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Contracts Outline Goals of Contract Damages • To create an incentive for people to keep their promises because our economy

runs on exchanges of promises.

Remedies for a Breach of Contract • • • Specific performance Monetary Damages (see below) Quasi-Contract/Quantum Merit (payment for work performed) Restitution of benefit conferred on breaching party

There are three damages recoverable for a breach of contract:

• • •

Restitution: interest of a party in recovering values conferred on the other party through efforts to perform a contract Reliance: place promisee in as good a position as he was in before the promise was made Expectation: place the promisee in the same position he would have been in had the promisor performed - P phrase. This is the general rule for contracts.

Expectation Damages: • Section 347 of the Restatement (Second) provides that the measure of damages is: (a) the loss in the value to him of the other party's performance caused by its failure or deficiency, PLUS (b) any other loss, including incidental or consequential loss, caused by the breach, LESS (c) any cost or other loss that he has avoided by not having to perform. UCC 2-708 (2) The amount in clause (a) of § 347 is the value of the performance which was not given. Farnsworth has the following to say about incidental and consequential damages (terms used in clause (b) of § 347): o Incidental damages include additional costs incurred after the breach in a reasonable attempt to avoid loss, even if the attempt is unsuccessful. If, for example, the injured party who has not received the promised performance pays a fee to a broker in a reasonable but unsuccessful attempt to obtain a substitute, that expense is recoverable. o Consequential damages include such items as injury to person or property caused by the breach. If, for example, services furnished to the injured party are defective and cause damage to his property, that loss is recoverable. The terms used to characterize the loss are not, however, critical, for the general principle is that loss, however characterized, is recoverable.

• • •

Hawkins v McGee (1929): measure damages as the difference between the value of what P would have received if the contract had been carried out and the value P actually got after breach.


There are no punitive damages in contract cases The purpose of damage awards is to restore the plaintiff to the position he would have occupied had the contract been fulfilled.

Groves v. John Wunder: cost of completion awarded - bad faith breach.

a. b.

Cost of completion: based on the expense incurred by the party not in breach to finish the project or remedy the defect Diminution-in-value method (market diff.): based on a reduction in market value that is caused by the breach The subjective value of the land is important in determining which to use (high subjective, use cost of performance; low subjective, market diff) Peevyhouse v. Garland: decided on market differential, but subjective value is likely high as the Ps lived on their farm land - awarded difference in market value between the property as left and the property as it should have been left according to the contract. Groves: decided on cost of repair, but this is industrial land with no subjective value Theme: whether the courts should define expectations “objectively” (generally, by reference to markets) or “subjectively” (by reference to the plaintiff’s perhaps idiosyncratic and unique preferences and needs). Restatement (§346): either measure sufficient (if cost of repair does not result in economic waste) Coase Theorem: if transactions are costless the initial assignment of property rights will not effect the ultimate use of the property? If the owner breaches after the builder completed performance, builder should recover the contract price.

d. e.

g. h.

Acme Mills & Elevator v. Johnson: expectancy based on harm to P, not gain to D, damages not allowed when contract price (1.03) exceed market price on day of delivery (.97).


Market value at time and place of delivery - the contract price = standard measure of damages for breach of contract in sale of goods


b. c.

Laurin v. DeCarolis: case about market imperfections - looking at the market differential in property value doesn’t work because the market doesn’t properly measure damages in this case…so they were awarded restitution b/c D’s breach was willful and deliberate. As a general matter, don’t look at the state of mind of breacher – a willful breach is irrelevant U.C.C. § 2-713 BUYER’S DAMAGES FOR NON-DELIVERY OR REPUDIATION The measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages… but LESS expenses saved in consequence of the seller’s breach.

Missouri Furnace Co. v. Cochran: when a contract with serial delivery dates is broken, the measure of damages is based on the difference in market prices for each of the scheduled delivery dates - not allowed to mitigate until breach (overruled by UCC buyers remedies 2-711, 712, 713)

a. b. c. d. e. f.

When enter an installment contract, even if anticipatory breach, you can’t enter new forward contract (or you can at your own risk. Forward contract: an agreement to buy or sell a particular non-standardized asset (usually currencies) at a fixed price on a future date.) Remedy in this case is market value on each delivery date less contract price. This result of this case is wrong (and it is later changed by UCC) – you should be able to ensure certainty of delivery through cover contract at time of anticipatory breach. Anticipatory Repudiation: Repudiation of a contractual duty before the time for performance, giving the injured party an immediate right to damages for total breach, as well as discharging the injured party’s remaining duties of performance. MAJORITY VIEW TODAY – the injured party has a duty to mitigate damages as much as reasonably possible when a contract for sale is repudiated MINORITY VIEW TODAY – injured party must be compensated regardless of cost to the repudiating party §2-711 Buyer’s Remedies in General. Buyer’s Security Interest in Rejected Goods  1. Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to them hole if the breach goes to the whole contract (§2-612), the buyer may cancel and whether or not he has done so may addition to recovering so much of the price as has been paid  a) “cover” and have damages under the next § as to all goods affected whether or not they have been identified to the contract; or  b) recover damages for non-delivery as provided by §2-713  Where the seller fails to deliver or repudiates, the buyer may also  a) if the goods have been identified recover them as provided in §2-502  b) in a proper case obtain specific performance or replevy the goods as provided in §2-716 §2-712: “Cover”; Buyer’s Procurement of Substitute Goods

 

1. After a breach within the preceding section the buyer may cover by making in good faith and without unreasonable delay any reasonable purchaser or contract to purchase goods in substitution for those due from the seller.

2. The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (§2-715) but LESS expenses saved in the consequence of the seller’s breach.  3. Failure of the buyer to effect cover within this section does not bar him from any other remedy §2-713 Buyer’s Damages for Non-Delivery or Repudiations

1. Subject to the provisions of this Article with respect to proof of Market price (§2-723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in [§2-715] but LESS expenses saved in consequence of the seller’s breach. 2. Market price to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival.

Neri v. Retail Marine Corp: P repudiates on a contract to buy a boat from D. D ends up selling that boat to another customer. P sues for return of deposit. D is a large volume seller and claims that P’s repudiation cost him the sale of a second boat. Where dealer has unlimited supply, even if he resells item, breach means 1 sale instead of 2, therefore Neri is entitled to lost profit on 2nd sale, plus incidental damages of buyer breaching. a. According to U.C.C. § 2-708 (2), even though the seller is usually entitled to only the difference between market price and contract price if the seller can’t recover the contract price on his/her own, if this would not place the seller in as good a position as he would have been in had the buyer not breached, the seller is entitled to recover lost profits and incidental damages. • Market-based damages alone (as in 2-708(1)) are “with mathematical certainty” never adequate in cases like these when the retail seller could have made multiple sales

In cases of MULTIPLE SALE POSSIBILITIES the seller must establish 2

Section 349 – Reliance Interest Damages • Reliance interest includes expenditures made in preparation for performance (before contract) or in performance. together with any incidental damages…. You use the price from the market where the injured party typically buys. • • • Illinois Central R. Can’t force him to fight someone else. less expenses to go get the hay on the market. After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (§2-610). d. If the measure of damages in 1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer. a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section. You were shut out from expectancy because you can’t prove it. doesn’t necessarily mean expectancy interest i. §§2-708. the price a) of goods accepted or of conforming goods lost or damaged within commercially reasonable time after risk of their loss has passed to the buyer • b) of goods identified in the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. Couldn’t prove would have sold goods at show. use reliance a. When the buyer fails to pay the price as it becomes due the seller may recover. §2-709 Action for the Price (when the seller is unable to resell under §2-708)  1. Subject to subsection 2 and to the provisions of this Article with respect to proof of market price (§2-723). due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. §2-710 Seller’s Incidental Damages – Incidental damages to an aggrieved seller include any commercially reasonable charges. Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. Dempsey: if difficult to prove lost profits with sufficient certainty under expectation. less any loss that the party in breach can prove the injured party would have suffered had the contract been performed. in connection with the return or resale for he goods or otherwise resulting from the breach. Preliminary injunction – freezes status quo until permanent injunction (trial) . together with any incidental damages under the next section.  3. 2nd Restatement . AWARD IS THE DIFFERENCE BETWEEN THE WHOLESALE PRICE AND THE CONTRACT PRICE. Watt: WHEN AN AGGRIEVED MERCHANT BUYER DOES NOT SUFFER LOSS OF SALES. • Chicago Coliseum Club v. the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the tine and place for tender and the unpaid contract price together with any incidental damages provided in this Article (§2-710).10 §2-708 Seller’s Damages for Non-Acceptance or Repudiation  1.  2. Effort to collect pre-K expenditures in reliance that were successful: • Security Stove. There are typically two markets: retail and wholesale. such as indeterminate/speculative lost profits or an unenforceable contract. Just because lost profits. v. Crail: To calculate the market price of a fungible good.pre contract expenses recoverable . expenses or commissions incurred in stopping delivery. Court awarded market value of lost hay. Surrogate for lost profits. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold. 3 . care and custody of goods after the buyer’s breach. Reliance could have lost profits – the opportunity to enter into other contracts b. Gets actual damages-not higher price of coal b/c he paid the lower price. because Dempsey was one of a kind.• • That it could have sold more of the breached unit That it would have been profitable for the seller to have produced and sold the breached unit as well as other units (there is a point where producing extra becomes unprofitable) SELLER’S REMEDIES IN U. . so expectations uncertain. Reliance Damages: generally appropriate in certain situations when expectation damages are not suitable. you must use the market price from the market where the injured party typically buys.09. in the transportation..C. e. Get reliance.R.  2. would be like forcing him to work with someone else. c. Had told shipping company of special needs so reliance damages ok. but LESS expenses saved in consequence of the buyer’s breach.C. Pre-contract expenses are not recoverable under a reliance measure of damages (later changed by restatement) b.critical package not delivered on full faith in credit in courts of equity. So why go for reliance? i. NOT THE TEST OF THE MARKET VALUE.

o Holding: D knew that a lot of money had already been spent which would be wasted if he breached. General Rule: remedy of employer breach is contract price less the amount employee earned (or could have earned) as proved by the employer  Caveat: other employment must not be inferior b. • Can’t receive contract price unless the whole project was done. • • Fixed cost NOT subtracted to get to profits Variable costs ARE subtracted to get to profits Leingang v Weed Board. and although incur inefficient expenses as a result of having your promise. Rockingham County v. ii. issue of fixed costs v. Reed (1971) Pre-K expenditures ok. 4 . Buyer wants to recover $3000 in reliance damages = cost of preparing foundations for machines. 2 of them not delivered until after war over. I think you do have to take if another employer. • Parker v. an expectation damages scheme is unambiguously better than a reliance damages scheme. • • Employment contracts and Duty to Mitigate: Where an employer breaches. Income of new business doesn’t mitigate damages if the business is infinitely expandable. Hard to measure Creates weird incentives – going to rely like crazy if only get reliance damages Encourages more breaching. Expectation damages force you to internalize the costs of breaking your promise. In a service contract. don’t have to take the same job for less money (if offered by the same employer). the employee is under a duty to use reasonable care in finding a position of same kind.• Anglia Television v. If D hadn’t entered into K then P could have hired someone else. Why don’t we always use reliance? Because of the overreliance problem. Can P recover reliance damages even if his venture was not profitable? o Holding: Where venture would’ve been unprofitable. The court held that this is like a construction contract. Otherwise risk of promisee’s venture is imposed on promisor. the breaching party is liable for all the losses resulting from the breach which the parties should have reasonable foreseen at the time of contract as likely to flow from the breach. • a. Armstrong Rubber. Luten Bridge: D must mitigate damages after they are informed of breach of contract. • Special Circumstances: damages unique to the plaintiff are only recoverable if the breacher was specifically aware of the special circumstances. I do not incur as many as I do in a reliance-based regime. D agreed to star in play. Allocation of Overhead: The cost of overhead (fixed) may not be deducted from the contract price as part of P’s cost of completion. (1949): P to buy 4 machines from D for reconditioning old rubber during WWII. iii. Posell: to mitigate. It’s an infinitely expandable business. P couldn’t find replacement. Limitations on the Compensation Principle or Damages: Duty to Mitigate: Non-breaching party is not permitted to recover damages that he could have avoided by reasonable efforts (once informed of breach. Reliance damages supposed to put P back in position it was in when K was entered. injured party can recover expenses but promisor can reduce amount by showing and subtracting amount promisee would’ve lost had the K been performed. P seeks reliance damages equal to expenses incurred prior to and subsequent to making of K. variable costs. This is bad. Billetter v. Twentieth Century-Fox Film Corp: employees must mitigate by looking for replacement work that is not inferior a. i. he must mitigate). will have non-pareto superior breaches. D double-booked so couldn’t perform. Kearsarge Computer v Acme Staple. Consequential Damages/Damages Under Special Circumstances: added to standard damages. they were in position to hire someone else. A business that has fixed costs would have them regardless of the contract. The city breached in not giving P more lots to cut weeds. Breach of a computer contract.

and  b) injury to person or property proximately resulting from any breach of warranty  RESTATEMENT OF CONTRACTS 2ND §351 . but rather. VICTORIA LAUNDRY LTD.. because those would have been “within the promisor’s contemplation”. like a crankshaft). LTD: P were launderers and dyers and had contracted with D to buy a large boiler machine. by allowing recovery only for loss 5 .  • Other End: UCC – rejects tacit agreement. UCC 2-715(2)) How certain was that risk to occur? • Globe Refining v. therefore. Baxendale: damages must be foreseeable at the time of contract . and made no sort of “tacit agreement” to be held liable for more than ordinary damages. 2) Special circumstances / consequential damages . a. 1980: D was late in delivering a dragline to P. that the harm is not unforeseeable to a reasonable person at the time of the contract. not recoverable Hadley boils down to foreseeability – did the seller have reason to know about special circumstances? Two questions to pose about the special circumstances  How explicit was the agreement to assume the risk or how explicit was the communication? • Range of opinions on this issue c. but P could not recover for especially “lucrative” dyeing contracts. • 2 kinds of damages:  1) Naturally arising (recoverable) and  a. receipt. P sued for lost profits incurred by not being able to plow at recover. 5th Cir. when the lights took more than a year to arrive. • One End: Holmes’ view: tacit agreement: a promisor’s liability in contract cases should be presumed to have been within the promisor’s contemplation at the time that he made the contract (“tacit agreement”). even if D racks up more damages. Harvester. or to have warranted the plaintiff reasonably to suppose that it assumed. The plaintiff wants to collect expenses that he was willing to incur for performance…so we should conclude that his costs were included in the profits. any commercially reasonable charges. Arkansas 1944 . D knew that Ps were launderers and needed to use the boiler for their business as soon as possible. Allowing him his expectation damages plus these transport costs would effectively be making the D pay 2x…he was already "paying" for the transport costs in the contract price…it was accounted for there. WHEN THE CONTRACT WAS MADE. a. Consequential damages resulting from the seller’s breach  a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise. Landa: It depends on what liability the defendant fairly may be supposed to have assumed consciously. must show special circumstances within contemplation of parties at the time of the contract Extremely important that it must be at the time of the contract!!!! If P tells D about circumstance mid way through. the boiler accidentally broke and was delivered late. expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach. Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection. b. “A plaintiff need not show that a harm was ‘the most foreseeable of possible harms’”.limits this by adding that “court may limit damages for foreseeable loss by excluding recovery for loss of profits. NEWMAN INDUS. The court says that knowledge is not enough…it has to be stated in the bargain itself.where 2 parties have made a contract which one has broken. d. if the liability is so large that reasonable person cognizant of that liability would probably have not entered into such a risky contract. • Lamkins v. ♦ 2. a dragline is a machine that has uses on its own (as opposed to a machine part.” §2-715 BUYER’S INCIDENTAL AND CONSEQUENTIAL DMAGES ♦ 1. • The lost profits don’t pass the “tacit agreement test”  it is not “reasonable…to believe that the dealer at the time tacitly consented to be bound for more than ordinary damages in case of default on his part” – if D had known that exorbitant lost profits damages could result. and it can be considered foreseeable that P needed it for business uses and would lose business profits because of delay in delivery • a. Int. SOUTHERN PACIFIC TRANSP. transportation and care and custody of goods rightfully rejected. just have to have a reason to know (Prutch.P contracted to by a tractor with lights on it. we can assume that the promisor was not cognizant of that liability. he never would have taken on the liability for such a contract.• Hadley v. a. because D could not have been expected to know of those special circumstances HECTOR MARTINEZ V. the damages which the other party ought to receive in respect of such a breach of contract should be such as may fairly and reasonably be considered either arising naturally or such that may reasonably be supposed to have been in contemplation of both parties at the time they made the contract as a probably result of the breach. P could recover for regular lost laundry business profits. V.

in cases where there is not market based way of figuring out damages. for example). and gave P’s space to another tenant. lost future profits are fairly easily based on previous profit records.90? o RESTITUTION-SUE OFF THE K TO RECOVER A BENEFIT THAT THEY GOT B/C IT WOULD BE UNJUST FOR THEM TO RETAIN THE BENEFIT. Proof of Profits: Some cases emotional distress is recoverable (marriage. P seeks damages as measured by their lost profits. more difficult to prove the value of resultant lost profits to an aggrieved buyer. Problem . o o This case introduces us to the Statute of Frauds which says certain Ks have to be in writing.both under and over-inclusive. so suing for travel damages.” • It’s easy to prove the value of a lost sale to an aggrieved seller. or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. o NOMINAL DAMAGES: Where a right of action for breach exists but no monetary harm has been done or is provable. P would recover for lost royalties and damaged reputation. No Mental Distress Damages in Contracts: • Valentine v. measured in money” (which the court believes that P did in this case. General American Credit: general disallowance of recovery for emotional distress damages a. P wants to recover damages measureable by the costs of hardcover publishing to the D. even though it s/t over /under compensates. Western Publishing (7th Circuit 2000) .Ps had contracted to open a “book and bottle” shop in D’s proposed shopping center. RESTATEMENT 2ND §352.  UCC § 2-715(2)(a) sort of codifies Hadley.Mindgames sues for lack of marketing. Mindgames v. o Restitution damages are appropriate when one party has performed to the benefit of the other party who gave nothing in return. o Damages should not be measured by the cost to perform but “by the natural and probable consequences of the breach to the plaintiff. what's reasonable. Expectation damages argument . “Proof of Profits”: “Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. but the first was too speculative and the second he waived. o P doesn’t need to prove lost profits damages for its new business with “certainty” but only needs to “lay a basis for a reasonable estimate of the extent of [harm]. But Mindgames didn't have any explanation of damages they were asking for. The only damages available are nominal. We have this rule b/c if not pp will hesitate to enter into K b/c they don’t want to get hit w/ a huge lawsuit.) o Most judges prefer to use standards of reasonability rather than a rule when looking at lost profits of new businesses. o Traveled to TX to live and then said no. speculative lost profits are more difficult to prove. In this case. Principle: no breach of contract by firing employee (unless specific contract) b. Washing Square Press (NY 1974) -D refused to publish P’s book after D paid an advance of $2000 to P. • • With established businesses. The performing party may recover in quantum merit for the value of his services. you can't get lost profits. Why don't they get expectation damages? Doubts are resolved against breaching party. sale of an interest in land 6 . we see that expectancy damages are all about the plaintiff’s loss and restitution awards are all about the defendant’s gain. Courts need to figure out what's speculative. but P found the new space unsuitable to their business’s needs. Freund v. Comment B (1981). the D must have gained something (or been unjustly enriched)…would this change with promissory estoppel .incurred in reliance. Consequential damages resulting from breach include loss resulting from requirements the seller had reason to know about that couldn’t be prevented by the buyer (with cover. D offered an alternative space. because standards allow for flexibility. D delayed the building. would have had x$ in royalties. c. death). • Boone v Coe: P may not recover for restitution damages merely for its own loss. The main reason though is b/c we have market price remedy. SOF says that some K cannot be enforced if they are not memorialized in writing: • 1. o • New business rule: If you're new business. and govern by their reasoning rather than by their exact terms. • Alternative Interest – Restitution: Putting together some of these cases. which had generated a quasi contract or implied contract when no explicit original contract existed. Modern trend is looser on certainty. the plaintiff may get a judgment for nominal damages (small some in acknowledgement of harm) Fera (MI 1976) . but can be done with the aid of expert testimony. with new businesses.if Western had marketed.

Campbell: when P has finished or almost finished and then D repudiates. Britton New view. Andree: work done at specific request of the defendant constitutes value conferred (can recover in restitution) Olive v. • Quantum valebat is the reasonable value of goods. Opportunistic – done on purpose by breaching party at the expense of the non-breaching party (assumes this hurts non-breaching party) ii. See Vines v Orchard. offset by diminution of value or cost of repair. • • P in default is still entitled to the reasonable value of his services for benefits conferred on D. Who bears the burden of proof? The breaching party has the burden of proving that the other party was not damaged A NON-WILLFUL DEFAULTER CAN GET RESTITUTION IF THE DEPOSIT EXCEEDS THE ACTUAL DAMAGES. The buyer can show there was zero damages. sue on K. 7 . even if you did not complete performance b/c of the other party’s breach. then good faith matters. What is the definition of willful? i. but it’s a loser. Unless it’s shown that damages given to the seller are disproportionately higher than actual damages incurred. Algernon Blair: Court gives restitution in quantum merit (off contract) even though contract was a loser because if they did not then P would be unjustly enriched. but other party breaches in middle of performance. if it is reasonable) Basically. the builder is only responsible for paying the diminution of value between the building as planned and the building as resulted (or for the cost of fixing the building. Thach v. it may be relevant whether the promisor had a good reason to breach or was “willful” c. less any expenses he caused D. If the issue is on the quality of performance. Claim for restitution of deposit (contract says can’t have it back): court will not enforce provision if buyer can show that seller didn’t suffer damages in the amount of the deposit b. • • Valid and enforceable K. IF YOU ARE NOT THE DEFAULTER-CAN GO OFF K AND GET THE MARKET VALUE OF YOUR SERVICES Vines v. THE P MAY RECOVER FOR THE WORK PERFORMED LESS ITS DIMINISHED VALUE. Get your value of services. Where P is not the breacher. Algernon Blair case – substantive “material breach” by other party gives you right to terminate your performance. v. you will not get restitution iii. at that point P is limited to suing on the contract (limitation on when to use restitution) • • Stark v. Damages are hard to ascertain. you get expectation or reliance. P in default. A party suffering a loss under a contract will not recover damages in a suit on the contract. you can ask for restitution. Liquidation damages clause will be enforced as damages in the event of default by one party unless: a. Orchard Hills: remedies for breach are intended to compensate for loss. Once K completed. Kearns v. Pinches v Church. Parker: Old View …no recovery for deliberate breach. When a builder completes a building in good faith and the defects that result cannot be remedied without destroying the whole structure and rebuilding. in consideration of marriage • • U. when the issue is one of abandonment (Britton) then good faith doesn’t matter. • • Willfully defaulting contractor could not recover (Kelley). WHERE THE DEVIATION WAS NOT WILLFUL AND THE STRUCTURE AS BUILT IS REASONABLY ADAPTABLE TO THE DESIRED PURPOSE. Since restitution is an equitable remedy. promise to answer debt. the court is awarding P restitution damages for the building work P had done. but may always forego a suit on the contract and claim only the reasonable value of the performance rendered.• • • 2. we do allow the price to exceed the contract price. This only applies if K has not been completed. default. b. as long as the building is usable to the benefit of the aggrieved party. so the injured party should not be allowed to keep money in excess of actual loss a. If you opportunistically breach. Turner: breaching party is entitled to restitution less non-breaching party’s damages caused by the breach. • Quantum meruit is getting the value of the service you performed. • • SUMMARY: 1. sale of goods for a price exceeding a certain amount (UCC-$500) 3. Britton v. IF ARE DEFAULTER-CAN GET IN RESTITUTION THE VALUE OF BENEFIT RECEIVED BY THE OTHER (CONFERRED) 2. Durham: A down payment by a breaching buyer isn’t recoverable as restitution b/c it is held to be an estimate of the seller’s damages. or miscarriage of another-suretyship 4. but the value cannot exceed the contract price.S. if the K can’t be performed w/in a year 5. If material breach.

or operate to induce performance through fear.) The likelihood that an award of damage could not be collected • UCC §2-716 8 . Samson Sale v. awarded) • Difficulty of proving damages with reasonable certainty • • Difficulty of procuring a suitable substitute performance by means of money awarded as damages (Curtis Bros. for example spells out the duties of P and D so the court can enforce. even where the plaintiff lacks an adequate legal remedy. but could also come from a third party. Unjustly enriched allows the plaintiff to use a restitution claim to correct an unjust enrichment. courts will not award specific performance • Specific performance normal for contracts involving sale of land o Land is unique. If the stipulated damages are substantially different than the liquidation damages clause. • Black Letter Rule o Where there is an adequate remedy at law. Liquidated damages clauses must be a reasonable forecast of likely damages. a. as long as it does not purort to make an estimate of possible harms caused by breach. then won’t enforce the clause but will allow restitution. • Van Wagner Advertising Corp.c. court would much rather make you pay money.Injunctions/Specific Performance Contract has to be definite and certain. De Leon v Aldrete .This case was here to show that the court said that this is equity and we’re not going to have a fixed rule that awards a defaulting P or a fixed rule that doesn’t we’re going to look at equity! Contractual Controls on the Damage Remedy – Liquidation Damages. The premise of the restitution claim. Black Letter Rules o Test of enforceability of liquidated damage clause: 1. Lynch: A liquidated damages clause is unenforceable as a penalty if it is arbitrarily made. these are what the damages are. SP denied if there is an adequate remedy at law. • Must weigh burdens in courts of equity (balancing of the equities) • Restatement. Down Payments. can’t measure subjective value • Other factors that may defeat a request for an injunction. include: (1) Disproportionate burden on D (2) Personal services contract (3) Public interest in fostering competition (covenants not to compete) (4) Judicial difficulty in administering compliance with injunction. Horn: The amount of stipulated or liquidated damages is reasonable as judged at the time contract was made or in light of the actual contract damages incurred. o How do you distinguish between liquidated damages and limited damages clauses? Liquidated damages clause specifies damages while limitation clauses caps the damages Section 5: Enforcement in Equity . Unreasonably large is unenforceable as public policy UCC adds additional factor – the more difficult it is to obtain adequate remedy. §360: Factors Affecting Adequacy of Damages • When are damages likely to be inadequate (and specific perf. S&M Enterprises: specific performance of a contract to lease real property is unavailable when damages are an adequate remedy to compensate the tenant and specific performance would impose a disproportionate burden on the landlord. Restitution is a law claim even though it is equity in nature. Deposits • • • Liquidated damages: in the event of breach. there is an asset which somehow got into your pocket when in justice it should be in mine and for it to remain in your pocket would unjustly enrich you. Reasonable in light of anticipated or actual loss  2. Difficulty of proof (of actual damages)  3. that asset could come from me. P phrase is damages based on the law but restitution looks at equity. The plaintiff in a claim of restitution does not have to show that the parties had a contract. (UCC 2-718 and Rest 356) a. Waterfield and Muldoon v. Proportionality rule for evaluating liquidated damages clauses and the fact that courts are less likely to scrutinize limitations of liability of clauses than they are to scrutinize liquidated damages clauses. more likely to enforce clause  o • Wilt v. Honeywell: An agreement limiting the amount of damages recoverable for breach is not an agreement to pay either liquidated damages or a penalty. Undifferentiated damage clauses are suspect (clause does not differentiate between gravity of breach and damages owed) Contract law is not punitive • Yockey v. That is to say. is unjust enrichment. v.

• • Specific performance where goods unique Or other proper circumstance: goes beyond common law and tries to favor specific performance when goods are hard to cover • • • • • No cover possible. this is a detriment Restatement §71: Requirement of Exchange.“I will promise you $100 if you promise to paint my house. To constitute consideration.” 3. Promise . Torborg) • Scope of employment – what types prohibited If overbroad covenant. v. specific performance (Pingley v. A forbearance (the act of refraining from enforcing a right. The performance may consist of a.: a party may obtain specific performance when money cannot purchase a substitute for the contractedfor-performance Fitzpatrick v. court will cut down to size and make it reasonable Generally. or destruction of a legal relationship 9 . The act other than a promise. court forbid her from singing anywhere else.“I’ll give you $100 to paint my house”. • If you give up a legal right (regardless if you wouldn’t have done it anyway). they would have gotten the money Section 2: Bargained for Exchange • Hamer v. 2. Types of Exchange 1. Laclede Gas Co. If serious about giving them a gift.a gratuitous promise can be overcome by a writing Had they started building a library. or c. Wagner. don’t order impossible (if sold to someone else) Specific performance will not be granted if compliance would be impossible – practicability. Performance . what do they do? • • • • Geography – where prohibited from other employment (Data Management Inc. v. DeLeo: a) promises won’t be enforced unless there is consideration or reliance and b) consideration is defined as a benefit to the promisor or a detriment to the promisee • Moral obligation does not equal consideration • Reliance requires that promisee has changed their position because of promise (wouldn’t have had built without promise) • • • A promise to give a gift is unenforceable. Greene) • • • • Divided – 1) Throw out or 2) Change . Sidway: the detriment to the promisee prong of the consideration doctrine is defined as a detriment in law (giving up a legal right). neither the employer nor the employee may specifically enforce an employment contract Chapter 2: Grounds for Enforcement • • General Rule for this section is that contracts should be enforced when they are either: o Supported by consideration. or b. Michael: courts will not grant specific performance of personal services • First limitation: courts unwilling to order specific performance compelling personal services • Don’t put together again bad marriages • Peonage • Supervisory relationship • Unwilling to order negative where they won’t order positive (there is no written covenant not to compete in this case) Exception is where employee has unique or exceptional skills (Lumley penciling Majority say that if clause was reasonable. Brunson) But. Amoco Oil Co.) Second limitation: courts won’t enforce covenants not to compete • Courts may say overbroad Time – how long prohibited (Fullerton Lumber v. forbearance of a right is sufficient legal detriment to satisfy the requirement of consideration. a promise must be bargained for. The creation. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise a. Congregation Kadimah Toras-Moshe v. you can then just go paint it without saying that you accept the promise b. so. he should have put it in writing . or o Supported by reliance on the promise (promissory estoppel). obligation or debt). modification.

: Consideration must be bargained for. The fact that B wasn’t induced doesn’t matter. Nell • Don’t want people to avoid true test of consideration by creating sham transactions (thus.) a parol contract to convey land will be enforced in favor of the promisee if the failure of refusal to convey land would be unjust b. A’s real motivation is to get B out of the house. that’s all that matters. • Most courts say that entry onto the land is critical 10 . • Consideration of past obligations is for legal obligations only  For example: statute of limitations. 2. he would have returned it anyway. • Duncan v. Wyman: promise to pay based on a moral obligation arising from a non-material benefit to promisor is not enforceable.: A promises B that B can use A’s car if B pays A $10. minor • Rationale: obligation never expired.) you can use promissory estoppel to overcome a statute of frauds defense. (Love and affection is not considered sufficient consideration to bind a promise. Consideration as Motive or Inducing Cause 1. Demotsis: mere inadequacy of consideration will not void a contract . B finds the cat the returns it.) • The second restatement and modern view is that we care about whether there was true bargain • Schnell v. Union Trust Co. if on the surface there was a promise. The fact that a promise does not itself induce a performance or return promise does not prevent it from being consideration for the promise a. • Fischer v. if promise was bargained for. Motivations with respect to performance doesn’t matter – if you had another motivation. and subsequent promise raises barrier • Webb v. The fact that what is bargained for does not of itself induce that making of a promise does not prevent it from being consideration for the promise a. the bar of the statute of frauds was removed in this case upon the grounds that injustice could be avoided by enforcement and it was fraud for the promisor to insist upon the lack of written document after he has allowed partial performance of the contract. bankruptcy. making a promise enforceable that otherwise would not be. A promises an award to one who finds and returns his lost cat. McGowin: (This seems to be a minority rule) promise to pay based on moral but not legal obligation arising from a tangible benefit to promisor may be enforceable to the extent necessary to prevent injustice • Supported if promisor has been paying some consideration before repudiating • Webb really stretches the past promise doctrine of moral consideration – general view is that past moral consideration does not constitute consideration • Restatement 86: New Promise for Benefits Received – A new promise for benefits received will sometimes be enforceable without consideration on grounds of moral obligation to prevent injustice. Motivation doesn’t matter here. Section 4: Reliance on a Promise • Alternative grounds for enforcing a promise: promissory estoppel • Promissory estoppel: reliance on a promise to one’s detriment may operate as a substitute for legally sufficient consideration. • D is barred (estopped) from claiming lack of consideration. Black: forbearance of a legal claim does not constitute consideration unless legal claim is made in good faith and is based on a reasonable ground (modern view changed to or) • Consideration is the forbearance – giving up a legal claim ($ for forbearance) • Consideration ferrets out coercive dealings (extortion) – don’t want settlements and threats of lawsuits based on unenforceable claims • There can be consideration even if there is no bargaining. Nominal consideration and gifts are evidence that the promise was not bargained over. Ex. but law imposed barrier. • Seavey v. Drake: a. in order to prevent extortion • The 2nd restatement §74: • • Objective merit of claim (reasonable) or belief in validity (good faith) Modern trend is more permissive of settlement agreements Section 3: Promises Grounded in the Past • Mills v.Restatement 81. However. no nominal consideration) • Contrast this with Batsakis v. but there must have been part performance of the contract. motive doesn’t matter b.

Expanded promissory estoppel to future acts (future acts being promise or an offer). Kirksey: case shows why (injustice) another doctrine other than consideration is necessary to enforce promises. -Promissory estoppel recognizes promises that are made but are not enforceable as a contract. bids by subcontractors.stop denying the existence of consideration.) • This case was not decided well by Cardozo and doesn’t hold true for future law (Cardozo’s way of showing he didn’t think promissory estoppel was necessary – he could find consideration anywhere) • • Modern view of charitable subscriptions (section 90 of restatement) is that they are enforceable without any bargain or reliance – enforceable simply on a promise • Most courts haven’t necessarily adopted 90. go Section 139. • Section 90 test of promissory estoppel: • • • Was there actual reliance on the contract or promise? Was the reliance foreseeable by the breaching party? Was the reliance clearly detrimental? Can injustice be avoided only by enforcement? • Exemplary situations: promises to make gift. Federal Signal: modern view of contract v. that are required before fulfillment of a promoise are preconditions . They were spending in reliance. Nonfeasance • Misfeasance: I promise to drive you to the airport.• If you confront a statute of frauds problem and want to sue promissory estoppel to get around. • • Ricketts v. Acts. unless the employer engages in fraudulent conduct. in this case moving costs. • • First National Bank v. not valid consideration. but I do so carelessly and I get lost and you miss your plane • Nonfeasance: same facts. • Detrimental reliance on an oral promise for continued employment that is normally barred by statute of frauds only escapes statute of frauds if actual fraud by the employer is proven. National Chautauqua County Bank (Cardozo): wants to make charity commitments legally binding-expanding nature of claims for liability in contracts – the acceptance of a charitable subscription is an implied promise by a college to comply with the wishes of the donor which in turn constitutes valid consideration to bind the donor. charitable subscriptions. Future cases hold that the expectancy interest is the proper measure of damages in promissory estoppel Prescott v. It was reasonable for them to believe…basically an offer from the bank. Logan Mfg.: An example of not a gift but a promise of a loan. a multi-year employment contract is unenforceable. Not a full contract. that is for torts • If the duty arose due to contractual undertaking. no offer and acceptance. nonfeasance is unhelpful. (She make a partial payment for a special fund to be named after her. Scothorn: shows way out of Kirksey trap. • • • Normally . not section 90 of the restatement • There is more criteria that weed out false claims in 139 • §139: Use of Promissory Estoppel to Get out of Statute of Frauds • First prong same as 90 • Second prong adds obstacles to sue: o Restitution must not be available o Reliance is substantial o Reliance strengthens existence of promise o Reasonableness of reliance o Reliance foreseeable • Kirksey v. In the absence of a wriiten contract or proof of fraud. but don’t even show up to give ride • At common law. there would be a claim for restitution here – employee could recover for his services rendered Possibility of a tort theory 11 . tort is that misfeasance v. there was a distinction in torts. Bank kept encouraging Garret and Moore. This is promissory estoppel . This is a promise for a loan. There is no consideration. but Scothorn altered his position in reliance. this is not a gift. in contract it was harder • Sommers v. it for contracts Promissory estoppel . • Better question is where did the duty come from? • If the duty arose by operation of law.showing the change of position becomes critical – there must be reasonable reliance on the promise. but almost always just find reliance in such cases Misfeasance v. Emery-Waterhouse: Promissory estoppel may not be used to avoid the statute of frauds where there is an oral employment contract that requires longer than one year to complete. Stearns v. Jones: shows difference between promissory and equitable estoppel • Equitable estoppel: reliance on a fact (you are insured) • Promissory estoppel: reliance on a promise (we will insure you) • • Allegheny College v.

that aren’t offers because they lack material/definite terms.If an offeror should reasonably expect that his offer will induce justifiable reliance by the offeree of a substantial and definite nature. estoppel was equitable estoppel – D says that Emerson will give him a franchise – this is a statement of fact. then option contract exists (but preparations of performance and non requested work don’t constitute a beginning). offers can’t be revoked if: • • • • • Detrimental Reliance: A general contractor relies on a subcontractor’s offer in determining costs of the overall job. and it is reasonably foreseeable to the offeror that the offeree would so rely. Offers are irrevocable for a reasonable time period if the offeree relied to his detriment on the offer being held open. Section 87 of the Restatement (2) holds an option contract valid even if there is no actual consideration. Gimble Bros: subcontractor can’t be bound because neither acceptance of the offer nor promissory estoppel on offers • This view is old and rejected in Drennan. §45: acceptance through performance only . even if no offer than can give rise to a claim of acceptance. what matters is not what each party subjectively intended. 12 . Bescher: An option contract is a binding agreement and irrevocable within the time designated as long as the terms of the contract are fair and equitable. Dicker: lost profits (expectancy) are not awarded on promissory estoppel claims . • Drennan v. the offer is enforceable even if the reliance occurs prior to a formal acceptance of the offer. no consideration was required to support a contract under seal.only can recover expenses made in reliance • Actually a torts case. we may still have a sufficient promise to give rise to a claim of promissory estoppel (§90) • • Chapter 3: When and How Promises Become Enforceable Section 1: Mutual Assent • • For a contract to be formed. James Baird v. it must be.• • Equitable estoppel: misrepresentation Court says difference between equitable and promissory estoppel is that if a that the time the employer made the promise it did not intend to fulfill the promise – this is fraud and is actionable • Policy: employment at will would be seriously undermined if employees could use promissory estoppel to make alleged oral contracts enforceable Section 5: Precontractual Obligation • Thomason v. promissory estoppel can still apply to these promises • Note: remedies are limited to reliance damages (no contract exists) • Requirements for the promissory estoppel: definite and substantial promises that actually induce the action. not §87(2) since there was no offer (missing material term) • Thus. • This is the prevalent view • Restatement §87(2): offers can give rise to promissory estoppel claims Goodman v. not a promise (negligent misrepresentation) Hoffman v. and injustice can only be avoided through enforcement • This is the use of §90. o Instead. Firm Offers (UCC 2-205): A signed writing by a merchant to buy or sell goods that has firm terms and assures that the offer will be held open is enforceable. Star Paving: subcontractors bid becomes binding via promissory estoppels . The use of the seal has been abolished in most states (as well as under UCC 2-203) but under traditional usage. a party’s intentions are measured by what a reasonable person in the position of the other party would have thought the first party intended. Modern Views of Offers – An offeror can general terminate his offer even if he promised not to do so however. even without consideration. Red Owl Stores: in certain situations where pre-contractual dealings contain promises. (Drennan) Options: A gives B 20 bucks not to revoke his promise for two weeks. Partial Performance of a Unilateral Contract: The offeror can’t revoke revoke once performance has started (provided that performance is completed within a reasonable time). If the offeree gave consideration for the promise that the offer would be kept open.offeree begins performance. the parties must reach “mutual assent” or a “meeting of the minds” Objective theory of contracts – modern view o In determining whether the parties have reached mutual assent. Only applies to signed offers by merchants.

The word “answer” clearly indicates that the buyer did not regard this as an offer since he was required an answer.  Industry standard is not assumed to be understood for purposes of a binding contract  So a person only “has reason to know” things someone in their position should know  Chicken case: tells us that there can be two or more objective meanings of the same word  • Embry v. quantity. but this isn’t universal – it is problem determining the reasonable person • Wheeler v. Kershaw: The letter was a notice of a willingness to entertain an offer. o Ads and general circulars are not offers. who decides this objective meaning? • Written contract – question for the court • Where unambiguous words are spoken – question for the court • If ambiguous words are spoken – question for jury • • Kabil Development v. Thoelke: introduction to the mailbox rule – acceptance becomes binding when it is put in the mail • Mailbox Rules 1. 3. names a price. to know of the meaning assigned by the other party o Although contracts is generally objectivist. then acceptance – whichever arrives first controls Acceptance under an option contract is not operative until received Notices are typically only effective when received • Mailbox rule does not apply to a notice that performance will occur §64 – exchange by electronic transmission follows the same rules as if the parties were in each other’s physical • Only applies to two way transmissions (phones. Gumina Cont. Section 2: offer and acceptance • Morrison v. 7. subjective intent and the reasonable person standard of objective intent • • Court adopts objective view – inner meaning unimportant . plaintiff’s recovery will be limited to reliance damages measured by the detriment sustained. not a K b/c lacking material term of quantity.• Raffles v. do not know payment terms but now the UCC would imply a payment term where parties are silent. 5. not faxes – if timing is critical.but can be cancelled if it would place hardship on offeror) (§63) Revocation following dispatch of acceptance that has been mailed is ineffective (unless specifically stated in Rejection is effective upon receipt Rejection is sent first. there are situations where subjective intent is important o o Restatement. 6. Pattberg: offeror has the ability to revoke the offer at any moment before it is accepted by performance 13 . The response was an offer. maybe) • Moulton v. White: the terms of the contract left the amount of the monthly installments and interest on the loan indefinite … so no contract but… • Court suggests that there are reliance interests that attach to the pre-contractual moment (when parties are in active negotiation) • No contract but promissory estoppel because P relied on contract and destroyed building  Note: without a legally sufficient contract. 8.Courts allow more information (better information usually = better/more complete decisions) • Who is the reasonable person – UCC says the contextual’s state of mind is immaterial if that party outwardly manifests assent to the contract But. or don’t have reason. but what the parties understood (subjective intent) is relevant evidence of the objective intent • Subjective intent is not inadmissible Subjective intent could be evidence of objective meaning . Wichelhaus: (Peerless) similar view as restatement: parties won’t be found to enter into a contract if they use words that have multiple objective meanings and the parties in fact subjectively mean different things and the parties don’t. presence • Petterson v. §20 – Effect of misunderstanding No contract is formed if parties unknowingly assign different subjective meanings to an important contract term because there was no meeting of the minds. Acceptance is effective upon dispatch (even if it never arrives . Mignot: courts use the objective theory of contracts. Flower City Painting v. email is more like phone. offer) 4. An offer is effective upon receipt (not on mailing) 2. Hargadinem McKittrick: case explores objective v.

Ford Motor Co.: when the offer does not specify an exclusive means of acceptance. and the offeror loses the power to revoke the offer • This is considered an option contract • Note there is a reasonable time limitation on the offer • The offeree. In this case. A promises to give B either 1. ii. There are two ways to accept an offer – through performance or a return promise b. Unilateral contract: A promises B if B does something.1. Dobbins: offeror’s death automatically terminates the offer Restatement §36 – ways that an offer can become closed • Counteroffer • Time passing • Revocation • Death of offeror or offeree • Brackenbury v. Inc. no mutuality of obligation • Cancelable on 30 days notice – consideration • This is a legal obligation upon promisor that is consideration 14 . (§24) An open offer is presumed to be over after a reasonable period of time • Allied Steel & Conveyers v. the act of shooting for the hole-in-one constituted acceptance of the offer. than either can be acceptance • • • Jordan v. partial performance constitutes a promise to render complete performance (restatement §62). Klick-Lewis. still has the right not to complete performance • The notes to §45 distinguish between preparations to performance and performance itself Carlill v. The promoter of a contest is bound to perform his promise if a person acts on it before the offer is withdrawn. however. Carbolic Smoke: If an advertisement is sufficiently specific as to the requirements for getting the reward (what the plaintiff can or cannot do) then its “offer” can be “accepted” by any person who fulfills the conditions of the advertisement and there is no need to notify the company before using the product. the law assumes it is bilateral • This was modified by Restatement §32 – if unclear. not default rules Davis v. An offer is a manifestation of willingness to enter into a bargain. Section 3: Limited and Indefinite Promises • Kinds of questions: o Is the contract illusory (empty promise) because nothing is really promised o Is the contract void because of lack of mutuality of obligation (one party free not to perform) • Mutuality of obligation: both parties must make a promise that somehow binds them • • Davis v. For example. a. 2. B performs to accept…promise for an act.acceptance can be arbitrary Black Letter: What is an Offer? i. the offer can be accepted in any reasonable way (including performance) • True in both common law and UCC §2-206 • This rule is because we prefer to contractual based rules. Hodgkin: when an offer invites either performance or promise. Swain-Roach Lumber: conditional promises can become an enforceable promise through future action (condition fulfilled) • • Basic rule (§77) – A promise that allows the promisor to choose among several alternative promises will satify mutality only if each alternative has valid consideration. Bilateral contract: promised exchanged for another promise c. If clause that says: • Cancelable at any time – no consideration • If right to terminate is completely unrestricted. so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. What triggers acceptance – tender of performance Restatement §45 • In a unilateral contract.promise is too indefinite to be legally enforceable. you are entitled to recover – the apparent intent of the offeror – not his subjective intent – determines the power of acceptance. General Foods: absolute discretion whether to pay or not rendered promise to pay illusory-neither party has any real obligation so no contract . The offeror need not be reasonable in specifying the terms of acceptance . e. Obering v. • Cobaugh v. by beginning performance. Distinction between unilateral and bilateral contracts i. The promise is enforceable because both alternatives embody valid consideration. The offeror is master of the offer i. the offeree has the option to perform via performance or promise • If the offeror leaves us in doubt about whether to be returned by promise of performance. if you are aware of the offer at time of performance.000 or his car in exchange for B’s car. Jacoby: if it is unclear whether the contract is bilateral or unilateral. d. offeree creates option right to complete performance.: in actual fact.

Inc. Lady Duff-Gordon: Cardozo . If PLACE is missing… infer “seller’s place of business” (UCC 2-308) c. NOTE: K's with adequate "notice to terminate provisions". Liberalizes rigid offer/acceptance machinery. Contract may still be upheld if the surrounding facts and the nature of the agreement fairly imply a promise of performance Omni Group v.: Letters of intent are not binding.If. but report must be in good faith • Conditions of satisfaction • Subjective: satisfaction based on an individual’s perceptions. then no agreement is reached. If PRICE is missing… infer “reasonable price at time of delivery” (UCC 2-305) b. • • UCC 2-306(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best/reasonable efforts to supply the goods and by the buyer to use best efforts to promote their sale.) • Rest 33 . • - UCC 2-306 – output contracts… • Buyer has good faith duty to: maintain reasonable requirement levels. v. Cardozo finds that there is an implicit promise on the part of Wood to try to put Lucy's endorsements on stuff and sell it.§33. paintings • Objective: condition is satisfied reasonably based on externally verifiable phenomenon • Courts should prefer because easy to get hands around • Feld v. . • When contracts governed by statute • Violation of public policy (3rd person at table) • Sun Printing and Publishing Association v. not take advantage of the seller by increasing demand to benefit from fluctuating market prices • Seller has a good faith duty to maintain certain level of output (unless economically impossible). Ball-Co Mfg. Seattle First Nat’l Bank: A promise for a promise is sufficient consideration to support a contract…. Amana Refrigeration: courts are reluctant to second guess business judgments. however. THEY ARE NOT BINDING CONTRACTS. Remington Paper & Power Co. buy exclusively from seller. Empro Mfg. and one of those elements is not specified sufficiently in the contract.Under the common law. and there is no consideration and therefore no enforceable contract between the parties. (If ambiguities w/o ability to cure no contract.Jives with UCC 2-207 (1) Even though a manifestation of intention is intended to be understood as an offer (i. If TIME is missing… infer “reasonable time” (UCC 2-309) d. despite an indefinite duration. a promise dependent on a condition precedent [the promisor's "satisfaction" or the quality of the promise's performance] is not illusory. They are agreement in stages and part of K negotiations.e. and (2) time. CERTAINTY. Lucy.Don’t need explicit words to find promise . • Sale of Goods (UCC 2-204). This protects franchisee’s reliance interest.An enforceable contract may be construed through an implied promise of one of the parties.. feelings or intentions • Types for subjective: personal taste. • The fact that a feasibility report was required is consideration. and neither party is bound. it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. NOT THE UCC. However. are valid! Corensweet v. If TIME of payment is missing… infer “when buyer gets goods” (UCC 2-310) • Chapter 4.. Inc. a promise is illusory. If two parties attempt to contract together. with the contract involving two key elements of (1) price. a.• Wood v. letter of intent). scrutinize reasonableness of good faith • • • • Court holds UCC general obligation of good faith is trumped by UCC 2-309 that says a contract of indefinite term can be terminable with notice You can terminate any indefinite contract without court’s 2nd guessing your judgment Caveats to this rule: • Missouri Doctrine: franchisee should be given reasonable time to recoup investment. Omission of one or more terms does not make an offer invalid as long as parties intended to make K and there is a reasonably certain basis for giving appropriate remedy. Section1: The Effects of Adopting a Writing • What is the Parol Evidence Rule? 15 . GAP FILLING IN K. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance. Co. Henry Levy & Sons: a party to an output contract is obligated to act in good faith and may cease production as long as it is acting in good faith.

parol evidence is admissible to show fraud. thus no parol evidence ever • If no. the written contract bars all prior evidence • If it wasn’t complete. Evidence of prior agreements or negotiations may supplement a partially integrated agreement. 2-202 (1): the writing may be explained or supplemented by course of dealing of usage of trade even if it is a complete integration. unless the course of dealing or trade usage is carefully canceled by the contracts terms. does the alleged term here contradict the written contract? • Question for the court • What does inconsistent mean? o Hatley: contradicts an express provision in the contract Hayden: law implies default term of reasonable time – but this has to be wrong because whenever there is silence. three conditions must be satisfied • 1. • Where an agreement has been reduced to a writing that the parties intend as the final and complete expression of their agreement (integration). • Corbin’s view wins out more in the modern context. Even if the writing is a complete integration. an implied term would contract the oral term. No contradiction of express or implied terms • 3. Lath: If a writing is seemingly complete on its face. others assert that the existence of a contemporaneous oral agreement automatically proves that the writing is only partially integrated. we prefer that as the contract as compared to whatever the parties say was there agreement. no extrinsic evidence is admissible to contradict the partial integration Different conceptions between courts over scope of parole evidence rule • Williston / Corbin Debate • Williston was a formalist. f. • Mitchill v. Collateral • 2. • Written agreements takes precedence over oral agreements • What are the functions of the parol evidence rule? • Instrumental – get people to put things in writing • Evidentiary – easier for courts to sort out breaches • Preventative – prevent frauds and uncertainty over contracts • If an oral agreement is to vary the terms of a written contract. When an agreement is completely integrated. provided this evidence does not contradict a term of the writing. evidence of any earlier expressions (oral or written) is not admissible to vary the terms of the writing. evidence of a prior oral agreement is admissible only if it is one that the parties would not ordinarily be expected to embody in writing. • Corbin’s View o Nothing sacred about a writing per se. d. 216). Some courts treat contemporaneous oral agreements as prior oral agreements. One would not ordinarily expect the term to be embodied in the agreement (not the type of term expected to be in the agreement) Hatley v.a. What are the exceptions to the Parol Evidence Rule? a. mistake or duress. ii. e. no extrinsic evidence of contractual terms is admissible as to what the terms of the contract are • Where a writing is a partial integration of the parties agreement. 16 • o o Michell: said express or implied • • . b. 2-202: a writing intended to be a final expression may not be contradicted by evidence of prior written or oral agreement or of a contemporaneous oral agreement. Parol testimony is admissible to prove a condition precedent to the legal effectiveness of a written contract if the consition does not contradict the express terms of such written agreement. c. it must contradict an express provision of the contract • Three questions of substance asked by the Hatley court: • Was contract completely integrated (represents a full and final embodiment of the parties’ understanding)? • Question for the court • If it is completely integrated. 2-202 (2): the writing may be explained or supplemented by evidence of consistent additional terms unless the court finds the writing to be complete and exclusive. o What’s important is the parties actual intentions. Stafford: to determine whether an oral agreement is inconsistent with written contract. was the alleged oral term actually agreed on? – jury question What is the parol evidence rule? Two propositions thus far: • Where a writing is a complete integration of the parties agreement. The UCC version i. Corbin was a realist – intentions important • Williston’s View o When there is a writing. iii. not even evidence of a consistent additional term is admissible to explain or supplement it (Rest.

v. o • Thus. • The one kind of evidence that should not be excluded is testimony about the industry practice or custom 17 . Chapman: parol evidence admissible to reform a written instrument where mutual mistake exists • Reformation only applies when parties intended to put down something different on paper than was actually put down • • • • A unilateral mistake is not enough to reform/rescind a contract evidence is admissible to show the intentions of the parties.) §216 – Consistent Additional Terms  Consistent additional terms admissible. only consider extrinsic evidence if it's really unclear. GW Thomas Drayage: The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether the instrument appears to be plain and unambiguous on its face. • The issue is whether words spoken during negotiations are admissible to explain the meaning of a term in the contract • Most court’s don’t use Traynor’s view • Majority View • The determination of whether a contract is ambiguous is made in the four corners of the document. duress. then no introduction of parol evidence. just having a writing is automatically an integration. consistent additional terms cannot be admitted if the writings were intended as a “complete and exclusive statement of the terms” Much harder to get exclusion of evidence on meaning of contract or supply additional terms under the UCC Long Island Trust v.W. not that the Willistonian tendency has some transaction in this area • If the writing expressly/explicitly disclaims a condition precedent.• • Extrinsic evidence is helpful in construing the contracts. An integrated agreement is a writing constituting a final expression of one or more terms to be determined by the court. Whether integrated determined by court in the absence of a merger clause. supplementation is allowed for “usage of trade” or “course of dealing” • However. not to vary the term Section 2: Interpreting the Promise W. a written provision of time of buyback provision • And then Hatley says an additional clause excluding Sunday’s. etc. Associates. the writing gets preference. Leonard: parol evidence rule does not bar a claim for fraudulent inducement Hoffman v. however. but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. 3. even if the writing is a complete integration. §213 – Parol Evidence Rule  Integrated agreement discharges prior agreements that are either inconsistent or even within its scope (complete integrations discharges all)  What does it mean to be within the scope? In Hatley. PG&E v. Giancontieri: Look to the K first. the writing will take precedence over the condition Lipsit v. Court can’t use extrinsic evidence to create the ambiguity. The Restatement provides a roadmap about how to approach these issues: o §209 – Integrated Agreements 1. other extrinsic evidence indicates that writing is not integrated. International Institute for Packaging: one way to get around the parol evidence rule is to argue that the delivery of the writing itself was conditional upon a condition precedent to the formation of the contract • Thus although the writing is completely integrated. Unless. When appearance is integrated writing.W. Inc. • Only time you can use extrinsic evidence is if the contract is ambiguous on its face. 2. the document was never a contract because the condition precedent was never fulfilled • Although the conditional delivery idea is a way to get around parol evidence rule. this is within the scope and barred §214 – Evidence of Prior or Contemporaneous Agreements  Admissible when determining • whether writing is integrated • completely or partially integrated agreement • meaning of the writing (controversial) • Invalidate causes (fraud. unless contract is completely integrated The UCC’s Parol Evidence Rule (§2-202)  Tried to simplify complexities of integration • o o o   • Preserve basic parol evidence rule. • A court will use parol evidence to interpret the writing when the writing is ambiguous. If the writing is not ambiguous on its face.

in the software. then there is still a contract. Missing terms can be applied by the court. • Where one party knows or has reason to know what the other party means by certain language and the other party does not know or have reason to know of the meaning attached to the disputed language by the first party. whatever you agreed on is contract and the rest is governed by UCC default rules . the “last shot” prevailed) • • 2) The additional terms are treated as proposals • If the parties are not merchants. counts as acceptance of terms • Notice and expectations are important • • On exam. the proposals become part of the contract.) • Don’t need to identify offer and acceptance to find a contract • Possible to find a contract in a course of dealing • 2-204(3) says use gap fillers which are in 2-310 etc.• • UCC §2-202 expands evidence allowed to include previous dealing between the parties. the court will enforce the contract in accordance with the innocent party's meaning. • • The party that seeks to have the contract term interpreted in a narrower sense that is more favorable to him bears a substantial burden of proof. but mutual assent may be made even if we can’t pinpoint moment of offer and acceptance ProCD v. Section 3: Contracts Without Bargaining Livingstone v. is actually a rejection and a counteroffer • To accept.The Knockout Rule: where a contract is formed with conflicting terms. but from the course of dealing what terms the parties agreed to The UCC and common–law have thus undergone a substantial change • There is a greater tolerance of incomplete agreements UCC §2-207 (Battle of the Forms) – UCC rejects mirror image rule • 1) Rejects the mirror-image rule – there can be acceptance even if acceptance has different terms unless acceptance is expressly made conditional on assent to the different terms (under the common law. Zeidenberg: cases (also Gateway) are about flexibility in locating offer and acceptance (shrinkwrap cases) • UCC §2-204(1): Contracts can be found in lots of different ways • What counts is that manufacturer has given notice to the consumer that there are other terms that need to be agreed upon (in the box. • Similar to Restatement §22: ordinarily offer and acceptance. they are rejected • Between merchants. Evans: teaches about the common law mirror image rule • Mirror Image Rule of Common Law • Suggests that a deviant acceptance (purports acceptance. etc. then if the proposals are not agreed to. It is harder to prove a more narrow definition is used because you will have to show the other party knows the narrow interpretation. with the terms knocked out) 3) If conduct suggests formation of a contract. and course of performance under the present contract • Under the UCC. but has different terms). but that is only true among ambiguities – the judge is still the gatekeeper as to the meaning of a contract Frigaliment Importing: The court will apply the most reasonable interpretation in light of all the circumstances. conflicting terms knock each other out and the codes default rules takeover (majority rule) • • UCC §2-204 Formation in General (Lefkowitz) a court can enforce a contract that has some missing terms if the essential terms are present and the parties intended to enter into a contract. might be good to talk about offer and acceptance and how it can be flexible and talk about notice and expectations A vendor may invite acceptance by conduct (keeping product past 30 days) 18 .) • If don’t return. you must say exactly what the offeror says to you • Mere inquiry do not count as rejection counteroffers • • The UCC says that we often can’t identify offer and acceptance and mirror image rule is too simple • The UCC says that (context of battle of forms) we don’t care about moment of contract formation. Prevents stronger party from taking advantage of the weaker party. o (b) the additional terms materially alter the contract o (c) the additional terms are objected to by the offeror (if objected. (see 2-309 etc for the substitute for missing terms. the custom and trade usage will always be admissible Restatement §212 – Interpretation of Integrated Agreement • Suggests presumptive rule is that juries decided the meaning. unless: o (a) the offer limits acceptance to its own terms.

Monroe: no implied marriage contract Section 4: Mistake. Has an opportunity to reject and does not (PRO-CD) b. Offeror gives you reason to understand that silence will constitute acceptance c. Massasoit Whip (EEL): §69 – based on previous course of dealings can lead to silence as acceptance • • Silence can act as acceptance in certain situations When an offeree fails to reply to an offer the following cases constitute acceptance: a. but situation that requires restitutionary payment to resolve unjust enrichment • Parties would have agreed to contract if there hadn’t been transaction costs or time to do so Monroe v. rescission is allowed when constructive fraud is present. • Restatement §152 • Mistaken belief must relate to a basic assumption of the parties and which materially affects the performance o Caveat: rescission is not available to relieve a party who has assumed the risk of loss in connection with mistake Restatement §154 • The risk can be allocated by agreement • Party aware that the thing is not true but says that is ok • The risk is allocated by court if reasonable under the circumstances Unilateral Mistake from the Restatement (understanding of other party’s error)  • • • If one party is aware of the other party’s mistake then the courts are likely not going to enforce the contract even though there’s unilateral mistake But if one party is not aware of other person’s mistake. o Rule.: teaches about implied contracts in law and fact. • • Jackson v. • Sherwood v. an inference of payment does not arise • Contract implied-in-fact • Real bargain. Brown & Co. • Court in this case actually relied on constructive fraud due to a fiduciary relationship to vitiate the contract • The fiduciary must disclose the full extent of the interest to the other party • Constructive fraud is indicated by a combination of the following factors: A confidential relation between the parties Reliance of the plaintiff on the advice of the defendant Gross inadequacy of the contract price An offer by the plaintiff to return the purchase price and rescind the contract The rejection of the defendant of that offer • There are 2 obligations in a Fiduciary relationship. in this case a volunteer does not have right to claim contract in law or in fact as they don’t usually charge for services • In the voluntary giving of services.When there is mutual mistake. Little.Preserve the equity of both parties. then court will enforce the contract 19 . Organ: There is no duty to disclose when merchants bargain at arm's length and the extrinsic information is equally accessible to both parties. Warranty and Nondisclosure Laidlaw v. Seymour: court imposes a higher standard on fiduciary and confidential relationships because they are difficulty to police (duty to disclose). no agreement. Walker: Rescission is usually only allowed if the mistake goes to the basis of the K (what the K was all about) and a contract may be rescinded if it was made in reliance upon a mutual mistake of substantive fact. Caveat emptor. non-explicit dealings between parties • Example: painter starts painting house and you don’t stop him • Contract implied in law • Not a contract.the trustee may not take his/her own interests into account when the fiduciary is working on behalf of the beneficiary. as opposed to explicit agreement • Reasonable person would find implied promise.1) Duty of care – the trustee has to be careful 2) Duty of loyalty.buyer beware Caveat vendor. o Inadequacy of the bargain must shock the conscience. Past dealings (Hobbs) Martin v.seller beware Courts will impose a duty to speak whenever silence would be tantamount to a lie. Misrepresentation. .Hobbs v. lack of conduct. actual contract made through silence.

2-719 • Hinson v. average quality within their description and fit for ordinary purposes of how such goods are used • 2-315. Absence of fault or negligence by the mistaken party (mathematical / clerical errors) • 2. Seller of the land bears the risk if the land cannot be used by buyer for the purpose for which it was purchased. courts will find an implied warranty where there is a sale of a new home by the builder.Implied Warranty: Fitness for Particular Purpose o Created when the seller knows that the buyer is relying on the seller’s judgment in picking out suitable goods • 2-316. A seller's opinion. they must make a statement of fact that relates to the goods and becomes part of the bargain. find out not true. Changed Circumstances Justifying Nonperformance Freeing oneself from contractual obligation on conditions that occurred after the contract was formed • Always ask yourself if the risk of thing happening was contractually allocated to one of the parties • If foreseeable. Courts assume that the seller has more information than buyers/consumers. is that unilateral mistakes must be ones of fact. not protect bidders who make mistakes in judgment. you can't snap up an offer that you know is mistaken…that's acting in bad faith. Healy: contracts can be rescinded for a innocent misrepresentation .ways to disclaim or exclude certain kinds of warranties a.There is always an implied warranty of merchantability o The goods must be of fair. and though performance is possible. it is still frustrating • Taylor v. • UCC Warranties for Sale of Goods – Traditional Remedies • 2-313. Peterson: In order for a seller to make an express warranty. a new builder warrants that a new home is free from structural defects • • Johnson v.• Elisnore Union Elementary v. Party seeking to enforce might have been aware of the mistake One important caveat.The builder is liable for his innocent misrepresentation [implied warranty] when said misrepresentation induces the buyer to make a purchase. Jefferson: All land purchases have an implied warranty of habitability. • Restrictive covenants on property lead to an implied warranty for that use • Generally. courts will generally grant relief for errors which are clerical or mathematical. When is a unilateral mistake a grounds for rescission – three factors • 1. Damages for breach of warranty governed by 2-718. not ones of judgment Courts want to avoid awarding a windfall.It’s possible to create an express warranty without using the word warranty o Buy describing the goods (skis made by certain brand) o Buy a sample or model (must be same skis as in sample) o But a statement of the seller’s opinion doesn’t create a warranty • 2-314. • • Tribe v. Kirby: you could be liable if you are aware of material information that cannot be found through casual inspection • Sellers don’t have to disclose everything (non-material facts) • Omission to disclose where there is a duty to disclose • But when does the duty arise – superior knowledge or representation by party that converts the failure to speak into fraud Section 5. reluctant to excuse • Doctrines: • • • Impossibility – the thing one party is supposed to do is impossible Impracticability – when does performance become so burdensome and expensive that is impractical Frustration of purpose – parties believed something true. Caldwell: there must be a destruction of the subject matter or means of performing contract to relieve performance under the doctrine of impossibility • Doctrine of impossibility – it was impossible to make the building available because it was destroyed • A party is not simply excused because it become impossible to perform • This is the common law rule (narrow) that becomes extended in later cases • What we really care about is who is in a better position to avoid the accident – that is who bear the loss 20 .there is an implied warranty for large fundamental defects running with the deed to subsequent owners • Caveat emptor – principle has been relaxed to home sales – as a general proposition. belief or judgment does not constitute an express warranty. Absence of detrimental reliance on the contract • 3. Kastorff: a unilateral mistake can be grounds for rescission. • Courts will generally grant relief for errors which are clerical or mathematical. nobody get a ridiculously good deal at the expense of somebody else. Cushman v.

This is a looser view than in Taylor • Idea is that the way in which performance is supposed to be carried out is impossible. Central Markets: modern explanation of impossibility – means of performance is destroyed • Impossibility is construed narrowly and will only apply when the destruction of the subject matter (Taylor) or the means of performance is destroyed and makes performance objectively impossible. then impossibility might apply Courts tend to read force majeure clauses very narrowly If you have a force majure clause. insurance specifications in the contract. • Vastly. Extent of performance actually tendered or completed 3. you can’t discriminate about which customers gets the goods say you deliver – can’t just favor preferred customers o (c) duty to give seasonable notification • This is a narrow view of impracticability • If the parties assumed that a non-occurrence of a condition was necessary for the contract to be completed and the condition occurs: • Then performance is impracticable so it’s excused • This provision is usually tightly construed eg. Tompkins and Caroll at a functional level: 1.• Tompkins v. the parties have anticipated that the parties may not perform and the guarantor is insuring the risk Carroll v. Henry: an old formulation for frustration of purpose 21 • • . Contract itself is figuring where risk of loss should fall 2. the party who has completed the work has conferred a benefit to owner. Shell Marine: doctrine of impracticability: performance literally possible. and even if the work is destroyed the buyer will be liable • We divide performance into discreet units • • Caroll breaks the work up into units and only makes liability for benefit actually occurred. the seller’s obligation ends the moment he places the goods on a common carrier • OR if the seller is delivering the goods himself. v. courts will usually make these the only instances that will excuse performance under impossibility • • • • Bunge Corp. but can only be done with extreme difficulty.point to particular goods and saying those goods American Trading v. not just done at specific request Taylor. and actual insurance o If someone is supposed to get insurance. Bowersock: when a discreet unit of work is completed. Control over the facility (putting the risk of loss on the party that is best able to prevent the loss from occurring) 4. expense or loss – court found in this case that mere increase in cost alone is not sufficient to excuse performance – an increase in less than 1/3 the contract price was not sufficient to constitute commercial impracticability. he bears the risk until delivery • • • Kel Kim v. this tells us something about who should bear the risk o If there is insurance – tells us something about where the risk of loss should fall Courts often put the risk on the party better able to handle the risk (insure) . impracticability that results from the occurrence of contingencies the nonoccurrence of which was a basic assumption on which the contract was made excuses performance • Two caveats: o (b) where impracticability makes you unable to deliver all of your goods.. Insurability.burden on the big guy UCC rule for Allocation of Risk • 2-509: Risk of Loss in the Absence of Breach (when the goods are shipped) • If the delivery is by common carrier. Recker: identification of specific goods is necessary for the application of 2-613 • UCC 2-613 – Casualty to Identified Goods • UCC 2-613 performance excused “if the loss is total the contract is avoided” to the identified goods • Identification of specific goods is necessary for the application of 2-613 • What does identification mean? . Dudly: the least cost avoider should bear the risk of the loss • This case it is a new construction and the builder has complete control until they finished – so they bear the risk of bad things since they are the best position to make sure the things don’t happen • • When the parties have specifically provided for a third party guarantee. unreasonably more difficult or expensive to perform • It would have been so expensive that no one would have actually performed • UCC 2-615: Excuse by Failure of Presupposed Conditions • Unless seller assumed greater recovery for plaintiff who must take a loss because of government price increases (foreseeable) in milk Krell v.

and the question is should the court enforce the contract as modified or the original one.A contract is voidable if the party claiming duress was forced to agree by means of a wrongful threat precluding the exercise of his free will. the one thing we don’t do is enforce the expectancy position In thinking about frustration of purpose separately.: contracts will not be enforced if entered into under duress . v. • • Preexisting legal duty rule – where you already have an obligation. • • Duress as a matter of contract law is a circumstance where you enter into or modify a contract under a wrongful threat from the other party What is a wrongful or improper threat? • Baseline: if you have a legal right to do it. Schwartzreich v. Murphy: frustration needs to be total or at least nearly total to hold the contract unenforceable Chase Precast v. We need to look for new. Alaska Packers’ Assoc. The fact that a financially weaker debtor agreed not to breach is not adequate consideration. Contract modification under economic duress is not enforceable. Domenico: A new promise to increase the compensation of one already contractually obligated to perform is invalid if new consideration is not given (pre-existing duty rule).two steps: • 1: rescind the first contract – consideration for terminating is giving up the rights • 2: offer new contract with new consideration on both sides • Austin Instrument v. might not be a complete obstacle because of frustration of purpose • Parties must expressly or impliedly assume some risk. The existence of economic duress is demonstrated by proof that immediate possession of needed goods is threatened and that the goods could not be obtained from another source. burden of proof is on the donee. John Paonessa: restatements view of frustration of purpose • Restatement §265 – Where a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made. additional consideration UCC §2-209(1) changes the common law rule.must show a transfer and donative intent. agreeing to do something less or the same is not consideration for a promise. What was the purpose of the contract? 2. • Gift . Demotsis: Inadequacy does not void a contract. because the debtor is obligated to repay his debt anyway (pre-existing duty). Brighenti: (§89) a promise modifying a duty is binding in view of circumstances not anticipated by the parties (another route to resisting legal duty rule) • Unforeseen circumstance may lead to a contract revision so long as the resulting agreement seems fair • §89 There are three ways to modify a promise not performed (don’t worry about pre-existing legal duty): • 1) If the modification is fair and equitable in view of a circumstance not anticipated by the parties when the contract was made 22 . Was the purpose of the parties frustrated? 3. his remaining duties to render performance are discharged. Blumenthal: Partial payment of a larger debt is not consideration for an agreement to excuse the full debt.both parties must understand that the entire foundation of the contract is this specific purpose The modern American position is that both restitution and reliance are available if some performance has already occurred b/f the purpose is frustrated. it will not be duress • However. Chapter 4: Policing the Bargain Section 1: Competency to Contract • Contacts entered into by children/mental incompetents are voidable unless the contract relates necessities like food or shelter Section 2: Duress and Coercive Renegotiation • Definitely contract. A party that receives the benefit it seeks will not be relieved from a bad bargain. it can still give rise to duress • Brian Construction v. • Sometimes. the exception (a threat to do thing you have a legal right to do) is that if the threat was made for purely malicious motives to do harm. Bauman-Basch: way around legal duty rule . Loral Corp. Was the event in the anticipation of the parties (foreseeability)? Mutual purpose is required . as long as the consideration had some value. simply because the event might have been foreseeable. Levine v. getting rid of the need for consideration in the modification of the contract Batsakis v. it must be cabined – don’t want to lose certainty of commercial transactions Lloyd v. but parties amend the contract. • • • • • Modern view wouldn’t inquire that much into if the claim was valid b/c settlements are more likely to be viewed in a positive light.• • • • • • A better formulation for frustration of purpose is: 1.

you have a settlement agreement (accord and satisfaction) • The other party can’t try to reserve rights by writing on check “not full payment” • Two criteria for accord and satisfaction to apply: 1) Unliquidated claim or bona fide dispute over the amount due • Unliquidated – amount due and owing is not specified in the contract • 2) Payment must be tendered in full settlement of the entire dispute and not in satisfaction of a separate undisputed obligation There must be real bargaining over the price.As a matter of law. rescissions and waivers of contracts 1.” Section 4: Standardized Terms—Whither Assent? • Trying to figure out if standardized form contract will be enforced 23 . The waiver can always be retracted unless the other side has materially changed his position in reliance • Doctrine of Waiver • §89(3) –Modification becomes enforceable based on reliance • If another party changes position on modification. and the other party relies on this waiver to his detriment. Satisfaction: the performance of the accord agreement • • • • • • • Denney v. A signed writing that purports to bind parties to not modify contract orally. Modifications needs no consideration 2. the no oral modification agreement must be separately signed by the consumer 3. Jenson: by cashing a check with payment in full. the duress must be created by the other party • Duress must be confined to where a party made an improper threat • Preserve the courts ability to police the bargain for extortionate dealing Marton Remodeling v. we shouldn’t have to relitigate the merits of the underlying claim if the modification is fair and reasonable • The modern view is that we don’t inquire to see if the underlying claim is valid • Universal Builders v. in order for this to be binding. even if modification was without consideration. MOBIL COAL PRODUCING INC: Employee handbook provision can’t modify at will employment unless disclaimers are obvious and explicit. Reppert: a bargain to obtain benefits for performing regular duties is unenforceable • • Policy: we want employees to do their jobs fully and not fish around for extra money Section 3: Scrutiny of Limited Commitment Sheets Marton there’s no settlement/compromise Accord: an executory contract to discharge an existing contractual duty. if it was relied on. Modifications are like any contract for statute of frauds purposes 4. Employee should not have to choose between risk of criminal sanctions or keeping his job. Moon Motor Lodge: (§224) a contract can be modified by a separate agreement. the oral modification may act as a waiver for the parties to insistent on things in the contract 5. GENERAL MOTORS: D’s handbook had a conspicuous disclaimer in red ink and italicized emphasizing that the handbook was not a contract . Teddy Frosted Foods: Public Policy.• • 2) Provided by statute • 3) If there is a material change in position in reliance on the promise. EMPLOYEE HANDBOOKS:  do they create contractual obligations? • • MCDONALD V. The policy rationale of §89 is that when there is substantial uncertainty of parties obligations in light of unforeseen circumstances. we don’t privilege an earlier contract just because it is in writing • But statute of frauds could still be a problem • If someone waives a condition in the contract. we enforce and the waiver need not be in writing • UCC 2-209  Deals with modifications. KARI V. it will be enforced • It should always be possible for the person who made the waiver to retract until it was relied upon Hackley v. Even if we can’t find new enforceable contract. the handbook’s disclaimer was conspicuous enough so as to have not created a contract  “handbook clearly evinced an intention not to create an offer capable of acceptance”  the communication was “couched in disclaimers. Headley: idea of duress as a limited doctrine –duress created solely by the personal circumstances of one party will not invalidate a contract.

undue advantage. or gross misapprehension. not later on Equity hold contracts to a higher standard of fairness than courts of law. high-pressure sales tactics. Horsley: unconscionable bargain will not be specifically enforced in equity • • • • Unconscionability originated in equity courts concerned with fairness: so a claim for specific performance might be analyzed differently than one for damages Unconscionability is based on the time that the contract was made. mistake. then driver would have been on notice (a lot comes down to notice) Henningsen v.“parking subject to terms on ticket”. allocation of all risk to disadvantaged party. Richards: there are certain types of contracts that the court will not enforce. or where. fine print and undue influence. the substance of the contract is found to be unconscionable 24 • . Against public policy (unconscionability) These standardized forms are called contracts of adhesion (unilateral agreement to take our terms or walk away. which doesn’t use juries.: • Setting of the transaction • Experience and education of the party claiming unconscionability • Fine print involved? • High-pressured tactics used? • Disparity in the parties’ bargaining power Substantive – generally. imposition. gross disparity in consideration.• Two ways to hold unenforceable: i. experience and education of parties. no negotiation over terms) Example: P didn’t assent to terms the back of parking ticket. if there had been a huge sign. from a change of circumstances or otherwise.g. 2) eviscerates the terms agreed to. Min: modern view is that unconscionability is not just an equity doctrine – faithless agent. • Two major strands for dissolving or not enforcing a contract for unconscionability (as explained in Brower): • Procedural – problems with the procedure through which the contract was made. Bloomfield Motors: standardized forms can be held unenforceable because they violate public policy • But is this to big an umbrella – should this be part of contract law or expresses some value that don’t belong in contract law • Enforcing this disclaimer would allow dealers to limits their liability. broad and all-inclusive waivers of rights. the court must give the proponent of the clause the opportunity to give evidence about the commercial context Things to watch for unconscionability include: oppressiveness of K upon disadvantaged party. reminds us that in the commercial context. unless the party proffering the boilerplate has reason to know that she would have rejected the clause had she known about • Examples: 1) bizarre or oppressive. prevent injustice. it would be unconscientious to enforce it” • Waters v. unless a party would have rejected the term had they known it was included (this is the more accepted version) • Puts burden on P to show this • Restatement §211 a. when there is gross disparity in value. unfair surprise to disadvantaged party. Traditional contract doctrine – no mutual assent ii. • UCC §2-302 – it doesn’t matter which party is seeking the remedy – the court may refuse to enforce in whole or in a part on ground of unconscionability • • §2 of §2-302. which would lead to suboptimal amount of deterrence – public policy concern • The unequal bargaining power is a concern here as well Richards v. • • • • • (3) The term is enforceable. contracts that impose externalities on 3rd parties • Judge cites three reasons not to enforce contract. Unconscionability is generally considered a matter of law for the judge to decide (and not a matter for juries) because unconscionability cases started out in equity. but none is independently sufficient: • Release not conspicuously labeled • Release is too broad and all-inclusive • No opportunity for negotiations Broemmer v. or 3) eliminates purpose of transaction • Woollums v. “courts of equity will not proceed to decree a specific performance where the contract is founded in fraud. Abortion Services of Phoenix: majority holds that a term is excluded unless the party signing the contract would have reasonably expected the inclusion of such a term • Dissent: the term is included. superior bargaining power.

2. then a party’s performance of one part of such pair has the same effect on the other’s duties to perform as if this equivalent is the entire contract • 1) Must have agreed equivalents (can have agreed equivalent but not installment if there is a lump sum payment at the end) • 2) The right to insist upon payment is contingent for one performance is contingent on you having actually performed UCC §2-612: Breach of Installment Contract • Perfect tender rule (UCC 2-601) doesn’t apply to installment contracts • An installment contract is separate lots to be separately accepted • Where a contract specifies certain payment for each lot. If one side doesn’t show up. 3.• • • Mere inadequacy of consideration won’t cancel a contract Adhesion contracts are not necessarily unconscionable.where simultaneous performance is due. Van Lint: it is a matter of looking at the context of the parties relationship and dealings to determine the type of covenant • Restatement Principles on how to construe the order of performance • §234 . but the existence of an adhesion contract is generally evidence of inequality of bargaining power Bowers v. If no one shows up. buyer can reject for any non-conformity. Harris: exploration of rules on interdependence of performance obligations when the payment and work proceed in installments • Restatement §240. Dependent upon the other party’s performance at the same time b. there is no breach Price v. you have an installment contract • • • Only an installment contract if payment at same time of performance (no lump sum payments) Under perfect tender rule. the other party must show up to tender in order to sue for breach c. Gateway 2000: for unconscionability to apply. there must have been procedural unconscionability as well as substantive unconscionability • The doctrine of unconscionability is divided into two aspects: • Procedural – involves characteristics of a party or methods of contract formation that cast a pall over the agreement process • • • You identify procedural unconscionability by unfair surprise and/or absence of meaningful choice (take it or leave it) Substantive – the harsh impact of the contract’s terms Market Street: there is a duty of good faith and fair dealing implied in every contract (UCC §1-304) • The duty of good faith relates to the actual performance of the contract Chapter 6: The Maturing and Breach of Contract Duties Section 1: The Interdependence of Promises There are three different types of covenants (Kingston v Preston) 1. Pitney Bowes: • • Anticipatory Repudiation If there is an anticipatory repudiation. presumption that is that performance is due simultaneously • §238. v.where performance can be done simultaneously. so that each corresponding part is an agreed equivalent. but conduct can suffice • K&G Constr. a buyer can reject only if the installment substantially impairs the value of the installment and can’t be cure 25 .Part Performance As Agreed Equivalents • Where performance can be apportioned into corresponding pairs. but under 2-612 (2). 2-511 is the same rule Conley v. Mutual and Independent: each side has an independent claim for damages regardless of if the other side has performed (Nicholas) Conditional and Dependant: the performance of one party depends on the prior performance of the other party Mutually Interdependent: the obligations are to be performed simultaneously a. when do we have enough of a declaration from the repudiator that he will not perform? • Wholesale Sand & Gravel v. it is a condition precedent of each parties’ performance that the other party tender performance • UCC 2-507. Decker: Restatement § 250: anticipatory repudiation must be definite and unequivocal.

and the seller gives assurances that he will cure. then there is breach of contract as whole – buyer can cancel contract and reject future performance  So the UCC distinguishes non-conformity that impairs only an installment and one that impairs value of the whole contract The rationale flexibility and saying where there is a long term relationship. each side has an obligation to enter performance to put the other party in breach • Where tender can be done simultaneously. 11 – replicate simultaneity obligations – for a single lot transaction • §UCC 2-307 • According to these provisions. construe the words as creating a promise. you do something • • A condition is an event which must occur before a party’s performance is due Howard v. each parties tender becomes a condition precedent to the other performance. but not if seller gives adequate assurance of cure o • (3) If non-conformity substantially impairs value of contract as whole. Feitner: buyer is obligated to pay for the delivery of separate lots as they arrive because they are apportionable into different lots (this is consistent with §2-307) • Section 2: Interpreting Conditions o Is it a condition precedent to performance that something must happen? o What is often very tricky is distinguishing between covenants and conditions  Covenant – promise to do something  Condition – I do something. action • Covenant – specifies something to be done (affirmative) • Condition – specifies something not to be done (negative) – I don’t have to “unless” • But you can come up with all sorts of ways where this formulation won’t work So. a covenant? •   Howard v. and tender is not required to put the seller in breach • General principle: when performance due simultaneous. then it may not be a breach of contract not to fulfill the condition (Merritt Hill) Insurance contracts are generally construed against the insurer in cases of ambiguity (contra preforentum – construe contract against grantor). then the buyer can’t reject Summary: can reject if substantial impairment to installment. it is construed as a promise.“one that can be removed as a practical matter” • Stewart v. then the buyer is still required to tender performance to put the seller in breach • If the defect is not curable. FCIC: there is a policy against forfeiture – so when it is unclear whether the clause is a promise or a condition. not a condition • Condition precedent – if a condition. there is an exception to the rule. payment must be paid upon delivery of each lot Tipton v. FCIC – distinguishes based on inaction v. assume they should be tendered simultaneously • But sometimes it can’t happen all at once • What is really happening hear is that employers are more solvent • Good sent in multiple lots – what is the rule now? • Under §2-507. you don’t need to go through a futile gesture. • Question of the order of performance where they can’t be simultaneously due • Basic presumption: where performance due simultaneously. • Restatement §261: in the case of doubt. Newbury: where a contract is made with no agreement for the time of payment. Smith: if the defect is curable by the date of performance. How can you tell whether something is a condition v. let’ s try to prevent forfeiture where only a small breach of one installment Ziehen v. and the condition precedent never occurs. there is no magical formula to tell the difference between a covenant and condition – it is murky about how to figure this out Keep in mind – avoid contractual forfeiture and only construe as a condition if it is very clear that a condition is met 26 . • Where performance could be tendered simultaneously. the work must be substantially performed before payment can be demanded.• • • BUT if the defect doesn’t impair the whole contract (part 3). to recover for breach. it should be done so  2-307.the seller generally must deliver in a single lot • But if the circumstances give either party the right to demand delivery in lots. you had have bettered tendered performance • How do we know if a defect is curable? . the performance obligation never arises • • • If a clause is a condition and not an obligation.

you may waive your right to the conditions • So what can your client to do? • Try as much as possible to paper the record with letters and representations that by being lenient you are not giving up your rights • Could enter the contractual modifications in writing with additional consideration Clark v.: specific fund doctrine: where a contract identifies a source of a payment. the failure of that source to be funded relieves the obligation to pay • Prevention doctrine: if you want to rely on a condition. the failure to comply with a condition is not an absolute bar to recovery.“if. but to the effect of deviation on the other party • • 27 . nonperformance of the condition can be excused • Material is defined as: prejudice to other party from a failure to comply with the condition – if other party is not worse off. • • • Waiver: the voluntary and intentional relinquishment or abandonment of a known existing right or privilege • Once a waiver is made. West: two ideas to attack non-compliance with condition: waiver/estoppel or materiality/prejudcie • Waiver/estoppel argument: focuses on acts of West saying it was ok for prof to drink • Materiality/prejudice: the breach was so insignificant that it did not affect the quality of the work Aetna v. How can we tell the difference: • Condition precedent . you cannot actively hinder the occurrence of the condition Royal-Globe v. • Rule: when interpreting insurance contract conditions which the insured has failed to comply with. • So. materiality • Materiality – quantum of deviation from the contractual stipulation • Prejudice – not the quantum of deviation. it is irrevocable and can’t be revived • Waiver can be retracted under UCC 2-209 (5) – with reasonable notice Estoppel: arises when one party has made a misleading representation to another party and the other has reasonably relied to his detriment on that representation New element of excuse for non-compliance with a condition: • The common law view was very strict about compliance with conditions and materiality of the condition was irrelevant • The modern view: materiality doctrine • If a clause is not material to the contract. an estoppel only works to suspend the application of a condition until proper notice is given. Bristol being lenient. Globe & Rutgers Fire: waiver of a condition precludes the revival of a condition. there is no obligation to perform • A condition subsequent – if the condition happens. then not material • “Time is of the essence”.“unless” the following happens • Parsons v. what would the outcome of the case be? • Probably the same – the court would just loosen up the 24 hour requirement and imply a prompt notice requirement • • Semmes v. when” the following happens • Condition subsequent . if the contract did not have a prompt notice requirement. but the insured bears the part of proving the absence of prejudice on the part of the insurance company • Prejudice v.• Gray v. performance is excused • A condition subsequent is an event which operates by agreement of the parties to discharge a duty of performance after it has become absolute • These are very rare – usually occur in insurance contracts which state that a suit on a claim must be brought within a certain time. the nonoccurrence of the condition of timely notice may be excused. Hartford: court holds that the condition became completely obliterated and could never come back to life again (opposite of Royal-Globe) • Gilbert v. • The insured bears the burden of proving no prejudice. Murphy: if it can be shown that the insurer suffered no material prejudice from a delay. Harrington: waiver/estoppel can arise through conduct . or the claim is discharged • • Why does it matter – affects who has the burden of the proof – the person who benefits must prove.makes time a material condition to the contract • Porter v. Craven: court holds that a prompt notice provision did not get obliterated by the non-occurrence of a condition • Court suspends the prompt notice requirement because it’s more flexible and easier to revive but obliterates the 24 hour notice requirement permanently. Gardner: distinguishes between condition precedent and condition subsequent • A condition precedent – unless the condition happens.