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Is there a contract? What does it mean? Was there a breach? What can the defendant get (damages)?
Restatement section 71 note B says that as long as there is something being sought in the bargain, we shouldn t look at the subjective states of mind of the parties. It just needs to look like a bargain. Restatement Section 71 tells us what a bargain is. 1. Promisor must be seeking something 2. Something must be given by promisee in exchange for that promise We look at external manifestations because it is difficult to discover motives, people can lie about their motives, and people assign different values to things (objective test v. subjective test). Consideration can be either a promise or performance. It depends on the contract. Some seek promise and some seek performance. Restatement Section 75: The promise is consideration if the promised performance standing alone could be consideration. There still has to be a meaningful act. Restatement Section 77 is about illusory promises. Bilateral contract-there are two promises, and both parties are bound after these promises are exchanged (this is how most contracts work in the business world). Either side can breach. Unilateral contract-the promisor is bound, but only after something is done. Only one side can breach.
Restatement Section 90 Promise Reasonably Inducing Action or Forbearance 1st Promise Action/forbearance Promisor should reasonably expect action/forbearance 1
6. There are several factors: 1) 2) 3) 4) Evidenced intent to be bound Terms Circumstances Sequence of communication A promise must contain a meaningful exchange. Cannot be officious/unrequested/meddlesome. A good faith implicit promise will sometimes save a contract that would otherwise fail (Lucy). Remedy can be: a) total wealth increase b) total cost avoided Offer An offer is an act whereby one person confers upon another the power to create contractual relations between them. 4. (Physician services are an exception) Cannot expect compensation from another source (K). 5. 3. Strong. Must confer a benefit that unjustly enriches. Cannot be gratuitous. 2. Unjust Enrichment The action: 1. There must be a measurable benefit. 2 . Lakeland. not just an illusory promise (where there is no meaningful exchange in fact).2 Action/forbearance must be definite and of substantial character Promise must have reliance Binding if injustice avoided by enforcement of promise 2nd Remedy limited as justice requires replaces action/forbearance must be definite and of substantial character The second iteration limits the scope of the remedy.
They can be created three ways: consideration. without the slightest variation. Option Contracts are promises made by an offeror that effectively limits his power to revoke. Where no time is specified. 3 . An offer is generally revocable until acceptance. Death or destruction of the subject matter of the offer can revoke an offer. Price quotations not usually offers. What s the problem with stringent application of the mirror image rule? The offeror might use it as a pretext for rejecting the acceptance. terms. whatever time is specified in the offer. The remedy is limited as justice requires. Revocation Section 42 and Section 43 of the Restatement talk about notice of revocation. It gives the offeror the opportunity to get out on a technicality. A response that does not exactly mirror the terms of the original offer is a rejection. but can be if they are definite enough and look like they could be accepted. Offers must be definite enough that somebody can accept them. Offer must be specific enough so that it can be accepted. firm offers under the UCC. Offer and assent: we use an objective test most of the time. we want to look for noncontractual remedies like promissory estoppel and unjust enrichment. Sometimes courts will rule that a term doesn t mean that the person wasn t willing to accept the offer because it isn t meaningful such that the offeror should take it as a rejection. Review the requirements for unjust enrichment. the offer lapses after a reasonable period of time. Acceptance is governed by the terms of the offer. The intervening illegality of a proposed contract will revoke the offer. This protects offerees reliance Seinterests in unilateral contracts. and reliance by the offeree. Section 45 says that beginning performance effectively terminates the offeror s ability to revoke the offer.3 If there is no contract (missing required element). Rejection and the Mirror Image Rule Acceptance must be on the terms proposed by the offer. sequence of communication. Death or insanity of the offeror or the offeree can revoke an offer. We look at circumstances. Offers can be terminated by the lapse of time. Promissory estoppel in section 90 of the Restatement. Direct or indirect communication (if from a reliable source) can be notice of revocation. and acts as a counter-offer. Note that just because the offer says it will remain open until some date does not mean that the offeror cannot validly revoke the offer before acceptance.
I will pay) 4 . In these cases the acceptance doesn t make a contract until it reaches the offeror. as in it could even possibly be done in a year. it is not necessary that it be in writing) 2) Transfer of interest in real property (the exception is leasing for less than a year) 3) Sale of goods for $500 or more 4) Surety agreements (If so and so does not pay.4 The Last Shot Rule The party that sends the last communication before acceptance gets to set the terms. The old rationale was that the offeree could not get the mail back. This is without regard to whether the acceptance reaches the offeror. Section 42 of the Restatement. Restatement Section 63 makes the mailbox rule applicable only if the acceptance is made in a manner and by a medium invited by the offer. This terminates the offeror s power to revoke. and it terminates the offeree s power to reject. Rejection is effective on receipt. The Mailbox Rule Acceptance is effective at dispatch. This generally favors the offeror. The mailbox rule doesn t apply to irrevocable or option offers. Revocation is different. Statutes of Frauds 4 types that require writing: 1) Agreements requiring more than a year for full performance (note that if nothing inherently prevents it from being done in a year. an option contract is created when the offeree tenders or begins the invited performance. The new rationale is that it protects the offeree s reliance. Precontractual Liability Restatement Section 45 states that if an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance. It is effective on receipt. Section 40 of the Restatement.
Contract Interpretation Parol evidence is usually ok for interpretation. 213. Some jurisdictions have this and some don t. 2) Is the contract total or partial? In other words. 212. Even a small increase in the duty might suffice. However. This is similar to the parole evidence rule. a statement of opinion may be treated as a statement of fact. evidence of any earlier oral or written expressions is not admissible to vary the terms of the writing. There is the public policy consideration of coercion or duress. but not always. Domenico Preexisting Duty Rule performance of a preexisting duty is not consideration. so interrelated to the fact) 3) An exception is that court s allow parole evidence when something is left out of a contract by mutual mistake or because of a unilateral mistake involving fraud. Only applies to evidence prior to or contemporaneous with the written agreement. Concealment and misrepresentation rule you don t have to tell everything that you know. or where one party has greater opportunity to learn the truth or falsity of the fact represented. but it is more stringent because it doesn t even allow external evidence as to the integration of the contract. should the subsidiary agreement naturally be included in the contract? (Same subject matter. This test is formalized in the Restatement: sections 209. If one party is going to pay more. where the parties do not deal at arm s length. Parol Evidence Rule where an agreement has been reduced to writing which the parties intend as the final and complete expression of their agreement. Things after the contract can possibly be considered. 5 . You cannot just tell half of the truth.5 Policing The Bargaining Process Alaska Packers Association v. Four corners rule when a judge looks only at the contract document itself. but partial disclosure warrants full honesty. 215. Where there is a fiduciary relationship between the parties. 210. the other party must be doing something more. Two-step analysis of the parole evidence rule: 1) Is the contract integrated (final)? This is presumed. where one party has tricked the other. there is no liability for bare nondisclosure. 216 A merger clause can be put into a contract to basically say that the contract itself contains the entirety of the agreement. 214. Vokes Misrepresentation of opinion when the partial disclosure is materially misleading. When it tries to add something to the K the parole evidence rule is in effect. then we need the whole truth.
or mistake are involved. The use of extrinsic evidence from commercial context Frigaliment Importing Co. W. The use of extrinsic evidence of the parties intent. Hurst v. Wichelhaus When a term used to express an agreement is ambivalent and the parties understand it differently. if one party should have known the trade usage. In New York. 6 . The only instances in which the parol evidence rule may not apply to exclude prior oral agreements not incorporated in the subsequent writing are those in which fraud. International Sales Corp The making of a contract depends not on the agreement of two minds on one intention. unless told to use one or the other. Russell & Co. Step 1 of the Plain Meaning Rule uses all credible evidence to determine ambiguity. Step 1 of the Plain Meaning Rule uses the language in the contract itself (Four Corners Rule) to determine ambiguity.J. and neither of them is aware of the other s understanding. Lake Co. There has to be a CLEAR trade usage. The plain meaning rule 1) Determine ambiguity 2) If it is ambiguous.6 Gianni v.N. The court looks for an objective meaning of the disputed terms. What the parties said. there can be no contract. argue both in the alternative. Policy reasons: This trade usage evidence can be a protection against fraud. extrinsic evidence may be used In California. but on the agreement of two sets of external signs. accident. Raffles v. R. On an exam. not what they meant is the essence of the contract. v. There is no majority approach. In a world where two parties have a different understanding of the term.S. Restatement § 202 is about the rules of aid in interpretation. then that party is responsible for those definitions. B. This is an objective test of what the parties said.
7 . and the other knew the meaning attached by the first party. Contracts of adhesion are a subset of the standard form contract because the one party sets all of the terms and the other party can only accept or walk away. There is no real room to bargain often times. Agreeing to Boilerplate The exchange has to be meaningful. Contracts of adhesion may be unenforceable: 1) where they contain provisions that either do not fall within the reasonable expectations of the adhering party 2) or they are unduly oppressive or unconscionable. Limits on the Bargain and its Performance 1) Unfairness unequal bargain/bargaining power 2) Unconscionability oppressive terms (can be procedural such as form contracts and contracts of adhesion. it is interpreted in accordance with that meaning. or b) That party had no reason to know of any different meaning attached by the other. or it can be substantive like a term of the contract is patently unfair) 3) Public policy contracts that are bad for society (like for contracts to break the law but they aren t always illegal) Standard Form and Adhesion Contracts These are mass produced contracts and they are often take it or leave it in nature. neither party is bound by the meaning attached by the other. Not all standard form contracts are adhesive. They increase efficiency and predictability. it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made a) That party did not know of any different meaning attached by the other. The agreeing party must at least be given notice. There is an asymmetry in bargaining power. Except as stated in this section. even though the result may be a failure of mutual assent.7 Restatement § 201 Whose Meaning Prevails 1) Where the parties have attached the same meaning. and the other had reason to know the meaning attached by the first party. 2) Where the parties have attached different meanings.
Someone who is forced to do something may not do it well on purpose. but not always. and the time of the court in evaluating the evidence. 8 . We may be able to get specific performances when other damages at law are not adequate to equal what we would have had if the contract had been fully performed (expectation interest). which must rely on a battle of experts. v. and both P and D might have to spend a lot on negotiating. 4) Involuntary servitude. Personal service contracts not usually eligible for specific performance because: 1) Bad blood issue. and the effects on third parties. There are also costs and benefits with the damages remedy. Sara Creek Property Co. 2) Quality of performance. 2) unreasonably favorable contract terms (whether the terms are so extreme as to appear unconscionable according to the mores and business practices of the time and place) Remedies Specific performance is most often used in regards to real estate. the cost of preparing and presenting evidence of damages. 3) Enforcement is often impractical. Courts do not want to force people to associate when they do not wish to do so. Moral Hazard concern that the party will behave differently from how it would if it were fully exposed to risk or they just lose certain incentives that are there in the context of a contract. The downside to injunctive relief is that it requires court supervision. Walgreen Co. It avoids the cost of continuing supervision. First. Walker-Thomas The court looked at several factors to establish unconscionability: 1) absence of meaningful choice (both whether to enter into the contract or to the terms of the contract). This is preferable to costly litigation. There are benefits to substituting an injunction for damages. Determining whether a contract meets deserves specific performance is a fact intensive type of analysis. it imposes costs less accuracy in the determination of value. The parties can settle the dispute and dissolve the injunction. Second. the market can determine prices and costs better than the courts. it risks a bilateral monopoly. the cost of a bilateral monopoly. an injunction shifts to the parties the burden of determining the cost of the breach.8 Williams v. However.
It depends on the situation. caused by the breach. but no breach Reliance interest. but not always. the injured party has a right to damages based on his expectation interest as measured by (a) The loss in the value to him of the other party s performance cause by its failure or deficiency. Costs saved can include: 9 . including incidental or consequential loss. which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made-try to get back to no contract at all Restitution interest. Calculating Damages Measuring Expectation Restatement § 347 subject to the limitations stated in §§350-53. less (c) Any cost or other loss that he has avoided by not having to perform Lost value is: 1) If there is no performance. the value of the difference between what the party got and what was expected. the value of the performance to the non-breaching party 2) If partial or defective. plus (b) Any other loss.9 Damages Specific Performance (explained on page 8) Expectation interest. Restitution interest could be useful when it is hard to value something or if what the plaintiff got ends up being worth less than what he gave. which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed-try to get back to contract. which is his interest in having restored to him any benefit that he has conferred on the other party-try to get to no benefit conferred to the defendant Expectation damages are generally the best for the injured party.
the correct measure is the difference in value between the performance expected and the performance received. There is generally a duty to mitigate. and certainty) Avoidability: Can the injured party avoid damages? Personal Service Contracts The rule is that the injured party must make a reasonable effort to find a substitute opportunity that is not inferior or meaningfully dissimilar. Limitations on Damages (Avoidability. Restatement § 349 expenditures made in preparation for performance or in performance. Cost to Remedy Normally. (Jacob & Youngs v. Kent) 10 . or (b) The extent to which the other party s property has been increased in value or his other interests advanced. the measure of damages for defective performance is the cost of replacement. Restitution: Restatement §371 Measure of Restitution Interest. But when the cost is grossly and unfairly out of proportion to the good to be gained. minus any loss that the breaching party can prove would have occurred had the contract been performed. foreseeability.10 1) 2) 3) 4) Not having to perform Discontinuation Substitute usage by breaching party Salvageable materials Reliance: Traditionally calculated as the party s expenditures Learned Hand says that it should be expenditures minus what the party expects to lose. It may be measured by: (a) The reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant s position.
11 . Some rules on limiting damages based on foreseeability: 1. a new business can recover damages for lost profits. Restatement Section 348 If a breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach. In addition. The jury may not speculate or guess. even by a new business. Village Plaza.11 Foreseeability Restatement Section 351: Normally damages are those which arise naturally from a breach of the contract (those which would be expected by both parties to probably flow from a breach). Loss must be contemplated by the party in breach (and only the party in breach is necessary). however. they will be assessed against the defendant only where they were reasonably within the contemplation of both of the parties as being the probable consequence of a breach. The issue of certainty in limiting damages Restatement Section 352 damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. Look at the examples for how this damage might be calculated. Inc. 3. (if the chance of winning was ¼ and the prize money was $100k. they may be recovered. 2. where there are damages because of special circumstances. then $25k awarded) Damages for loss of reputation are not usually foreseeable or certain. The loss must be foreseeable as a probable loss. When proof of prospective profits is available. but if the evidence is sufficient. Fera v. so they are not awarded. The test of foreseeability is party objective. Foreseeability is determined at the time of the contract. the injured party may recover damages based on the value of the conditional right at the time of breach. The evidence must be reasonably certain.
12 Conditions Restatement Section 224 is about conditions. Recap of conditions versus duties Conditions might make it more difficult to get any kind of damages. Express conditions must be met exactly. there is no hardship in holding them bound by it. Dependent Covenant the promises are dependent on each other. It s harsher to enforce an independent covenant because one party is still on the hook for its performance without getting its part in return. A condition is different from a duty because a condition has to be done PRIOR to performance by the other party. Independent Covenant failure to perform doesn t excuse a non performance by the other party. If one party must perform first. Time for performance fixing the time in a contract is the way of allocating risk. Restatement Section 232 says that contracts are generally presumed to be composed of dependent covenants. Substantial Performance If a party substantially performs he is entitled to the contract price. This is an extreme result. while a duty has to be done but not necessarily before. so under Restatement Section 227 an ambiguity is normally resolved in finding of a duty instead of a condition. Deciding whether a provision is a condition or duty can be difficult. but he will still be liable for damages. The promises are independent of one another. then the other party might be able to hold off performance even in the covenants are independent. and which is free from all taint of fraud or mistake. Condition of Personal Satisfaction Where the parties deliberately enter into an agreement which violates no rule of public policy. The courts generally prefer an interpretation that avoids a condition because of the harsh results that can arise from nonoccurrence of a condition. 12 .
the injured party can continue to perform and sue for damages. d) The likelihood that the party failing to perform or to offer to perform will cure his failure. If there is a material breach. b) The extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived. Restatement Section 242 Circumstances Significant in Determining When Remaining Duties are Discharged: a) Those states in § 241. including the language of the agreement. e) The extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing Suspending Performance and Terminating the Contract If there is a partial breach. taking account of all the circumstances including any reasonable assurances. and good for plaintiff because he doesn t have to sit around and wait to find another job. but a material failure to perform or to offer to perform on a stated day does not of itself discharge the other party s remaining duties unless the circumstances. the injured party can suspend performance. Anticipatory Repudiation The contract has to be utterly renounced in order for this early action.13 Material Breach if the party does not perform substantially then it is a material breach and the injured party does not have to perform. it becomes a total breach and the contract can be terminated. c) The extent to which the party failing to perform or to offer to perform will suffer forfeiture. If there is no cure. Whether a performance is substantial performance or material breach is fact intensive. Restatement § 241 Factors to be considered: a) The extent to which the injured party will be deprived of the benefit which he reasonably expected. The injured party must then seek a cure (and give enough time to remedy). The extent to which the agreement provides for performance without delay. b) The extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements. indicate that performance or an offer to perform by that day is important. This is good for defendant because it allows mitigation of damages. 13 .
after a contract is made. his duty to render that performance is discharged. one party s repudiation of a duty to render performance discharges the other party s remaining duties to render performance. Defenses to Breach Unfairness (Previously mentioned on page 7) to limit damages Unconscionability (Previously mentioned on page 7) Impracticability of Performance When alleged. 2) Where performances are to be exchanged under an exchange of promises. unless the language or the circumstances indicate the contrary. 2) The risk of the unexpected occurrence must not have been allocated either by agreement or by custom (foreseeability or even recognition of a risk does not necessarily prove its allocation).14 Restatement Section 253 Effect of a Repudiation as a Breach and on Other Party s Duties 1) Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it. Frustration of Purpose Restatement 265 Discharge by Supervening Frustration 14 . the court is asked to construct a condition of performance based on the changed circumstances which involved three steps: 1) A contingency must have occurred. his repudiation alone gives rise to a claim for damages for total breach. 3) The occurrence of the contingency must have rendered performance commercially impracticable (this is an objective test unless both parties are aware of a dealer s limited capabilities). Restatement Section 261 Discharge by Supervening Impracticability Where. a party s performance is made impracticable without his fault by occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made.
unless the language or the circumstances indicate the contrary. or otherwise. after a contract is made. the court may grant relief on such terms as justice requires including protection of the parties reliance interest. 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. if those rules together with the rules stated in Chapter 16 will not avoid injustice. his remaining duties to render performance are discharged. account is taken of any relief by way of reformation. (2) In determining whether the mistake has a material effect on the agreed exchange of performances. either party may have a claim for relief including restitution under the rules stated in Sections 240 and 376.15 Where. Restatement Section 158 (1) In any case governed by the rules in this chapter. 15 . Mutual Mistake Restatement Section 152 when Mistake of Both Parties Makes a Contract Voidable (1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances. (2) In any case governed by the rules stated in this chapter. the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule state in Section 154. restitution.
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