CONTRACTS
I.
The Contract—requires both mutual assent and consideration. R 2d §17—
K=MA + C. Will not enforce gifts (no consideration)
a. Congregation Kadimah Toras-Moshe v. DeLeo—man promised to give
25K to congregation but died intestate without delivery of money.
II.
Was there Mutual Assent? (Meeting of the Minds, Intent to be Bound)
a.
Standard for determining meaning is objective—RPP would believe there
was an offer.
i. Embry v. Hargadine, McKittrick Dry Goods Co.—employment
dispute over whether employee had contract for another year. The
standard for mutual assent is objective—if RPP would think k
formed then it was. Intent of offeror does not matter.
b. Disputes often arise over whether there was mutual assent—
i. Kabil Development Corp. v. Mignot—dispute over whether
contract for helicopter services was formed or not because safety
inspection failed. Must look at all of the evidence—including the
impressions of the parties.
ii. Joseph Martin Deli v. Schumacher—dispute over terms of rental
agreement and price for extended contract. When terms are vague
then not enforceable, look to prior business dealings, court may be
able to provide remedy to dispute.
c. Certainty and continuing negotiations—
i. U.C.C. §2-305—if parties so intend, they can conclude a contract
for sale even though the price is not settled. In such a case, the
price is a reasonable price at the time for delivery if:
1. Nothing is said as to the price, or
2. The price is left to be agreed by the parties and if they fail
to agree, or
3. The price is to be fixed in terms of some agreed market or
other standard as set or recorded by a third person or
agency and it is not so set or recorded.
ii. R 2d §33—Certainty
1. Even though a manifestation of intention is intended to be
understood as an offer, it cannot be accepted so as to form
a contract unless the terms are reasonably certain.
2. The terms are reasonably certain if they provide a basis for
determining the existence of a breach for giving the
appropriate remedy.
3. The fact that one or more terms of a proposed bargain are
left open or uncertain may show that a manifestation of
intention is not intended to be understood as an offer or
acceptance.
iii. Empro Mfg. Co. v. Ball-Co. Mfg. Inc.—Empro showed interest in
purchase and sent letter indicating desire to purchase. Purchase
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iv.
v.
vi.
vii.
terms set, subject to conditions, conflict over one of terms. Ball
started negotiations with someone else. Empro was not bound so
no enforcement of deal.
R 2d §20—
1. There is no manifestation of mutual assent to an exchange
if parties attach materially different meanings to their
manifestations and
a. Neither party knows or has reason to know the
meaning attached by the other, or
b. Each party knows or each party has reason to know
the meaning attached by the other.
2. The manifestations of the parties are operative in
accordance with the meaning attached to them by one of
the parties, if
a. That party does not know of any different meaning
attached by the other, and the other knows the
meaning attached by the first party; or
b. That party has no reason to know of any different
meaning attached by the other and the other, and the
other has reason to know the meaning attached by
the first party.
Raffles v. Wichelhaus—two Peerless ships, confusion as to which
one was meant. No contract because no meeting of minds.
Flower City Painting v. Gumina Const. Co—confusion as to what
was to be painted (inside/outside/both). No contract because was
not clear from terms.
Dickey v. Hurd—offer to buy land, given deadline, confusion if
this was date of acceptance or date $ due. Burden on seller to
make terms clear so deal must continue since buyer assented to
deal before deadline.
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III.
OFFERS
a. Was there an offer?
i. R 2d §24—an offer is the manifestation of willingness to enter into
a bargain, so made as to justify another person in understanding
that his assent to the bargain is invited and will conclude it.
ii. R 2d §26—A manifestation of willingness to enter into a bargain is
not an offer if the person to whom it is addressed knows or has
reason to know that the person making it does not intend to
conclude the bargain until he has made further manifestation of
assent.
b. Did the offer expire?
i. Caldwell v. Cline—dispute as to whether the offer began to run
from date sent or received. Offer becomes effective when offeree
receives it and then time begins to run.
ii. Trexton v. Froelich—phone negotiations to purchase with buyer
leaving deal open at end of conversation. Tried to call back later
and take same offer—question as to whether the offer was still
open. Could still be open or could have indicated new offer.
Offers remain open for a reasonable time.
iii. As a general rule, the offeror controls the terms of the offer. They
designate offeree, time of expiration, method of acceptance. If no
expiration then expires after ‘reasonable’ time, if no mode of
acceptance designated then offeree free to choose method.
1. Allied Steel v. Ford Motor Co.—contract to install
machinery, amendment to indemnify (not signed) and
accident happened. Allied claimed had not accepted
because not signed. Court held that beginning performance
was acceptance (unless certain way specified).
c. Was the Offer Terminated or Revoked?
i. R 2d §36—
1. an offeree’s power of acceptance can be terminated by:
a. rejection or counter offer by the offeree (R 2d §39),
b. lapse of time, or
c. revocation by offeror (by reliable source or
actions—Patterson v. Pattberg—bond payoff)
d. death or incapacity of offeror or offeree.
2. in addition, an offeree’s power of acceptance is terminated
by the non-occurrence of any condition of acceptance under
the terms of the offer
ii. Offers become irrevocable by:
1. agreement (R 2d §87(1))
2. beginning performance in unilateral contracts (R 2d §45),
3. reasonable reliance on contracts (R 2d §87(2)).
d. Did Offer create an Option?
i. Nominal Consideration for Options is fine—
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1. Thomason v. Bescher—if recitation of consideration for
option is in writing then it creates option
2. Marsh v. Lott—writing acknowledged nominal
consideration for option.
ii. R 2d §87(1)—An offer is binding as an option contract if it
a. is in writing and signed by offeror, recites a
purported consideration for making of the offer, an
proposes an exchange on fair terms within a
reasonable time.
iii. U.C.C. §2-205 (Firm Offers)—An offer by a merchant to buy or
sell goods in a signed writing which gives assurance that it will be
held open is not revocable for lack of consideration. Any
assurance by offeree must be signed by offeror.
iv. R 2d §87(2)—An offer which the offeror should reasonably expect
to induce action or forbearance of a substantial character on the
part of the offeree before acceptance and which does induce such
action or forbearance is binding as an option contract to the extent
necessary to avoid injustice.
1. James Baird v. Gimbel Bros.—subcontractor
underestimated cost, contractor used bid to get contract, sub
notifies of mistake. Held no contract (notified before
awarded contract)
2. Drennan v. Star Paving Co.—subcontractor makes bid and
contractor uses it in master bid. Cannot revoke because
accepted and used. Allowed reliance whereas Gimbel did
not follow this logic.
e. Was it for a bilateral or unilateral contract?
i. R 2d §32—in case of doubt, an offer is interpreted as inviting the
offeree to accept either by promising to perform or by rendering
performance as the offeree chooses.
ii. R 2d §62—
1. where an offer invites an offeree to choose between
acceptance by promise or performance, the tender or
beginning of performance is acceptance by performance.
2. such an acceptance operates as a promise to render
complete performance.
a. Brackenbury v. Hodgkin—mother asks daughter to
come and take care of her, then she wants her out.
Court holds that acceptance was when she moved
away from her home to her mother’s home so
performance on mother’s part is enforceable. Now
daughter is on hook to finish or mother no longer
obligated.
iii. Bilateral—a promise in exchange for another promise
(presumption for bilateral when it is not clear R 2d §32)
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1. Davis v. Jacoby—request of couple to come from Canada
to CA to care for husband and wife. Man died before they
left Canada. Question as to whether unilateral (seeking
performance of coming) or bilateral (seeking promise to
come). Held that it was bilateral and enforceable after his
death since they had promised.
iv. Unilateral—a promise in exchange for performance
1. Traditional rule is that offeror can revoke until actual
performance (Patterson v. Pattberg)
2. R 2d §45—
a. when an offer invites an offeree to accept by
rendering a performance and does not invite a
promissory acceptance, an option contract is created
when the offeree begins the invited performance or
tenders the beginning of it.
b. the offeror’s duty of performance under any option
contract so created is conditional on the completion
or tender of invited performance in accordance with
terms of offer.
3. Cobaugh v. Klick Lewis, Inc.—unilateral contract—prize
in exchange for performance of hole in one.
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IV.
Acceptance
a. Was the offer accepted?
i. Traditional Rules—Livingstone v. Evans—back and forth with last
correspondence being offeror’s no less than $. Tried to accept but
already sold—court held that original offer was still open and
acceptance bound the offeror.
1. Mirror Image—if the acceptance is not exactly same as
offer then it is a counter offer.
2. Last Clear Chance—the last person to submit something
gets their terms to prevail.
ii. Battle of Forms—
1. U.C.C. §2-207—
a. A definite and seasonable expression of acceptance
or a written confirmation which is sent within a
reasonable time operates as an acceptance even
though it states terms that are additional to or
different from those offered or agreed upon, unless
acceptance is expressly made conditional on assent
to the additional or different terms.
b. The additional terms are to be construed as
proposals for addition to the contract. Between
merchants such terms become part of the contract
unless:
i. The offer expressly limits acceptance to
terms of the offer,
ii. They materially alter it, or
iii. Notification of objection to them has already
been given or is given within a reasonable
time after notice of them is received.
c. Conduct by both parties which recognizes the
existence of a contract is sufficient to establish a
contract for sale although the writings of the parties
do not otherwise establish a contract. In such cases,
the terms of the particular contract consist of those
terms on which the writings agree, together with
any supplementary terms incorporated under any
other provisions of this act.
iii. If conflicting terms then:
1. Gap fillers—if contract does not specify terms then the
terms are filled in with the provisions of the UCC.
2. Offeror’s terms prevail
3. Additional terms are incorporated into the contract (not
when terms are conflicting)
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iv. Idaho Power Co. v. Westinghouse Electric Corp.—Terms of sale
for switch, dispute when it malfunctions. Court applies provisions
of U.C.C. §2-207 and holds that no additional terms are implied.
v. FLOW CHART FOR §2-207
Definite and Seasonable Acceptance? (§2-207(1))
If no then no contract
If yes then is it a conditional assent?
If no, is contract—if
additional terms and
merchants: (§2-207(2))
If yes, no
contract
Is there
conduct
that
suggests
contract?
(§2-207(3))
If yes,
terms are
what
writings
agree on
and gap
fillers
If no, then
contract on
offeror’s
terms
Arbitration clauses are typically
material
Additional terms cannot change
terms already agreed upon
If yes, on offeree’s
terms unless:
1. offer limits
terms of offer
2. materially alter
3. notification of
objection
vi. Method of Acceptance—
1. If not clearly stated, then any method that is equivalent to
preferred method is fine.
2. Silence/Inaction—
a. R 2d §69—where an offeree fails to reply to an
offer, his silence and inaction operates as an
acceptance in the following cases only:
i. Where an offeree takes the benefit of offered
services with reasonable opportunity to
reject them and reason to know that
compensation is expected (Implied contract)
ii. Where the offeror has started or given
offeree reason to understand that assent may
be manifested by silence or inaction and
offeree, by remaining silent or inactive,
intends to accept offer.
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b. ProCD, Inc. v. Zeidenberg—Database provider
sells versions for consumers and for commercial at
different prices. Consumers must agree to terms
when use. Contract is binding even though can’t
see terms at purchase. Ok to buy now, terms later.
c. Hill v. Gateway 2000, Inc.—purchase of computer
with terms in box (providing arbitration clause).
Had opportunity to send back but didn’t so accepted
terms.
3. Non conforming response
a. U.C.C. §2-204—contract for sale of goods may be
made in any manner sufficient to show agreement,
including conduct by both parties which recognizes
the existence of such a contract.
vii. When did acceptance take place?
1. R 2d §63—Mailbox Rule—Unless the offer provides
otherwise:
a. An acceptance made in a manner and by a medium
invited by offer is operative and completes the
manifestation of mutual assent as soon as put out of
offeree’s possession, without regard to whether it
reaches the offeror; but
b. An acceptance under an option contract is not
operative until received by offeror.
2. Acceptance by Performance—Unilateral Contracts—
a. R 2d §32—in case of doubt, an offer is interpreted
as inviting the offeree to accept either by promising
to perform or by rendering performance as the
offeree chooses.
b. R 2d §62—
i. where an offer invites an offeree to choose
between acceptance by promise or
performance, the tender or beginning of
performance is acceptance by performance.
ii. such an acceptance operates as a promise to
render complete performance.
c. Brackenbury v. Hodgkin—mother asks daughter to
come and take care of her, then she wants her out.
Court holds that acceptance was when she moved
away from her home to her mother’s home so
performance on mother’s part is enforceable. Now
daughter is on hook to finish or mother no longer
obligated.
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V.
Consideration—R 2d §2—Promises—a promise is a manifestation of an
intention to act or refrain from acting in a specified way, so made as to justify
a promise in understanding that a commitment has been made.
a. Bargain Theory—
i. R 2d §71—Requirement/Types of Exchange
1. To constitute consideration, a performance or return
promise must be bargained for.
2. A performance or return promise is bargained for if it is
sought by the promisor in exchange for his promise and is
given by the promisee in exchange for that promise.
3. The performance may consist of:
a. An act other than a promise, or
b. A forbearance, or
c. The creation, modification, or destruction of a legal
relation.
4. The performance or return promise may be given to the
promisor or to some other person. It may be given by the
promisee or by some other person.
ii. Hamer v. Sidway—uncle promised $5K if nephew refrained from
certain behavior. Nephew did, so the promise was enforceable—
exchange was forbearance.
b. Inducements—
i. Earle and Simmons—court found that promise to pay if attend
funeral (promise was sought after) and prize money for catching a
fish (performance sought after) were both valid exchanges.
ii. Whitten—promise not to call in exchange for gifts not valid
because she wrote k and no evidence that he wanted her not to call
(not sought after performance).
iii. R 2d §81—Consideration as Inducement
1. The fact that what is bargained for does not itself induce
the making of a promise does not prevent it from being
consideration for the promise.
2. The fact that a promise does not itself induce performance
or return promise does not prevent the performance or
return promise from being consideration for the promise.
c. Forbearance—there are two tests to determine if this is adequate
consideration—Duncan requires both good faith and base for claim, R
2d §74 only requires one or the other.
i. Duncan v. Black—promise not to sue—if a forbearance from
exercising a legal right is to be enforceable then: the claim must
have been made in good faith and not have been baseless.
ii. R 2d §74—Settlement of Claims
1. Forbearance to assert the surrender of a claim or defense
which proves to be invalid is not consideration unless—
1. The claim or defense is in fact doubtful because of
uncertainty as to the facts or the law, or
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2. the forbearing or surrendering party believes that the
claim or defense may be fairly determined to be
valid.
iii. Pre-existing Duty—generally not consideration, even for 3rd
parties. Exceptions:
1. new detriment
2. supervening problems that affect basic assumption of
contract
d. Was Consideration Adequate?
i. Nominal (sham) consideration—courts will not enforce bargains
that have sham consideration—must truly be a bargain.
1. Fischer v. Union Trust. Co—father tried to give daughter a
deed and promise to pay mortgages (got $1 in return).
Didn’t pay mortgages—won’t enforce because no
consideration or sham consideration.
2. Schnell v. Nell—promise to pay $200 in installments in
exchange for $0.01 is not consideration.
ii. Not all unequal exchanges are considered to be nominal—
1. Batsakis v. Demotsis—promise to pay $2000 in exchange
for about $25—borrower needed money to survive. Court
does not inquire as to terms or uneven bargaining power
and upholds bargain.
2. Embola v. Tuppela—promise to pay $10,000 in exchange
for $50 to recover mine in Alaska (long shot). Promise was
enforceable because he needed money and other party took
the gamble.
iii. Consideration based on past benefit—
1. R 2d §86—Promises for Benefits Received
a. A promise made in recognition of a benefit
previously received by the promisor from the
promisee is binding to the extent necessary to
prevent injustice.
b. A promise is not binding under section 1
i. if the promise conferred the benefit as a gift
or for other reasons the promisor has not
been unjustly enriched, or
ii. to the extend that its value is
disproportionate to the benefit.
2. Mills v. Wyman—promise to pay for sick son’s care after
he has died. Court holds not enforceable promise for past
benefit received.
3. Webb v. McGowin—promise to pay for saving him from
being hit by log—had begun payments, terminated on death
of promisor—court held that estate had to pay—perhaps
because of preexisting payments
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4. Harrington v. Taylor—promise to pay after being saved
from ax blow to head—started payments then stopped—no
obligation to continue payment
5. Factors to Consider for Past Benefit—
a. Aspect of promise (timing, formality)
b. Nature of past benefit (gift v. obligation)
c. Conduct of promisor/promisee
e. Was promise illusory?
i. Examples—
1. Davis v. General Foods—could or not decide to use
recipe—too indefinite
2. Nat. Nal. Service Stations v. Wolf—if buy gas then get
discount—illusory because had choice not to buy any gas.
However discount was applied to every small transaction
when he did buy gas.
3. Obering v. Swain-Roach Lumber—if lumber company
bought land and removed timber then family would buy
from them. After purchase at auction, family refuses to
purchase. Binding at moment company purchased because
no repudiation before condition was met and binding on
both parties.
ii. Ways to avoid problem of Illusory Promises
1. Define commitment very broadly—finding commitments in
slight limits of discretion
2. Finding that alternative promises can be consideration if
each one could be consideration.
a. R 2d §77—a promise or apparent promise is not
consideration if by its terms the promisor or
purported promisee reserves a choice of alternative
performances unless: each of the alternative
performances would have been consideration if it
alone had been bargained for.
b. Paul v. Rosen—promise to sell liquor store if can
secure lease—alternative promises are 1. buy
inventory or 2. not get lease—second option is not
consideration so whole deal fails.
3. Finding implied duties that serve as commitments—
a. Wood v. Lucy, Lady-Duff Gordon—agreed to let
Wood endorse all fashion choices. LDG argues
Wood’s promise is illusory—implied obligations
makes contract binding.
b. Omni Group v. Seattle First-National Bank—
promise to sell property for $, sale conditioned on
satisfactory reports. Promise to obtain reports is
implied duty of good faith so contract is valid.
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c. Feld v. Henry S. Levy and Sons—promise to sell
all breadcrumbs made. Court held duty to provide
even if stop production until contract cancelled.
d. U.C.C. §2-306—Output requirements and
Exclusive Dealing—
i. a term which measures the quantity by the
output of the seller or the requirement of the
buyer means such actual output or
requirements as may occur in good faith....
ii. a lawful agreement by either the seller or
buyer for exclusive dealing in kind of goods
concerned imposes an obligation by seller to
supply goods and to buyer to promote their
sale.
f. Is it an adjustment to a preexisting contract?
i. Traditional rule required consideration for adjustments:
1. Levine v. Blumenthal—no change to the lease terms
(reduce price) because no consideration for second bargain.
2. U.C.C. §2-209
a. An agreement modifying a contract within this
article needs no consideration to be binding
(overrules Levine)
b. A signed agreement which excludes modification or
recission except by signed writing cannot be
otherwise modified or rescinded, but with
merchants can be done with form of one signed by
other
c. Statute of frauds provision—
3. R 2d §89—A promise modifying a duty under a contract
not fully performed on either side is binding:
a. if a modification is fair and equitable in view of the
circumstances not anticipated by the parties when
the contract was made, or
b. to the extent provided by statute
c. to the extent that justice requires enforcement in
view of material change of position in reliance on
that contract.
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VI.
Implied Contracts/Estoppel
a. Implied in fact—where a party takes a benefit whether silently or
passively with knowledge that the provider expects compensation.
Provider must have reasonable expectation of payment. Can recover the
reasonable value of the services under these contracts.
i. Martin v. Little, Brown & Co.—man reports plagiarism of a book
to publishing company. Publisher sends $200 honorarium, guy
wants 1/3 of copyright infringement award. Claimed implied in
fact contract—no reasonable expectation of compensation.
ii. Collins v. Lewis—dispute over the boarding of cows. Notified
owner that they would be billed for upkeep/boarding of cows.
Implied in fact contract because of action of parties.
iii. Seaview Ass’n of Fire Island, NY v. Williams—dispute over
payment of homeowners dues—court held implied k because
owners had constructive knowledge of association’s activities.
(could also be implied in law)
b. Is Estoppel Appropriate?
i. Promissory Estoppel—party is estopped because other party relied
on their promise
1. Kirksey v. Kirksey—Woman was induced to move by
brother-in-law’s promise of a place to stay. Court held that
no enforceable promise to provide place to stay because
gratuitous promise—one member of court thought moving
was consideration enough to bind.
2. Prescott v. Jones—dispute over whether letter was promise
to renew insurance policy on building—court said no
consideration and no reliance on promissory estoppel.
ii. Estoppel as applied in Contract Law—
1. R 2d §90—promise reasonably inducing action or
forbearance
a. a promise which a promisor should reasonably
expect to induce action or forbearance on the part of
the promisee or a third person and which does
induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the
promise. The remedy granted for breach may be
limited as justice requires.
b. a charitable subscription or marriage settlement is
binding under subsection (1) without proof that the
promise induced action or forbearance.
2. Ricketts v. Scothern—reliance on note to stop work—no
consideration but reliance--court uses estoppel to enforce
the obligation.
3. Allegheny College v. National Chautauqua County
Bank—promise to give for scholarship, paid some—court
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held was implied contract with consideration (named
fund)—no use of estoppel because no reliance.
4. East Providence Credit Union v. Geremia—insurance
lapse—bank held to have promised to maintain—no
estoppel but implied contract (bargain with consideration).
5. Hoffman v. Red Owl—application of promissory estoppel
to case where man thought he was getting a store. Case
criticized because not clear that Hoffman relied on any
promise to his detriment.
6. Goodman v. Dicker—told had franchise for Emerson
radios—no franchise granted—applied promissory
estoppel—this may be closer to fraud/misrepresentation.
7. Forrer v. Sears, Roebuck & Co.—man induced to return to
work at Sears after retirement, reliance on promise for
lifetime employment—court held no extra consideration for
lifetime employment so no enforcement—going back to
consideration theory?
8. Hunter v. Hayes—promise for job as flagger, quit job as
telephone operator. Never gave her the job so relied on
promissory estoppel to get recovery.
9. Stearns v. Emery Waterhouse Co.—induced to work for EW by promise of 5 year contract. Not in writing so had to
rely on promissory estoppel (would have violated statute of
frauds). Contract was enforceable.
10. R 2d §139—
a. A promise which the promisor should reasonably
expect to induce action or forbearance on part of the
promisee and which does NOT induce the action or
forbearance is enforceable not withstanding the
statute of frauds if injustice can be avoided only by
enforcement of the promise. Remedy can be
limited as justice requires.
11. NC only allows defensive estoppel
c. Implied in law/Quasi contract—where a party confers a benefit on
another party and the other party would be unjustly enriched if it were
not required to return (or compensate for) the benefit.
i. Volunteers cannot recover under this type of contract.
ii. Can recover amount of benefit conferred on other party
(restitution) under these contracts.
iii. Remedy for invalid contracts
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VII. Contract Validity
a. Are the parties competent?
i. contracts by minors and mentally ill are voidable by person lacking
competency. Exceptions are for minors contracting for necessaries
(food, shelter) and certain other contracts (insurance, banking,
student loans). Promises can be ratified, reaffirmed when minor
reaches majority.
1. R 2d §14—Infancy—
2. R 2d §15—Mental Illness or Defect—
b. Was there fraud or misrepresentation?
i. R 2d(TORTS) §525—one who fraudulently makes a
misrepresentation of fact, opinion, or intention of law for the
purpose of inducing another to act or refrain from action in
reliance upon it, is subject to liability to the other in deceit for
pecuniary loss caused to him by his justifiable reliance.
ii. R 2d §164—if a party’s manifestation of assent is induced by
either fraudulent or a material misrepresentation by the other party
upon which the recipient is justified in relying, the contract is
voidable by the recipient.
1. Types of fraud/misrepresentation:
a. Innocent
b. Negligent
c. Fraudulent
iii. Constructive Fraud—arises most often in confidential
relationships or mutual mistake cases
1. Jackson v. Seymour—sister wants recission of deed
because land wasn’t what was represented to her. Cannot
prove actual fraud but got judgment in favor on
constructive fraud.
iv. Warranty
1. Tribe v. Peterson—man claimed horse was sold with ‘no
buck’ guarantee, or misrepresentation because horse threw
him. Court held no such warranty and no
misrepresentation.
2. Hinson v. Jefferson—land sold restricted to residential but
septic field prevented building. Held could rescind based
upon mutual mistake of fact or implied warranty.
v. Concealment
1. R 2d §160—action intended or known to be likely to
prevent another from learning a fact is equivalent to an
assertion that the fact does not exist.
vi. Disclosure
1. R 2d §161—A person’s non-disclosure of a fact known to
him is equivalent to an assertion that the fact does not exist
in the following cases only:
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a. disclosure prevents a prior disclosure from being a
misrepresentation
b. disclosure would correct a mistake as to basic
assumption on which deal is based, or would be
given in good faith
c. disclosure would correct mistake as to contents of
deal in writing
d. other party is entitled to disclosure because of
relationship
2. Courts are likely to require disclosure if:
a. information is latent as opposed to patent
b. information is necessary to update or correct
previously disclosed info
c. parties are in a fiduciary or confidential relationship
d. information is illegally or tortiously acquired
e. the uninformed party is the buyer or lessee
f. uninformed party is sympathetic
g. informed party engages in bad behavior.
3. Kleinberg v. Ratett—k to buy land free of encumbrances—
had stream running through it. Could be non-disclosure
(sellers knew) but held no recovery under caveat emptor
c. Was there a mistake by one or both of the parties?
i. Unilateral Mistake—R 2d §153—where a mistake of one party at
time of contract was made as to a basic assumption on which he
made the contract has a material effect on the agreed exchange of
performances, that is adverse to him, the contract is voidable by
him if he does not bear the risk of mistake under §154.
1. the effect of the mistake is such that the enforcement of the
contract is unconscionable
2. the other party has reason to know of the mistake or his
fault caused the mistake.
ii. Bilateral Mistake—R 2d §152—where a mistake of both parties at
the time the contract was made as to the basic assumptions on
which the contract was made has a material effect on the agreed
exchange of performances, the contract is voidable by the
adversely affected party, unless they bear the risk of mistake under
§154.
1. R 2d §154—a party bears the risk of mistake when—
a. the risk is allocated by agreement of the parties
b. he is aware at the time the contract was made that
he has limited knowledge with respect to the facts
to which the mistake relates but treats limited
knowledge as sufficient.
c. the risk is allocated to him by the court on the
ground that it is reasonable under the circumstances
to do so.
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2. Sherwood v. Walker—dispute about cow’s ability to bear a
calf. Price agreed to was for barren cow—fertile much
more. Held that there was a mutual mistake of fact.
3. Beachcomber Coins v. Boskett—rare dime discovered to
be counterfeit. Purchaser can get money back because
mutual mistake of fact.
4. Smith v. Zimbalist—prominent violinist thought fake
violins were real and paid a lot of $ for them. Held as
express warranty since they were described as authentic on
bill of sale. Entitled to $ back.
d. Was the contract unconscionable? Where there both procedural
(surprise) and substantive unfairness (unequal bargaining power) issues?
i. U.C.C. §2-302—if the court, as a matter of law, finds the contract
or any clause of the contract to have been unconscionable at the
time made, the court may refuse to enforce the contract or it may
enforce the remainder of the contract without the unconscionable
clause, or it may so limit the application of any unconscionable
clause to avoid any unconscionable result.
1. Williams v. Walker-Thomas Furniture—Woman buys
stuff on bad credit arrangement—court found to be
unconscionable
2. Gianni Sport Ltd. v. Gartos—had term in contract that said
could cancel at any point before shipping—court found to
be unconscionable—could also be illusory
3. Waters v. Min—woman induced to sign away annuity
policy—found to be unconscionable
ii. R 2d §205—every contract imposes on each party a duty of good
faith and fair dealing in its performance and enforcement.
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VIII. Interpretation of the Contract
Four Corners
Four Corners (Plain
Meaning)
Contextual
To determine if ambiguous
Text (document)
Text (words)
To determine the meaning
Context and extrinsic
evidence
Context and extrinsic
evidence
Context and extrinsic
evidence
Dealing/performance/trade
Context and extrinsic
evidence
U.C.C. §2-202
n/a
a. Two approaches:
i. Four Corners Rule—uses text of contract to see if ambiguous and
if so turn to extrinsic evidence for clarification.
1. Bethlehem Steel v. Turner Construction—dispute over
price for steel. Court used four corners approach to hold
that language of contract permitted price increase by
subcontractor at will.
2. Federal Dep. Ins. V. W.R. Grace—use of four corners cuts
down on litigation. Disagreement over terms does not
mean ambiguity.
ii. Contextualism—look at both text and extrinsic evidence to
determine if ambiguous, use extrinsic evidence to clarify.
1. Robert Industries v. Spence—advocating contextualism
2. Pacific Gas v. G.W. Thomas Drayage—disagreement over
who indemnity clause covers—appellate court used
contextualist approach—“if the court decides, after
considering extrinsic evidence, that the language of a
contract, in light of all of the circumstances, is fairly
susceptible to either one of two interpretations contended
for, extrinsic evidence relevant to prove either of such
meanings is admissible”
3. Spaulding v. Morse—looked at reasons for support of son
to determine whether or not contract was enforceable.
4. R 2d §212—a question of interpretation of an integrated
agreement is to be determined by the trier of fact if it
depends on the credibility of extrinsic evidence or a choice
among reasonable inferences. Otherwise it is a question of
law.
5. U.C.C. §2-202—terms of contract may be explained...by
course of dealings or usage of trade or course of
performance.
b. Parol Evidence Rule—a writing intended as a final agreement should be
protected from efforts to prove inconsistent terms, and in some cases,
supplemental terms as well.
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2.
3.
4.
5.
a. An integrated agreement discharges inconsistent terms, and if it is a
completely integrated agreement, it discharges supplemental terms as
well.
b. Questions:
i. Is the prior agreement a separate deal, one based on separate
consideration? R2d § 216(2)(a)
ii. If not, is there an integrated agreement? R2d § 209
1. A writing or writings constituting a final expression of
one or more terms of an agreement. R2d § 209
2. If writing reasonably appears to be complete, it is
presumably an integration.
3. Prior agreements or negotiations are admissible to
establish whether an agreement is integrated or partial R
2d §214(a)
iii. Is the integration partial or complete?
1. If partial, it discharges inconsistent prior agreements R2d
§ 213(1)
2. If complete it discharges inconsistent prior agreements as
well as all prior agreements within its scope. R2d §
213(2)
3. Prior agreements or negotiations are admissible to
establish whether the integration is complete or partial.
R2d § 214(b)
4. Merger clause (“this agreement includes all terms…) is
strong evidence of complete integration, perhaps
conclusive under 4 corners rule.
c. Is prior agreement one that might naturally be omitted form an otherwise
complete integration?
i. If so, the agreement is not discharged unless the agreement
expressly forecloses this (through a merge clause, for example).
R2d § 216(2)(b)
d. Even if these are proven, then it becomes a question of fact for the jury.
Mitchill v. Lath—Dispute over removal of ice house on property—court found
that contract was complete and thought that removal of ice house would have
been something that would have been in writing so seller did not have to
remove.
Hatley v. Stafford—lease of land for growing wheat, had buyout option. Court
holds that oral evidence was relevant because no specific time for buyout in
contract, so oral was relevant. Court looks to circumstance to determine if this
was something that should have been in contract-held that it was not.
Hayden v. Hoadley—an oral term in direct conflict with written contract will
not be admitted.
Interpretative Canons—
a. Always construed against drafter
b. Lists are always exclusive or exhaustive
c. Specific terms trump general ones
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b. Does it involve a Standardized Form?—there is a duty to read these
contracts (contracts of adhesion) but there are a number of exceptions to that
rule:
1. contract/term not legible or comprehensible
2. contract/term not sufficiently brought to attention of offeree
3. drafter of contract/term misrepresents the content of the
contract/term
ii. Agriculture Insurance Co. v. Constantine—garage ticket is held not
to be a contract. Actually a bailment for hire.
iii. Sharon v. City of Newton—signed release form for sport but was
injured. Court held that this was sufficient notice to bind them to the
agreement (had time to look, etc.)
iv. Mundy v. Lumberman’s Mut. Cas. Co.—change in insurance policy
terms that limited liability. Term in large print and held to be
sufficient notice.
v. Weisz v. Parke-Bernet Gallaries—dispute over terms of sale at gallery
auction—held that disclaimer about authenticity was sufficient.
vi. Henningsen v. Bloomfield Motors—defect in car caused wreck,
dispute over terms of limited warranty—held that small type, info
buried on back of form was inadequate notice.
c. Is there an express or implied warranty?
i. U.C.C. §2-313—express warranties
1. Express warranties by the seller are created as follows:
a. any affirmation of fact or promise made by seller to
buyer that relates to goods and becomes part of basis
for bargain creates express warranty.
b. any description of goods that made part of basis for
bargain creates express warranty that goods will
conform to description
ii. U.C.C. §2-314—implied warranties—unless otherwise excluded or
modified, there is an implied warranty that goods are not defective
1. U.C.C. §2-316—to change or modify that implied warranty,
language must be conspicuous and in writing
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IX.
Impossibility and Impracticability
a. Is the contract impossible to perform?
i. Traditional—if the performance depends on existence of
something that no longer exists, then not required to perform.
1. Taylor v. Caldwell—contract to use concert hall that
burned to ground before first concert—court held excused
from performance because of impossibility.
2. Tompkins v. Dudley—school house burned down after
projected finish date but before finished—court held not
impracticable or impossible—just have to rebuild at their
cost
ii. R 2d §262—Death or Incapacity of Person Necessary for
Performance.
iii. R 2d §263—Destruction, Deterioration, or Failure to Come into
Existence of thing Necessary for performance
iv. R 2d §264—Prevention by government regulation or order
1. Louisville and Nashville RR v. Crowe—passes were
invalid because of government regulation—were entitled to
value of land given minus the value of used pass
2. Isle of Mull—no responsibility to charterers when boat was
requisitioned by army
b. Is the contract impracticable to perform?
i. R 2d §261—Impracticability—Where, after a contract is made, a
party’s performance is made impracticable without his fault by the
occurrence of an event the non-occurrence of which was a basic
assumption on which the contract was made, his duty to render that
performance is discharged, unless the language or the circumstance
indicates the contrary.
ii. Impracticability—where impractical, performance is discharged
if:
1. occurrence of an event the non-occurrence of which was a
basic assumption, unless
2. circumstances indicate the contrary
3. parties allocate risk of impracticability to party asserting it,
or
4. nature of contract allocates risk to that party
5. the party is in a better position to avoid losses (insurance)
6. the fact that a supervening event was not foreseeable may
be relevant
iii. Kel Kim v. Central Markets—lease required insurance, insurance
market gone bad. Court held that they could have avoided risk by
getting insurance so no excuse from performance.
c. Commercial Impracticability
i. American Trading Prod. v. Shell Int’l Marine—carry oil from TX
to Bombay. Suez canal closed so had to go way around. Tried to
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recover additional cost under either impossibility or
impracticability—court said no, another route known and held that
extra cost not unreasonable.
ii. U.C.C. §2-615—Impracticability—Comment 4—increased cost
alone, even market collapse, may not excuse performance
iii. Maple Farms v. City School District—example of comment 4—
price increase not enough to discharge.
iv. Mishara Construction v. Transit Mixed Concrete—strike at
jobsite, concrete company claimed couldn’t deliver concrete—
sometimes this works—jury question.
b. Doctrine of Frustration of Purpose
i. Krell v. Henry—rented room to see coronation, king got sick so no
need. The underlying purpose was gone but room could still be
rented. Not responsible for rest of $.
ii. R 2d §265—where, after a k is made, a party’s principal purpose is
substantially frustrated without his fault by the occurrence of an
event the non-occurrence of which was a basic assumption on
which the contract was made, his remaining duties to render
performance are discharged, unless the language or the
circumstances indicate to the contrary.
iii. Key questions:
1. is the primary purpose frustrated?
2. is there some reason that the asserting party should bear the
risk
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X.
Breach
a. Damages—R 2d §344—three types of damages
i. Measured by loss/gain of the non-breaching party
1. Acme Mills v. Johnson—the damage was calculated at the
time of the breach, not at time of contract.
ii. Expectation—two measures
1. expected profits/gains + reliance costs
a. Rockingham Co. v. Luten Bridge Co.—bridge
company wanted damages for full price but could
only recover expenditures + loss profits. Duty to
mitigate introduced.
b. Louise Caroline Nursing Home v. Dix Const.—
construction company breached but cost to finish
was less than contract price, so no damage.
2. R 2d §347—(used in Hawkins v. McGee) injured party has
right to damages based upon his expectation interest as
measured by:
a. Loss in value to him of the other party’s
performance caused by failure, deficiency, plus
b. Any other loss, including incidental or
consequential (not reliance), less
c. Any cost/loss that has been avoided by not having
to perform
iii. Reliance—reimbursement for loss caused by reliance on the
contract; cost to get plaintiff back to position if contract had never
happened
1. Sullivan v. O’Connor—court awarded only reliance, not
expectation
iv. Restitution—restore any benefit that one conferred onto breaching
party; value of benefit
1. Party can go off the contract to recover in restitution
b. Limitation on Damages
i. Mitigation—introduced in Luten Bridge
1. overhead expenses do not mitigate
a. Leingang v. City of Mandan Weed Board—
overhead costs related to the specific should not be
deducted from the award, but general costs can.
2. if no substitute then market value is measure of damage
3. Loss volume seller theory—a second/additional transaction
does not mitigate damages for the breach if the transaction
could have taken place absent the breach. However, the
second transaction does mitigate if it is made possible by
the breach.
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a. Kearsarge Computer v. Acme Staple Co.—new
contract after breach. If could have done both then
no mitigation
4. Must use reasonable effort to find comparable or
substantially similar job
a. Parker v. 20th Century Fox—dispute over whether
2nd movie deal offer was similar enough to mitigate
b. R 2d §350—“loss avoided without undue risk,
burden or humiliation”—if find another job, even if
inferior, then mitigation.
ii. Consequential Damages/Foreseeability
1. R 2d §351—
a. Damages are not recoverable for loss that party in
breach did not have reason to foresee as a probable
result of the breach when the contract was made
b. Loss may be foreseeable as a probable result of a
breach because it follows from the breach
i. In the ordinary course of events
ii. As a result of special circumstances beyond
the ordinary course of events, that the party
in breach had reason to know
c. A court may limit damages for foreseeable loss by
excluding recovery for loss of profits, by allowing
recovery only for loss incurred by reliance if justice
requires to avoid disproportionate compensation.
2. Hadley v. Baxendale—no way to know that the delay in
crankshaft would shut down the mill.
3. Lamkins v. International Harvester Co.—tractor without
lights, tried to sue for lost crop—is this foreseeable?
iii. Uncertainty of profits
1. R 2d §352—damages are not recoverable for loss beyond
the amount that the evidence permits to be established with
reasonable certainty
a. Freund v. Washington Square Press—breach to
publish book, could not establish profits, no
damages.
b. Fera v. Village Plaza—breach on commercial
lease—no guarantee of profits, no damages
c. Chicago Coliseum Club v. Dempsey—no
establishment of profits so can’t get damages on it
2. R 2d §349—as an alternative to damages measured in
§347, plaintiff has right to damages based on reliance
interest, including expenditures made in preparation of
performance or in performance, less any loss defendant can
prove with reasonable certainty that plaintiff would have
incurred if contract had been performed
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a. Anglia Television v. Reed—no show for play—was
entitled to preparation expenditures
b. Security Stove v. American Ry.—breach to deliver
stove, recover preparation damages but not profits
(not certain of amount)
c. Liquidated Damages—cannot provide for this in a contract as a penalty for
a breach.
i. R 2d §356—damages for breach by either party may be liquidated
in the agreement but only at amount that is reasonable in light of
anticipated or actual loss caused by breach and the difficulties of
proving loss. A term fixing unreasonably large liquidated damages
is unenforceable on grounds of public policy as a penalty.
d. Restitution—unjust enrichment/quantum meruit
i. Off contract when contract is void or unenforceable
1. R 2d §370—a party is entitled to restitution under the rules
stated here only to the extent that he has conferred a benefit
on the other party by way of performance or reliance.
2. Boone v. Coe—k not enforceable b/c of statute of frauds
(over one year performance to TX), but part performance
so restitution
a. R 2d §375—not barred from restitution because k
unenforceable under statute of frauds.
3. Kearns v. Andree and Farash v. Sykes—k not enforceable
so only restitution interest is available
ii. Off contract when contract is enforceable
1. R 2d §371—if a sum of money is awarded to protect a
party’s restitution interest, it may be as justice requires be
measured by either:
a. Reasonable value to other party of what was
received in terms of cost to obtain from person in
claimant’s position
b. Extent to which the other party’s property has been
increased in value or other interests advanced
2. U.S. v. Algernon Blair—chose to get restitution because
would have lost money on either expectation or reliance
since were in losing contract.
iii. Measure of damages for total breach of contract
1. R 2d §373—Party is entitled to restitution for any benefit
that he has conferred on the other party by way of part
performance or reliance. The injured party has no right to
restitution if they have performed all of their duties under
the contract and all that remains of other party’s
performance is payment of a certain sum of money.
2. Oliver v. Campbell—couldn’t recover in restitution
because performance was completed—was limited to
balance unpaid on contract.
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iv. Part performance
1. R 2d §374—if a party refuses to perform on the ground that
his remaining duties of performance have been discharged
by the other party’s breach, the party in breach is entitled to
restitution for any benefit conferred in excess of the loss he
has caused by own breach.
2. Britton v. Turner—k for flat fee for year’s work. Can
recover for value of 9 months of service less damages to
non-breaching party.
e. Specific Performance/injunctive relief—
i. R 2d §359—specific performance or an injunction will not be
ordered if damages would be adequate to protect the expectation
interest of the injured party.
ii. R 2d §360—in determining whether the remedy in damages would
be adequate, the following circumstances are significant:
1. the difficulty of proving damages with reasonable certainty
2. the difficulty of procuring suitable substitute performance
by means of money awarded as damages, and
3. the likelihood that award of damages could not be collected
iii. Limitations—even if damages are not adequate, specific
performance or injunction is not granted if:
1. disproportionate burden on defendant
2. significant/ongoing court supervision is required
iv. courts rarely force parties to affirmatively perform—but will issue
negative injunctions (covenants not to compete) but even those are
narrow.
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