Negligence v. Contract Negligence: reasonable person standard, rationale is to avoid injury, backward looking, reliance Contract: judge the understanding of formation (how would reasonable person interpret), rationale is to promote Ks, forward looking, expectancy Hawkins v. McGee Defendant Arguments: 1) there was no K, therefore no breach a. I did not intend to make a K b. No reasonable person could impute K from language i. Repeated solicitation to make a deal ii. Experimental procedure – so he offered inducement iii. Trying to claim he has more experience than he has iv. Makes a 100% guarantee Court: all of the above evidence – reasonable person would accept as K – enough for case to go to the jury Takeaways: 1) Final K is determined as what a reasonable person would understand the terms as they were objectively manifested a. prevent harm from reliance on “promises” b. Facilitate commerce, prevent disputes by clarity and reduce accidental Ks c. Prevent injury because mental reservations are eliminated via clarity – contractee will not detrimentally rely on promise i. But don’t want clarity standard too high d. Reduce lawsuits e. Could never have an enforceable K with subjective intent 3 versions of K P: 100% good hand, 3‐4 days in hospital, some pain and suffering D: best job possible, as much hospitalization as needed, as much pain and suffering as needed Ct: 100% good hand, as much hospitalization/pain and suffering as needed Ct doesn’t give exactly what either party wanted 2) Court will give expectancy – difference between 100% good hand and resulting hand a. No legal relevance that K was impossible to perform b. No money for pain and suffering – forward looking c. Want to promote wealth enhancing transactions d. If you don’t get your K, your loss or “injury” is not getting your gain Reliance – status quo ante for aggrieved – damages for injury Restitution – must disgorge ill‐gotten gain – not about injury but benefit conferred Expectancy – not good for losing Ks Restatement 347 (expectancy) Damages are loss in value to him of other’s performance + any other loss, including incidental or consequential loss caused by breach – any cost or loss that he has avoided Sullivan v. O’Connor Issue: in a K for medical services, can a plaintiff recover remedy beyond expectation? SC: NO, concerned about high dollar damages plastic surgery on nose, 2 surgeries promised to enhance beauty, ended up taking 3 surgeries and disfigurement of the nose Original Judge instruction: find damages “flowing directly naturally and proximately and foreseeably from breach + 3rd surgery” ‐defendant objected to damages instructions – goes beyond Hawkins – too hard to measure expectancy – psychological damage can be expected in medical cases Problem: hard to quantify expectancy Judge Kaplan – doesn’t like contracts for medical procedures – really likes them for business, best benefit to people who do a lot, encourages multiple transactions ‐Although it is difficult to put value on 100% good hand, must put $ value or else K would be worthless Solution: submit to jury then force them into a consensus conclusion Nurse v. Barnes Issue: Can damages be higher than restitution interest? SC: Yes How to understand the verdict affirmation? Expectancy? Reliance? Whatever jury decides? PAGE 71 Restitution – get back cost of goods you gave to buyer Reliance – get back amount of expenditures you made in complying with K Expectancy – get value of bargain – costs avoided Hooker v. J.O. Roberts Issue 1: Does UCC apply to construction K for goods AND services? Ct: NO, Court says decision must be based on nature of the dispute – in this case sale was for K of services, thus no UCC Examples: K for carpeting in large apt. complex was K for sale rather than installation, K between contractor and subcontractor for cement for apt. complex was K for services Issue 2: Can Plaintiff collect damages for value of storage space that imposed no costs on Plaintiff? Ct: No – (because of the way plaintiff presented his calculation of expectancy) Judge viewed as double counting – must be a cost you would not have otherwise born 2 ways to calculate expectancy: 1) Profit + costs expended (calculated as expenses + % of expenses) in this case the expenses would have to be a cost not otherwise born 2) K price – costs avoided – costs not expended (this would have probably led to more money for P) Issue 3: Can managerial oversight be counted as a recoverable cost? Ct: Yes, distinguished from storage space because manager could have spent time making money on different contracts, holding IS consistent with storage holding just different Issue 4: Should lost profits be included in expectancy and how should they be calculated? Not day‐to‐day, must look at whole K – aggrieved gets benefit of bargain, legally entitled to profit once K is made Barnett Reader 3‐45 Fuller and Purdue ‐tend to limit reward – would tend to go for smaller, lost profits ‐ALSO focused on injury – what did the aggrieved party lose? ‐don’t put them in a better position Kelly ‐opportunity cost – expectancy ‐reliance as by Fuller & Perdue – doesn’t fit in practice ‐reliance favors the breaching party – more likely to undercompensate aggrieved party Craswell ‐looks at economic incentives – need incentives to promote performance ‐distribution of risks – find out where insurance or risk‐aversion is‐ may affect entry into Ks – if you overcompensate you may turn Ks into insurance UCC 1‐103 ‐Common law on contracts that is not displaced by UCC still applies 2‐102 – only applies to transactions in goods 2‐105 – definitions of goods 2‐106 – UCC limited to present and future sales of goods Tongish v. Thomas Seller agreed to sell seeds to buyer at a set price ‐ mkt price of seeds dramatically increased, seller breached and sold to someone else for the higher price ‐buyer had another K to resell the seeds at cost‐55cts/hundredweight – so profit would have been fixed amount not dependent on mkt price Issue: In a broken K for sale of goods, when lost profit and K‐mkt differential are different, which one should court award? Ct: when divergence exists, go with K‐Mkt differential ‐ Policy rationale: Court doesn’t want to encourage breaches/no strategic actors OTHER COURT TOOLS ‐ Go to specific UCC vs. general UCC (specific=better legislative intent) ‐ Common law – conflict, only CA case ‐ Legal academics – divided Distinguishes Allied – that case involved no fault of breachor – raisin crop was destroyed Holmes would be troubled by Tongish – don’t introduce morality because there’s no injury Expectancy/Not expectancy? It is – ignored all other Ks and viewing this one in its own light – expectancy ex ante – measure the value of the option It is NOT – puts buyer in a better position than he would have been in UCC 2‐701 – Ks for services not impaired by UCC 2‐702 ‐ implied in EVERY K that buyer is solvent, buyer can reclaim goods if found insolvent 2‐703 – Seller’s remedies, 3 breaches – remedies outlined 2‐705 – Seller’s stoppage of delivery in transit ‐ when buyer can stop delivery insolvent ‐ can stop delivery of any goods other breaches can only stop truckload, carload, etc. ‐ seller must pay deliveror costs of rerouting 2‐706 ‐ Seller’s Resale ‐ MAY resell, public or private, notify the buyer of intention to resell, doesn’t have to find BEST resale price (in good faith and reasonable manner), 2‐708 ‐ Seller’s damages for non‐acceptance ‐ measure as K‐Mkt differential AT TIME OF DELIVERY + costs avoided/incidentals ‐ if this does not put him in as good a position under performance then damages are lost profits Reasoning: can’t know when buyer breaches, his only obligation is at time of tender 2‐709 ‐ If buyer doesn’t pay ‐ seller can get price of goods accepted OR price of goods identified in the K IF the goods cannot be resold at a reasonable price (perishable/unique goods/buyer already has all goods) 2‐710 ‐ Seller’s incidental damages 2‐711 ‐ Buyer’s remedies ‐ Can cancel (including cover and get damages), get the goods, get specific performance, if seller has goods but rejected he has security interest in the goods 2‐712 ‐ Buyer’s Cover ‐ commercially reasonable price/quality, recover K‐cover differential, NOT obligated to cover 2‐713 ‐ Buyer’s Damages ‐ (non‐delivery or repudiation) K‐Mkt differential when buyer learned of the breach, Mkt price is determined at place of tender Don’t want buyer to speculate on breach, also some protection to breaching parties 2‐714 ‐ Buyer’s damages (breach w/accepted goods) can recover damages for any non‐
conformity ‐ difference between fully conforming goods and actually goods at time of acceptance 2‐715 ‐ Buyer’s Consequential Damages ‐ Hadley rules + mitigation for consequentials, tacit agreement test is explicitly rejected Damages: Direct/Incidental/Consequential D –lost profits‐expenses Hooker: I – administrative costs to go somewhere else C – tied up capital/lost other Ks Hawkins: D – I – travel to or go to other Dr. C – lost profit from job they already had Hadley v. Baxendale Issue: Can consequential damages be awarded if they are neither foreseeable nor specially communicated? Ct: NO, must be foreseeable OR specially communicated Consistent with Hawkins? Yes – they address different legal issues No – Hawkins gives whatever it takes to put AP in as good a position as if K was fulfilled whereas Hadley’s consequential damages had to be foreseeable Why LIMIT Damages? ‐way too high a risk on side of breaching parties if unrestricted consequential damages ‐might limit K‐making ‐less wealth enhancing transactions Function of foreseeability/communication requirement ‐take away uncertainty ‐fewer breaches, lawsuits, injuries ‐can adjust price upward or performance efforts ‐buyer either buys insurance or seller raises price – one w/idiosyncratic risk pays Effects of Hadley ‐addresses Kaplan’s concern in Sullivan re: disproportionate K prices and potential benefits/damages and asymmetry of info ‐Hadley says stay within REASONABLE limits or communicate ‐limits Nurse v. Barnes – jury is limited ‐judge limits evidence which should be considered AND has ability to overturn verdict ‐changes definition of expectancy ‐introduces notion of limiting “local” juries who sympathize with consumer over companies ‐favors the knowledgeable contracting party SHIFTING DEFINITION OF CONTRACT Post‐Hawkins HOLMES – promise to perform or pay expectancy Post‐Hadley Perform or pay money equivalent of damages that are foreseen or communicated ‐ now allocating risk of imperfect info Hector Martinez v. Southern Pacific Issue: Can remedy for consequential damages include use (rental) value? Ct: Yes ‐D: use value is not foreseeable‐ Ct disagrees ‐D: they could have sold it – Ct: doesn’t have to be MOST foreseeable use Other Justifications Sullivan/Kaplan – look to nature of K ‐ commercial K – whole purpose is to use equipment! Tongish – worried about enough disincentive for breach ‐Holmes would disagree with this point Barnett Reader 187‐225 Justifications for Contract enforceability Morris Cohen ‐reviews six justifications, seems to like injurious reliance 1) sanctity of promise – lacks punch, too rigid 2) will theory – can’t look at mind, often no meeting of minds but still enforce 3) injurious reliance – instances where injury but no enforceability and vice‐versa – judging by what person would have gained=expectancy! 4) equivalent theory – common sense/fairness – that is up to parties not judges 5) formalism 6) distribution of risks – he disagrees with Holmes, some courts compel specific performance, court supplements Ks by distributing gains/losses Shiffrin Laws should reflect morality – presently they diverge ‐equivalent money damages are not moral ‐should be liable for ALL damages –not just foreseeable ‐morality does NOT impose mitigation obligations ‐should not recognize punitive damages Charles Fried Agrees in part with Shiffrin – AP should not have to pay legal costs ‐expectation IS moral except when unforeseen circumstances ‐disagrees on mitigation Aditi Bagachi ‐difference between private promise and K – legal relationship derives from separateness of interests Morrow v. First Nat’l Bank Man buys safety deposit box for valuable coins, bank doesn’t have them ready, man gets robbed and sues to get value of coins from bank – told bank the box was for coins Issue: When Plaintiff specially communicates consequential damages, can you have liability without tacit agreement by defendant? Ct: Yes, you need to have tacit agreement (express or implied) to take those risks – silence is assent to liability UCC 2‐715 – rejects tacit agreement requirement Why did ARKANSAS reject UCC requirement? ‐disproportionality – like in Tongish, Sullivan ‐would anyone have made a K like this?? ‐worried about agency problem Why have a tacit agreement requirement? ‐gives protection of reliance of aggrieved party ‐disregards agency problem – don’t give the out RESTATEMENT 351 (Hadley + a little Morrow) Limits damages to foreseeability like in Hector Martinez – gives judge lots of leeway to fashion award FURTHER limits juries ‐Plaintiff should now make sure risks are COMMUNICATED and NOT DISPROPORTIONATE Dempsey Issue 1: Can Plaintiff recover for lost profits that are unknowable or highly variable? Ct: No, you need more degree of accuracy Like J.O. Hooker – need accurate accounting Why require accurate lost profits? ‐worried about breaching party ‐could be overcompensating (could also be undercompensating) ‐don’t get to a jury on some evidence (like in Hawkins) – JUDGE has discretion – worried about uncertainty and jury bias in favor of victims, lack of expertise, limit litigat (no more big verdicts) ‐institutional worry ‐ don’t want courts disconnected from reality ‐judicial resources ‐ takes time/money to prove future profits Issue 2: Can Plaintiff recover attorney’s fees? Ct: No, you pay your own costs ‐benefits breachor – less costs, less likely to sue ‐benefits plaintiff – don’t have risk of getting costs of getting rich defendant’s atty fees EXCEPTION: if it is provided in K Issue 3: Can Plaintiff recover reliance expenses before/after signing K? Ct: only recover reliance expenses AFTER K – would put them in better position than if K had never been formed Anglia v. Reed Issue: Can aggrieved party recover expenses made pursuant to K made BEFORE K was signed in addition to after‐K expenses? Ct: YES, can do pre‐K expenses Notes: not consistent with Dempsey, no mitigation possible because not enough time Reasoning: 1) Because Reed is interchangeable, he prevents company from finding replacement – pre‐
K expenses are injury because they could have found replacement 2) Reed should have known that pre‐K expenses would be wasted if he breached – don’t mind charging party – like Hadley (helps that Anglia did not ask for lost profits) 3) Reed destroyed value by breaching K –many Ks which the show depended on – Ct is less sympathetic because very interconnected whereas Dempsey would have wasted all pre‐
K expenses regardless RESTATEMENT 346 – availability of damages – if no amount is lost or amount is not proved (certainty) small fixed sum for damages RESTATEMENT 349 – reliance damages As ALTERNATIVE to expectancy (R347) Can get reliance (including pre‐K expenditures) – any loss the breaching party can prove plaintiff would have suffered RESTATEMENT 352 – damages will only be awarded when established with reasonable certainty Mistletoe Issue: In a losing K, can you limit recovery to lost profits OR can aggrieved party recover expenses in addition to lost profits? We don’t know if K is a losing K ‐when profits are uncertain, whoever wants benefits of lost profits must show certainty Dempsey – uncertainty = lower recovery (used by defendant) Anglia – uncertainty = reliance leads to higher recovery (used by plaintiff) 1) She would have full term of K to recoup costs so we are trying to give her the benefit by presuming a breakeven – Ct CALLS this expectancy 2) Unsure of how much $ she would make so she goes for her expenses Rule: injured parties get to choose their remedies (either expectancy or reliance) ‐not inconsistent with Hawkins – never tested, plaintiff couldn’t have chosen reliance ‐might lead to plaintiff being in better position than if K had been formed Barnett Reader 47‐70 Posner Efficient breach – in order to work, seller would need to know profit of buyer from their K, need to know buyer’s expenses Theory: goods moved to parties that value them more – make everyone better off Supported by: Expectancy – Hawkins shifts EB parameters Hadley – gives party info to make good EB decision Dempsey – gives party info of measure of damages to make EB decision Problems: Every undercompensation of buyer pushes to make him worse off ‐Friedman – why shouldn’t buyer 1 get benefit of potential sale to buyer 2 – STILL gets goods to their best use Just a question of where surplus goes – in this case it is to strategic actor/maybe with more info At time of K – does B have equivalent to property right? So that the right to redistribute the goods should be B1’s? (would not like Tongish – don’t want to disincentivize EBs) Winston Bad faith on part of breachor doesn’t justify awarded uncertain profits (very Posnerian) Luten Bridge Issue: Can aggrieved party recover for damages incurred after they’ve learned of the breach? Ct: No, once you learn of breach, you AP has duty to stop expenses OR expend at your own risk RULE: not able to collect damages after you’ve learned of breach ‐new risk like speculative profits‐Dempsey/unforeseeable circumstances‐Hadley ‐risk of not knowing the rule – or knowing when a breach occurred BUT ‐ AP will be undercompensated for NONTANGIBLE benefits of K (reputation, experience) Justification: RULE OF WASTE ‐waste violates fundamental tenet of Ks – ‐puts vigilance on aggrieved party‐ limit on Hadley ‐UCC – cover rule – esp for interconnected Ks – don’t want to shut the whole operation down Clark v. Marsiglia (discussed in Luten Bridge) Man paid painter but breached in mid‐contract, painter completed all works Def: by giving him full profit you would be putting him in a better position than he would be in if he had to do all the labor to fulfill K If the K is for 100, expenses 1 ‐ should he still get 99 for profit if he is saving his labor?? ‐counter: he doesn’t WANT leisure time, hard to value leisure time, it was forced leisure Shirley McLaine Issue: If new offer is different or inferior, does the Plaintiff have obligation to accept? Ct: NO, mitigation obligation exists only if substitute is the same In favor of mitigation here ‐waste ‐possible overcompensation of Plaintiff ‐didn’t decrease award by “expenses”/labor saved ‐gave her expectancy + leisure time ‐maybe though undercompensation (no chance for Oscar, career advancement) ‐note that BOTH Oscar possibility and leisure very uncertain Against mitigation here ‐changing terms of K ‐ do this movie or whatever court says is similar ENOUGH COVER RULE: must be basically similar, not different or inferior Seller‐ obligated to resell Buyer‐ COULD cover, could still get K‐Mkt differential at time of breach ‐might not have enough cash to cover if price goes up ‐want to avoid waste if market collapses BUT, must cover for consequentials! ‐ want to keep goods/services moving Neri Issue: Can aggrieved party recover profits from a breach if they have sold the item later? Ct: Yes, in case of fungible goods‐special profit circumstances Buyer put down payment on boat, breached, company kept down payment and later sold the boat for full price, buyer sued for restitution of down pmt Fungible goods make the difference ‐ 3 buyers and 5 boats ‐ breach is costing a sale to one of the buyers and decreasing your profits ‐ to be made whole, you are entitled to profits ‐ central economic concern is ratio of buyers: goods JUSTIFICATION/Codification 2‐708 ‐court doesn’t like a “free breach” when K‐Mkt gives nothing (Hector Martinez) ‐get profit if K‐Mkt doesn’t put you in as good a position Kemble v. Farren Issue: Can liquidated damages be awarded when they are not for a specific breach? Ct: No 1) liquidated damages have to be for damages that are hard to calculate (like Dempsey) 2) LDs can’t be disproportionate, in this case $1000 for ANY minor breach ‐ even though the breach here was major (actor quit) Why enforce LDs? ‐limits uncertainty ‐ up front damages that can be reflected in pricing ‐will of the parties ‐up front sharing of info ‐easier to enforce/less litigation ‐signal credibility of parties ‐way to collect for non‐legally compensable damages (McLaine’s Oscar) RESTATEMENT 172 ‐ Liquidated Damages ‐ basically same as Kemble/bonds are LDs too ‐ substance over form 2‐718 ‐ Liquidated Damages, limits keeping of deposits Why Limit LDs? ‐systemic risk that a party might agree to bad LDs at time of K ‐court retains discretion to make moral considerations (Allied) ‐Posner ‐ built in test forces them to be compensatoy/not punitive ‐ encourages EBs ‐Ks are expectancy ‐ courts want to keep it this way, K‐ing for remedy is controlling Ks Loveless Issue: money damages vs. specific performance for sale of land K Rule: in sale of land, remedy is specific performance ‐ always a unique good ‐avoid risk of undercompensation ‐the land is the expectancy Cumbest Issue: Based on the facts, is a stereo system a unique item? Ct: Yes, therefore give specific performance RULE: If breach of K for sale of unique item, award specific performance Scholl Issue: Can one use replevin to essentially achieve specifc performance? Ct: No, form over substance (like bond as liquidated damages/Restatement 356) Decides corvette is not unique enough, buyer fails to show inability to cover Sedmak v. Charlie’s Chevrolet Specialty corvette ‐ not unique in the traditional sense of an heirloom but unique by difficulty to cover Issue: What is the specific performance standard for breaches involving non‐unique goods? RULE: Consider difficulty in effecting cover UCC 2‐716 ‐ Specific Performance for unique goods, limited buyer’s right of replevin, “other circumstances” for spec perf including output Ks **Notes on Arbitration** Mary Clark Issue: Can you get specific performance for service Ks? Ct: 1) Notes that Clark is capable of making a K (racial issue) 2) Indenture Ks ARE legally enforceable ‐ she will be held liable for money damages RULE: service Ks are never going to be specifically enforced Rationales ‐to enforce would be degrading ‐don’t want to entangle courts in ongoing disputation ‐if she is forced she will perform substandard ‐save AP time and money in “watching” performance NOTE: apprentices can still be subject to spec perf to masters ‐ acting under authority of parent Barnett Reader 93‐102 Posner ‐ does not like spec perf ‐ this prevents efficient breaches, wants breachor to be able to pay their way out of spec perf, also is too expensive for courts to determine/administer Schwartz ‐likes spec perf ‐ it’s the perfect compensation 1) Damages are usually undercompensatory 2) If Plaintiff requests spec perf, implies that regular damages are undercompensatory 3) Promise possesses better info than the courts ‐responds to Posner: there are also costs to buyer to collect damages ‐only case for SP is FUNGIBLE goods ‐ no liberty interest in question Arguments against Specific Performance ‐circular Holmes arg ‐Ks=remedies courts give, only works if everyone knows the rules ‐want to encourage specific breaches ‐just changes who gets the surplus, goods still go to highest use ‐Friedman ‐ B1 has “property” right in goods he was promised ‐liberty issue ‐can’t ensure quality of specific performance ‐costly for courts to administer Lumley v. Wagner Issue: Can court enforce an injunction against breaching party? Ct: YES, because there was a negative stipulation in the K distinct from Mary Clark ‐ not asking for spec perf, not degrading, etc., stipulation in K, not as big of an issue with enforcement Joanna Wagner Arguments (breaching opera performer) ‐allowing plaintiff to do indirectly what she can’t do directly (Scholl/form over substance) ‐preventing her from earning a living ‐Counter: not restricting ALL activity ‐deadweight loss ‐ she could be providing value to somebody ‐too much leverage on part of theaters RULE: Can only get negative injunction if you stipulate it in the K Ford v. Jermon Issue: SAME AS LUMLEY Ct: Will not enforce negative injunction, doesn’t feel it overcomes the liberty issue ‐ form over substance, this negative injunction is “mitigated form of slavery” Duff v. Russell Issue: Can court enforce negative injunction if it is only implied in the terms of K” Ct: YES, form over substance, substance of K entails she not perform anywhere else Bush v. Canfield Issue: In a losing K for goods, can plaintiff recover restitution? Ct: YES, allows losing‐K plaintiff to recover full resititution Buying flour in New Orleans, the price dropped dramatically, plaintiff paid D $5000 in advance ‐plaintiff’s expectancy would have been to lose $3000 on the whole K ‐defendant argues that he should only have to pay $2000 to put buyer in as good a position ‐Ct argues that defendant should not be able to profit off a K he breached Why Allow Restitution?‐defendant was asking for expectancy here Compared to Tongish ‐similar ‐ 2 different ways considered to calculate remedy ‐not similar ‐ outcome did not depend on good faith of breaching party, court not deciding remedy in a way to discourage breaches, plaintiff decided Compared to UCC ‐similar ‐ court makes the defendant bear the loss, Plaintiff is one who decides which remedy ‐not similar ‐ waste is bad, probably would have supported ruling for breachor POSNER ‐ probably would have ruled other way, efficient breaches NOTE: When seller breaches, Mkt price is measured when plaintiff learns of repudiation Britton Issue: If you are breaching party in a labor K, can you recover for price of labor already done? Ct: YES Man works for 9 ½ months of 1‐year K but does not finish, claims he is entitled to $100 even though this is not strictly time proportional ‐ maybe he did toughest part of work schedule ‐RULE: not strictly measured by K price ‐Ct is worried ERs will have incentive to abuse EEs so that they’ll breach and the ERs will have gotten free labor ‐ like Tongish, don’t want to incentivize breaches ‐there was a tangible benefit conferred under K ‐ we don’t give benefits for free Similarities Kemble disproportionality argument not going to force a forfeiture for “small” breach ‐counter: Bush, if you want money just perform the K! Ct would rather have partial performance rather than EEs not entering Ks fearing non‐
cooperation ‐ Counter: this ruling encourages breaches RESTATEMENT 373 ‐ can get restitution based on reliance or partial performance, can only get benefit conferred (not new Mkt price) ‐ CANT get when the only thing left is payment of money Cotnam Issue: Will court infer K, if one party is unconscious or unable to consent? Ct: YES, law implies obligation on certain people even if they are unconscious, in necessary circumstances public policy argument ‐ want to incentivize doctors to perform emergency care, overrides patient’s possible objections ‐argue that patient didn’t get any value cuz he died‐ he did get chance at surviving Other Issue: How do you infer the price of the quasi‐K?? 1) What is usually charged? 2) What that dr. usually charges? a. Don’t want the dr. to have to figure out how much patient would pay ‐ disincentivize action 3) Reasonable standard payment ‐ YES ‐ not trying to be idiosyncratic, no incentive to big‐
money drs. To perform Martin v. Little Brown Man alerted company to plagiarism, wanted compensation Issue: Will the court imply a K when both parties could have negotiated? Ct: NO, not same as necessaries cases (Cotnam) *Asking for K implied in FACT, whereas Cotnam was asking for K implied in LAW Embry Man discusses future employment with boss, thinks boss has agreed to 1‐year K Issue: Is a K formed when a reasonable person would interpret actions as intention to form K? Ct: YES, like Hawkins, objective manifestations of subjective intent show desire to make K ‐makes Ks much more reliable ‐want people to bring info to the table ‐prevents waste ‐ other party pursues other K ‐less litigation, cheaper litigation ‐prevents there always being a way out of Ks Lucy v. Zehmer Issue: If one party intends a joke and the other party believes it is a K, can a court find a K? Ct: YES Different from Hawkins and Embry, defendant is fighting over how to interpret manifestations ‐whether plaintiff should have been tipped off that it was a joke Objective Manifestations tend to prove K ‐writing ‐usually formalities ‐spoke about terms, terms were specific and reasonable ‐actually rewrote the K ‐brought in wife and she signed ‐talked about the K afterwards ‐technical language (like Hawkins guarantee) ‐Plaintiff’s level of follow‐through ‐Lucy keeps the K ‐negotiated for 40 minutes, plaintiff asked about deal before Why enforce K, award performance at the MOMENT of formation? ‐set general standard, easy to administer ‐not asking whether policy issues apply in all Ks ‐no asymmetry of power ‐don’t have good way of apportioning remedies based on degree of formalities Problem: might be unsure of facts but don’t dial back the remedy Nebraska Seed Co. Issue: Is an advertisement an offer or an invitation to deal? Ct: Ad is an invitation to deal WHY? ‐no magic K language (formalities) ‐not definite enough (no delivery time, specific language) ‐reasonable people would not assume you can buy whole lot (although nothing in the ad indicated it went to a bunch of people) POLICY: encourage advertising Pepsico Issue: Is TV commercial made in jest considered a K? Ct: NO, it’s just an invitation to deal Judge weighed facts ‐ decided it was not an offer 1) No jet on the order form ‐ terms of commercial said contingent on catalogue 2) No words of limitation or specificity 3) Price is completely unreasonable Leftkowitz (in Pepsico) Here the ad was found to be a K ‐limit on the quantity ‐“first‐come first‐served” ‐definite and explicit terms (price) ‐reasonable person would believe K had been formed RESTATEMENT 22 ‐ UCC ‐ 2‐204‐ don’t need offer and acceptance, even if moment of making is uncertain ‐just because you don’t have both/either doesn’t mean agreement can’t be reached ‐all about objective manifestation of INTENT, whatever actions lead reasonable person to believe K had been reached ‐UCC is all about making deals, don’t want to slow down economy ‐can still use formalities PROBLEM: runs risk of unclear Ks, court doesn’t know what to do about remedies SOLUTION: UCC puts in ways to infer price if left out, also statutes for determining ddelivery terms, etc. ‐ IF THERE ARE ENOUGH FACTS WE’LL FILL IN BLANKS Dickinson v. Dodds Defendant had offer to buy land, but learned land had been sold Issue 1: If offeree has reason to know that an offer has been withdrawn, can offeree accept? Ct: NO, offeree cannot accept RULE: Offeror can revoke by action inconsistent with original offer (also DEATH) ‐fits with Hawkins ‐ no meeting of the minds ‐this is NUDUM PACTUM ‐ naked promise, no consideration (as opposed to option) Issue 2: Is the promise binding? Ct: NO, no bargained for consideration given ‐to make it binding, there must be a fee for the promise ‐option ‐ trading risks ‐ seller takes on risk for downside and upside Why/when to use options? ‐CEO pay, trade risk ‐get time to put together funding ‐build relational transactions (option to buy more real estate) ‐construction ‐ buying materials ‐ don’t know exact amount of steel needed for building ‐record company/recording artist ‐ one party makes decision ‐market speculation UCC 2‐205 ‐ firm offers, don’t need consideration ‐NOT consistent with Dickinson ‐must be in writing to be enforced ‐recognize that people rely on options ‐benefit of more sales to the seller Carbolic Smokeball Issue 1: Can one accept an offer without notification? Ct: YES, you can accept through performance ‐if you want to restrict how to accept PUT IT IN K, master of your own offer ‐when you put up flier offering reward for finding lost dog ‐ performance is implied acceptance ‐ this is a UNILATERAL K ‐ courts will uphold these Issue 2: Is this an offer or is this just PUFF? Ct: No, reasonable person would have assumed it’s an offer because of seriousness/deposit ‐court does protect PUFF or extravagant statements to try and sell products ‐distinct from Nebraska Seed because no problem running out of product Pepsico ramifications of Carbolic ‐Leonard hopeful because Carbolic says can have valid offer even with extravagance Distinctions: facts are different ‐ Pepsico clearly intended as joke ‐ reasonable person Structure of offer is different ‐ must go through catalogue Nature of prove me wrongs is extravagant ‐ trying to discourage these RESTATEMENT 54 ‐ unilateral offers ‐can accept via performance, must notify offeror if reason to know they won’t be aware of acceptance ‐difference between unilateral offer and option ‐ offeror CAN’T WITHDRAW OPTION Petterson Issue: Can offer be withdrawn anytime before party has started to perform? Ct: YES, no benefit was conferred yet, still can revoke offer Here a unilateral offer, plaintiff tried to tender money but defendant did not accept/revoked Dissent: hurts offeree, part of offer was agreement to accept ‐ explicit in offer RESTATEMENT 45 ‐for unilateral offers ‐ option K created when offeree tenders or begins to tender performance ‐once performance begins tendered, offeree now has power JUSTIFICATION: you are master of own offer, can specify promissory acceptance Massoit Whip Issue: Can court infer acceptance was rendered through silence on receiving goods? Ct: YES ‐like Martin v. Little Brown ‐ asking for K implied in FACT ‐not like Cotnam because not asking for K implied in LAW for public policy reasons Court relies on COURSE OF DEALING ‐ allows inference of send‐receive as offer‐acceptance ‐very powerful ‐no longer strictly adhering to “reasonable person”/jury standard ‐reasonable based on prior dealings of parties ‐unlike Martin, sending DOES imply K in fact ‐allows goods to keep moving (not always requiring formalities) ‐economic efficiency ‐cement long‐term relationships ‐give weight to past‐Ks as long as their fair ‐ if not, object to them or change terms ‐ but must COMMUNICATE to avoid surprises ‐ like Hadley Could also say circumstances made it a standing offer to take skins, sending was the acceptance Raffles/Oswald Issue: Does a latent ambiguity destroy a K? Ct: YES, no meeting of the minds/consensus ad item = no K Patent: 3 different liquidated damages clauses, ambiguous on its face Latent: Peerless (but more than one ship), not ambiguous on the face ‐Not inconsistent with Hawkins ‐ no “objective” meeting of the minds ‐no way to know what a “reasonable” person would have interpreted K to mean Defendant wants to argue ‐ can’t hear evidence of he said/she said because of WRITING ‐Ct: NO, always can hear evidence of different meanings Courts Options: 1) No meeting of minds, no K ‐ buyer’s best option 2) Plaintiff’s K ‐ problem: there is only cotton on one ship 3) Defendant’s K ‐ problem: defendant did not complain until 2nd ship came in ‐ buyer’s worst option 4) What a reasonable person would believe K to be ‐ NOT AN OPTION, not clear how to do that ‐ half of K‐Mkt differential? Why not split the difference ‐ against will theory ‐ want to enforce K not make up new one Differences from Hawkins ‐not trying to prevent harm here (buyer is best off/seller is worse off) ‐court here did not find K ‐ we don’t know the remedies Weinberg/Frigaliment Issue: Does a latent ambiguity always destroy a K? Cts: NO, must interpret the terms of K to the best ability ‐ becomes a FACT question Categories/Factors of interpretation ‐fact questions ‐pricing ‐how the things are sold (dresses) ‐how they’re manufactured (dresses) ‐functionality (dresses/chickens) ‐what they look like (chickens) ‐policy ‐least restrictive to trade ‐look at writing/negotiation ‐behavior of parties (course of dealing) ‐trade usage ‐dictionary/gov’t terms (Frigaliment) ‐interpret rules ‐who has burden? ‐ if you meant two‐piecers you should have written it in K Frigaliment POLICIES ‐respecting that parties were trying to make K, dominant principle should be intent to K ‐favoring repeat players ‐goes against Raffles ‐ doesn’t favor breaching party ‐ brings down wall to get into Ks ‐gives more opportunity to look into good faith/bad faith ‐ BUT could open inconsistency ‐a finding of no K is not neutral Raffles POLICIES ‐not efficient to hear all of these cases, shorter lawsuits but more of them ‐shapes contracting behavior RESTATEMENT 34 ‐ part performance may remove uncertainty/reliance may make remedy appropriate in spite of uncertainty NY Central Iron Workers Issue: Requirements K, can defendant withhold delivery above previously delivered amount? Ct: NO Requirements Ks (different from outputs K) ‐element of exclusivity, buy only from one party based on what you NEED ‐mutuality required, could buy 0 units, cannot buy 500 from other party ‐exclusivity IS CONSIDERATION ‐trying to lock in price ‐ shifting risk to other side (price could also float) ‐possible speculation ‐ courts require REASONABLE amount, can’t gouge supplier ‐good faith limit ‐trade usage ‐will of the parties ‐lawyers could have avoided by putting in max limit, define reasonable Eastern Airlines Issue: Will court enforce requirements K if mkt conditions shift? Ct: YES, implied in K based on reasonableness Defense ‐ lacked mutuality UCC 2‐306 ‐ define requirements K ‐good faith ‐looks at past course of dealing ‐good faith doesn’t save you if your business takes off ‐DOES protect decrease to ZERO quantity Lucy Lady Duff Gordon Issue: Can court infer an implied promise to validate a K? Ct: YES ‐ look at facts ‐Wood promises to report on profits ‐ implies to act to increase the profits ‐activity ancillary to selling goods (take patents/inventory, etc.) ‐Wood’s terms of compensation are specific, in the K ‐Hawkins on steroids! ‐ imply whole promise Raffles Frigaliment Lucy Lady Duff Get the perfect K look at other factors infer return promise Nothing ambiguities whole promise →increasing involvement from courts → Thompson Issue: Can parol evidence be taken into account if written K can serve as complete? Ct: NO RULE: if the writing is on its face complete expression of whole agreement, no evidence Brown v. Oliver Trying to get back hotel furniture claiming it was part of the agreement to sell hotel Issue: Can trier of fact consider evidence outside of written K if it is not complete? Ct: YES ‐intent is question of fact for the jury ‐once the judge allows evidence then goes to jury to decide if facts support intent ‐judge decides if writing is whole on its face (whether to admit parol evidence) ‐question of law ‐if jury hears it to weigh then it’s already IN ‐judges will be consistent? Hard to argue ‐judges have more expertise in reading Ks *often Ks have integration clause built in IN FAVOR of Parol Evidence Rule ‐ (barring parol evidence) ‐protect opportunity to negotiate ‐ can’t hold one to offers not accepted ‐protecting clarity ‐efficiency AGAINST parol evidence rule ‐protects parties who for some reason don’t put agreed upon term in K SEE: UCC 2‐209,213,214,216 on Parol Evidence Pacific Gas & Electric Issue: When you have written K, can oral testimony affect interpretation of word in K? Ct: YES, this is NOT parol evidence rule TRAYNOR: words are always ambiguous ‐ could have cited Raffles ‐every latent ambiguity supports Traynor Trident ‐Same situation as PG&E ‐ bound by that decision ‐Kozinski ‐ critical of Traynor in PG&E TRAYNOR ‐even commercial parties have latent ambiguities (Raffles) ‐every time we use trade usage we have made the abnormal, normal ‐trying to get to parties intent, even though it might be unambiguous to judge KOZINSKI ‐reads Traynor as saying everything is contradictory, can’t know that unless you DID introduce the evidence ‐can never have an agreement if you can always rescind and claim a different intent PG&E/Trident vs. Thompson/Brown SIMILARITIES ‐parol evidence vs. interpretation of ambiguous terms ‐writing vs. all relevant testimony DIFFERENCES ‐parol evidence rule disappears in latter two cases ‐judge only decides parol evidence rule ‐ jury gets to listen to ambiguity of terms evidence *today most of these cases are litigated as ambiguous terms or under 2‐314 Travelers Issue: Can courts reform Ks to correct mistake? Ct: YES Rationale: people make mistakes ‐ does make sense Risk: might not be getting intent of the parties ‐ get another bite at the K Boone Family moves to Texas after offer to live on/farm land ‐ sues when offeror revokes Issue: Can Plaintiff recover for reliance on K that is barred by the statute of frauds? Ct: NO ‐lawyer here did not ask for expectancy (knew SofFs), but asked for reliance Similar to Parol Evidence Rule ‐bars intro of evidence which might show K (non‐Hawkins) ‐both are discriminatory between written vs. non‐written Differences to Parol Evidence Rule ‐PE effects terms while SofFs invalidates whole K Why no reliance? ‐not in THIS case ‐ might be in other cases ‐might have been valuable as an option ‐don’t want to weaken SofFs BUT ‐ plaintiff suffered injury, waste, potential fraud through appearance of K, hurts parties with less knowledge POLICY of SofFs ‐ don’t want people to rely on non‐formal promises, REDUCE FRAUD 1) Wills trusts ‐executor has no liability for decedent’s debts unless Ks in writing for them a. Want to protect executors from nuisance lawsuits 2) Marriage ‐ when parents K to put down money on consideration of marriage a. Don’t want to get involved in these family matters b. Protects PUFF 3) Land a. It is so valuable, big transactions, need formalities b. Clarity ‐ what they intended to convey c. Recordation/ease of transferability d. CAUTIONARY function e. Judicial efficiency ‐ so many land Ks 4) Not to be performed within 1 year a. Long time may involve high values b. More likely to breach as situations change 5) Co‐signors ‐ answer for the breach of another a. Don’t want to bar relationships but FORMALIZE them b. Cautionary, clarity, protect the party 6) Goods over $500 a. UCC 2‐201 b. doesn’t have to be signed by both parties ‐ just enough to show intent EXCEPTIONS to SofFs ‐Confirmation of purchase has to be objected to in writing within 10 days ‐ MERCHANTS ‐like Massoit Whip ‐ must voice objection ‐Special goods‐ injury will probably be high, want to avoid waste, inference is that K for these goods were made under a real K ‐If party admits (in pleadings, testimony or otherwise) that a K was made ‐if one sides performance has been completed and accepted ‐unilateral offers ‐ once performance has begun, offeree can complete or reject Marvin v. Marvin Issue: Can you do by K what normally is done by marriage Ct: YES ‐ remands and sends back to trial court to determine if there was a K **How much are we going to allow K to bite into status relationships? Morone v. Morone Issue: Can you have implied Ks (in fact) between an unmarried couple? Ct: NO, state legislature got rid of common law marriages ‐if you live together and want rights ‐ get married ‐in this case, husband died, woman wants widow’s share (anna Nicole situation) ‐don’t want fraud in this way w/implied Ks ‐ back door way to achieve common law marriage ‐Def argues that state took away status relationship and now HAS to do it through K ‐court rejects saying it makes sense services were gratuitous, not bargained for consideration Posner v. Posner Issue: Can court enforce a prenup re: alimony? Ct: YES, but it must be FAIR and TRANSPARENT ‐in this case not fair, not valid 1) wife not represented beforehand 2) don’t want state picking up the tab for woman, children 3) promote social stability of family Arguments for marriage as K ‐adds idiosyncratic values ‐not bound by anything not consented to ‐ will theory ‐explicit ‐ plan for resources ‐clearer for courts ‐easier to escape (maybe bad) ‐cautionary function ‐allows gay people to K ‐more private Arguments for marriage as status relationship ‐protects those without bargaining power ‐although status might not match up with fair situation either ‐people might not be good at contracting ‐too big a situation to have parties screw it up ‐preserves the “institution” ‐cheaper not to have to worry about K (transaction costs) ‐state sets the minimum standards ‐take care of unforeseen circumstances/flexibility BOTTOM LINE ‐ Can K but subject to review, court’s limitations Otterbein Man promises to donate money, says school must use it for certain purpose, school sues Issue: Does a promise to make gift in the future become enforceable if recipient promises to use gift in a certain way? Ct: NO gifts enforcement Why? ‐no bargaining(reciprocal conventional inducement) ‐must have seriousness of intent to form K/offer (no subjective intent) ‐no value creation with gift ‐don’t want injuries *We do enforce gifts at completion, once it’s given you realize pain, you get reliance **University could have entered into agreement (naming rights) Hamer v. Sidway Issue: Is waiver of a right enough consideration for a K? Ct: YES ‐not a gift, money is conditioned on performance/lack of exercising right to smoke, etc. ‐consideration is separate from intent Distinct from Otterbein ‐this agreement is more restrictive ‐Otterbein didn’t involve any harm ‐not talking about losing gift but losing other right Kirksey Issue: Does promise become K when you’ve got a gift and promisee injures herself in reliance? Ct: Not enough, promise was a gift ‐ no consideration ‐different than Otterbein here because she relied on gift and was injured ‐ too bad Moore v. Elmer Issue: Does past consideration support a K? Ct: NO ‐rich guy makes promise to pay after clairvoyant makes predictions ‐consideration has to be BARGAINED FOR, was not in this case ‐ amounts to a gift Mills Issue: Does moral obligation count as consideration? Ct: NO, not bargained for consideration ‐man promises to pay for doctor’s past care of sick son‐ doesn’t pay ‐ doctor sues ‐distinct from Cotnam because this is not dr. and patient but patient’s parent ALSO ‐ no reliance ‐ there was nothing to rely on here ‐ not like Moore, Kirksey Webb Man gets injured saving another’s life from falling object, saved man agrees to pay him money for the rest of his life, pays for awhile, dies, family stops paying Issue: Can moral consideration make a promise into a K? Ct: YES Similar to Cotnam ‐principles, dealing with savior and saved ‐detriment to the acting party ‐both parties didn’t negotiate, just acted, no negotiation COULD have happened ‐benefit conferred ‐PUBLIC POLICY ‐ want everyone to get rescued Different from Cotnam ‐there IS a promise here ‐there is performance here ‐error in valuation is not an issue here because they have promise and performance ‐this is not a reliance case Restating the issue: explicit promise + no opportunity to negotiate + strong public policy in favor of finding K + benefit conferred + payment = K (don’t know if promise AND performance are BOTH necessary) Harris v. Watson Issue: Ship in peril, work harder and I’ll pay more ‐ is it enforceable? Ct: NO ‐like status relationship ‐ sailors very important to British economy ‐if you enforce, every sailor will ask for more ‐taking advantage of reliance Stilk v. Myrick Issue: On shore when ship is not in peril, is captain’s promise to pay more enforceable? Ct: NO ‐ no consideration, K ALREADY called for doing all duties under ANY circumstances Harris ‐form of taking advantage of consideration ‐ties back to Anglia ‐ injury by promise, reliance ‐ captain should be able to rely on original K Stilk ‐consideration issue ‐sailors already promised all of their services ‐BUT, sailors raise a Frigaliment issue ‐ terms of K were meant for 10 man crew ‐ Ct finds the other way Alaska Packers Issue: Can court enforce a modification of K that was coerced? (Harris framing of issue) Ct: NO, ignores the sailor’s argument, says that there was NO CONSIDERATION, and no K Sailor’s argument: company promised good nets ‐ this changes K, different consideration Brian Construction Issue: When circumstances arise, unforeseen to both parties, should court enforce oral K beyond/modifying original K? Ct: YES, additional promise and additional consideration = separate valid agreement K1(subcontractor’s version): Subcontractor →work under normal conditions Contractor →pay money for ordinary conditions K2: subcontractor →do whatever it takes to complete job Contractor →original $X + additional $X ‐different from Harris and Stilk, neither party knew about adverse underground conditions ‐under Harris, sailors took risk of more difficult work, captain took risk of easier work ‐if decided under Peerless, ambiguity would void finding of K = no K Consistent w/Harris ‐ YES, Harris is about advantage‐taking, here both parties didn’t know Consistent w/Stilk ‐ YES, here there is an additional promise, no additional consideration in Stilk RESTATEMENT 89 ‐modification acceptable when fair, based on reliance UCC 2‐209 ‐ modification needs no consideration, MUST use good faith standard ‐relational value of Ks (Massoit Whip), trade usage (Frigaliment) Newman & Snell’s State Bank Issue: Can court inquire into adequacy of consideration? Ct: Doesn’t look into adequacy of consideration because here there was NO CONSIDERATION ‐note (given to widow) and stock (not actually transferred) are worthless ‐form vs. substance situation ‐ bargaining formalities won’t get you into K if no consideration REALIST: Court just sides with widow because they think she’s “right” FORMALIST: no consideration, not inquiring into value Role of Formalities ‐evidentiary function ‐cautionary function ‐channeling function‐ use Ks to make arrangements ‐clarification ‐regulatory function Schnell vs. Nell Woman dies without property but wants to give money to her kids, her husband promises to give money to kids in consideration of 1 penny, because of love wife gave him and because her will didn’t achieve her desired goals Issue 1: Does money for money work as consideration? Ct: NO, not consideration, just formality, could work if they are rare coins Issue 2: Does moral consideration work here (love and affection of wife)? Ct: NO, past consideration, not bargained for, status relationship Issue 3: Does inoperative will have any effectiveness? Ct: NO, nothing for the children to get, even though it could have been a Newman & Snell’s situation where we don’t want them as charge on the state Court decision is: FORMALISTIC ‐ deciding what constitutes consideration, not going out of their way to find K like perhaps in Lucy Lady Duff POLICY ‐ similar to Newman & Snell’s and Kirksey ‐ court finds a gift even if it is in the form of a K ‐ gifts supposed to be charitable, not wealth enhancing (Kaplan point), like K boundaries Ricketts Man promises woman money so that she no longer has to work ‐ she quits her job, man dies and his other heirs sue to stop his estate from going to her Issue: Can a person recover for detrimental reliance on a gift? Ct: YES 1) court found it was a gift ‐ not contingent on any action (quitting job) 2) can enforce the gift based on reliance (she quit her job, gave up income) 3) finds that gift induced a change in position in reliance on promise 4) woman basically gets expectancy Anglia Ramifications SIMILAR ‐ want to prevent injury by promise (reliance) DIFFERENT ‐ contractual relationship there, only a gift here ‐could argue they’re similar ‐ both Reed and this guy SHOULD have expected reliance Boone v. Coe Ramifications ‐could argue that Promissory Estoppel undermines statute of frauds ‐could counter that we are more worried about injury‐ don’t hide behind SofFs *REALISTS ‐ they protected girl against the other jealous heirs (like Webb ‐ falling object) Allegheny College Issue: Is a request to put donated money toward scholarship enough consideration? Ct: YES, CARDOZO infers consideration ‐ they gave consideration by not speaking up when given the gift Dissent: this is a gift! (Kirksey, Snell) by policy we should leave gifts alone! ‐even if it was a K, it was a unilateral offer which can only be accepted by performance and no performance here Feinberg Woman retired from company on promise of pension Issue: Is a promise made enforceable when plaintiff relies to her detriment? Ct: YES, can only get reasonable reliance up to expectancy ‐Like Ricketts ‐ both gifts, detrimental reliance, award expectancy ‐Because reliance continues into future, injury continues so you must give expectancy Does promissory estoppel substitute for consideration to give expectancy or do you only get compensated for reliance injury??? ONLY RELIANCE unless other factors RESTATEMENT 90 ‐ promissory estoppel ‐promise + REASONABLE reliance, court will enforce promise ‐remedy can be limited “by justice”, not necessarily expectancy NOMINAL CONSIDERATION It SHOULD bind ‐meets formalities SofFs, intent to be bound, cautionary, may mislead people if not enforceable ‐no inquiring into adequacy of consideration EXCEPT when zero value It SHOULD NOT bind ‐no real exchange of value ‐because we don’t look into fairness of Ks like Europeans ‐ this is our only chance to ensure fairness OPTIONS ‐ no consideration necessary 1) Promissory Estoppel ‐reliance on the promise, except reliance is not required 2) Cardozo ‐ find consideration anywhere ‐ the shot at getting the business ‐we like options, want to encourage them ‐limited to merchants (UCC) ‐trade usage ‐not a gift, assume there is real K underlying option ‐still have formalities (in writing) cautionary function Goodman ‐Radio dealer applying for franchise, distributors told them they would get it, they didn’t Can a party recover for reliance during a K negotiation when the eventual K would not have been enforceable? YES here Hoffman ‐Grocery store shenanigans During preliminary negotiations, can court enforce promissory estoppel based on promises that were intended to lead to K but didn’t get to K? YES here *Both rely on promissory estoppel and enforce and award reliance damages Against imposing liability ‐in the non‐binding part of the transaction, negotiations, negotiations wouldn’t be admissible to court when there is a written instrument ‐protect negotiation ‐could have made K before you acted ‐obstructing commerce For Imposing Liability ‐induced reasonable reliance ‐ injury‐based, enough to go to jury ‐took advantage of reliance to increase bargaining power (Harris) ‐waste avoidance ‐Lewellyn/UCC ‐ pro‐commerce, protecting non‐repeat players, doesn’t like technicalities, trying to police industries and stay ahead of/make best practices for marketplace *did not have significant impact on future cases ‐ unique facts, usually get to Ks Sherwood ‐Mistook fertile cow for non‐fertile cow Issue: Can a court nullify a K? ‐Here, court nullifies K, says no consensus ad item to nature of thing ‐we do have consensus ad item but not about the nature of the thing itself (fertility) Differences between Raffles (Peerless) ‐K term vs. the cow, thing itself ‐2 ships Peerless only 1 cow Rose ‐ no ambiguity ‐court describes nature/function of cow as two different things ‐Peerless‐buyer/seller had different things in mind, here they have same physical item Dissent ‐buyer KNEW it wasn’t barren ‐ the K is for a cow of unknown or suspect fertility ‐buyer should get the benefit of his cow‐fertility‐spotting expertise Wood v. Boynton Stone of unknown value vs. topaz Ct’s decision: Buyer wins: S→stone of unknown value B →$1 Seller wins: S →topaz (valueless stone) Like Sherwood (K can be rescinded) B →$1 ‐decision is determined by whether court decides it was both parties agreeing with a mutual mistake OR it was one‐party speculation ‐like Peerless, Frigaliment AND like Stilk, Harris ‐ depends on what terms of first K are ‐dispute of FACT Taylor v. Caldwell Issue: Is there an implied condition that the place still exist? Ct: Impossibility is NOT the issue, (we still enforce impossible Ks as long as there is a promise), it’s about interpreting the terms of the K ‐Frigaliment issue ‐ what exactly did parties K for ‐ dispute of FACT ‐Traynor ‐ not implying a term ‐ interpreting the term “space” already in K ‐precedents: limits on terms already (artist goes blind, death and service Ks) ‐market tells you who takes loss if no K found ‐ but here it is not a breach ‐just get $ back Krell Issue: Is this K for space no matter what or for space if coronation can be viewed? ‐K doesn’t specify ‐Ct looks outside K to dealings (just like Frigaliment) ‐advertisement is for coronation viewing ‐coronation figures prominently in discussions ‐K is only for the room during the day ‐price is higher for that one day FRUSTRATION ‐doesn’t get his initial $25 back (either liquidated damages or strategic move by plaintiff) ‐another FACT question ‐ what happens on the edges ‐ rules provide guidelines for perfect cases but VALUES dictate outcomes when uncertain/no precedents (formalism yields to normative) UCC 2‐312‐16 ‐ warranties 2‐601,2,6,7,8 and 2‐508 ‐ acceptance/rejection Jacob & Youngs v. Kent Issue: In performance of K, when omission is trivial AND innocent and cost of performance is disproportionate to loss, are damages cost of performance OR diminution in value? Ct: Diminution ‐both measure expectancy ‐here the breachor is suing arguing measure of expectancy should be related to level of breach (like liquidated damages clauses) Arguments for Diminution (plaintiff) ‐trivial breach ‐Cardozo focuses on the function of pipes (i.e. PAINT COLOR is NOT a trivial breach) ‐K called for Reading pipe OR basic equivalent ‐trade usage ‐Traynor/Frigaliment interpretations of ambiguous words ‐ BUT reading pipe is very UNambiguous ‐ we don’t know what the party who asked for it valued ‐ RISK, won’t get what you wanted/undercompensation ‐try to guard against undercompensation by trivial test ‐try to guard against strategic acting by innocence test ‐wasteful ‐could have strategic acting by other party ‐ trying not to pay (Perfect Tender risk) Dissent ‐agreed that K should be measured by substantial performance (not perfect tender) ‐we don’t think this was an innocent breach Similar to Mary Clark? ‐possible remedies are similar ‐ even though no specific performance here ‐both cases, remedy is not exactly what plaintiff wanted Similar to Britton v. Turner? ‐plaintiffs are breaching parties trying to get compensated for work done REALIST ‐ Cardozo sets up verdict by portraying wealthy homeowner v. honest worker Ramirez v. Autosport Issue: Can a party reject goods when goods have minor defects? Ct: YES, even if trivial and/or innocent UCC 2‐601 ‐ perfect tender before you accept (have option of rejecting), can revoke acceptance only for substantial defect *LOTS of litigation over whether acceptance occurred UCC Warranty ‐warranty for all goods implies that title is good (can sue seller) ‐Lewellyn ‐ efficiency in moving goods (less research) ‐ best practices ‐ clean marketplace ‐gives 2nd, 3rd chance at performance, more time if it was a surprise rejection ‐buyers don’t get benefit of goods during sellers’ time to remedy ‐ suggests some might accept despite defects ‐only applies to goods, not services ‐flexibility of “perfect tender” based on trade usage and course of dealing Peevyhouse Strip mining and ruining farm Issue: When breach is not innocent or trivial can court award difference in value instead of cost of performance? Ct: YES ‐argue this is incidental element to K (whole purpose wasn’t for land rehabilitation) ‐we fear giving cost of performance because it might put plaintiff in a better position ‐again, worry about disproportionality *Issue is different from Jacob & Youngs (reading pipe) ‐NOT innocent ‐ there is no intent to perform ‐NOT trivial ‐ can argue trivial in terms of benefit conferred if you award performance ‐substantive/functional difference between what you get and what you should have gotten (not just difference in value) PROBLEMS ‐not getting what you contracted for ‐strategic behavior ‐injury by promise ‐ family would not have K’ed if they knew it would destroy farm Williams v. Walker‐Thomas Issue: Can courts refuse to enforce unconscionable Ks? Ct: YES ‐UCC is persuasive authority, but we can still act without statute ‐other jurisdictions have done it MAIN argument ‐ worried about no meeting of the minds PROCEDURAL unconscionability ‐not educated ‐taken by surprise (Peerless) ‐hard to see provision ‐impenetrable language SUBSTANTIVE unconscionability ‐no reasonable person would agree to K (some probably would) ‐don’t want to restrict freedom of K ‐oppressive, “shocks the conscious” ‐ potential to go against Lewellyn best practices (BUT, problem with this standard is that it’s changing i.e. 30‐page credit card Ks not shocking anymore) ‐couldn’t really know exactly how people value each K BUT we have done this before (can’t K yourself into slavery) 3rd option when deciding on tough Ks (1. Say tough luck 2. Twist rules of consideration (Newman & Snell’s) Arguments FOR unconscionability doctrine ‐protecting only wealth‐enhancing transactions ‐inequality of bargaining power (DON’T CARE ABOUT THIS) ‐no meeting of the minds Wille v. Southwestern Bell Issue: Can court find unconscionable a limitation of remedy for mistake in yellow pages ad? Ct: NO ‐term is not unfair (substantive) ‐guy is a businessman, should know better (procedural) ‐no deception (procedural) ‐not exclusive form of advertising (procedural) ‐terms are accessible (procedural) *basically contracted away his expectancy LESSON: small businesses held to higher standard than consumers In re: Realnetworks Issue: Is an arbitration provision in an online pop‐up agreement substantive or procedurally unconscionable? Ct: NO ‐clause is not buried (proc.) ‐does not force distant or arbitrary locale (subs.) ‐can’t print agreement ‐ Ct disagrees (proc.) ‐not easily understood ‐ Ct disagrees (proc.) ‐BUT does deny class‐wide option (subs.) Carnival Cruise Lines Issue: Is a forum selection clause unconscionable? Ct: NO Arguments FOR finding unconscionable ‐not bargained for ‐ it was on the ticket ‐ had to agree beforehand (proc.) ‐prevents many claimants day in court because of location (subs.) Majority Arg ‐ NOT finding unconscionable ‐form Ks are OK, need them in certain circumstances, if you don’t like it don’t buy it ‐good thing to have forum selection clauses ‐don’t have to litigate over where suit will be brought ‐reduces confusion ‐decreases cost to consumers (very difficult to prove!) Stevens Dissent ‐proc ‐ can’t see terms until you buy and receive tix ‐proc ‐ have to be meticulous to read and see clause ‐subs ‐ if you planned your vacation you have too many extra costs to cancel and litigate ‐Ks of adhesion should be held to higher standard ‐restricting access to court should be held to higher standard Barnett Reader 401‐428 EPSTEIN ‐should limit unconscionability to 3 traditional categories ‐fraud, duress, incompetence ‐don’t allow so much strategic behavior ‐too much unconscionability findings, courts prevent wealth enhancing transactions ‐actors know values better than courts ‐AGAINST viewing Ks as substantively unconscionable EISENBERG ‐Epstein works in a perfect market but that is not REALITY ‐we have imperfect info, transactions costs 3 factors are significant impediments to consent 1) transactional incapacity ‐ complex objects, terms, change rights without awareness 2) unfair persuasion ‐ undue influence and pressure 3) price‐ignorance ‐ kind of misrepresentation, should be implied warranty of mkt price ‐problem with arguing for keeping with bargaining principle is that we never really used bargaining principle to begin with ‐ so many exceptions RAKOFF ‐form Ks force us to look at K law in a new way ‐he presumes bargain world once fit reality ‐ not anymore ‐form Ks aren’t bargained for (take it or leave it) ‐Barnett disagrees, says represents consent of both parties 1) parties create forms with lopsided terms (access to courts) 2) procedural unconscionability more likely 3) other function ‐ bind the managerial, pricing, etc. decisions so there can be NO NEGOTIATION ‐ no bargaining except shopping around(like Eisenberg’s market imperfections) BARNETT ‐can still consent without seeing, reading ALL terms ‐how can this be rational/wealth maximizing? ‐we don’t expect the terms to be OUTRAGEOUS ‐it is rational to assume these terms to be reasonable ‐reinvented substantive unconscionability?? (same problems, what is the standard?) ‐companies respond by conforming to procedural unconscionability standards but adding many pages of terms to the K ‐substantive unconscionability has gone nowhere, plaintiff almost never wins GILMORE Why did he think contract was dead? 1) Overlap with torts ‐ asking questions about intentionality, reliance, good faith, creating liability based on injury rather than agreement ‐is this correct? NO, the death didn’t stick ‐only really promissory estoppel, which is usually unsuccessful ‐most of the cases are bargaining cases ‐no longer a hard edge but contract is not subsumed into torts 2) getting away from objective, formal rules Langdell ‐ science of law Holmes ‐ judge cases objectively, hard to contract, writes common law on SC Williston ‐ Restatement 1 L, H, W ‐absolute liability ‐ hard to get in K (difference between Ks and torts) ‐don’t look at morality, don’t use equitable remedies (only $ damages) ‐looking at uniformity ‐Langdell ‐ there is only one truth ‐keeps goods/commerce moving ‐limit consequential damages (uphold tacit agreement but enforce this at the front end) ‐Grand Theory Corbin ‐ critic of Williston, Restatement 90 Lewellyn ‐ UCC Cardozo ‐ NY Ct of App C, L, C ‐look at intent, ambiguity (Cardozo actions) ‐Corbin ‐ we never did follow objective grand theory ‐more fact‐based ‐make K easier to get into ‐soften on absolute liability (as justice requires, basically reliance) Grand theory is dead but Gilmore gives small whiff of Law & Econ ‐more abstract ‐into bargaining theory ‐ they like predictability ‐maximizes wealth if we can ensure perfect markets ‐more/different Grand Theory based on rational actors ‐no morality ‐reduce waste ‐use deductive tool to measure (NOT Cardozo, Lewellyn, Corbin inductive reasoning) Attacks on Law & Econ ‐no rational actors ‐ BEHAVIORAL facts coming from experiments ‐not a perfect market! ‐EMPIRICISTS ‐ predictions coming from your premises are wrong ‐law and society historians ‐law & econ model worked in 19th century but not now *impact of Harvard **no national vision of law without Harvard