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Contracts Professor Lisa Lerman Outline based on Problems in Contract Law Knapp & Crystal, Third Edition Fall 1998 I. Chapter 1: Introduction A. An Introduction to Contracts Identify what contract(s) are being performed. What features make it a contract? Enforceability Consent = Mutual + Voluntary Exchange of Services Exchange of Property or Goods Good Faith – Express or Implied Rules of Contract Law changes as Society’s values change. Respect for one’s own autonomy. Respect for privacy and freedom of individuals. Protecting rights of those targets of fraud. Allows people to plan C. “She refused to go out with him.” Monge v. Beeb Rubber Co. What are the relevant facts? Often depends on the opinion. Application of law depends on facts of the case. Question the facts. Be curious and attentive Monge was the first Employment at Will contract where there was a Bad Faith discharge. Implied term in contract. Why was Monge placed first in the Case Book? Themes: Classical v. Modern law Oral contract Indeterminacy Interpretation Importance of Facts Limitations of Contract Law Follow Law v. Precedent & reaching conclusion beneficial to both parties Contract Law & Tort Law Contract Law policies move towards Tort Law Idea of “Good Faith” II. Chapter 2: The
Classical System of Contract Law Mutual Assent and Bargained-for-Exchange What is the necessary minimal commitment to have Courts consider it legally binding? Previously contracts required a wax seal to be official. Agreement must be given with consideration. Christopher Columbus Langdell 1870’s Dean of Harvard Law Argued Contracts were based on predictable rules with predictable results Oliver Wendell Holmes Society benefits from economic activities. Free Market If Courts interfere it would deter commerce. Set the bar HIGH for contractual arguments. Mutual obligation and consideration requires clarification over last 100 years. Attention to Formalities Strict Rules Mirror Image Rule – Acceptance of a contract must be based on all elements of contract. Formality rarely applies today. Many formal rules began developing exceptions. Objective Theory of Contract – Idea of Model A.
Mutual Assent 1.
The Objective
Theory of Contracts a. The “hatchet and saw” builders Ray v. William G. Eurice & Bros., Inc. “Meeting of the minds” points to subjective assessment. Plans v. Specifications Contract incorporates Specifications Breaching contract is allowed; but you risk Liability Grounds for mistake difficult to prove unless both parties make mistake RULE: Assent to a
contract is assessed OBJECTIVELY. Subjective Determination- speak with parties; but parties may change story. b. “An illiterate, French-speaking Negro” St.
Landry Loan Co. v. Avie
St. Landry – Appellant Avie – son-in-law, Appellee, disappears Skinner-father-in-law, cosigner Must find party you want to sue. Reed, representing St. Landry, acts oddly, like signs ‘X’ for co-signer Skinner. What kind of ‘X’ was signed? Assent to Contract – based on outward comments. 2.
Offer and
Acceptance: Bilateral Contracts Numerous Rules Identify Objective Criteria Each case lays out several different rules. CATCH THE RULES. a. Editors’ note on the Restatement (Second) of Contracts, in Rules of Contract Law Offer American Law Institute – Private Club of Law Professors Not Law Becomes law IF & When state’s Supreme Court Adopts as law. (Very) Persuasive Authority RULE: Ask what questions
Rule asks to satisfy. Making of offer confers upon offeree ability of assent. Offer – specific, definite, lasts for ‘reasonable’ period of time.
b. Restatement 2d of Contracts Sections 24, 26, 36, 40, 43, 50, 59, 60, 63 Section 36. Methods of Termination of the Power of Acceptance Rejection, or Lapse of time, or Revocation, or Death or incapacity c. “40 acres… need cash” Lonergan
v. Skolnick
Trial Ct. rules there was no “Meeting of the Minds?”, therefore no contract. Appeals Ct. rules no firm offer, therefore no contract. 1. Is announcement sent to a mass of people? If so, then it is not an offer. 2. Ambiguous facts lead to conclusions. 3. Arguments – facts, rules – case law, statutes, forum/remedy, parties, conflict, counter arguments, policy d. “Posted in Kirkenhead at 3:50 PM” Henthorn
v. Fraser
“The Mailbox Rule” – Acceptance of offer is effective WHEN IT IS MAILED. Revocation is effective ONLY when offeree receives notice. Offeror is Master of Offer – May revoke at any time before it is accepted. Is there a contract in this case? – YES Two Types of Legal Rules 1. Mandatory – can’t work around. Must work in Good Faith. 2. Default – Gaps in contracts where general rule applies. UCC – “Any Reasonable Manner” e. “You snooze, you lose” Normile
v. Miller
Changes proposed in offer constitutes a Counter-Offer. Agent
may not have provided a complete story to offerees. 3. Offer and Acceptance: Unilateral Contracts Bilateral Contract – Offer & Promise Promise for Promise Unilateral Contract – Offer Seeking Performance Promise contingent on Performance Completed Performance creates the Contract Offer doesn’t initiate promise Offer is revocable Contract when Performance is Completed To determine Bilateral or Unilateral – Look for offeror’s request. a. Restatement section 45 b. The Brooklyn Bridge Hypothesis Offer uses language that appears to be seeking PERFORMANCE. Option – decline to offer party option to revoke Pre-contract 1 Party promise another to enter into contract Classical view – Unilateral contract not complete until performance rendered. Failure to complete performance allows offeror to nullify contract at any time. Completion of performance. Modern view – Offeree can be compensated for amount of work completed. Ability to perform. c. “I have come to pay off the mortgage” Petterson v. Pattberg Was there a contract at the door? Was there a Promise (bilateral) or Performance(unilateral)? “The bond has been sold” – does this constitute a revocation? Revocation can occur if offeree receives information of inconsistent action. NOTICE MUST BE TRANSMITTED. Restatement Section 45 Peterson tenders payment Option contract created Offer becomes non-revocable d. Problem 2-1: The proposed licensing agreement License for plastic products. Objective Standard – Are both parties bound? NOT YET. There was no ORAL CONTRACT. Can Dietrich back out of contract? Yes Restatement Section 24 – Offer Defined – Legal Hook Advice Requires Practical legal options Creative Options e. Comment: Remedies for Breach of Contract B. Enforcing Exchange Transactions: The Doctrine of Consideration
1. Restatement Sections 71, 73, 74, 77, 79, 81 2. The boy who gave up drinking and smoking Hamer v. Sidway
Uncle promises nephew $5K if nephew refrains from smoking & drinking. Nephew sells debt. Debt resold again. 3rd owner sues to collect. Issue – Is there consideration through waiver of rights? Consideration – Pre-classical view Benefit to Promissor or Detriment to
Promisee Unilateral contract – Uncle seeking performance Uncle – Promissor Nephew – Promissee Bilateral contract – both parties promisor/promisee Identify who made the promise – PROMISOR Ct. Rules there was a detriment to the nephew, who sacrificed a fun lifestyle Beneficial Detriment Consideration – minimum performance to prove contract. What is given in consideration to promise? Bargained Exchange Quid Pro Quo Pre Classical analysis – Benefit/Detriment Analysis Replaced
by Classical Analysis - Bargained for Exchange Analysis Know how to Apply Both Analyses!!! 3. Comment: History of the Consideration Doctrine 4. Faithless Aunt Tillie Dougherty
v. Salt
Aunt promised to pay nephew $3,000 - “value received” Ct. – No Consideration – Aunt’s offer was a gift. “Value Received” – Must identify clearly. Promise to make a gift not contract/valid consideration. Recital to make gift not consideration. Cts. Look for Bargained for Exchange. Token payments not sufficient. Nominal payments not sufficient. Is consideration a SOMETHING or NOTHING? 5. Comment: The Laywer’s Role in Counseling for Legal Effect 6. The leased filling stations Baehr v. Penn-O-Tex Oil Corp. Jury ruled for Plaintiff Judge granted Defendant’s motion for Judgment Notwithstanding & ordered a new trial. Penn. Only held liable if there is a contract with Baehr. Is there a contract? Promise & Consideration establish contract. Promise only does not support contract. Promise requires commitment. Must be definite. “Forbearance” Restatement § 71. Requirement of Exchange; Types of Exchange Promise Statement of Intention Prediction Promise If speaker has control – intent/promise If speaker doesn’t have control – prediction Examine degree of speech. Allowed to change mind at any point. Look
at Language Identify
arguments that may be made. Identify
all possible arguments Articulate
all possible arguments Look
for ambiguity Benefit v. Detriment Test To Promissor from Promissee Facts don’t add up. No
promise not to sue. 7. 500,000 Greek drachmae Bastsakis
v. Demotsis
Want of Consideration. Defendant Argues: $25.00 worth nothing. Therefore no consideration. Failure of Consideration – no Contract. Appeals Ct – must identify mistakes made in the trial Ct. “Stating Exceptions” Defendant – Exceptions Want of Consideration failure. Ct. – bad contracts still enforceable. If nominal – lacking in value – then not consideration. Does it look like a “something or nothing”. Recital of Consideration not enough. Must demonstrate some value of consideration. Tension: Desire to allow bargaining concern to pressure 8. The promised pensions Plowman v. Indian Refining Co. Assume promise to pay 50% Picking up checks. Corp. promised to pay employees Benefit/Detriment Analysis Is picking up checks sought by employer? NO Past service – was sought? When? Pension promised after services rendered, not before. Future/current promise. Employees argue moral obligation of Employer is sometimes a substitute for consideration. RULE: Generally a Moral
Obligation is not enough to establish consideration. RULE: Motivation can’t
be consideration. Condition + Consideration = Contract Condition not enough for contract. Consideration must be bargained for. Possible items of consideration, but none were. 9. Comment: Power of Agents to Bind Their Principals and Note Many contracts have Agency issues. DON’T WRITE Agency answer for Exam in Contracts Agency Actual Expressed Implied Apparent Authority Ratification 10. Problem 2-3: The Cantonville Library Agency Issue. What are the legal questions? What was the offer? Is there an acceptance? What method of acceptance is the council seeking? Initial offer Proposal seeking acceptance §24 Offer Defined Confers power on other party to bind obligation Clear, definite terms Can be accepted without other side acting Counter Offer §59 Not a Mirror Image of Offer Acceptance By performance of $1 million deposit Unilateral Contract Option Contract Time & Money fundraising Therefore city council not permitted to withdraw offer. Promise Seeking Promise Silence can constitute acceptance City Council’s rescinding action too late. Benefit/Detriment Test Benefit
to City OR Detriment
to Church Bargained
for Exchange Test Look for all items that can be consideration including winning and
losing options Implied
commitment to stay. Implicit
commitment to keep church. III. Chapter
3: Obligation in the Absence of Exchange: Restitution and Promissory Estoppel Independent claims for Recovery Expectation Restitution Reliance What promises will Courts enforce? Chapter 2: Courts enforce promises supported by consideration Chapter 3: Courts – Must satisfy requirements for Restitution & Promissory Estoppel SEE HANDOUTS!!! Expectation Breach of Contract Voluntary Obligation If broken, then enforce obligation Contract law awards limited to contract price. Restitution & PE – May not need to prove consideration. Restitution: Liability
for Benefits Received Introduction Unjust Enrichment “Disgorge Ill Gotten Gains” Equity,
Fairness 1.
Restitution in
the Absence of a Promise a. Salvaged lumber Glenn
v. Savage
Ct. – Request for service creates obligation for service to be done. Restatement – not contract law Values Personal Autonomy Unencumbered Will Money – polluter of good intentions People expect payment for contracted items, not unexpected services. b. “Services rendered to an unconscious patient” In
re estate of Crisan
Contract implied in law Restatement – No Acceptance - No Consideration, No Contract BUT Court Intended Finding contractual obligation when there is none because it is the correct thing to do. c. Twelve years of “nonmarital cohabitation” Watts
v. Watts
Woman Judge Plaintiff uses several theories of recovery: Express or Implied Warranty Restitution Services to Defendant implies consideration. §71 Bargained for Exchange? Was there bargaining – Not Really Is bargaining required for contract? NO Lacks explicit terms of contract. Ct. rules §71 contract can be implied. Judgment reversed & remanded to Trial Ct. Plaintiff Claims for Restitution Woman conferred benefits on man. Unfair for man to retain benefits. Unjust enrichment. Plaintiff seeking Breach of Contract – Fair split of assets Restitution – Hourly wage compensation 2.
Promissory
Restitution a. Restatement Sections 82, 83, 86 b. Services to an ailing son Mills
v. Wyman
State Supreme Court Not enforceable promise Lacks Consideration Moral Obligation not Enforceable Service provided before promise made Plaintiff fails to recover Moral obligation not sufficient Extraordinary Remedies – Know doctrine’s twists & turns c. The falling pine block Webb
v. McGowin
Damage from falling pine block. Defendant died before Plaintiff. Plaintiff suing to continue collecting payments. Material benefit Moral obligation with material benefit Big v. Small Alabama Ct. uses different rule of law than Mass. Ct. in Mills v. Wyman When can moral obligation substitute for consideration? 1. Rule in Mills v. Wyman 2. Rule in Webb v. McGowin Is it “Unjust”? – be creative & persuasive; use facts Facts don’t fit model of §86 – Promise for benefit received. d. Harrington v. Taylor, p 176-7 Note 6 Hand cut in attack. Promise to pay for injuries. “reconcile” – general principle to harmonize conflicting results
2 cases with similar facts and different outcomes. Check to see if they are applying different issues. Restitution No Promises or Promises after Performance Separate Issues & Arguments/Independent bases for Claims Contract Restitution Reliance B. Promissory Estoppel: Protection of Unbargained-for
Reliance
Reliance = Promissory Estoppel Put injured person in corrected position. 3 Types of Cases 1. Family 2. Charity 3. Commercial 1.
Promises Within
the Family a. Restatement Section 90 b. “If you will come down and see me…” Kirksey
v. Kirksey
Plaintiff argues contract established. Ct. rules “No Contract”. Detriment to Promissee > Benefit to PromissorBargained for Exchange? Consortium? Benefit from Promissor – Consideration Not Benefit from Promissor – Gift Determining Factor – Was there Consideration? Produces unfair result. c. The faithless grandfather Ricketts
v. Scothorn
She relied on money to quit job. Was quitting job Bargained for Exchange? YES Estate attempting to Estopp Common factor – Reliance on action/promise by another person. Act, Omission, Conduct Equitable Estoppel – one party makes a misstatement of fact and
another party relies on that statement. Promissory Estoppel – promise which promissor should reasonably expect to induce action or forbearance and does. Reliance Grey
overlap area Consideration Recovery on Reliance – Greater Universe Reliance & Consideration 2.
Charitable
Subscriptions The Mary Yates Johnson memorial fund Allegheny College v. National
Chautauqua County Bank
Promise of gift for $5K in exchange for scholarship fund establishment. Yates changes mind before death. Ct. Opinion Enforceable as contract? YES Enforceable as Promissory Estoppel? YES Consideration – Posthumous remembrance with scholarship fund. Counter argument – Could be viewed as gift. Not contract – Gift No detrimental reliance But this gift must be viewed as serious, contractual promise, or any donor making an offer could revoke and cause problems for fundraisers. Restatement § 90 Promise Reasonably Inducing Action or Forbearance. 3.
Promises in a
Commercial Context a. The retiring relative Katz v. Danny Dare, Inc. Promise in commercial context Restatement §90 Promissory Estoppel in Commercial Nature 13 months of time from offer to acceptance. Issue: Is Promise enforceable under Promissory Estoppel? YES Could Katz have sued for Breach
of Contract? YES Pension exchanged for past performance? Pension exchanged for $10K + liability No unemployment compensation Plaintiff cites Feinberg case – promise of pension Appeals Court’s 3 Elements to Recovery a. Promise b. Detrimental Reliance c. Injustice avoided only by Enforcement (Sympathy Counts) Restatement §90 – Detrimental Reliance, objective, foreseeable Appeals Ct. cites Trexler – similar to Katz case. When should a Ct. order someone to uphold promise? Traditional: Quid
Pro Quo Modern: Detrimental
Reliance Charity Organization: Clear Promise made b. Note and Problem 302: The injured pilot Alliance Aviation §86 Promise for Benefit Received Implied Promise Reasonable Argument Linear Thinking Detrimental Reliance – Then can’t use disability Promissory Estoppel – is it justified to break promise? Unclear about Promise Enforcement Claim Possibilities 1. Breach of Contract Weak; No Consideration 2. Promissory Restitution Strong 3. Promissory Estoppel Detrimental Reliance on Pension; so-so argument Does moral obligation substitute for consideration? Webb Test: Material benefit to Promissor? YES Implied promise for compensation if injured. Reliance on implied promise may be reason for not ejecting. Review Non-Promissory Restitution No Promise. Based on Promissory Restitution §86 Promise for Benefit Received Mills, Webb cases §116, 117 Restatement of Restitutions
Contract = Promise leading to Services Types of Contracts Requirements 1. Contract Consideration 2. Promissory
Estoppel Detriment 3. Restitution Unjust
Enrichment Consideration Benefit/Detriment Bargained for Exchange – More Important IV. Chapter 4: Obligation in the Absence of Complete Agreement Claims for PE within reason If General Contractor gives bid, then Plaintiff receives offer A.
Limiting the
Offeror’s Power to Revoke 1.
Promissory
Estoppel: The Effect of
Pre-acceptance Reliance a. Not enough linoleum James Baird Co. v. Gimbel Bros., Inc. Gimbel - supplier trying to sell linoleum Baird – General Contractor Baird wants Gimbel to cover loss. Baird tries to recover on Detrimental Reliance – fails Ct. – Offer only, no promise Finds no promise in offer Judge Learned Hand b. An elementary school parking lot Drennan v. Star Paving Co. Trial Court – Drennan Appeals Ct. – Affirms Decision St. Supreme Ct. – Affirms Decisions Restatement §90 Promise Reasonably Inducing Action or Forbearance. FINDS Promise in Offer Rejects Baird decision in certain way Implied subsidiary notice Implied promise not to revoke §45 Option Contract Created by Part Performance or Tender Unilateral contract partly delivered requires commitment; binds offer. Star wants Drennan to rely on bid. Holding – Widely Accepted Holding in Baird – Gone c. Restatement § 87 Option Contract Offer by contractor creates Promissory Estoppel due to reliance. Notations/SignalsNo signal Direct Support Contra opposite ruling See some support See also lower support cf compare – not directly relevant, but analogous to lend support Justice Traynor in Drennan case: Creative Reasoning Doesn’t mention reversing traditional decision. Legal mistake citing Learned Hand’s case, Baird d. Comment: Contract Law and Business Practice e. His own Red Owl store Hoffman v. Red Owl Stores, Inc. Red Owl kept upping requirements on
Hoffmans to point where deal collapsed. Preliminary Negotiations led to Promissory Estoppel What is the promise(s)? Numerous Implied Promises No direct or Implicit Promises Hoffmans: Commitment made Red Owl: Promise not made YET Detrimental Reliance Red Owl: Assurance with encouragement. Encouraged more and more reliance to level of BAD FAITH. Promise v. offer v. assurances Hoffman case somewhere in-between Promise v. offer. “Bar to Recovery” lowered to ASSURANCES. Hardest Promise Medium Offer Easiest Assurance Ct: Reasonable, foreseeable, detrimental reliance. Know how to analyze facts to identify promise/offer/assurance. Analysis: Show Strengths
& Weaknesses of Promise Offer Assurances Make arguments supporting and attacking points. 2.
Irrevocability by
Statute: The “Firm Offer” a. Editors’ note on the UCC in Rules of Contract Law Statutes on Commercial Law 1840’s – Justice Story proposed commercial law standards. 1900’s – Need to codify law grows with industrialization. Contract Law – State Law – 50 sets of rules 1940’s - NCCUSL & ALI join to draft UCC. 1968 – UCC draft adopted by all states except for Louisiana. Passed by 49 state legislatures Many commerce areas have specialized statutes Banking, Communications, Securities,… Goals 1. Bring Contract Law closer to Business Law. 2. Focus on Party Agreements, Less on written content. Greater focus on intent. 3. View contracts as viewed/performed in Good Faith. b. UCC Sections 1-102, 1-103, 2-102, 2-104(1), 2-105, 2-205, 2-306 Know what it applies to using any set of facts. UCC – Contracts on sale of goods. Does Not Cover “Things” such as Services, Real Property, Intangibles, Intellectual Property... Article 2 applies to all contracts to sales of goods or things. Mandatory Rule – State Legislatures decided all contracts must be in Good Faith. Default Rule – Contracts interpreted in certain way to provide fair outcome. “Gap Fillers” c. 80,000 pounds of pork products per week Mid-South Packers, Inc. v. Shoney’s Inc. Long Term Relationship No formal agreement, but ordering continued. Requirements Contract – Quantity & contract determined and agreed to. Ct. rules not a Requirements Contract. No promise to purchase quantity form Mid-South. Not exclusive dealing arrangement. UCC doesn’t precluded Promissory Estoppel or Restitution. Mid-South presented “proposal” to Shoney’s in 1982. Price list – 45 days notice for change in prices. No specifics, no real contract, only a Price List. Orders in writing, by phone, billing July 1982 – Price increase negotiated at $0.07 per pound Federal Ct. hears case, but uses state’s contract laws & regulations. Shoney’s admitted extra amount deducted wrong, therefore amount in controversy decreased. Is there a Requirements Contract? Is the “Proposal” a binding contract? Shoney’s argues there is an Requirements Contract with a min. 45 days required to change prices. Ct – Not a Requirements Contract. Each transaction was a separate contract. UCC § 2-205 Firm Offers – Consists of 5 Questions 1. Is there an offer? 2. Is the offer by a Merchant? 3. Is the offer to buy or sell goods? 4. Is the offer in writing? 5. Does the offer assure terms? Legal acceptance doesn’t match reality. Acceptance by silence. Ct. – Weak analysis; arguably correct. Preponderance of evidence – Shoney’s agreed to pay higher price B.
Qualified
Acceptance: The “Battle of
Forms” Contractual relationship where written communications are inconsistent. Boiler Plate – Anything in contract not specifically negotiated. Form language, not specifically negotiated. Is there an agreement? Are all terms agreed to? Common Law Rule – Mirror Image Rule – Offer form must be mirror of acceptance form, or isn’t acceptance. UCC – More flexible than Mirror Image Rule. 1. Twelve tons of rubber Poel v. Brunswick-Balke-Collender Co. April 2, 1910 – Letter from Poel to Brunswick. Ct. – not offer; no legal significance April 14, 1910 – 2 Letters together Ct. – Not contract; only signed by 1 party; no acceptance; only offer. April 6, 1910 – No acceptance; only alleged; no Mirror Image; Counter Offer that was never accepted. January 7, 1911 – Brunswick sends last letter trying to establish ground rules of contract. Price of Rubber dropped – buyer wants to cancel order. Mirror Image Rule not strictly applied. See Note 4 Page 278. 1. “de minimis non curat lex” – trivial difference, not important. 2. Term added by acceptance was implicitly included in offer. 3. Proposals for modifications/additions. 2. Problem 4-3: 5,000 feet of patent leather Is there a contract? NO Does it specify in Paragraph 7? Any hesitation is not an offer Ambiguous information – Assume both possibilities and then analyze each. Acknowledgement form is not acceptance in this case – it is a counter offer. Then is there acceptance leading to contract? YES 3. UCC Section 2-207 UCC drafters decided to overturn the “Mirror Image Rule”; which reward the last “Form Sender” Provides that an acceptance of an offer creates a contract, even if there are minor difference in terms. Helps to identify what terms are legally binding and what terms are not. Always start with §2-207(1) – Section 1 Then proceed to §2-207(2) & (3) – Sections 2 & 3 §2-207(1) – Identifies whether or not there is a contract. Asks for acceptance Implies offer has been made Test to identify contract in UCC same as test in Common Law “Acceptance” used twice in one sentence. Is there a definite and seasonable expression of assent? Enough agreement to constitute an offer? Or a written confirmation? Sent within reasonable time? Confirmation Look for: But may not find either! 1. Exchange of Oral Commitments: OR 2. Written Confirmation Unless – In the acceptance, language expressly stating offer will not be accepted UNLESS additional terms from offeree accepted by offeror. Two types of Contracts: 1. Written 2. Oral Rules to each type of contract are the same. If there is a valid ORAL contract, additional options cannot change the contract. Section 1 à Oral Contract 1. Oral Agreement 2. Written Agreement §2-207(2) Sounds independent of §2-207(1) Different terms v. Additional terms Additional terms are proposals for additions to contract. If both parties are merchants then exceptions are available If one/both parties are not merchants, then exceptions DO NOT APPLY. “Materially Alters” – Will it result in surprise or hardship if incorporated without express awareness of other party? See Note 4, p. 29 – R2d Supplement. “Notification of Objection” – Blanket of specific objection Diatom v. Pennwalt p.305 Casebook Ct. evaluates other Ct. interpretations of §2-207(2) 1. Different – Terms not meant to be added. 2. Treat different terms like additional terms. 3. Knock Out Rule – Remove Conflicting terms. Used in the Diatom Case. Methods 1 & 2 go back to the Mirror Image Rule. §2-207(3) Requires – No Contract in §2-207(1) Based on parties “Conduct” How do you identify terms in a contract if it is only based on actions? Apply §2-207(3) ONLY Just like the “Knock Out Rule” – but differs because it is based on conduct, and some writings. 4. The Cool Whip bowl machine Brown Machine, Inc. v. Hercules, Inc. Hercules employee injured. Sues Brown Machine. Settles for $150 K. Hercules limited to paying workers compensation. Brown sues Hercules to recover $150K, based on indemnification clause. Court Examines docs to evaluate application of §2-207. Is Browns’s Acknowledgement form an acceptance? §2-207(1) Contains Indemnification clause. Express Language – Ct. says NONE Ct. - §2-207(2) – Indemnification clause is not added to contract; material change. Trial Ct rules in favor of Hercules. Appeals Ct. reverses decision. 5. The defective spandrel glass Dale R. Horning Co. v. Falconer Glass Industries, Inc. Does clause in contract materially alter it? Is it possible to collect incidental and consequential damages? Consequential – In consequence of damages Incidental – To keep damages from mounting/growing Ct applies §2-207 – skips §2-207(a) & (c) Oral agreement with written confirmation which includes different terms. Is it material? Surprise/Hardship analysis – finds adding of clause causes a hardship. 6. Problem 4-4: 5,000 feet of patent leather redux Confirmation limits late delivery Is there an offer? MAYBE Then assume offer and Analyze. And assume no offer and Analyze. Offer Is reply acceptance? Definite & Seasonable? Written & sent in reasonable amount of time? §2-207(a) & (c) don’t apply. Arguments Will this materially alter contract? Yes Will it impose surprise or hardship? Yes Allowing seller to cancel if buyer doesn’t pay on time? Causes beyond control? Conclusion – Contract exists; Paragraph 7 out OR Assume contract based on conduct – same result. * * * END FALL 1998 SEMESTER NOTES * * * ExamAnswer the Question Focus on the Analysis Don’t provide a Fact List!!! Don’t write the rules IRAC – Focus on Analysis Present arguments on both sides Conclusion can be “non-definitive” Winning party may be “unclear” Read FACTS with EXTREME care! 3 Contract Areas 1. Contracts a. UCC – Sale of Goods b. Common Law - Services, Land 2. Promissory Estoppel 3. Restitution Keep track of time. Use conversational style answering questions. Skip lines – write on one side of page only What are the issues? Is there more than one potential claim? Review one claim at a time. Identify issues from non-issues. Non-Issue – Facts not in dispute. No disagreement. List claims; then Issues; then Counter Arguments Three methods to identify issues: 1. Mental conversation with parties 2. Free Association Method – Virginia Woolf – Relate to Case Book. 3. Checklist Method List Potential Issue Items Implement Keys Weigh Important issues Reread question if confused. Articulate how each party would apply the law to facts Use Declaratives: WHY; BECAUSE; THE REASON FOR What kinds of arguments could be made. Bring in facts compelling conclusion. Policy Arguments Analyze & Distinguish Cases – Compare Facts in cases Contracts Spring
1999 Outline by Christopher
S. Lee Chapter 4 C. Postponed
Bargaining: The "Agreement
to Agree" 1. R2d 33 2. Walker v. Keith A Renewable 10 Year Lease Lease for Exploration Vague, Ambiguous, Indefinite Renewal Option "Implied Terms" - Court Becoming Intrusive How far should CT. reach? What extent should CTs. take? How far should contract reach, specify Did parties intend to make Agreement? If So - CT. should uphold Holes - Seek grounds to find agreement Chapter 5: The Statute of Frauds A. Introduction Statute of Frauds Gatekeeper Certain Types of K may not be enforceable unless they are in writing. Applies to some K and not others. Body of Doctrine - Common Law, Statutory England - Too Harsh, repealed in 1954 U.S. - Adopted English version of SOF; Enforced by St. CTs. Types of K that Can't be Performed within a year (unless breached) • Oral K of Employment • Agreements in consideration of marriage; unless mutual • K for sale of land or interest in land • K not to be performed until after life of promisor. B. UCC
2-201 - Requires written K for goods where price $500 or more "a contract for the sale of goods for the price of $500 or more
is not enforceable by way of action or defense unless there is some writing
sufficient to indicate that a K for the sale has been made..." R2d 131, 132, 139 R2d 125 - A promise to transfer or buy land requires written agreement Leases - Most states allow oral lease for less than 1 yr. R2d 130 - If a promise contained in a K can't be performed within one year, after making the K, the K must be in writing. Time runs from execution of the K. UCC 2-201(3)(a) No writing is required if the goods are to be specially manufactured R2d 131 - Memorandum of the Agreement • Reasonably identifies the subject of the K • Indicates that a K has been made between the parties • States with reasonable certainty the essential terms • signed by or on behalf of the party to be charged P may introduce oral evidence to aid in the interpretation of the memo, if ambiguous. But may not introduce evidence to supplement the memo. C. Crabtree v. Elizabeth Arden Sales Corp An employment contract with Miss Arden 2 yr. K 2 Salary Increases 3 Documents Memo of Conversation on Telephone Order Blank Payroll Chargecard - Not Signed; Raises Q 2nd Payroll Chargecard - Raise Refused Crabtree quits & sues Arden Denies 2 Yr. K TC - Rules for Crabtree $14K AC - Affirms SC - Are SOF writing requirements Applicable? Performable in under 1 Yr.? No - 2 Yr. Employment K §131 - General Req. for SOF Q - Can Docs be linked together? YES Why can docs be linked together? No reference linking documents §132 Clearly indicates relation CT - Language is ambiguous Parol Evidence Permissible Oral/Spoken evidence Anything outside written K Extrinsic Information 1 Doc must be signed Comes out of/refers to some transaction Does not have to refer to linked docs Identify General Req. for SOF Linkage Requirement §2-201 D. Cohn v. Fisher A 30-foot auxiliary sloop Fisher agreed to purchase Cohn's boat Fisher argues boat needed inspection prior to sale CT - Judge by "agreed to" terms, not unspoken thoughts Agreement can be made which requires action prior to formal agreement Fisher fails to satisfy this argument. 2-201 - K greater than or equal to $500 in value require written K. 1. Sale between parties? YES - Notes 2. Signed by party against enforcement sought? YES 3. Quantity of
goods? YES Check not req. to validate K Assent is critical issue. Chapter 6: The Meaning of Agreement: Principles of Interpretation and the
Parol Evidence Rule A. The
Parol Evidence Rule 1. Introduction Law of Interpretation & Limited in past. Lots of different terminology Series of steps in analysis Restrictive rules & Analysis, get exception Learn UCC & Common Law What type of situations does Parole Evidence Apply to? Negotiations ________________K________________After Written Agreement §209 - Integrated Agreement "Is it integrated?" - Total Expression of Agreement Classical - 4 Corners of K Modern - Facts & Circumstances §210 - Partial Integration §215 - Contradiction of Integrated Terms §216 - Consistent Add'l Terms Parol Evidence Progression of Arguments Merger Clause Possible ways of Characterizing Evidence Always multiple possible Characterizations Better Arguments more tailored to facts Parol Evidence results in barring from the fact finder's consideration all evidence of certain preliminary agreements that are not contained in the final writing, even though this evidence might persuasively establish that the preliminary agreement did in fact take place and that the parties intended it to remain part of their deal despite its absence from the writing. When the latter agreement is in writing, it generally supersedes the previous agreements. If the later agreement is oral, the Jury decides the intent. If the later agreement is written, the Judge decides the intent. Parole Evidence Rule - Rule of Substantive Law; operates to exclude evidence; may be rejected by the trier of fact. Integration - Final expression of agreement. Total Integration - Includes all parties' details of agreement. No evidence of prior of contemporaneous agreements or negations may be admitted which would either contradict or add to the writing Partial Integration - Doesn't include all parties details of agreement. No evidence of prior agreements or negotiations may be admitted if the evidence would contradict a term of the writing. R2d 213 - Evidence of prior agreement may never be admitted to contradict an integrated writing, and may not even supplement an integration which is intended to be complete. Subsequent Agreements - Parol Evidence NEVER BARS consideration of subsequent oral agreements. Written K may be modified after execution by oral agreement. UCC 2-209(2) & (4) - Waiver to "No Oral Modification" clause - must show reliance, or materially changed position in reliance upon waiver. Judge - determines true integration; then total or partial integration. Willston Merger Clause - The sole agreement between the parties. Examine writing itself. If no merger clause, examine rest of writing as a whole. "Four Corners" Approach - looking exclusively at the document "Reasonable Man" Standard - Whether reasonable men would have put the terms in the oral agreement into the final writing, or would have left it out. Corbin Actual intentions of parties should be evaluated More emphasis on intent, less on writing Emasculates the Parol Evidence Rule UCC - Corbin-like approach; consider all evidence; Judge decides integration Illegality, fraud, duress, mistake, lack of consideration - evidence to show no valid K exists, or K is voidable. Customs - Course of Performance, Course of Dealings, Usage of Trade UCC 2-208(1) - Course of Performance - Conduct of parties in particular K. UCC 1-205(1) - Course of Dealings - Pattern of Performance in past K. UCC 1-205(2) - Usage of Trade - Any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. UCC 2-202(a) - Customs can be introduced to help interpret meaning of a writing even a complete integration. UCC 2-208(2) - Customs MAY NOT be used to contradict express terms of K. 2. R2d 209, 210, 211, 213, 214, 215, 216, 217 3. Thompson v. Libby An Alleged Oral Warranty Disagreement of Quality of Logs Extrinsic Evidence Inadmissible Parol Evidence Encourages people to write things down Is Outcome Fair? Classical model of Parol Evidence Rule Integrated K - Review 4 Corners of Document Extrinsic evidence may be excluded if document is integrated Use R2d as road map; Classical view as Tangential. 4. Hershon v. Gibraltar Bldg and Loan Assn. A DC Condo Dispute Hershon Gibraltar Vierlings Goldstein 1981 Promissory Note Deeds of Trust - Payment tied to proper repayment Agreement August 24, 1984 Payment on 10/1/84 11/1/84 - Gibraltar threatened to declare a default 11/24/84 - P sues D 11/30/84 - P offers to pay, D refuses, lacks legal fees 3/25/86 - TC bench opinion issued TC - holds P liable for Promissory Note Release - very broad language, Ambiguous "claims" Extrinsic Evidence - Determine whether term is ambiguous Maryland - If ambiguous at face, then no add'l evidence may be introduced. Release Agreement contains both ambiguous and specific language Ejusden generis - Specific words followed by more general terms Occurrence of Payment extrinsic evidence Admiral Builders - cited by all; shows facial ambiguity Is this a Q of Law or Fact? DC CT - Q of Law; provides more latitude; ambiguity AC - Not ambiguous, extrinsic evidence should not have been considered Reverses TC, Remanded for P Dissent - Ambiguous, Broad v. Specific language Case - Provides debate regarding use of language & Extrinsic Evidence Written Language's literal effect Lawyer's Role - before, during & after Gamesmanship becomes absurd Unethical behavior Obligation to be honest 5. Nanakuli Paving & Rock Co. v. Shell Oil Co. The price of asphalt UCC 2-202 - Parol Evidence Rule Common Law allows intro of evidence if ambiguous terms; if agreement integrated UCC - Explanatory & Supplementary R2d §202 & 203 - Interpretation allows facts & circumstances to help determine true meaning |___Course of Dealings___|___Parol Evidence___|___Course of Performance___| | Negotiations | |_________________K_____________________| | Trade Usage | Course of dealings - prior transactions, patterns 1963-74 - Nanakuli purchased all asphalt from Shell 1964 - Price determined by posted (published) price upon delivery Price Protection - Is P legally entitled? St. CT. - Removed to Fed. CT. Jury awards P Verdict Judge vacates Verdict Appeals CT. Reinstates Verdict Seeking adequate evidence to support jury verdict. 4 Issues p. 479 1. How broad was trade usage? P seeks broad pattern D seeks narrow definition; raises many defenses §1-205(3) UCC - Vocation or Trade...Should be Aware D should have been aware of P bidding practices. Trial Judge expanded Parol Evidence Zone, excluding other evidence. 2. Waivers v. Course of Performance 2 instances demonstrate course of performance. D - Price Protection inconsistent with K; therefore should be waiver CT - Waiver only in ambiguous situations Course of Performance & Express Terms UCC 2-201(1), 1-205(4) Weight & Order K Parties Express Terms Course of Performance Other K Course of Dealings Same Parties May not Trade Usage - May not involve Parties in suit include Parties When conflict - Shell should win Holding - buyer sets price Inaccurate implementation of the Rules Judge pushes limits of statutes 6. Problem 6-1: A manager's plummeting profit share D Claims Integrated K Merger Clause Four Corners Therefore Can't Add or Contradict Partial Integration; Therefore can't add contradictory Evidence R2d § 211 K clause §6 - Inclusion of Add'l terms already included P Claims R2d §216 Ambiguity - Contradiction in terms Reliance Chapter 6: Principles of Interpretation
1. Introduction Interpretation - Parties show meaning of terms contained in a writing; Interpret the meaning of terms in the writing. Williston - Interpret the writing to determine whether the writing was integrated; a final expression of agreement. If CT found integration, no more oral testimony on meaning. If CT found not integration, testimony providing subjective understanding allowed. If no integration, and parties differ on understanding, then no K, because no mutual assent. If integration, then apply the Reasonable Person analysis. Corbin - Oral evidence should be allowed to determine whether the parties thought the writing was a final expression of their agreement. Maxims Primary Purpose Rule - Primary purpose of parties given great weight. R2d 203 - Reasonable, lawful and effective meaning Construction Against Draftsman - Ambiguous terms construed against draftsman Negotiated Terms control Biolerplated standard terms Handwritten notes have priority over typewritten notes. Raffles v. Wiehelhaus aka the Peerless Case No meeting of the Minds; Therefore P loses Williston - Objective Theory - Reasonable Person Approach Corbin - Modified Objective Approach See §201 - Whose Meaning Prevails? Assent to K determined objectively, but does not always apply What do parties agree to do? Behavior - Objective; Williston Interpretation - Modified Objective; Corbin 2. R2d 201 - 207 3. Joyner v. Adams The Retroactive Rent Escalator Clause Issue: Development Includes What? TC - Different Meanings AC - Analysis not right Modified Objective Rule Equal Bargaining Power Contra Problem Renta - Interpret against drafter; if has advantage 4. Frigaliment Importing v. BNS Int'l. What is a "chicken"? Frig BNS Buyer Seller Foreigner Bauer Stovcek U.S. P claims only wants fryers; claims Breach of K Evidence Express Terms in K Preliminary Negotiations Course of Performance Trade Usage Identify Ambiguous Terms Identify Dispute Identify Arguments from Facts Assign Categories USDA regs are for grading & inspection, not specifically for K Negotiations Arguments possible from anywhere, but important to know how law applies and how to argue. K Law - State law, not Federal law CT - P behavior indicates larger chickens acceptable Seller's understanding of chicken coincides with USDA's objective meaning D Subjective intent v. Objective Meaning; Therefore buyer should have know what seller meant. 5. Morin Bldg Prod. v. Baystone Uneven aluminum siding Sub Contractor & Prime Contractor Judge - Uses Objective Theory; Reasonable Person Jury awards Morin/P D loses & Appeals Honest dissatisfaction - reference to state of mind Objective - Reasonable Person Honesty & Fact R2d §228 - Objective Standard Trades Standard - Commercial Qual. Subjective Standard - Aesthetic Standard CT trend imposing external standard for terms not negotiated 6. C&J Fertilizer v. Allied Mutual Insurance Tire Tracks Burglary Insurance Co. denies coverage No marks of visible burglary on bldg/exterior Doctrine of DUTY TO READ Inconsistent Doctrines - REASONABLE EXPECTATIONS Consideration of the facts of the case Identify both parties arguments Reasonable Expectations Doctrine P friendly §211, 237 - Adhesion K Adhesion K 1. Take it or leave it 2. Standardized K 3. Inequality of Bargaining Power Non-negotiated term may be negotiated; interpreted in reasonable expectations of non-drafting party Test Adhesion Non-Negotiated Term Bizarre Oppressive Eviscerates non-standard terms explicitly agreed to Dominant Purpose of Transaction: P - Cover Burglary D - Cover Burglary, not inside job Dissent's comments Chapter 7: Supplementing the Agreement: The Obligation of Good Faith and
Other Implied Terms A. The
Rationale for Implied Terms Adding terms to K that weren't originally there Interpreting terms not initially there All K require duty of Good Faith Implied in Fact - meaning, actual intentions of parties Reasons CT's act 1. Necessary to find that a valid K existed 2. K unfair without terms Modern CTs - supply missing terms; construing what the parties actually meant by the words; usually issues parties did not address in K. R2d 204 Duty of Good Faith - see Wood v. Lady Duff Gordon Duty to Continue Business - Requirements K - see Eastern Air v. Gulf Competition Limitations Substantial Minimum Payment - Royalties; profit sharing Termination of Dealership - Many CTs now require Termination with Cause Shown Reasonable Notice be given Termination of Employment K - Most employment at will; Most CTs hold employment may be terminated by either party for no reason, or even for bad faith. Some CTs require cause and good faith to be shown. 1. R2d 204, 205 UCC 1-203, 2-103(1)(h), 2-0306 2. Wood v. Lucy, Lady Duff-Gordon Lucy's Dress Design Deal K authorizing use of label Selling right to use label P claims exclusive use privilege D moves to dismiss Wood ---> 1/2 Profits ---> Lady Duff Wood <--- Exclusive <--- Lady Duff To use reasonable efforts - best efforts clause to market design Capitalists P & D Both have expectations of action EXCLUSIVE USE ---> Specific Efforts Corresponding Duty UCC §2-306 Best efforts 3. Leibel v. Raynor Manufacturing The Garage Door Seller Leibel <--- Exclusive Rights <--- Raynor Dealer to sell in geo. area Manufacturer Distributor Supplier P claims reasonable notice prior to termination of K D Phantom termination; no duration specified, Terminable at will by either party TC - MSJ - D AC - Reverses - P Issue - Is case covered by UCC Article 2? K - Goods - Doors Services - Selling of Doors/Duty Dealer-Distributory covered in Article 2 of UCC. CT applies UCC 2-309 - requires reasonable notice of termination Reasonable Amount of Time 1. Time to seek alternative arrangement 2. Time to sell inventory 3. Time to recoup investment Encyclopedia Britanica Sales Example B. The
Implied Obligation of Good Faith 1. Introduction Well Established UCC 1-203, 2-103 R2d 205 Performance Duty Prospective - Forward Requirement Good Faith Negotiations? Some Jurisdictions Yes; Some No 2. Eastern Airlines v. Gulf Oil Corp. Airplane Fuel Requirements K - Purchase product from one Company. Output K - All output of company purchased Requirements K - Previously not allowed; Mutually Exclusive D - K lacking in mutuality; indefinite & vague Mutuality of Obligation ≈ Consideration CT - Long Term Relationship Judge Obligations by Parties' Behavior Judge by Trade & Dealings 3. Problem 7-2: Captain Donut C. Implied
Warranties 1. Introduction Affirmation of Fact or Promise Statement or Fact of Warranty Unless excluded, goods Warrantable UCC 2-315 Fitness of Purpose UCC 2-316 Buyer relies on seller to select goods Wiggle room for merchants Consistency Promise then negation - Negation invalid Javins v. First National Landlord/Tenant Case Lease - type of K Shift in values/focus/attention from landowners to tenants People who don't own land have rights to certain services 2. UCC 2-313-6, 2-314, 2-316 3. Doe v. Travenol Labs Inadvertent AIDS Transmission Tort & K claim Tort - Strict Liability; Negligence K - Breach of Warranty Blood - service, not sale of product; to prohibit sale of organs UCC 2-105 - Things Is blood a thing? CT - No breach of warranty BUT may be liable for negligence Notes Torts/K Warranty Breach of Warranty Failure to Exercise Skill & Care Breach of Fiduciary Care Chapter 8: Avoiding
Enforcement Valid K Clear, complete meaning Is there any reason not to enforce K? 3 Different Types of Unfairness - Defenses 1. Status of Parties - Capacity - Minority/Mental Incapacity 2. Unfairness in Bargaining Process - Eversion 3. Substance of K Defenses can be used Affirmatively A. Minority
and Mental Incapacity R2d 14 K is voidable at their option for Infants & Mental Incapacities Infant may ratify a K after reaching adulthood in 3 Methods • Failure to make timely disaffirmance • Express Ratification - writing or orally • Ratification by Conduct - Active inducement of performance Necessaries - Food, clothing, shelter; infant may not void K Misrepresentation of Age - K can be avoided on grounds of fraud R2d 15(1) - Mental Incompetents; one of following factors must apply • Unable to understand in a reasonable manner the nature and consequences of the transaction. The test of mental capacity is whether a person is capable of understanding in a reasonable manner the nature and effect of the act in which the person is engaged. There is a presumption of capacity which can only be rebutted by clear and convincing proof. • Unable to act in a reasonable manner in relation to the transaction AND the other party has reason to know of his condition. The person opposing the K must show that 1) the other party know of the mental condition; and 2) the transaction is not one which a reasonably competent person might have made. R2d 15(2) - Right of Avoidance Terminates Where the K is not on fair terms, or the other party has knowledge of the mental illness or defect, the K can be disaffirmed at any time until it is complete. But where the K is made on fair terms AND the other party has no knowledge of the mental illness or defect, the power of avoidance terminates to the extent that the K has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such cases a court may grant relief as justice requires. R2d 16 - Intoxication Power of avoidance only if: 1) so intoxicated that he can't understand the nature of his transaction; and 2) the other party has reason to know that this is the care. 1. Problem 8-1: The Car Dealer with a Problem Minors entitled to disaffirm K prior to 18 Minors can't affirm K prior to 18; UNLESS food, clothing or shelter 2. Dodson v. Shrader The Boy who Bought the Truck 3. Ortelere v. Teacher's Retirement Board Grace's Ill-timed Decision Grace changed retirement option to get max. payout over lifetime Cognitive Test - Looking at person's ability to understand R2d §15 - Must satisfy either (a) or (b) Voidable v. Void Outward behavior - what a reasonable person thinks you are doing Mental incapacity can't be used as a defense for the non-Mental Incapacitated party Law v. Mental Health Law changes as body of knowledge changes Questions Do they lack the ability to understand? Could they control their behavior? Dose the other party know of the condition? Judge Breitel compares case with criminal law Should rules be the same in K & Criminal Law? K Law - protection of expectations Dr. D'Angelo - Broad stats & generalities; lacks specific info; judgment may be based on limited information Frank Orteleres - Simple man Judge Breitel 1. Money to Frank Orteleres 2. Change the Law Is the Judge reaching for an outcome? B. Duress
and Undue Influence R2d on Duress & Undue Influence Broad language Try to argue precise criteria "Use of power for illegitimate ends" - Broad Duress - Improper Threat Duress SIMILAR to Undue Influence Unfair Persuasion Improper Bargaining R2d 175 - Duress - any wrongful act or threat which overcomes the free will of the party. Subjective Standard - used to determine whether duress has been applied. Methods of Committing Duress • Violence - acts or threats • Imprisonment - acts or threats • Wrongful taking or keeping property; or threats • Breach of K threats or other wrongful acts IF one party threatens another with a certain act, it is irrelevant that he would have the legal right to perform that act, if the threat, or ensuing bargain, are abusive or oppressive. 1. Odorizzi v. Bloomfield School District Did Donald Consent? P ---> Resigns ---> D P <--- No Publicity; no firing; no embarrassment <--- D P Arguments Duress Key Fraud Mistake Undue Influence Key (Lack of) Incapacity Policy Custody for 40 hours Try applying R2d § 276 Based on arguments, what facts can be applied? Undue Influence (CT finds present) Dominating Behavior Excessive Pressure Dominant Party Vulnerable Party Confidential Relationship - one acts on behalf of other(s) 7 Factors of Undue Influence listed on p. 619 Requirements for Undue Influence LESS tangible Requirements for Duress MORE tangible Duress v. Undue Influence Duress Was there a Threat? Implicit Direct, tangible If No Threat - more likely Undue Influence Look at Pressure Dominance C. Misrepresentation 1. Introduction Can be basis for rescission or CT claim Hypothetical Client buys 5 yr. old boat Appears to be in good condition Side collapses, boat sinks TORT - scienter; deliberate intent to defraud RESCISSION - Good Faith, no Knowledge of Problem READ R2d §161-169 - NOTE RELATIONSHIPS §163-164 Companion Statements Enough Evidence of misrepresentation will void K § 164 more relied upon by CT's, lawyers, judges Elements Misrepresentation either fraud or material By other party Recipient relied justified Similar to §175(2) & §177(3) §162 Fraudulent or Material Companion Must have to prove Misrepresentation Incorrect Statement of Fact - Fraudulent OR Misrepresentation has to be Material READ §161, 168, 169 What is Misrepresentation? ¶168-169 Statement of Opinion EXAM Threats Duress Pushiness Undue Influence Lying Misrepresentation Deception Misrepresentation Withholding Info Misrepresentation Can have multiple elements Characterization of Deception important Possible to make multiple arguments A claim of misrepresentation can be used either as a defense against enforcement in a suit brought by the misrepresenting party, or as a grounds for rescission or damages by the misrepresented-to party suing as P. Elements of Proof R2d 164 - Negligent or even innocent misrepresentation is sufficient to avoid the K if it goes to material fact. Justifiable Reliance - Party must show he justifiably relied on misstatement Must be Misrepresentations of Facts - not of opinion. Concealment & Nondisclosure - There is no general duty to disclose information, but there are special situations • Half Truths • Positive Concealment • Failure to correct past statements • Fiduciary Relationships • Failure to Correct Mistakes 2. Syester v. Banta 3,222 hours of dancing lessons TORT ACTION because CT awarded punitive damages TORT OF INTENTIONAL FRAUD & MISREPRESENTATION Must Show Misrepresentation Harm & Fraud Rescission - Release 1. Suit 2. Settles 3. Suit Tort/K ---> 2 Releases <--- 1 Rescind P claims misrepresentation to sign releases Carey promises P she can become a Professional Dancer Position of Trust or Confidence Relationship Fiduciary Duties ----|------------------|--------------|---------------------> black lie white lie puffery truthfulness §168 - Fraudulent or Material Misrepresentation Smoking Gun Non Disclosure Statement of Fact Statement of Opinion §164 - If Assertion of Opinion becomes Assertion of Fact; then use §164 Possible Incapacity Argument - Separate All Factors Create Arguments Misrepresentation Undue Influence Possible Incapacity D told P she didn't need lawyer Misrepresentation Intimate & Personal "Save Waltzes" for you - assertion of untrue feelings FIND Lies & Deceptions and IDENTIFY CT - Claim of Misrepresentation Sufficient evidence of releases show Misrepresentation Jury decision validated Punitive damages validated "Eight Good Rules for Interviewing" Opinion leading to misrepresentation Persuasion Role of Arthur Murray's Lawyer Prepared Release Wrote Settlement checks Prepared 2nd Release Lawyer directing behavior of Client? P Lawyer Received share of settlement although he didn't negotiate it, or advise her 3. Comment on Lawyers' Prof. Ethics 4. Hill v. Jones Termites! Hill - Buyer Jones - Seller Why wasn't termite inspector sued? Buyer is 3rd party beneficiary Appears inspector concealed information "water damage" to floor board - §164 - Misrepresentation CT - Seller had duty to disclose FL Rule §161(b) compared with FL Rule Bad Faith Proof Requirement v. No Bad Faith Rule Bad Faith hard to prove Look for Intentional or Negligent Misrepresentation Was person doing it on purpose? §162 - Fraud §164 - Overt Statement §161 - Withholding NOTE 1 Laidlaw v. Organ (1817) Tobacco K after war Agent didn't disclose future price change CT found OK Deceptive Practices - Uncertainty NOTE 3 Casual v. Deliberate Investigation Bases Argument on Investment for Information RULES ARE COMPLICATED & CONTEXT DEPENDENT D. Unconscionability If the provisions of a K are so grossly unfair as to shock the conscience of the court, the judge may decline to enforce the offending terms, or the entire K. A K or clause will be found unconscionable when it is so shockingly unfair that the court decides that it should not be enforced. See R2d 211 R2d 208 - Allows a court to decline to enforce all or part of an unconscionable K. UCC 2-302(1) - If the CT as a matter of law finds the K or any clause of the K to have been unconscionable at the time it was made, the CT may refuse to enforce the K, or it may enforce the remainder of the K without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. The principle is one of the prevention of oppression and unfair surprise...and not of disturbance of allocation of risks because of superior bargaining power. The Judge decides whether a K is unconscionable. Procedural Unconscionability - One party was induced without having any choice. Substantive Unconscionability - Unduly unfair and one-sided; excessive price, or an unfair modification of either parties' remedies. UCC 2-302(1) - Remedies for Unconscionability Refusal to Enforce Offending Clause - striking clause where unconscionable. Reformation - CT reforms K by setting reasonable price. Refusal to Enforce K - Denys recovery 1. Introduction Williams v. Walker - 1965 Test Litigation Case Was Cross-Collateral segment unconscionable? "Welfare mother w/ 7 children" selling to poor persons Persuasive - Aggressive Sales tactics Can buyers: 1. Afford? 2. Protect selves? 2. Williams v. Walker-Thomas Furniture Co. A Stereo, Two Lamps, Three Tables, and a Daveno DC CT of Appeals functions like State Supreme CT 2 customers purchased furniture on installment State sues to obtain furniture Cross Collateral Clause - Until last payment on all items paid, seller has option to repossess all items Unconscionability - p. 663 bottom Is the K so unfair that unconscionability should be held? Looking for bargaining unfairness Substantive Unconscionability - content of K unfair UCC 2-302 CT declares K unconscionable adoption & remands case 3. Ahearn v. Knecht Expensive Air Conditioning Repair Unconscionable Undue Influence K should be invalidated based on complaint Harder Question - Base invalid on Price Alone? Or base on bargaining power and Unconscionability? 3 Areas Consumer Service Price Very few cases ruled unconscionable Most covered under Consumer Protection Laws 4. Comment: Consumer Protection Legislation Includes K Law UCC Common Law Numerous other State & Federal Statutes E. Public
Policy Almost all law based on Public Policy All law is an expression of Public Policy Public Policy - Proposed Solution to Problem Created by CT's, Legislatures, Bodies of Enterprise Using ideas of "right' to advance laws Continuum of Development 1. Derico v. Duncan The Builder without a License Should CT refuse to enforce K? Which violates consumer protection laws? Statute requires license to lend money Criminal Statute with penalties CT - Regulatory Statute designed to protect consumers Statute alone provides no relief Looks to see if statute protects party KNOW Regulatory v. Revenue Raising Statute Consumer Protection v. Revenue Raising Statute DC - unlicensed home improvement contractor can't get paid until after business complete K - void; money ordered returned 2. Comment: The Baby M Case 1. Is there a Regulatory Statute that violates issue, as opposed to a revenue-making statute? 2. Common Law Rule 3. Undue Influence 4. Servitude - Constitutional Law Find law to apply, protecting CLASS OF PEOPLE Enforceability F. Chapter
Review: Problem 8-4: She wants her baby back Ambiguous Statute - Look at legislative history Minors can have voidable K's R2d §161-164 - Misrepresentation Facts Depose Witnesses Can Samantha Read? Did
she read K? Find out what really happened Who is telling the truth What comments are accurate Compare to Syester - Arthur Murray Intentional Misrepresentation - Punitive Damages Undue Influence Meeting of the Minds Unconscionability Public Policy - Custody Criminal Statute - kidnapping Chapter 9: Justification for
Nonperformance: Mistake, Changed
Circumstances, and the Contractual Modification Reasons CT decline enforceability of K due to change or discover after K is made A. Mistake 1. Introduction Tends to be overused Extremely Narrow Hard to Prove K - Made to allocate risks; made for future time Most changes in circumstances DO NOT warrant reversal of K §151 Mistake - belief not in accord with facts Mistake must be based on erroneous beliefs at time K was made Erroneous predictions about future NOT ALLOWED Mistake must involve basic assumption of K Basic Assumption - Central to K Assumptions That DON'T Apply Market Conditions Other Party's financial ability to Pay Creates Narrow Application Material Effect Material Loss K becomes more advantageous to Other Party PARTY SEEKING RELIEF DIDN'T KNOW OF MISTAKE PREVIOUSLY Unilateral Mistake - made by one party; No relief granted Mutual Mistake - shared by both parties; no K was formed; or K subject to rescission, cancellation or reformation. A mistake refers only to a mistaken belief about an existing fact, not an erroneous belief about what will happen in the future. Common law - a "mistake of law" could not furnish grounds for avoidance of K. "Ignorance of the law is no excuse." Modern Law - R2d 151 allows a mistake of law to serve as the basis for avoiding a K if the other requirements for the mistake doctrine are met. R2d 152 - Requirements - all required • Basic Assumption - on which K was made; • Material Affect - on the "agreed exchange of performances"; and • Risk of Mistake - adversely affected party must bear risk of mistake Basic Assumption Test- One must search the facts for unexpected, unbargained-for gain on the one hand and unexpected, unbargained-for loss on the other. NOT Basic Assumptions • Market Conditions • Financial Ability Existence of Subject Matter - i.e. K to buy land with trees. Quality of Subject Matter - i.e. the Barren Cow; mistake went to the very nature of the thing. See Sherwood v. Walker. Releases - Party may agree to release another form all claims arising out of certain transaction; usually in a negotiated settlement. CTs less inclined to allow releases for mistake in commercial transactions; more inclined to allow personal injury releases. The general rule of freedom of K includes freedom to make bad bargains. R2d 152(1) - Material Effect - Must also show the mistake has a "material effect on the agreed exchange of performances." Must show "that the resulting imbalance in the agreed exchange is so severe that he cannot fairly be required to carry it out. UCC 2-315 - Buyer does not rely on Seller's skill and judgment so that there is no warranty of fitness for a particular purpose Other types of relief apart from rescission are available in material effect claims.; such as reforming the K or ordering restitution. R2d 154 - Disadvantaged party will still not be able to avoid the K if the risk of that mistake is allocated to him, even if the mistake is a basic assumption and materially alters the agreed exchange of performances. Risk allocated to parties by • Agreement of the Parties - Sold "as is" • Aware at the time of the K that he only has limited knowledge - conscious ignorance - purchasing a stone without knowing the true type of stone. • Risk allocated by the CT on grounds of reasonable in circumstances UCC 2-714(2) - Breach of Warranty - The buyer under a breach of warranty claim is entitled to the "benefit of his bargain." Buyer entitled to be compensated for the difference between the worth of the goods and the worth if warranted. Contrast to Mutual Mistake - Buyer gets money back and returns goods. Not entitled to "benefit of the bargain". Misunderstanding - Subject understanding about ambiguous terms. General Rule is no K because no meeting of the minds; assuming terms is material. R2d 153 Unilateral Mistake Traditional Rule - "avoidance of K will more clearly disappoint the expectations of the other party than if he too was mistaken. Only allowed when non-mistaken party know or had reason t know of the mistake at time K made. Modern View - More willing to allow rescission. Modern View Requirements Same 3 basics; and either one of following • Mistake is such that enforcement of K would be unconscionable; OR • Other party had reason to know of the mistake, or his fault caused mistake. Unconscionability Contractor must show mistake represents a significant portion of the overall bid. If the other party knows, Unconscionability doesn't apply. CTs - less willing to allow rescission where the error is a mistake in business judgment rather than a clerical error. Defenses Negligence usually not a Defense when Party's own negligence causes mistake R2d 157 - Good Faith - Parties must act in good faith with reasonable standards of fair dealing. R2d 157 Failure to Read Writing - One who assents to a writing is presumed to know its contents and cannot escape being bound by its terms merely by contending that he did not read them; his assent is deemed to cover unknown as well as known terms. But if there has been prior oral agreement, which written agreement doesn't match, possible remedy. Remedies Avoidance - Rescission. CT views K never existed; return parties to their original position. Restitution - Each party returns benefits received. 2. Lenawee County Board of Health v. Messerly The Seeping Sewage Problem Doctrine of Mistake Ownership Bloom Messerly Barnes Messerly Pickles - Seeking Rescission TC - Messerly's foreclosure AC - Pickles; Mutual Mistake MI/SC - Sherwood v. Walker - Barren Cow Case Mutual Mistake based on nature The Nature of the thing sold not the Quality or Value Allowing Rescission based on value would destablize contracting as whole, therefore to get around value, thing has to be proven different "Polite Overruling" now only applies to cows Adopts R2d Standards Mistake by both parties - Rental Value Who bears Risk? Who is At Fault? MI ruling encourages sellers to limit inspections Consider stability of transactions in land Encourages boilerplate K language i.e. "as is" Risk allocation assumes winners and losers Mediation may provide a split outcome CT's normally grant a one-sided Opinion/Ruling 3. Wil-Fred's v. Metro Sanitary District The Subcontractor's $150K error Wil-Fred - Unilateral Mistake Requires either 1. Unconscious; OR 2. Reason to Know Wil-Fred is protecting subcontractor Sanitary Commission - K Mistake should not be excused CT - Mixed mistake of fact & judgment; Difference in bids should have been noticed Doctrines Good Faith Reliance B. Changed
Circumstances: Impossibility,
Impracticability, and Frustration 1. Introduction Strict Liability - if you are negligent/liable, not excuse will let you out. If performance impossible - won't be held to K If performance impracticable - won't be held to K R2d §261 Impracticability Elements Event Occurrence makes performance impracticable Happens without fault of one seeking relief Non-Occurrence - Basic assumption of K Language or circumstances indicate otherwise Very high standard Vague Language - Mushy Often answer usually NO R2d §262, 263 UCC 2-613 Mistake - fact at time K was made Impossibility/Impracticability - Fact after K was made Frustration of Purpose - Does not Require Impossibility; requires something that destroys purpose of K R2d §265 - Frustration Elements Principal Purpose Impracticable Elements Event Happens without fault Non-Occurrence Language Has exchange in K lost all value? Lie ---> Misrepresentation Mistake of fact at time of K ---> Mistake Undesirable change after K ---> Impossibility, Impracticability, Frustration Parties may be discharged from performing the K if: 1) Performance is impossible; 2) Because of new events, the fundamental purpose of one of the parties has been frustrated. 3) Performance is not impossible but much more burdensome than was originally expected - Impracticable. If a party is discharged from performing he is not liable for breach of K 2. Karl Wendt Farm Eqpt. Co. v. Int'l Harvester Co. The Abandoned Farm Equipment Franchise Dealer - Impracticability; Frustration of Purpose Jury ---> P JNOV ---> D D tries every conceivable argument, foresee ability - Not Helpful here R2d §261 Event making performance of K impracticable? CT - trying to limit K exclusions to extreme situations; REJECTS IMPRACTICABILITY D - Int'l Harvester sold division to Case; therefore no longer liable Who should bear the loss? Equity Impossibility - Performance can't happen no matter what Impracticability - Performance really difficult Frustration - Something happens with principal purpose of K D - Frustration §265 CT - Mutual Profit NOT KEY; DEALERSHIP key to K "Substantially Frustrating" not established Who should have purchased insurance? Who should be assigned risk-bearer? Foresee ability - not useful in this case C. Modification Common Law - Modification of K that only benefits one party is unenforceable for lack of consideration. UCC 2-209 - removes the consideration requirement for modifications of existing Ks; "An agreement modifying a K within this article needs no consideration to be binding." UCC 2-209(2) - No Oral Modification Clause - K may not be modified except in writing. UCC 1-203 - Obligation of Good Faith and Performance UCC 2-302 - CT can refuse to enforce unconscionable K's. Substitute Agreement often Referred to as Modification Agreement. 1. Problem 9-3 - Contractor & Flooring Job When is an agreement to modify a K valid? K binds parties to future performance with given terms Options Agree & Contest Later Agree with new protest; then contest Sue to enforce Threaten to Cancel & Sue Cajolery Does UCC cover this case? MAYBE Mixed Goods & Services Is overall focus to sell goods? Exclusive Supplier of Tile Must look at % of K for Goods v. Services UNKNOWN - Look at both options UCC 2-209(1) - even a 1 sided modification; doesn't care UCC 2-209(3) - Statute of Frauds Requirement Duress Good Faith Threat to breach v. explanation of difficulty in performance Bad Faith to Threaten another Contractor - Commercial Impracticability Was there an attempt to coerce an agreement? NO Was there a threat to breach? NO Assume UCC doesn't apply - use Common Law Must Prove Reliance to Enforce What Kind of Reliance? What if Reliance is previously agreed to basis? 2. Alaska Packers Assn. v. Domenico $100 for the Season Pre-Existing Duty Rule Aspect of Doctrine of Consideration Promising to do something legally obligating To perform, then no consideration for extra compensation Example of treatment of new K's Workers held coercive monopoly Additional duties may have held K more enforceable Old K could have been destroyed, replaced with new K Supervisors K Authority - Agency 1. Express v. Implied Authority 2. Apparent Authority 3. Ratification Authority Only discuss Agency issue briefly IF ON EXAM R2d §73 &89 in conflict Recommend §73 first, then §89 & exceptions 3. Schwartzreich v. Bauman-Basch, Inc. The Coat Designer's New Contract Coat & Wraps Manufacturer Modification Agreement found enforceable Original K rescinded before new K made Deliberative intent to end old K and honor new one No threat to breach, sharing of information with performance What if 2 K's, made at same time, then one canceled? Could make modification unenforceable 4. U.S. ex rel Crane Co. v. Progressive The Purchase of a Cast Iron DeAerator Progressive failed to object to new price; hence waiver to objection Chapter 10: Justification for
Nonperformance: Express
Conditions, Material Breach, and Anticipatory Repudiation Assume D in Breach of K case Defenses • Never a K - No Offer, Acceptance, Consideration • No Claim for Promissory Estoppel, Restitution • Perhaps K, but no duty included • Term improperly interpreted • Acknowledge K, Unfairness in Bargaining; consent to K invalid • Duties excused due to mistake or circumstances • Chapter 10 • Duty to Perform Never Arose • Duty Dies Identify which party's behavior constitutes Breach If there is a breach, what are the consequences? Little Breach v. Big Breach Evaluate Breach Chronologically -----|-----|-----|-----A----------B B's duty conditional on A's performance Big breach kills B's duty of Performance Express v. Constructive Conditions Express - Unless x happens, then entitlement to be paid expires. Explicit Language Constructive - Prompt Deliver; Not expressly/explicitly language Express Example Babysitter Promise to pay $300/week for 1 yr Only pays $100 w/ $200 coming later Is babysitter required to continue working? Yes because it is a small breach Condition Precedent - event must occur before duty arises; i.e. car accident before insurance payment Condition Subsequent - Condition discharging duty A. Express
Conditions R2d 225 - Strict compliance with an express condition is ordinarily necessary. R2d 227(1) - Avoidance of Forfeiture. Party may avoid express condition if strict compliance with condition will cause him to fail to receive the expected benefits of the deal. Party must show he has relied on the bargain by performance. R2d 229 - CT may excuse express condition where extreme forfeiture will occur. Language which appears to impasse an express condition is always interpreted in the light of the parties' intentions 1. Introduction 2. Inman v. Clyde Hall Drilling Co. "I Started My Claim within 30 Days" AK/SC - Inman didn't comply with express condition in K R2d §224 - Condition Precedent Inman claims filing lawsuit is notice; CT disagrees What is D Duty? UNCLEAR Employer not obliged to respond to suit unless P follows conditions P didn't understand terms K - Stipulates duty of employee continues after leaving Inman ---> comply ---> Clyde Hall Inman ---> work ---> Clyde Hall Inman <--- hires <--- Clyde Hall Inman <--- pays <--- Clyde Hall Boilerplate language causes problem Inman's lawyer argues anticipatory breach - WRONG Failure of performance of Express Condition STRICTLY ENFORCED Most CT's will only apply strict enforcement to material issues See R2d §225 Is condition material to K? 3. Jones Assoc. v. Eastside Properties The Rejected Short Plat Plat - divides land into lots Promise or Condition? Eastside - Express duty to pay after approval Breach of Promise - Small breach entitling damages Breach of Condition - Other Party's duty discharged Williston Party's intent Conditional Language Helpful Ambiguous ---> Promise R2d §227 CT - finds promise, not condition Promises favored because less chance of forfeiture Any breach of K gives rise to damages Outside of Control Promise v. Condition Language of Clause Feasibility Study - Note 4 p. 820 Behavior - Eastside didn't cancel K Clause Interpretation Promise Condition Promise & Condition Should be promise, not condition But promise to do what? Express Condition - Person's duty to perform may waive duty & get condition anyway Only if material waived not a material part of exchange B. Material
Breach Breach of K Questions 1. Does injured party still have duty to perform? Option to treat duties as over? 2. Is party entitled to damages? If K over - Possible claim for damages If K continues - may be entitled to small damages Breaches Partial ---> Material ---> Total Material Breach - One party may suspend performance Total Breach - Material breach not been cured; sufficient time elapsed to sue for damages Breaches 1. Express Condition Breach 2. Material Breach Should language be considered/interpreted to be a promise or condition for express condition breach? Forfeiture - work completed to large extent and not paid; CT's dislike Waiver - only by Owner Excused - Only by Contractor; not material to K; breach not big enough Breach of Duty Partial v. Material Material & Time ---> Total Breach Difficult to characterize partial v. material breach R2d 241 Material Breach Factors 1) Deprivation of expected benefit - The extent to which the non-breaching party is deprived of the benefit which he reasonably expected. The essence or principal reason for which the K was made must be examined. 2) Adequacy of Compensation for Loss - Damages 3) Part Performance - The greater the part of the performance which as been rendered by the breaching party, the less likely it is that a breach will be deemed material. 4) Likelihood of cure of breach - If the breaching party seems likely to be able to and willing to cure the breach, the breach is less likely to be deemed material. 5) Willfulness of Breach - Usually found when the breaching party abandons the K, deliberately substitutes inferior materials, or otherwise acts in Bad Faith. 6) Delay in Performance - If delay significantly deprives the other party of the benefit of the K. The presumption is time is NOT of the essence, unless K says so. UCC 2-601 As long as K does not involve installments, unless otherwise agreed, if the goods fail in any respect to conform to the K, the buyer may 1) Reject the whole; or 2) Accept the whole; or 3) Accept any commercial unit or units and reject the remainder. Generally CT's only allow rejection if defect is SUBSTANTIAL. UCC 2-208 Trade Usage, Course of Dealings, Course of Performance Buyer may fail to follow code to reject goods. Seller has right to cure defect. UCC 2-602 Rejection of goods must e within a reasonable time after delivery or tender. UCC 2-612 Buyer may cancel entire K if defect is grave enough. Buyer may revoke acceptance; same as never accepting goods. 1. Sackett v. Spindler The Newspaper Negotiation K to sell newspaper $85K - original selling price $20,680 - final sales prices P claims D rejected K first CT find no breach by D because P failed to perform P actions are material breach maturing to total breach CT - P actions negligent or willful Each breach must be separately analyzed Each breach may be partial or material Note 5, p 856 - Breaches from installment K Waiver - can be applied to conditions, clauses; can also be retracted 2. Jacobs & Young v. Kent A Pipe Problem TC rules for D; Full Performance NY SC Breach of Constructive Condition? Express Condition - not found, not linked to duty to pay Constructive Condition - linkage not stated; duty Express Condition - If you do X; I'll do Y Constructive Condition - You do X; I'll do Y CT finds Constructive Condition - finds small breach Constructive Condition synonymous with material breach substantial performance ≈ partial breach Cardozo on Substitute Performance Breach Little Forfeiture Big Interpret K What does K obligate? What does each party know/assume? Who's meaning prevails? R2d § 201 How do you measure damages for defect in construction? Cost
of replacing defective item UNLESS Then look at value of work with/without defect R2d §240 - Agreed Equivalents; Divisibility Which duties are conditional on which other duties? 3. Comment: The Doctrine of Constructive Conditions C. Anticipatory
Repudiation When a party makes it unmistakably clear he does not intend to perform. Such repudiation allows the other party to suspend and perhaps cancel performance. R2d 250 - Categories of Repudiations 1) A statement by promisor that he intends not to perform 2) An action by the promisor making performance impossible 3) An indication by promisor that he will be unable to perform Vague comments are not enough to prove AR There must be an absolute and unequivocal refusal to perform or a distinct and positive statement of inability to do so. Bankruptcy is generally considered AR Insolvency is not considered AR; but may provide "reasonable grounds for insecurity" 1. Harrell v. Sea Colony The Canceled Sea Colony Contract P - $5,000 deposit Financial situation worsens Tries to transfer rights to another Requests rescission w/ refund of deposit Timeline K 7/17 - Harrell asks to cancel 8/18 - Sold to 3rd party; Harrell can treat K as over, Sea Colony Breached 8/23 - Letter to Harrell 11/12 - Lawsuit 12/31 - Delivery date R2d §250 2 Choices Breach before Performance due Claim Voluntary Act Anticipatory Repudiation A definite and unequivocal manifestation of intention not to perform. Must be statement or act or failure of performance great enough to justify total breach. Economic Power Equivalent to Total Breach What kind of facts would give rise to this situation? 1. Pittsburgh-Des Moines Steel Co. v. Brookhaven Manor Water Co. The Water Tower Contract UCC 2-609 - Right to adequate assurance of performance 1 party concerned that another party won't perform Law - Right to ask for assurances PDM - New, Post K, Setting Conditions for performance PDM wants to install the tank Brookhaven wants to delay the installation |-----PDM Insecurity-----|-delivery-|-payment PDM had no justification to request escrow deposit Why does UCC apply? Good & Services in K Similar to building a house; but house not a thing; tank is a thing Some transfer & delivery of services Primary reason for goods, not services CT - finds goods; UCC applies No reasonable grounds to question performance Must be based on objective facts; ex - Brookhaven becomes insolvent If there were reasonable grounds, PDM could have asked for assurances Concurrence Opinion - PDM had reasonable grounds for insecurity BUT demand for assurances were too great Note 5 - Permissive Doctrine, not Compulsory D. Chapter
Review: Problem 10-3 &
4: Blood, Gore and More Understand Criteria, Outcome not as Critical Did NBS breach the K? Did NBS breach to Express Condition? Ambiguous language; Interpret Promise or Condition? NBS already paid $500K Failure of condition should be confused Maybe Mason waived condition - August 24 meeting Better argument - Constructive Condition Mason ---> Material Breach by NBS; possibly blowing up to total breach SEE R2d §241 - Material Breach Sacket v. Spindler Jacobs & Young v. Kent 1 Determinative 1 Required Can Argue 1 or all Most Significant Factors 1. What extent will Mason be deprived? 2. What extent can he be compensated? 3. What is the extent of the forfeiture? 4. What cure? 5. Good Faith? If material, then NBS would want to know how to retain rights to K Use R2d §240 - Doctrine of Divisibility Argue Advance was payment for book Remainder for future services Mason - Would argue K not divisible NBS - §374 - Restitution in favor of party in Breach EXAM: Note which doctrines respond to Question. Chapter 11: Expectation Damages: Principles and Limitations Usual Measure of damages for Breach of K. CT attempts to put the P in the position he would have been in had the K been performed. P awarded Out of Pocket Costs Profits he would have made on the K R2d 347 - Damages = Contract Price - Benefits from non-completion. R2d 352 - P may only recover for losses which he establishes with reasonable certainty. P must show he had losses AND amount of losses. UCC 2-715 - allows buyer to recover consequential damages. UCC 1-106(1) - The aggrieved party may be put in as good a position as if the other party had fully performed. A. Computing
the Value of Expectation Damages 1. Introduction and Computing the Value of Plaintiff's Expectations Previously figured out Which party is in breach Now figure out: How much is the other person getting in damages (more common) OR Ask for specific performance Fuller & Perdue Expectation Reliance Restitution When does a commitment rise to a level of enforceable commitment? How does CT decide damages? If K is breached, injured party should get benefit of bargain, including profits; for any kind of breach -----K-----Breach-----Completion-Damages at this point EXAM: R2d §347, 355, 356 Loss in Value (to injured party) + Other Loss (damages) Incidental Consequential - Costs Avoided + Loss Avoided Consequential Damages - beyond loss in value for consequence of breach Incidental Damages - subset, damages incurred by other party to avoid loss Costs Avoided - Amount injured party had to spend because of K broken Loss Avoided - Loss avoided by injured party ex) Price of House $200K Cost to Builder $180K K canceled by Owner Paid at Cancellation $70K Builder - 50% complete; $90K spent; $10K remaining materials Loss in Value $200K - $70K = $130K + Other Loss $0 - Cost Avoided $90K + Loss Avoided $10K Total Builder Owed $30K What would have been builder's net Profit? $20K Unreimbursed Expenses $10K Total $30K Gives builder profits on work and work completed Construction formula Lost Profits Unreimbursed Expenses Example) Law Firm 2 year Employment K Employment at Will At 6 months; fired/wrongfully Annual pay rate $50K Paid out $25K 6 month unemployed $45K Headhunter $1K Sue firm for wrongful discharge Loss in Value $100K - $25K = $75K Other Loss Incidental $1K Consequential $0 Cost Avoided $0 Loss Avoided $45K Total ($75K + $1K) - $45K = $31K Other Damages Possible Interest from time of Judgment Professional Clothing Medical/Mental Costs How Much loss is there? What was lost from breach? Example) 2 yr law firm K 6 Months, quit firm, similar numbers to previous problem $50K/yr salary $150K billable hours/yr $10K on benefits 6 months to find replacement at $50K/yr What is difference in value to firm to your work and benefit received if didn't leave? Loss in Value $300K - $75K = $225K Other Loss $0 Incidental Loss (Recruitment costs) Cost Avoided $25K + $5K = $30K Loss Avoided $150K Total $225K - ($30K + $150K) = $45K Farnsworth Formulas 2. Kemp v. Gannett The House that Didn't Sell Builder v. Seller K listing period where seller would buy house if didn't sell Eventually house sold for less than original price; 1 yr later CT Rule - K Price - Market Price on Breach Date Another method of figuring loss in value Builder Kemp Awarded Difference Resale Price Taxes Mortgage for 1st 90 Days When calculating Damages - list items ONCE ONLY!!! 3. Handicapped Children's Education Board v. Lukaszewski Elaine's Two Jobs Teacher leaves school job twice School hires replacement School sues for damages Rule: When employee breaches K, employer must seek substitute services at reasonable costs. Reasonable costs in this case are consequential damages Case rests on breach of K, not on medical health issue Consequential Damages = New Employee - Old Employee Price B. Restrictions
on Recover of Expectation Damages:
Foreseeability, Certainty, and Causation R2d §347 - Know!!! Not Allowed Foreseeability Certainty Causation - Aviodability - Mitigation 19th Century - Judges began to give jury instructions regarding damages Damages must either: 1) Direct or General Damages - Arise naturally, according to the usual course of things from the breach of K; or 2) Special or Consequential Damages - Arise from the special circumstances under which the K was made if these circumstances were communicated BY THE P TO THE D. Foreseeability relates to whether the possibility of the damages was sufficiently likely at the time the K was made. Certainty - relates to how clear it is at the time of suit that the alleged losses occurred, and that they were caused by the D's breach. UCC 20715(2) - Allows buyer to recover consequential damages resulting from the seller's breach. 1. Hadley v. Baxendale The Fractured Crank Shaft Foreseeability case Mill wash shut down 5 days longer BUT FOR the delay of delivery service Lower CT - £50 for Mill Higher CT - Rule Nisi - New trial ordered - Jury Instructions Inadequate Damages Natural Special Circumstances - Prior Arrangement CT - Cannot collect any damages EXCEPT those foreseeable from breach Any causal connection to breach is arguable IF foreseeable Hadley - Pure Consequential Damages; indirectly occurred because of breach Judge's comments don't match facts in beginning of case Policy Infant Industry Agency Insurance R2d §351 - Codification of Hadley v. Baxendale Relationship between K and damage would...? Proximate Cause Consequential Damages - Must be proven Holding - Loss of profits was not a consequence which in the usual course of things flows from a delay in the shipment of the shaft. C. Restrictions
on Recover of Expectation Damages:
Mitigation of Damages R2d 350 - If P doesn't avoid his avoidable damages, he loses his ability to recover. 1. Rockingham County v. Luten Bridge Co. The Bridge to Nowhere -----K-----Work Starts-----K Canceled-----Work Continues----Bridge Completed What if K illegally canceled? If work stops, then Luten breaches K. Luten's Options Stop Work Seek injunction Seek letter of Assurance; if not provided, then entitled to stop work Can't collect damages that could have been avoided through reasonable efforts Doctrine of Mitigation AKA Doctrine of Avoidability - Better Term No duty to mitigate; merely can't collect damages avoidable through reasonable efforts Holding: A P cannot hold a D liable for damages which need not have been incurred. 2. Stewart v. Board of Education of Ritenour A Terminated Teacher Mitigation Case - $108K award Board has burden to prove other means of employment Employer has BOP; has information; Requires: 1) Opportunity available in same area at least as convenient as previous job. 2) Employee had no other attempt to apply to other jobs. 3) If applied, that employee would have gotten another job. Rule on Mitigation of Damages in Wrongful Discharge Non-Comparable Job - Not required to take Comparability - Should person be entitled to exactly what they want? If person doesn't take same type of job, but suffers no adverse affects; offset damages. If person takes lesser job, don't offset damages. If new job at different hours; possible to work 2 jobs; offset damages 3. Problem 11-1: A Canceled Concert Planned Parenthood of East Carolina (PPEC) K with Willie Nicholson for benefit concert. Canceled due to security concerns If PPEC sues for breach, would they win? Look for K Nicholson made a definite and unequivocal statement canceling appearance PPEC asked for assurances, none were provided. Big breach of K; Total Breach Material Breach - No expected benefit gotten. R2d 240 Total Breach Time of event gone Must allow time to cure No more time will cure K. PPEC - No Performance or Payment necessary due to Breach of K damages Nicholson - Impracticability; Non occurrence based on assumptions made. Defenses -Implied term in K - Safe Environment; Limited Facts supporting Mutual Mistake - Concert Safety; But must be mistake at time K made Who should bear risk of mistake? Did/should Nicholson have know? END OF
SPRING 1999 SEMESTER * * * * * * * * * * * * * * * ** * * * * * * * * * * * * * * * * * * * * * * * * * * UCC - Covers goods; Tangible Items Intangible Property are not Things, Not Goods * * * * * * * * NOT ON EXAM * * * * * * *
* D. Non-Recoverable Damages: Items Commonly Excluded for Plaintiff's Damages for Breach of Contract 1. Bunnett v. Smallwood An Agreement Not To Sue 2. Gagliardi v. Denny's Restaurants Rhonda's Trauma Exam Review Damages Loss in Value + Other Costs - Cost Avoided + Loss Avoided PPEC Example Value Ticket Sales Performance at Market Value Give PPEC Benefit of the Bargain Other Losses Tickets Refreshments Souvenirs Advertising Out of Ticket Distinguish between Cost Avoided v. Cost Incurred Avoided - Not Paid Yet; Unless absolutely required Incurred - Paid before breach Explain numbers and how figured. Use legal hooks to prove/match up Loss in Value $50,000 Nicholson's Performance at Market + Other Loss $110,000 Tickets $5,500 Refreshments $9,190 Tee Shirts - Costs Avoided $25,000 Payment to Nicholson + Loss Avoided $0 Total $149,690 Total Breach Performance & Breach Create Timeline Determine which obligations haven't been met yet. Who didn't perform first? ex) -----K-----Anticipatory Breach by A ----- A Partial Delivery ----- B Doesn't Pay --- Is there an express condition on the 1st party's performance? Is it a promise? Normally express conditions are strictly enforced. Therefore in example, 2nd party can view the K as over. Some express conditions not strictly enforced and performance excused - one party may waive or condition may not be material to K. If definitely not express condition, B's performance may be constructively conditioned on A's performance. What is the impact of the breach? Was there a material breach? - Is A's breach BAD enough to become a Total Breach? R2d 241 Sackett v. Spinder Jacobs & Young v. Kent Rule of Substantial Performance - If defect in performance is small, it doesn't end K/duty. Can be applied outside construction K's. Material Breach Found Has K become total breach? R2d 242 Total Breach Time elapsed sufficient? How important is timeliness? How significant is substantial performance? How bad is delay? If breach is not material, it is still a breach. If B's performance discharged, then B has no breach. Otherwise, evaluate B's performance: Did B breach an express condition? Did B make/break a promise? Did B breach a constructive condition? ... Commitment Could be Promise Could be Promise & Condition If commitment interpreted as forfeiture; move likely a promise than condition. Express Condition is higher level than Constructive Condition. Misrepresentation R2d 146-147 R2d 163 -164 Verbs - Action Provisions 164(1) - What's Required & When to Use Another Provision 1) ...misrepresentation... - incorrect statement of fact. What's the lie? 2) If find misrepresentation Then Fraudulent or Material Then GOTO R2d 162 3) Was other's consent induced by it? 4) Was other recipient justified in relying? If 164(1) parts 1-4 met; then K is voidable by recipient If misrepresentation by 3rd party, then evaluate using R2d 164(2). Deception Overt Misstatement omission Nondisclosure comission Concealment comission Opinion opinion Find the Lie - misleading statement, omission, nondisclosure R2d 162 - 164 - For direct false statement. R2d 161 For inaction, nondisclosure. Opinion v. Misstatement of Fact Opinion - quality, value, authenticity, fact After R2d 164 GOTO 169 Deception complicated cause may be hidden. Adhesion K - See Page 451 Casebook, Note 4 Standardized K of superior bargaining power. Strength with unequal bargaining power. A standard-form K prepared by one party, to be signed by the party in a weaker position, usually consumer, who has little choice about the terms. a.k.a. - take-it-or-leave-it K. |
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