contracts fall 10

8/6/2019 Contracts Fall 10

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Fall 2010

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Contracts Outline:

I. Mutual Assent

A. Intention to be bound: the objective standard.

1. Ray v. William G. Eurice & Bros:

a. Rule - A party is bound to a written contractual agreement which theyhave signed and read or been afforded the opportunity to read with thecapacity to understand it, absent fraud, duress and mutual mistake.

b. Facts An engineer presented architects plans to Eurice bros,experienced builders. Revisions were made, which Eurice read and

signed, and then refused to perform upon. Court found Eurice bros inbreach.

c. Reasoning The builder was very experienced and had no logical basisfor assuming the specifics referred to were his rather than the engineers.His mistake was unilateral and he assumed the risk by not carrying out due diligence.

Restatement §21 - Intention to be Legally Bound: Neither real nor apparent intention that a promise be legally binding is essential to the formation of acontract, but a manifestation of intention that a promise shall not affect legalrelations may prevent the formation of a contract.

Restatement §22 (2) A manifestation of mutual assent may be made eventhough neither offer nor acceptance can be identified and even though themoment of formation cannot be determined.

B. Offer and Acceptance in Bilateral Contracts:

2. Lonergan v. Scolnick:

a. Rule Where communications between the parties do not indicate aclear manifestation of intent to enter into a contract through offer andacceptance, no contract is formed.

b. Facts One party wanted to sell land for cheap and quickly. Therewritten communications clearly indicated that there was no offer, only arequest for an offer.

c. Reasoning Where there is clearly no mutual assent, there is nocontract. Until there is a definite offer and acceptance, or at least an



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objective manifestation of intent to contract through action andperformance, there is no contract.

3. Normile v. Miller:

a. Rule A prospective purchaser does not have the power to accept a

counteroffer after receiving notice of its revocation by accepting thecounter offer within the time period specified in the prospectivepurchasers original offer. The revocation of the counter offer takes place

WHEN IT IS COMMUNICATED TO THE OTHER PARTY OR THE OTHERPARTY FINDS OUT BY OTHER MEANS.

b. Facts Defendant made changes to an offer and submitted it toplaintiff. Plaintiff erroneously thought he could respond within theoriginal time frame of the offer. Revocation was made clear to plaintiff,yet he tried to accept anyway.

c. Reasoning Although plaintiff controlled the time for the originaloffer, he did not for the counter offer b/c it was an entirely new offer.Plaintiff could not attempt to accept offer after receiving notice that theoffer was revoked.

Restatement §26 Preliminary Negotiations: A manifestation of willingnessto enter into a bargain is not an offer if the person to whom it is addressedknows or has reason to know that the person making it does not intend toconclude a bargain until he has made a further manifestation of assent.

Restatement §33 Certainty:

(1) Even though a manifestation of intention is intended to be understood asan offer, it cannot be accepted so as to form a contract unless the terms of thecontract are reasonably certain.

(2) The terms of the contract are reasonably certain if they provide a basisfor determining the existence of a breach and for giving an appropriateremedy.

Restatement §40 Rejection of counter-offer by mail or telegram does not terminate the power of acceptance until received by the offeror.

Restatement §43 An offerees power of acceptance is terminated when the

offeror takes definite action inconsistent with an intention to enter into theproposed contract and the offeree acquires reliable information to that effect (e.g. selling offered property to another party, if not prohibited)

C. Offer and Acceptance in Unilateral Contracts:

4. Cook v. Coldwell:



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a. Rule In context of an offer for a unilateral contract, the offer may not be revoked when the offeree has accepted the offer by substantialperformance.

b. Facts Former employee alleged that she substantially performed onher required duties (sales targets) to receive her maximum bonus.Employer tried to revoke the offer after she left her job at the end of theyear, despite her meeting her targets and staying at the firm because of reliance on the promise.

c. Reasoning An offer to pay a bonus in return for an at-will employeescontinued employment and for meeting sales targets is an offer for aunilateral contract that becomes enforceable upon employeesperformance. Even part performance is considered consideration tomake the offer temporarily irrevocable until for a reasonable time untilcompletion.

Restatement §45 (1) Where an offer invites an offeree to accept byrendering a performance that does not invite a promissory acceptance, anoption contract is created when the offeree tenders or begins the invitedperformance or tenders a beginning of it. (2) The offerors duty of performance under any option contract so created is conditional oncompletion or tender of the invited performance in accordance with theterms of the offer.

Restatement §59 A purported acceptance with qualifications is not anacceptance but a counter-offer.

Restatement §63 An acceptance made in a manner and by a medium invitedby an offer is operative and completes the manifestation of mutual assent assoon as put out of the offerees possession, without regard to whether it everreaches the offeror.

5. Harlow & Jones, Inc. v. Advance Steel Co.:

a. Rule A contract is formed orally, even though exact moment of itsmaking is undeterminable and even though one or more of the terms are left open, where the conduct of the parties corroborates the creation of such acontract.

b. Facts ¶ and had phone conversations that were found to be an oralcontract. While the forms they sent back and forth were slightly different,they were basically confirmations. The parties substantially acted; there wasperformance. accepted on of three shipments and ¶ sent all threeshipments, there was just confusion about the dates.

c. Reasoning Neither ¶ nor presented sufficient evidence to concludethat either of their forms constituted an offer or acceptance, but a contract



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was obviously entered into due to performance. The forms are to beconsidered confirmatory memoranda. There was no material breach, just areasonably late shipment.

d. ADDITIONAL NOTES: The UCC does not define an offer; therefore welook to the common law when such terms are missing from the UCC. Thiscase is vital to offer/acceptance analysis. Always remember to look forperformance and action; courts are reluctant to find a contract insituations with apparent good intention, but no performance.

UCC § 2-204(1) a contract for the sale of goods may be made in any mannersufficient to show agreement, including conduct by both parties that showsthe parties recognize the existence of such contract. E.G. if the parties treat their relationship as a contract (through performance!) that is good enoughto assert the existence of a contract

D. Offer and Acceptance under UCC 2-207 (Battle of the Forms)

6. Brown Machine, Inc. v. Hercules, Inc.

a. Rule An offeres response to an offer operates as valid acceptance of the offer even though it contains terms additional to, or different from,the terms made in the offer, unless the acceptance is expressly made

conditional on the offerors assent to the additional or different terms.

b. Facts - In this case, THE OFFER EXPRESSLY LIMITED ACCEPTANCE TOTHE TERMS OF THE OFFER, therefore, Hercules purchase ordersubmitted was indeed a counter offer to Browns initial proposal. Brownthen sent an acceptance of the original offer, its boilerplate proposal,ONLY, which Hercules accepted and thus formed a contract. Anindemnity agreement is a material alteration of a contract [§2-207(2)(b)], and therefore did not become part of the contract (bothparties were merchants).

c. Reasoning If both parties are merchants, terms in an acceptancebecome part K unless the terms of the offer were expressly limited to theoffer. That was not the case in Brown Machine. However, an indemnityagreement, which was a term additional to the terms of the offer, wouldmaterially alter K and therefore DID NOT BECOME PART OF K.

*** Brown machine would have had to have proved express consent of behalf of Hercules in order to include their indemnity clause.

If Brown machine had said they were not going ahead in the deal unlessHercules agreed with everything on their form, then they would have had a counteroffer. You must have an EXPRESS statement in order to have a counteroffer underUCC 2-207.



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UCC 2-207 (2) - Additional terms are considered proposals for addition to a contract UNLESS the contract is between merchants. Between merchants such terms become

part of the contract unless:

(1) the offer expressly limits acceptance to the terms of the offer

(2) they materially alter K

(3) notification of the objection to them has already been given or is givenwithin a reasonable time after the notice of them is received.

7. Klocek v. Gateway

a. Rule 2-207 applies in situations where there is only one form.

b. Facts - ¶ ordered computer from Gateway. Gateway sent computer

and additional K terms including an arbitration clause; ¶ was given timeto return computer if it did not agree w/ the additional terms.Arbitration clause did NOT become part of K

c. Reasoning - ¶ was a consumer ordering a product from a merchant.Therefore, the additional terms were merely proposals; they did NOTbecome part of K.

+++This case states that Hill v. Gateway is distinctly wrong in asserting that 2-207only applies when there are two forms. This is the standard we follow.

E. Mutual Assent in E-Commerce

8. Sprecht v. Netscape Communications Corp.

a. Rule Reasonably conspicuous notice of the existence of K terms andunambiguous manifestation of assent to those terms by consumers areessential if electronic bargaining is to have integrity and credibility.

b. Facts - ¶ downloaded free software from Netscape. The terms of download were placed on a page that must be scrolled down to reach.The hyperlink took you to the terms of download that stated the termsmust be read before d/l and included an arbitration clause.

c. Reasoning The terms of download were not placed conspicuouslybecause you clicked the d/l button on the page you were notified of terms. Therefore the arbitration clause was not part of K because ¶scould not have been reasonably put on notice.

II. Consideration.

A. Bargain Theory of Consideration



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Restatement §71 (1) TO CONSTITUTE CONSIDERATION, A PERFORMANCEOR A RETURN PROMISE MUST BE BARGAINED FOR. (2) A performance orreturn promise is bargained for if it is sought by the promisor in exchange forhis promise and is given by the promisee in exchange for that promise.

9. Pennsy Supply v. American Ash Recycling Corp:

a. Rule Relieving a company of the liability of performing an expensivetask is contractual consideration.

b. Facts Plaintiff contended that its disposal of a hazardous material it had obtained for free from constituted consideration necessary to support various breach of contract, warranty and merchantability claims.

10. Batsakis v. Demotsis

a. Rule Mere inadequacy of consideration will not void a contract.

Restatement §79 - Adequacy of Consideration; Mutuality of Obligation. If therequirement of consideration is met, there is no additional requirement of (a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, ordetriment to the promisee; or (b) equivalence in the value exchanged; or (3)mutuality of obligation

11. Dougherty v. Salt

a. Rule A note that is not supported by consideration is unenforceable.

b. Facts An aunt wanted to take care of a child on her death, and wrotea note granted the child money to be executed on her death. No considerationwas given her in return for the note.

c. Reasoning The only evidence available indicated the note was givenout of generosity of the maker. The Payee was not a creditor and was not owed support by the maker. Thus, the note was not supported byconsideration.

12. Berryman v. Kmoch

a. Rule Expenditures of time and money alone in attempting to attract buyers does not constitute consideration to support the enforcement of an

option contract on land.

b. Facts ¶ claimed that his expenditures of time and money inattempting to attract buyers constituted consideration to support enforcement of an option on s land.

+++if using §87, you would get an opposite result of Berryman, as the case cited apurported consideration for the making of the offer, was signed, and proposedexchange on fair terms.



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REMEMBER:

Past consideration is no consideration.

Moral consideration is no consideration.

Just saying consideration is no consideration.

Bargained for exchange IS consideration (present/future)

III. Promissory Estoppel

13. Pops Cones, Inc. v. Resorts International:

a. Rule Promissory Estoppel consists of (1) a promise (2) Promisorreasonably expects Promisee reliance (3) Promisee reasonably relies and

acts or omits an action (4) substantial detriment occurs due to act oromission (5) and injustice can only be avoided by enforcement of thepromise.

b. Facts Pops, after discussion with on possibility of leasing space inits hotel, relied on s assurances that the deal would be approved, and didnot renew its lease at its previous location.

c. Reasoning This approach is a more equitable analysis designed toavoid injustice has eroded the earlier stricter adherence to proof of a clearand definite promise.

+++ Pops broke away from the clear and definite promise requirement. Some courtsmay still require it, so it is good to include that. Pops is also more applicable to amodern business contractual situation.

Restatement §90 promissory estoppel. Use the pops test and acknowledgethat it is a better, more refined approach than the restatement.

IV. The Predominant Purpose Test:

14. Princess Cruises, Inc. v. General Electric Co.

a. Rule When the predominant purpose of a contract is services rather

than the sale of goods, the UCC is inapplicable and the common lawshould be used to interpret and analyze the contract

b. Facts - ¶ entered into contract with GE for routine repairs and service.The K involved minor purchases of goods, etc but the contract waspredominantly for services, so the UCC could not be applied.



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c. Reasoning The following Coakley factors must be taken into account to determine the predominant purpose of K: (1) the language of K (2) thenature of the business and supplier and (3) the intrinsic worth of thematerials.

V. Missing K Terms and Agreements to Agree (Common Law)

15. Walker v. Keith

a. Rule Where essential K terms such as price are not contained w/in aK, and no standards are included whereby such terms may be judiciallydetermined, no K exists.

b. Facts - entered into ten-year lease with ¶. Contract gave ¶ option torenew in ten years time but did not specify price, nor did it provide anymechanism so that a fair price could be determined. Both parties haddifferent ideas regarding how to determine the price.

c. Reasoning If terms such as price are to be determined in the future,the K must provide some mechanism or standard with which todetermine said term. Reasonable price to one party might be different than reasonable price to another; in a case like this, the parties have

merely agreed to agree in the future.

+++ agreements to agree are never enforceable

16. Quake Construction, Inc. v. American Airlines, Inc.

a. Rule Letters of intent may be enforceable, but they are not

enforceable unless parties intend for them to be binding contractually,most often through performance and action as if there WAS IN FACT a K.

b. Facts American Airlines accepted a bid for construction work from ¶and sent a letter of intent to induce ¶ to supply its subcontractor info,saying they awarded the contract but reserved the right to cancel. Bothparties began performance, as American solicited the info and Quakebegan its duties.

c. Reasoning Court ruled letter of intent ambiguous, and remanded fortrial b/c as both parties performed as if there was in fact a contract. Thiscase is paramount in letters of intent b/c BOTH PARTIES MANIFESTED

MUTUAL ASSENT BY BEGINNING PERFORMANCE.

VI. Statute of Frauds

17. Crabtree v. Elizabeth Arden Sales Corp.



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a. Rule Separate writings, connected to subject matter and occasion,may be pieced together to find an enforceable contract under the Statuteof Frauds.

b. Facts There was a writing with all terms and no signature, and aseparate writing with some terms and no signature. used the technicalrequirement of S of F to trick Crabtree into entering an unenforceable K.

c. Reasoning The writings together satisfied the S of F b/c they clearlyrelated to the same subject and occasion, contained the essential termsand one was signed by the parties.

Threshold Question:Is K w/in S of F?

If Yes, is Statute of Frauds satisfied. Must have :- Memorandum/writing- Essential terms

- Signature/authorization of the party to be charged withcompletion of contract.

- You can have multiple writings that all have authenticationthat add up to the essential terms.

- Oral testimony may be brought in to link writings.

Restatement §110 Class of Contracts Covered:

(3) contract that is not to be performed w/in one year from the makingthereof. (4) a contract for the sale of goods more than $500[UCC]

Restatement §130 (1) Where any promise in a contract cannot be fully

performed w/in a year from the time the contract is made, all promises in thecontract are w/in the Statute of Frauds until one party to the contract completes his performance.

Restatement §131 A contract w/in the S of F is enforceable if it is evidencedby a writing, signed by or on behalf of the party to be charged, which: (a)reasonably identifies the subject matter of the contract, (b) is sufficient toindicate that a contract with the respect thereto has been made between theparties or offered by the signer to the other party, and (c) states withreasonable certainty the essential terms of the unperformed promises in the

contract.

Restatement §132 The memo may consist of several writings if one of thewritings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction.



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UCC §2-201 - (1) a contract for the sale of goods for the price of $500 or moreis not enforceable without some writing sufficient to indicate that a K hasbeen made between the parties.

****ONLY NEED TO KNOW ONE YEAR PROVISION AND MULTIPLE DOCUMENTSFOR EXAM PURPOSES.

VII. Interpretation

18. Joyner v. Adams

a. Rule In a K with a term, promise or agreement whose meaning is indispute by both parties, K should be enforced pursuant to the meaning of the innocent party (if that interpretation in the circumstances isreasonable).

b. Facts - agreed to develop property for ¶ and built buildings on alllots but one. On lot w/ no buildings, he built sewers and roads. ¶ sued forbreach b/c of buildingless lot. According to trade usage, thought heonly needed to make lots ready for buildings.

c. Reasoning Just because a party drafts an agreement does not necessarily mean that the K must be enforced against their meaning,especially in situations where the parties are of equal status.

*** If there is an interpretation portion on the exam and you do not give the EXACT words from the agreement, you are not properly doing the analysis.

***In order to have interpretation analysis, there must be a determination of

ambiguity .

Restatement §201(2)(a) and (b)

Where the parties have attached different meanings it is interpreted inaccordance with the meaning attached by one of them if at the time theagreement was made:

(a) that party did not know of any different meaning attached by the other,and the other knew the meaning attached by the first party; or

(b) that party had no reason to know of any different meaning attached bythe other, and the other had reason to know the meaning attached by the

first party.*** The party that does not know, nor have reason to know, the intendedmeaning of the other party wins.

Restatement §202 (1) Words and other conduct are interpreted in the light of all circumstances. (2) A writing is interpreted as a whole all writings part of the same transaction are interpreted together.



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Restatement §203 (b) express terms are given greater weight that course of performance, course of dealing, and usage of trade. (d) separately negotiatedor added terms are given greater weight than standardized terms or otherterms not separately negotiated.

Restatement §204 When parties have a K, a term which is reasonable in thecircumstances may be supplied by the court if it is missing from the K. (SeeWalker courts typically require there to be an agreed upon standard towhich a reasonable term can be agreed between both parties).

V. Parol Evidence Rule

19. Thompson v. Libby

a. Rule Parol evidence may not be introduced if the contract is a fullyintegrated contract. (this is the classical approach, the modern approachis more lenient )

b. Facts - ¶ bought logs from . Some of the logs were defective and ¶brought suit seeking to enforce an oral warranty given by . Thewarranty was NOT included in the written K.

c. Reasoning Court determined that the K was completely integrated,and that additional, orally given terms could not be allowed to alter K.

No Restatements for P.E. rule used on final.

Modern approach to P.E. Rule:

Partial vs. total integration

Four corners test ± The written document that is claimedto be the complete agreement and that is all that you look

at. The Four Corners means the complete document. Youonly use the document in front of you to determine if it is

completely integrated. You are trying to determine if thedocument is conclusive. It may cross reference other

documents, indicating they clearly didn¶t cover

EVYERTHING in this deal. However, some courts say this is

ALL it¶s going to look at. The modern approach utilizes this

as a starting point.

Policy rationale for P.E. Rule - Forces parties to be more clear

because of the fear that if they don¶t put it in written K, it won¶t

be there! Motivates clear contracting.

For the modern approach, the Four Corners test is the starting

point. The modern approach is more suspicious of form



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contracts. Things will bear less weight if boilerplate. It¶s not the

ONLY thing. You are not limited to the four corners.

Modern approach to PE is always willing to listen, but not always

willing to accept actual parol evidence. Courts are more likely to

get to the answer of partial integration in the modern approachthan in the classical approach.

The modern approach does not stop at a merger clause, but the mergerclause has GREAT weight. You must present really good evidence to showyou had additional agreements.

The courts will always look to whether or not the parties intended theirwritten agreement to be the final product.

Vi. Implied Terms

Implied terms ± the parties have assumed, therefore implied,

that certain terms were material in the K in order for it to beperformed on properly.

Very narrow ± involves specifics of the contract and the

overall deal (in other words the contract wouldn¶t make

sense without the implied term).

20. Wood v. Lady Duff-Gordon

a. Rule If a promise may be implied from a writing even though it is

imperfectly expressed, there is still a valid K.

b. Facts - ¶, in a complicated agreement, received exclusive right for oneyear, renewable on a year-to-year basis if not terminated by 90 daysnotice, to endorse designs with Lady Duff-Gordons name and to market all her fashion designs, for which she would receive one-half profitsdelivered. broke contract by placing her endorsement on designs w/o¶s knowledge.

c. Reasoning Even though K did not state ¶ was to use reasonableefforts to market s designs, such a promise is implied. W/o such an

implied promise, the transaction could not have the business efficacy asthey intended it to have.

***This is an example of the general idea of the implied term of GF.

VII. Good Faith

Good faith is always an implied term in the K because the K

would not make sense without it. Neither party shall in any way



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destroy the ability of the other party to enjoy the fruits of the

contract. Good faith in performance is ALWAYS a term of

contract, but good faith in negotiation of contract is NOT thesame thing.

Good Faith:y 1) Implied Term ± to effectuate the parties¶ bargain (wood

case)y 2) anti-bad faith

o Fruits of K / spirit of K

o Honesty in fact ± don¶t lie (subjective standard)o Reasonable commercial standards. (objective standard)

UCC has two things for sale of goods for GF

(honesty in fact and reasonable commercial

standards)y Abusing discretion

21. Seidenberg v. Summit Bank

a. Rule (1) The fact that parties are of equal bargaining power,financially strong, and assisted by qualified counsel does not preclude aclaim for breach of good faith and fair dealing. (2) P.E. rule does not prohibit parol evidence in ascertaining whether there was a breach of good faith. (3) A party may not breach their obligation of GF bythwarting the purpose of the K.

b. Facts Seidenberg sold his brokerage firm to Summit Bank. Heretained his position and his compensation was tied to the growth andsuccess in the brokerage line of business. ¶ alleged that was thwartinghis ability to enjoy fruits of K due to bad faith conduct thwarting purposeof K and that fired him b/c it wanted to bring in another broker for hisposition.

c. Reasoning (1) equal bargaining power, financial strength, and ablecounsel does not alleviate a partys obligation of good faith performance.(2) Parol evidence used to determine GF conduct may always beintroduced. (3) a party to K may thwart the other partys ability to enjoy

the fruits of K.VIII. Warranties UCC and Bayliner

Express Warranties UCC §2-313. Any affirmation of FACT by seller tobuyer which relates to goods sold and becomes part of basis of bargaincreates express warranty that the goods shall conform to affirmation orpromise. Any description of goods that becomes part of B of B createsexpress warranty.



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-However, a mere affirmation of value of goods or statement purportingto be sellers OPINION does NOT create a warranty,

Bayliner v. Crow Boat buyer claimed that boat description providedexpress warranty of speed. However, the boat that he bought haddifferent sized propellers, and therefore there was no express warranty.

+++ Puffery, such as when you think safety, think Firestone or safest heavy dutytire in its league; designed to protect against road hazards are puffery that do not create express warranty stating that tire will protect against ALL road hazards, etc

Implied Warranties of Merchantability UCC §2-314. A warranty that goods shall be merchantable is implied in a contract for their sale if seller is amerchant with respect to goods of that kind. Goods to be merchantable must (a) pass w/o exception in the trade under their K description

+++This concerns whether a significant segment of the buying public would object

to buying goods and whether the goods are reasonably capable of performing theirordinary functions.

Bayliner v. Crow Boat buyer claimed implied warranty of merchantabilityin that boat could not reach max speed of 30mph, and b/c of this it was not fit for ordinary purpose of offshore fishing boat; it would take too long to get tothe offshore fishing hotspots.

- Court ruled that this evidence failed to show that significant portion of buying public would object to buying the boat and the boat wasincapable of performing ordinary functions merely b/c boat wasdescribed as offshore fishing boat

+++ Description of tires as heavy-duty tires means that the tires must conform toindustry standards of what constitutes a heavy-duty tire.

Implied Warranty of Fitness for Particular Purpose UCC §2-315. Wherethe seller at the time of contracting has reason to know any particularpurpose for which the goods are required and that buyer is relying on sellersskill of judgment to select or furnish suitable goods, there is unless excludedor modified an implied warranty that the goods shall be fit for such purpose.

Bayliner v. Crow Crow claimed seller knew that he bought boat was to go

offshore fishing. However, court ruled that evidence failed to show that sellerknew that this was Crows only purpose of buying boat and that sellerassured him to go ahead and buy it b/c it would fulfill that exact specificpurpose.

+++ Seller need not be a merchant for implied warranty of fitness for particularpurpose, but seller must know of buyers reliance for specific purpose and suggest goods anyway.



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threat in inducing the manifestation of assent is significantlyincreased by prior unfair dealing by other party making the threat, OR(c) what is threatened is otherwise a use of power for illegitimateends.

+++Whether a party must cause the significant hardship is a point of contention. Afew courts have held that simply taking advantage of a partys dire circumstances isenough w/o causing the financial hardship. But the general rule is that there must be a causal link between the financial hardship and the acts of the party takingadvantage. Otherwise, almost all forms of emergency financial assistance could bedeemed economic duress and banks or other parties would likely not offer it.

+++Intended to prevent parties from taking advantage of each other due to unequalbargaining power. Most duress cases end in the modification of K or settlement.

X. Unconscionability

y Procedural unconscionability refers either to a lack of choiceby one party or some defect in the bargaining process.

Substantive unconscionability refers to the fairness of the

terms of the resulting bargain.

y Absence of any other meaningful choice or free will

y The terms of the contract unreasonably favor the other party.

23. Williams v. Walker-Thomas Furniture Co.

a. Rule Courts have power to refuse to enforce K if deemed to beunconscionable.

b. Facts - ¶ had all items bought over many years repossessed by . Khad a term stating that all items on credit line were to be paid off together, and no items were owned unless balance of all items wasentirely paid off. The K term was incomprehensible to the layman. ¶missed only 1 payment and ¶ almost paid off everything.

c. Reasoning Ct. refused to enforce K b/c it the term wasunconscionable. There must be an absence of meaningful choice onbehalf of one of the parties and K terms are unreasonably favorable toother party. Similar to duress.

UCC §2-302: Unconscionability.

(1) If the court as a matter of law finds the K or any clause of the K tohave been unconscionable at the time it was made the court may refuse toenforce K, OR it may enforce the remainder of K w/o unconscionable clause,OR it may so limit the application of any unconscionable clause as to avoidany unconscionable result.



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(2) When it is claimed or appears to the court that the K or any clausethereof may be unconscionable, the parties shall be afforded a reasonableopportunity to present evidence as to its commercial setting, purpose andeffect to aid the court in making the determination.

+++Generally both procedural and substantive unconscionability are required.Williams had both procedural in the illegible K term and substantive in all of herpurchased possessions were revoked. However, sometimes merely an outrageoussome of one may be enough to find unconscionability w/o the other.

+++Unconscionability is a legal issue to be decided by the court rather than arational trier of fact. Ct. merely determines if the elements are there to proceed totrial.

XI. Fraud/Misrepresentation

Innocent and Negligent Misrepresentation:

If a party innocently or negligently misrepresents a material fact, andyou reasonably rely on this misrepresentation, you are provided a remedy.You my rescind the K and recover the purchase price plus any damagesnecessary to restore you to your position prior to K. Also, you can keep theobject of the K and recover damages (the difference between K price andactual value of what you received). The remedy is the same for negligent misrepresentation.

Oftentimes Innocent and negligent misrepresentation are treated bycourts as express warranty cases; the primary ramification is that the injuredparty can recover expectancy damages.

Fraudulent Misrepresentation:

The misrepresenting party KNOWS or recklessly asserts w/o knowingtruth of the matter and the other party reasonably relies on themisrepresentation. In such a case you may sue and recover reliance andconsequential damages, but you may also recover the benefit of the bargain(difference between value of what you received and what was promised).

Fraudulent Concealment:

Depends upon whether there is a duty to disclose. i.e. if a K for goods or

prop. contains an as is clause, there is no duty to disclose and if party doesnot undergo a reasonable inspection of prop or goods than there is instead amistake of fact and one party has assumed the risk.



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Fraud Summary:

y False Material Misrepresentation (bad)

o Knowingly Made

o Intending reliance

o Reasonable Reliance in Fact

o Damages

y Innocent Misrepresentation (not bad)

o Same as above, but does not require KNOWING

o Damages are not necessary

o Cannot sue for damages, but can nullify the contract

XII. Mistake

24. Lenawee County Board of Heath v. Messerly

a. Rule A mistake of fact does not require recession of K where partyseeking recession has assumed risk of loss.

b. Facts ¶ found a defective sewage system (illegally and faultilyinstalled) shortly after Pickleses purchased property from Messerlys.Pickleses sought rescission of K on grounds of mutual mistake. However,K had an as is provision, and Pickleses did not exercise their right toinspect property.

c. Reasoning Rescission cannot be offered to relieve a party who hasassumed risk of loss in connection w/mistake. If Pickleses had conducted

reasonable investigation and not found the illegally installed sewer, thensituation would have been different.

Restatement §152 Where mistake of both parties makes K voidable.

(1) Where a mistake of both parties at the time K was made as to a basicassumption on which K was made has a material effect on the agreedexchange of performances, the K is voidable by the adversely affectedparty. (Barren Cow case)

Restatement §154 Where a party bears the risk of a mistake:

(a) the risk is allocated to him by agreement of parties

(b) he is aware, at the time K is made, that he has only limited knowledgew/ respect to the facts which mistake relates but treats limitedknowledge as sufficient.

+++ Conscious ignorance of relevant facts in entering into an agreement are anotherform of assumption of risk. Restatement, Second §154(b)



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+++When there is a mistake regarding written expression, the normal remedy isreformation of the K to express the parties mutual intent.

+++There is much inconsistency regarding rulings involving as is clauses andmutual mistake. Courts sometimes rule either way.

XIII. Impossibility, Impracticability and Frustration of Purpose

1) Impossibility:

Taylor v. Caldwell ¶ rented music hall for performances. A few daysbefore first performance, music hall burned down. Court ruled that was excused for performance b/c of impossibility.

Restatement §263 If the existence of a specific thing is necessary forperformance of a duty, its failure to come into existence, destruction, orsuch deterioration as makes performance impracticable is an event thenon-occurrence of which was a basic assumption on which K was made.

Restatement §262 Death or incapacity of person necessary forperformance

If the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticableis an event the non-occurrence of which was a basic assumption onwhich K was made.

Restatement §264 Prevention by Govt Regulation or order.

If performance of a duty is made impracticable by having to comply witha domestic or foreign govt regulation or order, that regulation or orderis an event the non-occurrence of which was a basic assumption onwhich the K was made.

2) Impracticability:

Mineral Park Land Co. v. Howard - ¶ contracted to remove all gravel ons land. ¶ removed all above water gravel, but under water gravelwould have cost 10-12 times as much. Court ruled that ¶ was excusedfrom full performance b/c the cost of full performance would have beenimpracticable due to substantially increased (10-12x) cost.

Restatement §261 Discharge by Supervening Impracticability

Where, after a K is made, a partys performance is made impracticablew/o his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the K was made, his duty torender performance is discharged, unless the language or thecircumstances indicate contrary.



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+++ Just increased cost is not enough for impracticability. Sometime increased cost to where you are risking the company itself is not enough. Must be EXTREMELYsignificant.

3) Frustration of Purpose:

Krell v. Henry - ¶ reserved hotel balcony to watch coronation processionof King. King became sick and procession was cancelled. Court ruled that ¶ was excused from payment b/c of frustration of purpose.

Restatement §265 Discharge by Supervening Frustration

Where, after K is made, a partys principle purpose is substantiallyfrustrated w/o his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which K was made,his remaining duties to render performance are discharged, unless thelanguage or circumstances indicate otherwise.

+++Force Majeure Clauses Particularly common to allow party to escape liabilityfor non-performance or delays in the event of occurrences beyond the control of performing party. However, the law DOES NOT FAVOR exculpatory clauses,particularly b/c they are apt to become sweeping generalizations expressed inboilerplate provisions. These may be tested against concepts of GF andunconscionability.

XIV. Modification

25. Alaska Packers v. Domenico

1) Rule For K modification, there must be additional mutualconsideration. Promises to pay someone extra for work they are alreadyunder contract to perform is unenforceable without mutual bargainedfor consideration.

2) Facts Fishermen refused went on strike and demanded more pay forwork they were already under contract to perform. Fishing company hadno choice but to grant additional pay. Court, however refused to enforcepromise b/c of lack of additional mutual consideration.

3) This was not economic duress b/c courts are hesitant to grant theseduress claims. Unenforceable K modification is more likely in cases likethis.

Restatement §89 A promise modifying a duty under a contract not fullyperformed on either side is binding: (a) if the modification is fair andequitable in view of circumstances not anticipated by the parties when K was



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made; or (c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.

XV. Express Conditions

26. Oppenheimer

1) Rule Substantial performance on K does not excuse not meeting anexpress condition precedent.

2) Facts - ¶ wanted to sublease office space. They were required toinstall telephone lines and make other improvements and deliverwritten consent of landlord by a certain deadline. ¶ made necessaryimprovements and orally relayed consent, and did not deliver writtenconsent by the deadline.

3) Reasoning Express conditions precedent are powerful manifestationof the parties intent in contracting. They will be enforced by a court inmost situations.

Express conditions where a condition has not occurred:

y Two types will only apply to non-materialo Waiver

o Forfeiture

y Estoppel is an excuse that could be used in material and non-

material breach. (however, it must be related to the materialcondition, not just mere reliance on the actual contract).

y Preventiony Modification isn¶t an excuse, just something that doesn¶t

happen.

XVI. Breach

27. Jacob and Youngs Substantial Performance Test

1) Rule The measure of damages of breach of K where breaching partyhas substantially performed with trivial deviation is the difference

between the value of the project as contracted for and the value of theproject as performed, rather than complete forfeiture by the breachingparty.

2) Facts K stipulated that home constructor must use piping of reading manufacture. Breaching party used another, equivalent brandof piping.



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3) Reasoning Four factors must be weighed in order to determine if there was specific performance on behalf of a breaching party. 1) thepurpose to be served, 2) the desire to be gratified, 3) the excuse fordeviation from the letter, and 4) the cruelty of enforced adherence.Because the breach was slight and non-material, the court decided to

award diminution in value damages rather than the cost of fullyreplacing the pipes. This was because the pipes installed, although not of reading manufacture, were of comparable build and quality.

+++ Cardozos 4-factor test for specific performance has a caveat. If the breachingparty willfully breached, instead of breaching through excusable negligence, thenthe party adversely affected by the breach is entitled to the full damage value of that breach. In the case above, this would be the cost of fully replacing the houses pipingwith pipes of reading manufacture.

+++Damages are recoverable for a partial breach, but only the damages suffered arerecoupable.

+++Cardozo The willful transgressor must bear the consequence of histransgression.

28. Sackett v. Spindler Total or Partial Breach Test.

Rule - Factors of breach:

y (1) extent to which the injured party will obtain substantialbenefit which could have reasonably been anticipated

y (2) the extent to which the injured party may be adequately

compensated in damages for lack of complete performance

y (3) the extent to which the party failing to perform hasalready greatly performed or made preparations for

performance

y (4) the greater or less hardship on the party failing toperform in terminating the contract

o The extent of forfeiture

y (5) the willful, negligent, or innocent behavior of the party

failing to performo similar to the factor in the Jacob and Young¶s test

in the case at hand, Sackett was the victim of

things that happened outside of his control and

after the contract, so you cannot argue that it iswillful.

y (6) the greater or less uncertainty that the party failing toperform will perform the remainder of the contract.

+++A partial breach is not a material breach. A total breach is a material breach. If abreach is considered total, the injured party has the right to repudiate the K. This is



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risky however. If a court evaluates the first breach and finds it to be partial ratherthan total, the party repudiating the K would be in total/material breach of the Kand would be liable for damages.

+++After a total breach, the injured party is entitled to recover not only actualdamages accrued as a result of the breach, but also future damages that willreasonably flow from the breach.

+++ illustrates an intricacy note: Fox adds additional points for little details comeexam time.

XVII. Anticipatory Repudiation

29. Truman v. Schupf

y A notification of A.R. must be clear and unequivocal. It maybe implied, but it has to be CLEARLY implied, not merely

ambiguousy A clear and unequivocal A.R. may be retracted up until:

o There is notice by the other party that the A.R. wasaccepted and the contract is rescinded.

o The other party INDICATES that they received the A.R.

and acted upon it by seeking other buyers or takingaction that shows they believed the K to be rescinded,etc« NOT NOTICE REQUIRED if there is such reliance.

o If the party treats the letter as an anticipatory

repudiation when the court determines it is not, then

the recipient of the thought-to-be-A.R. is in total breach

of K.

XVIII. ExpectationDamages

Restitution The return or restoration of what the gained in a transaction toprevent unjust enrichment of

Coastal Steel v. Algernon

1) Rule A subcontractor who justifiably ceases work under a K b/c of the prime contractors breach may recover in quantum meruit (unjust enrichment) the value of labor and equipment already furnishedpursuant to the K irrespective of whether he would have been entitled torecover in a suit on the K.



2) Facts subcontractor stopped after 28% of performance aftermaterial breach by general contractor. Coastal tried to recover for laborfurnished.

3) Reasoning The impact of quantum meruit is to allow a promisee,such as coastal, to recover the value of services he gave irrespective of whether he would have lost money on the K and been unable to recoverin a suit on the K.

Ventura v. Titan Sports

1) Rule Intellectual property rights are benefits upon which an actionfor quantum meruit may be based.

2) Facts Ventura left Titan Sports to work for their main competitor.Titan Sports utilized recordings of him as an announcer on VHS tapesand marketed them. Ventura alleged that he had a right to recover for

unjust enrichment through the use of his intellectual property.

3) Reasoning - court ruled that Ventura gave Titan something (intl.prop.) that was not included in the K, that was valuable. Therefore,Ventura deserved to recover under unjust enrichment.

SpecificPerformance

City Stores v. Ammerman

1) Specific performance may be awarded when other damages would beinadequate or impracticable.

2) Facts Shopping mall said if you give us this letter to help us get ourmall built, we will give you a spot in the mall comparable to othervendors also there. Shopping mall reneged on the deal

3) Reasoning Court said there was ok saying there was a K because it had enough to determine the material terms. Hard to determineexpectation damages for 20 years of lost profits on store in a mall that hasnt even been built yet. Could potentially fail. Therefore, since otherdamages are inadequate or impracticable, specific performance could be

awarded.

contracts fall 10

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