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Contents

INTRODUCTION

Enforceability of Contracts

  • Which Types of Contract Should be enforced?
    • Gifts? Business?
    • Result of non-enforcement:
      • Increase violence
      • Only have simultaneous transactions (decrease Society wealth)
  • Common Law : There must be consideration (The primary distinguishing Factor)
  • Current : Not all enforceable contracts have consideration (Still primary factor)

CONSIDERATION

  • Defined : Something of Value Bargained for.
  • Each side bargains for a positive good
  • Promisee may suffer a legal detriment (i.e. give up a legal right)
    • Does not need to be a monetary benefit to promisor
    • (i.e. nephew agrees to not smoke, drink, etc., until 21 years old, The nephew so abstains. Uncle bargained for such performance.)
  • Not Consideration:
    • Donative Promises
      • There is nothing Bargained for
        • Altruistic pleasure is not sufficient consideration
      • Conditional Promises
        • "Is the performance (condition) what I am bargaining for?"
        • The motive for making the promise is not fulfillment of the condition.
      • NOTE : A promise to give a gift is not an enforceable contract, however, a gift already given can not be taken away.
    • Nominal Consideration
      • Consideration "In name only" = a sham
      • Not the price of the promise (it is not what was bargained for)
      • Consideration normally not concerned with adequacy of bargain, but if it is clearly a sham, there is no consideration.
        • (i.e. "I will give you my house for $1")

Value of Consideration Requirement

  • Evidentiary : Evidence of a promise made
    • (why not writing?)
  • Cautionary : Gifts often based on emotion of the moment (rashness)
    • (Why not writing? Seal? -- Still most convincing argument)
  • Channeling : Mark certain promises as enforceable
    • (Most people think a written contract marks the bargain as enforceable)
  • More Injury : Greater injury in a bargain than in a promise
  • Economic Exchange : Increase social utility (wealth)

Reliance / Estoppel

  • (exception to the Consideration )
  • Restatement § 90(1) (Promissory Esopptel)
    • A promise that should
    • Reasonably expect to induce action or forbearance on the part of promisee or a third party
    • Does induce action or forbearance
    • Injustice can be avoided by enforcing the promise
    • (NOTE: Remedy may be limited as Justice requires)
  • Evolution of Promissory Estoppel
    • Rule: Reliance is not a consideration
    • Rule: Detriment or Benefit to Promisee
    • Estoppel in Pais
      • Common Law tries to fit Rulings into Current Doctrine
      • Reliance does not fit in with Consideration
        • use Estoppel in Pais (Stop a Fact) to include Promissory
    • Rule: Promissory estoppel applies when a promise is made and the promissee relied on the promise and took action, based on the promise, which reliance and action were reasonably foreseeable by promisor
  • Reliance
    • No Inducement -- No Reliance
      • If a promise did not induce action or forbearance, there was no reliance
    • Induce By Conduct (Not Words = Technically not correct)
      • City of L.A. begins condemnation proceedings, PL. purchases other
      • L.A. is Estopped from abandoning condemnation
    • Induce By Mistake
      • Insurance Co. mistakenly tell PL. wrong date of expiration
      • PL. does not buy any other insurance (Forbearance is reliance)
      • Non-action is the same as induced Forbearance
  • Damages
    • General Rule : Reliance -- usually you get your out of pocket expenses
      • BUT : "What Justice Requires . . ." may include other damages.
    • 3 Types of Interest:
      1. Expectation : Where you would have been if promise performed
        • Some courts may award the Expectation Measure
          • Includes Opportunity Costs
          • Reasoning : Promissory Estoppel is an Equitable Matter
          • Remember -- "As Justice Requires . . ."
          • i.e. Franchise Service Station awarded lost oppt. of profits
      2. Reliance : Bring back to 0. As if No Promise Made.
      3. Restitution : Based unjust enrichment. (Pay for benefit conferred)
        • Out of Pocket Costs: Net cost incurred in reliance less the value produced that may be realized after breach.
    • NOTE : Although courts prefer the reliance measure, there is no fixed measurement of damages to apply to every case, rather damages should be tailored to fit the facts, and should only be what justice requires.

ELEMENT OF A BARGAIN

Introduction

  • Nature of Consideration:
    • A right, interest, profit, or benefit accruing to the promisor, or a forbearance, detriment, loss, or responsibility given suffered or undertaken by the promisee.
    • Legal Detriment : Does not have to be detrimental in the ordinary sense -- as long as promisee obliges to give up a legal right.
      • i.e. Nephew agrees to not smoke, drink, or gamble until 21 years
        • D. claims the Nephews forbearance was not detrimental
        • Holding : So long as he gave up a legal right = consideration
      • Certain promises may be required to be in writing depending on the Statute of Frauds (Append. B in the text)
  • Adequacy of consideration:
  • Any performance that is bargained for is consideration regardless of whether the values exchanged are deemed equivalent.
  • However, a Gross inadequacy may be evidence of fraud, mistake, duress, or undue influence.
  • Examples:
    • Bad Bargain -- Bank purchases a lease allowing termination with 90 day notice by the opposing party, while the bank is obliged for 1 year.
      • Contract of any consideration is enforceable
      • Bad or uneven bargains seldom are grounds for relief from a contract
      • Policy -- characteristic of free market
    • Inadequate Consideration -- During war D. received $25 in foreign currency with a promise to return $2000 after relief from war stress
      • Inequality of value is not important
      • $25 is exactly what the D. contracted for (was not gift)
      • Duress - general economic conditions are not duress
  • RESTATEMENTS
    • § 71 Requirement of exchange
      • Consideration = performance or return promise is bargained for
      • Is bargained for if the promisor seeks the promisee's performance or returned promise in exchange for his performance or promise and visa-versa.
    • § 72 Exchange of Promise for Performance
      • Except as stated in §§ 73 (Legal Duty) and 74 (Settlement of Claims), any performance which is bargained for is consideration
    • § 79 Adequacy of Consideration; Mutuality of Obligation
      • If the requirement of consideration is met, there is no additional requirement of:
        • gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
        • equivalence in the values exchanges; or
        • mutuality of obligation

Limitations on the Bargain Principle

  • Unconscionability
    • Not restrained by conscience
    • Court may avoid unconscionable result by enforcing only non-offending terms or by limiting the application of unconscionable terms
    • UCC §2-302(1)
      • if court finds unconscionable contract or clause, court may:
        • refuse to enforce K
        • enforce remainder of K w/out the unconscionable term, or
        • limit the application of unconscionable term to avoid unconscionable result.
    • Give the court flexibility on how to deal with unconsc.
    • Comment : "unconscionable under the circumstances existing at the time of the making of the contract.
    • Restatement § 208
      • same as UCC § 2-302
      • Unconscionable = gross inequality in bargaining power + terms unreasonably favorable to 1 side
    • Two types :
      • Procedural : deals with the bargaining process
        • Minds never met in the bargain
        • Courts are more willing to step
      • Substantive : resulting Contract
        • The deal was not fair
        • Courts are less willing to protect people from Voluntary bargains -- Free Market.
    • Consumer protection -- Common use of unconscionablilty
      • Terms of Contract : At rent to own store, fault of payment results in the loss of all goods rented, not just the good at fault, to a buyer who is on welfare.
        • Held : Term is unconscionable
        • Possible inequality in bargaining power -- economic status
        • Opposition says : ruling may stop flow of goods to poor
      • Price of Contract : Purchase a Fridge, from door-to-door sales, at 2.5 X the market price for a comparable model.
        • Held : Price is unconscionable
        • Unusual because most courts are reluctant to interfere with substantive unconsc.
        • FTC Rules : Require cooling off period (Door-to-Door sales)
          • 3 days to return if good is worth more than $25
    • Duress (Restatement §§ 175, 176)
      • An improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.
      • A threat is improper if :
        • Threat is a crime or tort or
        • Exchange is not on fair terms and One of following :
          • the act would harm recipient or not significantly benefit the party making the threat, or
          • the threatened act is a use of power for illegitimate ends.
      • Duress based on economic conditions is not a defense
  • Settlement of Claims
    • Restatement § 74 Settlement of Claims
      • Forbearance to assert a claim or defense is valid if :
        • Claim is valid
        • Claim is doubtful because of uncertainty of facts or law, or
          • Objective uncertainty
        • Surrendering party believes the claim to be fairly valid
          • Subjective Uncertainty
      • Execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the instrument is bargained for.
    • Applications (Cases):
      • Valid but worthless claim :
        • Widow took husband's worthless note in agreement to give a new note. HELD: Note was worthless.
        • Although the claim was valid, it was worthless.
        • The claim should have been valid consideration as a Settlement of Claim.
        • Possibly not enforced based on unconsc. or duress
        • Element of protectionism -- (using consideration)
      • Patently Invalid Claim  : Two children left a piece of land, disputes among other children. Two agree to relinquish rights if the others don't complain.
        • Claim was invalid, others had not claim to land
        • NOTE : a written quitclaim, even if the party did not believe to have any part of the deed, is valid consideration (Objective but not subjective)
      • Belief of Claim :
        • Injured worker agreed not to sue (not knowing that exclusive remedy is workman's compensation). The forbearance to sue was in good faith. Promise a lifetime employment.
        • Held : Rstmnt says if forbearance is in good faith, the validity of the claim is not important
        • Some jurisdiction require valid claim (minority)
  • Marriage Contract
    • Decides the conduct of parties during term of marriage
    • Typically courts don not enforce such agreements (Public Policy)
    • Opinions:
      • In Favor :
        • establish expectations
        • end disputes
        • Freedom of Contract
      • Opposed:
        • Too blunt an instrument to govern marriage
        • Marriage is voluntary based on cooperation
        • better chance of resolving disputes outside of court
  • Mutuality
    • Introduction
      • Classic contract of a promise for a promise (Bilateral Contract)
      • Mutuality of Obligation : Unless both parties are bound, neither is
        • Doctrine of consideration becomes circular:
          • P1 is enforceable only if P2 is enforceable, and
          • P2 is enforceable only if P1 is enforceable
        • Promise must limit promisor's future possibilities
        • Promise must be supported by consideration:
          • If the performance would not be consideration, then the promise to perform will not be consideration
        • Both parties must be bound
        • Affirmative Defense is unrelated of doctrine of consideration (Mutuality) i.e. Minor, Fraud, etc.
    • Illusory Promise
        • Not valid consideration
      • Has the form of a promise, but not the substance of a promise
        • The promissor is not bound
        • Future options are not limited
      • Depend on the "Will" or "Wish" of one party
        • "I'll but as much as I want . . ."
        • "I can terminate whenever I want . . ."
          • (Unrestricted Termination Clause)
      • Any Restriction will make promise binding:
        • "Terminate with 10 day notice . . ."
      • Opposition to the Rule :
        • Maybe bargaining for a chance
    • Conditional Promises
      • Promisor must limit future options in some way
      • Promisor can be in control of the condition
      • If condition occurs, promisor must perform (Future Limited)
      • Valid, even if there is little chance condition will occur
      • Application:
        • Promise to deliver, if purchase a certain boat. Once he purchases the boat, must deliver. Promisor is not required to purchase the boat, but once he did purchase the boat (the condition is fulfilled) he must deliver.
    • Requirements / Output contracts
      • Examples
        • X promises to purchase all that he requires from Z at $ or
        • X promises to sell all of his out put to Z at $ price
      • Promisor must have limited their future options
      • UCC § 2-306 (1) : Requirement contract means as much as is needed in Good Faith
      • Application:
        • Promise to purchase all the coal that he wants at a certain price.
          • They have not limited their contract is void in that it is conditioned entirely on the will, wish, or want, of the buyer.
          • They have options in any way.
    • Implied Promise
      • Surrounding facts and nature of the agreement fairly imply a promise of performance (Even though no explicit promise)
      • Exclusive sale contracts (UCC § 2-306(2))
        • Manufacturer impliedly agrees to use best efforts to supply
        • Distributor impliedly agrees to use best efforts to promote their sale.
        • (UCC § 1-203 requires Good Faith in the performance of all contracts under the UCC)
      • Application :
        • gives exclusive contract to use name to endorse product. D.?then gives use to another. Although PL. never promised to promote goods, but it was implied.
          • Any return to PL. had to come from sale of the good
    • Termination Clause
      • If one party may terminate at any time, without notice, there is no consideration -- the promise is illusory
      • Any restriction on the termination clause will be binding
        • It is not necessary that promises be co-extensive to be binding. (Any restricted termination clause is binding)
        • Example:
          • One party is bound for 3 years, and the other party may terminate with a 10 day notice = binding
          • A gas supplier is hooked solely to Amoco, they are required to give a 30 day notice, Amoco is required to supply for 1 year. Contract is binding
            • Also may use implied requirement (they received all their gas from sole hook up)
    • At-Will Employment
      • Employee quits a job upon agreement of another employment, during a period also give up other opportunities. Company decides not to hire.
        • Employer claims that they could have fired employee at any time, or he could have quit at any time. Therefore there was no binding contract. (Unrestricted termination)
        • However, there was an implied good faith opportunity to work.
        • Promissory estoppel also applies to enforce. Thus reliance measure of damages are awarded (Out-of-pocket)
  • Legal Duty Rule
    • Introduction
      • Performance or the promise to perform an act which the promisor is already obligated to do is not consideration.
        • Works well in cases of bribery and extortion
        • Legal Realist Philosophy
        • If everybody thinks that such a promise is binding, then it makes no sense to surprise everybody each time they go to court.
        • The law should better mirror practical belief
      • Exceptions :
        • Modification of Obligation
        • Accord and Satisfaction
        • Waiver
        • Duty owed to a third party
    • Two types of Application
      • Public / Legal Duty
        • Restatement § 73
          • Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration
          • 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
        • Example
          • X offers to pay Y (a police Detective) for information regarding a robbery of X. X was already entitled to that information because of Y's obligation as a police. The promise is not binding
          • Policy : Discourage bribery, corruption, tipping, etc.
        • NOTE : Performance in addition to official duties may be consideration
      • Contractual Duty
        • Restatement § 89 A promise modifying a duty under contract not fully performed on either side is binding: (LDR Exceptions)
          • if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made, or
          • to the extent provided by statute (UCC), or
          • to the extent that justice requires enforcement in view of material change of position in reliance on the promise.
      • UCC § 2-209(1) Modification to a contract needs no consideration (But requires Good Faith)
      • Example : (Construction contracts) After contractor found out that material in a new building would not be bought from his company he refused to finish the job. D. offered a commission on the materials, contractor finished. Contractor already obligated to finish the job.
        • Extortion : After a contract has been established one party finds themselves in a position a better bargaining power.
          • (There was no honest dispute in this case)
    • Original Common Law
      • Foakes v. Beer (1884): PL. agreed not to collect interest on a debt if D. paid a large sum up front the rest in installments. PL. sued for interest. In that D. owed the interest, performance of the pre-existing duty is not consideration (General rule established).
      • NOTE : This case would be ruled differently today. Early payment of a debt may be sufficient consideration
      • In that most people believe that promises are binding, changing this rule would protect expectations, not upset them.
    • Good Faith Principle : UCC 2-209(1)
      • UCC does not require Consideration for modification of a contract. Therefore it permits easier modification of contracts. However, if the change is made in Good Faith.
      • Definition: (UCC § 1-203, 2-103, pages A-22, A-5, A-13)
        • Consistent with reasonable commercial standards of conduct and fair dealing in the trade, and
        • Honesty of Fact in the conduct or transaction concerned,
      • Example : D. sells to PL. a certain amount of steel. Changes in market prices result in economic pressures to D. who tells PL. that if they do not raise the price, D. will not sell any more to them. Although D. would suffer a loss and is thus justified in seeking a modification, their conduct was not consistent with UCC good faith requirement.
        • You can ask for a modification, but you can not put duress on the other side. (Extortion)
    • Exception : Modification of Contract
      • The provision in the original agreement is eliminated
        • Restatement § 89
        • UCC § 2-209
      • Example:
        • X owes 50$ to Y.
        • X asks, "Will you accept a promise of a saddle in place of a ****promise of $50?"
        • If Yes, Y loses the right to $50.
    • Exception : Accord and Satisfaction
      • Defined :
        • Accord : an executory agreement to discharge an existing contractual duty based on performance that is different in nature than the original obligation.
        • Satisfaction : the performance of an accord agreement. This discharges both the accord agreement and the prior contract
      • General Rule
        • Suspends the original obligation, Does not extinguish it
        • Example
          • X owes 50$ to Y.
          • X asks, "Will you accept a saddle in place of $50?"
          • Y maintains the right to either $50 or the saddle.
        • Until the accord has been satisfied, the original agreement is not displaced.
      • Full Payment Checks
        • Common Law : There is a dispute in the amount of the debt and a check is sent, clearly marked Payment in Full for at least the amount in dispute. When the check is cashed, the debt is cleared. (Majority Rule)
          • Payment more or equal to claim = consideration
          • Payment less than claim = no consideration
        • Example: Full Payment Check
          • UCC § 1-207 : A party who with explicit reservation of rights performs . . . in a manner demanded . . . does not prejudice the rights reserved.
          • D. sent a check to PL. for marked "Payment in full." Although the check was for less than total due, It was for the exact amount claimed by D. . PL. cashed the check and sued for the remaining payment based on the wording of UCC § 1-107.
          • Reasons:
            • At one time UCC included both statement on § 1-207 and one on full payment checks. Suggesting that they were not meant to be together.
            • Majority of States use common law rule regarding full payment checks
            • Two merge the two principles would not further the goal of UCC : To simplify, clarify, and modernize.
            • Settles disputes.
    • Exception : Duty owed to a Third Party
      • Majority Rule : There is consideration if X promises to Y to fulfill a legal obligation to Z, in return Y will pay X
      • Minority Rule : There is no consideration
      • New York Rule : There is consideration if Y promises to both X and Z to pay, if they fulfill a mutual obligation.
      • Example
        • X is engaged to Z, Y promises to pay X if he marries Z
        • Maj. There is consideration
        • Min. There is no consideration
        • N.Y. If the promises was made to both X and Z, there is.
      • Public Policy (non-enforcement)
        • Even though there may be consideration, the courts may choose not to enforce for public policy reasons
        • Bribery, Tipping, etc.
        • Example
          • X pays jockey, Y, if he wins (Y is already paid by Z)
    • Exception : Waiver
      • Non-material condition can be waived without consideration
      • Restatement § 84 (p. 156) A promise to perform a conditional duty in spite of the condition not occurring is binding, unless
        • The condition is a material part of the bargain, or
        • Uncertainty of the occurrence of the condition was not an element of the risk assumed by the party who gives the waiver.
      • A waiver may be retracted by notice to the other party if:
        • It was not given for separate consideration
        • There is reasonable time to cause the condition or an extension is given; and
        • The other party has not changed position in reliance
      • UCC § 1-107:
        • A claim arising out of an alleged breach can be waived in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party
      • Written modification clause
        • UCC § 2-209
        • Clause allowing only written modification is binding
          • But, in a Merchant/Consumer contract,
          • consumer must sign the provision.
        • Oral modification may act as a waiver
        • Some waivers can be retracted, unless there is reliance
        • NOTE: When a oral modification may act as a waiver?
          • Majority : Reliance
          • Minority : Recognize the modification by conduct
        • Common Law
          • Clauses insisting on all modifications in writing are not enforceable, a later oral modification waives the clause

PAST CONSIDERATION

  • Restatement § 89
    • A promise to pay all or part of a previous debt owed by the promisor is binding if (1) the indebtedness is still enforceable, or (2) would be enforceable except for the statute of limitations.
    • The following are a promise unless other facts indicate a different intention:
      • Voluntary acknowledge to obligee, admitting the existence of the debt
      • Voluntary transfer of money, or negotiable instrument as interest or part payment of the debt.
      • A statement to obligee that statute of limitations will not be a defense
  • Restatement § 83
    • A promise to pay all or part of a debt discharged or dischargeable in bankruptcy prior to proceedings, is binding.
  • Examples:
    • Husband promises to pay wife, starts to make payments, but stops, statute of limitations passes, but H. makes a new promise to pay
      • Three Theories why it is still binding:
        • Reinstate the old contract with the new promise to pay
        • Moral obligation with a promise to fulfill
        • Waive the right of a defense of based on
          • statute of limitations:
          • discharge in bankruptcy
          • a person under the legal age, after old enough, promises to waive the defense of minority status
    • Son no longer in care of father becomes ill and is cared for by P., father promises to pay after the son had already died. Not enforceable.
      • no consideration
      • no legal obligation for son of age
      • father received no benefit of the P. taking care of the son.
    • X sustains injuries to prevent a block of wood from falling on Y. Y promises to pay for life of X, payments are made until the death of Y. X sues the estate. Enforceable.
      • The life of Y is improved or saved, a material benefit is conferred
      • A subsequent promise to a unsolicited material improvement to a promisor is sufficient consideration.
      • Hypothetical promise : Had they been able to they would have made a bargain. (Minority Rule -- Adopted by restatement § 86)
  • Restatement § 86 A promise for benefit received
    • A promise in recognition of a benefit previously received by the promisor from the promisee is binding to prevent injustices
    • Exceptions:
      • The benefit is conferred as a gift
      • The promisor is not unjustly enriched
      • The value of the promise is disproportionate to the benefit

INTRODUCTION TO K DAMAGES AND REMEDIES FOR BREACH

  • Restatement § 344
    • Purpose of judicial remedies is to protect one or more of the following:
      • Expectation interest : Being put in as good a position as he would have been if the K had been performed.
      • Reliance interest : Reimbursed for loss caused by reliance on the K. Being put in as good a position as if the K was never made.
      • Restitution interest : restore benefit that he has conferred on the other party.
  • Reasons for expectation over reliance
    • Easier to establish the value of the performance:
      • Reliance : forgone costs are speculative
      • Expectation : K price, which is known
    • expectation damages create incentive to deliver the promise
    • Hawkins v. McGee (Hairy hand case)
  • Posner : Theory of Efficient Breach
    • Seller has a contract with Buyer:
      • B. agrees to buy w. at $10 each (Mrkt price is $11)
      • 3rd party asks to buy at $15 each (needs right away)
      • S. breaks K with B. and sells to 3rd.
      • S. then pays B. $1 so that he may buy on the market
      • S. has $4 each profit, and B. has expectation damages
    • Problem with the theory (Macro)
      • Litigation costs (both sides)
      • Transaction cost on B. to find another supplier
      • seller's reputation is hurt (may breach again)
      • undermines stability of K -- may be inefficient (Ks no longer reliable)

EXPECTATION MEASURE

Damages for breach of K to perform SERVICES

Breach by Service Provider

  • Contractor stops mid-way in a building project:
    • Previous measure of damage
      • (promised condition) - (present condition)
      • But, the hand was irreparable -- can't complete the project
    • Cost of Completion Measure
      • (Cost of completion) - (amount not yet paid)
    • Examples: K1 price = $100,000
      • No work completed by K1
        • nothing paid to K1
        • K2 = $125,000
        • D = 125,000 - 100,000 = $25,000
      • No work completed by K1
        • Already paid $75,000 (still owes $25,000)
        • K2 = $125,000
        • D = 125,000 - 25,000 = $100,000
      • Some work completed (needs $50,00 more to compete by K2)
        • owner paid $75,00 (still owes $25,000)
        • D = $50,000 - $25,000 = $25,000
  • Mining company agrees to leave property in particular condition. To complete the contract would cast $29,00, which would add $300 to the value of the property.
    • Usually courts prefer the cost of completion with a breach by service provider, unless the damages result in a substantial economic loss.
    • If the benefit to the party is grossly disproportionate, then use the Diminution in value measure
    • Problem
      • The service recipient places higher value on the land than the free market value, and would not have entered the contract without the condition (bad faith K.)

Breach by Service Recipient

  • What does the contractor want? Profit -- Two ways to measure:
    1. First way:
      • K Price
      • - Cost Avoided
      • - Amount already paid
      • - Value of Materials on hand
    2. Second way:
      • Profit (Loss)
      • + Costs Incurred
      • - Amount already paid
      • - Value of materials on hand
  • Both situations give same result (Except a losing K unless include (loss))

Damages for Breach of a K to sell GOODS

Breach buy Seller (Goods)

  • Two Categories:
    • Seller fails to deliver, or buyer properly rejects goods (UCC §§ 2-712, 2-713)
    • Buyer accepts defective goods (UCC § 2-714)
  • UCC Sections
    • § 2-711 Buyer's Remedies in General
      • Where the Seller fails to deliverer the buyer rightfully revokes acceptance, the buyer may cancel and in addition recover the price as has been paid.
        • "Cover" and have damages and have damages under § 2-712
        • damages for non delivery under § 2-713
    • § 2-712 "Cover"; Buyer's procurement of Substitute Goods
      • In good faith and without unreasonable delay any reasonable purchase of goods in substitute of those goods due.
      • Buyer may recover Cover Price:
        • - K price
        • + Consequentials & Incidentals (i.e. lost profits)
        • - Expenses saved
      • Buyer is not forced to cover.
      • Failure to cover does not bar buyer from other remedies
      • As long as in good faith and reasonable, it does not have the cheapest possible cover price.
    • § 2-713 Buyer's Damages for Non-delivery
    • Buyer may recover (Buyer does not cover) Market Price:
      • - K price
      • + Consequentials & Incidentals (§ 2-715)
      • - Expenses saved
    • Market price is determined as of place for tender or in the case of rejection after arrival or revocation of acceptance, as of place of arrival
    • § 2-714 Buyer's Damages in Regard to Accepted Goods
      • If buyer accepted goods and gave notification, he may recover for non-conformity of tender as determined in any manner which is reasonable
      • Buyer may recover: (Accept damaged goods)
        • Promised Condition
        • - Present Condition
      • Buyer may also recover Incidental and Consequential Damages
    • § 2-715 Buyer's Incidental and Consequential Damages
      • Incidental Include : Expenses reasonably incurred in inspection, receipt, transportation, care and custody of goods rightfuly rejected, expenses in effecting cover, and any other expense incident to the delay or breach
      • Consequential Include : All damages of which the seller at the time of contract had reason to know, and could not be prevented by cover or otherwise.
        • A buyer does not have to cover, or try to mitigate damages
        • HOWEVER, If the buyer does not attempt to mitigate (cover) consequential damages, including loss profits may not be recovered.

Breach By Buyer (Goods)

  • UCC (P. A-50 to A-54)
    • § 2-703 Seller's remedies in General
      • If the Buyer wrongfully rejects or revokes acceptance of goods or fails to make payment due, the seller may:
      • Withhold delivery of such goods;
      • Stop delivery by any bailee
      • Resell and recover as provided in § 2-706
      • Recover damages for non-acceptance (§ 2-708) or in a proper case the price (§ 2-709;
    • § 2-704 Identify Other Goods to the K
      • An aggrieved seller may
        • identify to the K conforming goods not already identified if at the time he learned of the breach they are in his control
        • treat as resale goods intended of the K even though they are unfinished
      • Where goods are unfinished,
        • identify to the K conforming goods not already identified if at the time he learned of the breach they are in his control
      • Seller may exercise reasonable commercial judgment to Mitigate damages make complete the project and attempt to sell the goods.
    • § 2-706 Seller's Resale
      • Seller may resale if the resale is made in good faith and in a commercially reasonable manner.
        • Seller may recover:
          • K Price
          • - Resale price
          • + Incidentals (§ 2-710) (No consequential damages)
          • - Expenses saved
        • May be a public or private sale (Must be commercially reasonable)
          • If private sale, must give reasonable notice to buyer
        • If public sale, the seller may buy
        • Seller is not accountable to buyer for any profits made on a resale.
    • § 2-708 Seller's Damages for Non-acceptance or Repudiation
      • Seller may recover: (Seller does not Resale)
        • K price
        • - Market Price
        • + Incidentals (§ 2-710) (No consequential damages)
        • - Expenses saved
      • If this measure is inadequate to put seller in as good a position as performance, then use profit (including reasonable overhead) that would have been made + Incidentals.
    • § 2-709 Action for the Price (When Seller can't Resale)
      • Seller may receive full Price from the buyer if:
        • Buyer accepted conforming goods, and they were destroyed or lost at the risk of the buyer
        • Resale value of the goods is 0. (i.e. fruit, custom made, etc.)
      • If he sue for the full price, Seller must hold for the buyer any goods identified with the K that are still in his control. If he resells, the resale price will be credited to the judgment.
    • § 2-710 Incidental Damages
      • Include: commercially reasonable charges, expenses or commission incurred in stopping delivery, transportation, care and custody, resulting from the breach.
      • Example Case:
        • Buyer enters K to buy boat from (merchant) D. The buyer makes down payment, but then breaches K and wants money back.
        • Seller claims lost profits + incidental damages, even though the boat was latter sold to another customer.
        • Lost Volume Seller.
          • Seller has an inexhaustible supply of replaceable goods
          • Seller would have had two sales instead of one
          • the measure of damages is inadequate to put seller in as good a position as performance would have done:
            • Entitled to profits (§ 2-708)
            • profit (Includes reasonable overhead)

Mitigation; K for Employment

  • K to build a bridge
    • when job is partially completed, the county informs contractor that they intend to breach. Contractor continues to build.
    • Held for county. May not run up damages against a breaching party once the breach is known -- Must mitigate damages.
    • Damages:
      1. First calculation method:
        • K price
        • - Cost Saved
        • - Amount Paid by Buyer
        • - Materials on Hand
      2. Second calculation method:
        • Profit (Loss)
        • + Cost / Expenses
        • - Amount Paid
        • - Materials on Hand
    • May finish the job and try to resale to another party (§ 2-704) but,
      • if attempting to mitigate damages, and
      • exercise reasonable commercial judgment (Even if you end up increasing damages, so long as (1) & (2) are met.)
      • Manufacturer of goods is given the choice
    • Rules:
      • Employee must look for substantially similar alternative employment in the same local for the same pay
      • Employee is not required to accept employment of less pay or position. If the new job is a reduction in salary, the employer must pay the difference.
      • Burden of proving existence of similar employment is on the employer
    • Case: Parker v. Twentieth Century-Fox Film Corp.

Forseeability

  • Rules:
    • Defendant is liable for consequential damages that are foreseeable (i.e. things that arise naturally), or
    • If special circumstances were communicated and thus known to both parties, D. is liable for damages that arise from those circumstances.
  • Cases:
  • UCC § 2-715 (See Above)
  • Restatement § 351 Limitations on Damages and Unforeseeability
    • Damages are not recoverable for unforeseeable loss as a probable result of the breach when the K was made.
    • Court may limit damages for foreseeable loss by:
      • excluding recovery for loss of profits
      • allowing recovery only for loss by reliance
      • otherwise
    • if justice so requires in order to avoid disproportionate compensation.
    • May exclude recovery if :
      • Extreme disproportion between loss and the price charged by the party whose liability for the loss is in question (Small price evidences that it was not intended to cover such great liability)
      • Informality of Dealing (absence of written K) (No careful attempt to allocate risks)

Uncertainty

  • UCC § 1-106(1) Remedies to be Liberally Administered
    • Remedies shall be liberally administered with the goal that the aggrieved party may be in as good a position as if the other party had fully performed.
    • Neither consequential or penal damages may be had except as specifically provided in the UCC
    • Damages do not have to be mathematically accurate -- only approximate
  • Example Case : Freund v. Washington Square Press, Inc.

Damages for Mental Distress

Valentine v. General American Credit, Inc.: Mental distress for breach of employment contract.

Liquidated Damages

  • Example Cases
  • UCC § 2-718(1) (A-58) Liquidation of Limitation Damages
    • Breach by either party may be liquidated in the agreement but only at an amount which is reasonable in light of anticipated or actual harm, the difficulties of proof of loss, and nonfeasibility of otherwise obtaining an adequate remedy (difficult to estimate).
    • Unreasonably large liquidated damages is void as a penalty
      • Similar to case law, but broader
  • Minority Rule
    • The first prong of the test is "Damages are difficult to estimate at the time of breach" not at the time of contract
    • Why preferred? Damages are always difficult to estimate at the time of contract, you never know when a party is going to breach!
      • the 1st prong of the majority rule is always met.

SPECIFIC PERFORMANCE

  • Rule:
    • Only get specific performance if other remedies by law are inadequate
      • Situations:
        • Construction K:
          • no specific performance
          • damages are generally an adequate remedy
          • too difficult for the court to supervise
        • K to sell land
          • Yes : specific performance
          • Land is unique
        • Employment K
          • No specific performance unless service is unique
        • Goods K
          • Yes specific performance : If the goods are unique
          • If can not cover in any way
        • Service K
          • No specific performance
          • Not want to force people to work together
  • Case: London Bucket Co. v. Stewart

Historical Development

  • Original King's Court did Not Order Performance
  • Chancery Courts (Equitable Courts) would only grant a decree of specific performance if the law court did not provide a remedy (No jury trial)

Restatement

  • § 359 Effect of Adequacy of Damages
    • Specific performance or injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party
  • § 360 Factors Affecting Adequacy of Damages
    • In determining if damages are adequate the following is significant:
      • difficulty of proving damages with certainty (i.e. royalties)
      • the difficulty of procuring a suitable substitute performance by means of money award as damages
      • the likelihood that an award of damages could not be collected
      • NOTES:
        • May give nominal damages when difficult to prove
        • Sentimental attachment and unique situations make it hard to prove damages

UCC

  • § 2-709 (See above)
  • § 2-716 Buyer's Right to Specific Performance of Replevin
    • Specific performance may be awarded where goods are unique or in other proper circumstances
    • Specific performance may include terms and conditions such as payment of the price, damages, other relief the court shall deem just.
    • Buyer has the right to replevin for goods indentified to the K is after reasonable effort:
      • he is unable to procure substitute goods. OR
      • The situation shows that such an effort would be unavailing.
  • Example Case : Laclede Gas Co. v. Amoco Oil Co.

RELIANCE DAMAGES

Reliance Damages in a Bargain Context

  • Rules  :
    • If expectation damages are too speculative, you must use reliance damages.
    • Can rely in advance of the contract (in expectation of the K)
    • Pl. may choose reliance or expectation:
      • Generally expectation > reliance
        • Expectation (foreseeable profit)
        • Reliance (foreseeable costs)
      • Expectation is the ceiling for reliance
        • Never put a party ahead of where they would be if the K were performed.
  • Case : Security Stove & Mfg. Co. v. American Ry. Express Co.

Restitution Measure

  • Introduction
    • Two Types of Restitution
      • Substantive: Recapture a benefit conferred on D. by Pl. through which D. has been unjustly enriched
      • Remedial: Recoveries that are measured by the amount of a D.'s unjust enrichment
    • Indebitatus Assmpsit: Pl. may sue based on a new promise to pay a pre-existing debt.
    • Implied-in-Fact Promise
      • A real Contract, made by conduct instead of words
        • Examples:
          • Order food at a restaurant : no express promise to pay after the meal.
          • Doctor's office : Implied promise to pay after examination
      • Damages = Expectation Measure
    • Implied-in-Law Promise
      • NOT a real contract -- Legal Fiction
        • Examples
          • Get a check in the mail by mistake
          • Over payment by mistake
      • quasi-contract
        • D. received a benefit, and retention of the benefit is unjust
        • Unjust Enrichment : a benefit must be conferred
      • Exceptions: (Are not implied-in-law Ks)
        • Gifts
        • Officious Intermeddler
          • A benefit is thrusted upon
          • i.e. paint your house while on vacation
          • i.e. windshield washer at the stoplight
      • Damages = Restitution Measure
        • Quantum Meruit
          • "As much as is deserved"
          • Restitution for services provided
          • Value of the benefit conferred
  • Example Case : Osteen v. Johnson
  • Restitution Damages
    • Expectation Damages are too speculative
    • Must be a Material Breach, AND
      • Must go to the essence of the K
      • May rescind K and receive restitution damages
      • If only a minor breach => Reliance Damages
    • Must K not be fully performed
      • If K is fully performed => Expectation Damages
    • Net out Damages
      • Benefit to Agent - Benefit to Pl.
  • Restatement
    • § 344 Purpose of Remedies (See above)
    • § 345 Judicial Remedies (Include a judgment or order)
      • requiring restoration of a specific thing to prevent unjust enrichment
      • awarding a sum of money to prevent unjust enrichment
    • § 370 Requirement that benefit be conferred
      • Entitle to restitution only to the extent that the party has conferred a benefit on the other party by way of part performance or reliance
    • § 371 Measure of Restitution Interest
      • Market value : what it would have cost him to receive the same performance or part performance from another party, or
      • Increase in Property Value
      • Usually a) > b)
      • favor the innocent party, against the party that breached
  • Rule:
    • For the innocent party, Expectation damages is not the ceiling for restitution damages.
      • (The only exception for when expectation is the ceiling!)
    • Case : U.S. v. Algernon Blair, Inc.
  • Rule:
    • Restitution damages are acceptable if:
      • There was a material breach and
      • Plaintiff has not completed the performance of the contract.
    • Case : Oliver v. Campbell
  • Important Principles in Review
    • Restitution if:
      • No K but, Benefit conferred resulting in unjust enrichment
      • Gifts are not included
        • Officious Intermeddler is not included
      • There is a K and Material breach + Part Performance
        • Non-breaching party may choose Restitution and Rescission, or Expectation
        • Minor Breach may only receive reliance
        • Full performance may only receive expectation
        • For the innocent party, expectation is not a ceiling
    • Restitution vs. Reliance
      • Restitution: Based on the benefit to D.
      • Reliance: Based on cost to the Pl.

Restitution in favor of Plaintiff in Default (Plaintiff Breaches)

  • Rule
    • Defendant cannot receive unjust enrichment, even though Plaintiff breached
    • Plaintiff receives value of services performed less damages caused by the breach. The award may not exceed the original price of contract.
    • Example Case : Britton v. Turner
  • Principles:
    • Breaching party may only get restitution damages
      • Expectation is the ceiling
      • Two Types (Breaching party gets whichever is less)
        • Market value of substitute performance
        • Increased value of property
      • Policy : not to encourage breaches of Ks
    • Dobbs Measure
      • K price
      • - Cost of Completion
  • UCC § 2-718(2-4) Liquidation of Limitation Damages
    • How much of down payment is returned to Buyer when he breaches?
      • Buyer is entitle to restitution of any amount:
        • As established in a liquidated damages clause
        • If no liquidate damages, then 20% of K price
          • $500 is a ceiling
      • Buyer's right to restitution is subject to offset if seller establishes
        • actual damages are greater than b).

ASSENT: INTRODUCTION TO INTERPRETATION

  • Rule
    • Objective Theory of Contracts
      • Subjective intent of the parties in immaterial
      • Look at a reasonable person in the shoes of each party
      • Protect the innocent party
        • Allowing subjective would undermine stability of contracts
      • Defendant should have been on guard that it was no joke.
    • Example Case : Lucy v. Zehmer
  • Rule: If no meeting of the minds, there is no contract when ambiguous
    • If either party is aware of or intentionally caused the ambiguity, the innocent party is given the benefit of the doubt
    • Example Case : Raffles v. Wichelhaus
  • Restatement § 20 Effect of Misunderstanding
    • No K for lack of mutual assent if each party attach a materially different meaning to the manifestations and either :
      • Neither party knows the meaning attached by the other; or
      • Each party knows or has reason to know the meaning attached by the other party.
    • Party 1's interpretation of the K wins if:
      • Party 2 knows, or has reason to know, the meaning understood by Party 1 and Party 2 does not know the meaning understood by Party 2.
  • Unexpected Event
    • Rule
      • Three Ways to Interpret Unexpected Event:
        • Actual Intent (Mutual)
          • What did the parties intend to occur
        • Hypothetical Intent
          • If they had thought about the event at the time of K what would have they decided to do?
        • Fairness / Reasonableness
          • Since we can't know what they thought at time of K, what is the reasonable/Fair thing?
      • If duration is not clearly expressed, the court will imply that the parties intended the K to continue for a reasonable time
      • Case : Haines v. City of New York
    • Restatement § 204 Supplying an Omitted Essential Term
      • When the parties have left out an important term of the K, three term which is reasonable under the circumstances is supplied by the court.
    • Rule: Look at the actual intent of the contract

MECHANICS OF A BARGAIN -- OFFER AND REVOCATION

What constitutes an Offer

  • Restatement § 24 Offer Defined
    • Manifestation of willingness to enter a bargain so as to justify
    • Another party understands that his assent is invited and will conclude it
      • Offeree must think that all he must do is say Yes for an acceptance
      • Use a reasonable person under the circumstances standard
        • Look at the words of the offer
  • Rule: an advertisement is merely a request for offers, not an offer itself.
    • As long as one of the following apply, there is no contract:
      • Lack of specificity
      • Oversubscription
    • Price tickets are viewed as an invitation to make an offer
    • FTC rules dictate that advertisement must have reasonable supply to meet reasonable demand from an advertisement.
    • Example Case : Lonergan v. Scolnick
  • Rule: If an offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract

Termination of the Offeree's Power of Acceptance

  • Introduction -- Rule : Termination of an Offer
    • Offer may be terminated by :
      • Rejection
      • Lapse of Time
        • if specified in the offer, or
        • reasonable time
          • Offer made during a conversation expires at the end of the conversation. Unless agreement is made otherwise. (Includes, phone conversation, internet, etc.)
      • Counter Offer
      • Revocation
        • May be revoked at any time prior to acceptance
  • Restatement § 41 Lapse of Time
    • 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
    • Reasonable time is a question of Fact, depending on the circumstances.
    • An offer sent by mail is seasonably accepted if acceptance is mailed at any time before midnight on the day received.
        • But, longer time may be reasonable
  • Rule: A counteroffer kills an offer
    • There can only be one offer on the table at a time
    • Acceptance must be definite and unequivocal
      • Conditional Acceptance = Counter Offer
        • Counter offer kills an offer
        • Counter offer requires an acceptance by the offeror
      • Acceptance coupled with an inquiry = acceptance
      • Condition implied in the offer = acceptance
        • i.e. an offer is assumed to include "clear title" ? a condition in an acceptance of clear title is not a counter offer
    • Example Case: Ardente v. Horan
  • Restatements
    • § 39 Counter-Offers
      • Defined : an offer made by an offeree to an offeror relating to the same matter as the original offer and proposing a substitute bargain differing from that proposed by the offeror
      • A counter offer terminates the offeree's power of acceptance, unless
        • offeror manifested contrary intention, or
        • counter-offer manifests contrary intention of the offeree
      • Counter-offer is a rejection of original offer
    • § 59 Conditional Acceptance -- Adds Qualifications
      • A conditional acceptance which adds terms additional or different from those offer is NOT an acceptance, but a counter offer.
  • Rule: An option contract is not terminated by a rejection prior to end of the option time period.
  • Restatement § 37: Option K
    • Power of acceptance under an option K is not terminated by : rejection, counter-offer, revocation, death, or incapacity of the offeror, unless the contract is terminated

Termination of Power of Acceptance : Revocation

  • Rule:
    • Revocation of offer prior to acceptance = termination of offer
      • Even if you promise to keep the offer open, unless they pay for the option. Else, no consideration for the option contract.
    • Indirect Revocation (Equivalent to Direct)
    • The party receives information that the seller no longer intends to deal w/ them.
    • If the buyer knows seller does not intend to sell to him -- equivalent to a revocation
    • Example Case : Dickinson v. Dodds
  • Restatement § 43 Indirect Communication of Revocation
    • offeror takes action inconsistent with intention to enter into proposed K with offeree, and
    • offeree acquires reliable information to that effect
  • Rule : (Auction Offers)
    • Auction bid is an offer than may be revoked
    • Acceptance of the bid is the hammer falling
    • Example Case Payne v. Cave
  • UCC § 2-328 (p. A-33) In a Sale by Auction
    • If goods put in lots, each lot is a separate sale
    • Sale is complete when the hammer falls:
      • If bid made while falling, auctioneer may:
        • reopen bidding, or
        • accept the bid on which the hammer fell
    • Auction sale is with reserve unless explicitly otherwise:
      • With reserve : may withdraw goods at any time until announcing completion of sale
      • Without reserve : May not withdraw goods unless no bid is made in a reasonable time
      • In either case, bidder may retract his bid until the completion of sale
        • A bidder's retraction does not revive any previous bid.
    • If the seller bids where such has not been reserved, the buyer may:
      • buy at the last good faith bid, or
      • avoid the sale
    • NOTE : This does not apply to forced sales (foreclosure)
  • Rule: Revocation of Reward
    • It is proper to revoke the reward in the same manner in which it was originally made. (Published the reward and revocation)
    • Example Case : Shuey v. United States
  • Rule: Unilateral K
    • To accept the offer, you must perform the act
    • If revocation occurs prior to performance of the act, the power of acceptance of a unilateral K is terminated.
    • Example Case: Petterson v. Pattberg
    • Prof. Wormser Hypothetical (Bridge Crossing)
      • X offers to pay Y $100 to cross a bridge. Y is 1/2 way when X revokes>
      • Why should X be bound but not Y?
      • X may revoke his offer at any time prior to completion
    • McGourney:
      • 2 promises in a unilateral K
        • promise to pay for completed act
        • implied promise to keep offer open for a reasonable time
      • Consideration given by starting performance
        • Return promise to hold offer open for reasonable time.
        • This worked in 1914 -- Consideration = detriment
          • Today, consideration = value bargained for
        • Arg. Against : he bargained for the completed act
      • Restatement adopted this reasoning
    • Restatement § 45 Option K created by part performance (p. 398)
      • An option K is created by beginning the invited performance
      • Offeror's duty is conditional on completion of the performance in accordance with the terms of the offer.
        • Offeree is not bound to complete
        • Offeror is bound to pay upon completion of offeree
  • Rule: A unilateral offer should be left open for a reasonable time once he has begun performance.
  • Rule: Reliance and promissory estoppel:
    • A promise is enforceable if:
      • The promisor had reason to expect reliance by the promissee,
      • The promise actually does cause the promisee to act in reliance to his detriment, and
      • injustice can be prevented by enforcement of the promise.
    • Example Case Drennan v. Star Paving Co.
  • Restatement § 87 Option Contract ((2) = Special application of § 90)
    • An offer is binding as an option contract if:
      • is in writing and signed by offeror
      • recites a purported consideration for the making of the offer (a lie)
      • proposes an exchange on fair terms with a reasonable time
      • (An exception to consideration that developed historically)
    • An offer which reasonably expect to induce action or forbearance of substantial character before acceptance, and does induce such, is binding as an option K to the extent necessary to avoid injustice.
  • UCC
    • § 2-205 Firm Offers (p. A-18)
      • Offer by a merchant on a signed form is not revocable for lack of consideration for either (1) the stated amount of time, or (2) if not stated for a reasonable time.
      • But, never to Exceed 3 months
      • A form provided by the offeree must be signed separately by the offeror
    • § 1-201 (39) (A-7)
      • Signed includes any symbol executed or adopted by a party with present intention to authenticate a writing

MECHANICS OF A BARGAIN -- Ks CONCLUDED BY CORRESPONDENCE

Mailbox Rule and Acceptance

  • Common Law Rule
    • Revocation (and most everything else) effective on receipt
    • Acceptance (only acceptance) effective on dispatch
      • To protect offeror, offeror may include provision in original offer that acceptance is effective only upon receipt.
    • Case: Adams v. Lindsell.
    • Case: Falconer v. Mazess
  • Restatement
    • § 30(2) Form of Acceptance Invited
      • Unless otherwise indicated by the words of the offer, acceptance in any manner or medium reasonable in the circumstances.
    • § 60 Offer States Place Time, or Manner of Acceptance
      • If an offer prescribes place, time, or manner of acceptance, its terms in this respect must be complied with to create a K.
      • If an offer merely suggests a permitted place, time, or manner of acceptance, another method is not precluded.
        • Can prescribe any mode of acceptance -- not need to be reasonable
        • "I am the master of my offer!"
    • § 63 When acceptance takes effect (MAIL BOX RULE)
      • Unless an offer provides otherwise :
        • acceptance made in a manner invited by the offer is operative and completes mutual assent as soon as put out of the offeree's possession, without regard to whether it reaches the offeror.
    • § 65 Reasonableness of Medium of Acceptance
      • Unless circumstances known to offeree indicate otherwise, medium of acceptance is reasonable if:
        • it is the same as used by the offeror, or
        • one in similar transactions at the time and place the offer is received
          • Mail is customary
    • § 67 Effect of Receipt of Acceptance Improperly Dispatched
      • If offeree uses means not invited by the offer, or fails to use reasonable diligence to insure safe transmission, it is treated as operative upon dispatch if received within the time properly dispatched acceptance
        • This rule applies only if the method of acceptance is not prescribed in the offer.
  • UCC § 2-206 Offer and acceptance in Formation of K (A-18)
    • Unless otherwise unambiguous by the language or circumstances:
      • Offer to make a K invites acceptance in any manner and medium reasonable under the circumstances;
      • On order to buy goods by shipment invites acceptance by either:
        • Prompt promise to ship, or
        • Prompt shipment of conforming or non-conforming goods.
        • Shipment of non-conforming goods is not an acceptance if seller seasonably notifies the buyer that shipment is only an accommodation to the buyer.
    • Where an offeror is NOT notified of acceptance (reasonably made) in a reasonable time may treat the offer ad having lapsed prior to acceptance.
      • Different from Restatement
  • Mailbox Rule Exceptions
    • When the offer indicates that acceptance must be received by a certain date, the mailbox rule does not apply-the critical date is determined by acceptance.
    • Withdrawal or Repudiation of a Dispatched Acceptance of Rejection
      • Restatement § 63: Acceptance first dispatched, then rejected results in a binding K (see Mailbox Rule)
        • Possible estoppel if other party relies on the revocation
        • May be viewed as an offer to rescind the K
        • Repudiation of the K
      • Restatement § 40: Rejection sent first, then an acceptance
        • Mailbox rule is not applicable
          • Both are effective upon receipt
          • Whichever arrives first is effective
        • Presumes offeror will rely on whatever arrives first.
  • Restatement § 63 Time when Acceptance Takes Effect
    • Unless the offer provides otherwise:
      • an acceptance under an option contract is not operative until received by the offeror.
        • Exception to the MailBox rule.
        • offeree takes risk of loss or delay and remains free to revoke the acceptance until it arrives.
  • Important Principles of the Mailbox Rule
    • Everything effective upon receipt except acceptance
      • MailBox Rule = acceptance effective on dispatch
      • Rejection sent after acceptance results in a binding contract
        • offeror may rely on rejection:
          • estoppel -- if reliance
          • repudiation -- breach of K
          • may be an offer to rescind
    • Acceptance may be made by any reasonable method:
      • Same method used by offeror
      • Method that is customary for the trade
    • Offeror may Prescribe ANY manner of acceptance:
      • May be unreasonable -- Master of his offer
      • If only a suggestion -- Offeree is not compelled to perform as suggested
    • Exception to MailBox Rule:
      • Option contract -- Must actually notify offeror
      • Rejection sent prior to acceptance -- which ever arrives first
      • Rejection sent with acceptance -- No contract
      • Specified in offer that acceptance upon receipt

MECHANICS OF A BARGAIN -- MODES OF ACCEPTANCE

  • Rule :
    • If unilateral contract: offer dies with the offeror, but may accept only by complete performance
    • If Bilateral contract: may accept by promise to perform, and contract does not die with the offeror (if acceptance is made prior to death)
    • Ambiguous contract
      • Old Rule : When it is ambiguous it is assumed to be a bilateral K
      • Present Rule : Ambiguous can be either unilateral or bilateral
      • Interpret in favor of the innocent party, against the party that drafted the offer
    • Case: Davis v. Jacoby.
  • RESTATEMENT
    • § 32 Invitation of Promise or Performance
      • In case of doubt, an offer invites the oferee to accept by either:
        • promising what the offer requests (bilateral), or
        • rendering performance (unilateral).
          • Ambiguity by offeror: offeree may choose between unilateral or bilateral
    • § 62 Performance by Offeree When Offer Invites Either Performance or Promise
      • Where offer is ambiguous by the offeror:
        • an offeree may accept by beginning performance
        • Beginning Performance implies a promise to complete performance
      • Such an acceptance operates as a promise to render complete performance
        • Differs from unambiguously unilateral offer
        • Does not apply to option K
        • Suggested rule:
          • Rather than have two rules for ambiguous v. unambiguous -- when the facts suggest a reasonable person would infer a promise to complete
  • Unilateral contract Trick
    • Problem: What if buyer requests X but seller sends Y? In that the contract was ambiguous, seller may say "contract was ambiguous so I choose performance, which has not occurred = NO contract!
    • Solution: UCC § 2-206: May accept by sending conforming or non-conforming goods
  • Rule: Consideration does not need to be the sole motive for the contract to be valid.
  • Rule: The nature of an offer is determined by common sense reflection of the offeror's sincerity.
  • Rule: For acceptance of Unilateral K must have both performance and notice of acceptance
    • Notice is not required when performance would be readily apparent to the offeror within a reasonable time.
    • Case: Bishop v. Eaton
  • Restatement § 54 Acceptance by performance -- Notification
    • When unilateral K (accept by performance) no notification is necessary to make acceptance effective unless the offer requests such a notification.
    • If an offeree accepts by rendering performance has reason to know that offeror has no means of learning of performance, the offeror is discharged of duty, unless:
      • Offeree exercises reasonable diligence to notify offeror of acceptance
      • Offeror learns of performance within a reasonable time, or
      • The offer indicate that notification of acceptance is not required.
  • UCC § 2-206 (2) Offer and Acceptance in Formation of K
    • Where beginning performance is a reasonable acceptance, and offeror who is not notified of acceptance within a reasonable time, may treat the offer as having lapsed before acceptance.
      • Differs from Restatement
  • Rule: Offer must be accepted by an appropriate act
  • Restatement § 56 Necessity of Notification to Offeror (p. 447)
    • Acceptance must be communicated to the offeror
  • Rule: Use of a subcontractor's bid in submitting the prime bid does not (by itself) constitute acceptance of subcontractor's offer.
  • RESTATEMENT § 19
    • Manifestation of assent may be made wholly or partly by written or spoken words, by acts or failure to act.
    • Conduct is not assent unless:
      • Party intends the conduct
      • Knows or has reason to know the other party may infer from the conduct that he assents
  • General Rule: Acceptance must be communicated but, sometimes acceptance may be made by silence
    • If acceptance is sent reasonably in time, the other party is obligated to notify if acceptance was late.
    • Case: Phillips v. Moor
  • UCC § 2-509(3)
    • Risk of loss passes to the buyer on his receipt of the goods if seller is merchant; otherwise, the risk passes to the buyer on tender of delivery
  • Restatement § 70 Receipt of Late or Defective Acceptance
    • A late or otherwise defective acceptance is effective as a counteroffer that may be accepted by the silence of the original offeror.
  • Rule:
    • Acceptance must be unequivocal in order to create K
    • Silence will not of itself constitute acceptance
    • Case McGlone v. Lacey.
  • Rule: Where a merchant solicits an order (offer) and has plenty of opportunity to reject it, but does nothing, silence is an acceptance
    • Case: Cole-McIntyre-Norfleet Co. v. Holloway.
    • Restatement § 69 Acceptance Silence
      • Silence or inaction by offeree acts as acceptance in the following cases only:
        • Offeree takes the benefit of the services with reasonable opportunity to reject and reason to know they were offered with expectation of compensation.
        • Where offeror gives oferee reason to understand that silence or inaction may manifest assent, and the offeree intends to accept by remaining silent.
        • Previous dealing make it reasonable that offeree should notify if he does not intend to accepts
      • Assert control of the goods binds offeree to the term of the offer, unless they are unreasonable. If the act is wrongful against the offeror, it is an acceptance only if ratified by him.

IMPLIED-IN-LAW & IMPLIED-IN-FACT CONTRACTS

Different Types of Contracts

  • Express Contracts
    • Contracts made with words
    • Real contract
    • Expectation Damages
  • Implied-in-Fact
    • Contract made with conduct
    • Real Contract
    • Expectation Damages
  • Implied-in-Law
    • Quasi-Contract -- "As if there had been a contract"
    • NOT a real contract (legal fiction)
    • Unjust enrichment
    • Restitution Damages
  • Rule: Restatement (Restitution § 116):
    • Person gives services to another without knowledge or consent is entitled to restitution if:
      • acted unofficiously and with the intent to charge
      • things or services are necessary to prevent serious bodily harm/pain
      • no reason to know the receiving party would not give consent
      • it is impossible for other to give consent, or because of extreme youth or mental impairment ***consent would be immaterial
    • Case In re Crisan's Estate
  • Rule:
    • If a party voluntarily avails himself of the benefit, when given ample opportunity to object, even without verbal consent, consent may be implied
    • Silence results in an implied-in-fact contract if:
      • Party A expects payment
      • Party B has reason to know that Party A expects payment
      • Party B did not object to service
      • Party B availed himself of the benefit of the service
    • Case : Day v. Caton

When Silence is Assent -- Restatement § 69 (p. 52 of outline)

  • Differences between a quasi-contract and an implied-in-fact contract:
    • Quasi-Contract:
      • Need to prove unjust enrichment and benefit conferred for recovery
      • Restitution damages are the proper remedy
    • Implied-in-Fact Contract:
      • Unjust enrichment is irrelevant
      • Real contract -- expectation damages are the proper remedy.
    • Case Bastian v. Gafford
  • Rule:
    • Employment for unspecified term is at will employment--a unilateral contract
      • Consideration is the continued performance by the employee
    • Presumption that employment is at will (it may terminate at any time)
      • Exceptions:
        • If an employment handbook specifically state procedures for dismissal
      • Employer conduct or assurance in working relationship creates a contract to not fire except for good cause -- no longer at will.
    • Case Pine River State Bank v. Mettille

PRELIMINARY NEGOTIATIONS, INDEFINITENESS, AND THE DUTY TO BARGAIN IN GOOD FAITH

  • Common Law : An agreement to agree is not enforceable
  • Modern Trend
    • Enforce the agreement in parties intended to be bound and wanted to settle detail later
    • If parties intended to be bound, court answers the question :
      • What are the terms?
      • By filling in the gaps
    • Potential Gap Fillers -- Like default settings on a computer
      • Majoritarian view : What would most people do?
      • Use what is most economically efficient
      • Few scholars think that the default should be the most inconvenient solution to encourage agreement among parties -- Not the trend.

UCC

  • UCC § 2-204 Formation In General
    • K for sale of goods may be made in any manner sufficient to show agreement by both parties which recognizes the existence of such a K.
    • K may exist even though the moment of its making is undetermined.
    • K not fail for indefiniteness of terms if
      • the parties have intended to make a K, and
      • reasonable certain basis for giving an appropriate remedy
  • UCC § 2-305 Open Price term
    • If the parties intended, they may conclude a K for sale even though the price is not settled. The price is reasonable price at the time of delivery if:
      • Nothing is said as to price; or
      • Price is left to be agreed by the parties and they fail to agree; or
      • Price is to be fixed in terms of some agreed market or other standard by a third person or agency and it is not
    • A price to be fixed by either party mean in good faith
    • If the price is to be fixed other than by agreement, and fails to be fixed by fault of one of the parties, the other party may:
      • treat the K as canceled, or
      • fix a reasonable price himself
    • If parties intend not to be bound unless a price be fixed or agreed upon, and no price is fixed or agreed upon, then there is no K.
    • Did the Parties INTEND to be bound?
  • UCC § 2-308 Absence of Specified Place For Delivery
    • Unless otherwise agreed
      • The place of delivery of goods is the seller's place of business or if he has none, his residence; but
      • If both parties know that the goods are in some other place, the place where the goods are is the place of delivery; and
      • Documents of title may be delivered through customary banking channels
  • UCC § 2-309 Absence Specific Time Provisions; Notice of Termination
    • The time for shipment or delivery or any other action under a K if not agreed upon shall be a reasonable time.
    • Where K provides for successive performance but is indefinite in duration, it is valid for a reasonable time. Unless otherwise agreed, may be terminated at any time by either party.
    • Termination of a K by one party, except on happening of an agreed event, requires reasonable notification to be received by other party.
      • An agreement dispensing with notification is invalid if unconscionable.
    • Note: What is Reasonable?
      • Depends on the particular industry
      • Majoritarian approach -- what most people do.
  • Rule: two prong test to determine if a clause is enforceable:
  • Rule: Six Ways to Determine if Parties Intended to be Bound (each factor is given different weight)
    1. whether this class of K usually is in writing
    2. whether it needs a formal writing for its full expression
    3. few or many details required
      • If K need more detail - usually written K needed
      • If there are many detail in oral K -- may be sufficient (Arnold Palmer)
    4. whether amount involved is large or small
      • larger amount usually needs written K
    5. whether the type of agreement is common or unusual
      • More unusual need a written K
    6. whether a written K is coming
      • If so, then need a written K

STATUTE OF FRAUDS

PRINCIPLES

  • Purpose : To prevent fraud and perjury
  • Certain type of contract must be in some form of writing (Categorical -- not monetary)
  • Functions:
    • Evidentiary
      • evidence of K through writing
    • Cautionary (Some Scholars)
      • make certain people act deliberately by writing certain types of K
  • Courts generally not favor the Statute of Frauds
    • courts have tried to construe it narrowly
    • too restrictive -- allows people to escape contracts
    • courts have created exceptions

§ 4

  • And be it further enacted . . . that . . . no action shall be brought . . .
    • upon any K or sale of lands, tenements, or hereditaments, or any interest in or concerning them; or
      • important to have clear title
      • includes easements -- granting easements must be in writing
      • short-term lease -- oral is acceptable
      • long-term lease (usually over 1 year) -- need written K
    • to charge any person upon any agreement made upon consideration of marriage; or
      • marriage settlements (dowry)
      • pre-nuptial agreements
    • upon any agreement that is not to be performed within the space of one year from the making thereof; or
      • aimed at fading memories
      • however, real problem is not how long it takes to perform, but that it takes forever to get a trial
      • must be capable of being performed within 1 yr.
      • A contract for one year and a day need writing -- promise for the rest of your life does not need writing
    • Whereby to charge the D. upon any special promise to answer for the debt, default, or miscarriages of another person; or
      • surety liable only if debtor can not pay
      • consideration problem
        • there exists consideration from Creditor to Debtor (So there is evidence)
        • But there is no consideration between surety and creditor (no evidence)
      • Inapplicable when promisor undertakes to a Surety to advance some advantage of his own
    • Whereby to charge any executor or administrator upon special promise to answer damages out of his own estate;
      • another example of Surety
    • Unless the agreement upon which such action shall be brought, or some memorandum or note thereof (some form of writing -- i.e. letterhead), shall be in writing, and signed by the party to be charged therewith, or some other authorized person.

§ 17 (The "Sale of goods" section)

  • No contract for the sale of any goods, wares. or merchandises for the price of 10 pounds ($500) or more shall be allowed to be good, except:
    • buyer shall accept part of the goods sold and actually receive the same; or
    • give something in earnest to bind the bargain or in part payment; or
    • that some note in writing of the said bargain be made and signed by the parties of the K or their authorized agents.
      • Monetary base -- greater than 10 pounds
      • Contract to make a will easy to perjure -- person who left it is dead and can not testify
      • want writing for broker commission -- or else everybody would claim they get commission for sale

UCC

  • § 2-201 Formal Requirement; Statute of Frauds
    • Except as otherwise provided in this section, a contract for sale of goods for the price of $500 or more is not enforceable 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.
    • A writing is not insufficient because it omits or incorrectly states a term agreed upon.
    • K is not enforceable beyond the quantity of goods shown in such writing.
    • Hypothetical:
      • S. agrees to sell 200 videos for $10 each to B.
      • Written contract = "I agree to sell 100 videos. S."
      • Result:
        • Only B. may enforce the contract -- only signed by S.
        • No price is required on the contract -- (use reasonable FMV)
        • Can only enforce up to the quantity written (100)
          • If had written too much in writing, can only enforce up to the agreed amount
          • agreed amount(200) is the ceiling
    • 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.
      • between merchants
      • If sender sends letter to B to confirm K -- B must give written notice within 10 days to repudiate
      • goes against the policy that we don't want to have to make people repudiate K thrust upon them
    • A contract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable.
      • 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
        • no need for writing for specially manufactured goods
        • people don't make specially manufactured goods for no reason
        • specially manufactured goods are evidence by themselves of a contract
        • Undue hardship to the seller if the buyer breaches
      • if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a K for sale was made, but the K is not enforceable under this provision beyond the quantity of goods admitted; or
        • if D. admits there was a K -- no need for writing (admission gives proof that K was made)
      • with respect to goods for which payment has been made and accepted or which have been received and accepted
        • Argument against seller that there was a K if he already shipped the goods
        • Arguments against buyer that there was a K if he already accepted the goods
    • 3 THINGS NEEDED TO SATISFY FRAUD (UCC § 2-201)
      1. evidence of a K for a sale of goods
      2. signed by the party to be charged
      3. quantity
    • 4 THINGS NEED TO SATISFY FRAUD (COMMON LAW)
      1. identify the parties
      2. must have the basic terms (price/quantity)
      3. subject matter
      4. signed by the parties to be charged
  • § 1-206 Statute of Frauds for Kinds of Personal Property Not Otherwise Covered
    • Except in the cases described in subsection (2) of this section, a contract for a sale of personal property is NOT enforceable by way of action or defense beyond $5,000 in amount or value of remedy unless there is some writing which indicates that a contract for sale has been made between the parties at a:
      1. defined or stated price,
      2. reasonably identifies the subject matter, and
      3. is signed by the party against whom enforcement is sought or his authorized agent.
      • Differs from § 2-201 :
        • must have a price
        • If no writing -- maximum remedy is $5,000
          • only enforceable up to $5,000
          • § 2-201 sets maximum at $500
    • Subsection (1) does not apply to a contract for the sale of goods nor of securities nor to security agreements. Personal property that are not goods include:
      • Patent, copyright, trademark, right to sue, royalties

PART PERFORMANCE EXCEPTION TO THE STATUTE OF FRAUDS

  • Purposes:
    • Evidence of K
    • Would not perform is no K
    • increase hardship if don't apply K
  • Surety (No exception)
    • Part performance is Not an exception to the Surety K
      • part performance by creditor
        • part performance is always already done by the creditor -- has always given $ to the debtor which is why he wants to be repaid the Surety
      • part performance by the Surety
        • no rational reason why not exception to Statute
  • Marriage (No Exception)
    • fact that marriage occurs is not evidence of a K
      • people would get married anyway -- because of love
    • part performance does not make an exception to the statute
  • Real Estate
    • Have part performance is Exception if have reliance
  • 1 Yr. provision
    • Part performance is exception if one side has fully performed
      • irrational
      • person would have relied even if only partial performance

RESCISSIONS

  • Generally rescission can be oral -- even within the Statute of Fraud

ORAL ALTERATIONS

  • Must have in writing if new K as modified comes within Statute
  • Example 1
    • seller sells goods for $300
    • buyer want $300 more in goods
    • new contract for $600 -- Needs to be in writing
  • Example 2
    • Original K for $600
    • Want modification to $300
    • $300 < $500 -- no need for writing
  • Once deal is done, it is done -- can't do anything about it
  • failure to plead affirmative defense -- deemed waive
  • if you know the client entered into contract -- can not ethically plead Statute of Frauds