Contracts Ayres 9th ed.

From wikilawschool.net. Wiki Law School does not provide legal advice. For educational purposes only.
Jump to navigationJump to search
Contracts
Authors Ian Ayres
Gregory Klass
Text Image of Studies in Contract Law (University Casebook Series)
Studies in Contract Law (University Casebook Series)
Taught by
Taught at
Related course(s)

Overview[edit]

Attack Outline

  1. Which law covers? UCC = sale of goods (merchants) Common Law/Restatement (non-goods (services, property))
  2. Was contract formed? Offer/Acceptance + Consideration
    • o Offer = Intent to commit + definiteness + communicated + identified offeree
      • Bargaining Intent = offeror intended to create present contractual rights and duties (not just inviting offer)
      • Definiteness (reasonable certainty)
        • Restatement: offer expressly or impliedly covers essential terms? (quantity, time, price, parties, place)
      • o Acceptance = mutual assent
        • Different modes of acceptance
        • Power of acceptance terminated OR counteroffer?
      • o Consideration = Bargained-for exchange + detriment to promisee OR benefit to promisor
        • Bargained-for exchange?
          • If promise to forbear right (Hammer), did promisor have honest/reasonable belief of valid claim?
          • Mutual obligation
          • Agreement based on illusory promise (reserve some right, option or alternative limiting his obligation) which may lead to an unqualified right?
          • Agreement based on promise to perform act that promisor already obliged to do?
        • Enforceable despite no bargained-for exchange?
          • Promissory estoppel -- Foreseeable/induced reliance on the promise (ex. of man retiring with reliance on pension
          • Waiver of some nonmaterial condition to the bargain?
          • Moral obligation or pre-existing duty?
        • o Other types of contract (besides Express Contract)
          • Contract implied in fact = Mutual agreement + Intent to promise
          • Quasi-contract (unjust enrichment) = Benefit conferred + Oppt to decline + Appreciation by D + Acceptance and retention of such benefit (fairness)
          • Promissory estoppel – has to be change (detrimental reliance)
        • Enforceability
          • o Illusory promise
          • o Definiteness
            • OLD RULE: Varney – definite enough for intent, determining breach, remedy
            • NEW RULE: Parties, subject matter, time for performance, price
          • o Formation defenses
        • What did contract require? Look to terms. Gap-filler under UCC.
        • What are potential claims? Breach of contract / Promissory estoppel / Unjust enrichment
        • Any reason not to enforce?
          • o Formation Defenses
            • SoF = $500 threshold + written, sig exception for merchant
              • 4 exceptions
            • Capacity = minor is void
            • Mistake = mutual, unilateral; must be material
            • misrep,
            • fraud,
            • duress,
            • unconscionability,
            • illegality/public policy
          • o Do parties have enforceable rights? = problems of third-party beneficiaries, assignees, and delegees
          • o Is there an absolute duty to perform? = problems of conditions, changed circumstances, discharge
        • What are the remedies?
          • o Specific Performance
          • o Damages: Expectation, (Consequential?), Reliance, Restitution
        • Theories: consent/voluntary, justice

Consideration

  • Contract requires:
    • detriment to promisee OR benefit to promisor -- usually look to detriment
    • Bargained-For Exchange – look for intent to induce
  • Consideration can consist of
    • return performance (unilateral contract – promise for performance)
      • Promise not tendered until act performed
    • return promise (bilateral contract – promise for promise)
      • Promise enforceable immediately
    • For every new agreement you need new consideration
    • Requires “mutuality of obligation” – both parties bound or neither is, Oliver Wendell Holmes, The Common Law

A. Bargained-For Exchange[edit]

  • Kirksey v. Kirksey (Alabama 1845) – conditional gift!
    • FACTS: Dear Sister Antillico.
    • HOLDING: D made merely gratuitous offer. No consideration à no bargained-for exchange à no contract breach.
      • Reciprocal inducement -- To be consideration, promisor must induce the conduct of the promisee. Prospect of conduct of promisee must induce the making of the promise (eg promisor expects benefit)
      • There was no apparent intent to bargain. D didn't ask for return promise. Just said "if you come see me."
    • Note
      • Promissory Estoppel does not require consideration (so easier), would have given her some protection
        • Measure of damages = reliance damages
      • Offeror actually did get some benefit by land policy, but court wasn’t aware of it.
    • Hamer v. Sidway (NY 1891) -- detriment
      • FACTS: Nephew promises not to drink or swear until he’s 18 for $5k from uncle. Then promises not to collect (eg sue for recovery) until he’s 21.
      • HOLDING: Waiving of any legal right or future claim is detriment. At request of other party is consideration.
        • Generally just look at detriment to promisee, then benefit to promisor doesn’t matter.
          • If promised party benefits is too open-ended question to resolve.
        • Langer v. Superior Steel (Penn 1932) – benefit makes bargain
          • FACTS: Guy retires under contract not to work for competitors, but then former employer stops paying.
          • HOLDING: Giving benefit to the promisor is typically enough to amount to bargained-for exchange.
            • To determine if a conditional gift or a promise -- Think about what the promisor is trying to get!
              • If nothing à no intent to induce à conditional gift.
              • If benefit à intent to induce à promise/bargained-for
            • Pennsy Supply Co v. American Ash Recycling Co (Penn 2006) – no actual negotiation needed
              • FACTS: No actual negotiation, but D offered free AggRite to P as potential contract if P would dispose of it for free.
              • HOLDING: This was more than a conditional gift. It’s BGE.
                • The free AggRite induced P; the free disposal induced D.
                • Not a conditional gift b/c (a) D actively promotes taking AggRite by bidding process, (b) D cost-savings.
              • In re Green (1930) – need sufficient consideration (more than mere recitation and nominal consideration)
                • FACTS: P’s consideration of $1 is nominal (“peppercorn”) and the “other good and valuable consideration” was not factually present/performed by P.
                • HOLDING: Court doesn’t normally care about consideration adequacy, but WILL look if sufficient.
                  • Past illicit intercourse is not consideration
                  • Restatement §71 cmt. b. “a mere pretense of a bargain does not suffice, as where there is a false recital of consideration or where the purported consideration is merely nominal” – must be actual contract
                    • Recitation of consideration not enough.
                  • Nominal Consideration = promisor falsely makes gift look like promise as bargain with the promise so that promise is legally enforceable, but the transaction lacks the substance of a bargain because neither party views each promised performance as the price of the other (ex. father promises to give daughter a house in exchange for $1 → it is clear that neither party views the $1 as the actual price of the house.)
                • Adequacy versus Sufficiency
                  • Sufficient = Have you met minimum to be an exchange
                  • Adequate = then look at proportion given/gained
                • As long as BGE, court won’t require
                  • Benefit to promisor AND detriment to promissee
                  • Equivalence of values exchanged;
                    • BUT: If values exchanged are so disproportionate, there may be evidence of something else:
                      • Misrepresentation making the promise unenforceable
                      • Purported consideration is not really consideration b/c it was not bargained for – rather the promise is a promise to make a gift (nominal consideration)
                    • Mutuality of obligation --???

B. Mixed Motives[edit]

  • Even if the promise reached due to mixed motives, the court won't look at the motives but just the actual outcome if there is sufficient consideration (i.e. non-peppercorn passing of value between parties)
    • o You won’t be relieved from a bad bargain unless the consideration is so inadequate as to be constructively fraudulent -- ??
  • Thomas v. Thomas (Eng 1842)
    • o FACTS: Rent was paid directly from P to D and was also obligated to care for the grounds.
    • o HOLDING: Agreement enforceable if there’s sufficient consideration, regardless of the parties’ motives.
      • Must be some detriment to promisee that wouldn't otherwise be there.
      • Don’t care about adequacy.
    • Browning v. Johnson (Wash 1967)
      • o HOLDING: In a unilateral contract, sufficient consideration to support a promise exists when, at the request of the promisor, the promisee incurs a detriment or the promisor receives a benefit.
        • First contract was invalid b/c: (a) Lack of mutuality – both parties need obligation, (b) contract too vague
        • Second contract was valid b/c: P gave up right to sue on claim for 1st K
          • DOESN’T MATTER THAT FIRST K INVALID, because it was valued.
          • Destruction of legal relation = consideration.
        • Apfel v. Prudential-Bache Securities (NY 1933)
          • o HOLDING: Disclosure of an idea by a seller may constitute consideration to support a contract even if the idea is not novel, provided the idea possesses value to the buyer.
            • Don’t need to show that idea is novel. Doesn’t matter if P owned idea or it was public knowledge.
            • ONLY need to show that exchange had real value to buyer.
              • UNLESS you contract explicitly for novelty.
            • D's continued payment and use of idea --> D got benefit à value --> consideration

C. Illusory Promise – Discretion, Mutuality, Implied Obligations[edit]

  • RULE: If a party is free to perform or withdraw from the agreement at his own unrestricted pleasure, the promise is illusory, and provides no consideration
    • Promises today are rarely illusory b/c courts will impute duty of good faith
    • Ex: What is an illusory promise? A promises to wash B’s car, and B promises…
      • To pay A if he feels like it? Illusory
      • To pay A if he likes the way it looks? Likely illusory, but courts becoming more tolerant of promises like this so long as subject to duty of good faith
      • To pay A if she does a good job? Promise, compared to market standard
      • To pay A if between $10-$20? Promise, because no matter what, she will have to pay
      • To pay A if sun shines for 15 minutes that day? Promise, subject to condition under control of 3rd party
    • Types of contract
      • Requirements Contract: one party agrees to sell all that the other party requires (I’m giving you all you require)
        • Seller may sell to other buyers, but buyer may not buy from other sellers
          • Seller gets the benefit of all the buyer’s business
          • Buyer gets the benefit of a steady supply, usually at a preferred or stable price
        • Output Contract: (I’m giving you all of my OUTPUT YOU’RE TAKING IT ALL)
          • Buyer can buy from other sellers, but the seller must sell all its output to the buyer
            • Seller is assured that it can sell whatever it makes
            • Buyer is assured of some supply, usually at preferred or stable price
          • Discretion
            • Rehm-Zeiher (KY 1913)
              • RULE: Contract is not enforceable when the execution of it is within the sole discretion of one of the parties.
                • To be enforceable, contract must be binding on both parties
                • No mutuality of obligation here -- P could request less whiskey for any “unforeseen reason,” leaving the amount it took entirely to its unfettered discretion (free opt out)
              • Mutuality
                • McMichael v. Price (1936)
                  • FACTS: D agreed to purchase all sand which he could sell from P. D ceased purchasing sand early.
                  • RULE: In a requirements contract, obligations of parties to buy and sell must be mutual.
                      • Breach if he does not make a good effort to sell sand, but in this case he was
                    • Forfeiting to buy sand from someone else = sufficient consideration/mutuality of obligation
                    • The freedom to go out of business is limited by the obligation to perform in good faith. So a shutdown motivated by the unprofitability of the contract may violate the duty
                      • D Argument that P could escape liability under contract by going out of sand business– no merit.
                    • HOLDING: Court infers mutuality and a duty of good faith to sell – Valid outputs contract.
                  • UCC 2-306: allows good faith requirements and output contracts
                    • Sympathetic to use of "open price" terms. Encourages "certainty with flexibility"
                    • Good faith – DO NOT specify quantity "unreasonably disproportionate" to prior quantities
                      • Ex: Don’t request B purchase 10k units when he normally purchases 1
                    • If contract appears to be one-­‐sided, courts can…
                      • Say it lacks mutuality so no agreement
                      • Read it in a way to salvage it (that parties intended agreement to be bound)
                      • Rectify agreement – just add an obligation (seems like court had a basis for it this way)
                        • “You’ve been getting it, so we add a term to make more mutual”
                      • Damages: don’t pay under K, but still pay since you received benefit (under unjust enrichment)
                    • Implied Obligations
                      • Wood v. Lady Lucy Duff-Gordon
                        • RULE: There can be implied obligation of mutuality to sustain consideration, based on context
                        • HOLDING: Implied promise to make “reasonable best efforts” to market Duff-Gordon's trademark.
                            • UCC 2-306: agreement for exclusive selling of good imposes duty to use “best efforts” by both parties
                            • Implication found due to: (a) P's profession as brand marketer and (b) granting of exclusive right on condition of paying half profits.
                          • Rejection of legal formalism – Cardozo attempts to fill in gap of poorly drafted contract
                            • Look at INTENT to be bound (D couldn’t profit w/o P’s efforts, accounting)
                          • If obligation is imperfectly expressed (or impliedly expressed), there is a contract.
                            • Courts will go out of their way to find implied mutuality.
                          • Note: No recitation of contract here, but valid contract. Compare to Greene (agreement, but nominal)
                            • No clear rule on if recitation required. Courts consider context behind case.
                              • In Greene, socially bad exchange (agreement so to declare bankruptcy and get money back)
                              • In Duff-Gordon, socially valuable exchange (commercial)
                            • Omni Group v. Seattle First National Bank ()
                              • FACTS: Agreement for sale of land for money, auto on condition that Omni gets satisfactory report of feasibility. Omni foregoes report, so auto bound to purchase. Clark sues to get out (thinking he can get better deal), claiming Omni's initial promise was illusory b/c subject completely to Omni’s control.
                            • o HOLDING: Promise given for promise dependent on condition does not render it illusory.
                                • Valid consideration = promisor’s duty of good faith to judge satisfaction.
                                  • Whether the promisor was actually satisfied or should reasonably have been satisfied is a question of fact, but in neither case is the promisor’s promise rendered illusory.
                                • Mutuality of obligation looked at objectively vs. subjectively.
                                  • Objectively = reasonable person (OK here)
                                    • Ex: "If report is satisfactory, then A shall…"
                                    • Must be "practicable" to determine reasonable person would be satisfied
                                  • Subjectively = personal
                                    • Ex: “If report is satisfactory to A, then A shall…”
                                    • Not illusory because court reads as subject to good faith
                                      • Good faith obligation to produce report
                                      • Good faith obligation to be satisfied on receipt of report
                                    • Context: Court wants to encourage predictability of contracts; don't want Clark reneging on deal b/c decides he wants more.
                                  • So conditional way out is fine. Common for contract to have: (a) conditional performance or (b) reserved power of termination
                                    • But “way out” must restriction on discretion or else lacks mutuality (because unrestricted)
                                      • Ex: duty of good faith, party's dissatisfaction must be reasonable/good faith, termination announced with advanced notice
                                    • Remedy = specific performance.
                                  • Warrick Beverage Corp. v. Miller Brewing Co. (1976)
                                    • FACTS: Brewer and distributor had some type of contractual obligation to each other via buy/sale of goods (via UCC), even though they had written agreement that gave mutual reservation to terminate and stated they had no other relationship.
                                    • HOLDING: Thus, no mutuality and must abide by law requiring fair and due regard to other party before terminating.

D. Pre-Existing Duty Rule[edit]

  • RULE: Promise to perform a preexisting legal duty does not constitute consideration for new contract or modify.
    • EXCEPTION (both UCC and Restatement): Modification w/o consideration allowed so long as the proposed modification is warranted by a legitimate commercial reason (usually a change in circumstance that substantially increases the cost of performance for one party)
      • UCC §2-209: Allowed if… adopted in good faith (honesty in fact and fair dealing)
        • Adhere to "reasonable commercial standards in fair dealing"
        • ONLY applies to sale of goods (wouldn’t apply to Alaska Packers’ labor contract)
      • Restatement §89: Allowed if… “fair and equitable in view of circumstances not anticipated”
        • Three Part Test:
          • (1) modification made before K was fully performed by either side;
          • (2) underlying circumstances which prompted modification were unanticipated;
          • (3) modification is fair and equitable
        • And must be voluntary
      • Alaska Packers' Association (1902)
        • FACTS: Refused to continue fishing while at sea unless raise. No replacements so captain agrees to raise without them agreeing to do more time working.
        • RULE: Modifying contract must bear new consideration. Can’t just promise to do exact same thing as already legally bound to do by prior promise (no new detriment to promissee)
          • No new consideration here (no changed circumstance).
          • Duress/coercion -- Even if there was consideration, the new contract was made under duress (eg ship couldn’t get cargo profit without labor). So refusal to pay later not breach of contract.
        • Remedy = modification not enforceable. If employer sued – not clear damages because hard to measure lost profits– expectation damages (and workers probability couldn’t pay
      • Angel v. Murray (1974)
        • FACTS: D paid an extra $10,000/yr to a trash collector under contract by the city (P) due to an unexpected increase of 400 dwelling units. Guy already contracted to clean ALL trash. Is the modified contract supported by consideration? Yes.
        • RULE: Modification of contract is valid if unexpected difficulties arise during course of performance + parties agree voluntarily (not under duress) to modify it.
          • Three Part Test: (1) modification made before K was fully performed by either side; (2) underlying circumstances which prompted modification were unanticipated; (3) modification is fair and equitable
        • Massachusetts Rule (minority): Idea that foregoing right to sue on breach of contract (for prior contract) is sufficient detriment to make new, modified contract
        • Policy considerations?

E. Moral Obligations & Revived Legal Obligation[edit]

  • OLD RULE: Promise based on moral obligation/past consideration has NO consideration. Considered donative promise, thus unenforceable (Mills)
    • EXCEPTION:
      • If there was preexisting legal obligation before new promise, but which was barred by some other rule of law (ie SoL). The subsequent promise revives that legal obligation.
      • When promise made after promisor received material benefit.
    • MODERN RULE: Promise based on moral obligation is enforceable if tied to previous material benefit, provided the benefit gave rise to an obligation to make compensation (Webb)
      • Restatement 86 = “Promise made in the recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice”
        • So consider if unjust not to enforce promise. Was P just acting as good Samaritan w/o expectation of payment? Was value of care much less than value of payment?
      • o Policy implication
        • May ensure that people fulfill certain moral obligations. Society thinks that is important
        • In situations where contract not possible à incentives people to provide goods or services with some confidence that they will be compensated later (ex: docs will help unconscious people for later payment)
        • Court may not enforce full promise if its way more than benefit received
      • When to substitute moral obligation for consideration?
        • o Was there an opportunity to K? à If yes, enforce ex-post promise
        • o Was there a promise or other acknowledgment of the moral obligation? à Enforce obligation if promise
        • o What is the nature of the benefit conferred / source of the moral obligation?
          • Type of benefit normally compensated for or should be? à If yes, enforce
        • o Relationship btw parties?
        • o Did party conferring benefit expect compensation? à If yes, maybe enforce
        • o Will denying compensation make future provision of goods/services in similar contexts less likely? à If yes, likely enforce
      • Mills v. Wyman (Mass 1825)
        • FACTS: P cares for D’s adult son without request, but son dies. D then promises to pay for the care, but later refuses.
          • D’s promise is unenforceable, because he did not receive material (e.g. economic) benefit from Mill’s actions (saving his son’s life doesn’t count as a material benefit).
        • RULE: Promise based on moral obligation (w/o consideration) ONLY enforceable if tied to preexisting legal obligation.
          • If subsequent promise of moral obligation has underlying legal obligation à Can revive preexisting legal obligation even if now inoperative by law (ex: bankruptcy, SoL)
          • No legal consideration, just verbal promise. Need MATERIAL BENEFIT EXCHANGE.
            • Father never requested care + didn’t expect anything in return for later promise
              • Cannot promise to pay for nothing
              • If Father had requested à quid pro quo
              • If son was alive when promise was made à father had to pay – quid pro quo
            • No legal obligation to pay for adult son
              • If son was 16 à material benefit because son is part of you as a minor. Your health has material economic benefit. Father has obligation to provide for minor
            • RULE: Prior conduct cannot constitute consideration. Need MATERIAL BENEFIT EXCHANGE.
          • o Note:
            • Courts are increasingly recognizing reliance interests which would allow P to recover here
            • Subsequent promise = acceptance that allows for Unjust Enrichment claim
          • Webb v. McGowin (Alabama 1935)
            • o FACTS: In consideration of P having prevented him from sustaining bodily harm and in consideration of the injuries P received, D agreed to pay him $15/week for the rest of his life for his maintenance. P dies. D still has to pay to P’s estate.
            • o RULE: Material benefit received in the past can constitute consideration for a subsequent promise to pay in the future
          • First Hawaiian Bank v. Zukerkorn – revived legal obligation
            • o FACTS: Collection of demand notes was barred by six-year statute of limitations unless something occurred which started running it anew. D agreed to pay off prior debt (after SoL run) when getting new credit card from bank. No decision here, left to jury.
            • o RULE: New express or implied promise to pay a debt by debtor (whether previously barred by SoL or not), binds the debtor for a new SoL period.
              • A new promise by a debtor to pay his debt may occur by:
                • (a) express promise,
                • (b) express acknowledgement of the debt (implied promise),
                • (c) partial payment on debts (implied promise)

F. Reliance[edit]

  • Requirement: (a) reasonable, (b) change of position ---can you get reliance from contract claim? What are damages?
  • You either have claim for contract OR promissory estoppel (NOT BOTH)
    • If there is promise of conditional gift
      • Can get detrimental reliance -- If you reasonably relied on statement, and b/c of that had detriment (did something or refrained)
      • Claim = Promissory estoppel
    • If there is promise of act on return promise --> potential inducement --> contract
      • Contract reliance
        • Reliance damages
        • Losses sustained by promisee
      • Claim = breach of contract
    • CAREFUL ON EXAM: IF YOU’RE IN K, CAN’T TAKE SECOND BITE IN PROMISSORY ESTOPPEL DON’T JUST INVOKE PROMISSORY ESTOPPEL AS ALTERNATIVE CLAIM, ONLY VALID IF TRYING TO ESTABLISH CONSIDERATION TO MAKE IT A VALID K
    • Doctrine: If a gratuitous promise induces material reliance by the promisee in a manner that the promisor should reasonably have expected, the promise may be legally enforceable (BUT DOES NOT CREATE A CONTRACT)
      • No consideration or BGE. Reliance is the substitute for consideration.
      • Elements: some confusion in First v. Second Restatement
First Restatement
-Promise by promisor
-Reasonably expects to induce and does
-Action by promissee
-Definite and substantial character
-Enforced to degree that avoids injustice
-(emphasis on action, not remedy justice)
Second Restatement
-Promise by promisor
-Reasonably expects to induce and does
-Action by promissee OR third party
-(No definite and substantial character)
-Enforced to degree that avoid injustice
-Remedy limited as justice requires
    • Enforceable if it induces a detriment to the promisee // flexible – can be stretched
    • Public Policy: equitable doctrine, some false negatives, usually an imperfect substitute for consideration, forward looking, etc.
  • Remedy = often be limited to reliance damages – some debate as compared with Restatement
    • 2nd Restatement §90: treats as a contract and says default is expectation damages, not reliance,
      • “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.”
    • Consider context if promissory estoppel available
      • Promises more likely to be legally binding in a commercial than familial relationship
      • Charitable subscription is typically binding
    • When to look for promissory estoppel?
      • Failure of consideration
      • Failure of agreement
      • Lack of required writing
    • Equitable estoppel = Prohibition on person denying existence of state of facts if it intentionally leads other person to reliance on circumstance and thus incur detriment.
      • o 4 elements (Strong v. County of Santa Cruz, Cal. 1975)
        • Party to be estopped is apprised of facts
        • He intends that other party will act based on his conduct, or detrimented party had right to believe it was intended
        • Detrimented party is ignorant of true facts
        • Detrimented party relied upon conduct to injury
      • Ricketts v. Scothorn – Equitable estoppel (relied detriment = consideration, contract)
        • o FACTS: Grandpa gave granddaughter promissory note to pay her annually so she didn’t have to work, and she quit (relied on that promise?). Got another job later with his consent, and he never repudiated the obligation – said he would pay when he sold the farm. Grandpa died and P sued for payment.
        • o HOLDING: Substantial/reasonable detriment based on inducement/reliance serves as consideration for the promise (thus contract exists, so D equitably estopped from denying consideration)
          • Court finds consideration b/c desired reliance led to detriment despite nonbargain
          • Remedy = reliance damages (less than expectation damages) which did she get?
          • Application of equitable estoppel (though same idea as promissory estoppel, just with contract)
            • (a) Expectation by grandpa’s intentional promise, (b) P reasonably relied on it, (c) not look for work is substantial character (but not forever), (d) would be unjust to deny payment
          • Unusual use of estoppel. Court usually reluctant to estop statements of future facts/predictions/promise versus existing facts. Also usually understood as shield, not a sword
        • o Note: Distinguish from Hammer v. Sidway, where that was promises exchanged supported by consideration subject to a condition (don’t swear), which is allowable WITHOUT promissory estoppel
      • Langer v. Superior Steel Corp. (above) – Reliance as consideration for contract OR promissory estoppel
        • o Promise could be enforced on either consideration or promissory estoppel
        • o Legal detriment/forbearance constitutes consideration
      • Charitable Subscriptions
      • Charitable subscription is typically binding
        • Second Restatement doesn't require proof of reliance for charitable subscription to be binding
          • Unbargained-for reliance by charity on promised gift can be difficult to prove
        • Based on public interest benefit of charities
          • Rejected in Kadimah (outlier)
        • o Allegheny College v. National Chautauqua County Bank of Jamestown (NY 1927)
          • FACTS: D promises $5k donation for scholarship in her name after death. School never expressly accepted. D gives $1k but then reneges.
          • HOLDING 1: For charitable subscription, bilateral contract exists when party accepts offer.
            • Implied consideration: Moment college accepted $1k, they assumed the duty to do whatever acts were customary or reasonably necessary to maintain the memorial.
              • o P benefit from named scholarship. If it were anonymous, she could repudiate.
              • o BGE implied by accepting cash.
            • Bilateral contract created! So D reneging was breach.
              • o If offer withdrawn before condition met (ie no scholarship established yet) + no promise by school (verbal or implicit) --> Even if consideration, unilateral contract
              • o If offer withdrawn after first payment made --> School makes promise by accepting down payment --> bilateral contract!
            • HOLDING 2: For charitable subscription, promissory estoppel exists when reasonable steps taken to meet induced promise. (Don’t need to show actual reliance or actually taking steps).
              • Restatement §90.2, “A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forbearance”
                • o Basically promissory estoppel w/o inducing reliance, which is a weird exception.
              • DISSENT: Offer becomes a promise when the condition is satisfied; this condition was not satisfied
            • o Congregation Kadimah Toras-Moshe v. DeLeo (Mass 1989)
              • FACTS: Payment promised orally, but estate refuses to pay after his death. He did not request anything in exchange. Synagogue doesn't promise to do anything, but factors $25k into budget and plans to use it to repair shed into library.
              • HOLDING: Congregation had no reliance (didn't act/forebear on info) --> no promissory estoppel
                • Does not follow Restatement section requiring no proof
              • RULE: Promises that are too indefinite to give rise to contract claim CAN give rise to promissory estoppel claim (Blynn / Red Owl)
              • Do we need to know cases like King v. Riveland, Prinicpal-agent relationship, entertainment contract?

Agreement[edit]

RULE: If acceptance too indefinite to form a contract, was it definite enough to form a promissory estoppel claim?

              • Offer
                • o Subjective Test: Meeting of the minds when forming a valid contract
                • o Objective Test: Reasonable person standard in determining if words and actions constituted valid offer
                  • (1) Could words/actions be understood as offer by reasonable person in promissee's position?
                  • (2) Did promisee understand it as such?
                • We only care about reasonable interpretation of outward statements/actions, NOT inner thoughts
                  • Secret thoughts may only be relevant if the contracting party actually knows what the person is secretly thinking
                • o What is not an offer?
                  • Something that a reasonable person would not think is serious
                  • Mere invitations to negotiate
                • Acceptance
                  • o Objective Theory of Contract: Acceptance = Something that a reasonable person would think was an acceptance
                  • o Mailbox Rule: An offer is treated as accepted as soon as it leaves the hands of the offeree
                  • o Master of the Offer: Offeror can specify in the offer the steps that must be taken to accept to the offer:
                    • This can be used to limit what will count as acceptance (ex: you can only accept by signing on the line and returning by FedEx)
                    • Can’t be used to expand the scope of what constitutes an acceptance beyond what would reasonably appear to be an acceptance (ex: “you can accept by just rolling out of bed in the morning” does not make getting out of bed an acceptance)
                  • o Terminating Acceptance
                    • When is it no longer possible to accept an offer?
                      • The offer has expired b/c of a lapse of time (time that is stated in the offer, or if there hasn’t been a time stated, after a reasonable amount of time)
                      • The offer has been revoked before it was accepted, assuming the offer was revocable
                    • Mirror Image Rule (Common Law): If it is conditional on other terms, it is a counteroffer even if those other terms are minor
                      • Also, unless the response makes clear that it is not conditional on the other terms, courts are likely to find that it was conditional on the other terms
                    • Revocation UNLESS offer is irrevocable or offer has already been accepted
                      • Revocation can be express or implied (implied = if offeror takes a definite action inconsistent w/an intention to enter into proposed K and offeree acquires reliable info to that extent)

A. Offer[edit]

              • Doctrine: Expression of an offer creates a power of acceptance in the other party, which is a power to conclude a bargain
                • Key Principles:
                  • MUTUAL ASSENT
                  • OBJECTIVE THEORY OF CONTRACTS (Zehmer, Embry)
                • Two essential elements:
                  • Intent to enter a bargain, and
                    • Offer → “I will sell or buy”
                    • Invitation to deal → “I would consider, etc.” All just negotiations and NOT formal offers (advertisements are invitations to deal and not offers in the contract law sense of the word)
                      • Exception: ads MAY be offers if they are in definite terms and (1) show clear intent to make a bargain, (2) invites those addressed to take specific action without further communication, or (3) over-acceptance is unlikely
                    • Definiteness of terms
                      • Requires an expression of an offer to make clear (1) the subject matter of the proposed bargain, (2) the price, and (3) the quantity
                      • EXAM: HAVE TO MAKE CLEAR WHAT IS BREACH
                    • Some Principles re Offers:
                      • Create a power of acceptance in the offeree (different from invitations to make an offer)
                      • Terms must be sufficiently definite on material terms (reasonable for recipient to read intent)
                        • Court must be able to understand obligations, performance, and breach to be contract
                      • Offeror is “master of her offer”
                        • Can set mode of acceptance, as long as something offeree isn’t expected to usually do
                          • Rationale: Power imbalance -- offeror has demand
                        • Can withdraw contract anytime before acceptance, IN ABSENCE of consideration/invited reliance
                      • If no consideration for offer, offeror can withdraw anytime before acceptance
                        • EXCEPTION: Options Contract = offer based on consideration (eg I promise not to withdraw offer for 10 days) à cannot withdraw unilaterally
                      • Fine to pose multiple offers for same thing
                        • Offeror avoids responsibility to multiple acceptors by withdrawing offer before acceptance (notify offeree or make them aware)
                        • Even fine to make 2 contracts, knowing one will have certain breach
                      • Restatement:
                        • 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
                        • Restatement §26: Preliminary Negotiations A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of dissent
                      • Rejection (denying offer) versus revocation (withdrawing offer)
                    • Objective Theory -- Unclear Acceptance / Joke Offer
                      • Mutual assent required
                      • OBJECTIVE THOERY OF CONTRACTS
                    • o Embry v. Hargadine, McKittrick Dry Goods Co. (Missouri 1907)
                      • FACTS: P (offeree) demands at will contract extension. D says “that’s all right, get your men out there”.
                      • HOLDING:
                      • RULE: Objective reasonableness found by words/acts despite being counter to the offeree's intent.
                        • Offer doesn’t require ACTUAL meeting of minds.
                        • Mutually beneficial exchange not necessary.
                        • RULE: If terms are very indefinite – contract isn’t enforceable
                          • o Except: CONTRACT RENEWALS are enforceable because assume you’re adopting earlier terms
                        • Remedy?
                      • Lucy v. Zehmer (VA 1954)
                        • FACTS: D agrees to sell farm to P when drunk. Negotiated for 40 minutes, wrote and signed on napkin. D claims it was joke, but D only expressed joke to wife before signing.
                        • HOLDING: Objectively reasonable contract.
                          • No requirement of formality in contracts, but evidence of writing/negotiation is considered = strong presumption of agreement
                          • If P had been aware that D thought it was a joke, then it's not valid
                          • Extreme drunkenness not always easy to tell – factual Q // D wasn’t that drunk
                          • Remedy = specific performance
                        • o Public Policy of Objective Theory of Contract
                          • Facilitate exchange -- Make it rational to invest. Rely on contract.
                          • Reduce gaming – Easier to give more info. Don’t want people to disingenuously withhold and be sly.
                          • Morally, let person be responsible for himself. Autonomy over presenting themselves, proving capacity, learning from mistake.

B. Advertisements as Offer or Mere Solicitation[edit]

              • Doctrine
                • RULE: Advertisement constitutes an offer if it is clear, definite, and explicit and leaves nothing open for negotiation – acceptance will complete the contract. (Lefkowitz)
                  • TEST: Leaves nothing open to negotiation = reasonableness (Pepsico)
                    • Two parts of test:
                      • Would reasonable person have understood it?
                      • Did P understand it?
                    • Restatement §26 Comment B: “Ads of goods by display, sign, newspaper, radio, TV, are not ordinarily understood or intended as offers to sell. The same is true of catalogues, price lists, and circulars, even though the terms of the suggested bargains may be stated in some detail – possible to make an offer to the general public but there must be some language of commitment”
                  • Lefkowitz v. Great Minneapolis Surplus Store (1957) – ad is not formal offer, unless clear, definite, explicit + leave nothing open to negotiation
                    • FACTS: Ad mentions specific item (fur coat of $160) for set price ($1) on first come, first serve basis. P wants to buy, even though he knows there’s “house rule” of only selling to women.
                    • HOLDING: Ads are usually not formal offers, merely invitation to offer.
                    • RULE: If public ad is clear, definite, explicit + leaves nothing open for negotiation à constitutes an offer, acceptance of which will complete the contract.
                      • Once you put in the specific language, the seller won’t be stuck with multiple contracts, and will sell to just one person, the first person that shows up
                      • Bilateral promise (promise to sell if you come to buy) à contract made upon acceptance.
                      • Specificity is important for damages
                        • If you can specify specific object lost, then you can calculate damages
                        • Specific language = seller tied to one contract (first person to show up). No problem of seller stuck with commitment to multiple buyers.
                      • Bait and switch = Using intentionally vague ad to get people into store
                        • States will prohibit bait-and-switch ads by law
                        • Ex: "While supplies last" is acceptable
                      • Damages = difference btw normal price and advertised price.
                    • Note: If advertiser does NOT want to be on the hook for an offer, then they should leave out specifics of the deal and make the advertisement as ambiguous as possible
                  • John Leonard v. Pepsico – JOKE AD, NO LANGUAGE OF COMMITMENT TO OFFER.
                    • FACTS: P thought he could get a Harrier Jet from catalog due to a Pepsi commercial/promotion. Rejected.
                    • Holding: The commercial was just an ad, not an offer. Unreasonable to believe he could get a jet. Plus, Pepsi specified mode of acceptance with very specific procedure that did not work for jet.
                      • Ad wasn't specific, just said “refer to catalog for terms of offer.” --> Commercial didn't give terms, so no complete offer (promise)
                        • “Terms and conditions MAY apply” è catalog didn't make promise for jet à no contract upon acceptance (because not bilateral contract)
                      • RULE: No objective person could reasonably have concluded that the ad offered a jet.
                        • Clearly a joke: funny, injects drama, improbably plot, exaggerated fantasy of traveling in jet, jet is a military plane, $700,000 is nowhere near jet’s value – commercial was joke
                      • Policy
                        • Importance of Objective Standard
                          • Objective reasonableness standard at heart of contracts
                          • Enhances economic certainty
                          • Not perfect for individuals -- can bind them without expectation of being bound
                          • "Meeting of minds" is fiction -- just need appearance, not actual
                        • Fact-Finding
                          • Judges are recently most common fact-finder
                          • Many issues have transformed from matter of fact to matter of law
                            • Allows judges to do fact-finding, b/c they cover matter of law
                          • Judges ruling for who they think should win, not actually who should

C. Acceptance[edit]

              • Doctrine:
                • Major questions: (1) what kind of acceptance is required (promise [bilateral] or act [unilateral]), (2) when can silence operate as acceptance
                • Acceptance for offer of bilateral contract
                  • RULE: Generally can ONLY be accepted by a promise
                    • Ex: If you offer to pay painter $500 if they promise to paint garage and they start painting à you can revoke because they never accepted by promise
                      • Compare: If you offer payment if they paint garage (NOT promise) and they paint à you cannot revoke because they accepted by performance
                    • RULE: Acceptance not effective until offeror receives NOTICE
                    • Express acceptance is always good.
                    • Non-standard forms of acceptance = silence, continuing act, etc.
                      • Promise implied from conduct
                        • Acceptance of benefit may result in K where it leads an offeror to reasonably conclude that her offer has been accepted
                        • Ex: If painter nods head yes in response to request for promise to paint garage, this will count
                      • Promise implied by silence
                        • Limited circumstances – only applies when prior course of dealings makes it so that offeror has reasonable grounds for construing silence as acceptance and does so.
                      • Performance to signify a promise
                        • Possible to do something to signify promise.
                        • Ex. “if you want to accept my offer to buy your car, let me know by leaving your car in my driveway on Thursday
                      • Acceptance for offer of unilateral contract
                        • RULE: Becomes binding on COMPLETION of performance
                          • D can withdraw offer anytime completion, must pay restitution.
                          • RULE: Need not notify offeror, unless offeree has reason to believe that offeror won’t know of performance
                        • Restatement 45:
                          • If performance can be completed instantly à offer can be withdrawn only before performance
                          • If performance cannot be done in an instant à offer can be withdrawn up to significant time after performance has begun
                            • But offeree reliance interest protected. Option contract created when offeree tenders or begins to tender performance (Options Contract! So offeree owed re
                              • Whats difference btw tender and beginning to tender?
                            • Offer construed as open for a reasonable time.
                              • Notice is not normally necessary before a contract is created
                            • Acceptance for offer requesting promise OR performance
                              • RULE: If acceptance allowed by performance or promise, accepted at beginning of performance (Evertite)
                                • Contrast: If acceptance invited ONLY through performance, partial performance will create an option contract
                              • Restatement 45/87/62/97
                            • Acceptance by Promise
                              • La Salle National Bank v. Mel Vega (Ill. 1988)
                                • Facts: La Salle is buyer of real estate from Vega. Contract says it's not formed until signed by buyer’s trustee. La Salle’s agent (not trustee) signs and returns to Vega. Vega signs, but then reneges.
                                • HOLDING: Contract not formed. Acceptance was conditioned on specific terms (trustee signing), not met.
                                  • RULE: Offeror is master – can specify terms of offer including MODE of acceptance
                                  • Offer = act by one person giving other person legal power to create contract (obligation)
                                    • If doesn’t confer power of acceptance, then mere solicitation
                                  • Hendricks v. Behee (Missouri 1990)
                                    • Facts: D made offer to P to buy real estate. He sent offer to P's agent, they accepted. But D notifies P of withdrawal before D notified of P’s acceptance. P contends that the contract ripened when they accepted (b/c there's $5k deposit on the line).
                                    • HOLDING: To accept bilateral offer, acceptance MUST be communicated to offeror.
                                      • Unless offeror specifies that no notice required
                                      • Notifying offeree agent is insufficient à must notify OFFEROR (or their agent)
                                      • Mere signature insufficient (mutual assent – other party needs reasonable belief of acceptance)
                                        • 2nd Restatement: Unless case where silent acceptance or offer specifies otherwise, acceptance must be made with (a) reasonable diligence to notify or (b) seasonable time
                                      • Law of Agency = If agent acting under scope of authority, their act binds the principal
                                        • Even if principal not aware of agent’s action (but principal then has action against agent)
                                      • Note: Mailbox rule – if they specify the date, you need to have it postmarked by that date (not actually to them)
                                    • Acceptance Implied by Silence
                                      • GENERAL RULE: Silence =/= acceptance
                                      • 2nd Restatement on acceptance by silence
                                        • Trade Usage = norms of trade generally
                                        • Course of Performance = way you interact in formation of that contract can explain what contract means
                                        • Course of Dealing = What norms established by interaction btw these parties over multiple past contracts
                                      • o RL Ammons v. Wilson & Co (Mississippi 1936)
                                          • FACTS: D tells P its willing to receive order up to certain price/amount, subject to acceptance by D. P makes huge order and doesn’t hear back from D. P relies on silence as acceptance to ship b/c D had been silent for 7 days and shipped in the past. But D doesn’t ship and refuses b/c product price goes up.
                                          • RULE: K exists when party can and does reasonably rely on silence for acceptance of performance
                                            • Course of Dealing (prior history) meant P reasonably relief on silence; D needed to reject in 7 days
                                          • o Beneficial National Bank USA v. Payton (Mississippi 2001) = contracted to allow acceptance by silence
                                            • Facts: D’s CC contract says bank can modify terms. D gets 30 days to reject (terminates K) or auto enforced. P added arbitration clause and D didn’t respond within 30 days.
                                            • HOLDING: Offeror can contracting around general rule of no acceptance by silence (UCC 3-205)
                                              • Restatement #69 -- Course of Performance (wrote it into contract at formation)
                                                  • Objective showing that silence demonstrates subjective intent
                                                • Policy
                                                  • Beneficial -- Bad balance of bargaining power -- Does consumer have alternate options? (ie banks that don't require arbitration)
                                                    • Unconscionable? Voluntary? Are CC necessary part of everyday life? Prof. thinks no.
                                                  • Consumer advocates feel arbitration is bad -- more favored by corps
                                                  • Reasonable to expect people to read through contract?
                                                  • Efficiency argument: Allowing silence/arbitration is efficient
                                                    • Counter: Requiring written consent is clearer, though
                                                  • Acceptance by Performance OR Promise
                                                    • UCC §2-206(a): “Unless otherwise unambiguously indicated by the language or circumstances, an offer to make a contract shall be construed as inviting acceptance in ANY manner reasonable under the circumstances” (in other words, acceptance by promise or performance both OK unless expressly indicated otherwise).
                                                    • Ever-Tite Roofing Corp. v. GT Green (Louisiana 1955)
                                                      • Facts: D offers to hire P for roofing job. Contract required party/agent signature OR commencing performance. P’s agent signs but wasn’t authorized to do so. (but wasn't authorized to accept contracts for P). D hires someone else while P waits for credit approval. P shows up to work and D denies contract. D says written proposal/offer never accepted in manner stipulated.
                                                      • HOLDINGS:
                                                        • RULE: When offer doesn’t specify acceptance, it can be by performance OR promise.
                                                          • Beginning performance immediately creates K because signals intent, just like promise.
                                                        • If no time specified, must leave open for reasonable time. (Restatement)
                                                          • D knew there would be a reasonable delay due to compliance standards
                                                        • If offeror wants to withdraw, must provide timely notice of intent.
                                                          • D must at least attempt to notify P before he showed up -- had P's name/address
                                                        • Remedy = P receives damages for cost of loading trucks and expected profit with interest
                                                          • Could be covered by Reliance/PEstoppel (if K starts at first performance) or Restitution/Unjust Enrichment (if K starts at end of performance)
                                                        • o Second Restatement 45: For offers seeking only performance for acceptance -- performance begins only at actual performance invited by offeror
                                                            • Actual performance binds offeror, but preparation to perform binds offeree to completion
                                                          • Acceptance by performance
                                                            • o K starts at COMPLETION of performance.
                                                          • Sec 62 = if offer indifferent as to promise or performance -- tendering of performance (if one shot) or tendering of beginning of performance (if longer) forms contract, not option contract
                                                            • Dealing with mode of acceptance (contract formation)
                                                          • Sec 45 = beginning performance creates option contract.
                                                            • Dealing with reliance interest (not contract formation)
                                                          • Sec 90 = real promise
                                                            • If a donative promise induces reliance by the promisee in a manner that the promisor should reasonably have expected, the promise will be legally enforceable (Kirksey)

D. Irrevocable Offer / Option Contract[edit]

              • Doctrine:
                • Option Contract = Offer that has consideration (Eg: I promise not to withdraw offer for 10 days)
                  • Offer is an actual contract in this case!
                  • Cannot be revoked anytime.
                    • Offer must be held open for (a) time stated or (b) reasonable time if no time stated
                  • Res. 45 (common law) creates Option Contract that parties did not expressly create to protect offeree reliance
                • Timing Issues
                  • “Mailbox Rule”: Acceptance effective when letter is posted/mailed -- DEFAULT
                    • Only applies when person follows how they were supposed to accept the offer
                    • Does not apply to option contracts when there is a date of receipt (Otherwise option would be lengthened for free) – Adams?
                  • Offers, counter-offers, and revocation are effective on receipt
                • Humble Oil & Refining Co v. Westside Investment Corp (Texas 1968) = Request to change terms doesn’t terminate power of acceptance of an option contract. Performance of condition is all needed.
                  • o Facts: P pays $50 for right to keep offers from D open for 10 days, thereby making option contract (consideration). D makes offer, P writes back to amend terms, D doesn’t respond so P accepts original offer. D objects, saying that P’s amend equaled rejection and counteroffer.
                  • o HOLDING: In options contract, P not foreclosed from negotiating contract of sale as distinguished from the option. Counteroffer on land sale does not destroy option contract (so initial offer still on the table).
                    • GENERAL RULE: conditional acceptance is a rejection of the offer + counterproposal for a new contract.
                      • EXCEPTION: Can contract around default rule. In binding option, offeree not foreclosed from negotiating new terms! Binding option still open to ultimate acceptance.
                    • Remedy = specific performance of initial offer.
                    • Consideration valid here due to payment… Majority view: If no consideration paid, no contract. Minority view: Even if consideration ($50) isn't paid, there is implied promise to pay so contract not void.
                  • Restatement 37: Termination of Power of Acceptance Under Option Contract: 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 contractual duty
                • Marchiondo v. Scheck (NM 1967) = Option contract seeking performance; part performance
                  • o Facts: Scheck (D) offered to sell real estate to buyer and pay percentage to broker (P). Offer had 6-day time limit, but no payment. On 6th day, D notified revocation of offer, and then P secured buyer.
                  • o HOLDING: D’s offer to pay commission upon sale was offer for unilateral contract (act to perform was sale)
                    • Completed performance (making sale) à creates unilateral contract
                      • Remedy = commission
                    • Part performance creates consideration for 6-day offer à creates option K, which is irrevocable.
                      • D can revoke only until offeree acts enough sufficient to be part performance
                      • Restatement 45: option contract created when offeree begins or tenders part of performance
                        • Remedy = offeree must have oppt to complete within stated time (or reasonable time if none stated)
                          • Offeror bound to keep offer open; offeree not bound to complete
                          • Protects reliance interest of offeree
                        • Difference btw commencement of performance and partial performance. PP = there is enough to show substantial reliance or to show that completion was probable
                      • Drennan v. Star Paving Co (California 1958)
                        • FACTS: D submitted bid for school job and bid was lowest. P used D's bid to compute own bid. D made mistake in math and refused to carry out the job at the original price. D wasn’t certain P would use D's bid. Did plaintiff’s reasonable, justifiable, and foreseeable reliance make D’s offer irrevocable?
                        • HOLDING: D’s offer to bid must be enforced to avoid injustice. Or
                          • D could reasonably expect that P would reasonably rely on its bid à D’s bid/offer is irrevocable
                            • D only bids w/ expectation to win with low price, so it knows P will rely on it.
                            • If P should know that bid is too low, then no reasonable reliance.
                              • But P had no reason to know D had made a mistake in submitting the bid. D's bid was within large variance of normal bids in this market.
                            • Offers aren’t always revocable, but option contract created by reliance
                              • D could have contracted to say that offer always revocable, but didn’t
                            • Remedy = Difference between D’s bid and cost of O’s replacement of D
                          • Restatement 90: “A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the party of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of that promise”
                        • Adams v. Lindsell (Eng 1818) -- timing issue
                          • FACTS: Lindsell offers sale to Adams, asks for acceptance in due course (14 days). Offer letter gets misdirected and arrives delayed, due to Lindsell’s negligence. When Adams finally gets it, he immediate mails acceptance but arrives too later.
                          • HOLDING: Adam’s acceptance is fine. Even though L negligent, A is good via Mailbox Rule.
                            • Dismissed the precedential rule (acceptance only upon offeror’s receipt), b/c of limits of post office.

Restatement 32 = invitation of promise or performance In cases of doubt, offer invites acceptance by promise or performanceRestatement 45 = option contrct created by party If acceptance by performance only, partial performance creates option contract (binds offeror to keep offer open)Restatement 62 = invitation If either promise or performance gives acceptance, partial performance serves as acceptance so BOTH parties bound .Restatement 25 = definition of option contract (consideration)Restatement 87 = offer itself can be option contract if consideration for offer(2) (promissory estoppel based on offer, not promise)Restatement 90 = protection of reliance interest (promissory estoppel based on promise)

E. Termination of Offer[edit]

              • Counteroffers / Supplemental Terms
                • o Restatement
                  • When offer doesn't specify acceptance, it can be by performance or promise
                  • When offeror gives choice of acceptance: performance OR promise
                    • Tender the beginning of performance = acceptance + promise to complete = CONTRACT
                      • Offeree bound to complete
                    • Rationale: Because could have accepted by promise (thus immediately bound), so immediately bound my performance too -- like Evertite
                  • Where offer seeks only performance (not promise)
                    • Beginning of performance (tendering) = option contract
                      • Offeror bound to hold contract open, but offeree not bound to complete
                      • Performance is just protection of reliance
                    • Where offer can be expected to induce action/forbearance and does so --> offer irrevocable and option contract available to extent necessary for justice
                  • o Minneapolis & St Louis RR v. Columbus (1886) -- Restatement
                    • Facts: RR (D) made an offer at a certain price for range. P answered D’s offer with a qualified acceptance (not an independent proposal) for price outside of range à rejection + counteroffer
                    • If the offer had not been accepted or rejected, negotiation is open and no obligation is imposed on either parts
                      • Wasn’t an option contract b/c no consideration for D to hold open offer. If change of position of P, maybe would have been option K.
                      • Restatement 39:
                        • Counteroffer has to be about same matters.
                        • Offerees power of acceptance is terminated by making counteroffer,
                        • Unless counteroffer manifests contrary intent of first offeror
                          • Ex: "I'm still considering your offer, but would you consider doing this?"
                          • Counteroffer can be couched within the original offer --> Lets offeree retain right to accept!
                          • But, offeror still has some control
                            • If no consideration, offeror can always revoke offer
                            • If option contract, then negotiations in between don't impact original offer anyway
                          • o UCC' 2-207'
                            • (1) Acceptance even if mismatched terms, as long as "definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time"… UNLESS acceptance expressly made conditional on assent to additional terms (then counteroffer)
                            • (2) Additional terms are just considered proposals…
                              • For merchants, become part of contract unless:
                                • o Offer expressly limits acceptance to terms of offer
                                • o New terms materially alter contract
                                • o Notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
                                  • Look to prior conduct or new objection
                                • For merchant: Confirmation letter with new terms – 10 days to reject or no.
                              • (3) Conduct -- If writings don't agree, look to conduct of parties to see if they recognize K
                                • Contract = extent of terms agreed on by writing (matching terms) + fill gaps where they don't agree with the UCC
                                  • Only original terms agreed upon are honored
                                    • Disputed terms drop out
                                  • Any missing terms are supplied by the UCC.
                                    • No generic, “gap-filling” arbitration term provided in the UCC
                                  • o Mirror Image Rule = Common law
                                    • Can accept only the offer that was made
                                    • Changing material terms and/or insisting on new terms in your acceptance may amount to a counteroffer
                                      • Terminates your right of acceptance with respect to the last offer
                                      • Even immaterial changes can be fatal
                                    • o Requests or suggestions in response w/ acceptance
                                      • Difference between conditional acceptance and acceptance accompanied by inquiries
                                        • Conditional acceptance = not valid acceptance (eg I will accept if you do X)
                                        • Acceptance accompanied by inquiries = valid (eg I accept, but can we see if you can also do X?)
                                          • o Acceptance made independent of assent to new terms
                                        • If acceptance is conditional upon request/suggestion, but that request is already contained w/in original agreement --> valid acceptance, no counteroffer made (US v. National Optical 7th Cir 1969)
                                      • o DTE v. Briggs Electric (Mich 2007) – UCC 2-207(1)
                                        • Facts: D sends P a purchase order, and P responds w/ email of intent to accept. P sends order acknowledgement 2 months later containing new forum selection clause. D refuses.
                                      • HOLDING: (1) D's purchase order was an offer. Not indefinite – mentioned quantity, price, delivery terms. (2) P's acknowledgement order was acceptance.
                                      • RULE: Written confirmation with new term is only rejection/counteroffer if “expressly made conditional on assent” to new terms, clearly shows unwilling to proceed.
                                        • P's confirmation w/ forum clause wasn't expressly conditional on D's assent à new terms are mere proposals
                                      • RULE: Additional terms btw merchants become part of contract automatically.
                                        • EXCEPTION: If they materially alter original contract, then they require assent.
                                          • Forum selection clause is material alteration à proposal à Not binding on D.
                                          • Note: Not a material alteration if their prior experience suggests it would be there, so no surprise or hardship to include term. (Deer Stags)
                                        • RULE: If a party performs, then the contract consists of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of the UCC
                                        • o Textile Unlimited v. ABMH (9th Cir 2001) – UCC 2-207(3)
                                            • Facts: K for yarn sale, but ABMH adds arbitration clause in back of acknowledgement order. Says D must object w/in 24 hours, and D doesn't.
                                            • HOLDING: Arbitration provision is unenforceable. No gap-filling arbitration term in UCC.
                                              • UCC 2-2207(1) – offeror must give "specific and unequivocal" assent to new terms. Lack of response w/in 24 hours is not "specific and unequivocal" = no contract under 2207(1)
                                              • UCC 2-2207(3) -- Both parties claim they had contract. Conduct = contract under 2207(3)
                                                • No arbitration in original K + no gap-filling arbitration term in UCC
                                              • Indefinite and Incomplete Terms
                                                • o UCC / C/L – RULE: Indefiniteness can invalidate contract.
                                                • o Doctrine
                                                  • UCC § 2-204 (3) Formation in General: 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.
                                                    • Material terms are not agreed upon at all, but there is an agreement
                                                    • Terms that are agreed on are vague
                                                    • Parties agree on certain terms but they leave other terms for future agreement
                                                  • o Varney v. Ditmars (NY 1916)
                                                    • Facts: D promised P a “fair share” of his profits if P would continue to work for him through end of year and new projects. D doesn’t pay and D wins.
                                                    • HOLDING: “Fair share” is too vague, indefinite, and uncertain. The amount could not be computed.
                                                      • Objective theory of K – court shouldn’t try to determine ambiguous terms.
                                                      • Price is essential figure. Parties needed to specify price OR method of calculating price.
                                                      • "Fair share" does not implicitly mean market value. Fair and reasonable might be synonymous with FMV, but not “fair share of profits”
                                                    • DISSENT (Cardozo): Agreement was for D to pay and P to accept a fair price --> enforceable! P just needs to give evidence of that (but failed to do so). At the least, P should get payment till end of year.
                                                    • Both parties clearly intended agreement, but dispute of what they intended. For D to calculate price (maj) or for D to pay and P to accept fair price (Cardozo)
                                                  • o UCC Article 2-204
                                                    • UCC provisions will act as default to fill gap left in contract by parties.
                                                      • 2-204(3): Code intended to fill gaps rather than strike down indefinite contracts
                                                        • o Some incomplete terms are fine. Contract doesn't fail if:
                                                          • (1) Reasonably certain basis for determining remedy
                                                          • (2) Parties intended to make contract
                                                        • All of these gap fillers can be contracted around
                                                          • o EXCEPTION: Cannot waive "good faith" requirement, even by express agreement.
                                                            • But parties can determine standards for measuring good faith.
                                                          • Ambiguous terms ----- Gap-filler
                                                            • Open price term -------- “reasonable price at time for delivery” (UCC 2-305)
                                                            • Delivering multiple items ------ Good to be delivered at once, not sequentially. (UCC 2-308)
                                                            • When to deliver ------- Default of "reasonable" shipment times (UCC 2-309)
                                                            • Variety of goods ------ Buyer has option of selecting assortment of goods. Seller has option of setting shipping specification and arrangements.
                                                            • Method of shipment ------- Must be good faith and w/in commercial reasonableness standards. UCC 2-311
                                                            • Where to deliver ------- Delivery place is seller's place of business or residence. (UCC 2-308)
                                                            • When to pay ------- Payment of price due on receipt of goods
                                                            • Seller warrants good title conveyed.
                                                            • Merchant seller warrants good are "merchantable." (UCC 2-316)
                                                            • Duties/rights may be assigned to third parties.
                                                          • o Essential terms
                                                            • UCC will fill in missing price with reasonable price
                                                            • UCC' will not fill in missing QUANTITY terms'.
                                                              • Statute of Frauds allows for de facto default quantity of ZERO.
                                                              • "Penalty" or "information-forcing" default
                                                                • o Rationale: Want parties to reveal all info available to each other and courts
                                                              • Blinn v. Beatrice Community Hospital (Nebraska 2006)
                                                                • Facts: P has offer for better pay + job guarantee elsewhere. D tells him they "want him to stay" and "have at least 5 more years of work to do", assure he can stay until retirement. P then gets fired and sues for promissory estoppel.
                                                                • RULE: Promissory estoppel allowed for indefinite promise (hence no K claim) as long it creates reliance that is (a) reasonable and (b) foreseeable
                                                                  • Promisee’s reliance acts as a substitute for consideration typically needed for contract.
                                                                  • In contract claim, must show promisor's intent for binding promise. But not necessary for promissory estoppel.
                                                                • HOLDING: No contract claim here. Potential promissory estoppel claim.
                                                                  • No contract -- D's promise was not sufficiently definite to be offer for unilateral contract.
                                                                    • "5 more years of work to do" =/= manifest intent to employ P
                                                                    • P's understanding of words doesn't form a contract

F. Pre-Contractual Liability (Agreement to Agree/Negotiate)[edit]

              • MGM v. Scheider (New York 1976) – agreement to agree enforced
                • o Facts: Actor D promises to perform series if picked up by network. Films pilot and gets paid. K doesn’t specify start date. Series picked up and D refuses to perform.
                • o HOLDING: Agreement to agree is binding. D must perform.
                • o RULE: Objective method of determining factor (ie industry custom) can be used to make contract enforceable, AS LONG AS essential terms exist + performance has begun on the good faith understanding that agreement on unsettled terms will follow.
                  • Objective method can be express/implied in agreement, commercial practice, or custom
                    • Ex: Industry standard of start date after pilot
                  • Deli v. Schumacher (New York 1981) – agreement to agree not enforced
                    • o Facts: Real estate lease deal for 5 years, with agreement to determine price for renewal later. Disagreement.
                    • o RULE: Mere agreement to agree is unenforceable. For REAL ESTATE K, must specify price, method of calculating price, or external circumstance to determine price (like judge determination).
                      • Importance of objectiveness.
                      • Parties could have agreed to base the price on something (like current market value), but they based the future price on nothing
                    • o C/L services do not get price gap filled --- different from UCC goods, where price gets gap-filler
                  • Agreement to Agree
                    • o (1) Must be able to fill essential elements. No basis in Schumacher, but yes in Scheider (industry custom).
                    • o (2) Must find INTENT of willingness to agree. No in Schumacher, but yes in Scheider (performance/conduct of filming pilot and was paid).
                  • Hoffman v. Red Owl Stores (Wisco 1965) – agreement to agree not enforced, but yes promissory estoppel
                    • o Facts: P seeks to open store. P invests $18k, relocates, and closes his bakery. Then D draws K requiring another 20k.
                    • o HOLDING: No agreement to agree (lacked essential terms) à no K. But reliance granted.
                    • o Restatement 90: RULE: Promissory estoppel allowed EVEN IF agreement lack essential terms SO LONG AS
                      • (a) reliance of substantial/definite character was (i) reasonable + (ii) reasonably expected by promisor
                      • (b) reliance was actually induced by promise, and
                      • (c) injustice can only be avoided by enforcement of the promise.
                    • o Note: for reasonableness, more strict on big player than small player. Even though D arguably should have known to create K before investing so much.
                  • Teachers Insurance v. Tribune (New York 1987)
                    • HOLDING: No K for signed letter of commitment with some terms included but lots not negotiated.
                      • No intent to be bound – open terms + letter said "subject to approval" beyond what was done.
                    • RULE: To determine if agreement to negotiate, look at parties' intent at time + manifestations that understanding was reached.
                      • 5 factors to find intent:
                        • Language of agreement
                        • Context of negotiations (particular attention to parties' motives)
                        • Number of open terms
                        • Extent to which agreement had been performed
                        • Usage of trade
                      • Empro Manufacturing Co v. Ball-Co Manufacturing (7th Cir 1989)
                        • o Facts: P sent D a "letter of intent" to purchase D's assets. The letter stated the proposal would be subject to satisfaction of shareholders and board of directors of P. This left P a free way out.
                        • o HOLDING: P did not intend to be bound, so no K.
                          • Limits approval to shareholders with repeated "subject to" language + (b) repeated "general terms/conditions" w/ right to alter open terms. D also had power to add additional terms, and D's lawyer noted needed clarification on terms
                        • o RULE: Both parties’ objective manifestations of intent to be bound must be shown for a binding contract to be formed. No intent when there is free way out + right to alter terms.
                        • o RULE: No reliance damages for costs "normally associated with pre-contractual efforts" (ie negotiation, investigation, preparation to acquire")
                      • Frank Dixon v. Wells Fargo (Mass 2011)
                        • o Facts: P wants to pay mortgage over longer time or at lower rate. P and D agree to take steps to “take necessary steps” to modify mortgage. P does requested actions, but D doesn’t modify.
                        • o HOLDING: No K to actually modify, just K to negotiate (consider in good faith) à no contract damages.
                        • o HOLDING: D induced reliance (held out XYZ for consideration), and P relied. Reasonable + foreseeable.
                          • Changes Mass law to recognize promissory estoppel during negotiation even if no definite terms.
                        • o RULE: Promissory Estoppel allowed if negotiations induce reasonable + foreseeable reliance.
                          • Policy: No chill on commerce. Companies may exit negotiations or pursue other negotiations, but just pay for reliance.
                          • Goal of promissory estoppel = justice and morality in business.
                            • Breaking promise need not be in bad faith, just against fair dealing/good conscience (eg pattern of conduct stringing someone else along.)
                          • o RULE: Agreement to negotiate must specify (a) what's to be negotiated, (b) boundaries of negotiation, (c)
                        • TEST
                        • Agreement to agree
                          • If you don't agree to agree --> no contract
                          • If you agree to agree
                            • If open terms that can be filled by gap-filler --> Contract (Scheider)
                            • If open essential terms that can't be filled --> No contract (Schumacher)
                              • B/c no intent
                              • But potentially promissory estoppel (Hoffman)
                            • Agreement to negotiate --> no contract, but binding to negotiate in good faith (e.g. to keep option open).
                              • Understanding that failure to reach agreement is no recovery
                              • If fail to negotiate in good faith à get reliance damages (Wells Fargo)
                                • Promises during negotiation that reasonably + foreseeably induce reliance
                              • Not necessarily exclusive negotiation.

G. Unjust Enrichment[edit]

Aka Implied-In-Law Contract / Quantim meruit

              • Overview
                • o Considered quasi-contractual. No actual contract made, but implied in contractual basis.
                • Rationale: If one party benefits, remedy should be had by conferring party.
              • Bailey v. West (Rhode Island 1969)
                • FACTS: West (D) refused to purchase lame horse. Original seller won't accept it back, so D's trainer just gives it to Bailey (P). P aware of disputed ownership. P cares for horse, then bills D for care. D refuses to pay.
                • RULE: K Implied-in-Fact
                  • Elements
                    • (a) mutual agreement btw parties,
                    • (b) intent to promise,
                    • (c) Agreement/promise based on conduct NOT word --- only seen through CONDUCT, not verbal
                  • Qualities
                    • Expectation dmgs
                    • Consensual = mutual INTENT of parties to agree
                  • RULE: K Implied-in-Law / Unjust Enrichment
                    • Elements:
                      • (a) P confers benefits on D
                      • (b) D accepts and appreciates benefit
                      • (c) Would be unfair to retain benefit w/o payment
                        • Reasonable expectation of compensation? (Bailey)
                        • No opportunity to get consent for payment (Kossian)
                      • Qualities
                        • NO K requirement = just based on justice.
                        • NOT consensual = can be CONTRARY to intent of parties.
                        • Not same as moral obligation case (Mills)
                          • But if the father has benefited from son's saving, then he would have to pay or would otherwise be unjustly enriched.
                        • HOLDING: No K implied in law
                          • P didn’t know who was getting benefit
                          • D denied horse even after care (no accepted benefit)
                          • No prior relationship btw parties à no obligation to care
                        • P didn’t know who would pay, D refused to pay à no agreed intent to pay à no K implied in fact
                      • Kossian v. American National Insurance (Cali 1967)
                        • RULE: Unjust enrichment if D gets double benefit from the same loss to the detriment of P.
                        • FACTS: Inn owned by third party burns down. Insurance co D gets double benefit: fire insurance money + clean-up from P who had been hired by owner before property defaulted to D.
                        • HOLDING: Unjust enrichment. If D had just gotten property interest for clean-up, it wouldn't have counted. But D also got insurance interest for provision that was IDENTICAL about clean-up.
                          • Irrelevant that no direct relationship btw P and D. D was unjustly enriched by work that P had already done.
                          • Note: If the insurance policy can't be read to cover the same beneficial activity that P did, then there's no case against D.
                        • Can you claim promissory estoppel in alternative to contract claim?






Formation Defenses[edit]

Overview

              • Once agreement already established between parties, party can raise defense to make contract non-enforceable.
              • Types of Defenses
                • Absence of Required Writing
                • Capacity (minor, drunk)
                  • Typically unable to contract.
                  • Minor contract voidable at their insistence, even if performance already completed.
                  • No restitution against minor - they just need to give back the item.
                • Mistake
                  • Contract voidable unless one party has assumed risk.
                • Misrepresentation = fraudulent (intentional) or negligent
                  • Nondisclosure
                • o Duress
                • o Unconscionability
                • o Illegal
                • o Public Policy
                • Justification for restricting freedom of contract?
                  • o Paternalism -- protect parties in contract
                  • o Negative externalities -- protect outside parties
                  • o Revealed preferences ensure value creation
                • Terms
                  • o Void -- Original transaction included no contractual obligations
                  • o Voidable -- One of both parties have power to dissolve legal relationship
                    • Rescission/disaffirmance/avoidance = exercise of dissolution power
                    • Until party exercises dissolution power, voidable contract remains in effect
                  • o Unenforceable -- Contract remains in existence, but court can not enforce it under some circumstances

A. Statute of Frauds / Absent Required Writing[edit]

              • RULE':' Oral contracts are generally enforceable, however, Statute of Frauds requires that for certain types of contracts to be enforceable, must be (a) memorialized in writing and (b) signed by “the party to be charged”
                • o What contracts this applies to?
                  • Non-UCC
                    • Suretyship (surety guarantee)
                    • Sale of land
                    • Contract that cannot be performed within 1 year (ex: 5 year contract)
                      • o Note: No 1-year rule for sale of goods. Or if there’s a law on point that doesn’t mention.
                    • Archaic -- marriage contract
                  • UCC
                    • THRESHOLD = Contracts over $500 (DE: $100k)
                      • o Inefficient to force people to incur costs of drafting doc for K less than $500
                      • o Higher cost = higher stakes, so courts want formal documentation
                    • o SoF does not MAKE a contract, it just tells you whether formerly made contract is enforceable
                  • UCC 2-201
                    • o (1) Must be SOME writing + only QUANTITY must be stated
                      • Writing does not need to be formal contract, can be memo
                      • Missing material terms is fine.
                        • Just needs evidence of transaction, on which oral agreement w/ material terms intended to rest.
                        • Use UCC for gap-filler for missing terms (don't use oral agreement)
                          • o If quantity term disagrees with oral agreement, you enforce quantity term up to stated amount
                          • o Ex: If quantity set, but no price -- Use FMV gap-filler.
                        • If unit being accepted is unclear, apply reasonable external standards
                          • If you know FMV of all potential units being considered, just use reasoning to determine which one is being referred to.
                          • No PER (Prohibits oral evidence when written agreement in place, UNLESS written agreement is incomplete and oral evidence needed)
                        • o (3) If contract fails (1) but otherwise valid contract, can enforce if:
                          • Custom goods – goods made specially for the buyer (even if not by seller) and can’t otherwise be normally sold + already substantially begun performance before notified of repudiation
                          • Admission of contract in court – (ie admitted but claims unenforceable due to quantity missing)
                            • ISSUE: For sale of goods, if party against whom enforcement is sought wants to reject, but brought to trial, then party must either (a) admit contract falling outside SoF - normally would be unenforceable, but now it is or (b) perjure à so K enforced up to stated quantity
                          • Payment made and accepted OR goods received and accepted
                        • o (2) Confirmation of contract between merchants
                          • Merchant = one who holds himself out as having knowledge of field + deals in good of a kind
                          • RULE: Between merchants, both bound if: confirmation (of oral agreement) sent w/in reasonable time + signed by sender + recipient has reason to knows of content
                            • EXCEPTION: Recipient may object w/in 10 days of receipt --> Recipient not bound
                              • o So recipient only becomes bound after the 10 days w/o objection
                              • o Test for objecting to confirmation under UCC:
                                • (1) Is it Sale of Goods?
                                • (2) Are parties merchants?
                                • (3) Objections met?
                                  • (a) affirmative objection, (b) w/in 10 days, (c) object to CONFIRMATION not just objection to contract
                                    • o Good objection: I object to these terms; I reject this confirmation
                                    • o Bad objection: I never ordered; silence
                                  • Signature for SoF need not be ink, can be any symbol or stamped/typed intended to designate person
                                    • UCC: Signed means "any authentication which identifies party to be charged," can be any symbol with implied or actual intent to authenticate writing as that of signer
                                    • E-Sign Act (2001): Electronic signature has legal force. Can be any sound, symbol or process intended to act as person's signature. Preempts most state laws.
                                  • Policy
                                    • o Memorialize agreement in writing à enforcement from clarity
                                      • Preemptively motivate people to put stuff in writing for most important transactions
                                      • Compare costs of drafting VS costs of adjudicating
                                    • o Signature authenticates assent à reduces area for disagreement, no faulty memory
                                      • Small business owners don't need law to enforce contracts b/c they are often repeat players with each other -- so don't need formal contract or quantity
                                    • Non-compliance to agreement does not make contract VOID, but court won't enforce it (unless you start performance)
                                    • 2nd Restatement 139 = Allow promissory estoppel when falling under SoF if (a) promise reasonably induces reliance, (b) actually induces, (c) injustice only avoided by enforcement. Remedy limited to justice.
                                      • o RULE: Factors if promissory estoppel required by justice, consider: (1) availability and adequacy of alternate remedies, especially cancellation or restitution, (2) definite and substantial character of forbearance, (3) extent to which forbearance corroborates evidence of making and terms of promise, or otherwise have clear and convincing evidence of terms, (4) reasonableness of forbearance by promissee, (5) foreseeability of forbearance by promisor.
                                      • o Requirement of consideration is lesser than requirement of writing

B. Capacity[edit]

              • 2nd Restatement: Unless statute says otherwise, person has capacity to incur only voidable contractual duties until beginning of day before 18th birthday.
              • RULE: Minor can avoid contractual duties by timely/appropriate disaffirmance, and then has choice to ratify (affirm) contract upon coming of age. But adult contractor is bound to contract.
                • EXCEPTIONS: State legislatures allow minor capacity to enter into specific types of contracts (eg military enlistment, higher ed loans, sometimes for insurance, sometimes for housing if homeless minor)
                • Minor can be silent about age. Duty of adult contracting to ascertain that the other party isn't an infant.
                  • If minor is deceptive about their age, courts split.
                    • Mass Rule (Minority): Minors not liable for tort of deceit.
                    • Middle rule: Misrepresentation doesn't stop minor from disaffirming, but justifies damages for tort (Ohio, Conn)
                    • Strict Rule: Estoppel when minor falsely represents self and sufficiently mature. Minor accepts benefits of contract and estopped to deny that he was of age to be bound (Missisippi, Indiana)
                • Bowling v. Sperry (Indiana 1962)
                  • RULE: The contracts of minors are voidable and may be disaffirmed while he’s minor or upon reaching adulthood.
                    • EXCEPTION: “Necessary" goods or services for minor's support, use, or comfort.
                      • Ex: food, clothing, lodging, medical care, education, and personal comforts appropriate for the minor’s condition and circumstances in life.
                      • Car not considered “necessary,” even if minor has job, if they can get ride from friends.
                    • Minor need not return the money or property before suing for value. But then must return.
                    • Adult is bound to repay, even if he is in worse position than before.
                  • FACTS: Minor purchases car via oral agreement with D. Returns it after noticing its messed up; disaffirms and demands repayment.
                    • Minors can’t contract. Adult shouldn't have contracted with minor for non-necessary item.
                    • Irrelevant that minor was accompanied by adult, money came from adult, or car problems due to minor's mistake in operating it.
                  • Emancipation of minor -- Minor can lose his minor status if he's emancipated (eg gets married).
                  • Disaffirmance and Ratification
                    • Can only ratify after coming of age, via manifestation of intent to regard bargain as binding.
                      • No new consideration needed for ratification
                    • Silence/inaction does not amount to ratification.
                    • Must disaffirm within reasonable time after coming of age.
                      • Factual determination
                        • Bobby Floars Toyota (North Carolina) = 10 months is sufficient time to make decision
                        • Keser (Colorado) = 60 days driving after coming of age does not equal ratification.
                      • Doesn’t matter how they disaffirm

C. Mistake[edit]

              • Mistake = "belief that is not in accord with the facts." (2nd Restatement)
                • o Contract exists, but is voidable by adversely affected party
              • Misunderstanding = parties attach "materially different meanings" about what they’re agreeing to (2nd Restatement)
                • o No contract exists
                • o Party should have no reason to know that info is wrong. If they do have info to know what they’re agreeing to, then contract mistake (Frigaliment).
                • o Ex: Two ships leaving port with same name. Parties contract for cargo of ship name, but one thinks its ship A and other thinks its Ship B
                  • If A knew that info was wrong and B would me fooled, then terms are what B thought they were.
                • Sherwood v. Walker (Michigan 1887) -- mistake
                  • Facts: Barren cow becomes breeder. Dispute over whether it’s a difference in substance (no K) or quality (K).
                    • Substance (majority) = Price goes to essence of consideration. Worth 10x more as breeder.
                    • Quality (dissent) = it’s the same cow and both thought it was barren.
                  • RULE: When contract made based on mutual mistake about material fact (eg subject matter of the sale, price, etc.), the parties may rescind the contract once they learn of the mistake.
                    • Unless
                  • Lenawee County Board of Health v. Messerly (Michigan 1982)
                    • Facts: Real estate purchase, but discover that sewage system is faulty.
                    • RULE: Rescission allowed when mistake relates to basic assumption + materially affects agreed performances of the parties.
                      • Overrules Sherwood -- value doesn't go to essence of contract (unless some ESSENCE of contract is changed)
                    • RULE: Rescission not allowed for party who assumed the risk of loss in connection with the mistake.
                      • When both parties are innocent, risk of loss goes to purchaser.
                      • P assumed risk because expressly contracted to (a) inspect property and (b) take property "as is"

D. Misrepresentation[edit]

              • Restatement 164: If party justifiable relied on either fraudulent OR material misrepresentation such that it induced manifestation of assent, contract is voidable by the recipient.
                • o Material = likely to induce reasonable person to manifest assent
                • o Fraudulent = made intentionally or recklessly
                • o Misrepresentation = falsehood, "assertion that is not in accord with the facts" (generally negligent)
                • o RULE: Must be assertion or affirmation of existing facts - NOT opinion, promise, or prediction of future event
                  • EXCEPTION: Statement of opinion can be misrepresentation if parties are in special relationship of trust or speaker has superior knowledge (so it’s not their actual opinion / prediction)
                • Vokes v. Murray (Florida 1968)
                  • o Facts: Woman takes dance classes and invests a bunch while her teachers keep telling her she’s doing great, even though she sucks.
                  • o RULE: Based on special relationship between parties, if a party has superior knowledge that lets them know puffery is not true (while other cannot know), they have duty to disclose whole truth.
                    • Misrepresentation can exist for puffery when (a) party has fiduciary duty, (b) some trick used, (c) parties not dealing at "arms length", or (d) when parties don’t have equal oppt to verify statement as true/false
                    • Opinion must reflect what you believe to be genuine fact. You can misrepresent by giving opinion you know is not in accord with facts.
                  • Types of fraud: Half-truths, Failure to correct, Concealment

E. Nondisclosure[edit]

              • OLD RULE: Caveat emptor = buyer beware. Seller has duty not to misrepresent, but no duty to disclose
                • o Assumption that parties contracting "at arm's length". If not at arms length, duty can exist.
              • NEW RULE: Restatement 161: Vendor has affirmative duty to disclose where: --EXCLUSIVE LIST: only in these 4 areas:
                • o Necessary to prevent previous assertion from becoming misrepresentation or fraud (eg partial disclosure)
                • o Corrects mistake of other party about basic assumption of contract + nondisclosure would be failure to act in good faith per reasonable standards
                • o Corrects mistake of other party as to contents or effect of writing of agreement
                • o Entitled to know fact because of relationship of trust/confidence (eg parent-child, attorney-client, etc.)
              • Laidlaw v. Organ (1817)
                • o RULE: No duty to disclose when both parties have equal access to extrinsic info, but may not say or do anything to mislead the other party when asked.
                  • Parties were on unequal footing, but generally want to incentivize good biz practice of info gathering within your trade.
                • o FACTS: D doesn’t say anything when asked if he knows info that will raise tobacco price, even though he knows the War of 1812 just ended and will raise price. D buys at lower price, war ends. Holding: Question of whether or not he misled P through silence is jury Q.
              • Hill v. Jones (Arizona 1986)
                • o RULE: For real property, seller has duty to disclose existence of facts that materially affect the value of the property and are not readily observable and known to the buyer, but known to seller.
                  • Materiality = objective reasonable person.
                • o FACTS: House seller doesn't inform buyer that there are termites, despite D having done some repairs for termite damage -- so D was aware of past termite damage. Upon questioning, D tells P that "ripples" in the wood are just water damage, not termites. Termites may materially affect property value. Question for jury.
                  • This is case of correct mistake of basic assumption + nondisclosure breaks good faith.
                  • Factors to determine if nondisclosure violates good faith requirement: nature of undisclosed fact, accessibility of knowledge, nature of contract, trade customs and prior course of dealing, conduct of party in obtaining knowledge, status and relationship of parties.
                • Remedy = restitution or Recission

F. Duress[edit]

              • Restatement 492-95: Elements
                • o Wrongful Threat -- can be physical, mental, emotional, economic,
                  • Need not be illegal, can be bad faith (disproportionate) use of civil suit
                • o Overbears their will to manifest assent
                  • Must be subjectively credible to overcome
                    • More subjective element of contract law – we care about their feelings from external force
                  • Note: Court moving away from objective reasonableness. As long as this person feels forced and no reasonable alternatives
                • o Leaves victim with no reasonable alternative – ie NO CHOICE
              • Restatement 174: Threat of physical harm = VOID (no contract to begin) (Rubenstein)
              • Restatement 175: Wrongful economic threat = VOIDABLE (Austin)
              • Rubenstein v. Rubenstein (NJ 1956)
                • o Wife threatens poisoning, father in law in prison for it.
                • o Contract is voidable for duress if one party wrongfully induces the other party to act by improper threat -- creating fear of loss of life, loss of limb, mayhem, or imprisonment. (Restatement176. When a Threat is Improper)
                • o Subjective test—moral compulsion or psychological pressure may constitute duress if, thereby, the subject of the pressure is overborne and deprived of the exercise of his free will
                  • Unlike fraud, duress does not necessarily depend on intent of person exercising it or consider if reasonable person would be coerced
                • Austin Instrument v. Loral Corp (NY 1971)
                  • o P threated to not deliver on its first contract unless it got the second one.
                  • o RULE: A contract is voidable for economic duress when:
                    • Wrongful threat -- threat to "immediate possession of needful goods" / party threatens to breach agreement and withhold goods unless other party agrees to new demands.
                    • No possible alternative source of supply (within reasonable time)
                    • Breach of contract remedy insufficient -- would force the aggrieved party to violate its contracts (eg here D would violate US Navy contracts and lose future biz)
                      • Harmed party may choose to keep K in place or revoke.
                    • o COMPARE: Alaska Packers -- No new consideration here, but UCC does NOT REQUIRE new consideration for contract modification
                  • 171
                  • Undue Influence
                    • o Doctrine: Unfair persuasion (not a threat) induces assent of party who is under domination of the person exercising persuasion, the contract is voidable by the victim
                      • Easier to satisfy than duress
                      • Unfair persuasion = pressure on someone's mental, moral, or emotional weakness
                      • RULE: Undue influence comes in when relationship of parties is usually one of trust and confidence
                        • Idea that dominant party is expected to act in best interest of submissive party
                        • Ex: Parent-child, husband-wife, attorney-client
                        • COMPARE: Zehmer -- If Lucy intentionally gets him drunk to sell his farm that he normally wouldn't, it might be undue influence. However, no special relationship.
                      • o Odorizzi (Cal 1966): Factors of over-persuasion include: discussion of transaction at inappropriate time, consummation of transaction at unusual place, insistent demand to do business at once, extreme emphasis on consequences of delay, use of multiple persuaders against single submissive party, absence of third-party advisors, statements rushing party not to consult finance/legal advisors.

G. Unconscionability[edit]

              • Overview
                • o If just a single clause is unconscionable, the contract can be totally voided, or the unconscionable clause can be excised and the contract revised.
                • o UCC 2-302: Court may deny enforcement of contract if they find it or part of it "unconscionable at time it was made".
                  • If ruled unconscionable, party gets hearing to say why it's not.
                  • Note 1 -- this is not meant to correct imbalance of bargaining power.
                • o RULE: Unconscionability needs (a) substantive unfairness (look at terms of K) + (b) procedural defect (eg surprise)
              • Consumer contract
                • o Williams v. Walker-Thomas Furniture Co (DC 1964-5) – fine print
                  • Facts: Single mother, welfare, spends a bunch on radio + fine print about forfeiting all items if she misses one payment.
                  • Skelly-Wright: Fact based determination of unconscionability—an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party
                    • Circumstances include (a) gross inequality of bargaining power, (b) manner in which the contract was entered, (c) parties' education/oppt to understand terms, (d) if contract terms are clear or hidden in fine print
                    • No knowledge of terms = no consent
                  • Quinn: Generally, signing contract implies duty to read it and ignorance is no excuse if voluntary assent.
                    • If person can't read contract, need others to read it for you.
                    • Let Congress decide – if it’s public policy arg, Court shouldn’t decide.
                  • o Test:
                    • If you don't think P can pay --> predatory
                      • Policy: This isn't paternalistic, it's avoiding exploitation. You can let price reflect risk of selling.
                    • If you think P can pay --> sub-prime. Valid service rendered
                      • Policy: Sub-prime is socially good by giving people with bad credit a chance to get loan and improve credit.
                    • o Fleet v. US Consumer Council? – did we get to this one?
                  • Shrink Wrap
                    • o Hill v. Gateway (7th Cir 1997)
                      • New dominant rule -- Easterbrook switches who is offeror.
                        • Easterbrook way: D is offeror, P accepts by not sending back after 30 days, consideration same.
                        • OLD WAY: Hill is offeror (bc ad is mere solicitation), D accepts (via promise to ship or actual shipment of computer), consideration is payment/sending computer
                      • RULE: Under UCC, purchaser may be bound to terms included in product packaging. As long as he has oppt to review agreement + oppt to reject by returning product.
                        • Easterbrook Economic Efficiency = reduce transactions cost btw customer and supplier. Put it squarely on customer to just read it and accept/reject, don't pay to educate each customer.
                          • o Counter: But not expensive just to tell customer in plain English ("to accept, use it for 30 days after receipt"). Doesn't cost any more to put customer on notice of contract term of acceptance.
                        • No one actually reads shrink wrap!
                        • No battle of the forms, 2-207 does not apply
                      • o Klocek v. Gateway (Kansas 2000)
                        • Battle of forms even if only one form, so 2-207 should apply. They had oral agreement, and the paperwork is merely a memorialization of the agreement.
                        • OLD WAY: Buyer is offeror (see Lefkowitz). Contract made when D accepts by sending standard terms. If new terms are to constitute counteroffer, then seller needs to make his acceptance conditional upon buyer's express assent to new terms. D didn’t do that, so shrink wrap is mere memorialization of their oral agreement.
                      • Clickwrap = okay because affirmative click to accept (procedurally okay)
                      • Browsewrap = go to link on separate page, (scroll past download button) (depends)
                        • o Specht v. Netscape (2nd Cir. 2002)
                          • Software downloads. Program 1 (Clickwrap) = affirmative acceptance, required to read terms – this one is okay even if don’t read. Program 2 = implied acceptance, scroll down to get separate terms, not readily accessible term – this one not okay b/c “No reasonable person would have known or learned of the reference to the license terms that were hidden.”
                          • RULE: Consumer needs reasonable (constructive) notice of the terms (or at least that they exist) in order to assent to online software download terms.
                            • Doesn't matter if they read them well or not; must at least have option. No notice = no consent.
                          • RULE: When urged to accept by merely clicking button w/o terms available, mere reference to the existence of terms on submerged screen is not sufficient for notice.
                            • UCC: transaction needs manifestation of agreement btw parties to be a K – mutual assent
                            • C/L: “offeree, regardless of apparent manifestation of his consent, is not bound by inconspicuous contractual provision of which he is unaware, contained in a document whose contractual nature is not obvious”
                            • No determination if UCC applies to online software downloads. Unclear if it’s a good or service, but doesn't matter for this rule.
                          • o Cairo Inc v. Crossmedia (California 2005)
                            • Cairo uses crawlers on Crossmedia’s website. Website says use = acceptance of terms. Cairo claims it didn’t know because only were robo crawlers.
                            • RULE: Even without explicit agreement to terms and conditions, REPEATED USE means you should know the terms and conditions of website.
                          • Contract of adhesion
                            • o Doctrine: Contract adhesions = terms are unfairly favorable to one party and on "take-it-or-leave-it" basis (essentially no bargaining)
                              • Generally enforced, unless the terms so disproportionate to be unconscionable
                              • RULE: To determine unconscionability, must find SOME substantive unconscionability + weigh the two
                                • Procedural unconscionability = so procedurally deficient to be unfair (eg hiding the terms, surprise)
                                  • o Contract should be reasonably clear. If consumer doesn’t know what’s in K, no consent. Presumptively enforceable, but proposed 3rd Restatement will be more consumer-friendly.
                                • Substantively unconscionability = terms so favorable to vendor so as to be unfair
                                  • o Enforce unless either (1) does not fall within reasonable expectations of weaker party or (2) unduly oppressive or unconscionable.
                                • Restatement 211(3): Standardized Agreements: where other party has reason to believe the party manifesting assent would not do so if he knew the writing contained a particular term, the term is not part of the agreement
                              • Remedy = redual to enforce, enforce without unconscionable clause, or limit clause
                              • Zapatha

H. Illegality and Public Policy[edit]

              • Restatement 178: Balancing Test to determine when term is unenforceable on grounds of public policy
                • o If legislation exists making term illegal --> weigh illegality and monetary loss (Sinnar)
                • o If no legislation, weigh…
                  • Interest in enforcement: (a) parties' justified expectation, (b) any forfeiture that would result if enforcement denied, (c) special public interest in enforcement
                  • Public policy against enforcement: (a) legislative/judicial support for policy, (b) likelihood that nonenforcement will further policy, (c) seriousness and intent of misconduct involved, (d) relation btw misconduct and term
                • o Rationale: Punish parties for misconduct (by denying damages) --> deterrence, justice, encourage opportunism
              • 3 ways to recast the K
                • o Reform problem clause (Data Management)
                  • Do so if oral evidence needed or one party misleads the other
                • o Sever problem clause (Marina)
                • o Destroy contract (AZ v. BZ)
                  • If clause to be severed is so integral to the K
                  • Invades freedom of K no matter which recasting option the court chooses, and Prof. thinks this is least invasive.
                • Sinnar v. Le Roy (Washington 1954) = Illegal non-enforcement, don’t recast
                  • o Bribing for liquor license, suing for $450 bribe money back after promise of license or money back.
                  • o RULE: Court weighs (a) severity of illegality, (b) monetary loss of parties, (c) innocence of parties. If very illegal and low cost, court won’t enforce. If not very illegal and great cost, court will give restitution.
                    • D CANNOT WAIVE ILLEGALITY DEFENSE – if court suspects illegality, it will independently raise issue.
                    • If illegal act, presumption that both parties knew and equally at fault (pari delicto)
                    • Remedy = Court leaves parties where it finds them (so losses lie where they fall)
                  • Broadley v. Marina (1st Circuit 2006) = severance
                    • o Adhesion K to dock at marina. Overbroad clause waives all D liability (negligence, intentional, gross wrongdoing). Very ambiguous – no actual mention of K, no bargaining took place.
                      • Note: no problem of disparate bargaining power, because there were other marinas
                    • o RULE: Court can sever a clause if it’s against public policy and severed K is closer to initial intent of disadvantaged party.
                      • Overbroad/ambiguous waiver (big concern) discourages legitimate claims – even if D is liable for intentional or gross suit, P unlikely to sue b/c he’s liable for fees if he’s wrong that its not negligence
                        • Overbroad b/c never actually says “negligence” + there was no negotiation
                      • SEVER = don’t just reform K because
                        • (1) Reforming would incentivize big Ds to be intentionally unclear in their K
                        • (2) Severance is closer to original intent of parties (no clear agreement waiving negligence) à allow P to sue for negligence.
                      • Data Management Inc v. Greene (Alaska 1988) = reform, non-compete clause
                        • o Facts: Employee signs non-compete contract for 5 years in Alaska after termination. Two alleged overbroad elements: (a) Length of time + (b) Location
                        • o RULE: Reasonableness Test (Reasonably Alter): Court should reasonably alter overbroad non-compete covenant to render it enforceable, unless covenant was drafted in bad faith (either sever clause or destroy whole K).
                          • Burden of proving the covenant was drafted in good faith is on the employer.
                          • Reasonableness factors to consider: Restatement 178
                            • Is there limit on time and space?
                            • Is employee sole contact with customer?
                            • Confidential info/trade secrets?
                            • Does it limit too much competition as to be unfair?
                            • If employee can still use his skills/experiences in other profession?
                            • Does it limit talent employee actually developed during employment with D, or innate talent?
                            • Does employee have any other job possibilities?
                            • Disproportional benefit to employer versus harm to employee?
                            • Is it necessary to that line of work?
                          • o Policy of non-complete clause
                            • Con: If everyone has non-compete clause --> lowers talent access to businesses (can have public detrimental effects via worse products, higher products)
                            • Con: Restricts employee from seeking gainful employment, freedom of contract
                            • Pro: Protects company trade secrets
                              • Counter: There are alternate ways of restricting trade secrets
                            • Kass v. Kass (NY 1998)
                              • o Facts: Parents sign agreement btw themselves in advance that if they can't decide later what to do in case of divorce, they'll give their pre-zygote to clinic for research. Divorce, and then can't agree. Parties agree that agreement legal and accurate reflection of their intent at the time.
                              • o RULE: In New York, prior agreement of husband-wife on pre-zygotes is presumed valid and binding.
                                • Importance of entering sensitive agreements with serious consideration. Inherent uncertainties à precisely WHY you contract mutual intents, so you're not bound to other party changing mind.
                              • AZ v. BZ (Mass 2000) = destroy
                                • o Facts: Parents don't sign between themselves, but with the clinic. Husband leaves blank, wife requests custody. Divorce. Court finds this not compelling b/c agreement was with clinic not each other and didn’t reflect intent at the time (b/c husband left it blank). Even so, not enforceable on public policy grounds.
                                • o RULE: In Mass, agreements compelling person to future family relationship (eg procreation, surrogate, adoption) is unenforceable against public policy.





Breach[edit]

A. Parol Evidence Rule[edit]

              • Parol Evidence = evidence of alleged earlier oral or written agreement that's w/in scope of writing
              • PER deals where contract is in writing (not like SoF that requires writing), and one party wants to introduce extrinsic evidence that would change the contract writing.
                • o Purpose of PRE = Faulty memory, fraudulent he-said-she-said claims
              • TEST:
                • o Integrated?
                  • Contract can state that it is a final expression
                  • If it doesn’t say, court looks at ALL RELEVANT INFORMATION to determine parties’ intent
                    • If it looks complete, we’ll treat it as complete
                    • If it looks incomplete, use Willison Test
                      • o court should read the document and make a determination whether reasonable people similarly situated would have naturally left terms out to be proved up later separately so that they be part of the contract without being written in it.
                      • o Issue: If factfinder and lawfinder are the same, evidence is being considered whether admissible, and likely impacts finding of whether contract is integrated or not
                    • o Fully or partially?
                      • Fully integrated = parties intended for whole writing to be final statement of contract
                        • No parol evidence allowed at all.
                      • Partially integrated = Parties intended for specific terms of contract to be final in writing.
                        • To extent that's not integrated, can bring in any evidence of “consistent additional terms”
                        • To extent that is integrated, can't bring in contradicting evidence
                      • General Rule:
                        • o Parol evidence not allowed if:
                          • Fully integrated contract
                          • Shows earlier or contemporaneous written/oral agreement within scope of contract, AND
                          • Attempts to vary, add, or modify contract terms
                        • o Parol evidence may be allowed if:
                          • Shows some contract failure (lack of consideration, fraud, duress, mistake, etc.)
                          • Shows interpretation or explanation
                          • Shows later agreement or modification
                          • Challenges integration of the contract itself
                          • Separate consideration for parol agreement
                          • Concerns “naturally omitted” term
                        • Masterson v. Sine
                          • o Facts: P offered parol evidence that showed the parties wanted to keep the property in the family and that the option was therefore personal to the grantors and could not be exercised by D’s trustee in bankruptcy.
                          • o RULE: If term not normally included in original contract --> contract may not be fully integrated à can bring in evidence on that collateral term
                            • Deed is very formal document (doesn't allow for additional terms), so not unusual that this term wasn't included!
                            • Oral evidence doesn't contradict the writing (it said Mastersons can buyback)
                          • Alaska Northern Development v. Alyeska Pipeline Service Co (Alaska, 1983)
                            • o Facts: P alleges that approval term was restricted to reasonableness, D claims its absolute approval term. Prior letter of intent is parol evidence. Court does not allow it to be admitted.
                            • o TEST: (1) Was writing integrated? (2) Does extrinsic evidence contradict integrated portion? If yes to both, then PER.
                              • (1) Partially integrated (only integrated on owner clause b/c no further negotiation, not on price)
                                • COMPARE: Unlike Masterson where deed was bad place for the term, this term would normally occur in created letter of intent (as opposed to form contract). So apparently not integrated on the approval term.
                              • (2) Prior agreement = inconsistent.
                            • o RULE: PE is inconsistent if not in "reasonable harmony" with language of integrated portion.
                              • No harmony -- parol evidence not reasonably consistent with the plain meaning of the contract term.
                            • o RULE: If the evidence is contradictory or inconsistent à it is inadmissible. If it is consistent, it may nevertheless be excluded if the court concludes that the consistent term would necessarily have been included in the writing by the parties if they had intended it to be part of their agreement.
                              • Unlike Masterson (where deed was bad place for the term), this term would normally occur in created letter of intent (as opposed to form contract)
                              • Must deem consistent or not by looking at writing applied to subject matter and placed in context
                              • Basically same rule for UCC and Restatement
                                • UCC §2-202 and comments – “terms in a record may be explained by evidence of course of performance, course of dealings, or usage of trade without a preliminary determination by the court that the language used is ambiguous.”
                                • Restatement §216: “an agreement is not completely integrated if the writing omits a condition additional agreed term which is such a term as in the circumstances might naturally be omitted from the writing.
                              • o Also, this was probably NOT a contract! Alyeska had a free-way-out via owner's clause. But court considers it to be a preliminary contract on good faith.

Free-way-out = clause that constitutes ability to get out (owner’s approval clause) à agreement to negotiate (minimum is prelim contract to negotiate in good faith)Output K – only what you can reasonably provide

B. Interpretation[edit]

              • PG&E v. Thomas Drayage Co (Cali 1968)
                • o Facts: Indemnity interpretation issue about damage on third party property or just D’s property?
                • o TEST:
                  • If judge says its meaning and no one objects --> no problem
                  • If judge says its meaning and party objects --> party must present alternative
                    • If alternative is plausible --> judge holds hearing on it
                      • o If reasonable person could understand that meaning, then must be admitted to factfinder
                    • o RULE: Words can have different meanings. Court should try to determine parties' intent of meaning of word.
                      • Problem of subjective belief -- solution: look at prior dealings, custom, etc.
                      • Judges are not capable of determining meaning merely by looking at document. Must look to external context.
                    • o Judge Traynor: Every judge brings his own meaning to terms.
                  • Frigaliment (New York 1960)
                    • o Facts: Different meanings of chicken. Equally likely that D believed he could comply with contracts by delivering stewing chickens. Considered: document and communications (just said chicken), trade usage (conflicting expert testimony about if normal to specify chicken type in K), normal price for chicken type.
                    • o RULE: Party who seeks to interpret a contract term in a sense narrower than its everyday use bears the burden of persuasion to show that such a narrower meaning was intended by the parties
                      • Steps of interpretation
                        • Express wording of document
                        • Course of performance – past dealings or interaction show their understanding of term in K
                        • Course of dealing -- Impossibility of obtaining stewing chicken at the young chicken price
                        • Trade usage -- how do people in the trade use the term)
                        • Gap-filling rules or standard: Penalty default (which party in best position to prevent ambiguity?)
                      • o CONTRAST: Peerless = misunderstanding about which ship would be leaving port to deliver cargo. No contract because no agreement about which ship was to deliver. Here, P has more info because they’re more involved in trade and had more info. In Peerless, no extrinsic evidence to admit because they didn't have info.
                    • UCC 2-202(a): Terms in integrated writing may be explained or supplemented by "course of performance, course of dealing, or usage of trade"
                    • Restatement §201(2): “Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (1) That party didn’t know of any different meaning attached by the other, and the other knew the meaning attached by the first party or (2) that party had no reasons to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party.”

C. Duty of Good Faith[edit]

              • General duty of good faith and fair dealing in performance of contract (Restatement 2d 205 / UCC 1-304)
                • o Default floor -- May NOT be disclaimed/contract out of entirely by agreement
                  • But can set standards of good faith, as long as standards not outrightly unreasonable
                • o NOT a duty of good faith to negotiate
              • Austrian Airlines (New York 2008)
                • o Facts: Buyer refuses to purchase after nonconforming sale. Industry standard to buy even with minor defect. Demands lower price from seller.
                  • NOT bad faith = K allowed denial for any reason + defect wasn’t minor.
                • o UCC: Merchant buyers have a duty of good faith to perform in accordance with reasonable commercial standards
                  • Commercial standard = If seller has reasonable suspicion that buyer would accept non-conforming goods, buyer may reject it. Then seller has oppt to ship conforming goods to rectify situation.
                • o RULE: Contract term allowing rejection for any non-conformance overrules the industry standard.
                  • Rationale: You can set the boundaries of what is “good faith”.
                  • Even without K term, UTF could still reject b/c such major defect (plane couldn't get flight certif)
                • Feld v. Henry Levy Sons (New York 1975)
                  • o Facts: Outputs contract for breadcrumbs, exclusive dealing. Wants price increase or will stop producing because uneconomical.
                    • Good faith cessation is factual Q for lower court. Look at commercial background + intent. Factors:
                      • Was cessation merely economical (bad faith) or due to disastrous emergency (good faith)?
                      • If 6 month notice provision provided for, why not use that 6 month notice?
                    • o RULE: In output contract, there is duty of good faith + reasonable best efforts to sell (like Woods)
                      • Good faith cessation of production = extreme cost/disastrous emergency
                      • Same good faith rule applies to a Requirements K
                    • Zapatha v. Dairy Mart (Mass 1980)
                      • o Facts: Mutual termination clause without cause. D ensures P reads K, advises to get lawyer. D pays back 80% value of inventory. Handled by UCC (transfer of goods).
                        • Not bad faith if franchisee won’t change terms.
                        • No unfair surprise -- P pursued the contract, D made sure P read the terms, P waived the advice to have lawyer review contract.
                        • No oppression -- D agreed to buy back inventory at 80% (cost of investment (just not the 20% he'd make off sales)).
                      • o RULE: Termination clause without cause not unconscionable per se. Case-by-case analysis. Must be exercised in good faith – don’t (a) cause unfair surprise or (b) oppressively disadvantage other party.
                    • Condition of personal satisfaction = good faith, duty to act in good faith is sufficient consideration (Omni)
                    • Promissory condition = good faith to try to make condition (under your control) happen
                    • 4 settings for claims of bad faith
                      • o Prevention, hindrance, failure to cooperate (Feld breadcrumbs)
                      • o Exercise of discretion granted by the contract (eg personal satisfaction)
                      • o Contract modifications
                      • o Termination of the contract for reasons other than cause (Zapatha)
                    • Restatement 205, comment d

D. Warranties[edit]

              • Representation = not a promise, but a representation of the state of facts.
                • o If warranty --> Misrepresentation creates breach of contract option
                • o If no warranty --> potential fraud action
              • Express Warranty (UCC 2-313)
                • o RULE: Any description, sample, model of goods which is made part of the basis of the bargain
                  • Puffing is allowed -- mere affirmation of value of goods or statement of sellers’ opinion doesn’t create a warranty.
                  • Must provide a minimum description of the good (at least identify what the good is)
                • o Need not have intent to create warranty
                • o If the facts presented that are knowable but not necessarily known
              • Implited Warranty of Title
                • o Applies for all sales
              • Implied Warranty of Merchantability (UCC 2-314)
                • o RULE: Unless excluded or modified, implied warranty is auto upon sale IF the seller is merchant of good
                • o To be merchantable, must:
                  • (a) pass without objection in the trade under the contract description
                    • Essentially an implied acceptability exception
                  • (b) in the case of fungible goods --> are of fair average quality within the description
                  • (c) are fit for the ordinary purposes for which such goods are used
                  • (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.
                • o RULE: To disclaim, must be conspicuous (if writing) + particular mention of merchantability (UCC 2-316)
              • Implied Warranty of Fitness (UCC 2-315)
                • o Two essential elements
                  • Seller must know that particular purpose is required
                  • Seller must know that buyer will rely on seller’s skill or judgement in selecting good
                    • Buyers reliance must be reasonable
                  • o RULE: To disclaim buyer’s reliance, must be writing + conspicuous (UCC 2-316)
                    • Ex: "There are no warranties which extend beyond the description on the face hereof."
                  • Language like “as is” indicates that implied warranty is excluded (UCC 2-316)
                    • o Implied warranty can also be excluded by course of dealing, course of performance, or usage of trade
Implied Warranty of Merchantability Implied Warranty of Fitness
Applies to merchants only of that kind Applies to everyone
Applies to general use Applies to particular (ordinary) use
              • o Is there implied warranty of general purpose?
              • CONTRAST: Warranty v. Misrepresentation (U CC 2-313 v. R2d 164)
                • o Fewer elements to prove warranty claim
                  • No specific materiality requirement for warranty -- presumption that if representation made in negotiation it’s part of the basis
                  • Don’t need justified reliance (unless fitness)
                • o Less generous remedy for warranty breach
                  • Can be limited by the K (repair/replace)
                  • Damage limits
                  • Restitution for Misrep – so depends on the end goal
                • CONTRAST: Breach of Warranty vs. Failure of Condition
                  • o Warranty = Promise that a representation is true
                    • Noncompliance = BoK damages
                  • o Condition = “an event, not certain to occur, which must occur, unless non-occurrence is excused, before performance under a K becomes due” (§224);
                    • Noncompliance excused party with condt’l duty from performance (§225)

E. Conditions[edit]

              • Condition = event not certain to occur, but MUST occur for contract to be binding (Restatement 224)
              • When condition can’t occur: excused party with conditional duty from performance (Restatement §225)
                • o Substantial performance = default that makes buyer’s duty to pay conditional on sellers substantial/innocent performance
                • o No impracticability is default performance condition = seller’s duty to perform is condition on performance not becoming impracticable
                • o 224 – definition of express condition
                • o 226 – Condition by agreement of parties
                • o 225 – duty discharged when condition can no longer occur
              • Overview
                • o Language in contract can be (a) promise, (b) condition, or (c) BOTH
                  • Examples
                    • "If it rains tomorrow, I will walk across bridge. Doesn't rain, don't walk, no breach."
                    • "If you don't buy a pair of boots, then I'll get you shoes." = promise of A OR condition of B
                  • o (a) If promise is not met = breach
                    • Dependent promise: if A isn’t performed, B won't be performed
                      • Failure to fully perform by A = total breach
                      • Damages to B (as long as promise was within A’s control)
                    • Independent promise: B will be performed regardless of A
                      • Substantial (but not total) performance by A = PARTIAL BREACH
                      • Damages less than full to B + B must still perform for A
                        • o Court will use Substantial Performance Doctrine
                      • o (b) If pure condition not met = excused obligation
                        • Express Condition: stated in K
                          • MUST HAVE FULL PERFORMANCE
                          • NO Promissory Estoppel in failure of Express Condition
                            • o Partial performance and reliance on conditions don't result in claims
                            • o But courts hate forfeiture --> so they TRY to construe away from express condition
                          • Implied (Constructive) Condition: not in K, but understood
                            • Implied in Fact = non-verbal indication of intent; treated same as express
                            • Implied in Law = imposed by law regardless of parties’ intent
                              • o Can be disclaimed by express provision/condition of K
                            • Constructive Condition In Exchange = A’s condition to perform only exists following performance by B
                              • Breach must be material
                            • o (c) If condition coupled with a promise (eg A promise of condition) = obligation to make condition
                              • If condition is within your control = implied promise to use good faith and reasonable effort to make it happen
                                • Condition of satisfaction
                                  • o Only if promisor is personally satisfied (not reasonable person), but must be done in honest and good faith
                                • Ex: Rewrite to make use of Reading Pipe express condition of Owner’s duty to pay
                              • RULE: When there is doubt, courts will interpret as a independent promise rather than express condition to avoid harshness of forfeiture
                                • o RULE: Look to language of K to determine if promise or condition: look at words of agreement (“if,” “provided,” “when”) – prior practices – custom – 3rd party performance
                                  • Deference to find promise if unclear
                                  • Express condition – absolute performance, total forfeiture
                                  • Dependent promise – same time, but partial
                                  • Independent promise – substantial performance gives remedy
                                  • Implied/constructive condition – only substantial compliance
                                • o Constructive Condition (btw types of conditions) – substantial performance suffices?
                                • o Independent Promise (btw types of promises) – only partial breach, gives substantial performance
                              • Rationale: Court abhors total forfeiture. Realist approach is to protect good faith.
                              • Clark v. West
                                • o Writing book, promise of raise on condition of sobriety. P violates but D accepts anyway.
                                • o RULE: Beneficiary of express condition can unilaterally waive it (voluntary abandonment)
                                  • Immaterial condition doesn’t need new consideration for modification.
                                    • o Restatement 84(1)(a):
                                      • If waivable, no consideration is necessary
                                      • If integral to the exchange, consideration is necessary to waive
                                    • If waiver --> P gets raise, OR, if no waiver --> failed performance --> no raise.
                                  • Ferguson v. Phoenix Assurance (Kansas 1962)
                                    • o Burgled safe. Evidentiary condition of insurance payment requires evidence be on outside, but its only on inside.
                                    • o RULE: Mere evidentiary condition beyond reasonable standard to prevent fraudulent claim is against public policy if it prohibits insurance payment where there’s other evidence of break-in.
                                      • Purpose of condition was merely evidentiary, not substantive to be exception to payment
                                        • If it’s meant to be substantive à put it in indemnity or exception section!
                                      • Generally, express conditions are strictly interpreted.
                                    • Jacob & Youngs v. Kent (New York 1921)
                                      • o Facts: Building pipes. Condition that they’re from Reading, but later on found out used wrong pipes – no fraud or willful. Essentially the same despite brand.
                                      • o RULE: If immaterial breach + gross different in cost of performance à dimunition value (otherwise cost of performance)
                                      • o When an omission is trivial + substantial performance of Constructive Condition of Exchange à measure of damages is the difference in value btw substantial performance and full performance (not full cost of completion)
                                        • The value of the house wasn't changed at all, so no compensatory damages.
                                        • Remedy = expectation damages for remaining payment – cost of their defective performance
                                        • LEGAL REALISM
                                      • o RULE: Factors to consider for giving mere diminution (breach just incidental, not material)
                                        • Intent (excuse for deviation)
                                        • Triviality (importance of condition) – value of condition, cost of diminution + true waste (capitalist concern)
                                        • Materiality
                                          • If substantial performance, than no material breach
                                          • If material breach, can’t have substantial performance
                                          • Factors to consider - Purpose to be served; desire to be gratified, excuse for deviation, cruelty of enforced adherence, and willful
                                        • o If you really care, secure K by showing communication b/t parties of the value P places on the pipes
                                        • o RULE: Express condition becomes independent promise if there is substantial lossRemedy = dimunition if immaterial breach and substantial performance Material breach = cost of performance (American Standard) – ie cost to get project completed

F. Excuses from Performance (Impracticability / Frustration)[edit]

              • Can be thought of as another implied condition
                • o Force majeure clause--party will be excused from performance due to some natural disaster, war, etc.
                  • If parties don't have this in contract, it may be implied through impracticability or impossibility
                • RULE: If neither party allocated risk or at fault à court will leave them where they stand (Taylor)
                  • o EXCEPT: If (a) K allocates risk OR (b) there is some fault à can assign obligations and hold party accountable.
                    • If one party has insurance, can argue they in better position to get obligation.
                  • o Restatement 460: Promisor’s duty to perform is excused if the subject matter of the contract or the specified means for performance is destroyed or becomes nonexistent after the contract is entered into, without fault of the promisor. (Taylor)
                  • o UCC 2-615: delay in delivery is not a breach if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which K was made.
                • Taylor v. Caldwell () -- impossibility
                  • o Facts: Music hall burns down before show. Implied-in-fact condition = hall will exist.
                  • o RULE: Both parties are excused from performance due to impossibility when an implied-in-fact condition that was basic assumption is disrupted and without fault of party.
                    • Implied condition that hall would exist
                      • RULE: Despite no clear expression by either party, implied
                    • United States v. Wegematic () -- misrepresentation, essentially a warranty or fault - NOT impracticability
                      • o Facts: Wegematic promises computer saying that tech is on horizon. Can’t deliver. D claims non-occurrence of engineering difficulties is a basic assumption of K - does not work bc it took the risk when it promoted its product.
                      • o RULE: No impracticability excuse when seller’s risky behavior led to failure.
                        • The risky behavior of D should not be rewarded.
                      • o CONTRAST: In Taylor there is no one at fault. Here, D had control not to represent tech as in near future, so at fault.
                    • Canadian Industrial Alcohol v. Dunbar Mollases (NY 1932) – impracticability failed
                      • o RULE: When the parties had basic assumption that performance would continue, can’t get impossibility excused.
                        • D would have been excused if there had been extreme/unavoidable circumstance unexpected at time parties entered K
                          • Ex: (a) 3rd party supplier had burned down, (b) molasses crop had died out, (c) if war had ravaged the molasses crop, (d) if there was unavoidable strike.
                        • D can’t show implied condition that 3rd party supplier would continue supplying (ie basic assumption)
                          • D could have defense if he’d contracted directly with 3rd party, and show that P expected it based on evidence or prior history. Also would have potential breach of contract claim.
                        • o RISK assumed by the seller, this event could have been anticipated and protected through D contracting. (as it wasn’t natural disaster)
                        • o UCC 2-615. Excuse by Failure of Presupposed 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 contractas 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.
                        • Frustration of Purpose
                          • o RULE: Frustration in principle purpose of K can constitute an excuse for nonperformance (and change of profitability of K can be indicator)
                            • Consider foreseeability regarding potential allocation of risk
                            • Restatement 265 – principle purpose is substantially frustrated, the non-occurrence which is a basic assumption
                              • “decline in price is regarded merely as evidence of substantially of frustration of the purpose of the K”
                            • o Krell v. Henry (Eng 1903) -- frustration of purpose
                              • Facts: Buying room for coronation and king gets sick. Wants to cancel room.
                              • RULE: even if something is possible and practicable, no obligation to perform if K frustrated purpose through no fault of parties
                            • Cmt: Forms of Relief
                              • o If one party is excused, and they have dependent promise (default)
                                • K can be cancelled; restitution (to unwind and put back before the K) if any uncompensated benefits have exchanged hands
                                • If any part of K has been performed can seek damages (restitution) under UE theory b/c the K is now cancelled!
                              • o If party fails to execute, the failed party can (1) modify their agreement, (2) sue for breach of contract
                                • Failing party usually must bear additional costs beyond the contracted price
                                • In some jux, the failed party must incur additional costs if it seeks performance after knowing of impracticability


Remedies[edit]

Overview

              • Breach can either be:
                • o (1) total failure to perform or
                  • If promisee has fully performed, then remedy for breach is usually limited to an action for damages or specific performance (affirmative remedy)
                • o (2) non-conforming performance.
              • If promisee has partially performed, the breach may also discharge remaining duties (defensive)
              • If promisor, by words or conduct, repudiates a performance not yet due under the agreed exchange, and this is a material part of the exchange, than the promisee has both affirmative and defensive remedies and these remedies can be invoked before the time set for performance
              • Two forms of breach
                • o Anticipatory = Repudiation (expression of intent not to perform) before performance due
                  • Don’t have to wait around once breach, can act as cancelled
                    • Duty to mitigate??
                  • Affirmative and defensive remedies if: (a) both parties have obligations under contract, (b) repudiation if of material part of agreed exchange, and (c) repudiation not effectively nullified by retraction or otherwise
                  • Repudiation = (a) a statement by obligor to obligee indicating that obligor will commit breach, or (b) voluntary affirmative act which renders obligor unable or "apparently unable" to perform w/o such a breach (Restatement 2d 250)
                    • o Breach is both material and won’t be cured
                  • Failure to give adequate assurance of performance can function as repudiation
                    • o Restatement 2d 251: where reasonable grounds arise to believe obligor will commit material breach, obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance.
                      • The oblige may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances
                    • o UCC 2-609:
                      • (1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
                        • RULE: Can suspend performance if: reasonable insecurity + demanded assurance + did not receive à treat as unequivocal repudiation
                      • (2) Between merchants -- reasonableness of insecurity and adequacy of assurance offered shall be determined according to commercial standards.
                      • (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance.
                      • (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding 30 days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.
                    • o Breach by nonperformance = Without justification, fails to perform when performance is due
                      • RULE: If nonbreaching party already performed à remedy limited affirmative remedy action (damages or specific performance)
                    • Three types of remedies
                      • o Defensive rights (elimination of contract and obligation)
                      • o Affirmative remedies
                        • Damages
                          • Expectation
                          • Restitution
                          • Reliance
                        • Specific performance

A. Defensive Rights[edit]

              • Suspend own performance (if other side hasn’t substantially performed to coerce them) or cancel K
                • o Not possible if you’ve already performed/paid
                • o Can be risky: If they haven’t actually breached by now you breach
              • Hochster v. De La Tour (Eng 1853)
                • o Facts: Month before courier trip, D says he doesn’t need service anymore. P decides to wait and then sue for breach of contract. In meantime P gets new job.
                  • Choices to P at point of repudiation:
                    • (a) cancel contract (accept repudiation)
                    • (b) Reject repudiation and allow for contract to continue in force -- wait until performance due to sue for actual breach
                  • o RULE: Can repudiate in anticipation. Condition excused and person immediately liable for breach.
                    • Two ways to repudiate a contract:
                      • Express
                        • o RULE: Repudiation must be (a) unequivocal and unconditional, (b) repudiation of whole K
                      • Implied
                        • o RULE: Implied repudiation by conduct must make K impossible to perform.
                      • o RULE: If P wants to accept repudiation and cancel K, must be clear and unequivocal. If ambiguous, D can unrepudiate and perform à then P liable for non-performance
                      • o RULE: Once breacher has repudiated, non-breaching party has duty to mitigate IF he accepts repudation. If he rejects repudiation, contract still on and no duty to mitigate.
                    • Taylor v. Johnston (CA 1975)
                      • o Facts: P assumes that D repudiated by selling mares elsewhere. P keeps K in force, so D follows through on performance but P doesn’t. P liable.
                      • o RULE: High bar for implied repudiation. D never actually implied repudiation (bc was able to follow through) + P rejected repudiation à P liable for nonperformance when D follows through.
                        • Restatement §251(1): obligee may suspend any performance for which he has not already received the agreed exchange until he receives assurance of due performance; may treat repudiation as obligor’s failure to provide such assurance within a reasonable time
                      • Alaska Pacific Trading (Wash 1997)
                        • o Facts: P worries that log buyer will cancel K because price for logs drops. P asks if price is concern, D doesn’t answer. P assumes that’s failure of assurance, so repudiation. P doesn’t ship.
                          • Holding: There was no implied repudiation + no clear request for assurance. P breached.
                        • o RULE: Default is to expect K to continue unless there is implied repudiation via unambiguous impossibility or express repudiation.
                        • o RULE: Request for assurance must be very clear. Don’t just ask about price term being okay.
                          • Policy implication: Super high bar for assurance to avoid uncertainty and encourage business.
                        • If you reject repudiation, NO duty to mitigate.
                        • If you accept repudiation, YES duty to mitigate.

B. Affirmative Remedies: Money Damages[edit]

              • Efficient Breach = Benefit of breach > cost of breach (including breaching party’s payment of expectation damages to other party)
                • o RULE: In non-service K, Court will impose damages or specific performance – whichever is more efficient
                  • Default is damages. Specific performance requires special showing.
                • o NIPSCO v. Carbon County Coal (7th Cir 1986) – Posner allowing breach
                  • Facts: CCC going out of business, coal price gone up. NIPSCO wants to break K for econ/polit reasons. CCC wants specific performance of NIPSCO’s purchase so that it can negotiate better rates.
                  • Holding: NIPSCO can’t break K, but no specific performance. Efficient breach à breach damages due.
                    • Efficient to breach b/c electricity is much cheaper than coal
                      • o Inefficient to grant specific performance b/c huge companies, court supervision needed
                    • Worker’s interests don’t matter:
                      • o Realist – no K btw CCC and workers; CCC probably won’t employ them and just negotiate better breach deal
                    • o Walgreen
                      • RULE: Court less reluctant to grant specific performance for negative injunction and low-cost
                      • CONTRAST: Here, low cost to court-ordered specific performance:
                        • (a) Negative injunction (unlike NIPSCO) = low supervision cost, simple one-time injunction
                        • (b) Awarding damages = high cost to calculate future income
                        • (c) Cost of bilateral monopoly = high, but Coasian negotiation is probable and will lead to Pareto efficient solution

C. Affirmative Remedies: Specific Performance and Equity[edit]

              • Specific performance, like other equitable remedies, is available only if damages are not an adequate remedy
                • o Damages inadequate when SM is unique
                • o Also crazy Posner and efficient breach (which is analyzing the ^^ question)
              • Pro of SP – shifts burden of determining damages from the court to the parties (Walgreens)
                • o The two parties can now bargain to an efficient result to K around injunction
              • Con of SP – Walgreens
                • o Bilateral monopoly – can only deal with each other and creates limited bargaining range
                • o If the range was huge, then court may fear never reach a bargain
              • SP disfavored because it borders on forced servitude, violates Constitution
                • o Personal service case allowing SP – if K was clear, definite, complete and free from any suspicion of fraud and unfairness
                • o For personal service Ks cannot get affirmative injunctive relief! Though negative might have the same effect
                • o When weighing aff. v. neg generally injunctions look to court resources
              • Curb Records v. Tim McGraw (Tennessee 2012)
                • o Problem: Giving specific performance would bind McGraw for life (bc studio would just keep denying satisfaction and have him produce more)
                • o RULE: Direct specific performance on personal service K is highly disfavored. But possible.
                  • Injunction only if "unique and extraordinary circumstances"
                • o RULE: Give money damages if (a) balance of harm-benefit, (b) minor breach, (c) can be calculated via damages
              • Wagner v. Lumley (1852)
                • o RULE: A court of equity may impose a negative injunction on an individual, preventing her from doing something.
                  • Can’t force singer to do something, but can stop her from doing other stuff.
                • Clark v. Marsiglia (NY 1845) – painter case
                  • o Once a contract is repudiated, the non-breaching party has the right to recover for damages sustained up until the breach, but cannot recover for performance beyond that point.
                  • o RULE: No way to recover for damages where you could have taken reasonable efforts to mitigate. So once repudiated, non-breaching party can’t recover for costs after that.
                    • DUTY TO MITIGATE
                  • Hadley v. Baxendale
                    • o Facts: Mill case.
                    • o RULE: Consequential damages limited to those reasonably foreseeable to both parties at time the K was made + damages from “special circumstances” communicated and known by both parties at time K was made.
                  • Hydraform Product v. American Steel (NH 1985)
                    • o Facts: Seller creates receipt form, with clause excusing seller from consequential damages. Buyer signs. The delivery is late and defective.
                    • o HOLDING: Consequential damages = lost profits.
                      • Future year impacted loss of profits --> no way to calculate them, so can't give them for damages.
                      • Court incorrectly distinguishes profit from value. PROF.: Wrong. Increased profit will improve value.
                    • o Foreseeable? YES! Express statement to signify consequence of breach.
                    • o UCC 2-719 -- This receipt term is unconscionable because fails essential purpose

D. Measuring Money Damages[edit]

              • Seller’s remedies for buyer’s breach
                • o Expectation = Contract Price -- Market value (at time performance due) – partial payment -- p
                • o Construction
                  • Expectation = Contract price +
                • o Buyer in breach, Buyer has goods.
                  • §2-709 KP + ID
                • o Buyer in breach, Seller has goods.
                  • Seller has two options
                    • Resell, §2-706 (KP - RP) + ID - ES.
                    • Not resell, §2-708
                      • o Regular, §2-708(1) (KP - MP) + ID - ES.
                        • Minus partial payment (in all cases)
                      • o Lost volume seller, §2-708(2) (Profit (KP-CoP)) + ID
                    • o American Mechanical Corp v. Union Machine Co (Mass 1985)
                      • Facts: Sale price of foreclosed home is above FMV.
                      • RULE: FMV measured at date when performance was due.
                        • Foreclosure sale happens 7 months after the breach. Not indicative
                      • RULE: When no evidence of value at performance date, then assume FMV.
                      • RULE: No expectation damages b/c formulaic proof of direct damage of the breach (eg FMV not provable).
                      • RULE: For consequential damages to be awarded, injury must be foreseeable at the time of contract.
                        • D knew that P was liable for foreclosure + foreclosure leads to lower price
                      • o New Era Homes v. Engelbert (New York 1949)
                        • Facts: Like Clark v. Marsiglia. Only portion of labor costs had been expended -- do you get back costs incurred AND potential profit minus unincurred costs?
                          • Option 1: Total K price + profit - price not yet paid - costs avoided
                          • Option 2: Unjust enrichment
                        • Plaintiff gets to choose which one she sues for
                      • o Locks v. Wade (NJ 1955) – Loss Volume Seller
                        • Juke box, lost volume
                        • Common problem in expectation damages
                        • Does plaintiff have obligation to mitigation? Yes. P mitigates by finding someone else to take the same machine at the same price. Aside from incidental damages (finding someone else), has P incurred damages?
                          • Because P was going to make a second sale anyway (since this is his business), he lost a sale when D breached - lost volume sale issue
                            • o So, P can get (the lost profits he would’ve earn) - (costs he would’ve incurred performing the contract)
                          • Leading case, Davis, is less strict that some in determining when there is a lost volume seller: (check 1033)
                            • A lost volume seller has a predictable and finite number of customers and has the capacity either to sell to all new buyers or to make the one additional sale represented by the resale of the breached unit
                            • if the seller would have made the sale represented by the resale whether or not the breach occurred, damages measured by the difference between the contract price and the market price cannot put the lost volume seller in as good a position as it could have been in had the buyer performed.
                            • Also added a restriction that’s not in other cases - if addition to whether Seller could have produced the additional item is the question whether it would have been profitable for the seller to produce both units.
                        • Buyer’s remedies for seller’s breach
                          • o Expectation =
                          • o Seller in breach, Seller has goods
                            • Specific performance for unique goods, §2-716
                            • Buyer covers §2-712 (CP-KP) + (ID+CD) - ES
                            • Buyer does not cover §2-713 (MP-KP) + (ID+CD) - ES
                          • o Seller in breach, Buyer has goods.
                            • Is something wrong with the goods themselves, or just the way they were delivered?
                              • §2-714(1) something is wrong with the way the goods were delivered
                              • §2-714(2) something is wrong with the goods
                            • o Reliance Cooperate v. Treat (8th Cir 1952)
                              • RULE: If a party repudiates a contract it does not change the damages to be awarded nor is the affected party required to mitigate damages.
                              • What happens if P had cancelled?
                                • Reliance still would’ve had to owe same amount of money b/c the date of figuring out FMV is the date that breach took place. If P cancels but does not cover, measure damages as of date of performance being due.
                                • cost of cover compared to contract price
                              • No matter when you repudiate, difference between market price and contract price
                            • o Peevyhouse (OK 1962) – service K
                              • Facts: Overly wasteful to charge for rebuild due to non-major restoration work incidental to sale. Owner likely wouldn't pay $29K for “improvements” that would increase value by only $300 --> PP issue of awarding them money and they might spend it elsewhere
                              • RULE: If breach merely "incidental" to main purpose of K + economic benefit to lessor by full performance is grossly disproportionate to performance cost --> damages limited to the diminution in value.
                                • Wasteful contracting allowed, but damages limited to diminution in value. Like Jacobs & Young
                              • o American Standard v. Schechtman – clearing essential, service K
                                • RULE: If the breach is essential to the PURPOSE of the K --> cost of performance is default. Don't worry about economic waste.
                                  • Purpose of K was reasonably attractive land via clearing.
                                    • o CONTRAST: Peevyhouse purpose was to mine coal, not restore land. Jacobs purpose was to build house.

E. Punitive and Liquidated Damages[edit]

              • Tort damages
                • o Kaplan v. Mayo Clinic (Minnesota)
                  • Facts: Kaplan diagnosed with cancer. Doctor promises biopsy and just skips to surgery; turns out no cancer.
                  • MINORITY RULE: Can't recover for mental distress under contract, even if foreseeable.
                    • In Minnesota (minority), emotional/mental distress is purely a tort claim. Incorrectly claims that contract claim is purely commercial.
                  • o Plotnik v. Meihaus (Cali 2012)
                    • Facts: Fueding neighborhood dog.
                    • MAJORITE RULE: Contract law doesn't usually cover emotional distress/pain & suffering UNLESS purpose of K is to avoid that. As long as emotional/mental distress is reasonably contemplated.
                  • o Acquista v. NY Life Insurance (New York 2001)
                    • Facts: Guy has several health insurance policies. Diagnosed, but D denies money b/c goes beyond insurance cap. P can't get care. P claims physical injury + economic losses beyond the contract claims. P claims bad faith breach
                    • RULE: Can recover for tort-like wrong in contracts, if the contract breach is ITSELF a foreseeable tort (ie NIED). Similar to consequential damages.
                      • Strictest (majority): Limited to recover of just insurance. NO punitive damages unless distinct tort.
                      • Middle (Acquista): Allow full recovery of foreseeable money damages.
                      • Least Strict (minority): Bad faith allows punitive recovery.
                    • o Whiteplanes
                      • Facts: Competitor goes to clients to get them to break relationship with P.
                        • Tortious interference in contractual relationship.
                        • For contract claim, competitor would need economic interest in the people solicited.
                      • RULE: No contract claim. Just sue for tort, thus allowing punitive damages.
                    • Liquidated Damages
                      • o Punitive damages disallowed in Contract Law
                        • If the agreed compensation exceeds compensation and goes toward punitive/deterrence, that's an issue!
                      • o TEST: Court will grant liquidated damages only if
                        1. Actual loss is difficult/impossible to calculate, and
                        2. Parties made reasonable effort to calculate actual loss
                      • o Southwest Engineering v. US
                        • Facts: Southwest doing construction work, but fails to meet deadlines. Liquidated damages for lateness. But D says it wasn't actually injured.
                        • RULE: Doesn't matter if D says it wasn't injured, as long as the two-part test met.
                          • o Each party took risk to be bound.
                        • If two-part test met --> liquidation clause controls.
                        • If two-part test failed --> liquidation clause disallowed --> protected party must show actual damages.
                      • o Sprint
                        • Facts: There is early termination fee in K with subscribers. Must make good-faith reasonable effort to calculate; Spring failed to do so. Even if they did try, it would have been easy to calculate (can measure loss of customer). So fails test because no reasonable effort taken.
                        • RULE: If it is impracticable to estimate losses, that constitutes "impossible" calculation.
                          • Overly costly to calculate damages for each individual breaching

F. Compensatory Damages[edit]

              • Injured party always has duty to mitigate damages.
              • Types of Damages
                • Expectancy damages= value you expected to get - value you actually got
                  • Rationale: Put injured party in position they would have been if performance done properly
                  • Damages only for essential things (promisor reasonably foresees harm w/o performance)
                  • RULE: Applies as default for breach.
                  • Consequential Damages= value of damages resulting as consequence from the original breach
                    • Dependent on foreseeability from offeror
                  • Reliance damages
                    • Rationale: Put injured party in position they would have been if there had been no contract
                    • Must be reasonable + "change of position"
                    • Awarded for Promissory Estoppel
                    • RULE: Applies if expectation damages not available
                    • Losses covered
                      • Expenditures made in preparation of performance
                      • Expenditures made in performance
                      • Foregone opportunities?
                    • Restitution interest= return benefit to injured party that was conferred to other party (ie doctor's fees)
                      • Restitution is part of reliance, but reliance is broader (accounts for all harm)
                    • Liquidated Damages
                      • RULE: Two-part test.
                    • Breach of Contract = standard remedy (but maybe not only remedy) is expectancy damages
                    • Reliance requires (a) reasonable and (b) change of position
                    • You get expectation OR reliance, not both
                      • o You can't be put in position if no contract AND position if contract fulfilled
                      • o Ex: You forgo job in reliance of other job, then don't get other job. You can get salary of forgone job (reliance), or salary of expected job (expectation)
                    • Hawkins v. McGee (NH, 1929)
                      • o FACTS: Doctor guarantees “100% perfect hand” with short stay. Operation fails.
                      • o HOLDING: P awarded expectation damages -- difference btw value of perfect hand and injured hand.
                        • No pain and suffering damages, as those were part of consideration (P’s legal detriment in agreeing to operation). Because P reasonably foresaw P&S even if operation was successful.
                          • P knew the risks associated with failed operation. Pain is necessary in operation.
                        • On its own, extreme promise not a contract b/c not reasonable expectation (by doctor or patient)
                          • Operations are inherently risky
                          • Policy: don’t deter therapeutic hopeful statements or encourage "defensive medicine"
                        • Promise becomes contract due to solicitation – this is more than therapeutic statement
                      • Sullivan v. O’Connor (MA 1973)
                        • o FACTS: P supposed to undergo 2 surgeries, but underwent 3 and her nose was disfigured in the process.
                        • o HOLDING: P awarded reliance damages + P&S for the 3rd surgery
                          • No P&S award in Hawkins because it was expected under the contract. Not here for 3rdsurgery.
                          • Not restitution -- not limited to restoration of the benefit conferred on D (the fee she paid him), but includes other expenditures (ex. Amounts paid for medicine and nurses)
                          • Not expectancy – doesn’t cover the whole difference in value between condition as promised and condition actually resulting from the treatment.
                          • Why not expectation measure every time?
                            • Might not have clear expected value from performance
                            • Might spend more than expected value gain (so reliance might be greater) --- ??
                          • Phycological injuries valid for recovery
                        • Reasons for protecting expectations
                          • o Reward risk-taking in market transactions
                          • o Deter ineffecient breach
                            • Assumption: efficient breach is good
                          • o Proof of reliance is often costly and uncertain -- risk that reliance is hidden in opportunities forgone
                        • Restitution v. Disgorgement
                          • o Restitution = pay for benefit derived from nonbreaching party
                          • o Disgorgement = pay for any benefits derived from breach (e.g. interest made off payment)