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The Expectations Damages Principle Holmes’s definition of common law duty to keep contract: prediction one must pay damages for not keeping. Translate as Expectations Damages Principle: - with a legally binding promise, one can either perform or pay damages - damages measured by amount of $ to make breachee indifferent to whether I perform or not. Enough $ to place breachee in same position as would have been if promise’d been performed – and no more. - Rationale: forces party who thinks about breaching take into account other’s possible losses. Also normative claim that breacher “should” bear costs fr breach. Alternatives: • • Specific Performance: establishes starting point for negotiation. Reliance damages: putting breachee in same party he was before he received promise. Tort-like remedy. Lacks sharpness of expectation damages. Value of lost time and opportunities hard to monetize. Best proxy for lost opps and time is often expectancy damages. Reliance damages correctly measured often same recovery as expectation damages.
Rep case: Hawkins v. McGee – “guarantee” statement + acts (solicitation, pressure, etc.) held to be a contract. Analogy to machine warranties. Damages held to be: difference between hand after operation versus “perfect hand.” Recuperation, pain & suffering, etc don’t count. Valuation Problems: Key question for expectation damages not “What did I promise to do?” but “What did I promise to deliver and how much is it worth?” When goods are fungible & repairs are perfect, lower of cost of repair or of market value provides better measure. However, goods are often not fungible and subjective value (eg sentimental attachment to home) not visible.
Ceiling: cost of completion (cost of leveling land in Groves and Peevyhouse) – b/c that’s exactly what they ask for. Damages cannot be greater. Floor: Dimunition in value. b/c if they didn’t care whether land were leveled or restored, could sell land to someone who did and get increase in value they bargain for. Rep Cases: Groves v. John Wunder Co.: Wunder breaches contract to remove all gravel fr property it leased fr Groves. Groves argues damages = cost of completion (>$60k). Trial court judgment = dimunition in market value of land ($12k). Appellate court holds correct measure = cost of completion – contract entitled to compensation for what he’d lost (work or structure he’d been promised) and that he paid for, which he didn’t get b/c contractor’s breach. BUT Peevyhouse v. Garland: P leased ½ land to defendants for coal mining. Lease provided for D to fill in all pits & smooth surface at completion. D didn’t. Cost of completion = $29k. Dimunition in value = $300. S.C. awarded $300. Held that primary purpose of contract was recovery of coal, and remedial work was “incidental.” Statute prohibited recovery in damages greater than would’ve gained fr full performance on both sides. why not other way around since: Groves a businessman so little subjective value to land while Peevyhouses live on farm, also Peevyhouses explicitly rejected offer earlier and insisted on restoration clause. • Possibly restitution at work in Groves. • Also possibly like specific performance: parties can bargain around gains fr breach. Groves in fact did not spend his award on restoring the land. • Peevyhouses never in fact restored the land- but maybe they couldn’t afford to, or restoration value > market value but < cost of restoration. • In Peevyhouse, advantage of awarding this damage would’ve been: put incentives to bargain well in beginning. Coal company in best position to know cost of restoration. Information forcing rule, not expectation. Expectation Damages in Operation: Contract-Market Differential:
Governed by UCC 2-718. Baird and Roin think this case was wrongly decided) Anticipatory Breaches: when D renounces contract before performance is due. buyer’s damages should be calculated re: market price at expiration of “commercially reasonable” time after buyer learned of breach. • Missouri Furnace Co. • Neri v. Damages = lost profit + incidental expenses. Held: fair market value of gravel removed as damages. • Watt v. But. • But maybe he could’ve only sold 2nd boat bc it was available. • Acme Mills & Elevator Co. Cochran: P contracted w/ D to get coal delivered. Johnson: Contract for wheat deliver. seller may sell less than otherwise b/c consequences of breach are so big.R. • Freund v.R. Boat had already been delivered to D by that time and was sold late for same price. v. Co. wasn’t really worth the cost of hay + transportation. (Restitution at work. Damages calculated re: UCC. Breach.. differential represents incidental costs that seller faces in finding another buyer. D removed gravel fr property w/o P’s approval. DeCarolis Const. • Illinois Central R. P contracted w/ another to deliver remainder. also? B/c purpose to deprive D of “wrongfully made” profits. Shouldn’t he get either lost profit of first sale (but no incidental . Wholesale rather than retail market held to be relevant market for measuring damages. Court held that spot contracts on delivery ate minus original contract price as correct damages. would’ve sold 2 boats and made 2 profits. P sues for deposit back. rather than dimunition in value. v. reason for entering contract – more certainty. Washington Press: nominal damages for breach of agreement to publish b/c didn’t ascertain P’s prospective royalties (also lost profits case) Lost Profits wholesale-retail differential: ceiling on seller’s damages. Retail Marine Corp: Neri contracts to buy boat from defendant. Also see UCC §§2-712 & 2-713: if seller repudiates. Court reasons that since Watt did not actually buy replacement hay. standard measure of damages = difference between contract price & market price + incidental expenses (ie costs to enter new contract).When a market exists for a good or service. Therefore. D argues that but for P’s breach. Market price at time of breach was less than contract price. Crail: Crail purchased carload of coal of X weight but missing some upon arrival. Co. shouldn’t correct measure be substitute futures contract price (minus original contract price)? (Prof.: price difference of hay lost by fire but NOT the baling and transportation costs. sends in deposit. Had not resold any coal then. but no damages. but rescinds when needed operation -> can’t afford boat. BUT. Indirect Measures • Laurin v. Shortage did not -> business losses. In this case. Differs fr common law’s focus on time of performance.: P purchased some land fr D. D only delivered some. Nevada Central R. v.
Mindgames v. Didn’t measure opportunity costs nor precontractual costs). Breacher can show it would’ve been a losing deal for promisee. but may well simply be substitute. Albert & Son v. • Traditionally.• • expenses) OR market differential (0 in this case) + incidental expenses? Court treats 2nd sale as independent fr 1st. Court did not try to get at all reliance costs. Western Publishing: contract required D to pay P 15% royalties on all games sold.: P signed 10 year lease for shop in D’s proposed shopping center. Court is . perhaps concerned w/ unknown / speculative profits. Prof. Village Plaza. that breachee will break even is good baseline but it’s only a baseline. to better approximate expectancy damages. giving promisor bad incentives -> more broken promises since courts usually underestimate real reliance costs (for instance. Reliance damages = expenses + profit = gross receipts – expenses + expenses. Only awarded expenses incurred re: Dempsey fight after contract was signed. But. Should also include opportunity costs of NOT having entered into another contract (but usually doesn’t) Reliance damages = expectancy damages if calculated perfectly. lost profits measurement may be speculative) reliance damages as proxy. Roin: this is a terribly undercompensatory decision. P’s space given to another tenant. D offers space that’s rejected as unsuitable for P. Fera v. Buyer does not claim loss of profit but claims expenses it incurred in reliance upon seller’s promise.: action for recovery of price of rubber refiners. or saw lower sales of game after 1st year as evidence game wouldn’t have made more $ anyway. P sues D for additional royalties claim would’ve gotten if D had carried out contractual promotion obligations. all of which can be “reliance”). Dempsey: Dempsey breached a contract to fight for a fight promoted by CCC. • • • Problems: difficulty of measurement (a promise can induce subtle changes in behavior. Inc. reliance damages only are for after contract has been signed. reliance usually doesn’t include Chicago Coliseum Club v. Sellers delivered 2. Buyers refused to accept all four b/c delivery of 2 was delayed. Court does not uphold claim. gross receipts = expected profit + expenses. P sued for lost profits + incurred expenses but court did not award lost profits b/c too speculative. L. P is awarded lost profits. Why? Reliance as Proxy for Expectation Damages sometimes expectations damages difficult to measure (eg. Armstrong Rubber Co. should also include precontractual expenses (wouldn’t not including them mean we’re assuming he would’ve lost $?). giving promisee bad incentive to incur too many costs. etc.
you need to stop. Court holds mitigation duty only when other employment was comparable or substantially similar. therefore no mitigation duty. Therefore. and seek out other jobs. Essentially company bargained to give P paid vacation. Reed: precontractual expenses awarded when an actor breaches contract to act in TV production. Mitigation & Foreseeability Mitigation duty as way to fix for overreliance problem. want parties to take into account possibility of default. v. P may sue for recovery of lost profits & losses that have occurred already as result of breach. offered P in lead role in another movie. Foreseeability: • Hadley v. then cancel and offer alternate). but subject to promisor’s privilege to offset how much promise would’ve lost if contract had been performed. • Kearsarge Computer. • What counts as mitigation? Expectancy as limit on reliance? • Furthermore. Inc. production companoiies would bait & switch (offer X one kind of role. D claims P has duty to mitigate by accepting alternative offer. Twentieth Century-Fox Film Corp: D contracted w/ P to perform in “Bloomer Girl. Anglia TV v. If I tell you to stop building a bridge. Acme Staple Co. • Rockingham County v. entitled to damages for those costs. Emphasizes expectation damages as core principle. breachee entitled to recover for cost of rubber foundations used to prepare for performance. if P had hired workforce for X time). Luten Bridge Co. Also. was option contract: pay her guaranteed amount whether or not to make a movie.• not convinced promisee would’ve profited. P refuses and sues for recovery of agreed guaranteed compensation. Other movie was different and inferior. • Parker v.: P was awarded contract to build bridge but contract rescinded.” D dedcied not to go ahead w/ BG and breached contract w/ P. don’t want breachee to pretend breach didn’t happen.to take proper precautions. Reasoning like Neri (2 profits instead of 1). Perhaps worried if ruled the other way. P did not know which was the legitimate board – the one that rescinded or the people who tell him to keep going. but NOT for further work on bridge (changes in circumstances may lead to reason for breach) But two conflicting town boards. Does not want to make promisor the insurer for promisee. • Since some breaches are inevitable or desirable.: if P spent certain amount to work on contract which cannot be rescinded when contract breached (eg. Baxendale: no liability for consequential damages fr breach unless reasonably foreseeable - .
Interntaional Harvester Co. Would’ve otherwise asked for greater consideration @ time of contract. • Measured by “reasonable value of performance” (Restatement §347) • Not a contractual claim (can exist when contract doesn’t). Default rule of what most parties want most of time.• • • Once party communicates special needs. . (but maybe communication = more than just telling) • Victoria Laundry Ltd. considered engineering company that made laundry boiler to have “normal” knowledge of importance of boiler – loss of business is foreseeable. Rules hard to apply: what’s “reasonably foreseeable” or “normal”? What damages were contemplated for “special circumstances” at time of contract? What are “disproportionate damages?” Restitution as Alternative to Expectation Damages quantum meruit action / unjust enrichment. and best provider of info on value of light.: seller could not have tacitly consented to damages for loss of entire crop for failure to deliver small lighting accessory. others can bargain around.: Holmes’s “tacit agreement test” – mere notice is not enough. • Damages recoverable when P has conferred a benefit on D. Justifications: sensible way to allocate risks b/w parties. o Prutch v. Landa Cotton Oil Co.” Maybe also court thought Lamkins didn’t mitigate or disproportionate damages. Limitations on damages unique to contract law (unlike tort law’s thin skull doctrine) b/c contract parties voluntary and have opportunity to discuss unusual conditions before entering contract. v. not as a gift. “penalty default” – a stick to force one party to convey info. (Need bargained for exchange for special circumstance??) o Lamkins v. • Globe Refining Co. and he has to return it. Ford liable crop damages when it delivered defective tractor to farmer.: Based on §2-715(a) of UCC. Newman Industry: P can recover for loss of business profits when large laundry boiler delivery unduly delayed. Theory: I gave him something. Under 1st rule of Hadley. and P has sustained a loss. D in using tractor after finding out defect was fulfilling mitigation duty b/c alternative was to not harvest at all. o Lamkins court: “special circumstances” while Prutch court: “reasonably foreseeable. Ford Motor Co. v. then other party becomes responsible for all damages flowing fr breach.
” Where reasonable excuse. rather than the (higher) ‘reasonable value of…services. if they’ve partially performed. D dismissed P after judgment was signaled but not signed. punishment. Penalties are NOT enforceable under contract. b/c sometimes breach is efficient. difficulty in quantifying damages. P & D entered contract where P would perform services for D and would be paid a certain sum for a year of work.- Some cases look like reliance but framed as restitution. Britton v. Also may lead to other bonding mechanisms or hostage giving. can get around penalty clause problem by drafting contract differently: draft contract w/ low price but high bonus for performance by a set date. • Ban on penalty clause favors well-established firms w/ good reputations. Algernon: subcontractor stopped work b/c prime contractor’s breach. Sued for quantum meruit. Similar situation as Parker. • Common law does not allow for damages greater than expectation damages. Turner: recovery. See Neri) Stark v. Restitutution & expectancy can conflict. Recovery in quantum meruit for value of labor & equipment already furnished pursuant to contract. • Breacher suing (eg. Campbell: P divorce lawyer for D.” P had “in effect” performed and limited to contract price. Eg: Building remodeling cases. courts may systematically underestimate true expectation damages. but here no excuse. and penalty -> promisee to get promisor to breach. but “The money was to be paid in compensation… not as a consideration for an engagement to serve. court argues D unjustly enriched or benefited fr changes fr buildings they don’t buy – benefit of extra info. Expectancy usually greater than restitution except: • Failed contract (so no expectancy remedy b/c no contract under law) United States v. P quit D’s employ w/o cause and w/o D’s consent. b/c Blair benefited fr subcontractor’s provision of labor & equipment. However. P can only recover balance of contract price. - . Parker: no recovery. • Breach of losing contract (breachee would’ve lost $ if contract’d been completed) Should expectancy be ceiling when it’s alternative for restitution? Restitution as floor on expectation damages. Oliver v. • Reasons for penalty: unusually sensitive to breach. penalty clause way of signaling quality (we’re so good we have a penalty clause cuz we know we won’t have to pay) • Under existing law. • UCC remedies for defaulting buyer closer to Britton rule • Liquidated Damages & Penalty Clauses liquidated damages acceptance when they are a reasonable forecast (but difficult to measure) or reasonable approximation of actual damages. law allows recovery.
difficulties of proof of loss. Contract provided for $10/ day damages if late. Clause’s purpose b/c hard to demonstrate a financial loss (emotional damage can be real. eg unique goods or services b/c courts likely to undervalue promise. • Specific Performance good: if breaches usually do not make sense. Miss. and courts have trouble compelling performance.: negligence on D’s part (security company) -> robbery -?> loss of $60k. Specific performance regime: giving promisee full value of promise. inconvenience or infeasibility of other remedies. Court held provision unenforceableb/c city didn’t suffer actual damages (court seemed to reinterpret damage clause as coming into play when delay in traffic) • Samson Sales. City claims liquidated damages ($250/ day of delay * # of days). but Chancellor could so order. D argued contract stated D not P’s insurer and only would pay $50. renegotiations are hard. . Bad: if breaching often a good idea. 1945): bridge constructed late but no actual damage b/c road that needed to be built for bridge to be used finished even later. Common law courts did not award specific performance. but courts ignore that b/c there’s no market for it). (5th Cir. allow for efficient breaches. $50 not reasonable in light of actual/ anticipated damages AND easy to prove actual damages. or when damages very hard to collect. Seems perfect for liquidated damages.- - Reasons for unenforceability: 1) contract breach remedies to make party whole. Inc. and if negotiations relatively easy. Inc. Like Peevyhouse in that damage is not financial. Most commonly arise when expectation damages very hard to measure. unreasonably large are unenforceable as “penalty” • UCC: Amount must be reasonable: in light of anticipated or actual loss. City Council of Greenville. damages hard to measure.”Maybe court took into acct that contract was not canceled for the 2 yr delay (instead of finding another contractor – but maybe company was stringing her along) • Massman Constr. unreasonably large damages “void” as penalty Rep cases: • Muldoon v. Lynch: funerary monument case. Today. Approaches to liquidated damages: • Common law (Muldoon): damages hard to measure + amount reasonable in light of anticipated or actual damages • Restatement: damages must be reasonable in light of actual damages. Co. dfficulty of proof. not simply its value in promisee’s hands. Does clause provide for liquidated damages or penalty? Court holds that it is a penalty: contract referred to damages as “forfeiture” and no indicate “defendant as suffered any actual damage which can be measured or compensated by money. sp still routinely available in land sales transactions. not to punish. v. Honeywell. Court held for P. v. construction was delayed b/c marble was shipped late.
Wagner also probably doesn’t have enough $ to pay for lost profits. See Curtice Brothers v. Wagner: opera singer enjoined fr performing at rival’s opera house. Catts (urgent demand for tomatoes. Making farmers produce tomatoes rather than pay damages). Just give me something or incur a detriment in exchange for promise • Something done in past can’t be consideration: can’t be bargained for if already done (initial action or forebearance is gift). Bargained-for Consideration: Langdell and Holmes: contract (legally enforceable promise) could not exist in absence of bargain and a sufficient consideration.Principal concern of 19th Century contract theorists was not w/ restitution cases. no restitution claim against father to begin with.one set of cases. . Fitzpatrick: defendant’s promise to pay for pas keeping of bull enough to allow recovery • Mills v.• • • Some output contracts.” • Relative value doesn’t matter. between consideration and promise. • Pros to consideration theory: Roughly sorts out promises intended to be legally enforceable from those that aren’t . alt usually not. • Boothe v. Some covenants not to compete also enforced. If court allows past consideration to be treated as consideration to enforce promise. But b/c son is adult. Chapter 2: Domain of Legally Enforceable Promises Background: . Benefit conferred falls just short of what would support traditional restitution claim in absence of promise. Protecting intellectual property such as trade secrets. nonfungible talent. BUT maybe also to prevent cheating (farmer sells more than his whole crop when price is low and much less when it’s high). each for the other. restitution based: benefit conferred on another + other’s promise to pay = enforceable promise. • Performance or return promise that is bargained for Bargained for = sought by promisor in exchange for his promise + given by promisee in exchange for promise performance may be an act or forbearance from act • Holmes: consideration is given and accepted as “the motive or inducement for furnishing the consideration… the relation of reciprocal conventional inducement. would allow gifts to retroactively be made into bargains. See Lumley v. Negative injunctions when enjoined person possesses special. Wyman: court declined to allow action against father for past care bestowed on adult son. Possibly hard to get tomatoes elsewhere even if spot market.
voluntarily handed over customer records. P wasn’t required to do anything. Cons of consideration theory: • Lacks hard edges of good formal rule: o How to separate promise subject to condition (I’ll buy you a Porsche if you go down to the store and pick it up) from bargained-for exchange (I’ll buy you a Porsche if you mow my lawn)? o Judges can find consideration anywhere. P sued for breach of “retirement contract. See DiCicco v. DeLeo: decedent promised to give $25k to congregation. See Fischer v. Died intestate survived by wife. Schwizer: father’s promise to pay annuity to daughter & fiancé on ground that they went ahead and married (detriment b/c they had legal duty to not marry) o Judges can also fail to find consideration when parties engaging in formal ritual good rule should induce. After P left D’s company D continued to give him 1% commission on all sales for five years. o Hope or expectation not enough to constitute consideration or reliance. No employment contract. rather than bargained-for exchange as a concept. Many problems arise fr use of bargained-for exchange as a formal rule. Payments by D just gratuities. • Possibly Pitts and DeLeo were not enforced bc not written down (so hard to prove). Formalism’s advantages: • Evidentiary function (may make it marginally easier to figure out after the fact whether someone intended to be legally bound) • Channeling function: parties know fr existence of exchange that it’s legally enforceable and can lead their lives accordingly • Cautionary function: parties forced to think carefully before entering legally enforceable obligation b/c promise is enforceable only if given in conscious exchange for something else. just mimicks form of one. - Rep cases: • Kadimah Toras-Moshe v.” Sought to show negotiations leading to retirement were offer by D for exchange of customer records for 1% commission on all sales w/I territory. Congregation planned to use $ to change storage room to library named after descendent. McGraw-Edison Co. • Consideration= legal benefit to promisor or deteriment to promisee. Promise unenforceable due to lack of consideration or reliance. Customer records were just a gift.: P retired and had sold D’s products on commission basis. Union Trust: Father’s promise to pay mortgage on a property for daughter unenforceable b/c not a real bargain. . • Pitts v. Insistence on bargained-for exchange introduces formal element (versus just IDing intent).
Spear: reliance by Siegel on Spear’s agent’s offer to get insurance. However. Court held consideration was in turning furniture over (but that’s a free bailor. Webb v. etc. When Siegel’s furniture burned in fire and was not insured. • Seavey v. not bargain) - - . o Consideration = something bargained for that’s not already a legal requirement. (Does this jive w/ past consideration ban?) Promissory Estoppel & Reliance: early 20th century attempt to expand legally enforceable promises’ domains to include those that induced reasonable reliance. • Requires transfer of possession AND improvement (which do not have to be requested by vendor) -> inducing reliance by vendee. Gifts can be enforced under this. Court holds enforceable contract b/w M & W b/c M received material benefit and subsequent promise is equivalent to having made bargain beforehand. Everyone agrees that if gift promise. he’s made improvements to the land. Sidway: uncle promises nephew $5k in return for quitting smoking. Court finds fictitious consideration in desire to be memorialized after death. But did college have reliance? (they hadn’t made any announcements since not enough $ for a scholarship) • Siegel v. D claimed was gift promise w/o consideration. W sues executive of estate. Liability triggered only if reasonable reliance on a promise • -> reliance damages rather than expectation damages b/c nature of injury is tortlike. Bargain was for actual behavior. Drake: son sues executor of father’s estate for land made as a gift. doesn’t leave M in will. (part performance by vendor in that he transfers it) Playing with consideration doctrine: Allegheny College v. gambling and drinking until 21. unenforceable Court holds consideration b/c: • Uncle’s psychological benefit • Nephew’s reliance. Part performance doctrine: when vendor has performed in part. • Mere reliance not enough. McGowin: Webb prevents McGowin fr being injured but Webb was disabled. Nephew’s not smoking. Not just promise of it. Need reasonable reliance by promisee on promise.• • Hamer v. No consideration. But when M dies. Promissory estoppel dicta: part of fake consideration. gave $1k while alive but then repudiated promise. Not written down (as required by Statute of Frauds). National Chautauqua County Bank: Mary Kate Johnston pledged $5k while she died. is legal detriment b/c he refrained fr his legal right to engage in those behaviors. uncle dies before money is paid. and transfer of possession was good indication gift was real. Reliance by vendee. McGowin promises to pay Webb $ for rest of Webb’s life.
• Not necessarily applied to contracts. Subcontractor however has made a mistake. Based on “fraud” or misrepresentation. “reasonable reliance” on commercial norms. • First Nat’l Bank of Logansport v. Contemporary scholars: but commercial norms are different from legal obligations. Modern cases sometimes also use promissory estoppel to give relief when a negotiating party has incurred significant expenses when a party has . Logan Mfg. • Never a bargain and no consideration. Based on reliance. court applies PE b/c investors put themselves in substantially worse position relying on loan officer’s promise that bank would lend $ since no contract. Drennan: promissory estoppel invoked to find liability.- Equitable Estoppel: prevents D from pleading certain defenses (eg. no mutuality (P never promised to take out loan. General contractor now already committed to building at fixed price. Can subcontractor revoke original bid after general contractor has relied on it? 19th century formalism would have allowed subcontractor to revoke offer any time before offer was accepted. • problems with doctrine: none of virtues of formal rule & undercuts formal aspects of law (eg how to make contracts in writing when one can just say one relied on promise) Many promises made seriously that would foreseeably induce reliance not necessarily intended to be legally enforceable. so bank should also be free to walk out). Precontractual Negotiations & Reliance: acceptance of offer required before there’s a contract to enforce. • Subcontractor bids on contract ad general contractor uses bid to make own bid. Llewellyn: tend to look for legal obligation by exploring trade custom. However. no consideration). reliance damages awarded rather than expectancy damages. §90 Restatement. • Implied promise to hold offer open for ‘reaosnable” period fr subcontractor’s submission of bid and its desire general contractor would rely on it. Co: No loan contract b/c terms not yet set. “Reasonable” reliance as touchstone. general contractor was never bound to use subcontractor. Promise Reasonably Inducing Action or Forbearance • promissory estoppel: prevents D from pleading certain defenses. Offer & acceptance: fulfills cautionary function: fulfills channeling (b/c we want parties to get together and agree rather than assume assumptions of offers) Gimbel Bros and Drennan – almost same facts but reach opposite results. Also.
leading to increased social welfare.not absolutely necessary (for example. Next time. Formalities: What constitutes an enforceable contract that one can recover damages for? FIRST. But seller can always hold out for a higher price if buyer spends in reliance (and thus has a higher value). buyer won’t make the investment (and won’t engage in contract). strung another along. except to charities. b/c recovery for injury done and restoration to status quo. buyer can increase his production plant to make a good more useful). or past benefit -> quantum merum-> restitution). Goodman v. Red Owl Reliance damages rather than expectation damages. Why do we need contract law? Contract law for promises: for future exchanges. or when actions (even in good faith) cause other party to change position to her detriment. Dicker.some have to be in writing THEN whether there’s a breach THEN remedy (first see if liquidated damages If gaps then either expectation/reliance/restitution damages or specific performance) Spring Quarter – Contracts .parties don’t have full information. fairness. These cases also use “real reliance” versus the undercompensatory formalistic reliance damages in “true contract” cases such as Dempsey. does not have to be explicit) THEN. consideration . not illusory) THEN Statute of Frauds. Contract law solves the holdup problem. Gift promises usually not enforceable. etc? To ensure more productive exchanges (for instance. Why not enforce all promises? . formality (many administrative concerns underlie this). no consideration but reliance -> promissory estoppel -> reliance damages (and occasionally expectation damages).g. to ensure the current price (what if demand increases? Or supply decreases). Why? b/c: to ensure the good’s availability. • E. Review for Winter Quarter: Exchanges – can be governed by tort & property law. promise (can be implied by law or by conduct. leading to increased transactions. THEN sufficiently definite promise & consideration (not too vague. Reliance and expectations damages good proxies – each used in first instance b/c theory leads us there. want to be sure of mutual assent.
impossibility/ impracticability 5. unconscionability II. How to interpret statements/ actions 2. 1979): no contract b/c subcontractor and general contractor did not have same understanding of whether apartment “unit” encompasses interior and exterior walls. Interpreting Contracts (Chapter 4) 1. but sometimes even unilateral 4. Modifications to subjective test: . Court of Exchequer 1864): not having the same ship called “Peerless” in mind -> ambiguity -> no meeting of minds -> no contract. Gumina Constr. fraud/ misrepresentation 3. (2d Cir.Seller gives Buyer X in exchange for $. mistake – usually mutual. when is agreement reached? (offer/acceptance doctrine) 3. subcontractor was new to the biz & didn’t know custom. III. Contract law is basically about cooperation. Rep cases:Raffles v. 1) Mutual Assent 2) Substantive fairness (both parties have to be made better off) 3) Administrability (how to administer contracts to achieve 1) and 2)) a. writings (1st part of chapter) Policing Bargains (chapter 5) 1. what needs to be content of offer/acceptance? 4. Analogize to wine from two different estates with same name. Interpreting terms (2nd part of chapter) 2. Flower City Painting Contractors v. Rules/standards I. Forming Contracts (Chapter 3) 1. incompetency/ infancy 2. Co. sequence problem. Formal/informal b. Wickelhaus (or Peerless rule. undue influence/ duress/ consideration (legal duty) 6. Chapter 3: When (and How) Promises Become Enforceable Section 1: Mutual Assent When is there an actual agreement? Subjective test: “meeting of minds” (consensus ad idem): both parties must have the same understanding in mind for there to be an agreement that constitutes a contract. General contractor relied on customary usage.
Hurd (Hurd should have said something when he understands Dickey didn’t understand same thing) See how cases fit with Restatement. McKittrick Dry Goods Co. Rep cases: Embry v. 1994): “no sensible basis for choosing between conflicting understandings” 2) Duty to inform: See Dickey v. and other party knows of 1st party’s ignorance or should know. Second: Section 20: Effects of Misunderstanding (p. See Kabil Developments Corp. v. App. 1907): Contract b/c D’s actions & words would be understood by reasonable person as assent to contract. Local No. which reasonable person may take as indication of assent or not. Chicago Graphic Communications Int’l Union (7th Cir.20). whether P’s belief in whether there’s contract for helicopter services fr D counts b/c may affect behavior that reasonable person can gauge for agreement) . Objective test: manifestations of behavior that reasonable person would take to mean intent to be bound. v. v. (when neither or both at fault) . 303): . Objective test still factors in subjective belief. Spokane Computer Services (no contract when both parties equally at fault for misunderstanding contract term fifty-six twenty as $5620 or $56.1) Fault: See Konic Int’l Corp. Hargadine. 458-3M.Contract when: when one party only knows one meaning or has no reason to know of any other.No Contract when neither party knows or should know other’s meaning OR when each party knows or should know. Mignot (OR 1977. Colfax Envelope Corp. (MO Ct. when subjective behavior affects behavior.
NOT necessarily a “promise. Prof. Definition (fr Calamari) acceptance: UCC § 2–206(1)(a).g. Just a presumption. But.An offer empowers offeree to create contract by accepting offer. However.” Includes executed sale or barter where no promise is made. acceptance requires knowledge of offer + manifest an intent to accept it.. Reliance: value of old buildings (& cost of demolishing? – no b/c he would’ve demolished for other development anyway?). Therefore.Restatement (2nd) 24: “a manifestation of willingness to enter into a bargain so made as to justify another person in understanding that…assent to that bargain is invited and will conclude it. “my car in your possession is yours if you pay me $4k”) . A says to B. See NY Trust Co. Island Oil & Transport Co. Lynch: “ ‘Intent’ is a conclusion rather than a fact…. v. Estoppel (which only gives reliance) upheld. Not expectation (lost profits). Performance = acceptance of offer in unilateral contract Promise = acceptance of offer in bilateral contract .]” Restatement 2nd has tracked UCC. Wheeler v. Wants to estop White fr pleading no contract. Section 2: Offer and Acceptance Step 1: Is there an offer? Step 2: is there an acceptance? Definition (fr Calamari) offer: . Maybe court’s really doing torts but fitting in contract theory. Wheeler’s reliance may be reasonable: court may think reasonable person sees why White wants to be bound but wants contracts in general to be less vague. reasonable person wouldn’t intend to be bound by such vague document. declares: “Unless otherwise unambiguously indicated by language or circumstances (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances[. Subjectivity in cases that do not fulfill objective test’s purpose. Form of words not enough to satisfy objective test. White: Wheeler relied on White’s promise of a loan. (e.This sense of ‘intent’ denotes agreement between the parties and is not a license to allow undisclosed intent to dominate.just negotiating terms. Usually. Promissory estoppel a tort-like theory.####Robbins v.307): inconsistency in these cases. Whittier (p. razed building.” o Notice. (Sham contract b/w two parties to loophole tax law) Objective test’s purpose is to incentivize people to be clearer so others won’t rely to their detriment.” [subjectivity or objectivity?]###### BUT – pockets of subjectivity.
Restatement of Contracts. (court seems to focus on company’s 1000 ₤ held in bank for such eventual payment) .Statements of intention. What an acceptance is NOT . Great Minneapolis Surplus Store (“1 Black Lapin Stole. Carbolic Smoke Ball Co: D’s ad promising 100 ₤ to anyone who uses ball for 2 weeks and still gets flu – ACCEPTED when someone actually does use it & fulfills its conditions .Advertisements (“nationally advertised at $440. “Will you see me your property for $50k?” (Calamari. So not accepting payment = not accepting offer. Caplis) Option Contract Created by Part Performance or Tender – Restatement §45 1) where offer invites offeree to accept by a performance and does not invite a promissory acceptance. Mere preparations for performance not enough. But what counts as that act? o Majority: act is the payment.” P was first @ store and gave $1. Did not use language conferring offer to sell.What an offer is NOT . PROMISE: “FIRST COME FIRST SERVED” as promissory words QUANTITY: one.not “mere puff” but rather a binding promise.Petterson v. 36) . 2) offeror’s duty to perform conditioned on completion of invited performance by offer’s terms Carlill v.but. Beautiful. Kershaw: notice to offer Michigan fine salt to be shipped… “at this price it is a bargain…” held to be just ad and not an offer. Woth $139.00 FIRST COME FIRST SERVED. a acceptance under option contract only when received by offeror (see Kibler v. continuing offer . p. today only at $250”) o BUT SEE Lefkowitz v. no contract.Letters of intent . o Dissent: offer to pay (with present ability and manifest intention to – bringing the money to the person) = act.acceptance as soon as medium for acceptance out of offeree’s possession (even if it never reaches offeror) (see Morrison v. comment: must be “part of the actual performace invited” to preclude revocation. creates option contract when offeree begins the invited performance a.50…$1. Pattberg: until an act requested by offeror is performed. Thoelke) . 35) . Offer here. . hopes and desires and estimates (“I’m going to sell my car for $450”) (Calamari. Second Section 63: Time When Acceptance Takes Effect .Inquiries. p.negotiating terms: Moulton v. Would intro too much uncertainty if offer.no prior notice of acceptance needed.
- o notice of acceptance at same time of performance consideration: ad -> more sales/ inconvenience of use by P.Not mutual mistake b/c P did not have reason to believe prize was only intended for earlier tourney . no offer acceptance through simply saying “we accept”. Benefit = publicity for D. Cobaugh v. . Klick-Lewis. o Davis v. Acknowledgment by signed purchase order held to be suggested but not exclusive means of acceptance. Inc. o Court holds that it is a bilateral contract. Hodgkin: Performance of offer (“care for mom.: performing contract by delivery of goods is one way of accepting indemnity contract.Inc. no need to say “I accept. See o Allied Steel & Conveyers. Whitehead dies before Davis’s actual performance in caring for his wife. . Issue: whether actual performance or letting promising performance counts as acceptance of offer. but not a reciprocal promise (as bilateral contract would). D claims car was for previous attorney.” Unilateral contract which requires acceptance of offer.Focuses on objective manifestation of intent. held that D made binding offer that P accepted. Whitehead (thus contemplating he may die before Mrs. then inherit house”) enough to show acceptance of offer. v. discounts what company’s subjective intent may have been. Detriment = P’s putting the ball. b/c 62 conditioned on “where an offer invites an offerree to choose between acceptance by promise and acceptance by performance” - . & Mrs. can’t have accepted reward offer b/c impossible to accept an offer that one doesn’t know existence of. Jacoby: Whitehead’s letter an offer: if Davis cares for him & wife.Business reasons as evidence that company’s making offer for unilateral contract (option contract?) Unknown offers: when someone turns in someone wanted by law enforcement but didn’t know there was an award. beginning of performance = acceptance of offer.: P a golf player. Whitehead’s need for assurance from tone of letter.) Restatement §45 (applies to offer to enter unilateral contract) & §62 (applies tooffer to enter either unilateral or bilateral contract) o For §62. §45 leaves offeror more vulnerable than does §62. o Brackenbury v. ask for care of BOTH Mr. saw a car and sign indicating someone will win a car when they make a hole in one.not a contingent gift b/c consideration exists. Ford Motor Co. Turns on distinction b/w unilateral and bitlateral contract: • D argues unilateral contract: offer revoked upon offeror’s death • P argues biteral contract: assurance (the bargained for promise) is what counts. Evidence: closeness of relationship & Whitehead’s confidence in Davis. acceptance of offer through acceptance. But. . would gain property after his death.
o Sun Printing v. Although subjective standard.” o Wood v. Common business practice and reduces transaction costs. o Feld v. o Dickinson v. Lumber co does no have to buy land. Contract had agreed on prices up till December. o Corenswet v. but set to negotiate on future prices. Limited & Indefinite Promises o In a bilateral contract: two promises. When buyer knows seller has sold to others before expiration period. Swain-Roach Lumbering Co: heirs agree w/ lumber co to buy land fr lumber co (if lumber co buys land of decedent) while lumber co reserves right to remove timber. Held: contract is NOT void for lack of mutuality b/c it’s not ambiguous. isn’t this really option contract? – Lucy can’t practically bind Wood since profits would be speculative so she can’t recover. sufficient notice of revocation of offer. Then he sells it after couple of days. Amana Refrigeration: no good faith req b/c contract provides for termination “at any time for any reason” w/ 10 days’ notice. Dodd: seller originally offers to keep offer open for 10 days. Held: no contract b/c it’s an illusory promise (too indefinite) o Obering v. . So heirs need to make reasonable effort to buy the land. and when is it so ambiguous that it doesn’t count? P sent in recipe. would be fine. But seller wants a higher price and shuts down crumb making machine. “if you do X (buy land at auction). Implicit requirement of good faith in determining satisfaction.- - Firm offers or option contracts o Restatement & UCC: when firm offer/ option in writing. o Davis v. evidence of whether land is satisfactory inferable from engineer’s report & similar developments. General Foods: when is a promise enough for consideration. no need for consideration. but D stated they’d accept it only if compensation solely w/I their discretion. Lucy. Lady Duff-Gordon: Court holds bilateral contract where Lady Duff-Gordon grants Wood exclusive permission to market her design while Wood would give her half profits (Court holds an implied return promise is that Wood would use reasonable efforts to get business) But. Remington: no contract b/c indefinite agreement. Seller has to make “best efforts” to produce -> “good faith” as per UCC 2306. I will do Y (give you the timber). both enforceable (a promise for a promise is a detriment. Henry S. An open price AND open duration are too indefinite. and can only be a deteriment if other is enforceable). Seattle-First Nat’l Bank: Not illusory promise when condition for land sale includes whether feasibility study is “satisfactory. o Omni Group v. Good faith does not override explicit terms. An output contract – where buyer is required to buy whatever seller produces. Buyer knew. Unilateral contract with acceptance of offer at auction. If they’d only left prices open. Levy & Sons: inverse of requirement contract (where seller is required to sell whatever amount buyer needs).
. Giancontier: court does not allow extrinsic evidence in proving whether merger clause & cancellation clause are meant for only buyer’s benefit. and therefore neither party has obligation to negotiate further.Tension b/w literalist and purposivist judges.’s price set as ceiling in contract o Since contract specified renegotiation.Plain meaning rule – w/I “four corners” of document. Morse.virtually all cases deal with contractual interpretation. If ambiguity. Often have general language that covers contingencies thr default rules applied by courts. o Canadian Export Paper Co. Agreement had agreed on price & assets. Binding preliminary commitment: when parties have agreed on major terms but leave other terms open to negotiations.W. Ball-Co: No contract b/c too many “subject to” conditions that are “including but not limited to” various conditions. o WWW Associates v. need to renegotiate in good faith. but subject to shareholder/ directors approval -> hadn’t really agreed to anything Just a “letter of intent” – intention to reach a deal but haven’t yet. o Real contracts usually not “complete”. so term “Letter of intent” not dispositive. Latter are more willing to allow extrinsic evidence. Dispute as to what “chicken” means (young chicken. Interpreting Contracts (Chapter 4) i. BNS: modern courts tend to advance interpretations to enforce contract rather than void it. Does not bind them to eventual contract. . o Empro v. then plain meaning of contract governs. • II. Proposals: not intended to be binding.- But are prices and duration really indefinite? o Can look to past transactions and use same period as they did before when renegotiating terms. but to obligation they’d negotiate in good faith to reach that contract. since words need context to have meaning. o Frigaliment v. . 3 types of preliminary agreements: Fully binding preliminary agreement: when parties agree on all points that require negotiation (including whether to be bound) but agree to memorialize agreement in more formal document. G. See Spaulding v. v. o Pacific Gas & Electric Co.: Court holds that extrinsic evidence is required to establish context for meaning of words. . D wants to offer evidence that an indemnity clause only refers to property damage to 3rd parties. then look at extrinsic evidence. Thomas Drayage & Rigging Co.Value of default rules in maximizing value of contracts by reducing transaction costs in writing & reading long contracts. If meaning already clear. Interpreting terms (2nd part of chapter) . Whether a preliminary agreement (“agreement in principle” or “letter of intent”) is binding o Judges don’t like magic words.
Whether or not contract is breached depends on whose interpretation of seller’s 2nd statement is accepted. In any case. allows for more fluid business relationships but loses some predictability. • Z had option to reject offer by returning product. 3) regulations .breach of contract. Use of product can count as acceptance of offer rather than purchase of it. UCC 2-207: more relaxed than common law. Or. • Seller: rejection of counter-offer. o Court holds for buyer b/c: seller’s 2nd statement refers to 1st price. Seller says can’t reduce price. License limits consumer users to personal use. Indemnity and merger clauses conflict. o ProCD v. o Livingston v. License inside rather than on outside of box: commercial use – higher price. 2) trade usage. Buyer accepts original offer. If under “mirror image” rule? Then “last shot” – last offer that is accepted would win. imaginative reconstruction – what they would’ve wanted – trade usage and custom as guides. Brown &Co: Martin is held to have volunteered info to Little. Battle of the forms: when standardized forms of buyer and seller conflict with each other. His original letter offering to point out plagiarism doesn’t mention he wanted to be paid. Offeree asks if can send lowest cash price and give $1600. Evans: Mirror image rule measured by what reasonable person would think terms mean. • Buyer: rejection of counter-offer but also renewal of original offer. Gases: battle of forms resolved under UCC rather than under mirror image rule. Brown in pting out plagiarism in book. Court rejects Zeidenberg’s argument. Try to figure out parties’ ex ante intention. D wins bc P has burden of proof and is not covered. Court seems to think the meaning is clear. In this case. Volunteering versus contracting o Martin v. Accepted (but ignored) license <. Zeidenberg: ProCD compiled 3k of phone directory listings into a CD. since meaning is ambiguous. Arbitrage problem if no contract.- - - - or any?) Look to: 1) consistent usage of word w/I contract (presumption. Zeidenberg bought consumer version and sold info separately. But seller has already sold the land. • 2-207(3): “knockout rule” – conflicting clauses cancel each other out. not disposition). box gives him notice subject to license inside box. not inside. 4) market price (why would seller greater weight of chickens for smaller total $ in same order?). Union Carbide Indus. Little. o Richardson v. Mirror image rule: acceptance of offer is when it’s on same terms as offer is made. . held to be renewal of original offer. Consumer who buys at lower price can sell to commercial users for less than ProCD does. • Then apply gap-filling measures. Seller offers to sell land for $1800. Zeidenberg argues his acceptance was only of terms on the box.
3) parties would not have expected it to be in writing. sale of goods of over X amount (for UCC. Reduce transaction costs (of fighting out each negotiation pt). writings (1st part of chapter) Statute of Frauds: certain kinds of contracts have to be in writing to be enforceable: real estate. • But. possibly 2) not fulfilled. Lath: removal of ice house. Policy reason: to prevent fraud against court.o Collins v. Chapman: mutual mistake also allows for exception to PER. Exceptions to PER (ie to allow PER): 1) collateral to main agreement.g. But only useful if consistently enforced. service contracts > 1 yr. o Courts will ask is it a complete or partial integration.need to explicitly state if meant to be indefinite. PER applies. D then sold cows.. or not integration at all? - - . Duration term in contract was omitted. P claimed unjust enrichment if D didn’t compensate. o See Mitchell v. Deed writer accidentally conveyed entire land to buyer but seller only meant to sell part of it. let D know and let D know he’s going to seek compensation. P might be liable if he released the cows b/c he was the deputy sheriff. If both parties make a fundamental mistake about contract. 2) cannot contradict express or implied provision of written contract. Concern with general versus specific merger clause. -> predictability. • PER would’ve banned evidence showing mutual mistake b/c it was during negotiation stage Restatement §209: Integrated Agreements (& §216(2)): o Is there an integration? (contract is complete) o Integration or merger clause: e. >$500). Court holds that 3) not fulfilled. Also. Lewis: Implied-in-fact contract. o But see Hatley v. P maintained cows. tried giving them back but D wouldn’t take them then b/c not enough time. P found D’s cows. ii. Easterbrook pts out boilerplate is useful. Stafford: PE allowed to show buy-out period for a land contract has expired. “no terms of agreement outside writing” almost always leads to barring parol evidence. Parol evidence rule: common-law principle that writing intended by parties to be final embodiment of agreement cannot be modified by evidence of earlier or contemporaneous agreements that would change agreement (usually to prevent party fr introducing negotiating terms) o PER comes into play whenever contracts are in writing. which is broader than the class of contracts covered by S/F. Concern that general language -> less attention b/c boilerplate. Also indefinite =/= most natural reading b/c land w/ wheat was worth MUCH more than land w/o (but couldn’t that have been built into price?) Court takes into account insophistication of both parties (contract was handwritten. court will rescind or reform it. no counsel) o Hoffman v.
incompetency/ infancy • incompetency and infancy voidable contracts. • D purchased store frm P. entirety of agreement.” Could have avoided outcome by writing in contract “unconditional guarantee. o Rep cases: Long Island Trust v. (don’t want to disincentivize people from entering contracts w/ . • Contract had disclaimer and merger clauses. When one reaches age of majority or is competent.Complete integration: §213(2): all PE w/I scope of transaction is excluded (eg no real estate related evidence will be accepted for real estate transaction) Partial integration §216(1): only inconsistent PE excluded. International Inst. o Infancy doctrine: one way. Does same hold for incompetency? • remedy for incompetency/ infancy: rescission (or disaffirmance) of contract.” Bank lends $ to II. Lipsit v. but comes in under fraud or misrepresentation (-> inducement to work for D). but only if guaranteed.: parol evidence allowed b/c it’s “condition precedent. • Contracts with minors are enforceable when providing necessities. claimed P misrepresented profitability. Leonard: oral agreement that P would get equity interest if he came to work for D. 411. Writing refers to this but as “could be profit-sharing. Court holds that in this case. o Also see UCC’s parol evidence rule on p. Guarantors orally agreed to guarantee if all five sign. III. etc. merger clause precludes D from asserting misrepresentation by P.” Oral agreement barred as PE under breach of contract claim. But can’t enforce contracts against minors. Minors can get contracts enforced. Policing Bargains (chapter 5) i. that: buyer relied on own judgment. seller hadn’t represented anything re profits. one can affirm the contract made while a minor or while incompetent. D then breached contract. LI sues. II defaults. Howe: Merger clauses usually will -> PER but merger clause not dispositive on fraud claim. • Why don’t people always sue under fraud tort claim? – remedy less generous (just out of pocket reliance) and harder to prove (would need to prove promise and that promisor had no intention to keep it) LaFazia v. • D had made several payments before breaching (court sees promptness as a factor in whether to grant rescission).
clinical depression -> impaired ability to make decisions. See Jackson v. Non-disclosure can -> constructive fraud: 3 factors: price so inadequate that it “shocks the conscience”. ii. • Court holds for buyer. Bach: P buys a painting he thinks is expensive original fr D. Teachers’ Retirement Bd. not necessarily a duty to disclose. duty to disclose to people in confidential relationships. o See Sherwood v. and remedy would’ve been repair since it’s reasonable alternative to dimunition in value. mutual mistake doctrine – b/c then there isn’t mutual benefit in facilitating these doctrines. Kirby: Mr. and D didn’t have reason to know P thought they were really valuable. 2 people badgering him. Organ o BUT. o Eytan v. o Must be about material aspect of bargain. seller did not expressly represent whether paintings were original or reproductions. Bloomfield School Dist. Buyer for dimunition in value. Remedy: seller argues for repair of system. Walker: contract for sale of cow not enforced because of mutual mistake as to material fact (neither party thought cow was fertile – and at least - . He understood the contract (resign and we won’t publicize your troubles) but he was too weak to resist – had just been interrogated and didn’t get sleep for 40 hrs. Sheridan Restitution not required when minor rescinds contract – only need to return what one has rather than what he’d received. Expectancy damages. See Odorizzi v. i. o No duty to disclose to strangers. D did not have duty to disclose it was a reproduction b/c cheap price of paintings was notice they were reproductions rather than expensive originals. Buyer had duty to inspect if no disclosure. Kirby had duty to correct Mrs. BUT no duty to inspect in this case b/c seller had lied. Seymour. See Laidlaw v. Lemke Expansion from traditional narrow incompetence doctrine: motivational counts as well as cognitive (eg. usually. See Ortelere v. misrepresentation/ fraud must be active.• • • minors when minors need the services/ goods): See Webster Street Partnership v. Also. • If this were a warranty case. duty to disclose water isn’t perfectly good. See Halbman v. mistake/ warranty a. Kirby’s misrepresentation when he was in front of her and knew she was misrepresenting to home buyer (that water was “hard” and treatable rather than sulfur-water and untreatable) However. Mistake Doctrine Usually. confidential relationship (family? Friendship? Fiduciary? + reliance on advice) o Cushman v.) Undue influence through excessive pressure + undue suspectibility can also be grounds for rescission for incompetence. fraud/ misrepresentation usually.
one has option of either damages or rescission Express warranty (UCC §2-213): affirmation of a fact made by seller that becomes part of basis for bargain. not sophisticated parties. want to recovery expectancy damages and get $ for new horse + injury for wrist o Court holds: 1) no express warranty horse won’t buck. o Buyers usually better off thr protection of warranty or thr duty to disclose by seller o Seller occasionally remedy thr mutual or unilateral mistake Why is law kinder to buyers than to sellers? o Buyers usually don’t have a duty to disclose (but still can’t lie) b/c don’t want to discourage investment in finding info o Maybe sellers usually have more info about what they’re selling (eg they’ve lived on their property that they’re selling) b.when it was pregnant – therefore cow was sold for beef value rather than breeding value) Sometimes.- - - - - one party thought could never be fertile. not breached by horse’s bucking. . Hinson v. Peterson: a “gentle” horse that’s never bucked before bucks. but found later couldn’t use it for such purpose bc can’t build septic tank. Common law applies b/c land use. o First theory: mutual mistake Court does not hold so. not sale of goods. Enforcing contract rather than rescinding it. Kastorff: D miscalculated bid. Jefferson: P bought house that D had restrictive covenants on. Analogous to mistake of judgment (as to what’s best use of land) o Second theory: implied warranty Not express since D had not said land was suitable for septic tank Analogizes to UCC §2-314. but uses UCC as persuasive precedent Ordinary consumers. finds out and tells P his mistake. o why not sue under unilateral mistake? – mistake of judgment not fact (b/c “gentle” horse = opinion) o also. Warranties: Remedy for warranty breach: expectancy damages. Tribe v. Allowed to rescind contract on unilateral mistake. unilateral mistakes: o mistake of fact (remediable) versus mistake of judgment (non-remediable) whether mistake is honest and non-negligent whether other side had notice of mistake mistake has to be substantial party not significantly harmed by rescission (alt this encourages opportunistic re-negotiations) (does same doctrine apply for mutual mistake?) o Elsinore v. 2) even if express warranty (of horse being gentle). Clerical error. Too much uncertainty about whether land sales will be final. Remedy for mistake: rescission of contract OR enforcement as if no mistake occurred. o Under UCC.
Assigned risk to promisor bc bore risk of materials and implicitly bore risk of completion. - . b/c consumer seller doesn’t have as much access to info as builder-seller does o Maybe worried about over-remedy b/c value of repair is much greater than value of new building i. then cannot charge for going by another route even though cheapest route impossible to access. o BUT Kel Kim v. ALSO requires unforeceability and not w/I contemplation of either party. Healy: warranty applies to builder. Caldwell: music hall burning down excuses breach of contract (which was to provide a music hall for performances) o BUT Tompkins v. but not necessarily to seller who’d bought the house fr someone else. Maybe b/cKel Kim in beter position to know if they’d get insurance. Shell: since contract did not explicitly state only one route. Incentivizes taking precautions. Krell v. Court holds for D b/c owner in better position to insure against loss (if coronation held later. Rep cases: o Taylor v. unless language or circumstances indicate otherwise.: is frustration of purpose/ “commercial impracticability” a defense when there’s a cancellation clause built into contract? Yes. can rent later) Chase Precast Corp. o frustration of purpose doctrine: Restatement §265: after contract made. party’s principal purpose “substantially frustrated” without his fault b/c of event the non-occurrence of which is basic assumption when contract made. Henry: D rents room fr P to watch coronation but coronation cancelled due to king’s illness. and store insists on KK getting insurance) o American Trading v. Dudley: builder liable bc guaranteed completed building. Paonessa Co. Changed circumstances that justify nonperformance. John J. • Because restrictive covenants limit the land use • Disclosures unknown and cannot be reasonably discovered by grantee Johnson v. Central Market: P’s inability to get insurance not held as impossibility. Mutual mistake can’t be. b/c cancellation clause only goes to foreseeability of small cancellations. D not really “impossibility” bc not impossible to pay (which is the performance asked). impossibility/ impracticability impossibility alone not enough. Breach of implied warranty held here.- Implied warranties can be waived. Builder is on the ground and can better assess situation. v. No longer required to fulfill rest of contract. (Kel Kim rents space in Central Market for skating rink. P sues for breach of contract b/c D doesn’t pay balance.
o Rep cases: Alaska Packers’ Ass’n v. had no pre-existing legal duty. Legal Duty (consideration) aka pre-existing duty o Goes to substance of contract o Renegotiation of a contract when there is already legal duty or pre-existing duty = 2nd contract void b/c no new consideration. Court holds that 2nd contract for higher wages is void b/c sailors merely agreeing to do what they were already obligated to (no new consideration). promises $10k payment. however. Contract is valid. Tuppela: Tuppela asked for $50 to get to AK to fight for his gold claims. Denney v. Remedy= return of increased price. Police officer who arrested robbers while outside his jurisdiction. then price can be renegotiated. Blumenthal: D cannot pay increased rent b/c of Depression. undue influence/ duress/ consideration (legal duty) Duress: o Wrongful threat o No other recourse o No adequate legal remedy o Also see Restatement §175: no reasonable alternative. A refuses to deliver remainder of 1st contract’s part if L does not agree to give it monopoly for 2nd contract (w/ increased prices applying retroactively and prospectively). Inc. Loral Corp: Seller: Austin. Levine v. therefore agrees. subcontracts w/ A for parts during Vietnam War. D claims a second oral argument modified original contract so that D could pay same rent. Court agrees w P that there is no additional consideration for 2nd agreement. L tried to find alternative suppliers but couldn’t. Reppert: employees of bank not entitled to reward money for helping apprehend robbers b/c already had duty to capture robbers (w/I scope of their employment). v. Domenico: sailors go on strike ad demand higher wages than originally contracted.ii. L contracts w/ navy. - . Embola v. and therefore is entitled to reward. Posner argues that scope of employment should be read narrowly & that this case is nonsense. Batsakis v. Buyer: Loral. o Goes to bargaining process. 1st contract is to be enforced. Therefore. o Restatement §89: if non-anticipated changes in circumstances. Held: 2nd contract is void for economic duress. Demotsis: plaintiff’s financial distress -> acceptance of a small loan with a large repayment promise =/= duress. o Rep cases: Austin Instrument. • Prof.
unconscionability / Good Faith unconscionability o goes to defect in bargaining process in whch one party would be made worse off after contract. Maybe sliding scale. Bloomfield Motors: D’s disclaimer waiving right to sue for personal damages for injury due to defective product is unconscionable b/c 1) unequal bargaining power (form was standard across auto industry and dealer wasn’t authorized to change it). didn’t know value of his land as well as buyer did. Not w/I her reasonable expectations. R @ job) is invalid b/c 1) lack of sophistication: two purposes on form not clearly distinguished (passenger authorization & disclaimer). Increasing transaction costs when firms trick people. remedy will be damages) • Buyer was sophisticated businessman. o Typically in commercial transactions (franchisee-franchisor) o Remedy is rescission of contract or term o Regulations & statutes have mostly replaced work of unconscionability doctrine o Rep cases: Henningsen v. either (Ie.little bargaining power. Abortion Services of Phoenix: arbitration agreement @ abortion clinic invalid b/c 1) weak bargaining position (time constraint. 2) lack of sophistication (language not clear). Duty to read doesn’t apply here b/c contract isn’t enforceable. b) standardized agreement. R to ride w/ Mr. Richards v. Woollums v. o Unconscionability at that time only protected against SP. Horsley: court won’t rescind contract. 2) lack of sophistication (Buyer didn’t understand what they were contracting away. o Unequal bargaining power + degree of sophistication o Procedural unconscionability: Imperfect information Unequal bargaining power (lack of choice) Harsh tactics Unfair surprise (most important factor. not against damages o Court was probably concerned w/ substantive inequality & gap b/w parties’ sophistication o Maybe also figured local jury would be sympathetic to Woollums . emotional turmoil). Sellers was unsophisticated and ill. b/c other firms can’t use people’s expectations) o Substantive unconscionability: REALLY unequal consideration Oppressive terms o Courts unclear about whether P&S both required.iii. Richards: disclaimer (had to be signed for Mrs. Broemmer v. 2) unequal bargaining power: a) too broad & all-inclusive. reasonable person’s understanding may not think it means covering personal injuries). but won’t enforce it thr specific performance.
Teddy’s Frosted Foods: (under “Scrutiny of Limited Commitment”): Sheets is inspector for Teddy’s. o Good faith is about performance of contract. • Court seems to be paternalistic: P knew D didn’t have much $ but sold her expensive stereo anyway. procedural and substantive unconscionability: substantive component enough to make contract term unenforceable. Not procedural unconscionable since no unfair surprise (alt court may see some procedural problem in that an arbitration clause lulls consumer into thinking problems will be easily resolved) - good faith o implicit duty in all contracts to deal in “good faith. lack of choice re: arbitration forum & excessive cost of litigating (initial fixed cost > most claims would be worth). Held: exception to at will when violate public policy (Here. Sheets v. making it different from ordinary store credit) Brower v. b/c of confidential relationship – P was influenced by her bf. GE should have read the contract instead of act surprised. • Both parties are sophisticated. committing crime vs getting fired & public welfare concerns) . In this case. Gateway 2000: arbitration clause. • Very strong grounds for substantive inequality: like giving a dollar for a quarter) • Also. Market Street Associates Ltd Partnership v. Remedy is NOT rescission as under unconscionability. Waters v. Min Ltd: Contract for sale of annuity to D for ¼ its value is invalid. tells Teddy’s it’s not meeting regulatory standards.” Discourages sharp dealing. Need more evidence to be produced thr trial. Unconscionable. • Case by case analysis (always looking at bargaining process & substantive inequality) Williams v. • Bargaining process (form contract. Frey: MSA did not breach good faith duty simply by not telling GE of buyback clause. Walker-Thomas Furniture Co: cross-collateral contract (adding to total debt rather than item by item). no attempt @ explaining) + substantive inequality (maybe b/c of what’s at stake and b/c of insophistication. Teddy’s fires Sheets.