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Contracts I Magg Fall 2011Claims.DefensesRemedies.

X may sue Y for breach of contract claiming Y made a promise to.and broke it by doing.

Y may defend on grounds of..asserting.. X may respond.

X might seek damages equal to..

State any denial of damages or limitations

USE FACTS!I. Bases for Enforcing Promises B. Consideration as a basis for enforcement

1. Promise or Performance Bargained for in exchangea. Promise or Performance does not require a detriment to promissee and benefit to promisor for consideration. Hamer v. Sidwayb. If a promise was not made in good faith or on false pretenses knowingly there is not consideration. If one party doesnt make good on a settlement the other is excused from performing 72, 74 Feige v. Boehm, Court of Appeals, MD, 19562. conditional promises vs. bargained for in exchangea. NEED A RETURN PROMISE: Something you are already committed to do isnt consideration

b. Promises to make gifts, including conditional promises to make gifts, are not consideration. Feinberg v. Pfeiffer Co, St Louis, 1959c. Benefit previously received is not enforceable. Mills v. Wyman, 1825d. Not sufficient to suffer/detriment if not party of a bargain. Kirksey v. Kirksey- BEFORE RELIANCE CONSIDERED: It was a conditional promise not a contract. e. Forbearance on the part of the company from firing him is consideration. Employment at Will. Lake Land Employment v. Columber : Dissent: It constitutes coercion since there is no consideration. 3. Promises as Considerationa. Illusory promise- statement that sounds like a promise, but makes no real commitment Promises must be made in a way to justify and understanding of commitment

*Ultimately, manifestation of intent is what matters Rest 2b. Illusory promise cannot be consideration BUT:-Implied terms may make it non-illusory terms are implied in fact or law c. The consideration is to be tested within the agreement not what you do outside of it.Strong v. Sheffield 1895: hold off on collecting the moneymade not real commitment. (Cf. Feinberg, Compare Lakeland) IMPLIED TERMS (eg duty of good faith)1) Implied in Fact- implied based on the parties expectations, circumstances under which bargain was made

2) Implied in law- term that is always there (good faith) whether the parties are thinking about it or not

SECTION 205 -Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement (Implied in law) Mattei v. Hopper (good faith to purchase on satisfaction of leases) ,Wood v. Lucy, Lady Duff-Gordon (Without the implied promise it would not made sense to enter in agreement)C. Reliance as a basis for Enforcement

PROMISSORY ESTOPPEL (Rest 90) Relying on the faith of the promise constitutes a valuable and sufficient consideration under the doctrine of estoppelPlaintiff is estopped from denying the consideration Ricketts v. Scothorn ( SC of Nebraska) 1898 90 (2) charitable subscript or marriage settlement is binding under subsection s1without proof that the promise induced action or forbearance Can also be used to overcome indefiniteness or statute of frauds (Monarco-sometimes)2. Elements of Promissory Estoppel (Rest 90)1) Promise

2) action/forbearance by promisee

3) induced by (ie taken in reliance on) the promise

4) reasonably expected by promisor

5) Necessary to prevent injustice (Feinberg v. Pfeiffer 2)Equitable Estoppel

1) Fact wrong 2) Reliance

3) Injury?

*No recovery available on mutual mistake Rules vs. Standard: Basis for enforcement Considerationmore like a rule

Relianceless formally realizabletakes more discretion

Rule-predictable, efficient, equitable, behavior to follow

Standard-more flexibility, allows judges to use discretion for special cases (newspapers hiding source Cohen v. Cowles) Waiver-voluntary relinquishment of a right

Estoppel- an involuntary bar- involuntary preclusion from asserting rights

Promissory Estoppel mostly replaces relianceas seen in the criteriaD. RESTITUTION AS AN ALTERNATIVE BASIS FOR RECOVERYRestitution- Liable for a benefit which you received from someone else where it would be unjust for you to take

1 unjust enrichment- restitution req.

2- officious conferring of benefit- volunteered and gained without being asked for or needed 22-From payee not benefiting intended beneficiary need not be aware that its false benefitGeneralizations on those who cant collect:

1. Officious intermeddlers- volunteering services where neither asked nor needed.

2. Volunteer- infer expressly or not that they dont want to be compensated (Compare Schott)3. 3. Gift and wanting paid back laterno expectations of restitutions

4. Gratuitousness- when you help someone in serious danger, courts assume it is gratuitous, unless excessively burdensome or expensive or in a business or professional capacity Cotnam v. Wisdoma. services were needed. Not volunteer in most complex situations.

Callano v. Oakwood Park Homes: Pendergast--(contract with Callanos-(Callanoes planted shrubbery sue Oakwood Park Homes for Ps bill To recover on the theory of quasi-contract the Ps must prove that D was enriched, that retention of the benefit without payment therefor would be unjust. Unless there is another remedy. You cannot substitute one promisor or debtor for another. Callano v. Oakwood Park HomesE. MORAL OBLIGATION AS A BASIS FOR ENFORCEMENT

1) Moral obligation is not a general basis for enforcing a promise Mills v. Wyman

2) Courts will enforce a gratuitous new promise reaffirming an old debt that is made unenforceable because of

Special exceptions:

a) statute of limitations restatement 82 note (2) pg. 51

b) The promisors prior discharge in bankruptcy Restatement 83

C) The promisos prior infancy -under 18 can break contracts infants but over 18 8 makes the 2nd promise no consideration, reliance for 2nd promise, but there is moral obligation Restatement 14

3) In a few states, courts also say moral obligation is the basis for enforcing a promise to pay for a material benefit if necessary to prevent injustice. Webb v. McGowin 86. But MOST courts disagree . Dementas,.

there must have existed a piror legal or equitable obligation which for some reason had become unenforceable but for which the promisor was still morally boundMcGowin was his boss.

Notorized memo not enough if no reliance or consideration. DementasII. CONTRACT FORMATION General Policy that contractual liability is voluntary (subject to exceptions)A. ASSENToffer and acceptance1) A promise is not enforceable if the promisor sufficiently indicates that he/she did not assent/intend to be bound by the promise- Section 21 (can say you do not want to be bound or shown in context)

e.g. Gentlemans agreement(neg. that look like offer and acceptance but no assent to be bound 2) Possible perspectives on whether the promisor assented to be bound

promisors intent- Subjective (what was the understanding of that party)

promisees understanding-Subjective

reasonable persons understanding ObjectiveIN GENERAL THIS IS WHAT MATTERS

3) Whose perspective determines whether promisor sufficiently indicated a lack of assent?

general rule= reasonable persons understanding Lucy v. Zehmer Lucy believed and was warrranted exception= subjectiveif promise is aware of it

Theoretically, contracts should show intent of parties, voluntary agreement

Rule: the law imputes to a person an intention corresponding to reasonable meaning of his words and acts

Typical Formation of a bargain

1) preliminary negotiations (questions, haggling, discuss quality)

2) offer by offeror (one person manifests the willingness--Ill give you 20K to drive it away today)

3) Acceptance by offerree

B. OFFERS

RESTATEMENT 24 and 26

Manifestation of willingness to enter into a bargain 24 (invites acceptance)

exposes you to contractual agreement that is binding

Parties will argue whether a particular statement was a manifestation of willingness or something less-negotiations Courts tend to conclude that if its ambiguous that its not an offer

No meeting of the minds no offer Harvey v. Facey, Owen v. TunisonDistinguishing offers from Preliminary Negotiations

Plaintiff and Defendants arguments

Inherent ambiguity of question

Judicial reluctance to find offers (contracts should be voluntary)

Important to know what courts consider

precedent- Fairmont -comparison drafting

-key words, context, ect- Fairmont Glass (for acceptance) Objective nature of inquiryPrice Question and Advertisements

General rule= not offers Section 26Reason= reasonable person understands that the advertiser would not want to give everyone who sees advertisement power to conclude a bargain Harvey v. Facey agreed to buy at listed priceADVERTISEMENTS

Are advertisements offers?

general rule=no

usual explanation=reasonable expectations 26 exception=factors negating these expectations false advertising laws, ectDid the offeree accept? (guiding questions)

1. What was the offer? Restatement 24-manifestation of willingness to enter a bargain

2. How did the offeror invite the offeree to accept? Restatement 32 offeror determines but offeree can make a counter offer or say no

What the Offerror can ask for:

a. Complete performance: (unilateral contract as in Hamer) or

b. Promise to perform? (bilateral contract as in Fiege) (business mostly promise)

1. It is possible to make promises implicitly or explicitly words or conduct

2. Sometimes starting performance means acceptance

Cant modify terms in an advertisement once accepted. Lefkowitz v. Great Minn Surplus StoreC. ACCEPTANCEIs it a promise to perform or is acceptance given by complete performance?

Restatement 4, 30, 32, 54(1)-notice, 56, 60

A waiver can be included in the offer so there was a contract as soon as it was approved, but notice is required in terms too. International Filter Co. v. Conroe Gin Ice and Light When notice is required, must be made in a way that D could rxably find out. White v. CorliesRule: Offeree may accept by promising to render a complete performance expressly through words or explicitly by conduct. The most common way implicitly is to start. Ever-Tite Roofing v. Green Rule: If an offerree invites acceptance by complete performance acceptance does not occur until and unless the performance is completed CarbolicQuestions:

1. What was the offer?

2. Did the offeror invite acceptance by a promise or by complete performance?

3. Did the offeree promise or completely perform?

4. If the offeree made a promise, was the promise made in a permissible manner?

5. Was notice required?6. Was notice provided?

Allied Steel . Ford Motor, July 1936: starting construction on the conveyor belt for Ford showed acceptance indemnifying for workers injury prior to signature acknowledgement

1. It is true that an offeror can specify a specific method of accepting the offer

2. If the offeror prescribes a certain type of acceptance and the offeree doesnt than the offeror is not bound

3. BUT if the permissible method is stated it doesnt preclude other methods of acceptance

SILENCE NOT ORDINARILY ACCEPTANCE

Restatement 69Acceptance by Silence or Exercise of Dominion

Exceptions:

A) offeree takes benefit of offeror services with 1) reasonable oppo to reject them and 2)reason to know that they were offered with the expectation of compensation (Ford never agrees to counter offer, but lets them in to do work)B) where the offerror has 1) stated or given the offeree reason to understand that assent may be shown by silence or inaction, 2) but in remaining silent intends to accept the offer (offeree just has to want it if the silence clause is proposed)

C) where b/c of previous dealings or other it is reasonable that the offeree should notify the offeror if he does not intend to accept Hobbs v. Massasoit Whip Co (previous business, held onto products unrxably)D. LAPSE, REVOCATION, AND REJECTION OF OFFERS

1. Termination of Offers

Lapse of time- #41 (1), (2)

Revocation by offeror-revoked and terminated when known (indirectly Dickenson) Death of offeror

Rejection by offeree

Revocation by Offeror #42, #43

1. Generally possible any time before acceptance

2. Effective only if offeree receives direct or indirect communication of revolcation before acceptance-action inconsistent with intent to enter contract3. Not possible if offeror made an enforceable promise to keep the offer open (an option contract)

Death of an Offeror #48

1. Terminate unaccepted offers (but not most contracts)

2. No communication required

3. option contract can prevent termination

-Most of the time when you die the contracts are not invalid (suing estates) -Option contract can prevent termination

Dewitt and his aunties funeral --cant argue under complete performance If offer doesnt state a time, the offer lasts within a reasonable time frame and what a reasonable person would think

Option contract: If you make an offer it can be revoked unless there is a binding promise to keep the offer open (offer on a house)

Revocation only counts if its communicated by offeree

Dickinson v. Dodds: Promise not to keep the offer open is not a promise because there was no consideration. Option contracts req. consideration. No reliance in this case. 2. Possible Responses to an Offer:

Acceptance-in manner stipulated 60 Inquiry/comment/silence

Rejection (section 38-1) (also kills the offer totally, cant accept after rejection Counter-offer-presumed to be a rejection and a new offer Section 39 (1) (2).

Purported acceptance with qualifications-operates not as an acceptance but as a counter offer under mirror image rule Sec.59

Counter offer may be accepted by commencing performance otherwise rejectionE. MAILBOX RULE an acceptance is effective upon its dispatch $63(a) - Lindsell

Consequences- after dispatch, offeror can no longer revoke offer and offeree can no longer reject offer

Exceptions:

Offer indicates otherwise (extremely common)

Offer subject to option contract - #63 (b)-not in effect til offerror aware Offeree attempts to cancel/reject after dispatch of acceptance, and

a. offerror agrees to cancel (waiver)

b. offeror relies on offerees purported rejection (estoppel)

Scope- Mailbox rule applies

only to rejections, not revocations to any dispatched acceptance, not just US mail

even if acceptance Is lost and never arrivesF. Liability, Despite Failed Negotiations: Rest 45, 87(2) (Reliance) 87(2): offeror should 1. reasonably expect to induce action or forbearance the part of the offeree before acceptance and 2 which does induce such action or forbearance is 3. binding if necessary to avoid injustice.

Drennan v. Star Paving [exception]: Courts enforce because reliance on the promise makes offer irrevocable. 45: Option contract created by Part Performance or Tender: when offer invites an acceptance by performance then contract is created when offeree begins performance.

General Rule= No liability in failed or apparently failed negotiations

Exceptions: Breach of implied promise not to revoke offer (Drennan)

Breach of assurances during negotiations (Hoffman) Breach of contract to negotiate in a particular manner (Channel) promise to act in good faith(implied contract)shown by letter of intentTest:

1. Did both parties manifest an intention to be bound by the agreement?1. Are the terms of the agreement sufficiently definite to be enforced?1. Consideration (can include letter of intent) ?E. DEFINITENESS: Rest 33 Open terms show that there was manifestation of intent at the time The terms of the agreement must be sufficiently definite to be enforced. (rxabl person standard)

Certainty exists if there is a reasonable basis for determining a breach and for giving an appropriate remedy. (Varney v. Ditmars: "fair share of the profits") Good Faith and Reasonable efforts can be quantified if they are subject to some external standard. (market value)

III. WRITING REQUIREMENT: 110, 111, 112, 124, 125, 130, Syllabus App. #4A. Statute of Frauds: Promise must be accompanied by assigned writing.a. Differ from State to State: Generally: MYLEGS Marriage(110(1)(c)),124): a promise the consideration for which is marriage (unless the promise is one of two mutual promises to marry each other), such as a promise by A to pay $10k to B if B marries C.

Year(110(1)(e),130(1)+(2): A promise that cannot possibly be fully performed (as opposed to merely terminated) w/in one year, such as a promise by A to employ B for 5 years. Projects that theoretically could be completed within a year can be exempt. C.R. Klewin v. Flagship Prop Land(110(1)(d),125(1)-(3): A promise to buy or sell land, such as a promise by A to sell a house to B. Provisions in statutes of frauds dealing with land contracts usually are subject to two exceptions:

a. A promise to buy land is enforceable w/o a writing after the seller has conveyed the property.

b. Under the part performance doctrine, the seller may not assert the statute of frauds as a defense if the buyer has substantially relied on the promise to sell. Most courts have said that merely paying the purchase price is not enough reliance, and typically have required the buyer also to have taken possession, made improvements, or performed substantial other actions.(129)

Executor(110(1)(a),111): A promise by an executor to pay the debts of the decedents estate out of the executors own pocket

Goods(UCC 2-201(1): A promise to buy or sell goods for a price of $500 or more.

Suretyship(110)(1)(b),112): A promise made by a surety to a creditor to pay a debt that a debtor owes the creditor, such as a promise by A to pay C a debt that B owes C. Not relief of breach of contract claim for B If guarantor receives a direct benefit then not suretyship.B. Writing and Signing: Rest. 131a. Identifies subject matter

b. Reasonably sufficient that it is a contract btwn the parties

c. Reasonably certain terms

C. Exceptions to Writing Requirement: Rest. 129, 139, 375, Syllabus App #5

Can enforce specific performance of transfer of land( injust can only be avoided by specific perf. Richard v. Richard If party can adequately demonstrate, in reliance on said agreement, possession, improvements (permanent), OR payment of a substantial part of the purchase price. A party is estopped from asserting the statute of frauds to prevent the enforcement of an oral contract where Promissory Estoppel: (139) Monarco v. Lo Greco1) a party has so substantially changed his position in reliance upon the contract that he would suffer an unconscionable injury if the contract were not enforced and

2) the party seeking to assert the statute of frauds will be unjustly enriched if he is permitted to escape the obligations of the contract.

375: Restitution is not barred b/c of SOF unless the statute expressly states otherwise or it would aggravate the purpose of SOF.IV. POLICING THE BARGAIN

A. CAPACITY

1 Infancy Contracts 7+cmt.b (Syl. App.), 14 +cmt. C (until day before turned 18)

infancy is a defense or basis for enforcement

but infants can enforce (ie contract is voidable, not void), but other party cannot back out A promise made by a person under the age of majority (in most states, 18 years) is voidable until a reasonable time after the person reaches the age of majority. Kiefer v. Fred Howe Motors.Restitution (Rest. 62 +cmt.b)

Generally reqd if contract voided for infancy

Not required if subject matter unavailable (possible consequence is ______)

Required for necessaries if infant is emancipated Not a duty of restitution to the transferor upon failure to pay for it if the subject matter or its product is not avail at the time when restitution is sought-

Infancy also a basis for rescinding Non- infant in contract cannot back out- Infant can enforce the contract

Have a reasonable time after the 18th birthday

Emancipated infantsthose who are infants but responsible for their own care -you can still void contractsif someone sells you a necessary you must make restitution. Housing, food, clothes. Kiefer v. Fred How Motors SC of WI 19683. Mental infirmity

Voiding promises based on mental illness/defect:Traditional ground (1) (a)

promisor was unable to understand (all states) (senile, mh, other problem)

Modern additional ground (15 (1)(b) (few states)1) Cannont rxably act in regard to the transfer and the other party knows Ortelere2) Mere weakness of body or mind, do not constitute whether law regards at mental incompetency Cundick States that accept the modern ground also accept the traditional B. DURESS, MODIFICATION, AND ATTEMPTED MODIFICATION

Restatement 73, 175(1), 176(1)1. A Promise to induced by duress is voidable 175 (1)

2. Duress is

An improper threat

Leaving the promisor with no reasonable alternative

3. Example of improper threats 176 (1) a)

Threat to commit crime or tort

Threat to break an existing contract in bad faith (give me 2k more for tuition after you pd) Test:

1) Was there duress/improper threat?

2) Was there a rxable alternative?

-Duress is more difficult to show on the facts, easier to deal with consideration

-Not valid Defense if Duress/stress occurs after contract, but could be relevant for a new oneAlaska Packers Assn v. Domenico US Ct Appeals 1902

Defense the court relied on: no new consideration. Defense:

1. Catching fish was a part of the original agreement 2. Duress-going to break contract in bad faith, wouldnt be able to find substitute workers

3. Person who made the promise had no authority to make the contract

Is a subsequent promise by one party to do more or pay more enforceable?

1. No, if induced by duress 175(1), 176 (1)(d)

2. No, if no new consideration (pre-existing duty rule) Alaska Packers3. Yes, if original agreement cancelled Schwartzreich (hiring contract torn up before new promise to pay $100)4. Yes, if changed circumstances (modern modification rule) Watkins Rest. 89 (about 12 states) If there is a material change in the circumstances that the subsequent promise is reasonable can make a promise valid. Watkins and Son v. Carrig NH 1941C. MISREPRESENTATION, CONCEALMENT, NON-DISCLOSURE:

Restatement 159, 160, 162, 164(1) Misrepresentation 159 (assertion not in accord with the facts) (can be just puffery) Material misrepresentation 162(2) (material- it matters, likely to induce a rxable person to manifest an assent)

Fraudulent misrepresentation 162(1) (maker intends his assertion to induce a party to manifest his assent and the maker-voidable)

Opinion/puffing 168(1) (assertion of opinion, express belief w/o certainty as to the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters)

Active concealment 161 cmt. (element of non-disclosure, the act of preventing another from learning of a fact that is significant and this act is always equivalent to a misrepvoidable contract)

Bare non-disclosure Swinton Half-truth (treated as misrepmisleading)

Confidential relation 161Disclosure Rules

1. A promise is voidable if it is induced by A material or fraudulent misrepresentation (not opinion/puffing)

An active concealment of facts, or

A half truth2. On which the promisor was justified in relying 164(1)

bare nondisclosure of facts by the promise does not make a promise voidable, Swinton, arms length transaction Compare Kavannos (half-truth about zoning laws and house converted to apt)

Unless a statue requires disclosure, or The promise has a confidential relation with the promisor requiring disclosure 161 (d). 89-TEST: 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 mde

b) to the extent provided by statute

c) to the extent the justice requires enforcement in view of material change of position in reliance on the promise.

D. MISTAKE-promised induced by mistake

Restatement 151, 152, 154

Restatement 153, 161(b)

Mutual Mistake 151, 152, 154 Wood ($1 diamond), Sherwood (rose the cow)

Elements to make voidable:

1. Mistake of fact (no incorrect prediction)

2. Mutual (made by both parties)

3. basic assumption- (obvious and people care about)

4. material affect (b/c of the basic assumption)

5. affected party does not bear the risk of mistake 154 Unilateral mistaketraditional rule Swinton traditionally not enough to get you out of a contract

-modern rule 153

1. where a mistake of one party at the time a contract was made as to a basic assumption

2. has a material effect on the agreed exchange of performances that is adverse to him.

3. Contract is voidable by him if he does not bear the risk of the mistake under the rule stated in 154

154 Bears the cost if:

1. Stated in the agreement

2. Knew he had limited knowledge and treated it as sufficient

3. Rxable under the circumstances for him to bear the risk E. DENYING SPECIFIC PERFORMANCETypes of remedies

legal =money damages

equitable =specific performance, injunction, rescission (Keifer, Orelierie,Kundick, mistake cases) ect.

- Dont get a jury when seeking an equitable remedy.

Grounds for denying specific performance/injunction (equitable remedy)1. Damages would be an adequate remedy (could buy the perf, and it is measurable) (land is special and can get specific performance from seller) 359(1), 360

2. The exchange was inadequate/unfair. 364 (1)(c); cf. 79 (b) McKinnon Land issues often req. specific performance: Tuckweiller Inadequacy of consideration on McKinnons part not sufficient to support to permit specific performance McKinnon v. Bennedict:

Agreement should be looked at perspectively and at the time Tuckweiller v. Tuckweiller F. PUBLIC POLICY Rest. 178(1)

Promises void because they violate public policyGeneral principle 178 (1)

Examples: Torts 192, syl. App 8

Marriage 189

Court can discern new categories: Bush v. Black Ind. (How can we determine what is unrxably high to pay) 192: A promise to commit a tort or to induce the commission of a tort is unenforceable on grounds of public policy. (no bldg. permit) 189 A promise is unenforceable on grounds of public policy if it is unreasonably in restraint of marriage.

Promises that violate public policy are not only voidable, they are void Could sue for restitution though

G. EXCULPATION IN ADHESION CONTRACTSVocab: Standard form contracts-lease, cell phone, auto ins.

Use one contract to serve as interpretation of all contracts (student loan contracts)

Adhesion contracts contract that is offered on a take it or leave it basis. Stuck with the terms. Some standard form contracts are adhesion contracts. (student loan)NOT A DEFENSE to say this is a standard form or adhesion contract

NOT A DEFENSE to say I didnt read the contract

Could stick an unfavorable clause in there and agreed to the term. Can you get out of a specific term?

Exculpation terms

-I dont have to pay damages or they are limited, even if Im wrong

Avoiding terms in Adhesion (and other) Contracts

1. *Strict construction 206 Galligan in SFC if there is ambiguity the court should favor an interpretation against the party that drafted the contract (tenant slip and fallnot on sidewalks used wording) Purpose: creates incentive for clear language, levels the playing field-fairness advantage of the drafter first, and the other person forced to take it or leave it)

BUT: next time will just draft it differently, not a real change in practiceset minimal decencies

2. Courts less likely to apply strict construction to non-adhesion contracts---206 3. Adequate notice: Klar v. H&M Parcel Room: claim ticket didnt meet dignity of contractAvoiding Terms in Adhesion (and other) Contracts important!

1. Strict construction 206 Galligan

2. Adequate notice 211 Klar (assent to a writing and that these writings as terms and agreementsdont adopt writing if not regulary used to embody agreements napkin contract)3. Public Policy

178 OCallaghan (traditional view), Heningsen (alternative view)

4. Unconstitutionality 208, UCC 2-302(1) +cmt. 1 5. Misc. other statutes regulated the substance of contracts

6. Eg note (2) pg. 392, usury laws, minimum wages ect. Traditional View: OCallaghan v. Waller and Beckwith:Majority: Clause doesnt violate PP b/c: policy of freedom of contract (enforce those that entered willingly fair or not)

Leases concern only private not public interest (other cases dinsting.; commercial lease precedent-courts concerned only if contracts freely entered affect 3rd party under PP)

Clauses may benefit both tenants and landlords--Liability raises rent!

Reduction in std. of care not impermissible (insurance contract)

No proof of overreaching in this case

Not the role of the courts to make additional laws if the leg fell short)

No monopolistic power

Need a durable moral basis to make a new rulefleeting facts

Dissent:

Lease not just a matter between 2 parties (its the standard for others like OCallaghan-thousands of tenants forced into it-hopstance choice)

Asserted public policies violated

Response to monopolistic powereven if there were thousands of landlords there were more people seeking it it Transitionary periodcases accepted on the Dissents rule Heningsen, later replace with unconscionability rule

Reasoning

Written on the back and in small print 6pt type- not notice on the back

Warranty is standardized, no bargaining, uniform warranty of the automobile mfr assoc. (affects thousands of ppl-not just two, dissent in OCallaghan There is no competition among the car maker in the area of the express warranty

PP arg: no bargaining power, overreaching power by one party, protect the ordinary man from losing impt rights through the unilateral affect of mfr

208 Unconscionability and-Article 2- Sale of Goods 2-302: Test: in light of the general commercial background, or needs, its so one-sided you can refuse to enforce it

finding that any clause is unconscionable (shocks) may refuse to enforce contract all or in partySparing use in actual practice

Mostly used to invalidate attempts to exclude liability for personal injuries Compare OCallaghan V. REMEDIES FOR BREACH

A. EXPECTATION, RELIANCE, AND RESTITUTION INTERESTS

Restatement 344, 346, 347, 349, 359, 364, 371

1. Enforcement of Promises- Judgment for Money $$$ Damages

General availability 346(1) right to damages

Possible measurements

Expectation 344(a), 347 as good a position as if the contract had been performed

Reliance 344(b), 349 as good a position as if the contract had not been made

Ie down payment +loss of profits while closed

Restitution 344(c), 370 interest in having restored any benefit conferred on the other party

Ie down payment

Nominal 346(2)

Liquidated 356

Limitations

Availability, uncertainty, etc.

Expectation interest:

Loss in value (plus) +Other loss (minus) -Costs avoided (minus) - Other loss avoided

What defendant promises (minus) what defendant deliveredcosts plaintiff expected-cost incurred

Expansion (cost of substitute performance) - nothingLost profit*Contract price down payment 0**

Owner calls up repudiates the contract

Contract price = 100

Builders expected cost = 90

Owner has already paid = 0

Builder has already spent = 60 (maybe some planning was extra cost before improvements)

Market value of work so far = 40

Restitution interest = 40

Reliance interest = 60

Expectation interest = [(100 0)] + 0 ] [(90 60) 0] = 70 = expected profit + reliance interest

Plaintiff typically entitled to expectation damages; but w/o reasonably certainty, may only be able to recover reliance or restitution damages

SullivanRestitution Interest: Doctors fees

Reliance Interest: Doctors fees + hospital fees + pain and suffering (all 3 operations) + disfigurement

Expectation Interest: [(enhancement nothing) + hospital fee + 3rd surgery pain/suffering + disfigurement] [Dr.s fee Dr.s fee]

B. EXPECTATION DAMAGES AND INCENTIVES (Efficient Breach) Efficient breach = D decides that it would be better for D to breach and pay damages than to perform

D is better off and plaintiff is no worse off

Problems with Efficient Breach:

1. Hard to estimate the numbers and costs involved

2. Efficient Breach is still a breach; not a defense, liability still holds

3. Problem that the law sets the damage recovery (expectation damages) at a level where there is an incentive to breach the contract; is it still immoral to break the promise despite increased economic efficiency

C. LIMITATIONS ON DAMAGES 1. Avoidability 350 (1): (running a business while closed) cant recover for damages that could be avoidable without:a. Undue risk

b. Burden c. humiliationd. ie find a new job Cf. Parker (not able to find similar enough movie)e. not precluded from recovery w/ rxable efforts to avoid costs 350(2)2. Incomplete/Defective Performance

a. Loss in value to P

b. Loss in market value

3. Cost to remedy/complete 348(2) some courts do not allow this if it exceeds damages and is disproportionate to any value the Plaintiff has to what needs remedied Jr Y, Peevy(strip mining: Even if subjective value at 1million 29K would make that loss avoidable so the court wouldnt give them more) , (But see Groves) 4. Unforeseeabilty 351, Hadley(can only get the full extent of dam. if its FOS-flour mill equip. delivery)5. Alt to loss in value of performance: Jacob and Young 348 (2) if cant prove in sufficient certainty

a) dimunication of the market price b/c of breach or

b) rxable cost of completing performance to remedy and not clearly disproportionate Owner entitled to the money to complete unless its disproportionate to the goal to be obtained Jacob and Young v. Kent: 348(b)

6. Uncertainty 352

cant recover beyond the amount that can be calculated upon reasonable certainty (more than prepond of evidence, less than mathematical certainty)

Questions: 1. Whether there has been a loss at all? (breach harmed P)

2. Extent of harm? (harm happened)

3. Putting a figure on the loss: Know harm happened and the extentWhat May be Uncertain

Fact of Loss Collatz, cf. 348 (2) Rule: compensate for what P proved to have suffered in damages. Can just give him something b/c of breach (would be punitive). Is there an alternate recovery? (not in Collatz) Extent of loss Fera

Value of loss

Alternative remedies in cases of uncertainty1. Nominal damages ($1 or 6 cnts) 346 (2): if breach caused no loss, or loss not proved, a small amt can be given as nominal damages

2. Reliance damages 349 : including exp made in prep of perf.. when profit uncertain, can ignore profit and just focus on expenditures on reliance

3. Specific performance 360 (a) McKinnon

4. Liquidated damages 356(1)

D. LIQUIDATED DAMAGES AND PENALTIES

Liquidated Damages

1. Liquidated damages= an amount of damages stipulated by the parties in the contract rather than left to calculation by the court (most business contracts)

e.g. late fees, loss of deposit, etc

2. Unrxably Large D may argue liquidated damages are not enforceable because they are a penalty 356 (1), Gustafson3. Liquidated damages are a penalty when unreasonably large in light of:

a. Actual or anticipated loss caused by breachb. Difficulty of proof

4. Irrelevance of characterization of liquidated damages ( disguised peanlties, prob. P. 689)

5. Policy argument for not enforcing penalties

-no economic justification for them?-need to protect Ds from unrxably large damages

6. Criticism of prohibition on enforcing penaltiesa. Litigating rxablenss reduces benefits of all stipulated damages (under cuts purpose of liquidated damages) Gustafsonb. Market will regulate?

7. P may argue liquidated damages are unenforceable because that are unconscionably small (Henningson)