional terms were such that parties in the position of those to the written agreement woulf naturally enter into a separate agreement with regard to the additional terms (it's only partial).

 

(d) Corbin's approach

---> the parol evidence rule does not apply to either kind of contemporaneous agreements

 

(h) The Second Restatement

---> uses Corbin's approach, and adds if the alleged agreement is made for seperate consideration or the offered agreement is not w/in the scope of the integrated writing, or if the offered terms might naturally be omitted from the writing.

 

Thus, it is impossible to have more than partial integration, burying in effect the parol evidence rule.

 

XI. Capacity of Parties

Topic Notes:

Certain classes of people whose contractual capacity is limited, which makes their agreements void, or more often voidable.

(mental disabled people, infants.

 

Minors are "infants"

---> Minors' emancipation does not enlarge their capacity to K's...and the power of the evidence rests in the infants, or in their heirs, administrators or executors.

 

AN ADULT PARTY TO A TRANSACTION CANNOT AVOID THE K ON THE GROUND OF ANOTHER'S INFANCY.

 

Parents, have been on occasion, allowed to have disaffirmed their minor's K if the infant is not emancipated.

 

PETTIT V. LISTON (1920)

Case Brief:

Style (name of case): Pettit v. Liston (1920)

 

Cause of action: The following is a cause of action for recovery of $125 for purchase of a motorcycle from defendants.

 

Procedural History: Demurrer was overruled by the court, and the plaintiff refusing the reply or plead further, had the case dismissed.  Appealed and affirmed for defendant.

 

Facts: Plaintiff, a minor, bought a motorcycle from defendants for $325, plunking down $125 as a down payment and was going to pay $25/month until balance was paid.  Plaintiff used the motorcycle for a month, returned it and demanded full refund of monies paid, to which defendant refused.  Defendant instead claims he is owed $156.65 for the bike, from damages while plaintiff used it.

 

Issue(s): May a minor rescind on a contract and not be held to pay for partial use of good which was contracted for?

 

Court's Rationale/Reasoning:  There was fair business practice here.  Defendant sold bike for a fair price to minor plaintiff, and never took advantage of him regarding anything else regarding the sale or payment plan.  In such an instance, a minor is not excused from paying monies as a result of depreciation or damage of a purchased good.

 

Rule: If minor treated fairly, minor must pay back for depreciation or damages while the instrument was in the hands of the minor.

 

Holding: No.  All minors are liable for damages resulting from partial use of a good at the time of avoidance.

 

 

 

 

 

 

 

 

 

 

 

 

ORTELERE V. TEACHERS' RETIREMENT BOARD (1969)

Case Brief:

Style (name of case): Ortelere v. Teachers' Retirement Board (1969)

 

Cause of action: The following is a cause of action for a revocation of a teacher's retirement benefits, as she was alleged to be mentally incompetent at the time.

 

Procedural History: Nonjury trial court ruled she was mentally incompetent and the K null and void.  Appellate Division reversed.  Court of Appeals reverses again and remands for new trial.

 

Facts: Two months before her retirement, plaintiff's wife changed her retirement application, and instead of leaving her husband the beneficiary, she elected the maximum payout of benefits.  Mrs. Ortelere's mental incompetence is undisputed.

 

Plaintiff's wife suffered a nervous breakdown in 1964, after having taught for 40 years and was 60 years old.  At this point, she went for medical treatment, of which her doctor diagnosed her breakdown as "involutional psychosis."  Treatment continued for six weeks but was stopped b/c doctor thought she also had cerebral arteriosclerosis, which was later confirmed.  Psychiatrist who treated her continued to do so until her hospitalization in 1965 after collapsing from an aneurysm. 

 

Back in 1958, the late Mrs. Ortelere executed her husband as primary beneficiary on her teacher benefits, and 2 years later did the same on her death benefits.  But in 1965, a little over a month before she died, she re-executed her benefit payout to be the maximum amount with nothing else payable afterwards.  Ortelere also borrowed the maximum amount from the system.

 

Ortelere also wrote a letter with 8 specific questions four days after she chose her maximum payment, which contained a detail understanding of the retirement system.  Yet the payments she requested did not suggest such knowledge.  Plaintiff husband quit his job to take care of his wife after her leave of absence for her condition.  He did take her to the retirement board, but did not know why she was there. 

 

Issue(s): Was plaintiff's wife's mental infirmity impairing her judgment enough to financially strap her family upon the choosing of a new retirement policy, and may such an infirmity be used to return decedent's policy back to its condition previous to mental infirmity?

 

Court's Rationale/Reasoning:  Contracts of mentally incompetent are voidable.  Even if partly or wholly performed, it would be returned to status quo.  Avoidance of duties based on mental illness should be based solely on evidence of a notification of mental infirmity.  The system should have been fully aware of decedent's condition; she took a leave of absence for a mental breakdown.

 

Through the facts of the case, it is evident to see decedent acted in a decreased mental state when she changed her policy.

 

Rule:  Incapacity exists when a person is not capable of understanding the nature and consequences of what is happening at the time of the transaction. ("ability to understand" standard)

 

Holding: Yes.  The facts show plaintiff's wife varied greatly in her mental incapacity from the time she chose her original policy, to the time she changed her policy weeks after finishing up her treatment for mental illness.

 

DISSENT:  the letter clearly shows she was mentally sound enough to make an educated decision

 

A. Transactions infants cannot avoid

Topic Notes:

Transactions infants cannot avoid

certain situations if public policy so requires, or b/c a statute says so, or b/c the infant has promised to do something which the law would compel, even in the absence of K     (ex: a minor promises to support his out-of-wedlock child)

 

minors cannot utilize secret customer lists will be enforced by injunction (legal duty apart from K provision)

minors employees cannot on termination disaffirm an arbitration clause

minors held liable for welfare of their children

minors held liable for bail bonds (public policy)

 

Court approval is required for the settlement of tort claims

Court approval is required when a minor wants to sell something (i.e. land)

 

B. Avoidance and ratification

Topic Notes:

Avoidance and ratification

Action where a minor's K is voidable (avoidance action by minor) is called "disaffirmance."  The effective surrender of this power of avoidance is called "ratification."  Can't ratify w/o a majority, and any ratification prior to that time suffers voidability as K itself.

 

An infant may disaffirm K any time prior to ratification.  Such disaffirmance is irrevocable.  No language in particular required for disaffirmance to be effectively made, and the entire K must be avoided (no enforcing favorable portions)

 

1. Failure to make a timely disaffirmance

Topic Notes:

Failure to make a timely disaffirmance

results in ratification...a reasonable time is dependent on the facts of the particular case

 

if the infant has obtained no benefits under K, there is no reason to bar the infant from disaffirming it any time up until the statute of limitations has run.

 

But if an infant paid for services as an infant, they may not disaffirm after passing infancy.

 

2. Express ratification

Topic Notes:

Express ratification

this is done by a failure to disaffirm (ratification depends on the intent)...promise can be inferred by language and circumstances surrounding specific K

 

3. Ratification by conduct

Topic Notes:

Ratification by conduct

other types of actions besides express ones can ratify K...

 

1. Retention and enjoyment of property in dispute from K

2. Receipt of performance from the other party

(However, part payment or other performance by the infant, will not be deemed a ratification)

 

C. Obligations of restitution upon disaffirmance

Topic Notes:

Obligations of restitution upon disaffirmance

If either or both parties have rendered some performance, questions of restitution may arise...analysis depends often if the infant was the plaintiff or defendant

 

1. Infant as defendant

Topic Notes:

Infant as defendant

their avoidance is an affirmative defense, but not if their avoidance is used as an escape to paying for something...so the infant must return any consideration which they received and still possess...

 

If, however, the infant has used all of the consideration, squandered it, or destroyed it, they are not required to return the consideration

 

2. Infant as plaintiff

Topic Notes:

Infant as plaintiff

Infant who disaffirms K of purchase could recover only for value of property after they damaged it, if they damaged it (ex: a wrecked car is worth only the value of the car as is after the accident).

 

Some have suggested the K be judged by a criteria of fairness, and should be applied on a case-by-case basis.

 

D. Liability of infant for necessaries

Topic Notes:

Liability of infant for necessaries

infants are liable in quasi-K for "necessaries" (goods necessary for a child of a particular age or capacity) furnished the infant but the infant may disaffirm an executory K for necessaries.  food , clothing and shelter are necessaries, but the kind of those things is in question.  Sometimes legal services are necessaries, education is to a certain point (college not yet deemed necessary).

 

If an infant borrows $'s for necessities...they are liable upon tendering the cash, even if they squander it.  Infants who aren't emancipated cannot be held liable for necessities unless the parents/guardians refuse (or are unable) to supply them; broad discretion is used to determine the manner to best meet the needs of the child or ward. (infant liable only if they contracted for the necessity)

 

E. The Mentally Infirm

Topic Notes:

The Mentally Infirm

With one exception (if person adjudicated as incompetent and guardian has been appointed prior to going into a transaction), transactions of the mentally infirm are merely voidable.  Placement in a mental institution does not replace a guardian.

 

1. Senility

2. Mental retardation

3. Temporary delirium from physical injuries

4. Intoxication

5. Side effects of medication

 

 

Incapacity exists when a person is not capable of understanding the nature and consequences of what is happening at the time of the transaction. ("ability to understand" standard)

 

Any undue influence in favor of the other party makes K voidable.

 

 

 

F. Requirement of restitution

Topic Notes:

Requirement of restitution

Under subjective test of assent, it is clear K is voidable based on mental incapacity or infancy, however under an objective standard, it is based upon a reasonable person in the position of the other party looking at the particular individual whose mental capacity is in question.

 

Two kinds of K are voidable: executory K, and K in which there is grossly inadequate consideration

 

Competent party to the K has no power of avoidance, which is reserved solely for mentally incompetent, and ratification is reserved to them.  Only after death is the power shifted to the executor or heirs or personal representative.

 

Mentally incompetent people are also liable for the costs of their necessities in quasi-K situations.  As are legal services, needs for nursing and medical attention.

 

 

G. Intoxicated persons

Topic Notes:

Intoxicated persons

this can render a person temporarily incompetent, and if they don't understand the legal action taking place, they may be treated as mentally infirm (at the time), but now there is more moral indignation towards the intoxicated, and decisions in their favor are rare.

 

The standard for this is the other party must know the intoxicated party would in no way act in such a manner had they been sober (by whatever means they were intoxicated removed from their system)

 

 

 

H. Exploitation of alcoholics & weak minded persons

Topic Notes:

Exploitation of alcoholics & weak minded persons

if in such a case the person in K is to a lesser degree intoxicated, or feeble or mentally infirmed, those people are bound to K if no other ground for avoidance exist, unless they are exploited (duress, fraud, undue influence)

 

Ex:  inducing an alcoholic to get into K with alcohol, then getting them to enter into K with inadequate consideration is fraud

 

XII. Avoidance or Reformation for misconduct,mistake

Topic Notes:

Avoidance or Reformation for misconduct/mistake

This could be done by duress, wrongful acts, threats, coerced settlements, contract modifications, or business compulsion.

 

A. Duress

Topic Notes:

Duress

Any wrongful act or threat which overcomes the free will of a party contributes to this.

 

But...what is free will...and what is a wrongful act?

Is there an objective or subjective test for figuring out standards?

 

OBJECTIVE when coercion involves eco. pressure instead of phys. pressure

 

With coercion, the test first is to ask if the act in question was "wrongful., & if the act was induced by this wrongfulness, as well as the degree of eco. imbalance in the transaction.  Duress will generally not be found to exist unless the party exercising the coercion has been unjustly enriched.

 

To recap...the elements of duress:

(1) the end result of the coercion

(2) the means of coercion

 

 

GALLON V. LLOYD-THOMAS CO. (1959)

Case Brief:

Style (name of case): Gallon v. Lloyd-Thomas Co. (1959)

 

Cause of action: The following is a cause of action for recovery of K on basis of duress, threats and coercion.

 

Procedural History: Trial court ruled for plaintiff and damages of $100.  Circuit court ruled in favor of defendant N.O.V. Case appealed to U.S. Court of Appeals twice, and upon second hearing was affirmed again.

 

Facts: Plaintiff was hired as a employee as district manager.  He got 15 percent commission in initial appraisal charge as well as the annual service charge.  Plaintiff transferred to NYC and got a drawing account of $225, with understanding defendant wouldn't charge him for overdrawing against his commission in St. Louis (previous assignment). 

 

Eventually, plaintiff's drawing of $225 per week exceeded his earnings by 15%, and defendant reduced his drawing account to $175.  President of company called plaintiff and told him they were sticking their necks out too far for him and they were investigating his character, to which they found a few interesting items.

 

It was noted plaintiff was married three times previous to current wife:  once in England, another time in Scotland, and another time in St. Louis.  Plaintiff was also not naturalized.  These revelations caused plaintiff much distress, and it was testified to plaintiff got really sick after those events.

 

In further response, defendant company asked plaintiff to sign a contract, in which plaintiff acknowledged his services were not up to snuff, and defendant was to retain him in their employ as long his services were satisfactory, and compensation was to be determined by the two parties.  Plaintiff was to acknowledge he had overdrawn in his account with defendant by $15K, and authorized plaintiff to pay monies owed to plaintiff overdraft, as well as an outstanding $200 note on a former wife.

 

The next year, plaintiff's drawing account was reduced from $175 to $125.  Plaintiff brought forth two more letters: one requesting transfer, and the second requesting resignation if his first request wasn't met. 

 

Issue(s):  What was the result of the duress upon plaintiff when he signed the contract presented to him by defendant?

 

Court's Rationale/Reasoning:  Again, if there is some form of duress, it must be proven either at the time of signing the deal or once the initial duress has been removed.  At the time plaintiff signed K, there was never any acquiescence or voicing of concern about entering into such a

deal.  There was even a conference with his lawyer.  Thereupon signing K, plaintiff never said anything either, further proof of ratification by silence.  Plaintiff filed reports with defendant employer on a weekly basis and complied with all the terms set forth.  No objections up to, at the time of, and after the signing of K showed no evidence of duress on the  part of the defendant throughout the course of the events which preceded the suit.

 

Since plaintiff ratified the K as a matter of law, he is not entitled to actual or punitive damages.

 

Rule:  A contract signed in duress in merely voidable.  It is voidable when after the duress is removed from the signor, they are capable of ratifying it.  Ratification results if the party who executes K under duress accepts the benefits flowing from it or remains silent or acquiesces in K for any considerable length of time after opportunity is afforded to annul or void it.

 

Holding: No.  Without voicing any objection or concern to signing the contract, plaintiff essentially ratified the agreement by recognizing the terms and following the instructions set forth.

 

B. Wrongful acts or threats - abuse of rights

Topic Notes:

Wrongful acts or threats: abuse of rights

1. Violence or threats of violence

2. Imprisonment of threats of imprisonment

3. Wrongful seizing or withholding, or threats wrongfully to seize or withhold, goods or lands

4. Other wrongful acts (blackmail)

 

AN ACT OR THREAT IS WRONGFUL IF IT IS "AN ABUSE OF THE POWERS OF THE PARTY MAKING THE THREAT; THAT IS, ANY THREAT THE PURPOSE OF WHICH WAS NOT TO ACHIEVE THE END FOR WHICH THE RIGHT, POWER, OR PRIVILEGE WAS GIVEN."

 

(absent a wrongful threat, the driving of a hard bargain is not duress, even if only one party benefits from the financial duress of the other)

 

C. Threats of imprisonment or criminal prosecution

Topic Notes:

Threats of imprisonment or criminal prosecution

---> Civil imprisonment, or the threat of it, if caused or threatened in good faith and allowed by law, cannot normally justify a finding of duress, so as long as the imprisonment is not exercised of threatened to abuse one's rights.

 

 

 

D. Duress of property - assertion of liens

Topic Notes:

Duress of property: assertion of liens

A wrongful threat to detain or the detention of the property of another amounts to duress if 2 factors are present:

(1) it coerces the assent of the other to a transaction

(2) the party coerced had no reasonable alternative but to assent

 

*the exercise of legal rights are inherently coercive even if scrupulously employed

(i.e.: a legal right employed in a particularly oppressive manner or is employed to force a non-equitable settlement)

 

bad faith assertion is key to a claim of duress, but on the part of a party who gives more than what they owe by choice

 

 

E. Coerced settlements or contract modifications

Topic Notes:

Coerced settlements or contract modifications

A threat to breach K is considered duress, if the threatened breach would, if carried out, results in irreparable injury b/c of the absence of an adequate legal or equitable remedy or other reasonable alternative.  In such situations, the threatened breacher enjoys monopoly power.

 

 

 

 

 

F. Remedies for duress - ratification

Topic Notes:

Remedies for duress - ratification

ratification could sometimes occur when a party who is coerced fails to avoid K either contemporaneous to, or within a reasonable amount of time after it is signed

 

A transaction that is voidable for duress may be ratified.  Where coercion induces consent, the coerced party's behavior, once the coercion is removed, may constitute ratification.  The coerced party may ratify the transaction by recognizing its validity, by acting on it, accepting benefits under it, or merely failing to avoid it with reasonable promptness.

 

 

 

G. Undue influence - background and elements

Topic Notes:

Undue influence - background and elements

When a transaction occurs involving a dominant party wielding power over a subservient party.

 

Today, the gist is more unfair persuasion rather than coercion...often, but no always, the state of mind of the party unduly influenced is euphoria, not fear.  In such cases, the emphasis is on the unfairness of the advantage to the party who exerts the influence rather than on the want of consent of the victim.

 

Elements of undue influence

NON-ATTORNEY CASES

---> 1. One party uses a dominant psychological position in an unfair manner to induce the subservient party to consent to an agreement to which the other party would not otherwise have consented.

---> 2. One uses a position of trust and confidence, rather than dominance, to unfairly persuade the other into a transaction.

 

ATTORNEY-CLIENT CASES

---> If a transaction is called into question, the lawyer must show:

1. The transaction was fairly and equitably conducted

2. The lawyer was fully informed the client of the nature and consequences of the transaction

3. Fully revealed the lawyer's own interest in the matter

4. Saw to it that the client obtained independent advice or gave the client the kind of advice a disinterested lawyer would have given the client

 

There is no general stated requirement in which relationship where an undue influence have involved confidential relationships, there has been no stated requirement that such a relationship existed.

 

REMEDIES FOR UNDUE INFLUENCE

Ratification is an issue if an undue influence merely renders the transaction voidable.  Once the party having the power to avoid the transaction has knowledge of the essential facts, and is free of the other's influence, they may ratify the transaction, and a power to disaffirm may be lost by an implicit ratification.

 

 

 

FRANCOIS V. FRANCOIS (1979)

Case Brief:

Style (name of case): Francois v. Francois (1979)

 

Cause of action: The following is a cause of action for recovery of assets for a contract which was allegedly signed under circumstances of undue influence from his wife.

 

Procedural History: District court found wife exerted undue force in a settlement agreement with her husband.  Affirmed on appeal in US Court of Appeals.

 

Facts:  Husband and wife were married a very short time after a "short courtship".  Husband well-to-do, having part-ownership in  family business; also owned property and had a substantial stock portfolio.  A little over three years after the two were married, their relationship started to wither, as wife's financial stake in relationship continued to get stronger.  She was given all interests in one property, as well as half interest in his stock.  When she demanded a boat, he bought it for her in her name.

 

When wife wanted to end the marriage, she did not inform husband of wanting to do so until wife invited husband to another lawyer's office (not husband's, who wife disapproved), where she dropped the bomb on him.  The bomb was a settlement agreement, and called for fundamentally a 50-50 split of all assets, as well as a $300/month alimony payment.

 

When the document was presented to husband, wife's attorney informed husband he would need his attorney.  This was unacceptable to wife, who had one standing by.  This lawyer tried as hard as he could to convince husband not to sign the agreement, but when he decided he would, this other lawyer refused to represent husband.

 

The agreement was signed by husband only after wife's husband and wife herself convinced husband this was the only way to even have a chance of preserving their marriage.  The couple continued to live together for another year, until she told him she sold all remaining property in exchange for property in California, and husband brought the suit against wife and California  company which engineered the exchange before they could take title to the single deed for both properties.

 

Wife alleges all four reasons made by the trial court were off base in the trial court's decision for husband:

 

1. The cohabitation of the parties subsequent to the signing of K

2. The undue influence exerted by Jane over Victor in connection with the signing of K

3. Fraud and misrepresentation on the part of Jane

4. The unconscionable terms of K

(judge also declared deed to be null and void and awarded title to property solely in Victor's name)

 

Issue(s): Whether the district court properly relieved a husband from the disastrous financial consequences of a "Property Settlement and Separation Agreement" entered into with his wife?

 

Court's Rationale/Reasoning: The trial court found if husband (Victor) and wife enjoyed a confidential relationship, it would first need to be determined not by the fact they were married, but on a case by case basis.  In this case, wife was the dominant one on a consistent basis, who was able to secure her interests over him whenever she wanted.  Husband here put all his trust in wife, and she took advantage of him. 

 

As far as whether wife (Jane) had the burden of proof to rebut the charges against her, there must be evidence of subversion of her husband's free will in order to obtain assent to an agreement.  The influence must be such husband acts in a way contrary to his own best interests and in a fashion in which he would have never operated if he weren't in the situation at hand.  Jane even convinced her husband signing K would be the only way in which to save their marriage.

 

Rule: Undue influence: evidence of subversion to one's free will in order to obtain assent to an agreement.  Party to the influence may even act in detriment to themselves. 

 

Holding: Yes.  If a party exerts undue influence on another by making them act against their own will to the point of detriment to themselves, there is undue influence, and in this case the wife acted in such a way as to exert undue pressure on her husband into signing an unequitable agreement.

 

 

 

 

 

 

 

 

 

 

 

 

H. Misrepresentation and non-disclosure

Topic Notes:

Misrepresentation and non-disclosure

Whenever a party fraudulently induced another to enter into a transaction under circumstances giving the latter party the right to bring a tort action for deceit, the deceived party may instead elect to avoid the transaction and claim restitution.  Misrepresentation or non-disclosure may render a transaction voidable even if there would be no tort cause of action for fraud.

 

Tortious fraud: five elements

 

(1) representation

(2) falsity

(3) scienter

(4) deception

(5) injury

 

Restitution requirements less demanding than those needed for a tort action.  A number of jurisdictions use the "out of pocket" rule for restitution, just to return things to status quo.  Sometimes consequential damages are awarded, but never in a tort action.

 

Negligent representation in K where a party must disclose info to another party constitutes a breach of K.  It could also be grounds for canceling K.  Misrepresentation must be by the other party or by another on their behalf.  SO, if a debtor fraudulently induces the promisor to guaranty a debt, without the creditor's knowledge, the guaranty cannot be avoided.

 

Scienter and materiality

To establish scienter element of deceit, deceived party most of the time would need to show that the deceiving party made the representation with the falsity, and with an intent to deceive and that the misrepresentation shall be acted on in a certain way.  Avoidance and restitution are available in the rule of equity in quasi-contract situations in law.

 

For avoidance to be available in an unintentional misrepresentation, it's usually held that the fact misrepresentation must be material (standard objective, focus on materiality).  For intentional misrepresentation, avoidance is available even if the fact represented in immaterial (standard subjective, materiality irrelevant).

 

Materiality exists whenever the misrepresentation would be likely to affect the reasonable conduct of the person or if the "maker" of the representation knows the recipient is likely to regard the fact as important, although a reasonable person would not.

 

Deception and reliance

Deceived party must establish causation to recover for misrepresentation.    It must be proved the party was deceived the reliance on the misrepresentation when it entered into  the transaction.  No deception here, but material misrepresentation gives rise to a rebuttable presumption of deception and reliance.  Two factors:

 

(1) Did the person deceived have a right to rely?

(2) Did the party in fact rely?

 

Injury

This requirement doesn't apply to the avoidance of K.  Cases dealing with the injury requirement can be divided into 3 categories:

 

(1) the defrauded party obtains what is bargained for but b/c of the misrepresentation it is worth less than the party had reason to expect

(2) the defrauded party obtains something substantially different from what the party was led to expect

(3)the defrauded party obtains what is bargained for and it is as valuable as the party was led to expect

 

first 2 cases, defrauded party deprived of reasonable expectations and this is sufficient harm on which to base an avoidance

last case, the court may find the social interest in redress for the trick played on the defrauded party

 

Fraud in the factum

Actionable misrepresentation renders transactions avoidable rather than void in a majority of cases...distinction could be important in the situation if property was transferred by virtue of the misrepresentation

 

Remedies -- election, express warranty, restitution, measurement

If fraud constitutes the tort of deceit, the defrauded party may elect to stand on the transaction, keep what was received, and sue for damages.  Instead, the victim may choose to avoid the transaction and claim restitution, which could include reliance damages

 

Upon the issue of restitution sought at law, the general rule is that as a precondition to relief the defrauded party must offer to return what was received under K.

 

If a party fails to act with reasonable promptness to void K, it is ratified, destroying the power of avoidance.

 

Restitution: compensation for the injury done; conditioned on the return of what the offeror parted with.

 

A misrepresentation may also give rise to an estoppel, preventing the misrepresenting party from denying the truth of the assertion.  Fraud may also be used as an affirmative defense to an action to enforce K.

 

COUSINEAU V. WALKER (1980)

Case Brief:

Style (name of case): Cousineau v. Walker (1980)

 

Cause of action: The following is a cause of action for rescission of a land contract and monies paid for the contract.

 

Procedural History: Restitution denied by Superior Court.  Reversed and remanded to determine actual amount of damages owed the appellants.

 

Facts:  Appellee Walker bought a piece of property in 1975 for $140K.  A little over a year later, they signed a multiple listing agreement with an agent, which advertised their land 580 feet of highway frontage and over one million in gravel on property, according to an engineering report, and asked for $245K.

 

After that listing, Walker signed a new agreement to retain same agent exclusively.  Also put in another listing, saying the property had 80K cubic yards of gravel and was proposed to be commercially zoned, raising the asking price to $470K.  Obtained an appraiser's note which verified the gravel but not the highway frontage (zoning). 

 

Appellant Cousineau consulted another realtor to see if property was available and offer $360K.  Parties agreed on price of $385, but only after Cousineau asked for, but never received or obtained an engineer's report.  Cousineau also only found one boundary marker on property upon inspection (property covered with snow).

 

Sale was contingent on approval of zoning change of front portion of lot for commercial use.  Amount of highway frontage not included in agreement.  Conditional gravel right to Cousineau, who had to remove it by paying releasers before doing so.  No highway frontage in final agreement.

 

Soon after sale, Cousineau learned the frontage was only 415, and not 580 feet as advertised.  There were also no gravel deposits on the property, and found out only after being threatened suit by a neighbor who said they were removing gravel from neighbor's property.  Soon thereafter, Cousineau stopped making payments, informing Walker of intention to rescind; appellees foreclosed, and reacquired property.

 

Appellants received less than 3/4 of frontage described.  Appellants claimed misinformation about gravel, frontage and the fact these pieces of information didn't appear in agreement.  Defendants said appellants relied unquestioningly on the contract and thus the doctrine of caveat emptor applied (buyer beware).

 

Issue(s): Whether appellants are entitled to rescission of a land contract b/c of false statements made by the sellers?

 

Court's Rationale/Reasoning: In determining if buyer relied to their detriment on a contract, there are three factors:

 

1. Did they rely on seller's statements?

2. Were statements material to the transaction (would a reasonable person have considered the statements important in deciding whether to purchase the property)?

3. Did buyer rely on material items, and if so, was this reliance justified?

 

Answer #1:  Cousineau was in the gravel business, and first became aware of the property after seeing the 1million in gravel portion of the listing.  He also contracted a gravel removal company upon acquiring the property.  Cousineau was also experienced in real estate matters; he never found the boundary markers to the property despite appellee's insistence they were there. 

Cousineau would have never started digging up gravel if he knew the correct location of the boundary markers.

 

Answer #2:  Material fact is one "to which a reasonable man might be expected to attach importance in making a choice of action."  It is a fact which could reasonably be expected to influence someone's judgment or conduct concerning a transaction.  Misrepresentation is grounds for voiding a contract if fraudulent or material.  Court found these terms to be material, as a reasonable person would think gravel was an important part of the transaction.  Even agent said so.

 

Answer #3:  Minimal duty on buyer traditionally.  Despite the fact Cousineau should have done a better job of making sure he didn't get taken like he did on the deal, sellers were not acting in good faith and in accordance with reasonable standards of fair dealing. 

 

Rule: Buyer is entitled to rely on an express warranty, regardless of an inadequate examination of the goods, unless if the failure to inspect was no glaring in misrepresentation or defect.

 

Holding: A purchase of land may rely on innocent misrepresentations  made by the seller and is not obligated to ascertain whether such representations are truthful.  A buyer of land, relying on an innocent misrepresentation, is barred from recovery only if the buyer's acts in failing to discover defects were wholly irrational, preposterous, or in bad faith.

 

VOKES V. ARTHUR MURRAY, INC. (1968)

Case Brief:

Style (name of case): Vokes v. Arthur Murray, Inc. (1968)

 

Cause of action: The following is a cause of action for rescission of a contract based on fraud on the part of defendants.

 

Procedural History: Case was originally dismissed with prejudice.  On appeal was reversed.

 

Facts: Plaintiff wanted to become a dancer for a new change in life, or something along those lines.  She enrolled in defendant's school, with the introductory inducement of 8 1/2-hour lessons for $14.50.  From thereon, plaintiff kept doling out cash for more lessons, and signed contracts to each of these payments.  Fourteen contracts in all, for anything from moving up to bronze, silver or gold status to trips to Mexico and Trinidad.

 

Each time, she was induced with the promise of getting better.  There were event tests given by the school to see how her progress was coming along.  In total, she threw down $31,090.45 for some 2302 hours in the studio.  Plaintiff claims she was falsely induced, and was not privy to know how poor her dancing was, whereas defendants were at an advantage, and were milking her the whole time.  She also claims she was induced by flattering statements and the attainment of the previously mentioned standards of which to achieve.

 

Issue(s): Is a contract able to be rescinded when the seller/provider of said goods/services falsely represents themselves?

 

Court's Rationale/Reasoning:  Sellers may have began this with all earnest (we don't know this), but this turned into a smoke blowing affair, with buyer being induced at various times in an area to which she had no idea about.  In situations where there is a general misrepresentation, there usually must be one in fact, and not in opinion.  But when there is superior knowledge that theory goes out the door.  (it would be considered a matter of opinion if parties were dealing on equal terms)

 

Seller really knew if she was improving her dancing technique, but saw more of the ringing of the cash register than the truth.   Furthermore, it should have been more apparent to the defendants there was no improvement in plaintiff's dancing after hundreds of hours of practice, and the inducement of buying even more hours just adds to the level of misrepresentation here.

 

Rule: In determining whether buyer relied in their detriment upon a misrepresentation in a contract:

 

1. Did they rely on seller's statements?

2. Were statements material to the transaction (would a reasonable person have considered the statements important in deciding whether to purchase the property)?

3. Did buyer rely on material items, and if so, was this reliance justified?

 

Holding: Yes.  Buyer relied on seller's statements, which were essential to the various contracts, and her reliance was justified.

 

If this were a situation where the parties were dealing at arm's length with one another, the court said they would have left them as they were.

 

I. Mistake

Topic Notes:

Mistake

Certain kinds of errors may prevent the formation of K's.  They may be used as grounds for avoiding K.  A mistake is often internal to the workings of the minds of the contracting party. 

 

Mutual mistake

This can render a transaction voidable.  Where both parties share a common assumption about a vital existing fact on which they based their bargain and that assumption is false, the transaction may be avoided under certain circumstances.  If, b/c of the mistake, a quite different exchange of values occurs from the exchange of values the parties contemplated, the transaction can be avoided, unless the risk of such a mistake is otherwise allocated by agreement, custom or law.  This also holds true if parties are operating under different mistakes about the same vital fact.

 

(a) existence, ownership, or identity of the subject matter

---> if no goods existed unbeknownst to both parties, at the time of K being made, there is no K.

---> where seller is negligent in having a mistaken belief, however, liability may be found on an implied warranty of existence of on a negligence theory

---> where parties are mistaken as to identity of the subject matter, K may be avoided

 

(b) qualities of the subject matter and conscious uncertainty

---> case where a cow was sold under the belief it was barren, for a sale price equivalent to a barren cow...before the sale, the seller found out the cow was pregnant, and would be sold for far more than it's worth...sale was ruled voidable, b/c the mistake "went to the very nature of the thing"  (a barren cow is a substantially different creature than a breeding one)

 

*contract parties take certain risks, but don't take risks of the existence of facts materially affecting their bargain which both shared as a common pre-supposition...in deciding which facts are vital and basic to their bargain one must search the facts for unexpected, unbargained-for gain on the one hand, and unexpected, unbargained-for loss on the other. (Wood v. Boynton)

 

where there is  conscious uncertainty there is an assumption of the risk that the resolution of the uncertainty may be unfavorable (if both the insured and the insurer act under a mistaken belief that a given death or casualty loss has occurred, the settlement of the policy can be avoided...if there is conscious doubt whether the death of casualty loss has occurred, the settlement stands).

 

(c) mistake in acreage -- realty contracts

---> if acreage is materially variant with what was believed, the aggrieved party may avoid K (terms of per-acre or in gross are irrelevant, but such a distinction matters when the party seeks relief other than avoidance)  gross sale: no relief except for whole transaction; on per-acre basis: pro-rated restitution for missing acres

 

(d) releases -- mistakes as to injuries

---> strict: refuses to distinguish between personal injury and commercial releases

---> next: makes relief for mistake available for unknown injuries but not for unknown consequences of known injuries

---> next: allows recovery for mistake as to the nature and extent of an injury but not for mistake as to its future course

---> most favorable to injured party: allows relief for vital mistake rather than from any particular formulation, thus a vital mistake as to prognosis is grounds for setting aside the release

 

(e) releases -- sailors and other employees

---> release not sustained unless it is fair, just and reasonable (voluntary and knowing test)

 

(f) mistaken predictions

---> mistaken understanding of existing facts; if mistake relates to future events, relief is available, if at all, only under the doctrines of impracticability or frustration

 

Unilateral mistake

Avoidance is not available for unilateral mistake except for a palpable mistake, that is, a mistake the existence of which the other party knows or has reason to know (relief sometimes available)

 

Avoidance is generally allowed if 2 conditions concur:

(1) enforcement of K against the mistaken party would be oppressive, or at least, result in an unconscionably unequal exchange of values

(2) avoidance would impose no substantial hardship on the other

 

most frequent fact pattern in which relief for unilateral mistake is sought involves a mistaken bid by a construction contractor, usually caused by computational error or misconstruction of the invitation to bid; relief has also been given to mortgagee whose agent mistakenly underbid at a foreclosure auction

 

RELIEF

...is not available unless the agreement is entirely executory or the other party can be placed in the status quo ante

...If the mistake is vital (large enough it should be obvious)

...If mistake is of a clerical or computational error or a misconstruction of the specifications or something of that sort

 

Unilateral mistake is grounds for avoidance by the mistaken party, and cannot be invoked by the other party (remedy for specific performance is a discretionary one and unilateral mistake may be raised as a defense under the circumstances in which an action for restitution would not be permitted)

 

Mistake of law

rule denying relief has little vitality (ex: paying taxes to an agency which is ruled unconstitutional)

 

Mistake in performance

a party may mistakenly hold a belief as to the nature of the obligations under an existing K...when a valid and enforceable K exists between the parties and one of the parties pays money to the other in the mistaken belief that the payment is required by the K, the payment may be recovered.  Sam thing goes if excess payment is made. 

 

Relief for mistake in performance is given far more readily than in cases of mistake in formation of K

 

Voluntary payment doctrine:  money voluntarily paid in the face of a recognized uncertainty as to existence or the extent of the payor's obligation to the receipt may not be recovered on the ground of "mistake," merely b/c the payment is subsequently revealed to have exceeded the true amount of the underlying obligation (good faith and fair dealing is involved as well)

 

Estoppel, ratification, assumption of the risk

A detrimental change in position by the payee in reliance on an overpayment may raise an estoppel argument, but merely spending the money may not be a detrimental change in position if it's not shown that the expenditure would not have been made from other funds

 

Parties can reasonably allocate the risk of mistake in each case: for example, in an "as is" clause, the buyer assumes the risk

 

WOOD V. BOYNTON (1885)

Case Brief:

Style (name of case): Wood v. Boynton (1885)

 

Cause of action: The following is a cause of action for recovery of possession of an uncut diamond allegedly worth $1K.

 

Procedural History: Directed trial jury verdict for defendants.  Plaintiffs moved for new trial but denied.  Appealed on exception again.

 

Facts: Defendants partners in the jewelry business.  Plaintiff was in possession of a small, uncut stone and was ignorant of its value.  She sold it to defendants for one dollar.  Upon hearing that it was a diamond, and its worth was $700, she tendered payment back to defendants for $1.10 (interest), and asked for the stone back.. Defendants refused.  Extra details to sale:

 

Plaintiff took the stone in a box with some other items to defendant's store.  When defendant saw the stone, she asked if it was a topaz, to which he said it could be.  Defendant further asked plaintiff if she would sell him the stone.  She asked what it would be worth, to which he replied he'd pay one dollar.  She refused, but later came back to defendant's store in the hope of helping her finances out, which is when the above transactions occurred.

 

Plaintiff claims to have had no knowledge of the stone or its value before selling it to defendants, and they were in a position of supreme knowledge to take her money with such knowledge.  Defendant claims he had no real knowledge of uncut stones.

 

Issue(s): Does extensive knowledge of a particular subject result in fraud if a buyer uses such knowledge to purchase something from a seller who has no such knowledge and is undercut on the sale price?

 

Court's Rationale/Reasoning:  Since both parties were ignorant as to the true identity of the stone, there can be no rescission.  Defendant had no real knowledge of uncut stones, and testified to this fact.  He merely gave the stone a cursory glance the first time.  She understandably had no knowledge of the stone, but had questioned it's identity previous to bringing it to defendant's store.  She also held onto the stone for a period of time after she initially denied the sale of it to defendant.  Such action gave her plenty of time to ascertain its truthful identity before going back to sell it to defendant for the one dollar.

 

As for the delivery, there was no mistake either.  She showed it to him the first time, and upon her bringing it to the store a second time for the actual sale of the item, there was no difference in the look of the stone, and thus no mistake in the actual item being sold.

 

Rule: In determining whether the sale of a particular item was able to be rescinded, there must be one of two things:

 

1. The vendee was guilty of some fraud in procuring a sale to be made to them.

2. There was a mistake made by the vendor in delivering an article which was not the article sold -- a mistake in fact as to the identity of the thing sold with the thing delivered upon the sale. Here, there really is no delivery of the item sold, b/c it was not the item in question when it was sold.

 

Holding: No.  Both parties were ignorant of the stone's true identity, and since there was neither any inducement on part of buyer to obtain the stone, nor was there a mistake in the item sold, there can be no rescission.

 

LENAWEE CTY. BOARD OF HEALTH V. MESSERLY (1982)

Case Brief:

Style (name of case): Lenawee County Board of Health v. Masserly

 

Cause of action: The following is a cause of action for rescission of a contract based on mutual mistake.

 

Procedural History: Bench trial: no cause of action for Pickleses against either party, as none of the parties knew of Mr. Bloom's earlier transgressions.  Property was purchased "as is", and ordered foreclosure against Pickleses for $25,943.09.  Pickleses appealed, and trial court's decision affirmed against the Barneses but reversed against the Messerlys (there was a basic element of the contract which wasn't honored).  Reversed Court of Appeals, b/c the equity does not justify the remedy sought by  the Pickleses.

 

Facts:  Messerlys owned a 3-unit apartment building on a plot of land.  Prior to the transfer, the predecessor in title had installed a septic tank on the property without a permit and in violation of health code.  The building was used as an income investment property by Messerlys until they sold it to Barnes who used it for the same reason. 

 

Barnes, with permission from Messerlys, sold some acreage on the property, but not the building, which was soon thereafter offered for sale when Barneses defaulted on their land contract.  Pickles family expressed interest, and then later on signed a quit-claim deed, giving all title to them at their risk, for the price of $25,500.  A clause on the contract further attested the buyer's acceptance of everything in the condition it was in at the time of the transaction. 

 

When Pickles went to introduce themselves to their new tenants, they noticed raw sewage seeping out of the ground.  Board of Health plaintiffs performed some tests, and determined the inadequacy of the sewage system.  Upon such information comes the suit to try and enjoin Pickles as vendees, and Messerlys as land contract vendors from housing anyone else on the land until it was brought up to code.

 

Messerlys filed cross-complaint against Pickles family for foreclosure of property and were seeking sale of the property and a deficiency judgment.  Messerlys allege the problem was collateral to the original deal, and cannot be used against them.  The Pickles filed a counterclaim against the Barneses, which incorporated the same allegations the Messerlys made against them.  Count two also charged Barneses willful concealment and misrepresentation of the septic tank and system.

 

Issue(s): Whether appellees should prevail in their attempt to avoid a land contract on the basis on mutual mistake and failure of consideration.

 

Court's Rationale/Reasoning: 1. Was there a mistaken belief entertained by one or both parties to the contract in dispute and, if so, the resultant legal significance?  Yes.  Vendors and the vendees each believed that the property transferred could be used as an income-generating property, but learned it wasn't good for such use.

 

2. What was the legal significance of the finding?  Both parties made a mistake in purchasing the property because of the sewage problem, and such a part of the agreement is not collateral as it affects the "very essence of the consideration." Basically, what the party buying wanted, they didn't get (b/c of the sewage problem, they could not lease the property to tenants).

 

3. Rescission is an equitable remedy which is granted only in the sound discretion of the court.  In the case of mistake of 2 blameless parties, the court must determine which blameless party should assume the loss resulting from the misapprehension they shared.  This is done by reasonableness and surrounding circumstances.  In this case, the purchasers (pickleses) assume the risk here, as they purchases property "as is", according to the contract they signed.  There were no other written or oral understandings to the contract.  Thus, both parties knew there could be a risk, and purchasers neglected to take more of the risk into consideration.

 

Rule:  Contractual mistake: one which is not in accord with the facts; the belief which is found to be in error may not be, in substance, a prediction as to a future occurrence or non-occurrence.

 

Holding:  No.  The parties did entertain a mutual misapprehension of fact, but the circumstances of this case do not warrant rescission.

 

Quit-claim deed: A deed that transfers whatever interest or title a grantor may have, without warranty.  (releases all of a person's interest in property or land) Such a deed's acceptance is done under the buyer's risk.

Deficiency judgment: A judgment against a borrower in favor of the lender in an amount equal to the difference between the funds received from a court sale of property and the balance remaining on a mortgage or other loan.

 

J. Reformation

Topic Notes:

Reformation

the remedy by which records are rectified to conform to the actual agreement of the parties; there are several elements for which a basis for reformation may occur:

 

1. Inadvertent errors

2. Mistakes

3. Misunderstandings

4. Misrepresentation

5. Duress

(Standard of proof is a higher standard; clear and convincing evidence is required.)

 

Requisites for reformation upon a mistake:

 

(1) there must have been an agreement between the parties

(2) there must have been an agreement to put  the agreement onto a record

(3) a variance between the prior agreement and the record exists

(4) the mistake is mutual

 

The prior agreement

It's not a prerequisite to an action for reformation that the antecedent agreement be a K.  It may have been an agreement to the effect that if K is made and recorded it would contain a particular provision.  It may have also been a provision contained  in a tentative agreement of the type that will not bind the parties until an integration is executed.  If by error, rather than by subsequent modification, the record is at variance with the prior agreement, the record may be reformed.

 

Intentional omissions and misstatements

Although the parol evidence rule isn't a defense in an action for reformation, reformation is not available for an intentional omission b/c there was no agreement to put the term into the record.  Similarly, if the parties intentionally misstate a term of their agreement, reformation is not available, although if the parties agreed that their record would be inoperative, a declaratory judgment that the agreement is a sham and therefore a nullity may be available.

 

The variance -- mistake cases

Usually the mistakes are small...a wrong detail (address, boundary lines, etc.)

 

Reformation is available when a record would produce a different result upon the mistake...grounds for reformation:

 

(1) there must have been an agreement between the parties

(2) there must have been an agreement to put the agreement on record

(3) a variance between the prior agreement and the record exists

(4) *often stated* --  the mistake must be mutual (except in misrepresentation cases, this is included in #3)

 

When courts speak of mutuality of mistake, they don't mean a mistaken belief by one party alone for the record will contain a given provision is a ground for reformation

 

Third parties may benefit from reformation even under circumstances where the beneficiary is mistakenly excluded from the record.

 

Reformation for misrepresentation or duress

Where, b/c of mistake, a record fails accurately to state the agreement of the parties, reformation is usually the exclusive remedy.  If the record is inaccurate b/c of misrepresentation, the alternative remedies of reformation and avoidance are available, but the misrepresentation must relate to the content or the legal effect of the record. 

 

Non-disclosure is treated as the equivalent of misrepresentation where one party knows that the record does not express the intention of the other and knows the other's intention.

 

Duress is normally a ground only for setting a transaction aside, except when a person forces another to terms very different from which they originally agreed to, and those terms are to their detriment -- then the reformation of the agreement is an appropriate alternative

 

Defenses to reformation

Courts won't grant reformation if its effect would be to curtail the rights of a bona fide purchaser for value of others who have relied on the record.  Normally reformation won't be given against a donor of a gratuitous conveyance or other instrument of gift. 

 

Carelessness on behalf of one party in belief a certain K includes a clause does not bar reformation if the elements are there (4 elements above), unless the negligence has in some way harmed the other, non-negligent party.

 

As in the case with avoidance, ratification can terminate the right to reformation.  And, since reformation is an equitable remedy, equitable defenses such as unclean hands and laches are, of course, applicable.  Equity is important no matter what

 

BOLLINGER V. CENT. PA. QUARRY STRIPPING, CONSTR. CO. (1967)

Case Brief:

Style (name of case): Bollinger v. Central PA. Quarry Stripping & Construction Co. (1967)

 

Cause of action: The following is a cause of action for reformation of contract so as to enter a paragraph included which was omitted by mutual mistake.

 

Procedural History: Plaintiffs filed action for reformation of K, and the Court granted the requested relief.  Defendant appealed.  Affirmed on appeal, costs for appellant.

 

Facts: Agreement as executed provided the defendant permission to deposit on the property of the plaintiffs.  The deposit is from construction work on the Pennsylvania Turnpike in the immediate vicinity of the plaintiff's property.  The Bollingers claimed that there had been a mutual understanding between them and the defendant that, prior to depositing the waste on the plaintiff's proper, the defendant would remove the topsoil of the plaintiff's property, pile on it the waste material and then restore the topsoil in a way to cover the deposited waste.

 

Bollingers formally assert they signed the written agreement without reading it b/c they assumed that the condition just stated had been incorporated into the writing.  At first, defendants did as they promised with the topsoil, but then stopped doing so.  Defendants asserted nothing in K said they had to.  It was at this time plaintiff realized the feature of the oral understanding had been omitted from K.  Plaintiff continued to express displeasure; defendant said he could not adhere to the agreement b/c his equipment was taken away.

 

Issue(s): May a party request reformation of K based on a missing paragraph which was originally agreed upon (parol evidence)?

 

Court's Rationale/Reasoning: Previous case law says courts have the right to reform contracts if the mistake is mutual to the parties involved.  But if one of the parties denies a mistake being made doesn't prevent the finding of a mistake.  Since Central PA was originally covering the waste, there was essence of an original agreement before someone might have gotten wise to the omission of the term from K.

 

Rule: The Law of Reformation - the court allows a change of written evidence of Ks when a mutual mistake has been committed. 

 

Holding: Yes. Just because one party denies the fact there might have been a mistake doesn't prevent the court from reforming K.

 

 

 

 

 

 

 

 

 

 

 

 

K. Unconscionability

Topic Notes:

Unconscionability

Application of unconscionability doctrine:  on the ground that a contrary result  would involve the unconscionable  exercise of a legal right, parties are enjoined from insisting on: (a default when the mortgager tenders late payment); (holders of legal titles to land for the benefit of another are enjoined from utilizing the land to their own benefit, therefore negating any possibility of unconscionable exercise of legal title); (equity enjoined the enforcement of penalty clauses on the ground that such remedial relief would be the result of unconscionable insistence on one's legal remedy)

 

basically, relief would be concerned with substantial conscionability of the exercise of rights given by a particular agreement

 

Courts will refuse K unless "it is fair and open, and in regard to which all material matters known to each have been communicated to the other."

 

The emerging law of unconscionability

Most cases of unconscionability involve nonenforcement of a clause; in others, K was not enforced; others it could be fraud

 

What is unconscionable?

"that which affronts the sense of decency"

 

used to prevent 2 evils:  (1) oppression and (2) unfair surprise

(elements of both are present generally, and some courts want both elements to be present for unconscionability to exist)

 

Examples:

1. Gross excessiveness in price

2. Arbitration clause providing some forum with excessive high fees is unconscionable in a consumer transaction with a relatively small amount in issue

3. Employment contracts containing arbitration clauses binding only on the employee

4. Cases where exchanges are unconscionable per se

5. Gross one-sidedness or gross one-sidedness of a term disclaiming warranty, limiting damages, or granting procedural advantages (if the clause in question places great hardship or risk on the party in the weaker bargaining position, unless terms were fully explained to them and understood as such)

 

Superior bargaining power is solely not enough for unconscionability, there must be other elements: lack of meaningful choice, freedom on K is exploited by stronger party who has control of the negotiation via other party's weakness or feebleness, or even when a party lacks the experience of another party (even if it is on equal footing)

 

*comsumer cases have looked at things under the totality of the circumstances

 

 

 

 

BROWER V. GATEWAY (1998)

Case Brief:

Style (name of case): Brower v. Gateway (1998)

 

Cause of action: The following is a cause of action for compensatory and punitive damages, as a result of alleged deceptive sales practices in seven causes of action, including breach of warranty, breach of K, fraud and unfair trade practices.

 

Procedural History: Defendants moved to dismiss

 

Facts: As of July 3,1995, Gateway provided in its materials shipped to customers a "note to Customer" along with its "standard terms and conditions."  Among the terms is the stipulation of keeping the computer beyond 30 days represents acceptance of terms and conditions.  Plaintiffs contend they could never redeem the offer, because despite defendant's consistent offering of "service when you need it," they were never able to get any.  This "service when you need it" consisted of around the clock free technical support, software support and certain on-site services.

 

Another term of agreement is an arbitration clause, where if any controversy arose, such disputes would be settled in accordance with the rules of the Rules of Conciliation and Arbitration of the Int'l. Chamber of Commerce. Such proceedings would be binding on each party, and a judgment may be entered on in a court of equal jurisdiction.  Appellants argue the sheer cost of attending the trial would exceed the cost of the computer, and the risk of the "losers pay" consequence would be devastating to John Q. Taxpayer.  Plaintiffs also argue the agreement was a modification on the original K, which was not agreed upon.

 

Issue(s): May a buyer attempt to reform a seller's contract due to its inclusion of terms in the agreement which have the possibility of not being met (on the seller's part)?  Is the arbitration agreement a fair business practice?

 

Court's Rationale/Reasoning: When parties had the computer products for 30 days, there was an express agreement to the terms provided in the agreement.  Such a term was a part of the original K.  The terms were formed upon keeping the product beyond the 30 days in the agreement.  Therefore, the agreement as a whole, including the arbitration, was enforceable. 

 

As far as the arbitration portion of K goes, there was not a "take it or leave it" aura to it.  Again, this was ratified upon keeping the computer past 30 days.  The terms of the agreement are designed to get the item to the customer faster and more conveniently; should they fail to read the necessary terms, or claim to misunderstand a term, waiting 30 days eliminates any of those arguments.

 

The arbitration portion of the contract is not neatly tucked away in the standard agreement; it is in the same type-size as the rest of the materials.  Again, the parties have 30 days to review the materials and then send them back if they are not satisfied.  The term "standard" does not refer to standard computer business tactics.  However the deterring factor in the arbitration portion is the

costs associated with such legal action.  Requiring one city, one particular court and particular procedure is an arduous task for an average buyer, and should be changed.

 

Rule: Express agreement of the terms of K are an agreement to all provisions therein.

 

Holding: No.  The original terms in the agreement were as they were; the 30-day clause was just one term in it.  Yes, the fact a disagreeing party would have to bear such a burden of cost in a dispute is not fair business practice, and must be amended.  However, only the terms are objectionable, not the manner in which they are plaed in the contract.

 

 

 

 

 

 

 

 

 

 

 

 

L. Duty to read

Topic Notes:

Duty to read

Based on an objective theory of contracts...a party who accepts or signs of on a good or instrument or promise (oral or implied) cannot complain about it for not reading or understanding it, b/c at the time of their signing or accepting, they assented to the transaction.

 

"one who has the capacity to understand a written document who reads it, or, without reading it, or having it read to them, signs it, is bound by their signature."

 

Traditional qualifications to the traditional rule

(a) document provision not legible: no legibility, no assent

(b) terms insufficiently called to the attention of a party: if it is placed in a way a party would not see the term, no assent

(c) fraud and mistake: some courts have held other party bound, while other say there is no assent or misrepresenting party is guilty of fraud; 2nd restatement: "fraudulent party is more guilty than the negligent party"

--->Whenever signing document w/o reading it, the signer may be operating under a mistake as to the contents of the document, --->but avoidance is not normally permitted...

--->But when the situation involves lack of an agreement which was previously made, the contract is held avoidable

(d) fiduciary relationship: if signer not made aware of certain terms being signed on, document can be avoided

 

Contracts of adhesion -- exculpation and indemnity clauses

Nothing wrong with K of adhesion...traditional duty to read concept in adhesion or other standard of K on three different grounds:

 

(1) there was no true assent to a particular term

(2) even if there was assent, the term is to be excised from K b/c it contravenes public policy

(3) the term is unconscionable and should be stricken

 

Duty to read second restatement

A rule primarily for standardized agreements: "parties are not bound to unknown terms which are beyond the range of reasonable expectation" in such a K.  If there is a term which the other party knows would not be agreed to in a standardized K, the other party is not bound to assent on that agreement.

 

 

XIII. Conditions, Performance and Breach

Topic Notes:

Relationships of conditions to offer & acceptance

This chapter is based more on performance rather than the formation of K

 

Definition of a condition

It is an act or event that qualifies a promised performance...

 

Traditional definition: an act or event other than a lapse of time, which, unless it is excused, affects a duty to render a promised performance (broader definition)

 

Second restatement definition: an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a K becomes due (limited definition)

 

If A says to B, "if you walk the bridge, I'll pay you $100."  Walking the bridge is the unilateral K; it's both the acceptance of the offer and an express condition precedent to A's duty to perform the promise to pay $100. 

 

In the bridge case, B's failure to walk the bridge is a failure of condition relieving A of the promise to pay.

 

Classification of conditions

Two different ways: (1) based on time when the conditioning event is to happen in relation to the promisor's duty to perform a promise(conditions are labeled as precedent, concurrent and subsequent);

 

and (2) based on the manner in which it arises, that is, whether it is imposed by the parties or whether it is created by law (split into express and constructive conditions)

 

The time classification

the time classifications are split in relation to a particular moment when a duty to perform a particular promise in the agreement arises.

 

Conditions precedent

An act or event, other than a lapse of time, which must exist or occur before a duty to perform a promise arises.  If the condition doesn't occur and isn't excused, the promised performance need not be rendered (in an existing K)

 

Concurrent conditions

Exist where the parties are to exchange performances at the same time

(traditionally occur in K for the sale of goods and for the conveyance of land)

 

Conditions subsequent

Any event the existence of which, by agreement of the parties, discharges a duty of performance that has arisen

(generally don't occur often)

 

The other classification of conditions

Another way to classify conditions is based on how the condition arises. 

 

---> Express conditions are created by agreement of the parties (conditions implied in fact). Must be strictly performed.

 

--->Constructive conditions, on the other hand, are imposed by law to do justice (conditions implied in law). Substantial compliance is sufficient.

 

AUDETTE V. L'UNION ST. JOSEPH (1901)

Case Brief:

Style (name of case): Audette v. L'Union St. Joseph (1901)

 

Cause of action: The following is a cause of action for a payment of sick benefits allegedly owed the estate of a deceased employee.

 

Procedural History: Judgment in favor of defendant.  Plaintiff appeals.  Affirmed.

 

Facts: Company required all sicknesses to be verified by a doctor's sworn certificate of a physician.  Plaintiff's physician refused to make an sworn oath on sick notes of employee who was on his deathbed because of conscientious objections based on a religious belief the oaths were offensive to the Deity.  Generally, procedural statutes provide that an affirmation may substitute a sworn oath.

 

Issue(s): May a party claim benefits if a third party must honor an agreement?

 

Court's Rationale/Reasoning: There is no excuse when the third party does not produce or refuses to produce, it is solely the fault of the first party, no matter their efforts.  If, however, plaintiff comes back with a certificate, they should be able to collect on their benefits.

 

Rule:  Where one engages for the act of a stranger they must procure the act to be done, and the refusal of the stranger, without interference of the other party, is no excuse.

 

Holding: No.  The suit was brought to soon.  However, plaintiff may get the certificate, bring in a new suit, and recover damages.

 

 

 

 

 

 

 

 

 

 

 

 

INMAN V. CLYDE HALL DRILLING CO. (1962)

Case Brief:

Style (name of case): Inman v. Clyde Hall Drilling Co. (1962)

 

Cause of action: The following is a cause of action for damages arising out of an employment contract.

 

Procedural History: Summary judgment for defendant.  Appealed, and judgment affirmed.

 

Facts: Inman worked as a derrickman for defendant.  He signed a written K with defendant on November 16, 1959, and was terminated March 24 of the next year.  Inman claimed the defendant fired him without justification, which was in essence a breach of K.  Defendant asserted it paid Inman all they owed him, and he was entitled to no damages. 

 

Defendant then went and field a summary judgment against Inman, for his failure to adhere to company policy and submit a written notice of a claim (other than compensation), with details of the surrounding circumstances, within 30 days of filing  It also said those giving written notice could also not file a claim within six months of notice.  Such a provision was a precedent to recovery.  Plaintiff argues all he had to do was give notice within 30 days of his written notice.  Since he was fired, his obligation not to take action until six months have passed was terminated with the contract.

 

Issue(s): Whether a provision in K, making written notice of a claim a condition precedent to recovery, is contrary to public policy?

 

Court's Rationale/Reasoning: "Freedom of contract" is a qualified right.  The court would take a look at the respective parties' stance in the business and economic world, as well as standards of practice in business for the answer. If one party was taking advantage of the other, the contract would not be enforced.  Upon such looking over, the contract provision is not unfair or unreasonable.  There was no motive on the part of employer to bilk employees out of money.  There might have been a pre-emptive measure against stale claims. 

 

Nothing suggested Inman lacked knowledge of the contract.  He read it, admitted to reading it and discussing it with a company employee.  The contract was attached to his claim, so he was aware of the contract's terms.  There was also specific testified proof in the deposition he knew about the 30 days.  Assumption he was clear of the six months portion of the contract was

wrong.  The written terms mean what they say, and since Inman did not adhere to them, employed or not, he is not entitled to compensation.

 

Rule: Competent parties are free to make contracts and they should be bound in their agreements.  The court would take a look at the respective parties' stance in the business and economic world, as well as standards of practice in business for the answer. If one party was taking advantage of the other, the contract would not be enforced. 

 

Holding: No.  For right now, unless one party is trying to take advantage of another, this policy will stand.

 

A. Express conditions and promises compared

Topic Notes:

Express conditions and promises compared

While failure to perform a promise, unless excused, is a breach...failure to comply with a condition is not a breach

 

Ex: A says to B: "if you walk across the bridge, I will pay you $100."

---> B's walking the bridge is an express condition precedent to A's obligation to pay

...So if B doesn't fully perform (and performance is not excused), A won't be obliged to pay.

 

General rule: express condition must be strictly complied with, but if B does not promise to walk to walk the bridge, b won't be liable b/c B didn't promise to walk.  One cannot be liable for breach of K, unless one breaches a promise.

 

So if B promises to walk and A promises to pay, we have an express condition but we also have a promise.  So if B doesn't walk then A doesn't have to pay b/c B failed to comply with the express condition precedent to A's promise to pay.  In addition, B is liable to A for breach of promise.

 

In borderline cases where the language is kind of murky, courts will look to intentions of parties.

 

GENERAL CREDIT CORP. V. IMPERIAL CASUAL & INDEMNITY CO. (1959)

Case Brief:

Style (name of case): General Credit Corp. v. Imperial Casualty and Indemnity Co. (1959)

 

Cause of action: The following is a cause of action for recovery of the amount allegedly due for damages sustained in two automobiles (on a policy of insurance issued by defendant to Service Trucking Company)

 

Procedural History: Trial court awarded plaintiff costs and damages of $1,839.20, and denied recovery to defendant.  On appeal, was affirmed.

 

Facts: There was a loss payable clause on the policy, which said if anything "was lost or damaged, the money would be payable to General Credit Corp. and this insurance...shall not be invalidated by an act or neglect of the lessee, mortgager or owner of the within described car nor by any change in the title or ownership of the property..." 

 

The clause went on to mention bailment lease, which is when a delivery of goods or money is exchanged to another party for some special purpose (here the lease of the car).

 

Reasonable cost of repairs on the cars were to cost 1839.20.

 

Issue(s):  Did the language in the loss payable clause "provided, also, that in the case the Lessee, Mortgager or Owner shall neglect to pay any premium due under such policy the Lienholder shall, on demand, pay the same" is an express condition, a promise, or both?

 

Court's Rationale/Reasoning: The court found the second restatement to be of most help, and cited "if K is clearly unilateral, as is generally the case with many if not most insurance policies, the answer to the question to whom must the language be attributed admits of no doubt.  In such a K only one party speaks, and that is...the promisor.  Any clause, therefore, in a policy of insurance, requiring any act to be done by the insured, will make that act a condition of the covenant or promise of insurance."

 

The same situation results in the world of mortgages, whereas the mortgagee is to pay upon demand in return for protections against the mortgagor.  And when the words are murky as to intent, the court has generally went to the intent.  As such, the court found the words to be more indicative of a condition and affirmed the lower court.

 

Rule: Where words or other manifestations of intention bear more than one reasonable meaning, an interpretation is preferred which operates more strongly against the party from whom they proceed, unless their use by them is prescribed by law.

 

Holding: The clause here is a condition and that the condition requires the plaintiff to pay the premium on the insurance involved from and after the date of demand if plaintiff desires to keep the insurance in force.

 

N.Y. BRONZE POWDER CO. V. BENJAMIN ACQUISITION CORP. (1998)

Case Brief:

Style (name of case): New York Bronze Powder Co. v. Benjamin Acquisition Corp. (1998)

 

Cause of action: The following is a cause of action for alleged non-payment of a note and breach of modified purchase contract.

 

Procedural History:  Trial court ruled in favor of Bronze for $350K.  Court of Special Appeals reversed judgment and construed as a condition precedent a provision in a non-negotiable note/K requiring surrender of the note in order to receive payment.  Upon appeal, judgment reversed.

 

Facts: Bronze was supposed to sell to Benjamin the assets of one of its businesses, Rich for $4.5 million.  Prior to the 4/30/90 closing, Benjamin expressed concerns to Bronze over the valuation of certain assets.  The matter was resolved by modification of the purchase agreement, so that Benjamin executed a non-negotiable note to Benjamin for $350K. 

 

Section 3 of this agreement had Benjamin undertake at its own expense, to have prepared a balance sheet of Rich which was supposed to be confirmed by an auditing firm.  This sheet was also supposed to find its way to Bronze no later than 6/14/90.  To the extent the balance sheet didn't reflect that Rich was less than $4.5 million, Benjamin was entitled under this section to a dollar for dollar credit against the $350K deferred purchase price (a discount of up to this much for every dollar they were off).

 

Following the 4/30/90 closing under modified purchasing agreement, there never was an accounting firm which gave its opinion on the audited balance sheet, and never  even completed its audit.  Benjamin never tendered or made payment in cash on the note.  The suit was brought by Bronze for the $350K missing from the deal, basically on the following language:

 

"the noteholder shall be required to surrender this Note for cancellation upon the maturity or prepayment in full of this Note in order to receive payment."

 

Issue(s): Was the provision in the modified purchasing agreement  a condition, promise, or both?

 

Court's Rationale/Reasoning: The Court of Special Appeals held it was a condition, for at least part reason the note was not in the possession of the note in which they were suing to recover.  The clause calling for set off of assets is part and parcel of the agreement, so is it a a promise or condition?

 

The duty to be performed is Benjamin's duty to pay the note, so that they are the obligor; Bronze is the obligee, and the asserted condition is the surrender of the note.  The duty is on the obligee and not the obligor to fulfill the duty relating to exchange of performances to exchanged under an exchange of promises.  Obligee's failure to perform their duty has the effect (if it is material), of a non-occurrence of a condition of the obligor's duty..."

 

As far as the sentence went, there was doubt in the court's mind, through the intentions of the parties, there was a condition present, and that it was more of a promise.  The introductory graphs of Sections 2 & 3 of the note call it a promise specifically.  The ""shall be" terminology in the contract is more of the covenant-like variety than of a condition.

 

Rule: (from Oppenheimer & 2nd restatement:) "In determining whether a particular agreement makes an event a condition, courts will interpret doubtful language as embodying a promise or constructive condition rather than an express condition.  This interpretive preference is especially strong when finding of express condition would increase the risk of forfeiture by the obligee."

 

Holding:  Under these circumstances, it is unlikely the parties intended to create a condition entitling Benjamin to keep up to $200K of assets w/o paying the agreed consideration (the other money in the agreement).  Thus there is a duty on Bronze to surrender the note.

 

 

 

 

 

 

 

 

 

 

 

 

 

B. Conditions compared to time references

Topic Notes:

Conditions compared to time references

Usually a question as such is one of interpretation.  The notion behind personal services is when they are rendered it won't lightly be assumed that payment is contingent on the happening of fan outside event outside the control of the party rendering services.  If however, the services are a kind which are frequently rendered on a contingent fee basis, the result will be otherwise.  (ex: a promise to pay a brokerage company on closing of title will be held as an express condition of the closing of title.

 

In drafting K, a party who wishes to obtain the benefits of the rule of strict compliance with an express condition should use clear and language of express condition (ex: a provision in K which states filing a claim within 30 days after any claim shall be a condition precedent to recovery creates this precedent condition in the most explicit fashion)  [if, subject to, on condition that, provided are terms which create conditions precedent, but it is not guaranteed]

 

C. Language of condition may imply a promise

Topic Notes:

Language of condition may imply a promise

What if the express language of condition is implied language of promise?

 

Ex: A & B enter into K for sale and purchase of real property  K has a clause that performance is "contingent on B obtaining" a described mortgage loan.  Quoted words are language of condition.  B is not obligated to perform if the financing is not obtained after reasonable efforts (Mezzanotte v. Freeland), but  would liable for breach if there were no reasonable efforts.

 

D. A promise may create an implied constructive condition

Topic Notes:

A promise may create an implied constructive condition

If a K does not expressly condition either party's promise on performance by the other, the law, to do justice, constructs a condition that performance, or tender of performance, by one party is a condition precedent to the liability of the other

 

E. Constructive conditions and implied in fact conditions

Topic Notes:

Constructive conditions and implied in fact conditions

Courts prefer to find constructive conditions rather than implied in fact conditions b/c implied in fact conditions are treated as express conditions and under the general rule they must be strictly performed.

 

Constructive conditions need only be substantially performed, making it more flexible.  Courts, however, are becoming more inclined to limit implied in fact conditions to situations involving cooperation.  If A's promise is incapable of performance unless B performs, then B's performance is an implied in fact condition to A's duty to perform.

 

STEWART V. NEWBURY (1917)

Case Brief:

Style (name of case): Stewart v. Newbury (1917)

 

Cause of action: The following is a cause of action for recovery of the bill sent along with $95.68 in damages for breach of contract.

 

Procedural History:  From a judgment of the Appellate Division affirming a judgment for defendants appeal.  Reversed and new trial ordered, with costs to abide the event.

 

Facts: Stewart wanted to be in person to make this offer to Newbury, but couldn't:  all cubic work done at 65 cents per cubic yard, put in all concrete work for $2.05 per cubic yard, with labor to in reenforcing at $4/ton, as well as labor only for window and door frames, etc., for

$112, with the option instead of paying for the window framing portion with labor for cost plus 10%.

 

Telephone connection: confirming the telephone conversation of this morning we accept your bid...to do the concrete work on our new building.  We trust that you will be able to get at this the early part of next week.

 

Nothing in writing about the method of time of payment.  Plaintiff claims after sending his letter and before receiving that defendant's, that they had a phone conversation with Newbury where it was agreed there would be payment in "the usual manner."  This same conversation was denied by the defendants.  Plaintiff claimed the custom was to pay 85 percent every 30 days or at the end of each month, 15 percent being retained until the work was discontinued.

 

In July plaintiff commenced work and continued till September when he got as high as the first floor, upon which time he sent a bill for the work done for $896.35.  Defendants refused to pay the bill and work was discontinued.

 

Plaintiff claims defendants refused to permit him to perform the rest of his K, they insisting the work already done was not in accordance with the specifications.  Defendants claimed upon the trial the plaintiff voluntary abandoned the work after their refusal to pay the bill.

 

Defendants wrote plaintiff a letter claiming basically they weren't paying plaintiff anything, and that they wouldn't receive any money unless they completed their work.  Plaintiffs responded that there is no reasonable way such things could be implied.

 

Issue(s): Was the jury instruction relating the ability of plaintiffs to be able to demand and receive payment from defendants an appropriate one?

 

Court's Rationale/Reasoning: No.  If parties haven't agreed to express conditions covering the matter, that effect is expressed as constructive conditions.  Such conditions also determine order of performance in bilateral K.

 

Here, defendants and plaintiff differ on discussion of a regular time for payment, which also was never brought up at trial.  Plaintiff's claim he was excused by defendant for their failure to pay him when they asked him, which was essentially what the jury instruction implied.  This is not the law according to the court.  When a party agrees to perform work for another and no specific details have been worked out as far as payment goes, the level before payment may be in dispute comes after substantial performance.

 

Rule: Where a K is made to perform work and no agreement is made to perform the work and no agreement is made as to payment, the work must be substantially performed before the payment can be demanded

 

Holding: Court held it was unreasonable to ask for payments until a substantial amount of the work was done.  In essence, this was a constructive condition.

 

Constructive conditions need only be substantially performed, making it more flexible. 

 

 

 

 

 

 

 

 

 

 

 

JACOB & YOUNGS, INC. V. KENT (1921)

Case Brief:

Style (name of case): Jacob & Youngs, Inc. v. Kent (1921)

 

Cause of action: The following is a cause of action for construction costs based on breach of K.

 

Procedural History: Trial court directed verdict for defendant; plaintiff appealed and decision was reversed in Appellate Division.  Order affirmed, and judgment absolute directed in favor of plaintiff upon the stipulation, with costs in all courts.

 

Facts:  Plaintiff hired by defendant to build home, upon which construction ceased June 1914, when plaintiff began to live in dwelling.  No complaints as to the defective pipes until March 1915, when plaintiff found the pipes were not of "reading manufacture."  Defendant learned at this time some of the pipes were not from Reading.  Plaintiff directed to architect to do the work again, but most of the pipes were already encased in the house's walls, which meant extreme expense would've been undertaken by plaintiff to tear down the walls to install the new pipes.

 

Plaintiff left the pipes alone, and when he asked for a certificate that the final payment was due, he was served with the lawsuit.  Plaintiff claims he inspected the pipes to see if they were Reading-made, but the stamp came only after every six or seven feet of piping, so he claims harmless error.  He further tried to show at trial the brands were basically the same in price, performance, quality and the like.

 

Issue(s): Under the law of contract was work substantially performed by plaintiff when he installed pipes in defendant's home not to the specifications in the contract, but the omission was one of harmless error and not willfulness?

 

Court's Rationale/Reasoning: Sometimes promises are plainly dependent and thus conditions when there is departure in point of substance, will be viewed as independent and collateral when the departure is insignificant.  In such events where the matter of dispute is no insignificant as to the actual quality of the work done, the compensation has been developed as "an instrument of justice."

 

If the pipes themselves were defective, this would've been an open and shut case.  But since the pipes were not in the least bit lesser in quality or value than Reading pipes, this is where the negligible difference comes into play, and why the court ruled the defendant could get the difference in the amount it would take to finish the work, as long as the amount was reasonable.

 

Rule: An omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition followed by a forfeiture.

 

Holding: Yes.  The measure of the allowance is not the cost of the replacement, which would be great, but the difference in value, which would be negligible.  Some of the exposed pipes might have been replaced at moderate expense.  The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained.

 

 

 

 

 

 

 

 

 

 

 

 

 

WALKER & CO. V. HARRISON (1957)

Case Brief:

Style (name of case): Walker & Co. v. Harrison (1957)

 

Cause of action: The following is a cause of action on a written K. 

 

Procedural History: Judgment for plaintiff with no jury.  On appeal is affirmed, with costs to appellee.

 

Facts: Defendants signed K with plaintiff for the construction and installation of a sign, 18 feet, 9 inches by 8 feet, inches.  The sign was to be neon with lights.  The K signed was a rental agreement for 36 months and $148.50/month.  The contract also provided maintenance on the part of the lessor (plaintiff).  The expiration of K contained a provision in which the title to the sign reverts to lessee.

 

Sign completed and installed latter part of July, first billing August 1st, and first payment September 3rd.  The first payment was also the last as someone hit the sign with a tomato.  Rust also was present and so were cobwebs, and children's sayings written on the sign.  Calls were made to plaintiff regarding maintenance provision of K, and they were never followed up by plaintiff.

 

Defendants telegraphed Walker saying he was voiding the K due to failure to maintain the sign.  Walker replied with a letter saying the defendant failed to specifically say what maintenance problems there were.  The letter said defendants were liable for payments not made under this contract, which were agreed to on the 10th day of each month.  Since the agreement was not honored, lawyers would get into the picture.  No additional payments were made and so the lawyers did.

 

Issue(s): Was plaintiff's failure to maintain defendant's sign constitute a material breach of the contract and void the contract?

 

Court's Rationale/Reasoning: It is true the plaintiff's failure to maintain the sign constituted a breach of a material term.  However, if the party who has had the contract breached should not assume repudiation themselves, for a court may not find breach on the other party's part.  The injured party may now become the aggressor according to the court.

 

Court went to the first restatement as criterion for determining whether or not a breach of K is so fatal to the undertaking of the parties that it's to be classified as material -- materiality of a failure to fully to perform a promise the following circumstances are influential:

1) the extent to which the injured party will obtain the substantial benefit which he could have reasonably anticipated;

2) the extent to which the injured party may be adequately compensated in damages for lack of complete performance;

3) the extent to which the party failing to perform has already partly performed or made preparations for performance;

4) the greater or less hardship on the party failing to perform in terminating K;

5) the willful, negligent, or innocent behavior of the party failing to perform;

6) the greater or less uncertainty that the party failing to perform will perform the remainder of the contract

 

The tomato was not a term which turned out to be a material term, and when defendants decided not to pay anymore they breached a material term.

 

Rule:  Watch out when you repudiate terms, because if the wrong party repudiates terms, then they could be held liable for breach.

 

Holding: No.  The tomato did not constitute a material item to justify repudiation of K, and there was a lack of preponderant evidence to convince the court so.  When defendant decided not to pay on the contract, they breached a material term.

 

V. HARRIS (1960)

Case Brief:

Style (name of case): K & G Constr. Co. v. Harris (1960)

 

Cause of action: The following is a cause of action by contractor for damages from a bulldozer accident and for the stipulated costs $450 over what they contracted with the subcontractor to do the work which had yet to be done.

 

Subcontractor filed counter for recovery of work at $1484.50, as well as an anticipated loss of income of $1340.

 

Procedural History: Trial court without just found in favor of appellee Harris.  Upon appeal is reversed, and judgment entered in favor of appellant against the appellees for $450, and appellees to pay the costs.

 

(first claim was found by jury to be for contractor, and second count for subcontractor)

 

Facts: K & G was owner and general contractor of housing subdivision project.  Harris contracted with appellees to do excavating and earth-moving work on the project.  Submission of work for payments were to be made every 25th of the month, and contractor would pay these requisitions less a ten percent retainer fee by ten months time of the months in which such requisitions are received.

 

No payments were to be made unless the insurance section (9) was fulfilled.  Section 9 said subcontractor had to carry liability insurance against property damage, in such amounts and with such companies as may be satisfactory to contractor with certificates as proof.

 

While in course of employment by the subcontractor, a bulldozer operator drove his machine too close to contractor's house and knocked down a wall, with damages around $3400.  Subcontractor complied with the insurance portion of the agreement, but subcontractor's insurance company and subcontractor refused to pay.  Subcontractor said they were not liable.

 

The requisition for payment was on July 25, 1958 as payment for service rendered for work done prior to 7/25 and payable on 8/10.  Accident occurred 8/9.  Contractor refused payment 8/10.  Subcontractor continued to work until 8/12 when they discontinued for not being paid for their work.  The amount of work they did was valued at $1484.50.

 

Issue(s): Does a contractor, damaged by a subcontractor's failure to perform a portion of his work in a workmanlike manner, have a right, under the circumstances of this case, to withhold, in partial satisfaction of said damages, an installment payment, which, under the terms of K, was due the subcontractor, unless the negligent performance of his work excused its payment?

 

Essentially, did the contractor have a right, under the circumstances, to refuse to make the progress payment due on August 10, 1958?

 

Court's Rationale/Reasoning: Appellees agreed to do the work in a timely manner, with time being of the essence in the contract signed by the parties.  The "10th day of the month" language points to time element.  Promises and counter-promises made by parties are either independent of each other or mutually dependant upon each other.  They are independent if the parties intend that performance is no way conditioned upon performance of promises by the other (promises for promises, and not performance of promises for performance of promises).

 

Failure to perform an independent promise does not excuse non-performance on the part of the adversary party, but each is required to perform his own promise, and if one does not perform, they are liable to the other for the non-performance.

 

Promises are mutually dependent if the parties intend performance by one to be conditioned upon performance by the other, and if they be mutually dependant, they may be precedent, subsequent, or concurrent.

 

The modern rule: there is a presumption that mutual promises in K are dependent and are to be so regarded whenever possible.  Here, this promise and counter-promise was mutually dependent, whereas the parties intended performance by one to be conditioned by the other.  And

subcontractor's promise was, by the explicit wording of the K, precedent to the promise by contractor for the monthly payment.

 

As a matter of fact, there was a double breach, when, after being notified of refusal of payment, subcontractor refused to work again until he was paid.  Thus, appellee is liable for the extra cost of another excavator which was hired to finish the job which should've been done by subcontractor.

 

Rule: When time is a material term, anything which damages that element could be considered breach, even if unintended.

 

Holding: No.  Subcontractor's employee negligently damages the contractor's wall, which constituted breach of the subcontractor's promise "to perform his work in a workmanlike manner, and in accordance with the best practices."  The breach was material.  The failure to act as such by subcontractor could amount to "total breach".

 

 

 

 

 

 

 

 

 

 

 

 

 

F. Constructive promises - omitted terms

Topic Notes:

Constructive promises - omitted terms

The notion that, when parties fail to cover a term, the court, in the interests of justice, may supply a term (which comports with community standards of fairness and policy rather than analyzing a hypothetical model of the bargaining process).

 

Once created by the court, such a promise is a full-fledged promise

 

G. Distinguishing between express and constructive conditions

Topic Notes:

Distinguishing between express and constructive conditions

Express condition must be strictly performed (and any part performance is not good enough)

and a constructive condition need only be substantially performed (partial performance is good enough).

 

Interpretations of ambiguous language in K's determines parties legal position. 

 

Principal reason for distinguishing between material breach and substantial performance is delay

 

H. Constructive conditions and related topics

Topic Notes:

Constructive conditions and related topics

Constructive conditions created by courts to do justice, and constructed in bilateral K's, where failure to by a party to perform may have an effect on the obligation of the other party to perform.

 

If parties haven't agreed to express conditions covering the matter, that effect is expressed as constructive conditions.  Such conditions also determine order of performance in bilateral K

 

I. Order of performance in bilateral K

Topic Notes:

Order of performance in bilateral K

constructive conditions fill gaps in order of performance if not made clear in original K.

 

First an simplest rule: unless otherwise agreed, a party who's to perform work over an extended period of time must substantially perform before becoming entitled to payment.  Performance of the work is a constructive condition precedent to the duty to pay.  Periodic payments not implied.  If such periodic payments do exist in a K, then we have a series of constructive conditions (in which case the failure to pay in such a situation would become a question of fact)

 

ex: a builder promises to pay construction company for every home built on a particular lot...after each home, there should be payment, and failure to do so would be breach -- performance could be suspended at the moment such a condition was violated.

 

Where promised acts are capable of simultaneous performance, unless otherwise agreed, each duty of performance is constructively conditioned on conditional tender of the other

 

...primarily applied in K for sale of personal or real property: in such cases, constructive concurrent conditions will normally be imposed in the following circumstances:

 

(a) the same time is fixed for the performance of each promise

(b) a fixed time is stated for the performance of one of the promises and no time is fixed for the other; or

(c) no time is fixed for the performance of either promise; or

(d) the same period of time is fixed within which each promise shall be performed

 

J. Material breach and substantial performance

Topic Notes:

Material breach and substantial performance

(a) material breach: when a party fails to perform it is important to determine if the breach is material, b/c if it is and no cure is forthcoming, then that party may cancel K and sue for total breach.

(must be shown plaintiff was ready, willing and able to perform but for the breach)

 

If breach is immaterial, the aggrieved party may not cancel K, but may sue for partial breach...damages are assessed according to how much the breaching party will not perform.  If breach is partial, damages recovered as to how much damage the particular breach caused.

 

Second restatement defines material breach as a breach which justifies the suspension of performance; and total breach is defined as a breach that justifies cancellation of the entire K.  Some factors in determining if a breach could be regarded as material:

 

(1) to what extent, if any, K has been performed at the time of the breach (the earlier the breach, the more likely it's regarded as a material term)

(2) a willful breach is regarded as material than a breach caused by negligence or fortuitous circumstances

(3)  a quantitatively serious breach is more likely to be regarded as material

 

the degree of hardship on the breaching party is important to take into consideration particularly when taking into account the extent to which the aggrieved party has or will receive a substantial benefit from the compensation for partial breach

 

Materiality of breach is a question of fact, and the goal is to make sure the aggrieved party gets what they bargained for

 

If time is of the essence, then delay is a material breach, and if put in front of a judge, they must determine the intention of the parties as far as words, actions and interpretations

 

(b) substantial performance: if breach is material then there has been no substantial performance; the answer to this question usually is determinate upon how many factors there were.  Generally associated with constructive conditions.

 

Substantial performance doctrine: where a K is made for an agreed exchange of two performances, one which is to be rendered first, substantial performance rather than exact, strict or lateral performance by the first party of the terms of K is adequate to entitle the party to recover on it.

 

(for this doctrine to apply, the part unperformed must not destroy the value or purpose of K; however if more than one promise is made, each promise does not have to be substantially performed, and overall substantial performance is sufficient)

 

If a party is acting under the terms set forth, but the other party all of a sudden mentions that "time is of the essence", there must be a reasonable amount of notice for the condition to apply, at which time it would be a material term.

 

K. Successive lawsuits - risk of splitting a claim

Topic Notes:

Successive lawsuits - risk of splitting a claim

If A promises to build 5 homes at scattered times on a plot of land for B, then builds the first one at a time which is later than the one provided for in K; B sues A and recovers for partial breach, to which then A suspends work.

 

The question is now whether B can sue A for total breach based on his already having sued A for partial breach?  Usually a second suit is granted, unless the second suit would be considered unjust and vexatious to the defendant.

 

L. Failure of consideration

Topic Notes:

"Failure of consideration"

simply means failure to perform; it doesn't relate to formation of K but to its performance

 

If A promises to build something for B, and B promises to pay upon completion of the building, there is consideration on both sides...if A fails to perform, there is sometimes said to be "failure of consideration"

(BUT DO NOT CONFUSE THIS WITH "LACK OF CONSIDERATION")

 

M. Quasi-contractual and statutory relief

Topic Notes:

 Style (name of case): Thing v. La Chusa (1989)

 

Cause of action:  The following is a cause of action for emotional damages suffered as a result of alleged defendant's negligent behavior.

 

Parties:  Thing is the appellant party, who struck appellee/plaintiff's son when his mother was not looking.

 

Procedural Facts (what happened in court): Both trial court and Appellate court found in favor of defendant on summary judgment.

 

Substantive Facts (how'd they get to court): John Thing, age 8, was struck by car of defendant La Chusa.  Mother Maria was nearby, but neither saw nor heard the accident.  Maria found out about the accident only after her daughter informed her of his being hit.  She rushed to the scene of the accident where she saw John lying there bloody and unconscious,.  Mom thought her son was dead, and the subsequent emotional and psychological distress is which she sued.

 

Issue(s): Did the Court of Appeal correctly hold that a mother who did not witness an accident in which an automobile struck and injured her child may recover damages from the negligent driver for the emotional distress she suffered when she arrived at the accident scene?

 

Judge's ruling:   Judgment of Court of Appeal reversed.

 

Court's Rationale/Reasoning: Court in Dillon  used a three prong test which

 

Significance: The significance is

 

 

 

 

 

 

 

 

 

MARTIN V. SCHOENBERGER (1845)

Case Brief:

Style (name of case): Martin v. Schoenberg (1845)

 

Cause of action: The following is a cause of action for part performance of an entire K.

 

Procedural History: N/A.

 

Facts: N/A.

 

Issue(s): Under the law of contracts, is the failure to perform on a contract still entitle a person to collect on part performance of an entire contract when he stops working before the term of contract was finished?

 

Court's Rationale/Reasoning: A person cannot be permitted to stop performance on K whenever they feel like it when there is an agreement to honor.  Such an idea would permit anyone to work whenever and how long as it would suit them and then stop working and demand monies for services rendered.

 

Rule: It is not permitted for a man to recover on part performance of an entire contract, or to permit him to recover on his agreement where he has failed to perform, would tend to demoralize the whole country.

 

Holding: If people were permitted to stop performing on an entire contract with only part performance and be permitted to collect on services rendered when their failure to perform injures the other party, business and confidence between men would be destroyed.

 

 

 

 

 

 

 

 

 

 

 

 

NY LAW REVISION COMMISSION, etc.

Case Brief:

Style (name of case): NY Law Revision Commission, Restitution for benefits conferred by party in default under contract

 

Cause of action: The following is a cause of action for recovery of judgment against the other party for part performance on an entire contract.

 

Procedural History: N/A.

 

Facts: N/A.

 

Issue(s): To what extent is a party to K who has partly performed its requirements and who has repudiated or materially defaulted in the performance of the remaining requirements, be entitled to recover judgment against the other party for the benefit conferred by the part performance?

 

Court's Rationale/Reasoning: The principle that supports recovery by the defaulting plaintiff is that one who has been unjustly enriched at another's expense is under a duty to make restitution to another.

 

There are exceptions in which recovery is allowed, like when the defaulting plaintiff has been allowed for part performance...minus the cost for making good the deficiencies in performance, if the default was inadverdent.

 

Another exception can come when personal service contracts for a definite term, such as one year, which provide that the salary shall be payable in specified amounts at specified intervals of time have been held in other jurisdictions to be severable, so that other employees who have worked eight months of a stipulated 12 months, and then quits without justification, is entitled to recover any unpaid balance on his salary for eight months, though he is liable to pay the employer damages for his breach of K.

 

Rule: 1. To generally deny recovery to the defaulting party is an effective deterrent to contract-breaking

2. To require the defendant (nondefaulting party) to pay for the part performance would be to impose a new contract upon them, since it is uncertain whether, and to what extent, he would have been willing to pay for the part performance had he known when the contract was made that the default was going to occur.

3. How can the innocent party prove all of the harm and inconvenience that he suffered by reason of the default, and why should they be obligated to assume this burden?

 

Holding:

 

Requirements are meant usually the performance which the defaulting party is under a duty to render, and also (exceptionally) the performance to be rendered by that party as an express condition of the other party's duties under the contract.

 

 

 

 

 

 

 

 

 

 

 

 

LANCELLOTTI V. THOMAS (1985)

Case Brief:

Style (name of case): Lancellotti v. Thomas (1985)

 

Cause of action: The following is an argument in assumpsit (an action to recover damages for breach of K, especially an implied or quasi K) for return of $25K plus interest on behalf of appellant for breach of contract.

 

Procedural History: Lower court found in favor of original plaintiff Thomas.  On appeal, remanded for further proceedings.

 

Facts: 7/25/73:  parties entered into agreement in which appellant agreed to purchase appellees' luncheonette business and to rent from appellees the premises on which the business was located.  Appellant agreed to buy the business, the goodwill and equipment; inventory and real estate not included in agreement for sale of business.  Appellees agreed to sell the business for the following consideration: $25K payable on signing of K; appellant's promise that only he would own and operate the business; and appellant's promise to build an addition to the existing building (to be completed by 5/1/73).

 

It was also agreed the appellee would lease appellant property for five years with the option of another five year lease at $8K/year (9/1/73 to 8/31/78).  Separate lease for rental executed same date as overall agreement executed.  Lease specified building on the property was a condition of the lease.  In exchange for appellant's promise to build addition, there was a rental charge on it until 8/31/73.

 

Addendum to agreement on 8/14/73, said if building not constructed under terms of agreement, the buyer would owe sellers $6665 as rental for property from 7/25/73 to end of the season.  Addendum also provided all equipment would revert to appellees upon appellant's default in regard to the addition.

 

Appellant paid the $25K and began to operate business, but couldn't get permit at end of 1973 season.  Appellees claim they got the permit and presented it to appellants, who refused to begin construction.  Also, appellees claim appellant agreed to reimburse them if they built the addition.  At a cost of approximately $11K, appellees did build a 20'X40' addition.

 

Following spring appellees discovered appellant was no longer in operating the business, with no rent on record from time of execution of agreement until then.  Appellees resumed possession of business, and upon opening business for '74 summer season, they found some of their equipment missing.

 

Issue(s): Whether a defaulting purchaser of a business who has also entered into a related lease for the property can recover any part of his payments made prior to default?

 

Court's Rationale/Reasoning: Some jurisdictions permit quasi-contractual relief under a building or other service contract, even where the performance is less than substantial, minus damages for breach

 

The party who committed a breach should be entitled to recover "any benefit...in excess of the loss that he has caused by his own breach."  It should be discussed further if retention of the $25K payment "was reasonable in light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss."

 

Rule: A defaulting party may recover for any benefit that he or she has conferred in excess of the loss caused by his or her own breach.

 

Holding: Restitution is permitted, but on a limited basis for the defaulted purchaser of a business who has also entered into a related lease for the property. 

 

 

 

 

 

 

 

 

 

N. Recovery by a party in default -- divisibility

Topic Notes:

Recovery by a party in default: divisibility

Some K entire while other are said to be divisible...

 

DIVISIBLE: if performance by each party is divided into two or more parts and performance of each is divided into two or more parts, the number of parts due from each party being agreed exchange for a corresponding part by the other party...

---> when discussing whether K is divisible is a question of interpretation or one of the intention of the parties

 

Example to differentiate:

If A and B agree that A will act as B's secretary for one year at $1K/week, the contract is divisible...and so, once A has worked for a week, A becomes entitled to receive $1K irrespective of any subsequent events...this even if A breaches K by wrongfully quitting, A is entitled to $1K less whatever damages were caused by material breach (in essence this K is divided into 52 exchanges of performance)

 

Not only must there be an inquiry as to what purpose the contract is divisible, but how it is divisible...but partied rarely express an intention on the issue on the issue of divisibility.  The test ultimately appears to be whether, had the parties thought about it as fair and reasonable people, they would be willing to exchange the performance in question irrespective of what transpired subsequently or whether the divisions made were merely for the purpose of requiring periodic payments as the work progresses.

 

Building K's: usually entire

Employment K's generally held to be divisible

 

 

 

 

O. Divisibility -- other uses of the concept

Topic Notes:

Divisibility: other uses of the concept

Can also be used to determine whether a K tainted with illegality can be severed into a legal and enforceable portion and an  illegal and unenforceable portion. 

 

The concept is also used to determine allocation of risks where performance of contractual duties in part becomes impossible.

 

P. Independent promises

Topic Notes:

Independent promises

A promise is independent (unconditional) if it is unqualified or if nothing but the lapse of time is necessary to make the promise presently enforceable.  It must be performed even though the other party has not performed.

 

Ex: A promises to build house for B and B promises to pay X dollars when the house is completed.  B's promise is constructively conditioned on A's performance.  A must perform before B is required to do anything...

(thus A's promise is independent with the result if A is guilty of material breach, B may cancel and sue for total breach, although B has not performed.  All B needs to prove they would've been ready, willing and able had A performed.

 

But despite As promise being independent, A could be relived of duty if B repudiated the contract.

 

Promises originally independent may become conditional through passage of time (ex: in an attempt to do justice if a couple earlier payments were not made on a deal in which the last payment is due)

 

Very few promises are independent (primarily b/c there's a strong presumption that a promise in K is not intended to be independent unless a contrary intention is clearly manifested)

 

Q. Dependency of separate contracts

Topic Notes:

Dependency of separate contracts

When parties enter into two written contracts at the same time, the question arises whether they are part of the same exchange.

If they are not, a breach of one will have no effect on the other.

If they are part of the same exchange, the question will be the overall materiality of the breach...usually a question of intention, but ordinarily such actions indicate an intent that a failure to perform one K will have no effect on the other.

 

CARRIG V. GILBERT-VARKER CORP. (1943)

Case Brief:

Style (name of case): Carrig v. Gilbert-Varker Corp. (1943)

 

Causes of action: One is a cause of action for recovery of damages on account of refusal of the contractor to erect 15 houses in Watertown, and damages for its failure to erect in accordance with the contract 20 houses that it actually built.

 

Second action brought by contactor to recover, in the first account, for a balance of $3143.85 alleged to be due upon the Watertown contract.

 

Procedural History: Second auditor found owner was not entitled to recover damages for breach of K in construction of the 20 houses in Watertown, and that the contractor had repudiated its contract in refusing to proceed with the construction of 15 more houses.  Found for owner for $9993 together with interest. 

 

Second action found contractor hadn't been paid $2816.35 after making certain adjustments and allowances for work performed and materials furnished in erecting the 20 Watertown houses, but he found and ruled the contractor was not entitled to recover this amount, on grounds that the contractor refused to carry out the Watertown contract by not erecting the 15 other houses.

 

On contractor's appeal, first action upheld, but second case reversed.

 

Facts: Parties entered into K 5/2/41 to build 35 homes in Watertown in accordance with plans, specs, etc.  K set forth four types of construction together with the basic price for each type.  Schedule included in K showing prices for additions or alterations according to model as well.  Total basic price for the erection of the homes was $132,928, and the homes were to be built in groups not less than 10.

 

Owner agreed agreed to place a temporary construction loan mortgage on each lot a house was to be built and to assign the proceeds of these mortgages to the contractor, who was not required to work until each assignment was made.  Contractor was paid a percentage on each house when certain stages reached construction, with final payment 40 days after completion.

 

After the work began, the contractor agreed to release a certain amount from the proceeds of mortgage on each lot to enable the owner to sell the house and the latter agreed to reimburse the contractor from the first proceeds of the sale.  Bank paid amounts of various mortgages; contractor made releases of various funds.

 

Issue(s): Was the owner of a subdivision entitled to withhold payment on homes for failure of performance on two separate contracts/agreements?

 

Court's Rationale/Reasoning: When a contractor on a building contract fails to perform, one of the remedies of the owner is to complete the contract, and charge the cost against the wrongdoer.  As to the first contract, the owner was entitled to be put in the same position that he would have been in if the contractor had performed its contract, but contractor breached.  The proper assessment of damages was the cost in excess of the contract price that would be incurred by the owner having the houses built, and there was no error.

 

As for the second contract, the auditor said the contractor performed in substantial compliance with K and has made allowances to the owner for minor defects and for a small amount of uncompleted work.

 

Whether a contract is entire or divisible depends on the intention of the parties, disclosed in language of K, manner in which it is to be performed, manner of payment, and the circumstances  attending its execution and operation.

 

The contract was a 35 unit divisible contract through such factors.  The payments were supposed to be installments, they were separated by a mortgage, and payments were made upon completion.  Based on these factors, the contract for the 35 homes was divisible, which didn't bar the contractor from recovering the unpaid balance for work done and materials furnished for 20 homes.

 

Rule: Building contracts are generally entire.  One who has breached an entire contract to be performed on an entire price cannot recover...on the contract...but that where the contract of the whole consists of several and distinct items to be furnished or performed by one party, the consideration to be apportioned to each item according to its value and as a separate unit  rather than as part of the whole, then the contract is separate or divisible. 

 

Holding: No.  owner was not entitled to recover damages for breach of K in construction of the 20 houses in Watertown, and that the contractor had repudiated its contract in refusing to proceed with the construction of 15 more houses.

 

Yes.  Contractor hadn't been paid $2816.35 after making certain adjustments and allowances for work performed and materials furnished in erecting the 20 Watertown houses, but he found and ruled the contractor was not entitled to recover this amount, on grounds that the contractor refused to carry out the Watertown contract by not erecting the 15 other houses.

 

R. Excuse of Condition

Topic Notes:

Excuse of Condition

Sometimes a party must perform even though the condition did not occur, b/c the condition is excused...

 

Generally, a condition will be excused when it would be unjust to insist on the fulfillment of a condition, express or constructive

 

Prevention, Hindrance, or Failure to Cooperate

What does it mean to say that a condition is excused?

Answer: Even though the condition did not take place, the plaintiff may recover on the contract provided that it is proved that plaintiff would have been ready, willing, and able to perform but for the prevention.

 

Potential element involves causation...1st restatement is more of a "but for" causation; 2nd restatement is more liberal and says the condition will be excused if the wrongful conduct "substantially contributed to the non-occurrence of the condition," with the burden of proof on the defendant.

 

Wrongful prevention is when a party does something or does not do something to avoid a certain circumstance from occurring which would give one party an advantage over another (commercial setting, ethical position of parties, probable understanding they had reached had they considered the matter and other factors weigh in)

 

There is a degree of cooperation to which contracting parties owe each other: if there is a failure on one person's end to do something (i.e. K requiring owner to provide certain specifications for completion of a building) but the other party fails to comply on their end (failure of contractor to get their end finished), the other party will be excused if completion was impeded by other party's act (owner failed to get the specs done)

 

Such a failure could also be a breach from which damages come, or by failure of condition

 

 

 

CANTRELL-WAIND & ASSOC., INC. V. GUILLAUME MOTORSPORTS, INC. (1998)

Case Brief:

Style (name of case): Cantrell-Waind & Associates, Inc. v. Guillaume Motorsports, Inc. (1998)

 

Cause of action: The following is a cause of action by appellants to recover a real estate brokerage commission.

 

Procedural History: This is an appeal from a summary judgment entered for Guillaume at trial.  Reversed and remanded on appeal.

 

Facts: 8/1/94 appellee (Guillaume, now known as "G") agreed to lease property to the Bowers, with an option to buy, and provided payment as follows:  if w/in first 24 months, 10 percent of monthly rental payments apply to the purchase price.  After this credit shall reduce 2 percent per year until the expiration of the original lease term hereof, to the effect that credit rate is 8 percent during year 3, and 4 percent during year 5.  Sales price is $295K.  Finally, G agrees to pay commission fee of $15,200 to Cantrell upon the closing, provided the closing occurs w/in two years of the date of the execution of the lease w/option to purchase.

 

Bower's attorney notified G's president of an intent to proceed with the option to buy 4/23/96 as soon as possible.  Said notification sent along to G's attorney.  Soon after, G's president approached Bower and offered to give him half the commission fee if he'd delay the sale, to which he refused.

 

Loan approved 7/19/96 and loan officer awaited notification of a closing date.  Bower's attorney said in depo he was trying to close in July but was told appellee was out of the country until August.  Attorney further asked appellee's attorney if he could use power of attorney for closing but appellee G refused.  G never left the country, and instead was in Bentonville where the lease property was.  Closing on 8/14 and no commission fee paid.

 

Appellant filed motion for breach of contract, and there was a lack of good faith and fair dealing involved in this transaction.  Appellee claims he was under no obligation to close by August first.

 

Issue(s): Was there a legitimate delay which caused to pay commission fee to Appellant or was there unfair business practice and a breach of contract when Williams both refused to use power of attorney and said he was out of the country?

 

Court's Rationale/Reasoning: The term of K providing a commission would be due on August 1 is a condition precedent.  Previous case law (binding) held "he who prevents the doing of a thing shall not avail himself of the nonperformance he has occasioned." The non-occurrence of a condition of a duty is said to be "excused" when the condition need no longer occur in order for performance of the duty to become due.  Such a situation where a real estate commission fee is to be paid is applicable here.

 

Rule: When a K's term leaves a decision to the discretion of one of the parties, the decision is virtually unreviewable, unless there is evidence of bad faith/business practice involved.  A party has an implied obligation not to do anything that would prevent, hinder, or delay performance.

 

Holding: Yes.  Court agrees with appellant that the circuit judge erred in his interpretation of the applicable law.  A duty of good faith and fair dealing was included in the contract and, therefore, appellee was obligated to not deliberately avoid closing the transaction before 8/1/96.

 

 

 

 

 

 

 

 

 

 

 

 

S. Waiver of estoppel and election

Topic Notes:

Waiver of estoppel and election

---> Equitable estoppel applies when a party (1) misrepresents or conceals a fact; (2) on which the other party justifiably relies; (3) injuriously.  The party is estopped from denying the utterances or acts to the injury of the other party.  It also regarded the representation must known to be false, and acted accordingly to tat fact; some more modern cases do not even require bad faith, fraud or intent to deceive as requisites.

 

A promise may be enough basis to form estoppel, such as when a landlord wants to hike rates after they promised not to and the landlord forces a time limit on another party.

 

A waiver, which may be expressed or implied, is generally defined as a voluntary and intentional relinquishment of a known right; it is very multifaceted and misleading, for it says the waiving party intends to give up a right (when most times it's unintentional); contractual rights are not waivable, but conditions are.

 

The party waiving must know what they're waiving, and knowledge of the law is immaterial.  The waiver comes at 3 stages:

(1) at formation of K, (2) after formulation of K but before failure of condition, and (3) waiver after failure of condition (or an election).

 

SHIPSVIEW CORP. V. BEECHE SYSTEMS CORP. (1996)

Case Brief:

Style (name of case): Shipsview Corp. v. Beeche Systems Corp. (1996)

 

Cause of action: The following is a cause of action for all deposit money given to defendant; defendant counterclaims for lost profits as a result of having to sell its bridge containment system on the open market.  Complaint and counterclaim are both dismissed and costs are denied to both parties.

 

Procedural History: Case dismissed in bench trial.

 

Facts: Parties agreed to go forward on a contract for a lead-based paint cleaning system for a bridge.  They originally agreed to set time of delivery, price for the work to be completed, as well as a schedule for payment.  Shipsview was late on its payments and Beeche notified Shipsview of this problem, stating it would be impossible to get the work done under such circumstances, for they needed the money in order to complete the deal.

 

The parties made a modification on the original agreement for additions to the system, to which Shipsview promised they would pay 50 percent of what they owed at a certain date, which they did not; the modification also hiked up the price of the original contract.  Beeche, upon receipt of a defaulted payment, received notice from Shipsview of a new imposed deadline, one which was not met on their part either (there was no money to get started at a reasonable time, so there was no money to finish on time).  This notice of the imposed deadline was set by Shipsview both on the check and on written notice.

 

Parties ceased conversing with each other (or rather there was a failure of Shipsview to communicate with Beeche despite 3-4 phone calls) about any of the particulars left to be proceeded with in the deal: delivery time, place, and equipment necessary to get the delivery done.  Beeche delivered late, and upon delivery, had no place to put its goods.  Shipsview's president, who was near a phone that day (June 7), says he never called, b/c he was in a daze.  Beeche wound up having to store its stuff on a lot, which was not the best situation b/c the stuff was expensive.

 

Shipsview decided to go with an alternative company based on Beeche's late performance, effectively canceling their K with Beeche.  Shipsview alleges Beeche failed to deliver on time, while Beeche counters Shipsview never gave them enough time to finish the deal due to late payments, and through a lack of communication regarding time and place of delivery.

 

Issue(s): Under the law of contracts, was there a waiver by either party to make time of the essence in order to receive funds for completion of goods for a contract or for delivery of the said goods in a contract?

 

Court's Rationale/Reasoning: 1. Time is never of the essence in an agreement which calls for delivery within a reasonable time.  Either party may restore time as the essence whenever it desires, provided there is notice given.  This notice must be clear and unequivocal that a date set will constitute default if not performed by given time stated.  In event of delay of K where time is of the essence, the nondefaulting party may cancel K or extend the time for performance and sue for damages resulting from delay.

 

2. Regarding the original contract, there was an agreement for shipment of containment system within 8 to 10 weeks of Beeche's receipt of the order and deposit.  Since there was a definite time, time was of the essence.  The three week window was the time set forth, and if the system was not delivered within this time frame, Beeche was in default.  Subsequent modification in platform and design had no effect on the delivery schedule.

 

3. As far as the delay in the deposit payment, time was no longer of the essence.  Shipsview fell behind in payments following the modification of K despite being understood they need to pay 50 percent deposit.  Beeche made it clear such a delay in payment would result in delay in delivery (the faxes corresponding between the 2 parties in May show this).  Beeche's notice to Shipsview of the payment necessary made time of the essence on their part, for they needed the flow to continue with to work.  After default by Shipsview on May 16, Beeche had the option of canceling K, or waiving the stipulation and continuing negotiations.  Thus, time was not of the essence anymore on their part.

 

4. Shipsview unsuccessfully tried to reinstate time of the essence when they sent payment back to Beeche after defaulting, with the notice on the check from Shipsview they needed performance by June 7.  On its face, this looks like a reinstatement of time as being of the essence.  However, as courts determine reasonable time on a case by case basis, this was not reasonable.  Devoid of a reasonable time, there could be no reinstatement of time as being of the

essence here.  Beeche had no way to pay for the work they needed to get done, so monies late do not help out here, b/c Beeche would still be behind schedule as the money was needed in order to keep the work going (people don't just work for free).

 

5. As to the actions of the parties, time was further not of the essence.  Shipsview made no attempt to contact Beeche upon notice the system would be delivered June 7 (shipsview president even said he was near a phone).  Besides the failure to communicate, there was failure for appropriate delivery on behalf of Shipsview.  There was no equipment or phone call made, and despite the testimony of Shipsview's president that he waited on the site for 6 to 8 hours, there was no corroboration of this.  The court thinks the more plausible theory is both parties got frustrated with each other, and Shipsview imposed an unreasonable deadline so they could get another deal, which they did.  Shipsview did not take appropriate steps for cancelation.

 

Rule: Where a K for the sale of goods fails to provide a time for shipment or delivery, the law requires delivery within a reasonable time.  What constitutes a reasonable time is dependent upon "the nature, purpose and circumstances" of performance.

 

Holding: No.  Actions of both parties created situations where they could have reinstated time of the essence by either continuing negotiations upon default, or by imposing a reasonable extension of the deadline upon delayed payment.  Since no such actions were taken, time was made not of the essence by either side, and damages are not due to either party.

 

 

 

 

 

 

 

 

 

 

 

 

1. Waiver at formation of contract

Topic Notes:

Waiver at formation of contract

Sometimes applied to events prior to or contemporaneous with formation of K...the use of the Parol Evidence Rule comes into play here

 

2. Waiver after formation of contract

Topic Notes:

Waiver after formation of contract

Three rules pertaining to waiver after formation before failure on condition:

(1) A waiver of a material part of K is ineffective; only an immaterial part can be waived

(2) Even if an immaterial part of the agreed exchange is waived, it may be withdrawn or modified if the withdrawal or modification does not operate unfairly.

(3) The condition must be solely for the benefit of the party waiving it

 

How does waiver differ from a modification?

Modification requires mutual assent, and consideration, or the statutory equivalent of consideration, or injurious reliance. 

A waiver, on the other hand, is unilateral in character. To be effective, a waiver of an immaterial part of the agreed exchange need not be supported by consideration, or its equivalent (this is why its a limited exception to requirement of consideration)

 

An important difference is where there is a binding modification the parties are not free to terminate  the modification except by mutual agreement.  A waiving party, however, may withdraw if the withdrawal doesn't operate unfairly.

 

3. Waiver after failure of condition (election)

Topic Notes:

Waiver after failure of condition (election)

The excuse of a condition after the condition has failed, but the other party chooses to excuse the failure is an election.

 

An election can be made by express promise or by conduct, and will take on one of two forms:

(1) the innocent party continues to perform after failure of condition

(2) the innocent party allowed the other party to continue to perform after a material breach

 

Majority view says an election may not be withdrawn even if the other party has not relied on it

 

In the case of waiver of condition before failure of condition, the rule is that all can be waived is an immaterial part of K.  If the failure of condition doesn't involve a breach of duty, the election is not effective if the condition is a material part of the agreed exchange

 

A party who is protected by the condition may elect to perform, but reserves the right to still sue upon material breach, unless they manifest an intent to pay despite known defects (then a person could only receive damages for partial breach)

 

T. Effect of election on damages

Topic Notes:

Effect of election on damages

Immaterial breach doesn't justify the cancellation of K but justifies an action for partial breach.

 

In the case of a material breach, the aggrieved party may elect to continue K and sue for partial breach.  However, an election to continue does not foreclose a suit for partial breach.

 

 

U. Giving incomplete reasons for non-performance

Topic Notes:

Giving incomplete reasons for non-performance

Usually, a party isn't required to give reasons for rejecting/objecting to other party's performances, but if the aggrieved party gives one of more reasons but fails to state other reasons which the party knows or should know, and the other party reasonably understands the reasons stated are exclusive, then the party who has failed to state all of the reasons will be estopped from asserting the unstated reasons, if the other party has injuriously relied on the exclusivity of the reasons stated.

 

So, if something is done in an abismal manner, but they fix it, there can be no action for breach or non-substantial performance by showing the fixed items.

 

 

V. Excuse of conditions involving forfeiture

Topic Notes:

Excuse of conditions involving forfeiture

The rule that an express condition must be strictly performed can lead to forfeiture (loss of property or denial of compensation for something done) and to unjust enrichment, improperly permitting a party to obtain a benefit and not pay for it.

 

Sometimes courts will excuse the failure of condition to prevent forfeiture...by balancing the equities, the ethical position of the party who seeks to have the condition excused and the injury suffered by the other party (kind of like unconscionability)

 

 

 

 

 

 

 

BURGER KING CORP. V. FAMILY DINING, INC. (1977)

Case Brief:

Style (name of case): Burger King Corp. v. Family Dining, Inc. (1977)

 

Cause of action: The following is a cause of action for determination if K between these parties is of any force and effect.

 

Procedural History: Motion for involuntary dismissal granted.

 

Facts: 1963, parties began business relationship (parties' presidents went back to college).  K was for 10 BK lounges in Bucks/Montgomery counties, to be built in 10 years.  This was also a 90 year window of exclusive O&O of BK's.  Termination occurred if terms not met to Bk's satisfaction.  FD was supposed to have each one done in a year's time or earlier, but there were some problems.  The K extended one year of exclusivity to FD for each new restaurant.

 

BK 1 was early, BK 2 two months late, BK 3 four months late.  By 1968, BK 4 not yet started on, but BK co. President spoke with FD president and said if FD got BK's 4 & 5 done by year 5's time, everything would be OK.  BK 4 was 14 months late; BK 5 was five months late. 

 

4/18/69: BK communication with KD concerning BK #6, but got one month's extension.  10/1/69 BK 6 opens, and BK 7 followed ahead of schedule.  BK at this point (1970) now subsidiary of Pillsbury, and BK president now on board, not near as personal relationship with FD as before.  8/70: site proposed for BK 8 rejected by BK co., FD thought b/c it was 2.7 miles away from other site, but another franchisee got to build one 3 miles away from FD site.  BK also at this point realized more restaurants could be open than previously thought.

 

10/70: BK 8 opened early, and by December 2 more sites approved.  Early 1972 CEO/BK called FD president re: completion of BK's 9 & 10.  But since he was developing 4 new sites, things were cool.  By 5/10/73, no BK 9 or 10 built, even after such approval of new sites.  At this point, letter sent from corporate to FD, warning them of possible default in agreement, which was agreed to not have any mean undertones.

 

11/6/73:  first possible idea of termination of K between parties; negotiations to try and mend things until early 1975 failed.  May 1975: BK tries to enjoin FD from using BK trademark for BK's 9 & 10, which were both approved previously.

 

BK argues since FD failed to perform its end of K properly, the court must declare K terminated.  Also, they want the court to show FD didn't get itself any exclusivity beyond year nine, so that FD would forfeit anything which it had an interest in.

 

FD argues the termination provision should be found inoperative b/c otherwise it would result in a forfeiture to FD.

 

Issue(s):  Under contract law regarding conditions and breach, was there an effective termination of K between parties upon failure to comply with specific express conditions in K, or was there appropriate relief from forfeiture given to FD based on several conversations and modifications to original K?

 

Was this a divisible K or one of inducement to build?

 

Court's Rationale/Reasoning:  Court finds this a K concerning conditions subsequent, and not a promise, which served to divest FD of exclusivity.  The court found a look to the reasonable construction of the language of the K shows the parties' true intent when they entered the deal.  The purpose seems to be an incentive to build the area agreed to in exchange for the exclusivity, not a strict divisible contract, as BK argues. 

 

Just b/c the K calls for installments, doesn't mean there is a divisibility issue here.  This again is determinate on the language, and its intent from reading K.  The behavior of BK also does not comply with such a divisibility issue here: the first few restaurants were not all done on schedule, but BK continued to let things go on status quo after a modification and communication between the parties.  Even the letter sent from corporate seems to indicate there would be no termination of the exclusivity agreement.

 

In addition to these arguments is one of fairness, in which states upon such a termination would constitute violations of fairness and equitable principles (restatement 302 mentioned).  The behavior of BK co. Changed after they realized more restaurants could be maintained within the territory of exclusivity.  BK overlooks the time, money and consideration FD has put into trying to follow K's terms, and as such this cannot be terminated or forfeited by FD.  Furthermore, there were no monetary concerns brought up where BK might have been able to bring up some kind of potential losses upon failure to comply by FD.

 

Rule: A condition may be excused w/o other reason if its requirement (a) will involve extreme forfeiture or penalty, and (b) its existence or occurrence forms no essential part of the exchange for the promisor's performance. (restatement 302)

 

Holding:  FD's position was found to be compelling on both legal and equitable grounds and thus is persuasive enough to not declare the territorial agreement terminated.  There is too much time and money invested here for a termination of agreement to be considered valid at this point.

 

W. Other bases for excusing conditions

Topic Notes:

Other bases for excusing conditions

A condition may also be excused if it is contrary to public policy, is unconscionable, or if there is duty to read the particular provision; it may also be excused on a theory of impossibility

 

X. The Satisfaction Cases

Topic Notes:

The Satisfaction Cases

Express conditions of satisfaction are sometimes treated differently than other express conditions.  One of the key issues in most cases is whether the provision in K calls for personal (actual) satisfaction or only reasonable satisfaction

 

Satisfaction of a party to the contract

When there is doubt in regards to personal satisfaction as a requirement of acceptance, the preferred interpretation of such a K calls for an objectively satisfactory performance (reasonable person test)...again, this test deals with only express conditions of satisfaction; a condition of satisfaction is not implied

 

In cases where a party is to be satisfied, the courts tend to group the cases into 2 categories:

(1) those which involve taste, fancy or personal judgment, the classical example being a commission to paint a portrait (promisor is the sole judge of the quality of the work, and his right to reject if in good faith is his alone)

(2) those which involve utility, fitness or value, which can be measured against a more or less objective standard (reasonably satisfactory standard)

 

Once it's decided that personal satisfactory is called for, the issue is the good faith of the party must be satisfied.  This doesn't mean a party's statement must be accepted, for such an agreement would be illusory.  The dissatisfaction must be actual and not merely simulated.

 

Satisfaction of a third party

Strict compliance with the condition is the rule.  Expert's misconduct is a matter of fact, and the BOP is on the party alleging the misconduct. (here we're talking about bad faith, or gross mistake

 

WESTERN HILLS, OREGON, LTD. V. PFAU (1973)

Case Brief:

Style (name of case): Western Hills, Oregon, Ltd. v. Pfau (1973)

 

Cause of action: The following is a cause of action to compel specific performance of property purchase agreement.

 

Procedural History: Trial court found plaintiff was entitled to specific performance of K.  Defendants appeal, contending they were excused from performance by a failure of a condition contained in K, and that K is too indefinite to permit specific enforcement.  Judgment reversed and new trial was ordered after appeal.

 

Facts:  Defendants entered into K to buy 286 acres of land.  First offer was rebuffed, but after negotiation was accepted. Terms of K were as follows (3/6/70): in exchange for property, defendants were to pay plaintiff $15K to convey the land into 4 parcels of real property, subject to appraisal and acceptance by plaintiff.  Then, the balance would be paid.

 

Defendants had 90 days for satisfaction upon planning, and could also get a 6-month extension is it was deemed necessary.

 

Six months later, defendants abandoned the project, saying they didn't want to go through with the purchase b/c there were sewer lines they'd have to get put in which would cost them too much money to make the deal worthwhile.  Defendants contend they never had to purchase the property, or to proceed with the application for the Planning Commission, b/c they thought it was too expensive.  Defendants, at time of executing K, knew the sewage systems wouldn't be available for some time, and was a term deleted in the final K, b/c of such knowledge.

 

Defendant contends the deletion of the provision was agreed to b/c he was led to believe the provision for approval of a planned development accomplished the same thing.

 

Issue(s):  Whether the defendants were excused from performing their agreement to purchase the property b/c they never secured the city's approval for "satisfactory" planned development, when the evidence shows they abandoned their application for an approved planned development b/c the expense of providing an alternative sewer system made the development financially unattractive?

 

Court's Rationale/Reasoning:  When an agreement contains such a term, it  imposes upon the vendee an implied condition that they make a reasonable effort to procure the loan.  Here there was similar duty, and defendants abandoned their duty despite approval from the city.  But here, the development required approval of the development, but of development which was "satisfactory" to the parties.  Such intended effect on other party's satisfaction is how the courts will treat satisfaction of duty to perform.

 

This K falls into the category requiring the promisor as the sole judge of the quality of the work, and his right to reject, as long as it is in good faith, is absolute, and may not be reviewed by another court or jury.  Since there is no objective test, there must be a standard of fair dealing in terms of abandonment.  If there is a legitimate reason for abandonment, then there is a legitimate reason to uphold defendant's actions.

 

Here, there was none.  They knew about the sewer systems, their temporary unavailability, and their costs.  There was no issue pertaining to costs in the original contract, nor were there specific details as to the availability of the sewers.  A party cannot be able to use the satisfaction clause to get out of a K they don't all of a sudden want to perform.

 

Rule:  Where a promise is conditional, expressly or impliedly, on his own satisfaction, he must give fair consideration to the matter.  A refusal to examine the...performance, or a rejection of it, not in reality based on its unsatisfactory nature but on fictitious grounds or none at all, will amount to prevention of performance of the condition and excuse it.  (Williston)

 

Holding: No.  Defendants were not justified in abandoning their attempts to secure city approval of a development plan simply b/c of the expense of providing a sewer system system which they

knew when they entered K would have to be provided as a part of the development.  Not having performed their duty to use reasonable diligence to obtain city approval of a development plan, defendants may not rely on nonoccurrence of the condition.

 

 

VAN INDERSTINE CO., INC. V. BARNET LEATHER CO., INC. (1926)

Case Brief:

Style (name of case): Van Inderstine co., Inc. v. Barnet Leather Co., Inc. (1926)

 

Cause of action: The following is a cause of action for damages b/c of defendant's refusal to accept the skins plaintiff offered to deliver.

 

The other cause is that Jules and Star (JS) used bad faith in refusing the second shipment (make-up). 

 

Procedural History: Trial court ruled in favor of plaintiff.  Judgment reversed and a new trial is granted.

 

Facts: Plaintiff alleged that any condition for approval by a representative of Jules Star & Co. of the skins to be delivered under K of September 10 was waived and excused b/s the approval was unreasonably withheld.

 

Issue(s): Whether the plaintiff may recover under its K upon proof that it offered to deliver skins which in quality complied with the K requirements, and that the representative of JS unreasonably withheld its approval of these skins?

 

Court's Rationale/Reasoning:  Unless the certificate has been withheld in bad faith, and the defendant is a party to that bad faith through control of the expert or collusion with them, there may be no recovery under such a K.  Once a plaintiff agrees in a contract to have a party of

another party (third party) evaluate said goods in agreement ("subject to approval"), such is the chance taken by the first party.  The said goods may still be retained and sold at market price.

 

Rule: A contractor may not recover for goods/services which were subject to approval upon a third party in regards to price, unless forfeiture of the agreed price is without fault on the contractor's part, in which they may recover for substantial performance.

 

Allowing for such a recovery when the buyer has not agreed to buy substandard goods would be imposing liability they didn't agree to assume, and gives compensation to the seller for goods not delivered in full compliance with K.

 

Holding: No.  The plaintiff's obligation is only to deliver the skins, and by express stipulation there  may be no delivery without approval of a third party.  It has done nothing for which it might legally or equitably expect compensation until delivery is made.  No approval means no performance, and this was the risk assumed.

 

AA. Good Faith

Topic Notes:

Good Faith

In every K, there exists an implied covenant of good faith and fair dealing...or an obligation of good faith in its performance or enforcement...

 

UCC definition: honesty in fact in the conduct/transaction concerned...negligence is irrelevant to good faith...this test is subjective

 

This concept is used to right any wrong that created bad faith if the traditional rule were applied

 

 

BB. Abuse of rights

XIV. Anticipatory Breach and Prospective Non-Performance

Topic Notes:

Anticipatory Breach and Non-Performance

Prospective failure of condition is divided into 2 subcategories: prospective inability to perform, and prospective unwillingness to perform

 

Prospective inability: allows a party several options upon hearing of the possibility of one party not possibly being able to accomplish a said task; such options include canceling K and hiring a replacement.  If for some reason the party who was previously not able to accomplish the task presented themselves ready to complete the said task, the first party would have such a defense:

 

"one's prospective inability to perform an act acted as failure of a constructive condition, which justified cancellation of K.

 

The same thing could apply if the second party here has the possibility of being somewhere or performing another task at the same time the task for the first party was to take place; under this example, the first party would have the defense that the second party's actions indicated a prospective unwillingness to perform.  However, cancellation of K is seen as to jumpy at this point.

 

As under the previous example, the second party's acceptance to take on performance of an act which would be at the same time but at a different place, such a warning/notice to the first party acts as a prospective unwillingness on her part, as well as a failure of constructive condition.  This notice is also an act of repudiation of K, or an unequivocal statement of unwillingness to perform.  The repudiation is an anticipatory repudiation, b/c second party's action comes before performance is due, and also acts as an anticipatory breach.

 

 

HOCHSTER V. DE LA TOUR (1853)

Case Brief:

Style (name of case): Hochster v. De La Tour (1853)

 

Cause of action: The following is a cause of action for breach of bilateral K when defendant agreed to employ plaintiff as courier with him on trip to Europe.

 

Procedural History: Jury found for plaintiff.  Affirmed upon appeal.

 

Facts:  Defendant was to employ plaintiff as his courier for a 3-month trip to Europe and 10 pounds per month.  Plaintiff remained ready and willing to perform such service on June first as agreed, however defendant wrongfully discharged him and repudiated K May 11.  Upon receiving notice of discharge, plaintiff obtained similar employment with another fellow (ashburton), but this employment was not to begin until July.

 

Defendant's counsel objected there could be no breach of K before June 1.  Plaintiff contends there was a breach of contract, for which he is due damages.

 

Issue(s):  Under the law of anticipatory breach and prospective non-performance, may plaintiff have a cause of action for services prospectively rendered if they were taken off the table when the plaintiff was ready, willing and bale to perform such duties, despite his finding employment with another party?

 

Court's Rationale/Reasoning: When a party announces their intention not to fulfill the K, the other side may take that person at their word and rescind the K.  But there might be damages liable to that person when the other party has prepared to undertake the services of the other party.  When the party whose services are no longer deemed necessary and they go and find similar responsibilities with another person, they may recover damages as to the market value of such services at the time the K was to be completed.

 

Despite De La Tour's argument there could be no breach of K until the day before the agreement was to take place, the fact Hochster took actions to be ready, willing and able to perform such

duties, the ability to perform other duties and receive compensation for them has been taken away from him.  Thus, it is not just the day before when an agreement is breached upon. (implied terms)

 

Rule: Where there is a K to do an act on a future date, there is a relation between the parties, that they impliedly promise that in the meantime neither will do any thing to the prejudice of the other inconsistent with that relation.

 

Holding:  Yes.  When De La Tour ended their agreement he was liable for damages only up to the time when Hochster found gainful employment with another party. (mitigating damages).  However, the court said the plaintiff may be able to find for damages up till September 1 as well.

 

DRAKE V. WICKWIRE (1990)

Case Brief:

Style (name of case): Drake v. Wickwire (1990)

 

Cause of action: The following is a cause of action for malpractice against an attorney for allegedly inducing his client to break an earnest money sales agreement.

 

Procedural History: Holsey sued Drake for his real estate commission, and trial court granted summary judgment to Holsey.  On appeal, court affirmed, holding Holsey was Drake's agent, not the agent of the buyers and thus would have had no authority to change the deadline for closing from April 12 or 13 to the 11th as Drake contended.  On further appeal, case reversed and remanded.

 

Facts:  The following are facts from Drake v. Holsey,  which are excerpted:

 

Plaintiff signed exclusive listing K with Holsey to act as his agent 3/30/84.  In K, there was a 10% commission if Holsey got a buyer who (1) was willing and able to purchase at the terms set by the seller, and (2) the seller entered into a "binding sale" during the term set by the seller.

 

Holsey found 3 buyers, and plaintiff signs purchase/sale K.  Buyers also sign K.  Closing was to be w/in 10 days of clear title, ASAP (time was of the essence).  Addendum:  plaintiff agreed to pay Holsey a 10% commission of price paid for property.  Plaintiff and Holsey signed K.

 

4/3/84: Holsey received preliminary commitment for title insurance.  Title report listed judgment in favor of Drake's ex-wife as the sole encumbrance (lienholder) on the title.  Next day Holsey called plaintiff's attorney, the defendant, to ask about the judgment.  Defendant said the judgment would be paid w/the cash received at the closing.

 

2-3 days later:  defendant contacted Holsey, and said plaintiff wanted the sale closed by 4/11.  Defendant explained he negotiated a settlement with plaintiff's ex-wife and payment was required by 4/11.  Defendant claims Holsey agreed to close by the 11th, but Holsey says he merely said he'd try to close as fast as possible.  Holsey got worried the buyers wouldn't be able to close by then, so he contacted ex-wife's attorney, who said the deadline was pushed back to the end of the month.

 

4/11:  defendant called Holsey to set up closing.  Holsey told him the buyers could not close on that date and the money would not be had until 5/1.  Defendant said he'd advise his client to call off the sale b/c buyers refused to perform.  Defendant mailed letter to Holsey stating plaintiff's offer was revoked.  Holsey received letter 4/18.  On 4/12, plaintiff sold to another group of buyers.

 

4/12: Holsey went to defendant's office to close the sale and submitted checks from buyers for $33K for down payment.  Defendant refused checks, stating another buyer bought the property.  In Drake, Holsey sued Drake for real estate commission.

 

Issue(s):  Was agent of plaintiff acting in a negligent manner which caused a breach of repudiation when he allegedly never consulted with his client in dissolving one transaction and creating another?

 

Court's Rationale/Reasoning:  Court found defendant negligent as a matter of law.  A conversation between Holsey and defendant on 4/11 stated specifically the buyers did not want

to close that day b/c, " they were resisting the pressure to close."  Based on the restatement, those words are not a repudiation on its face; they are ambiguous at best.  Defendant's negligence lies in his giving of advice on the face of an ambiguous statement as to repudiation.

 

If he thought there was repudiation in the making, defendant should have done what the restatement tells us to do:  demand adequate assurance of due performance, and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such notice.  Also, the obligee may treat  as repudiation any failure to give adequate assurance of performance within a reasonable time according to the circumstances.

 

Rule: Law of anticipatory repudiation, restatement 253(1):  Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages of total breach.

 

Holding:  Yes.  Defendant didn't act reasonably in treating Holsey's statement as repudiation.  It was ambiguous on its face.  Holsey first indicated the buyers would need until 5/1 to get the money, but he later indicated the reason for the delay was hesitance to close.  The latter statement is ambiguous as to whether it was a cash problem, or a hesitance problem.  Even if it was, the worst thing that could happen was defendant would think the K was going to be breached by buyers.  Neither was a repudiation.

 

COHEN V. KRANZ (1963)

Case Brief:

Style (name of case): Cohen v. Kranz (1963)

 

Cause of action: The following is a cause of action for loss of down payment, as well as costs of searching title; defendants counterclaim for damages for breach of K, and the loss they sustained when they sold their house to a 3rd person for what the courts below said was below market value.

 

Procedural History:  Trial term ruled in favor of plaintiff.  Court found premises were subject to protective covenants filed in clerk's office and insurability clause of sale K was not up to snuff,

b/c swimming pool lacked certificate of occupancy.  A split rail fence projected beyond the front line of the dwelling.  Court noted plaintiffs notified defendants of the problems, and they had done nothing to fix them.  Defective title excused plaintiff fro tender of payment, and they were awarded judgment in amount of down payment.

 

Appellate term reversed and directed $1500 to be paid on counterclaim.  Upon appeal, appellate decision affirmed.

 

Facts: Plaintiffs were to buy defendant's home for $40K.  4 grand on signing of K, with $24.5K to be paid in cash upon delivery of deed, with the other $11.5K to be in mortgage.  Closing set for 11/15, but pushed back to 12/15 at behest of plaintiffs.  On 11/30, plaintiff's attorney sent a letter to defendants' attorney, stating an investigation has found several tings wrong with their place, and they needed to be fixed or plaintiffs would demand their deposit back (five days notice). 

 

Plaintiff's attorney appeared at defendant's attorney's office and demanded he return of the deposit.  The earlier letter said nothing of the specific things wrong with defendant's place (listed in procedural history).

 

Issue(s):  Under contract law, was there a proper breach by anticipatory repudiation when the plaintiffs notified defendants the house they were to purchase had defects in it and defendant did nothing to fix them?

 

Court's Rationale/Reasoning:  Here there were conditions precedent and concurrent: when they got the deed, the plaintiffs would pay cash and get the mortgage; concurrently (? Ask ?)

 

Upon receipt of the tender, defendants were to give the deed, but the premises was unmarketable due to several deficiencies, namely the swimming pool without the permit, and the fence.  However, it was plaintiff's job to demand such performance be satisfied by defendants before they went ahead and bought the house.  All the communication in this effect was a letter saying something was wrong, but never what exactly.

 

Based on such behavior by plaintiffs, they never acted with timely notice and demand, and then decided to reject the title in advance, they acted in default, which precluded them from recovery of their down payment.  If the problems were incurable, the plaintiff would have the proper cause of action; but where there is curability, and such curability could occur within a reasonable time, the fault lies in the plaintiff for not giving the defendants proper time to deal with the deficiencies.  All this also depends on whether the vendor (defendants here) was ready and willing to perform even if actual tender and demand is unnecessary.  Inability would also give the plaintiffs a good cause of action.

 

Such action by plaintiff was not only a waste of time, but this also prevented the defendants from being able to fix their place in time to sell it to someone for the going rate.  Thus, defendants are entitled to compensation.

 

Rule:  Plaintiff is barred from recovering the deposit form a vendor whose title defects were curable and whose performance was never demanded on law day.

 

Holding:  No.  Under the restatement, the party who might be in breach is entitled to notice of such, demanding specifically what needs to be done in order to go forward with the K.  Here, plaintiffs did no such thing in their first letter to defendants, and never mentioned any problems in specific until after the extended date of the closing.

 

A. Prospective Inability and unwillingness

Topic Notes:

Prospective Inability and Unwillingness

(a) first statement and other traditional approaches:

--> first restatement covers inability to perform or unwillingness which arises before the party who is unable or unwilling to perform is obligated to perform (reaction depends on the severity of the inability to perform/act); sometimes there is only justified suspension of performance, others cancellation. 

 

*must look to see if there is a reasonable possibility that a party won't or can't substantially perform (if it is possible, then suspension is the most the other party can do)

 

Prospective inability or unwillingness to perform may be manifested in:

1. words or conduct

2. destruction of subject matter

3. death or illness of a person whose performance is essential under the contract

4. encumbrance or lack of title in contract vendor at the time of making of the contract

5. existing or supervening illegality of a promised performance

6. insolvency of a party

7. defective performances rendered under the contracts between the parties or even under a contract with third parties

 

(b) UCC and second restatement

--> speaks of where a party to K manifests a serious prospective inability or unwillingness to perform, the other party may make a demand for "adequate assurances of due performance"

1. The other's party's expectation of receiving due performance will not be impaired (at such a time when the possibility of performance is in some doubt, the other party may demand an assurance in writing)

2.  Reasonable grounds for such insecurity are determined according to commercial standards

3.  Acceptance of any improper delivery or payment doesn't prejudice the aggrieved party's right to demand adequate assurance of future performance

4.  A party has 30 days to tell the other party they can't perform, otherwise repudiation may take place

 

 

 

 

B. Anticipatory repudiation - history and analysis

Topic Notes:

Anticipatory repudiation: history and analysis

Where a party repudiates K before the time for performance arises, this issues comes up.  Historically, courts have had problems finding breach of K b/c no express promise has as yet been breached.

 

 

C. What constitutes a repudiation

Topic Notes:

What constitutes a repudiation?

Under first restatement, three actions constitute repudiation:

(a) positive statement to the promisee or other person having a right under K, indicating that the promisor won't or cannot substantially perform their contractual duties

(b) transferring or contracting to transfer to a third person an interest in specific land, goods, or any other thing essential for substantial performance of their contractual duties

(c) any voluntary affirmative act which renders substantial performance of their contractual duties impossible or apparently impossible

 

(a) POSITIVE STATEMENT, ETC.

---> one that is so unequivocal that the intent not to be bound by the terms of K must be beyond question (first restatement); or that a statement must be sufficiently positive to be reasonably interpreted that a party won't or cannot substantially perform

 

(b) TRANSFERRING SPECIFIC PROPERTY

---> can result in anticipatory breach upon selling to another party

 

(c) OTHER VOLUNTARY ACTS

---> a "voluntary affirmative act" by a party "which renders substantial performance of their contractual duties impossible, or apparently impossible" amounts to a repudiation

 

 

 

 

D. Repudiation and good faith

Topic Notes:

Repudiation and Good Faith

If in good faith the party believes the K justifies the refusal or that there is a lawful excuse for the action, and there is respectable authority to the effect that a good faith refusal to perform is not repudiation.

 

 

E. Bankruptcy as equivalent of repudiation

Topic Notes:

Bankruptcy as equivalent of repudiation

Insolvency may create prospective inability, it does not amount to a repudiation, b/c insolvency is not voluntarily caused.  However filing a bankruptcy petition amounts to  an anticipatory repudiation if the trustee in bankruptcy does not adopt K within a statutory period.

 

If a petition in bankruptcy is filed but not result in an adjudication of bankruptcy, the legal effect is similar to that of a withdrawal of a repudiation.

 

 

F. Retractions -- anticipatory and present repudiations distinguished

Topic Notes:

Retractions -- anticipatory and present repudiations distinguished

Anticipated repudiation may be retracted until the other party has commenced action, or has otherwise changed position.  This is done either written or verbal, but where the repudiation consists of an act (or failure to act) inconsistent with K, the repudiation may consist in the repudiator's regaining the ability to perform (this must come to the attention of the other party).

 

 

G. Responses to an anticipatory repudiation

Topic Notes:

Responses to an anticipatory repudiation

Three responses to an anticipated repudiation:

 

(1) injured party may bring immediate action for total breach

(2) the aggrieved party may urge or insist that the other party perform -- to urge the repudiating party to retract the repudiation

(MODERN VIEW/RULE: there is no right of election in the face of repudiation)

(3) the duty of to mitigate damages overrides the concept of election (promisee may not continue to perform if the effect of performance would be to enhance damages)

 

 

H. An exception -- unilateral obligations

Topic Notes:

An exception: unilateral obligations

No action will lie for the present or anticipatory repudiation of a unilateral obligation to pay money at a future time or in future installments

 

But check this out:  if A loans B $12K, to be paid back over a series of 12 months and B, upon getting the money, repudiates upon the maturity of the first payment, A cannot sue for the entire amount until each specific payment matures.

 

 

I. Another exemption -- independent promises

Topic Notes:

Another exemption: independent promises

A and B enter into an employment agreement in which B promises not to engage in the same business as A once employment is terminated.  The contract provides the promise is independent.  After A starts to perform, B repudiates the contract.  According to the restatement second, A is still liable on the promise; if A breaches the promise B may sue for breach of this covenant even though B has repudiated.

 

The shared purpose of an  employment agreement containing a non-compete promise is to protect the employer from conduct that is unfair in the spirit of competition while assuring the employee a means of practicing the trade or profession for which the employee is trained...this would be a grave abuse of rights

 

 

XV. Impracticability and frustration

A. Impracticability and Frustration

PARADINE V. JANE (1647)

Case Brief:

Style (name of case): Paradine v. Jane (1647)

 

Cause of action: The following is a cause of action for past payment on rent for three years and four usual feasts.

 

Procedural History: Plea for demurrer dismissed.  Judgment on appeal for plaintiff.

 

Facts: Lessee's defense to claims of back rent from plaintiff is invaders had entered forcefully upon his property and disabled his ability to pay and could not pay.

 

Issue(s): Under contract law, may a party assert the defense of frustration by alleging his ability to pay rent was impeded by alien enemies staying at his place of business?

 

Court's Rationale/Reasoning: Rent is a duty created by the parties upon the reservation, and had there been a covenant to pay it, there had been no question but the lessee must have made it good, notwithstanding the interruption by  enemies, for the law would not protect him beyond his own agreement, no more than a case of reparations (of a home if struck by lightning); this reservation then being a covenant in law, and whereupon an action of covenant hath been maintained it is all one as if there has been an actual covenant. 

 

A lease is a conveyance of an estate in land, performance being complete on the execution of the lease.

 

Also, the lessee is to have the advantage of casual profits, so he must run the hazard of casual losses, and not the lay the whole burthen of them upon his lessor.  The defendant does, though, have an action against the trespassers.

 

Rule: Where the law creates a duty or charge, and the party is disabled to perform it w/o any default in him, and hath no remedy over, there the law will excuse him.  As in the case of waste, if a house be destroyed by tempest, or by enemies, the lessee is excused.

 

Holding: No.  A lessee was required to pay rent though the premises were allegedly occupied by alien enemies.  (Today, this doctrine would apply to leases as well as other kinds of contracts.  England has not extended the doctrine to leases.)

 

 

TAYLOR V. CALDWELL (1863)

Case Brief:

Style (name of case): Taylor v. Caldwell (1863)

 

Cause of action: The following is a cause of action for damages as the result of a fire; plaintiffs wanted use of what was burned down.

 

Procedural History: Both parties are excused from their responsibilities to perform on K.

 

Facts:  Plaintiffs entered into a contract with defendants the use of their concert hall and gardens for a series of concerts.  Money was to be paid in the form of rent; defendants were to retain the Hall and Gardens when they weren't renting it out. 

 

A fire destroyed the hall and gardens before the first day where any concert was to take place; plaintiffs sued for the loss of the use of the hall.  Defendants assert they couldn't foresee a fire causing such a loss.

 

Issue(s): Under contract law, was there an impracticability to perform a duty on the part of the defendant when fire burned down his concert hall, making his ability to rent it out to the plaintiff became impossible?

 

Court's Rationale/Reasoning: In none of these cases is the promise in words other than positive, nor is there any express stipulation that the destruction of the person or thing shall excuse the

performance; but that excuse is by law implied, b/c from the nature of K it is apparent that the parties contracted on the basis of the continued existence of the particular person or chattel. 

 

In the present case, looking at the whole contract, the court found that the parties contracted on the basis of the continued existence of the Music Hall at the time when the concerts were to be given; that being essential to their performance.

 

Rule:  In all contracts of loan of chattels or bailments, if the performance of the promise of the borrower or bailee to return the things lent or bailed, becomes impossible b/c it has perished, this impossibility (if not arising from the fault of the borrower or bailee from some risk which he has taken upon himself) excuses the borrower or bailee from the performance of his promise to redeliver the chattel.

 

Holding: Yes.  The Music Hall, having ceased to exist, without fault of either party, both parties are excused.  The plaintiffs are excused from taking the gardens and paying the money.  The defendants are excused from performing their promise to give use of the Hall and Gardens and other things.  The rule must be absolute to enter the verdict for defendants.

 

CAZARES V. SAENZ (1989)

Case Brief:

Style (name of case): Cazares v. Saenz (1989)

 

Cause of action: The following is a cause of action for damages in the form of a contingent fee.

 

Procedural History: Original judgment in favor of plaintiffs for $159,833 plus interest.  On appeal, judgment reversed.

 

Facts:  Saenz contacted to litigate a case involving the Mexican consulate.  S contacts C & T, who he shared office space with.  The original agreement said S would maintain client contact and a pending immigration matter.  S also wanted to handle a lot of the trial work, so he would

have the experience.  C & T would handle most of the legal work in this case.  C & S agreed they'd evenly divide the contingent fee on the case.  Both C & S testified they expected and assumed C would prosecute the case to its conclusion.  During the prep work, C did a lot of the major work, while T didn't do much, and S did minor items and maintained client contact.

 

6/81 C & T partnership dissolved.  5/82: C made a municipal judge.  1/83: C writes S urging S to seek T to help with the case.  S never responds to the offer.  S hires 2 other lawyers who help him litigate the case.  Case settled for $1.1M, and S paid his 2 new sidekicks.  S then went to C and offered him $40K for his services; this was denied on the basis C claimed he and T were owed a combined $183K for their portion of the agreed upon split of fees.

 

Suit brought on the above grounds by C.  S alleges performance was excused by C's disability to finish the job.

 

Issue(s): Are plaintiffs Cazares & Tosdal, entitled to one-half of a contingent fee promised them by defendant Saenz when he associated the firm on a particular personal injury case, notwithstanding that Cazares became a municipal court judge before the case was settled?

 

Regarding contract law of frustration, what is the measure of quantum meruit recovery in such circumstances?

 

Court's Rationale/Reasoning:  Where a contract contemplates the personal services of a party, performance is excused when that party dies or becomes otherwise incapable of performing.  The second restatement adds to this though, by saying "if the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.  Here S & C testified C's prosecution of the case was a basic assumption on which K was made.

 

This remand requires a mathematical figuring of exactly how much of the reasonable value of the services rendered by C &T on the case.  But an hourly wage standard might not do justice, b/c some parties did more work than others.  Here, S took a risk on the contingency fee when he took the case on by himself, hiring other counsel in C & T's place.  It was his money to gain or to lose, and he could even lose if the monies rewarded did not cover his expenses.

 

Here, if the trial court will determine what portion of K was performed by each party, calculating the reasonable value of that partial performance becomes relatively simple.  They must calculate a fraction where the numerator is the value of the legal services rendered by the particular attorney or firm at issue and the denominator is the aggregate value of the legal services rendered by any attorney in the case.  The result will be a pro rata share of the money.

 

Where the contract is between associated attorneys, an unforeseen event which renders complete performance by one party impossible should not result in a windfall to the other attorney.  Having contracted with the lawyer or firm to pay a particular fee, the associating attorney is estopped to deny that the pro rata contract price accurately measures the reasonable value of the services rendered.

 

Rule:  Where one member of a 2-person law firm becomes incapable of performing on a contract of association with another lawyer, the obligations of the parties to the contract are discharged from it if it was contemplated that the incapacitated attorney would perform substantial services under the agreement.

 

Holding: No.  Cazares and Tosdal are not entitled to 50 percent of the contingent fee as provided in the association agreement.  They may, however, recover the reasonable value of the legal services rendered before Cazares's incapacitation, prorated on the basis of the original contract price.

 

A lawyer who is appointed to the judiciary may be disabled from performing contracts with clients or partners.

 

NORTHERN CORP. V. CHUGACH ELECTRIC ASSOC. (1974)

Case Brief:

Style (name of case): Northern Corp. v. Chugach Electric Association (1974)

 

Cause of action: The following is a cause of action for damages as the result of a loss of equipment, lives, etc.  Chugach counterclaimed, saying they overpaid for the work to get done.

 

Procedural History: Superior court discharged the parties on the ground of impossibility of performance, but denied both parties' claims for damages and attorney's fees.  Both parties appeal.  Affirmed on appeal.

 

Facts: Northern was to ship rocks across Copper Lake Dam in Alaska.  After several attempts to comply through threats of default on part of Northern by contracting party Chugach, Northern went through with the task.  Unfortunately, Northern lost a couple of trucks when the ice was thinner than they thought; lives and trucks were lost.  Northern thought they were out of the contract, but when Chugach further demanded performance, Northern claims impossibility, and thus we have the lawsuit.

 

Chugach contends Northern was bound to perform, and could have used a means other than a truck across the ice to transport the rock.  Chugach further claims there were express and implied warranties that the designated rock would be hauled, and that the quarry of origin had enough rock to get the job done.  Northern brought suit on the premise they spent money and lives trying to get the job done.

 

Issue(s):  (1) Is Northern entitled to damages for breach of alleged express and implied warranties contained in the original K pertaining to available quantities of rock?

 

(2) In the alternative, was the K as modified impossible of performance?

 

(3) If modified K was impossible of performance, is Northern entitled to reasonable costs incurred in endeavoring to perform it?

 

(4) Is Chugach entitled to liquidated damages for delays in performance of the K and to costs and attorney's fees?

 

Court's Rationale/Reasoning:  The K directive specified the rock where the rock was going to be transported to and from, as well as when and how (truck).   All this makes material terms clear as to the delivery of the rock.  The fact Northern tried to do this twice, while sustaining a loss of life, was a clear demonstration this task was impossible.

 

The specification of this particular method of performance presupposed the existence of ice frozen to the requisite depth.  Since the expectation of the parties was never fulfilled, and since the provisions relating to the means of performance was clearly material, Northern's duty to perform was discharged by reason of impossibility.

 

Rule: Principle of commercial impracticability: "A party is discharged from their contract obligations, even if it is technically possible to perform them, if the costs of performance would be so disproportionate to that reasonably contemplated by the parties as to make the contract totally impractical in the commercial sense."

 

Restatement 465: A serious risk to life or health also excuses non-performance.

 

Holding:  Yes.  Due to the nature of the act, the fact a loss of life could be incurred, and the continuous but unsuccessful attempts to haul the rock demonstrated there was an impossibility to getting the job done, and Northern is excused.

 

KRELL V. HENRY (1903)

Case Brief:

Style (name of case): Krell v. Henry (1903)

 

Cause of action: The following is a cause of action for leftover balance for a flat for the purpose of viewing processions held in conjunction with a coronation. 

 

Procedural History:  Upon the authority of Taylor v. Caldwell (and Moorcook) that there was an implied condition in K that the procession should take place, and gave judgment for the defendant on the claim and counter-claim.  On appeal, plaintiff's claim dismissed.

 

Facts: Plaintiff granted the defendant a license to use his apartment for two days to view the coronation procession of King Edward VII and defendant agreed to pay 75 pounds for the privilege.  After the agreement was made, the coronation was canceled b/c the King fell ill.

 

Plaintiff sues for the balance of the rent due.  Defendant claims impossibility.

 

Issue(s):  Under contract law of frustration, impossibility and impracticability, may defendant assert impossibility for the ability to perform his end of an agreement for a viewing opportunity to watch a coronation when the King falls ill and the plaintiff claims a refund for not getting what he paid?

 

Court's Rationale/Reasoning: From Taylor analysis, it must appear that where, from the nature of the contract, it appears that the parties must from the beginning known that it could not be fulfilled unless, when the time for fulfillment of K arrived, some particular specified thing continued to exist, so that when entering into K they must have contemplated such continued existence as the foundation of what was to be done.  There, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be considered a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without the default of the contractor.

 

But destruction of something is not the limit of the law as to impossibility.  An inference of the substance of the contract or the terms of the contract must be done, and then it must be asked whether the that substantial contract needs for its foundation the assumption of the existence of a particular state of things.  If so, then it limits the operation of the contract and it becomes impossible of performance by reason of the nonexistence of the state of things assumed by both parties contracting, and there will be no breach of K.

 

Here, the K is contained in 2 letters between defendant and plaintiff's agent.  Letters don't mention the coronation, just the pad for rent.  Yet, the defendant here advertised specifically

about the great view for the coronation.  But the terms are not specifically mentioned as such in the agreement, and a promise on its face absolute can be excused by an unforeseen catastrophe.

 

Parol evidence here helps the court find the direct subject of the contract should not fail based on the existence of the coronation on a particular date.  It is sufficient if a state of things or condition expressed in K and essential to its performance perishes or fails to be in existence at that time.  Since the condition was not expressly mentioned either as a condition or purpose, the plaintiff's claim fails.

 

Rule:  A party must comply with 4 requirements for frustration of the venture:

 

(1) The object of one of the parties in entering into K must be frustrated by a supervening event.

(2) The other party must also have contracted on the basis of the attainment of this object.  The attainment of this object was a basic assumption to both parties.

(3) The frustration must be total or nearly total -- in more modern terms the principle purpose of the promisor (the one seeking to use the defense) must be either totally or substantially frustrated.  This distinction is akin to the distinction between impossibility and impracticability.

(4) The party seeking to use the defense must not have assumed a greater obligation than the law imposes.  In addition, as in the case of impracticability, the party seeking to use the defense must not be guilty of contributory fault.  Thus, if the promisor was already in material breach at the time of the frustrating event, the defense is not available.

 

Holding:  Yes.  The defendant was excused from the duty of payment, as performance was impossible.

 

407 E. 61st GARAGE, INC. V. SAVOY 5th AVE. CORP. (1968)

Case Brief:

Style (name of case): 407 East 61ST Garage, Inc.  v. Savoy Fifth Avenue Corp. (1968)

 

Cause of action: The following is a cause of action for damages for defendant's alleged breach, by termination of a K between the parties, resulting from defendant's discontinuance of its operation of the Savoy Hilton Hotel.

 

Procedural History: Appeal from the Appellate Division affirming, without opinion, an order of the Supreme Court of NY, which denied plaintiff's motion for an order striking defendant's motion for summary judgment.  On appeal, order modified with costs, by denying defendant's cross motion for summary judgment and affirm the previous judgment.

 

Facts:  In a written K, plaintiff had undertaken to furnish  garage services for a period of five years to guests of the Savoy Hilton and to pay Savoy 10% of all of its gross transient storage charges to the hotel guests.  In return, Savoy agreed to use all of its reasonable efforts to provide the garage with exclusive opportunity for storage of the cars of the hotel guests.

 

Less than 2 years later, Savoy went out of business and the hotel was demolished, and an office building was erected on its site.  Garage says half the interest in the property was sold to GM, and now Savoy and GM co-own, with Savoy selling 50% of its stock to GM.

 

The agreement doesn't specifically obligate defendant to remain in the hotel business during the contract term or fulfill its obligations for the term even it should wish to cease operation of a hotel.  The only provision concerning termination allows Savoy to terminate K should the garage default within 30 days after receiving written notice.  It was provided further that all duties of each of the parties was to be performed "during the term" of K.

 

Issue(s): Whether the closing of the hotel prior to the expiration of the contract period, due to the asserted financial inability of Savoy to remain in the hotel business, subjects it to continued liability under the contract?

 

Court's Rationale/Reasoning: The Supreme Court held the contract to be a requirements contract, and that absent an express contract provision requiring Savoy to remain in business, and absent allegations of bad faith, Savoy was not liable for anticipatory breach of K.  But, by ceasing operations of its hotel, Savoy is liable from its agreement with the garage in regards to an implied condition of performance.

 

This is not a requirements contract, but more like a license of franchise by Savoy to the garage.  Thus, services were rendered by the garage not to Savoy but to third parties (hotel guests).  Garage gained preferred position with customers from the hotel, and hotel got the guarantee its guests would retain garage services if they needed them.  Absent bad faith, there was no breach here.

 

Perhaps the most common illustration of assumption of risk is an impracticability that arises b/c a promisor is insolvent and is unable to make a scheduled payment.  In these circumstances the promisor is not excused irrespective of the reason for the promisor's insolvency.  The insolvent party will be deemed to have assumed the risk of becoming insolvent.

 

The BOP is on the party who asserts the impracticability.  The promisor must show that the task to be done could not be accomplished.

 

Rule: If the buyer went out of business or changed the way of doing business with the effect of lessening its requirements, it had to respond in damages.

 

Holding: Yes.  The hotel a party can't just say they are bankrupt to void a contract unilaterally, by showing it would be financially disadvantageous to perform on K; such a rule would place all K's in jeopardy. 

 

1. Impracticability of performance - introduction

Topic Notes:

Impracticability of performance: introduction

When an event happens after the formation of K that makes it impossible to perform a contractual promise.  AT common law, two excuses applied:

 

(1) promise of personal services made impossible by death or unavoidable illness

(2) where there was a supervening change in the law making performance unlawful and therefore legally impossible

 

If facts change so as to render impossible party's performance, it is often said that the continued existence of the contemplated state of facts is a condition precedent to the promisor's duty under K.  A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost.

 

When such an issue comes up, courts are asked to construct a condition of performance based on changed circumstances, a process of three steps:

 

(1) A contingency -- something unexpected -- must have occurred. (relates to foreseeability; promisor must show impossibility or impracticability, but must also the show the absence of an assumption of the risk the event would occur)

(2) The risk of the unexpected occurrence must not have been allocated either by agreement or by custom.

(3) Occurrence of the contingency must have rendered performance commercially impracticable.

 

Three kinds of events  produce an almost automatic excuse for nonperformance:

(1) death of a person who is to personally perform

(2) supervening illegality of a performance

(3) the destruction of the subject matter

 

When one goes beyond these three categories, relief is most justified if unexpected events inflict a loss on one party and provide a windfall gain for the other or where the excuse would save one party from an unexpected loss while leaving the other party in a position no worse than it would have w/o K.

 

 

 

2. The UCC and second restatement

Topic Notes:

The UCC and Second Restatement

UCC makes no significant changes to the prior law...but speak about assumption of risk at great length.  There are questions which must be asked before a party may successfully assert the defense of impracticability:

 

(1) Was there an event that changed a basic assumption shared by both parties on which K was made?  If the nonoccurrence of this event was not a basic assumption of both parties, then the seller does not have the defense of impracticability.

(2) Did that event in fact make performance impossible or at least impracticable?  A performance is rendered impracticable if it can be accomplished only with extreme and unreasonable difficulty.

(3) Even if questions 1 & 2 are answered affirmatively, one must still inquire whether the party who seeks to utilize the defense of impracticability assumed this risk by the terms of K.  If the risk was assumed, there will be no defense of impracticability.

(4) If K does not allocate the risk, to whom should the risk be allocated?  Legal and economic analysis requires the answer to 2 questions before the risk is allocated.

      (a) Who was in a better position to prevent the risk from occurring?  If one party could have prevented the supervening event, the risk should be allocated to that party.  Often, however, when catclysmic events occur, neither party could have prevented the event, in which case the next question must be tackled.

      (b) Who is better able to bear the risk?  This is not a test of which of the parties has greater wealth.  Rather, who is better able to spread the risk as by insurance, by hedging on the futures market, or by passing on the economic impact of the event to the ultimate customer.

 

There are 5 classifications of impossibility or impracticability:

(a) destruction, deterioration or unavailability of the subject matter or the tangible means of performance

(b) failure of the contemplated mode of delivery or payment

(c) supervening prohibition or prevention by law

(d) failure of the intangible means of performance

(e) death or illness

 

3. Destruction or unavailability of the subject matter or tangible means of performance

Topic Notes:

Destruction or unavailability of the subject matter or tangible means of performance

Impossibility is an excuse for non-performance where there has been a fortuitous destruction, material deterioration, or unavailability of the subject matter or tangible means of performance of K (fire to music hall prevents plaintiff from using it)

 

--defendant excused and plaintiff excused, this under doctrine of prospective failure of performance.  Music hall's availability was under impossibility in fact and defendant didn't assume the risk of the destruction of the music hall.

 

The question comes up when there is a source leaned on by the promising party, if the promising party could foresee the inability occurring (ie crop failures from defendant's land, factory supplies from owner's factory).  There is also unanticipated difficulty, when something unforeseen renders something impossible or impracticable (ie earthquake destroys building days before being built on schedule).  But if the building was rendered useless or less valuable b/c of defective plans and specifications supplied by the owner. 

 

Parties are free to allocate the risks by agreement.  If builder warrants owner's plans as adequate, then builder has assumed the risk and may not claim the excuse they are inadequate.

 

4. Failure of the contemplated mode of performance

Topic Notes:

Strict liability

Strict liability is when the defendant has to pay damages although the defendant neither intentionally acted nor failed to live up to the objective standard of reasonable care that traditionally has been at the root of negligence law.

 

Animals

The care and maintenance of animals is one of the first areas selected by courts for the strict imposition of strict liability.  Liability may be imposed on those who keep, possess, or harbor the animal, not just the owner.

 

Trespassing Animals

The owner of animals of a kind likely to roam and do damage is strictly liable for their trespasses.  The kind are limited (sheep, cattle, common fowl, hogs, goats, chickens, and even pigeons.  Dogs and cats not included.

 

"fencing out" statutes said when a party fenced in their animals, they were strictly liable when they escaped.

 

Wild animals

Under common law, owner or possessor of a nondomesticated animal was subject to strict liability if the animal injured anyone.

 

Some courts have applied a negligence standard with regard to the liability of persons who display wild animals to the public, although the standard of care is often raised to one of extreme caution.

 

Domestic animals

Common law rule is that a domestic animal such as a dog or cat is entitled to one bite, but the cases do not bear this out.  If the owner knows or has reason to know the animal they possess has a vicious propensity to harm another, they are strictly liable.  But the term vicious is not the test, it is instead whether the animal has "a dangerous propensity abnormal to its class."

 

If the plaintiff is unable to prove that the owner knew or should have known of their animal's nature, then strict liability does not apply and plaintiff must prove negligence in order to recover.  State statutes have effected this standard, by requiring some owners to get muzzles or leashes for their pets (negligence per se), or by putting up signs that say "BAD DOG" in a prominent place for notice to invitees.

 

5. Supervening Prohibition or prevention by law

Topic Notes:

Supervening Prohibition or prevention by law

If an agreement is illegal when made, the problem is illegality.  If instead, an agreement that is legal when made later becomes illegal, the issue is not illegality but supervening impossibility.  Lawful performance impossible.

 

If the law intervenes b/c of the promisor's fault, the defense is denied b/c of:

(1) contributory fault

(2) the impracticability is only subjective

 

If the promisor's wrongdoing is the basis for the issuance of injunction, the defense is disallowed.  If it is not the basis, it can provide a legal excuse for non-performance.

 

Non-judicial action by govt'l. agency affecting a particular party rather than the public generally has been held to excuse performance.

 

A promisor may assume the risk of a change of law or other governmental action

 

6. Failure of the intangible means of performance

Topic Notes:

Failure of the intangible means of performance

If a party by a contract charges themselves with an obligation possible to be performed, unforeseen difficulties, however great, will not excuse them, unless performance is rendered impossible by act of G-D, the law, or the other party.

 

7. Death or disability

Topic Notes:

Death or disability

The death of the offeror terminates the power of acceptance created by a revocable offer.  Death, after formation, generally does not discharge K. 

 

If a K calls for personal performance by the promisor or a third person, and the person becomes ill or dies as to make performance impossible or seriously injurious to their health, the promisor's duty is excused unless the risk was assumed.  On the other hand, if the performance is able to be delegated to another person/party, performance is not excused.

 

Personal representative of deceased employee whose death discharges the K is entitled to quasi-contractual recovery for the reasonable value of the services rendered.  Some courts have allowed a set-off of damages for non-performance against the amount claimed to be recoverable. 

 

8. Apprehension of impracticability or danger

Topic Notes:

Apprehension of impracticability or danger

Closely related to the doctrine of impracticability, is a doctrine that reasonable apprehension of impracticability excuses beginning or continuing performance (situations where impracticability relates to danger or health)

 

SO, under this presumption, an actor may be excused from doing work on a film if he thinks he has a serious illness and admits himself into the hospital for treatment/exam.  An employee is discharged from working in a particular area where an outbreak of an infectious disease takes place. 

 

Second restatement says the promisor must use reasonable efforts to overcome the obstacles to perform.

 

 

 

9. Impracticability

Topic Notes:

Impracticability

(a) Current doctrine

---> impracticability is sufficient, but costs upwards of 300% have not been applicable...parties assume the risk of increased costs within a normal range but might not assume the risk of "extreme and unreasonable difficulty." (UCC says anything that alters the essential nature of the performance" excuses performance)

 

(b) Foreign and Int'l. trends and future development

---> The party who is unduly burdened b/c of changed circumstances may obtain a discharge of K, or the court can adapt K to changed circumstances if both parties want K to continue.  The changed circumstances must be exceptional and the court must balance the interests of both parties.

 

10. Impracticability as an excuse of condition

Topic Notes:

Impracticability as an excuse of condition

(The effect of complying with a condition)

 

At times a condition has been excused b/c of impracticability under the policy of "excuse of conditions by forfeiture":

An express condition may be excused without other reason if:

(a) the failure to excuse the condition will result in extreme forfeiture; and

(b) the condition being excused is not a material part of the agreed exchange

 

Impracticability may not be used to excuse a constructive condition, b/c, by definition, such a condition is a material part of the agreed exchange.  (under music hall example, the condition would not be excused b/c no forfeiture is involved and the condition is a material part of the agreed exchange).

 

 

 

 

11. Existing impracticability

Topic Notes:

Existing impracticability

Impracticability may exist at the time of the agreement.  To use this as an excuse if the party seeking to use the doctrine must show the absence of knowledge or reason to know the facts that made performance impossible.  In addition, existing impracticability discharges a contract has already arisen.

 

Knowledge of existing impracticability is one way of creating an assumption of risk.

 

12. Frustration of the venture

Topic Notes:

Frustration of the venture

Frustration deals with the party/buyer who is obliged to pay (this would be their defense).

 

A party must comply with 4 requirements in order to make the defense of frustration of the venture:

(1) The object of one of the parties in entering into K must be frustrated by a supervening event.

(2) The other party must also have contracted on the basis of the attainment of this object.  The attainment of this object was a basic assumption to both parties.

(3) The frustration must be total or nearly total -- in more modern terms the principle purpose of the promisor (the one seeking to use the defense) must be either totally or substantially frustrated.  This distinction is akin to the distinction between impossibility and impracticability.

(4) The party seeking to use the defense must not have assumed a greater obligation than the law imposes.  In addition, as in the case of impracticability, the party seeking to use the defense must not be guilty of contributory fault.  Thus, if the promisor was already in material breach at the time of the frustrating event, the defense is not available.

 

 

 

 

 

 

13. Temporary impracticability or frustration

Topic Notes:

Temporary impracticability or frustration

Temporary impracticability, such as temporarily incapacitating illness, may give rise to a prospective inability to perform.  Where the promisor encounters temporary impracticability, whether or not the encounter provides an excuse, the prospective inability will normally give the

other party a right to suspend performance.  However, if the prospective inability created by the temporary impracticability is so serious that there is reasonable probability that substantial performance will not be forthcoming, the other party may cancel K.

 

Whether there is an obligation to perform in the aftermath of temporary impracticability depends on whether the delay will make performance substantially more burdensome.  If it will, the temporary impracticability not only suspends, but discharges the obligation.

 

14. Partial impracticability

Topic Notes:

Partial impracticability

When promisors have the defense of impracticability as to only a part of their performances they are excused from performing those parts except that, if they can render reasonable substitute performances, they are obliged to do so. If substantial performance is still practicable, then performance on the remainder of K is required.

 

Performance is deemed impracticable if the partial impracticability has made the remaining performance substantially more burdensome. 

 

If the failure to perform the part that is partially impossible does not prevent substantial performance, both parties are obliged to perform the rest of K.  The party who has a defense has an excuse as to the impossible part and the other may have a claim for restitution.

 

15. Subjective impracticability -- contributory fault

Topic Notes:

Subjective impracticability -- contributory fault

First restatement: a defense of impracticability may not be based on subjective impracticability; objective impracticability was required.

 

Second restatement:  recognizes that subjective impracticability involves assumption of the risk or contributory fault.

 

Perhaps the most common illustration of assumption of the risk is an impracticability that arises b/c a promisor is insolvent and is unable to make a scheduled payment.  In these circumstances the promisor is not excused irrespective of the reason for the promisor's insolvency.  The insolvent party will be deemed to have assumed the risk of becoming insolvent.

 

The BOP is on the party who asserts impracticability.  The promisor must show that the task to be done could not be accomplished.

 

 

16. Assumption of the risk

Topic Notes:

Assumption of the risk

One of the key issues in impracticability or frustration case is whether the promisor assumed the risk in question.  Absent a clear assumption of risk, the court, nevertheless, frequently concludes that the promisor has assumed the risk.

 

Community interests in having contracts enforced according to their terms is outweighed by the commercial senselessness of requiring performance.  Fundamentally, the issue is one of equitable allocation.

 

In a case when a supplier middle-man promised to deliver 1.5 million gallons of molasses to another but the refinery he worked with closed down, the supplier tried to impose impracticability as a defense, but was denied.  The court held the supplier was contributory in his negligence by choosing to work with a particular refinery.

 

If the refinery burned down, of course, the supplier would have impracticability as a defense.

 

But if the supplier were dealing with the government, and the government told the supplier to deal with only a specific supplier, the supplier would also have the defense of impracticability, under the premise the government made him deal with a single provider.

 

Custom and usage are particularly important when discussing cases that conclude from surrounding circumstances that a party assumed the risk.  For example, a middleman is expected to lock up a source of supply before committing to a resale, and an auto dealer shouldn't commit to supply a vehicle that the manufacturer does not make.

 

17. Technological impracticability -- unforeseen possibilities

Topic Notes:

Technological impracticability -- unforeseen possibilities

(a) technological impracticability

--->Courts have generally held contractors assume the risk

 

ex: gov't working with contractor on artillery shells at a particular price had issues with a particular method of production, in which the contractor said they'd need a specific type of equipment while the gov't said they wouldn't.  Contractor acquiesced, but gov't later, after testing things out, changed its mind.  Contractor unsuccessfully sued for extra compensation based on the added losses based on the extra money they'd need as a result of using the technology they previously insisted on.  The court said they assumed the risk when they agreed to the original specifications, which constituted an implied warranty.

 

(b) unforeseen possibilities

---> question of interpretation is how courts have dealt with this

 

18. Foreseeability

Topic Notes:

Foreseeability

If the event that is the basis of a claim of impracticability or frustration is reasonably foreseeable, according to abundant authority, the defense will be lost b/c the promisor should have provided for the contingency in K.  Failure to provide the foreseeable contingency is deemed to demonstrate that the promisor assumed the risk.

 

A few authorities argue that allocation of the risks on the basis of foreseeability should be abandoned or least modified.  Second restatement states that foreseeability is only one of the factors to be considered in determining whether the defense of impracticability is available.  This b/c (1) the promisor should be free to explain why there was no clause in K covering the contingency (ie the other party was the dominant party and therefore the promisor was forced to sign a standard form K); and (2)the failure to deal with an improbable or insignificant contingency, even though foreseen, should not be deemed to amount to an assumption of risk.

 

19. Force majeure clauses

Topic Notes:

Force majeure clauses

B/c most cases have held that failure to cover a foreseeable risk in K deprives a party of the defense of impracticability, the best way to protect a client from this rule is to provide against foreseeability.  This is where force majeure clauses (or excusable delay clauses) come into play.  They may be oral.  These will diminish the availability of an excuse.

 

Drafting such a clause involves a number of intricate problems.  Specificity may be important.  Courts have held, therefore, that if a party desires to broaden the protections available under the impracticability doctrine, the excusing contingencies should be described with particularity and not general language.  Yet if the risk is unforeseen and unforeseeable then the exculpatory clause that enlarges on excuses provided by law may be phrased in general terms.  Yet, even here the drafter faces a number of problems. 

 

20. Underlying rationale

Topic Notes:

Underlying rationale

Contract liability is no-fault liability, and the fundamental maxim is agreements must be kept.  Even if performance is impossible or senseless, the assessment of damages for non-performance remains a possibility.  Still, several policy judgments have been made to create the limited excuses for non-performance discussed in this chapter.

 

Contract liability stems from consent.  If an event occurs that is totally outside the contemplation of the parties and drastically shifts the nature of the risks ostensibly consented to, is the consent real?

 

Doctrines of impracticability and frustration are closely allied with the doctrine of mutual mistake.  The distinction is that mutual mistake as a doctrine is applicable only if the parties are mistaken as to a vital fact, while ordinary frustration and impracticability relate to future events.  Notions of conscionability and fairness tend to support the doctrines.  The law deems it to be unconscionability sharp practice to take advantage of the mistake of another, and equally unconscionable to take advantage of a mistake as to the course of future events.

 

21. Effect of impracticability on a prior repudiation

Topic Notes:

Effect of impracticability on a prior repudiation

Subsequent impracticability will discharge an anticipatory breach and will ordinarily limit damages in the case of a non-anticipatory breach.  If A repudiated and then died before the time for performance, B would not be entitled to any recovery.  If A repudiated and then died one month after performance was to begin, B would be entitled to damages for only one month.  SO, if A performed for two weeks and A then repudiated and died two weeks later, A would be entitled to damages for the two weeks following the repudiation and preceding A's death.

 

22. Adjusting the rights of the parties

Topic Notes:

Adjusting the rights of the parties

The effect of total supervening impracticability or frustration is to discharge the excused party's remaining duties.  Simultaneously, the other party is discharged b/c the performance of the excused party will not be forthcoming.  If the supervening impracticability or frustration is only

prospective the other party has the same options as in a case where the non-performance would be breach, except that there will not be a cause of action for breach.

 

Where K has been discharged for impracticability or frustration, it is often necessary, in the interests of justice, to adjust the rights of the parties.  (if excused party has rendered part performance before impracticability, recovery for part may be available under doctrine of divisibility)

 

If K is deemed not to be divisible, another possibility is restitution.  The rule has been in the past to place the parties in the position they would have been in at the occurrence of the frustrating event.  U.S. Courts have generally taken the view that when a contract is discharged by impracticability or frustration, the parties must make restitution for the benefits conferred on them.  Sometimes, benefits may be applied to include expenses incurred in preparation for performance.  But now, courts are also leaning towards a standard of justice more than correcting unjust enrichment.

 

It's even possible to reshape K so that the duties of the parties will continue, which may be done by allocation, by the rules governing temporary or partial impracticability or by supplying a term that is "reasonable in the circumstances."

 

23. Risk of casualty losses

Topic Notes:

Risk of casualty losses

When goods or real property are in the process of being sold, or are under lease or bailment, frequently the question arises as to which of the parties must bear the risk of damage or destruction of the subject matter.

 

The issue of risk of loss can be illustrated by an accidental fire destroys a building between the time a contract for sale is made and the time for closing of a title.  Three views:

 

(1) Majority: risk of loss on purchaser by applying the concept of equitable conversion: once K is made, purchaser regarded by a court of equity as the owner (risk of loss here means the buyer must pay for the property even though the buyer did not have legal title at the time of the casualty)

(2) Minority: buyer doesn't assume risk (additional question pops up: must the seller respond in damages for the failure to convey the property? No, b/c the seller has the defense of impracticability based on the destruction of the subject matter.)

(3) Places risk of loss on purchaser only if the purchaser is in possession or has legal title.

 

XVI. Damages

SULLIVAN V. O'CONNOR (1973)

Case Brief:

Style (name of case): Sullivan v. O'Connor (1973)

 

Cause of action: The following is a cause of action for damages as the result of breach of contract in respect to a nose operation.

 

Procedural History: Plaintiff patient secured jury verdict of $13.5K against defendant surgeon.  On appeal, reversed.

 

Facts:  Plaintiff was an entertainer who contracted with a plastic surgeon for procedures to be done to her face.  After three surgeries the surgeon failed to deliver on his promise of enhancing her appearance.  Thus, she brings a cause of action against the doctor.

 

Declaration in two counts: (1) plaintiff alleged she entered into K with defendant promised to enhance her beauty and improve her appearance.  That this did not happen after performing the surgery constituted breach as the surgery caused deformity and disfigurement, as well as cause her emotional and physical pain, as well as other damage and expense.

 

(2) Based on the same transaction, was in the conventional form of malpractice, charging the defendant with negligence in performing the surgery.  Defendant generally denies both charges.

 

Issue(s): Under contract law regarding damages, should the trial court's jury instructions been directed toward reliance or expectation damages for a breach of contract involving special arrangement with patient/doctor?

 

Court's Rationale/Reasoning: There was a breach of a contract. Next is the measurement of damages: Since the Plaintiff had to endure pain and suffering as a result of the defendant's breach, therefore the difference between the pain & suffering she would have experienced during the first, second surgeries, minus the pain & suffering she was caused by the breach or the third surgery. Damages should be awarded for any worsening of the plaintiff's condition resulting from the breach. A breach of a patient-doctor special agreement should have damages awarded which place the plaintiff back in the position he occupied just before the parties entered upon the agreement, for the harm suffered in "reliance," upon that agreement.

The pain & suffering was wasted during the first two surgeries, and because a third was required, due to the breach, this waste is compensable to restore back to status quo.

 

Rule: Contract requires under breach a recovery for remedy based on (a) offer, (b) expectation, and under expectation, reliance, and under awareness of the consideration, that the damage was foreseeable from the breach.  Party relied upon promise to her damage.

 

There was an out-of-pocket expense/direct damages from breach/pain and suffering for the third surgery.

 

Holding: Yes. Action that is a little suspect should be clearly proven in court.  The case also suggests the jury should be instructed it is unlikely a physician would make such a promise and that an optimistic statement of encouragement should not be taken as a promise when it is intended only as therapeutic.

 

The expectation of benefit cannot be recovered because of a lack of probative evidence or for policy reasons.  In such instances, the aggrieved party may have recovery based on one or both of the other interests.

 

 

MADER V. STEPHENSON (1976)

Case Brief:

Style (name of case): Mader v. Stephenson (1976)

 

Cause of action: The following is a cause of action for damages

 

Procedural History: Plaintiff-appellants were awarded a judgment against defendant-appellee in the sum of $1K with interest from 10/11/73, the date of the contract, in the sum of $143.86, for a total of $1143.86.  On appeal, 50 bucks were awarded back to the appellee and an additional 150 bucks for attorney's fees.

 

Facts: Plaintiffs appealed second finding of the trial court, in which they claim the following expenses:  $212 for flight expenses, $500 costs for attorney's fees, and another $500 for travel, phone calls and other expenses in the "pursuit of justice."

 

Issue(s): Under contract law regarding remedies, do extra expenses for travel, legal fees and other extraneous items bring rise to extra damages when the original trial court failed to recognize the aforementioned items as part of their original award?

 

Court's Rationale/Reasoning: Wyoming law here gives the court the ability to determine whether there was reasonable cause for the appeal and if they cannot, gives the ability to tax from the lower courts' judgment to the appellees.  Further there may be further damages to appellee, which could range from $25 to $3000.  Since there was no reasonable cause for the appeal, the tax is on.

 

Rule: Wyoming rule 72(k), and the fact that absent state authority, or contractual agreement, attorney fees are not recoverable by a party...nor are travel expenses in connection with the suit

recoverable.  There is no statutory provision for recovery of travel expenses or time for preparation of a lawsuit.  Any recovery for costs is purely statutory.

 

Holding: No. Absent statutory law or a reasonable claim, there is no claim for such aforementioned damages.

 

 

 

 

 

 

 

 

 

 

 

 

GRUBER V. S-M NEWS CO. (1954)

Case Brief:

Style (name of case): Gruber v. S-M News Co. (1954)

 

Cause of action: The following is a cause of action for breach of contract.  Under the 1st count (other 2 out) that a contract between them and defendant to pay for the making, sale and distribution of greeting cards, and after plaintiff complied, the defendant did not.

 

Procedural History: The plaintiffs expenditures for labor and material reasonably made in essential reliance of defendant's promise was $19,934.44.  From this sum must be deducted the net amount realized by plaintiffs from the sale of 40K sets at 6 cents a set which was $2080.  The amount of damages is $17,854.44.

 

Facts: Plaintiffs contracted with defendants to make, sell and distribute greeting cards, according to samples provided by defendant, to the amount of 90K sets of a dozen.  The cards were to be ready for Christmas season the second week in October, which they were.  Defendant got exclusive sale and distribution rights to those sets. 

 

In consideration, defendant bound itself to sell all of the sets and use its resources for scientific sales promotion, national advertising, newsstand outlets and sales organizations.  Defendant further bound itself, according to plaintiffs, to pay 84 cents for each set f.o.b. its wholesalers respective places of business where, according to defendant's regular checkup, the cards had been sold at retail.  Credit was to be allowed for sets returned to plaintiffs unsold.  Plaintiffs abided by all terms of K, and further notified defendant about this.  Damages upon non-performance of $101,800 demanded.

 

An expert (card store owner) claimed he would have gotten all 50 of his boxes sold.

 

(f.o.b.: a commodity is placed free on board the carrier and the buyer assumes all the risks associated not caused by the seller.  If a load is wrecked or damaged in transit, the buyer must pay the invoice price to the seller and then file a claim with the carrier to recover damages; also known as suitable shipping conditions.)

 

Issue(s): Under contract law regarding damages, may a party assert a figure for anticipated loss in event of full performance by defendant when they contracted to pay a certain figure for greeting cards sold?

 

Court's Rationale/Reasoning: Plaintiff has BOP here of proving a reasonably certain and definite factual basis for computation, which they assumed would be for every box of cards sold.  But according to the court, this is an unrealistic figure, based on previous case law involving mass produced items, coupled with the general premise behind the greeting cards themselves (united

nations?) which might not sell like plaintiffs imagined.  An expert's testimony for 50 boxes also cannot possibly be used to account for all 90K's worth of cards.

 

There are situations where there is no such relationship as plaintiff's assertion of full performance by defendant in a cause of action, and a plaintiff may recover expenditures in reliance upon defendant's promise without regard to profit if that promise had been fully performed by defendant, as in actions for restitution and ones based upon fraud.  The restatement even adds the plaintiff, when the amount of non-performance amounts to a loss must be deducted from plaintiff's expenditures.

 

It is true defendants have the burden of proof for proving loss in an event, and they had not, but for such an almost fictional summary of loss allocation by the plaintiffs, the court is forced to go with out of pocket expenses as a remedy.  The damages in regard to the manufacture are minimal as well, for the plates they were printed on belonged to defendants as well.

 

Rule: Plaintiff's recovery for their out-of-pocket expenses must be diminished by any loss that would result from defendant's full performance.

 

The burden of proving loss in event of performance properly rests on the defendant who by its wrong has made the question relevant to the right of the plaintiffs.  (court held defendants didn't sustain this BOP)

 

Holding: No.  Despite defendant's lack of complying with its end of K, plaintiff failed to establish such a basis for a speculative award of selling all the boxes of cards.  In such an instance, plaintiffs are instead reimbursed for all out-of-pocket costs which never would have happened had they not contracted with defendant.

 

EMERY V. CALEDONIA SAND AND GRAVEL CO., INC. (1977)

Case Brief:

Style (name of case): Emery v. Caledonia Sand and Gravel Co., Inc. (1977)

 

Cause of action: The following is a cause of action for damages as a result of breach of construction K.

 

Procedural History: Trial court found the following damages to PL: 

(1) $3K for the 2K yards of fill needed to bring the back slopes to the specified grade.

(2) $10.5K for cost of 6K cu. yds. of topsoil required to restore topsoil originally.

(3) $3K as the fair & reasonable value of lost hay crops from 1972-75.

(4) $1020 as fair and reasonable cost of farm work to restore topsoil.

 

DF contends court erred in considering certain parol evidence relative to PL understanding that their land would be restored so as to be usable as a hay field.  Written K made no mention of hayfield use, and says oral statements of such degree should be out on parol evidence.  On appeal, affirmed.

 

Facts:  Landfill removal K between parties.  K called for removal of earth from certain side of farmland at a specified unit charge.  The pit was to be restored after excavation efforts, no steeper than 6:1 in relation to level with backslopes.  K also called for replacement of topsoil, and to fertilize every area capable of growing stuff, and to clean up all areas disturbed by operation to owner's specification.

 

PL fully paid for fill removed but dissatisfied by the replacement effort of DF.  The slopes were bad, and much of the topsoil were missing.  PL filed for damages in respect to not getting K specifications to their liking.

 

Issue(s): Under contract regarding damages, does a contractual clause requiring PL's satisfaction with DF's work require PL to show cause for damages when the specs are not done to PL's liking?

 

Court's Rationale/Reasoning: DF's contention of the parol evidence is of no value to this court.  The fact the K mentioned owner's specifications makes an umbrella understanding of sorts for

the topsoil and hayfield requirements, so parol evidence didn't contrast the original contractual duties expressed in the writing.

 

There is a foreseeability issue here with respect to damages.  If there was any reason for DF to not know there would be issue in regard to being able to use the dug up land for farming purposes, then there are damages.  Since the K called for performance to PL's liking, there in effect is an umbrella standard for the ability to bring a cause of action.

 

In respect to mitigating damages, there was no duty for husband to speak up when the land was being topped off by the DF's.  This is wrong b/c for the expenditures would have been prohibitive to getting any money back.

 

Rule: "If the injury is one that follows the breach in the usual course of events, there is sufficient reason for DF to foresee it; otherwise, it must be shown specifically that DF had reason to know the facts and to foresee the injury."

 

Holding: No.  The evidence in this case is clear that no hay crop would be possible w/o the restoration of topsoil.  Since this would involve a $10.5K expense to fix, there was no error for the court to conclude that the expenditure wasn't within the plaintiffs duty to mitigate.  In other words, the damage was foreseeable.

 

WASSENAAR V. PANOS (1983)

Case Brief:

Style (name of case): Wassenaar v. Panos (1983)

 

Cause of action: The following is a cause of action for liquidated damages as the result of a breach of K.

 

Procedural History: The Circuit Court trial jury found in favor of the plaintiff $24,640 award.  Court of Appeals reversed.  Supreme Court of Wisconsin, affirmed trial court's ruling, therefore reversing the DC's ruling.

 

Facts: DF employer terminated PL employee's K 21 months prior to K's expiration date.  PL was unemployed for 3.5 months, where he remained employed until time of trial.  In parties employment K, there was a stipulated damages clause in K which PL figured he was owed $24,640, or 21 months salary.

 

Issue(s): Whether a stipulated damages clause should be held void as a penalty b/c it fixes unreasonably large damages when DF breaches its employee K with PL?

 

Court's Rationale/Reasoning: Validity of a stipulated damages clause is a question of law for the trial judge rather than a mixed question of fact for a jury. But this doesn't mean this question of law automatically relieves the trial court from a duty to consider evidence to review the lower court's finding. 

 

Because the employer sought to set aside the bargained-for contractual provision stipulating damages, it had the burden of proving facts which would justify the court's conclusion that the clause should not be enforced.  Enforcement of stipulation damages clauses provide: (1) parties the ability to control their exposure to risk by setting payment for breach in advance; (2) avoidance of uncertainty, delay and expense of using courts to decide actual damages; (3) they allow for a remedy consistent with economic efficiency in a competitive market, and (4) parties can clarify what damages are in and which are out as remedies.  In other words, stipulation damages are a substitute for the judicial process when done right.

 

The reasonableness test makes sure the parties keep to their agreement but at the same time prevents abuse.  Such factors include: (1) did the parties intend to provide for damages or for a penalty? [subjective intent of the parties] (2) is the injury caused by the breach one that is difficult or incapable of accurate estimation at the time of K?  (3) are the stipulated damages a reasonable forecast of the harm caused by the breach?

 

The court threw out the first test for its non-essential value in rendering a decision.  The second test, also known as the "difficulty of ascertainment test," is used to show the greater the difficulty

of estimating damages, the more likely the stipulated damages will appear reasonable.  The third factor also tests the "difficulty of ascertainment" by looking at the stipulated damages clause from the perspective of both the time of contracting and time of breach.

(Usually, courts have determined reasonableness of stipulated damages clause must be judged at time of contract.)

 

In providing for stipulated damages, parties should anticipate the types of damages not usually awarded by law.  Here, the court finds the parties' estimates (foreseeability) at time of formation of anticipated damages was reasonable when consequential damages are taken into account.  Since the math is hard to figure, the court said full salary for the period after the breach is the fairest decision.

 

It was up to DF's to prove PL was not harmed in order to deny consequential damages, but the evidence speaks loudly to the contrary.  PL was out of work and had to find a job, both of which cost money.  So, is the stipulated damages clause so much greater than the loss suffered by the employee that stipulated damages constitute a penalty?  No.  Since there is no evidence in the record of PL's future earnings, there is no evidence supporting DF's contention PL would get a windfall from enforcement of the stipulated damages clause.

 

Rule: The overall single test of validity of whether a stipulated damages clause is reasonable is under the totality of the circumstances (reasonableness).

 

When an employee is wrongfully discharged, damages are the salary the employee would have made during the unexpired term of K plus the expenses of securing another job reduced by the income they earned, will earn, or could earn with reasonable diligence earn, during the unexpired term.

 

When calculating damages for wrongful discharge after breach, courts strictly apply the rules of foreseeability, mitigation and certainty and rarely award consequential damages (permanent injury to reputation, loss of career development opportunities, etc.).

 

Holding: Yes.  As long as there was no abuse by the party which was breached, and as long as there was suffering on the same party, the liquidated damages clause and consequential damages stand.

 

PATTON V. MID-CONTINENT SYSTEMS, INC. (1988)

Case Brief:

Style (name of case): Patton v. Mid-Continent Systems, Inc. (1988)

 

Cause of action: The following cause of action is an appeal of both compensatory and punitive damages ruled against defendant.

 

Procedural History: The District Court, in a diversity suit, found in favor of the plaintiff and awarded compensatory damages and punitive damages in the amount of $2.25M, but were reduced to $100K.  On appeal, the punitive damages award was vacated, the breach of K affirmed and a new trial for compensatory damages was ordered.

 

Facts: PL operated truck stops in Indiana & Michigan.  DF entered into franchise agreement with PL, giving them an exclusive territory, wherein no other truck stops would be franchised, to accept DF's credit cards in payment of fuel and related items.  DF by franchising other truck stops, starting with a franchise to Truck-O-Mat within PL's territory.

 

Issue(s): Under contract law regarding damages, may a party be awarded an arbitrary amount of punitive damages in order to settle a breach of K suit when one party violates its promise not to franchise other truck stops in PL's territory?

 

Court's Rationale/Reasoning: Indiana allows punitive damages to be awarded in suits for breach of K if mingles with the breach are elements of malice, fraud and gross negligence or oppression.  Liability for breach is strict liability, meaning if the promisor fails to perform as agreed, they have broken their K even though the failure may have been beyond their control.  This is b/c K's are often an insurance component.  Promisor promises to perform or compensate for non-performance, and the party assuming the risk won't be relieved of the consequences if the risk materializes.

 

Even if the breach is deliberate, it isn't necessarily blameworthy, meaning the promisor may have found performance with another party is more beneficial.  If so, efficiency is promoted by allowing him to break his promise, provided he takes care of the breached party (compensation).  If the breaching party is forced to pay more than that, an efficient breach may be deterred, and the law isn't up for that.

 

Some breaches are opportunistic, where the party wants the benefit of the bargain w/o bearing the agreed-upon cost, and exploits the inadequacies of purely compensatory remedies (b/c pre- and post-judgment interest rates are below market value), which is the common element in these punitive awards in breach of K cases.    This is not one of those cases. 

 

There was no opportunistic nature or deliberate; it was an honest mistake resulting from the ambiguity of the agreement.  BUT, DF's not fixing the problem even after it was called to their attention, which converted an innocent breach into a deliberate one.  The breach did little or no damage to either plaintiff and it might be seen as an efficient breach in the sense it increased DF's profits by more than it caused anyone losses.  If so, the refusal to rectify the breach, while deliberate, would not justify an award of punitive damages.

 

Rule:  Only in cases where there is malicious, intentional, wanton and reckless behavior would punitive damages be awarded, which could exceed the amount which would have put the breached party in after the contract was performed.

 

Holding: No.  This is only the case where there is a malicious, wanton, reckless or intentional breach of K.  Since there was none compensatory damages are ones which will follow, as long as they are reasonable.

 

Efficient breach: breach of contract in economic theory in which it is more profitable for the breaching party to breach the contract and pay damages than to perform under the contract

 

A. Damages defined

Topic Notes:

Damages defined

The law of remedies defines the scope of secondary rights (rights after breach), and the remedy most often sought after is damages; restitution is usually not a satisfactory remedy and specific performance is available only in special circumstances.

 

Used to be general assumpsit (the actual price) or special assumpsit (when breach was prior to performance, which included pecuniary damages if any)

 

Both kinds of damages involve the "performance interest" of the promisee.  After having fully performed, the plaintiff has earned the agreed price.  When a person is looking for just that, the UCC calls it "action for the price."  When plaintiff has not fully performed, however, it should be and is: what was the extent of the economic injury caused by the breach?

 

Usually, this will be less than the agreed exchange but sometime it will be more.  Compensation allowed by law for this injury is known as damages.  Two categories of recoveries: nominal and punitive.

 

B. Nominal damages

Topic Notes:

Nominal damages

If the aggrieved party has suffered no compensable damages, a judgment for nominal damages will be entered.  The usual amount of nominal damages is six cents or one dollar, and symbolizes the vindication of the wrong done.  This may arise out of 2 settings:

 

(a) plaintiff may bring a cause of action for nominal damages in order to establish a precedent in a test case or in a dispute that is likely to recur in a continuing relationship.  Today, parties will move for a declaratory judgment.

 

(b) more frequently, plaintiffs are likely to institute a cause of action in the belief that substantial damages will be obtained, but fails to establish actual damages at trial and has to settle for nominal damages. (peg to hang costs on)

 

Nowadays, statutory provisions provide if the action could have been brought in a court of inferior jurisdiction, costs won't be recovered unless a specified minimum judgment is entered.

 

(incidentally, punitive damages are known as exemplary damages, and are used primarily to punish malicious or willfil and wanton conduct; purpose: to deter wrongdoing and similar conduct in future)

 

C. Compensatory damages

1. The General Standard - contracts in general

Topic Notes:

The General Standard - contracts in general

For breach of K, the law of damages seeks to place the aggrieved party in the same economic position they would have attained if K had been performed.  This involves an award of both the "losses caused and gains prevented by the defendant's breach, in excess of savings made possible."

 

Modern analysis divides a contracting party's legally protected interests into 3 categories: restitution interest, reliance interest, and an expectation interest. (sometimes there are breach related costs such as consequential damages and expenses incurred in minimizing damages)

 

Restitution interest: benefits conferred upon the other party.

Reliance interest: detriment incurred by changing positions (in most cases, it includes restitution interest which then is a subspecies of reliance)

Expectation interest (or performance interest): prospect of gain from K (not precisely the same as gains prevented b/c it doesn't take into consideration "opportunity costs," or the value of opportunities forgone b/c of the K)

 

Generally, expectation interests are the one interest primarily deserving protection.  In order to protect parties to the fullest, or to put aggrieved parties in the same economic position they would have attained upon full performance of K, restitution and reliance interests need to be protected as well.

 

Expectation interests are often called "the benefit of the bargain" (money which would not have been expended toward earning the expectancy)

 

Purchaser (P) buys land from Buyer (B) for $100K, subject to getting a mortgage loan and plunking down $10K as a down payment.  Appraisal by P's bank shows land has value of $120K and repudiates, but not before B spent $500 for a survey of the land, $500 for banking fees and $1K for an option to purchase adjoining property for more parking.  P's expectancy of profit was to be $20K

 

P's expectation interest: a $20K profit

restitution interest: the $10K down payment

reliance interest: the $2K, but the survey and banking fees were necessary expenses to obtain the expectancy (property)

 

---> Thus, TOTAL RECOVERY WILL BE $31K (the expectation and restitution interests and that part of the reliance interest/option money that would not have to be expended toward earning the expectancy)

 

Reliance interest in two classes: essential reliance/performance costs, and incidental reliance/surplus enhancing costs."

essential reliance/performance costs: expenditures made toward performing K

incidental reliance/surplus enhancing costs:  expenditures not required by K, but in furtherance of it

 

 

 

2. Attorney-client retainers

Topic Notes:

Attorney-client retainers

A lawyer has no expectancy interest in a special retainer contract, that is, a contract retaining a lawyer for a particular case.  They are terminable at will by the client for any reasons.  If client fires a lawyer w/o cause, they may recover in quantum meruit, but subject to few exceptions, has no expectancy damages, and may not keep unrefundable retainers.

 

Health care professionals also are inhibited from expectancy damages, but other licensed professionals recover such damages for breach.

 

D. Foreseeability

Topic Notes:

 

 

 

ANGLIA TELEVISION V. REED (1971)

Case Brief:

Style (name of case): Anglia Television v. Reed (1971)

 

Cause of action: The following is a cause of action for damages as the result of breach of K.

 

Procedural History: This was an appeal by defendant from the judgment of trial court the sum of 2750 pounds.  Appeal dismissed.

 

Facts: Anglia signed Reed to star in a film or play for TV.  K was for 1050 pounds salary, a per week stipend of $100, first class airfare to and from the US, etc.  It was all subject the Minister of Labor permitting defendant to come to England, which was given.  Defendant repudiated K, under the notion defendant's agent had already booked him for another engagement.  Plaintitfs tried to find a replacement but could not, so they accepted repudiation, and subsequently abandoned the proposed film, giving notice to the people they were to do business with and so on.

 

Reed does not dispute his liability, but the question came to damages, as Anglia could not claim any.  No profit assumption.  So, instead, plaintiffs claim for wasted expenditures of director's fees, designer's fees, as well as other fees of employees.  Plaintiff did not say the money was wasted solely b/c of defendant.

 

Defendant claims a point of law:  that plaintiffs cannot recover for expenditure before K was concluded by Reed.  They could only recover for expenditures afterwards, and since it was minimal, is all plaintiffs could recover.

 

Issue(s): Under contract law regarding damages, did defendant rely so heavily on defendant's conduct that plaintiff be able to sue for damages as result of both before and after the contract's breach?

 

Court's Rationale/Reasoning: If the plaintiff claims the wasted expenditure, they are not limited to the expenditure incurred after K was concluded.  He can claim also the expenditure before K, provided it was such as a reasonably prudent person in such a contract would surmise would be an expense if K was broken.

 

Applying such a thought process, Reed reasonably knew there were some expenditures spent in trying to lure and obtain his services for the program.  And, if Reed broke K, he could assume plaintiffs would be put to some measure of expense trying to find a replacement, or wasted all together.

 

Rule: A party cannot claim for losses after a K has failed, for there are no losses to speak of, except potential ones and losses known to have come before K (if any).

 

Holding: Yes.  Defendant is responsible for both plaintiff's reliance on him before and after K was formed, and damages are apportioned accordingly.

 

HADLEY V. BAXENDALE (1854)

Case Brief:

Style (name of case): Hadley v. Baxendale (1854)

 

Cause of action: The following is a cause of action for damages as the result of an untimely delay.

 

Procedural History: Jury verdict for plaintiff include an award of damages for the lost profit of the mill, but trial court's basis for verdict was vacated and remanded.

 

Facts: H operated a grist mill and was forced to suspend operations b/c of a broken shaft.  Plaintiff's employee brought shaft to B for shipment to an engineering company which was to issue a new shaft.  B inexcusably delayed shipment for several days, which caused H to shut down its mill for a greater period of time than it would had the shipment been seasonably dispatched. 

 

Issue(s): Under contract law regarding remedies, does an untimely delay bring rise to damages when one party waits for a crucial part to be delivered to its factory?

 

Court's Rationale/Reasoning: Delay of a shaft in usual course of business wasn't supposed to take as long as it did, and such a delay in a shipment of chattel results in a loss of value of its use for the period of delay (rental value).  Liability for damages in excess of that value, according to rule 2, will only be awarded if such additional damages were in the contemplation of both parties as a probable consequence of breach.  Such consequences must be foreseeable.

 

Thus, if the shipper had known that the mill was shut down b/c of the want of the shaft and that no substitute shaft was available, the shipper would have been liable for consequential damages consisting of lost profits of the mill.  To the extent that contracting parties are guided by legal consequences, the rule promotes economic efficiency by giving purchaser of goods and services an incentive to divulge all relevant information to sellers.

 

Rule: Decision to reverse based on policy of protecting enterprises in the industrial revolution.  There were 2 rules the court laid down:

 

(1) first the aggrieved party may recover those damages "as may fairly and reasonably be considered...arising naturally (according to the usual course of things), from such breach of K itself. (today these would be general damages)

 

(2) recovery is allowed for damages "such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made K, as the probable result of the breach of it." (less obvious kinds of damages are deemed to be contemplated if the promisor knows or has a reason to know the special circumstances which will give rise to such damages, also known as consequential damages)

 

Holding: Yes, but not here.  Mere notice of special circumstances is not sufficient basis for imposing liability for consequential damages (the other party must know and accept those special conditions in the contract.  In other words, there must be an expressed or manifestation of intent to assume the risk of foreseeable consequential damages.)

 

1. Rule of Hadley v. Baxendale

Topic Notes:

Rule of Hadley v. Baxendale

H operated a grist mill and was forced to suspend operations b/c of a broken shaft.  Plaintiff's employee brought shaft to B for shipment to an engineering company which was to issue a new shaft.  B inexcusably delayed shipment for several days, which caused H to shut down its mill for a greater period of time than it would had the shipment been seasonably dispatched.  Jury

verdict for plaintiff include an award of damages for the lost profit of the mill, but trial court's basis for verdict was reversed.

 

Decision to reverse based on policy of protecting enterprises in the industrial revolution.  There were 2 rules the court laid down:

 

(1) first the aggrieved party may recover those damages "as may fairly and reasonably be considered...arising naturally (according to the usual course of things), from such breach of K itself. (today these would be general damages)

 

(2) recovery is allowed for damages "such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made K, as the probable result of the breach of it." (less obvious kinds of damages are deemed to be contemplated if the promisor knows or has a reason to know the special circumstances which will give rise to such damages, also known as consequential damages)

 

Delay of a shaft in usual course of business wasn't supposed to take as long as it did, and such a delay in a shipment of chattel results in a loss of value of its use for the period of delay (rental value).  Liability for damages in excess of that value, according to rule 2, will only be awarded if such additional damages were in the contemplation of both parties as a probable consequence of breach.  Such consequences must be foreseeable.

 

Thus, if the shipper had known that the mill was shut down b/c of the want of the shaft and that no substitute shaft was available, the shipper would have been liable for consequential damages consisting of lost profits of the mill.  To the extent that contracting parties are guided by legal consequences, the rule promotes economic efficiency by giving purchaser of goods and services an incentive to divulge all relevant information to sellers.

 

Mere notice of special circumstances is not sufficient basis for imposing liability for consequential damages (the other party must know and accept those special conditions in the contract.  In other words, there must be an expressed or manifestation of intent to assume the risk of foreseeable consequential damages.)

 

There is also the "tacit agreement test", where damages for breach of K are based upon the contracting parties' implied or express promise to pay damages in the event of breach, rather than based upon a secondary duty imposed by law as a consequence of the breach.

 

2. Mental distress and personal injury

Topic Notes:

Mental distress and personal injury

No damages for mental distress as an emotional trauma that may be caused by breach of K. (rule of policy in business)

 

Some cases it is let in is where the plaintiff's interests of personality are involved: breach of K for guests being evicted from hotels or passengers from trains, or expulsion or refusal of admittance with a ticket in places of public resort or entertainment.

 

 

 

 

 

 

 

3. Application in carrier and telegraph cases

Topic Notes:

Application in carrier and telegraph cases

Hadley v. Baxendale was a carrier case, one that said a carrier will be liable for consequential damages if it is on notice of the particular purpose the cargo will serve and the fact that there is no available substitute for the cargo that is delayed, lost or injured in transit.  If there were an available substitute, the aggrieved party, by virtue of the doctrine of avoidable damages, would

not be able to recover those damages that could have been avoided by employment of the substitute.

 

SO then, a carrier is not liable for consequential damages consisting of lost profit when it delays shipment of a motion picture film to a theater if it has no notice that the theater could not procure a substitute film.

 

However, if the shipment is of such character that its purpose is obvious and the consequences of non-delivery equally obvious, the carrier will be held liable for consequential damages (for example, if a carrier with luggage to deliver knows the schedule of the person/company they are delivering for, the are on the hook for damages)

 

for this, it can be in writing, or told to them directly

 

telegraph carriers (maybe internet these days) - are on the hook these days as well

 

4. Application of rule in other cases

Topic Notes:

Application of rule in other cases

Doctrine of foreseeability is applicable in all contracts cases.  The rule is not applied blindly; it must be taken in context of the transaction, using all of the previously mentioned factors.

 

E. Certainty

DONOVAN V. BACHSTADT  (1982)

Case Brief:

Style (name of case): Donovan v. Bachstadt (1982)

 

Cause of action: The following is a cause of action for compensatory and punitive damages, resulting from breach of K.

 

Procedural History: PL filed a complaint in trial court for specific performance, which was decreed.  No appeal on this.  IN regards to suit for damages (above), trial court granted PL motion for summary judgment, and ruled PL could get back costs for the title search and survey.  PL's argument for compensatory damages as a result of the difference in mortgage rates from 10.5% and 13.25% as their loss in "the benefit of the bargain" was denied on the basis the K was for the sale of a house and financing was incidental to this. 

 

Appellate Division reversed, saying the difference in interest rates should apply as a measure of damages depending upon whether plaintiffs entered into a transaction for another home or are likely to do so in the near future.  They also held any award should represent the true value of the mortgage at present value, and that DF's should be held to duty to mitigate.

 

On further appeal, modified and remanded as below.

 

Facts: PL and DF contracted to buy a house at 10.5% interest on $44K mortgage (of $58,900).  Needed title to transfer but the title was in another's name, unbeknownst to defendant.  PL's had to get another house but at 13%.  They sue for compensatory damages based on the difference in value of the rate, as well as damages for survey and overall breach of K.

 

Issue(s): Under contract law in NJ, is PL party eligible for any compensatory damages on the basis of a loss of title, as well as a mortgage on a house, when DF party failed to have a good title for the land to sell at the time of K (on law day)?

 

Under the same law and situation, are PL's entitled to consequential damages for loss of interest rate due to the breach of K by DF?

 

Court's Rationale/Reasoning: As far as compensatory damages go, the limits of recovery are based on a common law principle that limits a buyer's recovery to the return of their deposit unless the seller wilfully refuses to convey or is guilty of fraud or deceit.  Where the DF can't get

good title and it is not their fault, the recovery for damages is on deposit, if any, with interest, and the expenses incurred in connection with the agreement, but not more than nominal damages.  But now the court wants to go with the American rule and award loss of the benefit of the bargain damages.  The innocent purchaser should be allowed to get damages, irregardless of the good/bad faith of seller.

 

As a prerequisite to the recovery of consequential damages, the vendee must meet the tests of foreseeability and certainty.  What did both parties see happening in this transaction?  Both parties here have problems with the financing portion of K; plaintiffs think it was an integral part of their damages, and should be weighed against their purchase of another house, while defendants think it was essential, but not to buy another house.

 

It is true the defendants lost out on the ability to buy a house for a lower interest rate than they eventually did.  Yet there was no malice on seller's part which caused the higher rate to be forced upon PL.  That would be on the bank, and this is the seller we are dealing with here.  Plaintiff's loss should be fair determination of fair market value of property and house that could be acquired with principal amount and mortgage rate of 10.5%, and the valuation should be at the time DF failed to comply with the judgment for specific performance.

 

The total damages should be: $58900 minus fair market value.  If fair market value wasn't more than K price, PL's would not have established any damage related to the loss of the bargain.  They are also entitled to expenditures for the survey, search and counsel fees for services rendered in preparation of the suit.

 

Rule: The vendor who has good title but refuses to convey will be liable for ordinary contract damages, measured by the difference between the value of the land and the contract price, together with consequential damages.

 

Holding: Yes.  There was a breach and there should be damages.

 

No.  It is true the defendants lost out on the ability to buy a house for a lower interest rate than they eventually did.  Yet there was no malice on seller's part which caused the higher rate to be forced upon PL.  That would be on the bank, and this is the seller we are dealing with here.  Plaintiff's loss should be fair determination of fair market value of property/house that could be

acquired with principal amount and mortgage rate of 10.5%, and the valuation should be at the time DF failed to comply with the judgment for specific performance.

 

liquidated damages: damages whose amount is agreed upon by the parties to a contract as adequately compensating for loss in the event of a breach  (called also stipulated damages)

 

1. Certainty as a limitation upon damages

Topic Notes:

Certainty as a limitation upon damages

Jury's verdict will be set aside re: damages if the judge thinks the standard of certainty is not met; damages are not met in their nature and in respect to the causes from which they proceed.  This doctrine is about causation in part, and reasonable certainty will suffice.

 

Courts not stringent with certainty except when the damages in issue involve lost profits on transaction other than the transactions other than the transaction on which the breach occurred (for example, if a seller of sugar could have made an extra 10 cents per pound on delivery of goods, the certainty is not there; but if he had customers who needed specifically his sugar, and it could be proven so, there would be certainty as to lost damages).  Evidence must be high caliber, and certain circumstances must be there as well.

 

For example: lost profits caused by breach of K to produce sporting event, theater performance or other entertainment are too uncertain.  BUT, established businesses are allowed to recover lost profits on transactions of a kind where the particular business has traditionally engaged.

 

2. Alternative -- reliance and restitution interests protected

Topic Notes:

Alternative -- reliance and restitution interests protected

When the aggrieved party cannot establish its expectancy interest with sufficient certainty, the party may recover expenses of preparation and of part performance, as well as other foreseeable

expenses incurred in reliance upon the contract.  Relief is awarded on "the assumption that the value of K would have at least have covered the outlay."

 

Such relief is awardable whether lost expectancy constitutes general or consequential damages, and compensatory.

 

SO, when defendant's actions prevent the putting on of a play, the play manager would have a hard time establishing certainty as to profits, but may recover on the preparatory expenses (covering the outlay).  If a farmer has a hard time proving certain seeds did not grow as planned, instead of certainty as to a crop, he could sue for the cost of the seeds, preparation of the field, as well as the rental value of the land (value of K covers at least the outlay)

 

Foreseeability may play a part as well; let's say a manufacturer needs goods shipped for a display at a convention...the deliverer of said goods should know there is a space rented out for the convention if he is aware of the manufacturer's purpose

 

3. Alternative -- value of a chance or opportunity

Topic Notes:

Alternative -- value of a chance or opportunity

When a beauty contestant who was one of 12 finalists was not notified of where the contest would be held, she sued for damages; court gave her part of the value of the last prize, since there was no certainty of prize, they went by the law of averages to determine a possible value of her damages.

 

Restatement:  grant a recovery for the value of chance only if the promised performance is aleatory (conditioned upon an event that's not within control of the parties)

 

4. Alternative -- rental value of property

Topic Notes:

Alternative -- rental value of property

"if the breach is one that prevents the use and operation of property from which profits would have been made, damages may be measured by the rental value of the property or by interest on the value of the property." (restatement)

 

F. The concept of Value

PROTECTORS INSURANCE SERVICE, INC. V. UNITED STATES FIDELITY & GUARANTY COM

Case Brief:

Style (name of case): Protectors Insurance Service, Inc. v. United States Fidelity & Guaranty Company (1998)

 

Cause of action: The following is a cause of action for recovery of fair market value of value for the sale of an insurance contract.

Procedural History: A jury in the United States District Court for the District of Colorado found that defendant principal breached a contract with plaintiff agent and that the agent lost $ 809,650 in future profits and received $ 35,000 less than the fair market value upon the sale of its business. The principal appealed.

The portion of the judgment awarding an agent $ 809,650 in lost profit damages was vacated, the alternative award of $ 35,000 for diminution in market value was affirmed, and the case was remanded to the district court for entry of judgment in accordance with the court's opinion.  Case remanded to the district court.

Facts: An agent and a principal had a written contract authorizing the agent to solicit applications for the principal's insurance. The agent filed a lawsuit alleging that the principal breached the contract by not making a good faith effort at rehabilitation to avoid termination of the agreement.

Issue(s):  Under the law of contracts regarding damages, what circumstances constitute an unjust enrichment of damages?

 

Court's Rationale/Reasoning: The expert said it best when he thought the value for the company was sold for $175K:  the ruling was for too much money.  A party is only allowed to receive as much from the court as would put them in the situation where the contract had not even existed (same position it would have been in if not for the breach).  Future profits are irrelevant here

since the sale price was for market value, according to the expert.  This serious puts a hole in any argument Protectors could make for trying to keep its windfall.

 

The argument of being sold under duress is nullified by the expert testimony, b/c it eliminates the need to sell for a lesser price, and eliminates the need to award the plaintiff with such a high amount of damages.  Thus the judgment should be vacated solely on the basis of the double recovery.

 

Rule:  In a breach of contract action, the objective is to place the injured party in the same position it would have been in but for the breach. A double or duplicative recovery for a single injury, however, is invalid.

Capitalizing and discounting future profits is one method of figuring present value, but this does not mean that a person is entitled to present value plus future profits.

When the loss of business is alleged to be caused by the wrongful acts of another, damages are measured by one of two alternative methods: (1) the going concern value or (2) lost future profits.

The "going concern value" is the price a willing buyer will pay and a willing seller will accept in a free marketplace for the business in question.

 

Holding: The court held that the judgment awarded the agent an impermissible double recovery.  Awarding the agent lost profit damages in addition to $ 35,000 for the going concern value of its business was an improper double recovery. The value of the business as a going concern had to take into consideration future profit-earning potential. The agent was made whole when it received the fair market value of the business. It was not entitled to sell the business, receive full compensation, and still receive the profits the business might have made over its reasonable work-life expectancy.

 

1. Market value as usual standard

Topic Notes:

Market value as usual standard

The standard of valuation considered is market value in contradistinction to any peculiar value the object in question may have had to the owner.  In the literal sense there is a market place and

a market price.  When it comes to goods, chattels, professional services, the determination of market value is what is sought in the sum of money that a willing buyer would pay to a willing seller, although some courts go to "real value" where there is no market.

 

The standard used depends on the kind of evidence submitted in each case.

 

2. Proof of value

Topic Notes:

Proof of value

Publications of prices/value is admissible as evidence, or if the goods have been traded or sold in the market place at any relevant time or place to the case, evidence is admissible regarding value.  Other relevant evidence includes expert opinion, original cost less depreciation, reproduction cost less allowance for depreciation, and sales of comparable personalty or realty.

 

3. Value a variable concept

Topic Notes:

Value of a variable concept

Property may have more than one market value (wholesale and retail market for most goods).  The appropriate market is the one the aggrieved party may obtain replacement of the property.

 

Retail market is an appropriate standard for the consumer, while the wholesale market sets the standard for the dealer.

 

Similarly, a given object can have different market values dependent on its use (cows may be used for beef, breeding, milk).  Aggrieved party is entitled to an evaluation based upon the most profitable use to which that party reasonably could have put the object.

 

G. Avoidable consequences

BALLARD V. EL DORADO TIRE CO. (1975)

Case Brief:

Style (name of case): Ballard v. El Dorado Tire Co. (1975)

 

Cause of action: The following is a cause of action for damages as the result of a breach of K.

 

Procedural History: District Court without jury ruled in favor of plaintiff $46,352.20 in damages.  Affirmed damages, but remand for further consideration of other benefits discussed below.

 

Facts: PL signed a-year K with DF to work in Orlando as EVP/GM of DF's subsidiary company.  K called for base salary of $18K/year, as well as a commission bonus of one percent of gross sales, and furthermore got stock options.  PL was entitled, upon meeting certain conditions, to 20% of the stock.

 

Other relevant K's provisions:  PL may terminate at any time with 30 days written notice, and DF can accept resignation w/o 30 day notice if it wants.  If DF terminates, it must do so with 30 days' pay or 30 days notice.  Under K, PL also would account all property to DF upon termination, and PL would not be eligible for any more benefits/salary except provided for in pension plan.

 

There was also a non-compete clause in which PL promised not to work for any competitors for two years in Florida, or from luring DF's customers away as well.  Non-compete not in effect if DF fired PL.

 

This relationship was soon put in jeopardy by negotiations between DF and one of its stockholders, Dodenhoff (D), who wanted to buy all the 31K of shares, move to Florida to take over the subsidiary.  The transaction between DF and D took place 7/11/71.  PL filed complaint 10/9.  When D got a copy of complaint, he wrote PL telling him filing of suit would be breach of K and a voluntary resignation.  The District Court held the sale of the company to D by DF was breach on their part.

 

El Dorado appeals, contending the District Judge erred in failing to reduce Ballard's damages by the amount he might have earned in other employment during the unexpired term of his K.  Ballard cross appeals, contending the DC Judge's calculation of damages erroneously failed to take into account certain fringe benefits due under his employment K.

 

Issue(s): Under contract law, does an employee's failure to find employment elsewhere while out of work still entitle his employer, in filing a claim in court, to mitigate his damages by earnings he would have garnered in another similar position?

 

Court's Rationale/Reasoning: Matter of fact: PL has not sought other employment.  General principle: employee's damages will be mitigated by what he could have earned in similar employment.  DC's refusal to mitigate was on basis the burden to prove the existence of similar employment was on the employer.  This could only be if the employer proved similar employment was available.  Since PL signed a non-compete, he couldn't get similar work anywhere, not just ANY work.

 

DF's further claim the clause did not govern the termination, and that by its literal terms the promise not to compete applied only to a voluntary termination.  This is untrue, b/c there was no voluntary termination by PL, as DF sold all its assets to D, making it impossible for DF to perform its end of the K, so this was an involuntary termination and the similar employment thing didn't come into play.

 

El Dorado could only meet its burden of proof by showing the availability of a managerial type position in the tire industry.  Were the contrary true, the rule requiring the employer to prove the availability of similar employment would be meaningless.  The employer could always meet the so-called "burden" simply by introduction of the help-wanted ads of a local newspaper.  The law does not allow contract breachers to escape consequences of their wrongful acts in such an indifferent fashion.

 

Rule: The burden is on the breaching party to prove that the aggrieved party failed to mitigate.

 

Holding: No.  The District Court was correct in refusing to mitigate Ballard's damages by what he might have earned in other employment.

 

1. Duty to mitigate damages

Topic Notes:

Duty to mitigate damages

A party who has been wronged by a breach of K may not unreasonably sit idly by and allow damages to accumulate, b/c they are not proximately caused by the breach, and the wronged party may not recover such damages which could have been avoided.

 

Absence for right of recovery for enhanced damages is at the rules of the law of damages.

 

Liability for consequential damages stems from the reason to now the plaintiff will be unable to mitigate damages.

 

The mitigation principle (or doctrine of avoidable consequences) is an unspoken promise in most ruled of general damages.

Thus, the rule in sales contracts that damages for breach by the seller are measured by the difference between the market price and the contract price is based on the idea that in the event of breach the plaintiff can minimize damages by purchasing similar goods on the open market (one rare exception is where performance cuts down damages).  This principle simply requires reasonable efforts to mitigate damages, and thus efforts need not be successful

 

2. Non-exclusive contracts -- an apparent exception to the doctrine of avoidab

Topic Notes:

Non-exclusive contracts -- an apparent exception to the doctrine of avoidable consequences

A full-time employee owes a duty to devote the assigned working hours to the employer's business.  If the employee is wrongfully discharged, damages are reduced by any earnings from employment the employee secures or could secure with reasonable diligence during the contract

period.  If it were not for the breach, such employment ordinarily could not lawfully be obtained b/c of the full-time nature of the work.

 

In contrast, if the relation between the parties was one in which the wronged party was free to enter into similar contracts with others, that subsequent to the breach the wronged party could have or actually has made similar contracts, in no way reduces entitlement to damages (think a caterer getting screwed by a customer, but entering in another K with another party; caterer still loses money on original K, so can mitigate damages)

 

3. Recovery of expenses sustained in avoiding consequences of a breach

Topic Notes:

Recovery of expenses sustained in avoiding consequences of a breach

The doctrine of avoidable consequences can also provide recovery for certain kinds of expenses not otherwise recoverable. 

(a steamship, which was accused of running illegal activity for the Germany in WWI by defendant newspaper, was allowed to recover mitigated damages even when they ran responsive ads in other newspapers).

 

Such reasonable expenditures are recoverable even if hindsight shows that the expenditure exceeds the decrease in damages.

(restaurant owner allowed to recover for damages from a city when the original promise by the city was to make all land around it business-like but it instead was voted to be developed into a park; restaurant owner tried to make a go of it but lost bucks, and recovered for his expenses)

 

XVII. Restitution as remedy for breach

Topic Notes:

Restitution as remedy for breach

While the aim of law in K damages is generally to place the aggrieved party in the same economic position that performance would have provided, the aim of restitution is to place both of the parties in the position they had prior to entering into the transaction.

 

Quasi-contractual recovery is the principal type of restitutionary recovery at law.  Recovery of money for breach of K has been viewed as a form of this. 

 

 

 

 

 

OLIVER V. CAMPBELL (1954)

Case Brief:

Style (name of case): Oliver v. Campbell (1954)

 

Cause of action: The following is a cause of action for attorney's fees.

 

Procedural History: PL appeals from judgment for DF, who is the administrrtrix of estate of decedent.  Trial court said PL couldn't get anything on the quantum meruit b/c compensation for the services was in an express K.  On appeal, judgment is reversed, and trial court directed to enter judgment for PL for $300.

 

Facts: PL claims DF became indebted to him for the sum of $10K, the reasonable value of services rendered as attorney for DF.  Nothing was paid except for $450.  DF died after the services were rendered by PL, and a claim was filed against his estate.  DF claims PL and decedent entered into an express written K, where PL was hired for only $750, with all work alleged to have been performed by PL was done on that K.

 

Claim founded on the reasonable value of legal services rendered by PL for DF in an action for separate maintenance by DF, decedent's wife, and against decedent in which the latter cross-complained for a divorce.  PL entered as counsel after pleadings but before trial, and parties

signed K to agree on representation for divorce trial plus court costs and other incidentals which in total equalled $850.  Fees were to be paid after trial.

 

DF had told PL on occasion he was dissatisfied with him him and would retain another attorney.  PL understood of the right to be discharged, but told DF he would have to be prepared to pay for services performed to the end, which could've been as much as $9K (what he won at trial).  Decedent said he wouldn't pay a cent more (than $450).  Substitution was signed and PL went and took DF's file with him.

 

Issue(s): Under contract law of restitution, was there a quasi-contract between the parties formed in which DF promised to pay PL for attorney's feed, and if so, is there a cause of action to claim damages for services not rendered for quantum meruit?

 

Court's Rationale/Reasoning: It appears based on the agreement was based on the reasonable value of PL's services rendered ($850), which was both express in writing and implied by decedent's response to PL when the possibility of collecting $9K for the divorce.  Either way, DF wanted the K to be completed at the end of trial.  Additionally, PL had performed practically all the services he was required to do at the time of discharge.  In such an event, PL is entitled to all the money originally agreed to, and nothing else.

 

Rule: Attorney-client retainers: (1) One who has been injured by breach of K has an election for pursue any of 3 remedies: (a) to treat the K as rescinded and may recover quantum-meruit for performance thus far; (b) may keep K alive for benefit of both parties, being at all times ready, willing and able to perform; (c) may treat the repudiation as putting the end to the K for all purposes of performance, and sue for the profits he would have realized if he had not been prevented from performing.

 

Holding: Yes.  However, actual losses is the only amount which may be claimed to reasonably be available to PL.

 

A. What is meant by restitution (concept of unjust enrichment)

Topic Notes:

What is meant by restitution? (concept of unjust enrichment)

Restitution emcompasses recovery in quasi-contract in which form of action the PL  recovers a money judgment.  It's also used to encompass equitable remedies for specific relief such as decrees that cancel deeds, or impose constructive trusts or equitable liens.

 

Common thread: "one person is accountable to another on the ground that otherwise he would unjustly benefit or the other would unjustly suffer loss."  Misleadingly, a person who is unjustly enriched owes repayment to the other party.    This is too broad and too narrow.  Sometimes the damages the plaintiff recovers are based on losses sustained by the plaintiff but not the gains prevented as a result of the breach...thus the above definition is very flexible.

 

B. Restitution as an alternative remedy for breach

Topic Notes:

Restitution as an alternative remedy for breach

Restitution is available as a remedy for total breach only, not a partial breach.  In the event of total breach, the aggrieved party may cancel K and pursue all available remedies, one of which is restitution.  It has long been recognized that the right to damages or restitution are both remedial rights based on K.  Once the breach is total and the aggrieved party has made 2 elections:

 

(1) non-breaching party may cancel K (recission: notice of cancellation of K should be avoided). 

(2) if cancellation is effective, the non-breaching party generally must next elect to recover either restitution (quantum meruit) or damages; in some cases specific performance may also be a remedy.

 

Today, the rule of equity is how recovery is based: actual tender is not always required, as a court of equity could condition its decree upon restitution by PL to offset the value of the benefits retained.  Although the restatement second continues to require an offer (but not tender) by PL to make restoration, the requirement is mitigated by a number of exceptions.

 

C. Measure or recovery

Topic Notes:

Measure or recovery

The basic aim of restitution is to place the PL in the same economic position as PL enjoyed prior to contracting.  Thus, unless specific restitution is obtained, PL's recovery is for the reasonable value of services rendered, good delivered, or property conveyed less the reasonable value of any counter-performance received. 

 

No unjust enrichment is required here.  PL recovers the reasonable value of the performance whether or not the DF in any economic sense benefitted from the performance. 

 

The quasi-contractual concept of benefit continues to be recognized by the rule that the DF must have received the PL's performance. Acts merely preparatory to performance won't justify an action for restitution.  If what the PL has done is part of the agreed exchange, it is deemed to be received by DF.  If PL gets ready for the act and exhausts all funds in doing so and DF fails to perform, the recovery is allowed for such preparations.

 

Reasonable value is determined by the weight of authority the PL is not restricted to the K rate of payment; however the K price is admissible as evidence of the value of the performance.

 

If PL has made full or part payment for a performance that was not rendered, it's generally agreed that PL should not be relegated to expectancy damages if PL prefers to seek restitution of its payments.  If PL has performed in whole or in part, and the value of the DF's return promise is too uncertain to be a predicate for expectancy damages, restitution is an available remedy. 

 

Second restatement is available only if the benefit to DF was communicated by the PL.  It's not enough that it's derived from the breach.  But there are exceptions (3) deliniated in the Restatement of Agency:

 

RULE: employer may recover a bribe received by  an employee.  Employees and others in fiduciary or confidential relationships must disgorge any other benefits received by them in breach of trust.  Other exceptions to the "source of benefit" rule exist and, though sporadic, arise

frequently enough to suggest that a residuum of cases arise in which the most appropriate remedy is restitution by the breaching party of ill-gotten gains obtained from the breach.

 

XVIII. Specific Performance and Injunctions

LACLEDE GAS CO. V. AMOCO OIL CO. (1975)

Case Brief:

Style (name of case): Laclede Gas Co. v. Amoco Oil Co. (1975)

 

Cause of action: The following is a cause of action for damages as a result of breach of K.  Relief is sought in the form of mandatory injunction prohibiting the continuing breach or, in the alternative, damages.

 

Procedural History: DC denied request for injunctive relief.  On appeal, decision reversed.

 

Facts: PL is bound to buy all the propane it distributes from DF in any subdivision to which the supplemental agreement applies and for which the distribution system has been established.  DF's supplying of propane is reasonably foreseeably required, while PL is to purchase the required propane from DF and pay the K price therefore. 

 

There was a disagreement over the term "Wood River Area Posted Protected Price" in the agreement.

 

Issue(s): Whether there was a valid, binding K between the parties and whether, if there was such a K, PL should be enjoined from breaching it?

 

Court's Rationale/Reasoning: It can be determined by a court of law that this is a requirements K.  Such K's are routinely enforced by the courts where, as here, the needs of the purchaser are reasonably foreseeable and the time of performance is reasonably limited.

 

Since no binding contract, the DC judge didn't have to deal with the question of whether or not to grant the injunction prayed for by PL.  DC judge denied relief b/c simply there was no K.  The general determination of whether or not to order specific performance of K lies within the discretion of the trial court, but it is limited.  When certain specific issues are met and K is fair and plain "specific performance goes as a matter of right."

 

The trial court should have granted specific performance.  DF argues the K these two parties signed was adequate enough in its remedy for breach.  But public interest in providing propane to the retail customers is manifest, while any supervision required will be far from onerous.

 

As far as the disagreement in the term of the agreement, a court of law should determine the intent of the parties, and that it was not fatal due to its lack of duration.

 

Propane is readily available on the open market, but this was a long-term supply of propane to these subdivisions.  There was uncontradicted testimony from an expert saying PL probably  couldn't find another supplier of propane for the affected developments through its present contracts or newly negotiated ones, it would still face considerable expense and trouble which cannot be estimated in advance in making arrangements for its distribution to the subdivisions.  Thus, specific performance is the proper remedy here and should be granted.

 

Rule: Specific performance will not be ordered when the party claiming the breach of K has an adequate remedy at law.  This is especially true when the K involves personal property as distinguished from real estate.

 

Holding: There is mutuality of consideration within the terms of the agreement and hold here is a valid, binding K between the parties as to each of the developments for which supplemental letter agreements have been assigned.

 

 

NO. INDIANA PUBLIC SERVICE CO. V. CARBON CTY. COAL CO. (1986)

Case Brief:

Style (name of case): Northern Indiana Public Service Co. (NIPSCO) v. Carbon County Coal Co. (1986)

 

Cause of action: The following is a cause of action for specific performance on breached K.

 

Procedural History: Trial judge entered judgment for DF for $181M, but denied DF's decree for specific performance.  Affirmed on appeal.

 

Facts: PL agreed to buy 1.5M tons of coal every year for 20 yrs. from DF at $24/ton, subject to various provisions for escalation, which had raised the price to $44.  Deal was burdensome for PL NIPSCO as market shifted to a glut of energy producing fuels.  DF's cost of production is now greater than the market price.  PL repudiated.

 

DF argues not that the trial court's damages ruling is not enough money, but that a ruling for specific performance will help the miners who lost their jobs as a result of the mine they worked in being closed down, as well as the satellite businesses in that town, all for the same reasons.

 

Issue(s):  Under contract law of remedies, is a damages ruling for DF enough of a remedy when DF cites specific performance as the more logical remedy, in order to compensate lost wages to workers who were effected by the loss of business when DF repudiated K?

 

Court's Rationale/Reasoning: Such a ruling of specific performance would be continuing a contract which has become uneconomical.  Continuing to produce coal would be to impose costs on society greater than the benefits.  PL's breach was an efficient breach in the sense it brought to a halt the senseless production of an uneconomical process.  The reason PL must pay DF for damages isn't b/c the K should've been continued, but b/c that the K assigned to PL the risk of market changes that made continued deliveries uneconomical.  This judgment for damages is being fixed on PL in accordance with its undertakings.

 

The best solution here is to cancel K and with it the dissolution of specific performance.  The result of such a verdict, if reversed, would be to give DF bargaining leverage over PL and enforced the order for specific performance for a scarce product for more money than it would cost to get it from another provider.

 

As for the workers, etc, they were not third party beneficiaries to the K, and have no legal interest in K.  These same workers, as sad it is, assumed the risk of the mine closing down in the event it became uneconomical when they began working.  There was no mention of this in the original K

 

Rule: Like other remedies, specific performance is available only if damages are not an adequate remedy.  Public interest is sometimes a factor in rendering specific performance, but only when they have a legally recognized interest in the lawsuit.

 

Holding: No.  The loss to DF from breach of K is simply the difference between (1) K price (as escalated over the life of the K in accordance with the K's escalator provisions) times quantity, and (2) the cost of mining the coal over the life of the K.  Since the workers and businesses of the town/mine are not third party beneficiaries of the deal, their losses are irrelevant.

 

KARPINSKI V. INGRASCI (1971)

Case Brief:

Style (name of case): Karpinski v. Ingrasci (1971)

 

Cause of action: The following is a cause of action for both specific performance and on the prom note due.

 

Procedural History: Trial court granted specific performance of agreement and paying on the note.  Appellate Division reversed and dismissed the complaint.  Court viewed the K was void and unenforceable b/c its restriction against the practice of both dentistry and oral surgery was impermissibly broad.  On further appeal, order reversed with costs, and remanded to lower court for further proceedings in accordance with this opinion.

 

Facts: PL is an oral surgeon, and had been practicing in Cayuga County for many years.  In 1953, he dedicated to expand in 4 nearby counties through other dentists.  Plan was successful, resulting in a 20% increase in 1962.

 

Some of PL's patients found it difficult to get to his office, so PL built a centrally-located office in Ithaca.  In the course of looking for an assistant he found DF.  After manifesting an intent to be associated with PL, DF entered into K with PL.  K contained a non-compete clause, in which DF agreed not to ever practice dentistry and/or oral surgery in 5 surrounding counties (4 he went to and his original one) without the partnership or if PL terminates K and employs another oral surgeon.

 

In addition, DF had to execute a $40K prom note to PL in the event he did breach K. 

 

After the terms of K expired, parties re-entered negotiations on whether to remain in covenant, as partners or as employer and employee.  After failing to come to terms, DF went and opened shop in Ithaca as well, taking some 90 percent of PL's clients.  PL demands specific performance of the non-compete, as well as an execution on the prom note.

 

Issue(s): Under contract law, is an agreement by a professional man not to compete with his employer is enforceable and, if it is, to what extent when it occurs? (read: too broad of terms in non-compete)

 

Court's Rationale/Reasoning: There is no doubt DF breached the covenant's terms.  But as a matter of public policy, it must be discussed if the terms of K were overreaching, which is to be taken on a case-by-case basis.  But here, the characteristics of the case point to a reasonable amount of counties and people involved here.  Under the circumstances, it is clear the DF's clients which left PL were based on a relationship he never would have gotten had he not associated with PL.

 

PL wouldn't ask for enforcement of the broad terms of K, he suggests, unless the law did not suggest if DF were limited to just practicing as a dentist, he could also perform oral surgery stuff

as well, therefore allowing him a back door of sorts to carry out a breach of K, but legally.  A severance from the practice of oral surgery would make things all right.

 

The court finds past case law (binding and persuasive) which held such a severance of title would be okay.

 

As far as the execution of the prom note, the court finds this allowable as well, as part of a liquidated damages provision of K, but the court instead finds for actual damages as the result of a carefully built practice which was taken away from him as a result of the breach of K.  Thus, the court found for actual damages instead of enforcement of the prom note.

 

Rule: If in balancing the equities the court decides the court's activity would fit within the scope of a reasonable prohibition, it is apt to make use of the tool of severance, paring an unreasonable restraint down to appropriate size and enforcing it. 

 

We find it just and equitable to protect employer by injunction to the extent necessary to accomplish the basic purpose of the K insofar as such K is reasonable.

 

Holding: Yes.  Since all of PL's practice is solely as an oral surgeon, PL gains all the injunctive protection to which he is entitled if effect be given only to that part of the covenant which prohibits DF form practicing oral surgery.

 

HOWARD SCHULTZ & ASSOC. V. BRONIEC (1977)

Case Brief:

Style (name of case): Howard Schultz & Associates v. Broniec (1977)

 

Cause of action: The following is a cause of action for violation of a non-compete, as well as a violation of a non-disclosure of information from his former employment clause in K.

 

Procedural History: Plaintiff employer appealed a judgment by the DeKalb Superior Court (Georgia), which dismissed an action seeking an injunction to enforce a covenant not to compete contained in an employment agreement and to restrain defendant former employee from divulging confidential and privileged information received by him during his employment.

 

Facts: 11/20/72: DF entered into K with PL to audit the accounts of Edward Aubitz and his principals, Pl's, to determine if the clients had overpaid accounts payable b/c they were unaware of the availability of special discounts or allowances.  K contained a non-compete for two years (mid pg 738) within in any area or areas form time-to-time consulting the principal's or associate's area of activity in the conduct of their respective businesses, as of the date of said termination..."

 

Another clause in K said in summary not to share any info received while under employment with PL with anyone.  This area consists of AL, GA, FL, NC, SC, TN.

 

Issue(s): Under contract law regarding remedies, is a covenant to not compete be favored by a court of law when it is part of the "blue-pencil theory of severability?"

 

Court's Rationale/Reasoning: First, the court needs to determine whether K in this case is to be treated for these covenant purposes as employment agreement in view of either a relationship of employer-independent contractor, or as master-servant.  Here, the court chooses the latter. 

 

The agreement is called a bald attempt to restrain the employee from practicing in any reasonable manner, in essense imposing a greater limitation upon the employee than is necessary.  The agreement also fails b/c it is unspecific in which kind of activities to refrain from.  Here, the K said not to engage in any "business similar to employer's business."  The court said PL can't enjoin the DF from working in anything similar to said business, b/c it fails to specify with any particularity the activity which the employee is prohibited from performing.

 

As far as the injunction goes, a non-disclosure covenant in an employment agreement could be enforced independently from a claim under a covenant not to compete such as has been discussed.  Here, though, the employer did not have a trade secret such as that which could be protected by law absent a contract provision.

 

Rule: Georgia law prohibits K's or agreements in general restraint of trade.  A covenant not to compete is also unreasonable where the nature of the business activities in which the employee is forbidden to engage is not specified with particularity.

 

Holding: Judgment dismissing plaintiff's complaint was affirmed where the covenant not to compete contained an invalid territorial restriction and it did not state with particularity the activity which the employee was prohibited from performing.

 

A. Inadequacy of the legal remedy

Topic Notes:

Inadequacy of the legal remedy

Specific performance is an extraordinary remedy developed in Courts of Equity to provide relief when the legal remedies of damages and restitution are inadequate.  Equity will give no remedy unless PL can show irreparable injury will result if equitable relief is refused.

 

A decree for specific performance takes on many forms: for example, an order to carry out terms of K, or to not carry out terms of K when there is forbearance.  But at times a party will be enjoined from violating K rather than being ordered to perform.  This could create a situation where a party has economic incentive to perform. 

 

B. Legal Remedy Inadequate -- real property

Topic Notes:

Legal Remedy for inadequacy -- real property

Nowadays, we deal with homes or land, but the rule is the same as the common law brand:  every interest in land is conclusively presumed to be unique and a K to convey will be specifically enforced, even where the presumptive unique value of the land is rebutted as when the vendee has in turn contracted to resell the interest to a third party.

 

Absent an agreement to the contrary, a K to convey real property contains an implied term that title be "marketable," or title must be good.  If not marketable, vendee may still elect to enforce K, and the court will order specific performance with an abatement in price (offsetting damages from the purchase price).  Abatements are also used when there is fault or misconduct

 

abatement: deduction

 

C. Legal remedy inadequate -- personal property

Topic Notes:

Legal remedy inadequate -- personal property

When goods are considered unique (family heirlooms, priceless works or art, even certain business can be claimed as unique), where the price would be difficult to charge to defendant in such a case.

 

D. Legal remedy inadequate -- insolvency

Topic Notes:

Legal remedy inadequate -- insolvency

Specific performance will be ordered against an insolvent party b/c the legal remedy of damages is ineffective against a person who is judgment proof.  Before a court orders such a remedy, however, it is necessary that care be given to assure that rights of other creditors not be infringed, but specific performance does not necessarily curtail the rights of other creditors.

 

E. Service Contracts

Topic Notes:

Service Contracts

No court will order an employee, or other person who is to render personal services, to perform, b/c:

 

(1) such an order might well violate the involuntary servitude clause of the 13th amendment

(2) difficulty of supervising the decree

(3) unwillingness to force the individuals into an unwanted personal association

 

Nonetheless, such K's have been enforced by enjoining a person from working for a competitor, or where the services provided by one business are unique and extraordinary (ex: entertainment industry).

 

Personal service contracts are hard to enforce, which is why most courts won't touch them.  However, where the remedy at law makes collection difficult or very skewed, the court has ordered specific performance. 

 

F. Mutuality as a basis for equitable relief

Topic Notes:

Mutuality as a basis for equitable relief

Most important use of "mutuality of remedy" doctrine was to deny specific performance in certain cases.  But it also had an affirmative side, in that it provided that PL could have obtained specific performance if DF could have obtained specific performance if the PL were the breaching party.  Now it is held more often to be that a vendor of unique goods may obtain specific performance

 

G. Defenses -- Discretionary nature of equitable relief

Topic Notes:

Defenses -- Discretionary nature of equitable relief

Historically, an appeal to equity was a petition to the chancellor, and was more an appeal for "grace and reason" as opposed to the implementation of a rule of law.  Now they are based on precedents and the like, with at least one observer justifying the distinction on the grounds that these defenses minimize court coercion and allow for a middle ground solution.

 

H. Validity, enforcement, and definiteness of the contract

Topic Notes:

Validity, enforcement, and definiteness of the contract

For the equitable remedy of specific performance to be granted there usually must be valid and enforceable K.  The one exception to this rule is that if a K for the sale of real property does not satisfy the Statute of Frauds, equity may grant specific performance under the past performance doctrine, although traditionally there has been no legal enforcement remedy.  Promissory estoppel can work here as well to compel performance of an otherwise unenforceable K.

 

Standard for definiteness is higher in equity than it is in law.  Parties must know with reasonable certainty what is expected of them.  Still, before K is denied specific performance on grounds of indefiniteness, all applicable gap fillers should be used and parol evidence considered to clarify indefinite provisions. 

 

I. Consideration in equity

Topic Notes:

Consideration in equity

Rules for presence or absence of consideration are basically the same in equity as in law.  Assuming is sufficiency, equity won't enforce a promise if its validity is based solely on the fact that it is under seal or in writing.  Such refusals are often stated in maxims such as "equity will not aid a volunteer."

 

There are important exceptions to the rule refusing enforcement.  Where a K, such as an option K, is supported by nominal consideration, a seal, or in writing, and looks to a further performance that constitutes a fair exchange as a condition to the DF's duty, equity will enforce it.  Moreover, if past consideration has been given, a new promise supported by a statutory writing, a seal, or nominal consideration, or rules dispensing with consideration will be specifically enforced.

 

MEYER V. BENKO (1976)

Case Brief:

Style (name of case): Meyer v. Benko (1976)

 

Cause of action: The following is a cause of action

 

Procedural History: Trial court ruled the agreement didn't constitute a K, and that specific performance would be denied b/c of the inadequacy of the consideration.

 

Facts: Meyer and Benko agreed to buy and sell a residence respectively for $23.5K.  The agreement was entitled "deposit Receipt and Agreement of Sale."  Expert testimony said the home was worth less than the earlier listing value of $24,950.  But other testimony as to the listing price was inconsistent.  DF testified he signed the deposit agreement at the sales price

 

Issue(s): Under contract law, was the Deposit Receipt in question a valid contract? 

 

Court's Rationale/Reasoning: DF's desire to quickly consummate a sale explains the difference between the sale price agreed to and the alleged full value of the property.  Thus, the trial court's finding of inadequate consideration was clearly erroneous and unsupported by the evidence adduced at trial.

 

Both parties had signed a deposit receipt and sale agreement, and plaintiffs had performed all conditions precedent to the conveyance of the property but defendants failed to convey the property. T

That the parties had signed the agreement indicated that they had entered into an enforceable contract and were deemed to have assented to all of its terms, absent fraud, and were bound and estopped from arguing its content was contrary to their intentions.

 

Rule: A consideration, to be adequate, need not amount to the full value of the property.  The test is not whether the vendor received the highest price he received is fair and reasonable under the circumstances.

 

Holding: The court reversed the trial court's determination that no contract existed because, based upon an objective test of contract formation, the deposit receipt was in fact a contract. The presence of material facts, such as sellers and buyers names, identification of the property, and methods of financial transactions, indicated that the parties had moved beyond negotiation and had notice that they were entering into a binding contract.

 

 

 

 

 

 

 

 

 

 

 

 

J. Difficulty of Supervision

Topic Notes:

Difficulty of Supervision

This argument is true in construction contracts, as well as K's requiring the continuing services of various kinds, and K's requirign long term delivery of goods.  This is a burden courts have learned to deal with over the years.

 

K. Mutuality of remedy

Topic Notes:

Mutuality of remedy

Specific performance will not be granted unless from the outset (in the event of a breach) the remedy is available against both parties.  The common sense rationale based on the old law is that DF should not be compelled to perform w/o an assurance PL will perform:

 

"specific performance or an injunction may be refused if a substantial part of the agreed exchange for the performance to be compelled is unperformed and its performance is not secured to the satisfaction of the court."

 

CENTEX HOMES CORP. V. BOAG (1974)

Case Brief:

Style (name of case): Centex Homes Corp. v. Boag (1974)

 

Cause of action: The following is a cause of action for specific performance or liquidated damages for breach of K (purchase agreement for apartment).

 

Procedural History: Plaintiff's case dismissed, with costs only for the deposit being awarded.

 

Facts: 9/13/72: DF's entered into purchasing agreement for unit in PL's apartment building, for purchase price of $73,700, and gave deposit of $525.  At or shortly after signing K, DF's sent a check for $6870 to PL (10% down).  Check was dishonored by DF's bank.

 

Issue(s): Under contract law of enforcement remedies, does a party's dishonored check give rise to a cause of action for either liquidated damages or specific performance where a court of law will enforce a K for the sale of a condo when a 10% down payment check was dishonored by DF's bank?

 

Court's Rationale/Reasoning: Under a condo housing scheme, each unit constitutes a separate parcel of real property which may be dealt with in the same manner as any real estate.  Upon

closing of title the apartment unit owner receives a recordable deed which confers upon them the same rights and subjects them to the same obligations as in the case of traditional forms of real estate ownership, the only difference being that the condo owner receives in addition an undivided interest in the common elements associated with the building and assigned to each unit.

 

PL urges since the subject matter of K is the transfer of a fee interest in real estate, the remedy of specific performance is available to enforce the agreement under principles of equity which are well settled in the state.

 

Here specific performance relief should only be available to those vendors where the vendor will suffer economic injury for which his damage remedy at law will not be adequate, or where other equitable considerations require that the relief be granted.  Since the condo units are not unique, but identical units be

 

Rule: Specific performance remedy is equity's jurisdiction to grant relief where the damage remedy at law is inadequate.  Mutuality of remedy is not an appropriate basis for granting or denying specific performance.  The test here is whether the obligations of K are mutual and not whether each is entitled to precisely the same remedy in the event of a breach.

 

Holding: Not here.  The damages sustained by a condo sponsor resulting from the breach of the sales agreement are readily measurable and the damage remedy at law is wholly adequate.  No compelling reasons have been shown by PL for granting specific performance relief.

 

Liquidated damages are limited to those only paid by DF at the time default occurred, which is only the $525 deposit.

 

L. Plaintiff in default -- relief from forfeiture

Topic Notes:

Plaintiff in default -- relief from forfeiture

In an action at law, whenever there has been a failure of express condition to the DF's obligation or a material breach by the PL, there can be no successful action for breach of K, although quasi-contractual relief is available is some jurisdictions.

 

In equity, the rule only changes in relation to PL's readiness, willingness and ability to perform.  In actions at law, BOP on PL to prove they would have been ready, willing and able to perform.  In actions for specific performance, however, PL must additionally show they continue to be ready, willing and able.

 

One other major difference in the treatment of conditions in law and equity expressed by the maxim: "equity abhors a forfeiture."  Such a PL may obtain specific performance on condition that future payments are well secured to the satisfaction of the court and on condition that damages be paid to the DF.

 

M. Harshness, inequitable conduct and other forms of unconscionability -- bala

Topic Notes:

Harshness, inequitable conduct and other forms of unconscionability -- balancing

The effect of unconscionability depends on the context of the equitable doctrine.  In context of mistake and penalty clauses, K's are set aside.  In concept of specific performance, it has frequently been used merely as a basis for denying the remedy, leaving the K intact.

 

Equity generally requires as a prerequisite to specific performance that there be free and open disclosure of all pertinent facts.  While the law has only recognized unilateral mistake as grounds for avoidance of K, equity has long refused to grant specific performance where one party was under a material mistake.  The mistake must be viewed in the light of the harshness of enforcement, any change of position by the other party, any hint of unfair conduct by that party and the nature and degree of any negligence by the mistaken party.  A mistake that would not permit avoidance of the K may permit denial of specific performance.

 

Most courts say inadequacy of consideration alone is not enough basis for denying specific performance, but it is only a factor to  determine if the agreement was obtained inequitably.  Others have said inadequacy of consideration can be evidence of fraud, overreaching, lack of mental capacity, undue influence or the like. 

 

Apart from the adequacy of consideration, the court will examine the entire transaction to determine whether it is so grossly one-sided as to be oppressive.  Also, if certain intervening circumstances make the contract one-sided (sharp increase in prices, natural disaster), the court will look to this as well.

 

DUANE SALES, INC. V. CARMEL (1977)

Case Brief:

Style (name of case): Duane Sales, Inc. v. Carmel (1977)

 

Cause of action: The following is a cause of action to compel specific performance of an option agreement for the purchase and sale of real property.

 

Procedural History: Appeal from an order of the Supreme Court at Special Term, which granted plaintiff's motion for summary judgment and from the judgment thereon.  Judgment modified on appeal, so as to direct the court that an accounting should be made, as matter remitted for further proceedings not inconsistent herewith, and, as so modified, affirmed, without costs.

 

Facts: DF's make additional argument in this case that should the PL be entitled to specific performance of the option K, then an accounting should be directed to the respective losses and gains during the period of litigation.  This is something the court did not touch upon. 

 

Issue(s): Under contract law, does the calling for specific performance of a K require an accounting of loss and gains during the period of litigation in order, as the PL cites, to avoid an unjust consequence?

 

Court's Rationale/Reasoning: There is no reason an arbitrary award for specific performance should be granted without checking the numbers and circumstances to make sure a party is not unjustly enriched or the other party is unjustly punished for breach of K.  Taking into account all the factors held can clarify some of these problems.

 

Rule: It is clear that in calling for specific performance, equity requires not only that K provisions to be enforced be just and equitable, but that the consequences be just and equitable as well. 

 

The relief should not be granted, as in this case, where the result of specific enforcement of K would be harsh or oppressive, or result in an unconscionable advantage to the PL.

 

Holding: Yes. An accounting should be had which should take into consideration, among other things, the following:

1. rents received by DF's in their operation of the property

2. Any losses sustained by PL b/c of delay in conveyance of title

3. Necessary expenses incurred by DF's in the operation of the property

(such as payments of mortgage, property taxes, insurance, and minor repairs)

4. The benefits to PL in retaining the use of purchase money during the pending litigation

 

N. Laches -- prejudicial delay

Topic Notes:

Laches -- prejudicial delay

Equity will not allow a party to sleep on their rights, at least to the detriment of the other party.  Specific performance will be demanded where such prejudicial delay occurs.  The prejudice may involve a change of position by the defendant, the loss of evidence or the death of the witness(es).  Courts will also not grant specific performance to a plaintiff who bides time until the subject matter significantly increases or decreases in value.  Delay that is non-prejudicial does not bar equitable relief.

 

O. Unclean hands

Topic Notes:

Unclean hands

PL who comes into court with unclean hands will be denied relief.  This is in cases where PL was been engaged in inequitable conduct such as misrepresentation and nondisclosure, or even conduct bordering on illegality.  (ex: PL gives real property to DF, in hopes of defrauding creditors, the court won't let PL get away with it)

 

The doctrine of unclean hands cannot be invoked unless the inequitable conduct relates to the same transaction.  It has been held, though, that inequitable conduct after K has been entered into does not give rise to the doctrine, but there is no unanimity on this point.

 

SCHLEGEL V. MOORHEAD (1976)

Case Brief:

Style (name of case): Schlegel v. Moorhead (1976)

 

Cause of action: The following is a cause of action for specific performance of an option to purchase a federal oil and gas lease from DF.

 

Procedural History: PL appeals from judgment of DC dismissing PL's complaint for specific performance.  It was held that neither PL nor DF-counterclaimants were entitled to the relief prayed for.  Judgment entered in favor of DF against PL's complaint; the complaint was dismissed; and judgment was entered in favor of PL's against DF's counterclaim.  Only PL appeals from the judgments of DC.  On appeal, judgment of DC was affirmed.  On further appeal, appeal summarily dismissed (affirmed).

 

Facts: DF has been the owner since 1956 of federal oil and gas lease, consisting of 120 acres in Montana.  He acquired the lease for salvage and maintained only one producing well on the acreage.  Said well has not produced sufficient revenue to pay the annual royalty.  At all times pertinent hereto Moorhead employed a pumper who operated the will.

 

DF worked the oil fields there from 1937 to 1964 and is familiar with oil field operations, and no previous experience with options..  Within 3 years of the time of the option in dispute here, he

twice tried to sell the lease with no success.  At no time relevant to this case did he make any effort to learn of oil field developments in the vicinity of his lease by making inquiries of his pumper, his attorney in the area, or the public records at the Oil and Gas Commission office in Montana.  DF lived in Montana from 1964 to the time of this lawsuit.

 

PL came to learn about the land lease in question from a geologist.  DF said he was interested in the land when asked, and the price was $5K.  3 more phone calls established more info about the lease, and set the purchase, and set the purchase price at the above price provided DF gave PL a 90-day option to purchase for a $100 consideration.  1/18/74:  PL called DF and advised him he had prepared the option and would come to Montana to meet DF on the following day to close the deal.  DF agreed.

 

1/19/74:  PL and wife met with DF at a motel.  PL brought with him a form of the option agreement, and DF read it over.  No further discussion of terms of option but DF asked PL why he was interested in the land in question, which PL replied he had a general interest in area and was dissatisfied in the political situation in Canada.  PL did not at any time tell DF of the info  obtained as to the wells on adjoining land covered by the Moorhead covered by DF lease.

 

Option signed by parties in presence of witness.  DF accepted a draft from PL for $100 as payment of the option consideration.  After, on 2 occasions within the option period, PL accepted and exercised the option to purchase DF's lease and tendered $4900 to DF as payment.  DF refused tender and refused to carry out option on both occasions.

 

Schlegel sues for specific performance of the option to purchase the oil & gas lease.  DF answered and counterclaimed for:     (1) cancellation or rescission of the option on the ground of fraud; and (2) damages of $5K for slander of title; and (3) actual damages and exemplary damages for fraud, totalling $56K.

 

Issue(s): Under contract law, was there compelling circumstances warranting a specific performance of the option contract, when PL had superior knowledge based on public records equally accessible to both parties?

 

Under contract law, was there inadequate consideration to hold open the option when it required a payment of $100?

 

Court's Rationale/Reasoning: PL was aware of the other wells, and the fact they had substantial production potential.  It is also established when he was asked of his interest, PL replied he had a general interest in it.  The answer to the question must be questioned if PL's response if it was misrepresentative, concealment, circumvention, or unfair practice based.

 

The DC correctly found there was no unjust concealment or circumvention in answer to DF's question.

 

As to the second issue, there was evidence of insufficient consideration.  There was a concealment which made the consideration too small.

 

Rule: A decree for specific performance is not granted as a matter of abstract right, but in every instance the application for such relief is addressed to the sound, legal discretion of the court.  The case comes within the general rule, often adverted to this court, that in the absence of a clear showing of abuse of discretion the decision of the lower court will be affirmed.

 

Specific performance cannot be enforced against a party when there are certain pieces of information not known to the seller.

 

Holding: No and Yes.  No unclean hands going into the K but there was insufficient consideration.

 

XIX. Third Party Beneficiaries

A. History and Introduction

Topic Notes:

Firmly established in 19th century: only person in "privity" could sue on K.  In this context, "privity" refers only to those who exchange the promissory words or those to whom the promissory words are directed.

 

In Dutton v. Poole, DF promised his father to pay DF's sister 1K pounds if the father would refrain from selling certain property.  When DF's sister sought to enforce the promise, DF took the position that his sister could not succeed b/c she was not in "privity."  However, b/c of the close relationship between the father, the promisee, and his daughter, the beneficiary, the court sustained the action even though there was no "privity."

 

In the language of this chapter, DF is the promisor, father is the promisee, PL is alleged beneficiary.  On the facts of Dutton v. Poole, relationship which was important was the relationship between the promisee father and the beneficiary daughter.

 

In the terminology of this chapter, PL is the donee beneficiary, which means the father, by the K he made with his son, intended to and did confer on his daughter a gift in the form of a promise.  This gift doesn't require delivery b/c it was purchased by the consideration furnished by the father.

 

Why should DF in a bilateral K case be the promisor?  Simple answer is the promisor has made the promise a third party seeks to enforce.  Usually only one of the promisors has made a promise that benefits a third party.  But it's possible both parties made a promise beneficial to the beneficiary.  In such a case the promisor would be the party against whom the enforcement is sought.

 

 

Lawrence v. Fox was also a landmark U.S. case.   Promisee Holly owed $300 to Lawrence.  Fox promised promised to pay the debt in exchange for a loan of $300 which Holly made to Fox.  Since the agreement was made between promisee Holly and promisor Fox, Lawrence was not in "privity."  Although there was some discussions of trusts and agency (Holly was acting as an agent for Lawrence) in the decision, ultimately the case held that Lawrence could recover b/c it was manifestly just that he should do so.  While Dutton v. Poole involved a donee beneficiary, Lawrence v. Fox permitted recovery to a beneficiary known as a creditor beneficiary b/c the promisee's purpose was to have a creditor paid.

 

In such a case as Lawrence v. Fox, the beneficiary Lawrence could have sued his debtor Holly, who in turn could have brought the promisor Fox to suit.  But procedural or jurisdictional

problems may get in the way.  At any rate, it is certainly more efficient to allow a direct action between the beneficiary and the promisor.

 

 

DUTTON V. POOLE (1677)

Case Brief:

Style (name of case): Dutton v. Poole (1677)

 

Cause of action: The following is a cause of action for damages as the result of breach of K.

 

Procedural History: Original verdict for plaintiff upon nonassumpsit.  Upon review, court found action should be taken by father, not daughter.  Action sustained.

 

Facts: DF promised his father to pay DF's sister 1K pounds if the father would refrain from selling certain property (wood).  When DF's sister sought to enforce the promise, DF took the position that his sister could not succeed b/c she was not in "privity." 

 

Issue(s): Under contract law of beneficiaries, does the daughter have the right to enforce an agreement made between father and son of DF if she was not privy to the agreement?

 

Court's Rationale/Reasoning: In the language of this chapter, DF is the promisor, father is the promisee, PL is alleged beneficiary.  On the facts of Dutton v. Poole, relationship which was important was the relationship between the promisee father and the beneficiary daughter, even though there was no privity.

 

Rule: Only a person in "privity" could sue on K.  In this context, "privity" refers only to those who exchange the promissory words or those to whom the promissory words are directed.  The father, by K made with his son, intended to and did confer on his daughter a gift in the form of a

promise.  This gift does not require delivery b/c it was purchased by the consideration purchased by the father.

 

Holding: However, b/c of the close relationship between the father, the promisee, and his daughter, the beneficiary, the court sustained the action even though there was no "privity."

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LAWRENCE V. FOX (1859)

Case Brief:

Style (name of case): Lawrence v. Fox (1859)

 

Cause of action: The following is a cause of action for damages as the result of breach of K.  DF contends no consideration.

 

Procedural History: Verdict for PL in the amount of the loan plus interest to $344.66.  Superior Court affirmed.  Further affirmed on appeal.

 

Facts: Promisee Holly owed $300 to Lawrence.  Fox promised promised to pay the debt in exchange for a loan of $300 which Holly made to Fox. 

 

Issue(s): Under contract law of beneficiaries, may DF interpose a claim of lack of consideration and therefore no K when he agreed orally to pay PL an amount of money owed to him from a third party?

 

Court's Rationale/Reasoning: Since the agreement was made between promisee Holly and promisor Fox, Lawrence was not in "privity."  Although there was some discussions of trusts and agency (Holly was acting as an agent for Lawrence) in the decision, ultimately the case held that Lawrence could recover b/c it was manifestly just that he should do so.  While Dutton v. Poole involved a donee beneficiary, Lawrence v. Fox permitted recovery to a beneficiary known as a creditor beneficiary b/c the promisee's purpose was to have a creditor paid.

 

In such a case as Lawrence v. Fox, the beneficiary Lawrence could have sued his debtor Holly, who in turn could have brought the promisor Fox to suit.  But procedural or jurisdictional problems may get in the way.  At any rate, it is certainly more efficient to allow a direct action between the beneficiary and the promisor.

 

Rule: Only a party in "privity" could sue on K.  In this context, "privity" refers only to those who exchange the promissory words or those to whom the promissory words are directed.

 

Holding: Yes.  It was "manifestly just" he should have done so, as a general principle.  Lawrence was also in privity, as he was the party to which the funds were directed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. First restatement

Topic Notes:

Both above cases (Dutton, Fox) are based on this.  Two types of beneficiaries have enforceable rights: creditor beneficiaries and donee beneficiaries. 

 

Others who may benefit from the benefit from K but have no enforceable rights are labeled incidental beneficiaries.  Under this approach, third party creditor or a donee beneficiary qualifies as a third party beneficiary, but an incidental beneficiary'a action is doomed to failure.

 

First Restatement focuses on purpose of promisee in obtaining promise for beneficiary:

(1) if the purpose is to confer a gift, the third party is a donee beneficiary (surrounding circumstances taken into account).

(2) if the purpose of the promisee in obtaining the promise is to discharge "an actual or supposed or asserted duty of the promisee to the beneficiary," the beneficiary is a creditor beneficiary.

(3) a third person who will benefit by performance of K, but doesn't fall into either of these 2 categories is called an incidental beneficiary and may not enforce the promise.

 

(supposed obligation is sufficient)

 

B. Test of Intent to Benefit

Topic Notes:

When avoiding First Restatement, there are two key questions which often receive different answers:

(1) Whose intent do we seek?

(2) What evidence is admissible on the issue of intent?

 

The intent of the promisee seems to be more sound stress of the courts b/c the real question is "why did the promise extract the promise in question?"

 

When thinking about this, it is all a question of interpretation, and can bring in the plain meaning rule, ambiguity, extrinsic evidence, including evidence of subjective intent; also, is this is a question of fact or law?

 

When I broke my collar bone at Bill's house, his insurance benefits providing coverage for those hurt in the home covered me, third party (party A and B were Bill and Insurance Co.; party C, the third party is me)

 

Express intent of a third party to either receive benefits or not to will be honored in K.  In the absence of express intent to benefit, such an intent is established if it's clear the promisor's performance is to run directly to the beneficiary (if it's decided the performance is to run directly to the promisee, the third party is ordinarily an unprotected incidental beneficiary).

 

Ex: bank promises A loan to pay off creditors, they are the incidental beneficiaries, but if the bank's promise was to pay the creditors directly, they are the intended beneficiary.

 

In Lucas v. Hamm, a lawyer promised to draft a will for the testator (one who has made a legally valid will before death) in which the PL third party were named as distributees.  B/c the will was improperly drawn, PL $75K less than the testator had intended.  The court recognized that the performance of drawing the will was to run to the the testator, but rejected this test.

 

They said, "insofar as intent to benefit a third person is important in determining their right to bring an action under a K, it's sufficient that the promisor had such intent." 

 

This intent stresses the intent of the promisee but also indicates that the promisor must also have reasonably understood his intent.  Although the will was drawn for the testator, the ultimate intended beneficiaries of a will are the distributees named in the will.  The test of who the intended beneficiaries will be in K is a better test.  This test is particularly appropriate where the promisee's motive is donative.

 

Donee beneficiary is quite different.  Ordinarily, the donee beneficiary has no claim against the promisee and the promisee ordinarily has little or no financial incentive to sue promisor, and even if there were restitution, the goals of K would be thwarted. Therefore, justice is served by enforcing such an agreement.

 

BUT there are cases where the third party beneficiary doctrine could be used to impose a crushing burden on a promisor.  In H.R. Moch Co. v. Rensselear Water Co., the DF promised City Renselear to supply water at fire hydrants at a specified pressure.  PL's building caught fire & was destroyed b/c of breach of promisor's (DF's) promise.  PL was not a creditor beneficiary and the court treated the owner as a potential donee beneficiary.  The court, however, concluded that the owner was not an intended beneficiary in part b/c the DF could've been destroyed financially if, for example, the entire city had been destroyed by this fire.

 

Again, this involves a policy consideration.  Here, the law of contracts overlaps the law of torts.  In Moch, a cause of action based on tort was also rejected.  Extensive attention to policy consideration that underlie tort law in general and to the economic and social impact of extended liability in the particular area of the economy involved will produce sounder analysis than an

attempt to fathom the intention of the parties.  Nonetheless, the mechanical test of "to whom does the performance of the promise run" is consistent with the outcome.  The water was supposed to city's hydrants and not to PL.

 

Another important element in 3rd party beneficiary area is reliance.  Thus, where a law firm prepares an opinion letter for a client, knowing that a potential lender will rely on the content of the letter, the firm is liable for its negligent preparation.  In Moch, PL was a third party beneficiary of the promise specifying the maximum rates to be charged for its own consumption.  If PL were allowed to recover on DF's dime, the field of obligation would be expanded beyond limits.

 

If though, the Water Company promised the City to limit the prices charged the property owners, the performance would run to the individual, making the PL in this case a third party beneficiary.

 

H.R. MOCH CO. V. RENSSELAER WATER CO. (1928)

Case Brief:

Style (name of case): H.R. Moch Co. v. Rensselaer Water Co. (1928)

 

Cause of action: The following is a cause of action for damages as the result of a fire which burned PL's business down.

 

Procedural History: Demurrer was denied at Special Term.  Appellate Division reversed.  On further appeal, judgment affirmed with costs.

 

Facts: DF promised City Renselear to supply water at fire hydrants at a specified pressure.  PL's building caught fire & was destroyed b/c of breach of promisor's (DF's) promise.  PL was not a creditor beneficiary and the court treated the owner as a potential donee beneficiary. 

 

Issue(s):  Under contract law of remedies, does a fire which destroys PL's place of business a third party beneficiary allow him to recover damages when DF promised the city PL's city he lived in to be liable for damages in regards to its water service?

 

Court's Rationale/Reasoning: The court, however, concluded that the owner was not an intended beneficiary in part b/c the DF could've been destroyed financially if, for example, the entire city had been destroyed by this fire.

 

Again, this involves a policy consideration.  Here, the law of contracts overlaps the law of torts.  A cause of action based on tort was also rejected.  Extensive attention to policy consideration that underlie tort law in general and to the economic and social impact of extended liability in the particular area of the economy involved will produce sounder analysis than an attempt to fathom the intention of the parties. 

 

Rule: Express intent of a third party to either receive benefits or not to will be honored in K.  In the absence of express intent to benefit, such an intent is established if it's clear the promisor's performance is to run directly to the beneficiary (if it's decided the performance is to run directly to the promisee, the third party is ordinarily an unprotected incidental beneficiary).

 

(1) Whose intent do we seek?  (2) What evidence is admissible on the issue of intent?

 

Holding: No.  Nonetheless, the mechanical test of "to whom does the performance of the promise run" is consistent with the outcome.  The water was supposed to city's hydrants and not to PL.

 

LUCAS V. HAMM (1961)

Case Brief:

Style (name of case): Lucas v. Hamm (1961)

 

Cause of action: The following is a cause of action for lost benefits as the result of an allegedly poorly constructed will.

 

Procedural History: PL's appeal from a judgment of dismissal entered after an order sustaining a general demurrer to the second amended complaint w/o leave to amend.

 

Facts: DF agreed with the testator, for a consideration, to prepare a will and codicils for him by which PL's were beneficiaries to the amount of 15% residue as specified.  DF, in violation of instructions and in breach of K, negligently prepped  the will which violated Civil Code.

 

Because of this violation, PL's were denied some $75K less than which they would've received had the will been prepped properly (according to the dead guy). 

 

Issue(s): Under contract law, is DF lawyer liable for damages to a third party as the result of a poorly constructed will which PL's lost when the third party lost $75K as the result of the will?

 

Court's Rationale/Reasoning: They said, "insofar as intent to benefit a third person is important in determining their right to bring an action under a K, it's sufficient that the promisor had such intent." 

 

This intent stresses the intent of the promisee but also indicates that the promisor must also have reasonably understood his intent.  Although the will was drawn for the testator, the ultimate intended beneficiaries of a will are the distributees named in the will.  The test of who the intended beneficiaries will be in K is a better test.  This test is particularly appropriate where the promisee's motive is donative.

 

Donee beneficiary is quite different.  Ordinarily, the donee beneficiary has no claim against the promisee and the promisee ordinarily has little or no financial incentive to sue promisor, and even if there were restitution, the goals of K would be thwarted. Therefore, justice is served by enforcing such an agreement.

 

There is also a question of inclusiveness here.  The court found if they decide to include every accidental lawyer mistake (not by intent), then there could be a glut of cases in such a nature. 

Thus, the court finds there could be no liability, unless the error were either so blatant or illegal/fraudulent in nature.

 

Rule: The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury, and the policy of preventing future harm. The same general principle must be applied in determining whether a beneficiary is entitled to bring an action for negligence in the drafting of a will when the instrument is drafted by an attorney rather than by a person not authorized to practice law.

Holding: Yes, but not here.  Court affirmed judgment of dismissal where lack of privity between plaintiffs and defendant did not preclude action against defendant, but defendant was not liable for being in error as to a question of law on which well-informed lawyers could entertain reasonable doubt.

 

1. Second restatement

Topic Notes:

This restatement avoids the terms donee and creditor beneficiaries, b/c they are deemed obsolete.  However, in order to qualify as a third party beneficiary, the third party must meet 2 requirements, otherwise they are only an intended beneficiary.

(1) 3rd party must show that recognition of a right to performance in the beneficiary is "appropriate to effectuate the intention of the parties." (intent to benefit)

--and--

(2)(a) "the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary;" (promise to pay promisee's debt) or

(2)(b) "the circumstances indicate that the promisee intends to five the beneficiary the benefit of the promised performance." (a gift promise)

 

First restatement only required a supposed obligation owing from the promise to the beneficiary in order to qualify as a 3rd party beneficiary, but now there needs to be an actual obligation owing from the promisee to the beneficiary.

 

 

 

C. Third party beneficiaries and Statute of Wills

Topic Notes:

Under Statute of Wills and its modern decedents, a will must be in writing, signed and witnessed in a rather rigidly specified manner.

 

D. Mortgage Assumption Cases

Topic Notes:

3rd party beneficiary law is invoked when a promisor who buys property that is encumbered by a mortgage promises the seller to pay off the mortgage loan.  This is b/c the mortgage is a security interest in real property typically given in exchange for a loan, and a loan is usually evidenced by a bond or note that creates a personal obligation. 

 

Suppose that A, in exchange for a loan, gives a bond and mortgage to B and later sells the mortgaged property to C.  The transaction in the past could be negotiated in two ways.  C could assume the mortgage, meaning C promises to pay A the mortgage indebtedness to B.  In such a case, the situation in essence is that of Lawrence v. Fox.  B would be a third party beneficiary of C's promise made to A.  And if C conveyed the property to D who validly assumed the mortgage, B would be a 3rd party beneficiary of D's promise to C.

 

Suppose now, that C, despite the absence of personal obligation, in a subsequent conveyance to D, causes D to assume the mortgage.  This was the situation in Vrooman v. Turner.  The court ruled D's promise to pay the indebtedness wasn't enforceable by B.  It held that before a party can qualify as a third party beneficiary, 2 requirements must be met:

(1) There must be an intent to benefit, which the court apparently found to exist

(2) There must be an obligation owing from the promisee to the beneficiary.  This was missing b/c C, the promisee, had no obligation with respect to the indebtedness. (2nd requirement of intent to benefit)

 

Interesting question from Vrooman: Why did C, who was under no personal liability to B, extract a promise of assumption from D?  In most cases there is no basis for a finding that C's purpose was to confer a gift on B.  Nor will it usually be concluded that the assumption clause was included inadvertently or by mistake.  It will be deemed that C's purpose was to guard against a supposed liability.

 

The court decided in Vrooman that B was not a third party beneficiary, b/c an actual obligation owing from the promisee to the beneficiary is required to create a creditor beneficiary.  It indicates the PL is in fact an intended beneficiary or at least should be treated as one under the theory of reliance.   (this rationale is no loner accepted in NY).  To be a creditor beneficiary under second restatement, there would have to have an actual obligation owing from the promise to the beneficiary to qualify as a creditor beneficiary.

 

Rule from Vrooman: The third party does not qualify as a third party beneficiary unless there is an obligation owing form the promisee to the beneficiary.

 

Yet in Rouse v. US, the decision was more of what courts follow today.  Here, PL's assignor (transferor of interest) sold an oil burner to B on credit.  When B sold the house, the DF purchaser agreed to assume the payments still due on the oil burner contract.  DF failed to make payment and sought to interpose as a defense that PL's assignor had breached a warranty made to B.  DF attempted to show there was no obligation owing from the promisee to the beneficiary. 

 

The court ruled, however, the DF, by his assumption, promised to pay irrespective of any defense the promisee might have.  This is the usual holding in a case where there is an assumption of a specific alleged debt.

 

VROOMAN V. TURNER (1877)

Case Brief:

Style (name of case): Vrooman v. Turner (1877)

 

Cause of action: The following is a cause of action to foreclose a mortgage.

 

Procedural History: Appeal from judgment of the General Term of the Supreme Court in the second judicial department, affirming a judgment in favor of plaintiff, entered upon the report of a referee.

 

Facts:  Mortgage executed by DF Evans, who then owned the house, which had a mortgage on it.  Evans conveyed the mortgage to Mitchell, and then Mitchell conveyed it to Sanborn.  In none of these conveyances did the grantee assume to pay the mortgage.  Sanborn conveyed the same to DF Turner, by deed which contained a clause stating the coveyance was subject to the mortgage, "which mortgage the party hereto the second part hereby convenants and agrees to pay off and discharge, the same forming part of the consideration thereof.

 

Issue(s): Under contract law of mortgage assumption, may a third party assume a mortgage of property upon a conveying party when he had none conveyed upon him?

 

Court's Rationale/Reasoning: Interesting question from Vrooman: Why did C, who was under no personal liability to B, extract a promise of assumption from D?  In most cases there is no basis for a finding that C's purpose was to confer a gift on B.  Nor will it usually be concluded that the assumption clause was included inadvertently or by mistake.  It will be deemed that C's purpose was to guard against a supposed liability.

 

The court decided in Vrooman that B was not a third party beneficiary, b/c an actual obligation owing from the promisee to the beneficiary is required to create a creditor beneficiary.  It indicates the PL is in fact an intended beneficiary or at least should be treated as one under the theory of reliance.   (this rationale is no loner accepted in NY).  To be a creditor beneficiary under second restatement, there would have to have an actual obligation owing from the promise to the beneficiary to qualify as a creditor beneficiary.

 

Rule: The third party does not qualify as a third party beneficiary unless there is an obligation owing form the promisee to the beneficiary.

 

Holding: Judgment holding defendant liable for deficiency in mortgage foreclosure action reversed because the defendant as grantee could not be held liable for something for which the grantor was not liable.

 

E. Public Contracts

Topic Notes:

In a sense every contract made by a governmental unit is made for the benefit of its inhabitants.  If a city contracts to have a police station, fire house, etc. built, it does so to enhance the general welfare and, thus, to benefit the public.  Question: was the ultimate intent to benefit the public in the sense they'd have the ability to enforce such a K?  In such an action, recovery goes to the individual rather than to the public treasury. 

 

An inhabitant may be deemed to be a 3rd party beneficiary of a public K.  The first situation where this may occur is where the promisor agrees to perform services for the governmental unit which the unit is under a legal duty to perform to individual members of the public (individuals may recover if promisor breaches).  Also, this may occur when individuals are intended donee beneficiaries of a K between the governmental unit and the promisor. 

 

F. Promises of Indemnity

Topic Notes:

A promise of indemnity of loss (security against hurt, loss, or damage) is a promise by the indemnitor to reimburse the indemnitee after the indemnitee has paid the third party.  For example:

 

A Corp., the indemnitee, obtained a policy of fidelity insurance from I (indemnitor) under which I agreed to reimburse/indemnify A against any loss which A might sustain through the fraudulent or dishonest acts of an employee.  C, a third party, has a claim against A for the dishonest acts of an employee.  The question: may C successfully sue I on 3rd party beneficiary theory?

Answer: No.  I need not perform until A has paid.  Promised performance runs to A and not C.

 

G. The Surety Bond Cases

Topic Notes:

In gigantic contracts with huge corporations or with the government, surety bonds may be taken out by the general contractor.  The one that is most likely to create a 3rd party beneficiary situation is a payment bond.  Such a bond is "conditioned to be void" on payment by the contractor to those named in the bond, usually subcontractors, suppliers, and workers.  The surety company promises to pay if the contractor fails to pay.  These people, if intended to be covered, are third party beneficiaries, or even if they are bound by law as such they are as well.

 

H. Promisor's defenses and counterclaims

Topic Notes:

A party who qualifies as a 3rd party beneficiary may still lose the case.  The rights of the beneficiary stem from the K between the promisor and the promisee.  And so, the general rule is that the promisor may assert against the beneficiary any defense that the promisor can assert against the promisee.  For example:

 

If A promises not to cut down certain timber in exchange for B's promise to pay C $1K and A cuts down the timber, C, although qualifying as a third party beneficiary, may not successfully sue B, b/c B has the defense of non-performance against A.  In other words, the rights of the beneficiary do not exceed those of the promisee (and promisor could use any of the standard defenses against the promisee in such an instance).

 

I. Vesting

Topic Notes:

Vesting: to give to a person a fixed and immediate right of present or future enjoyment of (as an estate). 

Assume A is a 3rd party beneficiary of K between B and C (promisee and promisor).  Can they make an agreement subsequent to K to destroy or curtail the rights of A?  They may not do so if the rights of the beneficiary (A) have vested before the 3nd agreement was made.  The question then becomes when the rights of the beneficiary vest?

 

The prevailing rule is: the rights of a beneficiary vest as provided in K or when the beneficiary "materially...changes position in justifiable reliance on the promise or brings suit on it or

manifests assent to it at the request of the promisor or promisee."  The parties may, by agreement, determine the issue of vesting such as the creation of a right in the beneficiary that may not be varied by a subsequent agreement w/o the beneficiary's consent. (limited by considerations of fairness).  Conversely, parties may by agreement reserve "a power to discharge or modify the promisor's duty.  This is nearly done in modern life insurance policies, employee death benefit plans and the like.

 

After the rights of the beneficiary have vested, the promisor may not raise any defense stemming from a subsequent agreement or consensual discharge made with the promisee.

 

Other than the examples provided, this topic is irrelevant.

 

ERICKSON V. GRANDE RONDE LUMBER CO. (1939)

Case Brief:

Style (name of case): Erickson v. Grande Ronde Lumber Co. (1939)

 

Cause of action: The following is a cause of action for

 

Procedural History: Plaintiff accountant appealed from the judgment of Circuit Court, Baker County (Oregon), which found in favor of defendant acquiring company in its motion for a nonsuit and which found against defendant acquired company for an amount less than the accountant sought. The accountant contended that the nonsuit should not have been allowed and that he was entitled to the entire sum that he had sought.

 

Facts: PL, as creditor of DF, was not entitled to judgment against both of these companies.  Df argue PL was not entitled to judgments against both parties, and he should decide which party to sue (election).

 

Issue(s):  Under contract law of beneficiaries, may a third party be vested so that there is the ability to sue both liable parties when they both breach, or is there an obligation to sue only one party?

 

Court's Rationale/Reasoning: On appeal, the court affirmed the sum awarded to the accountant, but remanded the cause to the circuit court on the matter of the nonsuit. The court noted it was not essential to the creation of a right in a creditor beneficiary that he was identified when the contract containing the promise was made. The assent of the third person, for whose benefit the contract was made, was presumed. The acquiring company was aware of the accountant's services and received enough property from the acquired company to discharge all of the acquired company's liabilities.

 

Rule: It will be generally possible for the beneficiary to join the original debtor and the assuming promisor as DF's in the same action.

The general rule is that where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor. To this general rule there are four well recognized exceptions, under which the purchasing corporation becomes liable for the debts and liabilities of the selling corporation.

(1) Where the purchaser expressly or impliedly agrees to assume such debts;

(2) where the transaction amounts to a consolidation or merger of the corporations;

(3) where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently in order to escape liability for such debts. Where the entire consideration for the transfer is stock of the transferee corporation and the stock is delivered to the stockholders of the transferor, or it is contemplated that it will be distributed to them, leaving the transferor corporation without means to respond to its creditors, the transferee corporation is liable for the debts of the transferor.

 

Holding: The PL was entitled to maintain this action against the promisor (Stoddard), as well as against his original debtor (Grande Ronde).  He was entitled to judgment against both; however, only to one complete satisfaction.

 

ALEXANDER H. REVELL & CO. V. C.H. MORGAN GROCERY CO. (1919)

Case Brief:

Style (name of case): Alexander H. Revell & Co. v. C.H. Morgan Grocery Co. (1919)

 

Cause of action: The following is a cause of action for the recovery of fees in the amount of $671.80.

 

Procedural History: Trial court found in favor of DF.  On appeal, affirmed.

 

Facts: DF entered into K with Lidke, who was supposed to install certain fixtures in one of DF's stores.  Work wasn't done satisfactorily to DF, and later the two litigants entered into K to pay for the remaining work.  Lidke never finished the work, and DF never paid.  PL contends he was owed this money, while DF says his work was never performed.

 

Issue(s): Under contract law of beneficiaries, is a company entitled to make a claim for payment due when the third party fails to complete the work contracted?

 

Court's Rationale/Reasoning: PL contends the promise by Lidke to do the work was consideration in the aforementioned K.  However, the consideration was actually certain work, as earlier agreed upon before the K.  Both parties know the work was never completed.  Such a suit by PL goes against justice and fair dealing, and therefore must be affirmed for PL.

 

Rule: Where a contract is entered into by two parties for the benefit of a third, the third party's rights are subject to the equities between the original parties.

Holding:  No.  A third party's commitment to complete the work (Litke) superceded any payment made by DF.  Since the work was never completed, PL should not have recovered, nor had the rights to recover.

 

 

 

 

 

 

 

 

 

 

 

 

 

DETROIT BANK & TRUST CO. V. CHICAGO FLAME HARDENING CO. (1982)

Case Brief:

Style (name of case): Detroit Bank & Trust Co. v. Chicago Flame Hardening Co. (1982)

 

Cause of action: The following is a cause of action for reclaiming a monthly stipend for their husbands' deaths.

 

Procedural History: Trial court judge dies, so Appellate Court heard the case and entered for the DF.

 

Facts: DF's passed a resolution to pay three widows a graduated pension plan upon their husbands' deaths.  The wives never expressly reserved the right to alter/amend this resolution.  After widow Scott realized she could get this pension, she "forgot the whole thing."  Scott signed K agreeing to abide by the resolution, 4 days after her husband died.

 

Marjorie Scott continued to receive monthly pensions, while her sister-in-law Roxanne knew she was getting these payments.  Then, after 18 payments were made, Marjorie's sister-in-law

Roxanne helped vote to rescind the payments to Marjorie, as her husband wanted to maintain the financial stability of his company.  Roxanne's husband died, leaving her the surviving spouse.

 

Roxanne now gets no money, and wants to rescind the rescission.  She claims she was a third party beneficiary and never signed off on the resolution.

 

Issue(s): Under contract law of beneficiaries, does a third party once vested, have a claim to a rescinded resolution when the beneficiary knew of the rescission?

 

Court's Rationale/Reasoning: Rescission of the prior agreement is valid so long as the 3rd-party beneficiary (Roxanne), had not accepted, adopted or acted upon the original widow's resolution.  So an express reservation of the right to rescind isn't required to abrogate (abolish by authoritative, official or formal action) the 3rd party.

 

As to PL's claim she was ill at the time of the rescission, it is irrelevant and, even so, the rescission occurred before her declining health. 

 

Rule: After the rights of the beneficiary have vested, the promisor may not raise any defense stemming from a subsequent agreement or consensual discharge made with the promisee.

 

Holding: No.  Once the parties rescinded the agreement, the third party had no claim to rescind the rescission.

 

J. May a promisor raise the promisee's defenses

Topic Notes:

Here the question is whether the promisor may assert assert  against the beneficiary a defense that the promisee has against the beneficiary?  Rouse v. US illustrates the problem.  When B sold the house, the DF purchaser agreed to assume the payments due still on the oil burner K.  DF failed to pay & sought to interpose as a defense that PL's assignor had breached a warranty made to B.

 

Issue: Whether the promisor DF may assert against beneficiary PL a defense of breach of warranty that B has against PL?

Held: the issue is one of interpretation and states that there are 2 possible interpretations.  One is that the promisor promises to pay whatever the promisee owes.  Under this interpretation, the promisor is entitled to use the defense.  The other possible interpretation is that the promisor promises to pay irrespective of the liability of of the promisee to the beneficiary.  Under such an understanding, clearly DF may not assert that the promisee has against the beneficiary.  The court then held that the promise to assume was a promise to pay irrespective of the liability of the promisee.  The promisee has paid for the assumption by crediting the unpaid installments toward the promisor's purchase price of her house.

 

 

ROUSE V. UNITED STATES (1954)

Case Brief:

Style (name of case): Rouse v. United States (1954)

 

Cause of action: The following is a cause of action for payments which were delinquent on an oil burner.

 

Procedural History: Summary judgment for PL.  On appeal, reversed and remanded.

 

Facts: Here, PL's assignor (transferor of interest) sold an oil burner to B on credit.  When B sold the house, the DF purchaser agreed to assume the payments still due on the oil burner contract.  DF failed to make payment and sought to interpose as a defense that PL's assignor had breached a warranty made to B.  DF attempted to show there was no obligation owing from the promisee to the beneficiary. 

 

Issue(s): Whether the promisor DF may assert against beneficiary PL a defense of breach of warranty that B has against PL?

 

Court's Rationale/Reasoning: The issue is one of interpretation and states that there are 2 possible interpretations.  One is that the promisor promises to pay whatever the promisee owes.  Under this interpretation, the promisor is entitled to use the defense.  The other possible interpretation is that the promisor promises to pay irrespective of the liability of of the promisee to the beneficiary.  Under such an understanding, clearly DF may not assert that the promisee has against the beneficiary.  The court then held that the promise to assume was a promise to pay irrespective of the liability of the promisee.  The promisee has paid for the assumption by crediting the unpaid installments toward the promisor's purchase price of her house.

 

Rule: (1) An individual who does not sign a note is not liable on it.

(2) One who promises to make a payment to the promisee's creditor can assert against the creditor any defense that the promisor could assert against the promisee.

 

Holding: No.  The court ruled the DF, by his assumption, promised to pay irrespective of any defense the promisee might have.  This is the usual holding in a case where there is an assumption of a specific alleged debt.

 

K. Rights of the beneficiary against the promisee

Topic Notes:

Does the beneficiary also have a claim against the promisee?  Here the distinction between a creditor and a donee beneficiary is important.  Remember negotiable instruments, rights against sureties and creditors coming after them.

 

In essence, the creditor beneficiary is entitled to action against both surety and principal debtor, but to only one recovery.

 

L. Rights of promisee against the promisor

Topic Notes:

Question here:  Whether the promisee may sue the promisor for breach even though the beneficiary has a cause of action against the promisor based on the same breach?

 

Majority view:  the promisee may maintain such an action and this is logically correct b/c the promise breached was made to the promisee.

 

XX. Assignment and Delegation

A. Terminology -- relationship to prior chapter

Topic Notes:

An assignment transfers rights.

A delegation, in contrast, is the appointment of another to perform one's duties.

Consider the following examples:

 

A owes B $100 and C for a consideration agrees to assume A's obligation.  B is a third party beneficiary of C's promise to A.  In terms of this chapter, A has delegated to C the duty to pay B.  Because C has assumed this duty, B is a third party beneficiary of C's promise to A.

 

Not all delegations are accompanied by an assumption of duties by the delegate.  For example, C could be a messenger delegated to deliver $100 of A's money to B or a carpenter hired by a contractor to install windows.

 

Macke Co. v. Pizza of Gaithersburg, Inc. (1970)

Case Brief:

Style (name of case): Macke Co. v. Pizza of Gaithersburg, Inc. (1970)

 

Cause of action: The following is a cause of action for damages as the result of a breach of K.

 

Procedural History: Trial court rules in favor DF.  On appeal, reversed and remanded for a new trial for damages.

 

Facts: DF Pizza entered into arrangement with Virginia Coffee under which Virginia was to supply cold drink vending machines to DF's pizza parlors.  Virginia also agreed to keep machines in good repair and stocked with merchandise and to pay a percentage of income to DF. 

 

During the term of K, Virginia assigned its rights to PL.  When this occurred, DF terminated K, arguing the duty was non-delegable.  PL sues for damages for breach of K, and adds the services were not rocket science (not requiring any extraordinary skill).

 

Issue(s): Under contract law of assignments and delegations, may DF assert the claim K was a personal services K which could not be assigned and delegated based on the original K between Virginia and DF?

 

Court's Rationale/Reasoning: Step one: determine the rights and duties of Virginia.  Virginia was to install and leave the machines, stock them, make repairs, and pay a percentage of the gross to DF.  Thus, the issue is whether these duties were delegable.  

 

This is not a personal service contract b/c the performance was mechanical in nature and was not substantially different from the performance by Virginia.  The argument DF has also dealt with Macke before and chose Virginia b/c of preference of performance is outside of the scope of the case.  PL wins b/c DF's termination of K is a repudiation.

 

Rule: In the absence of contrary provision, rights and duties under an executory bilateral K may be assigned and delegated, subject to the exception that duties under a K to provide personal services may never be delegated, nor rights be assigned under a K where the choice of the person was an ingredient of the bargain.

Restatement: Performance or offer of performance by a person delegated has the same effect as performance or offer of by the person named in the K, UNLESS; the performance delegated

varies or would vary materially from performance by person named AND there has been no assent to the delegation.

 

Holding: No.  An attempt to delegate a non-delegable duty amounts only to an offer to waive the non-delegability, or, more accurately, an immaterial breach.  However, if the delegant persists in the delegation persists in the delegation after the other party refuses, there is a repudiation.

 

B. Nature of an assignment

Topic Notes:

Parties to an assignment have one of two purposes in mind.  They may intend an outright transfer of the right in question, or they may intend that the right be transferred as collateral security for a debt.  An assignment made as collateral security creates a security interest in the assignee, a property interest comparable to that which a mortgage lender obtains in mortgaged real estate.

 

This is more concerning outright assignments, which are defined as: a manifestation of intent by the holder of the right -- an obligee -- to the assignee to make a present transfer of the right to the assignee.

 

An outright assignment ordinarily extinguishes the right in the assignor and transfers it to the assignee, but there are exceptions, like in assignment of a bond, where there is a security interest involved, like a mortgage.

 

Because an assignment is a present transfer -- an executed transaction -- a promise to do something in the future cannot  be an assignment b/c a promise is executory (taking effect on a future contingency).  Thus a promise to pay money when the promisor collects it is not an assignment, as there is no present transfer.

 

DONOVAN V. MIDDLEBROOK (1904)

Case Brief:

Style (name of case): Donovan v. Middlebrook (1904)

 

Cause of action: The following is a cause of action for recovery of half of a broker's commissions in the sale of real estate under an alleged assignment.

 

Procedural History: This appeal is from a judgment dismissing the complaint at the close of PL's case.  Affirmed on appeal.

 

Facts: DF's employed Toch to secure a purchaser for a real estate transaction in NYC, and they orally agreed that if successful, they would pay him a 2% commission.  Property sold for $325K with the help of one Horowitz, to which the parties confirmed the oral agreement in writing.  Horowitz was to receive half the $3250.  Consideration for the transfer was for one dollar.

 

Toch went after the money from DF; he claims being owed the money.

 

Issue(s): Under contract law of delegation of payment, is a third-party beneficiary entitled to raise a claim for half a commission fee assigned to him when the agreement for such a split was made between the two brokers only?

 

Court's Rationale/Reasoning: PL predicates his right to recovery upon the fact DF's were indebted to Toch, and Toch assigned a portion of this debt to him (Horowitz).  An on the face look at the agreement shows no assignment.  No words on it suggest there to be a transfer of any interest in the claim which Toch had against DF's to PL's assignor.  Simply calling something an assignment doesn't make it so.

 

To constitute a valid assignment there must be a perfected transaction between the parties intended to vest in the assignee a present right in the thing assigned.  Since the assignor retains control over the subject matter, there is no assignment.

 

The test: whether the debtor would be justified in paying the debt or the portion contracted to a person claiming to be an assignee.  An agreement by parol or in writing, to pay a debt out of a

designated fund, does not give an equitable lien upon the fund or operate as an equitable assignment.

 

Rule:  A promise to pay money when the promisor collects it from a specified source is not an assignment, as there is no present transfer.

 

Holding: No. There was no present transfer, only an agreement between parties 2 & 3, not 1 & 2.  Party 3 has to go to party 2 to get his half commission fee, not the sellers of the property.

 

C. Coverage of this chapter -- impact of the UCC

Topic Notes:

UCC Article 9 (Secured Transactions) are referred.

 

When a transaction is excluded from the coverage of the UCC, common law rules govern the transaction; however, other statutory enactments must also be constituted.

 

D. Formalities

Topic Notes:

In absence of applicable statute, the manifestation of intent required for an assignment need not be in writing.  A security interest, according to Article 9 of the UCC, is generally not enforceable against the debtor or third persons unless the debtor has authenticated a "security agreement" or unless the assignee has possession or control of the collateral.  The statute performs the action of a Statute of Frauds.  If the assignment  is not governed by Art. 9, a provision in Art. 1 requires written evidence of personal property where enforcement would be of the amount of value exceeding $5K.

 

An outright assignment of the account is unenforceable unless it is evidenced by an authenticated security agreement authenticated by the assignor, or is one of a kind of assignments excluded from Art. 9's coverage.

 

E. Gratuitous Assignments

Topic Notes:

An assignment is an executed transaction and therefore there is no requirement that it be supported by consideration.  Nevertheless, assignments are separated into two categories: gratuitous assignments and assignments for value.

 

Assignment for value: if assignee parts with consideration or if the assignment is taken as security for or in total or partial satisfaction of a pre-existing debt.

 

Gratuitous assignment: if an assignment is not for value

 

An obligor (debtor) cannot defend a claim by the assignee by pointing out the assignment was gratuitous; can only be raised by assignor, assignor's successors or other competing claimants (creditors) to obligor's performance.

 

A gratuitous assignment is terminable by the death of the assignor, by the subsequent assignment of the same right, or by a notice of termination communicated by the assignor to the assignee or to the obligor.

 

Whether the gratuitous assignee will have rights under the assignment depends on which occurs first, the terminating event or the completion of the gift.

 

The gift of the assignment is completed by delivery, which can come in several forms: 

 

(1) a judgment against the obligor by entering into a substitute K with obligor to pay the assignee or substitute other performance

(2) evidenced in writing the creditor is required to surrender on payment (symbolic writing), which is delivered to the assignee

(3) written instrument by seal (or signed in some states is good enough)

 

The doctrine of estoppel may also render a gift irrevocable.  If the assignor should reasonably foresee the assignee will injuriously change position in reliance on the assignment and such reliance does occur, the assignment is recoverable.

 

SPEELMAN V. PASCAL (1961)

Case Brief:

Style (name of case): Speelman v. Pascal (1961)

 

Cause of action: The following is a cause of action for rescission of right on the part of DF

 

Procedural History: Trial court found for plaintiff, and appellant appealed.  Judgment affirmed.

 

Facts: DF was transferred the right to receive certain profit shares as the result of a negotiation in progress for the musical version of the play "Pygmalion."  This turned out to be "My Fair Lady," which made a lot of money.  DF's were sued to take away their right to claim profits.

 

Issue(s): Did the delivery of the aforementioned letter constitute a valid, complete, present gift to PL by way of assignment of a share in future royalties when and if collected from the exhibition of the musical stage version and film version "Pygmalion?"

 

Court's Rationale/Reasoning: Yes, at the time there was no play, musical or film going on, but Pascal was in negotiations, owned the rights and could grant a share of the benefits to anyone he wanted.  In such similar circumstances where the holder of rights of a particular piece of property wanted to give certain benefits to others, they were allowed.

 

In every case the following question must be asked: was there a complete delivery of a kind appropriate to the subject property?  Usually, as in the case of stocks and bonds, there must be a physical transfer involving documents and paper.  But here, there was nothing else to do so that an irrevocable transfer to plaintiff of part of Pascal's right to receive royalties from the productions occurred.

 

Rule: NY has enacted a statute that provides: "An assignment shall not be denied the effect of irrevocably transferring the assignor's rights b/c of the absence of consideration if such an assignment is in writing and signed by the assignor, or by the assignor's agent.

 

Holding: Yes.  Usually, as in the case of stocks and bonds, there must be a physical transfer involving documents and paper.  But here, there was nothing else to do so that an irrevocable transfer to plaintiff of part of Pascal's right to receive royalties from the productions occurred.

 

F. Voidable and conditional assignments

Topic Notes:

Assignments may be voidable b/c of infancy, insanity, duress, or fraud, but the assignment does not necessarily extinguish the rights of the assignor b/c the assignor has a power to avoid the assignment pursuant to the rules generally applicable to consensual transactions.

 

When voidable, obligor's duty to the assignor is discharged if the obligor pays the assignee in good faith w/o notice of the defect that made the assignment voidable.  If the payment is made with knowledge of the defect, the obligor makes the payment at their own risk, and may be liable for a second payment.

 

Rights on a condition are not extinguished by the assignment.  Consider this example:

 

A has right to payment from B for $X...but A assigns the right to C.  The assignment is in payment for an automobile on the condition it runs for 1K miles without needing repairs.  If the

car fails to run for 1K miles, A is entitled to the car and the $X b/c his rights extinguished only when the event specified (the car running right) occurs or is excused.

 

G. Assignments of future rights

Topic Notes:

The concept of the assignment of a future right is applicable only when the assignment is of a right under K that is not in existence but the assignor expects to enter into.

 

Ex: builder under existing K is entitled to progress payments of $1K per month, conditioned on performance of a specified amount of work each month. 

 

The assignment of the first month is a present assignment.  The second month's will be determined a present assignment if the builder's boss (GC) expects to enter into. 

 

The assignee of a future right has rights inferior to a number of potential third party claimants.  Thus, in the case of a double assignment, where the second purchaser buys with good faith and for value (HDC) prevails over the other assignee.  Attaching creditors also prevail over the equitable assignee if creditor's rights after the right has arisen and before the assignor has made a present assignment

 

H. Non-assignable rights

Topic Notes:

Rights not assignable under the following circumstances:

 

(1) if the assignment would materially change the duty of the obligor

(2) if the assignment would increase materially the burden/risk imposed on the obligor by K

(3) if the assignment would impair the obligor's chance of obtaining return of performance or, according to the 2nd restatement, if the assignment would materially reduce the value of the return performance to the obligor.

 

In addition, on various policy grounds, the law restricts the assignability of certain kinds of rights.  Generally, the obligor can waive the non-assignability of a right created by K.

 

SEALE V. BATES (1961)

Case Brief:

Style (name of case): Seale v. Bates (1961)

 

Cause of action: The following is a cause of action for recovery of money which had been paid to DF to defray the cost of some 300 hours of dance lessons.

 

Procedural History: Complaints dismissed on grounds they waived the rights from the assignment.  On appeal, judgment affirmed.

 

Facts: PL entered into K with DF Bates Studio, for dance lessons.  DF, assigned its rights and delegated its duties to Dale Studio.  When PL's learned of this switch to a company they used to contract with but cancelled, they still went over and took lessons after they were informed of the assignment of rights from Bates to Dale.  Finally, they decided to cancel after finding various problems with the studio, its instructors and the policy of the assignee studio.

 

PL sued for breach of K, citing the smaller studio, different dance instructors, and an overall inability to learn under the conditions presented by the assignee.

 

Issue(s): Under contract law of assignment and delegation, does a party's silence act as a waiver or acceptance of the assignment of rights to a third party?

 

Court's Rationale/Reasoning: First the court differentiated the rights from the duties.  Bates' right was to receive money and this right is normally assignable.  The duty was to give dance lessons.  As to whether this duty was delegable, the court asked if this was a personal service K and concluded it was.  Therefore, PL was not required to take dance lessons from Dale.  Bates  would have been guilty of a repudiation if it continued to insist on the delegation of this non-delegable duty.  Moreover the assignment which was coupled with an improper delegation would have also failed; PL would have had no obligations to the assignee.

 

However, after the delegation, PL took lessons for a period of time at Dale.  This amounted to a waiver of non-delegability and thus PL was bound to continue to take lessons from Dale.  However, there was no new K formed, and Bates continued to remain liable.

 

Rule: Stipulations of the K will not be implied unless the surrounding circumstances require it.  Breach of an implied stipulation must involve an important or substantial part of the performance.

 

Failure to object to the terms of an unjust assignment of rights in a personal services contract will in effect equate to a waiver of rights in regard to a remedy.

 

Holding: Yes.  Had the Seales read the contract more thoroughly, there could have been a remedy by rescission or in perhaps in breach of K and they could have recovered at least the unused portion of the consideration.  PL's waived any rights which may have arisen from the assignment must be upheld.

 

1. Assignment materially changing the obligor's duty

Topic Notes:

Right to payment of money is assignable, as is delivery of goods that's been paid for.  But they may not change the material duty of the obligor.

 

Example:  A agrees to paint B's picture for a fee.  But B cannot, by assignment of the right to C, obligate A to paint C's picture.  A's duty would be materially changed.  B could assign C the right to receive the picture, but that is all.

 

In requirements K's, the key issue in each case should be whether the requirements of the assignee would approximate the requirements of the assignor.

 

2. Assignment materially increasing the obligor's burden or risk

Topic Notes:

An obligor may reject an assignment if the obligor's risk may be different.

 

Ex: If an insurance company has a policy with A, and then A sells the building to B, the insurance company may reject an assignment of the rights of the policy to B because the risk may be different, even if B can prove he is the most careful person in the world.

 

3. Assignment materially impairing the other party's chance of obtaining return

Topic Notes:

Assignment materially impairing the other party's chance of obtaining return performance

When an assignor  assigns right under K, the assignor loses some of the incentive to perform b/c the consideration that was to come to the assignor is now to go to the assignee.  But the reduction in incentive would not impair the other party's chance of obtaining return performance.

 

If a seller assigns their right of payment to a third party, and the seller loses the incentive to sell in order for the payment to be made to the third party, the sale still is good on its face, b/c failure to perform will result in liability to the buyer and to the 3rd party.

 

A problem where the assignment would materially impair the other party's chance to obtain return performance is where the assignment is coupled with an improper delegation.  There are two kinds of improper delegations:

(1) where the duty is non-delegable

(2) the delegate is unqualified

 

The second case has an example in our case book, Sally Beauty v. Nexxus Products.  Here, the assignor was the executive distributor in TX for Nexxus hair products.  The assignor sold its business to a subsidiary of Nexxus's major competitor and purported to assign its Nexxus K to the buyer and delegated its duties under K to the assignee.  The assignment was void, as the assignee owed a duty of best efforts to the obligor's competitor, necessarily placing it in a conflict of interest.

 

The coupling of an improper delegation with an assignment results in an assignment that is void.  (Posner strong dissent here)

 

SALLY BEAUTY CO. V. NEXXUS PRODUCTS CO. (1986)

Case Brief:

Style (name of case): Sally Beauty Co. v. Nexxus Products Co. (1986)

 

Cause of action: The following is a cause of action for breach of K.

 

Procedural History: Summary judgment for DF, ruling the K was for personal services and therefore not assignable.  On appeal, affirmed, but on the theory that the K could not be assigned to the wholly-owned subsidiary of a direct competitor under the UCC.

 

Facts: Here, the assignor was the executive distributor in TX for Nexxus hair products.  The assignor sold its business to a subsidiary of Nexxus's major competitor (PL) and purported to assign its Nexxus' K to the buyer and delegated its duties under K to the assignee.  Upon learning of the merger, DF cancelled the agreement.

 

PL claims DF breached K when they cancelled without 120 days notice b/c they agreed .  DF asserts K was not assignable to PL b/c it was based on personal services between Nexxus and the Best's owners.

 

Issue(s): Under K law of assignment and delegation of rights, may DF assert a previous agreement of a subsidiary's acquisition was of a personal nature, and therefore, the rights within the previous K cannot be assigned to the acquiring party?

 

Court's Rationale/Reasoning:  The assignment was void, as the assignee owed a duty of best efforts to the obligor's competitor, necessarily placing it in a conflict of interest.  Here, the delegate was not bargained for and the obligee need not consent to the substitution.  Despite the contention PL could operate in an impartial fashion as a distributor, but who can guarantee this when push comes to shove in the marketplace?  This is the rationale behind their decision.

 

Rule: See UCC 2-210.

 

Holding: No.  A party to a party to K who has expressly or impliedly promised to act in "good faith" or to use "best efforts" may not delegate that duty even though the duty might otherwise be delegable.

 

Dissent: This was not so closely related as to give DF a right to repudiate.  The UCC does not provide for such an option.  Such acquisitions of businesses happen all the time in the course of business, and this should be no acception.

 

4. Attempted transfer of a non-assignable right

Topic Notes:

Attempted assignment of a right that is not assignable need not be honored by the obligor.  However, the obligor may waive the fact of non-assignability and the assignor may not object.  It's generally held that the assignment of a non-assignable right doesn't amount to a material breach unless the assignor insists that the improper assignment be accepted.

 

Assignor doesn't impliedly warrant the right purported to be assigned is assignable.  Therefore, the assignee does not have a claim against the assignor if the right assigned is not assignable, except perhaps for restitution based on voiding the transaction for mistake of law.  Thus, it is the obligor who is generally empowered to raise the defense of the non-assignability against the assignee.

 

WESTERN OIL SALES CORP. V. BLISS & WEATHERBEE (1927)

Case Brief:

Style (name of case): Western Oil Sales Corp. v. Bliss & Weatherbee (1927)

 

Cause of action: The following is a cause of action by appellants for damages as a result of its anticipatory breach.

 

Procedural History: This is an appeal for judgment against PL/appellee, which was ruled in favor of in trial court for $4420.25 in damages, and was upheld in Court of Appeals.  This appeal upheld as well.

 

Facts: Sellers get into K with Western, who agree to certain terms regarding selling and delivery of oil to the PL for six months.  Western sells the rights of the note to American, who demands the same satisfaction from the sellers.  Sellers refuse, and except to Western's selling off the rights without accepting liability under the original K.  When Western continued to demand services be conveyed to American based on the sale of the note, sellers took it as the K was terminated. 

 

Sellers sold their rights to the DF's in this case, and they were sued by the original buyers of oil.

 

Issue(s): Under contract law of assignment and delegations, may a party interpose the claim of anticipatory breach when they assign rights of a particular contract in whole to another party and the assignor refuses to accept all the rights under the original K?

 

Court's Rationale/Reasoning: Western corporation was not released from its K by the assignment to American.  The unexecuted portion of the K remained constituted, as it was in the beginning, of the mutual promises of the contracting parties.  When, therefore, the corporation repudiated all liability for future deliveries of oil, it committed an anticipatory breach, and the sellers thereupon became entitled to terminate the K.

 

The K being terminated, sellers had the obligation to make future deliveries of oil was released, and sellers were under no obligation to substitute their promise from one party to another.  Nor was it sellers' duty to waive the breach and continue to deliver oil to the oil company under K.  Nor was there a failure to mitigate loss flowing from the breach.

 

Rule: When K is assignable, a party may assign the benefits of his K to another, and delegate to his assignee the performance of his obligations under the K; but he remains liable for the proper performance of those obligations, unless the other party to the K consents to have the effect of releasing him.

 

Holding: Yes.  Assignee was under no right to enforce the original K, it was in the name of Western, who could transfer benefits, but no the original obligation/liability to pay.  Failure to do so is an anticipatory breach and damages may result if mitigated by the aggrieved party.

 

KAGAN V. K-TEL ENTERTAINMENT, INC. (1991)

Case Brief:

Style (name of case): Kagan v. K-Tel Entertainment (1991)

 

Cause of action: The following is a cause of action for recovery of payments made to DF, who was assigned payment in executory K.

 

Procedural History: Denied DF's motion for summary judgment.  This court unanimously reversed on the law and dismissed the complaint without costs.

 

Facts: Principal shareholder, officer and director of PL IPC is Kagan.  Kagan entered into an agreement with DF to place a pilot and locate a distributor for Kids Incorporated (featuring of some fame Jennifer Love-Hewitt and Mario Lopez).  PL's placed the series with DF MGM which entered into a written K with K-Tel stating MGM/UA agreed to pay certain fixed amounts for each episode.

 

IPC was paid $15K for the sale of the pilot by K-Tel, which also paid $10K advance towards sums due on the first 8 programs in the series.  K-Tel had produced only those 8 episodes when it fell into financial hardship.  MGM then notified PL it intended to remove it as producer of the series pursuant to their agreement.  MGM had paid all monies due under the written K.

 

MGM tried to remedy its default on the K by assigning rights to Hal Roach Entertainment.  MGM was not a party to the assignment agreement but, in a separate agreement signed by DF they agreed to the assignment.  K-Tel later filed for bankruptcy, and now Roach has also filed.

 

PL's seek to recover from MGM the amount allegedly agreed to be paid to them by the producer K-Tel/Roach (assignee), which is the 10% PL paid by MGM for the entire series of some 26 episodes.  They further argue the DF should be liable for this money on the theory of unjust enrichment.

 

Issue(s): Under contract law, may an assignee be awarded payments from an agreement if they go bankrupt, so as to receive in essence "unjust enrichment"?

 

Court's Rationale/Reasoning: Right to recover on quasi-K theory occurs when PL must demonstrate services were performed for the DF resulting in its unjust enrichment.  It is not enough that the DF received benefit from the activities of PL; if services were performed at the behest of someone other than the DF, PL must look to that person for recovery.

 

There is no merit for a claim of unjust enrichment b/c PL's performed services at the request of DF, locating MGM as the distributor for the series.  K-Tel went bankrupt w/o making full payment under its K with PL's.  Roach was substituted as producer, and DF MGM continued distribution of the series.

 

PL's should have went to DF for a remedy and not the third party.  There is no essence of obligation on part of DF or assignor to assume duties.  Even if, as PL's assert, MGM could be considered a party to the assignment, in the absence of an express assumption of those duties, it incurred no obligation.

 

Rule: A PL may recover from an assignee without unjust enrichment if: (1) PL expected payment from the DF and not the 3rd party; and (2) there was no privity of K between PL and DF.

 

"the mere assignment of a bilateral executory K may not be interpreted as a promise by the assignee to the assignor to assume the performance of the assignor's duties, so as to have the effect of creating the new liability on the part of the assignee to the other party to the K assigned."

 

Holding: The court held that plaintiffs could not recover on a theory of quasi contract because they could not show that services were performed for entertainment company that resulted in its unjust enrichment.

 

 

5. Attempted assignment prohibited by statute or public policy

Topic Notes:

Even if not prohibited by statute, it may be against public policy, like when someone tries to assign their government/municipal earnings to another party.

 

COOPER V. HOLDER (1968)

Case Brief:

Style (name of case): Cooper v. Holder (1968)

 

Cause of action: The following is a cause of action for non-payment of a loan and in another count for the remainder on the second note.

 

Procedural History: Trial court ruled in favor of DF.  Affirmed on appeal.

 

Facts: 1/61, DF borrowed $50K from PL and in March of that year entered into K w/city of Moab to perform certain engineering services in the construction of water and sewer improvements.  In April, he borrowed $10K more from PL, security being the rights to receive proceeds of his K with Moab.  A notice of assignment was served upon the Moab mayor, who accepted it and signed an acknowledgement.  For some reason, the city didn't honor this assignment, but made payment directly to DF.

 

10/63: PL commenced the suit for partial non-payment on both loans.

 

Issue(s): Under contract law of assignments, does an assignment to a city's mayor serve as notice to the city when there is an acknowledgment of payments to be made to a assignee?

 

Court's Rationale/Reasoning: Once the assignor acquired rights to receive payment, he could assign this right to anyone he wanted to.  When it has been done, it is not essential that the debtor agree to the arrangement.  Except under unusual circumstances, where the assignment relates to personal services, or something of a unique character where a party would be put to a distinct disadvantage, when the obligor received proper notice of the assignment, they must honor it.

 

Rule: The requirement of proper notice is satisfied by serving the notice upon an official whose duty it is to either act upon it themselves, or to communicate it to others who had such duty.

 

Holding: Yes.  The mayor is the chief executive officer of the City under Utah statute, is affirmatively charged with the duty of giving the council information concerning the business of the city.

 

 

6. Clause prohibiting or authorizing an assignment

Topic Notes:

Sometimes K contains a provision prohibiting assignment.  The question here is validity and effect of such a provision.  The great majority of cases have refused to interfere with the parties' freedom of K in such an explicit manner.

 

A provision permitting assignment will be honored (except when illegal) even if the rights under the K would be otherwise non-assignable.

 

ALDANA V. COLONIAL PALMS PLAZA, LTD. (1991)

Case Brief:

Style (name of case): Aldana v. Colonial Palms Plaza, Ltd. (1991)

 

Cause of action: The following is a cause of action for money pursuant to an assignment.

 

Procedural History: Trial court ruled summary judgment for Df/appellee.  On appeal, reversed and remanded.

 

Facts: DF entered into lease K with Abby's Cakes on Dixie (tenant, known as T) for space in strip mall.  Lease included a provision in which landlord agreed to pay tenant a construction allowance of up to $11,250 after tenant satisfactorily completed certain improvements to the rented premises.

 

Prior to completion of said improvements,T assigned its right to receive the first $8K of the construction allowance to Aldana (assignee).  In return, assignee recorded the assignment and sent notice by certified mail to landlord.  When T completed the improvements to the rented premises, landlord ignored the assignment and paid T the construction allowance. 

 

Assignee sued landlord for the money due pursuant to the assignment.

 

Issue(s): Under contract law of assignment and delegations, may a party assign the right of payment upon completion of certain contracted rights to a third party when notice has been given to the other party?

 

Court's Rationale/Reasoning: Assignee argues rules of Civil Procedure say any contract that prohibits assignment of an account or prohibits creation of a security interest in a general intangible for money due or to become due or requires the account debtor's consent to such an assignment or security interest.  However, this does not apply to leases, but loses on the counterargument that the lease provision does not prevent the assignment of the right to receive contractual payments.

 

Tenant did not assign the lease, but did assign the benefit payment (a right to receive payment) regarding the construction allowance.

 

Rule: Unless the circumstances indicate the contrary, a K term prohibiting assignment of "the contract" bars only the delegation to an assignee of the performance by the assignor of a duty or condition.  A prohibition against  assignment of the contract will prevent assignment of contractual duties, but doesn't prevent assignment of the right to receive payments due -- unless the circumstances indicate the contrary.

 

Holding: Yes.  The contract rights are not assignable, but the rights are.  Delivery of the assignment to the debtor fixes accountability of the debtor to the assignee.

 

FRANKLIN V. JORDAN (1968)

Case Brief:

Style (name of case): Franklin v. Jordan (1968)

 

Cause of action: The following is a cause of action for specific performance of option K which granted exclusive rights to PL's assignor Ackerman and all his heirs, executors, successors and assigns the exclusive right to purchase a described tract of land in Cobb County.

 

Procedural History: Summary judgment for dismissal granted.  On appeal, judgment affirmed.

 

Facts: Option K contains a stipulation which said the purchaser's rights were assignable and transferable at or prior to the closing by the purchaser to anyone, but doesn't relieve the purchaser from the obligations of the agreement.  Ackerman apparently assigned these rights to another fellow, the PL.  Ackerman is acknowledged as both the grantee and under purchaser's rights in K.

 

Issue(s): Under contract law of assignment and delegation, does an optionee's transfer of property rights to an assignee give the assignee the right to demand specific performance?

 

Court's Rationale/Reasoning: Purchaser and grantee both refer to the optionee Ackerman.  One of the obligations he undertook was to give a note signed by him personally promising to pay the balance of the purchase price, due after initial payment.  Ackerman was not released from this liability by the assignment to PL. 

 

Rule: Although the option to purchase land was assignable, indeed explicitly so, the assignee's ability to demand performance was conditioned on the tender of the note of the original optionee. Because of the lack of such tender, specific performance was denied.

 

Holding: No.  Plaintiff was not entitled to have specific performance of the agreement, for it was the optionee who should have signed the note, and not the assignee.

 

I. Defenses of the Obligor

COOPER V. HOLDER (1968)

Case Brief:

Style (name of case): Cooper v. Holder (1968)

 

Cause of action: The following is a cause of action for non-payment of a loan and in another count for the remainder on the second note.

 

Procedural History: Trial court ruled in favor of DF.  Affirmed on appeal.

 

Facts: 1/61, DF borrowed $50K from PL and in March of that year entered into K w/city of Moab to perform certain engineering services in the construction of water and sewer improvements.  In April, he borrowed $10K more from PL, security being the rights to receive proceeds of his K with Moab.  A notice of assignment was served upon the Moab mayor, who accepted it and signed an acknowledgement.  For some reason, the city didn't honor this assignment, but made payment directly to DF.

 

10/63: PL commenced the suit for partial non-payment on both loans.

 

Issue(s): Under contract law of assignments, does an assignment to a city's mayor serve as notice to the city when there is an acknowledgment of payments to be made to a assignee?

 

Court's Rationale/Reasoning: Once the assignor acquired rights to receive payment, he could assign this right to anyone he wanted to.  When it has been done, it is not essential that the debtor agree to the arrangement.  Except under unusual circumstances, where the assignment relates to personal services, or something of a unique character where a party would be put to a distinct disadvantage, when the obligor received proper notice of the assignment, they must honor it.

 

Rule: The requirement of proper notice is satisfied by serving the notice upon an official whose duty it is to either act upon it themselves, or to communicate it to others who had such duty.

 

Holding: Yes.  The mayor is the chief executive officer of the City under Utah statute, is affirmatively charged with the duty of giving the council information concerning the business of the city.

 

MICHAEL CROLL (1799)

Case Brief:

Style (name of case): John Ludwick, Assignee of Jacob Bollinger v. Michael Croll (1799)

 

Cause of action: The following is a cause of action for recovery of a bond/note which was promised to PL by assignor.

 

Procedural History: PL suffered a non-suit.

 

Facts: Bollinger had a bunch of land and conveyed the property to DF and 4 others, in consideration of one cent per acre.  DF paid him 200 units in goods, and signed two notes for the payment of 275 more units each by installments.  One of these bonds was assigned to Eckenwelder, whom DF satisfied.  The other was assigned to PL.  No other consideration  appeared to have been paid by the other purchasers for their proportions of the lands; and Bollinger disappeared shortly after the conveyance.

 

DF believed he had good title to the lands and within 2-3 after K, DF, who was "well-satisfied with his bargain," acknowledged he must pay the note off.

 

Issue(s): Under contract law of assignments, is an obligee on a note entitled to a defense against the assignee of the same note?

 

Court's Rationale/Reasoning: If the PL, ignorant of the unfairness of the original transaction, had been induced to obtain the assignment of the obligation, by the DF's promises to pay it, the latter ought to be bound by his engagement, notwithstanding the great hardship of the case; for he would be the cause of the deception, and his admissions would operate as a new K between himself and PL.  But the acknowledgements in the present instance, coudn't have influenced the PL's conduct, having been made several months after the assignment.  As between the obligor and obligee, who had swindled him already out of 475 units, no possible doubt could exist. 

 

Rule: The assignee of a bond takes it at his own peril, subject to every defense which might be set up against the obligee.

 

Holding: No.  The assignee of the note is entitled to the same rights as the assignor of the note, not the obligee.

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Defenses of the obligor against the assignee

Topic Notes:

The obligor may generally assert against the assignee the defenses the obligor could have asserted against the assignor.  Consider this example:

 

S and B enter into K for the sale and purchase of goods, and S, before delivery, assigns the rights under K toT who gives notice of the assignment to B.  S fails to deliver.  In action by T, B has

the defense of non-performance.  Same rules apply to all the defenses which make K void, voidable or unenforceable.

 

There is an exception under the vesting category.  An assignee is not bound by any defense resulting from an agreement reached between the obligor and the assignor or payment made to the assignor after the obligor has notice of the assignment.  Notice received by the obligor of the assignment vests the rights of the assignee in the sense that after notice the assignee's rights are not defeasible by agreement of the original contracting parties or by payment made by the obligor to the assignor.  Notice isn't necessary to the validity of an assignment.  Failure to give notice may destroy the rights of the assignee, for the assigned rights will not vest.

 

Therefore, the assignee's rights can be destroyed by an agreement between the obligor and the assignor or payment by the obligor to the assignor.  The doctrine of vesting only becomes relevant when notice has been given and a defense based on a subsequent agreement between obligor and assignor or payment made by the obligor to the assignor.  Example:

 

S and B enter into K for sale of goods.  S assigns rights under K to T who gives notice of the assignment.  A subsequent modification of the agreement by S and B won't be effective vs. T.

 

Since it's a general rule that the obligor may assert against the assignee any defense that the obligor can assert against the assignor, it is often stated that an assignee stands in the shoes of the assignor."  The assignee has no better rights than the assignor, which means even if an assignee is a good faith purchaser for value, the assignee's rights are subject to the legal rights of 3rd parties in the assigned rights.

 

2. Defenses of the assignor vs. the assignee

Topic Notes:

See 18.5, 18.7 (gratuitous instruments), 18.8 (gratuitous assignment of rights), and 18.9 (assignment of future rights)

 

A void assignment should be governed by the rules relating to void contracts.

 

XXI. Statute of Frauds

A. When a record is necessary

Topic Notes:

Certain kinds of K's have a writing requirement:

(1) a promise by an executor or administrator to answer damages out of his own estate

(2) a promise to answer for the debt, default, miscarriage of another person

(3) an agreement made in consideration of marriage

(4) any K for the sale of land or interests in land

(5) any agreement that is not to be performed within the space of one year from the making thereof

 

There is other policy behind this rule, aside from recognizing perjury.  An agreement reduced to writing promotes certainty, deliberation, seriousness, clears up any foggy memories of parties, and shows a genuine act of volition in the writing of the agreement.

 

With electronic communication, the United Electronic Transactions Act (UETA), and an electronic record (which is also retrievable) satisfies the Statute of Frauds (SOF) requirement.  However, these writings apply to specifically business, commercial or governmental affairs transactions.

 

B. Contracts not performable within a year

C.R. KLEWIN, INC. V. FLAGSHIP PROPERTIES, INC. (1991)

Case Brief:

Style (name of case): C.R. Klewin, Inc. v. Flagship Properties, Inc. (1991)

 

Cause of action: The following is a cause of action for breach of K to perform as construction manager on all phases of the project, quantum meruit recovery for anticipatory services for the rest of the phases of the project, and  detrimental reliance on DF's promise to preconstruction services.

 

Procedural History: District Court granted summary judgment for DF, reasoning (1) the K was not of an indefinite duration or open-ended, b/c full performance would take place when all the phases of the project were completed, and (2) the K was as a matter of law could not have possibly been performed within a year (focusing on scope of project, and PL's own admission the project would be done in 3-10 years.  On appeal, and passed it on to the Supreme Court. 

 

Facts: PL agreed w/DF to serve as construction manager on a $120M project conditioned on a 4% the cost of construction plus 4% of overhead and profit.  Parties shook hands and held a presser which was videotaped.  The parties signed a standard business practicing agreement in this field to the same effect, but no other mention of specific terms, other than the 4%.

 

After the first project was constructed, DF started to look for another contractor, as they were dissatisfied with PL's work.  PL did just that for the second project.  PL then filed suit in U.S. District Court.  Upon appeal, Klewin wanted to know:

 

(1) if the K was within an indefinite duration to make it outside the scope of Connecticut statutory law; and also

(2) if an oral agreement is unenforceable when method of performance called for is to be completed in a period of time which takes more than one year, even though the contract never specifically negates its possibility.

 

Issue(s): Under contract theory of SOF, does a writing for an "agreement that is not to be performed within one year from the making thereof," render unenforceable an oral contract that fails to specify explicitly the time for performance when performance of that K within one year of its making is exceedingly unlikely?

 

Court's Rationale/Reasoning: The court focuses on the "possibly" terminology in regard to K's which performance cannot possibly be completed within one year.  They decide the appropriate

interpretation is for contracts whose completion within a year would be inconsistent with the express terms of the contract.  The possibility must be a reasonable one, and it must be specified.

 

So when a K contains no express terms about the time for performance, no sound reason of policy commends judicial pursuit of a collateral inquiry into whether, at the time of the making of the K would be completed within its terms, it was realistically possible performance on K could have been completed within a year.

 

Rule: The one year rule runs not from the making of the contract, but from the making of the contract to the completion of the performance.  If an oral agreement that can be performed within a year is broken and suit is not brought until nearly six years after breach, the provision does not apply, even though the terms are no longer fresh in the minds of the parties.

 

The question is:  would it be a breach of K to perform the act in less than a year; only then is the K w/in the one-year section.

 

Holding: Yes to first question, and no to second question.  The critical test is by its terms the agreement is not to be performed within a year, so that the statute will not apply where the alleged agreement contains no provision which directly or indirectly regulated the time for performance.  Therefore, an oral K that does not say, in express terms, that performance is to have a specific duration beyond one year is, as a matter of law, the functional equivalent of a K of indefinite duration for the purposes of the SOF.

 

1. Computation of the one year period

Topic Notes:

The test to see where the one year starts and ends is not how long the performance will take, but when it will be complete.  Thus, if on 12/10/03, A in a bi-K promises to make a one hour TV appearance on 2/1/05, the K is within the statute.

 

If A contracts to work for B for one year, the work to begin more than one day after making the agreement, the K is within the one-year section, but if the work is to begin the next day, the K is not within the SOF.  This is b/c the law disregards fractions of a day.  If K is restated at the

beginning of the work and the restatement can be regarded as the making or remaking of the K, the year starts to run from that time.

 

2. Possibility of performance within one year

Topic Notes:

One year section of SOF applies  to promise/agreement which by its terms does not admit of performance within one year from the time of its making.  If by its terms, performance is possible within one year, however unlikely or improbable that might be, the agreement or promise isn't w/in this subsection of SOF.

 

The question is:  would it be a breach of K to perform the act in less than a year; only then is the K w/in the one-year section.

 

3. A promise terminable on an uncertain event

Topic Notes:

If A promises to supply B with services for the duration of a war, A's promise is not w/in SOF b/c the war might have ended w/in a year.  So, too, is A promises to support X for life or to employ X for life, the promise is not w/in SOF.  It is not for a fixed and X may die w/in a year

 

When K's are put in terms of numbers of years as opposed to a term of a life, death operates as a defeasance of the K rather than as its fulfillment.

 

4. Alternative Performances; options to terminate or extend

Topic Notes:

When a contracting party promises one of two or more performances in the alternative, the promise is not w/in the one-year section if any of the alternatives can be performed w/in one year from the time of the making thereof.  It does not matter which party has the right to name the alternative

 

5. Multiple promises in one contract

Topic Notes:

Where any of the promises on either side of a bi-K cannot be fully performed within one year from the time of the formation of K, the entire K is within the one-year section of SOF.  This means K is unenforceable by either party of a sufficient record or in the absence of performance.

 

C. Relationship among the various provisions

Topic Notes:

K's can be w/in more than one section of SOF.  Ordinarily, the various clauses of SOF are considered separately and the most restrictive is applied.  However, where a land K is specifically enforceable under the doctrine of part performance, the other clauses of the statute do not prevent enforcement.

 

Traditionally, the one-year section applied to all K's no matter what their subject matter.

 

D. Sufficiency and effect of a record

Topic Notes:

Assuming a K is w/in SOF, it is enforceable if K itself is in a record or a memorandum is recorded.  The K must be written and signed by the pursuing who is going to be sued/charged.

 

CRABTREE V. ELIZABETH ARDEN SALES CORP. (1953)

Case Brief:

Style (name of case): Crabtree v. Elizabeth Arden Sales Corp. (1953)

 

Cause of action: The following is a cause of action for breach of K.

 

Procedural History: Original court found for PL, as did Appellate Court.  On appeal, judgment affirmed with costs.

 

Facts: PL wanted to try working for DF's company, and after haggling over a 3 year deal, settled orally on terms for a two-year guaranteed deal, as prepared via an office memorandum, with a $20K base, and $5K bumps after six months, and another after 12 months, along with $5K expenses per year.  PL left his former job on the promise of this new job.  Third $5K bump not paid after first two were, and he brings suit for breach.  DF claims no existence of a K w/PL, and even so, using SOF defense to bar its enforcement.

 

Issue(s): Under K law of SOF, is an office memorandum a proper form for an agreement as which to interpose a promissory estoppel argument within SOF?

 

Court's Rationale/Reasoning: In order to go through the process called "tacking," which shows outside evidence in an agreement which relates to the same original transaction to show reliance on something, an aggrieved party must find a way to show they are in some way related to the claim at bar.  Here, there are two payroll cards, in addition to the memorandum, satisfy a connection which allows the tacking process to ensue for PL.

 

There was parol evidence in this case also shows DF had assented to the terms of K, in her ordering of the memorandum made in response to the acceptance by phone of PL based on the certain terms discussed.  Thus, PL may be able to claim what he does.

 

Rule: If the signed document does not expressly refer to the unsigned document or if the unsigned document is not attached, it is still sufficient if the documents by internal evidence refer to the same subject matter or transaction; and in that event, extrinsic evidence may be brought to help show the connection between the documents and the assent of the party to be charged.  The signed document must evidence a contractual relationship.

 

Holding: Yes.  If PL relied to his detriment on a promise which by all intents and purposes was a two-year guaranteed K to work for DF, and those terms were specified as far as salary goes, and DF refuses to pay on her promise, then PL may assert a promissory estoppel claim

 

1. The contents of the record

Topic Notes:

The record must state with reasonable certainty:

 

(a) the identity of both parties to K, however, the party need not be named if the record sufficiently described the party; extrinsic evidence to clarify the description is admissible

(b) the subject matter of the contract so that it can be identified either from the record alone or with the aid of the extrinsic evidence

(c) the "essential terms and conditions of all the promises constituting the contract and by whom and to whom the promises are made."  If the consideration is executed (e.g, payment has been made), it is still in dispute whether the consideration must be stated

 

These terms must be stated with "reasonable certainty"

 

2. Signed by the party to be charged

Topic Notes:

Signature: includes any mark or sign, written, printed, stamped, photographed, engraved, or otherwise placed on any record with intent to execute or authenticate the record (for the party to be charged), or by an agent of the person to be sued.

 

3. Record quilted from several records

Topic Notes:

If there's more than one record and all of the records are signed by the party to be charged and it is clear by their contents that they relate to the same transaction, no problems other than those previously discussed are present.  But if the party to be charged has signed only one of the documents comprising the record, the matter comes down to a few issues:

 

(1) If the signed document does not expressly refer to the unsigned document or if the unsigned document is not attached, it is still sufficient if the documents by internal evidence refer to the same subject matter or transaction; and in that event, extrinsic evidence may be brought to help show the connection between the documents and the assent of the party to be charged.  The signed document must evidence a contractual relationship.

 

4. Effect of non-compliance -- unenforceability

Topic Notes:

Majority view is to treat the oral K as unenforceable rather than void, even when SOF uses the term "void."  SOF must be pleaded as an affirmative defense.  In other words, the general rule is SOF is personal to the party to the K and those in privity; a third party may not assert its invalidity, thus indicating that the oral agreement is void.

 

Finally, the oral K is shown to be unenforceable rather than void by the rule that the record may be made at a time other than the time of contracting.  However, if the oral K was void, the record would have to come into existence at the time as the agreement or at least while both parties were still in agreement.

 

5. Effect of part of a contract being unenforceable

Topic Notes:

Where one or more of the promises in a K are within SOF and others aren't, the general rule is that no part of the K is enforceable.  Any other approach would be unfair.  But there exceptions:

 

(1) when all the SOF promises have been performed, then all the other performances become enforceable

(2) where the party who is to receive the performance under the only promise(s) become enforceable

(3) where a promisor makes a promise of alternative performances, one of which is within SOF and the other without, it is generally held that the promise may enforce the promise which is not within SOF

 

E. Estoppel

1. Equitable Estoppel and SOF

Topic Notes:

Most jurisdictions recognize that if the elements of equitable estoppel are present, the party to be charged will not be permitted to raise the defense of SOF.  So, if SOF of a given jurisdiction requires that an agent's authority be granted in a record, the principal has indicated to the other contracting party that the agent is duly authorized to act provided, or course, that the representation produced injurious reliance

 

2. Promissory Estoppel

Topic Notes:

It can be used to fight off SOF if the promise was relied on to their detriment, the court has to restitute both parties (concrete action in reliance on a promise

 

XXII. Illegal Bargains

HEWITT V. HEWITT (1979)

Case Brief:

Style (name of case): Hewitt v. Hewitt (1979)

 

Cause of action: The following is a cause of action for recovery of profits from a business after a break-up.

 

Procedural History: Original complaint dismissed.  On appeal, reversed.  On further appeal, Appellate Division decision reversed (affirming trial court).

 

Facts:  Plaintiff brought suit against defendant to recover from him an equal share of the profits and properties accumulated by the parties during the period plaintiff and defendant lived as husband and wife. The appellate court entered judgment in plaintiff's favor stating that because

the parties had outwardly lived a conventional married life and that plaintiff's conduct had not affronted public policy that she was not entitled to any and all relief.

 

Issue(s): Under contract law of recovery, may PL assert a claim a share of profits from a business where parties were not married or common law married?

 

Court's Rationale/Reasoning: Since common law marriage was abolished by Illinois law, she could not be a party to a recovery.  It forbids public policy to recover anything from an illegal game.

 

The supreme court held that plaintiff's claims were essentially that a common law marriage existed between the parties. According to the court, common law marriage was abolished under Illinois law.

 

The supreme court further held that an agreement in consideration of future illicit cohabitation between the plaintiff was void.  The court held this legislative act was designed to promote marriage, not agreements for future consideration between unmarried parties.

 

Rule: An agreement in consideration of future illicit cohabitants between people is void.  A bargain in whole or part or in consideration of illicit sexual intercourse or of a promise thereof is illegal.  Therefore any agreement not legally bound will not allow a person who is party to such an agreement to be able to collect on it.

 

Holding: No.  PL's claims are unenforceable for the reason they contravene the public policy, implicit in the statutory scheme of the Illinois Marriage and Dissolution of Marriage Act, disfavoring the grant of mutuality enforceable property rights to knowingly unmarried cohabitants. 

 

COCHRAN V. DELLFAVA (1987)

Case Brief:

Style (name of case): Cochran v. Dellfava (1987)

 

Cause of action: The following is a cause of action for recovery of monies paid as the result of an illegal game.

 

Procedural History: Complaint is dismissed.

 

Facts: The following events happened as a result of the "airplane game," in which co-pilots solicit cash payments from passengers and then take the collective payment.  The scheme continues when the pilot leaves and the rest of the original participants split off and start new games on other airplanes.

 

PL got in on a game where he gave DF $2200, knowing it was illegal, but also under the impression DF would take all the blame if there was trouble.  PL was under the impression DF was a pilot, but in reality was a co-pilot.  PL wound up being selected as a flight attendant on a plane where she didn't want to be, and asked to get off.

 

Issue(s): Under contract law of illegality and recovery, may PL successfully claim monies paid to take part in an illegal scheme when she herself was refused the payment while playing the game?

 

Court's Rationale/Reasoning: The court decided this was a ""chain distribution game," in which parties pay money to another party in exchange for an opportunity for something else.  Then those people who helped in the original solicitation split off and continue the scheme.  When such a game is illegal, a party to such a game will be refused help from any court of law in trying to recover money or property resulting from it.

 

Rule: It is illegal to promote, offer, or grant participation in any illegal game.  A party to such an illegal game cannot ask the court to recover any results of such an illegal object.

 

Holding: No. Parties to an illegality, when they know of the consequences, are not entitled to a recovery for monies lost as a result of participating.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A. What makes a bargain illegal

Topic Notes:

Bargains are illegal if they are against public policy (immorality, unconscionability, economic policy, unprofessional conduct, the prevention or obstruction of justice, paternalism, and diverse other criteria , including government or corporate contracts and contracts between parents that prejudice their children's rights to support

 

"In pari delicto potior est condito defendentis"  means in a case of equal fault the condition of the defending party is the better one.  In short, the courts will leave the parties where they found them.

 

General rule is an illegal bargain is unenforceable and often void.  This b/c both parties must furnish consideration (bargain for legal detriment).

 

B. Recovery on an illegal executory bi-K

Topic Notes:

(a) Ignorance of the Facts and Law

Innocent parties entering into illegal K's may recover for their losses, provided they show they were ready, willing and abel to perform but for the illegality.  This does not mean ignorance of law, just ignorance of facts.

 

(b) Bargain Illegal by virtue of wrongful purpose

Some bargains are illegal by reason of the wrongful purpose of one or both of the parties.  The mere fact that an innocent party knows of the illegal purpose of the other of the other does not bar the innocent party from recovering for breach of K unless the intended purpose involves serious moral turpitude or this party takes action to further the purpose of the other.

 

(c) where the parties are not in pari dilecto

Some statutes are designed to protect one class of people against another.  Usually these are acts for restitution, but there are cases where breach comes into play. 

 

(d) Severance

An illegal provision doesn't necessarily render the entire K unenforceable.  If the illegal provision is not central to the agreement and doesn't involve serious moral turpitude, the illegal portion of the agreement is disregarded and the balance of the agreement is enforceable (like illegal non-compete clauses, for example).

 

(e) Purposeful interpretation & Reformation

If an agreement can be read so that either a legal or illegal meaning can be attributed to it, courts will prefer the interpretation giving the agreement a legal meaning.  The possibility of a reformation exists, although there are very few cases in which the remedy of reformation has been granted.

 

(f) Making the case without Showing the Illegality

It has been ruled in England (and seldom here) that if PL can make out a claim w/o showing the illegality, the PL can recover for breach of K even if PL is in criminal association w/DF

 

 

 

C. Effect of Licensing Statutes

Topic Notes:

Practicing a trade or profession w/o a license, where a license is required, is often a criminal offense, so can a person who commits this offense collect for services rendered by their illegality?

 

If the licensing statute is merely revenue raising measure, recovery is permitted, but no recovery is allowed if the statute is in the category to certify the skills or moral fitness of licensees.

 

Thus, a person who illegally practices law is not entitled to recovery.

 

A contract in which allows a person to use the license of another is also illegal, but sometimes cases where lawyers who are licensed to practice in one state but help on a case in another are entitled to collect sometimes.

 

Second restatement encourages the courts to balance the equities in the light of the public policy served.

 

Because police power licenses are designed to protect the public, the parties are not in cahoots.  So, where an unlicensed professional makes a bargain with a member of the public, the professional will be liable for damages in cases of malpractice.

 

D. Remoteness of the Illegality

Topic Notes:

A legal K could sometimes become illegal if it were performed in an illegal manner.  A party which is too far down the chain of illegality (i.e.: a pawnbroker who receives a ring from a person who obtained it through an illegal agreement was not allowed to interpose illegality, b/c the pawnbroker wasn't as close to the illegality as the original owner of the ring, who was allowed recovery)

 

E. Dispositaries and Agents

Topic Notes:

If a person gets funds by illegal conduct and deposits them in a bank, the ban cannot resist repayment to the depositor.  The illegal conduct is too remote to be an appropriate defense by the bank. 

 

But sometimes a fiduciary obligation is regarded as stronger than the policies against enforcement of illegal agreements.

 

F. Divisibility of Illegal Bargains

Topic Notes:

Permits recovery where part of the contract is illegal.  When a non-essential clause of K is said to be illegal, for example a penalty clause or an overbroad covenant not to compete, the illegal clause is severed and the balance of the contract is enforced.