Contracts Outline (Fall 2008

)
Enforcing Contracts: Consideration................................................................................................................................. ......................2 Enforcing Contracts: Adequacy of Consideration................................................................................................................................. ..3 Enforcing Contracts: Preexisting Duty........................................................................................................................................ ...........4 Enforcing Contracts: Mutuality of Obligation............................................................................................................................. ...........5 Enforcing Contracts: Quasi Contract-Restitution................................................................................................................ ...................6 Enforcing Contracts: Promissory Estoppel (Reliance)......................................................................................................................... ...7 Enforcing Contracts: Statute of Frauds................................................................................................................................................ ...8 Making a Contract: The Objective Test.................................................................................................................................... ..............9 Making a Contract: Offers (Definiteness).......................................................................................................................................... ...10 Making a Contract: Acceptance.................................................................................................................................................... ........11 Making a Contract: Acceptance By Performance................................................................................................................. ................12 Making a Contract: Acceptance by Silence....................................................................................................................... ...................13 Making a Contract: Counter Offer................................................................................................................................................... .....14 Making a Contract: U.C.C. 2-207...................................................................................................................................................... ...15 Making a Contract: Shrink Wrap Terms (2-207)........................................................................................................... .......................16 Making a Contract: Terminating Offer.............................................................................................................................. ...................17 Making a Contract: Irrevocable Offer................................................................................................................................................... 18 Avoidance of Contracts: Defective Formulation of Agreement........................................................................................... .................19 Avoidance of Contracts: Indefiniteness............................................................................................................................... .................20 Avoidance of Contracts: Capacity to Contract............................................................................................................................... .......21 Avoidance of Contracts: Mistakes........................................................................................................................................... .............22 Avoidance of Contracts: Fraud/Misrepresentation........................................................................................................................... .....23 Avoidance of Contracts: Duty to Disclose................................................................................................................................... .........24 Avoidance of Contracts: Duress........................................................................................................................................ ...................25 Avoidance of Contracts: Unconscionability.................................................................................................................. .......................26 Avoidance of Contracts: Illegality........................................................................................................................................... .............27 Avoidance of Contracts: Public Policy................................................................................................................................. ................28 Performance: Parol Evidence Rule.............................................................................................................................................. .........29 Performance: Interpretation............................................................................................................................................................ ......30 Performance: Good Faith Requirement................................................................................................................................. ...............31 Performance: Good Faith Requirement (cont.)............................................................................................................................. ........32 Performance: Warranties.................................................................................................................................................... ..................33 Performance: Conditions/Waivers........................................................................................................................................... .............34 Performance: Constructive Condition of Exchange (Substantial Performance)............................................................................ ........35 Performance: Impracticability and Frustration of Purpose............................................................................................. ......................36 Damages: Types of Remedies............................................................................................................................................................ ...37 Damages: Payor Breach.................................................................................................................................................... ...................38 Damages: Performer Breach/Putative & Emotional Damages....................................................................................................... .......39 Damages: Equitable Relief........................................................................................................................................................ ...........40 Damages: Liquidated Damage Clauses............................................................................................................................ ....................41

TLS Notes: This was my second outline, and is a bit longer than most of my outlines; on the table of contents if you press CNTRL and click the page number, it takes you to that page. This is what I describe as a more "thematic" outline.

[1]

Enforcing Contracts: Consideration
Restatement § 71 • (1) “To constitute consideration, a performance or a return promise must be bargained for • (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise • (3) The performance may consist of ○ (a) an act other than a promise, or ○ (b) a forbearance, or ○ (c) the creation, modification, or destruction of a legal relation” • (4) can be a third party Conditional Gift- A promise without consideration is a mere conditional gift; not enforceable by the courts. A good feeling is not consideration. [FORK: Bargained for exchange or conditional gift] * Test of whether it is conditional gift is if both parties could sue for breach. Binding Gift Promises- Most courts will not recognize binding gift promises even if supported by seal. UCC 2-203 "every effect of the seal which relates to sealed instruments" as such is wiped out insofar as contracts for sale are concerned." ○ Exceptions; some places recognize notary seal because of method of signing. Trusts are also ways to make binding gift promises. ○ UCC 1-107- a right that comes out of breach can be waived without consideration ○ UCC 2-205- merchant firm offer; "an offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open for certain time isn't revocable" Kirksey v. Kirksey (Conditional Gift / Brother in Law Promises house) • Brother-in-law wrote to recently widowed sister-in-law, invites her to move onto his property, she sells her house and moves there. Then he made her leave. • Court finds no consideration; not enforceable. Good feeling is not consideration. Benefit/Detriment Model- consideration can consist of either consist of a benefit accrued to one party or a legal detriment to another party. Hamer v. Sidway (Promise to pay $5,000 if nephew gives up smoking) • Consideration exists; court applies benefit-detriment model; consideration may consist of "a benefit accruing to one party or a detriment to another party." This includes limiting own legal freedom. • It is not the court's job to ask whether the thing which forms consideration is actually a benefit to the promisee. It is enough that the action of consideration is performed. Bargained For Requirement - Courts set low hurdle for bargaining; does not require haggling, rather it just means whether there is some reasoning behind what is being bargained for. Must be intended to induce action, Jara. [FORK: Bargained for exchange or conditional gift] Langer v. Superior Steel Corp. (Receives pension if he forgoes opportunity to work for another company) • Enforceable on basis of consideration; induced former worker to not work for another company (this is a benefit) • Also could be enforced on basis of promissory estoppel Jara v. Suprema Meats, Inc. (Helps son get a line of credit; son gives a promise back to not get raise) • To be valid consideration, contracts must be bargained for which is indicated by the phrase "as an inducement to the promisor." • In this case, Jara Sr. was not an inducement to change; he helped provide the credit before and then was given an unrelated promise. • Adequacy of Consideration -must be something of value in consideration; altruism is not enough of a consideration, there needs to be something going both ways and it must be bargained for.

[2]

Enforcing Contracts: Adequacy of Consideration
Restatement § 79. Adequacy of Consideration; Mutuality of Obligation. If consideration requirement is met, there is no additional requirement of (a) a gain to the promisor or a loss to the promisee; (b) equivalence in the values exchanged; or (c) “mutuality of obligation”. Restatement §81. Consideration as a Motive or Inducing Case. (1) The fact that what is bargained for does not itself induce the making of a promise does not prevent it from being consideration. (2) Fact that a promise does not itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise. • Comment a. “Bargained for.” : In most commercial bargains, the consideration is the object of the promisor’s desire and that desire is a material motive or cause inducing the making of the promise. BUT: • Comment b. Immateriality of motive or cause: unless both parties know that the purported consideration is mere pretense, it doesn’t matter if promisor’s desire for the consideration is incidental to other objectives and even that the other party knows this to be so.

Mixed Motives- Even if other motives are present and real reason for exchange, it is irrelevant so long as other consideration exists. Both parties must know that the purported consideration is immaterial (see restatement clause above).
Thomas v. Thomas (Widow is given house if she maintains upkeep and pays small fee of rent each year) • Rent & Upkeep are not nominal consideration; money indicates it is not voluntary conveyance. • If governed by restatement, both sides would not it was pretense. • Although real reason for contract may have been honoring wishes; consideration was still present and ulterior motive for contract is irrelevant.

* Intention to make contract is irrelevant; cannot create a contract by simple desire to contract without consideration. In re Greene (Person having an affair promises lots of money in exchange for several nominal items) • Seal is not binding consideration; $1.00 is nominal (both sides knew it was pretext) • "Phrase good and valuable consideration" is not actual duty; too vague. • Intention to make a contract is irrelevant if lacking consideration; won't force gift promises. Fiege v. Boehm (Contract to forgo bastardy hearings in exchange for child support and other items) • Promise to forgo lawsuit (even if lawsuit would have failed) is sufficient consideration so long as promise is made in good faith. Promises to forgo lawsuits not in good faith are not valid consideration. • Dispute in various courts and in restatement over whether good faith alone is sufficient or if there must be some factual basis for the claim.

[3]

Enforcing Contracts: Preexisting Duty
Preexisting Duty Rule - the performance or the promise to perform a preexisting duty does not constitute consideration
Restatement provision § 89. Modification of Executory Contract A promise modifying a duty under a contract not fully performed on either side is binding: (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; or (b) to the extent provided by statute; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise. • New consideration is generally needed, except in the above cases. UCC § 2-209. Modification, Rescission and Waiver (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) Has to satisfy requirements of the statute of frauds. • No new consideration needed if modification is done in good faith. • Basically eliminates the pre-existing duty rule in sales contracts

Levine v. Blumenthal (Property owner agrees to lower rent so that renter can pay) • No detriment to the renter; sufficient consideration could be to refrain from bankruptcy. • If person already has a duty to do something; new modifications must come with consideration. Alaska Packer's Association v. Domenico (Workers hold out for more money and person agrees to provide it) • No consideration exists if breached contract to coerce a benefit. • No additional duties means it the case falls under the preexisting duty rule. Good Faith Modifications- An exception to the preexisting duty rule; if contract is made in good faith then it is binding even without consideration. U.C.C. indicates that good faith is all that is needed; Restatement is more stringent. Angel v. Murray (Trash collector asks for more money because of increase in houses) • Generally modifications are unenforceable if there is no consideration. • Good faith doctrine however has modified preexisting duty rule; the restatement indicates that modification must a) be prior to completion b) have unanticipated circumstances c) modifications are fair and equitable. * Massachusetts Exception - All modifications are binding; you are giving up the right to sue which means there is adequate consideration for modifications.

[4]

Enforcing Contracts: Mutuality of Obligation
Mutuality of Obligation - Both sides must agree to undertake or do something; if one side can get out of it for any reason then the promise is unenforceable (lacks consideration). Satisfaction Clauses- Courts are usually unwilling to find satisfaction clauses lack mutuality of obligation. Require the judgment to be made in good faith; will sometimes require an objective standard be used.
Rehm-Zeiher Co. v. F.G. Walker Co (Defendant agrees to sell whiskey for fixed price for five years, however plaintiff was able to cease buying for "unforeseen" reasons) • Buyer had no obligation to continue buying; thus contract was unenforceable because only seller had an obligation to sell. McMichael v. Price (New business person agrees to buy all sand that he can sell from sand company) • Contract had mutuality of obligation; plaintiff intended to buy sand, only other alternative was going out of business. UCC § 2-306(1) - Mutuality of Obligation doesn't apply to Output/Requirement Contracts "A term which measures the quantity by the output of the seller or the requirements of the buyer means actual output or requirements as may occur in good faith, as long as it is not out of proportion with an estimate may be tendered or demanded." ○ Requirement Contract- no specified amount but buyer agrees to sell all sand buyer needs; buyer is obligated to buy all sand from seller. ○ Output Contract- Seller is going into business to make something; doesn't know quantity of it. Buyer agrees to buy everything seller makes. There is a way for both parties to breech.

Wood v. Lucy [Lady Duff grants defendant exclusive rights to sell her products; requirement contract (?)] • Contract has an implicit good faith requirement Omni Group v. Seattle National Bank [Land contract is subject to feasibility reports from engineer] • A promise given for a promise is dependent upon a condition does not necessarily render it illusory or affect its validity as consideration. • A satisfaction clause does not render the promise invalid unless it is so great the promise is illusory.

[5]

Enforcing Contracts: Quasi Contract-Restitution
Contracts Implied in Fact (by action) - a contract formed by the actions of the parties involved that make it clear a contract has been formed. Contract implied in fact's recovery will be amount the parties would have intended to contract. Contracts Implied in Law - quasi contracts or unjust enrichment. Elements of a quasi-contract- a)defendant receives benefit b) knowledge of this benefit by the defendant [an option to decline] c) it would be unjust to maintain the benefits without restitution. ○ Knowing Beneficiary- if person knowingly accepts benefit it will be enforced. ○ Forced Payment- person imposes a burden on a person without their knowledge (i.e. paints their house without knowledge). ○ Gray Area cases. Material Benefits Test - Is there a material benefit conferred upon the person later agreeing to the contract; if so it might be enforceable under Webb. [FORK: Dispute in court between this and humanitarian argument in Harrington] Moral Obligation + Subsequent Promise- Court's split over whether moral obligation (or previous material benefit) plus a subsequent promise is enforceable in quasi-contract.
Restatement Provision § 86 (1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. (2) A promise is not binding if; (a) it was conferred as a gift or the other was not unjustly enriched (b) disproportionate to the benefit.

Mills v. Wyman (Son became sick; person took care of him, in gratitude father says he'll give money) • Decided prior to theory of quasi-contract; held that people were not obliged to do the right thing. • Law does not require people to do the right thing. Webb v. McGowin (Worker saves bosses life; boss offers to pay money each week as compensation) • Saving life has pecuniary benefits; promise to pay later is acceptance of the benefit • Consideration exists because defendant was injured; McGowin benefited. Harrington v. Taylor (Person has hand injured to save life; promised to pay) • Court doesn't enforce the promise to pay after injury; acting as humanitarian.

[6]

Enforcing Contracts: Promissory Estoppel (Reliance)
Restatement § 90 - A promise which the promisor should: (1) reasonably expect to induce action and which (2) does induce such action is binding if (3) injustice can only be avoided by enforcement of promise. (4) The remedy for breach may be limited as justice requires. Ricketts v. Scothorn (Person quits job on basis of promise of grandfather to pay $2,000) • Fits all criteria of reliance; it was expected to and did induce action. Injustice could only be avoided by enforcement. Allegheny College v. National Chautauqua County Bank of Jamestown (Promises to give $5,000 to college and later rescinds; this is in exchange for named fund or any use). • Consideration is present on both sides (agreed to named fund is post humus legacy) • Might be found under promissory estoppel because college relied on money. Charitable Exception - Donations to charity can be enforced without consideration EVEN IF no reliance or action.

[7]

Enforcing Contracts: Statute of Frauds
Statute of Frauds - Establishes that some contracts must be in writing to avoid fraud and must be signed by party wishing to enforce contract. Several things generally fall under statute of frauds; (1) land sales (2) agreements which cannot be performed within a year (3) marriage (4) promise to answer the debts of another. Reasoning for Statute of Frauds. (1) Promotes evidentiary requirement (2) cautionary purpose; indicate these are important events (3) channeling; better to have it written down. Uniform Commercial Code - If sale of goods is more than $500 then it must be in writing unless; (1) custom made goods (2) existence of contract admitted in court (3) receipt and acceptance of goods or payment is rendered (4) confirming memo (between merchants only) UCC § 2-105(1) - Goods; goods mean all things which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid. Goods also include the unborn young of animals and growing crops. One Year Rule - If the contract will take longer than a year to perform then many jurisdictions hold that it must be in writing. However, if there is the theoretical possibility that it could be performed in less than a year,then the One Year Rule does not apply. Professional Bull Riders, Inc. v. Autozone (Agreement for sponsorship for up to two years; can be terminated within a year) • "If the agreement could have been performed within one year, the statue is inapplicable." • If any of the alternatives in the contract can be performed within a year then it does not fall under the one year rule. ----------------------------------------------------------------------------------------------------------------------------------Missing Information - Evidence can use evidence to establish ties between signed and unsigned documents; must be a clear connection between the two. Crabtree v. Arden (Person receives indication from company that they will hire him for $20,000 with raises coming every six months; GM signed a payroll card and company sent a memo) • Case falls under statute of frauds • There is a contract (even though pay raise was unsigned) because of additional evidence that is used to show that is the intent of the contract. Restatement § 208 (influenced by Crabtree) - "the memo may consist of several writings, (a) if each writing is signed by the party to be charged and the writings indicate that they relate to the same transaction, or (b) though one writing only is signed if (i) the signed writing is physically annexed to the other writing, or (ii) the signed writing refers to the one unsigned writing, or (iii) it appears from the examination of all the writings that the signed writing was in reference to the unsigned."

[8]

Making a Contract: The Objective Test
Objective Test- Would a reasonable person have thought that a contract had been made based on the events. There must be a serious intent to be bound by an offer; won't be bound by humor, expressions of opinion or offers directed at other people. Intent to Contract - Did both parties intend to form a contract; this is to be evaluated from an objective approach such as outward showings; not personal or hidden feelings. Secret Intentions - Not relevant; contracts are formed based upon outward projections.
Embry v. McKittrick (Deliberations over contract; boss says "go ahead and get your men out", contract?) • Contracts are embodied in the words which the parties have used and is to be deduced therefrom. • A meeting of the minds is not determined by secret intention of the parties but by their expressed intention, which may be wholly at variance with the former. Restatement § 16 Intoxicated Persons: Contract only voidable for this if the other party has reason to know that because of this, he’s unable to understand and act in a reasonable manner regarding the transaction and its consequences

Lucy v. Zehmer (Land sale that defendant argues is null because he was intoxicated at the time)
• “Evidence shows he (Lucy) was warranted in believing, that the contract represented a serious business transaction and a good faith sale and purchase of the farm.”

Directed At Test- Cannot accept offers that are directed at other persons; case of hole-in-one. Based on objective test.

[9]

Making a Contract: Offers (Definiteness)
Restatement Provisions; § 26 - Fixed Purpose- "A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person to the person making it does not intend to conclude a bargain until further manifestation of assent" § 24 - Offer - "the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. Advertisements - Generally not considered an offer merely an invitation to make an offer; exception if the advertisement is definite in its terms. Reservations Requirement - In order to have a valid contract, person must simply be able to say I accept and not have reservations about it. Lonergan v. Scolnick (Defendant places ad in paper saying will sell land; plaintiff and defendant communicate with understanding to act fast, defendant sells land before plaintiff responds) • Fixed purpose test; if other side knows that additional steps must be taken to accept then it cannot be said that an offer has been made (i.e. an advertisement). • Other side must have reason to know more action is called for (see restatement above) Lefkowitz v. Great Minneapolis Surplus Store (Guy wants to buy a fur coat from store for dollar based on advertisement) • Generally ads are not offers; however, this was an offer because it had specific terms and wrote in method of acceptance. If an advertisement leaves nothing open for negotiation, it's an offer. • However, if there are key terms left indefinite, such as value, it is not an offer. Leonard v. Pepsico, Inc. (Person tries to accept commercial's offer for harrier jet) • Jokes are not offers; objective test should govern • Catalogue indicates that it is an invitation to make an offer Puffing - Where an offer is clearly an exaggeration/hyperbole.

[10]

Making a Contract: Acceptance
Methods of Acceptance- By promise (bilateral), by performance (unilateral) or by silence/conduct. Offeror is master of the offer and can determine method of acceptance. La Salle National Bank v. Vega (Two parties sign "contract" that will be valid upon execution by trust, not executed by the trust) • "An offer has complete control over an offer and may condition acceptance to the terms of the offer" Hendricks v. Beehee (Real estate contract; buyer takes out escrow to buy land and notifies agent but seller withdraws offer before buyer communicates acceptance) • An acceptance must be communicated to the offeror prior to withdrawal in order for contract to be formed. • Unless promise to keep offer open is supported by consideration; offeror can withdrawal offer. Ever-tite Roofing Corp. v. Green (Contract for painting of house; person hires other group but doesn't inform original painters, painters show up at house) • Work began when trucks were loaded; this is in line with how offer was worded "this agreement shall become binding only upon written acceptance or upon commencing work"

[11]

Making a Contract: Acceptance By Performance
Difference between unilateral contracts and bilateral contracts; unilateral is a one-sided offer that can be accepted by performance (ex. I promise to pay you if you paint my house) versus bilateral which is a promise for a promise (I promise to pay you if you promise to paint my house). Unilateral Acceptance- Acceptance begins when partial performance has begun. Law will not allow for revocation in the middle of a unilateral offer. Two reasons; (1) quasi contracts (2) unilateral contract has an implicit promise not to revoke after performance has been initiated. Bilateral Acceptance - When promise is received. Restatement § 45(1); once the offeree tenders the beginning of performer, it does not bind the offeree but it does give them the free option to finish. It gives you the right but not the obligation to finish. Modern Approach - An offeree can accept by a reasonable means, unless the offeror explicitly indicates that the person must accept by performance. UCC 2-206(2) "Beginning of a requested performance", if reasonable, may also create a contract. Carlill v. Carbolic Smoke Ball Co. (Offers $ if person uses product and gets sick) • Character of transaction invites offer by performance; lack of targeted person does not negate transaction because it was targeted at any user. • Acceptance by performance does not have to be communicated. • Consideration exists; detriment to user and benefit through purchase to company Intent to Accept - Must have an intention to accept offer; cannot find out about offer and then later accept. Glover v. Jewish War Veterans of United States (Person supplies information; later finds out about reward and tries to collect on reward) • Must have knowledge of offer before you can accept the offer; no contract because person did not know of offer. • Private Rule and Government Rule; government is obliged to pay money ever if not known (?) • Difference between this and Carbolic, in order to accept an offer you must know about the offer. In Carbolic person did not disavow knowledge of ad whereas in Glover, she said that she didn't know.

[12]

Making a Contract: Acceptance by Silence
Restatement § 69(1) - Where an offeree fails to reply to an offer, her silence and inaction operate as an acceptance in the following cases only; a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject AND reason to know they were offered with the expectation of payment. b) Where the offeror has stated.. that assent may be manifested by silence .. and the offeree in remaining silent… intends to accept the offer. c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept Wrench, LLC v. Taco Bell Corp. (Uses idea for "Psycho Dog" to market taco bell; inventor of "Psycho Dog" sends over a contract but Taco Bell doesn't sign; later uses a similar idea) • Clear understanding existed that payment was expected if idea was used. • Should have explicitly rejected offer; continued services indicated reason to expect payment. • Contract Implied in Fact Customary Acceptance - If silence is a customary way to accept proposal then it may be deemed to have a contract. Ammons v. Wilson & Co. (Seller receives sales order, order makes it clear subject to approval by seller; buyer orders product. Seller rejects offer after two weeks, typical time for sale is week) • Failure to respond when silence is the custom is acceptance; this can occur even when contract explicitly says otherwise. • If it is customary to accept by silence then it can be held valid • Also dealt with authority to contract (324, Alaska Packers is similar) UCC 2-206(1)(a) - "The offer could be accepted by a prompt promise to ship or by the prompt or current shipment of conforming goods." Adams v. Lindsell (Letter is addressed to wrong person; takes longer for buyer to respond, seller sells before receiving letter but after buyer had sent the letter. • Acceptance does not have to be received for it to count. • Reasonable amount of time must be given and response can be through similar channels as acceptance (buyer must respond by similar manner to accept). Mailbox Rule - When acceptance is put in mailbox; it is deemed to be acceptance at that time NOT when it is received by offeree. • Different for rejection/counter-offer- rejection is valid when it is received by offeree. • If you mail a rejection; you lose protection of mailbox rule and it will be determined based upon which letter is received first. ○ However, you can accept my another medium such as phone, ect. if you lose protection of mailbox rule as mentioned above. • Email has not been determined whether it falls under the mailbox rule. Summary of Mailbox Rule 1) Offer- good when received 2) Acceptance- good when it is sent 3) Counteroffer- good when received (but negates an acceptance by mail if counteroffer sent first) ex. You mail counteroffer and then mail acceptance. No contract under mailbox rule. 4) Revocation- good when received [13]

Making a Contract: Counter Offer
Common Law - Mirror Image Rule - there must be unconditional assent to the offer (i.e. no additional terms) Minneapolis & St. Louis Railway v. Columbus Rolling Mill (Accepts at different quantity and then later attempts to accept at the previous price) • "An offer to sell imposes no obligations until it is accepted according to its terms"; a "proposal to accept upon varying terms is a rejection of the offer, puts an end to the negotiation" Restatement Comment - Difference between acceptance with qualification (counter offer) and a genuine acceptance with mere "inquiries" ○ § 59 - a reply which purports to be an acceptance but which adds qualifications or requires performance of conditions is not an acceptance but a counteroffer. ○ § 61 - an acceptance which requests a change is not invalidated unless the acceptance is made to depend on an ascent to the changed or added terms. Pre-existing duty rule with counteroffers - If there is a conditional acceptance but the condition is something already met in the contract it is a valid contract nonetheless (CB334). * Last Shot Problem - Without U.C.C. § 2-207 last person with writing has controlling terms given that the shipment of goods would be presumed to acceptance. Encourages persons to send offers right before goods get there.

[14]

Making a Contract: U.C.C. 2-207
U.C.C. 2-207 2-207(1): In commercial transactions, an acceptance may count even if it contains some different or additional terms. • “A definite and seasonable expression of acceptance or written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional or different from those offered or agreed upon, unlessacceptance is expressly made conditional on assent to the additional terms or different terms. ○ Up to the comma:  Confirmation is an acceptance even if it has additional terms or different terms; not treated as counteroffer despite the different terms or additional terms.  Rejects Last Shot Doctrine.  Reasoning. Does not want to allow party to claim contract is void based on boilerplate. ○ After the comma:  If acceptance is expressly conditional on assent to other terms, it's a counter-offer. 2-207(2): Do Additional Terms Come in? (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter the contract; or (c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. Materiality Exception - Generally if a term is important, it will be material, therefore hard to get terms in. Non-merchants- The additional terms are proposals for addition to the contract. Must be expressly accepted. ----------------------------------------------------------------------------------------------------------------------------------Different Terms - 2-207(2) only addresses additionalterms. If the terms conflict court has options; (a) Knock-out provision. Different terms knock each other out. Only agreed terms apply (b) Only original terms come in. (c) Treat the term as an additional term When does knock out matter? (1) If dispute is prior to performance,the question is whether we actually have a contract. (2) If we have performance, the dispute over the terms. ----------------------------------------------------------------------------------------------------------------------------------2-207(3). What if performance occurs and terms do not match? (Applies only if there is no writing on the subject.) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract although the writings do not otherwise establish a contract. In such a case, the terms of the contract consist of the terms on which the writings agree together with any defaults of this act. DTE Energy v. Briggs (Sale of contractor for generator, dispute arises over whether the purchase order was the offer and acknowledgment by seller was acceptance; OR whether the acknowledgement of purchase order was the contract) • Acceptances that add additional terms are valid acceptances; the additional terms are proposals. In this case, acknowledgement was acceptance. • Additional terms can only come in if it does not materially alter the contract; however forum selection does materially alter contract and thus can't come in. ○ Non-material portions are generally things that are not viewed as important.

[15]

Making a Contract: Shrink Wrap Terms (2-207)
Shrink Wrap Cases Generally • Dispute over whether software is a good. If disk is what is being sold, U.C.C. applies, if it the program, then it might be common law. Who is the offeror? 1) If buyer (person calling) is viewed as offeror, then the seller accepts the proposal by sending the computer? Terms of shrink wrap are just proposals. 2) If buyer is just inviting seller to make an offer, then seller is offeror and the terms would come in because buyer is accepting the terms. Important Question. Was the buyer on inquiry notice that there might be additional terms? Hill v. Gateway 2000 (Terms are included in the box; buyer does not read them, one of them is arbitration agreement which Hill's dispute, further one term says if you don't accept return within 30 days) • Additional terms come in; Gateway is making offer, Hills accept the contract and fail to return it within 30 days and thus have accepted. • Incorrectly argues that where there is only one form; § 2-207 doesn't apply. (It is incorrect because both parties are not merchants?) • Further parties have fair warning and are on inquiry notice. Klocek v. Gateway (same facts as other case) • Believes acceptance was when Gateway sent computer. • § 2-207 governs; nothing in it precludes only one form • Express Agreement is necessary because both parties were not merchants • Must inform or put plaintiff on inquiry notice; in this case, no such indication that acceptance was conditional upon terms prior to contract being established.

-----------------------------------------------------------------------------------------------------------------------Electronic Signature Cases - Follow similar analysis as shrink wrap cases; is defendant put on inquiry notice as to the terms of the contract (based on reasonable person). U.C.C. and Downloadable Software - Court in Sprecht finds that "Downloadable software is scarcely a tangible good"; further, "recognizing a body of law for manufactured goods ill fits transactions in computer information." Sprecht v. Netscape (Downloads software with arbitration condition that is difficult to find) • An offeree is not bound by inconspicuous contractual provisions of which he is unaware or that is not obvious. Inquiry Notice.

[16]

Making a Contract: Terminating Offer
Restatement § 36 (1) An offeree's power may be terminated by; a) Rejection or counter-offer b) Lapse of time c) Revocation of offer d) Death or incapacity of the offeror or offeree (2) In addition, offeree's power of acceptance is terminated by the non-occurrence of any condition of acceptance. Restatement § 42 - Indirect Revocation "Where an offer is for the sale of land or in other things, if the offeror, after making the offer, sells or contracts to sell the interest to another person, and the offeree acquires reliable information of that fact, before he has exercise his power of creating a contract by acceptance of the offer, the offer is revoked." Restatement § 41. Reasonable Time Lapse An offer will be revoked after either time stipulated in offer; OR if no time is set, then after reasonable time. Conditional Timeframe - Establishing a timeframe does not require that it be left open until that period unless supported by consideration; offeror is free to revoke at any point before acceptance. Communication Requirement - Revocation must be communicated to the offeree; OR offeree must learn of that the offer is no longer valid from a reliable source. Dickinson v. Dodd (Land sale is open until Friday; buyer tries to accept but can't find seller; learns that the land might have been sold, later accepts offer) • If heard from reliable source; that offer is revoked. • No consideration for timeframes means it's a naked gift promise. Reward Revocation - If person offers general reward, offer can be revoked by publicity equal to original ad.

[17]

Making a Contract: Irrevocable Offer
Restatement § 37. Revocation of Option Contract with Consideration. The power of acceptance under an option contract is not terminated by rejection or counter-offer by revocation, or by incapacity, unless the requirements are met for the discharge of a contractual duty. Humble Oil v. Westside Investment [Consideration for option contract; sends counter-offer and later accepts original offer] • Option contracts are not revocable if there is consideration; offeree can counter-offer and reject offer as much as they want. • Negotiation doesn't terminate an option contract. Consideration - Majority rule holds that party must actually receive consideration before it becomes irrevocable; minority rule finds that if option wasn't paid it does not void the contract. U.C.C. 2-205. Merchant Firm Offer An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or after a reasonable amount of time. Right to Finish - Once performance has begun, the person has a right to finish the offer without the offer being revoked. Marchiondo v. Scheck [House sale contract with offer for 6 day time limit; real estate agent gets paid by commission and begins looking, offer is revoked.] • See right to finish. Restatement § 87(2). Reliance/Option Contract (Follows Drennan) An offer which the offeror should reasonably expect to induct action is binding as an option contract to the extent necessary to avoid injustice. Consideration Requirement (cont.) - Must have consideration [or possibly reliance as per Drennan] in order to make options contract irrevocable (can be debatable what consideration is for option, as demonstrated by following cases) Baird v. Gimbel Brothers [Plaintiff solicits bids; defendant sends mistaken bid. Plaintiff relies on bid but defendant informs plaintiff of the mistake] • Offer is revocable by the defendant; a) no option purchased and b) not a merchant firm offer, not goods. • Reliance/Promissory Estoppel not applicable; an offer for exchange is not meant to be a promise until consideration has been received. Drennan v. Star Paving Co. [Plaintiff submits bid based on mistake by defendant; relies on offer and wins bid; defendant attempts to revoke] • Reliance theory: it was expected to induce action and it did induce such action. • Consideration requirement: satisfied because defendant more likely to receive bid. Imposes the plaintiff to accept the defendant's offer shortly after winning bid.

[18]

Avoidance of Contracts: Defective Formulation of Agreement
Restatement § 20. Effect of Misunderstanding (1) There is no manifestation of mutual assent if the parties attach materially different meanings AND (a) neither party has reason to know the meaning attached to the other OR (b) each party knows the meaning attached by the other. (2) The manifestations of the parties are operative with the meaning if (a) that party does not know of any different meaning but the other knows the meaning attached by the first party; or (b) that party has no reason to know of any different meaning attached by the other party, and the other has reason to know the meaning attached by the first party. Material Requirement - The content of the mistake must be material in order to void the contract for vagueness. Objective Determination - must not be reasonably possible for the court to determine who is correct; or if the contract was made in bad faith. Possible Requirements (1) Different understandings of their expression of agreement; (2) does not apply when parties understanding is less reasonable; (3) parol evidence is admissible to establish the facts necessary to apply the rule. Raffles v. Wichelhaus [Two different ships named Peerless; no meeting of the minds] • No meeting of the minds; the mistake was material. Konic v. Spokane [Miscommunication over the term 56.20] • Uses test set out by commentator; (1) Different understandings of their expression of agreement; (2) does not apply when parties understanding is less reasonable; (3) parol evidence is admissible to establish the facts necessary to apply the rule. • Custom made good exception doesn't apply; only statute of frauds problem. _______________________________ Indefiniteness Doctrine- Cannot contract around the indefiniteness doctrine; immutable. However, as long as you specify a way to resolve ambiguity then the court will probably enforce the contract. Must spell out the critical terms of the contract; nevertheless many courts will use gap filling provisions. U.C.C. 2-204(3). Formation Even though one or more terms are left open a contract does not fail for indefiniteness if the parties have intended to make a contract, and there is a reasonably certain basis for giving an appropriate remedy.

[19]

Avoidance of Contracts: Indefiniteness
Restatement § 33. Standards to Judge Indefiniteness
(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. (3) The fact that one or more terms of a proposed bargain are left open may show that a manifestation of intention is not intended to be understood as an offer or acceptance.

U.C.C. 2-204(3). Formation Even though one or more terms are left open a contract does not fail for indefiniteness if the parties have intended to make a contract, and there is a reasonably certain basis for giving an appropriate remedy.
Fairness Clauses - Must be some meaningful way to determine what is fair in order to be definite; possible ways to determine fairness are market price. Varney v. Ditmars [Attempts to get compensated for a "fair share of profits"] • Not possible to determine what "fair share" means in terms of profits. • It is possible defendant might have theory under quasi contractif his work was more valuable than he got compensated for. • For a valid contract, it must be certain and explicit that the parties full intention be ascertained from the contract. Material Requirement - if the term in question is a material term, the courts will err on the side of non-enforcement. Griffith v. Clear Lake[Question over size of "market sized" fish. Does it the term change] • Even though one or more terms are left open, a contract sale does not fail for indefiniteness if the parties have intended to make a contract. • Varying terms do not preclude the formation of a contract.

Incomplete Contracts
U.C.C. § 1-205. Gap Filling Measures Trade usage can provide a method for filling the gaps of some contracts; must comply with previous U.C.C. provisions listed on this page. Gap Filling Measures- If parties appeared to have intended to contract; the court will not void the contract for not agreeing on everything. Use of word reasonable can indicate gap filling. Methods of Gap Filling (1) contra proferentem - against the party that drafted the contract. (2) Price gaps v. Quantity gaps- law will affix a reasonable price; for quantity it will often assign the value to zero M.G.M. v. Scheider [Agreed to all terms of contract except start date; attempts to get out of contract] • Court's will use gap filling measures to not void the contract if both parties appeared to have intended to contract. Agreement to Agree - Generally not enforceable; some courts interpret these agreements as a promise to negotiate in good faith. Martin Jr. v. Schumacher [Parties agree to allow person to sign lease later; plaintiff claims that other party was required to agree to agree] • A bald agreement to agree on a future rental is unenforceable as a matter of law. Agreement in question does not set terms such as market value, etc. ○ Some courts have found that it means to negotiate in good faith.

[20]

If agreement is not reasonably certain then there can be no enforceable contract.

[21]

Avoidance of Contracts: Capacity to Contract
Restatement § 12(1). Minors.No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. A natural person has the capacity to incur only voidable duties up until 18. Necessary Exception- Minors are able to make contracts for items that are necessary such as food, lodging, medical attendance, ect. However, contract is still voidable, minors must simply pay "fair value". Restoration Standard - Minors must only return what he or she still has; no obligation to account for damage or depreciation. Ratification - If minor ratifies the contract after having become 18 contract is binding; mere silence is not ratification; however, minor must void contract within reasonable amount of time. Misrepresentation of Age - Three different approaches; (1) contract is voidable, not liable in tort, (2) contract is voidable, liable in tort, (3) minor is estopped from voiding the contract. Emancipated Minor Exception - law generally has the effect of granting minor "capacity." Bowling v. Sperry [Minor purchases car; wrecks car and wants refund claiming lack of contract] • Supervision is not relevant; if contract is in minor's name it is still voidable. • Infant's are net responsible for damages; must simply return item as found. • Necessity requirement not met; was able to get to work without car. Various Exceptions (Statutory Exception) (1) Emancipated Minor - generally grants minor's capacity to contract; not voidable. (2) Pregnancy/Parent - living apart from family and either pregnant or a parent then can contract. (3) Types of Contracts - some jurisdictions, such as GA & AZ, allow minors to contract for health insurance, auto insurance, and other things. Alternative Approaches Fair Use - In some jurisdictions, the minor is responsible for the fair use of the product. Court Approach - Minors can go to court and court can stamp fair on the contract and allow it go through. Cosigner - If you have a cosigner then you can enforce contract. Restatement § 15 Mental Illness or Defect (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction or (b) he is unable to act in a reasonable manner in relation to the transaction and the other part has reason to know his condition. (2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such case a court may grant injunctive relief as justice requires. (b) Where person has some idea of what is happening; test will be whether the transaction is one a reasonably competent person would have made. Drunkenness- voidable if; (a) must appear person was drunk, and (b) must have extreme impairment; not just drunk. Restatement § 16 - Drunkenness 1) A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication. A) He is unable to understand in a reasonable manner the nature and consequences of the transaction; or B) He is unable to act in a reasonable manner in relation to the transaction

[22]

Avoidance of Contracts: Mistakes
Restatement § 152 Mutual Mistake (Both parties) Where a mistake of both parties at the time of contractwas made the contract is voidable if (1) Present fact, not opinion (2) Basic Assumption (3) Material impact, (4) No assumption of risk. Restatement § 153 When mistake of one party makes contract voidable [(1) Present fact, not opinion] Where a mistake of one party at the time a contract was made as to (2) a basic assumption on which he made the contract has (3) a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if (4)he does not bear the risk of the mistake. AND (a) the effect of the mistake is such that enforcement of the contract would be unconscionable; OR (b) the other party had reason to know of the mistake or his fault caused the mistake. Unilateral v. Mutual Mistake - A party is a unilateral mistake if either only one side is mistaken, or only one side cares about the issue; and it is mutual mistake is both sides were mistaken. No Negligence Requirement - Does not matter if bidder was negligent; only question is whether the contract was made in good faith. Federal Government Contracting - Any clerical mistake, apparent on the face of the bid, may be corrected by the contracting officer before the award. If bid has been awarded, one is obliged to show that the officer knew of should have known. Agencies can either (1) rescind, or (2) reform the contract. Boise Junior College v. Mattefs Construction [Party makes bid bond (binding) but fails to include glass prices (14% of contract), wants to rescind contract] • Case of a unilateral mistake (Boise had no reason to know of mistake): contract is void because it meets court created test (do not use this test). • Company would lose money, this makes it unconscionable. Restatement (Second). Assumption of Risk. Where the parties know that there is doubt in regard to a certain matter and contract on that assumption, the contract is not rendered voidable. Beachcomber Coins, Inc. v. Boskett (Wanted to purchase specific coin; buyer has inspector look at coin but upon inspection by coin society it is a fake, Boskett didn't know it was a fake) • Negligent failure of a party to discover facts does not preclude rescission. • Did not assume the risk. Sherwood v. Walker (Mistake over pregnant cow; contract is based on assumption that cow is barren) • Barren v. Pregnant is entirely different item; did not pertain to quality, rather it was a different thing. • NOT Restatement Test. Restatement § 151. Contractual Mistake A belief that is not in accord with the facts. The erroneous belief of one or both parties must relate to a fact in existence at the time the contract is executed. Lenawee County v. Messerly [Bought apt. to rent; sewer went bad to prevent inhabitance. Neither party knew] • Affecting price is not necessarily material; value of property not material in itself. • A court does not need to grant rescission in every case in which mutual mistake relates to a basic assumption and materially affects the performance. • Allocation of Risk - As Is Clause allocated risk to buyer. As Is Clause - Strong evidence that the party assumed the risk.

[23]

Avoidance of Contracts: Fraud/Misrepresentation
Three Different Categories of Fraud (1) Intentional Fraud: Active or Passive (2) Accidental Misrepresentation; negligent or innocent (3) No disclosure No Waiver of Fraud- Cannot waive or contract around fraud. Restatement § 161 - Disclosure Disclosure is required if it is necessary to correct a mistake of the other party as to a basic assumption on which that party is making the contract. Laidlaw v. Organ (Sale of tobacco where buyer has exclusive info about end of war; seller doesn't) • No duty to disclose unless there is circumvention or maneuver practiced by the vendee. • Suppression of information is not fraud. * Cannot waive Fraud or contract around it. ____________________________________________________________________________________ Misrepresentation Requirements (1) Present fact (not an opinion) (2) Material or intentional; if it is intentional fraud then it doesn't have to be material. (3) Other party justifiably relies on the promise. * Fraud in inducement versus fraud in the execution ; if person induces another to make a legitimate contract by fraud then it is voidable; however, if it is in execution (i.e. trick person into signing) then the contract is void. Restatement § 159 - What is misrepresentation A misrepresentation is an assertion that is not in accord with the facts. Must relate to an existing fact (not opinion). Restatement § 164 - Misrepresentation If a party's manifestation of assent is induced by either a fraudulent or material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient. General Opinion Requirement- A misrepresentation must be one of fact and not opinion. Exceptions to Opinion Requirement (From Vokes) Superior Knowledge - If defendant has superior knowledge then he must disclose the entire truth. Random Exceptions - (a) Fiduciary relationship between the parties, (b) artifice or trick by representor, (c) representtee doesn't have ability to become apprised of truth, (d) not dealing at arms' length. Vokes v. Arthur Murray, Inc. (Women was complimented and induced to buy dance lessons on basis of compliments and Murray's standards) • It is generally true that "generally a misrepresentation to be actionable, must be one of fact rather than of opinion." • Dance instructors have a superior opinion and ability to determine dancer's talents. Remedies for Misrepresentation - Rescission is available; available for innocent misrepresentation cases to restore person to status quo. In order for harsher remedies, courts often need showing of bad faith intent.

[24]

Avoidance of Contracts: Duty to Disclose
Duty to Disclose- General rule is that it is buyer beware; however, asking a question may make it closer to fraud. Restatement § 161. Affirmative Duty to Disclose Requirements (1) Disclosure is necessary to prevent a previous assertion from being a misrepresentation. (2) Disclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract AND if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing. (3) Disclosure would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part. (4) The other person is entitled to know the fact because of a relationship of trustand confidence between them. Confidential Relationship- Generally arises in situations such as husband/wife, or brother and sister. In these instances, there is a duty to disclose more than normal. Material Requirement - A matter is material if it is one to which a reasonable person would attach importance in determining his choice of action in the transaction in question. Hill v. Jones(Buyers ask whether there was termite damage; sellers says it was water damage. Buyer asks for report, report doesn't find damage. However, seller knew of previous infestation) • Inquiry of the seller; the fact that person asked question indicates that it is material. • Where the seller knows of (1) facts materially affecting the value or desirability of the property which are (2) known or accessible only to him, and also knows that such facts are (3) not known to, or within the reach of the diligent observation of the buyer, there is a duty to disclose. Summary of Duty to Disclose (1) Does the defendant know about the fact? If so, it raises the question. (2) Did the defendant know or have reason to know that it might have value to the plaintiff. (3) Do they have reason to know that you might be able to find this out from somewhere else. RICO - See page 542 CB.

[25]

Avoidance of Contracts: Duress
Modern test of duress- The question is whether consent was coerced; that is was the person complaining "induced by the duress or undue influence to give his consent, and would not have done so otherwise." • If "unlawful threats overcome the will of person threatened, and induce him to do an act which he would not otherwise have done, and which he was not bound to do, constitute duress" Subjective Test - Duress is measured by a subjective test; objective test is too bare bones. Rubenstein v. Rubenstein (Husband is threatened by wife, through things such as arsenic threats, and husband conveyed land to wife in order to support child; wife then sells it) • Duress is established by a subjective; not an objective test. An objective test might be incorrect because with a contract, it is bare bones. Economic Duress Requirements (1) Forced to agree to it by means of a wrongful threat precluding free will. (2) Immediate possession of needful goods is threatened; further, proof can be established if party threatens to breach in order to induce additional demand. (3) Cannot obtain goods from another source. (4) Suing for breach must not be adequate remedy. Austin Instrument, Inc. v. Loral Corp. (Party threatens breach unless Loral agrees to future contract; Loral needed parts to complete government contract) • Applies test of economic duress transcribed above. • Courts have been unwilling more recently to find economic duress. Context of this case Vietnam. Restatement § 175(1). Duress If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. Restatement 176(2). Wrongful Threats A threat is improper if the resulting exchange is not fair on its terms, AND (1) Harm the recipient and would not benefit the party making the threat. (2) The effectiveness of the threat in inducing manifestation of assent is significantly increased by prior unfair dealing by the party making the threat; or (3) What is threatened is otherwise a use of power for illegitimate ends. * "Unlawful threats" are not illegal threats; there are cases where person has legal right to do something but it would be unlawful (ex. Informing IRS of cheating on tax returns, threaten to sell "undesirable", bad faith is test) Future Expectancy - Not a legal right; no actionable claim for duress. Machinery Hauling, Inc. v. Steel of West Virginia (Hauling doesn't pay $31,000; Steel of WV says that it won't ship future steel unless it pays $31,000) • "Duress is NOT shown because one party to a contract has driven a hard bargain. • Future expectancy is not a legal right upon which a defendant can claim a legal duress case Three Categories of Duress Tough Business: An auctioneer threatens to move it quickly. Gray area cases: More than though business but nothing criminal. Criminal: I'll tell you that you cheated on your taxes.

Undue Influence- "Unfair" persuasion that may fall short of actual duress. Limited to situations where there is a relationship of trust (Parent/Child, Husband/Wife, Attorney Client). • Over-persuasion usually involves several of the following (1) unusual time or place of transaction, (2) insistent demand business be finished at once, (3) emphasis on delay being bad, (4) multiple persuaders on dominant side, (5) absence of third party, (6) statements that there is no time to consult with attorney.

[26]

Avoidance of Contracts: Unconscionability
U.C.C. § 2-302 (1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce; OR it may not enforce the remainder of the contract, OR it may limit the application of any unconscionable clause (2) parties shall be afforded a reasonable opportunity to present evidence as to the commercial setting. Unconscionability Test- (1) An absence of meaningful choice, together with (2) contract terms that are unreasonably favorable to another party. ***Under the U.C.C. the basic test is whether, in light of the commercial background, the clauses are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. Procedural Unconscionability Test (1) Unequal bargaining/Lack of voluntariness - Often demonstrated in adhesion contracts, no ability to modify. (2) Surprise/lack of knowledge- arises from fine print, legalistic language, lack of ability to inquire into contract. Substantive Unconscionability Test One-sided agreement whereby one party is deprived of all the benefits or left without a remedy for another party's nonperformance or breach, a large disparity between the cost and price or an excessive price. Williams v. Walker-Thomas Furniture Co. (Person makes 14 contracts with store; the contract says that you must pay it all off before you own of them) • Common law might be a notion of unconscionability. • (1) An absence of meaningful choice, together with (2) contract terms that are unreasonably favorable to another party. • Test must not be mechanically applied; considered in light of the practices of the time Jones v. Star Credit (Agrees to pay $1,234 for freezer (worth $300); Jones sues to void contract) • Excessive Price- Can be evidence of substantive unconscionability. Ferguson v. Countrywide Credit (Plaintiff was suing for harassment; countrywide tries to dismiss for arbitration) • In CA, must meet both procedural AND substantive unconscionability. • Procedural Unconscionable - (1) oppression arises from inequality of bargaining power which results in no meaningful choice, (2) surprise involves the extent to which the hidden terms are hidden. • Substantive Unconscionable- Terms that are so-one sided to shock the conscience. ○ Substantively unconscionable because it causes the plaintiff has to bear more costs than typically would be required. Limited deposition process, did other things, etc. Risk Allocation - Contract is not unconscionable if it turns out to be one sided; price drops, person dying early, etc. don't make contract voidable. Remedies - See U.C.C. definition at the top of the page. Adhesion Contracts - Lack of negotiability of the terms alone is not sufficient to show procedural unconscionability.

[27]

Avoidance of Contracts: Illegality
Restatement § 178. Void on Public Policy (1) A promise is unenforceable on grounds of public policy if legislation provides that it is unenforceable (a) If there is no legislation, the contract is still unenforceable interest in its enforcement is clearly outweighed in such circumstances by public policy against the enforcement of such terms. (2) Weighing in the interest in the enforcement of a term, account is taken of (a) justified expectations, (b) any forfeiture that would result if enforcement were denied, and (c) any special public interest in the enforcement of the particular term. (3) Weighting against enforcement; (a) the strength of that policy (b) likelihood that a refusal will further that policy, (c) seriousness of misconduct and whether it was deliberate, and (d) directness of the connection between that misconduct and the term. Balancing Test - Balance public factors & private factors. See above considerations. Extent of Illegality- Illegality if serious, doesn't need to be pled and court will deny relief on evidence. If Illegality is not serious, and neither public policy and statute do not deny relief, courts can ignore illegal facts if it doesn't permeate the rest of the contract. Leave Party Where Stand - Court's will leave parties where they are; however, if it's tiny part of contract they might balance it a bit more. • Restitutionary Exceptions: Courts may allow restitution in situations where (1) denial causes disproportionate forfeiture, (2) plaintiff was excusably ignorant of facts or legislation of a minor character , (3) plaintiff was not equally wrong, and (4) plaintiff did not engage in serious misconduct and he withdraws from the transaction before the improper purpose has been achieved. Sinnar v. Le Roy (Sinnar attempts to secure illegal liquor license; Le Roy takes the money to get license and gives it to go guy; Sinnar doesn't get license or money back) • Applies extent of illegality test; finds this is a serious issue and thus illegality doesn't have to be pled. Intent Determination - If intent is to contravene the law; the contract will not be enforced. Facial Legality - A contract can be legal on its face; however, evidence can be introduced to show illegality. Homami v. Iranzadi (Lends him $250,000 dollars and it was interest free; Homami claims there was an oral contract for interest payment, on the basis of avoiding IRS) • Attempting to collect on illegal part of the contract; court finds that it is illegal. • Any contract which has as its object the violation of an express provision of law is unlawful. • If something is illegal, the court will not enforce the deal. Statutory Purpose - If statute is not meant to prohibit the contract; for example jaywalking or overloading a ship, then this strongly indicates that the contract doesn't have to be nullified.

[28]

Avoidance of Contracts: Public Policy
Reluctance Test- Court's will narrowly construe public policy; a declaration that the contract is against public policy should be made only after a careful balancing in the circumstances. Courts should be reluctant to frustrate a party's reasonable expectations without a corresponding benefit to be gained in deterring 'misconduct'. Severability - It is often possible to sever out illegal part of the contract. If part of contract is cohabitation, but other portions relate to services then the contract can still be enforced. Sex Contracts - A bargain between two people is not illegal merely because there is an illicit relationship between the two so long as the bargain is independent of the illicit relationship AND the illicit relationship does not constitute any part of the consideration bargained for. Watts v. Watts(Cohabitation agreement; never officially married but she claims had an oral contract that he would provide for her. They split and fake husband won't give her property, Sue wants property) • Contract is tangential to sexual relations between the two. • Both parties are guilty of violating public policy; it doesn't make sense in equity to enforce it when they're both guiltless. • Possible to show claim of unjust enrichment/quasi-contract. Prenuptial Agreements - Majority of states hold that agreements are enforceable unless; (1) Agreement was not voluntary. (2) The agreement was unconscionable when it was executed and, before execution of agreement, that party; (i) was not provided reasonable disclosure of the property of the other party. (ii) did not waive, in writing, any right to disclosure of the other party. (iii) did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the other party. (b) If party has to rely on public support it might not enforce prenuptial. Baby M (Person contracts for surrogate baby; mother refuses to give it up. Court finds against public policy) Wallis v. Smith(Person lies about being on birth control pill; gets pregnant. Alleges fraud) • Public Policy voids contract; (1) Child support is interest of the child, (2) privacy rationale that person should have ability to enforce private right. Non-delegable duty - Some provisions are non-delegable such as ability to provide for a child. Doctor-Patient Contracts - Might be upheld so long as person could prove a contract actually exists; could be unconscionable to deter people from making decisions about surgeries based on promises.

[29]

Performance: Parol Evidence Rule
Parol Evidence Rule - Arises when a party wishes to admit prior oral testimony. U.C.C. - Excluding Parol Evidence. If the additional terms are such that, if agreed upon, they would certainly have been included in the document in the view of the court, then evidence of their alleged making must be kept from the trier of fact. Restatement 240(1)(b). If it such an agreement as might naturally be made as a separate agreement by parties situated as were the parties to the written contract. Mitchell v. Lath(Mitchell agrees to buy farm through written contract; buyers claim seller orally said they'd tear it down. Mitchell arrives after they'd bought property, Lath hadn't tore ice down) • Uses three part test. (1) the agreement must, in form, be a collateral one [linked to contract]; (2) it must not contradict the written contract; (3) it must be one that parties would not normally agree to in writing. • If there is a written agreement that appears complete, previous negotiations (parol) is not relevant. Direct Contradiction - If there is a direct contradiction between the written and the oral contract; it is not admissible. Two Separate Contracts- Does not pose a parol evidence problem (i.e. if there is a person who buys a ring from person, orally; and also buys a house from that person. Oral evidence wouldn't be excluded but it wouldn't be relevant). Integrated Test- If a contract is integrated (appears to be complete), then additional terms will not come in. However, it is not integrated (doesn’t appear complete) then evidence comes. However there are a disputes over how to determine whether the contract is integrated including; (1) Four corners - Look at face of contract and determine if it looks complete; might pose a problem because many contracts look complete on their face. (2) Context- Determine the context of the evidence to see if it should be admissible. (3) Integration Clause - Binding upon the parties; however it is subject to defenses such as fraud. Degrees of Integration Wholly Integration - Strike all evidence. Partial Integration (However term at issue is clear) - no parol evidence on the question. Partial Integration (Term is missing) - evidence is allowable if it is consistent with the writing. Masterson v. Sine (Dispute over option clause; question whether option clause was exclusive to family.) ○ Applies integrated test, determines that it doesn't appear complete. ○ Limiting scope of contract to family might not be normally in the contract.

[30]

Performance: Interpretation
Context evidence or "Plain Meaning" - Courts must decide if contract has plain meaning or if more info is needed. U.C.C. 2-202(1). Interpreting Contracts Terms in a record may be explained by evidence of course of performance, course of dealing, or usage of trade without a preliminary determination by the court that the language used in ambiguous. Restatement § 212, comment b. It is sometimes said that extrinsic evidence cannot change the plain meaning of a writing, but meaning can almost never be plain. Any determination of meaning should be made in light of relevant evidence of the situation and relations of the parties, the subject matter of the transaction, preliminary negotiations made and course of dealings. Restatement § 201(2). Interpretation. Where parties have attached different meanings; the court will abided by the meaning attached by one party if: (1) that party didn't know of another meaning; AND the other party knew of both meanings. (d) Neither party is bound by the meaning attached by the other, even though the result may be the failure of mutual assent. Restatement § 206. Interpreted Against Drafting Party. General rule; not absolute tiebreaker. Hierarchy of Rules Determining Meaning 1. Plain and unambiguous, there is no room for interpretation. Look at contract to determine if contract has provided meaning. 2. The next three types of evidence to be considered, (a) course of performance, (b) course of dealings, and (c) usages of trade. These are ranked in hierarchy, (a) being more preferable than (b) and (c). 3. Legal supplementary rules. Traditionally based on intentions of the parties. 4. General standards of reasonableness and good faith. Pacific Gas v. G.W. Thomas(Defendant promises to indemnify plaintiff against losses to property arising out of performance; plaintiff's property gets damaged. Question over whether indemnity covers this dispute) • The test of admissibility of extrinsic evidence is not whether it appears that the contract is plain; rather it is whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. • Although extrinsic evidence is cannot alter the terms of the written contract; terms must first be determined. Complete Contracts- If contracts are fully integrated there is no need to consider external evidence. ConFold Pacific v. Polaris Industries(Plaintiff signed nondisclosure agreement on whether to pursue research; Defendant then asks for bids, plaintiff submits design. Defendant rejects all designs but a year later, defendant uses plaintiff's design) • If contract is complete enough then extrinsic evidence doesn't need to be considered. Trade Usage- If there is a common trade usage AND both members are a member of that trade; this can provide evidence to the meaning of the contract. If person is not a member of the trade, then the standard is that the person had either actual knowledge OR it is generally known. Frigaliment Importing v. B.N.S. (Dispute over whether chicken means a broiler or a stew chicken) • Looked at contract to see if there is an agreed upon meaning [no]. • Burden of proof is upon wishing to alter the performance. FORK: Peerless v. Chicken Case - can limit Peerless "true equivocation," where a full exposure to object evidence in context fails to establish that one party's understanding is more reasonable than the other's."

[31]

Performance: Good Faith Requirement
Restatement § 205. Good Faith Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. U.C.C. 1-201(19). Good Faith. At a minimum it requires honesty in fact in the conduct or transaction involved. Possible Understandings of Good Faith 1. Don't breach contract (narrow reading); 2. Defines contractual duties where discretion is involved; 3. Expand or create contractual duties (ex. must sell something, Lady Duff) Testing Good Faith in 3 Circumstances 1. Preventing or hindering the other side from performing; Patterson case. 2. Exercising reserved discretion [must attempt to fulfill the contract] 3. Modifying the contract. Hindrance and Duty of Cooperation- An implicit understanding that neither party will intentionally do anything to prevent the other from carrying out agreement. If cooperation is necessary, there is an implied condition of cooperation. Patterson v. Meyerhofer (Plaintiff contracts to sell defendant land that he was going to purchase; defendant interferes with the purchase) • Good faith means no active prevention to the performance of the contract. • Measure of damages could be the price that the 3rd party drops out at. Spirit of Agreement - Might be good faith duty to uphold the spirit of the agreement; however, this would be a closer call. Tort of Inducing Breach 1. The existence of a contract or business relation; 2. Defendant's knowledge of the contract or business relation 3. Intentional interference by the defendant with the contract or business relation; 4. Proximate damages Exercise of Reserved Discretionan implied obligation to make a good faith effort to satisfy the condition. A promisor cannot rely upon a condition to excuse the performance of a contract. Objective Standard / Subjective Standard- if a judgment dependent upon personal state or fancy, such as design of a dress or painting, a subjective test is appropriate. However, typically an objective test is more appropriate. Billman v. Hensel (Agreed to house sale pending financing; couldn't get full financing without parents, parents don't approve of house and buyers back out, most likely because they changed their mind) • Reasoning is in line with note above titled Exercise of Reserved Discretion. Nuemiller Farms, Inc. v. Cornett(Contract says sell potatoes pending approval; price drops. Buyer rejects potatoes. Seller buys potatoes from another source [that buyer bought from] and tries to sell; buyer refuses) • The law requires that a rejection to be made in good faith rather than in an effort to escape a bad bargain. • Rejection of goods not in good faith constitutes a breach of contract. [Based on U.C.C.] FORK: Adequacy of Consideration v. Enforceable contract - No Contract- if the apparent promise found to be illusory, there is no consideration. Enforceable Contract - a commitment to do something and the general duty of good faith in performance, is normally enough to provide consideration.

[32]

Performance: Good Faith Requirement (cont.)
U.C.C. § 2-306. Output Contract. Under this article, a contract for output is not too indefinite since it is held to mean the actual good faith output of the particular party. Nor does such a contract lack mutuality of obligation since, the party is required to act in good faith. (1) Quantity or the requirements means such actual output may occur in good faith except that no quantify unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or prior output. (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote sale. Comment: Not complying with an estimate does not equate to bad faith; rather, there must be a test to determine good faith efforts. Feld v. Henry S. Levy (Output contract, Henryagrees to sell all bread crumbs at 6 cents. Henrycan't afford it and stops. Termination clause meant they could cancel after certain point) • Cancellation stipulation might be indicate that defendant was expected to maintain production. • A bankruptcy or genuine imperiling of the very existence caused by the production of that item; the yield of less profit from its sale than expected would not. Summary 1. Can write a contract with discretion (output, loan financing), but good faith, usually objectively measured, has to be used to modify that condition. Modifying Contract - If there is no existing consideration, U.C.C. indicates good faith is used to measure whether modification can come in.

[33]

Performance: Warranties
Warranty- a representation express or implied that certain facts relating to goods sold are true. A warranty (1) is made by one party to another about existing or past facts that are knowable but not necessarily known and which (2) becomes a term in the contract. Uniform Commercial Code § 2-313. Express Warranty (1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (2) The word warranty does not need to be used, but an affirmation of goods value or opinion is not a warranty. Uniform Commercial Code § 2-314. Implied Warranty of Merchantability. Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Ordinary Purpose - Merchantability extends only to the product's ordinary purpose; if a specific purpose is known then the next section applies. Uniform Commercial Code § 2-315. Implied warranty of fitness for particular purpose. Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is (unless excluded or modified) an implied warrant that the goods shall be fit for such purpose. Disclaiming a Warranty 1. Construe words creating express warranties and disclaiming warranties as consistent with each other whenever possible. 2. Disclaimers or implied warranties of merchantability or fitness must be conspicuous (if in writing) AND mention "merchantability" [applies only to U.C.C. 2-314 and 2-315] 3. Sets out general rules for disclaiming implied warranties [including the implied warranties of merchantability and fitness] a. "as is" or "with all faults" b. person has fully examined the goods

[34]

Performance: Conditions/Waivers
Restatement § 224. Condition. An event not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.

Dove v. Rose Acre Farms [Person attempts to get conditional bonus system which includes a) showing up every day, on time
& b) completing construction. Person completes construction, however has to miss two days at the 8u end]

Dove was aware of the conditions and they were clear; doesn't matter if they are harsh.

Wal-Noon v. Hill [Enter lease agreement; in contract landlord responsible for roof repairs; however, tenant repairs roof on their
own and they want landlord to pay. Landlord doesn't pay because wasn't aware or repairs and could have got better deal.]

• •

Performance under express covenant to repair is conditional upon notice from the tenant. Implicit condition - even thought it wasn't an express condition; there was an implicit condition to notify. Regarding quasi-contract, where there is an explicit bargain; no implied contract should be inferred. Further, Hill doesn't have the opportunity to decline the benefit.

Grounds for Excuse (1) An agreement by both parties discharging condition (2) Conduct by the party whose benefit condition was made that "waives" condition (3) Changed circumstances that make compliance by the promisee with the condition impracticable (4) Discharge by the court
Waiver of Condition - If you are imposing a condition, you have the right to waive the condition. Ways to waive; (1) Waiver by Implication - Perform on contract with knowledge that condition can't be performed; (2) Express Waiver - tell the person.

Waiver of Material Element - If the condition is a material part of the agreed exchange then it must satisfy the usual requirements for an enforceable modification, including upon occasion, consideration. Clark v. West [Agrees to write a book; promises $2.00 per page if he drinks, $6.00 if he doesn't drink. Defendant
knew of his drinking and assured him he would still get $6.00] • Waiver by Implication - if person knows that the person is not wholly fulfilling the contract but allows the other party to continue, might be a waiver of condition. Waiver by Public Policy- The court finds that it is a rip off (similar to unconscionability). Rare condition.

[35]

Performance: Constructive Condition of Exchange (Substantial Performance)
Restatement § 234. Timing of Exchange [Modern View] (1) Where all or part of exchange promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary. (2) Except to the extent stated in Subsection (1), where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary. * Comment: Neither party can be said to be in default until the other party has tendered his performance. Constructive Condition of Exchange- Similar to implied condition in that most parties won't write it into the contract; if other side does not do what they do, then you are not liable for doing your part. Raises questions: (1) Question of who has to perform first? See Above for answer. (2) How much performance is needed before the performer is entitled for payment? Substantial performance. (3) What is the effect of material breach? Spectrum of Performance Required in Conditions (1) Perfect Tender - Everything must be perfect or contract is void. (2) Substantial Performance • Purpose of Contract Test - A way to satisfy the substantial performance test; if it does not frustrate the purpose of the contract; then the contract can be performed with substantial performance. • Willful Breach - If person knowingly breaches contract, then might not be able to collect under substantial performance test. • Damages - Can still sue for damages if it does not comply with the perfect tender rule. • Extent of Expectations - Margin of departure within the range of normal expectations will vary based on the complexity of the contract. • Contracting Around Substantial Performance - Possible to put in an express condition that payment is determined by full completion, partial completion, perfect tender, etc. (3) Unconditional Duty- Not the law; holds that must pay even if they haven't performed. Sue for breach. Material Requirement- In order for there to be substantial performance; non-performance must not be a material part of the contract. Deficiency will not be tolerated if it is so pervasive as to frustrate the purpose of the contract in any real or substantial sense. [Prevents Substantial Performance] Jacob v. Kent [Builder uses the wrong type of pipe; buyer withholds final payment because contract specified other type of pipe] • An omission, both trivial and innocent, will sometime be atoned for by allowance of the resulting damage and will not always be the breach of a condition to be followed by forfeiture. Restatement § 241. Determining Substantial Performance In determining whether a failure to render performance is material, in the following circumstances are significant: A) the extent to which the injured party will be deprived of the benefit which he reasonably expected B) the extent to which the injured party can be adequately compensate for the part of the benefit of which he will be deprived C) the extent to which the party failing to perform will suffer forfeiture D) the extent to which the behavior of the party failing to perform or to offer to perform comports with the standards of good faith and fair dealing. O.W. Grun v. Cope [Puts on roof with streaks; homeowner sues for damages as a result of shoddy roof]
• A breach which goes to the root of the matter or essence of the contract defeats the promisor's claim despite his part performance, or it may be expressed by saying that a promisor who has substantially performed is entitled to recover.

Quasi Contract - Even if substantial performance has not occurred, the party might have conferred some benefit.

[36]

Performance: Impracticability and Frustration of Purpose
Restatement § 261. Impracticability
Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless language or the circumstances indicate the contrary.

Restatement § 263. Basic Assumption Question.
If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

U.C.C. 2-615. Excuse by Failure of Presupposed Conditions.
Except so far as a (1) seller may have assumed a greater obligation, delay in delivery or non-delivery is not a breach of his duty under a contract for sale if (2) performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a (3) basic assumption on which the contract was made.

Two Parts to Restatement Test [Derived from U.C.C. 2-615(a)] (1) The non-occurrence of the event must have a basic assumption on which the contract was made; and (2) the event must have made performance "impracticable." Fault Standard - If person is with fault, then they are not able to assert the impracticability. Allocation of Risk - Question whether risk was tacitly or explicitly assumed by one party. United States v. Wegematic[Defendant promises to make a computer for set price by a date; due to technical difficulties can't finish contract. Liquidated damages clause and a clause to go to another source] • Risk Allocation- the risk of the revolution's occurrence does not fall on the purchaser. Government Exception - If government provides detailed specifications and specifications are defective; risk is placed upon the government. Restatement § 266(1). Existing Impracticability v. Mutual Mistake Where at the time a contract is made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary. FORK: Mistake v. Impracticability. Mistake is usually a condition that exists at the time of contract; impracticability can be either. If a party is asserting one claim, it will often assert the other type as well. Taylor v. Caldwell [Agrees to rent a music hall; music hall burns down] • Where a contract depends upon personal skill, and the act of God renders it impossible, as for instance, in the case of a painter employed to paint a picture who is struck blind, contract can be voided for impracticability. • A condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance. Restatement § 263. Destruction or Deterioration. If the existence of a thing is necessary for performance and a basic assumption of the contract, its failure to exist, destruction, or deterioration makes performance impracticable. Restatement § 262. Death. Death, whose life was necessary for the contract, will excuse contract. Same test as destruction. Frustration of Purpose- Several factors that must be considered when examining a frustration of purpose case. (1) Foreseeability of the event; (2) Benefit conferred absent the purpose; (3) Assumption of the risk. Courts construe the test very narrowly. Krell v. Henry [Rents a room to watch King's coronation; King falls ill and the coronation was postponed] • Foundation of the Contract - if non-occurrence of the event, not within the contract, is at the heart of the contract and frustrates the purpose of the contract; then might be able to get out of contract.

[37]

Damages: Types of Remedies
Three Categories of Damages
1. Expectation • Calculation attempts to put person in situation as if contract was performed. • Reasonable certainty- might be difficult to prove damages; examples are things such as acting, politicians and other things. Two different situations where it is difficult to prove damages: (1) New businesses, hard to prove lost wages, and (2) concert performances, hard to prove revenues • Foreseeability - damages must be foreseeable at time of contracting. • Mitigation- must take actions to mitigate against the breach. Generally, must mitigate to do something reasonably comparable that you would have done before. If you don't mitigate it, the law will act as if you did. * Sometimes it is difficult to prove expectation damages to reasonable certainty. In these instances, you can attempt to sue for reliance damages or restitution damages. * Expectation damages are the default rule. 2. Restitution- Getting back what you have given to the other party. • Parties can sue just for restitution damages. 3. Reliance- Attempts to put person in situation as if contract had not been made. [Direct costs and costs to third party] • Damage Limit - Usually cannot exceed the amount that one would recover from expectation damages. . Sullivan v. O'Conner [Doctor promises person to make nose better; nose is ugly] • Chooses to use reliance damages; might have been difficult to prove expectation damages. • Results Contract - Courts do not favor contracts for specific results or cures; only will recognize if there is clear evidence that a contract exists. U.C.C. 2-715(2). Recoverable Damages Consequential damages resulting from the seller's breach include (a) any losses resulting from needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover; and (b) injury to a person or property resulting from breach of warranty. Restatement § 351. (1) Damages are NOT recoverable for loss that party did not have reason to foresee as probable result of breach. (2) Loss may be foreseeable if (a) it results in ordinary course of events, (b) as a result of special circumstances that party had reason to know. Hadley v. Baxendale[Mail delivery is slower; this causes the mill to shut down. Can sue for lost profit?] • Foreseeability- The defendant didn't know that so must was at stake. It is a third bar to discovery, the other two being mitigation and reasonable certainty. • Reasons that the rule is in place is so that the other side can take precautions to prevent the breach. • Two Classes of Damages- General damages, arising naturally in the usual course of breach. Consequential Damages, are not recoverable unless the loss was reasonably supposed to be in the contemplation of both parties at the time they made the contract or the parties have made alternative arrangements.
---------------------------------------------------------------------------------------------------------------------------------

Specific Performance U.C.C. 2-716. Specific Performance. Specific performance may be decreed where the goods are unique or in other proper circumstances.
-----------------------------------------------------------------------------------------------------------------------------------

Specific Performance- Bias against specific performance; only awarded if expectation damages are inadequate. Examples might include home sales, grapes from winery, ect. • Personal Services - Courts are biased against forcing people to perform; sometimes courts will bar person from performing same service to other people for certain time. Curtice Brothers Co. v. Catts [Defendant breaches contract to sell all tomatoes; plaintiff sues for performance] • Law typically won't force person to go through with personal services; law has bias against specific performance AND it will only be awarded if expectation damages are inadequate.

[38]

Must show that goods are not available from a different source.

Choice of Damages - Court typically do not allow party to choose specific performance or damages.

[39]

Damages: Payor Breach
New Era Homes Corp. v. Forester [Set schedule for how much builder was to get paid; payer breaches in middle] • Convenient Time for Payment - Payment plan doesn't mean contract is divisible; instead this is one contract for the modification and it sets out the convenient time for payment. • Court finds that the best way to award damages was [+ Contract Price, - Payment Made, - Cost to Finish]. Non-breaching performer doesn't have to do everything that they were going to do. Mitigation- Once person has said they're in breach; cannot continue to do work on the project. Jobs for a Loss - If person is in a losing contract and the other side breaches, then the other party won't have to pay anything except under restitution. Reliance Damages- Under reliance measure of damages (in a losing contract), theoretically a person should be able to recover [+Value of Work, +Other Expenses, - Payment made]. However, courts will limit the value of reliance by expectation damages which means losing contracts do not gain anything. Restitution- The calculations should be [+Value of work to person, -Payments made]. Only type of damages that would net a positive recovery in a losing contract. • Restatement § 373. Comment d. The question is whether the plaintiff provoked the breach in order to having to perform upon the contract. • Restatement § 344. Restitution and Losing Contracts. A court might require restoration to prevent unjust enrichment; but the plaintiff is entitled to restitution only if he has conferred a benefit on other party. -------------------------------------------------------------------------------------------------------------------------------------------Lost Volume Profits - Damages do not have to be offset if the seller would have been able to sell another similar product; for example if a person breaches a promise to buy a chainsaw, and the seller later sells that chainsaw, this should not be offset if there sale would have occurred regardless of the breach. • In order for Lost Volume Profits to kick in three things must occur, (1) Person who bought resold goods would have bought goods without breach; (2) solicitation would be successful, and (3) plaintiff could have performed an additional contract. Locks v. Wade [Rents a jukebox; renter repudiated contract. Locks rents to another person. Renter says this should offset.] • Lost Volume Profits-Even if it appears that person mitigated, one side can argue that it was not a mitigation because sale would have occurred anyway. Do not have to offset losses in damages if there is a surplus of goods. • Unique Product - If the product is unique and there is only one, then mitigation offsets damages. U.C.C. 2-708(1). Lost Volume Profits If measure of damages is inadequate to put a seller in as good a position as performance would have, the measure of damages is the profits which the seller would have made from full performance, taking into account additional incidental damages and credit payments. U.C.C. 2-708(2). Calculating Lost Volume Damages The seller can keep the proceeds of the resale andrecover the profit that would have been made on the first sale. • Costs must be adjusted if the profits from second sale would have been less than first sale.

[40]

Damages: Performer Breach/Putative & Emotional Damages
Cost to Performance- default rule that will occur unless there is an exception such as unreasonable economic waste that comes in. If an alternative comes in, then the damages might be calculated based upon diminution in value. • In theory, damages ought to measured by the subjective value the plaintiff places on the damages; however, this is not possible to measure. Cost of performance ensures that plaintiff will be compensated for his subjective value. Incidental Obligation - If it is incidental, there is less of a chance that the court for will force the person from paying the entire cost to complete. Restatement § 346. Cost of Performance v. Unreasonable Economic Waste Cost of performance is the proper measure of damages if this is possible and does not involve unreasonable economic waste; and that the diminution in value caused by the breach is the proper measure if construction in accordance with the contract would involve unreasonable economic waste. • Unreasonable Economic Waste - refers to destruction of a building. McCormack Test, § 168 In cases where the defect is one that can be repaired or cured without undue expense, the cost of performance is proper, but where the defect in material or construction is one that cannot be remedied without an expenditure for reconstruction disproportionate to the end to be attained. Peevyhouse v. Garland[Coal company promises to do several things; fails to remove dirt. Defendant claims that damages should be measured by lost to market value; plaintiff claims it should be measured by cost to perform] • Cost of performance is the default rule; • Courts split over when cost to performance shouldn't be the breach. American Standard v. Schectman [Plaintiff contracts to remove structures and take land below grade to resell contract; defendant fails to take below grade and plaintiff sells it anyway] • Cost to complete is correct measure of damages; if he chooses to erect a monument to his folly on his premises, it doesn't lie with a defendant to say that his performance wouldn't benefit plaintiff.

_________________________ Putative & Emotional Damages
Restatement § 353. Emotional Distress With the limited exception of contracts for the delivery of messages concerning death, damages for mental suffering are usually refused absent wanton and willful misconduct. Ordinary negligence doesn't suffice. Bohac v. Department of Agriculture [Person sues for emotional damages resulting from firing] • Generally not able to recover from emotional damages; however, there are some exceptions such as if a person dies or cases involving death. • Not just an extension of Hadley. Even if you make your idiosyncrasies known, still unlikely to recover. Restatement §355. Punitive Damages Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. Boise Dodge v. Clark [Automaker rolls back the odometer; are punitive damages allowable] • When considering whether putative damages should be used, courts should look at not only plaintiff's damages but also likelihood that event will be discovered and wrongness of action. • In absence of putative damages, there is an incentive for parties to continue questionable behavior because compensatory damages ONLY return wrongly taken money. It is a no risk proposition. • Reasonable Relation Standard - must be in a relation to the actual damages.

[41]

Damages: Equitable Relief
General Rule - Specific performance is only available if monetary damages are inadequate Cases where money damages are inadequate (1) Unique Product. Art, dance floors, ect. (2) Land sale. All land is viewed as unique. (3) Breach of long term contract; difficult to find a similar long term contract. (4) Incomplete contracts. If a contract has been partly performed by the plaintiff and the defendant has enjoyed benefits Efficient Breach- A party is better off breaching and paying damages rather than performing the contract. Benefits are that it encourages more efficient allocation of resources. NIPSCO v. Carbon County [NIPSCO enters into contract to buy coal; it becomes unprofitable to continue to buy coal, NIPSO then buys coal from another source; Carbon County wants specific performance] • Specific performance isn'tnecessary; damages are adequate. Carbon Count's suit for specific performance is not appropriate to benefit locals; locals aren't part of the contract. • Courts have discretion to determine whether to award injunctions; usually when money damages are inadequate. Benefits of Specific Performance (1) Shifts burden of determining costs of defendant's conduct from the court to the parties. (2) Prices and costs are more accurately determined by the market. Expert witnesses are not as accurate. Problems with Specific Performance (1) Private negotiations cause parties to spend money with bargaining. (2) Bargaining impasse. Sides might play a game of chicken. Especially true with wide range of values (i.e. a plaintiff is damaged 200k but it would cost the defendant 45 million if injunction enforced). (3) Court's might have to supervise the imposition of specific performance. Walgreen v. Sara Creek [Walgreen wants to enforce a provision not to allow a new pharmaceutical store] • Court finds that damages would be difficult to calculate. Court should consider the above benefits and problems when determining whether to command specific performance. Employment Contracts & Specific Performance- If party breaches long-term employment contract and signs with a competitor it is unlikely that the courts will award specific performance. Restatement articulates three reasons for this: (1) personal relationships would be damaged, (2) difficult to assess, (3) involuntary servitude. • However, based upon the Lumley Doctrine, it is likely the court will impose an injunction on the person if the services cannot easily be replaced, or if the competition will do irreparable injury to the plaintiff. A.B.C. v. Wolf [Hired him as a sportscaster; contract required "good faith" negotiations with A.B.C. during last 90 days, and during last 3 months after, Wolf must give a right of refusal to A.B.C.] • Wolf breached duty of "good faith" because his option contract precluded other employment options. • Equitable remedies ought to be limited in employment contracts; don’t want to limit freedom. Coase Theorem- In a world of no transaction costs, then it should not matter what type of damages exist. It might affect who has to pay and how much to pay, however, the outcome (to breach or not to breach) will be the same.

[42]

Damages: Liquidated Damage Clauses
General Rule - Courts will not void liquidated damages if they (1) bear a reasonable proportion to probable loss and the amount of (2) damages are difficult to estimate. • Ex Ante Approach - Courts view the provision from the time of contract NOT after damages occurred. Problems with Voiding Liquidated Damages (1) Ignores assumption of rationality. Different parties may estimate chance of an occurrence different; or a party may need a high liquidate damage clause to ensure the other side (such as new entrant to market). (2) Informational Disadvantage. Parties are likely better able to determine subjective value. (3) Forced Allocation of Risk. Forces the allocation of risk towards one party. (4) Limits freedom of contract. U.C.C. 2-718(1) Damages for breach may be liquidated but only at an amount which is reasonable in the light of anticipated or actual harm caused by breach, difficulties of proof of loss, and the inconvenience of obtaining another remedy. • U.C.C. also holds that unreasonably small amounts are the same as unreasonably large penalties. Southwest v. United States[Liquidated damages provision for delay; performance is delayed. S.W. claims that this shouldn't matter because there were no actual damages] • Lack of actual damages doesn't preclude clause from being enforceable. Clause must be viewed at the time of formation. Leeber v. Deltona[Person puts down 15% on condo; if person does not purchase then corporation keeps money. In this case, person fails to purchase; however Deltona resold for a higher price.] • When analyzing whether liquidated damages are fair, it doesn’t matter about subsequent profits. It is important to stick to Ex Ante Approach. • Further, on breach datethere were damages. • Even though it might be easy to estimate damages; it might be that the parties are contracting for option to purchase. Limitations on Damages- Some contracts attempt to limit the amount of damages that a party can recover. Some courts uphold these even if they do not bear a reasonable estimate of damages because of a desire to limit liability. (CB 1082)

[43]