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CONTRACTS I. Distinguishing Contractual from Other Obligations a. (1) What does it mean to say that a promise is legally enforceable?

i. A legally enforceable promise = the coercive hand of the state to take someones property by force if necessary - the threat of force. What do you get then? This is what Hawkins v. McGee takes about. 1. Writ of Attachment: prevailing party is entitled to a writ that will allow the sheriff or law enforcement agent to seize property of defaulting party. May also get a wage garnishment from someone who owes the defaulting party money. b. (2) What promises are legally enforceable and what promises are not how to distinguish between the two? i. The basic rule at common law is that a promise is not legally enforceable. It derives from the Greek system: you can have an injury w/o having incurred a wrong. You must show how this particular promise fits within a particular writ. If no writ, then no remedy. c. Hawkins v. McGee: P brings an action for a breach of warranty of the success of an operation (negligence claim is declared a nonsuit). P made an agreement w/ D to remove scar tissue from his hand by grafting of skin taken from his chest. Before the operation, P claims D stated, I will guarantee to make the hand a hundred per cent perfect hand or a hundred per cent good hand. The trial court rendered a verdict for P for $3,000 but Ds motion to set aside the verdict was granted. P appeals and court grants a new trial. i. The theories/writs that may give P cause of action: (**Theories pursued in this case) 1. Misrepresentation: D said hospital stay would be 3-4 days and turned out to be 1 month (P never would have taken such a risk if he knew what was involved different from fraud, i.e. D lied as opposed to not giving full disclosure) a. Court says this is an opinion not a promise! 2. **Injury (negligence /malpractice - TORT): The writ would be trespass on the case a. This is declared a nonsuit! 3. **Promise (contract): The writ would be assumpsit (he promised, he assumed) a. P prevails on this theory. But was Ds guarantee really a legally enforceable promise? 4. Obligation of doctor due to his status (fiduciary duty) ii. Goal of Contract Damages: Damages in contracts = intended compensation for a breach, measured in terms of the contract. The purpose of the law is to put P in as good a position as he would have been in had D kept his contract. The measure of recovery is based on what D should have given P, not what P has given D or otherwise expended. Compare to Torts: Restituitionary damages only (making you whole v. giving you what you expected)! 1. In Hawkins, the judge concludes that if you are the beneficiary of a promise and someone breaks it, the damages you should receive should be more then restitutionary you should get the value of your bargain! It was incorrect that the trial judge instructed the jury to measure the value of the hand before v. the hand after. Thus the value of the perfect hand promised him v. the hand in its present condition should be the measure of damages! 2. Pain and Suffering: P&S is NOT factored in BUT serves as a proxy in calculating what the damage award should be. Ex: If I undergo an operation which makes me suffer 10K worth of pain, this tell us that the value of the finished product is at least worth $10k. II. The Consequences of Making a Contract Legally Enforceable: The Expectation Damages Principle a. I want to have my house painted and find out it will cost me $100 on the market. Baird offers to paint it for $70. We make a contract but 2 minutes after, he realizes he has tickets to the game and cant paint. No money exchanges hands. I sue him, what damages do I get or am I entitled to? b. Three Theories of Contract Damages: i. Reliance Damages: So people are not made worse off then they were before. Are you made any worse off by Baird entering my life? If no, then no damages. Just preventing people from


injuring other people this is the purpose of contract law under this theory. So under this theory, I would get NO damages from Baird b/c I was not worse off then before. ii. Expectation Damages: Value of the promise itself. Saying when you enter a promise with me, the law will regard it as if I got something presently that I would receive in the future. Basically, you gave me a $30 benefit (or savings) already the minute you make the promise! The value of the promise in and of itself is worthy of protection. This is a universe where Baird can perform or not perform he always has a choice! It forces Baird to fill all the costs that I suffer from the lost bargain and if it turns out the value of breaching is GREATER then that loss to me, then Baird will breach. The law doesnt give Baird an incentive to perform. Under this example, I would get the $30. 1. Expectation Damages takes subjective value into account! (if MV=$100, price of painting = $70 but my subjective value of a painted house = $80 my recovery is $10 NOT $30!). Think: How much better off am I if Baird actually performed only $10 better off, not $30. a. Components: (1) the value lost by reason of the other partys default (benefit of bargain)(2) the expenditures made in carrying out his own obligations under the contract (reliance). iii. Expectation Plus: It induces Baird to perform and gives him and incentive to perform over and above everything else. This theory says that (2) doesnt go FAR ENOUGH! It doesnt induce Baird to perform! I would get $30 + extra for Bairds breach! 1. It is not necessarily in societys interest to have every promise be performed!! It doesnt always make sense for someone to complete a promise! Groves v. John Wunder Co: P entered a 7-year contract where P would be the lessor and D agreed to remove sand and gravel from Ps property and leave it at a uniform grade by stripping the overburden. D breached the contract deliberately and surrendered the premises not at the uniform grade. P sues for cost of contract completion. Crt. reverses for P b/c damages should equal = not the difference in lands value before and after for a willful breach of contract. The proper measure is the peak of accomplishment which would have been reached had the work been done as demanded by the contract. i. Unlike the Hawkins case, there is no question that the promise is legally enforceable. The problem here is the measure of damages. Which of the three theories is appropriate? ii. Ds argument is that Ps land, if restored, would only be worth 10K. He received 10K in damages from the jury so what is the problem? P wants the value of the promise! D is saying he didnt deliver the promise b/c if he did the value of the result would have been less then the value of the promise thus D has done P a favor by NOT performing. iii. The Role of Subjective Value: In an expectation damages universe, even when subjective value is taken into account, the market is going to put a ceiling on my damages. 1. What is the subjective value that Groves attaches to the land? a. Market Value of Land: $12,000 b. If we consider the fact that this is a gravel pit, on the outskirts of MN, the subjective value of the land = $12,000 the market value! i. Everything about this case suggest that Groves attaches NO particular subjective value to this land thus his subjective value is just equal to the MV of the land. So if Groves were offered $13,000 or pretty much $12,000 +XGroves would take it! 2. In a universe when there appears to be no different subjective value to the land, the Groves case is just like the house-painting example! Ex: Land is worth $0, once leveled the land is worth $12,000, it costs $65,000 to level: a. If I entered into a promise with Baird and he promised to level the land, I value his performance at $12K. b. If it costs $65,000 to level the land, Baird will not perform b/c he is not crazy! Thus, my recovery would be the difference between the MV and subjective value so in an expectation universe, I would only get $12,000 (Im only getting back subjective value). 3. Since we know that Baird/Groves didnt level the land after the case, we KNOW he didnt value the land at $65,000! So why would we pay him $65,000?

iv. The Role of Restitution: Is it fair for him to keep ill-gotten gains? Restitution puts a floor on expectation damages! If you want to put the parties back to where they were first, return all monies, etc. If you believe this, youve accepted some departure of expectations universe. An undercurrent in Groves may be this idea in restitution. Wunder was already paid and he doesnt want to perform (like the repairing ipod case). 1. Here, under a restitution theory, Groves should get 65000 back because thats the money Wunder kept, so, its expectations damages w/restitution trump. v. Specific Performance: In Groves, a rule of SP would not be over compensatory and would put Groves in the same position then he would have been in otherwise but it DOES induced economic waste. [We would spend $65000 to produce something that he only values at $1200] This is what happens with an over compensatory regime. Another way to think about it is that the advantage of expectation damages is that Wunder will NEVER have the incentive to perform when it doesnt make economic sense! d. Peevyhouse v. Garland Coal & Mining Co: P leased 60 acres of a 120 acre farm to D for 5 years under the agreement that D would extract coal from the leased premises by strip mining and at the conclusion of the stripping, D would fill in all the pits and smooth the ground surface. Ds expert witnesses contend that the moving of this dirt to fill the pits would cost them approx. $29,000 while it would only increase the value of the land by $300 so they didnt do it. P sues for damages and trial court grants him $5,000. The OK SC modified the judgment to $300 stating (based off an OK statute) $5,000 was more then the value of the land and the remedial work promised by D was incidental to the contract not its main objective. i. The right result in Expectations Damages would be that D should have to pay and the amount of money = to the subjective value P attached to the land. 1. Unlike the Groves case, P actually lived on the land and thus attached a subjective value to it! Also specifically negotiated to have the land restored. 2. MV to restore land = $3000. Ps subjective value is over this thus the $3000 MV is a floor to their subjective value. Cost to restore land = $30,000. Thus Ps subjective value falls w/n the $3k and $30K range. Since it is such a large range, will $$ damages over/ under compensate P? ii. What about Specific Performance? There will be economic waste b/c D will be forced to level the land for $30,000. P will NEVER be under compensated by SP but can be over compensated. BUT realistically, these parties would have reached a deal if SP was the background rule in contract breach cases! By virtue of having specific performance as a background rule, it induces these negotiations ahead of time!! The background rule you have ahead of time will change the negotiation process they may bargain in different ways not possible before. Ex: If value of land is $20K and cost of restoration is $30K: 1. ED: D would only pay MV for the land (perhaps subjective value if > MV). 2. SP: If there were a large economic waste (i.e. $10K), both P and D would not want this. D would never enter such a contract and P would never find a vendor to perform if no provision is made before hand to protect D against liability (i.e only up to the value of the land = $20k). This would NOT happen in an ED universe! a. Thus, SP is an ideal rule when a party has a particular need that should be negotiated in advance of the contract. ED seems okay but better off with a background rule that gets people negotiating and talking before contract is made, so a better rule (SP) would put a penalty on one of the parties for breach. III. Measuring Expectation Damages a. Acme Mills & Elevator Co. v. Johnson: P entered a contract with D to buy 2000 bushels of wheat at $1.03 per bushel to be paid on delivery. D failed to deliver the wheat at the time agreed and P brings an action to recover $240 and the $80 for sacks. D agrees that he broke the agreement but claims P was not damaged from his breach; P suspended business and had no money to pay for the wheat at the time for delivery. P denied this and offered an amended reply which stated that D sold wheat to Liberty Mills at $1.16 a bushel on July 13th and thus was estopped from claiming he did not thresh the wheat until Juy 25th. Court holds that P is not entitled to the difference btwn the contract price (1.03) and what D received from Liberty (1.16). Rather, as is the rule in contract law, P is entitled to the

contract price (1.03) minus the value of the wheat at the time of delivery (.97) (Same rule in Missouri Furnace). i. The time set for delivery states delivered from thresher 1909. No specific date is listed! 1. When wheat is ready to harvest, it most be done immediately. The contract doesnt state a date but the court is interpreting the language to mean- the contract was delivery for wheat on July 25-29. ii. Johnson states that there is really no harm done to Acme b/c the price of wheat had fallen so Acme can buy it for cheaper now thus no damage done. If it turns out the market price of wheat is below the price the seller agrees to pay, then the contract should be breach? 1. Acme made the contract to protect against his feeling that the price of wheat would go up he contracted for a cheaper pricebut if the price of wheat went down, then the protection he contracted for is unnecessary? iii. Restitution Argument: P argues that he is entitled to the ill gotten gains of D on July 13th where he made .13 on the wheat b/c the price on the 13th was 1.16 and the contract price was 1.03. 1. But if D would receive .13 in profit and have to pay .13 in damages to P where is his incentive to breach his contract with P? Did he in fact breach his contract with P? In addition, there is no guarantee to D that the price of wheat on 13th would stay steady it could go up too! a. In a true expectation damages universe then there is NO INCENTIVE to breach on July 13th! There are equal risks that I would profit or loose!! So Johnson is NOT locking in some ill-gotten gains at Acmes expense. ii. Fungible Goods: Acme has not right to the wheat Johnson is growing the contract is for # 2 grade wheat.Johnson could have bought wheat from another source and sold it to Acme. Wheat is fungible. iii. UCC: Suppose Johnson cant live up to his promise b/c the wheat, by some act of God, was destroyed Under the UCC, there are commercial laws involving the sale of goods, which govern the rules for contracts. Thus the rule in all US Jurisdictions if goods have been identified before the contract is completed are destroyed, then Johnson/seller bears the loss for the destruction contract is void. Risk of loss follows through from possession, not transfer of title. b. Laurin v. DeCarolis Construction Co: P purchased from D a wooded lot on which a dwelling was being constructed. Prior to the construction completion, D removed gravel from the property w/o Ps permission. The court held that P is entitled to more then the diminution of the value of the premises. P is entitled to the lost profit which he would or could received for the MV of the gravel removed. This is not a punitive damage to P but instead strips D of the wrongfully taken profit and awards P with the potential profit he would have received from the gravel. i. This case is different from Peevy and Groves b/c the only thing were worried about is HOW to measure expectation damages what is the injury suffered here? 1. The amount they sold the gravel = the amount lost in the value of the land. ii. The problem is not whether we have expectation damages or not, the problem is what is the amount or the best proxy for determining the value of the expectation damages. 1. Oliver Wendell Holmes The Path of the Law (10 Harv. L. Rev. 457) pg. 37: a. There is NO difference between promising to do XYZ and breaching the promise of XYZ and paying monetary damages for the breach. The law treats them as the same! b. Bad Man Theory: This is a fundamental idea in understanding that sometimes it is better to breach then perform. Holmes not saying that it is okay to make this choice to breach contract just that under contract, the law treats the two situations the same. c. Louise Caroline Nursing Home, Inc. v. Dix Construction Corp: P entered a contract with D for the building of a nursing home. P fulfilled its contract obligations, D breached but P suffered no compensable damages as a result of the breach. P takes exception by stating the wrong measure of



damages was used. Crt. finds that P relies on cases in which a contractor performs defectively, not cases in which the contractor fails to perform. The damage rule P requests does not apply to their situation only to instances where the contractor messes up. It is a well settled rule that the measure of damages for contract breach = difference between value of the building as left by the contractor and its value had it been finished. i. Two Competing Damage Theories: 1. (1) Contract Price (-) What had already been paid on the contract a. Home now: $5k, Complete Home: $10K, Cost to complete: $2k b. Under expectation damages they would be entitled to what would make them whole. Thus, if the building is worth $5k now and the value of their contract = $10K, they are owed $5k under expectation damages principle. c. But auditor states that they dont get $5k in damages; the home gets only the $2k b/c that is the amount to complete the contract. 2. (2) Difference between the value of the building as left by Dix and the value it would have had had the contract had been performed. 3. There is No difference between these two measures! There may be a problem with the valuation of the house at $10k. If it could sold for 10K once the work is done to it and it only costs 2k to complete it, it must be that the true value of completion is < then 10k. It is $8k. Maybe the auditors numbers are not hard numbers/bids like those from a contractor. Illinois Central RR Co. v. Crail: P, a coal dealer, entered into a contract with D for the delivery an 88,000 lbs carload of coal but D delivered with an unexpected shortage of 5,500. P purchased the coal with no intention to resell it, just add it to their inventory. P purchased its coal at a wholesale price of $5.50 and NOT at the retail price of $9.70 but insisted the measure of damages be for the retail price of coal. The court finds that Ps request for measure of damages at the retail price is not an accurate measure of damages and would perhaps overcompensate P for the injury suffered. i. The buyer always bought coal at wholesale but you cannot buy 5500lbs at wholesale it ONLY came by carload. ii. What is at stake here? just about $10. So both parties probably dont care about the outcome, just the rule involved. Watt v. Nevada Central RR Co. P collected approx. 700 tons of hay over 4 years which he stored in his ranch to prevent a starvation of his cattle in the event of a harsh winter. Ds train negligently set fire to Ps hay destroying all of it. P sues D for damages. The trial court finds for P and awards him the value of hay in the closest hay market to their location Austin, TX - $10 a ton when bailed. The appeals court reverses and awards P with only $3.50 per ton of hay ($10 Austin price - $2.00 to bail the hay, $6.50 to transport the hay). i. This is really a tort case, but thinking of it in terms of contract How do we compensate the farmer? 1. If the farmer states that hay is worth $30 per ton to him (subjective value) 2. But the cost to replace hay is $18.50 ($12 MV + $6.50 transport cost) - this sets a ceiling on the amount of damages that the farmer should receive that is cost to replace all his hay! a. If we never actually saw the farmer go and sell his hay, his subjective value is probably lower then 18.50 b/c he never actually went to sell it to get the 18.50 he just stored it! So if we give him 18.50 in damages to BUY hay, it is probably too much b/c his subjective value is less then that. i. It is not the cost of getting the thing; its the value of it to you. (you dont get the thing itself) 3. But it has to be the case that $3.50 is the floor he could have sold the hay but he didnt! Thus the true measure of damages is greater then 3.50 but less then 18.50

ii. Insurance: If the farmer could buy an insurance policy for $15 to replace all his hay in f.
the event of a bad winter since he can go out and buy this insurance policy for at most $15, his subjective value of the hay must be less then $15 dollars. Missouri Furnace Co. v. Cochran: P entered into a contract with D for the delivery of 36,621 tons of coke at $1.20 per ton to be delivered throughout the year. After D had delivered 3,765 tons, it notified P that it was breaching. P then made another contract with Hutch for 29,587 tons of coke $4.00 per ton. P sues D for damages hoping to recover the difference between the price stipulated in their contract and the price P agreed to pay Hutch under its Feb. 27th contract. The court holds that P is only entitled to the difference between the contract price and the market price of standard coke at the time of delivery (Sam rule in Acme Mills). P was under no obligation to go enter into a new contract with Hutch or any other vendor b/c it wasnt suffering any special damages by the stoppage of Ds performance. i. How do we go about measuring damages in this case no one is questioning the expectation damages principle were just trying to figure out how much that takes to make the Furnace company whole. Three possible measures: 1. Forward price in February: $4.00 2. Spot market price at time of delivery (look at each week and find out mrkt. Price then take difference and add) 3. Spot price in February: $5.00 ii. Which one of these is consistent with the expectation damages principle? Are they the same? 1. The two measures are NOT the same!! Spot market is systematically over compensatory! Thus the court in this case picks the wrong measure! They pick a measure that is actually in favor of the buyer and awards more then true expectation damages. a. Ex: D promises P coal in exchange for $15 for July 1st delivery. D breaches the promise - how much does he have to pay? i. Price of coke = $10 ii. Price of labor unrest in the coke market make the price = $30 1. Thus come July 1st, with equal probability coke could either be selling at $10 or $30 (depending on if there is a strike). b. A forward contract would be $20 (P willing to pay $20 for a forward contract b/c the volatile market) c. Thus damages P would get would be $5 in expectation under a forward contract regime. BUT - what would P get at a spot market rate in midFebruary? i. You would get $15 or $0 dollars thus $7.50 (b/c there is a 50/50 chance that coal will be 30 or 10 dollars - so if the price comes out to 30, D would pay 15 thus damages would be 15. If the price doesnt change and remains at 15, then damages would be $0 average the two and the damage award is $7.50) 2. Thus this amount is better for the buyer BUT it is in EXCESS of expectation damages! The problem with the spot market approach is that the buyer doesnt get hit on a downside only gets the advantage of the upside! The buyer does systematically better! 3. What MF lost as a result of its breach was the cost of NOT taking the risk the court reasons that they took one! They entered into the forward contract to mitigate their risk. To vindicate their breach, they entered into the next contract thus a deep flaw in the courts option is stating that MF was not forced to enter the other forward contract. The $4.00 was the market price for a forward contract at the time thus they should be compensated for the difference.

iii. UCC 2-713: This case would be governed by the UCC today. Under the UCC,
damages = the difference between market price at the time the buyer learned of the breach and the contract price. (together w/ any incidental damages). 1. There is a big problem with this b/c there are 3 different possible prices: a. (1) $4 per ton forward price in February b. (2) $5 per ton spot price in February c. (3) $2 spot price @ time of delivery 2. The UCC suggest that you use (2) which is just wrong. We never even looked at the price! The UCC didnt understand that at any point in time there are a number of different prices. The way to interpret the UCC language = the forward price in February but the language doesnt naturally lead you there. If you use the UCC, there is an understanding of expectation damages. It embraces the principle. 3. MF is a good example of a case that is wrongly decided. It is inconsistent with the judges principles (expectation damages). # (3) is not expectation damages, but (1) is. The court wants expectation damages but apply an overcompensatory measure. 4. This case is similar to Acme but in Acme, the Market price feel below the contract price here the market price went above the contract price. Neri v. Retail Marine Corp: P entered a contract to buy a boat from Ds shop. P contracted to pay $12,587.40 for the boat and left a down payment of $4250 with D in order to receive immediate delivery. 6 days later, Ps lawyer sent a letter to D that P was about to undergo surgery and thus could not pay for the boat but D already ordered the boat. P wanted his deposit back but D declined and P brings suit. Trial crt. awarded P restitution in the amount of $3750 less $500 as an offset amount to D for Ps breach of contract under the rules of the UCC 2-718. This court reverses and finds that that measure of damages (difference in market price at time of sale and unpaid contract price) should be replaced by a rule which shows the appropriate measure of damages to D shows his lost profit and sale (profit from the sale performed by the buyer plus incidental cost). i. Neri is the contract breacher but HE is bringing the suit! Even when you breach, there is a restitution remedy. It isnt the focus of the case but that principle is in play in this case. ii. This court rules under the UCC but how would this case be decided under a pure expectation damages regime: 1. There are two different kinds of sellers in the marketplace: a. (1) One seller with one item: You are not deprived of lost profit when a person breaches the sale in this case. The seller only has one item to sell thus the only harm or damages would be the incidental cost of finding a new buyer. Same number of buyers for the same number of items (1:1). b. (2) A seller with numerous items (inexhaustible supply) there is a loss of profits in this case. If a buyer performed, the seller would have made two sales instead of one. If my original buyer breached, I would only make one sale when I could have had two. This situation: The same number of buyers and the same number of items (unlimited : unlimited) i. But does a sale really disappear when a breach occurs in every situation? 1. No - For a fungible commodity, your share of the commodity is so small, when you have wheat, you can sell wheat. If it is truly fungible commodity, there is no lost profits your ability to sell will not be constrained by the number of buyers. The last unit you sell is NOT a unit in which you make any profit. Ex: Acme Mills.


iii. The Lost Volume Seller Exception: (Under UCC 2-706): This case falls in the middle
of these two extremes (unequal ratio). If D bought the bought at $6K (wholesale) and the selling price is $10K (retail): Damages should equal $4K. D is also entitled to other expenses incurred by virtue of only making one sale as opposed to two (cost of finding another customer but NOT transport cost, etc. b/c he only had to pay those once, not twice). Thus lost profit plus incidental cost of a 2nd customer. 1. The 2nd Seller: But would D actually have made the 2nd sale? Maybe not for two reasons: a. (1) These guys are using the boats out of the same harbor. It is not really likely that another boat will be sold 2 alike boats in the same harbor is not likely (boat owners are crazy!) b. (2) Once Neri decided he does want the boat, is it really the case that a 2nd buyer would come buy the same boat as Neri? This is a universe in which Marine has competition lets say that Neri wants to sell his boat! The 2nd buyer could have bought his boat from Neri. Freund v. Washington Square Press, Inc. P granted D exclusive rights to publish and sell his book. D gave P and advance of 2K and thereafter if D deemed his work not suitable for publication, it could terminate agreement in writing. Unless terminated, D agreed to publish Ps work. D would also pay royalties to P based on specified percentages of the book sales. If D fails to publish, the rights to the work and all payments revert to P. P delivered the manuscript as promised but D failed to print b/c it merged with another publisher although it didnt give 60 days written notice, it refused to publish. P sought to prove 3 injuries as a result of Ds breach (1) delay in his promotion (2) loss of royalties, which would have been earned (3) the cost of publication if P made his own arrangements to publish. The trial court throws out (1) and (2) but held for P on (3) and awards $10K. This crt. holds that the trial finding would unjustly enrich P and put him in a far better position then he would have been in if D fulfilled the contract. The true value lost to P was the royalties which are too speculative in nature to quantify a damage award thus P received only nominal damages. i. Uncertainty and Expectation Damages: The court decided that the correct measure of damages would be the royalties lost or the potential lost profit to P but since it is too hard to figure out with reasonable certainty the court awards him nominal damages (.06 cents). Why does the court find that the best estimate of his expectation damages zero? 1. The amount of money another publisher would have paid for his book is a NEGATIVE number. This doesnt mean that we shouldnt take this number into account in an expectation damages universe. ii. Proxy for Expectation Damages: The court states that the costs of publication are cost to P not D, thus why should they be responsible for those damages. But the value of the publisher printing the book is a proxy for the other damages! It is not that P would incur that cost; the money he would pay to have the book published by a vanity publisher shows what the value of the published book would be. In a world where no one will now publish his book, the value or measure of his damages should be based on the cost of publication to P. 1. The promise of the publish had value to Freund even if they wouldnt pay him royalties.the opportunity given had value!! 2. Thus the best proxy for expectation damages in NOT zero, it should be based on Ps price to publish the book. Fera v. Village Plaza, Inc: P signed a 10-year lease for a book and bottle shop in Ds proposed shopping center. The shopping center opened, with many delays, but D had given Ps space to another tenant. D offered P an alternative space but P refused stating that it was not suitable for their business. Judgment for P. The jury trial awarded P 200K in profits prevented by the breach and AC reversed. This court found that the problem was not the uncertainty of not having specific profit numbers - the problem was the requirement of certainty or that a P lay a basis for a reasonable estimate of the extent of harm measured in money. Where injury to some degree is



found, they cannot preclude recovery for lack of precise proof especially in situations where D is responsible for P not having precise proof. i. What obligations does P have to minimize the cost of Ds breach? 1. To what extent does the book store owner have an obligation to open another store? We have to look at the value to open a store at this location as opposed to any other was their something in particular about this mall that would give it some subjective value to P? ii. Even if we think that the $200K is high, if you cant point to a jury instruction then it wont be reexamined by an AC court. 1. Also, most new business begin in the red thus the best estimate for expectation damages would be $0.00. I. Limits on Expectation Damages b. Rockingham County v. Luten Bridge Co: The board of commissioners of the county awarded bridge contract to P. One of the commissioners who voted for Ps contract resigned and he was replaced by Hampton. On February 21, 1924, 2 old commissioners and Hampton at an advertised meeting told P his contract was invalid and he should proceed no further in building the bridge. P had expended labor and materials to build the bridge and even after receiving notice, continued to build. On November 24, P brought this action claiming $18301.07 as the contract price for the bridge. Crt. held that P had no right to continue to work on the bridge once D had repudiated the contract thus inflicting greater damage on D then there would be otherwise. iii. D informed P that it was breaching the contract and no longer wanted the bridge but P did not stop building. At this point, P incurred a cost of about $19,000. iii. Was there an unequivocal breach in this contract? 4. Maybe b/c of the dissent in the commission P may not have had a clear answer that the county was breaching. We dont know but it is possible. Off the facts of the case, there was a breach. iv. Duty To Mitigate: P has a duty not to be wasteful and when the county told him of the breach, he should have ceased to build and mitigate the damages he would recover. 1. Mitigation and Expectation Damages: If the contract price is $20K and his cost of building the bridge is $15K then expectation damages would be $5k. What does the $19K that P has already incurred have to do with it? It is a reliance damage that would put him back to where he was before he ever took the contract from the county. v. Is P entitled to $19k? There is nothing to suggest that this bridge is weird or different from any bridge it has made in the past, especially if the company has been in business for a long time. The longer the time he is in business, it implies that he is profitable on the bridges and thus he does not loose money on building the bridge. 1. Even if reliance damages are not a floor on expectation damages, at first approximation any out of pocket cost for building the bridge are a PART of his expectation damages b/c it is reasonable to have the assumption that he wouldnt loose money on the bridge. 2. Reliance damages are a proxy for damages in this case. a. P in the event of a breach, is entitled to XX money on the presumption that he wouldnt loose money on the bridge. The burden is on D to rebut the presumption that this would have been profitable deal for P. vi. In an expectation damages would you must ask where would the bridge company have been if the county kept its promise? This has nothing to do with the costs it laid out to build the bridge (i.e. approx. 19K). $19K is simply a jumping off point.


Parker v. Twentieth Century Fox-Film Corp. P entered a contract with D to star as the female lead in Bloomer Girl a musical. The contract was to pay $750,000. D decided not to produce the film but stated in a letter to P to avoid damage to you they offered her the female lead role in a movie called Big Country, Big Man where the pay was identical and 31 out of 34 provisions of the contract were identical. The new film was a drama western shooting Australia as opposed to the original movie that was shooting in LA. The court holds that Ps failure to accept Ds substitute offer could not be applied to mitigation of damages b/c the offer for the new role was both different and inferior. vii. Is it a good or bad thing that Fox broke its contract with P? Was this kind of move a good kind of investment to make in the late 60s? 1. There was a market for it Hello Dolly, Dr. Doolittle, Paint your Wagonbut they made no money. In a slightly earlier period there was My Fair Lady, Sound of Music, Mary Poppins very successful movies. a. Thus there was a reason to think that Bloomer Girl would have TANKED at the box office. It didnt make sense for them to make the movie. 2. Rational in an expectation damages universe this breach makes sense! Why spend millions to make a movie that no one will see. We dont want fox to perform! viii. Ps duty to mitigate: In this case, P is not even asked to go look for another job, they are offering it to her thus she would incur no cost in finding a new job! But does P have a duty to mitigate when her contract provisions read: 1. Article 2: our sole obligationbeing to pay you the guaranteed compensation herein provided for. 2. Their only obligation was to pay her $750K. This has nothing to do with if movie A is the same as movie B it is about owing me money for being on retainer to make the movie. Similar to a 10 year old you keep on retainer to mow your lawn on demand. You organize your life to fit in that condition. a. P was ready to perform and organized her life around this performance. Why should their be any duty to mitigate at all? 3. Take or Pay Clause: Why would they be willing to pay her this huge amount of money even if they didnt make the film? a. B/c they didnt want her to make other movies, they wanted her to be available to make their movie. Fox is in the course of negotiations if they couldnt get her locked up, they couldnt get other stars to sign up! 4. Compare: Groves v. Wunder is this the same case? a. Wunder paid money and had a right to remove gravel but he didnt have to move it. 5. If we take the take or pay language seriously, it shouldnt matter how similar the movies are! a. The genre difference may not matter! It still may not be an alternative if the contract is interpreted as a take or pay contract! 6. Three Main Points About This Case: a. (1) There is a general duty to mitigate damages by the parties you must act in a way that is reasonable act the way you would if you were never brought under such a situation. (The court does take this into account) b. (2) When were talking about a persons duty to mitigate by finding other employment, we are much more sensitive to this situation i. You dont want to force people to do jobs that they wouldnt ordinarily do just to mitigate. c. (3) It is the case that we respect the rights of parties to write Take or Pay clauses: i. If you write it and you mean it, courts will enforce it. What is being bought and sold is different she offered her


availability to make the movie she did not promise to make the movie. That is the nature of the bargain. Hadley v. Baxendale: P ran milling business in Gloucester where the mill stopped due to the breakage of the crankshaft. P sent its servant to Ds office where he told D the mill had stopped and that the shaft must be sent immediately to Greenwich. When he asked how long it would take, Ds employee stated if it leaves by noon, it would be delivered the next day. Due to some negligence on Ds part the shaft was delayed in delivery and P as a result lost some profits.The court held that although D breached carriage contract, D wasnt liable for the HUGE loss P sustained by the 5 day shut-down of the mill. i. FORESEEABILITY RULE: where 2 parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such a breach of contract should be such as may fairly and reasonably be considered either arising naturally or such that may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract as the probable result of the breach. 1. Damages are NOT recoverable for the loss that was NOT reasonably foreseeable by the party in breach at the time of contracting. Why? a. B/c contracts are a species of absolute liability exposing a promisor to UNLIMITED consequential damages from a breach could be devastating to the promisor. b. Incentives: If we had true expectation damages in which D would be on the hook for EVERYTHING! Then P would have the wrong incentives they wouldnt communicate special circumstances in order to stay in ED universe. Also not take any precautions: i. Although duty to mitigate only kicks in AFTER breach, P would have an incentive NOT to be careful b/f breach either. ii. If D only held to foreseeable damages absent special circumstances, doesnt this give him the wrong incentives (i.e. has no incentive to be careful) ii. EXCEPTION: Special Circumstances Back into ED 1. Had there been sufficient communication of Ps special circumstances (i.e. no replacement shafts on hand) D may have done a number of things one of which would be to insist that contract contain special terms as to its liability for breach. a. P now has an incentive to DISCLOSE information to warrant special circumstances (otherwise wont get ED). This will thus give D the incentive to be careful b/c they dont want to be liable for the full loss under expectation damages. iii. General Principle of Mitigation 1. P has a duty to take reasonable precautions to mitigate damages or an obligation to not exacerbate damages once a contract has been breached. It kicks in ONLY once there has been a breach. There is no obligation to take reasonable precautions in anticipation that you or someone else may breach. a. Mitigation creates an overeliance problem: Generic defect of expectation damages. By virtue of the fact that you will get expectation damages, people do not take precautions that you may otherwise take before a contract is made. (i.e. I can treat something as 100% certain to occur even though I know that it is only 30% b/c I know you will have to pay me expectation damages thus I take no precautions on purpose). This is a very correctable problem. i. Implicit Duty to premitigate: If you dont get ALL the damages that proximately flow from the breach you only got those that are reasonably foreseeable then perhaps precautions will be taken.

k. Lamkins v. International Harvester: P bought a tractor from D and informed him he wanted
lighting equipment so he could use it at night. The tractor was delivered w/o lighting and sellers agent promised it would be delivered to him in 3 weeks it was not delivered for nearly a year. P alleged that since he had no lighting equipment he could not harvest his tract at night which would have made him several hundred dollars in profit. Judgment for D. The court holds that nothing in the contract between P and D showed D expected to assume liability for a crop loss which amounted to several hundred dollars, if he should fail to deliver a $20 lighting accessory. The dealer did not tacitly consent to be bond by more then ordinary damages in case of a default on his part. i. Holmes Tacit Agreement: This tacit agreement test was adopted by Holmes in Globe Refining Co. v. Landa Cotton Oil Co. where Holmes stated mere notice to a seller of some interest or probable action of the buyer is not enough necessarily and as a matter of law to charge the seller on that account with special damage if he fails to deliver goods. This test is no longer good law. b. c. d. XXXX Understanding the Legally Enforceable Obligation Conflicting Terms ProCD, Inc. v. Zeidenberg: P is a software company that complies information from phone directories into a database. Manufacturers and retailers pay high prices to use the software for mailing list. P also offers a cheap version for noncommercial use. D bought the public use version, ignored the license that came inside, and used it to resell the database info. P sought an injunction against further dissemination that exceeds the rights in the license. Crt. held that shrink-wrap licenses are enforceable unless unconscionable. Transactions where the exchange of $$ precedes the communication of terms and conditions are common in our society and the same is true for software, especially when D had to agree or disagree with the terms of the product before it could even be used. a. Marketplace is Not Balanced: In a universe where there is advantage taking, what is the upside of deferring to fine print? The UCC has default terms dont in anyway advantage the buyer or seller. So why stick with fine print when there the UCC? i. Given that the default terms of the UCC are not bad (formed according to what the parties would want and what would naturally occur between the parties under fair bargaining) then why is it better to defer to fine print? b. Easterbrook thinks the world is a better place despite issues that come with fine print: i. Advantage Taking By Sellers 1. Is this really a big problem when company good will is at stake? ii. Warranties: Even if warranty is bogus, the product has to break first. Best cons are when consumer doesnt know, iii. Buyer Doesnt Read It. c. Easterbrooks View: If there a lot of sophisticated consumers and a smaller amount of dumb ones, we will have enough research by buyers and sellers saying sellers cant just slam people with one sided warranties they have to be more mutual. i. Thus the fine print will sensibly allocated risk between the buyer and seller. Enforcing the warranty will make the world a better place.



UCC 2-204(1): a vendor, as master of an offer, may invite acceptance by conduct and may propose limitations on the kind of conduct that constitutes acceptance. A buyer may accept by performing the acts the vendor proposes to treat as acceptance. B. UCC 2-606(1)(b): a buyer accepts goods under this section when after an opportunity to inspect, he fails to make effective rejection under 2-606(1). ii. Hill v. Gateway 2000, Inc.: P order a computer from Gateway via phone. The box arrived, P opened it and noticed the statement of terms but deny reading it closely enough to see arbitration clause. They filed in federal court in order to get out of arbitration. The DC found for P but AC reversed for D. Gateway shipped the same accept or return offer that ProCD made. Again, many items in our society offer such an arrangement to consumers (approve or return) and competent adults are bound by such arrangements, read or unread. The Parol Evidence Rule: i. The PER renders unenforceable agreements entered into prior to the adoption of a written contract. It assumes that the formal writing reflects the parties minds at the point of maximum resolution and hence, that duties and restrictions that do not appear in the written document, even though apparently accepted at an earlier stage, were not intended by the parties to survive. A. Rule of Substantive Law- The rule has both a procedural and substantive aspect. It operates as a rule of evidence to exclude parol evidence at trial, and also as a rule of substantive contract law, setting bounds on what constitutes the contract b/w parties. [Restatement (2nd) 239] ii. EXCEPTIONS TO PER: Situations were the parol evidence rule is inapplicable so parol evidence is admissible despite the presence of an integration. A. (1) To show Collateral Oral Agreement: proponent of parol evidence may claim that parties made two separate agreements the first embodied in the writing and the second a collateral oral agreement, even though the same consideration supports both agreements I.e. The collateral oral agreement is alleged to have been reached in consideration for the promises set forth in the written agreement. a. If there are in fact 2 agreements the rule would not bar parol evidence as to the 2nd agreement since it would not affect the integrated writing at all B. Requirements Parol evidence is admissible to show a collateral oral agreement only if: a. (1) The terms do not conflict with the written agreement b. (2) The collateral agreement concerns a subject that the parties wouldnt ordinarily be expected to include in the written agreement c. Under the Restatement, the parol agreement must be related to a subject that would be the natural subject of a separate agreement R 2nd 24 d. Under the UCC, PE of a separate agreement is admissible under the matters covered in the alleged parol agreement certainly would have been included in the written agreement. UCC 2-202 C. (2) Partial Integration- The proponent of PE may claim that the parties intended the writing as the final expression of their agreement only on the subjects covered therein. In such a case, the integration would be only partial and the rule wouldnt bar PE on matters not covered in the writing. D. To explain or interpret terms of written agreement- Parol evidence is admissible here, not to vary the terms of the writing, but rather to show what the parties meant by the words in the writing. i. Mitchill v. Lath: (closely related agreement) bought property from under a written contract. also orally promised to remove an icehouse located on adjoining property. After bought the property, refused to move the icehouse. sued to compel performance of the parol agreement. AC affirmed for and appeals: Can a court enforce an oral agreement that induced the



promisee to enter into a closely related written agreement??? No, judgment reversed. Majority says that a reasonable person would look at the agreement between the parties and find it completely integrated thus it contains ALL the reasonable obligations of the parties As such were not looking outside the document! 1. Dissent: The document is fully integrated but a reasonable person would not think all the parties intentions or agreements are reflected in the document. Since the icehouse was on property not being conveyed it is not expected to be including in the written agreement for separate property. ii. Strictly Interpreted Holds that prior oral agreements are enforceable only if they entail separate consideration on the part of the promisee.: When Is a Document Completely Integrated: RST 213: A written agreement that is found to be completely integrated that represents a full and final embodiment of the parties understanding effectively discharges any prior agreement that falls within the scope. The consequences in evidentiary terms is that proof of the alleged prior agreements is inadmissible and cannot be placed before the tier of facta jury otherwise included to sympathy for the alleged promisee. The judge himself makes the first and critical determination as to whether the written contract is in fact an integrated agreement. If it is, then, as states, the prior oral agreement is discharged and evidence thereof is excluded for lack of relevance. How does Judge Decide Whether a Document is Completely Integrated: 1. (1) Face of the instrument Test: (Traditional view) is that parties intent must be determined from the face of instrument itself; extrinsic evidence cant be considered in determining this look only to the four corners. It is sufficient if the written agreement appears to be a complete/ final expression of agreement. In the absence of fraud and mistake, the court refuses to look beyond face a. Mitchill- given the transaction at hand and given this document it does appear that all the terms are included in this document 2. (2) Relevant Evidence Test (Minority view) courts are willing to consider any relevant evidence in determining whether parties intended the writing as the final/ complete expression Look to Parol Evidence Itself!

a. Hatley- Look to parol evidence to decide if document is complete. (**But If this is allowed, what is the point of the parol
evidence exclusion?**)

Hatley v. Staffor: (separate agreement shown by partial integration) contracted to rent a farm from to grow wheat. Their written agreement provided that could buy out for his cost per acre but not to exceed $70 per acre. took possession of the farm before the lease expired and cut s immature wheat crop (MV = $400 per acre). offered to pay 70/acre. sued to recover 400/acre alleging that the written agreement wasnt the entire integrated agreement and that they had agreed that the buy-out provision would only apply for a period of 30-60 days. Trial court allowed oral evidence to be introduced, jury found for and appellate affirms. A. Issue: May evidence of an oral agreement be introduced when there is a written agreement covering the transaction, so long as the oral agreement isnt inconsistent and might have been made naturally as a separate agreement? B. PER only applies to those terms that the parties intended to include in the writing. If the writing wasnt intended to include all of the terms, evidence of an oral agreement covering terms not included in the writing is admissible. C. This contract could be the WHOLE story and the parties just did something stupid. But and werent sophisticated businessmen and it was handwritten and not carefully prepared. If it was applied literally the writing would lead to an unreasonable result iv. P.G.&E Co. v. G.W. Thomas Drayage & Rigging Co: (liberal approach) contracted to replace the metal cover on steam turbine, performing all work at its own risk and to indemnify against all liability arising out of performance. During the work s property was damaged. The indemnity clause of the policy indicated that only 3rd party property was covered, but argued that the intention was to cover his property as well. sued to recover. argued that its prior contracts w/ indicated only 3rd party property was to be covered. Tr. Ct. found for and denied admission of s evidence. appeals and judgment is reversed. J. Traynor finds that Evidence as to the meaning of a term of a contract must be admitted if the language of the contract is reasonably susceptible to the meaning argued for by the evidence. Extrinsic evidence may only be excluded when it is feasible to determine the meaning of words from the instrument itself; this is seldom the case, since language is often inexact as conveying the intention of parties. A. UCC 2-202: Custom or Usage PE is admissible to show any special meanings attached to words in the written agreement deriving from custom or usage in a particular industry. Under the UCC this is expanded to include meaning attached by virtue of previous dealings b/w the parties under other contracts, and by their course of performance under the present contract. B. Ambiguities If the agreement is ambiguous on its face, or becomes ambiguous in performance, PE is admissible to clarify the parties intent. a. If the ambiguity is so fundamental that there is no way that the court could determine what the parties intended, there may be no enforceable contract at all. b. Determination is properly left to the jury when the terms of a contract are subject to more than one reasonable interpretation. v. Columbia Nitrogen Corp. v. Royster Co: Royster contracted with Columbia for the sale of phosphate. Phosphate prices fell. Columbia, unable to sell the phosphate ordered only a part of its contracted tonnage. Even after Royster lowered its price, Columbia ordered less then contract amount. Royster insisted on the contract price but Columbia refused. Royster then sold its phosphate to another buyer at a lower price. Royster sues. Columbia says that the contract price is a mere projection this is the normal industry practice that has emerged between Columbia and Royster in past dealings - if construed in light of the usage of the trade, the contract imposed no duty to accept the quoted prices. The DC excluded the evidence as to the usage of the trade and the jury found for Royster but this court reverses. A. The UCC says to look at the custom and practices of the parties in the contract best way to vindicate the wishes and understanding of the parties is to understand the contract in the language in which they wrote it: a. Virginia UCC: Expressly states that it rejects the old rule that evidence of course of dealing or usage of trade can be introduced only when the contract is ambiguous.


B. UCC has heavy dependence on trade and custom. But is this always the BEST
solution. Compare Flower City: Use of industry custom and language to interpret the contract but we had TWO separate industries! a. Must distinguish between what a merchant does as an industry practice and what a merchant undertakes to do in the course of business/deals. i. Does this industry practice automatically a part of their business dealings? C. UCC/Carl Llewellyn View: Natural inclination to understand what the implicit deal is to look at what lexicon is used, if ambiguities exist. (i.e. look at course of performance, industry trade. D. Problem with UCC: (Bernsteins view) You CANNOT link custom to legally enforceable rights. There may be times when a merchant/vendor engages in practices where he does not intend those practice to be part of a legally enforceable promise! a. Ex: Hamer v. Sidway: you can make a promise, make it seriously, intend it to be relied upon and STILL not intend the promise to be legally enforceable. Same thing here: have industry customs that were NEVER intended to be legally enforceable. The UCC is insensitive to this distinction! vi. Wilson Arlington Co. v. Prudential Insurance Co: Prudential sold a Hyatt in VA. WAs offer met Prudentials price and provided that income and expenses form the hotels operations were to be prorated between Prudential and WA as of closing of escrow. Escrow closed and WA demanded Prudential reimburse it for the expenses in operating the hotel prior to closing. But Prudential refused and claimed against WA for monies it collected as receivables from preclosing. WA contends plain language of the agreements entitle it to pre-closing receivables. Prudential claims the documents dont embody the entire agreement and PE exists to contradict language to raise material issues of fact as to the parties right to the funds at issue. Crt. denies admission of parol evidence and reverses for WA. A. Although the case is heard in CA Superior Court, under Erie Doctrine, VA (the forum states) law must govern. If CA law governed, Pacific Gas liberal parol evidence standard would govern. Instead, VA plain language rule in effect. a. VA still follows the plain meaning rule: Where parties have reduced their agreement to a writing which imposes legal obligation in clear an explicit terms, the writing shall be the SOLE memorial of that agreement and parol evidence or prior or contemporaneous oral negotiations or stipulations is inadmissible to vary, contradict, add to or explain the terms of the agreement. Mistake and Excuse i. Mutual Mistake: A contract cannot be enforced if the whole substance and very nature of the merchandise sold is different from that which the parties bargained for, if the mistaken identification was mutual, and if the dollar consequences to the disadvantaged party are significant. A warranty protects the buyer when the goods turn out to be unexpectedly bad; the doctrine of mutual mistake protects the seller when the goods turn out to be unexpectedly good. In both instances, the parties both share a misperception about the state of the world. (Both buyer and seller think that a cow is pregnant or barren when it is not.) ii. Sherwood v. Walker: (basic mistake as to subject matter of contract)(think of it as an antiwarranty case). , a cattle breeder, agreed to sell a cow believed to be barren to for 80. discovered that the cow was pregnant. Although tendered payment refused to deliver the cow. sued for replevin claiming that the title to the cow had already passed and thus had no right to the cow. claimed that the contract for the sale failed due to mutual mistake of a material fact. The Tr Ct ruled title had passed and that no mutual mistake existed. The appellate crt. reverses. iii. If assent to a contract is founded upon a mutual mistake of a material fact, such as the subject matter of the sale, the contract isnt enforceable. The difficulty is in





determining whether the mistake went to the substance of the contract such that the entire consideration fails. iv. Dissent- No mistake since sold what he thought was a barren cow and bought a cow that he thought was fertile. s more accurate judgment of the cow when the cows actual condition couldnt have been determined precludes denial of the contract due to mutual mistake. v. Risk Assumption: RST 152: a contract based on mutual mistake is voidable unless the adversely affected party bears the risk of the mistake under a reasonable view of the circumstances. A. Basically, experts dealing with non-experts cannot make mistakes as to the intrinsic value of the property being sold. The expert bears the greater risk or burden. (experts dealing with experts? Contract is still void b/c neither party bears the greater burden or risk they were both duped!) Unilateral Mistake: exists when one party misunderstands the world. (One party thinks that, because of an error in addition, it will cost $90,000 to build a building, rather than $100,000). When one party is mistaken, we will let it off the hook ONLY if there is a quick breach and if we can be confident that there are no damages. A fundamental mistake may thus result in a voidable contract even though the mistake is unilateral, provided that the mistaken party does not bear the risk of the mistake under the circumstances. Thus most of the time, the basic rule of unilateral mistake is that it is that persons tough luck: WHY? A. Information Gathering: forces you to really know what youre selling/buying B. Best Economic Use of Goods: slaughter of a cow or breeding? i. Fraud: We may also let a party off the hook if it was under a misimpression if there was a duty to disclose. Laidlaw suggests that the duty to disclose is modest in an arms length deal between merchants. This is different from affirmative misrepresentations. Fraud is never allowed. (The two can bleed into one another. Under some circumstances (especially if the ignorant party is not a merchant) a failure to speak may amount to a misrepresentation.) 1. Laidlaw v. Organ: New Orleans 1815: Organ wanted to buy tobacco from Laidlaw who was having a hard time selling b/c of the British blockade. Organ proceeds to buy it and several hours later it is revealed that the war of 1812 is over and the blockade lifted thus the price of tobacco rises and Organ makes a huge profit from Laidlaw. Laidlaw thought it was unfair that Organ knew the war was gonna end (had sources on the British ships) thus took advantage of him by making the deal before the news is revealed. Elsinore Union Elementary School District v. Kastorff: (unilateral mistake known to the other party). , contractor, submitted a bid for construction on a school. opened the bid envelope, finding it substantially less than the other bids, asked if his figures were correct. said yes. After a vote by to accept s bid, discovered that he hadnt included 6,500 for plumbing work. promptly notified and asked to withdraw his bid. refused and proceeded to ask to sign the written contract, refused. Judgment for and but reversed for appeals ix. Administrative Errors: Clerical errors (as in mutual mistake too) are the typical instance of voidability. knew before it accepted s bid that there had been a unilateral mistake. A. Thus where a contractor submits a winning bid on a contract but inadvertently omits a major cost item from the total, the courts ALMOST ALWAYS allow the contractor (provided there has been NO SUBSTANTIAL RELIANCE on the contract) to rescind or reform his bid on the ground that enforcement would be unconscionable. x. Is this like Petterson v Pattberg? A unilateral offer may be revoked at any time prior to the offerees completing the act of acceptance?

xi. What if Performance/ Reliance Begins? Compare Luten Bridge where knew of s g.
desire to withdraw so had a duty to mitigate damages. Taylor v. Caldwell: P rented a music hall from D for 4 separate days during the summer. P planned to stage musical events and thus spent a substantial sum on promotion, advertising and general prep. Before any of this could be offered, the hall caught fire and burned down. The disaster was no ones fault. Claiming breach by failing to make the hall available, P sued to recover but D argued that he should be excused as a matter of law, performance having become impossible. The court held for D b/c of the parties intent in making the contract Such a disaster was not raised or provided for by the parties thus looking at the contract as a whole, the continued existence of the hall must have been regarded as a condition by law implied. i. Doctrine of Excuse Who takes the fall? When you have an unexpected event, not the fault of any party, you cannot assume that all parties are going to be made whole (all parties made expenditures in anticipation of performanceso whos gonna take the fall?). Under the excuse then, youre not going to get ED! Excuse calls OFF ED! So what damages are available: A. Reliance: But if all parties made expenditures in reliance of performance, all parties would be entitled to recovery. The rule cant be that everyone recovers! B. Restitution: When we have excuse, were not going to ED or reliance damages (b/c someone has to take the fall) BUT we CAN live in a world where well have restitution!

a. Just unravel the transaction thus parties can go their separate ways and theyre entitled to get what they put in.
ii. Excuse may make the most sense in cases in which three conditions hold: A. (1) The expectation damages are not apt to be high. B. (2) The legal rule would give little added incentive to take precautions. C. (3) The problem of mitigation and overreliance loom large. Opera Company of Boston, Inc. v. Wolf Trap Foundation: WT maintains an outdoor concert stage in WT National Park and plaintiff is an operatic organization which agree to contract with WT to give four staged performances on June 12-15 at the outdoor hall. P paid WT in installments when the contract was signed and the remainder to be paid before the rise of each performance. iv. In situations where changes in condition, rather than destruction of the goods, the party adversely affected must show: A. (1) The unexpected occurrence of the intervening act B. (2) The frustration of the performance was substantial b/c of this event C. (3) The occurrence made performance impractical v. Foreseeability: Should WT bear the loss since it was the least cost avoider and could have foreseen the possibility of a storm and made preparations for it? (i.e. a generator). A. In the absence of anything explicit in the contract, the risk should fall on the party best able to bear it. In this case, it would seem that Wolftrap can buy a back-up generator much more easily than a touring opera company or a tenor. a. Problem with FORESEEABILITY: Even if an event cant be foreseen, the RISK of that event can be allocated in advance (i.e. a clause that says that for any reason, foreseen or unforeseen XYZ will take place). Thus foreseeability doesnt help allocate risks properly. Still rest on restitution as a solution! ii. The English Rule: Leaving the losses the way they should have been if everyone kept their promises up until the time of performance. (i.e. if Opera co. was obliged to pay $10k by June 14th for a June 15th performance if lightening come on the 14th and Opera co didnt pay English rule allows WT to still go after the Opera co. even if no performance). Carroll v. Bowerstock (measured by benefit to owner). was contracted by to perform work on s building. had removed the old floor, set the footings, and installed reinforcing rods when the




building caught fire. Tr. Ct. permitted to recover the value of the work performed regardless of the value of any benefit conferred on . appeals, claiming that owed him a completed floor that could test against contract specifications and that he derived no benefit from removal of the old floor and the setting of forms w/o the floor actually being poured. vii. Issue: Can a party recover for the benefit derived from part performance of a construction project when completion is precluded by an act of God not w/in the contemplation of the parties??? (Yes reversed). viii. B/c neither party can be charged w/ delinquency when the contract cant be fulfilled as anticipated, is only responsible to pay for the benefit he received rather than the value of the work performed. ix. Have Benefits Been Incurred: (TEST): whether the work would have inured to s benefit as contemplated by the contract if fire had not occurred? A. can recover for removal of the floor b/c the warehouse was improved to the extent and the benefit inured to before the fire. The same thing is true for whatever footings were actually poured. However, the settings of forms and steel reinforcements where concrete was never poured didnt benefit b/c they added nothing to the value of the structure until the concrete was set. Some courts expand this rule to include the value of materials at the building site if they were destroyed even though mot yet incorporated into the structure. Other courts allow recovery of a proportionate part of the total contract price. This has been criticized b/c it saves the contractor from part of the loss that he otherwise wouldve sustained on full performance, and hence may tempt destruction of the building. Krell v. Henry: (unforeseeable supervening event) contracted to lease s apartment for 2 days. Although it wasnt stated in the contract, both parties knew that the purpose was for to see the kings parade, which would have been visible from the window. The parade was postponed and sued for the balance due on the contract. counterclaimed for the money he put on deposit. Judgment for and appeals. Issues: Will frustration of purpose excuse performance of a contract (Yes, affirmed). xi. When the purpose of a contract is frustrated by an unforeseeable supervening event and the purpose was w/in the contemplation of both parties when the contract was made, performance is excused. The purpose may be implied from extrinsic sources. It was clear that the high rent was for the purpose of viewing the parade. xii. Dissent: When possible, the parties to a contract should be left where their bargaining puts them. The rooms could still be rented to . Thus, the contract wasnt impossible to perform. Judgment should have been for . Attainment of the purpose of the contract becomes an implied condition precedent to performance. The doctrine of Frustration of purpose arose from this case. There clearly was no impossibility of performance, but the whole value of the contract had been destroyed by the cancellation. This decision has been gingerly applied in the US. xiii. xiv.

h. i. i.

Conditions Conditions and the Duty to Continue Performance The Rule of Conditions does Two Things: ii. (1) Gives you the right to sue for breach AND iii. (2) Calls off their ability to sue you for breach. iv. Nichols v. Raynbred: (dependency of mutual promises) agreed to deliver a cow to and promised to give 50 shillings. didnt aver the delivery of the cow, but sought instead to recover the 50 shillings. Tr. Ct. ruled that b/c a promise was given for a promise didnt need to plead that he had in fact delivered the cow. Since he didnt say he was going to deliver the cow, he could maintain an action for the $50 shillings. The promises are independent. v. A party who accepts a promise for a promise may recover w/o pleading his own performance. Today cts would imply a constructive condition that must perform his promise before seeking recovery on s return promise. vi. Common Law: At common law, promises were not viewed as dependent. Ordinarily, your obligation to perform is contingent upon my performance. If I do not mow your lawn, you do not have to pay me. Lord Mansfield established this idea in Kingston, after it was gotten wrong in Nichols. vii. Kingston v. Preston: (dependent covenants) brought a cause of action for debt for nonperformance, claiming that he had begun performance and was willing to continue to perform but refused to perform. would work for for 1- years, as a servant and then upon s presenting good security, would transfer his business and stock in trade to at a fair valuation. refused to perform the transfer stating didnt offer sufficient security. Issue- Is the presenting of good security a condition precedent to s obligation to perform? Yes, Judgment for . Before delivering the business to , was to show good security for the payment of the money to be received by . Since failed to give good security, had no obligation to perform. viii. The Kingston court delineated 3 types of covenants: A. (1) Mutual and Independent- Either party may recover damages from the other in the event of breach by the other, and an alleged breach by one party is no excuse to the other party. B. (2) Conditional and dependent- Performance of one party depends on the prior performance of the other, and until the prior condition is performed, the other party will not be held to performance of his covenant. C. (3) Simultaneous- If one party tenders and the other party refuses to perform, the first party has an action for default against the refusing party. ix. The Modern View- Each partys performance is deemed an implied-in-law condition to the others obligation to perform. Thus, neither partys duty to perform arises until the other has performed or tendered performance. A. Exp. B is under no duty to pay if S hasnt delivered; and S is likewise under no duty to deliver the car if B hasnt paid. x. Price v. Van Lint: (speculative timing of performance) agreed to loan 1500 by Feb 1, 1940 for construction of a building. In order to secure a loan, had to get a mortgage on the property. Both parties were aware that had to purchase the land from the owner in Amsterdam for to get a mortgage thus delays were inevitable. had difficulty raising funds sufficient to cover the loan by 02/02/40 and informed the suppliers who had already supplied materials to that would be unable to supply the loan. suffered 2.5-month delay in the completion of the building as a result. sued for damages. claimed that s inability to tender the mortgage on the date the loan was to be made excused him for counter-performance. Tr.Ct ruled that the promises were independent and found for . appeals but judgment is affirmed. b/c and knew at the time of contract that might not be able to tender a mortgage on the loan date thus the promises are independent. xi. Whether these promises are independent or not depends on what the parties WANTED! A. When a contract contains mutual promises and at the time for performance for one party is to arrive before performance by the other, the promises are independent. Therefore s failure to tender a mortgage on the date of the loan didnt preclude from recovery for breach of the promise made to him.

Plante v. Jacobs: (construction contracts) contracted to build a house for for 26750; paid 20000 and refused to pay more on the basis that there was faulty construction. refuse to complete the job and sued for breach of contract; claimed hadnt substantially performed the contract. Tr. Ct. ruled that had substantially performed, appeals but the AC affirms. The court found that had substantially performed, although there were no detailed construction plans, performed the basic purpose required under the contract. There were no detailed construction plans. Thus since performed to the substantial purpose of the contract, rendered substantial performance and is due the contract price. However should receive damages for s failure to perform in finishing the home. Each element of the damages should be separately assessed. The misplaced wall didnt diminish the value of the home, and so it doesnt amount to material breach. xiii. SUBSTANTIAL PERFORMANCE DOCTRINE: I am still entitled to be paid (less damages) even if I have not lived up to my promises as long as I have substantially performed. Moreover, even if I have not substantially performed, I may have a quantum meruit action against you. (I may be entitled to restitution for the value of the benefit I have bestowed on you.) A. NOTE: The doctrine does NOT arise unless I am in breach! When I promise to mow your lawn, I do not promise to clip every blade of grass. Only if I have failed to do something I was obliged to do will the issue arise. xiv. Jacob & Youngs v. Kent: J&Y sues to recover payment for the construction of Ds house. The pipe in the house is supposed to be Reading as provided in the contract. Kent discovered about a year later that the pipe used was not reading thus withheld payment (he DID NOT SUE FOR BREACH!). J&Y sues Kent for the last payment. Although there was a series of progress payments made by Kent, Kent is saying you cant sue me for the last payment b/c you didnt keep your promise - his obligation to pay J&Y is conditioned upon their promise to build a house the way they said they would in the contract. The NY AC found substantial performance on the party of J&Y thus granted them recovery of the contract price less any deficiencies in the contract. This is a substantially greater award then under a Quantum Meriut action (Compare to Algernon Blairbreaching party can still sue for restitution) iii. Cardozos Opinion: Specific Provisions and Substantial Performance: Kent made specific provision in his building contract (unlike Plante) for the installation of reading pipe. But Cardozo doesnt enforce it?? 1. Cardozos opinion finds that some consumer preferences are simply too remote and idiosyncratic to be taken seriously! Although Cardozo normally defers to what the parties want what their objective intentions are, the language in this contract isnt good enough for Cardozo! iv. Is A Commitment to Substantial Performance Avoiding Penalty Clauses? Compare to Peeveyhouse where they wanted the land leveled b/c they lived on the land. Here, Kent had NO SUBJECTIVE VALUE attached to the pipe they were behind the walls! To the extent that Kent really cares about reading pipe, it is likely not to be for subjective value but much more likely to be for a penalty clause type element. xv. PERFECT TENDER RULE: In the case of goods, we have at common law and in the Uniform Commercial Code a perfect tender rule (no substantial performance rule!) If my goods do not comply perfectly with the contract description, you can refuse to take them (You get ED damages here unlike Substantial performance). A. The UCC, however, has retreated from the perfect tender rule with respect to how the goods are shipped.) B. Abuse of Perfect Tender and Substantial Performance: The substantial performance doctrine and the perfect tender rule each create their own potential for abuse. In a world with the perfect tender rule, buyers can opt out of contracts by pointing to trivial defects. In a world with the substantial performance doctrine, parties can get away with doing less than they promised. C.



Express Conditions i. Howard v. Federal Crop Insurance Corp.: P-appellants sued to recover for losses to their tobacco crop due to rain damage. Ps harvested and sold the depleted crop and filed notice of loss with D, the insurer of the crops. But prior to inspection by Ds adjuster, P plowed under the tobacco fields to prepare it for sowing a cover crop of rye to preserve the soil. When Ds adjuster inspected the fields, he found the stalks to be obliterated by plowing and denied Ps claim on the ground that P violated a portion of the insurance policy which provides that the stalks shall not be destroyed until the D makes an inspection. D contends that this provision is a condition precedent to recovery thus a violation of such is a forfeiture to recovery. P contends that the provision is actually a covenant that would not forfeit their recovery if broken. The court finds that the DC erred in granting a motion for summary judgment to D on the grounds that the provision created a condition precedent to Ps insurance coverage. But this narrow holding just states that the plowing of Ps crops does not itself operate to forfeit coverage under the policy (they never say the provision is an actual promise). ii. RST 261: Where it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise: but the same words may sometimes mean that one party promises a performance and that the other partys promise is conditional on that performance. Yet the court does not hold that the language of 5(f) if definitely a promise iii. Condition, Duty or Both: Distinguishing between a condition precedent, a promise and a combination of the two determines a partys future obligations as well as a partys entitlement to damages: A. (1) PROMISE AND CONDITION: The failure of the other party to perform may be both a promise and a condition precedent to my own performance. I am entitled to call off the deal and sue for expectation damages; B. (2) CONDITION: The failure may be a condition precedent. I am entitled to walk off, but I cannot sue. No promise has been broken; C. (3) PROMISE: The failure was merely a promise. I was not entitled to walk off. My walking off was therefore a breach on my part. The other party can sue me for expectation damages less whatever damages its own breach of promise caused. iv. Gray v. Gardner: Assumpit on a written promise to pay P 5198 dollars and 87 cents on the condition that if a greater quantity of sperm oil should arrive in whaling vessels at Nantucket and New Bradford, on or between the first day of April and the first day of Octoberthen the obligation to be void. Evidence shows that the boat may not have arrived at the dock by the 1 st day or October. In order for the vessel to be considered arrived, it was necessary that she would have come to anchor somewhere before midnight following the first day of Oct. Like a bond with a condition, if the obligator would avoid the bond, he must show performance of the condition. Judgment for P. Since D in this case promised to pay a certain sum of money, on the condition that the promise shall be void on the happening of an event, it is plain that the burden of proof is on D if he fails to show that the event happened then the promise remains good. v. Conditions Precedent and Subsequent And The Burden of Proof: vi. Condition Precedent: when I sue you, I have the burden of showing all the conditions are met before I can bring an action. vii. Condition Subsequent: it is an affirmative defense. A. So conditions matter here in order to determine the burden of proof. My obligation to pay you is entirely contingent upon some event coming to pass. This is different from saying, I promise to pay you but only if X condition happens: B. How you phrase something determines whos got the burden going forward and also if the language will be interpreted as a condition or a promise Howard.

Mascioni v. I.B. Miller, Inc.: P and D entered into an agreement where P, the subcontractor, agreed to provide all the materials and all the work for the erection of concrete walls, and D, the contractor, agreed to pay 55 cents per cubic foot. The walls were to be erected as specified by a contract between D and Village Apartments, the owner. In that contract, Ds promise to pay stated payments to be made as received by the owner. In spite of the fact that the owner has made no payment to D for the work and materials, P recovered a judgment against D for the agreed price. Issue: Whether D assumed an absolute obligation to pay P, even though payment might be postponed till moneys were received from the Owner, or whether the Ds obligation to pay arose only if and when the owner made payment to D. Judgment reversed for D. In this case, there is an express promise to pay moneys as received from the Owner, and the event upon which that promise would ripen into an absolute, immediate obligation has not occurred. That was Ds risk, but Ds promise to pay P for stipulated work on condition that payment was received by D shifted that risk to P, if the condition was a material part of the exchange of Ps promise to perform for Ds promise to pay. ix. Condition or Duty? In resolving doubts as to whether an event is made a condition of an obligators duty, and to the nature of such an event, an interpretation is preferred that will reduce the obligees risk of forfeiture, unless the event is within the obligees control or the circumstances indicate that he has assumed the risk. x. Compare to Carroll v. Bowerstock, was a benefit bestowed? The subcontractor has performed here if he cant get payment from D until the owner pays him, he can recover under a quantum merit action. xi. Parol Evidence Question: To what extent do we have a factual inquiry to find out intention when they were drawing up the contract (the owner could feasibly NEVER pay then what?) But this is mostly a question of how we interpret the words in the contract. xii. Semmes v. Hartford Insurance Co.: P, a MS resident, brought suit on a policy of fire insurance issued by D, a CT company. Ps loss occurred on January 5, 1860 but suit was begun on October 31, 1866. D relied on a provision of the policy, stating that no suit should be sustainable in any court unless the suit is commenced within the term of 12 months next after any loss or damage the presumption being, failure to sue within 12 months is conclusive as to the validity of your claim. But P contends that the Civil War prevented commencement of the action w/n 12 months of the loss. The court finds for P and states, we have no doubt that the disability to sue imposed on P by the war relieves him from the consequences of failing to bring suit w/n 12 months after the loss, b/c it rendered a compliance with that condition impossible and removes the presumption which the contract says shall be conclusive against the validity of Ps claim. That part of the contract, therefore, presents no bar to Ps right to recover. The court reporters at this time are NOT reliable they got the dates wrong o Thus the question then is REALLY can P collect MORE then 12 months after the war considering that it was impossible to collect on the policy while the war was going on. Question of Impossibility/Excuse: We have not a promise, but a condition and an event occurs that makes it impossible to comply with the condition. What to do? o (1) The clock stops for 4 years and picks up after the war (2) 12 months = 12 months. The insurance company bears risk of a fire, not the risk of the Civil War. Let the losses fall where they may (British Rule) o (3) Condition eliminated: Still have the same contract, but excused from that condition. This is how excuse applies to this environment. (Restitution the American Rule) IS excuse really the Answer? The problem here is not to solve all the problems, it deals with excuse! Should this be dealt in the same way as in the context of excuse: o Restitution leave Hartford out in the cold! IS this the best solution? o



Renegotiation and Opportunistic Behavior i. Alaska Packers Assn v. Domenico: Alaska Packers hire independent fisherman in San Francisco to go to Alaska to fish. Once there, the fishermen decide that they want to get paid twice as much as they contracted for. They stop working and tell Alaska that they wont do anything unless Alaska agrees to double their wages. Alaska agrees (although the Alaska rep says he doesnt have authority to change the contract), and the workers continue. When back in San Francisco, Alaska doesnt pay them. The court finds for Alaska b/c the promise to pay more was not supported by consideration. It was based on having the workers perform just those services that they were already contractually bound to do. Alaskas promise is unenforceable. But is there an argument that there was consideration? Did the fishermen give up something in exchange for more money? The fishermen contend that the nets were full of holes. Part of their pay was on a piecework basis: two cents per catch. If they cant catch fish, theyre not getting money. They argue that they were implicitly promised decent nets, but they got crappy nets. They argue that theyre not going to get as many two cent catches as they expected. Are they dropping this claim in return for $50? ii. Why No Consideration: It is not part of a bargained for exchanged even if it is a promise seriously made. To prevent this problem, the fishermen should have made sure that the P was getting something back! This issue goes back to Foukes v. Beer: Which states that these promises to renegotiate a loan are not supported by consideration. A. Consideration has a LOW standard - All the fisherman had to do to get around this doctrine promise to pay in a different place...really ANYTHING to change the consideration in the original promise (give a dollar or gum even)!! B. Remember Petterson v. Prattberg. That was the case in which a person was offered a reduction in his mortgage obligation and the question was whether the offer was revocable. There was not a Foukes problem there because the payment was being accelerated. iii. In a Holmesian universe, isnt Alaska allowed to choose between paying the fishermen and being liable for damages? A. We have to worry about duress in this situation b/c we DONT think ED is gonna do the trick. Look back to the specific performance case of Curtice Bros. Co. v. Catta) the remedy there was specific performance b/c ED were not going to make the packers whole! iv. Doctrine of Economic Duress: The doctrine of economic duress is much like specific performance in Curtice Brothers. It enters into the picture in those situations in which ED are going to be inadequate. There has to be something the matter with ED before economic duress sounds plausible. Ordinarily, a refusal to perform a contract is a right that we all retain as Holmesians. Sometimes breach of a contract is affirmatively desirable. v. Blackmail v. Renegotiation: We need to be able to distinguish between the problem of my taking advantage of your inability to get true ED if I break my promises from the problem of renegotiating when conditions change. vi. Once we get over the consideration issue do we have blackmail? A. Oppression by this big corporation being extorted by fishermen OR B. Do we have a corporation taking advantage of the fishermen OR C. Is there simply a miscommunication between the parties? vii. In a world of ED cant always distinguish the case of blackmail v. renegotiation in light of changed condition. A. If fishermen are repeat players, they probably have to work next summer thus pissing off an employer is probably not a good idea Most likely a miscommunication.


Austin Instrument Co. v. Loral Corp.: Loral got a contract to make radar equipment for the Navy. It subcontracted to Austin to produce precision gear components fro them. When Loral got another Navy contract, Austin bid again and wanted to make all the components. Loral refused and said they would only be able to produce the components that they had the lowest bid on. Austin threatened to stop delivery on the components under the original subcontract unless they got to make all 40 components in the new contract and get a higher price for all the past and present components. Loral looked for another supplier, but was forced to accede to Austins demands b/c couldnt meet the Navys deadline w/o Austin. Austin sued Loral to recover money still due on the 2nd subcontract, but Loral also sued Austin for the price increases, claiming Austin exacted the increases illegally under duress and shouldnt be enforced. The lower courts found for Austin, and Loral appealed to NY Appellate. Judgment reversed for Loral b/c the court finds that what happened to Loral is a classic case of economic duress. Austins actions left Loral with no choice because its government contract was so big and important. ix. A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will. x. The Doctrine of Economic Duress enters into the picture in those situations in which expectation damages are going to be inadequate. There has to be something the matter with the expectation damages remedy before economic duress sounds plausible. A. Austin decided not to perform their contract thus why dont Loral just sue for damages or get an injunction? B. As long as Austin is solvent, they can pay damages, no problem. This is not a case like Alaska Packers where we fear the fishermen are insolvent. This is a LLC with assets! Why should there EVER be duress when youre dealing with a limited liability company? a. What motivates this doctrine is that the ED that you get are not really ED: Substantial performance, specific performance all arise b/c we fear were not getting ED! xi. Oxxford Clothes XX, Inc. v. Expeditors International, Inc.: Oxxford has a contract with Expeditors where Expeditors would pay the customs fees or taxes on their textile imports. Expeditors continued to swallow Oxxfords costs w/o payment until their bill reached $97,000. Oxxford owed a lot of people a lot of money, particularly Heller International. Heller had a security interest in Oxxfords assets and b/c of this interest; Heller exercised its right to all of Oxxfords assets OVER Expeditor and other creditors. Heller then sold the assets to Tom James and James creates a new entity called Oxxford XX using the assets. The old Oxxford is complete eliminated and Oxxford XX is a complete new entity with NO TIES to the original company. But Expeditors, after XX asked them to continue to import textiles for them, withheld the fabrics from XX until Oxxfords debt of $97,000 was paid off. XX filed for a preliminary injunction which the court denied b/c Expeditors claimed it had valid liens on the fabric which XX knew was absolutely false!! XX DOES NOT APPEAL but instead files a complaint for duress which Posner denies. xii. Posner and Duress: What is the touchstone for duress according to Judge Posner and why isnt it met here? A. The engine behind his analysis is that XX didnt take an appeal from the denial of the preliminary injunction. Expeditors had NO RIGHT to hang on to XXs fabric so the DCs denial of the injunction was stupid. This does not create duress b/c XX had a legal remedy available to it! Since it had this, there is no duress: B. Posner doesnt doubt the efficacy of the legal system!! He believes that if the appeal was filed in time, XX would have resolved the problem w/n the time crunch it was under. Posner is convinced that any problem XX had, if they had just come to the courts or legal system, it would have been solved. xiii. The touchstone for duress is the LACK of an effective remedy. To bring a duress claim, you must show why it was you had this legal right and somehow you had to succumb to extortion and you couldnt get a court to protect you at the time. As long as you could have gone to court, it cant be duress!! (i.e. Alaska Packers had no available legal remedy no courts or judges in Alaska). Restraints on the Ability to Contract


Williams v. Walker-Thomas Furniture Co. WT, a retail store, sought to repossess various household items it had sold to Williams, a welfare recipient, over a period of some five years. Each sale (including the last, a stereo sold for $514.95) was on credit, Williams being obligated to make monthly payments until full purchase price was satisfied. The purchase agreement contained a so called cross-collateral provision for which the purpose was to secure the customers indebtedness by empowering WT, in the event of default, to repossess not only the particular item (the stereo) to which the indebtedness related, but EVERY other article purchased from WT on which any balance remained. Williams having defaulted on the stereo installments, the company, pointing out that under the cross-collateralization clause she still owed money on other items sought to scoop up all the merchandise it has ever sold her. Williams resisted on the ground that the cross-collateral provision was unconscionable and thus unenforceable. The DC reluctantly held for WT b/c the UCC 2-302 had not been enacted yet. On appeal, the D.C. Circuit court held no statutory authorization was required for a finding of unconscionability. ii. UCC 2-302: Unconscionability: A contract entered into by competent adults is binding without regard to anyones opinion of its fairness; but where the circumstances indicate that on party did not or could not, fully comprehend the meaning of the contract then the court is free to use its own judgment to determine whether the contract terms are fair. A. Thus the threshold in this case is whether WT made the cross-collateral clause clear to Ms. Williams at the time she signed the form contract? iii. What is the effect of the cross collaterization clause: Since WT has a security interest in the stereo, when Williams defaults, WT doesnt have to go to court to collect! They can take it as long as there is no breach of the peace (pre Fuentes v. Shevin). A. It is most likely the case that the assets here are no subject to creditor levy they are immune under D.C. law. Thus by virtue of the security interest under the clause, these items are no longer immune and WT can collect them. Thus W/O the clause, these items would not be subject to creditor levy. The sheriff could not touch them. iv. By virtue of Williams signing the contract, shes giving up a legal right she probably didnt know she had. She is letting her property loose its immunity! Would she have agreed to this if she had known?? Does this contract comport with substantial fairness v. Unconscionability meant or included TWO FACTORS: A. (1) An absence of meaningful choice on the buyers part (in effect) and B. (2) The presence of contract terms unreasonably favorable to the seller. vi. Shaes Point / Freedom of Contract Argument: But if we say that the Ms. Williams of the world should never be allowed to enter into these types of contracts, will she ever be able to buy such items? What happens if we impose this rule? A. A constraint on my freedom of action can be justified only if someone else is better positioned than I am to know what is in my interest. B. You dont want Mrs. Williams to have to pay so much for a refrigerator or a stereo. On the other hand, you do not want to deprive them of any chance to get one. vii. Vokes v. Arthur Murray, Inc. Vokes, 51-year widow, wanted to become an accomplished dancer, and she sought the services of D. Initially, D sold Vokes 8 hr lessons to be used within 1 month. Over a period of 16 months she was sold 14 additional dance courses under separate contracts. During that interim D encouraged Vokes to sign the subsequent contracts by assuring her that she had grace and poise; rapidly improving and developing her dance skill. Vokes soon discovered that she did not develop in her dancing ability and even had difficulty hearing the beat. It can be reasonably inferred that D had superior knowledge as to whether Vokes had dance potential and as to whether she was noticeably improving. The undenied averments in Vokes complaint that the flowering eulogiums heaped upon her by D proceeded more to hear the ring of the cash drawer than from any honest or realistic appraisal of her dancing prowess or a factual representation. The court finds that a statement made by a party having superior knowledge may be regarded as a statement of fact, although it would be considered as opinion if the parties were dealing on equal terms. The court reverses for Vokes.



IV. a.

Disclosure and Duty: Even in a contractual situation where a party owes no duty to disclose facts within his knowledge or to answer inquiries respecting such facts, the law is if he undertakes to do so, he must disclose the whole truth. ix. Role of Regulation: In Vokes and Walker-Thomas, are some contractual relationships better governed by regulation? Health club memberships can last for only a year (no life memberships). You cannot take a security interest in household goods. It does not matter how knowing or sophisticated the waiver, we simply will not allow some kinds of arrangements. Why? A. There are some kinds of risks that people are not good at calculating! x. THREE POINTS ABOUT THIS CASE: A. (1) The idea that when we look at this problem look at the difference between consumer transactions and business transactions even though the law does not distinguish between these types of contracts. a. We want merchants to live in a Darwinian world, but we want to protect consumers. We have no interest in encouraging the unsophisticated to become merchants, but we do want all consumers to participate in market transactions and not to be taken advantage of even if they are not well informed. B. (2) What should the law be doing how to decide this case v. other avenues of relief? How to regulate these industriesis this an alternative? C. (3) You can look at this case and say substantive unconscionability but there are other arguments that can work here: We cant come up with a slam dunk restitution or fraud argument: But first try to have other theories work here. Contractual Relationships and the Rights of Third Parties Third Party Beneficiaries i. Lawrence v. Fox: Defendant Fox borrowed $300 form an acquaintance named Holly. As Holly owed the same amount to Lawrence, Fox promised Holly that on the very next day he would repay Holly, in effect, by paying Hollys debt to Lawrence. (assumption is that these may be gambling debts which could not be enforced directly) Fox ultimately refused to pay Lawrence and Lawrence sued Fox. Fox defended on the ground that his promise has been addressed to Holly alone and not to Lawrence: while Holly (the promisee) might claim against Fox (the promisor) if he chose, Lawrence had no equivalent right. Fox, after all, had received no consideration from Lawrence and as Lawrence was not a party to the contract between Fox and Holly, he (Lawrence) lacked standing to seek enforcement. The NY App. Crt. held for Lawrence finding that Fox had received ample consideration from Holly and in return has made an unequivocal promise to repay the amount borrowed in accordance with Hollys direction. ii. What was the Consideration: The consideration received and promised to Holly made it as plainly his (Foxs) duty to repay the plaintiff as if the money has be remitted to him for that purpose. iii. Why do we need 3rd party beneficiary contracts? Are there situations (real commercial transitions that we care about) where if we dont have such a doctrine, we could be in trouble? A. (1) Life insurance contracts? / Trusts B. Generically at common law, 3rd party contracts were really not accepted. rd Problems with 3 contracts: WHEN DO YOU GET OFF THE TRAIN? v. Lawrences claim, unlike a traditional promisee, could be divested by action of other parties and perhaps without his knowledge: (ex: After the deal is made between Holly and Fox for Fox to pay Lawrence, they make a further deal in which Holly and Fox call off the deal can Lawrence still have a COA to get Fox to pay?)


C. The court does NOT find this to be a dangerous situation b/c once Lawrence has recovered a judgment from fox, Hollys power to make an independent settlement extinguishes D. In effect, the danger that recognition of 3rd party rights might generate legal confusion overlapping claims, or settlements without consent of the affected party seemed to the court majority to be a manageable risk. iv. With two potential lawsuits, the ED principle gets complicated! How to aggregate and allocate losses.? Need to look at parties intentions not subject intent, but what the contracts actually say! As between adults, promises are enforced as to their terms. A. The principle that should be at work is simply one of intention. If we had thought about it explicitly, would we have given Lawrence the right to sue? What did the contract ACTUALLY SAY (objective manifestation). a. Under Restatement 302, someone such as Lawrence is an intended beneficiary (which means they get the cause of action) if recognizing the action will effectuate the intention of the parties and i. (1) The performance of the promise will satisfy the promisees obligation to pay money to the beneficiary; or ii. (2) The circumstances indicate that the promisee intended to give the beneficiary the benefit of the performance. v. The common law did not develop consistent definitions of donee and creditor beneficiaries, but the gist of most of the rules is clear. A. Most people would have an intuition that when you and I enter into contract to, we dont want a 3rd party to come in and be able to sue you - We usually do not assume that I want to benefit someone else, but if the circumstances appear that I do (such as when I am already obliged to pay money to 3 rd party), we will grant the cause of action. vi. Two Categories of Cases: Why treat them Differently? A. Donnee Beneficiary Cases: a. Does it make sense to have this box for Lawrence v. Fox and Seaver v. Ransom and another box for the Tony Bennett case? B. Creditor Beneficiary Cases: a. Tony Bennett as a slotted performer in my nightclub when you and I contract to build a nightclub. vii. Seaver v. Ransom: Mrs. Beman was about to die. Her husband drew up a will according to her instructions. P is her niece who sometimes lived with the Bemans. When the will was read Mrs. Beman isolated an error, she had wanted the house to go to the P in remainder, but it was identified as going to her husband for life, remainder to the ASPCA. B/c she was failing fast her husband asked her to sign the will, and stated that he would leave enough in his will for P to make up the difference ($6k). After he died there was no provision to this effect. P files a claim to recover against the agreement whereby Mr. Beman induced his wife to execute the will by his promise to give P $6000. The contract was made for the Ps benefit. She alone was substantially damaged by its breach. Because the testatrix bequeathed the promise to P, and not b/c close relationship or moral obligation sustained the contract, the P could have recovered in law against Mr. Beman for the value of the house. Judgment, after trial, for P, and judgment affirmed. viii. The Law of Wills, Trusts and Estates: Testamentary gifts (i.e. wills) are required by statute to be in writing and to be dated, executed, and formally witnessed; oral dispositions made at the last gasp generally wouldnt qualify as legally effective substitutes. The courts willingness to give effect to a hasty, deathbed agreement neither promisor (Husband) nor promisee (Mrs. Beman) being available to verify it may suggest that (1) there was powerful evidence in support of the agreement or (2) the niece made a sympathetic plea to the judge! A. Resort to 3rd party Beneficiary law enabled the Court to make an end run around the much sticker rules and requirements that otherwise apply to testamentary dispositions. a. But arent we undercutting the whole idea of wills? Are we allowing the nieces of the world an avenue for fraud? Assignment and Delegation

Macke Co. v. Pizza of Gaithersburg, Inc.: D is a group of 4 pizza shops under common ownership, at 6 locations. D arranged to have installed drink vending machines owned by Virginia. Virginias assets were purchased by Macke and the 6 contracts were assigned to Macke. D attempted to terminate the contracts b/c D doesnt want Macke taking care of the machines D wants the original vendor - VA!! Virginia transferred the burden of the contract to Macke (delegation). Now Macke is suing saying it doesnt matter what D wants. He entered into a contract and the contract is still good b/c Virginia was able to delegate the burden under the contract. Ps argument is that the contract couldnt be assigned b/c it contained personal service obligations. The court could not regard the agreements as contracts for personal services. They were either a license or concession or a lease and assignable by Virginia UNLESS they imposed on VA duties of a personal or unique character which could not be delegated. The difference btwn VAs service and Mackes service did not mount up to such a material change in the performance of obligations under the agreements as would justify Ds refusal to recognize the assignment. The delegation of duty by VA to Macke was entirely permissible under the terms of the agreements. ii. If D didnt want Macke to ever be a party to their contract (P actual chose Virginia OVER Macke) why didnt he put it into the contract that the duties of Virginia were non-delegable? c. Every contract is a bundle There are good things and bad things that come with it. Two Distinct Categories of a Contract: i. (1) Assignment: What is my ability to transfer the good thing (BENEFIT) about the contract to some 3rd party A. Rule for Assignments: With respect to the monetary obligation that comes from you to me the benefit I have is assignable regardless of what the contract says. Ex: I lend you $10 and you promise to pay you $11 next week I may assign that $11 payment to someone else EVEN if our contract says it is not allowed. Why? Your abstract promise to pay me does NOT come with any covenants!! a. Does the 3rd party have the ability to go after me for the $11 dollars? What are the damages is the burden the same in each case? B. Derivation Principle: You (3rd party) can get no more than what I have. In the absence of an exception, a transferee gets only what her transferor had. The assignee stands in the assignors shoes. C. Assignments of Performance: Dougie promises to mow my lawn and I promise to pay him $10. What about my ability to assign his promise to mow my lawn? I can only transfer what he promised me (Dougie promises to mow my lawn, not ANY lawn). So if Im selling my house and assign Dougies promise to mow my lawn to the new owner is this allowed? a. The Restatement and the UCC have a presumption in favor of assignability of these kinds of things unless it would materially increase the burden or risk imposed on the obligor. An insurance contract is something that you typically cannot assign. D. Multiple Assignments: What do we do when there are MULTIPLE (and necessarily fraudulent) assignments of the same obligation: (Ex: Dougie promises to pay Ricardo $100 but he assigns that promise to me, Schwab, Mr. Dunn, etc.) a. Look to the Law of Negotiable Instruments: If the obligation is reduced to a single piece of paper and NOT held in the abstract, then it follows that there can only be one assignment or transfer of the promise. ii. (2) Delegation: What is my ability to transfer the BURDEN of the contract to some 3 rd party. A. What is Non-Delegable? The law makes a distinction: Rare genius and extraordinary skill are not transferable and contracts for their employment are therefore personal and cannot be delegated. But rare genius and extraordinary skill are not indispensable to the workmanlike digging down of a sand hill or the filling up of a depression to a given level, or construction of brick sewers with manholes and covers, and contracts for such work are not personal and may not be assigned. Delegation is a default term and we assume that when you have PERSONAL services, they are not delegable but when you have non-personal services (i.e. leveling a street) this is delegable.



a. This assumes that work by one carpenter is just as good as another. You have a line being drawn but probably doesnt even make sense on its own terms. In this case, the pizza shops deliberately DID NOT want to use Macke!! They chose Virginia b/c of their personal service. But what you do in these cases is put a non-delegation term in the contract!!! b. Unlike assignment, delegation is a matter of gap-filling. It is not clear that the common law presumption captures what people want. (All ditch-diggers are not the same.) Even if I may delegate, I remain fully liable Tortious Interference with Contractual Relations i. Lumley v. Gye: Wagner contracted with Lumley to perform operas exclusively at his playhouse. Wagner, persuaded by Gye, decided not to sing at Lumleys theater and instead would perform at Gyes theater in Paris. Aside from bringing a breach of contract action against Wagner, Lumley brings an action against Gye for interfering with his contract with Wagner and persuading her to breach. Is there a difference in recovery between what Lumley can get from Gye that he cant get from Wagner? Ex: If I Wagner Did perform for Gye and was a big success what recovery for Lumley? o HE would ONLY get what HE LOST by Wagner not performing. He is not entitled to the profits of Gye. Only ED. o Even if he brought a tort action against Gye Lumley would still only be entitled to the damage he sustained. How can Lumley GET MORE THAN ED? He should get compensated for what he lost at his theater (ED) and all the ill-gotten gains that Gye received from Wagners performance? o TORTIOUS INTERFERENCE: Ex: Two rival schools. Headmaster of School A throws stones at students on their way to school B. The students DEFINITELY have a COA against headmaster A, but when does the headmaster of school B have a recovery? o The kind of activity that will give rise to tortuous interference as against B occurs when and A is conducting tortuous activities b/c of the harm and effect it will have on A then this is actionable!!! When is Tortious Interference Actionable? o In this case, the idea that malicious behavior is the same thing as conducting behavior with notice is the GIANT leap being made in this case! Having notice of the other contract is actionable! If Dougie promise to mow your lawn on Saturday for $10. Jones comes to Dougie and says, Doug, you have been ripped off. Ill pay you $15 to mow my lawn on Saturday. Forget about your other promise. Let them sue you. I find out about this on Friday. I now have to spend $20 to get someone to mow your lawn. What are your remedies? o Lumley v. Gye suggests that you have a cause of action against Jones, provided Jones acted WITH KNOWLEDGE of the contract. o Later cases expanded the doctrine beyond the context of employer and employee. Pennzoil v. Texaco is its most recent and most widely known application. Penzoil and Getty Oil have a deal but not a done deal for oil stock (lawyers havent executed the contract fully yet). Texaco comes in and promises Getty more $$ - can Texaco do this? Under Lumley it depends on what Texaco knows? It is assumed that Texaco at least has some KNOWLEDGE of the deal.