K.

Hickey

Contracts Outline Table of Contents Part I: Principles of Promissory Obligation A. Grounds for Enforcing Promises Introduction3 1. Consideration.4 2. orma!ity" 3. #e!iance..$ 4. %enefit& %. 'imits on Promissory ()!igation 1. Ade*uacy of +a!ues E,c-anged. 2. /utua!ity0 3. Pre1E,isting 2uty and Modification 2octrine a. Genera!.0 ). /odification.13 Part II: Remedies for Breach of Contract Introduction to #emedies..11 A. 4-e E,5ectation /easure of 2amages 6Economic #ationa!e7.12 1. 8Cost of Com5!etion9 :ersus 82iminution in +a!ue9...14 2. 4-e E,5ectation /easure under t-e ;CC...1" a. 8Co:er9 and 8#esa!e9 2amages ). 8Contract1/arket 2ifferentia!9 %. 'imits on E,5ectation 1. /itigation of 2amages1$ 2. oreseea)i!ity..1& 3. ;ncertainty..1. C. #e!iance 2amages.1. 2. 4-e #estitution #emedy 1. #estitution in a:or of t-e %reac-ed1Against Party10 2. #estitution in a:or of t-e %reac-ing Party.23 E. <5ecific Performance.23 . 'i*uidated 2amages...21

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Part III. Contract Formation A. /utua! Assent 1. 4-e ()=ecti:e 4est of Assent.22 2. >-at Is an (ffer?...............................................................23 3. 4ermination of an (ffer..24 4. Acce5tance..2" ". ;ni!atera! Contracts2$ %. @Contracts Ait-out ConsentB 1. 4-e C%att!e of t-e ormsC2& 2. @<-rinkAra5BD @C!ickAra5BD @%roAseAra5B2. 3. Im5!ied Contracts.20 4. Indefiniteness and Ga51 i!!ing.33 ". Precontractua! 'ia)i!ity31 $. %usiness Eorms32 C. >ritten Assent 1. 4-e Paro! E:idence #u!e..32 2. 4-e <tatute of rauds34 Part IV: efenses to Contractual Obligation A. 2uress3" %. ;nconsciona)i!ity..3$ C. /istake 1. /utua! /istake3& 2. ;ni!atera! /istake3. 2. Eondisc!osure and /isre5resentation3. E. Im5ossi)i!ity and Im5ractica)i!ity..30 . Agreements ;nenforcea)!e on Grounds of Pu)!ic Po!icy..43 Part V: Performance A. 4-e 2uty of Good ait-..41 %. <u)stantia! Performance..42 C. Conditions of Performance..43 2. Antici5atory #e5udiation....44 E. >arranties4"

K. Hickey
Part I: Principles of Promissory Obligation !. "rounds for #nforcing Promises Introduction %road *uestions in t-e courseF 1 A-en is a contract enforcea)!e? 6Part ID Part I+7 o !aA !ess !ike!y to inter:ene in @5ersona!B areasD A-ere a!truism )est !eft to socia! norms 6egD gift 5romises7 1 if enforcedD A-at is t-e remedy? HoA is t-e contract enforced? 1 A-en is a contract formed? 1 A-at is t-e content of t-e 5romise? HoA does a court understand its terms? 2efau!t :. Immuta)!e ru!es 1 former can )e contracted aroundD !atter cannot 1 )ecause of transaction costs a!! contracts are incom5!ete G defau!t ru!es are usefu! for efficiency G 5arties don9t -a:e to Arite in e:ery term 1 normati:e reasons to create immuta)!e ru!es G 5rotection of 5arties inside or outside t-e contract. ormer G5aterna!ismH !atter 1 e,terna!ities. Bailey v. West (1969) 1 @%ascom9s o!!yB -orse case. 1 >est c!aims t-ere Aas no contractD %ai!ey t-at one Aas @im5!ied in !aAB 6a @*uasi contractB7. #u!ing for >est G %ai!ey a @:o!unteerB 1 actorsF no 5re:ious dea!ingsD no o)=ecti:e manifestation of assentD contro:ersy o:er oAners-i5 knoAn to %ai!ey. A!! argue against enforcement. 'aA 5refers mutua! assent to e, 5ost restitution. %ai!ey in )etter 5osition to a:oid t-e mess G !aA 5uts )urden on -im. 1 incenti:es createdF 5eo5!e in %ai!ey9s 5!ace Ai!! seek an e,5!icit contract. o o55osite ru!e encourages Ai!!y1ni!!y one1Aay conferra! of unAanted )enefits >-y enforce 5romises? 1 critica! to functioning of economicsH democratic freedom to contractH 5syc-o!ogica! comfort e, ante :. e, 5ost effectsF 3 1 2 3 5romise re!iance 5erformanceI )reacremedy 1 e, 5ost G considerations of =ustice Art 5arties )efore t-e court 1 e, ante G considers t-e effect of t-e ru!e crafted on future 5arties in t-e same 5osition 1 it is oftenD ironica!!yD t-e 5romisor A-o needs enforcement since ot-erAiseD in t-e futureD -e Aou!d not )e a)!e to induce 5erformance )ased on -is 5romise " 4-eories of Contractua! ()!igation >i!! G t-e 5romisor Ais-ed it #e!iance G 5romisee re!ied on 5romise Efficiency G encourages economic dea!ings airness G =ust to -o!d 5eo5!e to A-at t-ey 5romise Consideration G attem5t to distinguis- enforcea)!e 5romises from gift 5romises Conc!usion 1 t-ree sources of o)!igation and associated !aA 6and ty5ica! damages7 o -arm tort 6re!iance7 o 5romise contract 6e,5ectation7 o )enefit restitution 6restitution7

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1 1 e, ante 5ers5ecti:eF 5romise ser:es interest of 5romisor as Ae!! as 5romisee no forma!ity re*uirement to contract !aA o 5rosF reduces 4Cs o consF fa!se 5ositi:esD e:identiary 5ro)!emsD fraud 5ro)!emsD memory 5ro)!ems Bailey rule: a)sent a 5romise to 5ayD a )enefit conferred does not !ead to enforcement in contract !aA. In rare circumstancesD !ia)i!ity can arise for a )enefitD )ut t-e remedy is )ased on restitution. o 5rosF incenti:e to enter into e,5!icit contractD a:oids conferra! of unAanted )enefitsD e:identiary issues of assent. o consF if e,ce5tion too narroAD can !ose wanted transactions.

#2K 1 $%: promise may be oral or &ritten' or implied from conduct (. Consideration Kirksey v. Kirksey 1 )rot-er in !aA 5romises sister Anti!!ico 5!ace to !i:e if s-e mo:es near -im. enforcea)!e? 1 court -o!ds 5romise !acks considerationD des5ite detriment suffered in mo:ing Hamer v. idway 1 5romise of J"333 if ne5-eA a)stains from :ices. 1 ;nc!e argues t-ere Aas not detrimentD )ut courts don9t !ike to take 5arties actua! :a!uations into account G -ereD t-ere Aas an o)=ecti:e detriment in gi:ing u5 freedom Kirksey :is1K1:is <idAay 1 detriment sister Anti!!ico suffers is greaterD )ut enforcement is not -ad )ecause t-e detriment Aas not !ar"ained for as it Aas in t-e <idAay case #an"er v. u$erior teel 1 em5!oyer sto5s 5aying a 5ension gi:ing in return for @!oya!tyB 1 2 re!ies on KirkseyD )ut court -o!ds t-ere Aas consideration as em5!oyer got )enefit of em5!oyee not Aorking for anyone e!se #an"er :is1K1:is Kirksey 1 t-e consideration Aas argua)!y not )argained for in 'anger eit-erD )ut courts are more comforta)!e inter:ening in economic rat-er t-an fami!ia! situations. Bor"ian v. Bor"ian 1 Aoman signs aAay re!ease of de)t c!aim in return for anot-er 6sma!!7 re!ease of ta,es oAedD c!aims s-e didn9t knoA A-at s-e Aas doing 1 court -o!ds t-ere Aas considerationD )ut takes a su!%ective :ieA 6incorrect under #2K7 of A-et-er t-ere Aas inducementD and -o!ds t-e consideration Aas not )argained for. ortune 4e!!er 1 contract to @con=ureB -e!d unenforcea)!e for !ack of consideration as t-ere Aas no )enefit Conc!usion 1 traditiona!!yD consideration ) (* benefit to promisor' or +* detriment to promisee 1 In additionD the consideration must be bargained for' in fact' induced ,R+- (.' .(* )y t-e 5romise 6t-e @inducement testB7 1 t&o re/uirements: (* benefit0 detriment' +* a bargain ,test: mutual inducement under .(,+** 1 #u!eF on!y )argained for are enforcea)!e o 5rosF

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o consF distinguis-es gift 5romises from commercia! transactionsD on!y enforcing t-e !atter enforcement of gift 5romises is unAanted as it interferes Aitre!ations-i5s )est !eft to socia! norms sa:es enforcement costs )y !imiting t-e in:o!:ement of t-e courts in gift 5romises

denying !ega! enforcement !imits autonomy of t-e 5romisor 6may Aant to )e a)!e to make an enforcea)!e gift 5romisesD and -a:e t-em )e effecti:e7 <u)=ecti:e :. ()=ecti:e 4ests o magnitude of consideration 1 sub2ecti3e test. R+- $.4. 5o re/uirement of e/ui3alence or mutuality. Court !ea:es t-e :a!uations to t-e 5artiesD so it is enoug- t-at t-e 5romisor found t-e consideration :a!ua)!e enoug- to induce t-e 5romise e,ce5tionF gross inade*uacy. EgD fortune te!!er case G 5er-a5s )etter for t-at to )e reso!:ed using fraud or duressD -oAe:er. o inducement 1 ob2ecti3e test. R+- $.(' cmt. ,b*. 'aA concerns Aito)=ecti:e manifestations rat-er t-an su)=ecti:e menta! states EgD %orgian decided Arong!y. Hard cases o 6i7ed 6oti3es 1 'imits of t-e 8)argained for9 I 8inducement test9F @ The fact that &hat is bargained for does not of itself induce the ma8ing of a promise does not pre3ent it from being consideration for the promise.9 :R+- $ ;(,(*<. EgD may -a:e )een mu!ti5!e moti:es in 'angerD )ut sti!! enforcea)!e. o ifficult distinctionF Bargain 3s. ="ift promise > condition.? 4-e inducement test can )e -e!5fu! -ere. E,am5!esF 617 4-e desire t-at >i!!ie a:oid drinking and gam)!ing induced t-e ;nc!e9s 5romise. 627 )ut in @I9!! gi:e you J133 to cross t-e streetB t-e t-oug-t of -im crossing of t-e street didn9t induce t-e 5romise L 1& G re*uires a )argain L &1 G re*uirement of a )argained for consideration o cmt. 6)7 G o)=ecti:e test for inducement L &0 G if consideration meantD no additiona! re*uirement of mutua!ity or e*ui:a!ence in :a!ues e,c-anged. o cmt. 6c7 G 5arties !eft to determine oAn :a!ues o cmt. 6d7 G 5retended e,c-ange G nomina! consideration does not satisfy L&1 o cmt. 6e7 G gross inade/uacy does not defeat consideration' but rele3ant in application of fraud0 duress' unconscionability L.1 G e,istence of mi,ed moti:es does not defeat consideration

#2K 1 1 1

+. Formality unctions of orma!ity 1 @c-anne!ing 5ur5oseB G re5resents a decision to 5ut 5romise in t-e !ega! s5-ereD make it enforcea)!e 1 @cautionary 5ur5oseB G gi:es 5arties fair Aarning

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@e:identiary 5ur5oseB G makes it easier to 5ro:e 5romise madeD and A-at its terms Aere 4Ao ty5es of forma!ityF sea!I AritingD nomina! consideration 4-omas :. 4-omas 1 contract )etAeen AidoA and e,ecutorsD A-o gi:e -er a -ouse for a J1 rent 1 court -o!ds t-at t-e rentI u5kee5 are :a!id considerations 1 -oAe:erD t-ere Aas no inducement in t-is case o L .1 a!!oAs for enforcement e:en A-en t-ere is no inducementD or mi,ed moti:es. In re Greene 1 Aritten contract of )ankru5t to gi:e u5 -ouseD etc.D for nomina! considerations. 1 nomina! consideration -e!d not to )e enoug-D des5ite o):ious intention to )e )ound Greene :is1K1:is 4-omas 1 inconsistency 5ro)a)!y due to normati:e a55ea! of enforcement in 4-omas case Conc!usion 1 can a &riting0 seal substitute for consideration@ o under ACC' no. $+B+CD. o Ander restatement' generally no. #7ceptions in $4E,(*. o in some statesD a Ariting can Aork. 1 Formality in often needed in addition to consideration. Fee the Ftatute of Frauds. 1 4-ere is a conc!usi:e 5resum5tion t-at t-e 5arties do not intend to )e )ound in t-e a)sence of consideration o a re:ersa! of t-e o!d ru!e t-at a sea! Aas a conc!usi:e 5resum5tion t-at t-e 5arties intended to )ound. D. Reliance #ickets :. <cot-orn 1 grandfat-er 5romises J2333D granddaug-ter *uits =o). 4-ere is a detrimentD )ut no consideration as it Aasn9t )argained for. Eonet-e!ess t-e 5romise is enforced on an esto55e!Ire!iance t-eory 1 #mkF resu!t Aou!d )e different today in KirkseyD enforcement -ad on a re!iance t-eory ein)erg :. Pfeiffer 1 5romise of 5ensionD t-en renege. Eo traditiona! considerationD )ut enforced on )ased on 5romissory esto55e! 1 t-ree -y5osF o 5ension 5romisedD t-en em5!oyee retires enforcement )ased on re!iance. ein)erg o Em5!oyee retiresD t-en 5ension 5romised. no CE. Gift 5romise. o em5!oyee retiresD t-en 5ension 5romised Ait- non1com5ete condition consideration. Cf. 'anger Promissory #stoppel 1 R+- $ 4C 1 definitionF >-en A makes a @re5resentationDB on A-ic- % re!iesD and t-e re!iance Ai!! )e !ost un!ess t-e re5resentation is :a!idD A is )ound not to undermine -is oAn re5resentation. 1 re/uirements of R+- $4C: o ,(* promissory estoppel promisor Greasonably e7pects9 promise may induce reliance 1

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it does induce reliance in2ustice can only be a3oided through enforcement o ,+* charitable subscriptions automatically binding o Remedy: Glimited as 2ustice re/uires9 1 difference )etAeen 5romissory and e*uita)!e esto55e! o E*uita)!e esto55e! traditiona!!y a55!ied on!y to misre5resentation as to e,isting facts. o <tatement on A-ic- 5romissory esto55e! o5erates is not a re5resentation as to e,isting facts )ut a 5romise as to t-e future. (ftenD it is not a misre5resentation at a!! as t-e intention at t-e time Aas to fu!fi!! t-e 5romise. o Promissory esto55e! e,5ands e*uita)!e esto55e! to 5romises o E*uita)!e esto55e! on!y o5erates as a defense or a s-ie!d. Promissory esto55e! can )e used as a sAordD i.e.D a cause of action. A!!eg-eny Co!!ege Case 1 c-arita)!e su)scri5tion -e!d enforcea)!e )ased on fact t-at getting your name on t-e sc-o!ars-i5 suffices as consideration Positi:e :. Eegati:e 2amages 1 5ositi:e G 5romised )ased :. negati:e G -arm t-at Aas done 1 EgF ein)erg. Positi:e M 5ension due. Eegati:e M !oss of 5ay for years s-e Aou!d9:e AorkedD if s-e Aou!d9:e AorkedD minus J233 s-e did get. %. Benefit ,outside of - la& 1 un2ust enrichment0 restitution* /i!!s :. >yman 1 P 5ro:ides medica! ser:icesD fat-er agrees to 5ayD t-en reneges. Eo consideration as t-ere Aas no inducement. Court dec!ines to enforce 1 e,ce5tions o restitution a:ai!a)!e in case of medica! e,igency 6#estitution L11$7 o A-en first 5romise unenforcea)!e for tec-nica! reasons G disc-arged in )ankru5tcyD statute of !imitations G second 5romise is enforcea)!e since t-ere Aas a *uid 5ro *uo once. >e)) :. /cGoAan 1 >e)) cri55!es se!f to sa:e /cGoAan from imminent -arm. Promised enforcedD )ut using mora! o)!igation as consideration G restitution a )etter t-eoryD 5er-a5s. /cGoAan :is1K1:is >yman 1 not consistent. in )ot- casesD t-ere Aas no a)i!ity to consent e, anteD s-ou!d enforce. Conc!usion 1 under R+- $ ;H' for enforceability based on benefit' &e need o benefit conferred o e7 post promise o un2ust enrichment ,not a gift* o inability to consent e7 ante 1 last element insures the benefit &as &anted' and the promise thus ser3es a evidentiary role that promise &as indeed &anted. Fee $;H' cmt. ,b*. 1 R+- $;+0;D 1 promises to pay past indebtedness e7 postBstatute of lim. or ban8ruptcy binding on benefit theory 1 tAo meanings of restitutionI *uantum meruit o as a )asis of !ia)i!ity o as a measure of damages 1 >-y Aasn9t 5romise made !efore conferra! of t-e )enefit?

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in case A-ere t-ere are !oA 4CsD 5arties cou!d -a:e contractedD so Ae Ai!! not enforce encourage e,5!icit contracting 6cf. %ascom9s o!!y7 o A-en t-ere are -ig- 4CsD 5arties can9t contract t-e e, 5ostD 5romiseD t-enD is e:idence t-at t-ey Aou!d -a:e contracted if t-ey Aere a)!e Nustice :. Incenti:es o -ereD )ot- argue for enforcement. E, 5ost =ustice creates sym5at-y for Aronged 5artyD and a)sent enforcementD e, anteD t-e 5arty Aou!d not confer A-at Aas e:ident!y a Aanted )enefitD and soD tooD t-e 5romisor Ai!! )e -armed. Remedies under $;H 1 Gbinding to the e7tent necessary to pre3ent in2ustice9 o Benefit ) li/uidated sum promise is not enforced beyond the amount of the benefit. o Benefit I li/uidated sum promise to pay the 3alue is binding if this sum is not disproportionate to the benefit. o o

B. Jimits on Promissory Obligation (. !de/uacy of Values #7changed riege :. %oe-m 1 contract to for)ear on )astardy c!aim in e,c-ange for su55ort. 4urns out c!aim Aas unfounded as -e Aas not t-e fat-er. Contract -e!d enforcea)!eD as t-reat Aas credi)!e at t-e time of t-e contract 1 )asic test is su)=ecti:e G did 5arties t-emse!:es )e!ie:e t-e t-reat Aas goodD tam5ered )y an o)=ecti:e !imit e,c!uding com5!ete!y )ogus c!aims Test under R+- $ .% 1 &hen is surrendering a claim ,later pro3ed to be in3alid* C5@ 1 Po!icies encourage sett!ement of c!aimsD a!!oA tAo Aays for dro55ing t-em to )e considerationD e:en if !ater 5ro:ed in:a!id. <ti!! )inding ifF o 6a7 o)=ecti:e test G @c!aim or defense is in fact dou)tfu! )ecause of uncertainty as to t-e facts of t-e !aAB o 6)7 su)=ecti:e test G @t-e for)earing or surrendering 5arty )e!ie:es t-e c!aimB 1 4rans!ationF sub2ecti3e honesty is enough' but if claim is ob2ecti3ely bogus' this &ill ser3e as e3idence sub2ecti3ely honesty &as lac8ing 1 Incenti:esF good for 5romisorD since if t-reat 5ossi)!y trueD Aants to )e a)!e to contract out of it %atsakis :. 2emotsis 1 Can J2" )e consideration for J2333? Court -o!ds yes. 1 Affirms #u!e in L&0 t-at courts Ai!! not genera!!y in*uire into t-e ade*uacy of consideration. 1 If -e!d not enforcea)!eD Aou!d -urt 5romisorD A-o may rea!!y -a:e needed t-e J2" at t-e time 6-ereD occu5ied Greece7 A5fe! :. Prudentia!1%ac-e 1 Prudentia! c!aims idea contracted for is not rea!!y no:e!D t-erefore not considerationD a fact )e!ied since t-ey 5aid for it for tAo years. Contract enforced. Conc!usion 1 R+- $ .4 1 ade/uacy of 3alues not re/uired. C5 not doctrine to remedy oneB sided deals.

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o 1 gross inade/uacy does not negate consideration' but may ser3e as e3idence0 trigger for other doctrines: duress' fraud' mista8e' unconscionability' etc.

Po!icy o E, PostD courts may t-ink non1enforcement -e!5s t-e 5romisor 6)y -o!ding CE inade*uate7D )ut e, anteD t-ere Ai!! )e no dea!D and so )ot- 5arties !ose.

+. 6utuality #e-m1Oei-er :. .G. >a!ker 1 contract for )uyer to )uy from se!!erD )ut cou!d sto5 for any unforeseen reason. Court -o!ds contract unenforcea)!e for !ack of mutua!ity 1 Court -ere c!ear!y Arong G )arring stu5idity 6t-e stu5idity test7 t-e 5arties meant to enter into a re*uirements contractF )uyer doesn9t -a:e to )uyD )ut if -e doesD -e -as to )uy from t-e se!!er at a s5ecified 5rice. 1 Parties intended to a!!ocate risk of market f!uctuations to t-e se!!erD A-ose )etter 5ositioned to -and!e it. %uyer gets sta)i!ity of 5riceD o5tion to decide -oA muc- to )uyD and se!!er gets a -ig-er 5riceD e,c!usi:ity re*uirement. 1 E, ante effect of t-e court9s ru!ing is to render t-e 5arties una)!e to enter into re*uirements contactsD force inefficient sa!e1)y1sa!e transactions. 'ess 5ie. /c/ic-ae! :. Price 1 anot-er re*uirements contractD A-ere )uyer Ai!! 5urc-ase a!! t-e sand t-e se!!er can se!! to t-e )uyer. Argument is t-at t-ere is a !ack of mutua!ity as se!!er cou!d sim5!y not se!! any sandD and so -as a @free Aay out.B Court enforcesD )ased on fact t-at se!!er -as e,5eriencedD 5arties antici5ated su)stantia! amount of sand Aou!d )e so!d 1 #ig-t resu!tD Arong reasoning G contract s-ou!d )e enforced regard!essD as t-e e,c!usi:ity is a :a!id consideration. >ood :. 'ucy 1 2ea! for >ood to )e t-e e,c!usi:e dea!er of 'ucy9s designsD 'ucy gets "3P of sa!es 1 Argument for !ack of mutua!ity as >ood cou!d sim5!y not se!! any c!ot-esD and 'ucy Aou!d )e out of !uck. CardoQo enforcesD finding an im5!ied condition of good faitt-at >ood Ai!! market t-e items as )est -e can. (mni Grou5 :. <eatt!e1 irst Eationa! 1 c!aim t-at feasi)i!ity re5ort )e @satisfactoryB to )uyer created a !ack of mutua!ity re=ectedD again reading an im5!ied c!aim of good fait- G )uyer can9t =ust re=ect anyt-ingD doesn9t -a:e a free Aay out 6#2K L2.. G o)=ecti:e test of satisfaction7 Conc!usion 1 o!d ru!eF @!ack of mutua!ityB G a @free Aay outB :oids K for !ack of CE 1 courts no longer ner3ous about asymmetry' Glac8 of mutuality9 1 any small limitation of discretion suffices' including good faith under ACC $(B +CD' R+- $+CE o The Gstupidity test9 1 if it &as bargained for' there is li8ely C5. Kust imply good faith conditions. 1 ACC $ +BDCH places implied conditions on re/uirements0 output contracts ,nothing Gunreasonable disproportionate9 to e7pectations* and implied Gbest efforts9 in e7clusi3e dealing. 1 #2K L&& G I!!usory contracts 1 L22. G satisfaction of t-e o)!igor as a condition.

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()=ecti:e test 1 A-et-er a reasona)!e 5erson Aou!d )e satisfied Ait- t-e resu!ts. act t-at t-e 5arties )argained for t-e K most im5ortant. o

D. PreB#7isting uty and Modification octrine a. Genera! ?F >-en does a 5ree,isting duty to do R 5re:ent R from )eing used as consideration? /ai! Hy5o 1 Ni!! offers J"33 to mai!man to ensure -er mai! is de!i:ered ear!y. Enforcea)!e? 1 )argain struckD )ut unfair to ot-er customersD !eads to ine*uity <ources of 2utyF 17 'aAD 27 K Ait- 3rd PartyD 37 K Ait- same 5arty 6K modification7 1 s-ou!d t-e source of t-e duty matter? o yes 1 it may affect 5o!icy considerationsI e,terna!ities Gray :. /artino 1 co5 offered e,tra money to catc- t-ief. <ource of 5re:ious o)!igation G !aA. Good 5o!icy reasons not to enforce G !eads to ine*uityD 5oor getting Aorse 5o!icing 1 If does so on s5are timeD same effect t-roug- fatigue /c2e:itt :. <tokes 1 =ockey offered J1333 )y oAner if -e Ains t-e race. 1 as it co5 caseD consideration e,ists )ut cases are distinguis-a)!e o no negati:e e,terna!ity 63rd 5arties not -urt7 in t-is caseD on!y a 5ositi:e oneD inducing more 5racticeD etc. 1 Court Arong not to enforce. 2eCicco :. <c-AeitQer 1 fat-er 5romises an annuity to daug-ter to induce a marriage 1 -ereD contract enforced. Eo e,terna!ityD )ut may)e )ad for courts to interfere in fami!ia! re!ations-i5s. Conc!usion 1 octrinal rule: $.D performance of legal duty &hich is neither doubtful nor the sub2ect of honest dispute not C5. 1 BAT: Often a big difference bet&een a duty to do L and actually doing L' or doing it better ,cf. 2oc8ey case* o C5 e7ists. Mhy else &ould these parties ma8e the promises@ Only real concern should be public policy or negati3e e7ternalities. ). /odification ?F A-en 6if e:er7 s-ou!d t-e 5re1e,isting duty ru!e )ar a K modification? 'e:ine :. %!ument-a! 1 tenant and !and!ord agree to reduced rent. 'and!ord t-en sues for fu!! amount. 1 court doesn9t enforce as no @fres-B considerationD -o!ding )ankru5tcy e,ce5tion doesn9t a55!yD )ut A-y Aou!d t-e !and!ord agree if t-ere Aas no t-reat of )ankru5tcy 6t-e stu5idity test7? Ke!sey Hayes :. Ga!teco 1 KH su55!er of )rake 5artsD Ga!teco t-e 5roducer. Ga!teco not doing Ae!!D t-reatens to sto5 5erformanceD KHD under o)!igation to ordD agrees to 5rice increase. Court -o!ds modification made under duressD and so not enforcea)!e 1 E, anteD t-is ru!e Ai!! -urt KH G knoAing a modification isn9t enforcea)!eD Ga!teco Ai!! sim5!y go out of )usiness if t-eir t-reat Aas credi)!e. A!aska Packers9 Assoc. :. 2omencio

13

K. Hickey
fis-ermen demand modification A-i!e on tri5D A-ic- su5er:isor aggress to G no ot-er a!ternati:e 1 t-reat of sto55ing 5erformance -ere is !ike!y a )!uff G e, anteD if 5arties kneA modification Aas unenforcea)!eD 5ro)a)!y Aou!d9:e 5erformed anyAay Ange! :. /urray 1 Gar)age co!!ector asks for more money in !ig-t of more -omesD EeA5ort agrees. Court enforces t-e modification 1 Possi)!y a credi)!e t-reat of )reac- -ere G e!se A-y Aou!d t-e city agree to t-e modification? 1 Credi)i!ity s-ou!d )e a necessaryD )ut not sufficient condition for enforcea)i!ity 2out-Arig-t :. Eort-east Corridor oundations 1 accord and satisfaction G on dis5uted de)tD de)tor can offer some of t-e amountD and if acce5tedD c!ears t-e de)t. o ru!e encourages e,tra1=udicia! sett!ement Conc!usion 1 Ander ACC +B+C4,(*' modification re/uires only good faith' not separate consideration 1 In R+- ;4' modification must be Gfair and e/uitable in 3ie& of circumstances not anticipated9 o no strict preBe7isting duty rule for - modifications anymore 1 for duress' R+- (.E: if Gno reasonable alternati3es9 due to improper threat not enforced 1 /odification of de)t 6no good reason to -a:e se5arate doctrine for t-ese modificationsD )ut it e,ists7 E*ui:a!ent of 5ree,isting duty ru!e Accord and satisfaction G ;CC 31311 1 Perspecti3e of threatened party 1 traditional focus o Nuestions of duress and coercion o Traditional focus of courts: Gno reasonable alternati3e9 or Gfair and e/uitable9 1 Perspecti3e of Threatening Party o Ggood faith9 test of ACC $+C4 o Gcircumstances not anticipated9 o The credibility test Part II: Remedies for Breach of Contract !. The #7pectation 6easure of amages Introduction to Remedies A:ai!a)!e #emedies 1 /oney 2amages o Three 6easures: #7pectation amages ,# *' Reliance amages ,Rel *' Restitution amages ,Res * ,R+- $D%%* o <ti5u!ated or 'i*uidated 2amages 1 <5ecific Performance 1 #2K L3"0 1 1 R+- $ D%.O ACC $ (B(CH :Re3. $ (BDCE< 1 In2ured party has right to # . 1

11

K. Hickey
1 R+- $ D%40 D.D 1 In2ured party can elect Rel 0 Res instead of # . HaAkins :. /cGee 1 )otc-ed -and surgery after guarantee of @5erfect resu!ts.B 4-ree -andsF )eforeD 5erfectD scarred. 1 #es2 M return of money 5aidD #e!2 M 6)efore1scarred7 S 5ain and suffering S restitutionH E2 M 5erfect G scarred. Court uses e,5ectationD cf. <u!!i:anD A-ere court uses re!iance 6as it Aas a tort7 #estitution :. #e!iance :. E,5ectation 6e,am5!es7 1 +a!ue of good to )uyer M 233D Cost of good to se!!er M 133D Contract 5rice M1"3 6not yet 5aid7 1 Case I G %uyer )reac-es )efore se!!er e,5ends any 5roduction cost. o E,5ectation M "3 D restitution M re!iance M 3 1 Case II 1 %uyer )reac-es after se!!er sunk 23 o E,5ectation M "3S23 M &3D #e!iance M23D #estitution M 3 1 Case III 1 %uyer )reac-es after )uying from anot-er se!!er for 12". <e!!er sunk not-ing o E,5ectation M "3D #e!iance M 3D #estitution M 2" 6)ased on )enefit to )reac-ing 5arty G -is @un=ust enric-mentB7 1 Case I+ 1 Partia! de!i:ery t-at costs se!!er "3D se!!er rea!iQes oAn cost is 1&". 4-en for some reason )uyer )reac-es. o E,5ectation M 2" 6)ecause "3 sunkD and e,5ected !oss Aas G2"D to 2" returns se!!er to e,5ected !ossD i.e.D 1"3 S 2" M 12"7D #e!iance M "3D #estitution M :a!ue of 5artia! de!i:ery to )uyer. /enQe! :. 'ist Hy5o 1 /enQe!s )uy 5ainting for J1"3D sto!enD Per!s )uy for J2D.33 !aterD se!! to 'ist for J4D333. 'ist sued )y /enQe!sD !osesD 5ays J2333. 'ist in turn sues t-e Per!sD Ains. /arket :a!ue M J22D"33 1 >-at s-ou!d Per!s 5ay 'ist? o #es2F 4o take aAay t-e )enefit 6t-e @un=ust enric-mentB7 o)tained )y t-e )reac-ing 5arty. M J4D333. 6)enefit to Per!s7 o #e!2F 4o 5!ace t-e )reac- :ictim in t-e situation t-at -e Aou!d -a:e )een a)sent t-e contract. M J4D333 6'ist 5aid7 S J2D333 6/enQe!9s !itigation costs7 S 'ist9s !itigation costs. o E2F 4o 5!ace t-e )reac- :ictim in t-e situation t-at -e Aou!d -a:e )een in -ad t-e contract )een 5erformed. M J22D"33 S J2D333 6/enQe!9s !itigation costs7 S 'ist9s !itigation costs. #conomic Rationale of Remedies 2o #emedies -a:e an effect on 5arties )e-a:ior? 1 If TC ) C: o Remedies ha3e no effect on the performance 0 breach decision no effect on the siPe of the - pie. o Remedies ha3e no effect on the di3ision of the - pie. 1 If Qigh TC: # ensures efficient breach ma7imiPes the siPe of the - pie. Eot on!y is t-e K 5ie )iggerD )ut a!so eac- 5arty gets a )igger s!ice. 1 #mkF 4-e stated im5!ications for t-e di:ision of t-e K 5ie critica!!y de5end on t-e assum5tion t-at t-e e, 5ost effects 65erformanceD )reac-D renegotiation7 are rationa!!y 5riced e, ante.

12

K. Hickey
E,am5!e 6#esu!tF 2amages affect neit-er t-e siQe nor t-e di:ision of t-e sur5!us if 4CM37 1 +a!ue of goods to )uyer M 233D Cost of goods to se!!er M 133 "3P of timeD 333 "3P of time. K 5rice of 1"3 5aid. 1 ;nder E2 o If 'oA cost %uyer9s gain M233 <e!!er9s cost M 133 o Hig- cost 6)reac- under E27 %uyer9s gain M 233 6t-roug- damages7 <e!!er9s cost M 233 65aid to )uyer7 o A:erages 6gi:en !oA cost 5erformanceD -ig- cost )reac-7 %uyer9s e,5ected e, 5ost :a!ueM 233 <e!!er9s cost e,5ected cost M 1"3 o E, ante negotiation 6#P M reser:ation 5rice7 %uyer9s #P M 233 <e!!er9s #P M 1"3 o K 5rice M 1&" 6eg7 %uyer9s e, ante 5ayoff M 2" <e!!er9s e, ante 5ayoff M 2" 1 ;nder s5ecific 5erformance o 'oA cost %uyer gain M 233 <e!!er cost M 133 o Hig- cost 6#enegotiation7 %uyer9s #PM233D <e!!er9s #P M 333. (utcomeF se!!er )reac-es and 5aysD sayD 2"3 to )uyer %uyer9s gain M 2"3 <e!!er9s cost M2"3 o A:erages %uyer9s e,5ected gain M 22" <e!!er9s e,5ected cost M 1&" o E, ante negotiation %uyer9s #P M 22" <e!!er9s #P M 1&" o K 5rice M 233 6eg7 E, ante 5ayoffs M 2" eacNustifying E2 1 # is the only measure that &ill ensure breach iff breach is efficient 1 EgD K 5rice M 1"3H %uyer9s :a!uation M 233H <e!!er9s +a!uation M 133. 1"3 5aid u5 front. o As 5erformance costs 133 to se!!erD any damages greater t-an 133 induces 5erformance. o >-at if cost of 5erformance c-anges? o C M "3H damages M 33H Aou!d !ead to inefficient )reac-H o C M 1"3H 2amages M 133 Aou!d !ead to inefficient )reac-H E2 Aou!d !ead to efficient 5erformance. o C M 333H damages M "33 Aou!d !ead to inefficient 5erformanceH E2 Aou!d !ead to efficient )reac-.

13

K. Hickey
The effect of nonB# remedies is to reduce the contracting surplus' as other damages &ill lead either to inefficient performance ,too high* or inefficient breach ,too lo&* 1 <5ecific 5erformance doesn9t -e!5 t-e )uyerD as e:eryone knoAs t-ey must 5erform e:en if it9s inefficient. 4-en K 5rice Ai!! go u5 due to uncertainty. <am5!e E2 5ro)!em o +a!ue to )uyer M 233D +a!ue to se!!er M 133D K 5rice 5aid u5front. <e!!er t-en a55roac-ed )y %uyer 2 A-o offers 2"3 o E2 M 233 o If renegotiation is im5ossi)!e If damages M E2D se!!er Ai!! )reac- to se!! to )uyer 2. Efficient )reac-. If damages M 333D se!!er Ai!! not )reac-. inefficient 5erformance E, 5ostD is )uyer is indifferent as to damages E, anteD t-e )uyer 5refers E2 )ecause -ig-er damages Ai!! !ead t-e se!!er to u5 t-e 5rice. o If renegotiation is easy If damages M E2D se!!er Ai!! )reac- and se!! to )uyer tAo If damages M 333D se!!er Ai!! renegotiate Ait- )uyer for re!ease. %uyer9s #P M 233D <e!!er9s #P M 2"3. E, 5ostD )uyer is )etter off Ait- damages M 333 E, anteD )uyer is indifferent as to remedy. (. =Cost of Completion? 3ersus = iminution in Value? TuestionsF o Is t-ere su)=ecti:e :a!ue in:o!:ed? o >-at did t-e 5arties Aant? >-at Aas t-e 5ur5ose of t-e K G to gain market :a!ue U2i+V :s. to secure a 5-ysica! resu!t UCoCV? Pee:y-ouse :. Gar!and o 'ease of !and for oi! dri!!ingD contract -ad s5ecific restoration c!ause. CoC M J33D333D 2i+ M J"33. o Court a55!ies i!!ogica! @economic AasteB testD a!so c!aims term Aas @incidenta!DB A-icignores t-e fact t-at rec!amation in contractD )argained forD and t-e contract t-e )est tracker of t-e 5arties :a!uation American <tandardD Inc. :. <c-ectman o Commercia! 5ro5erty not graded 5ro5er!yD CoC MJ03KD 2i+ M J3K. Court aAards CoC o Inconsistent Ait- Pee:y-ouse. If anyt-ingD Pee:y-ouse offers a case A-ere t-ere mucmore !ike!y to )e su)=ecti:e :a!uations Rm8: CoC is al&ays greater than or e/ual to iV o EgD -ouse in )ad condition. Costs 13 to 5ut it in good conditionD so CoC M13. If 5otentia! )uyer9s :a!uation of t-e difference is greater t-an t-e market 6sayD 1"7D -e9!! 5ay 13 to re5air it. 4-usD 2i+ is t-e same as t-e cost of com5!etionD CoC M13 M 2i+. If t-e )uyer9s :a!uation of a @good -ouse is !essD t-an t-e 2i+ W 13D A-i!e t-e cost of com5!etion is 13. Case A-ere 2i+ W CoC. #i:ers :. 2eane o fau!ty construction of addition. CoC aAarded. 'itt!e consistency in !aA. Naco)s X Young :. Kent o #eading Pi5e case. CoC M :ery -ig-D 2i+ M sma!! 1

14

K. Hickey
CardoQo crafts infamous economic Aaste test. Eo Aaste no matter A-at court does G if orders s5ecific 5erformance renegotiationsH if orders damages Aon9t )e used to re5!ace 5i5e un!ess Kent -as -ig- su)=ecti:e :a!ue o AAarding CoC may -a:e 5ositi:e e, ante effect of increasing care if )ui!ding 6A-icAou!dD -oAe:erD increase t-e K 5rice7 Conc!usion o In t-eoryD t-e !ega! c-oice )etAeen CoC and 2i+ is a defau!t ru!e. In 5racticeD it is not so easy to o5t out of t-e defau!t? Courts do not a!Aays res5ect e,5!icit contractua! 5ro:isions. o 4-e @economic AasteB test makes no senseF Protecting su)=ecti:e :a!ue is not Aaste. If su)=ecti:e :a!ue is not -ig-D t-en )reac- :ictim Aou!d not s5end t-e money on re5airD and so no Aaste Ai!! occur. o Test: R+- $ D%;,+* 1 Plaintiff can choose so long as CoC not Gclearly disproportionateR to iV. o Rough guidelines: Courts are more li8ely to a&ard CoC &hen: 4-e )reac- :ictim is !ike!y to -ire su)stitute 5erformance. CoC is not dis5ro5ortionate to 2i+. 4-e )reac-ing 5arty )e-a:ed )ad!y. <ignificant )reac-. su)stantia! 5erformance more !ike!y 2i+ 4-ere is a s5ecific term in t-e contract. Po!icy recogniQing t-e im5ortance of t-e 5-ysica!D as o55osed to financia!D resu!t. o Real test should be &hat the parties &anted 1 eg' did the inclusion of the pipe term represent a high sub2ecti3e 3aluation of Reading pipe ,and so should be respected and CoC a&arded*' or did it 2ust mean Ggood pipe9 ,in &hich case iV is fine* o +. The #7pectation 6easure under the ACC Breach by Buyer0 Feller?s Remedies 6a8eB&hole damages :$ (BDCE< B general principle specifically: lost profit :$ +B.C;,(*< in Glost 3olume9 case Resale damages :$$ +B.CD,d*' +B.CH,(*<. -B6 damages :$ +B.C;,(*< ,GQypothetical Resale9* o <e!!er9s C-oice Feller can choose &hether or not to resell U;CC L 21&33VF 17 If <e!!er rese!!s in good faithD s-e Ai!! get #esa!e damages 6e:en A-en t-ey e,ceed K1/7 6see &merican Medical7 27 If <e!!er does not rese!!D s-e can get K1/ damages. 37 If t-e <e!!er Aou!d not )e a)!e to re1se!! 6egD tai!or1made good7D or good 5eris-ed des5ite reasona)!e effort to re1se!!D se!!er can get K 5rice. #2K L21&30. 47 In @!ost :o!umeDB case 6or if K1/ ot-erAise inade*uate to make1 A-o!e7D can get !ost 5rofit G t-e e,5ectation measure. #esa!e I K1/ damages :. /ake1A-o!e damagesF >-en #esa!e I K1/ W /ake1A-o!e damages 6are inade*uate7D <e!!er can get /ake1A-o!e damages I 'ost Profit. U;CC L 21&3.627V G egD @!ost :o!umeB case

1"

K. Hickey
TuestionF >-en #esa!e I K1/ Z /ake1A-o!e damagesD can L 1133" !imit reco:ery to /ake1A-o!e damages? o courts disagree. Eo)s :. Ko55ers does soD conforming to genera! e,5ectation 5-i!oso5-y of 1133". Fecrecy interest parties may prefer ob2ecti3e measures' such as -B6 differential' to protect secrecy. Thus setting e7pectation cap on -B6 differential may be detrimental to the secrecy interest. E,am5!es Eeri :. #etai! /arine G @!ost :o!umeB case. <e!!er aAarded !ost 5rofit des5ite resa!eD conforming to e,5ectation 'ocks :. >ade G @!ost :o!umeB =uke)o, case. ():ious!yD can9t c!aim !ost :o!ume A-en good is uni*ue 6egD rea!ty7 Eo)s :. Ko55ers G cumene contractD 5rice dro5s 5reci5itous!y. K1/ :ery !argeD muc- greater t-an e,5ected 5rofit 6E27. 4-oug- ru!e L21&3. doesn9t en:ision t-is 5ossi)i!ity court fo!!oA t-e genera! 5rinci5!e t-an e,5ectation s-ou!d )e t-e measure. American /edica! G forced resa!e after )reac- at forec!osure sa!e. #esa!e damages aAardedD t-oug- t-ey e,ceed K1/D as %uyer kneA of forec!osure danger if )reac-edD and A/ cou!d not mitigate

Breach by Feller0 Buyer?s Remedies 6a8eB&hole damages :$ (BDCE< 1 general principle Co3er damages :$$ +B.((,a*' +B.(+<. If Buyer co3ers' Co3er damages ) 6a8eB&hole damages. -B6 damages :$ +B.(D< ,GQypothetical Co3er9*. o %uyer9s C-oice Buyer can choose &hether or not to co3er :ACC $$ +B.((' .(+,D*<: 17 If %uyer co:ers in good faithD s-e Ai!! get Co:er damages 6and cannot sue for K1/ damages A-en K1/ Z Co:er7 U;CC LL 21&13D cmt "H 11 33"V 27 If %uyer does not co:erD s-e Ai!! get K1/ damages. U21&13V 37 <5ecific Performance U21&1$V K1/ damages :. /ake1A-o!e damages TuestionF >-en Co:er I K1/ Z /ake1A-o!e damagesD can L 1133" !imit reco:ery to make1A-o!e damages? o secrecy concerns argue against t-is o Fecrecy Interest 5arties -a:e )ot- a @com5ensatory interestB 6getting A-at t-ey contracted for7 and a @secrecy interestB 6not re:ea!ing information in e, 5ost =udicia! scrutiny7 A-ic- is often ignored Courts 5oAer to im5ose ca5s on contract1market differentia!D !imiting to !ost 5rofitsD damages secrecy interests. A!!oAing t-ese in*uires A-en restitution or contract1market c!aimD e!iminates )enefits of t-ese measures Art secrecy interest. <imi!ar!y Ait- co:erD if 5arty a!!oAed to in*uire in o55ortunities to co:erD etc. <o!utionF A!!oA 5arties to contract for o)=ecti:e damage measures t-at are free of e, 5ost =udicia! scrutiny

1$

K. Hickey
o E,am5!es /c2ona!d 'ettuce Hy5o 1 J"33 !ettuce sa!eD )reac-. %uyer co:ers for J&33D Ai!! get J233 in damages. <ay contract a midd!emanD A-o on!y gets J23 regard!ess of t-e 5rice. Hence E2 W Co:er. Can t-e court !imit damages to E2 under 1133"? ;nder straig-t terms of ;CC yesD )ut disagreement e,ists.

B. Jimits on #7pectation amages (. 6itigation of amages Conc!usion o #u!es R+- $ DEC ,!3oidability* 1 basic principle of duty of mitigation for breach 3ictim. A55!ies toF <e!!er9s #emedies U21&34627 6!oss a:oidance )y se!!er7D #esa!eVD %uyer9s #emedies UL 21&12 6Co:er7 US L 21&1"6276a7V conse*uentia! damagesV. The uty to 6itigate 1 JimitsF (n!y (* reasonable and +* costBeffecti3e mitigation is re*uired. U!egitimate )usiness =udgments are not a fai!ure to mitigate.V 4-e :ictim is not re/uired to do something that the breacher could ha3e 2ust as easily done. o Po!icy 4-e mitigation re*uirement does not contradict t-e e,5ectation 5rinci5!e of 5!acing t-e )reac- :ictim in as good a 5osition as -e Aou!d -a:e )een -ad t-e contract )een 5erformed. 4-e )reac- :ictim does not !ose from mitigating. reasona)!e e,5enses in mitigating or attem5t to mitigate co:ered in incidenta!I conse*uentia! damages Effect of mitigation doctrine is to induce efficient )e-a:ior A-en 5ossi)!e. %ot5arties Aou!d -a:e Aanted to inc!ude an economica!!y ma,imiQing re*uirement in t-e e, ante contract. o In t-e em5!oyment conte,tF ()=ecti:e :. <u)=ecti:e 1 /arket :ision :. Persona! significance :ision. K !aA is defining A-at =o)s are e*ui:a!ent. 4-e !aA is s-a5ing t-e ty5e of society Ae !i:e inD defining norms )y saying some em5!oyment @inferiorB E,am5!es o #ocking-am County :. 'uten %ridge G informed of a re5udiationD contractor can9t kee5 )ui!ding to rack u5 damages. 2amages t-us measures from t-e 5oint -e Aas notified of t-e )reac-. o Parker :. 23t- Century o, G em5!oyment contract. 2oes refusing to take anot-er ro!e constitute a fai!ure to mitigate? Court -o!ds ro!e sufficient!y different. #ea!!yD t-e contract Aas take1or15ay o5tion contractD Parker under no duty to mitigate at a!! G 5arties antici5ated mo:ie mig-t not go forAard. +. Foreseeability Conc!usion o #u!es R+- $ DE( 1 damages that party in breach could not foresee as a probable result &hen - &as made are not a&arded

1&

K. Hickey
ACC $ +B.(E,+* 1 incidental0 conse/uential damages must be Greasonably incurred90 Gpro7imate result9 4Ao Prongs The !ctual -no&ledge Rule. :If breacher party a&are of the circumstances at the time of contract' should be liable.< o 4-e communication re*uirement US t-e timing of communication *uestionV If no communication or !ate communication of s5ecia! circumstances 6so can9t )e factored in to K 5rice7D )reac-er is e,cused. Beyond !ctual Foresight o if damages &ere ob2ecti3ely foreseeable )ut not actua!!y foreseenD ma8e breacher pay incenti:iQes due care. 4-e @5riceB test G if damages are !arge com5ared to K 5riceD *uite !ike!y t-ey Aere not foreseea)!e. 6not a!Aays trueD )ut a factor7 o Po!icyF >-y !imit reco:ery to foreseea)!e damages? >-y not unforeseen as Ae!!? 17 airnessF oreseea)i!ity as causation 6if not foreseea)!eD didn9t rea!!y cause t-e -arm7. Pre:enting cross1su)sidiQation 6of -ig-1-arm )uyers )y !oA1-arm )uyers7. 27 Incenti:esF An information1forcing defau!t ru!e 4ai!ored 5recautions 6 ma,imiQe t-e K 5ie7. E,am5!es o Had!ey :. %a,enda!e G carrier fai!s to de!i:er cranks-aft on timeD mi!! oAner sues for !ost 5rofits from days of o5eration !ost. Court doesn9t aAard make1A-o!e as s-i55er Aas not aAare of t-e situation cou!dn9t foresee damages o E, ante ana!ysis of s-i55er situation If no foreseea)i!ity !imit s-i55ers c-arge -ig-er 5rices genera!!y !oA cost )uyer informsD re!eases from !ia)i!ity to get )etter 5rice. PointF Ae get 5rice tai!oring under eit-er ru!eD )ut foreseea)i!ity is more efficient and 5ie1ma,imiQing since t-ere is !ess communication 6feAer -ig-1cost )uyers7 D. Ancertainty Conc!usion o #u!es R+- $ DE+ 1 damages not enforceable if can?t be established &ith reasonable certainty ACC $ (B(CH' cmt (: amages need not be calculable &ith mathematical accuracy. Hig- !e:e! of uncertainty 2 M 3. E,5!icit rationa!eF E:identiary difficu!ties. G 4-e court Ai!! get it ArongD Aaste a !ot of effort in finding out. o #es5onse 1F >-y is 3 )etter t-an t-e court9s )est guess? o #es5onse 2F >rong e, 5ostD )ut rig-t e, ante. o Po!icyF 4-e real policy concerns )e-ind t-e certainty doctrine !3oidability0 6itigationF Cou!d t-e !ost 5rofits )e a:oided? CausationF 2id t-e )reac- actua!!y cause t-e !ost 5rofits?

1.

K. Hickey
E,am5!es o Kenford :. Erie County G contract to )ui!d a stadium )reac-ed. E:idence a)out future 5rofita)i!ity e,c!uded as s5ecu!ati:eD no damages aAarded on it. Court concerned a)out -ig- e:identiary costD )ut cou!d =ust make a c-ea5 educated guess 6suc- @guessing cou!d under mine t-e institutiona! image of t-e courtsD t-oug-7 o Perma :. <inger G Perma contracted to market <inger9s 5atented anti1skid de:iceD <inger )reac-es. <5ecu!ati:e damages aAarded. o Kenford :is1K1:is <inger In formerD damage Aas a:oida)!e 6Kenford cou!d !ook someA-ere e!se to )ui!d7D t-e !atter not. E,5oses a:oida)i!ity as an under!ying 5o!icy concern )e-ind uncertainty o Hydraform case G damages not aAarded )ased on uncertainty. #ea! 5o!icy reason -ere is causation G )ad )usiness decision may )e true cause of damages. C. Reliance amages Conc!usion o #u!eF R+- $ D%4 B gi3es 3ictim option to elect Rel o #e!iance as a %asis for 'ia)i!ity :. #e!iance as a 2amage /easure #e!iance1)ased !ia)i!ity can !ead to an E2 remedy. U<ee ein)erg H )ut see #2K L 03 6t-e remedy can )e !imited as =ustice re*uires7.V %argainIConsideration1)ased !ia)i!ity can !ead to #e!iance 2amages.Uif )reac:ictim so o5tsV o >-en Ai!! t-e )reac- :ictim e!ect #e!2 6rat-er t-an E27? >-en E2 are too uncertain. >-en it is cost!y 6inc!uding t-e cost of re:ea!ing sensiti:e information7 to 5ro:e E2. E(4 A-en t-e K is a !osing KF In losing -' 3ictim can only get Rel 1 Joss ) # . :R+- $ D%4O ACC $ (BDCE ,actual damages cap*< E,am5!es o <ecurity <to:e case G s-i55er informed t-at )uyer needed sto:e for con:ention. <-i5ment !ateD )uyer sues for costs sunk in going to t-e con:ention. #e!2 aAarded. 5ro)!em Ait- E2 -ere is t-at 5rofits contem5!ated are -ard to 5ro:eD uncertain. o oes it matter &hen the costs are sun8@ %efore :. after contract formed? 5o. Only that the reliance of 3ictim &as foreseeable at time of contract. EgD #eed case G -ired to )e !eading manD renegesD studio can9t co:er. /uc- of re!iance in:ested a!ready A-en contract madeD )ut A-at s-ou!d matter is if #eed kneA t-at t-e re!iance Aas made A-en signed u5 G at t-at 5ointD in:estments Aere s5ent )ut sti!! :ia)!e. o 'osing K case. EgD K 5rice M 1"3D <e!!er antici5ated 5rice M 133D )ut cost rises to 1&". <e!!er sinks "3D t-en )uyer )reac-es. E2 M 2" 6e,5ectation M 12"D )ut since -e9s sunk "3D gets 2"7 #e!2 M "3. %;4 <e!!er can on!y reco:er #e!2 G e,5ected !oss 6under 340DDD ;CC 1133"7D if )reac-er can 5ro:e Aas a !osing K. In general' # ) Rel 1 loss. <o in case of !osing KD e,5ectation ca5s #e!2. Po!icyF contract a!!ocates risk of 5rice f!uctuationsD not rig-t to s-ift to t-e )uyerD encourages se!!er to kee5 costs doAn. . The Restitution Remedy

10

K. Hickey
(. Restitution in Fa3or of the Breached Victim Conc!usion o #u!eF R+- $ D.D B Victim can elect Res o R+- $D.( 1 measure of restitution G amount t-e ot-er 5arty -as )een enric-ed o >-en Aou!d t-e )reac- :ictim 5refer termination S restitution o:er E2? >-en t-e market :a!ue of t-e :ictim9s 65artia! or fu!!7 5erformance -as gone u5. >-en t-e 5arties sim5!y underestimated t-e costI:a!ue of 5erformance 6see (!i:er :. Cam5)e!!7. o <5ecia! CaseF 'osing Contract. 'oss is not deducted from #es2 6un!ike Ait- #e!27. o >-at if t-e :a!ue of t-e )reac- :ictim9s 5erformance e,ceeds t-e K 5rice? Full performance: - price caps Res . Partial performance: 5o cap. Res can e7ceed the - price. R+- $ D.D,+* ru!e is 5ro)!ematic G incenti:iQes )reac-ing 5arty de!aying to get sma!!er damages o 'aAyer1C!ient Contracts <5ecia! 5o!icyF 4o ena)!e c!ients to disc-arge attorneys. Inconsistency across =urisdictionsF E2 U>isconsinVD #es2 UEeA YorkV 6not ca55ed )y K 5rice7D /a, 6E2D #es27 U/issouriVD /in 6E2D #es27 UCa!iforniaV Ca!ifornia is strongest ru!e in su55ort of t-e 5o!icy E,am5!es o (!i:er :. Cam5)e!! G attorney -ired on J."3 5!us contingencyD sinks J"333 into case )efore disc-arged. ;nder #2KD attorney can get J"333 if 5artia! 5erformanceD J."3 if fu!! 5erformance. +. Restitution in Fa3or of the Breaching Party Conc!usion o #u!esF R+- $ D.% G )reac-er entit!ed to restitution Res ) ,unpaid* - price 1 CoC. (t-er measures 17 )enefit conferred as :a!ued )y t-e )reac- :ictim 27 market :a!ue of )enefit o norma!!yD court 5icks t-e !oAer num)er. #es2 to t-e )reac-ing 5arty satisfy t-e )reac- :ictim9s e,5ectation interest 65!ace t-e )reac- :ictim in as good a 5osition as -e Aou!d -a:e )een in -ad t-e K )een 5erformed7. o Po!icy ConsiderationsF /ake t-e )reac- :ictim A-o!eD )ut not more t-an t-at. Pre:ent 6un=ust?7 enric-ment )y t-e )reac- :ictim. Incenti:es for efficient termination. A)sent #es2D from t-e )reac-ing 5arty9s 5ers5ecti:e t-e more s-e 5erformedD t-e Aorse s-e is Incenti:e for 5remature )reac-. E,am5!es o Incom5!ete sa!eF K for de!i:ery of 133 units at J1 5er1unit. <e!!er de!i:ers on!y .3 unitsD t-en )reac-es.

23

K. Hickey
Case IF %uyer a!ready 5aid fu!! J133 6assume )uyer can co:er at same 5rice7 %uyer s-ou!d get J23 G t-e 5rice of co:ering. Case IIF %uyer -as not 5aid anyt-ing 6againD can co:er7. %uyer s-ou!d 5ay J.3 to t-e se!!er. Eeeded to s5end J23 to get t-e missing 23 unitsD and s-ou!d 5ay J.3 to )e in same 5!ace PointF s-ou!d sti!! use same e,5ectation 5rinci5!esD e:en if it means t-e )reac-er gets 5aid 6as in Case II7. %ritten :. 4urner G em5!oyee *uits after 0 mont-s on 11year contract sues for 5artia! sa!ary If denied #es2 to )reac-erD Aou!d induce inefficient 5erformance 6Aork t-e A-o!e year7D or 5er-a5s 5remature termination.

#. Fpecific Performance Conc!usion o Rules: R+- $ DE4' ACC $ +B.(H. In theory' damages are the rule and FP is the e7ception. FP &ill be a&arded only &hen money damages are inade/uate. In 5racticeD <P are noA aAarded more !i)era!!y. oftenD courts !i)era!!y !ook to see A-at remedy is )est instead of strict!y inter5reting inade*uacy of damages o >-en are money damages inade*uate? 4-in market. <u)=ecti:e :a!ue. #e!ations-i5 s5ecific 6re!iance7 in:estment. o The Ani/ueness TestF >-en does somet-ing not -a:e an ade*uate su)stitute? rea!!y a 5ro,y for considerations a)o:e. o Po!icy #ach remedy entails certain costs FP: Fuper3ision costs' renegotiation costs' ris8 of impasse. # : #stimation costsO OR renegotiation costs' ris8 of impasse. Jo&Bcost remedy should be chosen. E2 is needed to ensure efficient 5erformance I )reac- on!y A-en 4C are -ig-. Personal #mployment Contracts o Rules: R+- $ DH.. Eo affirmati:e in=unction in t-ese cases 6:io!ates 13 t-7 Eegati:e in=unction may )e aAarded. 2uring K 5eriodF Eegati:e in=unction Ai!! )e aAarded )ased on an e,5ress or im5!ied non1com5ete c!ause. %eyond K 5eriodF Eegati:e in=unction Ai!! )e aAarded )ased on!y on an e,5ress non1com5ete c!ause and e:en t-en s5aring!y. o Po!icy Against In=unctions In:o!untary ser:itude 613t- Amendment7. Protection of em5!oyee9s !i:e!i-ood. oster com5etition. UAeaker A-en renegotiation is easy.V or In=unctions

21

K. Hickey
Protecting em5!oyers from unfairIi!!ega! conduct. Protecting em5!oyer9s re!ations-i51s5ecific in:estments.

E,am5!es o Curtice )rot-ers G <P aAarded in tomato contract due to t-in market o EIP<C( case 6coa!7 :is1K1:is >a!green 6com5eting 5-armacy7 G Posner aAards <P in >a!green and not EIP<C( as damages more difficu!t to ca!cu!ate in >a!green 6!oss of good fait-D etc7D and in=unction easier to enforceI !ess offensi:e to ser:itude 6negati:e in >a!greenD 5ositi:e in EIP<C(7 o A%C :. >o!f G )reac- of contract good1fait- negotiation and non1com5ete 5eriod. Eo <P 6negati:e in=unction7 since outside of t-e sco5e of t-e contract term. Pro)!em G A%C contracted to )e a)!e to renegotiate or 5romote successor if fai!ed G e, ante -urts >o!f as A%C Ai!! )e una)!e to in:est in -im. F. Ji/uidated amages Conc!usion o #u!es old common la& rule 1 penalty doctrineF '2 not enforced if a @5ena!tyB instead of an attem5t at E2 Reasonableness Test ;CC L 21&1.617 I #2K L 3"$617F @reasona)!e in t-e !ig-t of t-e antici5ated or actua! -arm I !oss.B o reasona)!eness assessed e, ante or e, 5ost G enforced if eit-er is reasona)!e Ancertainty Test ;CC L 21&1.617 I #2K L 3"$617F @reasona)!e in !ig-t oft-e difficu!ties of 5roof of !oss.B o makes sense as 5arties Aant '2 in uncertain situations o Po!icyF '2 G Good I Pena!ty 2octrine 6don9t enforce '2 if seem a 5ena!ty as o55osed to a 5ro,y for E27 G %ad '2 sa:e !itigation costs. '2 5rotect t-e 5arties9 secrecy interests. 4-e Pena!ty 2octrine mig-t discourage efficient mitigation 6if t-e mitigation doctrine doesn9t Aork Ae!!7. Parties can insure for any com5ensation inde5endent!y. >-y 5ro-i)it tying of t-e insurance Ait- t-e main K? Contract !aA doctrine a!ready -as 5rocess constraints securing t-at t-e content of t-e 5romise is fair and not unconsciona)!e. 6egD fraudD duressD unconsciona)i!ity7 If e,cessi:e sti5u!ated damages are struck doAnD A-y not under1com5ensatory damages as Ae!!? E,am5!es o <out-Aest Engineering Co. G '2 enforced e:en t-oug- no damage actua!!y incurred from !ate com5!etionD as Aere reasona)!e e, ante and meant to induce on1time com5!etion o ;nited Air!ines :. Austin 4ra:e! G court doesn9t e:en c-eck actua! damagesD =ust t-at '2 aren9t @gross!y dis5ro5ortionateB o 'ee)er G court enforces '2 un!ess t-ey are @unconsciona)!e.B 'oAers !ega! costsD encourages *uick mitigation Part III. Contract Formation

22

K. Hickey
!. 6utual !ssent #mkF for K to )e :a!id needF 617 )asis for enforcement 6considerationD etc.7D 627 mutua! assent 6t-e @meeting of t-e mindsB7 (. The Ob2ecti3e Test of !ssent #u!es o The Ob2ecti3e Test 1 6anifestation of !ssent B R+- $$ (.B+C R+- $(4 1 assent determined by ob2ecti3e manifestations of assent 10627 G conduct of 5arty must gi:e ot-er 5arty reason to infer t-at -e assents 10637 G a 5arty may manifest assent e:en t-oug- -e doesn9t in fact assent o 6isunderstanding 1 R+- $+C' +C( 1 The Blame Test >-at -a55ens if t-e e,5ression says RD and )ot- 5arties intend Y? 4-e su)=ecti:e meaningD YD a55!ies. U#2K L 231617V >-at -a55ens if t-e 5arties attac- different meanings to a sing!e set of o)=ecti:e circumstancesIAords? If no 5arty can )e @)!amedB G Eo K. U#2K L 236176a7V If )ot- 5arties can )e @)!amedB G Eo K. U#2K L 236176)7V If A can )e @)!amedB 6kneA of t-e ot-er 5arty9s meaning or s-ou!d -a:e knoAn it7 and % is @innocentB G a K is formed Ait- %9s meaning. U#2K LL 23627D 231627V o Cou!d t-ere )e a tru!y su)=ecti:e test of assent? Eo Aay for t-e court to direct!y ascertain intention <u)=ecti:e intent Ai!! necessari!y )e ascertained t-roug- o)=ecti:e meansD e.g.D e:idence or testimony a)out t-e 5arties9 intent. Actua! difference )etAeen su)=ecti:e and o)=ecti:e testsF E:idence or testimony a)out intentD as o55osed to e:idence or testimony a)out manifestation of intentD is irre!e:ant under t-e o)=ecti:e test. EgD t-e fact t-at Oe-mer to!d -is Aife -e Aas =oking is admissi)!e Aitsu)=ecti:e testD )ut not in o)=ecti:e test Po!icy %e-ind t-e ()=ecti:e 4est o Certainty G more !itigationD uncertainty if @I didn9t mean itB as a defense Pre:ents o55ortunismD gi:es incenti:e to )e c!ear o Protecting re!iance. 6=ustified )y o)=ecti:e manifestation7 o Inducing mutua!!y )eneficia! transactions A)sent su)=ecti:e intent t-e contract mig-t not )e mutua!!y )eneficia! HoAe:erD t-e o)=ecti:e test induces c!arityD and t-us reduces )argaining costs. o #educing !itigation costsF <a:ing t-e costs of trying to ascertain su)=ecti:e intent. o 4-e o)=ecti:e test and t-e @reasona)!eB 5erson standard afforded courts greater contro! o:er contracts. 4-e court gets to decide A-at is @reasona)!eB E,am5!es o 'ucy :. Oe-mer G dis5ute o:er A-et-er K Aas a @=oke.B Court ru!es it9s )inding )ecause of o)=ecti:e test. Hy5osF If 'ucy kneA Oe-mer Aas =oking no KD as )ot- 5arties -a:e reason to knoA of mistake 6neit-er @innocentB7 If Oe-mer Aas drunk no KD as 'ucy -as reason to knoA of mistake 6'ucy no !onger @innocentB7

23

K. Hickey
o @Peer!essB case if neit-er 5arty to )!ame for t-e misunderstanding no K U#2K L23V

+. Mhat Is an Offer@ Tuestions o >-en a communication an offerD or =ust an in:itation to dea!? R+- $+% 1 an offer iff confers po&er to conclude the bargain Conc!usion o Key *uestionF 2oes t-e communication e,-i)it a manifestation of Ai!!ingness to )e )ound? Nustify t-e ot-er 5arty in t-inking -is assent com5!etes t-e dea!? #2K L24 o #2K L20 G offer may )e addressed to grou5D key is A-o is Aas o)=ecti:e!y directed at o R+- $+H: If any further manifestation of assent re/uired to complete the deal not an offer o #o!e of definiteness Fometimes definiteness is an independent re/uirement F R+- $ DD,(* ,no offer unless the terms reasonably certainD 5ro:ide a )asis for determining )reac- and remedy7 6ore commonly definiteness acts as e3idence of &illingness to be bound F Cmt. 6a7 to #2K L 33617H ;CC L 21234637 o 'imited <tock 6may )e inter5reted asF7 Eo offer 6if communicating to more t-an one )uyerD often indication of no 5oAer to com5!ete t-e dea!7 Conditiona! offer 6t-e conditionF @unti! t-e stock is e,-austedB7 o Grocery <tore 2is5!ay Eng!andF Eot an offer. U(ffer G >-en customer takes goods to cas-ier.V ;.<.F Possi)!y an offer. Creates @duty to ser:eB 6M se!!ers are not free to refuse to se!! somet-ing t-at is in t-eir in:entory7D renders t-e issue moot. o Genera! #u!eF Ad:ertisement [ (ffer. Po!icy reasonsF 'imited stock argument. ;ncertaintyF !ong time )etAeen ad and s-o5. C-i!! ad:ertising. E,ce5tionF >-en t-e ad:ertisement is @c!earD definiteD and e,5!icitD and !ea:es not-ing o5en for negotiation.B U'efkoAitQV E,am5!es o 'onergan case G 5resence of ot-er )uyers 6@act fastB7 used as e:idence t-at t-ere Aas no offer o Ee)raska <eed G indefiniteness 6@I Aant R 5er unitB7 e:idence t-at t-ere Aas no offer o Pe5siCo case G ad not an offerD distinguis-es 'efkoAitQ as narroA e,ce5tion. rea! reason for 'efkoAitQ is 5u)!ic 5o!icy against @)ait and sAitc-B ads. Per-a5s )etter regu!ated t-roug- !egis!ation. D. Termination of an Offer Conc!usion o #u!esF Mhen does an offer terminate? R+- $DH 17 A re=ection or counter Boffer )y t-e offeree U#2K LL 3$6176a7D 3.D 30D 43V >-en is a communication a counter1offer :s. re*uest for c!arification?

24

K. Hickey
4estF A communication is a counter1offer if and on!y if it can )e acce5tedD grants 5oAer to com5!ete )argain 27 'a5se of time U#2K LL 3$6176)7D 41V #easona)!e time if none s5ecified U#2K L 41V 37 #e:ocation )y t-e offeror U#2K L 3$6176c7V An offer can )e re:oked at any time )efore acce5tance 6not t-e case A-en t-ere9s re!iance7 (fferee must !earn of re:ocation )efore acce5ting t-e offer U#2K L 42V. Im5!ied re:ocation 6e.g.D sa!e to 2nd )uyer7 suffices. U#2K L 43V. ()=ecti:e 4est. 47 2eat- or inca5acity of t-e offeror or offeree U#2K L 3$6176d7V o Jimits on the po&er to re3o8e an offerF 17 (fferor e,5!icit!y assumes a !imit 1 firm offer I o5tion contract U;CC L 2123"H #2K LL 2"D .&617V under ;CCD a firm offer 6a s5ecified date7 re*uires no CE to )e )inding U2123"V ;nder #2KD o5tion contract does needs at !east AritingI 5ur5orted CE in order to )e )inding. U2"D .&V 27 #e!iance U#2K L 4"D .&627V o 'imited 5oAer to re:oke an offer is an e,am5!e of 5recontractua! !ia)i!ity. o Po!icyF >-y im5ose !ia)i!ity )efore a contract is conc!uded? Protect re!iance Encourage more 5eo5!e to enter into negotiations. E, 5ost a greater 5oAer to re:oke an offer G %enefits t-e offeror Hurts t-e offeree E, ante t-e interests of t-e 5arties are more c!ose!y a!igned G (fferor may Aant to re!in*uis- t-e 5oAer to re:oke in order to induce t-e offeree to consider t-e offer. (fferee may Aant to gi:e t-e offeror t-e 5oAer to re:oke in order to induce -er to make t-e offer. <ituations A-ere 5arties Aant an o5tion contracts I irm offers E,am5!es o 2ickenson :. 2odds G not enoug- t-at offeror mere!y c-anged -is mindD )ut since offeree !earned of t-e re:ocationD -e cannot !ater acce5t. (ffer to @-o!d o:er unti! ridayB not a )inding o5tion contract for !ack of consideration under #2K .&D t-us offeror can re:oke anytime )efore )uyer acce5ts. ;CC 2123" gi:es o55osite resu!t in 2ickenson G offer to -e!d o5en is not re:oca)!e for !ack of consideration o Genera! contractors re!ying on su)1contractors )ids. <e!!er re:okes t-e )id )efore acce5tedD )ut after GC re!ies on it. Eo contractD )ut is t-ere 5romissory esto55e!? (!d ru!e G %aird 6and Hand7 G is t-at t-ere is no since t-ere Aas no 5romise to kee5 offer o5enD no re!iance. 4raynorD in 2rennanD finds suc- a 5romise im5!ied so t-ere is re!iance !ia)i!ity E, 5ostD su) -urt )y t-e ru!eD )ut e, anteD t-e su) Aants -is offer to )e re!ied on. Hand9s ru!e !imits -oA muc- GCs can re!y on su)9s )ids. o %. !cceptance

2"

K. Hickey
Conc!usion o ACC +B+CH: in3ites acceptance in any medium reasonable under t-e circumstances o 17 R+- $ HD,a* 1 The 6ailbo7 RuleF %inding as soon as 5osted. (rD more genera!!yF If t-e offeree uses t-e medium in:ited )y t-e offerorD )inding as soon as it !ea:es t-e offeree9s 5ossessionD regard!ess of A-et-er it reac-es t-e offeror. Com5areF Acce5tance G Effecti:e A-en mai!ed U#2K L $36a7V. #e:ocation G Effecti:e A-en recei:ed U#2K L 42V. Po!icy =ustification for t-e /ai!)o, #u!eF 4-e ru!e 5rotects t-e offereeH and Can )e easi!y c-anged )y t-e offerorD @master of t-e offerB G it is a defau!t ru!e. /ai!)o, ru!e doesn9t a55!y to face1to1face communication 6or 5-one7 Emai!D InternetD a, Communications o ;CI4A re:ersed t-e /ai!)o, #u!eF A contract is conc!uded u5on recei5t of acce5tance. U;CI4A LL 233647D 21"6a7V o (fferor need not )e aAare of t-e recei5t. U;CI4A L 132V o 27 Filence as !cceptance Genera! #u!eF Filence0inaction does not generally constitute acceptance. :R+$ H4,(*< #7ceptions: 17 (fferee takes t-e )enefitD -ad reasona)!e o55ortunity to re=ectD and -ad reason to knoA t-at t-is Aas not a gift. U#2K L $06176a7V 27 (fferor in:ites acce5tance )y si!enceD and offeree intends to acce5t )y remaining si!ent. U#2K L $06176)7V 37 Pre:ious dea!ings U#2K L $06176c7V 47 E,ercise of 2ominionF (fferee9s action is inconsistent Ait- offeror9s oAners-i5. U#2K L $0627V 4-e ;nordered /erc-andise Pro)!em Contract !aA fai!ed to 5ro:ide a so!utionD )ut consumer regu!ation 5assed to 5re:ent it. Po!icy Considerations for t-e Genera! #u!e against acce5tance )y si!ence %y s5ecifying @acce5tance )y si!enceB t-e offeror :io!ates t-e offeree9s autonomy I @freedom from contract.B Acce5tance )y si!ence can !ead to many cost!y re=ectionsD and to se!!ers f!ooding consumers Ait- unordered merc-andise. Po!icy Considerations for t-e e,ce5tions to t-e genera! ru!e >-o is in t-e )est 5osition to 5re:ent t-e contractua! accident 6t-e uncertainty a)out A-et-er a contract Aas formed7? Protecting (fferor9s =ustified re!iance A-en t-is re!iance Aas induced )y (fferee. E,am5!es o Adams :. 'indse!! G @mai!)o, ru!eB case. Acce5tance sentD and re:ocation -ad A-i!e acce5tance in route. 2e:iation from o)=ecti:e t-eory of assentD as contract occurs )efore manifestation of assent communicated. #u!e 5rotects offereeD reasona)!e since offeror t-e master of t-e offerD can contract around it

2$

K. Hickey
o o o #use!! :. 4e,as G continued use of !and an @e,ercise of dominionB o:er offered goods is acce5tance. Cou!d use torts as a!ternate met-od of !ia)i!ityD )ut contract 5referred Ammons :. >i!son G offeree si!entD A-en in 5re:ious dea!ingsD a!Aays res5onded affirmati:e!y )y s-i55ing t-e goods. <i!ence constituted acce5tance )ased on 5re:ious dea!ings Austin :. %urge G unAanted neAs5a5er sent. Is reading t-e neAs5a5er acce5tance? Cou!d )e said to )e an e,ercise of dominionD es5ecia!!y if t-ere9s o)=ecti:e e:idence t-at you9re using it.

E. Anilateral Contracts Conc!usion o 4-ree CasesF 17 (fferor in:ites acce5tance )y 5romise G ty5ica! offerI acce5tance 27 (fferor in:ites acce5tance )y 5erformance 1 #2K L 4". 4-e offeree )y )eginning 5erformance creates an o5tion contractF (fferee is not )ound to com5!ete 5erformance. (fferor is )ound conditiona! u5on com5!etion of 5erformance )y offeree. EgD Car)o!ic %a!! 37 (fferor in:ites acce5tance )y 5romise or 5erformance 1 #2K L $2. 4-e offeree )y )eginning 5erformance conc!udes t-e contractF (fferee is )ound to com5!ete 5erformance. (fferor is )ound. EgD E:er14ite o 5otification of !cceptance G in type + and D 5o notice is re/uired :R+- $ E%,(*<' unless G @t-e offer re*uests suc- a notificationB U#2K L "4617V UA 2efau!t #u!eVH or t-e offeree @-as reason to knoA t-at t-e offeror -as no ade*uate means of !earning of t-e 5erformance Ait- reasona)!e 5rom5tness and certaintyB U#2K L "4627V o Po!icy reasons acce5tance )y 5erformance a defau!t ru!e G offeror cou!d s5ecify ot-erAise in cases !ike @!ost dogDB inefficient for a!! searc-ers to notify t-ey9:e acce5ted. e, 5ostD ru!e -urts offeror as -as no notification re*uirement to -e!5 -im. %ut e, anteD ru!e -e!5s t-e offeror )y a!!oAing -im to induce re!iance. E,am5!es o Car)o!ic %a!! case G egD of ty5e 2. %y using )a!!D o5tion contract created. Eot @mere 5uff.B (t-er egs of ty5e 2 G @!ost dogB notificationD @5ro:e me ArongB cases o G!o:er :. NeAis- >ar +eterans G offeree must knoA of t-e offer )efore -e can acce5t it. o EgD if found dogD )ut didn9t knoA of reAard offerD court offers no reAard E:er14ite G offer in:ited acce5tance )y 5romise or 5erformance. 'oading of trucks constituted 5artia! 5erformanceD creating a )inding K.

B. GContracts &ithout Consent9

2&

K. Hickey
(. The RBattle of the FormsR <ituationF -oA to dea! Ait- inconsistent @)oi!er5!ate termsB on forms e,c-anged )y 5arties? #eca!!F In*uiry :. offer o offer confers 5oAer to com5!ete dea! o in*uiry confers no suc- 5oAerD and doesn9t constitute a counter1offer 6-a:e to )e carefu! in 5-rasing7 o 4-ree Aays to enter into a contract ora! agreement Aritten agreement t-roug- conduct 4Ao ty5es of 5ro)!ems o Prior to 5erformance common la& Gmirror image9 ruleF a communication is a acce5tance on!y if a!! of its terms matc-. R+- $E4 G if don9t matc-D it is a counteroffer. EgD /innea5o!is :. Co!um)us G <e!!er offers 23331"333. %uyer says @I acce5t 1233B 6t-is is a counterofferD not acce5tance7D t-en @(KD I acce5t 2333B 6no K as -is counteroffer took t-e <e!!er9s offer off t-e ta)!e7 e7ception: Ggrumbling acceptanceB G acce5tD )ut raise o)=ectionI re*uest for neA terms. A!!oAed under R+- $H(. Pro)!em Ait- mirror image ru!e G unnecessari!y -ars-. (ften 5arties Aanted a K )ut terms differed in insignificant AaysD or )!ind!y used forms o After 5erformance common la& principle 1 Glast shot rule.9 <ince t-e 5erformance im5!ied t-ere Aas acce5tanceD t-e acce5tance Aas t-at of t-e offer contained in t-e !ast form sent. Pro)!emsF ar)itraryD induces gratuitous firing of forms ACC +B+C. so!ution Rule o 617 acce5tance Ait- different terms sti!! an acce5tance un!ess t-e acce5tance is made e,5ress!y conditiona! on t-ose terms o 627 additiona! terms )ecome 5art of K )etAeen merc-ants un!ess offer !imits acce5tance to t-eir terms t-ey materia!!y a!ter K o)=ection to t-em -as )een gi:en o 637 conduct esta)!is-ing K is sufficient in s5ite of contradicting Aritings. In suc- a caseD knock out ga5 fi!!ers if in ,D* Contract is implied through conduct though &ritings are insufficient - includes terms on &hich both forms agree &hen the additional terms are not material and the other party doesn?t ob2ect' they are incorporated into the -. Jast shot rule still applies to nonBmaterial terms. ,+* But &hen terms are material and parties disagree 8noc8 out rule and gapBfillers apply Pro)!emsF ga51fi!!er ru!es are 5ro1)uyer in most res5ects

2.

K. Hickey
se!!er9s attem5t to contract around ru!e )y e,5ress!y conditioning acce5tance 1 @my terms and my terms on!yB )ut t-is -asn9t Aorked. 4e,ti!e :. A%H/ o court ru!es K entered into :ia 2123&637D not 2123&617D knocks out @mine and mine on!yB terms too

Conc!usion o common !aAF mirror image and !ast s-ot ru!es 5ro)!emsF ar)itraryD -ars-D encourage Aastefu! firing of forms o ACC -noc8 out and gapBfilling 5ro)!emsF ga51fi!!ers unfair to se!!erD -ard to contract around t-em. can !ead to 5er:erse resu!tsF egD one form re*uires 5ayment in 1 yearD t-e ot-er in 2. %ot- get knocked out and 5ayment must )e immediate 5ro5osed re:isionF fina! order ar)itration for dis5uted terms E,am5!es o 'eonard Pe:ar :. E:ans G re=ects #ot-1'it-D A-ic- inter5reted 2123&617 as o!d @!ast1s-otB ru!e. Ana!ysisF o <ituation 1F (ra! Agreement fo!!oAed )y Aritten confirmation o5erates as acce5tance des5ite neA terms. 2123&617 a55!iesD t-e neA terms )ecome 5art of t-e K )etAeen merc-ants on!y if t-ey do not materia!!y a!ter it. 2123&627. o <ituation 2 G e,c-ange of Aritten documents Ait- different terms #ot-1'it- found a K under 2123&617 in t-is situationD a55!ied @!ast s-otB ru!e. Court -ere -o!ds t-at in t-is case t-ere is no K t-roug- t-e AritingsD on!y a K t-roug- conductD so t-e K formed t-roug- 2123&637 knock out and ga5 fi!!. o A%H/ G 2is5ute o:er A-et-er ar)itration c!ause a55!ies. Ana!ysisF o first route to K under 2123&617 G acce5tance contains additiona! termsD )ut acce5tance not e,5ress!y made conditiona! on t-ose terms 2123&627D K on!y inc!udes t-ose of different terms t-at are not materia!. o second route under 2123&617 G acce5tance contains additiona! termsD and acce5tance e,5ress!y made conditiona! to t-ese terms no K. K can )e formed if neA offeree @e,5ress!y assentsB to t-e neA terms. 4-en t-e !ast s-ot terms do a55!y. If no e,5ress acce5tance )ut conduct 2123&637 o 4-ird route under 2123&637 G conduct manifests K e,ist des5ite forms 21 23&637 o 'ia)i!i14 s-irt under common !aAD if mo:ie t-eater -as assign u5D -ard to knoA A-o fired t-e !ast s-otD A-ose terms are good. under ;CCD order unim5ortant. )ot- terms get knocked out and ga5s fi!!ed un!essF cas-ier doesn9t -a:e aut-ority to contract if s-irt constitutes an offer under 2123&G mig-t not )e seenD etc. o #e:ised ;CC 2123& G a!Aays use knock1out a55roac+. GFhrin8&rap9' GClic8&rap90 GBro&se&rap9 <ituationF 'ike )att!e of formsD )ut on!y one form. Tuestion is A-et-er t-e form a55!ies or not.

20

K. Hickey
Conc!usion o Fhrin8&rap Interpretation (: Feller?s form ) !cceptance 0 Confirmation > Proposal for additional terms. 2id %uyer acce5t t-e additiona! terms )y not returning t-e 5roduct? Yes <e!!er9s terms contro!. 6a55!y 2123&D )ut reac- same conc!usion as Hi!! G A-at most courts do. E,5ands acce5tance )y si!ence doctrine.7 Eo Code9s ga51fi!!ers contro!. 6K!ocek7 Interpretation +: Feller?s acceptance is Ge7pressly made conditional on assent to the additionalSterms9 6t-roug- t-e acce5t1or1return c!ause7 Feller?s acceptance is in fact a counterBoffer . UAnd <e!!er as offeror can s5ecify -oA t-is offer can )e acce5ted. G ProC2D Hi!!V 2id %uyer acce5t t-e counter1offer )y not returning t-e 5roduct? o Yes <e!!er9s terms contro!. UHi!!V o Eo Eo contract. HoA do Ae c-oose )etAeen Inter5retation 1 or 2? >-at t-e se!!er to!d t-e )uyer o:er t-e 5-one G did -e say t-ere Aou!d )e additiona! termsD no K yet. o Clic8&rap Binding - as long as terms are reasonably accessible. Consumers are 5rotected )y t-e unconsciona)i!ity doctrine. E,am5!es o Hi!! :. GateAay G com5uter so!d on 5-oneD sent to consumer Ait- additiona! terms. Inter5retation of tria! court is t-at K made o:er t-e 5-oneD neA terms constituted modification t-at Aas not acce5ted Easter)rookF doesn9t a55!y 23& 6Arong!y7D ru!es s-i5ment an offer 6t-e :endor id t-e offeror7D A-ic- in:ited acce5tance )y conduct o K!ocek :. GateAay G same facts as Hi!! 6t-oug- on!y " days to return7D o55osite resu!t. inter5retation 1F t-e )uyer is offerorD and se!!er acce5ted )y s-i55ingI taking credit card num)er. 4-usD K formed a!readyD and terms are additiona! terms under 2123&617 6not a counter1offerD as GateAay did not inform customer t-at it9s acce5tance Aas conditiona!7D and so Ae go to 2123&627D and P not a merc-antD so terms do not a55!y. o <5ect :. Eetsca5e G c!ickAra5 terms not a55!ied A-en user e,5ected to scro!! doAn t-e 5age fo!!oA series of !inks. 4erms did a55!y A-en user forced to c!ick @yesD I acce5t.B )efore doAn!oad. Po!icy concerns o consumers s-ou!d )e 5ut on notice t-at terms e,istD )ut not reading t-em is no e,cuse. unconsciona)i!ity 5ro:ides 5rotection from ridicu!ous terms. o e, ante ru!e of Ko!eck t-at terms don9t a55!y !eads to cross1su)sidiQation of !itigious )uyers. %ut !ike!y se!!er9s Aou!d sim5!y notify )uyer o:er 5-one t-at t-ere Aere additiona! terms G o5tima! so!ution.

D. Implied Contracts Conc!usion o #u!es implied in fact contract 1 mutua! assent manifested t-roug- conduct. <ame !ega! effect as regu!ar K.

33

K. Hickey
implied in la&0 /uasi contract ,benefit*1 no 5romiseD e,5ress or im5!iedD needed. <im5!y t-at )enefit conferredD and un=ust not to com5ensate A contract Ai!! )e implied in fact &hen 17 4-e recei:ing 5arty knoAs t-at t-e ot-er 5arty e,5ects somet-ing in returnH and it is 5erfect!y easy 6for t-e recei:ing 5arty7 to notify if ser:ices are not AantedD )ut it did not. 27 Conduct manifests a contract and intent to enter into one. A contract Ai!! )e implied in la& &hen 4-e recei:ing 5arty is un2ustly enriched. #eason for 'ia)i!ity A)sent E,5ress Promise 6Im5!ied in 'aA7 Contract 4-eoryF 4-e 5romise Aas not e,5!icit!y articu!atedD )ecause it Aas cost!y to do so. #estitution 4-eoryF 4-e 5arties ne:er intended to make a contract. %ut sti!! !ia)i!ity )ased on un=ust )enefitD not on 5romise. 2istinction )etAeen t-e t-eories not as s-ar5 as it a55ears o Po!icy Considerations 5re:ent un=ust enric-ment 6im5!ied in !aA7 <a:e contracting costsD 5reser:e 5arties intent to contract 6im5!ied in fact7 (n t-e ot-er -andD Ae Aant to induce e,5!icit contracting. <o many times Ae Ai!! refuse to recogniQe !ia)i!ity to encourage 5arties to do t-is A-en t-ey can. inding im5!ied contracts strains t-e concerns a)out si!ence not genera!!y constituting acce5tance. E,am5!es o %ai!ey :. >est G %ascom9s o!!y. no im5!ied in fact contract )ecause t-ere Aas no conduct manifesting mutua! assent. im5!ied in !aA contract as )enefit conferredD )ut no damages aAarded )ecause >est s-ou!d9:e contractedD Aas a @:o!unteerB so not @un=ustB no restitution 5o!icyF encourage e,5!icit contracting %. Indefiniteness and "apBFilling TuestionsF 17 >-en Ai!! indefiniteness )ar enforcea)i!ity? 27 If enforcedD -oA Ai!! courts Ai!! in t-e ga5s? Conc!usion o #u!es R+- $ DD: Certainty 4-e certaintyIdefiniteness re*uirement is satisfied if t-e agreement 5ro:ides @a )asis for determining t-e e,istence of a )reac- and for gi:ing an a55ro5riate remedy.B U#2K L 33627V #2K L33637 fact t-at one or more terms !eft o5en may )e e:idence of t-e !ack of an intention to )e )ound #2K L234 G court can ga51fi!! Ait- a @reasona)!eB term ACC $ +B+C%,D*: facts t-at one or more terms !eft o5en does not make t-e K fai! for indefiniteness so !ong as t-ere is 17 intention )y 5arties to )e )ound 27 @a reasona)!y certain )asis for gi:ing an a55ro5riate remedyDB ;CC t-e more !i)era! ru!eD a!!oAs more ga51fi!!ingD use of )usiness standards

31

K. Hickey
Ga51fi!!ers in ;CC /issing Tuantity G court Ai!! not fi!! in a *uantityD e,ce5t in re*uirementsI out5utI e,c!usi:e dea!ing contract. Nuantity stands out as only unBfillBinBable term. ;CC L 21231617F A K is not enforcea)!e @)eyond t-e *uantity of goods s-oAn in suc- Ariting.B ;CC L 2133$F Tuantity can )e im5!icit!y defined )y out5utIre*uirements Uin out5utIre*uirements KsV or )y @)est effortsB Uin e,c!usi:e dea!ings KsV. /issing PriceF ;CC L 2133"F @reasona)!e 5rice at t-e time for de!i:ery.B /issing P!ace for 2e!i:eryF ;CC L 2133.F <e!!er9s 5!ace of )usiness. /issing 4ime for 2e!i:eryF ;CC L 21330F #easona)!e time of s-i5ment. o 4-ree 4y5es of Ga51 i!!ersF 17 /a=oritarian 6@reasona)!eB7 ga5 fi!!ers S %usiness norms. +ague @reasona)!eB terms. Court !ooks to A-at Aou!d )e reasona)!y meantD as e:idenced )y )usiness ru!es 27 Pena!ty defau!tsF Induce 5arties to agree on t-e term. >e Ai!! not enforceD or enforce t-e contract Ait- undesira)!e termsD to incenti:iQe e,5!icitness. EgD *uantity defau!t set at Qero. 37 Pro1defendant ga51fi!!ers E,am5!es o +arney :. 2itmars G 5romise to gi:e a @fair s-areB of 5rofits not enforced under #2K L33 as K is too indefinite. CardoQo dissentsD saying e:idence cou!d )e offered to s-oA meaning t-roug- )usiness normsD usageD etc. o /artin :. <c-umac-er G contract to renegotiate !ease @agreement to agreeB not enforced. %ad decision G effecti:e!y makes t-e term meaning!essD a!!oAs oAner to e,5!oit and demand -ig- 5riceD A-en 5arties Aanted an genuine o5tion of reneAa!D and t-is Aas )argained for. o E. Precontractual Jiability Tuestions 17 At A-at stage of negotiation Ai!! !ia)i!ity attac-? +* Mhat are the legal implications of: letters of intent' agreements to agree' etc.@ Conc!usion o >-at is t-e difference )etAeen an indefinite agreement and a 5re!iminary agreement? indefinite agreementsF fina! KD =ust am)iguous 1 court can ga51fi!! Pre!iminary agreements on!y antici5ate a future contractD may not )e enforcea)!e at a!!. o Pre!iminary agreements G 3 a55roac-esF 17 Eot enforcea)!e at a!! G genera! common !aA ru!e G @agreements to agreeB are not :a!id Ks UEm5roV 27 Enforcea)!e G fu!! f!edged contract U4e,acoV 37 2uty to negotiate in good fait- G midd!e ground U%askin #o))insV o Nuestion: Mhat did the parties &ant@ #e!e:ant actsF >-at is !eft to )e agreed u5on?

32

K. Hickey
4-e !ink formu!a U!ink )etAeen t-e 5re!iminary agreement and fina! contractV G sti!! negotia)!eD or is t-e fina! contract mere memoria!iQation? o if mere memoria!iQation a55roac- 2 Partia! 5erformance. o Precontractua! !ia)i!ity a)sent a 5re!iminary agreement Promissory Esto55e!. U#ed (A!V Im5!ied 5romise to negotiate in good fait-. o Po!icy considerations making !etters of intent )inding c-i!!ing effect on negotiations difference )etAeen @agreement to agreeB 6not )inding7 and @agreement to negotiateB 6)inding under %askin #o))ins7 for a duty of good fait- negotiations A-at t-e 5arties Aanted and agreed to against a duty of good fait- negotiations c-i!!ing effect on negotiations -ard to 5o!ice i!!1defined Arong 5romissory esto55e! co:ers t-e issue E,am5!es o Em5ro case 1 re!ati:e!y com5!ete !etter of intent not enforced at a!!. o Hoffman :. #ed (A! G grocer store rigmaro!e. re!ianceD )ut not a straig-t1forAard 5romissory esto55e! as no meeting of t-e minds. Hoffman s-ou!d )e com5ensated )ot)ased on e, 5ost fairnessD and e, anteD #ed (A! Aants to induce -is re!iance. o %askin #o))ins G 5arties entered a KD Ait- agreement to negotiate a furt-er term. Court im5!ied t-at t-is term Aas not an unenforcea)!e @agreement to agreeDB )ut rat-er created a duty to negotiate in good fait-. H. Business 5orms Tuestions o HoA do )usiness norms affect t-e contract? Can t-ey trum5 e,5ress terms? Conc!usion o Hierarc-y of terms U;CC L 11333V /andatory 4erms G must )e conc!uded EgD immuta)!e ru!esD good fait E,5ress 4erms G defeat )usiness norms if are intended to %usiness Eorms G e:idenced )yF Course of Performance G t-is K. Course of 2ea!ing G 5re:ious Ks. 4rade ;sage 2efau!t 4erms 6<tatutory Ga51 i!!ers7 o ;CC L 113336d7F %usiness norms may @*ua!ify t-e terms of t-e agreementDB %;4 not trum5 t-em 65arties are free to contract around norms7 o ;CC L 113336f7F @a course of 5erformance is re!e:ant to s-oA a Aai:er or modification of any term inconsistent Ait- t-e course of 5erformance.B E,am5!e o Eanaku!i :. <-e!! (i! G K does not inc!ude 5rice 5rotectionD )ut <-e!! did so on 5re:ious occasions 1 course of 5erformance G and Aas ty5ica! trade 5ractice

33

K. Hickey
In rea! -ead on co!!ision )etAeen )usiness norms and e,5ress termsD e,5ress terms Ain. HoAe:erD -ereD course of 5erformance suggests 5arties meant to inc!ude 5rice 5rotection G CoP su55!ements K.

C. Mritten !ssent (. The Parol #3idence Rule TuestionsF o >-en can t-e court !ook outside t-e Aritten contract? AF >-en t-e 5arties did not mean t-e contract to )e integrated. o >-en is 5aro! e:idence admissi)!e? Conc!usion o 4-e PE# disc-arges 6or e,c!udes7 terms not in t-e Ariting to A-ic- t-e 5arties -a:e 5re:ious!y agreedD A-en t-e 5arties intend t-at a Ariting s-a!! )e t-e fina! e,5ression of some or a!! of t-e terms of t-e agreement. 4-e TuestionF HoA is t-is intention ascertained? o Ftages of !nalysis 6!ike in AE2 case7 17 IntegrationF com5!eteD 5artia! or no. E,trinsic e:idence is re!e:ant for determining integration. Nudge decides. 27 Inter5retation Nudge decides if Ariting is reasona)!y susce5ti)!e to t-e meaning im5!ied )y 5aro! e:idence. If yesD e,trinsic e:idence is re!e:ant and =ury decides. 37 Consistency G A-et-er Ariting is consistent Ait- ora! agreement? Inconsistent 5rior agreements are disc-arged. U#2K L 213617V 47 Enforcea)!eF >ou!d t-e ora! agreement -a:e @natura!!yB )een inc!uded in Aritten K? If ora! agreement is consistentD Ae must ask A-et-er t-e consistent term Cnecessari!yD@ @certain!yDB @natura!!yDB @ordinari!yB -a:e )een inc!uded in t-e Ariting? o If 5arties Aou!d natura!!y -a:e 5ut it in t-e AritingD Ae Ai!! not enforce it. o If it makes sense t-at t-e Ariting Aou!dn9t inc!ude t-e ora! termsD Ae Ai!! enforce it. U#2K L 213627V o R+- 5refers <u)stance o:er orm 6LL 230 1 21$7F In order for an oral agreement to supplement &ritten contract (* oral agreement must be in collateral form +* must not contradict &ritten D* must not be Gnaturally9 be e7pected to be included in &ritten ! &riting cannot' in itself' pro3e its o&n completeness ,R+- $ +(C D cmt b7. Re2ects 6itchill?s Gfour corners9 test G a!!oAs court to !ook outside in making t-e integration determination. o E:idence of an ora! agreement is re!e:ant in determining A-et-er or not t-e agreement is integrated 6#2K L 230D cmt cH #2K L 214D #2K L 21"D cmt a7. Ado5ts /asterson 5osition. espite Restatement' many common la& 2urisdictions follo& a more strict' 6itchillBtype approach.

34

K. Hickey
A stricter PE#. /ore focus on Ariting. In !ine Ait- some 5o!icy considerations G deters fraudD encourages Aritten contracts o ACC mo3es to&ard e3en more liberal P#R 6:ery -ard to find a fu!!y integrated contract under t-e ;CC7 ;CC L 21232F Comment 16a7F #e=ects t-e 5resum5tion 6in #2K L 2306377 t-at a Ariting is integrated. Comment 3F #e=ects t-e @four corners test.B Comment 3F !n oral agreement is e7cluded only if it &ould certainly ,rather than =naturally? or =reasonably?* ha3e been included in t-e Ariting. ;CC L 212326a7F Admissi)i!ity of %usiness Eorms E:en a com5!ete!y integrated agreement Ait- a merger c!ause 6direct statement c!aiming fu!! integration7 cou!d )e su55!emented )y immanent norms. 4-e ;CC ru!es )asica!!y e!iminate t-e PE#. %ut many courts -a:e inter5reted t-e ;CC ru!es to a:oid t-is e,treme outcome. U<ee A!aska Eort-ern 2e:.V o 6erger Clauses: GThis - constitutes the entire agreement bet&een the parties.9 Common 'aAF %inding ;CCF Eot 8a)so!ute!y conc!usi:e.9 #e!e:ant considerationsF Is it a )oi!er5!ate term? 'engt- of K K9s e,-austi:e detai! Pro!onged negotiation 5receding K Course of Performance su5ersedes any merger c!ause. o Po!icyF orm :. <u)stance <trict PE# encourages 5arties to 5ut terms in Ariting E:identiary rationa!e G more certainty for courts ora! agreements susce5ti)!e to memory 5ro)!emsD fraud /ay t-ings said in negotiation G Aritten K )est measure of A-at intended to )e )inding Ariting causes more securityD certaintyD A-ic- is good. or !enient PE# e, 5ost =usticeF =ustifying re!iance on ora! agreements ora! agreements may )etter track 5arties intent E,am5!es o /itc-e!! Case G ora! agreement for remo:a! of ice -ouse in addition to sa!e. <trict PE#D four corners test. o /aterson G ora! agreement enforcedD as t-ere Aere reasons 5arties Aou!d -a:e !eft t-e term out G form contractD 5arties -a:e !itt!e e,5erience. +. The Ftatute of Frauds TuestionsF o >riting ne:er sufficient 6need consideration7D )ut A-en it is necessary for a contract? o >-at kind of contracts must )e Aritten? Conc!usion

3"

K. Hickey
o >-en Ariting re*uired @>it-in t-e <tatuteB ACC: "oods T UECC :ACC $ +B+C(V R+- $ ((CF 4-e e,ecutor1administrator 5ro:ision 4-e suretys-i5 5ro:ision Interests in #ea!ty U#2K LL 113D 12"617V 4-e marriage 5ro:ision @A contract t-at is not to )e 5erformed Ait-in one year.B o Inter5reted )y t-e courts !i)era!!y G Ai!! fa!! outside t-e statute if t-ere9s any c-ance at a!! K com5!eted Ait-in a year Com5!ying Ait- t-e statute 6A-at t-e Ariting needs to conc!ude7 #2K L 131 G reasona)!e identifies t-e su)=ect matter ;CC 21231 G :ery !i)era!. need on!y t-e *uantity in t-e Ariting 65.1.17 /u!ti5!e Aritings 1 #2K L 132 6a!!oAed to )e taken as a A-o!e so !ong as t-ey refer to t-e same su)=ect matter7 E,ce5tionsF #e!iance UGenera!F #2K L 130V U#ea!tyF #2K L 120V Admission t-at K e,isted U;CC L 212316376)7V

Po!icy o Po!icyF 2eter raud 1 raud 1F a!se c!aim t-at a K Aas made. Uot-er kinds of fraudF raud 2F a!se c!aim t-at a K Aas not made. raud 3F a!sify t-e Ariting.V #eason to )e !ess concerned a)out fraud 2F 5arties can easi!y 5re:ent t-is )y getting contract in Ariting. Harder to 5re:ent fraud 1 a)sent a statute of frauds. raud 3 a!so !ess im5ortantF it is easier to !ie t-an to forge a document o Po!icyF Incenti:es Induce 5arties to reduce t-eir K to Ariting. <er:es )ot- anti1fraud and e:identiary 5ur5oses. Pre:ent misunderstanding A:oid re!iance on im5erfect memory. #educes t-e costs of !itigation E,am5!es o Eort- <-ore %ott!ing G !i)era! inter5retation of one1year re*uirement o 2 Cor5oration :. %roAn G motion to dismiss granted mere!y on affida:it no ora! contract Aaters doAn admission e,ce5tionD s-ou!d a!!oA at !east cross1e,amination o Cra)tree G mu!ti5!e Aritings a!!oAed to used in con=unction to satisfy t-e statute Part IV: efenses to Contractual Obligation

!. uress 4-reats :. (ffers G 2ead!y %acteria Hy5o o Case 1F A to %F @A!! your money or I9!! in=ect you Ait- t-is dead!y )acteriaB % -as a rig-t to not )e murderedD so A9s making a t-reat o Case 2F % -as disease. @I9!! gi:e you an antidote for a!! your moneyB If % -as no rig-t to t-e antidoteD t-is is an offer

3$

K. Hickey
#easons to enforce mutua!!y )eneficia!D un!ike in Case 1 incenti:iQes antidote 5roduction If you t-ink % -as a -uman rig-t to get antidoteD may see t-is as a t-reat o "eneral Policy: &ant la& to enforce offers' but not threats Conc!usion o 4ests Ait- Pers5ecti:e of 4-reatened PartyF party must ha3e Gno reasonable alternati3es9 due to improper threat 6R+$ (.E7 free Ai!! I :o!untary assent o 4ests Ait- Pers5ecti:e of 4-reatening PartyF A-at is @im5ro5er t-reatB?6R+- $$ (.E' (.H* not in @good fait-B 6#2K L 1&$7 t-reat of crimeI tort o The Credibility Test G 5ers5ecti:e of t-e t-reatening 5arty. >-en courts !ook at 5ers5ecti:e of t-reatened 5artyD t-ey t-ink t-ey9re -e!5ing t-e t-reatening 5artyD )ut t-e ru!e t-ey craft can -urt t-em E,am5!e o #u)enstein G takes su)=ecti:e :ieA of duress from 5ers5ecti:e of t-e t-reatened 5arty

B. Anconscionability Conc!usion o E,ce5tion to t-e genera! ru!e t-at courts don9t in*uire into t-e ade*uacy of t-e consideration o ACC $ +BDC+ G don9t enforce unconsciona)!e terms @enacts t-e mora! sense of t-e community into t-e !aA of commercia! transactionsB UNonesV o R+- $$ +C; Uunconsciona)i!ityVD +((,D* Ucontracts of ad-esionV o T&o components of Anconscionability Procedural Fubstanti3e >-at is t-e re!ations-i5 )etAeen t-e tAo tests? 4y5ica!!yD )ot- must )e satisfied. o HoAe:erD as in NonesD 5rocedura! unconsciona)i!ity may )e inferred from t-e one1sidedness 6su)stanti:e unconsciona)i!ity7 of t-e contract o <imi!ar!yD 5rocedura! unconsciona)i!ity can )e e:idence of su)stanti:e unconsciona)i!ity. o 4-ere is a sliding scale bet&een the t&o elements G -ig- 5ro. can com5ensate for !oA su)D and :ice :ersa #7amples of Procedural Fla&s: ;nfair sur5rise G e.g.D )uyer A-o doesn9t knoA Eng!is- signs disc!aimers. ;ndue inf!uence G e.g.D t-e Nones case 6door1to1door sa!esmen7. Contract of ad-esionD take1it1or1!ea:e1itD @!ack of meaningfu! c-oiceB G e.g.D t-e >i!!iams case. #7ample of Fubstanti3e Fla&s: Price gross!y dis5ro5ortionate

3&

K. Hickey
'imited #emedy o ;CC L 21&10637F 'imitation on damages for 5ersona! in=ury is @5rima facie unconsciona)!e.B o 'imitation Art ot-er !osses may a!so\)ut not 5resum5ti:e!y\ )e unconsciona)!e. 'imitation on t-e 5oAer to :indicate constitutiona! rig-ts. o Mhat can a court do after finding that a - term is unconscionable@ (* Refuse to enforce the term. +* Refuse to enforce the entire contract. D* Jimit the application of the term. o e, ante effects of t-e unconsciona)i!ity doctrineF /ore disc!osure. Hig-er 5ricesF -ig-er interest 5aymentsD -ig-er doAn 5ayments. 'imits freedom of contract G Good or )ad? o E,am5!eF Ar)itration C!auses Procedura! ;nconsciona)i!ity Contract of ad-esion <u)stanti:e ;nconsciona)i!ity Hig- cost of ar)itration (ne1sided 6e.g.D on!y consumerIem5!oyee su)=ect to mandatory ar)itration7 'imited remedyD no c!ass actionD no disco:ery #u!ing Ar)itration C!auses ;nconsciona)!eG Possi)!e (utcomesF <trike doAn t-e 5ro)!ematic com5onent of t-e ar)itration c!ause. <trike doAn t-e entire ar)itration c!ause. <trike doAn t-e entire contract. AAF <trong 5ro1ar)itration 5resum5tion. E,am5!es o >i!!iams case G )a!ance kee5 on a!! goods )oug-t -e!d unconsciona)!e. Procedura! 5ro)!emsF 5erson came to t-e doorD terms not read. 4-reat may Ae!! -a:e )een credi)!eD a com5ensation for t-e risk of se!!ing to a -ig- credit risk community Possi)!e 5ro)!ems e, anteF restricts contracting a)i!ity no one ser:es t-e community. Increases t-e 5riceD e!iminating some transactions restricting c-oice may not )e )adD as some 5eo5!e make c-oices not in t-eir interest o Nones case G e,5ensi:e refrigerator. 4erri)!e termD )ut -ard to strike doAn as o)=ectiona)!e term is t-e 5riceD A-ic- Aas certain!y )argained for. 6no 5rocedura! unconsciona)i!ity7 o 2isco:er case G no c!ass action term effecti:e!y gi:es 2isco:er a !icense to screA e:eryone in sma!! amounts. HereD t-ere Aas 5rocedura! unconsciona)i!ityD )ut e:en if notD may Aant to ru!e genera!!y unconsciona)!e due to free rider issue C. 6ista8e (. 6utual 6ista8e /istake :. /isunderstanding 6<-erAood :is1K1:is Peer!ess s-i57

3.

K. Hickey
In mistakeD t-ere9s confusion as to t-e rea!ity of t-e situation 6A-et-er t-e coA is )arren or no7. In misunderstandingD no confusion as to rea!ityD )ut confusion as to meaning 6A-ic- s-i5 does t-e contract refer to7 Conc!usion o #u!e R+- $ (E+: Mhen a mutual mista8e as to a basic assumption has a material effect' the - is 3oidable by the ad3ersely affected party A5J#FF he bears the ris8 of the mista8e. R+- $ (E%: ! party bears the ris8 of a mista8e &hen: 4-e K a!!ocates t-e risk to -im. He is aAare of -is !imited knoA!edge. 64rue in <-erAood7 4-e court a!!ocates t-e risk to -im. 6egD in case of neg!igent ins5ection7 o Po!icy In cases A-ere )ot- 5arties e*ua!!y innocentD -ard to knoA A-o s-ou!d )e -urt. Pro)!ematiQed in t-at court must make an a!!1or1none c-oice )etAeen risk on a!! on t-e se!!erD or a!! or t-e )uyer. Can9t ty5ica!!y s5!it t-e risk. 4Ao 5ossi)!e 6e,treme7 a55roac-es regarding t-e et-ics of t-e marketF @Ca:eat Em5torB 6%uyer %eAare7F A 5erson in:o!:ed in a market tIn must 5rotect -imse!f. As !ong as t-ere Aas no fraudD t-e 5arty A-o most recent!y 5urc-ased t-e good )ears its f!aAs. o risk a!!ocated to t-e )uyer 4rust 1 Eot to induce 5eo5!e to c-eck and in:estigate e,cessi:e!y. 4-e -istorica! oAner )ears t-e risk. o risk a!!ocated to t-e se!!er 4-e ;CC Ait- its Aarranty 5ro:isions G toAard t-e trust 5aradigmD risk a!!ocated to t-e se!!er. 6defau!t ru!e7 ;CC L 21313F An affirmation of fact re!ated to t-e good or descri5tion of t-e goods creates an e,5ress Aarranty t-at t-e goods Ai!! conform to t-e affirmation. Ucmt 3F Eo s5ecific intention to make a Aarranty is necessary.V ;CC LL 21314D 2131"F Im5!ied Aarranties G merc-anta)i!ityD fitness 4-ese are defau!t ru!esF K can s5ecifica!!y a!!ocate risk to %uyer. Incenti:esF >-o Aas in a )etter 5osition to a:oid t-e mistake? 2id t-e 5arties a!!ocate t-e risk? >-o Aas t-e efficient risk1)earer? E,am5!es o <-erAood :. >a!ker G )arren coA case. Argument t-at se!!er s-ou!d )ear t-e risk G )ot5arties -ad reason to knoA of t-e riskD and t-e contract a!!otted it to -im. Incenti:iQes )etter ins5ection )y t-e se!!erD and incenti:iQes t-e )uyer9s e,5ertise o %eac-com)er Coins G coin turns out not to )e rea!. %uyer ins5ected t-e coinD so s-ou!d )e aAare of t-e risk. >rong!y decided G court orders rescission of K. o +. Anilateral 6ista8e Conc!usion o #u!es R+- $ (ED: Mhen a unilateral mista8e as to a basic assumption has a material effect' the - is 3oidable by the ad3ersely affected party if he does not bear the ris8 of the mista8e !5

30

K. Hickey
enforcement of t-e K Aou!d )e unconscionableO OR @t-e other party had reason to 8no& of t-e mistake or -is fau!t caused t-e mistake.B stricter standard t-an mutua! mistake o Po!icy Considerations Incenti:esF >-o Aas in a )etter 5osition to a:oid t-e mistake? #isk a!!ocationF 2id t-e 5arties a!!ocate t-e risk? >-o Aas t-e efficient risk1)earer? E,am5!es o %oise Nunior Co!!ege G <u)9s erroneous )id acce5ted 6so can9t )e re:oked7. Eo re!iance )y GC. K :oidedD correct!yD as GC -as reason to knoA of t-e error. . 5ondisclosure and 6isrepresentation 4y5es of Information G A-at s-ou!d t-e !aA 5rotect? o deliberately 3. casually ac/uired information G Aant to 5rotection t-e former to incenti:iQes creation of :a!ua)!e knoA!edge EgD com5any t-at disco:ers oi! t-roug- geo!ogica! study s-ou!dn9t -a:e to te!! farmer of disco:ery o producti3e 3. distributional information G Aant to 5rotect formerD )ut not !atter EgD insider trading G info de!i)erate!y ac*uiredD )ut does not increase t-e 5ie G mere!y redistri)utes it. Conc!usion o #u!es R+- $ (H%,(*: ! contract is 3oidable &hen assent induced by a fraudulent or material misrepresentationO OR 5egligent misrepresentation of material fact. R+- (H+ 1 misrepresentation fraudulent or material if ma8er intends assertion to induce assent and: knoAs assertion fa!se does not -a:e confidence in trut- of assertion knoAs -e does -a:e t-e )asis for assertion R+- $ (H(: Mhen nondisclosure is e/ui3alent to an assertion. 5o general Gduty to disclose9 but must if: o knoAs assertion is necessary to correct 5re:ious communication from )eing a misre5resentation o constitutes a fai!ure to act in good faito entit!ement to knoA!edge )Ic of trust re!ations-i5 o Po!icy Considerations Incenti:esF >-o Aas in a )etter 5osition to a:oid t-e mistake? #isk a!!ocationF 2id t-e 5arties a!!ocate t-e risk? >-o Aas t-e efficient risk1)earer? E,am5!es o in <-erAood :. >a!kerD if info de!i)erate!y ac*uiredD may Aant to 5rotect in:estment in disco:ering 5regnancy.

43

K. Hickey
o Hi!! :. Nones G termite case. Asking *uestion generated @duty to disc!ose.B Info casua! G no reason to 5rotect it. Incenti:iQing ins5ection makes sense t-oug- G -ence re*uiring t-e *uestion.

#. Impossibility and Impracticability 2ifference )etAeen mistake and im5ossi)i!ity o mistake dea!s Ait- e,isting factsD im5ractica!ity Ait- e:ents t-at -a55en 5ost1contract. Conc!usion o #u!es R+- +H(BHEF Mhen e3ent ma8es a performance discharged due to impracticality: e3ent?s nonBoccurrence a basic assumption of - ,+H(* G egD deat-D neA go:9t regu!ationD destruction of necessary t-ing 62$21$"7 If t-ere Aas an e7isting impracticality :+HH< discharged if a basic assumption of the - and party had no reason to 8no& of t-e e,isting fact rendering 5erformance im5ractica)!e o EgD if rent out to tAo 5eo5!e for same dateD im5ossi)i!ity doesn9t a55!y as due to your neg!igence Impracticality still allo&s restitution to be had and also reliance if needed to a3oid in2ustice UR+- +.+V ACC +BH(E 1 same rule cmt. 4 G increased 5rice not enoug cmt. . G did 5arties a!!ocate t-e risk G e,5!icit!y or im5!icit!y G in t-e K? o Po!icy did t-e 5arties a!!ocate t-e risk? >-o9s in a )etter 5osition to )ear t-e risk? /akes sense to im5!y terms 5arties Aou!d -a:e Aanted -ad t-ey considered it efficient to not -a:e to Arite out e:ery 5ossi)i!ity E,am5!es o Kre!! :. Henry 1 cance!!ation coronation. K correct!y :oidedD )ased on im5!ied1in1!aA condition t-at 5ut t-e risk on t-e !essor 6!ogica! )ecause -e can sim5!y rent it out !ater A-en t-e coronation re1sc-edu!ed7 o force ma=eure c!auses G e,5!icit :oid K for acts of godD etc. o 4ay!or :. Ca!dAe!! G music -a!! )urns doAn. Court finds im5!ied1in1!aA condition to :oid. ;nc!ear -oA 5arties Aanted to a!!ocate t-e risk F. !greements Anenforceable on "rounds of Public Policy Conc!usion o #u!es R+- $ (.;,(*: Ginterest balancing test9 if Glegislation pro3ides that :the -< is unenforceable9 - is unenforceable. If no clear legislati3e mandate - is unenforceable if the Ginterest in its enforcement is clearly out&eighed in the circumstances by a public policy against the enforcement of such terms.9 U@)a!ancing testB simi!ar to t-e one used in >attsV FactorsF R+- $ (.;,+*',D*: Guidance -oA to a55!y t-e @interest )a!ancing testBF -oA strong t-e 5o!icy against t-e )e-a:ior is :. =ustice seriousnessD de!i)erateness of misconduct A-et-er nonenforcement Ai!! furt-er 5o!icy

41

K. Hickey
5arties =ustified e,5ectations #estitution G #2K more !i)era! t-an #K in a!!oAing restitutionD )y adding e7ceptions R+- $ (4.: Restitution generally una3ailable' e7cept &hen: o 2is5ro5ortionate forfeiture U#2K L 10&V o E,cusa)!e ignorance of facts or !egis!ation @of a minor c-aracterB U#2K L 10.6a7V o P!aintiff is @not e*ua!!y in t-e ArongB U#2K L 10.6)7V o P!aintiff did not @engage in serious misconductB and reneges U#2K L 1006a7V o Po!icy Considerations 2eterrence 6E, Ante7 Eon1enforcement !ess !ike!y Ks of t-is ty5e !ater formed U#2K L 1&.6376)7V %;4F >-en Promisor knoAs a)out t-e unenforcea)i!ity ru!eD )ut Promisee does not knoA a)out t-e ru!eD unenforcea)i!ity mig-t undermine deterrence. EgD i!!ega! !a)or case. Eonenforcement more e,5!oitation Nustice :. airnessF orfeitures for t-ose A-o Aere not deterred. E, 5ostF unfair t-at one 5arty is t-e defendant and t-us 5re:ai!s. HoAe:erD E, ante eit-er 5arty can turn out to )e t-e 5!aintiffIdefendant. o %utD in many cases suc- e, ante symmetry does not e,ist. Pro)!emF considering end!ess regu!ationD easy to unintentionally brea8 la&D -ence t-e e,ce5tions for minor regu!ationsD no intent to :io!ate 5o!icy e7ception to doctrine a3ailable under :R+- $ (.;,D*,c*< E,am5!es o <innar :. 'e#oy G !i*uor !icense case. Eonenforcement unfair in t-at un=ust!y enric-ed 'e#oyD )ut )ot- 5arties in 5atri de!icto 6)ot- @in t-e ArongB7D so good to create e, ante deterrence effect o >atts :. >atts G !ong !i:e1in re!ations-i5 c!aim. Nudge finds K not :oida)!e as against 5u)!ic 5o!icy 6s5ecifica!!y t-at se, cannot )e consideration for a K7D as -arm soug-t to )e 5re:ent not serious and e, 5ost in=ustice great. Part V: Performance !. The uty of "ood Faith >-en good fait- most im5ortantF o !ong term Ks G many circumstances unforeseea)!eD reason to im5!y terms 5arties Aou!d -a:e Aanted. Can9t foresee a!! 5ossi)i!ities for !ater o55ortunism. o out5ut re*uirementsI e,c!usi:e dea!ing G 5!acing trust in ot-er 5arty Conc!usion o #u!es R+- $ +CE 1 e3ery - imposes duty of good faith and fair dealing ,immutable* ACC $ (B+CD :Re3. ACC $ (BDC%V 2efinitionF @Good fait-B M -onesty in fact U;CC L 112316107V 62efinitionF G"ood faith9 ) honesty in fact and fair dealing U#e:. ;CC L 112316237V7

42

K. Hickey
"ood Faith in Output' Re/uirements and #7clusi3e ealing Contracts ACC $ +BDCH o out5utI re*uirements uns5ecified *uantity term means actua! out5uts or re*uirements t-at may occur in good fait-D )ut can9t use @unreasona)!y dis5ro5ortionateB *uantity 6re!ati:e to e,5ectations7 in t-e conte,t of increased out5ut I demand. does not a55!y if t-e se!!er -as no out5ut or t-e )uyer -as no re*uirements in "ood fait'. o e,c!usi:e dea!ings )ot- must use @)est effortsB to su55!y t-e goods or 5romote t-eir sa!e %ad fait- M )reac- of contract.

Po!icy Good fait- com5!etes t-e incom5!ete contract G no need for good fait- as a doctrineD cou!d sim5!y t-ink of it as im5!ying t-e Aanted terms 6Posner7 Pre:ents e, 5ost o55ortunism. Pre:ents inefficient 5recautions against o55ortunism. A-y t-e 5arties Aant to de!egate t-e Ariting in of certain terms to courts Tuestion 6as a!Aays7 G A-at did t-e 5arties Aant? E,am5!es o Patterson :. /eyer-ofer G K a!!ocated risk to se!!erD A-o Aas to )uy at forec!osure sa!e. Good fait- :io!ated )y )uyer9s interference. /akes sense )ecause Ait-out t-e im5!ied termD K is tota!!y one1sided. o e!d :. 'e:y G @)read crum)sB case. PartiesD in Ariting in a cance!!ation c!auseD intended some risk to fa!! on out5ut 5roducerD A-o can9t =ust set out5utM3 Ait-out cance!ing 6)ad fait-7 o

B. Fubstantial Performance Pro)!emF some contracts are :ery t-ickD 5erformance near 5erfect!y tendered. >-at is t-e effect of a @sma!! f!aAB? 4-ree a55roac-esF o 17 Perfect 4ender #u!e 6defensi:e rig-t7 G any sma!! f!aA don9t -a:e to 5ay o 27 Inde5endent Promises 6offensi:e rig-t7 G 5ay noAD )ut can sue !ater 6#mkF if !ega! system 5erfectD Aou!d )e no difference )etAeen t-e a)o:e tAo. As it isD 5arties 5refer t-e former7 o 37 <u)stantia! Performance 1 com5romise so!utionF 2on9t 5ay if )reac- is materia! (t-erAise G 5ayD )ut deduct t-e 2i+. Conc!usion o #u!es Common la& 1 substantial performance #2K LL 22&D 220F >-en an e:ent is not a condition. reduce o)!igee9s risk of forfeiture if Aou!d cause @dis5ro5ortionate forfeitureB ACC $ +BHC(: Perfect Tender Rule In practice' The PT Rule has eroded ,and substantial performance adopted* through

43

K. Hickey
#ig-t to cure 621"3.7 Insta!!ment Ks G %uyer can re=ect an insta!!ment on!y if t-e non1 conformity su)stantia!!y im5airs t-e :a!ue of t-e insta!!ment 621 $127 o 2e!ayed s-i5ment G %uyer can re=ect on!y if de!ay is materia! 621 "347 o <u)stituted 5erformance 621$147 o 4rade usage and ot-er 5ractices o Good fait- 6e.g.D %uyer must negotiate 5rice ad=ustment in good fait-7 o Po!icyF >-at Aou!d t-e 5arties -a:e Aanted e, ante? Incenti:es against t-e P4 #u!eF A:oid e,cessi:e care )y 5erforming 5arty 6and resu!ting -ig- 5rice7. 2esired #isk a!!ocation G AasD sayD #eading 5i5e rea!!y Aanted? E,am5!es o Naco)s :. Young G #eading 5i5e case. Tuestion s-ou!d )e A-at t-e 5arties rea!!y Aanted G did t-ey contract for #eading 5i5e or not? CardoQo uses su)stantia! 5erformance ru!e Court a:oids -ars- P4 ru!e 6don9t -a:e to 5ay noA7 Aou!d )e )ad for )ot- 5arties as induces e,cessi:e!y -ig- care Court a:oids inde5endent 5romises ru!e 6must 5ay noA7 -ereD not enoug- incenti:e for contractor to gi:e )est efforts o <u)stantia! Performance under ;CC <u)stantia! Performance under t-e ;CC 1 C-rono!ogy of E:ents 2e!i:ery Possession )y %uyer Acce5tance after ins5ection 621$3$7 or re=ection 621$32617 o acce5tance of goods need not )e communicated 6efficient defau!t ru!e7 o Cf. acce5tance of K G -ereD acce5tance )y si!ence not good as no re!ations-i5 e,ists Payment 621$3&7 #e:ocation 621$3.7 G if some non1conformity !ater disco:ered #emedy for )reac-Inon1conformity S #estitution of 5rice 621&117 ] Feller?s Gright to cureB 621"3.7 enters eit-er after re=ection or after re:ocation 621$3.6377. o 5ur5oseF don9t force se!!er to take rea!!y -ig- 5recautions u5 frontD more efficient to a!!oA -im to fi, A-en somet-ing9s Arong o o C. Conditions of Performance Conc!usion o #u!es R+- $$ ++%B++4 1 promise to perform can be made contingent upon particular e3ents occurring. conditions can )e made )y t-e 5arties or im5!ied )y t-e court )utF non1occurrence of t-e condition may )e e,cused o if it Aou!d cause @dis5ro5ortionate forfeitureB and Aas not materia! U220V

44

K. Hickey
non1occurrence may )e considered a )reac- if one 5arty Aas under o)!igation to )ring a)out t-e condition U22"V Promise 3. Condition PromiseF If A )reac-ed a 5romiseD t-enF o % can Ait--o!d 5erformanceD )ut on!y if A9s )reac- is materia!. o If A su)stantia!!y 5erformed 6des5ite t-e )reac-7D t-en % must 5erform 6)ut may deduct damages caused )y t-e !ess1t-an1 5erfect 5erformance7. ConditionF If A fai!ed to satisfy a condition 6for %9s 5erformance7D t-en % can Ait--o!d 5erformance. o

Po!icy %efore making a 5romiseD Promisor Aou!d !ike to 5rotect against 1 ai!ure of 5romisee to 5erform t-e counter15romise. o ProtectionF Promisee is -e!d to )e in )reac-. Promisor need not 5erform 6and is entit!ed to remedies7. An e:ent t-at Aou!d reduce t-e :a!ue of t-e e,c-ange. o ProtectionF Conditions E,cusesF Im5ossi)i!ityD rustration of Pur5oseD /istake. Pro)!emF In promises' the substantial performance doctrine mitigates harsh PT rule' but this doesn?t e7ist for conditions' so need other &ays to a3oid harsh outcomes in condition conte7t. Qo&: Inter5ret t-e term as a 5romise rat-er t-an a condition. 6so you can a55!y su)stantia! 5erformance7 Im5!y a duty on Promisor to faci!itate in materia!iQing t-e condition. Good ait- in @<atisfaction GuaranteedB Promises. Inter5ret condition as '2 c!ause Po!icyF >-at Aou!d t-e 5arties -a:e Aanted e, ante? Incenti:esF Induce efficient 6)ut not e,cessi:e7 care in ensuring t-at t-e condition is satisfied. #isk a!!ocation for e:ents outside t-e contro! of t-e 5arties. Aant to enforce conditions so as not to interfere Ait- freedom to contractD )ut not if it Aas not A-at Aas rea!!y Aanted and it )eing e,5!oited e, 5ost o55ortunistica!!y E,am5!es o 2o:e :. #ose Acre G strict anti1tardinessD a)senteeism conditions. Condition :io!atedD so no 5erformance re*uired 6no J"333 oAed7D des5ite su)stantia! 5erformance. Hars- resu!t. o . !nticipatory Repudiation Conc!usion o #u!es !nticipatory Repudiation ACC $ +BH(C: !nticipatory Repudiation. !ggrie3ed party can o ,a* a&ait performance o ,b* sue for breach immediately o ,c* in either case suspend his o&n performance R+- $ +EC. ! repudiation is: o ,(* an e7press statement of intent to breach

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K. Hickey
o ,+* a 3oluntary act indicating that performance &ill be impossible

Retraction ACC $ +BH((: #etraction of Antici5atory #e5udiation. o 6a7 re5udiator can retract if ot-er 5arty -as not yet cance!!ed or ot-erAise made it c!ear t-at -e considers t-e re5udiation fina! o 6)7 retraction must )e accom5anied Ait- demanded insurance under 21$30 o 6c7 retraction reinstates t-e re5udiator9s rig-ts under t-e K R+- $+EH o 617 re5udiation nu!!ified if arri:es to aggrie:ed 5arty )efore -e materia!!y c-anges -is 5ositionD or indicates t-at -e considers t-e re5udiation fina! o 627 In t-e e:ent of non1e,5ress re5udiation )ased on acts or fai!ure to gi:e assuranceD c-ange in t-ose e:ents )efore a materia! c-ange in t-e aggrie:ed 5arty constitutes a retraction !de/uate !ssurance G in case of A-et-er )reac- seems 5ossi)!e t-roug- acts inconsistent Ait5erformanceD aggrie:ed can demand ade*uate assurance 6sus5ending 5erformance in t-e meantime7D and if not gi:enD treat it as a re5udiation. ACC $ +BHC4 R+- $ +E( #mkF some =urisdictions don9t -a:e ade*uate assurance G egD EY.

Po!icy 4Ao ty5es of re5udiation Easy CaseF Promisor e,5ress!y states -er intentions not to 5erform. Hard CaseF Promisee -as reason to )e!ie:e t-at Promisor Ai!! not 5erform. o issueF 5romisee A-o cance!s contract risks )eing sued for )reacof contract if 5erformance is sti!! 5ossi)!e need for ade*uate assurance /itigation )ot- 5arties Aou!d -a:e Aanted mitigation A-en mitigation is efficient )ot- 5arties Aou!d -a:e Aanted t-e mitigation as soon as 5ossi)!e o %utF don9t Aant 5remature cance!!ationD eit-er A:oidance of Aastefu! re!iance E,am5!es o Hoc-ster :. 2e !a 4our G c!ient cance!s courier ser:ice for tri5. E,5ress re5udiation. A!!oAing suit for damages a!!oAs ear!y mitigationD a:oids Aastefu! re!ianceD )eneficia! to )ot- 5arties 6courier gets to !ook for neA c!ientD c!ient gets !ess in damages7. Court does t-is t-roug- im5!ying a c!ause for)idding cance!!ation o 4ay!or :. No-nson G K for stud ser:ices. P a55ears to )e getting t-e run1aroundD )ut no e,5!icit re5udiation or acts com5!ete!y making 5erformance im5ossi)!e. P uses anot-er studD sue for )reac-D )ut !ose as neit-er ty5e of re5udiation satisfied. <o!ution to t-isF P s-ou!d9:e demanded ade*uate assurance. o

#. Marranties Conc!usion

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K. Hickey
o #emarks HoA is %uyer 5rotected in case of non1conforming tender? #e=ect t-e good U;CC L 21$31V #e:oke acce5tance U;CC L 21$3.V <ue for )reac- of Aarranty o E,5ress :. im5!ied Aarranties o 2amages M +a!ue of good as Aarranted G +a!ue of good recei:ed U;CC L 21&14627V %ring a 4orts I Products 'ia)i!ity case. 4-e Artic!e 2 Co:erage TuestionF Good or <er:ice? oftenD a 5arty Ai!! Aant to try to get into t-e ;CC in order to uses t-eir generous im5!ied Aarranties t-is 5arty Ai!! try to 5ortray K matter as a @goodB to get into t-e ;CC #u!es 4y5es of Aarranties in ;CC #7press Marranties :+BD(D< o @Affirmation )y se!!erD A-ic- re!ates to t-e goods and )ecomes 5art of t-e )asis for t-e )argain creates and e,5ress Aarranty.B U;CC L 21313 6176a7V o can )e created t-roug- descri5tion of goodsD or sam5!e gi:en. o 6ere GPuffing9 does not create an e7press &arranty U;CC L 21313 627V Implied Marranties: o (* 6erchantability ,Fitness for Ordinary Purpose* :ACC $ +B D(%< >-at is merc-anta)!e? ;CC L 213146276c7F itness for ordinary 5ur5ose. A @reasona)!e e,5ectationsB test. 2efect in design :s. defect in manufacturing. o +* Fitness for Particular Purpose :ACC $ +BD(E< %uyer does not need to e,5ress!y state t-e 5articu!ar 5ur5oseD %;4 <e!!er must -a:e reason to knoA of t-e 5articu!ar 5ur5ose. isclaiming Marranties 2isc!aiming Im5!ies >arranties ;CC L 2131$627 o As easy as saying @As IsB U;CC L 2131$6376a7V o <5ecific !anguage /erc-anta)i!ityF If in Ariting must )e cons5icuous. itness for Particu!ar Pur5oseF /ust )e in Ariting and cons5icuous. o E,amination e!iminates im5!ied Aarranties U;CC L 2131$6376)7V o 4-e /agnuson1/oss >arranty Act L 13.F A se!!er cannot gi:e an e,5ress Aarranty and disc!aim im5!ied Aarranties. o ;nconsciona)i!ity can )e used as 5rotection against :arious disc!aimers 2isc!aiming E,5ress >arranties

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K. Hickey
An affirmation of fact or descri5tion of goods t-at creates an e,5ress Aarranty under ;CC L 21313 CAEE(4 )e disc!aimed in t-e contract :ia an @as isB or disc!aimer c!ause. U;CC L 21313D cmt. 4V 'imitation of #emedies U;CC L 21&10V K may !imit remedy. U21&10617V If K15ro:ided remedy @Ufai!sV its essentia! 5ur5oseDB t-e :ictim can in:oke t-e Code9s defau!t remedies. U621&10627V o >-en t-e K15ro:ided remedy fai!s it essentia! 5ur5oseD does an e,c!usion of conse*uentia! damages sur:i:e? Consumer KsF Eo. Commercia! KsF YesD un!ess it is unconsciona)!e. #e5air or #e5!ace >arranties >-at if <e!!er cannot re5air? o K15ro:ided remedy fai!s its essentia! 5ur5ose. U;CC L 21&10627V o %uyer can re:oke acce5tance U;CC L 21$3.VD reco:er any of t-e 5rice 5aidD and seek damages U;CC L 21&11V. <5ecifica!!yD %uyer can co:er. U;CC L 21&12V. o %uyer is not entit!ed to re5!acement from <e!!er. U;n!essF @re5air or re5!aceB S ina)i!ity to re5air S good fait- M re5!ace.V o Po!icy Considerations >arranties ser:e :a!ua)!e 5ur5oses Information re:e!ation G A-at is t-e *ua!ity of t-e 5roduct 6a!!oAs se!!er to demonstrate *ua!ity7 #isk a!!ocation 4-e Code9s defau!t Aarranties sa:e 4Cs. Genera!!yD 5arties s-ou!d )e free to gi:e I disc!aim Aarranties. U reedom of ContractV Aant to !imit t-is a)i!ity on!y to t-e e,tent consumers cannot 5rotect t-emse!:es 6are im5erfect!y rationa!7 E,am5!es o Henningsen :. %!oomfi!ed /otors G court strikes doAn disc!aimer of merc-anta)i!ity. >-y? #e!ies on unconsciona)i!ity1ty5e ana!ysisD of 5articu!ar concern is t-at t-e automo)i!e industry Aas a o!igo5o!y 5rocedura!F contract of ad-esionD o!igo5o!y su)stanti:eF !imits on 5ersona! in=ury damages #mkF cou!dn9t t-e )uyer get insurance from a t-ird 5arty? )utF se!!er in )etter 5osition to )ear t-e risk todayD Aou!d )ring a trot c!aim o /urray :. Ho!iday #am)!er G @fi, )ut not re5!aceB c!ause. Car a rea! !emonD a!Aays in t-e s-o5. Court aAards e,5ectation damages as @remedy fai!ed its essentia! 5ur5ose U21 &10V o

4.