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Contracts outline 1

Contracts Outline- The Restatement defines a contract as “a promise or a set of promises for which the breech of which the law gives remedy, or the performance of which the law in some way recognizes as a duty”

1. Offer- Restatement of Contracts § 24 (offer is NOT covered in the UCC) defines an offer as “the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it”

a. Distinguish between an offer and an invitation to bargaini. Restatement § 26 states that the general rule is an advertisement

udoes not constitute an offer. ii. in Leonard v. Pepsico the court states that generally advertisements

are invitations to bargain unless the advertisement provides sufficient details and limits it’s exposure.

1. Pepsico had no such limitations and if they were truly offering the Harrier jets they could possibly be liable for many of them. The court also found issue with the fact that the alleged offer would not be reasonable .

2. Objective Reasonable Person Standard-“A basic rule of contracts holds that whether an offer has been made depends on the objective reasonableness of the alleged offeree’s belief that the advertisment or solicitation was intended as an offer.If it is clear the offer was not serious, then no offer has been made. On the other hand, if there is no indication that the offer is evidently in jest, and that an objective reasonable person would find that offer was serious , then there may be a valid offer” Page 52.

iii. In the Lefkowitz case the add was considered an offer because it included very specific information and limited the offeror’s exposure. It stated “ Saturday nine am sharp, 3 brand new fur coats, worth to $100.000, First Come First Served $1 dollar each.”

iv. Rewards as Offers aka “prove me wrong cases” –these advertisements promise a reward for a performance. The most famous of these cases is the Carbolic Smoke Ball, which states “advertisements offering rewards …are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer.”

b. The offeror is the master of the offer and as such can set the terms of the offer. c. Offer can be revoked anytime before acceptance

i. Krauss v. Fox- Fox was considered the offeror because she rejected Krausses’s initial offer with a counter offer of her own. Because Krauss did not support Fox’s counter offer with consideration the option was not enforceable.

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d. “An option constitutes a continuing offer and may be based upon good or valuable consideration”

i. SM Wilson & Co v. Prepakt Concrete co. 1. Hospital has a project and sends out invitations to

bid. SM Wilson sends out invitation to bid to sub contractors. Prepakt sent its bid card in, telephoned the general contractor SM and then later sent a written proposal saying that it would expire 7/31/68. SM Wilson never confirms and keeps dragging its relationship with Prepakt out. Finally Prepakt drops out and SM sues.

2. “The elements of promissory estoppel require that there be a promise unambiguous in terms, that there be reliance on such a promise by the party to whom it is made, that this reliance be expected and foreseeable by the party making the promise, and that the one to whom the promise is made in fact rely upon it to his injury”

3. The court ruled that even though SM was just dragging Prepakt along w/o a firm contract, it relied on Prepakt’s offer in it’s negotiating with the hospital. So even though Prepakt said its offer expired in the end of July it was still held liable to SM.

4. This is a mixed goods/ services case. Many courts will apply the UCC to a goods/services case goods make up the majority of the provisions. Arguably this could be a sale of goods case but since we resort to the use of Promissory Estoppel – common law doctrine- not covered in the UCC we don’t use it.

ii. Newbeger v. Rikind 1. Five plaintiffs were given stock options

excerciseable in five years, by their employer who died before the five years came to fruition the employees are now suing the employer’s estate for the stock options.

2. A bonus is not a gift or a gratuity, but a sum paid for services , or upon a consideration or in addition to that which would ordinarily be given. (page 62)

3. It is well settled in this state (CA) that where the employer has a pension plan and the employee knows of it continued employment constitutes consideration.

4. The realities of the corporate market place lead us to believe that stock options are given to employees

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as an inducement to continue employment or to put forth greater efforts, and they are not granted as an act of philanthropy or as a magnanimous gesture.

5. The court held that the plaintiffs were entitled to their stock options because the offer for stock options was supported by consideration. Any bonus or benefit in the work place is given to induce some kind of behavior.

iii. Unilateral and bilateral contracts1. A unilateral contract is one in which the offer can

only be accepted by performance. a. For example if A pays B to run the Boston

marathon B’s acceptance is at the start of the marathon- when perfomance begins. If B fails to finish the marathon the contract is simply rescinded. A can not revoke the offer once B has started performing. R 45

b. A bilateral contract may be accepted either by a return promise or performance. Once performance begins offeree is bound to complete the task. If A pays B to paint A’s house and B starts painting, A reasoanably expects B to finish the job, unless the parties think for some reason B might not be able to finish R 50.

e. in an option contract purported consideration may be enough to hold the option open.

f. If a “firm offer” is made under 2-205, offer must be kept open according to that statute. A firm offer is an offer in writing , signed by a merchant that states it will be held open for a certain amount of time, but in no event can the period of irrevocability exceed three months.

2. Acceptance- a manifestation of assent to the terms of the offer made by the offeree in a manner required or invited by the offeror.

a. Mailbox rule- the acceptance is valid as soon as it is mailed. A revocation of the offer or a decline to accept is not valid until the other party receives it ( It gets to the other party’s address).

i. Hentorn v. Fraser1. Fraser offers to sell Hentorn a house. Fraser gave Hentorn

fourteen days in which to decide if he wanted to accept the offer. Fraser received a better offer the next day and sent notice to Hentorn the same day that he was revoking the offer via mail. After Fraser sent the withdrawal Hentorn

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posted his acceptance. Because the acceptance was sent before the revocation was received Hentorn won.

2. Fraser had reason to expect that this would happen, he is the master of the offer- dealings in post were so frequent at this time, postal system issues should be taken into account when formulating his offer.

3. This rule exists because once the offer is made one assumes the positive. One assumes that the offer will still be valid and that the offeree will accept. However one would be surprised if the offer were revoked or the offeree declined the offer which is why notices of the negative nature need to be received before they are valid.

4. Restatement section 42: An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of an intention not to enter into the proposed contract.

5. Restatment 63: Unless the offer provides otherwise an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree’s possession, without regard to whether it ever reaches the offeror; but an acceptance under an option contract is not operative until received by the offeror .

b. Face to face communication does not follow the mailbox rule (this includes telephone conversations and presumably faxes and emails) - it is based on the understanding of the two parties so the acceptance is valid once received.

i. Worms v. Burgess1. The terms of the offer included that if the offeree, “elects to

exercise the option to purchase (the optionor) shall be notified by registered mail on or before August 21,1977, of the intention to so exercise said option.” The offeree sent in his acceptance in the medium required on August 20th but the acceptance was never received.

2. The court held that because the offeror is the master of acceptance he can dictate the form the acceptance must be in. Because the offeree sent his acceptance via the required registered mail it was valid at the time of dispatch.

3. The mail box rule imposes uncertainty on the offeror. c. Silence is not a form of acceptance unless:

a. The offeree takes the benefit of the services with reasonable time to reject them and does not, and reason to know what they were in exchange for.

b. The offeror has said that silence is a valid form of acceptance and the offeree intends to accept by being silent.

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c. It is a reasonable form of acceptance based on prior dealings.

ii. Curtis Co. v. Mason1. In Curtis v. Mason, Mason called the Curtis co. and

inquired about contracting for wheat. The rep for Curtis mailed Mason a contract saying “ Silence will be interpreted as your acceptance”. Mason said that he didn’t think that he could meet the terms in the contract wo he just put it in the glove box of his pickup truck. Mason’s silence in this case was NOT an acceptance.

2. If Mason had shipped Curtis 7,000 bushells instead of the requested 9,000 Mason would be liable for breach of contract- in his action his accepting and breaching the contract.

3. Discrepancy btw offer and acceptance: a. Common law approach uses the “mirror image rule” which states that if

the acceptance in anyway differs from the offer it is a rejection of the original offer and a counter offer

i. Minneapolis and St L. Ry. Co. v Columbus Rolling Mill Co. 1. Plaintiff asked Def for a price quote on 2,000- 5,000 iron

rails. Defendant then sent plaintiff a price quote for 2,000 –5,000 iron rails at 54 dollars per ton. Plaintiff the ordered 1,200 rails for the same price. Defendant said no way. Plaintiff said “nevermind, I’ll take 2,000 for $54 per ton” . Defendant said no. Plaintiff is upset because he thinks this is an enforceable contract. However the court rules that it is not because of the mirror image rule.

2. As no contract is complete without the mutual consent of the parties, an offer to sell imposes no obligation until it is accepted according to its terms. Page 71

3. A proposal to accept, or an acceptance upon varying terms , is a rejection of the offer and puts and end to the negotiation.

ii. b. A proposal just to negotiatite terms is called an intervening feeler. It is not treated as a counter offer.

b. Under common law there is also “ the last shot” doctrine. Sometimes parties exchange various forms and fail to come to an agreement on the forms and none the less one of the parties starts performing anyway. In such a case- the last form that was given becomes the valid one.

c. UCC 2-207 sought to change these rules because people were taking advantage of technicalities to avoid their contract.

d. 2-207

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i. A definite and seasonable expression of acceptance or a written conformation which is sent with in a reasonable amount of time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, UNLESS acceptance is expressly made conditional on assent to the additional or different terms.

ii. The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

1. the offer expressly limits acceptance to the terms of the offer

2. they materially alter it; or3. notification of objection to them has already been given or

is given within a reasonable time after notice of them is received.

iii. 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. In such case the terms of the of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated in any other provisions of this act. (The UCC)

iv. Brown Machine v. Hercules1. After a phone conversation in which Hercules mentioned

Brown sent Hercules a terms and conditions of sale form. It contained enough information that precluded it from being an offer, with an arbitration clause.

2. Hercules then sent Brown a form stating “this order expressly limits acceptance to the terms stated herein including those printed on the reverse side. Any additional or different terms terms purposed by the seller are rejected unless expressly agreed to in writing.”

3. Brown then sent an acknowledgment with an arbitration clause.

4. Hercules corrected something to be printed on the item and said everything else was fine.

5. Brown was sued by a Hercules employee and the court ruled that Brown’s arbitration clause was not part of the contract because Hercules expressly limited its acceptance to the terms stated in its offer.

v. Ohio Grain v. Swisshelm:1. plaintiff and defendant have a phone conversation in which

they agree on “dicker terms” plaintiff then sends defendant an acceptance form with more speficic details about the transaction- not altering the primary agreement at all.

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2. the additional terms became binding on the defendant when the def did not object in a timely manner

vi. ProCD v. Zeidenburg 1. plaintiff printed on the box that there were more terms

inside2. def bought product and used it in a way that violated the

afore mention terms inside. 3. The appellate court ruled in favor of the plaintiff-

presenting the idea of a “rolling contract”

4. Considerationa. Definition- “Any benefit conferred, or agreed to be conferred, upon the

promisor, by any other person, to which the promisor is not lawfully entitled, or any predjudice suffered, or agreed to be suffered, by such person, other than such as he is at the time of consent lawfully bound to suffer, as an inducment to the promisor, is good consideration for a promise”

i. Hamer v. Sidway 1. Uncle promises nephew that if nephew forebears from

“drinking, using tobacco, swearing, and playing cards or billards for money until he turns 21 he will give him 5,000 dollars”. Nephew does this, turns 21 and tells Uncle. Uncle writes back promising the 5, 000 when he feels that nephew is mature enough.

a. This written agreement would have been enforceable as a gift-until the uncle dies- Restatement 332- Unless a contrary intention is manifested, a gratuitous assignment is irrevocable if the assigment is in writing- the right of the assignee is terminated by the assignor’s death or incapacity

Uncle dies, nephew sues estate. 2. The court found that even though no benefit was given to

the uncle and the nephew was actually exhibiting behavior more helpful to himself than harmful- it was consideration because he gave up something which he did, and had the legal right to do it.

ii. Kirksey v. Kirksey1. Brother in law wrote to recently widowed sister in law

asking her to take the children and move in with him. He promised that if she did so he would give her a place to stay. She did this, giving up a piece of land she was renting and intended to buy. After two years brother in law kicked her out.

2. The found that there was no condsideration for the promise. The court viewed it as a total gratutituous promise and therefore not enforceable. Perhaps the court at that time

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1845- didn’t view women as “ bargaining” so it didn’t view her sacrifice as consideration. Reliance wasn’t really looked at until later that century

iii. Cash v. Benward1. Mr. Cash wanted to apply for spousal life insurance but he

wasn’t sure how to do it. Ms. Benward told him to send her the application and she would forward it. She got another job, threw it away and so Mr. Sisk said that he would help Cash fill it out at the next drill. Come the next drill, Mr. Sisk says sorry he can’t help, Cash needs to do it on his own. He doesn’t. Later that week his wife becomes very ill and she dies a few weeks later. Cash sues Benward and Sisk for breech of contract.

2. The court ruled that Ms. Benward’s and Mr. Sisk’s promises were gratuitous promises not supported by consideration. The promises were not the result of a bargained for exchange . They did not reasonably believe they were binding themselves in an enforceable contract.

b. Past Consideration-Moral Obligationi. Webb v. McGowin

1. Webb is throwing blocks of wood off of a ledge. McGowin is walking underneath. Webb realizes that if he drops a wood block it would likely kill or seriously injure McGowin so instead he throws the wood block the other direction seriously injuring himself-making it impossible for him to worrk any longer. McGowin is grateful and offers to pay Webb 15 dollars every other week for the remainder of Webb’s life. McGowin does this until he dies . Webb sues McGowin’s estate.

2. “It was settled that a moral obligation is sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit” page 21

3. “This was a material benefit to him of infinitely more value than any financial aid he could have received. Receiving this benefit, McGowin became morally bound to compensate appellant for the services rendered.

a. California Civil Code-An existing legal obligation resting upon the promisor or a moral obligation originating in some benefit conferred upon the promisor, or prejudice suffered by the promisee is also good consideration for a promise, to an extent corresponding with the extent of the obligation, but no further or otherwise.

b. Restatement 86-

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i. 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.

1) Promise2) 2)Recognition of benefit

previously received by promisor from promisee

3) Enforced to extent necessary to prevent in justice

4) Not gift5) Enforced only to extent

proportionate to benefitii. A promise is NOT binding under subsection

1 if1. The promisee conferred the benefit

as a gift or for other reasons the promisor has not been unjustly enriched; or

2. To the extent that its value is disproportionate to the benefit.

i. Harrington v. Taylor1. Harrington prevented Taylor from being struck on

the head by an axe, injuring her hand in the process. Initially Taor said he would pay for her medical bills but then he changed his mind.

2. The court ruled “ there was no condisderation for the promise and that the plantiff had not engaged in her humanitarian act with an expectation of compensation”

c. Promissory Estoppel-“In certain situations when , when a promisee has acted in reliance upon a promise there may be good reason to enforce even a gratuitous promise.”

i. Deabte between Holmes/Williston and Corbin ( restatement 75 and restatement 90).

1. Williston came up with 75 based on Holmes encouragement of brightline rules.

2. Consideration for a promise is a. An act other than a promise, orb. A forbearance, orc. The creation, modification or destruction of a legal

relation, ord. A return promise

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3. Contrast this with 90, Crobin’s contribution to promote justice in cases which he felt would be decided unfairly if 75 always applied.

4. 90- A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forebearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for the breech may be limited as justice requires.

6) Promise7) Promisor should reasonably

expect action or forbearance8) On part of promisee or third

party9) Induces such action or

forbearance10) Injustice avoided only by

enforcement11) Limited as justice requires

Does justice require enforcement? Comment to restatement 901) Definite and Substansial character of reliance2) Reasonableness of reliance3) Formality of promise

ii. Ricketts v. Scotthorn 1. Katie Scotthorn was a book keeper- her Grandfather came

into her store saying “ I have fixed out something so that you don’t have to work anymore. None of my grandchildren work and you don’t have to,” and handed Katie Scotthorn a note promising 2,000 dollars and the interest it would accrue. Katie promptly quit her job. Then her grandfather died three years later without having lived up to the promise.

2. Equitable Estoppel prevents one from asserting certain rights such as the need for consideration in a contract because the promisee relied on this promise in good faith and changed his or her postion for the worse in reliance on this unfulfilled promise.

3. Because Scotthorn exhibited behavior dependent on her grandfather’s promise, which clearly was “a reasonable and probable consequence of his gift” she changed her position for the worse in reliance on her granfather’s promise. The court enforced the note her grandfather gave her on the premise of “promissory estoppel.

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iii. Hayes v. Plantations Steel Company 1. Hayes worked for Plantations Steel Company for 25 years.

He was aware there was no official pension program. In January he announced his decision to retire the following July. He then spoke with one of the founders, A. Mainelli, a week before he intended to retire. Mainelli aid that the company would “ take care of him”. Hayes found this promise good enough and retired. He then received for the next four years 5,000 a year. After four years the Mainelli company had some hard times and it changed ownership. Hayes believed the company should continue to pay him a pension so he sued.

2. One of the essential elements of the doctrine of promissory estoppel is that the promise must induce the promisee’s action or forebearance.

3. Because the promise must induce the action or forebearance the court held that Hayes did not RELY on the vague promise given to him by Mainelli. He was going to retire anyway. In certain cases such as this one and Cash v. Bendward in which people try to prove reliance by their inaction, the courts have a hard time clearly seeing reliance. How do they know that the person was going to behave any differently if not for the promise.

d. Implied in law (quasi contracts)-Contracts can be implied- taxi cab example. The obligation to pay is called quasi contractual obligation.

i. It involves the theory of unjust enrichment- we don’t want people to get something for nothing. For example a physician meets an injured person in the street who is unable to bargain because of his condition. Physician saves his life- the injured person would owe the physician money b/c we don’t want people to get something for nothing.

ii. Schott v. Westinghouse Electric Corporation1. Westinghouse wanted to encourge employee suggestions so

it had a contest offering $5-$15,000 for each idea that was adapted. Schott submitted his idea and the panel rejected it saying that it was too expensive. Four years later they implemented the idea and Schott wants compensation.

2. “The quasi- contractual doctrine of unjust enrichment is in applicable when the relationship between parties is founded on a written agreement or express contract.” 37

3. “Unlike true contracts, quasi contracts are not based on the apparent intention of the parties to undertake the performance in question, nor are they promises. They are obligations created by law for reasons of justice. “

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4. “A person who has been unjustly enriched at the expense of another is required to make restitution to the other” 38

iii. Posner and the officious intermeddler-1. Posner offers an example of a violinist who stands outside

of a an apartment and plays the violin. When he is finished he goes to the apartment and asks the dwellers for compensation. The resident is within his right to deny the violinist money because the violinist should have baragained with the resident BEFORE he started playing. This benefit was “officious” or voluntary. Unlike the example with the sick man and the doctor- both parties are able to bargain BEFORE the action takes place.

iv. Caring For Gertrude Problem F1. For five years the Campbells took care of Gertrude. When

Gertrude dies they expect compensation. a. On one hand the duration and amount of effort put

in might entitle them to compensation. Should Gertrude really have gotten something for nothing? Would justice prevail if Gertrude’s children, who didn’t take care of her, received all of her money?

b. Or, should the Campbell’s have bargained with Gertrude before hand? They had five years maybe they should have made their intentions known.

e. What is NOT consideration: i. The Pre Existing Duty rule § 73 states that performance of a

legal duty owed to a promisosr which is neither : 1. Doubtful,nor2. The subject of an honest dispute is not consideration.

ii. A mere pretense of baragian does not suffice iii. Illusory promises are not consideration

5. Modifications

a. § 89 A promise modifying a duty under a contract not fully performed on either side is binding

i. if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made

ii. to the extent provided by the statuteiii. to the extent that justice requires enforcement in view of

material change of position in reliance on the promise. b. UCC2-209 Modification, Rescission and Waiver.

i. An agreement modifying a contract within this Article needs no consideration to be binding.

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c. Gilbert Steel v University Construction1. Canadian case- seems to use common law §73 approach. 2. The court found that University did not have to pay a

higher price for what Gilber Steele had already promised to pay. Gilbert Steel had a legal duty to confer steel to University as per their agreement. Gilbert Steel can not keep promiseing the steel already owned to Gilbert as consideration. If this case were decided under the UCC no consideration is necessary but we need good faith.

d. Austin Instrument v. Loral Corp-Austin puts Loral in a horrible postion by threateneing not to deliver its side of the bargain unless Loral contracts with Austin for more products than it wants to.

i. Duress- not defined by the UCC ii. 2R § 175- When Duress by threat makes a contract voidable

1. If a party agrees to a contract only because of an improper threat ,and

2. If the threatening party leaves the victim no reasonable alternative, the contract is voidable

3. If a third party induces duress the contract is voidable unless the party to the transaction relied on the performance and was in good faith.

iii. 2R § 176- When a threat is improper1. A threat is improper when

a. If what is threatened is a crime or a tortb. What is threatened is criminal prosecutionc. What is threatened is use of civil process made in

bad faith, or d. The threat is a breach of good faith under a contract.

2. A threat is improper if the resulting exchange is not on fair terms , and

a. The threatened act would harm the recipient and not significantly benefit the party making a threat.

b. The effectiveness of the treat in inducing manifestation of assent is significantly increased by prior unfair dealing

c. What is threatened is use of power for illegitimate ends.

e. A Promise to Settle For Less- i. “ an accord and satisfaction” is a contract between a creditor

and a debtor for a settlement of the creditor’s claim by some performance other the amount of the claim-satisfaction is the performance of such a contract.

ii. Jole v. Bredbenner-

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1. Bredbenners are Jole’s tenants. They are having difficulty paying rent. Jole holds a meeting with them in which they agree to contribute a monthly sum to the debt they have incurred.Once the Bbs notify Jole that they are moving to florida Jole demands all of her debt then.

2. Rule: “ A promise for what a promisor is already legally entitled to is not consideration”

iii. A lesser sum must be delivered “a horse a hawk or a robe” iv. Mathis v. St Alexis hospital

1. A promise to forbear pursuit of a legal claim can be sufficient consideration to support a contract when the promisor has a good faith belief in the validity of the claim

v. Country Fire Door Corporation v. C.F. Wooding company1. Payment in full checks are a statement of an “accord and

satisfaction” a. When they are deposited or cashed the party doing

so is accepting the check as the payment in full. b. The only other option is to not deposit the check

and to sue. c. 1-207 does not apply to accord and satisfaction-

someone might write “without protest” to make it clear that they are not waiving their rights.

d. All payment in full checks are handled in UCC 3-311 regardless of sale of goods and the like.

a. UCC 3-311 - Under UCC 3-311 there are three possible resolutions

i. Creditors can notify debtors that they must send a payment in full check to a special address for them to be effective

ii. Also they have the right to refuse the checkiii. Inadvertently deposits allow 90 days to

return the check and then not be bound1. Not allowed if known check was

being offered in accord and satisfaction

2. Clerk’s knowledge isn’t relevant, rather knowledge of person in charge of handling dispute in question (taken from another outline)

6. Mutuality of Obligation: Mutuality = Consideration i. United Services Auto Assoc.v. Schlang

1. A requirements contract requires both parties to be bound and in this instance AMS is very clear that it is not binding itself- it is only giving an “ illusory promise” –he is reserving his freedom of action

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2. Parties do not have to EXPRESSLY bind themselves- the court can infer it but in this case the court decides not to.

ii. Laclede v. Amoco1. Laclede and Amoco form a contract in which Laclede can

escape but Amoco can not. Amoco drops out and claims that this contract was invalid due to lack of mutuality

2. A cancellation clause will invalidate a contract only if its exercise is UNRESTRICTED

3. In this case the court did INFER a promise on the part of Laclede to exclusively use Amoco’s product- per the requirements contract.

iii. Weiner v. McGraw Hill1. Employment contract- Employer promised not to terminate

without just cause. Employer fired employee. Is it fair to bind the employer and not the employee? Yes the employer is the master of the offer- he can set the terms he wants to set

7. Express and Implied Promises

a. Express warranties v. Puffingi. Payne v. Sunnyside Community Hospital

1. The employment manual of Sunnyside Community Hospital has a disclaimer that says anyone can be fired for any reason or for no reason

2. The same manual also has a 5 step process that management must follow when hoping to fire someone- including several warnings. It also says that this cannot be waived unless the chief executive officer of the hospital signs a waiver

3. he hospital usually acts int the second manner so Payne is surprised when the hospital does not follow the same process with her.

The agreement1) express terms2) course of performance-relevant to show waiver or

modification of express terms3) course of dealing4) trade usage5) other implied terms ( e.g. good faith obligation)

2-208

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we will try to construe the top four things in a compatible way however if they are inconsistent we will follow the express terms firstbut if we have a course of performance contrary to to the express terms is might show that it shows the intent to modify the express terms

4. Because the hospital follows the displinary procedures most of the time- it appears that they are trying t modify the express terms in the disclaimer.

ii. Abrams v. Illinios College of Podiatric Medicine1. Abrams was struggling in school- the college told him that

it would do “ everything “ to assist him. 2. The college does take some steps to help Abrams but he

has a hard time and fails out of the school3. The court claims that promise on behalf of the school was

not enforceable because it was not definite and certain4. Expressing a hope or desire is not an enforceable promise. 5. “Vagueness of expression, indefiniteness and uncertainty as

to any of the essential terms of an agreement , have often been held to prevent the creation of an enforceable contract” 2R§ 95

6. If the school had done nothing- would this still be the result? Clearly “ nothing “ isn’t everything.

iii. Carpenter v. Chrystler Corporation 1. Puffing

a. Puffing usually refers to statements by sellers for purposes of selling their wares. A statement like “she’s a real beauty” is considered puffing. This type of statement is not a warranty for two resons

i. It does not really describe any objectively verifiable characteristics of the car.

ii. Secondly, it is assumed that the buyer would be able to see for himself and know that the car was not “ a real beauty”

2. To differentiate between statement of opinion and fact we must look at 2-313

a.3.4. In Carpenter the salesman says that this car is reliable- this

statement in and of itself may seem like puffing. Of course a salesman will say that a car is reliable. However the fact that this car was SOOO clearly NOT reliable persuades the court to rule in favor of Carpenter

5. The relative status of the parties is also an issue- Carpenter trusts the seller to be knowledgeable about the car

Is statement part of the “basis of the bargain”?

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- status of the parties- unequal footing the courts will usually find in favor of the less experienced

- definiteness of statement- could I tell if there was a breech? - nature of the goods-if the goods are complex goods then the buyer will

probably be reling on what the seller says- the buyer of a car would have to trust the buyer. The court will be more likely to say that statements by the seller are considered warranties- as opposed to a vase- where someone could tell just by looking at it

- nature of defect- is this something that is readily apparent or is it something that is hidden. A horse that is limping and the seller says it is a sound horse- the court would probably consider that statement puffing because the buyer could see for himself

- harm done- more harm done- statement of warranty like the Carrpenter case,

- in writing ?- more likely to be a statement of warranty- seller has given more thought to it- no proof problems

Statement of “mere opinion” or value not warranty 2-313(2)iv. in contracts we don’t care about the intent- that is for Torts. v. Scheirman v. Coulter

1. Coulter has been shopping around for cook ware and she falls in love with Aristo Craft cookware- the salesperson says that “ the cookware could not be purchased in retail stores and could never be purchased at discount prices because it was only available through a distributor.

2. the buyer buys the product and then later sees the same product for one fifth the price. She does not pay her monthly installment plans.

3. The court ruled that the sales person’s comment “ was one of the value of the product “and thus not a warranty.

4. If we were to look at this statement vs. the one in Carpenter as isolated statements this one seems more specific than Carpenter, stressing the importance of taking in to account the entire situation.

8. Inchoate Agreements:-which terms are left open?

-how easy ( or appropriate) is it for court to fill the gap?

-are the parties acting in good faith?

a. Even when the words used clearly are promissory in nature they are often just “agreements to agree”

i. Cottonwood Mall Company v. Sine

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1. Harmon is leasing space in a mall o a bowling Company when Sine decides that he would like to invest in bowling company

2. He asks Harmon if he will renew he lease and Harmon agrees if the terms are reasonable he will renew- closer to the lease date.

3. Based on this Sine buys the outstanding stock and makes improvements in the space

4. Harmon does not renew the lease5. Sine and the Mall try to work out a new lease but fail- Sine

wants the court to intervene and create a contract. 6. The court says that it does not want to intervene and make a

contract where the parties were unable to do so for themselves. It would probably be pretty easy for the court to fill in the terms of the contract, but it doesn’t seem appropriate because the parties tried to come up with something and couldn’t and , more importantly, the parties appear to be acting in good faith.

ii. Berry v. Jeffcoat1. In this case there was an agreement to extend the lease- the

renter may have not lived up to his side of the lease2. the court says that if the trial court finds that Berry did not

pay rent because the conditions were sub par- he would be entitled to the extension of the lease

3. the court also says that it would be fine for the court to supply terms necessary for the contract- if the parties could not agree.

4. This case is similar to the Pingree case mentioned in Cottonwood- perhaps the Pingree case was even more definite and still the Cottonwood court would not supply the extra terms- maybe it is just a difference in court opinion- Utah vs. Alaska.

iii. Hoffman v. Red Owl Stores1. Red Owl “leads Hoffman on” in a way that seems to be in

bad faith. The court found that promissory estoppel applied even to contracts not suffient to make a contract- contrasting w/ Ricketts v. Scotthorn.

iv. Dursteler v. Dursteler1. Court found NO contract- used quasi contracts/theory of

unjust enrichment to try to even the score but parties WERE NOT reimbursed for all of their expenses.

9. Obligation of good faith- every contract imposes an obligation of good faith in its performace or enforcement UCC 1-203 and 2R 205

a. How is the covenant of good faith being used? i. To fill a gap?ii. To override an express term?

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b. What does good faith require? i. “spirit of the contract”

ii. Brewster of Lynchburg Inc.v. Dial 1. The court decided that Dial was simply making a

reasonable business decision when it shut down the plant, thus it required no more bottles from Brewster

2. However the statute said the one can reduce down to zero if there is a shut down due to lack of orders not just to curtail losses.

10. Statute of Frauds – designed to prevent fraud- certain contracts need to be written to be valid

a. Policies Underlying Statute of Fraudsi. Evidentiary Function: how do we prove it?ii. Cautionary Function: for important types of contracts we

want people to relly think about what they are doing before they agree.

iii. Channeling Function-like stamping of a coin makes it official so does putting a promise in writing.

b. Questions we must aski. Does the k fall w/in SOF?

1. Contracts that cannot within their terms be completed with in a year

2. Real estate contracts3. UCC 2-201- exceeds the price limit of 500

ii. Is there a sufficient writing? iii. Is there an exception to the sof?

c. Burton v. Atomic Workers Federal Credit Union (Does the k fall w/in the statute of frauds?)

i. In this case Lila Burton contracted orally w/ Atomic for employment until she was 65. She was considerably younger than that. She can’t make it to the merits

ii. The contract in this case BY ITS TERMS could not have been performed.

iii. “possible termination by death does not remove the five year covenant in this case from the statue of frauds”

iv. The trial court should have instructed on the SOF however Lila still might get her day in court based on equitable estoppel.

v. Dissent: many employers contract orallyvi. In a contract to care for someone until they die-death might

be considered performance. Reasonable people can argue about whether or not death equals performance.

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d. The Restatement 131 provides: i. Unless additional requirements are prescribed by a particular

statute, a contract within the statute of frauds is enforceable if it is evidenced by any writing signed by or on behalf of the party to be charged, which

1. reasonably identifies the subject matter of the contract2. is sufficient to indicate that a contract with respect thereto

has been made between the parties or offered by the signer to the other party, AND

3. states with reasonable certainty the essential terms of the unperformed promises in the contract.

e. The Restatement 132 provides that: i. The memorandum may consist of several writings if one of

the writings is signed and the writings in the circumstances clearly indicate that they relate to the same transaction.

f. The UCC is even more flexible 2-201i. Sufficient evidence that shows there is a contractii. A writing is not inssufficant because of a mistake iii. The only term that really needs to be there is the quantity- the

contract can not enforce BEYOND the sepcificed quatnitiy iv. Every other term could be lacking or wrong. v. It still needs to be signed by the party it is being enforced

against. g. Hoffman v. Sun Valley

i. Hoffman sets out a test that is more difficult than the Restatement.

ii. Hoffman requires that the writing be signed by BOTH parties iii. The writing has to contain all of the essential terms iv. And the signed document must specifically reference the

other document that contains all of the essential terms. v. There was a letter that was signed by one of the parties that

laid out the details of the transaction and a check signed by both parties. The Idaho court was unwilling to consider both documents together.

vi. The court further states that even if it did include Hoffman’s letter certain terms such as the maturity date of the note, the point of beginning installment payments, the amount of installment payments, or if or how the note was going to be secured, were missing.

h. Can you use and agent or an email to sign your name? i. Yes, if it is your intent to authenticate the document.

i. Bazak International v. Mast Industriesi. This case centers on the “merchants exception” in 2-201

which provides1. Between merchants if within a reasonable time a writing in

confirmation of the contract and sufficient against the

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sender is received and the party receiving it has reason to know of its contents it satisfies the SOF against such a party UNLESS written notice of objection to its contents is given within ten days after it is received.

ii. Bazak sent Mast an order confirmation on a preprinted offer form.

iii. Mast contends that to satisfy 2-201(2) there must be a confirmation of a previous order not simply and “offer” – that’s true but in this case the language on the pre printed form was sufficient to show that it was not merely an offer but a confirmation.

iv. 2-201 intends to address the inequity of being enforceable only against one party.

v. “ the protection consists of requiring a writing that provides a basis for belief that it rests on a real transacion—no more, no less.

j. Exceptionsi. Admissions: UCC 2-201(b) If the other party admits there

was a contract doesn’t need to meet SOF. ii. Partial Performance:

1. Two reasons may be suggested for this exceptiona. Part performance has evidentiary value which

makes up for the lack of writing b. The other reason to uphold the contract is that

otherwise the defendant would be unjustly enriched. 2. Jolley v. Clay

a. In Jolley v. Clay, Mrs. Clay had a piece of land that she orally contracted to give her daughter, Jolley. Jolley paid more than half of the money and made substantial improvements on the land. However when Mrs.Clay dies her son, JR Clay became the executor of the estate. JR claims that the agreement is uneforcable because it does not satisfy the SOF.

b. Idaho had a statute permitting a contract to be enforced b/c of partial performance. So it was upheld.

c. Why is this case different that Burton? i. In Burton her working there was not

necessarily evidence of the contract-in Jolley they put money down and made improvements- much more likely there is a k.

ii. Additionally there would be unjust enrichment in Jolley. Jolley already paid the mother the 5,500 and made improvements

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on the land-if this k is not upheld she does’t get anything for her work.

iii. Conversly Burton was paid for the work that she did so the company is not unjustly enriched. Maybe she wouldn’t have worked there or would have quit if not for the oral promise but we really can’t tell.

3. The UCC has partial performance rules / the Restatement does not.

4. 2-201(3)(a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others and the seller has started to make them is exempt from the staute of frauds

5. 2-201(3)(c ) goods that have been paid for and accepted or goods that have been received and accepted- do not need to satisfy SOF.

iii. Reliance1. Allied Grape Growers v. Bronco Wine Co.

a. Allied argues there was an oral contract for Bronco to buy grapes. Allied had a previous contract but canceled it based on Bronco’s offer. Bronco didn’t by the grapes and Allied was left with rotting grapes. The court found that because Allied relied on Bronco there was substantial reliance to invoke promissory estoppel.

b. Some questions regarding whether UCC 1-103 really invites the use of promissory estoppel.

iv. Fraudk. Oral Modifications:

i. Wixon Jewers, INC v. Di-Star, LTD1. Wixon entered into a distribution agreement with Di Star

providing that Wixon would have exclusive rights to Hearts on Fire diamonds in the Twiin City area if it purchased a certain amount monthly. Wixon did not purchase that amount but claimed there was an oral modification that provided Wixon had to by a certain amount of diamonds within the year- not on a monthly basis. The court said that the new modification would also be within the statute of frauds so there needs to be a writing.

2. The court uses 2-209 (3) which states that if the modification would qualify as a k under the sof it needs a writing.

3. However sections 4 and 5 say that a modification can act as a waiver.

ii. Wagner v. Graziano: Construction contract which stated that there would be “no oral modifications”. Wagner claims that

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the defendant orally requested that Wagner do some extra work and assured Wagner that it did not need to be in writing. Wagner did the extra work and the def refused to honor the oral contract. In this case to procedural posture was a demurrer so the court needed to hear the plaintiff’s side.

11. Parol Evidence Rule: When two parties have made a contract and have expressed it in a writing to which they have both asserted as the complete and accurate integration of that contract , evidence of prior understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing.

a. Questionsi. Do we have a written contract?ii. Evidence of a prior agreement or a contemporaneous written

agreement?iii. Did the parties intend writing to be final expression of the

terms in the written agreement (partial integration) iv. If so, evidence of a prior agreement or contemp oral

agreement will be barred, unless exception. b. The logic behind parol evidence rule is that when the parties sat down to

write this agreement they meant for it to superceede all previous agreements.

c. This rule reflects a lack of trust in juries- usually the party wanting to assert the PE is the underdog and juries might irrationally side with the underdog.

d. W.W.W. Associates, Inc v. Giancontieri:i. Parties contracted for a parcel of land. They had a written

agreement with a merger clause. There was also a clause that provided that if the seller’s litigation with another party had not ended by June either party could cancel the contract. The sellers did not finish litigation byJune and then they canceled the contract.The buyer is trying to admit evidence that the clause about the litigation was only used for his benefit. If the buyer could prove that the clause was entered for his sole benefit- HE COULD WAIVE IT.

1. The court considers whether this provision “makes sense” for both parties- it concludes that it does

2. The court also considers the status of the parties- here the parties were both sophisticated businessmen who were able to negotiate-

3. Do we have an integrated writing? a. Detail of contract?b. Sophistication of parties

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c. Merger clause? d. Do parties in these circumstances frequently leave

things out of the written contract? e. Form contract (when people sign them they aren’t

as likely to pay attention –usually imposed rather than negotiated)

e. Exceptionsi. Oral Conditions

1. Restatement 217 a. Where parties to an agreement agree orally that

performance of that agreement is subject to the occurance of that agreement, the agreement is not complete with respect to the oral condition.

2. UCC 2-202 a. Written agreements intended to be final may not be

contradicted by evidence of earlier agreements or contemporaneous oral agreements, but they can be explained by

i. Course of dealing, usage of trade or course of performance

ii. By evidence consistent with the written agreement UNLESS the court finds the writing to be complete and exclusive statement of the terms of the agreement.

3. Scott v. Wall. a. When conditional delivery is at issue, parol

evidence is admissible to determine whether the instrument ever became a binding obligation.

ii. Consistent Additional Terms1. Restatement 1 permits proof of collateral agreements if it is

such an agreement that might naturally be made as a separate agreement.

2. The UCC was even more liberal “ If the additional terms are such that, if agreed upon they would have certainly have been included in the document in the view of the court , then the evidence of their alleged making must be kept from the trier of fact”- Comment three of 2-202.

3. eg. Masterson v.Sineiii. Ambiguity

1. When there is a clear ambiguity in the contract anyone will admit evidence to clear that up.

a. Four-corners test/ plain meaning rule- by Sam Williston –if the document is clear on its face-no parol evidence

b. Restatement- if one would Naturally have a side contract

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c. UCC-if it is not something that would CERTAINLY be included.

iv. Trade Usage and Course of Dealing (and Course of Performance)

1. Columbia Nitrogen Corp. v. Royster Co. a. UCC 2-202 authorises Trade uasage, course of

dealing and course of performance to be admitted. b. We don’t have the same problem of evidence. c. If Royster wanted to overrule it he could have

specifically over-ruled the course of dealing. d. BUT he must CAREFULLY negate the terms he

wanted to-not a blunderbust. e. UCC 1-205(4)

i. The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistant with each other, but when such construction is unreasonable express terms control both course of dealing and usage of trade.

v. Fraud/ Misrepresentation1. Keller v. A.O. Smith Harveststore Products

a. “ It is well established that in some circumstances a claim of negligent misrepresentation based on principles of tort law, independent of any principle of contract law, may be available to a party to a contract”

b. allowing negligent misrepresentation opens the door very wide

c. Most courts would probably side with the dissenti. Fraud is okay for parol evidence

ii. Negligent Representation-not so much. vi. Reformation:

1. It is okay to REFORM a contract due toa. Fraudb. Mistake OR (such as “scrivenor’s error”c. Accident

2. The party moving to reform must be able to show three things

a. Instrument representing an antecedent agreement which should be reformed

b. Mutual mistake OR mistake by one party and fraud by the other, which results in an instrument that neither party intended AND

c. Proof of these elements by clear and convincing evidence-it does not matter if the additional

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evidence contradicts the “agreement”- it is mean to show that the “agreement” is not what was intended

3. Equitable Relief only-a question for the judge not the jury.

vii. Misunderstanding1. Frigaliment Importing, co. v. B.N.S. International Sales

Corpa. Two parties disagree on the meaning of the word

“chicken” b. Judge might think this is “plain on it’s face” beause

he “knows” what the word “chicken” meansc. Maybe evidence should be introduced to prove how

little the judge really knows. d. “when one of the parties is not a member of the

trade or other circle his acceptance of the standard must e made to appear by proving that he either had actual knowledge of the usage or that the usage is “so generally known in the community that his individual knowledge of it may be inferred”

e. Does a party have reason to know the meaning of a term attached y the other party?

12. Unfair Contractsa. Mistake of Fact

i. Mutual Mistake regarding basic assumption 1. Restatement 152

a. When both parties make a MATERIALb. mistake regarding a basic assumption of the k, the

k is voidale by the injured party unless he bore the risk.

c. Comment- a buyer usually finds it more advantageous to rely on the law of warranty than on the law of mistake –usually better reward

2. When a party bears the risk of a Mistake a. The risk is allocated to him y the agreement of the

parties, orb. He is aware, at the time the contract is made, that he

has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient

c. The risk is allocated to him y the court on the ground that it is reasonable in the circumstances to do so.

3. Reilley v. Richardsa. Both parties made the mistake regarding the

property’s location in a flood zone. The mistake

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was material because the buyer could not build the home he wanted.

b. Dissent-lawyer should have known better and examined the property efore buying it. Flood plain doesn’t preclude from uilding on the whole property just part

c. Restatement 157- a mistaken party’s failure to know the facts does not bar him from avoidance or reformation of the k unless he was in bad faith.

4. Hyposa. Sterile Bull- when the buyer purchases the bull, in

this case he was experienced dealing with bulls, he assumes the risk that it might be sterile. Additionally the price might be lower if the farmer took into account the risk that some of his bulls might be sterile.

b. Stock broker makes a mistake in customer’s favor- can stock broker get the money back? If no reliance on the part of the buyer then yes- if substantial reliance then no.

5. Woyma v. Cioleka. School teacher gets rear-ended by drunk driver. She

doesn’t feel any injuires at the time so she signs an adhesion k with the drunk driver’s insurance. The k provides that insurance givse her 25 dollars to cover her x-ray and she promises not to claim any more relief for injuries known or unknown. A year later her symptoms really kick in- she is hunched over. Obvious injustice in this case and the court favors Woyma but what does this do for the sanctity of contracts?

ii. Unilateral Mistake 1. significant error regarding basic assumption? 2. material effect?3. non-mistaken party has reason to know OR enforcement

would be unconscionablea. Restatement says 19 percent price increase might

not be unconscionable but 25 percent would be. 4. No risk assumption 5. Donovan v. RRL Corporation

a. Jaguar- this case had a few weird things- the ad was deemed an offer pursuant to a rule trying to prevent CA auto dealers from “bait and switch”.

b. Additionally the ad was enough to satisfy Statute of Frauds

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c. The court found that in this case all of the standards were met for unilateral mistake and found in favor of the car dealership.

d. Is it right for courts to do this? The statute seems like the mr is strict liability. Should the court look into the intent of the legislature?

b. Impossibility and Impractibility i. UCC 2-615 ( APPLIES TO NOT SALE OF GOODS ALSO)

states the first two rules, courts look at the second two as well though the UCC does not expressly say them

a. Impractible performance b. Caused by an event the non-occurrence of which

was a basic assumption upon which the contract was made( must be un-foreseeable)

c. Event not caused by fault of parties seeking excused. Party seeking excuse did not assume the risk

ii. Mistake v. Impossibility 1. Most of the time mistake happens at the time of contract2. Impossibility happens in the future

a. In the past the only way impossibility was granted was if the performing party died or the law changed and made the contract illegal-“supervening illegality

iii. Mishara Construction Co. v. Transit-Mixed Concrete Corp1. Mishara contracted with Transit that T would provide

concrete for a project. Mishara’s workers strike. Transit stopped delivering. Mishara is suing for damages.

2. Transit wanted to admit evidence for impossibility the court ruled in its favor saying

3. “Where the probability of a labor strike is practically nil, and where the occurrence of such a dispute provides unusual difficulty, the excues of impracticablity might well be applicable”

iv. Economic theory – supported by Posner1. Who is the cheapest cost avoider? If the buyer’s employees

go on strike the buyer should assume the risk because he is in the best position to prevent it and to fix it. If someone is building a house and it catches on fire then the contractor should be liale because he was in the best position to prevent the fire. If the contractor is only building a roof and there is a fire- then the owner inside the house is probably the one who should assume the risk because he was in the best position to prevent a fire.

v. Relational theory

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1. view it as a personal relationship, there are going to be tough times ahead. What is the best way to work things out- calls for comprimise.

vi. Sunflower 1. The court distinguishes between two kinds of

impracticability a. existing impracticability –existed at the time of

contractb. superveening impracticability- circumstances

change. 2. The court also distinguishes between subjective- I can not

do it (Mishara) and objective- the thing can not be done-( Sunflower).

3. In the end the court found that because the lack of reserves was foreseeable to Tomlinson , Tomlinson assumed the risk even though the agreement contains no express agreement on the part of Tomlinson- it was implied.

4. Restatement 266a. The impracticability must not have been caused by

the promisor (fault)b. The promisor must have had no reason to know of

the impracticability (foreseeability) c. The language or circumstances may indicate that

the promisor not e relieved because of the impracticaility ( assumption of the risk)

c. Frustration- hardly ever used doctrine to protect the buyer. Impossibility only protects the seller/performer on the theory that it is always possible to pay.

1. Substantial frustration of principal purpose of contract caused by an event

2. non-occurance of event is a basic assumption upon which the contract was made

3. No fault of party seeking excuse4. no assumption of risk by party seeking excuse.

ii. UCC 2-615 only discusses possibilities for the seller iii. HOWEVER, COMMENT to 2-615 includes relief for the

buyer 1. Where the buyer’s contract is in reasonable commercial

understanding conditioned on a definite and specific venture or assumption…the reason of the present section may well apply and entitle the buyer to exception.

iv. Chase Precast Corporation v. John J. Paonessa Company, Inc1. Chase and Paonessa contracted for median barriers. Chase

was to make the barriers andPaonessa was to buy them, and

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install them. The towns people got upset and did not want the barriers- so the project was called off. Paonessa already paid Chase for all of thebarriers it had- Chase wanted Paonessa to continue to buy barriers.

2. When an event neither anticipated nor caused by either party destroys the purpose of the contract, and neither party assumed the risk in the k, performance is excused.

d. Unconscionability- is the contract fair at the time of K- to be decided by a judge.

i. Procedural unconscionability? –lack of meaningful choice, need of person bargaining, how vital service, alternatives, lack of education, sophistication, legalese, fine print, deceptive sales practice.

1. Adhesion contracts a. are often found to be unconscionable- or less fair

because both parties don’t get to negotiate. However a contract probably won’t be found unconscionable just because it is an adhesion k

b. “ it is the beginning and not the end of the analysis insofar as enforceability of its terms is concerned.

2. Terms that are not understandable a. Fine print? b. Legalesec. Unclear?

3. Terms used to terroize? 4. Soliciting at a person’s home?

a. In Jones v. Star credit the plaintiffs, welfare recipients were sold a refridgerator at there home- this factors into procedural unconscionability

ii. Substantive unconscionability?- the k terms are unreasonably favorable to the other party

1. In Graham v. Scissor Tail, the arbitration clause- to be handled by Scissor Tail’s company was found unconscionable.

2. In Jones v.. Star credita. K price $1439.69 b. FMV 300 c. Court found unconscionable

3. Remco Enterprises, Inc. v. Houstona. K price $1768 b. FMV 850 c. Court found not unconscionable- 2:1 ratio not

enough but 2.5:1 would probably be enough. iii. To what extent should the law play a parental role?

1. Three positionsa. Let people live with the deal they make

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b. Require clear disclosure c. We are not going to put consumers in this position

(most jurisdictions follow this method-the creditor is terrorizing the debtor , the way the debtor is going to pay for this is by doing something we don’t want her to do)

13. Options available after a breach i. Terminate contract

a. termination affirms the existence of a contract, giving him the right to recover expectancy damages.

ii. Terminate and sue for damagesiii. Rescind the Contract

a. Undoes the contractb. Tries to put the parties in the place they were before

the k ever existed. iv. Set off damages against amount owing

a. The contractor has not completed the job and we can tell how much damage is done by this failure

i. K price is 10,000ii. Damages for breach 5,000

iii. Owner hasn’t paid anythingiv. In Set off the owner would just pay the

remaining 5,000 b. Set off is a useful self help remedy which courts

generally allow when both sides owe each other money

v. Demand adequate assurance- typically arising before the time of breach

1. Roming v. De Vallancea. The seller promised to deliver good title upon the

final payment. The buyers are paying off the contract in installments but it looks like the seller might be in breach because the buyers just discovered that the house encroaches on another property.

b. The buyers stopped paying- they might be in breach.

c. Before the buyers can stop paying without being in breach

d. UCC 2-609 and 2-610 provide that i. Did Buyers have reasonable grounds for

insecurity regarding seller’s performance? ii. After buyers demanded in writing adequate

assurance of due performance, did Seller provide Buyers with adequate assurance?

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(If not then by analogy to UCC 2-609(1) Buyers failure to pay, if reasonable is not a breach)

iii. Did Seller’s failure to provide Buyers with adequate assurance of due performance amount to a repudiation of the contract? (If so, then by analogy to UCC 2-610 the Seller is in breach)

e. When does someone have reasonable grounds for insecurity?

f. What would constitute adequate assurance? vi. Follow through with the K and sue for damages.

b. Election of remediesi. Traditionally going down one route precluded a person from

receiving multiple kinds of remedies. ii. Modern trend is to go against the election of remedies and

enforce it only if someone relies on the choice. 14. When can a party Terminate or Rescind? – a major consideration is the

importance the parties give to the breach. A second cricitical factor is the unfairness to the injuried party in making him continue to perform in light of the breach.

a. Conditionsi. Restatement 224

1. A condition is an event, not certain to occur, which must occur, unless its non-occurance is excused , before performance under a contract becomes due”

ii. Restatement says that an express condition will be excused if it would result in an extreme forfeiture.

iii. Express conditions to performance a. Is there a condition to performance?

i. Satisfaction clauses fall into two categories1. Subjective: the undertaking is to do

something of such a nature that pleasing the personal taste, fancy or sensibility of the other, which cannot readily be determined objectively – still prone to standards of reasonableness- not totally subjective

2. Objective: regarding things of operative fitness, mechanical utility or structural completion in which the personal sensibilities just mentioned would not reasonably deemed of predominate importance.

b. If so has the condition been satisfied?

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c. If not has the condition been excused? iv. Haymore v. Levinson

1. Buyers contract with contractor to do work on house- k provides that the contractor will not be fully paid until the buyers are “ satisfied”

2. The court determines that this is the objective kind of satisfaction clause- there are a few minor defects but the court will set those off and give the contractor the rest of the money to which he is entitled.

v. ARD Dr Pepper Bottling Co. v. Dr. Pepper Co.1. Dr. Pepper and Ard enter into a distribution k. There is an

express condition that Ard remain sanitary, and do its best to promote Dr. Pepper sales in that area to the satisfaction of Dr. Pepper.

2. While this kind of satisfaction clause would ordinarialy prove “objective” Dr. Pepper has made it clear that it is to be subjective. The court agrees- and finding that Dr. Pepper is not in bad faith but actually entirely reasonable sides with Dr. Pepper.

3. A jury would have most likely found that Ard was in violation- who wants bacteria in their Dr. Pepper?

4. But why would a court put Dr.Pepper through a jury trial when a judge can decide?

vi. Burger King-Court uses two reasons to undercut the sanctity of the contract

1. Waiver- need to give reasonable notice2. Forfeiture

a. Extreme forfeiture or penalty ANDb. Condition not essential part of the exchange.

vii. Language of Promise, condition, or both? 1. Language of Promise: non breaching party may still be

required to perform, but has cause of action for breach2. Language of Condition: failure of condition means that

party whose performance was conditional need not perform unless condition is excused.

3. Language of Promise and Condition: The party whose performance is conditional need not perform and can sue for breach( if it is ambiguous courts don’t like to use this method because it is very harsh-prefer to construe just as a promise)

viii. Implied Conditions and Material breach 1. Restatement 237 states

a. It is a condition of each party’s remaining duties to render performance to be exchanged under an exchange of promises that there be no uncured

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material failure by the other party to render any such performance due at an earlier time.

b. Thus courts will ask “Was the other party’s breach sufficiently material to warrant termination?”

ix. American Life Ins. Co. v. Ranier Construction Co. (final certificate of payment)

1. Waiver of one condition doesn’t mean waiver of every condition

2. the Final certificate of payment is an important element not just “procedural chaffe”

x. Jacob and Youngs v. Kent (pipe) 1. This case represents a shift from honoring the contract no

matter what to imposing a standard of “reasonableness on unspecificity.

2. There is an implied condition of “substantial completion”-doesn’t have to be 100 percent-same thing as NO material breach.

3. Cardozo says that if the breach is intentional no relief. “ the willful transgressor must accept the penalty of his transgression.

xi. Walker & Co. v. Harrison (tomatoed sign) 1. The injured party’s determination that there has been a

material breach, justifying his own repudiation is fraught with peril, for should such determination , as viewed by a later court in the calm of its contemplation, be unwarranted, the repudiator himself will have been guilty of material breach and himself become the aggressor, not an innocent victim.

2. Material factors:a. The extent to which the injured party will be

deprived of the benefit which he reasonably expected

b. 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 will suffer forfeiture

d. Reasonable assurances e. The extent to which the behavior of the party

failing to perform comports with standards of good faith

3. If no Material breach options are limited-you can not terminate-Better ways

a. Set offb. Demand adequate assurance

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xii. Anticipatory Repudiation1. Words: statement that party will commit a material breach

a. Stonecipher v. Pillatsch i. Sellers said that they wouldn’t be able to

deliver the house on the k date- the buyers thought this was a material breach and ended the deal. Sellers said “jk” but it was too late.

ii. Restatement said it is okay to reverse a repudiation as long as the other party hasn’t relied on the repudiation.

iii. A mere equivocation will not repudiate a contract- must be a CLEAR DEFINITE statement.

2. Conduct: act renders party unable to perform xiii. Effect of Rescission and Restitution

1. After a material breach or a repudiation the aggreived party may seek restitution of benefits she has conferred on the other party instead of seeking damages or specific performance.

2. In Ennis the breaking clause not to compete was deemed a material breach- so the company Interstate Distributors was entitled to rescind- also damages would have been very hard to calculate

3. in some cases non competing clauses won’t be upheld- they might be held unconscionable- not in this case.

4. Ennis refrained from competeing for only a few months and that was only because he couldn’t get a job.

xiv. General Rule: Recission is available upon material breach1. Exceptions

a. Legal remedy is adequate ( i.e. damages for breach)

b. Status quo can not be restoredc. Delay

xv. Divisible contracts: when are agreements viewed as one agreement or two? Does the failure of one affect the other?

1. Seimans v. Thompson a. Seimans purchased 49 shares of stock in the

company and became the partnerb. When he wasn’t getting paid as the partner he sued

to rescind the employment contract and the stock contract. The court explains that they were really one contract so this is okay.

c. Why were they one contract? – the stock deal was probably part of the employent deal

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d. Also the stock was completely worthless-large forfeiture. And it was easy to rescind hard to calculate damages. Thompson also might not be able to pay damages.

2. Rudman v. Cowlesa. Rudman sells his test book co. for stock and gets an

employment contract where they tell him he will be “ top man”. He isn’t- there was a breach in the employment k- damages easy to calculate in employment k- how can we possibly unmerge the book companies? Status quo can not easily be restored.

3. Snyder v.Rhoadesa. “It has long been established that a party induced by

misrepresentation to enter into a contract has an election of remedies; he may rescind the contract and be entitled to return of any consideration he has parted with or he may affirm the contract and sue for damages”

b. The power to rescind may be waived by any unreasonable delay in exercising the power

c. UCC says NO award after a delay. 2-607d. Restatement 380:We start the clock ticking after

he KNOWS of the fraudulent representation. e. If the misrepresentation is non-fraudlant the

clock starts ticking after the party knows or HAS REASON to know. Distinguish fraud from negligent.

xvi. Breaching party’s right to restitution1. In contract law we don’t want to Punish breachers or have

the innocent party unjustly enriched 2. Efficient breach- a breach that is economically desirable

because the party that desires services the most should get them.

3. If A contracts to give B a patent AND instruct B on the use of the patent and A only gives the patent but not instruction he breached. There are three remedies

a. B could return the patentb. A could receive money only for the patentc. A could be limited to quasi contractual relief and

recover only what the patent was worth. 4. Kutzin v. Pirnie

a. Parties contracted to buy a house. Buyers gave sellers a 36,000 deposit.

b. Court said that the injured party was really only entitled to 17,000 “ restitution for any benefit

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conferred by part performance or reliance in excess of the loss that they caused by their own breach.”

c. Liquidated damages clause-374(2) of the Restatment says: that it will honor liquidated damges clauses in contracts as long as parties aren’t trying to sneak in penalty or punitive damages.

d. Hypos- Homeowner contracts with contractor to build a deck

i. How much must the home owner pay ifA. k price=3000B. FMV work performed= 3000C. Cost to complete=500

2. Under contract? 25003. Under quasi contract? 2500

A. in both instances JOB 1 is to make sure the injured party gets what he bargained for.

ii. IfA. K price= 3000B. FMV work performed=1500C. Cost to complete=500

2. Has there been substantial completion?

3. CAN ONLY sue under contract if there has been substantial completion ( no material breach)

4. If there has been sunstantial completion the contractor can get the 2,500

5. If not Contractor is limited to quasi contractual theory of relief. He could get 1,500 because job 1 is already taken care of.

e. Restatement 374i. The party in breach is entitled to

restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused his own breach.

ii. Comment A party who intentionally breaches has acted “officiously” and not under the contract and as a consequence is not able to recover UNLESS the other party has accepted the breach.

f. Three basic rules:

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i. Injured party must get what it bargained forii. Breaching party should recover reasonable

amount of work done as long as injured party gets what it bargained for.

iii. No recovery if party “intentionally furnishes services of builds a building materially different from what was promised”

1. UNLESS the other party accepts or agrees to accept substituted performance.

xvii. Innocent Party’s Action for Restitution1. Restatement 373

a. The injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance

b. The injured party has no right to restitution if the contract is completed and all that is left is for the other party to pay.

2. Two ways to determine restitutiona. Look at unjust enrichment- how much did the value

of the other party’s property increase by having this work done?

b. Or look at what the other party would have saved by having this work done-what would someone else charge?

15. Specific Performancea. Pre Requisites:

i. Inadequate Legal Remedy1. unique property ( land presumed unique) 2. inability to pay damages

ii. Administratively feasible (building a lake would be too much but paving a parking lot is not)

iii. Certain terms- must be specific enough to know what one is enforcing

b. Specific Performance is an equitable remedy that forces parties to follow through on the k.

c. Not favored bc.i. Judicial burdenii. Deters efficient breachediii. Distaste for compulsion

d. Severson v. Elberon Elevator Inc.i. Specific performance is available because this case involved

unique real property making it difficult to calculate damages. Aditionaly very easy administratively and certain terms.

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1. Homes are automatically unique in CA2. Commercial property is not automatically unique

e. Petry v. Tanglewood Lakesi. Developer contracted to build a lake, had problems other

home woners agree to park instead but Ms. Petry wants to enforce the lake.

ii. The court says no because while damages may not be completely adequate

1. Not administratively feasible- huge burden supervising the lake, and what to do for all those other people

2. What are the terms? How is this lake supposed to be? f. Goldblatt Bros Inc. v. Addison Green Meadows Inc

i. Goldblatt is a leasor in a mall- the mall developer promised to pave the parking lot so that it reached the road AND provide 1000 parking spaces.

ii. Court ruled specific performance on the paving iii. BUT not on the parking spaces because the court believed

that Goldblatt really cared about “adequate parking” which there was at the time of the trial.

iv. If it becomes and issue later on the court can rule to have more spaces. Balancing Hardships

g. Restatement 367 i. A promise to render personal service will not be specifically

enforcedii. Sometimes a court will grant a negative injunction-you can

not work for someone else. h. Nassau Sports v. Peters

i. In this case a negative injunction is granted. ii. Peters, by being a professional athlete is a unique talent. iii. He can find employment some other way- he doesn’t HAVE

to play for the hockey team. He could coach, or announce. iv. Is this contract even fair?

i. Equitable Defenses-very rare cases, these are ways of saying that even if the legal remedy is inadequate we still won’t give you what you want.

i. Balance of Hardships- Goldblatt caseii. Unfair price: similar to price unconscionability- 25,000 dollar

difference was deemed unfair. iii. Unclean hands-party seeking equity must be acting equitably. iv. Laches-unreasonable delay in asserting rights with prejudice.

(If you saw your neighbor building over his limit but waited until he was done building to have him tear it down-you wouldn’t get it torn down. This is like estoppel.

16. Damagesa. Restatement 347-357 Damages rules. b. Monetary Damages

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i. Reliance: TRIES TO PUT THE PARTY WHERE IT WAS BEFORE out of pocket expenditure

ii. Restitution: FIGHTS UNJUST ENRICHMENT Make breaching party give back any benefit conferred. (This is rescission)

iii. Expectation: put injured party in position it would have been in if contract had been performed. ( Normally this is the kind of damages people want)

iv. Cases 1. Sullivan v. O’Conner- nose job

a. Hypo to calculate damagesi. Value of nose promised=15

ii. Value of nose before=5iii. value of nose after=4iv. pain and suffering for first two operations=3v. pain and suffering for operation 3 =2

vi. doctor’s fees=11. Expectation=(15-4)+22. Reliance =(5-4)+1+2+33. Restitution (Recission) = 14. Court does (5-4)+2+1

b. Court does a hybrid remedyc. We have no idea what a nose is worth and maybe

the jury would feel too badly for Sullivan and wind up punishing the doctor

d. We need surgeries- and he was NOT found negligent so we don’t want to have a chilling effect on medicine by making the risk too great.

e. Pain and suffering are not normally compensable but if the contract is one of a highly emotional nature- a botched funeral or plastic surgery then yes pain and suffering may be awarded.

f. Damages must be reasonably certain2. Gruber v. S.M News Co- Christmas cards

a. Calculation of damages too speculative to award Expectation damages

b. Reliance Damages-out of pocket expenditures, The plaintiff wants what it spent on this deal that the defendant breached. The defendant is trying to say even if the contract had gone through it would have been a losing deal anyway.

c. The burden for showing an inevtible loss is on the defendant

c. Time of measuring valuei. Bachewicz v.American Nat Bank and Trust

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ii. The time we measure the value is at the time the contract was supposed to be performed- at the time of breach.

d. Right to sue for payment not yet duei. Can plaintiffs sue for damages for performance not yet

due when defendant repudiates?1. Duties remaining on both sides? Yes. (Hochester)2. Duties remaining on one side? No. (Greguhn)

ii. Greguhn v. Mutual of Omaha Insurance Co. 1. Greguhn is only allowed to recover what is currently due. 2. One way to avoid this is by having “ an acceleration

clause” that you can sue for everything now if other party breaches

3. possible counter argument- penalties because a dollar today is worth more than a dollar tomorrow

iii. Hochester v. De la Tour e. Foreseeability

i. Hadley v. Baxendale1. It was unforeseeable to the carrier that if there was a delay

in delivering the shaft the whole mill would shut down. Thus they are not responsible for the halted progress of the mill.

2. The damages an innocent party can receive are those that 1. NAUTRALLY would occur ( any idiot would see)and 2. MAY BE REASONABLY FORESEEABLE

3. This is so that parites can protect themselves. F. LIMITATIONS ON DAMAGES

I. GENERALLY NO EMOTIONAL DISTRESS DAMAGES

II. NO PUNITIVE DAMAGES (NEED TORT) III. MUST BE REASONABLY CERTAIN ( FACTOR

WILLFULNESS)IV. MUST BE FORESEEABLEV. DISPROPORTIONATE

g. Mitigation of damagesi. An injured party is required to use reasonable efforts to

avoid damages to the extent that the injured party can do so without “undue risk, burden, or humiliation” R 2nd 350

ii. George v. School District No. 8R 1. how reasonable is it for him to take this other job? How

comparable is it to the old one? 2. He said he didn’t take it because he would risk

reinstatement of his old job which he did not have a legal right to. The court says that this is fine.

3. Cut a lot of slack for the injured party.

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4. Lost volume – if George gets another job that he could have held at the same time as his teaching job, there will be no subtraction of his new night/weekend job from the amount to be be under the old k.

h. Economic Waste1. Value as promised to P minus Value as performed to P2. Cost of repair to make as promised3. Cost of repair to make the same as value promised 4. Diminution in market value by breach

ii. County of Maricopa v. Walsh and Oberg1. Court found that the cost of redoing everything and digging

up the park on top of the parking garage would be disproportionate to the amount of damage done

2. More than the Value as promised to P minus the Value as performed to P

iii. Brown house v. White house1. Plaintiff wants a white house- painter accidently paints it

brown2. there is an increase in market value3. can plaintiff recover? 4. Yes- the value to her of having a white house is probably

much more than the value of repainting the home. i. Prejudgment interest

i. Parties are not normally entitled to a prejudgment interest. They are if we have a liquidated damages provision or a certain sum of money.

j. Liquidated Damagesi. Reasonable Alternative Performance?

1. Is there a reasonable choice? ii. If Liquidated Damages Clause is it reasonable?

1. If the damages seem extreme they are “ punitive damages” and will NOT be enforced.

2. Liquidated damages are usually only enforced if they closely resmemble the amount of damages and exact damages would be difficult to compute.

iii. At what point do we examine reasonableness? 1. At time of K?2. After Breach?

iv. Ridgley v. Topa1. They changed a valid reasonable alternative perfomance

into a punitive clause. 2. It was negotiated by sophisticated parties3. Still the court held that this was a punitive damages clause

not a reasonable alternative choice and consequently unenforceable.

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v. Blank v. Borden1. This contract phrased the liquidated damages clause in the

terms of “ a reasonable choice alternative” 2. Though courts say that they don’t look at the form but

rather the substance, in this case and the last case form did seem determinative.

3. However in this case the 5.100 provided does resemble the amount of damages- the damages would be very hard to calculate

4. Compare to Topa – the prepayment penalty is 114,000- NOT even close to what Topa would suffer.

vi. Shrenko v. Regnante1. At what point to we examine the reasonableness of a

clause?2. Restatement 356 comment b says “ If it is clear that no loss

at all has occurred, a provision for a substantial sum as damages is unenforceable.

3. If it is clear after the breach that tere were no damages the court won’t award them because then it seems like we are punishing breaching party.

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