Professor Lisa Lerman
Outline based on Problems in Contract Law
Knapp & Crystal, Third Edition
I. Chapter 1: Introduction
A. An Introduction to Contracts
Identify what contract(s) are being performed.
What features make it a contract?
Consent = Mutual + Voluntary
Exchange of Services
Exchange of Property or Goods
Good Faith – Express or Implied
Rules of Contract Law changes as Society’s values change.
Respect for one’s own autonomy.
Respect for privacy and freedom of individuals.
Protecting rights of those targets of fraud.
Allows people to plan
C. “She refused to go out with him.”
Monge v. Beeb Rubber Co.
What are the relevant facts? Often depends on the opinion.
Application of law depends on facts of the case.
Question the facts.
Be curious and attentive
Monge was the first Employment at Will contract where there was a Bad Faith discharge.
Implied term in contract.
Why was Monge placed first in the Case Book?
Classical v. Modern law
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.
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
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
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
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
American Law Institute – Private Club of Law Professors
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
Lapse of time, 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
Option – decline to offer party option to revoke
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
Practical legal 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
Consideration – minimum performance to prove contract.
What is given in consideration to promise?
Quid Pro Quo
Pre Classical analysis – Benefit/Detriment Analysis
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.
Restatement § 71. Requirement of Exchange; Types of Exchange
Statement of Intention
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.
$25.00 worth nothing. Therefore no consideration.
Failure of Consideration – no Contract.
Appeals Ct – must identify mistakes made in the trial Ct.
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
Is picking up checks sought by employer? NO
Past service – was sought? When?
Pension promised after services rendered, not before.
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
10. Problem 2-3: The Cantonville Library
What are the legal questions?
What was the offer?
Is there an acceptance?
What method of acceptance is the council seeking?
Proposal seeking acceptance
§24 Offer Defined
Confers power on other party to bind obligation
Clear, definite terms
Can be accepted without other side acting
Not a Mirror Image of Offer
By performance of $1 million deposit
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 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
What promises will Courts enforce?
Chapter 2: Courts enforce promises supported by consideration
Chapter 3: Courts – Must satisfy requirements for
Restitution & Promissory Estoppel
Breach of Contract
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
“Disgorge Ill Gotten Gains”
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
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
Plaintiff uses several theories of recovery:
Express or Implied Warranty
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.
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
Moral Obligation not Enforceable
Service provided before promise made
Plaintiff fails to recover
Moral obligation not sufficient
Extraordinary Remedies – Know doctrine’s twists & turns
c. The falling pine block
Webb v. McGowin
Damage from falling pine block.
Defendant died before Plaintiff.
Plaintiff suing to continue collecting payments.
Moral obligation with material benefit
Big v. Small
Alabama Ct. uses different rule of law than
Mass. Ct. in Mills v. Wyman
When can moral obligation substitute for consideration?
1. Rule in Mills v. Wyman
2. Rule in Webb v. McGowin
Is it “Unjust”? – be creative & persuasive; use facts
Facts don’t fit model of §86 – Promise for benefit received.
d. Harrington v. Taylor, p 176-7 Note 6
Hand cut in attack.
Promise to pay for injuries.
“reconcile” – general principle to harmonize conflicting results
2 cases with similar facts and different outcomes.
Check to see if they are applying different issues.
No Promises or Promises after Performance
Separate Issues & Arguments/Independent bases for Claims
B. Promissory Estoppel: Protection of Unbargained-for Reliance
Reliance = Promissory Estoppel
Put injured person in corrected position.
3 Types of Cases
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.
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
Promissory Estoppel in Commercial Nature
13 months of time from offer to acceptance.
Issue: Is Promise enforceable under Promissory Estoppel? YES
Could Katz have sued for Breach
of Contract? YES
Pension exchanged for past performance?
Pension exchanged for $10K + liability
No unemployment compensation
Plaintiff cites Feinberg case – promise of pension
Appeals Court’s 3 Elements to Recovery
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
§86 Promise for Benefit Received
Detrimental Reliance – Then can’t use disability
Promissory Estoppel – is it justified to break promise?
Unclear about Promise Enforcement
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.
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
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.
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:
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
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.
Ct: Reasonable, foreseeable, detrimental reliance.
Know how to analyze facts to identify promise/offer/assurance.
Analysis: Show Strengths & Weaknesses of
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,…
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:
Rules to each type of contract are the same.
If there is a valid ORAL contract, additional options cannot change the contract.
Section 1 à Oral Contract
1. Oral Agreement
2. Written Agreement
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.
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.
Is reply acceptance?
Definite & Seasonable?
Written & sent in reasonable amount of time?
§2-207(a) & (c) don’t apply.
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 * * *
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
a. UCC – Sale of Goods
b. Common Law - Services, Land
2. Promissory Estoppel
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
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.
Analyze & Distinguish Cases – Compare Facts in cases
Christopher S. Lee
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
"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
Statute of Frauds
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
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
Anything outside written K
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
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
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
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
Progression of Arguments
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.
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.
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
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
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 |
| 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
May not Trade Usage - May not involve Parties in suit
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
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
Ambiguity - Contradiction in terms
Chapter 6: Principles of Interpretation
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.
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"?
P claims only wants fryers; claims Breach of K
Express Terms in K
Course of Performance
Identify Ambiguous Terms
Identify Arguments from Facts
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
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
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
Eviscerates non-standard terms explicitly agreed to
Dominant Purpose of Transaction:
P - Cover Burglary
D - Cover Burglary, not inside job
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.
Duty of Good Faith - see Wood v. Lady Duff Gordon
Duty to Continue Business - Requirements K - see Eastern Air v. Gulf
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
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
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
UCC 1-203, 2-103
Prospective - Forward Requirement
Good Faith Negotiations? Some Jurisdictions Yes; Some No
2. Eastern Airlines v. Gulf Oil Corp.
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
Affirmation of Fact or Promise
Statement or Fact of Warranty
Unless excluded, goods Warrantable
UCC 2-315 Fitness of Purpose
Buyer relies on seller to select goods
Wiggle room for merchants
Promise then negation - Negation invalid
Javins v. First National
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
Breach of Warranty
Failure to Exercise Skill & Care
Breach of Fiduciary Care
Chapter 8: Avoiding Enforcement
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
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
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
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
Try to argue precise criteria
"Use of power for illegitimate ends" - Broad
Duress - Improper Threat
Duress SIMILAR to Undue Influence
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
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)
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
Was there a Threat?
If No Threat - more likely Undue Influence
Can be basis for rescission or CT claim
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
Enough Evidence of misrepresentation will void K
§ 164 more relied upon by CT's, lawyers, judges
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
Pushiness Undue Influence
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
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
black lie white lie puffery truthfulness
§168 - Fraudulent or Material Misrepresentation
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
D told P she didn't need lawyer
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
Role of Arthur Murray's Lawyer
Wrote Settlement checks
Prepared 2nd Release
Lawyer directing behavior of Client?
Received share of settlement although he didn't negotiate it, or advise her
3. Comment on Lawyers' Prof. Ethics
4. Hill v. Jones
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
§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
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
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
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
CT declares K unconscionable adoption & remands case
3. Ahearn v. Knecht
Expensive Air Conditioning Repair
K should be invalidated based on complaint
Harder Question - Base invalid on Price Alone?
Or base on bargaining power and Unconscionability?
Very few cases ruled unconscionable
Most covered under Consumer Protection Laws
4. Comment: Consumer Protection Legislation
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
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
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
Can Samantha Read?
she read K?
Find out what really happened
Who is telling the truth
What comments are accurate
Compare to Syester - Arthur Murray
Intentional Misrepresentation - Punitive Damages
Meeting of the Minds
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
Tends to be overused
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
Other Party's financial ability to Pay
Creates Narrow Application
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.
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.
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.
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
Pickles - Seeking Rescission
TC - Messerly's foreclosure
AC - Pickles; Mutual Mistake
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
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
B. Changed Circumstances: Impossibility, Impracticability, and Frustration
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
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
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
Happens without fault
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
Event making performance of K impracticable?
CT - trying to limit K exclusions to extreme situations;
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
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
Agree & Contest Later
Agree with new protest; then contest
Sue to enforce
Threaten to Cancel & Sue
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
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
• 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
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
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
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
Conditional Language Helpful
Ambiguous ---> Promise
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
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
Partial ---> Material ---> Total
Material Breach - One party may suspend performance
Total Breach - Material breach not been cured; sufficient time elapsed to sue for damages
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.
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.
Trade Usage, Course of Dealings, Course of Performance
Buyer may fail to follow code to reject goods.
Seller has right to cure defect.
Rejection of goods must e within a reasonable time after delivery or tender.
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
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?
of replacing defective item UNLESS
Then look at value of work with/without defect
R2d §240 - Agreed Equivalents; Divisibility
Which duties are conditional on which other duties?
3. Comment: The Doctrine of Constructive Conditions
C. Anticipatory Repudiation
When a party makes it unmistakably clear he does not intend to perform. Such repudiation allows the other party to suspend and perhaps cancel performance.
R2d 250 - Categories of Repudiations
1) A statement by promisor that he intends not to perform
2) An action by the promisor making performance impossible
3) An indication by promisor that he will be unable to perform
Vague comments are not enough to prove AR
There must be an absolute and unequivocal refusal to perform or a distinct and positive statement of inability to do so.
Bankruptcy is generally considered AR
Insolvency is not considered AR; but may provide "reasonable grounds for insecurity"
1. Harrell v. Sea Colony
The Canceled Sea Colony Contract
P - $5,000 deposit
Financial situation worsens
Tries to transfer rights to another
Requests rescission w/ refund of deposit
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
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.
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 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
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.
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)
Ask for specific performance
Fuller & Perdue
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)
+ 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
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
Gives builder profits on work and work completed
2 year Employment K
Employment at Will
At 6 months; fired/wrongfully
Annual pay rate $50K
Paid out $25K
6 month unemployed $45K
Sue firm for wrongful discharge
Loss in Value $100K - $25K = $75K
Cost Avoided $0
Loss Avoided $45K
Total ($75K + $1K) - $45K = $31K
Other Damages Possible
Interest from time of Judgment
How Much loss is there?
What was lost from breach?
2 yr law firm K
6 Months, quit firm, similar numbers to previous problem
$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
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
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!!!
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
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
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
R2d §351 - Codification of Hadley v. Baxendale
Relationship between K and damage would...?
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.
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
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
Loss in Value
+ Other Costs
+ Loss Avoided
Performance at Market Value
Give PPEC Benefit of the Bargain
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
$9,190 Tee Shirts
Costs Avoided $25,000 Payment to Nicholson
+ Loss Avoided $0
Total $149,690 Total Breach
Performance & Breach
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?
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?
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.
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).
Overt Misstatement omission
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.
© CHRISTOPHER S. LEE 2001