Contracts Grounds for Enforcement 1. Consideration y Not all promises are enforceable.

y The promissor had to be bargaining for something in exchange. o If it was just a promise to make a gift then there is no contract y Why would you need a bargain for exchange? o The party intended to be legally bound. y But what if gratuitous promise was intended to be binding? o Even if you notarize it and write that you want to do this, it may still be not enforceable y In exchange o Sought in exchange  I will give you $10,000, then you go on a trip to Europe It wasnt what I was looking for o Given in exchange  Find a bank robber, but didnt know that there was a reward y Consideration can be: o Action  I will give you $2000 to walk across the Brooklyn Bridge  Unilateral contract Only can be accepted based on doing the action, not the promise to do it o Forbearance  Ill pay you $10000 if you dont sue me If in good faith you believe that you have an actual claim then you dont its enough consideration o Promise  Ill pay you $10,000 if you promise to deliver your bought  Illusory promise A true illusory promise is not consideration y Ill give you $10000 to deliver your boat if you feel like it. y Some courts have implied terms and that seems enough of consideration o I will be your distributor, with proper notice  Satisfaction Clause Ill pay you if Im satisfied o There must be a good faith agreement. You must be honestly dissatisfied y Output/ requirements o Ill buy all I need from you  Based on output previously done. Hamer v. Sidway

y y

Defendant says that they will pay you if you dont gamble, smoke, or drink Consideration was thought that it was either a Benefit to the offeror, or a detriment to the offeree o The court had an issue with this. This restricted his lawful freedom of action o There is only consideration if you stop someone from doing something that they could lawfully do anyways.

Lake Land Employment Group V. Columber y Non- compentition agreement was signed by Columber, but was not given anything in return, but kept his job y Consideration was given to employee because he got to keep his job o It was consideration because the company gave up the opportunity to fire him Petroleum Refractory Corp. V. Kendrick Oil y Kendrick agreed to buy a certain volume of oil and of a certain grade based on the price, and that the seller can cancel any unshipped portion with 5 days notice. o Kendrick canceled the order, after PRC had delivered a portion of the oil and then sold the remaining of the oil at a lower price and wants the difference from Kendrick y Issue: o Is there a valid consideration based on the clause that the seller can cancel the order by not making that grade of oil? y Holding: o There is actual consideration because they agreed to stay in the business and manufacture the oil and sell it to the buyer, thus restricting the ability to selling it to someone else. o They had the options of manufacturing the oil and selling to other competitors, sell to Kendricks, or quit the business all together. o By signing the contract they had a forbearance of selling to anyone else. Fisher v. Jackson y There was no consideration for the employer in the oral agreement based on the plaintiff giving up his job at the bakery because the defendant had not bargained in exchange for the promise of permanent employment.

UCC y Universal Commercial Code o Most states have adopted the UCC, and applies to varying types of contracts

Article 2 deals with the sell of goods If you have a contract then the UCC is a statute  Article 2-306(1) of UCC Output needs to be a good faith amount and one that is not disproportionate of previous output. o Thus not having an illusory promise, because output most be similar to previous outputs.

Past Consideration: y Can a previous act be considered consideration? o The restatement says no because it is not bargained for y The court sees cases that the defendant is saved and they agree to pay something to the plaintiff o The court thinks that they should enforce these. You feel that you were unjustly enriched, and in recognition you make the promise. o Promissory restitution/ material benefit doctrine y Adequacy and sufficiency of Consideration o Adequacy is not required by the idea of consideration.  The trades do not need to be equal o Sufficiency  Was there a bargain at all If I give you a parcel of land worth a million dollars, and you give me a dollar for a gift. It was not sufficient to uphold that deal Options contracts: y An offer, and a promise to hold the offer open o I will give you my house for $200,000 and I will keep that offer open til June 1. o What did you get for the promise to hold open the offer?  The hope that you will buy the house, but didnt get really anything in return  Courts decided that in an options contract Nominal Consideration is enough. If you give someone a dollar, then it was enough A false recital that $1 was given does not count. y UCC 2-205 o Merchant Firm Offer  If a merchant makes an offer, in writing and its good for only 90 days, then there is no need for consideration y CSIG- Convention on Sell of International Goods o An treaty that protects good sold in different countries  Cant revoke offers, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable 2. Reliance

Promises are enforceable without consideration if elements of promissory estoppel are met o Restatement section 90  There needs to be a promise  The offeror need to expect reliance  Definite and substantial actual reliance Need to be worse off then if there were no promise to begin with.  Injustice could only be avoided by enforcement of the promise Reliance must be reasonable o They were be going to get a store, but the document said that they should not rely on anything until they get the final K Promissory Estoppel came from a misuse of the Equitable estoppel doctrine o Promissory Estoppel is not a misrepresentation of fact. They just changed the name  Promissory estoppel may obviate the need for other technical doctrine of contract claims. Might get you out of other things than just consideration Equitable Estoppel o defined as The conduct by a party in which they absolutely preclude from asserting rights which might have existed as against another person who changed their position for the worse because they relied on that right, and who some corresponding right to remedy that change, in this case exists

Ricketts v. Scothorn y The grandfather in giving the plaintiff this promissory note intentionally influenced the plaintiff to leave her position, thus making her in a worse position on the faith that the terms of the note will be paid y Evoking Equitable Estoppel Cohen v. Cowles Media Promissory estoppel because he met the 4 criteria of promissory estoppel when newspaper released his identity.

Restitution: y Can be an independent cause of action even without contract o Can use K forms even without consent (expressly or implied in fact) o Quasi- K/ implied in law K  Unjust enrichment defendant is enriched at the plaintiffs expense. Courts will often say that service was officious or gratuitous.

Person could ask to pay for this service, Violin player at the bus stop When economic costs are high, then there can be an implied contract y Economics and Restitution y Pareto- Efficiency: A property of a change from one state of affairs to another state of affairs. Some one is better from the change and no one is worse off. y Kaldor- hicks efficiency: a property of a change in one state of affairs to another state of affairs. The beneficiaries benefit enough to compensate the losers of the change and still be better off. o A package of Kaldor- Hicks efficient changes may be Pareto- efficient. Coose Theorem y If there were zero transaction costs, what would be the efficient rule to govern relations? o The answer would be every legal rule would be sufficient. y Train and Crops example Harrington v. Taylor o The promisee already did something before you had made the promise, is that enough consideration to support your promise? o He had already received a previous act, and therefor could not be seeking an action that had already occurred. Webb v McGowin y +=1 o First is restitution, if I have done something nice to you, you ought to reciprocate. o The Second promise: You made a promise, and you should probably keep your promise o Equals 1= which means that should be enough to enforce the agreement. o Promissory Restitution  A promise that is made because of already received details **** Promissory Restitution only in some states******** Bailey V. West  Implied in law and Quasi- contract. We think that the defendant should be required to pay, in order to prevent unjust enrichment. o There is no implied in law or quasi contract, or implied in fact K in the Horse Case y If you never asked for it, even though you benefitted from it, you shouldnt have to pay for it. Formation of Contracts:

1. Offer and Acceptance y Need consent from both parties- intend to be bound Offers y y Create the power of acceptance When does the power terminate? o A rejection  Offer is off the table when you offer it o A counter-offer  When you reject the first offer and offer your own terms o Revocation  In general the offer can be revoked before they are accepted. o Death of the offeror o Lapse of time  Deadline that is on the contract, or  Within a reasonable time

Examples: Davis v. Satrom y A qualified or conditional acceptance is itself a counter offer and rejects an original offer so that no valid contract is made.

Must be sufficiently definite on essential terms o The UCC for goods contracts tries to liberalize this  UCC 2-204, 2-305 Open price terms are ok, If the parties wanted to be bound without the price term then they are bound. Court will supply price Quantity terms is the most important under UCC Advertisement is not an offer Examples: Ford Motor Credit v. Russell y An Advertisement is not an offer, because they dont have an unlimited supply it is just an offer to bargain. y When you say that you want to purchase what they advertised, you have created the offer. Mid-south Packers v. Shoneys y Written proposal stated the price, but didnt include quantity or duration. y There is a lack of consideration in terms of making a contract. There is nothing that the buyer has committed to, if Shoneys had agreed to purchase all the requirements. There would be an obligation, or enough of a consideration y Under UCC 2-205 the terms of the firm offer expire after 3 months of the issue.

Not bound under 2-204 because there is no quantity term

Misunderstandings can defeat contract o The two parties have different meanings on the terms  Two ships named Peerless o If there is a common intention  Applies even if it is unreasonable  Our private code governs o What if we did intend different things  Solve the dispute by bringing in the reasonable person  Different subjective understandings But if one party has reasons to know what the other were thinking then the party who doesnt know what the other was thinking governs o Subjective Theory  Only if they both agree to the terms, then is it mutually beneficial  Pareto efficiency o Objective Theory  Protects against carelessness, sanction careless contracting and punish it in a tort notion. Conditional Acceptance o When parties say that they will agree to terms but subject to certain conditions o Common Law  mirror image rule if the acceptance looks like the offer then there is a contract.  If there is action and fulfill the contract, then its thought to be an accepted.  2nd party was favored  Offeror as master of the offer They can only accept in the law that the offeror lays out. o UCC 2-206  Any reasonable method of acceptance is ok, unless unambiguously stated If it says that you need to sign on this paper, and you fax back on your own form that is still fine. Example: Ardente v. Horan y They had a formal agreement that was attached with a clarification letter asking about some items being included and wanted an affirmation of the items y The letter was not entirely separate and therefor did not constitute an acceptance and a letter of inquiry, but more realistically a counter offer

Silence as acceptance??? o General Rule- No, even if offer says that it is an acceptance o You would have to guard your mailbox against offers you dont want. o There is an exception:  Custom of treating silence of acceptance, if we dont hear from you we will just deliver the same amount o Mailbox Rule:  Acceptance is effective upon dispatch Cant revoke your offer, and I cant turn down your offer This is an exception to most legal documents y They are not accepted until receipt y Unilateral Contract o Offer that can only be accepted by performance o What if someone starts to perform the offer?  Restatement section 45 says that part performance= an option to complete y Subcontractor Cases o Contractor uses the subcontractors bid in the estimate, and the subcontractor tries to back out o Is use of the bid an acceptance?  No it is not an acceptance, and the general is free to shop  Is the sub free to revoke? Sub is not free to revoke (most case law)  Both of these are rough on the sub contractor o Came to this conclusion based on promissory estoppel  Since you could think that you would rely on the bid.  Is an offer a promise? Court says yes so its yes o Restatement Section 87 (2)  An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice  This rule would support the Traynor writing  The courts have not embraced this except for subcontractors. Could be a sweeping doctrine Example: Arango V. Success y Success was commissioned to give an estimate, and the Arango used Successs bid after the acceptance of the larger bid. Success said that the bid was too low, and a mistake has been made and they will not be doing the work y The court stated that the sub in giving their bid was an option, being bound based on the use of the subs bid.

Negotiation and Closure Subsequence Writings Intended o This is subject to a more formal writing  A letter of intent or agreement in principle o Are the parties bound already? Or is it based on the definitive contract? o Parties are bound if they intended to be bound  They think of themselves as bound, and they want a more formal document  They are not bound if they think that there will be the final contract and didnt want to be bound on that document Example: Empro Manufacturing V. Ball-co Manufacturing y Just in case Ball-co thought that this was a contract, Empro inserted that the are subject to certain conditions to get out y When Empro heard that Ball-co was trying to get offers from other people, Empro claimed that the letter of intent was an agreement to sell to only them. y The district court dismissed the complaint, demurrer, saying that even if you are right, there is no contract. y Affirmed Different Justices have different approaches  Easterbrook- It said subject to subject to a bunch of different conditions. Look at the 4 corners of the documents  Other courts might be more willing to look outside the 4 corners of the instrument o Reliance before the writing  Why would the parties want to be bound now, until we get all the terms cleared?  One of the best reasons would be significant reliance expenses right now. Unless they thought of themselves as committed Examples: Situation Management Systems Inc, V. Malouf o They urged the purchase of the Katsen and therefor when LMA purchased Katsen it was under the consent that SMS would issue a 5 year contract, and LMA relied on SMS agreement to the 5 year deal as reliance. Good faith in Contracts o US generally rejects this notion  There are things that you would call good faith You cant lie, induce fraud You can be hot and cold until there is a contract Example: Kenai v. Ferguson

The doctrine of good faith must exercise the spirit and the elements of the agreement. y If the two parties cannot agree the court will come up with a fair value New England Insulation V. General Dynamics y A bid advertisement invites people to come in and offer, but there is a promise not to divulge engineering and design work and can be binding y There is a promise that if you submit a bid we promise to look at it and compare it to the other bids. There is some reliance that it takes some resources to make these bids. y

2. Standard Form Contracts y UCC 2-207 o Expression of Acceptance  Is an acceptance (even if the addition of the extra terms) o If you change one of the essential terms and accept then you dont have a contract o There is no mirror image rule o Unless acceptance is expressly conditional to the offerors assent to additional terms  Courts interpret exceptions narrowly, resure offerer to go out on a limb o What are the terms of the contract if there are additional terms?  2-207 (2) Offerors terms in general Additional terms from the offeree if not objected to or a material term from the offer The first party in time is favored  You have an agreement between 2 parties, and the verbal agreement would be the baseline agreement. Say that in the confirmation form there are additional terms and they both have different terms, then the knockout rule will take place. o What happens on different terms?  1st one says we will not arbitrate, and then the 2nd form says we will arbitrate  3 different approaches A. Never comes into the contract y Offeror gets its terms B. Different terms are treated like additional terms C. Knock out rule- UCC would fill in its own terms that they supply. o If you want a term  Say that you want to have arbitration, and you say that you want me to assent to arbitration, and I dont assent to it.

I start to preform, Under UCC 2-207(3) Writing doesnt state a contract, but conduct does, then it goes with the agreed terms and the UCC gap fillers. o UCC 2-207 also applies to an Oral Agreement with 1 or more confirming forms.  The oral agreement there is a contract  The terms are the question The oral terms Agreed written terms Immaterial terms not objected to Example: Zemke v.Dunham Bush y Want to purchase a cooling system from defendant. The order states that the warranty will be covering the 1 year, and the acknowledgement which disclaims the warranty. y There is an acceptance under UCC 2-207 o Under subsection 1  There has to be some form of assent to there terms that you have to express you are not bound without affirmation to your terms

Box-top License Problem o Form contract on the top of the box, and if you dont like it then ship it back  Under UCC if you have an agreement, then this would maybe materially alter the contract  Court says its a contract, not correct if they are confirmations. There was not an agreement on the phone. There was a subsequent writing coming that expressed the terms. There wasnt a battle of the forms, there was only one form, and opening of the box was agreement to that form. o Cruiseline case  Choice of forum agreement, and would this be a valid contract?  Yes y Reasonable Expectation Doctrine o Usually used in insurance cases  We will protect the individual on the fine print of the standard form  Burglary policy that would imply that someone for the outside coming in and stealing something The policy says that there has to be damage to the door or some form of breaking in. We would protect the insured from this counterintuitive interpretation Example:

C & J Fertilizer Inc. V. Allied Mutual Insurance co. y NO because of a reasonable expectation doctrine o Objective reasonable expectations, you believe you are covered by a burglary, and because you have burglary insurance you would be able to recover because youve been burgled. 3. Statute of Frauds y Certain types of contracts need to be in writing o MY LEGS  Marriage  Year  Land  Executor  Goods (over $500)  Surety y Writing must satisfy 3 requirements o Writing must be sufficient to indicate that a contract for sale has been made between the parties o Writing must be signed by the party against whom enforcement is sought o The writing must specify quantity y 1- year interpreted narrowly by courts o A contract that takes more than a year, like a 3 year employment contract y UCC 2-201 (2) o Between merchants, I sign a writing and you ignore it for over 10 days, it is sufficient you to be binding y Need all the terms in the writing, but dont need all them in one writing o If there is evidence that they are all in the same writing, and includes all of them y Oral Contract Exception o Part performance doctrine  UCC 2-201 (3) IF there have been goods already delivered, then the contract is enforced for those goods. If you paid for part of the goods, then contract is enforceable on those goods  Part performance shows that there is probably K o Admissions exception  If you admit that there is a contract in a deposition, then it is enforceable o Promissory Estoppel  There is case law that says that you can, and the restatement supports it.  Reliance may show that there was a contract

Although, we had a case that didnt, maybe because it was a goods contract UCC 2-201 (3) y There are exceptions, and there this is not included in it. Statute of Frauds, might be undermined by Promissory estoppel

Examples Migerobe, Inc. v. Certina USA, Inc. y There was no written contract, but internal company memos, one which that was signed and another not signed o If you put the two documents together would satisfy the 3 requirements to be within the statute. o Requirements:  Writing  Evidence  Essential Terms Parol Evidence Rules o Parol Evidence Rule is a contract exists, and if you could include other evidence outside of the writing y When the Parol Evidence rule applies o Bars side agreements that are not included within the contract o This can also be used to fraud someone, you agree to a bunch of side agreements and then in the form they are not included in the writing y Written Final Expression of UCC o It cant be contradicted by previous agreements, but you can explain it and supplement it  By course of dealings or usage of trade or by course of performance; and  By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms Court decides: y A. For the purpose is evidence being offered? o Explain the writing o Supplement the writing o Contradict writing y B. Explain? o Parol Evidence rule not a bar o Ambiguity/ plain meaning rule maybe y C. Supplement? o Complete integration bars  Cannot introduce evidence to supplement  A merger clause, stating that it is final o certainly would have been included bars

 The term would have certainly been included D. Contradict o Even partial integrated bars o Reformation optional  The reformation to reflect true intentions  Dont have a contract that reflects the real meanings Need clear and convincing evidence What evidence may court consider to decide o Integration o Ambiguity o four corners vs. contextual approaches  If its long and evolved then its complete  Looks like informal scraps of paper then not integrated  Plain meaning/ no ambiguity. Just looking at the writing Modern Approach o Many things that are modern are cheap. That would be the contextual approach. o People want to be in a contractual agreement because it can just be nice and held together. o The modern approach is look at everything and contextual. o UCC, says that they arent bound by the 4 corners, and they also arent bound by contextual approach

Examples: Masterson v. Sine o Orally stated intention was that only someone in family can exercise the option  Supplement the writing, it discusses a term not discussed in the contract Thompson v. Estate of Coffield y The writing is silent, and the parol evidence would be to supplement the writing because it says nothing about it.

Interpreting the meaning of the contract If both people agree to the terms, then at the end they are mutually beneficial. If we are going to enforce a contract then it would be what a 3rd party observer would think it means even if it is not efficient

Examples: Random House V. Rosetta Books LLC o The negotiations between the parties, there were items crossed out that implied that they definitely did not give all rights and purpose to Random House  Rights for e-books were granted to Rosetta Pacific Gas & Electric Co. V. G.w. Thomas Drayage & Rigging Co. o We need to look at the context of the contract to understand what is meant by the terms in the contracts. o Traynor says that words do not have absolute and constant referents, they can change meaning.  Words mean what they mean by context. This case dumps on the plain meaning rule WWW Associates, inc. V. Giancontieri o ` It is not ambiguous, so that the extrinsic evidence could not be let in to contradict the contract.  There needs to be an ambiguity before we fill it in  All things considered could the wording be susceptible to two meanings. ZRL Corp V Great Central Insurance Co y We resolve an ambiguity under the insured, if the language is ambiguous because the insurance company drafted the policy. It is easier to put a burden on the sloppy drafting by the insurance company. Nanakuli Paving & Rock Co. V. Shell Oil Co., Inc. y This is a good contract, Article 2 of the UCC applies y Article 2 goes into saying o Agreement means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this chapter. Article 1- 205 o For a sale of goods, you need to worry about article 1 and article 2. Article 1 is general terms of the UCC o Agreement- Definition under Article 1-205 y There is a hierarchy o ET>CP>CD>UT  Express terms: You have to go with the writing  Course of performance- How have the parties dealt with a particular issue within this dealing  Course of Dealings- how have previous issues been resolved under previous contracts  Usage of Trade- how has the industry dealt with there issues MCC-Marble Ceramic Center Inc v. Ceramica Nuova DAgostino, SPA y CISG rules, 8 (1) and 8 (3) o 8 (1)

statements and other conduct of a party according to his intent as long as the other party knew or could not have been aware of that intent

o 8 (3)  Due consideration to all relevant circumstances of the case including negotiations to determine the intent of the party Both parties agreed that the receipt would not govern the relationship between the parties.

Implied Terms and Covenant of Good Faith Not everything is considered in a contract because of high transaction costs y UCC gap fillers UCC 2-504 y Where the seller is required to authorized to send the goods to the buyer and the contract does not require him to deliver then at a particular destination Lets put the cost on the person who could avoid the loss, If the K doesnt specify the risk of loss, the UCC will fill in that gap. Haines V. City of New York y We will build a plant until it reaches full capacity, then we will stop extending sewage lines that will service the municipalities. y We are not obligated to build another plant to accommodate the growth. Centronics Corp. V. Genicom Corp y If there were a way to prove that they were delaying then there would be a fairly good showing for a breach of good faith. y Look there is an uncontested portion of the contract, and I should get that money ahead of time. A mere fact that the buyer benefits would be bad faith. Delaying the arbitration so that you can collect on the interest would be bad faith What does good faith mean? y Summers o The absence of various types of bad faith  Bad faith Evading the spirit of the bargain Failing to be sufficiently diligent Willfully shirking obligations Abusing the power to specify terms Abusing the power to determine compliance Interfering with the other partys performance o Generally whats spelt out in a contract are the terms, not the perception y Burton

o Bad faith  the exercise of discretion for the purpose of recapturing opportunities forgone or bargained away at the time of the contract. o Burton says that there is something called good faith and one unitary thing called bad faith  Taking a discretionary manner and taking away the facts that are taken away at the bargaining of the contract. y Restatement 2d Section 205 o Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency of the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving bad faith because they violate community standards of decency o This sounds like Burton and Summers combined Good Faith by UCC y UCC 1-201 (19)- good faith means honesty in fact in the conduct or transaction concerned y UCC 2-103 (1)(b)- Goodfaith in the case of merchant means honesty in fact and the observance of reasonable commercial standards. Shell Oil Co. V. HRN, Inc. y The price of that Shell charged was not higher than the highest price of other refiners. It was at the higher end, but not the highest. y If you drove up the prices so high, that you drove all your dealers out of business, & no on had ever done so in the past Express Warranty (EW) UCC 2-313 EW y Affirmation of fact or promise o This is a car driven by a little old lady to church only o This car will last at least 75,000 y That relates to Goods y And becomes part of basis of bargains y Disclaimable? Carpenter V. Chrysler Corp. y The salesman was an experienced car dealer, and that the statements were statements of fact. o Affirmation of Fact y This car is reliable o Relates to the good y Bought the car because it was reliable o Becomes part of the basis of bargain Vlases V. Montgomery Ward Co,

y y y

UCC 2-314 Implied Warranty of Merchantability o Seller must be a merchant If someone who is not a merchant sells you something then they dont imply a warranty We dont care if you knew that the bird had cancer, it just must be merchantable. o Negligence is not required, previous knowledge is not required

Economics of Warranties  The human cost of the risk is higher if the person is risk averse Say you own a million dollar house, and the chance of it burning down is 1/100,000 y Risk neutral would pay $10 based on the multiplication of the probability and the loss y Risk Adverse would pay more than $10 to protect against a risk. y Risk lover would pay nothing UCC 2-315 IWFPP (Implied Warranty Fit for Particular Purpose) y Seller has reason to know buyers purpose y Buyer is relying on sellers skill and judgment y Disclaimer- 2-316 Magnuson-Moss Act o If you make a warranty then it must contain:  Limited Warranty Has to say at the top Limited Warranty You cannot disclaim implied warranties during the course of your limited warranty. y You can disclaim them after the warranty is over Attorney Fees provision, you can recover your warranty Modifications: y Thrown in anything that will satisfy consideration, We will deliver them early, or even we will put a bow on them when they are delivered. If you want to modify them, give them a little bit of something Angel V. Murray y The company was doing more than they were contractually obligated to, and the city wanted to keep the contractors happy. y Terms werent added under duress UCC 2-209 o You dont need consideration for modifications o They do need good faith as stated in the comments.  IF you are modifying it to be nice and share the risk, that is ok.  Bad faith modification: Extortion cases

Duress y y Contract procured by a wrongful threat If one party threatens to not do something, then that contract may not be enforceable based under duress

Brookside Farms V. Mama Rizzos Inc. y Under UCC 2-201 (3) says that the goods that are paid for or accepted do not require writing. It is an exception. y We are enforcing the rest of the contract, goods that have been delivered, and the ones that have not been delivered yet. y There is Promissory estoppel theory, the CEO of Mama Rizzos said that they would make a change and put it in writing. y Merchant good faith, it is not good faith to promise something and then have people rely on it, and have people preform for a long period of time. Then claim that you need to write it. Asmus V. Pacific Bell y There was no need for consideration, if they modify a unilateral contract, and provides the employees with a reasonable notice or change. Consideration is not required. o In unilateral contract context there is no mutuality of obligation y If you have a contractual obligation to stay for a period of time, then you might be able to file a consideration problem. Wong V. Paisner y Defendant wrote a check and it said that it settles all the amount is question. The Plaintiff crosses that out and then cashes the check, y Counts as full satisfaction Validity of K Affirmative Defenses: y Undue influence o Sign a contract because of outside forces, ie a young person influences a young person to put them in a will y Duress o Example, Gun to the head. What is undue stress??? Wrongful threats y Infancy o How old you have to be to enter into a contract o Liable for what the value was, but not what you agreed to y Insanity o If you are insane, you cant enter into a valid contract o Some defect that affected mental understanding y Misrepresentation y Unillateral mistake y Bilateral mistake

Misrepresentation and Mistake Wientraub V. Krobatsch y Summary judgment for the seller is inappropriate, and the buyer must be able to try and prove that the Seller failed to disclose the conditions of the house Lenawee Courtney Board of Health V. Messerly y No assumption of risk o Risk was assumed by the buyers o Allocate the risk to the person who bore it.  There was an as is clause, and the seller got the buyer to assume the risk by signing it. Lanci V. Metropolitan Insurance Co. y The insurance company was aware of the unilateral mistake, and should have corrected it. They actually knew that it was a mistake, and knew that it was not the policy limit. y It is treated like fraud because they failed to disclose that it was not the policy limit, and they choose to not tell the client Restatement (Second) of Contracts Section 153: A contract is voidable due to unilateral mistakes under certain conditions: the effect of the mistake is such that enforcement was unconciousable, or the other party had reason to know of the mistake or his fault caused the mistake.

After the Midterm Remedies 1. General Rule: Expectation damages A. Difference between current postion and the position if the contract had been kept o Theory for this  We are not trying to stamp out breaches but put a price on breach How much harm does the breach cause? Tas in the amount of the harm you caused You can breach only if the benefit you received is greater than the harm cause  Theory: Efficient Brach Benefit to defendant from breach? Cost to plaintiff from breach  Problem: Expectation tends to be under compensatory No legal fees No emotional distress Reasonable certainty requirement y New businesses dont have track records on profits so they lose out because of this requirement in assessing damages No punitive damages Freund V. Washington Square Press, Inc. y Freund gives publisher book, and then never published it. He wanted the damages for the royalties he would receive. y The court changed the decision from $10,000 to 6 cents saying that there wasnt reasonable certainty. o Cost of completion v difference in value Peevyhouse V. Garland Coal Mining y There was strip mining and in the contract they wanted to rebuild after the mining was done y Court did not give the Peevyhouses the full cost, just the difference in value that they lost because of the strip mining. y Repairing the land would be non-efficient use of resources.  Suppose D breaches and it would cost more to complete than its worth in improvement in value What is the proper measure for damages? Problem: ambiguity y To be put in as good of physical condition (level land) but the money may give you a windfall

So here award value difference in land to fix this issue  Law: cost of completion unless grossly disproportionate to different in value y B. Sellers remedies for Buyers breach under UCC o 1. Cover 2-706  Cover the loss and sue for the difference in KP CP Cover must be in good faith, and commercially reasonable manner y didnt sell to bro for cheap y you tried hard enough to get a good price  You can also recover incidental damages Hassle damages o 2. Not Cover 2-708(1)  Not cover and sue for difference between KP MP Market Price: what you would have gotten if you covered o 3. Lost Volume Seller 2-708(2)  If the contract had been kept, I would have been able to make 2 sales (I lost volume)  I should be able to sue for the lost profit of a sale KP VC (costs that go up and down with sellers output) Krafsur V. UOP y Enter into a contract and then El Paso goes bankrupt, and the plaintiff then sues the defendant for value lost as a lost volume seller o Not a Lost Volume seller, El Paso going bankrupt allowed them to deal with UOP and actually benefited from the bankruptcy. y y C. Buyers remedies for non-delivery under the UCC o Non-delivery here: rightful rejection etc you have no goods o 1. 2-711 Money back if you've paid it down o 2. 2-712 May cover then sue for CP KP  CP must be in good faith, trying to get a good price o 3. 2-713 Dont cover and sue for MP KP  If I was going to have a K for 19 and it was worth 20, makes sense I was deprived of the profit even if I didnt cover, lost difference between the value and cost, awarding you for the benefit of the bargain o 4. Under any of these you may recover Incidental Damages  Storage etc o 5. 2-715 Consequential Damages  What did I expect to gain- resell for profit  These gains I hoped to have from the goods and CD To recover you need to show: o Foreseeablity

o Duty to Mitigate o Certainty KGM Harvesting Company V. Fresh Network y There was a contract for lettuce, the market price rose and the person delivering the lettuce breached. y The buyer was able to recover under 2-712 where they were able to recover for the cover price minus kp (cp-kp). y They had a contract to resell and were able to make the same amount of profit for being reimbursed for the difference in price. o 6. Are you entitled to difference money even when it exceeds expectation?  Why exceeds expectation: buyer has a cost plus resale contract lined up, resale contract says the price I charge you is whatever I pay plus something. If the seller breaches, I dont really suffer. I may have to cover but then I can pass that cost along and get more  Answer: cases are divided  UCC says you are entitled, but all remedies are concerned with exceeding expectation o 7. Prejudgment Interest  If you were supposed to get 1000 in 1990, and case ends in 2010, value is different  Are you entitled to prejudgment interest: most states say yes Liquidated: fixed sum yes Unliquidated: damages no y C. Seller delivers nonconforming goods but buyer accepts anyway, what are the Buyers UCC remedies? o 1. 2-709: Dont get any money back, you accepted them and must pay the money o 2. 2-714 You do have a claim against the seller: Value as warranted value as is 2. Foreseeability y A. Damages not recoverable unless they were foreseeable by defendant at the time of contracting (Hadley) o 2-715 Consequential damages o Theory: why exclude an item of damage?  1. Want to encourage Ps to communicate special needs to the D so the D can take precautions If entire factory is shut down, the D should know this so they can treat it that seriously Adaptations are possible if you are told, law says if you dont tell them they are not liable  2. Dont have to be told the precise amount at stake

Dont want to make the role of middle man impossible, dont need to say how much you are losing because factory shut down, just that there is a particular need Hadley v. Baxendale y Crank shaft broke shutting down a factory. Then defendant then was late getting the crank shaft back to the plaintiff. y Plaintiff never told the defendant about the factory being shut-down and doesnt have to pay for consequential damages. y B. Special damages v General Damages o General damages: common sense that these damages would be cause. If you are late with shaft, you should know something will be held up  Go without saying o Special Damages: Need special communication, D would not know about this unless you told him  Must communicate y C. Price of goods increase from time of trial o Antique car case: appreciated in value by trial o Court awards the consequential profit he would have made by having the cars o Wonnell: dubious, what would have happened if the price fell, would you take money away? If you dont then you always the P to speculate at Ds expense o Law say ok but maybe wrong

3. Mitigation of Damages y A. Plaintiff has a duty to take reasonable steps to hold down damages o Cant just sit and let damages pile up if you could do something o Only reasonable steps: court wont make you take risks  Wont make an actress demean herself with another role o What if you dont mitigate?  Damages measured as if you did mitigate: if you fail to mitigate, we see how much you would have suffered and give you that y B. Theory: Efficiency o Failure to mitigate is wasteful: Bridge case, Plaintiff finishes contract despite being told not to and now theres a bridge with no roads: wasteful  Landlord: Must try to fill idle occupancy, we dont want valuable spot to sit idle y C. You get the cost of mitigation o We treat you the way you would have been treated if you mitigated y D. This is the other limitation under 2-715 o Foreseeability and Mitigation limit 2-715 Consequential Damages

4. Reliance Damages y A. Put the plaintiff in the position he would have been in if not contract had been entered o Different from expectation: that takes you forward and you get the profit you would have had o This just takes you back to where you would be without the contract y B. Can you recover Reliance Damages? o Yes and No  Reliance damages are an alternative measure of recovery unless the defendant can prove that the contract wouldnt have recouped those expenses Provable loss is deducted from reliance expense  Why would P want to sue for reliance? If I expected a gain, I should sue for E, that will give me the gain If i was gong to make a Loss, i would prefer Reliance, but the law doesn't allow reliance  Answer: you may not be able to prove you would have made a gain, but the D may not be able to prove you would have made a loss, here reliance makes sense Go to Vegas to show off the machine, I would have made profit but I dont know what I qould have gained, but you wouldnt know what I lost. I do know hom much i spent in reliance, and you can't prove the loss Makes sense when we don't know what expectation owuld be o Theoretically  The law can be rationalized as alwaus expectation based but with a break even presumption If we ignore reliance interest, but we can get expectation What if we cant prove what you would have made? We presume you broke even and cover your expenses. Rational people only spend when they assume they would break even Then with this we can ignore reliance damages: expense is the measure of what your revenue would have been 5. Restitution Damages y A. Restitution Interest: Concept designed to measure the unjust enrichment of the D from P and force them to give it up o Unlike E and R (loss of plaintiff) o Restitution is about the gain of the defendant

o Reliance is usually larger than restitution: might have paid a down payment, but also built a foundation: reliance would give you both and restitution only gives you back the down payment o E>Rel>Rest B. Law allows you to sue for restitution as an alternative measure of damages for breach of contract o Must be a material breach: wouldnt want someone to jump on a trivial breach to unwind the entire contract  Subject to this, the law does allow R damages o Restitution may be the best when there is a provable loss  Maybe no sales if I took the stove to Vegas and D can prove that I would have lost Reliance is no good, he can prove a loss but If I paid something down I can get it back and you cannot deduct losses from that C. Other use: May be available to breaching party o Even though I breached and cant sue you, I can sue for restitution if I have confeered a net benefit on you and in natural justice in equity you should not get it o 2-718: Breaching buyer  Breaching buyer can recover down payment damages caused by the breach  You must compensate seller for damages you caused, but beyond that o If I have benefitted, I can only sue for the net benefit  Down payment damages caused

Madsen v. Murrey & Sons Co. y Defendant orders custom pool tables, puts down payment and then the buyer breaches and wants to recover down payment. The seller sold the pool tables as firewood. The court allowed the buyer to recover the down payment minus mitigation. y D. 3rd Use o Restitution may be available for contracts that collapsed o A contract that fizzles for legal reason, not enforceable under SOF, or impracticability etc o Parties tried to contract but failed, and before the realized they failed, the provided benefits to each other o You can still sue for net benefit you conferred  Value you conferred benefits to you

6. Specific Performance y A. Court ordering D to perform the contract backed by contempt of court power o Not the routine remedy for breach: routine is expectation

o SP available where the damage remedy is inadequate to carry out the expectation interest o When would this happen?  1. Damages are hard to measure: if we are sure you sufferd damage but don tknow how much, we can give you what you contracted for instead of a SWAG If something unique about what you contract over UCC 2-716: Court may order specific performance if the goods are unique, or in other proper circumstances y Unique: hard to measure damages: contracted to buy a rare object, could look for damages but there is no replacement so we award the good y Cases when damage remedy would be inadequate B. Contemporary Justification for disfavoring SP? o Hstorical: there were separate courts and there was a power struggle, adeqaucey test was part of the fight  But what about these days? o Justification?  1. Against rule: Seems to be the ideal remedy: gives you exactly what they contract for (Perfect epxepctaiton remedy) Damages are always hard: trying to come up with amount that will make you indifferent to contract, but what is that SP gets value right: respective of idiosyncratic value y Ugly monument pleases you: make them build the ugly monument. How would you measure money damages here?  2. For Rule: Efficient breach Coasian incentive to bargain out of any effieicnt rule y If there is a case it would cost 20 to perform but value 10? y Parties have cosian incetive to bargain out of the deal y Why should we make SP if they can bargain out to make it effiencent But: transaction costs may be high C. CISG o Though SP is the normal remedy, Courts in countries that dont normally grant SP dont have to grant SP in cases where you wouldnt normally. Do what you would have done under the UCC. o SP but exception for common law countries

7. Liquidated Damages Clauses y A. Natural solution to remedy issue: if you breach you owe me this

o 1. Courts cannot enforce these clauses if they constitute to a penalty for breach  Penalty under UCC 1. Is it a reasonable estimate in light of actual or anticipated damage? y If close to actual damage: then OK y If close to anticipated damage: then OK 2. Difficulty of proof of loss y If you have a case where actual damages were easy to measure and accurate, then we will be more skeptical of LD clause when we know the actual damage y The harder it is to determine actual damages, the more likely the court will uphold liquidated damages B. Is the penalty rule sensible? o Why the disrespect for these contract terms?  Maybe remedial terms are less salient and then become and issue of surprise and unconscionability Parties are focused on price and quantity and may be surprised by LD factor  Efficient Breach Problem If benefit to P from performance is 50 and cost to D is 75, but there is a penalty of 1000 Here we would want the D to breach but the LD issue ruins it  Coasian Solution: bargain out of it, BUT bilateral monopoly may ruint hat C. Benefits of Penalty Clause o 1. Avoid litigation over actual damages o 2. Induce double responsibility  D Incentive to perform  P Incentive to hold down damages o 3. Considered idiosyncratic value: courts cant really do this o 4. Incentive for people who need to demonstrate credibility  Im new to the field Ill have a penalty in K to prove im reliance D. Limitaiton of Remedies o 2-719  Contract says that if our product is defective we will repair but not beyond that  Limitations 1. Cannot be unconscionable 2. Exclusion of personal injury damages is prima facie unconscionable 3. Cannot fail its essential purpose

contract calls for goods to be repaired, but the cannot be fixed. Essential purpose was to have a restores good and you dont, so the provision is invalid

Legal Regulation of Contracts 1. Misrepresentation and Mistake of Fact y Part of longer list of defenses o Infancy, undue influence, duress, insanity y A. Contract procured by materially false statement of fact can be rescinded o 1. True according to most case law even if innocent  Probably doesnt matter if you were innocent in being false, the other party can get out of the contract o 2. Is nondisclosure equivalent to misrepresentation?  If I just dont mention ants is it lying?  Law not clear but 1. Law is tougher in confidential or fiduciary relations y If the relationship is one that ought to be of trust (lawyer or family) these people are more under full duty to disclose facts than strangers 2. Sellers v Buyers y Law is much tougher on sellers y Seller who fails to disclose ants will prolly be rescinded, but if buyer of land knows there is oil, prolly ok y Economic Distinction: efficiency o Buyer here engages in socially useful transaction: merging knowledge and information o When the seller does this, the information and resource is severed and not efficient o Encourage people to learn and use infor y Law used to be easier on sellers, but increasingly courts say otherwise y B. Unilateral Mistake o One party is mistake and the other is not, may you void the contract?  Traditionally not a defense unless the non mistaken party knows or had reason to know the mistake Sub bids on project and miscalculate the numbers, they cannot get out of K unless the General should have known (blatent mistake)  Retatement: if the contract would be unconscionable to enforce, you can get out of a contract for unilateral mistake y C. Mutual Mistake

o Both parties are mistaken: this is a recognized defense  What does it call for?: both parties are mistaken about some material fact, it was a basic assumption underlying the contract at the time of contract, not a bad prediction but mistaken about something that already existed. This means: it was not an express or implied allocation of risk  Both parties assumed that rose the 2nd can't have calves but she is already pregnant but neither party knew? Was this basic assumption? The more unforeseeable it was, the more likely is was a basic assumption that it wouldnt happen Material? Yes D. Risk Allocation o Lets allocate the risk as we think the parties would have done if they thought about it  1. Risk on the party in the better position to control it  2. Risk on the party better able to insure against it better information etc Rose: the seller had access and control of the cow: better risk bearer (though this cuts against court ruling)

2. Public Policy and Illegality y A. Some contract no matter how consensual will not be enforced by the court o Obvious case: contract killing  A and B are down but sucks for C o Economic Rational  May be efficient between A and B but not Pareto because of C y B. Not enforceable if contract to public policy o Usually determined by statute but also common law  Ex: Policy against restraint of trade: we dont want people not to contract not to compete with each other  Is non-compete clause ok (Vet Case) CA: No Outside: Court will uphold these covenants if reasonable in duration and geographical extent o Economics  Encourage employers to finance general training Training that is of use somewhere else than particular employer. Employer wont because they dont want to lose investment With the clause: encourage training o Statute: if it says the contract is unenforceable, then it must be unenforceable  Sometimes statutes dont say its illegal, but not if it makes contracts unenforceable  Practice without license?

There is a penalty but what about the contract? Restatement: Courts are supposed to weigh contract enforcement against public interest, if clearly outweighed y If there a restitution or reliance interest that would be lost if the contract was just dissolved? 3. Unconsionability y A. 2-302: Court has the power to invalidate contracts as a whole or contract terms that are unconscionable at the time made o Focuses on the time of contracting like with mistake, change of circumstances is impracticability issue o Court may invalidate or modify the contract, this power is the court and not the jury y B. What is an unconscionable contract? o 1. Oppression  Monopoly problem: the desert water hypo Sign your house for the water: you are being oppressed. o 2. Unfair Surprise  Party doesnt quite know what they are doing Walker Thomas Furniture case Fine print, legalese, really long contract etc..  Issue of one party not being fully aware, rational, competent  Walker Thomas If you default we can take everything Combo of oppression and surprise y C. Economics of Unconscionability o Surprise: consistent with economic rationality  Does not pay to invest time in looking through a long huge contract, so its rational to be uninformed o Other hand  Substantive Unconscionability Parties understand what they are doing, is it still good to strike down clauses? If the terms are visible, the efficient terms with outcompete inefficient terms (people throwing money away) therefore you will strike down efficient terms and raise the sellers cost and thus the price more than the buyers value Price controls? y Generate shortages that grow over time because of the greater elasticity of supply and demand of long term y D. Arbitration Clauses o Courts focus on these an unconscionalble

o Federal statute says the courts should not disfavor arbitration unless on grounds of general contract law  OK unless ruins the contract law? o Factor of surprise?  Did employees understand that arbitration is impractical and expensive? Conditions and Self-Help Remedies y Express conditions o Event that must occur before the Ds duty to perform is triggered.  Can be some external event If its raining I will pay you y If it doesnt rain, then my duty has not kicked in  Behavior by the other party I will pay you if you provide me with progress reports every month o Spelled out if you something doesnt happen, then you will not be paying. The implication of being discharged if something happens o Are they enforceable?  The courts are reluctant to excuse significant forfeitures for minor breaches. Payment being a day late, then you say repo something o Promise v. condition  Say that it was a promise, and not really a condition o Waiver  Waive rights to a condition o Construing a Promise to avoid a forfeiture  Construe the satisfaction clause as an objective standard, if they have a real objective reason not to like it. o Express conditions make sense  Self-help remedy, you can use the other parties nonperformance to prevent your performance y Implied/ Constructive Conditions o Parties make promises that dont say in so many words, nonperformance by A justifies non-performance by B. o When you dont have express conditions, then what would you do?  Courts say intent matters assure intent to have material breach by 1 excuses non-performance. Defect of purpose of K willfulness  Courts say that a material breach, justify suspension, but not complete non-performance and urge a demand for cure. If you dont receive the cure then thats a total breach. o Jacobs and Youngs case  Reading pipe wasnt used. It was not an express condition in the contract, and only use a material breach doctrine.  Wasnt willful. y UCC is different

o Perfect tender rule 2-601  Buyer can reject for any non-conformity even a small one. o Under 2-709  Acceptance and payment go together, if youve rejected you dont need to pay. o Allows the buyer to act in bad faith, and reject the goods that arent entirely that bad. o Prevents seller chiseling. o UCC 2-508  If the buyer rejects, the seller can cure. If the seller had grounds to believe, goods were acceptable w/ or w/o a discount. y Anticipatory Repudiation o A repudiation is saying that Im not going to perform  This can operate as a breach, even a material breach. Material is youll never get them. o A definite and unequivocal statement saying that you will not perform. o You now have grounds for insecurity (UCC 2-609), and you can demand assurances, and you can suspend own performance until you get them, if no assurance then its repudiation. y UCC Revocation of Acceptance o Buyer has accepted the goods  UCC 2-606 3 ways Failure to reject after reasonable time to accept Signifying you will take the goods Uses of the goods inconsistent with sellers ownership o UCC 2-608 Revoke Acceptance  Must satisfy both conditions 1. Substantial impairment in value 2. Excuse for not rejecting y Hard to find  This is like you never accepted. o UCC 2-714  Can sue for value as warranted value as is. 3. Impossibility, Impracticality, Frustration of Purpose o 19th Century Common Law  excused when performance is impossible. Opera contract, but then you die. Impossible and you are excused o UCC extends defense to include impracticability 2-615  Failure of a basic assumption underlying the contract Basic route is damaged, and then hard to deliver the goods  Beyond risks implicitly allocated by the K Weird, unforeseeable events. o Economics of Impossibility

How would they want to allocate a particular risk had they thought about it.  Transaction costs are too high to think about everything. Earthquake, locus,  They would like to allocate the risk to someone who would have a greater ability to control the risk. Who has more access to information of the risk o Frustration of purpose  Contract has not become anymore burden some to perform, its just become pointless. Coronation example  The more foreseeable the event is the less likely it would be to assume.  Economics are similar Third Parties y 1. Third Party Beneficiaries o Suppose a promisor promises the promisee that they will do something useful for 3rd party  If the promisor breaches this contract, can the 3rd party bring suit. o Lawrence v. Fox  3rd party has standing even though they gave no consideration and were not party.  I was the intended beneficiary Intended v. Incidental y Intended beneficiaries can sue, incidental cannot. Creditor beneficiary (Lawrence v. Fox) Donee beneficiary (Someone I love I want to give them money)  Can the promisee and promisor revoke contract by mutual consent? Restatment says cut out with 2 exceptions y Original K prohibits the contract y Some sort of reliance by 3rd party o Defenses:  Promisor can issue any defenses when sued by the 3rd party beneficiary. Procured by fraud, duress, and the 3rd party didnt have any rights.  Promisor cannot assert that the promisee didnt really owe the punitive creditor beneficiary. o Promises made to govt intended to benefit citizens  Citizens cannot sue because they are incidental beneficiaries. Martinez v. Socoma Companies

y y

Government paid for companies to start education program, and then the people that were to be affected sued as 3rd party beneficiaries. Couldnt recover because they were not intended beneficiaries, incidental beneficiaries.

2. Assignment of Rights and Delegation of Duties o Contrast with 3rd party beneficiaries.  3rd party beneficiaries get rights right away  Assignment and Delegation 2nd move after contract has been signed. o Assignment of rights v. Delegation of duties  Assignment of rights divests assignor of rights  Delegation of duty does not divest delegator o Rights are assignable unless assignment would materially harm P  Personal  Significant interest in having the original party perform Did I pick you for a certain reason to distribute. o Contract bars assignment of K.  Interpreted as a ban on delegation only This is what parties are really worried about  Assignment of the contract Both assigning rights and delegating duties. Should make it explicit, but if vague then its both. o UCC 2-609  Delegation of duties creates reasonable grounds for insecurity. o Contemporary Mission Inc v. Famous Music Corp  If a contract says that you cant assign contracts can you delegate the duties?  Depends, You can delegate it, but if the delegatee doesnt perform you have to. y Suretyship and Guarantee contracts o Surety backs up the obligation of the principle obligor.  No requirement of consideration to surety  Requirement of a writing o Creditor or obligee can sue either principle obligor or surety upon default  Surety has an action over principle obligor o Under what circumstance can the principle obligor and creditor alter their relationship without losing claims against the surety  Worry is modifications might adversely affect the surety. Fear that they will conspire against them o Old common law rule that a release of the principle debtor released the surety completely.  Law evolved to resist this R. 2d

Expressly preserve in the settlement agreement preserve the rights against the surety, and the surety against the debtor. If you dont do it o Did you intend the original parties to preserve rights against the surety  If not, surety is discharged  If yes, surety is discharge to the extent of harm Harmed by creditor went easy on obligor. If surety was discharged and performed, and had an excuse, then the surety can sue the obligee to get that money back. o Restitution claim.