Contracts Outline - Siegelman - Fall 2011

Contracts Outline Prof. P.
Siegelman
I. Intro/Nature and History of Contracts II. Damages for Breach A. Expectance v Reliance v Restitution B. Limitations on Damages 1. Remoteness or Foresee ability of Harm 2. Certainty of Harm 3. Avoid ability of Harm C. Contracting around the Default Rules of Damages 1. Express Limitations on Consequential and Incidental Damages 2. Liquidated Damages v Penalty Clauses III. Other Remedies and Causes of Action A. Specific Performance and Injunctions 1. Contracts for Land 2. Contracts for Goods 3. Contracts for personal service B. Restitution Damage interest and Cause of action 1. Restitution and Quasi-Contract IV. Reaching an Agreement A. Intro to Offers and Acceptance B. The Objective Theory of Assent C. What is An Offer? 1. Preliminary negotiations 2. Written Memorial Contemplated D. What is Acceptance? 1. Acceptance by Correspondence The Mailbox Rule 2. Acceptance by Silence E. Acceptance by Performance and Unilateral Contracts V. Interpreting Assent A. Filling Gaps in Assent 1. Agreements to Agree 2. Illusory Promises B. Interpreting Assent Subjectively or Objectively VI. Written Manifestations of Assent A. Interpreting a Writing The Parole Evidence Rule B. Interpreting Conflicting Writings The Battle of the Forms
VII. The Doctrine of Consideration A. The Historical Origins of the Doctrine B. The Bargain Theory of Consideration 1. Distinguishing Bargains form Gratuitous Promises 2. Past Consideration 3. Moral Consideration D. Contract Modification and the Preexisting Duty Rule E. Adequacy of Consideration
Contracts Outline Prof. P. Siegelman
VIII.
The Doctrine of Promissory Estoppel A. The Development of Promissory Estoppel as A Substitute for Consideration 1. Family Promises 2. Charitable Subscriptions 3. Promises of a Pension 4. Construction Bids B. Promissory Estoppel as an Alternative to Breach of Contract C. Some Modern Applications and Limits of Promissory Estoppel 1. Promise 2. Reasonable Reliance 3. Injustice of Nonenforcement
IX. Performance A. The Implied Duty of Good Faith Performance B. Implied and Express Warranties 1. Implied Warranties of Merchantability 2. Express Warranties 3. Express Disclaimers of Warranty X. CONDITIONS XI. Breach A. Prospective Nonperformance 1. Anticipatory Repudiation 2. Adequate Assurances of Performance B. Constructive Conditions and Material Breach 1. Constructive Conditions 2. Material Breach 3. The Perfect Tender Rule: Cure and Recission C. Cost of Completion v. Diminution in Value: The Expectation Interest Revisited XII. Obtaining Assent by Improper Means D. Unconscionability
Restatement (Second) of Contracts 251 1.Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance of due performance 2.The obligee may treat as a repudiation the obligors failure to provide within a reasonable time such assurances of due performance as is adequate in the circumstances of the particular case. Intro to Remedies: What is courts goal when it steps into a contract? Make both better off Encourage economic efficiency Clarify the commercial system that parties are operating in Primary focus of courts: to make the injured party whole Punishment? NOT REALLY o Punitive damages are usually not awarded, courts dont see that as their role o If punish all the time, run the risk that people will not enter into contracts
Assumpsit - He promised; he undertook Special assumpsit Under mature English law, actions in assumpsit for expectation damages, based on defendants breach of an express contract whose details were alleged in the complaint General assumpsit Actions in assumpsit to recover a debt SALES CONTRACT: THE UNIFORM COMMERCIAL CODE 1-103. Supplementary General Principles of Contract Law Applicable (p. 89) Unless displaced by this act the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions
2-102. Scope; Certain Security and Other Transactions Excluded From this Article (p. 89) Unless the context otherwise requires, the Article applies to transaction in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.
2-105. Definitions: Transferability; Goods (p. 89) Goods means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 9) and things in action. Goods also includes the unborn young of animals and growing crops and other identified things attached to realty as described in goods to be severed from realty (Section 2-107).

2-106. Definitions: Contract; Agreement; Contract for Sale; Sale; Present Sale (p. 89) In this Article unless the context otherwise requires contract and agreement are limited to those relating to the present or future sale of goods. Contract for sale includes both a present sale of goods and a contract to sell goods at a future time. A sale consists in the passing of title from the seller to the buyer for a price (Section 2-401). A present sale means a sale which is accomplished by the making of a contract.
Totten v. United States (1876) An action cannot be maintained against the government in the Court of Claims upon a contract for secret services during the war made between the President and the claimant.
Shaheen v Knight - Sterile, NOT! FACTS: Shaheen (P) and his wife decided to get him sterilized b/c they couldnt afford more kids. Knight (D) agreed to perform the operation and told Shaheen it would be effective. Shaheens wife gave birth to another kid 2 years later. P sought breach of contract to cover expenses of raising child. HOLDING: A doctor and a patient may bargain for a particular result, which, if not achieved, can be the basis for an action for breach of contract. However, to allow damages for the birth of a normal child would be against public policy. Discussion: sterilization contract void because it is against public policy (not void when wifes life in danger, but otherwise void) Problem with using public policy argument is that when court decides what public policy is it has its own view court said if controversial it wont rule against it. Also, what about freedom of contract? Also, public opinion is not constant.
II. Damages for Breach In general, damages are awarded by the promisees expectation interest. The court attempts to put the promisee in the position he would have been in if the promise had been fulfilled. Sometimes, though the court will instead award damages to put promisee in the position he would have been in had the promise not been made. 1. Allan Farnsworth Contract Rest. Expectance v Reliance v Restitution
Expectation: attempts to put promisee in position theyd have been if promiser had come through Reliance: If promisee chaged position because of the promise to his detriment (built something) then restitution interest puts them back in the place theyd be in if no promise had been made. Restitution Interests: If promisee gave promisor something the court depraved the promisor of this benefit. Then recovery is calc using rest interest to put the promisor back in the place theyd be in if no promise had been made. (no promisee lost profits) Award is measured by expectation interest or benefit of bargain Hawkins v. McGee (pg 63) the hairy hand FACTS: Dr. McGee (d) was to remove scar tissue from the right hand of Hawkins (P) and then graft skin from the chest of P to the palm. D stated the hospital stay should be 3-4 days and then D could return to work with a 100% perfect hand. D argues no one would understand that to be a contract.

HOLDING: The true measure of a buyers damages is the difference between the value of the goods as they would have been if the warranty as to the quality had been true and the actual value at the time of sale (including incidentals). Therefore damages were the difference between the value to D of a perfect hand and the value of his present hand, ignoring all other damages. Restatement (Second) of Contracts 347. Measure of Damages (p. 70) Subject to the limitations in 350-353, the injured party has a right to damages based on his expectation interest as measure by (a) the loss in value to him of the partys performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss that he has avoided by not having to perform. Nurse v Barns (pg 71) - Expectation FACTS: The D lent P an iron mine for 10L for 6 months when it appeared the mills were worth 20L per year. Yet damages were given to 500L by reason of the loss of stock laid in. Calculating. (pg 72) FACTS: I agree to sell you a copy of the restatement (to be delivered tomorrow) in return for your agreement to pay me $10 and to give me a photocopy of your class notes. Assume that the restatement has a market value of $15 and your notes have a market value of $1 and that it costs you $3 to photocopy your notes. You pay me the $10 and give me the photocopy of your notes. I refuse to deliver the restatement or return your money and you sue. 1) 2) 3) 4) How much would you get if limited to restitution damages? 10 + 1 =11 (as if no promise) If limited to reliance interest 10 +3=$13 Applying McGee? $15-10-3=$2 is profit so we need $2+3+10= $15 in expectation If you had photocopied them and given them to me, but not paid me? a) Expectation interest? $2+$3=5 b) Reliance interest? $3 c) Restitution interest? $5 If you had not paid nor photocopied a) Expectation interest? $2 b) Reliance interest? $0 c) Restitution interest? $0 If the market value was $9 and you had already paid $10 and given me the photocopy of your notes? a) Expectation interest? Profit=9-10-3=-4 therefore since now out 13 give $9 b) Reliance interest? $13 c) Restitution interest? $11 Assuming MV was $15, you had photocopied but not given to me and not paid in advance? a) Expectation interest? Profit=2 so $5 b) Reliance interest? $3 c) Restitution interest? $0
5)
6)
7)
FACTS: I contract w/ you to sell a machine I price at $100. Include in price is my $50 cost to produce it and $10 to deliver it. Therefore expected profit is $40. ** (a), (b) and (c) are describe above in restatement. 1) If you default preproduction expectation damage = $40 ie 100 loss (a) +0 other loss (b) -60 costs/other losses avoided =40 2) You default after production, predelivery, but disposal costs are $15. = $105

100 loss (a) +15 other loss (b) -10 costs/other losses avoided =105 3) Discover delivery is actually $60 and there is no trash disposal. = $40 100 loss (a) +0 other loss (b) -60 costs/other losses avoided =40 4) So if delivery is $60 what would reliance interest be? $50 for production 5) Breach after production and delivery. Incurr $10 to bring it back. Worth $30 for scrap. =$80 100 loss (a) +10 other loss (b) -30 costs/other losses avoided =80 6) Breach after production and delivery? = $100 100 loss (a) +0 other loss (b) -0 costs/other losses avoided =100 FACTS: Buy class notes from prof. Price notes=$1. Price ads=$5 market price = $20.
1)
2) 3) 4) 5)
What is level of expectation damages? Start at 0. pay $1 -1, make $5 ads -6, set ads for $20 +14. Thus pre ad and pre paying of $1 damages are? $14 What if market value really = $15? (-1 + -5 + 15) $9 What would reliance damages be (put me in position Id be in if I hadnt made contract so note ($1) + ads ($5) =$6 What about restitution damages Spent $1 and ads for $5 but just pay back $1. The $1 is essential reliance in that you must do it to perform on contract while the $5 is an incidental reliance in that you chose to do it.
Sullivan v OConnor (nose girl) (p. 72) Alice Sullivan (P) asked James OConner (D), a plastic surgeon, to fix her nose. It ruined her nose causing three failed surgeries to attempt to fix it. Ruling: Plantiff was not confined to recovery of out of pocket expenses, shes also entitled to recover for the worsening of her condition and for pain and suffering of third operation. Issue: Is P entitled to expectation damages? Rule: Hawkins: get difference btwn promise and received, In NY get all expenditures back Holding: For breach of Dr-Patient agreements restitution seems too meager. Expectancy recovery would be excessive. Moderation is chosen. ISSUE: Is P entitled to pain and suffering? Rule: Putting price on result would strain imagination. No precedent, but by analogy (horses and arbitration) answer is No. Holding: Breach of contract does not warrant pain and suffering Might have received Cost of first 2 operations Pain and suffering (1 & 2) Cost of 3rd operation Pain and suffering (3rd) Reliance no no yes yes Expectation yes no yes yes Actual
yes yes yes
yes

Original nose-current nose yes Promised nose-original nose yes no yes yes no Hawkins got both = Promised - current
Calculating Expectation Interest J.O. Hooker Case (pg 78) Cabinet Caper FACTS:When Hooker (D), a general contractor for renovation of public housing residences, terminated Roberts (P) subcontract due to a dispute over the disposal of old cabinets, P successfully sued for breach of contract. Issue 1: Whether Article II of Uniform Commercial Code Applies. USC doesnt apply to services so it would apply to cabinet but not to installation Issue 2: $1400 in damages for storage of cabinets in his facility. (he pays rent, but says it took up 1/10 of the space wants 1/10 of the rent). HOLDING: A party is entitled to recover damages for expenses in storing goods that it would not otherwise have incurred absent other partys breach. In this case P didnt have to rent additional space so no storage damages. However managers time spent on project is recoverable. UCC 1-103, 2-102, 2-105, 2-106 Tongish v. Thomas (pg. 86) Sunflower Seeds FACTS: D intervened in a breach of K btw P and Thomas, claiming that P (Tongish) breached its initial K with D in failing to deliver the 3rd installment under a K to sell sunflower seeds. Issue: In an action for breach of K for the sale of goods, is the proper measure of damages the difference btw the MV of the goods and the K price agreed upon by the parties? . YES HOLDING: The general rule for damages in a breach of K action is to restore the injured party to the position he would have been had the K been performed. The Crt awarded this measure of damages to D based on its actual loss of expected profits. However where the seller is in a breach of a K for the sale of goods, the injured party has available alternative remedies under state statute. The rules of statutory construction require that where two seemingly conflicting statutes apply to the particular situation, the more specific provision giverns. . The court was correct in applying the MP measure of damages. B. Limitations on Damages There are two types of contract rules:
(a)
default rules parties can contract around i. Choose default rules that people would want in order to make contracting easier or ii. Penalty default rules set up in a way people dont want them to work so they have to contract around them. This reveals information. (Ex. Hadley v. Baxendale) immutable rules cant contract around (ex. Have to act in good faith)
(b)
Shannons Limits on default rules Damages checklist Uncertainty Chicago Coliseum (Boxing) rejects some profit calc b/c uncertain -- Anglia (Mike Brady) Avoidablility/Duty to mitigate (doesnt require best decision in hindsight) -- Rockingham (cancelled bridge) -- Shirley McClaine Lost Volume exception to duty to mitigate -- Neri (boat sale)
1. Foreseeability of Harm Hadley v. Baxendale (p.93) late mill crank FACTS: The Hadleys (P) were engaged in the operation of a mill. The crank shaft broke, requiring the mill to shut down. A new crank shaft was ordered. Baxendale (D), a carrier, agreed to deliver it. A clerk at Baxendales (D) office was told that the shaft must be sent immediately. The shaft was not delivered for several days. The Hadleys (P) brought suit claiming that Baxendale (D) breached its duty to deliver the shaft, thereby requiring them to close the mill and resulting in a loss of profits. ISSUE: In an action for breach of contract, are plaintiffs entitled to recover the measure of damages both parties may reasonably foresee as the result of the breach? HOLDING: In an action for breach of contract, plaintiffs are only entitled to recover the measure of damages both parties may reasonably foresee as a result of the breach. Where special circumstances exist that would give rise to damages in excess of those reasonably foreseeable, in order for the injured party to recover such damages, the defendant must have been informed of the special circumstances. Baxendale (D) was not informed that a delay in the delivery of the shaft would close the mill, thus the Hadleys cannot recover these damages. DISCUSSION: Before we talked about damages that arose form the breech of the contract itself. In Hadely, were talking about the damages that arise as the consequence of the breech due to the specific nature. Hector Martinez and Co. v. Southern Pacific Transportation Co. (p. 104) delayed dragline FACTS: Martinez (P) shipped a dragline through Southern Pacific (D). The dragline was delayed and it was damaged in transit. Martinez (P) had to make repairs and could not use the equipment until four months later. Martinez (P) settled with South Pacific (D) regarding the cost of repairing the damage to the dragline and storage charges incurred. He sued for damages for the wrongful deprivation of the draglines use during the periods of delay in transit and of repair. A lower court dismissed the claim for delay damages because it claimed that the damages were special and Martinez (P) had failed to allege that the carrier had any notice of the possibility that such damages would accrue upon a breach of contract. Martinez (P) appealed and asserted that the loss was reasonably foreseeable when he entered in the contract. ISSUES: Are special damages awarded only if actual notice was given to the carrier or the possibility of injury? HOLDING: General damages are awarded only if injury would have been foreseeable to a reasonable man and special damages are awarded only if actual notice was given to the carrier of the possibility of injury. Marinez (P) delay claim involved two different items. Lost use during the period resulting from the delay in transit and lost use resulting from the repair of the damaged goods. The court held that the lost use from the repair of the damaged goods was part of the claim of physical damage to the dragline and had already been settled. However, the loss resulting from the delay in transportation may be measured by the rental value of the machinery. The amount of damages that was reasonably foreseeable involves a fact question that Martinez (P) is entitled to present to a jury. Case remanded. DISCUSSION: foreseeability Why does court care so much about foreseeability? Full compensation would be unfair to the defendant and hurtful to commerce The defendant in the case might have done something differently if new of special circumstances that would have resulted in higher damages would have taken higher precautions, maybe shipped for higher price (act like insurers)

The defendant doesnt actually have to foresee it, just has to have reason to foresee it. Why? Dont want to encourage ignorance Hard to know subjective mind of parties At what point is foreseeability assigned? When contract is signed There is a notion of consent- can restrict classes of damages to which they will be responsible
What if mill employee told clerk at shipping company how much loss there would be? Would shipping company be responsible? Yes. The default rule is for the agent to be responsible. But, FedEx states explicitly that they dont care what you told us, we are still not taking responsibilityrule in Hadley is a default rule, but parties can contract around it (like FedEx does) Why shouldnt we change default rule? (since everyone seems to be trying to avoid this law) Why dont we say that we wont give you damages unless you expressly say what the damages might be? One reason why dont change default rule is because of information revelation. Its good to force FedEx to tell me that they wont take responsibility. If have the opposite defaultthe regular consumer may not know much about the law. Restatement (Second) of Contracts 351. Unforeseeability and Related Limitations on Damages (p. 108) 1. Damages are not recoverable for loss that the party in breach did not have reson to foresee as a probable result of the breach when the contract was made. 2. Loss may be foreseeable as a probable result of a breach because it follows from the breach a. In the ordinary course of events, or b. As a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know 3. A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. Morrow v. First National Bank of Hot Springs (p. 109) (stolen coints) FACTS: Ps(Morrow and Goslee) sought damages from First NB for losses incurred by the burglary of their coin collection, as a result of Ds failure to notify them as to the availability if three safety-deposit boxes. (b/c FNB agreed to notify them, however the failed to do it although the boxes were available before the burglary. Rule: In an action for consequential damages, under the tacit agreement (zimni anlasma) test, P must demonstrate that D expressly assumed responsibility for Ps sustaining special damages as a result of the Ds breach Holding: P agreed to rent three safety deposit boxes for a total of $75. The court does not consider this K to signify FNB agreed to indemnify P in the amount of app. $ 32,000 for failure to notify him as to the availability of the boxes.
2. Certainty of Harm Chicago Coliseum Club v. Dempsey (p. 112) canceled boxing match FACTS: Dempsey (D) contracted with the Chicago Coliseum Club (P) to fight Wills in an upcoming bout. The contract provided that the Coliseum (P) would be expending large amounts in promoting the fight and that Dempsey (D) would be prohibited from engaging in any other bouts until the bout with Wills was completed. Later Dempsey (D) repudiated the contract in order to fight Tunney instead. The Coliseum (P) acquired a restraining order against Dempsey (D) and then brought suit for damages. The justification for seeking the order was that Dempsey (D) would be undercut for value if he lost his bout with Tunney. Thus, the Coliseum (P) claimed that

there would be irreparable damages and the injunction was the only available remedy. ISSUES:
1. 2.
3. 4.
May a party recover special damages (lost profits) for breach of a contract if the damages are not definite and certain? May a party recover for costs incurred in preparing the contract (expenses incurred prior to signing the contract)? May a party recover attorney fees when there is no provision in the contract for such recovery? May a party recover costs incurred in preparing for the performance of a contract?
HOLDING: (1) A party may not recover special damages (lost profits) for breach of a contract unless such damages are definite and certain. In this case the profits are too speculative, so the Coliseum cannot recover. (2) Costs incurred in preparing the contract are also not recoverable. In this case, these are negotiation costs and do not naturally flow from a subsequent breach of the contract. A party can recover only on damages which naturally flow from and are the result of the act complained of. (3) Attorney fees are not recoverable unless provided for in the contract. After Ds breach of contract, P continued spending money at its own risk. (4) Court costs are not recoverable unless provided for in the contract. However, costs incurred in preparing for the performance of a contract between the signing date and the date of repudiation are recoverable. But, these expenses cannot cover officials who are on a regular salary as they would have been incurred anyway. Notes: Expenses incurred before the signing of the contract are not recoverable DISCUSSION: A party may not recover lost profits unless they are definite and certain. Who will be hurt the most by this rule? : New business, service industries, entertainment What are the alternatives to this rule? : 1. Expected value 2. Liquidated damages 1. Expected value: 25% 50% 25% 0 50 200
(0) + (50) + (200) = 75 Does this solve the problem? Maybe. But only if we understand the distribution of damages. In these types of cases courts award reliance damages. They are not particularly concerned about under compensating for lost profits because reliance damages still get the parties back to where they were before the contract. 2. Liquidated damages: The parties may agree to liquidated damagesstate in contract how much you get if contract is broken Winston Cigarette Mach. Co. v. Wells-Whitehead Tobacco Co (p. 123) This case gives a defense of the doctrine of uncertainty.
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It is safer to adopt definite rules for the jury to follow when awarding damages. Otherwise, a breach of a very simple contract or failure in some part might bring ruing upon the party in default. It is better for the parties when contracting to expressly provide for uncertain damages (liquidated damages)
Restatement (Second) of Contracts 346. Availability of Damages (p. 125) 1. The injured party has a right to damages for any breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged. 2. If the breach caused no loss or if the amount of the loss is not proved under the rules stated in this Chapter, a small sum fixed without regard to the amount of loss will be awarded as nominal damages. 349. Damages Based on Reliance Interest (p. 125) As an alternative to the measure of damages stated in 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. 352. Uncertainty as a Limitation on Damages (p. 125) Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.
Anglia Television Ltd. V. Reed (p. 125) Brady Bunch dad breaches FACTS: Anglia Television (P) entered into a contract with Reed (D) to perform in a television play. Because of a booking error, Reed (D) repudiated the contract. Anglia (P) could not find a substitute and had to cancel the project. Anglia (P) did not claim loss of profits as damages, but instead claimed wasted expenditures. Reed (D) contended that Anglia (P) could not ask for damages for wasted expenditures incurred before the contract was concluded because these expenditures were for Anglias (P) benefit at a time when it was uncertain whether there would be any contract or not. ISSUE: In a breach of contract action, can wasted expenditure be recovered when it is wasted by reason of the defendants breach of contract? HOLDING: In a breach of contract action, wasted expenditure can be recovered when it is wasted by reason of the defendants breach of contract. A plaintiff can claim for his loss of profits or for wasted expenditure, not both. He can also claim expenditure which happened before the contract was concluded, provided that the expenditures were such as would reasonable be in the contemplation of the parties as likely to be wasted if the contract was broken. Foreseeablility issue.
3. Avoidability of Harm / Mitigation Mistletoe Express Service v. Locke (p.128) cancelled shipping service losing K FACTS: Locke (P) sought damages for exoenses she incurred in preparation for performance pursunt to a K with MES (D). Under this K, P agreed to run a pickup and delivery service for Mistletoe for one year (after month-to-month), to terminate the arrangement, thirty days written notice were required. D notified its intent to terminate three and a half months in advance of the contracts termnation date. (until that time P made app 19,500 expenditures 15,000 of it borrowing). Jury awarded Locke damages of 19,400, Mist. Appealed. Issue: When a party makes expend. In preparation for the K, does the proper measure of damages for breach include the recovery of her investment? Holding: YES. However, here the court erred in calculating. P is entitled to damages on the basis of her total expenditures LESS the property sold after the breach.
Rockingham County v. Luten Bridge Co. (p. 131) cancelled bridge
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FACTS: The County (D) Board of Commissioners voted to award a contract to Luten (P) for the construction of a bridge. When three of the five commissioners resigned, the new board voted unanimously to repudiate its contract with Luten (P). After receiving notice of the Countys (D) repudiation, Luten (P) proceeded to construct the bridge. ISSUE: After repudiation of performance by one party to the contract, may the other party continue to perform and recover damages based on full performance? HOLDING: After repudiation of performance by one party to the contract, the other party cannot continue to perform and recover damages based on full performance. They must mitigate damages. DISCUSSION: damages mitigation rule What is the justification for the damages mitigation rule? Not due to breach of contract, but due to your stupidity Economic concept of waste (Pareto improvement) Why would plaintiffs continue to work? Maybe they think that the court will award damages Maybe they think that the contract wasnt really repudiated Maybe wasnt sure and didnt want to be in breach himself
Shirley Maclaine Parker v. Twentieth Century-Fox Film Corp. (p. 142) canceled movie FACTS: In 1965 Shirley Maclaine singed to play in lead musical. 20th century fox decided not to produce that movie, but offered her lead in another movie. Shirley sues. 20th cent. Fox tries to lower its liability saying she didnt mitigate damage b.c didnt take the second role HOLDING: The court says that the principle is the money she should get from the contract minus what she could have earned in another movie or what she did earn. But then the court also says this role was inferior. Decided in summary judgment DISCUSSION: This issue is complicated. Court doesnt want to force people to just take any jobbut on the other hand dont want to automatically pay her the full amount. Why not? Fairness to the defendant and a question of what is really the damage to the plaintiff. If she finds another job, is she really that damaged by the breach? Duty to mitigate is a bit of a misnomer court wont force someone to take another job, but will adjust the damages
Restatement (Second) of Contracts 350. Avoidability as a Limitation on Damages (p. 153) 1. Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation. 2. The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss. DISCUSSION: * Exception to mitigation: lost volume rule Suppose that Im selling a car, someone breaches, and then I resell. I dont really have damages. But, if Im a car dealer even if I resell I still have damages. This is the lost volume rule. My selling a car is more like an employment contract: I as a person with one car, thats all I have. There is no notion of additional things I could have sold. Same thing with employment. I can only sell my services to one employer. However, some people argue that certain jobs are not strictly 9-5 jobs, opening the possibility that they might be able to work for more than one employer at a time. Neri v. Retail Marine Corp. (p. 154) canceled boat purchase
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FACTS: Neri (P) contracted with Retail Marine Corporation (D) to purchase a specific model of boat. Neri (P) paid a deposit of $4,250. Neri (P) then rescinded the contract because he was hospitalized. Marine (D) had already ordered and received the boat, and refused to refund the deposit. Marine (D) sold the boat ordered to another buyer. Neri (P) sued for his deposit and Marine (D) counterclaimed for damages due to Neris (P) breach. Marine (D) claimed that it could have sold both boats. ISSUE: In an action for breach of contract based on repudiation by the buyer, may the seller receive damages based on his lost profits where he subsequently sells the item at issue to another buyer? HOLDING: Uniform Commercial Code 2-708 permits the seller to recover as damages the difference between the market price and the contract price plus any incidental damages incurred, but minus any expenses avoided, as long as this amount is sufficient to place the seller in as good a position as performance would have done; otherwise, the seller may recover his lost profit, plus any incidental damages and reasonable costs. Where a seller has an unlimited supply of goods at his disposal, the subsequent sale of the item at issue is not sufficient to restore the seller to his expected position, since had the buyer performed, the seller theoretically would have profited form both sales. Thus, Neri (P) may recover his deposit of $4,250, minus Marines (D) offset of its lost profit of $2,579, and proven incidental damages amounting to $674. Sales Contracts: The UCC 2-706. Sellers Resale Including Contract for Resale (p. 157) 1. Under the conditions stated in Section 2-703 on sellers remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyers breach. 2. Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be at public or private sale including sale by way of one or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence or that any or all of them have been identified to the contract before breach. 3. Where the resale is at a private sale the seller must give the buyer reasonable notification of his intention to resell. 4. Where the resale is at public sale a. Only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and
b.
c. d.
It must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and If the goods are not to be within the view of those attending the sale the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and The seller may buy.
5. 6.
A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2-707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection (3) of Section 2-711).
2-708. Sellers Damages for non-acceptance or Repudiation (p. 158) 1. Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provide in this Article (Section 2-710), but less expenses saved in consequence of the buyers breach. 2. If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made form full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonable incurred and due credit for payments or proceeds of resale.
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2-710. Sellers Incidental Damages (p. 159) Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyers breach, in connection with return or resale of the goods or otherwise resulting from the breach. 2-718. Liquidation or Limitation of Damages; Deposits (p. 159) 1. Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty. 2. Where the seller justifiably withholds delivery of goods because of the buyers breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds a. The amount to which the seller is entitled by virtue of terms liquidating the sellers damages in accordance with subsection (1), or b. In the absence of such terms, 20% of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller. 3. The buyers right to restitution under subsection (2) is subject to offset to the extent that the seller establishes a. A right to recover damages under the provision of this Article other than subsection (1), and b. The amount or value of any benefits received by the buyer directly or indirectly by reason of the contract. 4. Where a seller has receive payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyers breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller (Section 2-706) C. Contracting around the Default Rules of Damages Most contract rules are default rules and can be contracted around by inserting an expressed clause to the contrary. Express clauses can disclaim liability for consequential damages, even though damages may be foreseeable, and they can either limit or expand damages. Commerical Contracts often contain clauses the give one or both parties the right to have the dispute, outlining the proper measures of damages, settled by arbitration or what is now known as ADR. 1. Express Limitations on Consequential and Incidental Damages (pp. 171-172) Warranty Clauses can be included by parties in a contract as a means to limit their liability under the default rules of contract damages. These clauses are expressly intended to be the exclusive remedy for a breach, thereby excluding damages for any other foreseeable losses. i.e) computer spreadsheet software disclaimer Sales Contracts: The Uniform Commercial Code (pp. 160) 2-719. Contractual Modification or Limitation of Remedy (1) Subject to the provisons of subsections (2) and (3) of this Section and of the preceeding section on liquidation and limitation of damages (c) agreement may provide for remedies in addition to or in substitution for those provided in this Article and may limit or alter the measure of damages recoverable under this article, as by limiting the buyers remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts: and (d) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act.
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(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in case of consumer goods is prima facie unconscionable but limitations of damages where the loss is commercial is not. 2. Liquidated Damages v Penalty Clauses (pp. 161) Prior to the assumpsit, conditioned penal bonds were the basic contractual institution, which would reduce any promise to debt. Eventually, the practice of relieving defaulting obligors from forfeiture of the penalty due the bonds led to the acceptance of the modern principle of contract law according distinctions to penalty and liquidated damages. Concerning contractual enforcement, there exists two competing notions that are not necessarily incompatible; however, (2) is bound to impose limitations on the enthusiasm in which (1) is pursued, assigning positive value to breach in certain instances (i.e personal services contracts). They are as follows: (1) The aim of contractual institutions is to make sure that agreements are performed; however, (2) It suffices for the law to provide compensation for loss suffered by failure to perform agreements. Contracts in terrorem (by way of threat) were made by the party from whom performance was due; however, in modern times, this tool has not disappeared, but rather the courts now hold monopolistic control over using threats to enforce contracts. The three next cases examine the modern distinction between penalty clauses, which are unenforceable, and liquidated damges clauses, which are enforceable. Kemble v. Farren (pp.163) Comedian quits FACTS: Farren (D), an actor, was contracted by Kemble (P), manager of Covent Garden Theatre, to perform at the theatre for four seasons. Their agreement contained a clause which stated that if any party failed to perform any or all stipulations agreed upon, such party should pay the other 1000 pounds. Farren refused to act during the second season, breaching the contract. Jury assessed damages as 750 pounds, to which Kemble appeals. RULE OF LAW: Where a contract provides that a very large sum is to become immediately payable for any breach, however minor, the courts will direct the jury to assess the real damages sustained as a result of the breach of contract. VOCABULARY: limited damages An amount of money specified in a contract representing the damages owed in the event of breach. HOLDING: Court concluded that the clause in question was an unenforceable penalty clause, not a clause for liquidated damages. Although the court holds that it is neither unreasonable nor illegal to fix the amount to be paid for breach if the resultant damages would be uncertain in nature, in this case, the clause was not sufficiently limited, awarding the same damages for any breach, no matter how minor. Thus, the Wassenaar v. Towne Hotel (p.165) Hotel worker fired FACTS: Wassenaar (P) entered into an employment contract with Towne Hotel (D), which included a liquidated damages clause. Towne Hotel terminated Wassenaars employment prior to expiration and P sued for the stipulated damages. Towne Hotel made affirmative defense that Wassenaar failed to mitigate damages. RULE OF LAW: A stipulated damages clause is valid if it is reasonable under the totality of the circumstances. VOCABULARY: Mitigation of damages A plaintiffs implied obligation to reduce the damages incurred by taking reasonable steps to prevent additional injury. HOLDING: Court reversed decision holding that the stipulated clause was a valid provision for liquidated damages. Court explained that Towne Hotel failed meet its burden of proof showing that the stipulated damages were unreasonable, i.e.) Towne Hotel did not present facts showing that Wassenaar did not suffer or suffered significantly less damages than the stipulated amount. Also, court held that the liquidated damages clause eliminates Wassenaars duty to mitigate damages. Since the clause is a valid liquidated damages provision, the agreement foresaw possibility of harm and agreed on an estimated amount thus Wassenaars subsequent earnings do not factor into courts holding, as they would had there been no stipulated damages clause.
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ANALYSIS: There are competing viewpoints in regards to enforcing stipulated damage clauses. (1) Enforcement avoids uncertainty and delay, as well as increases economic efficiency; however, (2) Enforcing damages becomes punitive or unfair under certain considerations. Restatement (Second) of Contracts (p.172) 355. Punitive Damages Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. 356 Liquidated Damages and Penalties (1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on ground of public policy as penalty. (2) A term in a bond providing for an amount of money as a penalty or non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extend that the amount exceeds the loss caused by such non-occurrence. Lake River Corp. v. Carborundum Co. (pp. 173) Coal Purchase HOLDING/RULE: In order for a liquidated damages clause to be enforceable, there must be a reasonable estimation at the time of contracting of the probable damages from breach, and the need for estimation must be based on the likely difficulty of assessing the actual damages suffered in the event of breach; otherwise, such clause is void as penalty. ANALYSIS: Judge Posner (our hero) notes his disagreement with decision by explaining that while penalty clauses impute a sense of exigency into the terms therein [notes additional risk to creditors of contract breakers], this advantage is outweighed by several countervailing concerns: (1) presence of penalty clauses increases costs of contracting and (2) penalty clauses may discourage efficient breaches of contract.
III. OTHER REMEDIES and Causes of Action (specific performance) p.193 Money damages are the norm, so other damages are deemed extraordinary relief. Money damages are known as legal relief while other remedies are called equitable relief (b/c they were settled in equity courts). Equity is more flexible. Equitable remedies are coercive, restitutionary or declaratory. A P may only seek equitable relief if remedy at law is inadequate. Coercive = order commanding some specific conduct w/ punishment for noncompliance. Declaratory = Obtain a declaration of your rights Restitutionary = Restore plaintiff something which belonged to him A) SPECIFIC PERFOMANCE AND INJUNCTIONS 1) CONTRACTS FOR LAND Land is presumed to be unique. Most often solved by specific performance. Loveless v Diehl (pg 198) buying the farm FACTS: The Diehls (P) sought specific performance of an agreement for the sale of a farm they leased from the Lovelesses (D) pursuant to an option-to-buy during lease for a specific amount contract. Specifically, D leased a farm to P for 3 years w/ an option to purchase anytime during that period for $21,000. Ps improved property requiring, notably a promissory note to D for $1,440.95 for a milking system. Ps sought a buyer in order to recoup investment when they were unable to fund the purchace themselves. Hart agreed to pay the $22,000 for the property, but reneged when D refused to sell the property to P. ISSUE: In a contract for the sale of real property, may the court award the remedy of specific performance as a matter of course?
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HOLDING: Yes, irrespective of the inadequacies of remedies at law. Ps made $5,000 worth of improvements. Award unjustly enriches D for their breach and would diminish transferability of land. DISSENT: (Harris) Specific performance results in P recouping only $1,000 of their investment and results in a benefit to a third party who suffered no injustice as a result of the breach. DISSENT: (McFaddin) It is also w/in courts power to deny specific performance if resolution of issue is not obvious or where there exists other prevailing concerns. Court acted w/in its bounds to say they get the damages equal to the amt they would have received if contract had been executed. 2) CONTRACTS FOR GOODS Goods must be unique to warrant specific performance. Cumbest v Harris (pg 203) FACTS: Cumbest (P) and Harries (D) entered into a loan disguised as a sale agreement that allowed repurchase by a specific date. P tried to repay, by D hid from him. P sued for specific performance b/c the items were unique and some were difficult to replace. ISSUE: Will the court order specific performance for the sale of an item of personal property? HOLDING: No. Generally, specific performance is not warranted unless there is no specific remedy of law. But this was conceded unique. Therefore reversed and specific performance ordered. Scholl v Hartzell (pg 206) FACTS: Scholl (P) bought a car and parts advertised by Hartzell (d) for $4000. He put $100 down and contracted to return with the rest. P demands delivery or $4655 (difference btwn cost and value) ISSUE: When a contract is executory, (that which has yet to be performed) does the tendering of a deposit give rise to an action in replevin (equitable remedy by which a party claiming exclusive and immediate rights to personal property in the possession of another seeks recovery of said property) to enforce? HOLDING: No, when a contract is executory, the tendering of a deposit does not give rise to an action in replevin, and the injured party must seek relief based on breach of contract. Both sides were executory, Court only permits equitable remedies when remedies at law are inadequate. Deposit immediate and exclusive right to take possession. P has remedies including cover. (ie not unique item). Efficient Breach Revisited Want item to go to the highest bidder Hypo: Lets say someone (Mr. Rich) offered Hartzell more $ for car. If Scholl seeks specific performance and manages to sell it to Mr. Rich he gets the $. (room to bargain?) price Mr. Rich offers Scholls valuation of car Hartzell gets Price Scholl offers Hartzell If award expectation Scholl gets If liquidated damages are set above valuation (thus a penalty) then people wont breach. Post Theorem: Mr. Rich ends up with car either way because either he buys it from Scholl or Hartzell. Economic efficiency Sedmak v Charlies Chevrolet, Inc. (pg 208) another Vette FACTS: The Sedmarks (P) entered into an oral contract with Charlies (D) upon which they placed a $500 deposit to purchase a limited addition Corvette for approximately $15,000. When the car arrived, Ds sales man told them they would have to bid on the car. The salesman claims that the deposit was just giving them the right to bid first and last. If specific performance is ordered and he sells it to Mr. Rich the Scholl gets
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ISSUE: May specific perform. be ordered when the subject matter is of a sufficiently unique nature? Holding: Yes, Circumstances include situations where p has no legal remedies and where a substitute could not be found without substantial cost/delay. Here car was 1 of only 6,000 made and arrived tailored to the Ps needs and thus was sufficiently unique Sales Contracts: The Uniform Commercial Code: 2-716. p. 211 (1) Specific performance may be ordered where the goods are unique or in other proper circumstances. (2) The judgment (decree) for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just (3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such an effort will be unavailing or if the good have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. 3) CONTRACTS FOR PERSONAL SERVICE The Case of Mary Clark, A Woman of Color (pg 212) we didnt read FACTS: Mary Clark (P) claimed she was illegally indentured to Johnson (D). P had entered into an agreement with D whereby she voluntarily agreed to render services as a house servant for 20 years. Circuit court upheld told her to return to D. Reversed ISSUE: May the court order specific enforcement of a contract for personal services? HOLDING: No. Enforcement of a contract under such conditions is akin to slavery. As long as she performed her services pursuant to the contract, such services were presumed to have been performed voluntarily. However upon filing the petition for relief, such service was no linger voluntary and the court may not constitutionally compel her to continue to perform pursuant to the contract. Lumley v. Wagner (opera singer) pp. 216 - enjoined singer FACTS: Lumley, operates a theatre where Wagner, was to perform. D agrees not to perform at any other theatre without permission. She them made a commitment to perform at another theatre. P brought suit to refrain D from singing anywhere else. HOLDING: Court orders injunction barring the D from singing elsewhere. The court states that it cannot force her to sing, but distinguished injunction from SP by saying that D cannot complain if she is barred from singing elsewhere and thus fulfilling her contractual commitment. Dallas Cowboys v. Harris (p.232) Injunction for athletes unique ability D, Harris, contracted to play football for LA Rams for one year. Contract said Harris could not play for any other team because of his unique ability. After a year, Harris left to play with an AFL team, but Harris Rams contract was assignable, and Rams assigned it to Cowboys, P, who filed suit. HOLDING: The court orders injunction barring Harris from playing for other teams. Under a broad interpretation of unique a star football player has a unique ability. (similar to UCC and goods)
B) RESTITUTION DAMAGE INTEREST AND CAUSE OF ACTION If a D breaches, P can usually seek damages, OR bring an action in quasi-contract for restitutionary damages to recover the reasonable value of the benefit plaintiff conferred on D. Restitution damages usually measured by market value of Ps performance rather than actual enrichment of D, which could be less than the market value. . Principles of the Bush rule: i.Breaching party cant sue on the contract (in other words, the fact that his breach helped the other party doesnt allow him to recover because of that)
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ii.Breached party gets any surplus from a breach Bush v. Canfield (p. 250) non-delivery of flour FACTS: Bush pays $14,000 for wheat, $5,000 up front. Canfield never delivers but by time of delivery, the price of that wheat has fallen to $11,000. Had the contract been fulfilled, Canfield wouldve made $3,000Bushs lost profits (expectation interest) are -$3000. HOLDING: Court gives Bush restitution because: It would be unfair enrichment if Canfield reaped the surplus of the breach Court didnt want Canfield to benefit. His breach wasnt efficientit was against his own interests. Dont want to encourage inefficient breaches The Plumber/Electrician Hypothetical i. Abel does both plumbing and electrical work. He signs on for plumbing work with Contractor (employer) for $20/period. Plumbers flood market and now going rate is $5/period. The going rate for electricians is $15/period. Contractor doesnt know Abel is electrician. Contractor suffers small cost for any termination. ii. Society would be better off by $10 if Abel did electricians work and Contractor could find a new plumber (electrical work is valued at $10/period more than plumbing) iii. Under an anti-Bush rule, Abel quits and sues for the breach savings ($15), then takes on an electrical job ($15), meaning Abels +$10, society is +10, and the contractor loses nothing. Under Bush rule, Abel wont quit and society loses the benefit. iv. If Contractor knew of Abels dual talents and Abel had no preference between plumbing and electrical work, Contractor would fire Abel and pay him $5 in expectation damages ($20 from lost contract less mitigation damages-the $15 he gets from electrical work). Now Abel is even and Society is better, but the Contractor gains the $10 surplus from the breach. The reason this doesnt happen today is because: Transaction costs (hiring/training new employee) arent zero If the employee couldnt find immediate or equal-value work , the employer would be double-paying Employers are often risk-averse Conclusion: expectation damages would encourage efficient breach, while Bush rule potentially prevents efficient breach. a. However, without Bush, thered be a race to breach whenever the market changed or whenever people learned new information about each other (because information is incomplete and asymmetric). That would create its own inefficiencies and market instability.
1. Restitiution and Quasi-Contract R2d. 371 Measure of Restitution Interest p 256 If a sum of $ is awarded to protect a partys restitution interest, it may as justice requires be measured by, the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimants position, OR b. the extent to which the other partys property has been increased in value or other interests advanced. R2d. 373 Restitution When other Party is in Breach p 256 (1) Subject to rule stated in Subsection (2), on a breach by nonperformance that gives ruse to a claim for damages for total breach or on a repudiation, the injured party is entitled restitution for any benefit that he has conferred on the other party by way of part performance or reliance (2) The injured party has no right to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance.
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Britton v. Turner (p.256) worker quits Breaching party can sue for restitution when hes given partial performance. Restitution cant provide a windfall for the breacher but allows them to receive what theyre owed. FACTS: P contracted to work for Turner for a period of one year, at the end of which he would be paid $120 for his labor, but P quit work after 9.5 months for which time D refused to pay.
vi.
(Britton)
If the contract were such that breached didnt receive the benefit until completion of the term, he might not be required to pay
vii.
There is no requirement that the employer have approved the work. (Britton) HOLDING: Where labor is performed under a K for a specified price ,the party who fails to perform the whole of the labor contracted for can recover to the degree it is greater than the damage done to the other party. The settled rule was unfair which held the opposite, because one party could receive nearly all of the performance while the other party would get nothing.
Laborer Hypo: Laborer agrees to work for $30/quarter, than price immediately increases to $50/quarter. Laborer works for three quarters, then quits. viii. One approach to determining restitution is:
a. b. c.
quarter.
Start with the value employer received in market terms ($150)Court would never grant that (it would create a crazy incentive to Court then subtracts the difference between market and contract in each period worked ($20 x 3 = $60) Then, it subtracts the $20 in damages that defendant will lose in the fourth quarter by having to contract at market rate in the 4th So the court would grant $70 as time worked, less damages. Another approach for restitution: Start with the money employee wouldve earned under the contract for three quarters ($30 x 3 = $90) Subtract out the damages employer will face in the 4th quarter because of the breach ($50-$30 = $20 Court would grant $70
breachlaborer cant increase his wages by quitting).
d.
ix.
a. b. c.
Vines v. Orchard Hills, Inc (p. 260) condo sale FACTS: Vines (P) placed a down payment of $7,880 on a $78,800 condominium that was being sold by Orchard Hills (D). The contract stipulated that Orchard Hills would retain the down payment as liquidated damages in case of default. Vines was then transferred to New Jersey and decided not to complete the transaction for the real estate. Vines explained the circumstances to Orchard Hills but Orchard Hills refused to refund the down payment. Vines brought suit and the defendant demurred to the complaint and moved for summary judgment on the issue of damages. The court denied Orchard Hills motion and entered judgment in favor of the plaintiff. Orchard Hills appealed. Issue: Does a defaulting party have the right to seek restitution? Holding and Rule: Yes. A defaulting party has the right to seek restitution. A party whose breach is not willful can bring a claim to recover moneys paid that unjustly enrich the seller. The breaching party must satisfy his burden of proof that the other party has acquired a net gain in order for a claim for unjust enrichment to be sustained.The court held that Vines had the burden of proof in showing that the liquidated damages clause was invalid and unenforceable, or that the sellers damages were substantially less than the amount of liquidated damages. The court held that the case be remanded for the plaintiff to substantiate his claim. R2d. 374 Restitution in Favor of Party to Breach Please see pg. 374 Cotnam v. Wisdom pp298 Dr. helps dying man - restitution damages for quasi contract P, surgeons (one of which was Wisdom), rendered medical aid to the decendent (Mr. Harrison) of D (administrator of estate, Cotnam) after a car accident. (obviously, the decedent didnt make it).
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HOLDING: Court says there was no contract, BUT, there was an implied-in-law or quasi contract. Doctors are entitled to recovery for the services rendered, even though there was no benefit conferred because the guy died. Courts create legal fiction for doctors legal remedy since if Harrison were able to contract he would have quasi/implied in law contracts exist when one party is required to compensate another for a benefit conferred in order to avoid unjust enrichment.
IV. REACHING AN AGREEMENT A. INTRO TO OFFERS AND ACCEPTANCE CHAPTER 4 REACHING AN AGREEMENT A. INTRO TO OFFERS AND ACCEPTANCE Legally binding contracts need 1) Offer 2) Acceptance and 3) Consideration. Battle of the forms: When there are dueling forms, and one party acts, the last form is the one that is enforceable??? Under UCC, this is not the case; instead, a court will take the two forms together and fill in the gaps, usually in favor of the offeror-purchaser. UCCs stance overthrows the mirror image rule Mirror Image Rule: an acceptance must mirror the offer exactly in order to form a binding contract. If the acceptance varies or adds to the offer, there would be no contract.
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B. OBJECTIVE THEORY OF ASSENT The Objective Theory Of Assent is to be applied to determine whether mutual assent has been achieved. TEST: what a reasonable person in the position of each of the parties would be led to believe by the words or conduct of the other party or the words of a written contract. Test protects the parties reasonable expectation words and conduct are not interpreted as to what the offeror/acceptee subjectively thought them to be. an actual meeting of the minds is not required because that implies subjectivity there is sufficient manifestation of assent whenever a party uses words or acts as if he knows, or has reason to know the other party would reasonably interpret as an offer or acceptance, and the other party does so interpret them IE) An offer made by party A to B purely in jest will result in a binding contract if B reasonably believes that A was serious. theory requires a subjective element in that it looks at the s belief. Its only at work in bottom left. Plaintiffs Belief YES NO YES Contract No Contract Defendants Belief if unreasonable, NO no contract No Contract If Reas., Contract Embry v. Hargadine, McKittrick Dry Goods (pp.290) fired worker / objective theory of assent FACTS: P, Embry, had an employment contract with D, Employer, McKittrick. When contract was expiring, told co.s president he would quit working if his contract was not renewed. D told him to just keep working, which P took to mean that the contract was being renewed. P was later let go. D claims he was never going to renew the contract. Employee asks for contract extension. Boss says Go ahead. Youre all right, and sends him out. Fires him three months later. Offer and acceptance both unclear here. Only intention that matters is the one the parties indicate by their words or acts, actual subjective intention is irrelevant. HOLDING: Court finds for P, as if one partys inner intention is at odds with his express words, the express words are that counts. It was reasonable for P to interpret Ds words as renewal. Court holds that because Embry said, Renew or I quit, any reasonable man would have taken defendants words as an assent to renewal, regardless of what defendant may have actually meant. The law favors the nave over the informed. That way, it incentivizes the informed to tell the nave how it really works.
Lucy v. Zehmer (pg 296) - Drunken joke land deal FACTS: Lucy (P) had tried several times to buy a farm form the Zelmers (D). One evening P and D were drinking and P offered to buy the land from $50,000. D said P didnt have the money. P said Do too and that he would pay that much for the farm. D wrote out a sales draft and spent 40 mins discussing the deal with P during which time revisions were made to the contract. P offered money to seal the deal, it was refused. D also made his wife sign the sales draft. D said he didnt think P had the money and that it was a big joke. CONCISE RULE OF LAW: If his outward manifestations of assent otherwise create a contract, the claim that the assentor was not serious is not a defense to a claim on the contract. HOLDING: Mental assent of the parties is not a requisite for the formation of a contract. If the words and acts have but one reasonable meaning, his undisclosed intention is immaterial (until disclosure). Intoxication didnt count. Contract was in writing: writings provide proof of solemnity and consideration. HYPO: Sign Hole in-one wins car. Got hole in one. Dealer refused to give car b/c the sign was there for a tourney for charity 3 days before. Argue manifest offer vs too good to be true. Should have know that only happens at tourneys. Not reasonable. But in the end the judge decided guy got the car.
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RESTATEMENT (SECOND) OF CONTRACTS (P.304) 17. Requirements of a bargain c. Meeting of the minds. The element of agreement is sometimes referred to as a meeting of the minds. The parties to most contracts give actual as well as apparent assent, but it is clear that a mental reservation of a party to a bargain does not impair the obligation he purports to undertake. The phrase used here, therefore, is manifestation of mutual assent, as in the definition of agreement in 3. 19. Conduct as a manifestation of assent (1) The manifestation of assent may be made wholly or partly by written or spoken words or be other acts or by failure to act. (2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and he knows or has reason to know that the other party may infer from his conduct that he assents. (3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud,, duress, mistake, or other invalidating cause.
B.
WHAT IS AN OFFER? P. 305
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. UCC 2-205 : Firm Offers: An offer by a MERCHANT to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if not the time states for a reasonable time, NOT TO EXCEED 3 Months. Two Essential Elements of an Offer
1. 2.
Intent to enter into a bargain: there is no intent to enter into a bargain if by the language/communications it is clear that a statements merely reflects an intent to begin negotiation. Certainty and Definiteness of Terms: A statement will not be an offer unless it makes clear: the subject matter of the proposed bargain, the price, and the quantity involved. If one is missing but there is a clear intent to conclude a bargain, courts will often fill in the item.
Advertisements are usu. considered invitations to deal, not offers; HOWEVER, there are two exceptions: 1) definite terms clearly indicate a bargain and 2) ad invites specific action without further communications. 1. PRELIMINARY NEGOTIATIONS Nebraska Seed Co. v Harsh (pg 305) millet seeds FACTS: Harsh (D) a farmer, forwarded to Nebraska Seed Co. (P a letter stating that he had 1800 or thereabouts bushels of millet that he would sell for $2.25 per hundered-weight. P wrote back saying it accepted the offer, and stated the delivery instructions. D did not deliver and P sued for breach of contract. CONSICE RULE OF LAW: An ad of a product is not an offer if it contains general, nonspecific, terms. HOLDING: An offer must be specific as to the terms of sale, such as quantity and price. A communication that is nonspecific, even if the term offer is used, is more like an ad than an offer. D told P that it had a certain quantity to sell at a certain price, but 1800 thereabouts is not a sufficiently specific amt to constitute an offer. Leonard v. Pepsi (p.308) - Handout about the Harrier Jet p sued to enforce alleged contractual commitment of manufacturer, D, or to provide fighter jet aircraft in return for his submission of 7,000,000 product points. D moved for summary judgement and such was granted by district court. ISSUE: Has offer been made thru an Ad when the alleged offeree has an objectively reasonable belief that the offer was intended to be made? D advertisement was not an offer Court says it was a solicitation of offers? If solicitation, contract complete when Pepsi receives the order form from p
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An Objective Reasonable Person would not have considered commercial (due to its content) an offer Leonard objects to sum jud on grounds that jury should decide reasonability, but Court rejects no need for any particular "real life" experience to decide on contract case. Court points out that the commercial was "evidently done in jest" because it costs 23 million and primary use is for military. The commercial just used it for effect. Additionally, contract does not satisfy the statute of frauds
RESTATEMENT (SECOND) OF CONTRACTS P.316 26. Preliminary negotiations At manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addresses knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. - reason to know depends not only on words or conduct but other circumstances including previous communications of the parties and the usages of their community or line of business. - In determining whether an offer has been made or not, relevant factors include the terms of previous contracts, the completeness of the terms of the suggested bargains and the number of persons to whom a communication is addressed. 26. To whom an offer is addressed (1) The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance (2) An offer may create a power of acceptance in a specified person or persons or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who, makes a specified promise or renders a specified promise. 33. Certainty (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer. SALES CONTRACTS: THE UNIFORM COMMERCIALL CODE 2-204. Formation in General (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties, which recognizes the existence of a contract. (2) An agreement sufficient to constitute a contact for sales may be found even though the moment of its making is undetermined. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. 2-305. Open Price Term (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standards as set or recorded by a third person or agency and it is not so set or recorded. (2) A price to be fixed by seller or by the buyer means a price for him to fix in good faith. (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
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(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and seller must return any portion of the price paid on account. 2-308. Absence of specified place for delivery Unless otherwise agreed (a) The place for delivery of goods is the sellers place of business or if he has none his residence; but (b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and documents of title may be delivered through customary banking channels. 2-309. Absence of specific time provisions; notice of termination (1) The time of shipment or delivery or any other faction under a contract if not provided in this Article or agreed upon shall be a reasonable time. (2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.
2. WRITTEN MEMORIAL CONTEMPLATED Empro Manufacturing Co v Ball-Co Manufacturing Inc (pg 319) FACTS: Empro (P) and Ball-Co (D) signed a letter of intent containing the general provisions of the sale of Dd assets to P, which proposed to pay $2.4 mill. W/ $650,000 to be paid on closing and a 10-year promissory note for the remainder. The letter stated, Empros purchase shall be subject to the satisfaction of certain conditions precedent to closing including, but not limited to the definitive Asset Purchase Agreement and, amoung five other conditions, the approval of the shareholders and board of directors of Empro. The sticking point for the deal turned out to be the security for Ps promissory note. When D started negotiating w/ someone else, P sued, contending letter of intent bound D. CONSICE RULE OF LAW: Parties who have made their pact subject to a later definitive agreement have manifested an intent not to be bound. HOLDING: Only openly expressed wishes count. The words subject to a definitive agreement and general terms and conditions in letter imply not binding. D had not intended to be bound by agreement. RESTATEMENT (SECOND) OF CONTRACTS P.322 27. Existence of a contract where written memorial is contemplated Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations. TEXACO V PENNZOIL (PG 323) - Oil Issues FACTS: Based on informal negotiations Penzoil )P) contends that a valid contract was formed btwn itself and Texaco (d), notwithstanding Ds assertion that P did not intend to be bound since a more formal document had not been executed to memorialize the event. CONSICE RULE OF LAW: The formation of a valid contract depends on the objective intent of the parties as expressed outwardly in their words and deeds, and not merely on the form that the agreement has taken.
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HOLDING: Under the relevant law, parties have the right to bind themselves either formally of informally. To determine intent, courts will look to outward actions not to subjective or unexpressed intentions. Whether parties intend to be bound only by a formal signed writing depends on (1) whether a party expressly reserves the right to be bound only when a written agreement is signed.; (2) whether there was any partial performance by one party that the party disclaiming the contract accepted; (3) whether all essential terms of the alleged contract had been agreed upon; and (4) whether the complexity or magnitude of the transaction was such that a formal, executed writing would normally be expected. In this case it was found enough had occurred to bind the parties.
R2d 17 43 Describe Requirements of a Bargain and Define Offer, Option Contract, Methods of Termination of Acceptance, Revocation, and Indirect Communication of Revocation. Please see pgs 331-332 UCC 2-206 Offer and Acceptance in Formation of Contract Dickinson v. Dodds (p.328) 9am estate sale offer can be revoked anytime before acceptance FACTS: On Wed., D, Dodds, sent a memo to P, Dickinson, stating that he would hold open an offer to sell him land until Friday morning. On Thursday, Dodds found out Dickinson has been agreeing to sell the property to someone else, so Dodds left an acceptance at Dodds house. On Friday, Dickinson and his agent told Dodds in person that Dickinson was accepting the offer. Dodds said he already sold the land and Dickinson sued. HOLDING: Court finds for D, Dickinson, as an offer can be revoked at any time before acceptance. The offer, being nothing more than a promise without consideration, was not binding. Also, an offer does not need to be expressly revoked. The court also held that there was no meeting of the minds.
D. WHAT IS ACCEPTANCE? Acceptance can be in the form of correspondence, silence, or performance. Bilateral Contract: general rule is that an offer that requires acceptance by promise can be accepted only by a promise , not an act, although the required promise may be express or implied, and in some cases, can be implied from an act.?? Unilateral Contract: An offer that calls for acceptance by performance of an act can only be accepted by performance; not be a promise to perform (offer is not revocable once performance (not prep) has begun) Ardente v. Horan (p.336) home sale Facts: Ardente (P) made a bid of $250,000 on real property owned by Horan (D). Horan notified Ardente that the offer was accepted and forwarded a formal written agreement. P signed the agreement and returned it together with a $20,000 check and a request for confirmation that certain items of furniture would be included in the transaction. D refused to sell those items or the property and did not sign the purchase and sales agreement.P sued for specific performance and D moved for summary judgment on the grounds that no contract had formed. The court held that the Ps request for confirmation regarding the additional items was a conditional acceptance and therefore a counteroffer. The court granted Ds motion for summary judgment and P appealed. Issue: Must an acceptance be definite and unequivocal to be effective? Holding and Rule: Yes. An acceptance must be definite and unequivocal to be effective. In this case the mere execution of the agreement alone would have operated as acceptance. However, the terms of the letter conditioned that acceptance upon the inclusion of the furniture. An acceptance may not impose additional conditions on the offer, nor may it add limitations. An acceptance, which is equivocal or upon condition or with a limitation, is a counteroffer and requires acceptance by the original offeror before a contractual relationship exists. However, an acceptance may be valid despite conditional language if the acceptance is clearly independent of the condition. The court held that the letter of acceptance by P was not consistent with an absolute acceptance accompanied by a request for a gratuitous benefit and therefore was a conditional acceptance or counteroffer. Affirmed. Restatement (Second) of Contracts 61 Acceptance which requests change of terms (p.338)
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An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made depend on an assent to the changed or added terms.
1. ACCEPTANCE BY CORRESPONDENCE MAILBOX RULE Restatement (Second) of Contracts 63. Time when acceptance takes effect (p. 341) Unless the offer provides otherwise, a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offerees possession, without regard to whether it ever reaches the offeror; but b) an acceptance under an option contract is not operative until received by the offeror 64. Acceptance by Telephone or Teletype (p. 341) Acceptance given by telephone or other medium of substantially instantaneous two-way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other.
65. Reasonableness of Medium of Acceptance (p. 341) Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received. 66. Acceptance must be properly dispatched (p. 342) An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.
NOTES: A
Offeror makes Offer (M)
Offeree sends Acceptance (T)
Offeror (M) receives acceptance
Mailbox rule acceptance occurs at point B, when the Offeree sends the acceptance Under the Restatement 63, the mailbox rule is the default rule unless the offer otherwise provides or unless it is an option contract. According to the Restatement 66, the mailbox rule does not apply unless the acceptance is properly mailed.
Question: Can an offer be revoked once it is mailed but before it reaches the offeree? Yes. When someone sends an offer, it can be revoked before it reaches the offeree. This is because of Restatement 35. (p. 332). A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in Restatement 36. Basically, *** Offeror retains power to revoke up to the time acceptance occurs ***
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2. ACCEPTANCE BY SILENCE Restatement (Second ) of Contracts 69. Acceptance by Silence or Exercise of Dominion 1. Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: a. Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. b. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. c. Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. 2. An offeree who does any act inconsistent with the offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him. E. ACCEPTANCE BY PERFORMANCE AND UNILATERAL CONTRACTS P.342 Unilateral contract Agreement that results from acceptance by performance. Bilateral contract Agreement that results from acceptance by a promise.
Carlill v. Carbolic Smoke Ball Co. (p. 343) failed flu prevention FACTS: Carbolic Smoke Ball Co. (D) placed an ad offering 100 pounds to any person who became ill after using its product. Carlill (P) tried the product, still fell ill, and tried to collect from the company. They would not pay, so she sued for breach of contract. ISSUE: May a continuing offer be accepted by performance of the condition named in the offer? HOLDING: A continuing offer may be accepted by performance of the condition named in the offer. In a normal situation, notice of acceptance is required for formation of a binding contract. However, when the offer is of a continuing nature, the better rule is that no prior notice of acceptance is necessary apart form the notice of performance. COURTS REASONING: The court explored whether the ad was intended to be a mere puff to make the product sound good. The court concluded that it was not mere puff because in the ad it says that money was deposited in the bank to back up offer. Why is this relevant? Because if there was no promise, there cannot be acceptanceyou would not have a contract The second problem was that the promise was not made to anyone in particular. The court says thats ok. The offer was made to everyone. The actual contract was made with the people who accepted the offer by performing. Note: Everyday ads in windows, Catalogs, pricelists, circulars are not offers. They are invitations for an offer. However, it is possible to make an offer by ad to general public, but there has to be something special in add that suggests that all you have to do is the act and then you have binding contract. It has to be something more precise than an everyday ad. Question: When an ad is an offer, when do you have notification of acceptance? In Carbolic, the court says that if you are concerned about notification, you can think of notification being when people show up claiming reward as long as show up before offer is revoked. Restatement (Second ) of Contracts 54. Acceptance by Performance; Necessity of Notification to Offeror (p. 356) 1. Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification.
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If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless a. The offeree exercise reasonable diligence to notify the offeror of acceptance, or b. The offeror learns of the performance within a reasonable time, or c. The offer indicates that notification of acceptance is not required. Leonard v. Pepsico Restatement (Second) of Contracts 30. Form of Acceptance Invited (p.362) 1. An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection in his acceptance. 2. Unless otherwise indicated by language or the circumstances, an offer invited acceptance in any manner and by any medium reasonable in the circumstances. 32. Invitation of Promise or Performance In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rending the performance, as the offeree chooses. 2.
Restatement (Second) of Contracts, [Tentative Draft No. 1 (1964)] vs. Restatement (Second) of Contracts 45. Option Contract Created by Part Performance of Tender (pg. 367) 1. Where an offeror invited an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree [begins] tenders or begins the invited performance [and tenders part of it] or tenders a beginning of it. 2. The offerors duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
50. Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise 1. Acceptance of an offer is a manifestation of assent to the terms thereof make by the offer in a manner invited or required by the offer. 2. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. 3. Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.
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V. INTERPRETING ASSENT Supplying terms: gap-filling terms terms when contracts are silent on a particular issue Interpreting terms: terms there were expressly manifested between the parties
A. FILLING IN GAPS IN ASSENT Courts distinguish between implied-in-fact terms [agreed upon implicitly by parties] and implied-in-law terms [imposed on parties without their consent]. The Restatement, instead, speaks of courts supplying terms. There are two types of judicially supplied gap-fillers 1. Default rules: legal rules that parties can avoid or vary by means of an express clause that differs from the terms a court will otherwise supply by default. 2. Immutable rules: maynto be varied by consent and will override any express clause to the contrary. Since courts were traditionally and somewhat still are reluctant to fill gaps in parties agreements, question arises as to whether this incomplete manifestation if sufficient to warrant legal enforcement. Cases thus discuss: (1) When a manifestation of assent is sufficient to justify concluding that a legally enforceable contract exists. (2) How to interpret the assent that has been manifested. 1. Agreements to Argue Sun Printing & Publishing Assn v. Remington Paper & Power Co. (p. 422) newsprint FACTS: Sun (P) and Remington (D) agreement for D to sell P 16,000 tons of paper between September 1919 and December 1920 [1,000 tons per month]. First four months of the agreement had price determined by D, and subsequent months had contract call for the parties to decide price, but not to exceed price charged by Canadian Export Paper Company to its large customers. Length of time that price would hold was to be determined by parties as well. After first four months, D refused to deliver paper to P, claiming contract was incomplete there was no longer an established price or length of time for price. P sued for damages resulting from Ds refusal to deliver. ISSUE: Is a contract invalid due to incompleteness if the agreement does not establish the length of time the terms of the agreement, such as the price, will apply. HOLDING/RULE: Yes. Both the price and the length of time that price shall pertain are essential parts of this contract. Neither exists after the first four months of this contract, and so it should then be invalid. Court concedes that it can be reasoned that if only price was left open, then the P could be the holder of an option. However, length of time invalidates this theory. Also, court acknowledges argument that maximum standard for price is set by Canadian Export Paper provision in contract; however, court makes assumption that the market will fluctuate this price over time, leaving the D on a day to day whim of the market. Restatement (Second) of Contracts 34. Certainty and Choice of Terms; Effect of Performance or Reliance (p.427) 1. The terms of a contract may be reasonably certain even thought it empowers one or both parties to make a selection of terms in the course of performance. 2. Past performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed. 3. Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed. 204. Supplying an Omitted Essential Term (p.428): When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court. Texaco v. Pennzoil (p.428)
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2. ILLUSORY PROMISES A promise is illusory if it leaves complete discretion to perform or not in the hands of the purported promissory Courts usually fill gaps in the manifestation of assent by supplying an obligation to exercise the discretion in good faith. requirements contract - an agreement pursuant to which one party agrees to purchase all his required goods or services from the other party exclusively for a specified time period. New York Central Iron Works Co. v. United States Radiator Co. (p. 429) radiators in high demand FACTS: U.S. Radiator Co. (D) contended that a requirements contract it had entered into with New York Central Iron Works Co. (P) should not be enforced because Centrals (P) need supplies proved much greater than the parties had anticipated. CONCISE RULE OF LAW: A buyer in a requirements contract may enforce the contract even if its requirements increase beyond the parties contemplation. So long as the buyers needs are genuine and he is not merely speculating in the material, the contract is enforceable. [cant carry inventory] RULE A buyer in a requirements contract may enforce the contract even if its requirements increase beyond the parties contemplation. So long as the buyers needs are genuine and he is not merely speculating in the material, the contract is enforceable. [cant carry inventory] good faith and fair dealing would limit the quantity a buyer could demand. contract cant be used for the purpose of speculation. For to win needed to show that orders exceeded needs and werent justified not pleaded in the case. could show how much needed by by not letting store or sell to competitors. NOTES: According to the court, good faith and fair dealing would limit the quantity a buyer could demand. That is, the contract cannot be used for the purpose of speculation. What would defendant have to do to win? Show that orders exceeded needs and werent justified this was not pleaded in the case. How would the defendant show how much the plaintiff actually needed? One possibility is to not let them store (might be considered speculation) Another possibility is to not let them sell to competitors.
Eastern Air Lines, Inc. v. Gulf Oil Corp. (p. 431) jet fuel FACTS: Gulf Oil Corp. (D) was to furnish jet fuel to Eastern Air Lines (P) based on an alleged five-year requirements contract. On March 8, 1974, Gulf (D) demanded that Easter (P) meet its demand for a price increase or be shut off from its supply of jet fuel. Eastern (P) filed this complaint for breach of contract and requested a permanent mandatory injunction requiring Gulf (D) to perform the contract in accordance with its terms. Gulf (D) argued that the contract was not a binding requirements contract, was void for lack of mutuality, and commercially impracticable. CONCISE RULE OF LAW: A requirements contract is binding where the purchaser has an operation business. Any complaints regarding lack of mutuality or indefiniteness are easily resolved since the court may determine the volume of goods under the contract by examining objective evidence of the volume of goods required in good faith to operate the specific business. Is the seller obligated to supply what the buyer wants? Is Buyers yes Stated in yes Was Buyers yes
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Demand in Good Faith? No NO No Was Buyers Demand Disproportionate to Past Requirements? NO yes Estimate? Demand Proportionate? No Court will recognize=reasonably prop=contract enforceable NO Buyer happy In graph at right, can contract Around location of green lines YES
YES
market
Seller happy Price Quantity
Wood v Lucy, Lady Duff-Gordon (p. 434) fashion designer
FACTS: Wood (P), in a complicated agreement, received the exclusive right for one year, renewable on a year-to-year basis if not terminated by 90-day notice, to endorse designs with Lucys (D) name and to market all her fashion designs, for which she would receive one-half the profits derived. Lucy (D) broke the contract by placing her endorsement on designs without Woods (P) knowledge. Wood (P) sued for damages for breach of a contract for an exclusive right. Lucy claimed that the agreement lacked the elements of a contract, as Wood (P) allegedly was not bound to do anything. CONCISE RULE OF LAW: while an express promise may be lacking, the whole writing may be instinct with an obligation an implied promise imperfectly expressed so as to form a valid contract. In this case, the promise to pay Lucy (D) half the profits and make monthly accountings was a promise to use reasonable efforts to bring profits and revenues into existence. Sales Contracts: The Uniform Commercial Code 2-306. Output, Requirements and Exclusive Dealings (p.444) 1. A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a state estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. 2. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
B. INTERPRETING ASSENT SUBJECTIVELY OR OBJECTIVELY (Ambiguity&Vagueness) Latent ambiguity - language capable of more than one interpretation that seems clear on its face, but the introduction of extrinsic evidence proves it to have a different meaning. General rule of interpretation in contracts is that where the interpretation of words or conduct is an issue, they should be given an objective interpretation.??? This includes the reasonable person standard that the addressees shoes would put one in, rather than a subjective interpretation. Raffles v. Wichelhaus (p. 396) two ships Peerless carrying cotton FACTS: Raffles (P) contracted to sell cotton to Wichelhaus (D) to be delivered from Bombay at Liverpool on the ship Peerless. Unknown to the parties was the existence of two different ships carrying cotton, each named Peerless arriving at Liverpool from Bombay, but at different times. Wichelhaus (D) expected to get the October delivery while Raffles (P) expected the cotton to be shipped on the Peerless set to sail in December. Wichelhaus (D) refused to accept the later delivery. Raffles (P) sued to get Wichlhaus for breach of contract.
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CONCISE RULE OF LAW: Where neither party knows or has reason to know of the ambiguity or where both know or have reason to know, the ambiguity is given the meaning that each party intended it to have. If different meanings were intended there is no contract if the ambiguity relates to a material term. In this case, there was no meeting of the minds and no binding contract. NOTES: If both parties had been thinking of the December ship, but did not specify so Peerless was still an ambiguous term, would there be a contract? Yes. Under Restatement 201 if parties attach same meaning to contract, then it will be interpreted according to this meaning. If before the agreement was signed Raffles said something so that Wickelhaus understood that maybe Raffles was thinking of the December ship, would there be a contract? Yes, it would put an obligation on Wickelhaus, and the terms would be interpreted according to Raffles understanding under Restatement 201 (2). If the parties attach materially different meanings and neither party had reason to know, is there a contract? No. When no subjective agreement and no unambiguous meaning in the contract, then courts will hold that there is no contract. Oswald v. Allen (pg 407) Swiss coins FACTS: Dr. Oswald (P) negotiated to purchase two sets of rare coins from Mrs. Allen (D), who believed that her Swiss Collection alone was being purchased. Much trauma b/c they didnt speak the same language. CONCISE RULE OF LAW: When any terms used to express an agreement are ambivalent and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the others understanding. HOLDING: Mental assent of the parties is not required for the formation of a contract. There is an exception, however, for cases where there is no sensible way to choose btwn conflicting understandings. In this case P believed that the offer was to buy all the Swiss coins owned by D. D, however, believed that the offer was for the Swiss coins in the Swiss Coin Collection. Since there was no meeting of the minds, there was no contract. Restatement (Second ) of Contracts 200. Interpretation of Promise or Agreement (p. 408) Interpretation of a promise or agreement or a term thereof is the ascertainment of its meaning. 201. Whose Meaning Prevails (p. 409) 1. Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. 2. Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made a. That party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or b. That party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party. 3. Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. 202. Rules in Aid of Interpretation (p. 409) 1. Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight. 2. A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together. 3. Unless a different intention is manifested, a. Where language has a generally prevailing meaning, it is interpreted in accordance with that meaning; b. Technical terms and words of art are given their technical meaning when used in a transaction within their technical field
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4. Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement. Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.
5.
SALES CONTRACTS: THE UNIFORM COMMERCIAL CODE 1-205 Course of Dealing and Usage of Trade (pg 410) (1) A course of dealing is a sequence of previous conduct btwn the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. (3) A course of dealing btwn parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement. (4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. (5) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting as to that part of the performance. (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter. 2-208. Course of Performance or Practical Construction (1) Where the contract for sales involves repeated occasions for performance by either party with knowledge of the nature of the performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever possible as consistent with each other; but when such construction is unreasonable, express terms shall control both course of dealing and usage of trade. (3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance. Vague Terms Weinburg v Edelstein (pg 411) dress seller FACTS: Weinburg (P) leased a store and contracted not to sell ladies dresses, coats or suits. (He was allowed to sell blouses, skirts, underwear) When he started selling matching skirts and shirts, P sued saying he violated. 5 Types of evidence to consider when interpreting contract terms: CONSICE RULE OF LAW: A restrictive covenant is construed strictly against the person seeking its enforcement when the intent of the restriction is not clear. Words of the contract 1. HOLDING: There has 2. Course oftrend from sportswear houses, beginning before the present leases were entered into, which been a recent negotiations 3. Course of performance P could sell ladies dresses, coats and sports clothes. D was prohibited form resulted in the manufacture of coordinates. Since UCC 2-208: Where the contract for sale involved repeated occasions for performance by either selling those items. D was not selling dresses in violation of the restrictive covenant; he was selling skirts and blouses party any course of performance accepted to acquiesced in without objection shall be relevant to originating in determine the meaning of the agreement. the sportswear industry.
4. Course of dealing UCC 1-205: A course of dealing is a sequence of pervious conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. 5. Usage of trade. 1-205: A usage of trade is any practice or method for dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.
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Whats been agreed Adhesion Ks Carnival Cruise Lines v. Shute (p. 445) forum selection clause Facts: Shutes went on a cruise. On the ticket, there was a forum selection clause that said any litigation related to the cruise must be tried in Florida. They departed for their cruise from Los Angeles and the ship sailed to Mexico and back to Los Angeles. Mrs. Shute slipped on the ship and hurt herself. The Shutes sued in Washington and Carnival moved for summary judgment due to the forum selection clause. At trial, the Shutes conceded that they had notice of the forum selection clause. Procedural Posture: The suit was first brought in the Western District of Washington. The Ninth Circuit refused to enforce the clause, and the cruise line appealed to the United States Supreme Court. Issue: Is the forum selection clause enforceable? Rule: Courts have the responsibility to determine whether forum selection clauses in form passage contracts are fair. Analysis: The Court says that the ticket contract was a routine commercial passage contract. It was not negotiated, and the parties did not have equal bargaining power. The Court enumerates several good reasons for a forum selection clause in a cruise ticket contract: 1. 2. 3. A cruise will have passengers from all over the country, and absent a forum selection clause, the cruise company could be subject to suit in all sorts of places. A forum selection clause eliminates uncertainty about the forum and avoids costly pretrial motions. Forum selection clauses mean lower fares for passengers because the cruise company passes along savings from limiting the forums where the company must defend itself.
The Court says that the key question is whether the clause is fair. In evaluating the fairness of such clauses, the Court must consider whether Carnival was, in bad faith, discouraging legitimate claims from its passengers. The Court says that because Carnival does business primarily in Florida and has a lot of cruises that depart from Florida, they didnt include the clause in bad faith. Stevens, in his dissent, refers to two strands of contract law that come into play in this case 1. Courts look closer at contracts made between parties with unequal bargaining power, especially take it or leave it contracts. 2. At least in the past, forum selection clauses have been found to be counter to public policy. In particular, they are not enforced if they (1) were not freely bargained for, (2) create additional expense for one party, or (3) deny one party a remedy.
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Notes and Problems 1. a. b. It is most likely that the suit would either be brought in Florida or Washington. In Florida, there would be no problem. Florida courts have general jurisdiction over Carnival because thats their principal place of business. Thus, any federal court located in Florida would have personal jurisdiction over Carnival. In Washington, however, Carnival would try to argue that it doesnt have sufficient minimum contacts. If Carnival only solicits business through travel agents and doesnt have TV commercials then they might have a case for no jurisdiction in Washington. So theres a contract law issue. So theres a public policy issue. The majority spends more time on the enforceability issue. They argue that the contract clause is enforceable even though the passengers were not allowed to negotiate it. The court gives three reasons why this is acceptable: (1) the diversity of Carnivals passengers could subject them to suit in a variety of jurisdictions; (2) a forum selection clause reduces the uncertainty, time and money involved in determining a forum; and (3) forum selection clauses have benefits for Carnival that they pass along to their customers as lower fares. The majority implies that they would not enforce a forum selection clause that is intended to discourag[e] cruise passengers from pursuing legitimate claims. They also would not enforce a forum selection clause that was obtained by fraud or overreaching.
2. a. b. c.
d.
3. a. A forum selection clause will only help in cases that involve a contractual relationship. Conclusion: The forum selection clause is enforceable.
VI. WRITTEN MANIFESTATIONS OF ASSENT A. INTERPRETING A WRITING THE PAROL EVIDENCE RULE Thompson v Libby (pg 488) Log Person FACTS: Thompson (P) owned a quantity of logs marked HCA. These logs were cut in the winters of 1882 and 1883 and lying in the Mississippi river. P and D entered into a written agreement that these logs would be sold to D for $10 per 1,000 feet. D refused to pay after he determined the logs were of poor quality. P brought suit for purchase price. At trial, D argued that there was a warrenty made at the time of the sales on the quality of the logs that was not contained in the written agreement. The TC admitted oral testimony to prove the warrenty over Ps objection. Ps request for a new trial was refused. CONCISE RULE OF LAW: Parol contemporaneous evidence is inadmissible to contradict or vary the terms of a valid written instrument. HOLDING: When writing is incomplete, then parol evidence may be admitted to prove the omitted part. However a party may not use parol ev using oral testimony to show that part of the agreement was in writing and then use parol ev to prove the omitted part. If on its face, the writing purports to be a complete expression of the entire afreement, then it is presumed that every material issue and term has been introduced and no parol ev will be admitted even when the writing is silent as to the term. Thus in this case parol ev of warrenty shouldnt have been admitted. Brown v Oliver (pg 489) hotel furniture FACTS: Brown (P) bought land from Oliver (D) which had a hotel on it. Possession of the hotel and its furniture was surrounded by D. 2 yrs later D was assigned a lease of the hotel and occupied it. P notifed D to quit the land, D removed the furniture at night. The original contract for the sale of the land made no mention of personal property. P contended D had verbally agreed to sell the furniture. D argued unsuccessfully that the parol ev rule applied, preventing the admissibility of the ev on the sale of the furniture. The court ordered the furnitures return to P.
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CONCISE RULE OF LAW: Parol ev that bears upon the question of the intent of the parties to integrate their transaction into a writing may be admitted when the writing does not conclusively establish the intent HOLDING: In deciding intent, the key is deciding whether or not the specific element of the alleged extrinsic negotiation is dealt with at all in the writing. In this case furniture was not mentioned at all. Therefore it was necessary to allow parol ev and give the final decision to the jury to determine whether the furniture was sold as part of the land sale. Restatement (Second ) of Contracts 209. Integrated agreements (p.492) (1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement (2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or application of the parol ev rule (3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other ev that the writing did not constitute a final expression 210. Completely and Partially Integrated Agreements (1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of agreement. (2) A partially integrated agreement is an integrated agreement other than a complete integrated agreement (3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application or the parol ev rule. 213. Effect of Integrated Agreement on Prior Agreements (Parol Ev Rule) (1) A binding integrated agreement discharges prior agreements to the extent it is inconsistent with them (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. (3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not be integrated. 214. Evidence of Prior or contemporaneous Agreements and Negotiations Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish (a) that the writing is or is not an intergrated agreement; (b) that the integrated agreement, if any, is completely or partially integrated the meaning of the writing, whether or not integrated; (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; (e) ground for granting or denying rescission, reformation, specific performance, or other remedy. 216. Consistent additional terms (p.493) (1) Ev of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated. (2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is (a) agreed to for separate consideration, or (b) such a term as in the circumstances might naturally be omitted form the writing UCC 2-202 Final Written Expression: Parol or extrinsic evidence (p.493) Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intemded by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
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(a) by course of dealing or usage of trade or by course of performance; and (b) by ev of consistant additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement Pacific Gas and Electric Co. v. G. W. Thomas Drayage&Rigging Co. (p.494) damaged turbine Facts: Pl-P. G & E, entered into a contract with Df Drayage, Df would furnish the labor and equipment to remove and replace the upper metal cover of the plaintiffs steam turbine. During the work the cover fell and injured the exposed rotor of the turbine. The cost of repair was $25,144.51. Df agreed to perform the work at its own risk and expense AND to indemnify PL against all loss, damage resulting from injury to property arising out of or connected with the performance. The trial ct found that the language used was classic language for a 3rd party indemnity provision AND one could very easily conclude its intent is to indemnify 3rd parties, it nevertheless held the plain language of the agreement also required df to indemnify pl for injuries to pl property. Issue: Whether extrinsic evidence may be used to explain the meaning of the written instruments language? Holding: Yes Procedure: Trial ct ruled in favor of pl and did not allow evidence to prove dfs case, reversed. Rule(s): If a court decides, after considering extrinsic evidence, that the language of a contract, in the light of the circumstances, is fairly susceptible of either one of the two interpretations contended for, then extrinsic evidence relevant to prove either of such meanings is admissible. Court Rationale: Offered extrinsic evidence is relevant to prove a meaning to which the language is reasonably susceptible. Limiting the determination of the meaning of a written instrument to its four corners b/c it seems to the court to be clear and unambiguous, would either deny the relevance of the intentions of the parties or presuppose a degree of verbal precision and stability our language has not attained. Exclusion of parol evidence b/c the words do not appear ambiguous to the reader can easily lead to the attribution to a written instrument of a meaning that was never intended. Rational interpretation requires at least a preliminary consideration of all credible evidence offered to prove the intention of the parties. Refusing to consider evidence offered to show that the indemnity clause in the contract was not intended to cover injuries to plaintiffs property was erroneous. The evidence was admissible to prove that the clause was reasonably susceptible of the meaning contended by the df and did not cover pls property. Plaintiffs Argument: The language of the contract plainly included a third party indemnity provision and through the cross liability clause extended coverage to the pls property. Defendants Argument: Pls agents, and dfs conduct under similar contracts entered into with Pl prove that the indemnity clause was meant to cover injury to property of third parties only, and not PLs property. Extrinsic evidence includes evidence of usage of a trade, course of dealing, or a course of performance. Trident Center v. Connecticut General Life Ins. Co (p.497) office complex Facts:P borrowed 56.5 million from D for construction of an office building; terms were $56.5 at 12.25% interest for a term of 15 years, and in the case of default in years 1-12, D has the option of accelerating the note and adding 1 10% prepay fee; contract stated that P could not (were not allowed) prepay the principal for the first 12 years; the K was entered into in 1983 when this rate was reasonable; in 1987, this rate compared very unfavorably; P started looking for way of refinancing the loan to take advantage of the lower rates and the D was unwilling to oblige, insisting that loan could not be pre-paid for the first 12 years; P claims that the K language did not accurately reflect the parties intentions, and that they are entitled to prepay the loan immediately, subject to the 10% fee. P/S: District court dismissed Ps claim and sanctioned P for filling a frivolous lawsuit Issue: Whether P can introduce extrinsic evidence to determine the parties intention behind the prepay terms. Holding: The P must be given an opportunity to present extrinsic evidence as to the intention of the parties in drafting the K; REVERSED, for P. REMANDED for further proceedings to allow P to introduce evidence Rule: If one side is willing to claim that the parties intended one thing but the agreement provides for another, the court must consider extrinsic evidence of possible ambiguity. (Pacific Gas)
i.
Comparing Pacific Gas (Traynor) and Trident (Kozinski)
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a.
Traynor says, in effect, words dont have objective meanings (here: whether an indemnity clause covered only 3d party property or also s property) and extrinsic evidence should be allowed on what the parties intended b. Kozinski ridicules Traynor for opening the flood gates: must allow objective meanings to prevail, otherwise no contract is safe and parties cant move forward in peace c. Kozinskis case (where they wanted prepayment not allowed to be overturned) was actually much easier, for his argument. Doesnt give enough credence to the challenge faced by the court with property in Pacific Gas d. Kozinski does admit that certain terms of art may require interpretation beyond plain meaning
e.
.
Can get around confusion with heres what we mean by this term language
B. Interpreting Conflicting Writings The Battle of the Forms Restatement (Second ) of Contracts 155. When Mistake of both Parties as to Written Expression Justifies Reformation (p. 509) Where a writing that evidences or embodies an agreement in whole or in part fails to express the agreement because of a mistake of both parties as to the contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement, except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected. battle of the forms when each party sends the other its form and these forms contain different or conflicting terms mirror image rule An offer of a bargain by one person to another imposes no obligation upon the former, unless it is accepted by the latter according to the terms on which the offer was made. Any qualification of or departure from those terms invalidates the offer, unless the same is agreed to by the party who made it. parol ev all ev that comes from outside actual contract, like parties conversation.
Should Parol ev be admitted?
Is written agreement intended to be final?
Yes
Is final agreement complete and exclusive?
yes
Extrinsic ev that is Inconsistent will Not be allowed
No Extrinsic ev will be admissible
no Can bring in consistant ev to show additional terms
Travelers Ins. V. Bailey (p.507) mistaken ins. Policy Facts: The plaintiff insurance company sold a life insurance policy with annuity provisions to the defendant. The policy was to provided for an annuity at age 65 for $500 a year for the balance of his life, ten years certain, with only a $40.90 semi-annual premium. There was a mistake on the form used to display the terms of the contract, and instead the policy produced an annuity obligation to pay $500 a month for life, one hundred months certain. The plaintiff never had such a policy, and would never have offered such a ridiculous bargain to the defendant. Procedural History: The plaintiff sought to change the contract, but the defendant claimed it was plaintiffs own negligence and the contract should not be changed. Trial court judgment for the plaintiff to change the contract. Issues: Whether a plain written contract can be changed when there is definite evidence of a mistake in the written terms as opposed to the actual agreed terms.
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Holding:Judgment affirmed.Where there has been established beyond a reasonable doubt a specific contractual agreement between parties, and a subsequent error in the written terms of the agreement, the contract is subject to reformation if no party will be unfairly affected by the reformation SALES CONTRACTS: THE UNIFORM COMMERCIAL CODE 2-207. Additional Terms in Acceptance or Confirmation 1. A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: a. The offer expressly limits acceptance to the terms of the offer; b. They materially alter it; or c. Notification of objections to them has already been given or is given within a reasonable time after notice of them is received. Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provision of this Act.
2.
3.
2-316. Exclusion or Modification of Warranties 1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it state, for example, that There are no warranties which extend beyond the description on the face hereof.
2.
Signature What is a signature? UCC 2-201 requires a writing that is signed by the party against whom enforcement is sought or by his authorized agent or broker. Consider Fax machines, emails, etc.
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How to Interpret? Do A + B attach the same meaning subjectively? (Look to contract words) yes yes There is a contract Enforceable with Bs meaning yes Contracts objective meaning enforces Party whose subjective meaning matched Objective will prevail. Does A know or no have reason to know the meaning B has attached a particular meaning to the term?
no
Can objective meaning be No agreement determined? (Look no to course of Only seemed

To be mutual assent
VII. The Doctrine of Consideration (Chapter 9) CHAPTER 9 THE DOCTRINE OF CONSIDERATION (p.615) Promises and contracts lacking consideration are unenforceable unless the doctrine of promissory estoppel applies. Consideration- looks to see if a promise has been bargained for consists of promisors benefit or promisees detriment. Look for if a party seems to be getting something for nothing, then youll have a consideration problem. Definition: something of value, such as an act or forebearance, received from a promisuer from a promisee In plain English: the thing that motivates a promise. (Like what youre gonna get) ex. Talking boy offers to give Nodding boy his book in exchange for $5. Talking Boys consideration is $5. Nodding boys is the book. Examples: Ill take your child to the park. No consideration. Consideration can consist of either promisors benefit or promisees detriment BARGAIN THEORY OF CONSIDERATION This is the excepted theory today. Consideration is treated as equivalent to a bargain. A bargain is an exchange of promises, or acts, or both, in which each party views what he gives as the price of what he gets. Failure of consideration: Occurs when X and Y make mutual promises, resulting in consideration, but X and then Y each break their promise, resulting in a failure of consideration, even in an agreement that has been sealed. At one point, there was a valid contract. Want of consideration: This is the lack of consideration resulting in an invalid contract, such a contract with no condieration and seal. There never was a valid contract. A. B. C. D. A contract is an enforceable promise (1, 2); With some exceptions 17(2) to be enforceable a promise must be supported by consideration17(1) A promise is supported by consideration if it is bargained for (71(1)) A promise is bargained for Iif it is sught by the promisor in the exchange for his promise and is given by the promisee in exchange for that promise.(71(2))
17 requires consideration and 71 defines consideration in terms of a bargain (p.618) R2d. 71. Requirement of Exchange; Types of Exchange
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(1) To constitute consideration, a performance or a return promise must be bargained for. (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation. (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person. COMMENTS: (1) Consideration has many meanings including the conditions were met under which an action of assumpsit would lie. Synonym of quid pro quo. (2) Bargained for In the typical bargain, the consideratuion and the promise bear a reciprocal relation of motive or inducement: the consideration induces the making of the promise and the promise induces the furnishing of consideration. Note: Use the BURDEN ON THE COURTS argument if ur stuck with analyzing consideration 1. DISTINGUISHING CONSIDERATION FROM GRATUITOUS PROMISES Johnson v. Otterbein Univ. (p 620) college gift difference between a conditioned gift and bargain for exchange D, Johnson, sent letter to , University, promising to give the university $100 in three years to help pay off its debt. D never paid. HOLDING: Court finds for , as the promise to donate amounted to no more than a gift, which lacks consideration and is thus unenforceable. A promise to make a gift can thus be revocable at any time. Court was looking for something that would either hurt the institution or benefit Johnson. It notes that the application of the payment to the debt is neither an act of advantage to Johnson, nor to the detriment of Uni. No bargain in University using money to pay off its debt. 12 years later same issue came up, but court reversed and looked at the Unis RELIANCE on promise Courts are now generally reluctant to find lack of consideration in chartitable cases.
1. Distinguishing Bargains from Gratuitous Promises Consideration- consists of promisors benefit or promises detriment. Look for if a party seems to be getting something for nothing, then youll have a consideration problem. In plain English: the thing that motivates a promise. (Like what youre gonna get) For ex. Talking boy offers to give Nodding boy his book in exchange for $5. Talking Boys consideration is $5. Nodding boys is the book. Hamer v Sidway (pg 622) wayward nephew FACTS: Story promised his nephew in front of witnesses that he would give him $5,000 if he refrained from smoking, drinking, swearing and gambling until he was 21. Nephew agreed and spent note after he was 21. Uncle sent note back saying he had the money in the bank for his nephew and died before giving it to him. RULE OF LAW: A waiver of a legal right at the request of another party may serve as sufficient consideration for a promise. HOLDING: A valuable consideration may consist of some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other party. Consideration doesnt mean that one party is profiting when the other party abandons some legal right or limits his freedom of action. Instead consideration is the inducement of the promise. In this case the nephew gave up his legal right to use tobacco, drink, etc on the strength of the promise that Story would give him $5,000. It is sufficient that the nephew restricted his lawful freedom of action within the agreed limits. Restatement (Second) of Contracts
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24. Offer Defined a. Proposal of Contingent Gift. A proposal of a gift is not an offer within the present definition; there must be an element of exchange. Whether or not a proposal is a promise, it is not an offer unless it specifies a promise or performance by the offeree as the price or consideration to be given by him. It is not enough that there is a promise performable on a certain contingency. Example: A promises B $100 if B goes to college. If the circumstances give B reason to know A is not undertaking to pay B to go to college but is promising a gratuity, there is no offer. 71. Requirement of Exchange; Types of Exchange (1) To constitute consideration, a performance or a return promise must be bargained for. (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of (d) an act other than a promise, or (e) a forbearance, or (f) the creation, modification, or destruction of a legal relation. (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person. COMMENTS: (1) Consideration has many meanings including the conditions were met under which an action of assumpsit would lie. Synonym of quid pro quo. (2) Bargained for In the typical bargain, the consideration and the promise bear a reciprocal relation of motive or inducement: the consideration induces the making of the promise and the promise induces the furnishing of consideration. 81. Consideration as motive or inducing cause (1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise (2) THe fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise. COMMENTS: (1) Bargained for: Consideration requires that a performance be bargained for in exchanged for a promise. Must be manifested intent (2) Immateriality of Motive or Cause: Subjective irrelevant. May have more than one cause. HYPO: Johnny says to his uncle I want to buy a car. Uncle says, Ill give you $1000. Johnny buys the car for $500. Uncle refuses to pay. Use section 90 to award damages. Johnny would get full $1000 in damages. It is either binding or not. Enforcement at full value (based on 90) regardless if the reliance was at a lower level. 2. PAST CONSIDERATION Discussion: HYPO: Walking down street w/ $100 in my pocket.Yell to Joe, hey hottie if you cross the street, Ill give you $100. Joe comes over. Not a deal. A conditioned girft HYPO: Met me in front of Tiffanys tomorrow and Ill buy you a bracelet. conditioned gift Unless if she doesnt want to meet him, like maybe its her estranged father, but for the bracelet she would, then it is a bargain.
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HYPO: Dad gives son $1000 for a pair of shoes. Consideratio Yes, even with huge dispairity. Doesnt change even if Dad meant it as a gift regardless if he ever got the shoes. Manifest intention to induce and be induced [to make a deal] HYPO: Madison doesnt smoke and doesnt want to. Rents say give her $500 if she doesnt until shes 21. Consideration YES, giving up legal freedom. What if they said 18 instead of 21? Then b/c it is illegal to smoke, she gives up no legal freedom, then no money no consideration no cookies for Madison. CONDITIONED GIFTS ARE REVOCABLE!!! 3. MORAL CONSIDERATION A preexisting moral obligation to perform a particular act was considered to be a good reason for enforcing an express commitment to do so. Classical natural theorists distinguished between two types of moral rights: Perfect rights: legally enforceable Imperfect rights: dependent on situation alone Mills v. Wyman (pp. 640) sick son (we did not read) FACTS: Levi Wyman, 25 year old who had severed relations with his family, was taken in by Mills after Levi Wymans long voyage at sea had left him ill. Levi Wyman died and one of his parents, the plaintiff, wrote Mills a letter stating that he/she would pay for the relative expenses. However, Wyman (P) later refused to provide payment. Mills brought suit but judge rendered a nonsuit due to insufficient evidence. Mills appealed. RULE: The general position that moral obligation is sufficient consideration for an express promise is limited to cases where good or valuable consideration previously existed. HOLDING/RATIONALE: Only express promised founded on pre-existing equitable obligations (debts of infants, bankrupts) maybe enforced. Here, Wyman did not request the bestowed care to his adult son. By transient feelings of gratitude, not legal consideration, did Wyman promise to pay for the expenses incurred. There was no bargain. Affirmed. [Note: there is no consensus as to what constitutes a moral obligation. Courts must differentiate between those promised left to an individuals consciousness and those requiring equity in law.] Webb v. McGowin (pp. 649) you save my life, I got your back (we did not read) FACTS: Webb saved McGowins life in an accident that left Webb crippled for life. In consideration, McGowin agreed to care and maintain Webb for the rest of his life. McGowin died and payments stopped, so Webb brought suit against McGowins estate. Lower court rules a non suit due to lack of consideration under the Statute of Frauds. Webb appeals on grounds that agreement was an enforceable express contract. RULE: A moral obligation is sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit for which be subsequently and expressly promised to pay. HOLDING/RATIONALE: Yes, moral obligation is sufficient in this situation. McGowin received the material benefit of his life being saved, and this suffices as consideration for his promise to pay. Benefit to the promisor or injury to the promisee is a sufficient legal consideration for the promisors agreement to pay. Life has pecuniary value and services rendered in saving life can be quantified. Courts will avoid enforcing contracts where there is no quantifiable measure for services rendered. Reversed and remanded. Webb v. McGowin (pp. 652) (woodblock sacrifice) (we did not read) FACTS: While working at a lumber yard, Webb was dropping a 75 lb. Pine block from a higher to lower floor. As the block was to fall, Webb noticed McGowin standing as to get hit, so he jumped with the block to avoid McGowins injury and causing himself to be crippled, also rendering him incapable of mental or physical labor. McGowin promised to pay $15 every two weeks for the rest of Webbs life. Payments went on for 8 years until McGowin passed.
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DECISION: Denied because it was well settled that a moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit. If benefit is material and substantial and was to the promisor not his estate, he has the privilege of recognizing and compensating for it. NOTE: In most cases, courts where moral obligation is asserted, courts wont enforce promise as morality is uncertain territory. They chose to reply on rule that moral obligation is not a sufficient consideration, majority Mills rule. However, if material benefit to promisor exists, sometimes they will refer to the minority Webb rule. Restatement 86: Promise for Benefit Received (p.655) (c) A promise made in recognition for a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. (d) A promise is not binding under (1) a. if the promiseee conferred the benefit as a gift or for the other reasons the promisor has not been unjustly enriched; OR b. to the extent that its value is disproportionate to the benefit. QUASI CONTRACT 3 General Requirements D has to have known about benefit it would be unjust to retain the benefit without paying for it. D. Contract Modification and the PreExisting Duty Rule We now focus on attempts by parties to modify contracts during the performance stage of the contract. Is a promise to modify a preexisting contractual relationship enforceable? Stilk v. Myrick (pp. 656) seaman gets told mo work isnt mo money if he gotta get the job done anyway. FACTS: Myrick, Captain of a ship, is unable to find replacements for two crew members deserting him. Myrick thus agreed to divide the two crew members pay if Stick and the rest of the crew would finish up the trip shorthanded. Myrick later refused to pay additional wages and Stick sued. RULE: Modifications of employment contracts which are occasioned by emergency or duress are unenforceable. HOLDING/DECISION: Myrick cannot be held to pay additional wages. Where the crew members signed on to a voyage to complete it, there is no consideration for an oral agreement to pay additional wages for performing, under emergency conditions, the duties already required of them. This case may have been decided differently if the crew members could have left the voyage at any port or if the deserters had been purposefully let go to save wages. This was not the situation in this case. Judgment for Myrick.
1. 2.
D has to have received a benefit
Brian Construction and Development Co v. Brighenti (pp. 666) excavation subcontract FACTS: Bennett contracted to build post office and assigned contract to Brian (P), who subcontracted with Brighenti (D). Defendant agreed to provide all the foundation work for the building as well as everything requisite and necessary to finish the entire work properly. He was to receive $104, 326 in return for this work. Defendant discovered remains of another building at site, he wants additional compensation so parties agreed that this would be considerably more work, so they contract for new terms with Defendant getting extra cost plus 10%. Defendant worked for several days then quit. Brian completed work on his own incurring large damages. Trial Court found for Defendant claiming no support for consideration. RULE: Where unforeseen circumstances make the performance of a contract unduly burdensome, and the parties agree in view of the changed conditions to an adjustment in price, a new contract supported by consideration is formed. HOLDING/RATIONALE: It is an accepted principle that when a party agrees to perform an obligation which he is already obligated to perform, albeit for a different price, the second agreement does not constitute a valid contract. HOWEVER, the doctrine of unforeseen circumstances provides an exception to that general rule. So, under unforeseen circumstances result in the performance of the
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contract being unduly burdensome, the parties may agree, in view of circumstances to adjust price, and the new agreement is a valid binding contract. In this case, adiditonal rubble was clearly unanticipated, therefore, Brians agreement to pay Brighenti more constituted new contract and Brighentis failure to carry out its terms is a breach. REVERSED. Restatement 89. Modification of Executory Contract (p. 670) A promise modifying a duty under a contract not fully performed on either side is binding (c) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; OR (d) to the extent provided by statute; OR (e) to the extent that justice requires enforcement in view of the material change of position in reliance on the promise. Sales Contract: The UCC 2-209 Modification, Recession, and Waiver i. An agreement modifying a contract within this Article needs no consideration to be binding. . . Official Comment: Purposes of Changes and New Matter States that modifications made thereunder Subsection (1) must meet the test of good faith imposed by this Act. This includes observance of reasonable standards of fair dealing in the trade. (2-103). NOTES: this Article = Article on sale of goods Squib: US v. Stump Home Specialties, Manufacturing (p.671) The requirement of consideration has a distinct function in the modification setting although one it does not perform well and that is to prevent coercive measures. Law does not require consideration to be adequate - Slight consideration is acceptable, though also coercive. The sensible course to take is to enforce contract modifications regardless of consideration and rely on defense of duress to prevent abuse. All coercive modifications would then be unenforceable, and there would be no need to worry about consideration, an inadequate safeguard against duress. . . Will Modifications be Accepted?
Have Original Contract
No
Additional No Consideration?
Yes
Breach is a meeting of No accepted the minds (coersion, etc)

Yes
Mods not (Alaska)
Will be Recognized (Brian) E. Adequacy of Consideration
Some Cts recognize renegotiated contract
Newman&Snells State Bank v. Hunter (p674) bankrupts IOU (I owe u) P (widow) sued on a promissory note she gave to bank in return for her husband's note to bank for $3700. Husband was insolvent at his death. Held for . Exchange of worthless note for 's note was no basis for consideration. Court felt it was unreasonable for bank to get this kind of windfall. Widow gave only nominal consideration, in an impulsive frame of mind, courts are unlikely to enforce manifestly unfair agreements like this. THE INTENTION TO BE LEGALLY BOUND (CHAPTER 10) (WE DID NOT READ) P. 681 The concept of intention to create legal relations can potentially be applied in two ways:
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1. 2.
The presence of a manifested intention to be legally bound can justify the enforcement of commitments that lack either bargained-for consideration or detrimental reliance. The absence of such a manifestation or a manifested intention not to be legally bound might prevent the enforcement of even bargained-for commitments or those that have induced reliance.
Restatement (Second) of Contracts 21. Intention to be Legally Bound (p. 712) Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract. A. USING FORMALITIES TO MANIFEST AN INTENTION TO BE LEGALLY BOUND The Uniform Commercial Code 2-205. Firm Offers An offer by a merchant to buy or sell goods in signed writing which by its terms gives assurances that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such a period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. Formalities
1. 2. 3. 4.
Evidentiary function Compliance with formalities provides reliable evidence that a given transaction took place. Cautionary function The ceremony was imposing and there was ample opportunity to reflect and deliberate on the wisdom of the act. Therefore, the document can be accepted by the legal system as a serious act of volition. Channeling function The populace is made aware that the use of a given device will attain a desire result. When the device is used, the judicial task of determining the parties intentions will be facilitated. Clarification function When the parties reduce their transaction to writing they are more likely to work out details not contained in their oral agreement.
I. THE SEAL The traditional view of the seal: it imports consideration in the absence of fraud. The defense of want of consideration is not available in an action on a sealed instrument. Failure of consideration, on the other hand, is a valid defense to a sealed instrument. Want of consideration embraces transaction where none was intended to pass Failure of consideration implies that a valuable consideration, moving from obligee to obligor, was contemplated (consideration contemplated was never received)
Restatement (Second) of Contracts 95. Requirements for Sealed Contract or Written Contract or Instrument (p. 724) 1. In the absence of a statute a promise is binding without consideration if a. It is in writing and sealed; and b. The document containing the promise is delivered; and c. The promisor and promisee are named in the document or so described as to be capable of identification when it is delivered Sales Contracts: The Uniform Commercial Code 2-203. Seals Inoperative (p.724) The affixing of a seal to a writing evidencing a contract for sale or an offer to buy or sell goods does not constitute the writing a sealed instrument and the law with respect to sealed instruments does not apply to such a contract or offer.
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2. NOMINAL CONSIDERATION
Restatement (Second) of Contracts 71. Requirement of Exchange; Types of Exchange (p. 729)
b.
Bargained for. Moreover, a mere pretense of bargain does not suffice, as where there is a false recital of consideration or where the purported consideration is merely nominal. In such cases there is no consideration and the promise is enforceable, if at all, as a promise binding withoug consideration under 82-94. See Comments b and c to 87.
ILLUSTRATION 5. A desires to make a binding promise to give $1000 to his son B. Being advised that a gratuitous promise is not binding, A offers to buy from B for $1000 a book worth less than $1. B accepts the offer knowing that the purchase of the book is a mere pretense. There is no consideration for As promise to pay $1000. 87. Option Contract 1. An offer is binding as an option contract if it a. Is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time.. [paragraph (2) appears in Chapter 11.]
3. RECITALS
CONCISE RULE OF LAW: The recital of a one dollar consideration for an option contract gives rise to an implied promise to pay which can be enforced by the other party.
VIII. THE PROMISSORY ESTOPPEL (CHAPTER 11) (P.721)

I THINK OF IT AS A DEFENSE TO A CLAIM FOR NO CONTRACT BECAUSE OF LACK OF CONSIDERATION, NO MUTUALLY OF OBLIGATION, ETC. KATHRYN H SMITH: IN OTHER WORDS, EVEN IF THE PARTY CAN CLAIM THAT TECHNICALLY THERE WAS NO CONTRACT, HE IS STOPPED THE ARGUMENT BECAUSE THE PARTY TOOK AN ACT IN RELIANCE ON THE PROMISE TO HIS DETRIMENT KATHRYN H SMITH: YOU SEE IT ALOT IN ESTATE CASES. SOMEONE DIES AND HE PROMISED HIS NURSE/GIRLFRIEND HEIRS CLAIM THERE IS NO CONTRACT. STAYED ON AND TOOK CARE OF HIM. KATHRYN H SMITH: OF COURSE, THERE'S PROBABLY A STATUE OF FRAUDS ISSUE THERE TOO. EVILSHANI: MUST BE IN WRITING IF
("ESTOPPED") FROM PRESENTING
$100,000 IF SHE TAKES CARE OF HIM. THEN THE
YOU COULD ARGUE THAT THEY ARE ESTOPPED FROM PRESENTING THE ARGUMENT BECAUSE OF HER ACTS IN RELIANCE, I.E., SHE
>$500, PERFORMANCE TAKES >1 YEAR, LAND DEAL...
EVILSHANI: IF NOT IN WRITING NOT ENFORCIBLE EVILSHANI: BUT THEN WHAT IF SOMEONE RELIED?
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KATHRYN H SMITH: YEAH, THINK OF IT AS A RULE YOU WOULD PUT IN TO MAKE SURE NO ONE COULD CHEAT YOU OR DEFRAUD YOU.
FOR EXAMPLE, I WANT YOU TO WORK
- AFTER THAT I'LL PAY YOU $1,000,000. WOULDN'T YOU WANT THAT IN WRITING? EVILSHANI: YES. BUT WOULD I ENFORCE IT IF IT WASN'T IN WRITING?
FOR ME FOR ONE YEAR KATHRYN H SMITH: IF ONE THE OTHER HAND, YOU ARE BABYSITTING AND WILL GET
$50 AT THE END OF THE NIGHT YOU PROBABLY DON'T NEED IT IN WRITING. THE
TIMING FOR PAYMENT IS SO CLOSE TO PERFORMANCE THAT YOU'RE NOT AS AFRAID THAT SOMEON WILL RENEGE ON THE DEAL EVILSHANI:
BUT FOR YOUR WORK EXAMPLE. THE PERSON RELIED AND WORKED A WHOLE YEAR. IF YOU WON'T PAY, SHOULDN'T THE COURT MAKE THEM PAY, EVEN IF IT $1M ISSUE. SEE I WOULD ARGUE THAT THERE WAS NO CONTRACT. I WOULD SY YOU COULDN'T COLLECT BECAUSE OF THE STATUTE
WASN'T IN WRITING? KATHRYN H SMITH: BACK TO MY OF FRAUDS
- NO WRITING I RELIED TO MY DETRIMENT? - YOU ACTED IN RELIANCE ON MY PROMISE AND I SHOULD BE ESTOPPED FROM ARGUING
EVILSHANI: EVEN IF
KATHRYN H SMITH: THEN YOU WOULD COUNTERARGUE THAT IT DOESN'T MATTER
STATUTE OF FRAUDS, I.E., PROMISSORY ESTOPPEL PROHIBITS ME FROM MAKING MY ARGUMENT.
A. THE DEVELOPMENT OF PROMISSORY ESTOPPEL AS A SUBSTITUTE FOR CONSIDERATION It is commonly assumed that the principle underlying promissory estoppel is compensation for detrimental reliance. I. FAMILY PROMISES Ricketts v. Scothorn (pg 723) working granddaughter quits work FACTS: Katie Scothorn (P) was working as a bookkeeper when her grandfather Ricketts visited her at work and gave her a note promising to pay her $2000 at 6% interest per year. He told her that none of his grandchildren had to work and neither should she. Her right to the money was not conditioned on her not working or on anything else. Scothorn (P) later left her job at her grandfathers influence. After Ricketts death, Scothorn (P) sued the estates executor (D) for the balance due on the note. CONCISE RULE OF LAW: When the payee changes her position to her disadvantage, in reliance on a promise, a right of action on the promise arises. The expenditure of money or assumption of liability by the donee, on the faith of the promise, constitutes a valuable and sufficient consideration. In this case, there is an equitable estoppel. Essential Elements of Equitable Estoppel (Pomeroy pg 727) 1. Conduct acts lang or silence amounting to rep of fact or concealment of fact 2. these facts must be known to the party estopped at the time of his said conduct, or at least the circ must be such that such knowledge is necessarily imputed to him. 3. The truth concerning these facts must be unknown to the other party claiming the benefit of the estoppel, at the time when such conduct was done., and at the time when it was acted upon him.
4.
5. 6.
The conduct must be done with the intention, or at least with the expectation, that it will be acted upon by the other party, or under such circumstances that it is both natural and probable that it will be so acted upon. There are several farmiliar species in which it is simly impossible to ascribe any intention or even expectation to the party estopped that his conduct will be acted upon by the one who afterwards claims the benefit of the estoppel. The conduct must be relied upon by the other party, and, thus relying, he must be led to act upon it. He must in fact act upon it in such a matter as to change his position for the worse; in other words, he must so act that he would suffer a loss if he were compelled to surrender or forgo or alter what he has done by reason of the first party being permitted to repudiated his conduct and to assert rights inconsistent with it.
Equitable estoppel vs. promissory estoppel Equitable estoppel is a misrepresentation of some fact that was relied upon. Promissory estoppel is in the case of a simply gratuitous promise which the promisor knows is gratuitous.
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Example of equitable estoppel: I call the bank to ask if I received a paycheck. The clerk at bank says yes, so I write out checks. As it turns out, the paycheck was never deposited. I get charged fees for bounced checks. Under the principles of equitable estoppel, I am not responsible for the bounced check fees. Estoppel based on a promise and not a misrepresentation of facts is now called promissory estoppel. Promissory estoppel also different because it is used in a offensive way rather than promissory estoppel. (promissory estoppel used as a sword, equitable estoppel is used as a shield) Also note that gifts in wills are treated differently than regular gifts. This is because we are much less concerned with the intention of promisor. We have to transfer the assets to someone. 2. CHARITABLE SUBSCRIPTIONS (DELETED)
Restatement (Second) of Contracts 90. Promise Reasonably Inducing Action or Forbearance (p. 811) 1. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. 2. A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. Shannons test for consideration Need 1. a promise 2. (a) was reliance intended (b) was reliance forseeable 3. was there actual reliance 4. Is remedy necessary to prevent injustice 3. PROMISES OF A PENSION (DELETED)
4. CONSTRUCTION BIDS (P.742) James Baird Co. v. Gimbel Bros., Inc. (pg 742) Tile bidding contractors FACTS: Gimbel (D) offered to supply linoleum to various contractors who were bidding on a public construction contract. Baird (P), relying on Ds quoted price, submitted a bid and later that same day received a telegraphed message from D that its quoted price was in error. Ps bid was accepted. RULE: The doctrine of promissory estoppel shall not be applied in cases where there is an offer for exchange as the offer is not intended to become a promise until consideration is received. HOLDING: Gimbel did not intend to be bound upon contractors (offerees) mere reliance on its quoted price. The doctrine of promissory estoppel may not be used by the offeree to bind the offeror. Since contractor could have repudiated the contract w/o Ds right to sue for breach, no right for P either. Drennan v. Star Paving Co. (p.745) paving subcontractor FACTS: In formulating a bid to the Lancaster School District, Drennan (P), a general contractor, solicited bids for subcontracting work. Star (P), a paving company, submitted the lowest paving bid, and Drennan (P) used that bid in formulating its bid to the school district. Using this bid, Drennan (P) was awarded the general contract. Star (D) then told Drennan (P) that it could not do the work
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for that amount and refused to do the work. Drennan (P) found a substitute company and sued Star (D) for the difference, claiming that Drennan (P) had reasonably relied on Stars (D) offer. Star (D) claimed that it had made a revocable offer. CONCISE RULE OF LAW: Reasonable reliance on a promise binds an offeror even if there is no other consideration. ******Follow Drennan more important restatement 87 incorps Drennan holding******* Section 90 of the Restatement provides that when a promise is made that induces action or forbearance of the promisee, the promissor is bound if injustice would result from nonenforcement. In the case of a unilateral offer, the offeror is bound to the promise if it produces reasonable reliance. (Such reasonable reliance cases are often called firm offers) They often receive criticism on the grounds that one party (the subcontractor) is bound while the other party (the general contractor) is not. 3 ways to look at contractors rules 1) offer is revocable until post award acceptance (Hand uses in Baird) 2) offer becomes irrevocable after contractor submits bids (in Drennan) 3) bilateral contract formed by bid (both judges agree it is not this) Essentially, promissory estoppel was invoked as a substitute for consideration rendering a gratuitous promise enforceable as a contract. Specifically, the act of reliance by the promisee to his detriment provides a substitute for consideration. Restatement (Second) of Contracts 87. Option Contract (p.749) [Paragraph (1) appears in Chapter 10] 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. A Survey of Contract Practice and Policy (p. 793) The questionnaire defined firm offer as a promise to buy or sell at a fixed price over a period of time...not given in exchange for a promise or other payment by the offeree. The overwhelming majority of the companies that received firm offers relied on them, and those who made firm offers expected the offerees to rely. This can help to distinguish Drennan from Baird. In Drennan, the general contractors reliance was found to be reasonable and foreseeable because it was customary in the industry. In Baird, there was no evidence that, as a mater of trade usage, contractors relied on subcontractors bids. B. PROMISSORY ESTOPPEL AS AN ALTERNATIVE TO BREACH OF CONTRACT (P.749) Hoffman v. Red Owl Stores, Inc. (p.752) franchise grocery store FACTS: The Hoffmans (P) sought damages they incurred in selling their business and relocating based on their reliance on an alleged promise made to them by Red Owl Stores (D) to furnish them with a franchise. Hoffman (P) informed Lukowitz (D) that he only had $18,000 to invest in the enterprise, which Lukowitz (D) assured him would be sufficient. After further negotiations, Red Owl (D) presented Hoffman with a final proposal requiring a capital investment by the Hoffmans (P) of $34,000, and requiring the father-inlaw to sign a document stating his $13,000 was a gift. Hoffman (P) declined, and negotiations terminated. CONCISE RULE OF LAW: A promise that 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, is binding if injustice can be avoided only by enforcement of the promise.
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Moreover, it is not required that the promise on which the plaintiff relied be so definite as to constitute an offer giving rise to an action for breach of contract. Rather, the purpose behind the doctrine is the prevention of injustice. Where damages are awarded in an action for promissory estoppel, it is to the extent necessary to avoid injustice. The jury properly awarded damages for the loss on the sale of the bakery building, the rent, and the moving expenses. However, the losses incurred by the Hoffmans (P) upon the sale of their grocery business should be limited to the actual loss suffered, as determined by the difference between the price at which the grocery was sold and its fair market value. MADISONS OVERARCHING RULE: With no terms [no offer] then reliance will be given b/c you cant calculate expectation damages. Also lack of good faith or large disparity whatever is easier to calculate. Restatement (Second) of Contracts 90. Promise Reasonably Inducing Action or Forbearance (p.762) 1. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted fro breach may be limited as justice requires. A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.
2.
Impact? US Cts finds consideration most of the time in these cases but courts interp is different with charities. Three Elements in order for a promise to be enforceable under the Theory of Promissory Estoppel 1. promise that the promisor should reasonably have expected to induce action of a definite and substantial character on part of the promisee, 2. which in fact produced reliance or forbearance of that nature, 3. in circumstances such that the promise must be enforced if injustice is to be avoided
Three limitations of Promissory Estoppel: 1. the detriment suffered in reliance must be substantial in an economic sense; 2. the substantial loss to the promisee in acting in reliance must have been foreseeable by the promisor; the promisee must have acted reasonably in justifiable relance on the promise as made.
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IX.
PERFORMANCE
(CHAPTER 12) (P.815)
A. THE IMPLIED DUTY OF GOOD FAITH PERFORMANCE All contracts contain an implied covenant to perform in good faith. Restatement (Second) of Contracts 205. Duty of Good Faith and Fair Dealing Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. Sales Contracts: The Uniform Commercial Code 1-203. Good Faith Performance (p.816) Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement. 2-103. Definitions and Index of Definitions (p.893) (1) In this article unless the context otherwise requires (b) Good faith in the case of a merchant means honesty in fact and the observance of reasonable standards of fair dealing in the trade.
Goldberg 168-05 Corp. v. Levy (pg. 817) percentage lease FACTS: Goldberg (P) sought damages for unpaid rental payments based on a Levys (D) intentional diversion of profits so as to reduce his rental payments under a lease agreement and trigger provision allowing him to terminate the contract. P entered into a lease agreement to rent property to D for nine years at $13,800 per year, plus 10% of the gross profits. If the business did not have profits exceeding $101,000, D had the right to terminate the lease. D entered into possession on Oct. 1929 and operated Crawford Clothes, Inc. on the premises. The business failed to make profits over $101,000 and D notified P of his intention to terminate the lease on Oct. 1937. D vacated premises and failed to pay rent under the agreement. P sought $25,000 in damages. D moved to dismiss. RULE OF CONCISE LAW: A covenant of good faith and fair dealing is inherent in every contract, requiring a party to a commercial lease that requires part of the rental payments be based on a percentage of gross receipts, to utilize his best efforts in order to generate earnings. HOLDING: Even though an explicit promise is lacking, a good faith obligation is implied in a contract. Ps obligation was to use reasonable efforts to bring profits into existence. Therefore, Ps conduct was in direct violation of the good faith and fair dealing covenant that exists in every contract. MOTION DENIED. Mutual Life Ins. Co. of New York v. Tailored Woman (p.818) FACTS: Lessor has lease that has to pay fixed amount + receipts. They divert sales to 2nd lease where they have fixed rent (rentor thought they were renting the space as a warehouse). HOLDING: Court holds no breach of good-faith - because it was joint profit maximizing, not just to save themselves money [this is Gillettes reason, not courts who justifies it just as the allocation of risk].
Stop & Shop, Inc. v. Ganem (pg. 824) supermarket lease FACTS: Ganem (D) sought to compel lessee Stop & Shop (P) to continue operating a market on premises pursuant to a commercial lease agreement providing for minimum fixed yearly payments plus a percentage of gross sales. Parties entered into a lease agreement where Stop & Shop was supposed to lease the place for 13 years and six months. The minimum rental payment was $22,000 per year, plus 1% of gross sales exceeding $1,269,230.60. The agreement provided that the percentage rate would be due only if sales exceeded $3 million. The lease was silent as to the proposed use of the premises. P was engaged in the supermarket business at the time the lease commenced (1953). In 1963, P closed supermarket, but continued minimum rent payments. P opened two other supermarkets within a mile of the premises. P filed a bill for declaratory relief. D filed a counter
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claim seeking to compel P to operate a market on the premises and to pay a percentage of the gross sales. The superior court held that lease agreement did not contain an implied covenant requiring P to continue operations on the premises. D appealed. CONCISE RULE OF LAW: The court will not imply a covenant to continue operations for a specific purpose, or for any purpose at all, into a commercial lease agreement providing for a portion of the rent to be determined based on the gross sales of the business conducted there. HOLDING: The court will not imply a covenant to continue operations for a specific purpose, or for any purpose at all, into a commercial lease agreement providing for a portion of the rent based on the gross sales of the business conducted thereon. There id no evidence to show that the parties should have contemplated including a covenant to continue operations in the lease agreement. Furthermore, the lease agreement does not preclude the plaintiff from opening such markets in the area. AFFIRMED. Duty of good faith performance v. duty to negotiate in good faith Where the parties are under a duty to perform that is definite ad certain, the courts will enforce a duty of good faith, including good faith negotiation, in order that a party not escape from the obligation he has contracted to perform. B. IMPLIED AND EXPRESS WARRANTIES (P. 832) The scope of performance is often defined by warranty. When parties are silent, contract law supplies some warranties by default. Want to be able to rely without investigation. Saying will last a lifetime, high quality, low frequency of repair means nothing = puffery. Buyer must have blindly relied 1. IMPLIED WARRANTIES OF MERCHANTIBILITY The warranty of merchantability does not require that the goods be outstanding or superior. They need only be of reasonable quality within expected variations and for the ordinary purposes for which they are used.
Step-Saver Data Syst. v. Wyse Technology, (P.896) - computers purchase incompatible with system Facts: P purchased Ds computer after conducting a bench test. Computers found to be incompatible with software used by P. Issue: Was there an implied warranty of merchantability or fitness? Holding: No, seller did not know buyers particular purpose, buyer didnt rely on sellers expected knowledge of buyers purpose, buyer performed their own bench test. Product exceeded ordinary standards of the trade usage of product.
Sales Contracts: The Uniform Commercial Code 2-314 Implied Warranty: Merchantability (p. 833) (1) Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale. (2) Goods to be merchantable must be at least such as: (a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fit for the ordinary purposes for which such goods are used; and (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may require; and (f) conform to the promises or affirmations of fact made on the container or label if any. (3) Unless excluded or modified other implied warranties may arise form course of dealing or usage of trade. 2-315 Implied Warranty: Fitness for Particular Purpose Where the (1) seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the (2) buyer is relying on the sellers skill or judgment to select or furnish suitable goods, there is (3) unless exluded or modified under next section and implied warranty that the goods shall be fit for such purpose.
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2-714 Buyers Damages for Breach in Regard to Accepted Goods (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered. 2. EXPRESS WARRANTIES (P.835) Sales Contracts: The Uniform Commercial Code - Goes beyond implied warranties. - To find an express warranty need: 1. affirmation of fact or promise 2. that affirmation has to relate to goods [not puffery] [must be really a warranty 3. and it has to become the basis for bargaining between parties. Royal Business Machines, Inc. v. Lorraine Corp. (pg. 836) (copiers) FACTS: Booher (P) and Lorraine Corp (P) entered into a series of transactions with Royal Business Machines (D) for the sale of Royals (D) copying machines. P initiated suit against D alleging breach of warranties and fraud. The disctrict court awarded P compensatory and punitive damages and attorney fees, holding that Royal (D) had breached several express warranties it made to P. These included the assurances that the goods were of high quality, few repairs would be necessary, replacement parts were easily obtainable, maintenance costs were low, the machines were marketable, P would reap substantial profits, the goods were safe, and service calls were required only every 7,000 to 9,000 copies. Royal (D) appealed. CONCISE RULE OF LAW: The determinative question in resolving whether a particular promise constitutes an express warranty is whether the sellers assertion constitutes a fact or is merely an expression of the sellers opinion. HOLDING: Statements regarding the quality of the goods are mere expressions of the sellers opinion, and do not constitute express warranties. Thus, the promises that the copiers where of high quality, that P would gain significant profits, or that the necessity of repair would be infrequent were all merely expressions of Royals (D) opinion regarding the goods. Although Royals assurances regarding the availability of parts and the copies were assurances of facts, such assurances must relate specifically to the goods tendered. However, Royals assurances that the machines were safe, tested, and marketable all constitute statement of facts relating to the goods prospective performance may also give rise to a finding that an express warranty was made. Thus, the assurances relating to the costs of maintenance and the frequency of repairs constitute express warranties as to these representations. In addition, the court must determine that the buyer relied on such warranties in entering the agreement. Reversed. 2-313. Express Warranties by Affirmation, Promise, Description, Sample (p.840) (1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which related to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (b) Any description of the goods which is made part of the basis of the bargain creates and express warranty that the goods shall conform to that description. (c) Any sample or model which is made part of the basis of the bargain created an express warranty that the whole of the goods shall conform to the sample or model. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as warrant or guarantee or that he have a specific intention to make a warranty, but an affirmation merely of the value of goods or a statement purporting to be merely the sellers opinion or commendation of the goods does not create a warranty. CBS, Inc. v. Ziff-Davis Publishing Co. (p. 841) corp. acquisition Facts: Plaintiff bought a business from the defendant based on financial information released to him from the defendant. He had doubts to the validity of the information, and conducted his own research to find that the information was questionable. After presenting
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the conflicts to the defendant, the defendant assured him that his information was correct. So the plaintiff went ahead with the transaction. Issues: Whether a buyers manifested lack of belief in statements made by a seller relieves the seller of its obligation under an express warranty. Holding/Decision: Judgment for the plaintiff. Reasoning: Because the seller re-promised the warranty, it negated the doubt of facts that the buyer had. Dissent: The plaintiff still should have had the doubt after the re-promise. 3. EXPRESS DISCLAIMERS OF WARRANTY (P.849) Must have brought sellers promise. Therefore latter doubts irrelevant. Schneider v. Miller (p.849) rusted car FACTS: Schneider (P), an attorney, entered into a contract to purchase a car from Millers (D) used car lot. He test drove the vehicle. Schneider (P) signed a bill of sale accepting the car as is. Schneider (P) took the care to a mechanic for repairs. Thereafter he sought to rescind the contract on the basis that the car was unfit for driving and that Miller (D) breached his obligations in respect to implied warranties of merchantability. CONCISE RULE OF LAW: Where a buyer in a contract for the sale of goods signs a document expressly disclaiming any implied warranties and providing that the buyer accept delivery of the item as is, or where the buyer has had the opportunity to inspect the goods, no implied warranties exist and all risk is transferred to the buyer. A related issue in the case was whether Milers (D) actions in disclaiming the implied warranties was unconscionable practice. The court held that Schneider (P) had not proved this. Notes: Revocation of acceptance: If a seller delivers a bunch of goods to the buyer and some of the goods do not conform to terms of the contract the buyer has two options: accept or reject. If he accepts it might be on the assumption that seller will fix the problem or because the buyer didnt know there was a problem. If this happens, he may have the option to revoke acceptance. In this case the buyer could not revoke the acceptance. The as is makes plain that there are no implied warranties; the clause shifts all risk to the buyer. Also, the plaintiff signed an integration clause the effect of which was to bar extrinsic evidence. Even though you have to mention merchantability in writing and make it conspicuous to get rid of implied warranty of merchantability and you have to have it in writing to get rid of implied warranty of fitness, the court in this case said the as is was enough because everyone understands what as is means. Sales Contracts: The Uniform Commercial Code 2-316. Exclusion or Modification of Warranties 1. Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. 2. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that There are no warranties which extend beyond the description on the face hereof. 3. Notwithstanding subsection (2)
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Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like as is, with all faults or other language which in common understanding calls the buyers attention to the exclusion of warranties and makes plain that there is no implied warranty; and b. When the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and c. An implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy (Section 2-718 and 2-719) a.
4.
orris v. Macks Used Cars (p.854) FACTS: Facts not stated. This was an action alleging unfair or deceptive practices in automobile sale. CONCISE RULE OF LAW: A provision providing for the disclaimer of all implied warranties under a contract for the sale of goods does not relieve the seller from liability under alternative causes of action pertaining to commercial transactions. Notes: What if you bought shoes walked around the house and they fall apart after 10 minutes. Violates ordinary purpose. What if you went mountain climbing and they fell apart? No violation because could still be fit for house unless you told them you wanted mountain climbing shoes.
In general, the UCC provisions on warranty apply, but they may not be the only provisions out there that govern sellers liability to consumers. The UCCs provisions may be supplemented.
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X. CONDITIONS (CHAPTER 13) Internatio-Rotterdam v. River Brand Rice Mills (p.858) Facts: The Plaintiff, Internatio-Rotterdam, Inc. (Plaintiff) and the Defendant, River Brand Rice Mills, Inc. (Defendant), contracted for the Defendant to deliver rice to the Plaintiff for exportation. The agreement required that delivery must be made in December upon two weeks notice by the Plaintiff. The Plaintiff sued for a failure to give notice of the place of delivery when the Defendant refused shipment on December 18. The Defendant agreed to sell 95,600 pockets of rice to the Plaintiff. Under the terms of the agreement, shipment was to be made by the Defendant with two weeks notice from the Plaintiff regarding where to ship the rice. The Defendant delivered 50,000 pockets at Lake Charles, but by December 17, the Plaintiff had not yet instructed on where delivery was to be made for the remaining 45,600 pockets of rice. Since after December 17th the Defendant would not be able to satisfy the contract by shipping in December within two weeks, the Defendant cancelled the contract. The Plaintiff thereafter initiated this appeal. Issue. Does the Plaintiffs failure to perform a condition precedent permit the Defendant to rescind the contract? Synopsis of Rule of Law: The nonoccurrence of a condition precedent to be performed by a party to a contract acts to permit the other party to rescind the agreement or treat the contractual obligations as discharged. Holding: Yes. The Defendants obligation to ship the rice in December was conditioned upon the Plaintiff giving the Defendant two weeks notice of the place of delivery. Hence, the last day in December that the Defendant could have performed on the agreement given the notice required was December 17th. When December 17th passed and the Defendant did not hear from the Plaintiff, it had the right to rescind the agreement. In other words, the Plaintiff giving two weeks notice of the place of delivery to the Defendant was a condition precedent to the Defendants delivery of the rice. The failure to give sufficient notice for the Defendant to complete delivery in December as required by the contract, constituted a failure to perform a condition precedent. Therefore, the Defendant properly rescinded the contract. Is the event a Condition, a Promise, or Both? Howard v. Federal Crop Ins. Corp. (p.862) damaged tobacco Facts: Df, FCIC, an agency of the U.S. issued 3 policies to the pl, Howards, insuring their tobacco crops, on six farms, against weather damage and other hazards. Pls alleged that their 1973 crop was damaged by heavy rains. Pl harvested and sold the depleted crop, filed notice and proof of loss w/ FCIC, but prior to inspection they plowed or disked under the fields in question. A portion of the policy provides that the stalks shall not be destroyed until FCIC makes an inspection. Issue(s): Whether the plowing under of the stalks forfeits coverage b/c of section 5 (f) of the insurance policy ? Holding: Not by itself. Rule(s): When it is doubtful whether words create a promise or a condition precedent, they will be construed as creating a promise. Provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction. Court Rationale: If 5(f) is a condition precedent its violation causes a forfeiture of pls coverage; but if it is a promise or covenant, df may recover whatever damage is sustained as a result of plowing the stalks under, and will not cause a forfeiture. Insurance policies are generally construed most strongly against the insurer. Whether a contract provision is construed as a condition or an obligation does not depend entirely upon whether the word condition is expressed. 5(f) specifies that something should not to be performed, it is a promise of non-performance and does not make the non-performance a condition precedent of the insurers duty to pay. Because 5(f) is not a condition precedent there are other questions of fact to be determined. Plowing or disking under the stalks does not of itself operate to forfeit coverage under the policy. Plaintiffs Argument: The fact that the term condition precedent, is in 5(c) but not in 5(f) means that the policy determined 5(f) to be considered other than a condition precedent. Defendants Argument: The use of the terms condition precedent, and warranty, are synonymous with each other in application. RESTATEMENT 227 Standards of Preference With Regard to Conditions (p.866) (1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk.
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(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or (c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control. Is the event a Condition, a Promise, or Neither? Chirichella v Erwin Maryland (p.866) home purchase Facts:-Appellants contracted in June 1971 to sell their home to Appellees for $39,200 and when D refused to settle, P brought suit on August 31, 1972 for specific performance.-The contract was the "standard" form used by the County Board of Realtors and the "settlement" section of the contract was amended by the real estate agent to include the phrase "by Oct. 1, 1971 or sooner", which was amended by mutual agreement to read "Coincide with settlement of New home in Kettering Approx. Oct. 1971".-D contracted to purchase "the New home" in April of 1971 and were to settle within 15 days from the date of completion.-Although construction had not begun on the new home, when D entered into this contract, D was confident that that construction would be completed in Oct '71 unless unforeseen circumstances occurred. D was wrong and the first settlement for the new house was scheduled for June 15, 1972, which never materialized because D claimed that the work was bad on the house. D's builder did not agree, and after rescheduling the settlement date 2 more times for the same reason, the builder sold the house to someone else.-Although settlement for the house in q question was also scheduled for June 15, 1972, D did not show for that meeting or a subsequent meeting, P filed suit. Holding: Passage of time cannot be a condition Reasoning: The inclusion of the phrase "approx. Oct 1971" effectively defeats the Appellants argument and instead of allowing them to avoid the contract, the phrase was designed to delay settlement for a reasonable amount of time while their new house was completed. -In sum, the Appellants (Chirichellas) duty to perform by settling under their contract with the Appellees (Erwins) was not subject to the condition precedent that they first settle on the new house. They were required to do so within a reasonable time after October 1971. January 29, 1973 was not within a reasonable time. Disposition: Affirmed, with costs to Appellants Rule: Where a contractual duty is subject to a condition precedent...there is no duty of performance and.... "a decree for specific performance will not be granted unless conditions precedent, express, implied, or constructive, have all occurred or been performed." Griffith v Scheungrab (219 Md. 27)-A condition precedent is a fact, other than mere lapse of time, which, unless excused, must exist or occur before a duty of immediate performance of a promise arises Avoiding Conditions p. 868 1. Waiver and Estoppel Clark v. West (p.869) drunken law professor Facts: Clark (P) agreed to write a series of law books for West (P) for $3,000 per year. The contract included an abstention agreement, whereby Clark promised to abstain from alcohol in order to be eligible for payment in excess of $2 per page. Clark completed a 3,469 page text on corporations and West refused to pay Clark more than $2 per page because Clark had not abstained from alcohol. In Ps suit against D, P claimed that his alcohol consumption was not excessive and did not interfere with his execution of other obligations under the contract, and that D had waived any objection by assuring P that he was entitled to the extra $4 per page despite his failure to abstain. The higher court heard three questions on certification: 1) Did the complaint state facts sufficient to constitute a cause of action? 2) Was Ps abstinence from the use of alcohol a condition precedent which could be waived by D, such that D would be liable for the higher payment despite Ps use of alcohol? 3) Did the complaint allege facts demonstrating that there had been a valid waiver by D of such condition precedent? Issue: 1) Is a waiver a voluntary abandonment or a relinquishment of some right or advantage? 2) Can a condition precedent be waived? Holding and Rule: 1) Yes. A waiver is a voluntary abandonment or relinquishment of some right or advantage. 2) Yes. A condition
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precedent can be waived. D asserted that Ps total abstinence was the consideration for the payment of the additional $4 per page. D asserted that it could not be waived except by reformation of the contract based on consideration. P asserted that abstinence was merely a condition precedent to the payment of the additional $4 per page and that it could be waived without new consideration. The court held that it was clear from the contract that the abstention was not part of the basic consideration bargain but rather a condition precedent to the payment of the additional $4 per page. A condition precedent may be waived. Once waived it cannot be revived. A waiver is an intentional relinquishment of a known right. If the words and acts of a party reasonably justify the conclusion that with full knowledge of all the facts it intended to abandon or not to insist upon a particular defense afterward relied upon, a waiver has been established. The court held that P alleged facts which if proven would establish a claim of waiver. RESTATEMENT 84 Promise to Perform a Duty in Spite of Non-Occurrence of a Condition (1) Except as stated in Subsection (2), a promise to perform all or part of a conditional duty under an antecedent contract in spite of the non-occurrence of the condition is binding, whether the promise is made before or after the time for the condition to occur, unless (a) occurrence of the condition was a material part of the agreed exchange for the performance of the duty and the promisee was under no duty that it occur; or (b) uncertainty of the occurrence of the condition was an element of the risk assumed by the promisor. (2) If such a promise is made before the time for the occurrence of the condition has expired and the condition is within the control of the promisee or a beneficiary, the promisor can make his duty again subject to the condition by notifying the promisee or beneficiary of his intention to do so if (a) the notification is received while there is still a reasonable time to cause the condition to occur under the antecedent terms or an extension given by the promisor; and (b) reinstatement of the requirement of the condition is not unjust because of a material change of position by the promisee or beneficiary; and (c) the promise is not binding apart from the rule stated in Subsection (1). U.C.C. 2-209 (p.872) - Modification, Rescission and Waiver. (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. 2. Excuse to Prevent Forfeiture J.N.A. Reality Corp. v. Cross Bay Chelsea Inc. (p.873) holdover tenant Facts: J originally leased the property, having a 10-year lease agreement, to Foro, a restaurant. The agreement provided that Tenant
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shall notify the landlord in writing by registered or certified mail 6 months prior to the last day of the term of the lease that tenant desires such renewal. After leasing from 1964-1968, Foro closed it down and offered if for sale or lease. In March, 1968 Foro entered into a K with Chelsea, to sell the restaurant and assign the lease. As a condition of the sale, Foro was required to obtain a modification of the option to renew so that Chelsea would have the right to renew the lease for an addition term of 24 years. The closing took plase in June of 68. First J modified the option and consented to the assignment. The modification, states: the tenant shall have a right to renew this lease for further period of 24 years, instead of 10, from the expiration of the original term of the lease. All other provisions in the lease shall remain in full force and effect (Including the 6-month requirement for renewal). Foro then assigned the lease and sold its interest in the restaurant to Chelsea for 155k. At the time of the sale, 5 years remained on the lease. J regularly interacted with Chelsea about various issues regarding the property. One interaction occurred, two weeks prior to the expiration of the lease, in regards to the property taxes, however, J failed to mention the renewal condition in the lease. Arena, Js president, admitted that throughout the time of the tenancy he was most assuredly aware of the time limitations on the option. (NOTE: there is evidence that J has used this technique to attempt to evict prior tenants.) Finally, in Nov 73 J took action to inform the tenant that the option had lapsed, that the option was to run in Jan 74. Chelsea responded with a letter dated Nov 73 and J refused to honor it. Issue: (1) will the tenant suffer a forfeiture if the landlord is permitted to enforce the letter of the agreement? (2) if there will be a forfeiture, may a court of equity grant the tenant relief when the forfeiture would result from the tenants own neglect or inadvertence Holding: Yes the tenant will suffer a forfeiture because of the investments made on the property. And Tenant is entitled to equitable relief. Rule: Notice exercising an option is ineffective if it is not given within the time specified. The tenant is entitled to the benefit of equity, which relieves against such forfeitures contract of valuable lease terms when default in notice has not prejudiced the landlord, and has resulted from an honest mistake, or similar excusable fault. Fountain Rationale: Default on an option usually does not result in a forfeiture. Because the option itself doesnt create any interest in the property (lessor has no property interests), and not rights accrue until the condition precedent has been met by giving notice within the time specified. But when a tenant in possession under an existing lease has neglected to exercise an option to renew, he might suffer a forfeiture if he has made valuable improvements on the property (because now he has an interest in the property, his improvements). A tenant should not be denied equitable relief from the consequences of his own neglect or inadvertence if a forfeiture would result. The rule applies even though the tenant, by his inadvertence, has neglected to perform an affirmative duty and thus breached a covenant in the agreement. (Unless there is willful or gross negligence.) Because the tenant made a considerable investment in improvements (55k total) and would loss a serious amount of business due to location change, and despite the failure to renew was at the tenants fault (although not culpable) the tenant would be entitled to equitable relief if there is no prejudice to the landlord. However, that issue was not submitted at trial (due to the trial court not allowing J to submit such evidence), therefore, this matter must be resolved at a new trial. Note: 229, the Restatement (2nd) states as a general proposition that a court may excuse the nonoccurrence of a condition where forfeiture would otherwise result, unless the conditioning event was a matter of the parties exchange. Restatement of Contracts 229 (p. 878) Excuse of a Condition to Avoid Forfeiture To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange. XI. BREACH (CHAPTER 14) A. PROSPECTIVE NONPERFORMANCE 1. ANTICIPATORY REPUDIATION One reason why a party could cancel a contract is if, before the time for performance arrives, the other party indicates that she does not intend to perform and thereby repudiates the contract. Because it occurred before the performance is due it is called anticipatory repudiation. [Corollary is chapter 2 on avoidability!!!] Albert Hochster v. Edgar De La Tour (p.892) tour guide Facts: Hochster (Plaintiff) entered into a contract with Edgar De La Tour (Defendant) under the terms of which Defendant agreed to hire Plaintiff as a courier for three months. A few weeks before the period for employment was to start, Defendant wrote a letter to
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Plaintiff informing Plaintiff that it wont be requiring Plaintiffs services. Eight days before the employment was to start, Plaintiff brought a breach of contract claim against Defendant. Issue: Whether Plaintiffs breach of contact claim was premature as the contract term had not even started when Plaintiff brought the action. Holding: No. Rationale: Defendant had clearly expressed its intent to breach the contract and, therefore, provided sufficient assurance of breach. There is no need to make the Plaintiff wait until the date the contact was to commence to bring the lawsuit. Harrell v. Sea Colony, Inc (pg 895) Condo FACTS: Harrell (P) contracted with Sea Colony (D) to purchase a condo that was under construction. P paid $5000 down, remainder on completion. Contract called for forfeit if P defaulted. Harrell tried to cancel, but said it had to be done by the 25th of this moth or he would get the money to keep the contract. The next month on the 23rd the condo said okay we cancel for you we keep your money. (5 days after they sold it to someone else for more money). CONCISE RULE: A mere request to cancel a contract does not constitute anticipatory breach thereof. HOLDING: In order for anti. Breach to occur, there must be an unequivocal manifestation of intention that he wont perform at appointed time. In this case he said he would not breach if they would keep his money. The request to breach is not enough. Sea colony had to pay the deposit back. UCC 2-610. Anticipatory Repudiation (p.900) When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (g) for a commercially reasonable time await performance by the repudiating party; or (h) resort to any remedy for breach (Section 2-703 or section 2-711), even though he has notified the repudiating party that he would await the latters performance and has urged retraction; and (i) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the sellers right to identify goods to the contract notwithstanding breach or to salvage unfinished goods. (Section 2704) UCC 2-611. Retraction of Anticipatory Repudiation 1) Until the repudiating partys next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final 2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2-6009). 3) Retraction reinstates the repudiating partys rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation. HYPO: If A+B have contract. A says hes repudiating. The later A says he retracts repudiation, can B sue? Not really unless there were damages from lateness. What if B had sold widgets for scrap? A can no longer retract. Cant retract if rely or if I consider repudiation final (if dont act have right to retract) HYPO: A repudiates, B sues 1 hr later, A retracts 2 hours later. Suit is signal B considers repudiation final HYPO: Once one party has preformed all the way [garden co builds whole garden] have to wait. Ex G Co had to finish by Nov 15. Mr. Green had to pay by Dec 1. If Mr Green says I wont pay on Nov 16th after G Co is done. G Co cant sue until Dec 1. ***Important b/c banks use acceleration clauses. This says if buyer defaults entire amt becomes due at that time so bank can sue. HYPO: What if contract to buy grain. Seller breaches. Buyer waits 1 month to see if seller performs, by then cant buy grain unless pay lots. Can you recover. Not for whole amt. Must be commercially reasonable. Must act soon. 2. ADEQUATE ASSURANCES OF PERFORMANCE Scott v. Crown (pg 901) Eat Your Wheaties
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FACTS: Scott (P) suspended grain delivery on their second grain delivery to Crown (d) because it learned form dept of ag that there were active complaints against Crown from other farmers and because D failed to respond to Ps inquiries about timely payment for previous deliveries. CONCISE RULE: When reasonable grounds for insecurity arise with respect to the performance of a party under a commercial contract, the other party may in writing demand adequate assurance of due performance and if commercially reasonable may suspend any performance for which he has not received the agreed return. HOLDING: Scott had reasonable grounds for insecurity. However there were serious timing issues b/c they didnt wait or really try to get an answer. Therefore Scotts actions were really anticipatory repudiation which allowed Crown to cancel the contracts and resort to buyers remedies. UCC 2-609. Right to Adequate Assurance of Performance 1. A contract for sale imposes an obligation on each party that the others expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of each party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return 2. Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. 3. Acceptance of any improper delivery or payment does not prejudice the aggrieved partys right to demand adequate assurance of future performance. 4. After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract. B. CONSTRUCTIVE CONDITIONS AND MATERIAL BREACH Finding a constructive condition depends on a backward-looking inquiry into presumed intentions of the parties at the time of formation, whereas finding a material breach depends on a forward-looking inquiry into the likelihood of performance occurring in the future 1. CONSTRUCTIVE CONDITION KINGSTON V. PRESTON (P.880) SILK BUSINESS Facts: Pl and Df entered into an agreement where the Df would serve the Pl for 1yr and a 1/4 as a servant in his trade as a silk-mercer for 200 pounds a year. In consideration for the business premises the Df covenanted that at the end of the period he would give up the business to Pl, his nephew, or some other person named by Df, give them his stock in his trade, at a fair value; and that btwn the young traders deeds of partnership for 14 yrs would be executed. Immediately afterward the young traders would carry out the business in the Dfs house. The agreement also stated thereafter the Pl would at and before the sealing and delivery of the deeds cause and procure good and sufficient security to be given to Df, 250/mo, in lieu of the monthly production of stock in trade until the value of the stock was reduced to 4000 pounds. At the end of the period the Df did not surrender the premises b/c the Pl did not offer the security. Issue(s): Whether the Pls tender of sufficient security was a condition precedent to the Dfs surrendering of the premises, and stock? Holding: Yes Rule(s): Covenants called conditions and dependent, in which the performance of one depends on the prior performance of another, and until this prior condition is performed, the other party is not liable to a an action on his covenant. Court Rationale: The dependance or independence, of covenants was to be collected from the evident sense and meaning of the parties , and however transposed they might be in the deed, their precedency must depend on the order of time in which the intent of the transaction requires their performance. The essence of the agreement was that the Df should not trust to the personal security of the Pl, but before he delivered up his stock and business, he should have good security for the payment of the money. The giving of such security, therefor, must necessarily be a condition precedent. Plaintiffs Argument: The covenants were mutual and independent, where either may recover damages for the injury he may have received. It is no excuse to allege a breach by pl.
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Defendants Argument: The covenants were dependant in nature; the security to be given for money was unreasonable to oblige Df to give up his business, stock, and trust Pls personal security, which might be worthless. Morton v. Lamb (p.882) corn sale Facts: The plaintiff agreed to buy a certain amount of corn from the defendant, and it was agreed that he would pay at the time of delivery. The plaintiff told the defendant prior to delivery that he was unable to pay for the corn at the preset time of delivery. The defendant, protecting his own interests did not deliver the corn in anticipation of the plaintiffs inability to pay. The plaintiff filed suit for breach of contract because the defendant did not deliver the corn. Issues: Whether a liability for breach of contract exists where one part has reason to believe that the other party will not fulfill his obligation, thus does not fulfill his end of the bargain, in particular when the transfer is to occur at the same time. Holding/Decision: Judgment for the defendant. Reasoning: Because the corn was to be delivered at the same time, each party must be ready to perform his part of the contract at the time he charges the other with non-performance. Jacob & Youngs v. Kent (p.974) Reading pipes FACTS: Kent (D) refused to make the final payment on a construction contract that specified that Reading pipe was to be used throughout his house, because not all of the pipe used was made in Reading. Replacing the pipes would have meant demolishing substantial parts of the completed residence. Jacob & Youngs (P) left the work untouched and requested certification that final payment was due. When the certificate was refused, Jacob & Youngs (P) filed suit. The evidence showed that the mistake made was due to an oversight by the subcontractor. The only difference found between Reading pipe and the others used was the name stamped on the pipe. Jacob & Youngs (P) evidence showing that the pipe used was the same in quality, value, cost, and appearance as that of Reading pipe were excluded at trial. The trial court directed a verdict in favor of Kent (D), and the appellate division reversed and granted a new trial. CONCISE RULE OF LAW: where there is substantial performance with defects of trivial or inappreciable importance, the measure of damage is not the cost of replacement but the difference in value. RULE: The purpose to be served, the desire to be gratified, the excuse for deviation, and the cruelty of enforced adherence must be weighed in order to determine if literal fulfillment of the contract is to be enforced. Under the circumstances of this case, the measure of the remedy is the difference in value, which would be nominal or nothing. DISSENT: Jacobs and Youngs (P) failure to perform its contract was either intentional or due to gross neglect. As such, the trial court was right in directing a verdict for Kent (D). NOTES Why all the fuss? : Apparently, Reading Pipe was specified because it was the normal trade practice to assure wrought iron pipe quality by naming a manufacturer. Kent may have seized upon the pipe substitution as an expression of other dissatisfactions in his relationship with Jacob and Youngs.
This case was not governed by UCC. There are 3 different rules the court could have applied: 1. 2. perfect tender substantial performance a. some courts go beyond and see if the beach was willful (This is an exception of the rule that courts dont usually consider the reason for breach) Kent just has to pay (independent promises) a. This is no longer the law
3.
Dissent: says this was not a minor violation because the whole shipment of pipe was installed incorrectly.
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Majority agreed with most of dissents argument if purposefully installed bad pipe, then would have to pay there is reason to say that if term in contract should have to pay Mr. Kent could explicitly have Reading pipe as condition to pay The final inference dissent makes is where majority and dissent part. Hypo: What would happen if not Reading pipe was available and owner agrees to substitution but then becomes annoyed and sues under the contract? The builder would not be liable. This result because the owner either waived his right, or modified the contract Since builder relied, he would not be liable What Damages are proper? Cost of completion and diminution in value can both be viewed as expectation damages. This is because getting the plaintiff in the same position had the promise been performed. Start by looking at cost of completion. In most cases that will be appropriate measure, but if the cost of doing this is really large relative to his loss, the court will not award it. In this case, the policy reason for not awarding cost of completion was unjust enrichment.
2. MATERIAL BREACH In absence of an expressed or constructive condition to the contrary, only if a breach is material does it relieve the non-breaching party of its duty of performance under the contract. In other words, the breach must be substantial that the party despairs of additional performance in the future. B & B Equipment Co. v. Bowen (p.907) stock purchase Facts: Plaintiff entered into a contract with Bowen under which Bowen would become an equal participant in plaintiffs business for $15,000. Defendant paid $2,500 to plaintiff and a promissory note off $12,500 with interest. When those payments totaled $12,500 plus the interest, plaintiff was to deliver to defendant 100 shares of stock in the company. Defendant Bowen was also to assume primary responsibility in the corporate record keeping of the company. Bowen became engaged in outside business activities, and spent less time working for the company. He was discharged from the company, and they tendered his money paid up until this point plus dividends from the stock. Procedural History: Plaintiff filed suit to obtain a judgment declaring its right to terminate a contract under which the defendant was to purchase 100 shares of the corporate stock. Trial court rendered declaratory judgment as prayed by plaintiff and defendant appeals. Issues: 1) Whether the breach was a substantial part of the contract or incidental to the major purposes of the contract. 2) Whether the plaintiff can reasonably anticipate breach by the defendant or should be required to allow him more time to fulfill his obligations. Holding: Judgment affirmed for the plaintiff. Reasoning: 1) The intent of the contract was for the defendant to contribute valuable services to the company, and was not based on the necessity of capital offered by Bowen. 2) Because his performance was partial but defective, and plaintiff made protest and gave fair warning concerning the unacceptability of his performance, they are not required to give him more time to fulfill his obligations. Lane Enterprises, Inc. v. L.B. Foster Co. (p.910) coated bridge components Facts: Foster agreed to sell bridge components to Hammond for use in constructing a bridge in Ohio. This Hammond Agreement required the components to be coated in accordance with ODOT specification. Since Foster wasnt equipped to coat the components, it hired Lane to do the coating. The Lane Agreement required the coating to be done in compliance with the ODOT specs and Lane
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wasnt to ship any components without prior approval from an ODOT inspector. The ODOT inspectors were not satisfied with the contamination under the coating for Stage I components, but allowed shipment pending removal and reapplication of the coating. On January 5, 1993, Lanes quality assurance manager sent a letter to Foster explaining the inability to remove all the contaminants and asked whether Foster wanted Lane to coat the Stage II components. On January 27, 1993, ODOT Engineer Nist inspected the delivered components and found backside contamination on the coating. On February 5, Lane informed Foster and Hammond that it was unable to meet the zero percent backside contamination requirement ODOT required. ODOT informed Hammond that if the components underwent certain field repairs, it would accept the components. Lane agreed to assume the cost of the repairs, which would be deducted from the amount it was owed. After the field repairs, Lane requested the amount it was owed after deducting the repairs, $7,082.22. Foster sent a letter on June 15, inquiring whether Lane intended to perform Stage II of the Lane agreement, and stating the money wouldnt be released until assurances of Stage II commitment was given. Lane responded that it wouldnt discuss Stage II until it received the money. On July 2, Foster repeated its assurance request, to which Lane responded again that it wouldnt discuss Stage II before it was paid. On August 17th, in order to avoid delay damages, Foster hired another coater for $42,055 more than it would have paid Lane. Procedural History :Trial court found Foster breached the Lane agreement by failing to remit the $7k. Since Lane was entitled to suspend performance because of the breach, Lane isnt liable for damages Foster incurred as a result of suspended performance. Issues :Did the trial court err that Foster materially breached the Lane Agreement? Did Lanes failure to give assurance amount to anticipatory breach? Applicable Rules of Law Holding: Yes; yes, Lane materially breached. Trial court reversed, damages to Foster for the amount it payed over the contract to another coater, less the $7k. Reasoning: If breach is an immaterial failure to perform, and the contract was substantially performed, the contract remains effective and the other party doesnt have a right to suspend performance. The court agrees that Fosters breach was not material and that Lane was required to perform stage II. Additionally, it is uncontradicted that Foster planned to remit the monies due once it received assurance from Lane that Lane could perform stage II. Therefore, this court concludes the trial court erred in concluding Foster materially breached. Although a partys statement concerning its ability to perform may not be sufficient to constitute a repudiation of the contract, the statement may warrant the other party to demand assurance of performance. Per the restatement, if such a demand is warranted, the requesting party may treat a failure to respond as a repudiation of the contract. Due to Lanes difficulties performing Stage I, combined with its lukewarm expression of its ability to perform, Foster had reasonable grounds to demand assurance of performance. Since Lane refused to give such assurance, Lane materially breached. Restatement (Second) of Contracts 251 1.Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance of due performance 2.The obligee may treat as a repudiation the obligors failure to provide within a reasonable time such assurances of due performance as is adequate in the circumstances of the particular case.
3. THE PERFECT TENDER RULE: CURE AND RESCISSION Buyers right to reject non-conforming Goods. Ramirez v. Autosport (pg 919) Defective Camper FACTS: P sought the recission of their contract to purchase a camper with defects from D, and the return of their trade-in van they had tendered pursuant to the sales agreement. CONCISE RULE: Under a contract for sale of goods, the seller is required to furnish a perfect tender of the subject matter of the contract, and the buyer may reject any nonconforming goods HOLDING: P rejected the nonconforming van within a reasonable time and D failed to cure the defects. Thus P properly exercised their rights to terminate the contract.
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SALES CONTRACTS: The Uniform Commercial Code Pgs. 925-928 UCC 2-106. Definitions: Cancellation 4. Cancellation occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of termination except that the canceling party also retains any remedy for breach of the whole contract of any unperformed balance. UCC 2-508. Cure by Seller of Improper Tender or Delivery; Replacement 1. Where any tender or delivery by the seller is rejected because mom-conforming and the time for performance has not yet expired, the seller may seasonable notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. 2. When the buyer rejects a non-conforming tender which the seller had reasonable grounds to believ would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. UCC 2-601. Buyers Rights on Improper Delivery Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may a) reject the whole; or b) accept the whole; or c) accept any commercial unit or units and reject the rest. UCC 2-602. Manner and Effect of Rightful Rejection 1. Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller 2. Subject to the provisions of the two following sections on rejected goods (Sections 2-603 and 2-604), a. After rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and b. If the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article (subsection (3) of Section 2-711), he is under a duty after rejection to hold them with reasonable care at the sellers disposition for a time sufficient to permit the seller to remove them; but c. The buyer has no further obligations with regard to goods rightfully rejected. 3. The sellers rights with respect to goods wrongfully rejected are governed by the provisions of this Article on Sellers remedies in general (Section 2-703). UCC 2-606. What Constitutes Acceptance of Goods 1. Acceptance of goods occurs when the buyer a. after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or b. fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had reasonable opportunity to inspect them; or c. does any act inconsistent with the sellers ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. 2. Acceptance of a part of any commercial unit is acceptance of that entire unit.
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UCC 2-607. Effect of Acceptance; Notice of Breach; Burden of Establishing Breach 1. 2. after Acceptance; Notice of Claim or Litigation to Person Answerable Over The buyer must pay at the contract rate for any goods accepted. Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a non-conformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the non-conformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this Article for non-conformity. Where a tender has been accepted a. The buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and b. If the claim is one for infringement or the like (subsection (3) or Section 2-312) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the lititgation or be barred from any remedy over for liability established by the litigation. The burden is on the buyer to establish any breach with respect to the goods accepted. Where the buyer is sued for breach of a warranty or other obligation for which his seller is answerable over a. He may give his seller written notice of the lititgation. IF the notice states that the seller may come in and defend and that if the seller does not do so he will be bound in any action against him by his buyer by any determination of fact common to the two litigations, then unless the seller after seasonable receipt of the notice does come in and defend he is so bound. b. If the claim is one for infringement or the like (subsection (3) of Section 2-312) the original seller may demand in writing that his buyer turnn over to him control of the litigation including settlement or else be barred from any remedy over and if he also agrees to bear all expense and to satisfy any adverse judgent, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred. The provisios of subsections (3), (4), and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subsection (3) or Section 2-312).
3.
4. 5.
6.
UCC 2-608. Revocation of Acceptance in Whole or in Part 1. The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it. a. On the reaoable assumption that its non-conformity would be cured and it has not been seasonably cured; or b. Without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the sellers assurances. 2. Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. 3. A buyer who so revokes has the same rights and duties with regard to the goods as if he had accepted them. UCC 2-709. Action for the Price 1. When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price a. Of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to they buyer; and b. Of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances resoanbly indicate that such effort will be unavailing. 2. Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control excerpt that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the byer and payment of the judgment entitles him to any goods not resold. 3. After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section
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UCC 2-711. Buyers Remedies in General; Buyers Security Interest in Rejected Goods 1. Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance than with respect ot any goods involved, and with respect ot the whole if the breach goes to the whole contract (Section 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid a. cover and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or b. recover damages for non-delivery as provided in this Article (Section 2-713). 2. Where the seller fails to deliver or repudiates the buyer may also a. If the goods have been identified recover them as provided in this Article (Section 2-502); or b. In a proper case obtain specific performance or replevy the goods as provided in this Article (Section 2-716). 3. On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reaonbley incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (Section 2-706). Shannons guide to if seller delivers nonconforming goods, the buyer can (2-601) 1. Reject goods w/in reas time & w/ notification (2-602) i. If time for performance hasnt expired, seller may cure (2-508(1)) ii. If seller has reason to believe goods were acceptable, he may have reasonable time to substitute a conforming tender 2. Accept (by signifying he will retain despite non-conformity by not rejecting or by acting in a manner inconsistent w/ sellers ownership (2-606. i. The buyer can no longer reject (2-607(2) but ii. Buyer may revoke his acceptance w/in reas amt of time after discovery of non-conformity, if substantially impairs its value., But goods must have been accepted (2-668) on the reasonable assuption that its nonconformity would be cured
XII. OBTAINING ASSENT BY IMPROPER MEANS (Chapter 16) D. UNCONSCIONABILITY Courts scrutinize an exchange under the doctrine of unconscionability. In doing so, the court should examine the differences between the so-called procedural (having to do with the process of contracting, i.e. fraud and duress) and substantive (having to do with the resulting contract, i.e. illegality) conceptions of unconscionability. Look at disparity between price and cost. How much profit? Commercial content of agreement? Contracts of adhesion are not necessarily unconscionable. (especially if they have no surprising terms) Williams v. Walker-Thomas Furniture Co pp. 1131 ( FACTS: P, Walker-Thomas, sold furniture to D, Williams. The printed form contract contained a cross-collateral clause serving to keep a balance due on every item purchased until balance due on all items, whenever purchased, was liquidated. As a result, P retained by terms of the contract the right to reposses all items previously purchased in the event of every default. D made her last purchase and still owed a balance of $164 from prior purchases, even though she had already paid $1,400 toward clearing her account. So, D defaulted on payment and P sought to replevy all goods previously sold to D. The case involves Ds claim to defense for this action. ISSUE: Does the court have the power to refuse enforcement of contracts found to be unconscionable? RULE OF LAW: The defense of unconscionability to action on a contract is judicially recognized
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HOLDING: Yes. Where the element of unconscionability is present at the time a contract is made, the contract should generally not be enforced. Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Meaningfulness of choice is to be determined in light of all the circumstances for example, gross disparity of bargaining power. The case should be remanded to the lower court for findings on the issue of unconscionability. DISSENT: public policy arguments Ill have to include after Madison brings them up DISCUSSION:This majority decision relied heavily on UCC 2-302, whose meaning has been hotly debated. Comment 1 defines unconscionability in terms of itself and says its principle is to prevent oppression and unfair surprise, not disturb that allocation of risks because of superior bargaining power. Any court that declares a contract substantively unconscionable, runs the risk of substituting its own valuation of the contract goods for that of the parties involved. This is paternalism that should be approached with caution. U.C.C. 2-302 Unconscionable Contract or Clause pp 1137 (1) If a court finds as a matter of law finds a contract or term therein unconscionable at the time it was made, it may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid an unconscionable result. (2) When it is claimed or appears to the court that some or all of the contract is unconscionable, the parties shall be given a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the termination. RESTATEMENT 208 Unconscionable Contract or Term pp. 1137 Same as (1) of UCC 2-302basically If a contract or a term therein is unconscionable at the time it was made, it may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid an unconscionable result. Comment pp. 1138-1140 Scope Applies to a wide variety of types of conduct. The determination of a term or contract is or is not unconscionable is make in light of its setting, purpose, and effect. Relevant factors include weakness of the contracting process and public policy grounds rendering contract unenforceable. Historic Standards Modern procedural reforms have blurred the distinction between remedies at law and in equity. Overall Imbalance Inadequacy of consideration does not by itself invalidate a bargain, but gross depravity in the values exchanged may be an important factor in a determination that a contract is unconscionable and may be sufficient ground, without more, for denying specific performance. Weakness in the Bargaining Process Bargains are not unconscionable merely because parties are at unequal bargaining positions, nor because inequality results in an allocation of risks to the weaker party. However, gross inequality, together with terms unreasonable favoring stronger party, may point to elements of deception or compulsion supporting that the weaker party really did not have a choice, no real alternative, or did not in fact assent to the unfair terms. Unconscionable Terms Particular terms maybe unconscionable whether or not the contract as whole is unconscionable. Law and Fact Determining whether a contract or term within is unconscionable is make in light of all the material facts. Remedies Specific Performance is denied where the contract as a whole was unconscionable when made. If such a contract is entirely executory, denial of money damages may also be appropriate. But, policy is not penal: unless parties can be restored to precontractual positions the offending party will ordinarily be awarded at the reasonable value of performance rendered by him.
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Where a term rather than the entire contract is unconscionable, the ordinary remedy is to deny effect to the unconscionable term. RESTATEMENT 211 Standardized Agreements pp. 1140 (1) Except where stated in subsection 3, where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, be adopts the writing as an integrated agreement with respect to the terms included in the writing. (2) Such a writing is interpreted whenever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard of the writing.
(3)
Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular item, the term is not part of the agreement.
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Contracts Outline - Siegelman - Fall 2011

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Contracts Outline Prof. P. Siegelman

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Contracts Outline Prof. P. Siegelman

Rockingham County v. Luten Bridge Co. (p. 131) cancelled bridge

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Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

breachlaborer cant increase his wages by quitting).

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Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

WHAT IS AN OFFER? P. 305

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Offeror makes Offer (M)

Offeree sends Acceptance (T)

Offeror (M) receives acceptance

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Seller happy Price Quantity

Wood v Lucy, Lady Duff-Gordon (p. 434) fashion designer

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Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

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Contracts Outline Prof. P. Siegelman

Comparing Pacific Gas (Traynor) and Trident (Kozinski)

Contracts Outline Prof. P. Siegelman

Should Parol ev be admitted?

Is written agreement intended to be final?

Is final agreement complete and exclusive?

Extrinsic ev that is Inconsistent will Not be allowed

No Extrinsic ev will be admissible

no Can bring in consistant ev to show additional terms

Contracts Outline Prof. P. Siegelman

Contracts Outline Prof. P. Siegelman

Can objective meaning be No agreement determined? (Look no to course of Only seemed

Contracts Outline Prof. P. Siegelman

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D has to have received a benefit