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FORMATION OF A CONTRACT: CONTRACT• A contract is a promise or set of promises to obligate those parties to do something that they would normally not voluntarily do, FOR BREACH OF WHICH THE LAW PROVIDES A REMEDY. - A contract may be written or oral - Promise- is a manifestation of intent which is an undertaking to act or refrain from acting in a specified way at some future time Intent- a mental desire to act in a certain way (to enter into the contract) Demonstrated through: 1) Outward manifestation of the parties a. what do the parties convey outwardly—we must base intent on these outward manifestations because there is no means to know what the parties are thinking 2) Reasonable person test a. Would a reasonable person (the objective standpoint NOT subjective) in the position of the offeree believe that the offeror is expressing an intent to be bound 3) Intent to be bound by legal consequences a. A duty which is contractual must be acted upon—determine whether the offeree is seriously expressing an offer 4) Meeting of the minds (mutual assent to be bound) a. Do the two parties have the same intent (does the offer match the acceptance—similar terms) DUTY TO READ--- when a person signs a document without reading it the fact that they failed to fulfill their obligation does not negate accountability for the writing CONTRACTS ARE ONE OF THE FOLLOWING: 1) BILATERAL- A promise in exchange for a promise. In this case there are two outstanding future promises. Both sides make a promise. 2) UNILATERAL- A promise in exchange for an act. The offeree’s act of acceptance is also her act of performance, so that at the instant of formation, the offeree has already performed and the offeror’s promise is outstanding. The offeree does not make a promise, but instead just acts. • Ordinarily there is no occasion to notify the offeror of the acceptance of a unilateral contract—if the doing of the act is sufficient acceptance, and the promisor knows that he is bound when he sees that the action has been performed from his offer. THE AGREEMENT PROCESS: For a contract there must be: 1. a mutual assent to be bound (often demonstrated through offer and acceptance) o The ASSENT POLICY—dictates that contractual obligation which should not be imposed on a person who did not in fact agree to be bound. ASSENT is looked at through the objective approach (if we could not rely on words or conduct to determine assent then there would be no reliance on contracts) 2. consideration (or an alternative i.e.: promissory estoppel) A. THE OFFER: • Offer- is a manifestation of intent to enter into an agreement with another through a promise. The offeror is the “master” of his offer. ELEMENTS OF AN OFFER: 1) Definite and certain terms TO determine if the elements were met ask: o Would a reasonable person believe that there was intent to be bound legally, under the circumstances, based on the outward manifestation of the parties (words/actions) that provides a meeting of the minds? 2) Intent to be bound 3) Communicate to a specific offeree • There is NOT an offer expressed through: a. a quote/estimate d. inquires and invites b. opinions/predictions e. jokes c. intention and hopes f. auctions 1
o UNLESS 1. stated quantity 2. specific terms—with reasonable certainty (material terms resolved) 3. promise to sell upon acceptance
The offeror is the “master” of his offer --- he has the power to set the terms—ask what does the offeror outwardly manifest to the offeree--- what is his intent though these outward manifestations and what would a reasonable person believe he is manifesting?
An offer MUST contain: 1) The offer MUST be communicated by the offeror to the offeree a. The offer cannot take into effect until it is known by the offeree 2) The offer MUST indicate a desire to enter into a contract a. To this it has to specify the performances to be exchanged and terms of the relationship b. The offeror dictates the means for acceptance 3) The offer MUST be directed at some person or group of persons a. Offers can be made to an undefined group: in this event it must be specified if the offer is only for the first to reply or if there can be multiple acceptances 4) The offer MUST invite acceptance a. It may or may not indicate how and by what time the acceptance is to be communicated b. A mode and time must be set for acceptance if not then they are to be determined by court interpretation of reasonable and timely 5) The offer MUST create the reasonable understanding that upon acceptance a contract will arise without any further approval being required from the offeror a. This is what distinguished a contract from a proposal
• Objective Standard determines that the offeror intends a contract to arise and expects to be committed upon acceptance
(A.K.A. power of acceptance) • OFFER EXPRIATION BY PASSAGE OF TIME: Determined by a reasonable amount of time if no time is stated TERMINATION of the (power of acceptance) OFFER—before lapse of time a. Rejection- offeree rejects it b. Counter offer- treated as rejecting the original offer and making a new offer. c. Death or Mental Disability- there can be no meeting of the minds if death occurs before the acceptance. Contractual liability IF THE CONTRACT WAS ACCEPTED then becomes part of the estate UNLESS otherwise stated in the contract. Mental Disability is treated the same way--- if mental disability occurs after the contract was accepted then there is still a contract. d. Revocation—the offeror can revoke the offer at any time so long as there was not an acceptance--- regardless of whether the offeror states that it will be open. a. Revocation takes effect when it is communicated to the offeree either directly or indirectly i. Direct revocation--- when the offeree has notice (can be written) ii. Indirect revocation—if the offeror took action clearly inconsistent with the continued intent to enter a contract and the offeree obtains reliable information of this action. (i.e.: reliable someone tells his that a property was sold, or he has read that it was sold) • Irrevocable offers: Options An option contract is formed: 1) by the offeree beginning to perform under an offer that looks to acceptance by performance only 2) by a writing signed by the offeror which recites a purported consideration and proposes a fair exchange 3) by detrimental reliance b. An option is a promise to keep an offer open for a stated period of time and must have its own separate consideration if the option is in relation to a new contract. 2
If an option is granted within an existing contract. in writing. Example: No separate consideration is needed if the buyer is a tenant of an apartment under a lease and the lease contains a term granting the buyer the option of purchasing the property for X amount before expiry of the lease. any reasonable method of acceptance is effective provided that it is consistent with the prescribed mode and provides protection to the offeror equal to that of the stated mode 3) If the offer does not specify any mode of acceptance the test for the appropriateness of the communication is even less stringent.c. performance. I. or added) if so then it becomes a rejection and counter offer. Separate consideration for an option only applies in relation to the formation of a new contract that is when the option is a promise not to revoke an offer to enter into a contract. e. a) this rule applies unless the offeror states otherwise 3 . 2) If some terms are not addressed in the acceptance then the terms of the offer are treated as covering the acceptance 3) If issues are covered differently in the offer and acceptance then the court applies the “knock out rule” which cancels out the issue and they insert a gap filler. 2) In a manner of acceptance is specified but it does not reasonably appear intended as exclusive. d. The offeror has no means to know the offeree completed the act unless notified. it is part of the bundle of rights exchanged in the contract and is supported by the grantee’s contractual consideration. The offeree may use the same mode as used by the offeror.: I’ll pay you $100 if you walk across the Brooklyn Bridge. o This is determined through the eyes of a reasonably prudent person (objectively.e. of any other methods of communication that is customary for transactions of that kind or is reasonable under the circumstances Bilateral Acceptance: through a promise Unilateral Acceptance: most courts hold that the offeree must give notice of his acceptance after he has done the requested act. like an offer) o The offer can only be accepted by whom the offeror is extending the offer to o The offeree must know of the offer (i. Acceptance is a promise or performance with knowledge of the offer. ACCEPTANCE: • Acceptance—offeree’s manifestation of assent to the offer which may be indicated through words.: reward) • Elements of Acceptance: 1) A voluntary act (knowledge and free will) 2) Performed with the intent to enter into a contract 3) Subject to the terms set by the offeror Rules governing mode of acceptance: 1) When the offer clearly manifests the intention that a prescribed mode of acceptance is mandatory and exclusive their offeror’s intent must be deferred to and that particular manner of acceptance must be complied with exactly. SILENCE MAY ACT AS ACCEPTANCE IF (but is not always acceptance): 1) The offeree had a reasonable opportunity to return or refuse the property 2) If it is reasonable for the offeror to expect the offeree to give notice of rejection (based on past business) • If one is given a good or service and has not refused them then he has accepted • Acceptance matching the Offer: 1) Mirror Image Rule: the offeror’s response only operates as acceptance if it is the precise mirror image of the offer. 2) Part Performance or Detrimental Reliance • • The offeree’s part performance or detrimental reliance may transform an otherwise revocable offer into a temporarily irrevocable one A subcontractors offer: Once a subcontractor submits his offer to the contractor it becomes temporarily irrevocable—the contractor is not bound because he may accept another’s offer B. or silence. There can be no conflicts in terms (altered. 4) If acceptance diverges too greatly from the offer then there is no contract—but if the parties perform like there is a contract and one party ships the other a product and they keep it then a contract is formed • When acceptance becomes effective: 1) Mailbox rule—“deposited acceptance rule”—where an offer expressly or impliedly authorizes acceptance through the mail or another non-instantaneous means of communication the acceptance takes effect as soon as it is properly dispatched by the offeree (placed in the mail).e.
then the acceptance will be effective if and only if the offeror receives it before he receives the rejection b. • Indefiniteness— where terms of the contract are not definite the court may find the contract void for indefiniteness 1) if the court believes that the parties intended to contract they will supply a reasonable valued for the missing terms 2) implied obligation of good faith and fair dealings 3) Agreement to agree—the court will generally supply a missing term if the parties intentionally leave that term to be agreed upon later and they then don’t agree. if the offeree knows or has reason to know that there was a mistake in transmission she cannot snap up the offer.: the 2 ships called Peerless • If the party knows or should have known that they had different understandings then the contract is understood in the favor of the innocent party o However. not upon dispatch.: if A makes B a suit and there was no specification to material or color. 4) Part Performance—even if an agreement is too indefinite for enforcement at the time it is made. If it comes later than this normal time it will not be effective until receipt. A uses grey cotton and B never objects then the indefiniteness is cured by part performance • Misunderstanding— if the parties have a misunderstanding about what they are agreeing to this may prevent them from having the required meeting of the minds and thus no contract is formed if: 1) The parties each have different subjective beliefs about a term of the contract 2) That term is a material one and 3) Neither party knows or has reason to know of the misunderstanding • I. That is.b) if the acceptance is lost in transmission or delayed this still applies if the communication was properly addressed: Properly addressed means acceptance is effective at the time of dispatch even if lost had never received by the offeror (unless the goods were sold to another or other circumstances may call for excuse) NOT properly addressed means the acceptance was not property dispatched (sent by unreasonably slow means) it will be effective upon dispatch only if it is received within the time in which a properly dispatched acceptance would normally have arrived. • However. Acceptance dispatched first: if the acceptance is sent before the rejection. but may more readily apply the doctrine to invalidate a promise that appears to have resulted from advantage taking or unfair dealing. 3) Option Contracts • The acceptance of an option contract is effective upon receipts by the offeror. Rejection sent first: if the rejection is sent first. a contract is formed on the terms of the offer as received by the offeror. But: o If the offeree’s misunderstanding is due to the offeror’s misrepresentation of the terms then the contract is enforced as understood by the offeree C.e. 2) Both acceptance and rejection sent by the offeree— Depends on which is dispatched first: a. whether that rejection is received by the offeror before or after he receives the acceptance. if the offeree fails to read or understand the offer due to his negligence then he is still bound by the terms of the offer.e. the acceptance is effective upon dispatch and the subsequently dispatched rejection (really a revocation of acceptance) does not undo the acceptance. I. 4) Risk of mistake in transmission • The risk of a mistake in transmission of the terms of the offer is upon the offeror. the subsequent performance of the parties may cure this indefiniteness a. detriment to the promise or a benefit to the promisor (the promise must induce the detriment) 2. CONSIDERATION: • Consideration: an essential element of a contract which the court may stretch to find consideration when the promise appears to be seriously intended and fairly obtained. o requires that some quid pro quo be given for the promise by the promisee Must consist of: the promise must induce the detriment 1. and bargained for exchange 4 .
The partial or complete abandonment of an intangible right. Not always is a benefit clear it could be for the promisee to quit smoking…etc c. The Bargained for Exchange (bargain theory)—a promise must have been sought by the promisor and given by the promisee in exchange for the promise. Promise to pay for benefits received—services were rendered in an emergency 3.a. but some do not. Modifications of sales contract 4. 1.: reasonable efforts to market clothes/ secure a loan • Promises Binding Without Consideration 1. If the meeting of a condition is not really bargained for by the promisor then the condition will not be met but if it is something bargained for then there will be consideration o I. An immediate act (that is doing or giving something up).k.a. or only to the extent necessary to reimburse wasted costs and expenses.: uncle and nephew agreed that if the nephew refrained from drinking. or 3. smoking and gambling then his uncle would give him $ for that detriment • Nominal Consideration—is sometimes recognized by the court as consideration because it is not for courts to decide the worth of something and if they view it as seeming to be big enough then it is enforceable but if the consideration is very small then the court may conclude that there was no consideration • Sham Consideration—purely for the sake of legal formality the parties may recite a sham consideration for the grant of an option that is consideration is not actually given but merely stated to have been given to make it appear like it has. it cannot be for the sole benefit of one party UNLESS the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made b. derived from equitable estoppel. • Derived from (Equitable) Estoppel. therefore. Promissory Estoppel: A doctrine. there is no consideration in this. Benefit—the promisor got what it was that he bargained for. A forbearance (refraining from something). Option Contracts 5. The promise to make a gift is unenforceable but after the gift has been given one cannot rescind for lack of consideration 2. under which a court has the discretion to enforce a non-contractual promise made with the intention of inducing reliance and justifiably relied on by the promise to her detriment. I. Depending on the needs of justice. an agreement—or a manifestation of mutual assent). o Pre-existing duty rule—one does not suffer a detriment by doing or promising to do something that one is already obligated to do or by forbearing to do something that is already forbidden. Elements: 5 . Alternative and Implied Promises 1) Illusory Promises—an illusory promise is not supported by consideration and is not enforceable.e. The promise did not induce the detriment 2. • Illusory. (a. This is where there appears to be a promise but the promisor in fact did not commit to anything at all. Some courts accept this type of consideration if there is no fraud and it seems fair. Detriment—is any relinquishment of a legal right which can take the form of: 1. o Non-economical (refrain from drinking) detriments will suffice o Nominal amounts are adequate for consideration unless there is EXTREME disparity in value between what the promisee gives up and receives which may suggest that a “bargain” does not exist. o modification must be a mutual decision. Past Consideration—occurs when the promisee suffered the detriment before the promise was made. This theory recognizes that contracts are voluntary exchange relationships. the promise may be enforced fully. 2) Implied promises—courts try to find consideration—perhaps through an implied promise in return a. o Promissory estoppel is a false statement treated as a promise by a court when the listener had relied on what was told to him to his disadvantage o Promissory estoppel is a promise which the promisor should have reasonably expected to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce the action or forbearance is binding if the injustice can only be avoided by enforcing this promise.e.
promise of a job. 3.: promises to make gifts. vague terms b. ambiguous terms 2. and negotiations in good faith. offers by subcontractors. a promise must have been made 2. There must have been actual reliance—to show that had that person not been induced by the promise he would not have acted as he did and the promises reliance must be reasonably foreseeable to the promisor. o if evidence of meaning is available it is a fact finding process for the jury When interpreting the agreement one must take into account: a. unresolved terms • Interpretation is the ascertainment of the meaning of a promise or agreement.e. I. It is an evaluation of facts (the evidence of what the parties said and did and the circumstances surrounding their communication) for the purpose of deciding mutual intent. omitted terms 3. The interpretation is to be objective or reasonable meaning of the words. charitable subscriptions. Promissory estoppel may be used to hold a party to a promise made during negotiations for a failed contract. their conduct in prior comparable transactions with each other • look to prior dealings of the parties d.1. Only damages as a result of reliance on the promise Mistake There is an offer/acceptance and consideration: Now look at the terms of the agreement and the circumstances to ensure that there is truly a contract: Interpretation and Construction: No contract comes into being if a material aspect of the agreement is left indefinite by the parties and the uncertainty cannot be resolved by the process of interpretation or construction. Plaintiff receives reliance damages rather than expectancy damages. unclear terms a. • The plaintiff is placed in the position he would have been in had the promise never been made. Promissory estoppel may afford relief for reliance on a promise that falls short of becoming contractual because of some defect or omission in the agreement formed by the parties. and customs and usage of the market in which they are dealing • What is standard in the trade/industry? • Construction--. The promise must have induced justifiable action or forbearance by the promise 4. the language and conduct of the parties in forming the contract • look at express terms • then the language as a whole b. the promisor should have reasonably expected the promise to induce action or forbearance by the promisee 3. the promise is binding if injustice can be avoided only by its enforcement 5. • Damages under this equitable doctrine are limited to those necessary to prevent injustice. A promise made for good consideration is not enforceable because of noncompliance with legal formality such as the statute of frauds. 2. their conduct in performing the contract after it was formed c. o no evidence of meaning is available—is a matter of law and for the judge to decide General Rules for interpretation (or construction): 1) agreement should be interpreted in light of all of its terms 6 . For a contract to fail there must be 1) an incurable uncertainty 2) and this uncertainty must relate to a material aspect of the relationship • A material term is one which is so central to the values exchanged under the contract that it is a fundamental basis of the bargaining o Terms: 1.implication in law goes beyond available facts to find what the parties would or should have meant in making the manifestations that were made. bailments. Applicable when: 1.
so an agreement to agree is not a contract. o There is still a commitment to each other to make honest efforts to work toward an agreement.: animals.: in the sale of a house payment and title transfer are concurrent while if one builds a house the building must take place before payment takes place. 4. 7 . no contract can come into existence until they are settled. However. • I. reptiles.$ of rent they are not sure of 1) they could use the market standard for the average rent of other comparable buildings in the area— this must be stated in the contract 2) they could leave the price to the discretion of one of the parties—that party must comply with fair dealing and good faith (this is risky) 3) if no rent is stated then it can be inferred that the parties agreed on a reasonable rent if it is shown that the parties intended to agree on it later—if not then there is no contract because this term is central • Agreement to agree—negotiating parties may have reached an agreement in principle but may not have settled all the terms of their proposed contract. o A promise to negotiate in good faith is merely a commitment to make honest efforts to reach agreement—it is not a promise that agreement will be reached. I. commercial practice and public policy Examples of Gap-Fillers: If a level of performance is not stated--. modes of transportation with wheels are not allowed on sidewalks 6) when terms are ambiguous or vague the court interprets the agreement in favor of the non-writing party Gap Fillers o A gap filler is a provision legally implied into a contract to supplement or clarify its express language o gap fillers are based on common expectations.e.e. This situation is sometimes described as an agreement to agree. If the unresolved terms are material. primates. the oblige may transfer (assign) those rights to another person Mandatory Construed Terms o the parties are to perform the contract reasonably and in good faith (this is a duty imposed on anyone who contracts) this term cannot be excluded even if expressly excluded Construed Terms which may be Excluded ONLY by Expressly stating so: o These terms are more strongly implied than gap fillers Future Terms o If the parties are unsure of a term they may enter into the contract by: I. They may decide to postpone resolution of those terms for later.best efforts is (reasonable efforts) for the obligations of the parties.e. the parties may have promised expressly or impliedly to continue to negotiate in good faith.: if a seller and a buyer engage in a contract for the buyer to purchase sellers land then the buyer must use his best efforts to secure a loan—no effort to secure a loan is a breach even if there is no expression in the contract for best efforts to be used If the parties to an employment contract do not specify its duration it is deemed to be terminable at will If the sequence of performance is not specified then the performances are to be made concurrently BUT if one performance is instantaneous and the other needs time to perform it is presumed that the longer performance must take place first.2) it should be interpreted in a manner to encourage the contract as valid 3) pay attention to precise provisions 4) handwritten terms are weighted more than typed 5) look for general words for types i.: if a lessors building won’t be completed for occupancy for 3 years the lessor and lessee may still enter the contract-.e. agreeing to address them at a future date. o If this is the case and a party breaks off the agreement the party claiming the obligation must provide credible evidence that this was not an ordinary negotiation. If the parties do not state that rights under a contract are personal to the oblige.
the writing clearly expresses every term in the agreement and it is intended to be the exclusive statement of everything that was agreed--. just proof that the agreement was the intent of both 2) parol= “a word” a concern with oral communications (and prior written agreements) 3) not all evidence is excluded—honest and pertinent evidence of what was actually agreed is admissible 4) this is a two stage process—the judge determines if the evidence is admissible (question of law) then if it is then it goes to the jury to determine if it is believable Evidence of alleged terms not included in the written record of agreement (in the contract) but claimed by one of the parties to have been agreed to orally before or at the time of execution of the written contract or in a prior writing.then no terms can exist beyond those set out in writing o even these writings which are intended as total integration may not be so and parol evidence could apply Partially Integrated. the party with the more reasonable understanding prevails— o HOWEVER. Parol Evidence Process Step 1: judge decides the issue of integration— he must decide if the parties intended the writing to be a full and final expression of their agreement through interpretation o Traditionally: the courts looked only at the four corners of the document and if it appeared to be complete then no parole evidence was admissible o Modern Trend: even when the document appears to be complete the court will look at evidence which will reveal that an apparently integrated writing was in fact not intended as such or contains an ambiguity that is not otherwise obvious Step 2: If the evidence is admitted then the fact finder determines whether the evidence is believable or not o Merger Clause—this is expressly stated in a contract and states that the contract reflects the parties’ entire agreement and there are not any other agreements.the court found that there was no contract and the seller did not breach it by not tendering payment The meaning and terms must be determined by interpretation and the entire context of the transaction which could include negotiations. Total Incorporation--.Misunderstanding: Total Ambiguity o When parties have different understandings of their agreement.when none of the terms are set out in full. sometimes the parties have opposite understandings and both are reasonable… in this case the court finds that there must have been NO contract (meeting of the minds) Example: • Raffles v. final and certain form Parol evidence is admissible to supplement or explain the writing provided that it does not contradict or vary anything that has been recorded in the writing.one or more of the terms have been fully. past dealings and accepted usages (the next rule imposes restrictions on what may be admissible) • Construction The Parol Evidence Rule: This rule only applies when a written agreement has been executed 1) the writing must have been adopted by both parties—both signatures need not be present. If this clause is included in the contract it carries much weight for the court in that if there would any other terms they would have been included since both parties signed with this clause in the contract Is the evidence supplements or explains the writing. finally and clearly expressed in the writing Unintegrated. it should be allowed in. Unbeknowst to either of them there were two ships called peerless and the buyer meant a ship which sailed in October while the seller meant the one in December--. As a result evidence of any earlier agreement is irrelevant and misleading and should be kept from the fact finder. The written agreement is said to be the final draft which is intended to supersede earlier negotiations and communications to the extent that its terms depart from or do not include what was formerly agreed. Wichelhaus—the buyer agrees to purchase cotton from the ship called Peerless from the seller. but if it clashes and cannot be reconciled with the writing. it must be excluded 8 .
they reasonably would have intended it to be part of their contract. • trade usage. • Denoted as: on condition that. • When making a contract the parties agree that a particular promised performance or set of performances will not become due until and unless a particular uncertain event occurs. duress. subject to. the court usual admit evidence of a modification even though this is express because modifications sometimes need to be made later II. Implied in fact Conditions: (look at conduct) a condition which there is no express language creating a condition looks at contextual evidence which may support the inference that the parties intended a performance to be condition. Express Conditions: A condition is express if the language of the contract on its face and without reference to extrinsic evidence articulates the intent to make performance contingent on the event. • NEED LITERAL PERFORMANCE • If only substantially perform then there is a breach 2. provided that or if • These conditions are applied strictly by the courts. prior dealings. course of dealing or course of performance is admissible to explain or supplement a writing even if it is intended as a final agreement trade practices are often not stated in the contract so if a party goes against those common practices then the court should allow external evidence o Exceptions to the Parol Evidence Rule: 1) evidence to show fraud. however. Construed (constructive) Conditions: Conditions are not always expressed or inferable from the language. • Conditions are often used to escape risk they are referred to as escape clauses Manner of Conditions: 1. or statements made during negotiations • Substantial performance is good enough • Conditions on one party and the contract as a whole: When it is not apparent when the exchange is to take place then the exchange is to take place at the same time—the exchange is dependant on one another and this concept is referred to as constructive conditions of exchange • One party: 9 . • A condition can be implied in fact by interpreting the words used by the parties in light of the circumstances surrounding the formation of their contract. evidence of usage. mistake and other basis for invalidating or avoiding the contract are admissible 2) evidence is admissible to show that a fact recited in a writing is false 3) evidence is admissible to show that the agreement was subject to a condition • No oral modification clause in the writing means that the written contract is not subject to oral modifications.express conditions=strict compliance. • NEED LITERAL PERFORMANCE • If only substantially perform then there is a breach 3. The court will imply the condition as a matter of law if the circumstances and nature of the contract compel the conclusion that the condition should exist as a matter of policy or that if the parties had addressed the issue. Even if the parol term does not contradict anything expressed in the writing is could still be inconflict with the normal legal or factual implications of the contract. PERFORMANCE OF A CONTRACT: CONDITIONS AND PROMISES • Promise: is an undertaking to act or refrain from acting in a specified way at some future time • Condition: is an event that is not certain to occur • Uncertain event occurring or not occurring • these events are usually future but could be past if neither party is aware and will find out later but wish to contract now then a past condition can be incorporated.
• I.if less than a breach has occurred.e. Conditions Subsequent: o Is a condition which discharges a duty of performance? The duty to perform arises immediately upon formation of the contract but if the condition occurs. When one party’s performance is contingent on the other party’s performance. they must be rendered at the same time—the performances are conditioned on one another.a party could have a term included in the contract making her satisfaction a condition precedent of her performance this is risky the contract should state a standard by which to measure satisfaction: this is measured subjectively But there is a preference for using the objective standard because it is fairer and more predictable the dissatisfaction must be in good faith If the court deems the condition of satisfaction fulfilled then the other party must perform—failure to do so results in a breach **One contract can be filled with any of the above conditions or all. ** When the party can play a role in affecting the outcome of an event ** If the promissory condition is not fulfilled then the party whose performance was contingent on it is entitled to BOTH withhold counter performance and to seek a remedy for breach. the duty falls away. The parties have clearly chose to make performance subject to the stated event and the court will honor this intention for nothing less than exact fulfillment--. Unless the express condition is exactly satisfied then the conditional duty does not become due.If one party’s performance is a condition of the contract and that party does not perform then the other party is excused from performance but if the one party decides to waive the condition then the parties can still proceed with the transaction. ** defense to non-performance and must be proved by the party whose performance obligation has allegedly been discharged • Condition of satisfaction. • Time Conditions: Conditions Precedent: o Is a condition that must be fulfilled before a duty to perform comes into effect? ** Prerequisite to the duty arising ** Burden of proof is for the party who is seeking to enforce the condition precedent Concurrent Conditions: o Where mutual performance under a contract are dependent on each other and the contract does not expressly or impliedly set out a sequence for performance.: if there was a condition for an agreement that if the property were zoned residential then the buyer would purchase it for $X from the seller—if the property can not be zoned residential the buyer (NOT THE SELLER) can waive that condition and still purchase the property • Contract as a whole: If the contract as a whole is conditioned then this would mean that if the condition is not satisfied then neither party is bound and the contract fails • Pure Promises: Not a condition but an undertaking **if the promise is broken then the party is liable for breach of contract • Pure Conditions: They contain no promises but merely describe an event that must occur for a duty of performance to arise ** A pure condition is intended when a party has no power to influence the happening of the event ** if the condition is not satisfied the performance obligation falls away and there is no basis for claiming breach of contract— because it is out of the parties control • Promissory Conditions: A condition where a condition and a promise that the condition will occur. Strict or Substantial Compliance with a condition: • Strict Compliance: o When a performance is subject to a condition the duty to perform does not arise unless the condition is fulfilled. 10 • .
The court determines reasonability.e. o (construed conditions require only substantial compliance) Distinguishing a Condition from an Event that sets the time for performance: Passage of time is not a condition because it is not an uncertain event • Performance due on an event: o If the payment for a service is due on payday at the end of the month and the employee is fired it depends if his getting paid was a condition to his payment for the service or if it was a set date for payment to occur. therefore. Excuse of Conditions o After the contract was entered into there may arise circumstances which make the condition impossible.the condition may be excused to prevent injustice and the performance is absolute (must be preformed absent the condition) 1) Wrongful Prevention • The party favored by the condition hinders its fulfillment • If the party does not make reasonable or good faith effort o I.: if the party says that they will purchase a home if they can obtain a mortgage loan--. sometimes it is clear sometimes there is a disagreement as to the quality and sufficiency of what was performed 4) What is the proper response to the breach—if the promised performance was not rendered properly or at all a breach has occurred.breach o If it says rezoning must occur in a reasonable time—flexible interpretation by the factfinder o (express and implied conditions require strict compliance) • Substantial Compliance: o When the condition is neither express nor implied from factual evidence but rather construed as a mater of law based upon what the parties have reasonably intended.strict compliance—if it occurs in 61 days it is still a . the court will say that the insurance company cannot bar him from recovery for being one day late—that would be unjust there fore they forfeit that condition of paying car insurance to allow him to recover) • Forfeiture is an appropriate basis for excusing a condition only if its enforcement would result in an unfair disproportionate and harsh deprivation of the rights or property of the party who expects performance and a windfall or unfair benefit to the party whose performance is subject to the condition Breach and Repudiation: • Breach of Contract occurs when one fails to honor a promise of performance when that performance falls due • To establish that a breach occurred ASK: 1) Was a promise made?—interpretation and contractual undertaking 2) When was the promised performance due?—a breach does not occur until performance is due and one fails to perform 3) Was the performance in compliance with the promise?—any shortfall from the promised performance is a breach.e.e. • Waiver: voluntary abandonment of a contractual right o A waiver can be made and then retracted prior to the due date but if the other party relies on it to their detriment then it cannot be retracted.: reasoning must occur within 60 days--. 3) Forfeiture (i. unreasonable or too harsh--.that party has a duty to reasonably and in good faith obtain the loan—if she does not attempt to get a loan she violates her duty and the seller may enforce her promise absent the mortgage—if she had tried and it failed then the seller has no recourse • The court may apply the “but for” (causation) test 2) Waiver or Estoppel • Estoppel: equitable doctrine (when one relies to their detriment on what another says) o Precludes a person from asserting a right when by deliberate words or conduct and with knowledge or reason to know that the words or conduct will likely be relied on by another. Types of Breach: • If a breach is: Material and total—the promisee may: 1) withhold performance 2) terminate the contract 11 • I.: A forgot to pay car insurance on time and then gets into an accident. it is unlikely that they can hold the parties to strict compliance. the actor causes the other party detriment by inducing the justifiable belief that the right does not exist or that it will not be asserted.
That is. Restitution in favor of a party who has breached materially.MATERIAL breach. The usual measure of damages is the cost to place the promise in the position he would have been in had the performance been in full compliance with the contract 2. partial and occurs when one party’s performance falls short of that promised in the contract. a) The breach is a significant part of the consideration bargained for by the promisee b) The breach need not be intentional c) When the breach occurs could determine materiality (in the beginning or end of performance) d) if the breach is not material then it is substantial performance Substantial Performance: This is a NON. compensation for loss from a delay. damages for work done incorrectly or with defective products 3. therefore. i. One is entitled to restitution by the court to restore property or its value to a party from whom the property was unjustly taken or has been unjustly retained. the contract can be divided into independent self contained sets of matching performances Breach: A breach occurs after performance falls due Anticipatory Repudiation: • Anticipatory Repudiation occurs before performance falls due. This is the amount of money necessary to correct the shortfall in performance i.: if work was not completed then $ to seek another. • The breacher can prevent such a breach from becoming total by curing the deficiency within a reasonable time. The court will find damages in a case where the breach is trivial and the cost to rectify will be too great a. but performance is sufficient to qualify as substantial Relief for Substantial Performance: 1.3) claim full damages for breach (compensation for loss of his bargain) Material but NOT total (Partial)—the promisee may: 1) suspend performance 2) await a cure 3) claim compensation for any loss suffered Not Material (substantial performance)—the promisee may: 1) claim compensation for any loss suffered but must stick to his end of the bargain Material Breach: Test: a breach is material if the failure or deficiency in performance is so central to the contract that it substantially impairs its value and deeply disappoints the reasonable expectations of the promisee. Incurable------------------------------ Total Material Uncured---- Total Breach occurs Curable (partial) Cured------ Substantial Performance Non-material (partial) ---------------------- Substantial Performance The Breaching Party’s Recovery Following a Material Breach: • Forfeiture of Contractual rights by a party who breaches materially. The true basis for this rule is that it would be an unfair forfeiture to compel the breacher to pay damages disproportionate to actual loss. who thereby forfeits all rights under it and has no contractual claim to enforce. If there is no loss in value due to the trivial breach then they are entitled to no damages Partial Breach: • This is a breach which is potentially material when they occur but at this stage they are regarded as partial because they are not yet serious enough to be total. self sufficient exchanges. 12 .e. • A material breach operates as a renunciation of the contract by the breacher. Economic Waste Doctrine: If damages for rectifying a breach are disproportionate to the victim’s true loss the court has the discretion to adjust them downwards to more accurately reflect the actual loss. Quantum Meruit—as much as deserved is used to denote the market value of services Quantum valebant—as much as they are worth signifies the market value of goods Divisibility—a contract is divisible if the mutual performances promised by the parties can be split up into a number of smaller.
to terminate the contract and to sue for relief for total breach. • The promisee who does not wish to remain passive has the option to demand an assurance of performance provided that he has reasonable grounds for insecurity regarding the other’s performance she may make a written demand for an adequate assurance of due performance. • The following remedies suppose that a valid and enforceable contract has been entered into and that one of the parties has materially breached that contract. Use the objective test 3) The promisor’s statement or conduct in repudiating must be voluntary. it must have been deliberate and purposeful rather than inadvertent or beyond the promisor’s control a. • The promisor could overact in response and that in itself could result in repudiation. If the repudiated performance would have been due before the return performance it is a condition precedent to it. • The advanced indication of prospective breach also amounts to an advance failure of the condition.• When one makes it clear by words or actions that she will breach when performance falls due. She may then refuse to render her own performance. • Anticipatory Repudiation allows one the opportunity to mitigate his loss by seeking relief for a breach without delay and before the actual breach occurs. • Once repudiation occurs the other party can: 1) accept the repudiation by treating it as an immediate breach a. • A repudiation may occur between the time that the contract is made and the time due for its performance—that is one of the parties repudiates before either party has begun performance under the contract. Dangers of Dealing with Possible Repudiation. unequivocal and voluntary repudiation by one of the parties which is recognized as the equivalent of a material and total breach. o Anticipatory Repudiation is a clear. provided that the threatened action of failure to act would be a material and total breach if it happened at the time due for performance. Installments: It is difficult to know if the breach affects only the defective installment or is so serious as to undermine the contract in its entirety operating as a repudiation of all remaining installments. arbitration or litigation.Retraction and Assurance of Performance: • When there is any degree of uncertainty about the existence and extent of the right claimed to have been repudiated or when it is unclear if the conduct amounts to the repudiation or when there is doubt about the appropriate level of response there is a risk to both the promisor and promisee. a. unequivocal and voluntary repudiation is recognized as a material and total breach. that is. Remedies for Breach of Contract: • Breach of Contract can be settled by negotiation. An advanced repudiation must be clear that it is material and total through words and conduct 2) The promisor’s statements or conduct must clearly indicate to the reasonable promisee that the promisor intends to breach materially when the time for performance arrives a. • Since a repudiation occurs before performance falls due the promisor can take back the repudiation unless the promisee has treated it as final and has taken action in reliance on it resulting in a significant change in her position. mediation. Did the promisor repudiate or rather did they merely express their lack of confidence to perform or complain about the terms of the contract. • When a promise is dependant upon a performance that promise is a construed condition of the performance. Elements of Repudiation: the promisor must clearly. unequivocally and voluntarily communicate an intention not to render the promised performance when it falls due which is communicated by words or conduct. b. If she delays in responding the court may find that she aggravated her damages by not terminating immediately and taking action to mitigate her loss. Clear. 1) Can qualify as a material and total breach a. 2) Or she may delay responding to the repudiation to see if the repudiating party repents. 13 . • It may also occur after performance under the contract has begun but before the due date of the repudiated performance. By terminating the contract she takes the chance that the other party will deny that he repudiated and declares her termination to be a breach. At this point both parties believe that they are in the right but one is wrong and is going to be found to have repudiated the contract.
—Contracts are interpreted objectively so expectations must be in accordance with what a reasonable person in her position would have expected as the benefit of the transaction. given the language used by the parties and circumstances. consider what type of breach occurred. o Then consider: 1) The nature and extent of the plaintiff’s compensable loss requires consideration not only of the plaintiff’s injury—the harm suffered as a result of the breach but also the extent to which the law recognizes the availability of recompense for it. Expectation Relief: 1) $ is awarded to put the plaintiff into the economic position she would have been in had the contract been performed— there is not always a perforce remedy but the aim is to get as close as possible. 3) Consider if there are any policies or principles that may apply to limit the defendant’s liability for the loss. The burden of proving loss is on the plaintiff 2) Courts do not take into account non-economic injury. • Called for when: 1) the item is unique 2) this is granted in equity • Specific performance was traditionally only granted by courts of equity. Damages/Remedies: • Equitable remedies—must have clean hands. as gleaned from its wording and the circumstances surrounding the contract’s formation. 2) Then decide upon the remedy that most effectively redresses the injury. innocent and injured and no adequate remedy at law • Specific performance—unique or rare goods/land • Injunction • When there is a contract and one has materially and totally breached: (partial performance is a total and material breach) o Expectation— what you expect to receive had the K been performed Value of the defendants promised performance less the benefits to plaintiff for not having to perform further o Direct—losses incurred by the victim for substitute performance o Consequential—going beyond the mere loss in value—damages resulting from the impact of the breach on other transactions or endeavors o Reliance— expectation damages cannot be determined or are not adequate (or for a quasi contract) Use this for promissory estoppel • essential reliance • Direct reliance • incidental reliance • Above and beyond the losses which are enjoyment or other benefits. to protect the victims expectation interest’s and to give the victim the benefit of her bargain. Consider the different means that may be available to rectify the harm and the rules that govern the calculation or measurement of compensation. 14 . Specific Performance—an order granted by the court requiring the defendant to perform as promised. therefore. Inadvertent breaches and willful and purposeful breaches are not distinguished. There may be more than one remedy—discuss both then pick the best. o Restitution— value to the defendants of the plaintiffs performance (unjustly enriched the defendant) on the contract or in quasi contract (promissory estoppel) o Quasi-contract—when an enforceable contract was never formed or rendered unenforceable: o Damages: the reasonable value of the services o Liquidated damages—the parties agree upon the damages in the event of a breach in the contract o Punitive Damages—ordinarily not recoverable unless the breach was also a tort—foreseeable from fraud Goal of Remedies for Breach: • Is to place the victim of the breach in the position that she would have been in had no breach occurred. • Expectation interest is the value of the performance to her based on the purpose of the contract.• After determining that there was a contract.
a. b. a. b. or where the market value fluctuates or the person waited too long to obtain a substitute then it is reasonable to consider the market in the time and place under the contract.500.: employment contract in which the employee’s only performance is her labor. And must have sufficiently full and reliable information to enable her to make a prediction of likely losses and gains iii. fairdealings. 1) Substitute Transaction made by the plaintiff: Damages are based on the loss incurred as a result of having to make the substitute contract. The costs of finding and making a substitute contract c. To determine: Damages • Plaintiff’s loss in value caused by the defendant’s non-performance (determined by deducting the contractual value of what the plaintiff received from what she was promised) + Any other losses (this includes consequential and incidental damages) —Less any cost or loss the plaintiff avoided by not having to perform. and yet it improves the defendant’s position. and if the defendant has no property. d. Time and Place: where there are multiple locations it is difficult to determine market value. These include any cost to the breaching party of entering into the other transaction perceived as more profitable b. A finds 10 voice lessons for 1. Location.e.000 from B. where a breach results in lost income and cannot be recouped: Damages may be equivalent to the full value of the expected performance a. Those damages will place A in the position she would have been in had a breach not occurred. a. I. Calculation of Expectation Damages: The aim of expectation damages is to simulate as closely as possible the plaintiff’s economic situation in the absence of breach. disappointment or frustration. Damages do not take into account reliability. c. the plaintiff loses in the end. The costs of litigation 5) An award for damages which is not paid may be enforced through a writ of execution issued by the court to the sheriff to find.: if the substitute A chose cost 2. Be capable of acting voluntarily and rationally ii. 4) Breach of Contract Resulting in Plaintiff Losing Income but Saving Costs: Damages are measured by deducting savings from expected returns 15 .: A purchases 10 voice lessons for 1. 2) The plaintiff could have made a substitute transaction but did not or failed to do so: Damages are measured by a comparison between the contract price and the market value of a substitute a. Transaction costs are those costs incurred by both parties in dealing with the breach and any substitute transactions. A judgment in law for damages is called in rem—it is enforceable only against the property of the defendant. inconvenience. Breaching a contract is wrong in the moral sense and damages may account for this by the factfinder. The efficient breacher must pay compensatory damages to the plaintiff (but will still come out ahead). B reneges on the employment contract with A and A cannot find an alternative job. Efficient breaches can only be achieved if all the conditions are right: the market must be competitive and stable so that the relative costs and benefits of performing and breaching can be gauged. 3) Contract for services.e. B owes A 500 in damages. I. seize and sell property to pay the beft. From the economic standpoint the breach does not harm the plaintiff who receives the financial benefit of his bargain.3) A contractual promise is a commitment either to perform the promise or to pay compensation for not doing so. A is entitled to the full amount of the contract because she spent nothing and was to get a salary for the work. B breaches the contract and A seeks to find an alternative.e. a. I. having incurred substantial legal costs in the process. 4) Efficient breach is a breach of contract which is said to be efficient if the defendant’s cost to perform would exceed the benefit that performance would give to both parties.500 then B will still only be awarded 500 because she could have found a teacher for the market value. And the transaction costs must be small enough so as not to eliminate any advantage achieved by the breach 1. A party contemplating breach must: i.000 but the market value of a voice teacher is 1.
c. B must pay 500 not 1. Contract price = 75. Determined objectively ii.e. vi.000.000.: Hadley v. • Limitations on Expectation Recovery: To recover the following must be satisfied or considered 1) Foreseeability :The extent and scope of damages should be consistent with what was reasonably contemplated by the parties at the time of contracting a.e. Foreseeability i. Reasonable contemplation must be conceived of as a probability no just a possibility 2) Mitigation: If the plaintiff worsens the loss of the breach she cannot be compensated for her behavior a. Court held that only losses which are reasonably contemplated by the parties at the time of contract as a reasonable consequence of the breach may be recovered on a.a.000 Recovery = 20. Damages are foreseeable when at the time of making the contract the party who ultimately breached reasonably should have realized that those damages would be a likely consequence of the breach. o In some cases the breach caused further losses in other transactions or endeavors that were dependent upon the contract. A charges a total of 1. v. Consequential damages are not foreseeable 1. A terminated the contract. Contract Price: 75. b. 2) Consequential Damages: Losses suffered by the victim of a breach going beyond the mere loss in value of the promised performance (direct damages) and resulting from the impact of the breach on other transactions or endeavors that were dependant on the contract. This is calculated: Gross profit + Reliance—Payments or proceeds + other loss (consequential or incidental damages) i. A must pay 500 for an acompaniest for voice lessons for B.000 = 15. It is not fair to impose liability on a breaching party if she could not have reasonably anticipated the loss when contracting. Foreseeability is an event or consequence when a reasonable person would realize the likelihood of its occurrence. The court found the carrier to not be accountable for the loss because the loss was not foreseeable because they did not know the mill had to be closed. Mitigation 16 .000 for the breach because 500 is how much A would have made.000 + Reliance expenditure (amt spent up to the breach) + 10.000 • Direct and Consequential Damages: 1) Direct Damages: Losses incurred by the victim of a breach in acquiring the equivalent of the performance promised under the contract. A incurred no expense for the breach. Consequential damages are those which flow from the breach. I. A paid B one installment of 5. 1.000 Less payments received -5. B reneges. They should have been told at the time of contract. His costs to this point were 10. B did not complete performance but could show that his total costs would have been 60. They sued the carrier on this basis. There was a delay in shipment and the mill had to be closed for those days and they lost profit.000 to build a recording studio for A.: If A had a contract with the accompanist and would have breached it as a result of B then A would have had to pay 500 therefore A could recover the full amount so that he could pay the pianist.e. I.e. All direct damages should be foreseeable (i.: If A incurs costs as a result of B reneging on the contract then those costs that would have been incurred and paid for are deducted from the amount B would have had to pay.000. Baxendale: owners of a mill delivered a broken mill shaft to a carrier for shipment to the manufacturer to use as a model for a new one.000 Total (profit = reliance) = 25.: loss profits).000 Total direct cost — 60. so as to substitute for the performance that should have been rendered by the breacher. b. Had they been told by the mill owners then the carrier would have been held responsible. I. iii.000. 2. iv.
iii. must show a causal connection between the breach and the loss a. Unfair Forfeiture i. If the teacher was not booked then the students’ repudiation is a breach and the teacher may recover. Forfeiture is a loss of some benefit or privilege because of the negligence of a duty. It is reasonable for her to put up signs to get new students. If the cost or expense is incurred in 17 . c. Post-breach Transactions are not Substitutes: • I. Substitute Transaction as Mitigation: • The victim of the breach has the duty to mitigate but it must be a reasonable equivalent. If a breach causes no economic loss because a substitute transaction was found or s lower cost substitute was found.e. it follows that she cannot be sued if the teacher then takes on a new student.e.are those costs and expenses incurred in reliance on the contract (or in promissory estoppel. 1.i. Determined objectively b. • Did the victim use reasonable means to obtain an equivalent (not every conceivable step need to be exercised) • I. There is a valid substitution.e. 1) Reliance damages.e. o She may be able instead to show that she has suffered losses other than her defeated expectation. the plaintiff must show that the breach resulted in financial loss and must provide evidence of a monetary loss a. therefore. Reasonable Certainty i. The plaintiff must show her loss by the preponderance of the evidence (more likely than not caused by the defendant) then she will not be able to recover damages. in reliance on the promise) and wasted once the contract or promise is breached.: Roofer is told to use brown shingles—he uses bright red (material) if he had used dark tan then that would be a partial breach. This is determined by the fact finder 5) Unfair Forfeiture: When rigid enforcement would have an unjustifiably harsh effect on the party against whom those rights are asserted then the court exercises discretion a. If he sold it for less then he could recover the amount he was asking less the amount he sold it for. She must be able to show that she received less than her entitlement under the contract or was other wise precluded from realizing an expected gain. There must be a link between the breach and the loss ii.: if a friend buys the dishwasher from the store in place of the repudiator then he serves as a substitute. If the deviation from the promised performance is material then and it must be rectified at large costs incurred to the breaching party then this is not unfair.: if the voice teacher is booked and the student repudiates. This does not apply when there is a non-material breach (substantial performance) 1. Not usually an issue where direct damages are concerned unless the plaintiff broke the chain of causation by aggravating damages 4) Reasonable Certainty: Remedies are concerned with economic loss. • I. I.: a voice lesson teacher whose student repudiates need not take a job at a fast food restaurant to mitigate her damages. 3) Causation: Damages are intended to compensate for losses resulting from the breach and therefore. ii. Mitigation is a principle where the plaintiff has through bad faith or unreasonable actions or inactions aggravated her damages.e. • I. A loss caused by the plaintiff’s improper actions is not reasonably foreseeable and the plaintiffs conduct breaks the chain of causation between the breach and the loss. the defendant is not held responsible for the increase in loss caused by the plaintiff. 2.: for large volumes such as appliance warehouses where they have many products a repudiation can be recovered on but if one person is selling one dishwasher and the buyer repudiates but someone else buys the dishwasher for the same price he cannot recover because he incurred no loss. Where expectation damages calculated in accordance with the above principles would have the absurd and unfair result of placing a great burden of liability on the defendant far in excess of the real loss suffered by the plaintiff the court has the discretion to confine damages so as to reflect the plaintiffs’ true economic loss. The plaintiff has a duty to mitigate damages (owes this duty to herself to keep her losses down). Causation i. ii. • Reliance and Restitution as Alternatives to Expectation: o Expectation damages are the primary remedy for breach of contract but they can only be recovered to the extent that the plaintiff can prove that the breach deprived her of an economic gain that would have resulted from the performance promised by the defendant.
000. The 1. usually seek full enforcement of the contract to recover the value of her expectation. He can claim reliance damages. The 5. If the cost or expenses is incurred for the purpose of enjoying or using a benefit reasonably expected from the contract. restitution is also available when there is a valid contract and it has been breached because the plaintiff has the option of either suing on the contract for expectation or reliance or of disaffirming (operating under the legal fiction that the contract does not exist) the contract and suing in restitution for the recovery of benefits conferred under the now-defunct contract. The lessee needed to mitigate his damages. o If one cannot prove that he would have made a profit on the contract had it been fully performed he cannot claim a loss of profit. when possible. 1) Essential Reliance—or direct reliance o This is reliance that is directly based on the contract and essential to fulfilling the party’s contractual commitment. If she cannot prove expectation damages or if she has a negative expectation she may sue based on reliance or restitution. (promissory estoppel allows for this recovery) o Lost gains and opportunities fall into this category but are difficult to prove I. He cannot claim expectancy damages because he does not know how much he would have made. • Reliance Damages o The distinction may be difficult to draw and may need interpreted to determine the parties’ contractual obligations. a. These damages aim to refund expenses wasted or equivalent losses by the plaintiff in reliance on the contract thereby restoring her to the status quo ante—the position she would have been in had no contract been entered. His job and commercial space are lost opportunities which are incidental. it is incidental reliance.000 additionally he quit his job and turned down another commercial space offer. o These are only recoverable (incidental) if the lessor could have foreseen that as being a consequence. o Unlike unjust enrichment for when there this no contract. o If suing in Restitution the party is claiming that the breach ended the life of the contract and the defendant is no longer justified in retaining the benefit of any performance that the plaintiff rendered to her under it because that value retained unjustly enriches her. If one can prove profit then there is no purpose to only claim reliance damages 2) Incidental Reliance Damages— o These are losses which are incurred in consequence of having made the contract and for the purpose of using or enjoying the benefits expected under it. o When the defendant commits a material breach the plaintiff will. • Reliance is part of Expectancy Damages.performing duties is required by the contract it is direct or essential reliance. his job and the other space. He is out 6. The lessor breaches. Restitution seeks to return the plaintiff the value of any benefit conferred on the defendant under the breached contract. a.: A is opening a video store and pays a 5. Something of value has been wasted and cannot be salvaged. which are incidental.000 deposit to rent commercial space and printed flyers for 1. • The basis of awarding reliance damage is waste. 2) Restitution. o Damages incurred prior to the contract in anticipation of the contract are not covered.is premised on the theory of disaffirmance it treats the breach as having caused the contract to fall away. o These damages must have been incurred after the contract was entered into. • Equitable Remedies: o For equitable relief the party claiming must show: 1) Innocent and injured 2) Clean hands 18 .000 is direct reliance because he was required to put a deposit down.000 was his own choice to spend for flyers. This focuses on not the plaintiff’s expectation or expenditure but rather on the extent of the defendant’s enrichment at her expense.e. • Restitutionary Damages o The purpose of restitutionary damages is to restore to the plaintiff the value of a benefit unjustly conferred on the defendant. This is a remedy based on affirmation of the contract—enforcement of the contract b.
3) No remedy at law is adequate • Specific Performance: require the parties to perform and put the parties in the position they would be in had a breach not occurred. I.e. mitigation and certainty. The court may hire a mediator when specific performance is required to ensure the level of performance. The defendant likewise has a predicted cost of breaching. they could undercompensate or overcompensate the plaintiff. real property is unique therefore awarding damages rather than requiring the seller to perform as promised is inadequate—equity grants specific performance 2) It could be intrusive and harsh to require one to perform as promised a. One may claim specific performance if the liquidated damages clause dose not state that this is the exclusive remedy (liquidated damages is limiting damages to this but equitable relief could be imposed) Liquidated damages are more efficient to obtain relief if a breach occurs because the plaintiff does not have to establish foreseeability. • Injunction o Specific performance is the order of the court to compel the defendant to perform an affirmative act. Liquidated Damage clauses will not be enforced and will be void as a penalty unless the amount it fixes as damages is: 1) reasonable in light of anticipated harm 2) Or actual harm caused by the breach. The court may condition the defendant’s performance on the plaintiff’s performance. This operates in personal the court commands one to perform and if they fail to they can be sanctioned for contempt of court and jailed. 5) A person who seeks specific performance must be willing to render the return performance to the defendant. B may get an injunction barring her from singing for C so A may then perform for B. • Public Policies most familiar and fundamental policies of contract law: 1) the assent policy inherent in freedom of contract 2) the policy of protecting reliance and ensuring the security of transactions REMEDY: • Avoidance and Restitutiono Void Contract—is not a contract at all and never existed and cannot be enforced 19 . o This could remove the motive for breach. • The Judicial Regulation of Improper Bargaining and of Violations of Law and Public Policy o The court may refuse to enforce any contract or contractual provision that offends some basic public policy. 1) in come cases it is easier to award a sum of money when there is an alternative available a. • Incidental Damages. o A negative order is an injunction which prohibits the defendant from doing some particular act. These damages are not always accurate. Attorney’s Fees o Rescission: voidable contract where the parties are returned to the position they were in prior to the breach • Statute of Frauds o Contracts may be oral or written except for those under the statute of frauds which must be written and signed. This clause has the power of settling in advance what damages will be due in the event of a breach (meaning of this clause is a matter of interpretation). C offers A more money so A repudiates. the breacher will pay damages in a specified sum or in accordance with a prescribed formula. o Caution: injunctions are sometimes sought out of spite and not the desire to have them perform • Remedies in Law: o Liquidated Damages—is a term in a contract under which the parties agree that in the event of a breach by one of them. If the breach caused a monetary loss and the court orders specific performance. 4) Specific performance does not have to be an all or nothing remedy it can be partial combined with monetary damages.: A signed a contract to sing for B at a convention Friday. damages can be awarded for the loss. 3) When one is forced to perform there is a risk that the performance will fall below the performance expected. These damages discourage breach by imposing a penalty by making the breach look unattractive therefore unlikely Sometimes these will not be enforced if they serve only as a penalty but those which serve to determine damages for breach.
scienter—knowledge of falsity and the intention to mislead C. unconsionability and lack of capacity • Misrepresentation: is an assertion not in accord with the facts 1) fraudulent misrepresentation.really did have the intent to enter into the contract (tricked)* induced into doing something even though it is not true 3) Insanity 4) Duress 5) Mistake 6) Intoxication **Contracts with minors are voidable unless they are a necessity—i. Disaffirm. to the other party’s injury or detriment 1. • Excision or Modification of the Offending Termo Avoidance is usually the remedy sought the aggrieved party may have prefered to keep the contract but have its terms adjusted to remove the effects of the other party’s improper bargaining (so long as those terms are not the very basis of the contract). • The following concern the problem of the undermining of a party’s will by the oppressive or dishonest conduct of the other targeted at improper behavior in the bargaining process: trickery. made with the knowledge of its falsity and with intent to induce the other party to enter the contract 1. the general rule is that both parties are entitled to restitution (any benefit received before avoidance by one party from the other must be returned). pressure or unfair persuasion that undermines the victim’s free will.e. o Void—missing elements of the contract 1) Fraud in the factum.is one that is make with knowledge that it is false and with the intention of inducing the other party’s agreement Elements: A.an incorrect statement made innocently—parol evidence does apply to exclude this evidence • Duress 1) one of the parties must make a threat 2) the threat must be improper 3) the threat must induce the apparent assent. in that it leaves the victim no reasonable alternative but to agree 20 .o Voidable Contract—is a valid contract that remains fully effective unless the aggrieved party elects to exercise the right to terminate it (avoidance is a term for this situation) o When a contract is avoided. misrepresentation which was relied on by the party Fraud in the factum—this makes a contract void Fraud in the inducement—voidable contract Fraud gives the victim the option to affirm or disaffirm: Affirm. a false representation of fact (not opinion) 1.parol evidence rule does apply to exclude this evidence 3) innocent misrepresentation. if the party has no intention of performing their A promise or no belief in their assertion then this is a false representation B.not a deliberate lie but is a carelessly made assertion--.: food.(usually for a tort) o The above remedies are the usual means to handle improper bargaining but the victim sometimes has the option to leave the contract fully in force and to claim damages to compensate for the economic consequences of the wrongful bargaining.option to keep the contract and sue the perpetrator for damages to compensate for the difference between the actual value of the performance and its value as represented. misrepresentation.option to avoid the contract by rescinding it and claiming restitution 2) negligent misrepresentation. o The Availability of damages. which does in fact deceive the other party D.when there is fraud in the facts of the contract o Voidable (Avoidable) — there is a contract but it is not enforceable for one of the reasons below 1) Minor/Infant (capacity) 2) Fraud in the inducement. shelter Remedy for Voidable Contracts for equitable relief 1) Rescission DEFENSES—illegality. duress.
e. the mistaken party is not at fault if it were caused by the negligence of the other • Remedies for mistake: 1) Avoidance (rescission) a. most courts will discharge his from performance (doctrine of frustration of purpose) • Factors: 21 . • Impracticability/Impossibility of Performance: o Concerns whether a post-formation change of circumstances has such a serious effect on the reasonable expectations of the parties that it should be allowed to excuse performance. o When the court refuses to enforce because it would offend its conscience. the bargaining was unfair 2. Reliance damages where restitution/avoidance would not work because one party has suffered loses but the other has not received benefits. the other party had reason to know of the mistake or other party’s fault caused the mistake C. relieving him of the duty of performance and liability for damages. Difficult for avoidance to occur and they must show the requirements under mutual mistake and the additional requirements: A. 2) Risk—which party should be made to bear the consequences of this defeat of the original expectation? How should the risk be allocated? • • Mistake: a belief that is not in accord with the facts Mutual Mistake—both parties have the mistaken belief (calls for avoidance of the contract) a. The risk must be able to be allocated—through interpretation • Unilateral Mistake—only one of the parties has the mistaken belief (one party knows of the true facts and the other does not. • Frustration of Purpose: where a party’s purpose in entering into the contract is destroyed by supervening events. both parties must conclude that they would not have made the contract at all had they known the truth d.makes a contract voidable • Undue Influence 1) when one party has a strong influence over another 2) and abuses this position of dominance to persuade the subservient party to enter a disadvantageous contract makes a contract voidable • Unconscionability o Originated in the court of equity – some courts are reluctant to adopt this. The mistake must be a material effect on the agreed exchange of performance c. the mistake must concern a basic assumption on which the contract was made—and both parties must share in this erroneous belief concerning fact b. o Types: 1) Destruction of subject matter—only where the matter is essential to the performance of the contract (i. which resulted in unfair or oppressive terms o most appropriate remedy is to not enforce the contract at all DEFENSES--Mistake. This is the most common remedy. 3) Non-essential mode of performance—post office goes on strike therefore goods cannot be delivered 4) Death or illness—this could be a temporary impossibility if once one is better they may need to tender performance BUT usually this discharges them from performance. This treats the contract as if it has never been made which returns the parties to the position he was in before the contract was made. 2) Reliance a. unconscionability—the mistake is such that enforcement of the contract would be unconscionable B. o To obtain relief one must show: 1.: property) 2) Impossibility of intangible but essential mode of performance • When impracticability fully defeats the feasibility of performance by a party it is a complete defense to that party’s failure to perform. Impracticability & Frustration: These doctrines are concerned with: 1) Materiality—how fundamental is the discrepancy between the expected and the actual exchange? What is the effect of mistake or altered circumstances on the bargain that was anticipated by the parties? Relief is only available when the impact is so material that it changes the very basis of their bargain.
Example: A was offered a job by B and given until Friday to accept it. • Mental Incapacity: based on subjective attributes o TEST FOR MENTAL CAPACITY TO CONTRACT: Even if she knew what she was doing at the point of contract she could not resist due to the mental capacity—if she had the mental capacity at the time of contract but became mentally ill at a later time the contract is still valid o A contract may be voidable based upon mental capacity if 1. • Recission: undo the contract and put the actors back in the position they were prior to the contract • Restitution: action to get back what was yours (expanded to the concept of Quasi-contract which was traditionally the equitable remedy to prevent unjust enrichment) • Scavenger. does not have to pay for use. that she did act or refrain from acting in justifiable reliance. If the offeree changes her mind she is able to countermand the rejection by communicating acceptance before the end of the period. o Promissory Estoppel—is a basis for providing relief to a promisee under circumstances when a promise made does not qualify as contractual because it lacks consideration but the equities of the situation demand that the promise be enforced wholly or in part. if destroyed or lost. then still a minor) • Minors can incur legal liability: 1) for good or services that are deemed necessity (for the minors livelihood—food. Inc v. He is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition This makes a contract voidable not void—the parties must be restored to the status quo ante. o Scavenger—developer (seller) o GT Interactive—distributor (buyer) • Divisible Contract—when the contract is divided up into partial contracts • Divisible contracts are not the norm—if claimed then that person has the burden to show that it was a divisible contract • Prospective failure of Conditions and Breach by Repudiation: o Doctrine of Estoppel—is designed to prevent a person from asserting a right and taking a position that contradicts or is inconsistent with his earlier words or action on which another justifiably relied. GT Interactive Software. The doctrine of estoppel only applies when the offeror reasonably intended the offeree to rely on the statement or conduct and the offeree did in fact justifiably rely on it. A quits his job and moves to a new city to take the job. even if by a day. He then calls B to accept the job and B says “sorry” it has been filled. and that she suffered some detriment as a result. promisee must establish that the promise was deliberately made with the reasonable expectation of inducing her to rely on it. incurring some loss or detriment. There was no consideration to hold the offer open but it was stated that it would be held open and A would have suffered a detriment. Inc. A person entered the contract and chose as he did as a result of the mental illness or defect 2. Money and property must be returned—unless the other party knew of the mental capacity then she is excused from paying to the extent that benefits received did not ultimately enrich her. shelter) 2) marriage terminates minority 3) deliberately misrepresented that she was a major • Minors are shielded by liability beyond the duty to return her present economic advantage. 22 . Options • The offeror can not lawfully revoke the option prior to its expiration. • Minority: based on objective attributes • Cannot be bound by contract and could make the contract voidable by disaffirming it. • Determined by age (if under 18.1) Foreseeability—the less foreseeable the event the more likely the party’s obligation will be discharged 2) Totality—the more totally frustrated the party is the more likely he will be discharged. It only seems fair based upon this reliance to enforce this as a contract. • Lancellotti v. Thomas o Buyer breached their contract but now wants to get their money back o The common law rule does not allow for a party who has breached to recover. Incapacity • Protection from exploitation is the central rationale for permitting avoidance by a minor or mentally incompetent person.
The rights or obligations by one of the parties are transferred some time after the contact was executed. Third Party Beneficiaries: Intended: A person who is not a party to a contract. • There must be some relationship between the promisee and the beneficiary from which it can be inferred that the parties had the beneficiary’s interests in mind when entering the contract—this reinforces intent. • The promisee still has the right to enforce that the promise be rendered to the beneficiary. Delegation and Third-Party Beneficiaries: • A person who is not a party to a contract cannot be bound by it and acquires no rights under it except: 3. • The name of the third party should be in the contract if not the court is likely to interpret that person as being incidental. they have the power to enforce. Fox defended by saying that Lawrence had no standing because there was no privity between them. but upon whom the parties intend to confer the benefit of performance together with an independent right to enforce that performance. the doctrine of estoppel may protect the offeror who relied on the rejection and therefore relying on that detriment contracted with someone else. • Creditor Beneficiary 3rd party who gets the benefit for repayment of a debt • Donee Beneficiary there is no obligation for one to give the donee $/ they give no consideration—money is given for any motive • The parties who contracted to give a third party rights may modify the contract and take them away or change them ONLY if they have the consent of the third party • If the parties change the contract only the promisee and promisor are bound by it unless they are given the consent of the third-party. 23 . so Holly and Fox agreed that Fox would repay the loan amount to Lawrence. if not the third party may enforce their rights under the original contract. • When does the benefit begin? o She manifests assent (similar to acceptance) or she materially changes her position acting in justifiable reliance on it. (This is unlike a bilateral contract where each is the promisor of their own performance and a promisee with regard to the performance promised by the other. Incidental Beneficiaries: The benefit they anticipate was purely chance and incidental result of a transaction between others. When he failed to pay Lawrence sued Fox. CONTRACTUAL OPTIONS: • When speaking of a contractually option there are two offers and acceptance 1) this type of contract has an underlying contract which is not binding until is has been accepted 2) and the agreement to hold open to the optionee the opportunity to accept Assignment. Holly was indebted to Lawrence for the same amount. A third party may have rights when the parties to the contract either expressly or impliedly agree at the time of making it that the performance of one of them will be rendered to or for the benefit of a person who is not a party to the contract and that the non-party will have the right to enforce that commitment 4. They have no rights to sue on the contract. o I. The assignment of contractual rights and the delegation of contractual duties does not involve any conferral of rights on a non-party at the time of contracting. The court stated that even where no agency or trust is established. • Promisee is the contracting party whose right to performance has been conferred on the beneficiary. • The promisee might also have a claim for damages based on her contractual expectation. • The promisor and promisee must know that the benefit is imposed on the third party beneficiary. • Intent is judged from the objective standard in the position of the beneficiary. this right is discharged when the promisor renders performance to the beneficiary • When damages are not adequate as a remedy then the promisee has a right to ask for specific performance. the parties to a contract do have the power to create rights enforceable by a person who is not a party to the contract.: A new convention center may benefit the business of surrounding hotels and restaurants but it was not built with that purpose. • Right of Performance the right to enforce the performance is the beneficiary’s when it is the manifestation of intent of the contracting parties. and that person can sue the promisor to enforce the performance undertaken to the promisee for his benefit. Fox • Holly lent money to Fox. Contracts are not made for the purpose of incidental beneficiaries. Promisor and Promisee: • Promisor is the party who renders the performance to the beneficiary. Lawrence v.e.• HOWEVER.
Assignment and Delegation: • Assignment: transfer of rights • Delegation: transfer of duties • One may assign and delegate—transfer her rights to a third person and appoint the latter to perform her duties. the assignee must indicate a willingness to accept the assignment 2) The right must be in existence at the time of assignment and its transfer must take effect immediately • Rights which are not assignable: 1) Most personal services 2) Insurance policies—where the risk will vary from person to person 3) Impairment of obligor’s chance to obtain return performance 24 . or unenforceability for failure to comply with the statute of frauds) or based on the promisee’s breach of contract. • The beneficiary by accepting the benefits does not have imposed upon his any liability from the promisee (such as improper behavior) • Any purely personal defenses must be raised by the promisor to the promisee directly ($ owed in other transactions). • A donees relationship is not supported by consideration therefore the beneficiary has not enforceable claim against the promisee in the even that the is unable to recover form the promisor. The Beneficiary’s Rights against the promisee in the event of the promisor’s Non-Performance • If the beneficiary is not satisfied with his claim against the promisor (the promisor not having any $ or assets or she is able to raise a defense against the beneficiary) then the beneficiary may proceed against the promisee if he is a creditor NOT a donee. citizens are merely incidental beneficiaries of government contracts unless a private right of enforcement is clearly conferred by the contract or statute. • Assignor: assigns a contractual right to the assignee • Obligee is an assignor to the assignee • Obligor is a delegator to the delegate • Unless a contract specifically prohibits a party from transferring her rights acquired and duties assumed under it or party’s reasonable expectations or would offend public policy a party has the power to transfer contractual rights and obligations. duress or some other bargaining defect. • Was there an intent to create an independent right of enforcement in the non-party—the contract must be interpreted to determine if the contract manifests the intent to confer a direct cause of action of the beneficiary. • A creditor relationship may proceed against the promisee to enforce the promisee’s debt. • We must determine what the legislation had in mind when creating the contract and what is the underlying public policy. Citizens’ Claims as Intended Beneficiaries of Government Contracts: • Government contracts have the intention of conferring a benefit on the citizenry at large. • Generally. • The promisee becomes a surety for the beneficiary to get payment. • The promisee then may attempt to recover against the promisor. Promisor’s Defenses against the Beneficiary • The promisor may raise any defenses which are available to the beneficiary arising out of a defect in the formation of the contract (such as invalidity due to lack of consideration. or arising out of post-formation occurrences that affect the very basis of the contract such as supervening impracticability and the non-occurrence of a condition. If the failure to perform results in a foreseeable and unavoidable increase in the promisee’s liability to the beneficiary or other consequential loss. • Novation traditionally if the beneficiary proceeded against the promisor unsuccessfully then he cannot then sue the promisee • The modern trend is to allow the beneficiary to enforce the benefit against the promisor even if he unsuccessfully enforced against the promisee first. • Assignment and Delegation is only possible after a contract has been formed o An assignment is a voluntary manifestation of intention by the holder of an existing right to make an immediate transfer of that right to another person 1) the assignor must voluntarily manifest intent to assign the right and a. consequential damages may also be claimed.• This will consist of her direct damages measured by the loss in value of the promised performance. voidability on the grounds of fraud.
Restitution: Unjust Enrichment and Moral Obligation • When no contract exists but a promise must be enforced • Restitution—a remedy which is an act of restoring something or its value • Unjust enrichment—a cause of action where a benefit has been conferred on a recipient under circumstances in which it is unfair to permit him to retain it without payment. the cause of action of unjust enrichment is available to the person who conferred the benefit. There was no consideration because this was a gift therefore no consideration. a. The charity does improvements on the house.000 as a deposit to purchase his home. Seller reneges on the sale. Owner decides not to sell. • Quasi-Contractor contract implied in law is a fictitious contract created for remedial purposes. This is similar to promissory estoppel and sometimes the claimant has a choice of remedies. 2) There is no actual agreement (NO contract) benefit conferred results in unjust enrichment and contract is implied in law for the purposes of giving a remedy (Quasi Contract) • Also: plays a role when there is a valid contract and a BREACH occurred.000. In the above example if the buyer and seller enter into an oral contract for the sale and the seller reneges the buyer is out 5. This is the amount the buyer was going to buy sellers house less the amount he finds another house for.000 back. The owner’s home has been improved. And the buyer may sue in restitution to restore what he lost. • Unjust Enrichment (cause of action)—is the basis for Restitution o This is an independent theory of liability in cases when no contract exists o Also important when a valid contract does exist but has been breached 25 . a. emergency or acceptance Restitution (a remedy) Is an act of restoring something or its value • A judicial remedy under which the court grants judgment for the restoration of property (specific restitution) or its value (monetary restitution) to a party from whom the property was unjustly taken or has been unjustly retained. There was no enforceable contract because contracts for property must be in writing. 2) When there was no imposition: request. Buyer gives seller 5. The conferrer may claim the remedy of restitution under which the court will restore the benefit or its value to her. The charity can claim unjust enrichment and get back the value of the improvements through restitution. Restitution focuses on restoration of the value of the benefit conferred while promissory estoppel is more concerned with the costs incurred by the claimant. 3) Restitution when a benefit is conferred on the strength of a promise without consideration a. • Restitution focuses on cases in which one party has obtained a benefit at the expense of another under circumstances that make it unfair for the recipient to retain the benefit without paying for it. Owner writes a promise to donate the home to charity. (when expectancy damages cannot be proved) • Restitution (remedy) 1) Restitution as an alternative remedy when a valid contract has been breached a. If seller’s house is overpriced and is more than the other house then the buyer gets nothing and the seller has been unjustly enriched by 5. 4) Restitution in cases when no contractual interaction occurred. Seller must pay the difference. b.000. Unjust Enrichment: Elements of Enrichment: 1) Economic benefit received (money or property) even if it does not enlarge the recipient’s net worth • Unjust: 1) When there was an intent to charge and one got an economic benefit without charge when there was not a gratuitous intent (from the position of a reasonable person in the place of the guarantor). 2) Restitution when a benefit is conferred pursuant to an invalid or unenforceable contract a. The doctor can only recover based on unjust enrichment because he received a benefit one would pay for in the marketplace. A doctor encounters a victim who is unconscious and cannot consent and he administers treatment. Payment under a quasi contract were never agreed on because there was no contract therefore it is fair market value. There is no contract. 1) When the recipient has been unjustly enriched at the expense of the grantor and there is no legal justification for the retention of the benefit without pay. Usually one claims expectancy damages which would place the person in the position they would have been in had the contract been performed. The buyer can claim unjust enrichment and sue in restitution to get the 5.
Using this cause of action the conferrer can claim the remedy of restitution under which the court will restore the benefit or its value to her. Enrichment occurs whenever something of value is received. Subjective gains may be charged for but that person perceives that gain as being worthless to him in his situation ii. common law courts used fictions—implied in law contract--. • In order to fit this cause of action into legal forms. Restitution when a benefit is conferred on the strength of a promise without consideration d. Elements of Unjust Enrichment: 1) the recipient must have been enriched at the expense of another 2) and the circumstances must be such as to make this enrichment unjust • Enrichment: is an economic benefit (money.which is where no contractual relationship actually exists between the conferrer and the beneficiary.a. I. cannot seek payment from someone who did not ask for that benefit b. the cause of action of unjust enrichment is available to the person who conferred the benefit. even if it does not directly enlarge the recipient’s net worth. Restitution when a benefit is conferred pursuant to an invalid or unenforceable contract i. Market value is preferred because it is considered the fairest and most balanced basis of compensating the conferrer at a rate that could reasonably be expected by the beneficiary.a gift or gratuity is not meant to be paid for 2) and it was not imposed on the recipient a. Objectively valuation is based on the worth of the benefit in market terms of the ultimate gain measured by the market standards. in the case of an emergency one may act without a request to do something. property. Restitution in cases when no contractual interaction occurred Quasi-contract (contract implied in law)—this is not a real contract but rather it is a legal fiction created for remedial purposes. Restitution as an alternative remedy when a valid contract has been breached b. Objective test is used to measure whether one intended to charge for something--.one who does something of benefit to another without their request and then seeks payment c. Moral Obligation or Material Benefit Rule. This may be determined subjectively or objectively based upon the circumstances i. • When a benefit has been conferred on a recipient under circumstances in which it is unfair to permit him to retain it without payment.a promise based on a prior benefit • Promissory estoppel relief is precluded because: the action was not induced by a promise • Elements of the Material Benefit Rule: 1) the promisor has been unjustly enriched by a benefit previously received from the promisee 2) The benefit was not given as a gift 3) The promisor subsequently makes a promise in recognition of the benefit • If these requirements are met then they are binding to the extent necessary to prevent injustice. • To qualify one must neither be a volunteer (one who confers the benefit without intent to charge for it) or an officious intermeddler • Contract implied in fact—is an actual contract in which agreement is inferred from conduct rather than express words.: the sale of property must be in writing so in the event that it is oral the court will still provide this remedy c. goods). officious intermeddlers--. These values are determined through expert testimony 2) The net fiscal gain—used when the recovery of market value is excessive or inadequate a. • Something is unjust when: 1) one had intended to charge for the item a. The value of services is expressed through Quantum Meruit—as much as deserved is used to express market value b.e. The value of goods is determined through quantum valebant—as much as they are worth i. • Methods for measuring Enrichment 1) Market value—the going wage for a service or property (the standard) a. 26 . it assent is impracticable and the person believes another would have wanted the action Damages under Restitution: • When a contract does not exist restitutionary damages are determined through what the recipient gained.
there is said to have been an “accord of satisfaction”/ 1. not the old promise) 2. that presumption will be that there is an executory accord. a. • Copeland Process v Nalews o RULE: Parol evidence regarding the circumstances of an agreement to rescind a contract may be introduced in order to determine the parties’ intent. Creditor may sue her for either $1. the other party may sue for breach of the original agreement. instead. or breach of the accord. he will generally be allowed to cancel the contract. Creditor promises Debtor that if Debtor will pay $1.100 in 60 days. and allowed parol evidence.• The making of the promise is an indication that the promisor considered their benefit to be of worth. o (Example: On the facts of the above example. 2. 27 . Distinguishing: In determining whether a given agreement is a substitute agreement or executory accord. Once the terms of the accord are performed. 1. Nature of substituted agreement: A “substituted agreement” is similar but not identical to an executory accord. the parties may agree to cancel the whole. if the new agreement were be found to be a substituted agreement rather than an executory accord. Creditor would only be able to sue on the new promise. law has been overruled and the patent ambiguity of this contract was not discussed.100 payment. o (Example: On the facts of the above example. an accord does not discharge the previous contractual duty as soon as the accord is made. The new agreement is an executory accord) o Goldbard v Empire State Mutual Life RULE: Whether or not a subsequent agreement supersedes an existing contract must be determined by reference to the objectively manifested intentions of the parties. Fully performed on one side: If the contract has been fully performed on one side.it was a detriment to the falling man and a benefit to the man below him—had he done nothing the other man would have suffered--. no discharge occurs until the terms of the accord are performed. o (Example: Debtor owes Creditor $1. o Under traditional law. and replaced with a new agreement. if Debtor fails to make the $1. Executory accord generally: An executory accord is an agreement by the parties to a contract under which one promises to render a substitute performance in the future. Under a substituted agreement. B. Debtor promises to make the $1. and Debtor then failed to make the payment in 60 days. mistake. at her option. Substituted Agreement A. Creditor will accept this payment in discharge. Rescission A. Accord and Satisfaction A. Level of formality: Another important factor in distinguishing substituted agreements from executory accords is the level of formality: the more deliberate and formalized the agreement.100 payment in 60 days. terminating his obligations under it. or $1. • The promise must have been made voluntarily.moral obligation to enforce the promise through past consideration) Discharge of Contracts I. B. Consequences: Executory accords are enforceable. a mutual rescission will not be effective.000 due in 30 days. (does not apply to patent ambiguity) However. However.000 plus damages for failure to get the money in 30 days. Some courts call this a “unilateral rescission. This is a “mutual rescission”. Mutual rescission: as long as a contract is executory on both sides (i. Unilateral rescission: Where one of the parties to a contract has been the victim of fraud.e. once evidence is entered to prove latent ambiguity. because there is no mutual consideration. Failure to perform accord: If a party fails to perform under the terms of the executory accord.” But it is better to say that the innocent party may “cancel” or “terminate”. II. an important factor is whether the claim is a disputed one as to liability or amount—if the debtor in good faith disputes either the existence of the debt or its amount and obligation are undisputed. This is true even if the original contract fell within the Statute of Frauds. neither party had fully performed)..100 plus damages for failure to get the money in 60 days. No writing: in most states. duress.) III. the previous contract is immediately discharged. extrinsic evidence may be introduced to interpret contract. and the other promises to accept that substitute in discharge of the existing duty. Public Policy—is sometimes enough to enforce a promise • Moral obligations enforceable by law (man who saved the man below him by falling with the cement block and becoming severely disfigured--. a mutual rescission does not have to be in writing. or breach by the other party.
(Some states also require the substituted agreement to be in writing if the original is in writing. Generally: Where a party who has sold goods or services to another sends a bill. Consent: The oblige must consent to the novation. But the obligor. the substituted agreement must be in writing. or by a statutory substitute (e. B. Releases A. a release must either be supported by consideration. a document executed by him discharging the other party B. and the buyer holds the bill for an unreasonably long time without objecting to its contents. and only Painter.. need not consent. a signed writing) • Bargains that are Illegal or Against Public Policy o Hewitt v Hewitt: Unmarried couple living together and had 3 kids. the result is a novation: Painter steps into the shoes of Contractor. (Example: On the facts of the above example.) V. VI. Definition: A novation occurs where the obligee under an original contract (the person to whom the duty is owned) agrees to relieve to obligor of all liability after the duty is delegated to some 3rd party. 28 . Generally: Where a contract is executory only on one side. RULE: A contract to use one’s access to present another’s case to high officials is not unenforceable as a contrary to policy.g. the party who has fully performed may give up his rights by virtue of a release.the more likely it is to be a substituted agreement.) B. Writing: If the substituted agreement would have to satisfy the Statute of Frauds were it an original contract. Contractor does not have enough time to get the job done. owes a duty to Owner. (Example: Contractor agrees to paint Owner’s house for $10. For instance. Formal requirements: In most states. so with Owner’s consent he recruits Painter to do the job instead. but the burden of proving that the invoice is wrong shifts to the buyer. the seller will be able to use the bill as the basis for a suit on an “account stated”.000. the delegatee. Account Stated A. Owner must consent to the novation. not Contractor. RULE: Contracts granting marital rights to unmarried couples are unenforceable as being against public policy. If Owner agrees to release Contractor from liability. because of its informality. but Contractor need not consent. Novation A. at least to the delegation/release aspect of it. A novation thus substitutes for the original obligor a stranger to the original contract. even where neither falls within the Statute of Frauds) IV. The invoice is not a dispositive proof that the amount is owing. “wife” wants half of assets even though not married. who is being discharged. o Troutman v Southern Railway Co. not a substituted agreement. an oral agreement is very likely to be an accord.
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