I. IMPORTANCE OF PROMISE
A. Quasi contract elements:
Bailey v. West - pg. 12
Elements
1. Benefit conferred upon D by P
2. Appreciation by D of benefit
3. Acceptance and retention of the benefit when unfair to keep w/out paying
- When costs of transaction are high more likely to get quasi - if low, would have K’d
- If it is certain D wants benefit, probably quasi (medical aid) not when uncertain (say anything)
- Maybe add more here
B. Derivative Contracts
Bolin Farms v. American Shippers - pg. 18
Three Kinds:
1. Forward K - agree on price beforehand to hedge risks - insurance
2. Future K - tradable - ASK BAKER to distinguish
3. Stock options
- Hedging used to prevent risks for both parties - minimizes the risk on either side - like insurance
- Could argue risks were so extreme to be UN4CBL, but in Bolin this was not allowed
3 Reasons for limiting Ks
1. Paternalism - don’t want people doing it
2. External affects - affects parties outside of the two contracting (ex. Drug addicts affect families)
3. Morals - limiting strictly on moral grounds (ex. No selling kidneys, drugs, sex)
C. Unconscionability
Williams v. Walker Thomas Furniture - 2 cases - pg. 536, 538
Must balance procedural and substantive unconsc
- Procedural - lack of meaningful choice, fine print, pressure, confusion
- Substantive - unfair terms - the terms themselves are so one-sided or unfair
- Test: The more procedural that exists, the less subst necessary and vice versa
Ways to avoid unconsc:
- Use larger fonts
- Put it on the front page
- Have seller explain the difficult terms
- Have buyer initial specific clauses
UCC 2-302 Uncons rules - pg. 35 - prevention of oppression and unfair surprise:
1. Refuse the entire K
2. Refuse the unconsc clause
3. Limit application of the unconsc clause
- Court gets to decide what to do
Contract of adhesion elements:
- Form K
- K drafted by seller
- No meaningful choice
Benefits of form K:
- Cheaper than bartering all the time
- Way to control agent of seller - keeps agents from undercutting profits/discrimination
Notes:
- Oppressive terms - benefit to the consumer is less than cost to consumer
- Effectively raises cost and decreases sales so goes against concept of monopoly
- Hard for price to be unconsc - people always know and understand price in general - salient terms
- Consumer has ability to find price on market - their responsibility to investigate
II. CONTRACT LIABILITY
A. Consideration
1. Bargained for and Given in Exchange
Kirksey v. Kirksey - pg. 39
Hamer v. Sidway - pg. 40
Langer v. Superior Steel - pg. 43
Bogigian v. Bogigian - pg. 47
- Consideration - reflects a bargain for exchange - shows mutual inducement
- Mutual Inducement - A’s promise induced by B, B’s promise induced by A
- Both must be true - promises must restrict freedom in some way (ex. Can’t say “if I feel like it”)
- Must give up something not legally obligated to do
- Once legal right given up cannot be used to make a second promise - already given up
- Even if no intention to do it, intentions don’t matter as long as it is a legal right
- Mixed motive - doesn’t have to be only reason for inducement, just partially induced by promise
- Bilateral K - promise exchanged for a promise - consummated when both promises are made
- Unilateral K - promise to give something after performance - consummated when perf is complete
- All Ks are bilateral unless specifically calling for acceptance by performance
- Interfamily promises - courts are unlikely to interfere in these circumstances
- Gifts - condition on giving gift (ex. Come pick it up) usually not enough for consideration
Ways of Finding Consideration:
1. Evidence - if it looks like a bargain for exchange - gives something for courts to look at - hard to fake
2. Cautionary - no off-the cuff promises, no joke promises
3. Channeling - enforceable exchange under guise of consid - ASK BAKER how is this diff from sham
- Past consideration is no consideration - awarding pension after work done is not consid
- Bogigian - consideration must be bargained for explicitly or else no consid - inconsistent with Thomas
- Parties cannot bargain around consideration - it is a mandatory requirement
- 2-209 - Modifications need no consideration to be binding, just good faith
- Old Rule: pre-existing duty rule - modifications need new consideration
2. Mixed Motives and Nominal Consideration
Thomas v. Thomas - pg. 52
- Many motives for a promise do not discount the fact that some motive exists - consid ok
- Res § 81 - mixed motives are ok
- Sometimes what looks like sham consid may be sufficient (ex. $1 rent to executor, not LL) - fairness
- If something looks like exchange of gifts, usually unenforceable - especially b/t family members
3. Limits of the Consideration Doctrine
a. Adequacy of Values
Haigh v. Brooks - pg. 61
- Courts will not look into adequacy of consid - no value judgments - unless consid is completely worthless
- People have freedom of K but in some cases they still need policing
Apfel v. Prudential Bache - pg. 62
- Novelty is not a requirement for consid - sufficient for party disclosed to be unaware
- Must show the idea flowed from P to D
- If you want novelty - contract for novelty (ex. if idea reaches market, I don’t pay)
Jones v. Star Credit - pg. 68
- Unconscionability is about oppression and unfair surprise
- Procedural - pressure, fraud, etc.
- Substantive - unfair terms, price here but not usually
- Need to have some of both
- Status of parties play a large role in determining fairness
- Cannot draft around unconscionability
- 2-302 - remedy for unconscionability is court can do about anything
- Consideration chapter because price of goods don’t match item purchased
- Hard to determine when a price is so high as to be uncons - must look at external factors
In re Greene - pg. 72
- You can shout consid to the housetops, but if no actual consid it is uneneforceable
- Here $1 consid is not enough unlike Thomas - comparative value and moral repugnancy
- Promise to marry is not enforceable
- Blackmail is not enforceable - blackmailer has no need to perform - no K law backing
Fiege v. Boehm - pg. 75
- Rst 2nd § 74 says reasonable belief (subj) OR reasonable basis for belief (obj)
- Rst 1st in this case said needed BOTH
- Again policy concern plays major factor - want to make sure bastard child has support
- Similar to widow and mistress of Thomas and In re Greene
b. Pre-Existing Duty Rule / Modification
- Modifications are allowed for when inadequate damages mean both parties would benefit from mod
Levine v. Blumenthal - pg. 81
- Pre-existing duty rule - fresh consideration is required for modifications
- Courts do not favor this and will often accept sham consideration
- ASK BAKER SEVERAL QUESTIONS
Alaska Packers v. Domenico - pg. 84
- Application of the pre-existing duty rule - nothing changed so modification is unenforceable
Angel v. Murray - pg. 87
- 2-209 changes pre-existing duty rule - no need for consid if in good faith - legitimate commercial reasons
- § 89 - mods are ok if (1) not fully performed, (2) fair and equitable, (3) UN4CBL circumstances
- Prevents extortion better, but has more vague rules - tough to tell good faith/F&E
- 2-209 = goods, 89 = services
- § 73 - Pre existing duty rule
- More extortion as easy to get around by simply adding fresh consideration
- Rescission cannot be a condition for a new contract - allows any modification
- Rescission is a mutual release of the old K - new K is not simply a mod, but a new K
c. Mutuality of Obligation
Rehm-Zeiher v. Walker - pg. 95
- Illusory promise - not allowed to have a free way out
- Cannot be lacking in mutuality - adequacy issue - can’t clause to get out of K for any reason
- Mutuality - each party must be able to breach or else one has a free way out
McMichael v. Price - pg. 98
- Facially illusory may not be - only buy sand from one seller - still must buy sand, breach by buying others
Wood v. Lady Duff Gordon - pg. 100
- Exclusivity K - seems to have a free way out, but imply a reasonable effort to work (seek endorsements)
- 2-306(2) - also gives a reason to cancel the K if exclusive party is not producing
Note: Requirement and Output Contracts
- Requirement contracts - 2-306(1)
- Seller promises to sell all that buyer requires
- Buyer promises to buy only from the seller
- Seller is still allowed to sell to whoever else they want
- Output Contracts
- Seller promises to sell only to the buyer
- Buyer agrees to buy all that seller sells
- Buyer can buy from as many other sellers as they want
- Why would you enter into a requirement contract?
- fixed supply at a fixed price - single source
- buyer doesn’t need to look for new sellers when in demand - seller must provide
- Why would a seller enter into an output contract?
- they have a guaranteed buyer
- no matter what they produce they always have a buyer
- Price changes in an output contract
- if price goes up, buyer benefits cause can buy at contract price and seller must provide
- if it goes down, seller benefits because seller sells all at higher price in contract
- 2-306(1) - must be in good faith - no quantity unreasonably disproportionate
Omni v. Seattle First Nat’l Bank - pg. 103
- Moderate approach to illusory promise - modern approach as compared to Rehm
- Promise for promise with condition - condition seems illusory - but is ok if exercised in good faith
- Again good faith is murky and hard to tell when someone is exercising good faith
- Parties need to intend to K in order for court to infer good faith - don’t frustrate K’ing intent of no K
- However, should still explicitly state “This is not a K” for clarity purposes
B. Moral Obligation: Promise Plus Antecedent Benefit
1. Moral Obligation
- Typical structure: (1) antecedent benefit conferred, (2) promise to pay, (3) breach of promise
Mills v. Wyman - pg. 114
- § 86 - Promise for benefit received is binding if necessary to prevent injustice
- no good if a gift, no benefit to promisor, or value disproportionate to benefit
- Problem is benefit already occurred and was not induced by promise - no bargain for exchange
- Revival ?
Manwill v. Oyler - pg. 117
- Revival of outlawed obligation must be in writing
- No real MO to keep contracts - you can break your promise if you agree to pay damages
Webb v. McGowin - pg. 121
- Promise to pay after benefit - here enforced - man saves life of someone by sacrificing his own
- Policy of helping the good Samaritan - also breaching party is executor not saved party
- Distinguish b/c promissor received the benefit, original party paid, worse injury
Harrington v. Taylor - pg. 124
- Promise to pay after fact not enforced - family setting rather than work environment
- Attempt to avoid MO if possible - renew contract validly instead of revival before performing
- Renewal is not a modification here because the contract had already expired
- Extinguished by parties not by law - maybe more duty to renew than revive
- Things to look at:
- Remedy - no good if promise is greater than benefit conferred - no good if indefinite
- no need to worry if consid - will simply enforce contract
- Who does promise flow to - must be one giving benefit
C. Promissory Estoppel
Ricketts v. Scothorn - pg. 130
- § 90 sets requirements for promissory estoppel:
1. a promise is made, 2. promise is expected to induce reliance, 3. actual reliance,
4. injustice can only be avoided by enforcement
- limited only as justice requires
- Worse than MO - need to show many more facts and remedy might be minimal
- Really difficult to show PE, so use as a last resort or last option
- MO (86) and PE (90) are outliers, much more common to use consideration (71)
Allegheny College v. Chautauqua Bank - pg. 134
- Cardozo invents consid where none existed in order to enforce a K
- Uses PE to show policy for enforcement even though no reliance
Feinberg v. Pfieffer - pg. 141
- Pension case - no promise to do anything like in Langer - instead apply PE - maybe past status helps
- PE is circular - enforcement depends on a reas reliance, will only reas rely if it is enforceable
Grouse v. Group Health - pg. 147
- Man offered new job, quits his own, job offer is then retracted - employment K’s are illusory - at-will
- PE remedies:
- reliance - easy here, we know what he gave up - his old job/earnings
- expectation - employment terminable at will, so no idea what he could have expected
- specific performance - don’t want to force back to old job, might be animosity
Cohen v. Cowles - pg. 152
- When no intent to K even with bargain for exchange - might have to resort to PE
- Sometimes court will even reject formalism approach of stating that “this is a valid K”
All-Tech Telecom v. Amway - pg. 157
- Warranties may sometimes be used to convert something already relied on into an inducement
- Helps elevate from PE to a bargained for exchange
- Economic loss doctrine - can’t take K claim and elevate to tort claim
- PE can not be a fall back plan when failing to use remedy under breach of a K - no PE if K exists
- SAMPLE EXAM STRUCTURE SUMMARY - Structure of argument:
A. Bargain for exchange
- must find consideration - here, promise for money, promise for 1% interest
- sham consid - analogize to case of in re Greene - can’t change to bargain
- diff from greene - not cash for cash - credit exchange - what is market level?
- below market rate - but ok if you know credit risk, not unreas
- was there bargaining? Is this bogigian?
- a little more evidence of haggling/dickering here - but not much
- what if 1% turns into novel consid - are there still other ways to enforce
- maybe guy got benefit of looking good in front of friends
- enhancing reputation as lawyer in front of friends
- wanted to see marty do well
- all these still sound like gift promise
- thomas - even if it is part gift, part consid - enforce promise - mixed motive
- time limitation - only a ten year loan
B. Promissory estoppel
- promise was made - this was pretty clear here
- guy must have expectation of reliance
- tricky here - never told him to quit his job right away
- who promises to loan money in a bar for 1%? Big shot in front of friends
- didn’t expect friend to act on that promise
- but went out of his way to repeat promise, add 1%, toast - not off-hand
- reliance was made - friend quit his job - pretty easy
- injustice needs to be remedied
- feinberg case - previous relationship might come into play with PE
- woman worked there 40 yrs mattered, here friend saved guy’s life
- what would the remedy be?
- grouse - reliance - requiring to pay 10,000 may be extreme
- ricketts - clear promise and easy to compute expectation damages
- who reneged on promised?
- here the promisor reneged - not trustees/executor renegging
- if promisor reneged - seems like he didn’t think it was K
- use ricketts or maybe kirksey even though not PE
- webb - estate broke promise and no enforcement ?
- mills - promisor broke promise and didn’t enforce ?
C. Moral obligation
- antecedent benefit - friend saved his life and thus he made the promise
- 86 - webb - enforce because MO is sufficient
- but why webb not sufficient?
- Timing - 20 yrs after saving life
- promise given in return for antecedent - long time
- more like family than comm - more like harrington?
- estate stopped the payment in webb - here, guy does
- maybe discuss allegheny college - regret in PE
- need money for sick children vs. business deal
III. CONTRACT REMEDIES/DAMAGES
A. Damages from Breach
- Parties have option to perform K or to breach and pay expectation damages
- Expectation - general rule for breach - place breached party in same position as if K fulfilled
- Efficient breach - seller earns most money and person valuing it more gets it
- If seller can breach and pay expectation and still profit after resale, efficient breach
- If not, seller will not breach as he would lose money in damages even if higher resale
- Reliance - place breached upon party in same position as if no K at all
- Restitution - place breaching party in position as if no K - breaching party must return benefit conferred
- EB favorable to specific performance b/c seller gets profit instead of buyer 1 when selling to buyer 2
- Seller would charge more to buyer 1 under SP as insurance to not lose profit on resale
- Coats theorem - parties will bargain for efficiency regardless of rules - irrelevance of K law
Sullivan v. O’Connor - pg. 193
- Medical standard for K enforcement - clear and convincing evidence (ex. Promise to fix nose)
- Court doesn’t like to allow doctors to make guarantees - vague/uncertain field
Curtis Brothers v. Catts - pg. 200 - (tomato buyer doesn’t get tomatoes)
- Specific performance only when unique goods or if injury can’t be repaired using money damages
- Land - usually, very unique; Goods - rarely, only if $ no good; Services - never, don’t force work
- SP usually not a good remedy b/c diff to prove subjective value - better remedy is to cover if not unique
Hadley v. Baxendale - pg. 206 - (delayed delivery of broken crankshaft - 4CBL expectation damages)
- Consequential damages - only damages that are 4CBL - lost profits - encourages disclosure of info
- Balance - disclose info - higher cost, safety precautions; don’t disclose - lower cost, less 4CBLT
- High value of perf discloses, low won’t - default rule depends on which group larger - K around
- INCLUDE DISCUSSION OF CODE PROVISION FROM RECALCITRANT MFC LATER - COME BACK WHEN FINISHING SELLER’S REMEDIES - RACHEL - MISSING BOHAC AND DISTRESSED NEWLYWEDS -
IV. THE BARGAIN RELATIONSHIP - WHEN IS THERE A SALE
A. Agreement Process - Manifestation of Mutual Assent
1. Ascertaining Assent - The “Objective” Test
- Four parts of a K: offer, acceptance consideration, capacity
- When is K formed - when does liability attach - when is offer made & when is acceptance complete
Embry v. Hargadine (1907) - pg. 231 - P asks boss to extend employment K and is told to continue work
- No subj test or “meeting of minds” - is it reas to think offer made and acceptance - unilateral acceptance
- Policy: reliance, no claim of intentions never had, idiosync people must tell intentions - say when no offer
Lucy v. Zehmer (1954) - pg. 233 - Agreement to sell land while drunk at bar
- Look at obj intent - written K, editing, signed, multiple parties, reliance, cost of breach, context - RPP
- Offers almost always factual dispute - diff factors can cut in favor/against - know how to argue
Case of the Hole in One - pg. 240 - Sign left up late to award car for hole in one - no witnesses
- Does RPP see sign an offer - need witness/judge - what consid? hurting score trying for ace - no reliance
- If in a tourney, maybe reas to think prize exists - who avoids mistake easier? Take down sign
2. Offer: Creation of Power of Acceptance
Lonergan v. Scolnick (1954) - pg. 245 - Newspaper ad for land in Joshua Tree
- Solicitation of an offer - form letter - open to all, but just 1 land - can’t be offer - no price/limit - imprecise
- Offeror is master of offer - may place any condition/term desired - always clarify w/ “this is not an offer”
Lefkowitz v. Great Minn Surplus (1957) - pg. 249 - 2 newspaper offers - fur coats and stoles
- Vague offer w/no price not enforced, offer w/specific price enforced - “first come first served” as offer
- Ads can be 3 things: 1. Offer; 2. Notice store intends to offer; 3. Solicitation for offers from buyers
- Ease of assessing damages may play a role - known price and quantity easy to remedy
Problem: Statue of Liberty - pg. 252 - Commemorative coin mail in offer
- Unable to fulfill “any” order so no offer - even though RPP would probably view ad as an offer
- Distinguish Lefkowitz: subj value to coin collector (damages tough) - no quantity limitation
Problem: The Case of the His and Hers Mercedes - pg. 253 - Slogan contest winner
- No definite prize offer, but very diff values - “what you could win” - something/nothing or type prize?
Leonard v. Pepsico (1999) - pg. 253 - Harrier jet offered in TV ad
- Order form leaves more to be done - no limit, offered to all - inadequate consid only when outlandish
Problem: When is Price Solicitation an Offer - pg. 264 - Grain dealer sends price offers
- Form letter w/ asking price maybe not offer - after negotiation/responding to request likely offer - context
- “Offer” undefined by UCC, see common law or R2d § 24 - F.O.B - free on board - buyer risk of transport
Southworth v. Oliver (1978) - pg. 267 - Rancher sends letter for interest in land/cattle to neighbor
- No mention of form letter - seemed personal to offeree by RPP - no set date, harder remedy - not enough
- Standard vs. rule - standard = flexible, consider circum, discretion - rule = definite, little discretion
Bretz v. Portland GE (1999) - pg. 272 - Agent offers to buy stock of wholly owned subsidiary of PGE
- Offeree can’t change solicitation into offer - offeror lays out mode of acceptance - as detailed as he wants
- Language like “please resubmit offer” shows no offer - sometimes offeree can be offeror w/counter
Equitable Life v. First National Bank (1999) - pg. 276 - 2 mortgages, dispute over ownership, auction
- Auction w/out reserve can’t be stopped once starting - agent needs auth or apparent auth (RPP)
- W/reserve: offer=bid, accept=gavel - W/out reserve: offer= auction, accept=final bid - default=w/reserve
3. Acceptance: Exercise of Power of Acceptance
La Salle Nat’l Bank v. Vega (1988) - pg. 284 - Bank drafts offer for D, D makes offer to other
- Offeror is master - has power to use other’s offer or draft own - ambig against drafter, D for delegating
- Bank may be in better position to draft offer, not offer itself unless D has power of acceptance of offer
Hendricks v. Behee (1990) - pg. 286 - D tries to sell to 3rd party, 3rd party accepts by mail, D cancels before
- Uncommunicated accept is no acceptance - offeror may retract offer any time before accept - draft around
Ever-Tite Roofing v. Green (1955) - pg. 288 - Roofing company in transport when canceled
- Commencing work enough for acceptance if stipulated - offeree drafted (co) vs offeror master (indiv)
- Reasons to have agent powerless to K: coordination/final approval, avoid misfeasance (lowball/bribe)
- K may expire by delay in time - if not specified K lapses after a “reasonable time”
Corinthian Pharm v. Lederle Labs (1989) - pg. 291 - P buys and distribs drugs made by D - Telgo machine
- Telgo gives tracking number not enough - like brushing teeth - instead accomm (favor), needs notification
- 2-206 - accept by any medium reas - non-conforming goods means accept unless notifying of favor
Problem: Case of the Laser Sale - pg. 296 - Letter to accept lasers but seller cancels by phone before mail
- No terms of accept specified - 2-206 - (1) perf may be reas - (2) still need notification to avoid lapse
- R2d 54 says no notification if accept by perf - UCC always trumps R2d, 2-206 wins
Carlill v. Carbolic Smoke Ball (1893) - pg. 296 - Reward if getting flu while using smoke ball - pg. 39N
- Ad is offer - expectation to pay, escrow - all people, but few get sick - need no notice to start - time limit
Glover v. Jewish War Vets (1949) - pg. 302 - Give murder info to police w/out awareness of reward
- Need knowledge of offer in order to accept - no inducement - no reward for police, PEDR
Comment: Acceptance by Performance - Options Contracts - pg. 309
- Option K - promise not to revoke offer - only if perf is only way to accept - unilateral K needs full perf
- § 30 - offeror decides how to accept - if silent, offeree may use any medium reasonable under circum
- § 32 - if offer is ambiguous, offeree chooses between performance or promise
- § 45 - if accept only by perf, begin perf creates an option K - completion must occur under K terms
- § 62 - if unclear how to accept and offeree starts perf, bilateral K - offeree must complete perf or breach
- See RECAP in notes pg. 40 for further breakdown
Industrial America v. Fulton Industries (1971) - pg. 305 - Broker helps both ends of merger
- Mixed motive ok - must know of offer but doesn’t need to be primary motivation - notice too
Problem: The Case of the Little League Sponsors - pg. 309 - $1000 to anyone who sponsors team
- Must be aware of offer - need not be sole motivation - maybe need notice - § 51 part perf w/out knowing
4. Acceptance by Conduct or Silence
Russell v. Texas Co. (1956) - pg. 311 - Mining co using more than easement, K sent to continue by perf
- § 69 accept by silence - need unambiguous mode of acceptance - reas terms - § 69.2 tort action like accept
- 2-206.1.c like § 69.2 - allows offeror to use 2-703 for breach remedies - § 69.1.b only good for offeree
Ammons v. Wilson & Co (1936) - pg. 316 - Shortening offer booked by agent not accepted til 12 days later
- § 69.1.c silence as acceptance if past dealings show reas to believe - length of silence before denial jury ?
- Policy issues over whether or not and when to use silent acceptance in notes on page 42
Adams v. Lindsell - pg. 320 - Wool seller gets acceptance late due to own mailing error
- Offer effective on receipt, accept eff on dispatch (mailbox rule § 40), counter eff on rec, revoke eff on rec
- Default rules only, may K around - rules irrelevant - policy = offeree can start perf right after mailing
- If accept mailed after counter, must be received before counter or else accept no good - same with reject
Problem: Acceptance of Resignation by Mail - pg. 324, 43N - recap of section, also hypos listed above
5. Nature and Effect of Counteroffer
Minn & St. Louis RR v. Columbus (1886) - pg. 325 - K to buy iron rails no good cause offer exploded
- If accept changes offer, not accept but counteroffer - mirror image rule - counteroffer blows up offer
- Want last form so your terms apply - if original offeror accepts counter by perf, use counter’s terms
*** 2-207 - Additional Terms in Acceptance or Confirmation - See notes page 45 for full discussion ***
Leonard Pevar v. Evans (1981) - pg. 329 - RACHEL - bad notes here, reread or get from study group
Textile Unlimited v. A..BMH (2001) - pg. 336 - P buys from D, D puts add’l terms on back of invoice
- No K under 2-207.1 if made conditional on accepting add’l terms - instead 2-207.3 and terms drop out
Hill v. Gateway (1997) - pg. 342 - Shrinkwrap case - computers shipped with terms
- Terms in box accepted unless return in 30 days ok - no 2-207 b/c only one form - bad case, trumped next
Klocek v. Gateway (2000) - pg. 345 - RACHEL - no notes
Problem: Standard Terms in K Formation - Shrink Wrap Licenses - pg. 348
- Examples of applying 2-207 - see notes pg. 48
Sprecht v. Netscape (2002) - pg. 349 - SmartDownload agreement says arbitration
- Terms below download button on webpage no good - need awareness - use more clickwrap “I agrees”
- Limited exception to the duty to read rule - internet different from paper
5. Termination of Offer - Destruction of Power of Acceptance
Dickinson v. Dodds (1876) - pg. 360 - P offers to D and gives time for accept, but sells to other before
- 2-205 - offer held open not revoked by lack of consid - b/t merchants - § 45 option K only when perf only
- § 87.1 says if it is a writing, no need for consid
- § 43 Offer revoked on notice of revocation - discovering sale to other is notice - must be reliable source
Problem: Case of Rejection, Revocation, and Acceptance Race - pg. 366
- If acceptance beats counteroffer, K is formed - counter first then accept negates accept mailbox rule
Problem: Case of the Dead Guarantor - pg. 366
- Contractual obligations survive death but offers don’t - must K around in offer
Humble Oil v. Westwide (1968) - pg. 370 - Option on tract of land supported by consid breached
- K = obligation to pay; Option K = right but not obligation - rejecting offer won’t destroy option K
- Difficult to price damage remedy for breach of option K - counteroffer won’t destroy option K
Marchiando v. Scheck (1967) - pg. 376 - Broker secures buyer then seller won’t sell
- Offer accept by perf only - partial perf - option K under § 45 - 45.2 only open for reas time
Problem: Case of Professor Fuzzy’s Well - pg. 380
- Determining whether part perf or not - breach of option K needs expectation damages calculated
Problem: Creation of Reliance Options - pg. 376
- Is there partial perf in payment - if show/gather money but not paying is partial perf, almost anything is
James Baird v. Gimbel Bros (1933) - pg. 381 - General contractor bidding based on subcontractor bids
- No K on offer by sub until accept by GC - no guarantee for GC, instead K around - force option K
Drennan v. Star Paving (1958) - pg. 383 - Sames as James Baird but diff outcome
- Combines § 90 PE with § 45 option K - no promise - promise not to revoke in § 45 plus reliance in § 90
- New default = sub bids are irrevoc - no GC bid shopping after winning bid - no industry need, reputation
- Codified in § 87.2 - counteroffer/rejection destroys reliance option
*** Summary of three types of option Ks and GC/Sub Problem in notes on pg. 53 ***
SKB Industries v. Insite (2001) - pg. 389 - RACHEL - no notes
B. Insufficient Agreement: Indefinite, Incomplete, and Deferred Terms
1. Defective Formulation and Expression of Agreement
Raffles v. Wichelhaus (1864) - pg. 393 - Mutual mistake of which Peerless boat to use for shipping
- §20 Mutual mistake means no K - latent ambiguity - diff meaning and neither knows others - no K
- Misunderstanding = material diff meanings by parties - disagree on term; Mistake = diff in underlying fact
Types of Misunderstandings:
1. No party knows/reas to know other’s terms - no K ??? RACHEL - Peerless case
2. Diff meanings but buyer knows of seller’s meaning - K on seller’s terms - easier for buyer to avoid
3. Diff meanings but buyer suspects seller has other meaning - K on seller’s terms - constructive notice
4. Both aware of other’s meanings - no K - equal fault so throw it out
5. Both parties believe wrong thing, reas person thinks other - use the parties’ error
Konic v. Spokane Computer (1985) - pg. 396 - Surge protector mistake $5620 vs. $56.20
- Both parties reas understanding - no fault - no K - seller gets no expectation damages
2. Indefinite Agreements
- Leave terms blank and agree to agree later
- Policy reasons: stages, hard to 4C contingencies, goodwill - help negot, create trust, signaling, wait info
- Major concern is whether courts can give a remedy with the indefinite terms - use gap filling
Varney v. Ditmars (1916) - pg. 400 - Architect pays salary and “fair share of profit”
- Courts can’t determine what is “fair share of profits” - easier to figure fair price than fair share of profits
- 2-305 - can gap fill price - Cardozo diss - better to gap fill using evidence of what fair share of profits is
3. Incomplete and Deferred Agreement
MGM v. Scheider (1976) - pg. 407 - Actor does pilot then refuses to act when picked up
- No date decided, but courts will gap fill - use agreement, commercial practice, custom, or common usage
- Explicit agreement to agree on details later might make more like a breach if refusing to negotiate
Joseph Martin Deli v. Schumacher (1981) - pg. 408 - Renewal rate of rent “to be agreed upon”
- No history of renewals, unequal bargaining power - court less likely to find K
- No gap fill, not sure parties would renew - look for bad faith bargaining - T could have bargained around
Oglebay Norton v. Armco (1990) - pg. 413 - Iron ore shipping K renewable on various rules
- Strong history of renewal - both pricing mechanisms fail - preserve relationship - reliance in buying boats
- If stonrg history may be tough to get out of K - probably need bilateral agreement between the parties
Empro MFC v. Ball-Co (1989) - pg. 427 - Valve company signs letter of intent - deal falls through
- One-sided loopholes and no defined promises, no power of accept - might be failing to negot in good faith
4. Remedies Where Agreement Incomplete or Indefinite
Hoffman v. Red Owl Stores (1965) - pg. 435 - D makes P sell bakery and get money, then says no sale
- Max use of PE - no agreement to terms - P is individual - injustice, looks like fraud - rare extreme
Copeland v. Baskin Robbins (2002) - pg. 443 - Buy mfc plant if seller agrees to buy ice cream
- No K, no ongoing relationship - basically left w/good faith duty to negot or reas intent - like PE, rarity
- Damages for breach of good faith duty to negotiate = only reliance not expectation damages
V. AVOIDANCE OF CONTRACTS
A. Capacity to Contract: Infancy and Mental Incompetence
- Void = K is automatically void - Voidable = still leaves K as option, but can be rescinded or avoided
- Categories: under 18; § 15 - mental illness; § 16 - unable to understand/act in reas manner, other knows
1. Infancy
Bowling v. Sperry (1962) - pg. 451 - Underage buys car, breaks down, disaffirms K
- Restitution - give back money; Restoration - give back car, regardless of condition; if necessity - K ok
2. Mental Incompetence
Heights Realty v. Phillips (1988) - pg. 459 - D doesn’t accept good offer on house, agent wants commission
- Presume capacity, prove lack of capacity by clear & convinc - use conduct, evidence - ct ignore adequacy
CitiFinancial v. Brown (2001) - pg. 464 - Profoundly retarded person signs arbitration agreement
- Retardation so severe, K is void - against § 15 - if voidable, arbitrator decides on case issues - but no K
B. Defects in Bargaining Process
1. Unilateral and Mutual Mistake
- § 152 Mutual Mistake - both parties same mistake about a fact, OR both make diff mistakes & both wrong
- § 153 Unilateral Mistake - only one party makes mistake, other knows/reas to know of mistake
- Analysis: decide if 1. mutual or unilateral; 2. material; 3. attrib more to 1 than other - use § 154
- Mistake = fact (ex. car runs well; lot has trees) - Misunderstanding = term (ex. Peerless is one from Oct)
Boise JuCo v. Matteffs (1969) - pg. 472 - Subcontractor makes mistake in bid, leaves out cost of glass
- Rescind mistake if: 1. material; 2. enforce is unconsc; 3. no legal duty or neg; 4. no prej; 5. prompt notice
Problem: Case of the Four Million Labels - pg. 479 - accidentally orders 4,000,000 instead of 4,000
- Should have known, but allow to unwind - MFC could have checked - history - unconsc
- Geologist hypo buys land knowing minerals below - no unwind - award special knowledge
Beachcomber Coins v. Boskett (1979) - pg. 479 - Collector sells expensive coin, buyer finds out counterfeit
- Mutual mistake - material - no enforce - use § 154 to see who bears risk - policy don’t promote counterfeit
- Risk bearer can be based on trade usage - must be so prevalent to be gap filler - K around - as is/warranty
Sherwood v. Walker (1887) - pg. 482 - Barren cow sold as meat then discovered to be pregnant
- Mutual and material - if mistake essential = unwind; if collateral (quality or value) = don’t unwind
- Best question is usually, would they have K’d w/out the mistake - present vs future fact may play role
Lenawee Board of Health v. Messerly (1982) - pg. 484 - Land bought for renting, closed for septic leak
- Sherwood test unworkable - § 152 mutual and material - § 154 risk agreement is “as is” - buyer
- § 154 seems to apply to mutual and unilat - “as is” can’t be used for fraud - no one agrees to broad “as is”
Problem: Case of the unknown oil deposit, drawings, injuries - pg. 492
- See notes page 68 for summary of analysis due to mistake
Ayer v. Western Union Telegraph (1887) - pg. 495 - Telegram company makes error in telegram
- Party choosing communication responsible for error - if other party knows mistake, maybe at fault
- Damages depend on if K - conseq damages, 4CBL - if goods shipped, price diff - if not, telegram cost
2. Fraud and the Duty to Disclose
*** See overview of fraud and misrepresentation on page 70 of notes ***
Laidlaw v. Organ (1817) - pg. 498 - Price of tobacco goes up after War of 1812
- If asked about fact, no duty to disclose - especially when fact is equally accessible - not D responsibility
Vokes v. Arthur Murray (1968) - pg. 500 - Bad dancer conned into buying dance lessons
- Misrepr of fact or opinion? - Reas to rely on comments of seller? - § 169 Rely on facts not opinions
Hill v. Jones (1986) - pg. 507 - Water damage and termite damage - asked owner, owner says no termites
- § 161(b) duty to disclose to correct mistake of other party - must be material - suing for fraud unwaivable
- Stronger argument for latent defects than for obvious or easily discoverable ones
VI. BREACH OF K AND REMEDIAL RESPONSES
A. Right to Suspend Perf or Cancel Upon Prospective Inability or Breach
- Defensive remedy - suspend perf - stop payment until completed (workers may then stop) - self-help
- Offensive remedy - sue and seek monetary damages
Hochster v. De La Tour (1853) - pg. 863 - Hires courier for tour of Europe then cancels
- Repudiation may be treated as breach - efficiency, no waiting til perf date to sue - must mitigate
- Why allow to sue before date of perf - other may need money to continue work - allows mitigation
*** Anticipatory repudiation - see notes page 72-73 for UCC summary of 2-609 through 2-611 ***
Taylor v. Johnston (1975) - pg. 868 - Owner tries to breed mares, claims repud, breeds with other
- Must sue after repud or risk retraction of repud - implied repud requires impossibility - get adeq assur 1st
Problem: The “Safe Harbor” Defense - pg. 876
- 2-612 - non-conform to 1 or more installs of installment K must subst impair whole to be breach of whole
- If not, just repud and 2-612 doesn’t apply - need to use 2-609 for adeq assur to get to 2-610 for breach
- Need reas grounds for insecurity to use 2-609 - if not, can’t hold to repud - called safe harbor
AMF v. McDonalds (1976) - pg. 876 - Selling cash registers to McDonalds and they don’t work
- Liberal reading of UCC - demand for adeq assur not in writing - AA asks for mod, need GF under 2-209
Plotnick v. Penn Smelting (1952) - pg. 882 - Lead purchase from Canadian seller - ship & pay late
- Choosing b/t 2-609 and 2-612 - buyer offers sight draft to assure seller of payment
- 2-703 Seller can’t cancel unless payment due on/before delivery, 2-709 “as it becomes dues”
- Can only get to 2-709 through 2-703, dilemma - fix in drafting “payment due on/before”
B. Compensatory Damages
1. Breach by Buyer
Hancock v. Cohen (1958) - pg. 890 - Insurance due for 20 years and only pay 15, get rest now?
- When full perf by one party and sum certain (just payments left) by other - can’t sue for future now
- Only get payments due & rest as they become due - K for acceler clause - Hochster diff (no full perf)
Problem: Seller’s Resale Remedy Under the UCC - pg. 896
- See notes page 76 for analysis of seller’s remedy
American Mech v. Union Machine (1985) - pg. 897 - Buyer repudiates and prop resold at foreclosure
- Need evid of market value at breach time - can prove expect damages w/out market value - use actual loss
- Conseq damages if 4CBL financial duress might lead to 4closure - D must know - but P needs to mitigate
New Era Homes v. Forster (1949) - pg. 901 - Progressive payment plan is breached - indivisible
- 2 remedies: 1. K price - payments made - cost to complete; 2. Value of work done - payments + lost profit
- Both options come out same because: lost profits = total rev - total costs; TC = work done + cost complete