Introduction Contract – a legally binding obligation to perform some future action

o Sources of Contract Law Stare decisis –common law Uniform Commercial Code (UCC) –written by National Conference of

Commissioners on Uniform State Laws, and American Law Institute. Article 2 governs the sale of goods.

NCCUSL introduced the Uniform Electronic Transactions Act to eliminate the barriers to facilitation of electronic transactions

Restatements – the restatements are put together by the American Law Institute using existing case law. These sources take existing case law and condense them down into one publication. This publication does not have the force of law

o Huntington Beach SD v. Continental Info. Sys. Corp., 621 F.2d 353 (1980) p. 13

P solicited bids for a computer. They selected D’s bid as the best. School district let other bids expire in expectation that D would deliver the contracted item.

TC limited P’s damages to the difference between the lowest and next lowest bid because P did not accept another bid on July 12.

P was acting in good faith when it let the other offers lapse, doing otherwise could have resulted in them being contracted to buy two computers. P should not be limited to the damages of the second bid but to the current market price of the computer

Difference between contract price and cost of cover was$59,424.66

P should collect this amount as expectation interest Consequential damages –

P spent money on rental of peripherals expecting to have the comp

The peripheral contract was made before the CIS contract so reliance interest should not be protected

P should collect this $9,782.10 consequential damages CIS contract contained info about the rental of instruments so

the damages were foreseeable Judgment affirmed with respect to consequential damages, reversed on

General Damages Notes:

Expectation interest – When courts are protecting the expectation interest they are attempting to put the wronged party in the position it would be in had the contract been executed in its entirety

Reliance Interest – Courts protect the reliance interest to put a wronged party in the position it would be in had the contact never existed (reimbursing expenses that were made in reliance of the contract as long as these expenses occurred after the formation of the contract

Consequential damages – “any loss resulting from general or particular requirements which the seller at the time of contract had reason to know…”

Foreseeability limitation – the breaching party can not be held liable for damages that were not foreseeable to them at the time of contract formation

o Damages must be reasonably certaino Freund v. Washington Square Press, 314 N.E.2d 419 (1974) p. 17

P and D had a publishing deal for a book that P would write. D paid a $2000 advance when P delivered manuscript. If D felt manuscript was not suitable for publication it could terminate agreement within 60 days. If D did not publish within 18 months, rights reverted to P.

P would collect 10% royalties for first 10,000 copies D merged with another company and did not publish the book P is arguing delay of academic promotion, loss of royalties, the cost of

publication had P made his own arrangements. TC held – P had been promoted despite lack of publication, denied

royalty damages outright, awarded $10,000 for cost of publication D Appeals, AC affirmed likening the publishing contract to a

construction contract, dissent disagrees – awarding only nominal damages

SC – without evidence to show how many books P would have been sold it is impossible to approximate P’s expectation interest; only nominal damages can be awarded

His only expectation was $2000 plus royalties without any evidence to royalties a nominal amount is picked, here $0.06

The $10,000 for publication costs is reversed as this would provide unjust enrichment to the P. Had the contract been completed, P would not have 10,000 books but rather the royalties from whatever portion of these sold.

Notes: The problem – the basic purpose of contract law is to put the

injured party in the position he would been in had the contract been performed, P could not collect because he could not prove this position

The solution – liquidated damages – Liquidated damages clause is where contracting parties include a clause stating that they have agreed upon a set level of damages in case of breach. This needs to be carefully drafted as to be a reasonable approximation of damages

o Damages must be foreseeable

Damages are not recoverable for loss that a party in breach did not have reason to foresee as a probable result of the breach when the contract was made.

o Efficient Breach The idea of efficient breach is that a contract can be breached and both

parties can be in the same position or a better position than if the contract had never existed

The idea of efficient breach is a controversial one as it is devoid of any moral obligation to keep ones promise, additionally the transaction costs (litigation etc.) would effectively reduce P’s interest and put him in a worse position that he would have been in with execution of the contract

o Inadequate damages – Specific performance In some situations money awards would be inadequate and some other

damages must be awarded The idea of specific performance gives a court the power to order the

transfer of goods between parties to put the injured party in the position he would be in through the performance of a contract

This is usually reserved for real property or rare goods. There is only one of each specific plot of land in the world and all are unique for many reasons, rare goods are hard to value and even when valued, this monetary value does not always serve as a replacement to the actual good involved.Personal service contracts – do not fall within the specific performance doctrine because it would amount to indentured servitude. It is also not the court’s place to judge the performance of an actor in a position, a quarrel that would likely resolve from the situation

If a judge were to order that Darrelle Revis must continue to play for the Jets for five years, he would lose motivation to perform to his fullest and neither party would be aided

o An Introduction to the validation process p.25 To distinguish enforceable and unenforceable promises courts require

A) evidence of a bargained for exchange between parties to make their mutual promises enforceable (consideration)

B) in the absence of any bargained for exchange, evidence of a promise which the promisor should reasonably expect to induce reliance by the promise and which does, in fact, induce such reliance in such a fashion that justice requires its enforcement

o Consideration p. 27o Harris v. Time Inc., 237 Cal. Rptr. 584 (1987) p. 28

P’s son received an offer in the mail for a watch from D. The envelope had a window showing text that appeared to offer a free watch for opening the envelope. Once opened it was clear that the offer required a purchase of the magazine.

Complaint sought relief for 1) a declaration that all recipients of the mailer were entitled to

receive the promised item or to rescind the subscriptions they had purchased

2) an injunction against future such mailings 3) compensatory damages in an amount equal to the value of

the item 4) $15m punitive damages to be awarded to a consumer fund

D claims no contract because there was no value to opening the envelope

This is wrong, P was under no obligation to open the envelope but he did because of the offer.

Also, this value may have been largely irrelevant to P but was of great value to D

D also claims that dismissal is the proper action because “de minimi non curat lex”

This is true, the is de minimi to an extreme P was not tricked into anything but opening an envelope, D’s demurrer granted

Notes: Adequacy of consideration – courts will not require

equivalence in the values exchanged or otherwise question the adequacy of consideration

Sufficient consideration – courts use this term not to mean adequacy of consideration but rather that consideration did not fail

Promissory Estoppel – a promise which the promisor should reasonably expect to

induce action or forbearance on the part of the promise or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement or the promise

Miles Home Division v First State Bank of Joplin, 782 S.W.2d 798 (1990) p. 31

P entered into an agreement with buyer to sell a home kit for $41,151.12. Agreement stated Buyer would secure price by first deed of trust lien on the real estate. Deal stipulated P would not sell goods to Buyer until it had received security instruments.

P sent a letter to D, the bank which secured the financing for the buyers. The letter had blanks to be filled in, which were by Wayne Martin, when the letter was returned

Upon receipt of this letter, P released the goods to buyer. P sent a second letter to D saying it had secured a second mortgage on the property. It requested that the bank inform P if the buyers defaulted so they could buy and protect their interest. The bank signed this agreement

The buyers defaulted and the bank did not inform P. someone else purchased the property

P sues claiming D breached the contract TC ruled for P

By deducting the unpaid balance of the banks note of $5125 from the February sale price of $27500, the trial court determined P’s damages to be $22375

Banks contends 1) trial court erred because there was no consideration

o consideration is found in a detriment to the promisee. P suffered detriment by shipping the goods to the seller, the detriment was induced by this letter

2) wayne martin did not have authority to act on behalf of the bank

o Wayne is an agent of D and is fully authorized to act on its behalf

3) P was under a legal obligation to perform without the letter from the bank

o the contract stated P could choose not to ship the goods until proof of the securities was presented, this letter was the proof.

Moral Obligation Harrington v. Taylor 36 S.E.2d 227 (1945)

D assaulted his wife who took refuge in P’s house. The next day D gained access to P’s house and assaulted his wife again. The wife knocked D down and attacked him with an axe. P caught the axe, saving D’s life.

P’s hand was mutilated so D orally promised to pay P’s damages. D paid some then failed to continue

P sues D for the remainder of the damages Is past consideration effective consideration?

No, however much D should be impelled by common gratitude to alleviate P’s misfortune, he is under no legal obligation to do so.

A humanitarian act, voluntarily performed is not consideration

Notes: Past consideration – any consideration already

received is past consideration and no consideration for a new promise

o There is no bargained for exchange when the consideration has already taken place

Moral obligation – if a mere moral, as distinguished from legal, obligation were recognized as a valid consideration for a contract, that would practically erode to the vanishing point the necessity for finding a consideration

Promises to pay past debts barred by the statute of limitations

o Prevents people from waiting to present a case until memory is foggy and evidence is unavailable

o UCC provides for four years from the time of breach regardless of whether the parties knew of the breach

o When a party has agreed to a new promise to perform a contract courts will generally enforce such promises on the basis of moral obligation

The Agreement Process Intention to be legally bound

o The objective theoryo Leonard v. Pepsico, Inc., 88 F. Supp 2d 116 (1999) p 39

P brought suit for specific performance of harrier jet P saw a commercial by D that advertised a harrier jet for 7M pepsi

points. The catalog provided that points could be purchased for $.10 each

P mailed a check for $700,008.50 to D requesting the jet. D refused Court held that no reasonable person could have expected this offer to

be legally binding 1) it was make in a commercial in a joking manner 2) the offer did not appear in the catalog 3) Any reasonable person would presume that purchasing

$23M jet for $700,000 is not a realistic offer notes:

the law imputes to a person an intention corresponding to the reasonable meaning of his words and acts and if those words and acts, judged by a reasonable standard, manifest and intention to agree, it is immaterial what may be the real but unexpressed state of his mind

A contract, strictly speaking, has nothing to do with the personal or individual, intent of the parties

It is a basic legal principle that mutual assent is necessary for the formation of a contract

CISG for the purposes of this convention statements by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

o Balfour v. Balfour, 2 K.B. 571 (1919) p. 49

D made a deal with P, his wife, to pay her 30 pounds a month allowance. D breached contract

The court ruled that this contract is not enforceable agreement Spouses make agreements all of the time that are not expected to be

held to legal consequences. An agreement to pay a wife a certain amount of money for a certain duty is not a contract that courts shall interfere. Doing so would tax the court system and produce negative societal results

Notes: Though familial and domestic agreements are not generally

enforceable, if two family members go into business together, their contracts become enforceable

An agreement to go hunting with a friend is not enforceable but an agreement to pay an expert guide for his time is an enforceable contract

An agreement to go to dinner with a friend is not enforceable but a public appearance at a dinner for a fee is

o Express statements concerning legal consequences Letter of intent – two parties agree to terms that will be included in a

future contract and put them into writing this document can manifest a great deal of agreement on many specific terms. Some letters of intent include certain binding obligations, having a title that says letter of intent will not preclude a binding agreement to arise from the form

o Venture Assoc. v. Zenith Data Systems, 96 F.3d 275 (1996) p. 52 D was losing money on two subsidiaries and decided to sell them.

Investment banker was brought on to sell the subsidiaries for $11m. IB did not do a credit check on buyer, P, instead relying on representation by P that its acquisitions had revenues of $55m and $97m

P sent D a letter of intent with a price of $11m pending a definitive purchase agreement. Provided both parties act in good faith, D would not look for new buyers

D did not sign but said they would be willing to begin negotiations. P accepted the proposal of the letter

D later requested a guaranty bc of P’s financial instability P argues that this was bad faith because the parties had already agreed

to not have one There was no mention in the LOI but this is not a legally

binding agreement, terms can be added to this agreement to negotiate without punishment

Notes: Other cases have held LOIs to be agreements to negotiate in

good faith. This does not preclude the addition or alteration of terms

o Agreements to Agree – Missing termso Arbitron, Inc. v. Tralyn Broadcasting, Inc., 400 F.3d 130 (2005) p. 62

P licenses listener data to radio stations. D owned one of these stations and contracted to buy P’s data for one station for five years.

An escalation clause in the contract allowed P to alter the pricing model if D were to add more stations or be purchased.

JMD bought D without P’s knowledge (against contract that required notice) and continued to use the user data for five stations.

P sent D a letter informing them it was exercising its right to alter the fee.

They did so by multiplying by 5 and subtracting a traditional volume discount of 35%

D refused to pay the increased rate and stopped paying the initial fee. P cancelled services under the nonpayment clause of the contract and filed suit

DC dismissed, AC affirmed SC – courts erred.

The lack of a specific set price was not necessarily needed to prevent the clause from being void for vagueness.

The UCC gap filler section (§2-204(3)) provides that this price can be set in good faith

It is obvious that P acted in good faith and D did not, judgment reversed and remanded

Notes: Gap fillers – the UCC provides common terms for an

enforceable contract that is silent in one the terms outlined in the UCC section

o The anatomy of Agreements – Offer and acceptanceo Southworth v Oliver, 587 P.2d 994 (1978) p. 66

D was trying to condense his ranch lands. He approached his neighbors to inform them that he was considering selling. D intended land and permits to be sold together and sent info on asking prices to his neighbors.

P accepted the offer, D responded in letter informing P that it was not an offer and the

Although the letter did not include the word offer, it had enough details to be construed as an offer for sale to the buyer.

A contract was formed when P responded by letter accepting what he believed to be an offer.

Notes: 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. Restatement 2d of contracts §24

An acceptance is a voluntary act of the offeree whereby he exercises the power conferred upon him by the offeror, and thereby creates the set of legal relations called a contract”

o Zanakis v. Cutter Dodge, 47 P.3d 1222 (2002) p. 76

P saw an add for a car at $0 down/$229/month They went to purchase it but D required a $1400 down payment, P

sued. Circuit court ruled that there was no contract, P appealed. Case law shows that advertisements are not offers but rather

invitations to deal A manifestation of willingness to enter into a bargain is not an offer if

the person to whom it is addressed 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

Very narrow exception when the ad is clear definite explicit and leaves nothing open for negotiation

The advertisement was not an offero Maryland Supreme Corp. v. Blake, 369 A.2d 1017 (1977) p. 79

D sent P a letter offering the sale of the concrete to complete the job for the WHMS building for 3000psi concrete at $21/yard.

D began supplying the concrete for the job until they sent a letter stating they would be changing their price to $27 due to increased overhead.

D started charging $27 so P found a new supplier for the remainder of the project

D argues that the letter did not include any of the important details such a price quantity, quality

This is not true, the quantity was the amount to complete the job, the quality was 3,000psi and the price was $21. All missing terms including delivery information are included in the UCC gap fillers section

The contract was a legally binding one. Trial court did not err. Notes:

A published price list is not an offer to sell the goods at the published price even when parties are dealing exclusively with each other, there needs to be some quantity term attached

o The Purchase Order Typically filled with clauses in fine print (boilerplate) which usually

go unread by either buyer or seller. Both parties normally focus only on the word processed or typewritten terms that fill the blanks on the purchase order. These are important terms that were consciously considered and negotiated

Courts generally rule a purchase order by a buyer to be an offer because it appears to be one at face value.

Often the first document in negotiations is the RFP or request for proposal

o Duration of Offerso Vaskie v. West Amercian Insurance Co., 556 A.2d 436 (1989) p. 90

P got into a car accident and was insured by D on 1/1/85

D offered $25,000 settlement in Nov 1986, D sent a letter on Dec 1st stating that the offer would remain $25,000

P accepted on 1/9/87, D refused to pay claiming that P’s statute of limitation had expired on her claim and there was no contract

TC granted P’s motion for summary judgment, D appealed D argues that there is no consideration for this contract because at the

point P attempted to accept she was not suffering any detriment. Before the statute of limitations had expired P was offering her

right to sue in exchange for $25k. At this point she does not have a right to sue so there is no

consideration and thus, no contract If an offer does not have a stated duration, it is available for a

reasonable amount of time given the circumstances P waited an unreasonable time to accept her offer so it lapsed.

It is not reasonable for an offer to remain on the table after the consideration no longer is

Notes: Speculative transactions:

When the value of the goods or services being exchanged fluctuates rapidly the reasonable length of an offer is very short

Termination of Power of Acceptanceo Rejectiono Chaplin v. Consolidated Edison of NY, 537 F.Supp 1224 (1982) p. 96

P brought suit against D, D responded with an offer for settlement that P’s counsel rejected.

After this rejection, a landmark court decision changed the settlement climate

After this decision, P’s counsel informed D that they had a change of heart and would accept the offer, D refused saying the offer was no longer on the table

An offer is extinguished upon rejection At the time of P’s acceptance there was no offer because the

previous one had been rejectedo Revocation of acceptance – the mailbox ruleo Farley v. Champs Fine Food, 404 N.W.2d 493 (1987) p. 98

P submitted a proposal to a board member of D for the purchase of D for $548,174 but the agent rejected

P submitted a second offer amending the financing terms which was also rejected

D submitted a counter-offer that expired on 10/1/83 On 9/28/83 P phoned the agent of D, in this conversation D told P that

they would not enter into any agreement with P A letter dated the same day was sent to D accepting the offer of

$550000, D refused to accept P sued for specific performance of the contract

A proposal may be withdrawn at any time before its acceptance is communicated to the proposer but not afterwards

TC found as fact that the letter was mailed after the phone conversation

The acceptance of an offer is binding from the moment an offeree deposits a properly addressed letter of acceptance in the mailbox

P’s comments are unimpeached but are so grossly unlikely that the court is not bound to blindly adopt his statements

The offer was withdrawn before the acceptance, no contract was formed

Notes: Offers must be received to be effective. Since an offer creates a

power of acceptance, the typical offer is revocable, but the revocation must be received by the offeree.

The CISG does not abide by the dispatch rule (mailbox rule) and requires that an acceptance to be received to be binding.

Once the acceptance is dispatched, the offer cannot be withdrawn

Option Contracts Because offers are revocable under common law,

parties may choose to create an option contract that will keep an offer open for a defined period of time. This option contract needs to have its own separate consideration

o The mailbox rule does not apply to option contracts, to be effective, the acceptance needs to be received before the end of the option contract

Comment: Electronic Communications and the Mailbox rule Telephone:

The contract is formed where the acceptance is spoken If a Pennsylvania seller is contracting with a new york

buyer and the buyer accepts the seller’s offer, the offer was formed in NY

Telegram: Courts have applied the mailbox rule stating that

acceptance is good when the telegram is deposited for transmission with the telegraph company

Fax and telex: Fax acceptance is effective upon dispatch

Email and other electronic media There is no discernible case law regarding email at this

point

UETA has been signed into law in 48 jurisdictions and the federal counterpart E-SIGN. Both statutes validate electronic transmissions just as written ones, but do not signify an effective time of acceptance

o Indirect Revocationo Dickinson v Dodds, 2 Ch. D. 463 (1876) p. 105

D delivered to P an offer to sell a parcel of land with the building. The offer had a term holding it open until 6/12/1874

On 6/11 P learned that D had offered the property to others as well. P went to D’s mother in law to leave a note of acceptance in writing of the offer. The mother in law forgot to give the acceptance to D

Two agents for P then found D at the train station Friday morning attempting to accept the offer to which D responded he had sold it the day before to Allen

The offer to leave the offer open was not an option contract because there was no consideration, D had full rights to revoke the offer.

In order for a contract to be formed both parties need to reach an agreement at the same time an there

P knew that D had tried to sell the property to someone else at the point he accepted the offer. By knowing that he and D had different states of mind at that time, they were not creating a contract.

Notes: It is sufficient to constitute a withdrawal that knowledge of acts

by the offeror inconsistent with the continuance of the offer is brought home to the offeree

o Counter Offerso Ardente v. Horan, 366 A.2d 162 (1976) p. 108

D offered a property up for sale at the price of $250,000 and sent an offer to P. P signed the form but returned it with a letter clarifying that three household items would be a part of the deal as they were hard to replace and a deposit check for $2000

D refused to include the items listed in the letter and withdrew the offer, refusing to sell to P.

P sued for specific performance of the contract. TC ruled that the letter did not include a valid acceptance

A mere mental intent to accept an offer, no matter how carefully formed, is not sufficient. The acceptance must be transmitted to the offeror in some overt manner

There is no doubt that the execution of the purchase and sale agreement without the letter was acceptance

Does the letter change this? To be effective an acceptance must be definite and unequivocal

An acceptance contingent upon a certain condition is not an acceptance but a counter-offer

An acceptance can have additional terms as long as the terms are clearly separate from the acceptance

The “acceptance” did not unequivocally state that the acceptance was still valid without the enumerated items

There was no acceptance Notes:

At common law, an acceptance can not be valid unless it is a mirror image of the offer

Effect of counter offers – counter offers act as a rejection and a new offer

o Death or Incapacityo Beall v. Beall, 434 A.2d 1015 (1981) p. 111

D and her husband contracted several option contracts with P for the sale of land at $28,000 with $100 as consideration for the three year option contract

This option was renewed for five years after it expired, at the expiry of those five years a new line was added to the bottom of the contract stating the offer was valid for an additional 3 years, no consideration was exchanged for this final contract

After D’s husband died, P accepted the offer D claims the offer to sell was merely an offer and could be revoked at

any time, P claims he accepted before revocation P did not consider the effect of the husband’s death on the offer. While

D was party to the offer, it was created by and her husband, when he died the offer was automatically revoked

The continuation of an offer such as this requires the continuing participation of both tenants, because the husband no longer was offering to sell, the offer was no longer valid

Notes: Death still generally acts as the revocation of an offer

This view can lead to problems as someone could be fooled into completing a contract without knowledge of the offeror’s death

Incapacitation has the same effect, as soon as someone is incapacitated and the P is aware, any offer is revoked

Making Offers Irrevocableo Option contract – Right of first refusalo Orlowski v. Moore, 181 A.2d 692

D tried repeatedly to sell their property to someone for $5500 but were unable to find a buyer

P leased the property and signed a contract that included a clause stating “lessee has the first chance to buy in case of sale of the property”

Apollo trust company informed D they would buy the property for $5000, P was immediately informed.

P owed 2 months back rent, he informed D that he wanted to buy but could not secure the financing

Believing P could not pay, D signed an option agreement with Apollo D sold the property to Apollo and was later told by P that he had

secured the financing and would buy the property Was a reasonable amount of time given to P?

Where no time is stated, an offer is good for a reasonable time When D offered the sale to P he was behind in rent and did not have a

lot of money, he told D he was unable to secure financing so D was acting in good faith when it sold the property

It would be unfair to make D wait any longer to hope that P might come up with the money when a buyer is waiting with money ready

Notes: In general death of one of the parties does not eliminate an

option contract The general rule is that a rejection or counter offer will not

discharge an option contract There is an exception for when the optioner reasonably

relies on the rejection by the optioneeo Irrevocability through reliance – Firm Offerso Pavel Enterprises v. A.S. Johnson Co., Inc., 674 A.2d 521 (1996) p. 116

P prepared bids for a large construction job, it solicited subcontractors for the HVAC work, D was the lowest responsive bidder. P used D’s bid of $898,000 for its bid of $1,585,000

P asked D if they would mind him subcontracting directly with Powers for electric controls, D did not object, following the meeting P sent a fax to D requesting that they review their bid, omitting the Powers line items

After P accepted the bid to build the building D came to P stating there was an error in the form and the bid price would now be higher.

P found a replacement contractor for $930,000 P sued D to recover the $32,000 expectation interest (cost of cover) TC ruled for D

Because P was continuing to bid shop, it was apparent that they had not relied on D’s offer. Without reliance the contract can not be enforced under the promissory estoppel doctrine

Notes: Limitation on reliance making promises enforceable – the

reliance must be reasonable and fully expected. Firm offers – requires more than a mere statement of duration.

It requires assurance that it will be held open during the time stated or, if no time is stated, for a reasonable time, in no event to exceed 3 months

CISG Makes an offer irrevocable if it states a duration for

which the offer will stay open

Or if it was reasonable to rely on the offer as being irrevocable and the offeree has acted in reliance of the offer

Inadvertent firm offers – a party could supply a form to another party that is merely an offer and contains a firm offer in the print without knowledge to the signing party. To prevent this the UCC §2-205 states that any form provided by one party for the other to sign that includes a term for a firm offer must have that term signed separately

o Identifying the Offeror and Offeree o BC Tire Corp. v. GTE Directories Inc., 730 P.2d 726 (1986) p. 87

P Sued D for Breach after D did not publish P’s ad in the phone book TC granted summary judgment for D, P appeals

Claims the an exclusionary clause contained in the application for advertising is unconscionable, and the even if the exclusionary clause is effective, D is nonetheless liable for negligence

AC Affirms TC decision Paragraph 1 on the reverse side of the forms states “the publication of

the advertisement requested… shall constitute an acceptance of this application” “otherwise this application is not binding on either of the parties

This is an offer for a unilateral contract A contract formed on the completion of an act. P has offered to make payments upon the publication of an ad.

Without publication there is not contract. Because there was no contract formed, the court does not need to

evaluate the validity of the exclusionary clause Irrevocability through Part performance

o Introduction unilateral v bilateral contracts Bilateral- two promisees, two promisors, two promises, two rights and

two duties A promises to sell B his car for $5000, B promises to buy A’s

car for $5000. Both have contractual duties Unilateral – one promisor one promisee

A offers to hire B to paint his house for $500 The only manner of acceptance is performance and the

contract isn’t formed until the painting is finished A has a duty to pay B $500 upon completion and

doesn’t have any right as he has already received his bargained for exchange

o Dahl v Hem Pharmaceuticals Corp., 7 F.3d 1399 (1999) p. 126

P was one of several patients brought in for a pharmaceutical study. D was the company funding the study and providing drugs. D promised a year of Ampligen (drug in question) to anyone who completed the study, whether or not they had received a placebo. FDA failed to approve the drug for sale but continued human trials. D refused the drug to P; P sued D for injunctive relief

D Argues no contract was formed Patients suffered a detriment in the form of rigorous medical testing

and injections of the drug (detriment to promisee). D sought the participants in hopes of gaining FDA approval (benefit to the promisor, promise caused the detriment)

Upon completion there was a unilateral contract formed that D has breached

Notes: Irrevocability of an offer through part performance.

Common law of contracts allows revocation prior to completion of the bargained for activity (i.e. someone can revoke the offer when the house is mostly painted but not complete)

First restatement of contracts If an offer for a unilateral contract is made, and part of

the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract, the duty of immediate performance of which is conditioned on full consideration being given or tendered with the time stated in the offer, or, if no time is stated, within a reasonable time.

Restatement (second) of Contracts 1) where an offeror invites an offeree to accept by

rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree begins the invited performance or tenders part of it

2) the offeror’s duty of performance under any option contract so created is conditioned on completion or tender of the invited performance in accordance with the terms of the offer

the “bilateral” theory upon the start of performance in response to an offer

which can be accepted only by performance, the part performance will be viewed as a promise thereby enabling the contract to take on a “bilateral” character (this is a scarcely used theory)

The Nature of Acceptanceo Knowledge and Motivation

o Simmons v United States, 308 F.2d 160 (1962) p. 133 P is an avid fishermen who caught a prize fish released by a brewery

as a promotion. P went out fishing without the prize in mind but caught the fish and immediately complied with brewery rules to obtain the $25,000 prize

Brewery had offered a unilateral contract to catch the fish and was contractually bound to pay the winner the money if he or she abided by all rules, P did so.

D claimed P owed more than $5000 in back taxes and sought payment, P sued for dismissal and lost. P appealed claiming this money was a gift

D responded with the contractual language showing that the offer was indeed a unilateral contract and pointed to the theory that one can accept a unilateral contract even without intent to do so

Publicity to brewery (benefit to promisor) P spent his time fishing (detriment to promissee)

The money was not a gift, but payment for completion of a contract which is subject to income taxes

Notes: Restatement (second) of contracts

Where an offer…invites acceptance by performance…, the rendering of the invited performance does not constitute acceptance if before the offeror performs his promise, the offeree manifests and intention not to accept

o Carlill v Cabolic Smoke Ball Co.,1 Q.B. 256 (1983) p.135 D promised to pay anyone 100 pounds if P took product 3 times a day

for two weeks. P did so and contracted influenza a few days later P sued for the money and was awarded the judgment in the lower court P purchased the medicine daily (detriment to promisee) D gained

publicity that it wanted (benefit to the promisor) The statement was an offer for a unilateral contract that could be

accepted by anyone who met the criteria The statement was not mere puffery as evidenced by the statement that

1000 pounds had been deposited P met all criteria and accepted the offer through performance, appeal

dismissed Notes (separately assigned notes p. 143)

Manner of acceptance UCC §2-206 changed the view that contracts could only

be accepted as prescribed to a view that the normal contract was a doubtful contract (meaning that it can be accepted either by performance or promise)

Restatement (second) of contracts – “the usual offer invites an acceptance which either amounts to performance or constitutes a promise… The offeror is often indifferent as to whether acceptance takes the form of words or promise or acts of performance…”

Master of the offer – UCC and 2d restatement both state that the offeror is the master of the offer. Thus the offeror may insist on a certain manner or form of acceptance

o Corinthian Pharmaceutical Systems, Inc. v. Lederle Laboratories, 724 F. Supp. 605 (1989) p. 145

P buys DTP vaccines from D. D manufactures the vaccine and was suffering losses due to litigation so they upped the price from $51.00 to $171.00. P learned of the price change early and ordered 1,000 vials, ten times its previous largest order

The forms exchanged showed the price to be the set price at the time of shipment

D sent 50 vial at the lower price, explained its policy and asked if the P still wanted its order

P sued for specific performance of what it perceived to be a contract P’s order was only an offer that was not accepted at that price, the

letter from D to P asking about the order was a counter offer “ a shipment of non-conforming goods does not accept an offer if the

seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer

summary judgment granted for Do Silence as acceptanceo Vogt v. Madden, 713 P.2d 442 (1985) p. 151

P and D had a sharecropping agreement on D’s property where P would farm and share 50% of profits with D. Do would pay some costs to P

The agreement was specifically stated in 1979 and 1980 but not for 1981 and D found someone else to farm the land

TC ruled for P in the amount of $18,540 D appealed P contends that D accepted through silence Acceptance through silence can come when:

1)where because of previous dealings it is reasonable the offeree should notify the offeror if the offeree does not intend to accept

2) where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to believe the offeror thought the offer was accepted

3) 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

the court found that none of these situations were present. 1) all previous dealings were explicitly stated, there is no

reason to believe this is different 2)farming was not started for 1981, offeree took no benefit 3)same as 1

D did not contend the $2,000 from costs of previous contracts, that award is upheld, remaining verdict overturned

o The Deviant Acceptance – The “Battle of the Forms” If an offeree attempted to accept an offer with additional or different

terms, the common law treated that as a counter-offer Acceptance must be a mirror image of the offer The offeror did not assume the risk of being bound to a

contract containing such different terms The offer created a power of acceptance that could only

be exercised with matching terms A problem with this is when the offer appears to contain all of the

same terms All of the “dickered terms” match but there are additional or

different terms in the boilerplate Dickered terms are product description, quantity, price Boilerplate terms may deal with warranties, remedies,

and how any future disputes will be adjudicated If there are differences in the dickered terms, the traditional mirror

image rule applies When these non-matching forms are exchanged, the parties intend to

make a binding legal agreement Last Shot analysis

Under common law the mirror image rule applied Returning a non-matching form did not create a contract and

was a counter-offer If the parties act as if they had a contract (go through with the

transaction as if a contract had been formed) they are forming a contract based upon the last offer on the table which is the counter offer

UCC§ 2-207 p. 169 casebook overturned the last shot analysis in favor of a more appropriate one

o Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (1972) p. 169 When a contract is recognized by subsection (1) of UCC§2-207 the

additional terms are treated as “proposals for addition to the contract under subsection (2) which contains special provisions under which such additional terms are deemed to have been accepted when the transaction is between merchants

o Hill v. Gateway 2000, Inc. 105 F.3d 1147 (1997) p. 180 P orders computer over phone, a box arrives including terms, that

claim to govern unless P returns computer with in 30 days One of the terms in the box was an arbitration clause

P kept computer more than 30 days before complaining about its components and performance

P sued in federal court, D asked judge to enforce arbitration clause, he refused

D appeals ProCD, inc v. Zeidenberg held that terms inside of a box of software

bind consumers who use the software after an opportunity to read the terms and to reject them by returning the product

DC concluded contract is formed when P pays for computer and any terms after that can not be part of the contract

Only terms known by consumer at that point can be part of the contract

Payment before receipt of terms is common, cashiers can not be expected to read off all terms of a product at checkout over the phone

ProCD had not completed performance of the contract at the arrival of the box

There were still warranties etc The hills have invoked D’s warranty and would like their

computer repaired, they are not well off to invoke the idea that the contract was compete upon delivery

The document in D’s box includes promises of future performance that some consumers value highly; these promises bind D just as the arbitration clause binds P

When there is only one form §2-207 is irrelevant Notes:

If a merchant-buyer uses a purchase order and the seller sends its acknowledgment, the rolling theory would not apply since there are two forms requiring the application of §2-207

Insert Professor Flechtner’s Chart Consideration

o Elements of Consideration p. 188 Consideration is composed of two important elements

1) legal value a benefit to the promisor or a detriment to the promisee

2) bargained for exchange the benefit to the promisor or detriment to the promisee

with the promise inducing the detriment and the detriment inducing the promise

o The Legal Value Element – “Adequacy” or “Sufficiency of Consideration” p. 190

In the typical contract there is both a benefit and a detriment to both the promisor and the promise

o Hamer v. Sidway, 27 N.E. 256 (1891) p. 190 Story agreed to and with his nephew that if his nephew abstained from

liquor, tobacco, swearing, and gambling until he is 21 Story would pay him $5000

D claims there was no consideration to the contract D claims P was better off for not doing those things and suffered no

detriment and the promisor was not benefitted Courts will not ask whether the thing which forms the consideration

does in fact benefit the promisee or a third party or is of any substantial value to anyone

It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him

Nephew abstained from things he had a legal right to do It is unnecessary to determine how much effort it took to do

this Value of consideration doesn’t matter

It is of no moment whether such performance actually proved a benefit to the promisor, and the court will not inquire into it (promise induced the detriment)

Notes: It is necessary to find detriment to promisee: if A says to B I

will pay you $100 tomorrow if you do not drive my car, there is not consideration because B has no right to drive A’s car

If no specific benefit can be shown, the detriment to the promisee, if bargained-for, constitutes consideration

Exceptions to Refusals to Inquire Into Adequacyo Inadequacy in Equityo Mckinnon v. Benedict 157, N.W.2d 665 (1968) p. 194

P lent D money to purchase an American plan family resort at no interest with the clause that no changes would be made to the property for 25 years

D paid back money in a year P was supposed to help get business and fix an old lease. P attempted

once to fix the lease and booked one party to the resort D was losing money and attempted to improve the resort with an RV

park P sued to enjoin these activities The court can not reasonably enjoin D from pursuing his best interest

and breaching the contract in these circumstances P argues that the value of the consideration could not be

analyzed in terms of just the $145 foregone in interest. D was in financial need of the contract at the time and could

not have reached an arms length agreement with P Contracts that are oppressive will not be enforced in equity is the

principle of public policy that restrictions on the free use of land are not favored Mueller v Schier

Restrictions and prohibitions as to the use of real estate should be resolved, if a doubt exists, in favor of the free use of the land Stein v. Endres Home Builders

“Considering all of these factors – the inadequacy of consideration, the small benefit that would be accorded P, and the oppressive conditions imposed upon D – we conclude that this contract failed to meet the reasonableness that is the sine qua non of the enforcement of rights in action in equity

notes: restatement of contracts 2d §81 (1981):

1) the fact that what is bargained for does not itself induce a performance or return promise from being consideration for the promise

2) the fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise

examples on pp 205-206 O.W. Holmes’ view:

“No matter what the actual motive may have been, by the express or implied terms of the supposed contract, the promise and the consideration must purport to be the motive each for the other, in whole or at least in part. It is not enough the promise induces the detriment or the detriment induces the promise, if the other half is wanting

o Promise of “Permanent” Employment – “Terminable at Will” p. 207o Fisher v. Jackson, 118 A.2d 316 (1955) p. 207

D claims P convinced him to leave his job as a baker at $50/week to be a reporter at $40/week with $5/week raise every year

D fired P; P sued D D claims the offer was for a definite term and was terminable at will In the absence of a consideration in addition to the rendering of

services incident to the employment, an agreement for a permanent employment is no more than an indefinite general hiring, terminable at the will of either party without liability of the other

P argues that he suffered a detriment by leaving his old job This does not count as consideration because it was not

bargained for and given up in exchange for the promise. The interviewer did not discuss his employment with him and certainly did not bargain for him to leave his old job

o Anderson v. Douglas & Lomason, 540 N.W.2d 277 (1995) p. 209 P sued D for wrongful termination bc they did not use the progressive

discipline scale in the company handbook. P had worked for 3 years at D without incident and was fired for

stealing a box of pencils P was handed the employment handbook on his first day at a 6hr

orientation D claims this handbook was not a contract

An employee handbook is a unilateral contract when three elements are present

1)the handbook is sufficiently definite in its terms to create an offer

2)the handbook is communicated to and accepted by the employee so as to constitute acceptance

3) the employee provides considerationo McBride v. City of Sioux City

The court held that even though P did not read the pages including that clause it was sufficiently “communicated” by D

The court held this contract to be standardized agreement where all offerees are considered the same and have collectively bargained for the terms. It does not matter if one member has not read the terms

The discussion of whether the progressive discipline was an offer to P should be conducted according to traditional contract theory

Look at the handbook for definite terms If an offer is indefinite it is not a contract

o The recipient could not reasonably believe he is entering a legally binding agreement with such vague information in the handbook

When doing a definiteness analysiso 1)is the handbook in general and the progressive

discipline procedures in particular mere guidelines or a statement of policy or are they directives

o 2) is the language of the disciplinary procedures detailed and definite or general and vague

o 3) does the employer have the power to alter the procedures at will or are they invariable

this agreement specifically contains language of commands the handbook states twice “the rules have been designed for the

information and guidance of all employees” D retained power to alter the handbook at will

“employee handbook which contains a clear and conspicuous disclaimer of job security will preserve the at-will status” Mace v. Charleston Medical Ctr.

Handbook stated “this employee handbook is not intended to create any contractual rights in favor of you or the company. The company reserves the right to change the terms of this handbook at any time”

Although the disclaimer was on the last page there was no indication that it did not relate to the discipline terms

Any reasonable person would realize the lack of a contractual obligation

Notes:

There has been growing case law as to whether an employee handbook, manual, or policy statements of the employer concerning employees becomes part of the employment contract

Most courts have taken a similar analysis of the issue (unilateral contract and consideration analysis)

Discharge because of race color gender religion sex or national origin is prohibited by federal statute

Jury service Union affiliation And declining a polygraph are all protected

o Comment: Avoiding the Pre-Existing Duty Rule p. 241 Bretterton v. First Interstate Bank of Arizona P purchased a tractor trailer from D to fulfill contracts supplied to him

by a broker P fell behind and D tried to repossess the truck P offered a deal where the broker would transfer the money straight to

D to pay off the loan D accepted payments from the broker but also repossessed the truck D claims that a pre-existing duty can not count towards consideration,

P already had a duty to pay the money offered so there was no contract This is not true: P offered to have the money transferred directly from

the broker, a right that D gained but was not legally entitled to. P got to keep his truck

There was adequate consideration for the new contract Any amount of consideration in exchange for the new contract

can count as considerationo Modifications of the Pre-Existing Duty Rule p.242o Angel v. Murray, 322 A.2d 630 (1974)

P had a contract with D (acting on behalf of city of newport) P had been signing 5 year garbage collection contracts with the city

since 1946 an entered a new one in 1964 terminating in 1969 P would be paid $137,000/year to collect the city’s garbage In 1967 P asked for $10,000 due to an increase in city dwellings, D

paid The same happened in 1968 The contract was predicated on 20-25 new dwellings per year TC found that payment was made in violation of the law bc there was

a pre-existing duty The key purpose of the pre-existing rule is to prevent the “holdup

gang” scenario Ex: sailors agreed to work on a ship for during salmon season.

All 21 men would be paid $50 and 2¢ for each salmon. Before returning with the fish the men demanded $50 more. The new agreement to pay $50 was not enforceable due to lack of consideration

Modern trend appears to recognize the necessity that courts should enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of the performance of the contract, even though there is no consideration for the modification, as long as the parties agree voluntarilyModification should be enforced only if the parties voluntarily agree and:

1) the promise modifying the original contract was made before the contract was fully performed on either side

2)the underlying circumstances which prompted the modification were unanticipated by the parties

3)the modification is fair and equitable all points are clearly met except two is questionable:

the court held that the contract was predicated on a belief of 20-25 new houses per year and the 400 new houses certainly surpassed the expectations

the payments are legal and P is entitled to keep his $20,000 notes:

UCC §2-103 allows the modification of a contract for the sale of goods without consideration

o The Effect of Recitals p.218o 1464-Eight, Ltd. V. Joppich 154 S.W.3d 101 (2004)

D agreed to buy an empty residential lot from P for $65,000 the parties also signed a contract that would allow P the option to buy the property back at 90% of the price if D failed to commence construction of a private residence within 18 months. $10 was offered in consideration for this option contract

P never paid D the $10 D would like an ruling that the contract is unenforceable for lack of

consideration or failure of consideration A promise to give an option is valid if supported by an independent

consideration. For Example if a sum of money be paid for the option the promisee may, at his election, enforce the contract” Nat’l Oil Pipe Line v. Teel

Restatement §87 comment b states that the actual transfer of nominal consideration is not means by which an option can be invalidated. The importance of the consideration is in the writing, both parties meant for it to be binding.

The nonpayment of a recited nominal consideration should not preclude enforcement of a written option agreement

Contract is enforceableo Absence of Detriment- “Mutuality of Obligation”-“illusory Promises”-

Requirement Contracts p. 222o Centerville Builders, Inc, v. Wynne, 683 A.2d 1340 (1996)

Buyer and Seller agreed to a contract to exchange a property for $565,000 with a $5,000 down payment and $28,250 due at signing

S crossed off term 9 with approval from B “subject to seller ceasing negotiations with any and all other parties on purchase of subject property

Term 6 stated “subject to satisfactory purchase & sale agreement between seller any buyer

Because of term 6 the contract was an illusory one Either party could claim that the agreement was unsatisfactory

and void the contract The deletion of term 9 further showed that this contract was a

just a agreement to agree in the future As an illusory contract (agreement to agree) it is not an enforceable

bilateral contract Notes:

A promise to perform an act unless the promisor changes his mind promises nothing, there is no binding commitment, no benefit to the promisee and no detriment to the promisor

o Requirement of Output Contracts p. 228o McMichael v. Price, 58 P.2d 549 (1936)

D sued P for breach of contract, jury awarded $7512.51 in D’s favor The contract specified a price and length of agreement and had all

signs of a contract but failed to state a definite quantity. The contract only stated the parties would exchange as much sand as D could sell

P claims the contract is unenforceable bc D could escape obligation by simply leaving the sand business.

Although no quantity was stated, both parties clearly agreed to be bound by the terms of the contract in good faith. D was an experienced sand salesman and was expected to have similar levels of sales as he had entering into the contract.

Notes: This is an example of a requirements contract The converse would be an output contract where a party agrees

to take the entire production of a given manufacturer over a period of time

Such contracts may contain minimum or maximum quantities or stated estimates

In the absence of estimates, a prior output or requirements level may be available

UCC §2-306 provides a “good faith” standard to govern such contracts

o Vulcan Materials Company v. Atofina Chemicals, Inc., 335 F.Supp.2d 1214 p.230

Parties entered into agreement for P to supply all of the chloroform to D’s Wichita manufacturing plant

D stopped purchasing chloroform and closed the plant P seek summary judgment that D breached the contract

Kansas comments to the UCC section state: “if in good faith a party has no actual output or requirements, it has no duty to perform under the contract”

Empire Gas Corp v. American Bakeries American Bakeries acting in bad faith after signing a

requirements contract to convert is fleet to Natural Gas it decided not to convert

P met its burden by proving that D kept its trucks and had the “financial wherewithal to go through with the conversion process”

Good faith requires that “at a minimum that the reduction of requirements not have been motivated solely by a reassessment of the balance of advantages and disadvantages under the contract to the buyer”

Kansas: reductions merely to curtail losses are bad faith, reductions due to external events that threaten the viability of the entire undertaking are good faith

The price of chloroform played an essential role in D’s decision; D’s decision to close the plant was made in bad faith

Contract is enforceableo Mutuality of Obligation p. 224o Hay v. Fortier, 102 A 294 (1917)

D became surety on a 15 day bond given by Sawyer to P. Bond was not complied with and D was informed of liability

D offered to Pay $100 immediately and the balance by the April term of court if P did not initiate a claim before then. P agreed.

D paid $100 forthwith but no more D claims the promise for the rest of the balance is without

consideration and not enforceable D claims that the agreement to forbear was not a binding obligation

because there was no consideration exchanged This is true but it does not effect the enforcement of the

original contract Although P was not obligated to forbear action it did and D received

the benefit. Having enjoyed the benefit, D is now estopped from refusing performance on her part on the grounds that the contract was not originally binding on the other, who has performed.

Action is maintainable. Judgment for P in amount of $175.06 Note:

A promise to forbear suit against B in exchange for B’s promise to pay a liquidated debt and undisputed debt to A. A’s promise is not binding because B’s promise is not consideration under §73, but A’s promise is nevertheless consideration for B’s ……B’s promise is conditional on A’s forbearance and can be enforced only if the condition is met

o Voidable Promises and Consideration- Capacity to Contract p. 236

o Milicic v. The Basketball Marketing Co., Inc., 857 A.2d 689 (2004) P and D entered an endorsement agreement when P was 16. D would

provide P with money and products in exchange for his endorsement. P was drafted by the NBA and 4 days after his 18th birthday made a buyout offer on the contract to pursue a more lucrative one

D refused offer D wrote letters to Reebok and Adidas informing them that P was in a

contract dispute with them, Adidas stopped negotiations with P P sought a TRO (Temporary Restraining Order) Court granted

judgment PA law – a contract is voidable if the minor party disaffirms it any

reasonable time after he reaches majority 23 Pa. C. S. §5101 Injunctive relief was necessary to prevent immediate and irreparable

harm that could not be adequately compensated ( players generally reach endorsement agreements right after the draft, D’s actions interfered with these negotiations

The public policy consideration underlying the rule which allows a child to disaffirm a contract within a reasonable time after reaching the age of majority is that “ minors should not be bound by mistakes resulting from their immaturity or the overbearance of unscrupulous adults

Affirmed Notes:

A person suffering from mental illness also lacks capacity. Congenital deficiencies, brain damage (organic or

accident), deterioration caused by age, other illnesses with symptoms of hallucinations, delusions, confusion or depression.

o Did the party understand the nature of the consequences?

o If the other party has reason to know of that illness, the contract is voidable

an intoxicated person incurs only voidable contractual duties if the other party has reason to know that the intoxicated person is unable to understand the nature and consequences of the transaction or is unable to act in a reasonable manner in relation to the transaction.

If the minor has received goods under a contract he has disaffirmed he must return the goods

While a minor may disaffirm a contract he is liable in quasi contract for necessaries including: food, shelter, and clothing

o Disputed Claims, Modifications, Accord and Satisfaction p. 246o Ruble Forest Products, Inc. v. Lancer Mobile Homes, 524 P.2d 1204 (1974)

P is attempting to collect $2500 for 11 truckloads of lumber D claims P offered credit of $2,500 for bad lumber

P denies any claims of bad lumber and feels it was coerced into settlement without consideration

D failed to pay for lumber that was delivered to him. D claimed P had shipped defective lumber since 1969 to the amount of $5,000

P claims D told him no payment would be made unless an adjustment was made; P needed money so he agreed to an adjustment of $2,500

“in consideration for receiving $12,195.42 for an outstanding debt of $31,091.24 we extend to you a credit of $2,500..”

P relies on the idea that an agreement to take less than the whole amount of a liquidated claim is without consideration and unenforceable

In order for an agreement modifying a contract to be enforceable it needs to be made in good faith

UCC: “an agreement modifying a contract with ORS 72.1010 to 72.7250 needs no consideration to be binding” (as codified in Oregon)

P claimed it was not in good faith to coerce him into an agreement but TC held that there was a legitimate dispute between the two parties involving the lumber so AC must agree with this assessment as a matter of fact

P claims D did not report defects in reasonable time. Enforcement of a modification of a contract does not depend

on the validity of the claim involved, except to the extent that the claim must be one made in good faith

Judgment affirmed Note:

Where there is an honest dispute in relation to the amount owed, the liability itself, or even the method of payment, there is no duty until that dispute has been settled

If payment is made before the dispute is resolved, the debtor suffers detriment and the creditor receives benefit, hence consideration

o Note: Accord and Satisfaction p. 250 P supplied metal doors to D but delivered them late causing D added

expenses of $2,180. Parties argued over amount due D sent P a check for $416.88 on the reverse a note read “by its

endorsement, the payee accepts this check in full satisfaction of all claims arising out of or relating to purchase order #3302”

P crossed out statement and wrote his own, then cashed the check The device of placing a creditor in the position of either not cashing a

“settlement check” and pursuing its claim for the full amount or cashing the check and taking less than it considered acceptable is a standard form of settling a dispute by discharging an existing obligation – a form of accord and satisfaction

o The Invalid Claim p. 252

o Dyer v. National By-Products, Inc., 380 N.W.2d 732 P was an employee of D who lost his foot in an industrial accident. D

placed P on paid leave for almost a year until he was brought back at his old position.

P was laid off 6 months later P sued D for breach of oral contract D filed for summary judgment claiming there was not genuine factual

issue and that it was entitled to judgment as a matter of law DC sustained motion:

1) no reciprocal promise to work for the employer for life was present, and

2) there was no forbearance of any viable cause of action Apparently on the grounds that P’s sole remedy was

through workers compensation. The law favors the adjustment and settlement of controversies without

resorting to court action. Law favors compromises. Compromise of a doubtful right asserted in good faith is sufficient consideration for a promise

Difficult problem: whether the settlement of an unfounded claim asserted in good faith is consideration for a contract of settlement

Corbin on Contracts: The most generally prevailing, and probably the most

satisfactory view is that forbearance is sufficient if there is any reasonable ground for the claimants belief that it is just to try to enforce his claim

Does not mean he must believe he can win There is a great divide in case law, but generally:

Although forbearance from suit on a clearly invalid claim is insufficient consideration, forbearance from suit on a claim of doubtful validity is sufficient consideration for a promise if there is a sincere belief in the validity of the claim.

Although the courts will not inquire into the validity of a claim which was compromised in good faith, there must generally be reasonable grounds for a belief in order for the court to be convinced that the belief was honestly entertained by the person who asserted it

The evidence of the invalidity of the claim is enough to show a lack of honest belief in the validity of the claim asserted or forborne

The factual issue of whether P’s claim was made in good faith must be resolved by the TC, remanded

Notes: Fiege v. Boehm:

P made an agreement with D to forego bastardy proceedings in exchange for costs of birth and financial support for the child

D stopped paying after paternity tests showed it wasn’t his kid

P initiated bastardy proceedings and lost P sued for breach and won because the forbearance was

based on a reasonable belief that D was the father Promissory Estoppel

o The Absence of Bargained for Exchange- Antecedents p. 256o Allegheny College v. National Chautauqua Count Bank of Johnstown, 159

N.E. 173 (1927) P was on a pledge drive to raise a $1.25M endowment D is Mary’s (M) Bank. P is suing D for the balance owed on a

charitable contract M offered to give $5,000 after her death to form a scholarship at

Allegheny college for people entering the ministry under her name If A promises B to make him a gift, consideration may be lacking,

though B has renounced other opportunities for betterment in the faith that the promise will be kept

A recent doctrine states that in lack of consideration a contract may be enforceable under a theory of promissory estoppel

The duty assumed by P to perpetuate the name of the founder of the memorial is sufficient in itself to give validity to the subscription within the rules that define consideration for a promise of that order

A classic form of statement identifies consideration with detriment to the promisee sustained by virtue of the promise

Judgment for P Notes:

Charitable subscriptions: The judicial proclivity toward the enforcement of charitable subscriptions promises found an almost ideal doctrine in promissory estoppel, which allowed the enforcement of promises without bargained for exchange if there was detriment to the promisee through justifiable reliance

Equitable estoppel: applies where a party makes a false representation to, or knowingly conceals material facts from, another party with the intention that the innocent party should act upon the false representation of concealment

Gratuitous Promises – Land and Bailments: a gratuitous promise to convey land is not enforceable. If, however, such a promise is accompanied by the promisee taking possession of the land and making valuable improvements thereon, the promisee will succeed in a suit for specific performance to convey title to the land

Gratuitous Bailments state that if a bailor delivers goods to a bailee for safe keeping without consideration, a failure on the part of the bailee to perform could result in liability

o Early Applications of Promissory Estoppel- Hand Versus Traynor

The Pavel Enterprises case shows us the disagreement between Hand (who rejected the possibility of using promissory estoppel to make an offer of a subcontractor irrevocable

o The Expansive Application of Promissory Estoppel p.263o Feinberg v. Peiffer, 322 S.W.2d 163 (1959)

P worked for D, D entered into an agreement with P where they would pay P the sum of $200/month for life upon her retirement

TC awarded P $5,100 + interest The board of directors voted the agreement on. It gave P a raise and

the option to retire whenever she felt necessary with a pension of $200 monthly

P claimed she would have continued her employment anyway There was no contract

Someone later bought the company and unhappy with the deal offered to cut the pension to $100

D sent P a $100 check that P refused to accept It is clear the P left her job earlier than she would have in absence of

the pension in reliance on the agreement with D Judgment affirmed Notes:

Restatement: §90(1): a promise which the promisor should reasonably expect to induce action or forbearance on the part of the promise 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 for breach may be limited as justice requires

Elimination of definite and substantial requirement: the character of the reliance will depend upon the type of promise. This, reliance need not be substantial in charitable subscription cases but should be substantial with respect to offers made irrevocable through reliance and guarantees

o Detrimental reliance of third parties p. 270 Hoffman v Red Owl Stores: “ordinarily only the promisee and not

third persons are entitled to enforce the remedy or promissory estoppel against the promisor. However, if the promisor actually foresees, or has reason to foresee, action by a third person in reliance on the promise, it may be quite unjust to refuse to perform the promise”

Past Consideration and Moral Obligation o Past Consideration p. 282o Passante v. Mcwilliam, 62 Cal. Rptr. 2d 298 (1997)

Upper Deck needed $100,000 to put on deposit with its paper company or it would lose its contract with MLB

P was an attorney for UD P ended up finding the $100,00 necessary for the company. This was

D’s job but he was demanding more than his 11% stake to fulfill duties Board members said is P can get the money he is entitled to 3%

D was brought back but was upset with Ps involvement and said he would only find investments if P were not an owner of UD

At the time of trial the value of 3% was $33M P claims an enforceable contract only requires a promise capable of

being formed and consideration to support the promise The court asserts the need for the consideration to be given

exchange for the promise. Past consideration is no consideration

P did not inform UD that they needed independent counsel to help them with any contract that may be formed between them and P

The terms of this agreement were entirely dictated by the UD board and not bargained for.

There is no evidence showing that P had any expectation of receiving stock in exchange for securing financing

This deal was an inchoate gift – that is, an unenforceable promise from a grateful corporate board

Judgment for Do The Material Benefit Doctrine p. 288o In Re Hatten’s Estate, 288 N.W. 278 (1939)

P was a woman who let D come to her house for meals and company every once in a while. D treated P’s home as if it was his own.

D repeatedly expressed gratitude to P and said that one day she would be paid for what she was doing

D and P entered into an agreement for $25,000 to be taken from D’s estate, but there was no exchange of consideration that day

The fact that $25,000 is much more than the value of the goods and services offered to D is no matter of the court, it is clear that D intended to pay P for her services and stated this fact to her on several occasions

“We have adopted what is said to be the liberal rule as to moral consideration and have held that a receipt by the promisor of an actual benefit will support an executory promise “where the promisor originally received from the promisee something of value sufficient to arouse a moral obligation, as distinguished from a legal obligation” Park Falls State Bank v. Fordyce

notes: generally, courts reject the view that gratitude for prior gifts

makes the recipient’s promise to pay therefor enforceable restatement 2d:

(1)A promise made in recognition of a benefit previously received by the promisor from the promise is binding to the extent necessary to prevent injustice

(2) A promise is not binding under subsection o (a)if the promisee conferred the benefit as a gift

or for other reasons the promisor had not been unjustly enriched; or

o (b) to the extent that its value is disproportionate to the benefit

o Promises Uniformly Enforced through Moral Obligation p. 294o First Hawaiian Bank v. Zuckerkorn, 633 P.2d 550 (1981)

D got two notes in total of $8894.21 from P and made no payments. He later got an auto loan and paid in full

D applied for a credit card from P, P informed him he had a back debt and they could only give him the card if he paid $100/month toward his debt

P sued D for the balance of both previous notes TC entered judgment for P on all 3 claims Collection of the two previous notes was barred by statute of

limitations unless something occurred which started it running new again

“ a new promise by the debtor to pay his debt, whether then barred by the applicable statute of limitations or not, binds the debtor for a new limitations period”

promise may be express or implied, conditional or unconditional, if conditional it is not effective until condition is performed

D’s promise is only enforceable if made within 6 years of the original debt

He could have promised: 1) by an express promise to pay the two stale debts 2) by an express acknowledgment of the two stale debts 3) by part payment of the two stale debts

if promised, it would have been done through 3 D claims he was paying toward “the small amount” the bank

said he owed, not the two bonds in specific D denies acknowledging the two stale debts or that he agreed

to pay them or paid on them The court cannot imply a promise from the mere fact of

acknowledgment or part payment as an inference of the law. It needs to be left to a trier of fact

Partially affirmed, partially reversed and remanded Notes:

The basis for the enforcement of such promises is certain moral obligation- an obligation that had been legally enforceable and became barred only by a technical rule.

o Promises to Pay Debts Discharged in Bankruptcy p. 296 Promises to pay debts discharged in bankruptcy were enforced on

moral obligation in a manner similar to those barred by that statute of limitations.

The Bankruptcy Reform Act of 1978 changed these rules to state that the bankruptcy judge must approve any reaffirmation in order to prevent undue hardship to the debtor

In 1984 this was changed to only require a note from the debtors attorney stating that it would not provide undue hardship

Operative Expression of Assent Introduction p. 299

o Objective manifestations or outward expressions of the parties is given operative effect and their subjective understanding would not be accorded operative effect

It would be unfair to impose such a subjective understanding on the other party, who could not possibly have known it

o Statute of Frauds (SOF): Requires certain types of contracts to be evidenced in writing. If the

parties form an oral contract that violates this statute, absent certain exceptions, the oral expressions of the parties will be denied operative effect

o If the parties to a contract take the time and effort to reduce their agreement to writing, intending that writing to constitute the sole and exclusive evidence of their agreement, neither party should be put to the trouble of defending against allegations that the agreement was broader than the writing

The Statute of Fraudso The Origin of the Statute of Frauds – Repeal of the English Statute p. 301

Except for contracts under seal, common law does not require any contracts to be evidenced in writing, any requirement to do so is a statutory requirement

In practically every state, certain types of contracts are required to be evidenced by a writing as a matter of enforceability, proof, or validity

o Suretyship Promises p. 304 Suretyship is a three-party relationship in which a principal debtor (D)

promises to pay a certain indebtedness to a creditor or obligee (C) and third party, surety, (S) promises to pay C if D does not pay

Suretyship was included in the statute of frauds because of the temptation on the part of C to claim that someone else has agreed to pay when D does not

If S pays the debt to C then he has a cause of action against D

The relationship of D to S must be known by C. If there is no known relationship between D and S then

C’s only recourse is to enforce the “original promise” with D. S’s promise is without the statute of frauds

This category is very closely related to the second category of the statute of frauds, promises by an executor or administrator to answer for damages out of his own estate. They are closely applied if not identical

o Main Purpose (“Leading Objective”) Exception p. 307o Armbruster, Inc. v. Barron, 491 A.2d 882 (1985)

P entered a contract with D to build a bowling alley

P found out D did not own the land and had not secured financing. P asked D to personally guaranteed the corporate debt.

P agreed to do so and put his taproom up as security D argues that because the agreement he made was oral it is barred by

the statute of frauds 33 Pa. C. S. §3 Evidentiary role of SOF:

Having received no benefit from the promise it is important to know that he has been justly called to answer for the debts

Cautionary role of SOF: By bringing home to the prospective surety the significance of

his act, it guards against ill-considered action Whenever the main purpose and objective of the promisor, is, not to

answer for the debt of another, but to subserve some pecuniary or business purpose of his own…his promise is not within the SOF

This case falls within the leading object rule and the oral guaranty is not enforceable

Notes: Agreements will be outside of the SOF when the leading object

of the agreement was to serve his own pecuniary purpose Acme equipment Co. v. Allegheny Steel

The statute is not rendered inapplicable merely because a stockholder may indirectly receive some gain when promises to pay the debt of a corporation Eastern Wood Products Company v Metz

The fact that D was 33.3% owner of RBR does not, in and of itself, establish that D’s main purpose was to serve his own pecuniary interest. Acme

o Marriage Agreements p. 311 Applies to promises made in consideration of marriage

Exclusion: some states exclude mutual promises to marry (these promises are generally made in an ambience that does not admit of a writing requirement)

o Dewberry v. George, 62 P.3d 525 (2003) D told P that bc a friend had been wronged in a divorce he insisted on

the following conditions of marriage: 1)P would always be fully employed 2)Each party’s income and property would be treated as

separate 3) Each party would own a home to return to if the marriage

failed; and 4) P would not get fat

P and D orally agreed to the terms Neither party was wealthy at marriage in 1986 After a child was born a joint account was set up to take care of

expenses. Everything else was kept separate and the couple affirmed the agreement orally several times throughout the relationship

The couple split in 2000 Dewberry got wealthy through a law office job The court recognized the oral agreement and the performance of the

agreement so they awarded P her 82% of assets (her share of separated assets)

D claims the agreement was void under Washington’s SOF Oral separate property agreements made after marriage have

been enforced in Washington when there is clear evidence of the agreement and mutual observance

Washington had not weighed in on these agreements before marriage

Court held that this agreement would be subject to the SOF as a promise made in consideration of marriage

The part performance exception applies to this case. The doctrine of part performance is an equitable doctrine

which provides the remedies of damages or specific performance for agreements that would otherwise be barred by the SOF

Requirements: 1) the contract must be proven by clear, cogent and

convincing evidence 2) acts relied upon as constituting part performance

must unmistakably point to the existence of the claimed agreement. If they may be accounted for on some other hypothesis, they are not sufficient

notes: In Rossiter v. Rossiter, court held that the mere act of marriage

is almost universally held to be insufficient part performance The husband’s construction of a marital dwelling can

not be considered part performance referring unequivocally to an oral agreement to give the house to him when they could equally be construed as marital duties

Agreements to adopt children or to let a spouse’s parents live with the couple have been held to be within the marriage clause of the SOF Maddox v Maddox, Koch v. Koch

Agreements between unmarried cohabitants have not been held within the SOF

To discourage palimony suits regarding oral agreements there have been efforts to include agreements in non-marital, conjugal relationships on an equal footing with promises made in consideration with marriage

Contract for the sale of lando Part Performance and Remedies P. 315o Cain v. Cross, 687 N.E.2d 1141 (1997)

P and D orally agreed to exchange 806 acres for $806,000

D sold the property to someone else, P claims he sustained $50,000 in damages

Circuit court dismissed P’s claim. Sole issue is whether court erred in doing so

SOF: “no action shall be brought to charge any person upon any contract for the sale of lands unless the contract of a memorandum or note thereof is in writing and signed by the party to be charged

If A and B enter agreement and only A signs, B can enforce against A but not A against B

P argues part performance for the $10,000 Oral contracts for the sale of land, to become enforceable under

the doctrine of part performance, require more than the mere payment of earnest money

P argues the UCC rule of part performance This is not a contract for the sale of goods so it is not covered

by the UCC SOF This is an action for money damages (an action at law) SOF does not

apply to actions at law, only equitable actions Notes:

Interest in land is not limited to transfer of land. Also covered: Easements, an agreement concerning right of way, a

change in the exit of a road, a rescission of a land contract, an assignment of an interest in land, a restriction upon land or an equitable lien created by mortgage

Most American statutes make an exception for leases less than one year; the year is typically not measured from the agreement date.

Part performance: Once property is transferred to the buyer, the promise to

pay the purchase price is generally enforceable except when payment is wholly or partially an interest in land

If no land has been transferred, but the price has not been paid, courts will generally refuse specific performance of land transfer

Because of the equitable nature of land transfers, an action for damages will generally not be aided by part performance. He may however recover a down payment to prevent the unjust enrichment of the seller

Whatever the part performance may be it must be unequivocally referable to the agreement in question

A promise to pay a real estate agent a fee is held to be in many SOFs

Natural products (coal, minerals) and structures are considered land. Crops (timber, corn, etc) are considered goods

Contracts for the sale of goods over $500 are governed by the UCC SOF which is much less stringent than SOF for other things

o Contracts Not Performable within One Year from Formation p. 319o C.R. Klewin, Inc v. Flagship Properties, Inc., 600 A.2d 772 (1991)

Does a contract that does not specify explicitly the time for performance when performance of that contract within one year is extremely unlikely fall under the SOF?

SOF governs contracts not performable in one year P and D had a dinner meeting discussing an agreement to build a

$120m project. They came to an oral agreement They publicized this agreement and held a videotaped press

conference Parties entered into a written agreement for one phase of construction

and completed agreement D became dissatisfied with p’s work and sought replacement

contractors P sued for breach of oral agreement, D claimed the statute of frauds

barred the enforcement A contract is not within the SOF unless its terms state that it can not be

performed within one year Appleby v Noble The critical test is by the terms of the agreement can the

contract be completed within a year (the likelihood of that happening is not of importance)

Notes: Alternative v termination

Alternativeo A contract with two possibilities one less than a

year and one more is outside the SOF Termination

o If a contract is for five years but a party has the power to terminate within a year it is within the SOF

A view in the 2d restatement makes the one year provision inapplicable to contracts which are originally “unilateral,” or those which effectively become unilateral through the full performance of one party

An oral contract which is executory on both sides is within the one year provision unless both parties can complete performance within one year

o Contracts for the Sale of Goods p. 326o Azevedo v. Minister, 471 P.2d 661 (1970)

P orally agreed to buy 1500 tons of hay from D D claims P contracted to buy 1500 tons, P maintains there was never

an agreement to quantity

P put $20,000 in escrow and began taking hay, when the money ran out, D refused to load P’s trucks.

P refused to buy from D anymore and D sued for breach District judge found undisputed accountings that included a remaining

number of bales in the contract to be confirming memoranda (writing) Only three requirements for confirming memoranda are made by the

NRS subsection (UCC §2-201(1968)): 1)it must evidence a contract for the sale of goods 2) it must be “signed”, a word which includes any

authentication which identifies that party to be charged; and 3) it must specify a quantity

UCC §2-201(2) holds that a recipient of such a writing, even if he did not sign the writing, is bound unless he objects within 10 days

although this balance sheet may be considered a writing, P still has to prove that an oral agreement was entered into before the written confirmation

the language in the writing speaks of a pre-existing agreement, not a future one, court held this evidenced an agreement

notes: writing can be in any form such as: letter, telegram, check,

invoice, corporate minutes, diary entry, court petition in another lawsuit, contract with another party or even a will

a writing is generally sufficient when it evidences a contract, identifies the parties and subject matter, sets forth the terms with reasonable certainty

if the writing is lost or destroyed P is entitled to prove that it did exist and oral evidence of its contents is admissible

CISG currently applies to over 60 nations and preempts the UCC when each party is in a CISG country – does not require writing unless a nation has specifically stated that they require one

o Electronic Writings (Records) and Signatures p. 333o D’Arrigo v. Alitalia, 745 N.Y.S. 2d 816 (2002)

P’s luggage was damaged on two flights provided by D P filed a claim that was recorded on computer

Warsaw Convention (governing law) required claims in writing Under UCC writing includes printing, typewriter or any other

intentional reduction to tangible form Electronic record is information evidencing the act, transaction,

occurrence, event, or other activity, produced or stored by electronic means and capable of being accurately reproduced in forms perceptible by human sensory capabilitiesNotes:

UETA and E-Sign both sought to remove the obstacles of using electronic communications in business and commercial writings

Signature in electronic terms was defined by UETA and E-Sign to be an electronic sound, symbol or process attached to or adopted by a person with the intent to sign the record

Neither statue applies to will, codicils, or testamentary trusts

o Estoppel and the Statute of Frauds p. 336o Alaska Democratic Party v. Rice, 934 P.2d 1313 (1997)

D was offered a job by Wakefield (W) as his executive director working for P

D left her job elsewhere to get the job for W W informed D that she could not have the job D was awarded $28,864 in damages Can the doctrine of Promissory Estoppel be invoked to enforce an oral

contract that falls within the statute of frauds? Superior court concluded that between the SOF and PE, PE would

prevail §139 restatement: “ 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 the action or forbearance is enforceable notwithstanding the SOF if injustice can be avoided only by enforcement of the promise”

Judgment affirmed Notes:

UCC SOF and PE – courts have held both that PE preempts UCC and that it doesn’t. The language is unclear and the proposed amendment would help correct that

o Admission That the Contract was Made p. 340o Lewis v. Hughes, 346 A.2d 231 (1975)

P agreed to sell D, through an attorney, a trailer for $5,000 which D assented to but no terms for payment were defined. Attorney sent D a letter outlining the agreement

D informed P that he would not pay $5,000 cash but would pay $3,500 cash or $5,000 over time

P sold to someone else and filed suit TC held that the letter did not satisfy the statute of frauds bc even

acting as an agent for D, was not authorized to sign a written memoranda

§2-201(3) A contract which does not satisfy the requirements of §2-201(1) but which is valid in other respects is enforceable (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not enforceable under this provision beyond the admitted quantity

court held that involuntary admissions can be used to satisfy the SOF under §2-201(3)(b) when the party denying the existence of the contract and relying on the statute takes the stand and, without admitting explicitly that a contract was made, testifies to facts which as a matter of law establish that a contract was formed

notes: the satisfaction of the SOF through admissions in contracts

other than the sale of goods contracts can be found in several jurisdictions, but is not uniform (see page 345)

o Restitution p.345 where the contract is unenforceable but one party has conferred a

benefit upon the other through part performance, courts will grant restitution on the footing that such recovery in quasi contract does not undermine the SOF

Real Estate agents may not, however, recover commissions on oral contracts where such commission contracts are within the SOF because brokers are subject to state licensing requirements that require them to demonstrate their legal knowledge before being licensed

Allowing such restitutions would frustrate the underlying reason of the statute

o Effects of Noncompliance – Pleading the Statute p. 346 If a contract is “voidable” one party has a legal power of

disaffirmation or avoidance The statute must be pleaded as an affirmative defense

It will not be permitted to be raised for the first time on appeal The Parol Evidence Rule

o The Basic Concept p. 348 When parties to a contract embody the terms of their agreement in a

writing, intending that writing to be the final expression of their agreement, the terms of the writing may not be contradicted by evidence of any prior agreement

if the parties to a transaction express agreement and later express another agreement intending the later agreement to prevail over their earlier expressions of agreement, their later expression will prevail

this will be so in any of the following: a) both expressions of agreement are oral b)the expression is written and the second is oral c) both expressions are written d) the first expression is oral and the second is written

If one party claims that the last written form was intended to be the final and complete expression of the parties’ agreement the parol evidence theory kicks into effect

It now becomes necessary to determine whether the parties intended this writing to be the complete agreement or whether they intended previous written forms to be included in the total agreement

o Application of the Rule p. 349o Traudt v. Nebraska Public Power District, 251 N.W.2d 148

P owns land, which D purchased an easement on. P Claims D orally agreed to pay P more money if any other land owners got more money

D gained access to land through eminent domain for more than paid to P. P is suing for breach

D provided a copy of the easement signed by both parties for the price of $16,000

Does the parol evidence theory bar the proof of the oral agreement? In what manner is it to be determined whether the transaction was

integrate into the conveyance which is the grant of the easement Restatement 2d §240:

1)an oral agreement is not superseded or invalidated by a subsequent or contemporaneous integration, nor a written agreement by a subsequent integration, nor a written agreement by a subsequent integration relating to the same subject matter, if the agreement is not inconsistent with the integrated contract , and

o a) is made for separate considerationo b)is such an agreement as might naturally be

made as separate agreement by parties situated as were the parties to the written contract

2) where no consideration is stated in an integration, facts showing that there was consideration and the nature of it, even if it was a promise, or any other facts that are sufficient to make a promise enforceable, are admissible in evidence and are operative

the writing was clearly a complete one stating the complete consideration, the goods being exchanged and included in the deal and talked of future damages, nothing stated a possibility of being paid more.

Notes: Integration tests

Appearance test – the judge simply examines the writing and, from its appearance alone, determines that it is complete

Separate consideration test – if the extrinsic agreement is one that had been made for a separate consideration, evidence of that agreement is admissible

Natural Omission Test – If the extrinsic agreement is one that might naturally and normally be made as a separate agreement by parties situated as were the parties to this contract and, therefore, not be included in the writing, the evidence is admissible. The converse of this test might be called the natural inclusion test

The Certain Inclusion Test – Unless the extrinsic agreement was such that would certainly have been included in the writing, the evidence is admissible

The Writing Omission Test – If the extrinsic matter is mentioned, covered, or dealt with in the writing, presumably the writing was meant to represent all of the transaction on that element; if not, the evidence is admissible

A rule of substantive law – because parol evidence is a rule of substantive law and not of evidence, even if a party failed at trial to object to the admission of evidence violating the parol evidence rule, such evidence would not be operative on appeal

If the parties intended their writing to be final complete and inclusive the agreement is fully integrated (“complete and exclusive” or “final” in UCC) If the writing is only final and complete for some terms but not all, it is partially integrated

o Masterson v. Sine, 436 P.2d 561 (1968) P granted their property to D in 1958 with an option for the same

consideration plus any depreciation in value of any improvements that were added to the property.

P went bankrupt so his wife and trustee brought action to establish their right to purchase the property

The court had the writing but admitted extrinsic evidence about the meaning of the terms in the agreement

D claims this evidence was barred by the parol evidence theory and without it the option provision is too uncertain to enforce

It is clear that the writing is not a complete integration because they did not include the actual consideration being exchanged in the contract

Because this writing is only a partial integration parol evidence may be admitted

Trial court erred in denying evidence that the option was not assignable in order to keep the property in the family

Reversedo The UCC Parol Evidence Rule – Trade Usage, Prior Dealings p. 361o Ralph’s Distributing Co. v AMF, Inc.,667 F.2d 670 (1981)

P entered into franchise agreement with D to become a wholesale distributor of Ski-Daddlers

The franchise agreements in 1969 and 1970 included terms outlining P’s territory and were signed by both parties

Both parties continued to act in accordance to the agreements through the 1971-1972 snowmobile season

AMF decided to discontinue Ski-Daddlers and consolidate all snowmobile manufacturing and marketing to Harley Davidson. They started selling their snowmobiles to HD dealers, bypassing P

P sued for breach claiming 1)that by including the designated sales territory in the

franchise agreements, the parties intended to make Ralph’s the sole distributor in that area

2)Even if the parties did not agree to include an exclusivity term in the initial agreement, they did so in subsequent oral modifications of the 1968-69 agreements

the court erred in granting summary judgment bc there is genuine issue of fact

there is a genuine issue of whether the parties intended to include a term of exclusivity

UCC allows course of dealing and usage of trade to show intent to include terms in a contract

It also allows evidence of consistent additional terms if the parties did not intend the writing to be a complete statement of the terms

Reversed and remanded Notes:

Even a complete contract may be supplemented or explained by parol evidence of trade usages

o CISG and the Parol Evidence Rule p. 370o MCC-Marble Ceramic Center, Inc. v. Ceramica Nuovo D’Agostino, S.P.A.,

144 F.3d 1384 (1998) P met D at a trade show in Italy, they made an oral contract to

purchase ceramic tile at a set price, quantity, quality, delivery and payment. They then recorded these details on one of D’s order forms. P signed

P also claims that parties entered into a requirements contract. Subject to which D offered discounts if P purchased sufficient quantities

P completed more order forms requesting deliveries pursuant to that agreement

P sued when D failed to satisfy orders in accordance with requirements contract

D responded that it was under no obligation to fulfill the orders because P defaulted on payments for previous orders

The original order form was printed in Italian and included terms stating that the signature meant assent to all the terms on the back including term 6:

Default or delay in payment within the time agreed upon gives D the right to suspend or cancel the contract itself and to cancel possible other pending contracts and the buyer does not have the right to indemnification or damages

D brought counterclaims for incomplete payment, P claims to have lessened the balance due to CISG terms that allow him to adjust payment for lower quality goods than were contracted for

P submitted affidavits from D’s representative at the trade show saying the parties did not intend to be bound by the terms

DC held that even if true the affidavits did not raise a material fact regarding the interpretation or applicability of the terms of the written contracts

DC awarded summary judgment to D Subjective intent in CISG -Contrary to what is common in the US the

CISG appears to allow a substantial inquiry into the subjective intent even if the parties did not engage in any objectively ascertainable means of registering this intent

P has submitted affidavits that bring into question this intent to be bound by the terms

Parol Evidence in CISG- the CISG is silent on the parol evidence rule but clearly considers oral contracts as it deems them enforceable

It is clear that CISG allows parol evidence regarding the negotiations in order to establish the subjective intent of the parties

Reversed and Remandedo Rules, Guides and Maxims p. 402

Common sense rules to help with interpretation, best viewed as guides or aids as opposed to firm rules

1)contextual interpretation – Surround Circumstances. Generally said that courts must view all of the surrounding circumstance of a contract in order to identify the sense of the parties agreement. The expressions of parties must also be viewed in light of the circumstances

2) Purpose of the Parties-what was the apparent objective of the parties with respect to the contract in general and/or with respect to a particular clause in the contract

3)The Transaction Must be Viewed as a Whole – all of the different parts of the agreement must be viewed together, as a whole, and each part interpreted in light of all the other parts

4)Reasonable, Lawful or Effective Interpretation preferred – the preference is for an interpretation that is reasonable under the circumstances rather than a literal interpretation that would lead to absurd results

5)Public Interest Favored- if there is a reasonable choice in the interpretation of language, the construction favoring the public interest will be favored

6)Contra Preferentum- generally, the agreement will be interpreted against the party responsible for its drafting. This “rule” is frequently found in cases involving insurance contracts or other standardized documents with printed terms

7)Expressio Unius Est Exclusio Alterius – A Clause in a contract may specify certain items. This guide suggests that the expression in the contract of one or more things of a class implies that exclusion of all not expressed

8)Ejusdem Generis- Where a contract document contains general language followed by specific enumerated items, the meaning of the general language is said to be limited to matters similar in kind or classification of the enumerated items. This interpretation can be avoided with language indicating that the general language includes but is not limited to the enumerated items

9)Other Presumptions- i)the ordinary sense of words as used throughout the

country will be preferred ii)technical terms and words of art are to be given their

technical meaning iii) words with an established legal meaning will be

given that interpretation in absence of evidence of a contrary understanding

iv)the usage of a trade, locality, profession or the like will supersede the ordinary or popular sense of words where that assumption is justified

v)specific terms will usually be held to qualify general terms because specific terms normally suggest a more precise identification of the parties intentions

vi)a word or phrase used more than once is interpreted in the same sense throughout the contract

vii)obvious mistakes of grammar or punctuation will be corrected or disregarded to the extent that they conflict with a clear intention expressed in the contract

ix) where inconsistent intentions are manifested in the principal or more important clause is favored

o Vague or Equivocal Meanings p. 405o Frigaliment Importing Co. v. B.N.S. International Sales Corp., 190 F.Supp.

116 (1960) P initiated action for breach of the warranty stating that delivered

goods did not conform to the contract description

P ordered chickens for import into Switzerland of two types of chickens 1.5-2lb chickens and 2-3lb chickens. P was not happy with the quality of the larger birds received which he considered older fowl as opposed to young broiler chickens

P was responsible for showing that “Chicken” should be used in the more exact sense to mean “young broilers”; he failed to do so

D showed that the USDA which was obliquely reference in the contract held chickens to be a classification of all types of chickens including the delivered fowl.

Because D’s subjective intent aligned with a commonly accepted meaning of chicken P’s case can not be supported

If P was really expecting to purchase young broiler chickens at the contract price he was expecting D to voluntarily take a loss on the contract as the price was below the prevailing market price

Notes: Chicken has more than one objective meaning, the

problem for the court was to define the subjective meaning of chicken in the contract

P only had the burden of proof bc he was the one that filed suit for damages.

Chicken should be viewed in a generic sense as comprising both types of chicken. Absent evidence of prior dealings, trade usage, or other specification of young chickens by the purchaser, the sellers shipment of stewing chicken is justified as performance within the range of meaning embraced by the term chicken

o Latent Ambiguity p. 410o Raffles v. Wichelhaus, 2 H. & C. 906 (1864)

D entered into contract with P to buy 125 bales of Surat cotton for 17.25/lb to arrive by way of the peerless

P produced the described amount and nature of goods in the contract aboard the peerless in December and D refused to purchase

D claims he meant the ship the peerless that would arrive in October There is nothing on the face of the contract to show that any particular

ship called peerless was meant, but the moment it appears there are two ships names peerless sailing from Bombay there is latent ambiguity, and parol evidence may be given for the purpose of showing that D meant one peerless and P another.

There was no consensus as idem and therefore no binding contract

Notes: Restatement (second) of Contracts §20 (1981) deals with

contract formation Restatement (second) of Contracts §201 (1981) deals with

contract interpretation

Mistake o Mutual Mistake p. 413o Hoell v. Waters, 347 S.E. 2d 65 (1986)

P was an agent showing a property for sale to D The property owner supplied P with an accurate map of the

boundaries, but when showing the property P described the property as having 125 acres more than it actually did

D sued P on a theory of mutual mistake Court granted summary judgment for P Although all elements of Fraud are true, D did not argue this and in the

AC cant raise new issues A contract for the sale of land can be rescinded based on mutual

mistake under certain circumstances MacKay v Mcintosh Mistake must be common to both parties and by reason it

mistake, each has done what neither intended A defense may be asserted when there is a mutual mistake of

the parties as to the subject matter price or terms going to show the want of a consensus ad idem

In order to affect the binding force of a contract, the mistake must be of an existing or past fact which is material; it must be as to a fact which enters into and forms the basis of the contract

The MacKay v Mcintosh court held that the zoning specifications of land was a factual matter and enough to show that a mistake of fact related to the essence of the agreement

A unilateral mistake, unaccompanied by fraud, imposition, undue influence, or like oppressive circumstances, is not sufficient to avoid a contract or conveyance

As a general rule, relief will be denied where the party against whom it is sought was ignorant that the other party was acting under a mistake and the former’s conduct in no way contributed thereto, this is true where the mistake is due to the negligence of the complainant

A party has assumed the risk of a mistake when A) the risk is allocated to him by agreement of the parties B) he is aware, at the time the contract is made that he has only

limited knowledge with respect to the fact to which the mistake relates but treats his limited knowledge as sufficient; or

C) the risk is allocated to him but the court on the ground that it is reasonable in circumstances to do so restatement 2d §154

Whether D failed to exercise due diligence in discovering his mistake, or whether he assumed the risk of a mistake regarding the boundaries of the property are questions of fact to be determined by a jury

Notes: Mistake is a belief that is not in accord with the facts

Time of mistake – a mistake can occur at the time of formation, integration (final documentation), or performance.

o Mistake in performance: overpaid underpaid will be determined by restitution or breach

o Mistake as to integration may preclude the admission of evidence concerning part of the agreement or even reformation of the agreement

o Mistake in formation will permit a party to exercise a power of avoidance

Abuse of the Bargaining Processo Introduction p. 439

A contract can be ruled unenforceable by means of duress, fraud, misrepresentation or undue influence

It can also be deemed unenforceable due to unconscionabilityo Duty to read p. 440

The common law view is that a party may not avoid performance of a contract through failure to read or understand all of its terms

In an era of pre printed boilerplate and prefabricated forms there may be mitigating circumstances

o Magliozzi v. P&T Container Service Co. Inc., 614 N.E. 2d P wanted to get to a coffee cart faster so he walked through a large

trash compactor leased to Crusader(C). P was an employee of C P sued D after his foot got caught D brought a third party action against C for indemnification C motioned for summary judgment and won on the basis that there

was no indemnification contract When D picked up trash from C, agents of both companies would sign

a pick up ticket with terms on the back – nothing pointed to these terms in the invoice or ticket

The pickup ticket did not modify the contract of the parties Once agreement has been completed and performance commenced,

§2-207 does not operate to make additional terms that are proposed unilaterally in a later writing part of the complete contract

Generally it is a question of fact whether a party intended to relinquish contractual rights by entering into a subsequent agreement

An inference of assent is not warranted where the subsequent writing: 1) is used for other purposes (such as a refuse ticket) 2) does not purport to be a contract and is not contractual in

form; and 3) gives no notice whatsoever of proposed additional terms

which are not visible on the face of the writing restatement of contract 2d §211

crusader is not bound by the indemnity clause C is entitled to judgment as a matter of law

o From Fraud to Unconscionability p. 450

o Germantown Mfg. Co. v. Rawlinson 421 A.2d 138 (1985) D’s husband worked for P and stole $327,000 An insurance adjuster asked Mrs. Rawlinson to sign two judgment

notices for $160,000 (amount he admitted to stealing) the second was for any and all amounts in excess of $160,000 that were determined to be taken by mr rawlinson

D asked if she needed an attorney and the agent told her no P told D that if she cooperated her husband would avoid jail D believed she was only signing one note for $160,000 P told D that bc she had assets greater than $160,000 the judgment was

in effect taken care of She signed knowing her husband had a check for $150,000 and

$10,000 could easily be arranged P completed an affidavit on the second note valuing it at $212,113.21 Issue is whether lower court abused discretion on opening judgment in

second note Because of the severity of a warrant of attorney the law requires proof

that the party voluntarily accepted and consciously assumed the terms D claimed: misrepresentation, duress, lack of accountability in arriving

at the value The recipient of a misrepresentation may avoid the contract by

showing that the misrepresentation was either fraudulent or material If misrepresentation is material; the misrepresentation need not be the

sole or even predominant cause of assent The requirement of materiality is usually met by showing that

the misrepresentation would have been likely to have induced a reasonable person to make the contract

Fraud in the factum or execution This would render contract void not voidable Typical example involves surreptitious substitution of one

document for another and the innocent party signing it without knowledge or a reasonable opportunity to know the character or essential terms of the substituted document

Threat Restatement §175

1) If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alterntive, the contract is voidable by the victim

§176 1) a threat is improper if

o b)what is threatened is a criminal prosecution the court upheld TC ruling that the contract was voidable by D due to

unconscionabilityo Ingle v. Circuit City Stores Inc., 328 F.3d 1165 (2003)

P applied for a job with D – on the application was an arbitration clause that all employment related legal disputes would be resolved through arbitration

P claims to have been sexually harassed; filed suit in DC S.D.Ca D moves to dismiss bc of clause Unconscionabilty refers to an absence of meaningful choice on the part

of one of the parties together with contract terms which are unreasonably favorable to the other party

A contract is unenforceable when there is both a procedural and a substantive element of unconscionability

Procedural Unconscionability Court must examine the manner in which the contract was

negotiated and the circumstances of the parties at that time A contract is oppressive if an inequality of bargaining power

between the parties precludes the weaker party from enjoying a meaningful opportunity to negotiate and choose the terms of the contract

Surprise involves the extent to which the supposedly agreed upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce disputed terms

Substantive Unconscionability Centers on the terms of the agreement and whether those terms

are so one-sided as to shock the conscience D’s agreement only limit employee actions to

arbitration and does not limit its own action to arbitration

Agreement is unconscionable, action may proceedo The Pervasive Good faith Requirement p. 472o Market Street Associates v. Frey, 941 F.2d 588 (1991)

Parties entered into an agreement where the store owner would sell the property to D and then lease it back. D would provide financing for any additions over $250,000 and if financing negotiations broke down store owner had option to buy at sale price+6% annually

D refused to enter into financing negotiations with P. P sued for specific performance of paragraph 34 of the contract (the sell back clause)

DC ruled that P failed to reference paragraph 34 and by doing so failed to start the negotiations necessary to lead to paragraph 34 execution

Also that failing to mention paragraph 34 in the letters requesting financing was not acting in good faith

The paragraph 34 price was $1M while D claims “market price” was $3M

Judge ruled that bc P had first gone to others for financing and failed, and knew of a possibility that D was unaware of paragraph 34, P was not trying to secure financing but instead reach a point where they could purchase the property –not the purpose of the clause in paragraph 34

D argues that since negotiations never started, P should not have the option to purchase pursuant to paragraph 34

Contract requires D to give “reasonable consideration” to any request which it did not

By failing to give reasonable consideration to the request, D breached its own contract

A contracting party can not be allowed to use his own breach to gain an advantage by impairing the rights that the contract confers on the other party

D is not arguing that P is seeking the wrong remedy (P should be seeking fair negotiations) they instead argue that P has no possible remedy

“ a fiduciary is required to treat his principal as if the principal were he, and therefore he may not take advantage of the principals incapacity, ignorance, inexperience, or even naivete.

It would be one thing to say you can not take advantage of your superior market knowledge, or that you are not required to bail out a contract party that has gotten into financial trouble

It is different to say you can not take deliberate advantage of an oversight by your contracting partner concerning his rights under contract

Failure to disclose something prior to contract formation is entirely different than after the contract is formed

Parties approach contract negotiations with wariness and caution in assuring that the terms are favorable to them, after a contract is formed there is a cooperative relationship that is mutually benefitted by a level of trust

Silence after contract formation is more deceptive This is a contract case not a tort; something that fails to rise to the

level of fraud (tort) could still be construed as failing to act in good faith

“good faith is a compact reference to an implied undertaking not to take opportunistic advantage in a way that could not have been contemplated at the time of drafting, and which therefore was not resolved explicitly by the parties”

the duty of good faith is present at all aspects of a contract: formation, performance and enforcement, with the duty being lesser for the precontractual formation stage

overriding purpose of contract law: to give the parties what they would have stipulated for expressly if at the time of making the contract they had had complete knowledge of the future and the costs of negotiating and adding provisions to the contract had been zero

The key issue is the state of mind of the person negotiating on behalf of P. this is a key issue of fact and could be construed either way. Summary judgment was inappropriate, Reversed and Remanded

o Agreements Against Public Policy p. 481 If a statute or other governmental regulation expressly prohibits the

enforcement of an agreement, courts will not enforce it, notwithstanding the presence of all requirements for an otherwise enforceable agreement

If such a policy or statue is silent with respect to agreements that violate them, courts will refuse to lend their aid to enforcing them if such enforcement is incongruous with the overriding interests of society manifested by these societal norms

Illegal bargains – term to describe any agreement unenforceable due to public policy

This can mean you broke a law but more commonly it means that it is simply against a standard of public policy

o Public Policy in Legislation – Regulatory vs. Nonregulatory p. 482o U.S. Nursing Corp. v Saint Joseph Medical Center, 39 F.3d 790 (1994)

P entered into an agreement with D to provide nurses during a strike; both parties would need to give 7 days notice if they wished to terminate

P did not have a license to provide nursing services at the time of contract, licensing board moved to deny license and held a hearing to explain to P the reasons

Licensing board contacted D explaining to them they were in violation of Illinois Nurse Agency Licensing Act, D terminated the contract that morning without notice

P brought suit for breach DC granted D’s motion for summary judgment finding the contract

unenforceable Restatement 2d §181:

If a party is prohibited from doing an act because of his failure to comply with a licensing, registration or similar requirement, a promise in consideration of his doing that act or of his promise to do it is unenforceable on grounds of public policy if:

A) the requirement is regulatory in purpose, and B) the interest in the enforcement of the promise is

clearly outweighed by the public policy behind it

D is left in a tough position of breaking the law or breaching contract, public policy is advanced through the not enforcing the contract

DC ruling of summary judgment affirmedo Contract in Restraint of Trade p. 487o Fine Foods v. Dahlin, 523 A.2d 1228 (1987)

D agreed to sell his business to P that had succeeded bc of D’s experience and knowledge in the field

D signed an agreement not to compete in exchange for $5K consideration

Wont compete directly or indirectly in any role at a similar business within 25 miles of the sale property

D got a job as a maître D nearby and P commenced action Restraints against competitive employment conflict with the public

policy favoring the right of individuals to freely engage in desirable community activity

Such agreements will be evaluated for purpose and reasonableness to determine their enforceability

Unless the agreement is found to be contrary to public policy, unnecessary for protection of the employer, or unnecessarily restrictive of the rights of the employee, with due regard being given to the subject matter of the contract and the circumstances and conditions under which it is to be performed

When competitive employment is restricted, narrow interpretation of the contract is appropriate

Notes: Good will: if a person has an established trade or business they

have a good will with their customers and their customers have loyalty to them

The most valuable asset in the sale of business is its established reputation

Restrictive covenants are designed to protect these assets from being transferred with the transfer of the owner

Ancillary and Nonancillary restraints: ancillary restraints are the restraints protecting a legitimate interest such as the good will of a business and are enforceable, nonancillary restraints do not purport to protect a legitimate interest and are thus unenforceable

o Boisen c. Petersen Flying Service, 383 N.W.2d 29 (1986) P was a farmer with interest in becoming a pilot. He sought

certification through D and after containing a commercial pilot license, D expressed interest in hiring P. P worked for D for a while until D terminated his employment

D signed a restrictive covenant when gaining the training from P but now claims the terms are too restrictive to be enforceable

P asked that if the covenant can not be enforced that the court determine and reform the contract to be equitable between the parties

DC held covenant was unreasonable and unenforceable There are three general requirements relating to partial restraints of

trade: 1)is the restriction reasonable in the sense that it is not

injurious to the public 2) is the restriction reasonable in the sense that it is no greater

than is reasonably necessary to protect the employer in some legitimate interest

3) is the restriction reasonable in the sense that it is not unduly harsh and oppressive on the employee

Securities Acceptance Corp. v. Brown Difference between ordinary and unfair competition – the only type of

restrictive covenant that is enforceable is one that protects from unfair or improper competition (taking advantage of good faith, protecting trade secrets etc.) Diamond Match v. Berenstein

DC judgment affirmed, contract is unenforceable Notes:

Blue pencil rule: suggested the possibility that courts could mechanically alter a contract by crossing out unfair terms, provided that what was left was still comprehensible

Modern courts are willing to “sever” unfair terms whether or not it can be accomplished mechanically

Breach Materiality of Breach

o Restatement (first) of contracts p.549o Walker & Co. v. Harrison, 81 N.W.2d 352 (1957)

D bought a neon sign for his dry cleaning business from P that would be paid off in monthly installments for 36 months

The contract provided that P would be responsible for cleaning the sign

D noticed cobwebs, a tomato and “rust” on the new sign and repeatedly called to have it cleaned. P did not answer calls

D sent telegram stating that P had voided rental contract and D would no longer pay

P sued D contends that P had materially breached the contract and its claim

should be grounded DC ruled for plaintiff in amount of $5,197.50 Materiality of breach in restatement (first) of contracts §275

In determining the materiality of a failure fully to perform a promise the following circumstances are influential:

A) The extent to which the injured party will obtain the substantial benefit which he could have reasonably anticipated;

B) The extent to which the injured party may be adequately compensated in damages for lack of complete performance;

C) The extent to which the party failing to perform has already partly performed or made preparations for performance;

D) The greater or les hardship on the party failing to perform in terminating the contract;

E) The willful, negligent or innocent behavior of the party failing to perform;

F) The greater or less uncertainty that the party failing to perform will perform the remainder of the contract

The delay between repudiation and performance was one week, both the cobwebs and rust (that appeared a weak after installation) were within reach of D and the tomato is not enough to materially breach a contract for the rental of a neon sign

Affirmedo Restatement (second) of Contracts p.551o Associated Builders, Inc. v. Coggins, 722 A.2d 1278 (1999)

P entered into a contract with D to furnish materials and labor for a construction project

A dispute arose; P and D signed accord stating that payment of an outstanding debt would be made by certain terms

D missed a payment by 3 days, P sued for remaining balance If an accord is breached, the obligee has a right to enforce the original

duty or any duty pursuant to the accord Material breach is a nonperformance of a duty that is so material and

important as to justify the injured party in regarding the whole transaction as at an end

Courts have held that a slight delay in payment that does not cause any detriment or promise to the obligee

Even if the breach were material, D waived that right when it accepted and cashed the late check

o Comparing two restatements p. 553 Second restatement avoids the rigid determination of material v

immaterial breach and instead looks to the effect of a material breach Material breaches are treated as failure to comply with a contract term

Curable – the innocent parties duties are simply suspended until the aggrieving party can cure the material breach

Incurable – the breach is such that action of the aggrieving party will not cure the breach

o Substantial Performance and Material Breach p. 556

Where mutual covenants go to the whole of the consideration on both sides, they are mutual conditions, the one precedent to the other. But where they of only to a part, where a breach may be paid for in damages, there the defendant has a remedy on his covenant, and shall not plead it as a condition precedent

o Jacob & Youngs, 219 N.E. 889 (1921) P built a house for D but inadvertently used pipe from a different

manufacturer than specified in the contract P sued for the remaining balance due on the contract, D did not claim

any defect until a year after inhabitance TC ruled for D and dismissed all evidence as the similarity between

the pipe used and prescribed Court held that the value of the breach was not the cost of ripping out

and replacing all pipe in the house, but the difference in value of the pipe used and the pipe called for (nominal or zero)

In most cases the cost of replacement is the measure so as the aggrieved party can set themselves in the place they would be at full performance of the contract

This case is distinguished because of the grand expense of changing every pipe in the house compared to the actual “loss in value” experienced

Judgment directed in favor of Po Substantial Performance and Express Conditions p. 560o Jackson v. Richard’s 5 & 10, Inc., 433 A.2d 888 (1981)

Restatement 2d of contracts §237: Except as stated in §240, it is a condition of each party’s

remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time

Comment d: If, however, the parties have made an event a condition of their agreement, there is no mitigating standard of materiality or substantiality applicable to the non-occurrence of that event. If, therefore, the agreement makes full performance a condition, substantial performance is not sufficient and if relief it to be had under the contract, it must be through excuse of the non-occurrence of the condition to avoid forfeiture

o The “Willful” Preclusion p. 562o Vincenzi v. Cerro, 442 A.2d 1352 (1982)

P agreed to built a three family home on land owned by D for a price of $91,000, D made four payments on time but refused the fifth and final payment on grounds that the house was not complete in time.

TC deemed the date of substantial performance to be when the certificate of occupancy was awarded (8 months after house was supposed to be complete)

Judgment awarded P the contract price minus $5,002.90 for incomplete work and lost rent

D appeals claiming p should not be entitled a recovery after a willful breach

The pertinent question is not simply whether the breach was willful, but whether the behavior of the party in default comports with standards of good faith and fair dealing Restatement 2d §241(e)

Even an adverse conclusion on this point is not decisive but is to be weighed with other factors, such as the extent to which the owner will be deprived of a reasonably expected benefit and the extent to which the builder may suffer forfeiture, in deciding whether there has been substantial performance. Id

Judgment affirmed with direction to correct amount in question Notes: willfulness

The refusal of the court to treat willfulness as conclusive departs from earlier holdings that a willful breach must always be material even though it may be quantitatively and qualitatively slight.

Important notes regarding willfulness in the restatements on page 564

o Repudiation p.571 A manifestation by a party to a contract that he will not perform his

contractual duty. Can occur through statements or actions and typically amounts

to a clear material (total) breach of contracto Anticipatory Repudiation p. 572o Flatt & Sons Co., Inc. v. Schupf, 649 N.E.2d 990 (1995)

D agreed to sell P property on the condition that the property was accepted by the zoning board for the stated purposes P had within 120 days. If this condition was not met, P was allowed to void the contract and recover earnest money paid

P and D both realized there was virtually no chance of rezoning the land, P proposed that they still purchase the property but for a lower price than would have been paid if the rezoning had taken place

P decided to go ahead with the original contract after D denied the new offer

D refused claiming P had repudiated the deal

Anticipatory repudiation requires a clear manifestation of an intent not to perform the contract on the date of performance. That intention must be a definite and unequivocal manifestation that he will not render the promised performance when the time fixed for it in the contract arrives. Doubtful and indefinite statements that performance may or may not take place are not enough to constitute anticipatory repudiation In Re Marriage of Olsen

Previous cases hold that a request for alteration of terms does not, in itself, constitute repudiation

P claims circumstances and language of the letter point to an anticipatory repudiation

Plaintiffs letter at most created an ambiguous implication, not a definite repudiation

Restatement (Second) : The effect of a statement as constituting a repudiation under

§250 or the basis for a repudiation under §251 is nullified by a retraction of the statement if notification of the retraction comes to the attention of the injured party before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final

Defendant was not entitled to verdict as a matter of law Notes;

Repudiation Tests- UCC only requires and action which reasonably

indicates a rejection of the continuing obligation. Restatement only requires an expression to be

sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform

Conduct repudiations- where an obligor sells or leases goods or land necessary to perform a contract or makes a contract for their sale to another prior to the time for performance, such conduct will constitute a repudiation

Also, foreclosure or test pilot going to MIR for two months before he is supposed to test a plane

o Retraction of Repudiation p. 578 UCC§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 (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

o Prospective Failure of Performance – Demanding Adequate Assurances p. 581

o Scott v. Crown, 765 P.2d 1043 (1988) P agreed to sell D 16,000 bushels of U.S. No. 1 wheat. D put deposit

of $2,000 down Total balance would be paid within 30 days of delivery P started delivering the wheat according to the contract but stopped

under the belief that seller could not pay P learned of other complaints against D involving non-payment; P

refused to keep loading trucks until he spoke with buyer but was unable to contact him

D pointed out that payment was not due until after complete performance and demanded continued performance of the contract

D attempted to cover with other buyers but couldn’t, P sued for breach in not providing adequate assurances

UCC §2-609(4): A contract for sale imposes an obligation on each party that the

others expectation of receiving due performance will not be impaired. When reasonable grounds for uncertainty 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 agree return

Disagree that there were no grounds for insecurity (a complaint with the agricultural board for nonpayment is sufficient grounds for insecurity of nonpayment) but agree that the assurances demanded were not reasonable

The demand for assurances needs to be in writing (some courts have accepted oral demand for assurances where there was a clear oral conversation regarding the request)

Seller’s actions constituted an anticipatory repudiation which gave buyer the right to cancel the contract and resort to buyers remedies

Notes: Demanding Adequate Assurances in Other Contracts. A

demand for adequate assurances would be recognized beyond sale of goods contracts, but limited its application to long term commercial contract which are typically not susceptible to anticipation of all security features

Time for Adequate Assurances – A failure to provide assurances within a reasonable time after receipt of a justified demand for such assurances constitutes a repudiation of the contract (restatement doesn’t have a limit but UCC limits it to 30 days)

Insolvency – since insolvency is not voluntary and affirmative, it is not a repudiation of the contract UCC §2-701 Where insolvency provides reasonable grounds (other party has a duty that cant be performed without money; such as a sales contract) to believe that the obligor will not be able to perform, the obligee has the unqualified power to suspend his own performance. If, however, the obligee wishes to be discharged from his duties, he must pursue the process of demanding adequate assurances

Risk allocation: Impossibility, Impracticability and Frustration of Purposeo Origins p.597o Taylor v Caldwell 3 B & S 826 (1863)

P and D contracted the use of a concert hall for four separate concerts with a fee of $100 for each concert

After the first concert, to no fault of either party, the concert hall burned down

Who should bear the burden of the fire? (i.e. should D still pay the contract fee or should P still be forced to provide a concert venue)

The situation presents one where it is impossible for the contract to be performed to completion

Neither party should bear the burden, D does not have to pay, P does not have to provide a hall

Notes: UCC §2-615: A failure to perform is not a breach when

performance as agreed upon has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made

o Commercial Impracticability p. 604o Transatlantic Financing Corp. v. United States, 363 F.2d 312 (1966)

P contracted with D to deliver grain from Texas to Iran After P took off on the voyage the Suez canal ( the planned route) was

obstructed by the Egyptian government and the ship had to sail a lengthier voyage around the cape of good hope

P filed an impossibility claim asking for increased fees for the voyage “A thing is impossible in legal contemplation when it is not

practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost”

the court is asked to construct a condition of performance based on the changed circumstances, a process that involves three steps

1)a contingency (something unexpected) must have occurred

2) the risk of the unexpected occurrence must not have been allocated either by agreement or custom

3)occurrence of the contingency must have rendered performance commercially impracticable

unless these three things are found the plea of impracticability must be fail

first two conditions were met only factor in P’s favor is added expense. Contract price was

$305,842.92, cost was $43,972.00 over contract price for a journey 3,000 miles longer than the 10,000 planned

to justify relief there must be more of a discrepancy between the contract price and the incurred cost

affirmedo Force Majeure Clauses p.617o Northern Indiana Public Service Co. v Carbon County Coal, 799 F.2d 265

(1986) P agreed to buy a set amount of coal from D every year for 20 years,

the price set was a minimum and would go up due to escalation clauses

The civil energy board prohibited P from passing added costs of coal onto consumers and forced P to find economic ways of providing energy (purchasing from neighboring power companies to distribute)

P sought to postpone its contract until after the government enforced rules had been lifted

Claimed a force majeure prevented him from abiding by his contract

Court denied this claim saying that this outside force was not preventing him from performing its contract but, instead, was stating that it would bear the burden of its unfortunate contract and could not pass those costs onto consumers

Notes: Force majeure –seek to excuse a party for various events

beyond his control. Acts of god are generally included. They also typically include such events as war, civil strife, strikes, and shortages of raw materials

Gross inequity – long term contracts also generally contain clauses that any gross inequity that may result from unusual economic conditions not contemplated by the parties at the time of the execution of this agreement may and should be corrected by mutual agreement; provided, however, that nothing contained herein shall be construed as relieving any party from continued performance of its obligation hereunder, notwithstanding the existence of a claim of inequity or the failure of the parties to reach an agreement with respect thereto. Each party hereto shall, in case of a claim of gross inequity, furnish the other party with whatever documentary evidence may be requested in effecting a settlement of such claim”

o Frustration of Purpose p. 622o Pieper, Inc. v. Land O’Lakes Farmland Feed, 390 F.3d 1062 (2004)

P agreed to a contract to sell weaner pigs to D who would sell them to third party farms who would sell them to farmland

The contract was stated to be of this purpose and included clauses showing the purpose

Farmland stopped buying hogs so D informed p it would no longer buy pigs

P sued, both filed motions for summary judgment, D on the affirmative defense of frustration of purpose

Frustration of purpose will excuse contract performance when: (MN Law)

1) the party’s principal purpose in making the contract is frustrated;

2) without that party’s fault; 3) by the occurrence of an event, the non-occurrence of which

was a basic assumption on which the contract was made DC properly granted summary judgment

Remedieso Purpose- Economic Theory p.631o Allapattah Services, Inc. v. Exxon Corp., 61 F. Supp. 2d 1326 (1999)

UCC §1-106: The remedies provided by the act shall be liberally

administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed but neither consequential or special nor penal damages may be had except as specifically provided in this act or by another rule of law.

o The Expectation Interest and its limitationso The foreseeability limitation p. 632o Hadley v. Baxendale, 156 Eng. Rep. 145 (1854)

P and D contracted to carry a broken mill shaft to the engineer to serve as a template for anew one.

The shaft was late getting to the engineer and led to a delay. This delay cost P a lot of money that it wanted to cover (expectation interest – money would have been made if the shaft had been delivered as stipulated in the contract)

Because there were many scenarios in which a shaft would be transported it was not foreseeable that a delay in shipment would cause such severe damages. Because the damages were not foreseeable for D they can not assumed by D

Notes: It is clear from the decision that the court rejected evidence that

the clerk told the delivery person that the mill was stopped and the shaft needed to be delivered as soon as possible

If they had accepted this evidence the judgment would be in the opposite party’s favor

General v Specific damages The former arise naturally from the breach and are

implied or presumed by law. The latter do not arise naturally. They are not within the common experience of mankind as arising in the particular situation.

o General damages are generally considered to be those that are foreseeable to the parties entering into the contract without any special information

o Special damages are those that are not foreseeable, but would be understood from information transmitted at contract formation (loss of use loss of future profits etc)

The information needed to prove special damages needs to be communicated at the time of contract formation, not after the contract is formed

o Spang Industries, Fort Pitt Bridge Division v. Aetna Casualty & Surety Co. 512 F.2d 365 (1975) p. 637

P agreed to supply bridge to Torrington for the construction of a steel bridge over the battenkill river

The parties signed a contract that defined the delivery date as one to be agreed upon later

P breached the contract and delivered the steel late, into the winter, causing Torrington to incur extra costs

P claims these costs were not foreseeable at the time of contract formation because a delivery date was not set

The judgment for Torrington was not reversed because at the time the parties agreed upon a delivery date, the consequences of breach became evident

Torrington acted quickly an deficiently to limit the costs of the breach to the mere $7,000

Had Torrington waited until spring to pour the concrete and then claimed damages the delay would be special damages

notes: foreseeability – contracts and torts –

much like the idea in torts that someone ought to take a certain amount of care to avoid a certain magnitude of harm. When this harm is foreseeable the magnitude and risk of harm is unknown and the amount of effort taken to avoid it will also be unknown

tacit agreement test – in addition to foreseeability, some manifestation of assent by the defaulting promisor had to be discovered to allocate the risk of special circumstances to him.

This has been dismissed outright by both the UCC and restatement, but there remains a problem where the damages caused by foreseeable circumstances are grossly disproportionate to the consideration received for the contract

Modern Relief – notwithstanding its clear rejection of the tacit agreement test, courts have limited foreseeable damages to only those incurred in reliance or otherwise to eliminate disproportionate compensation

Mitigation Limitationo Soules v. Independent School District no. 518, 258 N.W.2d 103 (1977) p. 658

P was unfairly terminated from her job as a teach and was awarded $17,401 in damages, but her failure to mitigate those damages led to her award being reduced by $9,100 dollars

The burden of proof for the mitigation of damages is placed on the party responsible for the breach and who claims mitigation of damages as a defense

Damages are only reduced by earnings from a compatible job, the job P was offered was a full time job, whereas the one she was fired from was half time; only half of the earnings she would have received from the later job can be deducted from her damages

Notes: Duty to mitigate:

Avoidable damages cannot be recovered. In the interests of fairness to the defaulting promisor, it is universally accepted rule that the promisee can not recover damages that could have been avoided through the exercise of reasonable diligence and without incurring undue risk, expense or humiliation

UCC §2-715(2)(a) mitigation: “consequential damages include any loss which could not reasonably be prevented by cover or otherwise”

Liquidated Damages p. 664o Is a stipulation in a contract that the promisor shall pay a specified amount of

damages if he breaches the contract enforceable? o Three possible purposes:

A) coercion of the promisor into performing his promise ( if the damages are high it will scare the promisor into completing his duties)

B) convenient method of determining the amount to be paid as an honest forecast ( think of the book example where he could not prove his expectation interest of a share of sales)

C) put a limit on the amount of damages to be borne by the promisor in case of breach

o Some courts look to the uncertainty of the damages to see if a liquidated damages clause is enforceable. If damages are readily ascertainable, there is no need for a liquidated damages clause, and the insertion of such a clause under those circumstances should make a court suspicious as the why the parties included to clause

o Lind Building Corp v. Pacific Bellevue Developments, 776 P.2d 977 (1989) p. 666

D was selling land to P for 4.144M with a liquidated damages clause that said seller has a right to retain the deposit from escrow and keep it in case of breach by the buyer

Buyer requested several extensions on the closing date and paid deposits for each of these requests until D finally rejected on of P’s requests for an extension. D kept the $250,000 in deposits and sold the property for 5.15M.

P sued for the $250,000 claiming that amounted to a penalty because there were no actual damages

Restatement 2d §356: “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 grounds of public policy”

Three reasons the liquidated damages are inappropriate here: The amount of $250,000 came into existence for reasons

unrelated to the liquidated damages provision, meaning it is not a reasonable estimate by the parties to the cost of breach

There are no actual substantial damages A calculation of the amount of damages D would incur are

reasonable ascertainable Notes:

Blunderbuss clauses – clauses that assign one penalty for any type of breach in a contract with many promises, allowing the amount to be too large for some types of breaches

Some courts refuse to enforce them at all while others are willing to enforce it only where it does not lead to disproportionate damages

The Reliance and Restitution Interests p.678o CBS, Inc. v. Merrick, 716 F.2d 1292 (1983) p. 678

P contracted with D to produce a television series with a deadline of august 1st to start filming. If this date wasn’t met, the rights of the film reverted to D and he would keep the $833,333 he had already been paid

court held that D breached the contract by having a script ready for filming starting Aug 1st and awarded P the $833,333 and $83,333 they had paid to D and his agent

the appeals court also ruled that D should be liable for the reliance damages of $750,000 for the hiring of a director and writer

the $916,667 was restitution (unjust enrichment) and the $750,000 was reliance (monies expended in reliance of performance)

notes: both of these interests can be recognized bc D did not rescind

the contract, he breached it Alternative Relief for Breach of Contract

o Doering Equipment Co. v. John Deere Co., 815 N.E.2d 234 (2004) p. 682 P contracted to distribute D’s lawn products and turf gator vehicles. P was losing money on the contract from its inception and was irked

by D demanding them to hire another employee and keep 44 vehicles in inventory

P claims this was a breach and P should be entitled to collect the money they had lost from the contract in reliance damages

The court rejected this theory because the P had admitted that it had lost money on the contract in every month since its inception, the actual expectation interest was a negative number if the contract had been completed

Any award for P would actually put them in a better position than they would have been in were the contract to have been performed to completion

o United States v. Algernon Blair, Inc., 479 F.2d 638 (1973) p. 684 Coastal contracted with D to subcontract on a contract D had with P to

build the steel structure for a hospital in Charleston D unjustifiably breached the contract after Coastal demanded D pay

for the crane rental as stipulated in the contract Court found the contract amount minus what had already been paid to

coastal was $37,000 Court also found that Coastal would have lost $37,000 by completing

the contract Although the normal contract damage would say that Coastal can not

recover, this would leave D unjustly enriched Coastal had expended money on building the structure and D

used its breach to gain these assets without paying for them, Coastal should recover restitution in Quantum meruit

The impact of quantum meruit is to allow a promisee to recover the value of services he gave to D irrespective of whether he would have lost money on the contract

Notes: Restatement§373 “in the case of a contract on which the

injured party would have sustained a loss instead of having made a profit, his restitution interest may give him a larger recovery than would damages on either an expectation or reliance basis”

o Defaulting Plaintiff Recovery p. 687 Prevailing view “a defaulting P can recover no more than a pro rata

share of the contract price, regardless of the value of the benefit conferred, minus whatever damage D could prove as resulting from the breach”

o Telespectrum Worldwide, Inc. v. Grace Marie Enterprises, Inc., 2000 U.S. Dist. LEXIS 17608 (2000)

P contracted to perform telemarketing services to political candidates through D

P’s breached the contract and wanted to collect an amount owed to them

Court held that P had already been paid $213k, D was paid $828k by her clients, had a profit margin of $282k and discounted its services because of the breach by $162K

P was entitled to $828,164 less $162950 for discounts, $213,801 already paid, and 282,123 for D’s profits leaving a judgment of $169,290

This award was in restitution in order to prevent the unjust enrichment of D

o Quasi Contract p. 689o Anderson v Schwegel, 796 P.2d 1035 (1990) p. 689

Both parties believed they had a contract to restore P’s car for $6k but were not in agreement on what that meant

D began repairing the body work himself for $6,000 and P assented to engine repair and other services for an extra $3,800.27 which he thought were included in the contract

P sued for return of his car after D tried to collect Judge ruled that there was no contract, but there was a quasi contract

through performance and the unjust enrichment of P was in the amount of $4,800.27 (the total cost of services rendered minus the $5k already paid)

Notes: “The modern suit for restitution in quasi contract, or under a

contract implied in law, as it is sometimes described, is based on the principle that, ‘a person who has been unjustly enriched at the expense of another is required to make restitution to that other”

o Estate of Frances Cleveland v. Gorden, 837 S.W.2d 68 (1992) p. 693

D agreed to help pay her aunts medical and nursing home expenses after a bank told her she would be able to recover with complete records of expenditures

When P died D, attempted to collect the $99k she had spent on her aunts wellbeing

The aunt had admitted that she wanted to pay D back and that she would give her everything she had left

Gratuitous gifts are not entitled to recovery but D argues she was under a moral obligation to help her aunt when no other family member would

Gratuitous gifts are not recoverable at law and in general neither are household expenses provided to a family member, but in this instance it was clear that D was acting the entire time under the presumption that she would be repaid and under a moral obligation

Because she went beyond what would normally be expected of a family member in her position she should be able to recover

Notes: In a case where the school board refused to provide

transportation as required, the father was entitled to his expenses in transporting his kids to school because the school board was unjustly enriched and the father was a “proper person” to complete the duties, he was not an officious intermeddler

If a neighbor had provided the transportation he would not be able to collect

Specific Performanceo Background

Specific performance may or injunction may be granted notwithstanding a provision for liquidated damages

The objective of the court in granting equitable relief is to do complete justice to the extent that this is feasible

o Limitations on Granting Equitable Relief In an action at law for damages, scores of cases repeat the principle

that damages must be proved with “reasonable certainty.” Where damages cannot be proved according to that standard, there is no adequate remedy at law which is an essential basis for providing an equitable remedy

o Walgreen Company v. Sara Creek Property Company, 966 F.2d 273 (1992) p. 699

P had a 30yr 6mo lease signed in 1971 with P including a clause that no other pharmacies be tenants in the shopping center

P filed for an injunction against the letting of the “anchor property” to a store that would include a pharmacy

D argues that damages are the norm of contract disputes and P’s damages could be reasonably estimated

D argues that this may be a case of efficient breach to both parties and injunctive relief is excessive

The judge ordered an injunction The judge did not overstep his the bounds of reasonable

judgment in concluding that the costs (including the forgone benefits) of the damages remedy would exceed the cost (including forgone benefits) of an injunction.

Notes: The judge talks about the idea of the costs of injunctive relief

including the court supervision that is required. In this case supervision of an injunction is not a major trouble but other cases are different. If it were a breach of a snow removal contract and the court ordered an injunction it would constantly have to check on the quality of work being performed leading to high costs of specific performance relief

CISG – in the UCC the buyer has a right to cover but under CISG the buyer may require the breaching seller to provide substitute goods when there has been a fundamental breach, as defined in CISG art. 25 as substantially depriving the aggrieved party of its reasonable expectations where the breaching party could have foreseen the substantial deprivation