Contracts Outline – Pinto Spring 2003

I. Definition of Contracts:a. Restatement – a promise or a set of promises for the breach of which the law will provide a remedy or

the performance of which the law in some way recognizes as a duty.b. UCC – governs sales of goods. Codified by 49 states. Purpose to make commercial law uniform among

the states. Attempt to come up with uniform rules – but just because its uniform doesn’t mean that the courts interpret it uniformly. Common law still important where the UCC doesn’t cover an issue.

c. K are the legal mechanism for protecting the expectation that arise from the making of an agreement for future exchanges.

d. Classical K – formalist, scientific, universal set of rules – judges merely apply the rules – based on the notion that bargaining shouldn’t be interfered with – people should be held to their promises.

e. Legal Realism – more modern approach – 2nd R – how the world and people really work. Focus more on consent – rules based on reality.

II. The Classical System – Mutual Assent and Bargained-for Exchangea. Mutual Assent

i. R §17 – formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration.

ii. R § 22 – manifestation of mutual assent – take the form of an offer or a proposal by one party followed by an acceptance.

iii. Objective Theory of K1. Meeting of the minds is viewed objectively rather then subjectively.

a. Contracts is about an allocation of risk. Courts take an objective b/c they take what a reasonable person would have thought.

b. The offeree might take action relying on that offer – they may take on risk if they reasonably objectively believe its an offer b/c

c. The offeror is the master of the offer – and they can control what they say and don’t say.

2. Objective test for mistake under classical K - Ray v. William G. Eurice & Bros., Inc – (owner says build me a house according to these specs – contractor can’t/won’t – violates contract).

a. It’s irrelevant that the Eurices made a mistake – b/c you look to the reasonable person’s understanding of the language. Objective test – not subjective. The court is saying – be responsible read it before you sign it. The K is enforced to the extent that the objective reasonable man would understand the contract.

b. The objective test – could lead to the contract being enforced in a way that neither party wants as long as no fraud duress or mutual mistake.

3. No mutual assent when fraud – Park 100 Investors, Inc. v. Kartes – (quick sign this lease agreement – that’s not really a lease agreement but a personal guarantee).

a. No mutual assent because fraud induced one of the parties to sign.iv. Offer and Acceptance: Bilateral K – both sides make promises

1. Offer (for both Unilateral and Bilateral)– the manifestation of willingness to enter into a bargain which justifies another person in understanding that his assent can conclude the bargain. In other words – something that creates a power of acceptance. R §24

a. Two essential elements:i. Must be intent to enter into a bargain

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ii. Definiteness of terms1. Generally speaking an expression will not be considered an offer

unless it makes clear:a. Subject matter of the proposed bargain,b. Pricec. Quantity involved

2. Acceptance – a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. R §50.

a. The offeree’s power of acceptance can be terminated in five ways: R §36i. Rejection by the offeree

ii. Counteroffer by the offereeiii. Lapse of time – the offeror can set a time limit – if he doesn’t then the end

of a reasonable time period.iv. Revocation by the offerorv. Death or incapacity of the offeror or offeree

b. Mail box rule – although a promise normally must be communicated to be effective the general rule is that acceptance is effective on dispatch – ie even before it has been received.

i. Rational:1. encourages contracting by parties at a distance from each other –

by making the offeree just as secure as if the contract were made face to face

2. creates a contract at the earliest possible momentii. R § 63 – with an option contract – an acceptance is not effective until

received. iii. Requirement to satisfy the mailbox rule:

1. timely dispatcha. depends on whether the offer specifies a period of time for

the acceptance – if not – must be within a reasonable time – if a period is specified – the period begins running when the offer is received and the acceptance must be dispatched within that time period.

b. If its late – becomes a counteroffer2. proper manner

a. must be dispatched with appropriate care – ie correct address

b. must be done by appropriate medium of communication – R § 30 and UCC (2-2061a) – offer is deemed to invite acceptance by any medium reasonable in the circumstances – generally whatever is used by the offeror or whatever is used in similar transactions.

iv. Lost or delayed acceptance – 1. under the mailbox rule – acceptance is nevertheless effective and a

contract is formed. 2. under the mailbox rule – the risk of loss or delay in transmission of

a property dispatched acceptance is on the offeror.

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3. Invitation to Deal vs. Offer – the fact that an expression looks toward a bargain does not make the expression an offer if it is clear from the language or circumstances that the expression reflects merely an intent to begin negotiation.

a. Words suggesting negotiation: are you interested, would you give, I quote, I would consider – suggest preliminary negotiations or invitations to deal.

b. Words suggesting an offer: I will sell, I offer.4. Advertisements – general rule – ads are invitations to deal rather then offers

a. Usually indefiniteb. Seller ought to be able to choose who they will deal with c. Ads are typically addressed to the general publicd. Lonergan v. Scolnick (form letter – invitation for an offer)

i. Sent out letter – indication that there are others receiving the letter – other potential buyers. Letter says – act fast – saying there are other people out there – it’s not specific enough – not a direct offer. It’s an invitation to receive offers. The form letter indicated that it’s not an offer – b/c no reasonable person would believe that the other party was willing to enter into a bargain.

ii. R §26 – not an offer – if the person potentially accepting it knows or has reason to know that the person is not intending to make an offer.

5. Option contracts and Counteroffers Normile v. Miller – ∆ owned property – listed it for sale with a realtor on the same day she listed it – another real estate broker showed the property to the ∏s. The broker helped the ∏s prepare a written offer to buy the property – time is of the essence, therefore this offer must be accepted on or before 5pm on Aug. 5th. The ∆ made changes to the offer and sent it back to the ∏s. ∏s then believed they had until 5pm of Aug 5th to accept the ∆s counteroffer. In the mean time the property is sold to another buyer. Just before the deadline the ∏ went to ∆ to accept - ∆ says – you snooze you lose.

a. Counteroffer is a rejection and an offer itself.b. Option Contract – R § 25 – Promise that meets the requirements for the formation

of a contract and limits the promisor’s power to revoke an offer.c. Counteroffer – R §39 – An offer made by an offeree to his offeror relating to the

same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. Generally an offeree’s power of acceptance is terminated by his making a counteroffer unless the offeror has manifested a contrary intention or unless the counteroffer manifests a contrary intention of the offeree.

v. Offer and Acceptance: Unilateral K – one side makes a promise – the other side does an action.1. Unilateral Contracts generally –

a. Definition – Contract that involves an exchange of the offeror’s promise for the offeree’s act therefore, the offeree does not make a promise but instead simply acts.

b. Difference between unilateral and bilateral – one the offer is made and the acceptance is granted there are binding commitments. Bilateral you know what you are getting, unilateral you don’t – because you don’t know if the offeree will perform or not.

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c. Offeree is never bound – but offeror can revoke the contract right before performance.

2. Petterson v. Pattberg - (∆ offered to end debt – but later refused payment when ∏ showed up at house with a check (specific performance)). Court said no contract b/c no performance. Dissent said the offeree could not perform without the offeror allowing him to. Pinto – you get what you bargain for. R § 32 – in case of doubt we look at any contract as bilateral and binding. R §45 – treats unilateral contracts as option contract – created when the offeree tender or begins the invited performance.

a. Attempt to mitigate the potential unfairness – the offeree takes on costs in anticipation/reliance on the promise, and if its revoked they may incur damages.

b. Attempt to limit unilateral – when there is unilateral want to bind the offeror. 3. Cook v. Coldwell Banker/Frank Laiben Realty Co. – (real estate commission not given to

agent because she left before they were dolled out). Substantial performance had been made – so the court held that the contract was enforceable. Court focused on the fairness.

a. Substantial performance made it into an option contract that the offeror couldn’t revoke.

b. Under classical she wouldn’t get commission because you get what you bargain for and she knew she had to be there to get the commission.

4. Duldulao v. Saint Mary of Nazareth Hospital Center – (Nurse fired not according to employee handbook). Court held handbook was a contract because language was clear and would lead a reasonable employee to find that they would function under it. And because she knew about the handbook – you can’t accept an offer you don’t know about. Because it increased the employees rights – her continued work was acceptance. (doesn’t apply in the reverse b/c you would force the employee to lose their rights either way – if they kept working they’d lose their rights, if they left their job they’d lose their rights). When language is unclear – decide against the drafter.

a. Reasonable person wouldn’t think that commercial advertising a jet redeemable by Pepsi points was an objectively reasonable offer.

i. Ad b/c not aimed at a specific person – but the whole world. And price was unreasonable.

b. Consideration – i. Benefit-detriment test – at an early stage in contract law consideration was defined as either a

benefit received by the promisor or a detriment incurred by the promisee.1. Hamer v. Sidway – (unlce told nephew I’ll give you 5K if you don’t smoke drink etc till

21). Court used benefit-detriment test – determined that nephew gave up a right – and that was a detriment – therefore there was consideration and the K was binding. Uncle unsuccessfully argued that not drinking, smoking etc was a benefit to his nephew. Court disagreed – found giving up a right is a detriment.

ii. Bargained-for approach – because of the weakness of the early approach to consideration the next stage of development was to treat consideration as equivalent to bargain. A bargain is an exchange of promises, acts, or both, in which each party views what she gives as the price of what she gets. This bargained for price may include not only promises and acts but also promises to forebear and actual forbearance from performing acts one is legally entitled to perform.

1. Baehr v. Penn-O-Tex Oil Corp. – (∏ argues that ∆ made a contract to pay rent for gas stations). ∆ offered to pay the rent that was due to the ∏ and the ∏ accepted – the ∏ said

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that the consideration was that he didn’t sue the ∆ - hence had given up some legal right. There was a promise and acceptance. Question – was that promise to not sue – consideration? The court held that the promise was not what the ∆ was seeking and therefore was not bargained for – and not consideration.

2. Bargained for – means reciprocal exchanges.3. R §71 – means underlying notion of bargain – a returned promise is bargained for if it is

sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. It’s about what the offeror is seeking.

4. R §79 – if requirement of consideration is met – then there is no additional requirement of gain or equivalence in value, or mutuality of obligation.

iii. Differences between Benefit-Detriment and Bargained for theory:1. Classical view – benefit-detriment 2. Modern view is bargained for. The promise is made to induce the promise or the

performance. Reciprocal conventional inducements.3. Benefit-detriment had problems – b/c subjective what’s a benefit – what’s a detriment.

The bargain theory reflects much more what contracts are about – meeting of the minds – bargained for exchanges.

iv. Prof. Fuller’s notions of formality1. evidentiary function – formality provides evidence of something happening2. cautionary function – b/c of the formality you deliberate3. channeling function – that the formality shows evidence caution, also a test of

enforcement.4. consideration provides the same functions – evidentiary, cautionary, and channeling.

v. Dougherty v. Salt – (aunt gave nephew 3K note – no consideration, therefore no contract). The note had the words value received on it – but there the note was only an unenforceable promise of an executory gift. The child was 8 – not a creditor – aunt not paying a debt – all she was doing was conferring a bounty therefore the promise was neither offered nor accepted with any other promise. Nothing is consideration that is not regarded as such by both parties. There was no value received by the aunt for her promise. There mere recital of value does not suffice where it was plain that none had been given.

1. Why don’t we enforce all promises?a. b/c too many are made.b. Gifts are not enforced b/c emotional – you may change your mind. When you are

acting in self interest – you are acting differently then when you are giving a gift. When you sign a contract you are more deliberate about your actions. A gift is not as calculated, more emotional then a contract. Which is why the law lets you out of an uncompleted gift but not an uncompleted contract.

vi. Plowman v. Indian Refining Co. – (company gave retirement contract - ∏ says for life, ∆ says terminates at will). Depression was bad they needed to lay off employees – the company gave retirement benefits. ∆ - promise made without consideration – it was a gift. Nothing was said about duration – and the original contract was not approved or ratified. ∏ - consideration was their going to pick up their checks and their prior work for the company. Court says – past performance not consideration. Consideration must induce the promise. Their work did not induce the company to give them benefits – the company gave benefits b/c felt bad about laying workers off. Picking up checks didn’t work for the same reason – that didn’t induce the promise.

1. Agency –

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a. By job description – the employee has the authority to hire and contract employees – express authority. If the context suggests that she has the authority then implied authority.

b. Apparent authority – when the company manifests to a third party that she has the authority – the seller thought she had authority b/c she’s the manager. Even if the employee binds without authority could still be liable if the company ratifies the unauthorized act – by keeping the performance or making payment.

vii. Tramp Hypo – man says to tramp – “if you go around the corner to the clothing shop you may purchase an overcoat on my credit” no reasonable person would understand that the sort walk was the consideration for the promise. But in the event of the tramp going to the shop – the promisor would make him a gift. Under benefit-detriment it would be consideration. But not under bargained-for theory – b/c the walking was just a condition – not what was bargained for.

viii. Batsakis v. Demotss – (2000 dollars for Drachma worth 25 dollars). The courts don’t want to evaluate the degree of consideration. The court doesn’t want to look at the adequacy of consideration. Because there is real money here. Not a sham – it’s a bad deal – but it’s a deal. It was unequal consideration – but it wasn’t a sham. Classical view – she gets what she bargained for.

III. Statute of Frauds – a. General principles: scope, and application – some contracts are so important or significant that they need

to be in writing – to prevent fraud. The big problem with the statute of frauds is it often prevents the enforcement of contracts. Keeps getting modified by courts and state legislatures. Modern US states of frauds commonly require at least five categories of contracts to be memorialized in writing. R §110:

i. Contracts for the sale of an interest in land.ii. Contracts for the sale of goods for $500 or more

iii. Contracts in consideration of marriage.iv. Contracts not to be performed within one year from the making thereof – if it be performed

within one year – then the statute of frauds does not apply – ie if contract is for life – then doesn’t apply – b/c person may die within one year.

1. Freedman – the plant could have been built within one year (although completely unlikely) – it could – removes it outside the statute of frauds.

2. Look at the one year rule at the time the contract was made – can’t use hindsight to say – see it took 9 years – question is – at the time the K was made – could it have been completed in one year.

v. Contracts to answer for the duty of another.vi. Also under § 110(2) – some now governed by the UCC – Sale of goods for $500 or more 2-201,

contract for the sale of securities 8-319, contract for the sale of personal property not otherwise covered to the extent of enforcement by way of action or defense beyond $5,000 in amount of value or remedy 1-206.

1. goods under the UCC are – all things that are movable at the time of identification to the contract for sale other then the money in which the price is to be paid. 2-105.

vii. Also under §110(3) – UCC also requires a writing signed by the debtor for an agreement that creates or provides for a security interest in personal property or fixtures not in the possession of the secured party.

viii. Statute of Frauds says not going to enforce oral promises because we are concerned about fraud – but the Statue of Frauds can also serve to allow parties that have a valid contract to not enforce

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it because it wasn’t in writing – that undermines contract. That’s why court struggle with the Statute of Frauds.

b. Application – i. First – does the statute of frauds apply?

1. no – then move on 2. yes – then second question

ii. Second – is that statute satisfied?1. yes –then you still have to prove a contract – it doesn’t mean you automatically have one.2. no – then you may find an exception to get out of the statute of frauds requirement.

iii. R moves to liberalize the Statute of frauds – UCC moves even further.iv. Crabtree v. Elizabeth Arden Sales Corp - (employment contract dispute – no signed contract –

nothing noting duration of the employment). Statute of frauds involved b/c contract for more then one year - although not written – parties had agreed to two year term. What’s required for the Statute of Frauds? It has to be written, and it has to be signed by the person you are trying to enforce the contract against, and the essential terms must be in writing. R §132 – multiple writings okay if one is signed – so long as they relate to the same matter. Court uses the rule that as long as it’s obviously the same subject matter you don’t have to show a reference in the documents themselves. Oral evidence may be used to connect the documents to make out a writing – the document that is signed must be the document that establishes the contract.

1. R §131- can be signed by an agent on behalf of the party the contract is being enforced against – doesn’t have to be signed directly by the party being charged as long as it reasonably identifies the subject matter of the contract, is sufficient to indicate that a contract has been made, or offered by the signer to the other party, and states with reasonable certainty the material terms to be performed.

v. Winternitz v. Summit Hill Joint Venture – (pharmacy in mall – no lease renewed b/c realtor wanted pharmacy owner out) ∏ wanted to renew lease so he could sell pharmacy to new buyers. (the Suh’s). Without new lease he couldn’t sell the business. ∏ argued that his paying the higher rent was reliance – but the remedy he was asking for was money – and you can only seek specific performance if you are claiming part performance. Court found the statute of frauds was required. So while there may have been a contract its unenforceable b/c of the statute of frauds. But court allowed ∏ to recover on tort theory – b/c the landlord intentionally and maliciously didn’t want to renew the lease with the ∏ - so court found malicious interference with ∏ contract with the Suh’s. – therefore tort recovery. But in reality – the ∏ didn’t have to be bound by the contract with the Suh’s b/c either could get out of it if the landlord didn’t agree. Therefore there can’t be interference b/c there was no contract yet – but court ignores b/c they want ∏ to recover.

c. Sale of Goods – Statute of Frauds – UCC(2-201)i. A contract for the sale of goods for $500 or more is not enforceable by way of action or defense

unless there is some writing sufficient to indicate that a contract for sales has been made between the parties and signed by the party or the agent against who enforcement is sought. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable beyond the quantity of goods show in such writing.

ii. UCC 2-201(2) – merchants exception – contract is between merchants; within a reasonable time a written confirmation which satisfies the statute of frauds as to the sender, is sent; and the party receiving the confirmation does not dispatch a written objection thereto within 10 days.

iii. UCC 2-201(3) – a contract that does not satisfy the requirements of § 1 – but which is valid in other respects is enforceable,

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1. a – the contract calls for the manufacture of special goods for the buyer not suitable for sale to others in the ordinary course of the sellers business and the seller makes either a substantial beginning in the manufacture of the goods – or commitments for their procurement.

2. b – if the party against who enforcement is sought admits that a contract for sale was made but the contract is not enforceable beyond the quantity of goods admitted.

3. c – with respect to goods for which payment has been made and accepted or received and accepted. (means part payment)

iv. Buffaloe v. Hart – (buying five tobacco barns) 2-201(3)(c) – you don’t need a writing if payment has been made or received and accepted. The wife accepted the check and the ∏ occupied the barns. What would ∏ be entitled to? The difference between what he would have bought them for and what he would have sold them for – but on part performance is he entitled to the 5 barns. No – b/c he didn’t pay 20,000 – he only part performed payment on a barn and a quarter – and the ∆ could argue he gets nothing – b/c the 5K was a deposit for the 5 barns – not a payment for one. The 5K wasn’t for any one barn. If it’s an installment you get everything. If it was a deposit – then they’d get nothing. Court found for the ∏s.

v. Bazak International Corp. v. Mast Industries, Inc – (textile manufacturer contract via purchase orders – merchant exception) Common practice among merchants to make oral agreement and for one party to confirm the agreement with a letter, but if the price of goods rose substantially all of a sudden the seller would want to sell the goods to someone else or change the price terms, 2-201(2) intended to deal with the unfairness of this problem, because the party that sent the confirmation would be bound and the other party wouldn’t and would be able to break the contract.

1. The issue is –was the Purchase Order a written confirmation? ∏ says yes, ∆ says no. NJ and Dissent – it has to say on it that its confirmation – has to be explicit – so there is no doubt. Majority – there is no need for an explicit rule, but they just can’t ignore the statute – has to be evidence of a confirmation of a contract – majority rule rake a different approach – the standard from 2-201(1) and apply it to 2-201(3). Sum writing sufficient to indicate that a contract for sale has been made between the parties.

2. merchant – UCC 2-104 – means a person who deals in goods or holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.

IV. Promissory Estoppel and Restitutiona. Promissory Estoppel – obligations where there is no consideration. No exchange.

i. Three substantive basis for contract liability – 1. Private autonomy – classical view – most important – private individuals right and power

to change their legal relationship. Parties bargain for the best deal – should involve exchanges that benefit both – doesn’t always happen – but the idea is to have net gains. Bargaining stops when both are satisfied that they both gained.

2. Reliance – sometime contract liability is the result of promises made that are not binding as traditional contracts but none the less create injury – b/c of reliance

3. Unjust enrichment – sometimes a promise can result in unjust enrichment – unfair gain.ii. Injustice can’t be avoided if courts consider the following factors:

1. the availability of adequacy of other remedies, particularly rescission and restitution2. the definite and substantial character of the action or forbearance in relation to the

remedy sought

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3. the extent to which the action or forbearance corroborates evidence of the making and terms of the promise or the making and terms are otherwise established by clear and convincing evidence.

4. the reasonableness of the action or forbearance 5. the extent to which the action or forbearance was foreseeable by the promisor.

iii. Gilmore – the death of contracts is pe b/c undermines traditional contracts. Yes – if you believe the basis of contracts is autonomy – but that not reality.

iv. Restatement §90(1) – A promise which the promisor should reasonable expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.

v. R §90(2) – A charitable subscription or a marriage settlement is binding under sub section 1 without promise that the action induced action or forbearance.

vi. Promises within the family-1. Kirksey v. Kirksey – (told sister in law to come live with him post brother’s death)

Under traditional contracts – she didn’t give up a legal right. We don’t know if this is a gift or if he wanted her to be near him or what. We think of contracts as bargained for exchanges, increasing net wealth, increasing value. Here no bargained for exchange – b/c you look at the promisor - what were they seeking – he was seeking to do good – that’s not enforceable. Often a donative promise is relied on by the promisee, the rule at one time was that reliance was irrelevant a donative promise was unenforceable even if it was relied upon.

2. Greiner v. Greiner – (mom trying to fix kids getting kicked out of dad’s will – 80 acres). Instead of PE the court finds another way to deal with the problem, when she promised to make the gift – not binding – b/c no consideration, instead they use §90 of first R – there was definitely a promise here – if he moves she’ll give him the house and the land. She should have reasonably expected that her promise induced the promisee into action. She should – he told her what he wanted to do with the land. He does have to rely on her promise. There is a substantial element here – substantial act of forbearance. If he’d just pack and she said forget it – probably not enough to be substantial. Here – he lives on the land and makes improvement. The court says that it would be unjust to deny him the deed and to kick him off the land and could not say that giving him a money judgment would afford adequate relief.

3. Wright v. Newman – (dad signs birth certificate but not real dad – mom sues for child support). Was it reasonable for her to rely on his promise? Objective approach – applied to the specific facts. What is the reliance here? B/c he was the stated father – she didn’t seek out the real father. Detriment – if he doesn’t support the kid – then who will – can’t find the real dad. Court holds – PE and the dad has to pay. Dissent – pe okay but not here, b/c she did not reasonably rely. B/c not clear she couldn’t find the real father.

4. Difference between new and old R § 90 – a. New – notion of the third person – possibility a promise made to someone could

induce a third person to act in a particular way. Removes the notion of inducing the action or forbearance of substantial and definite character. (this requirement is less then the old one – courts will still talk about it under injustice – but not as strict as the old R). They add a sentence – when we come up with a remedy we

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are going to think in terms of justice – allows the court to fashion remedies. Added provision of charitable subscriptions.

vii. Charitable Subscriptions – different then family promises – b/c charities rely on gifts that’s how they exist. A written promise to make a charitable contribution will generally e binding without consideration under PE doctrine here the doctrine is watered down: usually the charity does not need to show detrimental reliance but oral promises to make charitable contribution usually will not be enforceable unless the charity relies on the promise to its detriment.

1. Allegheny College v. National Chautauqua County Bank – (woman gives college 5K if they put her name on memorial when she dies). Cardozo doesn’t use a unilateral contract theory instead he says bilateral – offer was the money, acceptance – there’s really no acceptance b/c the college didn’t do their part of the exchange. If they didn’t ever intend on memorialize her – then there is no consideration. If taking the first 1K deposit was acceptance – then that’s fine but then they wouldn’t get the rest – the college doesn’t want just the 1K they want the 5K. The court has to decide what’s going on here – is it a bargained for promise or is it a gift? Is she seeking to be memorialized? Could he have done it under PE – there really isn’t reliance. Cardozo chose to do it under bilateral contracts b/c he really wanted the college to win (and charities in general to win).

2. King v. Trustees of Boston University – (MLK gives his letters BU – he dies his wife wants to give them to a different college). What is King seeking? A Bailment – he’s asking them to take care of his stuff. Jury finds a charitable pledge – reliance or consideration. To have a binding charitable pledge you need consideration or reliance – they found reliance (the school organized all the stuff, dedicated a room, paid for staff etc)

viii. Promises in a commercial context – hesitancy to expand PE into the commercial context. Different because not as much emotion, more deliberation, usually there is bargaining. PE used for benefits and pensions litigation.

1. Katz v. Danny Dare, Inc. – (brother in law of company president tries to get employee to quit – offers retirement incentive then tries to take it away) Shopmaker decides he wants employee to leave and convinces him so do so partly with a retirement incentive. Katz receives 500 for a while – then starts to work part time elsewhere. Problem here - ∆ says – no reliance b/c at will employee and could have been fired without retirement incentive. But, negotiated with ∏ for 13 months and never fired – so real question is whether there was detrimental reliance – court said there was – therefore enforceable promise. Test to be applied in this case is not whether Katz gave up something to which he was legally entitled but whether Dare/Shopmaker made a promise to him on which he acted to his detriment.

2. Shoemaker v. Commonwealth Bank – (home owners mortgage required them to get insurance – if they didn’t it stipulated that the Bank would – they didn’t get insurance and assumed the Bank had – the house burned down) ∏s let insurance expire – got letter from bank saying if the ∏s didn’t get insurance they would get it and add it to their loan payment. ∏s assumed they had insurance through the bank. Bank eventually sent letter stating they weren’t going to pay - ∏s never got letter – jury believed ∏s – found that the bank should have expected reliance, ∏s relied, and found only way to avoid injustice would be to enforce ∆’s promise to get insurance.

3. Alaska Democratic Party v. Rice – (oral contract job offer - ∏ moves to AK – then ∆ backs out). Statute of Frauds problem – b/c contract all oral. Court uses R §139 – which

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states – 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 not withstanding the Statue of Frauds if injustice can only be avoided by enforcement. The remedy granted for breach is to be limited as justice requires. Intent of 139 is to allow people to get past the Statute of Frauds by showing PE. So is there PE here? There was a promise, the ∆ should have expected her to rely on it, she relied on it to her detriment, and injustice can’t be avoided. Other issues – Agency – the person who actually offered her the job had not yet been taken office as president. Court says he had apparent or implied authority – b/c there was enough implication that the third party would believe that he had the authority. Damages – the court granted her lost wages – they didn’t give her moving expenses because she wouldn’t have gotten moving expenses if she had gotten the job.

a. Other courts feel that § 139 undermines the statute of frauds too much – Munoz case – court required unjust enrichment or unconscionable injury to get around Statue of Frauds.

b. Restitution – goal is to prevent unjust enrichment. Often there is no promise – but still liability. No recovery if the act was officious (interference was not justified), gratuitous, and difficult to measure. R of restitution states the basis of liability as follows: a person who has been unjustly enriched at the expense of another is required to make restitution to the other this formula identifies two elements that are necessary to restitutionary recovery enrichment under circumstances where the retention of benefits would be unjust.

i. Glenn v. Savage – (∏ saves ∆’s stuff from the river – court – no recovery because ∆ didn’t ask for ∏s action). Social concern – people won’t help each other out if they are not going to get paid. Problem – personal autonomy – giving someone benefit for helping out – you are being forced to pay without your choice and the other party didn’t have to do it. Was the ∆ enriched? Yes – his stuff was saved. Was it unjust? Maybe – he didn’t ask for it, and the ∏ had some damages from going after the stuff. If the ∏ was in the business of doing this – saving lumber – then there would be more of a case of unjust enrichment – b/c they do it for money – they were not doing it gratuitously.

1. doctors are treated differently – they can charge – b/c they are in the business of saving lives.

2. economic analysis – Posner – lowest transaction cost possible – if there is a doctor and someone is ill – there is a very high transaction cost – don’t have time to work out a contract. There is nothing wrong with allowing the dr. to seek recovery after under restitution.

3. the law makes a distinction between someone who would normally charge for the service and someone who jumps into the river gratuitously under § 116 and 117 – which now provides for recovery on behalf of a person who confers a benefit to save another person’s life health or property. – see page 197 text.

ii. Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co., Inc. – (subcontractor didn’t get paid by general contractor (b/c they went bankrupt) sues property owner). There was no contract between the property owner (∏) and the Subcontractor (D). The subcontractor is out 17K. Here – contract implied in law. Courts problem was that all other remedies had not been exhausted. The ∏could have sued the general contractor, they could have also tried to place a mechanic lien. Court wouldn’t allow subcontractor to recover because the

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property owner had already paid once – it would be unfair to force them to pay again. They weren’t unjustly enriched – they paid for it.

1. Difference between implied in fact and implied in law: a. Implied in Fact – one form of an enforceable contract based on a tacit promise

one that is inferred in whole or in part from the parties conduct not solely from their words. A contract implied in fact is not pt into promissory words with sufficient clarity so a fact finder must examine and interpret the parties conduct to give definition to their unspoken agreement.

i. Examples: A person performs services at another’s request. Where services are rendered by one person for another without his expressed request but with his knowledge, and under circumstances fairly raising the presumption that the parties understood and intended that compensation was to be paid.

b. Implied in Law – not based upon the finding by a process of implication from the facts of an agreement between the parties a contract implied in law is a legal fiction an obligation created by the law without regard to the party’s expression of assent by their words or conduct. The fiction was adopted to provide a remedy where one party was unjustly enriched where that party received a benefit under circumstances that made it unjust to retain it without giving compensation.

i. Elements: 1. ∏ has conferred a benefit on the ∆2. the ∆ has knowledge of the benefit3. the ∆ has accepted or retained the benefit4. the circumstances are such that it would be inequitable for the ∆ to

retain the benefit without paying fair value for it. ii. there may be recovery under contract implied in law even when the parties

had no dealing with each other. iii. this differs from implied in fact which must arise from the interaction of

the parties. iii. Watts v. Watts – (unmarried woman seeks money from co-habitant man she had two kids with)

They held themselves out to be a married couple shared bank account, bought property together, he had a life insurance policy on her, they did business together. ∏s seeking half his stuff. Court finds that in Wisc – unmarried co-habitants can raise claims where one party attempts to keep more then their share where clear they acquired the property due to the efforts of both – can bring claims based on unjust enrichment. Here ∏ claims that she contributed to property and services to the party’s relationship – she was never compensated for her contributions. Court finds that enough to possibly show unjust enrichment.

iv. Promissory Restitution – unjust enrichment where there is a promise. v. Mills v. Wyman – (Mills took care of ∆’s son (who was pretty ill – he died) without his services

being requested – Wyman promised to pay and then didn’t). Court finds that the promise was a moral obligation – and they don’t want to enforce moral obligations b/c people’s view of morality are different. Uncertainty creates more litigation and is not good for the courts. Here not enforceable because the son was on his own already – any debts the son incurred were his own – not like the dad was paying for someone to take care of his 2 year old.

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1. even under the modern view, a promise based on a moral obligation will normally not be enforced where the promisor did not receive a material benefit – even if the promisee incurred expenses.

vi. Web v. McGowin – (Webb saves McGowin, but sustains serious injuries during the rescue. McGowin promises to pay Webb monthly for the rest of his life.) McGowin pays for 8 years, but then dies, and his estate refuses to continue to pay. Court holds promise is binding because the promise to pay was based on material benefit to the promisor that constituted valid consideration. Past consideration here is valid because the ∆ received a material benefit – while the promise is moral – it was related to receiving something material.

1. R § 86 now covers cases like these where there is a promise after the act the promise is in consideration for – a promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. A promise is not binding under subsection 1 if: the promise conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched or to the extent that its value is disproportionate to the benefit.

V. Obligations in the absence of complete agreementa. James Baird Co. v. Dimbl Bros., Inc. – (PA authority put out a call for bids from general contractors - ∆

made an error in calculating how much the bid should be – ended up being the lowest – and hence accepted bid. As soon as the ∆ learned of the mistake - they tried to revoke, under classical you can revoke before acceptance - and they did so here.) Court holds – no bilateral contract – b/c offer revoked before acceptance, no unilateral either b/c revoked before performance. Court then looks to PE – also – finds no PE b/c refused to expand to the commercial area – they said if you want a contract you have to enter into it the right way.

b. Drennan v. Star Paving Co. – (∏ - general contractor, ∆ - subcontractor. ∆ makes bid - ∏ includes that bid in her bid – her bid is accepted, she then tries to accept the subcontractor bid – and the ∆ refuses – b/c he made a mistake - ∏ sues for the difference b/w what the ∆ said he would charge and what they ended up having to pay the alternate sub-contractor). ∏ says reliance makes the ∆’s offer irrevocable. Here there is PE b/c the ∆ should have expected the ∏ to rely, she relied when she included his bid in her bid, and it was to her detriment – b/c she then had to do it for that cheaper price once her bid was accepted. Majority of courts now accept the Drennan decision – and so does the R § 87(2)

i. R §87 – an offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.

ii. If the subcontractor didn’t want to be bound should have said so.c. Berryman v. Kmoch – (Option contract for 120 days to buy for $10 and other valuable consideration).

$10 could have been enough – but it was never paid. ∆ argues there is other valuable consideration – including his time spent looking for investors. Court said that wasn’t enough b/c that’s not what the ∏ bargained for. Kmoch confuses Berryman’s possible motives – to sell the land – with consideration given the fact that Berryman expected Kmoch to spend time and money to find a buyer is really irrelevant because he was not bound to do so. He made no legally enforceable promise. To be sufficient consideration a promise must impose a legal obligation on the promisor. Time and money spent by a party in trying to sell property for which he holds an option cannot be construed as consideration to the party for which he has secured the option. Also court says no PE – b/c there was no way for the owner to foresee what Kmoch was going to do. He could have done nothing at all. The promisor couldn’t have reasonably expected the actions that were taken by the promisee b/c he could have done nothing.

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i. Berryman sold the land to someone else after this whole option thing started. Kmoch then went to the bank to make arrangements to buy the land and the bank told him it had already been sold. Then Kmoch sent a letter to Berryman saying he wanted to exercise the option and Berryman told him the option was void. R §42 – an offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree requires reliable information to that effect.

ii. Under § 87 – this would have been okay because written and purported consideration is okay.d. Pops Cones v. Resorts International Hotel – (∏and ∆ both want TCBY to move to ∆’s location – several

discussions about re-locating – and TCBY moved.) TCBY had an option on their prior lease – they did not exercise it b/c they believed they were going to sign a lease with the ∆s. ∆ kept leading them on. At the last minuet the ∆ backs out. ∏ - PE – in NJ requires a clear and definite promise – and everything the ∏ had from the ∆ stated clearly that it wasn’t a promise. The court relaxes the clear and definite requirement – b/c the ∏ is seeking reliance damages not expectation damages. They still need a promise- but the court required a less definite promise. Court suggests – at some point what you say in negotiation can turn into an enforceable promise.

e. Irrevocability by statute – the firm offeri. UCC 2-205 – Firm Offers – an offer by a merchant to buy or sell goods in a signed writing which

by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event more then three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror.

ii. A firm offer is an offer that by its express or implied terms is to remain open for a certain period. General rule – revocation of a firm offer prior to the expiration of the period for which it was to remain open has the same effect as the revocation of an ordinary offer – but it’s subject to some exceptions.

1. An option – a firm offer in which consideration has been given for the promise to hold the offer open for a certain period of time.

2. Nominal consideration – under the majority rule a firm offer is irrevocable if it recites a purported or nominal consideration. R – § 87(1a)

3. Reliance – a firm offer is irrevocable if the offeror should have reasonably foreseen that the offer would induce reliance by the offeree prior to acceptance and such reliance occurs (Drennan).

4. UCC 2-205 – under this section a signed written offer by a merchant to buy or sell goods which gives assurance that it will be held open is not revocable for lack of consideration during the time stated – the period of irrevocability cannot exceed three months.

a. The following must be satisfied for 2-205 to be applicable:i. Written and signed – by the offeror

ii. Irrevocability – the offer must state that its irrevocableiii. Applies only to sale of goodsiv. Limited to offers by merchants

iii. Mid-South Packers v. Shoneys – (∆ and ∏ K has 45 notice provision for price changes – then the ∏ told ∆ they needed to raise the price, ∆ objected to the increase – but kept accepting goods at the higher price – but noted on each po the old price. At the last shipment the ∆ shorted the ∏ the difference between the old and new price total – 26K). Court holds Shoneys has to pay the higher price because this was a firm offer and more then three months had passed since it was

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written therefore the provision saying they had to give 45 days before they could change the price was gone.

f. Qualified acceptance – the Battle of the forms – UCC 2-207i. Common law mirror image rule – under the common law the offeree’s response operates as an

acceptance only if it is the precise mirror image of the offer if the response conflicts at all or adds new terms the purported acceptance is in fact a rejection and a counteroffer.

1. ex – I’ll sell you my house for 100K closing on April 1st. Offeree says – that’s find but let’s close April 2nd – that’s not acceptance – but a counteroffer.

2. Poel v. Brunswick-Blake-Collender Co. – (several letters went back and forth – question is – was there a contract under the mirror image rule?) ∏s submitted an offer to the defendant, the ∆ had to options – it could accept the offer, or it could reject the offer – there was no middle course. If it did not accept – it necessarily rejected it – a proposal to accept the offer if modified or an acceptance subject to other terms and conditions was equivalent to an absolute rejection of the offer.

ii. Classical contracts ignores reality – in real world companies often use forms to deal with contract issues because it’s a way of recording information, less transaction costs, its what their used to – problem is that with form contracts sometimes the contract doesn’t fit the form.

1. UCC 2-207 – Generally – a. 2-207(1) – any “expression of acceptance” or “written confirmation” will act as

an acceptance even though it states terms that are additional to or different from those contained in the offer unless acceptance is expressly made conditional on assent to the additional or different terms.

b. Only applicable to contracts for the sale of goodsc. Although in theory applicable to all sale of goods contracts this action is really

designed to deal with form contracts. d. Under 2-207(1) – a contract is formed despite the additional terms in the

acceptance. The next question is the effect of such additional terms. In determining that effect: 2-207 draws a distinction between additional terms – terms which add but don’t contradict, and different term – terms that contradict the terms of the offer.

i. Additional terms – 1. 2-207(2) – additional terms contained in the acceptance are to be

construed as proposals for additions to the contract if the parties are both merchants these proposed additional terms become part of the contract unless:

a. the offer expressly limits the terms to the terms of the offerb. the additional terms would materially alter the contractc. the offeror either notifies the offeree within a reasonable

time that he objects to the additional terms or has already notified the offeree of his objection.

ii. Different terms – 1. 2-207(2) – does not provide any guidance about the effect of

different terms. Three broad views have emerged from the courts:a. The Knock Out rule – the majority rule – different terms do

not become part of the agreement but they negate/knock-out those terms in the offer from which they differ.

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i. Ex – buyers po says disputes litigated in NY state court. Sellers acknowledgement says arbitration. Knock out rule – neither NY nor arbitration – instead the common law – allowing an ordinary civil suit to be brought in any state that had jurisdiction.

ii. Knock-out rule follows the purpose of 2-207 – in that neither party gets the unfair advantage of having its pre-printed terms prevail – instead the contract is on fair terms; those terms that the parties have both agreed to and those terms that the UCC supplies in the absence of agreement.

b. Different terms are treated like additional terms. c. Different terms always drop out. – under this view the

contract will contain any additional terms in the acceptance that meet the 2-207(2) test but not any different terms in the acceptance – knocks out the new terms – keeps the original offer.

e. 2-207(3) – Contract by conduct – the conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract.

i. Where contract by conduct – the terms consist of those terms in which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act. For instance, the price term would be a “reasonable price at the time for delivery,” as imposed by §2-305’s price “gap-filler” – Gap fillers are standard terms recognized by the UCC that are implied as a matter of law into in the contracts to fill the gaps.

f. Confirmation of oral contracts – if the parties initially reach an oral agreement a document later send by one of them memorializing the agreement is call a confirmation.

i. Additional terms in confirmation – if the confirmation contains a term that is additional to the oral agreement, that additional term become part of the contract unless

1. the additional term materially alters the oral agreement or2. the party receiving the confirmation objects to the additional term.

2. Different term in confirmation – if a clause contained in the confirmation is different from a term on the same issue reached in the oral agreement the new clause probably does not become part of the agreement.

iii. Brown Machine, Inc. v. Hercules, Inc. – (Sold trim press - ∏ sellers proposal has indemnity clause, ∆ buyers po doesn’t mention indemnity and includes merger clause) There is a contract – the question is who’s terms. Court finds that the ∏’s proposal was a price quote not an offer, and the ∆’s po was an offer. The next question is – was the ∏’s acknowledgement an acceptance or a counteroffer. Under common law – b/c of mirror image rule – would have been a counteroffer. But court looks to 2-207(2) – the additional term is the indemnity clause – between merchants they are treated as part of the contract unless they materially alter, they are objected to, or are

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expressly limited. Here they expressly limited the offer – therefore this term is not added. It’s a first shot rule – a rule in which the offeror can expressly limit the terms to his own terms – he controls the offer.

a. Under common law would have been a counteroffer – mirror image – last shot rule.

b. Under UCC it’s an acceptance with additional terms.iv. Roto-Lith – the court said the sellers acknowledgement containing terms that materially alter the

terms of the buyers offer to the disadvantage of the offeror amounted to an expressly conditional acceptance under 2-207(1) and therefore functioned as the equivalent of a counter offer. The court held that the buyers acceptance of the goods shipped by the seller with knowledge of the terms of the sellers expressly conditional acceptance constituted assent to the sellers conditional acceptance. The courts interpretation of 2-207 created two central common-law components – the mirror image rule, and implied assent to the terms of the counteroffer by acceptance.

1. Roto-lith has been overruled – and now seems well established that an acceptance does not amount to an expressly conditional acceptance simply because it contains terms that materially differ from the offer. The acceptance must use clear language indicting that the offeree assent is expressly conditional on the offeror agreement to the terms of the offeree’s document.

v. Dale R Horning Co. v. Falconer Glass Industries, Inc – (∏ glass and metal company – who was a sub-contractor and had time pressured job – had to pay penalties if late, ∆ - glass supplier) Glass delivered with defects. ∏ puts the glass in anyway b/c wants to avoid the late penalty. Then sues the ∆ for damages of having to put in glass twice. Oral contract originally – then both sent confirmations – one included limitation on warrantee and damages on did not. The court looks to 2-207 even though this is not written – additional terms construed as proposals for addition – but when merchants becomes part unless expressly limited offer or material terms – so now question is – is consequential damages term material. They look to case law – material terms – are those that surprise a party or impose hardship. So now the question is – is it a surprise or hardship. They look at the industry course of dealings in the trade – how the parties acted prior to the formation of the contract is important – court says both the ∏ and ∆ lawyers should have been upfront and bargained for it in advance. What is hardship? Hard, oppressive, toilsome, distressing, shits the legal liability onto the ∆ to overcome the boilerplate language. Here court found enough to let the term in.

vi. Different terms – Some argue 2-207(2) doesn’t apply b/c only says additional terms – but comment says also applies to different terms – so statute and comment disagree. If different terms are treated under 2-207(2) then the offeree’s additional term is out and the offeror’s in in – meaning the first-shot rule – the original term is in – the new version is out. But most courts follow the knock-out rule. Because different terms do not come within paragraph 2 you look to paragraph 3 – if the goods are actually shipped it’s knocked out. If you have a po with one term and the other paper with a different term – there is no contract there – but the subsequent performance creates the contract – and b/c created by performance then you go to (3) – and the knockout rule applies.

g. Proposed Bargaining – the agreement to agree – there may be an agreement but the agreement is incomplete – either b/c the parties explicitly decided not to agree or b/c they just postponed it for later. If we demanded that everything be considered it would increase the costs – the question is at what point do we say there is an agreement and in addition – even if there is not an agreement can there be a contract to negotiate.

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i. Walker v. Keith – (court held contract without price of rent term not a contract) 10 lease agreement with option for 10 year renewal – rent price for additional 10 years to be determined. The parties couldn’t agree on a price – they both wanted to use different Comparative Business Conditions – one wanted national figures, the other wanted local. Court uses classical view – and determines – no contract b/c the parties contract did not have definite terms – no mutual assent if you don’t know what you are agreeing to with specificity. If the parties had agreed to have a specific person determine the price in the terms of the original agreement – ie a real estate expert – but the court doesn’t want to overly involved in contract making therefore they resist setting the price themselves – rational of the traditional rule.

1. UCC 2 -305 – as in cases where the parties simply leave a gap the UCC is very liberal as to the effect of an agreement to agree, under 2-305 in a contract for the sale of goods an agreement to agree on price does not render a bargain unenforceable provided the court finds that the parties intended to conclude a contract. In such a case if the parties fail to reach such an agreement as to price then the price is a reasonable price (not fair market value – b/c the court doesn’t presume they agreed to fair market value) at the time of delivery. Opposite of Walker. But still a question of intent – the court must find that the parties intended to put in the vague term.

2. R § 33 – follows the UCC approach to decide whether or not a price should be read in. Even though a manifestation of intent is intended to be understood as an offer it can’t be accepted so as to form a contract unless the terms are reasonably certain – the terms are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. The fact that one or more terms is left open or uncertain may show that a manifestation of intent is not intended to be understood as an offer or an acceptance – Oglebay v. Armco – follows R §33 approach.

ii. Quake Construction v. American Airlines - (∆ won contracting bid – but needed sub-contractor license numbers before officially getting the bid officially). The ∏ wanted to be assured that they had the contract before giving license numbers, the ∆ wanted the license numbers before giving the official contract. To induce Quake to enter into agreements with the sub-contractors and to induce the sub-contractors to give up their license numbers – the ∆ sent the letter of intent stating that the ∏ was awarded the contract – but the last sentence had a cancellation clause permitting them out of the contract if they were unable to agree on subcontract agreements. Issues is whether the letter of intent is an enforceable contract? After the letter sent the ∆ tried= to revoke giving the ∏ the bid provisionally. ∏ had damages $ spent procuring and prepping and loss of anticipated profit. AC and SC say the letter is ambiguous – and therefore the question of intent is for the jury. Case is remanded to find parties intent.

VI. The meaning of the agreementa. principle of interpretation

i. Construction – determining the legal effect of a termii. Interpreting – finding the meaning of the term

iii. Early approach looks at the minds of the party – if the minds of the parties thought differently then no mutual assent and no contract. Peerless ships – two ships both same name both leaving from Bombay a few months apart – but big change in market conditions – meant big change in price and therefore the date of delivery mattered – so which ship mattered – court found there was no contract – b/c no mutual assent. The Peerless rule is limited to cases where two or more meanings are equally reasonable.

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iv. Late 19th century – change to objectively – what a term means through objective criteria – not subjective. Viewed by classicists as being more fair – b/c not self serving – parties use words based upon an acceptable reasonable meaning of the terms not what one party wanted it to mean – so the objective rule works – but the problem – a contract could be found when neither party thought that that was the term – that was obviously criticized.

v. Corbin – Modern view – modified objective view of meaning interpretation – R § 202 (course of performance – great weight) Takes elements of both subjective and objective together.

1. R § 202 – Words and conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight. A writing is interpreted as a whole, all writing that are part of the same transaction are interpreted together. Unless a different intention is manifested – where language has a generally prevailing meaning, it is interpreted in accordance with that meaning; technical terms and words of art are given their technical meaning when used in a transaction within their technical field. Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or accepted or acquiesced in without objection is given great weight in the interpretation of the agreement. Whenever reasonable, the manifestation of intention of the parties to a promise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing, or usage of trade.

vi. Joyner v. Adams – Originally contract between Joyner and Brown – payment yearly tied to the WPI. Brown couldn’t do it – contract changed to Joyner and Adams – payment set a fixed rental price instead but if the work wasn’t competed by date they’d have to pay the difference between their rental price and the WPI. By the date specified in the contract the work was done on all but one lot which had sewage water etc but no building. ∏ - breach wants the extra money, ∆ says they completed their part of the contract – no extra money.

1. R §201 – a. Subjective – b/c when both parties agree – then that’s what the court should go

with.b. Where different meanings – one party may win if the party did not know the

meaning attached by the other party – and the other did know the meaning attached by the first – the party that didn’t know wins – they are the innocent party. Or if party had reason to know…

c. If not with 1 or 2 – then both are not bound – b/c no mutual assent.2. Here they look at negotiations – court says - ∏ honestly believed that that was the

meaning. ∆ says trade usage – developed means sewer and water not building. ∆ honestly believed his view was correct. Court send back to DC to determine whether the parties knew or should have known what the other party was meaning/thinking.

vii. Principles of Interpretation – 1. The meaning of a word in a series is affected by other in the same series or a work may

be affected by its immediate context.2. A general term joined with a specific one will be deemed to include only things that are

like the specific one.3. go fill in the rest of this when joe’s not sitting there just watching you.

viii. Frigaliment Importing Co. v. B.N.S International Sales Corp. – (what is a chicken) ∏ buying chickens, ∆ selling chickens. Contract says Chickens – dispute over what a chicken is. Whether

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young chicken or stewing chicken significant price and usage difference. Court looks at language of the contract, then preliminary negations, trade usage, and course of performance. All sorts of conflicting testimony. ∆ wins b/c ∏ couldn’t meet the burden of having to show his meaning of correct – just as likely that was correct – so ∆ wins by default.

ix. C & J Fertilizer Inc. v. Allied Mutual Insurance Co. (Fertilizer plant burglarized – insurance claim for damages – insurer says contract requires visible marks of break-in b/c don’t want to insure for an inside job. Majority accepts the notion that the ∏ didn’t have a duty to read the contract – b/c insurance contracts suck. The most the ∏ would have reasonably assumed (without reading the contract) was that there was a term requiring evidence of a break-in – but not the level that the insurer was requiring. Court followed R 237 – not bound to unknown terns that are beyond the range of reasonable – therefore court found for ∏.

b. Parol Evidence Rule – when there is a writing that writing can operate to exclude other evidence. i. Integrated – a writing constituting a final expression of one or more terms of an agreement

1. Classical – look at the four corners of the writing – the whole writing itself to see whether integrated or not.

2. R – Look at the writing and the parol evidence and determine whether the parol evidence should come in before it comes in officially to the jury.

ii. Completely integrated agreement – an agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement. Sometimes contracts include merger clauses – this is an attempt by one party to keep out oral testimony to establish that its an integrated agreement. Under classical if merger clause – no parol evidence except for fraud.

iii. Partially integrated agreement – an integrated agreement other then a completely integrated agreement.

iv. R§213 – a binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. A binding completely integrated agreement discharges prior agreement to the extent that they are within its scope.

1. R will look to outside evidence to determine if ambiguous or not – classical – just look at the writing itself.

v. UCC §2-202 – terms set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented:

1. by course of dealing or usage of trade2. by course of performance3. and by evidence of consistent additional terms unless the court finds the writing to have

been intended also as a complete and exclusive statement of the terms of the agreement.vi. Two step process – even if the judge lets the parol evidence in the jury still decides whether to

believe it or not. vii. Exceptions to the Parol Evidence Rule:

1. PER does not apply to evidence offered to explain the meaning of the agreement.2. PER does not apply to agreements made after the execution of the writing3. PER does not apply to evidence offered to show that effectiveness of the agreement was

subject to an oral condition.4. PER does not apply to show agreement is invalid – ie, fraud, mistake, duress, undue

influence, incapacity, or illegality.5. PER doesn’t apply to collateral agreements.

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6. PER doesn’t apply to establish a right to an equitable remedy.viii. Classical – Thompson v. Libby – (seller selling logs, buyer receives logs but doesn’t pay for

them – says no breach b/c implied warranty.) TC– admitted oral testimony. Issue – whether to let in the extrinsic evidence or not. The appeal court determined the contracts integration by looking at the four corners of the agreement. They found that the language comported to be a full agreement – even though it didn’t mention a warranty. It had the basic contract terms – price, quantity, delivery, etc. The court would still allow in parol evidence to explain the terms – but not to add new terms. Why have the parol evidence rule – b/c they want parties to be able to rely on the written contract – concerns about juries, perjury, and memory. Problem – the writing doesn’t always tell you the intent of the parties – the court could end up enforcing a contract incorrectly.

ix. Taylor v. State Fram Mutual Automobile Insurance – (∏ is suing his own insurance company for failure to represent him adequately and to settle within his policy’s limits). ∏ was sued for a car accident. His insurance company provided an attorney for him. He also had a counterclaim against the other driver so he had his own attorney for that claim. The insurance company settles for an amount 2M+ over his policy limit – he’s under insured – he then signs a release with the insurance company – releasing them from all contract claims. The court looks at the release – needs to determine whether its integrated – or if parol evidence can come in. The release said contract – didn’t mention tort – and the ∏ is claiming tort relief. The court lets the parol evidence in to determine what was released by the agreement. Court finds that the writing is ambiguous enough – why write contractual when you meant all claims – and why give in for only 15K when you are 2M in the hole and a huge potential bad faith claim. Court remands to TC for jury to determine the validity of the parol evidence.

1. Difference b/w modern and classical – modern allows parol evidence in to the question of whether the writing is integrated or not – classical restricts that question to the writing itself.

x. Sherrodd, Inc. v. Morrison-Knudsen Co. – (sub-contractor bids based on main contractors estimate – the bid was accepted and work began before a contract was signed – work load doubled and ∏ agreed to sign contract based on the original amount – b/c main contractor told them they wouldn’t pay them for the work already done unless they signed – and they would be paid for the additional later). ∏ couldn’t make pay-roll without signing the contract and getting paid. Court wouldn’t let in the ∏’s story – b/c PER statute – and contract had a merger clause.

xi. UCC – PER - Nanakuli Paving Rock Co. v. Shell Oil Co. – (contract for oil – price term was “posted price” (market price) – during long-term contract – prices go way up – P wants to be price protected). This is a requirements contract – the buyer agrees to buy all of what it needs form the seller – and the seller agrees to supply all the buyer’s needs. Shell increases the prices without notice – which is problematic for Nanakuli b/c they have contracts that do not allow price increases. Court looks at trade usage – trade usage was price protection – whether place, vocation or trade. Court looks at course of performance (most important via UCC and R – b/c best at determining the intents of these particular parties). Shell’s course of performance was to price protect – they had done so twice before. ∏ also says – good faith – required them to at least give notice. ∆ argues – twice before price protection was not a course of performance but a waiver instead. ∆ says – trade usage is too broad – if you look at specific industry – just asphalt in HA – then no price protection. Court says – shell’s strongest argument is the language of the contract. But there is enough to send to the jury the question of whether Shell’s prior performance established a course of performance or was a waiver.

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1. UCC says – you can prevent usage of trade, course of dealings, etc from coming in – but you have to be specifically explicit about it – it must be clear that that is the intent.

2. The court is essentially using the UCC to put new terms into the contract. The court creates a provision that conflicts with the writing.

VII. Supplementing the Agreement – Obligation of Good Faith and other Implied Termsa. You can’t bargain away good faith – UCC 1-102(3). But you can create the standards for good faith.b. Rational for Implied Terms – sometimes courts will imply a term into a contract that’s not there. They

can be implied by law or fact – that the parties really meant to put it in and didn’t. A court will sometimes supply a term if the language doesn’t cover it. Must look to the nature, was it foreseeable, would they have chosen it. If they find that the parties meant to leave it out – the court won’t put it in.

i. Implied by Fact - Wood v. Lucy, Lady Duff-Gordon (court reads in an implied term that the seller was going to try to sell her stuff with a reasonable effort). Contract said he would exclusively sell her endorsements – contract for one year – then year to year with 90 day notice. She comes to US and Sears sells her – they will sell her stuff. She broke the exclusive contract. He sues. ∆ claims he didn’t have to do anything – no mutual assent. Court finds an implied promise to take reasonable steps on behalf of the ∆ - they find the contract was detailed, he agreed to give her half the profit (implying he’d try to make a profit). ∏ had a duty – the court is reading in a good faith term. Therefore there was mutual assent and a binding contract – and therefore ∆ is in breach.

1. UCC 2-306(2) – A lawful agreement for exclusive dealing imposes unless otherwise agreed an obligation buy the seller to use best efforts to supply the goods, and the buyer to use best efforts to promote their sale.

ii. Implied by Law - Leibel v. Raynor Manufacturing Co. – (oral distributor contract, dealer borrowed money to start up business, for no set time period, terminated by manufacturer after two years without notice). ∆ - says cancellation of contract at will. ∏ says – protected by:

1. UCC 2-309 (2) and (3) – where the contract provides for successive performances but is indefinite in duration it is valid for a reasonable time but unless otherwise agreed may be terminated at any time by either party. Termination of a contract by one party except on the happening of an agreed event requires that reasonable notification be received by the other party and an agreement dispensing with notification is invalid if its operation would be unconscionable.

Court says not enough notice – UCC is speaking about timing not just substance of notice. Must give a reasonable time.

What is a reasonable time? Enough time to get a new contract with a substitute arrangement – what if they can’t find one. Well at least given the chance. Chance to sell off inventory. Possibly to recoup investment – could be months – could be longer – for the jury to decide – question of fact.

c. Off the rack – UCC rules – transaction costs are cheaper – if you leave stuff out of the contract b/c covered by the UCC, means you don’t have to negotiate those terms – saves costs.

d. Implied Warranties – when there are good sold by a merchant – there is an implied warranty that the goods are good for the purpose sold. There can also be express warranties. Implied warranties can be waived. UCC essentially overrules caveat emptor. UCC 2-314 – implied warranty of merchantability – merchant who regularly sells goods – implies goods are quality and fit for ordinary use. UCC 2-315 – implied warranty of fitness for a particular use – when buyer relies on seller skill and seller knows reliance – implied that the goods are good for that purpose.

e. Implied Obligation of Good Faith –

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i. UCC 1-203 – every contract or duty within this act imposes an obligation of good faith in its performance or enforcement.

1. what is good faith – UCC 1-201 – honesty in fact in the conduct or transaction concerned.2. for merchants – UCC 1-201 - honesty in fact and observance of reasonable commercial

standards or fair dealing in the trade. ii. R § 205 – Every contract imposes upon each party a duty of good faith and fair dealing in its

performance and its enforcement. iii. In NY – no party shall have the effect of destroying or injuring the right of the other party to

receive the fruits of the contract.iv. Focus on the extent to which the party takes acts under the contract that undermine it. v. Empire Gas Corp. v. American Bakeries Co. – (bakery thinking of changing trucks from gas to

propone – after they execute requirements contract – they decide not to change trucks to propone after all – Gas Corp – sues for breach – obligation of good faith). Bakery doesn’t give a reason for why they decide not to change their trucks. Lower court – found for Empire. Judge gave jury statute – 2-306 – accept no quantity unreasonably disproportionate. Posner – only means disproportionate over the estimate – b/c if the price went down – then the buyer could buy and try to undercut the seller. Here, even though asking for less – not more – Posner finds there was enough for the jury to find bad faith – b/c Bakery could have given a reason and they didn’t – also b/c of the decrease in the amount they ordered – not just less but none.

vi. Locke v. Warner Bros. Inc. – (Sandra Locke contract with Warner Bros – secret deal with Eastwood – she claims they never intended to make her films at all). ∏ claims fraud and good faith among other things. TC concerned that if the applied good faith tot his they would create a contract that didn’t exist – b/c its Warner’s discretion to make films or not – subjective artistic choice. AC finds that that’s true – its up to Warner – but good faith requires an honest dissatisfaction – they must at least look at her work and make a judgment not to do it.

vii. Lender Liability – KMC v. Irving Trust – (loan agreement b/w lender and grocery store) Loaner could demand payment at any time – demanded without notice – store went under b/c didn’t have cash on hand. Even though the contract expressly required no notice – the court read in that notice was required for good faith.

viii. E. I. DuPont de Nemours and Co. v. Pressman – (∏ fired when boos made up stuff to retaliate when ∏ questioned boss about conflict of interest). ∏ was an employee at will. Conflict between employment at will and good faith – good faith interferes with employer’s ability to fire. Court looks at good faith in employment at will narrowly. (NY has one of the narrowest approaches to good faith – and broadest to employment at will – giving all the advantage to the employer.) This case in Delaware. Court says there are places where good faith should trump employment at will:

1. fraud in inducement – makes sense because the baseline notion of good faith is honesty.2. Public Policy – sexual advances rejected and then subsequently fired.

a. Problem how do you figure out what is public policy – the court says to look to statutes and rules.

b. Doesn’t help here – but – what about whistle blowers – want to protect the company and outsiders alike from bad behavior

3. Depriving the employee of compensation – commissions.Here the court finds that the creation of false information which created the dismissal – sort of fits into the fraud exception. The court reverses on the grounds that the jury statement was too broad – instead the court wants a finding of both malice and intent to injury instead of one or the

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other. Ie – you can fire him if you just don’t like – but you can’t fire him if you don’t like him and make stuff up about him to rationalize the firing - has to be egregious.

VIII. Avoiding Enforcementa. Minority and Mental Incapacity - If you are a minor – the general doctrine is that you can get out of

contracts – unless you misrepresent your age. Contract with a minor is void or voidable. Exception for necessaries (because afraid that minors would never get food and shelter b/c merchants wouldn’t want to deal with them). Rule of minority can apply to leases – some state allow to come into business contracts some states allow their parents to contract for them. The presumption underlying – is no misrepresentation by the buyer and no unfairness by the seller.

i. Why do minors get out of contracts:1. They are incapable of entering the contract2. There is no real mutual assent – b/c they are not in a position to do hard self-centered

bargaining.3. They thought minors would be taken advantage of by crafty adults.

ii. Dodson v. Shrader (16 year old buys a truck – no misrep of age, but no-one asked). Buys truck – then later engine trouble – kid keeps driving it anyway – eventually the truck dies – is parked in driveway – get further damaged by drunk driver while parked. Then kid tries to rescind the contract. Under common law – the contract would be void and the kid would get all his money back. Modern approach, court recognizes that minors are acting older – they are taking on more adult obligations. Two rules under modern view:

1. Benefit rule – protects merchants from minors – if the seller is shown to have some unfairness then it’s an unfair contract and you can’t use the benefit rule. Minor gets full purchase price back – but its subject to a deduction for the minors use. Rational – not fair that the merchant should have to return the full amount – b/c then he is paying for the minors use.

2. Oregon rule – broadens the benefit test – the minors recovery of the full price is subject to a deduction for his use or for the depreciation or deterioration. – again rule doesn’t apply if the seller was unfair – if so then the minor gets the fair market value.

Here – the court apply the Oregon rule – ie – the owners take the truck back and they give the kid the current value of the truck, not the full purchase price as he would have liked.

iii. Hauer v. Union State Bank of Wautoma – (woman with brain injury secures loan agreement for debtor – he default – she claim mental incapacity). ∏ took out a loan – collateral was her investment – of which she needed to live off the interest. She had previously had an appointed court guardian – but didn’t anymore by time the loan transaction took place. TC – found for her – let her get her mutual fund back b/c they found the bank lacked good faith. AC – burden of proof to show incompetence is on the ∏ b/c there is a presumption of competence. Court uses a test to determine capacity:

1. R § 15 (1)(a) cognitive– unable to understand in a reasonable manner the nature and consequences of the transaction.

2. R § 15 (1)(b) volitional – unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition.

Here court applies the cognitive test. There is evidence that the bank may have known that she was incompetent – they her accountant who told them that she needed the mutual fund to live off of. But – she only gets the mutual fund back (in addition to the money) if bad faith on the bank’s part. Court doesn’t use UCC b/c not goods. ∆ - jury got wrong question. Court there was

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enough evidence that they knew or should have known about the ∏’s incapacity that the court determined there was bad faith and the question didn’t undermine the jury’s decision.

iv. Differences between Minority and Incapacity:1. Incapacity is harder to prove – being a certain age is clear – easy lines to draw – but

proving incapacity is hard. v. Other incapacity – intoxication –

1. R § 16 – A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication he is unable to understand in a reasonable manner the nature and consequences of the transaction or he is unable to act in a reasonable manner in relation to the transaction.

2. Both volitional and cognitive.b. Duress and Undue Influence

i. Economic Duress – A contract is voidable on the grounds of duress where consent was induced by wrongful threats.

ii. Totem Marine Tug and Barge Inc. v. Alyeska Pipeline Service Co. – (contract to deliver goods from Texas to Alaska – all sort of problems (unclear who’s fault the problems were) on the way there – when they finally get to first stop in Calf. the ∆’s agents unload goods and terminate the contract on the spot – and refused to pay for services already rendered). ∏ needed the money so they settled - the ∆ got a release in return. The party alleging the economic duress must show it was the victim on a unlawful or wrongful act or threat that has deprived them of their unfettered will and left them with no reasonable alternative. Court – withholding payment can be a wrongful act. ∆ refusal to pay coupled with a lack of good faith and their part in the problems, in addition the ∏’s lack of options – gives rise to a claim of duress. Court remands to jury to decide the issue of whether or not the ∆ created the lack of choice.

iii. Why wasn’t Batsakis economic duress? B/c the lack of options was caused by outside forces – not the ∆. But – not all courts will require that the other party cause the lack of alternatives.

iv. Problems with a broad notion of economic duress – lots of time the ∏ creates their own economic duress. Concern about hard bargaining – you want to allow parties to bargain – and parties who are in financial difficulty to enter into a contract. You want parties to be able to bargain.

v. R § 175 – duress makes K voidable if induced by improper threat. § 176 - threat is improper if crime or tort, threat of criminal prosecution, or if the treat is a breach of the duty of good faith and fair dealing.

vi. Undue Influence – unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of their relationship between them is justified in presuming that that person will not acting a manner inconsistent with his welfare. If a contract is the result of undue influence it is voidable.

vii. Odorizzi v. Bloomfield School District – (gay teacher accused of crime – just after he returns home (with no sleep) from questioning – the school’s principle and superintendent show up at his house and tell him he can either resign or face firing - publicity and inability to find another job). ∏ signs resignation under extreme influence – and unfair persuasion. The court looks at the capacity of the person to make a decision and the strength and dominance of the other party. The court finds undue influence b/c the negotiation was unfair b/c transaction at an inappropriate time, in an unusual place, insistent demand, dominant side against a single servient party, absence of advisor for that party, statements no time to consult an attorney.

c. Misrepresentation and non-disclosure

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i. Misrepresentation – a misrepresented statement of material fact that the other party relies on and as a result enters into a contract on that misrepresented statement.

ii. Parties may sometimes have both a tort and contract claim for fraud/misrepresentation. Biggest difference is the remedy – tort you can get damages (also tort harder to prove because you have to show intent (scienter), contracts you can get rescission (easier to show b/c can have a cause of action even if the party has innocent intent – as long as they misrepresent a material fact).

iii. R § 164(1) - An unintentional misrepresentation can undue a contract if it involves a material fact, or an intentional misrepresentation can undue a contract even though it does not involve a material fact.

iv. When a misrepresentation is fraudulent – the maker intends his assertion to induce a party to manifest his assent and the maker a: knows or believes that the assertion is not in accord with the facts or b: does not have the confidence that he states or implies in the truth of the assertion or c: knows that he does not have the basis that he states or implies for the assertion.

v. When a misrepresentation is material – it would be likely to induce a reasonable person to manifest his assent or if the maker knows it would be likely to induce the recipient to do so.

vi. Misrepresentation of Opinions - Syester v. Banta – (dancing ripped off widow). Widow wasn’t overcharged per hour – but instead was sold more hours then necessary include three lifetime memberships. ∆’s told her she would be a professional dancer (an obvious overstatement). They fired her favorite dance instructor – soon after she filed suit – they rehired him in an attempt to get him to get her to drop the suit. He’s successful, after much work and waltz, she signs two releases – one where she drops all claims for 6K. Second release – she’s supposed to give them money (obviously a mistake – but just goes to show she would sign anything). She files a tort action b/c she wants damages. ∆’s say – release – no suit. ∏ says material misrepresentation. Court lets her out of the release b/c they said it was fraudulent overreaching – a fraud-undue influence-deceit combo. Not really undue influence b/c she had time to decide whether or not to come back to the school again.

1. ∏’s burden is clear and convincing – makes it harder – not as tough as criminal but tougher then normal civil standard – b/c fraud has a stigma that more criminal then civil – but its not a criminal case – so can’t raise the burden that high.

Misrepresentation – of opinion – harder to prove b/c you must show that they actually misrepresented their true opinion. Who gives the opinion can matter – if a profession then higher standard – b/c when opinion based on authority – more likely to trust it. Here – they said she’d be a professional dancer – they are giving an opinion they know is not true – therefore actionable

2. Opinions on value – generally not actionable. But – if you give a opinion of value that you know is false – then that’s actionable.

3. Damages – difficult to determine why the jury came up with the figure they did for damages.

a. Out of pocket rule – difference b/w what is parted with and what is received plus consequential damages prior to the discovery of the fraud – consistent with general principle of tort damages – which aims to put the party back where they were before the fraud occurred (minority rule).

b. Benefit of the bargain rule – put parties in the position they would have been in if they bargained truthfully. – usually the same result from both rules.

vii. Non-disclosure – generally no duty to disclose. But you must disclose if the parties are in a fiduciary relationship or if there is a material fact that by virtue of the seller’s special position, he

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knows of and that the buyer would not know of by the exercise of normal diligence. Comes down to the question of – is the non-disclosure a violation of good faith and fair dealing.

1. seller has a better opportunity generally to know what the item contracted for is worth 2. fiduciary must always give full disclosure – an unfair contract with a fiduciary is voidable

if it relates to matters within the scope of the fiduciary relationship. 3. innocent misrepresentation is actionable.4. innocent concealment/non-disclosure is not actionable. So for non-disclosure to be action

it must not be innocent. 5. Some courts limit to cases of dangerous defects only.

viii. Hill v. Jones – (termites in the floor – sell the house – leave the termite brochure behind). Upon buyers inspection they notice ripple in the floor – they ask – the sellers say water damage. The buyer are suspicious (especially b/c they have knowledge of termites) but they don’t question again – b/c they really wanted the house and pending termite inspection. Inspection comes up clean. They buy the house. A few days later they learn of termite infestation, and the ∆’s knowledge of such. Issue – whether the seller had a duty to disclose. Would have been an easy case if they had directly asked if there were termites but they didn’t. Contract to buy had a merger clause – limiting parol evidence. Court says – parol comes in b/c fraud claim. Court adopts narrow rule for when you have to disclose – where the seller of a home knows of facts materially effecting the value which are readily observable and are not known to the buyer the seller is under a duty to disclose. The court finds that the jury could find a duty to disclose based on that standard.

ix. Laidlaw v. Organ – 19th century – buyer finds out the war has ended – hence increase in the price of tobacco. Court says no duty to disclose b/c they both had access to the info. Information is valuable – they want to encourage people getting more information – and if you have to disclose that reduces the incentive to go and find stuff out on your own.

d. Unconscionability – direct way in which a court may attack a contract for being unfair – but courts don’t like to undue bargains. Balancing between being fair to the parties and undermining the certainty of contracts.

i. UCC 2-302 – if the court as a matter of law finds the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract or it may enforce the remainder of the contract without the unconscionable clause or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. When it is claimed or appears to the court that the contract may be unconscionable the party shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making a determination.

ii. Williams v. Walker-Thomas Furniture Co. – (∏ bought furniture from ∆ for a number of years – clause in payment agreement that allowed the ∆ to repossess all the stuff the ∏ had ever bought them whether paid off or not). ∏ bought a variety of furniture over a period of years – she missed one payment – and the ∆ repossessed everything she had bought in the last five years. Court looks for both procedural and substantive unconscionability. Procedural – the events leading up the contract – Substantive – the terms of the contract – both are necessary – but on a sliding scale – if one really bad then the other can just be a little bad. Examples of procedural – unfair bargaining power, non-disclosure, if she didn’t understand or couldn’t bargain to change the terms, did she know the term was in the contract, etc. Substantive – whether the terms were oppressive. This is a strong case for unconscionability – but it’s remanded.

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iii. American Software v. Ali – (∏ to be paid a salary plus commission minus the minimum draw). Contract stated that after 30 days after she leaves then no more commissions. She had 30K coming to her in commissions – but the ∆ got them after she left. Court finds no unconscionability b/c you must look at it from the time the contract was made – not with the hindsight of the present. The court found not unfair terms b/c she had a lawyer, she made changes to the terms, and it was a fair allocation of risk – the employee had the risk that her commissions wouldn’t arrive until after 30 days, and the employer had the risk that her commissions would not be enough to cover the draw and they would lose that money. For substantive the court uses the shock the conscience standard requires more then reasonable terms – b/c court thought that reasonable would undermine contracts too much – the standard was not met here.

1. Under this sliding scale standard – Batsakis may be unconscionable – b/c substantive so bad – even though procedural wasn’t.

iv. Piantes v. Pepperidge Farm Inc. – (franchise agreement b/c Bakery and Delivery dealer). Provision in the contract allowed both sides to terminate - ∆ could terminate without showing of cause if they paid him 125% of the fair market value (to be determined by arbitration). ∆ wanted to split the ∏’s zone upon new products being offered. ∆ asked ∏ repeatedly - ∏ kept refusing. Then ∆ gives up – and terminates – tries to give ∏ 125% - ∏ refuses that too – and sues – misrepresentation and other theories. ∏ says that when contract was negotiated - ∆’s agent said that they ∆’s would never use the termination clause. Court found - ∆’s agent’s statement was an opinion – and that not actual b/c it was an innocent and honest opinion. Court also found no reasonable reliance b/c the writing was contrary to the agents statement so the burden was on the ∏ to further inquire or to change contract writing. Court finds not unconscionable either – b/c no procedural unconscionability b/c the ∏ was not unfairly surprised – he knew the term was in there. Substantive also ok – b/c they gave him more then the franchise was worth. Court recognizes that there may be a problem when no notice of the termination – but here 125% makes up for lack of notice in terms – but also in fact they gave notice. Looking at the contract at the time it was written – there was significant risk allocation, sharing of the burden and the terms wouldn’t shock the conscience.

IX. Justification for non-performancea. Mistake – must be made at the time the contract is formed. Parties make contracts that bind them

despite the myriad of changes that may occur before performance of the contract actually happens. i. Definition - A belief not in accord with the facts that existed at the time the contract was entered

into. ii. Lenawee County Board of Health v. Messerly – (Buyer purchases a house without knowing that

it is unsuitable for profit making purposes – apparently the seller didn’t know either). Mutual mistake – there is no way to make the land habitable – b/c not enough land to put in the right kind of sewage. The problem issue had occurred at the time contract was made – not after – it matters when it occurred not when the people found out. The mistake involved the nature of the land itself. Whether the mistake is value or nature they don’t look at – b/c they use:

1. R §152 - where a mistake of both parties, at the time the contract was made, is to a basic assumption on which the contact was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely effected party unless he bears the risk of the mistake.

a. R 154 – when the bears the risk of mistake – when

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i. The risk is allocated to him by agreement of the parties – Messerly (the buyers here).

ii. Or 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 this limits knowledge as sufficient or the court allocates the risk to him because it’s reasonable to do so under the circumstances.

Here – the buyers had the risk b/c the contract had an as-is clause. By signing the as-is contract they agreed to bear the risk of unknown things that may occur – or had occurred that they didn’t know about.

iii. Wil-Freds Inc. v. Metro Sanitary District – (sub-contractor made an error in their bid - ∏ relied on that error in making their bid to the ∆). Wil-Fred’s trying to rescind and also get back their deposit. Elements of unilateral mistake – same as mutual mistake – plus the effect of the mistake must be such that enforcement of the contract must be unconscionable or the other party had reason to know about the mistake or caused the mistake. But, here unconscionable means substantial hardship.

1. Harder to show unilateral mistake because courts are concerned that don’t want to easily let parties claim mistake to get out of contracts. One party is not at fault – and would be unfair for them to get screwed.

Court finds the mistake was material because it was a fifth of their overall bid. It was unconscionable b/c there were grave consequences – the sub-contractor would go bankrupt if held to their bid, and the general contractor would lose their bonding if they didn’t get the deposit back. Here – the court also notes – not a big deal for the defendant’s b/c the bid was withdrawn promptly – and they could just take the next lowest bidder- also the bid was so low – that the ∆ should have realized the mistake.

2. Cases that clearly fall into unilateral mistake are those that have computation errors – mathematical or clerical.

b. Changed circumstances, impracticability, and frustration – i. Difference between foreseeable and what’s foreseen. Anything is foreseeable. What’s foreseen

is only what the parties actually thought about in advance.ii. Doctrine began with impossibility then got broader to cover impracticability and frustration of

purpose. Impracticability and frustration are very similar – classic frustration case is King’s Coronation Hotel Room case.

iii. Karl Wendt Farm Equipment v. International Harvester Corp. – (dealership agreement – farm equipment market flops – manufacturer sells off that part of the business – dealer gets screwed). The ∆ sold off that part of business to Case – They also had dealers and there were conflicted areas where there was both a Case dealer and a Harvester dealer. P was in a conflicted area – didn’t get picked up by Case. ∏ sues for breach - ∆ claims impracticability among other things. Court looks at

1. Impracticability - R § 261 – where after a contract is made a parties performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contact was made, his duty to render that performance is discharged unless the language or the circumstances indicate the contrary.

Court finds – for the ∏ because the contract had a termination clause in it – and there was no reason the ∆ had to breach – they could have terminated as per the terms of the contract. They also claim frustration of purpose – the ∆ claims the contract’s purpose was mutual profit – the

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court rejects – b/c that’s the purpose of all contracts – the true purpose of the contract was to set out the dealership agreement relationship.

2. Frustration of Purpose - R § 265 – where after a contract is made a parties principle purpose is substantially frustrated without his fault by the occurrence of an event that non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged unless the language or the circumstances indicate the contrary.

iv. Harriscom Svenska, AB v. Harris Corp . – (selling radios to Iran – US customs stops shipment). At the time the contract was made the radios were not on the list of products banned from shipment to Iran. Harris’s shipment was detained. Harris negotiated with the government to allow that shipment through but promised no other shipments after. Harriscom sued for breach – saying that Harris voluntarily decided to stop shipping to Iran. Contract also contained a force majeure clause – b/c the parties thought that this might happen. Force majeure clause says that the parties don’t have to perform the contract if something beyond their control makes it impracticable. Court said Harris okay – b/c force majeure clause – wants to encourage cooperation with the government. They didn’t get their deposit back.

c. Modificationi. Alaska Packer’s Association v. Domenico – (shipper hires workers to man ship and catch fish –

once underway the workers force the ship’s manager to agree to new terms – more pay – he does so, upon return workers sue for money owed under the new contract.) Workers claim that the employer tried to sabotage by using old nets and therefore they deserved the increase in pay for their increase in work. Court holds it didn’t make sense for the employer (who wanted the fish – to sell) would use old nets that wouldn’t work – therefore there was no new consideration – so the contract modification was invalid. Based on the pre-existing duty rule – its not consideration to get extra payment for something you are already legally obligated to do – there is no consideration. Pre-existing duty rule only applies if the performance is completely encompassed by the pre-existing duty.

ii. Modern rule under the UCC – doesn’t require consideration for a modification – UCC § 2-209. Concern is that it will undermine contracts b/c people may take advantage of an unfair situation. R § 89 – Three ways to have a binding modification:

a. fair and equitable in view of circumstances not anticipated when the contract was made.

b. By statutec. To the extent that justice requires enforcement in view of material change of

position in reliance on the promise. – basically like promissory estoppel with modification of contracts.

2. Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp. - (requirements contract for three years – two years in to it the ∆ started having cash flow problems and wanted to get out of the business. ∆ told the ∏ that he couldn’t supply him unless the ∏ agreed to a 30% price increase. The ∏ agreed, then the ∆ told him that it had to be raised another 30% and ∏ agreed again, but then withheld the increased amount from the 85 payment. The ∏ was Ford’s only supplier of the parts – and couldn’t get a substitute supplier in time to not have a huge detriment to Ford and their reputation.) This is not about 2-209 – its economic duress – under R § 175. Elements:

a. One of the parties must make a threatb. The threat must be improper

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c. The threat must induce the apparent assent in that it leaves the victim no reasonable alternative but to agree

d. If a-c are met the contract is voidable.Court says improper threat because ∆ told them that if they didn’t pay increased price – they wouldn’t get the product and they’d be subject to damages from Ford. Seemed like they tried to get an alternative supplier – but that they needed so much product that they couldn’t get a supplier in time. Easy case against the ∆.

iii. No Oral Modifications Clause – 1. Brookside Farms v. Mama Rizzo’s, Inc. – (requirements contract for 91,000 pounds of

fresh basil leaves, two separate prices based on seasonal supply – contract had a no oral modifications clause. ∆ said he needed the basil to be de-stemmed – and agreed to a higher price (orally) – he said he would write it on the contract – but he didn’t. ∆ sent a check to the ∏ for the higher amount – but it bounced – then he refused to pay the increased price – and the ∏ sued for breach.) Court holds – this contract is subject to the statute of frauds b/c it’s for the sale goods over $500. The question is – does the oral modification have to comply with the statute of frauds? Court says yes if its material. Here material – but it meets the statute of frauds under the 2-201c3 acceptance and payment exception. Essentially promissory estoppel. Also a no-waiver clause – Even though my actions might be to the contrary I still have the right to insist to the terms of the contract. Don’t hold me to my acts – even if I’m acting like I’m waiving aspects of the contract. All the contracts clauses were trumped by the performance and acceptance exception. As to the stuff that was unshipped there was no waiver allowed – had to pay the old price.

a. Look to the contract as modified – if the contract as modified is one that would be within the statute of frauds then you need written evidence of the change – in cases where the original contract isn’t within – but the modification brings it in.

X. Consequences of Non-performancea. Material Breach – the failure of deficiency in performance is so central to the contract that it

substantially impairs its value and deeply disappoints the reasonable expectations of the promisee. You must consider the entirety of the exchange and decide if the defective or absent performance forms a significant part of the consideration bargained for. If the breach is material it so badly defeats the promisee’s expectations that she is entitled to terminate the contract and sue for whatever relief is necessary to compensate for lost of the bargain.

i. Jacob & Young v. Kent – (contractor to build house – contract notes – Reading pipe only – contractor breaches – only some of the house is made with Reading pipe.) Court holds – not a material breach b/c pipe is pipe – and the contractor used similar quality pipe. The court gave the ∏ the difference in value between the two pipes – which was nominal. There is another way the court could have went – they could have given him the cost of completion – the cost to complete the contract as written – to take out the pipe and replace it with Reading – the court declines to do this however, based on a fairness argument and the exorbitant costs this would foist on the ∆.

1. Substantial performance – if a breach is not material its necessarily partial and the performance that has been rendered is substantial although not a material breach – still a breach – but a breach of a substantially performed contract. Usual measure of damages is the cost to place the promisee in the position he would have been in had the performance been in full compliance with the contract – but if the cost of rectifying is disproportionate

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to any realistic loss suffered by the promisee the court will award the difference in value between what was promised and what was performed.

a. Here, the court said the breach was trivial b/c the rest of the contract had been performed – and this specific breach was not a big deal.

b. The more explicit about what you want – the more likely you will get it – ex. If the house is not built with Reading pipe there will be no payment.

ii. Sackett v. Spindler – (∆ owned a newpaper, the ∏ contracted to buy shares for 85K in three installments, he made the first two payments, but missed the third – then tried to pay later and his check didn’t clear. ∆ then said no sale. ∆ sole the stock to someone else for 20K after he’d borrowed against his personal assets and dropped the paper from daily to weekly. Both ∆ and ∏ claim the other breached. Court holds the ∏ breach – the issue is whether it was a total and material breach.)

1. Factors in determining whether failure to fully perform is material:a. The extent to which the injured party will be deprived of the benefit which he

reasonably expectedb. the extent to which the injured party can be adequately compensated for the part

of that benefit of which he will be deprived.c. The extent to which the party failing to perform or to offer to perform will suffer

forfeitured. The likelihood that the party failing to perform or to offer to perform will cure his

failure, taking account of all the circumstances including any reasonable assurances

e. The extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

2. If its material you can suspend performance but you can only walk away from the contract if its total under R§242.

a. Those stated in §241 – determining whether material.b. The extent to which it reasonably appears to the injured party that delay may

prevent or hinder him in making reasonable substitute arrangementsc. The extent to which the agreement provides for performance without delay, but a

material failure to perform or to offer to perform on a stated day does not of itself discharge the other party’s remaining duties unless the circumstances, including the language of the agreement, indicate that performance or an offer to perform by that day is important.

3. Here – under the elements necessary to walk away its questionable – but it was a material breach.

b. Anticipatory Repudiation – i. Elements

1. the perspective action or inaction indicated by the promisor must be serious enough to qualify as a material and total breach of the contract

2. the promisor’s statement or conduct must clearly indicate to the reasonable promisee that the promisor intends to breach materially when the time for performance arrives.

3. the promisor’s statement or conduct in repudiating must be voluntary meaning that it must have been deliberate and purposeful rather then inadvertent or beyond the promisor’s control.

ii. Dangers

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1. risks arise when there is any degree of uncertainty or when it is unclear if the conduct amounts to a repudiation or when there is doubt about the appropriate level of response.

a. Adequate Assurances – the promisee who does not wish to remain passive but would like to avoid overreaction can demand an assurance of performance. Both 2-609 and R§ 251 give some power to a promisee to try an safeguard his rights by taking a median response to words conduct or circumstances that suggest but do not firmly establish a likelihood of future breach. There are risks associated with this too – the party requesting the assurance must be satisfied that her grounds for insecurity are reasonable. In making the demand its necessary to decide what assurance would solve the insecurity, and whether it is reasonable to ask for it. If you misjudge and ask for too little the assurance may be meaningless, but if you make a misjudgment in demanding you commit a breach yourself – in insisting on the assurance and halting your performance. The other party has the same risks – if they don’t respond and they should have – that’s repudiation, and they may end up responding when they don’t really have to.

i. UCC 2-609 – when reasonable grounds for insecurity arise with respect to the performance of either party the other may demand in writing adequate assurance and until he gets it can suspend performance. Between merchants the reasonableness of grounds for insecurity and the adequacy of assurance is determined according to commercial standards. You have to give adequate assurance within a reasonable time – can’t exceed thirty days.

ii. Truman Flatt & Sons Co. v. Schupf – (contract for the sale of property on the condition that the property be re-zoned to legally allow the buyer to build an asphalt plant. It became clear that the re-zoning was not going to go through – so the buyer made a new offer for less money – the seller refused – and then the buyer agreed to pay the original price – the seller said it was too late – b/c the buyer ended the contract when he asked for a smaller price – that was an anticipatory repudiation.) Pinto – it doesn’t seem like clearly and unequivocally repudiating – since it wasn’t clear they should have asked the buyer to clarify. Court says its not anticipatory repudiation – but even if it was the ∏ would still win – b/c the buyer has a right to retract if:

1. its timely before the other party responds and tells them that the deal is off. So in other words – if it was considered a repudiation – they could retract that repudiation until it was manifest that the seller knew the deal was off.

iii. Hornell Brewing Co. v. Spry – (∏ bottling company makes K with ∆ distributor for three year requirement contract for Arizona Tea distribution in Canada. ∆ was late of payments, missed payments, bounced checks, was in arrears for 100K, the ∏ asked for assurance – the ∆ got a line of credit – but it was shady – so the ∏ asked for more assurance.) The issue is whether ∏ met the elements of 2-609 in asking for reasonable assurance. UCC says when looking at reasonable grounds – to take into account factual circumstances, the nature of the conduct, good faith, contract terms, etc, all from the commercial standpoint. Court holds that

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there are reasonable grounds here. On his first adequate assurance request he had reasonable grounds because the ∏ had problems getting paid – and got paid late – and as soon as he was paid and given reasonable assurance – the problem was that the ∆ then ordered more then his line of credit – and the ∏ heard the ∆ was running a sham for reliable sources (not just a rumor). Court says – he then had more reasonable grounds to ask for assurance again – b/c the ∆ ordered more then the line of credit was for.

c. Express Conditions – i. Condition is express if the language of the contract on its face and without reference to extrinsic

evidence articulates the intent to make performance contingent on the event. If its not an express condition it’s a promise – when ever there is doubt the court will find a promise instead – if a promise is not fulfilled its still a breach – but then only damages.

ii. Key phrases – 1. on condition that2. subject to3. provided that4. if5. Not necessary – but they help.

iii. Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co. – (Contract to rent space – but couldn’t get out of old contract where they currently were – so as incentive to move – the real estate manager offered to pay the rent left on the old place. Also contract was contingent on the new landlord’s approval of plans to connect telephone lines in their current space in the building to the new space they were about rent. There was language in the contract “unless and until”… The landlord approved the work to connect the floors – but not until the day of the deadline. The people moving into the space’s lawyer notified the building owners orally – although the contract explicitly stated – in writing.) Court held - the language was expressly conditional and had to be strictly enforced. Different from Reading Pipe b/c in that case there was substantial forfeiture. Here, the ∏ will lose nothing – b/c the landlord will pay his old lease.

iv. Exceptions to express conditions 1. unjust enrichment for the ∆2. waiver3. estoppel4. prevention – the party took action to prevent the condition from taking place

v. J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc – (the ∏ owned a building and leased it to Foro with an option to renew for 10 years. Foro sold to the ∆ and this new agreement had an option for 24 years. The option was subject to a condition that said they had to give the landlord written notice of renewal within 6 moths of the leases expiration. They didn’t give notice that they wanted to extend.) Court held – there is an express condition – but the tenant made improvements and the landlord never informed the tenant that they had to do this – as they had of other conditions and requirements related to the contract. The court orders a new trial to determine whether the ∆ intentionally delayed exercising their option b/c they were waiting for the market to get better.

vi. Satisfaction Clauses - 1. Morin Building Products Co. v. Baystone Construction Co. Inc. – (GM hired Baystone –

Baystone hired Morin to install matching siding on an existing building. It ended up not matching and the ∆ (GM) rejected it. They were allowed to do this b/c there was a

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satisfaction clause in the contract stating that GM could approve or reject the work.) The issue is whether the reject was objectively reasonable – b/c this wasn’t an artistic decision where the stand would be subjective good faith. Court says – it’s a factory, aesthetics not as important – additionally based on the trade – the siding is never uniform. So the ∆ is required to pay Morin the agreed upon contract price.

XI. Expectation Damages – Principles and Limitationsa. Computing the value of ∏s expectation

i. General value damages = loss in value + other loss – cost avoided – loss avoided1. loss in value – what the contracting party should have got – what they actually did get.

Contract for 100K, they got 80K – loss in value – 20K.2. other loss – incidental – attempts to avoid the loss resulting from the breach or

consequential - losses suffered by the victim of a breach resulting from the impact of the breach on other transactions or endeavors dependant on the contract.

3. cost avoided – the breach could end up saving the ∏ money – ie if it would have cost 100K to build something and till the breach you spent 60K – then cost avoided is 40K.

4. loss avoided – the reallocation or salvaging of resources to avoid losses – selling materials for example.

ii. Turner v. Benson – (K for the sale of a house that had a day care center in it for 75K, the ∆ knew that the ∏ was going to use the money from the sale to buy their new house. The ∆ breached – didn’t even come to the closing – and the ∏ had to buy their other house – and ended up stuck with two houses. Pinto – only time you can show actual damages in a real estate case – is if the market drops and the house losses value – although you may be able to get special damages related to the loss of the contract.) ∏ sues for special damages – which must be foreseeable at the time of contract to be recovered:

1. Loss of day care center wages – court holds that it wasn’t foreseeable – b/c the ∏ told the ∆ they were shutting the day care center down anyway.

2. Interest paid on their mortgage – court holds since the ∆ knew the proceeds were going to be used to pay for the new house – this was within the contemplation of the parties and is recoverable.

3. Loss on car sale – court holds too vague and speculative – too far removed from the contemplation of the parties.

4. Moving Expenses – this was allowed – b/c contemplation of the parties – and showed that the ∏’s were trying to mitigate – they moved b/c they were able to rent their other house.

5. Pinto – to be allowed in the ∆ must not be surprised that he has to pay these damages – must be within the reasonable contemplation of the parties at the time of contracting.

iii. Handicapped Children’s Board v. Lukaszewski – (teacher hired as a speech therapists – later finds a better job closer to her home – tries to repudiate the contract – the school won’t let her out – she continues working for them and develops health problems – gets a note from her doctor and refuses to return to work – she begins working at the other job. School has to hire another teacher – they can only find one more qualified then her – and accordingly have to pay the replacement more – they sue for damages). ∆ argues – that yes – they had to pay more – but they got more – a better teacher. Court says – yes – but they didn’t get what they bargained for – they bargained for her, at her salary – and the ∏ took reasonable steps to mitigate so the school gets the difference between her pay and the new pay.

b. Restrictions on the recovery of expectation damages – foreseeability, certainty, and causation

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i. Hadley v. Baxendale – (the owners of a mill delivered a broken mill shaft to a carrier for shipment to the manufacturer so that it could be used as a model for a new one. There was a delay in the shipment. Because this was the mills only shaft, the delay idled the mill for longer then necessary. The owners sued the carrier for damages based on the profit that they lost when the mill could not operate during the period of delay. Although the court acknowledged that the delay did in fact directly result in the loss of profits, it declined to award those lost profits as damages. The court found the carrier not to be accountable for that loss because it was not told that this was the only shaft and had no way of knowing that a delay would cause the mill to be idle. Court held that damages for breach may only be recoverable if one of two conditions is satisfied:

1. either the loss must be one that may fairly and reasonably be considered to arise naturally – in the ordinary course of things – from the breach or

2. it must be one that may reasonably be supposed to have been contemplated by the parties at the time of the contract as a reasonable consequence of breach.

ii. Restatement version of the Hadley rule - §351 – 1. damages are not recoverable for loss that the party in breach did not have reason to

foresee as a probable result of the breach when that contract was made.2. loss may be foreseeable as a probable result of a breach because it follows from the

breacha. in the ordinary course of events, orb. as a result of special circumstances, beyond the ordinary course of events, that the

party in breach had reason to know.3. a court may limit damages for foreseeable loss by excluding recovery for loss of profits ,

by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.

iii. Florafax v. GTE – (Florafax contract with GTE for telemarketing services related to incoming orders on 1800flowers. At the time of contract GTE knew that Florafax had a contract with Belarose – who would also be utilizing their services. GTE breaches by not having enough people to answer incoming calls. Florafax as a result of GTE’s bad performances loses its contract with Belarose. Florafax sues for damages and special damages associated with the third party contract with Belarose that was effected by the breach. The contract with Belarose contained a termination clause – permitting either to terminate with 60 days notice). ∆ says – the damages should be limited to the 60 days. Court said Belarose would not canceled the contract without the GTE breach – therefore it was permissible to recover damages over the 60 period. Both GTE and Florafax hired experts to determine the amount of damages – the court held the damages must be calculated to a reasonable certainty. Here, it held they were – the trial court’s determination was upheld.

c. Restrictions on the recovery of expectation damages – mitigation damagesi. Rockingham County v. Luten Bridge Co. – (County commission voted to build the bridge – they

give a contract to the builder – then the committee falls apart and they decide not to do the construction. They tell Luten that they don’t want to build the bridge. Luten thought that they could get the committee to vote the other way. Luten’s best option was to either wait and see – or to write a letter asking them whether they want the bridge or not – seek adequate assurance. Instead they just started building – b/c they had a contract to build.) The problem is that Luten now wants damages for building the entire bridge. Court – once the contract was rescinded – then Luten has a duty to not make the damages any worse – mitigation – doctrine of avoidable

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consequences. Economically – it would be a waste to allow parties to continue with a contract when the other party doesn’t want it. What is Luten entitled to? The damages that have already been incurred – before the breach – they are entitled to their profit – but not the full contract amount – b/c they don’t have to do the work.

ii. Duty to mitigate is not really a duty – but if you don’t your damages will be reduced. iii. R § 350 – avoidability as a limitation on damages –

1. except as stated in subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.

2. the injured party is not precluded from recovery by the rule stated in subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.

iv. Boehm v. ABC – (Boehm was the VP of ABC – had been working there for 14years – suit for wrongful termination – both tort and contract. Claiming breach of implied employment contract – no actual written contract – but a contract created by the facts, and breach of the covenant of good faith and fair dealing, and negligent and intentional infliction of emotional distress. After the breach the ∆ offered the ∏ another job that had similar compensation but fewer responsibilities. ∆ said ∏’s failure to get this job should limit his damages for failure to mitigate.) Court holds that the ∆ didn’t meet the burden of showing a lack of reasonable effort on the ∏’s part.

v. Jetz Service Co. v. Salina Properties – (∏ leased laundry equipment to ∆. ∆ bought own equipment before the lease expired. ∏ was able to re-lease to another leasee but this did not mitigate b/c the court found that ∏ was a lost-volume seller.)

1. Lost volume seller – because the seller has a stock of identical products – it would have made profits off both sales at the same time – therefore it would be unfair to say that this is mitigation – where the ∏ is really losing the profit from two jobs. The ∏ has to prove that they would profit off the second contract in addition to the first one had their been no breach – the second buyer must be someone who would have purchased regardless of the breach.

a. Doesn’t normally apply to contracts that are personal in nature.d. Non-recoverable damages – items commonly excluded from ∏s damages for breach of K

i. American rule – attorney’s fee are paid by each party – not recoverable unless the contract includes a specific provision for recovery of attorney fees.

1. Exception to the rule – under Hadley it seems reasonable that these are the damages you would get – but they aren’t.

ii. Gaglidari v. Denny’s – (Waitress was fired for fighting, went to dr. said she had repercussions from fighting – key issue is whether she could recover emotional distress damages. She looked like an at-will employee – but the court held that her employee handbook (that included a clause that if you are fighting on the premises you’ll be fired) was a contract. Concerning the emotional damages – the court looks to R § 353 – recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result. Court held – that here, these circumstances were not the type where emotional damages were likely to result.

XII. Alternatives to expectation damagesa. Reliance damages

i. Goal is to put the ∏ in the same position he would have been in had there been no contract with the ∆.

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ii. Wartzman v. Hightower – (flagpole sitting promotion corporation) ∆ - set up a corporation to beat the world record for flag pole sitting. Were going to fund by selling publicly – and using stock revenues. The contract with the ∏ to set them up as a corporation. The ∏ is the lawyer facilitating the sale of corporation. There is a mistake setting up the corporation, discovered after they began to sell stock and made investments. The lawyer told the ∆ that they would need a 15K security lawyer to fix the problem – the ∆s asked the ∏ to pay for it – he refused. They decided to shut down the company instead. Then sued the lawyer who screwed up the corporation.) Court held – they sue for breach – normally you’d get expectation damages – lost profits, etc, but here – new venture, and strange venture – too hard to show, and too hard to compute with any certainty. So the court gives reliance damages instead – the money that was spent to create the corporation, and monies spent out-of-pocket. Stretched it further then it would normally go – b/c the guy was a lawyer – should have known better.

iii. Walser v. Toyota – (∆ was looking to open a new dealership, required a three step process, application, then letter of agreement with conditions, then contract for dealership. ∏ applied, and was told by ∆’s agent that they got the deal. ∏ then spent money securing land for the dealership. ∆ then reneged the deal – and ∏ was told no dealership. ∏ sued for breach under PE – reliance based claim.) Court wouldn’t give expectation damages b/c not certain that the ∆ would have been approved, still many steps to go – and also couldn’t have relied on the promise for very long – they got the no-go pretty shortly after they were notified they had the deal. The court give reliance damages – out-of-pocket expenses instead. PE claim – so reliance damages. Court can give expectation damages on a PE claim – they just didn’t feel that’d be just here.

b. Restitutionary Damages – focuses on the benefit received by the ∆ from the ∏. The question is what are you asking for? Either the market value of the services or how the other party was enriched (not always the same thing). If the contract is fully performed you can’t get restitutionary damages.

i. United States ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc. – (Dispute over who should pay for use of crane – sub-contractor or general contractor. General contractor refused to pay – sub-contractor stopped work – had already partly performed contract. TC finds that the general contractor breached – question of damages. The problem was that the amount owed to the ∏ for work done was less then the amount the ∏ would have to spend to fully perform (the ∏ had a losing contract). So no expectation damages – b/c would have been a loss. No reliance damages – b/c also a loss. Question of restitutionary damages.) Court held – that the ∏ can get restitution – b/c unfair to allow the breaching party the benefit of the work the ∏ already did with compensation. Policy argument. R§373 – restitution when the other party is in breach.

ii. Lancelotti v. Thomas – R§374 – restitution in favor of the breaching party (Two contracts – one for the lease of property and the other to buy the luncheonette. Thomas agreed to forgive several months rent if the ∏ agreed to build an addition to the restaurant. ∏ agreed – but then didn’t build the addition – and breached.) Court held that under R §374 – that a breaching party can seek restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach. For the excess only.

c. Specific Performance – advantage – you get what you contract for. i. City Stores Co. v. Ammerman – (∆ was attempting to open a shopping center – needed to be re-

zoned. ∆ asked ∏ to write a letter supporting the zoning change – which the ∆ needed – couldn’t get from others – b/c fear that they’d be on the wrong side in the end. ∏ wrote letter – in exchange ∆ sent letter thanking and promising an opportunity to have a store in the new mall if the zoning went through – a lease on the same terms as other store. The zoning eventually went through, and ∆ contracted with other stores. ∏ then asked for a store - ∆ said no. ∏ sued for

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breach. ∆ instead wanted to contract with Sears – more money.) Court held - ∏ can’t get expectation damages – b/c no idea how much – and wouldn’t remedy the situation, also no reliance b/c no money really spent yet – also not adequate, and no restitution – b/c ∆ didn’t gain much monetarily. Court held – specific performance – b/c the unfairness that would result to the ∏ without it, the requisite amount of certainty b/c the letter suggested that the lease with ∏ be the same as the other leases in the mall, and those terms were fairly definite, and the damages otherwise were not sufficient.

d. Agreed Remedies – they are allowed –but the courts will police to ensure not unreasonable or grossly disproportionate – make sure not a penalty – that’s not the point of contracts.

XIII. Rights and duties of third partiesa. There are times when a third party (not in the contract originally) may have rights under a contract, and

when that happens the third party has the power to enforce his rights. b. Rights of third parties as contract beneficiaries

i. Grigerik v. Sharpe – (The ∏ wanted to buy land from Lang. ∏ agreed to pay more if Lang had the property set up to be ready to build a house, need a sewage analysis, and ok from town sanitarian, Lang agreed – and contracted with Sharpe – engineers to do the work. ∆ does the work – and get okay from sanitarian. Then ∏ buys property for agreed upon increased amount. Then there town gets a new sanitarian who revokes the ok – requires more tests, etc. ∏ sues ∆ for “engineering-malpractice.” Court holds – that the intent of both parties is necessary to create rights in a third party.

ii. Three ways to look at whether a contract is intended to benefit a third party:1. Had to be intended by both original contracting parties2. Intent of the promisee3. Intent of the promisee + whether the promisor knew or should have known.

c. Assignment and delegation of contractual rights and dutiesi. Generally you are allowed to both assign rights and delegate duties.

1. Duties only when there is a personal aspect will they NOT be permitted to be delegated. If you do delegate a duty – the first party is still liable.

2. Assignment – generally unlimited.

Questions for Pinto…1) Why wasn’t Plowman considered under a theory of PE?2) Does R §139(2) apply to R § 90?

PE if justice can be avoided by the…But doesn’t list the factors.Do the factors from 139(2) apply?

3) In the Berryman v. Kmoch case – why are they talking about consideration at all under a PE theory where there is no need for consideration?4) Why does the price portion of the Mid South Packers offer a firm offer? Isn’t the price provision that they will give 45 days notice before they change the price?

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