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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

 

B.        Table of Contents, An Introduction to the Study of Contract Law

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

Parents responsible to children, not adult children

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

 

Webb

Harrington

Crippled

Hand damaged

Payments made

Small Payment made

Responsible for potential injury

Intermeddler

Working – intent to change

At home

Pension Promised

Compensation

 

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 Promissor

Bargained 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
Bargained for Exchange?  71( 2)

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/Signals

No 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                  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 * * *


 

Exam

Answer 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
NJ's adoption of UCC allows claim

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?
Most cases won on the facts

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
            Cost of replacement grossly out of proportion;

            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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   CHRISTOPHER S. LEE  2001

 

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