How to use:
The first outline consists of a larger more comprehensive description of all the material covered in the course (that I was able to get down on paper). The second outline was a shorter, very condensed "bare essentials" version used for the final exam.
I don't encourage law students to copy this or any other outline prepared by another, but rather, read through it and use it to gap-fill or review the subject matter. I do encourage students to copy the strategy of writing a condensed outline for the final rather than bringing in a giant 80+ page behemoth into finals, provided they are open book/open note. Honestly, I'd prepare short-form outlines even if it was closed notes, just to use as a study aid.
Before using or relying upon this outline, please refer to this website's disclaimer.
Outline 1: The Big One (click here for .doc version)
I. Contract Basics: Formation and Remedies for Breach
1. Basis for Enforcing Promises
A. Introduction
- Sources of Law for Defining Contracts
o UCC § 2-102
* Governs the sale of goods (not property)
o UCC § 2-103
* Unless otherwise stated… [common aka the Restatement law applies]
o Restatement 2d §1
* Contract is a promise or set of promises… law in some way recognizes as a duty.
B. Remedying Breach
- How to calculate remedy for breach of contract
o Restatement §344: Purposes of Remedies
* a) Expectation interest
* If the contract had been performed
o Restatement §347
* Right to damages of a) failure to perform + b) other incidental or consequential loss caused by breach - c) Costs avoided for breach
* b) Reliance Interest
* If the contract had never been made
* c) Restitution Interest
* Restoring benefits conferred on the other party
- Types of Remedies Available
o Restatement §345: Judicial Remedies Available
* Money, specific performance, declaring rights, enforcing arbitration award, damages, restoration of a specific thing
o Restatement §346
* A right to damages for breach of contract, Nominal Damages, at least
o No Punitive Damages!
* Restatement §355
o UCC §2-703: Seller’s Remedies
* Seller may withhold delivery of goods, stop delivery, resell and recover damages, cancel contract, etc.
o UCC §2-711
* Buyer may recover damages for non-delivery, recover goods, obtain specific performance, etc.
* KEEP IN MIND, that the condition of goods are the responsibility of the possessor
o UCC §2-716
* Buyer’s right to specific performance or reposes goods that rightfully belong to them
- Helpful Cases
o US Naval v. Charter (1991)
* Damages from a breach of contract should be calculated as the loss of income, not profits that were gained as a result of the breach.
o Sullivan v. O’Connor (1973)
* In the context of a medical procedure under contract: The promisee in entitled to the value difference between the promised condition and the condition before the operations.
o White v. Benkowski (1967)
* Damages of inconvenience are subject to compensation
* Punitive damages are not recoverable in actions for breach of contract
2. Creating Contractual Obligations
A. Nature of Assent
- Objective v. Subjective assent
* Subjective = “Meeting of the Minds
* Objective = External manifestations of intent
o Lucy v. Zehmer (1954)
* A contract is valid based on external manifestations, regardless if one party is “just kidding”
- Figuring out Questions of Assent
o Restatement §16: Intoxicated Persons
* It still counts if someone is drunk, unless it’s really obvious and stuff
o Restatement §3: Agreement/Bargain Defined
* “Manifestation of mutual assent”
o Restatement §17: Requirement of a Bargain
* A mental reservation doesn’t impair the obligations he purports to undertake (from Comments)
o Restatement §19: Conduct as Manifestation of Intent
* “The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake, or other invalidating cause”
o Restatement §21: Intention to be Legally Bound
* “Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract”
o Restatement §18: Manifestation of Mutual Assent
* Manifestation needs only a promise or begin to render performance
B. The Offer
- Useful cases to define offers
o Owen v. Tunison (1932)
* In order for a completed agreement for sale during negotiations, a) price must be offered by one party, b) price must be accepted by the other party, c) confirmation of the acceptance.
o Fairmount v. Woodenware (1899)
* A quote of price doesn’t constitute sale unless, seller’s implication is that upon acceptance of price quote, a transaction will take place.
* A “quote” may be an offer if the terms seem complete, and the context of what’s been negotiated
- Restatements that help define offers
o Restatement §22: Mode of Assent, Offer and Acceptance
* 1) Manifestation of assent usually takes place as an offer/proposal then acceptance, 2) Manifestation may be made even if neither offer nor acceptance can be identified clearly
o Restatement §24: Offer Defined
* “An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.”
o Restatement §26: Preliminary Negotiations
* “…willingness to enter into a bargain is not an offer…doesn’t intend to conclude a bargain until he has made further manifestation of intent.”
o Restatement §27: Existence of Contract Where Written Memorial is Contemplated
* Contract may be done, prior to writing one out on paper.
o Restatement §33: Certainty
* 1) Offer needs reasonably certain terms, 2) terms are certain if they provide a basis for determining existence of breach and remedies, 3) open terms may show it’s not an offer or acceptance.
o Restatement §28: Auctions
* Auction is manifested when a) invites offers from bidders, b) when goods are placed w/o reserve, goods can be withdrawn if no bids are made, c) bidder may withdraw until completion announced
o UCC §2-328: Sale by Auction
* 2) Sale complete when announced by auctioneer, 3) sale is with reserve unless said otherwise, 4) seller’s bid may be ignored at the end of a bid, with goods going to last good faith bidder
- Advertisements as Offers
o Lefkowitz v. Surplus Store (1957)
* An advertisement may be an offer if it is clear, definite, with no room for negotiating
C. Mistaken Bids and Mutual Mistake
- Bilateral v. Unilateral mistake
o Bilateral
* Both sides make a mistake. Restatement §152, Stees v. Leonard & Renner v. Kehl
* If no allocated risk & the seller wasn’t the expert party, then rescission is granted
o Unilateral
* One side makes a mistake, decreases power to get out of a contract
* Elsinore Union Elementary School District v. Kastorff (1960)
- Cases of Mistaken Bids
o Elsinore Union Elementary School District v. Kastorff (1960)
* If an offeree knows or has reason to know of the mistake at time of acceptance, the Offeror i152s not bound.
* Distinguishment between clerical, computational, and judgment.
o Stees v. Leonard (1874)
* A contract remains valid when unexpected impediments to the completion of a contract cause looses or harms. (Risk allocated to contractor)
o Renner v. Kehl (1986)
* A contract may be rescinded due to mutual mistake, and if such rescission takes place, the parties will have restitution for any property or goods imparted onto each other, and for the value of any improvements made on the land.
- Statutes about Mistaken bids and mutual mistake
o Restatement §20: The Effect of Misunderstanding
* If everyone is mistaken, then there is no manifestation of mutual assent, i.e. no contract
o Restatement §153: When Mistake of One Party Makes a Contract Voidable
* Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in Section 154, and
* (a) The effect of the mistake is such that enforcement of the contract would be unconscionable, or
* (b) The other party had reason to know of the mistake or his fault caused the mistake
o Restatement §154: When a Party Bears the Risk of a Mistake
* (a) the risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
D. The Acceptance
- Acceptance Defined
o Restatement §50: Acceptance of Offer Defined
* 1) Acceptance…manifestation of assent to the terms…in a manner invited or required by the offer. 2) Acceptance by performance requires that at least part of what the offer requests be performed… 3) Acceptance by promise requires that the offeree complete every act essential to the making of the promise.
- Bilateral v. Unilateral contract
o Bilateral
* Exchange of promise for promise
* White v. Corlies & Tift (1871)
o While there can be an acceptance without the offeror being aware of it, the acceptance must be manifested by an appropriate act
* Example of a bilateral contract that may look like a unilateral offer
o Unilateral
* One party makes promises
* Necessity of notice is less obvious
* Inviting acceptance by means of performance and not a promise
o Like an ad saying if you do x, you get paid, as in Carlill v. Carbolic Smoke Ball Co., (1893) and a lady who got sick despite using the smoke ball, and the company refused to pay Carlill.
- Cases that examine the unilateral/bilateral question
o Ever-Tite Roofing Corporation v. Green (1955)
* The contract did not specify the time within which it was to be accepted or within which the work was to have been commenced, a reasonable time must be allowed therefor in accordance with the facts and circumstances and the evident intention of the parties.
o International Filter v. Conroe (1925)
* Proposal made by buyer to sell, submitted for acceptance, said that it requires approval by executive of seller, use of the word “acceptance” led to confusion
* Restatement §24: An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
- Accepting an offer, by Promise or Performance
o UCC §2-204: Formation in General
* (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contact.
* (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
* (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.
o UCC §2-206: Offer and Acceptance in Formation of Contract
* (1) Unless otherwise unambiguously indicated by the language or circumstances
* (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances
* (b) an order or other offer to buy goods for prompt or current shipment shall be constructed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer.
* (2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.
o Restatement §30: Form of Acceptance Invited
* 1) However the offer specifies, or 2) in any method reasonable under the circumstance
o Restatement §54: Acceptance By Performance Necessity of Notification
* 1) When offer invites acceptance by performance, no notification is necessary unless otherwise stated 2) Duty to notify if offeror can’t know of acceptance/performance easily, unless a) offeree exercises reasonable diligence to notify offeror of acceptance, b) offeror learns of the performance within a reasonable time, c) offer indicates that notification isn’t required
o Restatement §56: Acceptance by Promise; Necessity of Notification to Offeror
* …It is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably.
o Restatement §62: Effect of Performance by Offeree Where Offer Invites Either Performance or Promise
* 1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or tender of a beginning of it is an acceptance by performance, 2) Such an acceptance operates as a promise to render complete performance.
o Restatement §45: Option Contract Created By Part Performance or Tender
* 1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it, 2) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
o Restatement §29: To Whom an Offer is Addressed
* 1) The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance, 2) An offer may create a power of acceptance in a specified person or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified performance.
o Restatement §32: Invitation of Promise or Performance
* In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.
o Restatement §51: Effect of Part Performance Without Knowledge of Offer
* Unless the offeror manifests a contrary intention, an offeree who learns of an offer after he has rendered part of the performance requested by the offer may accept by completing the requested performance.
o Restatement §52: Who May Accept an Offer
* An offer can be accepted only by a person whom it invites to furnish the consideration.
o Restatement §53: Acceptance By Performance; Manifestation of Intention Not to Accept
* (1) An offer can be accepted by the rendering of a performance only if the offer invites such acceptance (2) Except as stated in Section 69, the rendering of a performance does not constitute an acceptance if within a reasonable time the offeree exercises reasonable diligence to notify the offeror of non-acceptance (3) Where an offer of a promise invites acceptance by performance and does not invite a promissory acceptance, the rendering of the invited performance does not constitute an acceptance if before the offeror performs his promise the offeree manifests an intention not to accept.
o Restatement §58: Necessity of Acceptance Complying with Terms of Offer
* An acceptance must comply with the requirements of the offer as to the promise to be made or the performance rendered.
o Restatement §59: Purported Acceptance Which Adds Qualifications
* A reply to an offer which purports to accept it but is conditional on the offeror’s assent to terms additional to or different from those offered is not an acceptance but is a counter-offer.
o Restatement §60: Acceptance of Offer Which States Place, Time or Manner of Acceptance
* If an offer prescribes the place, time or manner of acceptance its terms in this respect must be compiled with in order to create a contract. If an offer merely suggests a permitted place, time or manner of acceptance, another method of acceptance is not precluded.
o Restatement §61: Acceptance Which Requests Change of Terms
* An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms.
E. Silence
- Restatement §65: Reasonableness of Medium of Acceptance
o …A medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received.
- Silence does not usually function as acceptance
o Otherwise, folks would be able to create contracts without actual assent
* Restatement §69: Acceptance by Silence or Exercise of Dominion
* (1) …Silence and inaction operate as an acceptance in the following cases only:
o (a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
o (b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer.
o (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept
* (2) An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.
* Example Case
* American Bronze Corp. v. Streamway Products (1982)
o After 20 years of business transactions, “The filling of these orders in this manner as a regular practice constituted a valid acceptance and thus created a binding contract… Absence a notice of rejection, Streamway would be justified in believing that American had indeed begun production.”
F. Termination of Power of Acceptance
- Power of acceptance, and how it may go away
o Restatement §35: The Offeree’s Power of Acceptance
* (1) An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer, (2) A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in § 36.
o Restatement §36: Methods of Termination of the Power of Acceptance
* (1) An offeree’s power of acceptance may be terminated by
* (a) rejection or counter-offer by the offeree, (b) lapse of time, (c) revocation by the offeror, or (d) death or incapacity of the offeror or offeree
* (2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer
o Restatement §37: Termination of Power of Acceptance Under Option Contract
* Notwithstanding § 38-49, the power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty.
o Restatement §38: Rejection
* (1) An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention, (2) A manifestation of intention not to accept an offer is a rejection unless the offeree manifests an intention to take it under further advisement.
o Restatement §40: Time When Rejection or Counter-Offer Terminates the Power of Acceptance
* Rejection or counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror, but limits the power so that a letter or telegram of acceptance started after the sending of an otherwise effective rejection or counter-offer is only a counter-offer unless the acceptance is received by the offeror before he receives the rejection or counter-offer.
o Restatement §41: Lapse of Time
* (1) An offeree’s power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time.
* (2) What is a reasonable time is a question of fact, depending on all the circumstances existing when the offer and attempted acceptance are made.
* (3) Unless otherwise indicated by the language or the circumstances, and subject to the rule stated in § 49, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received.
o Restatement §48: Death or Incapacity of Offeror or Offeree
* An offeree’s power of acceptance is terminated when the offeree or offeror dies or is deprived of legal capacity to enter into the proposed contract.
- When it goes into effect
o Restatement §63: Time When Acceptance Takes Effect
* Unless the offer provides otherwise,
* (a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but
* (b) an acceptance under an option contract is not operative until received by the offeror.
o Restatement §64: Acceptance by Telephone or Teletype
* Acceptance given by telephone or other medium of substantially instantaneous two-way communication is governed by the principals applicable to acceptances where the parties are in the presence of each other.
o Restatement §66: Acceptance Must be Properly Dispatched
* An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.
o Restatement §67: Effect of Receipt of Acceptance Improperly Dispatched
* Where an acceptance is seasonably dispatched but the offeree uses means of transmission not invited by the offer or fails to exercise reasonable diligence to insure safe transmission, it is treated as operative upon dispatch if received within the time in which a properly dispatched acceptance would normally have arrived.
- Option Contracts take away offer revocability
o Restatement §25: Option Contracts
* An option contract is a promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer.
o Dickinson v. Dodds (1876)
* Is just a nudum pactum (naked promise) unless there is consideration, and it is made an option contract - If you want an option to stay open, you must pay for it to form an option contract.
o UCC §2-205
* An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror
o UCC §1-201: General Definitions – “Signed” & “Writing”
* Signed
* Includes using any symbol executed or adopted with present intention to adopt or accept a writing
* Writing
* Includes printing, typewriting, or any other intentional reduction to tangible form.
- Revocation that takes away power of acceptance
o Restatement §42: Revocation by Communication From Offeror Received by Offeree
* An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.
o Dickinson v. Dodds (1876)
* Indirect revocation - Heard that the seller was selling it to someone else through someone else, so he received revocation
o Restatement §46: Revocation of General Offer
* Where an offer is made by advertisement in a newspaper or other general notification to the public or to a number of persons whose identity is unknown to the offeror, the offeree’s power of acceptance is terminated when a notice of termination is given publicity by advertisement or other general notification equal to that given to the offer and no better means of notification is reasonably available.
o Restatement §43: Indirect Communication of Revocation
* An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect.
o Restatement §68: What Constitutes Receipt of Revocation, Rejection, or Acceptance
* A written revocation, rejection, or acceptance is received when the writing comes into the possession of the person addressed, or of some person authorized by him to receive it for him, or when it is deposited in some place which he has authorized as the place for this or similar communications to be deposited for him.
- Changing Things
o Restatement §39: Counter-Offers
* (1) A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer.
* (2) An offeree’s power of acceptance is terminated by his making of a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.
o Restatement §61: Acceptance Which Requests Change of Terms
* An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms.
- Merchants and Definitions of Stuff
o UCC §2-104: Definitions: “Merchant”; “Between Merchants”; “Financing Agency”
* Part One: Merchant
* A person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction, or to whom such knowledge or skill may be attributed by his employment of an agent or broker or other intermediary who by his occupation holds himself out as having such knowledge or skill.
* Part Two: Financing Agency
* A bank, finance company, or other person who in the ordinary course of business makes advances against goods or documents of title or who by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or claimed under the contract for sale, as by purchasing or paying the seller’s draft or making advances against it or by merely taking it for collection whether or not documents of the title accompany the draft
* Includes also a bank or other person who similarly intervenes between persons who are in the position of seller and buyer in respect to the goods.
* Part Three: Between Merchants
* Any transaction with respect to which both parties are chargeable with the knowledge or skill of merchants.
G. Battle of the Forms
- Maddox v. Northern Gas (1966)
o “In order that an offer and acceptance may result in a binding contract, the acceptance must be absolute, unconditional, and identical with the terms of the offer; and any qualification or departure from those terms invalidates and rejects the offer.
- Transcending the Mirror Image Rule
o UCC §2-207:Additional Terms in Acceptance or Confirmation
* (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
* (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
* (a) the offer expressly limits acceptance to the terms of the offer;
* (b) they materially alter it; or
* (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
* (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
o Different or Additional Terms
* Dorton v. Collins & Aikman Corp. (1972)
* Is it a contract in the initial conversation or upon receipt of the written contract?
o Court determines that it may be additional or different, but unclear, so it is remanded to a lower court to answer that question
* Itoh & Co v. Jordan International (1977)
* Itoh’s acceptance of and payment for the steel did not constitute assent to the additional or different terms.
* Northrop Corp. v. Litronic Industries 1994
* Had a 90 day warranty on goods, P’s warranty in text had an unlimited warranty period.
o Question before the court was how to treat terms that were ‘different’ but not ‘additional’ to those of the offer under subsection 2.
* Hill v. Gateway (1997)
* The court stated that a contract did not have to be read in order for it to become effective and that the terms inside a box of software were binding on a consumer who subsequently used it.
- Another option in battle of the forms is the last shot rule
o Common law: Whatever the last form said is the one that is valid and enforceable, although this solution appears to be seldom recognized or followed in determining contracts cases
H. Pre-Contractual Liability
- Restatement §90: Promise Reasonably Inducing Action or Forbearance
o (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
o (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.
- Example
o Drennan v. Star Paving Co. (1958)
* Subcontractor refused to pay for the contractor’s bid, was no formal contract, but the court found “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise (Restatement §90)”
* Overturned the case Baird v. Gimbel (1933).
* Holman (1983) says there is no reliance on the part of the subcontractor and the contractor will not be locked in via reliance
- Liability when negotiations fail
o Most major contractual commitments are the product of lengthy negotiations in which it is often difficult later to identify particular messages of offer and acceptance
* If during the course of negotiations one party has conferred a benefit on the other, the recipient may be required to make restitution
* Hoffman v. Red Owl Stores (1965)
o Damages granted for reliance on an offer that did not constitute a promise.
o Did not give remedy for projected profits, or similar possible incomes that did not come to fruition due to the reliance.
* Cyberchron Corp. v. Calldata Systems Development, Inc. (1995)
o Party was entitled to reliance damages with no enforceable contract agreement existed and no enrichment was bestowed upon the other party, as there was a) a clear and unambiguous promise, b) a reasonable and foreseeable reliance, c) an injury is sustained by the party asserting estoppel by reason of reliance
- Preliminary Binding Agreements/Preliminary Binding Commitments
o Theories of reliance and restitution when negotiations fail
* Channel Home Centers v. Grossman (1986)
* Reliance if a) both parties manifested intent to be bound by the agreement, b) the terms are sufficiently definite to be enforced c) there is consideration
- Some statutes and stuff relevant to pre-contractual liability
o Restatement §32: Invitation of Promise or Performance
* In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses.
o Restatement §45: Option Contract Created by Part Performance or Tender
* (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it.
* (2) The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
o Restatement §62: Effect of Performance by Offeree Where Offer Invites Either Performance or Promise
* (1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.
* (2) Such an acceptance operates as a promise to render complete performance.
o Restatement §54: Acceptance by Performance; Necessity of Notification to Offeror
* (1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification.
* (2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless
* (a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or
* (b) the offeror learns of the performance within a reasonable time, or
* (c) the offer indicates that notification of acceptance is not required.
o Restatement §56: Acceptance by Promise; Necessity of Notification to Offeror
* Except as stated in § 69 or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably.
o Restatement 87(2): Option Contract
* (1) An offer is binding as an option contract if it
* (a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
* (b) is made irrevocable by statute.
* (2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
I. Definiteness
- Statutes and stuff that help define requisite definiteness in contracts aka “Gap Fillers”
o Restatement §33: Certainty
* (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.
* (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.
* (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.
o Restatement §362: Effect of Uncertainty of Terms
* Specific performance or an injunction will not be granted unless the terms of the contract are sufficiently certain to provide a basis for an appropriate order.
o UCC §2-305: Open Price Term
* (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if
* (a) nothing is said as to price; or
* (b) the price is left to be agreed by the parties and they fail to agree; or
* (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
* (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
* (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
* (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account
o UCC §2-307: Delivery in Single Lot or Several Lots
* Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.
o UCC §2-308: Absence of Specified Place for Delivery
* Unless otherwise agreed
* (a) the place for delivery of goods is the seller's place of business or if he has none his residence; but
* (b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and
* (c) documents of title may be delivered through customary banking channels.
o UCC §2-309: Absence of Specific Time Provisions; Notice of Termination
* (1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.
* (2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.
* (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.
o UCC §2-310: Open Time for Payment or Running of Credit; Authority to Ship Under Reservation
* Unless otherwise agreed
* (a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; and
* (b) if the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract (Section 2- 513); and
* (c) if delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is due regardless of where the goods are to be received (i) at the time and place at which the buyer is to receive delivery of the tangible documents or (ii) at the time the buyer is to receive delivery of the electronic documents and at the seller's place of business or if none, the seller's residence; and
* (d) where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but post-dating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.
o UCC §2-311: Options and Cooperation Respective Performance
* (1) An agreement for sale which is otherwise sufficiently definite (subsection (3) of Section 2-204) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.
* (2) Unless otherwise agreed specifications relating to assortment of the goods are at the buyer's option and except as otherwise provided in subsections (1)(c) and (3) of Section 2-319 specifications or arrangements relating to shipment are at the seller's option.
* (3) Where such specification would materially affect the other party's performance but is not seasonably made or where one party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies
* (a) is excused for any resulting delay in his own performance; and
* (b) may also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.
o UCC §2-314: Implied Warranty: Merchantability; Usage of Trade
* (1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
* (2) Goods to be merchantable must be at least such as
* (a) pass without objection in the trade under the contract description; and
* (b) in the case of fungible goods, are of fair average quality within the description; and
* (c) are fit for the ordinary purposes for which such goods are used; and
* (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
* (e) are adequately contained, packaged, and labeled as the agreement may require; and
* (f) conform to the promise or affirmations of fact made on the container or label if any.
* (3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade.
1. Basis for Enforcing Promises (Continued)
C. Consideration (Fundamentals, Exchange/Moral Obligation, Bargain, Promises)
A. Fundamentals of Consideration
- Casebook Section 3: Consideration as a Basis for Enforcement
o (A) Fundamentals of Consideration
* Which promises to enforce
* Three principals in common law to determine if it should be legally binding
o Covenant
* Contracts made under seal
o Debt
* Promise to repay money may be enforceable even without a seal
o Assumpit
* Promisee sought to recover damages for physical injury to person or property on the basis of a consensual undertaking
* Typical Categories of Agreements
* Five common categories that have unique applications of contract principals
o Contracts for the sale of goods, real estate transactions, construction contracts, employment agreements, family contracts
* Family Contracts
* Often involve matters long understood to be outside the proper scope of judicial intervention.
o Hammer v. Sidway (1891)
* Uncle promised nephew $5000 if he wouldn’t drink or whatever until he became 21.
* Money stayed with uncle until death, as caretaker of the funds, without having ever paid it or interest from it.
* Does the court have a right to enforce this promise as a debt, although there was no consideration
* The consideration was in refraining from something that the P was not legally prohibited from doing. Abstaining from fun stuff constituted consideration.
o Gratuitous Promises
* What if the uncle gave the $5000 and if he did stuff before 21 he would take it back?
* Fiege v. Boehm (1956)
o Boehm sued Fiege to recover for breach of contract
o Facts
* Unmarried woman had sex with dude and got pregnant
* Gave birth to a child, established that D was the father
* Father agreed to pay medical bills and expenses to compensate for loss of salary, and $10 per week until it reached the age of 21
* Placed the child for adoption and claimed damages
* Later, blood tests found that he was not the father
* D claims he never had intercourse with her and had no agreement, but admitted to paying 480
* Jury found for the full amount of the claim
o Rules
* 1) If there is no foundation in law or fact for a charge against a certain man that he is the father of the child, but that man promises to pay her in order to prevent bastardly proceedings against him, the forbearance to institute proceedings is not sufficient consideration
* 2) Forbearance to sue for a lawful claim or demand is sufficient consideration for a promise to pay for the forbearance if the party forbearing had an honest intention to prosecute litigation which is not frivolous, vexatious or unlawful, and which he believed to be well founded.
o Ruling
* Was no proof of fraud or unfairness, and so the court was right to apply 2).
- Restatements
o Restatement § 71: Requirement of Exchange; Types of Exchange
* (1) To constitute consideration, a performance or a return promise must be bargained for.
* (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
* (3) The performance may consist of
* (a) an act other than a promise, or
* (b) a forbearance, or
* (c) the creation, modification, or destruction of a legal relation.
* (4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
o Restatement §72: Exchange of Promise for Performance
* Except as stated in §§ 73 and 74, any performance which is bargained for is consideration.
o Restatement §75: Exchange of Promise for Promise
* Except as stated in §§ 76 and 77, a promise which is bargained for is consideration if, but only if, the promised performance would be consideration.
o Restatement §81: Consideration as Motive or Inducing Cause
* (1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.
* (2) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.
o Restatement §79: Adequacy of Consideration; Mutuality of Obligation
* If the requirement of consideration is met, there is no additional requirement of
* (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
* (b) equivalence in the values exchanged; or
* (c) “mutuality of obligation.”
o Restatement §74: Settlement of Claims
* (1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless
* (a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or
* (b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.
* (2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.
o Restatement §87: Option Contract
* (1) An offer is binding as an option contract if it
* (a) is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time; or
* (b) is made irrevocable by statute.
* (2) An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
o Restatement §88: Guaranty
* A promise to be surety for the performance of a contractual obligation, made to the obligee, is binding if
* (a) the promise is in writing and signed by the promisor and recites a purported consideration; or
* (b) the promise is made binding by statute; or
* (c) the promisor should reasonably expect the promise to induce action or forbearance of a substantial character on the part of the promisee or a third person, and the promise does induce such action or forbearance.
B. Requirement of Exchange: Action in the Past & Moral Obligation
- (B) The Requirement of Exchange: Action in the Past
o Feinberg v. Pfeiffer Co. (1959)
* D employer allegedly to pay P monthly upon retirement
* Management change of employer, employer viewed the payments as gratuities rather than amounts due under contract
* D sent a reduced payment check of 100, and P refused to accept, brought suit
* Reliance interest?
* Yes. P would not have retired if no retirement was offered. Relied on the payments.
o Moral Obligation
* Mills v. Wyman (1825)
* Facts
o D sick dude cared for P on sea voyage
o P incurred expenses caring for D, D’s father promised to pay for expenses.
o No payment, P sued.
* Rules
o Moral obligation is sufficient consideration to support an express promise, but not when there is no consideration or dependency placed on the promise.
o Nothing was paid for it…
* Webb v. McGowin (1935)
* Facts
o Estate case, estate is D
* P acted to prevent the injury of D during a lumber mill accident, P sustained permanent and debilitating injury.
* D agreed to pay and maintain him for the remainder of P’s life at $15 every 2 weeks
* At D’s death the payments stopped
* P brought suit for payment
* Rule
o Consideration
* Application and Ruling
o McGowin had consideration as injury, dependence on the promise, and P was entitled to continued compensation, remanded for lower court
- Restatements
o Restatement §23: Necessity That Manifestations Have Reference To Each Other
* It is essential to a bargain that each party manifest assent with reference to the manifestation of the other.
o Restatement §82: Promise to Pay Indebtedness; Effect on the Statute of Limitations
* (1) A promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except for the effect of a statute of limitations.
* (2) The following facts operate as such a promise unless other facts indicate a different intention:
* (a) A voluntary acknowledgment to the obligee, admitting the present existence of the antecedent indebtedness; or
* (b) A voluntary transfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as interest on or part payment of or collateral security for the antecedent indebtedness; or
* (c) A statement to the obligee that the statute of limitations will not be pleaded as a defense.
o Restatement §83: Promise to Pay Indebtedness Discharged in Bankruptcy
* An express promise to pay all or part of an indebtedness of the promisor, discharged or dischargeable in bankruptcy proceedings begun before the promise is made, is binding.
o Restatement §85: Promise to Perform a Voidable Duty
* Except as stated in § 93, a promise to perform all or part of an antecedent contract of the promisor, previously voidable by him, but not avoided prior to the making of the promise, is binding.
o Restatement §86: Promise for Benefit Received
* (1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice.
* (2) A promise is not binding under Subsection (1)
* (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
* (b) to the extent that its value is disproportionate to the benefit.
C. Requirement of a Bargain
- (C) The Requirement of Bargain
o Kirksey v. Kirksey (1845)
* Facts
* P = wife of D’s brother, who died
* Asked to come down by D who offered to give land to tend and a place to live
* P took the cost to move down there
* D kicked P out after 2 years
* P brought suit for breach of contract
* Rule
* Consideration is a requirement for an enforceable contract
* Application
* The move down to the area may have been sufficient consideration for a binding contract, but the offer itself was a gratuity.
* Conclusion
* Rule in favor of D.
o Employment Agreements
* Lake Land Employment Group of Akron, LLC v. Columber (2004)
* Facts
o P employer, D employee
o P claimed D breached non-competition agreement
* 50 mile radius of Akron, Ohio for 3 years
o D claimed lack of consideration as an at will employee, and that the restrictions were excessive and imposed undue hardship
o D signed non-competition agreement after already working for P
* Issue
o Is subsequent employment alone sufficient consideration to support a covenant-not-to-compete agreement with an at-will employee entered into after employment has already begun?
* Rule
o Cases which have held that continued employment is generally not consideration for a non-competition agreement, “employee gets no more” out of the agreement, and there is no protection for the employer’s investment in such an agreement, it just imposes barriers for that employee getting a job elsewhere.
o Changes to an at-will employee contract may occur at any time, and so consideration exists for continued employment in exchange for the non-competition agreement
* Application
o D could have quit but didn’t, and D’s continued employment with P was sufficient consideration, as an at-will employee.
D. Promises as Consideration
- Illusory promises
o I will do something, or not, at my discretion
o Distinguished from Conditional promises, I will do x if y happens, y not being my sole discretion
- What constitutes a promise?
o Strong v. Sheffield (1895)
* Facts
* P uncle of D
* P sold business to husband of D
* D endorsed the note
* Verbal agreement for P to not sell the note, and would not attempt to collect until later
* D did not pay debt
* Rule
* Nudum pactum does not constitute a binding promise, as consideration is required
* Application
* The formal signing of a note is no exception to the consideration rule. There still needs to be consideration for a loan.
* Ruling
* Reversed, in favor of D
- Contracts for the Sale of Real Estate
o Mattei v. Hopper (1958)
* Facts
* P sued after D did not sell property according to terms of deposit receipt
* P developer, D land owner and holdout in development project
* P paid 1000, which was a deposit on 57,000 and 120 days to decide to purchase or not
* D decided not to sell before the end of the 120 day period
* Rule
* Deposit receipts are generally binding and enforceable contracts. However, making contracts conditional upon the satisfaction of one party would give latitude in avoiding obligation and thus prevent serious consideration.
* Application
* Agreement specified that lease was dependent upon the P’s acceptance, indicating that the deal was not finalized yet. Without mutual obligation, it seemed that there was no consideration, despite the deposit.
* Ruling
* Court enforces the contract because, although the promise was conditional, it was in good faith…
- Contracts for the sale of goods
o Eastern Air Lines, Inc. v. Gulf Oil Corporation (1975)
* Facts
* P buyer of oil from D seller
* Prices contractually tied to market value
* D refused to sell oil. Political issues, impending oil embargo.
* P sought specific performance in spite of impending oil embargo
* Issue
* Is the contract invalid because it lacks mutual obligation (consideration)? Buyer could have said they didn’t need anything.
* Rule
* Good faith requirements of mutual trade between parties creates consideration on each others’ continued trade.
* Application
* Parties have consistently over the years relied upon each other to act in good faith in the purchase and sale of the required quantities of aviation fuel specified in the contract.
* Conclusion
* Contract is binding
o Wood v. Lucy, Lady Duff-Corporation (1917)
* Facts
* D = fashion designer, P = employee
* P placed D label on items, subject to D’s approval
* D was to get ? of profits in exchange
* Contract to last for one year, or 90 days notice to termination
* P claims D broke contract by placing endorsement without D’s approval
* Issue
* Does consideration exist in a contract when it lacks explicit consideration but implies a promise for the other party to perform?
* Rule
* A promise may be lacking, and yet the whole writing may be “instinct with an obligation,” imperfectly expressed… If that is so, there is a contract.
* Application
* Promise to pay the D ? of profits resulting from the product endorsements implies that such endorsements would take place, giving sufficient consideration.
- Substitutes for Consideration
o Some states make gratuitous promises binding by recognizing signed writing a substitute
- Restatements
o Restatement §76: Conditional Promise
* (1) A conditional promise is not consideration if the promisor knows at the time of making the promise that the condition cannot occur.
* (2) A promise conditional on a performance by the promisor is a promise of alternative performances within § 77 unless occurrence of the condition is also promised.
o Restatement §77: Illusory and Alternative Promises
* A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless
* (a) each of the alternative performances would have been consideration if it alone had been bargained for; or
* (b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.
o UCC § 2-306. Output, Requirements and Exclusive Dealings.
* (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
* (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
E. Reliance
- Reliance as a basis for the enforcement of a promise, separate and distinct from consideration
o Ricketts v. Scothorn (1898)
* Facts
* D estate owed P debt
* P was a former employee of D
* P claims that D made the deal end employment for the debt
* Mr. Rickets made no demand, so there was no consideration, and so it was intended as a gift
* Rule
* An action on a note…upon the faith of which money has been expended or obligations incurred, could not be successfully defended on the ground of a want of consideration.
* Application
* The P gave up her job in reliance and upon expectation of the payment by D. Reliance on the promise functioned as consideration, although there was no consideration in the strictest terms.
- The Development of Promissory Estoppel
o Initially not recognized reliance as consideration (Commonwealth v. Scituate Savings Bank)
o Feinberg v. Pfeiffer Co (1959)
* Facts
* Former employee P sued employer D for retirement payments
* P claimed enforceable due to reliance
* Reliance = abandonment of employment
* Rule Application
* Reliance is sufficient to satisfy requirement, retired early, would have worked had it not been for this promise.
o D & G Stout, Inc. v. Bacardi Imports, Inc. (1991)
* Facts
* D liquor supplier for P, distributor.
* D promised P to continue relationship
* P considered selling, but turned down due to promise of continued sales relationship
* One week later, D withdrew its account
* P sold for 550,000 below the first offer
* Issue
* Can P recover based on promissory estoppel?
* Rule
* A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee…binding if injustice can be avoided only by enforcement of the promise… So, expectation damages are not recoverable, but reliance are.
* Application
* P had a reliance on the promise in refusing to sell the business, and took a loss as a result. Reversed and remanded in favor of the P.
o Restatement § 90. Promise Reasonably Inducing Action Or Forbearance
* (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
* (2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.
F. Restitution
- Restitution as an alternative basis for recovery
o Gains produced through another’s loss are unjust and should be restored
* Cotnam v. Wisdom (1907)
* Facts
o P surgeons for D, estate
o D in car accident.
o P tried to save D’s life
o P failed and D died
o D did not give consent, as he was unconscious
o P wanted payment for the services provided
* Issue
o As the D had no benefit of the operation conferred upon him, no consideration exists, but is there restitution interest for the services provided because of the attempt?
* Rule
o In the absence of express agreement, a surgeon who brings services… earns the reasonable and customary price therefore, whether the outcome be beneficial to the patient or the reverse.
* Application
o The doctor tried, and it is customary in such situations for the doctor to be entitled to compensation.
* Callano v. Oakwood Park Homes Corp. (1966)
* Facts
o D construction of a housing development
o Owner had plants installed on property, of which D had knowledge
o Owner never paid P, of which D was not aware.
o Owner died, and D sold the property
o D sold the property, and the plants, to Owner2
o P claim D was unjustly enriched in the sale by their plants
o P claims quasi-contract
* Rules
o Contracts implied by law (quasi), are imposed by law without regard to the assent of the party bound, for the purposes of fairness. Must show unjust and enrichment.
* Application
o Value of property was enhanced, i.e. enrichment, by the plants
o D was not unjust, as it was the failure of the Owner’s estate that did not pay, not through the fault of D.
o P would have to bring suit against Owner.
* Pyeatte v. Pyeatte (1982)
* Facts
o P divorced wife of D
o P paid bills while D went to law school in exchange for D paying the bills while P went to school
o D filed for divorce prior to graduate school
o P sued D for their agreement to put P through school
* Issue
o Whether restitution on the basis of unjust enrichment is appropriate in the context of the marital relationship
* Rule
o Unjust enrichment is not properly applied in the setting of a marital relationship, however, where the facts demonstrate an extraordinary or unilateral effort by one spouse which inures solely to benefit the other to the benefit of the other by the time of dissolution, the remedy of restitution is appropriate…
* Application
o It seemed like it may be an extreme, extraordinary and unilateral effort by the P, but it needs to be decided by a jury.
* Ruling
o Judgment for $23,00 reversed, but remanded for further proceedings.
3. Remedies in Breach
A. Specific Relief
- Cases
o Campbell Soup Co. v. Wentz (1948)
* Facts
* P buyer of carrots
* D sellers
* Contract to sell for $30 a ton
* D harvested 100 tons
* D told P they would not deliver at agreed price, as market price was $90 per ton
* D sold carrots to a neighboring farmer, that farmer sold those carrots on the market
* P refused to buy carrots and sued D to compel performance of contract carrots
* Rule
* Specific performance if sale if the legal remedy is inadequate.
* Application
* Not possible to obtain the specific carrots in question back from the market, nothing special about those specific carrots. The carrots were not unique goods, and equitable remedy is fine
o Klein v. PepsiCo, Inc. (1988)
* Facts
* P buyer of used corporate jet, D owner and seller of jet through intermediaries
* Contract was made for the sale price of $4.75 million
* Upon inspection, damage was discovered that D agreed to pay to repair
* D withdrew the offer, or attempted
* D then refused to deliver, P sued for specific performance
* Rule
* Specific performance may be granted if goods are unique…
* Application
* Several similar planes on the market at the time, and so no unique quality about this particular plane
* Ruling
* Specific performance reversed and remanded for the court to determine damages
o Morris v. Sparrow (1956)
* Facts
* D to recover specific horse from P
* D agreed to give P the horse for payment for work
* D had trained horse himself
* Appeal specific performance
* Rule
* Specific performance requires that the good in question has some unique value…
* Application
* Horse had unique value from D as it had sentimental or special value to P and was not replaceable
o Laclede Gas Co. v. Amoco Oil Co. (1975)
* Facts
* P buyer of gas from D
* Had a contract
* D increased prices without explanation
* Violated contract terms
* P want’s their gas at price
* Rule
* Court must not specific performance to enforce a long-term constant agreement that would require substantial oversight, but it is at the court’s discretion
* Application
* Ability for customers to have gas is a concern of great public importance and therefore specific performance is acceptable for the breach of contract
o Northern Delaware Industrial Development Corp v. E.W. Bliss Co. (1968)
* Facts
* D contracted to modernize P’s steel plant for $27,500,000
* Work did not proceed as rapidly as expressed in the contract.
* Rule
* No specific performance where it would be inappropriate in view of imprecision of a contract provision and the impracticability of enforcement
* Application
* Not possible to order someone to do something faster…
o Walgreen Co. v. Sara Creek Property Co. (1992)
* Facts
* P owned chain store in a mall owned by D
* D promised not to lease space to another pharmacy in the area
* D broke this promise and was going to lease to another pharmacy
* D sought injunction
* Trial court issued permanent injunction until P’s lease expires
* D wanted equitable relief and not injunctive relief
* Rule
* Injunctions granted only when damages remedy is inadequate.
o Adequacy measured by costs of injunction versus efficiency of damages
* Application
* Damages would have been very uncertain to determine, whereas injunction would have been the simpler thing to do, so that is what the court did, and it is fine as long as the court uses some similar manner of determining which is most efficient
- Restatements
o Restatement § 357: Availability Of Specific Performance And Injunction
* (1) Subject to the rules stated in §§ 359-69, specific performance of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty.
* (2) Subject to the rules stated in §§ 359-69, an injunction against breach of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty if
* (a) the duty is one of forbearance, or
* (b) the duty is one to act and specific performance would be denied only for reasons that are inapplicable to an injunction.
o Restatement § 359: Effect of Adequacy of Damages
* (1) Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party.
* (2) The adequacy of the damage remedy for failure to render one part of the performance due does not preclude specific performance or injunction as to the contract as a whole.
* (3) Specific performance or an injunction will not be refused merely because there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion under the rule stated in § 357.
o Restatement § 360: Factors Affecting Adequacy of Damages
* In determining whether the remedy in damages would be adequate, the following circumstances are significant:
* (a) the difficulty of proving damages with reasonable certainty,
* (b) the difficulty of procuring a suitable substitute performance by means of money awarded as damages, and
* (c) the likelihood that an award of damages could not be collected.
o Restatement § 366: Effect of Difficulty in Enforcement or Supervision
* A promise will not be specifically enforced if the character and magnitude of the performance would impose on the court burdens in enforcement or supervision that are disproportionate to the advantages to be gained from enforcement and to the harm to be suffered from its denial.
o Restatement § 367: Contracts for Personal Service or Supervision
* (1) A promise to render personal service will not be specifically enforced.
* (2) A promise to render personal service exclusively for one employer will not be enforced by an injunction against serving another if its probable result will be to compel a performance involving personal relations the enforced continuance of which is undesirable or will be to leave the employee without other reasonable means of making a living.
- UCC
o UCC 2-709: Action for the Price
* (1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price
* (a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and
* (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.
* (2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold.
* (3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section.
o UCC 2-716: Buyer’s Right to Specific Performance or Replevin
* (1) Specific performance may be decreed where the goods are unique or in other proper circumstances.
* (2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just.
* (3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. In the case of goods bought for personal, family, or household purposes, the buyer's right of replevin vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver.
B. Measuring Expectation
- Cases
o Vitex Manufacturing Corp. v. Caribtex Corp. (1967)
* Facts
* P chemically shower-proofing imported cloth to be imported to the US
* D imports cloth into Virgin Islands, and exporting to US
* P and D contract for P process 125,000 yards at a price of 25-26 cents per yard
* P opened plant, ordered chemicals, recalled work force
* D did not deliver goods
* P brought suit to recover lost profits through D’s breach
* Rule
* Seller entitled to losses incurred and gains prevented in excess of savings made possible
* Application
* Because P had to open the plant back up in expectation of D’s contract, the income was required for equity. This determined by what would have been the profits.
o Laredo Hides Co., Inc. v. H & H Meat Products Co., Inc. (1974)
* Facts
* P buyer D seller
* Sale of cattle hides
* Contract for D to ship 2 deliveries for $9,000
* D demanded payment while check was in the mail within a few hours or contract would be void, and then stopped delivery
* P sued for D breaking the contract
* Rule
* Damages for breach = difference between market price at the time when the buyer learned of the breach and the contract price with any incidental and consequential damages
* Application
* Is money in substitution for the hides it would have delivered, and that is what P got.
o R.E. Davis Chemical Corp. v. Diasonics, Inc. (1987)
* Facts
* D makes and sells medical equipment
* P buys medical equipment from D
* Agreement for P to buy from D
* $300,000 deposit paid by P
* P set up medical facility to use equipment, but the facility breached contract with P
* P then breached contract with D
* P sued for restitution of $300,000 deposit
* D sold equipment for no loss
* D did not deny reliance, but claimed that P owed D for loss of profit for the sale
* Rule
* Liable for lost profits due to breach of contract…
* Application
* D may have lost profits due to breach, is to be determined by a jury, so reversed summary judgment for P and remanded
o United States v. Algernon Blair, Inc. (1973)
* Facts
* P brought suit under fed statute against D
* D contracted to construct naval hospital
* P to supply steel to D
* P supplied, D refused to pay for crane rental, saying not obligated under contract
* P terminated performance due to nonpayment
* P brought suit to recover for labor and equipment furnished
* Issue
* May a subcontractor who justifiably ceases work under a contract because of the prime contractor’s breach, recover the value of labor and equipment already furnished pursuant to the contract irrespective of whether he would have been entitled to recover in a suit on the contract?
* Application
* D’s breach justified P’s termination of performance
* P entitled to restitution for the interest bestowed upon the D, which constitutes labor and equipment use.
* Costs to Coastal upon performance was not to be deducted from award.???
- Restatements
o Restatement § 349: Damages Based on Reliance Interest
* As an alternative to the measure of damages stated in § 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.
o Restatement § 370: Requirement that Benefit be Conferred
* A party is entitled to restitution under the rules stated in this Restatement only to the extent that he has conferred a benefit on the other party by way of part performance or reliance.
o Restatement § 371: Measure of Restitution Interest
* If a sum of money is awarded to protect a party's restitution interest, it may as justice requires be measured by either
* (a) the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant's position, or
* (b) the extent to which the other party's property has been increased in value or his other interests advanced.
o Restatement § 373: Restitution When Other Party is in Breach
* (1) Subject to the rule stated in Subsection (2), on a breach by non-performance that gives rise to a claim for damages for total breach or on a repudiation, the injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance.
* (2) The injured party has no right to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance.
- UCC
o UCC 2-703: Seller’s Remedies in General
* Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (Section 2-612), then also with respect to the whole undelivered balance, the aggrieved seller may
* (a) withhold delivery of such goods;
* (b) stop delivery by any bailee as hereafter provided (Section 2-705);
* (c) proceed under the next section respecting goods still unidentified to the contract;
* (d) resell and recover damages as hereafter provided (Section 2-706);
* (e) recover damages for non-acceptance (Section 2-708) or in a proper case the price (Section 2-709);
* (f) cancel.
o UCC 2-706: Seller’s Resale Including Contract for Resale
* (1) Under the conditions stated in Section 2-703 on seller's remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach.
* (2) Except as otherwise provided in subsection (3) or unless otherwise agreed resale may be at public or private sale including sale by way of one or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence or that any or all of them have been identified to the contract before the breach.
* (3) Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell.
* (4) Where the resale is at public sale
* (a) only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and
* (b) it must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and
* (c) if the goods are not to be within the view of those attending the sale the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and
* (d) the seller may buy.
* (5) A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section.
* (6) The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2-707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection (3) of Section 2-711).
o UCC 2-708: Seller’s Damages for Non-acceptance or Repudiation
* (1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach.
* (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.
o UCC 2-709: Action for the Price
* (1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price
* (a) of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and
* (b) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.
* (2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold.
* (3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section.
o UCC 2-711: Buyer’s Remedies in General; Buyer’s Security Interest in Rejected Goods
* (1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Section 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid
* (a) “cover” and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or
* (b) recover damages for non-delivery as provided in this Article (Section 2-713).
* (2) Where the seller fails to deliver or repudiates the buyer may also
* (a) if the goods have been identified recover them as provided in this Article (Section 2-502); or
* (b) in a proper case obtain specific performance or replevy the goods as provided in this Article (Section 2-716).
* (3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (Section 2-706).
o UCC 2-712: “Cover”; Buyer’s Procurement of Substitute Goods
* (1) After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.
* (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller's breach.
* (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy.
o UCC 2-713: Buyer’s Damages for Non-delivery or Repudiation
* (1) Subject to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller's breach.
* (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.
o UCC 2-718: Liquidation or Limitation of Damages; Deposits
* (1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
* (2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds
* (a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or
* (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.
* (3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes
* (a) a right to recover damages under the provisions of this Article other than subsection (1), and
* (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.
* (4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller (Section 2-706).
C. Limitations on Damages
a. Avoidability
- Cases
o Rockingham County v. Luten Bridge Co. (1929)
* Facts
* Breach of contract
* County ordered Co. to stop work after public opinion turned
* Co. had spent about $1900 in labor and material at this point
* Co. finished the bridge anyway in accordance with the contract
* Co. sue for $18,301
* Issue
* Is County still liable for full cost despite notifying Co. that the County did not want the bridge nor would they pay for it?
* Rules
* After an absolute repudiation or refusal to perform by one party to a contract, the other party cannot continue to perform and recover damages based on full performance
* Application
* County told Co. of wish to breach after Co. only had $1900 in costs, meaning that the breach was only for that amount because Co. had notice of County’s intent.
o Tongish v. Thomas (1992)
* Facts
* P farmer contracted with Coop to grow 116.8 acres of sunflower seeds
* Price was to be $13 per hundredweight for large seeds, $8 per small
* Coop, to deliver seeds, anticipated profit of 55 cent per hundredweight
* Bad season for crops, market price rose to double what was agreed
* P notified Coop that no more deliveries of seeds, and sold to D for $20 per lot
* P sold goods for $5,153 more than the contract price overall
* Coop sued and recovered $455 in damages for failure to deliver, was reversed in favor of a determination of damages based on market prices
* Issue
* If damages arising from the non-delivery of contracted-for sunflower seeds should be computed on the basis of actual loss of money for the breach, or the loss of profit that would be gained had the contract been fulfilled.
* Rule
* If the seller knew the buyer had a resale contract for the goods and the seller did not breach the contract in bad faith, the buyer limited to actual loss.
* Analysis
* No evidence for reason for breach, although there was no reason for it. Not a reason for outright punitive, but is… whatever. Argument based on policy and what would be best for market prices.
o Parker v. Twentieth Century Fox (1970)
* Facts
* P actress, D film studio
* Contract promised payment of $53,571 per week for 14 weeks for a total of $750,000
* D canceled production
* D offered replacement film production to avoid damages to P with identical compensation
o But the different movie, western instead of a musical
* P declined and sued for breach
* Issue
* Is D still liable when D attempted to mitigate damages to P by offering a similar employment for equal pay?
* Rule
* Measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount by which the employer proves the employee would have earned from other employment… but must show that the employment is substantially similar from that which has been deprived
* Application
* Court determined that the two jobs were substantially different between a Western and a Musical, and so the damages are not mitigated by the offer for employment of equal pay.
o Jacob & Youngs v. Kent (1921)
* Facts
* P builders for a house for the D
* House cost over $77,000
* Sued to recover $3,483 that was unpaid
* House was completed and D lived in the house
* Found out the pipes used were not the same brand, but were very similar
* Determined that the pipe failure was not fraudulent or willful, and was of roughly the same quality
* Issue
* How to calculate damages?
* Rule
* The rule that gives remedy in cases of substantial performance with compensation for defects of trivial or inappreciable importance, has been developed by the courts as an instrument of justice
o Groves v. John Wunder Co. (1939)
* Facts
* P own land zoned for industrial property, gravel excavation area.
* Leased gravel rights to D for 7 years
* Contract was to leave the sand and gravel at a uniform grade afterward
* D deliberately breached contract and took only the best sand and gravel
* Cost of fixing the land would have been greater than $60,000
* Value of the property would have only been $12,000
* Rule
* Court has an interest in avoiding economic waste.
* The cost of remedying the defect is the amount awarded as compensation for failure to render the promised performance.
* Application
* Court reversed and remanded the case, that damages should be determined by resolving if the contract says that the overburden is appropriate at the time of signing, or if it was not a required condition… or something.
o Peevyhouse v. Garland Coal and Mining Co. (1963)
* Facts
* P lease land to D mining company
* D promised to restore land at the end of the lease
* D did not restore the land
* P sued for breach
* D claims it would have cost $29,000 and increased the value of the land by $300
* Rule
* Damages may be calculated by either cost of performance or value
* Application
* Due to extreme difference between the value of the land and the cost of improvement, it would be wasteful to require fulfillment of the contract. Judgment reduced to $300
- Restatements and UCC
o Restatement § 350: Avoidability as a Limitation on Damages
* (1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.
* (2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
o Restatement § 348: Alternatives to Loss in Value of Performance
* (1) If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property.
* (2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on.
* (a) the diminution in the market price of the property caused by the breach, or
* (b) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.
* (3) If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of breach.
o UCC § 1-305: Remedies to be Liberally Administered
* (a) The remedies provided by [the Uniform Commercial Code] must be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special damages nor penal damages may be had except as specifically provided in [the Uniform Commercial Code] or by other rule of law.
* (b) Any right or obligation declared by [the Uniform Commercial Code] is enforceable by action unless the provision declaring it specifies a different and limited effect.
b. Foreseeability
- Cases
o Hadley v. Baxendale (1854)
* Facts
* P mill operators
* D carriers
* D failed to deliver crankshaft essential for the operation of the mill
* P sued for the 5 days of non-operation due to failure to deliver
* Rule
* Damages should arise naturally out of the breach, or may have been the probably result of breach, and must be reasonably known (foreseeable)
* Application
* Failure to deliver did not directly result in the breach, and therefore not liable
o Delchi Carrier Spa v. Rotorex Corp. (1995)
* Facts
* D supplier of AC units for P in 3 shipments
* P discovered AC had higher power consumption and less output then the contract required
* D refused to supply conforming AC
* P canceled contract and sued for damages
* Rule
* Damages for breach may not exceed the loss which the party in breach foresaw or ought to have foreseen
* Application
* Are entitled to labor expenses, etc. due to breach that D should have reasonably known would cause damages
o Kenford Co. v. County of Erie (1989)
* Facts
* D adopted legislation for a stadium
* P offered to donate land for stadium
* Stadium was supposed to increase the value of the surrounding land
* Offer accepted by D
* D terminated contract after realizing the full price of building the stadium
* Issue
* Is P entitled to recover damages for loss of anticipated appreciation in the value of the land?
* Rule
* For breach of contract, the non-breaching party may recover general damages which are the natural and probable consequence of the breach
* Application
* The D had no reason or consideration to believe that breach would result in losses to the P, and P should have known that loss could occur if the D did not build the stadium, which was a real possibility
- Statutes
o Restatement 351: Unforeseeability and Related Limitations on Damages
* (1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.
* (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach
* (a) in the ordinary course of events, or
* (b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.
* (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.
o Restatement 353: Loss Due to Emotional Disturbance
* Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.
o UCC 2-715: Buyer’s Incidental and Consequential Damages
* (1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.
* (2) Consequential damages resulting from the seller's breach include
* (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
* (b) injury to person or property proximately resulting from any breach of warranty.
c. Certainty
- Cases
o Fera v. Village Plaza, Inc. (1976)
* Facts
* P business, D plaza owners who leased P a storefront
* 10 year lease for $1,000 minimum monthly rental plus 5% of receipts over 240,000
* P subleased 600 square feet in exchange to give up liquor sales
* Construction finished on D plaza finally, after longer than expected
* D leased the area to another business, offered P another but found the location unsatisfactory
* Rule
* In determining lost profits as a part of damages, it must be reasonably calculable with some amount of certainty
* Application
* Remanded for the lower court’s jury to try to determine, if they can, with reasonable certainty.
- Statutes
o Restatement § 352: Uncertainty as a Limitation on Damages
* Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.
d. Liquidated Damages
- Cases
o Wasserman’s Inc. v. Township of Middletown (1994)
* Facts
* P won lease by bidding
* 458.33 per month, 30 year term, property value 47,500, 3,200 square feet
* P enlarged premises
* P sublet to Jo-Ro for 1,850 per month
* D canceled lease and sold the property for 610,000
* There was a cancelation clause in the lease
o D to pay for cost of any improvements made by P, calculated by reference to the period of the tenancy remaining when the improvement was made, in relation to the whole term of the lease
* Damages calculated by jury for breach:
o Construction costs for the remaining years divided by remaining lease,
* Rule
* Court may enforce contractual (liquidated) damages not to punish (punitive), but to enforce contracts’ enforceability, but may be reduced or eliminated if it is excessive
* Issue
* Is a termination clause providing for damages based on gross receipts an enforceable liquidated damages provision because it is designed to punish (punitive)?
* Application
* Is liquidated damages because it calculates an amount based on what would have been likely gained had the promise been enforced and the breach not taken place. It is not purely punitive.
- Statutes
o Restatement 356: Liquidated Damages and Penalties
* (1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.
* (2) A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-occurrence.
o UCC 2-718: Liquidation or Limitation of Damages; Deposits
* (1) Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty.
* (2) Where the seller justifiably withholds delivery of goods because of the buyer's breach, the buyer is entitled to restitution of any amount by which the sum of his payments exceeds
* (a) the amount to which the seller is entitled by virtue of terms liquidating the seller's damages in accordance with subsection (1), or
* (b) in the absence of such terms, twenty per cent of the value of the total performance for which the buyer is obligated under the contract or $500, whichever is smaller.
* (3) The buyer's right to restitution under subsection (2) is subject to offset to the extent that the seller establishes
* (a) a right to recover damages under the provisions of this Article other than subsection (1), and
* (b) the amount or value of any benefits received by the buyer directly or indirectly by reason of the contract.
* (4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subsection (2); but if the seller has notice of the buyer's breach before reselling goods received in part performance, his resale is subject to the conditions laid down in this Article on resale by an aggrieved seller (Section 2-706).
II. Miscellaneous Topics in Contracts
1. Statute of Frauds
- Cases
o C.R. Klewin, Inc. v. Flagship Properties, Inc. (1991)
* Facts
* Verbal contract for the construction of a large projects that involved more than 20 buildings.
* Is reasonable to assume that it would take longer than one year, but not a certainty
* Rule
* Agreement that is not to be performed within one year from the making thereof, renders unenforceable an oral contract that fails to specify explicitly the time for performance when performance of that contract within one year of its making is exceedingly unlikely.
* Contract of indefinite duration that may reasonably be completed within one year may be valid even if the duration extends beyond one year.
* Application
* The contract does not explicitly negate the possibility that it would have been completed in a single year, and it theoretically could have been completed in one year
* Ruling
* Oral contract that does not say in express terms that performance is to have a specific duration beyond one year is the functional equivalent of a contract of indefinite duration for the purposes of the statute of frauds. Contract IS enforceable because it is outside the proscriptive force of the statute regardless of how long completion of performance will actually take.
o Langman v. Alumni Association of the University of Virginia (1994)
* Facts
* P gift of land to D
* P owed a debt for the land to the bank
* P assumed that D would take over the payments for the land
* Blah Blah blah, suretyship and no benefit to D for the land, or whatever,
* P could not collect on the debt from D because it did not qualify as a surityship
* Surityship: agreements within a clause of the statute of frauds
o No action shall be brought… whereby to charge the defendant upon any special promise to answer for debt…for another person unless the promise or agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized.
* Assuming the mortgage did not assume the debt therefore without an explicit written contract to the contrary
o Monarco v. Lo Greco (1950)
* Facts
* Nat and Car Castiglia married.
* Car had 3 kids: John, Rosie, Christie [Lo Greco]
o Rosie married Nick Norcia
* Nat had 1 grandkid, Carmen Monarco
* Nat and Car invested and had a half interest in a farm
* Rosie and Nick Norcia owned the other half interest in the farm
* Lo Greco moved with the family… was made an oral promise by Nat and Car to stay and work then she would get the farm after they died.
o Lo Greco (D) did so
* Before Nat died, he changed his mind to leave the land to P Monarco
* Then P brought suit against D, and they fought over the land
* Rule
* Statute of frauds for oral contract, “an agreement that by its terms is not to be performed during the lifetime of the promisor” must be in writing or is unenforceable.
* But where there is reliance, such fraud may cause injury that results from denying enforcement of a contract
* Application
* P would be unjustly enriched if P was denied the farm, so the exception to statute of frauds does apply
* Ruling
* Contract enforceable, so the farm goes to D because of his reliance on the contract
- Statutes
o Restatement § 110: Classes of Contracts Covered
* (1) The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memorandum or an applicable exception:
* (a) a contract of an executor or administrator to answer for a duty of his decedent (the executor-administrator provision);
* (b) a contract to answer for the duty of another (the suretyship provision);
* (c) a contract made upon consideration of marriage (the marriage provision);
* (d) a contract for the sale of an interest in land (the land contract provision)
* (e) a contract that is not to be performed within one year from the making thereof (the one-year provision).
* (2) The following classes of contracts, which were traditionally subject to the Statute of Frauds, are now governed by Statute of Frauds provisions of the Uniform Commercial Code:
* (a) a contract for the sale of goods for the price of $500 or more (Uniform Commercial Code § 2-201);
* (b) a contract for the sale of securities (Uniform Commercial Code § 8-319);
* (c) a contract for the sale of personal property not otherwise covered, to the extent of enforcement by way of action or defense beyond $5,000 in amount or value of remedy (Uniform Commercial Code § 1-206).
* (3) In addition the Uniform Commercial Code requires a writing signed by the debtor for an agreement which creates or provides for a security interest in personal property or fixtures not in the possession of the secured party.
* (4) Statutes in most states provide that no acknowledgment or promise is sufficient evidence of a new or continuing contract to take a case out of the operation of a statute of limitations unless made in some writing signed by the party to be charged, but that the statute does not alter the effect of any payment of principal or interest.
* (5) In many states other classes of contracts are subject to a requirement of a writing.
o Restatement § 112: Requirement of Surityship
* A contract is not within the Statute of Frauds as a contract to answer for the duty of another unless the promisee is an obligee of the other's duty, the promisor is a surety for the other, and the promisee knows or has reason to know of the suretyship relation.
o Restatement § 125: Contract to Transfer, Buy, or Pay for an Interest in Land
* (1) A promise to transfer to any person any interest in land is within the Statute of Frauds.
* (2) A promise to buy any interest in land is within the Statute of Frauds, irrespective of the person to whom the transfer is to be made.
* (3) When a transfer of an interest in land has been made, a promise to pay the price, if originally within the Statute of Frauds, ceases to be within it unless the promised price is itself in whole or in part an interest in land.
* (4) Statutes in most states except from the land contract and one-year provisions of the Statute of Frauds short-term leases and contracts to lease, usually for a term not longer than one year.
o Restatement § 126: Contract to Procure Transfer or to Act as Agent
* (1) A contract to procure the transfer of an interest in land by a person other than the promisor is within the Statute of Frauds.
* (2) A contract to act as agent for another in endeavoring to procure the transfer of any interest in land by someone other than the promisor is not within the Statute of Frauds as a contract for the sale of an interest in land.
o Restatement § 127: Interest in Land
* An interest in land within the meaning of the Statute is any right, privilege, power or immunity, or combination thereof, which is an interest in land under the law of property and is not “goods” within the Uniform Commercial Code.
o Restatement § 129: Action in Reliance; Specific Performance
* A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement.
o Restatement § 130: Contract Not to be Performed Within a Year
* (1) Where any promise in a contract cannot be fully performed within a year from the time the contract is made, all promises in the contract are within the Statute of Frauds until one party to the contract completes his performance.
* (2) When one party to a contract has completed his performance, the one-year provision of the Statute does not prevent enforcement of the promises of other parties.
o Restatement § 131: General Requisites of a Memorandum
* Unless additional requirements are prescribed by the particular statute, a contract within the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on behalf of the party to be charged, which
* (a) reasonably identifies the subject matter of the contract,
* (b) is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and
* (c) states with reasonable certainty the essential terms of the unperformed promises in the contract.
o Restatement § 132: Several Writings
* The memorandum may consist of several writings if one of the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction.
o Restatement § 133: Memorandum Not Made as Such
* Except in the case of a writing evidencing a contract upon consideration of marriage, the Statute may be satisfied by a signed writing not made as a memorandum of a contract.
o Restatement § 134: Signature
* The signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of the signer.
o Restatement § 139: Enforcement by Virtue of Action in Reliance
* (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires.
* (2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:
* (a) the availability and adequacy of other remedies, particularly cancellation and restitution;
* (b) the definite and substantial character of the action or forbearance in relation to the remedy sought;
* (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence;
* (d) the reasonableness of the action or forbearance;
* (e) the extent to which the action or forbearance was foreseeable by the promisor.
o UCC § 2-201: Statute of Frauds
* (1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing.
* (2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received.
* (3) A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable
* (a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller's business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substantial beginning of their manufacture or commitments for their procurement; or
* (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the quantity of goods admitted; or
* (c) with respect to goods for which payment has been made and accepted or which have been received and accepted (Sec. 2-606).
o UCC § 1-201: General Definitions
* (37) “Signed” includes using any symbol executed or adopted with present intention to adopt or accept a writing.
* (43) “Writing” includes printing, typewriting, or any other intentional reduction to tangible form. “Written” has a corresponding meaning.
2. Policing The Bargain
A. Capacity
- Cases
o Kiefer v. Fred Howe Motors, Inc. (1968)
* Facts
* P buyer D seller
* P bought a used car from D, signed a form buying the car
* P found that the car had a cracked engine block, tried to return it, and was denied
* Wasn’t actually 21, which is in the form he signed
* P sued for the cost of the car
* Rule
* Under the state statutes, a minor may not sign contracts
* Application
* The contract was not valid and therefore D did not have to take the car back. But, the age doesn’t matter because the statute only meant that P could have gotten out of the deal. D is still bound
* Ruling
* Affirmed the lower court decision in favor of P
o Ortelere v. Teachers’ Retirement Bd. (1969)
* Facts
* P is an old schoolteacher who had a nervous breakdown
* Took out money from her retirement before she died
* She died, husband sued because she was not mentally competent to make the agreement, and D had constructive notice of her mental condition
* Rule
* Where contractual mental capacity is so affected to render him wholly and absolutely incompetent to comprehend and understand the nature of the transaction, a requirement that the party also be able to make a rational judgment concerning the particular transaction qualified the cognitive test.
* Application
* The system was or should have been aware of P’s mental situation and therefore P was not bound by the agreement
* Ruling
* Reversed in favor of P
o Cundick v. Broadbent (1967)
* Facts
* P was a sheep rancher who sold to D, buyer
* One page contract for P to sell land to D, was signed by P
* Contract sold the land at half the actual value
* P was not in his right mind due to illness
* Rule
* Capacity to make contracts, if reasonable blah blah, not enforceable due to lack of capacity
* Application
* D should have known based on the fact that the land was sold for far less than it was worth, that D was not mentally competent to make a sale.
* Ruling
* Contract not valid
- Statutes
o Restatement §78: Voidable and Unenforceable Promises
* The fact that a rule of law renders a promise voidable or unenforceable does not prevent it from being consideration.
o Restatement §12: Capacity to Contract
* (1) No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.
* (2) A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is
* (a) under guardianship, or
* (b) an infant, or
* (c) mentally ill or defective, or
* (d) intoxicated.
o Restatement §14: Infants
* Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person's eighteenth birthday.
o Restatement §15: Mental illness or Defect
* (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect
* (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
* (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition.
* (2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires.
o Restatement §16: Intoxicated Persons
* A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication
* (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
* (b) he is unable to act in a reasonable manner in relation to the transaction.
o Restatement §152: When Mistake of Both Parties makes a Contract Voidable
* (1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154.
* (2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.
o Restatement § 153: When Mistake of One Party Makes a Contract Voidable
* Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and
* (a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or
* (b) the other party had reason to know of the mistake or his fault caused the mistake.
o Restatement §79: Adequacy of Consideration; Mutuality of Obligation
* If the requirement of consideration is met, there is no additional requirement of
* (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
* (b) equivalence in the values exchanged; or
* (c) “mutuality of obligation.”
B. Overreaching
a. Pressure in Bargaining – Pre-existing Duty Rule
- Cases
o Alaska Packers’ Ass’n v. Domenico (1902)
* Facts
* P stopped work in order for additional money
* D agreed to pay because they had to
* D didn’t pay, so P sued
* P claimed that they were under threat because their fish would have gone bad, or whatever
* Ruling
* D waived the original breach by the P when a new contract was offered for the additional price. There may have been damages for a violation if D refused to pay the additional costs because there was reliance on their services, but D agreed to pay the 100 instead of 50.
o Watkins & Son v. Carrig (1941)
* Facts
* Written contract between P and D
* Digging, when rock was uncovered, which would have greatly increased the cost of the project
* Oral agreement that the P should remove the rock at a price nine times greater than excavating upon which the gross amount was to be paid in the written contract
* Rule
* Promise needs consideration.
* Application
* There was a mutual understanding and reliance on the promise as it was made for the increased price after the writing of the contract.
* Ruling
* In favor of the P, the oral contract is valid over the written in this case
- Statutes
o Restatement §174: When Duress by Physical Compulsion Prevents Formation of a Contract
* If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent.
o Restatement §175: When Duress by Threat Makes a Contract Voidable
* (1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.
* (2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.
o Restatement §176: When a Threat is Improper
* (1) A threat is improper if
* (a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
* (b) what is threatened is a criminal prosecution,
* (c) what is threatened is the use of civil process and the threat is made in bad faith, or
* (d) the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.
* (2) A threat is improper if the resulting exchange is not on fair terms, and
* (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat,
* (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or
* (c) what is threatened is otherwise a use of power for illegitimate ends.
o Restatement § 177: When Undue Influence Makes a Contract Voidable
* (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.
* (2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.
* (3) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.
o Restatement § 73: Performance of Legal Duty
* Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.
o Restatement § 74: Settlement of Claims
* (1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless
* (a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or
* (b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.
* (2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.
o Restatement § 89: Modification of Executory Contract
* A promise modifying a duty under a contract not fully performed on either side is binding
* (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or
* (b) to the extent provided by statute; or
* (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.
o Restatement § 281: Accord and Satisfaction
* (1) An accord is a contract under which an obligee promises to accept a stated performance in satisfaction of the obligor's existing duty. Performance of the accord discharges the original duty.
o UCC § 2-209: Modification, Rescission and Waiver
* (1) An agreement modifying a contract within this Article needs no consideration to be binding.
* (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
* (3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions.
* (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
* (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.
o UCC § 1-304: Obligation of Good Faith
* Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.
Durres in Business
- Austin Instrument, Inc. v. Loral Corporation (1971)
o Facts
* Contract for the sale of goods
* D awarded Navy contract to produce radar sets
* P awarded subcontract for parts for the D radar sets
* Later, contract once again awarded to D and P bid on the parts
* D wanted to have bids for each part, P said that they would decline unless awarded all parts, and would also cease delivery under the current contract
* D consented to price increases due to the refusal to delivery (coercion)
* D notified P after delivery to the Navy that it would seek the differences for the price increase
* P sued first for the amount that was still due on the 2nd subcontract, and D sued for the aggregate of the price increases
o Rule
* A contract is voidable for duress if the party making the claim was forced to agree by means of a wrongful threat precluding the exercise of his free will.. if the immediate possession of needful goods is threatened, or proof that one party to a contract has threatened to withhold goods unless the other party agrees to some further demand.
o Application
* D must show that they could not have received the parts in a reasonable time so that they were unlawfully under duress that made the new contract unenforceable.
* D agreed to pay under economic duress, and therefore…
o Ruling
* Court found in favor of D. Remanded for a computation of damages.
Undue Influence
- Cases
o Odorizzi v. Bloomfield School District (1966)
* Facts
* P teacher arrested for gay secks
* P Resigned his teaching position following a visit with the district super and principal
* D officials told P that he would be publically humiliated if he didn’t resign
* P sought to resend resignation on the grounds that it was obtained under duress and undue influence
* Rule
* Undue influence describes persuasion that tends to be coercive in nature, persuasion which overcomes the will without convincing the judgment.
* Application
* Undue influence involves the use of excessive pressure to persuade a vulnerable to such pressure, as applied by a dominant figure to a subservient one.
* Ruling
* Court did not find that the P was sufficiently in a vulnerable position under the D, and therefore ruled in favor of the D. Judgment reversed and the case dismissed.
- Restatement § 177: When Undue Influence Makes a Contract Voidable
o (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.
o (2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.
o (3) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.
b. Concealment & Misrepresentation
- Cases
o Swinton v. Witinsville Sav. Bank (1942)
* Facts
* D sold P a house occupied by P
* House was infested with termites
* D fraudulently concealed from the P the true condition of the house
* Rule
* Concealment does not qualify as a false statement or representation
* Application
* D did not make a false statement or take away P’s ability to find out that the house was infested with termites
* Ruling
* In favor of D, affirmed
o Kannavos v. Annino (1969)
* Facts
* D bought house, converted it into an apartment building without a permit, and knowingly in violation of city ordinance, and sold it.
* P contracted to buy the property, and did so.
* P was unaware of any code violation and would not have purchased the property had it not been for such a violation.
* P made no inquiry about the building code
* Rule
* Nonliability for bare nondisclosure
* Application
* There is still a binding to divulge all material facts bearing upon the point that lie within the knowledge. D knew that it was to be used for an apartment and yet would not be able to function as an apartment.
* Ruling
* Vendors’ conduct entitled vendees to rescind. In favor of P
o Vokes v. Arthur Murray, Inc. (1968)
* Facts
* P old lady widow wants to dance
* Went to studio with friend, was told she was great by D
* P paid a whole bunch of money and time at the studio
* P was in a vulnerable position, D took advantage of her emotional state
* Rule
* Generally, a misrepresentation must be one of fact rather than opinion, but there are or may be equitable remedies when the P is taken advantage of by misrepresentation
* Application
* P was not tricked, and flattery/false praise do not constitute misrepresentation
* Ruling
* Dismissed P’s complaint with prejudice and reversed the lower court’s decision.
- Statutes
o Restatement § 159: Misrepresentation Defined
* A misrepresentation is an assertion that is not in accord with the facts.
o Restatement § 160: When Action Is Equivalent to an Assertion (Concealment)
* Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist.
o Restatement § 161: When Non-Disclosure Is Equivalent to an Assertion
* A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:
* (a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.
* (b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
* (c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
* (d) where the other person is entitled to know the fact because of a relation of trust and confidence between them.
o Restatement § 162: When a Misrepresentation is Fraudulent or Material
* (1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker
* (a) knows or believes that the assertion is not in accord with the facts, or
* (b) does not have the confidence that he states or implies in the truth of the assertion, or
* (c) knows that he does not have the basis that he states or implies for the assertion.
* (2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.
o Restatement § 163: When a Misrepresentation Prevents Formation of a Contract
* If a misrepresentation as to the character or essential terms of a proposed contract induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential terms of the proposed contract, his conduct is not effective as a manifestation of assent.
o Restatement § 164: When a Misrepresentation Makes a Contract Voidable
* (1) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient.
* (2) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.
o Restatement § 169: When Reliance on an Assertion of Opinion is Not Justified
* To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless the recipient
* (a) stands in such a relation of trust and confidence to the person whose opinion is asserted that the recipient is reasonable in relying on it, or
* (b) reasonably believes that, as compared with himself, the person whose opinion is asserted has special skill, judgment or objectivity with respect to the subject matter, or
* (c) is for some other special reason particularly susceptible to a misrepresentation of the type involved.
3. Determining Obligations
A. Parole Evidence Rule
- Cases
o Gianni v. R. Russell & Co. (1924)
* Facts
* P owned a store in an office building when D obtained ownership of the building
* P and D entered into a new lease contract after an agreement was struck
* Lease stated only certain things may be sold at the store, but later another thing was added orally but not in writing
* Rule
* Where parties, without fraud or mistake, have deliberately put their engagements in writing, the law declares the writing to be not only the best, but the only evidence of their agreement
* Preliminary agreements are merged in and superseded by the written contract
* Application
* Additionally to or different from? Was additional, and therefore it may not be superseded by the written contract. But, the contract was the final thing and it didn’t say it, so the parole evidence rule applies. Oral agreement was still made prior to the written. Also, was an integrated agreement because they had the same subject matter.
* Ruling
* In favor of D. Reversed and remanded to a lower court.
o Masterson v. Sine (1968)
* Facts
* P and wife owned ranch
* It was conveyed to D by grant deed.
* P went into bankruptcy
* P wanted the land back, D refused, P sued for the right to purchase the land back
* Rule
* Conclusions of extrinsic evidence that option was personal to granters and therefore non-assignable was error.
* Application
* Parole evidence barred, so was barred.
* Ruling
* Reversed in favor of the D
o Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co. (1967)
* Facts
* Action in equity
* P requesting that a contract be reformed as to include a paragraph omitted by mutual mistake, and an enforcement of that contract
* Agreement as executed provided that the D permitted to deposit construction waste on the P’s property
* P claimed understanding that depositing the waste would remove the topsoil of the P’s property, pile the waste, and then restore topsoil
* Agreement was signed without reading it
* Rule
* A court of equity has the power to reform written contract to make it correspond to the understanding of the parties, but the mistake must be mutual.
* Application
* If an actual mutual mistake, then it’s okay to reform. Agreement is undisputed on behalf of the P.
o Term additional, was an oral contract before the written, could be integrated
* Ruling
* Affirmed the reformation for the P, as an exception to the parole evidence rule
- Statutes
o Restatement § 204: Supplying an Omitted Essential Term
* When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.
o Restatement § 209:Integrated Agreements
* (1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
* (2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.
* (3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression.
o Restatement § 210: Completely and Partially Integrated Agreements
* (1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.
* (2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement.
* (3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.
o Restatement § 213: Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule)
* (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.
* (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope.
* (3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.
o Restatement § 215: Contradiction of Integrated Terms
* Except as stated in the preceding Section, where there is a binding agreement, either completely or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible in evidence to contradict a term of the writing.
o Restatement § 155: When Mistake of Both Parties as to Written Expression Justifies Reformation
* Where a writing that evidences or embodies an agreement in whole or in part fails to express the agreement because of a mistake of both parties as to the contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement, except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected.
o UCC § 2-202: Final Written Expression: Parol or Extrinsic Evidence
* Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
* (a) by course of performance, course of dealing, or usage of trade (Section 1-303) ; and
* (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.
o UCC § 2-209: Modification, Rescission and Waiver
* (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.
* (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver.
o UCC § 2-307: Delivery in Single Lot or Several Lots
* Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.
o UCC § 2-308: Absence of Specified Place for Delivery
* Unless otherwise agreed
* (a) the place for delivery of goods is the seller's place of business or if he has none his residence; but
* (b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and
* (c) documents of title may be delivered through customary banking channels.
o UCC § 2-309:Absence of Specific Time Provisions; Notice of Termination
* (1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.
* (2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.
* (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.
o UCC § 2-310: Open Time for Payment or Running Credit; Authority to Ship Under Reservation
* Unless otherwise agreed
* (a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; and
* (b) if the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract (Section 2- 513); and
* (c) if delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is due regardless of where the goods are to be received (i) at the time and place at which the buyer is to receive delivery of the tangible documents or (ii) at the time the buyer is to receive delivery of the electronic documents and at the seller's place of business or if none, the seller's residence; and
* (d) where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but post-dating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.
o UCC § 2-311: Options and Cooperation Respecting Performance
* (1) An agreement for sale which is otherwise sufficiently definite (subsection (3) of Section 2-204) to be a contract is not made invalid by the fact that it leaves particulars of performance to be specified by one of the parties. Any such specification must be made in good faith and within limits set by commercial reasonableness.
* (2) Unless otherwise agreed specifications relating to assortment of the goods are at the buyer's option and except as otherwise provided in subsections (1)(c) and (3) of Section 2-319 specifications or arrangements relating to shipment are at the seller's option.
* (3) Where such specification would materially affect the other party's performance but is not seasonably made or where one party's cooperation is necessary to the agreed performance of the other but is not seasonably forthcoming, the other party in addition to all other remedies
* (a) is excused for any resulting delay in his own performance; and
* (b) may also either proceed to perform in any reasonable manner or after the time for a material part of his own performance treat the failure to specify or to cooperate as a breach by failure to deliver or accept the goods.
B. Gap Fillers
- Cases
o Koken v. Black & Veatch Construction, Inc. (2005)
* Facts
* Fire occurred during a cutting operation performed as a part of a construction project
* Fire blanket was used to protect an area beneath a welder, which failed
* Fire caused $9 million in damages
* P sued D, D crossclaim for the maker of the fire blanket
* Breach of warranty cause of action against D maker of fire blanket
o Breach of implied warranty
* Rule
* A warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.
* Application
* Merchant? Yes.
* Good being used for its ordinary purposes? Not able to determine based on the D’s testimony.
* Ruling
* D failed to produce evidence establishing the expectations of ordinary users beyond the subjective views of a single individual, summary judgment on the breach of warranty claim was properly granted.
o Lewis v. Mobil Oil Corporation
* Facts
* P sawmill operator used D’s oil
* D suggested x kind of oil, which P used based on D’s expertise
* System broke
* Trial court found the oil to be causally responsible for the P’s damages
* D appealed on the basis that there was no implied warranty or otherwise
* Rule
* For implied warranty (1) seller must have ‘reason to know’ of the use for which the goods are purchased, and (2) the buyer relies on the seller’s expertise in supplying the proper product.
* Application
* Both requirements met by ample evidence in this case
* Ruling
* Affirmed lower court in favor of P.
o South Carolina Electric and Gas Co. v. Combustion Engineering, Inc. (1984)
* Facts
* P appeals judgment awarding D a whole bunch o money
* Fire after a hose ruptured and sprayed fuel across a boiler
* Cause of action is a breach of implied warranty
* Contract contains a warranty that is limited to one year and expressly denies all other implied warranties
* Rule
* A clause must be conspicuous in order to operate when that clause denies implied warranty
* Exception, may be excluded if the circumstances surrounding the transaction are in themselves sufficient to call the buyer’s attention to the fact that no implied warranties are made or that a certain implied warranty is excluded.
* Application
* The written language of a disclaimer, as a matter of law, is not conspicuous. It’s on page 17 of a 22 single spaced document, and is indistinctive in color and type.
* But, the documents between P and D explicitly address the issue of implied warranties
* Ruling
* In favor of D, there was an effective disclaimer of implied warranty
- Statutes
o UCC § 2-305: Open Price Term
* (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if
* (a) nothing is said as to price; or
* (b) the price is left to be agreed by the parties and they fail to agree; or
* (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
* (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
* (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
* (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.
o UCC § 2-306: Output, Requirements and Exclusive Dealings
* (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.
* (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
o UCC § 2-308: Absence of Specified Place for Delivery
* Unless otherwise agreed
* (a) the place for delivery of goods is the seller's place of business or if he has none his residence; but
* (b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and
* (c) documents of title may be delivered through customary banking channels.
o UCC § 2-309: Absence of Specific Time Provisions; Notice of Termination
* (1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.
* (2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party.
* (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.
o UCC § 2-310: Time for Payment or Running of Credit; Authority to Ship Under Reservation
* Unless otherwise agreed
* (a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery; and
* (b) if the seller is authorized to send the goods he may ship them under reservation, and may tender the documents of title, but the buyer may inspect the goods after their arrival before payment is due unless such inspection is inconsistent with the terms of the contract (Section 2- 513); and
* (c) if delivery is authorized and made by way of documents of title otherwise than by subsection (b) then payment is due regardless of where the goods are to be received (i) at the time and place at which the buyer is to receive delivery of the tangible documents or (ii) at the time the buyer is to receive delivery of the electronic documents and at the seller's place of business or if none, the seller's residence; and
* (d) where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment but post-dating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.
o UCC § 2-313: Express Warranties by Affirmation, Promise, Description, Sample
* (1) Express warranties by the seller are created as follows:
* (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
* (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
* (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.
* (2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty.
o UCC § 2-314:
* (1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale.
* (2) Goods to be merchantable must be at least such as
* (a) pass without objection in the trade under the contract description; and
* (b) in the case of fungible goods, are of fair average quality within the description; and
* (c) are fit for the ordinary purposes for which such goods are used; and
* (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
* (e) are adequately contained, packaged, and labeled as the agreement may require; and
* (f) conform to the promise or affirmations of fact made on the container or label if any.
* (3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade.
o UCC § 2-315: Implied Warranty: Fitness for Particular Purpose
* Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.
o UCC § 2-316: Exclusion or Modification of Warranties
* (1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is inoperative to the extent that such construction is unreasonable.
* (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.”
* (3) Notwithstanding subsection (2)
* (a) unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is”, “with all faults” or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and
* (b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and
* (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade.
* (4) Remedies for breach of warranty can be limited in accordance with the provisions of this Article on liquidation or limitation of damages and on contractual modification of remedy (Sections 2-718 and 2-719).
4. Limits on Bargain and Performance
- Statutes
o UCC § 1-304: Obligation of Good Faith
* Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.
A. Unfairness
- Cases
o McKinnon v. Benedict (1968)
* Facts
* P owner of 1000 acre property, D, buyer of a resort near P’s land
* P assisted D in obtaining the land and loaned them $5000, which was repaid
* P and D contract for D to not make improvements or change the land for 25 years
* D could not make a prosperous business, and decided to alter the land
* P sued for injunction/specific relief
* Rule
* Contracts that are oppressive will not be enforced in equity is the principal of public policy that restrictions on the use of land “are not favored in the law.”
* Application
* Great hardship sought to be imposed on the D by the injunction
o The only monetary consideration of P was the loan, which was repaid, and was pretty minor consideration for what it would cost the D
* Ruling
* Inadequacy of consideration is so gross as to be unconscionable and a bar to the P’s invocation of the extraordinary equitable powers of the court.
* Contract failed to meet the test of reasonableness that is the sine qua non of the enforcement of rights in an action in equity
o Tuckwiller v. Tuckwiller (1967)
* Facts
* Family farm leased by the P from the D, which was the aunt of P
* D asked that P (wife) stay with D until she dies and care for her
* P (wife) quit her job and signed a contract with D
* D died very shortly after and P didn’t really do anything
* P brought suit against D estate for specific performance and the farm
* Rule
* The determining whether or not a contract is so unfair or inequitable or is unconscionable so as to deny its specific performance, the transaction must be viewed prospectively, not retrospectively
* Application
* P gave up her employment with which she was well satisfied and undertook what was at the time of the contract an obligation of unknown and uncertain duration
* Ruling
* We find that the contract was fair, not unconscionable, and supported by adequate consideration. Affirmed, in favor of the P.
o Black Industries, Inc. v. Bush (1953)
* Facts
* P maker of machine parts
* D supplier for the USFG
* D failed to complete the order, P sued for damages
* D claimed that the contract was void because the profits were war profiteering and were exploitative and unenforceable
* Rule
* In order to declare a contract, entered by the parties freely and without evidence of fraud, void as against public policy, the contract must be invalid on the basis of recognized legal principals
* Application
* It’s possible that the P was to have received a high profit on the sale of the parts, but eh, whatever. There would need to be more proof to establish it as a fact that these profits were grossly unfair. Court can’t interfere by determining the validity of a contract between ordinary businessmen on the basis of its beliefs as to the adequacy of the consideration
* Ruling
* Hold that the contract is not void as against public policy and the D’s motion for summary judgment will therefore be denied.
- Statutes
o Restatement § 205: A Duty of Good Faith and Fair Dealing
* Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
o Restatement § 206: Interpretation Against the Draftsman
* In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds.
o Restatement § 208: Unconscionable Contract or Term
* If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.
o Restatement § 364: Effect of Unfairness
* (1) Specific performance or an injunction will be refused if such relief would be unfair because
* (a) the contract was induced by mistake or by unfair practices,
* (b) the relief would cause unreasonable hardship or loss to the party in breach or to third persons, or
* (c) the exchange is grossly inadequate or the terms of the contract are otherwise unfair.
* (2) Specific performance or an injunction will be granted in spite of a term of the agreement if denial of such relief would be unfair because it would cause unreasonable hardship or loss to the party seeking relief or to third persons.
B. Standard Form and Adhesion Contracts
- Cases
o O’Callaghan v. Waller & Beckwith Realty Co.
* Facts
* Action to recover for injuries, negligence in maintaining and operating a large apartment building.
* P, tenant in the building was injured when she fell while crossing the paved courtyard on her way from the garage to her apartment
* Court found for P, D appealed and that recovery was barred by exculpatory clause in the contract
* P claims that contract invalid on public policy grounds and that she was forced to accept the contract as it was due to the power imbalance between tenant and landlord in a time of housing crisis – Public policy arguments
* Rule
* Contracts by which one seeks to relieve himself from the consequences of his own negligence are generally enforced unless 1. It would be against policy of the State to do so or 2. Something in the social relationship of the parties militating against upholding the agreement.
* Application
* Exculpatory clause in the lease may be beneficial for tenants and landlords by decreasing costs, and therefore there is a legit policy
* The legislature would be the policy deciders, is a limited role for the court here, and so the court should not interfere to protect the tenant as an individual in an exploitable position
* Ruling
* There was nothing in the public policy of the state or the social relationship to forbid enforcement of the exculpatory clause there involved
o Graham v. Scissor-Tail Inc. (1981)
* Facts
* P promoter and producer for concerts entered contract with D recording studio for a tour
* Shows had mixed reviews, and there was a dispute about if the losses from one concert would be able to offset the gains from others
* Rule
* Adhesion contract is drafted and imposed by the party of superior bargaining strength, relegates to the subscribing party the only opportunity to adhere to the contract or reject it
* Two limits on the enforcement of adhesion contracts
o Such a contract or provision which does not fall within the reasonable expectations of the weaker or “adhering” party
o Unduly oppressive or unconscionable
* Application
* Cannot conclude that the contract was contrary to reasonable expectations. But it was unconscionable because the arbiter was presumptively biased in favor of one party.
- Statutes
o UCC § 2-302: Unconscionable Contract or Clause
* (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
* (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
C. Unconscionability
- Cases
o Williams v. Walker-Thomas Furniture Co. (1965)
* Facts
* D operator of retail furniture store, P purchaser/leasor of furniture
* Lease is a rent-to-own contract where D can repossess for the failure to pay
* D is able to repossess all stuff because payments are pro rata, and even if 99% of everything has been paid for, D will take it all for a failure to make a single payment
* D sues relief on the basis of the contract being unconscionable
* Rule
* If a contract be unreasonable or unconscionable, but not void under fraud, a court of law will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to…
* Ruling
* The trial court and appellate court did not feel that enforcement could be refused, no findings were made on the possible Unconscionability of the contracts. Remanded to a lower court.
o Jones v. Star Credit Corp. (1969)
* Facts
* P welfare recipients bought a fridge from D
* Fridge was worth $300 and was charged $1,234.80
* P already paid $619.88 on the purchase
* Issue
* Whether this transaction and the resulting contract could be considered unconscionable
* Rule
* Fraud which may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under delusion would make
* Cases in which one party took advantage of the other’s ignorance and the fraud was apparent from the face of the contracts
* Application
* The mathematical disparity between the value and the price of the fridge was crazy big
* Ruling
* Was unconscionable as a matter of law. Rule in favor of P
- Statutes:
o Restatement § 205: Duty of Good Faith and Fair Dealing
* Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
o Restatement § 206: Interpretation Against the Draftsman
* In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds.
o Restatement § 207: Interpretation Favoring the Public
* In choosing among the reasonable meanings of a promise or agreement or a term thereof, a meaning that serves the public interest is generally preferred.
o Restatement § 208: Unconscionable Contract or Term
* If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.
o Restatement § 155: When a Mistake of Both Parties as to Written Expression Justifies Reformation
* Where a writing that evidences or embodies an agreement in whole or in part fails to express the agreement because of a mistake of both parties as to the contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement, except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected.
o Restatement § 166: When a Misrepresentation as to a Writing Justifies Reformation
* If a party's manifestation of assent is induced by the other party's fraudulent misrepresentation as to the contents or effect of a writing evidencing or embodying in whole or in part an agreement, the court at the request of the recipient may reform the writing to express the terms of the agreement as asserted,
* (a) if the recipient was justified in relying on the misrepresentation, and
* (b) except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected.
* Comments
* a. Scope
o Reformation is more broadly available for fraudulent misrepresentation than for mistake. Compare § 155. Reformation for mistake is limited to the situation in which the parties, having already reached an agreement, later fail to express it correctly in a writing. That limitation, stated in § 155, applies to all cases where both parties are mistaken, including those where one of the mistaken parties has made a non-fraudulent misrepresentation as to the contents or effect of a writing. Where, however, only one party is mistaken and the other has fraudulently misrepresented the writing's contents, or effect, reformation may be granted even though there was no prior agreement. Compare Comment a to § 155. The writing must be one that evidences or embodies, at least in part, the agreement of the parties. Otherwise it will not ordinarily have sufficient legal significance for its reformation to be necessary, and the dispute can be resolved simply in accordance with the general rules applicable to offer and acceptance. The rule stated in this Section also applies to the case where only one party is mistaken and the other, although aware of the mistake, says nothing to correct it. In that case his non-disclosure is equivalent to an assertion that the writing is as the other understands it to be (§ 161(c)). (Where only one party is mistaken and the other is not aware of the mistake, the rule stated in § 153, on mistake of only one party, applies.) The misrepresentation must, of course, be certain enough to permit a court to know how the writing should be reformed. Reformation is not precluded by the mere fact that the party who seeks it failed to exercise reasonable care in reading the writing, but his reliance on the misrepresentation must be justified and the right to reformation is therefore subject to the rule on fault stated in § 172. This Section, like § 155, only states the circumstances in which a court “may” grant reformation, and, since the remedy is equitable, a court has the discretion to withhold it, even if it would otherwise be appropriate, on grounds traditionally considered by courts of equity in exercising their discretion. See Comment d to § 155.
o Restatement § 359: Effect of Adequacy of Damages
* (1) Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party.
* (2) The adequacy of the damage remedy for failure to render one part of the performance due does not preclude specific performance or injunction as to the contract as a whole.
* (3) Specific performance or an injunction will not be refused merely because there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion under the rule stated in § 357.
* Comments:
* c. Other legal remedies.
o Common-law remedies other than damages may be available to the injured party, but they will seldom afford as complete relief as will specific performance. Restitution of the value in money of the performance rendered by the injured party is one of those remedies, but it does not purport to be the equivalent of a promised performance, and its availability is not a sufficient reason for denying specific enforcement. Replevin is another of those remedies, but its effectiveness is reduced by rules allowing the giving of a bond in place of surrendering of the goods sought to be replevied. The availability of such a remedy will not preclude the granting of equitable relief, although it may be considered by a court in the exercise of its discretion in that regard. The availability of other forms of equitable relief, such as a decree for specific restitution, for reformation, and for rescission or cancellation, may also be considered in choosing the remedy best suited to the circumstances of the case.
o Restatement § 345: Judicial Remedies Available
* The judicial remedies available for the protection of the interests stated in § 344 include a judgment or order
* (a) awarding a sum of money due under the contract or as damages,
* (b) requiring specific performance of a contract or enjoining its non-performance,
* (c) requiring restoration of a specific thing to prevent unjust enrichment,
* (d) awarding a sum of money to prevent unjust enrichment,
* (e) declaring the rights of the parties, and
* (f) enforcing an arbitration award.
* Comments:
* a. Nature of remedies.
o This Section enumerates the principal judicial remedies available for the protection of the interests defined in the preceding section. It is not intended to be exhaustive, since other remedies such as replevin of a chattel or reformation or cancellation of a writing supplement those listed here. As to reformation, see §§ 155, 166. Nor are the remedies listed mutually exclusive, since a court may in the same action, for example, both require specific performance of a promise and award a sum of money as damages for delay in its performance. The details of the procedure by which such remedies are obtained and enforced vary from one jurisdiction to another and are beyond the scope of this Restatement. In some circumstances a party to a contract is empowered to protect himself or to obtain satisfaction by methods not involving recourse to a court, such as retaking goods or foreclosing on security. The exercise of such a power, whether under a term of the contract or otherwise, is not a judicial remedy and is not dealt with in this Section. But see Topic 5 as to election and avoidance.
o UCC § 2-302: Unconscionable Contract or Clause
* (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
* (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
D. Performing in Good Faith
- Cases
o Dalton v. Education Testing Service (1995)
* Facts
* P took SAT test administered by D twice
* Increase in scores was more than 350 points and this triggered a review
* D found that P cheated
* Contract stipulated that P had the right to appeal and provide additional evidence
* P did, but the additional evidence was not considered, despite it being relevant
* P sued for the release of the test scores
* Issue
* Did D fail to exercise good faith in reviewing the evidence and thereby breach the contract?
* Rule
* Good faith is a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.
* Duty of good faith is limited, in that no obligation can be implied that would be inconsistent with other terms of the contractual relationship
* Application
* Contract required ETS consider any relevant material provided, and P did this, which triggered an obligation on the part of the D.
* D failed to consider relevant info and thereby breached the contract
- Statutes
o Restatement § 205: Duty of Good Faith and Fair Dealing
* Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
o UCC § 2-302
* (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
* (2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
o UCC § 1-304: Obligation of Good Faith
* Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.
E. Public Policy
- Cases
o Bovard v. American Horse Enterprises, Inc. (1988)
* Facts
* Dude agreed to buy D company, but failed to pay P
* Testimony revealed that D made drug paraphernalia
* Rule
* The court shall not permit the parties to maintain an action to settle or compromise a claim based on an illegal contract
* Whether a contract violates public policy is subjective, and the court must have clear and convincing evidence, upon which the burden is the D to show that such enforcement would be in violation of public policy
* Application
* Drugs are illegal
* D company makes drugs
* Therefore, Court refuses to enforce the contract because it relates to an illegal act
* Ruling
* Affirmed in favor of D
- Statutes:
o Restatement § 178: When a Term is Unenforceable on Grounds of Public Policy
* (1) A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.
* (2) In weighing the interest in the enforcement of a term, account is taken of
* (a) the parties' justified expectations,
* (b) any forfeiture that would result if enforcement were denied, and
* (c) any special public interest in the enforcement of the particular term.
* (3) In weighing a public policy against enforcement of a term, account is taken of
* (a) the strength of that policy as manifested by legislation or judicial decisions,
* (b) the likelihood that a refusal to enforce the term will further that policy,
* (c) the seriousness of any misconduct involved and the extent to which it was deliberate, and
* (d) the directness of the connection between that misconduct and the term.
o Restatement § 179: Bases of Public Policies Against Enforcement
* A public policy against the enforcement of promises or other terms may be derived by the court from
* (a) legislation relevant to such a policy, or
* (b) the need to protect some aspect of the public welfare, as is the case for the judicial policies against, for example,
o (i) restraint of trade (§§ 186-188),
o (ii) impairment of family relations (§§ 189-191), and
o (iii) interference with other protected interests (§§ 192-196, 356).
o Restatement § 365: Effect of Public Policy
* Specific performance or an injunction will not be granted if the act or forbearance that would be compelled or the use of compulsion is contrary to public policy.
o Restatement § 190: Promise Detrimental to Marital Relationship
* (1) A promise by a person contemplating marriage or by a married person, other than as part of an enforceable separation agreement, is unenforceable on grounds of public policy if it would change some essential incident of the marital relationship in a way detrimental to the public interest in the marriage relationship. A separation agreement is unenforceable on grounds of public policy unless it is made after separation or in contemplation of an immediate separation and is fair in the circumstances.
* (2) A promise that tends unreasonably to encourage divorce or separation is unenforceable on grounds of public policy.
o Restatement § 191: Promise Affecting Custody
* A promise affecting the right of custody of a minor child is unenforceable on grounds of public policy unless the disposition as to custody is consistent with the best interest of the child.
5. Performance and Breach
A. Conditions, Effects and Interpretation
- Cases
o Luttinger v. Rosen (1972)
* Facts
* Sale of land contract, P buyer D seller
* P made deposit which was to be refunded if the P could not secure financing on the land
* Market rates made the financing at the terms defined impossible, and P therefore demanded the deposit returned
* D didn’t, and so P sued
* Rule
* The law does not require the performance of a futile act
* Application
* Findings support the conclusion that due diligence was used in seeking the financing as required in the contract. It wasn’t possible, and so enforcing it would be the requirement of a futile act.
* Ruling
* Affirmed for the P
o Peacock Construction Co. v. Modern Air Conditioning, Inc. (1977)
* Facts
* P contractor, D subcontractor
* Contract was such that P would pay D within 30 days of completion
* D finished and demanded payment, but P did not
* P stated that they had not yet received payment form the employers
* Contractor’s pay condition implied, says P
* Rule
* The general rule is that interpretation of a document is a question of law rather than a question of fact.
* Application
* Not necessary to remand the case as it is a question of interpretation, which the lower court did correctly. No error was made.
* Ruling
* Judgment Affirmed.
- Statutes
o Restatement § 224: Condition Defined
* A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.
o Restatement § 226: How an Event May be Made a Condition
* An event may be made a condition either by the agreement of the parties or by a term supplied by the court.
B. Constructive Condition of Exchange
- Cases
o Kingston v. Preston (1773)
* Rule
* Three kinds of covenants
o Mutual and independent
o Dependent, in which the performance of one depends on the prior performance of another and therefore till prior condition is performed, the other party is not liable to an action on his covenant
o Mutual conditions to be performed at the same time
o Stewart v. Newbury (1917)
* Facts
* P builder, D employer
* Dispute over pay
* No contract that specifies pay, but there was a verbal agreement for standard pay
* Work wasn’t done correctly, contends the D
* Action brought to recover the amount of the bill as presented as the agreed price by the P
* P had a verdict for the amount stated in the bill, but not for the other damages claimed (breach of contract – lost profits), judgment affirmed by appellate court
* Rule
* Where a contract is made to perform work and no agreement is made as to payment, the work must be substantially performed before payment can be demanded
* Application
* Jury was plainly told that if there were no agreement as to payments, yet the P would be entitled to part payment at reasonable times as the work progressed, and if such payments were refused he could abandon the work and recover the amount due for the word performed
* Ruling
* Judgment should be reversed, and a new trial ordered
C. Mitigating Doctrine, Substantial Performance
- Cases
o Plante v. Jacobs (1960)
* Facts
* P construction, D employer/buyer
* P didn’t complete the job, D didn’t pay
* P sued for breach and the work that was completed
* D claims bad workmanship and that P shouldn’t recover at all
* Rule
* There can be no recovery on the contract unless there is substantial performance, which means that there is some compliance with specifications, although it does not need to be perfect
* Application
* Trial court found that the contract was substantially performed
* But full award would have been economically wasteful, which is something that was decided by the jury of the trial court
* Ruling
* Affirmed
- Statutes
o Restatement § 374: Restitution in Favor of the Party In Breach
* (1) Subject to the rule stated in Subsection (2), if a party justifiably refuses to perform on the ground that his remaining duties of performance have been discharged by the other party's breach, the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach.
* (2) To the extent that, under the manifested assent of the parties, a party's performance is to be retained in the case of breach, that party is not entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss.
6. Basic Assumption
A. Mutual Mistake
(Covered in earlier)
B. Impracticability
- Cases
o Mineral Park Land Co. v. Howard (1916)
* Facts
* P landowner, D leasor
* Contract to build bridge, and the D wanted earth and gravel from the P’s land
* D took half of the gravel that was contracted and did not pay
* Lower court granted P damages for a) gravel that was taken and b) breach for the gravel not taken
* D contents that they could not have completed the contract because they took all they could
* Court found that there was more gravel, but it was very expensive to get to
* Rule
* Where performance depends upon the existence of a given thing, and such existence was assumed as the basis of the agreement, performance is excused to the extent that the thing ceases to exist or turns out to be nonexistent
* Application
* Where the difference in cost is so great as here, and has the effect, as found, of making performance impracticable, the situation is not different from that of a total absence of earth and gravel
* Ruling
* No recovery on the second count, but and so a modified affirmed judgment from the lower court. (gave a but not b damages)
o Canadian Industrial Alcohol Co. v. Dunbar Molasses Co. (1932)
* Facts
* P contracted with D to buy molasses
* D’s entire refinery allotment was shipped, but it was not the entire order
* D contends that the duty was conditional upon the capacity of the facility
* Judgment for P, appealed by D
* Rule
* If impractical, not held liable for breach
* Application
* D didn’t make efforts to mitigate damages to the P. No reason to import “into the bargain this aleatory element”
* Ruling
* Affirmed, for the P
- Statutes
o Restatement § 261: Discharge By Supervening Impracticability
* Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.
o Restatement § 263: Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for Performance
* If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.
o Restatement § 264: Prevention by Governmental Regulation or Order
* If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made.
C. Frustration of Purpose
- Cases
o Chase Precast Corp. v. John J. Paonessa Co. (1991)
* Facts
* P subcontractor for D on construction project for Commonwealth
* Commonwealth revoked contract after P had reliance on it
* D attempted to indemnify Commonwealth because they had no fault in the revocation and it was out of D’s control
* Issue
* If the doctrine of frustration may be a defense for breach of contract action, and if it excuses the D from performance.
* Rule
* Where from the nature of the contract it appears that the parties must from the beginning have contemplated the continued existence of some particular specified thing as the foundation of what was to be done, then, in the absence of any warranty that the thing shall exist.. the parties shall be excused.. when performance becomes impossible from the accidental perishing of the thing without the fault of either party.
* Application
* D bore no responsibility for the Commonwealth’s elimination of the median barriers from the projects. It was also not an allocated risk to the D (as determined by trial court as a factual question), therefore they are not liable.
* Ruling
* Affirm that doctrine of frustration applies. P cannot sue D for breach.
- Statutes
o Restatement § 265: Discharge by Supervening Frustration
* Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.
o Restatement § 266: Existing Impracticability or Frustration
* (1) Where, at the time a contract is made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary.
* (2) Where, at the time a contract is made, a party's principal purpose is substantially frustrated without his fault by a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty of that party to render performance arises, unless the language or circumstances indicate the contrary.
o UCC § 2-615: Excuse by Failure of Proposed Conditions
* Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:
* (a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
* (b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
* (c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.
7. Third Parties
A. Third Party Beneficiary Contracts
- Cases
o Seaver v. Ransom (1918)
* Facts
* Dude and wife were old.
* Wife’s will was done by the husband, which stated that her house would go to the P, her niece
* Contract was not drafted before both of them died
* P sued D, the third party beneficiary for dude’s estate
* Issue
* Could the judgment for the P stand upon the promise made to the wife, upon a valid consideration, for the sole benefit of the plaintiff? (lack of consideration)
* Rule
* Privity between a P and a D is necessary to the maintenance of an action on the contract. Consideration must be furnished by the party to whom the promise was made. Contract cannot be enforced against the third party, and therefore it cannot be enforced by him.
* Exception: the right of the beneficiary to sue on a contract made expressly for his benefit has been fully recognized
* Analysis
* Desire of the childless aunt to make provisions for a beloved and favorite niece differs imperceptibly in law and equity from the moral duty of the parent to make testamentary provision for a child. She alone is damaged by the breach.
* However, equities are with the P, and they may be enforced in this action… to convert the defendants into trustees for P’s benefit under the agreement
* Ruling
* Affirmed for the P.
o Verni v. Cleveland Chiropractic College (2007)
* Facts
* P student at D college, P sued for breach of contract between D and employee teacher, claiming P was a beneficiary as a student of the teacher under the contract
* Rule
* Only parties to a contract and any third-party beneficiaries of a contract have standing to enforce that contract.
* Application
* P was not a beneficiary. Contract only incidentally benefits P, which means that he nor other students are not a third party to the contract
* Ruling
* Judgment reversed in favor of the D
- Statutes
o Restatement § 304: Creation of Duty to Beneficiary
* A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty.
o Restatement § 307: Remedy of Specific Performance
* Where specific performance is otherwise an appropriate remedy, either the promisee or the beneficiary may maintain a suit for specific enforcement of a duty owed to an intended beneficiary.
B. Delegation of Duties
- Statutes
o Restatement § 318: Delegation of Performance of Duty
* (1) An obligor can properly delegate the performance of his duty to another unless the delegation is contrary to public policy or the terms of his promise.
* (2) Unless otherwise agreed, a promise requires performance by a particular person only to the extent that the obligee has a substantial interest in having that person perform or control the acts promised.
* (3) Unless the obligee agrees otherwise, neither delegation of performance nor a contract to assume the duty made with the obligor by the person delegated discharges any duty or liability of the delegating obligor.
o UCC § 2-210: Delegation of Performance: Assignment of Rights
* (1) A party may perform his duty through a delegate unless otherwise agreed or unless the other party has a substantial interest in having his original promisor perform or control the acts required by the contract. No delegation of performance relieves the party delegating of any duty to perform or any liability for breach.
* (2) Except as otherwise provided in Section 9- 406, unless otherwise agreed, all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on him by his contract, or impair materially his chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation can be assigned despite agreement otherwise.
* (3) The creation, attachment, perfection, or enforcement of a security interest in the seller's interest under a contract is not a transfer that materially changes the duty of or increases materially the burden or risk imposed on the buyer or impairs materially the buyer's chance of obtaining return performance within the purview of subsection (2) unless, and then only to the extent that, enforcement actually results in a delegation of material performance of the seller. Even in that event, the creation, attachment, perfection, and enforcement of the security interest remain effective, but (i) the seller is liable to the buyer for damages caused by the delegation to the extent that the damages could not reasonably be prevented by the buyer, and (ii) a court having jurisdiction may grant other appropriate relief, including cancellation of the contract for sale or an injunction against enforcement of the security interest or consummation of the enforcement.
* (4) Unless the circumstances indicate the contrary a prohibition of assignment of “the contract” is to be construed as barring only the delegation to the assignee of the assignor's performance.
* (5) An assignment of “the contract” or of “all my rights under the contract” or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract.
* (6) The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to his rights against the assignor demand assurances from the assignee (Section 2-609).
C. Assignment of Rights
- Cases
o Bel-Ray Company v. Chemrite (Pty) Ltd. (1999)
* Facts
* P maker of lube
* D lube business, distributor
* Contract between P and D for D to distribute P’s lube
* Disagreement arose, and there is an arbitration clause in the contract
* P moved to compel arbitration, D appealed this
* D claimed that they had a provision that prevented the assignment of their rights
* Rule
* A court may only compel a party to arbitrate where that party has entered into a written agreement to arbitrate that covers the dispute
* Terms prohibiting the assignment of rights must be specific in the contract
* Application
* None contain terms specifically stating that an assignment without P’s written consent would be void or invalid. Contract did not contain the necessary language express to limit the assigning party’s power to assign an arbitration agreement
* Ruling
* Assignment is enforceable, and they are bound to arbitrate.
- Statutes
o Restatement § 317: Assignment of a Right
* (1) An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance.
* (2) A contractual right can be assigned unless
* (a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or
* (b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or
* (c) assignment is validly precluded by contract.
o Restatement § 322: Contractual Prohibition of Assignment
* (1) Unless the circumstances indicate the contrary, a contract term prohibiting assignment of “the contract” bars only the delegation to an assignee of the performance by the assignor of a duty or condition.
* (2) A contract term prohibiting assignment of rights under the contract, unless a different intention is manifested,
* (a) does not forbid assignment of a right to damages for breach of the whole contract or a right arising out of the assignor's due performance of his entire obligation;
* (b) gives the obligor a right to damages for breach of the terms forbidding assignment but does not render the assignment ineffective;
* (c) is for the benefit of the obligor, and does not prevent the assignee from acquiring rights against the assignor or the obligor from discharging his duty as if there were no such prohibition.
Outline 2: Condensed (click here for .doc version)
Step 1: What Rules Apply?
Is it a sale of Goods?
- What are Goods?
o Goods are things movable at the time of sale of the contract, other than money. Includes unborn young of young animals, crops, other things attached to reality. Does not include land or fixtures. (UCC 2-105(1))
- Yes?
o The UCC rules apply to the sale of goods, and goods alone. (UCC 2-102), (UCC 2-106)
o Also, common law/the Restatement applies where the UCC is silent (UCC 1-103).
- No?
o Where UCC does not apply, Restatement may apply to all other of contracts (UCC 1-103).
Step 2: Is There A Contract?
What is a Contract?
- Contract is the total obligation resulting from a parties’ agreement (UCC 1-201)
o All contracts require good faith (UCC 1-304), (Restatement 205)
- Promise or set of promises recognized as a legal duty (Restatement 1)
o May exist prior to being written out (Restatement 27)
o Contract may be made in any manner sufficient to show agreement, even if the moment of its making is undetermined (UCC 2-204)
o May be a contract as long as both parties recognize its existence (UCC 2-207(3))
* Contract requires consideration (Kirksey v. Kirksey), (Strong v. Sheffield)
Basic Components of a Contract
- Contract = Offer, Acceptance, Consideration, generally
Step 3: How To Assent To A Contract?
- Assent only needs a promise or initiation of performance (Restatement 18)
o Contract made in any manner sufficient to show agreement recognizable by both parties (UCC 2-204), (Restatement 22), so long as it is some manifestation of mutual assent (Restatement 3)
* It is essential that manifestations of assent reference each other (Restatement 23)
o Acceptance and offer may be made in any way reasonable given the circumstance (UCC 2-206)
- Mental reservations not manifested?
o Contract requires “Manifestation of mutual assent” (Restatement 3)
o Mental reservation doesn’t impair obligations purported to undertake (Restatement 17, Comments)
o Intention isn’t necessary, only manifestations of intent for forming a contract (Restatement 21)
- One party intended contract as a joke?
o Still valid unless party has reason to know it is a joke (Lucy v. Zehmer)
- One party was drunk?
o Still valid unless other party has reason to know of severe intoxicated-ness (Restatement 16), (Lucy v. Zehmer)
- Agreed but was fraudulent?
o Not a contract if under duress, mistake, other invalidating cause (Restatement 19)
- Is silence assent?
o Any method of assent is valid as long as it is custom in similar time and place of offer (Restatement 65)
o Generally no but with the following exceptions: (Restatement 69)
* Where an offeree takes the benefit of offered services with opportunity to reject them, and he knows they were offered with the expectation of compensation (Restatement 69(1)(a))
* Where offeror stated that assent may be given by silence or inaction, and offeree remains silent (Restatement 69(1)(b))
* Reasonable assumption of acceptance by silence based on past dealings (Restatement 69(1)(c)), (American Bronze Corp. v. Streamway Products)
o Silence is not acceptance if any manifestation inconsistent with the agreement is made, or if terms are unreasonable (Restatement 69(2))
Step 4: Is There An Offer?
What is an Offer?
- “An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” (Restatement 24)
o Offer invites an offeree to accept by promise to perform what the offer requests or by rendering the performance, as offeree chooses. (Restatement 32)
- Things that may or may not count as offers:
o Preliminary negotiations don’t count as an offer (Restatement 26)
o Price Quotes do not constitute offer unless implication is that upon acceptance, a transaction will take place (Fairmount v. Woodenware)
o Vague terms must be reasonably certain (Restatement 33)
* Terms not void if specifics of performance left to the discretion of one party, dependent upon good faith requirements (UCC 2-311(1))
* Output contracts are undetermined but valid, provided good faith is exercised (UCC 2-306)
* Open terms may show no offer or acceptance (Restatement 33)
* Open terms may still have a contract if both parties intend to have a contract and there is a basis for giving remedy (UCC 2-204), (Restatement 33(2))
* Open Price?
o May still be a contract if: a) nothing is said to price or b) price is left to be agreed or c) price is fixed according to a varying external standard (UCC 2-305(1))
* Requires good faith (UCC 2-305(2))
o If unfixed price is due to unilateral mistake, non-mistaken party may fix or cancel the contract (UCC 2-305)
* If parties intend for contract to be void where price remains unfixed, and price remains unfixed, then there is no contract (UCC 2-305(4))
* Sufficiently uncertain terms will bar specific performance or injunction (Restatement 362)
* Gap Fillers help fill gaps for uncertain contract terms:
* Court can supply terms when needed with standard gap fillers (Restatement 204)
* Delivery is all in a single lot to be paid on delivery (UCC 2-307)
* Delivery location = to seller’s place of business or residence, the place known to take deliveries, or customary banking channels for documents of title (UCC 2-308)
* Delivery time = a reasonable time, unless terminated with seasonable notification, which is invalid if unconscionable cancelation (UCC 2-309)
* Payment time = a) at delivery, b) may withhold goods before payment c) payment may be due regardless of place of delivery (UCC 2-310)
* Warranty that the goods are the right kind, quality, etc. (UCC 2-314)
o Generally determined by industry standards and reasonable expectations (Koken v. Black & Veatch Construction, Inc.), (Lewis v. Mobil Oil Corp.)
o Express warranties (UCC 2-313)
o Clause denying warranty must be explicit and obvious (South Carolina Electric and Gas Co. v. Combustion Engineering, Inc.), (UCC 2-316)
o Advertisement generally not offer except if clear, definite (Lefkowitz v. Surplus Store), (Carlill v. Carbolic Smoke Ball Co.)
Step 5: What Kind Of Offer Is It?
Bilateral Offers
- Offer by party 1, accepted by party 2, confirmation of acceptance by party 2 to party 1 (Owen v. Tunison)
o Requires acceptance of some kind in a reasonable time (Ever-Tite Roofing Corp v. Green), manifested by an appropriate act (White v. Corlies and Tift)
* Assent to the bargain is invited and will conclude it (Restatement 24)
Unilateral Offers
- A unilateral offer is a promise that does not require a return promise, only performance as acceptance
Step 6: Is There Acceptance?
What is Acceptance?
- Manifestation of assent to the terms in a manner invited or required by the offer, whether by performance or promise, completely as required by the offer (Restatement 50)
o Acceptance must comply with requirements of the offer (Restatement 58)
o Must be accepted within the time unambiguously specified or a time that is reasonable given the circumstances (Ever-Tite Roofing Corporation v. Green), (UCC 2-206)
o Acceptance must be given as specified or in another reasonable manner given the circumstances (Restatement 30)
* If means in doubt, it is as the accepter chooses (Restatement 32)
* If prescribed, must be complied with; if merely suggested, another method is not precluded (Restatement 60)
* Partial performance constitutes acceptance of an offer, as long as that’s indicated by the offer as acceptable (Restatement 62)
* Such acceptance is a promise to render complete performance (Restatement 62(2))
* Acceptance by performance only if specified (Restatement 53)
- Acceptance with additional conditional qualifications is a counter-offer, not an acceptance (Restatement 59)
o Acceptance which merely requests a change or addition of terms is not invalidated unless acceptance is made conditional on new terms (Restatement 61)
Who can Accept an Offer
- To whom the offer is addressed as an individual or group, or openly depending on the offer (Restatement 29)
o May be accepted only by person who is invited to furnish consideration (Restatement 52)
Acceptance of a Bilateral Offer
- Acceptance must be manifested by an appropriate act (White v. Corlies & Tift)
o May not require redundant notification of acceptance if already accepted, it may be binding (International Filter v. Conroe), aka assent to a bargain that is invited will conclude it (Restatement 24)
o Acceptance by promise requires reasonable diligence to notify offeror of acceptance (Restatement 56)
Acceptance of a Unilateral Offer
- Acceptance by performance does not require notification of acceptance unless otherwise stated (Restatement 54)
o Duty to notify offeror if they can’t know of the acceptance/performance easily (Restatement 54)
o Part performance creates an option contract that may not be revoked by offeror (Restatement 45)
* UNLESS accepter exercises reasonable diligence to notify of acceptance, offeror learns of performance in a reasonable time, or offer indicates that notification isn’t required (Restatement 54)
o Part performance without knowing of offer may be accepted by complete performance (Restatement 51)
Step 7: New Or Different Terms Between Offer And Acceptance?
- The old rule of mismatched terms:
o Mirror image rule: “acceptance must be absolute, unconditional, and identical with the terms of the offer” (Maddox v. Northern Gas)
- Current rules:
o New/Additional Terms?
* May become part of the contract if: not objected to & are not materially different (Northrop Corp. v. Litronic Industries)
* Additional terms = proposals for addition to the contract, unless: (UCC 2-207(2)),
* A) offer expressly limits acceptance, b) material alteration, c) notification of objection to the original offer (UCC 2-207(2)), (Dorton v. Collins & Aikman Corp)
o But contract will become valid after failing to seasonably object to terms additional/different (Hill v. Gateway)
o Different terms may still be a valid contract if:
* May be a contract as long as both parties recognize its existence, despite different terms (UCC 2-207(3)), (Dorton v. Collins & Aikman Corp), (Northrop Corp. v. Litronic Industries)
* But acceptance and payment does not constitute acceptance of additional/different terms if not made clear that there are any different/new ones (Itoh & Jordan International)
o But contract will become valid after failing to seasonably object to terms additional/different (Hill v. Gateway)
* Proposed last shot rule: Some common law, would make it so whatever the last form said is the valid and enforceable one (Peck lecture)
o Counter Offers:
* Definition: Counter-offer is an offer made by offeree to offeror relating to the same matter as the original offer and proposing a substituted bargain different than the original (Restatement 39(1))
* This terminates power of acceptance, UNLESS: (Restatement 39(2))
o Offeror/offeree manifests intention for original offer to stand (Restatement 39(2))
o Acceptance with request to change/add terms only invalidates offer if acceptance of terms is made conditional (Restatement 61), (UCC 2-207(1))
Step 8: When Do Things Take Effect?
When Does Acceptance Take Effect
- Acceptance takes effect the moment it is mailed (Restatement 63)
o Must be properly mailed for acceptance to take effect at dispatch (Restatement 66)
* Although if improperly dispatched and arrives seasonably, will act as acceptance properly dispatched (Restatement 67)
o Option contract’s acceptance is operative only when received by offeror (Restatement 63)
- Acceptance by instant communication is instant (Restatement 64)
When Does Power of Acceptance End
- Offer cannot be accepted after power of acceptance is terminated (Restatement 35)
- Methods of terminating acceptance:
o Manifestation of intent to deny offer terminates power to accept (Restatement 53)
o Rejection or counter-offer by offeree; lapse of time; revocation by offeror; death or incapacity of offeror or offeree (Restatement 36)
* Rejection:
* Rejection by offeree terminates power of acceptance unless offeror has manifested contrary intent, or offeree manifests intent to “take it under further advisement” (Restatement 38)
* Rejection by mail/telegram terminates power of acceptance upon receipt (Restatement 40)
o “received” = when comes into possession of offeree or a person authorized to receive it, or when deposited in a place authorized for communications to be deposited (Restatement 68)
o May still accept if acceptance is sent and received before rejection is received by mail (Restatement 40)
* Counter Offers:
* Definition: Counter-offer is an offer made by offeree to offeror relating to the same matter as the original offer and proposing a substituted bargain different than the original (Restatement 39(1))
o This terminates power of acceptance, UNLESS: (Restatement 39(2))
* Offeror/offeree manifests intention for original offer to stand (Restatement 39(2))
* Acceptance with request to change/add terms only invalidates offer if acceptance of terms is made conditional (Restatement 61)
* Lapse of Time:
* Power of acceptance is terminated when specified in the offer, or if not specified, at the end of a reasonable time (Restatement 41(1))
o A reasonable time = a question of fact depending on all the circumstances (Restatement 41(2))
* Acceptance by mail is seasonably accepted if mailed before midnight upon the day of receipt of offer (Restatement 41(3))
* Death of Offeror or Offeree:
* Death or loss of capacity terminates power of acceptance (Restatement 48)
* Revocation:
* Takes affect when offeree receives a manifestation to revoke (Restatement 42)
o “received” = when comes into possession of offeree or a person authorized to receive it, or when deposited in a place authorized for communications to be deposited (Restatement 68)
o Indirect manifestations count (Dickinson v. Dodds), (Restatement 43)
* General public offers can be revoked by public advertisement comparable to how the offer was made, or whatever means is reasonably available (Restatement 46)
* Option contracts limit the power of a promisor to revoke an offer (Restatement 25)
o Offer becomes an option IF:
* In signed writing by offeror, consideration is made, proposes an exchange on fair terms (Restatement 87(1)(a))
* Offer is made irrevocable by statute (Restatement 87(1)(b))
o Power of acceptance under option contract may not be terminated by means other than if requirements are met for the discharge of the duty (Restatement 37)
o Option contract requires consideration, and an offer will not stay open on a promise alone (Dickinson v. Dodds)
* However, an option may be formed by a merchant if it is clearly stated in signed writing despite a lack of consideration, during the time stated or a reasonable time, but not for a period over 3 months (UCC 2-205)
* “Signed” means any symbol executed or adopted for the intent to accept a writing (UCC 1-201)
* “Writing” means any print, typewritten, or other intentional tangible form. (UCC 1-201)
o Non-occurrence of any condition of acceptance under terms of offer (Restatement 36)
Step 9: Is There Consideration?
What Is Consideration
- Necessary elements of consideration:
o A promise is not binding without consideration (Strong v. Sheffield)
o Consideration: performance or return promise must be bargained for (Restatement 71(1))
* Performance or return promise is bargained for if sought by promisor for in exchange for his promise (Restatement 71(2))
* Manifestations of assent for bargain must reference each other (Restatement 23)
* Performance = not promise, forbearance, modification of a legal relation (Restatement 71(3))
* Any performance bargained for = consideration (Restatement 72)
* A promise = consideration only if promised performance would be consideration (Restatement 75)
* Offer may create consideration even if promise doesn’t directly induce it (Restatement 81)
* Consideration doesn’t need to be of equivalent value, or to a party’s advantage, or be mutual (Restatement 79)
* Consideration exists when someone acts in reliance of a promise (Feinberg v. Pfeiffer Co.)
* HOWEVER, acts to obtain a gift does not constitute consideration (Kirksey v. Kirksey)
- Specific things that may or may not be consideration:
o Guarantee is consideration only if:
* a) Promise is in writing and signed and recites consideration, b) promise is binding under statute, c) promisor should reasonably expect substantial forbearance, and it does (Restatement 88)
o Refraining from exercising a legal right is consideration (Hammer v. Sidway), (Fiege v. Boehm)
* But not if that forbearance is invalid (Restatement 74), (Fiege v. Boehm)
* Performance of a legal duty owed to another party is not consideration (Restatement 73)
* Unless the claim is a known uncertainty, or the forbearing party believes it to be a valid claim (Restatement 74)
o Promise to perform voidable duty is sufficient consideration (Restatement 85)
* Debt promise = consideration despite bankruptcy (Restatement 83)
* Promise to pay old debt may be a) voluntary acknowledgment of debt, b) voluntary partial/complete payment, c) statement that statute of limitations will not be pleaded. (Restatement 82)
o Moral obligations
* May not be sufficient consideration without accompanying dependency/consideration (Mills v. Wyman)
* But it will be consideration if someone suffers injury for another’s benefit (Webb v. McGowin)
o Gifts are not consideration (Restatement 86), (Feinberg v. Pfeiffer Co.), (Kirksey v. Kirksey)
* Unless it is in recognition of a previously received benefit, as is necessary to avoid injustice, so long as it isn’t disproportionate/unjust (Restatement 86), (Feinberg v. Pfeiffer Co.)
* Acts to obtain a gift does not constitute consideration/reliance (Kirksey v. Kirksey)
o Continued Employment is generally not consideration for a change to an existing employment contract (Lake Land Employment Group of Akron, LLC v. Columber)
* But at-will employee may be (Lake Land Employment Group of Akron, LLC v. Columber)
o Continued Trade may be sufficient consideration as dependence on future trade (Eastern Air Lines, Inc. v. Gulf Oil Corporation)
* Output/Exclusive Dealings Contract is consideration, provided good faith (UCC 2-306)
o Deposits are generally consideration. (Mattei v. Hopper)
o Implicit consideration to perform a contract is still consideration (Wood v. Lucy, Lady Duff-Corp.)
o Conditional Promise not consideration if it is known that the condition cannot occur (Restatement 76(1))
* Illusory promise, or promise to do or not do a thing, is not consideration (Restatement 76(2)), (Restatement 77)
* Unless: both alternative promises would be consideration, or promise eliminates other possibilities as consideration (Restatement 77)
Not Consideration; Reliance?
- Reliance = Promise inducing action or forbearance not directly bargained for but is a reasonable expectation of the promise (Restatement 90), (D&G Stout, Inc. v. Bacardi Imports, Inc.)
o Quitting a person’s job in expectation of income = reliance, despite not being bargained for (Ricketts v. Scothorn)
o Retirement isn’t consideration being for past actions, but may be reliance for retiring (Feinberg v. Pfeiffer Co.)
o Losses incurred from failing to sell a business and the difference in business’s market value (D&G Stout, Inc. v. Bacardi Imports, Inc.)
Step 10: Stuff That May Void A Contract
- Voidable or unenforceable contract may still be consideration (Restatement 78()
Step 11: A Mistake?
Bilateral Mistakes
- What are they?
o Both sides make a mistake at the time of a contract as to a basic assumption, as to a material fact, on the agreement (Restatement 152)
* Basic assumption = condition presumed to be true upon which the contract was made (Restatement 152, Comment b)
* Material Fact = One which, if mistaken, would create an undue hardship on one party or the other (Restatement 152, Comment c)
- Effect of a bilateral mistake?
o Mutual mistake means no manifestation of assent, and therefore no contract (Restatement 20)
o Voidable by the adverse party (Restatement 152) or one who assumes the risk in the contract (Stees v. Leonard)
* If contract is rescinded, parties will be refunded any benefit bestowed upon the other, but not necessarily expenses incurred (Renner v. Kehl)
o May be reformed by a court (Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co.) (Restatement 155)
Unilateral Mistakes
- When can a party escape after a unilateral mistake?
o If the mistake is to a basic assumption, and the a) enforcement would be unconscionable, or b) other party has reason to know of the mistake, or c) his fault caused the mistake (Restatement 153)
o If Party 1 knows or has reason to know of a mistake by the Party 2 at the time of acceptance (Elsinore Union Elementary School District v. Kastoff)
- When can a party NOT escape after a unilateral mistake?
o If the risk is allocated to that party, limited knowledge is acknowledged as to the conditions, risk is reasonable under the circumstances (Restatement 154)
o If unfixed price is due to one party’s mistake, non-mistaken party may fix or cancel the contract at their discretion (UCC 2-305(3))
Vague Terms
- Refer to “Offers” section for vague terms. They may prevent establishment of a contract.
Step 12: Verbal Contracts?
Generally
- Verbal contracts may be recognized as legit
o Refer to “What is a Contract” section for Restatement/UCC stuff that supports this
o Exception to when verbal contracts are recognized:
* a) executor of estate, b) surityship, c) marriage, d) sale of land, e) contract not performed within one year (Restatement 110)
- What must the written contract contain to be recognized?
o Identify subject matter, indicates that a contract has been made, states with reasonable certainty the essential terms of the contract, and is signed (Restatement 131)
* May be based on several writings if talking about the same transaction (Restatement 132)
* Writing: (UCC 1-201(43))
o Must be signed (Restatement 131), (Restatement 134)
* Signature: (UCC 1-201(37))
- Exception
o If there is reliance, a court may enforce it anyway (Restatement 139)
When the UCC applies
- Applies – must be written out – to sales of goods for $500 or more (UCC 2-201)
o Still valid if between merchants with a forthcoming contract (UCC 2-201(2))
o Still valid if a) goods are specially made, b) parties admit to contract, c) payment has been made and accepted (UCC 2-201)
Statute of Frauds
- Definition/Statute of Frauds in General:
o Agreement must be in writing to be enforceable if within the Statute of Frauds (Restatement 110)
- Surityships, i.e. promise to assume debts
o Must be explicit in writing (Langman v. Alumni Association of the University of Virginia), (Restatement 110(1)(b)), (Restatement 112)
- Death of promisor
o Oral agreement does not survive without having been written out, generally (Monarco v. Lo Greco)
* But if there is reliance such that fraud or injury results from deying contract, agreement may be recognized (Monarco v. Lo Greco)
- Land Contracts
o Within statute of frauds, i.e. requires written contract (Restatement 125), (Restatement 110), (Restatement 126), (Restatement 127)
* Exception if it would be unjust otherwise, and needs specific performance (Restatement 129)
- One Year Limit
o Agreement cannot be performed within one year from its making. (C.R. Klewin, Inc. v. Flagship Properties, Inc.), (Restatement 110), (Restatement 130)
* Contracts of indefinite duration may be enforceable if it is possible, however implausible, that the contract could be completed within a year of its making (C.R. Klewin, Inc. v. Flagship Properties, Inc.)
o After a party has completed his performance, one year provision doesn’t prevent enforcement (Restatement 130)
- Marriage
o Within the statute of frauds (Restatement 110), (Restatement 133)
Parole Evidence Rule
- Oral agreements made prior to written one are generally considered integrated into the written contract (Gianni v. R. Russell & Co.), (Restatement 209)
o Prior statements are excluded in an integrated agreement (Restatement 213)
* BUT may be considered if contradicting terms (Restatement 215), (UCC 2-202)
o Oral agreements may be excluded for lack of evidence (Masterson v. Sine)
* Court may reform written contracts to include oral stuff inadvertently excluded (Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co.), (Restatement 155)
o Partially integrated agreements will allow prior communications to be integrated (Restatement 210)
Step 13: Parties Capable Of Making A Contract?
- Must be capable of making a contract in order to be bound by one (Restatement 12)
o Lacks capacity if a) under guardianship b) infant c) mentally defective d) intoxicated (Restatement 12(2))
- Minors
o Cannot sign contracts (Kiefer v. Fred Howe Motors, Inc.), (Restatement 14), (Restatement 12)
- Mental Incapacity
o Cannot agree if incompetent (Ortelere v. Teachers’ Retirement Bd.), (Restatement 12), (Restate. 15)
* Incompetence may be shown by agreeing to grossly unequal terms (Cundick v. Broadbent)
* Don’t have to be completely equal, though (Restatement 79)
* May still have relief for promisor if it wasn’t known that promisee was mentally incompetent (Restatement 15)
- Intoxicated
o If a party has reason to know that the other REALLY intoxicated, it’s voidable (Restatement 16)
Step 14: Duress?
- Contract enforceable if:
o Change of terms where there exists immediate need?
* Still may be enforceable (Alaska Packers’ Ass’n v. Domenico), (Watkins & Songs v. Carrig)
- Contract not enforceable if:
o Made under threat of physical harm (Restatement 174)
o Made when there is no alterative (Restatement 175)
o Made under criminal/tortable threat (Restatement 176)
o Offeror is in a position of power over offeree such that one cannot refuse (Restatement 177), (Odorizzi v. Bloomfield School District)
o Economic threat (Austin Instrument, Inc. v. Loral Corporation)
Step 15: Misrepresentation?
- All contracts require good faith (UCC 1-304), (Restatement 205)
- Definition of misrepresentation:
o Misrepresentation is an assertion not in accord with the facts (Restatement 159)
* Actions intended to prevent another from learning a fact is equivalent to a misrepresentation (Restatement 160)
o Misrepresentations prevent the formation of a contract when it is a material fact (Restatement 163)
* ‘Cause that’s fraudulent (Restatement 162)
* May reform when there is fraud or reliance on the misrepresentation (Restatement 166)
* Requires it be a material fact, is a fact relied upon for making the contract (Restatement 164)
- Concealment doesn’t qualify as a false statement or misrepresentation (Swinton v. Witinsville Sav. Bank)
o BUT there is a duty to reveal all material facts (Kannavos v. Annino)
* Material facts are generally of fact rather than opinion, but there may be equitable remedies for misrepresentations of opinions (Vokes v. Arthur Murray, Inc.), (Restatement 169)
* Material facts are necessary to avoid fraud (Restatement 161)
* Flattery and false praise don’t constitute misrepresentation (Vokes v. Arthur Murray, Inc.)
o Making profits without expense isn’t fraud (Black Industries Inc. v. Bush)
Step 16: Changing An Existing Contract?
- It’s okay if both sides agree (Restatement 89)
o Must be signed and in writing to reform for sale of goods (UCC 2-209)
o Performance of accord discharges responsibility of the first contract (Restatement 281(1))
o Doesn’t need consideration (UCC 2-209)
o Can reform it when mutual mistake (Bollinger v. Central Pennsylvania Quarry Stripping and Constrution Co.)
* May reform when there is fraud or reliance on the misrepresentation (Restatement 166)
- Can use Parole Evidence to reform a contract when in dispute (refer to that section under “Verbal Contracts”
Step 17: Unfairness?
Unfairness in General
- Oppressive or unfair contracts will not be enforced (McKinnon v. Benedict)
o Unfairness is viewed from the perspective of when the contract was made (Tuckwiller v. Tuckwiller)
- Unfair terms?
o To assure fairness, when in doubt, terms are interpreted against the maker of the terms (Restatement 206)
o Unconscionable terms won’t be recognized (Restatement 208) (UCC 2-302)
* What is unconscionable?
* Fraud which may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under delusion would make (Jones v. Star Credit Corp.)
* May favor the a public policy interest (Restatement 207)
* May reform when there is fraud or reliance on the misrepresentation (Restatement 166)
Adhesion Contracts
- Definition:
o Contracts that are drafted and imposed by a party of superior bargaining strength, relegates the subscribing party to either accept or reject, not negotiate (Graham v. Scissor-Tail Inc.)
- May be invalid if:
o If public policy or social relationship between parties dictate it, court may deny enforcement (O’Callaghan v. Waller & Beckwith Realty Co.)
o Unreasonable, oppressive or unconscionable (Graham v. Scissor-Tail Inc.), (UCC 2-302), (Williams v. Walker-Thomas Furniture Co.), (Jones v. Star Credit Corp.) (Restatement 208)
* What is unconscionable?
* Fraud which may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under delusion would make (Jones v. Star Credit Corp.)
* May favor the a public policy interest (Restatement 207)
* May reform when there is fraud or reliance on the misrepresentation (Restatement 166)
Step 18: Good Faith Action?
- Good faith is required in all dealings (Restatement 205), (UCC 1-304)
o Failure to exercise is a breach of contractual duty (Dalton v. Education Testing Service)
o Court won’t enforce futile/impossible acts (Luttinger v. Rosen)
Step 19: Public Policy?
- Court won’t recognize contracts dealing with illegal stuff
o Even if it doesn’t directly deal with illegal stuff (Bovard v. American Horse Enterprises, Inc.)
o Will not issue specific performance if contrary to public policy (Restatement 365)
- Court considers the following in evaluating policy considerations for a contract:
o A) parties’ justified expectations, b) forfeiture if enforcement denied, c) special public interests in the enforcement of the contract (Restatement 178)
o Also, a) strength of a policy manifested by legislation or judicial decisions, b) likelihood that refusal to enforce will further that policy, c) seriousness of misconduct associated, d) directness between term and misconduct (Restatement 178)
o Won’t enforce if bad for family (Restatement 190) or custody (Restatement 191)
- Basis for public policy considerations?
o Relevant legislation, need to protect public welfare (Restatement 179)
Step 20: Conditions Of A Contract?
- What is a condition?
o An event not certain to occur that must occur for performance to become due (Restatement 224)
* If it doesn’t happen, makes performance impractical (Restatement 263)
* Prevented by government regulation or order then also basic assumption (Restatement 264)
o Conditions are created by agreement or as supplied by the court (Restatement 226)
o Condition may be performance of the other party (Kingston v. Preston)
* Generally, a condition of payment is performance (Stewart v. Newbury)
* Which must be substantial (Plante v. Jacobs)
- When they don’t occur, it’s a lot like a mistake, so refer up to that section…
o When there is a difference in cost so great and it has the effect of making performance impractical, the performance is not enforced because it would be unconscionable (Mineral Park Land Co. v. Howard)
* Not liable for breach if impractical (Canadian Industrial Alcohol Co. v. Dunbar Molasses Co.), (Restatement 261)
Doctrine of Frustration
- What is it?
o Something that prevents performance, like revocation of third party offer (Chase Precast Corp. v. John J. Paonessa Co.)
o Also may be pre-existing frustration that is unknown and without fault of a party (Restatement 266)
- Effect?
o May excuse breach (Chase Precast Corp. v. John J. Paonessa Co.), (Restatement 265), (UCC 2-615)
Step 21: Remedies
Step 22: What Kind Of Remedies May A Party Be Entitled To?
- The court can do many things
o Money, specific performance, declare rights, enforce arbitration, damages, replevin (Restatement 345)
- What is an adequate remedy?
o Depends on a) difficulty of proving damages, b) difficulty of procuring a substitute performance by means of money awarded as damages, c) likelihood that an award of damages couldn’t be collected (Restatement 360)
Specific Relief
- May have specific performance when other legal remedies are inadequate. (Campbell Soup Co. v. Wentz) (Restatement 359(1))
o Is a matter of the court’s discretion (Restatement 357)
o May have part specific performance, part damages (Restatement 359)
o Not if goods are fungible or not unique (Campbell Soup Co. v. Wentz), (Klein v. PepsiCo, Inc.), (UCC 2-716(1))
o Sentimental value may make them unique, but not change the value, so specific performance is appropriate (Morris v. Sparrow)
- Court WILL NOT require specific performance:
o To enforce long-term or complex contract (Laclede Gas Co. v. Amoco Oil Co.), (Restatement 366)
o To enforce imprecise or impractical contracts (Northern Delaware Industrial Dev. Corp v. EW Bliss Co.)
o To enforce employment or service contracts (Restatement 367)
o If contrary to public policy (Restatement 365)
- Injunctions
o Only if damages are inadequate (Walgreen Co. v. Sara Creek Property Co.)
* Measures costs of injunction versus efficiency of damages (Walgreen v. Sara)
Breach for Sales of Goods (When UCC Applies)
- If either breaches
o Condition of the goods are the responsibility of the possessor (UCC 2-711)
* Damages for breach may be liquidated but only as is reasonable (UCC 2-718)
o Remedies by UCC must be liberally administered to…expectation interest (UCC 1-305)
- If the Buyer breaches
o Seller may withhold delivery, stop delivery, resell goods, cancel contract (UCC 2-703)
o Sellers can get:
* Incidental damages (UCC 2-709)
* Price of goods accepted (UCC 2-709(1)(a))
* Minus resale proceeds from goods reclaimed (UCC 2-709(2))
* Sale must be in good faith, buyer must be notified, so on (UCC 2-706)
* Damages for non-acceptance of goods despite resale (UCC 2-709(3))
* Measured by market price when denied and unpaid contract price, less expenses saved because of breach (UCC 2-708(1))
o If that is inadequate, may be expectation measure of damages (UCC 2-708(2))
- If the Seller breaches
o Buyer may recover damages for non-delivery, recover goods, specific performance, etc. (UCC 2-711)
* Can rightfully refuse acceptance if the goods suck (UCC 2-711)
o Buyer may have specific performance or reposes goods rightfully belonging to them (UCC 2-716)
o Buyer can purchase from substitute seller and recover difference, provided good faith (UCC 2-712)
* Damages measured by market price value at time of breach and contract price and incidental damages and consequential damages minus money saved by breach (UCC 2-713)
o Buyers can get:
* Specific performance for unique goods (UCC 2-716(1))
* Includes terms and conditions as to price, damages, other relief as the court deems just (UCC 2-716(2))
* Replevin for goods identified to the contract (UCC 2-716(3))
* Incidental/consequential damages from breach (UCC 2-715)
Step 23: How To Determine Money Damage Amounts?
Liquidated Damages
- What are they?
o Contractually agreed upon damage amounts for breach of a contract
- Limitations on them
o Must be reasonable in light of loss caused by breach (Restatement 356), (UCC 2-718)
o NOT punitive, and may be reduced/eliminated by court (Wasserman’s Inc. v. Township of Middleton)
What is or is not included in Damages
- Damages must be reasonably foreseeable (Restatement 351), (Hadley v. Baxendale), (Delchi Carrier Spa v. Rotorex Corp.)
o Must also be reasonably calculable, or certain (Fera v. Village Plaza, Inc.), (Restatement 352)
- Is included:
o If contract is breached, a party is entitled at least nominal damages (Restatement 346)
o Loss of income (US Naval v. Charter)
o Damages of inconvenience (White v. Benkowski)
o Loss in value (Restatement 348)
o Sellers can get:
* Incidental damages (UCC 2-709)
* Price of goods accepted (UCC 2-709(1)(a)), (US v. Algernon Blair, Inc.)
* Minus resale proceeds from goods reclaimed (UCC 2-709(2))
* Damages for non-acceptance of goods despite resale (UCC 2-709(3)), (R.E. Davis Chemical Corp. v. Diasonics, Inc.)
o Buyers can get:
* Specific performance for unique goods (UCC 2-716(1))
* Includes terms and conditions as to price, damages, other relief as the court deems just (UCC 2-716(2))
* Replevin for goods identified to the contract (UCC 2-716(3))
* Incidental/consequential damages from breach (UCC 2-715)
- Is NOT included:
o Profits that were gained from the breach (US Naval v. Charter)
* But takes good/bad faith into consideration (Tongish v. Thomas)
o Punitive Damages (White v. Benkowski), (Restatement 355)
o Emotional disturbance, unless extreme or with bodily harm (Restatement 353)
o Easily avoidable damages (Rockingham County v. Luten Bridge Co.), (Restatement 350)
* Like goods of equal value (Jacob & Youngs v. Kent)
* But not if goods are substantially different (Parker v. Twentieth Century Fox)\
o Damages calculated by either lost of performance or value (Peevyhouse v. Garland Coal and Mining Co.)
* Court has an interest in reducing economic waste (Groves v. John Wunder Co.)
* NOT pure loss of anticipated increase in value (Kenford Co. v. County of Erie)
How to Calculate Damages
- Three kinds of remedies exist for contracts
o Expectation Interest
* As if the contract had been performed (Restatement 344)
* May exist when subcontractor begins performance for contractor for justifiable termination of performance for non-payment (US v. Algernon Blair, Inc.)
* May include:
* Damages from: a) Failure to perform, b) incidental or consequential loss, c) minus costs avoided for breach (Restatement 347), (Laredo Hides Co. v H&H Meat Products Co.)
o Damages determined by the market price at the time of breach (Laredo Hides Co., Inc. v. H & H Meat Products Co., Inc.)
* Sellers entitled to losses incurred and gains prevented (Vitex Manufacturing Corp. v. Caribtex Corp.)
o Reliance Interest
* What is it?
* As if the contract had never been made (Restatement 344)
* When Does it apply?
* Only when a party has conferred a benefit by way of part performance or reliance (Restatement 371)
* How much/how to calculate?
* Applies in medical procedures as value difference between promised condition and condition before the operation (Sullivan v. O’Connor)
* Expenditures made to prepare for performance, less any loss that would have suffered had the contract been performed (Restatement 349)
o Restitution Interest
* Restores benefits conferred onto the other party (Restatement 344)
* Unjust enrichment must be returned (Callano v. Oakwood Park Homes Corp.),
o But the one unjustly enriched must be the one to pay restitution interest (Callano v. Oakwood Park Homes Corp.), (Restatement 373(1))
o Injured party has no right to restitution if the contract has been completed minus payment for contract (Restatement 373(2))
* Rescission after mutual mistake (Renner v. Kehl)
* Even party in breach may have restitution based on justifiable breach (Restatement 374)
* Is measured by:
* Reasonable value of what was received by other party in terms of cost to obtain from another (Restatement 371(a)), OR
* Extent to which property was increased in value (Restatement 371(b)), (Renner v. Kehl)
* Specific contexts of restitution:
* Failed medical procedure: May have restitution interest even without benefit being bestowed (Cotnam v. Wisdom)
* Marriage context: Generally doesn’t apply unless extraordinary or unilateral (Pyeatte v. Pyeatte)
Step 24: No Contract But Still Liable For Promises Broken?
When Is A Party Liable?
- Promisor should reasonably expect to induce action or forbearance, and such action/forbearance occurs, and it would be unjust to avoid responsibility of promisor. (Restatement 90(1)), (Drennan v. Star Paving Co.), (Restatement 87(2))
o Requires a) clear and unambiguous promise, b) reasonable and foreseeable reliance, c) injury sustained (Cyberchron Corp. v. Calldata Systems Development, Inc.)
o Reliance if a) both parties manifested intent to be bound, b) terms were sufficiently definite, c) consideration exists. (Channel Home Centers v. Grossman)
- Specific instances of pre-contractual liability:
o Applies to marriage settlements and charitable subscriptions (Restatement 90(2))
o Does not apply to subcontractors for reliance on a contract that doesn’t materialize (Holman Erection Co. v. Madsen & Sons)
o May be liable for negotiations failure, if there is reliance on an offer that didn’t constitute a promise, provided that there are actual damages (Hoffman v. Red Owl Stores)
o May be liable for breach of an option contract, or when performance has already begun (Restatement 45)
* Option contracts limit the power of a promisor to revoke an offer (Restatement 25)
* Offer becomes an option IF:
o In signed writing by offeror, consideration is made, proposes an exchange on fair terms (Restatement 87(1)(a))
o Offer is made irrevocable by statute (Restatement 87(1)(b))
What Sort Of Remedies are Available?
- Remedy as justice requires (Restatement 90(1))
o NOT:
* Projected profits, possible income that didn’t come to fruition (Hoffman v. Red Owl Stores)
o YES:
* Reliance damages, aka benefits bestowed (Cyberchron Corp. v. Calldata Systems Development, Inc.)
Auctions?
- What does an auction consist of?
o Auctioneer invites offers from bidders (Restatement 28)
* Goods may be withdrawn when placed without reserve (Restatement 28)
* Sale is with reserve unless stated otherwise (UCC 2-328)
* Bidder may withdraw offer until completion announced (Restatement 28)
* Sale complete when announced by auctioneer (UCC 2-328)
* Bid at time of completion MAY be ignored by auctioneer (UCC 2-328)
Merchants/Sales of Goods?
- Merchant is a person who deals in goods, purports to have specialized knowledge for/with the goods (UCC 2-104)
o Transaction between merchants is if both parties are supposed to have such knowledge of the goods in question (UCC 2-104)
- Financing Agency is a bank, etc. who makes advances against goods or documents of title, intervenes in ordinary course to collect payment due, and so on (UCC 2-104)
Third-Party Stuff?
- Third party beneficiary can sue (Seaver v. Ransom), (Restatement 304)
o Must be a party or direct beneficiary to be able to sue (Verni v. Cleveland Chiropractic College)
o They can sue for specific performance (Restatement 307)
- Party can delegate responsibilities (Restatement 318), (UCC 2-210)
o May not discharge all responsibilities, however (Restatement 318)
- Court can force arbitration where parties have agreed to do it (Bel-Ray Company v. Chemrite (Pty) Ltd.)
Is it a sale of Goods?
- What are Goods?
o Goods are things movable at the time of sale of the contract, other than money. Includes unborn young of young animals, crops, other things attached to reality. Does not include land or fixtures. (UCC 2-105(1))
- Yes?
o The UCC rules apply to the sale of goods, and goods alone. (UCC 2-102), (UCC 2-106)
o Also, common law/the Restatement applies where the UCC is silent (UCC 1-103).
- No?
o Where UCC does not apply, Restatement may apply to all other of contracts (UCC 1-103).
Step 2: Is There A Contract?
What is a Contract?
- Contract is the total obligation resulting from a parties’ agreement (UCC 1-201)
o All contracts require good faith (UCC 1-304), (Restatement 205)
- Promise or set of promises recognized as a legal duty (Restatement 1)
o May exist prior to being written out (Restatement 27)
o Contract may be made in any manner sufficient to show agreement, even if the moment of its making is undetermined (UCC 2-204)
o May be a contract as long as both parties recognize its existence (UCC 2-207(3))
* Contract requires consideration (Kirksey v. Kirksey), (Strong v. Sheffield)
Basic Components of a Contract
- Contract = Offer, Acceptance, Consideration, generally
Step 3: How To Assent To A Contract?
- Assent only needs a promise or initiation of performance (Restatement 18)
o Contract made in any manner sufficient to show agreement recognizable by both parties (UCC 2-204), (Restatement 22), so long as it is some manifestation of mutual assent (Restatement 3)
* It is essential that manifestations of assent reference each other (Restatement 23)
o Acceptance and offer may be made in any way reasonable given the circumstance (UCC 2-206)
- Mental reservations not manifested?
o Contract requires “Manifestation of mutual assent” (Restatement 3)
o Mental reservation doesn’t impair obligations purported to undertake (Restatement 17, Comments)
o Intention isn’t necessary, only manifestations of intent for forming a contract (Restatement 21)
- One party intended contract as a joke?
o Still valid unless party has reason to know it is a joke (Lucy v. Zehmer)
- One party was drunk?
o Still valid unless other party has reason to know of severe intoxicated-ness (Restatement 16), (Lucy v. Zehmer)
- Agreed but was fraudulent?
o Not a contract if under duress, mistake, other invalidating cause (Restatement 19)
- Is silence assent?
o Any method of assent is valid as long as it is custom in similar time and place of offer (Restatement 65)
o Generally no but with the following exceptions: (Restatement 69)
* Where an offeree takes the benefit of offered services with opportunity to reject them, and he knows they were offered with the expectation of compensation (Restatement 69(1)(a))
* Where offeror stated that assent may be given by silence or inaction, and offeree remains silent (Restatement 69(1)(b))
* Reasonable assumption of acceptance by silence based on past dealings (Restatement 69(1)(c)), (American Bronze Corp. v. Streamway Products)
o Silence is not acceptance if any manifestation inconsistent with the agreement is made, or if terms are unreasonable (Restatement 69(2))
Step 4: Is There An Offer?
What is an Offer?
- “An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” (Restatement 24)
o Offer invites an offeree to accept by promise to perform what the offer requests or by rendering the performance, as offeree chooses. (Restatement 32)
- Things that may or may not count as offers:
o Preliminary negotiations don’t count as an offer (Restatement 26)
o Price Quotes do not constitute offer unless implication is that upon acceptance, a transaction will take place (Fairmount v. Woodenware)
o Vague terms must be reasonably certain (Restatement 33)
* Terms not void if specifics of performance left to the discretion of one party, dependent upon good faith requirements (UCC 2-311(1))
* Output contracts are undetermined but valid, provided good faith is exercised (UCC 2-306)
* Open terms may show no offer or acceptance (Restatement 33)
* Open terms may still have a contract if both parties intend to have a contract and there is a basis for giving remedy (UCC 2-204), (Restatement 33(2))
* Open Price?
o May still be a contract if: a) nothing is said to price or b) price is left to be agreed or c) price is fixed according to a varying external standard (UCC 2-305(1))
* Requires good faith (UCC 2-305(2))
o If unfixed price is due to unilateral mistake, non-mistaken party may fix or cancel the contract (UCC 2-305)
* If parties intend for contract to be void where price remains unfixed, and price remains unfixed, then there is no contract (UCC 2-305(4))
* Sufficiently uncertain terms will bar specific performance or injunction (Restatement 362)
* Gap Fillers help fill gaps for uncertain contract terms:
* Court can supply terms when needed with standard gap fillers (Restatement 204)
* Delivery is all in a single lot to be paid on delivery (UCC 2-307)
* Delivery location = to seller’s place of business or residence, the place known to take deliveries, or customary banking channels for documents of title (UCC 2-308)
* Delivery time = a reasonable time, unless terminated with seasonable notification, which is invalid if unconscionable cancelation (UCC 2-309)
* Payment time = a) at delivery, b) may withhold goods before payment c) payment may be due regardless of place of delivery (UCC 2-310)
* Warranty that the goods are the right kind, quality, etc. (UCC 2-314)
o Generally determined by industry standards and reasonable expectations (Koken v. Black & Veatch Construction, Inc.), (Lewis v. Mobil Oil Corp.)
o Express warranties (UCC 2-313)
o Clause denying warranty must be explicit and obvious (South Carolina Electric and Gas Co. v. Combustion Engineering, Inc.), (UCC 2-316)
o Advertisement generally not offer except if clear, definite (Lefkowitz v. Surplus Store), (Carlill v. Carbolic Smoke Ball Co.)
Step 5: What Kind Of Offer Is It?
Bilateral Offers
- Offer by party 1, accepted by party 2, confirmation of acceptance by party 2 to party 1 (Owen v. Tunison)
o Requires acceptance of some kind in a reasonable time (Ever-Tite Roofing Corp v. Green), manifested by an appropriate act (White v. Corlies and Tift)
* Assent to the bargain is invited and will conclude it (Restatement 24)
Unilateral Offers
- A unilateral offer is a promise that does not require a return promise, only performance as acceptance
Step 6: Is There Acceptance?
What is Acceptance?
- Manifestation of assent to the terms in a manner invited or required by the offer, whether by performance or promise, completely as required by the offer (Restatement 50)
o Acceptance must comply with requirements of the offer (Restatement 58)
o Must be accepted within the time unambiguously specified or a time that is reasonable given the circumstances (Ever-Tite Roofing Corporation v. Green), (UCC 2-206)
o Acceptance must be given as specified or in another reasonable manner given the circumstances (Restatement 30)
* If means in doubt, it is as the accepter chooses (Restatement 32)
* If prescribed, must be complied with; if merely suggested, another method is not precluded (Restatement 60)
* Partial performance constitutes acceptance of an offer, as long as that’s indicated by the offer as acceptable (Restatement 62)
* Such acceptance is a promise to render complete performance (Restatement 62(2))
* Acceptance by performance only if specified (Restatement 53)
- Acceptance with additional conditional qualifications is a counter-offer, not an acceptance (Restatement 59)
o Acceptance which merely requests a change or addition of terms is not invalidated unless acceptance is made conditional on new terms (Restatement 61)
Who can Accept an Offer
- To whom the offer is addressed as an individual or group, or openly depending on the offer (Restatement 29)
o May be accepted only by person who is invited to furnish consideration (Restatement 52)
Acceptance of a Bilateral Offer
- Acceptance must be manifested by an appropriate act (White v. Corlies & Tift)
o May not require redundant notification of acceptance if already accepted, it may be binding (International Filter v. Conroe), aka assent to a bargain that is invited will conclude it (Restatement 24)
o Acceptance by promise requires reasonable diligence to notify offeror of acceptance (Restatement 56)
Acceptance of a Unilateral Offer
- Acceptance by performance does not require notification of acceptance unless otherwise stated (Restatement 54)
o Duty to notify offeror if they can’t know of the acceptance/performance easily (Restatement 54)
o Part performance creates an option contract that may not be revoked by offeror (Restatement 45)
* UNLESS accepter exercises reasonable diligence to notify of acceptance, offeror learns of performance in a reasonable time, or offer indicates that notification isn’t required (Restatement 54)
o Part performance without knowing of offer may be accepted by complete performance (Restatement 51)
Step 7: New Or Different Terms Between Offer And Acceptance?
- The old rule of mismatched terms:
o Mirror image rule: “acceptance must be absolute, unconditional, and identical with the terms of the offer” (Maddox v. Northern Gas)
- Current rules:
o New/Additional Terms?
* May become part of the contract if: not objected to & are not materially different (Northrop Corp. v. Litronic Industries)
* Additional terms = proposals for addition to the contract, unless: (UCC 2-207(2)),
* A) offer expressly limits acceptance, b) material alteration, c) notification of objection to the original offer (UCC 2-207(2)), (Dorton v. Collins & Aikman Corp)
o But contract will become valid after failing to seasonably object to terms additional/different (Hill v. Gateway)
o Different terms may still be a valid contract if:
* May be a contract as long as both parties recognize its existence, despite different terms (UCC 2-207(3)), (Dorton v. Collins & Aikman Corp), (Northrop Corp. v. Litronic Industries)
* But acceptance and payment does not constitute acceptance of additional/different terms if not made clear that there are any different/new ones (Itoh & Jordan International)
o But contract will become valid after failing to seasonably object to terms additional/different (Hill v. Gateway)
* Proposed last shot rule: Some common law, would make it so whatever the last form said is the valid and enforceable one (Peck lecture)
o Counter Offers:
* Definition: Counter-offer is an offer made by offeree to offeror relating to the same matter as the original offer and proposing a substituted bargain different than the original (Restatement 39(1))
* This terminates power of acceptance, UNLESS: (Restatement 39(2))
o Offeror/offeree manifests intention for original offer to stand (Restatement 39(2))
o Acceptance with request to change/add terms only invalidates offer if acceptance of terms is made conditional (Restatement 61), (UCC 2-207(1))
Step 8: When Do Things Take Effect?
When Does Acceptance Take Effect
- Acceptance takes effect the moment it is mailed (Restatement 63)
o Must be properly mailed for acceptance to take effect at dispatch (Restatement 66)
* Although if improperly dispatched and arrives seasonably, will act as acceptance properly dispatched (Restatement 67)
o Option contract’s acceptance is operative only when received by offeror (Restatement 63)
- Acceptance by instant communication is instant (Restatement 64)
When Does Power of Acceptance End
- Offer cannot be accepted after power of acceptance is terminated (Restatement 35)
- Methods of terminating acceptance:
o Manifestation of intent to deny offer terminates power to accept (Restatement 53)
o Rejection or counter-offer by offeree; lapse of time; revocation by offeror; death or incapacity of offeror or offeree (Restatement 36)
* Rejection:
* Rejection by offeree terminates power of acceptance unless offeror has manifested contrary intent, or offeree manifests intent to “take it under further advisement” (Restatement 38)
* Rejection by mail/telegram terminates power of acceptance upon receipt (Restatement 40)
o “received” = when comes into possession of offeree or a person authorized to receive it, or when deposited in a place authorized for communications to be deposited (Restatement 68)
o May still accept if acceptance is sent and received before rejection is received by mail (Restatement 40)
* Counter Offers:
* Definition: Counter-offer is an offer made by offeree to offeror relating to the same matter as the original offer and proposing a substituted bargain different than the original (Restatement 39(1))
o This terminates power of acceptance, UNLESS: (Restatement 39(2))
* Offeror/offeree manifests intention for original offer to stand (Restatement 39(2))
* Acceptance with request to change/add terms only invalidates offer if acceptance of terms is made conditional (Restatement 61)
* Lapse of Time:
* Power of acceptance is terminated when specified in the offer, or if not specified, at the end of a reasonable time (Restatement 41(1))
o A reasonable time = a question of fact depending on all the circumstances (Restatement 41(2))
* Acceptance by mail is seasonably accepted if mailed before midnight upon the day of receipt of offer (Restatement 41(3))
* Death of Offeror or Offeree:
* Death or loss of capacity terminates power of acceptance (Restatement 48)
* Revocation:
* Takes affect when offeree receives a manifestation to revoke (Restatement 42)
o “received” = when comes into possession of offeree or a person authorized to receive it, or when deposited in a place authorized for communications to be deposited (Restatement 68)
o Indirect manifestations count (Dickinson v. Dodds), (Restatement 43)
* General public offers can be revoked by public advertisement comparable to how the offer was made, or whatever means is reasonably available (Restatement 46)
* Option contracts limit the power of a promisor to revoke an offer (Restatement 25)
o Offer becomes an option IF:
* In signed writing by offeror, consideration is made, proposes an exchange on fair terms (Restatement 87(1)(a))
* Offer is made irrevocable by statute (Restatement 87(1)(b))
o Power of acceptance under option contract may not be terminated by means other than if requirements are met for the discharge of the duty (Restatement 37)
o Option contract requires consideration, and an offer will not stay open on a promise alone (Dickinson v. Dodds)
* However, an option may be formed by a merchant if it is clearly stated in signed writing despite a lack of consideration, during the time stated or a reasonable time, but not for a period over 3 months (UCC 2-205)
* “Signed” means any symbol executed or adopted for the intent to accept a writing (UCC 1-201)
* “Writing” means any print, typewritten, or other intentional tangible form. (UCC 1-201)
o Non-occurrence of any condition of acceptance under terms of offer (Restatement 36)
Step 9: Is There Consideration?
What Is Consideration
- Necessary elements of consideration:
o A promise is not binding without consideration (Strong v. Sheffield)
o Consideration: performance or return promise must be bargained for (Restatement 71(1))
* Performance or return promise is bargained for if sought by promisor for in exchange for his promise (Restatement 71(2))
* Manifestations of assent for bargain must reference each other (Restatement 23)
* Performance = not promise, forbearance, modification of a legal relation (Restatement 71(3))
* Any performance bargained for = consideration (Restatement 72)
* A promise = consideration only if promised performance would be consideration (Restatement 75)
* Offer may create consideration even if promise doesn’t directly induce it (Restatement 81)
* Consideration doesn’t need to be of equivalent value, or to a party’s advantage, or be mutual (Restatement 79)
* Consideration exists when someone acts in reliance of a promise (Feinberg v. Pfeiffer Co.)
* HOWEVER, acts to obtain a gift does not constitute consideration (Kirksey v. Kirksey)
- Specific things that may or may not be consideration:
o Guarantee is consideration only if:
* a) Promise is in writing and signed and recites consideration, b) promise is binding under statute, c) promisor should reasonably expect substantial forbearance, and it does (Restatement 88)
o Refraining from exercising a legal right is consideration (Hammer v. Sidway), (Fiege v. Boehm)
* But not if that forbearance is invalid (Restatement 74), (Fiege v. Boehm)
* Performance of a legal duty owed to another party is not consideration (Restatement 73)
* Unless the claim is a known uncertainty, or the forbearing party believes it to be a valid claim (Restatement 74)
o Promise to perform voidable duty is sufficient consideration (Restatement 85)
* Debt promise = consideration despite bankruptcy (Restatement 83)
* Promise to pay old debt may be a) voluntary acknowledgment of debt, b) voluntary partial/complete payment, c) statement that statute of limitations will not be pleaded. (Restatement 82)
o Moral obligations
* May not be sufficient consideration without accompanying dependency/consideration (Mills v. Wyman)
* But it will be consideration if someone suffers injury for another’s benefit (Webb v. McGowin)
o Gifts are not consideration (Restatement 86), (Feinberg v. Pfeiffer Co.), (Kirksey v. Kirksey)
* Unless it is in recognition of a previously received benefit, as is necessary to avoid injustice, so long as it isn’t disproportionate/unjust (Restatement 86), (Feinberg v. Pfeiffer Co.)
* Acts to obtain a gift does not constitute consideration/reliance (Kirksey v. Kirksey)
o Continued Employment is generally not consideration for a change to an existing employment contract (Lake Land Employment Group of Akron, LLC v. Columber)
* But at-will employee may be (Lake Land Employment Group of Akron, LLC v. Columber)
o Continued Trade may be sufficient consideration as dependence on future trade (Eastern Air Lines, Inc. v. Gulf Oil Corporation)
* Output/Exclusive Dealings Contract is consideration, provided good faith (UCC 2-306)
o Deposits are generally consideration. (Mattei v. Hopper)
o Implicit consideration to perform a contract is still consideration (Wood v. Lucy, Lady Duff-Corp.)
o Conditional Promise not consideration if it is known that the condition cannot occur (Restatement 76(1))
* Illusory promise, or promise to do or not do a thing, is not consideration (Restatement 76(2)), (Restatement 77)
* Unless: both alternative promises would be consideration, or promise eliminates other possibilities as consideration (Restatement 77)
Not Consideration; Reliance?
- Reliance = Promise inducing action or forbearance not directly bargained for but is a reasonable expectation of the promise (Restatement 90), (D&G Stout, Inc. v. Bacardi Imports, Inc.)
o Quitting a person’s job in expectation of income = reliance, despite not being bargained for (Ricketts v. Scothorn)
o Retirement isn’t consideration being for past actions, but may be reliance for retiring (Feinberg v. Pfeiffer Co.)
o Losses incurred from failing to sell a business and the difference in business’s market value (D&G Stout, Inc. v. Bacardi Imports, Inc.)
Step 10: Stuff That May Void A Contract
- Voidable or unenforceable contract may still be consideration (Restatement 78()
Step 11: A Mistake?
Bilateral Mistakes
- What are they?
o Both sides make a mistake at the time of a contract as to a basic assumption, as to a material fact, on the agreement (Restatement 152)
* Basic assumption = condition presumed to be true upon which the contract was made (Restatement 152, Comment b)
* Material Fact = One which, if mistaken, would create an undue hardship on one party or the other (Restatement 152, Comment c)
- Effect of a bilateral mistake?
o Mutual mistake means no manifestation of assent, and therefore no contract (Restatement 20)
o Voidable by the adverse party (Restatement 152) or one who assumes the risk in the contract (Stees v. Leonard)
* If contract is rescinded, parties will be refunded any benefit bestowed upon the other, but not necessarily expenses incurred (Renner v. Kehl)
o May be reformed by a court (Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co.) (Restatement 155)
Unilateral Mistakes
- When can a party escape after a unilateral mistake?
o If the mistake is to a basic assumption, and the a) enforcement would be unconscionable, or b) other party has reason to know of the mistake, or c) his fault caused the mistake (Restatement 153)
o If Party 1 knows or has reason to know of a mistake by the Party 2 at the time of acceptance (Elsinore Union Elementary School District v. Kastoff)
- When can a party NOT escape after a unilateral mistake?
o If the risk is allocated to that party, limited knowledge is acknowledged as to the conditions, risk is reasonable under the circumstances (Restatement 154)
o If unfixed price is due to one party’s mistake, non-mistaken party may fix or cancel the contract at their discretion (UCC 2-305(3))
Vague Terms
- Refer to “Offers” section for vague terms. They may prevent establishment of a contract.
Step 12: Verbal Contracts?
Generally
- Verbal contracts may be recognized as legit
o Refer to “What is a Contract” section for Restatement/UCC stuff that supports this
o Exception to when verbal contracts are recognized:
* a) executor of estate, b) surityship, c) marriage, d) sale of land, e) contract not performed within one year (Restatement 110)
- What must the written contract contain to be recognized?
o Identify subject matter, indicates that a contract has been made, states with reasonable certainty the essential terms of the contract, and is signed (Restatement 131)
* May be based on several writings if talking about the same transaction (Restatement 132)
* Writing: (UCC 1-201(43))
o Must be signed (Restatement 131), (Restatement 134)
* Signature: (UCC 1-201(37))
- Exception
o If there is reliance, a court may enforce it anyway (Restatement 139)
When the UCC applies
- Applies – must be written out – to sales of goods for $500 or more (UCC 2-201)
o Still valid if between merchants with a forthcoming contract (UCC 2-201(2))
o Still valid if a) goods are specially made, b) parties admit to contract, c) payment has been made and accepted (UCC 2-201)
Statute of Frauds
- Definition/Statute of Frauds in General:
o Agreement must be in writing to be enforceable if within the Statute of Frauds (Restatement 110)
- Surityships, i.e. promise to assume debts
o Must be explicit in writing (Langman v. Alumni Association of the University of Virginia), (Restatement 110(1)(b)), (Restatement 112)
- Death of promisor
o Oral agreement does not survive without having been written out, generally (Monarco v. Lo Greco)
* But if there is reliance such that fraud or injury results from deying contract, agreement may be recognized (Monarco v. Lo Greco)
- Land Contracts
o Within statute of frauds, i.e. requires written contract (Restatement 125), (Restatement 110), (Restatement 126), (Restatement 127)
* Exception if it would be unjust otherwise, and needs specific performance (Restatement 129)
- One Year Limit
o Agreement cannot be performed within one year from its making. (C.R. Klewin, Inc. v. Flagship Properties, Inc.), (Restatement 110), (Restatement 130)
* Contracts of indefinite duration may be enforceable if it is possible, however implausible, that the contract could be completed within a year of its making (C.R. Klewin, Inc. v. Flagship Properties, Inc.)
o After a party has completed his performance, one year provision doesn’t prevent enforcement (Restatement 130)
- Marriage
o Within the statute of frauds (Restatement 110), (Restatement 133)
Parole Evidence Rule
- Oral agreements made prior to written one are generally considered integrated into the written contract (Gianni v. R. Russell & Co.), (Restatement 209)
o Prior statements are excluded in an integrated agreement (Restatement 213)
* BUT may be considered if contradicting terms (Restatement 215), (UCC 2-202)
o Oral agreements may be excluded for lack of evidence (Masterson v. Sine)
* Court may reform written contracts to include oral stuff inadvertently excluded (Bollinger v. Central Pennsylvania Quarry Stripping and Construction Co.), (Restatement 155)
o Partially integrated agreements will allow prior communications to be integrated (Restatement 210)
Step 13: Parties Capable Of Making A Contract?
- Must be capable of making a contract in order to be bound by one (Restatement 12)
o Lacks capacity if a) under guardianship b) infant c) mentally defective d) intoxicated (Restatement 12(2))
- Minors
o Cannot sign contracts (Kiefer v. Fred Howe Motors, Inc.), (Restatement 14), (Restatement 12)
- Mental Incapacity
o Cannot agree if incompetent (Ortelere v. Teachers’ Retirement Bd.), (Restatement 12), (Restate. 15)
* Incompetence may be shown by agreeing to grossly unequal terms (Cundick v. Broadbent)
* Don’t have to be completely equal, though (Restatement 79)
* May still have relief for promisor if it wasn’t known that promisee was mentally incompetent (Restatement 15)
- Intoxicated
o If a party has reason to know that the other REALLY intoxicated, it’s voidable (Restatement 16)
Step 14: Duress?
- Contract enforceable if:
o Change of terms where there exists immediate need?
* Still may be enforceable (Alaska Packers’ Ass’n v. Domenico), (Watkins & Songs v. Carrig)
- Contract not enforceable if:
o Made under threat of physical harm (Restatement 174)
o Made when there is no alterative (Restatement 175)
o Made under criminal/tortable threat (Restatement 176)
o Offeror is in a position of power over offeree such that one cannot refuse (Restatement 177), (Odorizzi v. Bloomfield School District)
o Economic threat (Austin Instrument, Inc. v. Loral Corporation)
Step 15: Misrepresentation?
- All contracts require good faith (UCC 1-304), (Restatement 205)
- Definition of misrepresentation:
o Misrepresentation is an assertion not in accord with the facts (Restatement 159)
* Actions intended to prevent another from learning a fact is equivalent to a misrepresentation (Restatement 160)
o Misrepresentations prevent the formation of a contract when it is a material fact (Restatement 163)
* ‘Cause that’s fraudulent (Restatement 162)
* May reform when there is fraud or reliance on the misrepresentation (Restatement 166)
* Requires it be a material fact, is a fact relied upon for making the contract (Restatement 164)
- Concealment doesn’t qualify as a false statement or misrepresentation (Swinton v. Witinsville Sav. Bank)
o BUT there is a duty to reveal all material facts (Kannavos v. Annino)
* Material facts are generally of fact rather than opinion, but there may be equitable remedies for misrepresentations of opinions (Vokes v. Arthur Murray, Inc.), (Restatement 169)
* Material facts are necessary to avoid fraud (Restatement 161)
* Flattery and false praise don’t constitute misrepresentation (Vokes v. Arthur Murray, Inc.)
o Making profits without expense isn’t fraud (Black Industries Inc. v. Bush)
Step 16: Changing An Existing Contract?
- It’s okay if both sides agree (Restatement 89)
o Must be signed and in writing to reform for sale of goods (UCC 2-209)
o Performance of accord discharges responsibility of the first contract (Restatement 281(1))
o Doesn’t need consideration (UCC 2-209)
o Can reform it when mutual mistake (Bollinger v. Central Pennsylvania Quarry Stripping and Constrution Co.)
* May reform when there is fraud or reliance on the misrepresentation (Restatement 166)
- Can use Parole Evidence to reform a contract when in dispute (refer to that section under “Verbal Contracts”
Step 17: Unfairness?
Unfairness in General
- Oppressive or unfair contracts will not be enforced (McKinnon v. Benedict)
o Unfairness is viewed from the perspective of when the contract was made (Tuckwiller v. Tuckwiller)
- Unfair terms?
o To assure fairness, when in doubt, terms are interpreted against the maker of the terms (Restatement 206)
o Unconscionable terms won’t be recognized (Restatement 208) (UCC 2-302)
* What is unconscionable?
* Fraud which may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under delusion would make (Jones v. Star Credit Corp.)
* May favor the a public policy interest (Restatement 207)
* May reform when there is fraud or reliance on the misrepresentation (Restatement 166)
Adhesion Contracts
- Definition:
o Contracts that are drafted and imposed by a party of superior bargaining strength, relegates the subscribing party to either accept or reject, not negotiate (Graham v. Scissor-Tail Inc.)
- May be invalid if:
o If public policy or social relationship between parties dictate it, court may deny enforcement (O’Callaghan v. Waller & Beckwith Realty Co.)
o Unreasonable, oppressive or unconscionable (Graham v. Scissor-Tail Inc.), (UCC 2-302), (Williams v. Walker-Thomas Furniture Co.), (Jones v. Star Credit Corp.) (Restatement 208)
* What is unconscionable?
* Fraud which may be apparent from the intrinsic nature and subject of the bargain itself; such as no man in his senses and not under delusion would make (Jones v. Star Credit Corp.)
* May favor the a public policy interest (Restatement 207)
* May reform when there is fraud or reliance on the misrepresentation (Restatement 166)
Step 18: Good Faith Action?
- Good faith is required in all dealings (Restatement 205), (UCC 1-304)
o Failure to exercise is a breach of contractual duty (Dalton v. Education Testing Service)
o Court won’t enforce futile/impossible acts (Luttinger v. Rosen)
Step 19: Public Policy?
- Court won’t recognize contracts dealing with illegal stuff
o Even if it doesn’t directly deal with illegal stuff (Bovard v. American Horse Enterprises, Inc.)
o Will not issue specific performance if contrary to public policy (Restatement 365)
- Court considers the following in evaluating policy considerations for a contract:
o A) parties’ justified expectations, b) forfeiture if enforcement denied, c) special public interests in the enforcement of the contract (Restatement 178)
o Also, a) strength of a policy manifested by legislation or judicial decisions, b) likelihood that refusal to enforce will further that policy, c) seriousness of misconduct associated, d) directness between term and misconduct (Restatement 178)
o Won’t enforce if bad for family (Restatement 190) or custody (Restatement 191)
- Basis for public policy considerations?
o Relevant legislation, need to protect public welfare (Restatement 179)
Step 20: Conditions Of A Contract?
- What is a condition?
o An event not certain to occur that must occur for performance to become due (Restatement 224)
* If it doesn’t happen, makes performance impractical (Restatement 263)
* Prevented by government regulation or order then also basic assumption (Restatement 264)
o Conditions are created by agreement or as supplied by the court (Restatement 226)
o Condition may be performance of the other party (Kingston v. Preston)
* Generally, a condition of payment is performance (Stewart v. Newbury)
* Which must be substantial (Plante v. Jacobs)
- When they don’t occur, it’s a lot like a mistake, so refer up to that section…
o When there is a difference in cost so great and it has the effect of making performance impractical, the performance is not enforced because it would be unconscionable (Mineral Park Land Co. v. Howard)
* Not liable for breach if impractical (Canadian Industrial Alcohol Co. v. Dunbar Molasses Co.), (Restatement 261)
Doctrine of Frustration
- What is it?
o Something that prevents performance, like revocation of third party offer (Chase Precast Corp. v. John J. Paonessa Co.)
o Also may be pre-existing frustration that is unknown and without fault of a party (Restatement 266)
- Effect?
o May excuse breach (Chase Precast Corp. v. John J. Paonessa Co.), (Restatement 265), (UCC 2-615)
Step 21: Remedies
Step 22: What Kind Of Remedies May A Party Be Entitled To?
- The court can do many things
o Money, specific performance, declare rights, enforce arbitration, damages, replevin (Restatement 345)
- What is an adequate remedy?
o Depends on a) difficulty of proving damages, b) difficulty of procuring a substitute performance by means of money awarded as damages, c) likelihood that an award of damages couldn’t be collected (Restatement 360)
Specific Relief
- May have specific performance when other legal remedies are inadequate. (Campbell Soup Co. v. Wentz) (Restatement 359(1))
o Is a matter of the court’s discretion (Restatement 357)
o May have part specific performance, part damages (Restatement 359)
o Not if goods are fungible or not unique (Campbell Soup Co. v. Wentz), (Klein v. PepsiCo, Inc.), (UCC 2-716(1))
o Sentimental value may make them unique, but not change the value, so specific performance is appropriate (Morris v. Sparrow)
- Court WILL NOT require specific performance:
o To enforce long-term or complex contract (Laclede Gas Co. v. Amoco Oil Co.), (Restatement 366)
o To enforce imprecise or impractical contracts (Northern Delaware Industrial Dev. Corp v. EW Bliss Co.)
o To enforce employment or service contracts (Restatement 367)
o If contrary to public policy (Restatement 365)
- Injunctions
o Only if damages are inadequate (Walgreen Co. v. Sara Creek Property Co.)
* Measures costs of injunction versus efficiency of damages (Walgreen v. Sara)
Breach for Sales of Goods (When UCC Applies)
- If either breaches
o Condition of the goods are the responsibility of the possessor (UCC 2-711)
* Damages for breach may be liquidated but only as is reasonable (UCC 2-718)
o Remedies by UCC must be liberally administered to…expectation interest (UCC 1-305)
- If the Buyer breaches
o Seller may withhold delivery, stop delivery, resell goods, cancel contract (UCC 2-703)
o Sellers can get:
* Incidental damages (UCC 2-709)
* Price of goods accepted (UCC 2-709(1)(a))
* Minus resale proceeds from goods reclaimed (UCC 2-709(2))
* Sale must be in good faith, buyer must be notified, so on (UCC 2-706)
* Damages for non-acceptance of goods despite resale (UCC 2-709(3))
* Measured by market price when denied and unpaid contract price, less expenses saved because of breach (UCC 2-708(1))
o If that is inadequate, may be expectation measure of damages (UCC 2-708(2))
- If the Seller breaches
o Buyer may recover damages for non-delivery, recover goods, specific performance, etc. (UCC 2-711)
* Can rightfully refuse acceptance if the goods suck (UCC 2-711)
o Buyer may have specific performance or reposes goods rightfully belonging to them (UCC 2-716)
o Buyer can purchase from substitute seller and recover difference, provided good faith (UCC 2-712)
* Damages measured by market price value at time of breach and contract price and incidental damages and consequential damages minus money saved by breach (UCC 2-713)
o Buyers can get:
* Specific performance for unique goods (UCC 2-716(1))
* Includes terms and conditions as to price, damages, other relief as the court deems just (UCC 2-716(2))
* Replevin for goods identified to the contract (UCC 2-716(3))
* Incidental/consequential damages from breach (UCC 2-715)
Step 23: How To Determine Money Damage Amounts?
Liquidated Damages
- What are they?
o Contractually agreed upon damage amounts for breach of a contract
- Limitations on them
o Must be reasonable in light of loss caused by breach (Restatement 356), (UCC 2-718)
o NOT punitive, and may be reduced/eliminated by court (Wasserman’s Inc. v. Township of Middleton)
What is or is not included in Damages
- Damages must be reasonably foreseeable (Restatement 351), (Hadley v. Baxendale), (Delchi Carrier Spa v. Rotorex Corp.)
o Must also be reasonably calculable, or certain (Fera v. Village Plaza, Inc.), (Restatement 352)
- Is included:
o If contract is breached, a party is entitled at least nominal damages (Restatement 346)
o Loss of income (US Naval v. Charter)
o Damages of inconvenience (White v. Benkowski)
o Loss in value (Restatement 348)
o Sellers can get:
* Incidental damages (UCC 2-709)
* Price of goods accepted (UCC 2-709(1)(a)), (US v. Algernon Blair, Inc.)
* Minus resale proceeds from goods reclaimed (UCC 2-709(2))
* Damages for non-acceptance of goods despite resale (UCC 2-709(3)), (R.E. Davis Chemical Corp. v. Diasonics, Inc.)
o Buyers can get:
* Specific performance for unique goods (UCC 2-716(1))
* Includes terms and conditions as to price, damages, other relief as the court deems just (UCC 2-716(2))
* Replevin for goods identified to the contract (UCC 2-716(3))
* Incidental/consequential damages from breach (UCC 2-715)
- Is NOT included:
o Profits that were gained from the breach (US Naval v. Charter)
* But takes good/bad faith into consideration (Tongish v. Thomas)
o Punitive Damages (White v. Benkowski), (Restatement 355)
o Emotional disturbance, unless extreme or with bodily harm (Restatement 353)
o Easily avoidable damages (Rockingham County v. Luten Bridge Co.), (Restatement 350)
* Like goods of equal value (Jacob & Youngs v. Kent)
* But not if goods are substantially different (Parker v. Twentieth Century Fox)\
o Damages calculated by either lost of performance or value (Peevyhouse v. Garland Coal and Mining Co.)
* Court has an interest in reducing economic waste (Groves v. John Wunder Co.)
* NOT pure loss of anticipated increase in value (Kenford Co. v. County of Erie)
How to Calculate Damages
- Three kinds of remedies exist for contracts
o Expectation Interest
* As if the contract had been performed (Restatement 344)
* May exist when subcontractor begins performance for contractor for justifiable termination of performance for non-payment (US v. Algernon Blair, Inc.)
* May include:
* Damages from: a) Failure to perform, b) incidental or consequential loss, c) minus costs avoided for breach (Restatement 347), (Laredo Hides Co. v H&H Meat Products Co.)
o Damages determined by the market price at the time of breach (Laredo Hides Co., Inc. v. H & H Meat Products Co., Inc.)
* Sellers entitled to losses incurred and gains prevented (Vitex Manufacturing Corp. v. Caribtex Corp.)
o Reliance Interest
* What is it?
* As if the contract had never been made (Restatement 344)
* When Does it apply?
* Only when a party has conferred a benefit by way of part performance or reliance (Restatement 371)
* How much/how to calculate?
* Applies in medical procedures as value difference between promised condition and condition before the operation (Sullivan v. O’Connor)
* Expenditures made to prepare for performance, less any loss that would have suffered had the contract been performed (Restatement 349)
o Restitution Interest
* Restores benefits conferred onto the other party (Restatement 344)
* Unjust enrichment must be returned (Callano v. Oakwood Park Homes Corp.),
o But the one unjustly enriched must be the one to pay restitution interest (Callano v. Oakwood Park Homes Corp.), (Restatement 373(1))
o Injured party has no right to restitution if the contract has been completed minus payment for contract (Restatement 373(2))
* Rescission after mutual mistake (Renner v. Kehl)
* Even party in breach may have restitution based on justifiable breach (Restatement 374)
* Is measured by:
* Reasonable value of what was received by other party in terms of cost to obtain from another (Restatement 371(a)), OR
* Extent to which property was increased in value (Restatement 371(b)), (Renner v. Kehl)
* Specific contexts of restitution:
* Failed medical procedure: May have restitution interest even without benefit being bestowed (Cotnam v. Wisdom)
* Marriage context: Generally doesn’t apply unless extraordinary or unilateral (Pyeatte v. Pyeatte)
Step 24: No Contract But Still Liable For Promises Broken?
When Is A Party Liable?
- Promisor should reasonably expect to induce action or forbearance, and such action/forbearance occurs, and it would be unjust to avoid responsibility of promisor. (Restatement 90(1)), (Drennan v. Star Paving Co.), (Restatement 87(2))
o Requires a) clear and unambiguous promise, b) reasonable and foreseeable reliance, c) injury sustained (Cyberchron Corp. v. Calldata Systems Development, Inc.)
o Reliance if a) both parties manifested intent to be bound, b) terms were sufficiently definite, c) consideration exists. (Channel Home Centers v. Grossman)
- Specific instances of pre-contractual liability:
o Applies to marriage settlements and charitable subscriptions (Restatement 90(2))
o Does not apply to subcontractors for reliance on a contract that doesn’t materialize (Holman Erection Co. v. Madsen & Sons)
o May be liable for negotiations failure, if there is reliance on an offer that didn’t constitute a promise, provided that there are actual damages (Hoffman v. Red Owl Stores)
o May be liable for breach of an option contract, or when performance has already begun (Restatement 45)
* Option contracts limit the power of a promisor to revoke an offer (Restatement 25)
* Offer becomes an option IF:
o In signed writing by offeror, consideration is made, proposes an exchange on fair terms (Restatement 87(1)(a))
o Offer is made irrevocable by statute (Restatement 87(1)(b))
What Sort Of Remedies are Available?
- Remedy as justice requires (Restatement 90(1))
o NOT:
* Projected profits, possible income that didn’t come to fruition (Hoffman v. Red Owl Stores)
o YES:
* Reliance damages, aka benefits bestowed (Cyberchron Corp. v. Calldata Systems Development, Inc.)
Auctions?
- What does an auction consist of?
o Auctioneer invites offers from bidders (Restatement 28)
* Goods may be withdrawn when placed without reserve (Restatement 28)
* Sale is with reserve unless stated otherwise (UCC 2-328)
* Bidder may withdraw offer until completion announced (Restatement 28)
* Sale complete when announced by auctioneer (UCC 2-328)
* Bid at time of completion MAY be ignored by auctioneer (UCC 2-328)
Merchants/Sales of Goods?
- Merchant is a person who deals in goods, purports to have specialized knowledge for/with the goods (UCC 2-104)
o Transaction between merchants is if both parties are supposed to have such knowledge of the goods in question (UCC 2-104)
- Financing Agency is a bank, etc. who makes advances against goods or documents of title, intervenes in ordinary course to collect payment due, and so on (UCC 2-104)
Third-Party Stuff?
- Third party beneficiary can sue (Seaver v. Ransom), (Restatement 304)
o Must be a party or direct beneficiary to be able to sue (Verni v. Cleveland Chiropractic College)
o They can sue for specific performance (Restatement 307)
- Party can delegate responsibilities (Restatement 318), (UCC 2-210)
o May not discharge all responsibilities, however (Restatement 318)
- Court can force arbitration where parties have agreed to do it (Bel-Ray Company v. Chemrite (Pty) Ltd.)
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