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Table of Contents
I.What Law Applies: The UCC vs. Common Law........................................................................1
A.The Uniform Commercial Code [1 2 | 25].......................................................................................................................................................1 1.General Remarks...........................................................................................................................................................................................1 2.Scope of Article 2...........................................................................................................................................................................................1 B.Common Law (All Non- ood!"..........................................................................................................................................................................2

II.Requirements for Contract

ormation.....................................................................................!

A.A##aren$ A!!en$% &ffer-and-Acce#$ance........................................................................................................................................................' 1.The Basics of Offer and Acceptance !1" # 1$%&............................................................................................................................................' 2.A Deeper (ook at O)*ecti+e Assent !'1 # ,",&..............................................................................................................................................'.Options . Firm Offers...................................................................................................................................................................................., -.Silence as Acceptance . /ome Offer Acceptance 0lauses !-1 # $'$&........................................................................................................., ,.The Battle of the Forms................................................................................................................................................................................." B.Le(al Ba!i! for )nforcemen$% Con!idera$ion * +eliance.............................................................................................................................., 1.1mplied in Fact 0ontracts..............................................................................................................................................................................." 2.The /istor2 of 0onsideration !1% # 3A&.........................................................................................................................................................." '.A Test for 0onsideration4 The Bar5ain Test !167 1% # 226&...........................................................................................................................$ -.Reliance . 8romissor2 9stoppel !2: # 2'6&...................................................................................................................................................% C.A##ro#ria$e -ormali$ie!% The .$a$/$e of -ra/d! * 0efini$ene!!...................................................................................................................1 1.The Statute of Frauds7 Generall2 !21 # 2-"&..................................................................................................................................................6 2.0ontracts 0o+ered )2 the Statute of Frauds !21 # 2-$&.................................................................................................................................6 '.Sufficient ;ritin5s and Si5natures !21 # 2-6&................................................................................................................................................6 -.9<ceptions to the Statute of Frauds !1" # 2,1&............................................................................................................................................1: ,.A Surro5ate for Formalities4 8re 0ontractual Reliance !22 # 26$&..............................................................................................................1: ".8ro+in5 9mplo2ment 0ontracts !2' # '2$&...................................................................................................................................................11 $.Definiteness !1% # "-'&.................................................................................................................................................................................12

III.Interpretation........................................................................................................................1!
A.-orm Con$rac$! * eneral 2rinci#le!.............................................................................................................................................................1' 1.0ontra 8roferentum . Reasona)le 9<pectations !26 # -%-&.......................................................................................................................1' 2.Risk Allocation . Shrink ;rap (icenses !2% # -$1&.....................................................................................................................................1' '.Standardi=ed Forms !2% # ,'%&....................................................................................................................................................................1B.3n$er#re$a$ion of 4ri$$en 0oc/men$ [52 | 655]................................................................................................................................................15 1.General >atters...........................................................................................................................................................................................12.9<trinsic 9+idence.......................................................................................................................................................................................1, C.The 2arol )7idence +/le [5' 55 | 661]..........................................................................................................................................................1, 1.The Basics of the Rule.................................................................................................................................................................................1" 2.The ?00 @ 2 2:2.........................................................................................................................................................................................1" '.Differin5 Aiewpoints.....................................................................................................................................................................................1$ -.;a2s around the Rule.................................................................................................................................................................................1$ ,.0ases . 9<amples......................................................................................................................................................................................1% 0.Chan(e! in $he &ri(inal &8li(a$ion.................................................................................................................................................................11 1.>odifications !-" # %-6&................................................................................................................................................................................16 2.8olicin5 >odifications..................................................................................................................................................................................2: '.;ai+ers !-" -$ # %-6&.................................................................................................................................................................................21 ).Condi$ion! * -orfei$/re....................................................................................................................................................................................22 1.0onditions . Forfeiture7 Generall2 !-$ # %",&..............................................................................................................................................22 2.Tools to A+oid Forfeiture !-% # %$2&.............................................................................................................................................................2' '.0onditions of Satisfaction............................................................................................................................................................................2' -.3n$er#re$a$ion in $he -ace of a 9i!$a:e............................................................................................................................................................25 1.>utual >isunderstandin5 . Am)i5uit2 !1% # ',%&........................................................................................................................................22.>istaken Bids !'' # ,%6&..............................................................................................................................................................................2, '.?nilateral >istake !'- # "1:&........................................................................................................................................................................2, -.>istaken 1mpro+ements . Restitution As a 0lean ?p !', # "'1&................................................................................................................2" .3ndefini$e or &#en Term!.................................................................................................................................................................................2, 1.0ommon (aw +s. ?00 !'" # "-'&................................................................................................................................................................2" 2.Fle<i)le Buantit24 ReCuirements . Output 0ontracts !'$ # "$,&................................................................................................................2$ ;.The Ba$$le of $he -orm! ['< 5= | ,12]...........................................................................................................................................................2< 1.0ommon (aw ..............................................................................................................................................................................................2% 2.The ?00......................................................................................................................................................................................................2% '.>erchants....................................................................................................................................................................................................26 -.0ases . Application.....................................................................................................................................................................................26 3.4arran$ie!> 0i!claimer!> * Limi$a$ion! of +emed?........................................................................................................................................'= 1.General Remarks !': # -6-&........................................................................................................................................................................': 2.;arranties4 ?00 @@ 2 '1'7 2 '1-7 . 2 '1, !': # -6-&...............................................................................................................................': '.9ffecti+e Disclaimers4 ?00 @ 2 '1" !': # -6-&...........................................................................................................................................'1

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-.(imitations of Remed24 ?00 @ 2 $16 !': # -6-&.........................................................................................................................................'1

I". Tools for #eterminin$ %reach..............................................................................................!&


A.)m#lo?men$% 4ron(f/l 0i!char(e * Co(na$e Claim! [25 | ''<]................................................................................................................'2 1.A BirdDs 92e Aiew on 0laims.......................................................................................................................................................................'2 2.Bad Faith in 9mplo2ment 0ontracts............................................................................................................................................................'2 '.1mplied for 0ause Term4 A 0ase Stud2 in 0alifornia..................................................................................................................................'2 B.2ower $o 4i$hdraw in +e!#on!e $o 0efa/l$....................................................................................................................................................'' 1.General >atters !12 # 11"&...........................................................................................................................................................................'' 2.>aterialit2 of Breach !-6 ,1 # %%%&.............................................................................................................................................................''.The ?00 Approach.....................................................................................................................................................................................', -.0ases . 9<amples......................................................................................................................................................................................'" C.2ower $o 4i$hhold 2erformance in a 0i!#/$e [52 5' | 12<].......................................................................................................................', 1.General >atters...........................................................................................................................................................................................'" 2.1nsecurit2 and Repudiation..........................................................................................................................................................................'" '.1nstallment 0ontracts4 ?00 @ 2 "12 . 2 ":6.............................................................................................................................................'$ -.0ases . 9<amples......................................................................................................................................................................................'$

".'eans to Ren(er Contract "oi( ) *+cuses for #efault ........................................................!,


A.The 0/$? of ood -ai$h% -ra/d * 0/re!!......................................................................................................................................................'< 1.Duress !2, # -:%&.........................................................................................................................................................................................'% 2.Fraud . The Dut2 to Disclose !2" # -''&.....................................................................................................................................................'% '.Dut2 of Good Faith !2$ # --,&......................................................................................................................................................................'6 B.9i!cellaneo/! 9echani!m! for @oidin( a Con$rac$......................................................................................................................................5= 1.?nconsciona)ilit2.........................................................................................................................................................................................-: 2.0ontra 8roferentum . Reasona)le 9<pectations.......................................................................................................................................-: '.>utual >isunderstandin5............................................................................................................................................................................-: -.>istaken Bids..............................................................................................................................................................................................-: ,.?nilateral >istake........................................................................................................................................................................................-: ".1ndefiniteness...............................................................................................................................................................................................-:

"I.Reme(ies - #ama$e 'easures.............................................................................................1


A.+emedie! -orm/la Char$..................................................................................................................................................................................51 B.Con$rac$ +emedie!> enerall?.........................................................................................................................................................................52 1.O+erarchin5 1nterests of 0ontracts (aw......................................................................................................................................................-2 C.Underl?in( 2rinci#le! and 3!!/e!....................................................................................................................................................................52 1.9mplo2eeDs Remedies for Breach of 8romise to 9mplo2............................................................................................................................-2 2.Stipulated Remedies E (iCuidated Dama5es4 ?00 @ 2 $1%.......................................................................................................................-2 '.?ncertain Dama5es.....................................................................................................................................................................................-' 0..ellerA! )B#ec$a$ion 3n$ere!$............................................................................................................................................................................55 1.Resale 8rice4 ?00 @ 2 $:"........................................................................................................................................................................-2.>arket 8rice4 ?00 @ 2 $:%F1G....................................................................................................................................................................-'.(ost 8rofits4 ?00 @ 2 $:%F2G !, # ,1&..........................................................................................................................................................--.Action for 8rice4 ?00 @ 2 2:6.....................................................................................................................................................................-, ).B/?erA! )B#ec$a$ion 3n$ere!$............................................................................................................................................................................55 1.0o+er 8rice4 ?00 @ 2 $12..........................................................................................................................................................................-" 2.>arket 8rice4 ?00 @ 2 $1'........................................................................................................................................................................-$ '.Specific 8erformance4 ?00 @ 2 $1"..........................................................................................................................................................-$ -.0onseCuential Dama5es4 The /adle2 Rule . ?00 @ 2 $1,F2G.................................................................................................................-% -.&$her +emedie!.................................................................................................................................................................................................51 1.The Reliance 1nterest...................................................................................................................................................................................-6 2.Restitution7 Generall2..................................................................................................................................................................................,: '.Restitution from Defaulter............................................................................................................................................................................,1 -.Restitution to Defaulter................................................................................................................................................................................,2

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Inquiries to 'a/e for *ach 0roblem


1. ;hat law appliesH 2. /as a contract )een formedH ;as there apparent assentH 1s there a le5al )asis for enforcementH Does it fall in the statute of fraudsH Are the terms sufficientl2 definiteH '. 1f not7 has there )een precontractual reliance that can )e used as a su)stitute for contractH ;as there a promiseH ;as there at least a representationH ;as there actual relianceH -. 1s there a Battle of the Forms situationH ,. 1f there is writin57 is a part2 tr2in5 to introduce terms not in the written a5reementH ". ;hat kind of contract is thisH One off contract 1nstallment contract ReCuirements contract Output contract $. /a+e the terms of the contract chan5edH /as there )een a modificationH o 1s there a 3O> clauseH o Does the modification pass Cuestion 2 a)o+eH Are there an2 conditions that ha+e not )een fulfilledH /a+e an2 of them )een wai+edH %. 1s the contract +oid or +oida)leH ;as there4 >utual misunderstandin5 >utual mistake in the e<pression Fraud Duress >isrepresentation 1lle5alit2 6. /as there )een a )reachH 1s this a normal contract or an installments contractH /ow man2 potential )reaches are thereH 1s the )reach materialH F@ 2-1G 1s the )reach totalH 1f a part2 refused performance Fpa2mentG7 was it *ustified in doin5 soH ;as there a dut2 to miti5ateH

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I.

What Law Applies: The UCC vs. Common Law


11 2 & 3 &45

A. The Uniform Commercial Co(e


1. 6eneral Remar/s

a. Ar$icle 1% General principles and definitions Re+ised Article 1 has )een passed almost uni+ersall2 ). Ar$icle 2% Onl2 applies for sales of 5oods 2-1==!% Definitions 2-2==!% 0ontract formations 2-'==!% Deals with the I5ap fillersJ 2-5==!% 8erformance 2-,==!% 8ro)lems with performance F)reach7 repudiation7 and e<cuseG 2-6==!% Remedies for pro)lems with performance c. .$andard! o7er r/le!% (lewell2nDs +ision for realism called to a)andon the rule when the reason for it was no lon5er transparentK he wanted contract law to reflect what was actuall2 5oin5 on &. 7cope of Article & a. 3$ i! onl? nece!!ar? $o (o $hro/(h $hi! anal?!i! if i$ ma$$er! $o $he an!werC loo: fir!$ a$ $he con$rac$ #ro7i!ion! $o !ee if $he? o7err/le $he difference! 8e$ween $he UCC and CL ). UCC D 2-1=2% Discusses which kinds of sales of 5oods are co+ered Fe<cludes securit2 transactionsG c. UCC D 2-1=5(1"% 1ncludes all thin5s Fincludin5 speciall2 manufactured 5oodsG which are mo+ea)le at the time of identification to the contract for sale 3ncl/de!% ?n)orn 2oun5 of animals and 5rowin5 crops and other identified thin5s attached to realt2 0oe! no$ incl/de% >one27 in+estment securities7 securit2 transactions FfuturesG7 or Ithin5s in actionJ d. UCC D 2-1=6 F1G >inerals or the like to )e se+ered from realt2 are considered 5oods if !e7ered 8? $he !eller F2G Growin5 crops and other thin5s attached to )ut se+era)le from real estate without material harm to the land Fi.e. tim)erG are considered 5oods re(ardle!! of who doe! $he !e7erin( e. The Bone8ra:e Te!$% Deals with mi<ed 5oods and asks which of the two F5oods +s. la)orG is incidental to the other or which of the two predominates F0B ',G Speciall2 manufactured car is a 5ood )ecause the la)or is incidental to the essential purpose of the contract7 i.e. to 5et a car that can )e dri+en o >a2 )e a non 5ood if the car is merel2 a protot2pe and the real transaction is for the plans ;ill is not a 5ood )ecause the paper is not the purpose of the contract Fintan5i)leG 8lum)er installin5 a water heater F)u2er is )u2in5 a water heater and la)or is incidentalG Sale of washer when fi<in5 drain is non 5ood Fwasher is incidental to ser+ice of fi<in5 sinkG f. )Bam#le! of ood! Goods to )e installed )2 seller FStereo sold with installationG (. )Bam#le! of Non- ood! Ser+ice Tract of land Freal estateG 1ntan5i)les and ri5hts FRi5hts to use architecture plans onceG 1ntellectual propert2 0ar lease F5o+erned under 2AG 0onstruction of home )ecause la)or predominates F5o+erned under construction common lawG /ouse is not 5ood unless F1G seller se+ers or F2G )u2er se+ers without dama5in5 house or land Software Fthis is a licenseG

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%. Common Law 8All 9on:6oo(s;

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II.

Requirements for Contract

ormation

A. Apparent Assent: <ffer:an(:Acceptance


1. The %asics of <ffer:an(:Acceptance 11= 3 1>,5

a. &8Eec$i7e Theor? or A##aren$ A!!en$% Assent is measured )2 a part2Ds actionsK if it would appear to a reasona)le person that the part2 had assented to the o)li5ation7 then the law reco5ni=es assent Embry v. Hargadine, McKittrick Dry Goods Co. F0B '2,G +/le of Law% A is held to ha+e assented to L if F1G B understood A to mean L and F2G a reasona)le person would think that A had meant L FA knew or should ha+e known that B would think he meant LG 8. )Bce#$ion $o $he +/le (./8Eec$i7e 3n$er#re$a$ion!" C/!$omar? in$er#re$a$ion% 1f an industr2 has a particular lan5ua5e7 the court will use that lan5ua5e .hared !/8Eec$i7e /nder!$andin(% IMesJ can mean InoJ if the parties a5ree to that lan5ua5e Fi.e. weddin5 in *estG The .l? 0o(% 1f A knows For should knowG that B misunderstands him7 the law will adopt BDs mistaken interpretation F(andlord . tenant7 mistaken utilities termG c. F/d(e 7!. E/r?% Assent is 5enerall2 measured with rules of law to keep from the *ur2 Fespeciall2 when the words used are not in disputeGK there is authorit2 that re+erses a *ur2 +erdict that there was assent d. +/le! of Law% These are often nonsensical and allow parties to welsh on technicalities F1G .ilence doe! no$ con!$i$/$e acce#$ance Funless a5reed that it does or continuin5 relationshipG F2G 0/ra$ion of offer!% Offers last onl2 to an2 limit specified )2 the terms7 or7 if there is no time specified7 for a Ireasona)leJ time F'G 9anner of acce#$ance% One must use a reasona)le means of acceptance FFa< for fa<7 ur5enc2G o &fferor i! ma!$er of $he offer% At 0(7 acceptance had to )e of the precise terms of the offer F-G 9ail8oB r/le% Generall27 the acceptance is le5all2 )indin5 when mailed Fnot recei+edG7 e+en when there is no reliance on the offerK technolo52 chan5es this sli5htl2 F,G Cer$ain$? G defini$ene!!% See discussion under Formalities e. Common Law &ffer * Acce#$ance &ffer% A communication that in+ites the other part2 to form a contract )2 respondin5 with an acceptance Fcan )e made +ia a promiseGK an offer 5i+es the recipient the #ower to make a N )2 respondin5 with an acceptance. o Moulton v. Kershaw F0B '-'G4 Seller sent tele5ram statin5 Iwe are authori=ed to offerJ salt at a specified price in unspecified Cuantities. The court holds no N. Bu2er tried to introduce e+idence of an implied Cuantit2 from prior dealin5s and trade practice )ut court re*ected )ecause )usinessmen would not want to e<pose themsel+es to the uncertaint2 of a *ur2 trial to determine if there was an offer. o .har#A! )Bam#le% Aendor asked for O,:7:::7 B offers O-67:::7 +endor replies I1 will not sell for less than O,"7:::.J 3O offer. Acce#$ance% An acceptance of the offer Fsu)*ect to the rules of law listed a)o+eG 9ee$in( of $he mind!% This was the old standard and is no lon5er reCuired )ecause it is su)*ecti+e and has )een replaced with o)*ecti+e assent Falthou5h it is a term of art freCuentl2 usedG f. Termina$ion of $he 2ower of Acce#$ance +2 D ', F0B '$$G Caldwell v. Cline F0B '"%G P relies on the rule that the offer isnDt effecti+e until recei+edK courts in+oke rules to *ustif2 decisions that pro)a)l2 are reached on a 5round that is independent of the rule. +2 D',(2" is not decisi+e in this case. Te tron F0B '"%G P an offer is 5ood onl2 for a Ireasona)le time7J 5enerall2 the da2 or da2 after it was made. Davis v. !acoby F0B '$2G P an offer lapses upon the death of the offeror e+en if the offeree acts in reasona)le reliance on the continued +alidit2 of the offer. +2 D',(1"(d". 2ower $o re7o:e $he offer +2 D',(1"(c" '

Downloaded From OutlineDepot.comContracts Generall27 an offeror has the power to re+oke an2time )efore acceptance. ?suall2 e<press7 )ut can also )e )2 an act Fsuch as the sellin5 of the thin5G which is called an Iindirect re+ocation.J o 1t is enou5h that the offeror makes a reasona)le effort to communicate the re+ocation. o 1n a unilateral N7 the offeror has the power to re+oke until performance has )e5un P +2 D55 F0B '%-G "etterson v. "attberg F0B '$%G P Q offered to discount the Rs de)t if the R paid it )2 >a2 '1. R showed up to pa2 and )efore he could the Q said the offer was re+oked. R2 @ -, would not chan5e this result unless the court is willin5 to reco5ni=e his showin5 up at the door and statement that he is there to pa2 as a tender of pa2ment7 e+en thou5h it technicall2 isnDt. (. Unila$eral 7. Bila$eral Con$rac$! Generall27 unilateral contract is a promise or offer that solicits an action rather than a counter promise. 9<amples4 Hamer v. Sidway7 Lefkowitz7 Cobaugh v. Klick-Lewis F0B '"'G There is a #re!/m#$ion that an offer is for a )ilateral and not a unilateral N. o Reason4 in a )ilateral N acceptance entails le5al o)li5ation P redress from the court upon )reach. 1n a unilateral N the offerorDs onl2 remed2 is self help. h. UCC D 2-2=5% A 9ore -leBi8le A##roach F1G 0ontract is formed in an2 manner sufficient to show a5reement7 includin5 conduct )2 )oth parties F2G 3o need to show e<act moment of formation F'G 9+en thou5h terms left open7 the contract does not fail for indefiniteness if parties intended to contract and there is a reasona)l2 certain )asis for enforcement i. UCC D 2-2=,(1"(a"% States the 5eneral presumption that an acceptance can )e )2 an2 reasona)le manner or medium /nle!! the offer unam)i5uousl2 indicates otherwise. An offer is usuall2 interpreted to in+ite acceptance )2 performance as well as )2 communication. Remem)er4 offeror has the ri5ht to dictate the manner of acceptance Con$rac$ forma$ion% A contract will fail if the acceptance was not )2 a reasona)le means #llied $teel v. %ord F0B '"6G o Ford dictated the manner of acceptance Fsi5nin5 and returnin5 its formG it acCuiesced in AlliedDs )e5innin5 performance despite the lack of acceptance in the dictated manner. o 2oin$% there are man2 possi)le wa2s to find a N or compensate performance in the a)sence of a N when acceptance is not made in the reCuested manner )ut there is performance or conduct )2 )oth parties reco5ni=in5 the e<istence of a N. o o &. A #eeper Loo/ at <b?ective Assent 1!1 3 4=45

a. The o8Eec$i7e #rinci#le% The intention of the parties is irrele+antK the courts look at o)*ecti+e manifestations of intent Fhowe+er7 itDs not entirel2 o)*ecti+e in that there must )e actual su)*ecti+e intent )2 the RG &8Eec$i7e $e!$% >istaken part2 must )e reasona)le in his misinterpretationK $he co/r$! ado#$ $he 7iew of $he #ar$? who!e mi!/nder!$andin( wa! more rea!ona8le ./8Eec$i7e $e!$% >istaken part2 must actuall2 misunderstand the other part2Ds assent +eliance% 3o reCuirement that the mistaken F)ut o)*ecti+el2 correctG part2 rel2 on the promise H I &8Eec$i7e @iewer Law )Bam#le N 3o N N N 9m)r2 3o N 3o N N 3o N 3M Trust 3o N 1ntends N7 )ut N 3o N Sl2 Do5 knows R )elie+es no N ). F/d(e 7!. E/r?% The *ur2 decides what is said FfactG7 the *ud5e decides what it means FlawG 9i!!o/ri +/le% a *ud5e interprets written e+idence e+en if its meanin5 is reasona)l2 in dispute c. )Bce#$ion! $o &8Eec$i7e A!!en$ F1G Su)*ecti+e test Fnoted a)o+eG F2G 8ri+ate meanin5 P the o)*ecti+e theor2 does not )ind people to a N that neither intended to make FKabil at 0B '26G F'G >istake F0an )e used to o+erride o)*ecti+e assentG -

Downloaded From OutlineDepot.comContracts d. Two wa?! $o deal wi$h #ri7a$e meanin(! F1G Rules on assent E interpretation Fsu)*ect to 8arol 9+idence RuleG F2G O+erridin5 doctrines such as mutual mistake Fsee 1nterpretation sectionG e. )m8r? 7. ;ar(adine> 9cJi$$ric: 0r? ood!> Co. F>O7 16:$G had one 2ear contract and asked for e<tensionK S told him not to worr2 a)out it intended to make a contract7 S did notK Cuestion is whether it appeared that S did assent to contract Tur2 instructions )ad )ecause asked whether S intended to contractK stron5 statement of o)*ecti+it2 f. +ic:e$$! 7. 2enn!?l7ania +.+. Attorne2 error in interpretin5 settlement offer for held to the deal )ecause there was o)*ecti+e assent e+en thou5h S misunderstood would ha+e malpractice action a5ainst his attorne2 5. ;orowi$K% Theor2 that contract law de+eloped to further the economic interests of predicta)ilit2 and formalism o+er the pre+ious su)*ecti+e rules )ased on fairness and *ustice er(enA! $heor?% 0ontract law de+eloped )ecause of professionali=ation of the law and the emer5ence of a le5al elite !. <ptions - irm <ffers a. Basicall27 a firm offer pre+ents the offeror from re+okin5 the offer until the specified For reasona)leG time has passedK this is also called an o#$ion ). +e!$a$emen$ D <6 F0B '6,G% ReCuires some form of consideration to keep an offer open7 )ut can )e peppercorn ?nder R2 @ %$ the consideration need not e+en )e paid F Thomason and Smith7 0B '62 a5reeK arch sa2s otherwiseG. The option must )e in writin5 The recital of consideration must )e in writin5 ?nder F2G7 certain offers are irre+oca)le if reliance is reasona)l2 foreseea)le Fcontractin5 )idsG See >istaken Bids c. UCC D 2-2=5% Dispenses with the need for a recital of consideration7 retains the reCuirement of writin57 and limits its rule to merchants d. Con$rac$ forma$ion% An offer that is not firm can )e re+okedK if the offeror is tr2in5 to re+oke7 must check to see if the offer was firm or not e. An im#lied $erm of irre7oca8ili$? +2 D <6(2" F0B -:%G P an offer that the offeror should reasona)l2 e<pect to induce action or for)earance of a su)stantial character before acce!tance7 and which does induce U7 is )indin5 as an option N if necessar2 to pre+ent in*ustice. o Think construction contracts and su) contractor )ids. Almost all of the cases impl2in5 a term of irre+oca)ilit2 in an offer in+ol+e facts similar to Drennan. .. 7ilence as Acceptance - @ome <ffer Acceptance Clauses 1.1 3 >!>5

a. +e!$a$emen$ D ,1% Discusses when silence can )e acceptance F0B --$G F1G ;hen the offeree takes a )enefit with an opportunit2 to re*ect o This is assent )2 conduct rather than words Flike ?00 @ 2 2:$F'G and implied in fact NsG F2G ;hen the offeror has stated or 5i+en reason to )elie+e that acceptance ma2 )e manifested )2 silence and the offeree in remainin5 silent intends to accept the offer o This is a small 5round F'G ;hen pre+ious dealin5s or other factors make it reasona)le that the offeree should ha+e to notif2 the offeror of non acceptance o Book of the month clu)s o >ore difficult cases are where there is no formal arran5ement for non acceptance 8. Ca!e! * )Bam#le! A procures propert2 insurance usin5 a5ent B in 2::". 1n 2::$7 without talkin5 to A7 B renews the polic2 and pa2s the first premium. B sends letter to A so informin5 him. A does not repl2. ,

Downloaded From OutlineDepot.comContracts o There is no o)li5ation on these )are facts. A has 5i+en B no reason to e<pect that B ma2 treat ADs silence as acceptance. A ma2 not ha+e read the letter or understood its si5nificance. orms

4. The %attle of the

a. Generall27 the )attle of the forms cannot pre+ent a contract from )ein5 formed under ?00 @ 2 2:$F'G ). /owe+er7 if there are conditional acceptances and conditional offers without performance7 a contract ma2 ha+e not 2et )een formedK F'G reCuires conduct to form a contract c. 9ssentiall27 2 2:$ tries to 5et at the partiesD )eliefs re5ardin5 the e<istence of a contract7 so if there has )een no performance 2et7 the courts will still look at the su)stance of the documents d. See also The Battle of the Forms under 1nterpretation

%. Le$al %asis for *nforcement: Consi(eration - Reliance


1. Implie( in act Contracts

a. 392L3)0 3N -ACT J AN0 +).T3TUT3&N Martin v. &ittle, 'rown F0B 22,G o (B did not ha+e reasona)le 5rounds to )elie+e that > e<pected to )e paid for the information. One ma2 ha+e )een a)le to find an implied in fact contract if it is customar2 to pa2 for the ser+ice )ut the court assumes it is not. o The court re*ects >Ds restitution claim holdin5 that he is a I+olunteer.J This has two connotations4 /e has an Iofficious intermeddler.J The fact that (B reCuested the information isnDt sufficient to *ustif2 imposin5 a dut2 to pa2 )ecause (B thou5ht that it could 5et the information for free. /e was makin5 a 5ift. Restitution will re+erse a 5ift onl2 if it is a mistake. See 0B 1'' 0ase 1. F1G The new Restatement sa2s restitution will not )e reCuired when it would impose a forced e<chan5e on the Q Fmake him pa2 for somethin5 he didnDt a5ree to pa2 forG. o 1t is unclear what (B would ha+e paid for the information so no restitution. Collins v. &ewis o Re+iew in notes 8. Theorie! of )nforcemen$ for Nonmari$al Coha8i$an$! )B#re!! con$rac$% >ost states Fincludin5 Te<asG will enforce e<press contracts of domestic partnership F1llinois is the e<ception to the ruleG o >ust ask if there actuall2 is a contract7 howe+erK sometimes these a5reements are more like 5ifts o 3M will enforce an e<press a5reement so lon5 as it supplies a reasona)l2 definite )asis for pro+idin5 a remed2. o Some states7 like TL7 reCuire a writin5 e+idencin5 the a5reement 3m#lied o8li(a$ion 3m#lied in fac$ con$rac$% must confer a )enefit on the S with a reasona)le e<pectation of compensationK 5enerall2 reCuires some kind of esta)lished custom Fi.e. deli+erin5 food at restaurantG 3m#lied in law (+e!$i$/$ion"% sues to 5et the +alue of what it contri)uted to the relationship E asset that e<ceeds what he 5ot out of the relationship E asset o ?suall2 reCuires a contri)ution of mone2 F arvin allows household ser+ices and not presumption7 unusualG Some states sa2 there is a presumption that ser+ices are rendered 5ratuitousl2 of +ar2in5 stren5th )ut allow a claimant to re)ut the presumption. o 3ot reCuired that the e<pect an2thin5 in return )ut cannot ha+e done it 5ratuitousl2 F3ew Restatement reCuires the confer )enefit in e<pectation of recei+in5 an interestG c. 2romi!e% A I+er)al and e<press commitmentJK is onl2 one step to contract formation and reCuires consideration or reliance Fand sometimes writin5G to )e enforcea)le as a contract &. The @istorA of Consi(eration a. 2/r#o!e! of -ormali$?% " 11, 3 9A5

Downloaded From OutlineDepot.comContracts F1G Ca/$ionar?% ;arn parties the2 are doin5 somethin5 serious and important F2G )7iden$iar?% 8ro+ides e+idence of what the contract or )ar5ain actuall2 was F'G Channelin(% Allows parties to determine whether the2 want to let the state 5et in+ol+ed ). The 9odern )ra% 0ontracts will )e enforced onl2 if4 F1G Supported )2 consideration Fdefined )2 )ar5ain theor2G F2G Supported )2 reliance F'G There is a special rule makin5 that kind of promise enforcea)le F?00 @@ 2 2:,7 2 2:6G !. A Test for Consi(eration: The %ar$ain Test 11BC 1, 3 &&B5

a. -ormal defini$ion of con!idera$ion% ADs V<D is consideration for BDs promised V2D if4 F1G The )ar5ain test is satisfied F2G A is not alread2 under a le5al dut2 to do V<D o 2olloc: Ffrom Hamer v. SidwayG% The promisee must either a)andon a le5al ri5ht or limit his freedom of actionK ADs V<D can )e nearl2 an2thin5 Fan act7 a for)earance7 or a promise to act or to for)earGK this is an o)*ecti+e inCuir2. o V<D and V2D do not ha+e to )e eCual unless the ineCualit2 e+idences that the )ar5ain was pretense ). The Bar(ain Te!$% There must )e mutual inducementK that is7 ADs V<D must )e promised to induce B to offer V2D and BDs V2D must )e promised to induce A to offer V<D F8romise made to induce the act and the act done )2 inducement of performanceG. +2 D 61 F0B 2:%G o A promise7 act7 or chan5e in le5al position that is )ar5ained for P it need not )e 5i+en to the promisor e+en. For)earance to do an ille5al act is not consideration. c. 2re-eBi!$in( d/$? r/le% There is no consideration if the part2 is offerin5 somethin5 he alread2 is under a le5al o)li5ation to 5i+eK there must )e some alteration of the le5al o)li5ationK must 5i+e up a le5al ri5ht. 4a?! $o enforce% The more si5nificant and 5ood faith the modification7 the more likel2 the courts are willin5 to count it as considerationK could claim for new market circumstancesK could find some nonconformit2 to the contract and a5ree to release the potential claim d. 2/r#o!e of $he con!idera$ion doc$rine% The courts use consideration to distin5uish 5ratuitous promises Fnot enforcea)leG from )ar5ains ra$/i$o/! #romi!e% ;here A offers somethin5 and asks nothin5 in return For what is offered is a mere pretenseGK a promise to 5i+e *ust for the heck of it o Gratuitous promises are not enforcea)le under contract to 5i+e people a chance to chan5e their mindsK we donDt want to hold people to a moment of 5enerosit2 e. ;olme!A! o8Eec$i7e con!idera$ion form/la$ion% IReciprocal conventional inducementJK Vcon+entionalD merel2 reCuires that the inducement )e apparentK the courts will not e<amine the partiesD moti+es This is reflected in +2 D <1 F0B 2:6G f. )Bam#le! and .#ecie! of Con!idera$ion (and non-con!idera$ion"% 2a!$ con!idera$ion% 8ast consideration cannot )e used )ecause it cannot )e offered in )ar5ain o See Schnell v. "ell F0B 21'G 2e##ercorn con!idera$ion% 1f V<D and V2D are too uneCual7 it looks like there was no )ar5ain o Schnell e<plains that there is no consideration when uneCual sums of mone2 are e<chan5ed o +2 would sa2 no )ar5ain !+2 D <1% I?nless )oth parties know that the purported consideration is a mere pretenseUJ& o )Bce#$ion% 8eppercorn consideration can )e 5i+en to keep an offer open FoptionG +elea!e of claim% A can offer B mone2 to release him from a potential lawsuit o The release is consideration under +2 D 65 F0B 222G and #uncan v. $lack F0B 216G o Bad fai$h relea!e of claim% (aw of consideration will )e used to re5ulate e<tortion ;ard 8ar(ain% the 5eneral rule is that inadeCuac2 of consideration is not defenseK e+en if the deal is manifestl2 unfair7 the courts will enforce hard )ar5ains 2romi!e $o :ee# offer o#en% 1f no consideration is 5i+en7 A is under no o)li5ation to not re+oke offer

Downloaded From OutlineDepot.comContracts Condi$ional con$rac$!% 1f contract is su)*ect to a condition and the part2 is under no le5al o)li5ation to fulfill the condition7 there is no consideration Fhome sales where purchase a5reement is su)*ect to condition that )u2er )e a)le to o)tain financin5GK this creates an illusor2 promise 3ll/!or? #romi!e% A promise to do somethin5 if the other part2 feels like itK there can )e no unilateral option to cancel the entire contract (. +2 D 65(1" 7. +1 D 6,(8" on !/rrender claim! R2 P must ha+e an honest or reasona)le )elief Fdou)tful in fact or at least made in 5ood faithG R1 P must ha+e and honest and reasona)le )elief Fo)*ecti+el2 reasona)leG h. 4a?! $o ma:e famil? #ro#er$? $ran!fer! le(all? enforcea8le% if$!% 0ompleted 5ifts are le5all2 )indin5 upon deli+er2 Fsometimes constructi+e deli+er2G 0eclara$ion! of $r/!$% This is how the court ultimatel2 enforced Hamer P completes the 5ift without actuall2 turnin5 it o+er. i. Ca!e! * )Bam#le! ;amer 7. .idwa? F3M7 1%61G% ?ncle promises nephew O,7::: if he will a)stainK looks like a )ar5ain if each promise was made in inducement of the other o 0ourt determined that consideration is no$ Ieither a detriment to the promisee or a )enefit to the promisorJ )ecause this would reCuire su)*ecti+e in+esti5ation of the partiesD preferences @aria$ion of 4illi!$onA! Tram# Ca!e% S promises that he ma2 sta2 at SDs )each house if IhappensJ to )e in the areaK looks like 5ratuitous promise )ecause offer of lod5in5 was not 5i+en to tr2 to 5et S to come to the )each house Fmust )e the purpose of the promiseG .. Reliance - 0romissorA *stoppel 1&D 3 &!B5

a. Condi$ional (if$ 7!. 8ar(ain% A conditional 5ift is not consideration )ecause the condition is not offered )2 the promisee in order to induce the promisor to make the 5iftK conditional 5ifts fail consideration test 8ro)lem4 consideration does not distin5uish )etween a )ar5ain and a conditional 5ift. 1t hin5es on moti+e ). )lemen$! of 2romi!!or? )!$o##el (+e!$a$emen$> .econd D 1= 0B 2%:" F1G 2romi!e% A I+er)al and e<press commitmentJ F2G 4hich $he #romi!or !ho/ld rea!ona8l? eB#ec$ $o ind/ce ac$ion or for8earance on $he #ar$ of $he #romi!e or a $hird #er!on% 3o reCuirement for detrimental reliance7 R1 reCuired that this )e a Idefinite and su)stantial chan5e in positionJ ('" 4hich doe! ind/ce !/ch ac$ion or for8earance F-G 3nE/!$ice can 8e a7oided onl? 8? enforcin( $he #romi!e% Difficult issueK detrimental reliance is rele+ant here Fmatter of lawGK this is a wild card7 must con+ince the *ud5e of this point P is a discretionar2 factor. !R2 adds that ma2 )e limited as *ustice reCuires&. c. +emed? for #romi!!or? e!$o##el% Black (etter (aw is that doesnDt necessaril2 5et e<pectation if reliance is the )asis for enforcementK there are man2 cases that sa2 the courts will enforce the promise Restatement FSecondG sa2s that Ithe remed2 5ranted ma2 )e limited as *ustice reCuiresJ d. )lemen$! of )L/i$a8le )!$o##el F1G @ol/n$ar? cond/c$ $ha$ ind/ce! reliance% T2picall2 a misrepresentation )ut can )e an2 action Fand sometimes e+en silenceGK !in fact the deception can )e innocentK doesnDt strictl2 ha+e to )e a misrepresentation of fact& (2" 0e$rimen$al reliance on $ha$ cond/c$ e. 2/r#o!e of eL/i$a8le e!$o##el% 0an onl? )e used as a shield7 not as a swordK that is7 it can onl2 )e used to pre+ent a part2 from assertin5 a le5al claim or defense Fpre+ent S from assertin5 defense of lack of considerationG Another wa2 to look at this is that 99 will onl2 protect a pree<istin5 ri5ht7 not esta)lish a new one f. Common#lace U!e! of )L/i$a8le )!$o##el 4ai7er% 1f S silentl2 acCuiesces to a chan5e in the pro+ision of a contract7 he ma2 )e eCuita)l2 estopped from reclaimin5 that ri5ht Fcan also sa2 that the term was wai+edG .ilen$ acL/ie!cence $o eB#an!ion of ea!emen$ (. 2romi!!or? )!$o##el 7!. )L/i$a8le )!$o##el )L/i$a8le )!$o##el 2romi!!or? )!$o##el must onl2 esta)lish +oluntar2 conduct that must esta)lish a promise %

Downloaded From OutlineDepot.comContracts induces reliance ReCuires detrimental reliance Onl2 reCuires a chan5e in position ;ill onl2 operate to cut off a claim of ri5ht or a Ser+es as a )asis for a free standin5 o)li5ation defense Fshield not swordG in 0ontract h. +e#re!en$a$ion 7!. 2romi!e +e#re!en$a$ion% A statement re5ardin5 e<istin5 facts Fnot a prediction or statement of opinionG o 1f 2ou represent % 2ou are merel2 statin5 that 2ou )elie+e % to )e true 2romi!e% A commitment to do what was promised o 1f 2ou promise % 2ou are warrantin5 the truth of % i. Ca!e! * )Bam#le! Jir:!e? 7. Jir:!e?% mo+ed to li+e with SK S later kicked her off the landK court found that reliance was sufficient consideration to enforce the promise +ic:e$$! 7. .co$horn% Ds 5randfather promised to 5i+e her mone2 if she stopped workin5K no )ar5ainK court used eCuita)le estoppel to pre+ent S from assertin5 lack of consideration

C. Appropriate

ormalities: The 7tatute of

rau(s - #efiniteness
1&1 3 &.=5

1. The 7tatute of rau(sC 6enerallA

a. 1f a contract is co+ered under the statute of frauds7 then it is unenforcea)le unless there are F1G a sufficient writin5 that is si5nedK or F2G an e<ception applies ). -/nc$ion% Because the SOF is so watered down7 its function is now mostl2 e+identiar2 Fesp. under ?00G c. M/e!$ion! $o A!:% F1G 1s the contract co+ered )2 the statute of fraudsH F2G Are there sufficient writin5sH F'G 1s there an appropriate si5natureH F-G Does an e<ception appl2H d. The statute ma2 )e understood to ser+e an e+identiar2 purpose. A writin5 is reCuired for Ns that usuall2 are made in writin5 and so we are skeptical when an oral N is alle5ed. For the e<ceptions7 this can )e ke2. 9<ample4 R shows up and starts workin5 on land P prett2 5ood corro)oration that the alle5ed oral a5reement was actuall2 made. #id you render !erformance& &. Contracts Covere( bA the 7tatute of a. ). c. d. rau(s 1&1 3 &.>5

)Bec/$or-admini!$ra$or% A contract of an e<ecutor or administrator to answer for a dut2 of his decedent ./re$?!hi#% A contract to answer for the dut2 of another 9arria(e% 0ontract made upon consideration of marria5e Land con$rac$% A contract for the con+e2ance of an interest in land A lease with a term of more than one 2ear e. &ne-?ear% A contract that cannot )e performed within one 2ear from its makin5 9+en complicated construction contracts do not fall into the SOF )ecause technicall2 it could be completed in less than a 2earK also a contract to emplo2 for life is not co+ered f. @al/e% A contract for a sale of 5oods in e<cess of a certain +alue 0urrent ?00 is O,::K re+ised ?00 su55ests O,7::: (. Ca!e! * )Bam#le! Boone 7. Coe% Nentuck2 is in the minorit2 of states that hold a lease of no more than a 2ear comes within the statute under the 5eneral pro+ision for lon5 term Ns if it )e5ins at a future date. F0B 1::G. !. 7ufficient Writin$s an( 7i$natures 1&1 3 &.B5

a. A document that the parties reco5ni=e as the contract is sufficient )ut not necessar2K the Statute of Frauds onl2 reCuires a writin5 that ser+es as e+idence of the contract Fa5reementG ). +e!$a$emen$ (.econd" D '1 9emoranda% ReCuires that the memoranda F1G Reasona)l2 identif2 the su)*ect matter of the contract 6

Downloaded From OutlineDepot.comContracts F2G Be sufficient to indicate that the parties ha+e made a contract with respect to that su)*ect F'G State with reasona)le certaint2 the essential terms of the unperformed promises in the contract o )!!en$ial $erm% 0ourts traditionall2 construe this rather strictl2 Fwill fail without includin5 priceG c. UCC D 2-2=1 Commen$ 1% 0ontract need not contain all material termsK must simpl2 Iafford a )asisJ for )elie+in5 the oral e+idence 2-2=1 su55ests that as a 5eneral matter7 a written offer cannot satisf2 the statute of frauds. Ger5en Frel2in5 on comment 17 second sentenceG thinks a written offer satisfies the statute. MUANT3TN o 2 2:1F1G and 0omment 14 the onl2 term that must )e included is a Cuantit2 term. This is an important eBce#$ion to the 5eneral proposition of the ?00 that a N will )e enforced notwithstandin5 indefiniteness on material terms. d. .i(nin(% Depends on the statuteK mi5ht *ust )e the part2 to )e char5ed7 could )e all parties in+ol+ed (+e7i!ed" UCC D 1-2=1('6"% IAn2 s2m)ol e<ecuted or adopted with present intention to adopt or accept a writin5J Si5nin5 and cashin5 a check is sufficient e+idence of a contract Fif notes what for on memo lineG .. *+ceptions to the 7tatute of rau(s 11= 3 &415

a. 2ar$ #erformance doc$rine% 8rotects people that ha+e alread2 taken possession of the land and ha+e made impro+ementsK has no traction outside of con7e?ance! of land applications Fhas no rele+ance in emplo2ment where the emplo2ee is lookin5 for dama5esG 1n most states is an eCuita)le doctrine Fno dama5es a+aila)leG 0an onl2 claim if R is actuall2 in possession of the propert2 and has made su)stantial impro+ements o 8a2ment of purchase price Fe+en full priceG is not sufficient standin5 o These reCuirements are +er2 strict Monarco v. &o Greco P worked on dadDs farm for 2: 2ears. 3o part performance )ecause no possession and work not sufficient e+idence of an alle5ed oral promise A transfer to a 'rd part2 )ona fide purchaser who acCuired the propert2 for consideration without actual or constructi+e knowled5e of the claimantDs interest would preclude eCuita)le relief throu5h the doctrine of part performance .ea7e? 7. 0ra:e% Father tells son this land is 2ours. Son takes possession7 pa2s ta<es7 and impro+es land ). +e!$i$/$ion% ma2 5et )ack the )enefits he conferred Fe+en if S lost the mone2GK no reCuirement of net )enefit )ecause it falls under un*ust enrichment c. +eliance (in !ome !$a$e!"% +e!$a$emen$ (.econd" D 1'1 F0B 2$:G pro+ides that a promise that prompts reliance is enforcea)le notwithstandin5 the Statute of Frauds if in*ustice can )e a+oided onl2 )2 enforcement This reCuires a wei5hin5 of the fairness concerns )2 the *ud5e Fthere are factors on p. 2,,G UCC D 2-2=1('"(a" has a narrow reliance e<ception that co+ers speciall2 manufactured 5oods d. Ca!e! * )Bam#le! Boone 7. Coe% court holds that R recei+es nothin5 )ecause it must appear that the Q has actuall2 recei+ed or will recei+e some of the )enefits of part performance F)enefits )asedG. o 8art performance did not appl2 )ecause Rs did not take possession and make impro+ements o 9<ample 14 R occupies farm7 erects )arn and plants crop P entitled to restitution. Rs suin5 on oral Ns often reco+er cost of the work the2 ha+e done e+en when that cost e<ceeds the +alue to Q o 9<ample 24 Same facts as a)o+e )ut )arn is destro2ed )2 tornado )efore owner takes possession. $oone sa2s the2 5et nothin5. Kearnes v. 'ndree F0B 1:,G would allow them to reco+er and 5oes e+en further in allowin5 a +endor to reco+er for impro+ement made to his own propert2 at the reCuest of the +endee e+en where there was no transfer Fand unenforcea)le N althou5h not )Ec of SoFG. 4. A 7urro$ate for ormalities: 0re:Contractual Reliance a. Two #o$en$ial $echnical formali$? #ro8lem! 1: 1&& 3 &B>5

Downloaded From OutlineDepot.comContracts 8. Need for wri$in(% A contract le5itimatel2 made and relied upon ma2 not )e enforced without writin5 0efini$ene!!% 1f the a5reement lea+es out su)stantial terms7 courts ma2 not enforce it e+en thou5h one part2 has detrimentall2 relied upon it U!in( #romi!!or? e!$o##el $o #ro$ec$ reliance on #romi!e! made in ne(o$ia$ion The more su)stantial and detrimental the reliance7 the more willin5 the courts will )e to reco5ni=e that an a5reement had indeed taken place Fand the more aware the other part2 was of the relianceG Allows a claim to 5o to the *ur2 if there is su)stantial and definite reliance on the e<pressions of commitment in ne5otiations )lemen$! of 2romi!!or? )!$o##el (+e7iewC !ee +eliance * 2romi!!or? )!$o##el" F1G 8romise F2G 1nducin5 action or for)earance of su)stantial character F'G 8romisor reasona)l2 e<pects the action or for)earance F-G 1n*ustice can )e a+oided onl2 )e enforcin5 the promise F/ri!dic$ional difference! for /!in( reliance a! a !/rro(a$e for formali$? >ost states will not enforce promises made in ne5otiation unless it can )e pro+en with clear and con+incin57 definite7 or unam)i5uous e+idence F/d(e 7!. E/r?% The Cuestion of whether *ustice reCuires enforcement is a Cuestion for the *ud5e +emed?% There is no presumpti+e ri5ht to e<pectation is is suin5 under relianceK the court ma2 *ust 5i+e reliance Fin this case7 reliance is no$ a surro5ate for e<pectationG The court will tr2 to re$/rn $o $he status (uo )efore the promise was made Ho))man v. *ed +wl -ac$!% was )asicall2 strun5 alon5 )2 (ukowit= and performed all kinds of reliance to tr2 to 5et a franchiseK S rene5ed and was left with a 5reat deal of reliance loss and no franchise 4a! $here a #romi!e% S alle5es that (ukowit= was onl2 makin5 IrepresentationsJ and predictions and that (ukowit= had no power or authorit2 to make a promise or contract with o 3ote that the *ur2 instructions do not ask for a promise7 onl2 a representation FmistakeG 0ama(e!% 0ourt did not award lost profits on 5rocer2 store )ecause either F1G court unwillin5 to award e<pectation dama5esK or F2G cuts a5ainst purpose of restorin5 to status Cuo The court holds that a claim for promissor2 estopple FrelianceG ma2 lie where a promise is to indefinite to )e enforced as a NK the court in (heeler v. (hite holds the same. &$her no$e! Some states allow ne(li(en$ mi!re#re!en$a$ion claims Te<as does not reco5ni=e @ 6:K this is not a ma*orit2 position Fman2 *ud5es are more conser+ati+eG 1&! 3 !&>5

c.

d. e. f. g.

h.

=. 0rovin$ *mploAment Contracts

a. 2re!/m#$ion of a$ will em#lo?men$% There is a presumption that emplo2ees can )e termina)le at will unless the parties a5ree otherwiseK what the emplo2ee has to pro+e to 5et out of the presumptionH ). 2ermanen$ em#lo?men$% Generall2 too indefinite to )e enforced Fwhat does permanent mean4 till death7 till retirement7 as lon5 as Sears is in )usiness7 etcG %orrer% 0ourt ruled that Ipermanent emplo2mentJ means Iat will emplo2mentJ althou5h this presumption isnDt e<plained )2 peopleDs e<pectations Fpolic2 and prudential *ustificationG. Rule applies e+en to a promise that of permanent or lifetime emplo2ment c. Two eBce#$ion! $o $ermina8le a$ will #re!/m#$ion F1G Addi$ional Ocon!idera$ionP% 1f confers additional )enefit to emplo2er )e2ond ordinar2 emplo2ee o Ca#i$al con$ri8/$ion% Generall27 emplo2ee that contri)utes capital is assumed to ha+e a promise of emplo2ment of sufficient term to reco+er the capital (9i!!o/ri 0oc$rine" F2G 2rema$/re $ermina$ion% 1f S emplo2er terminates after he has mo+ed )ut )efore he started work7 the courts will remed2K the promise is not for a particular term )ut that S will actuall2 hire the FHunter v. Hayes 0B 2$-G o ma2 not reco+er e+en if he has onl2 worked for a )rief period Fsharpl2 )ounded e<ceptionG d. )m#lo?men$ con$rac$! and $he .$a$/$e of -ra/d! 1f contract is for Ipermanent emplo2mentJ then N doesnDt fall under SOF 11

Downloaded From OutlineDepot.comContracts Some courts will use e+en sli5ht writin5 as adeCuate Fminorit2G Remem)er that some courts do not accept the @1'6 reliance e<ception for formalit2 FTe<asG e. 0efini$ene!!% 9+en ?00 reCuires that Cuantit2 term )e in writin5 Fterm looks like Cuantit2G f. See also 9mplo2ment4 ;ron5ful Dischar5e . 0o5nate 0laims >. #efiniteness 11, 3 =.!5

a. Common law% At common law7 there is a reCuirement that the contract )e sufficientl2 definite otherwise it will fail Fthe terms and dama5e )oth ha+e to )e fairl2 definiteK i.e. m/!$ ha7e a #rice $ermG 1.e. if there is a contract for a loan with an interest rate and an amount )ut no pa2ment schedule7 there is no contract Fe+en thou5h 2ou could easil2 look at t2pical practices to fill in the 5apsG P ,heeler v. ,hite F0B ',, P Te<as4 will not fill in an indefinite term e+en if intent to )e )oundG. o 3o claim for )reach of an indefinite N7 onl2 promissor2 estoppel P reliance dama5es Em-ro M)g. F0B ',2G could )e cited as authorit2 that a Isu)*ect to consentJ clause si5nals no intent to )e )ound until and unless there is consent. Some courts are willin5 to enforce indefinite a5reements ). UCC% Tries to re+erse this 0( rule UCC D 2-2=5('"% A contract does not fail for indefiniteness e+en if one or more terms are left open7 so lon5 as the parties intended to make a contract Fspecificall27 donDt need a priceG and there is a Ireasona)l2 certain )asis for enforcementJ 9ssentiall27 the ?00 makes the intent to )e )ound all important and then pro+ides tools for the courts to fill in the 5aps left )2 the contract termsK if 2ou ha+e the information7 5o ahead and use it to enforce UCC D2-'=5% this is a 5ap filler pro+isionK start with @ 2 2:-F'G to see if the parties intended to )e )oundK 2 2:,F'G indicates a dut2 to ne5otiate in 5ood faith if price is left to a part2Ds discretion. o )Bce#$ion% L/an$i$?> see statute of frauds sufficient writings and signatures. c. 2reliminar? A(reemen$! (A(reemen$! $o A(ree" $illings F0B ',,G P clear )2 actions that e<ecution of the a5reement was a mere formalit2 )m!ro P e<ecution was e<pressl2 conditioned on appro+al )2 the )oard d. 2romi!!or? e!$o##el% 0an sometimes )e used to 5et around the reCuirement for definiteness if there has )een a promise and if there was reliance e. 3n$en$ionall? lea7in( $erm! o#en $o lea7e a wa? o/$% 8arties can a5ree to e<tend the lease onl2 if the2 can a5ree on a price in the futureK theoreticall27 a part2 could not refuse to ne5otiate to 5et out of the deal )ecause this would )e a +iolation of 5ood faith Fcourt ma2 find on other 5rounds7 howe+erG

12

Downloaded From OutlineDepot.comContracts

III.
A.

Interpretation
orm Contracts - 6eneral 0rinciples

1. Contra 0roferentum - Reasonable *+pectations

1&B 3 .,.5

a. 0/$? $o read% All parties ha+e a dut2 to read the contracts the2 si5nK this dut2 is e<cused onl2 under one of the followin5 two doctrines ). Con$ra #roferen$/m% An am)i5uous term in a form contract is construed a5ainst the drafter c. +ea!ona8le eB#ec$a$ion!% A term in a form contract is construed to protect the other part2Ds reasona)le e<pectations Fcontro+ersial doctrine7 not accepted in Te<asK onl2 insurance in mostG +e!$a$emen$ D 2'6 defini$ion% Bu2er not )ound to terms )e2ond reasona)le e<pectationK this is defined )2 askin5 whether I would ha+e accepted the a5reement if he had known that the a5reement contained the particular termJ d. F/d(e 7!. E/r?% 1n 1owa Fstates differG7 interpretation is an issue for *ur2 if turns on e<trinsic e+idenceK construction is alwa2s an issue for the *ud5e >an2 of these cases turn on factual pro)lems4 what the parties were thinkin5 e. -/nc$ion 7!. form% To make headwa2 in reasona)le e<pectations cases7 must identif2 the dominant purpose of the term and fi5ht off alternati+e purposes These two doctrines arenDt doin5 the workK the counsel is tr2in5 to con+ince the *ud5e that their clientDs +iew is most reasona)le f. Ca!e! * )Bam#le! Co7era(e wi$hin 25= mile! of 8order% Since am)i5uous7 found a5ainst drafter Binder eBam#le% Binder for life insuranceK co+era5e conditional on passa5e of medical e<am7 dies )efore e<amK if there is am)i5uit27 court will find a5ainst insurance compan2K if no co+era5e7 then )inder is a)solutel2 useless and Ieliminates the dominant purpose of the transactionJ C*F -er$iliKer 7. Allied 9/$. 3n!. Co.% 0lause in insurance contract reCuirin5 e<ternal si5ns of entr2 to 5uard a5ainst inside *o)sK si5ns of forced entr2 within )uildin5K court determined dominant purpose of the term and found a5ainst insurer Falthou5h could ha+e ar5ued that term was for 5ood doorsG &. Ris/ Allocation - 7hrin/:Wrap Licenses 1&, 3 .>15

a. Tradi$ional con$rac$ doc$rine% Generall2 finds that contracts are formed at the point of sale ). .hrin:-wra# licen!e modifica$ion% Finds that companies can limit risk )2 reCuirin5 customers to assent to further terms that are contained in the )o< Fafter the saleGK also called rollin( con$rac$K allows for notice of additional terms at places other than point of sale FdonDt ha+e to put all terms on the )o<G c. Confirma$or? memoranda% The counter ar5ument a5ainst enforcin5 shrink wrap licenses is that the2 operate as confirmator2 memoranda and if the2 are not accepted7 then the2 are not )indin5 a5ainst )u2er d. Je? 3!!/e!% ;ow $o en!/re !hrin:-wra# licen!e! are enforced 2ro#er no$ice in $he 8oB% 3otice can happen durin5 software installationK warrant2 cards7 etc C/!$omerA! ri(h$ $o eBi$% >ust 5i+e the customer the chance to opt out if no assent +e$/rn !hi##in( co!$!% Best to ad+ise the seller to pa2 for shippin5 costs if customer refuses to accept additional terms No$ice of addi$ional $erm! a$ #oin$ of !ale% *roC# seems to su55est notice is reCuiredK Hill sa2s not necessar2 so lon5 as ad+ertisements put customers on notice of additional terms o 1f phone or internet sales7 seller should 5i+e warnin5 of additional terms e. The UCC D 2-2=5% 0ontract formed in an2 manner sufficientU D 2-'1,(2"% Disclaimer of implied warrant2 must )e conspicuous D 1-2=1(1="% Definition of conspicuous All o$her $erm! ma? 8e 7er? hiddenC $he!e are $he onl? reL/iremen$! for con!#ic/i$? f. Ca!e! * )Bam#le! 2roC0 7. Qeiden8er( ()a!$er8roo:"% 8ro0D wants to sell product at different prices to different markets Flike airlinesGK court allowed 8ro0D to ha+e terms in )o< Frollin5 contractG if conspicuous 1'

Downloaded From OutlineDepot.comContracts ;ill 7. a$ewa? ()a!$er8roo:"% /eld /ills to ar)itration a5reementK e<panded *roC#K /ills had notice of additional terms and the2 accepted them orms 1&, 3 4!,5

!. 7tan(ar(iEe(

a. $ee ,arranties, Disclaimers, . &imitations *emedies ). 0laimants make a +ariet2 of ar5uments to 5et around warrant2 disclaimers7 limitation of remedies7 e<culpator2 terms7 and other surprisin5 and o)*ectiona)le terms in form Ns si5ned or otherwise acknowled5ed )2 the claimant. These claims are often unresol+ed )2 2 2:$ )ecause claimant si5ns the form or it is not a sale of 5oods. See doctrines that ma2 loosel2 )e descri)ed as followin5 from the 5eneral principles on interpretation and assent. c. Ca!e! and )Bam#le! #gr. /ns. Co. v. Constantine F0B ,12G an e<culpator2 term on a ticket recei+ed when parkin5 a car is ineffecti+e )ecause the claimant would not reasona)l2 e<pect the ticket to state terms of the contract. 0ompare to o $haron v. City o) 0ewton F0B ,1'G The parent should reasona)l2 e<pect the e<culpator2 term. The form was la)eled a release. And the parent e<pressl2 re*ected optional insurance co+era5e. Mundy1s v. &umberman1s Mut. Cas. Co. F0B ,1-G P >ore notice is reCuired when alterin5 a polic2 on renewal )ecause an insured mi5ht reasona)l2 e<pect the terms to )e sta)le unless the2 are told to the contrar2. o This case draws a road map for insurers P clearl2 state that there are chan5es and pro+ide a clear and concise summar2 of the chan5es. ,eis2 v. "arke3'ernet Galleries F0B ,1,G o Disclaimer of warrant2 of authenticit2 )2 an art 5aller2 that auctioned a paintin5. The disclaimer appeared under Iterms and conditions of saleJ in the prefator2 materials in an %: pa5e catalo5. o The trial *ud5e7 sittin5 without a *ur27 rules for ;eis=7 who hadnDt read the catalo57 concludin5 that he would not reasona)l2 ha+e understood it to state contract terms. As for the Schwarte=es7 the trial court ruled for them7 who had seen the disclaimer7 )ecause the2 reasona)l2 would not ha+e taken it seriousl2. The Appellate Di+ision re+ersed. o 1f 5aller2 is a seller under Article 2H D 2-'1' F1G 2 '1'FaG . F)G The description of the paints as )2 Raoul Duf2 is an e<press warrant2 if it Iis made part of the 8a!i! of $he 8ar(ain.J As for what this means7 see 0omment '. D2-'1, F1G 2 '1"F1G. 1t states that whene+er reasona)le lan5ua5e of warrant2 and disclaimer should )e construed as consistent )ut that when a consistent construction is unreasona)le the disclaimer is ineffecti+e. 1n other words7 when there is an irreduci)le conflict it is resol+ed a5ainst the seller and in fa+or of the )u2er. Hahn v. %ord Motor Co. FSupp 1$G o D 2-'15% descri)es the implied warrant2 of merchanta)ilit2. o D 2-'1,(2"*('"% when it can )e disclaimed 2 '1"F2G is misleadin57 so lon5 as the )u2er understands or should reasona)l2 understand that the warrant2 has )een disclaimed7 then there is no warrant2. o D 2-611% when 2ou can limit remedies o 1n this case7 the 12E12 warrant2 was in a )ook in the 5lo+e )o< The understood limits on the warrant2 would )e effecti+e under 2 '1"F'GFcG as a matter of trade usa5e. o ;hen seller tries to limit a )u2erDs remed2 to repair and replacement of defecti+e parts P 2-611(2"

%. Interpretation of Written #ocument


1. 6eneral 'atters 1-

1.& 3 >.45

Downloaded From OutlineDepot.comContracts a. +2 D 215 F0B -",G catalo5s issues on which parol e+idence alwa2s can )e used under the 89R. 21-FcG P use of parol e+idence to esta)lish meanin5. 1t is )lack letter law that the 89R does not preclude the use of e+idence of parol e+idence for purposes of in$er#re$a$ion. Mou must use the local r/le on interpretation to determine what e+idence of parol e+idence is rele+ant for the purposes of interpretation. 8. 0ifferen$ A##roache!% TeBa!> 0ational 4nion /ns. v. C'/ FSupp 12G4 -o/r Corner! * 2lain 9eanin( o A *ud5e ma2 not look )e2ond a writin5 that on its face has a plain and unam)i5uous meanin5. A *ud5e ma2 consider surroundin5 circumstances. F1G 1t is hard to come up with a 5ood theoretical definition of surroundin5 circumstances. A *ud5e ma2 also consider e<trinsic e+idence to re+eal a latent am)i5uit2. F1G Think +affles. 4illi!$on (NN" o Four 0orners . 8lain >eanin57 )ut *ud5e should consider all e+idence in considerin5 whether the meanin5 of writin5 is plain and unam)i5uous. UCC D 2-2=2 o States that e+idence of co/r!e of #erformance7 co/r!e of dealin(7 or /!a(e of $rade ma2 )e used to Ie<plain or supplementJ and inte5rated a5reement. These are defined in UCC D 1-'='% F1G 0ourse of performance P conduct in performin5 the N at issue F3ote4 reCuires that the conduct )e acknowled5ed or acCuiesced to )2 the other part2K 1 ':'FaGG. F2G 0ourse of dealin5 P conduct in prior deals F1 ':'F)G P conduct must )e Ifairl2 re5arded as esta)lishin5 a common )asis of understandin5.JG F'G Trade usa5e P self e<planator2 UCC D 1-'=' o These are to )e construed as consistent Iwhene+er reasona)le.J 1f a consistent interpretation is unreasona)le7 then e<press terms control. California> "G.E F0B ,:-G o A *ud5e should interpret N in li5ht of e<trinsic e+idence and ma2 use a non literal interpretation if it is reasona)le in circumstances. 1nterpretation is for *ur2 onl2 if it turns on issues of credi)ilit2K )ut when no issue of credi)ilit2 then for a *ud5e. F1G Tud5e looks at Icredi)le e+idenceJ and puts case to the *ur2 onl2 if after lookin5 at that e+idence he thinks a5reement is Ifairl2 suscepti)leJ to the ar5ued interpretation. c. 3n$er#re$a$ion 7!. Con!$r/c$ion 3n$er#re$a$ion% Refers to the actual or apparent meanin5 of the written document o F/d(e 7!. E/r?% 0an )e either7 )ut the common rule is that E/d(e! in$er#re$ wri$in(! &. *+trinsic *vi(ence a. Ca$e(orie! of )B$rin!ic )7idence F1G Co/r!e of #erformance% 9+idence of the conduct of the parties in the transaction at issue o +e7i!ed UCC D 1-'='(a"% SeCuence of conduct )etween parties that e<ists if4 F1G a5reement in+ol+es repeated performanceK and F2G the other part2 has knowled5e of performance and opportunit2 to o)*ect and instead accepts the performance or acCuiesces o 4ai7er% 0ourse of performance ma2 )e a wai+er that can )e retracted o 2rior /$$erance! and $ho/(h$!% 8atterson puts these in a different cate5or2 dealt with )2 parol o +eci$al!% Statements of factual character that are useful in interpretation F2G Co/r!e of dealin(% 9+idence of the conduct of the parties in similar transactions o +e7i!ed UCC D 1-'='(8"% SeCuence of conduct concernin5 pre+ious transactions F'G U!a(e of $rade% 9+idence of the conduct of people in the same trade as the parties 1,

Downloaded From OutlineDepot.comContracts +e7i!ed UCC D 1-'='(c"% >ust I*ustif2 an e<pectation that it will )e o)ser+ed with respect to the transaction in CuestionJ o Addi$i7e /!a(e!% O)li5ations E terms that are implied in the contractK 8atterson has two elements4 F1G pattern of conductK F2G con+iction that it ou5ht to )e followed o Unrea!ona8le /!a(e!% Trade practices that are unreasona)le ma2 not )e 5ood e+idenceK idea that if the whole industr2 is wron57 then 2ou arenDt safe 8. UCC * 2a$$er!onA! ;ierarch?% F1G 9<press terms F2G 0ourse of performance F'G 0ourse of dealin5 F-G ?sa5e of trade c. Llewell?nA! ;ierarch?% Based on his desire to ha+e merchant tri)unals to deal with N disputes F1G 0ourse of performance F2G 0ourse of dealin5 F'G ?sa5e of trade F-G 9<press terms o

C. The 0arol *vi(ence Rule


1. The %asics of the Rule

1.! 2 .4 3 >>15

a. The 2arol )7idence +/le% A completel2 inte5rated a5reement ma2 not )e contradicted or supplemented )2 e+idence of prior a5reements or e<pressions re5ardin5 terms within the scope of the a5reement ). 3n$e(ra$ed a(reemen$% a writin5 or writin5s intended to )e a final e<pression of one or more terms7 ma? no$ 8e% 0ontradicted )2 e+idence of prior a5reements or e<pressionsK or Supplemented )2 additional terms that one would e<pect the parties to ha+e included in the a5reement Fshorthand7 Iwithin scopeJG -ramin( $he L/e!$ion% (ehman su55ests askin5 whether the parties intended to render the parol a5reement le5all2 ineffecti+e and non e<istent )2 failure to include it in the writin5 c. Com#le$el? 3n$e(ra$ed 7. 2ar$iall? 3n$e(ra$ed A(reemen$ +2 and 2-2=2(8" reCuire the additional step of characteri=in5 the a5reement as Ipartiall2 inte5ratedJ or Icompletel2 inte5ratedJ and onl2 e<cludes a term on the 5round that it is within the scope of the latter. The >ass and OR rule in Mitchell F0B -$'G and Hatley F0B -"-G more sensi)l2 ask whether7 5i+en the character of the writin57 is the proferred term one the parties would ha+e included had it )een intended as term d. Colla$eral a(reemen$% An a5reement that relates to an issue outside the scope of the completel2 inte5rated a5reement co+ered )2 the writin5 e. -inal a(reemen$% ;here the contract is meant to )e the final e<pression of the a5reementK other forms of e+idence can )e introduced that 5o to whether the a5reement is final f. Two M/e!$ion!% F1G 1s the term inconsistent with a term in the writin5H F2G 1s that a term 1 think the parties would ha+e included in this writin5 if it was intended to )e a term of the dealH 5. F/d(e 7!. E/r?% 1nte5ration7 finalit27 inconsistenc2 of term7 and scope are all matters of law Tud5e ma2 consider Isurroundin5 circumstancesJ in decidin5 these issues o See Hatley The rule does not e<clude consideration of prior a5reements for purposes of interpretation or the uses descri)ed in +2 D 215(d" and (e" F0B -$'G. >uch of this structure is )orne out of a traditional distrust of *uries &. The UCC F &:&D&

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Downloaded From OutlineDepot.comContracts a. The ?00 attempted to li)erali=e the 89R in order to dri+e at the actual )ar5ain rather than the what was written down Ffunction o+er formK standards o+er rulesG ). UCC D 2-2=2% 1f the written e<pression was intended to )e final7 then the terms cannot )e contradicted Te!$ for in$e(ra$ion% To determine if the contract is full2 inte5rated7 the court should ask whether the additional term cer$ainl? would ha+e )een included if the parties intended to full2 inte5rate 1-'=' e7idence% These kinds of e+idence F0O87 0OD7 T?G ma2 alwa2s )e used to interpret7 re5ardless of whether contract is full2 inte5rated Fsome courts do not reco5ni=e thisG c. +e7i!ed UCC D 2-2=2% Added su)section F2G7 which sa2s that the court can introduce other kinds of e+idence in order to make a determination a)out whether the contract is am)i5uous !. #ifferin$ "iewpoints a. 4illi!$on 7!. Cor8in 4illi!$on% Generall27 ;illiston was fairl2 conser+ati+e in his definition of the 89 ruleK looks for thin5s like common understandin57 common meanin5s7 ordinar2 usa5e7 etc Cor8in% Thou5ht that parol e+idence should )e allowed to determine if the contract was full2 inte5rated and also for interpretation pro)lemsK 5enerall2 a more li)eral +iewpoint 8. Area! of 0i!a(reemen$ 3n$e(ra$ion% >a2 *ud5e look consider e+idence of the alle5ed oral a5reement when determinin5 if an a5reement is inte5rated7 a term is inconsistent7 and a term is within the scopeH o 4illi!$on% 3o )ecause he thou5ht that allowin5 this would render the rule inoperati+e P the court should onl2 look at the writin57 surroundin5 circumstances7 and what is a reasona)le construction. Mitchell and Hatley follows ;illiston. o Cor8in4 Mes P should consider e+idence of the alle5ed term. o UCC4 asks whether an a5reement is inte5rated as to a particular term. .co#e% what is the standard for determinin5 if a term is within the scope7 i.e.7 is it a term that one would e<pect the parties to ha+e included in the a5reementH o UCC% Asks if the term is one that the parties Ocer$ainl?P would ha+e included Official 0omment ' /i5her standard o Mitchill, Hatley, and +2 D21,(2"(8"% Asks if the term is one that in the circumstances mi5ht Ona$/rall?P )e omitted from the writin5. 3ncon!i!$enc?% For e<ample7 will a term )e e<cluded on 5rounds of inconsistenc2 if it is inconsistent with an implied termH o Hatley5 a term is inconsistent onl2 if it e<pressl2 contradicts a term in the writin5. o Hayden v. Hoadley5 the court holds the term to )e inconsistent with an implied term that the work would )e done within a reasona)le time. c. Tra?nor * California% 0or)inian approachK more li)eral standard as to whether the a5reement is inte5rated7 and therefore permits more kinds of e+idence Basicall27 Tra2nor sa2s that an2thin5 5oesK the parties can present whate+er the2 want in disco+er2 for the purposes of interpretation and 2ou can see if the courts will )u2 it d. 2o!ner% Ar5ues that the distinction should )e )etween o)*ecti+e and su)*ecti+e e+idence &8Eec$i7e e7idence% 0ourse of performance7 course of dealin57 trade usa5e ./8Eec$i7e e7idence% Testimon2 a)out what the parties thou5ht or what was said .. WaAs aroun( the Rule a. 3n$e(ra$ion% A part2 can sometimes introduce e+idence that tends to show that the a5reement is not full2 inte5ratedK this is more difficult in a ;illistonian *urisdiction Fand impossi)le in Te<as unless am)i5uousG ;ould the term naturall2 +s. certainl2 ha+e )een included Non-conflic$in( $erm!% A part2 can ar5ue that if there is 5ood e+idence dickerin5 a term not included in a contract with a mer5er clause that this part2 had reason to )elie+e either that the contract was not full2 inte5rated or that the dickered a5reement was collateral to the contract 1$

Downloaded From OutlineDepot.comContracts ). .co#e G colla$eral a(reemen$% A part2 can sometimes ar5ue that the a5reement is separate to the completel2 inte5rated a5reementK that is7 it deals with a matter outside the scope of that contract c. 3n$er#re$a$ion% A part2 can sometimes Fdependin5 on the stateG introduce 89 that 5oes to interpretation d. 0i!claimer! of &ral 4arran$ie!% .ome 4a?! Aro/nd $he 2)+ The #ro8lem% A part2 cannot disclaim an e<press warrant27 )ut su)*ect to 2 2:27 the part2 will not )e a)le to introduce e+idence of the e<press warrant2 )ecause it is parol e+idence Non-in$e(ra$ed a(reemen$% 1n 0or)inian state7 could ar5ue that the a5reement is non inte5rated )ecause )u2er didnDt think that this e<pressed the deal e. -ra/d% ReCuires a false representationK when applied to warranties7 this can )e a stretch )ecause the court is sa2in5 that the seller made a promise with no intention to honor it +2 D 215 )lemen$!% o A misrepresentation o >ade for the purpose of inducin5 the other to act or refrain from action o ?pon which the other !*ustifia)l2& relies to his or her detriment. The 7ario/! !$ra$e(ie! $he co/r$! /!e $o #olice fra/d claim! $o #re!er7e $he #olicie! of J law and $he 2)+% o 8roof of fraud o &a%a2ia F0B -6:G4 A disclaimer of misrepresentation will preclude lia)ilit2 if The disclaimer is specific rather than 5eneralK The claimant read and understood the N Funclear whether the claimant must ha+e read and understood the disclaimerG and The disclaimer was not procured )2 fraud. o (imit the remed2 &i-sit v. &eonard F0B -%,G o ReCuire proof of e<trinsic fraud. 'ank o) #merica F0B -%%G f. O2romi!!or? -ra/dP 1t is fraudulent to make a promise that one does not intend to keep. >a2 sa2 that this is a misstatement of fact P the fact )ein5 what the actor intended at the time of the statement. Some states reCuire a pattern. 5. +eforma$ion for 9/$/al mi!$a:e in )B#re!!ion% 0ourts will reform the contract when there is an error in draftin5 Ho))man v. Cha-man F0B -6$G o Deed con+e2s entire lot )ut parites intended to con+e2 onl2 part o Remem)er ", Trust P shared su)*ecti+e understandin5 trumps o)*ecti+e intent. o ;ill 89R )ar e+idence of a5reement that deal was for onl2 partH 1t mi5ht )ut he can 5et an out in a claim for reforma$ion. 2 (imitations4 0lear and con+incin5 e+idence standard 0laim is in eCuit2 so no role for *ur2 in most states o ?suall2 reformation is used to clean up mistakes in recorded deeds and wills. h. e$$in( aro/nd $he r/le in TeBa!% Fraud7 mutual mistake in inte5ration7 mutual misunderstandin5 The po+ert2 of the Te<as approach is that these ar5uments are onl2 5oin5 to work when the courts )elie+e that the term in Cuestion is a dickered term 3e+ertheless7 the parol e+idence rule is not a complete lockdown 4. Cases - *+amples a. 9i$chill 7. La$h% 1ce house caseK court found that the deed was completel2 inte5rated and did not introduce an2 e+idence of the contemporaneous oral a5reementsK dissent said that the ice house issue could )e considered a collateral a5reement7 which would allow inclusion of all kinds of e+idence ). 9a!$er!on 7. .ine% 0on+e2ance of landK option put on land that apparentl2 was intended onl2 for use )2 the famil2K Tra2nor asked whether the option was somethin5 that would Icertainl2J ha+e )een includedK the case pro)a)l2 comes out the other wa2 with ;illiston )ecause of the presumption that the option is transfera)le if the contract is silent on that point Fcommon understandin5G 1%

Downloaded From OutlineDepot.comContracts c. 2 *) 7. 4 Thoma! * 0el$a 0?namic! 7. Ario$o% Tra2nor sa2s that the test of admissi)ilit2 of e+idence for in$er#re$a$ion is not the am)i5uit2 of the contract )ut the rele+ance of the e+idenceK )asicall2 throws the door wide open d. Trident Center% No=inski attacks the Tra2nor positionK the case)ook authors think that Tra2norDs answer would )e that the trial *ud5e has to )u2 the ar5ument er(enA! edi$orial% No=inski ma2 )e concerned a)out *udicial corruption or stupidit2

#. Chan$es in the <ri$inal <bli$ation


1. 'o(ifications 1.= 3 ,.B5

a. 9odifica$ion% 8artial dischar5e of one or more terms of the contractK )indin5 and cannot )e re+oked unilaterall2 and must )e re modified )2 )oth parties 2arol e7idence% Does not appl2 )ecause this is an a5reement made after the N was e<ecuted ). +eL/iremen$! of modifica$ion Fsame as contract formationG F1G Apparent assent F2G ;ritin5 Fassumin5 the statute of frauds appliesG F'G (e5al )asis for enforcement o 2re-eBi!$in( d/$? r/le% 1f fresh consideration not 5i+en7 modification not )indin5 Fi.e. if part2 merel2 a5rees to do what he alread2 has a le5al o)li5ation to doG F-G &evine v. 'lumenthal F0B 2%"G states that courts donDt reCuire much in the wa2 of a )ar5ain For chan5ed performanceG to enforce a modification. o )Bam#le% ;hat if tenant has a colora)le )ut weak ar5ument that the landlord was in )reach of their lease and tenant a5rees to relinCuish its claim in return for rent reductionH This will suppl2 consideration. o )Bam#le% T and ( mutuall2 a5ree to rescind the ori5inal lease and then enter into a new leaseH &in2 v. $chuck F0B ,$%G notes this strate5m P works )ut dan5erous )ecause free to walk. 2romi!!or? )!$o##el o +e!$a$emen$ D <1 F0B ,$$G% >odification is )indin5 without consideration if Ifair and eCuita)le in li(h$ of chan(ed circ/m!$ance!J Fi.e. catastrophe7 unknown a55ra+atin5 condition7 etcG %ried v. %isher F0B 2%2G P +2D <1(c" F1G ReCuire onl2 a material or su)stantial chan5e in position +2 D <1(a" - >odification is )indin5 without consideration if Ifair and eCuita)le in 7iew of circ/m!$ance! no$ an$ici#a$ed 8? #ar$ie! when $he con$rac$ wa! made J F1G >erel2 reCuires that the circumstances not ha+e )een foreseea)le )2 the parties in contractin57 doesnDt ha+e to )e unforeseea)le. F2G (ea+es open the door to claim that the parties assumed a health2 econom2 when contractin5. UCC D 2-2=1% A)olishes consideration reCuirementK onl2 reCuires 5ood faith in modifications F1G 1 ':1 supplies a similar pro+ision for release F2G FSo 2 2:1F1G is like the firm offer pro+ision of 2 2:,G F'G (e5al formalities 2-2=1('"% .$a$/$e of -ra/d! P states the rule to determine if a modification must )e in writin5 P i$ m/!$ if $he J a! modified m/!$ 8e in wri$in(. 9<ample4 chan5in5 the price from O-66 to O,:1. F1G 9<ceptions Ffrom ;isc. NnifeG o 2 2:1F2G P confirmator2 memoranda o 3o SoF defense for 5oods alread2 deli+ered or that ha+e )een manufactured per specDs under 2 2:1F'GFaG and FcG. 2-2=1(5"% a modification that fails under 2 2:6F'G can operate as a wai+er. o .$a$/$e! a$ CB 2<1% 0ali P performance and a written release >ich P writin5 Air5 P performance )ut no writin5 16

Downloaded From OutlineDepot.comContracts UCC D 2-2=1('"% 8ro+ides usual e<ceptions for part performance7 restitution and reliance Mahban v. MGM Grand F0B 2%,G o ?ses )L/i$a8le )!$o##el e+en thou5h no misrepresentation of fact7 sometimes lies where there is a misrepresentation of intent. c. No oral modifica$ion cla/!e% 0lause that sa2s that contract cannot )e modified )2 oral statements 3no#era8ili$?% 1f there is clear o8Eec$i7el? rea!ona8le Flike )mbryK assentG e+idence of the modification7 3O> clauses are inoperati+e Fe+idence must )e clearK cannot )e am)i5uousG d. 9odifica$ion 7!. wai7er% Sometimes the conduct doesnDt Cuite add up to a modification7 )ut there are other le5al de+ices that can )e used to protect reliance )ased on a representation Fwai+erG e. Ca!e! * )Bam#le! 4i!con!in Jnife% o 3ote4 2 2:6F2G does not reCuire that the clause )e on a si5ned Iwritin57J itDs an Ia5reement.J o 9aster)rookDs position is that wai+er is of the underl2in5 performance term and not of the no oral modification clause7 so ;N; can reinstate the ori5inal performance terms 5oin5 forward so lon5 as 3>0 has not detrimentall2 relied. o Su)sidiar2 consideration4 when a modification adds to the performance o)li5ation rather than reduces it7 it is difficult to speak of wai+er other than wai+er of the 3O> clause. 0anDt wai+e someone into a new o)li5ation. o &. 0olicin$ 'o(ifications a. 0/re!! Two elements o The instrument or transfer must ha+e )een made in response to an im!ro!er threatK and o The claimant had no reasonable alternative. No +ea!ona8le Al$erna$i7e o #ustin /nstrument F0B ,"2G and #laska "ackers F0B ,"6G 0laimant needed the 5oods or work immediatel27 could not o)tain a su)stitute7 could not Cuickl2 5et a court order compellin5 performance7 and would incur losses on non performance that it could not reco+er from the actor in a lawsuit. UCC o Also a reCuirement that the modification )e in 5ood faith. O0/re!! of ood!P o A threatens to commit a tort Fcon+ersionG )2 not returnin5 BDs propert2. This is an improper threat under +2 D 16,(1"(a" FSupp. 2$G U!e of criminal #roce!! o 1t is improper to threaten to use criminal process to 5et le+era5e in N ne5otiations. o D 16,(1"(c" it is improper to threaten the use of ci+il process onl2 if the threat is made in )ad faith. D 16,(2"(a" o 0aw!onA! #rinci#le of di!#ro#or$ionali$?% ADs threat to do action % is improper if % would inflict a harm on B that is si5nificantl2 5reater than the )enefit to A from doin5 %. o DonDt ask what the )enefit was of makin5 the threat7 ask what the )enefit would )e if carr2in5 out the threat +eL/e!$ for com#en!a$ion for co!$ o7err/n! i! no$ im#ro#er o 1llustration %7 D16,(e" FSupp 2%G o 0omments to 2 2:6 su55est the same and sa2 that a part2 ma2 seek a modification to a+oid a loss )ecause of a shift in market prices. o 2oin$% not e+er2 threat to )reach a N is improper Fle5itimate )usiness reasonsG. enerall?> financial di!$re!! will no$ !/!$ain a claim for di!$re!! o Hackley v. Headley F,%"G P 8 claimed O"7-::. D conceded it owed O-72": and offered O-7::: to settle Itake it or lea+e it.J 8 took the mone2 ha+in5 no choice. o $elmer v 'lakeslee F0B ,6:G

2:

Downloaded From OutlineDepot.comContracts ;owe7er> see Ca--s v. Georgia "aci)ic F0B ,%6G where the court in+alidated the release on the 5rounds of duress )ased on 5ross unfairness Fe<ample4 O1,$N released for O,NG. &$her $?#e! of im#ro#er $hrea$! o D 16,(a" P )lackmail7 others o 1.= : .> 3 ,.B5 )lemen$! Apparent Assent 0onsideration or alternati+e )asis for enforcin5 ;ritin5 if within the SoF or there is a 3O> clause For a )asis for enforcin5 a)sent the writin5G >isrepresentation or other misleadin5 conduct that induces claimant to chan5e position to its detriment or in a wa2 that would )e detrimental if the other is not estopped Aoluntar2 and knowin5 relinCuishment of a known le5al ri5ht7 claim7 or defense Con!eL/ence! O)li5ation to perform N as modified

!. Waivers 9odific a$ion

)L/i$a 8le )!$o## el 4ai7er

Actor ma2 )e estopped from assertin5 a fact7 ri5ht7 claim7 or defense that is inconsistent with the actorDs representation. ;ai+er ma2 )e retracted 5oin5 forward unless the other has chan5ed such that retraction would )e un*ust

a. 4ai7er% ;here a part2 +oluntaril2 relinCuishes a ri5ht either e<pressl2 or impliedl2 F)2 permittin5 a de+iation in performance without o)*ectionG +e$rac$ion of wai7er% A wai+er can )e retracted )ut onl2 for e<ecutor2 portions of the contract and onl2 if the other part2 has not chan5ed his position in reliance on the wai+er )Bec/$or? #ro7i!ion!% 8arts of the contract that ha+e not 2et )een e<ecuted 4ai7er 7!. a!!en$% 0an find wai+er on conduct that is far short of assent 8. )Bam#le% 6uigley v. ,ilson F0B ,%-G o Reduce pa2ments for a farm o >ust 5i+e a reasona)le amount of time o 0anDt wai+e a material terms FprincipalG7 )ut ma2)e interest pa2ments. c. 4ai7er of ma$erial $erm!% 0ourts are reluctant to wai+e material terms7 so it is )est to sa2 that the term )ein5 wai+ed is not material to the dealK courts reCuire prett2 stron5 conduct to wai+e material terms d. Accord and .a$i!fac$ion ;hen A has a 5ood faith dispute with B o+er the amount of mone2 owed A to B7 A can tender pa2ment to B in settlement of the dispute. See D 1-'=<(8". BDs si5nin5 the check will suppl2 a writin5 si5ned )2 B in e+idence of and a5reein5 to the settlement7 which will a+oid SoF and 3O> pro)lems. o /owe+er7 if there is not a 5ood faith dispute re5ardin5 the amount owed )2 A to B7 then there is no consideration for the settlement under the common law. And under ?00 2 2:6 the settlement will fail )ecause A did not act in 5ood faith. No$e% B will lose e+en if he *ust keeps the check he must send it )ackK keepin5 is the +irtual eCui+alent of cashin5. e. UCC D 2-2=1 ?00 pro+ides that these clauses can pre+ent modifications from )ein5 le5all2 )indin5 F2G /owe+er7 F-G pro+ides that the modification ma2 operate as a wai7er +e7oca$ion of wai7er% ?nder F,G7 a part2 is onl2 permitted to re+oke a wai+er if he 5i+es notice and if doin5 so does not cause a material chan5e for the other part2 in reliance on the wai+er o This )asicall2 means that 2ou cannot re+oke 2our wai+er if the other part2 has alread2 reliedK 2ou ha+e to do it prett2 Cuickl2 For the other part2Ds position is unchan5ea)leK )urned papersG f. Ca!e! * )Bam#le! 21

Downloaded From OutlineDepot.comContracts Clar: 7. 4e!$% Book pu)lishin5 NK could )e modification if *ur2 )ou5ht 0larkDs stor2K if *ur2 didnDt7 could ar5ue for wai+er )ecause essential purpose of term of contract was satisfied 3n!/rance dama(e no$ice% 1f insurance compan2 reCuires written report of accident FconditionG )ut sa2s nothin5 when fails to do so7 most cases will sa2 that insurance compan2 wai+ed the ri5ht ;a8i$/al delinL/en$ loan #a?men$!% 1f lender sa2s nothin57 he ma2 wai+e ri5ht to default )ecause of re5ular delinCuenc2 of pa2ments

*. Con(itions -

orfeiture
1.> 3 ,=45

1. Con(itions - orfeitureC 6enerallA

a. Condi$ion% An e+ent Fother than the passa5e of timeG that7 )ased on the e+entDs occurrence or non occurrence will create7 limit7 or e<tin5uish a part2Ds contractual dut2 of a)solute performance A!:% was it the partiesD *oint interest in makin5 the N to make the term a conditionH o Sometimes a condition can also )e a promise4 IMour o)li5ation is conditional upon L and 1 promise L.J o ;e are likel2 to treat it as a condition if it pro+ides a simple remed2 and we can 5et the wron5ed part2 in their promised position. o But if treatin5 it as a condition results in a windfallE ?9E forfeiture then we are disinclined to treat as a condition. &8li(or and o8li(ee% Better to use these terms )ecause there is no contractual o)li5ation until the condition has For has notG )een fulfilled 2erfec$ $ender r/le% A kind of conditionK )u2er does not ha+e to accept unless the 5oods are perfect o ?00 2 ":1 8. Two rea!on! for condi$ion! in con$rac$!% F1G .elf-hel# remed? for 8reach% 1f other part2 does not fulfill the condition7 a part2 can *ust walk awa2 o 1f condi$ion i! al!o a #romi!e7 a part2 has the option to either walk awa2 or collect dama5es F2G +i!: alloca$ion% 0onditions can )e used to shift who )ears the risk o 1.e. seller )ears risk that )u2er cannot 5et financin5 for sale of home c. Be aware4 when a )u2er rescinds a N on fairl2 minor terms it is likel2 for other reasons P opportunistic d. Condi$ion and a 2romi!e See ?00 2 ":17 2 $117 2 $12 e. Glaholm v. Hays F0B $1"G P if term characteri=ed as a promise then Q must accept +essel unless the )reach is material or su)stantial in which case the2 would ha+e the ri5ht to rescind. f. Condi$ion! 7!. .$i#/la$ed +emedie!% 0onditions ha+e a lower standard than stipulated remediesK courts onl2 ask if there is forfeiture whereas with stipulated remedies7 it must )e a 5ood estimate of actual dama5es Fdepends on 0( +s. ?00G Alwa?! a!: whe$her $he $erm i! a condi$ion or a !$i#/la$ed remed? (. Ca!e! * )Bam#le! Howard v. %C/C F0B $1"G4 term in insurance N reCuirin5 that crop not )e destro2ed )efore fields are inspected )2 the insurer. 3ot treated as a condition. Term in N to pre+ent fraudulent claims7 )ut there are other wa2s of showin5 this. 0ontrast to4 o %idelity3"heni % which held that a term in an insurance N reCuirin5 that alarm s2stem )e left on in unattended truck was a condition. Breach of term increases the risk of loss )ut it is likel2 to )e +er2 difficult for an insurer to esta)lish that the loss was due to the )reach. h. 0i!#ro#or$iona$e forfei$/re% The denial of compensation that results when the o)li5ee loses his ri5ht to the a5reed e<chan5e after he has relied su)stantiall2 Another wa2 to put this is that allowin5 the o)li5or to not perform his counterpart 5i+es him a windfall 4ai7er!% 0ourts sometimes use wai+ers to wai+e conditions in order to miti5ate harshness of conditions much like the rule a5ainst penalt2 clauses miti5ates stipulated dama5es 3n$er#re$i7e #re!/m#$ion% 0ourts ma2 determine that the term is not a condition o 1nterpretin5 the writin5 is a matter for the court. -orfei$/re !ho/ld define $he #ar$ie!A ri(h$f/l #o!i$ion 8? $heir 8ar(ain> no$ $heir #o!i$ion #re-J 22

Downloaded From OutlineDepot.comContracts i. A7oidin( forfei$/re% This is a )it of a )alancin5 act )ecause it reCuires the courts to protect the ri5hts of the part2 with the upper hand )ut still pre+ent forfeiture for the underdo5 8ro)lems are presented when the pa2ment to B is disproportionate to the harm to A. The law ma2 i5nore the condition if B was in no wa2 at fault in the non occurrence of the condition7 if A was responsi)le for the non occurrence of the condition7 or if A si5naled to B that it was indifferent to the condition andEor the harm. 1., 3 ,>&5

&. Tools to Avoi( orfeiture

a. 3n$er#re$a$ion% There is a presumption a5ainst interpretin5 a term as a condition if doin5 so would result in a forfeiture F-acobs . ,oungs/ 0nc. v. KentG. 0ourts can re write a lot in the 5uise of interpretation. ;orks if a term is am)i5uousl2 a condition. 8. O2re7en$ionP 0oc$rineG 0/$? of ood -ai$h Mou ha+e pre+ented the condition from )ein5 fulfilled so 2ou canDt in+oke )ad faith. F*arsonsG c. 3m#o!!i8ili$? 1f it is impossi)le or impractical the court will e<cuse. O)li5ee clearl2 faultless d. 4ai7er% F+oluntar2 and intentional relinCuishment of a known ri5htG. Best if o+ert. !;ai+er is limited )ecause it cannot relie+e need for consideration and does not appl2 to material termsK courts are reluctant to find wai+er when it will depri+e a +alua)le ri5ht&. ?nrelia)le tool e. )L/i$a8le )!$o##el >isrepresentation predicta)l2 inducin5 detrimental reliance. ?nrelia)le tool. f. )Bc/!e $o a7oid di!#ro#or$iona$e forfei$/re (+2 D 221" >ost states do not follow this. 5. 0ases in the )ook use these tools to a+oid conditions in+ol+in54 9mplo2ment and construction Ns Fla)orers donDt 5et paidG Secured loans Fsellers of propert2 take propert2 )ack and want to keep the mone2G 1nsurance Ns Finsurers donDt pa2 )enefitsG h. +2 D 226 F0B $'2G> "arsons v. 'ristol F0B $2%G 8oint4 the N needs to make it reall2 clear that a ser+ice pro+ider will )e unpaid if a +enture fails. i. Ca!e! * )Bam#le! "arsons v. 'ristol F0B $2%G4 The N sa2s that the architect will )e paid $,W of fee from 2 nd sta5e Ionl2 fromJ construction loan funds. 0asts loss on 8arsons )ut Bristol 5ets no )enefit. The 0ondition put the risk of loss on 8arsons. o ;hat if4 Bristol told 8arsons to )e5in work sa2in5 it had an offer )ut not sa2in5 it had the loan in handH 3o misrepresentation of fact7 )ut still misleadin5 ma2 )e enou5h for a misrepresentation. "orter v. Harrington F0B $-6G4 Aendor had )een takin5 late pa2ments for 2ears and then foreclosesK 1E-th +alue of the N had )een paid. The court holds that the +endor wai+ed the power to declare default. B2 not o)*ectin5 he wai+es his ri5ht to forfeiture Fnotice4 ma2 not ha+e to e+en sa2 an2thin5 to wai+eG. 0ourt does not enforce the anti wai+er clause. *oyal Globe /ns. Co. v. Craven F0B $'$G4 0ra+en hurt in hit.runK 2- hour window to file claimK in hospital for 2' da2sK 5i+es notice - months later. Basis for e<cusin5 claim from 2- hours is impossi)ilit2. 3o )asis for wai+er or estoppel )ecause the insurer was unaware of 0ra+enDs claim. Faco8! * No/n(! 7. Jen$% 0lassic e<ample of interpreti+e presumption FReadin5 pipeG !. Con(itions of 7atisfaction a. Condi$ion 7. LiL/ida$ed 0ama(e! !3ot reall2 related to conditions of satisfaction& 2'

Downloaded From OutlineDepot.comContracts A condition will )e e<cused onl2 if the interests protected )2 the term can )e protected without enforcin5 the condition. This is importantl2 different from the standard on liCuidated dama5es7 which asks whether the amount is a reasona)le estimate of actual or liCuidated dama5es.

). A condition will )e e<cused )ecause it was impossi)le to fulfill. FThis assumes the non fulfillment results in no material harm to the owner. Grenier v. Com-ratt Const. Co. F0B $""G P G finished work )2 term date )ut couldnDt 5et certificate )ecause the person named did not issue certificates. A letter authori=in5 issuance of the certificate was not supplied until 1: da2s after N date. (iCuidated dama5es were assessed for the 1: da2 period )ecause 0 una)le to sell homes until then. The certificate was of material importance. c. A condition will )e e<cused )ecause the owner pre+ented it from )ein5 fulfilled !8re+ention Doctrine&. d. .$andard mo!$ #ro$ec$i7e of $he ownerR 7nd 0ational 'ank v. "an #merican 'ridge Co. F0B $$:G o The architectDs refusal to issue a certificate will not dischar5e the owner from the o)li5ation to pa2 if there is 1fraud or 2a3 mistake so gross as to im!ly bad faith.4 e. 0olan v. ,hitney F0B $$1G P an architect is )ound to 5i+e the certificate if there is su)stantial performance 9<ample4 )uild house )ut a wall is off )2 a foot and architect wonDt certif2 P can reco+er Funder 5nd "ational $ank pro)a)l2 canDt reco+er P architect not actin5 in )ad faithG. f. +)-U.AL T& ACC)2T &&0. ood -ai$h .$andard P meanin5 Frou5hl2G honest2 o 8an /derstine Co. v. 'arnet &eather F0B $$2G P for 'rd #ar$? ref/!alGcer$ifica$ion Distin5uishes construction Fwhere 3M reCuires pa2ment if there is su)stantial performance. o %ursmidt v. Hotel #bbey Holding F0B $$'G P 1!$ #ar$? ref/!al Applies a 5ood faith standard when a decision turns on matters of taste or *ud5ment rather than Imechanical fitness7 utilit27 or marketa)ilit2J for which there is an o)*ecti+e standard. o Haymore v. &evinsion F0B $$"G Applies an o8Eec$i7e !$andard for home construction. ;hile this ma2 )e a matter of taste or *ud5ment there is concern for disproportionate forfeitureEun*ust enrichment if a homeowner refuses to pa2. FXX(ook for windfallsG.

. Interpretation in the ace of a 'ista/e


1. 'utual 'isun(erstan(in$ - Ambi$uitA 11, 3 !4,5

a. 9/$/al mi!/nder!$andin( (+e!$a$emen$ D 2=> 0B '"2"% 0ontract fails for mutual misunderstandin5 if F1G the parties ha+e materiall2 different understandin5s of the contract FIattach materiall2 different meanin5sJG and F2G nei$her #ar$? i! more a$ fa/l$ -a/l$% A part2 is more at fault if he )etter knows or has )etter reason to know of the otherDs understandin5 Fthe meanin5 attached )2 the otherG o There are no 5radations of faultK we onl2 ask if one part2 is more at fault Fthis is unlike tort law and ma2 chan5e in our lifetimeG o ;hen tr2in5 to decide who is more at fault sometimes we look at knowled5e acCuired later P Dickey v. Huard F0B '"2G Seller more at fault for not correctin5 the )u2er when the )u2er indicated he thou5ht he merel2 had to accept )2 the desi5nated da2 and could pa2 shortl2 thereafter. Trade usa5e P part2 onl2 )ound )2 usa5e if he either knows or has reason to know of its e<istenceK 6lower City F0B '":G +efinemen$ (+e!$a$emen$ D 2=1"% 1t is )etter to sa2 that the o)li5ation is unenforcea)le a5ainst a person in contract unless he understood he assented to the o)li5ation or he was at fault in leadin5 another to understand he assented to the o)li5ation There is no nominal reCuirement of loss7 reliance7 or chan5e in position F)ut these will pre+ent the part2 from escapin5 lia)ilit2 under unilateral mistakeG ;hen the misunderstandin5 is a)out a term the N is +itiated onl2 if the term is material

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Downloaded From OutlineDepot.comContracts ?00 @@ 2 2:-F'G7 2 2:,4 can not misuse these to ha+e court fill in term where parties had materiall2 different understandin5s of the content o 9<ample4 Konic /nt. S thinks price is O,7"2:K B thinks O,".2: P canDt find assent )ecause the2 had different +iews of what the N was for. ). +e!$i$/$ion% 9+en if the contract fails for mutual misunderstandin57 if a part2 performs7 there ma2 )e a claim for restitution of )enefits conferredK +alued )2 market or reasona)le +alue. c. No$ice of mi!$a:e% An e<tremel2 low )id ma2 in some situations pro+ide notice of a misunderstandin5 and put one part2 more at fault as a result d. 9a$eriali$? of mi!$a:e% Determined after the fact )2 askin5 if the difference in terms alters the pa2offs e. Ca!e! * )Bam#le! +affle! 7. 4ichelha/!% *eerless caseK court held unenforcea)le )ecause no Imeetin5 of the mindsJK under Restatement7 the court would ha+e to ask if one part2 was more at fault &. 'ista/en %i(s 1!! 3 4,B5

a. Three 0oc$rine! on +e7oca8ili$? of &ffer! F1G +e!$a$emen$ D <6(1"% An offeror can unilaterall2 offer to keep the offer open if he puts it in writin5 and there is some recital Fe+en peppercornG of consideration F2G UCC D 2-2=5 (-irm &ffer"% A merchant can keep an offer open without consideration if in writin5 F'G +e!$a$emen$ D <6(2"% >akes certain offers irre+oca)le if there is a reasona)le e<pectation of reliance upon that offer Fe+en thou5h not technicall2 acceptedG and the other part2 actuall2 does rel2 upon the offer Flike @ 6: for offersG ). A Timeline% ;e ha+e seen that some doctrines mo+e the time of o)li5ation Fwhere the contract was formedG up to where one part2 chan5ed his position )ased on the offer or ne5otiation c. The mail8oB r/le% 1n #ick7 the court o+erturned the mail)o< rule )ecause the acceptin5 part2 called and re+oked the acceptance )efore the ?S had e+en recei+ed it Fthere was no relianceG d. The .$a$/$e of -ra/d!% 0ourts are di+ided as to whether this is a defenseK -anke sa2s that the SOF relates to contracts while @ 6: relates to promisesK therefore SOF is irrele+ant e. .co#e of D <6(2" /as not )een e<tended past #rennan and -anke Ne2 factors seem to )e that the offeror knows that the offeree will rel2 and that it is impractica)le for the offeree to protect his reliance )2 acceptin5 the offer F)ecause 5eneral doesnDt know if he wonG f. Ca!e! * )Bam#le! 0ic: 7. Uni$ed .$a$e!% 0ourt o+erturned the mail)o< rule when S made mistake in )id and notified )efore there had )een an2 reliance Ffederal contractsGK court mi5ht ha+e used unilateral mistake 0rennan 7. +ed .$ar 2a7in( (Tra?nor"% S made oral )idK relied on the offerK court applied @ 6: and said that the rule was desi5ned to protect reliance on promises Fan:e Con!$r/c$ion 7. @/lcan 9a$erial!% Su) offers pipe )ut the pipe is not up to specK no mutual misunderstandin5 )ecause su) more at faultK first two doctrines wonDt work )ecause the )id FofferG wasnDt in writin5K court relied on @ 6: )ut could ha+e used the last doctrine which mirrors @ 6: )ut protects reasona)le reliance on an offer !. Unilateral 'ista/e 1!. 3 =1D5

a. Unila$eral mi!$a:e% >eans of relie+in5 a part2 of a unilateral mistake when the other part2 is not at fault >o+es the point of o)li5ation )ack past the formalities in order to remed2 the ri5ht kind of mistake ?ses a re$/rn $o $he !$a$/! L/o as the remed2 ). &$her (non-mi!$a:en" #ar$? can 8e re$/rned $o !$a$/! L/o wi$h re7oca$ion% One wa2 to frame this is to ask whether the other part2 relied on the mistake in a wa2 that is too speculati+e to compensate with usual contracts dama5esK whether the non mistaken part2 incurred a speculati+e opportunit2 cost 1n )mbry7 no status Cuo )ecause we donDt know what kind of *o) he could ha+e 5otten c. A8!ence of c/l#a8le ne(li(ence% The courts ha+e stru55led with definin5 this )ecause the distinction )etween clerical errors and errors of *ud5ment is rather tenuous 9<ample4 )ids o STS Trans!ort and )lsinore 7nion su55est ne5li5ence will preclude relief 2,

Downloaded From OutlineDepot.comContracts *owder Horn Construction takes position that ne5. will not preclude relief Fhard to esta)lish reasona)le careG The +e!$a$emen$ deals with this pro)lem )2 reCuirin5 that the non mistaken part2 not )ear the risk or mistake Fcomments pro+ide that part2 does not )ear a risk of a clerical errorG d. 0ases . 9<amples .T. Tran!#or$ .er7ice 7. @ol7o 4hi$e Tr/c:% >athematical error made in calculatin5 trade in +alueK court )asicall2 said that STSDs reliance was not the sort the2 were willin5 to protectK once it was clear that the contract was mistaken7 STS had a dut2 to miti5ate o .. 'ista/en Improvements - Restitution As a Clean:Up 1!4 3 =!15

a. 9i!$a:en im#ro7emen$!% A )enefit conferred to a part2 when that part2 did not consent to the impro+ementK the impro+er will find it +er2 difficult to reco+er when the )eneficiar2 is faultless 3ncon$ro7er$i8le 8enefi$!% 1f the )enefit is somethin5 like pa2in5 ta<es7 then the2 are easil2 refunda)le For restitution a)leG )ut if it is a uniCue construction7 the cases are more difficult 4hen a S doe! no$ a##aren$l? a!!en$ $o a con$rac$> he i! no$ o8li(a$ed in re!$i$/$ion $o #a? for $he 8enefi$! conferred /nle!! $he 8enefi$ wa! incon$ro7er$i8le or he wa! !omehow a$ fa/l$ ). 9i!$a:en con$rac$ #rice in im#ro7emen$!% ;hen there is a no-fa/l$ mistake in the contract price for an impro+ement Fi.e. third part2 fraudG7 the impro+in5 part2 )ears the loss and the )eneficiar2 does not ha+e to pa2 an2 more than he a5reed to pa2 initiall2 c. +e!$i$/$ion 7!. reliance% >an2 times the courts will award reliance losses and call it restitution when the contract is unenforcea)le )ecause of indefiniteness or the statute of frauds 8art of the reason wh2 the2 do this is )ecause not e+er2 state reco5ni=es @ 6:K if in a state that does not reco5ni=e @ 6:7 remem)er that there are these cases out there that use restitution for reliance d. Ca!e! 0/nne8ac:e 7. 2i$$man% 1n this case7 the court talks a)out a num)er of different irrele+ant thin5s that )ar reco+er2 Fno Imeetin5 of the mindsJ7 Statute of Frauds7 and indefinitenessGK court found that o)*ecti+el27 the wall increased the land +alue )ut the Ss didnDt want itK the2 were not there when the wall was )ein5 constructed and therefore were faultless Jearn! 7. Andree% N to sell a houseK one term was that seller had to make some unusual chan5esK court held N not enforcea)le )ecause of indefiniteness )ut 5a+e restitution of remodelin5 to sellerK the court here was 5i+in5 restitution of reliance losses Fthere are a num)er of cases that do thisG @ic:er? 7. +i$chie% Architect was fraudulent in )illin5 for )athhouseK if Architect was hired )2 one of the parties7 he would )e more at faultK court found no fault )ut 5a+e F+er2 unusuall2G the fair FmarketG +alue of work done7 which puts S at fault )ecause he paid more than he e<pected to o +e!$a$emen$ 2% 0omes down resolutel2 on the side of the S in this caseK the will not 5et a penn2 more than the S a5reed to 5i+e in the first place (#rinci#le o##o!in( forced eBchan(e" o +e!$a$emen$ 1% Offers a ran5e )etween the a5reed price and the fair +alue of work completed )arhar$ 7. 4illiam Low Co.% Trailer park caseK court went to restitution althou5h it did not need to F1G )ecause there was fraud and F2G )ecause there was eCuita)le estoppel in pre+entin5 (ow from assertin5 the claim that there was no contract F(ow was clearl2 at faultG

6. In(efinite or <pen Terms


1. Common Law vs. UCC 1!= 3 =.!5

a. Common law% At common law7 there is a reCuirement that the contract )e sufficientl2 definite otherwise it will fail Fthe terms and dama5e )oth ha+e to )e fairl2 definiteK i.e. m/!$ ha7e a #rice $ermG 1.e. if there is a contract for a loan with an interest rate and an amount )ut no pa2ment schedule7 there is no contract Fe+en thou5h 2ou could easil2 look at t2pical practices to fill in the 5apsG ). UCC% Tries to re+erse this 0( rule UCC D 2-2=5('"% A contract does not fail for indefiniteness e+en if one or more terms are left open7 so lon5 as the parties intended to make a contract Fspecificall27 donDt need a priceG and there is a Ireasona)l2 certain )asis for enforcementJ 9ssentiall27 the ?00 makes the intent to )e )ound all important and then pro+ides tools for the courts to fill in the 5aps left )2 the contract termsK if 2ou ha+e the information7 5o ahead and use it to enforce 2"

Downloaded From OutlineDepot.comContracts c. 2romi!!or? e!$o##el% 0an sometimes )e used to 5et around the reCuirement for definiteness if there has )een a promise and if there was reliance d. 3n$en$ionall? lea7in( $erm! o#en $o lea7e a wa? o/$% 8arties can a5ree to e<tend the lease onl2 if the2 can a5ree on a price in the futureK theoreticall27 a part2 could not refuse to ne5otiate to 5et out of the deal )ecause this would )e a +iolation of 5ood faith Fcourt ma2 find on other 5rounds7 howe+erG e. Ca!e! * )Bam#le! Jlime: 7. 2eri!ich% Old common law caseK contract to construct a )oardin5 houseK *ur2 found that S had made a promise )ut the court refused to enforce )ecause there were too man2 terms left out Fthat we can easil2 5uess or fill in if we thou5ht hard a)out itG 0aw!on 7. eneral 9o$or!% 0ourt found for the dealership )ecause G> was usin5 the renewal rent power to punish the dealership7 which the2 did not ha+e a ri5ht to do F)reach of 5ood faithK court finds on other 5rounds )ecause the2 are 5enerall2 loathe to find an a5reement to ne5otiate in 5ood faithG Three lea!e! eBam#le% See notes for this stuff &. le+ible GuantitA: Requirements - <utput Contracts 1!> 3 =>45

a. The 8lan:e$ order !?!$em% This is the s2stem )etween auto manufacturers and parts suppliersK suppliers are o)li5ated to suppl2 whate+er the manufacturer demands )ut there is no 5uaranteed Cuantit2 or e+en an2 stipulated Cuantit2K manufacturer issues a JreleaseJ which )asicall2 releases pent up demand that is created )2 the )lanket order Lac: of con!idera$ion% 3ot reall2 a pro)lem )ecause the first order could )e consideration for a promise to fill all future ordersK manufacturer could )u2 the option Fne+er doneG 3ndefini$ene!!% Demand fills in the Cuantit2 term .$a$/$e of -ra/d!% The release satisfies the writin5 reCuirement Fand Cuantit2G and )ind the manufacturer )ut not the supplier F)ut it would after 1: da2s with no o)*ection under @ 2 2:1F2GG 8. &/$#/$ and +eL/iremen$! Con$rac$!% UCC D 2-'=, +eL/iremen$! con$rac$% The seller a5rees to suppl2 all that the )u2er needs &/$#/$ con$rac$% The )u2er a5rees to )u2 all that the seller produces Con!idera$ion% 0omment 2 sa2s the courts will fill in consideration here with (ood fai$hK the )u2er has limited his le5al ri5hts )ecause he has )ound himself to either take the wid5et from the seller or not take it at all Fnot the same pro)lems as under the )lanket order s2stemG c. Chan(in( $he L/an$i$? ordered /nder reL/iremen$! con$rac$! )!$ima$e% Generall27 the )u2er will 5i+e the supplier an estimate of what he will reCuire ood fai$h% Good faith in these contracts reCuire that the Cuantit2 ordered should not de+iate from the estimate F)e2ond a certain de5reeG unless there is 5ood faith in doin5 so o 2o!ner% Good faith is a Ile5itimate )usiness reasonJ o er(en% Bad faith would )e where a compan2 is operatin5 at an inefficient le+el to take ad+anta5e of the priceK the parties taken to5ether are operatin5 at a net lossK we mi5ht ask if the increase or decrease imposed a *oint loss on the parties o )Bam#le! of 8ad fai$h% Orderin5 less )ecause of an unfa+ora)le priceK orderin5 more )ecause of a fa+ora)le price Far)itra5e opportunit2GK )u2in5 at fa+ora)le price and resellin5K operatin5 at an inefficient le+el to take ad+anta5e of a fa+ora)le price &rderin( more% ReCuires F1G 5ood faith and F2G a Cuantit2 that is not Isu)stantiall2 disproportionateJ to the estimate )2 the )u2er Freasonin5 is that there is no upward limitG &rderin( le!!% Onl2 reCuires 5ood faithK )u2er could order none at all in 5ood faith7 so lon5 as there was a le5itimate reason to do soK no need for proportionate reCuirement )ecause there is a lower limit er(enA! no$e% This idea of 5ood faith is empt2 )ecause wh2 would it not )e a )ona fide )usiness reason to a+oid )u2in5 somethin5 at a )ad price or take ad+anta5e of a 5ood price d. Ca!e! * )Bam#le! )m#ire a! Cor#. 7. American Ba:erie! Co. (2o!ner"% S contracted to ha+e trucks con+erted to propaneK used a reCuirements contractK S decided a few da2s after contractin5 not to order an2 at allK 8osner interpreted @ 2 ':" and said that S could do this in 5ood faith7 )ut found )ad faith )ecause S failed to 5i+e an2 reason at all for orderin5 none Flooked like the2 had second thou5htsG )a!$ern Airline! 7. /lf &il% Gulf a5reed to suppl2 9asternDs fuel reCuirements in >iamiK when fuel prices spiked7 9astern would top off all planes in >iami e+en thou5h this was inefficient F)ad faithG 2$

Downloaded From OutlineDepot.comContracts &ran(e 7. +oc:land U$ili$ie!% 0ontract to suppl2 power plantDs fuel reCuirementsK fuel prices spiked and power plant started to run 2-E$ F+er2 inefficient )ut made profit mar5in )ecause of fuelG to suppl2 power to whole northeastern power 5rid F)ad faithG

@. The %attle of the


1. Common Law

orms

1!, 2 .D 3 =B&5

a. General rules4 A counter offer is a re*ection A re*ection has the effect of re+okin5 an offer o 0a+eat P )ut not if the offer is a )indin5 offer o 0a+eat P and not if the offeror indicates that a counter offer wonDt )e treated as a re+ocation An2 non conformit2 makes a purported acceptance a re*ectionEcounter offer. irror image rule. o 0a+eat P )ut not if the new term was implicit in the offer o 0a+eat P and not if the acceptance was not conditional on the new term. The new term is a proposal that the offeror could re*ect. ). 9irror ima(e r/le% The acceptance had FhasG to )e an e<act replica of the offerK if not7 then the IacceptanceJ is treated as a counteroffer which then must )e accepted c. La!$ !ho$ r/le% Since performance or acceptance of 5oods or pa2ment can count as acceptance7 the rule de+eloped where the last part2Ds form was the one that countedK this is )ecause the last part2 that sent a form was the last one to make an offer which was accepted +ia performance )2 the parties This is not reall2 a ruleK itDs *ust the lo5ical implication of the mirror ima5e rule d. Two 2ro8lem! (The UCC $ried $o fiB" The 4el!her% 1f the contract takes a lon5 time to finish Fi.e. there is no performance acceptanceG7 either part2 can sei=e on the differences up to the point of acceptance and welsh up to deli+er2 date ./r#ri!e $erm! in $he 2nd form% This is where one part2 Fthe one with the last formG sends )ack a form that looks similar )ut there is7 )uried in the document7 a term disclaimin5 all warranties &. The UCC a. UCC D 2-2=6 (C/rren$" 2/r#o!e% desi5ned to lock in the ;elsher P parties e<chan5e forms )ut )ecause of de+iant terms there is no N and a part2 attempts to sei=e on this to 5et out of a N. ./8!ec$ion (1"% Basicall2 sa2s that if the acceptance looks like an acceptance7 then it is an acceptance F)ased on o)*ecti+e rules laid out in )mbryG o 8arties can make acceptance conditional upon their terms and the2 can make counteroffers ./8!ec$ion (2"% Sa2s that the contract is )ased on the terms of the offer F fir!$ !ho$ r/leG7 and an2 additional terms from the acceptance will )e added so lon5 as the2 donDt fail the three reCuirements ./8!ec$ion ('"% 1f there is no assent or apparent assent from the forms Fi.e. there is a series of conditional offersG7 then a contract can )e formed )2 cond/c$ o 1f conduct is used as the )asis for findin5 a contract7 neither form appliesK the courts will take the common $erm! and fill in the rest with the rules for 5ap fillin5 in indefinite contracts o Basicall27 the second mo+er can make the acceptance conditional on his terms7 )ut this doesnDt mean that he will 5et them )ecause a contract can )e formed )2 conduct ). +e7i!ed UCC D 2-2=,('"% Deals with whether the parties ha+e a contractK @ 2 2:$F1G is mo+ed here Sa2s essentiall2 the same thin57 that if it looks like acceptance then there is acceptance e+en if there are differin5 terms on the forms c. +e7i!ed D 2-2=6% The first mo+er FofferorG no lon5er 5ets the upper hand 1nstead7 the courts take the common terms in the forms7 the terms apparentl2 assented to7 and )ack5round terms Reasonin5 is that in realit27 parties pa2 little attention to where the2 are in the seCuence d. O3n $he record of 8o$h #ar$ie!P (+e7i!ed"% 1f there is a term that is common )etween )oth parties7 then it can )e included in the new contract formed )2 the court F2ou mi5ht 5o on a huntin5 e<pedition throu5h the other part2Ds filesG 2%

Downloaded From OutlineDepot.comContracts e. .$a$/$e of -ra/d! 7!. Ba$$le of $he -orm!% Generall27 acceptances will satisf2 the Statute of Frauds reCuirement7 )ut offers will not )ecause this would reCuire that parties )e )ound to the terms of offers f. a# filler!% The court will start with the a5reed upon terms and then add4 F1G .$a$/$or? #ro7i!ion!% Good faith7 reasona)le price7 etc F2G )B$rin!ic e7idence% 0ourse of performance7 course of dealin57 and /!a(e of $rade o The court in 0toh doesnDt include these )ut the +e7i!ed UCC e<plicitl2 notes that the2 should )e used as 5ap fillers when the contract is pro+ed )2 conduct F'G Ne(o$ia$ion hi!$or?% 1nternal filesK we donA$ (o here 8eca/!e 2-2=6('" $ell! /! no$ $o !#ecificall? (. &BN&T3&U. T)+9. 3N .)C&N0 -&+9 2-2=6(2" P 5o here when the repl2Eacceptance is unCualified. 2-2=6(2"(8" see Official comment - for what constitutes a ma$erial al$era$ion. o An2 surprisin5 or unreasona)le F)ased on the hardship it would causeG term o )Bam#le% S adds term disclaimin5 lia)ilit2 for conseCuentials other than ph2sical in*ur2 and it is customar2 in the trade and the2 ha+e done )usiness on this )asis in past P under Official 0omment , S would ha+e a 5ood ar5ument that it does not a material alteration. Trade /!a(e% Additional term ma2 not )e material if in accordance with usa5e )ecause would )e no surprise to the parties if included o )Bam#le% 0onflictin5 terms Fno definite trade usa5eK no prior dealin5sG 1f appl2in5 2 2:$F2G7 B should win as the first mo+er Some courts see Fsee Southern 0daho *i!e/ 0B -2,G applies the O:noc:o/$ r/leP P conflictin5 terms drop out. B would still pre+ail under the )ack5round rule of HadleyG2-61,. F1G 2ro#o!ed re7i!ion of 2-2=6 adopts the knockout rule 2-2=6('" M/alified or Condi$ional acce#$ance! o To determine terms7 2 2:$F'G takes the terms found in )oth parties forms or common terms and the fills in the other terms usin5 the )ack5round or 5ap fillin5 rules of the ?00. No$e% if the 2nd mo+er wants to )e sure of 5ettin5 its term then insist that the other si5n the form )efore dealin5. )Bam#le Confirma$or? 9emoranda o 8arties ha+e an a5reement and then one or )oth sides send a confirmator2 memo. The memos are treated like an acceptance under 2 2:$F2G. The comments e<plains that when )oth parties send a confirmator2 memoranda7 2ou take the common terms and appl2 the )ack5round rules. No$e% Back5round rule on pa2ment is D2-511 P pa2ment is due on deli+er2 unless otherwise a5reed !. 'erchants a. UCC D 2-1=5 A person is treated as a merchant for purposes of 2 2:1F2G7 2 2:,Ffirm offersG7 2 2:$F2G7 and 2 2:6Foral modificationsG if the2 are in occupation where the2 can )e e<pected to conform to such )usiness practices. o .. Cases - Application a. )Bam#le4 B sends offer to SK SDs repl2 form states in a prominent place and )old letters 1this form constitutes the entire agreement for sale of the !roduct.4 Dorton F0B -2-G and /daho "ower F0B -22G are authorit2 that such lan5ua5e is insufficient to make an acceptance Cualified. o Acceptance will )e treated as Cualified onl2 if it uses the ma5ic words from 2-2=6(1" o Better anal2sis4 whate+er words are used the root Cuestion is whether acceptance Oclearl? re7eal! $ha$ $he offeree i! /nwillin( $o #roceedP on the )asis of the offer without his or her terms Duval . Co. v. Malcom F0B -2-7 F3 2G 26

Downloaded From OutlineDepot.comContracts o o S 5i+e B a written N for an outputs N. Bi si5ns7 addin5 a Cuantit2 estimate7 and 5i+es the N )ack to S. Appl2in5 the rule in Dorton there is a +er2 5ood ar5ument that the BDs si5nin5 the N and returnin5 it to S is effecti+e as an acceptance notwithstandin5 the addition of the Cuantit2 estimate. BDs conduct did not clearl2 re+eal to S that B was unwillin5 to proceed on the )asis of the terms of the N.

I. WarrantiesC #isclaimersC - Limitations of Reme(A


1. 6eneral Remar/s 1!D 3 .B.5

a. Three !$e#! $o de$erminin( wha$ warran$ie! a##l?% F1G 1s there a warrant2 Fe<press or impliedGH F2G 1f so7 is there an effecti+e disclaimer F'G 1f not7 is there a limitation on remed2H 8. Ca!e! * )Bam#le! ;/n$ 7. 2er:in! 9achiner?% 8urchase of )oat en5ine that 5ushed smokeK court holds that disclaimer was not effecti+e )ecause it was not conspicuous Fon )ack side of form without an2 statement on the front that important terms were on the )ackG ABC 7. TNQ eBam#le% See notes for points on this 9/rra? 7. ;olida? +am8ler% ;hen )u2er fi+es the seller reasona)le opportunit2 to repair Fuse limited remed2G )ut the 5ood fails to operate as a new 5ood free of defects should7 door opens to all other remedies under the ?00 Cha$lo! 7. NC+% 0omputers late and )adK 0hatlos sued for lost profits Fe<pectationG and conseCuential dama5esK court of appeals re+ersed repair limited remed2 )ecause failed of essential purpose )ut said limitation of conseCuential dama5es is onl2 in+alid if unconsciona)le -iori$o Bro!. 7. -re/ha/f Cor#.% Seller callousl2 failed to make an2 effort to li+e up to limited remed2 whatsoe+erK court allowed conseCuential dama5es as compromise )ecause did not make sense wi$h $he!e fac$! to treat the two limitations separatel2 Funitar2 packa5e of risk allocationGK ma2 indicate that unconsciona)le )eha+ior will also throw out the limitation of conseCuential dama5es &. Warranties: UCC FF &:!1!C &:!1.C - &:!14 1!D 3 .B.5

a. )B#re!! 4arran$ie! (UCC D 2-'1'"% Three t2pes of e<press warranties F1G An2 affirmation of fact or promise made )2 seller which relates to the 5oods and )ecomes part of the )asis of the )ar5ain F2G An2 description of the 5oods which is made part of the )asis of the )ar5ain F'G An2 sample or model which is made part of the )asis of the )ar5ain o Ba!i! of $he 8ar(ain% To the )u2er7 it was an important part of the machine that it would )e a)le to operate in a certain wa2 Fup to the specifications of the warrant2G o The warrant2 is formed o)*ecti+el2K it is not necessar2 that the words Iwarrant2J or I5uaranteeJ )e used or e+en that the seller intent to make a 5uarantee 8. 3m#lied 4arran$? of 9erchan$a8ili$?C U!a(e of Trade (UCC D 2-'15" F1G ?nless modified )2 @ 2 '1"7 5oods sold )2 a merchant ha+e implied warrant2 of merchanta)ilit2 F2G To )e merchanta)le7 5oods must at least o 8ass without o)*ection in the trade under contract description o Of fair a+era5e Cualit2 Ffun5i)leG within the description o Fit for ordinar2 usa5e purposes o Run7 and )e of e+en kind7 Cualit27 and Cuantit2 o AdeCuatel2 contained7 packa5ed7 and la)eled o 0onform the promise or affirmations of fact made on the container or la)el F'G ?nless modified under @ 2 '1"7 ma2 arise out of fair dealin5 and trade usa5e c. 3m#lied 4arran$? of -i$ne!! for 2ar$ic/lar 2/r#o!e (UCC D 2-'15"% ;here seller at the time of contractin5 has reason to know an2 particular purpose for which the 5oods are reCuired and that the )u2er is rel2in5 on the sellerDs skill or *ud5ment to select or furnish suita)le 5oods7 implied warrant2 ':

Downloaded From OutlineDepot.comContracts !. *ffective #isclaimers: UCC F &:!1= 1!D 3 .B.5

a. 0i!claimer! of )B#re!! 4arran$ie! (1"% ;ords tendin5 to create a warrant2 and words ne5atin5 a warrant2 will )e construed as consistent where reasona)leK if unreasona)le7 ne5ation or limitation is inoperati+e7 su)*ect to @ 2 2:2 Frules on parol and e<trinsic e+idenceG enerall?> eB#re!! warran$ie! $r/m# di!claimer!% /owe+er7 if there is a disclaimer7 then it ma2 )e e+idence that there was no e<press warrant2 in the first place 8. 0i!claimer! of 3m#lied 4arran$ie! (2" * ('"% 9erchan$a8ili$?% 1n order to disclaim implied warrant2 of merchanta)ilit27 the disclaimer must mention merchanta)ilit2 and )e conspicuous if written Fno writin5 reCuiredG -i$ne!!% 1n order to disclaim implied warrant2 of fitness for particular purpose7 the disclaimer must )e in writin5 and must )e conspicuous All im#lied warran$ie!% All implied warranties can )e disclaimed with wri$$en lan5ua5e like IThere are no warranties which e<tend )e2ond the description on the face hereofJ OA! i!P * Owi$h all fa/l$!P% Disclaims all implied warranties no$wi$h!$andin( a8o7e reL/iremen$! )Bamina$ion eBce#$ion% 1f )u2er has e<amined 5oods or refused to do so7 all implied warranties with re5ard to defects that should ha+e )een disco+ered on reasona)le inspection are disclaimed Co/r!e of dealin(> co/r!e of #erformance> /!a(e of $rade% 0an disclaim implied warranties c. Limi$a$ion! of remed? (5"% Remedies can )e limited in accordance with liCuidation or limitation of dama5es and on contractual modification of remed2 d. 0i!claimer! * m/$/al mi!$a:e% 1f the contract sa2s Ias isJ7 this will ne5ate a claim for mutual mistake )ecause it throws out e+er2thin5 that the parties mi5ht ha+e thou5ht )efore the formation of contract .. Limitations of Reme(A: UCC F &:>1B a. 1!D 3 .B.5

enerall? (1"% The contract ma2 pro+ide for remedies in addition to or in su)stitution for those pro+ided in the ?00 and ma2 limit or alter those reco+era)le under the ?00 Flimitin5 ri5ht to return7 etcGK howe+er7 these limitations are o#$ional unless the contract e<pressl2 notes that the2 are e<clusi+e ). -ail/re of e!!en$ial #/r#o!e (2"% 1f the e<clusi+e or limited remed2 Ifails its essential purposeJ7 ma2 resort to other remedies under the ?00 c. Con!eL/en$ial dama(e! ('"% 0onseCuential dama5es can )e limited unless /ncon!ciona8le 0annot limit remedies for )odil2 in*ur2 F!rima facie unconsciona)leG 0an limit remedies if the in*ur2 is commercial d. Limi$a$ion! of remed? a! warran$? di!claimer% 1 2ear warrant2 impliedl2 limits remedies

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Downloaded From OutlineDepot.comContracts

I".

Tools for #eterminin$ %reach


1&. 3 !!,5

A. *mploAment: Wron$ful #ischar$e - Co$nate Claims


1. A %ir(Hs *Ae "iew on Claims

a. Con$rac$! Claim! Bad fai$h% Breach of co+enant of 5ood faith and fair dealin5 @iola$ion of em#lo?ee man/al commi$men$!% 8rocedures that proscri)e the manner of termination o These claims are a product of the rela<ation of the rules that 5o+ern definiteness o >ost states will reco5ni=e these claims 3m#lied for ca/!e $erm% There is a line of 0alifornia cases that discuss this FunusualG 8. Tor$! Claim! 4ron(f/l di!char(e o +ef/!al $o #ar$ici#a$e in criminal ac$! Criminal ac$!% 9mplo2er cannot fire emplo2ee for refusin5 to commit a criminal act ;eal$h and !afe$? re(/la$ion!% Some courts sa2 that refusin5 to +iolate these is not enou5h Non-em#lo?men$ $or$! o 1ntentional infliction of emotional distress o Defamation o 1nterference o Fraud c. 0ama(e!% Attorne2s will 5enerall2 onl2 take the )est cases and usuall2 take them on contin5enc2 Con$rac$!% can onl2 reco+er lost wa5es Fno puniti+e or emotional harm dama5esG Tor$!% >uch more attracti+e )ecause ma2 include puniti+es and emotional harmK attorne2s 5enerall2 want to look for reasons to sue under tort &. %a( aith in *mploAment Contracts

a. A8/!e of ri(h$% One wa2 to e<plain )ad faith is as an a)use of a ri5ht 8. -o/r ca!e!% F1G At will emplo2ee is fired for resistin5 rude se<ual ad+ances )2 her superior F angeG o 0annot use emplo2er power to force emplo2ee into se<ual relationsK a)use of power F2G At will emplo2ee is fired )efore completin5 sale that would 5i+e him a lar5e )onus F6ortuneG o 9mplo2er ma2 not fire for the specific purpose of rene5in5 on a promise Fto pa2 a )onusG F'G Scroo5e fired 0ratchit Fat willG on 0hristmas 9+e7 knowin5 it would lea+e him homeless o 3o )ad faith )ecause there was no trampin5 on a fundamental ri5ht F-G 9mplo2er suspects someone is takin5 mone2K fires emplo2ees in alpha)etical order F'gisG o 3ot )ad faith in these terms )ut ma2)e 5enerall2 !. Implie( for Cause Term: A Case 7tu(A in California a. Tamen? 7. Arco% was fired for refusin5 to participate in ille5al 5as price fi<in5 scheme 0ites *etermann to state the rule that an emplo2er ma2 not fire an emplo2ee for refusin5 to commit a criminal act Fthis is a fairl2 common ruleG Also cites authorit2 that sa2s that wron5ful dischar5e in a contractual relationship )rin5s the opportunit2 for causes of action in )oth tort and contract ). Clear? 7. American Airline!% claimed AA fired him for union or5ani=in5 acti+itiesK found that if a compan2 has firin5 procedures and re5ulations7 it must a)ide )2 themK the2 operate as a form of estoppel '2

Downloaded From OutlineDepot.comContracts c. 2/(h 7. .eeA! Candie!% ReCuired fairl2 clear e+idence that emplo2er had fired for refusal to participate in criminal acti+it2K howe+er7 also reco5ni=ed a limitation to termination at will )ecause of len5th of emplo2ment F'2 2earsG d. -ole?> ran$> * ;/n$er% (imited earlier decisions )2 sa2in5 that pu)lic polic2 considerations that are actiona)le must )e Isu)stantialJ7 IfundamentalJ7 and I)asicJ 3m#lied-in-fac$ con$rac$!% 0ourt ruled that a lon5 enou5h emplo2ment can create an implied emplo2ment contract which means emplo2er can onl2 fire with I5ood causeJ Fno SOF reCuirementG e. &$her .$a$e!% 9an(e (N;"% Firin5 for refusal to participate in se<ual acts is +iolation of 5ood faith Fa)use of powerG -or$/ne (9A"% 0annot fire in order to rene5e on promise Fto pa2 a )onus for salesGK )ad faith 2ierce (NF"% Allowed cause of action for wron5ful dischar5e when dischar5e was contrar2 to a clear mandate of pu)lic polic2K this mandate was to )e determined )2 court on case )2 case )asis Broc:me?er (43"% 3arrow e<ception for clear mandate of pu)lic polic2K also said that wron5ful dischar5e was a cause of action onl2 in contract Fwhich is )asicall2 useless unless massi+e wa5esG B/!h:o (43"% 0ourts will not protect free speech in pri+ate emplo2mentK emplo2er can still fire

%. 0ower to With(raw in Response to #efault


1. 6eneral 'atters 11& 3 11=5

a. Con!$r/c$ion con$rac$!% The rule is that the contractor must Isu)stantiall2 performJK this throws out the perfect tender rule to pre+ent forfeiture for minor Fnon materialG defects F *lante v. -acobsG 0i!#ro#or$iona$e co!$ of fiBin( defec$% This idea comes from *lante and )asicall2 sa2s that if the cost of repair in a construction contract where the )uilder has su)stantiall2 performed will result in disproportionate loss FforfeitureG7 there is no dut2 to repair ). 2erfec$ $ender r/le% Bu2er can re*ect the 5oods for an2 reason c. +i(h$ $o c/re% Seller has a ri5ht to cure the non conformin5 tender7 )ut must cure it perfectl2 +e7i!ed UCC No$e% Re+ision states that the cured tender must )e perfect with all respects e<cept timeK this means that the cure can )e late so lon5 as it is within a reasona)le time d. +ea!ona8le o##or$/ni$? $o in!#ec$% >ost courts hold that this is a fairl2 short amount of time and that the )urden is on the )u2er to ensure that the 5ood conforms to o)+ious and disco+era)le defects This means that the >illers should ha+e looked in the trunk to make sure there was a spare Bu2er can still re+oke acceptance7 )ut his ri5hts are more limited here Fsu)stantial impairmentG e. +e7oca$ion of acce#$ance (UCC D 2-,=<"% Bu2er can onl2 re+oke his acceptance if F1G he was reasona)l2 unaware of the defect when he accepted or reasona)l2 )elie+ed the2 would )e cured and F2G the Inon conformit2 !/8!$an$iall? im#air! $he 7al/e J The )u2er loses the ri5ht to perfect tender once he has accepted the 5oods 3otice also that the )u2er loses the ri5ht to an2 cure if he accepts 5oods knowin5 of non conformit2 f. ./8!$an$ial im#airmen$% ;hether this standard is o)*ecti+e or su)*ecti+e is still unsettled7 and ma2 +ar2 dependin5 on the risk of forfeiture in the particular case This means that it ma2 )e su)*ecti+e with resala)le 5oods For where the a55rie+ed part2 will suffer a material and speculati+e loss7 as in *arkerG )ut o)*ecti+e with construction contracts Fwhere risk of forfeiture and un*ust enrichment are particularl2 hi5hG Remem)er that this will )e )alanced a5ainst 5ross forfeiture to 5et a *ust result7 )ut the )u2er with non conformin5 tender does ha+e the upper hand here (. &$her eBce#$ion! $o $he #erfec$ $ender r/le The N limits the ri5ht to re*ect Fe.5. makes repair and replace the e<clusi+e remed2G There are other 5rounds to preclude B from re*ectin5 Fe.5.7 )2 interpretation or under a dut2 of 5ood faithG. h. Ca!e! * )Bam#le! Colonial 0od(e 7. 9iller% >illers )ou5ht car without spareK >illers ar5ue that the2 can re+oke acceptanceK seller can cure )ut not in timeK court ends up findin5 for 0olonial Dod5e on the point that the lack of spare tire was not su)stantial enou5h Fma2 ha+e dis)elie+ed that the re+ocation was for the tire7 which hints at )ad faithG

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Downloaded From OutlineDepot.comContracts &. 'aterialitA of %reach 1.B : 41 3 ,,,5

a. Default ma2 5i+e the non defaultin5 part2 the ri5ht to suspend performance7 it ma2 5i+e him the ri5ht to cancel or terminate the N feein5 him of an2 further performance o)li5ation and entitlin5 him to make a su)stitute N Fdischar5eG7 and it ma2 5i+e him the ri5ht to rescind the N and reco+er the +alue of his past performance in restitution F'lgernon $lairG. Breach >aterial 1ncura)le To$al Breach ?ncured To$al Breach 0ura)le FpartialG 0ured ./8!$an$ial 2erformance 3on >aterial FpartialG ./8!$an$ial 2erformance

8. Three T?#e! of Breach To$al and ma$erial% 8romisee ma2 F1G withhold performanceK F2G terminateK or F'G full dama5es 9a$erial 8/$ no$ $o$al% 8romisee ma2 F1G suspend performanceK F2G await cureK F'G claim dama5es No$ ma$erial (!/8!$an$ial #erformance"% 8romisee ma2 onl2 claim dama5es for loss suffered c. )ffec$! of 9a$erial 7!. To$al Breach 9a$erial 8reach% Allows the nondefaultin5 part2 to suspend or withhold performance7 )ut it does not necessaril2 repudiate the entire contract To$al 8reach% Funcured an )adG Allows the nondefaultin5 part2 to walk awa2 from the deal entirel2 and ma2)e reco+er his performance )ack in restitution o Restatement also permits the defaultin5 part2 to seek restitution to pre+ent forfeiture d. +e!$a$emen$ D 251% >aterialit2 depends on a wei5hin5 of these elements4 F1G 9<tent to which in*ured part2 will )e depri+ed of the )enefit which he reasona)l2 eB#ec$ed F2G 9<tent to which the in*ured part2 can )e adeL/a$el? com#en!a$ed for the part of the )enefit of which he will )e depri+ed Flosses cannot )e speculati+eG F'G 9<tent to which the part2 failin5 to perform or to offer to perform will suffer forfei$/re F-G (ikelihood that part2 failin5 to perform or offer to perform will c/re his failure7 takin5 account of all the circumstances includin5 an2 reasona)le assurances F,G 9<tent to which the )eha+ior of the part2 failin5 to perform or to offer to perform comports with standards of (ood fai$h and fair dealin5. e. er(enA! re!$a$emen$ of +e!$a$emen$ D 251% The law permits a part2 to withhold or refuse performance when it is necessar2 to a+oid sufferin5 a loss e+en if doin5 so will inflict a disproportionate loss on the defaulter Falthou5h this power is tempered )2 the courts to pre+ent forfeiture E windfallsG The three criteria4 F1G 9<tent to which the in*ured part2 will suffer an /ncom#en!a$ed lo!! if it must render the promised counter performance in return for non conformin5 performance !factors FaG7 F)G7 and FdG&. F2G 9<tent to which the defaulter will suffer forfei$/re if the in*ured part2 withholds the promised counter performance F'G The L/ali$? of $he defa/l$erA! cond/c$ 9<ample4 Seller uses 2ellow paint instead of )one white. Bu2er credi)l2 chooses not to repaint. o F1G 2esK F2G noK F'G no. The law will impose a si5nificant loss on a defaulter Fe+en an innocent defaulterG to a+oid imposin5 a material uncompensated loss on the a55rie+ed part2. F *arkerG. 1f the )u2er had alread2 paid7 then he must rescind the N and sue for restitution Fas not su)stantial performanceG. 9<ample4 uses ancient white instead of )one white o "lante v. !acobs F0B %26G4 misplaced wall )2 a foot. Found su)stantial performance. '-

Downloaded From OutlineDepot.comContracts Sometimes the law will saddle the a55rie+ed part2 with a small uncompensated loss to a+oid a lar5e and disproportionate forfeiture. K.G Construction Co v. Harris o An un*ustified response to a )reach or insecurit2 is itself a )reach of N7 which if material7 will 5i+e the other part2 the ri5ht to cancel or rescind and seek dama5es. o Also7 when a N )reaks down from )oth parties refusin5 to perform the law casts the loss on the other part2 who first materiall2 )reached the N. No$e% a part2 ma2 safe5uard its ri5ht to withhold performance on default )2 makin5 the otherDs performance a condition to her o)li5ation. F!acobs . 9oung F0B %''G !Readin5 pipe&7 althou5h ironicall2 the court o+erlooks this to pre+ent disproportionate forfeitureG. o

!. The UCC Approach a. UCC D 2-,=1% B/?erA! +i(h$ $o +eEec$ 2erfec$ $ender r/le% Gi+es the )u2er the ri5ht to re*ect if the tender fails Iin an2 respectJ ?3(9SS 8. UCC D 2-5=<% .ellerA! +i(h$ $o C/re Gi+es the seller the ri5ht to cure a nonconformin5 tenderK cure must make #erfec$ $ender Fconformin5 tenderG Su)section F2G dictates the reasona)le time allowed for tenderK allows Ifurther reasona)le timeJ to cure if the seller reasona)l2 )elie+ed that his tender would )e accepta)le o As for what is a reasona)le time7 a)sent forfeiture or patentl2 opportunistic )eha+ior )2 B7 cases err on side of protectin5 the )u2er. +e7i!ed UCC No$e% Seller does not ha+e ri5ht to cure if )u2er is a consumer Commen$ 5% e+idence of trade usa5e ma2 )e used to esta)lish a limitation on the ri5ht to re*ect. o 89 wonDt )ar e+idence of trade usa5e under the ?00 9+idence of trade usa5e is admissi)le F2 2:2G and an effort to interpret e<press terms in a wa2 that is consistent F1 2:,F-GG o 3ot e<pressl2 inconsistent and if in 0ali loose on Iinconsistenc2J o 1n TL this wonDt fl2 take as writtenK four corners 8oint4 sometimes we 5et around perfect tender )2 interpretation c. UCC D 2-,12% Bu2erDs Ri5ht to Re*ect in 3n!$allmen$ Con$rac$! 3o perfect tender rule Bu2er ma2 re*ect an installment onl2 if the nonconformit2 su)stantiall2 impairs the +alue of the installment Fcourts use @ 2-1 to determine Isu)stantial impairmentJG d. UCC D 2-,=5% Bu2er wai+es the defect. 1f )u2er does not suppl2 notice of the defect7 he cannot re*ect the 5ood or re+oke his acceptance if the seller could ha+e cured had he )een 5i+en notice Failure to particulari=e onl2 strips 2our ri5ht if the seller could ha+e curedK )2 silence 2ou ma2 cause them to lose the opportunit2 to cure Flike estoppelG. ReCuires a Cuick an informal notice of defects e. UCC D 2-,=6(1" Once B accepts7 and assumin5 B ma2 not re+oke acceptance7 B must pa2 the N price for the 5oods. BDs remed2 for defect is an action for )reach of warrant2 under 2 $1-. f. UCC D 2-,=6(2"% Acce#$ance wi$h :nowled(e of non-conformi$? 1f )u2er accepts the 5oods with knowled5e of a non conformit27 he cannot re+oke his acceptance unless the seller then fails to cure seasona)l2 (. UCC D 2-,=6('"% Acce#$ance wi$ho/$ :nowled(e of non-conformi$? FaG Bu2er must notif2 within a reasona)le time after he disco+ers or should ha+e disco+ered the )reach or else he is )arred from reco+er2 of all remedies +e7i!ed UCC No$e% 0urrent +ersion does not reCuire pre*udice on the sellerK re+ised +ersion does7 so it is Ian instantiation of the concept of estoppelJ h. UCC D 2-,=<% +e7oca$ion of acce#$ance Bu2er can onl2 re+oke his acceptance if o F1G there is su)stantial non conformit2 o F2G e<cusa)le dela2 in re+okin5 Fe.5. unknown defectG7 and o F'G no su)stantial chan5e in condition of 5oods independent of the defect ',

Downloaded From OutlineDepot.comContracts The )u2er loses the ri5ht to perfect tender once he has accepted the 5oods 3otice also that the )u2er loses the ri5ht to an2 cure if he accepts 5oods knowin5 of non conformit2 No$ice% 0omment - sa2s IThe content of the notification need merel2 )e sufficient to let the seller know that the transaction is still trou)lesome and must )e watchedJ )Bce#$ion! $o 2erfec$ Tender Trade /!a(e /nder 2-5=<% A seller cannot compel a )u2er to accept non conformin5 5oods with a price reduction Fe+en if this is in accord with trade usa5eG7 )ut this can )e used to limit remedies ood fai$h and reEec$ion% The dut2 of 5ood faith means that the 5ood must )e re*ected )ecause of the defect7 not to a+oid or take ad+anta5e of a chan5e in market conditionsK this is an e<ample of usin5 power to an ille5itimate end

i. E. k.

.. Cases - *+amples a. BUN)+A. +3 ;T T& +)F)CT 'eck v. "auli F0B %2:G4 stron5 case for not allowin5 the )u2er to re*ect for a small non conformit2. Speciall2 manufactured 5oods7 and term was Iin the course of the 2ear.J 'artus v. *iccardi F0B %1$G4 court held that the )u2er had to 5i+e the seller an opportunit2 to cure )ecause the seller offered to suppl2 precisel2 the hearin5 aid that was ordered )2 the )u2er. %ortin F0B %2%G4 - month dela2 and the )u2er used the )oat " or $ weekends. ?nrepaired defects at the time of re+ocation. ;hat kind of claim would the seller ha+eH o Restitution P rental +alue and not the depreciation. "late( Cor-. v. Machlett F0B %2-G o The courts found that the )u2er accepted the tanks when its en5ineer e<amined them and told the seller that the )u2er would take the tanks in a da2 or two after the remainin5 pro)lems had )een corrected. The courts treat this as an acceptance under 2 ":"F1GFaG7 )ut there is lan5ua5e in 2 ":2F1G that makes it suspect4 IUwithin a reasona)le time after their tender or deli+er2UJ

C. 0ower to Withhol( 0erformance in a #ispute


1. 6eneral 'atters

14& 2 4! 3 B&,5

a. An$ici#a$or? re#/dia$ion% A clear and uneCui+ocal statement of intent not to perform an o)li5ationK can )e )2 clear words or )2 conduct that clearl2 indicates an intent not to performK o#era$e! a! $o$al 8reach 1n other words7 if a part2 repudiates the contract7 he is si5nalin5 that he is 5oin5 to )e in default 3n!ec/ri$?% 0onduct that makes a part2 insecure a)out future performance is not repudiation &7erla#% Breach for one part2 can )e repudiation for the other ). 2ower $o wi$hhold #erformance% Generall27 we ask if there has )een a ma$erial 8reachK this is the ru)ric )2 which we determine if the repudiation or )reach is su)stantial enou5h -ac$or!% This will 5enerall2 reCuire appl2in5 the factors at @ 2-1 to make a determination Clear 8reach% A part2 ma2 withhold performance when there has )een a clear )reach 2ro$ec$ /ncom#en!a$ed lo!!% 1f a part2 is 5oin5 to suffer an uncompensated loss7 we t2picall2 allow him to stop performance e+en if this creates a reasona)le amount of forfeitureK @ 2-1F)G c. 0i7i!i8le con$rac$% This is a tool that the courts will use to a+oid forfeitureK if the2 can easil2 di+ide the contract into parts and enforce them differentl27 then the2 will d. 3!!/e! $o con!ider% Generall27 fact scenarios will deal with two potential )reachesK the alle5ed repudiation and the other part2Ds responseK this reCuires )reach anal2sis for )oth actions 3f $he fir!$ ac$ion i! a ma$erial 8reach7 then the second action is *ustifiedK this is )ecause we anal2=e the first action in $he con$eB$ of $he !econd !i$/a$ionK that is7 if the pro)lem is easil2 cura)le or if there would )e a 5reat deal of forfeiture7 then the first )reach is not material 3f $he fir!$ ac$ion i! no$ a ma$erial 8reach7 then the second action must )e anal2=ed under @ 2-1 &. InsecuritA an( Repu(iation '"

Downloaded From OutlineDepot.comContracts a. ?nder the common law an actor had the power to suspend performance onl2 in response to a material )reach or a repudiation. As for what constitutes repudiation see D 2-,1= Commen$ 1. o A re#/dia$ion reCuires words or conduct that clearl2 communicate that an actor intends not to perform or that it is impossi)le to perform. o At common law7 the actor has no power to withhold performance )ecause of insecurit2 without repudiation. See Hathaway v. $abin F0B %-"G. ). D 2-,=1(1"% pro+ides a ri5ht to demand assurances when there are reasona)le 5rounds for insecurit2 and to suspend performance while waitin5 for reasona)le assurances. A failure to pro+ide reasona)le assurances is a repudiation. c. Ca!e! * )Bam#le! !. Installment Contracts: UCC F &:=1& - &:=DB a. +eEec$ion of !in(le in!$allmen$% 1n order to re*ect an installment7 the non conformit2 must O!/8!$an$iall? im#airP the +alue of the installment and must also )e incura)le ./8!$an$ial im#airmen$% 0an include factors such as Cualit27 time7 Cuantit27 assortment7 etc )ut must )e *ud5ed in terms of the normal or specificall2 known purposes of the contract C/re% ?nclear whether cure must )rin5 5ood up to perfect tender or *ust to su)stantial performance ). Cancella$ion of con$rac$% 1f the non conformit2 su)stantiall2 impairs $he 7al/e of $he en$ire con$rac$7 then the nondefaultin5 part2 has a ri5ht to cancel the contract 3n!ec/ri$?% 1f the )reach merel2 makes the part2 insecure a)out future performance7 then )efore he can cancel the contract he must demand reasona)le assurances of future performanceK the part2 can onl2 cancel the contract if the other part2 fails to 5i+e reasona)le assurances c. +i(h$ $o adeL/a$e a!!/rance of #erformance (2-,=1"% 1f a part2 is insecure a)out future performance7 he can withhold performance Fif commerciall2 reasona)leG and demand reasona)le assurances in writin5 AdeL/ac? of #erformance% 0omment - 5oes to adeCuac2 of performanceK under normal circumstances7 a statement that it wonDt happen a5ain should )e sufficient Jnown corner c/$$er% The situation ma2 )e different if the part2 has reason to suspect that the part2 will not perform and ma2 ha+e the ri5ht to demand postin5 of 5uarantee or other remedies .. Cases - *+amples a. ). c. d. -o/r h?#o$he$ical!% See his notes7 p. 121 for the particulars on this 2almer 7. 4a$!on Con!$r/c$ion Co.% 9903 7. )*4% U.9 7. Ball Tic:e$%

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Downloaded From OutlineDepot.comContracts

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'eans to Ren(er Contract "oi( ) *+cuses for #efault


rau( - #uress
1&4 3 .D,5

A. The #utA of 6oo( aith:


1. #uress

a. Two 8a!ic !cenario! for d/re!! F1G 9mplo2ee is forced to relinCuish tort claim at threat of termination F2G 0ontract modification 8. +e!$a$emen$ D 165 c. +e!$a$emen$ D 16,% There are two strands we can use to classif2 cases F1G IThreat is a )reach of 5ood faith and fair dealin5 under a contractJ Fe<tortion7 1$"F1G FdGG F2G IThreatened act would harm the recipient and would not si5nificantl2 )enefit the part2 makin5 the threat Fe<tortion7 1$"F2GFaGG o This means that the threat itself would not directl2 )enefit the part2 makin5 it FScoundrel does not )enefit directl2 from tellin5 Ds wife that he is ha+in5 an affairG d. Threa$ $o 8reach con$rac$% 8osner sa2s initiall2 that it is no usuall2 duress to threat to )reach contract7 that is7 to threaten to not do somethin5 2ou are le5all2 o)li5ated to do e. 9odifica$ion!% Two criteria that make a threat to )reach in order to secure a modification wron54 F1G 3o commerciall2 le5itimate reason for seekin5 a modification F?00 @ 2 2:6 02G F2G 8rinciple of disproportionalit2K whether the )reach would impose a lar5e loss on the other part2 Funreciprocal loss in )reach ma2 distin5uish Ns where non performance would harm )oth partiesG f. )B#loi$in( financial diffic/l$ie!% Generall2 not improper unless +er2 seriousl2 disproportionate power 1f the settlement appears to )e reasona)le7 then the courts will enforce it7 e+en if one part2 in straits Bad fai$h * d/re!!% One wa2 of lookin5 at the issue is to ask if the part2 is threatenin5 to withhold somethin5 that he knows is due in order to 5et le+era5e in a dispute 5. 2ro#er$? ri(h$!% A person has a ri5ht to allow or refuse to let someone use his propert2 for an2 reasonK he can char5e much more than the land is worth to him Fcrane and propert2 ownerG h. No rea!ona8le al$erna$i7e% *ust esta)lish that the duress left him with no wa2 outK it is not enou5h *ust to show that the threat was improper 3m#ro#er $hrea$% 3either a necessar2 nor sufficient condition for duress i. Ca!e! * )Bam#le! +.L. 9i$chell 7. C.C. .ani$a$ion% 0annot threaten to fire to induce an emplo2ee to release a claimK power to fire does not include power to induce emplo2ees to 5i+e up tort claims .co/ndrel di!co7er! affair% Scoundrel does not )enefit directl2 from makin5 threat .elmer 7. Bla:e!lee-9idwe!$% completes SDs work under promise that S will compensate for additional costs Ffor which S was responsi)leGK S offers O"$k and accepts )ecause of financial difficult2K 8osner finds for S7 sa2in5 )ar5ainin5 power no disproportionate Fsettlement reasona)leG 4/r$K 7. -lei!chman% ; was sellin5 hotel to FK F made all kinds of reliance to tr2 to complete sale under assurances from ;K ; asked for an additional O,:k to complete saleK F complied Fotherwise hu5e lossesG and sued for duress Fthis ma2 )e like +ed 8wlG Ca##! 7. eor(ia 2ac. Cor#.% 8osner uses for principle of massi+e disproportionalit2 F,k +s. 1,$kG &. rau( - The #utA to #isclose 1&= 3 .!!5

a. )lemen$! of -ra/d (Jenned?" F1G ;ron5ful E 1ntentional F2G >aterial misrepresentation F'G Statement of fact F-G On which has a ri5ht to rel2 F,G relied on the misrepresentation F"G This reliance caused '%

Downloaded From OutlineDepot.comContracts F$G >aterial harm ). 9a$erial !$a$emen$ of fac$% 0annot )e opinionK hard cases are where the S lies a)out his opinion or his intent to act in the futureK mo+ement toward makin5 representations actiona)le if 2ou can pro+e the lie c. 3n$en$ionali$?% Generall27 must pro+e the lie was knowin5 F)ut not in some *urisdictionsG )B#re!! warran$?% Sometimes7 the courts will allow fraud e+en if misrepresentation was innocent 3m#lied warran$?% Sometimes7 courts will enforce an implied warrant2 if the S didnDt know a)out the defect7 )ut not alwa2sK it is alwa2s )etter to show intentionalit2 d. 0UTN T& 03.CL&.) the law will relie+e a part2 of a clerical or mathematical error )ut no$ an error in *ud5ment or +aluation. e. .ellerA! d/$? $o di!clo!e% There is a dut2 to disclose known7 hidden7 material defects which are harmful and which would not )e disco+ered )2 a Icareful e<aminationJ .?mme$ric o##or$/ni$? $o find% Relie+es S of this dut2 Ffeedlot near the propert2G o Mathews F0B "-,G and %D/C v. Grace F"-,G P no dut2 to disclose facts that the )u2er ma2 )e e<pected to disco+er on ordinar2 inspection. 0i!co7era8ili$?% S must disclose if he )elie+es the would readil2 disco+er it Fcar knockin5G N&T)% 3f !#ecificall? a!:!> S m/!$ an!wer hone!$l? (or ref/!e $o an!wer" or $here i! fra/d Cushman v. Kirby P silence alone is insufficient to create fraud unless there is a dut2 to speak. /us)and had dut2 to speak after wife made misrepresentation. Mathews v. Kinkaid P a seller has a dut2 to disclose a hidden defect to a )u2er o UCC 2-'15 states same rule for non merchant seller. f. B/?erA! d/$? $o di!clo!e% Generall2 has none Frare )ook7 land with oil on itGK remem)er that if asked7 )u2er must answer honestl2 or refuse to answer Jronman% Reward enterprise and searchK 5i+e them the )enefit of the )ar5ain .che##elle% 1nformation is readil2 a+aila)le +ia a search to )oth of the parties Fs2mmetricG 5. Clerical error! 7!. error! of E/d(men$% 1t is said that parties can take ad+anta5e of errors of *ud5ment )ut not clerical errors Fresol+es dissonance )etween the rare )ook case and the landlord utilities caseG There is a dut2 to disclose a mistake of the other part2 as to the content or effect of a writin5. h. +emedie! for fra/d% FaG Benefit of the )ar5ainK F)G relianceK FcG restitutionK FdG ma2)e puniti+e dama5es 5enerall2 5ets to elect )etween reliance7 e<pectation F)enefit of the )ar5ainG7 and restitution !. #utA of 6oo( aith 1&> 3 ..45

a. -id/ciar? 7!. Confiden$ial 0/$? Confiden$ial +ela$ion!hi# -id/ciar? +ela$ion!hi# Relationship of trust and confidence usuall2 Dut2 to act selflessl2 on )ehalf of another founded on kinship or deep friendship Other has entrusted fiduciar2 with affairs 0annot take ad+anta5e of anotherDs Dut2 of utmost lo2alt2 incapacit27 i5norance7 or ine<perience Fchild 9.5. attorne2 to client cannot e<ploit trust of infirm parentG Old Te<as case7 )u2er must disclose to close famil2 friend if he found oil on land ). ood fai$h and fair dealin(% >ultifaceted doctrine with man2 meanin5sK famousl2 hard to define c. .ome defini$ion! of (ood fai$h% Con$rac$! defini$ion% The dut2 of 5ood faith protects contract )ased e<pectations )2 precludin5 a person from usin5 a power7 ri5ht7 or other term for an impermissi)le purpose o (ooks to the partiesD ac$/al a(reemen$ o 1.e. )u2er screwin5 home )uilder +ia financin5K 6ortune +e7i!ed UCC D 2-1='% Good faith is Ihonest2 in fact and the observance of reasonable commercial standards of fair dealingJK this includes o)ser+in5 the customar2 norms of the communit2 o (ooks to the norm! of $he #ar$ie!A comm/ni$? F/d(e 2o!nerA! defini$ion% A part2 cannot trick the other part2 into makin5 a mistake Fcould )e that 2ou cannot take deli)erate ad+anta5e of the other part2Ds mistake7 )ut is not reflected in decisionG o There are hints of disproportionalit2 and )ars a5ainst IopportunismJ Fsimilar to duressG o This is a m/ch narrower defini$ion

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Downloaded From OutlineDepot.comContracts UCC D 1-'=5 Commen$ 1% 3otes that 5ood faith is not a )asis for imposin5 an o)li5ationK 5ood faith is simpl2 a tool for re5ulatin5 the performance of duties and e<ercise of ri5hts d. F/d(e 7!. E/r?% 1n contracts7 the *ud5e determines the e+aluati+e E normati+e issues Fe+en when fact specificGK the *ur2 decides on the facts of the case e. eneral No$e! 1n Te<as7 5ood faith does not appl2 to common law contracts Fdan5erous 0A inno+ationGK in Te<as7 2ou could cast the issue as a dut2 to disclose a clerical error f. Ca!e! * )Bam#le! 9ar:e$ .$ree$ A!!ocia$e! 7. -re?% (ease )u2)ack pro+isionK >SA sent reCuest for financin57 hopin5 that G98T would for5et a)out the pro+ision that allowed >SA to )u2 the propert2 )ack at a fa+ora)le priceK *ur2 found that >SA was tr2in5 to trap G98T B/?er and home 8/ilder% Bu2er cannot fail to 5et financin5 to 5et out of the contract

%. 'iscellaneous 'echanisms for "oi(in$ a Contract


1. UnconscionabilitA a. 1f contract is unconsciona)le7 i.e. a5ainst reasona)le pu)lic polic27 then the court can +oid it ). An e<ample of this is the $rower case7 where the limitation of remed2 )asicall2 precluded a customer from )ein5 a)le to )rin5 a suit a5ainst Gatewa2 for an2 reason c. See ?nconsciona)ilit2 under 1nterpretation &. Contra 0roferentum - Reasonable *+pectations a. Am)i5uit2 is resol+ed a5ainst the drafter . reasona)le e<pectations ma2 allow a findin5 a5ainst S7 especiall2 in insurance situations ). See 0ontra 8roferentum . Reasona)le 9<pectations under 1nterpretation !. 'utual 'isun(erstan(in$ a. This will sometimes allow the contract to )e dissol+ed7 althou5h there ma2 )e claims for restitution ). See >utual >isunderstandin5 . Am)i5uit2 under 1nterpretation .. 'ista/en %i(s a. 1f a )id is mistaken and there has )een no reliance7 the mistaken )idder can sometimes 5et out of the contract Fthis is usuall2 the onl2 remed2G ). See >istaken Bids under 1nterpretation 4. Unilateral 'ista/e a. 1f one part2 has made a clerical error in 5ood faith7 the contract will )e unenforcea)le ). See ?nilateral >istake under 1nterpretation =. In(efiniteness a. 1f the contract is too indefinite7 then the courts will not enforce it ). There are different standards of definiteness7 dependin5 on which law applies c. See Definiteness under Formation

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"I.

Reme(ies - #ama$e 'easures


ormula Chart
Usa$e - 7pecial 9otes ?se when the seller has resold the 5ood. This is the simplest remed27 and what we want sellers to do in )reach ?se when the seller either hasnDt resold 2et or doesnDt plan to resell or resale price for some reason is under the market price ?se for F1G lost +olume sellers and F2G manufacturers that ha+e not completed 5ood. 1f lost +olume7 *ust 5i+e (ost 8rofits Y 1ncidentals. 1f manufacturer7 follow rules for reasona)le completion Fno$e% look at whether manufacturer could ha+e used time for other purposesG. This should )e used for manufacturers that do not complete their 5ood. ?se when the )u2er has co+ered from the )reach. This is the simplest method and what we want )u2ers to do in situations of )reach. ?se when the )u2er either hasnDt 2et co+ered or decided not to co+er. ?sed when the le5al remedies are inadeCuate. The seller must )e a)le to perform. This is used 5enerall2 when the 5oods are so uniCue that the )u2er cannot 5et an adeCuate co+er. The ?00 has li)erali=ed the application of this remed27 and allows for Iother proper circumstancesJ. Courts must weight the inade9uacy of the legal remedy against the difficulty of enforcing the order of s!ecific !erformance. 0onseCuential dama5es are )asicall2 those that are not incidental and that stem from the conseCuences of the )reach. The2 are t2picall2 limited to conseCuences which are Inormall2J foreseea)le or which the seller has Ireason to knowJ )ecause F)ecause )u2er told himG.

A. Reme(ies

Reme(A ormula .ellerA! )B#ec$a$ion 3n$ere!$ +e!ale 2rice 0ontract 8rice P ?00 @ 2 $:" Resale 8rice Y 1ncidentals 9ar:e$ 2rice 0ontract 8rice P ?00 @ 2 $:%F1G >arket 8rice Y 1ncidentals Lo!$ 2rofi$! (ost 8rofits Y ?00 @ 2 $:%F2G 1ncidentals Y 0osts 1ncurred Y Resale 8roceeds Alternati+e Formula 0ontract 8rice P 9<penses Sa+ed B/?erA! )B#ec$a$ion 3n$ere!$ Co7er 2rice 0o+er 8rice P ?00 @ 2 $12 0ontract 8rice Y 1ncidentals 9ar:e$ 2rice >arket 8rice P ?00 @ 2 $1' 0ontract 8rice Y 1ncidentals .#ecific 2erformance 3EA ?00 @ 2 $1"

Con!eL/en$ial 0ama(e! ?00 @ 2 $1,F2G

3EA

The +eliance 3n$ere!$ The )asic idea is that reliance will sometimes )e 5i+en when e<pectation dama5es are too speculati+e These 5enerall2 are used to measure lo!$ #rofi$! when the2 are too speculati+e to award +e!$i$/$ion from 0efa/l$er 1n situations of total )reach7 the non defaultin5 part2 can 5ain restitution from an2 )enefit conferred )ecause of reliance or part performance 1f the contract has )een su)stantiall2 performed7 there is no ri5ht of restitution +e!$i$/$ion $o 0efa/l$er 1f the )reach is onl2 material7 the defaultin5 part2 can 5et restitution of )enefits conferred to pre+ent forfeiture or un*ust enrichment U!in( +e!$i$/$ion $o Clean U# af$er a 9i!$a:e This is an oddit2 )ecause the courts are reall2 awardin5 reliance Fthere is no reCuirement that the other part2 )e enrichedG when there has )een a mistake 1f 2ou are in a state Flike Te<asG that does not reco5ni=e @ 6: reliance7 there are these cases out there that will use the doctrine of restitution Fincorrectl2G to protect reliance

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%. Contract Reme(iesC 6enerallA


1. <verarchin$ Interests of Contracts Law a. )B#ec$a$ion #rinci#le% This is the interest of puttin5 the 8 in his ri5htful position. Generall27 this means that we will tr2 to ima5ine the world as it would )e with full performance of the contract7 compare it to the world as it is7 and correct the difference with dama5es. Generall27 the 5oal in 5i+in5 e<pectation dama5es is to put the promisee in as 5ood a position as he would ha+e occupied had the Q performed the promise. ). 9i$i(a$ion #rinci#le% This means that the part2 dama5ed )2 the )reach has a dut2 to miti5ate the dama5es caused to him as )est he can. Generall27 this means that he should tr2 to co+er or resell7 )ut there are other means of miti5ation. c. +emedial !im#lici$?% 0ontracts law tries to 5et to the solution as Cuickl2 and easil2 as possi)le. T2picall27 this means that contract law does not fa+or rules that will force *ur2 trials7 so there is usuall2 aFnG Fo+erGsimplification of the situation in order to 5et there. There is also the implication that the remed2 ha+e as little uncertaint2 as possi)le.

C. Un(erlAin$ 0rinciples an( Issues


1. *mploAeeHs Reme(ies for %reach of 0romise to *mploA a. 1f emplo2ment contract is )reached7 the emplo2eeDs )asic remed2 is the contract price ). This is su)*ect to offset if F1G the emplo2ee ac$/all? $oo: o$her em#lo?men$ that he would not ha+e )een a)le to do if he had )een emplo2ed under the ori5inal contractK or F2G there wa! !/8!$an$iall? !imilar wor: a7aila8le that the emplo2ee did not accept c. The law doesnDt reCuire that the emplo2ee take *ust an2 kind of work )ecause there is a reco5nition of the fact that the emplo2ee has an interest in the kind of work he does This is not the case with most sellers7 who do not care who 5ets the 5ood d. This remed2 is less speculati+e than other possi)le remedies F+aluin5 leisure7 less satisf2in5 work7 etcG Generall27 an emplo2ee wonDt reco+er )ecause the work is less pleasant or for loss of future wa5es )ecause these are two speculati+e. e. &uten 'ridge% Breach of construction N )2 )u2er )efore full performance. Two Dama5e formulae4 0ost incurred Y lost profit and N price P e<penses sa+ed o 3ote4 deduct mar5inal costs )ut not fi<ed costs. ?nlike in a personal ser+ices N7 a construction compan2 is assumed to ha+e the capacit2 to do )oth *o)s Fpresumption from KearsageG. Therefore7 do not su)tract the profit from the other *o) that compan2 switches its crew and eCuipment to. o 3ote4 treat data processin5 like construction. f. 0/$? $o mi$i(a$e% Generall27 the part2 harmed )2 a )reach has a dut2 to miti5ate7 to take reasona)le steps to offset the dama5es owed )2 the )reachin5 part2 Femplo2ment contracts are e<ceptionG. 1f an emplo2ee does not take other work his potential earnin5s will )e su)tracted from his promised wa5e onl2 if the defaultin5 emplo2er can show that other work was a+aila)le and that this work is sufficientl2 similar to the promised work. 5. Mac&aine r/le% >iti5atin5 alternati+e emplo2ment must )e Isu)stantiall2 similarJ7 which is to sa2 that the work canno$ 8e of a differen$ or inferior :ind The issue is not whether the emplo2ee acted rea!ona8l? )ecause reasona)leness is not an elementK all that matters is that the emplo2ee !/8Eec$i7el? feel that the work was different or inferior This seems to put the e<pectation and remedial simplicit2 principles o+er the miti5ation principle The case law seems to sa2 that the two *o)s must )e I+irtuall2 identicalJ )efore the courts will reCuire that the emplo2ee miti5ate dama5es )2 takin5 them h. UUNo/ ha7e a d/$? $o mi$i(a$e dama(e! 8/$ in doin( !o ?o/ donA$ ha7e $o !acrifice ?o/r in$ere!$ or eB#o!e ?o/r!elf $o an /ncom#en!a$ed lo!!. This can lead to the non defaultin5 part2 inflictin5 enormous dama5e on the defaultin5 part2. &. 7tipulate( Reme(ies ) Liqui(ate( #ama$es: UCC F &:>1, -2

Downloaded From OutlineDepot.comContracts a. .$i#/la$ed remed?% Remed2 that is stipulated )2 the contract as the remed2 in case of )reachK also called liL/ida$ed dama(e ). 0ourts will not enforce stipulated remedies that are #enal$ie! c. +e!$a$emen$> .econd D '5, F0B 1'6G and UCC 2-61<(1" .$a$e $he .ame +/le A term liCuidatin5 dama5es must )e in an amount that is rea!ona8le in li5ht of actual or anticipated dama5es and the difficult2 of proof of loss. A term fi<in5 unreasona)l2 lar5e liCuidated dama5es is unenforcea)le as a matter of pu)lic polic2 as a penalt2. 9<amples4 o Difficult to measure pecuniar2 losses. Summer camp reCuires O,:: deposit actual dama5es are a function of the e<penses sa+ed on the loss of a camper7 which are difficult to measure so this is a +alid clause. o 3on pecuniar2 interests. City of +ye F0B 1'-G implies that harm +alidatin5 the clause must )e pecuniar2. uldoon F0B 1'"G could also )e read this wa2. ,ockney v. Horn F0B 1',G and ?00 2 $1%F1G su55est that a clause ma2 )e used to protect interests such as non pecuniar2 interests that can otherwise not )e protected on )reach. This is the stron5er position for non pecuniar2 interests are often taken into account in esta)lishin5 dama5es7 the2 are not *ust compensated directl2. F1G ?00 2 $1%4 IUand the incon+enienceU.J which is not in the Restatement. d. Unrea!ona8le )B An$e> +ea!ona8le )B 2o!$ (3n7arian$ or &7er8road Cla/!e!" 1n H- c:rath Co. F0B 1-'G7 liCuidated dama5es were O'::7 dama5es ran5ed from O22: O',2 and the court ne+ertheless refused to appl2 the clause holdin5 it to )e in+alid )ecause dama5es are the same without re5ard to the ma5nitude of the )reach. See this rule also in (ilt F0B 1-1G. o ?nder 2 $1%F1G enforce the clause )ecause it is reasona)le in li5ht of actual dama5es Ianticipated or actualJ onl2 has to )e reasona)le in li5ht of one or the other. e. +ea!ona8le )B An$e> Unrea!ona8le )B 2o!$ assman Constr. Co. F0B 1-2G court7 as a matter of interpretation7 said the clause was not intended to co+er these circumstances. o ;ines7 0B 12,7 1267 citin5 "orwalk #oor Fat )ottomG7 )9uitable Lumber Flast sentence on 0B 1-:G7 0omment to +2 D '5, all are authorit2 for a rule that a liCuidated dama5e clause should not )e enforced when actual dama5es are =ero or FperhapsG much less than liCuidated dama5es. o The first sentence of 2 $1%F1G would seem inconsistent as it +alidates a clause that is reasona)le in li5ht of actual or anticipated. But some cases F)9uitable Lumber is an e<ampleG interpret the second sentence as imposin5 a separate rule in+alidatin5 an o+er compensator2 clause. There is a split on this issue. The amendments to the second sentence of 2 $1%F1G make it clear that the second sentence is not meant to in+alidate assmanK not meant to )e a second reCuirement FHHHHHHHHG. f. The 3llinoi! +/le 7!. +e!$a$emen$ (.econd" 7!. UCC D 2-61< The 3llinoi! +/le )asicall2 sa2s that liCuidated dama5es must )e a Ireasona)le estimate of actual dama5es at the time of contracting.J o Onl2 takes into consideration the rea!ona8lene!! of $he remed? a$ $he $ime of con$rac$in( o This ma2 mean that if the remed2 was reasona)le when made7 it would still )e applied e+en thou5h it is outra5eous when applied (. Ta:e-or-2a? Con$rac$! Ta:e-or-#a? con$rac$% Deal structured as Ialternati+e performance contractJ These ori5inated in the natural 5as industr2 and the2 )asicall2 sa27 IMou pa2 for the 5as7 and 2ou can either take it or not.J 1t seems that Lake +iver is one of these cases7 so Ger5en doesnDt see wh2 8osner ruled the wa2 that he didK $he!e are mean! for (e$$in( awa? wi$h liL/ida$ed dama(e! almo!$ e7er? $ime !. Uncertain #ama$es

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Downloaded From OutlineDepot.comContracts a. 1n some states and at some times7 N loss precludes the reco+er2 of dama5es for losses that are o+erl2 speculati+e. The issue arises when the ma5nitude of a loss is uncertain7 e.5.7 the loss is within a )road ran5e. ;hen the ma5nitude of the loss is fairl2 certain )ut causation is uncertain the issue is resol+ed7 like in torts7 )2 askin5 whether the loss more likel2 than not would not ha+e happened )ut for the QDs )reach On the other hand7 if the )reach pre+ents a R from startin5 a new 8/!ine!! dama(e! ma2 )e denied thou5h it is fairl2 certain that the R lost some profits )ecause the actual amount lost cannot )e estimated with reasona)le certaint2. ). 6era7 0B7 illustrates the more li)eral approach. 1n 6era the profits on the )usiness ran5ed from : to O2$:7:::. The case holds that the issue should 5o to the *ur2. The +e!$a$emen$ D '52 Commen$ at 0B %, and the comments to UCC 1-'=5 are consistent with 6era On the issue of whether we should let the R 5o to the *ur2 on speculati+e profits the courts are all o+er. Some are with 6era P )rin5 in an e<pert. Some are with #em!sey P see The Reliance 1nterest

#. 7ellerHs *+pectation Interest


Generall27 we assume that the seller is onl2 interested in 5ettin5 the mone2 he was hopin5 to 5et in e<chan5e for his 5oods. Therefore7 most of the sellerDs remedies co+ered )2 the ?00 are focused to that end. Focus on lost +olume sellers. 1. Resale 0rice: UCC F &:>D= a. Con$rac$ 2rice +e!ell 2rice V 3nciden$al )B#en!e! )B#en!e! .a7ed ). The seller 5ets what he would ha+e recei+ed under the contract less what he actuall2 recei+ed c. ;e then 5i+e the seller an2 inciden$al eB#en!e! he incurred )ecause of the resale d. Und/e 8enefi$4 1f seller makes mone2 on the resale or sa+es e<penses )ecause of the resale7 we offset the dama5es )2 these amounts so that the seller doesnDt 5et a windfall at the e<pense of the )u2er e. Resale must )e in (ood fai$h and in a commerciall? rea!ona8le manner F@ 2 $:"F1GG f. ;here the resale is at pri+ate sale the seller must 5i+e rea!ona8le no$ice of in$en$ $o re!ellK 0omment % sa2s this is a loose standard F@ 2 $:"F'GG &. 'ar/et 0rice: UCC F &:>D,81; a. Con$rac$ 2rice 9ar:e$ 2rice V 3nciden$al )B#en!e! )B#en!e! .a7ed ). U!a(e% F1G ;hen no resale has happened 2etK F2G when the resale is not Icommerciall2 reasona)leJK or F'G when the seller had decided to keep the 5oods and in other difficult situations c. 3nciden$al eB#en!e!% An2 commerciall2 reasona)le char5es incurred in stoppin5 deli+er27 transportation or care of 5oods7 or in connection with resale Fi.e. retrie+al7 alternate transaction7 stora5e7 etcG d. )B#en!e! !a7ed are remo+ed so that there is no windfall !. Lost 0rofits: UCC F &:>D,8&; a. Lo!$ 2rofi$!U V 3nciden$al )B#en!e! V Co!$! +ea!ona8l? 3nc/rred +e!ale 2roceed! X includes reasona)le o+erhead ). No$e% The amended @ 2 $:%F2G deals with the pro)lem of implementin5 this statute for lost +olume sellers. Read 0omment , for more information. c. No$e% ?nder the common law the claimant does not ha+e a ri5ht to reco+er his le5al fees thou5h this is a harm he suffers )ecause of the )reach. This has )een chan5ed in man2 states Fincludin5 Te<asG )2 statute. d. 2 $:%F2G was drafted to co+er ' different situations4 1ncomplete 5oods Fwhere resale of scrap is su)tractedG The (ost Aolume seller Fwhere su)tractin5 resale +alue would frustrate the 5oal of rewardin5 lost profitG -14 3 415

Downloaded From OutlineDepot.comContracts The I*o))erJ without 5oods in hand Fthis is the middleman who hasnDt 2et acCuired the 5oods for resaleG

e. Tri((er% ;hen the Imeasure of dama5es pro+ided in su)section F1G is inadeCuate to put the seller in as 5ood a position as performance would ha+e done.J This section applies to three different situations4 (ost +olume sellers Fwhere su)tractin5 resale +alue would frustrate the 5oal of rewardin5 lost profitG >anufacturer who does not complete his 5oods Fwhere resale of scrap is su)tractedG >iddleman who ne+er recei+es his 5oods Fwe wonDt talk a)out thisG f. Lo!$ @ol/me .eller! ($ee 0eri v. *etail Marine Cor-.> CB ,5" (ost profits are awarded in special circumstances to Ilost +olume sellersJ Car dealer eBam#le% The )asic e<ample is a car dealership with an unlimited suppl2 of cars. 1f a )u2er )reaks the contract to )u27 it doesnDt reall2 matter that that particular car was resold later )ecause the seller would ha+e made the second sale an2wa2. o >athematicall27 we shouldnDt su)tract the resale price from the market price )ecause7 as we said7 the second sale was 5oin5 to happen re5ardless o 4hen we are a##l?in( D 2-6=<(2" in $he!e ca!e!> we will i(nore $he la!$ $wo i$em! and !im#l? award Lo!$ 2rofi$! V 3nciden$al )B#en!e! o No$e% Amended @ 2 $:%F2G drops out Iless resale +alue.J (. 9an/fac$/rer wi$h 3ncom#le$e ood! This is the case for which the statute was reall2 written o 1f the seller is in the process of manufacturin5 a 5ood that cannot )e easil2 resold7 then we cannot appl2 the formulas a)o+e )ecause the2 reCuire a resale or market price nor can we 5i+e him the contract price )ecause this will o+ercompensate him7 since he has sa+ed e<penses Therefore7 we 5i+e him (ost 8rofits Fincludin5 reasona)le o+erheadG plus an2 incidental e<penses he ma2 incur )ecause of the )reach7 takin5 out an2 proceeds he 5ets from resellin5 the scrap This formula apparentl2 is sometimes prone to pro)lems7 so a formula used on construction contracts7 Con$rac$ 2rice )B#en!e! .a7ed7 is commonl2 used to deal with these pro)lems o )B#en!e! !a7ed includes )oth cost to complete and sal+a5e +alue of the unfinished 5ood h. 9i$i(a$ion 8? re!ale% Seller must complete 5ood and resell unless resale would )e difficult or impractica)leK includes situations where there is no market for the 5ood7 perhaps )ecause it is hi5hl2 speciali=ed or uniCue 3m#rac$ica8ili$?% ;hen Lo!! from +e!ale W Co!$ $o Com#le$e7 we donDt want the seller to complete the 5ood Lo!! from re!ale% The difference )etween contract price and the resale price i. 9i$i(a$ion 8? o$her em#lo?men$% ;e must consider if )reach allowed the manufacturer to take on other work Fthis is closel2 related to the acLaine principlesG 1f the manufacturerDs time is freed up and he is a)le to take on additional pro*ects7 which he would not ha+e )een a)le to do without the )reach7 we should deduct his 5ain from the dama5es This will depend on whether it was an indi+idual en5ineer or a lar5e firm workin5 under capacit2 .. Action for 0rice: UCC F &:&DB a. 9<ample4 S produces stationar2 with BDs )usiness name. B chan5es )usiness name and repudiates. S reco+ers N price. B 5ets stationar2. See 2 $:6F1GF)G.

*. %uAerHs *+pectation Interest


The remedies for the )u2er mirror that of the seller7 )ut as we will see7 the )u2er 5enerall2 has more options7 and the2 are not alwa2s limited to mone2. This is )ecause the )u2er is not interested onl2 in compensationK he wants the 5ood. ;hen the )u2er disco+ers that the seller is 5oin5 to )reachZthat is7 that he wonDt )e a)le to 5et his 5oods from the sellerZwe 5enerall2 want him to Ico+erJ7 or find another source for the 5ood. 9ea!/rin( )B#ec$a$ion 8? +emedial Co!$ of Lo!! in @al/e (&8Eec$i7e Lo!!" [Cla!! 2] a. 3ote4 when the remedial cost is less than the loss in market +alue7 award the remedial cost to make the R whole. -,

Downloaded From OutlineDepot.comContracts ). Summar2 Fwhat a)out when the remedial cost is 5rossl2 disproportionate than the loss in market +alueHG 1n choosin5 )etween the two7 the 5oal is to protect the promiseeDs e<pectation interest. The answer should turn on the promiseeDs interest in performance P does fulfillin5 his interest reCuire that the act )e done7 or will pa2ment of loss in market +alue sufficeH 9conomic waste has little to do with itK concern is o+er compensation. The promisee 5ets a windfall if he reco+ers remedial cost when he doesnDt put that much +alue on the work. o +e!$a$emen$> .econd D '5<(2" asks whether remedial cost is Iclearl2 disproportionate to the pro)a)le loss in +alue to himJ P allows for consideration of su)*ecti+e interests. o See :roves F0B 12G and *eevyhouse F0B 16G4 in )oth the work not done was failin5 to restore land after minin5. ;hen Rs incur a cost to remed2 a defect the2 reco+er the cost unless there is reason to )elie+e that cost was e<cessi+e )ecause the2 did more or )etter work than the2 were entitled to under the N. 0i!(or(emen$ of ain from a 2rofi$a8le Breach [Cla!! ']

Ger5en offers these as fairl2 )edrock principles of law4 a. 1n a N action7 dama5es are measured )2 RDs loss from the )reach not QDs 5ain. 'cme ills F0B 2'G. ). On a su)stantial )reach of N7 R ma2 elect to rescind the N and sue in Restitution to reco+er the +alue of his performance. 0all this restoration. c. 1n certain Tort actions7 R ma2 reco+er QDs 5ain from the wron5 e+en thou5h it e<ceeds RDs loss. 0all this dis5or5ement. R ma2 also reco+er puniti+e dama5es. 3either puniti+es nor dis5or5ement are a+aila)le in )reach of N. d. Sometimes in a N action7 QDs 5ain from )reach is the )est measure of RDs loss. 9<ample4 )reach of co+enant not to compete. Laurin v. #eCarolis N to sell house7 con+e2ance upon closin5 of the transaction. Before then7 Q remo+ed 5ra+el from the lot. R had no possessor2 interest when the 5ra+el was taken so not a con+ersion. 3e+ertheless the court held that the R was entitled to QDs profit Fdis5or5ementG. +e!$a$emen$ Third> +e!$i$/$ion and UnE/!$ )nrichmen$ D'1 P see a pro+ision allowin5 for reco+er2 of a )reacherDs profits Fdis5or5ementG in cases of opportunistic )reach. This is defined as a deli)erate7 profita)le )reach where the promiseeDs ri5ht to dama5es is e<pected to )e inadeCuate to protect the promiseeDs interest in the promised performance. This could e<plain Laurin /owe+er7 this is merel2 a tentati+el2 appro+ed draft of the Restatment. 3o court has said so )old a 5eneral rule thou5h there is authorit2 for dis5or5ement in these t2pes of cases. 2oin$% sometimes when N law 2ields worrisome results a fi< ma2 )e found in another )od2 of law. +eliance a! $he #referred remed? [Cla!! '] B/?erA! +emedie! are Ca$alo(/ed a$ UCC D 2-611 The )B#ec$a$ion Theor? a$ UCC D 1-'=5 1. Cover 0rice: UCC F &:>1& a. 0o+er 8rice P 0ontract 8rice Y 1ncidental 9<penses c. Basic situation where the 8/?er can rea!ona8l? co7er Fmiti5ateG and in+ol+es !$andard (ood! d. This is the 8/?erA! !afe!$ me$hod )ecause the courts will almost alwa2s award the difference )etween co+er and contract in a +ariet2 of different situations Fperhaps to reinforce the miti5ation principleG e. The )u2er also 5ets inciden$al eB#en!e! that are related to the co+er purchase -"

Downloaded From OutlineDepot.comContracts f. 0ourts will now allow the )u2er to 5et a windfall7 so if he profits from the )reach7 the seller owes him nothin57 pro+ided that the incidental e<penses are not 5reater than his windfall from the )reach Fseller does not 5et to share in the profits of the )reachG B co+ers and the market price continues to rise B reco+ers co+er price P N price. See comment , to 2 $1'. 5. ;hether miti5ation is reasona)le is determined at the time the decision is made &. 'ar/et 0rice: UCC F &:>1! a. 9ar:e$ 2rice Con$rac$ 2rice V 3nciden$al )B#en!e! ). 1f )u2er does not co+er or chooses not to co+er7 he 5ets the difference )etween the contract price and the market price at the time the )u2er learned of the )reach plus incidental e<penses Frelated to disposal7 etcG c. Satisfies the e<pectation interest )ecause we want to put the )u2er in his ori5inal positionK a!!/me! $ha$ $he 8/?er recei7ed $he (ood! and $hen immedia$el? re!old $hem for $he mar:e$ #rice d. ;e ha+e seen cases that ha+e limited dama5es to what the2 would ha+e )een had B co+ered Fas he should ha+e on those specific factsG. One wa2 is to 5i+e the market price P N price at the time of repudiation7 which the court defines as the time of the )reach under 2 $1' F8loffson 0B ,6G. The courts ha+e found other wa2s to IinterpretJ the statute to reach the correct answer in principle. !. 7pecific 0erformance: UCC F &:>1= a. Co/r$ order $ha$ reL/ire! !eller $o #erform 8a!ed on $he con$rac$ and re7o:e! hi! ri(h$ $o 8reach 8. Two reL/iremen$! for !#ecific #erformance% F1G The seller must )e a)le to performK and F2G The le5al remedies Fdama5esG must )e inadeCuate to put the )u2er in his ri5htful position o The second issue is t2picall2 the one that is contested c. T2picall2 used when the )u2er was una)le to co+er or when a co+er would )e an inadeCuate remed2 d. 0i!cre$ionar? -ac$or!% ?ndue )urden Fdisproportionalit2G 8u)lic 1nterest Administra)ilit2 Fdifficult2 in writin5 an enforcin5 the in*unctionG 1ndefiniteness Fof the o)li5ationG e. .#ecific #erformance in $he UCC UCC D 2-61,(1"% Specific performance may )e decreed where the 5oods are !a& /niL/e or !)& in o$her #ro#er circ/m!$ance! UniL/ene!!% >eans that the )u2er cannot 5et the 5ood elsewhere Fi.e. land7 >onet paintin5G &$her #ro#er circ/m!$ance!% ?niCueness not the onl2 tri55erK 0omment 2 notes that Iina)ilit2 to co+er is stron5 e+idence of Vother proper circumstancesD.J The UCC wa! !ee:in( $o li8eraliKe $he /!e of !#ecific #erformance K 0omment 2 specificall2 sa2s that I!s&pecific performance is no lon5er limited to 5oods which are alread2 specific or ascertained at the time of contractin5J /owe+er7 the ?00 does not reL/ire that the courts use specific performance Common law% Onl2 use specific performance if contract is capa)le of immediate performance UCC% 8ro+ides that courts can use specific performance in situations that in+ol+e a Icontinuin5 series of actsJ Ffrom Co!ylease v. emore%7 0B "17 "2G f. Amended 2-61, 0han5ed title P no implication that the seller does not ha+e a ri5ht to specific performance. 8re+iousl2 2ou could not N for specific performance. 3ow4 IUma2 )e decreed if the parties ha+e a5reed to that remed2UJ (. Con7e?ance of land Bu2er ma2 almost automaticall2 5et specific performance. 1n most states seller ma2 also 5et S8. h. .er7ice Con$rac$! -$

Downloaded From OutlineDepot.comContracts An emplo2er will ne+er 5et an in*unction compellin5 an indi+idual to perform. An emplo2er ma2 5et a Ine5ati+eJ in*unction that will preclude an indi+idual from workin5 for a competitor durin5 the term of the contract or pursuant to a +alid post termination co+enant not to compete. Traditionall27 an emplo2ee could not 5et an in*unction compellin5 the emplo2er to allow the emplo2ee to work. Reinstatement now is a commonplace remed2 in emplo2ment discrimination liti5ation. Sedmark v. Charlie<s Chevrolet/ 0nc.F0B 1"1G P illustrates that specific performance ma2 )e 5ranted to protect su)*ecti+e interests. 0an do this under 2 $1"Ds Iother proper circumstances.J *aloukos v. 0ntermountain Chevrolet Co. F0B 1"1G P courts will not order the impossi)le. As concerns 5oods7 the t2pical specific performance situation toda2 pro)a)l2 in+ol+es a ( T output or reCuirements N. ;hile a )u2erDs ina)ilit2 to co+er is e+idence of Iother proper circumstances7J Laclede v. 'moco F0B 1"2G makes clear that a)ilit2 to co+er does not itself foreclose eCuita)le relief. Curtis $ros. Co. v. Catts F0B 1,,G P +2 D ',=(c" Ithe likelihood that an award of dama5es could not )e collected.J +emedial !im#lici$?% 0ourts still ma2 refuse to use this remed2 if there are difficulties in enforcement and administrationK must wei5h the inadeCuac2 of the le5al remed2 a5ainst the difficult2 of enforcement At common law7 courts will sometimes refuse to order specific performance e7en if $he le(al remed? i! inadeL/a$e (8eca/!e of !#ec/la$i7ene!!"> lea7in( $he wi$ho/$ an? remed? a$ all .e$$lemen$ 8ar(ainin(% 1f courts were more willin5 to allow specific performance7 it mi5ht 5i+e s with hi5hl2 speculati+e dama5es more power in )ar5ainin5 for an out of court settlement

i.

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.. Consequential #ama$es: The @a(leA Rule - UCC F &:>148&; a. Con!eL/en$ial dama(e!% Difficult to defineK Ger5en su55ests that the2 are those dama5es not captured )2 ?00 @@ 2 $127 2 $1'7 2 $1-7 or 2 $1,F1G Broadl27 the2 are pecuniar2 harms not captured )2 the other measures in the ?00 Fnot incidentalG The definition onl2 matters in F1G )reaches of warrant2 and F2G contracts that den2 reco+er2 of them 8. The ;adle? +/le (;adle? 7. BaBendale> CB #. ,1" The Hadley +/le% Basicall2 limits reco+er2 of conseCuential dama5es to situations in which either F1G the dama5es Inaturall2J FInormall2J is more accurateG arise from a )reach of contractK or F2G the dama5es were unusual7 )ut the special circumstances were made known to the S )2 the Stated differentl27 the can onl2 claim conseCuential dama5es if the S should ha+e known the2 would result from )reach F8eca/!e $he re!/l$ of 8reach wa! a OnormalP occ/rrence G or )ecause the2 actuall2 did know F8eca/!e $he S wa! !#ecificall? $oldG o Hadley has lan5ua5e su55estin5 a su)*ecti+e standard at least on the second strand. The Restatement !@ ',1F2GF)G& is clearl2 an o)*ecti+e standard. o ;hether the )reach was foreseea)le is not the issueK the issue is whether the losses were foreseea)le in e+ent of )reach. F/!$ifica$ion!% o Allocati+e efficienc24 it is )etter that B )ear the risk of loss from his unusual characteristics that are not communicated to S for B is )est a)le to protect a5ainst such losses throu5h precautionar2 measures or insurance. o Fairness4 it is unfair to hold S lia)le for a risk he was unaware of in makin5 a N and that he had no opportunit2 to protect himself from. Further7 it is unfair to pass one BDs unusual risk onto the S for the S will respond )2 raisin5 the price to all Bs shiftin5 wealth from the normal B to the unusual B c. UCC D 2-615(2"(a" The UCC% 0onseCuential dama5es include Ian2 loss resultin5 from 5eneral or particular reCuirements and needs of which the seller a$ $he $ime of con$rac$in( had reason to know and which could not reasona)l2 )e pre+ented )2 co+er or otherwiseJ d. The +e!$a$emen$ D '51 Unfor!eea8ili$? and +ela$ed Limi$a$ion! on 0ama(e! F0B $"G The +e!$a$emen$ has an e<ception where)2 conseCuential dama5es are not rewarded if the lo!! i! di!#ro#or$iona$e $o $he SA! com#en!a$ion and the S wa! no$ com#en!a$ed for $he ri!: of lo!! The reasonin5 is that if conseCuential dama5es are too lar5e7 we )elie+e that the S was not aware of the risk he was )earin57 otherwise he would ha+e sou5ht adeCuate compensation for that risk e. Amended UCC No$e% ?nder the current ?007 sellers cannot recei+e conseCuential dama5es -%

Downloaded From OutlineDepot.comContracts /owe+er7 the amended form has chan5ed this4 @ 2 $1: is now titled ISellerDs 1ncidental and 0onseCuential Dama5esJK su)section F2G makes allowances for conseCuential dama5es Su)section F'G pre+ents a seller from 5ettin5 conseCuential dama5es if he is sellin5 to the final consumerK therefore7 it wo/ld onl? a##l? $o $ho!e in $he middle of $he !/##l? chain UCC D 2-615(2"(8" The 2roBima$e Ca/!e .$andard Applies when there is a ph2sical in*ur2 to the RDs person or propert2.

f.

(. )mo$ional 0i!$re!! 0ama(e! Dama5es for emotional distress Fand other non pecuniar2 lossesG are not normall2 reco+ered in a N action7 althou5h 2ou can 5et them if the2 arise out of a )ad faith )reach. ;here do we draw the lineH o 3O reco+er24 wron5ful termination of emplo2ee7 ;alentine7 0B $$K non pa2ment of disa)ilit2 insurance7 Kewin7 0B $%K defect in construction of a home7 Hancock7 0B %:K defect in )oiler destro2s a home. o Reco+er24 )otched sur5er27 Hawkins and Stewart v. +udner7 0B $6K )otched )urialK mis deli+er2 of messa5e of death7 c'fee v. (right7 0B %2 %'. The line is not drawn at foreseea)ilit2. +e!$a$emen$> .econd D '5' makes it hin5e on the likel2 se+erit2 F0B %1G P not a +er2 5ood standard ;alentine presents the most promisin5 standard P pro+ides dama5es for emotional distur)ance when there are no meanin5ful pecuniar2 losses so that den2in5 dama5es for emotional distur)ance would lea+e a R with no compensation Fother than restitutionG for the loss resultin5 from the )reach.

. <ther Reme(ies
1. The Reliance Interest a. ./m of 4a!$ed )B#en!e! made on reliance of con$rac$ Lo!! on f/ll #erformance. The (oal of re$/rnin( $he #romi!ee $o $he !$a$/! L/o. ). er(enA! 3dea% The reliance interest is merel? a !/rro(a$e for $he eB#ec$a$ion in$ere!$ in cases where the true e<pectation dama5es are too speculati+e for the courts to reco5ni=e Reliance pro+ides part of what the e<pected to 5et since he made those e<penditures in the first placeK we assume that the wouldnDt ha+e made those e<penditure in reliance of the contract unless he )elie+ed that he was 5oin5 to 5et at least that much out of the contract Reliance will rarel? f/ll? com#en!a$e7 )ut it is )etter than nothin5 in cases where cannot reco+er ?sa5e4 ;e use reliance when e<pectation dama5es Flost profitsG are too speculati+e ;arm done% 3ot the )reach )ut that the N was made in the first place Reliance and lost e<penses are sli5htl2 different )ecause #recon$rac$/al reliance is not counted as a lost e<pense while it is technicall2 a reliance loss +e!$a$emen$ .econd> D '51 Iincludin5 e<penditures made in preparation for performance or in performance7 less an2 loss that the part2 in )reach can pro+e with reasona)le certaint2 the in*ured part2 would ha+e suffered had the N )een performed.J F0B 6$G. >eanin5 if the Q can esta)lish that actual loss is less with reasona)le certaint27 reco+er2 is limited to e<pectation. .ec/ri$? .$o7e Co. 7. American +ailwa?! )B#re!! Co. (#. 1," This is the paradi5matic e<ample of reliance used as a surro5ate for e<pectation F -ac$!% S failed to deli+er all parts of sto+e for D road show and so the whole road show was a wasteG 1n this case7 S was lia)le for conseCuential dama5es FHadley ruleG and the court awarded Ds e<penses7 e<pectin5 that the entire sto+e protot2pe would )e at the road show on time The proper e<pectation remed2 would )e the profits lost from the road show7 )ut the courts will not 5i+e this )ecause the2 are far too speculati+eK therefore the courts 5a+e reliance (wa!$ed" eB#en!e! )ecause we assume that the would not ha+e made them if he didnDt think it was worth it No$e% 1f S had pro+ed that Ds +enture would ha+e )een entirel2 +alueless FS has )urdenG7 there would )e no reco+er2K supports surro5ate e<planation L. Al8er$ * .on 7. Arm!$ron( +/88er Co. (#. 1<" -6

c. d. e. f.

(.

h.

Downloaded From OutlineDepot.comContracts The leadin5 statement of the law for the reliance interest Basicall2 sa2s that the part2 harmed )2 the )reach of contract can sue for reliance dama5es7 !/8Eec$ $o off!e$ 8? an? lo!! $ha$ he wo/ld ha7e made if the contract had )een fulfilled Fpre+ent windfallG o This means that the cannot 5et more in reliance than he would ha+e under e<pectation o This further reinforces the idea that reliance dama5es are a surro5ate of the e<pectation7 )ecause a5ain reliance co+ers the estima)le portion of the e<pectation interest The 8/rden of #ro7in( that there would )e a windfall is on part2 that caused the )reach of contract +eliance and $he UCC Reliance fits under the definition of conseCuential dama5es7 ?00 @ 2 $1,F2GK therefore7 the2 are su)*ect to the same limitations Because reliance is considered a conseCuential dama5e7 it is onl2 a+aila)le to )u2ers under ?00 )Bce#$ion $o +eliance a! a ./rro(a$e 9ea!/re 2romi!!or? e!$o##el is an e<ception to the idea that reliance is merel2 a surro5ate ?nder promissor2 estoppel7 reliance is the actual remed2 5i+enK no attempt to 5i+e e<pectation

i.

E.

:. 2+)C&NT+ACTUAL +)L3ANC) The cases split on whether precontractual e<penses are included in reliance dama5es. #em!sey F0B %6G sa2s no. 'nglia T; sa2s 2es. o #em!sey would den2 the precontractual e<penses apparentl2 on the 5round that the QDs did not cause those losses as the R incurred them )efore it had a N. 'nglia T; anal2=es ca/!a$ion differentl24 QDs )reach caused R to lose the opportunit2 to recoup those e<penses. Ar5uments for this position include4 1G 'T treats the causati+e e+ent as the )reach in N7 which is consistent with the 5eneral principles of N law 2G Reliance here is )ein5 used as a measure of e<pectation when e<pectation is uncertain on the reasonin5 that promisee usuall2 e<pects to reco+er its in+estment in a pro*ect. o An ar5ument for Dempse2 would )e that the R was actin5 unreasona)l2 in incurrin5 lar5e e<penses )efore si5nin5 a N. Or that it was a unilateral mistake. There is no definiti+e ri5ht answer on precontractual e<penses. 3ote4 'T defines these as wasted e<pense. l. &##or$/ni$? Co!$ 1f R can show opportunit2 costs that should )e included in reliance costs Freco+er2 of fi<ed o+erheadG.

&. RestitutionC 6enerallA a. The 8a!ic idea of re!$i$/$ion i! $ha$ i$ i! (/!/all?" a (i7in( 8ac: of /nE/!$ enrichmen$C $he S i! reL/ired $o (i7e 8ac: !ome$hin( $o which he i! no$ en$i$led Mou mi5ht sa2 that the definin5 characteristics of restitution are that it is a )enefits )ased o)li5ation that does not rest on consent or a +oluntar2 undertakin5 Fthat is a NG and that does not redress a wron5 Fthat is tortsG. o Sometimes restitution pro+ides a )enefits )ased remed2 for a wron5 Fthink dis5or5ementG. 8. +e!$i$/$ion co7er! $hree 7er? differen$ $?#e! of ca!e!% F1G 9i!$a:en #a?men$! or acciden$al G non-con!en!/al #a?men$!% 1f a )u2er paid O,7::: under the false assumption that the seller would perform7 he can 5et that mone2 )ack o The other paradi5matic case is if the paid the SDs ta<es or wrote him a check accidentall2 F2G 0i!(or(emen$ of #rofi$! from cer$ain wron(! Fi.e. trespass7 con+ersion7 )reach of fiduciar2 dut2G% L. 'lbert . Son cites the rule that when the +alue of 5oods Fcon+ertedG can )e Iascertained with reasona)le certaint2 as of a definite time7J interest should )e reco+ered

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Downloaded From OutlineDepot.comContracts F'G +eward of emer(enc? in$er7en$ion and com#en!a$ion of !elf-in$ere!$ed in$er7en$ion% This would )e to repa2 costs incurred durin5 rescue or if the co owner pa2s propert2 ta<es of nei5h)or A##le! 3ll/!$ra$ion of $he Three 3n$ere!$!% )B#ec$a$ion> +eliance> and +e!$i$/$ion (#. 115-1," K to buy a!!les for =>/???. =@/??? down !ayment. $uyer !re!ays 5 laborers =@?? each to unload. Seller breaches. $uyer obtains a!!les at =A/??? and has to !ay 5 other laborers =@5B each to unload. 1. 4ha$ are $he $hree in$ere!$!R +e!$i$/$ion in$ere!$% Onl2 the O17::: down pa2mentK Seller did not )enefit directl2 from the la)orers7 so there was no un*ust enrichment +eliance in$ere!$% O17::: down pa2ment Y O2:: wasted la)or [ O172::K this is his out of pocket e<pense up to the point where the Seller )reached )B#ec$a$ion in$ere!$% o 9<pected4 O%7::: apples Y O2:: la)or [ O%72:: o Actual4 O67::: apples Y O17::: deposit Y O2:: wasted la)or Y O2,: la)or [ O1:7-,: o Difference4 O272,: 2. 4ha$ i! $he re!/l$ /nder $he UCCR @ 2 $11F1G4 Gi+es )ack O17::: down pa2ment @ 2 $124 Gi+es difference )Ew co+er and N price FO17:::G Y incidental dama5es FO2,: la)orG Total4 O272,: Fsame as e<pectationG '. 4ha$ i! $he re!/l$ /nder $he UCC if $he co7er #rice i! onl? X,>===R @ 2 $11F1G4 Gi+es )ack O17::: down pa2ment re5ardless of potential loss Fseller shouldnDt )enefit from his )reach e+en thou5h )u2er would ha+e lost with full performanceG @ 2 $124 Difference )etween co+er and N price F O27:::G and incidental dama5es FO2,: la)orG Total4 Bu2er 5ets O17::: e+en thou5h this o+ercompensates him Seller ma2 ar5ue that @ 1 1:" reCuires that )u2er not )e put in a )etter position than e<pectedK Bu2er can ar5ue that @1 1:'F)G simpl2 supplants common law7 not replacin5 it 5enerall2 !. Restitution from #efaulter a. +e!$a$emen$ (.econd" D '6' F1G Su)*ect to the rule stated in Su)section F2G7 on a )reach )2 non performance that 5i+es rise to a claim for dama5es for $o$al 8reach or on re#/dia$ion7 the in*ured part2 is entitled to re!$i$/$ion for an? 8enefi$ $ha$ he ha! conferred on the other part2 )2 wa2 of #ar$ #erformance or reliance F2G The in*ured part2 has no ri(h$ $o re!$i$/$ion if he has performed all of his duties under the contract and no performance )2 the other part2 remains due other than pa2ment of a definite sum of mone2 for that performance ). U. 7. Al(ernon Blair F0B 1:'G The promisee ma2 elect to rescind N and reco+er in restitution onl2 if the )reach is ma$erial or $o$al. Restitution claim ma2 5i+e the claimant more than he would )e entitled to on a claim for )reach of N. c. The +e!$a$emen$ (.econd" A##roach d. &li7er 7. Cam#8ell F0B 1:6G This is the case of the disputed attorne2 fees7 where the worked much lon5er than he e<pected and the S refused to pa2 him more and fired him without pa2in5 him completel2 Ds e<pectation is O'::7 Fwhat is owed him under NGK Ds restitution is O,7::: Fmarket +alue of la)orG sues7 sa2in5 that SDs )reakin5 off N F)efore had a chance to take the case to appealG allows for repudiation and dama5es of restitution7 which are 5reater in this case than e<pectation 0ourt rules a5ainst 7 sa2in5 that there is no claim in restitution if R has full2 performed and is due a liCuidated sum of mone2 This limitation seems a )it odd7 )ut an e<planation could )e remedial !im#lici$? &$her eBce#$ion!% >ust )e a O$o$al 8reachPK must return )enefits recei+ed Fthe2 are netted outG ,1

Downloaded From OutlineDepot.comContracts e. Clar:--i$K#a$ric:> 3nc. 7. Lon( 3!land +.+. Co. F0B 11:G Adds that if R elects to continue to perform in response to )reach rather than rescind he is precluded from later )rin5in5 a restitution claim. f. No?e! 7. 2/(in F0B 11:G Re*ects restitution claim entirel2 in this t2pe of contractual settin5 P not for the court to make new Ns. (. Con!$r/c$ion con$rac$! #ro8lem -ac$!% N price4 O1:>K Builder e<penses4 O12>K 0ost to complete4 O"> )B#ec$a$ion FN dama5esG would onl2 5i+e him O-> )ecause thatDs what he would e<pect to 5et +eliance would also onl2 award O-> )ecause reliance cannot e<ceed e<pectation F L. 'lbert . SonG +e!$i$/$ion7 howe+er would 5i+e the )uilder O12>7 assumin5 this was market +alue of the work done o The +e!$a$emen$ (Third"> +e!$i$/$ion and UnE/!$ )nrichmen$ 8roposes cappin5 restitution at the contract price P so he would onl2 5et O1:> The rationale is remedial simplicit2. 1t a+oids liti5ation o+er the cost to complete while den2in5 what is self e+identl2 a windfall7 a pa2ment in e<cess of N price. h. UCC D 2-611 @ 2 $11F1G4 I;here the seller fails to make deli+er2 or repudiates Uthe )u2er ma2 cancel and whether or not he has done so ma2 in addition to reco+erin5 so much of the price as has )een paidU.J o 0B 1:6 8ro)lem where B Ns to )u2 SDs car for O6:: and S repudiates )efore deal 5oes throu5h )ut market +alue of car at time of repudiation is O$::. B still 5ets its O1:: down pa2ment )ack in restitution under ?00 @ 2 $11F1G or 'lgernon $lair. R'R?9 does not affect this. i. 9ore )Bam#le! The 2erennial )Bam#le% The Ca!e of $he Bo$ched 2ain$ Fo8 o !re!ays C =D/??? to !aint his bone white. C !aints it off yellow. is furious and hates it but does not want to go through the re!ainting because of the fumes. 3ote4 if he repaints this is eas2 P remedial cost. o R will not reco+er dama5es )ecause of aesthetic harm o /owe+er7 can rescind the N and reco+er the O-7::: on a restitution claim if we assume there was that the )reach is material and 5i+in5 him this O-7::: is the onl2 wa2 to repa2 his harm7 which otherwise is immeasura)le o The law 5i+es a small windfall Fhouse painted for freeG to a+oid a material uncompensated loss o However/ if the house was !ainted 1bone white4 instead of 1ancient white4/ which is !ractically indistinguishable to the naked eye/ the case might be harder o A court ma2 not )e willin5 to call this instance a Itotal )reachJ The Landowner and $he &il 0riller o 8 !re!ays # =B?/??? to drill a test well on his land. $efore any work is done/ # discovers to certainty that there is no oil on the land. o 1f D does no work7 O can reco+er his O,:k Fe+en under the Restatement FThirdGG7 which puts him in )etter than the promised position o ?nder the Restatement FThirdG7 the price ceilin5 Fof N priceG onl2 comes into pla2 when the sues for the +alue of ser+ices actuall2 rendered Fin this case7 no ser+ices were actuall2 renderedG 3m#lied in law 7!. im#lied in fac$% An implied in fact contract is created )2 conduct For the factsGK implication )2 law is a le5al fiction and 5i+es rise to restitution or Cuasi contract o A court implies a contract )2 law althou5h there is no contractual relationship )etween the parties .. Restitution to #efaulter a. Thi! $o#ic concern! $he defa/l$erA! ri(h$ $o re!$i$/$ion for $he 7al/e of hi! #ar$ #erformance The +/le% A defaulter is entitled to reco+er the +alue to the other part2 of their part performance less an2 dama5e suffered )2 that other part2 resultin5 from the )reach of N. This rule is stated in4 o $ritton v. Turner F0B 11%G o ;ines v. 8rchard F0B 12%G o ?00 2 $1%F2G and F'G7 which was applied in "eri v. +etail arine Su)sidiar2 point4 forfeiture P the resolution of a N lea+es one part2 with a loss Ft2picall2 mone2 paid or work done that is unreCuitedG and the other part2 reaps a windfall. ,2

Downloaded From OutlineDepot.comContracts 8. 5 2oin$!% Does the moti+e or Cualit2 of the )reach affect the RDs ri5ht to restitutionH o *inches F0B 121G7 Schwasnick F0B 122G7 and ;ines F0B 12,G all sa2 M9S o +.-. $erke and ;incenzi F0B 12-G sa2 3OK it doesnDt seem rele+ant under the ?00 either. Relationship )etween these doctrines and the doctrine of su)stantial performance o Restitution claim not entitled to N price7 entitled to )enefit conferred o Su)stantial performance entitled to N price less dama5es the other part2 can pro+e. *inches. There is 5reat +ariation across states. 1n particular 3M treats the defaulter harsher than most others4 The relationship )etween this )od2 of law and stipulatedEliCuidated dama5es. o $ritton and ;ines sa2 parties ma2 preclude restitution )2 N7 and ;ines connects this with whether a term precludin5 restitution passes muster as a liCuidated dama5es clause. This is also the position of ?00 2 $1%F2G. c. B/rden of 2roof on .eller 0ama(e! ;ines puts the )urden on the defaulter to show that the seller suffered no dama5es. ?00 2 '1%F'G prett2 clearl2 reCuires the seller to esta)lish dama5es o 1f seller canDt show dama5es he is still entitled to keep the lesser of 2:W of the N price or O,:: ?00 2 $1%F2GF)G o . d. Bri$$on 7. T/rner ;ariation @. 9mplo2er pa2s emplo2ee O1:Emo. for a 2ear. 9mplo2ee )reaches after 6., months. 9mplo2er hires replacement work for O12Emo. 9mplo2ee 5ets O6, O, [ 6:. o 9mplo2ee can not reco+er O12Emo. )ecause as *arker F0B 11-G held Ithe N price for ser+ice can not )e e<ceededG. This preser+es to the emplo2er the )enefit of the )ar5ain. ;ariation 5. 9mplo2er hires replacement workers at O%Emo.7 so no emplo2er dama5es. /owe+er7 the emplo2er pa2s the )reachin5 emplo2ee O%Emo.7 not O1:. The +/le% if actual +alue is less than the N price then use actual +alue. o ?sual formal e<planation4 ha+in5 )reached7 the emplo2ee can not reco+er on the N so he must reco+er in the law of restitution in which the emplo2ee is entitled onl2 to the marker +alue of his work. o . e. 4illf/lne!!> 9o$i7e or M/ali$? of $he Breach and $he )ffec$ on +e!$i$/$ion 1n *inches &&&&& f. Con!/mer Tran!ac$ion!% A @aria$ion on 8ines v. +rchard Hills C wants to sell his custom-designed yacht. signs a contract to buy the yacht for =>?/??? and !ays an =>/??? de!osit. later reneges 1f the N is silent on whether S 5ets to keep the deposit7 can reco+er it unless S can pro+e dama5es7 which )asicall2 amounts to pro+in5 current market +alue o 3n o$her word!> $he S m/!$ ma:e a ca!e a! $o wh? he (e$! $o :ee# $he de#o!i$ 1f the N pro+ides for !$i#/la$ed dama(e! of $he de#o!i$7 and the S cannot resell the 2acht and a market price is difficult to determine7 the S will likel2 5et to keep the deposit o No$ice $ha$ a! $he eB#ec$a$ion dama(e! (e$ more and more !#ec/la$i7e> $he co/r$! are more inclined $o enforce !$i#/la$ed remedie! $o #re7en$ /ncom#en!a$ed harm 1f N is silent and S resells the 2acht for a 5ain7 5ets his deposit )ack )ecause there is no harm 1f N pro+ides that the deposit is stipulated dama5es and the S makes a profit on the resale7 he has a fi5htin5 chance for keepin5 the deposit if he can pro+e that the stipulated remed2 was a (ood e!$ima$ion of an$ici#a$ed dama(e! Fwhich is all that @ 2 $1%F1G reCuiresG 1f the S wants to keep the deposit in all circumstances7 he !ho/ld frame $he de#o!i$ a! an o#$ion $o 8/? $he ?ach$ for X62>=== rather than a depositK the courts will let him keep it e+er2 time Thi! i! a !i$/a$ion where $he amended code i! m/ch differen$ (. The 2erennial )Bam#le% The Bo$ched 2ain$ Fo8 1f the homeowner does not prepa27 he is entitled to restitution of his deposit unless the painter can pro+e the +alue of the )otched paint *o) to him Fsu)*ecti+el2G7 which in most cases he cannot ,'

Downloaded From OutlineDepot.comContracts Therefore7 the homeowner will almost alwa2s 5et to keep the deposit7 e+en thou5h he is the )reacher 1n sales7 the )u2er who )reaches is entitled to his mone2 )ack unless the seller can pro+e his losses o 1f the seller wants to protect himself from hi5hl2 speculati+e losses7 he can do so throu5h !$i#/la$ed remedie!7 which the courts treat more fa+ora)l2 when dama5es are more speculati+e Error! Not a valid link.

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