Contract Outline Spring

Prof. Byse Keith H.
Wittenstein
Contracts / Byse / 1
I.
Goals of Contract (K) Law A. Three measures of damages: Expectation: gives the benefit of the bargain; Expectation Interest - interest of a party in realizing the value of the expectancy that was created by the other's promise. GET WHAT YOU WOULD HAVE GOTTEN HAD THE 'K' BEEN FULFILLED. Eg. You enter into a 'K' to buy a $5000.00 car, with no down payment. The seller breaches. Expectation damages is the difference between the fair market value of the car at the point of performance and the actual value. For example if the fair market value was $6000.00, you are entitled to $1000.00 in damages. Reliance: put back in postion before K was made; Reliance Interest- interest of a party in recovering losses suffered by virtue of reliance on the contract, regardless if there was any gain to the opposite party. GET BACK WHAT YOU HAVE LOST, return both parties to where they were before the contract was entered. Eg. You enter a 'K' to buy a new car. You ask the seller if the car is in good condition.____ He claims it is. You rely on his claim. You nonetheless take it to a mechanic for inspection. He charges a $25.00 fee. The seller backs out of the 'K'. Reliance damages=$25.00. Restitution: restoration of any benefit conferred___ to other party. Restitution Interest- interest of a party in recovering values conferred (given to) on the other party through efforts to perform a contract. "Prevention of unjust enrichment by promisor". GET BACK WHAT YOU HAVE GIVEN, return both parties to where they were before the contract. Eg. You put down $500.00 for a $5000.00 car. "K" is breached. Restitution means the return of the $500.00 deposit. Restitution Interest- strongest case for judicial intervention and relief because of the unjust enrichment. K= promise or set of promises for the breach of which the law gives a remedy, $ or performance. requires an offer, acceptance, and consideration. B. The Point of Damages COMPENSATION, NOT PUNISHMENT.
II.
Remedies For Breach Of Contract A. Expectation Damages To put the promisee in as good a position as he would have occupied had the defendant performed his promise. Rule: The difference between what was promised and what what received less any benefits gained through not having to fulfill K. Hawkins v. McGee (Hairy hand, p.3) Provided D breached and enforceable K. Awarded: to protect breached party from losing profit or sustaining a loss. Reasons for expectation:
Keith Wittenstein
a. to protect against the risks of reliance (lost opportunity). b. to guard against distress and insecurity occasioned by failure to keep promises. c. to support a credit economy. Due to the guarantee of a 100% perfect hand being promised as an inducement, the explicit expectation was made as opposed to therapeutic reassurance normally given by a doctor, normal measure is reliance.___ Sullivan v. O'Connor (Nose job, p. 7) Hawkins Expectation damages: The purpose of the law is to put the plaintiff in as good a position as he would have been in had the defendant kept his contract. Held that the true measure of damages is the difference between the value to him of a perfect hand and the value of his hand in the present condition. Van Zee Held that doctors statement that Ps finger wont be any worse than it is right now was merely therapeutic reassurance and not sufficient as a matter of law to constitute an express contract. Therefore, it is not the same as a warranty like Hawkins was promised. Sullivan Held that P could recover reliance damages for Ds breach of K to perform plastic surgery. The court sought to put her in as good a position she was before the promise. P waived her right to expectation damages which might have been excessive anyway. 1. Defective or unfinished construction contracts a. Measure of Damages: 1) If the owner breaches, the builder typically recovers (K price - costs saved) or if before performance, the profits he would have made on the 'K.' 2) If the builder breaches, the owner usually recovers the cost of completion (Mkt.K). Reasonable Cost of Completion this is the measure normally awarded as long as no economic waste. Groves v. Wunder (Rem. of ore not left at even grade, p.11) Not modern mode of damages if disproportionate, but this was also a willful breach by D. Diminution of Value Awarded when cost of completion is clearly disproportionate to P's loss in value. A person can recover from a breach of 'K' only as much as he would have gained through full performance (the benefit of his ___$bargain). Peeveyhouse v.Garland Coal (Farm w/craters left by mining coal, p. 19) In this case, if the mining company fully performs by filling craters (a $5000 job), the farm owner would sustain a $300 increase in the value of property. Hence, the diminution of $300 is awarded to avoid economic waste. Exception to diminution Market Value of Material : Sometimes damages measured by diminution are inadequate. Awarding damages by this measure will deprive of a profit wrongfully made (unjust gain). Laurin v. DeCarolis Construction Co. (Gravel removed from construction site of house, p. 26) 8Cost of Completion v. Diminution of Value - Primarily Cost of completion was given unless it was found to be disproportionate in value; Diminution in value was given unless th__e fact finder determined it would be used to fix the problem. In this exception, Cost of completion would be given. (Advanced Inc. v. Wilks, p. 21; Restatement 2d 348 (2); Hypo 4, p.21)
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8Cost of completion or Mkt value: - depends if it is a personal or commercial K, or if it involves economic waste. Willfulness is an important factor tending to induce the court to award cost of completion rather than diminution in value. A court is unlikely to award the cost of completion where the defect is minor and the remedying would be costly or would require "destroying what has already been done." Groves v. Wunder Co. (60k to fix - increase value by $12,6k, p.11). Restatement 346 (1) (a) Provides that for defective and unfinished construction, the aggrieved party can get judgment for either: (1) the reasonable cost of construction and completion in accordance with the contract, if this is possible and does not involve unreasonable economic waste; or (2) the difference between the value that the product contracted for would have had and the value of the performance that has been received by the plaintiff, if construction and completion in accordance with the contract would involve unreasonable economic waste. Peevyhouse D breached the promise to fill in the land that they mined after leasing it from P. It would cost $29,000 to fill in the holes but the increase in value to the land would be $300. The court granted expectation damages in the amount of $300. Holding that the had the promise been fulfilled P would have gained only $300 in value. The court relied on Restatement 346. Laurin Held that the proper measure in damages was the fair market value of the gravel removed by D from Ps land. Diminution of value in the land is often the proper measure. But in cases like this one, where the gravel was actually removed and proof of its value is not speculative, it would be seriously inadequate. It is not punitive, it merely deprives the D of a profit wrongfully made, a profit which the P was entitled to make. Sharp, Promisorry Liability Expectation damages should be granted over reliance damages because reliance is too hard to prove and to measure. Equivalent of performance over reliance in case of breach is better because this is a risk taking economy therefore needs. Restitution is better for breach between lender and borrower. Dawson, Restitution or Damage This measure of recovery [reliance] leaves the vendor free to speculate without risk and exposes the vendor to temptation if the land has risen in value... The situation highlights one main objection to rules of contract damages that limit recovery to reliance losses. 2. Breach of Employment K Rule: In general, the breached party may r__ecover the contract price less any savings the breacher can prove resulted from the breach and less any damages that the breacher can prove were not mitigated. 3. Breach of K to deliver goods
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Rule: The measure of damages in a purchase agreement where the delivering party has failed to provide the goods is the difference between the K price and the market price (cover) of the property at the time and place of the delivery. a. Efficient Breach: When (mkt < K price), no expectation damages. breachee in a better position and breacher better off or in at least as good a position by the breach. Acme Mills and Elevator Co. v. Johnson (Breach in grain delivery - grain was cheaper later, p. 22). 1) Economic Analysis: a breach may make the use of goods more efficient, by producing a net increase in social or economic values. 2) Punitive Damages: Would eliminate the incentive for efficient breach (as a rule of thumb a connecting tort would be needed to attach punitive damages.) b. Expectation of Party: Look through the form of the contract to find the intention of the injured to determine if full expectation recovery would have been a windfall. H.W.H. Cattle Co. v. Schroeder (Not enough cattle delivered, not replaced - owed lost profit, p. 25) Acme D breached a contract to sell wheat to P because he got a better price for it. P wanted the difference in his K price and what D resold the wheat for. The court held that the proper measure of damages for a breach to sell goods at a specified time and place are the difference in market price of the goods at the time of delivery and the contracted price. This is an expectation measure of damages. Therefore, since the market price was lower at the time of delivery P was not injured and could not recover expectation damages. He did recover under restitution for the sacks that he provided D with for the wheat. H-W-H Cattle D failed to deliver all 2000 cattle to P, which P was supposed to sell to X. P sued for the difference in market price at the time of delivery and the K price. The court awarded P expectation damages measured by the difference in Ps K price with X and his K price with D. Award under the first way would put P in a better position than if the K was fulfilled. c. Commercial Goods - lost volume: The UCC supersedes standard expectation damages, when the good is of unlimited supply (not unique). The flow of reasoning, 2-718(3)(a): sellers right to recover damages...(from breach by buyer) other than those already spelled out...refer to those in 2-708(1): measure of damages due to a breach from the buyer is market price - contract price +___, incidental costs as listed in 2-710. Inadequate in this case, therefore 2-708(2): If 2-708(1) not adequate then = profit from performance + incidental in 2-710 - credits for resale if scrapped only. Note that in all U.C.C. transactions legal fees are specifically not recoverable 1-106. Neri v. Retail Marine Corp. (Sold boat; breach; resold for same $ - got both profits, p.60) Neri P, buyer, breached K with D, seller. P is entitled to refund of deposit for boat less Ds lost profits. As stated in UCC 2-708(2). P recovered the deposit less Ds profit (2-708) and incidental damages (2-710). D could have sold 2 boats but for Ps breach. U.C.C. 2-708 Sellers Damages for Non-acceptance or Repudiation (1) The measure of damages for non-acceptance of repudiation by the buyer is the difference between the fair market price at the time and place for tender and the
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unpaid contract price with any incidental expenses, but less expenses saved in consequence of the buyers breach. (2) If subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit which the seller would have made from full performance by the buyer, together with any incidental damages provided in 2-710. Limitation of Expectation Damages 1. Requirements of Mitigation a. Reasonable efforts to avoid loss: the injured party must make reasonable efforts to avoid loss. Alright if unsucessful. Damages cannot be piled up after the point of the breach due to the wastefulness and inconsistency with good faith toward the employer. Contract Price minus materials saved by not completing the contract Clark v. Marsiglia (Painting cleaning: kept cleaning after countermand, S1) Clark P hires D to fix paintings and then D backs out. P continues to fix and tries to recover for labor and parts. Held the disappointed party cannot seek to make the damages greater by persisting in performance of the contract the breachor no longer finds useful. b. Defendant has burden of proof: The onus is on the breacher to prove the savings. If the services can be performed concurrent with other jobs then the value of subsequenwork is not calculated for mitigation. Kearsage Computer v. Acme Staple (Acme breached data processing K and couldn't recover for personnel cost, since couldn't reduce force, p. 42). Kearsarge When a contract not involving unique personal services is breached the Ps damages are not mitigated by new employment obtained after the breach. Because the nature of Ds employment did not limit it to just one client at a time P didnt save anything from the breach. Employer must affirmatively prove that employee might have earned a job with reasonable effort! c. Employment K's - employee must mitigate by not refusing equal employment. 1) Different or inferior: A person is not required to take a position that is different or inferior to mitigate the damages. Twentieth Century Fox v. Parker (Shirley Maclaine musical canceled, p. 44). 2) Reasonable diligence: A person needs to use reasonable diligence to find a__ job of similar pay and position. A person is not required to take a job that a reasonable person would distinguish as inferior and/or substantially different. Hussey v. Holloway (Trimmer vs. hatmaker job/breached the day before start, S 15). 3) Different place - The injured party does not have to seek employment in a different city or area. Hussey, Parker. Parker Shirley MacLaine refused to accept the role in Big Country after Bloomer Girl was cancelled. A western drama in Australia versus a musical review in Los Angeles. An employee is not bound to accept different or inferior employment in order to mitigate damages. Hussey Hussey was supposed to work for Ds hat shop for the season. D breached then changed his mind and then offered her an inferior position. She sued and got
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expectation damages. She was not required to take inferior employment or to go out of town and leave her sick mother. 3) Collateral source rule: Better to overcompensate the P to cover hidden losses than to reward the D for breaching. Unemployment benefits can't be deducted because they are provided to alleviate stress. Billetter v. Posell. If private sources are allowed, there would be an incentive to the employer to calculate using the private sources to mitigate their damages. Seibel v. Liberty Homes (p. 52). However, deduction of social security benefits and pension fund upheld. Union v. Ford. The collateral source rule is a rule applied to torts cases which holds that an injured parties gains from a third party do not diminish the damages which the tortfeasor is liable for. This means that if I collect a hundred dollars in health insurance benefits from an injury that you caused me, you do not have the option of taking a hundred dollars off of what you owe me for your tortious conduct. Some courts have decided to adopt this tort rule for breach of employment contracts. Billeter The court held that Ds are not entitled to credit for the unemployment compensation that P received from the state unemployment compensation fund... Benefits of this character are intended to alleviate the distress of unemployment and not to diminish the amount which an employer must pay as damages for the wrongful discharge. United Protective Workers The court felt exactly the opposite in the United Protective Wrkrs. case. The court held that damages should be merely compensation and that the collateral source rule has the flavor of punitive damages. There is the feeling that such damages could be a windfall for the injured party. However, it seems that most courts are in favor of the collateral source rule for breach of employment contracts. Why cant the employer repay the collateral source? 4) Personal Relations Ks: If it can be proven that the position would be different and effected in the opinion of a reasonable person, they would not need to take the position. Note that if fired the same position would be considered different due to a change due to the enjoyment of the job. Up to a jury to decide. Bennet v. Beam (Marriage breach, S 17) 5) Personal Services K's (non-delegable) - usually exclusive: duty to render personal type services to other party, and duty to forbear from rendering it to anyone else. d. Commercial K - Anticipatory repudiation 1) Buyers Remedies injured party has a duty to cover a) repudiation: An overt statement that the service will not be performed, in advance of the time of contract completion. ( 2-713) After a repudiation the aggrieved party can wait a commercially reasonable time for performance or resort to remedy for breach, ( 2-610). i. 2-612 - Installment K: allows delivery of goods in seperate lots to be seperately accepted ii. 2-711 - Buyers Remedies in general: cancel and/or cover (2-712) or recover damages for nondelivery (2-713) or SP (2-716). UCC 2-610 Anticipatory Repudiation
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When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (1) for a commercially reasonable time await performance by the repudiating party; or (2) resort to any remedy for breach 2-703, 2-711, even though he has notified the repudiating party that he would await the latters performance and has urged retraction; and (3) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the sellers right to identify goods to the contract notwithstanding breach or to salvage unfinished goods 2-704. Comment 1 - But if he awaits performance beyond a commercially reasonable time he cannot recover resulting damages which he should have avoided. Comment 2 - Repudiation can result from action which reasonably indicates a rejection of the continuing obligation. b) forseeability: 2-715 Incidental + Consequential damages: expenses reasonably incurred in connection with effecting cover and any other reasonable expense incident to the delay or breach. Be sure not to credit the seller if cover is found at a lower price. c) mitigation: 2-712 Cover - A buyer can recover the difference between cover and the contract plus any damages (2-715) less and costs saved, provided the buyer has acted in good faith and without unreasonable delay. 2-712 Cover (1) After a breach within the preceding section the buyer may cover by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the K price together with any incidental or consequential damages as defined by 2-715, but less expenses saved in consequence of the sellers breach. Missouri D contracted to deliver coal in installments over the year, 1880. D breached and P covered in a forward contract. P sued to recover the difference in the two K prices. Held that P was not bound to enter into a forward K and was awarded the difference in market price and K price at the time of each separate delivery. d) equitable remedy: 2-716 - Specific performance If no cover: 2-713 - Buyer's Damages for nondelivery or repudiation. difference between market price and K price at time of repudiation minus the incidental and consequential damages (not preventable by cover) (2-715) Measurement of when aggrieved party learned of repudiation: a) Commercially reasonable time after repudiation Cosden Oil v. Aktiengesellschaft (p. 59 Majority view). b) When performance is due: Cargill v. Stafford (p.58-9) c) At time repudiation is learned: Oloffson v. Coomer (p.58). Reliance Cooperage D was to deliver staves on 12/31/50. D notified P in Aug. of repudiation. P recovered difference in market price at time of delivery and K price. Held anticipatory breach by repudiation is intended to aid the injured party, and any
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effort to convert it into a benefit to the repudiator should be resisted. D was not required to mitigate damages until there were damages to mitigate, i.e. time of delivery, 12/31/50. 2) Sellers Remedies (p. 1014) 2-703 Remedies in General: w/hold delivery, resell and recover (2-706), cancel, recover damages (2-708). 2-706 Resale: If done in good faith and in a commercially reasonable time seller can recover difference between Resale and original K + incidental damages (2-710) less expenses saved. 2-708 Damages for Nonacceptance or Repudiation: it is the difference between the market price at the time and place of sale and the unpaid K price + incidental damages ( 2-710). ___If this is inadequate to put the seller in as good as a position as performance (lost volume) then the measure is lost profit on the K (2-708(2))+ incidental damages ( 2-710). See Neri. 2. Consequential Damages Rule: Regardless of what caused the breach, the breacher is responsible for the consequential damages that either (1) come naturally from the breach or (2) have been within the contemplation of the defaulting party at the time of the contract. Hadley v. Baxendale (p. 65). Restatement 2d 351 (1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach (a) in the ordinary course of events, or (b) as a result of special circumstance, beyond the ordinary course of events, that the party in breach had reason to know. (3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. The justification for (3) is a belief that there will be times when it is not good policy to require the D to pay for all of the foreseeable loss caused by a breach. It is wise not to go too far. Hadley P sued D for lost profits resulting from Ds delay of shipping a shaft which caused Ps mill to be closed for several days. The court held that the loss of profits cannot reasonably be considered such a consequence as could have been reasonably foreseen by both parties when making the contract. Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Black v. Baxendale The same court that had ruled on Hadley held that whether any particular class of expense is reasonable or not depends upon the usage of trade, and other
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circumstances. It is not a question for the Judge, but for the jury, to decide what are reasonable expenses. a. Damages can't be disproportionate to consideration: Repudiation of the tacit agreement rule: If the risk of loss is gross, disproportionately large compared to the contract cost, the responsibility of the loss is not on the defendant. Kerr Steamship v. Radio Corp. of America, (least cost insurer should bear costs, p.68-69); Rest. 351(3). Kerr Steamship Co. v. Radio Corp. of America The telegraph company failed to deliver a telegram which cost the Pl. $6,675.29 in lost profits. The Court of Appeals held that the nature of the telegram was not reasonably foreseeable. Notice of the nature of the transaction, at least in outline, must be given the telegraph co. There liabilities would otherwise be crushing and rates payable by all would have to be raised. Lamkins v. International Harvester Why should the dealer be liable for hundreds of dollars worth of damages for failure to deliver a $20 lighting fixture? It is unreasonable for the jury to believe that the dealer at the time tacitly consented to be bound for more than ordinary damages in case of default on his part. The Tacit agreement test is attributed to Justice Holmes rationalization of Hadley. A promisors liability is usually within his contemplation. The liability should be assessed as to whether he would have entered into contract with those liabilities in mind. Mere notice to a seller of some interest or probable action of the buyer is not enough necessarily and as a matter of law to charge the seller on that account with special damage if he fails to deliver the goods. b. Proof to a_ Reasonable Degree of Certainty: The plaintiff must show to a reasonable degree of certainty that the damages would have resulted. If any damages can be proven to a RDC lost profits would not be precluded. Freund v. Washington Square Press, Inc. (royalties couldn't be proved. But see, Fera (profit from bookstore for 10yrs proved). Freund D breached publishing contract with P. P recovered only nominal damages. Awarding publication costs would enrich P at Ds expense. Specific performance was denied. P got restitution when D returned the manuscript. P alleged no reliance. P got his advance of $2000 which would be expectancy. P failed to show with reasonable certainty his anticipated royalties. Fera P sued for damages for Ds breach to rent space in a shopping center. P was allowed to recover lost profits that were proved to a reasonable degree of certainty to a jury. Why didnt they get specific performace? c. Knowledge possessed by both parties: for special damages both parties must reasonably contemplate them at time of K. Victoria Laundry v. Newman Industries (failed to install boiler by agreed date. R: for lost profits, p.69) Marcus (NR: resale of used ovens unknown, p.71). A contracts with B to sell land on a stated date, B incurs unusual expenses in providing for cattle already purchased to to stock the land as a ranch. A is not liable for B's expenses in providing for the cattle because this is not forseeable as the pro___Ibable result of a breach at the time of the K. Victoria Laundry Is the first to hold against the Hadley ruling and award lost profits damages to the Pl. The court felt that it was reasonably foreseeable to the sellers that the breach
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of contract to sell and deliver a boiler at a specified time would limit the buyers laundry business. Marcus & Co. v. KLG Baking Co. D failed to deliver the baking ovens in time for P to sell to a buyer. Marcus could not hold the Baking Co. liable for delayed delivery of ovens because the Baking Co. could not have foreseen the lost profits of Marcus. Posner Argues that the risk should be on the consumer. The sender should take out insurance and the law should provide incentive to avoid similar losses in the future. The burden should be on the one who can avoid the consequencesat at the least cost? Farnsworth Says that courts have covertly expressed their reluctance to impose liability without due consideration. Danzig Business is done differently today and the Hadley rule should be re-examined. Lan Fuller - The relevant factors should be: (1) Was the breach wilfull or innocent? (2) Is there disproportionate consideration? (3) Is the damage actually caused by the breach? He would use these over the foreseeability rule. 3. Mental and Emotional Distress Rule: Mental distress is not generally recoverable under contracts unless the primary purpose of the contract is personal in nature, or the breach results in bodily harm. Valentine v. General American Credit, Inc. (p.73). (1) Connecting Tort: Exemplary damages need to have a connecting tort. In almost all of the K cases in which an award of punitive damages has been sustained there has been this combination of K breach and independent tort - often fraud or misrepresentation. Restatement 353. Example: a funeral contract. Restatement 2d 353 Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of a kind that serious emotional disturbance was a particularly likely result. Valentine P sued for emotional distress from breach of an employment contract. No recovery because it is compensable in contract damages and because recovery would allow everybody who was fired to sue for emotional damages. Brown The damage did not result from an independent tort involving a physical or a constructive contact between two parties who were not in contractual relationship. There is no eggshell plaintiff rule in contracts. Hancock Breach of a house construction contract is not so highly personal and laden with emotion as contracts where emotional damages have typically been allowed to
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stand on their own. Further, the typical damages for breach can appropriately be calculated in terms of monetary loss. B. Alternative Interests 1. Reliance Damages: Put promisee in the same position as he was before K. Protecting the reliance interest is the heart of K law. Breach by D Recovery on K, except for promissory estoppel Limited by K price. Applied when: (1) Profits are too speculative. Dempsey (2) When the value of the completed contract are difficult to determine. (3) Unique products (4) off K, for promissory estoppell Restatement 2d 349 As an alternative to the expectation measure of damages, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. Comment a: If the injured partys expenditures exceed the contract price, it is clear that at least to the extent of the excess, there would have been a loss . . . . Often the reliance consists of preparation for performance or actual performance of the contract, and this is sometimes called essential reliance. It may, however, also consist of preparation for collateral transactions that a party plans to carry out when the contract in question is performed, and this is sometimes called incidental reliance. Example 4: A contracts to sell his retail store to B. After B has spent $100,000 for inventory, A repudiates the contract and B sells the inventory for $60,000. If neither party proves with reasonable certainty what profit or loss B would have made if the contract had been performed, B can recover as damages the $40,000 loss that he sustained on the sale of the inventory. Damages limited to (K price less any expected loss proved by D) L. Albert (K for four machines to recondition rubber, only two delivered, p. 91). L. Albert Seller breached a contract; buyer sought to recover preparation fees of $3000. Hand held that the promisee may recover his outlay in preparation for the performance, subject to the privilege of the promisor to reduce it by as much as he can show that the promisee would have lost, if the contract had been performed. This is because it is unfair to the promisor who is subject to the risk of the promisees contract and shouldnt be made an insurer. a. Expenses in furtherance of K: Recovery for only those expenses proved to a reasonable degree of certainty were made in furtherance of the K and that naturally flowed from the breach. Chicago Coliseum Club v. Dempsey (p. 83). Dempsey P sued D, Jack Dempsey, for breach of his contract to box for them. P could not recover lost profits from the fight because they were purely speculative and could not be proven to a reasonable degree of certainty. P could not recover expenses
incurred prior to the signing of the contract because P can recover only damages which naturally flow from and are the result of the act complained of. P could not recover for expenses incurred for attempting to get Dempsey to comply, i.e. the cost of the injunction against him, because there was nothing in the contract making D liable and the P entered litigation at his own risk. Expenses incurred after the signing of the agreement $10 signing fee and train fair that P paid and other negligible costs were all that D was responsible for because they were incurred as necessary expense in furtherance of the performance. b. Expenses prior to K are not recoverable: Generally damages before the K are normally not recoverable. In the exception that a breacher precludes a substitute, the breacher may be respons___ible for preparatory costs. Anglia v. Reed (p. 90); Security Stove v. American Ry Express Co. (p. 89) Security Stove P sued for failure to deliver the burner which P was to sell at the convention. P recovered shipping fee, the hotel fee, the train tickets, wages for accompanying employee, and the both rental fee. All of these were incurred as reliance on Ds promise to deliver. Anglia American actor, Robert Reed, breached his contract to perform in Ds play the court held he was liable for their expenditures in organizing the production. The aggrieved party cannot get both lost profits and wasted expenditures and must choose. Where the lost profit cannot be proved, however, a P is entitled to recover wasted expenditure and is not necessarily limited to that incurred after the contract was made. He must have known of these expentitures and having breached the contract he cannot say he is not liable. c. Recovery for precluding substitute opportunity: If the breachee can prove with reasonable probability that alternate opportunities would have resulted in a return that could cover their fixed overhead costs, this can be recovered. Autotrol v. Continental Water Systems (p.92) Autotrol Posner held P was allowed to recover overhead cost because the were a growing company and proved as a matter of fact that they would have recovered them had the contract been fulfilled. And D did not deny that P would cover overhead costs. d. Statute of Frauds (p. 957-74) (see also 2-201, a relaxed version for goods or 1-206, the catchall provision for the UCC). Statute of Frauds No action shall be brought . . . unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or his agent. (1) Contracts for the sale of an interest in land; (2) Contracts for the sale of good for a price exceeding a specified amount ($500 or more in UCC 2-201); (3) Promises to answer for the debt or default of another; (4) Contracts not to be performed within one year; (5) Contracts in consideration of marriage. Exceptions to the statute of frauds are quantum meruit, recovery of payment for purchase, and compensation for improvements to the land.
1) Purpose: protect the innocent from fradulent practices. Also has evidentiary, cautionary, and channeling functions. 2) Satisfaction: a) written + signed by the party enforced against Rest. 78. (delivery unnecesary) b) timing: any t___ime before filing suit. c) essential terms: if all not included could have a SoF problem. d) signature: any identfiable mark of the signor. e) where did it go: alright to lose it. (Rest. 137) 3) writings are required when: a) land: Ks for a K or sale of an interest in land (includes leases and easements). covers any agreeement that contains a promise to create or transfer an interest in land. b) goods: Ks for the sale of goods for a price exceeding a specified amount ($500 in the 2-201) c) surety: promises "to answer for the debt, default or miscarriage of another" (i.e. suretyship) d) Ks in consideration of marriage. e) to charge an executor upon any special promise to answer with damages out of his estate (pocket) f) Ks that absolutely can't on their terms be performed w/in 1 year. criticism: does not single out "significant" contracts. The time is from the K until the completion of performance (not duration). critical test: whether by its terms the agreement may not be performed within a year (considering natural factors). no excuse if not a term: A to work for B for a period of 5yrs. Death of A does not pull this out of the SOF. Application: Boone v. Coe (D breached parol multi-year K regarding Texas farm. NR: unless benefit conferred or PE, if reasonable and promise is definite, p. 95). Boone Ps moved from Kentucky to Texas to live and work on Ds farm which was to be leased to them for a year. The oral agreement was unenforceable under the Statute of Frauds therefore P could not recover on reliance on the contract because it was a void contract. D received no benefit therefore P cant recover under quantum meruit. 4) Ways around the Statute of Frauds: Part performance: shows reliance on the agreement. Enforceable only for goods delivered, includes all warranties. For land K's, enforceable only in equity. Reliance on promise: 90 through 139: if a K is rendered unenforceable by SOF see Restatement 139, it may still be enforceable (possibility of expectation damages). Restitution: generally can recover any benefit conferred. Kearns v. Andree (R in quasi-K remodeling- indefinite, but got what sought, p.100). P may recover in QM: for services rendered in K's barred by the statute that were rendered during D's lifetime, on the promise that P should receive a legacy when D dies. Restatement 2d 90 Promissory Estoppel
(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable sub___scription or marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. Restatement 2d 139 Estoppel to Plead the Statute of Frauds (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only be enforcement of the promise. The remedy granted for breach is to be limited as justice requires. (2) In determining whether injustice can be avoided only be enforcement of the promise, the following circumstances are significant: (a) the availability and adequacy of other remedies, particularly cancellation and restitution; (b) the definite and substantial character of the action or forbearance in relation to the remedy sought; (c) The ex___tent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence; (d) the reasonableness of the action or forbearance; (e) the extent to which the action or forbearance was foreseeable by the promisor. 2. Restitution: Recover for a wrongly secured or passively received benefit that is unconscionable to retain - goal is the prevention of unjust enrichment. Aristotle. Not limited to K price Recovery on K or in quasi-K Components: Loss to breachee Benefit to breacher Acceptance by breacher Questions: Were there valuable services rendered? For the D? Were the services accepted and used? Did P expect to be paid and did P notify D of this? a. D breaches: 1) Before K is begun: P can recover compensation for work done in preparation of the K (reliance) , less any benefit that has accrued to him or for the value of any benefit conferred or sought. Farash v. Sykes (improved building relying on lease renewal, p.101). Farash
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A case for breach of a contract to lease which was void because of the statute of frauds. P could recover for the detriment to him for making renovations. This is independent of the void K. They cited Kearns. 2) Partial completion: P can recover either on K or in QM for reasonable value of benefit conferred (not limited to K price). Kearns v. Andree (p.100). Kearns D breached a K to buy a house from P after P had made alterations at the behest of D. P sued for the difference in resale price and the expenses in alterations. Held the contract was unenforceable because it was indefinate as to the mortgage agreement. However, the law can imply an agreement where P performed services for D for which he expected compensation. D wasnt directly enriched, however, he got what he bargained for so P should get his half of the deal, i.e. the costs of the alterations. 3) P expects loss: P can recover in quasi-K QM. There is no obligation to mitigate . U.S. v. Algernon-Blair (p. 98) Algernon Blair P sued D under a subcontract for quantum meruit. D breached the K by not providing the rental cost of cranes. Held P was entitled to recover the reasonable value of the performance undiminished by any loss which would have been incurred by complete performance. The measure for recovery is the amount for which such services could have been purchased from one in the Ps position at the time and place the services were rendered. 4) Full Performance: The P is only entitled to the value of the K. Oliver v. Campbell (p.104). Clark-Fitzpatrick Inc. v. Long Island R.R. Co. (const. co. built RR to completion after breach by RR, p. 105). Oliver P, attorney, agreed to handle Ds case for $850. At the end of the trial D dismissed P. P sued to get the reasonable value of his services $5000. Held he could only get $300 the remainder of his contract price because essentially he had fully performed the contract. He is only entitled to recovery on the contract. Clark-Fitzpatrick It is impermissible, however, to seek damages in an action sounding in quasicontract where the suing party has fully performed on a valid written agreement, the existence of which is undisputed, and the scope of which clearly covers the dispute between the parties. b. P breaches: 1) Benefit Accepted - good faith: (suit in quasi-contract) P can receive the value of the performance based on the K (pro rata) or the market value of the benefit minus the damages to the D (K price - damages D proves) choice of the note = final tally must be capped by the K value. Britton v.Turner (farmhand, p. 109) Britton P worked for 9 1/2 months of his year long K, then P abandoned performance. P sued to recover for the work done. He was entitled to recover the reasonable value of his service not to exceed the K price. Noyes
Argues that recovery should be based on the contract price and the courts should not impose new costs on the parties when they breach the contract. They arent getting what they bargained for. (i) Down Payment: P can recover (down payment-loss to seller) Vines v. Orchard (down payment but job fell through); Deleon v Aldrete (chronic late payments, p.124).b. P is entitled to recover his deposit less any loss suffered by D for the breach. See UCC 2-718. Example: B contracts with S to buy Ss used car for $900, paying $100 down. S repudiates before the deal is carried through. The market value of the car at the time of Ss repudiation is proved to be $700. Is be entitled to restitution of the $100 payment, even though he would have saved $200 had the K been performed? Yes. Vines Buyers breach a contract to buy a condo and want their ten percent deposit back. The court held they may recover it if they can prove that the seller wasnt injured by the breach and that the liquidated damages clause was punitive. DeLeon The dogmatic application of the forfeiture rule leads to indefensibly absurd results. Restitution depends on the equities of each case. P allowed to recover his payments $1070 less the damages to D $200. D would be enriched unjustly were they permitted to retain more than the $200. Barrett Builders D hired P to put in new kitchen cabinets. D stopped payment on the checks and P refused to finish work and sued for restitution under quasi-contract. The original contract was void because the Home Improvement Act says D must be furnished with a copy of the contract in writing. P failed to deliver the cabinets that D wanted. P cannot recover under quasi-contract because a contractor could unilaterally expand the scope of the project beyond the contemplation of the invalid agreement, without the homeowners consent, and recover for the unwanted work. The statutes purpose is to protect consumers and to allow recovery for statutory violation would fly in the face of the framers intent. (ii) Substantial Performance - Good Faith Mistake: Construction case: When there is a good faith breach of K by the P, the court will permit recovery based on (K-Cost of completion) if repairs can be made at a reasonable expense, if not. (K price - dim. in value) Pinches v. Swedish Evangelical Church (church with short ceiling and pews but usable, p. 115). Pinches P built the church for D but it wasnt exactly to their specifications. Held that P should recover for the reasonable value of their work less any damages that it caused D because the work was done in good faith and D was in use and enjoyment of the church. 2) Bad Faith Mistake/ Willful Breach: Bad faith breaches by the P generally did not gain recovery based on past common law but the general trend is to permit recovery unless the breach was unconscionable or heinous. Kelly v. Hanoce (NR: sidewalk dug (part performance) then Kelly breached willfully, p. 117); Bright v. Ganas (NR: bad faith, letters to wife) P cannot recover for a willful breach. An intentional deviation from a contract, particularly a construction contract, often is given the effect of
willfulness. Though there is a trend to say that the quality of the breach doesnt matter, it is the unjust enrichment that is important. Schwasnick P charged with a willful breach of contract and defective work. Hand held that P has the burden of proving that his breach was not willful and that he benefited or enriched D in some way. His damages must be reduced by the injuries from the defective work. Kelley P removed a strip of earth in front of Ds property then left and did not return to finish the work and sued for recovery of the value of the work done. Just because the benefit cannot not be returned doesnt imply acceptance. P cannot recover anything for the work which did not benefit D at all and was probably more of a detriment. 3) Benefit Not Accepted: The plaintiff may not receive anything if it is determined no value is conferred. In the case where the contract was fully or substantially performed, they will still have to pay the (K price - the diminution of value) c. No benefit? - If you get what you bargain for, but the value is not directly received by the other, the person who got what was bargained for is considered to have received a benefit. It is important that the value was not an investment that was recoverable by the breachee, in that case the damages are lessened by the value of the improvement Farash v. Sykes, (p.101); Kearns v. Andree (p.100, wallpaper). Note: Thatch v. Durham (sale of sheep, p. 113) falls under t___his also because the monies given could have been recovered twice over due to a similar ruling as Neri. Thach P was not entitled to recover a $3100 down payment because he breached the contract to buy sheep. Why should the breached party be favored over the party willing to perform. The UCC 2-718, rejects this theory. See Neri. The rule follows where its reason leads; where the reason stops, there stops the rule. d. Quasi contract = implied in law K, in the absense of a valid K, based on obligation created by law to avoid unjust enrichment to D. It would be inequitable for party to retain desired benefit without payment. 1) No attempt to form K. (Hypo) A doctor is entitled to recover for services that her rendered while a patient was unconscious. If unable to recover, the patient would be unjustly enriched-note that the P would have to be someone in the business of rendering the service. 2) K is unenforceable Kearns v. Andree (p.100, wallpaper). 3) P materially breached. Briton v. Turner (farmhand). 4) D breached, P not entitled to damages on K. U.S. v. Algernon-Blair (p. 98) e. Volunteers: unless a professional acting in capacity (doctor), volunteers have no right of restitution. (detriment not__ bargained for, strictly a moral obligation). Also, Martin v. Little Brown (law student offering evidence). f. Officious Interloper: A boy who washes your car unknown to you while you are in the store is not entitled to recover since there was no implied contract and voluntary work is not recoverable. g. Quantum meruit - as much as deserved; no recovery if a willful breach. Recovery under an implied contract. The law implies a promise to pay a reasonable amount for the labor and materials furnished, even absent a specific contract therefore.
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If remaining at equalibrium is the goal, then the restitution interest presents the strongest case for relief because if B is unjustly enriched by A by one dollar, then the disparity between A and B is two dollars. C. Contractual Controls on the Damage Remedy 1. Liquidated Damages Are the damages specified a reasonable forecast of the injury resulting from breach? Is the injury difficult to measure? Does it have an in terrorem effect? Is it a blunderbuss ? Liquidated damages are enforced if damages are difficult to ascertain at the time of the K, the amount is either a reasonable forecast of actual or anticipated loss, and the provision is not unconscionable. Be sure not a K in the alternative. 1. What was the purpose: Penalty? Scare the other side into performing? Bargained for alternative? or an attempt to recompense? 2. Reasons to enforce: Respect private fair bargaining to get costs not recoverable by law like atty's fees and idiosyncratic values; efficient way to settle disputes. 3. Economic Argument: Parties have no incentive to create penalties, enforce to allow recovery for immeasurable losses. 4. Requirements: a. The actual or estimated loss is impossible or extremely difficult to determine-the more difficult it is to determine the greater the likelihood of recovery. b. Liquidated damages must be a reasonable forecast of actual or anticipated loss from breach Restatement 356. City of Rye City of Rye sued for the $100,000 bond because D didnt finish the buildings on time. There is nothing to show that the $100,000 bear any reasonable relationship to the pecuniary harm likely to be suffered or in fact suffered. The liquidated damages are punitive. c. The specified damage can not be so small as to be considered unconscionable 2-718 or so disproportionately large as to be a penalty. The ratio determining what is clearly disproportionate is influenced by the surety of the actual damages at time of K. Restatement 356. Restatement 2d 356 Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficultie of proof of loss. A term fixing unreasonably large damages is unenforceable on grounds of public policy as a penalty. 5. Burden of proof: On the person trying to recover the liquidated damages 6. Equal bargaining power: The Yockey v. Horn (business partners p.136) case says that if two parties of roughly = bargaining power, a liquidating damages clause is upheld unless shown to be unconscionable.
Yockey Two business partners split and agree that if one partner gets involved in a law suit against the other one then they will pay $50,000 in liquidated damages. Held that the amount was reasonable considering the damages that would be caused by the breach. Equitable Lumber UCC 2-718 (1) mirrors the Restatement 356. UCC 2-302 says provisions are invalidated if they are unconscionably low. Adhesion contracts where the terms are unfair or non-negotiable are also uneneforceable. However, D was president of the company and a member of the bar and knew what he was getting himself into. 7. No harm needed: strict logic will tell you that the LD clause will be enforced even if their is no resulting harm. Southwest Engineering (Fairly bargained for, took risk). However, some courts have leaned the other way on this viewing the clause as a penalty. 8. Uncertain damages O.K.: the more difficult it is to determine damages, the greater the likelyhood of recovery, but the harm must be compensable by money. Banta (yacht case). Banta P could recover $15 per day for Ds failure to build him a yacht on time. Ps damages include not being able to take a cruise, and perhaps the cost of renting a similar yacht, though this one is unique. 9. Limit on liability: clause may not be liquidation damages at all. Fretwell Alarm and Restatement 339 10. 10% rule: for sale of land, generally upheld unless big discrepancy between damages and LD Wilt v. Waterfield (lespedenza crop, p.141). NOT ENFORCED: 1. Shotgun Clause: Having the same damages stipulated for many different breaches (undifferentiated clause) Wilt (Same amount of damages for lespedenza crop as falling to complete sale, p.141). Courts generally will strike the entire clause as a penalty. Wilt Bluderbuss clause which said if either party breached they forfeit 10%. P paid $1900 deposit to D for land and D sold it to someone else for $8000 more. P is entitled to recover the profits. Damages could be totally disproportionate to the amount stated in the contract therefore it was a penalty. A blunderbuss or shotgun clause is void because it doesnt reasonably take into account the damages that may accrue it simply states a general number which may be wholly disproportionate to the injury of the parties. 2. Arbitrary or Penalty: not enforced___. Muldoon v. Lynch (headstone, p.137) amount clearly disproportionate to actual harm. in terrorem effect. Pacheco ( summer camp, p.133). If court determines LD a penalty then actual harm is still recoverable. Muldoon P sued to recover contract price for building a monument to Ds decedant. D stiipulated a forfeiture of $10 per day for late delivery of the monument. P was
two years late in delivering because he couldnt get a boat from Italy to San Francisco to deliver the 20 tons of marble. Held that he could recover the contract price because the clause was punitive and the Ds suffered no monetary damages from the delay. 3. Purpose Vanishes: if the contingency upon the presupposition is based never happens, the presupposition must vanish.(if purpose of LD vanishes, so must clause) Massman ($250 per day, 96 day delay on building a bridge, but no road, p. 144) Hypo: racetrack/ grandstand. Yet 356 suggest still recoverable. Massman Constr. Co. If the contingency upon which the presupposition of the damages a breach would incur is based never happens, the presupposition must vanish. 4. Disguised Penalty: bonus or early completion incentives 2. Limited Liability Restatement 339 comment g An agreement limiting the amount of damages recoverable for breach is not an agreement to pay either liquidated damages or a penalty. Except in the case of certain public service contracts, the contracting parties can by agreement limit their liability in damages to a specified amount, either at the time of making their principal contract, or subsequently thereto. Such a contract . . . does not purport to make an estimate of the harm caused by a breach, nor is its purpose to operate in terrorem to induce performance. Fretwell D alarm company was not liable for losses to Ps property because they were robbed. D is not an insurer and their contract limits their liability to fifty dollars. D. Enforcement in Equity Enforcement in equity is an extraordinary remedy available if money damages prove to be inadeqate to make the injured party whole. a. Damages Inadequate: SP is an exceptional remedy Restatement 2d 359 Specific Performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party (doubts resolved in ___favor of granting, comment a) Restatement 2d 360 In determining whether the remedy in damages would be adequate to protect the expectation interest of the injured party, the following circumstances are significant: (a) the difficulty in proving damages with reasonable certainty, (b) the difficulty of prcuring a suitable substitute performance by means of money awarded as damages, and (c) the likelihood that an award of damages could not be collected. b. Definite: K must be definite enough for ct, to determine what each party must do to carry out agreement.
c. Fair Enforcement: D must be able to perform, won't cause great hardship to D; won't enforce if do to mistake or fraud. Will enforce if arbitrator's decision (RW cts. respect autonomy). Grayson-Robinson Stores (27 banks- no loan p.189) Gray-Robinson D couldnt borrow funds to continue construction. P and D went to arbitration which ordered specific performance by D because they didnt believe D couldnt borrow funds. D and P eventually settled. d. Feasible: not enforced if judicial intervention is needed for a long period of time. Personal service K not enforced. e. Oversee/Supervise: Court will carry out unless the difficulties of supervision outweigh the importance of enforcement to the P. City Stores v. Ammerman. (p.187) Courts want to be able to supervise the order. Unable t___o do so if complex. Northern Delaware (p.185). May get involved if there is public interest. Northern Delaware The court cannot enforce the injunction asked for which would require the hiring of 300 employees for Ps steel plant. This is impractical and indefinate. P hasnt suffered any damages yet and when they do they have an adequate remedy at law. City Stores D a mall owner promised to give P a space in Ds mall if P would D gave P an option with only two conditions - approval of the necessary rezoning and execution by D of leases to other major tenants which could provide the essential terms of a lease to be offerred to P. Both conditions have occured and P has exercised the option so as to produce a valid K. P can have specific performance. 1. Contracts for Goods: usually denied unless unique (heirloom, artwork) U.C.C. 2-716 Buyer's right to Specific Performance or Replevin 1) may get SP if good is unique or if other circumstances like if mentioned in a K and specifcally set aside See 2-501. 2) must show unable to cover (damages inadequate) after reasonable effort Comment: Can recover in other proper circumstances and inability to cover is strong proof of those circumstances. a. Immeasurable Harm: Manchester Dairy (spiraling of employees, p.157); Eastern Rolling Mill (Output- indeterminable amount of scrap, p. 163) Manchester Dairy D didnt provide any cows under his contract to P. The contract contained a provision for liquidated damages of $5 per cow and for injuctive relief. The clause expressly providing for equitable relief was ineffective. Jurisdiction over the subject matter of a controversy cannot be created or conferred by the agreement of the parties. The provision for liquidated damages did not make the legal remedy inadequate, since the harm done was more far reaching and could not be measured. Nor was there an option for D to perform or to pay. Liquidated damages will not prevent the issuance of an injunction. The court could enforce a negative injuction against D from selling milk to other buyers. Eastern Rolling Mill
A breach of a contract which cut off the vital supply of raw material of inestimable worth. P was to buy all the scrap steel form Ds factory for five years. There was no adequate remedy because the loss was not measurable. Therefore specific performance was properly granted. b. Context makes unique: Even thought the good is not necessary unique the situation may make the legal remedy inadequate. Curtice Bros. v. Catts (tomatoes, p. 157) Curtice Bros. Contract to supply tomatoes is specifically enforced because of the irreparable injury to P from the breach because of the impossibility of obtaining a substitute at that point in the season. This means enjoining D from selling tomatoes to others to induce performance. Van Wagner P sued to get a billboard space which he argued was unique. Unique is not a magic word to open the door of specific performance. The point at which breach of a contract will be redressable by specific performance thus must lie not in any inherent physical uniqueness of the property but instead in the uncertainty of valuing it. P is entitled to damages through the expiration of his lease. c. Valid Liquidated damages clause does not preclude injunction: even though a LD cause i___s upheld, it doesn;t mean that the remedy at law is adequate. Manchester Dairy (p.157). Restatement 361 Specific performance or an injunction may be granted to enforce a duty even though there is a provision for liquidated damages for breach of that duty. d. Seller must be capable of performing: If the seller is unable to obtain a suitable replacement then SP is inappropriate. Paloukos (pickup, p.163) Paloukos P was denied specific performance of the purchase of a Chevy pickup. The buyer had an adequate remedy in damages. The courts will not order the impossible, such as ordering the seller to sell to the buyer that which the seller does not have. e. Comparative Effectiveness: even though there were 6,000 1977 Indy pace car corvettes, the ct. concluded that the damage remedy alone would not adequately compensate the P, because obtaining a substantial equivalent would involve delay, difficulty, and inconvenience. Sedmak v. Charlie's Chervolet (couldn't replace 'vette, p. 163) Farnsworth 12.01- moving towards this. 2. Land K's: Each parcel of land is thought of as being unique (locality, easements, etc.), therefore SP is generally granted because damages can't adequately compensate. Gartrell v. Stanford. If sold to another able to recover either profit gained, (Mkt. value-K) or SP, choice of P. Timko v.Useful Homes. (Sunshine Home were slick, p.168) Timko P was paying off a piece of land at $1000 which D sold to another party for $1100 trying to pull a scam. When P found out the D got the land back and tried to give it to P. P refused the land and wanted the $1100 D got from the sale. The court held she could recover because D was holding the land in trust for her and that she was entitled to the profit they made which was rightfully hers.
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3. Personal Service (non-delegable) K's: courts will almost never grant affirmative specific performance. Rest 367 "will never be granted." However, a negative covenant may be enforced if the employee has unique abilities and an independent competitive harm is also proved. Test a) Ps legal remedy adequate? b) is there an independent competitive harm? c) will a negative injunction leave D w/o means? a. Reasons: don't want undesirable relations, involuntary servitude, peonage, coercion, mischief, not interest interests of society, infringes liberty interest. b. Mischief: Fitzpatrick v. Michael (unwanted nurse, p.170). Fitzpatrick P was employed to manage Ds house, drive his car, and nurse him. For these services D payed P $8/week plus room and board and promised her a life estate in his house and title to his cars. Equity will not enforce a contract for personal service because it is against public policy to compell people who dont like each other to maintain personal relationships. And because courts dont have the means to enforce such decrees. In dictum the court said a negative decree may be issued if the breach of he implied negative covenant would cause a loss to the promisee distinct from that resulting from the mere failure of the promisor to carry out his affirmative promise. c. Negative Injunctive Relief: 1) Nee___d an independent competitive harm 2) Employee has extraordinary or unique abilities, (unique personalities, entertainers, athletic stars), or no comparable replacement exists. No available replacement: even though not one of a kind, if employee is all that available in her specialty ct. may order an injunction. Dallas Cowboys Football Club v. Harris (p.174). Dallas Cowboys Football player enjoined from playing for another team because of his unique skill. 3) Can't leave without means: can't leave employee without means to make a living. Lumley v.Wagner (opera singer). Lumley v. Wagner D, opera singer, agreed to sing exclusively for P. She breached and P obtained an injunction restraining her from performing for anyone else for the remainder of her contract with P. 4. Covenants not to compete: are enforced if they protect a legitimate interest of the owner and are reasonable in scope (time and area). a. Protects - Unfair advantage. They are ancillary to sale of businesses or employee promises not to compete after she leaves to protects trade secrets and good will. b. Reasonable scope: can't restrict employee for too wide an area or length of time. Fullerton Lumber Co. v. Torborg (10 yr noncompetition clause p.183); Data Management v. Greene (all of Alaska, p. 184). Fullerton Lumber Ds contract contained a covenant not to compete for 10 years. D quit and started his own company. The court held that 10 years was too long but that given his
special knowledge it would be unfair not to restrict him for a time long enough for P to get someone up to the same level of quality. Probably 3 years because thats how long it took D to get the company moving. Data Management If an overbroad covenant can be reasonably altered to render it enforceable, then the court shall do so unless it determines the covenant was not drafted in good faith. c. Express: clause must be express in K. Pingley Local organist cannot be enjoined from performing at other restaurants because his contract did not contain specific covenants not to perform for competing restaurants and the P has an adequate remedy at law and D is not unique, there are comparable musicians in the area. d. Ways to fix: blue pencil rule, reasonable alteration if made in good faith, strike as unconscionable. See 184(2) and 2-302 (unconscionability). III. Grounds For Enforcing Promises Questions to ask: 1) Was there consideration to support the promise? 2) Was there reasonable reliance on the promise? 3) Was it a promise to give to a charity (hospital, school, non-profit) 4) Was it based on a moral obligation? A. Formality 1. Evidentiary function - provides objective evidence that the parties intended to make a binding agreement. 2. Cautionary function - induces deliberation 3. UCC provisions: a. 2-203 Seals Inoperative b. 2-205 Firm Offers 4. Uniform Written Obligations Act (PA only): promise without consideration is valid if the signer agrees to be legally bound. (cautionary enough)? Restatement 137 The loss or destruction of a memorandum does not deprive it of effect under the statute of frauds. B. Exchange Through Bargain Consideration = bargained for legal detriment Bargained for exchange. Legal detriment to promisee. To do something (e.g. to give up smoking and gambling) constitutes consideration Hamer; An agreement to come to someones funeral is consideration Earle; A forebearance not bargained for is not consideration, especially if it involves an extra-marital affair.Whitten; Restatement 2d 71,81;
Bargaining gives greater freedom of individual choice. Reciprocation is expected between equals (e.g. If I invite you to dinner I expect a return invitation. Patterson; 1. A promises to pay B, niece, $10,000 if B, now employed as bartender, will quit her job and go to law school, payment to be made on graduation day. A, a lawyer, thinks law is nobler than bartending and wants B to continue the family tradition. 2. A is told that B is sick of bartending and wishes to go to law school but will have to borrow heavily to meet expenses. A promises that when B graduates, A will pay her loans up to $10,000. 3. A, glad that B wants to give up bartending and go to law school, promises to give B $10,000 as a graduation present. 1. Enforced b/c of Hamer there was a bargain and a consideration 2. Enforced b/c of Ricketts, As promise should reasonably been expected to induce, and did induce, action an Bs part that involved a significant cost. 3. Not enforced b/c A merely promised B a gratuity and was free to change her mind. 1. Consideration necessary to enforce a K a. definition: promisee gives up something and promisor makes his promise in exchange for the promisee giving this up. b. failure of = promised but not performed or delivered c. want and lack of = no consideration given at all d. inadequate = not enough reason to void a K. Batsakis, "inadequacy is no defense" 2. Bargained for Exchange - to get something, you must give something a. look for: a bargain for a return promise (bilateral) or performance (unilateral contract) b. best test: look for detriment to the promisee. Hamer v. Sidway (n___ephew refrained) c. promise can be for: 1) an act: part of a unilateral contract 2) forbearance: circumscribed freedom of action. 3) creation, modification or relinquishment of a legal right 4) return promise: provides the consideration for a bilateral contract. Restatement 71 a) to constitute consideration, a performance or___ a return promise must be bargained for. b) a performance or a return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. c) the performance may consist of an act other than a promise or a forbearance, or the creation , modification, or destruction of a legal relation. d) the performance or return promise may be given by the promisee or by some other person. d. sought: promise of performance is bargained for if it is sought Earle v. Angell (K to pay money to nephew valid after death). e. value not important: needs not be economic, actual value is not important. Not a determining factor to establish consideration. Consider the peppercorn theory. (F 2.11). Also Embola v. Tuppela (man promise a potential $10k from gold mine in exchange for $50 today, p222). Batsakis v. Demotsis ($25 in Greek money for $2k, p219) f. part bargain alright: a bargain can have elements of a gratuitous promise and still be a bargain, e.g. selling a car at a reduced price to a friend. g. forbearance on a valid claim: Restatement 74 - not consideration unless, the claim or defense is doubtful or forbearing party believes the claim or defense may be valid.
h. bargain, not condition: look to see if the occurence of the condition is a benefit to the promise making the promise to pay. 3. No Consideration Given a. nominal not enough: Sometimes consideration is given to dress up a gratuitous promise, be sure to determine the process or the intent of the negotiating parties. Nominal payment does not constitute consideration gifts cannot be disguised as contracts. An express promise to pay a mortgage given with a deed as gift is not enforceable. Fischer; b. love and affection: is not enough consideraion to compel performance. Promise to convey property title not upheld, unless reliance Fisher v. Union Trust Co. (retarded daughter promised title) $: if intended as a gift, not enforced even if dressed up as an exchange. Schnell v. Nell (wife promise $200). c. can't be against public policy: if the consideration is contrary to public policy. Thomas v. First Nat'l Bank (not honoring stop payment). d. detriment not sought: the detriment has to be bargained for. Whitten v. Greely-Shaw (p.211) e. past event not a detriment: an act which happened in the past does not usually serve as consideration. f. not volitional act: you must volitionally undergo a detriment. (if you don't catch the flu) g. not privileged to do: the thing you forgo must be something you could already do (can't give up murdering, selling heroin, etc.) h. legal duty not a detriment: promising to do something which one has a legal duty to do-- no detriment. Alaska Packers; Denney v. Reppert (cops/reward) i. conditional gifts : as a general rule gift promises are not enforced unless, reasonable reliance on them (See estoppel). Kirksey v. Kirksey (promise not enforced to provide home for family, because no bargain- just a condition). Kirksey D promised without consideration to give, Pl, his widowed sister-in-law a place to raise your family if she came down to see him. After her arrival they had a falling out and he threw her out. She sued. The court held the promise was unenforceable because it was a gift without consideration and without bargain. If he had asked her to come and tend his land or to help him and in exchange he would furnish her with a place to stay, then it might be enforceable. C. Moral Obligation A promise based on moral obligation is binding to prevent injustice (materia___l benefit received) or revival of a past debt. 1. Benefit Received (Rest. 86; recovery in restitution) a. binding to prevent injustice Restatement 2d 86 (1) A promise made in recognition of a benefit previously received is binding to the extent necessary to prevent injustice. (2) A prmise is not binding under subsection (1) (a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly inriched; or (b) to the extent that its value is dipropotionate to the benefit. b. Examples
A lends money to B, who later dies. bs widow promises to pay the debt. The promise is not binding under 86. Mills example not binding. A has immoral relations with B, not his wife, to her injury. As subsequent promise to reimburse B for her loss is not binding under 86. If you owed $100 and you promised $2000, this may not be upheld. c. key: prevent injustice. d. volunteers: Unless a professional acting in capacity (doctor), volunteers have no right of restitution. (detriment not bargained for, strictly a moral obligation). Without a bargain a volunteer cannot claim an implied contract. Martin v. Little Brown; Implied K arises from conduct that is evidence of expected consideration. Collins; A company that cleans the streets of a town expects the towns people to pay them and if you move to the town you have an implied K to pay them. Seaview; e. not enforced (Opp. to 86): most courts won't enforce promise made on unrequested benefit. Harrington v. Taylor (D assaults wife ___with axe and neighbor voluntarily intervenes and gets hand maimed). f. trend: increased enforceability of promises based on a moral obligation. g. benefit received, not requested: if the promise is made after promisor receives a material benefit, to recognize a moral obligation, the promise may be upheld. Webb v. McGowin (falling brick). Compare to Mills v. Wyman (promise to pay for estranged son's care not enforced, because no benefit received by promisor). 2. Promises to Pay Past Debts a. no real consideration: enforcement is based on a moral obligation and social policy. The problem of Foakes v. Beer. b. enforce promise in past if: 1) in writing 2) implied from actions a) Voluntary acknowledgment (if clear, distinct and unequivocal). Snyder b) part payment c) statement not to plead SoL 3) Defence of infancy later supersede by agreeing to pay. 4) Debt discharged by bankruptcy,___ but still agree to pay. c. enforceable only to the extent of the new promise. Chirelstein Moral obligation by itself entitles the P to nothing whatever until the promise has been made. But once there is a promise moral obligation becomes irrelevant because the decisive question then, indeed, the only question, is whether the promisor has received a personal benefit for which the P could justly demand compensation. D. Promissory Estoppel Equitable Estoppel - If an individual makes a statement with regard to an existing fact which induces action in another individual, then he is estopped from denying the fact. Promissory Estoppel - If an individual makes a statement with regard to a future promise which induces action in another individual, then he is estopped from denying the promise. Promise is enforced to prevent injustice if the promisor should reasonably expect the resulting reliance. Be sure promise is not really a conditional gift.
Restatement 90 (1) A promise whicht the promisor should reasonably expect to induce action or forebearance on the part of the promisee or a third person and which does induce such action or forebearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding under subsection (1) without proof that the promise induced action or forebearance. 1. The questions to ask: Was the promise one which the promisor should reasonably expect will induce action or forbearance of a definite and substantial character on the part of the promisee? Did the promise induce such action or forbearance? Can injustice can be avoided only by the enforcement of the promise? 2. Other elements a) Substitute for Consideration: promisor is estopped form claiming lack of consideration to dispute promise. b) Reasonably and Foreseeably: recovery is limited to one who reasonably and foreseeable relies on the promise of another. Devecmon v. Shaw (nephew relies on Uncle's inducement to pay for expenses to Europe, S20). c) Need Acceptance: silence does not commit a party to a K. NR even if reliance Prescott v. Jones (fire insurance). d) Damages: courts are giving expectation damages as well as reliance recovery. 3. Applications a. Convey land: Seavey v. Drake (R: improvements made and lived on property with owner's acquiescence able to lift bar of SoF). Seavey A bill in equity. An oral promise to give land (a parol gift) is generally not enforced under the statute of frauds. However, this is an exception because Pl had possession and had made valuable improvements on the property induced by the promise. Rule: The expenditure in money or labor in the improvement of the land induced by the donors promise to give the land to the party making the expenditure, constitutes, in equity, a consideration for the promise and the promise will be enforced. b. By bailee: Siegel v. Spear (R: misfeasance- promise to store furniture and procure insurance for no consideration). Comfort is distinguished because their was no bailment. Siegel A bailee was liable for his promise to insure the furniture left in his possession which was destroyed by fire. This was characterized as misfeasance. Comfort Pl owned a farm which burned down. D promised to file the insurance papers for Pl while he was filing his own papers. D was not liable for his nonfeasance. There was want of consideration.
Geremia Ds borrowed money from Pl secured by their car. The agreement stated that if D couldnt pay the insurance, Pl would pay and add the amount to the loan. This was a threat that the court said was a promise. The insurance expired because neither one paid. The car was totalled an Pl sued D for the damages, and D filed a counterclaim. Held for the D. because D relied upon the promise of Pl to pay the premium. Pl driving the car without checking to see whether it was insured constituted reliance on Ds promise. Pls failure to pay was a breach of the K entitling D to a right of action. c. Charitable gifts: enforced for public policy reasons even if there is no reliance. Allegheny (R: promise for a memorial scholarship revoked during life) and Salisbury (R: donation to new college that folded); I & I Ho__lding (R: pledge to hospital with no special reliance). See Rest 90(2) Allegheny College Cardozo held that promissory estoppel was not an exception to but rather an extension to consideration. A womans promise to donate to the college $5000 did not need consideration to be enforced on the grounds of promissory estoppel. Salsbury Iowas high ct. held the promise was enforceable without proof of detrimental reliance, reasoning that a requirement of evidence of reliance might result in the enforcement of fewer charitable promises. I & I Holding Corp. Ds promise to pay Beth Isreal Assn $5000 to aid and assist the assn in its humanitarian work was enforced because it was a unilateral K binding when acted on. An invitation to perform services can be implied. It is not necessary to base the decision on promissory estoppel. d. Within family: Courts generally refuse to enforce intrafamilial promises, because they are gratuitous. However in Ricketts (granddaughter quit job after grandfather promise to pay her) the court found that adequate consideration existed (reliance) to enforce the promise. Devecmon (Europe). Ricketts Grandfather promised Pl $2000 because he didnt want his grandchildren to have to work. She quit her job and remained unemployed for a year he didnt pay anything but the interest. She sued the executor on the grounds of equitable estoppel. Held having intentionally influenced the Pl. to alter her position for the worse on the faith of the note . . . it would be grossly inequitable to permit the maker to resist payment on the ground that the promise was given without consideration. Devecmon Pl went on a trip to Europe at the insistance of the D. and D promised to repay Pl for all expenses. Pl went and D didnt pay. The court held that the burden incurred at the request of the other party was a sufficient consideration for a promise to pay. Pl had fulfilled his part all that was left was for D to pay. e. Permanent employment - Forrer (NR: need additional consideration to enforce promise for permanent employment, no PE recovery either because at will employment is terminable at any time). Stearns (NR: K for more than 1 yr. void by SoF, need either clear and convicing evidence of fraud or serious injustice).
Questions to ask in these cases: What did the manual provide? What was the alleged privilege claimed? What did the usual course of dealings say as to the disclaimer? In what manner was the disclaimer communicated? Format (i.e. Bold type v. footnote)? Means of communication (i.e. given at time of hire or after)? What do the cases tell us about issues and rights? Stearns Stearns was denied recovery on an oral promise that violated the to be performed within one year clause of the Statute of Frauds. The court held that they would not waive the SOF without clear and convincing evidence of fraud on the part of the employer. To prove fraud the Pl must prove that the D had a subjective intent to deceive. Reliance on the K and pre-employment preparations are difficult to distinguish. Forrer A permanent employment K unless otherwise stated is terminable at will by either party. Therefore, when Pl sold his farm to work for D and was fired after 5 months, the court held that D kept their promise to employ Pl. and promissory estoppel wouldnt apply. Hunter Pl quit her job with the phone company to work for D. D didnt hire her she was out of work for 2 mos. Awarded $700 for 2 mos. pay at the telephone co. The damages should be tailored to fit the facts of each case and should be only that amount which justice requires. Goldstick Posner said that where an employment K is involved, the use of promissory estoppel to get around the one year provision of the Statute of Frauds is particularly troublesome. Employment at will remains the dominant type of employment relationship in this country, and would be seriously undermined if employees could use the doctrine of promissory estoppel to make alleged oral Ks enforceable. f. Franchise: Goodman (R: P relied on misrepresentation by D and got supplies). Goodman Promise to grant franchise was breached and the court granted reliance damages but not expectation/profits. Court invoked promisorry estoppel. E. Promises of Limited Commitment A promise is consideration if each of the alternatives would be consideration if it alone had been bargained for. Can't have an un___fettered choice of alternatives. Restatement 2d 77 Illusory Alternative Promises A promise is not consideration if by its terms the promisor reserves a choice of alternative performances unless: a) Each of the alternatives would have been consideration if it alone had been bargained for, or
b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice of events he may eliminate the alternative which would not have been consideration. Example: A offers to deliver to B at $2 a bushel as many bushels of wheat, not exceeding 5,000, as B may choose to order within the next 30 days, if B will promise to order at least 1,000 bushels within that time. B accepts. Bs promise is consideration since it reserves only a limited option and cannot be performed without doing something which would be consideration if it alone were bargained for. 1. Mutuality of Obligation - Both parties must be bound or neither will be. If one party is free to speculate it creates an unfair advantage. If the seller is bound to sell at $100 per widget and the buyer is free to shop around if the market falls to $90 is unfair. The principle of mutuality of obligation avoids such opportunities for speculation. Will a court award reliance damages when the contract is unenforceable for lack of mutuality? a. Exceptions 1) Voidable contracts Made by infants or the mentally incapable Made under duress 2) Statute of Frauds If one party has signed and the other has not? An oral promise rendered unenforceable by the statute of frauds is still a promise and that it provides consideration for a written counterpromise. 3) Restatement 2d 78 The fact that a rule of law renders a promise voidable or unenforceable does not prevent it from being consideration. Bernstein Contract to sell swimsuits was unenforceable no mutuality of obligation Davis Where the promisor retains an unlimited right to decide later the nature or extent of his performance. This unlimited choice . . . makes the promise merely illusory and unenforceable. Paul Since the contract made the securing of the lease a condition to its effectiveness but placed no duty on P to secure it, the entire K was void for want of mutuality and D owed no duty to perform it. Farnsworth says he was free to get the lease or not as he willed and was not consideration for the sellers promise. 2. Agreement valid if not yet ripe: If Ds offer does not ripen into an agreement until the P simultaneously accepts and performs, the contract is not devoid of mutuality. Obering Contract that if P bought land, D would buy it from P, less the trees. Contract became enforceable and binding on both paties when P bought the land because that was both acceptance and consideration. Farnsworth says the concession that the promise was illusory seems unnecessary, since even when the K was made, Ps promise bound it in the alternative to sell the land to the D or not to acquire it.
3. Restraint of trade - The giving up by a seller of the right to sell to others such goods as he should manufacture during a specified period is sufficient consideration for the promise of the buyer to purchase such goods, although the seller was not obliged to manufacture any goods whatever. Consideration is found in restricting dealings to only one party. Foregoing the choice to sell to another. Petroleum Refractionating The promise of D to purchase was supported by the agreement of P either to sell, which would be a benefit to D, or, in the alternative, to discontinue making such grade of oil, which would be a detriment to the P. 4. Implied promise of good faith efforts: the court held that the promise itself has value interpreting whether reasonable efforts would be used to further the K. Wood v. Lucy, Lady Duff-Gordon (D gave P the exclusive right to market her designs in exchange for a share of the proceeds). UCC and Good Faith (1) 1203 the obligation of good faith (2) 1201(19) defines good faith (3) 2103 defines good faith in the case of a merchant. (4) 2104 defines merchant Wood Lady Duff-Gordon breached her promise to P to give him exclussive rights to her designs in exchange for half the profits. Cardozo held that there was an implied promise to use reasonable efforts to bring profits and revenues into existence. Otherwise, the contract would be void for want of mutuality. The precise word is not important it is the intent of the parties. The unfairness would be that Lady Duff could sue Wood if he failed to promote her designs. This promotes the achievement of the basic goal of contract law, which is to facilitate teh making of long-term commitments. 5. Requirement/Output K (good faith): K to buy or sell or particular goods exclusively from a party. Output is determined by a good faith output and both parties agree to exercise good faith in their dealings (see 1-201,1-203, 2-306(2)). Justified in terminating agreement only upon notice or in light of serious loss (question of fact). Feld v. Henry S. Levy & Sons, Inc. (breadcrumb case). Sliding scales (cost plus provision) are binding as long as the factor that influence costs are independent from the seller. Feld P agreed to buy all the bread crumbs produced by Ds factory for 6/lb. for one year with option to renew and rights to cancel with six months notice. After 11 months the D stopped producing bread crumbs without notice. They dismantled their oven and said it would be unable to continue at the current contract price and for 7/lb. they would resume. The court used UCC 2-306 and held that D would be justified, in good faith, in ceasing production of the single item prior to cancellation only if its losses from continuance would be more than trivial, which is a question of fact for the jury to decide. Lima Locomotive The contract to buy all the steel that they would require for their business is enforceable. The obligation to take the entire supply supply of an established business saves the mutuality of the promise.
UCC 2-306 (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale. Comment parties to such contracts are held to have impliedly, even when not expressly, bound themselves to use reasonable diligence as well as good faith in their performance of the contract. 6. Mutuality in terminating a franchise: Termination is not dependent on good faith as long as notice is given, it is enforceable. the court held a 10 day provision was enforceable unless proven to be unconscionable (2-302). Corenswet. See 2-309(2) and 1-203(2) 7. Employment at Will - Absent written agreement, contracts for employment are terminable at will. See Forrer v. Sears The exception to this is retaliatory discharge that violates public policy. This is an action in Tort. There is wrongful and actionable discharge in retaliation for the excercise of an employees right to: 1) refuse to commit perjury; 2) file a workers compensation claim; 3) engage in union activity; or 4) perform jury duty Other issues a supplemental manual, additional consideration, good faith. Sheets P, quality control director, was discharged for trying to get employer to follow state food and drug statutes. He has no action in contract but does have action in tort of retaliatory discharge. The court expands the scope of retaliatory discharge and what is against public policy from the usual four. In effect it is a whistle blowers exception. Price P didnt have an action in retaliatory discharge for filing a health insurance claim. After being injured in the performance of employment. No public policy need would be acheived Barnett & Becker Liability will lie in tort if the promisor made a misrepresentation of fact negligently or with reckless disregard for the truth in order to induce desired reliance, provided that the plaintiff reasonably relied in the desired manner. For liability to lie in tort the promise must be a lie when made. DUlisse Cupo Even an innocent misrepresentation of fact may be actionable if the declarant knew, or should have known, or has the duty to know the truth. Can be held liable for promissory representations or for representations of false information. Osborn v. Commanche A suit for lost profits involving a 3 year service K terminable by either party by giving 30 days notice. The court held that the only legally protectible expectation interest in the party to a K terminable by either party upon notice is the prospect of profit over the length of the notice period. Since his assurance of
performance never extends beyond the length of the notice period, neither does his prospect of net gain. IV. The Making of Agreements A. Mutual Assent 1. Offer a. Objective theory: Whether a reasonable person would interpret the words or actions to be an offer. Embry ("go get your men out") 1) advantage: objective standard is easier to test. 2) disadvantage: could subject the offeror to be bound to the other party's expectation interest before she knew an offer was made. 3) what was objectively expressed, not what was intended 4) exceptions: a) joke (both aware) b) sham - Philip poor and Robert Rich (impress girl) c) rage- "Damn car, I'd sell it for $1" Embry Though D did not intend to employ P, if Ds words and actions would be taken by a reasonable person to be employment, it would constitute a valid contract. In order to have a valid contract the jury must find that Ps version is what happened and P understood he was employed. NY Trust v. Island D started companies as a sham and P bought out the shares and sued D for the balances owed the sham company. Learned Hand said, They were a sham, which nobody did, and nobody advised could, understand as intended to be more. In pari delicto potior est conditio possidentis. In a case of equal or mutual fault, the law leaves the case as it finds it. In re H. Hicks Hand said, It is no objecton that [the parties understanding that a purported contract was not to bind them] contradicts the writing; a writing is conclusive only so far as the parties intend it to be the authoritative memorial of the transaction. Whatever the presumptions, their actual understanding may always be shown except so far as expressly or implicitly they have agreed that the writing alone shall control. b. Manifestation 1) words used 2) certainty of terms 3) typically a written or oral K 4) circumstances a) customs of business. Flowers (as long as not a neophyte) b) past practices c) all material items d) 1-205 Course of dealings c. Subjective testimony still allowed - not primary means anymore, but looked to see whether or not there was a meeting of the minds based on intentions. 1) What a party thought he was doing may be admissable to show what he did. Kabil v. Mignot (helicopter case).
Kabil v. Mignot D appeals because testimony of intent and subjective feelings of P should not have been allowed. Affirmed that the objective manifestations are what are important, however, Ps intent is not irrelevant and the jury was so instructed. No error. d. Offeror is the master: 1) can revoke before acceptance: revocation of an offer is valid if notice of the revocation is communicated to the other party (even if indirectly) 2) offer like a promise: generally unenforceable unless there is consideration. Each free until bound. e. Creates the power: must be so definite as to create an immediate power of acceptance in the offerree. So, all the offerree has to do is say "I accept." 2. Misunderstanding - interpreted against the blameworthy party Restatement 2d 20 (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a) neither party knows or has a reason to know the meaning attached by the other; or (b) each party knows or each party has reason to know the meaning attached by the other. (2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if (a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or (b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party. 1) Blameworthy: generally interpret in favor of the party who was not blameworthy. Example: A knows of two ships named Peerless and that B thinks the contract is for the first Peerless. Result: contract for the first ship. 8Whittier believes that action should lie in tort, not contract, if ones actions carelessly lead a reasonable person to believe there was assent. Because there shouldnt be liability without injury due to negligence. To hold one liable for a merely careless use of language which causes no damage whatever to the party to whom the language is addressed is certainly inconsistent with principles generally applied. 2) Peerless: a K, but the parties meant different ships, no meeting of the minds involved. Raffles. 3) Duty to inform: if one party knows that the other is mistaken, must inform. Dickey. 4) Need a meeting of the minds: both have to know the meaning the other attaches to the K, unless one blameworthy. 5) Failure to read, understand: a) negligent: both are bound b) offeror misreps: a contract is formed on the terms of the innocent party. c) adhesion K: if due to hard to read terms, etc., it is void. 3. Effect of Indefiniteness or Incompleteness Courts can enforce the K if the parties intended to be bound. 1) traditional rule: for a K to be formed all material terms must be agreed on. e.g. A to B, "I'll sell you any quantity of widgets you want for $5 each. No K. 2) elements of a valid offer: a) parties to the K
b) subject matter c) quantity. Moulten (salt, unspecified amount- no offer) d) time (reasonable, if not explicit) e) price (if none-probably no K. Martin (renewal on lease, p.353). However UCC inserts mkt. price) 3) can cure: through part performance 4) modern trend: supply the missing terms___ only if the parties manifested an intent to create a binding contract. Will not rewrite or add terms the parties did not intend 4. The Creation of a Power of Acceptance. 1) definition: a proposal by one party to another with manifest willingness to enter into a bargain made in such a way that the other person is justified in believing that if his assent is given it will result in a binding K. Moulton v. Kershaw D sent letter saying We are authorized to offer salt. . . Shall be pleased to recieve your order. P ordered 2000 car-loads. D withdrew the earlier letter. P sued for damages. No contract was created by the Ps letter of acceptance. The Ds letter was not an offer, merely a notice. 2) definite: an offer must be definite (highly fact specific). 3) legal relationships: a) before offer: no legal relationship b) offer= offeror now has liabilty, offeree has power c) acceptance= rts' and duties on both parties. 4) when invalid: a) made to general public (invitation to deal) b) if made to a lot of people and may run out (circular) c) unspecified amount (if no other means exist to determine) d) doubt: When in doubt assume no offer 5) handbooks: a) loyalty as consideration Tilbert (death benefit) b) clear and obvious disclaimers will dispel offer. Kari (p.347), but not clear in McDonald (sex harass, p.340). c) continued work is acceptance. Pine River (p.348). 5. Terms to be agreed upon. a. A mere agreement to agree, in which a material term is left for future negotiations, is unenforceable. The UCC will not be read into real estate leases. Martin Delicatessen. b. Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. UCC 2-204(3). See Southwest Engg Co. v. Martin. c. The parties if they so intend can conclude a contract for sale even though the price is not settled. UCC 2-305. d. Intent to be bound is not enough there must be objective manifestations of intent. A letter of intent often does no more than set the stage for negotiations on details and allows the parties to approach agreement in stages. Empro v. Ball-Co. e. An intent to reduce the contract to writing will not defeat the contract. Rest.2d 27. See Billings v. Willby. B. Control over Contract Formation
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Keith Wittenstein
The Role of contract law in this context is (a) to distinguish the culminating moment of agreement from all the bargaining activity that has gone before and (b) to protect the agreement thus arrived at from any effort by either party to start the bargaining process up again. Chirelstein p.30. 1. Offer - is a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. Rest.2d 24. An offer must be sufficient to communicate an intent to be bound! a. An offer starts from the time it is received not from the time it is sent. Caldwell v. Cline. 1) An offer is valid for the time stated in the offer or for a reasonable time thereafter. 2) An offer which is delayed is valid if the offeror knows or has reason to know of the delay. Rest.2d 49. 2. An offer creates a power of acceptance in the offeree. a. The offeree can accept before the offer is revoked. See Cobaugh v. Klick (P shoots hole-in-one and demands car which is offered to anyone who shoots hole-in-one left over from the tournament. Held P is entitled to the car because offer didnt say it was ony during the tournament and P had no way to know). 1) If no time for expiration of a power of acceptance is specified in the offer, the power terminates at the end of a reasonable time. Textron b. Revocation -Must be sufficient to communicate an intent not to be bound. 1) Offeror can revoke an offer any time before it is accepted. Petterson v. Pattberg D offered to let P pay off the mortgage at a reduced price if done by the end of the month. P shows up at Ds door with the money. D says the offer is revoked the mortgage has been sold. P says I have the money right now. Held it is too late. c. Rest.2d 36 Methods of Termination of the Power of Acceptance. 1) An offerees power of acceptance may be terminated by a) rejection or counter-offer by the offeree, or b) lapse of time, or c) revocation by the offeror, or d) death or incapacity of the offeror or offeree. Death revokes the offer whether or not the other party knows of the death. Jordan v. Dobbins. 2) In addition, an offerees power of acceptance is terminated by the nonoccurrence of any condition of acceptance under the terms of the offer. d. Restatement 32 - In case of doubt an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. This creates more power in the offeree but only in cases of doubt. The offeror is still the master if he specifies the means of acceptance. Brackenbury v. Hodgkin P accepted the offer to take care of his mother-in-law by moving in with her. This created an equitable interest in the land. The court found that P was entitled to get specific performance. 1) Restatement 62 - Where the offeror invites either performance or promise a) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance.
b) Such an acceptance operates as a promise to render complete performance. Davis v. Jacoby Dear Frank and Caro. . . if you can come, Caro will inherit everything. Frank and Caro promised they would come but right before they were to leave Mr. Whitehead shot himself. Frank and Caro sued to get the inheritance which went to the other nephews. The theory of the court is that in case of doubt a bilateral contract is presumed. 3. Rewards - If a person doesnt know of the reward, then he cant collect it because an offer must be communicated. a. Exception - Rewards offered by the govt or legislature. b. Is this fair? You were willing to pay and you got the benefit. Why shouldnt you have to pay the person whether or not he knew? 4. Option Contracts - A promise which meets the requirements for the formation of a contract and limits the promisors power to revoke an offer. Restatement 2d. 25. a. Restatement 2d 87(1) - An offer is binding as an option contract if it: 1) Is in writing and signed by the offerer, 2) recites a purported consideration for the making of the offer, and 3) proposes an exchange on fair terms within a reasonable time; or 4) is made irrevocable by statute. Nominal consideration is adequate to create an option contract. Valuable consideration must be paid for an exchange and does not apply to the consideration for the option. Marsh v. Lott. Nominal consideration, even if it is not paid, will be adequate. It is an implied promise to pay which can be enforced. Smith v. Wheeler. 5) Restatement 2d 87(2) - An offer which the offeror should reasonably expect to induce action or forbearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forebearance is binding as an option contract to the extent necessary to avoid injustice. See Drennan. b. Restatement 2d 45. 1) Where an offeror invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited performance or tenders beginning of it. 2) The offerors duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer. 5. Restatement 2d 37 The power of acceptance under an option contract is not terminated by rejection or counteroffer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of a contractual duty. James Baird v. Gimbel Bros. Defendant, placed a bid to contractors on the price of linoleum. D realized it had made a mistake and sent notice of withdrawal. P used Ds bid in its bid and was awarded the job. L. Hand held that the offer was revoked before it had been accepted. Refused to accept the argument that using the bid constituted acceptance or even reasonable reliance enough to justify promissory estoppel. Hand said that Ps acceptance was sought not his using the bid. He also refused
to allow an option contract because the offeror/D did not mean to subject itself to such a one-sided obligation. Drennan v. Star Paving P, a contractor, received a bid from D, a subcontractor, and used it in his own bid. P got the job and sued D for the damages of hiring another sub. Traynor adopts promissory estoppel and says that within Ds bid is a subsidiary promise to perform if P uses the bid. There was reasonable reliance on Ds bid as in 90. This rule is adopted as Restatement 2d 87. E.A. Coronis v. M. Gordon Constr. D(sub) gave P(main) a bid in writing. P awarded K and while waiting for formal documents did not directly accept D's offer. D telegraphed revocation. P sought damages for diff b/t replacement sub and D's price. Ct remanded to look into reliance issue. UCC 2-205 does not apply b/c D s offer contained no terms assuring it would be kept open. To apply promissory estoppel, P must prove: 1) P received a clear and definite offer from D; 2) D could expect P to substantially rely (look to D's actual knowledge or custom/usage of trade); 3) actual reasonable reliance by P (which would not be shown if D's bid was so low that P should have known it was in error); and 4) detriment.
6. Hoffman v. Red Owl - P was promised a franchise in Ds supermarket for $18,000. P made numerous preparations including buying a small grocery. D kept raising the price of the deal. P finally backed out and sued for his expenses. 1) goes beyond Drennan, By allowing recovery based on reliance against a party that made no offer. 2) is based on promissory estoppel not K. Promissory estoppel creates liability. The court says there is no K therefore no breach of K but there is still liability. 3) imposes fair-dealing requirements on parties engaged in pre-contractual negotiations, with no offer having yet been made by either, and 4) has reliance measure of recovery. Farnsworth says this would fit better into tort liability for blameworthy conduct. 90 was made to serve as a distinct basis of liability, without regard to theories of bargain, contract, or consideration, and with its own special damage standard. It would obviously be inappropriate and unwise to treat failed negotiationsan everyday event- as an occasion for assessing damages against on party for costs incurred by the other in taking steps to rearrange his affairs, even if such steps were foreseeable and recommended by the former. Chirelstein. Livingstone v. Evans D Offers to sell land for $1800. P responds, Send lowest cash price. Will give $1600 cash. D responds, cannot reduce. D sells land to X. P sends acceptance to $1800 offer. The court says Ps counter-offer terminated the offer. Held that the Ds response was a reaffirmance of his original offer. (i.e. Cant reduce, will still accept $1800.).
Keith Wittenstein
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7. Deviant Acceptance Rule - If an offerees response is nonconforming (that is, if it introduces new or different terms), the consequence usually said to follow is that the offer is rejected and the power of acceptance is terminated. The process of contract formation must start over again. a. Mere Suggestion - If the offerees acceptance attempts only to make explicit terms which were already implicit in the offer, or the offeree merely suggests a new term without insisting on its inclusion, the acceptance usually is effective. See Raydon Exploration v. Ladd. Text p.424 b. Option K - Events that ordinarily terminate a power of acceptance, including a deviant acceptance, do not have that effect when the offer that created the power is a binding option. See Humble Oil & Refining Co. v. Westside Investment. Text p.425 8. Battle of the Forms Idaho Power v. Westinghouse P asked for a price on a voltage regulator. D sent an offer which also stated on the back that they were exempt from liability. P sent an acceptance which had a clause which tried to supersede the other form. The regulator broke and caused a huge fire and lots of damage and P sued D for damages. The court applied UCC 2-207 to decide D was not liable. The acceptance was definate and seasonable and was not conditional on assent to the additional or different terms. Idahos additional terms were not part of the contract because the offer expressly limits acceptance to the terms of the offer or they materially alter the K. They all dont knock out Westinghouses terms because they dont directly conflict. Roto-Lith v. Bartlett Highly criticized and controversial interpretation of 2-207 because it held that a response which states a condition materially altering the obligation solely to the disadvantage of the offeror is an acceptance...expressly...conditional on assent to the additional...terms. a. UCC 2-207 1) A definate and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. The consequences are twofold: first, there is a contract; and second, the contract is on the offerors terms. The advantage has shifted from the party that fires the last shot to the one that makes the first offer. The first offer is likely to be the buyers purchase order, so that the advantage has shifted from the seller to the buyer. 2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless: a) the offer expressly limits acceptance to the terms of the offer; b) they materially alter it; or c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received. 3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provision of this Act.
b. Mirror Image Rule - Requires acceptance to be the mirror image of the offer. Considered harsh because to formal so courts have mitigated it. One way is interpreting variation as mere suggestion. c. Last Shot Rule - The resulting contract is on the terms of the one who fires the last shot i.e. sends the last counteroffer. This is usually the sellers confirmation of sale. 2-207(1) begins with a major concession to the original offeror. d. Knockout Rule - Where a contract is formed by conflicting documents, the conflicting terms cancel out and the contract then consists of the terms that both parties expressly agree to with the contested terms being supplied by other sections of the UCC. Southern Idaho Pipe v. Cal-Cut Pipe. p.430. e. Mailbox Rule - Once the offeree has dispatched his letter of acceptance it is too late for the offeror to revoke. Adams v. Lindsell; Morrison v. Thoelke. 1) Acceptance - Time of dispatch! 2) Rejection - Time of receipt! 3) Option K - Time of recept! Restatement 63 Restatement 63 Unless the offer provides otherwise, (a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offerees possession, without regard to whether it ever reaches the offeror; but (b) an acceptance under an option K is not operative until received by the offeror. Comment f. An option K provides a dependable basis for decision whether to exercise the option; and removes the primary reason for the mailbox rule. Moreover, there is no objection to speculation at the expense of a party who has irrevocably assumed that risk. Option Ks are commonly subject to a definite time limit, and the usual understanding is that the notification that the option has been exercised must be received by the offeror before that time. Whether or not there is such a time limit, in the absence of a contrary provision in the option K, the offeree takes the risk of loss or delay in the transmission of the acceptance and remains free to revoke the acceptance until it arrives. Similarly, if there is such a mistake on the part of the offeror as justifies the recission of his unilateral obligation, the right to rescind is not lost merely because a letter of acceptance is posted. Kibler v. Caplis Kibler given an option without seal or consideration to buy hides by Oct. 8. He sent a telegram and a letter; the telegram was lost and the letter arrived too late. Held no K! f. Acceptance by Silence - Restatement 69. H.B. Toms Tree Surgery P performed extra landscaping services outside of their express K. The court held that there was an implied K for te extra work and D should pay for it. Restatement 69 1. Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation.
b) Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. 2) An offeree who does any act inconsistent with the offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful against the offeror it is an acceptance only if ratified by him. Prescott v. Jones Silence does not commit a party to a K. No recovery even if reliance (fire insurance). Hobbs Eel skins were sent to D and P sued to recover payment. P had previous dealings with D and assumed that certain length skins would be accepted. A silience coupled with retention of the skins for an unreasonable time, might be found by the jury to warrant the P in assuming that they were accepted, and thus to amount to an acceptance. Kukuska Kukuska, a farmer applied for hail insurance. The insurance co. failed to inform him of their decision to decline his application for a month. It happened to be during the worst part of hail season. And Kukuskas crops were destroyed by hail before he could get insurance elsewhere000 Austin D asked to have subscription canceled yet continued to receive and read the newspapers. D is liable for the subscription price. McGlone v. Lacey P sent D lawyer her case and he said he would look at it and get back to her. He didnt contact her and the statute of limitations ran out. The court held there was no contract and his silence was not an acceptance. There is no duty for a lawyer to notify of an intention not to accept employment. Morone An unmarried couple had an express contract for domestic services which the court held was enforceable. The court would not enforce an implied contract for housewifely duties within a marriage-type arrangement. C. Effects of Adopting a Writing Parol Evidence Rule It is not a rule of evidence but a rule of substantive law. Rest. 2d 213, comment a. Rules of evidence bar some methods of proof to show a fact but permit that fact to be shown in a different way. In contrast, the parol evidence rule bars a showing of the fact itself. Farnsworth. It is often useful to replace the negotiations of yesterday with an authoritative agreement of today. It is this purpose that the parol evidence rule ought to serve giving legal effect to whatever intention the parties may have had to make their
writing a complete expression of the agreement that they reached, to the exclusion of all prior negotiations, whether oral or written. Farnsworth. 1. Integration - A written agreement is integrated if it is a final expression of one or more of the terms of the agreement. Rest. 2d 209. The mere fact that the agreement is integrated does not give rise to a presumption that it is completely integrated. a. Completely - a complete and final and exclusive expression of all the terms agreed upon. Therefore, evidence of prior negotiations is inadmissible. b. Partially - a final expression of the terms it contains, but not a complete expression of all the terms agreed upon. Evidence of prior agreements is admissible to supplement, ot explain the writing though not to contradict it. c. Test - Is the writing integrated? Completely or partially? 1) Williston favors the broad application of the rule; more objective. The judge looks at the writing and applies a reasonable person test to it. Is it clear to the reasonable person? Would the reasonable person understand it to supersede all prior agreements? 2) Corbin favors the narrow application of the rule; more subjective. The Corbin view is favored by both the Restatement and the UCC 2-202. The focus is on the intentions of the parties. Account should always be taken of all circumstances, including evidence of prior negotiations, since the completeness and exclusivity of the writing cannot be determined except in the light of those circumstances. d. Does not exclude: 1) evidence of negotiations that took place after the written agreement. 2) evidence to show that there was no agreement or that the agreement was invalid. 3) evidence offered to help interpret or explain the language of the writing. Mitchill v. Lath Would not enforce a promise to remove a shack on the land because it would ordinarily be part of the writing. Even though there it is certain that there was a promise. 1. The agreement must in form be a collateral one; 2. it must not contradict express or implied provisions of the written contract; 3. it must be one that parties would not ordinarily be expected to embody in the writing. Hatley v. Stafford Ps lease said that D could buy out P for $70 an acre. P claims that the provision was only supposed to be good for one month. The court held that the parol evidence should have been admitted to explain or qualify the clause. The judge determines if the writing is integrated and the jury weighs the parol evidence. Masterson v. Sine P conveyed farm to sister for $50,000 with the option to buy back at the original price. P went bankrupt and his creditors tried to exercise the option against the sister. The court held that parol evidence suggested that the option was only to be between family members and not to any assigns was admissible. Chirelstein points out that there was obviously no actual agreement between the brother and sister. However, there was a strong reason not to let the family farm be taken away by creditors. If they had actually thought of it they would have made such an agreement and put it in writing.
Luria Bros. D failed to perform a large sale of scrap metal claiming that his earlier conversation with the P made the contract conditional. Held that the writing was complete under UCC 2-202 and that evidence would contradict the written terms. Hunt Foods Evidence of an oral condition precedent did not contradict the terms of a written stock option which was unconditional on its face. Restatement 209 (1) An integrated agreement in a writing or writings constituting a final expression of one or more terms of an agreement (2) Whether there is an integrated agreement is to be determined by the court as question preliminary to determination of a question of interpretation or to application of the parol evidence rule. (3) Where the parties reduce an agreement to writing which in view of its completeness and specificity reasonably appears to be a complete agreement, it is taken to be an integrated agreement unless it is established by other evidence that the writing did not constitute a final expression. Restatement 213 (1) A binding integrated agreement discharge prior agreements to the extent that it is inconsistent with them. (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope. (3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated. Restatement 214 Agreements and negotiations prior to or contemporaneous with the adoption of a writing are admissible in evidence to establish (a) that the writing is or is not an integrated agreement; (b) that the integrated agreement, if any, is completely or partially integrated; (c) the meaning of the writing, whether or not integrated; (d) illegality, fraud, duress, mistake, lack of consideration, or other invalidating cause; (e) ground for granting or denying rescission, reformation, specific performance, or other remedy. Restatement 216 (1) Evidence of a consistent additional term is admissible to supplement an integrated agreement unless the court finds that the agreement was completely integrated. (2) An agreement is not completely integrated if the writing omits consistent additional agreed term which is (a) agreed to for separate consideration, or (b) such a term as in the circumstances might naturally be omitted from the writing. UCC 2-202
Terms with respect to which the conformatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement buy may be explained or supplemented (a) by course of dealing or usage of trade 1-205 or by course of performance; and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended as a complete and exclusive statement of the terms of the agreement. FRAUD; Torts and Contracts- In Hargrave v. Oki Nursery (483)they held it does not follow that because acts constitute a breach of K they cannot also give rise to liability in tort. Where the conduct alleged breaches a legal duty which exists independent of contractual relations between the parties a may sue in tort. If Oki indeed made the fraudulent representations it is subject to liability in tort whether the agreement is enforceable or not. 2. Mistake - A court of equity will reform a written instrument to make it conform to the real intention of the parties, when the evidence is so clear, strong, and convincing as to leave no reasonable doubt that a mutual mistake was made in the instrument contrary to their agreement. Equity will ignore the parol evidence rule when it is alleged that fraud, accident, or mistake occured in the making of the instrument, even within the statute of frauds. a. Reformation Hoffman v. Chapman D bought lot 4. The deed described too much. P sued to get back the extra land. Where a deed fails to express the manifest intention of the parties on account of a mistake of the draftsman, equity (i.e. the judge) will rectify the mistake to make the deed express the real intentions of the parties. REFORMATION The court will never, by assuming to rectify an instrument, add to it a term or provision which had not been agreed upon, though it may afterwards appear expedient or proper that it should have been incorporated. 1) Interpretation - Restatement 212 - A question of interpretation of an integrated agreement is to be determined by the trier of fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence. Otherwise, a question of interpretation of an integrated agreement is to be determined as a question of law. Bethlehem Steel Co. D claims that the term components is ambiguous and that it didnt include steel prices which were fixed at $15. Summary judgment for P because the contract was complete and unambiguous within its four corners. The dissent said that the Ds interpretation was plausible and that it should go to the jury. It is a matter of law whether the K is ambiguous. Robert Indus. When the written agreement is in any respect uncertain or equivocal in meaning, all the circumstances of the parties leading to its execution may be shown for the purpose of elucidating, but not of contradicting or changing its terms. The words themselves remain the most inportant evidence of intention. Pacific Gas & Elec. Co.
If the court decides, after considering this evidence, that the language of a contract, in the light of all the circumstances, is fairly [reasonably] susceptible of either one of the two interpretations contended for, . . . extrinsic evidence relevant to prove either of such meanings is admissible. Trident Kozinski in following Pacific Gas held that even the most obsurd cases must be given to the jury to weigh the different interpretations of an otherwise unambiguous instrument. Kozinski says that the Cal. S Ct. should rethink its rule. Pym Oral testimony can be allowed to prove there is no contract at all. D and P drafted the agreement and signed it with the understanding that it would be valid only if Abernathie approved the invention. P tried to enforce the contract even though Abernathie didnt approve it. 3. Standardized Agreements For routine transactions, generally use mass-produced/standardized Ks, with little room for bargaining. a. Adhesion contract = a K so heavily restrictive of one party, while so nonrestrictive of another, that doubts arise as to its representation as a voluntary an uncoerced agreement implies a grave inequality of bargaining power. b. Advantages to standardized Ks: drafter can limit its risks; reduces expenses (don't have to bargain and draft each one); pass the savings on to you. c. Disadvantages: since terms are imposed and not bargained, unfair terms might be snuck in - leading to injustice. d. Traditional Approach - Duty to Read - Cannot avoid consequences of signing a K on grounds that there was no assent since did not read K, UNLESS: 1) induced not to read 2) misrepresentation of provision 3) did not have fair and reasonable opportunity to bargain. General rule - No party to a written K can defend against its enforcement on the sole ground that he signed it without reading it. A K is binding even if a party did not read it (thus Pl has no recourse). Exception - if one can show that he was prevented from reading the K or that he was induced by statements by other party to refrain from reading the K (misrepresentation induced P2 not to read). Allied Van Lines v. Bratton Ps contracted to have D ship their goods. Each P signed a bill of lading which limited D's liability for damage. P1 did not read the K, though she was NOT prevented from doing so. P2 was mislead by the carriers agent as to available coverage. Goods were destroyed. D contended liability was limited by provision in K. Judgment against Pl; judgment in favor of P2. Agricultural Insurance Co. Bova left her car parked in Ds parking lot and came back to find it stolen. The ticket said the parking lot wasnt responsible. Held that it was a bailment and the ticket was purely for identification. Bova never assented to the conditions on the ticket and even if she had it would still be against public policy.
Mundy P seeks to recover value of silverware from D insurance co. Ps renewed policy limits recovery to $1000. They claim because the old one covered it they werent given adequate notice as to the $1000 limit. Held that the language and type was very clear and adequate to put them on notice. Weisz v. Parke-Bernet Galleries P purchased paintings at Ds auction which turned out to be worthless forgeries. Ds catalog disclaimed any liability yet also displayed pictures and bios of the artwork. The court used traditional K doctrines to find Ds disclaimer ineffective. There was no mutual assent. P didnt know of the provision and a reasonable person would not be expected to know what it meant. Construction. D intended that P rely on the accuracy of the catalog descriptions (construed against the drafter). Farnsworth - 3 techniques to avoid enforcing K on basis of lack of mutual assent: 1) no assent to writing since not construed as an offer (Constantine case); 2) no assent to terms of writing; 3) no assent to meaning of terms advanced by author of writing (construction). Henningsen v. Bloomfield Motors Ps new car spun out of control totaling the car and injuring his wife. They sued under implied warranty of merchantability. D showed that the bill of sale limited their liability and expressly disclaimed any warranties. Held that any disclaimers of implied warranty of merchantability are against public policy and void because it is grossly unfair to consumers especially since all car companies do it. C&J Fertilizer Ps insurance policy defined burglary as visible marks to the exterior. P was robbed without visible signs to the exterior and the court held that P could recover because their reasonable expectations would lead them to believe they would be covered. The court cited the Llewellyn approach to say that the dickered terms are agreed to and that the rest of the boilerplate is allowed as long as it doesnt unreasonably under cut the dickered agreement. The court also found the clause unconscionable. They examined the factors of assent, unfair surprise, notice, disparity of bargaining power and substantive unfairness, struck the clause so as not to let the drafters recur to the attack. Broemmer v. Abortion Services P went to the clinic to receive an abortion and was told to sign a bunch of papers which included an agreement to arbitrate. The doctor screwed up and she sued for malpractice. D got summary judgment. Held that the agreement to arbitrate was unenforceable because it was beyond Ps reasonable expectations. Burgess Constr. Co. An unusual or unexpected term in an adhesion contract which falls outside the weaker partys reasonable expectations will be denied effect against him, unless it has been brought to his attention by express notice, as by clear, plain and conspicuous language on the face of the contract.
4. Llewellyn There is assent to only the few dickered terms those that are bargained for and agreed to. Whether any or all of the boilerplate terms contained in the small print paragraphs are unreasonable or indecent, or are manifestly unreasonable and unfair. Restatement 211 1) Except as stated in subsection 3, where a party to an agreement signs or otherwise manifests assent to a writing, and has reason to believe that like writings are regularly used for agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing. 2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing. 3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement. {note - like doctrine of reasonable expectation - use a generalized objective test} RESTATEMANIA. V. Policing The Bargain Seeking enforcement of K - reflects policy favoring stability or security of transaction. Seeking intervention - reflects policy aiming to prevent unfairness and protection of parties from overreaching. Three Perspectives: 1) policing "substance" of agreement (terms unfair?) - cts reluctant to do this - don't want to set terms of K. 2) police from standpoint of "status" of parties - incompetence; fiduciary relationship, etc. 3) police in light of behavior of parties in forming and performing K - duress; fraud, etc. A. Competency To Contract. Undue Influence: 1. Policing by looking at Status - focuses on characteristics of parties which impair power to contract: a. Immaturity - prescribed by attainment of statutory legal age. b. Mental lnfirmity - usually measured by an objective test - whether party lacked the capacity to understand the nature and consequences of transaction; or look at volitional test: whether party lacks effective control over his actions. 2. Infancy Doctrine: Halbman v. Lemke Absolute right of a minor to disaffirm a K for the purchase of items which are not necessities - voidable at minor's option, absent misrepresentation or tortious damage to the property, and may recover his purchase price without liability for use, depreciation, damage, or other diminution in value. 3. Mental Incompetence: Faber v. Sweet StyIe K of a mental incompetent is voidable at the election of the incompetent and if other party can be restored to status quo then recission - if status quo
cannot be restored and other party was ignorant of incompetence, and transaction was fair and reasonable, then recession will be denied. ReSt.2d 15 Mental Illness or Defect (1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect (a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. (2) Where the K is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under sub(1) 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 a case a ct may grant relief as justice requires. 4. Undue Influence: a. The use of excessive pressure to persuade one vulnerable to such pressure, AND b. An application of excessive strength by a dominant subject against a serviant object. c. Factors for consideration: 1) Transaction occurs at inappropriate time or place; 2) Insistent demand that K be signed immediately; 3) Extreme emphasis on horrible consequences of delay; 4) Use of persuaders; 5) Absence of lawyer; etc. Odorizzi v. Bloomfield School District P arrested for homosexual conduct; D convinced him to resign; charges dropped but D would not rescind resignation. B. Duress. Pre-Existing Duty: 1. Policing by looking at Behavior: a. Four step test for DURESS: 1) there must be a threat 2) threat must be improper 3) threat must induce assent 4) threat must be grave enough to justify assent. 2. Traditional Approach: Austin Instrument v. Loral D under K with government, and subject to liquidated damages and cancellation for default. D awarded P a subK for supplies. Subsequently, P threatened to cease delivery of all parts unless D consented to substantial increase in subK price. After trying, yet failing to find another supplier, D assented to P's demand. A K is voidable as duress when it is established by the party making the claim that he was forced to agree by means of a wrongful threat precluding the exercise of free will. A mere wrongful threat does not in itself constitute economic duress, it must also appear that the goods could not be obtained elsewhere and that ordinary remedy for breach would not have been adequate.
Southwick v. Whitlev 3 years after P bought land, D asked for a greater price than agreed upon. P paid, in fear of losing the land he had worked on. Held, no duress because payment was voluntary, P not deprived of free will - AND P could have sued for specific performance. Wolf v. Marlton Corp. P threatened to resell house to undesirables if D did not refund down payment of house. Held, duress is not tested by nature of threat, but by the state of mind induced thereby in victim - since threat was motivated by malice and unconscionability for purpose of injuring D's business, fairness requires it be deemed wrongful. 3. Modern Approach: ReSt.2d 175 When Duress by Threat Makes a K Voidable (1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the K is voidable by the victim. (2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the K is voidable by the victim unless the other party to the transaction, in good faith and without reason to know of the duress, either gives value or materially relies on the transaction. ReSt.2d 176 When a Threat is Improper (1) A threat is improper if: (a) what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property, (b) what is threatened is a criminal prosecution, (c) what is threatened is use of civil process and threat is made in bad faith, or (d) the threat is a breach of duty of good faith and fair dealing under a K with the recipient. (2) A threat is improper if the resulting exchange is not on fair terms, and (a) threatened act would harm recipient and would not significantly benefit party making threat, (b) the effectiveness of the threat in inducing manifestation of assent is significantly increased by prior unfair dealing by party making threat, or (c) what is threatened is otherwise a use of power for illegitimate ends. B. Pre-Existing Duty Rule 1. Traditional Approach a. A new promise is unenforceable for want of consideration. The pre-existing duty rule has been applied to a wide variety of modification agreements. b. A promise is not consideration if the promised performance would not itself be consideration. Restatement 75. c. The rule applies if the pre-existing duty is one imposed by law, instead of by contract. Criticism of the pre-exiting duty rule - It frustrates the expectations of a promisee that has fairly negotiated a modification. It does not distinguish between a demand for more money motivated by greed and one made in response to unforeseen circumstances which make the promisees performance more burdensome. (e.g. Compare Alaska Packers and Levine)
Levine v. Blumenthal D told P that he could not afford the increase in rent that was contracted for the 2nd year of the lease. P agreed to accept a lower rent for a year, then he sued for deficiency. Judgment for P. Under the pre-existing duty rule, the second agreement lacked consideration and is therefore void - a promise to do what the promisor is already legally bound to do is an unreal consideration. Lingenfelder v. Wainwright Architect for refrigerator plant was upset about about the owner buying refrigerators from a competing co. and stopped working until the owner agreed to pay an extra 5%. Held that performance of a pre-existing duty is not consideration. Alaska Packers v. Domenico Plaintiffs contracted to travel to Alaska and fish during the season which was only a couple of months long. Once they arrived at Alaska, P refused to continue work, demanding a new K with more compensation. D, unable to hire a new crew, agreed to a higher salary then later refused to honor it. 2nd K unenforceable. The performance of a pre-existing duty guaranteed by K is not consideration - party to the K who gets an increased compensation for doing that which he is already bound to do, takes an unjustifiable advantage of the necessities of the other. No consideration when new K is coerced or distorted. Restatement 73 Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is consideration from what was required by the duty in a way which reflects more than a pretense of bargain. Comment b. Public duties: torts and crimes. A bargain by a public official to obtain private advantage for performing his duty is therefore unenforceable as against pubic policy. Performance of the duty is not consideration for a promise. The same goes for public utilities, duties of fiduciaries, and in some cases general citizens. Denney v. Reppert Bank robbery reward was offered. Police acting w/in scope of their employment are not eligible b/c of their pre-existing duty to help. Employees of the bank are not eligible because they have a duty to the bank. A deputy of a different county who has no duty to apprehend the criminal is eligible for the reward. N.B. The offeror is the master. Cant collect for failure to comply with the conditions of the reward. Board of Commrs. v. Johnson A coffee shop owner chased a guy who stiffed him on a bill. They were fighting and were broken up by the cops. It turns out that the guy was a wanted bank robber. All three got the reward. Yeah! Johnson has to share the reward because if the off duty police officers hadnt shown up then Johnson probably would have gotten shot. In Re Estate of Lord
A contract whereby one spouse agrees to pay the other spouse for his or her care, which is part of the others duties as a spouse, is against public policy and void. The states interest to protect the marriage institution by not encouraging spouses to marry for money. Husbands already owe a duty to their wives. 2. Pre-existing duty rule applied to 3rd parties a. As a general rule, pre-existing duty rule applies to 3rd parties. b. However, The restatement declines to apply the PEDR if the duty was owed to a 3d party. The pre-existing duty rule has been applied where the duty was owed, not to the promisor, but to a 3d party. See McDevitt v. Stokes (driver who had a K with owner to drive horse in noted trotting race was promised $1,000 by owner of horses kin if driver would drive horse to victory). Duty can be owed to a 3rd party; or pre-existing duty can be imposed by a 3rd party. (despite ReSt.2d 73 - authorities are divided on third party situations.) Shaefer v. Brunswick Owner promised subcontractor to pay costs due to delay from strike. The owners promise is unenforceable under the PEDR because the subcontractor did no more than what was already its duty to the general contractor. As a general rule, performance of, or promise to perform, an existing obligation is not a valid consideration. This is true though the existing duty is owed to a third person, and the promisor is a stranger to the K whereby the obligation arose. Joseph Lande v. Wellsco The general contractor breached the K and walked out. P, the Sub. agreed to complete the work for the owner on reliance of the owners promise to pay. Held that P was under no obligation to the owner to fulfill its subK. The general contractor was in substantial default, so the P was under no duty to perform and his performance was consideration. Brian Constr. v. Brighenti D agreed under subK to provide all foundation for P's project. D discovered remains of another bldg on the site. This discovery was unanticipated by both parties and would require considerably more excavation work than originally thought. P agreed to increase payment. D soon quit anyway. P recovered for br/K. ReSt.2d 89(a) - Unforeseen consequences and parties agreed to the separate oral agreement. Thus it was a binding new K supported by valid consideration. This court says the agreement creates a separate and valid contract with new consideration. However, the Restatement 89 considers unforeseen circumstances as a basis for modification not a new contract without consideration. McDevitt v. Stokes Jockey was promised a bonus from an interested 3d party if he won the race; the pre-existing duty rule applies. The jockey has a duty to the owner to win. Acceptance of offers from outside parties is frowned upon because the jockey is an agent of the owner. 3. Techniques to avoid the rule
a. Consideration must be found - The promisee must do or promise to do something in addition to performing the pre-existing duty. e.g. A contractors agreement to change the specs or to advance the date for completion. Lord Coke said, even a horse, hawk, or robe is sufficient consideration. Courts have been quick to find a horse, hawk or robe in modifications they have also appied new theories. b. Rescission - Both parties can agree to rescind the original contract, leaving them free of any obligation, and then make a new contract on the desired terms. A court will not generally inquire into the fairness of either the rescission or the new agreement. See Schwartzreich v. Bauman-Basch (employer and employee rescinded old K and made new one at higher salary). This assumes that at the time of the agreement of rescission neither party has fully performed, so that the surrender by each party of the remaining rights will be consideration for the others surrender of its rights. c. Reliance some courts have used reliance as a means to justify modification. See DeCicco (Cardozo says that a promise made to a wife by her father to pay her money if she stayed married was enforceable to her and her husband because in reality they are a single unit and in bargaining with one he was bargaining with both.) This is not likely to be applied to contractors and their subs. Though it is considered a tour de force opinion. See also Universal Builders. Universal Builders v. Moon Motor Lodge Universal was under contract to build for Moon. The contract said that any additional work must be approved of in writing. Universal did extra work for Moon under an oral agreement. Moon didnt pay. The court held that Moon was aware that extra work was being done without proper authorization, yet they stood by without protesting while the extras were incorporated into the project. Under these circumstances there also was an implied promise to pay for the extras. Can be considered under two theories. d. Implied Promise - The oral agreement could be considered as an agreement separate from the written one or e. Implied Waiver - The written authorization requirement may be considered waived. It is a question of equity not formality. It acts as an implied waiver of the written notification term. Corbin - One cannot waive himself into a duty to make a gift. If the question is asked whether a waiver can be legally effective if it is not accompanied by a consideration, it cannot be answered without knowing what it is that is being waived and what is the mode in which the waiver is being attempted. 1) Waiver and Estoppel Nassua Trust v. Montrose distinguishes an oral modification from an oral waiver. A modification of the terms of a K requires consideration. A modification, because it is based upon consideration, is binding according to its terms and may only be withdrawn by agreement. Neither waiver or estoppel rests upon consideration or agreement. While, estoppel requires detriment to the party claiming to have been misled, waiver requires no more than the voluntary intentional abandonment of a known right which, but for the waiver, would have been enforeceable. It can, to the extent that it is executory, be withdrawn, provided the party whose performance has been waived is given notice of withdrawal and a reasonable time after notice within which to perform. Quigley v. Wilson
In 1980, D bought land from P for $210,000. In 1986, the value of the land dropped so dramatically that D could no longer afford it. D agreed to a lower price of $120,500. Ds estate sued for lack of consideration and lack of mental competency, fraud, and undue influence. The court held that it was a modification instead of a waiver. Restatement 89 applied because of the unanticipated circumstances. Also the facts were that Decedents lawyer drafted the new agreement, negotiations lasted over a year, and the buyers had already paid a substantial amount towards the principal. The jury also found Quigley competent when he entered the agreement. Therefore, the modification was fair and equitable and does not require consideration. 4. Modern Exception to Pre-existing Duty Rule a. Unforeseen Difficulties - Courts have concluded that because of unforeseen difficulties the owners promise to pay the additional sum is enforeceable, even though all the owner gets in return is the contractors promise to perform or performance of the original K. The exception should be restriced to cases where the refusal to perform was equitable and fair, and the difficulties were substantial, unforeseen and not within the contemplation of the parties when the original K was made. See Restatement 89 and UCC 2-209. 5. Total Abandonment of PEDR a. Duress - The substitution of an expanded concept of duress for the pre-existing duty rule has an important advantage to the victim of the threat of non-performance. RESTITUTION. 1) Restitution- The PEDR it does not allow the victim to avoid modification and seek restitution for any performance that the victim may have rendered under it. See Rest. 45, 47. The expanded concept of duress gives the victim the right to avoid the new contract, entitling the victim to restitution for any performance. See Austin Instr. v. Loral. UCC 2-209 (1) An agreement modifying a K needs no consideration to be binding {only relies on good faith under 1-203 and unconscionability under 2-302} (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) Must meet requirements of statute of frauds. (4) Although an attempt at modification or rescission does not meet requirements of (2) or (5) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the K may retract the waiver by a reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change in position in reliance on the waiver. Restatement 89 A promise modifying a duty under a K not fully performed on either side is binding (a) if modification is fair and equitable in view of circumstances not anticipated by parties when K was made; or (b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise. Linz v. Schuck Unforeseen circumstances made performance unusually difficult like in Brian Constr. It would be too harsh a rule if they had to perform such unforeseen difficulties. The majority rule is - After a K is broken by one of the parties the other cannot waive his right to treat it as no longer existing and bind himself to pay more than the original called for, unless the original K was actually rescinded. But persons competent to K can validly agree to rescind a K already made, as they could agree to make it originally. Held that by voluntary and mutual promises of the parties their respective rights and obligations under the original K are waived, and those of the new or modified K substituted for them. There is such a strong moral obligation to give the contractor relief. C. Claim Settlements 1. Accord and Satisfaction - A method of discharging a claim whereby the parties agree to give and accept something in settlement of the claim and perrform the agreement, the accord being the agreement and the satisfaction its execution or performance. a. accord = K in which obligee promises to take a stated performance in satisfaction of obligor's duty (substitution of what is owed) b. satisfaction = the performance of that promise. Accord involves assent and consideration. c. The law favors settlement by the parties of disputed claims, if fairly bargained for. 2. Liquidated Debts - A debt is liquidated when it is certain what and how much is due. That which has been made certain as to amount due by agreement of parties or by operation of law. (Blacks). a. If debt is undisputed and liquidated - a creditor who accepts a check as "payment in full" is not precluded from claiming the balance because there is no consideration for the discharge. Vilter v. Rolaff P agreed to accept reduced payments from D for one year. D continued to pay reduced amount beyond that time, despite P's protests. P cashed checks, even though D had inserted on check "in full of all royalties to date." P can still recover balance. School Lines, Inc. v. Barcomb Not a bona fide dispute. Both parties had agreed on the price of sale of the buses. D decided to deduct the supposed costs incurred. Held that it was a liquidated debt and P could recover the difference. 3. Unliquidated Debts - A debt is unliquidated when it is not certain what and how much is due. That which has not been made certain as to amount due by agreement of parties or by operation of law. (Blacks). a. Partial payment as settlement of whole debt - is valid and enforceable, regardless of consideration. Creditor is put to choice - either accept as satisfaction of claim or refuse and gamble on recovery through other means. Marton Remodeling v. Jensen
P remodeling D's house. P submitted bill and D claimed he overcharged. D gave check for less, bearing words "payment in full." P wrote "not in full" and cashed check. P's cashing of check discharged debt. If the debt is unliquidated, i.e. the sum is in dispute, then partial payment as settlement of whole debt is valid and enforceable, regardless of consideration. Creditor is put to choice - either accept as satisfaction of claim or refuse and gamble on recovery through other means. b. Reservation of Rights UCC 1-207 (1) A party who with explicit reservation of rights performs or promises performance or assents to performance in a manner demanded or offered by the other party does not thereby prejudice the rights reserved. Such words as without prejudice, under protest or the like are sufficient. (2) Subsection (1) does not apply to an accord and satisfaction. Allows creditor to collect the tendered final amount under protest or without prejudice. Yet this was not put in to apply to this type of case (not meant to do away with accord and satisfaction), but for when there is an ongoing K and one party doesn't want to pay a certain sum, and other party is in a bind because he doesn't know if he should stop working because he might be held in breach. Whittaker Chain Tread v. Standard Auto Creditor could still recover the balance of the debt, despite having cashed a check which had a voucher attached with the words, in full settlement of invoices enumerated hereinafter. Such a condition, under these circumstances, is one which the debtor has no right to impose, and for that reason is void. Kilander v. Blickle A creditor who confronts the unpalatable choice between pressing a disputed claim or abandoning it in return for present payment of an undisputed amount may not be helpless. Under UCC 1-207 the creditor has the option to collect the tendered final payment under protest, or without prejudice, or with some other explicit reservation of rights. D. Mistake, Misrepresentation, and Nondisclosure 1. Constructive Fraud - A breach of a legal or equitable duty which the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests. Neither actual dishonesty nor intent to deceive is an essential element of constructive fraud. Jackson v. Seymour Lucy sold land to her brother for $275 they didnt know at the time that it was extremely valuable timber land. Held that there was constructive fraud because he breached an equitable duty to his sister not to violate her private confidence. There is no element of intent in constructive fraud. Cant use consideration doctrine because that only applies when the promises are executory. Also amount of consideration is irrelevant. See Batsakis (Agreed to pay back huge some on a small loan). Cant use duress because she came to him first. Cant use actual fraud because no intent. She didnt allege mutual mistake.
2. Mutual Mistake - A party may avoid a K if it was founded on a mutual mistake of a material fact. a. A mistake is a belief that is not in accord with the facts. b. Pacta Sunt Servanda - Agreements are to be observed. One who seeks to be excused must contend with this general rule. Sherwood Replevin for a cow! Rose 2d of Aberlone was pregnant, not barren. Therefore, worth $800 not $80. Seller can avoid the K because founded on mutual mistake. Seller was a cattle dealer; shouldnt he have assumed the risk of loss? He was in the best position to know if she was pregnant. 154(c) Lenawee v. Messerly P bought house which was unihabitable because of sewage problems. Mutual mistake. House had a negative value. Held Sherwood should be limited to its facts. A mistake which affects the agreed performance should lead to rescission. Not available to a party who had expressly assumed the risk of loss. See Restatement 154 (a). Puchaser assumed the risk of habitabilty in the as is clause. Backus v. MacLaury P bought a calf at auction for $5000; it is sterile and only worth $35. Held no recovery because purchaser assumed the risk. Where there is doubt to a fact, the risk of the doubtful fact is an element of the bargain. See Restatement 154(b). Edwards v. Trinity P sold gravel on land to D. D couldnt complete the haulage K because of a mistake over the quantity and quality of gravel. Unilateral mistake made as to the amount of gravel present. Lessee believed that sufficient concentrated pockets of gravel existed, to make removal profitable. This mistake went to the very existance of the subject matter of the K. Performance would have caused extreme hardship to the lessee and the lessor had not materially altered his position becasue of the K. Parol evidence was OK to establish facts which, in equity, relieved D of its obligation. There was also a mutual mistake as to a material matter. But held on other grounds. Court should allocate the risk to the purchaser because he in a better position to know. c. A K may not be rescinded merely because both parties were mistaken. . . if the means of information are open alike to both and there is no concealment of facts or imposition. Costello v. Sykes P bought stocks for $136/share which were actually worth $60/share. There was no mistake as to the identity or existence of the stock sold, by only to its attributes, quality or value. The stock was not worthless. What about unjust enrichment? Restatement 152 1) Where a mistake of both parties at the time a K was made as to a basic assumption on which the K was made has a material effect on the agreed
exchange of performances, the K is voidable by the adversely affected party unless he bears the risk of the mistake under the stated in 154. 2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise. Restatement 154 A party bears the risk of a mistake when a) the risk is allocated to him by agreement of the parties, or b) he is aware, at the time the K is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. 1) Sale of counterfeit articles is void! Smith v. Zimbalist D said, Id like to buy this stradivarius and this guarnerius violin from P and left a deposit. They turn out to be shit and D doesnt pay the rest. P sues for the balance. Both parties were mistaken as to the identity of the subject matter. Also there was a warranty that they would correspond to the description. See UCC 2313. Under warranty theory the buyer can get expectation damages and is more easily enforced. Under a mistake theory, the remedy is rescission and is less definite. Who should assume the risk here? They were both violin experts. See Chirelstein on Beachcomber, Perhaps the courts policy was to avoid placing risks on professionals when the real wrongdoer is the counterfeiter. Parties should be able to rescind all the way back to the source. This is prophylaxis/prevention of worthless objects being passed on. 3. Unilateral Mistake: generally, no relief can be granted. Restatment 153 Where a mistake of one party at the time a K was made as to a basic assumption on which he made the K has a material effect on the agreed exchange of performances that is adverse to him, the K is voidable by him if he does not bear the risk of the mistake under 154, and a) the effect of the mistake is such that enforcement of the K would be unconscionable, or b) the other party had reason to know of the mistake or his fault caused the mistake. a. Too bad, so sad: 1) Drennan v. Star Paving, a major clerical error was made, but the contractor had relied on K in making own bid, therefore it was not unconscionable to enforce the K. 2) Crenshaw (Unilateral mistake does not avoid a K, where rescission would prejudice the nonmistaken party. It was not unconscionable to enforce the bid as made). 3) But See White v. Berenda (P had the wrong maps and miscalculated the amount of hard rock; a mistake of fact and judgment. Rescinded because the court should prevent abuses). b. If no reliance and early notice the court may have pity - See Edwards v. Trinity c. Especially if the other party knows before accepting:
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1) Elsinore School District v. Kastorff, unilateral, material clerical mistake, and the offeree was well aware of its existance upon accepting the K. Recission is proper if it would lead to an unfair, inequitable, and unintended bargain. d. Mistake of judgment - NOT ground for recission. See Costello v. Sykes. e. Implied knowledge - If the bid is substantially lower than other bids received, the offeree may breach charged with such knowledge. f. Economic efficiency - We should assign the risk of mistake to the better/cheaper infogatherer. 4. Warranty Alternative a. UCC provisions: 1) 2-313 - express warranty 2) 2-314 and 2-315 - implied warranty of merchantibility and fitness 3) 2-316 - disclaimer of warranty 4) 2-714(2) - relief for breach of warranty b. Elements for implied warranty of fitness for a sale of home: 1) That the home is free from major structural defects 2) A reasonable inspection would not have discovered flaws. Hinson v. Jefferson (p.641) P buys land which is subject to flooding because a septic tank could not be put in. He sues to cancel the deed and recover $. Held that the restrictive covenants on the land which limited it to residential use implicitly warranted that the land was fit for such use. c. No implied warranty for land: Cook v. Salishan Properties Held that the implied warranty applied solely to homes, and not the sale of land. With homes, the buyer is placed in a position to rely on the builder because of his superior knowledge of the minute details of the construction. Whereas with land, reasonably both parties are at a similar disadvantage. There is no reason to shift the fortuity of a loss onto the seller, like with a home. d. Elements for express warranty (innocent misrepresentation) 1) the seller/builder makes an express guarantee of the quality, or makes a description of the item 2) purchaser reasonably relies on this information when making the purchase, supposing the speaker had a factual basis for such statement. e. REMEDY 1) Expectation - Damages to place the injured in the position he would have enjoyed if the item were as warranted. 2) Diminution in Value - If the cost of repair is so high as to be inequitable, then simply the diminution in value. See Johnson, (p. 648) Johnson v. Healy (settling of house). Even though the statements were innocent, they created a reasonable basis on which the buyers relied upon. Since repair expenses would be outrageous, the court awarded diminution in value. 3) Restitutition for Misrepresentations - A party seeking damages for fraud is entitled to recover such damages as will compensate him for the loss or injury actually sustained and place him in the same position that he would have occupied had he not been defrauded.
5. Nondisclosure a. Half Truths: If one has full information and represents only part and leads the other to believe that full disclosure has been made, then it is fraud. b. Silence: Generally not enough to constitute fraud, unless there is a duty to speak. 1) Vendor Exception: when material facts (defects) are accessible to the vendor only, he is bound to disclose such facts (i.e. termites) Cushman v. Kirby P sued for misrepresenting that the water was tolerable. It actually smelled like rotten eggs! Wife made misrepresentations. Husband had a duty to speak but kept his mouth shut, therefore, he too misrepresented. A vendor has a duty to disclose all latent defects that he knows or should know that the buyer cant find. Caveat emptor is dead! Were awarded the price to get a new water supply for $5000. c. Buyer Cant Hide his head in the Sand: Buyer purchased three painting for $150, believing that they were very valuable originals. No representations by seller. The price itself gave the buyer notice that what he was buying may not be the original. Seller had no duty to disclose the obvious. Eytan v. Bach. d. Termites - A seller generally has to disclose the fact that the house is infested with termites. See W.R. Grace & Co.; Contra Swinton v. Whitinsville, (Seller not liable for mere non-disclosure. Caveat Emptor). Restatement 161 A persons non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only: a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material. b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing. c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part. d) where the other person is entitled to know the fact because of a relation of trust and confidence between them. Restatement 162 1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker a) knows or believes that the assertion is not in accord with the facts, or b) does not have the confidence that he states or implies in the truth of the assertion, or c) knows that he does not have basis that he states or implies for the assertion. 2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so. 4. Justifiation for Nonperformance a. Impossibility
1) destruction of the subject matter: with an assumption of continued existence. Best reflects the intent of the parties. Implied in law excuse, because the K was made on the basis of the continued existence of thing. Promisor bears the risk of loss, because it is not a positive K. Taylor v. Caldwell P sought to let D's hall for concerts. Hall burned without fault of either party. If performance becomes impossible because of the destruction of a thing the continued existence of which was a basic assumption of the parties then performance is excused. 2) Personal services K, and the promisor dies. See Harrison v. Conlan, (Organist sues to keep job when priest dies.) 3) Test: a) K is formed around the continued existence of a person or thing. b) Thing is destroyed w/o fault of the party seeking to avoid the K. 4) The whole K must fail: impossibility doctrine is only used in extreme, unforeseen circumstances, when the entire subject matter or means of performance makes performance objectively impossible. Kel Kim v. Central Markets Lease not limited for any reason, but understood to be used as a skating rink. D couldnt get the required insurance because of the economy, however, the lease was not frustrated because the property (the subject matter) was not destoyed. Therefore, D was in default. It was not an unforeseeable occurence therefore, D was deemed to have assumed the risk. Tip - Construe the skating rink as the subject matter of the K through parol evidence by arguing mutual mistake in creating the writing, then argue, 2-615, commericial impractibility due to an unforeseen contigency affecting a basic assumption. 4) UCC 2-613: K is avoided when there is (1) a total destruction of the thing. Also, (2) if the goods have deteriorated as to no longer conform, the K can be avoided or the buyer can take the goods less the damaged value. a) ACT OF GOD must effect specifically identified goods: If a K is to deliver goods see 2-613. Goods destroyed must be the goods identified in the K, otherwise duty to perform still remains. See Kel-Kim, (Force Majeure clause was construed narrowly to only include those acts which were mentioned.) Bunge Corp. v. Recker Duty was to deliver soybeans grown in America. The destruction of his crop did not prevent this. The contract said soybeans grown in the US and did not specifically identify his farm. So it was not impossible to get soybeans from the US. Tip: Argue unconscionability, the grower was presented with quite a surprise and hardship. 5) Unconditional positive K - when a party unconditionally promise do fulfill a positive K, he is so obligated. Like a chattel, not complete until delivered. If the builder does not want the burden, he should bargain to excuse due to contingencies. Tompkins v. Dudley Guaranteed a school house by Oct. 1st. The building is not completed and burns down on Oct. 5. Risk of loss was on the builder. The fire was no legal
justification for non-performance. It is deemed to be his own fault that he did not expressly exempt himself from responsibility in such a case even though unforeseen and out of his control. Smith v. Faust The act of cashing the insurance check may constitute an acceptance of the work provided by the contractor and an implicit agreement to pay a pro rata portion for the work completed. 6) Unjust Enrichment - The doctrine of unjust enrichment prevents the owner from taking a benefit. If destruction of the subject matter makes performance impossible, and it was forseen by neither party, the owner of the subject property is liable for the work done which had become so far identified with it that but for the destruction it would have been inured to him as contemplated. Carrol v. Bowersock Fire destroyed owner's warehouse in which builder had performed some work necessary to reconstruct the floor. Benefit accrues whenever the contractors material and labor have become attached to the owners realty and become so far identified with it as that but for the destruction it would have inured to him as contemplated by the K. P could not recover for temporary item which would be removed when the job was done. 7) Equitable Owner - If title has passed but possession has not the title holder is considered the equitable owner and assumes the risk of loss. Olsson v. Moore P were fixing a house which they planned to buy from D. It was destroyed by fire and they sued for their labor and materials. Held that a benefit was conferred on D and he was still the equitable owner and therefore assumed the risk of loss. b. Commercial Impractibility 1) Generally - Used when a thing is impossible, i.e. when it is not practicable. If performance can only be accomplished with extreme and unreasonable difficulty, expense, injury, or loss, it is excusable. See 2-615 (failure of presupposed condition). UCC 2-615 Except so far as a seller may have assumed a greater obligation and subject to the proceding section on substituted performance: (a) Delay in delivery or non-delivery in whole or in pary by seller who complies with paragraphs (b) and (c) is not a breach of his duty under a K for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the K was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in paragraph (a) affect only a part of the sellers capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under K as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable. (c) The seller must notify the buyer seasonably that there will be delay or nondelivery and, when allocation is required under (b), of the estimated quota thus made available for the buyer. Mishara v. Transit Concrete
Requirements K for concrete. Labor dispute was held to qualify as commercial impractibility, because the dispute was a basic assumption, the non-occurence of which, was bargained around. 2) Not extreme enough: American Trading v. Shell Int'l K to transport oil to India. Route contemplated was through the Suez, but not exclusively. But the subject matter was the delivery. Closing of Suez forced an alternative route with an increase in costs of 25%. Held: Definitely not legally impossible, nor under the facts impractibile, thus transporter must absorb loss. 3) Risk of loss: Maple Farms v. City School Dist. Requirements K for milk. Government raised price by 20%, so P would have lost $7000 on K. Held: P took risk therefore must take the loss. c. Frustration of Purpose- can be performed, but no reasonable person would 1) when used - look at the intent of the parties using either parol evidence or the reasonable person standard. Not a positive K, but one subject to an implied condition. Limited to cases of extreme hardship. (when a reasonable person would have no use for it). Krell v. Henry The licensee sought the use of the apartment to view the King. The King was ill. The purpose of the K was defeated. The subject matter, apartment, still existed as did the means of performance (use), yet the purpose of the K, could not be fulfilled. Chase Precast v. Paonessa Supply median barriers for highway construction. Citizen protest. State withdrew barrier provision. Likened frustration of purpose to commercial impractibility. Builder held to have had the risk due to prior dealings. 2) Test: a) Purpose of K defeated. b) Frustration should be total or near total (worthless). c) Risk not reasonably forseeable. 3) Whole purpose not frustrated: Lloyd v. Murphy premises restricted for use of sale of gasoline and new cars, but WWII intervened and the gov't allowed only certain quailifying dealers to sell new cars. Lessor waived restrictions on lease. Held: purpose not frustrated. premises could be used for other things, condition not unforseeable. 5. Unconscionability a. UCC 2-302: (1) If the court as a matter of law finds the K or any clause or the K to have been unconscionable at the time it was made the court may refuse to enforce the K, or it may enforce the remainder or the K without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the K or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence
as to its commercial setting, purpose and effect to aid the court in making the determination. The basic test is whether, in light of the general commercial background...the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the K. The principle is one of the prevention of oppression and unfair surprise (RPP would not understand effects), and not of disturbance of the allocation of risks because of superior bargaining power. Which means, when dealing with goods don't even bring up bargaining power. However, if one party is non-merchant, argue unfair bargaining power. Martin v. Joseph Seller failed to inform the farmers as to the risk of black leg fungus in the seeds. Therefore the key element of accurate and roughly equal knowledge regarding the meaning of the K was absent. Held that a waiver of warranty of merchantability was unconscionable and unenforceable between a commercial seller and an uninformed buyer of seeds. Gianni v. Gantos K provided Buyer reserves the right to terminate by notice to Seller . . . for any reason whatsoever. P made the clothes especially for Ds order. Also the fastchanging character of the womens fashion industry means that cancellation puts seller in untenable position of absorbing the loss. This is unconscionable. The court asked (1) what is the relative bargaining power of the parties, their relative economic strength, the alternative sources of supply? (2) Is the challenged term substantially reasonable? No! The buyers are the Big Sharks in the fashion industry. C&J Fertilizer (Supra at 44) Ps insurance policy defined burglary as visible marks to the exterior. P was robbed without visible signs to the exterior and the court held that P could recover because their reasonable expectations would lead them to believe they would be covered. The court cited the Llewellyn approach to say that the dickered terms are agreed to and that the rest of the boilerplate is allowed as long as it doesnt unreasonably under cut the dickered agreement. The also found the clause was unconscionable. They examined the factors of assent, unfair surprise, notice, disparity of bargaining power and substantive unfairness. Struck the clause so as not to let the drafters recur to the attack. See Restatement 234. Llewellyn - First, since such techniques all rest on the admission that the clauses in question are permissible in purpose and content, they invite the draftsmen to recur to the attack. b. Two prong test to satisfy: 1) Procedural Unconscionability - In the process of obtaining the clause. Characteristics of the parties , or methods used. Bargaining not at arms length. Absense of meaningful choice. Promisee was rushed into signing the K. a) factors to consider: education, party's opportunity to unerstand terms, fine print, deceptive practices, bargaining power. b) ways to avoid: explains terms, put terms in red, stay at arms length, make sure the minds meet. 2) Substantive Unconscionability - Inherent in the terms of the K itself.
a) Factors: terms unreasonably favorable to the other party, so extreme as unconscionable according to business mores. b) Ways to avoid: negate surprise by explaining terms. c. Good Faith in enforcement - Good faith is generally implied where there is no express provision as to performance or enforcement. This differs from unconscionability which is used to strike out express terms which are unfair. 1) Good Faith - there is an obligation of good faith in the performance and enforcement of a K ( See UCC 1-203). Good Faith consists of honesty in fact and the observance of reasonable commercial standards of fair dealing (See UCC 2-103(b)). Code says can't disclaim good faith. (See UCC 1-102(3)). 2) The UCCs good faith obligation cannot be used like the unconscionability provision to override or strike express K terms. Corenswet. 3) The distinction - A person can perform a K in good faith, but the K may be unlawful due to unconscionability. (e.g. A provision expressly permitting the purchaser to keep all goods without payment if there is any defect is unlawful because the clause is a penalty, but the purchaser can perform it in good faith). Tymshare. Corenswet p.312 P sued to enjoin termination of an exclusive distributorship agreement. Ds attempted termination was arbitrary and capricious. The K provided for termination by either party for any reason. Held when a K contains a provision expressly sanctioning termination without cause there is no room for implying a term that bars such termination. Smith v. Price Creameries Parties entered into a K for distibutorship. Either party could terminate w/ 30 days notice. Failing a showing of ambiguity in a K, or evidence of fraud, where the parties are otherwise competent and free to make a choice as to the provisions of their K, it is fundamental that the terms of K made by the parties must govern their rights and duties. The parties were educated and at arms length therefore, the K is not unconscionable. Cancellation of a distributorship is proper if undertaken in accordance with the terms of the agreement and where there is no showing of a material disputed issue of fact concerning the good faith of party initially entering into the agreement. Even if defendant terminated the K in bad faith, P can not recover. Tymshare The doctrine of good faith performance is a means of finding within a K an implied obligation not to engage in conduct which constitutes bad faith. instinct with an obligation, imperfectly expressed. Wood v. Lady Duff-Gordon. 4) Missouri Doctrine - In FRANCHISE AGREEMENTS An agreement must continue in force for a reasonable time in order to give an agent reasonable time in which to recoup his original investment in the agency. That and reasonable notice were the only restrictions on the right to cancel the agreement. See Corenswet fn. 1. This is not followed but is a pt. getter! d. The result - Generally used to avoid the K, if looking for damages consider fraud, duress, mistake. No inherent requirement for restitution. Williams v. Walker-Thomas Mrs. Williams bought all her furniture in installments from P over 5 yrs. She didnt read the form K and was not given a copy. She missed a payment on a stereo and the K provided that P could repossess all the previously bought
furniture besides just the stereo. This would leave her and her 7 children without anything. The court held this was unconscionable because there was an absence of meaningful choice on the part of one of the parties together with K terms which are unreasonably favorable to the other party. e. Context rule - Clauses themselves are not unconscionable. Consider the context and public policy. (See Henningsen.) State v. Avco Financial Services F: The state was seeking to get the clause in a consumer K held unconscionable because it secured all of the debtors property. Held: Even though on its face it violated public policy, there is nothing wrong w/ allowing parties to voluntarily encumber their property. f. Factual hearing: the party is entitled an opportunity to demonstrate the the commercial setting of the clause. Consider Smith v. Price Creameries (A 30 day termination clause could have been fairly bargained for.) g. Actions in equity: Since the court of equity is a court of conscience that awards extraordinary relief, it is entiltled to refuse an equitable remedy if the seeker has unclean hands. It is a rule of equity that all of the material facts must be known to both parties for the K to be fair and just. h. Lack of consideration raises a flag: Condsider Batsatkis ($25 in drachma for $2000) Woollums v. Horsley The knowledgeable and worldly businessman K with the ignorant mountain man from Kentucky to sell his land at 40 an acre. Because of the minerals thereunder, the land was actually worth over $15 an acre. Businessman sought specific performance. Held: since the bargain was inequitable, immoral, and unethical a court of equity would not enforce it. However, remedy can be granted in a court of law. Even so, it is generally a total defeat. i. Not too hard or one sided Campbell Soup v. Wentz Price of carrots rose from $30/ton to $90. Campbell sought Specific performance (against a nonmerchant). Denied, because the bargain was too hard and too onesided. Campbell had unclean hands, as the Ct. said, "the sum total of its provisions drives too hard a bargain for a court of conscience to assist." V. The Maturing and Breach of Contract Duties A. The Effects of Express Conditions 1. Generally a. Condition: Some operative fact subsequent to acceptance and prior to discharge, a fact upon which the rights and duties of the parties depend. Corbin. 1) Precedent - Must exist or occur before a duty of immediate performance or a promise arises. e.g. Payment is conditioned upon delivery by the 1st of the month. 2) Subsequent - Will extinguish a duty to make compensation for breach of contract after the breach has occured. e.g. action must be brought within one year. The rise of a condition: A fact can operate as a condition only by the agreement of both parties or by the construction of the law. Purpose: The postponement (or excuse) of an instant duty. The occurrence of a condition creates a duty, in its absence there is no liability.
Example - The payment of insurance premiums is generally a condition precedent for recovery on the policy. Burden of pleading P has the burden of pleading/proof as to a condition precedent. D has the burden as to a condition subsequent. b. Promise: Commitment to do something in the future (executory). 1) Look for the intent of the parties, but remember the law favors promises (what's going to happen) over conditions (what needs to happen or not happen) because the nonoccurrence results in forfeiture. Strict compliance with the will of the parties since an express condition depends for its validity on the manifested intention of the parties, it has the same sanctity as the promise itself. Though the court may find it harsh, it must generally enforce the will of the parties. Howard v. Federal Crop Insur. Co. FCIC claimed that Howard's violation of a condition precedent (leave the stalks) negated its obligation to pay. Held: not a condition, but a promise. Might make it difficult to prove how much damage was caused, thereby mitigating recovery. Courts are opposed to forfeiture. The contract was construed against the insurer/drafter. Restatement 227 (1) In resolving doubts as to whether an event is made a condition of an obligors duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligees risk of forfeiture, unless the event is within the obligees control or the circumstances indicate that he has assumed the risk. (2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligors duty, or (c) the event is made a condition of the obligors duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligees control. (3) In case of doubt, an interpretation under which an event is a condition of an obligors duty is preferred over an interpretation under which the non-occorrence of the event is a ground for discharge of that duty after it has become a duty to perform. Illustration 4. A contracts to sell and B to buy land for $100,000. At the same time, A contracts to pay C, a real estate broker, as his commission, $5,000 on the closing of title. B refuses to consummate the sale. Absent a showing of a contrary intention, a ct. may conclude that C assumed the risk, and that As duty is conditional on the sale being consummated. A is then under no duty to pay C. Mascioni v. I.B. Miller Subcontractor was to be paid by the contractor, payments to be made as received from the owner. Parol evidence was allowed to show that P/Sub voluntarily assumed the risk. Performance by P/Sub would enure directly to the benefit of the owner and indirectly to the D/Con. The clause was a condition and a material part of the K, therefore, P/Sub forfeited payment. Ewell v. Landing
Landing loaned $550 to Payne. Payne promised to repay when he sold his timber. Payne dies and Landing sues the executor. Held that this was not a condition precedent to repayment but a promise to pay which constituted merely a convenient time for payment. Amies v. Wesnofske P, real estate brokers, contracted with D/Buyers for $5000, half on signing and half on closing. Majority held that closing was a condition precedent to payment. However, the dissent said that the buyers decision not to go through with the sale should not effect the Ps recovery when they had done all the work required under their contract. See Ellsworth Dobbs v. Johnson (The owner hires the broker with the expectation of becoming liable for a commision only in the event a sale of the property is consummated, unless the title does not pass because of the owners improper or frustrating conduct). Courts tend to conclude that the passing of title is a condition of the brokers right to a commission and is not merely a means of measuring time. c. Conditions and Promises 1) Effect of a condition - Relieves the duty to pay but is not a breach therefore the buyer cannot recover damages for delay. e.g. - Payment is conditioned upon seller sailing with the next wind. 2) Effect of a promise - Buyer can recover damages for delay but not relieved of his duty to pay. e.g. - Seller promises to sail with the next wind. 3) Effect of a condition plus a promise - Buyer has a right to damages for delay and does not have to pay. e.g. - Seller promises to sail with the next wind and Buyers duty to pay is conditioned on that he does so. d. Interpretation - Courts have two preferences in interpretation. 1) Impose a duty on a party to see that an event occurs, rather than one that makes the other partys duty conditional on occurrence of the event. When an event is within the control of one of the parties but does not make clear if that party is under a duty to see that the event occurs or if, instead the event is a condition of the other partys duty. 2) An interpretation that will reduce the obligors risk of forfeiture if the event does not occur. Forfeiture - the loss of ones reliance interest i.e. performance, preparation costs, incidental reliance. Hardship. Unjust Enrichment - If forfeiture will result, then courts will interpret it to reduce the risk of unjust enrichment. e. Express Conditions may be excused by 1) Waiver 2) Breach 3) Or Court acting to avoid forfeiture. 2. Excuse, Waiver, or Estoppel a. Excuses Wasserman Theatrical v. Harris A party who had contracted to present a noted actor in a play was not liable when the actor cancelled the performance due to a sore throat.
Montiero v. American Home Condition subsequent - provided that no suit was maintainable unless brought within one year. P claimed that his lawyers illness during the year was an excuse. Held that it was no excuse because his attorney was not and indispensible party and it was not impossible to bring the suit with the time limit. 1) Impracticability - If the occurrence of the condition is not a material part of the agreed exchange and forfeiture would otherwise result. Rest 271. e.g. In Howard, could have argued that the essence of theK was to pay the premiums and to receive damages for a loss. Therefore, because of the pests, fulfillment of the conditionwas impractible, and thus not a material part. Then could require a substitute means of performance under 2-614 (commercially reasonable substitute performance). Restatement 271 Impraticability excuses the non-occurrence of a condition if the occurrence of the condition is not a material part of the agreed exchange and forfeiture would otherwise result. UCC 2-614 (1) Where without fault of either party the agreed berthing, loading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute available, such substitute performance must be tendered and accepted. (2) If the agreed means or manner of payment fails because domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyers obligation unless the regulation is discriminatory, oppressive or predatory. 2) Disproportionate Forfeiture - if nonoccurence of the condition would cause disproportionate forfeiture, a court may excuse the non-occurrence unless it was a material part of the agreed exchange. Rest. 229. b. Waiver: A voluntary, active relinquishment of a known right either manifested by words or acts. Actually what is involved is the excuse of the nonoccurrence of or a delay in the occurrence of a condition of a duty. e.g. - An obligor promises to perform despite the nonoccurrence of the condition or despite a delay in its occurrence. At common law, once a condition is waived it is gone, unless it is revived by mutual assent. 2-209(5), a waiver can be removed by notification of strict compliance with the terms, only if the party has not materially changed his position in reliance on the waiver. Porter v. Harrington (late payments. By a course of dealings the D waived the condition for prompt payment.) 1) Waiver rather than modification - Courts can avoid three requirements for modification: a) the requirement of assent, i) Waiver is often implied; modification is expressed. b) the requirement of a writing under the statute of frauds, and i) Waiver avoids the statute of frauds and no oral modification clauses. c) the requirement of consideration or of detrimental reliance. i) Waiver avoids the pre-existing duty rule.
2) Waiver is usually restricted to relatively minor conditions. Cannot waive a material condition of the K. Cannot waive yourself into a gift Gilbert v. Globe 1912 Ps cottage burns down. 1916 P brings suit. Condition subsequent - that suit be brought within one year. He was told that he would be paid. After he found out that he wasnt going to get paid he waited 2 1/2 years to sue. P claims that D waived the condition which when waived is gone forever. The court held that it was banned by estoppel which could be lifted when P knew that he was lied to. Maj. held that he must bring his suit within a reasonable time. The other judge held that once the ban of estoppel is lifted the original condition is back in place and P has a year again. Either way, P waited to long to bring the suit. Doctorman Time was of the essence and $1000 was to be paid at 2:30 pm or else K was void and all prior payments were forfeited. P arrived at 3:00pm. Held this was too late. When the time has arrived and the payment has not been made, it is the privilege of the owner of the property to either accept the payment at a later day or to treat the contract as void. Porter D was deemed to have waived the K provision for default, through a course of dealings. He could reinstate through reasonable notice that he would no longer accept late payments. Implication that P could have gotten damages had he proved them. Damage would be interest on the money not paid. Sliwinski P ought to have given notice stating the amount due and the intention to declare a forfeiture if it be not paid within a stated time, which must of course be reasonable. Repeated acceptance of delayed payments was a waiver. Note - P had instituted 3 summary proceedings for dispossession, but the vendees made up their payments in each case and the actions were dismissed. How much more do the Ps have to do? The court got it wrong!!! c. Estoppel - A preclusion which results from acts which mislead a party and cause reasonable reliance. A ban of an estoppel can be lifted. Gilbert v. Globe. d. Nonmaterial Condition - If a condition is nonmaterial to the agreement, it may waived, and also its breach may be construed as a promise (or met by substantial performance), no matter how explicit the language is (reading pipe), and the court can find a breach, and award damages. Clark v. West The law professor whose compensation was conditioned on continued abstinence. The court delved into the bargain to find the subject and purpose and Held that the condition to not drink did not pertain to the subject matter of the agreement, but was incidental to the method of performance (i.e. it was not material), and therefore forfeiture of the additional $4 a page was not required. e. Purpose Met - Can argue even the the condtion did not occur, the purpose behind the condition has been met. Fulfilling the condition would have been an idle act. Schultz v. Los Angeles Dons (Since the player orally reported his injurious to his trainer and headcoach the purpose of the written clause had been fulfilled.)
B. Constructive Conditions Fixing the Order of Performance Who should make the first move? Constructive condition - A condition implied by law fixing the order of performance because justice requires that it should so operate. Usually when one party seeks to justify its own refusal to perform on the ground that the other party has committed a breach of K. 1. Different Types of Covenants: a. Independent - covenants in which it is necessary to allege counter performance before suit can be brought. 1) Historical use: In Nichols v. Raynbred there was no need to allege performance or even willingness to perform; historically promises were independent of each other (like under seal). Therefore, P could sue D for debt without performing and D would have to file abother suit for damages from nonperformance. 2) Modern uses: Independent covenants are used in leases so that the T's obligation to pay rent is independent of L's obligation to repair. b. Conditional - Kingston v. Preston developed the notion of dependent covenants. Performance depends on the prior performance of one of the parties. e.g. A must marry B's daughter before B will give a dowry. Breach of a covenant by one party to a contract relieves the other party's obligation to perform another covenant which is dependent thereon, the performance of the first covenant being an implied condition precedent to the duty to perform the second covenant. c. Mutually Conditional (Simultaneous) - Mutual conditions are to be performed at the same time. If one party was ready and offered to perform his part of the bargain, and the other neglected or refuse to perform his, then he who was ready and offered to perform has fufilled his obligation and may maintain an action for default against the other. e.g. in closing a real estate deal, the buyer must be willing and able to close before the seller has a duty to transfer the title. 2. Preference - Simultaneous if possible, unless language or circumstances preclude. Rest. 234. The duty to render such performance is conditional on the other party rendering performance, or with present ability to do so, offering performance (making tender). a. To determine look at the intent of the parties. 3. Remedy a. In order to entitle a party to recover damages for the breach of an executory K he must show performance or tender of performance on his part. b. He must show in some way that the other party is in default in order to maintain the action, or that performance or tendor of performance has been waived. c. A tender of performance on the part of the vendee is dispensed with in a case where it appears that the vendor has disabled himself from performance, or that he is on the day fixed by the K unable to perform. Tender is unnecessary when it would be a useless ceremony. When other side anticipitorily breaches or performance is impossible. Restatement 234 Where all or part of the performances to be exchanged under an exchange or promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary. Restatement 238 Where all or part of the performances to be exchanged under an exchange of promises are due simultaneously, it is a condition of each partys duties to render
such performance that the other party either render or, with manifested present ability to do so, offer performance of his part of the simultaneous exchange. Ziehen v. Smith D agreed to sell to P a hotel on Sept. 15. There was a pre-existing mortgage on the hotel on the law day but it did not make it impossible for the seller to perform (i.e. transfer title, even though it was defective). Therefore, P because did not perform he was not entitled to damages. Note - If he did perform, he proobably woul have been entitled to damages for the defect. 1) The test is whether the defect, by its nature, is one that can be removed, as a practical matter. Neves v. Wright (Purchasers were not entitled to rescind prior to closing, on the ground that the vendors did not have good title when the K was made.) Williston - To maintain an action at law the must not only be ready and williing but he must have manifested this before bringing his action, by some offer of performance to the ?, for, otherwise, both parties might be ready and willing and each stay at home waiting for the other to come forward. 4. Neither party performs a. Generally there is not liability until one party makes the first move and forces the other one to default. b. Time is of the essence clause can force one party into default if they dont comply. Cleary v. Folger. c. Equity will rescind. Willener v. Sweeting. Cleary v. Folger Stalemate - Vendee allowed to recover downpayment minus vendors damages from vendees failure to performance. Because time was of the essence and the date for performance had passed, the contract ended. Willener v. Sweeting Vendee awarded restitution because trial court returned parties to original pre-K positions. equitable rememdy of recission. Williston - When conditions are concurrent a situation may arise where no right of action ever arises against either party. 5. If buyer finds defect - Must give the seller notice and the reasonable opportunity to cure, even past law day. Encourages alienability of property. Cohen v. Kranz - (must tell about pool and fence. ) Same result with UCC 2-508(2) (seasonable notification to get a reasonable time to cure). Vendor must be placed in default by a tendor & demand. a. Curable - The UCC grants a right to the seller to cure any defects. 1) Vendor has the right to within the K time make a conforming tender. 1) Vendor in such a case is also entitled to a reasonable time beyond law day to make conforming tender b. Incurable - Vendor is automatically in default. c. Buyers fault - Advance notice from party that he will not perform his part which causes inability to perform conditions excuses the other party from performance. d. The sellers cure does not wipe out its liability for breach. Cohen v. Kranz P, Buyer, sent letter before law day claiming title was defective and that P would not buy, then sued for deposit. Held P is barred from recovering the deposit from a vendor whose title defects were curable and whose performance was never demanded on law day. The buyers letter was deemed a repudiation.
Caporale v. Rubine P would contracted to trade land with D if and when P got his land from another party. P sued D because D sold the land to someone else. P must show that was able and ready to perform his part of the undertaking and he clearly failed to do so. Kadow v. Cronin D said it would pay the mortgage as soon as P paid him. P said he wouldnt buy until the mortgage was paid. Held D was under no obligation to pay first. P was in duty bound to cooperate to a reasonable extent with Ds evident purpose to carry through in good faith. 6. To acquire a right of action: a party must make at least a conditional tender, to place the other party in default. If both remain inactive, neither is liable, nor has a right of action arisen. Tender is a constructive condition precedent to performance by the other party. Yet a court of equity could rescind the K in a stalemate situation and award the restitution of a down payment. See Willener v. Sweeting. 1) Retrieval of security deposit: must make a demand for performance to show that you want to continue to perform. 2) To get damages a party must perform all preconditons for performance. The party has to be in a position to perform. 7. Substantial performance - Performance must meet the essential purpose of the contract before a recovery on the K can be made. The doctrine of substantial performance is applied when the unperformed portion of the K does not destroy the purpose or the value of the K. Thus, if the breach is not material, there is substantial performance. Protects unjust enrichment and serves justice for both parties. Stewart v. Newbury No time for payment specified in dealings between gen/sub & it cannot be done in a jiffy. Held substantial performance is a condition precedent to payment. Held this was an entire K, therefore, D must substantially perform before he can demand payment. 8. Payment concurrent with delivery - If no time for payment is specified. 9. The occurence of a condition precedent creates the duty of counter performance - When the first load of hogs were delivered, payment was due. After the employee puts in a weeks work, the employer has the duty to pay. Patterson - The policy of the law is to minimize credit risks. A belief hat moderate postponement of reward stimulates productivity of social goods. Look at custom and Policy. Kelly Constr. Co. v. Hackensack Brick Contract for furnishing, delivery, and stacking of bricks was entire. Therefore, D was not entitled to payment until it was completed. Why couldnt he be paid in installments for the bricks? Rather substantial risk to the builder. Could have used trade custom to help. Tipton v. Feitner D contracted to buy dressed hogs and live hogs. P delivered dressed hogs, D didnt pay. P sold live hogs to someone else. P could recover for dressed hogs less Ds damages for breach of live hog K. K was divisible.
10. Divisible contracts: If only part of one party's performance is due at a time, and if the other party's performance can be so apportioned that there is comparable part that can also be rendered at that time, it is due at that time, unless the language or circimstances indicate the contrary . See Kelly Constr. v. Hackensack (delivery of 1/10 of all the bricks should be met with 1/10 of the K price). UCC 2-307 Unless otherwise agreed all goods called for by a K for sale must be tendered in a single delivery and payment is due only on such tender buy where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot. Restatement 233 (1) Where performances are to be exchanged under an exchange of promises, and the whole of one partys performance can be renderede at one time, it is due at one time, unless the language or the circumstances indicate the contrary. (2) Where only a part of one partys performance is due at one time uder Sub (1), if the other partys performance can be so apportiioned that there is a comparable part that can also be rendered at that time, it is due at that time, unless the language or the circumstances indicate the contrary. C. Constructive Conditions Protecting the Exchange 1. Perfect tender for goods (a CP): when time is of the essence, failure to perform on the specified date releases the other party of their obligation. Oshinsky v. Lorraine (agreed to the 15th, goods arrived on the 16th). "If the goods or tender fail in any respect... the buyer may reject." 2-601. Buyer refused goods that were delivered Nov. 16. unambiguous, due Nov. 15. a. Interpretation - Could always bring in course of dealings, usage of trade, and course of performance to explain that 300 crates of onions meant between 295-305 crates. 2. The person suing must perform to the exact specifications of the K. See Prescott v. Powles (The guy who delivers 240 out of 300 crates of onions could not sue for nonacceptance). Prescott v. Powles Seller could not deliver all the onions because the govt needed the ship. Held it is essential to recovery that full performance be shown, and no excuse not provided in the K will justify a recovery where performance is only partial, except an act of buyer rendering performance impossible, or a waiver. Beck & Pauli Lithographing v. Colorado Mill & Mining Co. P sued for payment for letterhead. P had delivered a week late and D rejected. Held this was a K for artistic skill and labor for goods which were not resaleable. Therefore, a trifling delay was no justification for nonpayment. Characterizing the K as a job for labor and not for goods it is easier to avoid the perfect tender rule. 3. To reject (2-601):
Oshinsky v. Lorraine Held the language was
a. Must give notice of reason or it is assumed that it is done in bad faith 2-605(1) or the "breach" may shift. b. Reasonable time: Must be within a reasonable time of delivery 2-602. c. Seller has a right to subsequently cure: Even after performance is due, and even if the buyer rejects, the seller may substitute a conforming tender if he has reasonable grounds to believe that the nonconforming tender would be accepted and if he seasonably notifies the buyer of his intention to substitute a conforming tender. 2-508(2). See Bartus v. Riccardi (hearing aid). Bartus v. Riccardi D orders an A-660 hearing aid. they delivered the A-665 new & improved. D returns it & cancels his order. Seller sues for payment. Buyers counterclaim was dismissed because it was too late. Buyer argued perfect tender rule. Seller says UCC 2-508 modifies the PTR (2-601 - Llewellyn wanted to apply 2-601 only to merchants). Seller argues - can cure the defect & extend the K time reasonably beyond the time for performance. Sellers damages for breach. The hearing aid was specially fitted for the buyer. UCC 2-709 Action for the price. Seller may recover the price of goods if the seller is unable after reasonable effort to resell tham at a reasonable price or the circumstances erasonably indicate that such effort will be unavailing. 1) Some things can't be cured: Oddo v. General Motors After 17 miles the new car blew up. The seller could not have reasonable grounds to believe that fixing the car would be acceptable. Worldwide RV v. Brooks Asked for two a/c's got one in the center. A money allowance is immaterial, it is unreasinable for a seller to think the buyer would want an RV with a hole in the roof. In addition, it is not a conforming tender. d. To revoke acceptance ( 2-608): Buyer can revoke his acceptance of a good whose nonconformity substantially impairs its value to him. If it is accepted on the reasonable assumption that its nonconformity would be cured and it has not seasonably been cured, or if the acceptenace was premised on the difficulty of nondiscovery or by assurance by the seller. The buyer must report the defect to the seller within a reasonable time when he found or should have found the defect. By this time there should not be a substiantial change in the natural condition of the object. e. Non-goods K- A breach of the whole is that which substantially impairs the value of the whole. 1) Look at the essence, circumstances, and pupose of the agreement to see if the parties intended the exact performance to be a condition precedent. In Beck v. Pauli Lithographing The letterhead that arrived a day late constituted substantial performance, any losses sustained could be compensated with by damages. 2) Need substantial performance to recover on the K - Performance must meet the essential purpose of the contract before a recovery on the K can be made. The doctrine of substantial performance is applied when the unperformed portion of the K does not destroy the purpose or the value of the K. Thus, if the breach is not material, there is substantial performance. Protects unjust enrichment and serves justice for both parties.
Plante v. Jacobs Wall in the wrong place. Repairing the problem would result in economic waste (like Jacobs & Young). It was a stock design, and therefore the deviation could hardly be seen as material. Thus, any deviations could be recompensed by the diminuiton in market value (here, none. The irony of this is the greater the deviation the less you get - Diminution in value not Cost of repair). Jacob & Youngs v. Kent D learned that the plumbing in the house was not of Reading manufacture as specified in the K and told the P to redo the whole house. Cardozo held that Ps default was unintentional and trivial. Parties are free to require that every term is a condition of recovery. Note - The K did provide that it was a condition of recovery. Why did Cardozo overlook it? Maybe great hardship associated with redoing the entire plumbing was unfair. Reynolds v. Armstead Brick veneer. Failure to use like brick deemed material, therefore P was limited to a quantum meruit recovery. a) Can't be wilful - In MA, if one substantially performance and wilfully breaches, he has no recovery. Most court allow recovery for the benefit received. b) Application to employment: Hadden v. Con Ed Pension fund awarded becasue the P had substantially performed his employment. Misconduct in the latter years, did not substantially impair his loyalty of four decades. Wilfulness seen as only one element to be considered. Treated an employement K as a divisible K, and held that although the disloyal in one term of his empoloyment, this did not substantially impair the value of the whole term. c) Longterm K's: In a long-term K where the work is spread out over a considerable peroid of time and payment is based on the work performed, the covenant to perform is dependent on the covenant to pay. In such cases a substantial compliance as to advance payments is a condition precedent to the contractor's obligation to proceed. However, the contractor must act in good faith, make a demand for an amount of money and wait a reasonable time before giving notice of the intention to terminate. Worcester Heritage Society v. Trussel D contracted to renovate a historic house. P had the option to engage workers to complete the house at Ds expense if D failed to finish within one year. P sued for rescission. Held that in the absence of fraud, nothing less than conduct that amounts to an abrogation of the K, or that goes to the essence of it, or takes away its foundation, can be made a ground for recission of it by the other party. The injured party may not maintain an action for restitution of what he has given the D unless the Ds nonperformance is so material that it is held to go to the essence of the K. This was a mere breach, and not total failure of consideration, and P could exercise the self help option provided in the K. Turner v. Chester Const.
Sub. never gave a notice of the exact amount owed. Owner was making a good faith effort to substantially perform, but payment received by the sub. was not the exact amount expected. Without notice, the Sub. stopped performing (gave no ability to cure) just hours after recieving the payment. To say a party can suspend its performance is not to say that it can terminate the K. Aiello Constr. v. Nationwide In a long term K, payment in installments is of the essence, and therefore failure to pay is a material breach. Tichnor Bros. v. Evans P sued for payment on post cards. D argued that P broke his promise to sell only to D, therefore D had no duty to pay. Held the stipulation goes only to a part of the K, and may be compensated for in damages, its breach does not relieve the other party from performance. The broken promise is an independent undertaking and not a condition precedent. Note - This case was Pre-UCC. 3) A breach by one party - A breach by one party may suspend or, if material, may altogether discharge the other party's performance. In either case it provides a complete excuse for the other' party's nonperformance. Performance and payment are dependent covenants, and therefore material breach of one suspends the duty to perform the other. Restatement 240(858) If the performance to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a partys performance of his part of such a pair has the same effect on the others duties to render performance of the agreed equivalent as if it would have if only that pair of performances had been promised. Illustration 3. Before A delivers the dressed hogs, he repudiates the contract by stating that he will not deliver the live ones. B then refuses to accept the dressed hogs. Even if the pairs are agreed equivalents, A has no claim against B. B has a claim for total breach of K. 4) How to determine if a promise is dependent: look at the intent of the parties. K&G Construction v. Harris When the sub smashed the dozer into the house it was a breach of his promise to performing a workmanlike manner. Therefore, the contractor was justified in suspending pauyment until the sub. admitted liability for the damage. Critique - This case is wrong. Sub was right in continuing performance and indicating its willingness to complete the job. The breach wasnt material to the main part of the K; it was a one time event. They could have finished the K and then dealt with the accident issue. Business custom is to continue working and paying and fight about it at the end. 5) Reasonable grounds to believe the other will not perform: This does not suspend the obligation to perform. Hathaway v. Sabin - Theatre owner locked up the building when he heard that there was a snow storm that render streets virtually impassable. Hathaway v. Sabin P was ready to give the concert, and on giving it would have been entitled to the $75, but was prevented from doing so by the Ds failure to furnish the hall.
D didnt perform because he thought there would be no audience. Was this frustration like Krell v. Henry? No, because D assumed the risk and it was perfectly foreseeable that there would be a blizzard in Vermont (like fog in London). Could have passed the risk to the performers by paying them per ticket. Turntables Inc. v. Gestetner Buyer was in arrears of payment for goods. Buyer sued for damages for sellers refusal to deliver goods he promised to sell on credit. Held seller was entitled to suspend performance until he received adequate assurances of due performance under UCC 2-609. Buyer had a bad reputation and his 5th ave. showroom turned out to be a telephone answering service. 6) Repudiation a) Failure to Give Assurance - Where a party has reasonable grounds to believe that the other party will not perform, he can demand adequate assurance of performance. Failure to give adequate assurance may be treated as repudiation. Compare Restatement 251 and UCC 2-609. Restatement 251 1) When reasonable grounds arise to believe that the obligor will commit a breach by nonperformance that would of itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance, and may, if reasonable, suspend performance for which he has not already received the agreed exchange. 2) The obligee may treat as a repudiation the obligors failure to provide within a reasonable time such asssurance of due performance as is adequate in the circumstances of the particular case. UCC 2-609 (1) A K for sale imposes an obligation on each party that the others expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives suh assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. (2) Between merchants reasonable grounds and adequate assurance is determined by commercial standards. (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved partys right to demand adequate assurance of future peformance. (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding 30 days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the K. b) Compare 2-609 v. 251 2-609 Demand must be in writing, reponse need not be. Reasonable grounds for insecurity. Assurance must be given w/in 30 days, Adequacy of assurance is determined by commercial standards. Assures peace of mind, can't let the other party think you may not perform. 251 Demand need not be in writing Reasonable ground if nonperformance would be a total breach. Adequacy of assurance determined by particular case.
Assurance must be provided within a reasonable time.
Cherwell-Ralli, Inc. v. Rytman Grain Co. Seller was justified in cancelling the whole K because buyer acte so as to impair the value of the whole K. The buyers conduct was sufficienty egregious to suspend the sellers duty to continue to sell. Buyer had no reasonable grounds to suspect nonperformance. Even so, the buyer did not prove his damages. c) Anticipatory Repudiation - A party's actions or statements can be interpreted that he cannot or will not perform. i) At common law can wait until law day for performance ii) Repudiating a duty before breach by nonperformance with an overt communication or a clear determination not to continue with performance. iii) Relieves the nonbreacher of any remaining duties. iv) The loss of such performance must substantially impair the value of the K. v) The breach gives rise to damages, can await a commerically reasonable time for performance, or resort immediately to a remedy for breach. vi) The party can wait until the time that performance is due and exercise his remedies for breach. vii) Can retract a repudiation if before performance is due the aggrieved has not canceled or materially changed his position. 2-611. viii) Generally the doctrine of anticipatory breach does not apply to unilateral K. Repudiation of a duty does not operate as a breach if it occurs after the repudiating party has received all of the agreed exchange for that duty. The injured party must wait until the time of performance to sue. This can be avoided by an acceleration clause under which the balance of performance becomes due, or can be declared due, on default Hochster v. De La Tour D hired P in April as a traveling companion on a tour of Europe starting June 1. May 11, D repudiated. Held an action brought on May 22 was not premature because until then, he must enter into employment which will interfere with his promise. The aggrieved party is free to proceed at once with a lawsuit, or to wait and sue later. Restatment 253 (1) Where an obligor repudiates a duty before he has committed a breach by nonperformance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach. (2) Where performances are to be exchanged under an exchange of promises, one partys repudiation of a duty to render performance discharges the others remaining duties to render performance. The principal effect of the doctrine is to relieve that party (the nonrepudiator) of its obligation of future performance. Breach by anticipatory repudiation provides the injured party with an election of remedies. Greguhn v. Mutual of Omaha P was permantly disabled and the D Ins. Co. refused to pay. Tr.Ct. held that Ds repudiation entitled P to lump sum payment for future benefits under the policy on the basis of Ps life expectancy. Held that P was not entitled to lump sum
payment but that P was entitled to monthly payments so long as he is permanently disabled. Therefore, for future breaches P would have to sue again. Dissent - Better policy to allow full recovery in one action. Onus should be on the Ins.Co. to prove lack of disablility in future. Action on damages should be full as opposed to specific performance for instalments. Caporali v. Washington Essential same facts. Awarded future monthly payments with interest payable as they became due. And future noncompliance with the judgment will result in award to the P of the full lump sum. 7) Divisibility to avoid Forfeiture - if performances can be apportioned so that each is the other's equivalent, a party's performance of his part has the same effect on the other's duties to render performance of the agreed equivalent. a) Test - Had the parties thought of it, they would be willing to exchange the part performance, for its equivalent. b) Repudiation of one part discharges the other's obligation to accept subsequent goods. c) Seller's nonperformance of one part does not preclude recovery on the K for the other parts. d) Buyer can reject part if nonconformity of one part substantially impairs the value of that part and no cure can be made. 2-612(2). e) Buyer can reject whole if nonconformity of one or more parts substantially impairs the value of the whole. 2-612(3). See Cherwell-Ralli v. Rytman Grain (Buyer in arrears for months). 8) Remedies for Anticipatory Breach of Unilateral Obligations. The doctrine of anticipatory breach has not ordinarily been extended to unilateral Ks. The same is true of bilateral K under which one party has performed fully so that all executory duties are those of the repudiator. Thus, the doctrine ordinarily is not applicable to Ks for the payment of money only. Kelly v. Security Mut. Life Ins. A promisee who has fully performed faces no problem of mitigation, and therefore had no need to sue at once, before actual breach had occured. Acceleration Clause - Money debt shall fully and automatically become due in the event of the obligors default. Parties are free to put it in but courts will not imply it when it is left out. Biehl v. Atwood. Only if enforcement would be unconscionable should a ct. intervene to alter acceleration provisions. Johnson v. Austin. Dependency of Obligation - Finding some remaining dependency of abligation at the time of repudiation can be an escape to the exception of anticipatory breach to unilateral Ks. a) Restitution to avoid forfeiture 1) Repudiation of K duties to mature in the future may so alter the character of a partial breach of present duty as to produce a total breach of K. Parker v. Russell. 2) Restitution is seemingly available after a sufficiently emphatic repudiation, even without any breach of a present duty. Johnson v. Starr. (P agreed to render household services for land to be devised in will. D repudiated promise to leave the land in the will. Court allowed recovery in quantum meruit for the value of services already rendered.) Compare Brackenbury v. Hodgkin. b) Declaratory Judgment Relief in equity to reinstate life insurance policies whose continued validity has been denied by the insurer. Pierce v. Mass. Accident Co. c) Judgments Payable in Installments
1) Some cts. dont allow installment payments because judgments must be certaim and cannot depend on uncertain future contingencies. Brotherhood of Locomotive Firemen v. Simmons. 2) Other cts. have fashioned recovery similar to alimony and workers compensation. Ordering payments in installments for as long as Ps benefits lasted, or until Ps presumable permanent and total disability ceases. This places the onus on the Ins. Co. to reopen the case prove P is no longer disabled. d) Relief in Equity 1) When the right alleged is legal and money is sought as debt, equity has no jurisdiction. McGunigle v. Travelers Ins. Co. 2) In Fleming v. Peterson equity was allowed in suit by wife to collect quarterly payments of $125 a month promised to her by divorced husband, until she died or remarried; otherwise, she would be compelled to bring 4 suits a year, or sue for damages, which would be difficult to calculate in view of the uncertainty as to when she would remarry or die. 4. Effect of Non-Performance a. Breach 1) Partial - If it is reasonable to expect that the party failing to perform will cure her failure in a timely fashion, the injured partys duty to perform will be suspended until a cure takes place. a) Remedies - Any loss incurred by reason of the obligors delay in effecting a cure. 2) Total - No cure is possible, or if none is effected, then the injured party may regard her obligations as discharged. a) Remedies - All K damages. b. First Material Breach 1) The party who makes the first material breach is liable. 2) The first material breach justifies the other partys non-performance. 3) If the material breach is curable, then the party must be given a chance to cure it before they can be in total breach. 4) If the party is not given a chance to cure, then the other party is in breach. 5) If they do not cure, then it is a total breach. c. Concurrent Conditions 1) A party must tender its own performance in order to put the other party in breach. 2) If A tenders and B does not deliver after an appropriate time, A has the right to terminate. 3) On termination, the injured party is excused from performing and has a claim for damages for total breach. d. Material Breach and Suspension 1) In order to suspend performance, the breach must be significant enough to amount to the nonoccurrence of a constructive condition of exchange, i.e. Material. 2) Material Breach is the converse of Substantial Performance. Performance that is not substantial. This is a question of fact. 3) A court is less likely to characterize a breach a material if it may be paid for in damages. a) Owners failure to make a progress payment justifies the builder in suspending performance. Aiello Constr. v. Nationwide. 4) To say a party can suspend its performance is not to say that it can terminate the K. See Turner v. Chester. (Sub quit work just hours after recieving a progress payment. e. Total Breach and Termination
1) After some time if a defect is not cured the builder who has suspended performance for failure to make progress payments may treat the breach as total if the owner has not cured. 2) Builder has a valid defense for its abandonment of the work 3) Builder has a claim for damages for total breach. 4) To recover damages for total breach - the injured party must show that, had there been no breach, it could have performed or tendered performance as required under the K. Restatement 235 (1) Full performance of a duty under a K discharges the duty. (2) When performance of a duty under a K is due any non-performance is a breach. Restatement 225 (1) Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused. (2) Unless it has been excused, the non-occurrence of a condition discharges the duty whenn the condition can no longer occur. (3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur. Restatement 237 Except as stated in 240, it is a condition of each partys remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. Restatement 241 In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
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Appendix 1: Restatement of Contracts Restatement 2d 90 Promissory Estoppel (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable sub___scription or marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. Restatement 2d 139 Estoppel to Plead the Statute of Frauds (1) A promise which the promisor should reasonably expect to induce action orforbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only be enforcement of the promise. The remedy granted for breach is to be limited as justice requires. (2) In determining whether injustice can be avoided only be enforcement of the promise, the following circumstances are significant: (a) the availability and adequacy of other remedies, particularly cancellation and restitution; (b) the definite and substantial character of the action or forbearance in relation to the remedy sought; (c) The ex___tent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence; (d) the reasonableness of the action or forbearance; (e) the extent to which the action or forbearance was foreseeable by the promisor. Restatement 2d 348 Breach of contract for "defective or unfinished construction" The measure of damages should be either "diminution in the market price of the property" or "the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him." Restatement of Contracts 2d 351: Unforeseeablility and Related Limitations on Damages (1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach (a) in the ordinary course of events or (b) as a result of special circumstance, beyond the ordinary course of events, that the party in breach had reason to know. (3) A court may limit damages for foreseeable loss by excluding recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. The Restatement, Second 353:
Keith Wittenstein
"Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm ___jor the contract or the breach is of a kind that serious emotional distubance was a particularly likely result. Rest. 2d. 356: Liquidated Damages. Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated OR actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large LD is unenforceable on grounds of public policy as a penalty. It is reasonable if it approximates the loss that has resulted or could be anticipated at the time of the contract. See UCC 2-718
Keith Wittenstein
Contract Checklist Is there a valid contract? - For a contract to exist the offer must be definite, complete with regard to its material terms, for a specific duration and reasonably understood by both parties to create the power. Offer? Acceptance? Bilateral or unilateral? In case of doubt - either. Consideration? Are the terms sufficiently definite? Option Contract? Illusory? Mutuality of Consideration? Objective intent? Surrounding circumstances, e.g. made in jest or rage? Was there a misunderstanding? See Mistake? Duration of the contract? Is it enforceable under the Statute of Frauds? Are there conditions precedent or promises? What kind of contract? Employment/Personal service: At will? Identifiable period? Compare UCC 2-306. Absence of Specific Time Provisions; Notice of Termination. Is there a handbook? What does it provide? Buyer/Seller? UCC? Output? Modificiation Pre-Existing Duty? New Consideration? Rescission? Waiver Undue Influence: The use of excessive pressure to persuade one vulnerable to such pressure, AND An application of excessive strength by a dominant subject against a serviant object. Transaction occurs at inappropriate time or place; Insistent demand that K be signed immediately; Extreme emphasis on horrible consequences of delay; Use of persuaders; Absence of lawyer; etc. Duress Threat Threat must be improper Threat must induce assent Threat must be grave enough to justify assent. Duress entitles the victim to restitution Accord and Satisfaction Liquidated/Unliquidated debt?
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Grounds for enforcement? - To potentially enforce a promise it either must be made with sufficient formality, upon a moral obligation, be accompanied by detrimental reliance, supported by consideration, or bargained for. Formality? Bargain? Public Policy? Unconscionability? Moral obligation (size of promisors estate)? Statute of frauds? Promissory estoppel? Promise Foreseeable reliance Actual reliance Detriment UCC question or analogy? Mutuality of obligation? Is the contract divisible? Ways to strike down a writing Lack of mutual assent Construction Reasonable Expectations Unconscionability/Public Policy Restatement 211 (Restatemania) Llewellyn Manifestly unreasonable and unfair? Parol Evidence Integrated Complete/Partial Explain/supplement or contradict Intentions Justifications for Nonperformance Mistake? Unilateral/Bilateral? Who bears the risk of loss? Excuse? Waiver? Estoppel? Impracticability? Who bears the risk of loss? Frustration? Purpose of K defeated. Frustration should be total or near total (worthless). Risk not reasonably forseeable. Who bears the risk of loss? Conditions precedent to performance? Conditions subsequent Constructive fraud Actual fraud BREACH Partial
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Substantial Performance? Forfeiture? Willful? Material Is it curable? Can it be paid for in damages? Suspension of performance? Willful? Total Given a reasonable time to cure? Good faith / Fair dealing? Time is of the essence for goods? Termination? Risk of loss to injured? Risk of forfeiture to breacher? Installments? Does it impair the value of the whole K? (Cherwell-Ralli v. Rytman; UCC 2-612(3)) Willful? Substantial delay? Urgent needs? Anticipatory Repudiation RESCISSION No adequate remedy at law? Forfeiture? Damages EXPECTATION - What was the expectation of the injured party? RELIANCE - Did the party rely on the contract, make preparations, etc.? RESTITUTION - If a benefit was conferred (or sought) was there unjust enrichment? Liquidation Damages Clauses Alternative performance? Are the damages tough to estimate? Is it a reasonable forecast of actual or anticipated harm? Are they a penalty? Are they unreasonably large or unconscionable? Is it a shotgun clause? Has the purpose for the clause vanished? Specific Performance Is there an adequate remedy at law? Is it a unique item? Land? Is it for a personal service? Does it impose servitude or an undesirable relationship? Is there an independent harm? Would enforcement harm anyone? Economic Waste? Limitations on expectation damages a. Mitigation
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General - Was there a reasonable attempt to cover? Could you have done the other at the same time? Personal services - Is there comparable employment available? Different or inferior employment? In a different locality? Was due diligence used in seeking other employment? Did the breach save the employee any costs? b. Foreseeability Could the damages have been reasonably foreseen? Are the damages proportional to the consideration? Did the D have special knowledge of the damages that would arise? c. Punitive damages - No recovery unless a tort. d. Emotional distress - No recovery unless the breach also caused bodily harm ___or serious emotional distubance was a particularly likely result. UCC Buyers Remedies 2-711 Buyers Remedies in General; Buyers Security Interest in Rejected Goods 2-712 Cover; Buyers Procurement of Substitute Goods 2-713 Buyers Damagess for Non-delivery or Repudiation 2-714 Buyers Damages for Breach in Regard to Accepted Goods 2-715 Buyers Incidental and Consequential Damages 2-716 Buyers Right to Specific Performance or Replevin 2-717 Deduction of Damages From the Price 2-718 Liquidation or Limitation of Damages; Deposits Sellerss Rememdies 2-702 Sellers Remedies on Discovery of Buyers Insolvency 2-703 Sellers Remedies In General 2-704 Sellers Right to Identify Goods to the K Notwithstanding Breach or to Salvage Unfinished Goods.. 2-706 Sellers Resale Including Contract for Resale 2-708 Sellers Damages for Non-acceptance or Repudiation 2-709 Action for the Price 2-710 Sellers Incidental Damages
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