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b. Illusory promise cannot be consideration BUT:-Implied terms may make it nonillusory terms are implied in fact or law
c. The consideration is to be tested within the agreement not what you do
outside of it.Strong v. Sheffield 1895: hold off on collecting the moneymade not real
commitment. (Cf. Feinberg, Compare Lakeland)
IMPLIED TERMS (eg duty of good faith)
1) Implied in Fact- implied based on the parties expectations, circumstances
under which bargain was made
2) Implied in law- term that is always there (good faith) whether the parties are
thinking about it or not
SECTION 205
-Every contract imposes upon each party a duty of good faith and fair
dealing in its performance and its enforcement (Implied in law) Mattei v. Hopper
(good faith to purchase on satisfaction of leases) ,Wood v. Lucy, Lady Duff-Gordon
(Without the implied promise it would not made sense to enter in agreement)
C. RELIANCE AS A BASIS FOR ENFORCEMENT
PROMISSORY ESTOPPEL (Rest 90)
3
5) Necessary to prevent injustice (Feinberg v. Pfeiffer 2)
Equitable Estoppel
1) Fact wrong
2) Reliance
3) Injury?
*No recovery available on mutual mistake
Rules vs. Standard: Basis for enforcement
o
4
4. Gratuitousness- when you help someone in serious danger, courts assume it is
gratuitous, unless excessively burdensome or expensive or in a business or
professional capacity Cotnam v. Wisdom
a. services were needed. Not volunteer in most complex situations.
Callano v. Oakwood Park Homes: Pendergast--contract with Callanos-Callanoes
planted shrubbery sue Oakwood Park Homes for Ps bill
there must have existed a piror legal or equitable obligation which for some
reason had become unenforceable but for which the promisor was still morally
boundMcGowin was his boss.
5
1) A promise is not enforceable if the promisor sufficiently indicates that he/she did not
assent/intend to be bound by the promise- Section 21 (can say you do not want to be
bound or shown in context)
e.g. Gentlemans agreementneg. that look like offer and acceptance but no assent
to be bound
2) Possible perspectives on whether the promisor assented to be bound
general rule=no
usual explanation=reasonable expectations 26
exception=factors negating these expectations false advertising laws, ect
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C. ACCEPTANCE
Is it a promise to perform or is acceptance given by complete performance?
Restatement 4, 30, 32, 54(1)-notice, 56, 60
When notice is required, must be made in a way that D could rxably find out.
White v. Corlies
1. It is true that an offeror can specify a specific method of accepting the offer
2. If the offeror prescribes a certain type of acceptance and the offeree doesnt than
the offeror is not bound
3. BUT if the permissible method is stated it doesnt preclude other methods of
acceptance
SILENCE NOT ORDINARILY ACCEPTANCE
Restatement 69Acceptance by Silence or Exercise of Dominion
Exceptions:
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A) offeree takes benefit of offeror services with 1) reasonable oppo to reject them
and 2)reason to know that they were offered with the expectation of compensation
(Ford never agrees to counter offer, but lets them in to do work)
B) where the offerror has 1) stated or given the offeree reason to understand that
assent may be shown by silence or inaction, 2) but in remaining silent intends to
accept the offer (offeree just has to want it if the silence clause is proposed)
C) where b/c of previous dealings or other it is reasonable that the offeree should
notify the offeror if he does not intend to accept Hobbs v. Massasoit Whip Co
(previous business, held onto products unrxably)
D. LAPSE, REVOCATION, AND REJECTION OF OFFERS
1. Termination of Offers
If offer doesnt state a time, the offer lasts within a reasonable time frame and what
a reasonable person would think
Option contract: If you make an offer it can be revoked unless there is a binding
promise to keep the offer open (offer on a house)
Revocation only counts if its communicated by offeree
9
Dickinson v. Dodds: Promise not to keep the offer open is not a promise because there
was no consideration. Option contracts req. consideration. No reliance in this
case.
2. Possible Responses to an Offer:
10
Exceptions:
o
o
o
11
o
A party is estopped from asserting the statute of frauds to prevent the enforcement
of an oral contract where Promissory Estoppel: (139) Monarco v. Lo Greco
1) a party has so substantially changed his position in reliance upon the
contract that he would suffer an unconscionable injury if the contract were
not enforced and
2) the party seeking to assert the statute of frauds will be unjustly enriched if
he is permitted to escape the obligations of the contract.
375: Restitution is not barred b/c of SOF unless the statute expressly states
otherwise or it would aggravate the purpose of SOF.
o A promise made by a person under the age of majority (in most states, 18
years) is voidable until a reasonable time after the person reaches the age of
majority. Kiefer v. Fred Howe Motors.
Restitution (Rest. 62 +cmt.b)
12
Emancipated infantsthose who are infants but responsible for their own
care
o
-you can still void contractsif someone sells you a necessary you
must make restitution. Housing, food, clothes. Kiefer v. Fred How
Motors SC of WI 1968
3. Mental infirmity
Voiding promises based on mental illness/defect:
Traditional ground (1) (a)
States that accept the modern ground also accept the traditional
An improper threat
Leaving the promisor with no reasonable alternative
Test:
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1) Was there duress/improper threat?
2) Was there a rxable alternative?
-Duress is more difficult to show on the facts, easier to deal with consideration
-Not valid Defense if Duress/stress occurs after contract, but could be relevant for a new
one
Alaska Packers Assn v. Domenico US Ct Appeals 1902
Defense the court relied on: no new consideration. Defense:
1. Catching fish was a part of the original agreement
2. Duress-going to break contract in bad faith, wouldnt be able to find substitute
workers
3. Person who made the promise had no authority to make the contract
Is a subsequent promise by one party to do more or pay more enforceable?
1. No, if induced by duress 175(1), 176 (1)(d)
2. No, if no new consideration (pre-existing duty rule) Alaska Packers
3. Yes, if original agreement cancelled Schwartzreich (hiring contract torn up before
new promise to pay $100)
4. Yes, if changed circumstances (modern modification rule) Watkins Rest. 89 (about
12 states)
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Disclosure Rules
1. A promise is voidable if it is induced by
A material or fraudulent misrepresentation (not opinion/puffing)
An active concealment of facts, or
A half truth
2. On which the promisor was justified in relying 164(1)
bare nondisclosure of facts by the promise does not make a promise voidable,
Swinton, arms length transaction Compare Kavannos (half-truth about zoning
laws and house converted to apt)
Unless a statue requires disclosure, or
The promise has a confidential relation with the promisor requiring
disclosure 161 (d).
89-TEST: promise modifying a duty under a contract not fully performed on either side is
binding.
a) if the modification is fair and equitable in view of circumstances not
anticipated by the parties when the contract was mde
b) to the extent provided by statute
c) to the extent the justice requires enforcement in view of material change of
position in reliance on the promise.
D. MISTAKE-promised induced by mistake
Restatement 151, 152, 154
Restatement 153, 161(b)
Mutual Mistake 151, 152, 154 Wood ($1 diamond), Sherwood (rose the cow)
15
Unilateral mistaketraditional rule Swinton traditionally not enough to get you out of a
contract
-modern rule 153
1. where a mistake of one party at the time a contract was made as to a
basic assumption
2. has a material effect on the agreed exchange of performances that is
adverse to him.
3. Contract is voidable by him if he does not bear the risk of the mistake
under the rule stated in 154
154 Bears the cost if:
1. Stated in the agreement
2. Knew he had limited knowledge and treated it as sufficient
3. Rxable under the circumstances for him to bear the risk
E. DENYING SPECIFIC PERFORMANCE
Types of remedies
o
o
16
General principle 178 (1)
Examples: Torts 192, syl. App 8
Marriage 189
Court can discern new categories: Bush v. Black Ind. (How can we determine what is
unrxably high to pay)
192: A promise to commit a tort or to induce the commission of a tort is
unenforceable on grounds of public policy. (no bldg. permit)
189 A promise is unenforceable on grounds of public policy if it is unreasonably in
restraint of marriage.
Promises that violate public policy are not only voidable, they are void
Could sue for restitution though
17
2. Adequate notice
211 Klar (assent to a writing and that these writings as terms
and agreementsdont adopt writing if not regulary used to embody agreements
napkin contract)
3. Public Policy
178 OCallaghan (traditional view), Heningsen (alternative
view)
4. Unconstitutionality
208, UCC 2-302(1) +cmt. 1
5. Misc. other statutes regulated the substance of contracts
6. Eg note (2) pg. 392, usury laws, minimum wages ect.
Traditional View: OCallaghan v. Waller and Beckwith:
Majority: Clause doesnt violate PP b/c:
policy of freedom of contract (enforce those that entered willingly fair or not)
Leases concern only private not public interest (other cases dinsting.;
commercial lease precedent-courts concerned only if contracts freely entered affect
3rd party under PP)
Clauses may benefit both tenants and landlords--Liability raises rent!
Reduction in std. of care not impermissible (insurance contract)
No proof of overreaching in this case
Not the role of the courts to make additional laws if the leg fell short)
No monopolistic power
Need a durable moral basis to make a new rulefleeting facts
Dissent:
Lease not just a matter between 2 parties (its the standard for others like
OCallaghan-thousands of tenants forced into it-hopstance choice)
Asserted public policies violated
Response to monopolistic powereven if there were thousands of landlords there
were more people seeking it it
Transitionary periodcases accepted on the Dissents rule Heningsen, later replace with
unconscionability rule
Reasoning
Written on the back and in small print 6pt type- not notice on the back
Warranty is standardized, no bargaining, uniform warranty of the automobile mfr
assoc. (affects thousands of ppl-not just two, dissent in OCallaghan
There is no competition among the car maker in the area of the express warranty
PP arg: no bargaining power, overreaching power by one party, protect
the ordinary man from losing impt rights through the unilateral affect of
mfr
208 Unconscionability andArticle 2- Sale of Goods 2-302:
Test: in light of the general commercial background, or needs, its so one-sided you can
refuse to enforce it
finding that any clause is unconscionable (shocks) may refuse to enforce contract all or in
party
Sparing use in actual practice
18
Mostly used to invalidate attempts to exclude liability for personal injuries
Compare OCallaghan
V. REMEDIES FOR BREACH
A. EXPECTATION, RELIANCE, AND RESTITUTION INTERESTS
Restatement 344, 346, 347, 349, 359, 364, 371
1. Enforcement of Promises- Judgment for Money $$$ Damages
General availability 346(1) right to damages
Possible measurements
- Expectation 344(a), 347 as good a position as if the contract had been
performed
- Reliance 344(b), 349 as good a position as if the contract had not been
made
Ie down payment +loss of profits while closed
- Restitution 344(c), 370 interest in having restored any benefit conferred
on the other party
Ie down payment
- Nominal 346(2)
- Liquidated 356
Limitations
- Availability, uncertainty, etc.
Expectation interest:
Loss in value
(plus) +
What defendant
promises (minus)
what defendant
delivered
Expansion (cost of
substitute
performance) nothing
Other loss
(minus) -
Costs avoided
(minus) costs plaintiff
expected-cost
incurred
Lost profit*
Contract price
down payment
0**
19
Efficient breach = D decides that it would be better for D to breach and pay
damages than to perform
D is better off and plaintiff is no worse off
20
b) rxable cost of completing performance to remedy and not clearly
disproportionate
Owner entitled to the money to complete unless its disproportionate
to the goal to be obtained Jacob and Young v. Kent: 348(b)
6. Uncertainty 352
cant recover beyond the amount that can be calculated upon reasonable
certainty (more than prepond of evidence, less than mathematical certainty)
Questions:
1. Whether there has been a loss at all? (breach harmed P)
2. Extent of harm? (harm happened)
3. Putting a figure on the loss: Know harm happened and the extent
What May be Uncertain
Fact of Loss Collatz, cf. 348 (2)
o Rule: compensate for what P proved to have suffered in damages.
Can just give him something b/c of breach (would be punitive). Is there
an alternate recovery? (not in Collatz)
Extent of loss Fera
Value of loss
Alternative remedies in cases of uncertainty
1. Nominal damages ($1 or 6 cnts) 346 (2): if breach caused no loss, or loss not
proved, a small amt can be given as nominal damages
2. Reliance damages 349 : including exp made in prep of perf.. when profit
uncertain, can ignore profit and just focus on expenditures on reliance
3. Specific performance 360 (a) McKinnon
4. Liquidated damages 356(1)
D. LIQUIDATED DAMAGES AND PENALTIES
Liquidated Damages
1. Liquidated damages= an amount of damages stipulated by the parties in the
contract rather than left to calculation by the court (most business contracts)
e.g. late fees, loss of deposit, etc
2. Unrxably Large D may argue liquidated damages are not enforceable because
they are a penalty 356 (1), Gustafson
3. Liquidated damages are a penalty when unreasonably large in light of:
a. Actual or anticipated loss caused by breach
b. Difficulty of proof
4. Irrelevance of characterization of liquidated damages ( disguised peanlties, prob. P.
689)
5. Policy argument for not enforcing penalties
-no economic justification for them?
-need to protect Ds from unrxably large damages
6. Criticism of prohibition on enforcing penalties
a. Litigating rxablenss reduces benefits of all stipulated damages (under cuts
purpose of liquidated damages) Gustafson
21
b. Market will regulate?
7. P may argue liquidated damages are unenforceable because that are
unconscionably small (Henningson)