Contracts outline 1
Contracts OutlineThe 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 bargain
i. 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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Contracts outline 3
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 contracts
1. 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. Fraser
1. 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. Burgess
1. 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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ii.
c. It is a reasonable form of acceptance based on prior
dealings.
Curtis Co. v. Mason
1. 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.
ii.
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.
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.
ii.
iii.
iv.
v.
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.
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; or
3. notification of objection to them has already been given or
is given within a reasonable time after notice of them is
received.
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)
Brown Machine v. Hercules
1. 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.
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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vi.
2. the additional terms became binding on the defendant when
the def did not object in a timely manner
ProCD v. Zeidenburg
1. plaintiff printed on the box that there were more terms
inside
2. 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 plaintiffpresenting the idea of a “rolling contract”
4. Consideration
a. 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 diesRestatement 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. Kirksey
1. 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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iii.
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
Cash v. Benward
1. 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 Obligation
i.
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) Promise
2) 2)Recognition of benefit
previously received by promisor
from promisee
3) Enforced to extent necessary to
prevent in justice
4) Not gift
5) Enforced only to extent
proportionate to benefit
ii. A promise is NOT binding under subsection
1 if
1. 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. Taylor
1. 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, or
b. A forbearance, or
c. The creation, modification or destruction of a legal
relation, or
d. 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) Promise
7) Promisor should reasonably
expect action or forbearance
8) On part of promisee or third
party
9) Induces such action or
forbearance
10) Injustice avoided only by
enforcement
11) Limited as justice requires
Does justice require enforcement? Comment to restatement 90
1) Definite and Substansial character of reliance
2) Reasonableness of reliance
3) 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 Corporation
1. 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 intermeddler1. 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 F
1. 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,nor
2. 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 statute
iii.
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 Construction
1. 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 improper
1. A threat is improper when
a. If what is threatened is a crime or a tort
b. What is threatened is criminal prosecution
c. 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 Lessi.
“ 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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iii.
iv.
v.
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”
A lesser sum must be delivered “a horse a hawk or a robe”
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
Country Fire Door Corporation v. C.F. Wooding company
1. 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 satisfactionsomeone 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 3311 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 check
iii. Inadvertently deposits allow 90 days to
return the check and then not be bound
1. 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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ii.
iii.
2. Parties do not have to EXPRESSLY bind themselves- the
court can infer it but in this case the court decides not to.
Laclede v. Amoco
1. 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.
Weiner v. McGraw Hill
1. 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. Puffing
i.
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 someoneincluding 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 agreement
1) express terms
2) course of performance-relevant to show waiver or
modification of express terms
3) course of dealing
4) trade usage
5) other implied terms ( e.g. good faith obligation)
2-208
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Contracts outline 16
we will try to construe the top four things in a compatible way however if
they are inconsistent we will follow the express terms first
but 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
ii.
iii.
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.
Abrams v. Illinios College of Podiatric Medicine
1. 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 school
3. The court claims that promise on behalf of the school was
not enforceable because it was not definite and certain
4. 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.
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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Contracts outline 17
-
-
-
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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Contracts outline 18
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 lease
5. 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. Jeffcoat
1. In this case there was an agreement to extend the lease- the
renter may have not lived up to his side of the lease
2. 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 Stores
1. 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 contractcontrasting w/ Ricketts v. Scotthorn.
iv.
Dursteler v. Dursteler
1. 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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Contracts outline 19
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 Frauds
i.
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 ask
i.
Does the k fall w/in SOF?
1. Contracts that cannot within their terms be completed with
in a year
2. Real estate contracts
3. 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 orally
vi.
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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Contracts outline 20
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 contract
2. 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 2-201
i.
Sufficient evidence that shows there is a contract
ii.
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 Industries
i.
This case centers on the “merchants exception” in 2-201
which provides
1. Between merchants if within a reasonable time a writing in
confirmation of the contract and sufficient against the
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Contracts outline 21
ii.
iii.
iv.
v.
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.
Bazak sent Mast an order confirmation on a preprinted offer
form.
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.
2-201 intends to address the inequity of being enforceable
only against one party.
“ 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. Exceptions
i.
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 exception
a. 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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Contracts outline 22
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.
Reliance
1. 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.
Fraud
k. Oral Modifications:
i.
Wixon Jewers, INC v. Di-Star, LTD
1. 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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Contracts outline 23
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. Questions
i.
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 negotiate3. Do we have an integrated writing?
a. Detail of contract?
b. Sophistication of parties
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Contracts outline 24
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. Exceptions
i.
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 Terms
1. 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.Sine
iii.
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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Contracts outline 25
iv.
v.
vi.
c. UCC-if it is not something that would
CERTAINLY be included.
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.
Fraud/ Misrepresentation
1. 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 dissent
i. Fraud is okay for parol evidence
ii. Negligent Representation-not so much.
Reformation:
1. It is okay to REFORM a contract due to
a. Fraud
b. 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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Contracts outline 26
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.
Misunderstanding
1. Frigaliment Importing, co. v. B.N.S. International Sales
Corp
a. 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” means
c. 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 Contracts
a. Mistake of Fact
i.
Mutual Mistake regarding basic assumption
1. Restatement 152
a. When both parties make a MATERIAL
b. 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, or
b. 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. Richards
a. Both parties made the mistake regarding the
property’s location in a flood zone. The mistake
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Contracts outline 27
ii.
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. Hypos
a. 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 favorcan 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. Ciolek
a. 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?
Unilateral Mistake
1. significant error regarding basic assumption?
2. material effect?
3. non-mistaken party has reason to know OR enforcement
would be unconscionable
a. 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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Contracts outline 28
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 excuse
d. Party seeking excuse did not assume the risk
ii.
Mistake v. Impossibility
1. Most of the time mistake happens at the time of contract
2. 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 Corp
1. 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 Posner
1. 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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Contracts outline 29
vi.
1. view it as a personal relationship, there are going to be
tough times ahead. What is the best way to work things outcalls for comprimise.
Sunflower
1. The court distinguishes between two kinds of
impracticability
a. existing impracticability –existed at the time of
contract
b. 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 266
a. 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 excuse
4. 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, Inc
1. Chase and Paonessa contracted for median barriers. Chase
was to make the barriers andPaonessa was to buy them, and
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Contracts outline 30
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. Legalese
c. 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 homethis 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 credit
a. K price $1439.69
b. FMV 300
c. Court found unconscionable
3. Remco Enterprises, Inc. v. Houston
a. 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 positions
a. Let people live with the deal they make
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Contracts outline 31
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 damages
iii.
Rescind the Contract
a. Undoes the contract
b. 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 10,000
ii. Damages for breach 5,000
iii. Owner hasn’t paid anything
iv. 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 Vallance
a. 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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Contracts outline 32
(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 remedies
i.
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. Conditions
i.
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 categories
1. 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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Contracts outline 33
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 notice
2. Forfeiture
a. Extreme forfeiture or penalty AND
b. 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 breach
2. 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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Contracts outline 34
ix.
x.
xi.
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?”
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”
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.
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 off
b. Demand adequate assurance
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Contracts outline 35
xii.
Anticipatory Repudiation
1. 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 breach
1. Exceptions
a. Legal remedy is adequate ( i.e. damages for
breach)
b. Status quo can not be restored
c. 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 partner
b. 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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Contracts outline 36
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. Cowles
a. 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.Rhoades
a. “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. 2-607
d. 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 restitution
1. 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 patent
b. A could receive money only for the patent
c. 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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Contracts outline 37
c.
d.
e.
f.
conferred by part performance or reliance in excess
of the loss that they caused by their own breach.”
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.
Hypos- Homeowner contracts with contractor to
build a deck
i. How much must the home owner pay if
A. k price=3000
B. FMV work performed= 3000
C. Cost to complete=500
2. Under contract? 2500
3. Under quasi contract? 2500
A. in both instances JOB 1 is to
make sure the injured party
gets what he bargained for.
ii. If
A. K price= 3000
B. FMV work performed=1500
C. 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.
Restatement 374
i. 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.
Three basic rules:
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Contracts outline 38
i. Injured party must get what it bargained for
ii. 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 Restitution
1. 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 restitution
a. 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 Performance
a. Pre Requisites:
i.
Inadequate Legal Remedy
1. 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 burden
ii.
Deters efficient breached
iii.
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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Contracts outline 39
e.
f.
g.
h.
i.
1. Homes are automatically unique in CA
2. Commercial property is not automatically unique
Petry v. Tanglewood Lakes
i.
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?
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
Restatement 367
i.
A promise to render personal service will not be specifically
enforced
ii.
Sometimes a court will grant a negative injunction-you can
not work for someone else.
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?
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 case
ii.
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. Damages
a. Restatement 347-357 Damages rules.
b. Monetary Damages
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Contracts outline 40
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 damages
i. Value of nose promised=15
ii. Value of nose before=5
iii. value of nose after=4
iv. pain and suffering for first two operations=3
v. pain and suffering for operation 3 =2
vi. doctor’s fees=1
1. Expectation=(15-4)+2
2. Reliance =(5-4)+1+2+3
3. Restitution (Recission) = 1
4. Court does (5-4)+2+1
b. Court does a hybrid remedy
c. 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 certain
2. 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 value
i.
Bachewicz v.American Nat Bank and Trust
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Contracts outline 41
ii.
d.
e.
F.
g.
The time we measure the value is at the time the contract
was supposed to be performed- at the time of breach.
Right to sue for payment not yet due
i.
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
Foreseeability
i.
Hadley v. Baxendale
1. 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.
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 FORESEEABLE
V.
DISPROPORTIONATE
Mitigation of damages
I.
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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Contracts outline 42
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 Waste
1. Value as promised to P minus Value as performed to P
2. Cost of repair to make as promised
3. Cost of repair to make the same as value promised
4. Diminution in market value by breach
ii.
County of Maricopa v. Walsh and Oberg
1. 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 house
1. Plaintiff wants a white house- painter accidently paints it
brown
2. there is an increase in market value
3. 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 Damages
i. 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. Topa
1. They changed a valid reasonable alternative perfomance
into a punitive clause.
2. It was negotiated by sophisticated parties
3. Still the court held that this was a punitive damages clause
not a reasonable alternative choice and consequently
unenforceable.
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Contracts outline 43
v. Blank v. Borden
1. 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 114,000NOT even close to what Topa would suffer.
vi. Shrenko v. Regnante
1. 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.
43