Contracts: Spring Semester
Jeffrey Kwastel
Professor Smith
CHAPTER 5: INTERPRETING ASSENT
I.
Filling in gaps in assent
A)
Agreements to agree
How much do parties have to agree upon in order to have a deal? The parties may form a
contract with an essential term unfilled intending to agree upon that term in the future.
1. Generally: Companies objective in delaying is usually to postpone negotiations over
the missing terms until the occurrence of future events, as when the price for goods to be
sold or the rent for land to be leased is left to be agreed upon at a later time. If they fail to
do so, there may be differing interpretations of what will happen:
i.
they may think there will be no contract or that the missing term will be
supplied as a matter of law.
ii.
if they believe the term will be supplied as a matter of law a question
arises as to whether the agreement is one with open terms sufficiently
definite to be enforceable or whether it is a mere unenforceable
“agreement to agree.”
2. UCC approach: The UCC provides that as long as the parties intend to make a
binding contract, their “agreement to agree” does not make the contract fatally indefinite,
at least if it is the price term that is left open.
i.
UCC §2-305(1)(b) allows the court to supply a reasonable price term if
“the price is left to be agreed by the parties and they fail to agree.
3. Reluctance to extend promise: Courts have been reluctant to extent this solution to
analogous open rental terms that are often found in agreements under which the lessee
has an option to renew the lease at the end of the term. Open rentals, where the parties
chose not to fix the rental at the time of the initial agreement and leave it to basis of
experience from the first terms, are usually fatally flawed due to the openness of these
terms.
4. Relatively unimportant terms: When parties fail to agree, a court may be more willing
to supply a term if the court regards the term as relatively unimportant.
5. Unilateral concession (cure by complete concession): If the term to be agreed upon is
one which is subject to complete concession by the party seeking enforcement of the
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contract, he will usually be able to obtain enforcement by making this complete
concession.
B)
i.
that party’s concession has been held to cure the indefiniteness.
ii.
Ex: Sun Printing & Publishers Assn. v. Remington Paper & Power Co.
The controversy arose out of a contract for the sale of 1,000 tons of paper
each month for 16 months. The price for each of the first four months was
stated in the agreement. For the remaining 12 months, the agreement
contemplated one or more renegotiations, under which both the price and
the period of its duration were to be agreed upon by the parites, but the
price was not to be higher than that charged by a named Canadian
supplier. At the end of the four months, in a rising market, the seller
refused to make further deliveries and the buyer, after demanding delivery
and offering to pay the Canadian supplier’s price for the month of
delivery, sued for breach of contract. The New York Court of Appeals
held that the agreement was unenforceable. Because the parties were to
agree on both the price and the period of its duration, the price would not
automatically change when the Canadian supplier’s price changed. The
parties had guarded “against the contingency of failing to come together as
to price” but not “against the contingency of failing to come together as to
time.”
iii.
Smith says that Sun Printing would come out differently today. Supported
by §2-204(3). §2-305 clinches because if the parties agree the court is
authorized to set a reasonable price. (???)
Illusory and Implied Promises
1. Illusory Promises: promises that are not sufficient to support a counter-promise. It is
a statement which appears to be promising something, but which in fact does not commit
the promisor to anything at all.
i.
Ex: A offers to deliver to B at $2 a bushel as many bushels of wheat as B
may chose to order within the next thirty days. B replies, “OK, you’ve got
a deal.” B then gives A an order and A refuses to sell at the $2 a bushel
price (perhaps because the market price has gone up). B sues for breach
of contract. B’s promise is illusory, since she has not committed herself to
do anything. All she has said to A is, in effect, “I promise to buy from you
whatever I choose to buy from you.” Therefore, her “promise” does not
constitute consideration for A’s counter-promise, and A is not bound to
sell wheat.
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2. Output contracts: A contract whereby a buyer agrees with a seller, or a seller agrees
with a buyer to satisfy all of his requirements for a particular good at an agreed-upon
price.
i.
Earlier approach, especially before the UCC, held that such output and
requirement contracts were invalid for lack of consideration (as well as for
indefiniteness).
ii.
Under the UCC today these contract are likely to be enforced, at least if it
can be found that the buyer has implicitly promised to use his best efforts
to sell the goods (or that seller in an output contract has implicitly
promised to use his best efforts to sell the goods) or that the seller in an
output contract has implicitly promised to attempt to maintain his
production at a reasonable level), and the bargain is not otherwise undulyone sided.
iii.
UCC §2-306(1) explicitly validates requirements and output contracts. It
provides that “a term which measures the quantity by the output of the
seller or the requirements of the buyer means such actual output or
requirements as may occur in good faith, except that no quantity
unreasonably disproportionate to any states estimate or in the absence of a
stated estimate to any normal or otherwise comparable prior output or
requirements may be tendered or demanded.”
iv.
Ex: Eastern Airlines, Inc. v. Gulf Oil Corp.  agreed to buy all of its jet
fuel requirements in specified cities from , and  committed to supply
those requirements at a price pegged to the industry-wide posted price for
crude oil. The price then increased dramatically due to actions by OPEC
and  reneged on the agreement. When  sued,  asserted that the
contract was void for lack of mutuality since  wasn’t bound to any
specific quantities. The court held for , saying that  bound itself to act
reasonably and in good faith in estimating the quantities of fuel it required
in each city. Since  was bound, ’s return promise was not void for lack
of mutuality of obligation.
3. Exclusive Agreements (implied promise): Courts have often supplied a term calling
for best efforts under exclusive agreements. Courts have supplied terms requiring best
efforts by parties with exclusive rights under various kinds of exclusive dealing
agreements, including contracts for the sale of goods and contract of real estate.
i.
the court will not supply such a term, however, if the rights given are not
exclusive, since in that case the grantor of the rights does not disable itself
from further activity or from granting rights to others. Furthermore, even
if the rights given are exclusive, a court will not supply a term requiring
best efforts if the grantor’s remuneration is a fixed sum.
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ii.
Ex: Wood v. Lucy Lady Duff Gordon.  was a fashion designer who
made an agreement with , whereby  had the right to place the ’s
endorsment on fashion designs.  agreed that the  was the only person
with this right, and  agreed to give  one-half of any profits derived from
the sales of such endorsed designs.  then put her endorsment on the
designs of third persons (without sharing the profits with ) and  sued for
breach of the agreement.  asserted that the contract failed for lack of
consideration, on the grounds that the  did not bind himself to do
anything, since he was not obligated under the contract to sell any
endorsed designs at all. Cardozo held that the  can be impliedly found to
have promised to use “reasonable efforts” to market Lucy’s designs. This
implied promise is a sufficient “detriment” to the  to constitute
consideration for ’s counter-promise that she would not place her
endorsement upon anyone else’s designs. Therefore, the contract was
binding and  breached.
iii.
UCC §2-306(2) deals with exclusive dealing, as in Wood. “A lawful
agreement by either the seller or the buyer for exclusive dealing in the
kind of goods concerned imposes unless otherwise agreed an obligation by
the seller to use best efforts to supply the goods and by the buyer to use
best efforts to promote their sale.” (Smith says this provision might apply
even if the transaction is not for goods).
II.
Interpreting Assent: Subjectively or Objectively
(dealing with vagueness and ambiguity)
A)
Ambiguity
1. Generally: The most common cause of such a misunderstanding is that a term used in
the agreement is “ambiguous.” An ambiguous term is one which has two, inconsistent,
meanings. If the ambiguous term is a major one, and the two parties do not attach the
same subjective meaning to it, there will be no meeting of the minds and thus no contract.
i.
Ex: Raffles v. Wichelhaus. A offers to sell B goods shipped from
Bombay on the steamer Peerless. B accepts. There are in fact two
steamers each named Peerless in Bombay at the time of contracting; one is
scheduled to leave much later than the other. A subjectively intends to
ship on the later Peerless; B subsequently intended to accept an offer of
shipment on the earlier Peerless. B expected the earlier shipment, did not
get it, and then refused the later shipment. The court held that there was
no contract because A and B were in subjective disagreement as to the
meaning of the term” Peerless,” and neither had reason to know of the
disagreement.
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B)
ii.
Ex: Oswald v. Allen. , a coin collector from Switzerland, examined
coins in ’s “Swiss Coin Collection,” as well as some coins from ’s
“Rarity Coin Cllection.” The parties orally agreed on the sale of ’s
“Swiss Coins,” for $50,000.  thought that the deal was for all of the
Swiss coins owned by , while  thought that she was only selling the
“Swiss Coin Collection.” The court held that a contract never existed
since there was no meeting of the minds. “When any of the terms used to
express an agreement is ambivalent, and the parties understood it in
different ways, there cannot be a contract unless one of them should have
been aware of the other’s understanding.”
iii.
Restatement §201(1): “Where the parties have attached the same meaning
to a promise or agreement or a term thereof, it is interpreted in accordance
with that meaning.” This isn’t as strict as Judge Hand in Oswald who says
objective manifestation is all that matters.
Contradiction of express terms under the UCC
1. Generally: The UCC states that course of dealing, course of performance and trade
usage may not be used to contradict the express terms of a contract.
C)
i.
§2-208(2) provides that these items must be construed as consistent with
the express terms wherever it is reasonable to do, and then goes on to say
that “when such construction is unreasonable, express terms shall control
(ie take precedence over) course of performance and course of
performance shall control both course of dealing and usage of trade…”
Hierarchy 1) express terms, 2) course of performance, 3) usage of trade, 4)
default rule of law.
ii.
If the court concludes that there is no way to harmonize, say, a trade usage
asserted by one of the parties with an express provision of the contract, the
court must treat the express term as controlling.
iii.
Ex: Weinberg v. Edelstein. Can  sell combinations or does that infringe
on his noncompetition agreement with ? The judge looks to custom and
decides that these are combinations.
Interpretation generally
1. Generally: Problem is one where parties don’t seek to introduce new terms that aren’t
contained in the writing, but to interpret the meaning of the terms which are contained in
the writing.
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2. Modern approach: To allow the parties to introduce evidence of what they
subjectively thought the terms in a writing meant, even if the writing is an integration. In
other words, oral evidence showing the meaning of words should be allowed to the same
extent whether or not the parties thought that the writing was a final expression of their
agreement.
i.
rejects “plain meaning” rule: older rule said that the meaning of any
writing which appears to be clear, complete, and not ambiguous on its face
will be determined without resort to any extrinsic evidence at all.
ii.
burden of persuasion is on the part who is allowed to give testimony about
what the parties intended by a term. If he is the  this burden could be
substantial.
iii.
Ex: Frigaliment Importing Co. v. BNS International Sales Corp. , an
American corporation, agreed to export to , a Swiss corporation, a certain
quantity of eviscerated “chickens.”  shipped “stewing” chickens which 
rejected, claiming that the contract contemplated young “broilers” or
“fryers.”  argued that there was a trade usage by which “chicken” meant
“young chicken.” The court held that the  failed to sustain its burden of
showing that the stewing chickens are not “chicken.” Trade usage is
binding on  only if it had “actual knowledge” of the usage, or the usage
is “so generally known in the community that [’s] actual individual
knowledge of it may be inferred.” Here,  was quite new to the poultry
business, and  did not prove that the alleged trade usage was sufficiently
well established. Furthermore, USDA regulations in force at the time
included “stewing chickens” among the various classes of “chickens.” 
was entitled to use the meaning included in these regulations. Since 
proved that its subjective understanding of the word “chicken” coincided
with at least one objective meaning of that word,  did not sustain its
burden of showing that both parties intended only the narrower use of the
word.
CHAPTER 6:
WRITTEN MANIFESTATIONS OF ASSENT
I.
Interpreting a writing—The Parol Evidence Rule
A)
Definition.
1. Generally: Evidence of prior agreement:
i.
may never be admitted to contradict an intergrated writing, and
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ii.
may furthermore not even supplement an intergration that is intended to be
complete.
2. Rule is meant to deal with what happens when there are numerous oral and written
communications that are not intended to be contracts, but when the final contract is
signed it fails to include treatment of some of the issues raised in these preliminary
communications. When this occurs, to what extent may one party later try to prove in
court that these earlier oral or written discussions are part of the contract, despite their
absence from the writing.
B)
Total and partial intergration
1. Intergration: a final agreement.
2. Partial intergration: if the document is not intended by the parties to include all details
of their agreement. When a writing is a partial intergration, no evidence of prior or
contemporaneous agreements or negotiations (oral or written) may be admitted if this
evidence would contradicit a term of the writing.
3. Total intergration: if the document is intended by the parties to include all the details
of their agreement. When a document is a total integration, no evidence of prior or
contemporaneous agreements or negotiations (oral or written) may be admitted which
would either contradict or even add to the writing.
i.
C)
Ex: Thompson v. Libbey. A case where a term cannot be added or
supplemented.  claiming warranty on the logs.  is trying to get the
purchase price. Supreme Court agrees with the . This case reflects the
view that a writing can be determined to be intergrated by using the “4
corners rule” that says to look at what’s on a page. If there are no obvious
terms missing or ambiguities than the writing is complete.
UCC parol evidence rule, §2-202:
1. If a writing is a final expression of the parties’ agreement (ie an “intergration”), it may
not be contradicted by evidence of any prior agreement, whether written or oral, nor of
any oral agreement that is contemporaneous with the writing. You can explain an
agreement but not necessarily supplement it.
2. A final expression may be “explained or supplemented” (as opposed to
“contradicted”) by:
i.
evidence of course of dealing, trade usage, and course of performance.
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ii.
D)
evidence of “consistent additional terms” unless the court concludes that
the writing was intended not only as a final statement but also as a
“complete and exclusive statement” of the terms of the agreement.
Liberal view (rejection of “plain meaning”)
1. Relaxes the plain meaning rule. Under the liberal view, evidence of prior negotiations
is admissible during the first stage for the limited purpose of enabling the trial judge to
determine whether the language in dispute lacks the required degree of clarity.
i.
The trial judge need not make the determination, as the judge must under
the restrictive view, on the basis of the language and the surrounding
circumstances alone.
ii.
Restatement (similar view): §214: for a complete intergration can look to
things that are contemporaneous with its adoption.
iii.
Ex: Pacific Gas & Electric v. GW Thomas Draynage & Rigging: 
contracted to do some repair work on ’s steam turbine. In the contract, 
promised to indemnify  “against all loss, damage, expense and liability
resulting from…injury to property, arising out of or in any way connected
with the performance of this contract.” During the work, the turbine is
damaged.  argued that, by this clause, the parties meant for  to pay only
for damage to the property of third persons, not for damage to ’s own
property. The court held that  had the right to prove by oral testimony,
that this was what the parties intended. The trial judge was incorrect in
applying the plain-meaning rule, ie in looking solely at the document itself
and in concluding that by its “plain language” the document required  to
pay for injuries to ’s property. “A rule that would limit the determination
of the meaning of a written instrument to its four-corners merely because
it seems to the court to be clear and unambiguous, would either deny the
relevance of the intention of the parties or presuppose a degree of verbal
precision and stability our language has not attained.” Before allowing 
to put on extensive testimony, however, the trial judge should have first
made a preliminary review to ascertain whether the contract was at least
“fairly susceptible” of ’s interpretation.
2. Limits of the liberal view: even under this view, evidence of prior negotiations is
admissible during the first stage only if it is offered for the purpose of “interpreting” the
writing and not to “contradict” it or, in the case of a complete intergration, “add to” it.
The question then is: where does “interpretation: end and “contradicition” or “addition”
begin?
i.
Criticism of liberal view in Trident Center v. Connecticut General Life
Insurance. A promissory note provided that the borrower “shall not have
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the right to prepay the principal amount hereof in whole “the event of a
prepayment resulting from a default hereunder…”The borrower contended
that this clause gave it the option of prepaying the loan at any time if it
was willing to incur the prepayment fee. The court concluded that the first
provision, particularly in light of the contract as a whole, “leaves no room
for this construction.” Nevertheless, Pacific Gas & Electric, “casts a long
shadow of uncertainty over all transactions negotiated and executed under
the law of California,” for “it matters not how clearly a contract is written,
nor how completely it is integrated, nor how carefully it is negotiated…the
contract cannot be rendered impervious to attack by parol evidence.”
Extrinsic evidence was therefore admissible to show “that the parties had
agreed [borrower] could repay at any time within the first 12 years by
tendering the full amount plus a 10 percent prepayment fee.”
3. Sometimes there is no difference in result between the restrictive and liberal views. In
three kinds of cases the restrictive and liberal views lead to the same result:
i.
First, if what is involved in not interpretation but contradiction or addition,
the admissibility of evidence of prior negotiations is not affected by either
view.
ii.
Second, if what is involved is interpretation but the dispute is over the
admissibility of evidence of the surrounding circumstances that does not
include prior negotiations, the evidence is admissible under both views.
iii.
Third, if what is involved is interpretation and the dispute is over the
admissibility of evidence of prior negotiations but the language in dispute
lacks the required degree of clarity without resort to that evidence, the
evidence is admissible under both views.
II.
Reforming A Writing—Mistakes In Integration
A)
Error in expression
When the parties orally agree on a deal, but by mistake prepare and execute a document
which incorrectly reflects the oral agreement. In this situation, either party may obtain
from the court a reformation (ie a re-writing) of the written document, so that it correctly
reflects the prior agreement.
i.
ex: Seller orally agrees to sell Blackacre to Buyer for $100,000; their oral
deal includes a provision that Buyer will also assume an existing mortgage
of $50,000. Buyer’s lawyer, in preparing the written agreement, neglects
to include the assumption privison, and neither Buyer nor Seller notices
the omission. At either party’s request, the court will reform the document
so that it includes the assumption provision.
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ii.
Ex: Travelers Insurance Co. v. Bailey.  tries to reform insurance thirty
years after it was issued. The policy had the wrong information filled in.
 got paid as he was supposed to,  didn’t have a policy that provided the
benefits listed. Court rejects  assertion that  mistake can’t be reformed
and reformation was granted; “Where, as here, an antecedent contract has
been established by the requisite measure of proof, equity will act to bring
the erroneous writing into conformity with the true agreement.”
iii.
Restatement 2nd, §155: “Where a writing that evidences or emobodies an
agreement in whole or in part fails to express the agreement because of a
mistake of both aprties as to the contents or effect of the writing, the court
may at the request of a party reform the writing to express the agreement,
except to the extent that rights of third parties such as good faith
purchasers for value will be unfairly affected.
III.
Interpreting Conflicting Writings—The “Battle of the Forms”
A)
UCC §2-207:
1. “A definite and seasonable expression of acceptance or a written confirmation which is
sent within a reasonable 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.”
2. “The additional terms are to be construed as proposals for addition to the contract.
Between merchants such terms become part of the contract unless:
(a) the offer expressly limits acceptance to the terms of the offer;
(b) they materially alter it; or
(c) notification of objection to them has already been given or is given within a
reasonable time after notice of them is received.”
3. “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 particular contract consist of those terms on
which the writings of the parties agree, together with any supplementary terms
incorporated under ay other provisions of this Act.”
B)
“Battle of the Forms”: the primary context of §2-207 cases.
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Rare to have forms custom drafted for a transaction. Instead, both the offer and the
acceptance are usually pre-printed forms, with blanks left for the particular “negotiated”
terms to be filled in.
C)
i.
Purchase order: the buyer’s purchase order department typically sends a
preprinted :purchase order” form, filled with lots of fine-print clauses
favoring the buyer (eg extensive warranties). The buyer simply fills in the
blanks for product description, quantity, shipment date and one or two
other aspects that vary from deal to deal.
ii.
Acknowledgment: The seller’s order department then typically responds
with a preprinted “acknowledgment form,” containing fine-print clauses
that favor the seller (eg a complete disclaimer of all warranties); this form,
too, has blanks, and the seller probably copies these terms from the
corresponding entries on the purchase order.
iii.
Performance: Sometimes, a dispute will arise following this exchange of
purchase order and acknowledgement forms, but prior to any shipment of
goods. More typically, however, the seller goes ahead and ships the
goods, and, either before or after the buyer has paid for them, some
dispute erupts concerning the adequacy of the seller’s performance (eg, a
dispute about the quality of the goods). Only then do the parties consult
the purchase order and acknowledgment, and discover that these forms are
not in complete agreement on some or many of the “non-negotiated”
terms.
Summary: §2-207 makes two major changes from the common-law approach:
1. It provides, in §2-207(1), that a document can constitute an acceptance “even though it
states terms additional to or different from those offered or agreed upon,” thus abolishing
the common-law “mirror image” rule.
2. It provides, in §2-207(2), that between merchants, the additional terms proposed in the
acceptance can become part of the contract in certain circumstances if the other party (the
offeror) merely remains silent. §2-207(2) thus effectively modifies the common-law rule
that a proposal for a contract cannot be accepted by silence.
D)
Additional Term In Acceptance
When an offeree’s response contains an “additional” term there are two issues: (1) Does
the additional term prevent the offeree’s response from being an acceptance?; and (2) If
not, under what circumstances can the additional term become part of the contract?
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1. Contract formed: of key significance is the fact that the additional term does not
prevent the offeree’s response from giving rise to a contract. It is precisely in this
situation that §2-207 changes the common-law “mirror image” rule, by which the
additional term would have been enough to make the offeree’s response a counter offer
rather than an acceptance.
2. Proposal for addition to the contract: Under §2-207(2), whether this additional term
becomes part of the contract depends, in the first instance, on whether both parties are
merchants.
i.
merchant: defined by §2-104 as “a person who deals in goods of the kind
or otherwise by his occupation holds himself out as having knowledge or
skill peculiar to the pratices or goods involved in the transaction.” For the
purposes of §2-207(2) almost every person in business will be considered
a merchant.
3. If at least one party is not a merchant, the only way the additional term can become
part of the contract is if the offeror explicitly assents to it. That is, the additional term
becomes a “proposal for addition to the contract” (§2-207(2)), and must be accepted as it
it were a self-standing offer. Here, §2-207 does not change the common law rule
requiring affirmative assent.
4. If both parties are merchants the additional term automatically becomes part of the
contract as a general rule (dramatic exception to common law practices). The term only
fails to become part of the contract under one of the exceptions in §2-207(2)(a), (b), and
(c).
5. Both (a) and (c) say that an addition will not become part of a contract if the offeror
affirmatively indicates that he does not want it to.,
6. Materiality: Probably the most important of the three exceptions is that given by (b),
that the addition not be one which “materially alter[s]” the contract. No satisfactory
definition of material alteration has emerged.
i.
disclaimer of warranty: will almost always be considered a mterial
alteration. Therefore, the disclaimer term will not become part of the
contract.
ii.
Example: Step-Saver Data Systems, Inc. v. Wyse Technology. , a
software reseller, orders 142 copies of a software package from  in a
series of transactions. For each transaction,  sends a purchase order and
 follows up with an invoice. Both documents contain essentially
identifcal terms governing price, quantity, shipping, and payment. No
reference is made to any disclaimer of warranties or a limitation of
remedies provision. However, when  ships the software, each package of
software has printed on its box (as part of a “box-top license”) a
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disclaimer of all express and implied warranties.  then sells the software
to its customers, and almost immediately starts receiving complaints about
it.  sues  for various breaches of warranties.  defends on the theory
that the disclaimer-of-warranty clause became part of the contract. The
court holds for  because the warranty disclaimer in the box-top license
should be treated as a proposed additional term to the contract. Because
the proposed term would have materially altered the contract, it could not
have become part of the contract unless  expressly agreed to it (which 
never did). Therefore, the disclaimer did not become part of the contract,
and  may maintain its suiot for breach of warranty.
IV.
Requiring a Writing—The Statute of Frauds.
A)
Introduction
1. Most contracts can be valid despite the fact that they are only oral. A few types of
contracts, however, are unenforceable, in almost every American jurisdiction, unless they
are in writing.
i.
all states, except Lousiana, have adopted some version of the English
statute. In 48 it was adopted by statute.
2.
5 categories of contract which in almost every state fall within the statute and thus
must be in writing:
i.
Executor-Administrator:
ii.
Suretyship: A contract to answer for the debt or duty of another.
iii.
Marriage: A contract made upon consideration of marriage.
iv.
Land contract: A contract for the sale of an interest in land.
v.
One year: A contract that is not to be performed within one year from its
making.
vi.
UCC: In addition, the UCC requires a writing in the case of a contract for
the sale of goods for the price of $500 or more (§2-201), any contract for
the sale of securities (§8-319), and any agreement which provides for the
creation of a security interest in personal property that is not in the
possession of a secured party (§9-203(1)(a)). Furthermore, a contract for
the sale of personal property that is neither goods nor securities is not
enforceable for more than $5,000 unless it is represented by a writing (§1206).
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3. Restatement seems to comport with the UCC.
B)
Requirements as cumulative
All of these requirements have traditionally been regarded as cumulative: if more than
one applies to a single contract, all must be met. If one of the requirements is more
exacting, that requirement must be met.
i.
C)
Ex: Riley v. Captial Airlines.  says there was a contract for 5 years.
Court finds an oral contract and that  should be compensated for money
spent on buying equipment; this is a recorvery in reliance and equity, UCC
§2-201 doesn’t draw a distinction between legal and equitable actions.
However, part performance didn’t take the contract out of the statute of
frauds.
Satisfying the Requirements Of A Writing (what a memorandum must contain):
1. To satisfy the statute of frauds a memorandum must meet the following requirements:
i.
reasonably identify the subject of the contract.
ii.
indicate that a contract has been made between the parties.
iii.
state with reasonable certainty the essential terms of the contract; and
iv.
signed “by or on behalf of the party to be charged.
2. Requirement of signature (test of intent to authenticate): The statute’s requirement
that the writing be signed is not applied with rigor. The modern test is whether the other
party reasonably believes that the asserted signer’s intention is to authenticate the writing
as the asserted signor’s own.
i.
Some courts have held that preprinted forms count for signatures as long
as the transaction shows that the person intended to be bound. The UCC
says that memorandums sent by a merchant to a merchant may be
enforceable against the recipient even though the later did not sign it.
ii.
Ex: Schwedes v. Romain. Court uses non mainstream reasoning to
uphold the trial court’s ruling for the  that there was no contract just from
the oral consideration. There was no consideration so the  can’t get
estoppel or specific performance. The  could have replied to the oral
agreement with a written response, would have been a different situation.
This court requires both sides to sign an agreement, which is contrary to
the restatement.
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CHAPTER 7:
MULTIPARTY TRANSACTIONS
I.
Transferring rights or duties to third parties
A)
Assignment of contractural rights
1. Assignments v. delegation: when a party to an existing contract transfers to a third
party his rights under the contract, he has made an assignment. If the existing party
appoints a third person to perform his duties under the contract he has made a delegation.
2. Generally: An assignment is a present transfer of one’s rights under a contract. That
is, it is a completely executed transfer, in the same way that a gift is an executed transfer.
i.
Assignor’s right extinguished: When a valid assignment occurs, the
assignor’s rights under the contract are extinguished and may thereafter be
exercised only by the assignee.
ii.
Ex: Kelly Health Care v. Prudential Insurance. Green, who is also a ,
arguably assigned her right to be paid to Kelly. But Prudential won’t pay
Kelly. The issue is whether there was an actual assignments of rights (as
opposed to an authorization for payment). The court holds that there was
to be a manifestation of giving away all of one’s rights, and here there
rights retained by Green.
3. Assignments generally assignable, with 4 significant exceptions:
i.
if the assignment would materially change the duty of the obligor.
ii.
if the assignment would increase the burden on the obligor.
iii.
if the assignment is forbidden by statute or public policy.
Ex: In re Nance. Court says first assignment of salary is invalid because
of the MA law saying that couldn’t assign future earnings. However, the
second assignment was for earnings from deferred compensation, and this
could be assigned (since it had been earned). The purpose of this staute is
to keep a personout of a state of “quasi slavery.”
iv.
if the assignment is valiadly precluded by contract.
4. No writing required absent statute: Except in those kinds of assignments that are
governed by statutes (generally real estate contracts, and assignments covered by UCC
Article 9) an assignment of contract rights does not have to be in writing.
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5. Gratuitous assignments: A party to a contract may wish to assign his rights under it to
some third party without receiving anything in return. Such an assignment, which is in
the nature of a gift, is generally called a gratuitous assignment.
B)
i.
Revocation: A gratuitous assignment is generally enforceable, but may
under certain circumstances be revoked if the assignor dies, makes a
subsequent assignment of the same right to a different person, or if the
assignor gives notice that the assignment has been revoked.
ii.
Irrevocable: A gratitutous assignment can become irrevocable when there
is delivery of a symbolic document, a writing by the assignor, reliance by
the assignee, or if the obligor gives the assignee the payment or
performance right.
Delegation of contractural duties.
1. Generally: refers to duties under a contract, not to rights. Thus if a party to a contract
wishes to have another person perform his duties under that contract, he delegates them.
2. Continued liability of delegator: When the performance of a duty is delegated, the
delegator remains liable.
C)
i.
Normally, the delegatee performs the duties which he has been delegated,
and the liability of the delegator does not become an issue.
ii.
If the delegatee fails to perform, the delegator must perform or be liable
for breach of contract.
Non-delegable duties:
1. Generally: There are certain kinds of duties which are non delegable, just as certain
kinds of rights are not assignable. In general, a duty or performance is delegable unless
the obligee has a substantial interest in having the delegator perform.
2. Contracts involving particular skills: contracts which call for the promisor’s own
particular skills are normally not delegable. Thus contracts involving artistic
performances (ex Selen Dion v. Joe Schmo), contracts involving the professional services
of a doctor, lawyer, etc, are not delegable.
i.
May not delegate contract in which there are duties of personal
supervision. Thus an employer may not delegate his duty to supervise his
employee, where the contract contemplated close personal supervision.
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3. Delegatee is a competitor of the obligee: May be found invalid because it conflicts
with the obligee’s substantial interests where the proposed delegatee is a competitor of
the obligee.
i.
Ex: Sally Beauty v. Nexxus Products Co. Nexxus enters into a contract
with Best under which Best becomes the exclusive distributor of Nexxus’s
hair care products for the state of Texas. Best implicitly (by operation of
the UCC’s provisions on exclusive distributorships) agrees to use its “best
efforts” to distribute the Nexxus products as widely as possible in Texas.
Best is later acquired by and merged into Sally Beauty, a wholly-owned
subsidiary of one of Nexxus’ biggest competitors, Alberto-Culver.
Nexxus, upset at having its exclusive distributorship in effect fall into the
hands of a competitor, refuses to continue the distributorship, on the
grounds that the merger was an impermissible delegation. Sally sues
Nexxus for breach. Held for Nexxus. Nexxus was entitled to Best’s “best
efforts,” and it was reasonable for Nexxus to think that having those
efforts rendered by Nexxus’ direct competitor was “a different thing than
what it had bargined for.” Therefore, the delegation ran afoul of UCC §2210(1), under which an unconsented-to delegation is not allowed if the
other party has “a substantial interest in having his original promisor
perform or control the acts required by the contract.” In his dissent,
Posner argued that Sally, and its parent, Culver, would have no incentive
to lessen its efforts on behalf of Nexxus products.
II.
Manifesting Assent Through An Agent: Types of Authority
A)
Apparent Authority § 69 --
1. There are three types of authority: express, implied, and apparent. The former two are
forms of actual authority. The principal must “clothe the agent” with authority, whether
express, implied, or apparent. Apparent authority is inferred from the actions of the
principal. Apparent authority stretches no further than the agent’s actions suggest, e.g., if
the agent negotiates a settlement, it cannot be inferred the agent has apparent authority to
bind principal to the settlement.
i.
Sauber v. Northland Ins. Co. – Upon selling his 1953 Hudson to P Sauber,
MacDonald informed Sauber that the car was insured by D Northland.
Sauber telephoned Northland to inquire whether it was all right for him to
drive the car under the insurance policy. Although the employee who
answered the telephone denied it, Sauber claimed that the employee told
him that he would be covered under the policy. The car was later
wrecked, and Sauber commenced legal action to collect the insurance. A
principal is bound by the acts of his agent w/in the apparent authority
which he knowingly or negligently permits the agent to assume or which
he held the agent out as possessing. Apparent authority exists by virtue of
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the conduct on the part of the principal that warrants a finding that a 3rd
party, acting in good faith, was justified in relying on the assumption that
the agent has authority to act. As such, a presumption arises that an
employee has authority to act when the employee answers the telephone at
the established place of business and purports to act for the business. The
employee has apparent authority b/c the company (1) invited the public to
use the phone to transact business and (2) allowed the employee to answer
the phone. Northland’s employee answered the telephone and the jury
found that she had answered the caller’s questions on behalf of Northland.
The presumption arose that she had authority to act, and no proof was
offered to rebut the presumption.
ii.
Jennings v. Pittsburgh Mercantile Co. – Egmore, D Mercantile’s VP and
treasurer-comptroller, and Stern, its financial consultant, met with P
Jennings to explain that Mercantile desired to raise cash in order to
modernize its store. The pair provided Jennings with information re:
Mercantile’s finances and asked Jennings to solicit offers for a sale and
leaseback. Jennings brought Egmore three offers. The first two were
rejected quickly. Jennings alleged that Stern then called him and stated
that the deal was accepted by Mercantile’s executive committee, although
it wanted to wait until the next day to see if another broker would find a
better offer. However, within a week Egmore himself informed Jennings
that the third offer had been rejected. Mercantile refused to pay Jennings’
bill for the commission and Jennings filed suit. Apparent authority
emanates from the actions of the principal such that an agent cannot,
simply by his own words, invest himself with apparent authority. In order
for a reasonable inference of the existence of apparent authority to be
drawn from prior dealings, these dealings must be similar to the acts for
which the principal is sought to be bound. Here, Egmore’s prior acts
consisted of financial information and soliciting offers. The dissimilarities
between those acts and the act of accepting an offer are self-evident.
Apparent authority to accept an offer cannot be inferred from soliciting
offers. Moreover, the extraordinary nature of this transaction placed
Jennings on notice to inquire as to Egmore’s actual authority. Note that
Jennings attempted to rely on the high positions of Egmore and Stern in
the Mercantile organization. The court doesn’t think this is sufficient in
light of executive committee’s role.
iii.
International Telemeter Corp. v. Teleprompter Corp. – There was a
lawsuit in which only ITC, Teleprompter, Hamlin, and Hamlin Int’l Corp.
remained as litigants. The parties reached a settlement. ITC informed the
court that a final settlement had been reached and was awaiting signature
of the parties. Before the settlement paperwork could be finished, a
dispute arose between Teleprompter and the Hamlin D’s. ITC then
brokered a settlement agreement with Teleprompter. The new agreement
was forwarded to Teleprompter’s attorney and included all previous
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agreements, except it eliminated any references to the Hamlin D’s. The
attorneys executed a stipulation and order of dismissal. Teleprompter’s
assistant general counsel, upon receipt of the papers, executed a check and
forwarded the agreement to Teleprompter’s president, who signed it but
withheld delivery. New management at Teleprompter refused to proceed
with the settlement agreement, and the attorney for Teleprompter informed
ITC that the agreement had not been executed. ITC proceeded under the
assumption that the settlement agreement was valid. When the parties’
manifestations of assent are in themselves sufficient to conclude a K was
formed, K formation will not be prevented simply b/c the parties also
manifested an intention to prepare and adopt a written memorial of the K.
Here, Teleprompter manifested assent to the K through its attorney.
Although Teleprompter argues the attorney had no authority to bind it to a
settlement, the attorney was acting w/in the scope of his apparent
authority, and ITC was entitled to rely upon such authority so long as there
was no reason to believe the attorney was exceeding that authority. From
the evidence, Teleprompter knew that ITC believed the attorney had the
requisite authority and did nothing to correct that impression.
Teleprompter did nothing to disavow actions taken by the attorney’s
actions, including final settlement of the case.
III.
Third Party Beneficiaries Of A Contract
A)
Intended Beneficiaries
1. Generally: A party may form a contract the main purpose of which is to benefit a
third person.
i.
A and B can make a contract in which B makes a promise that will benefit
A, in return for A’s promise to give a performance that will benefit C,
rather than B. The contract might provide that A will pay a sum to C that
will satisfy a debt that B owes to C. In either case, C is said to be a third
party beneficiary of the contract between A and B,
ii.
Who may sue: in the above situation, A fails to perform, B may sue for
damages, since he is a party to the contract. The issue is whether C, the
third party beneficiary may sue.
2. Older cases and First Restatement: The common-law rule, which is still in effect in
England and in Massachusetts, is that a third party beneficiary may not recover on the
contract. The “reason” for the rule was that, since the third party beneficiary was not a
party to the contract, she was not “in privity” with the promisor, and therefore could not
sue.
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i.
outside of Massachusetts, American courts have been steadily abandoning
this position.
ii.
Donee beneficiary: if the promisee entered the contract for the purpose of
conferring a gift on a third party, the third party is said to be a “donee
beneficiary,” and is given the right to sue the promisor. The principal
reason for allowing the donee beneficiary to sue is that if he can’t, no one
else as a practical matter can—the promisee’s own damages will
ordinarily be nominal. The promisor would thus be let off the hook, and
might be unjustly enriched.
Ex: Seaver v. Ransom. Wife who is dying, wants to leave her house to
her niece, . Wife’s present will leaves the house to the husband, .
Because wife will probably not live long enough for a new will to be
drafted,  promises her that if she keeps her will the same, he will leave 
enough money in his will to make up to  for not getting the house. After
wife’s death,  fails to keep his promise in his own will, and after death 
sues his estate for the value of the house. Court holds that  may recover
as a donee beneficiary of the agreement betweent he wife and .  is the
only one damaged by ’s breach of promise.
C)
Second Restatement abandonment of two category structure (Third Party
Beneficiaries Of A Contract):
1.
Generally: The first restatement, and until recently, many courts refused to
permit a third party beneficiary to recover unless she fell into either the creditor
beneficiary or the donee beneficiary class. The Second Restatement eliminates the use of
“donee beneficiary” and “creditor beneficiary,” because of their “overtones of obsolete
doctrinal difficulties…”
2. Intended beneficiary: For a third party to be an “intended beneficiary,” it must first of
all be the case that giving him the right to sue would be “appropriate to effectuate the
intentions of the parties…” Furthermore, he must fit into the categories of:
i.
Payment of money: Either “the performance of the promise will satisfy an
obligation of the promisee to pay money to the beneficiary;” or
ii.
Intended benefit: “The circumstances indicate that the promisee intends to
give the beneficiary the benefit of the promised performance.”
3. Incidental beneficiaries: Even though the Second Restatement has broadened the class
of third parties who may sue, it by no means gives such a right to all persons who would
be benefited by the performance of a contract.
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4. Factors to determine who is “intended” beneficiary: In determining who is an
“intended beneficiary,” the primary question is whether the promisee intended that the
third party have the benefit of the contract. But where the promisee’s intention is not
clear from his language, several other factors may be considered.
i.
Reliance: If the beneficiary would be reasonable in relying on the contract
as having been intended to confer a right on her, she is an “intended”
beneficiary. That is, the purpose of the contract may be looked at from the
beneficiary’s point of view.
ii.
To whom performance runs: If the performance is to run directly from the
promisor to the third party, the third party is usually an intended
beneficiary. On the other hand, if the performance is to run from the
promisor to the promisee, and the third party’s benefit will only be
indirect, he is probably just an incidental beneficiary.
iii.
Carrying out of parties’ intentions: A beneficiary may be an “intended”
one even though helping the beneficiary was not the “primary” intent of
the parties, as long as giving him these benefits was part of the parties
overall object. Ex: Sisters of St. Joseph. V. Russell.
CHAPTER 8:
A)
ENFORCEABILITY
Six Core Principles Of Enforceability
1. Party based principals: to what extent did A rely; based on restitution.
i.
Will principal: commitments are enforceable because the promisor has
willed or freely chosen to be bound by his commitment.
ii.
Reliance principal: contractural enforcement is an effort to protect a
promisee’s reliance on the promises of others.
iii.
Restitution principal: prevent the unjust enrichment of a promisor who
seeks to go back on her word.
2. Standards-Based Principles: looking at both parties together, is this a contract to
enforce for economic reasons (efficicency) or for substantive fairness.
iv.
Efficiency principal: legal rules and practices are assessed to see whether
they will expand or contract the size of this pie. Since the enforcement of
contracts uses scarce resources, this practice can be justified on efficiency
grounds only if the benefits to be gained from enforcement exceed the
costs.
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v.
Substantive fairness: evaluate the substance of a transaction to see if it is
fair.
3. Process-Based Principles: Given application to make a promise enforceable. Statute
of frauds could be a process principle.
vi.
B)
Bargain principle:
Applying the principles of enforceability to a case
Marvin v. Marvin: according to Michelle Marvin, , they had discussed the arrangment.
Specifically, her stopping her career to provide homemaking services for him (express
contract part of the opinion). The court says the contract can be enforced, that it’s not
against public policy, even though  said it was void as being against public policy.
Blending at least some of these principals.
CHAPTER: THE DOCTRINE OF CONSIDERATION
A)
Generally
1. It is often said that for there to be a binding contract, there must not be not only
“mutual assent” (ie the offer and acceptance), but also consideration. Not all promises
are legally enforceable; the function of consideration is to distinguish between those
promises that are enforceable and those that are not. As a general rule, a court will not
enforce a promise unless the promisee has given “consideration” for the promise.
2. The requirement of consideration could serve two purposes:
i.
Evidentiary function: helps to provide objective evidence that the parties
intended to make a binding agreement.
ii.
Cautionary function: if the parties are aware that providing of
consideration by one will make the other’s promise enforceable, the
parties may act more carefully and will be less likely to make thoughtless
or bad bargains or mistakes.
3. Definition: The definition suggested by Judge Cardozo provides that in order for a
particular promise to be “supported by consideration” three conditions must be met:
i.
The promisee must suffer a “legal detriment.” The term “legal detriment”
is a term that basically means the promisee must either do or promise to do
something that she is not legally obligated to do, or she must refrain from
doing or promise to refrain from doing something that she is legally
privileged to do.
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ii.
The detriment must induce the promise. At least part of the promisor’s
motive in making the promise must be that he wishes to exchange his
promise for the promisee’s detriment.
iii.
The promise must induce the detriment. The promisee must suffer his
detriment at least in part because of the promise. This requirement is
seldom important for practical purposes, since it will always be satisfied
where the promisee knows of the promise and intends to receive its
benefit.
4. Summary: The promisee gives up something of value or circumscribes his liberty in
some way (ie suffers a legal detriment); and the promisor makes his promise as part of a
“bargain”; that is, he makes his promise in exchange for the promisee’s giving of value or
circumscription of liberty.
B)
The Bargain Theory Of Consideration
1. Generally: For a promise to be supported by consideration, the promisee’s
“detriment” must have been bargained for by the promisor. One of the principal purposes
of the “bargain” requirement is to prevent the enforcement of promises that are in reality
promises to make gifts.
i.
Bargin defined: by the 2nd Restatement as, “A performance in return
promise is bargained for if it is sought by the promisor in exchange for his
promise and is given by the promisee in exchange for that promise.
ii.
Modern bargain theory: mutual inducement—each promise resting on the
other. Performing is a detriment to A and to B. Ex: A offers to sell
Gilbert’s to B for $10, and B accepts. A will have a detriment in giving up
the Gilbert’s and B will have a detriment in giving up the $10.
2. Ordinary gift cases: In the ordinary case of a promise to make a gift, the promise fails
to be enforceable for lack of consideration not only because the promise is not part of a
bargain, but also because no “detriment” is suffered by the promisee.
i.
Ex: Johnson v. Otterbein. Johnson writes to Otterbein University saying
that he will give $100 to the university to help pay off its debt. Johnson
never does. Otterbein tries to prove consideration by saying that it was
that Otterbein would pay off the debt with the money. The court says that
there was no consideration; the university didn’t restrict how the money
could be spent. The gift is revocable until it is turned over, it’s conditional
until delivery.
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3. Test for distinguishing bargins from pre-conditions: To determine whether the
conditions for accepting a gift is bargained for or now, ask whether the occurrence of the
condition is of benefit to the promisor.
i.
C)
A bargain may be present even though the promisor does not receive any
economic benefit from the transaction. Ex: Hamer v. Sidway. Uncle
promises his nephew $5,000 if the latter will refrain from smoking,
drinking, and gambling until he reaches the age of 21. The nephew so
abstains. The court holds that the uncle’s promise was “bargained for,”
and therefore supported by consideration. While the uncle may have
derived no actual economic benefit from the nephew’s abstinence, he was
clearly attempting to obtain something he regarded as desirable and was
therefore bargaining.
Past Consideration
1. Generally (not sufficient): Where the detriment has been suffered before the promise
is made, it is obviously not “bargained for” by the promisor.
i.
“Past consideration” a misnomer: In such situations, the detriment
occurring before the promise is frequently called “past consideration,” and
the court then often makes a statement such as “’past consideration’ is not
valid consideration.” The term “past consideration” is thus a misnomer,
since it is not consideration at all.
ii.
Ex: Moore v. Elmer. The clairvoyant Moore probably owed money on
real estate.  promised to pay balance for 10 sittings. Holmes says no
consideration, so not enforceable, there’s no past debt. Based on the
record there was no reason to suppose that compensation was intended, so
it should be treated as a gift. While Moore was induced, Elmer was not
because the promise came in the future.
2. A promise to pay for services received in the past is usually held not to be supported
by consideration.
i.
D)
Ex: Mills v. Wyman. ’s son, a 25 year-old, becomes ill while traveling,
and is injured by .  writes to , promising to pay ’s expenses. The
court holds that ’s promise was not supported by consideration, since ’s
services were not given at ’s request (also, since the son had long since
left home, his own request for assistance should not be imputed to his
father).
Moral Considerations
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1. Certain types of promises to pay for past services or benefits received may be binding
without consideration. For example, is the son in Mills had been a minor (for whom the
father was still responsible), the court would probably have held the promise binding.
2. Where benefits hold that a promise to pay for unrequested past services and cost are
substantial: even in courts that would not automatically hold that a promise to pay for
unrequested past services should be automatically enforced, the court may choose to
enforce the promise where the benefit to the recipient of services (and/or the cost to the
provider) was substantial.
i.
E)
Ex: Mills v. Wyman.  saves A’s life and is totally disabled in doing so.
A then promises to pay  $15 every two weeks for the rest of ’s life, and
makes these payments regularly over eight years until he dies. The estate
then refuses to continue payments and  sues on the promise. The court
holds that A’s promise is enforceable, even without consideration, because
A incurred a substantial material benefit from ’s act, even though he
didn’t request the act. Court may also be saying that A would have
requested  to perform if he had been able.
Contract Modification And the Preexisting Duty Rule
1. Generally: If a party does or promises to do what he is already legally obligated to do,
or if he promises to forbear from doing something which he is not legally entitled to do,
he has not incurred the kind of “detriment” necessary for his performance or forbearance
to constitute consideration.
i.
Ex: Stilk v. Myrick. 2 men desert from the ship and the captain promises
the rest of the sailors that if they stay he will split with them the salary of
the 2 that left. The company then does not pay the sailors the additional
money.  said that it was an emergency situation, and s had already
agreed to sell all of their services. The court agrees that the sailors are not
entitled to the extra compensation. The court seems to be saying that they
are working as hard as they had already agreed to work.
ii.
Exceptions: courts have fashioned many exceptions, and the UCC has
essentially abolished the rule.
2. General rule in two party cases: Most courts hold that where one person promises
another that he will do what he is already legally obligated to do for that other person,
this promise is not a “detriment” sufficient to satisfy the consideration requirement. A
key reason for this rule is that courts want to deter “hold-up” behavior by which one
party attempts to take unfair advantage of the other by threatening not to live up to his
obligations.
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i.
F)
Ex: Alaska Packers Association v. Domenico. s, a group of workmen,
sign contracts at a fixed rate to work on ’s ship during the salmon
cannoning season, as the ship goes from San Francisco to Alaska and
back. When the ship arrives in Alaska, the men tell  that they will not do
any more work unless  gives them a large increase in salary. Since  has
nowhere to get replacement men, it agrees; the s work on the way back to
San Francisco.  then refuses to pay the extra money and s sue. The
cour tholds for . The agreement to pay the extra money was without
consideration, since by agreeing to work on the way back to San
Francisco, the s were simply agreeing to do what they were already
bound to do under the contract. Furthermore, the s conduct was
coercive.
Adequacy of consideration
1. Court will not inquire into “adequacy” of the detriment: There are some situations in
which the parties exchange things that do not have roughly equivalent value. This may
be done to the donative inent of the parties, to the fact that one party is more ignorant
than the other, to the fact that the parites are mistaken, etc. In such situations, as long as
the promisee suffers some detriment, no matter how small, the court will not find
consideration leacking merely because what the promisee gave up was of much less value
than what he received.
CHAPTER 11:
A)
PROMISSORY ESTOPPEL
The Development of Promissory Estoppel As A Substitute For Consideration
1. Introduction: The consideration doctrine is designed to enforce promises which are
“bargained for.” There are some promises which, although the promisor makes them
without bargaining for anything in return, nonetheless induce the promisee to rely to his
detriment.
i.
The doctrine of “promissory estoppel” is being used by an increasing
number of courts to enforce such promises which, although not supported
by consideration, induce detrimental reliance by the promisee.
ii.
Restatement 2nd definition: “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
forbearance in binding if injustice can be avoided only be enforcement of
the promise. The remedy granted for breach may be limited as justice
requires.”
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iii.
4 elements of promissory estoppel:
(1) promise
(2) reasonable to foresee action
(3) substantial reliance in fact
(4) enforcement necessary to avoid injustice
2. Promises to make gifts: The promissory estoppel doctrine is often applied to enforce
promises to make gifts that induce detrimental reliance.
i.
Promissory estoppel may be used to enforce certain promises made by one
member of a family to another, if the later reasonably and detrimentally
relies on the promise.
Ex: Ricketts v. Scothorn. Grandfather, distressed because his
Granddaughter has to work in a store, gives her a promissory note, telling
her that he has done this so that she will not have to work there anymore.
She quits her job. He then dies, and his estate refuses to pay the note. The
court holds that the granddaughter justifiably and foreseeably relied on the
grandather’s promise of payment by giving up her job. This reliance made
the note enforceable, and operated to “estop” the executor from denying
that the note was given for valid consideration.
3. Promises to convey land: Courts enforced such promises if the promisee had relied by
moving onto the land and making improvements.
i.
Ex: Greiner v. Greiner. The court said that reliance short of making
improvements did not suffice. Mom effectively wants to eject son from
the land, so  is relying on promissory estoppel. had been worried about
her sons having been disinherited, wanted to put them on equal footing.
She was originally going to give  money, but he asked for a tract of land
instead.  seems to have substantially relied on this promise, so the court
gives him his reliance and expectation interest (he gets a deed to the
property).
4. Charitable subscriptions: Normally, a promise to give a specified sum of money to a
particular charity would not be enforceable, since a charity donor usually does not
“bargain for” anything in return his promise, and therefore there is no consideration. The
doctrine of promissory estoppel is beign used with increasing frequency to enforce such
promises of charitable subscription.
i.
Before promissory estoppel, courts enforced such promises by finding
consideration. Ex: Allegheny College v. National Chautauqua County
Bank of Jamestown.  promises to give $5,000 to , a charitable
organization. The parties agree that the $5,000 will be used to establish a
scholarship fund to be named after .  gives $1,000 which is put aside
by  for the fund and then  repudiates her promise. She dies and  sues
27
her estate for the remaining $4,000. The court held that there was an
enforceable bilateral contract. The consideration for ’s promise was ’s
promise to name the scholarship fund after her.
5. Promise to pay pensions: The doctrine of promissory estoppel has occasionally been
applied to promises by employers to pay pensions and other fringe benefits. Many such
promises, insofar as they represent an employer’s attempt to ensure continued service by
his employees, are supported by consideration, and are therefore enforceable as ordinary
contracts. But where the promise of pension is made after the employee has retured, or
made under terms allowing the employee to retire immediately, the bargain element
necessary for consideration will usually not be present. It is in this kind of situation that
the courts have used the promissory estoppel theory to bind the employer.
i.
Ex: Feinberg v. Pfeiffer. Employer promises employee a pension when
she retires. She retires shortly after this promise is made, apparently at
least in part in reliance upon it. She does not seek other employment, and
is eventually stricken with cancer, making further employment impossible.
The court holds that the promise to pay the penion is binding under the
promissory estoppel theory since Employee has reasonably and
detrimentally relied upon it. Her reliance came in choosing to reture, since
she had already reached such an age that finding another job would have
been impossible even if she hadn’t gotten sick.
6. Offers by sub-contractors: §87(2) is most often used in the case of offers by subcontractors to general contractors. Where the sub-contractor submits a bid to the general
contractor, who then relies upon it in figuring his own over-all bid, the subcontractor’s
bid is usually held to be irrevocable for at least the time necessary for the general
contrctor to obtain the job and then accept the sub-contractor’s bid.
i.
B)
Ex: Drennan v. Star Paving. , a sub-contractor, submits a written offer
for paving to to G, a general contractor. Since ’s bid is the lowest, G
relies on it in preparing its own bid, and also submits ’s identity as
required in the bidding procedure for the general contract.  then notifies
G that the bid was too low because of an error. G’s bid on the general
contact is accepted and  refuses to perform. The court holds that because
G justifiably and substantially relied upon ’s offer (its bid), ’s offer was
irrevocable until G had a reasonable chance to notify  of the award and
of G’s acceptance of ’s bid. But if G should have realized from the law
bid, that it was probably due to an error, G’s reliance would not have been
“justifiable” and there would have been no recovery.
Promissory Estoppel As An Alternative To Breach Of Contract
1. Introduction: There are some promises which, although the promisor makes them
without bargaining for anything in return, nonetheless induce the promisor to rely to his
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detriment. The doctrine of “promissory estoppel” is being used by an increasing number
of courts to enforce such promises which, although not supported by consideration,
induce detrimental reliance by the promisee.
i.
Restatement: both the 1st and 2nd Restatements define estoppel as “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 in binding if injustice can be avoided
only be enforcement of the promise. The remedy granted for breach may
be limited as justice requires.”
2. Unbargained-for reliance: The essence of the promissory estoppel idea is that the
maker of a promise may be bound by that promise, even though it is not supported by
consideration, if the promisee relies upon the promise to her detriment, and the promisor
should have foreseen this reliance.
i.
Use: the promissory estoppel doctrine was originally applied chiefly to
gratuitous promises (ie promises to make gifts) which were relied on by
the promisee, and then retracted by the promisor. The doctrine has been
expanded to cover certain commercial situations such as where the parties
engage in preliminary negotiations, one party gives assurance to the other
that they will be able to reach a binding agreement, the other relies on this
assurance to his detriment, and then the contract falls through. Ex:
Hoffman v. Red Owl Stores.
ii.
Contract v. tort: some courts (and the second restatement) view the
doctrine as simply supplying consideration which would otherwise be
lacking. If this is the theory, then an action based on promissory estoppel
is ac action on the contract. However, other authroties view promissory
estoppel as having a large component of tort law.
iii.
Actual reliance: The promisee must actually rely on the promise. So, if
the claimed reliance is an affirmative act, the promisee must show that he
would not have taken the act except for the promise. If the claimed
reliance is foresebarance from doing something, the promisee must show
that he could have and would have done the act but for the promise.
iv.
Foreseeability of reliance: the promisee’s reliance must also have been
reasonably foreseeable to the promisor. This requirement probably means
not only that it must have been reasonably foreseeable to the promisor that
the promisee would rely, but also foreseeable that the promisee would rely
in the particular way that he did in fact rely.
2. Duty to bargin in good faith: The promissory estoppel doctrine, or something like it,
has also been applied to the more general promise to bargain in good faith. By entering
into negotiations with another party, a person may be found to have promised, either
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explicitly or implicitly, that he will make a good faith effort to reach agreement with the
other party. If the court finds that this promise to bargain in good faith has been
breached, it can either award contract damages or damages based on promissory estoppel.
i.
Promises of franchises: Courts seem most likely to find an implied
promise of good faith where the negotiations related to the award of a
franchise. Ex: Goodman v. Dicker.  and  negotiate for  to become a
franchisee of ’s national radio sales business.  promises that ’s
application for the franchise will be accepted. In reliance on this promise,
 spends $1,150 preparing to open up shop. He also gives  an initial
order for 30 radios.  then turns down ’s application, and  sues for
$1,150 in expenses, plus the $350 profit he would have made on the sale
of the 30 radios had they been delivered to him. The court holds that the 
can recover on a promissory estoppel theory, the $1,150 he spent in
reliance on ’s promise of a franchise. He may not, however, recover the
$350 profit he would have made on the initial order, since his measure of
recovery is not the contract measure of damages but merely the sums
expended by him in reliance on the promise.
CHAPTER 12: PERFORMANCE
A)
The Implied Duty Of Good Faith Performance
Under the UCC and common law (restatement) each party owes a duty to perform in
good faith and fair dealing.
B)
i.
good faith is honesty in fact.
ii.
Ex: Goldberg 168-05 Corp. Levy.  has a lease for a % of the profits,
although  has a clause that says the lease can be terminated if certain
profits are not achieved.  accusses  of bad management. Should  be
negligent for poor business practices?
Express Warranties:
1.Generally: An explicit promise or guaranty by the seller that the goods will have
certain qualities. §2-313, the express warranty section of the code, sets forth three ways
by which an express warranty can come into being. The most important of these is §2313(1)(a)’s provision that “Any affirmation of fact or promise made by the seller to the
buyer which relates to the goods and becomes part of the basis of the bargain creates an
express warranty that the goods shall conform to the affirmation or promise.”
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2. Basis of the bargain: the requirement that the warranty be “part of the basis of the
bargain” is a kind of watered-down requirement that the buyer rely on the seller’s
warranty.
i.
CBS v. Ziff-Davis. CBS expresses interest in buying Ziff-Davis. 
volunteers an income and expense report. CBS does its own investigation,
which leads it to disbelieve Ziff. Ziff threatens to sue CBS if they don’t
go through with the sale, which CBS does. CBS later sues on breach of
warranty (this agreement clearly constituted a warranty as opposed to a
promise about future performance). Trial and appellate courts find for ;
they say that  couldn’t have really relied on Ziff’s information since they
had their own. To the extent that this action comes from tort, one needs a
belief in the misrepresentation and a change in reliance on that belief.
However, the majority of the appeals court holds that Ziff should not be
relieved from its contractural obligations under the warranty. This would
deprive CBS of the only value those warranties provided.
3. Warranties made to persons other than : many courts now allow a person to sue an
indirect seller (ie a person who sold the goods to a middleman, who then sold it to the ),
and also allow suit against a seller who sold the goods to the ’s friend or relative who
then let  use the goods.
4. Statements after sale: a seller sometimes makes statements about the quality of goods
after he has consummated the sale. In this situation, it is hard to say that the post-sale
representation is “part of the basis of the bargain,” since the deal has already been made.
5. Puffing: §2-313(2). A seller can be held to have made an express warranty even
though he never uses the word warranty, but if he is merely, “puffing” or clearly
expressing an opinion, he will not be held to have made a warranty.
6. Descriptions: A description of goods can be an express warranty. §2-313(1)(b)
provides that “Any description of the goods which is made part of the basis of the bargain
creates an express warranty that the goods shall conform to the description.”
i.
Ex: Royal Business Machines v. Lorraine. Reverses judgement for
Lorraine, awarding them compensatory and punitive damages against
Royal. The court says the seller statements about having the “highest
quality” copiers was just “puffing.” It says that statements made about
replacement parts and maitnenence didn’t relate to the goods (taking a
narrow view of what constitutes goods); that these aren’t “statements”
about the goods as covered by the code. These were promises (future) not
warranties (present).
7. Sample or model: §2-313(1)(c) states that “Any sample or model which is made part
of the basis of the bargain creates an express warranty that the whole of the goods shall
conform to the sample or model.
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C)
Implied Warranty of Merchantibility
1. Generally: Imposed by UCC §2-314, is the most important warranty in the code.
i.
§2-314(1): “Unless excluded or modified…, warranty that goods shall be
merchantable is implied in a contract for their sale if the seller is a
merchant with respect to goods of that kind. Under this section the
serving for value of food or drink to be consumed either on the premises
or elsewhere is a sale.”
ii.
Ex: Step-Saver v. Wyse.  says that  breached the implied warranty of
merchantability. Court seems to believe that it would be reasonable to
believe that the terminals work well with most programs not just the
configuration here. Court says that this terminal must be at least as good
as any terminal, not necessarily the highest quality that one could buy.
2. Meaning of “merchantable”: All definitions of “merchantable” are somewhat vague.
§2-314(2) lists 6 criteria which goods must meet in order to be merchantable. Probably
the most important of these is §2-314(2)(c) by which goods must be “fit for the ordinary
purposes for which such goods are used.”
D)
Warranty of fitness for a particular purpose
1. Warranty of fitness generally: The last of the UCC warranties relating to the quality
of goods is the warranty of fitness for a particular purpose.
i.
This warranty is imposed by §2-315, which provides that “Where the
seller at the time of contracting has reason to know any particular purpose
for which the goods are required and that the buyer is relying on the
seller’s judgment to select or furnish suitable goods, there is…an implied
warranty that the goods shall be fit for such purpose.”
2. Conditions: The buyer must therefore prove 3 things if he is to recover for breach
here:
i.
that the seller had reason to know the buyer’s purpose.
ii.
that the seller had reason to know that the buyer was relying on the seller’s
skill or judgement to furnish suitable goods;
iii.
that the buyer did in fact rely on the seller’s skill or judgment.
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E)
Disclaimers of Warranty
1. Generally: The seller of goods will often attempt to escape warranty liability which
he might otherwise incur, by disclaiming it. He is particularly likely to attempt to
disclaim the implied warranty of merchantability, since that warranty is perhaps the most
pervasive, and the one whose making he can least control. Code drafters have provided a
number of limitations.
i.
Without consumer protection, §2-316 doesn’t have to be read as shielding
consumers. Ex: Morris v. Mack’s Used Cars. “Dislciamers permitted by
[§2-316] of the Uniform Commerical Code (UCC) may limit or modify
liability otherwise imposed by the code, but such disclaimers do not defeat
separate causes of action for unfair or deceptive acts or practices under the
Consumer Protection Act…”
2. Disclaimers of express warranty: If the scope of the disclaimer is clear, and the scope
of the alleged express warranty is not as clear, the court should construe the warranty
narrowly, so that it will not conflict with this disclaimer. But if there is no reasonable
way to construe the two as consistent with each other, the disclaimer is ineffective
(provided that proof of the warranty does not run afoul of the parole evidence rule).
3. Disclaimer of implied warranty: The two important implied warranties given by the
Code (the warranty of merchantability and the warranty of fitness for a particular
purpose) may be disclaimed or eliminated in several ways.
i.
Explicit disclaimers: if the seller wishes to make an explicit disclaimer of
implied warranties, he must follow the very specific rules from §2-316(2).
A disclaimer of merchantability must mention the word merchantability
and it must be conspicuous. A disclaimer of fitness for a particular
purpose must be in writing and must also be conspicuous.
Ex: Schneider v. Miller.  test drives car and is ready to buy it.  tells
him that the trunk is rusted and the brakes need to be replaced.  writes to
 shortly afterwards asking for the sales price back because the bottom is
rusted out and the car is a “death trap.” Says he couldn’t have known
about this problem and that it impairs the use of the car for him. However,
the car was used, and was sold “as is” with no warranty. The bill of sale
was an intergration clause and so waived any implied warranty.
ii.
Implied limitations: (also under §2-316) implied warranties may be
impliedly limited or excluded through the language of sale, examination of
a sample or model (seller must demand an inspection before buyer will be
considered to have waived this), or course of dealing (usage of trade).
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4. Disclaimer after deal is closed: A seller may sometimes try to disclaim warranties
after the deal has been closed. In this situation, most courts hold that the post-contract
disclaimer is not effective.
CHAPTER 14:
BREACH
I.
Prospective Nonperformance
A)
Total v. partial breach
1. Total breach: when a party who owes a present duty under a contract fails to perform
that duty, he has, of course, breached the contract. If this breach is relatively severe, it
will have the effect of suspending or discharging the other party’s obligation to perform
under the contract. A total breach also has the effect of allowing the wronged party to
sue immediately for damages based on the entire contract. Usually, these damages will
be such as would put the wronged party in the position he would have been in had the
contract been completed.
2. Partial breach: If the breach is not material, it does not relieve the aggrieved party
from continuing to perform under the contract. Such a non-material breach is sometimes
called a “partial” breach. Although the aggrieved party is not relieved from performing
after a partial breach, he nonetheless has an immediate right to sue for damages stemming
from the partial breach.
i.
B)
Ex: Owen, the owner of Blackacre, contracts with Contractor for the later
to build a house on Blackacre. The contract provides that Owen is to
make a progress payment every week for the previous week’s work. Both
parties perform as required during the first month of the contract. After
the 5th week, however, Owen is three days late with the progress payment
for that week. Assuming that this breach is not a material one, Contractor
is not discharged from the contract. She may, however, immediately sue
for whatever damages she sustained as a result of the partial breach by
Owen.
Anticipatory repudiation
1. Introduction: A party may make it umistakably clear, even before his performance
under a contract is due, that he does not intend to perform. When he does so, he is said to
have anticipatorily repudiated the contract. Such a repudiation allows the other party to
suspend, and perhaps to cancel, his own performance.
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2. Generally, an aggrieved party may institute a suit for breach even before the
repudaitor’s time for performance has arrived. Foundation of the modern doctrine of
anticipatory repudiation was laid out in the English case Hochster v. De La Tour.
i.
Ex: Hocshter v. De La Tour. Hochster involved a contract for services
made between an employer and his employee. The contract was executed
in April, 1852 and provided that the employment was to begin on June 1,
1852. On May 11, the mployer stated thathe would not perform the
contract. On May 22, the employee instituted an action for breach of
contract. The employer asserted that as of the day suit was commenced no
breach had yet occurred.
The court allowed that the action was not premature. The court’s
reasoning, universially critized today, was that if an immediate suit were
not allowed, the  would either have to cancel the contract, giving up all
his rights under it, or else ignore the repudiation completely, holding
himself in readiness to perform until June 1(and therefore not procuring
another job). For some reason, the court did not recogznie the possibility
that the  could suspend his own performance (treating the repudiation as
the non-occurrence of a constructive condition to the ’s duty of
performance), yet wait until an actual breach before suing. Had this
possibility been recognized by the court, th reasoning behind its allowance
of an immediate suit would have failed.
ii.
American view: US courts now all permit a  to suspend his own
performance after repudiation, but to wait until the time for the
repudiator’s performance before bringing suit. Nonetheless, the result in
Hochster is followed by most American courts, but for different reasons.
iii.
UCC §2-610: where there is anticipatory repudiation can wait a
commercially reasonable time. Code envisions that may have to mitigate
as soon as learn of repudiation, although common law says there are some
cases where appropriate to wait.
3. All American jurisdictions except the people’s republic of Massachusetts have
concurred with the result in Hoctster and allow the victim of an anticipatory repuidiation
to sue before the repuridator’s time for performance has arrived. The reasons for
following Hochster have little to do with the rationale there and more to do with:
i.
The need for prompt disposition: The courts have an interest in disposing
of the matter promptly while “memories are fresh and witnesses are
available.”
ii.
Need for certainty: The aggrieved party has an interest in having a
judicial determination as promptly as possible, as to whether there was
indeed an anticipatory repudiation. If there was not, there will still be time
35
to peform the contract. If there was, she can make susbstitute
arrangements. If she must wait until the time for performance before
suing, she will be left in a state of uncertainty as to whether the contract
has been legally repudiated.
4. What constitutes repudiation? Sometimes parties will make it perfectly clear that he
has no intention of performing the contract (eg, “I’ll give you you’re f*^%$ contract!”).
Such a statement would constitute anticipatory repudiation. But is often more
ambiguous:
i.
Traditional view: older cases often held that as long as the promisor left
any chance open that she would perform, there was no repudiation.
ii.
Modern view: Modern courts have generally held that a repudiation can
be less clear. Thus, repudiation could be “positive statements by the
obligor to the obligee which is reasonably interpreted by the obligee to
mean that the obligor will not or cannot perform his contractural duty.”
II.
Constructive Conditions and Material Breach
A)
Material breach
1. Use of constructive conditions in bilateral contracts: Constructive conditions are
conditions which are not agreed on by the parties, but which are supplied by the court for
fairness. The principal use of constructive conditions is in bilateral contracts.
i.
Each party’s performance conditional on other’s: Where each party makes
one or more promises to the other, each party’s substantial performance of
his promise is generally a constructive condition to the performance of any
subsequent duties by the other party.
2. First case to hold that, in a bilateral contract situation, one party’s performance was a
constructive condition to the other party’s subsequent duties was Kingston v. Preston:
i.
In Kingston,  had agreed to sell his business to , payment to be made in
installments out of the proceeds of the business.  promised to post a
security bond (guaranteeing payment of the installments if the business did
not generate enough proceeds) before the sale.  did not do so,  refused
to consummate the sale, and  sued for breach of contract.  contended
that ’s obligation to convey the business was indpenedent of ’s
obligation to post the bond, and that ’s remedy for ’s failure to post the
bond was n ot to refuse to sell, but to sue for breach. The court held that
the promises were not independent and that the giving of security by 
was a condition to ’s duty to convey the business. To compel the  to
turn over his business to , without the security for which he had explicitly
36
bargained, and to leave  only the remedy of an action for breach, by
which time the business might be hopelessly ruined and the buyer
judgment-proof would be “the greatest injustice.”
3. Strict compliance with express conditions is normally necessary.
B)
i.
However, courts frequently avoid applying the “strict compliance” rule
where a forfeiture would result. A “forfeiture” would occur when one
party has relied on the bargain (either by preparing to perform or by
actually making part performance) and insistence on strict compliance
with the condition would cause him to fail to receive the expected benefits
from the deal.
ii.
Defective performance: this will frequently be the case where one party’s
duty is made expressly conditional on the performance of some act by the
other, and the later’s performance, while deviating slightly from the terms
of the condition, nonetheless renders a benefit to the former. In this
situation, the court will often simply refuse to strictly enforce the
condition, and will hold that it is met by “substantial performance” of the
condition. Otherwise, extreme hardship to the party who has defectively
performed (forfeiture) will result. Ex: Jacob & Youngs v. Kent (case with
wrong kind of pipe).
Material Breach
1. Factors determining whether a breach is material: there are a number of factors which
must be considered in determining whether a particular breach is material or not. The
overall principle is that the more the breach defeats the entire purpose of the contract, and
the expectations of the non-breaching party, the more likely it is to be considered
material. Second restatement says the following are important:
2. Deprivation of expected benefit: the extent to which the non-breaching party is
deprived of the benefit which she reasonably expected from the contract is a crucial
factor. In determining how greatly the non-breaching party has been injured, the
“essence” of the contract (ie, the principal reason for which the parties made the contract)
must be examined.
3. Adequacy of compensation for loss: the extent to which the non-breaching party may
be adequately compensated for his loss by the awarding of damages is another important
factor. The question usually relates to whether damages may be adequaltey calculated; if
calculation of damages at the time of breach is impossible because the injury is too
speculative, a court will be less willing to find that there was been substantial
performance (and will thus let the non-breaching party be discharged from his
obligation).
37
4. Part performance: The greater the part of the performance which has been rendered
by the breaching party, the less lilely it is that a breach will be deemed material.
i.
Rationale: The more a breaching party has done on a contract, the greater
will be the resultant forfetireu if recovery is denied because she has
materially breached.
ii.
Breach at the outset: A breach which occurs at the very beginning of the
contract is highly likely to be deemed material, even though relatively
trivial. This is because the breaching aprty will suffer no forfetirue in such
situation.
iii.
UCC §2-609: Right to adequate assurance. May suspend performance
until receive due assurance. Doesn’t follow common law; broadens idea
of anticipatory breach (if items being specially made and buyer supposed
to prepay but doesn’t).
III.
Cost of completion v. dimunition in value: the expectation interest revisited.
A)
Generally:
1. The general principal in awarding expectation damages is that the  should be put in
the same position he would have been in had the contract been performed. This formula
leads to difficulty in those situations where the difference between the economic value of
a complete performance under the contract and the value of the ’s defective
performance is less than the cost of remedying ’s defective performance. In such a
case, should the  be awarded the net economic loss he has sustained by virtue of the ’s
breach (the lesser sum) or the cost of remedying ’s defective performance (the greater
sum)?
i.
Ex: Peevyhouse v. Garland Coal & Mining Co. ’s own a farm
containing coal deposits. They lease the premises to  for a 5 year term
for the purpose of allowing  to strip-mine on the property. Because of
the unsightliness of a strip-mining operation, ’s insist that the lease
contain a clause requiring  to perform various work to restore the beauty
of the property at the end of the lease term. ’s are unwilling to sign th
lease without these terms, and they are included. At the end of the lease, 
fails to perform this restoration work. Evidence shows that it would cost 
about $29,000 to perform thw work, ebasue of the great qunaitites of dirt
which would have to be moved. However, the value of the farm is only
about $300 less than it would have been had s performed this work. In
fact, the total value of the farm is less than $5,000. In the ’s suit for
damages for breach, should they be awarded $300 or $29,000. The court
holds that only the diminuition in value, $300, should be awarded. The
38
court advanced two reasons: (1) the provision of the contract requiring the
remedial work was only incidental to the main purpose of the contract; (2)
the economic benefit which the ’s would receive from full performance
of the work was grossly disproportionate to the cost of performing the
work. Thus “economic waste” would be involved.
ii.
windfall arguments: in Peevyhouse,  will take $60,000, abdandon land
and buy replacement land.
2. “Clearly disproportionate” standard: Most modern courts would probably agree with
the Peevyhouse court’s approach. 2nd Restatement provides that the court should not
grant the cost of remedying defects “if the cost is…clearly disproportionate to the
probable loss in value” to the .
3. Economic waste: A court is particularly unlikely to award the cost of completion
where the defect is minor and its completion would involve what is sometimes called
“economic waste.” This is, for example, frequently the case in building contracts where
remedying the defect would require the destruction of what has already been done.
CHAPTER 16:
OBTAINING ASSENT BY IMPROPER MEANS
I.
Mispreresentation
A)
Generally
1. A claim of misrepresentation can be used either as a defense against enforcement in a
suit brought by the misrepresenting party, or as grounds for recision or damage by the
misrepresented-to party suing as . The contract law of misrepresentation is somewhat
similar to misrepresentation in tort law.
B)
Elements of proof required
1. Generally: In order to rely on misrepresentation for purposes of rescinding a contract,
defending against a claim of breach of contract, or suing for breach, the following
elements of proof are generally required:
2. Other party’s state of mind: It is not usually necessary to prove that the
misrepresentation was intentionally made; a negligent or even innocent misrepresentation
is generally sufficient to avoid the contract if it goes to a material fact.
i.
Ex: Halpert v. Rosenthal.  is going to sell to  a house, told  no termite
problem and don’t need to inspect. Just before closing  finds that there
are termitnes.  has to find an alternate buyer and sell house for less than
was agreed with , sues  for that amount. Court draws distinction
39
between innocent and fraudulent misrepesentation, doesn’t have to be
fraudulent, enough that it’s false (could have also been litigated as a
warranty case).
3. Justifiable reliance: the party asserting misrepresentation must show that he
justifiably relied on the misstatement. This requires him to show not only that he in fact
relied, but also that his reliance was justifiable.
4. Must be misrepresentation of fact: The misrepresentation must be one of fact, rather
than of opinion.
i.
C)
Exception shown by Vokes v. Arthur Murray.  had right to rely on the
representations of opinion made by . It was a lie when made (even if it is
subjective). Listener is in a position of special trust and confidence with
the speaker.
Concealment and nondisclosure:
1. Generally: Most misrepresentations are affirmative statements. If, however, a party
has simply failed to disclose information, it has traditionally been much harder to make a
case for misrepresentation.
2. More liberal present rule: Today, courts are substantially more willing to allow a
recovery based on a failure to give information. While it is still true that in a barganin
gsituation, there is no general duty to disclose information ot the other party, thereare a
number of special situations in which this rule does not prevail.
II.
Duress
A)
Generally
1. The defense of duress is avalible if the  can show that he was unfairly coerced into
entering into the contract, or into modifying it. It is much more broadly avalible today
than propr to this century, when it could be used only if a party’s person or property was
put in actual danger. Today the essential rule is that duress consists of “any wrongful act
or threat which overcomes the free will of a party.”
2. Subjective standard: used to determine whether the party’s free will has been
overcome. That is, regardless of whether the will of a person of “ordinary firmness”
would have been overborne, if the party can show that he was unusually timid, and was in
fact coerced, he may use the defense. But the fact that the hypothetical “person of
ordinary firmness” would, or would not have been overborne has evidentiary value in
ascertaining whether the party’s own decision was coerced.
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B)
i.
Ex: Silsbee v. Webber. ’s son accused by  of stealing.  threatens to
tell husband, so  agrees to sign over rights to some security on property
she was going to inhereit. Holmes says there is enough here to make the
issue of duress one for the jury. Ex: speaking words designed to drive
someone insane could be duress.
ii.
Restatement §175: subjective test. No reference to subjective test as
appropriate (Silsbee seems to be looking for a more objective test).
Ways of committing duress
1. Facts which constitute duress seem to fall mostly into 4 categories:
i.
violence or threats of it
ii.
imprisonment or threats of it
iii.
wrongful taking or keeping of a party’s property.
Ex: Hackley v. Headly.  cuts logs for .  supposed to pay $6,000 and
refuses.  signs recipt of note for $4,000.  sues, says he was under
duress ( wants to weigh on a different scale). Duress was to ’s financial
position (said couldn’t afford not to get paid).
iv.
Threats to breach a contract or to commit other wrongful acts (eg threats
to excericse legal rights in oppressive ways)
2. General rule: one general principal is that if one party threatens another with a certain
act, it is irrelevant that he would have the legal right to perform that act, if the threat, or
the ensuing bargain are abusive or oppressive.
3. Threat to breach contract: Prehaps the most frequently alleged form of duress in
contract lititigation occurs where one party threatens to breach the contract unless it is
modified in his favor or a new one drawn up. The modern rule seems to be that there will
be duress in this situation if the threatened breach would, if it were carried out, result in
irreparable injury that could not have been avoided b a lawsuit or other means, and the
threat is made in “breach of the duty of good faith and fair dealing.”
III.
Unconscionability
A)
Weapons against unfair contracts
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A party is normally bound to the terms of a contract which he signs. The parol evidence
rule, discussed in a previous chapter, is one indication of court’s unwillingness to tamper
with the terms of a writing. But if the provisions of a contract are so grossly unfair as to
shock the conscience of the court, the judge may decline to enforce the offending terms,
or the entire contract. The two principal tools at his disposal for doing this are the special
rules on adhesion contracts, and the related doctrine of unsconscionability.
B)
Definition
1. Absence of meaningful choice: code talks about a bargain being so “one-sides” as to
be unconscionable.
2. Unreasonable terms: how one sided is the bargain?
i.
Concerns facts, not law.
3. UCC: puts this in the hands of a judge (making rules for courts on what they want
juries to be able to rely on).
i.
§2-302(1) provides that “If the court, as a matter of law finds the contract
or any clause of the contract to have been unsconscionable at the time it
was made, the court may refuse to enforce the contract, or it may enforce
the remainder of the contract without the unconscionable clause, or it may
limit the application of any unconscionable clause so as to avoid any
unsoncscionable result.”
ii.
several options: 1) refuse to enforce k, 2) enforce k without the
unconscionable clause. Or 3) limit application of unconscionable clause.
iii.
parties should be able to present evidence
CHAPTER 17:
FALIURE OF A BASIC ASSUMPTION
I.
Mistakes of present existing facts
A)
Mutual mistake
1. Modern approach as embodied in the restatement: imposes three requirements which
must be satisfied before the adversely-affected party may avoid the contract on account
of mutual mistake:
i.
Basic assumption: the mistake must concern a basic assumption on which
the contract was made.
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B)
ii.
Material effect: the mistake must have a material effect on the “agreed
exchange of performances”; and
iii.
Risk of mistake: The adversely-affected party (the one seeking avoidance)
must not bear the risk of the mistake.
Meaning of “basic assumption”
1. The requirement that the mistake be as to a “basic assumption” on which the contract
is founded is not simple to apply. The problem lies with the inescapable vaugness of the
word basic.
2. General test: In determining whether an assumption is “basic” to the underlying
bargain, a good method has been suggested: “One must search the facts for unexpected
unbargained-for gain on the one hand and unexpected, unbargained-for loss on the other.”
3. Market conditions and financial ability: 2nd Restatement mention two types of
assumptions which will generally not be “basic” ones: mistakes as to market conditions
and ones concerning financial ability.
4. Existance of subject matter: the existence of the subject matter of the contract will
usually be a “basic” assumption. For instance, in a contract to sell land whose value
depends mostly on how much timber is on it, a mistaken belief by both parties that the
land is covered with timber will be grounds for the buyer to avoid the contract, if it turns
out that at the time of the contract the timber had already been destroyed by fire.
5. Quality of subject matter: a major mistake as to the quality of the contract’s subjet
matter is often viewed as a mistake on a “basic assumption,” allowing the disadvantaged
party to avoid the contract.
i.
Ex: Sherwood v. Walker. Seller agrees to sell Buyer a cow which both
parties believe to be barren. The contract price is approximately $80.
Prior to delivery of the cow, Seller realizes that she is pregnant, and
refuses to deliver her. Her value as a breeding cow is at least $750. Court
holds that seller may rescind the contract. A party may void a contract if
“the thing actually delivered or received is different in substance from the
thing bargained for, and intended to be sold…” Here, the mistake went
“to the very nature of the thing. A barren cow is substantially a different
creature than a breeding one.”
II.
Changed circumstances
A)
Impossibility
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1. If performance b a party has been literally made impossible by the occurrence of
unexpected events, then the contract may be discharged. Common situations where a
party’s performance is rendred impossible include:
i.
destruction or unavailability of the subject matter of the contract;
ii.
death or incapacitating illness of a party;
iii.
supeverneing illegality (where a contract is legal when entered into, but a
subsequent change in the law renders its performance illegal).
2. UCC re: delivery of goods: §2-615(a) says that unless otherwise agreed, “delay in
delivery or non-delivery…is not abreach of seller’s duty under a contract for sale if
performance as agreed has been made impracticable by the occurrence of a contingency
the non-occurrence of which was a basic assumption on which the contract was made…”
This test is a non-mechanical one, and is designed to allow the court to “allocate the risk”
between the parties, based on what it thinks the parties would have done if they had
thought about the question.
B)
Impracticability
1. If performance by a party has been made highly impractical by the occurrence of
unexpected events, then the contract may be discharged.
2. UCC in accord with modern view: The UCC is in accord with the modern view that
extreme impracticability will excuse performance, at least on the seller’s part. §2-615(a)
provides that the seller’s non-delivery or a delay in delivery is excused “if performance as
agreed has been made impracticable by the occurrence of a continency the nonoccurrence of which was a basic assumption on which the contract was made.”
C)
Frustration of purpose
When unexpected events compelte or almost compeltey destroy a party’s purpose in
entering into the contract, the parties may be excused from performing.
D)
Remedies
When a contract has been discharged because of one of the above reasons, most courts
allow parties to recover in quasi-contract. The measure of damages will be either
restitution damages (the value of the benefit conferred by the  or the ) or reliance
damages (expenditures the  made in partly performing or preparing to perform).
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