Chapter 2: Damages
A. Expectation, Reliance, and Restitution
-
Expectation: Putting the non-breaching party in as good of a position as he would have been
had the contract been performed.
Reliance: Putting the non-breaching party in the position he was in prior to the formation of the
contract
Restitution: Giving the non-breaching party the benefit of the bargain it conferred to the
breaching party.
General Rule
- Expectancy damages are generally the default award
- Injured party has a right to damages based on his expectation interest, measured by:
a. Loss in the value to him of the other party’s performance caused by its failure or
deficiency, plus
b. Any other loss, including incidental or consequential loss caused by the breach, less
c. Any cost or other loss that he has avoided by not having to perform.
Exceptions
- Reasons for not using alternative to expectation damages:
1. Hard to apply
2. Too harsh
- Expectation would be too harsh because the value to be received is too
disproportionate to the fee paid (such as with plastic surgery).
3. Performance was interfered with by external circumstances
4. Contract was indefinite
Availability of Damages
1. Injured party has a right to damages for any breach by a party against whom the contract is
enforceable unless the claim for damages has been suspended or discharged.
2. If breach caused no loss or if he amount of the loss is not proved, a small sum fixed without
regard to the amount of loss will be awarded as nominal damages.
-
Courts have reached different conclusions as to whether the UCC should apply to mixed
transaction of goods and services
B. Three Limitations on Damages
1. Remoteness or Foreseeability of Harm (Consequential Damages)
Rule
1. Damages may only be recoverable if the party in breach had reason to foresee that they
would be a probable result of the breach.
2. Damages may be foreseeable as a probable result of a breach because it follows from the
breach
a. In the ordinary course of events [General Damages], or
b. As a result of special circumstances, beyond the ordinary course of events, that the
party in breach had reason to know. [Special Damages]
- Option 1
- Special damages are awarded if mere notice is given. (majority of
jurisdictions)
- Option 2
- Notice must be given, and it must be accompanied by at least tacit assent
to bear the risk of these damages. (minority of jurisdictions)
=> Notice must occur before contract is completed.
Cases
- Foreseeability is a factual question to be determined by the jury. Jury determines if it
was foreseeable.
- Lost rental value of machinery is often an appropriate measure of damages from a delay
in shipment of machinery; machinery has a natural value in a business context. (Hector
Martinez)
- Where the integral value of a tool wasn’t foreseeable, without notice, the windmill
company couldn’t recover damages for lost production. (Hadley)
- Where there was no additional consideration given to indicate the bank had assumed the
risk of loss, court held that there was no assent and therefore that consequential damages
could not be applied. (Morrow v. First National)
2. Certainty of Harm
Rule
-
Damages are not recoverable for loss beyond an amount that the evidence permits to be
established with reasonable certainty.
Tests for Uncertainty of Profits
- Unique event or situation
- Too many contingencies
- Too dependent upon the fluctuations of markets and the chances of business
- No certain standard to guide the jury
Reliance Damages as Alternative
- Injured party has a right to damages based on his reliance interest
=> These include expenditures made in preparation for performance or in performance, less any
loss that the party in breach can prove with reasonable certainty the injured party would
have suffered had the contract been performed.
Expenditures Made Before Contract (in Reliance)
- Option 1: A party can only recover damages for wasted expenditures made after the
contract was made and before the breach. (majority view)
- Option 2: A party can recover all expenditures incurred before or after the contract was
made provided that they were such as would reasonably be in the contemplation of the
parties as likely to be wasted if the contract was broken. (growing minority).
Cases
- Woman was able to recover for lost value of delivery equipment even though she had
incurred a loss every year prior because there was a breach. However, if the breaching party
could prove that he would lose money in the future, then the damages would be reduced by
that amount. (Mistletoe)
- British TV station could recover for expenditures made prior to contract which had to be
foregone as a result of the breach of Robert Reed. (Anglia TV)
- Chicago Coliseum could not recover lost profits because determining profits is dependent on
too many factors. (Chicago Coliseum Club v. Dempsey)
- Chicago Coliseum could not recover damages for expenditures made prior to contract with
Dempsey. It could only recover damages made in reliance after the contract with Dempsey
had been made. (Chicago Coliseum Club v. Dempsey)
- Chicago Coliseum could not recover damages made after repudiation of contract to attempt
to compel Dempsey to conform to contract because repudiation had already occurred.
3. Avoidability of Harm
Rule
1. One has a duty to mitigate damages. Damages are not recoverable for loss that the injured
party could have avoided without undue risk, burden, or humiliation.
2. Injured party is not precluded from recovery by the rule stated in Subsection 1 to the extent
that he has made reasonable but unsuccessful efforts to avoid loss.
Employment/Service Contract Rule
- In some jurisdictions reasonable efforts means that he must accept any employment that is
not of a different or inferior kind.
Seller’s Damages for Non-Acceptance or Repudiation (UCC 2-708)
- Option 1. Damages are the difference between the market price and the unpaid contract
price plus incidental damages, less expenses saved in consequence of the breach.
-
Option 2. If damages provided by Option 1 are inadequate to put the seller in as good of a
position as performance would have done, then the measure of damages is the profit
(including reasonable overhead) the seller would have made from full performance by the
buyer, together with any incidental damages, due allowance for costs reasonably incurred
and due credit for payments or proceeds of resale.
Seller’s Incidental Damages
- Incidental damages include any commercially reasonable charges, expenses or commissions
incurred in stopping delivery, in the transportation, care and custody of goods after the
buyer’s breach, in connection with return or resale of the goods or otherwise resulting from
the breach.
D. Contracting Around the Default Rules of Damages
1. Liquidated Damages
Rule
-
Liquidated damages are permissible at an amount that is reasonable in light of the
anticipated or actual loss caused by the breach and the difficulties of proof of loss.
An unreasonably large liquidated damages provision is unenforceable as a penalty to the
extent that the amount exceeds the loss caused by non-occurrence.
Cases
- Once a stipulated damages clause is found reasonable, the liquidated damages should not be
reduced at trail by an amount the employee did earn or could have earned. (Wassenaar v.
Towne Hotel)
-
If there’s one product you can only
Chapter 3: Other Remedies and Causes of Action
A. Specific Performance
Rule
1. Specific performance may be ordered where the goods are unique or in other proper
circumstances.
2. Judgment for specific performance may include such terms and conditions as to payment of
the price, damages, or other relief as the court may deem just.
3. Buyer has a right of replevin for goods identified to the contract if after reasonable effort he
is unable to effect cover for such goods or the circumstances reasonably indicate that such
effort will be unavailing or if the goods have been shipped under reservation and satisfaction
of the security interest in them as been made or tendered.
Contracts for Land
- General Rule: Real estate is generally considered unique; presumption actually shifts in
favor of specific performance.
- Exception: When there is a back-to-back contract to resell land, monetary damages might
be appropriate.
- As in the options contract case
Contracts for Goods
- Specific performance is appropriate where there’s unique, peculiar, or sentimental value of
an item.
Chapter 4: Reaching an Agreement
A. Objective Theory of Assent
Assent: Outward, objective manifestations from which a party would reasonably understand that the other
intends to enter into the agreement.
- Manifestations of assent may be made wholly or partly by written or spoken words or by
other acts or by failure to act.
- Offers required objective manifestation.
- Conduct of a party is not effective as a manifestation of assent unless he knows or has
reason to know that the other party may infer from his conduct that he assents.
- Inner/hidden/subjective intent does not matter.
Cases:
(1) A boss told his employee who demanded that he be given a contract extension or else he
would quit right then to “Go ahead, you’re all right; get your men out and don’t let that
worry you.” Court said that a reasonable man would understand that to be assent. (Embry
v. Hargadine, McKittrick Dry Goods Co.)
(2) SEC filings and press release are outward, objective manifestations of intent; private
conversation between Texaco and Getty were subjective, secret manifestations precluded
from consideration. (Pennzoil v. Texaco)
(3) Comment to wife that “it is nothing but a joke” was secret/hidden/subjective. (Lucy v.
Zehmer … drunk guy signs a contract on a napkin)
(also, reasonable man standard?) Would a reasonable man have understood by outward
manifestation?
Question for Pike: “Conduct of a party is not effective as a manifestation of his assent unless he intends to
engage in the conduct…?” Restatement sec. 19, p. 304
B. Offer
1. Preliminary Negotiations
a. Proposals that are merely solicitations of interest are not offers themselves
i. Proposals that lack specificity and are clearly not intended to be a final
proposition are not an offer. (Nebraska Seed Co. v. Harsh)
b. Advertisements
i. General Rule
1. Advertisement does not constitute an offer
a. Rather, it’s an invitation to enter into negotiations
b. Advertisements do not become enforceable offers by another
party’s expression of willingness to accept (ie. completion of
order form).
c. Something that is “subject to availability” does not constitute an
offer, whether the seller possessed it or not.
d. (Leonard v. PepsiCo)
ii. Exception
1. Advertisements that are (1) “clear, definite, and explicit” and (2) leave
nothing open for negotiation” are offers.
a. Words of limitation such as “first come, first served” identify who
can accept; along with other terms allow exception. (Lefkowitz v.
Great Minneapolis Surplus)
c. Offers Evidently in Jest
i. An obvious joke would not give rise to a contract.
1. Because would be clear that an “objective, reasonable person” would not
find that the offer was serious. (PepsiCo)
Restatement
22. (1) Mutual assent is usually made by offer and acceptance
(2) Manifestations of mutual assent may be made even if offer and acceptance are
difficult to identify
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 that bargain is invited and will
conclude it.
26. Something is not an offer if person it is addressed to knows or has reason to know that
the person making it doesn’t intend to conclude bargain until there is a further
manifestation of assent.
29. (1) Terms must be reasonably certain in order for accepted offer to form a contract
(2) Terms are reasonably certain if they provide a basis for determining existence of a
breach and giving appropriate remedy.
(3) That one or more terms are left open or uncertain may show that manifestation of
intention is not intended to be understood as an offer or as an acceptance.
33. (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 of the contract are
reasonably certain.
(2) Terms are reasonably certain if they provide a basis for determining the existence of
a breach and for giving an appropriate remedy.
(3) That one or more terms of a bargain are left open or uncertain may show that a
manifestation of intention is not intended to be understood as an offer or as an
acceptance.
UCC (Sales Contracts)
2-204. (1) Contract may be made in any manner sufficient to show agreement
(2) Agreement may have been made even though the moment of its making is
undetermined
(3) Even though one or more terms are left open, a contract for sale does not fail for
indefiniteness if the parties have intended to make a contract and there is a reasonably
certain basis for giving an appropriate remedy.
2-206. (1)(a) Unless otherwise unambiguously indicated by the language or circumstances, an
offer to make a contract shall be construed as inviting acceptance in any manner and by
any medium reasonable in the circumstances.
(1)(b) An order or other offer to buy goods shall be construed as inviting acceptance
either by a prompt promise to ship or by the prompt or current shipment of conforming
or non-conforming goods. Shipment of non-conforming goods does not constitute an
acceptance if the seller seasonably notifies the buyer that the goods are offered only as
an accommodation to the buyer.
(2) Where the beginning of a requested performance is a reasonable mode of
acceptance an offeror who is not notified of acceptance within a reasonable time may
treat the offer as having lapsed before acceptance.
2-305. Open Price Term
- Court can set uncertain price as a reasonable one
- However, where the parties intend not to be bound unless the price is agreed to,
there isn’t a contract if it isn’t agreed to.
2-308. Absence of Specified Place for Delivery
2-309. Absence of Specified Time Provisions; Notice of Termination
- Contacts for indefinite period are valid for reasonable time, but may be
terminated at any time by either party
- Reasonable notification must be given of termination
2-310. Open Time for Payment or Running of Credit
2. Written Memorial Contemplated
a. Something is not an offer if person whom it is address knows or has reason to know that
the person making it does not intend to conclude a bargain. (Rest. 26)
b. That parties intend to prepare and adopt a written memorial doesn’t matter if parties
have manifested assent (Rest. 27)
i. However, letters of intent and agreements in principle often do no more than set
the stage for negotiations on details.
ii. Parties are allowed to approach agreement in stages without being bound.
c. However, if contract has only minor, unresolved provisions, a court may bind the
contract.
i. Unresolved issues of security interest in land underneath a plant were sufficiently
material.
3. Revoking an Offer
a. General Rule is that an offer can be revoked at any time prior to acceptance
i. Methods of revocation
1. Offeror communicates intention not to enter into contract. (Rest. 42)
2. Offeree “acquires reliable information” that offeror has taken “definite
action inconsistent with an intention to enter into the proposed contract.”
(Rest. 43)
- Offer became revoked when offeree found out that the offeror had
sold house to someone else, even though seller hadn’t
communicated that information to him.
ii. Ways in which Power of Acceptance is Terminated (Rest. 36)
1. Offeree’s power of acceptance may be terminated by:
a. Rejection or counter-offer by the offeree
b. Revocation by the offeror
c. Lapse of time
d. Death or incapacity of the offeror or offeree.
2. Offeree’s power of acceptance is terminated by non-occurrence of any
condition of acceptance.
b. Exception: Firm Offers under the UCC (2-205)
i. Not irrevocable for stated period of time, even in the absence of consideration
ii. If no time stated, for a “reasonable time,” not exceeding 3 months.
iii. Elements of Firm Offer
1. Offer by a merchant
2. For sale of goods
3. In a signed writing
4. Express promise to keep offer open
5. Does not need consideration
C. Acceptance
1. Acceptance that Varies Terms: Mirror Image Rule
Rule: An acceptance that is equivocal or conditional is a counteroffer.
i. The following is a counteroffer: an acceptance that says, “My clients are
concerned that the following X items remain with the house… I would
appreciate your confirming that these items are part of the transaction, as they
would be difficult to replace.” (Ardente v. Horan)
Exception: Acceptance that requests a change or addition to the terms is not thereby
invalidated unless the acceptance is conditional (“made to depend”) on an assent to the
changed or added terms. (Rest. 61)
2. Acceptance by Correspondence: The Mailbox Rule
a. General Rule: Acceptance is effective upon dispatch
b. Nuances:
i. Offeror cannot revoke offer after mailing of acceptance, but before receipt.
ii. Contract still is formed if acceptance is lost or delayed in transit
1. However, offeror’s duty to perform may be affected by delay or loss
2. Depending on language, contract may be discharged
iii. Offeree cannot revoke acceptance after it is dispatch but before it is received
iv. If offeree sends revocation of acceptance that is received before acceptance is
received, contract is still enforceable, this just may constitute an offer to revoke
or a repudiation, which the other party may accept.
c. Exceptions
1. Offeror is free to insist upon acceptance being effective only upon receipt
2. With options contracts, acceptance is operative only upon receipt by the offeror.
Acceptance must be received within operative timeframe of option. Offeree
remains free to revoke acceptance after it is dispatched but before it is received.
3. Acceptance must be made in a manner and by a medium invited by an offer.
(Rest. 63)
4. A medium of acceptance is reasonable if it is the one used by the offeror or one
customary in similar transactions at the time and place the offer is received (Rest.
65)
i. Unless circumstances known to the offeree indicate otherwise
5. Acceptance is not effective unless it is properly dispatched (Rest. 66)
i. Addressed properly and “such other precautions taken as are ordinarily
observed to insure transmission”
3. Acceptance by Performance (or Unilateral Contracts)
a. Bilateral contracts are those agreements that result from acceptance by a promise;
unilateral contracts are those that result from acceptance by performance.
b. Usually: Advertisements are invitations to bid or negotiate.
c. Test:
- However, Carbolic Smoke Ball is an offer because it is very precise (if you get
variety of diseases after using ball in certain manner), it expresses an obligation
to be committed to perform some act ($100 if that happens), and it offers
assurance to customers of sincerity ($1000 deposit).
- Therefore, not mere puffery
c. Rule
1. Unless otherwise indicated in some manner, offer invites acceptance in any
reasonable manner and medium. (Rest. 30)
2. In case of doubt, an offer is interpreted as inviting offeree to accept either by
promising to perform or by performing. (Rest. 32)
- Case Ex.: Offeror stated that “upon an agreement … you can begin at
once.” No invitation to accept by performance. Instead, it requested
notification. (White v. Corlies)
3. No notification is necessary if offer invites offeree to accept by performance,
unless offeror requires or exception below applies. (Rest. 54.1)
d. Exception
- If offeree who accepts by performance “has reason to know” that the offeror has
no adequate means of learning of the performance “with reasonable promptness
and certainty,” contractual duty of offeror is discharged unless:
a. Offeree exercises reasonable diligence to notify of acceptance
b. Offeror learns of performance within reasonable time
c. Offer indicates notification of acceptance is not required.
4. Acceptance by Silence
a. Rule (Rest. 69)
1. Taking an action that is consistent with acceptance may be acceptance
2. Where an offeree fails to reply to an offer, silence and inaction operate as an
acceptance in the following cases only:
-
a. An offeree takes the benefit of offered services with reasonable opportunity
to reject them and reason to know that they were offered with the expectation
of compensation.
b. Offeror has stated or given the offeree reason to understand that assent may
be manifested by silence or inaction, and the offeree in remaining silent and
inactive intends to accept the offer.
c. Because of previous dealings or otherwise, it is reasonable that the offeree
should notify the offeror if he does not intend to accept.
- Hobbs v. Massasoit Whip Co.
Offeree who does any act inconsistent with the offeror’s ownership of offered
property is bound in accordance with the offered terms unless they are manifestly
unreasonable. But if the act is wrongful as against the offeror, it is an acceptance
only if ratified by him. => Ask Pike about this.
D. E-Commerce and Mutual Assent
1. Shrink-Wrap Licenses
a. Packaged in a container or wrapper that advises the purchaser that the use of the
software is subject to the terms of a license agreement contained inside the package.
b. License agreement explains that if the purchaser does not want to enter into a contract,
he must return the product for a refund; failure to do so constitutes assent to terms.
2. Click-Wrap Licenses
a. Presents to the user a message on computer screen requiring that the user manifest his or
her assent to the terms of the license agreement by clicking on an icon.
b. Product can’t be obtained or used without clicking on the icon.
3. Browse-Wrap Licenses
a. Background
- Notice of license agreement appears on website.
- Clicking on the notice links the user to a separate web page containing full text
of license.
- However, user is not required to click on an icon expressing assent, or even view
its terms, before proceeding to use the information the site.
- Sometimes there may be no reasonably conspicuous notice, though.
b. Rule
- When consumers are urged to download free software at the immediate click of a
button, a reference to the existence of license terms on a submerged screen is not
sufficient to place consumers on inquiry or constructive notice of those terms.
(Specht v. Netscape)
c. Exception: Apple bin illustration
- License was held to be enforceable even when not required to click “I agree”
when using a product multiple times daily and receiving notice of terms
afterwards.
(Register.com v. Verio)
- In Ticketmaster, though, lower court concluded that regular user not required to
click “I agree” was unenforceable
Chapter 5: Discerning the Agreement
A. Interpreting the Meaning of Terms
1. Ambiguous Terms: When words can have more than one meaning.
- Whose Meaning Prevails (Rest. 201)
a. When parties assign same meaning to terms, terms are interpreted in accordance with
that meaning.
- “Moose/Mouse”
b. When parties assign different meanings, language is interpreted in accordance with the
understanding of one of them if:
i. Party didn’t know (or had no reason to know) any different meaning attached by
the other, and the other knew (or had reason to know) of the meaning attached by
the first.
c. Except as stated here, neither party is bound by the meaning attached by the other, even
though the result may be a failure of mutual assent
- Peerless
- Swiss Coin Collection
=> nothing in contract to show it was a particular ship, therefore there was no consensus,
therefore no contract.
-
Rules to Aid Interpretation (Rest. 202)
a. More…
- Contract is interpreted in all circumstances
b. Where language has a generally prevailing meaning, it is interpreted in accordance with
that meaning (unless otherwise indicated)
c. Technical terms are given their technical meaning when used in a transaction within
technical field (unless otherwise indicated).
- Exception: Where a party is new to an industry he probably would not be held to
understand all the technical terminology of the field
- [UCC is largely consistent with these rules… but reread anyway]
2. Vague Terms: When it is unclear whether a term applies beyond its core meaning.
- Blouse+Skirt case
=> Even in fashion, there is no standard, objective meaning of the word “dress”
- Chicken case
=> Where a party is new to an industry he may not be held to understand all the technical
terminology of the field
=> Plaintiff had burden of showing that “chicken” was used in the technical, rather than
general, sense
[COME BACK TO THIS]
B. Filling Gaps in the Terms
1. Agreements to Agree [Go over this again]
a. Terms of a contract may be reasonably certain even if the contract allows either party to make
choose terms in the course of performance. (Rest 34.)
b. Part performance may remove uncertainty and establish an enforceable contract has been
formed.
c. Action in reliance on an agreement may make a contractual remedy appropriate even where
uncertainty is not removed.
d. ***When parties have made a contract but don’t agree on a term that is essential to a
determination of their rights and duties, a term which is reasonable in the circumstances is
supplied by the court. ***
=> Case where the price of paper was to be set no greater than the Canadian exchange rate.
- Evidence of contract where there’s enough evidence for court to decide a breach. (Texaco)
SEE UCC pgs. 317-318
2. Illusory Promises (UCC 2-306)
a. Indefinite Output
- Rule: When quantity depends on output of seller or needs or buyer, that means the amount
that would occur in good faith.
- Exception:
1. Quantities unreasonably disproportionate to any estimate.
2. In the absence of an estimate: quantities unreasonably disproportionate to any
normal or otherwise comparable prior output or needs
b. Exclusive Dealing
- Rule: In contracts of exclusive dealing, exclusive agent must use best efforts to supply
goods or promote sale.
- Must use reasonable effort, due diligence, and good faith.
- Lucy, Lady Duff-Gordon
C. Identifying the Terms of the Agreement
1. Form Contracts or “Contracts of Adhesion”
a. Contracts of adhesion are prima facie valid.
- Courts are reluctant to not enforce form contracts except where there is a genuine issue
of unfairness. (Carnival Cruise Lines)
b. Term applies “wherever reasonable” without regard to a party’s knowledge or understanding
of the terms.
c. Font doesn’t necessarily have to be bold or capitalized in order for clause to be enforceable.
(Caspi v. Microsoft Network)
d. Exception 1: If party “has reason to believe” that other party wouldn’t manifest assent if he
knew that the writing contained a particular term, the term is not part of the agreement.
e. Exception 2: If there’s no notice, it might not be enforceable.
2. Additional Terms in Acceptance or Confirmation
a. “Last-Shot Rule”
- Applies to contracts not involving goods (ie. common law)
- When counterofferee proceeds with contract despite differing terms, he accepts those
differing terms by his performance.
b. Different Rule for Goods Contracts (UCC 2-207)
- An acceptance that states additional or different terms is an acceptance unless expressly
made conditional on assent to additional or different terms.
1. General Rule: additional terms are to be considered proposals for addition to the
contract.
2. Exception: Between merchants, they become part of the contract, unless any of the
following:
a. Acceptance is expressly conditional on inclusion of additional terms
b. The terms materially alter the contract;
- Contract is still effective in this case; term just isn’t.
- Counterofferee can still consent to alteration, though, either expressly or
by silence
- Test for materiality
Consent to it cannot be presumed
It is unexpected, hence, surprising (Union Carbide)
c. Notification of objection to them has already been given or is given within a
reasonable time after notice is received
- Conduct of both parties that recognizes the existence of a contract is sufficient to
establish contract.
1. Terms of contract consist of those terms on which the writings of the parties agree
plus any supplementary terms.
3. Terms that Follow Later
- Since users have opportunity to read terms and return product, they may still be bound as
long as terms are reasonable (30 days may be ok, 5 days not; ProCD / Hill v.Gateway)
UCC 2-207 would likely still apply
- Intended to apply to two situations
1. Confirmation of agreement
a. Includes additional terms not discussed
2. Offer and acceptance
a. Acceptance adds minor suggestions or proposals
b. Minor suggestions in mind include “ship by Tuesday,” “rush,” etc.
Cases:
1. ProCD
a. Shrinkwrap licenses are enforceable unless their terms are objectionable on
grounds applicable to contracts in general.
b. Disclaimer of implied warranty must be conspicuous (according to UCC 2315(2).
c. Holds that terms inside a box of software bind consumers who use the software
after an opportunity to read the terms and to reject them by returning the product.
2. Klocek v. Gateway
a. Parties never contemplated additional terms, plus 5 days isn’t enough, so no
contract?
[ASK ABOUT THIS]
Chapter 6: Written Manifestations of Assent
A.1. Parol Evidence Rule (Restatement)
1. Integrated Agreements
a. Integrated Agreements: An agreement is integrated if it is a writing that is the final
expression of one or more terms
i. Test: It is a reasonably complete agreement, based on completeness and
specificity.
ii. However, other evidence can be admitted to establish that it didn’t constitute a
final expression
iii. Court determines if it is integrated (& partially or completely) as a preliminary
matter
b. Completely Integrated Agreements: A complete and exclusive written statement of
terms of agreement.
i. Agreement is not completely integrated if writing omits consistent, additional,
agreed term that is:
- agreed to for separate consideration, or
- might naturally be omitted from writing
c. Partially Integrated Agreement: Any integrated agreement other than a completely
integrated one.
2. Parol Evidence Rule - (Restatement 213-216)
a. Prior Agreements
i. An integrated agreement discharges prior agreements to the extent that they are
inconsistent with it.
ii. A completely integrated agreement discharges prior agreements to the extent that
they are within its scope.
b. Prior or Contemporaneous Agreements and Negotiations
i. Agreements and negotiations prior to written agreement may serve as admissible
evidence to establish:
- whether agreement is integrated
- whether agreement is completely or partially integrated
- meaning of writing, regardless of whether it is integrated
- illegality, fraud, etc.
- ground for granting or denying certain remedy
c. Consistent Additional Terms
i. Evidence of consistent, additional term is admissible to supplement an integrated
agreement
=> UNLESS agreement is completely integrated
General Rule: Extrinsic evidence is inadmissible to interpret, vary or add to the terms of an unambiguous
integrated contract.
- California does not follow rule… Extrinsic evidence is always permissible. (Pacific Gas Co.)
… and (J. Kozinski rips on Traynor’s rule in Trident Center v. Connecticut General)
A.2. Parol Evidence Rule (UCC 2-202)
1. The terms of a written agreement may not be contradicted by evidence of any prior agreement if
the writing is intended to be a final expression of agreement.
2. However, terms may be explained or supplemented by either of the following:
a. Usage of trade or course of dealing or performance.
b. Consistent additional terms
=> UNLESS agreement is intended to be complete and exclusive statement of terms.
B. Reforming a Writing: Mistakes in Integration
1. Mutual Mistake [actually… no… mutual mistake is below]
a. If writing misstates content or effect of the agreement because of a mistake of both
parties, court may reform the writing to express the agreement.
b. Exception: When one party is prejudicially affected by a change in position in reliance
on the error while ignorant of error.
2. Unilateral Mistake (Travelers Insurance Co. v. Bailey … guy should have gotten $500 rather
than $5000 or something)
a. Even where contract is unambiguous and integrated and where one party is at fault for
the error, a court might still allow contract to be reformed if the error is material and
beyond reasonable doubt.
b. Exception: If the non-erring party has acted in reliance on the error, probably may not
allow reformation.
C. Requiring a Writing: The Statute of Frauds
1. Types of Contracts under Statute of Frauds (Restatement)
a. Classes of Contracts Forbidden from Enforcement without Writing or an Exception
(Restatement 110)
i. Executor or administrator answering for a duty of a decedent
ii. Answering for the duty of another (suretyship/warranty provision)
iii. Marriage
iv. Land Interest
v. Not to be performed within one year from making of contract.
- Promises or acknowledgements of new or continuing contracts falling under
these classes (and those of section 2 do not take them out of statute of frauds)
b. Types of Contracts under the UCC’s Statute of Frauds (Restatement 110)
i. Sale of Goods worth $500 or more
ii. Sale of Securities
iii. Sale of personal property not otherwise covered … beyond $5000?
iv. Debt contract that provides for a security interest in personal property
- Must be signed by debtor
c. Land Interest
Rule
i. Agreements to transfer interest of land are within Statute of Frauds
ii. Promise to buy any interest in land is within the Statute of Frauds
irrespective of the person to whom transfer is to be made.
Exception
i. Contract for land interests may be enforced (specific performance) if party
seeking enforcement has relied on contract and changed his position such
that injustice can only be avoided by specific performance.
ii. After a transfer of interest in land has been made, a promise to pay is no
longer within Statute unless promised price is itself an interest in land.
iii. Short-term leases are usually outside of Statute.
c. One-Year Provision
Rule
- Where any promise in a contract can’t be fully performed within a year, all
promises in the contract are within the Statute.
Exception
- When one party to a contract has completed his performance, the Statute
doesn’t prevent enforcement of promises of other party.
2. UCC Statute Provisions
Rule
- Contract for sale of goods of $500 or more requires writing indicating contract’s
existence.
a. Contract is only enforceable inasmuch as can be gleaned from writing.
b. Between merchants, a writing confirming the contract is sufficient to
meet this requirement if it’s sent within a reasonable time and as long as
the recipient doesn’t object within 10 days.
Exception
- A contract not in writing, but which is otherwise valid is enforceable if:
i. (1) Goods are specially manufactured for the buyer and are not suitable
for sale to others in the ordinary course of the seller’s business, and if (2)
prior to (or in the absence of) repudiation, (3) seller has made substantial
progress on their manufacture or commitments for procuring them.
ii. Party against whom enforcement is sought admits that a contract for sale
was made
iii. Goods have been received or payment has been made.
3. Enforcement by Virtue of Action in Reliance
Rule
-
Promise that one should reasonably expect to induce action in reliance and which
does induce the action is enforceable if injustice can be avoided only by enforcement
of the promise.
Tests for injustice
- There’s a list of them.
4. Unenforceable Contract as Evidence
- An unenforceable contract may be admissible as evidence for any purpose other than for
its own enforcement.
5. Requirement of a Writing
1. A contract is enforceable if a writing that is signed by the party to be charged:
(a) reasonably identifies the subject matter of the contract,
(b) indicates that a contract has been formed or offered by the signer, and
(c) states with reasonable certainty the essential terms to be performed.
2. Writing doesn’t need to be a memorandum of contract except with marriages.
3. Electronic communications can be writings if they are easily printable and/or storable.
(RealJukebox Case)
6. Requirements of a Signature
1. Sender’s name on an email satisfies signature requirement. (Cloud Corp. v. Hasbro)
Chapter 9: Consideration
B. Bargain Theory of Consideration
Bargain Theory Rule:
1. Consideration exists if it is bargained for.
2. Something is bargained for “if it is sought by the promisor in exchange for his promise and is
given by the promise in exchange for that promise”
Better Rule:
- Consideration is any benefit accruing to one party, or some forbearance, loss, detriment, or
abandonment suffered or undertaken by the other party.
- The benefit or detriment must be sought by the other party to the exchange.
i. Abandonment of a legal right can be consideration. (Hamer v. Sidway)
ii. Living on property was gratuity; had to get off when told to get off.
ii. Unilateral contracts can certainly contain consideration
- Pharmaceuticals Case where drug company offered to continue providing
product to volunteers if it proved to be effective.
1. Distinguishing Bargains from Gratuitous Promises
a. Gratuitous promises
i. Gratuitous promises are ordinarily not enforceable.
ii. Only effective upon actual delivery of the thing that was promised.
Case: Otterbein University case where someone offered to pay off the debt of the
college and which was the only consideration in the case.
2. Past Consideration
a.
3. Moral Consideration
- Moral obligation must have past consideration.
a. Consideration exists where a promisee cares for, improves, and preserves the property of
the promisor, though done without his request, if the beneficiary subsequently agrees to
pay for services.
b. 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.
c. A promise is not binding if
i. the promisee conferred the benefit as a gift or for other reasons the promisor has
not been unjustly enriched; or
ii. its value is disproportionate to the benefit.
Cases: Man fell off a plank and diverted direction of fall to avoid killing/severely injuring other
guy. Man who fell was injured. Non-injured guy promise to pay as compensation had
moral consideration. (Webb v. McGowin)
No moral obligation for father of 25-year-old kid who had long been independent to pay
for the caretaking services of child after he promised to do so. (Mills v. Wyman)
- No bargain between Dad and guy; but there might be consideration if little kid was hurt.
C. Contract Modification and the Preexisting Duty Rule
1. A promise modifying a duty under a contract not fully performed on either side is binding
(a) if the modification is fair and equitable in view of circumstances not anticipated by the
parties when the contract was made
(b) if a party has materially change of position in reliance on the promise (where justice
requires)
2. An agreement modifying a contract does not need consideration to be binding. Those without
consideration, require the test of “good faith.”
- An unforeseen, burdensome condition requires renegotiation
-
Captain of a ship told sailors (English case) they could have the salary of the deserted
sailors; no consideration because contract already included undertaking to do all that they
could to return home safely. (Stilk v. Myrick)
-
-
-
-
A party cannot take an unjustifiable advantage of the necessities of the other party in order
to receive increased compensation for doing something he’s already bound to do. (Alaska
Packers Co. … other sailors case) [had to consent
When an unforeseen, burdensome condition is discovered during the performance of an
original contract, the promise of additional compensation in return for the promise that the
additional work required is a separate, valid agreement (Excavation contract case).
Where a subsequent agreement imposes upon the one seeking greater compensation an
additional obligation or burden not previously assumed, the agreement, supported by
consideration, is valid and binding upon the parties. (
When a party agrees to perform an obligation for another to whom that obligation is already
owed, although for lesser remuneration, the second agreement does not constitute a valid,
binding contract.
Chapter 11: Promissory Estoppel
Function of Promissory Estoppel: To estopp the party whose actions are responsible for the situation from
alleging anything in opposition to the natural consequences of his own course of conduct.
General Rule: A promise to give something without looking for anything in return is ordinarily
unenforceable.
Exception:
1. When the payee changes his position to his disadvantage, in reliance on the promise, a right of action
arises.
2. The expenditure of money or assumption of liability by the promisee, on the faith of the promise,
constitutes consideration.
Restatement Rule (90):
1. A promise which the promisor should reasonably expect to induce action or forbearance on the part
of the promisee or a third person and which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise.
Elements: 1.
2.
3.
4.
5.
-
Promise
Promisor should reasonably expect to induce promisee into action or forbearance
Induces promisee into action or forbearance
Reliance is detrimental (probably has to be considerably detrimental)
Injustice can only be avoided by enforcement of promise.
Exception
- Promises, which are too indefinite or by their terms make performance optional or
entirely discretionary, may make a promise illusory and unenforceable as a result.
(Insurance Company who didn’t pay bonuses)
A. Development of Rule
Cases
Family Promises: Grandfather’s promise was enforceable when he promised his granddaughter money
and told her he didn’t want her to work anymore which; it induced her to quit her job.
Promises to Convey Land: [go back and do this] … not significant reliance
Promises of a Pension: [go back and do this] … doesn’t matter
Charitable Subscriptions: Woman promised Allegheny College money to establish a scholarship fund
in her name. Court found that consideration existed… Case represents an extreme view of promissory
estoppel… Not clear that there was considerable reliance
Construction Bids: Offers used in construction bids can go both ways:
- An offer to provide linoleum at a certain price that was used, without accepting, in
creating a contract was not found to have been enforceable in the presence of
detrimental reliance. (James Baird Co.)
- A subcontractor’s offer that was used, without accepting it, in a general contractor’s bid
was held to be promissory estoppel (Drennan v. Star Paving).
=> Rule on Offers: An offer (for an exchange) which the offeror should reasonably expect to induce
action or forbearance 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.
B. Promissory Estoppel as an Alternative to Breach of Contract
Damage Award/Remedy: That which is necessary to prevent injustice. Reliance damages are usually
awarded. Can’t enforce expectation damages for a promise, not an agreement. Damages
shouldn’t exceed reliance.
C. Establishing the “Elements” of Promissory Estoppel
-
Promise
Reliance
Detriment
Cases:
-
Guy who didn’t get into Order of the Coif at USC could not use promissory estoppel
argument because he hadn’t actually been promised anything. (Blatt v. University of
Southern California
-
-
-
Promises, which are too indefinite or by their terms make performance optional or
entirely discretionary, may make a promise illusory and unenforceable as a result.
(Insurance Company who didn’t pay bonuses)
Promissory estoppel requires an actual, clear, and definite promise. (Ypsilanti v.
General Motors)
o “Mere puffery” and expressions of hope or expectation are not actual promises.
Even though she had relied on it beforehand, she had the opportunity to renegotiate after
Elvis died, so she wasn’t reasonably justified in relying on his promise.
Chapter 12: Performance and Breach
A. Implied Duty of Good Faith Performance
Restatement & UCC-1-203
- Every contract imposes upon each party a duty of good faith and fair dealing in its performance
and enforcement.
UCC Explanation
- Good faith in the case of a merchant means honesty in fact and the observance of reasonable
standards of fair dealing in the trade.
Other General Observations
- Obligation of good faith performance may not be disclaimed by agreement
- In every contract there is an implied covenant that neither party will do anything which will
have the effect of destroying or injuring the right of the other party to receive the fruits of the
contract, which means that in every contract there exists and implied covenant of good faith and
fair dealing.
- Parties may not contract out good-faith requirements.
Cases
- Company cannot divert business to another store in the same vicinity when diversion is effected
for the sole purpose of bringing gross receipts below the specified figure to avoid contract.
(Goldberg 168-05 v. Levy)
- Where there is a guaranteed, adequate return on his investment, it has been held that the tenant
has no obligation regarding his conduct of business.
B. Implied and Express Warranties
1. Implied Warranties of (1) Merchantability and (2) Fitness for a Particular Purpose
- Default rules in the absence of explicit contract provisions
a. Merchantability: Fitness for the ordinary purposes for which such goods are used.
Rule
1. Implied warranty of merchantability exists in all contracts if seller is a
merchant in that type of good.
2. In order to meet warranty, goods must have the following characteristics:
a. Pass without objection in the trade;
b. For fungible goods: are of fair average quality within the description;
c. Are fit for the ordinary use;
d. Run of even kind, quality, and quantity within each unit;
e. Are adequately contained, packaged, and labeled; and
f. Conform to the promises or affirmations of fact on the label;
3. Other implied warranties may also arise from course of dealing or usage of
trade.
b. Fitness for Particular Purpose: Is fit for a particular purpose.
Elements of Application
- Seller has reason to know both of the following:
a. Particular purpose for goods
b. Buyer is relying on seller’s skill
Cases
- Computer terminals met warranty of merchantability because they were acceptable
within the trade. Had sold more than any other computer in class; purchaser put
computers through series of tests and believed it to be generally superior to others.
(Step-Saver Data Systems v. Wyse Technology).
- No evidence presented that compatibility with program was a requirement of
merchantability.
- Warranty of merchantability doesn’t require that goods be “outstanding or superior.”
They need only be “of reasonable quality.” (Step-Saver)
2. Express Warranties
1. Any affirmation of fact or promise by the seller that relates to the goods and becomes
part of the basis of the bargain.
2. Any description of the goods which is made part of the basis of the bargain => goods
must conform to description.
3. Any sample or model that is part of the basis of the bargain => goods must conform to
sample or model.
-
Assertions that lack the specificity of an affirmation of fact are opinionative
- Such as “frequency of repair is ‘very low.’”
Puffery and opinions are not warranties.
General statements to the effect that goods are “the best” or “will last a lifetime”
and be “in perfect condition” are puffery to be expected in any sale.
Statement that something was “readily available” was held to be a fact in Royal
Business Machines v. Lorraine
-
-
3. Express Disclaimers of Warranty
- Parties may contract around default warranty rules.
Rule (UCC 2-316)
1. Words or conduct relevant to the creation of an express warranty and words or
conduct tending to negate or limit warranty shall be construed wherever reasonable
as consistent with each other; but subject to the rules on parol/extrinsic evidence
negation or limitation is inoperative to the extent that such construction is
unreasonable.
2. Subject to subsection (3), to exclude or modify the implied warranty of
merchantability or any part of it the language must mention merchantability and in
case of a writing must be conspicuous, and to exclude or modify any implied
warranty of fitness the exclusion must be by a writing and conspicuous. Language
to exclude all implied warranties of fitness is sufficient if it states, for example, that
“There are no warranties which extend beyond the description on the face hereof.”
3. Notwithstanding subsection (2)
a. Unless the circumstances indicate otherwise, all implied warranties are
excluded by expressions like “as is,” “with all faults” or other language
which in common understanding calls the buyer’s attention to the exclusion
of warranties and makes plain that there is no implied warranty and
b. When the buyer before entering into the contract has examined the goods or
the sample or model as fully as he desired or has refused to examine the
goods there is no implied warranty with regard to defects which an
examination ought in the circumstances to have revealed to him; and
c. An implied warranty can also be excluded or modified by course of dealing
or course of performance or usage of trade.
4. Remedies for breach of warranty can be limited in accordance with the provisions of
this article on liquidation or limitation of damages and on contractual modification
of remedy.
Chapter 14: Breach
B. Prospective Nonperformance
1. Anticipatory Repudiation
Rule: There must be a definite and unequivocal manifestation of intention on the part of the
repudiator that he will not perform his promise in order for anticipatory repudiation to
apply.
- Request for change in terms or request for cancellation of contract is not enough to
constitute repudiation. (Harrell v. Sea Colony… condominium case)
- Doubtful and indefinite statements that the performance may or may not take place and
statements that, under certain circumstance that in fact do not yet exist, the performance
won’t happen aren’t enough.
- Not enough to just have heard a rumor from a somewhat credible source. (Scott v.
Crown… the wheat case)
2. Adequate Assurances of Performance
Rule (UCC)
1. When reasonable grounds for insecurity arise over whether a party is going to perform,
the other may in writing demand adequate assurance of due performance and until he
receives such assurance may if commercially reasonable suspend any performance for
which he has not already received the agreed return.
2. Between merchants, reasonableness of grounds for insecurity and the adequacy of
assurance offered is determined by commercial standards.
3. Acceptance of any performance doesn’t prevent a party from demanding adequate
assurance of future performance.
4. After receipt of a justified demand for assurance, party must provide assurance within a
reasonable time, not exceeding 30 days, that due performance will occur. Otherwise, it
is a repudiation.
-
“Adequate assurance” and “reasonable grounds for insecurity” are factual
determinations
Demand for performance assurances can’t be used to modify contract => Can’t demand
more than what is required by the contract.
Exception
- Demand for assurance doesn’t necessarily have to be in writing if a pattern of interaction
demonstrates a clear understanding that suspension of demanding party’s performance
was the alternative if concerns weren’t adequately addressed.
3. Material Breach
- Parties are free to allow victim of any breach to cancel the contract
- There are default provisions if performance has been substantial, though.
-
-
Only if a breach is material does it relieve the nonbreaching party of its duty of
performance under the contract.
No black-letter/mathematically-precise rule on materiality.
Tests of Materiality (Restatement)
1. Extent to which the injured party will obtain/be deprived of the benefit which he could
have reasonably anticipated
- “Defective” employment may not meet substantial benefit requirement (B&B
Equipment v. Bowen… Case where guy had partial ownership in company and
then got fired for being bad employee)
2. Extent to which injured party may be adequately compensated in damages for lack of
complete performance.
3. Extent of the hardship on the party failing to perform.
- In B&B, court didn’t care that hardship was greater on breaching party because it
was his fault.
4. Likelihood that party failing to perform will perform remainder of contract.
5. Whether behavior of breaching party was willful, negligent, or innocent?
- Continuance of unacceptable performance after notification was at least
negligent.
4. Cost of Completion v. Diminution in Value
General Rule: Non-breaching party is entitled to the amount of money that will permit him
to complete the project.
Exception: If cost of completion is grossly and unfairly out of proportion to the good to be
attained, measure is the difference in value.
-
Substitution of equivalents may not have the same significance in fields of art and in
fields of utility. (Case of the house that had wrong brand of pipes installed)
Chapter 16: Improper Means – Misrepresentation and Unconscionability
A. Misrepresentation
Rule
1. A misrepresentation is an assertion that is not in accord with the facts.
2. A misrepresentation is fraudulent if the maker intends his assertion to induce a party to
manifest his assent and the maker
a. knows or believes that the assertion is not in accord with the facts, or
3.
4.
5.
6.
b. does not have the confidence that he states or implies in the truth of his assertion, or
c. knows that he does not have the basis that he states or implies for the assertion.
A misrepresentation is material if it would be likely to induce a reasonable person to
manifest assent, or if the maker knows that it would be likely to induce the recipient to do
so.
If a party’s manifestation of assent is induced by either a fraudulent or material
misrepresentation by the other party upon which the recipient is justified in relying, the
contract is voidable by the recipient.
If a party’s manifestation of assent is induced by either a fraudulent or a material
misrepresentation by one who is not a party to the transaction upon which the recipient is
justified in relying, the contract is voidable by the recipient, unless the other party to the
transaction in good faith and without reason to know of the misrepresentation gives value or
relies materially on the transaction.
A misrepresentation induces a party’s manifestation of assent if it substantially contributes
to his decision to manifest assent.
Provision in contract that says “the contract contains the entire agreement between the parties,
and that it is subject to no understandings, conditions or representations other than those
expressly stated herein” was held to be irrelevant.
- Remedy of rescission
- An innocent misrepresentation of material fact warrants the granting of a claim for rescission.
(Halpert v. Rosenthal… Case of the house with the termites)
- Where one induces another to enter into a contract by means of a material misrepresentation, the
latter may rescind the contract. It does not matter if the representation was innocent or
fraudulent.
- It is not necessary that the party making the misrepresentation should have known that it was
false.
- A misrepresentation becomes material when it becomes likely to affect the conduct of a
reasonable man with reference to a transaction with another person.
- Some states do require knowledge of misrepresentation, though.
Rule (Opinion)
1. An assertion is one of opinion if it expresses only a belief, without certainty, as to the existence
of a fact or expresses only a judgment as to quality, value, authenticity, or similar matters.
2. If it is reasonable to do so, the recipient of an assertion of a person’s opinion as to facts not
disclosed and not otherwise known to the recipient may properly interpret it as an assertion
a. That the facts known to that person are not incompatible with his opinion, or
b. That he knows facts sufficient to justify him in forming it.
3. Reliance on an opinion is not justified UNLESS the opinion’s recipient
a. Stands in such a relation of trust and confidence to the person whose opinion is asserted
that the recipient is reasonable in relying on it, or
-
b. Reasonably believes that, as compared with himself, the person whose opinion is
asserted has special skill, judgment or objectivity with respect to the subject matter, or
c. Is for some other special reason particularly susceptible to a misrepresentation of the
type involved.
Case notes
Rule
o Generally, a misrepresentation, to be actionable, must be one of fact rather than of
opinion.
o A statement of opinion of the worth of something, although not expressly phrased as an
opinion or estimate, may nevertheless be a representation of opinion and not of fact.
 Especially true with property without a definite or known value, or property with
only speculative value.
 An honest opinion as to the monetary value of property, stated as an opinion is
not a fraudulent misrepresentation.
o Even in a contractual situation where a party owes no duty to disclose facts, the law is if
he undertakes to do so he must disclose the whole truth.
Exceptions
o A statement of the value of property for which there is a generally accepted market
price, like government bonds, grain, etc., may be a misrepresentation of fact.
o A statement as to the value of property may also be actionable as a fraudulent
representation of fact under some circumstances, where there is a special reliance placed
upon it and superior knowledge on the part of the maker.
 Ie. Does not apply when there is a fiduciary relationship between the parties,
o If it is not the real opinion of the individual, it may be a misrepresentation.
B. Unconscionability
[Come back to this! Read up on cases!]
Bargaining naughtiness is procedural unconscionability
Evils in the resulting contract are substantive unconscionability
General Rule: One who signs an agreement without full knowledge of its terms is held to assume the
risk that he has entered a one-sided bargain.
-
In determining reasonableness or fairness, primary concern must be with the terms of the
contract considered in light of the circumstances existing when the contract was made.
-
The terms are to be considered “in the light of the general commercial background and the
commercial needs of the particular trade or case”
Tests of Unconscionability
A. Procedural element: Focuses on whether there is oppression or surprise in the bargaining
process
1. Oppression
- Arises from an inequality of bargaining power that results in no real negotiation
and an absence of meaningful choice.
- Contract of adhesion/those offered on take-it-or-leave-it basis are not per
se procedurally unconscionable, but tend to suggest unconscionability.
- Existence of consumer choice is relevant, but does not altogether negate
the oppression aspect. It may affect degree of procedural
unconscionability.
2. Surprise
- The extent to which the terms of the contract are hidden in the printed form
drafted by the party seeking to enforce disputed terms.
B. Substantive Unconscionability deals with content of contract
1. Overly-harsh?
2. One-sided
- Provisions prohibiting class-action tend to suggest one-sidedness.
Tests
Sliding scale of Procedural and Substantive unconscionability
Procedural Tests
- If it’s in fine print it tends to support the fact that something is procedurally
unconscionable
- If it’s in all-caps, it’s unlikely to be held procedurally unconscionable.
- Contracts of adhesion are generally procedurally unconscionable
- Terms that are on a take-it-or-leave-it basis tend to suggest that it was
unconscionable
- Lack of transparency of (Walker-Thomas financing case)
Cases
Procedural
- Arbitration agreement that is not buried in fine print – and is identically sized to
rest of contract – is not unconscionable. (Realnetworks)
- When consumer is given an amendment to its card-holder agreement in the form
of a “bill stuffer” that he would be deemed to accept if he did not close his
account, an element of procedural unconscionability is present.
Substantive
- Forum selection clauses are not necessarily unconscionable
- Contract provisions prohibiting class-actions are not necessarily unconscionable
(Realnetworks), but have been held unconscionable at other times (T-Mobile)
Chapter 17: Mutual Mistake (Failure of Basic Assumption)
When there is a mutual mistake, law tries to focus on allocation of risks that parties impose.
Rule
1. A mistake is a belief that is not in accord with the facts
2. Where a mistake of both parties at the time of the contract was made as to a basic assumption 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 he bears the risk of the mistake as stated
in Rule 4.
3. Material… or something (rewrite this)
4. A party bears the risk of a mistake when
a. Risk is allocated to him by agreement of the parties; or
b. He is aware, at the time the contract is made, that he has only limited knowledge with
respect to the facts to which the mistake relates but treats his limited knowledge as
sufficient; or
=> When parties negotiate and each other looks at the facts and makes their own
determination of value, the court is reluctant to redetermine the terms of the contract.
c. Risk is allocated to him by the court on the ground that it is reasonable in the circumstances
to do so.
=> Often courts will choose to allocate risk to party who is in the best position to ascertain
what the reality is; the one who can do it most efficiently.
Exception
When mistaken party’s fault is the result of acting in bad faith, he is barred from recovery.
Cases
- Though the parties agreed onto the specific cow, the court held that the parties intended to transact
for a cow of a completely different kind (Case with the barren cow)… Mistake went to very nature
of the item.
- When traders relied on their own expertise to estimate the quantity of good timber in an area,
neither could void the contract when there turned out to be less timber. (Michigan Land & Iron
case).
- Jeweler who sold uncut diamond thinking it was a topaz could not void contract.
-
In the presence of an “as is” clause, purchaser of house over a bad septic system bore all
responsibility. (Lenawee County Board of Health…. or… Septic tank case).