You are on page 1of 97

Contracts I. Intro/Nature and History of Contracts II. Damages for Breach A. Expectance v Reliance v Restitution B.

Calculating Expectation Interest C. Limitations on Damages 1. Remoteness or Foresee ability of Harm 2. Certainty of Harm 3. Avoidability of Harm D. Damages under UCC E. Liquidated damages/penalties/efficient breach III. Other Remedies and Causes of Action A. Specific Performance B. Restitution as Damage Interest & Cause of Action IV. Contract formation, Reaching an Agreement A. Manifesting assent C. What is An Offer? 1. Preliminary negotiations 2. Written Memorial Contemplated D. What is Acceptance? V. Contract Interpretation A. Ambiguity and Vagueness B. Gap-Filling, Illusory Promises and Requirements Contracts C. What has been agreed, Adhesion K, Battle of the Forms D. Parol Evidence Rule and Integration E. K Interpretation Problem VII. Which promises are enforceable? A. Consideration Bargains, Conditioned Gifts, K Modification B. Adequacy of Consideration + Promissory Estoppel VIII. Performance and Breach A. Implied Duty and Good Faith B. Implied and Expressed Warranties C. Condotions D. Breach 1. Dependant/independant conditions 2. Prospective non-performance 3. Adequate assurance 4. Material breach v Perfect Tender IX. Unconsionability

I. INTRODUCTION A. Sources: a. Common law b. UCC supersedes common law B. Principles: a. Deals/gains from trade -> deals create value for both sides, K law likes deals b. Private ordering -> K law doesnt polices the content, polices the framework. c. Consent when both parties gain from the deal. Party doesnt gain, if: There is misrepresentation or fraud; or Consent is not valid d. Parties usually fight for the price e. Credible promise K law helps to make promises credible. Coz theres a threat of enforcement. Parties want to bind themselves to be trusted. (Alternatives to enforcement: collateral, surety, reputation issues, punishment for crime, morality) f. Aims of remedy: Compensation for harm Compels the party to perform C. Key rule: No backsies, you cannot change your mind Remedy - value of the K, coz K is promise to pay A. Totten v. United States -> U.S. Supreme Court held that public policy forbids enforcing a secret espionage agreement between a Civil War spy and the United States a. ARGUMENTS & ALTERNATIVE ARGUMENTS: i. Nat security (procedure) litigation would require disclosure of secrets BUT alternative procedures ii. Nat sec (policy) security can be harmed by revealing BUT security not harmed here coz war is over iii. Consent (???) Parties knew the K is secret -> agreed it could not be enforced -> agreed to non-enforceability BUT Lloyd would never agreed to this => no evidence iv. Secrecy to protect future plaintiffs (paternalism) BUT pl can decide themselves if embarrassment is worthy possible gains (private ordering in K law). b. HOLDING: i. No secret agreements enf, ever? ii. No secret agr enf if disclosure would damage gov-t? iii. No secret agr enf if disclosure would damage either party? c. HERE: Court said that not enforceable, coz secrecy precludes any action for recovery and publicity of such a suit defeats the recovery. d. BUT: K has to be enforceable,


Didnt have a remedy -> it is not a K. Doe v. Petraeus -> was spying for the USA, was promised to have fin assistance for his whole life, after loses his job no assistance -> goes to court a. ARGUMENTS: i. new identities no one discloses names ii. agency promised to provide assistance required by law not fair, were promised (not equitable) iii. remedy was sought in diff instances violation of due process right iv. policy argument if gov doesnt keep promises nobody will work for it THE RIGHT IS DEFIENED BY THE REMEDY IT STIPULATES

II. DAMAGES What is courts goal when it steps into a contract? Make both better off Encourage economic efficiency Clarify the commercial system that parties are operating in Primary focus of courts: to make the injured party whole Punishment? NOT REALLY o Punitive damages are usually not awarded, courts dont see that as their role o If punish all the time, run the risk that people will not enter into contracts In general, damages are awarded by the promisees expectation interest. The court attempts to put the promisee in the position he would have been in if the promise had been fulfilled. Sometimes, though the court will instead award damages to put promisee in the position he would have been in had the promise not been made. (A)Expectation and reliance Intersts: A. Hawkins v. McGee (hand surgery case) EXPECTATION DAMAGES a. FACTS: Hawkins (P) underwent surgery to repair scar tissue on his hand resulting from burns he sustained from contact with an electrical wire. Dr. McGee (D) gave Hawkins a 100% guarantee that he would be able to repair the scar tissue The surgery was unsuccessful. Hawkins sought damages for breach of contract due to McGees failure to perform including pain and suffering. b. ISSUE: Was there a K? Kind of damages? c. HOLDING and RULE (K) Negligence (breach of standard of care) here? -> no, coz: o It was experimental and pl knew it o Doctor was not careless Breach of K here, o coz there was a K => o Exchange of promises between 2 parties => o One waives his right to sue the other party for pain and suffering, the other promises perfect hand.

d. HOLDING and RULE (DAMAGES) The plaintiff was entitled to: Expectancy damages - sufficient to put the plaintiff in the position he would have been if the contract had been performed = difference between what he sought a perfect hand, and what he received a hairy hand. Incidental losses resulting from the breach No damages for pain and suffering because he would still have endured them had the procedure been successful. e. NOTES: In K -> Expectation damages gives you what you would have gained, no punitive damages In tort -> Reliance get you back to the position before the promise + punitive damages Liquidated damages damages stipulated in K. Restatement (Second) of Contracts 347. Measure of Damages (p. 78) Subject to the limitations in 350-353, the injured party has a right to damages based on his expectation interest as measure by (a) the loss in value to him of the partys performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss that he has avoided by not having to perform B. Nurse v. Barns (use of iron miles for 10l) RELIANCE DAMAGES a. FACTS: P alleged that D had agreed to let him use certain iron mills for 10 l for a period of six months. Real value 20 l for a year. P relied on the contract and incurred expenses in preparation of using the mills 500 l. b. ISSUE: Are special damages recoverable in a suit for breach of contract? c. HOLDING AND RULE: Compensation for the expenses he had incurred in reliance (490 l) Price of the K (10 l) = 500 l The court held that the fact that the contract was only for 10 pounds did not have a real bearing on the issue of damages resulting from the breach.

C. Sullivan v. OConner (nose surgery) RECOVERY FOR PAIN AND SUFFERING Ruling: Plantiff was not confined to recovery of out of pocket expenses, shes also entitled to recover for the worsening of her condition and for pain and suffering of third operation. Issue: Is P entitled to expectation damages? Rule: Hawkins: get difference btwn promise and received, In NY get all expenditures back Holding: For breach of Dr-Patient agreements restitution seems too meager. Expectancy recovery would be excessive. Moderation is chosen. ISSUE: Is P entitled to pain and suffering? Rule: Putting price on result would strain imagination. No precedent, but by analogy (horses and arbitration) answer is No. Holding: Breach of contract does not warrant pain and suffering

Might have received Reliance Expectation Actual Cost of first 2 operations yes no yes Pain and suffering (1 & 2) yes no no Cost of 3rd operation yes yes yes rd) Pain and suffering (3 yes yes yes Original nose-current nose yes yes yes Promised nose-original nose no yes current a. REASONING: Promise by D to shorten the nose, P pays in reliance Result: worse nose + one more surgery

Hawkins got both no

= Promised -

She wants: o Fees: In rel pays in rel on promise - recoverable Expect would have paid anyways, if the nose is ok it would have put her into the better position not recoverable o Lost earnings: In rel yes Exp no, benefit of the bafgian???? o Nose value: In rel her starting nose worsened nose Expect perfect nose worsened nose o Out-of posket fees and hospital expenses: In rel pays in rel on promise - recoverable Expect would have paid anyways, if the nose is ok it would have put her into the better position not recoverable o Pain and suffering for 3rd operation: In rel yes Expect was not part of the deal yes o Pain and suffering for 1st and 2nd operation: In reliance incurred in reliance recoverable Exp - ???

b. HOLDING AND RULE (Pain, suffering): Under a contract breach, the afflicted party may recover those damages intended to put the plaintiff in the position he would be in if the contract had been performed - reliance, OR at the plaintiffs election an amount corresponding to any benefit conferred by the plaintiff upon the defendant in the performance of the contract - expectation. P is entitled to recover reliance damages for expenditures made by her and for other detriment that was proximate and foreseeable from Ds failure to carry out his promise. c. NOTES: There is no general rule barring recovery for pain, suffering and mental distress in action for a breach of contract.

Suffering and distress resulting from a breach going beyond that which was envisaged by the treatment as agreed are compensable on the same ground as the worsening of the patients condition. d. HOLDING AND RULE (agreement enforcement): Courts require clear proof of a promise to enforce -> Here there was such proof. SUMMARY (EXPECTATION, RELIANCE, RESTITUTION, DISGORGEMENT) Type of damages Implementation subject Baseline ( ) expectation Put PL in the Pl After the k was perf position as if the k had been performed reliance Put PL in the Pl before position as if the K had never been perf restitution Put DEF in position DEF before as if the K had never been performed Disgorgement Put DEF in position DEF after ( as if the K had been performed ) *Disgorgement is the act of giving up something such as the profits obtained by illegal or unethical acts on demand or by legal compulsion. Court can order wrongdoers to pay back illegal profits to prevent unjust enrichment. (B). Calculating Expectation Interest A. Problem p. 71 FACTS I: I agree to sell you a copy of the Restatement (delivered tomorrow), mkt value $15. You promise to pay me $10 + give me a copy of your class notes (market value = $1, photocopying = $3) You pay me $10 and give me the copy of the notes. I refuse to give back the money or notes, and refuse to deliver the Restatement. What damages? a. Restitution Interest: [no gain to promisor, breaching party]: give back the notes and the money, or in $ terms, give back $11. The idea here is to keep the party in breach from gaining anything from the deal, and since he got something worth $11, that requires that he give back $11 in cash. Note that this leaves you -$3 on the deal. These were expenses incurred by the promisee but not recoverable. b. Reliance Interest: [put promisee in as good a position as if no bargainas if deal had never been made]. How do I get you back to where you were before we met? give back money and your costs. Hence, I must pay $10 to cover the cash, but also $3 to cover your costs, for a total of $13, so you are just even on the deal.

You are as well-off as if wed never made the bargain. What happens to the notes? Do I have to give them back? o No, b.c. then you would have an asset worth $1 for free, leaving you better-off than if wed never met (is it coz notes are left with me and it was copy that I gave you???). c. Reliance v. Restitution Is restitution always worse than reliance? - No, suppose the notes were worth $4. Then under restitution I would have to pay $14 ($10 + $4) and under reliance only $13. d. Expectation Interest [benefit of the bargain: put promisee in as good a position as if K had been performed] You expected to get something worth $15, and expected to pay $10 + $3. So, you expected to be plus $2 on the deal. At the moment, you are down $13 (my restitution expences) [10+3], so you need $15 to make you as well off as you would have been had I performed. e. Gross Expectancy vs net expectancy, Whats the Gross Expectancy? -> You thought youd get something worth $15, so thats it. Net -> you have to subtract the costs incurred, namely $13 ($10 in cash + $3 in copying costs), leaving $2 as your net expectancy. f. Law as in Hawkins v. McGee, you are entitled to $15. FACTS II. Suppose you photocopied the notes and tendered them to me, but did not pay the $10. What would you get in damages when I breach? a. Restitution Interest: I have to pay enough to disgorge any profits from my breach. Since the notes were worth $1, I must pay you $1 [even though you spent $3 to copy the notes, leaving you at -2] b. Reliance Interest: I have to pay you enough so that you are no worse off than if wed never met. You spent $3 on the photocopying, so thats what I have to pay you. c. Expectation Interest: You expected to get something worth $15, and expected to pay $13 ($10 in cash, $3 in copying costs) for a net gain of $2. Under Restatement 347(c) (and common sense), if my breach saved you the $10 in cash, then you shouldnt get this amount back from me, else you come out ahead when I breach. So all you get is $3 to cover your costs & $2 to cover your lost profits = $5. Hence, you are +5 - 3 = $2 ahead, just as you would be if Id tendered you the restatement and youd paid me the $10. FACTS III. Suppose youd paid nothing and hadnt photocopied your notes: a. Restitution: To put me back in the position of 0-profits from my breach, I need to disgorge nothing, since I havent gotten anything. b. Reliance: To put you in position whereby you are as well-off as if wed never met, you dont need to receive anything, since you havent given up anything. c. Expectation:

you expected to spend $13 and get something worth $15, leaving you $2 up. You have spent 0, so if I pay you $2, you will be as well-off as if the bargain had been completed. FACTS IV. the market value of Restatement was $9, you prepay $10, give me notes valued at $1 that cost $3 to copy. I breach. NOTE: This is a Losing K. a. Restitution: I have something worth $1 (notes) + $10 in cash. So I need to give this much back to you ($11) in order to disgorge my profits on the deal. b. Reliance: you gave me $10, plus spent $3 on the notes. So I need to give you back $13 to leave you as well off as if wed never met. c. Expectation: You expected to get+9-10-3=-$4. You are out $10 in cash and $3 in copying costs for $13. So I owe you $9 to get you back to where you would have been had I actually given you the Restatement. Put another way, I could actually have given you the Restatement, as promisedwe will discuss this at length later, under the heading of Specific Performance. Since the value of the Restatement was $9, I could either give you Restatement itself or its equivalent cash value.1 FACTS V. Suppose FMV Restatement is $15, you copied notes, but never gave them to me and never paid me any cash either. a. Restitution: zero, since I havent received anything to disgorge B. b. Reliance: $2, b.c. you have incurred $3 in expenses, but still have in your possession something worth $1 that you can sell (or keep). If I give you $2 and you sell the notes for $1, you will have covered your $3 in costs, and will be as well off as if youd never met me. c. Expectation: You expected to come out $2 ahead (15 - 10 - 3). You have incurred $1 in benefits and $3 in costs so you are - $2, meaning I need to give you + $4 to get you back to where you would have been had the deal gone through. ???How would you fit this into 347, p. 71? Isnt your having to turn the notes over to me (the promisor) a cost that is avoided by breach (coz I didnt give them to u coz of the breach)? Sure, and this is whats included in 347(c). B. J.O. Hooker v. Robert Cabinet Co. (cabinets) LOST PROFITS, ADM, STORAGE COSTS a. FACTS: J.O. Hooker (D) was the general contractor to remove and install cabinets Hooker hired Roberts Cabinet (P) to remove the cabinets and install new ones. A dispute arose over the required disposition of the removed cabinets .

b. ISSUE: Does the UCC govern a contract for the installation of cabinets? Is a party entitled to lost profits, admin time and storage of cabinets? c. Holding and Rule of Law (UCC APPLICATION) The contract is a mixed contract but the issue in this breach is one for the services to be performed under the general contract and removal of the old cabinets. As such the UCC does not apply to this contract. d. Holding and Rule of Law (LOSSES) Expectation damages here the plaintiff is entitled to be put in the same position he would be in had the breach not occurred. Lost profits yes = price of the bid price of expenses BUT damages for being shut for 4 days to work on cabinets not recoverable, coz the inquiry is not into the profit could be gained without the K, but rather what is the gain in case if K had been performed. Admin time yes, coz an employee has spent 40% of time during 2 months for the Hookers project -> could have spent time on other projects. It was included into expenses (lost profit), if not this sum would be paid to the employee anyways. Here salary was to be compensated by the breaching party. Including: 150 bid, 120 losses (including salary 2) = 30 net, if 30 awarded, Hooker has to pay salary out of this money -> gets 28 instead of 30 Excluding: 150 bid, 120 losses without salary 2 = 28 net, if 30 awarded + 2 salary, gets 32 instead of 28. Storage no, coz Roberts did not have to rent new or additional space as a result of contract performance, was not forced to utilize already leased premises *APPLICATION OF UCC Applied to goods movable at the time of the K. Test for goods in mixed K: Dispute test what part of the K are u fighting for? Predominant purpose test what is more expensive? C. Tongish v. Thomas (sunflower seeds) LOSS PROFIT OR DIFF BTW K & M PRICE??? a. FACTS: Tongish, a farmer, contracted with Coop Association, to sell his crop on a fixed price. Coop had agreement to sell crop to Bambino (handling fee) Tongish has sold crop to Thomas for new market price. b. ISSUE: What kind of damages? Difference between market price and K price? Or Loss profit? c. HOLDING and REASONING: UCC (2-713) difference. K price is 8, M pr is 13, so damages = 5. UCC (1-106) to put into the position as if the K was performed. I would have seeds for 8, but the price was 13, so I in the position -13 instead of being +8 = 5 of damages. d. RULE: how to resolve 714 or 106? => more specific should be applied. e. DIFFERENT VISION OF THE DECISION: Damages must be computed under U.C.C. Section: 2-713, which states that damages are equal to the market price at the time of breach minus the

contract price. The U.C.C. contains two apparently conflicting provisions to be utilized in computing damages. Under U.C.C. Section: 1-106, the nonbreaching party is simply compensated for his actual loss (here, the loss of handling charges, $455). However, under U.C.C. Section: 2-713, the damages equal the market price at breach minus the contract price. It has been said that the latter provision promotes market efficiency by discouraging the breach of contracts. In other words, were it not for U.C.C. Section: 2-713, the contract price would act as a price floor, which allows the selling party to shop around for a higher price knowing that he is guaranteed the contract price if the market price dips below the contract price. This discourages the honoring of contracts and market stability. (C). Limitation on Damages Generally Default Rules in K Law a. You can change anything (almost) in K. b. You can contract out of the rule. c. Default rules are stipulated in laws (UCC, Rest). d. But there are some rules you cannot contract out of them duty to perform in good faith. e. What is the language to K out of the default? DEFAULT RULES IN DAMAGES a. Can specify in the K, b. If not default rule expectation damages limited by foreseeability (if didnt specify anything in K means agreed to default rule) c. If you ask additional (excessive) damages you should K for it (you pay for it) or give notice d. You can K out of K damages, but you cannot K out of tort liability e. Therefore: If the parties are silent default objective foreseeable damages It is foreseeable if notice or prior agreement Limits on default rules Damages checklist Uncertainty Chicago Coliseum (Boxing) rejects profit calc b/c uncertain -- Anglia (Mike Brady, tv show) Avoidablility/Duty to mitigate (doesnt require best decision in hindsight) -- Rockingham (cancelled bridge) -- Shirley McClaine Lost Volume exception to duty to mitigate -- Neri (boat sale) (1). Foreseeability a. Foreseeability you do not recover if the breaching party could not predict b. What is foreseeable?: Things, which usually happen If notice is given c. Why does court care so much about foreseeability? Full compensation would be unfair to the defendant and hurtful to commerce

The defendant in the case might have done something differently if knew of special circumstances that would have resulted in higher damages would have taken higher precautions, maybe shipped for higher price (act like insurers)

d. The defendant doesnt actually have to foresee it, just has to have reason to foresee it. Why? Dont want to encourage ignorance Hard to know subjective mind of parties e. At what point is foreseeability assigned? When contract is signed There is a notion of consent- can restrict classes of damages to which they will be responsible f. What if mill employee told clerk at shipping company how much loss there would be? Would shipping company be responsible? Yes. The default rule is for the agent to be responsible. But, FedEx states explicitly that they dont care what you told us, we are still not taking responsibilityrule in Hadley is a default rule, but parties can contract around it (like FedEx does) g. Why shouldnt we change default rule? (since everyone seems to be trying to avoid this law) Why dont we say that we wont give you damages unless you expressly say what the damages might be? One reason why dont change default rule is because of information revelation. Its good to force FedEx to tell me that they wont take responsibility. If have the opposite defaultthe regular consumer may not know much about the law. Restatement (Second) of Contracts 351. Unforeseeability and Related Limitations on Damages (p. 120) 1. Damages are not recoverable for loss that the party in breach did not have reson to foresee as a probable result of the breach when the contract was made. 2. Loss may be foreseeable as a probable result of a breach because it follows from the breach a. In the ordinary course of events, or b. As a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know 3. A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. h. Types of damages: (how do they coexist with other damages???): Loss in value - you buy more expensive Incidental d result of trying to mitigate d Consequential d other injuries, consequences of the breach BUT Foreseeability restriction

A. Hadley v. Baxandale (delayed mill shaft) GENERAL DAMAGES WHEN FORESEEABLE ONLY OR NOTICE WHEN SPECIAL DAMAGES a. FACTS: The Hadleys (P) were engaged in the operation of a mill. The crank shaft broke, requiring the mill to shut down. A new crank shaft was ordered. Baxendale (D), a carrier, agreed to deliver it. A clerk at Baxendales (D) office was told that the shaft must be sent immediately. The shaft was not delivered for several days. The Hadleys (P) brought suit claiming that Baxendale (D) breached its duty to deliver the shaft, thereby requiring them to close the mill and resulting in a loss of profits. b. HOLDING and REASONING: Usual rule expectation - entitled to recover lost profits from the five extra days the mill was inoperable. BUT damages should be reasonably supposed to have been in the contemplation of both parties at the time the contract was made (damages flow from K). If there were special circumstances known to parties at the time of K, then breach of the K result in damages that flow from K. If there are special circumstances notice required Baxendale did not know that the mill was shut down and would remain closed until the new shaft arrived. If they knew the K price would have increased (kind of insurance you have to pay for possible future damages) Loss of profits could not have been contemplated by parties without Hadley having communicated the special circumstances to Baxendale. DISCUSSION: Before we talked about damages that arose form the breech of the contract itself. In Hadely, were talking about the damages that arise as the consequence of the breech due to the specific nature. B. Martinez v. Southern Pac. Transp. Co. (delayed dragline) FORESEEABLE TO A REASONABLE MAN a. FACTS: Martinez contracted railroad to deliver a machine in five pieces in a given period. Fifth piece arrived late and damages, and railroad settled out of court for cost of repairing machine and storing the parts that arrived on time. Defendant sues for further damages based on the loss of ability to use the machine (rent it out). a. HOLDING: General damages - only if injury is foreseeable to a reasonable man Spec damages (damages caused by specific act, that are not usual and must be specifically be proven and pled) if actual notice is given Losses may be deemed foreseeable as a probable result from a breach if: 1) Loss occurs in the ordinary course of business or 2) If the breaching party had a reason to know or was otherwise aware of the special losses Here it is Principle: capital goods ( ) have use value: it is quite foreseeable that deprivation of a machines use because of delay will cause a loss ofinterest value. Thus, plaintiff need not prove that actual damages suffered were most foreseeable.

more than 50% that foreseeable, coz if theres no drag-line cannot work, people usually dont have additional drag-lines.

D. Morrow v. First National Bank (stolen coins) NO NOTICE, NO AGREEMENT (CANNOT CLAIM TACIT AGREEMNT IF NO PROVES) ->NOT FORSEEABLE a. Facts: Murrow had a valuable coin collection, put the bank on notice of its value, and they promised him a safety-deposit box in 30-60 days, and to call him ASAP when it was available. They did not call him as it came available (busy), and in that period, his coins were stolen. He sued them for breach of contract, as he had put down money for the safety deposit box and been promised to be made aware ASAP when it was available. Acquittal. b. Rule: Was there a tacit agreement to pay? did not pay for such liability, standard pay = standard liability Tacit () Agreement Test: Where there is no express K to pay such special damages, proves that the party at the time of the K tacitly consented to be bound to more than ordinary damages in case of default on his part. Its an add on to Hadley, saying that mere notice is not enoughno acceptance through silence, no express affirmation of the liability. (2) Certainity A. Chicago Coliseum Club v. Dempsey (cancelled boxing match) LOST PROFIT OR (SPECIAL DAMAGES) NOT CERTAIN -> NOT RECOVERABLE a. Facts: Dempsey entered into (classic entertainment payment in stages) contract with Chicago Coliseum to fight Wills. Dempsey promised no other fights before or after. Dempsey pulled out of the fight for another fight, Coliseum sued for 1) lost profits on the match, 2) money incurred getting Dempsey to sign contract, 3) money spent in anticipation of the fight, and 4) money spent on legal fees trying to enforce the aspect of the contract that would forbid Dempsey from engaging in another fight. b. Holding and reasoning: May Coliseum recover lost profits? NO, special damages recoverable when they are certain and definite. Here profit from boxing match is too speculative *if repudiated after tickets were sold could be different result, coz definite and certain Costs incurred in preparing the K NO, negotiation costs, every party bears it, do not flow from breach Attorney fees not recoverable if not provided in the K *general American rule!!!! Costs incurred in preparing for the performance? YES, if they flow from the breach. Here yes except for the salaries of officials c. Rules: No recuperation () of speculative profits in damage claims (if it rained, maybe the coliseum would not have sold many tickets).

No recuperation of money spent trying to get a breacher back into the contract after they have already made it clear that they intend to breach. What you do after the breach you do at your own risk. Also, no recuperation of money spent trying to get defendant to sign the contract in the begin with. (Slightly different from a rule against all money that was spent prior to the signing of the contract). Notes: Expenses incurred before the signing of the contract are not recoverable DISCUSSION: A party may not recover lost profits unless they are definite and certain. a. Who will be hurt the most by this rule? : New business, service industries, entertainment b. What are the alternatives to this rule? : Expected value Liquidated damages B. Winston Cigarette Mach. V. Wells-Whitened Tobacco Co. (uncertain damages set to zero) UNCERTAIN DAMAGES NOT RECOVERABLE a. This case gives a defense of the doctrine of uncertainty. b. Distnction should be made: Profits definitely ascertained by law or K and Profits speculative, uncertain due to the market c. It is safer to adopt definite rules for the jury to follow when awarding damages. Otherwise, may be 2 kinds of mistakes: False positive over inclusion False negative under inclusion d. It is better for the parties when contracting to expressly provide for uncertain damages (liquidated damages) 352. Uncertainty as a Limitation on Damages (p. 140) Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. C. Anglia Television Ltd. V. Reed (Brady Bunch dad breaches tv show case) EXPENDITURES PRIOR TO K NOT FORESEEABLE p. 125 a. FACTS: Anglia Television (P) entered into a contract with Reed (D) to perform in a television play. Because of a booking error, Reed (D) repudiated the contract. Anglia (P) could not find a substitute and had to cancel the project. Anglia (P) did not claim loss of profits as damages, but instead claimed wasted expenditures (precontract, after K). b. ISSUE: In a breach of contract action, can wasted expenditure be recovered when it is wasted by reason of the defendants breach of contract? c. HOLDING: In a breach of contract action, wasted expenditure can be recovered when it is wasted by reason of the defendants breach of contract.

A plaintiff can claim for his loss of profits or for wasted expenditure, not both. He can also claim expenditure which happened before the contract was concluded, provided that the expenditures were such as would reasonable be in the contemplation of the parties as likely to be wasted if the contract was broken. Foreseeablility issue. e. DISCUSSION: Reed was on notice about their expenditures, though he could not reasonably foresee it He is awarded to pay those damages only under reliance, if expectation doesnt pay (3). Avoidability/Mitigation of Harm ( ) Promisor is not liable if you could mitigate. Golden rule treat someone's damages as your own. Can K out of it liquidated damages

A. Mistletoe Express Service v. Locke (canceled shipping servise losing K) p. 129 RELIANCE DAMAGES IN LOSING K FACTS: Phyllis Locked entered into a K with Mistletoe which provided that Locke would perform a pickup and delivery service for Mistletoe at various locations in Texas. The agreement would continue for one year with a month by month renewal after the first year until either party terminated by a thirty-day written notice. Locke made certain expenditures in performing her side of the contract, and then Mistletoe canceled the contract before the year was over. Issue: Whether an injured party may collect reliance interest when expectancy would suffer him a loss. Rules: The injured party may choose to ignore the element of profit and recover as damages his expenditures in reliance. He may do this in the case of a losing contract in which he would have had a loss rather than a profit. Reliance damages can be appropriate, but if the breaching party can prove that the expenses would have been wasted anyway [the contract would not have made the plaintiff money even if had been followed through with to the end], then the damages can be reduced. However, in this case, defendants claim of future losses was too speculative, so the court awarded full reliance damages. B. Rockingham County v. Luten Bridge Co. (canceled bridge) p. 131 PERFORMANCE AFTER REPUDIATION CANNOT RECOVER DAMAGES FOR IT FACTS: The County (D) Board of Commissioners voted to award a contract to Luten (P) for the construction of a bridge. When three of the five commissioners resigned, the new board voted unanimously to repudiate its contract with Luten (P). After receiving notice of the Countys (D) repudiation, Luten (P) proceeded to construct the bridge.

ISSUE: After repudiation of performance by one party to the contract, may the other party continue to perform and recover damages based on full performance? HOLDING: After repudiation of performance by one party to the contract, the other party cannot continue to perform and recover damages based on full performance. They must mitigate damages. DISCUSSION: Why would plaintiffs continue to work? Maybe they think that the court will award damages Maybe they think that the contract wasnt really repudiated Maybe wasnt sure and didnt want to be in breach himself C. Shirley Maclaine Parker v. Twentieth Century-Fox Film Corp. (canceled movie) p. 142 FACTS: In 1965 Shirley Maclaine singed to play in lead musical. 20th century fox decided not to produce that movie, but offered her lead in another movie. Shirley sues. 20th cent. Fox tries to lower its liability saying she didnt mitigate damage b.c didnt take the second role HOLDING: The court says that the principle is the money she should get from the contract minus what she could have earned in another movie or what she did earn. But then the court also says that movies were different -> didn't have to mitigate. DISCUSSION: This issue is complicated. Court doesnt want to force people to just take any jobbut on the other hand dont want to automatically pay her the full amount. Why not? Fairness to the defendant and a question of what is really the damage to the plaintiff. If she finds another job, is she really that damaged by the breach? * Exception to mitigation: lost volume rule Suppose that Im selling a car, someone breaches, and then I resell. I dont really have damages. But, if Im a car dealer even if I resell I still have damages. This is the lost volume rule. My selling a car is more like an employment contract: I as a person with one car, thats all I have. There is no notion of additional things I could have sold. Same thing with employment. I can only sell my services to one employer. However, some people argue that certain jobs are not strictly 9-5 jobs, opening the possibility that they might be able to work for more than one employer at a time. Restatement (Second) of Contracts350. Avoidability as a Limitation on Damages (p. 153) 1. Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.

2. The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss. D. Neri v. Retail (canceled boat purchase) WHEN THE SELLER HAS UNLIMITED SUPPLY OF GOODS SUBSEQUENT SALE IS NOT MITIGATON, COZ COULD PROFIT FROM 2 DEALS + BREACHING PARTY HAS THE RIGHT OF RESTITUTION- p. 154 FACTS: Neri (P) contracted with Retail Marine Corporation (D) to purchase a specific model of boat. Neri (P) paid a deposit of $4,250. Neri (P) then rescinded the contract because he was hospitalized. Marine (D) had already ordered and received the boat, and refused to refund the deposit. Marine (D) sold the boat ordered to another buyer. Neri (P) sued for his deposit and Marine (D) counterclaimed for damages due to Neris (P) breach. Marine (D) claimed that it could have sold both boats. ISSUE: In an action for breach of contract based on repudiation by the buyer, may the seller receive damages based on his lost profits where he subsequently sells the item at issue to another buyer? HOLDING: Uniform Commercial Code 2-708 permits the seller to recover as damages the difference between the market price and the contract price plus any incidental damages incurred, but minus any expenses avoided, as long as this amount is sufficient to place the seller in as good a position as performance would have done; otherwise, the seller may recover his lost profit, plus any incidental damages and reasonable costs. Where a seller has an unlimited supply of goods at his disposal, the subsequent sale of the item at issue is not sufficient to restore the seller to his expected position, since had the buyer performed, the seller theoretically would have profited form both sales. Thus, Neri (P) may recover his deposit of $4,250, minus Marines (D) offset of its lost profit of $2,579, and proven incidental damages amounting to $674. Application of UCC here: 2-718. Liquidation or Limitation of Damages; Deposits (p. 159) (2)Where the seller justifiably withholds delivery of goods because of the buyers breach, the buyer is entitled any amount greater than ( , ): a. Reasonable liquidated damages in the K b. The lesser: 1. 20% of the value of the total performance 2. $500, whichever is smaller. BUT 2-718 (3) allows to have another calculation if the seller establishes a right to recover damages under the provision of this Article other than subsection (1) allows to refer to another articles 2-708 (1). Sellers Damages for non-acceptance or Repudiation (p. 158) Damages for non-acceptance by a buyer (breaching party) defference btw market price and unpaid K price + incidential damages, but less expences saved as conseq of the buyers breach

2-708 (2). If the above measure is not adequate to put the seller in the position as if the K was performed -> measure of damages = profit (incl reasonable overhead) from full performance + incid damages + due credit payments + proceeds of resale Application: Damages as in 2-708 (1) are not as high as the lost profit from the sale M price = K price -> damages = 0, but profit form sale should be 2,579 Therefore, (2) applies and lost profits + incid damages are the measure *Distinction btw one off-sale and sale by the dealer In the dealer case buyers breach hurts dealer, coz buyer could have sold 2 cars instead of 1 Incid damages are cognizable under 2-708 (2) Trial court denied, coz applied 2-718 (2)(b) Therefore, lost profit of seller = 2579 + incid damages 674 = 3253, buyer shold get refound of 4250 (deposit) 3253 = 997

2-710. Sellers Incidental Damages (p. 159) Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyers breach, in connection with return or resale of the goods or otherwise resulting from the breach.

(D) Damages under UCC UCC Problem I. Expectation Damages/benefit of the bargain (if UCC is not applied): A. PLEASE NOTE WELL: 1. expectation damages is a common law remedial concept. 2. The UCC isas you should appreciateinformed by the common law rules, but it is not appropriate to simply use the expectation damages concept in computing damages under the UCC. 3. Rather, the UCC constitutes a statutory framework which MUST be followed, regardless of where it leaves you. a. the goal is to produce the statutorily correct answer b. NOT the answer that logic, common sense, or common law would provide 4. I compute expectation damages here NOT because its the right answer, but because the UCC analysis may treat this as a baseline (see 2-708(2)); and its intrinsically interesting to know when/if a different result is reached under the statutory analysis: B. If K performed: Revenue of $22,000 - Cost of 18,000 = Profit of $4,000 C. Given K breached: Revenue of $2,000 - Cost of 12,000 = Profit of -$10,000 D. Thus, expectation damages are $4,000 - (-10,000) = $14,000, leaving seller as well-off as if buyer had performed: i.e., $14,000 + 2,000 - 12,000 = 22,000 - 18,000 = $4,000. II. Preliminary Analysis Under 2-704 (apply UCC) A. Under common law analysis: 1. scrapping the car and selling it would be fine, as long as it is reasonable.

2. it might even be required under general mitigation principles. B. Under UCC, this might or might not be trueyou should check to see if there is some place in the statute that authorizes (or perhaps prohibits) scrapping C. 2-704(2) permits scrapping unfinished goods in the exercise of reasonable commercial judgment for the purposes of avoiding loss . . . That condition would seem to apply here: 1. if there is no alternative buyer for the fully-built car, then continuing to build the car would be wasteful (and, indeed, unjustified), while it is reasonable to get what one can for the materials used so-far. 2. Thus, the scrapping would almost certainly be deemed reasonable. III. UCC Analysis Under 708(1): A. Note: 1. You must get to 708(2) via sub-(1) first (formula is inadequate > 708(2)). 2. Thus, you should first compute damages under 708(1) to see if they are adequate. Only then are you entitled to invoke 708(2)s formula. B. 2-708(1) formula: Market Price at time of breach - Contract Price - Expenses Saved. 1. What is Market Price? 2-723 is not of much help here (as I read it) There are 2 possibilities for market price a. MP = 0. Argument for: If completed, the car would be very difficult to sell to anyone else. At least in the limit, this implies mkt price of 0. b. MP = 2,000. Argument for: This gives a logically appealing answer (see below), but it is not obvious that the Market Price can refer to something other than what the Contract Price refers to. (1) Since the Contract Price is for a completed car, its not clear that the market price could refer to the scrap value of a 2/3-completed car. (2) But perhaps it can. Youll need to make an argument for this, however. 2. Contract Price = $22,000there would seem to be no dispute about that. 3. What are expenses saved? 1. If K performed, total expenses would be $12,000 + $6,000 = $18,000 2. Given that production was halted after spending $12,000, gross Expenses Saved by buyers breach = $6,000. 3. Alternatively: expenses saved might be a NET conceptif your breach saved me $6,000 in completion costs AND allowed me to realize $2,000 in scrap value for the project, then your breach saved me $8,000?? I find this un-convincing. 4. NOTE: it would be double-counting to include the $2,000 scrap value in BOTH the market price AND the expenses savedthe scrap value would seem to belong in at most one of these places, and possibly neither!!! 4. ApplicationDamages due from Buyer are: 1. Assuming Market Price = 0 and Expenses Saved is gross: 22,000 - 0 - 6,000 = $16,000 This leaves promisee with $16,000 in damages and $12,000 in costs incurred, plus $2,000 in scrap = $6,000. This is better than if performance had occurred. 2. Assuming Market Price = 2,000 and Expenses Saved is gross: $22,000 - 2,000 - 6,000 = $14,000 - This leaves promisee with $14,000 in damages and $12,000 in costs incurred, plus $2,000 in scrap = $4,000; this is as well-off as if performance had occurred. 3. Assuming Market Price = 0 and Expenses Saved is net: $22,000 - 0 - 8,000 - This also leaves promisee with $14,000 in damages, $12,000 in costs incurred, and $2,000 in scrap = $4,000

4. Assuming Market Price = 2,000 and Expenses Saved is net: $22,000 - 2,000 8,000 = $12,000 - This leaves promisee with $12,000 in damages, $12,000 in costs incurred and $2,000 in scrap, for $2,000, which is worse than if performance had occurred IV. Damages under 2-708(2) A. Notice that the introductory phrase of 708(2) says that to apply 708(2), damages under 708(1) must be inadequate to put the promisee in as good a position as if performance had occurred. Only if that is true are were entitled to apply the formula in (2). Is it true? 1. Under the analysis in III.F. above, there is only one possible condition under which damages as calculated in 708(1) are inadequate to put the promisee in as good a position as performance, namely version F.4. 2. That version seems almost certainly wrong, since it clearly entails double- counting the $2000 value of the scrap. 3. Thus, a reasonable answer is that 708(2) does not enter into the problem at all, because seller is either over-compensated relative to performance (under III.F.1.) or given the benefit of the bargain (under III.F.2 or 3). III.F.4. seems impermissible. B. But, suppose we do conclude that 708(1) damages are inadequate: 1. The text then requires us to compute the profit . . . which the seller would have made from full performance by the buyer, together with any (i) incidental damages provided in this Article (2-710), (ii) due allowance for costs reasonably incurred and (iii) due credit for payments or proceeds of resale. 2. There are no incidental damages, whether under 710 or otherwise, that I can see. 3. Profit from full performance is $4,000 (per I.D.) 4. What does costs reasonably incurred mean in this context? -> Costs reasonably incurred are $12,000 5. What does payments or proceeds of resale mean? 1. This is related to Neri, where payments or proceeds of resale was wrongly understood by the lower court to refer to the second sale of Neris boat to the next buyer. 2. Here, the formula in 708(2) would require that the scrap value of the car$2,000be offset against the profit from performance. Thus, the seller would o get $4,000 + 12,000 - $2,000 from the buyer. o get $2,000 from the scrap o have spent $12,000. o for a total of 4,000 + 12,000 - 2,000 + 2,000 - 12,000 = 4,000, which is just what would have been realized from full performance. 2-708. Seller's Damages for Non-acceptance or Repudiation. (1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710), but less expenses saved in consequence of the buyer's breach. (2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided

in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. 2-704. Seller's Right to Identify Goods to the Contract Notwithstanding Breach or to Salvage Unfinished Goods. *** (2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner. Official Comment *** 2. Under this Article the seller is given express power to complete manufacture or procurement of goods for the contract unless the exercise of reasonable commercial judgment as to the facts as they appear at the time he learns of the breach makes it clear that such action will result in a material increase in damages. The burden is on the buyer to show the commercially unreasonable nature of the seller's action in completing manufacture. 2-723. Proof of Market Price: Time and Place. (1) If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods, any damages based on market price (Section 2-708 or Section 2-713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation. (2) If evidence of a price prevailing at the times or places described in this Article is not readily available the price prevailing within any reasonable time before or after the time described or at any other place which in commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the cost of transporting the goods to or from such other place. (3) Evidence of a relevant price prevailing at a time or place other than the one described in this Article offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise.

(E) Liquidated Damages/ Penalties/ Efficient Breach Expectation damages under default rule. If liquidated damages are not penalty ok (shouldnt be too high) Penalty = something more than harm NOTHING IS PENALTY UNTIL THE COURT DECIEDES IT, PENALTY IS A CONCLUSION OF LAW Sources of law: UCC: liq dam = actual harm + diff-y of proof + inconvenience of obtaining remedy RES: vague totality of circumstances The three next cases examine the modern distinction between penalty clauses, which are unenforceable, and liquidated damges clauses, which are enforceable. A. Kembel v. Farren (comedian quits) PENALTY CLAUSE 1000P FOR ANY BREACH OF ANY CLAUSE - p. 163 FACTS:

Farren (D), an actor, was contracted by Kemble (P), manager of Covent Garden Theatre, to perform at the theatre for four seasons. Their agreement contained a stipulated damages clause which stated that if any party failed to perform any or all stipulations agreed upon, such party should pay the other 1000 pounds. Farren refused to act during the second season, breaching the contract. RULE OF LAW: Where a contract provides that a very large sum is to become immediately payable for any breach, however minor, the courts will direct the jury to assess the real damages sustained as a result of the breach of contract. VOCABULARY: limited damages An amount of money specified in a contract representing the damages owed in the event of breach. HOLDING: Court concluded that the clause in question was an unenforceable penalty clause, not a clause for liquidated damages. It was not sufficiently restricted -> 1000 pounds for any breach of any clause??? -> should be more specific Though K stipulated that 1000 is not a penalty Although the court holds that it is neither unreasonable nor illegal to fix the amount to be paid for breach if the resultant damages would be uncertain in nature, in this case, the clause was not sufficiently limited, awarding the same damages for any breach, no matter how minor. B. Wassenaar v. Towne Hotel (Hotel worker fired) PARTIES COULD FORSEE FUTURE DAMAGES, THUS INCLUDED IT INTO LIQUID DAM + NO OBLIGATION TO MITIGATE - p. 165 FACTS: Wassenaar (P) entered into an employment contract with Towne Hotel (D), which included a liquidated damages clause. Stipulated damages clause pay for all 3 years if fires (for the days left) Towne Hotel terminated Wassenaars employment prior to expiration (wrongful termination) Towne Hotel made affirmative defense that Wassenaar failed to mitigate damages. RULE OF LAW: A stipulated damages clause is valid if it is reasonable under the totality of the circumstances. HOLDING: Appelate court: -> It is a penalty, coz: Liquidation damages are not the same as earnings. Backpay formula is a general rule difference in salary + incidental damages Here liquidation damages clause is too heigh Supreme court -> reversed, coz: The employer wrote the K, burden of proof

There is a difficulty to ascertain a backpay formula here, does not include consequential damages (reputational harm, moral sufferings, pain and suffering) -> extra stuff is not included into the general formula Parties could have meant all those things Court explained that Towne Hotel failed meet its burden of proof showing that the stipulated damages were unreasonable, Towne Hotel did not present facts showing that Wassenaar did not suffer or suffered significantly less damages than the stipulated amount. the agreement foresaw possibility of harm and agreed on an estimated amount thus Wassenaars subsequent earnings do not factor into courts holding, as they would had there been no stipulated damages clause. ANALYSIS: There are competing viewpoints in regards to enforcing stipulated damage clauses. Enforcement avoids uncertainty and delay, as well as increases economic efficiency; however, Enforcing damages becomes punitive or unfair under certain considerations. DISCUSSION: If general damages are applied: Not all the 3years period salary, but what is left + incid damages (coach, resume, trips) + have to mitigate damages find new job BUT Liquidation damages clause gives you the right not to mitigate *If you read the clause in the K like 3 years money whenever fired - penalty NOTHING IS PENALTY UNTIL THE COURT DECIEDES IT, PENALTY IS A CONCLUSION OF LAW Restatement (Second) of Contracts 355. Punitive Damages Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. 356 Liquidated Damages and Penalties (1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on ground of public policy as penalty. (2) A term in a bond providing for an amount of money as a penalty or non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extend that the amount exceeds the loss caused by such non-occurrence. C. Lake River v. Carborandum (coal purchase) p. 173 REASONABLE ESTIMATION OF LIQUIDATED DAMAGES AT THE TIME OF K HOLDING/RULE:

In order for a liquidated damages clause to be enforceable, there must be a reasonable estimation at the time of contracting of the probable damages from breach, and the need for estimation must be based on the likely difficulty of assessing the actual damages suffered in the event of breach; otherwise, such clause is void as penalty. ANALYSIS: Judge Posner notes his disagreement with decision by explaining that while penalty clauses impute a sense of exigency () into the terms therein [notes additional risk to creditors of contract breakers], this advantage is outweighed by several countervailing concerns: (1) presence of penalty clauses increases costs of contracting and (2) penalty clauses may discourage efficient breaches of contract. III. Other Remedies and Causes of Action (A). Specific Performance When damages seem to be not compensable. It is a default rule for land cases. It is one-way rule, u cannot K to the spec perf, u can only K out if it is a default rule. *UCC 716 revised parties can bind themselves to specific performance. Why spec performance for land?: Unique, memories, identity is tied to the land A. Loveless v. Diehl (buying a farm) K FOR LAND - NO REMEDY IN LAW (UNDERCOMPENSATION) EQUITABLE RELIEF SPECIFIC PERFORMANCE p. 198 FACTS: The Diehls (P) sought specific performance of an agreement for the sale of a farm they leased from the Lovelesses (D) pursuant to an option-to-buy during lease for a specific amount contract. Specifically, D leased a farm to P for 3 years w/ an option to purchase anytime during that period for $21,000. Ps improved property requiring, notably a promissory note to D for $1,440.95 for a milking system. Ps sought a buyer in order to recoup () investment when they were unable to fund the purchace themselves. Hart agreed to pay the $22,000 for the property, but D refused to sell the property to P. ISSUE: In a contract for the sale of real property, may the court award the remedy of specific performance as a matter of course? HOLDING: Yes, irrespective of the inadequacies of remedies at law. Ps made $5,000 worth of improvements. Award unjustly enriches D for their breach and would diminish () transferability of land. DISSENT: (Harris) Specific performance results in P recouping only $1,000 of their investment and results in a benefit to a third party who suffered no injustice as a result of the breach. DISSENT:

(McFaddin) It is also w/in courts power to deny specific performance if resolution of issue is not obvious or where there exists other prevailing concerns. Court acted w/in its bounds to say they get the damages equal to the amt they would have received if contract had been executed. DISCUSSION: It is land, but spec performance as a default rule is weird here, coz they sell it anyways. But court says, that whether they want to sell is their own business. It is equitable here to award spec performance, coz award of damages doesnt compensate improvements (5,000). B. Cumbest v. Hurris (pawned () stereo) p. 203 K FOR GOODS - PROVE THAT THE ITEM IS UNIQUE TO GET SPEC PERFORMANCE FACTS: Cumbest (P) and Harries (D) entered into a loan disguised as a sale agreement that allowed Cumbest to repurchase stereo from Harries by a specific date. P tried to repay, by D hid from him. P sued for specific performance b/c the items were unique and some were difficult to replace. ISSUE: Will the court order specific performance for the sale of an item of personal property? HOLDING: No. Generally, specific performance is not warranted unless there is no specific remedy of law. But this was conceded unique. Therefore reversed and specific performance ordered. DISCUSSION: With the land it is default, here you get damage, have to argue for specific performance C. Scholl v. Hartzell (Corvette sale) p. 206 - K FOR GOODS - NO SPEC PERF, COZ ABILITY TO BUY ALTERNATIVE GOODS, NOT UNIQUE FACTS: Scholl (P) bought a car and parts advertised by Hartzell (d) for $4000. P deposits $100 and contracted to return with the rest. P demands delivery or $4655 (difference btwn K and M price 4000-8655) ISSUE: When a contract is executory, ( ) does the tendering of a deposit give rise to an action in replevin ( ) to enforce? HOLDING: No, when a contract is executory, the tendering of a deposit does not give rise to an action in replevin, and the injured party must seek relief based on breach of contract. Both sides were executory, Court only permits equitable remedies when remedies at law are inadequate. Deposit immediate and exclusive right to take possession. P has remedies including cover. (ie not unique item) DISCUSSION: You dont own a thing until you pay. Replevin when you own the thing not paying for it. No ownership no replevin. Why buyer asks soec performance here? Coz probably Seller has no money + damages 4655 for a 4000 car doesnt sound equitable Pl here didnt have the full ownership + corvette is not the thing, which entitles you to specific performance.

o Not unique o If you can recover spec performance not necessary (abiluity to recover by purchasing an alternative good) Efficient Breach (voluntary breach of contract and payment of damages by a party who concludes that they would incur greater economic loss by performing under the contract.) Want item to go to the highest bidder Hypo: Lets say someone (Mr. Rich) offered Hartzell more $ for car. If Scholl seeks specific performance and manages to sell it to Mr. Rich he gets the $. (room to bargain?) 12000 price Mr. Rich offers 8655 Scholls valuation of car 4655 4000 Price Scholl offers Hartzell If specific performance is ordered and he sells it to Mr. Rich the Scholl gets 12000-4000. If award expectation Hartzell gets 12000-8655 If award expectation Scholl gets 4655 If liquidated damages are set above valuation (thus a penalty) then people wont breach. Mr. Rich ends up with car either way because either he buys it from Scholl or Hartzell. Economic efficiency Sedmak v. Charlies Chevrolet (another corvette) p. 208 K FOR GOODS - BEING 1 OF 6000 IS A SUFFICIENTLY UNIQUE NATURE -> SOPEC PERFORMANCE ALLOWED FACTS: The Sedmarks (P) entered into an oral contract with Charlies (D) upon which they placed a $500 deposit to purchase a limited addition Corvette for approximately $15,000. When the car arrived, Ds sales man told them they would have to bid on the car. The salesman claims that the deposit was just giving them the right to bid first and last. ISSUE: May specific perform. be ordered when the subject matter is of a sufficiently unique nature? Holding: Yes, Circumstances include situations where p has no legal remedies and where a substitute could not be found without substantial cost/delay. Here car was 1 of only 6,000 made and arrived tailored to the Ps needs and thus was sufficiently unique Its cheeper and easier to get the car here


Sales Contracts: The Uniform Commercial Code: 2-716. (1) Specific performance may be ordered where the goods are unique or in other proper circumstances. (2) The judgment (decree) for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just (3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect cover for such goods or the circumstances reasonably indicate that such an effort will be

unavailing or if the good have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. E. Lumley v. Wagner (enjoined () singer) p. 216 PERSONAL K INJUNCTION: DONT SING THERE, INSTEAD OF SPEC PERF: SING HERE FACTS: P, Lumley, operates a theatre where D, Wagner, was to perform. D agrees not to perform at any other theatre without permission. She then made a commitment to perform at another theatre. P brought suit to refrain D from singing anywhere else. HOLDING: Court orders injunction barring the D from singing elsewhere. The court states that it cannot force her to sing, but distinguished injunction from SP by saying that D cannot complain if she is barred from singing elsewhere and thus fulfilling her contractual commitment. DISCUSSION: Possible damages here: profits from tickets from the day of quiting They do not get the profit + they lose profit she brings to another theater Specific performance for personal K looks like slavery Why is it ok here? There is a clause in the K negative stipulation (dont sing there), not affirmative (sing here) Negative stipulation defines what she is allowed to do, but not what she is barred from. It is not SP, it is forcing not to breach. The court doesnt enforce her to sing in the theater, they just dont allow to sing somewhere else. She has an option here. She could quit, not to sing anywhere, it will not be a breach


Dallas Cowboys Football Club v. Harris (enjoined football player) PERSONAL K - EVEN IF K SAYS UNIQUE COURT CHECKS IT NEGATIVE INJUNCTIONp. 232 FACTS: D, Harris, contracted to play football for LA Rams for one year. Contract said Harris could not play for any other team bility. Harris agrees in K that he has unique abilities and damages are difficult to estimate After a year, Harris left to play with an AFL team. HOLDING: The stipulation in the K that he is unique doesnt help The court orders negative injunction barring Harris from playing for other teams. Doesn't forse him to play for this team, just don't play for others Under a broad interpretation of unique a star football player has a unique ability. (similar to UCC and goods) (B). Restitution as Damage Interest & Cause of Action


If a D breaches, P can usually seek damages, OR bring an action in quasi-contract for restitutionary damages to recover the reasonable value of the benefit plaintiff conferred on D. Restitution damages usually measured by market value of Ps performance rather than actual enrichment of D, which could be less than the market value. . Bush v. Canfield (nondelivery of flour) p. 250 FACTS: o Bush contracted with Canfield for the latter to deliever to the former a certain quantity of flour. o Bush paid 5,000 in advance o C failed to deliever o K price was 7 per barrel at the time of delivery and dropped to 5,50 per barrel ISSUE: Is damages here amount advanced + interest?? REASONING: Defendant breached the contract. He has no right to claim that if he fulfilled the contract, the plaintiff would have sustained a loss, so the loss ought to be deducted from the money advanced. Nor can the defendant say that the plaintiff is only allowed the reduced value of the portion paid foby the advanced payment, coz K was for the whole quantity of flour Therefore, should refund advanced payment DISCUSSION: o Difficult in expectation damages here, coz the breach saved 1,50 per barrel -> negative profits. If expectaton damages doesn't get the deposit back, coz puts him in a better position, there should be a loss if the K had been performed o Restitution put parties back Britton v. Turner (worker quits) p. 256 K WAS BREACHED, BUT NOT TO PAY FOR THE PART ALREADY PERFORMED IS FORFEITURE AND UNJUST ENREACHMENT -> RESTITUTION FACTS: Plaintiff contracted to work for one year for the Defendant where he would be paid $125.00 at the end of employment for services rendered. The contract explicitly stated that payment would be given at the end of the year, if fully performed. Plaintiff ceased working after nine and a half months and did not receive any compensation from the Defendant. There was no evidence that the Defendant suffered any damages as a result of Plaintiffs departure. ISSUE: If the Pl breaches the K is he entiteled to get 9 or the employer gets 95 for free? DISCUSSION: It is a forfeiture of 95 (proportionate to time worked), unjust enreachment. DEFAULT RULE: pay for thr time worked QUANTUM MERIT: recovery for the labour even without K



Vines v. Orchard Hills (condo ( ) sale) p. 260 DEPOSIT IS ALSO A DOWN PAYMENT PARTY IN DEFAULT DOESNT GET IT BACK FACTS: Vines (P) placed a down payment of $7,880 on a $78,800 condominium that was being sold by Orchard Hills (D). The contract stipulated that Orchard Hills would retain the down payment as liquidated damages in case of default. Vines was then transferred to New Jersey and decided not to complete the transaction for the real estate. Vines explained the circumstances to Orchard Hills but Orchard Hills refused to refund the down payment. DISCUSSION: Vines says that Orchard has 7,880 unjustly, Orchrd says that its liquidated damages If its only a deposit you get it back You dont get it back if a non-defaulting party suffered damages or it was a liquidated damages clause But liquidated damages are not refundable, however it should be reasonable anyways (nearly 10%). Smth you will be ok to leave if you walk away from the deal. Advantage of calling it liquidated damages is shifting a burden of proof to Pl, has to prove it is a penalty. Seller is loss volume seller here Measure of damage for him no, coz can sell for much heigher price Cotnam v. Wisdom (Dr. helps dying man) QUASI K FACTS: P, surgeons (one of which was Wisdom), rendered medical aid to the decendent (Mr. Harrison) of D (administrator of estate, Cotnam) after a car accident. (obviously, the decedent didnt make it). HOLDING: Court says there was no contract, BUT, there was an implied-in-law or quasi contract. Doctors are entitled to recovery for the services rendered, even though there was no benefit conferred because the guy died. Courts create legal fiction for doctors legal remedy, coz most people would have been agreed quasi/implied in law contracts exist when one party is required to compensate another for a benefit conferred in order to avoid unjust enrichment. DISCUSSION: Is he entiteled to costs + benefits? Difference btw K and Q-K: Different remedies Lies btw k and tort Policy issue: We dont want all the Q-K be enforseable someone can give smth for free and then ask for papyment for it. R2d. 371 Measure of Restitution Interest


If a sum of $ is awarded to protect a partys restitution interest, it may as justice requires be measured by, 1.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 claimants position, OR b. the extent to which the other partys property has been increased in value or other interests advanced. R2d. 373 Restitution When other Party is in Breach (1) Subject to rule stated in Subsection (2), on a breach by nonperformance that gives ruse to a claim for damages for total breach or on a repudiation, the injured party is entitled restitution for any benefit that he has conferred on the other party by way of part performance or reliance (2) The injured party has no right to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance. 374. Restitution In Favor Of Party In Breach (1) Subject to the rule stated in Subsection (2), if a party justifiably refuses to perform on the ground that his remaining duties of performance have been discharged by the other party's breach, the party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach. (2) To the extent that, under the manifested assent of the parties, a party's performance is to be retained in the case of breach, that party is not entitled to restitution if the value of the performance as liquidated damages is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. Comment: Restitution in spite of breach. i. The rule stated in this Section applies where a party, after having rendered part performance, commits a breach by either non-performance or repudiation that justifies the other party in refusing further performance. ii. It is often unjust to allow the injured party to retain the entire benefit of the part performance rendered by the party in breach without paying anything in return. iii. The party in breach is, in any case, liable for the loss caused by his breach. iv. If the benefit received by the injured party does not exceed that loss, he owes nothing to the party in breach v. If the benefit received exceeds that loss, the rule stated in this Section generally gives the party in breach the right to recover the excess in restitution. vi. If the injured party has a right to specific performance and remains willing and able to perform, he may keep what he has received and sue for specific performance of the balance. IV. REACHING AN AGREEMENT (A) Manifesting Assent () The Objective Theory Of Assent is to be applied to determine whether mutual assent has been achieved.

TEST: what a reasonable person in the position of each of the parties would be led to believe by the words or conduct of the other party or the words of a written contract. Test protects the parties reasonable expectation words and conduct are not interpreted as to what the offeror/acceptee subjectively thought them to be. an actual meeting of the minds is not required because that implies subjectivity there is sufficient manifestation of assent whenever a party uses words or acts as if he knows, or has reason to know the other party would reasonably interpret as an offer or acceptance, and the other party does so interpret them eg. An offer made by party A to B purely as a joke will result in a binding contract if B reasonably believes that A was serious. theory requires a subjective element in that it looks at the s belief. Its only at work in bottom left. Plaintiffs Belief YES NO YES Contract No Contract Defendants Belief if unreasonable, NO no contract No Contract If Reas., Contract


Embry v. Hargadine McKittrick Dry Goods (fired worker) p. 290 FACTS: P, Embry, had an employment contract with D, Employer, McKittrick. When contract was expiring, P told co.s president he would quit working if his contract was not renewed. D told him to just keep working, which P took to mean that the contract was being renewed. P was later let go. D claims he was never going to renew the contract. HOLDING: Court finds for P, as if one partys inner intention is at odds with his express words, the express words are that counts. It was reasonable for P to interpret Ds words as renewal. The court has employed an objective test, rejecting a subjective reasoning??? DISCUSSION: Is meeting of the minds necessary? -> no Manifestation of actual intent is needed, not hidden (easy to prove, certain, pushes people to be reasonable), there is deal if clearly manifested If Embry + reasonable person believes that there is a K -> there is a K Nothing depends on McKittrick

Did McKittrick Assent As Viewed by: Reasonable Person yes yes Yes yes no no no no Embry yes yes no no yes yes no no McKittrick yes no yes no yes no yes no

Outcome: Court's Rule: Yes K Yes K-> yes zone No k No k No k No k No k No k

1 2 3 4 5 6 7 8

B. Texaco v. Pennzoil (MoA case) MoA AND PRESS RELEASE ARE SUFFICIENT FOR MANIFESTATION OF ASSENT p. 295 a. Facts: Pennzoil (P) and Getty Oil entered into a merger agreement whereby Pennzoil would acquire Getty. Pennzoil and Getty signed a Memorandum of Agreement subject to the approval of each board and issued a press release. Texaco (D) made an alternative offer to Gettys board. Getty repudiated its agreement with Pennzoil and accepted Texacos offer. P sued D for tortious interference with contract. D asserted that the Memorandum of Agreement was not a binding contract because it was subject to the approval of Gettys board of directors and would expire by its own terms if not approved. P asserted that the contract was binding because the Memorandum had been executed by a group of parties that controlled the majority of outstanding shares in Getty. b. Issues: 1) Is a partys intent to be bound by an unexecuted contract a question of fact for the fact finder, or a question of law for the judge? 2) To what extent must the terms of a contract be ascertainable in order for a contract to be enforceable? c. Holding and Rule: 1) The determination of whether a party intended to be bound by an unexecuted contract is a question of fact for the fact finder ( ). 2) The terms of a contract must be ascertainable () to a reasonable degree of certainty in order for a contract to be enforceable. d. Reasoning: There was substantial evidence of Ps and Gettys intention to be bound subject to approval by their boards of directors. This intent was shown by the Memorandum of Agreement and the press release.

There is an arguable difference between a transaction being subject to various requirements, and the formation of an agreement being conditioned upon completion of such requirements. However, despite the clear language of reservation, the parties intent to be bound is still to be evaluated as a question of fact to be determined from all the circumstances of the case. There was substantial evidence to support the jurys finding. Under the relevant law, parties have the right to bind themselves either formally of informally. To determine intent, courts will look to outward actions not to subjective or unexpressed intentions. Whether parties intend to be bound only by a formal signed writing depends on (1) whether a party expressly reserves the right to be bound only when a written agreement is signed.; (2) whether there was any partial performance by one party that the party disclaiming the contract accepted; (3) whether all essential terms of the alleged contract had been agreed upon; and (4) whether the complexity or magnitude of the transaction was such that a formal, executed writing would normally be expected. In this case it was found enough had occurred to bind the parties.


Lucy v. Zehmer (joke sale) MANIFESTATION MATTERS, NOT INTENT p. 296 FACTS: Lucy (P) had tried several times to buy a farm form the Zelmers (D). One evening P and D were drinking and P offered to buy the land from $50,000. D said P didnt have the money. P said Do too and that he would pay that much for the farm. D wrote out a sales draft and spent 40 mins discussing the deal with P during which time revisions were made to the contract. D also made his wife sign the sales draft. D said he didnt think P had the money and that it was a big joke. CONCISE RULE OF LAW: If his manifestations of assent otherwise create a contract, the claim that the Seller was not serious is not a defense to a claim on the contract. HOLDING: Mental assent of the parties is not a requisite for the formation of a contract. If the words and acts have but one reasonable meaning, his undisclosed intention is immaterial (until disclosure). Intoxication didnt count. REASONING: Did seller manifest his intent to sell? His intent is not relevant D (seller) was serious, coz: K was written Discussed 40 min 5 doll to seal the deal wife's signature

RESTATEMENT (SECOND) OF CONTRACTS 17. Requirements of a bargain c. Meeting of the minds. The element of agreement is sometimes referred to as a meeting of the minds. The parties to most contracts give actual as well as apparent assent, but it is clear that a mental reservation of a party to a bargain does not impair the obligation he purports to undertake. The phrase used here, therefore, is manifestation of mutual assent, as in the definition of agreement in 3. 19. Conduct as a manifestation of assent (1) The manifestation of assent may be made wholly or partly by written or spoken words or be other acts or by failure to act. (2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and he knows or has reason to know that the other party may infer from his conduct that he assents. (3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud,, duress, mistake, or other invalidating cause. (B) Offers, Revocations An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. UCC 2-205 : Firm Offers: An offer by a MERCHANT to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if not the time states for a reasonable time, NOT TO EXCEED 3 Months. Two Essential Elements of an Offer 1. Intent to enter into a bargain: there is no intent to enter into a bargain if by the language/communications it is clear that a statements merely reflects an intent to begin negotiation. 2. Certainty and Definiteness of Terms: A statement will not be an offer unless it makes clear: the subject matter of the proposed bargain, the price, and the quantity involved. If one is missing but there is a clear intent to conclude a bargain, courts will often fill in the item. Advertisements are usu. considered invitations to deal, not offers; HOWEVER, there are two exceptions: 1) definite terms clearly indicate a bargain and 2) ad invites specific action without further communications. PRELIMINARY NEGOTIATIONS (NEBRASKA + LOENARD) A. Nebraska Seed Co. v Harsh (millet seeds) HAS TO CONTAIN CERTAIN AMOUNT TO BE AN OFFER, IT WAS SOLICITATION ( ) OF OFFERS p.305 FACTS: Harsh (D) a farmer, forwarded to Nebraska Seed Co. (P) a letter stating that he had 1800 or thereabouts bushels of millet that he would sell for $2.25 per hundered-weight.

P wrote back saying it accepted the offer, and stated the delivery instructions. D did not deliver and P sued for breach of contract. CONSICE RULE OF LAW: An ad of a product is not an offer if it contains general, nonspecific, terms. HOLDING: An offer must be specific as to the terms of sale, such as quantity and price. A communication that is nonspecific, even if the term offer is used, is more like an ad than an offer. D told P that it had a certain quantity to sell at a certain price, but 1800 thereabouts is not a sufficiently specific amt to constitute an offer. DISCUSSION: The more complete the letter was the easier is to say yes accepting it You can treat it as an offer then About 1800 gen number, 1800,79874 not general number Check trade practice what reasonable person and buyer think about the size of bushels How to classify if something is vague?: o How precise is the number o Context (they may not care about the number) If he really wanted to make an offer he could say I offer Writing a letter he was soliciting, just to know if someone is interested Rest 26 prelim negotiations, rest 33 gets you close to the offer RESTATEMENT (SECOND) OF CONTRACTS 26. Preliminary negotiations At manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addresses knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent. - reason to know depends not only on words or conduct but other circumstances including previous communications of the parties and the usages of their community or line of business. - In determining whether an offer has been made or not, relevant factors include the terms of previous contracts, the completeness of the terms of the suggested bargains and the number of persons to whom a communication is addressed. 29. To Whom an Offer is Addressed (1) The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance. (2) [Power may be had by individual or group] you can send an offer to several people, but if there is only item, it cannot be binding (limitattion supply) 33. Certainty (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. if you can figure out a remedy it is certain and it is offer

(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer. No offer if not reasonably certain, it doesnt have to be complete. If there is no place place of bus, if no time reasonable time. The more complete the more offeree. SALES CONTRACTS: THE UNIFORM COMMERCIALL CODE 2-204. Formation in General if terms are missing there are gap-fillers, it matters which terms are missing (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties, which recognizes the existence of a contract. (2) An agreement sufficient to constitute a contact for sales may be found even though the moment of its making is undetermined. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. 2-305. Open Price Term (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standards as set or recorded by a third person or agency and it is not so set or recorded. (2) A price to be fixed by seller or by the buyer means a price for him to fix in good faith. (3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. (4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and seller must return any portion of the price paid on account. 2-308. Absence of specified place for delivery Unless otherwise agreed (a) The place for delivery of goods is the sellers place of business or if he has none his residence; but (b) in a contract for sale of identified goods which to the knowledge of the parties at the time of contracting are in some other place, that place is the place for their delivery; and documents of title may be delivered through customary banking channels. 2-309. Absence of specific time provisions; notice of termination (1) The time of shipment or delivery or any other faction under a contract if not provided in this Article or agreed upon shall be a reasonable time. (2) Where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. (3) Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.


Leonard v. Pepsico (Harrier Jet) p. 308 JOKE OFFER IS NOT AN OFFER FACTS: P sued to enforce alleged contractual commitment of manufacturer, D, or to provide fighter jet aircraft in return for his submission of 7,000,000 product points. D moved for summary judgement and such was granted by district court. ISSUE: Has offer been made thru an Ad when the alleged offeree has an objectively reasonable belief that the offer was intended to be made? DISCUSSION: D advertisement was not an offer Court says it was a solicitation of offers? If solicitation, contract complete when Pepsi receives the order form from p!!!! An Objective Reasonable Person would not have considered commercial (due to its content) an offer Court points out that the commercial was "evidently done in jest" because it costs 23 million and primary use is for military. The commercial joke used it for effect. Joke offer is not an offer Policy issue: you dont want jokes, which look like an offer, make a disclaimer! Additionally, contract does not satisfy the statute of frauds

WRITTEN MEMORIAL CONTEMPLATED C. Empro Mfg. v Ball-Co Mfg. (merger negotiations) p. 319 PREK RELIANCE IS NOT BINDING FACTS: Empro (P) and Ball-Co (D) signed a letter of intent containing the general provisions of the sale of Dd assets to P, which proposed to pay $2.4 mill. W/ $650,000 to be paid on closing and a 10-year promissory note for the remainder. The letter stated, Empros purchase shall be subject to the satisfaction of certain conditions precedent to closing including, but not limited to the definitive Asset Purchase Agreement and, amoung five other conditions, the approval of the shareholders and board of directors of Empro. The sticking point ( ) for the deal turned out to be the security for Ps promissory note. When D started negotiating w/ someone else, P sued, contending letter of intent bound D. CONSICE RULE OF LAW: Parties who have made their pact subject to a later definitive agreement have manifested an intent not to be bound. HOLDING: o Only openly expressed wishes count. o The words subject to a definitive agreement and general terms and conditions in letter imply not binding. o D had not intended to be bound by agreement. DISCUSSION: o subject to definite agreement indicator of intent not to be bound o LoI contains general conditions implies that there can be additional demands more stuff to work on o Approval of BoSh intent not to be bound (objective intent), manifestation not to be bound o LoI was preliminary, not complete

o To make it not binding just write that it is not binding manifestation o Here even if there was no deal you can give reliance damages to the party (expences), if there was a deal expectation + specific performance o Judge says, there was no deal, coz preK reliance doesnt bind you RESTATEMENT (SECOND) OF CONTRACTS 27. Existence of a contract where written memorial is contemplated Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations. D. Dillard v Starcon International Inc. (settlement case) SETTLEMENT AGREEMENT IS ENFORCEABLE AND BINDING REVOCATION OF THE OFFER C. Dickinson v. Dodds (land sale) RETRACTION () FROM THE OFFER BY SELLING TO SOMEONE ELSE - p. 328 Facts: On Wednesday, June 10, 1874 Dodds (D) sent Dickinson (P) a memorandum in which he agreed to sell a specified piece of land for 800 pounds with the offer held open until 9AM the following Friday. Dickinson alleged that he had decided to accept Dodds offer on Thursday morning but did not contact him immediately because he thought he had until Friday morning to accept. On Thursday afternoon Dickinson learned that Dodds had offered or agreed to sell the land to a third party. Dickinson wrote a note accepting the offer and delivered it to his home, leaving it with his mother-in-law who neglected to give the note to Dodds. On Friday morning before the original deadline to accept the offer, both Dickinson and his agent gave Dodds a written acceptance of the offer. Dodds stated that he had already sold the land to another party the previous day. Issue Whether a promise to hold an offer open is binding where the other party does not accept until after he learns that the offeror has already conveyed the property. Holding and Rule No. An open offer to sell terminates when the offeree learns that the offeror has already agreed to sell to someone else. The court stated that since Dickinson knew that Dodds offer had been implicitly withdrawn when he learned that he had sold the property to someone else, there was no meeting of the minds at the time acceptance was made and therefore a binding contract was not formed. DISCUSSION: Was retraction from K by selling to someone else? yes, u dont need a clear retraction Application of Restatement to the case R. 17 - Was there an offer? ->

Yes, formula I agree to sell formula says, that if buyer comes with money, the property will be sold Can the seller change his mind? -> R 35, 36 offeror is the master of the offer: decides how it is accepted Can be withdrawn by: o R 36 1A Offeree if make a counter-offer destroys 1st offer o R 36 1B Offeree if term is expired o R 36 1C Offeror backsies before acceptance, coz offereor is master In this case: There is an offer 36 1C applies was there a revocation? Was there a manifestation of revocation? Need to tell to revoke, if buyer is aware that revoked it is ok, you dont need an express language You colud revoke by clear language, but also by clear and anambiguous way of selling it. R 42-43 -> buyer found out about revocation before the acceptance (indirect revokation) What about Ps. Offer to be left over until Friday?: Offeror can leave offer open with no right to revoke option K R 45 BUT Requirements to the formation of K: o Manifestation of mutual assent YES o Consideration for an option - NO One-sided offer is not enforseable, you didnt pay for it 36. Methods of Termination of the Power of Acceptance (1) An offeree's power of acceptance may be terminated by (a) rejection or counter-offer by the offeree, or (b) lapse of time, or (c) revocation by the offeror, or (d) death or incapacity of the offeror or offeree. (2) In addition, an offeree's power of acceptance is terminated by the nonoccurrence of any condition of acceptance under the terms of the offer. 42. Revocation by Communication from Offeror Received by Offeree An offeree's power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract. 43. Indirect Communication of Revocation An offeree's power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable information to that effect. 45. Option Contract Created by Part Performance or Tender (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. (2) The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.

(D). ACCEPTANCE AND ACCEPTANCE BY PERFORMANCE Acceptance can be in the form of correspondence, silence, or performance. Bilateral Contract: general rule is that an offer that requires acceptance by promise can be accepted only by a promise , not an act, although the required promise may be express or implied, and in some cases, can be implied from an act.?? Unilateral Contract: An offer that calls for acceptance by performance of an act can only be accepted by performance; not be a promise to perform (offer is not revocable once performance (not prep) has begun) A. Ardente v Horan (home sale) ADDITIONAL REQUIREMENTS IN ACCEPTANCE COUNTEROFFER p. 336 Facts: o Ardente made a bid for property offered for sale by the Horans. o The Horans attorney prepared a purchase and sale agreement and sent it to Ardente. o After investigating certain title agreements, Ardente executed the agreement. o Ardentes attorney sent the document, a check for $20,000 and a letter to the Horans. o The letter said Ardente wanted certain property to remain with the house as they would be hard to replace. o The Horans refused and directed their attorney to return the agreement and deposit check to Ardente and subsequently refuse to sell the property to Ardente. Issues: Was there an acceptance of the Horans offer to sell? Holdings & Court Order No, denied and dismissed Reasoning o The letter conditioned Ardentes acceptance on the inclusion of certain items with the house, and operated as a rejection of Horans offer, so no contract was made. O It was a counteroffer, and therefore it invalidated the original offer and the buyer's acceptance. O However, it can be acceptance but on the conditions Default rule for acceptance: 30. FORM OF ACCEPTANCE INVITED (1) An offer may invite or require acceptance to be made by an affirmative answer in words, or by performing or refraining from performing a specified act, or may empower the offeree to make a selection of terms in his acceptance. (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances. In case of doubts offeree can chose: by act or by promise 32. INVITATION OF PROMISE OR PERFORMANCE In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. 54. ACCEPTANCE BY PERFORMANCE; NECESSITY OF NOTIFICATION TO OFFEROR

(1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification. only performance (2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged ( ) unless (a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or (b) the offeror learns of the performance within a reasonable time, or (c) the offer indicates that notification of acceptance is not required offeror may just be aware that the offer is to be acted upon without notice 56. ACCEPTANCE BY PROMISE; NECESSITY OF NOTIFICATION TO OFFEROR Except as stated in 69 or where the offer manifests a contrary intention, it is essential to an acceptance by promise either that the offeree exercise reasonable diligence to notify the offeror of acceptance or that the offeror receive the acceptance seasonably. Restatement (Second) of Contracts 63. Time when acceptance takes effect Unless the offer provides otherwise, a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offerees possession, without regard to whether it ever reaches the offeror; but b) an acceptance under an option contract is not operative until received by the offeror 64. Acceptance by Telephone or Teletype Acceptance given by telephone or other medium of substantially instantaneous () two-way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other. 65. Reasonableness of Medium () of Acceptance Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received. 66. Acceptance must be properly dispatched () An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.


Offeror makes Offer (M)

Offeree sends Acceptance (T)

Offeror (M) receives acceptance

Mailbox rule acceptance occurs at point B, when the Offeree sends the acceptance Under the Restatement 63, the mailbox rule is the default rule unless the offer otherwise provides or unless it is an option contract. According to the Restatement 66, the mailbox rule does not apply unless the acceptance is properly mailed. Question: Can an offer be revoked once it is mailed but before it reaches the offeree? Yes. When someone sends an offer, it can be revoked before it reaches the offeree. This is because of Restatement 35. A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in Restatement 36. Basically, *** Offeror retains power to revoke up to the time acceptance occurs *** Restatement (Second ) of Contracts 69. Acceptance by Silence or Exercise of Dominion () 1. Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: a. Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. b. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. c. Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. 2. An offeree who does any act inconsistent with the offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.

B. Carlil v Carbolic Smoke Ball (bogus () medicine) ACCEPTANCE BY PERFORMANCE OK WITHOUT NOTIFICATION, COZ IT WAS REASONABLY EXPECTED BY THE OFFEROR p. 343 FACTS: Carbolic Smoke Ball Co. (D) placed an ad offering 100 pounds to any person who became ill after using its product. Carlill (P) tried the product, still fell ill, and tried to collect from the company. They would not pay, so she sued for breach of contract. COURTS REASONING: Was there an offer?

o The court explored whether the ad was intended to be a mere puff to make the product sound good. The court concluded that it was not mere puff because in the ad it says that money was deposited in the bank to back up offer. o Why is this relevant? Because if there was no promise, there cannot be acceptanceyou would not have a contract The second problem was that the promise was not made to anyone in particular. o The court says thats ok. o The offer was made to everyone. o The actual contract was made with the people who accepted the offer by performing. Is it ok to accept by performance here? No requirement to notice about the acceptance Rest 32 choses to accept by performance Rules in 54 (1) for invitation to accept by performance in the offer, rest 54 (2) is you chose it yourself Rest 54 (2) If an offeree has reason to know that the offeror has no adequate means of learning of the performance ( ) offeror may just be aware that the offer is to be acted upon without notice, it was expected by them that people will just show up to get their money.

Note: Everyday ads in windows, Catalogs, pricelists, circulars are not offers. They are invitations for an offer. However, it is possible to make an offer by ad to general public, but there has to be something special in add that suggests that all you have to do is the act and then you have binding contract. It has to be something more precise than an everyday ad. Question: When an ad is an offer, when do you have notification of acceptance? In Carbolic, the court says that if you are concerned about notification, you can think of notification being when people show up claiming reward as long as show up before offer is revoked. B. Flag Ploe Hypo

FACTS: I will pay you 100 if you climb the flag pole An offer is invited to be accepted by performance TRADITIONAL RULE: Acceptance by performance should be fulfilled fully, if is not fulfilled it is not acceptance. REST 45: When performance is invited ->the beginning of performance creates option K, offeror cannot revoke 45. OPTION CONTRACT CREATED BY PART PERFORMANCE OR TENDER only where performance is the only one way to accept!! (1) Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders a beginning of it. where is line btw preparation to begin and the beginning of performance?

(2) The offeror's duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer offerors duty to perform only upon completion, he cannot revoke after the performance was started, but pays after the performance 2-206. Offer and Acceptance in Formation of Contract. (1) Unless otherwise unambiguously indicated by the 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; (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of conforming or non-conforming goods, but such a shipment of non-conforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. (2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance. half of acceptance by performance can imply a promise to keep on climbing C. Leonard v. Pepsico- DISTINGUISH BTW OFFER TO PAY AND OFFER TO NEGOTIATE p. 356 FACTS: P sued to enforce alleged contractual commitment of manufacturer, D, or to provide fighter jet aircraft in return for his submission of 7,000,000 product points. D moved for summary judgement and such was granted by district court REASONING: o Doesn't invite to perform, is not a unilateral K o Should distinguish btw an offer to pay to anyone who performs a condition and offerto negotiate. Contact formation Problem FACTS: Acme (Dan) delivered a document to Porter (Sue), entitled OfferEquipment and Installation. The document was sent via messenge The document detailed a payment schedule and warranty terms, and although it did not explicitly specify a mode of acceptance, it did contain a page with blanks for the signatures On Nov. 3, Sue left the following message: Hi Dan, this is Sue Porter calling. We got your offer, and it looks really good. Im convinced. Call me as soon as you get back so we can work out the details. Sue then called the other two firms that were bidding on the project and rejected their bids. She also ordered Porter employees to begin work immediately to remove walls and install the platforms needed for the new equipment that Acme had proposed. Dan learned that there was a significant increase in the wholesale price and sent faxes to all of the many companies with which hed been negotiating on numerous projects: Dear Customers: due to an unexpected increase in the cost of raw materials (stainless steel), we are withdrawing all offers. We will be in touch with you as soon as possible to give you a new estimate on your project, after we have recalculated our costs. DISCUSSION:


I. Manifestation of Mutual Assent A. Offer: 1. Acmes initial document was labeled an offer, and it probably was, a. under Rest. 24: manifestation of willingness to enter into bargain, so made that another person is justified in concluding that his assent is invited and will conclude it. b. Rest 33: requires sufficient certainty that a breach can be detected and a remedy provided. Here, key terms seem to be present: (1) price, start date, completion date, warranty, and payment schedule (a) arguably, design specs were also included or already discussedif not, that would clearly be problematic. (2) These seem to be enough to detect breach (e.g., by taking too long) and/or compute a remedy, w/exception of (b)(1)(a) problem. c. Porter could presumably have accepted by returning a signed copy, which implies that Acme believed it was making an offer (1) though notethis is not directly relevant, per Embry: (2) what matters is whether Porter and a reasonable person would think this was an offer (a) Porter presumably thought it was an offer, and (b) presumably a reasonable person would as well... (3) Possibly, trade practice might differ about how offers are made in the Chemical industry 2. This does not seem like a preliminary negotiation or written memorial contemplated situation a. Under 26, its pretty clear that Porter did not believe, nor would a reasonable person, that further negotiations were necessary. (1) E.g., designation of offer (2) signature page as evidence that this was final document b. Also note absence of any subject to or other conditional language, a la Empro, suggesting that the document was only a memorialization of what had been agreed thus far, with more important details to be worked out. 3. Thus, Acme probably made an offer B. An acceptance by Porter would then create a contract under Rest. 22 (Considerationsee infrawill not be a problem: Porters promise to pay is clearly consideration for Acmes promise to perform, and vice-versa) II. Acceptance? 32 suggests that whereas herethe offer is not specific, offeree may accept either by return promise or by performance (unilateral K), as the offeree chooses. We must thus consider each alternative. III. Acceptance via Promise A. Form of acceptance: 30 (2) Unless otherwise indicated by the language or the circumstances, an offer invites acceptance in any manner and by any medium reasonable in the circumstances. The offeror is master of the offer, including what constitutes acceptance. 1. Since Acmes offer (probably) did not indicate the form of acceptance, and Sues phone call was probably a reasonable form of acceptance under the circumstances, there appears to be no obstacle to formation under Rest. 30 a. Perhaps, though, the signature page was an indication of how acceptance was supposed to be accomplishedby returning that page to Acme.

b. However, in the absence of anything like clear instructions to this effect, a court would most likely conclude that Acme had not done enough to signal that this was the exclusive form of acceptance. 2. Thus, there was probably nothing problematic about the form of acceptance, a. again, there may be trade practice that, e.g., voicemail messages are not OK. B. Substance of Acceptance: 1. Rest 50-59: Acceptance is defined as manifestation of assent to the terms of the offer, made in a manner invited or required by the offer. 2. Acceptance canot add or modify or qualify the termsdoing so is then a counter-offer. C. Was Sues message an acceptance, or did it add terms? 1. Probably yes, to a reasonable (business person), because it was unequivocally affirmative, didnt hedge bets (but see below) or suggest continued dickering was necessary or appropriate. 2. However a. Did not unequivocally state We accept. b. Im convinced mightarguablybe something less than full acceptance, though my reading is not c. The phrase call me . . . so we can work out the details might suggest that there was a less than full acceptance, proposing additional terms. 3. On the other hand: a. Work out the details could simply have meant agreement on the formal start date, which was to occur sometime in the specified 30 day window after acceptance, or other non-material details [parking permits for work crew] that neither party would want to negotiate over, but that merely required coordination between them b. The fact that Sue ordered demolition to begin and canceled other bids is evidence that she thought shed accepted (1) although per Embry, again, it doesnt matter what Sue thought she was conveying, but rather what intent she manifestedwhat a reasonable person and Dan thought she meant. (2) Moreover, since Dan apparently did not know about the cancellation of the other bids or the starting of demolition, these were not manifestations of assent to Dan, and thus dont count (Texaco v. Pennzoil) towards determining the status of Sues actions. D. In sum, I think theres a reasonable argument that Acmes document was an offer and that Sues phone message to Dan was an acceptance by return promise, forming the contract on November 3. The biggest weakness is the lack of explicit I accept language in the message and the phrase work out the details, which might or might not mean that there was still further negotiations contemplated by Sue. E. Assuming that Sues call was an acceptance, the attempted revocation by Dan in his Nov. 6 fax was inoperativethe contract had already been formed 3 days earlier. IV. Lapse of Offer, etc? A. IF the contract had not yet been formed by Porters promise when Acme sent its fax, we then have to ask whether Acmes fax constituted a revocation by the offeror, or whether perhaps there was something else that cause Porter to lose its power of acceptance under Rest. 36 B. Revocation:

1. Dans fax seems pretty clearly a direct revocation of its offer; 2. the only issue is that it wasnt expressly addressed to Porter, but to all its customers (Nebraska Seed, but thats a stretch). 3. Even if it wasnt an express revocation, it sure seems as if it would qualify as an indirect revocation under Rest. 43. C. Lapse of time: hard to know what a reasonable time would be for Porter to accept under Rest. 36(1)(b); trade practice would be operative here, and perhaps there is trade practice to the effect that construction bids of this size lapse after a day, or if the offer is not returned as a signed writing. D. Voice-mailbox Rule: 1. Though not a perfect fit, Porter can use an analogy to the mailbox rule to argue that its acceptance became binding when it left Sues possession, i.e., when she hung up the phone and could no longer change her mind or edit her message to Dan. 2. Clearly, it is not good business practice to leave an acceptance message on someones voice mail, esp. when the voicemail announces that they are out of town. 3. I dont see how this trumps the mailbox rule, however. E. Conclusion: if the contract was not formed by Porters message on Dans voicemail, Acmes revocation would be operative; the fax almost certainly constituted a revocation, and there would be no contract. It is barely possible that by leaving a voicemail message, Porter did not accept and that either the lapse of time or Dans explicit or indirect revocation of the offer came before Porter actually accepted, but this seems unlikely. V. Acceptance by Performance A. Again, Rest. 32 states that in case of doubt, an offer allows the offeree to accept either by promising to perform or by rendering the performance, as the offeree chooses. 1. We dont know what the offer actually said, but it did not clearly limit the offerees power of acceptance in any way we know of. 2. Perhaps, then, even if the phone call wasnt an acceptance, Porters behavior could be construed as acceptance by performance. 3. This is unlikely to work, however, for a variety of reasons B. First , traditional doctrine is that acceptance by performance requires completion of the performance requested. 1. You dont accept my offer of a $50 reward for Fluffy by starting to look for Fluffy, but only by finding and returning Fluffy to me. 2. Clearly, Porter did NOT complete the performance required by Acmes offer, e.g., by paying for the completed project, so there is no acceptance by performance under traditional rules. C. Modern doctrine (Rest. 45) allows for an exception to this: 1. IF and only if the offer expressly requests acceptance by performance ONLY, R. 45 says that when oee starts performance, an option K is formed, such that oee need not continue, but oor can not revoke; 2. However, the offer here did NOT request acceptance exclusively by performance, so even if Porter did begin performance, no option would have been created under R 45.

D. That in turn means that when Acme retracted () its offer on Nov. 6, Porter had not yet met the requirements for acceptance by performance, either in part (creating an option that prevented Acme from revoking its offer) or in full (clearly not the case). (The classic hypo: Ill pay you $50 bucks to climb this flagpole. You accept by starting to climb; at that point, you have an option to continue under Rest. 45. Even if Acmes offer could somehow be read as invit[ing the] offeree to accept by rendering a performance and . . . not invit[ing] a promissory acceptance, Porters conduct was probably still not the tender of performance or the beginning of the invited performance, but merely preparation for performance).

V. Contract Interpretation K is a mini-constitution which constitutes right and obligations of parties. General rule of interpretation in contracts is that where the interpretation of words or conduct is an issue, they should be given an objective interpretation.??? This includes the reasonable person standard that the addressees shoes would put one in, rather than a subjective interpretation. (A) Ambiguity and Vagueness A. Ruffles v. Wichelhaus (which ship?) p. 396 OBJECTIVE AMBIGUITY NO K FACTS: Raffles (P) contracted to sell cotton to Wichelhaus (D) to be delivered from Bombay at Liverpool on the ship Peerless. Unknown to the parties was the existence of two different ships carrying cotton, each named Peerless arriving at Liverpool from Bombay, but at different times. Wichelhaus (D) expected to get the October delivery while Raffles (P) expected the cotton to be shipped on the Peerless set to sail in December. Wichelhaus (D) refused to accept the later delivery. Raffles (P) sued to get Wichlhaus for breach of contract. CONCISE RULE OF LAW: Where neither party knows or has reason to know of the ambiguity or where both know or have reason to know, the ambiguity is given the meaning that each party intended it to have. If different meanings were intended there is no contract if the ambiguity relates to a material term. In this case, there was no meeting of the minds and no binding contract. NOTES: If both parties had been thinking of the December ship, but did not specify so Peerless was still an ambiguous term, would there be a contract? Yes. Under Restatement 201 if parties attach same meaning to contract, then it will be interpreted according to this meaning. If before the agreement was signed Raffles said something so that Wickelhaus understood that maybe Raffles was thinking of the December ship, would there be a contract? Yes, it

would put an obligation on Wickelhaus, and the terms would be interpreted according to Raffles understanding under Restatement 201 (2). If the parties attach materially different meanings and neither party had reason to know, is there a contract? No. When no subjective agreement and no unambiguous meaning in the contract, then courts will hold that there is no contract. Seems like the buyer had a free option here. He could chose btw 2 ships depending on the M price -> free option. When the 1st ship arrived didn't say that they meant 2nd ship. v. Objective approach Manifestaton They said 1 word, but it had more then 1 meaning > ambiguity

Subjective approach Meeting of the minds One thinks- Oct Another - Dec No subjective meeting of the minds *vagueness no certain meaning

Ambiguity in this case: If they meant te same ship subjectively meaning is clear, however not objectevely. But if subjective meanings are the same - enough to form a K. Objective ambiguity Rest 201 and 409 !!!But only when there's an objective ambiguity. Do not go to 201 if there is a trade practice. 201 (2)(a): B-Oct + knows about Dec S-Dec -> On S's terms, coz party who is ignorant wins, party who knows losses 202 (3)(a) If there's a trade practive there is no ambiguity. General prevailing meaning will be an answer 202 (5) There can be evidence of objective meaning in the course of performance UCC 2-208 Peerles was ambiguios-> Parties didn't know about the difference -> 2-201 (3) -> failure of mutual assent if the term is important 201. Whose Meaning Prevails (p. 465) 1. Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. 2. Where the parties have attached different meanings to a promise or agreement or a term thereof, 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, and the other knew the meaning attached by the first party; or b. That party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party. 3. Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. 202. Rules in Aid of Interpretation (p. 466) 1. Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight. 2. A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together. 3. Unless a different intention is manifested, a. Where language has a generally prevailing meaning, it is interpreted in accordance with that meaning; b. Technical terms and words of art are given their technical meaning when used in a transaction within their technical field 4. Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement. 5. Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade. SALES CONTACTS: THE UNIFORM COMMERCIAL CODE 1-205 Course of Dealing and Usage of Trade (pg 467) (1) A course of dealing is a sequence of previous conduct btwn the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. (3) A course of dealing btwn parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement. (4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. (5) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting as to that part of the performance. (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter. 2-208. Course of Performance or Practical Construction

(1) Where the contract for sales involves repeated occasions for performance by either party with knowledge of the nature of the performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever possible as consistent with each other; but when such construction is unreasonable, express terms shall control both course of dealing and usage of trade. (3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance. B. Oswald v Allen (which coins?) p. 405 NO MENTAL ASSENT ON THE MEANING OF THE TERM NO K FACTS: Dr. Oswald (P) negotiated to purchase two sets of rare coins from Mrs. Allen (D), who believed that her Swiss Collection alone was being purchased. Much trauma b/c they didnt speak the same language. CONCISE RULE OF LAW: When any terms used to express an agreement are ambivalent and the parties understand it in different ways, there cannot be a contract unless one of them should have been aware of the others understanding. HOLDING: Mental assent of the parties is not required for the formation of a contract. There is an exception, however, for cases where there is no sensible way to choose btwn conflicting understandings. In this case P believed that the offer was to buy all the Swiss coins owned by D. D, however, believed that the offer was for the Swiss coins in the Swiss Coin Collection. Since there was no meeting of the minds, there was no contract.

Restatement (Second ) of Contracts 200. Interpretation of Promise or Agreement Interpretation of a promise or agreement or a term thereof is the ascertainment of its meaning. 201. Whose Meaning Prevails 1. Where the parties have attached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. 2. Where the parties have attached different meanings to a promise or agreement or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made regardless of the objective meaning a. That party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or b. That party had no reason to know of any different meaning attached by the other, and the other had reason to know the meaning attached by the first party. 3. Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

202. Rules in Aid of Interpretation 6. Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight. 7. A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together. 8. Unless a different intention is manifested, a. Where language has a generally prevailing meaning, it is interpreted in accordance with that meaning; b. Technical terms and words of art are given their technical meaning when used in a transaction within their technical field 9. Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement. 10. Wherever reasonable, the manifestations of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade. SALES CONTACTS: THE UNIFORM COMMERCIAL CODE 1-205 Course of Dealing and Usage of Trade (1) A course of dealing is a sequence of previous conduct btwn the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. (2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such a usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. (3) A course of dealing btwn parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement. (4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. (5) An applicable usage of trade in the place where any part of performance is to occur shall be used in interpreting as to that part of the performance. (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter. 2-208. Course of Performance or Practical Construction (1) Where the contract for sales involves repeated occasions for performance by either party with knowledge of the nature of the performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever possible as consistent with each other; but when such construction is unreasonable, express terms shall control both course of dealing and usage of trade.

(3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance. C. Weinberg v Edelstein (which shmattes ()?) p. 415 FACTS: Weinburg (P) leased from L a store and contracted not to sell ladies dresses, coats or suits. (He was allowed to sell blouses, skirts, underwear) D and L had a lease agreement (D was not allowed to sell dresses) When he started selling matching skirts and shirts, P sued saying he violated. CONSICE RULE OF LAW: A restrictive covenant is construed strictly against the person seeking its enforcement when the intent of the restriction is not clear. HOLDING: There has been a recent trend from sportswear houses, beginning before the present leases were entered into, which resulted in the manufacture of coordinates. Since P could sell ladies dresses, coats and sports clothes. D was prohibited form selling those items. D was not selling dresses in violation of the restrictive covenant; he was selling skirts and blouses originating in the sportswear industry from tade practice Contra Preferntum rule here construe against drafter, here against 1st lease agreement btw P and L 5 Types of evidence to consider when interpreting contract terms: 1. Words of the contract 2. Course of negotiations 3. Course of performance UCC 2-208: Where the contract for sale involved repeated occasions for performance by either party any course of performance accepted to acquiesced in without objection shall be relevant to determine the meaning of the agreement. 4. Course of dealing UCC 1-205: A course of dealing is a sequence of pervious conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct. 5. Usage of trade. 1-205: A usage of trade is any practice or method for dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.

E. Frigalement v B.N.S (what is chicken??) PARTY WHO WANTS NARROWER INTERPRETATION HAS A BURDEN OF PROOF - p. 415 Facts: D, a NY sales corporation, entered into contracts with P, a Swiss corporation, to sell P certain amounts of chicken at certain prices. P sent D stewing chickens ("fowl") instead of young chickens suitable for broiling and frying as D expected. The negotiations did not mention what kind of chicken would be used. The cable messages that were used to form the contracts were mostly in German, but they used the English word "chicken". P sued D for breach of contract because they didn't deliver the kind of chicken D thought it was supposed to get. Reasoning: Party who seeks interpretation narrower than general meaning has a burden of proof if fails general meaning What is chicken? Where to look?: o Definition in the K o Read K as a whole, maybe there can be an answer o chicken experts o dictionary, google o course of performance o course of dealing negotiations o fed regulations o price (compare to M Price) If there is no objective meaning -> but only 2 subjective meanings -> no deal, both objectively reasonable -> no K, restitution The question is a pure issue of interpretation, has nothing to do with parol evidence rule. In interpretation cases, the P has the burden of proof as to its interpretation. This is different from the Peerless case because there is one side who has more knowledge than the other.

(B). Gap-Filling, Illusory Promises and Requirements Contracts A. Sun Printing and Publishing Assn. v. Remington Paper and Power Co. (newsprint) p. 422 Facts: Seller was to sell 1000 tons of paper per month for sixteenth months and after four months two parties were to reconfirm 1) Price per month (at no higher than price that Sun company was selling) and 2) term of that price (i.e. one month, rest of year, six months, etc.). The combination of both an unfixed price and unfixed terms leads to thousands of possibilities. Thus, no contract. Principle: o Agreement to agree not a K (Embry). o P could have dealt with it through a cure by concession, where he offers highest possible price for the rest of the term.

o Too indefinite to enforce Still, contract leaves open too much to be a firm contract: no contract. Dissent gives credence to majority in that it highlights multiple possibilities for relief. But he is concerned that the seller had an esay way out of the K, breached agreement to agree. This case under UCC Opposite result: 204 (3) - Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. (intent - remedy) 305 (3) - When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. The same result: 204 (3) - Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. (no reasonably certain basis for remedy) 305 price term is not open, no time identified B. Texaco v Penzoil ESSENTIAL TERMS ARE ENOUGH TO CREATE A K p. 428 Facts: Pennzoil (P) and Getty Oil entered into a merger agreement whereby Pennzoil would acquire Getty. Pennzoil and Getty signed a Memorandum of Agreement subject to the approval of each board and issued a press release. Texaco (D) made an alternative offer to Gettys board. Reasoning: Though some ambiguity, theres enough there to provide for relief if the contract is breach; Texaco is trying to create additional essential terms The promises of the parties are clear enough New York Central Iron Works Co. v. United States Radiator Co. REQUIREMENTS K IS OK, IF DEMANDS ARE WITHIN THE CONTEMPLATION OF THE AGREEMENT p. 429 Facts: o Requirements contract in which buyer provided exclusivity agreement to seller, thus establishing mutuality. o One year, buyers demands suddenly rise sharply. o Seller cannot meet the demands and is sued for breach. Principle: Requirement contract OK if Mutuality of some kind exists (usually through an exclusivity clause) and surge in demand from buyer is not unreasonable. Courts assume good faith.


Increase in demand must be based on a reasonable business need; buyer not allowed to buy to speculate on a risking market. [W]e do ot mean to assert that the plaintiff had the right under the contract to order goods to any amount. Both parties in such contract are bound to carry it out in a reasonable way. The obligation of good faith and fair dealing towards each other is implied in every contract of this character.(UCC 2-306) Must come up with argument why an increased demand by buyer is reasonable or foreseeable or both DISCUSSION: Seller has to satisfy all the buyer's needs, buyer is bound to need and buy only from seller No. Is missing. Is it a lack of mutuality? There should be some limits: (1) on buyer how much to buy (2) on seller how much to sell (3) limit on motive good faith reason If they really need a lot it is ok, good faith How do you know if there is a good faith here?: They give you pipe for one purpose, you can use it only within the contemplation of the parties If the seller has no pipes, buyer goes to another supplier and sues for the difference. Eastern Airlines v Gulf Oil Corporation (fuel price increase) SUPPLIER HAS TO PERFORM UNDER REQUIREMENTS K IF DEMAND IS REASONBLE EVEN IF THE PRICE IS NOT PROFITABLE p. 431 Facts: For seventeen years Eastern has had a requirements contract to buy all of the jet fuel it needs same amount or so every yearuntil 1975 when the energy crisis makes the price unreasonable for Gulf, who stops delivering, but is compelled by the courts to fulfill the terms of its contract. Principle: No easy way out of a requirements contract with mutuality; tough luck for gulf. But Gulf cannot get out of the deal, coz Eastern acts in good faith UCC 2-306 puts a lot of emphasis on good faith as a means to permit requirements contract; the buyers needs are OK or the sellers inability to meet is OK as long as they acted in good faith. Discussion: o You are bound here unlike common law. o Mutuality here: agreed to reasonable output. Buyer has a duty to ask for what he is expected, not increase or decrease drammaticly + non-competition. o Eastern asks normal quantity, satisfies mutuality requiremen -> Gulf had to supply, could not rise the price o Is Eastern asks for more oil in good faith Gulf can say that it's unreasonable and Gulf is not obliged to supply. Exclusivity will be only for the part Gulf can supply. UCC 306: Must put some kind of parameters on the terms good faith and definiteness. Holds buyer to any stated estimate or, in the absence of stated estimate, to any normal or otherwise comparable prior output or requirements. Wood v. Lucy, Lady Duff-Gordon (distributor) IMPLICIT PROMISE - MUTUALITY p. 434 Facts: Lucy, Lady agreed to exclusively market her brand clothes through Wood, and then also gave some her line to someone else.



Wood sued for breach of contract and Lucy claimed that the agreement lacked mutuality (b/c Wood didnt promise to sell her goods) and so therefore not a valid contract. Cardozo rules for Wood. Discussion: Any limitation on the party suffices to establish mutuality. Cardozo considers implicit promise (dont pull implicit promises out of thin air) suing test, binding elements: i) D expected to make money, ii) No way she would grant exclusivity if she was going to get nothing, she is getting Wood's duties for it (mercy argument-> she is not at his mercy) iii) Splitting the profits -> why is there a clause about share of profits if there is no profit iv) redundant for P to say in agreement that he as going to do sales cause its so obvious. v) Accounting requirements -> show that there was duty to make money vi) Approval -> shows that there has to be smth she should approve vii) Wood's ability to place indorsements demonstrates that he puts it on the stuff he sells. viii) => there is duty ix) but how can you fins its boundaries? Issues 1) May a promise to use reasonable efforts be implied from the entire circumstances of a contract? 2) Can an implied promise to use best efforts be considered valuable consideration? 3) Can the duty of good faith compensate for vagueness in an agreement to avoid invalidation of a contract clearly intended by the parties? Holding and Rule (Cardozo) 1) Yes. A promise to use reasonable efforts may be implied from the entire circumstances of a contract. 2) Yes. An implied promise to use best efforts in contract performance can be considered valuable consideration. 3) The duty of good faith can compensate for vagueness in an agreement to avoid invalidation of a contract clearly intended by the parties. A contract may lack an explicit promise to further its goals. The acceptance of the exclusive agency meant that Wood had accepted the duties of that agency. Because Lady Duff-Gordons sole compensation was a split of the profits, there would be no efficacy to the transaction unless there was an implied promise to use best efforts. The court held that it was clear from the terms and recitals and duties under the contract that both parties intended to do what was reasonably necessary to make it a success so that would be profits to divide. Woods promise to pay Lady Duff-Gordon one-half of the profits and revenues resulting from the exclusive agency and to render accounts monthly demonstrated that he had some obligations under the contract, and there was a promise to use reasonable efforts to bring profits and revenues into existence. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party F. Interpretation Review

1. 2 Kids of uncertainity: Ambiguity = more than 1 meaning Vagueness: tall - impreciese boundries to separate from non-tall Vagueness is common for law b/c there are terms like reasonable, they have fuzzy boundaries Interpretation attaching meaning to vague or ambiguous statements. Context (k language, prior dealings, prior performance of the K, trade usage) will often provide key to interpretation 2. Weinberg (dress/skirt/combo) and Frigaliment cases look to trade usage to understand what is dress and chicken Rest 202, UCC 1-205 and 208 In the dress case mix match by different sellers, sold separately are reasonably contemplated as the dresses by the parties (however, decision ignores CONSUMER side of the market) In the chicken case no clear definition of chicken from context either P's or D's Judge decides the case on burden of proof P failed to prove that his definition is superior Unsatisfactory if P is D and D is P different result??? 3. Sun Printing Agreement to agree, in which quantity and max price were fixed, but actual price and duration of that price (within fixed 16-month term) were left open P tries to cure ambiguity in the K by offering the terms most favorable to the seller: cure by concession o Cardozo rejects b/c P only offered to pay max MONTHLY price each month, rather than the max of all the monthly prices for every month going forward o Dissent suggests that Seller operated in bad faith and since parties clearly meant to form a binding agreement, S shouldn't be allowed to sleaze out of it Would UCC 2-204 give a different answer today? o Argument for YES: 2-204 permits the enforcement of a K even if one or more terms are left open, provided: o the parties intended to make a K o there is a reasonably certain basis for giving a remedy Here: o The 1st requirement is clearly meant o Dissent gives basis for remedy UCC 2-305 empowers a court to fix reasonable price if the price is left to be agreed upon and the parties are unable to agree unless it is the patries intent not to be bound except upon agreement which is not case here o Arguments for NO: 2-204 reuires a reasonably certain basis for remedy, which does not exist here

this is not the case of open price term not price, but length of time is open 2-305 concerns open price terms (not durations) is this hairsplitting ( )? No? reasonable price is easier to define than duration 2-309 concerns absence of specific time provisions and doesn't speak about how long price shall last

(C). What has been agreed, Adhesion K, Battle of the Forms A. Carnival Cruise Lines v. Shute (forum selection clause) CLAUSE WASN'T BARGAINED FOR, BUT IS ENFORCEABLE, COZ IN GOOD FAITH p. 445 FACTS: P, the Shutes, purchased two tickets for a cruise on Ds, Carnivals, ship via travel agent. The ticket contract provided that any disputes arising between the passenger and Carnival would be litigated in the state of Florida. During the cruise, P, Ms. Shute, slipped on a deck matt and was injured. P, the Shutes, commenced suit in the district court for the Western District of Washington, asserting negligence on the part of Carnival. Carnival, D, moved for summary judgment based on the courts lack of personal jurisdiction and the motion was granted. Court of Appeals reversed, holding that although forum-selection clauses are valid, in this particular case, the provision was not bargained for and thereby was unenforceable. Carnival applies to Supremes. ISSUE: Is a nonegotiated forum-selection clause contained in a standard contract enforceable? RULE OF LAW: A nonegotiated forum-selection clause contained in a standard contract is enforceable where the court determines it meets the requirements of fairness. HOLDING: o Yes. As long as it meets the requirements of fairness. o Good faith, coz: o First, Carnival conducts business in various locations and therefore must necessarily restrict venues in which is it subject to suit. o Moreover, such a designation saves time and expense for potential claimants on the issue of the appropriate forum. o No choice of law issues also saves costs o Such savings, may be passed on to customers as reduced price. o Also, there is no evidence that Carnival acted in bad faith by inserting the forum selection clause in its standard contract. o Carnivals principal place of business is in Florida. o Lastly, the Shutes had notice of the provision and consented thereto. Reversed.

DISCUSSION: Offer ticket, acceptance paying? You dont to identify the moment of the K conclusion if the parties behave like theres a K There could be bad faith reasons to make Florida a forum diff to travel, good law. But there are no facts why Florida Primary intention of the court is to prevent unfairness and oppression in the bargaining process. unfair surprise regards cases where the contractual provisions diverge () from the reasonable expectations in respect to the agreement, and are neither communicated nor explained. Notes: People think tickets they get when they park their cars and check in their coats are tokens. Even if they have the word contract on them, theres no reaon to know really [exceptions of course] so it is not enforceable. Look to the average person. Their interpretation rules. Interesting case when you have an above average sophisticated person who is taking advantage of a vague term or ambiguity. They still win. (D) Parol Evidence Rule and Integration Presumption substitutes the proof until there is no proof. rebuttable, you can prove opposite conclusive not rebuttable Conclusive presumption: Written K cannot be overruled by the evidence (when parties presume that K is complete) When is it complete? -> Look at the agreement -> Does it completely summarises what parties have agreed to? Parol (extrinsic) evidence decision tree I. Patially Integrated Agreement ( ): A. IF and only if writing intended to be final expression of agreement THEN B. Parol evidence inconsistent with writing not admitted, but parol evidence that provides additional consistent terms is OK II. Completely Integrated Agreement A. If and only if writing intended to be complete and exclusive agreement THEN B. no parol evidence admissible on any issue III. Two ways of deciding if there is an integrated agreement, and if so, what kind A. 4 Corners Approach: of the court in the logs case, Thompson (logs case) B. Modern/Wigmore-Corbin approach: extrinsic evidence may be used by the court to determine wether the parol evidence rule applies That is, whether the parties intended their agreement to be integrated or completely integrated If, after considering all the evidence, the finds that parties intended to integrate the agreement in writing, then extrinsic evidence may not be presented to the jury to contradict the written agreement

If after considering all the evidence the court finds that the parties intended to completely integrate the agreement in writing, then extrinsic evidence may not be presented to the jury to supplement the written agreement on matter within the scope IV. Interpreting vague terms: Farnsworth A. Court can always use additional outside information to interpret vague terms, but B. Cannot use extrinsic information to add to or vary the terms of a K C. Interpretation or explanation allows for classification of vague or ambiguous language: does chicken include fowl or not? D. Is filling of gaps permissible? If K is not completely integrated, then supplementing w/additional terms consistent w/the K is OK If K is completely integrated, then no gap-filling is allowed, and the K might therefore fail if there is a gap V. Statue of Frauds A. a K falls w/in the statute of frauds is enforceable only if it is memorialized in writing and signed by the person against whom enforcement is being sough. Falling within SOF means: Sale of goods > $500 Sale of land Not fully performed within the year of date of K (even if performance takes < 1 year) B. K itself does not have to be in writing, just a record of it. Under UCC 2-201, all you need is quantity of goods C. Exception for specially-manufactured goods

Writing intended to be final expression agreement Rest-mnt rebuttably presumes Yes no

integrated agreement: extrinsic evidence of prior agreement inconsistent with writing NOT ADMISSIBLE, but evidence that is Consistent with K is admissible Intended to be Complete and Exclusive Agreement? Two approaches: Judge decides

Extrinsic evidence of prior agreement inconsistent with writing is admissible to jury

4 corners: look only at doc no other evidence of intent admitted

Judge can consider ev on question of intent to integrate

yes Completely integrated no prior ev at all?

UCC rebuttably presumes: NO

prior ev may be used to provide additional terms consistent with writing

Jury decides q of fact what the K really said

Restatement (Second ) of Contracts 209. Integrated agreements (1) An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement (2) Whether there is an integrated agreement is to be determined by the court as a question preliminary to determination of a question of interpretation or application of the parol ev rule (3) Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other ev that the writing did not constitute a final expression 210. Completely and Partially Integrated Agreements (1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of agreement. (2) A partially integrated agreement is an integrated agreement other than a complete integrated agreement (3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application or the parol ev rule. 213. Effect of Integrated Agreement on Prior Agreements (Parol Ev Rule) (1) A binding integrated agreement discharges prior agreements to the extent it is inconsistent with them (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. (3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not be integrated. 214. Evidence of Prior or contemporaneous Agreements and Negotiations Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish (a) that the writing is or is not an intergrated agreement; (b) that the integrated agreement, if any, is completely or partially integrated the meaning of the writing, whether or not integrated;

(d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; (e) ground for granting or denying rescission, reformation, specific performance, or other remedy. 216. Consistent additional terms (1) Ev of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated. (2) An agreement is not completely integrated if the writing omits a consistent additional agreed term which is (a) agreed to for separate consideration, or (b) such a term as in the circumstances might naturally be omitted form the writing UCC 2-202 Final Written Expression: Parol or extrinsic ev Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intemded by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented (a) by course of dealing or usage of trade or by course of performance; and (b) by ev of consistant additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement A. Thompson v. Libbey (logs) p. 488 PAROL EVIDENCE NOT ADMITTED COZ AGREEMENT IS COMPLETE FACTS: Thompson (P) owned a quantity of logs marked HCA. These logs were cut in the winters of 1882 and 1883 and lying in the Mississippi river. P and D entered into a written agreement that these logs would be sold to D for $10 per 1,000 feet. D refused to pay after he determined the logs were of poor quality. P brought suit for purchase price. At trial, D argued that there was a warrenty made at the time of the sales on the quality of the logs that was not contained in the written agreement. The TC admitted oral testimony to prove the warrenty over Ps objection. Ps request for a new trial was refused. CONCISE RULE OF LAW: Parol contemporaneous evidence is inadmissible to contradict or vary the terms of a valid written instrument. HOLDING: When writing is incomplete, then parol evidence may be admitted to prove the omitted part. However a party may not use parol ev using oral testimony to show that part of the agreement was in writing and then use parol ev to prove the omitted part. If on its face, the writing purports to be a complete expression of the entire afreement, then it is presumed that every material issue and term has been introduced and no parol ev will be admitted even when the writing is silent as to the term. Thus in this case parol ev of warrenty shouldnt have been admitted.

B. Brown v Oliver (hotel furniture) PAROL EV CAN BE USED TO DETERMINE IF THE K IS COMPLETE p. 489 FACTS: Brown (P) bought land from Oliver (D) which had a hotel on it. Possession of the hotel and its furniture was surrounded by D. 2 yrs later D was assigned a lease of the hotel and occupied it. P notifed D to quit the land, D removed the furniture at night. The original contract for the sale of the land made no mention of personal property. P contended D had verbally agreed to sell the furniture. D argued unsuccessfully that the parol ev rule applied, preventing the admissibility of the ev on the sale of the furniture. The court ordered the furnitures return to P. CONCISE RULE OF LAW: Parol ev that bears upon the question of the intent of the parties to integrate their transaction into a writing may be admitted when the writing does not conclusively establish the intent HOLDING: In deciding intent, the key is deciding whether or not the specific element of the alleged extrinsic negotiation is dealt with at all in the writing. In this case furniture was not mentioned at all. Therefore it was necessary to allow parol ev and give the final decision to the jury to determine whether the furniture was sold as part of the land sale. DISCUSSION: Was the K completely integrated? If not we can admit parol evidence To decide if it is complete can look at parol evidence. *MERGER CLAUSE you cannot look at anything except for the K *If allegations of fraud extrinsic evidence to show difference between real world and K *Also parol evidence is used in promissory estopel cases Integrated Contrast: Rest. 110: Determined prior to application of Parol Evidence Rues No parol evidence admitted to read a completely integrated contract For a partial integration, terms that do not contradict the writing but merely add to it are permitted. Parol Evidence always admitted: i) To show fraud, misrepresentation ii) To show absence of consideration iii) To resolve ambiguity (California) UCC 2-202: Parol/Extrensice evidence Cannot contradict part of the written K; parol contemporaneous () to K IRREEVANTbut things can be inferred from course of K UCC 2-208: Express terms always rule over everything elseeven tolerance in the past of shitty performance C. Pac Gas and Ele Co v G.W. Thomas Drayage and Regging Co (damaged turbine) LANGUAGE OF THE K ALLOWED MULTIPLE INTERPRETATIONS PAROL EVIDENCE ACCEPTABLE - p. 494 Facts:

Pacific Gas contracted to have the cover of a turbine repaired; provider of services said he would indemnify plaintiff against all loss, damage, expense and liability resulting frominjury to property, arising out of or in any way connected with the performance Even though the clear language suggests indemnity of Ps things, this language was commonly used in other contracts to represent only indemnity for third-party damages. Principle: Wording that is reasonably susceptible () to multiple interpretations should be interpreted using extrinsic evidence. California ruleNY courts less likely to look at extrinsic evidence DISCUSSION: K languge indemnify everyone Trade practice indemnify only 3rd parties Can be accepted if meaning is not clear + Evidence explains the meaning D. Trident Center v Connecticut General Life (office complex) p. 497 Facts: Trident Center contracted to buy a building at high interest rates in the early 80s and sought refinance seven years later, but the contract required waiting 12 years before refinancing. In spite of apparent clarity of the contract, Trident argues that it should be able to offer extrinsic evidence to support potential alternative meanings. 9th Cir. Reluctantly allows it because it has no choice under CA laws Pacific Gas precedent. Principle: Lots of hostility to Pacific Gas and many who would interpret only the plain language ( ) of the agreement. Pacific Gas undermines the basic principle that language provides a meaningful constraint on public and private conduct. STATUTE OF FRAUDS i) Executor-administered K ii) Suretyship provision (K to answer for the duty of another/an agent) iii) Marriage iv) Land v) Not to be performed w/in 1 Year (REST. 110) vi) More stuff in different states vii) Goods more than $500 (UCC 2-201(1)) EXCEPTIONS TO STAT. OF FRAUDS a) Promissory estoppel can take K out of Stat. of Frauds (REST.) b) So can UCC 2-201(3)(b)Specially manufactured for buyer and manufacturer has made substantial beginning before notification and not suitable to sell elsewhere under sellers business (UCC) c) Admissions in testimony or otherwise in court (UCC) Policy: incentives to reduce K to writing; prevent fraud that K was or was not made E. Travellers Ins v Baily (mistaken ins policy) p. 507 Facts:

The insured submitted an application to an agent of the insurer for a life insurance policy. The plan requested in the application was one insuring the defendants life for $ 5000, with an annuity at age 65 for $ 500 a year for the balance of his life, 10 years certain. The printed portion of the form used yielded the correct life insurance contract, but produced an annuity obligation to pay $ 500 a month for life, 100 months certain. Rule: where it is established beyond a reasonable doubt that there was a specific contractual agreement between the parties and a subsequent erroneous rendition of the terms of the agreement in a material particular, the party penalized by the error is entitled to reformation if there has been no prejudicial change of position by the other party while ignorant of the mistake. if you have a mechanical mistake and both parties agree thats not what they contracted for, then courts are going to apply the actual agreement the parties had. Analysis: Where an antecedent contract has been established by the requisite measure of proof, equity will act to bring the erroneous writing into conformity with the true agreement. equity will deal generously with the correction of mistakes. To insist on enforcement of the contract once knowledge of the error is acquired by the insured is held to be unconscionable, and classified as then a unilateral mistake known to the other party, which supports reformation. If the mistake exists in the writing unknown to both parties, it is classified as mutual and reformation is allowed. If such change of position can equitably be taken into account and adjusted for in the decree, reformation may be possible even then. Mistakes generally occur through some carelessness, and failure to discover a mistake may be in some degree negligent, but unless some prejudice to the other partys rights under the true contract results, so as to make its enforcement inequitable, reformation will not be refused because of the presence of some negligence. VII. Which promises are enforceable? (A). Consideration Bargains, Conditioned Gifts, K Modification Rest 17 requires consider or Under seal (even if no bargaining) Promissory estoppel rest 90 Rest 17 (1) Consid = bargain both parties benefit Boundary line btw bargain and not bargain gift, pre-existing duty, promissory estoppel When a gift becomes binding? when you have given it. Promises to make a gift are usually not enforceable. Difference between Gift with the condition and Bargain (Johnson v. Otterbein Uni) Gift with the condition I will give you coat if u come upstairs. Coming upstairs is the condition, it is not my aim, no bargaining

Bargain want smth in return. Motive i'm seeking smth from you, want to buy smth from you. A Johnson v. Otterbein University (college gift) IF I HAVE NO MOTIVATION TO GIVE U SMTH IT IS A GIFT p. 620 Facts: Johnson promises to give money to a school a year after time of K and school promises to use it to pay off debt. Johnson reneges on the deal and school sues. School loses, despite pleading that its promise to use the money to pay down the debt was adequate consideration. Principle: o Promising to do something with money after the money is received does not transform a promise into a contract because promise to do something with money after it is received still does not amount to consideration. o If some debt had been taken on in reliance of the future promised gift, then that would be different. o It is implied that the money will be spent on the school no matter what; promises for the debts are irrelevant. o Wasnt bargained for: promise to pay debt was gratuitous and didnt induce anything. Discussion: o There was a counter-offer that they will pay a debt o But, does that mean that 100 will be used to pay the debt? Can be used for other purposes > fiction o Motives of Johnson gift? o Johnson has to buy smth for the K to be enforceable o Doesn't he buy a promise to pay the debt? no, it was just a condition of smth o Johnson was aimed to give a gift, but on the condition that the debt will be lower *If the promise induces reliance, the K can be enforceable even if there was no bargaining Consideration- consists of promisors benefit or promises detriment. Look for if a party seems to be getting something for nothing, then youll have a consideration problem. In plain English: the thing that motivates a promise. (Like what youre gonna get) B. Hamer v Sideway (wayward () nephew) RESTRICTING YOURSELF IN RIGHTS IS OK CONSIDERATION, BUYING SOMEONE'S BEHAVIOR IS OK BENEFIT FROM THE BARGAIN - p. 622 FACTS: Story promised his nephew in front of witnesses that he would give him $5,000 if he refrained from smoking, drinking, swearing and gambling until he was 21. Nephew agreed and spent note after he was 21. Uncle sent note back saying he had the money in the bank for his nephew and died before giving it to him. RULE OF LAW: A waiver of a legal right at the request of another party may serve as sufficient consideration for a promise. HOLDING:

A valuable consideration may consist of some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other party. Consideration doesnt mean that one party is profiting when the other party abandons some legal right or limits his freedom of action. Instead consideration is the inducement of the promise. In this case the nephew gave up his legal right to use tobacco, drink, etc on the strength of the promise that Story would give him $5,000. It is sufficient that the nephew restricted his lawful freedom of action within the agreed limits. DISCUSSION: Nephew benefited, but suffered no harm -> he restricted his habits Uncle didn't benefit -> motive was to make nephew not to smoke. Was trying to bribe nephew Uncle was biying nephew's behavior K MODIFICATION C. Stilk v. Myrik (sailors' raise) NO CONSIDERATION, COZ THERE WAS A PREEXISTING DUTY, MYRIK WAS FORCED TO THE K - p. 656 FACTS: Myrick, Captain of a ship, is unable to find replacements for two crew members deserting him. Myrick thus agreed to divide the two crew members pay if Stick and the rest of the crew would finish up the trip shorthanded. Myrick later refused to pay additional wages and Stick sued. RULE: Modifications of employment contracts which are occasioned by emergency or duress are unenforceable. HOLDING/DECISION: Myrick cannot be held to pay additional wages. Where the crew members signed on to a voyage to complete it, there is no consideration for an oral agreement to pay additional wages for performing, under emergency conditions, the duties already required of them. Crew had a better bargaining position, coz Myrick relied on them Consideratin fails here, coz they had preexisting duty to do everything This case may have been decided differently if the crew members could have left the voyage at any port or if the deserters had been purposefully let go to save wages. This was not the situation in this case. Judgment for Myrick. D. Brian Construction Co. v Brighenti (excavation subcontract) UNFORESEEN CIRCUMSTANCES MODIFICATION ALLOWED p. 666 FACTS: Bennett contrated to build post office and assigned contract to Brian (P), who subcontracted with Brighenti (D). Defendant agreed to provide all the foundation work for the building as well as everything requisite and necessary to finish the entire work properly. He was to receive $104, 326 in return for this work.

Defendant discovered remains of another building at site, he wants additional compensation so parties agreed that this would be considerably more work, so they contract for new terms with Defendant getting extra cost plus 10%. Defendant worked for several days then quit. Brian completed work on his own incurring large damages. RULE: Where unforeseen circumstances make the performance of a contract unduly burdensome, and the parties agree in view of the changed conditions to an adjustment in price, a new contract supported by consideration is formed. HOLDING/RATIONALE: It is an accepted principle that when a party agrees to perform an obligation which he is already obligated to perform, albeit () for a different price, the second agreement does not constitute a valid contract. HOWEVER, the doctrine of unforeseen circumstances provides an exception to that general rule. So, under unforeseen circumstances result in the performance of the contract being unduly burdensome, the parties may agree, in view of circumstances to adjust price, and the new agreement is a valid binding contract. In this case, adiditonal rubble was clearly unanticipated, therefore, Brians agreement to pay Brighenti more constituted new contract and Brighentis failure to carry out its terms is a breach. REVERSED. DISCUSSION: K interpretation question: what is everything requisite and necessary to finish the work? Is everything a preexisting duty? Restatement 89. Modification of Executory Contract A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made; OR (b) to the extent provided by statute; OR (c) to the extent that justice requires enforcement in view of the material change of position in reliance on the promise. Sales Contract: The UCC 2-209 Modification, Recession, and Waiver i. An agreement modifying a contract within this Article needs no consideration to be binding. . . Official Comment: Purposes of Changes and New Matter States that modifications made thereunder Subsection (1) must meet the test of good faith imposed by this Act. This includes observance of reasonable standards of fair dealing in the trade. (2-103). E. U.S. v Stump Home Specialties (excerpt) COERCIVE MODIFICATION NOT VALID DISCUSSION: The requirement of consideration has a distinct function in the modification setting although one it does not perform well and that is to prevent coercive () measures. Law does not require consideration to be adequate - Slight consideration is acceptable, though also coercive.

The sensible course to take is to enforce contract modifications regardless of consideration and rely on defense of duress to prevent abuse. All coercive modifications would then be unenforceable, and there would be no need to worry about consideration, an inadequate safeguard against duress. . .

(B). ADEQUACY OF CONSIDERATON + PROMISSORY ESTOPEL Promissory estopel kind of K substitute. It is not a liability, not tort, but K. Theary is based on reliance, not consideration Pomissory estopel: o Promise, intention to induce reliance o Reliance reasonably foreseeable o You rely on my words, not facts o Estops to use facts, coz you relied on my words o Its unfair for me to benefit from my misrepresentation o U can rely on someones promise. U are estoped from denying your promise. In a consideration case you are estoped to say that there is no consideration. It is the basis of the claim, it is not the move in the court. You are estoped to make argument about absence of consideration coz there was no bargaining etc, but if there is a substantial amount of reliance. Equitable estopel somebody makes a statement of fact. You maybe estopped from the fact said, coz there was reliance on your statement o There is a fact and you do something relying on the fact, even if the fact is wrong. o Estoped to use true facts, Elements of promissory E (rest 90): o Promise is made o Reasonable foreseeable the promisee will rely on the promise - > From the perspective of the promisor. An objective test- what would the reasonable promisor have foreseen? The behavior that leads to the detriment must be the kind of behavior the promisor foresaw. o Detrimental Reliance - Must have been foreseeable to the promisor o Injustice - Justice does not require a remedy. In justice requires a remedy A. Newman and Snell's State Bank v Hunter (bankrupt's IOU) p. 752 - DISGUISED PROMISE TO MAKE A GIFT WEIGHT NOT REAL VALUE OF CONSIDERATION, BUT CHECK IF THERE WAS A DEAL FACTS: Wife has changed IOU of her husband for new IOU. Argues that swap is not valid NOTES: Bank is trying to disguise a gift here, coz she volunterely tried to paid the husbands debt here But they made I change IOU for IOU -> like she gets something for this It is not consideration here, not coz IOU was of no value, but coz we look if there was a deal at all Thus, no quid pro quo -> disguised promise to make a gift Ricketts v Scothorn (quit work) IF CHANGES POSITION FOR THE WORSE EXPECTING PERFORMANCE ESTOPEL p 723 Interfamily gift situation FACTS:


Katie Scothorn (P) was working as a bookkeeper when her grandfather Ricketts visited her at work and gave her a note promising to pay her $2000 at 6% interest per year. He told her that none of his grandchildren had to work and neither should she. Her right to the money was not conditioned on her not working or on anything else. Scothorn (P) later left her job at her grandfathers influence. After Ricketts death, Scothorn (P) sued the estates executor (D) for the balance due on the note. CONCISE RULE OF LAW: When the payee changes her position to her disadvantage, in reliance on a promise, a right of action on the promise arises. The expenditure of money or assumption of liability by the donee, on the faith of the promise, constitutes a valuable and sufficient consideration. In this case, there is an equitable estoppel DISCUSSION: It wasn't phrased like he was bargainig for that she quits. He just promised to pay and said that he hopes that she doesn't work -> we cannot pack it as a K It could be a deal if he said u give up ur job, i give u money Remedy for estopel is contractual expectation damages Injust to say that there was no consideration C. Baird v Gimbel Bros (construction subcontractor) PROMISSORY ESTOPEL IS ONLY FOR GIFTS, NOT FOR BARGAINING p.742 FACTS: Gimbel (D) offered to supply linoleum to various contractors who were bidding on a public construction contract. Baird (P), relying on Ds quoted price, submitted a bid and later that same day received a telegraphed message from D that its quoted price was in error. Ps bid was accepted. RULE: The doctrine of promissory estoppel shall not be applied in cases where there is an offer for exchange as the offer is not intended to become a promise until consideration is received. HOLDING: Gimbel did not intend to be bound upon contractors (offerees) mere reliance on its quoted price. The doctrine of promissory estoppel may not be used by the offeree to bind the offeror. Since contractor could have repudiated the contract w/o Ds right to sue for breach, no right for P either. DISCUSSION: Promisory estopel applies only for gifts. Limit of prom estopel only non-bargain things Was reliance here reasonable? price was too low o Analyses under rest 90: o There was a promise o There was a reliance its a reliance if u bid on the basis of this dib o Injustice? Was an offer unreasonably low? Too good to be true, but it was a mistake. Who is responsible for mistake? Gen K had more bids and more chances to see the mistake How is the option created in case if Gimel says: we promise to do the job for X; you can lock in this price by bidding on main K, but you dont need to use us? o Supported by consideration as in rest 25, not here

o Commencement of performance as in rest 45? No. It covers cases only where acceptance is exclusevly by performance and creates an option to continue when performance has brgun o Rest 87 (1), no, requires: (a) a recitation (b) nominal consideration o Rest 87 (2) or rest 90 yes maybe, promissory estopel o Note!!! 87(2) and 90 are not used to create options out of offers except in the sub-K bidding context D. Drennan v Star Paving (ditto) p. 745 SUBCONTRACTOR ESTOPED FROM REVOCATION OF THE OFFER, COZ WAS RELIANCE FACTS: In formulating a bid to the Lancaster School District, Drennan (P), a general contractor, solicited bids for subcontracting work. Star (P), a paving company, submitted the lowest paving bid, and Drennan (P) used that bid in formulating its bid to the school district. Using this bid, Drennan (P) was awarded the general contract. Star (D) then told Drennan (P) that it could not do the work for that amount and refused to do the work. Drennan (P) found a substitute company and sued Star (D) for the difference, claiming that Drennan (P) had reasonably relied on Stars (D) offer. Star (D) claimed that it had made a revocable offer. CONCISE RULE OF LAW: Reasonable reliance on a promise binds an offeror even if there is no other consideration. DISCUSSION: Elements under rest 90: Promise Reasonable expectation Induced action detrimental reliance Injusctice? detrimental reliance (can it be used again?) It is a default nature for construction cases, coz u cannot revoke when gen contractor uses your bid unless u k out of it However the general rule is that the offer can be revokable ******Follow Drennan more important restatement 87 incorps Drennan holding******* Section 90 of the Restatement provides that when a promise is made that induces action or forbearance of the promisee, the promissor is bound if injustice would result from nonenforcement. In the case of a unilateral offer, the offeror is bound to the promise if it produces reasonable reliance. (Such reasonable reliance cases are often called firm offers) They often receive criticism on the grounds that one party (the subcontractor) is bound while the other party (the general contractor) is not. 3 ways to look at contractors rules 1) offer is revocable until post award acceptance (Baird) 2) offer becomes irrevocable after contractor submits bids (Drennan) 3) bilateral contract formed by bid (both judges agree it is not this) E. Hoffman v Red Owl Stores Inc (death of K???) NO OFFER BUT WAS RELIANCE ON PROMISE p 752

FACTS: The Hoffmans (P) sought damages they incurred in selling their business and relocating based on their reliance on an alleged promise made to them by Red Owl Stores (D) to furnish them with a franchise. Hoffman (P) informed Lukowitz (D) that he only had $18,000 to invest in the enterprise, which Lukowitz (D) assured him would be sufficient. After further negotiations, Red Owl (D) presented Hoffman with a final proposal requiring a capital investment by the Hoffmans (P) of $34,000, and requiring the father-in-law to sign a document stating his $13,000 was a gift. Hoffman (P) declined, and negotiations terminated. CONCISE RULE OF LAW: A promise that the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee, and which does induce such action, is binding if injustice can be avoided only by enforcement of the promise. Moreover, it is not required that the promise on which the plaintiff relied be so definite as to constitute an offer giving rise to an action for breach of contract. Rather, the purpose behind the doctrine is the prevention of injustice. Where damages are awarded in an action for promissory estoppel, it is to the extent necessary to avoid injustice. The jury properly awarded damages for the loss on the sale of the bakery building, the rent, and the moving expenses. However, the losses incurred by the Hoffmans (P) upon the sale of their grocery business should be limited to the actual loss suffered, as determined by the difference between the price at which the grocery was sold and its fair market value. DISCUSSION: There was nothing amounting to offer, only negotiations Promise (<offer) + reliance -> liability They encouraged him to do certain things and he did, but it was not an offer Offer is manifestation that the other person does something Here no actions looking like an offer Here it sounds like a misrepresentation of degree of certainity (more tort than K) mispromising or reckless promise Why this promise is reckless? - He knew he didnt have an authority to sign the deal Tort of promissory fraud make a promise knowing that you are not going to keep it Straight fraud factual misrepres Here even if there is consideration it is not certain that there is going to be a deal, but court uses promissory estopell, coz no other tools Remedy here reliance, not expectation (usual for prom estopell). Compensate not for the lost profit, coz there was no deal, but for the damages incurred in reliance The case represents watermark btw K and torts Restatement (Second) of Contracts 90. Promise Reasonably Inducing Action or Forbearance (p.811) 1. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice

can be avoided only by enforcement of the promise. The remedy granted fro breach may be limited as justice requires. 2. A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. VIII. Performance and Breach (A). Implied Duty and Good Faith There is an implied covenant of good faith in every K. PreK negatiations do not require good faith, no bargaining in good faith Bad faith using your discretion for undoing and taking someones right which was implicitly provided by the K. Good faith stick to stuff parties have implicitly promised. If you take it back not good faith. A. Goldberg 168-05 Corp v. Levy (percentage lease) IMPLIED DUTY TO MAKE THE BEST AND MAKE PROFIT, COZ THERE IS PROFIT SHARING WITH THE LANDLORD - p. 817 FACTS: Goldberg (P) sought damages for unpaid rental payments based on a Levys (D) intentional diversion () of profits so as to reduce his rental payments under a lease agreement and trigger provision allowing him to terminate the contract. P entered into a lease agreement to rent property to D for nine years at $13,800 per year, plus 10% of the gross profits. If the business did not have profits exceeding $101,000, D had the right to terminate the lease. D entered into possession on Oct. 1929 and operated Crawford Clothes, Inc. on the premises. The business failed to make profits over $101,000 and D notified P of his intention to terminate the lease on Oct. 1937. D vacated premises and failed to pay rent under the agreement. P sought $25,000 in damages. D moved to dismiss. RULE OF CONCISE LAW: A covenant of good faith and fair dealing is inherent in every contract, requiring a party to a commercial lease that requires part of the rental payments be based on a percentage of gross receipts, to utilize his best efforts in order to generate earnings. HOLDING: Even though an explicit promise is lacking, a good faith obligation is implied in a contract. Ps obligation was to use reasonable efforts to bring profits into existence. Therefore, Ps conduct was in direct violation DISCUSSION: There is an assumption that the guy will be reasonable in maintaining his store Coz there is risk-sharing with the landlord, they were some kind of partners. Lendlord was counting on D There were no fair reasons to act like this except for avoiding lease B. Mutual Life v. Tailored Woman (ditto) GOOD FAITH COZ IT WAS BUSINESS AND NOT THE WAY TO AVOID K p. 818 FACTS: At different times P as landlord entered into separate leases with the D for three rental areas The premises were to be used and occupied by the tenant for the sale of women's apparel at retail.

The so-called "main floor" lease required the payment of "additional rent" based on a percentage of the gross sales in excess of a specified amount. The leases for the fifth and eighth floors provided for a fixed or flat rental. The several floors were connected by elevators for the exclusive use of the tenant DISCUSSION: Here % avoidance looks like tax avoidance Majority here says that the reason doesnt matter, but dissent doesnt agree In prev case D was taking money out of the landlords pocket. Here they have made more value for legitimate reasons Reason there to get out of the deal There was taking money from the landlord, here new stuff is created Majority doesnt speak about the purpose, coz it doesnt matter or it was legitimate or dissent was right *Was an elevator a modification? Just injunction to redo the elevator DISSENT: It was in order to avoid restrictions no good faith C. Stop and Shop v Ganem (ditto) IS OK TO LEAVE IF LANDLORD DOESNT SUFFER TOO MUCH, GETS FAIR MARKET VALUE p. 824 FACTS: Ganem (D) sought to compel lessee Stop & Shop (P) to continue operating a market on premises pursuant to a commercial lease agreement providing for minimum fixed yearly payments plus a percentage of gross sales. Parties entered into a lease agreement where Stop & Shop was supposed to lease the place for 13 years and six months. The minimum rental payment was $22,000 per year, plus 1% of gross sales exceeding $1,269,230.60. The agreement provided that the percentage rate would be due only if sales exceeded $3 million. The lease was silent as to the proposed use of the premises. P was engaged in the supermarket business at the time the lease commenced (1953). In 1963, P closed supermarket, but continued minimum rent payments. P opened two other supermarkets within a mile of the premises. P filed a bill for declaratory relief. D filed a counter claim seeking to compel P to operate a market on the premises and to pay a percentage of the gross sales. The superior court held that lease agreement did not contain an implied covenant requiring P to continue operations on the premises. D appealed. CONCISE RULE OF LAW: The court will not imply a covenant to continue operations for a specific purpose, or for any purpose at all, into a commercial lease agreement providing for a portion of the rent to be determined based on the gross sales of the business conducted there. HOLDING: The court will not imply a covenant to continue operations for a specific purpose, or for any purpose at all, into a commercial lease agreement providing for a portion of the rent based on the gross sales of the business conducted thereon.

There is no evidence to show that the parties should have contemplated including a covenant to continue operations in the lease agreement. Furthermore, the lease agreement does not preclude the plaintiff from opening such markets in the area. DISCUSSION: It seems that purpose matters here, legal business purpose If a % rent is substantial of total rent -> you cannot leave, coz I assume, that u stay and I receive the % part. If fixed part is big, it is close to the FMV, u can leave, if not u should stay Bad faith here: Landlord has the right to FMV under K. Lessee has a discretion, but he can use a discretion to leave only when fixed rent is big, if not u cannot use discretion in good faith. (B) Implied and Expressed Warranties Warranty statement of fact, representation about goods, becomes a part of K Deal 1: car - ----------$1000 Deal 2: car used 1 month to go to church----------$1000 Describes a car, representations about the car. Warranty takes representation into K and says, if there is a breach..I warrant truthness of my statement. Breach of warranty breach of K, coz W is a part of K, but also can be a fraud 2 kinds of W (default rules): 1) express 2) implied: merchantability (fitness for ordinary purposes) u have a set of expectations which are generally implied fitness for purpose: o seller has to know the specific purpose o buyer is relying on seller's knowledge Damages: Difference btw value + value with the statement -> benefit of the bargain Sales Contracts: The Uniform Commercial Code 2-314 Implied Warranty: Merchantability (1) Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale. (1) Goods to be merchantable must be at least such as: (a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fit for the ordinary purposes for which such goods are used; and (d) run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may require; and (f) conform to the promises or affirmations of fact made on the container or label if any.

(2) Unless excluded or modified other implied warranties may arise form course of dealing or usage of trade. 2-315 Implied Warranty: Fitness for Particular Purpose Where the (1) seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the (2) buyer is relying on the sellers skill or judgment to select or furnish suitable goods, there is (3) unless exluded or modified under next section and implied warranty that the goods shall be fit for such purpose. 2-714 Buyers Damages for Breach in Regard to Accepted Goods (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered. A. Step-Saver Data System v Wyse IF DISCLAIMER OF MERCHANTABILITY IS CLEARED AND CAN BE EASILY UNDERSTOOD IT WORKS p. 832 Facts: Step-saver uses Wyses TSL program as part of its software. TSL is highly flawed () and after some, Wyse disclaims any warranty because it says thatafter the order was made and the payment receivedit put a box-top license on its product as a final counter-offer; it says it would not have sold the product without acceptance of those termsit got the last form in. Discussion: the court discussed the location of a disclaimer of the implied warranty of merchantability inside computer software packaging and held the location of an additional term is to be considered independently of conspicuousness (). The Step-Saver court held that the limitation of warranties and remedies are valid when packaged with the product so long as the limitation is clear, conspicuous and one that a reasonable person would have noticed and understood. The Step-Saver relied on the purpose behind 2-316 in finding that so long as a disclaimer of the implied warranty of merchantability is one that could be noticed and understood, the disclaimer is conspicuous.

B. Royal Business Machines v Lorraine Corp (copying machines) TEST FOR WARRANTY: FACT + RELATES TO GOODS + BUYER RELIES ON IT - p. 836 FACTS: Booher (P) and Lorraine Corp (P) entered into a series of transactions with Royal Business Machines (D) for the sale of Royals (D) copying machines. P initiated suit against D alleging breach of warranties and fraud. The disctrict court awarded P compensatory and punitive damages and attorney fees, holding that Royal (D) had breached several express warranties it made to P. These included the assurances that the goods were of high quality, few repairs would be necessary, replacement parts were easily obtainable, maintenance costs were low, the machines were marketable, P would reap substantial profits, the goods were safe, and service calls were required only every 7,000 to 9,000 copies. Royal (D) appealed.

CONCISE RULE OF LAW: The determinative question in resolving whether a particular promise constitutes an express warranty is whether the sellers assertion constitutes a fact or is merely an expression of the sellers opinion. HOLDING: Shoula distinguish warranty or opinion here: High quality not specific enough, warmth-glow clich. Cannot make a decision on that basis. How can u determine breach here? Frequency of repairs is low prediction? How to determine low frequency? Replacement parts are available -> warranty, but doesnt relate to goods, it is services Cost of maintenance is low -> not warranty, coz: o It is a prediction (not a statement of facts) o Doesnt relate to goods (in the opinion of the court, it is not directly about the goods) Return profits -> not a warranty, coz sales talk, prediction Safe, no fire -> warranty, coz: o Facts o Relate to goods Extensicely tested -> fact, but what is extensively? Additional requirement: statement becomes a part of the bargain. The other party has to rely on your representation. There are a lot of representations, but not all of them become part of the bargain. It is not reasonable to rely on the statement u know is not true. 2-313. Express Warranties by Affirmation, Promise, Description, Sample (p.906) (1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which related to the goods (important!!!) and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (b) Any description (not an opinion, not a prediction, but facts) of the goods which is made part of the basis of the bargain creates and express warranty that the goods shall conform to that description. (c) Any sample or model which is made part of the basis of the bargain created an express warranty that the whole of the goods shall conform to the sample or model. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as warrant or guarantee or that he have a specific intention to make a warranty, but an affirmation merely of the value of goods or a statement purporting to be merely the sellers opinion or commendation of the goods does not create a warranty. C. CBS v Ziff-Davis (corp acquisition) U CAN BUY RELIANCE, EVEN WHEN U DONT BELIEVE p. 841 Facts: CBS is planning to by Ziffs magazines for over $300,000 but then becomes suspicious of Ziffs numbers. Ziff again offers a gratuitous express warranty, and that seals the deal. CBS then finds out that its instincts were right, and sues, but Ziff claims that its reliance upon the warranty was unreasonable. Principle:

But the warranty was like a kind of insurance; a gratuitous consideration CBS knew about the problem -> they cannot sue, coz no reliance and reliance is a part of warranty?? BUT they originally relied -> bid is evidence of it. They paid more for the K with warranty The W was bargained for you don't have to show that you belive that Tort view mispromising, K view reliance Kind of reliance, where you dont have to belive, u just buy it

D. Schneider v Miller (used cars) U CAN AGREE TO TAKE A GOOD AS IT IS WITHOUT ANY WARRANTY p. 849 FACTS: Schneider (P), an attorney, entered into a contract to purchase a car from Millers (D) used car lot. He test drove the vehicle. Schneider (P) signed a bill of sale accepting the car as is. Schneider (P) took the car to a mechanic for repairs. Thereafter he sought to rescind the contract on the basis that the car was unfit for driving and that Miller (D) breached his obligations in respect to implied warranties of merchantability. CONCISE RULE OF LAW: Where a buyer in a contract for the sale of goods signs a document expressly disclaiming any implied warranties and providing that the buyer accept delivery of the item as is, or where the buyer has had the opportunity to inspect the goods, no implied warranties exist and all risk is transferred to the buyer. Cheep car without a warranty, seller manifests that there is no warranty, buyer is ok with it, signes E. Morris v Mack's used cars (ditto) p. 854 FACTS: Facts not stated. This was an action alleging unfair or deceptive practices in automobile sale. CONCISE RULE OF LAW: A provision providing for the disclaimer of all implied warranties under a contract for the sale of goods does not relieve the seller from liability under alternative causes of action pertaining to commercial transactions. DISCUSSION: U can K out of warranty, but not out of consumer protection Notes: What if you bought shoes walked around the house and they fall apart after 10 minutes. Violates ordinary purpose. What if you went mountain climbing and they fell apart? No violation because could still be fit for house unless you told them you wanted mountain climbing shoes. In general, the UCC provisions on warranty apply, but they may not be the only provisions out there that govern sellers liability to consumers. The UCCs provisions may be supplemented.

(B) Conditions Condition triggers duties: Event uncertain to occur, Duty depends on it express In words Dependant (one after another) or mutual (simult) My duty depends on yours, your on mine Implied/constructive If the house burns down i dont have to paint it independant My duty doesn't depend on things you do and reverse

Look at the intent to distinguish (k interpret-n) Precedent - occurs before execution the duty tp perform. E.g. insurance they have conditional duty to pay if your house burns down. P has to prove that house burned down befire

Subsequent extinguishes something what already exists. E.g. their duty exists when the house burns down, but your duty is to inform them in one year. Def has to prove that you didn't clalim during one year after

Conditions not blanket duties, but duties triggered by smth. Conditions usually govern the order to perform. Things which take longer time usually should be performed first. EG. I promise to pay if u paint the house. The painter goes first. If you don't paint, i don't pay. U can change it: pay in advance. Promissory condition in case of breach of condition u can get damages (usually u don't get damages when condition is not performed) Condition -Releases u from duties In words: (1) express (2) implied (by behavior, pay $) Promise damages Consideration to drop a promise, coz it's a new K (bargain)

In case of breach How to get out of it

Order of performance: Rest 234, UCC 2-507

Default rule simultaneous performance A. Internatio v River (rice) - DUTY WAS OF THE ESSENCE CONDITION PRECEDENT p. 858 FACTS: The Defendant agreed to sell 95,600 pockets of rice to the Plaintiff. Under the terms of the agreement, shipment was to be made by the Defendant with two weeks notice from the Plaintiff regarding where to ship the rice. The Defendant delivered 50,000 pockets at Lake Charles, but by December 17, the Plaintiff had not yet instructed on where delivery was to be made for the remaining 45,600 pockets of rice. Since after December 17th the Defendant would not be able to satisfy the contract by shipping in December within two weeks, the Defendant cancelled the contract. The Plaintiff thereafter initiated this appeal. ISSUE: Does the Plaintiffs failure to perform a condition precedent permit the Defendant to rescind the contract? Held. Yes. The Defendants obligation to ship the rice in December was conditioned upon the Plaintiff giving the Defendant two weeks notice of the place of delivery. Hence, the last day in December that the Defendant could have performed on the agreement given the notice required was December 17th. When December 17th passed and the Defendant did not hear from the Plaintiff, it had the right to rescind the agreement. In other words, the Plaintiff giving two weeks notice of the place of delivery to the Defendant was a condition precedent to the Defendants delivery of the rice. The failure to give sufficient notice for the Defendant to complete delivery in December as required by the contract, constituted a failure to perform a condition precedent. Therefore, the Defendant properly rescinded the contract. Discussion. A condition precedent must be performed in such a way as to allow adequate time for the other party to fully perform under the contract. Condition is way out of the K without paying, coz no damages Pure benefit for one party, courts don't like it Here court says that Dec really matters Judge has to infer it, coz it was implied here

B. Howard v Federal Corp Ins Corp (damaged tobacco) - IT WASN'T A CONDITION COZ THERE IS A FORFEITURE - p. 862 FACTS: P bought insurance on his crops against bad weather from D. In 1973 the tobacco crop was alleged to have been extensively damaged by heavy rains resulting in a loss to three Ps in excess of $35,000. Filed a claim with P. P denied the claim as the stocks were already tilled under when Ps inspector went to the farm to see the damage.

There was a portion of the policy that provides that the stalks shall not be destroyed until the corporation makes an inspection. Issue: Was the compliance by D with the provision of the policy a condition precedent to the recovery? Does the act of plowing under the tobacco stalks forfeit the coverage of the policy? Holding: District court erroneously held on the motion for summary judgement that there is a condition precedent to plaintiffs recovery which forfeited the coverage. Ds motion for summary judgement was improperly allowed. Our narrow holding is that merely plowing or disking under the stalks does not of itself operate to forfeit coverage under the policy DISCUSSION: How can you distinguish btw condition and promise? If it is a promise ins company has to pay and will get damages for breach of promise If it is a condition ins company is not obliged to pay But it is forfeiture here, policyholder loses all his money invested If there is a possible forfeiture read it to avoid forfeiture!!!!! BUT if there is an exact language that it is a condition make it really clear Aim of the requirement to report here is against fraud. Coz if there is fraud and it is a promise, will be hard to prove damages When there is doubt in insurance policies as to whether words create a promise or condition precedent, they will be construed as creating a promise.

227. Standards of Preference with Regard to Conditions (1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk. (2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or (c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control. (3) In case of doubt, an interpretation under which an event is a condition of an obligor's duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it has become a duty to perform. C. Chirichella v Irwin (home purchase) TO DEFINE IF DUTY IS A CONDITION LOOK AT THE INTENT p 866 Facts: -Appellants contracted in June 1971 to sell their home to Appellees for $39,200 and when D refused to settle, -the settelment should "Coincide with settlement of New home in Kettering Approx. Oct. 1971".

-D contracted to purchase "the New home" in April of 1971 and were to settle within 15 days from the date of completion. first settlement for the new house was scheduled for June 15, 1972, which never materialized the settlement date for house at issue was rescheduled 2 more times for the same reason, the builder sold the house to someone else. Discussion: Seller says that they were not obliged to sell, coz new house was not built and it was a condition If it is a condition is a q of constrution and should be decided upon the intenet of the parties Aim of the clause was to settle time D. Clark v West (drunken law professor) CONDITION WAS WAIVED, COZ IT WAS NOT A PROMISE AND NO CONSIDERATION NEEDED TO WAIVE - p. 869 Facts: Clark (P) agreed to write a series of law books for West (P) for $3,000 per year. The contract included an abstention agreement, whereby Clark promised to abstain from alcohol in order to be eligible for payment in excess of $2 per page. Clark completed a 3,469 page text on corporations and West refused to pay Clark more than $2 per page because Clark had not abstained from alcohol. Issue: 1) Is a waiver a voluntary abandonment or a relinquishment ( ) of some right or advantage? 2) Can a condition precedent be waived? Holding and Rule: 1) Yes. A waiver is a voluntary abandonment or relinquishment of some right or advantage. 2) Yes. A condition precedent can be waived. D asserted that Ps total abstinence was the consideration for the payment of the additional $4 per page. D asserted that it could not be waived except by reformation of the contract based on consideration, coz it was a promise, not condition P asserted that abstinence was merely a condition precedent to the payment of the additional $4 per page and that it could be waived without new consideration. The court held that it was clear from the contract that the abstention was not part of the basic consideration bargain but rather a condition precedent to the payment of the additional $4 per page. A condition precedent may be waived. Once waived it cannot be revived. A waiver is an intentional relinquishment of a known right. If the words and acts of a party reasonably justify the conclusion that with full knowledge of all the facts it intended to abandon or not to insist upon a particular defense afterward relied upon, a waiver has been established. The court held that P alleged facts which if proven would establish a claim of waiver. 84. Promise to Perform a Duty in Spite of Non-occurrence of a Condition

(1) Except as stated in Subsection (2), a promise to perform all or part of a conditional duty under an antecedent contract in spite of the non-occurrence of the condition is binding, whether the promise is made before or after the time for the condition to occur, unless (a) occurrence of the condition was a material part of the agreed exchange for the performance of the duty and the promisee was under no duty that it occur; or (b) uncertainty of the occurrence of the condition was an element of the risk assumed by the promisor. (2) If such a promise is made before the time for the occurrence of the condition has expired and the condition is within the control of the promisee or a beneficiary, the promisor can make his duty again subject to the condition by notifying the promisee or beneficiary of his intention to do so if (a) the notification is received while there is still a reasonable time to cause the condition to occur under the antecedent terms or an extension given by the promisor; and (b) reinstatement of the requirement of the condition is not unjust because of a material change of position by the promisee or beneficiary; and (c) the promise is not binding apart from the rule stated in Subsection (1). 2-209. Modification, Rescission and Waiver. (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party (3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. E. JNA Realty Corp (holdover tenant) EVEN IF THERE IS A BREACH OF CONDITION CAN EXCUSE IF FORFEITURE - p. 873 Summary: J commenced this proceeding to recover possession of the premises claiming that the lease has expired. The lease grants the tenant an option to renew and although the notice was sent, it was not sent within the time prescribed in the lease. Facts: o The Plaintiff, J.N.A. Realty Corp. (Plaintiff), entered into a 10-year lease with Victor Palermo and Sylvester Vascellero. o The lease granted the tenants an option to renew so long as they notified the landlord within six months of the termination date. o The tenants then assigned their lease to the Defendant, Cross Bay Chelsea, Inc. (Defendant).

o The Plaintiff authorized the assignment and modified the option to renew clause only insofar as giving tenant a right to renew the lease for a period of twenty-four years, instead of ten years. o During its tenancy, the Defendant had made substantial improvements to the property. o After the option to renew had lapsed, the Plaintiff informed the Defendant of this fact. o The Defendant then sent the Plaintiff a letter stating its intention to renew the lease. o The Plaintiff refused to honor this letter and instituted proceedings to recover possession of the property. (1) will the tenant suffer a forfeiture if the landlord is permitted to enforce the letter of the agreement? (2) if there will be a forfeiture, may a court of equity grant the tenant relief when the forfeiture would result from the tenants own neglect or inadvertence Holding: Yes the tenant will suffer a forfeiture because of the investments made on the property. And Tenant is entitled to equitable relief. Rule: Notice exercising an option is ineffective if it is not given within the time specified. Rationale: Default on an option usually does not result in a forfeiture. Because the option itself doesnt create any interest in the property (lessor has no property interests), and not rights accrue until the condition precedent has been met by giving notice within the time specified. But when a tenant in possession under an existing lease has neglected to exercise an option to renew, he might suffer a forfeiture if he has made valuable improvements on the property (because now he has an interest in the property, his improvements). A tenant should not be denied equitable relief from the consequences of his own neglect or inadvertence if a forfeiture would result. The rule applies even though the tenant, by his inadvertence, has neglected to perform an affirmative duty and thus breached a covenant in the agreement. (Unless there is willful or gross negligence.) Because the tenant made a considerable investment in improvements (55k total) and would loss a serious amount of business due to location change, and despite the failure to renew was at the tenants fault (although not culpable) the tenant would be entitled to equitable relief if there is no prejudice to the landlord. Discussion: Tenant was negligent to renew th lease It was a condition here But results in forfeiture, excuse the condition IF there is no prejudice to the landlord!!! extreme edge of juditial activism Dissent no commercial certainity

Note: 229, the Restatement (2nd) states as a general proposition that a court may excuse the nonoccurrence of a condition where forfeiture would otherwise result, unless the conditioning event was a matter of the parties exchange. (C). Breach dependant v independant conditions + prospective non-performance A. Kingston v Preston (silk business) WHEN U DECIDE DEPENDANT OR INDEP LOOK INTO THE INTENT (REASONABLE PERSON OR GAP-FILLING) - p 880 Facts. An action of debt for non-performance of covenants contained in articles of an agreement between the Plaintiff and the Defendant. The articles stated that the Plaintiff covenanted with the Defendant to serve him for 200 a year and in consideration of the premises the Defendant covenanted that at the end of the year and a quarter he would give up his business and stock Another covenant stated that payment was to be made in installments out of the proceeds of the business by Plaintiff. Plaintiff promised to post a security bond, which guaranteed payment of the installments if the business did not generate enough proceeds before the sale. Plaintiff did not post such a bond and as a result Defendant refused to consummate the sale. Thus, Plaintiff brought suit against Defendant for breach of contract. Plaintiff alleged that Defendants obligation to convey the business was independent of the Plaintiffs obligation to post a security bond and the Defendants remedy was a breach of contract to refuse to sell. Issue. Whether the covenant that the Defendant had an obligation to convey the business and the covenant that the Plaintiff had an obligation to post a security bond were independent? DISCUSSION: P says that you still have to sell even without security D says that security is cond prec Yes, security is cond prec here, coz it is a part of the deal *If it is a promise duty to sell still is there, has the right to damages How to know did parties agree to indep or mutual condition? Here seller wouldn't sell without a guarantee - intent A reasonable person would expect it K interpretation (go to reas person standard) OR Gap-filling Morton v Lamb (corn sale) MUTUAL DEPENDANT CONDITION PARTY HAS TO SHOW THAT IS WILLING TO PERFORM - p 882 FACTS: D had to deliver corn to P D says that you didn't said that you are intended to pay, that's why I didn't deliver Discussion: What was the intent of parties?



How do you know it? Look into the K - mutual dependant condition here. Court found that the party who sues has to show that it was ready to perform Here P cannot impute non-delivery if doesn't allege that was ready to pay Order of performance here simultaneously so P had to show that was able to pay

Jacob and Youngs v Kent (wrong pipe) TRIVIAL DEVIATION IS NOT BREACH OF CONDITION p 883 FACTS: Plaintiff built a house for Defendant for the price of $77,000 and sued to recover the balance due of $3,483.46. One of the specifications for construction was that all wrought iron pipe used must be Reading pipe. By the inadvertence of Plaintiff, not all pipe installed in the house was Reading pipe. When Defendant realized this, he had already begun to occupy the house. Nevertheless, he demanded that Plaintiff replace the pipe with Reading pipe. Doing so would have required Plaintiff to demolish substantial parts of the house and reconstruct it, which would have been a great expense to Plaintiff. He therefore refused and billed Defendant for the remaining amount due for the construction. Defendant refused to pay, and Plaintiff initiated this action. DISCUSSION: 2 measures of damages here: 1) cost of performance you didnt use reading pipe. I get the cost of installation = large 2) demolition in value difference in the cost of the house for using different pipe = 0 was the installation condition precedent? If yes no duty to pay money technically, u could have it as a condition, but there was substantial performance. If only minor/trivial breach, there is subst performance, you can sue for damages Substantial breach -> doesnt satisfy condition Trivial breach -> satisfies condition What was the purpose to have reading pipe?? Was it essential for the K?? Here it was a quality indicator. Purpose was that they were famous for their quality. There could be language similar quality pipe They didnt frustrate the purpose of the K, there was no subjective value for those pipes Court applies objective standard (was it necessary for a reasonable person??) There was no fin intent, no motive to use another pipe, just negligence but reasons dont matter here *context matters. If the only thing in K is Reading maybe different outcome Trivial deviation is not a breach of condition default rule!!! If performed 99,9%, damages for 0,01% or just dont pay it What words can contact u out of it? Certain words + pay for it, coz its harder to perform such a K

C. Hochester v De La Tour (tour guide) P HAS THE RIGHT TO SUE EVEN IF THERE WAS A RENUNCIATION () OF THE K FOR FUTURE PROSPECTIVE NON-PERFORMANCE - p 892 Facts: P was a courier who entered into an agreement with D to work for him in Europe. He was to begin on June 1. On May 11, D changed his mind and told P that he wouldn't require P's services. D refused to make any compensation. P filed suit against D on May 22. Issues: Can an action for breach of contract be brought before the time the performance in question was supposed to occur? Holding/Rule: An action for breach of contract can be brought at any time after the breach, including before the time the performance in question was supposed to occur. Reasoning: Where there is an agreement to do an act on a future day, there is a relation constituted between the parties, and they impliedly promise that in the meantime neither will do anything to the prejudice of the other inconsistent with that relation. If the P has no remedy for breach until the date in question, it follows that he cannot enter into other employment before then since that would cause him to breach as well. After the renunciation of the agreement by the D, the P should be a liberty to consider himself absolved from any future performance of it, retaining his right to sue. It seems reasonable to allow an option to the injured party, either to sue immediately or to wait till the time when the act was to be done. D. Harrel v Sea Colony (condo ) MERE REQUEST FOR CHANGE OF TERMS DOESNT CONSTITUTE REPUDIATION - p 895 FACTS: Harrel contracted with Sea Colony to purchase condo Harrel paid 5000 and remainder to be paid after completion. It was also a liquid damage Harrel has sent several letters to cancel or assign the K, wanted mutual recission Sea colony sold to another buyer + held 5000 Issue: Did Harrel commit anticipatory breach?? Holding: Sea Colony tried to convert a request for mutual recission to an anticipatory breach mere request for a change in the terms or a request for cancellation of the contract is not in itself enough to constitute a repudiation (cant treat request for renegotiation as repudiation) Antic Repudiation impairment of your future interest, should be explicit and simple 2-610. Anticipatory Repudiation.

When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) for a commercially reasonable time await performance by the repudiating party; or (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and (c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704). 2-611. Retraction of Anticipatory Repudiation. (1) Until the repudiating party's next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considers the repudiation final. (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2-609). (3) Retraction reinstates the repudiating party's rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation (D). Breach Adeqaute Assurance + Material Breach vs Perfect Tender BREACH (rest + common law) Future performance is seriously in doubt THEREFORE Breach is material Can cancel K (B&B v Bowen) Future performance NOT seriously in doubt BUT can ask for assurance in proper form (Scott v Crown) IF assurance is not prov-d -> Can cancel K IF provided -> Cannot cancel BUT should distinguish btw assurance and modification (Scott v Crown) AND what makes breach material see B&B v Bowen A. Scott v Crown (wheat sale) IF THERE ARE REASONABLE GROUNDS OF FUTURE NONPERFORMANCE, ASSURANCE SHOULD BE REQUESTED IN PROPER FORM p. 901 F: S believed that buyer would not be able to pay for goods. S, having been burned in the past plus bad reputation of buyer, anticipated a repudiation of contract by B. Asked for assurance in an off hand manner to buyers driver and when not received, rescinded contract. Discussion: There is insecurity of performance When insecurity occurs party wants to be paid and to stop performance -> has the right for assurance if reasonable

Was it reasonable?: buyer doesn't return calls, was reported about complaints BUT there were problems with: 1) timing, 2) form (writing or oral clear) and 3) content + u cannot ask Modification of the K by means of assurance, only stuff in K Therefore, S had no right to rescind, thus S anticipatory repudiated

2-609. Right to Adequate Assurance of Performance. (1) A contract for sale imposes an obligation on each party that the other's expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party's right to demand adequate assurance of future performance. (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract. B. B&B Equipment v Bowen (stock purchase) MATERIAL BREACH COZ THREATENS FUTURE PERFORMANCE - p 907 FACTS: B&B hired Bowen to replace 3rd partner and loaned him 15,000 to enable him to purchase 100 shares Bowen started to carry on outside activites and spent less time on his duties B&B discharged him ISSUE: Was the thing Bowen did material enough to cancel? REASONING: What is good job? Hard to prove How important is that he failed to do things he was expected to do? he contributed almost nothing in $ to get shares, so he had to work for them How serious was non-performance? understand what the K was about. Court uses rest 275 to determine if the breach is material (p 909). The most important criteria is whether there is uncertainity about future performance of the rest of K

C. Lane Enterprises v L.B. Foster Inc (coated bridge components) NOT MATERIAL BREACH COZ NOT A LOT OF MONEY - p 910 FACTS: Steel services contract - Problem with it is cleaning of the steel. There were two stages of the contract. Lane coats steel, cannot perform it up to Fosters standards. Lane wants out of contract saying Foster withheld payment. The payment withheld was a small amount for not being able to complete it adequately.

Foster is willing to have Lane complete it (requesting adequate assurances while withholding further performance). Lane refuses to give assurances, saying Foster materially breached. Lane suing for failure to pay whole amount. Foster suing for completion of the whole contract. The question, was withholding the small amount material breach? REASONING: The court holds this was not material breach - it was a small amount not paid. Therefore, Lane could not walk away - since Foster had reasonable grounds to request reasonable assurances, Lane needed to provide this. *BUT even small breach may give grounds for threat that serious breach can happen PERFECT TENDER RULE UNDER UCC: After acceptance Buyer can reject only for subst non-compliance S can cure, or if not B can terminate

Before acceptance Buyer can reject for Any non-complience (Ramirez v Autosport) BUT Seller can cure (obligation to send back to cure) D.

Ramirez v. Autosport (RV purchase) p 919 BREACH UNDER UCC PERFECT TENDER

FACTS: Ramirez wants to get out of the deal, coz car is bad Here it was before acceptance Autosport didnt cure + Ramirez could rescind anyways (before acceptance) *Could sue for damages or breach of warranty if accepted *Simple trade of cars may not fall under UCC UNCONSIONABILITY Williams v. Walker-Thomas (cross-collateralized loan) p 1025-1033 Facts: D purchased a number of household items form D, for which payment was to be made in installments. The titles for the purchased items would remain with D until the total of all of the monthly payments for all items is paid. If she doesnt pay 1 month for this combined loan, she losses everything In 1962, D bought items from P. Upon default, P sought to repossess all items the D had bought and paid for since 1958. Issues: Can a contract be invalidated due to unconscionability ()?

Is cross-collateralized default provision in K ok? Does she have a cause of action at all? Holding/Rule: If unconscionability is present at the time a contract is formed, the court can choose not to enforce the contract. Reasoning: Here it is a matter of common law and equity But Congress has enacted the UCC 2-302 provides that the court may refuse to enforce a contract which it finds to be unconscionable at the time it was made. When a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that consent was ever given to all the terms. Corbin suggests that the test should be whether the terms are so extreme as to appear unconscionable according to the mores and business practices of the time and place. Dissent: The law has always granted parties latitude in making their own contracts. This decision will affect a great number of seemingly valid installment plan contracts. Notes: Unconscionability involves the evaluation of four factors o The relative harshness of the term in question (content, too one-sided) o importance of the legal right that is affected, had no assets o The manner of presentation of the term in the agreement (bad process) o The relative bargaining power of the party against whom the term is asserted o The commercial justification for the term, was unreasonably favorable for the S o Absence of meaningful choice => UNFAIR SURPRISE Discussion: Was there a manifestation of mutual assent? yes (signature + payments) But objective manifestation here doesnt contribute to the meeting of minds Was there a misrepres? No, coz withholding info is not a misrepres-n + no duress, no fraud here => there are no ordinary grounds, thats why unconscionability is used here

Flow Chart for Exam

Was there a contract?
Offer? Options contracts, bilateral/unilateral, firm offers - goods or service? Acceptance? - Mailbox rule, silence, performance goods or service? Statute of Frauds apply on goods? - Is good customized? Did one side substantially perform? Complete performance? Options contract made? Was there consideration?

2a. If there was no contract

Promissory estoppel? Quantum meruit?

2b. If there was a contract was there a breach?

Implied duty of good faith? Warranties? Anticipatory repudiation? Lack of adequate assurance? who bears risk? Material Breach? Substantial Performance? Perfect Tender?

3. Is there a defense to the breach?

Statute of Frauds Public policy issues Lack of contractual capacity minor, mentally incapacitated, intoxicated? Consent obtained improperly Misrepresentation? Duress? Undue Influence? Unconscionability? Failure of basic assumption? who bears the risk? Mutual mistake? Unilateral mistake? Impossibility/Impracticability? Frustration of purpose?

4. Damages?
Computable? Goods unique? SP? Risk Foreseeable? Risk assumed? Willful breach? Proportionality? cost of performance vs. diminution in value

Profits computable? too remote?

X. K interpretation Problem I. Contract void for lack of mutuality or lack of consideration A. Return earlier at sellers request > no K, b.c. no mutuality, an empty promise. B. Well rent you car for as long as we feel like it. C. Perhaps good faith duty not to request early return (Wood v. Lucy) or UCC 2-306 1. However a. this is not an exclusive dealership arrangement, b. and UCC not binding here D. K is also vague on whether, if they ask for the car back early, they have to refund the pro rata price (which presumably they would, otherwise this would clearly not be enforceable). II. Contract void for indefiniteness (no certain terms), on several bases (rest 33) A. Due date 1. Does due date refer to the accelerated due date or to the original, 2. Sun Paper on how long terms were supposed to govern is roughly analogous B. Mileage? Did K refer to: 1. Total mileage, whenever driven ( = 1200), or 2. Only miles driven after accelerated due date, Jan. 4th (= 900), or 3. Only miles driven after original due date, Jan. 15th (= 0) C. Hence, no K b.c. of ambiguity: cant detect breach or offer a remedy [Rest. 33] b.c. not clear whats a breach 1. Mileage and due date are critically ambiguous: a. If we dont know which due date is appropriate, we dont know if Rob breached or not b. If we dont know what definition of mileage is appropriate, we dont know how to apply the liquidated damage formula 2. Thus, K seems to fail under 33. D. What about Contra Proferentum: Interpret ambiguity against the drafter, here, Hurts? 1. Suggests due date should mean the original due date, and/or 2. Mileage penalty should be 2.c. 3. Hence, either no breach (for returning later than Hurts asked) or, if late, then no damage under LD clause. III. Contract void under Carnival Cruise Lines and related adhesion doctrines? A. Analogy to Forum Selection Clause in Carnival, scrutinize adhesion Ks for fundamental fairness, which seems to mean a valid business reason for the provision. 1. [P]s burden to show that there is no valid business reason for asking renter to return early???? a. There might be occasional and unpredictable shortages at certain locations, and Hurts would lose more business if they could not rent a car for 2 weeks to X than they would lose if they called back Robs car 1 day early. b. Alternatively, perhaps they could get information from the state police that Rob was caught speeding 3, and they would want to prevent damage to the car, etc. 2. While there are no OBVIOUS business reasons for the clause, there are some potential ones. 3. A possibly important difference is that Rob got the K before signing, whereas Shutes didnt get the K until after paying for the ticket.

B. Rest 211: term is void if Hurts had reason to know that reasonable renter would not accept with this clause in it. 1. Seems hard to believe that this is true 2. But query () whether that means accept at any price or accept at this price IV. No breach b.c. Hurts action did not constitute a request under the K A. K doesnt define what constitutes a request, but B. Hurts actions arguably dont measure up to real notice 1. Esp. when the K language itself is boilerplate and not likely to be read 2. At least, Hurts should have to signal clearly that it wanted the car back! C. Another take on this is the duty to mitigate: If Hurts really was harmed by Robs failure to return on time, they had a duty to mitigate their own damages by requesting early return more vigorously after Rob didnt answer 1st ph. call. V. Liquidated Damage clause void as a Penalty A. No relation to harm suffered by Hurts (anticipated or actual, per Rest. 356, Wasenaar) 1. prima facie ( ) true b.c. amount owed is based on total miles driven, not miles driven after request for return or after original due date 2. And miles driven, by any measure, has no relationship to the harm suffered by Hurts a. Harm is based on DAYS of delay, not on miles at all, and certainly not on pre-breach miles. b. E.g., if he had driven 4 miles per day and returned the car on 15th, Hurts harm would be the same, but his damages would have been much lower (415/3 = $20). B. Hard to see how the contractual formula could ever be a reasonable approximation of Hurts damages, even if those are difficult to prove as required by 356. C. Replace Penalty with Expectation Damages, 1. Hurts has to show the actual harm it suffered. 2. Hurts would suffer NO harm at all from Robs failure to return the car unless they had a shortage of cars (surplus of rental customers) 3. If Hurts had had additional cars in its rental lot available when they asked for Robs car back, they would not be a lost volume renter, and their harm would have been 0. 4. If they didnt have surplus cars on the lot, though, theres still the question of why they are entitled to get Robs car back, just to give to someone else. VI. Unconscionability [not covered yet]: A. Williams, UCC 2-302 [though this is not sale of goods] B. Harshly one-sided? 1. Yes, though perhaps with some business justification for the recall provision. 2. [Probably not the damage clause, however!] C. Surprise: Hard to say. 1. Long K with many clauses. 2. Language is difficult to interpret even if it had been read, and contradicts reasonable expectation of average party 3. Ambiguity discussed above (damages set based on total miles, post-request miles, or post original due date miles) also adds to surprise factor, since reasonable reading would probably not resemble Hurts interpretation.

4. The terms were in CAPITAL LETTERS, but that seems a minor point. D. Unequal Bargaining Power 1. harder to make this argument, as there are many car rental firms at most airports 2. No monopoly power, and hence Rob had alternatives to consider.


Questions: 1. Is ucc only for merchants? Eg sale of the car? 2. Perfect tender rule if ucc is not applied? 3. p. 281 problem?? 4. Manifestation of mutual assent and offer? How do they correlate? 5. UCC 2-206 where can I find a language that half of acceptance by performance can imply a promise to keep on climbing? 6. Difference in facts in Baird v Gimbel Bros and Drennan v Star Paving cases (subconstruction) which lead to two different decision? 7. Example: how can I drop a promise? What kind of consideration do I need to do it? If to compare with condition 8. Does anticipatory repudiation To do list: 3) 4) 5) 6) 7) 8) 9) print flowcharts for K formation and damages interpretation problem one more time (unconscionability)!!!