Contracts Kunz 3rd ed.

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Contracts
Authors Christina L. Kunz
Carol L. Chomsky
Jennifer S. Martin
Text Image of Contracts: A Contemporary Approach (Interactive Casebook Series)
Contracts: A Contemporary Approach (Interactive Casebook Series)
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Taught at
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  1. Overview
    1. What is a contract?
      1. Promise(s) for the breach of which the law gives remedy
      2. Legally binding obligation arising from said promise(s)
  • A correct exchange of promises with considerations (consideration=value on either side)
    1. There is a difference between a contract and an enforceable contract
  1. Contract Principles: (intentionally broad and abstract)
    1. Freedom of Contract: parties decide for themselves what responsibilities to undertake with minimal restriction and no court involvement
    2. Predictability and Security: allows parties to operate more effectively and order lives to legality of actions
  • Commercial Reasonableness: rules reflect the way parties actually conduct business
  1. Fairness: parties protected from being misled, pressured, or otherwise led into contracts that do not represent interests or conscience
  2. Sources for Contract Law:
    1. Judicial opinion
    2. Restatements of law
  • Statutes
  1. Uniform Commercial Code
  2. Promise and Assent
    1. Promise: statement of commitment that promisor will do or not do specified act for promise; must have sufficient content and certainty to justify promisee in understanding commitment to be reliable; must be communicated to promisee
      1. CASE: Embry v. McKittrick - the language used was reasonable in character, so that one may assume a contract/promise was made
      2. CASE: Lucy v. Zehmer – secret intention of the defendant has no bearing; the promise as communicated to the promisee
  • 'BOTH CASES: Reasonable objective standard'
  • Promise as Expression of Commitment
    1. A manifestation of commitment made by the speaker in a manner that justifies recipient of communication in concluding that a promise has been made
  1. Lack of Commitment: Illusory Promises
    1. Not a promise. Word that express a commitment but contains words denying commitment
      1. “I promise to do this if I feel like it later.”
      2. Does not obligate or bind a promisor to anything
  • “Words in a promisory form that promise nothing.” Corbin on Contracts, S 5.28 (2003)
  1. Must be analyzed within context; a reasonable person may still believe a promise has been made, thus making it no longer illusory.
  2. Illusory Promise Question comes into place for:
    1. 'Contract Termination Clauses'
      1. Termination-for-cause Clause: Both parties have the right to terminate a contract for reasons outlined in the clause. The cause does not have to be a breach of contract.
      2. Termination-at-will Clause: one or both parties have the right to end the contract for any or no reason. Usually found in indefinite/long duration contracts.
        1. Limits usually placed on termination-at-will, such as time constraints.
        2. Cause cannot violate the rights of either party
      3. 'Promises with Indefinite or Incomplete Terms'
        1. Uncertain Commitment: “letter of intent” or “memo of understanding” in which parties commit to an agreement (pre-contractual framework)
          1. CASE: Quake v. Jones – ambiguous promise based on letter of intent saying contract made at a later date (Termination of letter of intent at signing of contract?)
        2. Vague Terms: parties may use vague terms to cover both differing understandings of the terms/could be sloppy drafting; court may determine too much vagueness = no real promise/agreement
        3. Missing Terms: parties omit due to no agreement on certain terms, no foresight on an issue arising, haste in signing agreement. How/should a court fill in the blanks of an issue with omitted terms arises?
          1. CASE: Academy Chicago Publishers v. Cheever: contract terms must be clear and complete. Vague terms do not constitute a contract
        4. Assent Through Offer and Acceptance
          1. Assent: must be voluntary and not based on mistaken or misrepresented information
          2. Parties can reach an agreement through back-and-forth communication. Courts look for a pattern of communications constituting an offer by one party and acceptance by another.
          3. Defining an offer:
            1. What questions arise?
              1. What form of communication is necessary to create an offer?
              2. When does an offer lapse, especially if no time limit is specified?
              3. How should communication for acceptance be sent? What if the communication for acceptance and the removal of the offer cross in the mail?
              4. Modern bidding processes?
            2. Offer: like a promise; expression of willingness to undertake an obligation or refrain from acting. There must be manifestation of commitment, as well as sufficient certainty to provide basis for a court to enforce the promise. (Requires immediate commitment, no future promise)
              1. Two-Sided: a commitment to a proposed exchange and manifestation of willingness to enter a bargain
            3. Advertisements as Offers:
              1. Traditional/general rule is that advertisements are not offers (general promotions/statements of present intent/invitations for customers to come begin bargaining process)
                1. Don’t usually specify quantities/limit numbers of possible contraction partners (no commitment to individual participants)
              2. CASE: Lefkowitz v. Great Minneapolis Surplus Store, Inc. (fur coat advertisement case) – specific value, quantity, item, and performance noted in advertisement. Ads need to be clear, definite, explicit, and leave nothing open for negotiation in order to be a contract.
  • CASE: Leonard v. PepsiCo (Harrier Jet problem) – no clear commitment, obvious jest, no hidden intent. Not noted in catalogue, where actual contractual offer lies. A reasonable person would not perceive this to be an offer.
  1. NOTE: offer accepted by performance is called a unilateral contract (Lefkowitz) offer accepted by return promise is called a bilateral contract
  2. Rewards as Offers:
    1. Case of rapper’s laptop – reward offers need to be specific and certain of terms; unilateral contract. Performance done to accept reward offer must be specific to offer terms and conditions (return of cat – dead cat? Or must be live? Remember class argument)
  3. Limitations on Offers and Acceptances:
    1. Time Lapse: In Restatement s 41, an offer lapses at the time specified in the offer, or, if no time specified, at end of a “reasonable time”
      1. Language is important. In BMW problem, company suggested an acceptance within 10 days, but did not demand or require.
      2. The statute of limitations on the issue in a lawsuit constitutes a reasonable time lapse.
  • Communication is important. In Yaros, the university’s attorney did not specify a timelapse on the offer, simply the necessity for a response.
  1. Death or Incapacity of Offeror or Offeree: An offeree’s power of acceptance is terminated by death or incapacity of either party.
    1. Termination of OFFER, but not of CONTRACT. After formation of contract, death/incapacity only terminates it if the ability to perform is affected.
  • Acceptances, Rejections, and Counter Offers
    1. An offer and acceptance signify a party’s commitment to the specifically denoted terms.
      1. These questions arise when determining if the standard for acceptance has been met: (1) is it a counter offer of an acceptance? (2) is acceptance using proper communication method? (3) must acceptance be mirror image of an offer? (4) can acceptance be made by conduct, and when? (5) is acceptance effective when it is sent, or when it is received?
    2. Counter offer: a response is considered a counter offer if it expresses dissatisfaction with offered terms and suggest/proposes alternatives.
      1. 'Counter offers terminate the original offer, but original offer can be renewed.'
        1. An inquiry (“won’t you take less?”) as opposed to counter-offer (“instead of $5,000, I will give you $4,800”) does not terminate an original offer
          1. CASE: Ardente v. Horan: defendants made an offer to sell residential property for $250,000. Plaintiff accepted and sent a check along with another $20,000 and a note stating “please confirm that the furniture will be included in the sale.” Defendants did not accept this and sent it back. No contract because counter-offer was made and the defendant did not renew the original offer upon rejecting counter offer. The language changed the terms of the offer, requiring confirmation and acceptance of new terms rather than simply inquiring.
        2. MIRROR IMAGE RULE: under common law, an acceptance must be a mirror-image of the offer, matching the offeror’s terms. The mirror-image rule: unconditional, unequivocal, unambiguous
          1. Teacher-Retirement Problem: the date of retirement was immaterial to the resignation terms so was not a counter-offer/contractual violation.
  • Permitted Method and Manner of Acceptance
    1. Manner: Communication or beginning of performance
    2. Method: Verbally, by letter, telegram, email
    3. Offeror may control manner and method of acceptance; often does not exercise this right – if offeror leaves acceptance open, offeree may accept in any reasonable way not excluded in contract.
    4. Bilateral Contract vs. Unilateral Contract
      1. Bilateral: both parties make promises to perform
        1. A bilateral performance can be taken as an acceptance when conduct is reasonable – objective standard
      2. Unilateral: one party promises to perform, the other signifies acceptance by performing (i.e. offer for reward)
        1. Courts have 2 rules to ensure unilateral contracts not unreasonably withdrawn:
          1. Limitation on revocation such as a time constraint/beginning of performance signifies acceptance; courts distinguish between prep. to perform and actual performance
            1. Conduct of performance must be intentional, reasonably understood, and the offeror must have reasonable notice of the conduct. It is the reasonable meaning of the conduct itself that matters as long as the conduct itself is intentional.
          2. Contracts that are ambiguous on the manner of acceptance will be regarded as bilateral
        2. Acceptance by Conduct: “conduct understood as an assent when the party engaging in conduct intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents” – it is the reasonable meaning of the conduct itself, not the actor’s intent with the conduct.
        3. Acceptance by Inaction: GENERAL RULE: silence is not an acceptance unless an offeree takes the compensation with reasonable opportunity to reject, and knows that compensation is not offered for free; where both sides intend for silence to be an assent; or where previous dealings are bound by silence as acceptance. Unsolicited Merchandise cannot be sent without notice or consent of recipient and then be expected to be paid for.
        4. Online Acceptances/Duty to Read: offeree accepts all terms when clicking “I Accept” even if they did not read all of the terms; DUTY TO READ: not an actual duty in the contract, but a general duty to the offeree when accepting a contract. Modern era issue: are contracts portrayed properly online?
          1. CASE: Meyer v. Kalanick: Uber problem. Meyer had a clear path via hyperlinks etc. to read the terms and conditions to which he agreed. Accepting without reading is still accepting. (Appellate court; trial court found path too obscure to be contract)
        5. Rejection by the Offeree:
          1. Expressly or through conduct – also by virtue of counter offer
            1. Counter offer usually understood as eliminating original offer, but original stands if offeror says it will continue or if offeree states that they are continuing to consider original offer
            2. Whether a statement is a rejection is judged by an objective standard.
              1. Inmate problem (we will continue to consider)
              2. Quaker Mushroom problem (refusal of new prices, no agreements, no offer)
            3. Revocation by the Offeror:
              1. Usually manifested through direct communication
              2. Indirect communication IF: offeror takes action that shows revocation of offer and offeree learns of that action before acceptance. Manifestation of will to not enter a transaction, definite and inconsistent action, offeree must acquire reasonable knowledge of offeror’s action.
              3. Limitations on the Power to Revoke:
                1. Unilateral Contracts have limits on revocation – can be unfair because the offer is only accepted by performance – could be revoked at any time even if performance is mostly complete – courts have 2 rules to prevent such unfairness:
                  1. If an offer is ambiguous/silent as to whether unilateral or bilateral, it will be regarded as bilateral, therefore beginning of performance=promise to perform=acceptance
                  2. Once offeree begins performance, OPTION CONTRACT created by operation of law. Offeree has reasonable opportunity to complete performance
                    1. Option Contract: offers can be temporarily irrevocable for specified periods of time if parties created an option contracted by the offeree paying to keep an offer open, or can be option contracts for reasonable period of time for an offeree to complete a performance which they have already begun, up to 3 months. (Flagpole problem)
                  3. SPOT THE DIFFERENCE: in unilateral contract, starting performance creates an option contract to keep the offer open. In bilateral, beginning of performance signifies acceptance.
                2. The Mailbox Rule: What if an offeree mails an acceptance but it isn’t effective until the offeror receives it; “more communication needed beyond offer and acceptance” – An acceptance, if properly addressed and sent in a reasonable manner by the offeree, is effective when put out of the offeree’s possession (Adams v. Lindsell).
                  1. The offeror could be bound and not know it. The offeree sends the acceptance but then a faster arriving rejection arrives or a counter offer: whichever arrives first is binding. Offeror is master of offer and can require delivery of acceptance and not just dispatch; this needs to be specified. Electronic acceptance is considered effective when it is sent in a form capable of being processed by offeror’s server, enters info processing system outside of the sender’s. Offers are considered accepted when the acceptance leaves the offeree’s control.
                3. Time of Acceptance by Conduct: acceptance is considered effective at the time of the conduct if the conduct reliably comes to the offeror’s attention at a reasonable time. The offeree must take steps to notify the offeror of the conduct. Under UCC s 2-206 (2) the offeror can choose to recognize conduct or not if the offeree fails to give proper notice, or fails to give notice in a reasonable amount of time (offer can be considered lapsed).
              4. THE UCC: The UCC applies when it’s a contract for the sale of goods and merchants are involved. Sequential Offer and Acceptance Under UCC Article 2:
                1. Scope of Article 2: transaction in goods and sale of goods NOT FOR SALES OF SERVICES. UCC is above common law where adopted (almost universal in US).
                  1. 2-204: allows a contract to be formed even if the content is indefinite, as long as both parties intend contract and reasonable basis for remedy. Contract for sale of goods may be sufficient to show agreement when made in any manner including the conduct of both parties which recognizes the existence of a contract. Contract may be formed even if exact moment of when formed is indefinite.
                  2. 2-206: (a) addresses the general manner of acceptance: unless it is unambiguously indicated by language or circumstances, an offer to make a contract “shall be construed as inviting acceptance in any manner and by any reasonable method in the circumstances” unless either are mandated by the offeror. (b) says an offer to purchase goods for prompt shipment may be accepted either by a promise or by performance on terms specified. Offeree must notify offeror of performance of conduct.
  • 2-207: Rejects the common-law Mirror Image Rule. Reflects modern contracting behavior: sending forms back and forth to each other with different/additional terms: last one sent before conduct = agreed upon terms unless expressly stated otherwise = Last Shot Rule. Last Shot Rule does not apply IF (1) offeror has express language prohibiting additional/different terms by offeree (2) court decides that the offeree’s additional terms materially alter the agreement (3) notification to objection is preemptively given or is given within a reasonable amount of time.
    1. 2-207(1): a purported acceptance that does not diverge significantly from the offer (as to the dickered terms) is an acceptance (of an offer) even though it does not mirror the offer, unless it states (in the way required by the jurisdiction) that the offeree’s assent to the offer is conditional on the offeror’s assent to the new terms in the purported acceptance. If the offeree responds with something that seems to make a commitment but also expressly says that it is conditional to the offeror’s assent to new terms, then it is a counter-offer (in example on 177, arbitration is considered a material alteration and is not enforceable because the offeree shipped the goods before getting agreement to arbitration). What are the terms of the contract?
      1. A contract is created by conduct even if the written terms were not agreed upon by the parties/the written terms fail (2-207(3)). Oates sent Lauren a 5 term contract, Lauren added 5 more terms. Lauren then sent Oates the goods commissioned and Oates sent payment. The ONLY valid terms of the contract are the overlapping/previously agreed upon terms.
      2. First, figure out if the UCC applies. Is there a contract by exchange of documents? If so, what are the terms? If that fails, is there a contract by the action/conduct of both parties? If so, what are the terms of that?
      3. DON’T GO INTO 2-207(3) UNLESS THE WRITINGS FIRST FAIL.
      4. Conduct ALONE can create a contract under common-law, but the UCC won’t apply. Attempted writings must at least occur.
        1. Review textbook pages 177-178 for example hypos for 2-207. Review law.justia.com/codes/ohio/2006/orc/jd_120210-53cd.html for 2-207
        2. The Majority Rule = The Last Shot Rule. The Minority Rule = The First Shot Rule (Offer controls the contract)
          1. On exam, explain both rules, then pick one and defend why you are using it.
          2. Use pages 182-183 for contract analysis
  • Consideration
    1. There are 3 pieces to a contract: offer, acceptance, and consideration. Each promise in set of promises is enforceable if recipient of promise (promise) gave consideration
      1. Benefit Detriment Test: the promise either gave a benefit or suffered a detriment in exchange for the promise
        1. Clark: gave promissory note to the couple who cared for him while he suffered from TB; didn’t put couple in his will when he died, but court viewed note as binding after being given with consideration. Couple suffered detriment by caring for him/benefitted him by caring for him.
        2. Hamer: Nephew promised $5,000 from uncle if refrained from smoking, drinking, gambling until 21. Did so, giving up legal rights and suffered detriment in exchange for promise = suffered detriment = consideration.
        3. Dougherty: Aunt wanted to give nephew $3,000 for being cute; gave promissory note; not in will; cannot be enforced upon death because no benefit to aunt for promise and no detriment to nephew for promise.
          1. A promise to make a gift at a future date in not enforceable – giver may later have different financial circumstances or have changed his mind. Gifts must be carried out in a properly executed will – wills can be changed up until the time of death of the giver.
        4. Bargained-for Exchange: promise and promisor must be reciprocally motivated by what the other party is giving; unless an action is given by the promise in exchange for the promise, it is not bargained for. This is the more widely used and modern test.
          1. CASE: US v. Meador: wife signed contract for husband’s business at last minute; she gets nothing out of the loan that she signed for and doesn’t know what it’s about; argued no consideration. The bank had no knowledge of her signature before making the offer and did not require it in order for the offer to stick. No mutual motivation between bank and Betty.
            1. A bargain = exchange/motivation of each others’ promises. NOT negotiating.
          2. Past Consideration is not consideration (item of consideration that occurs before the promise occurs “I’m doing this because of my love for my long-dead wife”)
          3. “A promise can, and often does, count as consideration for a promise”
          4. Parties can mutually agree to rescind promises – consideration in bargained-for: mutually induced promise to rescind.
          5. Inadequate consideration: courts don’t generally look into the value of motivation, but if it is truly not motivating (I’ll give you a dollar if you promise to give me $1,000) then it is not mutually induced, nad it is not really consideration. Money-for-money; can sell a house for a dollar.
            1. Baehr: a promise is enforceable as a contract if it is the product of a bargain – a negotiation resulting in voluntary assumption of an obligation by one party on condition of an act for another – Kent’s rent owed to Baehr was bargained upon
            2. Meincke: mom giving daughter mortgage along with bank; had to sign that she is second to bank in mortgage repayment; argued no consideration, but her consideration was the benefit of her daughter being loaned the money.
            3. Shnell: past consideration of husband, promising $600 to people from his dead wife’s money “for the love of his wife” and for a dollar collateral; not enforceable, no adequate consideration and past consideration does not equate to consideration. “Sham exchange”
  • Disputes in Consideration: conditional gifts, illusory promises, settlement agreements for worthless claims, contract modifications, discharge of duties from an existing contract.
    1. Conditional gifts: bargain test requires reciprocal motivation – the promisor may make a promise and ask promise to do something but not yet propose a bargain – promises a gift with requirement to fulfill a condition – not supported by consideration.
      1. Tramp hypothetical: no reasonable man would think the condition of the homeless man walking to the store is consideration or entry into contract.
      2. Tomzak: county would provide pump for flooding property is couple maintains; pump flooded other property, county removes pump. Promise of providing pump in exchange for checking on it is a gratuitous conditional gift and not contract – not supported by consideration
      3. Pennsy Supply: alleged agreements are unenforceable due to lack of consideration. Material given for free, American Ash argued not obligated to removal for gift. Toxic material, American Ash received benefit by getting rid of the material, court sent it back to see if there was actual consideration.
    2. Doing favors/feeling good about yourself/being benevolent is not consideration. Foregoing the possibility of a valid legal claim (must be indicated) could be consideration.
  1. Illusory Promise: if a would be promise is illusory, no contract and therefore no consideration.
  2. Settlement Agreements Based on Worthless Claims: for lawsuit settlements to be binding, each promise may be supported by consideration
  • Contract Modification and Pre-Existing Duty Rule
    1. Creating and modifying contracts must satisfy the rules of consideration. Duty modification of one party but not both not consideration – not “fresh.” Exceptions made to rule – pre-existing duty rule widely criticized.'
      1. 'CASE: Angel v. Murray: trash collector case. Contract to collect trash in the city – 400 units added. Requested more money and was awarded it. Later sued for additional payments for lack of consideration. Court found consideration despite potential pre-existing duty. A modification of a contract is in itself a contract, and must be supported by consideration. The pre-existing duty rule is not applicable when a contracted worker experiences unforeseeable obstacles and cannot finish the work without additional funding. Yes had duty to collect the trash in the city, but additional units not foreseeable and a hefty addition. '
    2. 'Section 89 is proper rule of law – ensures that contracts entered voluntarily will be upheld by the courts. Cannot modify a contract with coercion, extortion, duress. '
    3. 'An agreement to modify a contract within UCC 2-209 needs no consideration to be binding. 2-209 says a failed modification may nonetheless operate as a waiver – can be retracted unless material reliance by other party'
  • Discharge of Duty and the Pre-Existing Duty Rule
    1. Duty under contract can be discharged by fresh consideration, mutual consent, meaning that obligor no longer has to perform duty and obligee loses right to the performance. Must meet pre-existing duty rule. '
    2. Mechanisms of Discharge by Mutual Assent:
      1. 'Agreement of Mutual Recission: parties can mutually rescind a promise-for-promise contract ONLY if the contract is still partly executory. Must be supported by consideration.'
      2. 'Substituted Contract: Obligor can offer substitute promise of different performance to oblige and oblige can accept. Original contract null and void.'
  • 'Novation: if the parties agree to bring a new party in to a substituted contract; 3rd party assumes duty to obligee and obligee surrenders right to original obligor.'
  1. 'Accord and Satisfaction: If obligee is willing to take performance of a substitute promise by the obligor but is unwilling to give up right to original promise until new promise is complete = an accord. Satisfaction occurs when payments made on time.'
  2. 'Substitute Performance: obligee can accept or reject. Same as substitute contract, but with performance rather than promise. '
  3. Disputes Involving Consideration
    1. CASE:' Birdsall v. Saucier: Real estate broker enters contract with seller, seller cannot pay exact commission as stated in contract, substitutes cash payment with promissory note and partial payment. Broker signs receipt saying he received and these are payments in lieu of. Sues for original payments later. Court found that his signing of the receipt signified satisfaction. Accord and satisfaction of a substitute contract eliminate the duty to the original contract. Parties intended for the new payment arrangement to discharge the seller from the duties of the original contract. '
      1. 'NOTE: The value of the consideration does not matter. It must be fresh consideration/consideration period.'
    2. CASE: Lawrence v. Ingham County Family Planning: woman sued for brain damage to newborn – claims breach of two contracts. Court rules that no contracts exist because there is no consideration (rule). She has no real consideration because her promises are not legally binding and have no benefit to the hospital (promisee). She may have given something up but it is inconsequential to the hospital. A lack of real obligation = a lack of consideration for contract.
      1. Important note from the dissenting: it is not up to the courts to consider the adequacy of the consideration; they must merely determine whether or not these is consideration. '
  • Damages (Contract Remedies)
    1. Damages = the monetary loss claimed and possible repayment'
      1. 'Expectation Damages: amount necessary to fulfill the expectation created by the promise'
      2. 'Reliance Damages: compensate promisee for expenses/costs occurred in reliance on the existence of the promise. '
  • 'Restitution Damages: put aggrieved party back in the position it was in before promise made. '
  1. Theories of Liability: breach of contract, promissory estoppel, and promissory/non-promissory restitution.'
    1. 'CASE: Kirksey: Defendant sent letter to plaintiff promising place for her and her child to live, he later kicked her off the land. Modern court would agree and find no consideration, but would find other ways to compensate for losses to promisee.'
    2. 'CASE: Ricketts: After Kirksey, girl’s grandfather promised her money if she quit her job. He died, estate didn’t want to give the promised $2,000. She proved conduct relying on the completion of the promise, creating promissory estoppel and prohibiting the estate from claiming lack of consideration.'
  • 'CASE: Conrad v. Fields: woman promised tuition and books payments for law school from charitable neighbor. She proved conduct showing reliance on the promise by quitting her job and starting law school; she would not have without the promise. 1) clear and definite promise 2) promisor intends for promisee to rely on the completion of the promise 3) promise must be enforced to avoid injustice 4) plaintiff shows defendant’s promise the only factor inducing the conduct reliant on the promise'
  • Equity/Promissory Estoppel' : “Granting equitable relief is within the sound discretion of the trial court” -Conrad'
    1. Restatement 87: keeping offer open based on promissory estoppel
    2. Restatement 90: enforcing the promise based on promissory estoppel
      1. ' Equitable Concerns: reasonableness, fairness, justice'
        1. CASE: Hayes v. Plantations Steel Co.: Hayes was not actually promised a recurring $5,000 annual pension upon retirement; court found it to be a conditional gift. Hayes’ annual return to the company to check up on receiving payment shows that he did not consider it to be a recurring promise and was able to plan ahead, no consideration for company to pay him pension (past consideration of his work which he was salaried for is not consideration). Hayes was already going to retire without the promise of the pension. The promise must induce the promisee’s actions in order to claim promissory estoppel.
        2. CASE: Pavel Enterprises v. A.S. Johnson Co.: a contractual relationship is not created without satisfaction of traditional bilateral contract theory or detrimental reliance theory between contractors and subcontractors. Terms of contract not definite. Pavel also wanted resubmittal of sub-bid, showing did not consider it to be solid promise. Typically, a court will say that a subcontractor needs to keep their offer open and it is irrevocable. This is an atypical case.
  • Promissory Restitution
    1. A promise enforced for a benefit already received. Something that feels like past consideration is considered consideration (exception to the rule) to support enforcement of a promise to compensate for the past act.'
    2. If statute of limitations runs out, if recipient gets a material benefit and makes a new promise based on old consideration, the past consideration is revived and considered new consideration. The material benefit can remain the same; old material benefit with a new promise. '
    3. CASE:' Mills v. Wyman: The promise cannot be enforced because the past consideration did not give a material benefit to the father (Wyman) of the son who was cared for by plaintiff (Mills). Parents of adults do not receive material benefits vicariously through benefits conferred upon their offspring. The father had no legal obligation amounting to consideration. '
    4. CASE:' Webb v. McGowin: The extreme nature and continuousness of Webb’s detriment as a result of saving McGowin amounts to consideration. The ongoing material benefit to McGowin for not losing his life amounts to consideration. A new promise based on old consideration or material benefit stands.'
    5. Restatement 86:' a promise made in recognition of a benefit received should be enforced to the extent necessary to prevent injustices. Promise not enforceable is promisee conferred the benefit as a gift or if the promisor was not unjustly benefitted/if promise is unjustly disproportionate to benefit received.'
  • Liability for Restitution
    1. When therewas no promise, but a plaintiff should receive restitution for a benefit received by the defendant. Someone gets something they don’t deserve because they didn’t ask for it. 3rd Restatement 1: a person who is unjustly enriched at the expense of another is subject to liability in restitution.
    2. CASE: Nursing Care Services v. Dobos: Dobos’ doctor was acting in an event of an emergency when providing medical care during two weeks in the hospital; Dobos agreed to the medical care that occurred after her stay in the hospital. Doctor entitled to restitution based on the emergency doctrine and Dobos’ clear consent to the treatment. Entitled to restitution if acting in an emergency to save another from bodily harm and no reason to think that other would not consent to being saved.
    3. Quasi contract/contract in law now added: Offer, Acceptance, Consideration/Alternatives to Consideration
  1. Defenses to Contract
    1. Infancy, Mental Illness/Defect, Intoxication, Mistake, Misrepresentation, Duress, Undue Influence, Unconscionability.
    2. Void: automatically void because it is unconscionable or against public policy. Voidable: not automatically voided but can be voided
      1. Infancy: Contract with a minor: voidable at the option of the minor
      2. Unconscionable: a contract for murder is void.
    3. Infancy
      1. Incompetence defense
      2. CASE: Infancy: Webster Street Partnership v. Sheridan: Defendants minors at time of contract for rent of apartment; didn’t have capacity to enter contract; contract voidable – law recognizes that providing a necessity to a minor could entitle provider compensation from minor or parents – if Webster Street had proven it as a necessity, could have recovered some money – minors could live at their parents’ house, therefore it was not a “necessity” – Defenses against Infancy: ratification defense and necessity defense.
  • CASE: Infancy: Halbman v. Lemke: Halbman (minor) purchases car from adult (Lemke) for $1100 up front and remaining $150 to be paid later; car breaks, Halbman takes it to mechanic, doesn’t pay mechanic, mechanic keeps and cuts up car to sell it to make up for costs; Halbman says contract void and Lemke owes him $1100; Lemke counter sues and says Halbman owes him remaining $150; court says contract voidable at minor’s decision and Lemke must pay $1100. Car is now worthless and in pieces so does not have to be returned to Lemke (a minor must return items of value that they have obtained from the contract and are not responsible for the depletions in value).
  1. Restatement 2nd s 14: unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person’s eighteenth birthday.
  2. Mental Illness or Defect
    1. Incompetence defense
    2. 'CASE: Fingerhut v. Kralyn Enterprises, Inc.: Country club purchase. Contract binding because actions outside of incompetent state show ratification of the contract. Actions must raise to the level of manic psychosis. Rejected under Motivational Test. Court normally uses Cognitive Test – could he collect his thoughts enough to understand the contract dealings? Cognitive Test no good for manic depression. Manic depressives can pass Cognitive Test but cannot control themselves. Court looks at: personality of plaintiff, history of plaintiff’s deals, medical history, is plaintiff manic depressive, was he in the manic phase in the binding phases of the contract?'
      1. Mental Incompetency Defense is much more individualized than the Infancy Test.' Harder to prove; need medical testimony etc. Infancy only needs to calculate the age of the minor at time of signing. Time important for ratification.'
  • 'Restatement 2nd s 15: Mental illness or defect: (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he in unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. (2) IF contract made on fair terms, other party doesn’t know of mental incompetency, and mentally incompetent did not enter into objectively unfair deal, the power of avoidance terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief.'
  1. Intoxication
    1. 'Restatement 2nd s 16: a person incurs voidable contractual duties if other party has reason to know that by reason of intoxication (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he in unable to act in a reasonable manner in relation to the transaction. (mental state of person trying to void the contract/other party’s reason to have knowledge of the mental state of the person trying to void the contract not relevant in minor defense but is in intoxication and mental illness defenses)'
    2. 'CASE: Gonzalez v. Jurelice: inmate case. Plaintiff must be so intoxicated that they do not have an understanding of what is happening and defendants must be reasonably aware of the intoxication.'
  2. Mistake
    1. 'Restatement 2nd s 151: a mistake is a belief that is not concurrent with the facts. Fact is past or present state of things.'
    2. 'Restatement 2nd s 152: when mistake of both parties makes a contract voidable'
  • 'Restatement 2nd 153: when mistake of one party makes a contract voidable – voidable where the other party knew that mistaken party was originally mistaken/caused that mistaken belief, or the effect of the mistake is such that enforcement of contract would be unconscionable.'
    1. Both mutual mistake and unilateral mistake can be invalidated by s 154
  1. Restatement 2nd s 154: a party bears the risk of a mistake when (a) the risk is allocated to him by agreement of the parties; (b) he is aware at the time the contract is made that he only has limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient; or (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so
  2. Mutual Mistake:
    1. CASE: Wood v. Boynton: claimed mutual mistake but found NOT a mutual mistake. No legally recoverable mistake here. Wood sold the diamond without doing her due diligence to get it appraised. Boynton genuinely believed it was topaz, seller was convinced, sold it for a dollar. (see Restatement s 154 (b))
  3. Unilateral Mistake: bidding mistakes usually unilateral mistakes. Ads and electronic communications with typos fall under this.
    1. CASE: Wil-Fred v. Metropolitan Sanitary: Wil-Fred made a severely miscalculated bid because of their subcontractor; courts concluded mistake “so grave” that it was clearly seen by the acceptor; Wil-Fred’s could not shoulder the loss and Metropolitan Sanitary was not greatly injured by not getting the low bid. Cannot snatch up a “deal that is too good to be true.” Can’t rely on such a low deal. Court doesn’t use a restatement, but uses 4 factors: (1) mistake related to a material feature (price) (2) mistake was not the fault of the main offeror (subcontractor messed up the bid not general contractor Wil-Fred); (3) such a heavy consequence that enforcement would be unconscionable; (4) Metropolitan not too far down the line that they can’t undo or stop motions on the contract.
  4. Misrepresentation
    1. Affirmatively stating a false fact (universal) concealment and nondisclosure (not as recognized)
    2. Regardless of type of misrepresentation, the fact itself must be fraudulent and material enough to subject the petitioner to relief.
  • Mere puffing not a misrepresentation (Nigro v. Lee – gorgeous car)
  1. Restatement 2nd s 162: fraudulent misrepresentation; Restatement 2nd s 176: threat
  2. Kannavos v. Amino: “no duty to speak where one does not speak, but he is bound to speak honestly and divulge all material facts bearing upon the point that lie within his knowledge.”
  3. Duress and Undue Influence
    1. DURESS
      1. Party involuntarily accepts terms of offer
      2. Circumstances provides no alternative
      3. Circumstances result of coercion from other party
      4. Apparent assent not truly voluntary
        1. Party compelled by threats/fear of harm – bodily harm, property, business, interest threats, court process, threats to withhold.
      5. CASE: Holler v. Holler: Natalyia pregnant, no resources, no counsel, no representation, facing deportation if did not sign prenuptial agreement. Duress.
      6. CASE: Totem: accepted settlement while facing bankruptcy because opponent would not pay.
    2. UNDUE INFLUENCE:
      1. Coercion through abuse of trust and dependence.
      2. Protects against a party’s tactics that produce less than full assent by someone who is vulnerable to domination by the first party.
      3. Knowledge on the part of the person participating in a transaction where the other party is mentally afflicted and not of the mental state to participate in the formation of a contract.
      4. A confidential relationship creates undue influence.
        1. CASE: G.A.S. v. S.I.S.: wife in charge of husband’s affairs while severely mentally ill, signed divorce contract seriously impeding husband. Point c applies.
      5. Unconscionability
        1. Gives courts means to police against clauses which “shock the conscience” in less defined ways. Extreme defense that does not often win.
        2. Often raised by party with less knowledge, less power less bargaining strength.
  • CASE: Williams v. Walker-Thomas: unconscionability is a plausible defense to a contract. When a party of little bargaining power and hence little real choice signs a commercially unreasonable contract with little or no knowledge of its terms, could not have consented or shown a manifestation of consent to all terms. Unconscionability regarded as a lack of meaningful choice.
  1. CODIFICATION: UCC 2-302 codifies unconscionability for sale of goods: if court finds contract unconscionable or clause at time it was made, court may void contract or enforce contract without the unconscionable clause. Party opposing unconscionability has opportunity to prove fairness. Restatement s 208 codifies unconscionability: if a contract or term is unconscionable at time contract made, court can void entire thing OR enforce the contract without the unconscionable term.
  2. Violation of Public Policy:
    1. Court generally refuses to enforce violative contracts to promote public interest – states have statutes invalidating contracts that violate specific points of policy (obstruction of justice/buying votes/murder) – non statute cases, court relies on common sense, public health/welfare/morals to determine enforceability.
    2. 'Restatement s 178: court may order restitution to person experiencing forfeiture detriment disproportionate to the public policy violation or its significance or for a party excusably ignorant of the law for a minor violation, a party not equally in the wrong as the other party, or a party who withdrew before improper purpose achieved.'
  • 'CASE: Tunkl v. Regents of the University of CA: release from negligence liability found to be unconscionable because a hospital’s services and ability to be sued for negligence/malpractice highly important to public welfare and interest.'
    1. CASE:'L Calvert v. Johnson: surrogacy between 2 parties does not affect public interest, so fine to enforce the contract.'
  • Statute of Frauds:'
    1. Questions to ask
      1. ' Is the writing required because the contract is within the scope of the statute of frauds'
      2. ' Does the statute of frauds expressly require this contract to be written'
        1. Does the contract also fall under an exception to the statute of frauds'
        2. If within the statute of frauds, what kind of writing is required'
          1. If a contract is within the statute of frauds and there is no writing that meets the requirements, the contract is unenforceable.'
        3. Party raising statute of frauds has the burden of proof, party seeking enforcement of contract has burden of demonstrating that the contract fits the exception or providing writing that satisfies the statute'
        4. CASE: Sterling v. Taylor: Sale of land must have writing'
        5. One Year Provision'
          1. Contracts that won’t be performed within one year have to be in writing; Restatement 110:' contracts of uncertain durations are not in the statute; the statute only covers contracts whose performances cannot possibly be completed within a year. A contract with a contingency that it could possibly be completed within a year not in statute of frauds'
          2. UCC 2-201 contract for sale of goods for $500 or more' needs writing sufficient to show contract and signed by party against whom enforcement is sought. Two merchants can engage in an oral contract and later support it with a writing within a reasonable amount of time'
          3. 'UCC 129: broadens the part performance exception to allow enforcement of contract if party seeking enforcement shows reasonable or significant reliance, but courts find it not compelling because could erase statute of frauds entirely'
        6. Modifying contracts within the statute of frauds'
          1. Parties can have “no oral modification” clauses in written contracts (Green Road Co. v. Specialized Component Sides)'
          2. Equitable estoppel: a party to a contract represents that a writing was not needed or already properly executed, relying party can invoke equitable estoppel to ensure that representation not contradicted'
          3. Promissory estoppel: if a party promised to put an agreement in writing or promised not to require writing, can’t go back on that promise – courts require invoking party to show significant on and detriment because of verbal promise because otherwise could erase statute of frauds'
          4. Restatement 139: promissory estoppel if justice so requires'
            1. McIntosh v. Murphy: promissory estoppel because oral contract induced McIntosh to move to Hawaii for work for at least a year and was fired after 2.5 months.'
          5. Restatement 131: typical requirements for writings: signature of party to be charged, reasonable identification of the subject matter of a contract; language sufficient to signify contract/offer; language stating with reasonable certainty the unperformed promises of the contract; writing doesn’t have to be an intended writing of the contract as long as the writing has appropriate content '
          6. Restatement 133: can be in any form'
          7. Restatement 136: may be made at any time before of after formation of contract'
          8. Restatement 137: if destroyed or lost, unsigned copy or oral evidence will suffice'
          9. Restatement 134: handwritten signature not required for “signed” requirement'
          10. Restatement 132: writing may consist of several writings arising from same facts'
            1. Under the UCC, statute of frauds only satisfied if a single writing enforces the contract. Courts differ on counting separate writings together'
          11. CASE: Howard Construction Co. v. Jeff-Cole Quarries: plaintiff contends that there was an oral agreement about the price of materials that was handwritten on a typed proposal, but defendant contests that no such agreement existed. The writings do not satisfy UCC 2201 1 and 2 A mere list of prices foes not indicate that an agreement on those prices has been met; no signature or indication otherwise that an agreement has been made
          12. UETA and E-SIGN definition of electronic signature in relation to statute of frauds'
  • Content and Meaning of Contract'
    1. ' After determining if:'
      1. Contract exists'
      2. No defenses bar enforcement'
      3. Statute of Frauds doesn’t apply or is satisfied'
    2. ' Must determine'
      1. What promises made'
      2. What extent performed'
      3. issues of contract interpretation'
  • ' Express Contract Terms:'
    1. Meaning a reasonable person would give to a communication and whether a party actually took that meaning'
      1. CASE: Frigaliment Importing v. BNS International: the CHICKEN case – when performance involves repeated occasion for performance by either party with knowledge of the nature of performance and opportunity for objection, any accepted course of performance is given great weight in interpretation – RESTATEMENT 2-201(4)'
      2. UCC 1-303: course of dealings, course of performance, trade usage – how the trade generally uses the terms and the conduct of the parties after the contract is signed'
    2. Subjective Intent v. Objective Meaning'
      1. General approach to interpretation is objective (reasonable person) but can be subjective if person proves that they didn’t believe the reasonable interpretation at time of contract formation.
      2. CANONS: a semantic canon may point in one direction of interpretation but a court will ignore it if believes a different meaning was definitely intended. Substantive more concerned with public policy and concerns
  • Subjective agreement: Restatement 2-201(1): a buyer’s meaning is shared by the seller and vice-versa. Restatement 2-201(2): if there is no subjective agreement, the one who has the most reasonable meaning will be taken as the correct interpretation
    1. There can be no agreement at all if both parties have a good argument for interpretation (Peerless)
  1. CASE: Klapp v. United Insurance: Klapp worked for insurance group for 7 years, claimed company owed him commission, interpreted contract to mean commission on his clients after working for 7 years, company said after 10 years. Court ruled in favor of Klapp because contract had a sliding scale and was ambiguous.
  2. CASE: C.A. Construction v. Benning Construction: whether the language of the contract intended for Benning to be paid $20,000 for living expenses on construction site in addition to supervision fees. Language of the contract plain and ambiguous – the $20,000 awarded because Benning negotiated for a $20,000 profit outside of the fixed supervision fee.
    1. Majority looks to the plain meaning of the contract, do not look for other sources of evidence
  • Parol Evidence Rule
    1. UCC 2-202: terms which the parties agree or are otherwise set forth in a writing intended to be a final expression of the agreement may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented.
    2. Bars use of evidence to alter a term that parties consider final or to add a term that parties consider fully expressed in the contract
    3. Written contract takes priority over what was said
    4. Parol evidence admissible where contract is ambiguous
      1. 2 sets of questions when applying:
        1. Is the writing a final expression of the terms it contains?
        2. Is it a complete and exclusive statement?
        3. Is the evidence offered to add to the written contract terms?
        4. “ “ to change the contract terms?
      2. If not a final expression/complete and exclusive, parol evidence rule does not apply. If final, can’t vary a term. If exclusive, can’t add a term. Exclusive is more restrictive than final (never a time when exclusive but not final)
  • ONLY NEED TO APPLY THE UCC: written terms supersede conflicting terms previously agree to when “final expression of the parties’ agreement” ; written terms supersede all terms previously agreed to, whether conflicting or additional when “complete and exclusive statement of the terms of the agreement”
    1. Merger Clause: a clause that says all other negotiations merge into a final agreement of the document
    2. CASE: UAW-GM Human Resource Center v. KSL Recreation Corp: merger clause makes contract complete and exclusive, so nothing can be added
    3. CASE: Sierra Diesel v. Burroughs Corp.: integration requires mutual intent by both of the contracting parties that the written agreement contain all of the agreements of the parties and the further mutual intent that the written agreement is the sole agreement.
    4. CASE: MCP v. Black Clawson: seller sent a letter guaranteeing product, then sent 3 contracts separately, each saying “no rights and warranties other than those here” – court found that parol evidence rule barred the letter.
    5. PAROL EVIDENCE ANALYSIS: sophistication of parties, involvement of counsel, length and complexity of negotiations, focus on this provision, experience of parties in this type of transaction, is the writing exclusive and complete
  1. The Nature of the Evidence Introduced
    1. Parol evidence excludes types of evidence based on whether contract is integrated final expression
    2. Partially Integrated: P.E. excludes prior agreements and contemp. oral agreements that contradict or change terms but allow evidence that adds terms
    3. Completely Integrated: excludes all prior agreements that contradict or add
      1. P.E. allows anything not from a prior agreement or not to contradict, change, or add – not even addressed by P.E. Difference between explaining a term and changing the meaning of a term.
        1. Once a court finds ambiguity, court considers any relevant evidence, even that under P.E.
        2. UCC allows evidence of course of performance, course of dealing, and usage of trade even when complete and exclusive because reflects parties’ intentions.
  • P.E. has no affect on agreements AFTER written contract formed
  1. P.E. does not apply to what type of remedy
  2. Remember, does not apply to things that determine whether contract was formed (fraud, duress, etc.) but only to content of contract
  3. Does not relate to a collateral agreement; a separate agreement to the written agreement but having to do with the same transaction (liquor store and employee relocation case Lee v. Seagrams)
  4. Reviewing Extrinsic Evidence to Understand a Contract
    1. 3 contexts for use of extrinsic evidence permissible:
      1. Always allowed to determine the meaning of ambiguous text
      2. Parol evidence limits when parties may supplement agreements with extrinsic evidence based on level of integration
      3. Once determined level of integration, parol evidence rule discerns which evidence can be admitted
  • Implied Contract Terms and Conditions (arguments of last resort)
    1. When court may need to imply contract terms not expressed by the parties: 1) parties did not foresee circumstances that later arose 2) parties chose not to deal with foreseen circumstances in the contract 3) an agreement that contains every possible term would be too long and transaction costs too high
      1. Courts use default provisions, public policy references, etc. for implied terms. UCC 2 , trade usage, course of performance, course of dealings
      2. CASE: Fisher v. Congregation B’nai Yitzhok: implied that orthodox ceremony would include separation of men and women in synagogue
      3. CASE: Wood v. Lucy: parol evidence does not apply because the question is of the existence of a contract and not of a prior oral or written agreement
  • Duty of Good Faith
    1. Parties may explicitly create an obligation to perform in good faith, but even in absence, still generally agreed that duty exists.
    2. CASE: Market Street v. Frey: did Market Street knowingly trick Frey into selling land at massive discount> Frey had every opportunity to read the contract and it was their own duty to do so; MS reasonably thought this
  • Express Conditions
    1. Strict compliance to the conditions required – language must be extremely precise to be express
  • Performance, Breach, Excuse
    1. Performance begins after formation of contract; with performance comes possibility of breach
  1. Types of Breaches:
    1. Repudiation: party renounces contract and refuses to perform
    2. Nonperformance
  • Late performance
  1. Incomplete or faulty performance
  2. Wrongfully rejecting other party’s performance
  3. Implied Conditions and Order of Performance – can be promises to perform and conditions connected to another performance, performance can also implicitly be dependent on an event rather than other performance
    1. Mutual and independent promises: either party may recover damages from the other – breach of one party’s promise is not an excuse for the other party’s failure to perform
    2. Sequential dependent promises: performance of one depends on the prior performance of another
  • Simultaneous dependent promises: to be performed at the same time
  1. Common law: when 1 party breaches, whether or when is aggrieved party allowed to suspend performance or cancel the contract in response? – Doctrine of Substantial Performance: an immaterial breach within performance of an implied condition can still pass under the doctrine of substantial performance
    1. CASE: Jacob and Youngs v. Kent: the use of reading pipes was not an express condition, and the plumbing was of equal quality and function. A trivial defect is not so material that it disqualifies a substantial performance. The more complex a performance is, the greater chance at getting substantial performance excuse
  2. If you incorrectly declare a material breach and walk on a contract, you become the breaching party.
  3. Factors in Substantial Performance in Restatement 241:
    1. The extent that party injured will be deprived of the expected benefit
    2. Extent party can be adequately compensated for part of benefit which he was deprived
  • Extent to which party failing to perform will sugger forfeiture
  1. Likelihood party failing to perform will cure the failure taking account of all circumstances
  2. Extent to which party failing to perform exercised food faith and fair dealing
  3. If partial breach, breaching party has a right to cure breach within reasonable period of time. Not true if total breach and injured party can suspend or cancel contract.
    1. CASE: Sackett v. Spindler: Sackett committed partial material breach and was given adequate time and then some to correct but did not; Spindler ok to cancel contract and take back stocks
  • Divisible Contract:
    1. If a contract has multiple performances in a contract and party does some but not all, is the entire contract breached? A court can make a contract divisible – road-paving and utilities examples. Contract left open and party had to pay for the performance done, the paved road, but not the utilities not done.
    2. Factors in Divisibility:
      1. Did parties intend divisibility
      2. Is contract by it’s terms susceptible to division
  • Contract may be divisible for one purpose but not others (divisible for statute of frauds and needing writing for certain sections but not others) (not divisible for substantive performance)
  1. CASE: Gill v. Johnston: contract divisible to pay for the materials actually delivered and not for the materials not yet delivered.
  2. CASE: Menorah Funeral Home v. Needle: funeral home didn’t give full time for vigil, whole contract void and nothing paid for because it was supposed to be a complete orthodox Jewish funeral.
  • Excuse from Performance
    1. Impossibility: totally impossible to complete contract through no fault
      1. CASE: Taylor v. Caldwell: music hall burned to the ground before it could be used in contracted performance, court found no fault of either party so contract void.
      2. Restatement 262: death of incapacity of person necessary for performance
  • Restatement 263: destruction, deterioration or failure to come into existence of thing necessary to perform
  1. Restatement 264: prevention by governmental regulation or order
  • Remedies
    1. “at law”: money damages
    2. “in equity” : court orders to perform/act/refrain from acting in a certain way
      1. Only available if plaintiff has no adequate remedy at law and would suffer irreparable harm if the equitable remedy weren’t granted. Courts like monetary damages /overwhelmingly use monetary damages
    3. Remedies At Law:
      1. Money damages rely on policy to be determined by set of policies; point is to protect 3 interests: expectation, reliance, and restitution are all reflected in kinds of damages
      2. Expectation Damages
        1. Puts party in position it would have been in if performance completed
  • ' Reliance Damages:'
    1. To put the party in the position it would have been in today if the parties had not breached/entered contract'
    2. Appropriate if no identifiable expectation damages, compensate for out of pocket expenses and lost opportunity costs, if provable. '
      1. CASE: Security Stove v. American Railway: normally damages for failed delivery time is the difference between the market value of the goods at the time of delivery and at the expected time of delivery; under peculiar/specific circumstances such as Railway being aware that these items had to be delivered in time for the expo, defendant responsible for all real damages
    3. Restitution Damage
      1. Avoids unjust enrichment; repays any “as yet unpaid: for but retained benefits.
      2. Returns party to position it was in prior to contract formation
      3. Used when:
        1. Restitution is the cause of action
        2. An agreement is voided because of mistake, misrepresentation, or other defense
        3. Excuse is granted and the parties need to be returned to their status quo
        4. A repudiating buyer is entitled to refund of its deposit or other benefit conferred, while remaining liable for the breach
        5. A party that materially breaches but has unjustly enriched the other party can receive payment for the value of their performance up to the breach, but no more than the contract price and less the damages done to the other party because of the breach.
      4. CASE: Boutin v. Byers: daughter quit job to work for dad so he’ll leave her land, he fires her and sells land, she goes back to old job. Recovered reliance damages
      5. Categories of Expectation Damages:
        1. Direct damages for injury or loss of the value of the performance
          1. Most often you will get remedy at law, expectation damages, and direct damages
          2. Also known as general damages; loss of value of performance in the contract – value of services not performed, payments not made, etc.
          3. Direct loss: differences in value between what as promised and what was received
        2. Indirect damages for secondary damages in the breach
          1. Incidental damages: extra costs incurred by aggrieved party in dealing with the breach or mitigating losses caused by the breach; shipping costs, storage costs, paying a broker to find a new buyer
          2. Consequential damages: losses arising as a consequence of a breach; lost profits, lost customers – damages foreseeable to the breaching party at the time of contract formation. If not foreseeable, cannot recover consequential damages.
          3. Extra loss: additional costs and losses caused by the breach and mitigating the breach
        3. “Less cost avoided and less loss avoided: when awarding damages, subtract the expenses and losses that the aggrieved party avoided as a result of the performance stopping early. Add direct loss and extra loss, subtract cross avoided and loss avoided.
  • ' Using market value to determine losses/damages to be awarded'
  • ' Special problems in direct damages: '
    1. Anticipatory repudiation: enter contract, other party cancels before performance due, how do you determine damages? '
      1. When aggrieved party learns of the repudiation'
      2. A commercially reasonable time after aggrieved party learns of the repudiation'
      3. When the performance is due under contract'
    2. Stipulated damages/agreed to damages: at the time of contract formation, not at another time, the parties agree/stipulate damages should the contract be breaches'
      1. Factors to consider: 1) did the parties intend to provide for damages or for a penalty? 2) is the injury caused by the breach one that is difficult or incapable of accurate estimation at the time of contract? 3) are the stipulated damages a reasonable forecast of the harm caused by the breach?'
    3. Liquidated Damages: pros, you know what you’re getting on the front end and no speculation of damages on the back end. '
  • Efficient Breach
    1. an incentive to breach if the breaching party will benefit from the breach even after paying damages to aggrieved party. '

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