Contracts Farnsworth

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Contracts
Authors Farnsworth
Sanger
Cohen
Brooks
Garvin
Text Image of Cases and Materials on Contracts, Making and Doing Deals (American Casebook Series)
Cases and Materials on Contracts, Making and Doing Deals (American Casebook Series)
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Chapter 1: Introduction to Contracts and the Bases for Enforcing Promises[edit]

Restatement §1: Contract A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance for which the law in some way recognizes as a duty. UCC v. Restatement: UCC- Uniform Commercial Code:- Statutes governing the sales of goods- Adopted by all states and DC- Sometimes changes common law.Restatement- Persuasive- Treatise that gives general principles/ interpretations of case law.

Restatement §2: Promise; Promisor; Promisee; Beneficiary

  1. A promise is a manifestation of intention to act or refrain from acting in a specified way so made as to justify a promisee in understanding that a commitment has been made.
  2. The person manifesting the intention is the promisor.
  3. The person to whom the manifestation is addressed is the promisee.
  4. Where performance will benefit a person other than the promisee, that person is a beneficiary.

'Possibly remedies for Breach of Contract: Expectancy Interest:- Puts you in position you expected to be in had the contract been carried out- Expected outcome - actual outcome= damagesReliance Interest:- Difference in condition of the plaintiffs before and after- Condition before - condition after = damages- Money spent in reliance on contract being performed.Restitution Interest:- Gives plaintiff back all the value she conferred to the defendant. Puts you back into the position you were in before the contract had been entered into.'Three Protected Interests''''

  1. Restatement §344(a): The goal or purpose of protecting a promisee’s expectation interest is to put the promisee in as good of a position as he would have been in had the contract been performed.
  2. Restatement §344(b): A promisee has reliance interests if it changed its position to its detriment in reliance on the promise. Reliance damages protect the promisee’s interest in being reimbursed for loss caused by reliance.
  3. The promisee has a restitution interest to the extent that the promise conferred a benefit on the promisee. Restatement §344(c) describes the restitution interest as the promisee’s interest in having restored to him any benefit that he has conferred on the other party.

In the Matter of Baby M:Surrogacy contract. Whitehead to get $10,000 in exchange for being a surrogate for the Sterns. Whitehead gave birth and fled to florida for approximately 3 months because she didn’t want to give up baby. Whitehead agreed to terms before conception with no evidence of negotiations. This was a monetary exchange -- Court compared to “baby selling”/money being paid for adoption and not for services being performed.- K violated state adoption statutes and are against public policy: best interests of the child. Court held that all parties were monetarily motivated and thus, this contract is invalid and unenforceable.- Agreement was an effort to do an end run around the state adoption laws, that specifically required procedural safeguards that would protect the mother and the child.- Supreme Court of NJ invalidated the surrogacy contract, voided Mrs. Stern’s adoption, and voided the termination of Whitehead’s parental rights.Hawkins v. McGee: Contract to fix hand. Defendant guaranteed to make plaintiff’s hand 100%.

  • - Court held that based on what defendant told plaintiff, a jury could reasonably find that defendant promised plaintiff a 100% perfect hand.
  • - Restatement §344(a): being put in as good of a position as he would have been had the contract been performed..

Bayliner Marine Corp. v. Crow: Sale of a boat. Plaintiff saw prop matrix stating that the max speed of the boat was 30 MPH when he quipped with certain specs at weight of 600 lbs. Plaintiff added specs at weight of 2,000 lbs. And the boat only had a max speed of 17 MPH.

  • - K for the sale of goods. UCC applies. Express warranties. (Prop Matricies and brochure).
  • - UCC 2-213: A seller’s opinion or affirmation of goods does not create a warranty.
  • - Court held that prop matrix did not apply to the specific boat the plaintiff purchased because of different size propellers. 30 MPH was the seller’s opinion and does not carry a warranty.
  • - Puffery does not count as a warranty.

US Naval Institute v. Charter Communications Inc.- Plaintiff was selling hardcover editions of The Hunt for Red October. Plaintiff contracted with defendant for the defendant to sell paperback editions no earlier than October 1985. Defendant sold to stores in September 1985 and sold well.

  • - Expectation Interest- what plaintiff would have earned if defendant had not started selling early. ($35,380.50)
  • - Awarding plaintiff damages based on defendant’s profits would have been inaccurate and punitive -- breach of K does not get punished. The goal is not to punish the breaching party but rather to compensate for damages incurred due to defendant’s breach.
    • - Foreshadowing Benkowski
  • - Efficient breach: sometimes it is better for breach to occur; the promisor can break a promise and enjoy a gain, without leaving the promisee worse off (both sides benefit). Social reallocation of goods and service that might make society better off.
    • - How this applies to Naval: breaching party ended up still making a profit even though they had to pay $35,380.50 in damages.

Sullivan v. O’Connor- defendant was to perform plastic surgery on plaintiff’s nose. Defendant told plaintiff it would be two surgeries but ended up performing three. Nose was no longer fixable and looked worse. Plaintiff wanted expectation damages (like Hawkins)

  • - Plaintiff could recover
    • - Out of pocket expenses
    • - Damages flowing directly/naturally/proximately/foreseeably from breach
    • - Pain and suffering involved in only third operation.
  • - Restatement §344
    • - Expectation: position plaintiff would have been in had k been performed.
      • - Difference between the value of the better nose and the value of the current nose. Plaintiff waived this claim on appeal
    • - Restitution- restore any benefit plaintiff conferred on defendant
      • - Anything plaintiff paid defendant in exchange for operation.
    • - Reliance- back in position plaintiff would have been in had the promise never been made in the first place.
      • - Hospital bills/other expenses
      • - Pain and suffering including all 4 operations
    • - Court held that reliance damages were a middle ground in this type of case (Restatement §344(b))

''''Robins v. Finestone

  • - A different and generally more lenient measure of damages is to be applied in patient-physician actions based on breach of alleged special agreements to effect a cure, attain a stated result or employ a given medical method.
  • - Generally, it is stated that the plaintiff is to recover any expenditures made by him and for other detriment following proximately and foreseeably upon the defendant’s failure to carry out his promise.

''''White v. Benkowski:plaintiff bought home next to defendant with no water supply. Plaintiff contracted with defendant for the defendant to supply water for ten years and in exchange plaintiff would pay $3/month plus ½ of any maintenance. Defendant shut off the water multiple times.

  • - Like naval, punitive damages cannot be awarded for breach of contract -- no punishment
  • - Plaintiff awarded $10 in compensatory damages because defendant maliciously shut water supply off.
    • - Court found that the plaintiffs suffered an inconvenience due to the defendant’s breach and thus the damages were more than nominal, and reversed the trial court’s decision to reduce compensatory damages from $10 to $1.

Contract = Offer + Acceptance + ConsiderationConsideration: the bargained for exchange of promises or performances or contractRestatement §§ 71, 74, 75 and 79

  • - Consideration for a promise is either some performance or forbearance or promise of performance or forbearance bargained for by the promisor.
  • - Only those promises which are supported by the consideration are legally binding; other promises are not binding, even if the promisor intends to bind himself by this promise.
  • - The doctrine of consideration rests on two main legs:
    • - A promise is legally binding if it is given in return for some benefit which is rendered or to be rendered to the promisor.
    • - A promise becomes binding if the promisee issues a detriment by reliance upon it. That is, if he changes his position in reliance on the promise in such a way that he would be worse off if the promise were broken then he would have been if the promise had never been made at all.
  • - To be sufficient as consideration, it must have some value. Something that is completely worthless cannot constitute sufficient consideration.

3 Functions of Consideration

  1. Evidentiary- providing trustworthy evidence of the existence and terms of the contract in the event of controversy
  2. Cautionary- bringing home to the parties the significance of their acts -- inducing “the circumspective frame of mind appropriate in one pledging his future.”
  3. Channeling- marking the promise as one intended to be legal and therefore to be resolved within the system of laws.

''''Hamer v. Sidway:Both parties named William Story. Defendant is older uncle and plaintiff is younger nephew. Defendant promised plaintiff that if plaintiff didn’t smoke, drink, curse or gamble until he was 21 years old, that the defendant would give him $5,000 on his 21st birthday. Some years later, when plaintiff turned 21, he wrote to the defendant telling him that he did not smoke, drink, gamble or curse and wanted his $5,000. Defendant wrote back saying, sure the money is yours. Defendant died before paying the plaintiff and executor of the defendant refused to pay the plaintiff. Plaintiff sues.

  • - Forbearance of a lawful right is valid consideration. The promisor does not need to actually receive a benefit by the consideration for it to be valid.
  • - In this case there is valid consideration because:
    • - The nephew had a legal right to smoke, drink, and gamble and he forbore that right.
  • - Restatement §71(3)(b)

Definition of Consideration:“A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other. Courts will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to any one. It is enough that something is promised, done, forborne or suffered by the party to whom the promise is made as consideration for the promise is made to him.”

  • 71. Requirement of Exchange; Types of Exchange

(1) To constitute consideration, a performance or a return promise must be bargained for.(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.(3) The performance may consist of(a) an act other than a promise, or(b) a forbearance, or(c) the creation, modification, or destruction of a legal relation.(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.Illustration 5 to §71:A desires to make a binding promise to give $1,000 to his son B. Being advised that a gratuitous promise is not binding, A offers to buy from B for $1,000 a book worth less than $1. B accepts the offer knowing that the purchase of the book is a mere pretense. There is no consideration for A’ s promise to pay $1,000.“A valuable consideration in the sense of the law may consist in either some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other.” Courts “will not ask whether the thing which forms the consideration does in fact benefit the promisee or a third party, or is of any substantial value to any one. It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him.”

  • 90. Promise Reasonably Inducing Action or Forbearance

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.Shadwell v. Shadwell

  • - the promise was binding and made upon good consideration

Lakota v. Newton

  • - 'defendant’s demurrer was overruled b/c of sufficient consideration

Talbot v. Stemmons

  • - abandonment of the use of tobacco was sufficient consideration to uphold promise.

Lindell v. Rokes

  • - abstinence from the use of intoxicating liquors was held to furnish a good consideration

''''Dyer v. Nat. By-Products, Inc.:''''

  • - Plaintiff permanently laid off 7 months after losing foot in job related accident, plaintiff claims defendants agreed to give him lifetime employment if plaintiff didn’t sue. Defendant claimed workers comp was the only remedy for personal injury so there was no cause of action for plaintiff to give up.
  • - See Restatement 74
  • - Remanded to decide whether plaintiff’s forbearance was in good faith.

Restatement § 74- Settlement of claims(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless(a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or(b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.(2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.''''Restatement §74 cmt. B

  1. Requirement of good faith. The policy favoring compromise of disputed claims is clearest, perhaps, where a claim is surrendered at a time when it is uncertain whether it is valid or not. Even though the invalidity later becomes clear, the bargain is to be judged as it appeared to the parties at the time; if the claim was then doubtful, no inquiry is necessary as to their good faith. Even though the invalidity should have been clear at the time, the settlement of an honest dispute is upheld. But a mere assertion or denial of liability does not make a claim doubtful, and the fact that invalidity is obvious may indicate that it was known. In such cases Subsection (1) (b) requires a showing of good faith.

Feinberg v. Pfeiffer Co.

  • - Plaintiff promised by defendant that whenever she retired, she would get $200/month for the rest of her life. In reliance on this promise, plaintiff quits a few months later and payments were initially made, but later reduced. Courts would not enforce payments based on consideration because past services do not constitute consideration but:
    • - Consideration may either be:
      • - Benefit to promisor
      • - loss/detriment to promisee
    • - The courts did enforce defendant’s promise because plaintiff, in reliance of the promise, quit her job.
  • - Why do past services not constitute consideration?
    • - NO BARGAIN

Past actions cannot equal consideration.Restatement of Contracts §75

  • (1) Consideration for a promise is:
    • (a) An act other than a promise, or
    • (b) The forbearance or
    • (c) The creation, modification, or destruction of a legal relation or
    • (d) A return promise

Bargained for and given in exchange for the promise.''''Mills v. Wyman''''

  • - Defendant’s son fell ill and plaintiff cared for him. At the end of care, defendant promised to pay plaintiff’s expenses but later decided not to pay.
    • - Defendant didn’t request for plaintiff’s services/care so NO BARGAIN
    • - Past performance doesn’t count as consideration.
  • - The rule that a mere verbal promise, without any consideration, cannot be enforced by action, is universal in its application and cannot be departed from to suit particular cases in which a refusal to perform such a promise may be disgraceful.

HYPO: Suppose defendant gives plaintiff a contracts textbook worth $600. Plaintiff then promises to pay defendant back on the value of the book.

  • - no . no bargain= no consideration
  • - Gratuitous promise.

Webb v. McGowin''''

  • - Plaintiff maneuvered himself while dropping a pine block to the floor so that it wouldn’t hit defendant below, but ended up falling and injuring himself-- crippled for life. Defendant agreed to pay plaintiff $15 biweekly, but the payments stopped within a month after defendant’s death, after lasting 8.5 years.
    • - Saving defendant from death was a material benefit, and thus defendant became morally bound to compensate plaintiff.
    • - Moral obligation is sufficient consideration in this case.
      • - The parties would have struck a bargain if they had time to do so.
      • - Defendant deceased before they had the opportunity.

Harrington v. Taylor''''

  • - Defendant assaulted his own wife who went and hid in plaintiff’s house. Defendant gained access to plaintiff’s house and began another assault on his wife. Defendant’s wife knocked him down with an axe and was about to cut his head off when plaintiff intervened, caught the axe as it was coming down and instead of the axe landing on defendant, it fell on plaintiff’s hand and mutilated it badly (she saved defendant’s life). Defendant orally promised to pay plaintiff her damages, but after paying a small sum, she didn’t pay him anymore.
  • - A voluntary, humanitarian act does not constitute sufficient consideration.

Differences between Webb and Harrington:

  • - Defendant in Webb promised and relied on it for 8 years. Harrington just promised to pay and plaintiff didn’t rely on it.
  • - Third party in Harrington
  • - Job v. domestic violence.

''''Lakeland Employment group of Akron, LLC v. Columber-Employment contract with covenant not to compete signed in 1991, after employee already working there. Lasts 3 years after termination within the same type of business within 50 miles. Defendant stopped working for plaintiff in 2001 and violated covenant.

  • - Employee’s acceptance of agreement is in exchange for employer’s forbearance from terminating the employee and vice versa.
    • - Should examine the extent and character of consideration.
  • - Jurisdictional suit.
    • - Some jurisdictions implicitly find that noncompete agreements change relationship from that of at will or something else, or that continued employment is an illusory promise and a new bargain is required OR:
    • - Continued employment is promised in exchange for employee’s agreement not to compete. This is consideration enough and validates the non compete agreement.
  • - Both employee and employer had legal right to terminate the relationship.
    • - Continuous consideration

Illusory promises - where one party makes a real promise and the other party appears to make a promise but makes one that is not legally binding because it does not shrink the boundaries of the promisor’s choices; the party would not be bound because there would be no consideration. There must be mutuality of obligation -- not exactly, both parties have to give up something in exchange for the other’s promise.

  • - A promise that allows the promisor to later change the nature of the promise does not constitute valid consideration.

Mattei v. Hopper

  • - A real estate developer buying the defendant’s land to build a shopping center. Contract included clause that plaintiff had to obtain satisfactory leases of the buildings before he had to pay the balance and take title.
    • - Lease clause= CONDITION
      • - Condition is an event not certain to occur but must occur before the promise is due.
    • - Satisfactory leases- implied duty of good faith.
      • - Dissatisfaction must be genuine.
    • - Not illusory nor lacking in mutuality
      • - Defendant couldn’t cancel contract based on condition and neither could plaintiff.

Unilateral v. Bilateral Contracts''''

  • - Unilateral- promise that requests return performance
  • - Bilateral- promise that request return promise

Strong v. Sheffield

  • - Plaintiff sold business to defendant’s husband on credit, later in a promissory note payable on demand. Defendant endorsed note, acting as a promise to pay if her husband didn’t. Plaintiff agreed to forbear the collection of debt “until he wanted his money” and did for about 2 years.
  • - Consideration: plaintiff agreed to forbear debt collection (sale of note)
    • - Agreed “to keep it until some time that I want it”
    • - Plaintiff’s promise was illusory -- no fixed/ reasonable time for forbearance just simply for as long as the plaintiff should wait. Plaintiff could have filed suit immediately.
      • - Holding not until they wanted it.
    • - Bilateral contract- plaintiff promise of forbearance; defendant promise to pay if husband did not.

Gratuitous promises- made without any consideration, and no action lies in his breach.Kirskey v. Kirskey:''''

  • - Plaintiff is defendant’s sister in law. Plaintiff husband/defendant’s brother died. Plaintiff and her kids were living on public land under a contract of lease. Defendant resided around 60-70 miles away. Defendant wrote to plaintiff telling her that if she should sell her land and pack up her family, they could stay with plaintiff, have land to cultivate and raise her family on. One to two months after receiving his letter, plaintiff sold her land, packed up and went to see defendant. Defendant gave plaintiff her family land to cultivate on for two years, then moved her to a house in the wood, then told her to leave. Plaintiff sues saying there was a contract.
    • - Decided pre detrimental reliance
    • - This was merely a gratuitous promise because there was no consideration.

''''Contracts for the Sale of Real Estate vs. the Sale of Goods

  • - Agreements to buy and sell goods are often made quickly and informally, increasingly electronically or by telephone, and the requirements for contract formation for the sale of goods tends to be less demanding.
  • - The parties to contracts for goods are normally “repeat players” who deal with goods often trade with one another and there are particular understandings and customs and practices within the trade.
  • - Market price plays a large factor in calculation of damages in a contract for the sale of goods.

'Requirements Contracts and Exclusive Dealings -- UCC §2-306'Requirements (1): measures the quantity by the output of the seller or the requirements of the buyer.

  • - All they require
  • - Plaintiff distributor agrees to sell the defendant restaurant all the blueberries needed this season

Exclusive Dealings (2): lawful agreement by either the seller or the buyer for exclusive dealing in the best kinds of goods concerned imposes unless otherwise agreed by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.Structural Polymer Group, Ltd. v. Zoltek Corp.

  • - Defendant agreed to sell plaintiff “PrePreg”. PANEX33 at current market price. Defendant stopped making 33, started 35 instead. Plaintiff ordered 35 in 2005 and 2006, but it was never received.
    • - Implied duty of good faith in the requirements contracts
      • - Assertion of bad faith would have been a breach, not that the contract lacked mutuality or consideration.
      • - Duty of good faith is enough not to find the contract null and void due to the illusory promise that plaintiff could order as little fiber as they wanted.
        • - Defendant had right of first refusal
        • - Agreement referred only to PANEX33
        • - But plaintiff never promised to exclusively buy from defendant.
        • - SP’s obligation to purchase in good faith all of its requirements for large tow fiber exclusively from Z was sufficient consideration to make the K valid.

''''Wood v. Lucy, Lady Duff- Gordon:

  • - Defendant is a fashionista, when she puts her name on something, it as new and added value in the public mind. Manufacturers are glad to pay her for her approval. She employed plaintiff to help her turn this into money. He was to have the exclusive right, subject always to her approval, to place her endorsements on the designs of others, and to place her own designs on sale or to license others to sell them. In return she was to have one half of all the money he made through these contracts. It was a yearly contract, which she could terminate at any time with a 90 day notice. Defendant placed her endorsement on clothing without his knowledge and withheld the profit from him. He sues for damage and claims that she breached their contract. D said that Wood didn’t promise to do anything. Therefore, there is no consideration to make her promise enforceable.
    • - A promise can be lacking but if the whole writing is instinct with obligation then it is a contract, regardless of whether or not it is imperfectly expressed.
    • - This contract is not illusory, because the language of the contract implied consideration.

Restatement §90: Alternative to the doctrine of consideration as a theory to enforce a promise.5 Elements:

  1. Clear and definite promise
  2. Promisor must have reason to expect reliance on promise
  3. Actual reliance
  4. Injustice can be avoided by enforcing the promise
  5. Remedy may be limited as justice requires.

Example:D promises to pay P $10,000. P then goes out and purchases a vacation that costs $7,000. D then refuses to pay.

  • - Promissory Estoppel - Restatement §90
  • - Promise would be enforced, but remedy may be limited
  • - depends - can collect either $7,000 or $10,000

Equitable Estoppel: can’t say there’s no consideration, if by your own actions you have caused a change of position in which the other party has relied. This bars a defenseExample: Defendant Bank tells Plaintiff Customer that the Plaintiff has $15,000 in their account. Because of this information, plaintiff purchases tickets to a cruise at $9,000. Later, Defendant approaches Plaintiff admitting mistake, stating that Plaintiff only ever had $5,000 and requested the difference back.

  • - Bank would be estopped because they made a misrepresentation about the amount of money and the plaintiff relied on it.

Freeman v. Freeman

  • - Recipient of a promise to convey land relied on it by moving onto the land and making improvements.

Siegel v. Spear & Co.

  • - A gratuitous promise is binding once performance is undertaken.

Ricketts v. Scothorn:

  • - Plaintiff’s grandfather promised to pay her on demand $2,000 at 6% interest. Said none of his grandchildren work, and neither should the plaintiff. Plaintiff quit her job, but 1 year later started working again with consent of her grandfather. 2 years later, grandfather died. Plaintiff sued estate. Plaintiff voluntarily abandoned her job. Grandfather gave note as gratuity but would have expected plaintiff to quit hr job. No quid pro quo -- grandfather asked nothing in return. Grandfather suggested and desired that she quit.
  • - Certain that he would think her quitting was a reasonable and probable consequence of his gift -- FORESEEABLE.
  • - Would be grossly inequitable to deny payment to plaintiff solely on the ground that there was no consideration
  • - Distinguished from Hamer:
    • - Bargained for forbearance v. no bargain

Wright v. Newman:

  • - Plaintiff has a son and daughter. Defendant is the father of the daughter. Defendant signed son’s birth certificate and gave son his surname.
  • - Defendant allowed the son to consider him his father and by doing this, deterred plaintiff from seeking paternity and denied son the opportunity to form a parent/child relationship with birth father.
  • - Plaintiff and son relied on the defendant’s promise to their detriment (Detrimental Reliance)
  • - Defendant knew he wasn’t birth father at time of commitment. Undertook knowingly and voluntarily.
  • - Defendant voluntarily assumed duty to support 10 years prior to suit. (Remains enforceable under Restatement §90).
  • - Defendant liable for child support for both children.

Cohen v. Cowles Media Company

  • - Dan Cohen was an associate of a gubernatorial candidate. He informed the Minneapolis Star and Pioneer Press Dispatch of the arrest for unlawful assembly and conviction of shoplifting of the opposing candidate for lieutenant governor. The reporters promised to keep Cohen’s identity confidential, the newspapers’ editors overruled those promises. When the stories were published, Cohen was fired by his advertising firm and he sued the publishers of the plaintiff for breach of contract.
  • - Jury in 1st trial awarded Cohen $200,000 in damages.
  • - Minnesota Supreme Court held that though the papers may have had a moral and ethical commitment to keep their sources anonymous, the parties were not thinking in terms of a legally binding contract.
    • - To allow Cohen to sue and win under Restatement §90, it would violate the paper’s First Amendment rights.
  • - SCOTUS granted cert and held that the First Amendment was not offended by use of the doctrine to enforce confidentiality agreements because it only had “incidental effects” on news gathering and reporting. Remanded back to Supreme Court of Minnesota.
  • - Citing Restatement §90, the court affirmed $200,000 verdict on the grounds of promissory estoppel, concluding that the promise “must be enforced to prevent an injustice.”
  • - Under promissory estoppel, injustice can be prevented by awarding damages to a confidential source when a news organization has broken a promise of anonymity.

D&G Stout, Inc. v. Bacardi Imports, Inc.

  • - Plaintiff is a liquor distributor, defendant is a supplier. Plaintiff started negotiating sale, but defendant promised to continue distribution relationship so plaintiff turned down negotiated selling price. A week later, defendant withdrew its account so plaintiff went back to negotiating, and ended up selling it for $500,000 less than original offer.
  • - Restatement §90
  • - Defendant eliminated plaintiff’s negotiating leverage. Defendant left plaintiff with their only option as selling at any price.

Example: Defendant Homeowner promises to pay plaintiff (general contractor) $1,000 weekly if plaintiff spends 10 hours weekly overseeing the maintenance of defendant’s property, to start in one week and to last for one month. Plaintiff turns down a renovation job that would have lasted two weeks and would have brought a profit of $15,000 because they wouldn’t have the time or manpower to do both. One week later, plaintiff shows up to the defendant’s house and there is already another maintenance crew there.

  • - Restatement §90 → meets all elements
  • - Would most likely get $15,000 b/c of loss of other job.

Quasi Contract/ Implied Contract

  • - Contracts that the court creates in the absence of an official agreement between the parties.

Cotnam v. Wisdom

  • - Defendant, administrator of estate. Deceased thrown from car and left unconscious. Plaintiff (doctor) went to help but could not revive. Plaintiff sued for the value of his services rendered.
  • - Court has to engage in legal fiction, there was no “meeting of the minds” of the parties because the deceased was unconscious, no promise, no contract, no mutual understanding.
  • - Implied/ quasi contract- plaintiff limited to the reasonable value of his services.
  • - A contract implied by law, on the contrary, rests upon no evidence. It has no actual existence. It is simply a mythical creation of the law. The law says it shall be taken that there was a promise, when in point of fact, there was none. Of course this is not good logic, for the obvious and sufficient reason that it is not true. It is a legal fiction, resting wholly for its support on a plain legal obligation, and a plain legal right. If it were true, it would not be a fiction. There is a class of legal rights, with their correlative legal duties, analogous to the obligations quasi ex contractu of the civil law which seems to lie in the region between contracts on the one hand, and torts on the other, and to call for the applications of a remedy not strictly furnished either by actions ex contractu or actions ex delicto.

Ex delicto- [from the Latin, rising out of a wrong] Regarding a tort, as opposed to ex contractu, from a contract.Ex contractu- regarding a contract.Callano v. Oakwood Park Homes Corporation

  • - Defendant sold home to Pendergast, who contracted with plaintiff to plant shrubbery. Pendergast died before closing on home and before paying plaintiff. Defendant took home back and resold it with shrubbery. Value of home allegedly increased by value of shrubbery, $475.
  • - In a quasi contract party intention is ignored. Duty based on unjust enrichment defines the contract. Here, Pendergast claims the defendant was unjustly enriched.
  • - Plaintiff and defendant had no dealings, and it would be inequitable to hold defendant liable.
  • - Remedy for plaintiff exists in a suit against Pendergast’s estate.
  • - Defendant wasn’t unjustly enriched.
  • - Contracts implied by law, more properly described as quasi or constructive contracts, are a class of obligations which are imposed or created by law without regard to the assent of the party bound, on the ground that they are dictated by reason and justice. They rest solely on a legal fiction and are not contract obligations at all in the true sense, for there is no agreement; but they are clothed with the semblance of contract for the purpose of the remedy, and the obligation arises not from consent, as in the case of true contracts, but from the law or natural equity. Courts employ the fiction of quasi or constructive contract with caution.
  • - The key words are enrich and To recover on the theory of quasi contract the plaintiffs must prove that defendant was enriched, viz. Received a benefit and that retention of the benefit without payment therefore would be unjust.
  • - In cases based on quasi-contract liability, the intention of the parties is entirely disregarded, while in cases of express contracts and contracts implied in fact the intention is of the essence of the transaction. In the case of actual contracts the agreement defines the duty, while in the case of quasi-contracts the duty defines the contract. Where a case shows that it is the duty of the defendant to pay, the law imparts to him a promise to fulfill that obligation. The duty which thus forms the foundation of a quasi-contractual obligation is frequently based on the doctrine of unjust enrichment. It rests on the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another, and on the principle of whatsoever it is certain a man ought to do, that the law supposes him to have promised to do.

St. Paul Fire, etc. Co. v. Indemnity Ins. Co. of No. America.

  • - In a contract action tried by a judge without a jury, the Superior Court, Law Division (New Jersey), required defendant insurer to pay one-half of the expenses incurred by plaintiff insurer in defending certain claims against an insured whom both parties had covered by separate insurance policies. Defendant appealed.
  • - Plaintiff's policy provided that it would bear expenses of defending any suit brought against the insured for bodily injury or property damage. Defendant's policy did not require it to defend the insured. The insured had an accident covered by the parties' policies. After defending the insured, plaintiff demanded of defendant a proportionate share of the costs and expenses of the trial; defendant refused to pay. Based on the theory of quasi-contract, the trial court required defendant to pay one-half the expenses incurred by plaintiff in defending the insured. Defendant appealed. The court reversed, holding that there was no basis for a quasi-contractual liability because the essential requirement of unjust enrichment of defendant did not appear. The cooperation extended by plaintiff could be accepted by defendant simply as performance of the insured's agreement because, under its policy, defendant was entitled to receive cooperation of the insured or another acting for it. Hence, it could not be said that defendant accepted a benefit which enriched it beyond its contractual right. The court remanded the issue whether defendant impliedly made a separate agreement to pay plaintiff.
  • - The court reversed and remanded the trial court's entry of judgment for plaintiff, holding that there was no basis for a quasi-contractual liability because the essential requirement of unjust enrichment of defendant did not appear. However, the question of whether defendant impliedly made a separate agreement to pay plaintiff was remanded by the court.

Hotchkiss v. National City Bank of New York

  • - A contract has, strictly speaking, nothing to do with the personal, or individual, intent of the parties. A contract is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany and represent a known intent. If, however, it were proved by twenty bishops that either party, when he used the words, intended something else than the usual meaning which the law imposes upon them, he would still be held, unless there were some mutual mistake, or something else of the sort.

Pyeatte v. Pyeatte

  • - Married couple. Agreed that wife would put husband through law school, and when he graduated, he would put her through graduate school. He graduated, passed the bar, got a job, and then a year later asked for a divorce before wife had started going to graduate school.
  • - Claim for unjust enrichment involves an expectation of compensation.
  • - Generally, unjust enrichment isn’t a properly applied in setting of a marital relationship.
    • - It was applied here because of the promise.

Nature of the Assent

  • - A contract is not enforceable unless there is mutual assent (meeting of the minds). Mutual assent is sufficient to create a binding contract, unless it has been expressly intended that no contract shall exist. Determining assent requires both objective and subjective approaches.
  • - Restatement §§ 18-19
    • - A party must subjectively believe it is a valid contract but this belief must also be reasonable.

Lucy v. Zehmer

  • - Defendant sold farm to plaintiff. Plaintiff offered $50,000. Defendant accepted, wrote it down on a napkin, and both defendants signed. Plaintiff signed the paper and offered $5 to bind bargain, but defendant refused. Plaintiff then arranged with brother to put up ½ of the money and take ½ interest. Plaintiff hired an attorney to examine the title.
  • - Defendant claimed no intent -- it was all a joke.
    • - Only they knew it was -- purposely spoke quiet enough so that plaintiff couldn’t hear.
  • - Only ⅔ of the parties were drunk and they spoke about the sale for 40 minutes.
  • - Plaintiff had subjective belief, and their belief was warranted that the contract was a serious business transaction.
  • - Court compares plaintiff to a reasonable person (objective belief)
    • - Looks at the words and conduct together
    • - Looks at outward expression
  • - This was a good faith offer and a good faith acceptance.

Specht v. Netscape Communications Corporation

  • - Plaintiff downloaded software from defendant. Plaintiff had to scroll below the download button to see licensing agreement terms which contained arbitration clause.
  • - All parties have duty to read.
    • - But these circumstances are ambiguous
    • - Standard of reasonable prudence- what a reasonable person would believe.
  • - Plaintiff may have been aware that more of the webpage existed below the download button, but that doesn’t mean they reasonably should have concluded that the portion would include notice of licensing terms.
    • - Prudent consumer would not assent to terms so inconspicuous that they could completely overlook them.

If one of the parties refuses to sign a formal document, can the other enforce their agreement?

  • - This depends on whether the parties intended to conclude their agreement at the earlier point in time. In that regard, courts have developed two widely accepted common law principles: (a) that absent an expressed intent that no contract shall exist, mutual assent between the parties, even though oral or informal, to exchange acts or promises is sufficient to create a binding contract; and (b) that to avoid the obligation of a binding contract, at least one of the parties must express an intention not to be bound until a writing is executed. (Consarc Corp. v. Marine Midland Bank, N.A.)

How does the court determine whether or not a party has sufficiently expressed an intention not to be bound in the absence of a formal document?

  • - There are “several factors that help”.
  • - (1) whether there has been an express reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing. These circumstances may be shown by oral testimony or by correspondence or other preliminary or partially complete writings.

''

Chapter 2: Creating Contractual Obligations: Offer and Acceptance[edit]

  • - 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. An offer is an act where one person gives another the power to create contractual relationships between them.
  • - Person making the offer = offeror.
  • - The person to whom the offer is made = offeree.
  • -

Restatement §26

  • - 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 intent.

Corbin’s Definition of Offer: “An offer is… an act whereby one person confers upon another the power to create contractual relations between them…. It must be an act that leads the offeree reasonably to believe that a power to create a contract is conferred upon him…. It is on the ground that we must exclude invitations to deal or acts of mere preliminary negotiation and that acts evidently done in just or without intent to create legal relations. All these are acts that do not lead others reasonably to believe that they are empowered to “close the contract”.

The Offeror is the Master of the Offer''''The offeror controls the terms of the proposed bargain -- including ways to accept it.Owen v. Tunison

  • - Plaintiff wrote defendant a letter offering $6,000 for property. Defendant wouldn’t accept anything less than $16,000. Plaintiff wrote back saying the would pay $16,000 but defendant replied that he wouldn’t sell.
  • - Language of defendant’s letter was invitation to open negotiations.
    • - Up to plaintiff to make an offer
    • - Defendant expressed no intent to sell
  • - Plaintiff’s letter stating his willingness to pay $16,000 was the offer, to which defendant refused.
  • - An offer is an act that must express the will or intention to allow an offeree to reasonably believe that the power to create a contract. It excludes situations that evidence intent to deal or open negotiations.
  • - No contract.

'Southworth v. Oliver

  • - Appellant landowners sought review of judgment of specific performance for sale of land in favor of appellee purchaser in the Circuit Court of Grant County (Oregon).
  • - Appellant landowners sought review of judgment of specific performance of the sale of their ranch to appellee purchaser, contending a letter mailed by them was not an offer to sell and a proper acceptance sufficient to constitute a binding contract for enforcement purposes was lacking. The court rejected landowners' argument and affirmed the judgment. The court explained modern law construes both acts and words as having the meaning a reasonable person would attach to them in view of surrounding circumstances and a contract includes not only what parties said, but what is necessarily implied from what they said. The court found landowners' letter quoting a price, when considered together with the facts and circumstances, constituted an offer and purchaser's acceptance resulted in a binding contract. The court observed landowners sought out adjacent purchaser indicating their interest in selling the land and determining a price. The court rejected the argument that the terms were too indefinite, explaining the absence of a security provision was a subordinate detail of performance to be properly made certain by court decree because sufficient expressed intent already existed.
  • - The court affirmed judgment requiring specific performance of the sale of appellant landowners' ranch to appellee purchaser because a binding contract was created when landowners' letter quoting a purchase price together with surrounding circumstances constituted an offer that purchaser accepted and subordinate details of performance which were not defined were of such a nature to properly be supplied by the court.
  • - Even if there are no express words indicating intent by the parties to be bound, a contract may still be implied when, based on all the facts and circumstances, a reasonable person in the position of the plaintiff could have inferred a promise from the defendant’s actions.

Harvey v. Facey

  • - Defendant sent letter to plaintiff asking if defendant would sell property and what the lowest price would be. Defendant answered with lowest price only. Plaintiff replied agreeing to buy.
  • - Defendant only answered second question.
  • - Courts interpret freedom to contract and are reluctant to force people into contracts.
  • - A property buyer's agreement to buy the property at the seller's stipulated price does not, by itself, constitute a contract between the buyer and the seller for the property's sale at that price.
  • - No contract.

Fairmount Glass Works v. Crunden- Martin Woodenware Company

  • - Defendant requested price and terms of sale for plaintiff’s mason jars. Plaintiff replied quoting price and discount for cash but also stating that quotation and contracts were subject to contingencies, delays or accidents beyond its control. Defendant sent order and plaintiff answered saying order could be filled.
  • - Generally a quote is not considered an offer.
    • - But, because of plaintiff’s first letter, defendant’s quote constituted an offer.
    • - Each case depends on the language used -- defendant’s letter said “for immediate acceptance”.

Moulton v. Kershaw

  • - Defendant sellers sought review of an order from the Circuit Court for Milwaukee County (Wisconsin), which overruled their demurrer to plaintiff buyer's complaint for breach of an agreement to sell salt to the buyer.
  • - The sellers sent a letter to the buyer stating that they were authorized to sell salt at a certain price. The buyer responded with a telegram stating that he wanted the sellers to ship him a certain quantity of salt at the quoted price. The sellers refused to perform, and the buyer brought an action for breach of contract. The sellers demurred to the complaint. The trial court overruled the demurrer. The court reversed the order and remanded the case for further proceedings, holding that the sellers' letter did not constitute an offer but only a solicitation for offers and therefore that the complaint did not state a cause of action for breach of contract.
  • - The court reversed the order overruling the sellers' demurrer to the buyer's complaint for breach of contract and remanded the case for further proceedings.
  • - A letter stating that a company is selling a product does not constitute an offer if the letter contains general language, not tailored specifically to the recipient.

Lefkowtiz v. Great Minneapolis Surplus Store

  • - Defendant had newspaper ad selling fur stoles for $1, first come first serve. Plaintiff (a man) went to store and was refused because it was a “house rule” that the sale was only for women.
  • - An advertisement constitutes a binding offer if it is clear, definite, and explicit, and leaves nothing open for negotiation.
  • - Generally advertisements do not constitute offers but are rather invitations by the seller to the buyer to make an offer to purchase.
  • - Plaintiff’s arrival at the store constituted his acceptance.
    • - House rule not mentioned in ad -- offers can be modified. But arbitrary conditions cannot be imposed after acceptance.

Leonard v. Pepsico

  • - Plaintiff brought an action for specific performance by a soft drink corporation to enforce an alleged contract to sell plaintiff a jet as advertised in a commercial. Defendant filed a motion for summary judgment.
  • - Plaintiff saw an advertisement for a promotion that defendant soft drink corporation was sponsoring for its products. The ad stated that one could accumulate "points" by purchasing its products and exchange them for merchandise with the product logo on it. At the end of the ad, a high school aged student was shown landing a Harrier Jet at school with a subtitle that indicated the cost of the jet was 7,000,000 points. The terms of the promotion indicated that additional points could be purchased for ten cents. Plaintiff, with the assistance of several friends, accumulated enough money to "buy" the Harrier Jet and sent a check to the defendant, demanding the jet. Defendant refused and sent a letter to plaintiff explaining that the jet was not an item for purchase and referred him to the promotional brochure for the rules. Plaintiff then sued for breach of contract. Defendant filed a motion for summary judgment. The court granted the motion. The court stated that advertisements were not contracts or offers to sell, but rather invitations to negotiate. The court noted that offers made in jest were not contracts where a reasonable person could see that no serious offer was intended.
  • - The court granted summary judgment in favor of defendant. The court found that no contract existed between the parties because under an objective standard, a reasonable person could tell that no offer was intended and the alleged contract was void because it was for goods in excess of $ 500.00 and not in writing.
  • - An advertisement does not constitute an offer unless its terms are sufficiently clear and leaves nothing open for negotiation and an advertisement intended to be a joke cannot be sufficiently clear.

''''Geismar v. Abraham & Strauss

  • - Plaintiff brought a small claims action against defendant for false advertising under N.Y. Gen. Bus. Law § 350-a.
  • - Plaintiff had sought to purchase certain items from defendant that were advertised at a low price. Defendant refused to sell the items to plaintiff at the price advertised. In its determination, the court held that for plaintiff to recover damages, she needed to establish that the advertisement was misleading in a material respect and that she was injured. The court found that the advertisement was misleading in a material way under the General Business law. But, because plaintiff failed to prove actual damages, she was only entitled to recover $ 50.
  • - The court rendered judgment in plaintiff's favor but denied recovery of actual damages.

Mesaros v. United States

  • - Plaintiff numismatists appealed a judgment that the United States District Court for the Southern District of Georgia, Savannah Division, summarily entered in favor of defendant federal government in litigation arising under the Statue of Liberty-Ellis Island Commemorative Coin Act (Act), Pub. L. No. 99-61, 99 Stat. 113 (1985).
  • - The Act authorized the U.S. Mint to strike specific quantities of three types of commemorative coins depicting the national landmark. The federal government processed the cash sale orders of other buyers before honoring the numismatists' orders to be billed to credit cards, with the consequence that the statutory run of production was exhausted before the numismatists' orders were filled. The numismatists, therefore, filed suit in breach of contract, seeking equitable relief. The trial court granted the federal government's motion in the alternative for summary judgment or to dismiss the numismatists' complaint. On the numismatists' appeal, the court held that the trial court's ruling was proper. The court noted that it was generally unreasonable for a person to consider advertisements and solicitations as offers that bound the advertiser. More specifically, the federal government's advertising materials could only be reasonably construed as invitations to bargain rather than firm offers enforceable against the federal government. The Act did not require that orders be filled in any particular order. The courts had no constitutional authority to decree that more coins be produced.
  • - The court affirmed the judgment of the trial court that disposed of the numismatists' suit against the federal government.
  • - An advertisement of goods for sale at a certain price is not an offer, but is merely an invitation to enter into a bargain.

''''Elisnore Union Elementary School District v. Kasteroff''''

  • - Defendant contractor and his surety appealed from a judgment of the Superior Court of Riverside County (California) awarding damages to plaintiff school district in an action to recover damages for defendant contractor's refusal to perform after his low bid was accepted.
  • - Defendants, a building contractor and his surety, appealed from a judgment for plaintiff school district in an action to recover damages allegedly resulting from defendant contractor's failure to perform a contract after his low bid was accepted. Despite testimony of defendant contractor and the testimony of plaintiff's architect and superintendent that there was an honest clerical error in compiling the bid, the trial court held that it would not be inequitable or unjust to require performance of the contract. The court therefore awarded damages to plaintiff. The appellate court reversed the judgment, holding that it would be unconscionable to hold defendant contractor to his bid at the mistaken figure. The court held that, because of the clerical error and defendant contractor's subsequent prompt rescission, he was not obliged to perform the contract.
  • - The court reversed the judgment on the grounds that it would be unconscionable to hold defendant contractor to his bid at the mistaken figure.
  • - RULE: If, at the time of accepting an offer, the offeree knows or has reason to know that the offer was based on a material mistake of fact, and it would be unconscionable to enforce the agreement as made, the contract may be rescinded.

Tyra v. Cheney

  • - If an offeree knows hor has reason to know of the offeror’s material mistake at the time of the acceptance, the offeror is not bound.
  • - “One cannot snap up an offer or bid knowing that it was made in mistake.”

International Filter Company v. Conroe Gin, Inc. & Light Co.

  • - Plaintiff sent letter offering to sell for a price, stating letter becomes contract when accepted and approved by executive. Defendant accepted and plaintiff replied “ok” endorsed by the president.
  • - Look at plain language of the offer.
    • - Offer becomes a contract when approved by an executive officer -- “ok” was approval.
  • - Notice of approval was not required.
    • - Defendant sent letter with intent for it to be an acceptance.

Construction Contracts

  • - Levels of offers/bidding.
  • - Generally a general contractor’s bid constitutes an offer.
  • - Example:
    • - You’re renovating a house, so you get bids from multiple general contractors and choose the best one (ex: lowest price, quickest time frame). These general contractors create their bids from subcontractor’s bids.

Mistake in Offer

  • - If an offeree knows or has reason to know, of the offeror’s material mistake at the time of acceptance, the offeror is not bound.
  • - Offeror who has made a mistake may claim the magnitude of the mistake was such that it should have been apparent from the face of the offer.

Acceptance -- Restatement §50(1):

  • - A manifestation of assent to the terms by an offeree, in a manner invited or required by an offeror.
  • - Voluntary act of offeree where he exercise the power conferred upon him and thereby creates the set of legal relations called a contract
    • - Offeror -- master of the offer (power to determine required acts to contract)
    • - Offeree - has the power to create the contract, when accepting.

''''White v. Corlies and Tift

  • - Defendant wanted to build an office suite, plaintiff sent estimate. Defendant sent note that plaintiff could start in two weeks. Plaintiff purchased lumber and started working.
  • - Note did not make an agreement.
  • - Plaintiff made no act which constituted acceptance. The wood purchased and work done could have been for any job.
  • - We understand the rule to be, that where an offer is made by one party to another when they are not together, the acceptance of it by that other must be manifested by some appropriate act. It does not need that the acceptance shall come to the knowledge of the one making the offer before he shall be bound. But though the manifestation need not be brought to his knowledge before he becomes bound, he is not bound, if that manifestation is not put in a proper way to be in the usual course of events, in some reasonable time communicated to him. Thus a letter received by mail containing a proposal, may be answered by letter by mail, containing the acceptance. And in general, as soon as the answering letter is mailed, the contract is concluded. Though one party does not know of the acceptance, the manifestation thereof is put in the proper way of reaching him.

''''Ever-Tite Roofing Corp. v. Green (FENTIMAN THINKS THIS CASE MAY BE WRONG)

  • - Defendant signed document for plaintiff to re-roof home, to be paid in monthly installments. Terms stated that acceptance was to constitute either plaintiff beginning work, or document to be signed by an authorized officer of plaintiff. 9 days later, plaintiff sent workers with supplies to the defendant’s house, but other workers had already been there for two days.
  • - No unreasonable delay; no time limit specified -- plaintiff used due diligence
    • - Must allow reasonable time in accordance with the facts and circumstances in each case.
    • - Defendant planning to pay on credit -- not unusual for this to take 9 days.
  • - Contract was made when plaintiff began work -- commencement of work started with the loading of the truck.

Carlill v. Carbolic Smoke Ball Co.

  • - The owners of Carbolic Smoke Ball Co. (Carbolic) (defendants) manufactured the Carbolic Smoke Ball and advertised it as a preventative measure against influenza. Carbolic placed an advertisement in several London newspapers saying that one hundred pounds would be paid to any person who purchased a Carbolic Smoke Ball and still contracted influenza. The advertisement further stated that Carbolic had deposited one thousand pounds in a local bank to demonstrate its seriousness in the matter. Carlill (plaintiff) purchased a Carbolic Smoke Ball and later contracted influenza despite using the ball as directed by Carbolic’s instructions. Carlill brought suit to recover the one hundred pounds. The trial court held she was entitled to the one hundred pounds, and Carbolic appealed.
  • - RULE: A general advertisement of an award constitutes an offer that is capable of being accepted and binding the offeror in a valid contract, provided at least contemporaneous notice and some consideration are present.

''''Silence: not ordinarily acceptance.

  • - General rule that silence does not constitute acceptance.
  • - However, where a party knows his silence will be misinterpreted, he may be bound by the offer of another party, even if he does not respond or explicitly accept the offer.

Termination of the Power of AcceptanceLapse of an Offer: if no period of time is specified, then an offer lapses after a “reasonable time”. If the offer has lapsed and then the offeree attempts to accept, there is no contract formed but that “acceptance” can be treated like a counteroffer.Revocation of Offers: the offeror can terminate the offer at any time before acceptance. The offeror must:

  • - Unambiguously indicate that he has changed his mind and
  • - This must be communicated to the offeree, even if it is not directly from the offeror.

At common law, an offer is revocable any time before acceptance.However, option contracts are irrevocable.Allied Steel and Conveyors, Inc. v. Ford Motor Co.Order of machinery with forms that cover injuries on the job (Allied is responsible for Allied employees). 2nd order with same forms but damages now also included those caused by negligence of Ford employees in connection with Allied’s work. Agreement not binding until accepted. Allied signed form and acknowledged 11/10 and it got to Ford 11/12, but Allied employee had been injured by then. Allied had already begun work.

  • - UCC 2-204: Formation in General
    • - A contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.
  • - Allied claiming injury occurred before designated methods of acceptance happened.
    • - Allied began work.

Corinthian Pharmaceutical Systems, Inc. v. Lederle LaboratoriesAll orders subject to acceptance by defendant and any price changes were to take immediate effect -- unfilled current orders or backorders to be invoiced at price in effect at time of shipment. Plaintiff heard of price increase and ordered 1,000 vials by phone with each confirmation form stating price at $64.32 (old price). The defendant shipped 50 vials at old price and included letter stating that it was a courtesy and rest would be at increased price unless the plaintiff cancelled.

  • - UCC 2-206(1)(b): Offer and Acceptance in Formation of a Contract
    • - Such a shipment of non- conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered as an accommodation to the buyer.
  • - Shipment was not what was expected, non-conforming.
    • - In terms of quantity, not quality
    • - Defendant’s response was a counteroffer for plaintiff to either accept or reject.

Option Contract: Restatement §25

  • - Promise which meets the requirements for the formation of a contract and limits the promisor’s power to revoke an offer.
  • - Option agreements are separate from the contract itself and need their own consideration.

Termination of the Power of Acceptance:After a party has made an offer, conferring on another the power of acceptance, that power can be terminated:

  1. By lapse of the offer
  2. By its revocation by the offeror
  3. By the offeror’s death or incapacity
  4. By the offeree’s rejection.

Dickinson v. DoddsMemorandum by defendant to sell property for 800 pounds giving plaintiff until Friday to decide. Plaintiff found out Thursday that defendant was going to sell to someone else so plaintiff went to defendant’s house and left acceptance with mother in law and the next morning gave defendant the acceptance but the defendant said it was too late.

  • - Memorandum was an offer -- there was no consideration given and was thus not binding.
  • - At any moment before acceptance, defendant was as free as plaintiff.
  • - What made Dickinson’s acceptance invalid here?
    • - No meeting of the minds because Dodds sold the property to Allen and Dickinson knew at least that Dodds was considering that sale.
    • - No consideration was tendered so there was no valid option contract created.
    • - At the time of Dickinson’s purported acceptance, there was a binding contract made between Dodds and Allen with Dickinson’s knowledge so he could not contract with Dodds for the same property.

Brooklyn Bridge Hypo:Supposed A said to B, “I will give you $100 if you walk across the Brooklyn Bridge.” B starts to walk across the Brooklyn Bridge and has gone about half way across. At that moment, A overtakes B and says to him, “I withdraw my offer.” Has B then any rights against A? Let us now suppose that after A has said, “I withdraw my offer,” B continues to walk across the Brooklyn Bridge and completes the act of crossing. Under these circumstances, has B any rights against A?

  • - Wormser concluded that B didn’t have any. What A wanted from B, what A asked for, was the act of walking across the bridge. Until that was done, B has not given to A what A had requested. The acceptance by B of A’s offer could be nothing but the act on B’s part of crossing the bridge. It is elementary that an offeror may withdraw his offer until it has been accepted. It follows logically that A is perfectly within his rights in withdrawing his offer before B has accepted it by walking across the bridge. -- the act contemplated by the offeror and the offeree as the acceptance of the offer.

Drennan v. Star Paving Co.Plaintiff is a general contractor and defendant is a paving subcontractor. Plaintiff working on bid for school job and defendant submitted lowest bid ($7,000) to plaintiff to pave. Plaintiff used this bid to get job and when plaintiff went to tell defendant, the defendant said that low bid was a mistake and could do job for less than $15,000. Plaintiff got estimates from other pavers and lowest was $10,000.

  • - Restatement §90: make promise binding even though there was no consideration
    • - Reliance was foreseeable
    • - Actual reliance (plaintiff submitted bid)
    • - Reliance was reasonable
    • - Analogizes to §45- Option Contracts created by part performance or tender
  • - Defendant had reason to expect that if its bid was the lowest, plaintiff was going to use it.
  • - To have different result here, plaintiff would have to know of defendant’s mistake, or should have known it -- usual variance in this are of 150% between highest and lowest bid.
  • - Defendant had duty to exercise reasonable care in calculating a bid (dicta).

Minneapolis & St. Louis Railway Co. v. Columbus Rolling-Mill Co.

  • - Does rejection bar an offeree from subsequently accepting the offer?
    • - In this case, Yes.
  • - A proposal to accept, or an acceptance, upon terms varying from those offered, is a rejection of the offer, and puts an end to the negotiation, unless the party who made the original offer renews it, or assents to the modification suggested. The other party having once rejected the offer, cannot afterwards revive it by tendering an acceptance of it.

Hoffman v. Red Owl StoresPlaintiff owned and operated bakery and wanted to franchise with defendant. Plaintiff would invest $18,000. Defendant had representative help along the way -- start with smaller stores, put $1,000 on lot, sold bakery at a loss of $2,000, paid month’s rent of $125, $140 to move family, plaintiff backed out when defendant said plaintiff’s contribution would be $34,000 instead of $18,000.

  • - Restatement §90
  • - In discussing damages the court said:
    • - It would be a mistake to regard an action grounded on promissory estoppel (Restatement §90) as equivalent to breach
    • - Plaintiff bought a store to gain experience and knew it would not be a large enough location for a defendant store.
      • - Made purchase as a temporary experiment.

Channel Home Centers v. GrossmanPlaintiff owned retail home improvement stores. Defendant is a real estate broker and developer. Defendant purchased mall and sought tenants to sign leases -- contacted plaintiff to negotiate (defendant wanted to use leases to acquire financing), both signed a letter of intent. Defendant then negotiated with a competitor of plaintiff, terminated negotiated with plaintiff and signed contract with a competitor.

  • - Letter of intent - stated that defendant would withdraw store from rental market and that defendant would proceed with negotiations until completion of leasing agreement. There was consideration for defendant’s promise to negotiate lease to completion.
    • - Both parties then began procedures towards satisfaction of lease contingencies.
  • - Court remanded to decide issue of intent and whether there was a time limit on negotiations.

Dixon v. Wells Fargo, N.A.Plaintiff and defendant orally agreed to take necessary steps to enter mortgage modification. Defendant told plaintiff to stop making payments and requested plaintiff’s financial info. Plaintiff complied. Defendant then sent notice to plaintiff that it was foreclosing on home.

  • - Restatement §90 and Massachusetts Law.
  • - It was reasonable that plaintiff would rely on defendant’s promise and that reliance left plaintiff considerably worse off
    • - Legal detriment that plaintiff claims to have suffered was a direct consequence of their reliance on defendant’s promise.
      • - Defendant convinced plaintiff that to be eligible for modification, plaintiff must default on payments and only because plaintiff defaulted was able to foreclose
    • - Defendant should have known plaintiff would rely and must have intended plaintiff rely.
    • - Defendant opportunistically strong plaintiff along and took advantage of plaintiff’s default status.


Cyberchron Corp v. Calldata Systems Development Inc. Plaintiff manufactured custom computer hardware for military use. Defendant had contract with marines to provide control system. Plaintiff and defendant entered negotiations. Defendant delivered purchase order to plaintiff. Total weight of 145 lb. with severe penalties specified for exceeding weight. Plaintiff never agreed to terms/weight. Defendant insisted plaintiff perform obligations under purchase order and the terms would be resolved later. Plaintiff submitted progress payment but defendant refused to pay.

  • - Defendant pressured plaintiff to produce equipment.
  • - Parties were in constant conversation -- plaintiff could assume it would be paid for continued performance.
  • - Restatement §90 and NY law.
    • - 3 elements for NY law
      • - Clear and unambiguous promise
      • - Promisor must foresee reasonable reliance
      • - Injustice must be unconscionable injury and remedied by provoking promissory estoppel
    • - Damages?
      • - Overhead recovery is reasonable when demonstrable past history of ongoing business operations is shown without requiring proof that a specific alternative project would have absorbed the overhead costs.

US Life Insurance Co. v. WilsonInsurance company offered insured, Griffith, opportunity to renew life insurance by “mailing premium to defendant”. Plaintiff paid via online banking and two days later the bank remitted payment by sending check. 1 day after mailing, plaintiff died and check delivered to defendant two days after death.

  • - Restatement §63: Mailbox Rule. when an offer is proposed through postal mail, the acceptance is effective upon dispatch, rather than receipt. This means a binding contract is formed once the offeree places their acceptance in the mail.
    • - Acceptance must be “in a manner and medium invited by the offer”
    • - As soon as the money was sent, it became property of defendant, and defendant became bound to perform its promise for which the money was consideration.
  • - Plaintiff’s decedent no longer able to stop payment after bank remitted -- acceptance was already in motion.

Toys, Inc. v. FM Burlington CompanyPlaintiff had a 5 year lease in defendant’s mall with option to renew for five years at then prevailing rate if defendant notified 1 year before expiration of lease. Plaintiff sought to renew, defendant responded with price, plaintiff had different understanding. They negotiated for 10 months, defendant then advised plaintiff it was seeking to re-let so plaintiff found alternate space.

  • - Issue: was “option to renew” clause sufficiently definite to be enforced.
  • - Test: whether the option agreement contains all material and essential terms to be incorporated in the subsequent document
    • - K must contain a practicable, objective method of determining the essential terms.
  • - Here -- lease created a binding option.

Contra Proferentem- A rule of contract interpretation under which ambiguous terms are construed against the drafter of the contract.UCC 2-305: parties often leave price term open = recognize market may shift while lease is in effect. Used in requirements and output contracts.Mirror Image Rule- A common-law contracts principle that treats an offeree’s acceptance as a counteroffer, rather than an acceptance, if the acceptance does not exactly mirror the terms of the offer.''''Ardente v. Horan

  • - Plaintiff buyer sought review of a judgment from the Superior Court (Rhode Island), which granted defendant sellers' motion for summary judgment pursuant to R.I. Super. Ct. R. Civ. P. 56 in the buyer's action for specific enforcement of a real estate sales contract against the sellers.
  • - The buyer executed and returned the sellers' sales contract for the purchase of real estate accompanied by a letter that indicated he desired for certain items to have remained a part of the land. The sellers' refused to agree to sell the listed items or sign the sales contract, so the buyer filed an action for specific performance of the sales contract, but the trial court granted the sellers' motion for summary judgment on the ground that the letter constituted only a conditional acceptance of the sellers' offer to sell the property, therefore it was a counteroffer that the sellers had not accepted, which was insufficient to have formed a binding contract. The court affirmed on appeal. The court ruled that the delivery of the sales contract to the buyer was an offer, but that the buyer's letter in response was not a definite and equivocal acceptance of that offer because it imposed additional conditions on the offer. In light of this construction, the court ruled that the trial court had properly held that the buyer's response was a rejection of the sellers' offer, therefore no genuine issue of material fact existed as to whether there was a binding agreement.
  • - The court affirmed the judgment of the trial court that granted the sellers' motion for summary judgment in the buyer's action for specific performance of a real estate sales contract.
  • - A valid acceptance that is capable of forming a valid contract must be definite and unequivocal and must not impose additional conditions or limitations on the offer, unless such conditional language is clearly independent of the actual acceptance.

State v. Rios

  • - A common type of counter offer is the qualified or conditional acceptance, which purports to accept the original offer but makes acceptance expressly conditional on assent to additional or different terms. Such a counter offer must be distinguished from an unqualified acceptance which is accompanied by a proposal for modification of the agreement or for a separate agreement. A mere inquiry regarding to the possibility of different terms, a request for a better offer, or a comment upon the terms of the offer is ordinarily not a counter offer. Such responses to an offer may be too tentative or indefinite to be offers of any kind; or they may deal with new matters rather than a substitution for the original offer; or their language may manifest an intention to keep the original offer under consideration.
  • - 39, Illustration 2- analogous to the facts of this case.
    • - A makes the same offer to B as that stated in Illustration 1 [an offer to sell land for $5,000, offer to remain open for 30 days], and B replies, “Won’t you take less?” A answers “No.” An acceptance thereafter by B within the thirty day period is effective. B’s inquiry was not a counter-offer and A’s original offer stands.

''''UCC 2-207: Battle of the Forms

  • - Gets rid of common law last shot rule.
  • - Intended to alter the mirror image rule of common law -- that terms of the offer and acceptance had to be identical.
  • - Terms of the offer and of the acceptance will rarely be identical.
  • - Designed to avoid giving the upper hand to the party who makes its acceptance expressly conditional on the acceptance to additional/different terms.

Last Shot Rule- Principle of contract law that holds a contracting party who makes no objection impliedly accepts any additional terms contained in the final counteroffer, which is the typically last form sent between the parties in the so-called "battle of the forms."Dorton v. Collins and Aikman Corp.Plaintiff bought carpet from Defendant and received customer complaint about quality of carpet. Small print on back of acknowledgment form specified when an order becomes a contract and said that all claims arising out of contract were bound to arbitration in NYC. The plaintiff was from Tennessee.

  • - UCC 2-207(1)- was the form a confirmation or an acceptance? Court says seller’s acknowledgment was an acceptance was an acceptance so contract was made but seller’s acceptance was not expressly conditional under §2-207(1).
  • - If there is acceptance under §2-207(1), the new term will be deemed to have been accepted by plaintiff under 2-207(2) unless it materially altered the terms of the oral offers.
    • - Comments 4 & 5 of §2-207

''''Last Shot Doctrine → whoever sends last terms are what is agreed upon.C.Itoh & Co. (America) Inc. v. Jordan International Co.Plaintiff buying steel coils from defendant. Plaintiff sent purchase order. Defendant sent back acknowledgment form with an arbitration clause.

  • - Statement in form comes within 2-207(1).
    • - Exchange of forms did not result in a contract.
  • - Turn to 2-207(3)
    • - Performance by parties constituted conduct recognizing the formation of a contract.
    • - Forms don’t agree on arbitration -- supplemental terms -- are limited to standardized gap filler provisions of the UCC.
      • - Gap fillers do not include arbitration clauses.
    • - If the defendant didn’t intend to close deal unless the terms were assented to, it could have walked away and not delivered the coils when plaintiff didn’t expressly assent.
    • - Defendant injected ambiguity into the transaction -- inserted the “expressly conditional” clause in the form.
      • - So, defendant, not plaintiff, should bear consequences of ambiguity, by contract being formed under 2-207(3).

Bayway Refining Co. v. Oxygenated Marketing and Trading A.G.Defendant faxed over to buy 60,000 barrels of MTBE from plaintiff. Plaintiff responded, accepting and including a tax clause that stated defendant must pay plaintiff the amount of any tax other than taxes or income paid or incurred by plaintiff with respect to the product sold. Defendant accepted delivery. Transaction created tax liability of over $460,000 that plaintiff paid.

  • - 2-207(1): plaintiff’s response was effective to form a contract as acceptance.
    • - It wasn’t made expressly conditional on plaintiff’s assent to the additional terms.
  • - 2-207(2): party opposing the inclusion of an additional term bears the burden of proving that the term is a material alteration.
    • - Materiality- result in surprise and hardship. Tax clause just allocates responsibility.
    • - Comment 4: surprise is a subjective element of what party actually knew and objective element of what they should have known (plaintiff said industry custom, defendant said ambush).
      • - Hardship- defendant failed to raise genuine issues of material fact regarding hardship. Small profit margins are not sufficient to establish hardship. Defendant could have avoided the tax by registering.

Northrop Corp v. Litronic IndustriesDefendant offered to sell plaintiff printed wire boards. Offer contained 90 day warranty in lieu of any other warranties. Plaintiff’s return invoice included warranty period with unlimited duration. Plaintiff attempted to return because they were defective.

  • - Issue: how should courts treat different v. additional terms?
  • - 2-207(1): plaintiff’s return invoice acceptance which created contract.
  • - 2-207(2): terms in offer prevail if terms in acceptance are materially different.
    • - Majority view: knockout rule :discrepant terms fall out and are replaced with suitable UCC gap filler -- UCC §2-309: non-conforming goods may be rejected within a reasonable time.
    • - The six months taken to reject was reasonable because of the complexity of the required testing.
    • - Operates like 2-207(3).
  • - To recapitulate: A material alteration is one that would "result in surprise or hardship if incorporated without express awareness by the other party."Y. 'U.C.C. § 2-207 cmt. 4' (emphasis added). Although this Official Comment to the U.C.C. seemingly treats hardship as an independent ground for finding that an alteration is material, courts have expressed doubt: You cannot walk away from a contract that you can fairly be deemed to have agreed to, merely because performance turns out to be a hardship for you, unless you can squeeze yourself into the impossibility defense or some related doctrine of excuse." Union Carbide, 947 F.2d at 1336 ("Hardship is a consequence [of material alteration], not a criterion. (Surprise can be either.)"); see also, e.g., Suzy Phillips Originals, Inc. v. Coville, Inc., 939 F. Supp. 1012, 1017-18 (E.D.N.Y. 1996) (citing Union Carbide with approval and limiting the test for material alteration to surprise); In re Chateaugay, 162 B.R. at 957 (same).

'UCC 2-207 - Dean’s Scholar Cheat SheetTHIS UCC SECTION ALTERS THE COMMON LAW MIRROR IMAGE RULE.

  • - Gets rid of the last shot rule.
  • - Whether there are two different documents, or a different document and oral agreement, then the contradiction is settled through §2-207.
    • - Can be oral/written or written/written; not oral/oral.
    • - The UCC applies to all contracts for the sale of goods, but when both parties are merchants, there are special rules defined in §2-104.
  • - Definite expression of acceptance that is sent within reasonable time constitutes acceptance, even if it has terms additional to or different from the offer, unless the acceptance is expressly made conditional on the offeror’s assent to the additional or different terms.
  • - If there is a definite expression of acceptance within a reasonable time, and the acceptance is not conditioned on the offeror’s assent to the additional or different terms, the additional terms are to be construed as proposals for additions to the contract.
    • - If both parties are not merchants, additional or different terms do not become part of the contract.
    • - If both parties are merchants, then additional or different terms become part of the contract unless
      • - The offer specifically states that acceptance only applies to the terms of the offer.
      • - The terms materially alter the offer or
      • - Notification of objection to the additional or different terms has been received within a reasonable time. (look at comment 6 for when objection has been given)
    • - Subsequent conduct by both parties that recognizes the existence of a contract is sufficient to establish a binding contract, even if the writings of the parties do not otherwise establish a contract. In such a case, the contract is made up of the terms upon which the writings of the parties agree, and replaces the terms that are differing between the parties with supplementary terms from the UCC.
      • - This is called the knockout doctrine, UCC §2-207(3).

'UCC 2-207- Professor’s Cheat SheetYOU CAN’T TELL WHAT THE TERMS OF A CONTRACT ARE UNTIL YOU HAVE DECIDED IF AND HOW THE CONTRACT HAS BEEN FORMED UNDER §2-207.

  1. Always begin with §2-207(1):
  • - A definite and seasonable expression of acceptance or a written confirmation -- sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, UNLESS acceptance expressly made conditional on assent to the additional or different terms.
  • - Applying (1), if “acceptance isn’t expressly made conditional on assent to the additional or different terms, then there is a contract.
  1. The terms of this contract are decided based on §2-207(2). The ADDITIONAL terms (different is not mentioned) are proposals for additions to the contract. If both parties are merchants, the additional terms automatically become part of the contract unless: (1) the offer expressly limits acceptance to the terms of the offer, (b) the terms materially alter the offer (see comments 4 and 5 to UCC 2-207) or; (c) notification of objection to the additional terms has already been given or is giving within reasonable time after notice of additional terms is received..
  • - What if both parties aren’t merchants?
    • - If only 1 party is a merchant, the writing with different or additional terms acts as acceptance acts as acceptance but additional/different terms are only proposals, which must be assented to by offeror. Mere silence cannot operate as assent.
  • - Again, looking at (1), if acceptance is expressly made conditional on assent then there is not a contract form under (1). Instead, we will look to see if parties’ behavior nonetheless indicates contract formation under (3).
  1. UCC 2-207(3) provides: conduct by both parties which recognize the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case, the terms of the particular contract consists of the terms on which the writings of the parties agree, together with any supplementary terms under any other provisions of this Act.
  • - Thus, under 2-207(3), the contract of agreed upon terms and gap filler terms “the knock out rule” (this includes warranties, provisions for delivery, payment and price).

'''RULE: Promises are not enforceable unless they are bargained for.

  • - Each person makes a promise or promise for a performance in exchange of a promise = CONSIDERATION.

Battle of the Forms'Battle of the FormsA term used to describe contractual disputes where different written instruments are exchanged by the parties in forming a contract under § 2-207(1) of the Uniform Commercial Code.''''Oglebay Norton Co. v. Armco Inc long term contract for plaintiff to have adequate shipping capacity for defendant to use for transport of iron ore on Great Lakes. Primary/Secondary price mechanisms (1) defendant to pay regular shipping rates for season (2) if no season regular rate, Δ to pay a mutually agreed upon rate. Modified contract 4 times in next 23yrs until unable to agree upon rate. No rate published in industry magazine (Skillings Review).

  • Evidence of long standing & close business relationship
    • ○ Extensive course of dealing
  • Restatement §33 – if price is not settled and price is to be fixed in terms of some agreed market, use reasonable price (analogizes to UCC §2-305)
  • Restatement §362 – effect of uncertainty of terms
    • Comment b – degree of certainty required
  • When a contract’s operating mechanisms break down, a court will look to the intent of the parties to determine whether the agreement will continue or end: Here the court found that the parties intended to be bound even if the 2 stated pricing mechanisms failed
  • The rate was always changing, & that along with the length of k made it impossible to award damages; therefore, ct. could order specific performance and order parties to negotiate

Chapter 3 Statutes of Frauds[edit]

Statute of FraudsStatutes of Frauds is a defense to contract formation or promise enforcement; A statute adopted by jurisdictions to prevent fraud by specifying that certain agreements must be in writing and signed by the party against whom enforcement is sought; While most oral contracts are valid, a few types of contracts are unenforceable: unless they are in writing they are said to fall within the statute of frauds. The goal of the statute of frauds is to avoid fraud.''''UCC Statute of FraudsUnder the statute of frauds in the Uniform Commercial Code, UCC § 2-201(3)(b), contracts for the sale of goods with a purchase price of over $500 must be in writing. Oral contracts for the sale of goods over $500 may only be enforceable if an exception to the statute of frauds is present.General Rule: oral agreements are enforceable unless subject matter is of a type that must be evidenced by writing, signed by party to be charged.Six classes of contracts required to be in writing to be enforceable (in order to prevent fraud and perjury):

  1. M = Marriage Contracts: prenups, postnups, promises about rights and duties re: assets, promise to marry not covered by statute of frauds.
  • - Contracts of uncertain duration are excluded from the statute. The statute covers only Ks which have explicitly set in its terms that performance cannot be completed within one year of its making
    • - contract of indefinite duration does not require writing.
    • - Lifetime contracts do not fall under statute of frauds because you do not know how long you will live.
    • - At will employment does not fall within SOF
    • - When talking about leases, what matters is not the length of the lease once it begins, but the time from the making of the lease until its full performance (aka its expiration)
  1. Y = Year or Longer Contracts: contract is not able to be performed in one year from the date the contract was formed. “One Year Within the Making Thereof”
  2. L = Land Contracts: transfer of real estate interest (including sale of land, mortgages, leases, etc.)
  3. E = Executors Contracts to pay debts of estate: wills
  4. G = Goods contracts: anything that is movable or transferable, the sale of which must be equal to or over $500 for the statute to require a writing
  • - See UCC §2-201 for UCC SOF
    • - UCC §2-201(3)(a): “specifically manufactured”
    • - UCC §2-201(3)(b): estoppel
    • - UCC §2-201(3)(c): goods accepted and/or paid for
  1. S = Surety Contracts: Agreements to be liable for the debts of another

Exceptions to the Statute of Frauds

  • - Reliance
  • - Part-performance
  • - Admission that a contract exists

Under Restatement § 131: a contract within the statute of frauds is enforceable if it is evidenced by a writing signed by or on behalf of the party to be charged, which

  • - Reasonably identifies the subject matter of the contract
  • - Is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and
  • - States with reasonable certainty the essential terms of an unperformed promises in the contract

A writing must do 4 things to satisfy the SoF:

  • - Identify parties to the contract
  • - Show that those parties made a contract
  • - Set forth the nature of the contract, including some indication of what the parties contracted about
  • - State essential terms of the contract

Restatement § 139 is the special statute of frauds version of Reliance § 90Statute of Frauds Analysis:

  1. Is there an oral agreement?
  2. IF YES: is it evidenced by a writing?
  3. IF NO: does it fall into one of the 6 categories (MY LEGS)? (IF YES: the writing
  4. governs)
  5. IF YES: is there a written memorandum OR applicable exception?
  6. IF NO: UNENFORCEABLE

C.R. Klewin, Inc. v. Flagship Properties, Inc Defendant, a developer for UConn project (housing/hotel/convention center/etc). Plaintiff named construction manager for project after meeting with defendant that ended with a handshake (defendant made plaintiff oral promise). After first phase begun, May 1987 plaintiff & defendant entered into written agreement, ended work mid-October. defendant became dissatisfied with plaintiff’s work & engaged another firm in 1988.

  • One Year Provision of SOF
  • No matter how long realistically performance is likely to take, if no date/time frame is
  • explicitly stated, it does not fall within the SoF

An oral contract that does not say in express terms, that performance is to have a specific duration beyond one year is, as a matter of law, the functional equivalent of a contract of indefinite duration for the purposes of the statute of frauds. Like a contract of indefinite duration, such a contract is enforceable because it is outside the proscriptive force of the statute regardless of how long completion and performance will actually take.

Chapter 4- Contract Formation[edit]

Restatement §12-16: Capacity to ContractFour ways a person may not have legal capacity to incur contractual duties, and any contracts they enter into may be voided:

  1. Under Guardianship (Restatement §13)
  2. Infancy (Restatement §14)
  3. Mentally Ill or Defective (Restatement §15)
  4. Intoxicated (Restatement §16)

Douglass v. Pfluger Hawaii, Inc. plaintiff hired as lot tech by defendant 4 months shy of 18th birthday. 1 month later, attended orientation & signed a mandatory acknowledgment form for arbitration clause in employee handbook. 2 months later, injured on job.

  • Infancy doctrine §14
  • Ct declared that the common law rule was displaced by the HI labor statute
  • Arbitration clauses location in handbook failed to alert plaintiff of its presence & scope, & had not been assented to

Infancy Doctrine:

  • - A minor may, upon reaching the age of majority, choose either to ratify or avoid contractual obligations entered into during his/her minority.
  • - Reasoning: law should protect children from the detrimental consequences of their youthful and improvident acts.

Ortelere v. Teachers’ Retirement Bd.plaintiff’s wife was a schoolteacher who had a mental breakdown, was diagnosed with, & went on leave for mental illness. Without telling plaintiff, she got largest loan amount possible, & made an irrevocable election to take max retirement benefits during her lifetime that were to stop upon her death. She died 2 months later.

  • - Mentally Ill or defective §15
  • - Cognitive test: whether the mind was so affected as to render her wholly & absolutely
  • - incompetent to comprehend & understand the nature of the transaction
  • - Not a sound scheme that would allow 40 years of contribution/participation to be nullified by a one-instant act committed by someone known to be mentally ill

Kenai Chrysler Center, Inc. v. Denison Plaintiff developmentally disabled, lived alone, but subject to guardianship of his parents. Bought a car from defendant with debit card.

  • - Under guardianship §13
    • - The existence of a valid legal guardianship precludes the formation of a valid k with the guardianship’s ward, therefore k is void
  • - Guardianship order gives notice to the public.

Undue Influence and Overreaching: the unfair persuasion of a party who is under the domination of the person exercising the persuasion or why by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.

  • - This is a milder form of pressure than Duress
  • - If the party alleging undue influence can show that the other party took advantage of their weakness, then they may rescind the contract because it was entered into unfairly
  • - When a contract is found to result from duress, fraud or mistake, the ordinary remedy is to allow the victim to rescind or avoid it, the contract affected is said to be “avoidable”
  • - The Pre-Existing Duty Rule: performance of an act that one is already obligated to perform is not consideration for the other party doing something more than originally agreed upon. This applies when part-performance is done. Prevents what is called the “hold-up game.”
    • - Modifications need new consideration to be enforceable. one side already obligated to perform x duties, so cant be compensated further for the same x duties, deals with K formation and modification and relies on the doctrine of consideration. If there are unanticipated issues that arise during k performance, court can look at doctrine of duress instead of the preexisting duty rule
    • - §§ 73, 89 and UCC § 2-209

Preexisting Duty Rule (Restatement §73): Provides that an initial contract cannot be modified unless additional consideration is provided beyond the preexisting duties assigned to both parties under the initial contract. The rule does not apply when unexpected or unanticipated difficulties arise during the course of performance of a contract that prompt parties to voluntarily modify the terms of the initial contract.Alaska Packers’ Ass’n v. Domenico –workmen signed ks as sailors - 50 for season + 2 cents for each red salmon caught that they took part in. Alaska had $150k invested. All workers stopped working & demanded $100. Impossible for Alaska to get new workers, so it agreed to pay, but workers were only paid $50 when they returned.

  • - Pre-Existing Duty Rule 73
  • - No new consideration – the sailors were already going to do the job under the original k

King v. Railway Co.

  • - No astute reasoning can change the plain fact that the party who refuses to perform and there by coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party. Surely it would be a travesty on justice to hold that the party so making the promise for extra pay was estopped from asserting that the promise was without consideration. A party cannot lay the foundation of an estoppel by his own wrong where the promise is simply a repetition of subsisting legal promise. There can be no warrant for inferring that the parties for inferring that the parties have voluntarily rescinded or modified their contract. The promise cannot be legally enforced, although the other party has completed his contract in reliance upon it.

N.Y. Gen. Oblig. L. §5-1103An agreement, promise or undertaking to change or modify, or to discharge in whole or in part, any contract, obligation, or lease, or any mortgage or other security interest in personal or real property, shall not be invalid because of the absence of consideration, provided that the agreement, promise or undertaking changing, modifying, or discharging such contract, obligation, lease, mortgage or security interest, shall be in writing and signed by the party against whom it is sought to enforce the change, modification or discharge, or by his agent.Schwartzreich v. Bauman-Basch, Inc.

  • - Where a contract is cancelled by mutual consent of the parties at the same time that a second contract is made by the same parties regarding the same transaction, the second contract is enforceable regardless of which terms have been changed between the first and second contracts.

A rescission followed shortly afterwards by a new agreement in regard to the same subject matter would create the legal obligations provided in the subsequent agreement.Watkins & Son v. Carrigπ agreed to excavate Δ’s cellar, but encountered granite that was not accounted for. Oral agreement for π to remove the rock at price approx. 9x greater than unitprice. Rock took up approx. 2/3 of the space to be excavated.

  • - Pre-Existing Duty Rule 73
    • - But granite wasn’t accounted for in written agreement, & π continued work because of oral agreement
  • - The oral agreement superseded the written
    • - Δ had the opportunity to refuse to accept π’s proposed change, & π relied o nmodified k by continuing work
  • - There was ample new consideration for the oral agreement, so 73 doesn’t apply & there was a valid k
  • - It is not practical that the law should adopt all precepts of moral conduct, but it is desirable that its rules and principles should not run counter to them in the important conduct and transactions of life.

Williston, Conts., (2d ed.), s. 130a: "But calling an agreement an agreement for rescission does not do away with the necessity of consideration, and when the agreement for rescission is coupled with a further agreement that the work provided for in the earlier agreement shall be completed and that the other party shall give more than he originally promised, the total effect of the second agreement is that one party promises to do exactly what he had previously bound himself to do, and the other party promises to give an additional compensation therefor."With due respect for this eminent authority, the argument appears to clothe consideration with insistence of control beyond its proper demands. With full recognition of the legal worthlessness of a bare promise and of performance of a subsisting duty as a void consideration, a result accomplished by proper means is not necessarily bad because it would be bad if the means were improper or were not employed''''Pressure in Bargaining (aka Duress) –impermissible pressure exerted by one party over another during pre-contractual bargaining or during an attempted renegotiation of an existing deal.

  • - Duress is the manifestation of assent is induced and leaves the contract voidable by the victim of the inducement.
    • - Duress by Physical Compulsion
    • - Duress by Threat: one party’s threats deprive the other of its free will.
    • - Economic Duress: established when the party making a claim was forced to agree to it by means of wrongful threat precluding the exercise of his free will. (a threat of stopping delivery may constitute economic duress, see Austin).

Austin Instrument, Inc. v. Loral Corp. Navy k with Δ for 40 precision gear components. π bidon 23 parts & Δ awarded k for 23 parts. Δ got 2d k with Navy & π bid on entire thing. Then π said they wouldn’t deliver on 2d & stopped delivery for 1st unless Δ agreed to award it 2d k on all 40 parts and to price increase.

  • - Duress: a k is voidable on the ground of duress when the party making the claim was forced to agree by means of wrongful threat precluding exercise of free will
    • - Mere threat is NOT economic duress
  • - Δ had no choice when prices were raised but to take the gears at the coerced price & then sue to get excess back
    • - Δ deprived of free will

Odorizzi v. Bloomfield School District – elementary school teacher arrested for homosexual activity – after release he met with school officials & was told that unless he resigned, the charges would be publicized & he would be fired. π had no time to consult an attorney, heresigned & charges were dropped.

  • - Action or threat of duress or menace must be unlawful
    • - Not unlawful unless the party making the threat knows the falsity of the claim
    • - it was the legal right & positive duty of the school officials to initiate suspension and dismissal proceedings
  • - Undue influence: taking unfair advantage of another’s weakness of mind, or taking a grossly oppressive and unfair advantage of another’s necessities or distress. VERY RARE.
    • - Unfair advantage: influence or supremacy of one mind over another preventing free will of another is unfair advantage
  • - Not duress, but undue influence.

Fraud and MisrepresentationA plaintiff may bring suit in contract and seek to rescind the deal (aka unwind the deal and go back to beginning) or may bring a suit in tort for compensatory damages (equal to expectation damages in contracts) + punitive damages (equal to penalties in contracts). Difference between what has to be proven to either rescind or get tort damages:

  • - Tort damages need to prove intentional and/or purposeful misrepresentation, whereas if you sue to rescind in contracts you just have to show that it was a material misrepresentation (doesn’t matter if seller knew, just need to have buyer rely on it) (Restatement §§ 159, 162)
  • - In both tort and contract law relief for misrepresentation is restricted in ways that merit at least a mention. It has sometimes been held that a misrepresentation of law is innocuous. Yet because the author of a misrepresentation of law is frequently better placed to know the law than the victim of it, the inequality of competence succeeds as a ground for giving relief.
  • - Misrepresentation must be material.
    • - Many standards of materiality have been expressed and while non is applied uniformly, they serve the common function of justifying a certain control by judges over the more volatile behavior of juries.
  • - Some degree of diligence is required of a party who relies on another’s statement, though whether a party has been negligent in relying depends partly on the victim’s capacities, partly on the nature of the transaction and partly on the plausibility of the representation.
  • - Question of diligence should be distinguished from the question whether any credence was placed in the representation at all.
  • - In the currently preferred formulation, the complainant must show not mere reliance but justifiable reliance.
  • - Misrepresentation must be of fact and not of opinion.

''''Scienter- A level of knowledge required to make a person legally responsible for the consequences of such person’s act or omission.Fraud': the party alleging fraud has the burden of proving it by clear and convincing evidence.Three elements of fraud:

  • - Untrue statements of facts
  • - The statements were made with the intent to defraud and for the purpose of inducing the other party to act upon it
  • - Defrauded party did in fact rely on it and was induced thereby to act, to his injury or damage

Misrepresentation (Restatement §§ 159-167): an assertion that is not in accord with the facts. In determining whether an agreement should not be enforced or should be rescinded because of oneparty’s misrepresentation, courts generally look at (1) how important / material the representation was, (2) whether the other party relied on that misrepresentation, and (3) if that reliance was reasonable.

  • - Two kinds: fraudulent and material misrepresentation under 162:
    • - Fraudulent Misrepresentation: if the maker intends his assertion to induce a party to manifest his assent and the maker…
    • - Material Misrepresentation: if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the particular recipient of statement to do so.

Swinton v. Whitinsville Savings Bankdefendant sold plaintiff a house that was infested with termites. Defendant knew of the termites, but never told plaintiff. plaintiff didn’t learn of them for 2 years, repaired home, and installed termite control.

  • - Business deal at arm’s length
  • - Nothing more than concealment: in simple sense of mere failure to reveal, with nothing to show any particular duty to speak
  • - Seller has no obligation to disclose a non-apparent defect
  • - If defendant were to be held liable, every seller would be liable who fails to disclose any non- apparent defect known to him in the subject of the sale which materially reduces its value & which the buyer fails to discover

Kannavos v. AnninoDefendant bought single-family home & converted it to an 8 apartment, multi- family home. Operated without permits, & in knowing violation of zoning law. defendant then put out ads to sell home, with estimates for rental income. π used no lawyer in the purchase, responded to the ads, & k’d to buy.

  • - Business deal at arm’s length
  • - π wasn’t prevented from acquiring info, BUT, unlike Swinton, this was not just concealment – these were explicit statements that were misleading in context
    • - estimates for rental income
  • - Have a duty to speak truthfully once anything is spoken at all. Half-truths may be actionable as whole lies

Speakers of Sport v. Pro Serv Baseball player signed 1yr terminable at-will k with plaintiff. defendant promised to get more money in endorsements, so player switched. Δ failed to meet promise

  • - Promissory Fraud: make a promise when you know you can’t or won’t keep it
    • - If this argument (plaintiff’s argument) were to be accepted, it would put all agents engaging in competition at a grave risk of legal action
  • - Court held this was an “aspirational promise” – not fraud

Vokes v. Arthur Murray, Inc. Plaintiff dance student enrolled in 14 dance courses at appellee dance studio for a total cash outlay of over $ 31,000 dollars. Appellant brought suit against, the corporation, the studio, and an instructor who sold her the courses, alleging appellees were guilty of undue influence and misrepresentation in inducing her to sign the contracts.

  • - The court held that appellees' statements to appellant that she was an excellent student and a beautiful dancer were actionable because the parties were not dealing with each other at arm's length.
  • - The court noted that appellant did not have an equal opportunity to become apprised of the truth or falsity of appellees' statements to her.
  • - The court held that appellant's complaint set forth a cause of action for undue influence and misrepresentation as grounds for avoiding the contracts.

A writing which is intended by parties to be a complete statement of terms of an agreement cannot have those terms added to by a prior oral or written statements or contemporaneous oral agreements.2 purposes:

  1. Written agreements discharges previous oral or written contracts or contemporaneous oral agreements.
  2. Reflects a concern of faulty memory of what was agreed to.

General Misrepresentation Rule: A misrepresentation, to be actionable must be one of fact rather than of opinion.Qualifications of Misrepresentation Rule:

  • - Does not apply when there is a fiduciary relationship between the parties
  • - Does not apply where there has been some artifice or trick employed by the representor
  • - Does not apply where the parties do not in general deal at “arm’s length”
  • - Does not apply where the representee does not have equal opportunity to become apprised of the truth or falsity of the fact represented.

'

Chapter 5- Determining the Parties’ Obligations Under the Contract[edit]

Parol Evidence Rule:Exception to the Parol Evidence Rule- FRAUD: when the parties to a contract embody the agreement in writing and intend the writing to be the final expression of their agreement, the terms of the writing may not be contradicted by the evidence of any prior oral or written agreements in the absence of fraud, duress or mutual mistake.

  • - The question when the Parol Evidence Rule is invoked is whether the parties intended the written contract to be the final and complete expression of their agreement.
    • - Where writings intended by the parties to be a final expression of their agreement calls for an unconditional sale of goods, evidence that the seller’s obligations are conditioned on receiving the goods from a certain supplier are inconsistent and excluded.
  • - If a contract is completely integrated, the courts determine the parties’ intent within the four corners of the contract, without consideration of the extrinsic evidence.
  • - Only when the contract is ambiguous and open to more than one reasonable interpretation may the court look beyond the face of the contract and consider extrinsic evidence to determine the party’s intent.
    • - If the court decides that the writing is not complete/exclusive, then the court may admit evidence of consistent additional terms, unless the court also determined that the alleged extrinsic term would have been included in the writing if it had been agreed upon.

An unambiguous merger or integration clause demonstrated that the parties intended the contract to be a final and complete expression of their agreement, so the contract is fully integrated and the parol evidence rule excludes extrinsic evidence.'

  • - Even if there is an integration clause, evidence of fraud is admissible. Fraud is also an exception to the parol evidence rule, along with duress and mutual mistake, and evidence of which will always be introduced.

The parol evidence rule also allows for extrinsic evidence to give meaning to terms in a writing.See Restatement §214(c). Parol Evidence and Contracts for the Sale of Goods - See UCC §2-202.'No Oral Modification Clauses (UCC §2-209 (2), (4) and (5))'

  • - If one wants to do business on the basis of the written word (preferably one’s own), to the exclusion of oral agreements, one has much interest in excluding subsequent oral agreements as well as prior ones.

Wagner v. Graziano Typical No Oral Modification Clause: No extra work or changes from plans and specifications under this contract will be recognized or paid for, unless agreed to in writing before the extra work is started or the changes made.Is such a clause effective?No. Any prior agreement, including the no oral modification clause itself, can be modified by a later agreement.Beatty v. Guggenheim Exploration Co. “Those who make a contract may unmake it. The clause which forbids a change may be changed like any other. The prohibition of oral waiver may itself be waived. Every such agreement is ended by the new one which contradicts it. What is excluded by one at is restored by another.”Rose v. Spa Realty AssociationsThe purchasers entered into written agreement to purchase 150 dwelling units from the sellers. Before title to any of the property had changed hands, the purchasers informed the sellers that they should apply for approval only of 96 units. There was never any writing of any kind fixing the manner of payment. On appeal, the issues were whether partial performance of an oral modification sufficed to take the modification out of the statutory requirement of a writing and whether equitable estoppel could be invoked to bar a party from relying on the statute. The court held that partial performance of an oral agreement to modify a written contract, if unequivocally referable to the modification, avoided the statutory requirement of a writing. Moreover, when a party's conduct induced another's significant and substantial reliance on the agreement to modify, albeit oral, that party could be estopped from disputing the modification notwithstanding the statute. Finally, because the sellers conditioned the reduction in the amount of land to be conveyed upon full cash payment, the purchasers, by proceeding with the project, necessarily and impliedly accepted the sellers' payment term.Universal Builders Inc. v. Moon Motor Lodge“When an owner requests a builder to do extra work, promises to pay for it and watches it performed knowing that it is not authorized in writing, he cannot refuse to pay on the ground that there was no written change order.”Methods of Interpreting Ambiguous Contracts:Ambiguity is determined by looking at the written language of the contract .a contract is ambiguous if it is capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement, and who is aware of trade customs and usage.

  • - If it is ambiguous then extrinsic evidence is admissible to solve ambiguity.
  • - Under traditional contract law theory (NY), extrinsic evidence is inadmissible to interpret, vary or add to the terms of an unambiguous integrated written instrument.
    • - However, in California, if one party claims that the parties intended one thing but the agreement provides for another, the court must consider extrinsic evidence to determine whether there is an ambiguity.
  • - If an ambiguity is found, then the extrinsic evidence is submitted to the fact finder to determine which interpretation of the contract language the parties meant.

Towne v. EisnerA word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used.Gianni v. R. Russell & Co. Plaintiff had a store in the building. Defendant bought building and negotiated a written lease that plaintiff would pay more rent and could not sell tobacco anymore. Plaintiff claimed that the oral agreement stated that he would have exclusive rights to sell soft drinks.

  • - Traditional Rule states that you only look within the four corners of the writing.
  • - Parol Evidence Rule (if there’s a completely integrated contract) → all verbal agreements and negotiations prior to written agreement are merged into and superseded by the subsequent contract.
  • - Court said that the parties put limitations in the written contract so they easily could have put in the exclusive right to sell soft drinks if that was truly agreed upon. Since its not there, evidence of the alleged oral agreement that the plaintiff would have the exclusive right to sell soft drinks is not admissible.
    • - Completely integrated contract.

Only Way Parol Evidence Rule Works:

  • - An endeavor is being made to reform a written instrument because of something omitted as a result of fraud, accident, or mistake.
  • - The writing must be the entire contract between the parties if parol evidence is to be excluded and to determine whether it is or not the writing will be looked at and if it appears to be a contract complete within itself, “couched in such terms as important complete legal obligation without any uncertainty as to the object or extent of the engagement, it is conclusively presumed that the whole engagement of the parties, and the extent and manner of their undertaking were reduced writing.”

Masterson v. SinePlaintiff and wife owned ranch as tenants in common. Conveyed to plaintiff reserving right to purchase for same consideration paid by defendant less depreciation value of any improvements. After conveyance, plaintiff filed for bankruptcy. The bankruptcy trustee is suing to exercise plaintiff’s option to repurchase the property.

  • - No longer looking at 4 corners of the writing only.
  • - 3 kinds of extrinsic evidence here: (1) Same consideration = $50,000; (2) Depreciation = according to IRS rules at the time; (3) Option to repurchase is personal to plaintiff
  • - Option clause does not explicitly provide that it contains the complete agreement and the deed is silent on the question of assignability, so extrinsic evidence is allowed.

When the parties to a written contract have agreed to it as an “integration” -- a complete and final embodiment of the terms of an agreement --- parol evidence cannot be used to add or vary its terms…. When only part of the agreement is integrated, the same rule applies to that part, but parol evidence may be used to prove elements of the agreement not reduced to writing…”California Rule: whether there was an integration is determined solely from the face of the instrument and that the question for the court is whether it “appears to be a complete… agreement…”L.S. Heath & Son, Inc. v. AT&T Information SystemThe court concluded that an agreement containing a merger clause was nevertheless not completely integrated. The agreement “omits subject matter; it does not identify any prices, products, services, software applications or configurations.” The court granted that “the presence of a merger clause is strong evidence that the parties intended the writing to be the complete and exclusive agreement between them, a court must compare the writing with the prior negotiations… if the allegedly integrated writing does not , without reference to another document or other coording information, reveal what the basic transaction entailed, then the writing is not integrated.”Mitchell v. LathFor evidence of a contemporaneous oral agreement to be admissible:

  1. The agreement must in form be a collateral one
  2. It must not contradict express or implied provisions of the written contract
  3. It must be one that parties would not ordinarily be expected to embody in the writing.

Bollinger v. Central PA Quarry Stripping and Construction Co. Plaintiff owned property and contracted with defendant who was doing construction next to the property. Contract permitted the defendant to bury waste on plaintiff’s property. During negotiations, parties agreed that the defendant could put waste on plaintiff’s property by digging topsoil/putting waste down/ putting topsoil back. Other evidence showed that this oral agreement was made. Parties intended deed to state their entire agreement. Never in contract → defendant did this work first, but then stopped.

  • - Plaintiff claiming mutual mistake of fact regarding what the writing contained and then the oral agreement should have been included in written contract.
  • - Restatement §155. Mistake must be mutual to the parties of the contract. Must find that there was a mistake, it was real and not feigned, actual and not hypothetical.
  • - Court held that there was a mutual mistake. Remedy → contract reformed to reflect the actual agreement of the parties.

Pacific Gas & Electric Co. v. GW Thomas Dryage & Rigging Co.Defendants to remove and replace upper metal cover of plaintiff’s steam turbine. Included indemnity clause -- no less than $50,000 insurance to cover liability, indemnify plaintiff against all loss/damages/expense/liability resulting from injury to property connected to performance of contract. During work, the cover fell and injured turbine rotor.

  • - Issue: whether the parties meant the indemnification clause to require defendant to indemnify plaintiff, as well as third parties.
  • - Test of admissibility: whether extrinsic evidence offered is relevant to prove meaning to which language of instrument is reasonably susceptible.
  • - Meaning of a writing can be found by interpretation in the light of all circumstances that reveal the sense in which the writer used the words.
  • - The fact that the terms appear clear to the judge doesn’t preclude the possibility that the parties meant the language of the instrument to express different terms.
    • - This is too narrow.
  • - Courts reject the plain meaning rule. If there is potential ambiguity, then extrinsic evidence should be allowed to determine whether there was ambiguity.
  • - 2 step approach: Allow extrinsic evidence to shed light on:
    • - Is the term ambiguous at all?
    • - If yes -- what did the parties intend?

The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible…A rule that would limit the determination of the meaning of a written instrument to its four corners merely because it seems to the court to be clear and unambiguous would either deny the relevance of the intention of the parties or presuppose a degree of verbal precision and stability our language has not attained.Greenfield v. Phillies Records, Inc. Plaintiff was a member of the Ronnettes → signed five year recording contract to perform exclusively for the defendant. There are two contracts: (1) 1963 music group and (2) divorce. Defendant later used recordings in TV and movies, but never paid royalties to plaintiff.

  • - NY Law: look to instrument to determine Plain Meaning. No ambiguity in terms of the contract.
    • - Defendant entitled to exercise complete ownership rights, subject to payment of applicable royalties due to plaintiff.
  • - Court held that contract was unambiguous.

Delta Dynamics Inc v. AriotoThe test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. To determine whether offered evidence is relevant to prove such a meaning the court must consider all credible evidence offered to prove the intention of the parties. If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, is fairly susceptible of either one of the two interpretations contended for, extrinsic evidence to prove either of such meanings is admissible.W.W.W. Association v. GioncontieriExtrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous, which is an issue of law for the courts to decide.A familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing That rule imparts "stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses * * * infirmity of memory * * * [and] the fear that the jury will improperly evaluate the extrinsic evidence." Such considerations are all the more compelling in the context of real property transactions, where commercial certainty is a paramount concern.Whether or not a writing is ambiguous is a question of law to be resolved by the courts…The question next raised is whether extrinsic evidence should be considered in order to create an ambiguity in the agreement. That question must be answered in the negative. It is well settled that extrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face." ( Intercontinental Planning v Daystrom, Inc., 24 NY2d 372, 379; see also, Chimart Assocs. v Paul, 66 NY2d 570, 573.)Breed v. Insurance Company of North AmericaA contract is unambiguous if the language it uses has “ a definite and precise meaning, unattended by danger of misconception in the purporte of the agreement itself, and concerning which there is not reasonable basis for a difference of opinion.”''''Trident Center v. CT General Life Insurance Co.Plaintiff constructing office building. Sought and obtained financing from defendant → $56,500,000 at 12.25% interest for 15 years secured by a deed of trust. Promissory note provided that the plaintiff can’t prepay for first 12 years. Plaintiff sought refinancing after 4 years when interest rates dropped.

  • - Plaintiff cited ambiguity regarding prepayment clause because of the other term that permitted defendant to charge 10% penalty if borrower defaulted.
  • - Extrinsic evidence is inadmissible to interpret, vary or add to the terms of an unambiguous integrated written instrument.
  • - Contractual obligations flow not from words of the contract but from the intention of the parties.
  • - If the agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity.
  • - “The best evidence of what parties to a written agreement intend is what they say in their writing”.
  • - A written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.

Frigaliment Importing Co v. BNS International Sales Corp. Contract for plaintiff to buy chicken from the defendant. First birds were broiling/frying chicken and the second delivery were stewing chicken.

  • - Term chicken alone is ambiguous
  • - Evidence: dictionary definition, market value, early negotiations, price at which defendant could buy chicken to sell to plaintiff.
  • - Look to use age of trade; contract incorporated USDA regulations but not the government definition of chicken (which has six types)
  • - Plaintiff has burden of showing that “chicken” was used in the narrower sense
  • - Court held that “chicken” means any bird of that genus that meets the contract specification on weight and quality.
  • - Would be UCC case but the UCC didn’t exist yet

Nankuli Paving & Rock Co. v. Shell Oil Co. Plaintiff bought all of its asphalt requirements for 11 years from defendant under 2 longer term supply contracts. Defendant raised price by $32 with very short notice.

  • - Contracts stated the price as “defendant’s posted price at time of the delivery.”
  • - Plaintiff argued:
    • - all material suppliers followed the trade usage of price protection and thus it should be assumed under the UCC that the parties intended to incorporate price protection.
    • - Defendant was obligated to price protect for some length of time (even if term not incorporated in writing) because a price for the seller to set must be set in a commercially reasonable manner, under UCC §2-305(2).
    • - 'UCC §1-303: evidence offered meets definition of usage of trade.'
    • - Alternatively, the defendant breached and didn’t use exercise of good faith in setting price. Course of dealing is more important than usage of trade.

A course of performance of a contract, in contrast to a waiver, demonstrates how the parties understand the terms of their agreement…Price protection was practiced in the asphaltic paving trade by either extending the old price for a period of time after a new one went into effect or charging the old price for a specific tonnage, which represented work committed at the old price. In addition, several month’s advance notice was given of price increases.Columbia Nitrogen Corp. v. Royster Co. Evidence of course of dealing and trade usage is admissible to supplement and explain a contract as long as the proffered evidence can be reasonably construed as consistent with the terms of the written agreement.“No verbal understanding will be recognized by either party hereto; this contract expresses all the terms and conditions of the agreement, shall be signed in the duplicate and shall not become operative until approved in writing by the seller.”Course of dealing and trade usage are not synonymous with verbal understandings, terms and conditions.Raffles v. WichelhausSale for cotton “ex Peerless from Bombay”. 2 ships with same name.

  • - Does the mutual mistake render the contract void?
    • - Latent ambiguity → once revealed it is ok to consider parol evidence (allow extrinsic evidence)
    • - When there is mutual misunderstanding of the contract terms, there is no binding contract.

In Raffles, the contract was a losing one for the buyers whichever date the cotton was shipped on, so that by rescinding the contract, they were able to shift to the seller a loss unrelated to the mutual mistake.'Evidence of a completely integrated writing: merger clause'IF it’s integrated: can NEVER admit evidence to contradict the writing'''Oswald v. AllenSale of coins, plaintiff thought he was buying all swiss coins. Defendant thought she was only selling the “swiss collection”.

  • - Rule from Raffles: when any of the terms used to express the agreement is ambivalent and the parties understand it in different ways, there can’t be a contract unless one of the parties should have been aware of the other’s understanding.
  • - This was a latent ambiguity. No meeting of the minds. Defendant not in breach

Latent ambiguity- A term or statement in a contract that appears clear on its face but is unclear in the context of the contract or in its application to particular circumstances.'Colfax Envelope Corp. v. Local No. 458-3MHow many men are needed to man the printers depends on the size of the men. Collective bargaining agreement.

  • - Sometimes differences are so deep that it is impossible to say that the parties ever agreed.
  • - From Oswald: need a meeting of the minds.
  • - 'Raffles '
  • - Plaintiff had no right to accept the offer just assuming it’s understanding was right.
  • - Plaintiff was on alert of the ambiguity but chose not to find out the meaning. Court enforced the arbitration clause.

'Restatement 20: Effect of Misunderstanding(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and(a) neither party knows or has reason to know the meaning attached by the other; or(b) each party knows or each party has reason to know the meaning attached by the other.(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if(a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.The Implied Warranty of Merchantability: 'UCC §2-314(1): “a warranty that the goods shall be merchantable is implied in a contract for the sale if the seller is a merchant with respect to goods of the kind.” note that this is special for merchants!

  • - 'UCC §2-104: for the definition of a merchant'
  • - 'UCC §2-314: for an expansion of this definition'
  • - 'UCC §2-314(2): for the criteria of merchantability '

Merchantability: if a seller is a merchant with respect to goods of the kind, the contract for the sale contains a warranty that the goods shall be merchantable.Gap-Fillers

  • - Terms that a court will read into a contract when they aren’t in the contract.--> Applied in fact.
  • - Applied in law → Under UCC.
    • - UCC §2-305
    • - UCC §2-308
    • - UCC §2-310
    • - UCC §2-314
    • - UCC §2-315

Koken v. Black & Veatch Construction Inc.Fire blanket warranty; were they using the blanket for its ordinary purpose?

  • - UCC §2-314: Implied warranty of merchantability
    • - UCC §2-314(2)(c)
  • - UCC §2-315: Ordinary purpose. Use which are customarily made of goods question.
  • - Question not the subjective expectations of the particular user, but the reasonable expectations of an ordinary user or purchaser.
  • - Defendant didn’t meet burden of establishing the ordinary purpose of the fire blanket.

'The Implied Warranty of Fitness for Particular Purpose:'UCC §2-315: provides protection for a buyer who intends to put goods to non standard use.Lewis v. Mobil Oil Corp. Sawmill operator seeking to convert to hydraulic equipment → defendant suggested type of oil that ended up causing problems.

  • - 'UCC§2-315: Implied into every contract for the sale of goods unless it expressly isn’t.'
    • - Seller must have reason to know of use for which goods of purchased.
    • - Buyer relies on seller’s expertise in supplying the proper product.
  • - Defendant was aware of plaintiff’s reliance. Plaintiff specifically asked for a recommendation.

2 requirements for an implied warranty of fitness:

  1. That the seller has “reason to know” of the use for which the goods are purchased
  2. That the buyer relies on the seller’s expertise in supplying the proper product.

Excluding Implied Warranties: while implied warranties may be considered to be a type of default rule, UCC §2-316 provides that it takes more than simple agreement to the contrary to prevent them from being part of the contract. UCC §§2-316 (2) and (3) contain several routes by which implied warranties can be kept out of a contract.

  • - Note that the opening phases of both UCC §§2-316 (2) and (3) subordinate the former section to the latter. If the seller states orally that the goods are offered “as is” and the buyer agrees to that, this may exclude the implied warranty of merchantability.

SCE&G v. Combustion Engineering, Inc. Sale of boiler unit. Contract included warranty - expressly warranted equipment to be free from defects in material and workmanship for one year. Plus disclaimer that there were to be no other warranties, expressed or implied, other than the title. Fire occurred over two years after the boiler become operational.

  • - 'UCC §2-316: don’t need to meet (2) if you can meet (1) or (3)'
    • - Disclaimer doesn’t mean (2) and doesn’t mention term “merchantability”.
  • - Disclaimer was on the 17th page of a 20 page document.
    • - In plain language -- the disclaimer excludes all warranties other than the express one year warranty and warranty of title.
  • - Rule: you do not have to comply with UCC 2-316(2) if you meet UCC 2-316(1) or (3)
  • - A contract provision disclaiming warranties will be valid where the negotiations between the parties were sufficient to alert the party challenging the provisions to the fact where warranties were disclaimed under the provision.

AMF Incorporated v. Computer Automation Inc.

  • - Involved “commercially sophisticated businesses.”
  • - It would strain “credulity to hold that a business like SCE&G was not, or should not have been aware of the language disclaiming implied warranties”.
  • - Because both parties were sophisticated businesses, which had dealt with each other before, the court sustained defendants' motion on the conspicuousness and unconscionability of the limited liability contract provisions of the first two counts. Applying a two-year statute of limitations, the court held that the claims of gross negligence and strict liability were untimely filed. The court further held that triable issues of fact remained on each alleged misrepresentation. Finally, the court held that the applicable state law permitted an award of attorney's fees and costs in a breach of contract action.

Tennessee Carolina Transportation, Inc. v. Strick Corp.

  • - Actual awareness by a nonconsumer buyer of a disclaimer prior to entering into a sales contract and possession of substantially equivalent bargaining power satisfies purpose of “conspicuous” requirement.

Country Clubs, Inc. v. Allis-Chalmers Manufacturing Co.

  • - Exclusion of implied warranty of merchantability upheld under Subsection 3(c) where course of dealing indicated buyer “had acquired in the limited warranty provision” and sale involved experienced businessmen dealing at arm’s length.

Other Limits on Excluding Implied Warranties: courts and legislatures have, in certain circumstances, limited the ability of sellers to limit or exclude implied warranties, even when the requirements of UCC §2-316 have been fulfilled.Henningsen v. Bloomfield Motors, Inc. Plaintiff purchased a new Plymouth automobile from Bloomfield Motors. Plaintiff’s wife was injured when the steering mechanism failed ten days after delivery. They both sued Bloomfield Motors (the defendant) and the manufacturer, Chrysler Corporation for breach of implied warranty of merchantability imposed by the uniform sales act. Defendants contended that the warranty had been disclaimed, as permitted by the act, and relied upon a provision contained on the back of the purchase contract, among eight and a half inches of fine print, which purported to limit liability for breach of warranty to replacement of defective parts for the period of 90 days after delivery or 4,000 miles of driving, whichever was shorter.The gross inequality of bargaining position occupied by the consumer in the automobile industry is thus apparent. There is no competition among the car makers in the area of the express warranty. Where can the buyer go to negotiate for better protection? Such control and limitation of his remedies are inimical to the public welfare and, at the very least, call for great care by the courts to avoid injustice through application of strict common law principles of freedom of contract.Express Warranties: express warranties differ from implied warranties in that they are the product of bargaining between the parties, rather than implication by law (UCC §2-313). Under UCC §2-313(1), an express warranty may be created in one of three ways:

  1. An affirmation of fact or promise made by the seller with respect to the goods creates a warranty that they will conform to that affirmation or promise (UCC §2-313(1)(a))
  2. A description of the goods creates a warranty that they will conform to the description (UCC §2-313(1)(b)).
  3. A sample or model of the goods creates a warranty that the “whole of the goods” will conform to the sample or model (UCC §2-313(c)).

Chapter 6- Contract Unfairness -- Limits on the Bargain and its Performance[edit]

Unfairness: a finding of a court that a particularly overbearing provision conflicts with an establishes public policy. Courts have also manipulated the doctrine of consideration to serve the ideal of fairness, including determinations about whether or not there is a “bargain” at all.McKinnon v. Benedict:Sale of land on a lake to start a business of camping. Agreed to not cut down trees/follow restrictions for 25 years.

  • - Public policy: restrictions on land are not favored in law. Should be resolved in favor of free use of the property.
  • - Plaintiff took advantage of defendant. Plaintiff’s detriment was minimal, they were only there in the summer, when the trees are at their fullest.
  • - Agreement was unfair and lacking adequate consideration.

We find that the inadequacy is so gross as to be unconscionable and a bar to the plaintiff’s invocation of the extraordinary equitable powers of the court.Tuckwiller v. TuckwillerRented farm and took care of aunt with Parkinson’s. Agreed to quit job. Aunt fell ill, went to hospital and had ambulance drivers sign as witnesses. Aunt died in the hospital.

  • - Have to look at the contract prospectively not retrospectively.
    • - Look at bargain when it was actually made.
  • - Not unconscionable. Fair. supported by adequate consideration.

Test of unconscionability focuses on bargain at time it was made.Black Industries, Inc. v. BushPlaintiff buying machine parts from defendant. Plaintiff acting as middleman getting parts from defendant and selling to H&S. plaintiff’s compensation was to be the difference between defendant’s price to plaintiff and plaintiff’s price to H&S. Defendant failed to complete order.

  • - Public policy - profits too high (contrary to public policy because this would ultimately charge government high prices.
    • - But profits are not important → business dealings at arm’s length. Profits were consideration.
  • - Contracts not void.

Relative values of the consideration in a contract between business men dealing at arm’s length without fraud will not affect the validity of the contract.Just because someone got a better deal doesn’t mean it isn’t enforceable.If we had a different rule for all contract in which something being sold to government, all middlemen contracts will be voided.Court concerned about limits overseeing contracts.Standard Form and Adhesion Contracts (THESE ARE SYNONYMS):

  • - Advantages: enable a judicial interpretation of one contract to serve as an interpretation for all standard contracts; reduce uncertainty; save time and trouble; simplify planning and administration; make superior drafting skills more widely available; make risks calculable and increase that real security which is the necessary basis of initiative and the assumption of foreseeable risks.
  • - Disadvantages: offer the means by which one party may impose its will upon the other.
    • - An enterprise may have such disproportionately strong economic power that it can dictate its terms to the weaker party.
    • - There may be no opportunity to bargain over terms at all, standard form contracts are usually a take it or leave it proposition.
    • - Standardized contracts are often used by a party who has had the advantage of time and expert advice in preparing it while the other party may have had no real opportunity to scrutinize or understand the contract.

O’Callaghan v. Waller & BeckwithPlaintiff tenant in defendant’s apartment building. Plaintiff fell crossing courtyard on her way from garage. Lease agreement contained an exculpatory clause that landlord won’t be liable for injury.

  • - Dealing at arm’s length.
  • - No evidence that plaintiff tried to negotiate clause or that she made an effort to lease elsewhere.
  • - Legislature’s job to determine public policy → imposed rent control which took away landlord and tenant.
  • - Use of a form contract doesn’t in itself establish disparity of bargaining power.
  • - Valid clause. Clause barrs this action.
  • - Dissent: disparity of bargaining power exists; apartment wouldn’t be rented if they refused to sign the form lease. Shouldn’t enforce exculpatory clause.

Just because it is a contract of adhesion does not mean it is enforceable.Courts sometimes rely on “rules of construction to bypass claims of contractual unfairness.Galligan v. ArovitchPlaintiff tenant tripped on the lawn area in front of her apartment building and suffered injuries. Plaintiff brought an action in trespass and alleged negligence on the part of defendant landlord. Defendant filed a new matter which denied liability based on an exculpatory clause in the lease which limited liability in seven different locations of the apartment area. The trial court entered judgment on the pleadings in favor of defendant and plaintiff appealed. The court reversed and held that the exculpatory clause purported to relieve defendant of liability for injury or damage in any of seven different locations, however it did not include the lawn area. The court held that the written lease must be strictly construed against defendant as maker of the lease. The court also found that the clause violated public policy. The court found that when signing the lease, plaintiff had no bargaining power and had to accept defendant's terms and the agreement was a mere contract of adhesion.Exculpatory clause- A contractual provision that shields a party from liability for its own negligence or wrongdoing.Unconscionability: Restatement §208 and UCC §2-302 are very similar, authorizing a court to refuse enforcement or limit the application of a contract or clause that it determines to be unconscionable.

  • - The principle is one of the prevention of oppression and unfair surprise and not of disturbance of allocation risk because of superior bargaining power.
  • - Many types including: price unconscionability, unconscionability in franchises and unconscionable arbitration clauses.
  • - A contract is unconscionable when:
    • - There is lack of meaningful choice by one party.
      • - Whether each party to the contract had a reasonable opportunity to understand the terms of the contract or were they hidden in a maze of fine print and minimized by deceptive sales practices.
    • - Terms are unreasonably favorable to one party over another.
      • - Whether the terms are so extreme as to appear unconscionable according to the norms of business practices of time and place.

Procedural Unconscionability: if found then court will not enforce the unconscionable term, clause or the entire contract, procedural (process by which the contract was entered into is unconscionable) v. sustainable unconscionability (unfair term), would be during dealings between parties.

  • - Court looks at: fine print, buried terms, contract of adhesion with standardized terms, timing, education level, no time to read contract, etc.
    • - Courts say that there is a duty to read
  • - Inequality of bargaining power or lack of meaningful choice.

Substantive Unconscionability: deals with contract formation, means that the merits of the contract entered into are extremely unfair, look at actual terms of the contract.7 Factors for Determining Whether a Contract is Unconscionable:

  1. A standardized agreement executed by parties of unequal bargaining power (Procedural)
  2. Lack of opportunity to read or become familiar with the document before signing it (Procedural)
  3. Use of fine print in the portion of the contract containing the provision (Procedural)
  4. Absence of evidence that the provision was commercially reasonable (substantive)
  5. The terms of the contract (substantive)
  6. Relationship of the parties, including factors of assent, unfair surprise and notice (Procedural)
  7. All of the circumstances surrounding the formation of the contract (Procedural)

Graham v. Scissor-Tail, Inc. Plaintiff, a promoter and producer of concerts. Defendant corporation representing artists. Contract included arbitration clause. Multi-city tour met with mixed success. Dispute over whether losses from one concert could offset profits from another.

  • - Contract of adhesion - fully enforceable unless certain other factors are present, which, under established legal rules operate to render it otherwise.
  • - 'Rule: Two limitations: (1) contract that doesn’t fall within reasonable expectation of weaker/adhering party won’t be enforced against him; (2) contract will be denied enforcement if, considered in its context, it’s unduly oppressive or unconscionable.'
  • - Arbitration clause not in itself unconscionable because it is within plaintiff’s reasonable expectations, but arbitrator here would be biased - designated by the union.
  • - Contract unconscionable and unenforceable.

Williams v. Walker Thomas Furniture Company: Plaintiff purchasing furniture -- thought she was buying items but was actually “leasing” under contract. Monthly payments allocated pro rata - nothing would be paid off until everything is paid off.

  • - 'Rule of Unconscionability: absence of meaningful choice on the part of one party together with contract terms which are unreasonably favorable to the other party.'
    • - Terms of the contract are to be considered in light of the circumstances existing when the contract was made.
  • - Unconscionability is determined at time of contract formation.
  • - Plaintiff had little bargaining power and little real choice - hardly likely that their consent, or objective manifestation of consent, was ever given to all of the terms.
  • - Case remanded in light of DC Circuit’s determination that the law of unconscionability was applicable in DC, to apply the law to the facts.

Klar v. H&M Parcel Room, Inc. The corporation was in the business of parcel-checking. An individual acting on the litigants' behalf checked a package containing valuable fur skins. In exchange, the individual received a parcel check. Two days later the litigants went to the corporation's parcel room to retrieve the parcel. The litigants were told the package was delivered by mistake to another. The parcel check contained the words contract and no claim shall be made in excess of $ 25 for loss or damage to any one piece. The appellate court reduced the judgment in favor of the litigants from $ 939.50 to $ 25 on the ground the litigants were presumed to have had knowledge of the limitation of the corporation's liability. The court reversed, holding that in the absence of a special contract, express or implied, the corporation, a bailee, accepting baggage to be checked in its parcel room on payment of a nominal sum became a bailee for hire and was bound to exercise ordinary care in keeping and safeguarding the property. The court held that it could not be said that the acceptance of the parcel check by the litigants sufficiently brought to the litigant's attention the limitation of liability.Scott v. Cingular WirelessSale of cell phones. Arbitration clause with provision prohibiting class action - defendant to pay fees connected with arbitration (favorable to plaintiff, arbitration was to be local and if provision is invalid then the whole clause is invalid).

  • - 'Rule: majority hold that class action waivers are enforceable'
    • - But exculpation from any potential liability for unfair or deceptive acts or practices in commerce clearly violates public policy.
  • - Waiver effectively prevents one party from pursuing valid claims, because of small amount awarded in individual claims), effectively exculpating the drafter from potential liability for small claims, no matter how wide spread.
  • - Unconscionable and unenforceable.

Scott v. United States“... If a contract be unreasonable and unconscionable, but not void for fraud, a court of law will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to…”Brower v. Gateway 2000The purchasers alleged deceptive sales practices against the seller of computers and software products. The seller's procedure was to ship standard terms and conditions of the parties' agreement that included an arbitration clause to the purchaser. The court granted the seller's motion to dismiss based on the parties' valid arbitration agreement. The court modified the order that required arbitration before the International Chamber of Commerce because it found the cost excessive and that it deterred individual consumers from invoking the arbitration process. The arbitration clause was not invalid under U.C.C. § 2-207 because the clause was not a material alteration of an oral agreement, but rather one provision of the sole contract that existed between the parties. The contract was therefore outside the scope of § 2-207. The court held that an enforceable contract was formed only with the consumer's decision to retain the merchandise beyond the 30-day period specified in the agreement. Thus, the agreement as a whole, including the arbitration clause, was enforceable. Contract is unenforceable based on UCC §2-302. This is substantive.RULE: A commercially unreasonable contract is unconscionable and will not be enforced.Campbell Soup v. WentzAppellant, a corporation, entered into written contract with appellee farmers for delivery by appellee farmers to appellant of all of a certain type of carrot grown on fifteen acres of a farm during the 1947 season. The prices specified in the contract ranged from $ 23 to $ 30 per ton. After harvest, appellees told appellant that they would not deliver their carrots at the contract price because the market price at that time was at least $ 90 per ton, and such carrots were virtually unobtainable. Appellees then sold a majority of their carrots to appellee buyer, a neighboring farmer. Appellant, suspecting that appellee buyer was selling the carrots covered by the previous contract, refused to purchase any more, and instituted suit against appellees to enjoin further sale of the contract carrots to others and to compel specific performance of the contract. The trial court denied equitable relief. Appellant sought review. The court affirmed, finding that appellant was not entitled to specific performance under the contract because the contract was too one-sided to grant equitable relief, even though appellee farmers clearly breached the contract, and other remedies were unavailable.RULE: Specific performance may be awarded as a remedy for breach of a contract involving the sale of chattels if a legal remedy would be inadequate.AT&T Mobility v. ConcepcionConcepcions signed service agreement with Cingular Wireless, later Cingular purchased by AT&T Mobility. According to agrt, they got free phones, but were charged $30.02 sales tax for retail value of phones. [This is subject of lawsuit] Agreement contained mandatory arbitration clause, providing that all claims be brought by customers as individuals. They can initiate claims process by filing 1 page notice of dispute form; if parties can resolve dispute within 30 days it will go to arb, w/speedy, relatively easy method for resolution of disputes (on phone, in person, or by submissions) or as alternative, either P or ATT can bring claim in small claims court. AT&T can/seek its attorneys fees if it wins. If consumer receives more in arbitration than AT&T’s last written settlement offer, consumer will receive $7,500 min & 2x amount of attorneys fees. BUT all arbitration must be done on individual basis.Discover Bank v. Superior CourtsDiscover Bank rule is derived from Cal statute that says that cts may refuse to enforce any k to have been unconscionable at the time it was made or may limit the application of any unconscionable clause.” Same as UCC 2-302(1). Cal Sup Ct held, in Discover Bank, that when waiver is found in a consumer k of adhesion in a setting in which disputes bt contracting parties predictably involves small amounts of damages, and when it is alleged that party w/superior bargaining power has carried out a scheme to deliberately cheat large #s of consumers out of individually small sums of $, then… waiver becomes in practice the exemption of the party from responsibility for its own fraud, or willful injury to …another. T4 these waivers are unconscionable & should not be enforced.RULE: A classwide arbitration waiver in a consumer contract of adhesion is generally unenforceable.Performing in Good Faith: the implied duty of good faith in performance and enforcement of a contract -- also known as the implied duty of good faith and fair dealing in performance and enforcement -- is another term, added to the parties’ agreement both by the common law and the UCC. (Restatement §205 and UCC §1-304).

  • - Can’t be determined in the abstract -- has to be looked at under the circumstances
  • - First determined what “bad faith” is in a particular context, then you can figure out what “good faith” is.
    • - Acting in “bad faith” -- you’re in breach of contract.
  • - Should be able to rely on the promises in the contract.

Dalton v. Educational Testing ServiceSAT testing case. Plaintiff provided evidence he took the test and defendant still questioned validity.

  • - Nothing in contract compelled defendant to prove that the test taker cheated. Language put burden on test taker to overcome defendant’s finding of score invalidity. Contract required that defendant considered any relevant material that plaintiff supplied
  • - Rule: ETS has a duty to act in good faith.
    • - Consider plaintiff’s evidence. Don’t have to certify that he got the higher score.
  • - Defendant in breach. Failed to act in good faith by failing to determine validity of plaintiff’s score

Market Street Associates v. FreyJC Penny Sale and Leaseback → in consideration for financing, additional improvements, and if average annual appreciation was >6%, JC Penny could buy back property for market value. Lessee (successor to JCP) sought buyback 20 years later to use property to get financing elsewhere. Lessee requested to buy for $4,000,000. Defendant responded with $7,000,000 as minimum. JC wrote letter invoking buyback clause.

  • - Plaintiff admitted that it occurred to them that defendant may not have been aware of buyback clause (20 years later and defendant was under new management)
  • - Rule: Duty of good faith
  • - After case remanded for trial, the trial court found that plaintiff should have disclosed the buyback clause before exercising right to buy back property breached duty of good faith. Can’t take advantage of adversary’s oversight.

Richardson v. Mellish If a contract be illegal, it must be illegal either on the ground that it is against public policy, or against some particular law. I, for one, protest… against arguing too strongly upon public policy; -- it is a very unruly horse, and when once you get astride it you never know where it will carry you. It may lead you from the sound law. It is never argued at all when other points fail.''''Other Public Policy Reasons for Nonenforcement''''

  1. Illegal Contracts- contracts that violate specific laws (two exceptions are usury and gambling statutes)
  • - Remember Black Industries v. Bush- court held that a contract is void because it is against public policy if it is a contract to do an illegal act
  1. Judicially created public policy

Illegal ContractsProfessor Walter Gellhorn: “The judges are not bound to regard as void every contract which seems in some way to fall within the general aura of the criminal law, but only those whose enforcement, they are persuaded, after respectfully studying the ‘public policy’ involved, will deserve the general interest as it has been indicated by the legislature.”Bovard v. American Horse Enterprises, Inc. R bought defendant from plaintiff, signed promissory note but failed to pay. Signed promissory note but failed to pay. Defendant was a business manufacturing jewelry and drug paraphernalia.

  • - Restatement §178: public policy. Factors against enforcement of this contract are strong. Refusing to enforce present contract will further public policy by serving notice on manufacturers of drug paraphernalia that they may not resort to judicial system to protect or advance their business interest.
  • - No special public interest in enforcement of this contract, only the general interest in preventing a party to a contract from avoiding a debt.
  • - Parties should have been on notice of impending change in public policy
  • - Contract was illegal and void.

Moran v. HarrisAppellant attorney filed action for damages, alleging that respondent attorney failed to honor the parties referral fee contract. The trial court held the agreement unenforceable, but awarded appellant the reasonable value for his services actually rendered in the underlying medical malpractice case. While appeal was pending Cal. Bar R., Prof. Conduct R. 2-108 was amended to remove the prohibition against referral fee contracts. The court reversed and held that rule 2-108 indicated not only that referral fee agreements were no longer contrary to public policy prospectively from its enactment, but also that they were not contrary to public policy at the time the original contract at issue was entered into. The court noted the fact that the Legislature, the State Bar, and the California Supreme Court before 1972 did not see fit to prohibit referral fee agreements was significant.In Pari Delicto: in circumstances of equal fault, the position of the defendant is more compelling.

  • - A party in pari delicto may obtain restitutionary relief, alleviating the harshness that would result if parties to an illegal contract were always “left where they are found, to stew in their own juice”.
  • - Restitution is available to a party who would otherwise suffer a forfeiture that is disproportionate in relation to the contravention of public policy involved.

Early Detection Center Inc. v. Wilson The employer changed from a professional corporation to a general one, and the employee resigned to start the competing business. On appeal, the court held that the employer, as a general corporation, was unlawfully providing medical services. A professional corporation could engage in the practice of healing arts and could convert to a general corporation, but Kan. Stat. Ann. § 17-2708 did not authorize the practice of medicine by the employer or allow it to provide professional services under the supervision of a licensed practitioner. Because the employer was an existing corporation, it could not invoke the doctrine of corporation by estoppel to support its claims. Because general corporations could not provide medical services, the agreement between the employer and employee was illegal and unenforceable. The district court properly refused to enforce the illegal contract.

  • - While it may not always seem an honorable thing to do, a party to an illegal agreement is permitted to set up illegality as a defense even though the party may be alleging his or her own turpitude.

Clean Hands Doctrine: A principle that bars a party who has engaged in wrongful or dishonest conduct from obtaining equitable relief.

  • - Suites for equitable remedies such as specific performance and rescission are sometimes disposed of on the maxim, “he who comes into equity must come with clean hands”.
  • - Questions:
    • - How clean must the hands be?
    • - Is cleanliness a relative matter?
    • - Must there be a relation between the bad behavior and the suit itself?

North Pacific Lumber Co. v. OliverA lumber wholesaler sought to enforce a non compete clause against a former employee who had gone on his own in violation of the terms of the covenant.

  • - Employee argued that by engaging in unethical practices -- eavesdropping on clients’ in a scheme involving telephone calls and making improper profits on customer claims -- the employer had unclean hands and equitable relief should be denied.
  • - Wholesaler responded that the employee had engaged in some of the very practices complained about.
  • - The trial court dismissed the complaint and awarded the employee his attorney’s fees. Both sides appealed.
  • - Rule: The doctrine of unclean hands bars suits by a plaintiff whose improper conduct sufficiently affected the equitable relations between the parties such that the source of the plaintiff’s claim is tainted.

''''X.L.O Concrete Corp. v. Rivergate Corp. La Cosa Nostra. Plaintiff subcontractor. Defendant general contractor. Contract for construction of concrete superstructure and fills of NYC project. Plaintiff fully performed.

  • - Rule: a contract that is illegal on its face but doesn’t call for unlawful conduct in its performance is not voidable simply because it resulted from an antitrust conspiracy
  • - Building contract is not illegal but the bidding process was ripe with illegality.
  • - Public policy in favor of frustrating or discouraging unlawful schemes such as the club must not be depreciated
  • - Contract not so integrally related to agreement in restraint of competition.

Covenants not to Compete: Giving up freedom of acton/freedom to make a living. When in connection with a legitimate contract, they may be enforceable.Blue Pencil Rule: court can find some portions of the contract unenforceable but others are still enforceable.

  • - Ex: finding a contract enforceable as a whole but not the covenant not to compete.

Hopper v. All Pet Animal ClinicVet signed covenant not to compete → no small animal offices for three years and within 5 miles.

  • - Restatement §§185-188: 2 principles in tension: (1) freedom to contract and (2) freedom to work.
  • - Employer not entitled to protection against ordinary competition.
  • - Have to analyze reasonableness of all constraints in covenant (time, geography, scope)
    • - Counties in state are not small → 5 miles is not unreasonable; could stay in same county.
    • - Her degree didn’t limit her -- she could have operated a large animal office, so restricting scope was not unreasonable.
  • - Time limit of 3 years is unreasonable → 1 year would have sufficed.

Chapter 8- Performance and Breach[edit]

'Conditions: 'Restatement §224. An event not certain to occur that must occur, unless it's nonoccurrence is excused, before performance under a contract becomes due.

  • - Can be expressed or implied.
  • - Can elect to excuse the non-occurrence of a condition (waiver)

Effects of Conditions:

  • - Conditions are used to limit one party’s obligation so that if the condition does not occur then the promisor is not obligated to perform. This limitation is different from that in Options Contracts.
  • - Conditions are made by one person to another, and they operate to limit one party's promise.
  • - Express Conditions: three consequences of an express condition language in a contract
    • - Excuse of Performance: non-occurrence of a condition excuses any duty to perform
    • - Strict Compliance: occurrence of a condition requires strict compliance with the contract language of the condition
    • - No Breach: the non-occurrence of a condition is not a breach of contract
    • - Super simple example: contract for construction of a house. Plaintiff promises to build defendant’s house with express condition that owner obtain proper architectural drawings
      • - If defendant never obtains drawings, plaintiff is excused of all duty to perform
      • - Defendant is not in breach for not obtaining drawings.
    • - 'Restatement §225: Effects of the Non-Occurrence of a Condition: usually, the non-occurrence of conditions results in no further performance of the contract. It is up to the party who made the condition whether or not to go forward. Non-occurrence of a condition is not a breach of contract.'

Luttinger v. RosenPlaintiff buying house from defendant but added mortgage contingency for $45,000, less than or equal to 8.75% for 20 years. Bank offer met first two, but was for 25 years, so plaintiff gave notice of rejection. Defendant offered to make up the difference for the 25 years but plaintiff refused.

  • - Mortgage contingency- Express Condition
    • - Only limit’s plaintiff’s obligation to perform.
  • - Due diligence was met -- only applied to one bank, but it was the only bank that would offer a mortgage fitting their needs.
  • - Condition was not met and plaintiff was entitled to recover deposit.

Internatio-Rotterdam, Inc. v. River Brand Rice Mills, Inc. Plaintiff export, defendant rice processor. Entered agreement for sale of pockets with “shipment to be December 1952 with 2 weeks call from plaintiff.” Defendant sent $50,000 and received instructions from plaintiff on December 10, but defendant didn’t receive instructions for the rest before December 17.

  • - 'Promissory Condition- plaintiff promised to give notice, and defendant’s duty was limited under contract by the condition of plaintiff giving notice'
    • - Notice had to be on or before December 17 so rice could arrive in the two weeks and be delivered in December as per contract
  • - No election or waiver by defendant
  • - “Free on Board” → UCC §2-319(1) and “Free Along Side” → UCC §2-319(2)

''''Substantial performance- An equitable defense to breach of contract asserted by a party who has substantially performed their contract obligations prior to breaching the contract.''''Peacock Construction v. Modern Air Conditioning, Inc.Written subcontracts that defendant would make final payments within 30 days of completion IF owner has paid defendant. Plaintiff finished work but defendant never paid plaintiff because the owner never paid defendant.

  • - Contractual provision susceptible to two interpretations; (1) Condition - subcontract will be paid IF the owner has paid (general contractor) or (2) fixing a reasonable time for payment.
  • - 'General Rule: interpretation of a document is a question of law rather than of fact. Intent is most cases is that payment by owner to general contractor is not a condition to the general contractor’s duty to pay subs.'
  • - Court says provision was not a condition, but was fixing a reasonable time for payment.

''''Gibson v. CranageContract for plaintiff to create portrait of defendant’s deceased daughter. Needed to be “perfectly satisfactory” to defendant, or defendant had right to refuse, plaintiff finished portrait, but defendant didn’t find it satisfactory and refused, but couldn’t say why it wasn’t satisfactory.

  • - Plaintiff promised to paint portrait, defendant promised to pay.
    • - Express condition - as long as painting is perfectly satisfactory to defendant.
  • - Agreement doesn’t violate public policy and is free from all fraud/mistake. Could’ve been avoided → changing condition so a neutral third party would decide if the portrait was satisfactory.
  • - Would be governed by UCC today.

Waiver, Estoppel, and ElectionThe voluntary relinquishment of a known right. It can be unilateral and without consideration. If it is given without consideration, the waiving party may reinstate the rights that have been waived upon reasonable notice that gives a reasonable opportunity to comply.

  • - 'Restatement §150: The rule allowing reinstatement after waiver is qualified in that party may not retract a waiver if it would be unjust in view of the material change of a position by the other party in reliance on the waiver.'
  • - Where a party manifests an intention to perform his promise notwithstanding the non-occurrence of a condition to his duty the condition will be excused if it is not a material part of the agree exchange.
  • - 'UCC §2-209(5): “A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.”'

McKenna v. VernonPlaintiff, builder, defendant owner. Agreed that 1st 80% to be paid in installments, and remaining money within 30 days of completion. Contract had provision that architect certificate was to be a condition of each payment.

  • - Plaintiff promised to complete work. Defendant promised to pay.
    • - Condition → architectural certificate.
  • - 6/7 installments were paid without a certificate being requested.
    • - It is too late now for defendant to insist that plaintiff’s failure to acquire a certificate defeats his right of action.
  • - Defendant waived his right to have the condition satisfied.

''''Hicks v. BushMerging corporate interests into a single holding company. Completely integrated written agreement. Oral condition that limits obligation under writing becoming effective as binding contract.

  • - Parol Evidence Rule → trying to bring in extrinsic evidence of the oral condition not included in the written agreement
  • - Evidence of an oral condition is not to be excluded as contradictory merely because the written agreement contains other conditions.
    • - Evidence ot supplement
  • - Parol Evidence Rule does not bar evidence of a condition that limits contracts becoming effective.

''''Impact of Kingston v. PrestonThe impact of Kingston v. Preston is suggested by a hypothetical case stated in 1500 concerning a father who covenants to transfer an estate to his daughter and her husband-to-be, as part of a marriage settlement between the two men. According to the old text, even if the prospective husband is faithless -- “if I marry another woman” -- the father can be compelled to convey. The father’s remedy would be a separate action for damages for breach of contract. The result represents in an extreme degree the principle that mutual covenants are independent unless expressed to be otherwise; in current terms we might say that the marriage is not a constructive condition of the father’s promise. The result is otherwise, says the note, if the father’s covenant refers to the marriage promise as being made “for the same cause.”Kingston v. PrestonPlaintiff to work as an apprentice for defendant. Plaintiff was to pay monthly installments in exchange for defendant turning over business to him. Plaintiff didn’t make installments.

  • - Three types of covenants:
    • - Mutual and independent
      • - Either party may recover damages from the other for the injury he may have received by a breach of the covenants in his favor, and where it is no excuse for the defendant to allege a breach of the covenants on the part of the plaintiff.
    • - Dependent conditions
      • - The performance of one depends on the prior performance of another and, therefore, till this prior condition is performed, the other party is not liable to an action on his covenant.
    • - Mutual conditions to be performed at the same time
      • - If one party was ready and offered to perform his part, and the other neglected or refused his engagement, and may maintain an action for the default of the other; though it is not certain that either is obliged to do the first act.
    • - Before defendant delivered stock in business, he should have good security for payment of the money.
      • - Giving security -- condition
      • - Each party’s promise is a condition which must be satisfied before the other party has to perform. Only makes sense that plaintiff must perform first before defendant can hand over security.
    • - Promises, which are mutual conditions to be performed at the same time; and in these, if one party was ready and offered to perform his part, and the other neglected or refused to perform his, he who was ready and offered has fulfilled his engagement, and may maintain an action for the default of the other; though it is not certain that either is obliged to do the first act.

''''Stewart v. NewburyBuilder to do excavation for defendant. Nothing in writing about time frame or manner of payment. Plaintiff finished first floor and sent bill to defendant who refused to pay and plaintiff stopped work.

  • - Where contract is made to perform work and no agreement is made as to payment, the work must be substantially performed before payment can be demanded.
  • - Periodic payments/installments contracts are now the norm for construction contracts.

Morton v. LambA buyer of grain alleged that the seller had failed to deliver the grain, although the buyer was ready to receive it, the court upheld the seller objection that the buyer was ready to receive it, the court upheld the seller’s objection that the buyer had failed to allege that he was ready to pay for the grain.

  • - Where two concurrent acts are to be done, the party who sues the other for non-performance must aver that he has performed, or was ready to perform, his part of the contract.”

Specific PerformanceIn actions for specific performance, and especially those based on land-sale contracts, constructive conditions of exchange sometimes does not operate with the same effect as in ordinary damage actions. Because the remedy takes the form of an order, a court can insert a condition that effectively secures the receipt by the defendant of the plaintiff’s promised performance.McMillian v. SmithPlaintiffs, purchasers of a ranch, were uncertain what the per-acre price amounted to, in the aggregate. Upon making a deposit into court, they alleged their ability and willingness to pay “such further sum as the Court may order.”

  • - The court accepted this invitation saying “Historically, in a suit for specific performance, the question as to the necessity for a tender of performance by a purchaser has been determined according to equitable rules rather than to those applicable to an action at law. The latter requires the purchaser, as a condition precedent to tender performance. Courts of equity, on the other hand, have not been bound by strict and inflexible rules.”

'Jacob & Youngs v. KentContract to build home. Stated that plaintiff must use “Reading pipe.” about 3/5 were not Reading pipe.

  • - Omission was neither fraudulent nor willful.
  • - General rule of substantial performance: if a party substantially performs, then it is not a material breach.
  • - How court decides whether or not a particular promise is also a constructive condition of the other party’s duty to perform.
  • - Plaintiff would be forfeiting payment for work already done.
  • - 'Restatement §227- risk of forfeiture. Courts tried to construe language as a promise/covenant and not a condition in order to avoid forfeiture.'
  • - Plaintiff substantially performed. Concern of plaintiff forfeiting all work done.
  • - An omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by a forfeiture.
  • - The distinction is akin to that between dependent and independent promises, or between promises and conditions.
  • - Some promises are so plainly independent that they can never by fair construction be conditions of one another.
  • - Others, though, dependent and thus conditions when there is departure in point of substance, will be viewed as independent and collateral when the departure is insignificant.
  • - The specifications attached to the contract provided that where “any particular brand of manufactured article is specified, it is to be considered as a standard,” and that a contractor “desiring to use another shall first make application in writing to the the Architect and obtain their written approval of the change.”

Perfect Tender Rule: an offer to perform a condition or obligation coupled with the present ability of immediate performance and intent to effectuate payment, so that were it not for the refusal of cooperation by the party to whom tender is made, the condition of obligation would be immediately satisfied.

  • - UCC §2-601
  • - General Rule: A tender must be unconditioned, but a party may attach as a condition that upon which he or she has a right to insist.

Bartus v. RiccardiHearing aid case.

  • - 'UCC §2-508: changes the perfect tender rule. Permits seller to cure a non-conforming tender.'
    • - (1) plaintiff seasonably notified defendant of cure in letter.
    • - (2) plaintiff had reasonable grounds to believe defendant would accept the modified and improved model
  • - Plaintiff made proper subsequent conforming tender pursuant to UCC §2-508(2).

''''Gill v. Johnstown Lumber Co. Driving 4mil logs. Flood carried considerable proportion past delivery location. Defendant refused to pay for any logs, even the ones delivered properly.

  • - The consideration to be paid wasn’t an entire sum, but wasn’t apportioned among several items at specified prices.
  • - Contract dependent upon delivery of the goods at the designated place. This was a divisible contract.
  • - In contrast, progress payments (which are frequently used in construction contracts) don’t make a contract severable/divisible.

Ritchie v. Atkinson The master and freighter of a vessel of four hundred tons mutually agreed that the ship should proceed to St. Petersburg, and there load from the frighter’s factors a complete cargo of hemp and iron and deliver the same to the freighter at London on being paid freight for hemp £5 per ton, for iron 5¢ per ton, and certain other charges, one half to be paid on delivery and the other at three months. The vessel proceeded to St. Petersburg, and when about half loaded was compelled by the imminence of a Russian embargo freighter so much of the stipulated cargo as had been taken on board. The freighter, conceiving that the contract was entire and the delivery of a complete cargo a condition precedent to a recovery of any compensation, refused to pay at the stipulated rate for so much as was delivered.

  • - “The delivery of the cargo is in its nature, divisible and therefore I think it is not a condition precedent, but the plaintiff is entitled to recover freight in proportion to the extent of such delivery; leaving the defendant to his remedy in damages for the short deliver.”

Britton v. TurnerPlaintiff agreed to work for defendant for one year for $120. Plaintiff left after 9 months without consent from defendant. Sued for breach of contract and for quantum meruit.

  • - It has been held, upon contracts of this kind for labor to be performed at a specified price, that the party who voluntarily fails to fulfill the contract by performing the whole labor contracted for, is not entitled to recover anything for the labor actually performed, however much he may may have done towards the performance, and this has been considered the settled rule of law upon this subject.
  • - Can’t recover under contract because services weren’t performed.
    • - Unjust enrichment: defendant benefits from 9 months of work by plaintiff.
  • - Defendant arguing constructive condition -- defendant’s promise to pay is conditioned on plaintiff’s promise to perform the entire contract. Plaintiff must complete performance before defendant performs.
  • - Plaintiff can recover under quantum meruit for reasonable worth of his work and to avoid unjust enrichment of defendant.
  • - A party who contracts to perform certain specified labor, and who breaks his contract in the first instance, without any attempt to perform it, can only be made liable to pay the damages which the other party has sustained by reason of such non-performance, which in many instances may be trifling; whereas a party who in good faith has entered upon the performance of his contract, and nearly completed it, and then abandoned the further performance, although the other party has had the full benefit of all that has been done, and has perhaps sustained no actual damage, is in fact subjected to a loss of all which has been performed, in the nature of the damages for the non-fulfillment of the remainder, upon the technical rule, that the contract must be fully performed in order to sustain a recovery of any part of the compensation.
  • - When a party undertakes to pay upon a special contract for the performance of labor, or the furnishing of materials, he is not to be charged upon such special agreement until the money is earned according to the terms of it, and where parties have made an express contract the law will not imply and raise a contract different from that which the parties have entered into, except upon some farther transaction between the parties.
  • - If where a contract is made of such a character, a party actually receives labor, or materials, and thereby derives a benefit and advantage, over and above the damage which has resulted from the breach of contract of the other party, the labor actually done, and the value received, furnish a new consideration, and the law thereupon raises a promise to pay to the extent of the reasonable worth of such excess. This may be considered as making a new case, one not within the original agreement, and the party is entitled to “recover on his new case ,for the work done, not as agreed, but yet accepted by the defendant.”

Lantry v. ParksDefendant hired the plaintiff for a year, at ten dollars per month. The plaintiff worked 10.5 months and then left saying he would work no more for him. This was on a Saturday -- on Monday the plaintiff returned and offered to resume his work but the defendant said he would employ him no longer.

  • - The court held that the refusal of the defendant (plaintiff??) on Saturday was a violation of his contract, and that he could recover nothing for the labor performed.

Howard v. LeonardWhen a party contracts to perform certain work, and to furnish materials, as for instance, to build a house, and the work is done, but with some variations from the mode prescribed by the contract, yet if the other party has the benefit of the labor and materials he should be bound to pay so much as they are reasonably worth.''''Ellis v. HamlenIf the house has not been built in the manner specified in the contract, the work has not been done. The party has no more performed what he contracted to perform, than he who has contracted to labor for a certain period, and failed to complete the time.Kirkland v. ArchboldPlaintiff to make repairs on defendant’s house. Defendant to pay $1,000 every 10 days and $2,000 within 30 days of completion.

  • - Rule: refuse to permit plaintiff to found an action on provisions of a contract where he himself is in default.
    • - Exception: where plaintiff has substantially performed his part of the agreement.
  • - Unjust enrichment: where builder departs from terms of lump sum contracts, he is entitled to recover for labor and materials.
    • - 3 Exceptions
      • - Work done is of no benefit to owner
      • - Work done entirely different from work contracted to do.
      • - Abandoned work and left it unfinished.
    • - Plaintiff failed to substantially perform (didn’t follow instructions). Can still recover fair market value of work under quantum meruit.

''''R.E. Davis Chemical Corp. v. Diasonics Inc.

  • - UCC §2- 718(2), which gives a defaulting buyer a right to restitution, follows the trend set by the Britton v. Turner. The Code provision was examined in E. Davis Chemical Corp. v. Diasonics Inc., where the court explained that absent proof of Diasonic’s damages as a lost volume seller, Davis would have been entitled to the return of all but $500 of it’s $300,000 down payment.
  • - If a seller delivers part of the goods contracted for, and defaults as to the rest, having received no payment, is the seller entitled to the price fixed by the contract for the goods delivered, or to the amount by which the buyer is enriched? See UCC §2-607(1).
  • - Under the Uniform Commercial Code, a lost volume seller may recover as damages the profit it lost from the buyer’s breach upon establishing that it would have been profitable to both produce and sell the additional product that the buyer failed to purchase.

''''Walker & Co. v. HarrisonWritten contract for plaintiff to provide a neon sign for dry cleaners. Plaintiff agreed to service and maintain sign. Defendant paid one month’s lease and told plaintiff of issues to repair/clean and wrote telegram saying he wouldn’t pay when work wasn’t done.

  • - 'Restatement §241: cobwebs were not out of reach, rain should’ve washed away most of the tomato, and not must rust can accumulate in such a short amount of time. '
  • - Plaintiff could have made maintenance an express condition on plaintiff paying.
  • - Plaintiff’s failure to maintain sign was not a material breach. So defendant’s failure to pay constitutes a material breach.

K&G Construction Co. v. HarrisPlaintiff owner/general contractor of subdivision project. Defendant subcontractor for excavating/earth moving. Bulldozer operator drove too close to plaintiff’s house causing damage. Defendant and insurance refused to pay.

  • - Modern rule: presumption that mutual promises in contract are dependent and are to be so regarded whenever possible.
    • - Independent: Promise for Promise
    • - Dependent: performance for performance.
  • - Material breach: damage to wall amounted to more than double the payment due. Plaintiff permitted defendant to continue work → treating breach as partial.
  • - Mutually dependant promises. Defendant’s 2nd breach of walking off job rendered him liable to plaintiff for increased cost of excavation.

Hindrance and Prevention:

  • - The conduct of one party to a contract which prevents the other from performing his part excuses his nonperformance.
  • - Where the insurer’s failure to pay is a breach of the insurance contract, the courts generally do not limit the doctrine of prevention to conduct in bad faith.

Cooperation:

  • - Often in construction cases: can’t work effectively until site is provided and prepped appropriately.
  • - Enthusiasm isn’t required in performing contractual obligations.

''''Iron Trade Products Co. v. WIlkoff Co.Contract for defendant to deliver section relaying rails, but defendant failed to deliver any.

  • - No understanding that defendant was to get rails from any particular source. Supply VERY limited. Only two places in United States.
  • - Rule: mere difficulty of performance will not excuse a breach.
  • - Defense claiming hinderance not sufficient. Defendant breached.

''''Anticipatory Repudiation

  • - It’s advance announcement of breach, which would be material, but it hasn’t happened yet.
    • - Promisor may still be able to perform contractual obligations, notwithstanding their vigorous insistence that they won’t.
  • - Permit aggrieved party to declare a total breach and therefore to end its own obligations.
    • - Non-repudiating party can claim damages for total breach.
  • - To establish in all states except for Massachusetts.
    • - Explicit statements
    • - Behaving in a way inconsistent with the contract.
  • - Possible for a promisor to retract its anticipatory repudiation, if done within a reasonable time.
    • - Reasonable time ends when the aggrieved party materially changes its position in reliance on the repudiation.
  • - Exception: if injured promise has completely performed his part of the contract, and the only other part left is to pay in an installment contract, then the doctrine won’t help the injured promisee because he still has to wait until each date of installments and t o see breach.
    • - Can add acceleration clause to address exception: if you breach then everything becomes due.
  • - Restatement §§250-257; UCC §§ 2-609, 2-610, 2-611

Hochester v. De La TourDefendant to employ plaintiff as a courier at 10 pounds/month. Sent letter to plaintiff changing his mind and declining plaintiff’s services. Plaintiff found another job but it didn’t start until a month later.

  • - Rejects old rule that in an agreement with an act to be done on a future day, no action can be brought for breach until the day for doing the act has arrived.
    • - The man who wrongfully renounces a contract into which he has deliberately entered cannot justly complain if he is immediately sued for a compensation in damages by the injured party.
  • - Explicit anticipatory repudiation, plaintiff can recover.

Acceleration Clauses: A term in an agreement that requires a party to make future payments before they are due if the party breaches the agreement (e.g., if a tenant misses a rent payment).

  • - UCC §1-309 imposes limits on a party’s right to accelerate payment “at will” or “when he deems himself insecure,” but not in the event of a default.

''''McCloskey & Co. v. Minwell Steel Co. Plaintiff general contractor, defendant subcontractor. 3 contracts for defendant to furnish all of the long span steel joists. Provision stated that if defendant failed, plaintiff could provide two days written notice to provide materials, or to terminate defendant’s employment. Plaintiff sent letter threatening to terminate, defendant responded stating difficulty of obtaining steel in light of the outbreak of the Korean War.

  • - Plaintiff claiming defendant’s letter was anticipatory repudiation.
    • - But, defendant’s letter conveys no idea of repudiation; defendant simply stated inability to provide assurances.
    • - Plaintiff eliminated any chance of obtaining the steel.
  • - Not anticipatory repudiation.

''

Chapter 9: Basic Assumptions: Mistake, Impracticability and Frustration[edit]

''''Pacta Sunt Servanda: background principle against which mistake doctrine operates.

  • - Agreements must be kept.
  • - Agreements are to be observed pacta sunt servanda notwithstanding the regret the party might experience when new information comes to light.

Mistake: when a party’s nonperformance is impeded, or when a party’s expectations are seriously thwarted by circumstances existing but unknown to at the time they enter into contract.

  • - Plaintiff must show:
    • - Party seeking rescission was mistaken regarding a basic assumption upon which the contract was made.
    • - The mistake materially affected the performance specified by the terms of the contract in a way that was adverse to that party
    • - The party didn’t bear the risk of the mistake, AND
    • - In light of the mistake, enforcement of the contract would be unconscionable.
  • - Restatement §153

''''Sumerel v. Goodyear Tire and Rubber Co.Products liability action against the defendant. Jury found defendant 36% responsible for “costs and losses” of two families, and 48% responsible for “other costs and losses” of the other two families. Lawyers for plaintiffs and defendants reached agreement as to accrual dates for damages, but calculated award amount differently -- plaintiff calculated an amount about 6 figures smaller than the defendant ($550,000) because defendant calculated liability as 100% rather than 36% and 48%. Plaintiff treated defendant’s calculation as offer and accepted it. Defendant then realized error and attempted to correct. Plaintiff moved to enforce “settlement agreement”.

  • - Defendant wasn’t making an offer to settle at all -- this was just a mathematical calculation of damages.
  • - Rule on offer and acceptance: an offeree may not snap up an offer that is on its face too good to be true.
    • - Plaintiff immediately recognized defendant’s error but accepted anyway → acting in bad faith.
  • - Restatement §§ 153 and 154
  • - Defendant acted in good faith and made a mistake. If a mistake of one party is known by the toher, the mistaken party can avoid.

''''Mutual Mistake: both parties are mistaken as to the same basic assumption.

  • - Party bears the risk of a mistake when:
    • - The risk is allocated to him by agreement of the parties
    • - He is aware, at the time the contract was made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient. (conscious ignorance) OR
    • - The risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so (Restatement §154)
  • - Restatement §§152 and 154

''''Stees v. LeonardContract between plaintiff and defendant to build a multi-story building. Defendant built three stories and building fell. Defendant did it again but it fell again. Defendant then refused to perform. There was quicksand on property making soil incapable of sustaining the building.

  • - Rule: if one binds themselves by a positive, express contract, to do an act in itself possible, they must perform their engagement, unless prevented by an act of God, the law or other party.
  • - Defendant contracted to build the complete building, whatever was necessary to be done to do so, defendant was bound by the contract to do so.
  • - Could have inserted a condition into the contract that the land must be able to be built upon; or a condition for which who would have to remedy the land, or a promise by plaintiff to drain the land.

United States v. SpearinThe government hired the contractor to build a dry dock, which ultimately required a change in the contract to allow for his relocation of a sewer, but the government did not tell him about a defect in a part of the sewer. When the sewer broke and flooded the dock excavation site, he refused to continue the dock construction until the government assumed responsibility for the existing and future damage from the sewer. After the government took over the project and had it completed by another builder under revised plans, the contractor brought a suit to recover the amount that he spent on the project and to recover damages for the contract's annulment. The court affirmed the award by the court of claims in favor of the contractor and found that the government breached its implied warranty that the sewer would be adequate if the contractor complied with the government's specifications in relocating the sewer. When the government annulled the contract without justification, it became liable for all damages resulting from its breach. As for the damage award, the annulment entitled the contractor to compensation for the government's breach, and the award was proper.

Ridley Investment Co v. CrollThe purchaser entered into an agreement with the contractor to build a post office. The contractor encountered problems with the soil and presented such problems to the purchaser. On the first occurrence, the purchaser agreed to undertake more expensive construction, but, on the second occurrence, the purchaser allegedly refused to authorize additional supports. The trial court entered judgment for the contractor in the purchaser's claim to recover the costs of repairs. On appeal, the court affirmed the decision of the trial court. The court held that mere inconvenience or substantial increase in the cost of compliance would not excuse a promisor from the duty to perform his contractual obligations. The court held that the contractor was not liable for the damage occasioned by the defect in the specifications furnished by the purchaser since the contractor performed his work without neglect and in a workmanlike manner. The court concluded that the purchaser's conduct during the construction period indicated that it understood that it had the responsibility to change the specifications to provide additional support but that the purchaser chose not to do so.Performance Specification: requires a contractor to produce a specific result without specifying the means for achieving that resultDesign Specification: specifies the design, materials, and methods and impliedly warranties their adequacyRenner v. KehlPlaintiff to purchase land from defendant. Plaintiff made it clear the purpose of the purchase was to cultivate jojoba (which requires a lot of water). Both parties believed that there was sufficient water available beneath the land.

  • - Rule: mutual mistake of fact is an accepted basis for rescission
    • - 'Restatement 152: needs to be a mutual mistake of a material fact which constitutes an essential part and condition of the contract.'
    • - When a party rescinds due to material mistake, they are entitled to restitution for any benefit they conferred onto the other party by way of part performance (here → the fair market value of the performance) or reliance.
  • - Plaintiff had right to rescind. So plaintiff gives back leasehold (for fair market value for the time they occupied it). The defendant gives back down payment.

Wood v. BoytonThe seller sold a stone to the buyers, partners in a jewelry business, for one dollar. Neither the seller nor the buyers knew what the stone was or what its value was. The seller later determined that the stone was a diamond worth about $ 700 and tendered to the buyers one dollar plus interest, but they refused to return the diamond. The seller filed an action to recover possession of the diamond. The court affirmed the trial court's entry of a directed verdict for the buyers, holding that the only reasons for rescinding a sale was fraud or mistake in that the article delivered was not the article sold. The court determined that the seller failed to make out a case for either reason for rescinding the sale.

  • - Rule: A party may rescind a contract for the sale of a good if she can establish either fraud or mistake.
  • - Preceded UCC

''''Sherwood v. WalkerPlaintiff contracted to buy a cow from defendant for a sum to be determined after the cow was weighed. When defendant refused to deliver the cow, plaintiff brought a replevin action, arguing that title had passed. Judgment was entered for plaintiff, and defendant appealed. The court reversed and ordered a new trial. While the court agreed with plaintiff that there were no conditions precedent to the passage of title, defendant could avoid the contract under the theory of mistake. Here, both parties believed the cow to be barren when they discussed the price, but it was later learned by defendant that the cow was pregnant, and therefore, worth a lot more. This fact was a material issue and went to the substance of the contract. Where there was mutual mistake as to the substance of the contract, defendant had a right to rescind.

  • - When a contract is made based on the mutual mistake of the parties that relates to a material fact such as the subject matter of the sale, the price, or some other fact which materially affects the agreement, the parties may rescind the contract once they learn of the mistake.
  • - Preceded UCC

''''Impracticability: Supervening event, the nonoccurrence of which was a basic assumption of the contract, impedes one party’s performance under the contract.

  • - Insufficient to assert that performance is merely more difficult, or more costly than anticipated.
  • - Impracticable if:
    • - There must be an occurrence of a condition, the nonoccurrence of which was a basic assumption of the contract (implied condition)
    • - The occurrence must make performance extremely expensive or difficult
    • - This difficulty was not anticipated by the parties.
  • - Excuses performance of a duty, where that duty has become nearly unfeasible or expensive for the party who was supposed to perform.
  • - UCC §§ 2-613, 2-614 and 2-617
  • - Restatement §261

Mineral Park Land Co. v. Howard Contract for sale of gravel to be extracted from plaintiff’s land. defendant agreed to take all necessary in construction of fill & cement work of bridge. defendant didn’t take all – only took all available by ordinary means

  • - Rule: a thing is impossible in legal contemplation when it isn’t practicable
    • - A thing is impracticable when it can only be done at an excessive & unreasonable Cost
  • - When defendant agreed to take all earth & gravel needed, plaintiff & defendant assumed that the land contained the requisite quantity, available for use
  • - defendant’s performance was excused under doctrine of impracticability

Impossibility: change in circumstances (or the discovery of preexisting circumstances), the nonoccurrence of which was an underlying assumption of the k, that makes performance of the k literally impossible

  • - Parties can choose to ignore by including a “Hell or High Water” Clause: mandates that payments continue even if completion of the k becomes impossible
  • - To raise defense of impossibility: must be no way for performance to be accomplished
    • - The mere fact that performance is difficult or unexpectedly costly is not sufficient

Tayler v. Caldwelllease of music hall and garden. Music hall burned down before first day of lease.

  • - Rule: Restatement §261
  • - If performance depends on the continued existence of a person or thing, and that person
    or thing ceases to exist, then a condition that the person or thing continue to exist is
    implied by the law of impossibility of performance & both parties are excused from the contract
  • - Because the music hall ceased to exist at no fault of either party, both parties are excused
    from the contract

Transatlantic Financing Corp v. US transport full cargo of wheat to Iran. Normal route is to take Suez Canal but they ended up having to take the Cape of Good Hope.

  • - Defense of Impossibility of using Suez Canal
    • - Something unexpected must have occurred – shut down of Suez Canal
    • - Risk of unexpected occurrence must not have been allocated by either agreement or custom
    • - Occurrence of contingency must have rendered performance commercially impracticable – FAILED TO MEET
      • - Cape route was generally seen as an alternative – still able to deliver wheat
    • - UCC §§2-614 & -615
    • - Neither impossible nor impracticable. Parties duties not excused
    • - Ct was concerned about π seeking recovery in quantum meruit in addition to payment
      received under k

Foreseeability: The ability to reasonably anticipate the potential results of an action, such as the damage or injury that may happen if one is negligent or breaches a contract''''Opera Company v. Wolf Trap FoundationThe obligor challenged the order of the district court, which dismissed their impossibility of performance defense and entered judgment in favor of the obligees in a breach of contract action between the parties. The court reversed and remanded the judgment of the district court and held that the district court should not have dismissed the obligor's defense merely because it found that the event, which prevented the obligor's performance, was foreseeable. Foreseeability was at best but one fact to be considered in resolving how likely the occurrence of the event in question was and whether its occurrence was of such reasonable likelihood that the obligor should not have merely foreseen the risk but, because of the degree of its likelihood, the obligor should have guarded against it or provided for non-liability against the risk. This was a question to be resolved by the trial judge after a careful scrutiny of all the facts in the case. The trial judge had made no such findings. Therefore, it was necessary to remand the cause for such findings.Risk Bearing Analysis

  1. If the parties had the mischance in mind during their negotiations, as a possibility, they would have assigned the risk to the superior risk bearer -- possibly adjusting the price or another term to balance that assignment
  2. For the court to make the same assignment would spear the parties the cost, time, and effort of negotiating the position they would prefer.

Selland Pontiac-GMC Inc. v. King sale of school bus bodies from defendant to plaintiff. In reliance on contract, plaintiff ordered 4 chassis from another company. defendant aware plaintiff needed them by August for school. Defendant’s supplier never manufactured buses.

  • - Supply of bus bodies by defendant’s supplier was a basic assumption of the contract
    • - Became impracticable when defendant ceased manufacturing
  • - Neither party knew of questionable financial circumstances of defendant at contract formation, & defendant didn’t expressly assume risk of company ceasing production
  • - UCC §2-615
  • - This was impracticable and unforeseeable

Peterson v. Johnston The purchaser, who was an attorney experienced in real estate matters, bought a double bungalow located about 400 feet east of a state highway. During the time the purchaser was inspecting the property, construction was taking place on the highway. The purchaser claimed that he asked the broker what the vacant lot next to the bungalow was going to be used for and the broker said it was going to be used as a park. The broker denied the conversation. The transaction was closed, the purchaser moved in, and the vacant lot was used as an access to an interchange to the highway. The purchaser said the value of the lot had fallen. The broker's witness testified the property was valued at about the same amount as the purchaser paid for it. In affirming the judgment of the district court, the court held that the conclusions of law and the accompanying memorandum of the district court sufficiently explained the basis of its decision. Where it appeared that the decisive issues had been decided by the district court without a jury, the court was not required to reverse simply because the district court might have gone into more detail in the explanation of its findings.Barbarrossa & Sons v. Iten ChevroletAppellant seller challenged an order which entered judgment for appellee buyer in an action for breach of contract for appellant's failure to deliver a truck to be used in appellee's business. On appeal, the court affirmed and ordered remittitur. The court found that the manufacturer's cancellation of the order was not a contingency the non-occurrence of which was a basic assumption on which the contract was made. Instead, the court found that the manufacturer's possible cancellation of this order was one of those varieties of foreseeable risks which the parties had tacitly allocated to appellant by its failure to provide against it in its contract. The cancellation was therefore not a contingency which could excuse the seller's performance under Minn. Stat. § 336.2-615. The damages actually incurred for the loss of use of a truck and depreciation loss on the old truck were properly recoverable items of damages resulting from appellant's breach. The court found an absence of any evidence in the record to support the trial court's award of consequential damages totaling $ 1,440 for the 48 hours that an old truck was not working.

  • - A partial failure of a seller’s source of supply generally has been treated as a foreseeable contingency, the risk of which is allocated to the seller absent a specific provision to the contrary in the contract.

''''Force Majeure Clauses: essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond control of the parties prevents one or both parties from fulfilling their obligations

  • - War, strike, crime, riot, volcanic eruption, earthquake, flooding, hurricane
  • - In practice, most don’t excuse a party’s non-performance entirely, but only suspend it for
    the duration of the force majeure

OWBR LLC. V. Clear Channel Communications, Inc. Defendants argued that, in the wake of September 11, 2001, it was "inadvisable" to travel to or to hold events in Hawaii five months after the terrorist attacks. The company argued that the actual reason that the subsidiary cancelled the event was because of the economic downturn, which although due in part to September 11, was too attenuated from the events of September 11 to excuse performance under the contract's force majeure clause. The court found that the force majeure clause did not contain language that excused performance on the basis of poor economic conditions, lower than expected attendance, or withdrawal of commitments from sponsors and participants. Thus, the force majeure clause did not excuse the subsidiary's breach. The court further found that the liquidated damages clause was enforceable. However, based on the conflicting evidence concerning the amount of anticipated and actual damages the company suffered as a result of the breach, there was a genuine issue of material fact concerning the figures essential to the court's determination of whether the amount fixed by the liquidated damages clause was reasonable.Kama Rippa Music, Inc. v. SchekerykPlaintiff sought specific performance of its recording agreement with defendant for an order of partial summary judgment against it. The court entered an order that granted defendant declaratory and injunctive relief, which was requested in her two counterclaims. The court found plaintiff failed to pay royalties to defendant within the time limitations established by the parties' contract, the court declared the rights to compositions submitted by defendant under the contract had reverted to her and enjoined plaintiff from representing that it retained any interest in these compositions. Defendant appealed. One issue on appeal was whether plaintiff's failure to fulfill its part of the agreement was excused due to impossibility of performance. Here, the court determined that since a court order, an attachment of plaintiff's indebtedness to plaintiff, was procured by plaintiff, a defense of impossibility was audacious and frivolous. The court affirmed the judgment.Rothenberg v. Lincoln Farm Camp, Inc. Plaintiff appealed from summary judgment dismissing his complaint for breach of one-year employment contract. The contract provision stated that either party could terminate the contract before expiration for eight specific reasons and "any other reason" with two weeks notice and severance. Defendant terminated plaintiff's employment and gave him a check. The court held that summary judgment was not appropriate as both plaintiff's and defendant's interpretations of the phrase "for any other reason" were reasonable and a question of fact for a jury. The clause could have meant that the employment was terminable at will or could have meant for any other similar reason as those enumerated. Also, the court held that further proceedings were necessary to determine applicability of New York law that employment contracts for definite terms could not be terminated prior to expiration without just cause unless contract provided unequivocally that employer could terminate without cause and pay penalty. The court reversed and remanded.Eastern Air Lines v. McDonnell Douglas Corp.A corporation entered into a contract with an airline manufacturer in which the airline manufacturer contractually agreed to make 100 jet planes to assist in the corporation's technological conversion. Conflict arose when the transfer of the commercial planes commenced several years after the agreed upon delivery time. Specifically, the corporation brought collective breach of contract actions against the airline manufacturer asserting that it was entitled to substantial damages. A jury trial progressed, and the airline manufacturer was found without any reasonable excuse for the delay. On appeal with the United States Court of Appeals for the Fifth Circuit, the airline manufacturer challenged the decision, asserting that the Defense Production Act of 1950 (DPA), allowed it a late delivery where national security was prioritized

  • - It is not enough under U.C.C. § 2-607 that a seller has knowledge of the facts constituting a nonconforming tender; he must also be informed that the buyer considers him to be in breach of the contract. The Uniform Commercial Code's notice requirement, then, is applicable to delivery delays as well as other breaches.

Seitz v. Mark-O-Lite Sign ContractorsPlaintiff general contractor and defendant sign company executed a contract for defendant to perform work on the marquee of a theater that plaintiff was restoring. The contract contained a force majeure clause that excused any failure of performance caused by strikes, fires, floods, earthquakes, or other acts of God. After the contract was executed, defendant's expert sheet metal worker, a diabetic, was hospitalized for the amputation of his foot. Defendant informed plaintiff it could not do the work and returned plaintiff's deposit. Plaintiff obtained another firm to do the work and brought a breach of contract action against defendant that sought damages in the amount of the difference between defendant's bid and the amount charged by the replacement firm. The matter was submitted for the court's determination and the court entered judgment in favor of plaintiff. The court held that the illness of defendant's employee was not an event within the meaning of the force majeure clause, and that defendant could not prevail on a defense of impossibility of performance because the contract did not require performance by a specific individual.Canadian Industrial Alcohol Co. v. Dunbar Molasses Co.plaintiff purchased molasses from defendant. Specified type of molasses & from specific refinery. defendant only shipped 300k out of the 1mil. Defendant didn’t make contract with refinery

  • - No reason to imply a condition when Δ didn’t make any reasonable efforts to ensure adequate quantity
  • - defendant put its faith on the mere chance that the output of the refinery would be the same from year to year
  • - No implied condition. Failure of source of supply was foreseeable & therefore defendant’s performance not impracticable

Krell v. Henryrented flat for coronation of Edward VII. No express reference to coronation or any other purpose of the flat.

  • - Rule: if the purpose of the contract is frustrated by an occurrence of an unforeseeable event, then the performance can be excused, even if performance remains possible
  • - Whether the event causing the frustration of purpose was the subject matter of the contract, & whether it was or might have been anticipated and guarded against
  • - Needed to make necessary inferences – look at substance of contract. whether substantial k needs for its foundation the assumption of the existence of a particular state of things
  • - Can’t reasonably be supposed to have been in contemplation of the parties that the coronation would not have been held on the particular days – not foreseeable
  • - Frustration of purpose. Obligations discharge

Lloyd v. MurphyPlaintiffs leased property to defendant in 1941 to sell cars. In 1942, the government restricted car sales because of the war. Defendant repudiated his lease, and plaintiffs brought a declaratory judgment action to determine whether defendant's obligations under the lease were terminated by the government's restriction on car sales and, if not, to recover unpaid rent. The lower court found for plaintiffs. On appeal, the court affirmed. The doctrine of frustration is limited to cases where the frustrating event was unforeseeable and the value of the bargained-for item is totally destroyed. In 1941, defendant was able to foresee the war and its consequences for car production. The value of defendant's lease was not wholly destroyed by the government restrictions because defendant was still permitted to sell some cars and could use the premises for other purposes. Thus, defendant was not entitled to relief from his lease.''''Swift Canadian v. Banet sale of lamb pelts. US imposed stricter regulations on imports. Defendant refused to accept delivery & refused to pay. contract provision that neither party is to be liable for order/acts of government

  • - plaintiff’s part of agreement would have been fully performed when the goods were delivered free on board in Toronto (UCC §2-319)
    • - title and ownership passes to buyer when seller delivered FOB
  • - Buyer could have changed shipment location to any other destination in the world
  • - Not impracticable & no frustration of purpose

Chapter 7: Remedies for Breach[edit]

'The common courts did not generally grant specific relief for breach of contract. The usual form of relief at common law was substitutional, and the typical judgment declared that the plaintiff recover from the defendant a sum of money.Specific Performance: equitable remedy that orders the breaching party to do what it promised to do/agreed to do in the contract.

  • - Proper remedy for breach when:
    • - Legal/monetary damages would be inadequate to uphold the expectations of the injured party AND
    • - The subject matter of the particular contract is unique and has no established market value.
  • - Usually unavailable where legal damages (usually monetary) are adequate to remedy the breach.
  • - In a contract for the sale of land: specific performance can be awarded without having to show that legal damages would’ve been adequate.
  • - Impossibility is a defense to specific performance: court won’t require an impossible act.
  • - 'UCC §2-716: specific performance may be decreed where the goods are unique.'
  • - Test for uniqueness: whether goods are replaceable as a practical matter (whether it would be difficult to obtain similar goods on an open market)
  • - 'Restatement §376: a promise to render personal service will not be specifically enforced.'
    • - If plaintiff agrees to perform for service for defendant but then breaches and tries to perform the same service for someone else instead.
      • - Negative injunction: stop defendant from performing service for someone else.
    • - Negative Injunction v. Specific Performance: injunction stops someone from performing, while specific performance forces someone to perform.

Campbell Soup Co. v. WentzSpecial carrots. Plaintiff to get all defendant’s carrots at end of season. Defendant sold to third party who then resold to plaintiff. Plaintiff ended up paying more than contract price.

  • - Carrots unique - color/texture/shape. Unavailable on open market - lack of certainty (might not be the same carrots).
  • - Plaintiff had contracted with defendant long ahead in anticipation
  • - Plaintiff seeking specific performance.
  • - Cort denied specific performance. Although carrots were unique, contract to one sided as to be enforceable via specific performance, because it was unconscionable

Mitchell- Huntley Cotton Co. Inc. v. WeldrepThe sellers were farmers who contracted to provide the buyer with all of the cotton they grew in a particular year at a specified price. Because of a shortage, the price rose, and the sellers brought a state court action to have the contracts declared null, void, and unenforceable. The buyer brought an action seeking enforcement of the contracts. The court concluded that the buyer was entitled to the relief requested in his complaint. The sellers alleged that they entered into the contracts in reliance upon misrepresentations made by or on behalf of the buyer, but the court found that the sellers' evidence failed to establish the alleged misrepresentations and that the sellers suffered no detriment. The court determined that the contracts were not for "personal services" and that, therefore, the assignment of the contracts from the buyer as a joint venture to the buyer as a corporation was permitted. Finally, the court considered whether the landlords of some of the sellers had a lien on the sellers' crops. The court determined that the contracts provided that the buyer took title to the crops regardless of claims of any landlords.''''Klein v. PepsiCo Inc. Purchase of a jet. PepsiCo chose to back out. Plaintiff attempted to cover but was planning on reselling the jet and the other jets were too much money so he wouldn’t profit.

  • - Seeking specific performance for defendant to sell jet to plaintiff.
  • - 'UCC §2-716 to see if specific performance is proper'
    • - Jet is not unique
  • - Specific performance is not proper. Money damages would have sufficed.
    • - UCC §§2-712 (cover) and 713 (difference between contract price and market price)

''''Morris v. SparrowCattle ranch owner hired defendant to work on ranch and train horse and in return would give defendant the horse. Paid defendant but didn’t deliver the horse.

  • - Rule: equity will enforce contract for sale of chattels where special and particular reasons exist that render it impossible for injured party to obtain relief by way of damages.
  • - Specific performance allowed. Horse unique → defendant trained the horse (sweat equity/ sentimental value)

Negative Injunctions: A court order, requiring a party not to do something or stop doing something it was engaged in.Lumley v. WagnerA contract which arose out of a contract in which Johanna Wagner, an opera singer from the court of Prussia, agreed to sing exclusively for Benjamin Lumley, proprietor of Her Majesty’s Theatre in London for a period of three months. When Frederick Gye, the proprietor of the Royal Italian Opera in London, persuaded Wagner to break her contract and sing at his theatr, Lumley obtained an injunction restraining her from doing so. On appeal, the Lord chancellor upheld the injunction.

  • - A court of equity may impose a negative injunction on an individual, preventing her from doing something.

''''Laclede Gas Co. v. Amoco Oil Co. Defendant to supply propane gas to plaintiff to supply to communities while waiting for natural gas lines to be installed. Defendant promised to provide all of plaintiff’s requirements. Agreement gave right to cancel but not defendant. There was a shortage of propane and the posted price increased by 3 cents. Plaintiff objected and defendant terminated agreement.

  • - Defendant alleged lack of mutuality -- plaintiff had power to terminate, but plaintiff had no comparable way to terminate.
  • - No requirement in the law that both parties be mutually entitled to specific performance.
    • - Mutuality of remedy is not a defense.
  • - Can’t estimate in advance how much propane will be required for the next 10 years. (difficult to calculate monetary damages)
  • - Specific performance allowed

''''Norther DE Industrial Development Corp v. E.W. Bliss CompanyDefendant (general contractor) contracted with plaintiff will modernize plant. Work didn’t progress as rapidly as contract anticipated so plant sought order to have defendant put 300 more workers on the job (which was provided for in the contract) to make up for a full second shift while one of the plaintiff’s mills shut down.

  • - Plaintiff seeking specific performance for defendant to put 300 more workers on the job.
  • - Shouldn’t order specific performance when it would be impracticable to carry out such order unless there are special circumstances or the public interest is directly involved.
    • - Court doesn’t want to oversee enforcement.
  • - Specific performance not allowed.
    • - Money damages will be adequate because after the fact it can be calculated → how quickly factory could’ve been completed with more workers and lost profits during the time it took defendant to complete.

Floyd v. WatsonThe purchasers filed an action against the builders to force completion of a house and conveyance of property to them. The builders failed to build the house according to the agreement. The trial court granted the purchasers' second suit seeking specific performance of the settlement agreement. The order required the builders to complete construction. The builders did not comply with the order. After denial of their request for a jury trial on the contempt, and after a hearing, the trial court found them guilty of contempt, ordered them to build the house, and provided for a graduated fine to increase in amount as long as they failed to commence work. After a second hearing, the purchasers were again found in contempt and a stay of execution was granted pending appeal. On appeal, the court affirmed the trial court. The court held that the builders had all the procedural safeguards including adequate notice and reasonable opportunity to be heard, assistance of counsel, a record of the proceedings, and application of the criminal rules of evidence. However, the court held that the jail sentence was inappropriate because the order did not allow the builders to purge themselves.Walgreen Co. v. Sara Creek Property Co. Lease in a mall. Terms stated that mall can’t lease another store in the mall to a pharmacy. Defendant mall informed plaintiff that it intended to lease another store with a pharmacy. Plaintiff sought injunction.

  • - Seeking injunction: 2 benefits: (1) burden of determining cost of defendant’s conduct from court to parties and (2) prices and costs are more accurately determined by market than government.
  • - Damages would be too uncertain (lost profits/etc. Over a long time period).
  • - Damages would have been insufficient. Trial court ordered permanent injunction against defendant until end of lease term, affirmed.

Northern Indiana Public Service Co. v. Carbon County Coal Co. Appellant electric utility contracted with appellee coal mine operator to purchase coal at a set price and quantity. The state public service commission ordered appellant to make "economy purchase orders" from other utilities. Appellant stopped accepting deliveries and sought a declaratory judgment to have contract performance excused. Appellee counterclaimed for breach of contract, seeking specific performance. The court awarded damages to appellee for the breach. Appellant sought review, alleging the court erred in refusing a continuance, that the contract was illegal because appellee violated Mineral Lands Leasing Act of 1920, 30 U.S.C.S. § 202, and that the economy purchase orders frustrated appellant's contract performance. Appellee challenged the denial of specific performance. The court affirmed, holding that the court committed no error in denying the continuance, any violation of the statute was harmless, the frustration doctrine did not excuse performance of a fixed price contract, and the damage remedy was adequate.Bilateral Monopoly: two parties can only deal with each other.Monetary Damages: measured by the amount necessary to put the promisee in as good a position as performance of the contract would have.

  • - 'Restatement §347: how to measure the expectation interest. '

Damages- loss in value + other loss - cost and loss avoidedVitex Manufacturing Corp v. Caribtex CorpAppellant cloth importer entered into a contract with appellee manufacturer to process appellant’s woolen material at a certain price. Appellee made the necessary preparations to perform its end, but no goods were forthcoming from appellant. Appellee then brought a suit to recover the profits lost due to appellant's breach of contract. A district court, sitting without a jury, determined that appellant breached the contract and awarded appellee damages for loss of profits. On appeal, appellant sought review of the district court’s judgment and argued that overhead costs should have been deducted from appellee's damages. The appellate court affirmed the district court’s judgment.

  • - Overhead should be treated as a part of gross profits and recoverable as damages, and should not be considered as part of the seller's costs.

Laredo Hides Co., Inc. v. H&M Meat Products Co., Inc. 'Sale of cattle hides from defendant to plaintiff who ships to mexico to tanneries. Written output contract for all of defendant’s production. Plaintiff sent check in mail, but it was delayed. Defendant gave plaintiff hours to give money -- it wasn’t delivered on time so defendant saw this as a breach and cancelled the contract. Court finds defendant breached and plaintiff can recover damages.

  • - UCC §2-712'- buyer may have damages by making it in good faith and without unreasonable delay, any reasonable purchase of, or contract to purchase good in substitution for those due from seller.'
    • - Plaintiff did cover -- acted promptly and reasonably. Market price steadily increased.
  • - Plaintiff can recover damages -- incidental damages (UCC §2-715)

R.E. Davis Chemical Corp v. Diasonics, Inc. Written contract for purchase of MRI from defendant. Plaintiff paid $300,000. Third party to plaintiff breached, then plaintiff breached and refused to take delivery or pay any balance owed. Defendant resold to third party.

  • - Lost volume seller - one that has a predictable and finite number of customers and that has the capacity either to sell to all new buyers or make the one additional sale represented by resale after breach.
  • - Defendant claiming that they could have made 2 sales, to the plaintiff and third party.
  • - Defendant had to establish that it had the capacity to produce breached unit and unit sold and that it would have been profitable for it to have produced and sold both and it probably would have made additional sale absent buyer’s breach (this may be difficult for new seller to show).
  • - UCC §2-708
  • - Defendant is a lost value seller. Remanded to establish above so that it fits under 2-708(2)

'Losing Contracts:U.S. v. Algernon Blair, Inc. Defendant (general contractor), plaintiff (subcontractor) to build naval hospital. Plaintiff supplied cranes. Defendant breached by refusing to pay for crane rental. Plaintiff stopped working after 28% complete. If a plaintiff had kept working it would have lost money by performing contract.

  • - Quantum meruit → plaintiff asking for fair market value of its work (not suing on contract)
  • - Rule: standard for measuring the reasonable value of service rendered is the amount for which services could’ve been purchased from one in plaintiff’s position at the time and place the services were rendered.
  • - Plaintiff entitled to quantum meruit.

United States for Use of Susi Contracting Co. v. Zara Contracting Co. Plaintiff construction companies entered into a subcontract with defendant construction company to build an extension to an airport as called for by a main contract with the United States. Plaintiffs encountered unexpected soil conditions which made progress of their work difficult, and required work not called for by the contract. Plaintiffs made demands on defendant for extra money, which was denied. Plaintiffs brought suit against defendant company and surety under the Miller Act, 40 U.S.C.S. § 270a et seq., for wrongful termination of subcontract. Plaintiffs sought recovery for the reasonable cost and value of the actual work performed, and the fair and reasonable rental value of the equipment for the period of use. Defendants filed a counterclaim for breach of contract by plaintiffs. The trial court found in favor of plaintiffs and defendants appealed. Plaintiff also appealed the recovery of allowance as insufficient. The court affirmed judgment for plaintiffs and modified the allowance for an increase for the fair rental value of equipment. The court held that plaintiffs' recovery should have been valued by the amount of services and materials used for part performance.

  • - The promisee upon beach has the option to forego any suit on the contract and claim only the reasonable value of his performance.

Jacoby and Youngs v. KentThe rule that gives a remedy in cases of substantial performance with compensation for defects of trivial or inappreciable importance has been developed by the courts as an instrument of justice. The measure of the allowance must be shaped to the same end.''Advanced, Inc. v. WilksThe parties contracted for the construction of an elliptical earth-sheltered concrete house, but the homeowners were unsatisfied with the workmanship. The contractor asserted that the jury's damage award was excessive and based on erroneous instructions. The court affirmed the judgment of the trial court. The jury had specifically found that the contractor had not substantially performed and that it would not have been impractical and grossly wasteful to repair the house. The contractor asserted that the jury should have used the value measure of damages and awarded the difference between the value of the house as promised and the present value of the house. The jury correctly found that it could not determine the value of the house when constructed without resorting to impermissible speculation. The homeowners had the option to recover restitution rather than damages, and sufficient evidence supported the jury's rejection of evidence that the house could have been replaced for $ 95,000. The trial court's refusal to exclude expert testimony due to the homeowners' refusal to supplement interrogatory answers was not reversible error because it offered the contractor a recess.Gory Associated Industries v. Jupiter Roofing and Sheet MetalAppellant tile manufacturer sought review of an order that resulted in a judgment against him. Appellees, roofing company and homeowners, had entered into an agreement for the installation of new roof for which appellant would provide the roofing tile. A substitute tile was used. The tiles became discolored and appellees filed an action for damages. Damages were awarded to appellees. Appellant contended that the award of damages should not be for replacement and had to be measured in terms of the diminution of the value of the house based on the discolored tile, if the roof were satisfactory. The trial court found that cost of replacement was an appropriate measure of damages. The court affirmed in part and reversed in part. The court held that there was sufficient evidence to support the trial court's conclusion that the roof was defective and in need of replacement and that the trial court did not abuse its discretion. However, the award could not be for the repair of leaks because nothing in the record supported the amount allegedly required to repair them. Appellees' damages were the amount necessary to make the building conform to the specifications ordered.Cost of Depletion and Diminished Value: if value lies in having the contract performed, then award the cost of performance.

  • - If it is unclear, the injured party may choose, subject to the caveat that cost of performance will not be given if economic waste is involved.
    • - Destroying already built structures (Remember Jacob & Youngs; not that the case involved 2 separate issues:
      • - (1) did Jacob and Youngs substantially perform the contract or did they materially breach and
      • - (2) in light of their breach how should the damage be measured?

Groves v. John Wunder Co. Sale of gravel. Defendant only removed richest and best gravel and left ground graded unevenly.

  • - Willful breach.
  • - Objective of contract was the improvement of real estate.
  • - There can be no unconscionable enrichment when the result is but to give one party to a contract only when the other had promise.
  • - Cost of completion is the correct measure of damages here.

Elliott v. CaldwellBuilders agreed by contract to build a house for the purchasers for a specified sum. After a dispute arose, the builders sued to recover on the contract, alleging that they had fully performed by constructing the house according to modified specifications allegedly agreed upon by the purchasers. The purchasers contended that the builders made numerous material and substantial deviations and departures from the contract by using different and inferior and defective material and doing different and inferior work from that called for in the specifications. The trial court found in favor of the purchasers, and on appeal, the court affirmed the judgment. It held that the builders could not recover on the express contract, because the evidence showed that they had not performed as agreed. The court also held that the builders had not brought themselves within the rule of substantial performance, because the omissions and deviations were substantial and could not be remedied without tearing down and rebuilding the structure. The court further held that the builders never raised the issue of implied contract in their pleadings or at trial and thus could not raise it on appeal.''''Snider v. Peters Home Building Co. The owners had a verdict in an action to recover damages for the failure of the builder to construct a house in accordance with the contract between them. The builder appealed from the order denying its motion for a new trial. The court reversed. The court held that the evidence was sufficient to require a submission of the question of substantial performance. However, the jury was only instructed as to one measure of damages, compensatory. The court found that it was the law of Minnesota that the builder who had in good faith substantially performed, though there were minor defects, if they were of a character which may be so remedied that the owner would have that for which he contracted, could recover on the contract the agreed price less such sum as would cure the defects. The jury was not instructed on this measure of damages and should have been. Failure to do so was reversible error.

  • - Even in case of substantial performance in good faith, the resulting defects being remediable, it is error to instruct that the measure of damage is “the difference in value because the house as it was and as it would have been if constructed according to the contract.” The “correct doctrine” is that the cost of remedying the defect is the “proper” measure of damages.

''''Chamberlain v. ParkerThe lease conveyed to the recipient all the interest in premises and left in them no reversion but a right of entry merely on breach of condition subsequent. It was not denied that the recipient wholly failed to perform his agreement to sink a well on the demised premises and he became by such default liable to an action for a breach of the agreement. The court affirmed, finding that the grantor was entitled only to nominal damages. Under the rule that in an action of covenant by lessor against lessee for non-repair of the demised premises under an unexpired lease, the proper measure of damages was not the amount required to put the premises in repair, but the amount in which the reversion was injured by the premises being out of repair.

Seely v. Alden The water power owners brought an action to recover damages against the tannery owner for throwing tan-bark into the stream. The water power owners asserted that the tan-bark was carried downstream, was deposited into the mill pond, and interfered with their use of the water. The tannery owner admitted trespass and his liability for nominal damages; however, he alleged that other tanneries also discharged tan-bark into the pond. The trial court instructed the jury that the water power owners were entitled to nominal damages and that the jury was not permitted to use the value of the real estate before and after the alleged injury. On appeal, the court reversed because the trial court erred in confining the proof of damages to the mere use of the water. Because the water power owners owned the property and were in actual possession and use, they had a right to all the damages flowing directly from the tort of the tannery owner. Also, the trial court erred in refusing to admit other methods of computing permanent damages to measure the damages by the different values of the land, with and without the deposit, and to measure the damages by the cost of removing the deposit.Morgan v. GambleThe contractor brought a scire facias sur mechanic's claim against the owners to enforce the payment of a balance alleged to be due for the construction of a house. The work was done under a written contract providing that the contractor would furnish all the materials and perform all the work to the satisfaction of the owners. The defense was that the contractor had not completed the work to the satisfaction of the owners or in substantial compliance with the contract. The trial court entered judgment for the contractor, and the owners appealed. The court reversed the judgment, holding that: (1) testimony that there was only one kind of gas in the borough, that a differently constructed chimney was equally as good as that stipulated for, and that the paint used by the contractor was of the same or a better quality than that provided in the agreement should have been excluded because the owners had a right to insist upon substantial performance of the express stipulations of the contract; and (2) the good faith of the owners in becoming dissatisfied with the contractor's work and the question of substantial performance were for the jury.


H. P. Droher & Sons v. Toushin The landowners hired the contractor to build their house according to plans. The contractor sought to recover for labor and materials, but the landowners recovered for damages for the contractor's failure to perform the work to specifications. On appeal, the court reversed. The court ordered a new trial on the issue of damages for failure to construct house in workmanlike manner according to plans and specifications on the condition that the contractor consent to waive taxation of costs and disbursements on appeal. The evidence was not sufficient to sustain the trial court's findings on the value of the house if properly constructed. The landowners presented no evidence. The court ruled that the evidence sufficiently supported the trial court's finding that the yard was not graded to specifications. A great deal of water entered the basement. The court ruled that the evidence sustained the finding that the house was not built in a workmanlike manner. The floor was not level. The court ruled that in view of the extensive damage which would have occurred as a result of any effort to correct the defects, the difference-in-value theory was properly applied.=

Peevyhouse v. Garland Coal and Mining Co. Plaintiff leased farm to defendant to strip mine coal. Defendant agreed to restore/remediate work at end but failed to do so.

  • - Plaintiff claiming damages should be cost of completion. Defendant claiming diminution of value.
  • - Rule: cost of completion is proper in construction contract if it is possible and doesn’t involve unreasonable economic waste.
    • - Diminution of value is proper in construction contract if contract and completion of contract would involve unreasonable economic waste.
  • - Look at relationship between expense involved and end to be obtained.
    • - Ordinarily: cost of performance. But where merely incidental to main purpose, and economic benefit that would result by full performance is grossly disproportionate to cost of performance, then diminution of value.
  • - Court held diminution of value
    • - DV= $300
    • - Completion: $25,000

Limitations to Damages Avoidability: when the breach itself results in a saving of some cost that the injured/non- breaching party would have incurred if he had to perform, they avoid the contract.

  • - When calculating damages, cost avoided should be subtracted from the loss in value. (ex: if breach saved $15,000 but loss in value was $20,000 → would recover $5,000)

Virtue v. Bird The plaintiff contracted to carry goods to Ipswich and to deliver them to a place to be appointed by the defendant. When the plaintiff arrived in Ipswich however, “the defendant delayed by the space of six hours the appointment of the place; insomuch that his horses being so hot… and standing in aperto aere, they died soon after.” The court denied him recovery of this loss on the ground that “it was the plaintiff’s folly to let the horses stand,” for he “Might have taken his horses out of the cart, or have laid down the goods anywhere in Ipswich.”Rockingham County v. Luten Bridge Co.Defendant to construct bridge. Plaintiff breached by notifying defendant not to proceed but defendant continued anyway.

  • - Plaintiff had no right to rescind -- breach.
  • - After defendant received notice, it was it’s duty to do nothing to increase the damages.
  • - If it is an avoidable cost after knowledge of other party’s breach, it should be avoided.
  • - Defendant not entitled to damages for work performed after notification of plaintiff’s breach.

Mitigation and Contracts for the Sale of Goods: The non- breaching party has no duty to mitigate damages that may incur from the breach but if they fail to do so, the breaching party cannot be charged with them.

  • - If one does not mitigate they can’t recover damages for doing work or not accepting a substitute transaction that would have reduced damages.
  • - Failure to mitigate damages is an affirmative defense. Defendant has burden of proof.
  • - An injured party is required to exercise reasonable diligence and ordinary care in attempting to minimize damages after injury has been inflicted.
  • - The breaching party cannot assert failure to mitigate when by its words or actions it has led the nonbreaching party to believe that it has assumed what would otherwise be the buyer’s burden of mitigation.
  • - However, there comes a point at which even unequivocal promises by the breaching party cannot be uncritically relied upon and the injured party is once again responsible for mitigating damages.

Howard v. Daly T he employer alleged that the employee made and maintained no proper tender of service of the contract. The employee signed an acceptance letter after the employer offered employment at his theater. The employee testified that she placed the acceptance letter in the letter-box of the employer at the theater. The court held that the minds of the parties met when the employee complied with the usual, or even occasional, practice and left the acceptance in the place of deposit that was recognized as such by the employer. The court determined that the deposit in the box was an overt act that showed the concurrence of the minds of the parties. There was enough evidence to show that, in the ordinary course of business, the letter addressed to the employer by the employee was likely to have reached him. Accordingly, the refusal of the employer to recognize the contract was equivalent to a refusal to continue the employee in the employment and the employee had no duty to have been ready to perform.

  • - Rejected “constructive service”
  • - This doctrine is, however, so opposed to principle, so clearly hostile to the great mass of the authorities, and so wholly irreconcilable to that great and beneficent rule of law, that a person discharged from service must not remain idle, but must accept employment elsewhere if offered, that we cannot accept it. If a person discharged from service may recover wages, or treat the contract as still subsisting, then he must remain idle in order to be always ready to perform the service. How absurd it would be that one rule of law should call upon him to accept other employment, while another rule required him to remain idle in order that he may recover full wages. The doctrine of "constructive service" is not only at war with principle, but with the rules of political economy, as it encourages idleness and gives compensation to men who fold their arms and decline service, equal to those who perform with willing hands their stipulated amount of labor.

Parker v. Twentieth Century-Fox Film Corp.Shirley McClain. Declined other movie offer because it was a Western in Australia.

  • - General Rule: injured party has no duty to mitigate. But prudent party will look for alternative substitute transaction because loss avoided will be deducted from damages.
  • - The two movies in this case cannot be seen as equivalents or substitutes. Plaintiff entitled to damages.
  • - The measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment.

Delliponti v. DeAngelis The guest was injured when she fell down a flight of stairs while visiting a tenant at the landlord's rooming house. The guest filed a personal injury action against the landlord, alleging that the landlord breached his duty to use reasonable care to keep the stairwell properly lighted. The trial court found in the guest's favor. The landlord appealed, arguing that the trial court erred by refusing to find the guest guilty of contributory negligence as a matter of law. The court affirmed the judgment. The court rejected the landlord's contention that the guest was contributorily negligent because she descended the stairs with full knowledge of the inadequate lighting conditions. The court found that the question of contributory negligence was properly submitted to the jury, noting that the guest's mere use of the common area did not constitute contributory negligence as a matter of law, despite the guest's knowledge of the lighting conditions. The court noted that in cases where reasonable men could have honestly differed as to the facts or the inferences to be drawn from therefrom, both negligence and contributory negligence were questions for the jury.S.A. Healy Co. v. Milwaukee Metropolitan Sewerage DistrictAppellant sewage authority challenged the judgment of the lower court which entered a judgment in favor of appellee contractor on its breach of contract claim. Appellee sought to recover the increased cost of construction due to unforeseen difficulties that arose after construction had began. The court affirmed the judgment in favor of appellee because it found that the lower court did not err in the application of state law or in determining that the construction contract was ambiguous. The court held that the contract was ambiguous and that extrinsic evidence was admissible to disambiguate it. The court held that the existence of contract ambiguity was an issue of law to be decided by the lower court and not an issue of fact for the jury. The court concluded that the lower court properly instructed the jury as to the mitigation of damage issue and that the lower court judgment was properly entered on behalf of appellee.'Voorhees v. Goyan Machinery Co. The former employee signed a non-competition agreement when he was hired by the company. After the former employee resigned, he began working for a competitor of the company. The company's chairman, who was a defendant in the action but not party to the appeal, alerted the competitor of the non-competition agreement and threatened legal action. As a result, the former employee was fired and he filed suit against the company and its chairman. On appeal, the court held that the company's affirmative defenses were insufficient to reverse the jury's finding that the company's actions constituted tortious interference. The evidence established that there was no legitimate business interest to protect by enforcing the noncompetition agreement. The fact that the jury found that the chairman acted for a legitimate business purpose was not inconsistent with a finding that the agreement was unenforceable. Punitive damages were also properly awarded because malice was inferred from the company's threats to enforce the agreement. The former employee's refusal to accept a subsequent job offer from the employer did not constitute a failure to mitigate damages.

  • - An offer of reemployment will mitigate damages only if the offer is made without prejudice to the employee's rights under the original contract. Thus, an offer by an employer to take his employee back in a position of a substantially lower grade and character from that from which he was discharged cannot be used to mitigate damages. Likewise, an offer of reemployment by an employer will not diminish the employee's recovery if the offer is not accepted if circumstances are such as to render further association between the parties offensive or degrading to the employee.

Shea-S&M Ball v. Massman-Kiewit-Early One contractor sued another for damage caused by the other’s failure to control groundwater and prevent a sewer from overflowing. Court found that the trial court erred in stating that the plaintiff had not properly mitigated for damages. The defendant had the responsibility of controlling the water runoff and had the same opportunity as the plaintiff to prevent the damages.

  • - Though the law does not permit an injured party to stand idly by, accumulating damages, when certain obvious, reasonable steps, if taken, would have greatly reduced the damages, the law does not penalize the nonbreaching party in the type of situation that is before this court.

Simone v. First Bank National Association Appellant purchaser made an agreement with appellee bank to buy automobiles and parts that had been repossessed. Debtor instituted a civil action against appellee, and obtained a temporary restraining order to prevent the sale to appellant. Appellee then agreed to sell debtor the automobiles and parts in exchange for dismissal of the suit, and appellant filed a suit for breach of contract and fraud. The trial court granted summary judgment to appellee, but the judgment was vacated. On remand, the trial court held that appellee's conduct was not fraud, and the jury found for appellant on breach. Appellee filed a motion for a new trial, but it was denied. Both parties sought review. The court affirmed the jury's determination and award of compensatory damages to appellant because he could enforce his claim under the express terms of the contract with appellee. The court reversed the jury award of incidental damages because it represented a double recovery, in that it compensated appellant for the difference between the contract price and the price he actually paid, even though he was compensated for that difference through both the compensatory and consequential damages awards.Foreseeability: A standard for assessing whether a particular act was realistically anticipatable so as to be deemed the proximate cause of an injury.Hadley v. BaxendaleCrank shift broke and shipped for repair. Wasn’t returned in a reasonable time due to defendant’s negligence. Plaintiff’s mill was shut down for 5 days.

  • - Rule: where two parties made a contract that one has broken, the damages should be such as may fairly and reasonably be considered either arising naturally or such as may reasonably supposed to have been in the contemplation of both parties at the time they made the contract.
    • - If at the time the contract, the party is not aware of the consequences of the breach, they are not liable for those damages.
  • - Restatement §351 and UCC §2-715
  • - Lost profits cannot reasonably be considered a consequence of breach as they were not within contemplation of plaintiff and defendant.

Sundance Cruises Corp v. American Bureau of Shipping Appellant cruise lines filed suit against appellee classification society, alleging tort and contract claims after a vessel recently inspected and certified by appellee sank due to defects that if discovered during inspection would have prevented issuance of the certification. The trial court granted summary judgment to appellee, and the court affirmed, holding that the Bahamian Merchant Shipping Act of 1976 § 279 immunized appellee for its actions performed for the Bahamian government. The court held that the district court was proper in dismissing all of appellants' tort and contract claims against appellee because Bahamian law immunized appellee, not as a matter of respondeat superior, but directly, for its good-faith conduct in issuing the statutory safety certificates. The court held that appellants did not provide any evidence that it suffered damage from appellee's issuance of the classification certificate and that appellant could not create a condition of unseaworthiness, exercise all control over the reconstruction and servicing of the vessel and then burden appellee with liability that was 700 times that of the fee for the classification contract.''''St. Paul Structural Steel Co. v. ABI Contracting, Inc. Plaintiff sued defendant for sales contract breach. Parties disputed payment terms. Lower court, after finding parties failed to reach agreement on payment-retainage terms, concluded that under Minn. Stat. § 336.2-310, plaintiff was entitled to receive full payment for materials three days after delivery to defendant. Both parties appealed. Court noted since parties disagreed on contract terms, conflicting terms cancelled out, and contract consisted of terms upon which both parties had expressly agreed together with terms supplied from relevant provisions of Uniform Commercial Code (UCC). Court, after reviewing transactions between parties and relevant UCC provisions, concluded lower court's analysis in construing agreement was fundamentally correct but lower court unnecessarily supplied terms involving progress payments different from those upon which parties had agreed. The only term under which parties failed to agree was that of retainage. Thus, based upon court's interpretation of contract, defendant only breached contract by failing to pay retainage.

  • - Interest payments incurred as a result of a buyer’s breach of a sales agreement do constitute incidental damages.

Reynolds Metal Co. v. Westinghouse Electric Corp. Seller of a transformer failed to provide a competent engineer to install it. Buyer was limited to “difference- in- value losses” based on the fee that the competent engineer would have charged and could not recover consequential damages for the cost of repairing the damage to the transformer caused by the breach.Marcus & Co. v. K.L.G. Baking Co. Appellant equipment dealer sued to recover damages for alleged breach of contract for the sale and delivery of four used baking ovens that appellant alleged respondent baker agreed to deliver on or before a specified date. The written letters of confirmation did not specify a date certain for delivery. Appellant relied upon an "oral contract" for the sale and delivery of the ovens, with time of the essence in the contract. Appellant claimed it had defaulted on the performance of a third-party resale contract due to respondent's late delivery of the ovens and thereby suffered special damages. The trial court nonsuited appellant and awarded a judgment to respondent on the counterclaim. On appeal, the judgment of nonsuit was affirmed. The court found that at the time of the making of either of the two contracts with respondent, appellant did not have an existing subcontract for the resale of the equipment, and at no time did appellant disclose to respondent that appellant wanted the ovens for immediate resale delivery. Appellant's loss was not found to be reasonably foreseeable to respondent or within the contemplation of both parties at the time their contracts were formed.''''Mieske v. Bartell Drug Co. Plaintiffs took previously developed home movie film to defendants for splicing and editing. Defendants gave plaintiff a receipt that contained the language: "We assume no responsibility beyond retail cost of film unless otherwise agreed to in writing." Defendants lost the film, and plaintiffs sought damages in excess of stated limitation on liability. Judgment was awarded to plaintiffs in excess of the market value of the film, and defendants appealed. The court held that the market value of the replacement was not a proper remedy because plaintiffs lost the film with pictures, and market value replacement would give them only the cost of the film. The proper standard of recovery for destruction of personal property having no market value and incapable of replacement was the intrinsic value of the property. The court also held Wash. Rev. Stat. § 62A.2-102 applied to bailment transactions. Application of the Uniform Commercial Code required the court, as a matter of law, to determine whether the exclusionary clause was unconscionable. The court agreed that the clause on receipt was unconscionable and invalid.

'Brown v. Fritz The buyer sued the sellers for misrepresentation of title, misrepresentation of the condition of the property, and negligent infliction of emotional distress, all in connection with the parties' contract for the purchase and sale of the sellers' real property. A jury rendered a verdict for the buyer and, among other things, awarded her damages for negligent infliction of emotional distress. On appeal from the award of those damages, the court ruled that the trial court erred by permitting the buyer's claim for emotional distress to be presented to jury. The court ruled that emotional distress was not proper basis for recovery in action such as the buyer's in which a party sought damages for breach of contract. The court concluded that if the sellers' misconduct in not repairing defects to the property as promised and secretly conveying a portion of the land to a third party was sufficiently outrageous, the proper remedy would have been an award of punitive damages.'Certainty: A limitation on compensatory damages for breach of contract, which allows recovery only of those damages that are clearly ascertainable and reasonably certain.Fera v. Village Plaza, Inc. 10 year lease of mall- defendant lost plaintiff’s lease and leased to another tenant. Defendant offered plaintiff another shop by plaintiff refused.

  • - A lot of testimony at trial on damages (the profit the plaintiff could have made) and jury’s verdict was within range testified to.
  • - Defendant claiming uncertainty because plaintiff’s business was so novel so there was no baseline.
    • - Difference between new business and interrupted business.
  • - Lost profits should be calculated.

Shropshire v. Adams

  • - Future profits as an element of damage are in no case excluded merely because they are profits but because they are uncertain. In any case when by reason of the nature of the situation they may be established with reasonable certainty they are allowed.
  • - Corbin: If a business is one that has already been established a reasonable prediction can be made as to its future on the basis of its past history. If the business has not had such a history as to make it possible to prove with reasonable accuracy what is profits have been in fact, the profits prevented are often but not necessarily too uncertain for recovery.


Liquidated Damages: Specified damages negotiated as a contract term, as opposed to having a court figure them out after breach.

  • - Only enforceable if it isn’t a penalty (contract law doesn’t permit punitive damages).
    • - Restatement §356 and UCC §2-718
  • - Generally, parties to a contract are free to stipulate in advance an amount to be paid as compensation for loss.

Dave Gustafson & Co. v. StateState highway parallel to old. Plaintiff delayed 67 days and defendant withheld from final price under liquidated damages clause of contract. ($210 per day).

  • - Test: liquidated damages usually sustained if, at time of the contract, damages will be incapable or difficult to accurately estimate, reasonably endeavor by parties to fix fair compensation, and amount stipulated bears reasonable relation to probable damages.
  • - Not a penalty
    • - Daily rate clauses are typically ok
    • - States want to incentivize timely work on part of contractor.

Pribe & Sons v. United StatesThe United States initiated a program to purchase dried eggs to ship to England and Russia. The supplier agreed to furnish dried eggs to the Federal Surplus Commodities Corporation (FSCC). The contract provided for liquidated damages for a delay in delivery or failure to have the egg products inspected before the delivery date. The supplier made a timely shipment, but the FSCC determined that the inspection certificates were not delivered until after the delivery and deducted liquidated damages from the supplier's payment. The supplier filed suit to recover the funds withheld, but the trial court dismissed the action, holding that there had been a breach of contract for which the United States was entitled to "liquidated damages." On appeal, the Court reversed, holding that the liquidated damage provision was not a reasonable forecast of just compensation for damage caused by a breach of the contract. In reversing the judgment, the Court concluded that where Congress had not adopted a different standard, the principles of general contract law applied to government contracts.

  • - When liquidated damages are fair and reasonable attempts to fix just compensation for anticipated loss caused by breach of contract, they are enforced… they serve a particularly useful function when damages are uncertain in nature or amount or are unmeasureable, as in the case in many government contracts.

Lake River Corp. v. Carborundum Co. Plaintiff to provide distribution services for defendant’s Ferro Carbo. Defendant insisted plaintiff install a new system and plaintiff agreed but insisted on a “minimum quantity guarantee” so he could recover cost of a new system plus a 20% profit, court deciding what Illinois court would hold.

  • - This liquidated damages clause always gives plaintiff way more than its actual damages (100% - 400% more)
  • - This was a penalty. Clause always gives plaintiff a huge profit.
    • - Because this liquidated damages clause is unenforceable as a penalty, case will be remanded to determine monetary damages -- expectation

Prenalta Corp v. Colorado Interstate Gas Several gas sellers filed an action against a gas purchaser alleging that the gas purchaser breached take-or-pay contracts and take-and-pay contracts by paying the escalated base price for deregulated gas instead of a redetermined price resulting from a gas shortage. The gas purchaser counterclaimed requesting a refund of payments made in excess of the escalated base price. The district court granted summary judgment to the gas purchaser. On appeal, the court held (1) there was sufficient evidence to raise a factual question regarding the gas purchaser's waiver of any right to a refund, (2) there was sufficient evidence to raise factual questions of whether the gas seller lacked knowledge of the facts and was unable to discover them and if it detrimentally relied on the gas purchaser's conduct thereby making the gas purchaser estopped from a refund of excess payments, (3) the take-or-pay contracts specifically provided for damages as a remedy upon breach of the contracts, (4) in the absence of a contracted remedy in the take-and-pay contracts, the gas seller's remedy for breach was provided by the available seller's remedies under Wyo. Stat. Ann. § 34.1-2-703 (1991).

In re Cellphone Termination Fee Cases The court held that the federal Communications Act, 47 U.S.C. § 332(c)(3)(A), did not preempt application of California law to the carrier's ETFs. A contractual agreement to replace a calculation of actual damages with liquidated damages did not transmute the calculation of contract damages (a traditional state function) into a wireless carrier's "rate" (a federal concern). Invalidation of the ETFs under California's consumer protection laws would have only an indirect and incidental effect on the carrier's rates. The evidence failed to establish any endeavor, reasonable or otherwise, to even approximate the carrier's actual damages flowing from breach of the term contracts by consumers, and instead reflected a marketing decision made with an entirely deterrent purpose and focus. The court rejected the carrier's claim that the ETFs provided an option of alternative performance by permitting subscribers to terminate contracts before the end of the agreement by paying a fee. The carrier had not met its burden of establishing that the predominant effect of the ETF provisions was to provide consumers with an alternate means of performing their contracts.

  • - A contractual agreement to replace a calculation of actual damages with liquidated damages does not transmute the calculation of contract damages (a traditional state function) into a wireless carrier's “rate” (a federal concern).

Wasserman’s Inc. v. Township of MiddletownLease for store. If defendant cancelled 30 year lease, defendant would pay plaintiff reimbursement cost of improvements, plus 25% of 1 year gross receipts.

  • - Focusing on lost profits measure, gross receipts don’t reflect harm suffered
  • - Don’t take expenses of operating into account.
  • - Should be net profits at a minimum and cost of relocation.
  • - Court looks at tax returns which showed very low net profits.
  • - This was a penalty, not liquidated damages, and unenforceable
  • - Modern trend is to assess reasonableness of liquidated damages as estimate of damages either at the time contract was entered, or at time of breach.
  • - The decision whether a stipulated damages clause is enforceable is a question of law for the court.


Westmount Country Club v. Kameny

  • - Liquidated damages is the sum a party to a contract agrees to pay if he breaks some promise, and which, having been arrived at by a good faith effort to estimate in advance the actual damage that will probably ensue from the breach, is legally recoverable as agreed damages if the breach occurs. A penalty is the sum a party agrees to pay in the event of a breach, but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach.
  • - In the determination of whether a clause in a contract is one for liquidated damages or a penalty, our courts have set up certain criteria as guides. The construction to be placed upon the clause in dispute is to be decided by considering not only the particular words in the contract, but the whole scope of the bargain, including the subject to which it relates.
  • - An agreement made in advance of breach, fixing the damages therefore, is not enforceable as a contract and does not affect the damages recoverable for the breach, unless (a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and (b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimate.