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OUTLINE DETAILS: Author: Anonymous School: University of Pennsylvania Law School Course: Contracts Year: Fall, 2003 Professor: Kristin Madison Text: Contracts: Cases and Doctrines, 3rd Ed. Text Authors: Randy E. Barnett

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Contracts Outline MADISON

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2: 349: 347: 371: 1-106: 351: 352: 350: 2-706: 2-712: 2-713: 2-708: 2-718: 2-719: 2-716: 373: 374: 17: 18: 19: 22: 42: 43: 24: 25: 36: 37: 2-205: 2-206: 26: 33: 2-204: 2-305: 2-308: 2-309: 27: 63: 65: 69: 30: 54: 32: 45: 50: 2-204: 2-305: 2-308: 2-309: 34: 2-306: 201: 202: 209: 214: 215:

Promise (oral, written or inferred from conduct) Reliance damages Expectation (compensatory) Damages Restitution Damages Damages Unforeseeability and other limitations on damages Uncertainty of loss limitation on damages Avoidability limitations on damages Sellers Resale Substitute goods in good faith without unreasonable delay Damages for non-delivery or repudiation Sellers damages for non-acceptance or repudiation Liquidation or limitation of damages; Deposits Contractual modification or Limitation of remedy default rules Buyers right to specific performance or replevin Restitution when other party is in breach Restitution in favor of party in breach Requirement of a bargain Manifestation of mutual assent Conduct as manifestation of assent Mode of assent: offer and acceptance Revocation by communication from offeror received by offeree Indirect communication of revocation Offer defined Option contracts Methods of termination of the power of acceptance Termination of power of acceptance under option contract Firm offers Offer and acceptance in formation of contract Preliminary negotiations Certainty Formation in general Open price term Absence of specified place for delivery Absence of specific time provisions, notice of termination Existence of contract where written memorial is contemplated Time when acceptance takes place 16 Reasonableness of medium of acceptance Acceptance by silence or exercise of dominion Form of acceptance invited Acceptance by performance, necessity of notification to offeror Where there is doubt as to acceptance Option contract created through part-performance or tender (i.e., unilateral promise) Acceptance defined: by performance/promise Formation in general Price - note that a minimum price will prevent a gap filler from being used - no offer to sell Place of delivery Timing of delivery and notice of termination Certainty and choice of terms, effect of performance or reliance Output, requirements, exclusive dealings contracts Whose meaning prevails? Rules in aid of interpretation Integrated agreements Evidence of prior or contemporaneous agreements and negotiations Contradiction of integrated terms

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216: Consistent additional terms 2-202: Final written expression: parol or extrinsic evidence 2-207: Additional terms in acceptance or confirmation 17: Requirement of a bargain 18: Manifestation of mutual assent 71: Requirement of exchange; types of exchange 79: Adequacy of consideration, mutuality of obligation 86: Promise for a benefit received (minority view) 89: Modification of an executory contract 2-209: Modification, rescission and waiver 79: Adequacy of consideration (mutuality of obligation) 364: Effect of unfairness 95: Requirement for sealed contract or written contract or instrument 2-203: Seals inoperative 87: Option contract (i.e., bilateral promise) 90: Promise reasonably inducing action or forbearance 205: Duty of good faith and fair dealing 2-103(b): Good faith defined 2-314: Implied warranty: Merchantability; Usage of Trade 2-316: Exclusion or modification of warranties 34 2-714: 2-610: 2-609: 241: 2-601: 2-508: 348: 131: 2-201: 110: 40 125: 131: 178: 14: 15: 164: 174: 175: 176: 177: 2-302: 211: 151: 152: 154: 153: 161: 162: 164: Buyers damage for breach in regard to accepted goods 35 Anticipatory repudiation Right to adequate assurance of performance Circumstances in determining whether a failure is material Buyers rights on improper delivery Cure by seller of improper tender or delivery, replacement Alternatives to loss in value of performance General requisites Statute of Frauds Types of contracts which must be in writing Contract to transfer, buy, or pay for an interest in land General Requirements of a Memo When a term is unenforceable on grounds of public policy Infants Mental illness or defect When a misrepresentation makes a contract voidable When duress by physical compulsion prevents formation of a contract When duress by threat makes a contract voidable When a threat is improper When undue influence makes a contract voidable Unconscionable contract or clause Standardized Agreements Mistake defined When mistake of both parties makes a contract voidable (Mutual/Bilateral) When a party bears the risk of a mistake When mistake of one party makes a contract voidable (Unilateral mistake) When non-disclosure is equivalent to an assertion When a misrepresentation is fraudulent or material When a misrepresentation makes a contract voidable 41

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261: 2-613: 2-615: 265:

Discharge by supervening impracticability Casualty to identified goods Excuse for failure of presupposed conditions Discharge by supervening frustration

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Case 1: Shaheen v. Knight, failed vasectomy, unplanned child Case 2: Sullivan v. OConnor, botched nose job on entertainer Case 3: Hawkins v. McGee, hairy hand skin grafting, promise of a 100% perfect hand Case 4: Hadley v. Baxendale, negligently failed to deliver on time shaft that runs mill Case 5: Hector Martinez v. South. Pac. Trans., delay and damage of dragline transportation Case 6: Chicago Coliseum Club v. Dempsey, boxing match contract breach by boxer Case 7: Anglia Television v. Reed, actor breaches contract to appear on television film Case 8: Rockingham County v. Luten Bridge, breach of buyer on construction of bridge Case 9: Neri v. Retail Marine, breach of buyer due to legit reason in purchase of boat Case 10: Kemble v. Farren, actors breach in contract for failure to perform Case 11: Wassenaar v. Towne Hotel, liquid damages in termination of employment contract Case 12: Lake River Corp. v. Carborundum Co., comments on liquidation clauses Case 13: Loveless v. Diehl, specific performance on option to purchase land improved upon Case 14: Cumbest v. Harris, specialized stereo equipment as collateral in loan, sentimental item Case 15: Scholl v. Hartzell, conflict over sale of a 1962 Corvette, SP or no SP on car? Case 16: Sedmak v. Charlies Chevrolet, oral contract for limited edition customized car breached Case 17: The case of Mary Clark, a woman of color, servant by indenture Case 18: Lumley v. Wagner, contracted singer breaches in attempt to sing at competitors theater Case 19: Ford v. Jerman, contracted singer breaches in attempt to sing at competitors theater Case 20: Cotnam v. Wisdom, surgeons attempt to be compensated for accident victim on street Case 21: Dickinson v. Dodds, option contract for sale of property sold to third Case 22: Embry v. Hargadine, McKittrick Dry Goods, re-employment after termination of contract Case 23: Texaco v. Pennzoil, Texaco attempts to interrupt business dealings of Pennzoil & Getty Case 24: Lucy v. Zehmer, drunken sale of land on back of restaurant check Case 25: Nebraska Seed Co. v. Harsh, proposed seed sale given by letter Case 26: Empro Mfring v. Ball-Co Mfring, letter of intent to purchase assets sold to another party Case 27: Pennzoil v. Texaco, Texaco attempts to interrupt business dealings of Pennzoil & Getty 8

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Case 28: Morrison v. Thoelke, sale of land via mail, attempt to repudiate while acceptance in mail Case 29: Lewis v. Browning, mailing with stipulations for method of assent Case 30: Hobbs v. Massasoit Whip, eel skins retained by D w/o acknowledgment, assumed as acceptance Case 31: Carlill v. Carbolic Smoke Ball, advertisement offering reward in use of product Case 32: Leonard v. PepsiCo, product points for fighter jet advertisement Case 33: White v. Corlies & Tifft, contract for building offices, silence deemed no acceptance Case 34: Crook v. Cowan, order for customized carpets accepted without notice to requestor Case 35: Sun Printing & Publishing v. Remington Paper & Power, contract for sale of paper Case 36: Texaco v. Pennzoil, Texaco attempts to interrupt business dealings of Pennzoil & Getty Case 37: NY Central Iron Works v. US Radiator, extensive need of radiators not provided by D Case 38: Eastern Air Lines v. Gulf Oil Corp., exclusive gas supply contract, issue on $ for renewal Case 39: Wood v. Lucy, Lady Duff-Gordon, P hired to help in endorsements of Ds clothing Case 40: Raffles v. Wichelhaus, mistaken identity of Peerless boat used in delivery of goods Case 41: Oswald v. Allen, Swiss coin collection, mistake of what was for sale Case 42: Thompson v. Libbey, verbal warranty as to quality of purchased logs Case 43: Brown v. Oliver, sale of hotel, fight over furniture Case 44: Union Carbide v. Oscar Mayer Foods, attempt to collect back taxes from contract Case 45: Marvin v. Marvin, live in love, implied contract? Case 46: Morone v. Morone, cohabitation, implied contract? Case 47: Johnson v. Otterbein University, promise to donate $ to Univ to liquidate indebtedness Case 48: Hamer v. Sidway, uncles reward for nephews purging of vices Case 49: Moore v. Elmer, clairvoyant, promise to pay her mortgage if prediction is true Case 50: Mills v. Wyman, promise to pay for nurse's prior care of deceased son. Case 51: Webb v McGowan, sacrifice of self to save bosss life Case 52: Stilk v. Myrick, due to desertion, captain promises to increase wages of existing crew Case 53: Alaska Packers Assn v. Domenico, workers refuse to fish without pay increase, rotten nets Case 54: Brian Construction v. Brighenti, excavation underestimate, recontracted Case 55: Dyer v. National By-Products, lost foot at work, life time employment nixed outlines.ilrg.com 27

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Case 56: Aller v. Aller, monetary promise to daughter sealed Case 57: Wagner v. Lectrox, license sealed Case 58: Schnell v. Nell, attempt to make gift enforceable with consideration of one cent. Case 59: Smith v. Wheeler, $1 to reserve right to bid on property at later date Case 60: Rickets(D) v. Scothorn (P), grandfather gives $ so granddaughter doesnt have to work Case 61: Allegheny College v. Natl Chautauqua Cty Bank, endowment for fund in Ds name Case 62: Feinberg v. Pfeiffer Co., retirement pension for life promised Case 63: James Baird v. Gimbel Bros., subcontractor errs in estimate relied on by GC Case 64: Drennan v. Star Paving, misquoted SC estimate, GC wins bid on estimate Case 65: Goodman v. Dicker, dealer franchise to sell radios Case 66: Hoffman v. Red Owl Stores, Inc., supermarket franchise deal costs too much $$ Case 67: Blatt v. USC, nonadmittance into law school legal society Case 68: Ypsilanti v. General Motors, tax abatement for keeping company in town Case 69: Alden v. Vernon Presley, Elvis promise to pay debts of future mother-in-law. Case 70: Goldberg 168-05 v. Levy, minimum profits as threshold in maintaining contract Case 71: Stop and Shop v. Ganem, lot rented to be supermarket was left unused Case 72: Step-Saver Data Syst. v. Wyse Technology, computers purchase incompatible with system Case 73: Royal Business Machines v. Lorraine Corp., copy machines not up to expectations Case 74: Schneider v. Miller, rusty car bought from salesman Case 75: Morris v. Macks Used Cars, deception on part of seller Case 76: Harrel v. Sea Colony, breached condo contract Case 77: Scott v. Crown, bushels of wheat contract rescinded in belief that buyer couldnt pay Case 78: Jacobs & Young v. Kent, stipulation of Reading pipe not followed Case 79: Ramirez v. Autosport, purchase of camper van with lots of problems Case 80: Groves v. John Wunder, lease of land in exchange for removal of gravel and sand Case 81: Peevyhouse v. Garland Coal, strip mine lease, failure to restore land Case 82: Boone v. Coe, move from KY to TX on promise to work in exchange for housing/crops

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Case 83: Schwedes v. Romain, agreement for sale of property breached and sold to 3rd party Case 84: In the Matter of Baby M, surrogacy contract, egg from surrogate Case 85: Johnson v. Calvert, surrogacy contract sperm and egg from couple Case 86: Brooke Shields v. Gross, celebrity seeks to void contract made by her mom over pictures Case 87: Orterelere v. Teachers Retirement Board, altered retirement plan, dies early Case 88: Byers v. Federal Land Co., purchaser of land paid more than land was worth Case 89: Vokes v. Arthur Murray, Inc., bad dancer induced to purchase more dance lessons Case 90: Silsbee v. Webber, threat to tell mental father about sons embezzlement Case 91: Hackley v. Headley, log delivery, settle for less due to economic hardship Case 92: Austin Instrument v. Loral, govt defense contract want of exclusive rights, or else. Case 93: Odorizzi v. Bloomfield School District, homosexual teacher resignation Case 94: Williams v. Walker Furniture I,II, purchase of furniture on installment plan Case 95: Carnival Cruise v. Shute, choice of venue clause on back of ticket Case 96: Baby M case, surrogacy contract, egg from surrogate Case 97:Sherwood v. Walker, mistaken breeding cow for barren cow Case 98: Wood v. Boynton, uncut diamond sold for $1 Case99: Lenawee County Board of Health v. Messerly, condo condemned by poop, worthless Case 100: Tyra v. Cheney, subcontractor mistakenly left off amount stated in oral bid in written bid Case 101: Drennan v. Star Paving, misquoted SC estimate, GC wins bid on estimate Case 102: Laidlaw v. Organ, Treaty of Yent, Tobacco investment, S attempts to take tobacco back Case 103: Taylor v. Caldwell, place of rental burned down before use Case 104: Eastern Air Lines v. Gulf Corp., exclusive gas supply contract, issue on $ for renewal Case 105: Krell v. Henry, rented room to watch coronation of king Case 106: Lloyd v. Murphy, property on Wilshire Blvd for sales of cars Case 107: Northern Indian Public Service v. Carbon County Coal, 20-yr exclusive coal contract 48 45

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A.

INTRODUCTION

2 Promise (oral, written or inferred from conduct): a manifestation of intention to act or refrain from acting in a specified way so made as to justify a promisee in understanding that a commitment has been made. a. Agreement: manifestation of mutual assent on part of two or more persons b. Bargain: agreement to exchange promises or to exchange a promise for a performance or to exchange performance overriding themes in Contracts economic efficiency parties intentions about the economic allocation of risk fairness game theoretic approach to contracts, esp. default rules whom does policy encourage/dissuade/prefer? extra-legal sanctions -- especially reputational damage regarding enforcement (of any type), tradeoff between: judicial discretion in interpreting and enforcing and individual freedom to contract asymmetry of information lopsided bargaining power Case 1: Shaheen v. Knight failed vasectomy, unplanned child p.9 I: does a failed vasectomy operation constitute a breach of contract between Physician and Patient? R: If patient and doctor contracted for a particular result and result not obtained, patient has a cause of action for breach of contract in absence of a special contract in writing, health care provider is never a warrantor or guaranteer of a cure. H: No damage done to P, so none rewarded

B. DAMAGES C. EXPECTATION, RESTITUTION, RELIANCE

in general, damages must be determined with certainty courts dont commonly make parties adhere to contracts, usually makes one party pay other party for damages caused punitive damages are not usually given in breach of contract disputes

i. reliance: damages that put promisee in position had he never entered contract at all
used in noncommercial settings, puts P back in the status quo ante position incorporated when - profits are too uncertain to determine but P can show expenses - no enforceable contract, but P entitled to something under promissory estoppel - failure to perform on land contract and jurisdiction doesnt allow expectation damages 349. p.139 reliance = expenditures made in prep. of performance expenses saved in breach

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includes essential and incidental reliance .

reliance damages < expectation damages

Case 2: Sullivan v. OConnor, botched nose job on entertainer HO I: What measure of damages should be used? R: Contracts usually issue expectation damages except here, where the court makes an exception for medical breaches of contracts

ii. expectation(compensatory): damages that put promisee in condition that he would have been if
transaction occurred, the normal damages offered in contract law. Expectation measures are preferred because it causes people to breach only when it makes at least one party better off and no one worse off, i.e. encourages only efficient breaches

expectation = loss in value to him of the other party's performance caused by its failure or deficiency + any other loss, incidental or consequential, caused by the breach - any cost or other loss that he has avoided by not having to perform

Case 3: Hawkins v. McGee hairy hand skin grafting, promise of a 100% perfect hand p. 69 I: Can oral guarantee of 100% success in operation hold a doctor liable when operation fails? i.e. when a special contract is made? R: Yes, utterance of words are done with the intention that they would be taken at face value by patient inducing them to consent to operation. D went beyond offering a medical opinion when offering a perfect hand Expectation damages = value of perfect hand (a+b) value of current hand + incidental cons.

iii. restitution: damages that relinquish benefits provided to promisor derived from promise
covers any benefits conferred by P on D in the performance. NOT available when P has fully performed 371, p. 287: Measure of Restitution Interest If a sum of money is awarded to protect a partys restitution interest, it may as justice requires to be measured by either - the reasonable value to the other party of what he has received in terms of what it would have cost him to obtain it from a person in the claimants position, or - the extent to which the other partys property has been increased in value or his other interests advanced. p.97 1-106: damages = expectation damages, not consequential, special, or penal damages

Limitations on damages i. Remoteness or unforeseeability of harm

351, p. 120: Unforeseeability and other limitations on damages - not foreseeable by party in breach no damages - foreseeable if: i. loss follows in ordinary cause of events (consider separation in time and space between breach and consequences, customs of the trade, etc) ii. party in breach knows of special circumstances - exceptions to forseeability damages: i. excluding loss of profits, paying only reliance damages ii. if giving damages exults in overcompensation - damages can be curtailed by excluding recovery for lost profits, by allowing recovery only for loss

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incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation a test of foreseeability is to determine whether D would have agreed to the contract price had he known of the extent of his liability Case 4: Hadley v. Baxendale, Nl failed to deliver on time shaft that runs mill p 102 I: is D liable for loss of profits? H: no, damages limited to what was contemplated at the time of contract. R: must be foreseeable. For special situations, damages can be awarded only if P informs D of the special situation or if the damages were reasonable foreseeable. Note that this encourages information sharing when deviating from a default rule. Case 5: Hector Martinez v. South. Pac. Trans., delay and damage of dragline transp. p 116 I: Due to delay and damage of Ps machinery, should D be liable for Ps loss profits without and conveyance of special circumstances notice? R: Yes, as long as its foreseeable and not remote to a reasonable person

ii. Uncertainty of harm

352, p.140: Uncertainty of loss limitation on damages - damages not recoverable for loss beyond an amount that evidence permits to be established with reasonable certainty Case 6: Chicago Coliseum Club v. Dempsey, boxing match contract breach by boxer p. 125 I: What damages to provide when expected profits cannot be determined? R: Only reliance and restitution expenses that flow from and are the result of the breach Case 7: Anglia Television v. Reed, actor breaches contract to appear on television film p. 140 I: Since D cannot determine lost profits due to breach can they claim wasted expenditures, i.e. reliance damages before contract signed? R: Yes, P can collect damages even prior to contract provided that it was a foreseeable loss due to breach

iii. Avoidability of harm (mitigation of damages)

350, p. 163: Avoidability limitations on damages - damages not rewarded for loss that injured party could have avoided without undue risk, burden or humiliation except when injured party has made reasonable but unsuccessful efforts to avoid loss.

Mitigation forces people to behave in non-wasteful ways Buyers duty to mitigate is embodied in the duty to cover; i.e. he must attempt to purchase substitute goods
from another supplier no attempt to recover limits damages to recover only the difference between the market price at the time when the buyer learned of the breach and the contract price Sellers duty to mitigate is much les than the buyers. If a buyer repudiates before delivery or rejects delivery, seller has a choice of remedies: o Resell and recover difference between resale price and contract price o Not resell and recover the difference between market price at the time and place for tender and the unpaid contract price o Recover lost profits that do not require mitigation Case 8: Rockingham County v. Luten Bridge, breach of buyer on construction of bridge p.147 I: Should D be liable for damages sustained by P post notification of breach? R: No, it is Ps duty to do nothing to increase the damages flowing from breach

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Damages = expenses incurred prior to breach + expectancy interest (profit expected) Buyers Breach / Sellers Remedies 2-706, p. 168: Sellers Resale damages = resale price contract price + incidental damages expenses saved in breach all aspects of resale should be reasonable Case 9: Neri v. Retail Marine, breach of buyer due to legit reason in purchase of boat p.163 I: Should P be awarded loss profits and incidental damages from a breach by a buyer even if it eventually sold said boat to another? R: Yes, since P is a boat dealer it is assumed that breach by buyer prevented the sale of two boats instead of one, D may be entitled to restitution damages Sellers Breach / Buyers Remedies 2-712: Substitute goods in good faith without unreasonable delay damages = cost of substitute cover contract price + incidental/conseq damages expenses saved in breach

2-713: Damages for non-delivery or repudiation damages = market price @ breach contract price + incidental/conseq damages expenses saved in breach a. incidental damages: i.e. inspection, receipt, transportation, care, custody of goods rejected b. consequential damages: any loss resulting from general or particular requirements and needs of which the seller @ time of contracting had reason to know and which could not be prevented by cover or otherwise, any injury to person or property proximately resulting from any breach of warranty, collectible if parties foresee the possibility of such harm and agree on an estimated amount.

C. Default rules and penalties

2-708,p.169: Sellers damages for non-acceptance or repudiation damages = market price @ breach + place for tender unpaid contract price + incidental damages expenses saved in breach or damages = profit of seller @ full performance + incidental damages + costs incurred proceeds for resale

incidental damages: i.e. commercially reasonable charges, expenses or commissions incurred in stopping delivery, in transportation, care and custody of goods after buyers breach, in connection with return, resale of goods 2-718, p. 169: Liquidation or limitation of damages; Deposits a term fixing unreasonably large liquidation damages is void buyers entitled to restitution damages, stipulations on p. 170

i. Liquidated damages and penalty clauses

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 2-719,p. 172: Contractual modification or Limitation of remedy Default Rules parties can contract around by inserting expressed clauses to the contrary unless clause is unconscionable

a. warranty clause: limits liability by providing the exclusive remedy for a breach excluding damages
for other foreseeable losses

b. liquidated damages: can expand or limit damages, expressed explicitly in contract only if they are
reasonable and do not exceed the loss foreseeable by a breach, 356, p.185, applies only when actual damages cannot be ascertained and must be proportional to actual damages Liquidated damages are good because they place a limitation on liability and sometimes offer a basis for when theres no easy method to calculate damages in a breach however penalty liquidation damages are bad because they hinder efficient breaches. Reasonableness Test: (look at factors and policies of the time) 1. Did parties intend to provide for damages for a penalty? 2. Is injury caused by breach one that is difficult or incapable of accurate estimation @ time of contract? a. difficult of producing evidence of damage b. difficult in determining what damages will be caused c. difficult indetermining damages contemplated d. absence of standardized measure e. difficulty in forecasting all damages 3. Are the stipulated damages a reasonable forecast of the harm caused by the breach? a. time of contracting b. time of breach Case 10: Kemble v. Farren, actors breach in contract for failure to perform p. 174 I: Can court grant damages other than what is stipulated in contract? R: Yes, clause would have been reasonable if actual damages cannot be ascertained, but, in this case, actual damages are easily calculated Case 11: Wassenaar v. Towne Hotel, liquid damages in termin. of employment contract p. 176 I: Does P need to mitigate damages other than what is stipulated in contract? No. R: test of validity: whether clause is reasonable under the totality of circumstances? H: yes, reasonable to foresee conseq. Damages, employer failed to show that P suffered no damages, if they did, no damages would have been rewarded. D didnt meet B/P, must show: actual damage <<< stipulated damages J: no, P did not need to mitigate damages, Ps earnings post breach do not reduce damage award Case 12: Lake River Corp. v. Carborundum Co. comments on liquidation clauses R1: penalty clause may discourage efficient and inefficient breaches of contract R2: should be applied only if gains > costs of penalty clause and other costs

ii. Contracting around contract law Coase Theorem - Law doesnt matter if transaction costs are law enough as parties will simply bargain around legal remedies - Coase assumed transactions costs were not zero, when transaction costs are high, then legal remedies do
matter People who use Coase use it when transaction cost are high by looking at what would happen if transaction costs were low (i.e. determine who values the property the most) and then trying to replicate the result through legal remedies.

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OTHER REMEDIES D.
SPECIFIC PERFORMANCE
Awarded when money damages are not adequate, i.e. sentimental value, priceless items, land, special, unique items, items with subjective value, hard to value items, agreements not to compete, transfer controlling block of shares. 2-716, p233: Buyers Right to Specific Performance or Replevin - SP when goods are unique or in other proper circumstances (no adequate compensation available) - SP may include terms and conditions regarding payment of price, damages, or other relief court deems just (damages too speculative and uncertain to be calculable) - SP if, after reasonable effort, claimant cannot effect cover or circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. (non-recoverable) SP is not allowed if: - adequate damage compensation is available - indefinite contract terms, i.e. indefinite time - difficulty in enforcement and supervision

i. Land & goods

for cases brought in equity, will be used primarily in real estate deals or other personal property that is tough or impossible to value or otherwise replace a. Land Case 13: Loveless v. Diehl, specific performance on option to purchase land improved upon p. 217 I: should SP be upheld in sale of land promised to one party and sold to third? R: yes, land is special , damages are clear and Ds would be unjustly enriched otherwise, P had invested improvements in land. PP: if no SP, people would not want to enter purchasing deals

b. Good
Case 14: Cumbest v. Harris, specialized stereo equipment as collateral in loan, sentimental item p. 223 I: does personal property of unique or sentimental value allow for specific performance? R: SP will not be enforced if the subject matter of the contract sought to be enforced is personality. Exceptions: - no adequate remedy at law/damages hard to determine - where the specific articles or property are of peculiar, sentimental or unique value - where due to scarcity, the chattel in not readily obtainable H: SP, because stereo is unique Case 15: Scholl v. Hartzell, conflict over sale of a 1962 Corvette, SP or no SP on car? P. 226 I: should P receive SP on a car he put a small down payment on to D? R: Replevin lies wherever one person claims personal property in the possession of another, provided the claimant has the exclusive and immediate right to possession of the goods in question, SP when item is unique or in other proper circumstances R: inability to cover is an exception to non-SP rule, but does not apply here H: car not unique and P can likely cover Case 16: Sedmak v. Charlies Chevrolet, oral contract for limited edition customized car breached P. 229 I: Should SP be granted in the case of a purchase from a dealer of a limited edition car customized for the Ps who had put a down payment on car? outlines.ilrg.com

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R: Yes, since car is limited edition, it is unique and hard to obtain

ii. Personal services

Case 17: The case of Mary Clark, a woman of color, servant by indenture P. 235 I: whether Ps service, although involuntary in fact, shall not be considered voluntary by operation of law, being performed under an indenture voluntarily executed? SP? R: State of servitude produced by direct or permissive coercion will not be considered voluntary either in fact or in law, therefore, no SP. Case 18: Lumley v. Wagner, contracted singer breaches in attempt to sing at competitors theater P. 240 I: Can injunction be awarded preventing D from performing elsewhere if SP can not be awarded forcing D to perform at Ps theater against her will? R: Since court can not order specific performance, will attempt to bind parties to contract by preventing her from doing something she bound herself not to do injunction allowed due to negative stipulation specifically written into contract. - 1852 Case 19: Ford v. Jerman, contracted singer breaches in attempt to sing at competitors theater P. 245 I: Can injunction be awarded preventing D from performing elsewhere if SP can not be awarded? R1: No SP, harsh to compel obedience by imprisonment R2: No, injunction would be more injurious to D and less beneficial to P than SP, cannot be enforced even with a negative stipulation implanted in contract (overrules Lumley) 1865 **R3: NO SP for personal services in the case of those whose business is to amuse as well as entrust and whose labors are worth nothing if given grudgingly, without the spirit that should parade and give life to art.

Restitution Revisited
Restitution generally pertains to situations where one person has without intending to make a gift conferred a benefit on another. Quantum meruit: Restitution can also provide an independent cause of action when there is no contract at all. 373, p. 287: Restitution when other party is in breach 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. 374, p. 298: Restitution in favor of party in breach in justifiable breaches, party in breach is entitled to restitution for any benefit in excess of the loss that he has cause by his own breach. Party is NOT entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the anticipated or actual loss cause by breach and the difficulties of proof. Case 20: Cotnam v. Wisdom, Surgeons attempt to be compensated for accident victim on street p. 298 I: Is there an implied contract when surgeons fetched to the scene of an accident seek to help the accident victim who later dies from injuries? Can Ps take into account victims financial condition? R1: implied contract : an insane person, idiot, or a person completely devoid of senses at the time and reason by sudden stroke of an accident or disease may be held liable for necessaries furnished to him in good faith while in that unfortunate and helpless condition. R2: Because surgical operation is conceived to be performed with due skill and care, the price to be paid does not depend on the result R3; financial condition of patient cannot be considered where there is no contract and recovery is sustained on an implied contract unless trade custom proves otherwiseexcept in situations of emergencies when implied contracts require only reasonable compensation.

MUTUAL ASSENT
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There was must mutuality for an agreement to be enforceable

Offer and Acceptance i. Introduction traditionally mutual assent is conceived in terms of offers and acceptances.
a. manifestation of assent 17, p331: requirement of a bargain formation of a bargain requires manifestation of mutual assent. what you must have for a contract: 1 - bargain 2 - manifestation of mutual assent 3 - exchange 4 - consideration things to consider in determining the manifestation of intent: 1 - the words used 2 - surrounding circumstances 3 - to whom the words are conveyed 4 - definiteness of terms 5 - whether a written contract is intended

18: manifestation of mutual assent manifestation of mutual assent means that each party either makes a promise or renders a performance 19, p.351: Conduct as manifestation of assent (1) manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act. (2) Conduct is not effective as manifestation unless he intends to engage in the conduct and knows or has reason to know that other party may infer assent from his conduct (3) Conduct of party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause. 22, p 331: mode of assent: offer and acceptance (1) manifestation of mutual assent is usually in form of offer/acceptance. (2) but, there may be a manifestation of mutual assent even if neither offer nor acceptance can be identified and even if the moment of formations cannot be determined (eg., in complex negotiations). Case 21: Dickinson v. Dodds, Options contract for sale of property sold to third party P. 325 I: Should SP be given to an options contract whereby the D gave P till 9am the following day to determine whether he wanted to purchase the property and then D sold property to third party within that time which P knew about before deciding to accept offer? Lower Ct: According to 42, revocation by D must be conveyed to P explicitly R1: no need for express or actual withdrawal from offer, can be inferred from Ds intent to sell to third party R2: no meeting of the minds at time P chose to accept offer (D already intend to sell to another), therefore no contract R3: Promise to hold till 9am is a promise without consideration, therefore its not binding 42, p332: revocation by communication from offeror received by offeree an offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.

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43, p332: indirect communication of revocation power of acceptance is terminated when the offeror takes definitive action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect 24, p. 331: Offer defined manifestation of willingness to enter into a bargain, so made as to justify another person n understanding that his assent to that bargain is invited and will conclude it. 25, p. 331: Options contract promise which meets the requirements for the formation of a contract and limits the promisors power to revoke an offer. b. revocation requirements of an effective revocation: 1 - words or conduct must be clear 2 - must be communicated to offeree 3 - effective when received (minority rule is w\then dispatched) 36, p332: methods of termination of the power of acceptance (1) an offerees power of acceptance may be terminated by (1) rejection or counter-offer by offeree; (2) lapse of time; (3) revocation by the offerer; (4) death or incapacity of the offeror or offeree. (2) also by the nonoccurrence of any condition of acceptance under the terms of the offer

37, p. 332: termination of power of acceptance under option contract Notwithstanding 38-49, the power of acceptance under option contract is not 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. enter into the proposed contract and the offeree acquires reliable information to that effect. 2-205, p.333: firm offers an offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period exceed three months. 2-206, p. 333: Offer and acceptance in formation of contract (1) unless otherwise unambiguously indicated a. an offer to make a contract should be construed as inviting acceptance in any manner by any medium reasonable b. order or offer to buy goods for prompt/current shipment invites acceptance by prompt promise to ship or prompt/current shipment. Nonconforming goods do not constitute an acceptance if the seller seasonably notifies the buyer that shipment is offered as an accommodation to buyer (2) where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. Case 22: Embry v. Hargadine, McKittrick Dry Goods, re-employment after termination of contract p. 334 I: Was what was said between employee and employer as interpreted by P constitute a contract for reemployment on the previous terms irrespective of the intention or purpose of D employer? H: objective standard applied: what Ds intentions were were totally irrelevant in deciding if a contract is formed if what he says would have been taken by a reasonable person to be a contract as P so understood it, it constituted a valid contract.

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Case 23: Texaco v. Pennzoil, Texaco attempts to interrupt business dealings of Pennzoil & Getty p. 341 F: Pennzoil wanted to do a deal with Getty Oil, and thought it had a deal done. Gettys Board voted 15-1 for it, memorandum signed by almost all parties, binding letter signed by Chairman of Getty, press release announced tentative deal, etc. Then Texaco came in and stole the deal I: should manifestations of intent be considered only between parties and not to third parties? R1: objective manifestations of intent of parties and expressed by words and deeds that determine whether that parties have actually entered into a contract. R2: conduct not effective as manifestation unless he knows other party may infer assent from conduct. Case 24: Lucy v. Zehmer, drunken sale of land on back of restaurant check p 342 F: P and D were old acquaintances and out drinking one night. P offered to buy Ds farm, D said P couldnt raise the money for it, P said he could. D wrote out a contract for sale, signed it, and got his wife to sign it too. P offered an immediate down payment, whereupon D said he was only joking. D secretly told wife it was a joke I: is a written contract enforceable even if D was drunk, joking, and had no intention to actually sell? H: yes, his actions as objectively observed indicated he was serious. We look to the outward expression of acts and words terms discussed for a long time, joke was not expressed to P R: look to the outward expressions only, prefer objective to subjective manifestation because subjective manifestation would result in an increase in broken contracts increases chance of exit strategy, i.e. fraud.

ii. Offer
requirements for a valid offer: 1 - manifestation of present contractual intent 2 - certainty and definiteness of terms 3 - communication to the offeree 24: offer defined offer is 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. 26, p.359: preliminary negotiations 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. 33, p.359: Certainty (1) Manifestation of intent cannot be accepted as to form a contract unless the terms of the contract are reasonably certain (2) Reasonably certain if they provide a basis for determining the existence of a breach and or giving an appropriate remedy (3) The fact that terms are left open or uncertain may show that manifestation of intent is not intended to be an offer or an acceptance 2-204, p. 360: Formation in General (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is reasonably certain basis for giving and appropriate remedy. 2-305, p. 360: Open Price Term- avoid by setting price based on an external standard or specifically contract what would happen if agreement cannot be made in terms of price 2-308, p.361: Absence of specified place for delivery

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2-309, p.361: Absence of specific time provisions, notice of termination Case 25: Nebraska Seed Co. v. Harsh, Proposed seed sale given by letter P. 356 I: Does a letter inviting a purchase of Ds seeds constitute an offer or just an advertisement? R1: 26, not an offer . letter was an invitation requesting bids. R2: 33 - language in letter is general, it is an invitation to make an offer, does not fix a time for delivery, did not fix a definite and certain amount. Factors to consider trade customs, # of persons communication was addressed to, completeness of terms in supposed offer Case 26: Empro Mfring v. Ball-Co Mfring, Letter of intent to purchase assets sold to another party P. 362 I: Does a letter of intent bar D from selling assets to a third party based on a subjective manifestation of intent? R1: no, intent is an objective manifestation, determined solely from the language used when no ambiguity in terms exist. R2: Wording of letter indicates considerations were necessary before letter becomes a contract, letter of intent just sets the stage of negotiation preliminary negotiations 26 27, p. 365:Existence of contract where written memorial is contemplated Just because parties intend to prepare and a adopt a written memorial doesnt mean a manifestation of assent itself isnt sufficient to form a contract unless circumstances show that the agreements are preliminary negotiations. Case 27: Pennzoil v. Texaco P. 366 . I: Did parties intend to be bound to the terms of the memorandum of agreement even if parties contemplated a more formal document to memorialize the agreement later? R1: 27 applies unless either party communicates the intent not to be bound before a final formal document is executed R2: the emphasis in deciding when a binding contract exists is on intent rather than on form , based on an objective standard:

ATTEMPT AT FINAL CONTRACT R - determine manifest intent to be bound by 1 - is there an explicit no agreement until signing clause? 2 - is there acceptance of partial performance? 3 - is there literally nothing left to negotiate? 4 - what is the transactional/industry norm - does complexity require writing? H: At the time, some terms were still open (timing of payments) and industry practices supported Texaco (after all, in this $10 billion deal there was no final signature). The Texas jury found for a hand-shake deal for Pennzoil.

iii. Acceptance (by mail, silence, or performance)

Offer may only be accepted by a person in whom the offeror intended to create a power of acceptance Determination of intent of offeror is based only on the objective theory. Generally an acceptance is only valid if the offeree knows of the offer at the time of his alleged acceptance. If method no established, offeree can accept in a manner reasonable in the circumstances In some circumstances, prior business deadlines, silence can constitute an acceptance.

a. Mailbox Rule
63, p. 381: acceptance is operative as soon as its out of the offerees possession except options contracts which are not operative until received by offeror

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Case 28: Morrison v. Thoelke, sale of land via mail, attempt to repudiate while acceptance in mail p.372 I: whether a contract is complete and binding when a latter of acceptance is mailed, thus barring repudiation prior to delivery to the offeror, or when the letter of acceptance is received, thus permitting repudiation prior to receipt. R: mailbox rule 63a, contract is set upon mailing out assent meeting of the minds is set H: mailbox rule is better because is closes deals more quickly and enables prompt performance Case 29: Lewis v. Browning, mailing with stipulations for method of assent P. 379 R: person making the offer may always make the formation of the contract which he proposes dependent upon the actual communication to himself of the acceptance, telegraph me yes or no H: offer dependant upon an actual communication to P of Ds acceptance (option clause) 65, p.381: Reasonableness of medium of acceptance Unless circumstances indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received.

b. Silence
69, p.383: acceptance by silence or exercise of dominion (1) where offeree fails to reply to an offer, his silence and inaction operate as an acceptance only where: (a) he has taken a benefit or offered service with reasonable opportunity to reject it with reason to know that compensation was expected; (b) offeror relates that acceptance by silence is ok, and the offeree in remaining silent intents to accept; (c) because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. Case 30: Hobbs v. Massasoit Whip, eel skins retained by D w/o acknow. assumed as acceptance p.382 I: whether P reasonably presumed acceptance based on silence on the part of D in receipt of eel skins R1: Similar eel skins were frequently sent to D in this manner, duty on D to act upon receipt of eel skins and silence on its part coupled with retention of skins for an unreasonable time gave P good reason to assume D accepted goods. R2: D did not have a duty to notify of acceptance but D had duty to negate acceptance by notifying P.

c. Performance
30, p.405: form of acceptance invited (1) an offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act...(unilateral contract).; (3) unless otherwise indicated by language or circumstances, an offer invites acceptance in any manner and by any medium that is reasonable in the circumstances Case 31: Carlill v. Carbolic Smoke Ball, advertisement offering reward in use of product p.385 I: Was an advertisement offering a reward to no one in particular who, during use of product, developed

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influenza a unilateral contract subject to be bound by performance on part of participant without prior acceptance? R: Yes, this was not mere puff based on fact that money was actually set aside for this reward by D. Advertisement was a unilateral offer in which acceptance takes the form of performance. Analogous to lost dog reward. 54, p.400: acceptance by performance, necessity of notification to offeror (1) when offer invites acceptance by performance, notice is not necessary unless the offer requests such a notification; (2) when offer does not explicitly invite acceptance by performance and offeree knows offeror has no adequate means of learning of the performance/acceptance, offeror is released from obligation unless: (a) offeree exercise reasonable diligence to notify offeror; or (b) offeror learns of the performance/acceptance in a reasonable time; or (c) offer indicates that notification of acceptance is not required. (note that w/unilateral promise - no duty to notify) Case 32: Leonard v. PepsiCo, product points for fighter jet advertisement H.O. I: Did a television commercial by D constitute an offer when it showed a fighter jet as a reward for collecting Pepsi product points at a value much less than its true worth? R1: advertisements are generally viewed to be mere requests to consider and examine and negotiate here would be no enforceable contract until defendant accepted the Order Form and cashed the check exceptions to advertisement rule only in cases of clear, definite, and explicit advertisements ex. Lefkowitz and fur coat. Present case isnt explicit reserves details to separate writing. R2: objective standard no reasonable person would have concluded that the commercial actually offered consumers a fighting jet as a prize H: P loses because commercial is an advertisement not a unilateral offer, jestful nature of commercial would not cause a reasonable person to take offer seriously, and there is no writing between the parties sufficient to satisfy the Statute of Frauds. Case 33: White v. Corlies & Tifft, Contract for building offices, silence deemed no acceptance P.401 F: D contracted P to build a suite of offices for him. D changed specifications which were assented to by P. D sent note to P which was not replied to and D then retracted contract. P, upon receipt of first note had begun performing on contract. I: Upon receipt of note from D, did P have a duty to give notice of assent to D before commencing work? i.e. was there a binding contract between parties as based on wording of note? H: Yes, note was a proposition and must have been accepted by P before either party was bound by contract. R: if manifestation is not put in a proper way to be in the usual course of events in a reasonable amount of time there is no binding contract. Mental determination not indicated by speech or put in course of indication by act to the other party is not an acceptance which will bind the parties. 32, p405: where there is doubt as to acceptance in cases of doubt, offeree may accept by performing what the offer requests or by promising to perform, as the offeree chooses. Case 34: Crook v. Cowan, order for customized carpets accepted without notice to requestor P.405 F: D ordered two customized carpets from P. Without notification of acceptance, P performed on contract. D claimed that without notification of acceptance, there was no contract. I: Because Ds order was explicit in terms of carpets wanted and method of deliver and method, did P need to notify of acceptance of order before performing on order? R: Requirement of giving notice of acceptance by mail must depend on circumstances: - if the order requires it - if order is not sufficiently specific - if considerable time must pass in the manufacture of article

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if route or means of transportation is not known if voyage is long and dangerous H: order here was unconditional and specific and was complied with to the letter, therefore it was a contract accepted by performance to the terms of the letter. Dissent: this was an offer to purchase goods, an order, duration of time of keeping D in dark is unreasonable 45, p422: option contract created through part-performance or tender (i.e., unilateral promise) (1) where an offer invites acceptance through performance only, an option contract is created when the offeree begins performance; (2) in such a case the offeror's duty of performance is conditional on completion of the offeree's performance. 50, p.422: acceptance defined: by performance/promise (1) acceptance by terms specified by the offeror, or; (2) by part performance (which operates as a return promise), or; (3) by a promise by completing every act essential to making the promise.

Interpreting the agreement i. Filling gaps

Implied-in-fact terms terms that parties actually, albeit implicitly, have agreed to Implied-in-law terms imposed on parties without their consent Default rules legal rules that the parties can avoid or vary by means of an express clause that differs from the term a court will otherwise supply by default Immutable rules may not be varied by consent and will override any express clause to the contrary a. indefiniteness overall themes: must have reasonableness and good faith damages are usually expectancy specific performance in real estate deals is almost never used how the law has changed: at CL, any indefiniteness makes a contract not binding at UCC, R2d, enforceability depends on intent essential terms: parties to the contract subject matter time for performance price 2-204: formation in general (1) a contract may be made in any manner sufficient to show agreement; (2) a contract may be found even though the moment of making is undetermined; (3) even though one or more terms are left open, a contract does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy; note that 33 takes this position with respect to all contracts, not only goods of sale appropriate gap fillers 2-305, p360: price - note that a minimum price will prevent a gap filler from being used - no offer to sell 2-308, p361: place of delivery 2-309, p361: timing of delivery and notice of termination Case 35: Sun Printing & Publishing v. Remington Paper & Power, Contract for sale of paper P.427

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F: P agreed to buy paper supply from D, future price of paper and length of time which price should apply were to be agreed upon by parties at a later date. Max on price set by external standard. Time gap was left unfulfilled. I: Is there a legal contract binding parties when a term left open in the contract cannot be agreed upon by the parties? R1: no, the time element is essential to the formation of the contract, inability to agree upon this element causes the failure of the contract and neither party is bound. H: there is no basis to determine what time element should be, therefore no contract. R2: to avoid in the future, set price based on an external standard or specifically contract actions to take when no agreement can be reached by parties 34, p.433: Certainty and choice of terms, effect of performance or reliance (1) there is stipulation for selection of terms in course of performance (2) part performance may remove uncertainty and establish an enforceable contract (bargain has been formed) (3) reliance on agreement may make a contractual remedy appropriate even though uncertainty is not removed. Case 36: Texaco v. Pennzoil, P. 434 I: can a contract be binding even if the terms intended to be included into an agreement are too vague and incomplete? R1: terms in contract must be sufficiently complete so that parties in good faith can find in the agreement words that will fairly define their respective duties and liabilities. R2: parties intent not conclusively discernible from their writings alone, extrinsic evidence of relevant events is considered H: there was a breach b. illusory and alternative promises illusory leaves complete discretion to perform or not in the hands of the purported promisor if the promisor reserves alternatives such that she can escape performance, there is no promise and this is not valid consideration -- therefore, no contract (note that a conditional promise is still okay because this represents a legal detriment in that the promisor is bound should the condition occur) Case 37: NY Central Iron Works v. US Radiator, extensive need of radiators not provided by D P.436 F: Contract between D and P where D was to supply P with entire radiator needs, quantity was an open term of contract. P sought an increased amount of radiation than previous orders and D refused to fulfill orders. I: Was there a mutual mistake in framing contract since the intention was to limit the quantity of goods to be delivered to an amount such as had been ordered in previous years? Should contract be reformed to reflect this intention? R: No sign of bad faith or unfair dealings on part of P, therefore D breached contract. Case 38: Eastern Air Lines v. Gulf Oil Corp. , exclusive gas supply contract, issue on $ for renewal p.437 F: P and D dealt with one another for decades. In 1972 they signed a 5-year renewal at a set price for all of the oil that Eastern would need in certain airports. The oil shock came and a government price control resulted in the pricing mechanism of the contract being pegged to an artificially controlled very low price. I: did Eastern violate the contract even if it freighted? Was contract void for indefiniteness in terms of mutuality of obligation and subjects Gulf to the whims of Eastern? H: no, the freighting was standard business practice for years. The real issue is to look at the intent of the parties and to see if there is good faith. At all times, Eastern acted with the good faith of a merchant. Lack of mutuality and indefiniteness of contract resolved by court with reference to objective evidence of volume of goods required to run business.

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Case 39: Wood v. Lucy, Lady Duff-Gordon, P hired to help in endorsements of Ds clothing P. 441 F: agent agreement made between a fashion designer and her agent. In exchange for exclusive marketing rights, agent was to be paid a percentage of sales he scared up. He does noting, she sells her own stuff, he sues. She claims illusory promise should make contract void. I: Because P did not specifically promise anything, is a contract void? R: no, a promise may be lacking and yet the whole writing may be instinct with an obligation imperfectly expressed 2-306 H: Because D gave an exclusive privilege, which, acceptance by P constitutes assumption of duties to increase profits (since Ps own profits are tied to his endeavor) promise has value reasonable effort standard c. output and requirement contracts overall themes inequitable bargaining power availability of alternatives 2-306, p.449: output, requirements, exclusive dealings contracts (1) a term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. (2) a contract giving exclusive dealings means an obligation by seller to use best efforts to sell the goods; and an obligation by buyer to use best efforts to promote their sale. comments parties are held to have impliedly bound themselves to use reasonable diligence as well as good faith in their performance of the contract. An exclusive dealing agreement brings into play all of the good faith aspects of the output and requirement problems of subsection (1).

output - seller has enormous discretion requirements - buyer does

Is the seller obligated to supply what the buyer demands?

1) Is demand by good faith?

YES
NO no obligation

2) Was there an established estimate in contract?

NO 3b) Is buyers demand disproportionate to past requirements? YES NO 3a) Was buyers demand disproportionate? YES NO maybe obligated obligated depending on no obligation obligated circumstances YES

ii. Subjective v. Objective

Subjective theory - Mutual assent requires the meeting of the minds, i.e. same subjective intent on minds of both parties - Used in subculture or trade where language is used differently than it would be understood by a reasonable person - Problem indeterminacy and invitation for fraud objective theory of assent - this places the risk on the low-cost bearer/best evaluator - interpretation based on the reasonable meaning of the actions of the two parties

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theory is subjectivized to the extent that circumstances are taken into consideration when determining the objective meaning of the partys actions encourages clarity Problems cannot be as clear as one may want, reasonableness can differ with different levels of sophistication, so the objective theory also subjectivizes in this department as well

reasons that favor objective over subjective: - demands for security in business transactions, - protecting reasonable expectations - encouraging exchange of information Case 40: Raffles v. Wichelhaus, mistaken identity of Peerless boat used in delivery of goods P. 451 F: D purchased goods from P to be shipped from a boat called Peerless from Bombay. Apparently two boats were named Peerless leaving from Bombay and each party thought of different boats in the making of contract. Since goods came later than D expected, D refused to purchase goods I: Is it material to contract that each party identified a different ship named Peerless that was to deliver the goods? R: Because there was conflict as to which boat was meant in contract, court deemed there was no mutual assent, no meeting of the minds(subjective test) and ambiguity effects a material term of the contract because under conditions of wildly fluctuating prices arrival date is important (objective test) and therefore, no contract. MUTUAL MISTAKE AS TO CONTRACT SUBSTANCE VOIDS CONTRACT Note: difference between latent ambiguity (each interprets the same term differently) and patent ambiguity (a term is undefinable), parol evidence pointed to the meaning of a term is allowed by the UCC, this includes usage of trade and prior dealings between the parties Case 41: Oswald v. Allen, Swiss coin collection, mistake of what was for sale P. 463 F: P thought two collections for price, D thought one collection for price I: Was there a valid contract even though both parties had different views of what was being sold? R1: when terms used in agreement are ambiguous and parties understand it in different ways, there cannot be a contract unless one party had reason to be aware of others understanding. R2: Although mental assent of parties is usually not a requisite to formation of contract this cause is an exception because there is no sensible basis for choosing between conflicting understandings. (Applies Raffles) 201, p. 465: Whose meaning prevails? (1) if same meaning attached, interpreted with that meaning (2) if different meanings attached, interpreted in accordance with the meaning attached by one of them if at the time the agreement was made a. that party did not know of any different meaning attached by other, and other knew meaning attached by first, or b. that party had no reason to know any different meaning attached by other, and other had reason to know the meaning attached by first, c. Except as stated in this section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. 202, p. 466: Rules in aid of interpretation (1) words interpreted in light of circumstances, intention of parties is given much weight (2) writing interpreted as a whole (3) unless different intention manifested a. language interpreted with general meaning outlines.ilrg.com

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b. technical terms given technical meaning when interpreted in technical field (4) when agreement calls for repeated performance with opportunity for objection, any course of
performance/negotiations accepted without objection will be given great weight in interpretation

(5) wherever reasonable, manifestation of intention are interpreted as consistent with each other and with
any relevant course of performance, course of dealing, or usage of trade. (Weinberg v. Edelstein, p.468, definition of a dress determined by trade usage and background research done by court.) Interpreting Assent: 1. Do parties subjectively attach the same meaning to terms in the contract? (consider words in contract, course of negotiations, performance, past dealings) NO(there is a misunderstanding YES there is an agreement and term is enforced 201(1)

2. Does one party know/ have reason to know that other party (x) has attached a partic. meaning to term?
YES if x is clueless, there is an agreement subject to the meaning of the term as believed by party x 3. Can objective meaning of term be determined? (consider course of performance, course of deal, usage of trade 202, 1-205, 2-208 NO no agreement, only seemed to be mutual assent YES there is an agreement subject to the objective meaning of the party whose objective meaning matches its subjective meaning NO

Parol evidence rule

it is generally agreed that the rule applies only to prior or contemporaneous oral agreements Usually in contract law a subsequent agreement trumps a prior agreement except when the prior agreement is in writing and is fully integrated under the parol evidence rule. Document is fully integrated when it represents the final expression of the parties agreement. Oral and written agreement made prior to an integrated written contract will be inadmissible as terms of the contract unless the agreement: - is collateral to the integrated contract - doesnt contradict the terms of the integrated contract, and - is one the parties wouldnt ordinarily expect to be included in the integrated contract

Parol evidence will always be allowed to show fraud, duress, or mistake during formation of the contract a way to get around the parol evidence rule is to argue that you are seeking to introduce evidence about a
subsequent agreement or modification If a document is only partially integrated, parol evidence is allowed in so long as it does not contradict the writings. If it is fully integrated, even non-contradictory parol evidence is barred if it adds anything new to the contract. issues to consider is the dispute over a widely used term of trade? is there a difference between a general and a specific meaning? have the parties dealt with one another previously? strict parol evidence rule - will have channeling effect, eliminate fraud, and have consistent adjudication broad parol evidence rule - will more accurately reflect intent of parties

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209, p.487: Integrated agreements a final expression 214: allows admission of evidence to determine whether or not agreement is integrated effect - allows evidence to determine whether evidence should be heard, undermines parol evidence rule 215: contradiction of integrated terms evidence that contradicts any integrated term will not be allowed 216: consistent additional terms (1) evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated; (2) an agreement is not completely integrated if the writing omits a consistent additional agreed term which is (a) agreed to for separate consideration; (b) such a term as in the circumstances might naturally be omitted from the writing. 2-202(U): final written expression: parol or extrinsic evidence ...[terms of contract] may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented: (a) by course of dealing or usage of trade (1-205) or by performance (2-208), and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms and agreement comment 3 - if additional evidence would certainly have been included, then inadmissible. ( effect - makes it very difficult to find a totally integrated document) comment 2 - terms should be read with assumption that course of dealing and usage of trade are assumed by the contract unless specifically negated (effect - lets everything in) UCC is more permissive than Restatement Determining applicability of Parol evidence 1. Is the written agreement between parties intended to be final? YES PE inadmissible No PE admissible

2. Is agreement is complete or exclusive?

YES PE inadmissible NO PE can be used that does not go against written agreement

3. If parties intended to at least partially integrate/finalize the agreement no contradictory PE admissible 4. If parties fully integrated no PE of any additional terms
Case 42: Thompson v. Libbey, verbal warranty as to quality of purchased logs P. 482 I: can a verbal warranty be admissible as evidence when whole of contract is in writing? R: No, PE not allowed because the written contract seems complete fully integrated therefore any PE evidence that alters or adds to contract is inadmissible. Case 43: Brown v. Oliver, sale of hotel, fight over furniture P. 484 F: Parties discussed sale of hotel to include furniture but final contract did not include it. I: Should furniture term be considered part of the agreement even though it was not written into actual contract? R: PE admissible based on Wigmore treatise:

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1. was writing intended to cover all subjects or just some subjects? (depends wholly on parties 2. 3.
intent intent of parties determined from conduct and language of parties and surrounding circumstances in deciding upon intent, see if particular element of the alleged extrinsic negotiation is dealt with at all in writing

Battle of the forms

- rejection of the mirror image rule 2-207, p516: additional terms in acceptance or confirmation (1) acceptance creates a contract even if it varies in terms of the offer unless acceptance is contingent on assent to the new terms (2) In the case of contradictions between terms of offer and acceptance, offer terms govern unless the acceptance is expressly conditioned on assent to the new terms (3) Different terms only become part of contract if they do not materially change contract. Terms that materially change the contract are deemed mere suggestions for future negotiation. (4) If acceptance is expressly conditioned on assent and the original offeror performs, then there is a contract, the terms of which are those that are not in contradiction. Where there is a contradiction, the above rules govern - UCC approach makes things easier by allowing parties to agree on the core and letting the courts fill in the details later if necessary - Gives more power to the offeror Case 44: Union Carbide v. Oscar Mayer Foods, attempt to collect back taxes from contract HO F: Contract by P to D over products purposely avoiding sales tax. Caught by tax authorities, P sought to collect back taxes from D. I: Can P collect back taxes from D when it knowingly omitted taxes from contract to begin with? R: NO, addition of terms would materially alter existing contract, since consent cannot be presumed. Terms inserted by offeree are ineffectual: 1. if offer expressly limits acceptance to the terms of the offer, or 2. if the new term a. makes a material alteration, in the sense that consent to it cannot be presumed, and b. there is no showing that the offeror in fact consented to the alteration whether i. expressly, or ii. by silence against the background of a course of dealings

ENFORCEABILITY E.
ii. iii. iv. v. vi. PRINCIPLES OF ENFORCEABILITY i. Will principle parties consent to be bound voluntarily meeting of the minds, therefore enforceable
exception: objective manifestation of consent unless subjective intent can be proven to be contrary Reliance principle liable for harm caused by verbal behavior (oral or written) Restitution principle to prevent unjust enrichment of promisor (one of benefited and now wants out) Economic efficiency if benefits of enforcement exceed benefit of unenforcement (max. of social wealth) Substantive fairness only enforce contracts that are fair just prices and terms Bargain principle mutuality of inducement (also look at fairness of bargain, look for consideration)

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exception: I promise to take out the trash no bargain, not enforceable Expressed Contracts promise said in words, acceptance by oral, silent, written acceptance Implied Contracts contract inferred from acts in light of surrounding circumstances (fear: holding people to agreements they never agreed to make)

Case 45: Marvin v. Marvin, live in love, implied contract? P. 637 I: What principles should govern distribution of property acquired in a non-marital relationship? R1: Courts shall enforce express contracts between non-marital partners except if its founded on sex R2: Courts inquire into conduct to determine if there is an implied contract there is when a man and a woman live together and agree to pool their earnings and share equally in their joint accumulation, equity will protect the interests of each in such property. R3: Quantum meruit (not a contract at all, but a method to collect damages, applied when courts believe not applying would result in unjust enrichment) recoverable for the reasonable value of household services rendered less the reasonable value of support received if he can show that he rendered services with the expectation of monetary reward H: looks at will and reliance principles, theory of quantum meruit, and implied contracts Dissent: decision would result in cases inundating court, hard to collect damages Case 46: Morone v. Morone, cohabitation, implied contract? P.645 R: there is no implied contract H: in living together you provide services without an expectation of payment it is hard to determine in retrospect which services were gratuitous and which were not

Consideration Consideration is something that motivates an act Most contracts must be supported by consideration to be binding Two basic aspects of consideration: (1) Promisee must suffer a legal detriment, i.e. promises must give up something of value, or circumscribe his liberty in some way; (2) Promise must be bargained for, i.e. promise motivated by the legal detriment suffered by the promisee Detriment for purposes of consideration means giving up anything you have a legal right to do regardless of its moral or health implications Consideration can also be benefit to the promisor that motivated the bargain (consideration need only be benefit or detriment, it need not be both. Usually there is a detriment and it is arguable whether there is a benefit) Courts may be willing to find consideration in a commercial setting than in an interpersonal setting. Court involvement is more necessary in the context of commercial transactions because there is less trust Consideration has two chief functions: (1) Evidentiary existence of consideration provides objective evidence that the parties intended to be legally bound by the agreement they made (2) Cautionary requirement of consideration also affords parties the opportunity to consider the full implications of their actions before binding themselves because statements and promises made without the support of consideration are not binding

vii. Bargains v. gratuitous promises - for promises to be enforceable, detriment must have been bargained for

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chief reason for this criteria is to distinguish between a bargain reciprocal nature of thing promised and a gratuitous promise getting something for nothing no consideration Gifts are generally unenforceable because the promise if not bargained for and the promisee suffers no detriment Courts generally refuse to police promises to give gifts because of (1) Judicial administration, i.e. people make promises all the time that they break; and (2) Personal context gives you more trust and because trust is lacking in commercial arena need more formal mechanisms

exchange context the distinguishing test is how the parties view the condition (of the exchange) the only standard is whether the parties act in good faith 17: requirement of a bargain (1) formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration, except for (2) special conditions in 82-94 18: manifestation of mutual assent manifestation of mutual assent means that each party either makes a promise or renders a performance 71: requirement of exchange; types of exchange (1) consideration must be bargained for; (2) must take place in exchange context; (3) may consist of: (a) an act or (b) forbearance, or; (c) the creation, modification or destruction of a legal relation. Case 47: Johnson v. Otterbein University, promise to donate $ to Univ to liquidate indebtedness P. 655 I: By promising to give money to the University to help liquidate its indebtedness and thereby retracting offer, did D breach a contract to P? R: No, since Univ is not doing anything to benefit D or detriment itself, there was no bargain for consideration and therefore no contract Case 48: Hamer v. Sidway, uncles reward for nephews purging of vices p 658 F: P received from his uncle a promise for $5,000 if he gave up smoking and drinking, which he did. U wrote a promise to pay, but died before paying. I: was there consideration even if U received nothing tangible? R: forbearance of legal right to vice is consideration. H: yes, it is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him. Detriment/Benefit need not be economic 79: adequacy of consideration, mutuality of obligation if consideration is met, there is no additional requirement of (a) a gain, advantage or benefit to promisor or a loss, disadvantage or detriment to promisee, or (b) equivalence in values exchanged, or (c) mutuality of obligation consideration must have: exchange + benefit + mutuality (79).

viii. Contract modifications and the preexisting duty rule a. Past consideration
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Where the detriment has been suffered before the promise is made, it is not bargained for and therefore it is not consideration There are instances in which courts will enforce without finding consideration based on a moral obligation There are exceptions to the notion that past consideration is no consideration at all when a benefit has been conferred in the past Other exceptions to the notion that past consideration is no consideration are in cases of statute limitations, infancy, or bankruptcy

86: promise for a benefit received (minority view) (1) a promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice; (2) a promise is not binding if: (a) the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; (b) to the extent that its value is disproportionate to the benefit. Case 49: Moore v. Elmer, clairvoyant, promise to pay her mortgage if prediction is true P. 669 I: Can clairvoyant request D to pay for services rendered during reading session? R: No, no consideration since there was no bargain before he sat down for reading, he only promised to pay post reading. If there was a contract he didnt receive any benefit from it since service was rendered prior to making of contract. Past consideration not binding except in certain situations 86 Case 50: Mills v. Wyman, promise to pay for nurse's prior care of deceased son. p 671 F: P found and cared for Ds son, V, who returned from sea and fell ill. After 2 weeks V died. P wrote to D and asked for expenses. D wrote back after only 4 days, promised to pay, later reneged. I: consideration? R: No consideration, no benefits to D no non-doctor Good Samaritan rule H: no, D did not contract for the kindness and services of P, nor did he benefit from them. It is only when the party making the promise gains something, or he to whom it is made loses something, that the law gives the promise validity.... nothing more than moral obligation Case 51: Webb v McGowan, sacrifice of self to save bosss life p 681. F: P worked for D in a mill. P went over the edge with a huge pine block in order to stop the block from crushing D. P sustained serious injuries. D promised to care for P for the rest of Ps life. D died, his estate stopped paying. I: consideration even if no bargain? H: yes, the material benefit rule applies if there is both a moral obligation and a subsequent promise to pay, even if there was no original duty or liability. No doubt that parties meant to be bound. (minority rule applied) R: No benefit promise + moral obligation + material benefit = valid consideration Note: Under 71, P may have lost since act was not induced by Ds promise to pay b. Contract Modification and Preexisting Duty Rule - A modification to an existing contract is only binding if there is consideration for the modification - If a party is legally obligated to perform a certain duty and seeks to modify contract to receive additional compensation for same duty, the modification fails for lack of consideration - Preexisting duty rule does a poor job of accommodating the need for flexibility necessitated by unforeseen circumstances - note that this rule generally no longer applies, even though its still in the R2d, would also require the good-faith requirements of 89 89,p 697: modification of an executory contract

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a promise modifying a duty under a contract not fully performed on either side is binding: (a) if the modification is fair and equitable in view of the circumstances not anticipated by the parties when the contract was made; or (b) to the extent provided by statute; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise. a circumstance can be considered unanticipated even though it was considered - provided that the contract did not price it accordingly 2-209(U), p.697-698: modification, rescission and waiver (1) modification needs no consideration (2) a signed document with a clause excluding modification or rescission except by signed writing cannot be changed, but except as between merchants such a requirement on a form contract must be signed by the other party (3) requirements of Statute of .Frauds must be satisfied if the contract is within it (4) although an attempt at modification or rescission does not satisfy (2) or (3), it can operate as a waiver (5) a party who has made a waiver....[not important] unless modification was waived in the original contract; requires good faith and reasonable commercial standards of fair dealing and usage of trade; Case 52: Stilk v. Myrick, due to desertion, captain promises to increase wages of existing crew P.687 F: captain entered an agreement with remaining crew to split the wages of the two deserters amongst them if he could not procure two other people to help I: Is captains agreement with crew enforceable? I.e. can crew members collect extra wages? H: No, the cannot. There was no additional consideration in the alteration of the contract, the crew members did the work they were expected to do in the first place and there was no additional benefit to the D. Before Ps set sail they had undertaken to do all that they could under all the emergencies of the voyage. R: generally, a contract may not be altered or modified without additional consideration. Case 53: Alaska Packers Assn v. Domenico, US Ct.App. 9th Cir., 1902 TURNED DOWN p 689. F: Ps went as employees of D from San Fran to Alaska as crew/fishermen. When they got to Alaska they had a labor strike for higher wages, no other available work force, supervisor gave in to demands but subsequently refuses to pay increase. I: does the replacement contract stand even if Ds rep stated he had no authority to contract and even if D had no alternative but face losses and failure? H: no, according to preexisting duty rule, Ps offered as consideration only what they had already contracted to do. No new consideration in modification of contract. R: for good faith, the validity of contract modification is going to come down to whether it is a change necessitated by a change in circumstances or if it is one party exploiting another Case 54: Brian Construction v. Brighenti, excavation underestimate, recontracted P.692 F: subcontractor hired to excavate discovers excavation is more work than thought. SC and GC recontract for increase pay, SC works for awhile and quits leaving GC to finish job at high cost. I: Whether parties agreement constituted a legally enforceable contract obligating D to remove unexpected rubble R: Exception to preexisting duty rule the subsequent agreement imposes upon the one seeking greater compensation an additional obligation, therefore there is new consideration binding. R: Then a contract must be performed under unforeseen burdensome conditions, and the parties renegotiate a fair new contract, then the new contract has consideration. Separate valid contract H: since no assumption of risks and unforeseen circumstances, modified contract is valid.

ix.

Adequacy
Three types of problems with consideration

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Want (or lack) of consideration nothing whatsoever given in exchange for the promise Failure of consideration person did not get what they bargained for Inadequate consideration thing not worth as much as you thought, an inadequate consideration Courts do not judge on adequacy of consideration because it would - be time-consuming - be expensive - introduce uncertainties into transactions - be difficult to prove when subjective value attached to item Courts will not examine adequacy but they will examine the sufficiency, i.e. nominal considerations So long as promisee suffers some detriment or something is found to be bargained for, courts are not concerned with the adequacy. 79, p.704: adequacy of consideration (mutuality of obligation) if the requirement of consideration is met there is no additional requirement of: (1) a gain, advantage or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or (2) equivalence in values exchanged, or; (3) "mutuality of obligation" Once consideration found, look no further for evidence concerning values exchanged except when there is gross disparity in value and may be presumptive evidence of fraud 364, p.704: Effect of unfairness where specific performance would be unfair because the exchange is grossly inadequate, court will deny SP. Permits court to refuse equitable relief on grounds of unfairness, even in situations where they would not necessarily refuse to award damages Case 55: Dyer v. National By-Products, lost foot at work, life time employment nixed P.705 I: Was there consideration when P agreed not to litigate accident claim in exchange for lifetime employment? Does P have a right to sue now that he was laid off? H: Would seem like theres consideration but in actuality P had no valid claim for personal injury. However, ct thinks Ps good faith belief that he did have a claim may constitute consideration. Good faith forbearance allows there to be consideration even if based on an invalid claim and contract is enforceable. R: forbearance is sufficient.

Contract formalities
Formality something that is done to symbolize or convey a certain message another way to express an intention to be bound Functions include: a. evidentiary function seals indicate that an agreement exist b. cautionary function going through the trouble of a formality makes you more cautious c. channeling function once courts recognize a particular formality as basis for finding an enforceable contract, then parties will choose that particular formality when they want their agreement to be enforceable.

i. Seals
Case 56: Aller v. Aller old law not valid in NJ monetary promise to daughter sealed p. 719 I: Whether an instrument under seal, without sufficient consideration, is enforceable R: Seal is presumptive evidence of legally sufficient consideration; statute of consideration applies only when there is consideration and no seal

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H: Purpose of formality of a seal is to supercede need for consideration and represents a precautionary function to show promise made with lots of thought Case 57: Wagner v. Lectrox, license sealed p. 723 I: whether there had been failure of consideration for the license granted the corporate defendant by him under the agreement R: Seal supercedes any need for consideration, parol evidence rule applied in oral assurances 95, p.724: Requirement for sealed contract or written contract or instrument (1) In the absence of statute, promise is binding without consideration if a. Written and sealed; and b. Document delivered; and c. Identification of promisor and promisee is clear in document 2-203, p.724: Seals inoperative The affixing of a seal to a writing evidencing a contract does not constitute the writing a sealed instrument and the law with respect to sealed instruments does not apply to such a contract or offer

ii. Nominal Consideration - Consideration need to be sufficient to be found to support a promise - Nominal considerations are binding with respect to options contracts, 87, p730, but are not
recognized in attempts to make gifts enforceable, 71, p729. Case 58: Schnell v. Nell, attempt to make gift enforceable with consideration of one cent p. 726 F: 3 considerations found: 1. love and affection for wife (not relevant, moral consideration) 2. wife made promise (not relevant, past consideration) 3. promise of Ps to pay one cent (not relevant, nominal consideration) I: Will contract be enforced when there appears only to be nominal consideration in the bargain? R: bargain deemed unconscionable, nominal consideration for gifts are not sufficient R: Must ask question Pretense of a bargain or a real bargain? Here, not real bargain. Case 59: Smith v. Wheeler, $1 to reserve right to bid on property at later date p. 731 F: Option contract for sale of property with a recital of $1. D attempted to sell to third party. I: Can an option contract be enforceable by a nominal recital of consideration? R: yes, recital of $1 was a promise to pay at a later date. Recital is evidence that consideration given in an option contract, 87. 87, p.730,792: option contract (i.e., bilateral promise) an offer is binding as an option contract if it: (1) is in writing and is signed; recites the purported consideration, and proposes an exchange on fair terms within a reasonable time; (2) an offer which the offeror should reasonably expect to induce action or forbearance of a substantial character by the offeror before acceptance and which does induce such action or forbearance is binding as an option contract tot he extent necessary to avoid injustice.

Promissory estoppel an offensive action of asking for compensation for detrimental reliance on a promise even if there was no consideration Isnt addressed in the UCC but is in the Restatement:

90, p.811: promise reasonably inducing action or forbearance outlines.ilrg.com

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(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only be enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. In other words, a promise is binding if: (a) there is an inducement by promisor reasonably expected to produce an action or reliance (reasonably foreseeable to the promisor that promisee would rely on the promise); and (b) action or reliance actually takes place (actual reliance in a reasonable way); and (c) that action leads to some detriment on the part of the promisee; and (d) injustice cannot be avoided without enforcement of the promise. Factors that help to determine reasonableness: 1 - credibility of promisor/promise 2 - that the reliance was definite, substantial, and in relation for the remedy sought 3 - formality with which the promise was made 4 - (negotiations context - are there extraneous factors that could kill the deal?) Purposes of preferring a written contract: 1 - evidentiary - draws line between enforceable and unenforceable contracts 2 - cautionary - deterrence against rash actions 3 - channeling - offers framework for legally effective expression of intent Note that a claim based on promissory estoppel is unlikely to be thrown out in a 12(b)(6) motion because it raises an issue of fact. This is important is determining how far a case is likely to go, and thereby determining settlement posture. Questions of damages is unclear with respect to PE reliance or expectation? Measure of damages - according to doctrine, court can only give reliance damages because PE is built around notion of reliance - restitution may be available if he has conferred something of value to D - modern trend towards awarding expectation damages unless lost profits involved are too speculative pr uncertain - expectation damages more likely in cases where promisor acted in bad faith

x. Promissory estoppel as a substitute for consideration a. Family promises - inducement is a value conferred in return for promise - inducement is a step in the bargaining process
Case 60: Rickets(D) v. Scothorn (P), Grandfather gives $ so granddaughter doesnt have to work p760 F: grandfather doesnt want granddaughter P to work, promises her money. P quits job and relies on money. He dies, estate D refuses to pay rest of note. I: was the promise a gift for want of consideration? H: not exactly, because U should have known (indeed he intended) that his promise would induce P to act, which she did. Reasonable reliance on promise to her detriment and injustice can only be avoided by enforcing promise. No consideration but promissory estoppel

b. Charitable acts

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Case 61: Allegheny College v. Natl Chautauqua Cty Bank, endowment for fund in Ds name P. 770 F: D stipulated money to school for creation of endowment in her name. P advertises that D gave money for use. D repudiates promise after making one payment and dies. I: Whether a charitable subscription is enforceable R: Not PE but actual consideration D immortalized in endowment in exchange for $ Dissent: note was a gift, or a unilateral contract. P had not performed stipulations and D has not yet been unjustly enriched so no contract. Case 62: Feinberg v. Pfeiffer Co., retirement pension for life promised p 777 F: P worked for D for 37 years at which time D promised her a retirement annuity of $200/month for life. D worked for 2 more years then retired. D paid for 7 years then had a change in mgmt and cut payment down to $100, when P sued. I: is D liable for the payments even if there is no consideration? H: yes. D should have known that P would have relied on the promise and knew that in fact she did (and did not seek other employment). Other elements met.

c. Commercial
Case 63: James Baird v. Gimbel Bros., subcontractor errs in estimate relied on by GC P. 784 F: SC mistaken in estimate, GC relied on SC in making its own bid, wins contract. SC balks prior to winning bid and GC forced to find substitute SC. Seeks difference in bid $. I: Whether an unbargained for reliance should prevent the withdrawal of an offer R: court cites ways to make a promise irrevocable: 1. when someone relies on promise to their detriment (promissory estoppel) 2. a firm offer (given without consideration) 3. when offer has been accepted (contract formed) 4. option contracts with consideration 5. option contracts under 45, p. 422 R: court cites three ways to look at SCs offer: 1. offer revocable until post-award acceptance view taken by court 2. offer becomes irrevocable after GC submits bid 3. bilateral contract formed by the bid (promise/acceptance of promise) H: court believes promissory estoppel does not come into effect in this case because reliance wasnt reasonable and says offers language is explicit in that acceptance could only come after the contract was awarded. Since SC revoked prior to GC winning bid, there was no contract to enforce. Note: parties could avoid the problem by negotiating an explicit option contract. Case 64: Drennan v. Star Paving, misquoted SC estimate, GC wins bid on estimate p.788 F: Subcontractor D quoted a price for paving to general contractor P, then realized after P had won the contract that the quote was off, and tried to revoke. I: was there reliance by P on D to make the offer irrevocable? H: yes, in a unilateral contract D should have foreseen that the quote would induce reliance by P in an expected and reasonable manner. It did, and it is only fair that P should have the chance to accept. Awards expectation damages under 87. Note: that while a sub is bound to a GC, the reverse is not true. This unequal treatment is because the GC relies on the sub, but the sub doesnt rely on any one GC. The nature of the bidding process forces this relationship and prevents bid-shopping, which is a desirable policy. Offer-acceptance theory in Baird offers greater protection to SC, whereas PE in Drennan offers greater protection for the contractor.

xi. Promissory estoppel as an alternative to breach of contract

Case 65: Goodman v. Dicker, Dealer franchise to sell radios P. 798 F: Ps thought they had a contract to see Ds radios. P incurred cost in preparation of selling radios. D

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decided not to allow P to sell radios. P sues. I: Can P be awarded reliance damages based on a promise by D that franchise would be granted to P and goods supplied causing P to incur expenses in preparation for business? H: yes, promissory estoppel invoked. Awards reliance damages and not expectation damages Case 66: Hoffman v. Red Owl Stores, Inc., Supermarket Franchise deal costs too much $$ p 800 F: P applied for a franchise from D, who said raise $18,000 and its yours. P sold his current business, took a job that would train him, and put a down payment on the land. P was repeatedly told by D that all looked good. D demanded more money than P could pay, then D backed out. I: was there an agreement actually made or relied upon? H: yes, P meets the elements for promissory estoppel finds sufficient promise and detrimental reasonable reliance the result of which injustice can only be avoided by enforcing the promise R1: Contract theory not possible since there was no offer R2: reliance damages and not expectation damages are rewarded. Expectation damages would be hard to calculate and are only considered when promisor has acted in bad faith.

xii. Modern applications of promissory estoppel

Case 67: Blatt v. USC, nonadmittance into law school legal society P. 822 F: P worked hard in an attempt to get into Legal Honor Society. Society rejects application. P sues on premise of promissory estoppel in causing him to work extra hard believing he would get into society. I: Can P claim reliance on promise to his detriment under PE? H: No, there was no promise of definite admission into society, just a promise for eligibility for election into society. This promise was fulfilled..his application was reviewed and denied. R: Fails PE because P faced no real detriment not of a definite and substantial character

Case 68: Ypsilanti v. General Motors, tax abatement for keeping company in town P.830 F: GM mfr pulls out of town of Ypsilanti after given tax abatement by town before it was expected to I: Did GMs statements and conducts constitute a promise to maintain a plant in town if town continued to offer it tax abatements? LC: lower court believed that there was a promise if town gave tax abatement, GM would maintain shop there, promise was relied on to their detriment by town and there would be injustice to Ypsilanti for giving up $$ and having GM desert them. HC: cannot invoke promissory estoppel because there was no promise. GMs statements were mere sales puff and expressed hopes and expectations not promises. Also, since there is proof of hesitancy on side of D, cannot say the reliance on alleged promise was reasonable. Case 69: Alden v. Vernon Presley, Elvis promise to pay debts of future mother-in-law. P.846 F: Elvis promised to pay off expenses of Aldens divorce and mortgage. Elvis died before paying. Estate told Alden they didnt intend to enforce promise but she went ahead with divorce and the incurrence of mortgage. I: Was reliance on promise sufficient to allow for promissory estoppel? H: No, not reasonable reliance because she knew executor would fight to renege promise from Elvis before she filed for the divorce and settlement on the house. R: no detrimental reliance 90. Promissory Estoppel conflicts with avoidance of damage doctrine because reliance is encouraged when it shouldnt be. However this is limited by the requirement of a reasonable reliance on promise.

Views on damage rewards Williston view: Usual contract remedies should be applied, doesnt matter if its a breach or reliance kind of contract

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Corbin view: Only reliance interests rewarded.

Unjust Enrichment or Quantum Meruit While promissory estoppel allows recovery when consideration is lacking, unjust enrichment or quantum meruit relaxes even further Ps burden of showing that D made a promise. Quantum meruit properly applies to mistake in law contracts and provides a distinct theory of recovery. An implied in fact contract must have (1) mutual agreement and (2) intent to promise, both of which are not oral but implied from the facts. An implied in law contract, or a quasi-contract, neither promise nor privity must exist, either real or imagined. Obligation arises from the law of natural immutable justice and equity, and not from the facts or consent. The acts of the parties, however, must be voluntary. An implied in law contract requires: (1) no offer and acceptance (i.e. not a contract), no express promise (2) benefit conferred upon x by y, (3) appreciation by y of such benefit, and (4) retention by D of such benefit in a way that results in unjust enrichment

PERFORMANCE AND BREACH F.

IMPLIED DUTY OF GOOD FAITH PERFORMANCE
205, p.893: duty of good faith and fair dealing every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. 2-103(b), p.893: good faith defined honesty in fact in the conduct or transaction concerned. in the case of a merchant mean honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade. Case 70: Goldberg 168-05 v. Levy, minimum profits as threshold in maintaining contract P. 877 F: D attempted to get out of a lease through clause of having sales under threshold by diverting business to another store. P gets a percentage of the profits in contract. I: Can court enforce contract although stipulation for a way to end contract is met due to D acting in bad faith? H: Yes, a purposeful diversion to get out of lease by lowering profits is an act in violation of good faith doctrine. By diverting business, D was not using reasonable efforts to bring profits into existence. Note: landlord should have explicitly prohibited opening of another store nearby or prohibited advertising of new store. Case 71: Stop and Shop v. Ganem, lot rented to be supermarket was left unused P. 886 F: D leased to P a store for use under a flat rate and % of profits over specified amount lease. Lease did not specify what premise needed to be used for. P opened another store in nearby area and decided to close present store, continued paying flat rate lease. D wants lot to continue to be used as supermarket in order to get extra rent money from profits. I: If it is not explicitly expressed, is there an implied stipulation to continue using lot as a supermarket? Did P act in bad faith in transferring business to another store? R: To determine if there was an implied contract, court must look at the intent of the parties in making the contract.

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H: no, P can do whatever it wants with lot and doesnt have to worry about effects on landlord because nothing was specifically expressed in contract as to what lot had to be used for.. In addition the base rent was more than a nominal minimum rent, so therefore no implied contract to continue business as grocery store. Also, opening of other store did not show intentional attempt to draw customers to other store. Things to consider in determining bad/good faith: - What are motives of party in reducing sales at store? - Was base rent just nominal or was there a disparity between fixed rent and rental value? - Did party intentionally attempt to draw customers from one store to another? - Why did party open up another store? Was store nearby?

Implied and express warranties 1. Implied warranty of merchantability covenant that goods do not have to be of outstanding or superior
quality but need to be of reasonable quality for ordinary purposes for which they are normally used 2-314, p.897: Implied warranty: Merchantability; Usage of Trade (1) Except exclusions in 2-316, implied warrant of merchantability applies to merchants (2) Goods must a. Pass without objection in trade under contract description b. In case of fungibles, are of fair average quality and c. Are fit for ordinary purposes for which good is used and d. Run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved and e. Are adequately contained, packaged, and labeled and f. Conform to the promises of fact made on container or label if any.

2. Implied warrant of fitness for a particular purpose seller must have reason to know buyers particular
purpose, seller must have reason to know that buyer is relying on sellers skill or judgment to furnish appropriate goods, and buyer must, in fact, rely upon the sellers skill or judgment. 2-316, p.921: Exclusion or Modification of Warranties - excluding or modifying implied warranties of merchantability must mention merchantability and if in case of writing must be conspicuous - excluding or modifying implied warranties of fitness must be in writing and conspicuous. To exclude all implied warranties of fitness it is sufficient to state There are no warranties which extend beyond the description on the face hereof - unless stated otherwise, all implied warranties are excluded by expressions like as is, with all faults waivers of inspection by buyer or actual inspection by buyer negates an implied warranty course of dealings or course of performance or usage of trade Case 72: Step-Saver Data Syst. v. Wyse Technology, computers purchase incompatible with system P.896 F: P purchased Ds computer after conducting a bench test. Computers found to be incompatible with software used by P. I: Was there an implied warranty of merchantability or fitness? H: No, seller did not know buyers particular purpose, buyer didnt rely on sellers expected knowledge of buyers purpose, buyer performed their own bench test. Product exceeded ordinary standards of the trade usage of product.

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2-714, p.899: Buyers Damage for breach in regard to accepted goods Damages = value of good accepted at time and place of acceptance value they would have had if they had been warranted

3. Expressed warranty promise to make good for losses within their scope, whether or not such losses were
foreseeable, uncertain, or unavoidable Case 73: Royal Business Machines v. Lorraine Corp. copy machines not up to expectations P. 900 R1: Express Warranties require - an affirmation of fact or promise - that relates to the good and - becomes part of the basis of the bargain between the parties (reliance) R2: an affirmation of fact which the buyer from his experience knows to be untrue cannot form part of the basis for the bargain. Case 74: Schneider v. Miller, rusty car bought from salesman P. 917 F: P bought car under a clause of As is from D. I: Can P revoke a contract under an implied warranty of merchantability over an as is clause? H: no, an integration clause which provides that the entire agreement between the parties is contained within the four corners of the contract is effective to waive any implied warranty. R: terms like as is in ordinary commercial usage are understood to mean that the buyer takes the entire risk as to the quality of the goods involved. Implied warranties are default rules that can be contracted around. Case 75: Morris v. Macks Used Cars, deception on part of seller P. 922 R: rules of waiver of implied/expressed warranties do not apply to deceptive acts or practices on part of seller in failing to disclose to the buyer certain facts.

Anticipatory repudiation & adequate assurance i. anticipatory repudiation

2-610, 963: anticipatory repudiation when either party repudiates a contract with respect to performance not yet due..., the aggrieved party may: (1) await performance; (2) resort to remedy for breach; (3) in either case, suspend his own performance. (immediate action, no need to wait for date of performance to arrive) anticipatory repudiation occurs when one party cancels a contract if, before the time of performance arrives, the other party indicates that they do not intend to perform and intends to repudiate contract. Case 76: Harrel v. Sea Colony, breached condo contract P. 957 F: P agreed to buy condo from D. I: Did Ps letter asking for a mutual rescission constitute an anticipated repudiation allowing D to breach contract and sell to a third party? Is the agent for D liable? R1: agent not liable since principals identity is fully disclosed. H: no, D unilaterally attempted to convert Ps request for a mutual rescission of the contract to an anticipatory breach or repudiation. A mere request for a change in the terms or a request for cancellation of the contract is not in itself enough to constitute a repudiation. R2: To constitute an anticipatory breach of contract; there must be a definite and unequivocal manifestation of intention on part of the repudiator that he will not render the performance when the time fixed for the it in the contract arrives.

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ii. adequate assurances of performance

2-609, p.968: Right to adequate assurance of performance (1) with reasonable grounds for insecurity arise party demands adequate assurance in writing and may, if commercially reasonable, suspend performance for which he has not received agreed upon returns (2) reasonableness for grounds of insecurity determined according to commercial standards (3) acceptance of improper delivery doesnt waive right to demand adequate assurance in future (4) if no assurance after 30 days, contract is repudiated. adequate assurance occurs when one party wishes to withhold performance because he suspects, for some reason, that the other party may not perform. Case 77: Scott v. Crown, bushels of wheat contract rescinded in belief that buyer couldnt pay P. 964 F: S believed that buyer would not be able to pay for goods. S, having been burned in the past plus bad reputation of buyer, anticipated a repudiation of contract by B. Asked for assurance in an off hand manner to buyers driver and when not received, rescinded contract. I: Did S have reasonable grounds for insecurity and did they properly ask for adequate assurance? H1: Yes, there was reason for insecurity but assurance was asked for improperly. Driver isnt appropriate person to ask for assurance and request was oral. R: demand for adequate assurance must be done in writing, oral demand is not enough. H2: No subsequent pattern of interaction between parties that would clearly demonstrate that B understood S had asked for assurance of performance. In actuality, Ss actions constituted an anticipatory repudiation allowing B to cancel contract.

Substantial performance, material breach, & perfect tender - court is no longer interested solely in parties presumed intentions at time of formation, they are also concerned with the nature of the breach in jeopardizing the promisees confidence in receiving additional performance in the future. You dont have to perform as promised if: i. contracting partner was supposed to perform first and ii. it materially failed to perform and iii. it did not cure this failure

a. Material Breach - Party has substantially performed unless nonperformance constitutes a material breach (i.e. if you have substantially performed, theres no material breach, if you have materially breached, you have not substantially performed) - Courts will no construe or imply a condition empowering the victim of a contract to cancel the contract when there has been substantial performance. - Lack of confidence of future performance stems from the nature of the breach that has occurred injury to promisees interest in future performance is different from and in addition to any injury sustained a result of having received less than what was bargained for. - Courts attempts to avoid forfeiture: a. contract is divisible part performance payment b. restitution quantum meruit party in breach given something to avoid unjust enrichment of party that suffered breach c. substantial performance only need substantial performance to obtain full contract price minus damages of breached part of value (ex. Goods value difference, $ needed for completion). 241: circumstances in determining whether a failure is material

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issues are: (a) extent that injured party is deprived of expected benefit; (b) extent that injured party can be adequately compensated; (c) extent that party failing to perform will suffer forfeiture; (d) likelihood that party failing to perform will cure his failure; (e) extend to which failing party's behavior comports with good faith. willful or intentional deviations from contract are not allowed Case 78: Jacobs & Young v. Kent, stipulation of Reading pipe not followed p.974,980,1010-1011,1017 F: P built a country home for D under a contract that specially called for Reading brand pipes. A year after the home was completed, D learned that the pipe actually used was Cohoes. Nothing dissimilar between types of pipes. P sued to recover the unpaid balance on construction. H: this was substantial performance. There are two types of damages possible. Cost to replace makes no sense, because the pipes are installed. Also, the pipes are functional equivalents - even made it past Ds inspector. Other method is diminution of value, which is negligible. YES SUB. PERF. BECAUSE DEVIATION MADE IN GOOD FAITH R1: Factors to consider whether literal fulfillment is to be implied by law as a condition: 1. purpose to be served 2. desire to be gratified 3. excuse for deviation from the letter 4. cruelty of enforced adherence R2: Classes of Promises: (consideration of justice and presumable intention will decide which class this promise falls into) 1. independent never by fair construction be conditions of one another 2. dependant must always be conditional 3. dependant conditions when there is departure in point of substance will still be viewed as independent and collateral when the departure is insignificant Damages: Not cost of replacement but difference in value. cost of pipe, difference in value of house due to pipe difference (minimal assuming no special value held for Reading pipe) and cost of completion. No cost of performance based on economic waste theory b. Perfect Tender and Cure - when there is a material breach, party in breach can cure within a specific time period (insignificant delay) ex. If 2nd party breaches because of first partys material breach, 1st party can sue 2nd party for total breach and 2nd party can sue for damages on delay by 1st party unless there is a specific time condition clause such as time is of the essence which disallows 1st party from delay, thereby 1st party cannot collect but 2nd party can. 2-601, p1007: Buyers rights on improper delivery ... if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole (b) accept the whole (c) accept any commercial unit or units and reject the rest ties into 1-106, which defines conforming goods to be in compliance with contract obligations 2-508, p.1006: Cure by seller of improper tender or delivery, replacement (1) where any tender ... is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. comment 2 - reasonable grounds for belief required to avoid surprise to seller comment 2 - form contract - if term out of line with normal usage or prior course of dealing is not called to

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sellers attention, then seller might have reasonable grounds to believe that goods tendered would have been accepted Perfect tender rule: If a seller delivers nonconforming goods, buyer can (2-601): 1. Reject goods, within a reasonable time with notification (2-602) a. if time of performance has not expired, seller may cure (2-508(1)) b. if seller had reason to believe goods were acceptable, he may have a reasonable time to substitute a conforming tender 2. Accept, thereby signifying that he would retain despite non-conformity, by not rejecting or by acting in a way inconsistent with sellers ownership (2-606) a. buyer can no longer reject (2-607(2)) but b. buyer may revoke his acceptance within a reasonable time after discovery of non-conformity if it substantially impairs its value but goods must have been accepted (2-608) i. on the reasonable assumption that its non-conformity would be cured, and it has not been seasonally cured or ii. without discovery of the non-conformity if the acceptance was induced either by the difficulty of discovery before acceptance or by the sellers assurances. c. revocation must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not cause by their own defects. Not effective until buyer notifies the seller. Case 79: Ramirez v. Autosport, purchase of camper van with lots of problems P.999 I: Whether a buyer may reject a tender of goods with minor defects that do not conform to contract and whether a seller may cure the defects: R1: perfect tender rule seller has to deliver goods that conform precisely to the contract R2: sellers right to cure within the time set for the performance in the contract, the sellers right to cure is unconditional. After expiration of this time, seller has a further reasonable time to cure if he believed reasonably that the goods would be accepted with or without a money allowance. Depends on surrounding circumstances, i.e. amount of inconvenience to buyer, length of time needed by the seller to correct non-conformity, ability to salvage the goods by resale to others R3: - balance before acceptance buyers right to reject NC goods with a 2nd chance for seller to conform goods under limited conditions - balance after acceptance buyer may revoke acceptance only if the NC substantially impairs the value of the goods to him. c. Cost of completion v. diminution in value: expectation interest revisited - Cost of performance and diminution of value are both ways of calculating expectation damages, i.e. both put injured party where they would have been had contract been performed - Problem with expectation damages is what to do when a straight calculation, i.e. value of complete performance defective performance, is less than the cost of remedying the defective product. - In dealing with this problem, courts often look to the intent of the parties. If the contract was centered around economic concerns, i.e. party looking to make money, courts till award diminution in value. If the contract was centered around performance, i.e. person looking for personal enjoyment, courts will award cost of performance. - Economic intent is presumed in commercial contracts. In commercial contract if the parties want cost of performance they should write it into the contract, i.e. they can contract around default rules - In examining intent, if court finds that breach was willful, likely to jam the breacher for cost of performance. Good/bad faith distinction is an emerging concept in contract law. - Even if contract placed a premium on performance, courts unlikely to enforce cost of performance if it

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involves economic waste, i.e. destruction of what has already been done to remedy something that is not a material defect. Measure of damages for sales contracts is almost always diminution of value, i.e. difference between contract price and the market price at the time and place of delivery

348: alternatives to loss in value of performance (2) if breach results in the defective or unfinished construction and the loss in value of the injured party is not proved with sufficient certainty, he may recover damages based on: (a) diminution of the market price of the property (value rule), or (b) reasonable cost of completing performance or of remedying the defects if that cost is not disproportionate to the probable loss in value to him (cost of performance rule)

Triggers:

Economic/commercial intent diminution of value Premium on performance cost of performance Bad faith cost of performance Economic waste diminution of value Contract for sale of goods diminution of value Disproportionate to injury 348(2)(b) diminution of value

Case 80: Groves v. John Wunder, lease of land in exchange for removal of gravel and sand p.1011,1017 F: P leased land to D for $105,000 for 7 years to remove gravel and sand with provision that and would be left level. D left land uneven. P sued. P granted $15,000, based on market value of land ($12,160) plus interest. Cost of performance would have been $60,000. I: Award cost of performance or diminution in value if D has performed? H: for P - new trial that could lead to the $60,000, judge applies cost of performance rule to grading contract despite disproportionate cost. cost of performance even if disproportionate R1:where the contractor willfully and fraudulently varies from the terms of a construction contract, he cannot sue thereon and have the benefit of the equitable doctrine of substantial performance R2 : the goal, given the lack of good faith, should be to give P what he has bargained for, what has been promised, and what he has been deprived Case 81: Peevyhouse v. Garland Coal, strip mine lease, failure to restore land p1017,1025 F: Ps lease land to D for coal mining purposes, D agreed to perform certain restorative and remedial work at the end of lease period. P said he never would have contracted without this provision. D breaches duty to restore land. The cost of removing the holes would have been $25,000. The implied value of the land, total, was $2,800. H - for P - limited to the $300, but the damages should be based on relative economic merit R - while the default rule is cost of performance, if application of that rule would result in grossly disproportionate economic benefit as compared to the cost of performance, then use the value rule. Basis is that the remedial work was incidental to the primary purpose of the contract and economic benefit of cost of performance rule would be grossly disproportionate. Dissent: bad faith on part of D, should apply CoP regardless of disproportion.

Example: Price owed to A for building house: $100,000 Better for a small windfall to the party not in breach than undercompensation Paid to A so far: $40,000 Cost to complete house when A breaches: $80,000 Damages calculated: B should not have to pay more than original $100K

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DEFENSES G.
STATUTE OF FRAUDS
damages are usually restitution, possibly consequential 131, p.538: general requisites the restatement elaborates on the Statute of Fraud's (UCC) definition of an enforceable contract to say that it must: (a) reasonably identify the subject matter of the contract; (b) be sufficient to indicate that a contract has been made between the parties; and (c) states with reasonable certainty the essential terms of the unperformed promises in the contract. 2-201, p.531: Statute of Frauds (1) any sales of goods for more than $500 must have a signed written agreement behind it. (2) between merchants a written confirmation received, known, and not objected to is valid. (3) if (1) is not satisfied the contract is still enforceable if: (a) the goods are specially manufactured for the buyer and are not suitable for sale to others; (b) the party against whom enforcement is sought admits that a contract was made; or (c) payment has been made and the goods have been received and accepted. Note: Critics point out that the statute may unwittingly provide a defense otherwise unavailable to someone who regrets an oral contract - making this a trap for the unwary who dont get everything in writing. That is, the statute may operate to nullify the bargained-for-allocation of risks in an otherwise valid agreement. 110, p. 520: types of contracts which must be in writing: 1. contract of an executors duty to decedent (executor-administrator provision) 2. contract of ones duty to another (suretyship provision) 3. contract in consideration of marriage 4. contract in sale of land (SP may be enforced if one party fully relied and changed its position in regards to that reliance, and injustice cannot be avoided without SP) 5. contracts which are incapable of being fully performed within one year of contract date (when one party completes performance, the other party must perform regardless of in writing or not; relevant dates are then contract is made and when provisions of contract will be completed) 6. contracts under UCC: a. sale of goods over $500 b. sale of securities c. sale of personal property not otherwise covered, to extent of enforcement by way of action or defense beyond $5000 in amount or value of remedy d. UCC also requires writing signed by debtor for contract which provides for security interest in personal property not in possession of secured party.

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Case 82: Boone v. Coe, move from KY to TX on promise to work in exchange for housing/crops P.521 F: Family travels to TX from KY after promising to work on persons land in exchange for % of crops and land to live on. Other side decides to renege on offer. I: Can P collect damages on expenses incurred and time lost on the faith of a contract that is unenforceable under statute of frauds? H: No breach because under SOF there was no contract. P conferred no benefit on owner, so they are entitled to no recovery. R: SOF applies because contract was to be performed more than one year from date of agreement. Note: had Ps done some work to improve land (e.g. Loveless v. Diehl), might have gotten SP or cost of performance, failing reasonableness test may have resulted in diminution of value of land with and without the fence. Case 83: Schwedes v. Romain, agreement for sale of property breached and sold to 3rd party P. 533 F: Ps communicated acceptance of Ds offer by telephone after D sent letter laying out agreement. D then sold to 3rd party. P sues. I: Is there a binding sale of land contract when there is no written agreement signed by parties, when P had not yet taken possession of land, erected no improvements on land and paid no taxes or other assessments on property or paid anything to D? H: no enforceable contract (no consideration, oral promise to pay not enough, detriment?) - no basis for SP (no valid contract exist) - no part performance, no estoppel in substitute for SoF (only contemp of eventual perf., when case is clearly within SoF, promissory estoppel is inapplicable otherwise, net effect would be to repeal SoF except for cases of unconscionable injury to P or unjust enrichment to D) - attorney has no power to bind parties unless D provides power in writing R: 131 125, p.524: Contract to transfer, buy, or pay for an interest in land (3) when transfer in land made, a promise to pay the price, if originally within the SoF, ceases to be within it unless the promised price is itself in whole or in part an interest in land. (4) Statutes in most states except from the land contract and one-year provisions of the SoF short-terms leases and contracts to lease, usually for a term not longer than one year 131, p.538: General Requirements of a Memo Contract within SoF is enforceable if it is evidenced in writing, signed by or on behalf of party to be charged which a. reasonably identifies subject matter of contract, b. is sufficient to indicate that a contract with respect thereto has been made or offered c. states with reasonable certainty the essential terms of the unperformed promises to the contract Note: There is no requirement that a memorandum be communicated or delivered to the other party to the contract, or even that it be known to him or to anyone but the signer. (e.g. diary entry, minutes, public record, letter to 3rd party). However, where a written offer serves as a memo to charge the offeror, communication of offer is essential, written instruction to an agent to make an offer does not suffice.

Unenforceable on grounds of public policy - Court wants to enforce promises - Court wants to ensure that people understand all the terms of contracts - When considering matters of PP, the court looks at
1. legislatures intent in adopting particular statutes 2. the public reaction to matters related to PP concerns

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Case 84: In the Matter of Baby M, surrogacy contract, egg from surrogate P. 36 F: contract for the a surrogate parent to bear child. I: are these contracts void? R: yes, conflicts with: 1. law of state violates rules of adoption and prohibits termination of parent rights by contract 2. public policy court does not what to encourage baby bartering, lacks counseling and evaluation, use of money to purchase children, mother does not make an informed decision H: no remedy, contract is void Case 85: Johnson v. Calvert, surrogacy contract sperm and egg from couple F: couple wants to be known as parents, Ps are natural parents, D is just carrier I: Does surrogate, D, have any rights to child or visitation rights? H: No, surrogate has no rights because to hold otherwise would create instability 178, p. 65: When a term is unenforceable on grounds of public policy (1) unenforceable if legislation say its unenforceable or the interest in its enforcement is clearly outweighed by public policy (2) In weighing interest for enforcement, take into account: a. Parties justified expectations b. Any forfeiture that would result if enforcement were denied, and c. Any special public interest in the enforcement of the particular term (3) In weighing a public policy against enforcement, take into account: a. Strength of that policy as manifested by legislation or judicial decision b. Likelihood that a refusal to enforce will further that policy c. Seriousness of any misconduct involved and the extent to which it was deliberate, and d. The directness of the connection between that misconduct and the term P. 53

Lack of contractual capacity - certain classes of people have only a limited power to contract - those who have limited power to contract (e.g. infants, mentally incapacitated people) can enforce contracts
they enter into, but cannot have those contracts enforced against them

i. Infancy doctrine - minors (under 18, in most states) are allowed to disaffirm contracts for non-necessities - In the case of necessities, contracts against minors are enforceable - Restitution only required when there is something to return (reason for limitation is that the doctrine is
meant to protect infants, if they were forced to make restitution even if they did not still have the consideration, it would not protect them. Requirement that they do make restitution when they still have something left from the contract is that the doctrine is meant only to protect infants, not to bilk merchants) Problematic bright line test creates issues of abuse Knowledge of the party of majority as to age of other party is irrelevant because the doctrine is meant to protect minors Courts try giving a little protection to seller by have a right to restitution, i.e. if there is something left to return by minor If a minor willingly misrepresents age, court may: (1) Require greater restitution (2) Allow party who was lied to to bring a tort action of misrepresentation against infant who is still allowed to disaffirm; or (3) Allow contract avoidance on grounds of fraud

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14, p1070: Infants Unless the statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the persons 18th birthday. Ex. A teenager who voluntarily leaves home and rents an apartment and then skips out on rent to move back home does not have to pay restitution because the housing was not a necessity. Case 86: Brooke Shields v. Gross, celebrity seeks to void contract made by her mom over pictures P. 1064 F: Ps mother executed two contracts on behalf of P to allow D to use photos of P as D saw fit. I: What are legal effects of parental consent when infant becomes of legal age? R: Under common law, infant has right to disaffirm written consent, however, legislature may abrogate that right by creating a statute that expressly permits a certain class of agreements to be made by infants, in this case a statute allowing a parent consent can stand in to make a contract enforceable. H: Since consent in this case complied with legislative statute, is it valid and cannot be disaffirmed. Dissent: Purpose of statute is to protect interest of child, what if parent consenting is not acting on the best interest of child? Since child is not of legal age, arent they the ones able to express what is in their best interest? Shouldnt bind them when they expressly want to disaffirm a contract once they are of legal age. Overriding interest of society in protecting children outweighs the interest of merchants who attempt to contract with children.

ii. Mental incompetents

15, p.1055: Mental illness or defect (1) can only incur voidable contracts, if by reason of mental illness a. cognitive test - he is unable to understand in a reasonable manner the nature and consequences of the transaction, or b. volitional test - 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 (2) if made on fair terms and other party is without knowledge of mental incapacity, power of avoidance in (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief on such equitable terms as justice requires

Two kinds of mental incompetence with different rules: (1) Total lack of understanding Where a person is completely unable to understand the contract, it is voidable even if the terms are completely fair, and even where the other party had no reason to know of mental impairment (2) Understands, but unable to act reasonably Transactions less likely to be set aside. Will be set aside only if the person opposing it shows: - the other person knew of the mental condition, and - the transaction is not one which a reasonably competent person might have made A third rule states that rescission will be allowed if status quo can be restored with merely a showing of mental incompetence Case 87: Orterelere v. Teachers Retirement Board, altered retirement plan, dies early P. 1046 F: Retired teacher alters her retirement plan payments so it pays out more while she is alive, leaving less for her husband after her death. Dies unexpectedly and husband claims that she was mentally incompetent when she made the decision I: Can contract be avoidable when it seems person making contract at the time appears competent but in actuality is not? H: Court accepts the husbands argument even though the change in decision by P seems reasonably calculated.

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R: Second type of mental incompetence cited above.

iii. Intoxication
Similar to mental illness but since intoxication is normally self-induced it is less a defense.

Obtaining consent improperly ii. Misrepresentation - an assertion that is not in accord with the facts that induces assent - an innocent misrepresentation can constitute voidable contract - 162, p. 1078 (varies state by state)
164,p.1078: when a misrepresentation makes a contract voidable (1) if a partys manifestation of assent is induced either by a fraudulent or material misrepresentation (2) when induced by such of a 3rd party, unless the 3rd party is in good faith and unaware This is a three part test: A misrepresentation that is fraudulent/material (intentional, known to be false, not confident in truth, no basis for assertion) that is reasonably relied upon and induces assent and reliance is justified Case 88: Byers v. Federal Land Co., purchaser of land paid more than land was worth P.1079 F: P, residents of NE, purchase land in WY from D in WY. Defendant did not actually own land but was working as a third party, D quoted price of land to be $35 when in actuality it was worth $15/acre unbeknownst to both parties. I: Can P sue D for misrepresentation for having P believe it was the actual owner and in possession of the land and that the value of the land was $35/acre when it was actually $15? H: not fraudulent misrepresentation, it was an honest mistake and not intentional in regards to $, brokers had no special knowledge regarding land R: under this court only dishonest opinions are fraudulent misrepresentations Case 89: Vokes v. Arthur Murray, Inc., bad dancer induced to purchase more dance lessons P.1083 F: P, a poor dancer, was told by instructor of dance under D that she was improving and would become a great dancer. P was induced to purchase an insane amount of dance lessons. P realizes she sucks and wants to get out of contracted dance lessons. I: Were Ds actions just mere sales puffing or did they constitute fraudulent misrepresentation? R: Statements of dance potential is an opinion of D. Usually, opinions are not actionable except in cases where: a. there is a fiduciary relationship between parties or b. where there has been some artifice or trick employed by representor or c. where parties do not in general deal @ arms length or d. where the representee does not have equal opportunity to become apprised of the truth or falsity of the fact represented H: voidable a statement of a party having superior knowledge may be regarded as a statement of fact although it would be considered as opinion if parties were dealing on equal terms.

equitable fraud does not have the knowledge requirement, material misrepresentation defense in contracts not torts legal fraud fraudulent misrepresentation defense in both torts and contracts

iii. Duress fear of loss of life, loss of family member, mayhem, imprisonment duress and pre-existing duty rule do much the same work in the area of contract modification and whether they will be enforced

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a contract is voidable on the grounds of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will issues regarding free will and wrongful threat absence of free will in practical terms means an inadequate market or inadequate legal remedy if there is a market and the party claiming duress had an option to turn to the market and did not, the duress claim is going to fail e.g. a threat, even if improper, does not amount to duress so long as the victim has a reasonable alternative to succumbing and fails to take advantage of it most frequently alleged form of duress in contract litigation occurs when one part threatens to breach the contract unless it is modified in his favor, or a new one drawn up remedy for contract voided on claim of duress is restitution Test for duress is: a. Threat made or pressure exerted that b. deprives V of free will such that c. V acts contrary to his inclination and best interest and d. threat is wrongful (illegal, immoral, or exerted in bad faith) e. If duress exists, V is relieved of duty to perform.

174: when duress by physical compulsion prevents formation of a contract: If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent. 175: when duress by threat makes a contract voidable (1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. (2) If a party's manifestation of assent in induced by the one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction. 176: when a threat is improper (1) a threat is improper if (a) what is threatened is a crime or tort, or the threat itself is such if it got the property (b) what is threatened is a criminal prosecution (c) what is threatened is the use of the civil process in bad faith (d) the threat is a breach of duty of good faith and fair dealing under a contract (2) a threat is improper if the resulting exchange is not and fair terms, and (a) the threatened act would harm the recipient and would not significantly benefit the actor (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by party making the threat (c) what is threatened is otherwise a use of power for illegitimate ends ANYTIME YOU DISCUSS DURESS, FOLLOW WITH AN ALTERNATIVE AND CLEANER ARGUMENT BASED ON UCC 2-209 AND R2D 89 OF MODIFICATION REQUIRING GOODFAITH AND LEGITIMATE COMMERCIAL REASON. Case 90: Silsbee v. Webber, threat to tell mental father about sons embezzlement P. 1093 F: D catches Ps son stealing. P promises to pay when D says hell tell Ps husband about incident. P worries telling husband will cause a mental breakdown and promises to pay if D does not tell husband. I: Does improper threat that may harm recipient and doesnt benefit the actor constitute duress? R: Yes, subjective standard - If a party obtains contract by creating a motive which the other party ought to be free and which in fact is/is known to be sufficient to produce the result, it does not matter that the motive would not have prevailed with a differently constituted person, whether the motive be a fraudulently created belief or an unlawfully created fear. Duress doesnt have to be illegal.

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Dissent: threat wasnt illegal, wrong did not injure P on inducing the making of the contract. Case 91: Hackley v. Headley, log delivery, settle for less due to economic hardship P. 1100 F: D owed P $4260, offered $4000 with a stipulation that it was final payment. P agreed and now seeks to void contract claiming D knew he was in an economic pinch and needed the money badly. I: Does this constitute economic duress? H: no, nothing illegal going on, all D did was tell P all he could give him at the moment even though he knew P was having financial problems. Its Ps own fault that he has economic problems that put him in this position. Case 92: Austin Instrument v. Loral, govt defense contract want of exclusive rights, or else. p 1105 F: D was a govt defense contractor who subbed to P. P, after delivering partially on very tight timeframe contract A, threatened to halt delivery unless D gave it contract B, for which it was not low bidder. D, unable to find a suitable substitute on short notice that could complete contract in time, agreed to Ps stipulations. Post completion, D stopped paying and they each sued. I: did the threat not to deliver constitute economic duress? H: yes, a classic case. D was time sensitive. Subject matter was defense instruments, exacting standards. No alternative suppliers in a timely/reliable manner. D was right to wait to sue because that was the first safe time. No adequate alternatives, no legal remedy alternatives without fear of tarnishing representation in eyes of govt. R: a contract is voidable on the ground of duress when a threat deprives a party of free will. NOTE THAT THIS RESULT COULD HAVE BEEN DETERMINED BY 2-209 89 APPROACH OF GOOD-FAITH AND LEGITIMATE COMMERCIAL REASON.

iv. Undue Influence - if case doesnt fit all the requirements of duress, it may still be argued as voidable under undue influence or unconscionability Can be grounds for voiding a contract where a non-mentally ill partys capacity to negotiate is diminished and the other party with knowledge of this diminished capacity takes advantage of it. Indicators of undue influence: (1) Discussion of the deal at an unusual or inappropriate time (2) Consummation of the transaction in an unusual place (3) Insistent demand that the business be finished at once (4) Extreme emphasis on untoward consequences of delay (5) Use of multiple persuaders by dominant party on one servient party (6) Absence of third party advisors to the servient party (7) Statements that there is no time to consult financial or legal advisors. Distinguished from duress because in undue influence, changes persons will, whereas in duress, someone is forced to do something against their will

177, p.1129: When undue influence makes a contract voidable (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare (2) If a partys manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim (3) If a partys manifestation of assent is induced by a 3rd party, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction. Case 93: Odorizzi v. Bloomfield School District, homosexual teacher resignation P. 1114

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F: teacher, P, arrested for homosexual acts. Principal and school district supervisor come to his house after he is released from overnight in jail. Ds tell him to resign or face disciplinary action that will ruin his career. He resigns. Cleared of charges. Tries to rescind resignation. I: Is there an action for undue influence? H: yes. No duress but executed in the face of over-persuasion which deprived P of his ability to think or act rationally. Mental state is important when you are talking about freedom of contract because you need the ability to reason for freedom of contract to have any meaning. R: there was a special relationship between parties and there was improper persuasion of weaker party by stronger party. There is no duress because theres no unlawful threat and D doesnt know threat is false. There is no actual fraud because there is no knowledge of falsity, intent to induce reliance, and no constructive fraud no confidential relationship between P and D.

v. Unconscionability - Fallback position when contract seems unfair and no other doctrine gets the unduly burdened party out from under their obligation Not a well defined doctrine by any stretch of the imagination Unconscionability is measured from the time of the contracting Virtually the only successful use of unconscionability has been by consumers in contracts of adhesion, as the sophistication of the parties often plays a major role in the judges determination as to whether there was unconscionability Two elements of unconsionability: (1) Procedural refers to situations in which one party was induced to enter into the contract without having any meaningful choice a. Comment d to 208, p1137 lists factors that point to procedural unconscionability Belief by the stronger party that there is no reasonable probability that the weaker party will fully perform the contract Knowledge of the stronger party that the weaker party will be unable to receive substantial benefit from the contract Knowledge of the stronger party that the weaker party is unable reasonably to protect his interests by reason of physical or mental infirmities, ignorance, illiteracy, or inability to understand the language of the agreement b. factors: did party know what they were getting into unfair surprise fine print, complex convoluted language lack of opportunity to study contract lack of understanding of particular party disparity of sophistication language difficulties voluntariness of the deal are terms negotiable? Different kinds of market pressures/timing requirements (1) Substantive oppression, a clause is substantively unconscionable if it is unduly unfair and one-sided. Most often excessive price, or an unfair modification of either the sellers or buyers remedies. a. an exception to the rule that courts do not look at the adequacy of consideration b. factors: commercials terms reasonable or one sided price/costs profits to one party typical commercial practices Be aware of the fundamental tension between unconscionability doctrine and the basic principal of freedom of contract

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2-302, p.1137: Unconscionable contract or clause if court finds contract is unconscionable, it may: 1) refuse to enforce the contract; 2) enforce the remainder of the contract w/o the unconscionable clause; 3) limit the application of the unconscionable clause. Factors to consider: gross inequality of bargaining power terms unreasonably favoring the stronger party no meaningful choice for the weaker party no real alternative so one-sided at the time the contract was made highly technical language does the case also raise/allude to issues of duress or fraud? Case 94: Williams v. Walker Furniture I,II, Purchase of furniture on installment plan p. 1131 F: P bought a variety of things from D over time, all on credit that was cross-collateralized. Payment scheme was such that each payment was prorated to all outstanding goods; result was that no title passes to P until entire account is flat. P missed a payment, D went for replevy. H: repossesion provision on consumer goods purchase agreement is unconscionable, and a court may refuse to enforce a contract that was unconscionable at the time it was made. Note: court maneuvered around the recent adoption of 2-302, which it enforced, and which was adopted after the acts occurred. Court took the opinion that the code merely codified CL. R1: when a party of little bargaining power, and hence of little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms. Unequal bargaining power procedural unconscionability R2: In determining reasonableness of fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. Terms unreasonably favorable to one party substantive unconscionability Case 95: Carnival Cruise v. Shute, choice of venue clause on back of ticket p1149 F: P (Shute) slipped while on a cruise on D. P lived/bought ticket in WA, injury was in intl waters off of Mexico. Ticket had clause of forum-selection requiring all suits to be brought in Florida. I: Is clause on venue selection on back of ticket enforceable? H - not unconscionable even if P didnt know until after buying the ticket. There are many reasonable business interests for requiring litigation in Ds home state. Some of these may lower costs, resulting potentially in lower prices for other Ps. R: this clause is not the sort of thing that one bargains for, and therefore this is governed by ordinary commercial considerations. The clause is reasonable and was made in good faith. Clause is enforceable because it does not preclude recovery. Dissent: P does not see conditions of contract until after purchase of tickets

adhesion contracts form contracts offered on a take-it-or-leave-it basis by a party with a stronger bargaining power to a party with weaker power a. pros - standard practice, reduced transaction fees, easier to control employees (less flexibility), easier choice of venue(judicial economy) b. cons - minimizes bargaining power, eliminates alternatives, inconvenient to weaker party courts are hesitant to enforce adhesion contracts because of: a. lack of assent b. disparity in bargaining power creating constructive coercion if not real coercion, and

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c. unconscionability
211, p.1140: Standardized Agreements (1) except as stated in (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms or agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing (2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing (3) Where the other party has reason to believe that the party manifesting such an assent would not do so if he knew of the writing contained in the particular term, the term is not part of the agreement Case 96: Baby M case, P. 1147 R: disparity of education or sophistication is not considered grounds for avoidance of a contract.

Failure of a basic assumption breach results when something unexpected happens. Ex. Circumstances change, or someone just turns to majority or becomes sober or they realize things arent quite as they understood them to be at the time contract was made

i. Mutual mistake
151, p.1165: mistake defined a mistake is a belief that is not in accord with the facts. 152, p.1190: when mistake of both parties makes a contract voidable (MUTUAL / BI-LATERAL) (1) if both parties made a faulty assumption which has a material effect on the agreed exchange of performances, the contract is voidable by the affected party unless he bears the risk of the mistake under the rule of 154; (2) to determine whether a mistake has had a material effect on the exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise . 154,p.1190: when a party bears the risk of a mistake a party bears the risk of a mistake when: (1) the risk is allocated to him by agreement of the parties; (2) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient; (3) the risk is allocated to him by the court on the grounds that it is reasonable to do so. Case 97:Sherwood v. Walker, mistaken breeding cow for barren cow p1166 F: P contracted for a cow from D. The cow was priced at $0.05/pound with the belief that it was barren, whereas it would have been worth more than 10x that if she could bear. After signing but before delivery, cow was found pregnant. Seller refused delivery. I: Can this contract be voidable on the grounds that there was a mutual mistake on barrenness of cow? H: both parties' belief that cow was barren is a bi-lateral mistake voiding going to the essence of a thing, voiding contract. R1: mutual mistake means that both parties are wrong about the same fact. R2: mistake must go to the essence of the contract, or the very thing that was bargained for to be voidable. Dissent: disagreement on fact. Did buyer believe cow was barren or could bear? If the latter, there was only a disagreement as to the quality of the cow, there not voidable. It was not a mistake about the current status of cow, it was a mistake about prediction of future events. Case 98: Wood v. Boynton, uncut diamond sold for $1 P. 1178

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F: P sold an uncut diamond to a jeweler for $1, both parties were not sure as to identity of item and believed it possibly to be a topaz. I: Is the sale void on the fact that there was a mistake as to the identity of the item and fraud of D? H: no fraud, D didnt act in bad faith, truly didnt know what item was when he bought it. No pretense of mistake since the object for sale was presented to both parties before sale was made and both parties knew they were clueless as to the identity of the stone, both supposed $1 was an adequate $ at the time. R: Court will not grant rescission once contract is already performed (unlike Sherwood). In absence of fraud or warranty, the value of the property sold, as compared with the price paid, is no ground for a rescission of a sale Case99: Lenawee County Board of Health v. Messerly, condo condemned by poop, worthless P. 1182 F: Ds bought Ps property as an investment, purchases property with clause to agree to purchase property in its present condition. D discovers an unlawful septic tank, unbeknownst to P, which results in condemnation of property. Now worthless. I: Can this contract be voided on grounds of mutual mistake and failure of consideration? H: Mistake is not characterized as collateral because it also affects the very essence of the consideration as well as value. (avoids Sherwood decision). Parties mistake as to basic assumption materially alters the agreed performances of the parties. Because of as is clause, buyer bares risk. R: Ct, in mistake of two innocent parties, determines who should bear the risk based on 154. Existence of assumption of risk clauses in contracts determines who bears risk. Raffles v.Wichelhaus, England, 1864 p451, 463, 465, 481, 1166

Mutual mistake as to contract substance (which Peerless merchandise was to be delivered on) voids contract. Assumption of Risk - Allowed to avoid a contract but in mutual and unilateral mistakes, you can contract around mistake by assuming the risk. Ways to assume risk: - expressly agree to assume risk - court allocates risk in a way it thinks reasonable (ex. Sellers of farm land discover minerals on land) - party knows at the time they enter into the contract that subject of the contract is not well known consciously aware of the fact that they didnt have much knowledge (Sherwood case?) Because you made a mistake and underestimated the value of an item you sold can you claim that it was a mutual mistake and thus negate a sale? - No, if you had ample opportunity to determine worth of item it is your own fault for not finding out value - Unconscionability? Voided contract no contract ever exist - restitution/reliance damages given Rescission official name of action taken to void a contract

vi. Unilateral mistake

Circumstances where contract is voidable is much narrower, most unilateral cases are subcontracting cases 153, p.1196: when mistake of one party makes a contract voidable (UNILATERAL mistake) where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect...that is adverse to him, the contract is voidable by him if he did not bear the risk of the mistake under 154 and: a. the effect of the mistake is such that enforcement would be unconscionable, or b. the other party had reason to know of the mistake or his fault caused the mistake.

Drawback in recognizing unilateral mistake - Reduces incentive for people in placing bids, because a mistake would help make a contract not enforceable Case 100: Tyra v. Cheney, subcontr. mistakenly left off amount stated in oral bid in written bid P. 1193

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I: Can P collect damages for a mistake in estimate made to D that D knew about when accepting bid? H: yes, D knew of mistake. R1: Since GC knew mistake was made, there was no mutual assent (error in contract formation). No enforceable contract to begin with, so terms of contracts are refused to be imposed by the court. R2: work did benefit other party, to prevent unjust enrichment, court awards restitution. When only one party has made a mistake tough on them. Since D knew about mistake, he didnt really rely on the bid, therefore, no contract. Case 101: Drennan v. Star Paving, misquoted SC estimate, GC wins bid on estimate P. 1195 Drennan entitled to $3000 since P relied on mistake. Can D rescind since it made a mistake? NO, because P did not know about mistake and relied on it, contract is enforceable. Burden of loss on party that made the mistake in the case when both parties are innocent unless otherwise stipulated. Case 102: Laidlaw v. Organ, Treaty of Yent, Tobacco investment, S attempts to take tobacco back P. 1197 I: Can Seller claim fraud when Buyer knew price of tobacco would rise due to Treaty of Yent which was not yet known to other persons? is suppression of information known by buyer considered fraud? R: Organ is not bound to communicate information, but each party cannot do anything tending to deceive another. Case remanded to determine if there was any imposition of Buyer on Seller. 153, p.1196: When a mistake of one party makes a contract voidable - Mistake has to be about a basic assumption - Has effect on agreed upon performance that is adverse to him - Mistaken party does not bear the risk of the mistake under the rule in 154, and - Either the mistake has to make the enforcement unconscionability or - Other party has reason to know or caused the mistake. 161, p.1201: When non-disclosure is equivalent to an assertion staying silent equals an assertion when: (a) he knows that disclosure of a fact is necessary to prevent a previous assertion from being misrepresentative or from being a fraud (b) knowledge, given the context, that disclosure would correct a mistake of the other party regarding a basic assumption and if failure to act amounts to a lack of good faith and in accord with reasonable standards of fair dealings (c) he knows that disclosure would correct a mistake of the other party re the contents or effects of writing in whole or in part (d) special relationship between the two parties 162, p.1078: When a misrepresentation is fraudulent or material (1) a misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker (a) knows or believes that the assertion is not in accord with the facts, or (b) does not have the confidence that he states or implies in the truth of the assertion, or (c) knows that he does not have the basis that he states or implies for the assertion; (2) a misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent. 164, p.1078: When a misrepresentation makes a contract voidable (1) if a partys manifestation of assent is induced either by a fraudulent or material misrepresentation (2) when induced by such of a 3rd party, unless the 3rd party is in good faith and unaware

vii. Impossibility and impracticability - People enter contracts because they expect: benefits of contract > cost of entering into contract - Enter contracts to insure certainty, but change in circumstances may change into a breaking contract
defense

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Market shifts dont cut it, only extreme situations, higher costs alone arent going to be enough unless they are well beyond computable range. Must see whether an event is one in which parties assumed to be within occurrence when determining impracticability Financial inability to perform is not a basis for a claim of impracticability Expected to use reasonable efforts before applying for impracticability claims Problems arise in two ways: (1) Manufacturers costs shoot up (impossibility/impracticability) (2) Buyers benefit may drop below that they thought (frustration of purpose) Impossibility/impracticality unforeseen increases in the costs of performance by one party Purpose - to allocate risk to the parties Test: something unexpected; risk not allocated within contract or by custom; rendered performance commercially impracticable or impossible

261, p.1213: Discharge by supervening impracticability same as 2-615(1) 2-613, p.1213: Casualty to identified goods Where contract requires goods identified and such goods suffer casualty without the fault of either party before risk of loss passes to the buyer, or in a proper case under a no arrival, no sale term then a. if the loss is total the contract is voided, and b. if the loss is partial or the goods are deteriorated buyer may demand inspection and at his option either treat the contract as voided or accept the goods with due allowance from the contract price for deterioration or the deficiency in quantity but without further right against the seller. 2-615, p.1219: excuse for failure of presupposed conditions (1) there is no breach of duty if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made in good faith; (2) where the above causes effect only part of the seller's capacity to perform, he must allocate production and deliveries among his customers...in a way that is fair and reasonable. (3) he must also notify buyer of contingencies made Note: excuses seller if unforeseen supervening circumstance unanticipated by either side in good faith occurs and seller takes appropriate actions. Note: increased cost alone does not excuse. Local crop failure, war, embargo, unforeseen shutdown of a supplier is within this section. Case 103: Taylor v. Caldwell, place of rental burned down before use P. 1208 F: P rented Ds music hall for concerts but music hall burned down before use. P claiming preparation for concert damages. D argues by expressed terms relieves them of any liability and trade custom designates that in the event that place was destroyed or damage, contracts must be rescinded. I: Whether, because place burned down before use by P, the loss which P sustains needs to fall upon D. H: the parties contracted on the continued existence of the particular place, because the theater burned down, the impossibility of performance shall excuse the performance R: implied condition in contract for existence of place for contract results in an excuse for performance however exceptions include N on party in causing fire, foreseeability, or expressed terms to the contrary. Implied condition can be contracted around. Look for evidence for assumption of risk. if partys contract becomes impracticable and not fault of party and not assumed by parties, then party is no longer under any duty to perform unless contracted around.

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4 requirements for successful defense: 261, p.1213 1. impracticable performance 2. nonoccurrence of event must be a basic assumption by both parties on which contract is made 3. impracticability must not be a result of a fault of one of the parties 4. the parties must not have assumed a risk, i.e. language or circumstances do not indicate the contrary Case 104: Eastern Air Lines v. Gulf Corp., exclusive gas supply contract, issue on $ for renewal p. 1214 F: D claimed that the price escalator, coupled with subsequent events, guaranteed it to lose money and made the contract commercially impracticable. Tried to show impracticability through house transfer costs. H: for P. The energy crisis was foreseeable, and D was in a better position to mitigate. Also, D never actually proved that it was losing money, due to lack of evidence about costs and intracompany transfers. R: Increased costs will not excuse.

Assumption of risks ways to find it o Expressed specifically in contract o Expressed specifically for something else, interpreted to include this risk o Silence of foreseeable risk may mean risk was assumed o Surrounding circumstances easy insurance shift risk to third party viii. Frustration of purpose unanticipated events that reduce the value of performance to the promisee depends on the total or nearly total destruction of the purpose for which, in the contemplation of both
parties, the transaction was entered into. Question to ask in these cases is whether the equities of the case, considered in the light of sound public policy require placing the risk of a disruption or complete destruction of the contract equilibrium on D or P under the circumstances given. Answer depends on whether an unanticipated circumstance, the risk of which should not be fairly thrown on the promisor, has made performance vitally difference from what was reasonably to be expected. Remedies: if court determines that the promisor is not entitled to relief based on frustration of purpose, than promiser is liable for damages for breach of contract. If successful claim, duty of promisor claiming frustration is discharged. Neither party can recover damages for breach. If either party has partially performed and the contract is divisible, can allow recovery by contract rate If either party has performed and contract is not divisible, can collect via restitution.

265, p. 1233 Discharge by supervening frustration where...a partys principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless language or circumstances indicate otherwise. Note: not enough that contract is unprofitable, or if contract has alternative purposes Case 105: Krell v. Henry, rented room to watch coronation of king p. 1220 F: P wants remaining $ on contract, D wants return of money. D rented room to watch coronation which was cancelled due to illness of king. Because of cancellation of coronation, D breached contract.

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I: Is contract void because the purpose of the contract, to get a good view of coronation, was no longer present? H: Yes, contract was based on the basic assumption that D rented to view the coronation. The value of the room to the promisee has greatly diminished. Lower court: Implied condition that the coronation would take place, like Taylor v. Caldwell. R: This is not a mistake case. Only a mistake case if window was facing the wrong way. Not a impossible/impracticability case because the contract can still be performed, its not commercially impossible or impracticable. The change in event must be the purpose of the contract in order to claim frustration of purpose. Everything in contract was structured around the coronation. Three part test: (i) what was foundation of the contract?; (ii) Was the performance of the contract prevented? Take into account surrounding circumstances; (iii) Was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract? If foreseeable, parties could have taken steps to allocate risk. Chandler v. Webster rule: the loss should lie where it happened to fallREJECTED Case 106: Lloyd v. Murphy, property on Wilshire Blvd for sales of cars p. 1227 D rented property from P to sell cars. Because of war, Government did not allow the selling of cars so D wanted to get out of car. P offered to allow D to sublease or use property for other uses. D still breaches. P rents to another and sues for ungotten rent. D still sells cars at other locations. I: Is this a frustration of the purpose since government regulation has prevented D from selling of cars as he wanted to do at this property. H: No, not frustration of purpose. Promisee had assumed risk because regulation by government in the wake of imminent war was foreseeable. R: given risk is foreseeable, risk should be specifically be allocated in contract or else it is inferred to be assumed.

ix. Coping with change: Long-term contracts Contracts do not cover every contingency: o Impossible to articulate all that we tacitly assume to be true about the world o Future is inherently unpredictable at times o It often is not worth investing the resources needed to anticipate, specify, and negotiate about very
remote contingencies o Interest change over time The longer period of time a contract is intended to over, the more these factors lead to the potential for developments that are not or cannot be specified in advance

Case 107: Northern Indian Public Service v. Carbon County Coal, 20 yr exclusive coal contract p.1249 F: P, coal provider has a 20year contract for coal to D with a base price but no price roof. Contract included a force majeure clause which allowed D to stop taking delivery of coal for any cause beyond its reasonable control including but not limited to orders or acts of civil authority which wholly or partly prevent the utilizing of the coal. Price of coal rise, price of oil dropped. Cheaper for NIPSCO to buy electricity than produce it themselves. Because regulated industry, NIPSCO wanted to transfer price increase to consumers but couldnt D decided to stop receiving coal from P. P sues, gets $$ from D not specific performance. I: (i) Can D argue force majeure clause came into affect as a defense because of government regulation? (ii) Can they argue impossibility or frustration? (iii) Can P get specific performance? R1: To allow force majeure clause, would be undermining purpose of the contract. NIPSCO could have lost money or benefited from contract based on market fluctuation. Clause is not intended to buffer the risk in entering contract. R2: Impossibility/Impracticability whether his nonperformance should be excused because the parties if they thought of the matter would have wanted to assign the risk that made the performance impossible or impracticable to the promisor or to the promisee, if the latter, the promisor is excused,

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i.e. what would the parties have done, where would they have allocated the risk. interprets 261s clause - unless the language or the circumstances indicate the contrary R3: Frustration foreseeable risk. Contract allocates risk, D assumes the risk. Shift risk to party better to bear it. R4: Specific Performance not allowed when calculation of damages is easy, it would be economically inefficient to keep producing coal when its expensive and theres a cheaper alternative (efficient breach); also, it would allow parties to bargain around specific performance so that both would benefit (Cosean bargaining).

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Exam Review
OH: Wed. Dec 5th 2-6pm Thurs. Dec 6th 9am 2pm

1. 2. 3. 4.

Restatement secondary legal source compiled from common law, guidance only. UCC set of statutes, put together by a committee variations amongst courts on interpretation of UCC and other statute, will be judged differently. statute of frauds certain contracts designated to have to be in writing, exceptions: promissory estoppel and promissory estoppel like provisions 5. integration clause parol evidence rule limits extent to which you can determine the terms of an agreement from outside information. Under Restatement, an integration clause is a writing within the contract of which you cannot allow in parol evidence that contradicts the integrated clause. A fully integrated clause does not allow admission of contradictory or additional terms to a contract. A contractual provision stating hat the contract represents the parties complete and final agreement and supercedes all informal understandings and oral agreements relating to the subject matter of the contract. Example: Schneider v. Miller a. exception: If a modification after the initial agreement is provided, parol evidence is allowed to support validity modification. b. Exception to parol evidence rule: 214. Admissible evidence admissible to show: - Not integrated agreement - Integrated agreement, if any, is completed or partially integrated - Meaning of the writing, whether or not integrated - Illegality, fraud..look up restatement for rest 6. option contract usually, if you made an offer, you have a right to revoke an offer before acceptance, however an option contract gives more certainty to offers. Give money down payment like to reserve right to decide to accept offer in the future. If item sold to another in the mean time, it is a breach of contract. 7. firm offer when seller promises to keep the offer open. If term of the offer is open for less than three months, no need for an exchange of money to keep the offer valid, i.e. cannot be revoked. 8. contract of adhesion p.1159, form contracts, by a party with stronger marketing power to a party with weaker marketing power. No usually unconscionable and are like enforced, but are a more like form of conscionable. 9. products liability sellers can limit the scope of warranties through disclaimers but that doesnt mean that you can limit all contract based claims through this disclaimers, especially if found to be unconscionable 2-302. 2-719, etc. 10. implied in fact and implied in law contracts quasi-contracts a. Implied in fact an actual contract contrasted with an expressed contract. Expressed contracts are based on words, implied in fact contracts are inferred from conduct. b. Implied in law quasi-contract not an actual contract, used when court tries to impose and obligation despite a lack of an actual contract, law creates the obligation in absence of agreement. c. Quantum meruit an equitable doctrine based on the concept that no one who benefits by the labor and materials of another should be unjustly enriched thereby, under those circumstances, the law implies a promise to pay a reasonable amount for the labor and materials furnished even absent a specific contract therefore. 11. Damages a. promissory estoppel damages can get any type of damages, promissory estoppel is used just to establish liability when there is no contract. No straightforward rule on calculating damages b. nonpromissory estoppel damages - 344 i. expectation interests ii. reliance interest iii. restitution interest - 345

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c. 346 injured party has right to damages for any breach, if breach caused no loss or loss cannot d. e.
be proved, will award nominal damages 347 expectation damages - hypo: $100 money spent in production $200 profit, expectation damages = $300. 349 reliance damages - hypo: $100 money spent in production - $25 negative profit, you would ask for $100 reliance damage, the other side would have to prove that you would have lost $25 in the transaction $100 - $25 = $75 if loss proven by other party. - In previous example, may only get $100 damages on reliance if the expected profits are not provable or if profit may have been a loss. 370 restitution damages may provide a larger recovery than reliance damages if the expected profits would be negative RD. 373. - if there are benefits conferred onto other party - hypo: agreed to sell land for $100,000 - Already paid $20,000 - Value of land drops to $70,000 - Other party benefited by $20,000 restitution damages - Expectation damages include the profit would be a -$30,000. Other reasons for restitution - can be recovered when you are the party in breach. - 376, 377

f.

g.

General Comments
21 legal manifestation of intent to contract intention to be legally bound formalities are generally not recognized, nominal considerations are not recognized.

Exam
Bring anything you create Review student answers online 3 hours consist of fact pattern essay questions, short answer cant bring in any commercially produced materials other than text book

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Modifications
1. Was there consideration in modification? Was there a pre-existing duty? 2. If no consideration a. If item is a good, was modification done in good faith? 2-209 p.27 b. If item is a service, was modification fair and equitable? Was it for an unanticipated term?
89 p.27

3. If its a good, does Statute of Frauds apply? 110, 2-201 p.40 4. Refer to Battle of Forms p.24

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Flow Chart for Exam

Was there a contract?
Offer? Options contracts, bilateral/unilateral, firm offers - goods or service? Acceptance? - Mailbox rule, silence, performance goods or service? Statute of Frauds apply on goods? - Is good customized? Did one side substantially perform? Complete performance? Options contract made? Was there consideration?

2a. If there was no contract

II. Promissory estoppel? III. Quantum meruit?

2b. If there was a contract was there a breach?

IV. Implied duty of good faith? V. Warranties? VI. Anticipatory repudiation? VII. Lack of adequate assurance? who bears risk? VIII. Material Breach? Substantial Performance? Perfect Tender?

3. Is there a defense to the breach?

IX. Statute of Frauds X. Public policy issues XI. Lack of contractual capacity minor, mentally incapacitated, intoxicated? XII. Consent obtained improperly XIII. Misrepresentation? XIV. Duress? XV. Undue Influence? XVI. Unconscionability? XVII. Failure of basic assumption? who bears the risk? XVIII. Mutual mistake? XIX. Unilateral mistake? XX. Impossibility/Impracticability? XXI. Frustration of purpose?

4. Damages?
XXII. XXIII. XXIV. XXV. XXVI. XXVII. XXVIII. Computable? Goods unique? SP? Risk Foreseeable? Risk assumed? Willful breach? Proportionality? cost of performance vs. diminution in value Profits computable? too remote?

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