401 Ware Contracts Spring 2011

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I. Introduction a. UCC: general sections i. Scope 1. UCC 2-102: UCC applies to transactions in goods (not just sale of goods). a. Extends to other business relationships 2. UCC 2-106(1): contract and agreement are limited to those relating to the present or future sale of goods ii. Goods: 1. UCC 2-105: goods mean all things which are moveable at the time of identification to the contract for sale a. Also includes the unborn young of animals and growing crops iii. UCC 1-103: if the UCC does not address a specific issue, principles of law and equity will supplements its provisions iv. Almost all states have adopted a UCC v. UCC 1-201(3): Agreement means the bargain of the parties in fact as found in their language or by implication from other circumstances including the course of dealing or usage of trade or course of performance vi. UCC 1-201(11): Contract means the total legal obligation which results from parties agreement as affected by this act and any other applicable rules of law. vii. UCC 1-203: every contract or duty within this act imposes an obligation of good faith in its performance or enforcement II. Basis for enforcing Promises a. CONTRACTS: i. Definition: 1. Re. 1: A K is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law may in some way recognize as a duty. 2. UCC 1-201(11): see above 3. Element of the future is in inherent in a K. ii. General Terms 1. Promise: Re. 2: manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding a commitment has been made 2. Agreement: a. Re. 3: manifestation of mutual assent on the part of two or more persons b. UCC 1-201(3): see above c. Agreements are not contractsExample: I think it is going to rain today. I agree. This is an agreement and not a contract 3. Bargain: Re. 3: Agreement to exchange promises or to exchange a promise for a performance or to exchange performances 4. How a K is made: Re. 4: A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct. 5. Beneficiary: performance benefits person other than promisee 6. Guaranty: promise that 3rd person wont/will perform something 7. Illusory promises: promise that makes performance optional 8. Opinions and predictions: opinions lack manifestation of intent, unless person was paid for opinion as an expertthen there may be a promise iii. Why enforce contracts? 1. Creates confidence in business 2. Reliance is bigthese people are relying on conditions being enforced. The promisee has a reliance interest if it has changed its position to its detriment in reliance on the promise.
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3. Expectation interestputs person in position as if K was performedall persons expect contract to come through. The promisees injury consists of being worse off than if the promise had been performed. 4. Restitution interestthe promisee has a restitution interest if it has not only relied on the promise but conferred a benefit on the promisor 5. Relief to the aggrieved promisee should attempt to put the promisee in the position in which it would have been had the promise been performed. iv. 3 questions to the creation of a contract 1. Was there mutual assent? 2. Was there consideration or some substitute therefore? 3. Are there any defenses to creation of the contract? III. Creating contractual obligations a. The nature of assent i. General rule: objective assent over subjective assent ii. Re. 17 Requirement of a bargain: formation of a K requires a bargain in which there is manifestation of mutual assent to the exchange and consideration iii. Re. 18 Manifestation of mutual assent: manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance iv. Objective v. subjective assent 1. Subjective: what your actual intent is 2. Objective: does not matter what the intent is, its a matter of outward manifestations and is judged on the basis of what a reasonable person would believe a. Re. 19(3): the conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting K may be voidable b/c of fraud, duress, mistake, or other invalidating cause. v. Hand and Frankboth said that a contract has nothing to do with the personal intent of the parties, but is created by the acts of the parties vi. Manifestation of intention: it means the external expression of intention as distinguished from undisclosed intention Re. 2 comment b vii. Jesting: Re. 18 comment c: where all parties to what would otherwise be a bargain manifest intention that transaction is not to be taken seriously, there is no such manifestation of assent to the exchange 1. Lucy: A person cannot set up that he was merely jesting when his conduct and words would warrant a reasonable person in believing he intended a real agreement. (117) viii. Lucy v. Zehmer, 117: mental assent not required 1. the mental assent of the parties is not requisite for the formation of a K. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party 2. A contract is determined on the basis of words and actions ix. Drunkenness: K is voidable if person is too drunk to know what hes doing and other person is aware of it. 1. Re. 16: intoxicated persons: a person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know (objective outward expression) that by reason of intoxication a. He is unable to understand in a reasonable manner the nature and consequences of the transaction (subjective) OR b. He is unable to act in a reasonable manner in relation to the transaction (objective) c. Comment bintoxication must be so extreme as to prevent any manifestation of assent x. Some contracts are unenforceable because of obvious absurdity
1. Leonard v. Pepsi P sent a check for $700,000 and 15 Pepsi points for Harrier jet; Held for D on obvious absurdity of the commercial b. Intent to be bound p.122 i. Generally 1. Re. 21 Intention to be legally bound: Neither real nor apparent intention that a promise be legally binding is essential to the formation of a K, but manifestation of intention that a promise shall not affect legal relations may prevent the formation of a K. a. a promisor may not be bound if the promise, whether from its content or the circumstances of its making, is insufficiently serious to indicate the promisors intent to be bound 2. a partys intent is what a reasonable person in the position of the other party would think that the 1st partys objective manifestation of intent meant 3. intent to be bound factors (in the absence of a document executed by both sides) a. whether there has been an express reservation of the right not to be bound in the absence of writing b. whether there has been a partial performance of the K c. whether the terms of the alleged K have been agreed upon d. whether the agreement at issue is the type of contract that is usually committed to writing e. Re. 26: Preliminary negotiations 4. Not every agreement results in a binding, legally enforceable K a. Social affairsp.1232 friends went hunting, driver took a curve too fast, injured passenger, passenger sued, claiming he had told him he would accompany him on the agreement he would take a carNo K, not a commercial agreement b. Married couplescourt denied wife recovery on the her husbands promise to pay her an allowance on the grounds that such promises are not Ks because parties did not intend that they should have legal consequences 5. Letter of intentsigned by the issuer which sets out, often in considerable detail, the terms of the purposed underwriting, but states that no liability or obligation of any nature whatsoever is intended to be created as between the parties a. Letters of intent are serious and arent typically expected to be final, but you have to be careful 6. Gentlemens agreementfirm commitment understanding says we are not bound by this 7. Formal contract contemplated: this can happen in a routine house sale. B and S can exchange very short notes with the main issues, but saying we anticipate a more formal contract a. Re. 27: Existence of contract where written memorial is contemplated b. Absent an expressed intent that no K shall exist, mutual assent between the parties, even though oral or informal, to exchange acts or promises are sufficient to create a binding K c. To avoid the obligation of a binding K, at least one of the parties must express an intention not to be bound until a writing is executed ii. Re. 22 Mode of assent: offer an acceptance 1. The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties 2. A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined c. Ks for the sale of goods i. UCC 2-204formation in general
1. A K for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a K. 2. An agreement sufficient to constitute a K for sale may be found even though the moment of its making is undetermined. 3. Even though one or more terms are left open a K for sale does not fail for indefiniteness if the parties have intended to make a K and there is a reasonably certain basis for giving an appropriate remedy d. OFFER i. Definition 1. an act whereby one person confers upon another the power to create contractual relations b/w themthe act of the offeror operates to create in the offeree a power; thereafter the voluntary act of the offeree alone will operate to create a new relation called a KCORBIN 2. 3 questions to an offer a. Was there an expression of promise, undertaking, or commitment to enter into a K? b. Were there certainty and definiteness in the essential terms? c. Was there communication of the above to the offeree? 3. Re. 24: Offer defined: 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. ii. Language: 1. Degradation in order of probability that language would constitute an offer a. I offerI will sellI promise to sellI would sellI might sell 2. The word quote is commonly understood as inviting an offer rather than as making one a. Ex. I quote youfor immediate acceptance will probably be construed as an offer. By coupling words of invitation with words of offer, the offeror has at least created an ambiguity, which will be construed in the favor of the offeree. 3. A question is never an offer 4. No offers because of language: a. Owen v. Tunison, 127: P (buyer) writes: will you sell me your store property for the sum of $6,000? D wrote back: it would not be possible for me to sell unless I were to receive $16,000 b. Price quote c. Considered an invitation to negotiate d. Language was such that the offeree would know the offeror wanted further manifestation of assent e. not an offer because i. he was responding to the question (no indication of intent) ii. not strong enough language f. see Re. 26 Ill. 4 iii. Preliminary Negotiations: Re. 26 1. A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed 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 2. General ruleprice quotes arent offers, but quote can be used in an offer iv. Certainty: Re. 33 1. To form a K, the terms must be reasonably certain i.e. provide basis for determining existence of breach and giving appropriate remedy v. Existence of K when written memorial is contemplated: Re. 27
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1. Its possible to make a K which includes an obligation to execute a final writing which has certain set provisions/no others; but if parties regard it as incomplete, theyre preliminary negotiations and not K Price Quotes 1. Owen v. Tunison above 2. Harvey v. Facey, 129 (Re. 26 Ill. 1) a. Mere statement of a possible sale price is not binding as an offer to contract for that price b. Reply to will you sell blank with lowest price for blank does not contain an implied contract 3. Fairmount Glass Works, 130 (Re. 26 Ill. 3) a. A price quote may give rise to an enforceable K if it contains detailed language regarding the required method of acceptance b. Responding to an inquiry: to list lowest price that seller will sell goods for, with the prices as well as the availability of the goods upon immediate acceptance can bind the seller into a K. Advertisements generally not offers 1. Lefkowitz, 134 (Re. 26 Ill. 1) a. An advertisement that is clear, definite, and explicit, and leaves nothing open for negotiations, constitutes an offer, acceptance of which will complete the contract b. Language used in ad was first come, first servebut when P showed up, the store refused to sell b/c of the house rule that the ad was only for women c. An advertiser has the right to modify their offer at any time before acceptance, not after d. However, the ad is a valid K if nothing was left open for negotiation Construction contract 1. Elsinore School v. Kastorff, 139 a. A contractor can rescind from K if he made an honest clerical error, promptly rescinded it and told other party about it 2. Mistakes are common because of limited time to submit bids 3. Requirements to rescind: a. Promptly tell other party about mistake b. Mistake has to be materialnot resulting from neglect of legal duty c. Enforcing K would be unconscionable d. Other party can easily be returned to position prior to K Auctions: 1. Re. 28: general rule is that an auctioneer may withdraw goods until he announces the completion of the sale a. Without reserve: offer to sell at any price to the highest bidder not matter what; goods cant be withdrawn b. With reserve: unless otherwise stated, auctioneer may withdraw goods at any time until he announces the completion of the sale i. UCC 2-328: Sale by auction Option Contracts 1. An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. 2. Definition: A promise which meets requirements for formation of K & limits promisors power to revoke. a. Usually expresses fixed time offeree must exercise option. 3. How do you create option? a. Consideration b. Firm Offers; UCC 2-205
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4. Example: A tells B he has until Friday at noon to accept offer for land. B hears A sold to
C Thursday afternoon. W/o consideration, A can revoke before deadline. Dickinson v. Dodds a. Goods: UCC applies so you dont need consideration. Just need signed writing from offeror saying firm offer will be held open. UCC 2-205 xi. Firm Offers1. 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. a. Accept w/in time specified, but if none, it cant exceed three months. b. Need offerors signature. UCC 2-205 2. Merchant- includes not only the person who deals in goods of the kind but also one who holds himself out as having knowledge/skill peculiar to the practices or goods in transaction. UCC 2-104 3. Signed- includes any symbol executed or adopted by a party w/present intention to authenticate a writing. UCC 1-201 (37) 4. Written- or writing includes printing, typewriting or any other intentional reduction to tangible form. UCC 1-201 (43) e. MISTAKE i. Definition: Re. 151: a mistake is a belief that is not in accord with the facts ii. Effect of misunderstanding: Re. 20 1. No mutual assent if the parties attach different meanings to their manifestations and neither/both parties know the meaning attached by the other a. This is just frolic and banter 2. Their manifestations are operative in accord w/ meaning attached by 1 party if that party a. Does not know of any different meaning attached by the other, and other knows that meaning attached by the first party; or b. Has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party iii. Bilateral Mistake: Re. 152 1. Mistake where both parties have a belief of the facts that is not correct 2. If mistake has a material affect, the contract is voidable unless the party bears the risk of mistake under Re. 154 iv. Unilateral Mistake: Re. 153 1. Mistake where one party is mistaken 2. Makes it harder on the party claiming the mistake b/c it has added language that it has to be unconscionable to enforce the K or the other party had reason to know of the mistake in order for it to be voidable v. When a party bears the risk of a mistake: Re. 154 1. a party bears the risk of a mistake when allocated by agreement, or when he is aware he has only limited knowledge and treats this knowledge as sufficient, or when the court allocates the risk to him b/c it is reasonable to do so 2. if a man binds himself b K to do a possible act, he must perform unless prevented by an act of God (Stees v. Leonard) vi. Damages for mistake: 1. No reliance interest awarded b/c parties were free from fault 2. When a party rescinds a K in absence of fraud or misrepresentation, he is entitled only to restitution for any benefit conferred by part performance or reliance (Renner v. Kehl) vii. Sample cases: 1. Unilateral Mistake: a. Elsinore v. Kastorff, 139
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i. A contractors error in calculating a bid can be grounds for rescission if it is an honest mistake, offeree is promptly notified, the error was not a neglect of legal duty, the amount is material, and offeree may be placed in the status quo ii. Re. 153, Ill. 1 2. Bilateral Mistake a. Stees v. Leonard, 808 (Re. 154, Ill. 5) i. A person can be held liable for an agreement in which they were required to construct a building, even though they are not able to finish the project due to the fact that the soil they were supposed to build on was composed of quicksand. (a bi-lateral mistake of facts) ii. This is an older casecourts have evolved since then, as evidenced in Renner, rule changed by Restatement b. Renner v. Kehl, 811 i. A party was allowed to rescind his agreement to buy land when he made it clear that his only purpose for buying the property was to farm on it and needed an adequate supply of water. Both parties felt the land had enough water, but eventually found the land to not have enough. c. Re. 154 comment a i. Seller of farm land generally cannot avoid the contract of sale upon later discovery that the land contains valuable materials, even though the basic assumption during negotiation was that there were none. 1. The court will ordinarily allocate the risk of the mistake to the seller, so that he is under a duty to perform regardless of the mistake. d. Diamond in the rough, 815 i. D bought stone from P for $1, neither knew what it was. Later it was determined to be a diamond worth $700. The court dismissed Ps action b/c they had no belief of what a jewel was, so no mistake. e. Pregnant cow case, 815 i. A contracts to B a cow for $80. Both A and B believe the cow is sterile and therefore virtually worthless, but in fact the cow is not sterile and is worth $750. The contract is voidable by A. 1. Distinction here is that in the cow case they both knew that the cow was barren. But, in the diamond case, neither party knew what the stone really was. ACCEPTANCE i. Definition: Re. 50(1) 1. Acceptance of offer is a manifestation of assent to the terms made by the offeree in a manner invited or required by the offer 2. A voluntary act of offeree whereby he uses power conferred on him by the offeror and creates a K. ii. General terms 1. Form of acceptance invited: Re. 30: offeror may invite or require acceptance by: a. Words b. Performance or refraining from certain acts c. Letting the offeree make a choice d. Where none is stated, may accept by any reasonable means 2. Time when acceptance takes place: Re. 63 a. It takes effect as soon as it is out of the offerees possession, regardless if it ever reaches offeror b. Option Knot accepted until offeree receives it
3. Intl Filter v. Conroe Gin, 147: the offeror controls the method and means of acceptance by the language of the offer 4. Reasonableness of medium of acceptance: Re. 65 a. Medium of acceptance is reasonable if it is one in which the offeror used or is customary used is similar transactions b. Not binding when a mental decision isnt indicated by speech/put into some act of indicationwhite v. corlies and tift, 152 5. What if the type of acceptance isnt clear? a. Re. 32 Invitation of promise or performance i. if there is a doubt, an offer is seen as inviting promise or performance 6. To whom an offer is addressed: Re. 29 a. The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance b. Offer may create a power of acceptance in one person or a group of people, acting separately or together, or in anyone who makes a specified promise or renders a specified performance 7. Who may accept an offer: Re. 52 a. An offer can be accepted only by a person whom it invites to furnish the consideration 8. Necessity of acceptance complying with terms of offer: Re. 58 a. Acceptance must comply with the terms of the offer 9. Acceptance of offer which states place, time or manner or acceptance: Re. 60 a. If an offer merely suggests a permitted place, time, or manner of acceptance, another method of acceptance is not precluded. b. Prescribed terms must be complied with in order to create a K. 10. Mirror Image Rule: a. Acceptance must be on the terms proposed by the offer and without the slightest variation. Anything else is a rejection/counter-offer. b. An offerees power of acceptance in terminated by him making a counter-offer, unless the offeror has manifested contrary intention or unless the counter-offer manifests a contrary intention of the offeree. Re. 39 iii. Shipment of goods as acceptance 1. Formation in general: UCC 2-204 a. A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by the parties b. Agreement may be sufficient to constitute a K even though the moment of its making is undetermined c. If parties intend to make a K, its valid despite missing terms, if there is any reasonably certain basis for granting a remedy 2. Offer and acceptance in formation of K: UCC 2-206 a. Any reasonable manner of acceptance is intended to be available unless the offeror has indicated ambiguously otherwise b. An offer to buy goods for prompt or current shipment invites acceptance by either promise for prompt or current shipment i. Shipping nonconforming goods isnt acceptance if seller notifies buyer that the shipment is offered only as an accommodation to the buyer ii. Buyer is too late if the seller has promptly shipped c. If an offeror isnt notified of acceptance in reasonable time, he may treat is as lapsed. iv. Uni-lateral contracts 1. Only 1 party makes a promiseits a promise seeking a performance
a. Ex. a guy loses a dog and promises $50 for anyone to find it. No one actually accepts the offer, they just perform it. 2. Restatments: a. promise by performance: Re. 50(2) i. Requires that at least part of what the offer requests be performed, so that performance is deemed acceptance, which operates as a return promise b. Do you have to notify of acceptance? Re. 54 i. (1) Offeree doesnt have to notify offeror when accepting performance, unless the offeror requests such notification ii. (2) Exceptions 1. When the offeree knows that the offeror has no adequate means of promptly learning of the performance with certainty 2. If so, offeror is not bound unless a. Offeree uses reasonable diligence to notify the offeror, b. Offeror learns of performance w/in a reasonable time c. The offer indicates notification of acceptance isnt required c. Acceptance by performance: Re. 53 i. Invite onlyrendering performance can only be acceptance if offeror invites such acceptance ii. Saying no after part performanceexcept in Re. 69, performance doesnt constitute acceptance if in a reasonable time the offeree exercises reasonable diligence to notify the offeror of non-acceptance iii. No means nowhere an offer of a promise invites acceptance by performance and does not invite promissory acceptance, the rendering of the invited performance does not constitute an acceptance if before the offeror performs his promise, the offeree manifests an intention not to accept. d. Option contract created by part performance: Re. 45 i. If offer only invites acceptance by performance, an option K is created when the offeree begins performance. The offerors duty of performance is conditional on the completion of the invited performance. ii. Cannot just prepare to begin, must actually begin performance. e. Effect of performance w/o knowledge of offer: Re. 51 i. offeree who learns of an offer after part performance may accept by completing the performance; unless offeror manifests a contrary intention ii. offeror must be aware before completion of performance 3. Sample case a. Notice in unilateral Ks: Carlill v. Carbolic Smoke Ball, 158, Re. 54 Ill. 2 i. If offeror expressly/impliedly intimates that its sufficient to act on proposal w/o communicating acceptance, performance is sufficient acceptance w/o notification
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BI-LATERAL CONTRACTS i. Acceptance by Promise1. Offeree must complete every act essential to making of a promise. Rstmt 50(3) 2. Both parties make promises; Promise for Promise 3. Ex: I promise to pay you on April 15 if you promise now that you will walk across the Brooklyn Bridge on April 1. P. 220 ii. Necessity of Notification1. Notice is essential part of the acceptance.
Need to make reasonable effort to notify OR offeror must be notified seasonably. No notice is necessary if offer manifests a contrary intention. Rstmt 56 iii. Re. 57: Effect of Equivocal Acceptance 1. Where notification is essential to acceptance by promise, the offeror is not bound by an acceptance in equivocal terms unless he reasonably understands it as an acceptance. iv. Sample Cases 1. Notice in Bi-Lateral Contracts a. An offer that was to be submitted for prompt acceptance was a contrary intention that the offeror did not require notification of acceptance. International Filter v. Conroe Gin, Ice, and Light, p. 147; Rest. 56, illust. 1 b. An offer to revoke was timely, even though the offer contained a clause that said, upon agreement to finish in two weeks, you can begin at once, because there was no affirmative act that was recognizable as an acceptance of an offer before the offeror showed that he desired to revoke his offer. White v. Corlies & Tift, p.152; Rest. 62, illust. 1 c. When K doesnt specify the time w/in acceptance is required, notice to workmen upon their arrival with materials, that the customer did not desire them to commence the actual work, was not sufficient and timely to indicate their intention to withdraw from the contract. Ever-Tite Roofing Corporation v. Green, p. 154 b. CHOICE OF METHOD OF ACCEPTANCE OR DOUBT i. Where Offer Invites Performance or Promise1. Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, beginning the performance is acceptance. 2. This makes it a promise to complete the performance. Rstmt 62(1) ii. What if type of Acceptance isnt clear? 1. In the case of doubt, the offer is interpreted as inviting the offeree to accept by performance or promise. Rstmt 32 iii. Sample Cases: 1. Mere Suggestion of Acceptance a. An offeree cant be excluded from the binding acceptance of a contract, when the offeror said a purchase order should be executed & returned to the buyer for acceptance, and the offeree began work agreed upon by the two parties, but did not accept by the method suggested by the offeror. Allied Steel v. Ford Motor Company, p. 158 c. ACCEPTANCE VARYING FROM OFFER i. Acceptance that Adds Qualifications- Reply to an offer which adds qualifications is a counteroffer, not an acceptance. Rstmt 59 ii. Acceptance that Requests Change of Terms- Acceptance that requests a change of terms is not invalidated unless the acceptance depends on assent to the changed terms. Rstmt 61 d. SILENCE AS ACCEPTANCE i. Silence is not acceptance, except in the following cases: Rstmt 69 1. When an offeree takes a benefit with reasonable opportunity to reject and has reason to know offeror wanted compensation. 2. Where an offeror states or gives offeree reason to understand that assent may be manifested by silence or inaction, & offeree remains silent w/intent to accept the offer. a. Mere fact that offeror states that silence will constitute acceptance does not deprive the offeree of his privilege to remain silent without accepting. 3. Where previous dealings or otherwise show it is reasonable that the offeree should notify the offeror if he does not intend to accept. a. For 20 years, buyer had called in orders to seller in which would be followed up by a written purchase orders, at which time, seller would begin production.
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When seller refused to fill three orderscourt found that absent a notice of rejection buyer would be justified in believing that seller had indeed begun production. American Bronze Corp v. Streamway, p.167 ii. An offeree who acts inconsistent w/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. 1. A sends B a one-volume edition of Shakespeare with a letter saying, If you wish to buy this book send me $6.50 within one week after receipt hereof, otherwise notify me and I will forward return postage. B examines the book and without replying makes a gift of it to his wife. B owes A $6.50 Rest. 69, Illus. 7 2. Same facts, but B examines the book and without replying carefully lays it on a shelf to await As messenger. There is no contract. Rest. 69, Illus. 8 iii. Offerors Receipt of Late Acceptance- A late acceptance may be an offer, but silence operates as acceptance in such a case only as 69. Rstmt 70 2. TERMINATION OF THE POWER OF ACCEPTANCE a. GENERAL i. Offerees Power of Acceptance1. Offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer 2. 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 36. Rstmt 35 ii. Re. 61: Acceptance which requests change of terms 1. An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms. iii. How to Terminate Acceptance1. Offerees power of acceptance may be terminated by: a. Rejection or counter-offer by the offeree b. Lapse of time c. Revocation by the offeror d. Death or incapacity of offeror or offeree e. When a condition of acceptance under offers terms doesnt occur. Rstmt 36 iv. Terminating Power of Acceptance Under Option Contract1. Acceptance under option K isnt terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty. Rstmt 37 2. A leases land to B w/option to buy for $10k in cash. Mistaken, B offers a mortgage for $10k, & A refuses. B can still use option by following terms of lease. Rest. 37, Illus. 2 b. LAPSE OF THE OFFER i. When Terminated: Power of acceptance is terminated at time specified in offer, or, if no time specified, at the end of a reasonable time. 1. Reasonable time: question of fact that depends on circumstances when offer & attempted acceptance are made. 2. By Mail: Need to mail by midnight on day offer is received, unless otherwise indicated by the language or the circumstances. Rstmt 41 3. Delay: If offer is delayed & offeree knows, acceptance is NOT extended; but if offeree doesnt know about delay, he can accept based on when it arrives. Rstmt 49 ii. Face to Face: Ordinarily an offer made face to face is deemed to continue only to the close of their conversation, and cannot be accepted thereafter. Akers v. Sedberry, Inc., p. 168 iii. Reasonable: What time would be thought satisfactory to the offeror by a reasonable man in the position of the offeree? Rest. 41, comment b
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REVOCATION i. Direct Revocation1. Offerees power of acceptance is terminated when offeror manifests intention not to enter into the proposed contract. Rstmt 42 2. A makes an offer to B, and later says to B, Well I dont know if we are ready. We have not decided, we might not want to go through with it. The offer is revoked. Hoover Motor Express Co. v. Clements Paper Co., p.171; Rest. 42, illust. 5 ii. Option Contract1. An option contract is a promise which meets the requirements for the formation of a contract and limits the promisors power to revoke an offer. Rstmt 25 iii. Indirect Revocation1. Acceptance is terminated when offeror acts inconsistent w/an intention to enter into the proposed contract & offeree gets reliable info to that effect. Rstmt 43 2. A offers land to B at a stated price and gives B a week to consider the proposal. Within the week, A contracts to sell to C & B hears this by a tenant of the premises. B then sends formal acceptance which is received by A w/in the week. There is no contract between A and B. Dickinson v. Dodds, p. 171; Rest. 43, illust. 1 iv. Revocation of General Offer1. Offer by advertisement in paper or to general public, is terminated when notice of termination gets publicity equal to that of the offer. Rstmt 46 v. Firm Offers1. 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. a. Accept w/in time specified, but if none, it cant exceed three months. b. Need offerors signature. UCC 2-205 2. Merchant- includes not only the person who deals in goods of the kind but also one who holds himself out as having knowledge/skill peculiar to the practices or goods in transaction. UCC 2-104 3. Signed- includes any symbol executed or adopted by a party w/present intention to authenticate a writing. UCC 1-201 (37) 4. Written- or writing includes printing, typewriting or any other intentional reduction to tangible form. UCC 1-201 (44) d. DEATH OF AN OFFEROR i. When is Acceptance Terminated? When the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract. Rstmt 48 1. Acceptance not terminated by death/incapacity under an option K. ii. Is Contract Terminated? Generally, if K is made, it is enforceable after death/incapacity. 1. Sale of land is a situation in which a contract would be enforced even after death. e. REJECTION i. Rejection1. Offerees power of acceptance is terminated by rejecting the offer, unless offeree has said contrary. 2. Manifestation of intent not to accept offer is rejection unless offeree does so to take it under further advisement. Rstmt 38 3. Rejection isnt effective until its received. Rstmt 40 ii. Mirror Image Rule1. Acceptance must be on the terms proposed by the offer without the slightest variation. Anything else is rejection/counter-offer. Text, p. 182 2. An offerees power of acceptance is terminated by a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree. Rstmt 39
c.
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Downloaded From OutlineDepot.com iii. Implied Terms: What seems to be an additional or different term in the acceptance could be an
implied term in the offer, so that language that at first appeared to vary the terms of the offer did not really do so. iv. A court may conclude that the language of the acceptance relating to an additional offer or different term is only recommended.
f.
MAILBOX RULE: CONTRACTS BY CORRESPONDENCE i. When Offeror Revokes1. Power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract. Rstmt 42 ii. Acceptance good on dispatch- Unless the offer provides otherwise, acceptance takes effect when dispatched, whether or not offeror receives it. Rstmt 63 1. Option K- Acceptance not good until received by the offeror. 2. Lost/delayed acceptance- Offeror bears risk if acceptance is lost or delayed. 3. Example: A firm of wool dealers that had made an offer by post to sell 800 fleeces could not revoke the offer after the offeree, a firm of woolen manufactures, had put a letter of acceptance in the post. Adams v. Lindsell, 185, Re. 63 comment a 4. If rejection is sent after acceptance but arrives first, acceptance is still good on dispatch. a. But, offeree may be estopped from enforcing K if offeror relied on rejection. iii. Rejection good when received1. Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror. a. But acceptance mailed after sending rejection/counter-offer is only a counteroffer Unless the acceptance is received by the offeror before he receives the rejection or counter-offer. Rstmt 40 2. Exceptions: Offeror can back out if offeree sends acceptance & rejection & rejection was received 1st. Even though acceptance is good when sent, offeror relied on rejection b/c he got it 1st. iv. Acceptance by Telephone- Acceptance by telephone governed by same principles as if parties were in the presence of each other. Rstmt 64 v. Must be Properly Dispatched- Precautions must be taken to insure safe transmission of acceptance or it isnt good. Rstmt 66 vi. Effect of Receipt of Acceptance if Improperly Dispatched-If offeree uses means of transmission not invited, or does not take proper care in transmission, it is good on dispatch if it arrives within the time a properly dispatched acceptance would have. Rstmt 67
3. PRECONTRACTUAL LIABILITY a. RELIANCE ON PROMISE THAT SEEKS A PROMISE i. Promise Reasonably Inducing Action or Forbearance1. Promise reasonably inducing action or forbearance is binding if injustice can be avoided only by enforcement of the promise. Rstmt 90 a. Was promise 1 which promisor should reasonably expect to induce action or forbearance? b. Did promise induce such action/forbearance? c. Can injustice be avoided only by enforcement of the promise? d. MUST LOOK TOWARDS RELIANCE NOT EXPECTATIONS ii. Option K1. An offer that should reasonably expect to induce action/forbearance on the part of the offeree before acceptance is binding as an option K to the extent to avoid injustice. Rstmt 87(2) iii. Option Contract Created by Part Performance1. Option K is created when offeree begins invited performance. Rstmt 45
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A writes to daughter B in another state, & offers to leave As farm to B if she gives up her home & cares for As remaining life; B remains free to terminate arrangement at any time. B gives up her home, moves to As farm, and begins caring for A. A is bound by an option contract. Rest. 45, Illus. 6; Move to Maine, p. 221 iv. Performance or Promise1. If offeree has a choice of performance or promise, and starts performing he has accepted and must complete performance. Rstmt 62 v. Sample Cases 1. A subcontractors offer was irrevocable, even though there was no acceptance, because the general contractor relied to his own detriment on the subcontractor. Drennan v. Star Paving, p. 225; Rest. 87(2) illust. 6 a. **This applies 87(2) because it was an offer, not a promise 2. A general contractor was not bound to hire a subcontractor whose bid was listed under the general contractors bid to owner b/c subcontractors dont rely on the general contractor in the same way. Holman Erection v. Orville E. Madsen & Sons, p. 227
2. b.
LIABILITY WHEN NEGOTIATIONS FAIL i. Promissory Estoppel (Detrimental Reliance)1. Promise may be enforced to prevent injustice if the promisor reasonably expected the promisee to rely on the promise. Person who is suing must have relied on it. Rstmt 90 2. Requirements: Cyberchron v. Calldata, 234 a. Clear & unambiguous promise b. Reasonable/foreseeable reliance by promise c. Injury sustained reliance 3. Examples: a. Family Promises b. Promises to convey land c. Promises coupled w/gratuitous bailments d. Charitable Subscriptions ii. Benefits Conferred- If during the course of negotiations one party has conferred a benefit on the other, the recipient of the benefit may be required to make restitution. 1. Example: Clear case is when buyer has made a down payment 2. Claimants seeking recovery for services performed during negotiations have rarely succeeded. iii. Inducing Action, etc- Promise reasonably inducing action or forbearance is binding if injustice can be avoided only by enforcement of the promise. Rstmt 90 1. The remedy granted for breach may be limited as justice requires. iv. See Uni-Lateral and Bi-Lateral Contracts above - 54 and 56 v. Sample Cases 1. Under the advice of franchisor, franchisee sells bakery at a loss, buys a grocery store, puts down payment on lot in another town, moves his family, & rents a house. Franchisor fails to keep promises that induced franchisee to act to his detriment. Franchisee gets damages, but only actual losses. Since the agreement was never made, franchisee gets no expectation interest. Hoffman v. Red Owl Stores, p. 230; Rest. 90, illus. 10 2. was offered job, rejected another offer & quit current job. Then hirer required letters of rec which he couldnt get, & offer was terminated. find new employment, & court held relied on employer to his detriment to allow him to have an opportunity to perform is duties to satisfaction on the job. Grouse v. Group Health Plan, p. 233
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c.
was compensated under the theory of promissory estoppel despite the fact that negotiations had not been concluded. The damages awarded were only the reliance damages. Cyberchron Corp. v. Calldata Systems, p. 234 LETTER OF INTENT i. Letter of intent has a clause that parties do not intend to be bound ii. P could sue on letter of intent b/c there was consideration when D used deal to get funding from banks by proving he had interested tenants. Letter of Intent was basically a K. Channel Home Centers v. Grossman, p. 239
3.
4. REQUIREMENT OF DEFINITENESS a. Certainty- Rstmt 33 i. Terms have to be reasonably certain to form K, even though a manifestation of intention is intended to be understood as an offer. ii. Terms are reasonably certain if they provide a basis for determining existence of a breach and an appropriate remedy. 1. Employer promised to pay a fair share of my profits. Court held no K b/c it could be any amount from a nominal sum to a material part according to the views of the person. Varney v. Ditmars, p. 246 iii. By leaving 1 or more terms of a proposed bargain open, it may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. iv. Indefinite Price- Where parties intend to conclude K for sale of goods & the price isnt settled, the price is a reasonable price at the time of delivery if: 1. Nothing is said to the price 2. Price is left to be agreed upon by the parties and they fail to agree 3. The price is to be fixed in third person or agency and it is not so set or recorded. b. Causes of Indefinitenessi. Too time consuming ii. People hesitate to raise tough issues b/c deal may fall through iii. Dont foresee future problems iv. Dont want to disclose info that gives other party the advantage c. Certainty and Choice of Termsi. Choosing Terms- Terms may be reasonably certain even if one or both parties have power to make selection of terms during performance. Rstmt 34(1) ii. Part Performance- Part performance may remove uncertainty. Rstmt 34(2) iii. Reliance- Action in reliance may make a contractual remedy appropriate even though uncertainty is not removed. Rstmt 34(3) 1. A says to B: I will employ you for some time at $10 a day. An acceptance by B either orally or in writing will not create a contract. But if B serves one or more days with As assent, A is bound to pay $10 for each days service. Illus. 4 d. Preliminary negotiationsi. If it looks like the offeror isnt ready to go there are only preliminary negotiations. Rstmt 26 e. Uncertainty of Termsi. Specific performance/injunction wont be granted unless terms of K are sufficiently certain to provide a basis for such. Rstmt 362 ii. Could be certain enough to allow damages, but not an injunction. f. Sample Cases i. A and B make a K where A promises to convey part of land to B and B promises to pay $100,000 & build a first class theatre on it, which will enhance the value of As remaining land. A conveys the land to B, who pays the price but refuses to build the theatre. A sues B for specific performance; but its refused b/c the K terms are uncertain. Although A can get damages from B for failure to enhance lands value b/c he can prove them w/reasonable certainty. Rest. 362, Illus. 1
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Downloaded From OutlineDepot.com ii. Agreement b/w Lessee and Lessor stated price shall be renegotiated to the then prevailing rate in
the mall. The lessor wrote the K, & it was held to be an option for the lessee because if there is an ambiguity it should be construed against whoever wrote it. Toys v. F.M. Burlington, p. 249 iii. Oglebay v. Armco, 252 1. Did the parties intent to be bound by the terms of this contract despite the failure of its primary and secondary pricing mechanisms. o Court finds that both had an intent to be bound. If the parties did intend to be bound, may the trial court establish $6.25 per gross ton as a reasonable rate for P to pay D for shipping Ps ore. o The court was justified in granting a reasonable rate. May the trial court continue to exercise its equitable jurisdiction over the parties, and may it order the parties to utilize a mediator if they are unable to mutually agree on a shipping rate for each annual shipping season. o The court deemed it necessary for the parties to negotiate and mediate during each shipping season for the duration of the contract. II. BASIS FOR ENFORCING PROMISES 1. CONSIDERATION AS A BASIS FOR ENFORCEMENT a. FUNDAMENTALS OF CONSIDERATION i. General 2. In a law suit the is trying to uphold the contract, and is trying to get out. So is the promisee and is the promisor. 3. is trying to get to do what they promised to do. is trying to fight the contract, so they will claim failure of or lack of consideration 4. Focus on what the promisee promised b/c that is what is being argued by the promisor as constituting a lack of consideration. 5. Consideration has to do with situations in which promises are not made for a fair equivalent exchange. At the other end a gift promise is not enforceable, b/c they do nothing for the other person, even if a person relies on it. 6. Seals- Using seals dont apply to K to buy/sell goods, nor does such seal law. UCC 2203 iv. Requirements for Consideration 1. Bargain- the exchange of something for something else. a. Mutual Reciprocal Inducement- each promise is done to induce the other. b. Benefit to promisor or detriment to promisee 2. Legal value: detriment element is emphasized in determining whether an exchange contains legal value a. Restatement departs from use of benefit/detriment test. Only question it would ask about consideration is whether something was bargained for and given (or promised to be given) in exchange v. Restatements 1. Requirement of Exchange- Rstmt 71 a. A performance or a return promise must be bargained for!!! b. Performance or return promise is bargained for if it is sought by promisor in exchange for his promise and is given by the promisee in exchange for that promise. c. Performance may consist of: i. An act other than a promise, or ii. a forbearance, or iii. The creation, modification, or destruction of a legal relation d. Example- A desires to make binding promise to give $1k to his son B. Being advised that a gratuitous promise is not binding, A offers to buy from B for
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2.
3.
4.
5.
6.
7.
$1,000 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 $1,000. e. Abandoning or limiting a legal right such as smoking/driving, as an inducement for a promise, is sufficient consideration to create a legally binding K. Hamer v. Sidway, p. 34; 71(3)(b) Performance bargained for is Considerationa. Any performance which is bargained for is consideration, except as stated in 73-74,. Rstmt 72 Settlement of Claimsa. Promising not to bring a claim or defense which turns out to be invalid is not consideration unless: i. It was doubtful b/c of uncertainty to the facts or law, or ii. Surrendering party believes it may be valid Rstmt 74 b. Forbearance to bring a legal claim is sufficient consideration if the party forbearing intended in good faith to sue a well-founded claim. Fiege v. Boehm, p. 40 Consideration as Motive or Inducing Causea. What is bargained for doesnt need to induce the making of a promise to be consideration. b. A promise doesnt need to induce performance or return promise for such performance or return promise to be consideration. Rstmt 81 c. Basically, promisor can have more than 1 motiveits immaterial. Adequacy of Considerationa. Rstmt 79: If you have consideration, you dont need: i. Benefit to promisor or detriment to promisee, or 1. A contracts to sell property to B. As a favor to B (Cs friend) & in consideration of As performance of the K, C guarantees that B will pay agreed price. As performance is consideration for Cs promise. Rest. 79, Illus. 1 ii. Equivalence in the values exchanged or 1. A borrows $300 from B to enable A to begin litigation to recover a gold mine through litigation, and promises to repay $10,000 when he recovers the mine. The loan is consideration for the promise. Rest. 79, Illus. 3 iii. Mutuality of obligation Option Contracta. Rstmt 87(1): An offer is binding as an option K if its: i. In writing & signed by offeror, and ii. Recites consideration for the making of the offer, and iii. Proposes an exchange on fair terms w/in a reasonable time. iv. OR- if it is made irrevocable by statute Guarantya. Rstmt 88: A promise to be surety is binding if: i. Promise is in writing & signed by the promisor and recites a purported consideration; or 1. A executes a written guaranty to B of a debt then due from C. The guaranty is stated to be in consideration of one dollar paid to me by B, the receipt of which is acknowledged. The guaranty is binding whether the dollar is in fact paid or not. ii. The promise is made binding by statute; or
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iii. The promise induces action/forbearance which promisor shouldve reasonably expected. 1. A, an agent to sell books published by B, dies owing B $4k and leaves all his property to his widow C. C, desiring to continue the agency, promises in writing to pay the debt. In reliance on the promise B continues the agency for a year and makes no claim against As estate, which is solvent, until the time for filing claims has expired. Cs promise is binding.
b.
THE REQUIREMENT OF EXCHANGE: ACTION IN THE PAST i. General 1. Promise for Benefit Receiveda. Moral Obligation: A promise made for benefits previously received is binding to the extent to prevent injustice. b. A promise is not binding under subsection (1) i. If promisee conferred benefit as a gift or for other reasons the promisor has not been unjustly enriched; or ii. To the extent that its value is disproportionate to the benefit. Rstmt 86 2. Past performance is not considerationa. Actions done prior to the bargaining process, which were not done as part of the bargaining, arent sufficient consideration to support a promise. Feinberg v. Pfeiffer, p.46 b. A gives emergency care to Bs adult son while the son is sick and without funds far from home. B subsequently promises to reimburse A for his expenses. The promise is not binding under this section. Mills v. Wyman, p. 50; Rest. 86, Illus. 1 i. Would probably have been a different result had the sick child been a minor because then the father would have had a legal duty to take care of his son, and would have received a benefit for A having taken care of him. c. Example: i. When a past action involves saving a party from death or serious injury, the assisting party may enforce a subsequent promise to pay for the assistance. Webb v. McGowin, p. 52; 86, Illus. 7 d. Exceptions: i. Statute of Limitations- if A owes debt, but doesnt have to pay b/c of S of L, if he promises to pay, he has to. Rstmt 82 ii. Bankruptcy- an express promise to pay debts out of bankruptcy is binding. Rstmt 83 ii. Exceptions for Past Performance 1. Statute of Limitationsa. Promise to pay indebtedness is binding if its enforceable or would be but for statute of limitations. Rstmt 82 b. Examples of such: i. Voluntarily acknowledging the debt; or ii. Voluntarily paying $/interest on previous debt; or iii. Stating the statute of limitations wont be used as a defense. c. A owes B three debts of $500 each. All of the debts are barred by the statute of limitations. A writes to B, I promise to pay you one of those $500 debts which I owe; the other two I shall not pay. As promise of $500 is binding. Rest. 82, Illus. 2
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2. Bankruptcya. Promise to pay previous debt excused by bankruptcy is binding. Rstmt 83 b. A owes B $100 & is about to file bankruptcy. Immediately before filing his petition he promises to pay despite any discharge that he may get in bankruptcy. The promise is not binding but would have been binding if it had been made after the petition in bankruptcy was filed. Rest. 83, Illus. 1
c.
REQUIREMENT OF BARGAIN i. General 1. There must be a bargained for exchange to create a contract. ii. Bargained for Exchange 1. Asking someone to live at your home and offering them a comfortable place to stay is not valid consideration, even if the person abandons their previous home on reliance of the promise to provide a place to live. Kirksey v. Kirksey, p. 56 2. If benevolent man says to a tramp, If you go around the corner to the clothing shop there, you may purchase an overcoat on my credit. The walk requested is not consideration for the promise, but if the tramp goes to the shop the man will make a gift of the coat. Benevolent man and tramp, p. 57 3. Estranged daughter refuses to see father. He says if she meets him for lunch at Tiffanys, he will buy her an emerald ring. They came, but he failed to buy the ring. This is bargained for exchange, not a gratuitous promise. The daughter was forced to give up resentment she had towards him by meeting him. Lunchtime at Tiffanys, p. 57 4. A non-competition covenant signed by an employee after he is employed by the company for a few weeks, is supported by valid consideration when that employee remains employed by the company for a substantial period after signing the covenant and receives benefits beyond continued employment. Lakeland v. Columber, 58 iii. Rewards 1. Person cant get reward if he didnt know of it b/c its not in exchange for the advertisers promise. Thus, no consideration. Taft v. Hyatt, p. 66 & Rstmt 71 2. If he learns of reward after part-performance, he may accept by completing performance. Rstmt 51 PROMISES AS CONSIDERATION i. Consideration for a promise can be found in a return promise. Rstmt 71(1) ii. Promise for Promise1. A promise bargained for is consideration only if promised performance would be consideration, & not including conditional/illusory promises. Rstmt 75 iii. Promise to Perform Voidable Duty1. A promise to perform all/part of previous K voidable by promisor, but not avoided prior to the making of the promise, is binding. Rstmt 85 2. Example: A is induced by Bs fraud to promise $100 for worthless chattel. After discovering fraud A promises to pay as agreed. Its binding. Rstmt 85, Ill. 2 iv. Conditional Promises1. Definition: A promise is conditional if its performance will become due only if a certain event, or condition, occurs. 2. A conditional promise isnt consideration if promisor knows when K is made that the condition cant occur. Rstmt 76 3. A promise conditional on performance by the promisor is a promise of alternative performances within 77 unless occurrence of the condition is also promised. a. Ex: I will pay you if you suffer a profit-loss v. Illusory Promises1. Definition: The K is optional & party may or may not go through w/it.
d.
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A promise is not consideration if the promisor reserves a choice of alternative performances, unless a. Each alternative performance wouldve been consideration if bargained for; or b. One of the alternative performances wouldve been consideration & its likely that before promisor chooses b/t them, events would eliminate the alternative that wasnt consideration. Rstmt 77 2. General a. Will not have a suing for an illusory promise made by , because will just say it was choice to perform or not, and he chose not to. 3. Sample Cases a. Promise not to collect on a debt for an unspecified period of time isnt sufficient consideration to create K b/c debt can be collected right away. Strong v. Sheffield, p. 69 i. The consideration is tested by the agreement itself, not what happens afterwards. If the promisee had bargained for 2 yr forbearance, then there would be consideration. 4. Exceptions to Illusory Promises a. Satisfaction Clausesi. Where 1 partys performance is dependant on his good-faith satisfaction w/a related matter. Mattei v. Hopper, p. 72 1. A party that must determine the satisfaction of a lease is legally obligated to make a good-faith determination of his satisfaction. Thus, there is a legal obligation & the promise was not illusory. b. Requirements and Output Contracts i. Definition: Buyer buys everything it requires from seller. ii. UCC 2-306 recognizes these b/c party is required to act in good faith. Eastern Air Lines, Inc. v. Gulf Oil Corporation, p. 76 iii. Illusory in the sense that buyer says they will buy everything they need from a supplier, or vice versa. Hypothetically, a buyer could cease operations and not require anything. c. Exclusive Dealing Contracts i. Seller is obligated to use best effort to supply the goods and the buyer to use best efforts to promote their sale in an exclusive dealing arrangement. UCC 2-306(2) 1. This is technically a service covered by the UCC. It does not involve the sale of goods, but a transaction in goods. ii. Exclusive dealing arrangements impose an obligation by seller to use his best efforts to distribute & market goods. iii. Although the never expressly promised to use reasonable efforts to promote s product, that promise may be fairly implied by the court. Thus there is consideration for the s promise to split the profits with . Wood v. Lucy, Lady Duff-Gordon, p. 83
2.
2. RELIANCE AS A BASIS OF ENFORCEMENT a. 4 Basic Categories Before Restatement 2nd i. Family Promises1. Grandfathers promise to make a gift of $ in the future was w/out any valuable consideration, but she relied on it by quitting her job. The promise is binding. Ricketts v. Scothorn, p. 89 ii. Promises to Convey Land-
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1. When promisee relies on promise to convey land by moving onto the land and making
improvements, the promise is binding. Freeman v. Freeman, p. 92 iii. Promises Coupled with Gratuitous Bailments1. A, a bank, lends money to B based on mortgage of Bs new home. The mortgage requires B to insure the property. At the closing of the transaction A promises to arrange for the required insurance, and in reliance on the promise B fails to insure. Six months later the property, still uninsured, is destroyed by fire. The promise is binding. Siegel v. Spear, p. 92; Rest. 90, Illus. 13 iv. Charitable Subscriptions1. The strong desire among American courts to favor charitable institutions has established a doctrine which once would have been looked upon as legal heresy. b. Promise that Induces Action or Forbearance i. A promise which the promisor should reasonably expect to induce action/forbearance does just that, its binding if injustice can be avoided only by enforcement of the promise. 1. The remedy granted for breach may be limited as justice requires. ii. Charitable subscriptions & marriage settlements dont require showing promise induced action or forbearance. Rstmt 90 iii. Promissory Estoppel: A promise intended to induce/forbear, & did, reliance can be enforced only where required to prevent injustice. Cohen v. Cowles Media, 98 1. Modern Estoppel: a. Need promise that promisor should reasonably expect to induce/forbear action. b. It has to actually induce/forbear action. c. Injustice can be avoided only by enforcing K. c. Damages i. Damages are limited to reliance interest in 90, not expectancy damages. D &G Stout v. Bacardi Imports, p. 100 ii. When an employee gives up another job in reliance on the promise of another employer to hire him, he cant get lost wages because this is expectancy. He could get things like travel expenses to find a new job. d. Sample Cases i. A has been employed by B for 40 years. B promises to pay A a pension of $200 per month when A retires. A retires and forbears to work elsewhere for several years while B pays the pension. Bs promise is binding. Feinberg v. Pfeiffer, p. 94; Rest. 90, Illus. 4 1. The fact that she worked for two years after this is irrelevant b/c it was not bargained for. In this case, it is her reliance that makes the promise binding. ii. Newspaper was held liable for breaking a promise to keep a source anonymous, when their report resulted in the sources loss of employment. Cohen v. Cowles Media Company, p. 98 iii. Supplier assured distributor he would continue to act as his supplier, knowing that distributor could only remain in business if he continued to be his supplier. Distributor in reliance on this promise chose not to accept an original offer to sell his plant for more than he would be able to if supplier ceased to supply him. Supplier is liable for the difference in the sales price. D &G Stout v. Bacardi Imports, p. 100 1. Court held this damage was the opportunity cost of relying on the suppliers promise, and thus not expectancy damages. 2. This case also shows that 90 can apply to the traditional business context 3. RESTITUTION AS AN ALTERNATIVE BASIS FOR ENFORCEMENT a. General i. Recovery is based on preventing unjust enrichment. 1. Implied K- (quasi) no meeting of minds; used when services are expensive or burdensome to person giving them.
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2. Implied in fact- parties intend but fail to make K, so court implies their intentions. 3. Implied in law- one who is unjustly enriched at cost of another should make restitution.
b. Implied in Law Contract i. Definition1. Implied in fact contract is one where the court finds that the parties intended to make a contract but failed to articulate their promises and the court merely implies what it feels the parties really intended. 2. Implied in law, there is never actually an agreement 3. Fiction of the law, based on the maxim that one who is unjustly enriched at the expense of another is required to make restitution to the other. It is as if we could have asked the parties at the time that if you could have contracted would you have? ii. Sample Cases1. Surgeon worked on unconscious man w/o consent in emergency; he died. Surgeon was entitled to fair compensation for time/skill, but jury cant consider victims wealth in determining reasonable compensation. Cotnam v. Wisdom, p. 106 c. Quasi-Contractual Liability i. Definition1. Imposed or created by law w/out regard to the assent of the party bound, on the ground that they are dictated by reason and justice. 2. The intention of the parties is entirely disregarded; the duty defines the contract. This duty is frequently based on the doctrine of unjust enrichment. 3. must prove that the was enriched, received a benefit, and that retention of the benefit without payment therefore would be unjust. 4. Requirements: Direct relationship b/t P & D + no other alternative recovery methods. ii. Sample Cases1. put shrubbery on land for a man that was going to buy a house. The man died w/out paying & real estate company cancelled the sale. There were no dealings w/company or , & didnt expect compensation from company when he planted the shrubs. Recovery here was developed to provide a remedy where none existed. In this case can go after the deceaseds estate. Callano v. Oakwood Park Homes Corp., p. 110 2. built a bathroom in home at the request & on credit of their daughter. Contractor went after daughter, but she filed bankruptcy; he went after owners. The was awarded damages for unjust enrichment. This was different from Callano because the service was in the knowledge and consent of the owners, the originally went after the party he contracted with, and when that didnt work to the party that was unjustly enriched. Paschalls Inc. v. Dozier, p. 112 3. Wife agreed to put husband through law school in return for his promise to put her through school when he graduated. He filed for divorce once he graduated, & wife sued for unjust enrichment. Usually, unjust enrichment doesnt apply to marriage. However, when theres an agreement b/w the spouses & a unilateral effort by 1 spouse solely for the benefit of the other, restitution is appropriate. Pyeatte v. Pyeatte, p. 113 4. Established the principal of palimony that when two people live together there can be a cause of action. If you can separate the sexual aspect from the rest of it, then there can be a claim for expressed or implied contract or other equitable relief or restitution. d. Gratuitous Promises i. assisted s intestate who said he owed him $50k for his help over the yrs, & took steps to bind the K. Intestate had promise notarized & delivered it to , but died before he could change the will. Court said the promise was for services already performed, and not supported by consideration. The court ruled that the services were gratuitously performed, without the expectation of compensation.
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III. POLICING THE BARGAIN 1. CAPACITY a. 3 CONCERNS i. Status of Parties- certain classes of people are disqualified (retarded, minors) ii. Behavior of Parties- how the parties bargained; was there duress? iii. Substance of Bargain- was bargain lopsided? b. INFANTS i. Restatements 1. Person only enters voidable contractual duties before the age of 18, unless statute provides otherwise. Rstmt 14 2. Voidable or unenforceable can still be consideration. Rstmt 78 3. Generally courts do not enquire into the adequacy of consideration. Rstmt 79 ii. General 1. A minor may disaffirm a contract during minority, but also within a reasonable time after reaching the age of majority. 2. Exception: When minors contract for goods or services considered as necessaries (food, shelter, clothing) 3. Restitution: a. A minor can receive only restitution of payments already made to the seller, but must return the goods to the seller. iii. Sample Case 1. Minor bought a car from a dealer, and signed a sheet certifying that he was 21 years old. The K is voidable by the minor. Kiefer v. Fred Howe Motors, Inc., p. 312 b. MENTAL INFIRMITY i. Mental Infirmity or Defects 1. Person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect: a. He is unable to understand in a reasonable manner the nature and consequence of a transaction, or b. He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. Rstmt 15(1) 2. Where the K is made on fair terms & other party doesnt know of the mental illness, the power of avoidance under (1) terminates to the extent that the K has been performed in whole/part or the circumstances have changed that avoidance would be unjust. In such a case the court may grant relief as justice requires. Rstmt 15(2) ii. Sample Cases 1. School teacher suffered from mental defect, & took leave of absence. She retired & revoked previous election, electing a larger annuity w/no death benefit to her husband. In view of her life expectancy, change was foolhardy & nothing explains the change. The officers of the plan have reason to know of her condition. She dies 2 months later. The election is voidable. Ortelere v. Teachers Retirement Bd, p. 316; Rest. 15, Illus. 1 2. Mere weakness of body, mind, or both, dont constitute mental incompetency to render a K voidable. It is, however, highly relevant in determining whether the deficient party was overreached and defrauded. Cundick v. Broadbent, p. 319 c. INTOXICATION ii. Restatements 1. The drunk person held only to voidable contractual duties if the other party has reason to know: a. Hes unable to understand in a reasonable manner the nature and consequences of the transaction, or
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b. He is unable to act in a reasonable manner in relation to the transaction. Rstmt

16 2. If the intoxication is so extreme as to prevent any manifestation of assent, there is no K. Otherwise the party is affected only by intoxication of which he has reason to know. Rstmt 16, comment b 2. UNFAIRNESS a. Restatements i. Duty of Good Faith1. Every contract imposes a duty of good faith and fair dealing in its performance and enforcement. Rstmt 205 & UCC 1-203 2. Does not say anything about the negotiation ii. Interpretation Against Draftsman1. If there is an ambiguity in a contract it will be construed against the person who wrote it. Rstmt 206 iii. Specific Performance & Injunctions1. Rstmt 364 (1)- Specific performance or an injunction will be refused if such relief would be unfair because: a. The K was induced by mistake or by unfair practices b. The relief would cause unreasonable hardship or loss to the party in breach or to 3rd persons, or c. The exchange is grossly inadequate or the terms are unfair 2. Granted: Specific performance/injunctions granted in spite of agreement term, if denial would cause unreasonable hardship/loss to the party seeking relief or to 3rd persons. iv. Unconscionable Term1. If K is unconscionable a court may refuse to enforce it, or enforce only the remainder of it w/out the unconscionable term, or limit application to avoid unconscionable results. Rstmt 208 b. Equity Courts i. Equity courts give specific performance ii. Equity courts we give judges discretion, but they are guided by Maxims 1. Clean Hands doctrine 2. Equity follows law c. Sample Cases i. Harsh K: A K which is harsh, oppressive, & unconscionable may be enforced, but is w/in court to choose not to enforce equitable remedies when such conditions exist. McKinnon v. Benedict, p. 455 ii. A is an aged, illiterate farmer. B is an experienced speculator in real estate who knows that a developer wants to acquire As Land & will probably pay well above previous market price. B takes advantage of As ignorance of this fact & tells A not to seek advice. He induces A to sell at the previous market price. A refuses to perform and B sues for specific performance. Specific performance may properly be refused on the ground of unfairness. Rest. 364, Illus. 1 iii. A contracts w/B, niece, to leave B her farm by will in return for Bs promise to care for A for life. B quits her job & begins care for A, but A goes to the hospital, & dies w/out changing will. B sues As estate for specific performance. If the court finds the K was fair when made, b/c burden of caring for A & risk that she might live long, it will order specific performance. Tuckwiller v. Tuckwiller, p. 458 iv. The fact that someone is making a huge profit on a contract does not make it unenforceable. Black Industries v. Bush, p. 460 3. OVERREACHING
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PRESSURE IN BARGAINING i. Duress:Whether the statement that induced the promise is the kind of offer that the court should discourage and call a threat. 1. 2 Formsa. Person physically compels conduct of manifestation of assent when victim has no intention of doing such. Rstmt 174 b. Person makes improper threat that induces a party who has no reasonable alternative to manifesting his assent. Rstmt 175 2. Physical Compulsiona. If conduct is physically compelled by duress, it is not effective as a manifestation of assent. Rstmt 174 b. Thus contract is void. 3. Threata. Victim cant have reasonable alternative for K to be voidable. Rstmt 175(1) b. By 3rd Party: K is voidable by victim if assent is induced by a 3rd party, unless they, in good faith & w/out reason to know of duress gives value or relies on transaction. Rstmt 175(2) c. In contrast, a threat of a lawful action cannot be wrongful, but it is not unlimited -- depends on equitable means. 4. When Threat is Impropera. Threat is improper if: i. Its a crime/tort or would be if it resulted in obtaining property ii. Its criminal prosecution iii. Its a bad-faith threat of civil process iv. Its a breach of duty of good faith & fair dealing under K w/recipient. Rstmt 176 b. Threat is improper if resulting exchange isnt on fair terms, and: i. It would harm recipient and wouldnt significantly benefit threatmaker ii. The threats effectiveness in inducing assent is significantly increased by prior unfair dealing by threatmaker iii. Threat is a use of power for illegitimate ends 5. Important Notesa. Need to Resist Some: The requirement of at least some resistance serves to restrict relief for duress by denying it to persons who yield to pressure too easily. b. Legal Threats: Its not duress to threaten what there is a legal right to do 6. Duress in Businessa. Economic Duress: i. Show that the party threatened breach by withholding needed goods ii. Show that the victim cant obtain goods elsewhere iii. Show that ordinary remedy would be inadequate, withholding parties free will Austin Inst v. Loral Corp. p. 340 b. Contract is voidable if a party is forced to act against their free-will, & they could not obtain the goods from another source. Austin Inst. v. Loral Corp. i. P, under contract with D to furnish parts needed by D in executing contract with US Navy, refused to accept order for less than all parts on subcontract for second contract between D and US Navy, told defendant that P would cease deliveries of parts due under existing subcontract unless D consented to increases in prices, and unless D placed order with P for all parts needed under second contract. ii. Pre-Existing Duty Rule
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1. Definition: Essentially 1 party promises to do more & other party just promises to do
what they were already obligated to do. a. Modifying an existing K not fully performed is binding if modification is fair & equitable. D intentionally and voluntarily yielded to a demand for a special price. This yielded his contract right up to the new price. No protest by defendant.
2. Performance of a Legal Dutya. Performance of legal duty is consideration only if it differs from what was
required in a way that reflects more than pretense of bargain. Rstmt 73 b. A, an architect, agrees with B to superintend a construction project for a fixed fee. During the course of the project, without excuse, A takes away his plans and refuses to continue, and B promises him an extra fee if A will resume work. As resumption of work is not consideration for Bs promise of an extra fee. 73, Illus. 4 c. D hires workers to sail to Alaska, but at sea they threaten to stop working if not paid more. D agrees but doesnt have to pay more b/c no consideration Alaska Packers Assn v. Domenico, p. 325; Rest. 73, Illus. 4 d. When a party merely does what he has already contracted to do, he cannot demand an additional compensation by taking advantage of the necessities of the party The law will regard it as nudum pactum (getting nothing in return). 3. 4 Exceptionsa. UCC
i. Agreement modifying a K needs no consideration to be binding. UCC 2209(1)
ii. Can have a no oral modification clause; unless its b/t merchants, the
clause must be on a separate form that is signed by the other party. UCC 2-209(2) iii. Must meet a good faith requirement under 1-203 b. Statutes i. Modification isnt invalid b/c of no consideration if its in writing. New York, p. 327 c. State Law i. State common law may reject the pre-existing duty rule. Alabama, p. 327 d. Executory Contracts (neither side has performed yet) i. Modifying these unperformed promises is binding if: 1. Modification is fair/equitable in view of the circumstances not anticipated when K was made; or 2. To the extent provided by statute; or 3. Justice requires enforcement b/c material change of position from reliance. Rstmt 89 (Modification of an executory K) ii. Examples: 1. B employs A as coat designer at $90/week for a year starting Nov. 1 under written K executed Sept. 1. A is offered $115 a week elsewhere & tells B. A & B agree A will get $100 a week & new K in October for such, & tears up the prior K. The new K is binding. Rest. 89, Illus. 3 2. Watkins & Sons v. Carrig, 331: A agrees to excavate cellar for B in K for stated price. Solid rock is unexpectedly encountered
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& A tells B. A & B orally agree that A will remove it at unit price which is reasonable but 9 times the original price, & A completes the job. B is bound to pay the increased amount. Rest. 89, Illus. 1 4. Partially Executory Contracts a. Definition i. Contracts in which only one side has performed. b. Paying off Debt i. You cant be exonerated from the whole debt by paying part of it on due date. Can sue on the difference Foakes v. Beer, p. 337 c. Liquidated Amount i. An unliquidated amount is in dispute. ii. A liquidated amount is not in dispute. 1. An amount on a note would not be in dispute iii. Payment in Full: When a creditor accepts a check for $800 on a $1000 debt that says payment in full on the check, they can go after that $200 if it is a liquidated amount. d. Accord & Satisfaction i. Accord- K where obligee accepts stated performance as satisfaction & discharges original duty, using substituted performance. Rstmt 281(1) 1. It is the essence of an accord that the original duty is not satisfied until the accord is performed ii. Example: If a lawyer paid by the hour sends a bill for hours, then there could be dispute over hours. If so, & debtor sends this type of check, its called an Accord and Satisfaction when the creditor takes and signs the check. iii. Undue Influence 1. Restatements a. What is Undue Influence? i. Its unfair persuasion of a party who is under the domination of another or who by their relationship is justified in assuming that person wont act in a manner inconsistent with his welfare. 1. If assent is induced by this, K is voidable by victim. 2. If assent is induced by a 3rd party, K is voidable unless other party to the transaction didnt know in good faith & gives value or relies on the transaction. Rstmt 177 2. Typical Characteristics p. 346, Odorizzi v. Bloomfield School District a. Discussing the transaction at unusual or inappropriate times b. Consummation of it in an unusual place c. Insistent demand that business be done at once d. Extreme emphasis on consequences of delay e. Multiple persuaders by dominant side against 1 person f. No 3rd party advisers to the weaker party g. Statements that theres no time to consult attorneys 3. Sample Cases a. School authorities assured teacher arrested for homosexual activities that they were assisting him, he should take their advice, there wasnt time attorney, if he didnt resign hed be suspended & dismissed & itd be publicized. But if he resigned, it wouldnt hurt his chances of getting hired elsewhere. This is undue influence. Rule: Duress sufficient to authorize rescission of an instrument consists of unlawful confinement of another's person, or relatives, or property
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which causes him to consent to a transaction through fear. Odorizzi v. Bloomfield School District, p. 346 b. A, an elderly & illiterate man, lives with/depends on B, his nephew. B tells A that he will no longer support him unless A makes a K to sell B land. A is induced to make K. Even though Bs conduct doesnt amount to duress, it is undue influence b/c B dominated A & the K is voidable by A. Rest. 177, Illus. 2 b. CONCEALMENT AND MISREPRESENTATION i. Definitions 1. Misrepresentationa. An assertion that is not in accord with the facts. Rstmt 159 b. Similar to mistake, except mistake says belief. 2. Concealmenta. Action intended or likely to prevent another from learning a fact is equivalent to asserting that the fact does not exist. Rstmt 160 3. Non-Disclosure- By not disclosing a fact known to him, he is asserting that the fact does not exist in the following cases ONLY: a. Where he knows disclosure is necessary to prevent some previous assertion from being a misrepresentation b. Where he knows disclosure would correct a vital assumption of other party, & not disclosing destroys good faith & fair dealing. c. Where he knows disclosure would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part. d. Where the other person is entitled to know the fact because of a relation of trust and confidence b/w them. Rstmt 161 4. Key Point- If party speaks about condition/info, he is bound to divulge all material facts w/in his knowledge. ii. Sample Cases 1. A, seeking to induce B to buy As house, knows B doesnt know its riddled w/termites & doesnt disclose this. B makes the K. As non-disclosure is equivalent to an assertion that the house is not riddled with termites, misrepresentation. Whether the K is voidable by B is determined by 164. However, in Swinton, the law cannot provide special rules for termites and can hardly attempt to determine liability for all the possibilities of varying existences and defects in trade. In absence of any sellers representations, there was no duty to disclose. Swinton v. Whitninsville p. 353 2. A, seeking to induce B buy an apartment house, tells B that the apartments are all rented at $200/month. A knows that the rent of $200 has not been approved by the local rent control authorities and that w/out approval its illegal but doesnt tell B. B makes the K. As statement omits matter needed to prevent the implied assertion that the rent is legal, & this is misrepresentation. Whether the contract is voidable is determined by 164. Vendor only gave partial truth. If he does speak about a point of information, he must then disclose ALL relating information otherwise it is a lie. Kannavos v. Annino, p. 356;Rest. 159, illus. 4 a. The fact that B is an immigrant is important b/c this action would be in an equity court, and it may have influence on the judge as to whether or not A took advantage of him (violating the clean hands doctrine). b. Summary: Court held that where original advertisements offered houses as investment properties, broker expressly asserted that houses were being rented to
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public for multi-family purposes and vendors knew that purchasers planned to use buildings for apartments, vendors were bound to disclose to purchasers that multi-family use of houses violated zoning provisions and their failure to do so constituted deception and fraud entitling purchasers to rescind. c. Rule: Where there is reliance on fraudulent representations or upon statements and actions treated as fraudulent, plaintiffs are not barred from recovery merely because they did not use due diligence when they could readily have ascertained from public records what true facts were.
iii. Implications of Misrepresentation 1. Fraudulent Misrepresentationa. If the maker intends his assertion to induce a party to manifest assent & the
maker, such a contract is voidable at the election of the innocent party: i. Knows/believes the assertion is not in accord with the facts ii. Doesnt have the confidence he states/implies in the assertion, or iii. Knows he doesnt have the basis he states/implies for the assertion. Rstmt 162(1) 2. Material Misrepresentationa. If it would likely induce a reasonable person to manifest assent, or maker knows it would likely induce such. Rstmt 162(2) 3. Misrepresentation makes contract voida. No K if misrepresentation of K terms induces manifestation of assent by one whom neither knows nor has the reasonable opportunity to know of the character or essential terms of the proposed contract. Rstmt 163 b. Examples; i. A seeks to induce B to sell him goods on credit by telling B he is C, a well-known millionaire. B makes K. Bs apparent manifestation of assent is effective. However, K is voidable by B under 164(1). ii. A & B reach an understanding that theyll make a written K w/terms on which they have agreed. Its properly prepared and is read by B, but A substitutes essential terms that are different from those agreed upon and thereby induces B to sign it in belief that it is the one he has read. Bs apparent manifestation of assent is not effective. Illus. 2 4. When does Misrepresentation make K voidable? a. K is voidable by victim if assent is induced by fraudulent or a material misrepresentation which he is justified in relying. b. K is voidable by victim if 3rd party induced assent by fraudulent or material misrepresentation, unless other party to transaction gave value or relies materially on transaction in good faith & w/out reason to know. Rstmt 164 c. Examples: i. A seeks to induce B to buy land at $1,000/acre & tells B its 100 acres. A knows its only 90 acres. B makes the K. B/c the statement is a fraudulent misrepresentation the K is voidable by B, regardless of whether the misrepresentation is material. Illus. 1 ii. Facts being otherwise stated in Illustration 1, A is mistaken & does not know its only 90 acres. B/c statement isnt fraudulent, the K is voidable by B only if the misrepresentation is material. Illus. 2 iv. Misrepresentation of Opinions 1. When Reliance on Opinion isnt Justifieda. If assertion is opinion only, recipient isnt justified in relying on it unless the recipient:
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i. There is a relation of trust & confidence that its reasonable, or ii. Reasonably believes the person has special skill, jgmt, or objectivity with
respect to the subject matter, or
iii. Is particularly susceptible misrepresentation of the type involved. Rstmt

169
2. Sample Cases a. A, owner of dance studio, seeks to induce B, a 60-year-old widow w/no
background in dancing, to take dance lessons, & tells her she has dance potential & would become a beautiful dancer. A knows that B wont. B makes K. Bs reliance on As statement of opinion is justified, and the contract is voidable by B. If contracting party who owes no duty to disclose facts within his knowledge or to answer inquiries respecting such facts undertakes to disclose, he must disclose whole truth. Vokes v. Arthur Murray, Inc., p. 362; Rest. 169, illus. 2 4. UNCONSCIONABILITY AND PROBLEMS OF ADHESION CONTRACTS a. STANDARD FORM CONTRACTS i. Definition 1. A pre-printed contract used repeatedly by a business. a. Reduce uncertainty, save time, & simplify planning b. May eliminate bargaining & allow 1 party to impose it on another. 2. Party adopts all terms in writing if he has reason to know its commonly used for similar purposes. a. Such a K treats all signers alike w/o regard to what they understand about K. b. If party has reason to know signer wouldnt sign b/c of a certain term, that term isnt part of the agreement. Rstmt 211 ii. Adhesion Contracts 1. A party has no choice but to sign or not enter into the agreement. a. Ex: insurance policy b. Advantage of Standard Form K. i. Take advantage of experience and lessons learned and enables judicial interpretation to enhance contract. ii. Reduce uncertainty and save time iii. Simplify planning and allow superior drafting iv. Make risks calculable and determine the necessary basis of initiative and assumption of foreseeable risks. 2. Graham v. Scissor-Tail, 475 a. After a music promoter signed a mandatory contract requiring arbitration before a biased panel and then loses his case, he sues to void the contract as unconscionable. b. Adhesion Ks are enforceable except for provisions which contradict adherents reasonable expectations or are unconscionable 3. Exculpatory Clausesa. Most states provide by statute that provisions in residential leases exculpating the landlord from liability to the tenant for negligence are ineffective. i. But some courts come out the opposite way as evidenced below b. OCallaghan v. Waller, 467: exculpatory agreement for a residential lease i. Ks by which one tries to relieve himself from liability for negligence are generally enforced unless it would be against public policy to do so, or there is something in the social relationship of the parties which would require upholding the agreement
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ii. It is a private matter and public policy doesnt come into play, the exculpatory clause is upheld and LL isnt negligence 4. Limitations on Adhesion Contractsa. A K or provision which does not fall w/in the reasonable expectations of the weaker or adhering party will not be enforced against him b. A K or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context it is unduly oppressive or unconscionable. c. Doctrine of Reasonable Expectations: this overcomes terms that have literally been disclosed, but would likely come as a surprise to the insured. b. UNCONSIONABILITY i. Definition 1. Shockingly unfair Websters 2. Relevant Factorsa. Weakness in the contracting process like those involved in more specific rules to contractual capacity, fraud, and other invalidating causes 208, comment a 3. No man in his senses and not under delusion would make on the one hand, and no honest and fair man would accept on the other. 208, comment b ii. Restatements 1. Unconscionable Contracta. Court may refuse to enforce K, or enforce the remainder that isnt unconscionable, or limit terms to avoid an unconscionable result. b. Parties can then present evidence of its commercial setting, purpose & effect to aid the court in making the determination. UCC 2-302 i. Policing against unconscionable Ks or terms has sometimes been accomplished by adverse construction of lang, by manipulation of the rules of offer and acceptance or by determination that the clause is contrary to public policy or to the dominant purpose of the K. c. If K is unconscionable at the time it is made a court may refuse to enforce the contract, or may enforce the remainder that is not unconscionable, or may limit the application of any term as to avoid an unconscionable result. Rstmt 208 2. Duty of Good Faitha. Every K imposes a duty of good faith & fair dealing in performance & enforcement. Rstmt 205 b. Does not say anything about the negotiation. 3. Interpret K Against Draftsmana. If theres ambiguity in K its construed against its writer. Rstmt 206 4. Interpret K to Favor Publica. In interpreting ambiguities, a meaning that serves the public interest is generally preferred. Rstmt 207 iii. Sample Cases 1. A sells furniture on installment credit to B, keeping a security interest. A knows B has limited education & is on welfare for $218/month. After 13 purchases during 5 yrs for a total of $1200, B owes $164 & then buys stereo for $514. The K keeps a balance due on each item until all are paid for. B missed payment, A sues for possession of all the items sold. It may be determined that either the quoted clause or the whole K was unconscionable when made. Williams v. Walker-Thomas Furniture Co., p. 497; Rest. 208, illus. 5 2. A door-to-door salesman sold a $300 freezer to a poor/uneducated family for over $1200. Although bad credit customers do pay more, this much was unconscionable. Jones v. Star Credit Corp., p. 503
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IV. STATUTE OF FRAUDS 1. GENERAL a. Definition- Requires that a K be in writing b. When Should K be in Writing? i. Enforcement is forbidden w/these unless there is a written memorandum: 1. Executor- K to answer for duty of decedent 2. Suretyship- K to answer for duty of another 3. Marriage contracts 4. Sale of land 5. K not to be performed w/in 1 year of its making Rstmt 110 b. UCC Requirementsi. K for sale of goods for $500 or more isnt enforceable unless: 1. Theres some writing sufficient to indicate that K for sale was made b/t parties 2. Its signed by party against whom enforcement is sought. ii. The writing isnt insufficient b/c it omits/incorrectly states term agreed upon, but the K isnt enforceable beyond the quantity of goods shown in such writing. iii. Exception: 1. If b/t merchants, a party receives the goods & doesnt object w/in 10 days, the recipient is bound as if he has signed the confirmation. UCC 2-201 c. What is Required in a Memo? i. Unless more is required by statute, the memo should be in writing & signed by party charged, & 1. Should reasonably identify the subject matter of the K. 2. Should indicate that a K has been made b/t parties or offered by the signer to the other party, & 3. Should state w/reasonable certainty the essential terms of the unperformed promises in the K. Rstmt 131, 133 (Certainty)
d.
e.
b.
c.
d. e.
What if more than 1 writing? i. Memo may have several writings if 1 is signed & they clearly indicate that they relate to the same transaction. Rstmt 132 What if writing isnt made as a Memo? i. The Statute may be satisfied by a signed writing not made as a K memo, except w/marriage K. Rstmt 133 ii. Example: 1. A & B enter into oral K for sale of Blackacre. A writes/signs a letter to his friend C containing an accurate statement of the K. The letter is sufficient memo to charge A even though it is never mailed. Rest. 133, Illus. 1 Signaturei. Any symbol made w/intention, actual or apparent, to authenticate as signers writing. Rstmt 134 Who Must Sign? i. When not signed by all parties, K is enforceable against signers but not the others. Rstmt 135 Time of Memorandumi. You can make or sign memo any time before or after formation of the K. Rstmt 136 Loss or Destruction of Memoi. Losing/Destroying memo does not deprive it of effect under the Statute. Rstmt 137
2. EXECUTOR-ADMINISTRATOR a. Executor-Administrator-
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i. K of executor to answer personally for a duty of his decedent is w/in Statute of Frauds if a similar
K to answer for the duty of a living person would be w/in the Statute as a K to answer for the duty of another (surety). Rstmt 111 3. SURETYSHIP a. Suretyshipi. K isnt w/in the Statute as a K to answer for the duty of another unless, 1. Promisee is an obligee of the others duty 2. Promisor is a surety for the other, & 3. Promisee knows/has reason to know of the suretyship relation. Rstmt 112 b. Different than Guarantyi. In suretyship, the liability is to the bank, and not to the borrower; different than guaranty b/c in guaranty, promise to pay only if the debtor doesnt pay first. c. Examplei. K isnt w/in the Statute & doesnt have to be in writing if the promise is made to the mortgagor (borrower) instead of the mortgagee (lender) because it is not a surety b/c no promise is made to the lender. Court held (1) association's affirmative conduct evidenced its acceptance of deed, and (2) association's internal complaints to its comptroller and auditors were insufficient to effect renunciation of its title to property. Langman v. Alumni Association of Virginia, p. 298
4. MARRIAGE PROVISION a. When all or part of the consideration is marriage/promise to marry, promise is w/n the Statute, except in the case of an agreement which consists only of mutual promises of two persons to marry each other. Rstmt 124 5. LAND CONTRACT PROVISION a. Promise to transfer landi. Promise to transfer land is w/in statute ii. Promise to buy land is w/in statute, irrespective of to whom the transfer is made iii. Promise to pay price of land, if originally w/in the statute, ceases to be unless the price itself is in whole or in part an interest in land. iv. Short-term leases & contracts to lease are exempt from the land contract & 1 yr provision in most states. Rstmt 125 b. Contract for Transfer or Acting as Agenti. K for land by person other than promisor is within Statute ii. K to act as agent for another in securing the transfer of any interest in land by someone other than the promisor isnt w/in the statute as a K for the sale of an interest in land. Rstmt 126 1. See Illus. 4 c. What is Interest in Land? i. Any right, privilege, power, or immunity, or combo thereof, which is an interest in land under the law of property and is not goods within the UCC. Rstmt 127 6. CONTRACT NOT TO BE PERFORMED WITHIN ONE YEAR a. Contract not Performed Within a Yeari. When promise cant be performed w/in 1 yr from the time the K is made, it is w/in the Statute until 1 party completes performance. ii. When this happens, the 1 yr clause doesnt prevent enforcement of the promises of other parties. Rstmt 130 b. Examples-
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i. Promise to pay $250k over 10 years can be paid w/in 1 yr; statute does not apply. ii. Might be impossible to do construction w/in 1 yr, & even if w/extraordinary efforts its conceivable, it is seen as being applicable to the one year clause. iii. Employment Agreements: 1. The one-year clause does not apply to an oral agreement for lifetime employment, for death may end performance within a year of its making. 2. But the clause does apply to an oral agreement for employment for a period longer than a year even though death may end performance of that agreement within a year also. iv. 10-month employment starting today can be performed w/in 1 year; not within the statute. v. 10-month performance beginning in 3 months; Point is the date K is made and completed; not the duration of the work; within the statute. vi. Job to work 1 day, 13 month from now; within statute b/c cant be completed within one year vii. 1 year beginning today; not within, b/c can complete within one year viii. 1 year beginning tomorrow, not within b/c today doesnt count b/c it is a partial day ix. 1 year beginning day after tomorrow would be within statute of frauds x. Handout 1. A promise to serve two years; within statute 2. A promise to serve as long as the employee lives, not exceeding two years; not within statute b/c employee could die in a month 3. A promise to serve two years if the promisor lives so long; not within statute b/c could die 4. A promise to serve two years, but if the promisor dies the contract shall be terminated; within b/c of express language of contract
7. EXCEPTIONS TO STATUTE OF FRAUDS a. Exception to one-year provision i. Richard v. Richard, 280 1. When part performance is an exception to the one-year provision of SoF 2. The payments toward the purchase price of a property and several permanent improvements, together with continued possession, sufficiently constitute part performance of an oral contract. b. Land i. Reliance & Specific Performance1. K for transfer in land may be specifically enforced, even if it doesnt comply w/statute if the party seeking enforcement reasonably relied on it and changed his position so much that injustice cant be avoided w/out specific performance. Rstmt 129 ii. 3 Actions making K Enforceable & Avoiding Statute1. One statutory exception to statute of frauds' requirement of signed writing allows any court to compel specific performance of any agreement for sale of real property in case of part performance thereof, and there are generally three major categories of acts by purchaser that may make oral contract enforceable--paying contract price, taking possession of property, and making improvements. (Richard v. Richard p. 280) 2. Paying the contract price 3. Taking possession of the property 4. Making improvements b. Estoppel or Reliance
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i. When promisor should reasonably expect to induce promisee or 3rd person to act/forbear, the
promise is enforceable w/o Statute if injustice can be avoided only by enforcement of the promise. Remedy granted for breach is limited as justice requires. Rstmt 139 ii. Factors to consider when determining whether injustice can be avoided: 1. Availability/adequacy of other remedies (particularly cancellation & restitution) 2. Substantial character of the action/forbearance in relation to remedy sought 3. Extent to which action/forbearance corroborates evidence of the making & terms of the promise, or the making and terms are otherwise established by clear and convincing evidence; 4. The reasonableness of the action or forbearance 5. Extent to which the action or forbearance was foreseeable by the promisor. iii. Example 1. A orally promises B property if he stays & runs the family business, not taking other opportunities. Estoppel applies, so Statute is blocked here. a. Not only may one party have so seriously changed his position in reliance upon, or in performance of, the contract that he would suffer an unconscionable injury if it were not enforced, but the other may have reaped the benefits of the contract so that he would be unjustly enriched if he could escape its obligations. b. In reality it is not the representation that the contract will be put in writing or that the statute will not be invoked, but the promise that the contract will be performed that a party relies upon when he changes his position because of it. c. Unjust enrichment would be done if the statute of frauds could be invoked to relieve him from performance of promissory obligations. Defendant gave up on opportunity to accumulate own property and devoted his life to the contract. Monarco v. Lo Greco, 304 2. A is lessee of a building for 5 yrs at $75/month & has sublet it for 3 yrs at $100/month. A seeks to induce B to buy building & orally promises to assign B the lease & sublease & execute a written assignment as soon as B obtains a deed. B buys the building in reliance on the promise. B is entitled to the rentals from the sublease. The relief is constructive trust. The remedy granted for breach, by reason of reliance, is to be limited as justice requires. Rest. 139, Illus. 1
V. PAROL EVIDENCE RULE 1. GENERAL a. Where the parties have embodied their agreement in writing, it may preclude reliance on outside evidence such as oral negotiations. b. Rule of substantive law that precludes any showing that terms of K are other than whats in writing. i. Failure to object to evidence at trial is ordinarily a waiver of any ground of complaint against admission, and evidence becomes proof of the case. ii. Federal courts sitting in diversity cases are bound to apply state law rather than federal law to matters that are substantive. Court is bound to apply parole evidence rule of the appropriate state. c. Not waived just b/c not used by certain time d. Federal Courts (in diversity cases) bound to apply this rule e. The rule simply affirms the primacy of a subsequent agreement not only over prior negotiations, which would not be binding in any case, but over prior agreements, which thought they would be binding are discharged. f. Allow the court to control the tendency of the jury to find through sympathy and without an unbias assessment of the probability of fraud and faulty memory that the parties made an oral agreement
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collateral to the written contract, or that the preliminary tentative agreements were not abandoned when omitted from the writing. 2. In interpreting an enforcing a K, questions arise as to whether the written instrument is the complete embodiment of the parties intention. Where the parties to a contract express their agreement in writing with the intent that it embody the full and final expression of their bargain (i.e., the writing is an integration), any other expressionwritten or oralmade prior to the writing, as well as any oral expression contemporaneous with the writing, are inadmissible to vary the terms of the writing. 3. DEFINITIONS a. Integrated Agreementsi. IA is a writing(s) constituting final expression of 1/more terms of an agreement. ii. Court determines whether there is an IA, before determining interpretation/application of the parol evidence rule. iii. Where parties have writing w/completeness & specificity so that it reasonably appears complete, its taken as an IA unless other evidence shows it wasnt a final expression. Rstmt 209 b. Completely & Partially Integrated Agreementsi. Completely- its adopted by parties as complete & exclusive statement of terms. ii. Partially- any IA other than a completely integrated agreement iii. Court determines whether agreement is completely or partially integrated before applying the parol evidence rule. Rstmt 210 c. Parol Evidence Rulei. A binding IA discharges prior agreements to the extent that it is inconsistent with them. ii. A binding completely IA discharges prior agreements to the extent that they are w/in its scope. iii. IA that isnt binding or is voidable & avoided doesnt discharge prior agreement. 1. But an IA may render a term inoperative which would have been part of the agreement if it had been integrated. Rstmt 213 g. Contradiction of Integrated Termsi. Cant admit evidence of prior agreements/negotiations to contradict a term when there is a binding agreement, either completely or partially. Rstmt 215 h. Step by Step Analysisi. Ask if K itself constitutes the whole agreement b/t the parties. ii. If so court must determine whether the oral agreement falls w/in scope of written K. iii. If so, they arent separate agreements & the written K takes priority. 1. Court does this by deciding whether parties wouldve naturally included oral agreement in written K. b. Re. 204 Supplying an omitted essential term i. When the parties to a bargain sufficiently defined to be a K 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 c. Re. 155 When mistake of both parties as to written expression justifies reformation i. The court may, at the request of the parties, reform the writing to express the agreement. 4. SAMPLE CASES a. A written lease which is the complete K of the parties states that tobacco could not be sold. Since it embraces the field of the alleged oral contract to allow to solely sell soft drinks in the building in consideration for not selling tobacco, evidence of the oral K is inadmissible under the parol evidence rule. Rule If written contract appears complete within itself, without uncertainty, it is conclusively presumed that whole engagement of parties was reduced to writing. Gianni v. R. Russel & Co., p. 368 i. If the oral agreement was for something that is outside the scope of the agreement, then it would be different. ii. The writing must be the entire contract between the parties if parol evidence is to be excluded and to determine whether it is or not the writing will be looked at.
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iii. Since the plaintiffs promise to refrain was included in the writing, it would be the natural thing to have included the promise of exclusive rights. iv. If the oral negotiation is mentioned or dealt with in the writing, then presumably the writing was meant to represent all of the transaction on that element, if it is not, then probably the writing was not intended to embody that element of the negotiation. b. A & his wife convey their ranch to As sister & her husband, reserving a right to repurchase. The parties agree orally that the property will be kept in the family, but the deed says nothing as to the assignment of the option. It is a partially integrated agreement & the oral agreement is effective to show that the option is not assignable. Masterson v. Sine, p. 371 i. Question is whether the oral agreement is something that they would naturally not put in the deed. This is probably the case, because deeds are typically short, and are not cluttered up with a lot of nonsense. ii. When the parties to a written contract have agreed to it as an integration, namely, a complete and final embodiment of the terms of the agreement, parol evidence cannot be used to add to or vary its terms iii. The circumstances at the time of writing a contract may aid in determining whether the parties intended it to be integrated, and any collateral agreement must be examined to determine whether the parties intended the subjects of negotiation it dealt with to be included in, excluded from or otherwise affected by the writing, even though the written contract may have expressed the parties' intention to nullify antecedent understandings or agreements. iv. Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled, meaning the rule must therefore be based on the credibility of the witness. v. To the extent parties wish to avoid the parole evidence problems, they can do so by including a merger clause in their agreement that extinguishes any and all prior agreements and understandings not expressed in the writing. c. Landowner & construction co. orally agree that construction co. would put top soil over the waste when working on her land. This was omitted by an alleged mutual mistake. It appears as though this was the parties original intention b/c the company started to do this, but later refrained from doing so. Court can reform the contract due to mutual mistake of the parties. Equity would reform written contract to require construction company working on turnpike to restore topsoil of adjacent landowners' property to cover deposited construction waste where landowners claimed that there had been mutual understanding that topsoil would be restored and where construction company did at first restore topsoil but later stopped. i. A court of equity has the power to reform the written evidence of a contract and make it correspond to the understanding of the parties ONLY IF the mistake is mutual to the parties to the contract. Bollinger v. Central Pennsylvania Quarry, p.377 VI. REMEDIES FOR BREACH 1. GENERAL a. Restatements i. Purposes of Remedies1. To protect Expectation Interest- put in same position as if K had been performed. 2. To protect Reliance Interest- reimbursed for loss & put in as good a position as if K had not been made. 3. To protect Restitution Interest- get back benefits conferred on other party. Rstmt 344 ii. Judicial Remedies Available1. Sum of money due under K or as damages 2. Specific performance 3. Restoration of a specific thing to prevent unjust enrichment 4. Sum of money to prevent unjust enrichment 5. Declaring the rights of the parties
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6. Enforcing an arbitration award Rstmt 345 iii. Availability of Damages1. Damages available against breaching party, if contract is enforceable. 2. If no loss was caused or it cant be proven, nominal damages are given. Rstmt 346 3. US Naval v. Charter, 9 a. The purpose of damages resulting from a breach on K is to compensate the injured party for the loss caused by the breach, not to have the injured party benefit from the breach. Ps actual loss needs to be compensated, but exceeding that, punitive damages are not part of the law of contract damages. b. Re. 344 4. Sullivan v. OConnor, 15 a. P had a rhinoplasty, she had three operations and is suing for breach of contract because her nose does not look like it was promised. b. P received expectation interest in damages, recovery for her out-of-pocket expenses, worsening of her condition, and recovery for the pain and emotional distress involved in the third operation, but not for the first two operations which would be full expectation interest. iv. Punitive damages are generally not recoverable1. Punitive not given unless breach is also a tort. Rstmt 355 2. , who had water supply that he had contracted with shut off, could not recover for punitive damages from . White v. Benkowski, p. 23; Rest. 355, illus. 2 b. UCC i. Sellers Remedies1. When buyer wrongfully rejects acceptance of goods or fails to make payments due on or before delivery, then w/respect to any goods directly affected &, if the breach is of the whole K, then also w/respect to the whole undelivered balance, the aggrieved seller may: a. Withhold delivery of such goods b. Stop delivery by any bailee c. Proceed under the next section respecting goods still unidentified to the K d. Resell & recover damages as provided in 2-706 e. Recover damages for nonacceptance (2-708) or in a proper case the price (2-709) f. Cancel UCC 2-703 ii. Buyers remedies1. Buyer may cancel & whether or not he has done so may in addition to recovering price paid: a. Cover & have damages under next section as to all goods affected whether or not they have been identified to the contract; or b. Recover damages for nondelivery as provided in this article (2-713) 2. Where the seller fails to deliver or repudiates the buyer may also a. Recover goods that have been identified b. Obtain specific performance or replevy the goods. UCC 2-711 1. SPECIFIC RELIEF a. General rule is that we prefer substitutional relief (money damages) over specific performance. b. Restatements i. When is Specific Performance/Injunction granted? 1. Specific performance can be granted at courts discretion 2. Injunction will be granted if: a. The K duty being breached is one of forbearance b. The duty is one to act & specific performance would be denied only for reasons inapplicable to injunction. Rstmt 357
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ii. Form of Order1. Will be granted to fulfill purpose of K; need not be absolute in form or identical to that due under the K. 2. SP & Inj can be denied as to part of the performance & granted as to the remainder. 3. Damages may be awarded in addition Rstmt 358 iii. Adequacy of Damages1. SP/Inj wont be ordered if damages would adequately protect the expectation interest. 2. Even if damages remedy 1 part of the K, SP/Inj are still available as to K as a whole. 3. SP/Inj wont be refused merely b/c there are remedies other than damages, but such a remedy may be considered in exercising discretion. Rstmt 359 iv. Will Damages be Adequate? 1. Look at difficulty of proving damages with reasonable certainty. 2. Look at difficulty of getting a suitable substitute performance & as damages, & 3. Look at the likelihood that an award of damages could not be collected. Rstmt 360 v. Effect of Unfairness- See Unfairness Section of Outline Rstmt 364 vi. Difficulty in Enforcement1. No specific performance if it would impose on the court burdens in enforcement or supervision that are disproportionate to the advantages to be gained from enforcement and to the harm suffered from its denial. Rstmt 366 vii. Contracts for Personal Service- 367 1. K for personal service wont be specifically enforced. 2. Examples: a. A contracts to serve exclusively as sales manager in Bs clothing store for a year. A repudiates the K shortly after beginning & goes to work for C, a competitor of B. B sues for injunction ordering A not to work for C. Unless As services are unique or extraordinary, the injunction will be refused. If, however, A has special knowledge of Bs customers that will cause a substantial number of them to leave B and go to C, the injunction may be properly granted. 367, Illus. 3 b. A, a noted opera singer, contracts with B to sing exclusively at Bs opera house. A repudiates the K before the time for performance in order to sing at Cs, the competitor, & B sues A for specific performance. Even though As singing at Cs opera house will cause B great loss that he cant prove with reasonable certainty, & even though A can find suitable jobs singing at opera houses not in competition with Bs, specific performance will be refused. 367, Illus. 1 b. UCC i. Buyers right to Specific Performance1. May be decreed where goods are unique or in other proper circumstances. UCC 2-716 2. May include payment of price, damages, or other relief as court deems just. a. Inability to cover is strong evidence of other proper circumstances Comment 2 b. Output & Requirement contracts are good examples of what is now included, that would not have if the goods had to be specific or ascertained at the time of contracting Comment 2 ii. Action for Price (Sellers right)1. When buyer fails to pay when due, the seller may recover any incidental damages & the price a. Of goods accepted or of conforming goods lost or damaged w/in a commercially reasonable time after risk of loss has passed to the buyer; & b. Of goods if the seller cant reasonably resell them or the circumstances reasonably indicate that such effort will be unavailing. UCC 2-709
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2. Seller must hold for buyer any goods still in his control, except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds must be credited to the buyer. 3. After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due, a seller who is held not entitled to the price under this section shall nonetheless be awarded damages for nonacceptance under 2-708. c. Sample Cases i. A party may have specific performance for a K for the sale of chattels if a legal remedy is inadequate. In this case the sale of a specific carrot was virtually inobtainable elsewhere. Campbell Soup v. Wentz, 584 ii. A buyer of a jet airplane could not get specific performance under UCC 2-716 when there were 3 like jets on the market, and all cost more. Court does not award specific performance Klein v. Pepsi-Co, Inc., p. 588 iii. Contract for the sale of a horse (good). Although it has been held that equity will not
ordinarily enforce, by specific performance, a contract for the sale of chattels, it will do so where special or peculiar reasons exist which render it impossible for the injured party to obtain relief by way of damages in an action at law. Morris v. Sparrow, 595 iv. enters into 10-year contract to supply with propane, and then refuses to fulfill the contract. It
would be difficult for to find another supplier. Specific performance is granted. Laclede Gas Co. v. Amoco Oil Co., p. 596; Rest. 360, Illus. 5 is similar v. A contracts to modernize and expand Bs steel fabricating plant at a cost of $50,000,000. A falls behind the schedule fixed in the agreement, and B seeks specific performance to compel A to requisition 300 more workmen for the night shift and take other steps to speed up the work. A court may properly refuse specific performance on the ground that the difficulty of supervision by the court would be disproportionate to the benefits to be gained from enforcement. Northern Delaware Industrial Dev. v. E.W. Bliss Co., p. 601; Rest. 366, Illus. 2. MEASURING EXPECTATION a. General Court is attempting to put the P in the position he would have been in had the contract been performed Given the benefit of the bargain i. Formula A 1. Damages = Contract price - cost of completion (D=K-Ccom) a. damages = loss in value + other loss cost avoided loss avoided b. Cost Avoided = cost of complete performance cost of reliance ii. Formula B 1. Damages = Reliance + Profit (D=Crel + P) a. damages = cost of reliance + profit loss avoided +other loss iii. Application of Formula 1. K = $1,000,000 & P = $100,000; Spent $400,000 2. Formula A: a. Damages = $1,000,000 - $500,000 = $500,000 3. Formula B: a. Damages= $400,000+$100,000= $500,000 b. Restatements i. Measure of Damages1. Injured party gets expectation interest measured by: a. Loss to him + any incidental loss any cost avoided b. Example i. Contractor agrees to build a house for Owner for $30,000. The contract says that after Contractor has done half the work, he shall receive
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$15,000. Contractor does half the work, and demands payment. Owner wrongfully refuses. At this point, assume that it would cost Contractor $10,000 to complete the house. Contractors expectation damages are equal to the contract price ($30,000), minus what would have been Contractors cost of completion ($10,000). Thus, Contractor will recover $20,000. 2. This is subject to limitation in 350-353. Rstmt 347 c. UCC i. Sellers Resale1. Under 2-703, the seller may resell the goods concerned or the undeliverable balance thereof. a. Where the resale is in good faith & in commercially reasonable manner the seller may recover the difference between resale price & K price together with any incidental damages, but less expenses saved in consequence of the buyers breach. UCC 2-706 ii. Sellers damages for nonacceptance1. Measure of damages for nonacceptance by the buyer is the difference between the market price at the time/place for tender & unpaid K price together w/any incidental damages, but less expenses saved in consequence of the buyers breach. 2. If damages in (1) dont fulfill sellers expectation interest then measure of damages is profit (including reasonable overhead) which the seller wouldve made from full performance by the buyer, together with any incidental damages, due allowance for costs reasonably incurred, and due credit for payments or proceeds of resale. UCC 2-708 iii. Cover1. Buyer may cover by making in good faith & w/out unreasonable delay any reasonable purchase of or K to purchase goods in substitution for those due from seller. 2. Buyer may recover from the seller as damages the difference between the cost of cover and the K price together w/any incidental costs, but less expenses saved in consequence of sellers breach. UCC 2-712 iv. Buyers damages1. Measure of damages for nondelivery by seller is the difference b/t market price at the time when the buyer learned of the breach & the K price together w/any incidental & consequential damages, but less expenses saved in consequence of sellers breach. UCC 2-713 v. Buyers Incidental Damages1. Buyer can obtain incidental & Consequential damages - UCC 2-715 d. Sample Cases i. Overhead expenses should not be considered when computing damages. Vitex Manufacturing Corp v. Carbitex, p. 609 1. Overhead are the fixed expenses you have to pay just to keep going. wants to consider fixed overhead expenses. 2. If you add overhead into the formulas, damages would be lower because the cost of completion would be higher, or profit would be lower. ii. If employee is fired in breach of a contract and does other work as a result of being freed from that contract, the employees damages are based on the salary that would have been earned under the broken contract less that earned by doing the other work. iii. Substitutional transactions: Laredo Hides v. H and H, 613
1. The buyer by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller may recover from the seller damages of the difference between the cost of cover and the contract price together with any incidental or consequential damages. 41
iv. Lost Volume Seller1. Seller is entitled to lost profits under 2-708(2) if they can prove that they would have been able to produce the breached goods, and that it would have been profitable for them to do so. R.E. Davis Chemical Corp. v. Diasonics, p. 619 a. Perfect example of lost volume seller is a car dealer. v. Losing Contract1. Formulas work so that if total price exceeded the contract price, then there would be a loss 2. Damages Based on Reliance Interest: a. As an alternative to Formula A, the injured party has a right to his reliance interest, including expenditures made in preparation for performance, less any loss that the party in breach can prove with reasonable certainty that the injured party would have suffered. Rstmt 349 United States v. Algernon, p. 626 b. Comment a: i. Burden is on to show that it would have been a losing contract. ii. If other side can show that the profit figure would have been a negative, then the contractor may not be able to recover 3. If you increase the value you might be better off in a losing contract to go with restitution under 371(b) 3. RESTITUTION a. Requirement that Benefit be Conferredi. Party is entitled to restitution only to the extent that he has conferred a benefit on the other party by way of part performance or reliance. Rstmt 370 b. Measure of the restitution interesti. If a sum of money is awarded to protect a partys restitution interest, it may as justice requires be measured by either: 1. 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 2. The extent to which the other partys property has been increased in value or his other interests advanced. Rstmt 371 c. Restitution When Other Party is in Breach i. If there is a breach, the injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance ii. Injured party has no right to restitution if he has performed all 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. Rstmt 373 1. A lawyer is hired by client for one month for $750. After the lawyer has fully performed, the client refuses to pay the $750. The lawyer can get damages against the client for $750, but cannot recover more than that, even if he can show that the benefit to B from the services was $10,000. Oliver, Peck; Rest. 373, Illus. 5 a. If he had been fired sooner, he might have been able to receive the value. b. Restitution is not available where plaintiff has fully performed: If at the time of Ds breach, P has fully performed the contract most courts do not allow P to recover restitution damages. 4. LIMITATIONS ON DAMAGES a. AVOIDABILITY i. If a party might have avoided a particular item of damage by reasonable effort, he may not recover for that item if he fails to make such an effort. ii. Restatements 1. Avoidability-
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a. Damages are not recoverable for loss that the injured party could have avoided without undue risk, burden, or humiliation b. The injured party is not precluded from recovery to the extent that he has made reasonable but unsuccessful efforts to avoid loss. Rstmt 350 2. Examplea. A contracts to build a bridge for B for $100,000. B repudiates the contract shortly after A has begun work on the bridge, telling A that he no longer has need for it. A nevertheless spends an additional $10,000 in continuing to perform. As damages for breach of contract do not include the $10,000. Rockingham County v. Luten Bridge Co., p. 630; Rest. 350, Illus. 1 iii. Substitute Transactions 1. If possible the injured party is expected to make appropriate efforts to avoid loss by arranging a substitute transaction. 350, comment c 2. If the work or goods are different or inferior the non-breaching party may refuse to accept the substitute. a. Employment i. A contracts to employ B for $10,000 to supervise his crop, but breaks the contract by firing B. B could find an equally good job for $100 less than A contracted to pay him. If he does not take the job, Bs damages do not include his $10,000 loss of earnings, but he can recover $100 from A. Rest. 350, Illus. 8 ii. Facts being otherwise stated in Illus. 8, B could only obtain a job as a farm laborer at $6,000, but he does not do so and remains unemployed. Bs damages for breach of contract include his $10,000 loss of earnings. Rest. 350, Illus. 11 iii. An actress contracted for the lead role in a musical film. The film is scrapped, and she is offered the lead role in another film for the same salary, but it is in Australia and is a western movie. The employment is inferior and she need not accept. Parker v. Twentieth Century Fox Film, p. 638 b. Buyer of Goods i. A contracts to buy from B a used machine from Bs factory for $10,000. A breaks the contract by refusing to receive or pay for the machine. By appropriate efforts, B could sell the machine to another buyer for $9,000, but does not do so. Bs damages for As breach do not include the loss of the price, but he can recover $1,000 from A. Rest. 350, Illus. 7 iv. Avoidability and Cost to Remedy Defects 1. Alternatives to Loss in Value of Performancea. If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property. b. If breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on: i. Diminution in market price of the property ii. Reasonable cost of completing performance or remedying the defects if that cost is not clearly disproportionate to the probable loss in value. Rstmt 348 2. Examples a. A contractor is supposed to use Reading pipe. After completion of the home, the owner discovers that the contractor, inadvertently through his subcontractor, has
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used Cohoes pipe, an equally good brand. To replace the pipe would require tearing down the walls and would cost $20,000. In an action by the owner against the contractor, the owner gives no proof of any special value that Reading pipe has to him. The owners damages do not include the $20,000 cost to remedy the defects because that cost is clearly disproportionate to the loss in value to him. Jacob & Youngs v. Kent, p. 645; Rest. 348, Illus. 4 b. When a party willfully and in bad faith fails to perform under a contract, the other party will be entitled to damages equal to the reasonable cost of having performance carried out, and not the difference in value resulting from nonperformance. Groves v. John Wunder Co., p. 648 i. But, Peevyhouse contradicts. If the cost of completion is grossly and unfairly out of proportion to the good to be attained, the measure is the difference in value. Does not say it has to be in good faith. Peevyhouse v. Garland Coal and Mining Co., p. 653 b. FORESEEABILITY i. General 1. This is incorporating a little subjectivity; has to deal with what the parties see, or think they see about damages at the time of the contract 2. Hadley v. Baxendale is a landmark case, and standard citation for foreseeability. 3. Hadley is carried over into 351 which is the general rule 4. UCC also adopts some of same language from Hadley ii. Rule Under Hadley, Rest., and UCC 1. Damages should be limited to those that may fairly and reasonably be considered either arising naturally, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it. Hadley v. Baxendale, p. 657 2. Unforeseeabilitya. Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made i. Loss may be foreseeable as a probable result of a breach because it follows from the breach 1. in the ordinary course of events 2. as a result of special circumstances that the party in breach has reason to know ii. 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. Rstmt 350 b. A carrier contracts with a mill owner to carry the mill owners broken crankshaft to its manufacturer for repair. Mill owner tells carrier when they make the contract that the crankshaft is part of his milling machine and that it must be sent at once, but not that the mill is stopped because he has no replacement. The carrier negligently delays, causing the mill owner to lose profits. The carrier is not liable for the loss of profits. That loss was not foreseeable by A as a probable result of the breach at the time the contract was made because the carrier did not know that the broken crankshaft was necessary for the operation of the mill. Hadley v. Baxendale, p. 657; Rest. 351, Illus 1 c. ***Comment a: the test is an objective one based on what a person had reason to foresee 3. UCC
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a. Consequential damages resulting from sellers breach include any lossof which
the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise. UCC 2-715(2)(a) iii. Rules varying from Hadley 1. Says that can recover damages if party should have known that was possible Delchi Carrier v. Rotorex Corp., p. 661 a. This is a lesser standard than Hadley. It is possible as opposed to probable. b. This was an international case 2. Tacit Agreement Testa. What liability the fairly may be supposed to have assumed consciously, or to have warranted the reasonably to suppose that it assumed, when the contract was made. Kenford Co. v. County of Erie, p. 664 b. Harder case for to meet than Hadley. c. Rest. discards the tacit agreement test i. Says case has not been met with favorable disposition iv. Emotional Distress 1. Courts have been reluctant to allow damages for emotional distress resulting from breach of contract. Text, p. 670 a. Usually not foreseeable, but also may be uncertain 2. Loss Due to Emotional Disturbancea. Recovery is excluded unless the breach also caused bodily harm or the contract or breach is of such kind that serious emotional disturbance was a likely result. Rstmt 353 b. Common examples where emotional disturbance is a likely result are contracts of carriers with passengers and guests, contracts for the carriage or proper disposition of dead bodies, and contracts for the delivery of messages concerning death. Comment a c. CERTAINTY i. General 1. Uncertainty as a Limitation on Damagesa. Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. Rstmt 352 ii. Relationship between Foreseeability and Uncertainty 1. Certainty has to do with whether you can prove something or not 2. In Kenford County, even if you said damages were foreseeable, it would be hard to prove with certainty what the damages would have been. 3. Could also have something that is certain, but not foreseeable iii. Four Classifications 1. Value of a Chancea. was finalist in quiz contest to win an automobile, and sued for a half interest because it had been arbitrarily awarded to the other finalist before completion of the contest. Court held for because the suffered no damage from the breach of contract and it cannot be assumed that had the contest proceeded to a proper finish he would have become the winner. i. Courts are divided on this issue. Some would go the other way b. Rest. rule is 348(3), comment d 2. Lost Reputationa. American courts have generally denied recovery for lost reputation on the grounds of uncertainty or unforeseeability. b. An employee that gets fired generally cannot recover for lost reputation for getting fired.
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3. Royaltiesa. Royalties for artistic creation may be recoverable by looking at past sales, popularity, etc. b. Royalties for a new musician would be a lot harder, and would probably not recoverable. 4. Goodwill for Business Reputationa. Possible to some extent iv. Lost Profits- Most Common Classification 1. General rule- you can get lost profits if they can be proven with reasonable certainty 2. Can be possible to get lost profits for a new business Fera v. Village Plaza, p. 674 a. Lee v. Seagrams: i. Guy in Washington D.C. that had half interest in a liquor distributorship, sold, and got money ii. Seagrams promised orally that they would give him a comparable distributorship, and Seagrams did not come through iii. He was able to prove what a liquor distributorship would be worth that cost $1.2 M iv. He was able to prove he would have made 18% on this amount had he received a distributorship. 5. LIQUIDATED DAMAGES a. Restatement i. Liquidated Damages1. Damages may be liquidated, but only in an amount that is reasonable in the light of the anticipated or actual loss and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty. Rstmt 356 Wassermans v. Township of Middletown, p. 680 b. UCC i. Damages 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 of finding another remedy. UCC 2-718 c. Liquidated Damages v. Penalty i. If liquidated damages wins, if penalty, loses ii. Never use the word penalty in the contract iii. It will be a penalty if it is too harsh d. Main Points about Liquidated Damages and Penalty Clauses i. Origin1. Disapproval of penalties originated when debtors bound themselves through sealed penalty bonds for twice the amount of their actual debts. ii. Legal Conclusion1. Liquidated damages and penalties are terms used to reflect legal conclusions as to the enforceability or noneforceability of stipulated damage clauses. iii. Liquidated and Penalty Distinguished1. Liquidated damage is a sum a party to a contract agrees to pay if he breaks some promise, and was arrived at by a good faith effort to estimate in advance the actual damages. Penalty is the sum a party agrees to pay in the event of a breach, but which is fixed as a punishment, the threat of which is designed to prevent the breach. iv. Arguments for and Against Liquidated Damages1. For a. Allows the parties to avoid the time and expense of the judicial process b. Freedom of contract c. Judicial economy -
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v.
vi.
vii.
viii.
ix.
x.
xi.
2. Against a. We are letting the parties determine the damages Generally a Two Prong Test1. Whether a set amount is a reasonable forecast of just compensation for the harm that is caused by the breach. 2. Whether that harm is incapable or very difficult or accurate estimate a. The greater the difficulty of estimating or proving the damages, the more likely the stipulated damages will appear reasonable. Look at Intent objectively Modern Trend1. Assess reasonableness at the time of the contract formation or at the time of the breach. 2. In Rest. 356; anticipated or actual harm 3. UCC 2-718 has same language Actual Damages Reflect on Reasonableness of Amount1. If the damages provided for in the contract are grossly disproportionate to the actual harm sustained, the courts usually conclude that the parties original expectations were unreasonable. Presumptively Reasonable1. Assume they are reasonable and that the party challenging the clause should have the burden of proving its unreasonableness. Courts look upon Liquidated Damages Clauses Favorably Purpose1. Not to compel to perform, but to compensate for non-performance. 2. Peck says this is not in fact why people put them in the contract
***other stuff for Overreaching: Duress and Undue Influence -note 2, 351: Confidential Relations A finding of a confidential relationship is often the key to success in avoiding a K on the basis of overreaching. -in general, when that finding is made, and the party asserting rights under the K is one in whom confidence was reposed, the claimant must show that the bargain was fair, conscientious, and beyond the reach of suspicion. -exs of confidential relationsguardian/ward, principal/agent, attorney/client--*just examples, list is not predetermined -..is deemed to exist whenever the relative position of the parties is such that one has power and means to take advantage of or exert undue influence over the other.
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b. He is unable to act in a reasonable manner in relation to the transaction. Rstmt

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i. Agreement modifying a K needs no consideration to be binding. UCC 2209(1)

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iii. Is particularly susceptible misrepresentation of the type involved. Rstmt

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