Contracts Outline

UCC 1-303(b) Unless displaced by the particular provisions of the UCC, the principles of law and equity (CL), supplement its provisions.  UCC 2-104: Defines a merchant as one who “deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.  UCC 2-204(3): “Even though one or more terms are left open a K for sale does not fail for indefiniteness if the parties have intended to make a K and there is a Rxly certain basis for giving an appropriate remedy.” UCC 1-203b3: Ax means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including the course of performance, course of dealings, or usage of trade.  Since the agreement involves a sales if ____, which is a “good” according to the UCC definition where goods are all things which are movable at the time of identification to the contract, Art II applies.  2-207(1), a response operates as an acceptance if it is a “definite and seasonal expression of acceptance” and sent w/n a Rx time, even though it states terms additional to or different.   (I) Has there been an Ax or a Promise  The first requirement to form a K is an Ax between the parties, referred to as a mutual manifestation of assent. Mutual assent is created when both parties have an apparent “meeting of the minds” on all the essential terms of a proposed transaction through the process of offer and acceptance.  1. Offer (R2d 24): is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.  Typically, an offer must (a) be communicated; (b) indicate a desire to enter into a contract; (c) be directed at some person or persons; (d) invite acceptance (by performance or promise); (e) create a Rx understanding that upon acceptance a contract will rise. o Looking for a response that is definite enough to where the person accepting the offer essentially only needs to say yes.  (A) Under the Objective Theory of K, an offer is found when the words or other acts of one of the parties, judged by a Rx person standard, manifest a contractual intent, and their undisclosed actual intent is immaterial unless it is expressed or known to the other party (Lucy v. Zehmer) o Lucy v. Zehmer (2):  [F] D wrote a K to sell land on a napkin, drunk at bar – but talked for 40 min., changed writing to include wife; was able to reconstruct the negotiations, price of farm (wasn’t underpriced). P tried to enforce, D claims only drunk.  (B) Ambiguity in Actions + Words: When the words and acts of the K leave the intent of the parties in doubt, Courts may look to additional factors to see if there was evidence of intent to form a binding K. (Trying to Find a Way to make an Ax) o Gleason v. Freeman (4) – Looking at Subjective Understanding  Because 2 Terms of the K were incompatible, court looked to see if the intent of the parties changed anything.  “legally binding K” language added does not override Ebay Terms that only auctions are only an invite to make an offer  A Rx Person wouldn’t believe they could accept a bid to buy a house on Ebay as forming a valid K. Parties on EBAY do not engage in any intent to create a binding K through their participation on the website. 1 o (i) When Only Writing Down the K is Left:  R2d 27: There is a valid and enforceable Ax if parties have completed all the required negotiations and the only step left b/t the parties is to create a sign a written Ax.  (C) Content of the Communications: Offers v. Negotiations o Looking for (a) Missing Terms; (b) Anything Vague or Ambiguous; (c) Requirement Ks o “Offer” “Send Your Acceptance” “Quote” “Proposal” o “Fair” “Appropriate” “Rx” o *If no definite and certain in terms - No? -> Can we (a) Cure Indefinite Terms? (b) Imply Missing o Lonegran v. Scolnick (5) – Not Clear or Definite to Communicate an Offer/Negotiations  If there’s no intent to be bound, mere negotiations are not enforceable. Terms? (c) Gap Filler?  [F] D puts out ad to sell land; Letter 3 “if you are really interested, you will have to decide fast, as I expect to have another buyer in the need week” – issue if whether this is specific enough to constitute an offer.  [H] No Offer; [Rx] Communications purely preliminary, owner merely intended to find out whether purchaser was interested, rather than to make definite offer to him  (D) Price Quotes + Sales of Goods (UCC) o (i) The General Rule is that Price Quotes are not an offer because price quotes tend to lack sufficient words of commitment, are preliminary negotiations, and it is Rx to give businesses some flexibility in providing price quotes to potential companies in conducting business. o However, Courts may consider the course of business and customs between the parties to determine whether a Rx person would think that there was an offer.  MD Supreme Corp v. Blake (6)  [F] MD sent B letter indicating it could provide materials at a certain price for the duration of the construction project, and explicitly stated that MD could guaranty the price. After accepting, MD raised prices on them.  Course of Business – Typical for business b/t GC’s and SC’s that a Price Quote is an Offer.  Customs b/t Parties – 2 parties have worked with each other in the past – everything then went smoothly; this is what they’ve always done together.  o + Language in Letter Guaranteeing the Price will Hold throughout the Job (ii) UCC 1-203b3: Ax means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including the course of performance, course of dealings, or usage of trade.  (E) Advertisements: o (i) The General Rule is that Ads are not offers but merely solicitations for offers to conduct business o (ii) Exception 1: However, an Ad may qualify as an offer if it is clear, definite, leaves nothing open for from the public. negotiations; and makes it apparent to a Rx person that a commitment is intended w/o further action by the advertiser.  (a) Would a Rx Person think it’s a Genuine Possible Offer?  (!) Lefkowitz:  [F] Sat. 9am, 3 brand new coats, worth $100, first come first serve $1 2   Clear, Definite, Left Nothing for Negotiations – look at the language.  Policy - Shouldn’t place unexpressed condition on the other party Leonard v. PepsiCo (3)  Rx Person Wouldn’t think it’s a Genuine Offer –  Rx Person would have seen the commercial as a joke by its crazy features  Was 21 in Business School; First Check Drawn was by his Attorney; Jet w/ Weapons Doesn’t Seem Safe for Public  Not Specific or Definite Enough – catalog published by Pepsi, listing the prizes and process for redeeming the items did not include a Jet, b/c wasn’t listed in the Catalog  Lacked Words of Limitation – No Rx customer could have believed that Pepsi intended to risk exposure to an unlimited # of acceptances  Why it Should have been Considered an Offer  High Price Looks Genuine, but Actual Price is a lot more; Everything Else in Ad Looked Available; Worked Really Hard to Get Money to Get the Points o (iii) Exception 2: Reward Programs sometimes found when offering a reward through Advertisements inviting (inducing) the performance of a specific act (e.g., “collect certificates and get rewarded with the ability to purchase merchandise”)  e.g., reward for the capture of a person, desired information, lost article, winning of a contest, or for the redemption of coupons.  Sateriale v. RJ Reynolds Tobacco (7)  [F] Reward Redeem Program, buy Cigs, redeem coupons for merchandise. Notified Cancellation, then Cancelled early on them.  [H] Offered to run the program, and in return when we accepted, we want you to continue the opportunity to be part of the program you offered.   Was not intending to sell a limited inventory of goods No “trapped situation where acceptances exceeded inventory” b/c they had complete control over certificates and potential acceptances.   (e.g., offer through ad, come in, run out of inventory, breach of K) a. Destroying the Offer  (A) Rejection: OE declines the offer and it becomes terminated and is absolute.  o (1) Express Rejection – “No Thanks” o (2) Implied Rejection – counter offer (B) Lapse: Unless expressed otherwise by the OR, an offer remains will remain open for a Rx time, depending on all the facts or circumstances between the parties, including market conditions and any prior course of dealings b/t the parties. (MN Linseed Oil v. Collier White Lead) o MN Linseed Oil v. Collier White Lead (9)  [F] Sell Barrels; Circumstances Changing, market conditions changing variously 3  [Rx] In making the offer by telegraph, to sell an article which fluctuates so much in price (the market affecting the circumstances), must have been the understanding that the acceptance, if at all, should be immediate, and as soon after the receipt of the offer as would give a fair opportunity for consideration.  o Volatility of the Market (Rx buyer would know that the prices are changing this often) (i) General Rule for F2F Offers: Offer lapses when the parties are no longer face to face, but may be overcome if OR expresses a contrary intention in the offer.  (C) Death/Incapacity by the OR (or the OE) o R2d 48: An OE’s POA terminates when the OE or OR dies or is deprived of legal capacity to enter into the proposed K whether or not the OE was notified or aware.  Rule for Automatic Termination does not apply after acceptance  This Rxing ignores the fact that in many contexts the offer might still be valuable to the OE’s legal representative, who is unaware of what transpired  (D) Revocation: A Revocation does not become effective until the OR (a) unambiguously indicate they changed their mind and (b) communicate this to the OE. o May be done by words or conduct (ex someone driving the offered car) o (1) Direct Revocation: Affirmative Statement by OR to OE expressly withdrawing the offer. o (2) Indirect Revocation (3rd Party): An Indirect Revocation becomes effective when the OE knows or objectively has reason to know (Rx) that the OR no longer wants to continue the offer or has made another K. (Dickinson v. Dodds)  Dickinson v. Dodds (8)  [F] D offered P to sell house. Said he will hold it open until Friday (Nudum Pactum) and hold it open until Friday.  This Assumes that P believes the 3rd party is a Rx person.  The Revocation is not selling the house to someone else, it is Barry the third party telling Dickinson is selling the house to someone else. o (i) Rule: If OE still tries to accept, the attempted acceptance becomes a new offer that the original OR o If D didn’t properly revoke the house, would have had to Ax’s and owed damages to one of the parties. may accept or not accept.  b. Preserving the Offer: A Few Situations Where the Offer Cannot be Revoked  Nudum Pactum: A mere offer to sell property, which can be withdrawn at any time, and dependent on the acceptance, is a mere  (bare naked or promise which can be revoked) (A) Option K: Offer Plus Paid for Promise Not to Revoke for Set Period (i.e 30 days) o Beall v. Beall (10)  [Rule] An Option K makes the OR surrender the power of revocation and requires consideration to gain irrevocability.  [Rule] If consideration is not present to support an option agreement, the option is a mere offer to sell, which can be withdrawn by the OR at any time before acceptance.  Note: Still an Offer though. Retains its essential characteristic as an offer to buy or sell for the period stated in the option or until revoked. 4  o If Die -> doesn’t apply still a K. Board of Control of East. MI v. Burgess (11)   [Rule] If there’s no consideration, the offer remains open until its revoked or rejected. Even if there is an Option K stated, it does not become an Option K unless the actual Consideration is Paid; here they failed to pay the $1 and thus failed to be an option K, and thus only an offer o R2d Approach: R2d 87(1)(a): An Offer is Binding as an Option K if it – is in writing and signed by the OR, a purported consideration for the making of the offer, and proposes an exchange on fair terms w/n a Rx time.  Diff.: Doesn’t matter if the consideration changes hands or not. o Sometimes in these circumstances, instead of referring to a separate option contract, OR’s offer to sell X simply will be described as an  . (B) Firm Offer Rule (UCC 2.205): An offer by a merchant (only applies if a merchant), to by or sell goods in a signed writing which by its terms gives assurance that it will be held open, is not revocable for the time stated or for three months max  o No Separate Consideration Needed unless trying to hold for > than 3 months o Three Things: 1) Sale of Goods; Promise Not to Revoke by a Merchant; Signed in Writing  (C) Where the Offer Has been Relied on in a Way that was Rxly Fxable  (D) Unilateral K Circumstances (offer begun) 2. Acceptance:  (A) OR is the King and retains complete mastery and control over offer until acceptance. o R2d 50(1): “Acceptance of an offer is a manifestation of assent to the terms thereof made by the OE in a o May modify terms, withdraw, or revoke at any time until OE accepts. manner invited or required by the offer”  (B) Setting the Method of Acceptance: o (i) Complete Mastery: An OR has complete control over an offer and may condition acceptance to the terms of the offer.  La Salle Nat’l Bank v. Vega (12)  [F] There was 5 different steps for acceptance of offer and become a K, but bank never fully executed (messed up at step 4 – bank didn’t sign it).   note: executing a K means signing it; so arguable never accepted and lapsed [H/Rx] contract between P and D stated on the document that the contract would not be in full force until signed by the trust. Signing by the trust was the only permissible mode of acceptance. In this case there was no acceptance and hence no contract because the trust had not signed the document. o (ii) If Unstated Rx: Acceptance by Performance must be within the time specified, or if not specific a Rx time considering the facts, circumstances, and intent of the parties.  Ever-Tite Roofing Corp v. Green (13) 5  [F] Had an Offer that can Accepted only by Writing or Performance. Was no Writing. P starting get stuff done towards working on the house, when they showed up D said the indirectly revoked it.  [H] The Commencing of Performance w/n a Rx time before Revocation of the Offer creates the binding K here.   When was the Commencement of the Performance and thus Acceptance of Offer?  [Rx] When they Start Loading the Truck, (possibly when credit check ran)  If revocation happened before loading truck, may have one. (C) Unilateral K v. Bilateral K: o Unilateral L: Promise exchanged for a performance  OR requires completion by performance, not a promise in return. o Bilateral K: Promise in Exchange for a Promise  Results from mutual promises b/t 2 parties to the K; each party being both a promisor & a o Issues of Imprecise Terms Dealing with What Type of Acceptance:  Finishing Performance is the Acceptance; but Can’t Revoke Once Begun promisee & upon mutual promises there is a rise of a binding K  Davis v. Jacoby (14) – CL/R2d Approach to Imprecise Terms  [F] “Can you come, if you do I will give you everything if you come.” “Yes we accept your offer and we will be there very soon.” Get to CA, Mr. Whitehead committed suicide in the mean time, Cared for Ms. Whitehead. Will goes to nephews.   [H] Bi-Lateral K, and was accepted by Writing Back. [Rx for Bi-Lateral] “I need to know I can rely on you” “I need your immediate reply.’ Seems like he wants to know help is on the way  Modern R2d Approach:  R2d 30(2) -- unless otherwise indicated by the language or circumstances,” an offer will be treated as inviting acceptance in any manner that is Rx under the circumstances  R2d 32 -- in the case of doubt an offer is interpreted as inviting the OE to accept either by promising to perform what the OR requests or by rendering the performance as the OE chooses.”  (D) Promissory Acceptance (Bilateral) o (i) Must Notify: When an offer calls for a promise by an OE, as distinguished from performance, there is no K until the OE communicates acceptance to the OR or the OR’s agent if acting within the scope of the agent’s authority. (Hendricks v. Behee)  (16) Hendricks v. Behee (16) - validly withdrew offer to Smith’s agent before Smith communicated accepted  Notice of Acceptance is essential for K to become effective o (ii) Mailbox Rule: Unless the Offer prescribes to the contrary, an acceptance sent by a Rx means is effective upon dispatch (i.e., when sent) rather than receipt. (Adams v. Lindsell) 6  Must use authorized or same reliability and speed method as the offer.  (i.e., Overnight v. 3-day) (i.e., If I send by Telefax, and we dealing with something with a Volatile Price, Return by Snail Mail isn’t Rx b/c facts change) (i.e., send email, accepted by mail)  All Other Communications are effective only when received  If Given to Agent, He Still Needs to Put it in the Mail.   (so revocation, counteroffers, rejections are effective upon receipt) Note: Mailbox Rule is simply the default rule, parties to a K can opt out of using this rule by the terms of the Ax.   Note: Be Careful for Intricacies when One of them Dies. Note: OE will lose benefit of the rule if OE is careless in sending the reply, or in a case where the letter is misaddressed.  [If Rejection Sent, then Acceptance Sent After] R2d 40:  If acceptance and rejection are both sent, which ever arrives first commands. (if rejection first, then acceptance becomes counter-offer)  [Mailbox Rule and Option Ks] R2d 63  If you write the Option K and give a date, you have to receive the acceptance by that date.  [Rx] Does not apply in the case of option contracts since the OE is protected a/g an unexpected revocation during the option period.  Adams v. Lindsell (17)  [F] D offered to sell wool, misdirected letter sent on 9/2, P didn’t receive until 9/5, sent out immediately, didn’t get to D until 9/8, D said would revoke by 9/7  (E) Performance as Acceptance (Unilateral) o (i) Performance Alone Sufficient: If a party makes an offer that requires performance (unilaterally), performance alone is sufficient, unless the OR specifies they want notice. (R2d 54(1); Carlill v. Carbolic Smoke Ball (18))  a) Caveat R2d 54(2): If the OE has Rx to know or the OR will not learn about the performance with Rx promptness and certainty, the OR is discharged from contractual duty unless  (a) Offer states that notice is not required,  (b) OE makes Rx effort to notify of acceptance,  (c) OR learns of performance w/n a Rx time.  *Carlill still wins under R2d 54b, but little more pull for Carbolic Smoke Boll o (ii) Learn During Part-Performance:  R2d 51: Unless contrary manifestation, an OE that learns an offer after rendering part of the performance may accept by completing performance. 7  o (Doesn’t Work if You Learn after Completing Performance) (iii) Partial Performance Creates Option K (and you cant revoke): Where an offer invites the OE to accept by rendering a performance, an option K is created upon commencement of performance. (R2d 45; Marchiondo v. Sheck (19)  OR is only bound if the performance is completed.  OR cannot sue you for any uncompleted performance, there is no binding K until there is full performance  Actions that are merely preparing to perform (i.e., buying sneakers) do not lock the OR in, you must be fully performing what the OR asks. (varies on the facts)  (F) Acceptance by Silence or Inaction: o (i) The General Rule is Silence or Inaction does not Render Acceptance of an Offer o (ii) However, where the relation b/t the parties is such that the OR is justifies in expecting a reply, or the OE is under duty to reply, the latter’s silence will be regarded as an acceptance.  Laredo National Bank v. Gordon (20)   When Background Suit Already Going On [F] P, attorney, represented D in a prior action. Case was extended. Prior to case being settled, D sent P a telegram, requesting the amount of his fees, in the event of a resolution to the matter. P responded that his fee would be $12. Received no response from D regarding the fee, P continued to represent him, D refused to pay. o (iii) R2d Approach: Where an OE fails to reply to an offer, his silence and inaction operate as an acceptance.  When the OE takes benefit and had Rx opportunity to reject  When the OR has stated that acceptance may be by silence and the OE intends to accept the offer   Where by the course of negotiations must notify rejection. 3. Imperfect Acceptances (or Counteroffers)   Rejection Terms: “On condition that”; “I accept If”; “I accept provided”; “I accept So long as (A) Mirror Image Rule: An attempted Acceptance to an offer is invalid if there is any deviation whatsoever from the terms of the original offer. o (i) Exception of Immateriality: under Modern Majority Rule, An attempted Acceptance to an offer is valid if the deviations from the terms of the original offer are immaterial  Gresser v. Hotzler (21)  [F] Application of the Rule; G negotiated with H to purchase property, G signed documents and pushed 2 dates forward (running tight on time)  R2d 61: An acceptance which requests a change or an addition to the original terms of the offer does invalidate the acceptance when those requests are merely proposals.  A Suggestion v. Truly Conditional Acceptance (then Counter-Offer)  Wouldn’t have Worked in Gresser, needed to make it clearer. 8 o (ii) Limitation Under Option K: R2d 37: POA under the Option K is not terminated by a counter-offer or conditional acceptance, unless the requirements are met for the discharge of a contractual duty.”  (B) Battle of the Forms: o (22) Dorton v. Collins & Aikman  [F] P purchased carpets from D for 3 years, brought suit re: quality. D said arbitration clause in small print back of acknowledgement form. Forms were sent to P in response to P’s and were received by P in all cases to Ps receipt of the carpet shipment. P accepted each of the carpet shipments w/o objecting to the terms on the sales acknowledgment forms  *Note the Phone Order could have been considered part of the original agreement had the arbitration clause been agreed on over the phone. o  Step 1: Figure Out What Happens to Term: Expressly Conditional on the Assent  Was No Assent In This Case + Terms Hidden  Step 2: Are They Both Merchants? Yes  Step 3: Terms Will Become Part of the Contract, unless one the Exceptions Applies  207(2)(b) – Materially Changes the Original K (remanded for court to decide) (23) Diamond Fruit Growers v. Krack Corporation  [F] P and D that manufactured cooling units had a long-term relationship. Constantly sent documents back and forth to one another re: transactions. A 2nd company bought a cooling unit from the manufacturer and the pipes supplied by the tubing supplier were faulty, causing the unit to leak. Said in forms that the only thing you can get is purchase price of the item or a replacement. Acknowledgment limits the liability.   Wasn’t really hidden term, SEE REVERSE SIDE FOR TERMS & CONDITIONS OF SALE. Step 2: Acceptance was Conditional, but it was never assented to. Shouldn’t have sent the tubes until they Agreed.  Stated multiple times they wanted it taken out.   Step 4: UCC 207(2)(3) Drop out Additional Terms (C) Rolling Contracts o Story 1: (24) Klocek v. Gateway (2000)  Offer: Consumer offers money for product  Acceptance: Merchant Sends Product  BUT ADDS form with extra terms = apply UCC 2-207  Acceptance = Gateway sends the computer, and ADD terms (5 day/arbitration Ax) is the same as sending a form b/t merchants.   Purchaser is the OR (via handing the money over), Vendor (i.e., Gateway) is the OE. [F] P purchased a computer from D. Inside the box containing the instruction manuals was a copy of Defendant’s Standard Terms and Conditions Agreement providing an arbitration clause and by keeping computer for more than 5 days user accepts the terms as the binding agreement b/t parties 9  [Applying 2-207]  Issue 1: Who is the OR? P (Purchaser) who offered to purchase the computer (via catalog, or phone) and D (merchant) accepts Offer.  Issue 2: What’s up with that express condition?  No evidence D conditioned Ps acceptance on the Standard Terms. (no  Issue 3: Is P a Merchant? No. evidence D informed P of the condition) o Story 2: (!) Hill v. Gateway Approach *Only One Form No Need to Apply  Consumer offers money for product  Offer: Merchant sends product, with terms of deal and instructions as to method of acceptance (keeping product, not returning it)  Acceptance: When Consumers Keeps Product (e.g., computer gets opened up, and the opportunity to see these terms, and time to read them, and not returning it – that is the acceptance)  [Duty of Rx Care] When a Rx Buyer of this product would expect to be subject to the terms of use, or has reason to know the additional terms will be included, that person has a Duty to Inquire otherwise must run the risk it becomes part of the K.  Never Reached Battle of the Forums at All.   Battle of the Forums is not even relevant to this kind of situation at all. Where was the Contract Formed?  Offer was Pro-CD making the CD available, and the acceptance was the customer handing the money over, then they have a K –  Well he is an individual guy (not a merchant), just a proposal, never accepted, good to go.  In Real World, Pro-CD wouldn’t want this, to get around it:  On the Box – bunch of print saying we are not surprising you – not adding terms into this; or put a booklet up that the person at the cash register puts up.  o  Have to Front Load All the Terms before you Reach the Cash Register. Path 3: Unconscionable. (D) Clickwrap Ax’s: Clickwrap Ax’s can form a valid Ax when: o (1) the terms were clearly presented to the customer,  Not clearly presented if consumer has to scroll to find or hidden behind a window, screen, or anything not immediately apparent (Specht Case)  o Clearly Presented it consumer has to click I agree (Hancock) (2) the customer had an opportunity to read the Ax; and 10 o (3) Consumer manifested an unambiguous acceptance to the terms. o (25) Hancock v. American Telephone & Telegraph Co.  [F] Brought suit regarding Arbitration clause, said didn’t knowingly accep the terms  Why it was upheld in Hancock:  (TV/Voice) Technician comes to house, gives them a “welcome kit” with the terms, gives them time to read it over, opens up an acceptance form, makes them click the “I agree” to terms of service box and “I acknowledge” button” and technicians don’t install until they do that.  (Internet) Have to complete online registration process to activate service, press “I agree” and can’t go any farther unless they do so” o Typically assumed that people do not read forms, and requires an articulated expression of assent to o (Bound by listening to Voicemail?) bind a party   (II) Final Piece: Consideration – “Bargained for Detriment”  For Exam Typically: Offer and Ax First, then get into Consideration; When you do Consideration – 1 Person at a Time  Issue: Someone (usually D) doesn’t want to do what he agreed to do b/c they didn’t have any consideration.  Definition: “Bargained-For Detriment”  Purpose: Device Law Created to Distinguish b/t Ax’s that merit enforcement by the court v. Ax’s courts do not want to enforce.  R2d 17/71 – Promise is enforceable if there is consideration or a substitute for it and CONSIDERATION is some performance or forbearance, or promise of either of these bargained for by the promisor. See Also R2d §§71 & 75 – promise can serve as consideration for another promise. o Can be immediate act, a forbearance, or the creation, modification or destruction of a legal right. (R2d 71(2)) o Older Definition: Required it be a benefit or detriment, and were focused on the value o Today, the “bargain theory” obviates any need to focus on benefit to the promisor as a distinct element of o Hypo: Prostitute – did watching you go get a jacket constitute consideration for paying for it consideration.   Consideration is something given in exchange for the promise that  Promise must induce (i.e., be “Bargain For”) the Consideration.  Has to be 2-Sided. The Bargained For Language is Important. . (A) Performance as Consideration  [Foregoing a Legal Right] When a party signs a waiver in exchange for something of value, the waiver becomes supported by consideration. 1 o (32) Reed v. UND & ND Association for Disabled – Forgoing a Legal Right  [Rx] Reeds surrender of a legal right (agreeing not to hold the sponsors responsible for any claims arising from their participation) in exchange for NDAD allowing him to run the course during the fundraiser constitutes consideration for the release and the waiver, was therefore, supported by consideration.  [Forbearance from Suit] Forbearance from brining a lawsuit cannot constitute consideration if it made known to be made w/o merit (groundless). o The crucial question is whether there is a genuine dispute on the facts. [Explain the Facts].  His forbearance from asserting this [bogus/Rxly valid] claim can[not] furnish consideration for the settlement on either a good faith or a Rxness test. o R2d 74: Forbearance to assert or the surrender of a claim is not consideration unless:  (a) the claim is objectively well-founded for (e.g., Rx based on the facts); or  o (b) if groundless, the claimant honestly believed the claim is valid (33) McCormick v. Dresdale (rape case – Brown Student)  FAMILY AX’S -- more reluctant to enforce family promises, family say things all the time  Gifts: To evaluate whether there was consideration,  [~Conditional Promise/Gift~] Mere gratuitous promise on condition that the other party has to do something is not valid consideration when it’s not what induces the promise. (No Value Exchange) o (34) Kirksey v. Kirksey  [F] stated he felt bad for situation of P and children, and promised that if she would come see him, he would provide her with a place to raise her family on his land.  o  Old View – Detriment for P should be the consideration  Note: Justice who wrote the option even believed it was sufficient. *However – varies depending on the facts of each case. [Forbearance of a Legal Right] Waiver or Forbearance of any legal right at the request of another party is sufficient consideration for a promise, and the benefit to the promisor becomes presumed o (35) Hamer v. Sidway  [H] Because the Nephew had the legal right to drink alcohol, his forbearance from drinking was sufficient consideration.  “A Valuable Consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other”  [Class Notes] Can be Framed in the Old Way Too  Benefit in terms of the satisfaction the uncle received from knowing his nephew, who was also namesake, was leading a virtuous life.  Essentially – if the promisee incurs a legal detriment, necessarily the promisor has obtained a legal benefit. 12  R2d 79: Adequacy of Consideration (Peppercorn Rule) o If requirement of consideration is met, there is no additional requirement of: (b) equivalence in the o All we need is something sort of Valuable (Can’t be solely gratuitous) o Rationale:  a. Administrative Simplicity values exchanged   b. Relative Value of Different Things (Heart-Filled) [Nominal Consideration] While courts generally do not look to adequacy of consideration, If it is solely an exchange for money, consideration is not valid o (if it is a sentimental value of the penny will be different)  As an exception to 79, there is no cash for cash (1 penny for $200) nor an illusory promise (the o (36) Schnell v. Nell + No Moral Consideration nor Fraudulent Claims  [F] (D) entered into an Ax with heirs (Ps) to give them $200 b/c Wife wanted Ps to have it; as promise not to sue on the estate) consideration Ps paid D one cent, love & affection from wife, & promise to not bring suit under will. Ps brought suit when refused to make the payment  [H] A promise to make a gift for nominal consideration (i.e., one cent) or out of moral obligation (dead wife) or to forbear from bringing a “fake” suit is unenforceable for lack of consideration.  (Moral Consideration) Though Schnell’s love for his wife and her wish to bequeath these sums to Nell et. al. may have obligated Schnell to make the payments on a moral level, such an obligation cannot suffice as consideration. Nor were the wife’s past services to Schnell sufficient consideration because they were past considerations, offered for performance already tendered.   (Illusory Promise) Promise not to sue on the estate (which is a groundless claim) [Multiple Motives for Consideration] If you have multiple motives for the forbearance of the action, and only one is valid, this is good enough for consideration.  [Learning Half Way for Valid Consideration] Must Induce the Action to be Consideration; Could arguably learn ½ way through  Note: Kirksey, Hamer, and Schnell involve “personal Ax’s” between two individuals – it is very unusual for Ax’s b/t businesses to be unenforceable b/c o lack of consideration  (B) Promise as Consideration   Illusory Promise (Mutuality of Obligation): An , which is an apparent promise making performance optional with the promisor, is not a real promise – aka, by reserving the right to decide later the nature of the performance, there is an illusory promise (retain ultimate discretion to perform) o (37) Hooters of America v. Phillips – super one sided  [F] Hooters modification of her employment K by requiring arbitration was unenforceable b/c Party could Freely Amend It – substantial power over other can choose not to follow at his will. Promises can be uneven, but it is the complete trap door that actually rises to the level of no consideration 13  Promises based on Conditions likely never to occur or near impossible, or rise to the level where a party has a way out of the promise are unenforceable for lack of consideration o Are Allowed to Give Options, unless allows a way out (or maybe $20 if I feel like it) o Note: Promises that are on their face illusory b/c performance appears to be left solely to the option of the promisor might be rendered real with valid consideration where party is required to make good-faith effort to secure loans to avoid liability for breach. o Conditions + Illusory – how unfair is the condition of getting out – is there some std. that is Rx given the conditions?  R2d §77 – Party has really suffered no detriment b/c he has neither given nor actually promised anything to B, and therefore, B’s return promise is not supported by consideration and not binding.  (C) Pre-Existing Duty Rule – Past Consideration and K Modification   When modifying a K, there must be consideration on both sides to be enforceable. Pre-Existing Duty Rule: When parties enter into a new Ax under which one parties promises to do something or refrain from doing something he was already legally obligated to do cannot constitute as consideration for a new K or K modification, as it is Past Consideration. o (38) Alaska Packers Ass’n (APA) v. Domenico (1902)  Fisherman had a pre-existing duty to perform the work to catch salmon for $50, and they couldn’t negotiate, a second better deal for $100, to do the same work. APA signed new K agreeing to pay higher K b/c couldn’t hire replacement sailors  Getting promise of more money for doing the same thing is just a naked promise, and not enforceable.  Duress (D having no Rx alternatives) cannot be considered as consideration.  Can’t demand more money and do the same service o Legal Obligations Not to Drink? o [Criticisms to Rule] Prevented voluntarily modification of performances in light of new circumstances, unanticipated difficulties; or can be evaded by a simple addition of some minor new detriment (e.g., snow plow) o  What if Pre-Existing Duty is Not Tailored to Your K? [Exception for Unanticipated Difficulties/New Detriment] A Promise modifying a duty under a K not fully performed by either is binding if (a) the circumstances prompting the modifications were unanticipated and UnFx by the parties, (b) the modification was fair, equitable, and made in good faith, and (c) the parties voluntarily Ax’d to the modification. (R2d 89a) (39) Angels v. Murray o [F] D requesting an additional pay in the remaining three years to collect waste for the city was valid b/c of the unexpected increase in number of dwellings (400/year opposed to 20), the increase of $10k/yr for additional services was fair, and was made voluntarily. o (no new consideration necessary) o Note: Net Issue, hard to make fair/equitable v. unforeseen o Note: Financial Adversity w/ Loans isn’t usually unanticipated difficulties o Duress is important, and should not skip here; should be applied to the problem of K modification directly. Is a superior vehicle for analyzing the voluntariness of a modification b/c it requires inquiry into all of the factual elements that are probative of the issue.  Note UCC 2-209 Goes Even Further 14 o States that in Ks for the sale of goods, 2-209 provides simply that an Ax modifying a K for the sale of o Official Comment – modification however must meet the good faith or is barred o [3rd Place Where CL/R2d and UCC Differ]  [Under CL] Need New Consideration for K modification goods needs no consideration to be enforceable.  [UCC 3rd place where UCC differs 2=207] If Sale of Goods, all you need a writing, don’t need consideration. Enforceable w/o it.  [Moral Obligations/Past Consideration]*Still Past Acts; But Not Pre-Existing Duty Rule; but…. They were just Past Promises before the Act  (40) Harrington v. Taylor (1945) o [F] D assaulted wife; Wife sought safety in Ps house; P went to intervene, Wife destroyed P with axe; D was like omg you okay, I’ll promise to pay you some money to recover, paid a small amount, refused to pay more. o [H] Past Consideration Rule: Past Consideration Does Not Qualify as Valid Consideration for a Promise (Moral Obligations is not Consideration)  i.e., “Now that I’ve washed your car, give me $20” o [Rx]  Harrington’s action was completed, unbargained-for, and voluntary action and thus not consideration for Taylors Promise.  (41) Mill v. Wyman (1825) – closer exception to moral/past consideration o [F] D’s son got very sick and was taken in by the P. Son was in the care of the P for 15 days until he died, and when the D learned of this he promised to repay the P for his help. The P sued to recover the promised money. o [H] Past consideration and moral obligation alone are insufficient consideration to make a promise o [Rx] enforceable.  Moral Obligation is sufficient consideration only under three circumstances (see below) – however, the services provided to D’s son were not bestowed at the father’s request and were not learned of until after D’s son had died and thus this became merely past consideration. o  3 Circumstances where Exception to Rule that Past Consideration is not Good Consideration:  1) R2d §82: Promise to pay debts barred by the SoL  2) R2d §83: Promise to pay an obligation discharged by bankruptcy  3) R2d §85: Promise to pay Debts Incurred by Kids (42/43) Webb v. McGowin (1935) x2 o o [Q for Purvis] What if D didn’t pay after promise, never got to executor [F] P saved the life of the late D, and in doing so was severely and permanently injured. In gratitude, D promised to pay the P money for the rest of his (Webb’s) life. D died, P went after estate to keep on getting payments o [2 Step Rule]  1) Material Benefit Conferred: When the promise improves the life or property of the promisor, even w/o a request to do so, it is sufficient consideration for a subsequent Ax to pay for the service because of the material benefit is received; and 15   Person making the promise has benefited in some tangible way, and 2) Showing Worth of the Material Benefit: If a subsequent promise to pay, then this is an affirmance of the services rendered carrying with it the presumption that a previous request of the service was made.  Acknowledges this “pecuniary/material” benefit (i.e., I’ll give you $15/week for the rest of your life) o  Not all Jx’s follow this, it is the minority.  This case is about not trying to separate law from justice R2d 86: (essentially the idea of material benefit)  A promise made in recognition of a benefit previously received by the promisor from the promise is binding as consideration unless:  a) the benefit received was a gift or not a material benefit; or  b) the value of the promise is disproportionate to the benefit    (i.e., if you said $1mil. instead of $15/wk) [Class Notes on R2d 86]  Not identical to Webb, but probably would still come out the same.  Wyman -> would probably be in the middle on this one  Taylor -> would probably win (E) Promissory Estoppel  Promissory Estoppel is an important development in K law to provide relief in cases that result in unfair consequences. May be used for Un-Bargained For Reliance or Bigger   Promissory Estoppel: Basis of a Claim o Based on Promise by Party A that Party B then relies on to her detriment o Remedy: Fix the Detriment Equitable Estoppel: Affirmative Defense; you don’t get to say X because in the past you said Not X o [Rule] Conduct by one party which leads another party, in reliance thereon, to adopt a course of action o Arises out of misrepresentation of fact by Party A that Party B then relies on to her detriment. o Colorful Example: Paternity by Estoppel o Remedy: Party A can’t not saw “that isn’t true.” resulting in detriment or damage if the first party is permitted to repudiate his conduct.  [Equittable Estoppel] A right arising from acts, admissions, or conduct which have induced a change of position for the worse (quitting job) in accordance with the real or apparent intention of the party (g-pa) a/g whom they are alleged (44) Rickets v. Scothorn 16 o Consideration? No -> Gratuitous promises are generally enforceable, where as here, G-Pa promise had no consideration – he promised pay and sought nothing in return, even though he wished Katie quit her job. It was not bargained for in exchange for G-Pa’s Money.  (Ricketts said was a Gift, unconditional, & quitting was voluntary)  o Or Try and Compare to Hamer (promissory note -> if you quit, ill pay you) EE? Yes -> Having intentionally influenced Katie to do so for the worse and on faith of the note being paid, would be grossly inequitable to permit D to resist payment on the grounds of lack of consideration.  [PE as Consideration Substitute] PE claim will only succeed where elements minus consideration exist for a valid K. (45) Dargo v. Clear Channel o Harder to Fulfill, but Get Greater Remedy – Full Benefit of the Bargain at the time the K would have been made.  As PE fitting in for consideration, the remedy should be what you bargained-for. o [F] D promised P great salary increase + 2yr employment K. P accepted, quit job, moved to diff. state, o [H] Lost b/c of Sufficient Consideration o Interesting how P Lost: “Although simple relinquishment of a prior job is generally insufficient signed 1-yr lease for housing. Ended up getting fired shortly after. consideration, being lured away from an existing job with the promise of permanent employment and moving to MN is generally sufficient for consideration”  [PE preventing Breaking of Promises] Under PE, negotiating party to an Ax may not break a promise made during negotiations if there the presence of a solid “promise” sought to be enforced, the offer must be “definite and certain in its terms,” an the other party must have relied on the promise to their detriment. (46) Dixons v. WF (2011) *No Fact Finding Just Expanding Possibility o [F] P and D reached an Ax to enter into loan modification. o Normally “Ax to Agree” would not bind parties to a final Ax, but P is merely trying to consider Loan Eligibility (best possible remedy – minimal in PE) after they requested Ps provide financial information and default on loan payments due to Rx reliance and then trying to take advantage of them by foreclosing their house. o  [Added Policy] Nationwide Foreclosure is a Crippling, National, Widespread Problem. [At Will Employment Ks: Consideration and PE Issues] o Consideration:  Yes -> Bargained for the Benefit of Not Having to Dismiss the Employee and Saved from the Embarrassment of Firing an Employee for w/e Unmoral Reasons.  Although at will he did have the right to work and stay until dismissed. Although not very valuable, equivalence in consideration not required.  No -> Worker morale from resignation is not itself consideration – merely motive for the purpose. Consideration is lacking as a result of the parties’ discretion to terminate at will.  *Dmg: Likely to be Small where the employer has the right to terminate the employment at will. o Promissory Estoppel:  No -> Employee cannot shift the risk of his reliance to the employer b/c he should understand that he is incurring loss or expense w/o any promise of job security. Could fire whenever, no possibility of harm – Reliance Irrelevant. 17  Yes -> Would be harsh to go w/o remedy, especially where the promise and intent to induce reliance is clear and there are no specific facts that would make the reliance UnRx.  o *Dmg: As Justice demands; Duty to Mitigate (!) Katz v. Danny Dare – Didn’t Find for Consideration, but Did for PE  [F] Guy hurt from robbery at store, comes back after, Boss wants to work out pension Ax to voluntary retire ->will receive $13k/yr. Katz if we have not agreed on a pension plan I would have continued working at the store. 2.5 years later -> reduced then eventually stopped paying pension. o  Unless expressed otherwise, an Employment K is deemed at Will? R2d §90 Promise Reasonably Inducing Action or Forbearance o (a) Promisor made a Promise o (b) Promisor could see Reliance was Rx and Foreseeable  Was there a Reaffirmation of the Promise to take the Action?; How Close were the Parties? (Family or Friends or Acquaintances?); How Reliable was (B)?; Did Another Party Warn Not to Rely?? o (c) Promisee actually relied on it to his substantial detriment  Were the Actions Causally Link to the Promise and Justifiable?   Was there Reason to Doubt to take the Action Encouraged by (A) Were there other options available to (A) to avoid this Substantial Detriment, but not taken due to (B)s words. o (d) and injustice can only be avoided by enforcement  Given that A incurred only a modest financial expense and could have avoided any further economic detriment, this does not seem to be a case in which injustice can be averted only by enforcing the promise to its full extent. o  *Granted Remedies (damages) limited as Justice Requires  Full Value?; Can we Confine it to a Time Period Then? [PE in GC and SC] (47) Pavel Enterprises v. AS Johnson Co (1996) (R2d 90) o [F] P (GC) used D (SC) bid for job, initially awarded to X, but then backed out. P says D is the SC and P goes and “accepts” Ds bid. D revoked due to mistake in estimates, but recall: X was initially winner, and D was notified of that. o Theories on Possible Ks to Protect SC: *Still need to Prove SC created a Bid o (1) Unilateral Acceptance by Performance: Use of the SC-bid in the GC-bid constitutes part o (2) Conditional Bilateral K: GC proves an exchange of promises binding parties to each other, and that performance, which renders the initial offer irrevocable under the R2d §45; but GC can still shop around. exchange of promises was made before bid opening constituting a valid bilateral promise conditional upon GC being awarded the job. o (3) Traditional Bilateral K (w/ Condition but no Consideration): SC offers, GC accept  The sub-bid is an offer so D would be locked in on the condition that P received the bid. Since P o (4) PE (R2d 90) o (a) Promisor made a Promise didn’t formally receive until D revoked, no acceptance. 18  Language used by SC in bid creates the Rx understanding that she intended it as an offer w/ a promise of irrevocability for Rx time after the Prime K was awarded.  Was there Consideration? Not Bound to not Revoke.  Did GC accept before SC revoked or was there language in K saying acceptance via notification not required?  No? Because no consideration to validate the promise not to revoke, SC can hold GC to her promise of irrevocability only if it can validate that promise on grounds of PE  Lose on consideration grounds. o o (b) Promisor could see Reliance was Rx and Foreseeable  Rx Reliance? Factual Question, depends on the common practice in the industry.  Rx to know SC was Error in Price? Rx to Rely on the Promise?  Here, no Rx Reliance -> 1 Month in Lapse and Gave Notice to SC about X (c) Promisee actually relied on it to his substantial detriment  [Rule] An UnRx delay in acceptance after the award of the prime K, or any kind of manipulation such as bid shopping, chopping, or peddling could tip the balance a/g the grant of relief.  Bid Shopping: Use of lowest subcontractor’s bid as a tool in negotiating lower bids from other subcontractors post award  Bid Chopping: General Contractor pressuring subcontractor to lower price after being awarded the Prime Contract  Bid Peddling: Subcontractor knowing the lowest bid will come in later and do it for a wee bit cheaper.  Here, no meeting of the minds; didn’t induce action; emailed saying it was another SubContractor. o  (d) and injustice can only be avoided by enforcement  Make Sense to Enforce K? If not, pay the difference. [Charitable Subscriptions] Charitable subscriptions are binding under 90(1) w/o proof that the promise induced action nor forbearance. (49) Salsbury v. Northwest Bell Tele; R2d 90(2). o o [F] D gave P a letter saying it would give $15,000 to build a school and converted to a pledge card which o [Public Policy for Enforcing Charitable Subscriptions] Charity serves public interest making possible o Form of a Letter is Diff. from a Pledge Card and Pappas v. Bever not applicable.  Pappas v. Bever – Pledge Cards are not binding. was treated like a normal pledge card (even though not signed) and assigned to a third-party [reliance] projects that would never come about.  (V) Other Reasons an Ax or Promise Should Not Be Legally Enforced: 19  (1) Statute of Frauds:  R2d §110(1) Classes of K’s subject to Statute of Frauds (CL) o (d) Ks regarding the Sale of Land o (e) Ks that cannot be performed w/n one year from the day the Ax was made  R2d §110(2) Classes of K’s subject to Statute of Frauds (UCC)  (Land Transfer Ax’s) (50) Radke v. Brenon (1965) o o (2)(a) a contract for the sale of goods for the price of $500 or more (UCC § 2-201) [F] D gave his neighbor a written offer to sell land. P accepted terms orally. P did not object when D later increased the sales price by $50. When P gave D a check for $262, D revoked the offer to sell. P filed breach of K o MN Statute of Frauds Requires: o 1) (Statute Requirements)  (a) Writing express the consideration (e.g., price) and  [Rx] True, but Letter is Really Clear what Price is Going to Be.  Although discrepancy b/t written ($212) and oral ($262 when people dropped), it is immaterial b/c the letter was simply a mathematical computation according to the formula specified in the letter. (fair way was to divide by 10, and 1 person dropped)  (b) Writing be subscribed (“signing”) by the party by whom the sale is to be made or by his lawful agent authorized in writing.  Clear here that D’s typed name with the intent to be a written signature is sufficient.  [Caveat Rules]  Only Person Selling the Land Need’s To Sign It  Co-Tenancy; but Wife never raised prior to oral arg. and court cannot address novel issues on appeal  (c) Writing states expressly or necessary implication the (a) parties of the K, (b) subject matter involved (whats being sold?), and (c) the essential terms upon which the sale is  made. [Rx]  Ps name in heading of letter; Ds name typewritten at bottom  Land to be sold is expressly delineated.  Letter offers “their portion” to “everyone owning adjoining property”  Survey map accompanying the letter depicts each tract. 20  No Uncertainty Concerning Land Sold before or after letter was sent.  Manner of Payment -> Brenon merely held himself ready to “work out any kind of terms” with the purchasers. o Signing Requirements (applicable here and outside MN):  [Rule Voicemails n Such] Taped Discussions/Recordings (Voicemail) satisfied to indicate a K has been made, and any tangible written electronically recording may constitute (Writing) signature.  [R2d 131 Person Against Whom Enforcement is Sought] If outside MN, Statute of Frauds is only enforceable if it is evidenced by any writing, signed by or on behalf of the party charged (P in this case, person buying)  That is, the party using SoF as a Defense  (UCC Maybe Not?) (51) DF Activities Corp v. Brown (1988) o Only Thing Non-Negotiable is Quantity Needs to be Expressed in Writings o [F] Briggs working for DF, had several phone conversations with B, disagreements had. Briggs sends letter saying deal confirmed, and I’ll send you money later (this is the only piece of writing). Returns letter says no deal, idk what your talking about and sells it to someone else. DF wants money – says we had a deal o [H] 2-201(1) Needs to be Signed by the Party a/g Whom Enforcement is Sought  [Rx] Briggs never signed the letter. o [UCC Exception to SOF] (2-201(3)(b)) Judicial-Admission Exception: if D admitted in a pleading that he had made a K with the P the SOF does not apply b/c the purpose to protect a/g fraudulent or false contractual claims is not present.  [H] No Exception. Once a D denies a K under oath (e.g., affidavit), the safety valve of is closed and there is no point continuing the suit.  [Rx] B had a signed Affidavit saying she never agreed to the K, and can’t get discovery to try and get her to convince or confess b/c:  b) To allow this would be an admission of perjury (lying on affidavit)  Unlikely her denial based on a “faulty recollection” says court.  c) Destroys utility of SOF defense.  d) People deserve protection a/g being hauled into court on the basis of an unacknowledged promise.  Note: Courts Split whether SoF (non-UCC) and Admitting Ax Exists:  If Party a/g Whom Enforcement is Sought Admits to K, but there is nothing written down – courts are split 50/50 whether SoF still applies  (Employment Ax & When Ax Formed for UCC) (52) McIntosh v. Murphy (1970) o [F] Murphy (D) hired McIntosh (P) to work in Hawaii. D telegrammed job offer to P, said would start on 4/25. D called and switched job. P accepted, moved. D 2.5 months later fired him. D says P can’t sue for Breach of Oral K because of SoF and K started on 4/25, if P gets to say it starts 2 days later on 4/27 it will be out of SoF, which makes oral Ks that cannot be performed w/n one year unenforceable.  No Writing of Any Kind; Murphy has not admitted to the existence of the Ax; Dealer will win if it falls w/n the Statute or Frauds. o OR WHEN OE MAY BEGIN PERFORMANCE 21 o [H] An oral employment promise is enforceable, notwithstanding the Statute of Frauds, if the injured party seriously changes his position in reliance on the promise and failing to enforce the promise would result in injustice (unconscionable injury). o [Rx] Essentially adopts a PE type Holding  Policy: Going w/ R2d to provide a method of giving court necessary latitude to relive a party for the hardships of the Statute of Frauds and flexible enough to cover diverse factual situations (using R2d 139)  Be unjust to otherwise, unfair to hold it up in such a formalistic way.  Purpose of SOF: Prevent fraudulent practices, which are commonly endeavored to be upheld by perjury and subornation of perjury; and here clearly that purpose won’t be satisfied if D wins. o [Dissent]  D didn’t hire P on a one-year contract, was on a “trial basis”  SOF is exactly for these situations to protect the D o [Class Notes] One Year from the Making of K – If hired Monday Morning, for a 1 year stint, and is  Duty of Legislature; can’t usurp Legislature putting Policy in front of SOF. exactly one year, not w/n SOF, but colorful arg. if do K on Saturday, but doesn’t start till Monday -> can apply McIntosh  (2) Misrepresentation  (53) Halpert v. Rosenthal (1970) o [F] D made Ax to purchase house from P. Put $2k deposit, found out of termites. P made affirmative statement there was no termites, but made an innocent misrepresentation of the facts. P later sold the house for much less that the original Ax, and sued for the difference. D sought back his $2k deposit. o [H] P may rescind the K due to an innocent or fraudulent material misrepresentation. o Rule for Misrepresentation:  (1) Affirmative Statement Prior to Ax; &  (2) Rx Reliance on Untrue Statement in Making the Ax  Exception: If it is framed as an opinion, not subject to misrepresentation o [Class Notes] o Under K innocent, honest, misrepresentation matter  Comes up on Exam – I honestly believed there was no termites, bought house still matter (big separation from Tort law – no Nx)  Diff. b/t Torts and Contracts, does not matter here where you in fact lied, or positively knew what you were saying was false; you take the fall and this is the risk you bear – you have duty to make sure what your saying isn’t false.  (3) Duty to Disclose: These Two Cases Take 2 Different Approaches  (54) Swinton v. Whitinsville Savings Bank (1942) 2 o [F] P bought house from D that was infected with termite. P sues D for damages on the theory that D o [Rule] D Does Not have an Obligation to Disclose What they Know to the Other o [H] D did not have a duty to inform P of the termite problem when sold in the house o [Rx] was aware of the problem but failed to reveal it to the P before the purchase was made.   Slippery Slope. “the law has not yet reached the point of imposing upon the frailties of human nature a standard so idealistic as this.”  Furthermore, no evidence is presented by P showing that D made misleading statements or made any false claims  (55) Wintraub v. Krobatsch (1974) o [F] P owned a house that the Ds wanted to buy. Entered K and P had made no representation about the condition of the home. After execution of K but prior to closing, Ds entered the hosue find it was infested with roaches. D then sought to rescind the K. Ps rejected the recision and filed action a/g Ds seeking damages. o Buyer gets a chance to show (1) deliberate non-disclosure and (2) fact was not disclosed is so o [Rx] serious it should rescind the sale. (almost a Material Fact)  K may be rescinded in some cases where even rescission arises from facts not subject to any express or implied representation by the party seeking to enforce the K.  Specifically, where concealment of a material fact is deliberate (i.e., hiding roaches) and where severe injustice would result w/o it.  (D’s Lack of Capacity)  R2d 12(2) A Natural Person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is  o a) under guardianship, or o b) an infant (e.g., under 18) o c) mentally ill or defective, or o d) intoxicated (56) Kiefer v. Fred Howe Motors (1968) o [F] Few months before his 21st b-day, P purchased a vehicle from D. At the time, P was a working father and husband. After problems with the car, P attempted to return the car to D. P sued D for sale price of the car. o [H] A contract entered into by a minor, except a contract for necessaries, is either void or voidable at his o [Rx] or her option, regardless of his or her emancipated status.  Purpose is to protect a minor from poor judgment. 23  Age of majority may seem contradictory in some circumstances, like here, since minors can marry before they are held liable on their own Ks, but a line must be drawn and that here is 21 in this state.  General Rule is that Adults are presumed to have a contractual capacity.    4) Duress and Undue Influence a) Duress  R2d 174: Duress by Physical Compulsion o If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that o *Historically this used to be the only available remedy; doors opening conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent.  R2d 175: Duress by Threat Makes a Contract Voidable (Economic) o K void if a party’s acceptance to an Ax or K (manifestation of assent) is induced by (a) an improper o Stated Differently – Duress exists where:  1) Party Involuntarily Accepted the Terms threat by other party (b) leaving the victim no Rx alternative  2) Circumstances Permitted to Agreeing to the other party’s terms  (that is, no adequate remedy if the threat were to be carried out)  Possible Alternative Remedies depending on the Facts of the Case:  a) Legal Remedy (e.g., Breach of Contract)  b) Availability on the Market for Similar Goods and Services when the Threat is to withhold goods.  3) Circumstances were the Result of  (e.g., Threats or Acts) Possible ways to Prove this Coercive/Improper:  a) Acts of Threats that are Criminal, Tortious, or  b) Bad Faith Threat to Breach of Contract or to Withhold Payment of an Admitted Debt.   ~Not Necessarily Wrongful (that was R1d’s definition); now Improper (58) Austin Instrument v. Loral Corporation (1971) – Classic Economic Duress o [F] L got a K to make Radars for Navy. Sub K-ed to A to produce ~half of the required parts for Radars. When L got into 2nd K w/ Navy, Austin bid again and wanted to make all the components and get more pay. L refused wanted lowest bid; A threated to stop delivery on the parts under original Sub-K unless they got the new K and higher pay. L looked for someone else; eventually forced to K with A b/c wouldn’t have met first K with Navy. 24 o [CL Rule for Economic Duress]  a) Forced to Agree by Wrongful Threat Preventing Exercise of Free Will  Needed the Equipment to fulfill monthly deliveries requirements or could have lost contract with the Navy.   Jeopardize future Contracts with Navy, was already on their 2nd. b) Immediate Possession of Needful Goods Threatened (i.e., one party to a K has threatened to breach the Ax by withholding goods unless the other party agrees to some further demand)  Went through its entire list of approved vendors, and they couldn’t be able to deliver them in time.   Be UnRx to have to go to other unfamiliar vendors for highly specialized equipment. Every other place says no – not a situation where they can finish performing their K with Navy; either they breach K with Navy (liquidated damages/lose most of their business) or breach K with Austin.  c) Can’t obtain goods from another source of supply and that the ordinary remedy for Breach of K would be inadequate (no other Rx alternatives)  Would have still needed to the equipment to satisfy its other K. o [Class Notes]  If there is someone else on this list that could supply the parts, even if it was more expensive, the correct path would be to buy them (even if there twice as much), then come back and sue Austin.   Breach of K = Only Money Economic Duress = Really narrow extreme circumstances, will understand only if there is no alternative.  How Could Austin get around after receiving the letter that Loral will agree to the terms and mentioning the stressful Economic Duress.  Look to See if there were Other Companies Available to Them.  Write in Letter Back to Loral (that they are losing a substantial sum on the existing job)  – might not be successful, but could have written something back that you are facing bankruptcy, or the market has  changed. (not a clear winner for Austin but could work). (59) Totem Marine Tug v. Alyeska Pipeline (1978) – Moral Wrongs o [F] TMT entered into a K w/ AP to transport materials from TX to AK. During Performance bunch of problems and couldn’t finish performance by deadline. AP ended the K; TMT facing bankruptcy; AKA settled with Totem way below amount they owed in exchange to be released from all claims; TMT sued for econ. Duress  o Believe case got remanded for factual analysis [CL Rule for Economic Duress]  a) Forced to Agree by Wrongful Threat Preventing Exercise of Free Will  (One Party Involuntarily Accepted the Terms of Another) 25  b) Circumstances Permitted No Other Alternative  They needed to pay off debts facing bankruptcy  c) Circumstances Result of Coercive Acts by the Other Party: (a) Bad Faith Breach of Contract or (b) Withhold Payment of an Admitted Debt based on Moral Wrong.  AP Deliberately withheld payment of an acknowledged debt constitutes the coercive act to satisfy economic duress.  Best Counter Arg.: We were just engaged in normal business; didn’t really think or acknowledge the fact they were going bankrupt.  b) Undue Influence  R2d 177: Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.  (60) Odorizzi v. Bloomfield School Dist. (1966) o [F] P was under employment teaching K. Arrested for 40 hours, then pressured by supervisor to sign and deliver resignation or would suspend and publicize it as required by statute causing embarrassment and humiliation; no time for lawyer. Cleared charges, sought to be reinstated by school. They refused, sued to rescind K o [Two Elements of Undue Influence]  1) -- if a party’s judgment is so impaired that his mental state prevents him from freely contracting  * P declares he was under severe mental and emotional strain when he signed having just completed arrest process, questioning, booking, release, and going without 40 hours of sleep he couldn’t think clearly and was incapable of rationale thought.  2) – excessive pressure by a dominant party against a weaker object preventing one from acting under their own judgment, indicated by the following characteristics:  a) Discussion of the Transaction at an Unusual or Inappropriate Time  b) Consummation of the Transaction in an Unusual Place  c) Insistent Demand that the Business be Finished at Once  d) Extreme Emphasis on untoward consequences of delay  e) Use of  f) Absence of 3rd Party Advisers to the Servient Partyx  g) Statements that there is no time to consult financial advisers or attorneys  a/g a Single Servient Party * Was told there was no time to consult an attorney and that he would suffer severe embarrassment if he did not resign immediately. Assured they were trying to help him, that he should rely on them. o [Comments]  Why Duress was Insufficient Here –  Because the action or threat in duress must be unlawful, and a threat to take legal action is not unlawful unless the party making the threat knows the falsity of his claim – and here it was there legal duty to announce and suspend him under an Education Code. 26  Court holds the facts in the amended complaint are insufficient to state a cause of action for duress, but they do set out sufficient elements to justify rescission of a consent because of undue influence.  5) Illegality and Public Policy  R2d 181: Effect of Failure to Comply w/ Licensing Statute or Similar Req. o If a party is prohibited from doing an act because of his failure to comply with a licensing, registration or similar requirement, a promise in consideration of his doing that act or of his promise to do it is unenforceable on grounds of public policy if  (a) the requirement has a regulatory purpose, and  (b) the interest in the enforcement of the promise is clearly outweighed by the public policy behind the requirement. o  [Rx]  Protects People from Unsafe Work – don’t want people to work w/o a license.  If it is something less like Fundraising, we are less concerned.  Asking Why there is a Licensing Requirement? R2d 178: When a Term is Unenforceable on Grounds of Public Policy o A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms. o  [focusing on parties expectations and public interest] [Class Notes] o Big Complication of Public Policy defense are usually cases affecting family relationships such as palimony agreements or surrogacy contracts  (1) RR v. MH – [Surrogacy] Ks that are against established public policy will not be enforced (Public Policy as a Limitation on Freedom of K)  [H] Surrogacy Axs that compensate the birth mother directly, provide compensation in excess of expenses, and obtain the birth mother’s consent to a custody Ax prior to birth violate public policy as evidenced in the adoption statutes and are unenforceable  [Rx] a/g Public Policy (Moral Considerations) o Payment was not for services rendered in carrying the child, but were for the adoption itself. o Was also illegal under state law (a/g public policy) to surrender a child sooner than four days after its o *Central Theme: Although Covenants and Exculpatory Ax’s have some tension from being withdrawn birth. b/c they hinder Freedom to Negotiate Terms of a K and Place Restraints on Trade, these K should be unenforceable if they violate public policy  a) Exculpatory Ax: Written K where parties agree in advance that the D need not exercise due case for the safety of the P  Agreements that a contract is unenforceable because of public policy arise most often in connection with . o Saw this is the Reed Case (p. 267). 27  Typically cannot get away for Intentional Torts or Gross Nx, however those involving Nx tend to be case and fact specific. o  e.g., Ski Resorts and Parking Garages (61) Hanks v. Power Ridge (2005) – Exculpatory Ks & Public Policy o [F] H visited PR to go snow tubing as advertised by them and was injured while snow tubing and filed a o [H] In this Jx, Contractual Release of Liability for Nx will not be upheld if it violates public policy and o Note: o [Rx] Nx action a/g D. Exculpatory K released D from liability for their future Nx. interests under the totality of the circumstances.  a) Lack of Equitable Bargaining Power - D has greater power in this situation (contract of adhesion) and doesn’t provide much bargaining power   b) The resort was open to the public (anyone 6+ could go snow tubing), which creates a c) Maintenance of the facility was in the exclusive control of D, would be unjust for D to be relieved of all liability to a party w/ little bargaining power.  d) P that was under the control of the resort operator.  Hank could have no knowledge of the safety of the resort but, like other members of society, expected it to be safe.  e) Don’t want Companies to be able to offer Dangerous Activities to the public without having to take precautionary safety measures o [Class Notes]  Company was Actually Nx Here  No Way for Person to Know What Problem Would Be (I know fall skiing, but how do I know they don’t clean the mtn. from bananas)   Rx Expectation that the company will take adequate measures Company should make the point to show me Waiver beforehand - take the time to read it when buy online (at race) v. buying when you get there.  Courts are divided whether to enforce exculpatory clauses that go against public policy. Most States Say Waivers are Valid  b) Covenant’s Not to Compete (Restrictive Covenants):  See typically in Employment K’s and Sales of a Business  (62) Valley Medical Specialists v. Farber (1999) o [F] D hired by P, treated AIDs, HIV, and Brachytherapy. Few Years after, D became shareholder and director for company. D entered into a new stock and employment Ax, which had a Restrictive Covenant. D left + began practicing w/n restricted area o [Rule] Restrictive Covenants will not be enforced if they are UnRx unless it protects some legitimate interest of the employer beyond protection from competition focused on (a) unequal bargaining power and (b) public policy concerns under the totality of the circumstances. 28  [Rxness Factors] Impact on Other People, Important to the Public, Too Broad  a) Employer, Employee, Patient, and Public Policy Interests  b) Scope of the Restrictive Covenant must be Rx in 1) Duration, 2) Subject Matter, and 3) Geographic Area and must not be greater than necessary for employer to have a Rx amount of time to overcome the former employee’s lose (e.g., hiring a replacement)  * Significance of the Fact he is a Director (so he has better bargaining power – more of a voice then most employees would in agreeing to a K v. normal employee that requires normal signing away; less inequitable). o [H] UnRx and too broad a/g VMS’s economic and protectable interests b/c:  a) Interests of Individual Patients and  Ignores interests of individual patients in the restricted area preventing them from seeing Harper within 235 areas.  Interests of the Patients (people not part of the K) are taken into account because they are effected from it, people cannot see their doctor – problem with how broadly this contract is going to effect people in this geographic area.  b) (3 years too long)  The covenant could not reasonably be for longer than six months, because that is sufficient time for clients to decide whether they will stay.  (c) - Types of Employment/Practice too Broad  The restriction should also be limited to the particular specialty of employment, and here it involved specialties VMS didn’t even practice in. o  (d) Restriction didn’t provide for emergency exceptions  (e) Sensitive and Personal Nature of Doctor-Patient relationships. [Severance Clause – Blue Pencil Rule (Reform Covenants)]  [Rule] Severability clause allows courts to “blue pencil” unreasonable portions of covenants, but when the severability of the agreement is not evidence from the contract itself, the court cannot add terms or rewrite provisions for the parties to uphold the contract.  Here, goes to far and cannot be saved by severance.  Can’t rewrite length and terms and did that by allowing emergency services and permitting Farber to perform lung cancer and HIV/AIDs treatment within the restricted area when the covenant didn’t contain any of it.  o To the extent you think its too broad, you can edit some of the portions of the covenant. [Comments]    6) UNCONSCIONABILITY  Unconscionability: essentially a Public Policy Argument 29 o Something about the K that makes you a bad person, almost more than morally wrong. Typically see o Possible issue in all Ks (UCC or R2d/CL) when Business on one side, and Individual on the other.  (63) Williams v. Walker-Thomas Furniture (1964) x2 o [F] P bought furniture from D on credit and the K signed contained a provision which stated the balance will remain due on every item purchased until the balance due on all items, whenever purchases, was liquidated. In case of default of payment, all the furniture on which balance is due will be taken back by the D. P defaulted. o [CL Rule for Unconscionability] Unconscionable Ks are Unenforceable.  a) Procedural Unconscionability: (Problems w/ Ax Process) – Lack of Meaningful Choice  [Gross] Inequality of Bargaining Power  Manner in which the K was entered into  Subjective Aspects (Education or Lack of It)  Whether important terms were hidden in a maze of fine print and minimized by deceptive sales practices  *Premise: Look at Process that led to formation of the Ax and see if there was absence of choice on the part of one of the parties   *”Unfair Surprise” b) Substantive Unconscionability: (Problems with Ax Terms) Whether the Unfairly One Sided  Deprived of All the Benefits of the Ax or Left w/o a Remedy for the Other Party’s Breach  [Test] Whether the terms are “so extreme as to appear unconscionable according to the mores and business practices of the time and place measured by general commercial background and commercial needs of the particular trade or case.  *Premise: Look at the Terms of the Ax and see if Terms are UnRxly favorable to the other party  o “Unfair Terms” [Arguments for Both Sides]  Williams signed 14 contracts. Each were 6 inches in length, contained a long paragraph in extremely fine print.   P single mother, little education, 7 children Irresponsible Business Dealings – D with full knowledge of P’s troubled economic situation sold her an expensive radio.  Very common, she knew what she was getting into – so not that much of substantive Unconscionability. o Adhesion K: resented on a standard form on a "take it or leave it" basis, and give one party no ability to negotiate because of their unequal bargaining position.  (65) Vernon v. Qwest Comm. Int’l (2013) – Arbitration Clause/Unconscionability (Note: Arbitration quicker + cheaper than litigation and Congress more favorable to it) 30 o [F] Ps former customers signed up for a “Price for Life” program which was a minimum 2yr K; they end up trying to bail out early; bring some claims – issues with the arbitration clause; and it had the typical “agree to these terms stuff.” o o 7 Factors in Determining in Whether a K is Unconscionable  1) Standardizes Agreement is Executed by Parties of Unequal Bargaining Power  2) Lack of Opportunity to Read or Become Familiar with the Document before signing it  3) Use of Fine Print in the Portion of the Contract Containing the Provision  4) Absence of Evidence that the Provision was Commercially Rx  5) Terms of the Contract  6) Relationship of the Parties (incl. issues of assent, notice, and unfair surprise)  7) All the Circumstances Surrounding the Formation of the Contract  catchall allowing consideration of all the factors surrounding formation of the contract Procedural Unconscionability (factors 1, 2, 3, 6, 7)  #1: Arbitration Agreement was a standardized agreement of unequal bargaining power  This factor is not by itself enough, “the times in which consumer contracts were anything other than adhesive are long passed”  #2/3/6: Ps had notice of the arbitration agreement, it was Rxly conspicuous, and the Ps gave their unambiguous consent. o  #7: Court doesn’t find any factors making it unconscionable  Nothing Here in this Case of Procedural Unconscionability Substantive Unconscionability –  Much less consumer-friendly than Conception, but doesn’t rise to the level required.  Requirement to pay ½ of $125 arbitration fees for claims, and Ps argue would deter consumers from filing suit, but…  These fees not unique to arbitration; it is not expensive; and fear that it would deter suit because of recovery limited to $200  “small dollar claims may slip through the cracks;” “States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”  [Class Notes] Best Arg.: Set up a structure to where it is so limited in the amount of recovery and the way people can bring claims that they are essentially assured that no one is going to challenge this.  Paint the Picture of the Big Corporate Bad Guy.  Class Action is best remedy to do this action (can only get $200 back, cost $125 for the arbitration suit, and lawyers will cost money) 31 o [Class Notes] P’s also brought an Illusory Claim (see Hooters) but…  Wasn’t Illusory: 30 Day Notice was Enough for Adding the Arbitration Clause (look at Hooters for case reference).   7) Mistake (Ax Process)  Mistake v. Mutual Misunderstanding (e.g., Peerless) o Mistake: meeting of minds to enter Ax, and Ax correctly reflects parties’ intent. Problem is that at least one party is wrong about unstated factual assumptions.  There is an agreement – question is whether to refuse to enforce it.  o You have the meeting of the minds to enter in to a K, and Ax correctly reflects parties intent. Mutual misunderstanding: no successful meeting of minds. Ax contains a word or term that the parties Rxly understand differently and that keeps the Ax from being formed at all.  Mistake v. Misrepresentation: o Mistake: All About a Person on his Own Getting a Wrong Idea (e.g., both people wrong about what type o Misrepresentation: Requires 1 person before Ax tell someone else something that isn’t true of cow it is)  *Mistake is all about whether Ask whether it is a risk that the law should place on one of the parties (usually no relief, put person as their own risk – should have known better)  (Bilateral) R2d §152 When Mistake of Both Parties Makes a Contract Voidable o (1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in §154.  R2d §154: When a Party Bears the Risk of a Mistake (3 Ways) o 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 contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or  (c) the risk is allocated to him by the court on the ground that it is Rx in the circumstances to do so.  (66) Nelson v. Rice (2000) – Mutual Mistake; applied R2d 152 o [F] Ps had a public estate sale; hired ML to appraise personal property; she told them she did not appraise fine art and that if she saw any they would need to hire an expert for that. D purchased 2 paintings at $60, purchased some art in past, but not an expert; painting worth $1mil; P tried to rescind sale under Mutual Mistake and Unconscionability o [H] 154(b) bears the risk of mistake when the party is aware of having only limited knowledge of the facts relating to the mistake but treats this limited knowledge as sufficient.  [Rx] Ps knew the estate contained art, and the appraiser wasn’t qualified to appraise it and nonetheless, by relying on an unqualified appraiser they moved forward in selling the art and assumed the risk 32   consciously ignored the possibility that the art may be valuable. Party knows “consciously assuming the risk” when the appraiser said that they are not an expert o [H] 154(c) the risk is allocated to him by the court on the ground that it is Rx in the circumstances to do so.   [Rx] The belong to you, you have control of, responsibility is yours to set an accurate price. (67) Grenall v. United of Homaha Life Insurance (2008) – Unilateral Mistake o [F] Buys Life Annuity, dies like right after, handed over $323k, and only got like $12k back. Nothing wrong about the Ax that was unclear, just a basic assumption that I am in Rxly good health, and don’t have a serious, life-threatening illness. o (Unilateral) R2d 153: For a unilateral mistake to support rescission where  (1) a mistake of one party at the time the K was made as to a basic assumption of which he made the K (e.g., P thought he was healthy),  (2) has a material effect on the agreed exchange of performances that is adverse to him (e.g., Omaha barely paid anything),  (3) the K is voidable by him if he does not bear the risk of the mistake under the rule stated in §154:   154(a) the risk is allocated to him by agreement of the parties, 154(b) when the party is aware of having only limited knowledge of the facts relating to the mistake but treats this limited knowledge as sufficient.  [Rx] Here, parties who contract for “life contingent” benefits do so based on limited knowledge of the very facts Simes was mistaken here – cannot fix our life length or state of health with certainty.  154(c) the risk is allocated to him by the court on the ground that it is Rx in the circumstances to do so.  [Rx] Here, also Rx because such risks are an inherent part of life annuity contracts, which reflect, at their essence, a wager measured by avg. life expectancy. o Here, either Omaha or Simes was going bear the loss – its an integral part of the bargain, and would be UnRx to throw the blame on Omaha or allow the K to be void..  (4) 153(a) the effect of the mistake is such that enforcement of the K would be unconscionable, or 153(b) the other party had reason to know of the mistake or his fault caused the mistake   Difference b/t Unilateral Mistake and Unconscionability (see p. 480) IMPORTANT TO SEE  Difference b/t Mistake and Misrepresentation (see p. 481) IMPORTANT TO SEE 8) Mutual Misunderstanding: (e.g., Ambiguity in Terms)  Parties express assent to the same words or terms, but attach materially different meanings to what they have said.  (26) Raffles v. Wichelhaus (1864): o o Issue of whether a K has been formed as well as in determining the terms of the Ax [F] Entered into K to sell cotton. But, buyer thought it was the Oct. ship Peerless while Seller thought it was the Dec. ship “Peerless”. 3  o [H] No K b/c both sides didn’t agree to the same thing and thus there was no mutual assent.  Same as 20(1)(a) – both mean totally different things, no K o [Rx] Words too ambiguous to uphold. (Each Party Knows or Doesn’t) R2d 20(1): There is no manifestation of mutual assent where parties attach “materially different meanings” to their “manifestations” and  o (a) neither party has reason to know of the meaning attached by the other; or o (b) each party knows or has reason to know of the meaning attached by the other  ex: P should b/c 11 ships, shouldn’t have had reason to know. (One Party Knows) R2d 20(2): Ax is attached on the terms attached by the Party A if: o (a) A does not know of any diff. meaning attached by B and B knows the meaning attached by A; or o (b) A has no reason to know of any diff. meaning attached by B and B has reason to know the meaning attached by A   [Notes by Epstein] o All about a K term; hard to make sense on exams. o In order for an Ax to be unenforceable b/c of Ambiguity –  (a) K has a term w/ 2 diff. meaning; (b) R2d 20(1)a; (c) R2d 20(1)b 9) Indefinite and Incomplete Terms  Rule: Material Terms of a K must be definite and certain in order for the K to be enforceable. o (27) Varney v. Ditmars (1916) – historically unwilling to supply terms  [F] D told P that if he performed this required task, he would give him a “fair and reasonable share” of the profits at the end of the year, he did it, didn’t get paid.  [Majority H] P Failed to Show What is a “Fair and Rx Share of the Profits.”  Need to being in Tangible, Object Standard for what Fair & Rx is in a context under analysis. Need to be Specific, Fact Dependent. Essentially a Number  [Rx] Intention of parties pure conjecture, couldn’t show a willing or unwillingness to show any specific number. Was Very Vague.  [R2d 33] K is enforceable when the Terms are Rxly certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. [consistent with UCC 204(3)] o (28) Community Design Corporation v. Antonell (1984) – Signals the change in views from the Varney court increasingly will to save Ax by defining an indefinite term; note this is post-performance  [F] Not much diff. from “Fair and Rx Share of the Profits” in Varney minus the VP had to choose the bonus but was ($20k-$35k) 34 o *Courts today much more willing when presented with “Fair and Rx” or an undeterminable bonus, courts will work to get a number and enforce the contract.  Far more efficient for parties to negotiate by themselves, isn’t a blank check  10) Agreements to Agree (Indefiniteness in Agreements to Agree)  Note Modern Trend in These Cases: More Complex Agreements, and Policy Fundamental Need for Fairness in these Complex Arguments  (29) Walker v. Keith (1964) – Deliberately Decide to Leave a Material Term Blank o [F] Plaintiff lessee, entered into a 10 year lease agreement with the Defendant lessor. The lease agreement included an option to renew the lease for an additional ten years, but did not set the rent amount for the additional ten years and said it would be determined based on “comparable business conditions of the two periods” o [Rule] Terms of an extension or renewal, under an option K in a lease, may be left for future determination by a ; but leaving the terms for future ascertainment, without providing a method for determination, renders the term uncertain and thus the Ax unenforceable.  Stated Differently, If too indefinite, the provision is not enforceable o [H] While K contained language about new rent based on “comparative business conditions,” this is not o What Could Someone Say in Contract to have this court make it enforceable =>  “We Will Try to Agree” and “if we can’t have an Expert come in” sufficiently definite b/c it doesn’t provide an exact method for calculating the rent.   “Average to the Area”  or some sort of Calculation o Parties can agree to a specific period to calculate, otherwise the option is illusory. o Rent is a material term of the lease. (30) Moonlenaar v. Co-Build Companies (1973) – more precise method v. Walker; more willing to find Ax and plug in terms o [F] P leased land from D. Lease was 5 years w/ Option to Renew at a Renegotiated Rate, which was to o [Rule UCC 305]: A K that omits an essential term can be enforceable if the K provides the means by be Rx and based on the FMV. Increased lease from $300 to $70k, arguments ensued. which to ascertain the term with sufficient certainty (e.g., “Rx based on the FMV”), and there is an intent to be bound (e.g., Option K). o [I] Whether to Measure the “Rx Based on the FMV” cost of Rx-Lease  Most Profitable Use of Land (Ds) v. Intent of the Original K (Ps) o [Rx] Intent when we initially bought the land it was for the use of sheeping, and when you bought the  [H] Intent of the Original K land you knew that was the lease and intent, notwithstanding the increase of $17k to use the land.  the court will supply the gaps if the terms can be assessed by some Rxness  R2d §21 (Letters of Intent Not to be Legally Bound) 35 o Express Manifestations of the parties that their legal relations are not to be affected are generally accorded deference by the courts.  Usually in the Course of Acquisitions and Discussions of Creating a K.  Letter stating that they do not intend to create a binding Ax  Traditionally: No Legal Obligation to Walk Away from Cases where there is No Ax or K.  (31) Budget Marketing v. Centronics Corp (1991) Letter of Intent to not be Bound o [F] BMI did all these things laid out in a letter of intent to purchase the business, CC decided to not acquire, used stock market crash as pretext. However, Letter of Intent, outlining the terms of acquisition, stated it was not a binding Ax/. o Duty to Negotiate in Good Faith if you; but Not an Affirmative Duty towards Reaching an Ax.  Didn’t try to reach a good resolution of this negotiation  CC was acting in bad faith; BMI Arguing for Duty to Act in Good Faith in Negotiations  [Rx] Support for 3 Other Jx’s - where letters of intent create a duty to negotiate in good faith. o [Rule] Letter of Intent Not to be Legally Binding is not Enough to Create a Duty to Deal in Good Faith. o [H/Rx] Lost Because the Other Cases Explicitly Said that the Letter of Intent was to Essentially Be Bound (for an Exam – See what the Letter of Intent explicitly says)   4) What are the Terms of the Ax? (Now Know the Ax is Legally Enforceable or Not)  a) Using Trade Customs and Words for Terms of the K that are Not the Parties Words  (68) Threadgrill v. Peabody Coal  [F] D entered into an oral K with (P). Peabody drilled holes for P to find coal. Once at an appropriate depth, P would lower a probing device to “log” the hole – which was essential a way to get soil samples and data. During one of these “logging” the probing device got stuck and broke.  [I] Talks about whether an implied agreement can be made in an Oral K, that is whether someone has to pay for damaged equipment.  [Rule] To be binding upon a party, a trade usage must be sufficiently general so that the parties could be said to have contracted with reference to it. o [Rx] Loss of Equipment was generally considered to be a cost to the owner of the land being probed (to avoid this bring in people to testify a/g)  [Rule] To Avoid Brining in Trade Custom and Usage: o 1) Have to say you didn’t have any actual knowledge of the custom; and o 2) To be binding upon a party, a trade usage must be sufficiently general so that the parties could be said o [H1] D Contracted w/ Reference to the Custom to have contracted with reference to it. 36 o [Rx]   a) D had experience in the trade in the geographic local b) Infer from Conduct you are aware of the trade practice because you tried to put in some effort to try and recover the probe  c) Also note: Here, the actions of the parties in the recovery operation were consisted wit the custom.  [Comments] o Can Always K around Trade Practice and Custom, but…  [Rule] In order for a trade custom or usage to be binding upon a person who has not expressly agreed to be bound by it, it must be Rx.  Can’t Benefit from your own Nx – TC never analyzed this, this is what this Court Case remanded to analyze.  b) Parol Evidence Rule:   Language is Ambiguous when it is Susceptible to More than One Meaning Purpose: Promote the integrity, reliability, and predictability of written K’s and to reduce the threat of juries being misled or confused by statements or negotiations that may have taken place before a K was entered into.  Steps: o (1) Partially of Fully Integrated?  Is There Any Way We Can Interpret This as Not the Only Way to Do it? o (2) Consistent or Inconsistent?  Supplementary or Contradictory?  PER Applies only to Ax’s in Writing.  (I) PER May be Considered to Show Whether the Parties Intended the Ax to be Completely Integrated o All Written Ax’s are at Least Partially Integrated (e.g., Include a Merger Clause) o [F] CRE and TB negotiating for loan. TB sends CRE commitment letter saying would loan them $9mil – first installment of $2.5k, second being remaining. Parties then entered into a K; TB agreed to loan CRE the $2.5 mil and the K didn’t say anything about the other $6.5  Had Merger Clause, dispute arose regarding whether additional $6.5 mil owed. 37 o [Holding] The Four Corners of the Ax is the Only Thing to Consider w/ Unambiguous, Fully Integrated Ax’s from Merger clause and thus no Parol Evidence is Allowed.  That is, this is the end of the inquiry.  [Rx] Promote the integrity, reliability, and predictability of written K’s and to reduce the threat of juries being misled or confused by statements or negotiations that may have taken place before a K was entered into. o [Dissent/Majority] Merger Clause is Presumptively Valid, but Party Can Try to Overcome that Presumption by bringing in evidence that there are   . Here, would be Commitment Letter as the First Ax. [Rx] Dire Consequences of Majority Approach that Merger Clause prevents inclusion. Means that any K w/ Unambiguous Merger Clause supersedes all existing previous Ax’s b/t 2 parties, whether the Ax’s are related or not.  Two businesses that have prior Ax’s means when form new Ax w/ a Merger Clause they must list out the prior Ax’s they’ve entered into otherwise will cancel out all previous rules.  Note: Better to say the Commitment Letter of Intent is still live by putting it in the Merger Clause or the K itself. o Another Available Argument: Latent Ambiguity (Raffles) - exists when the language used is clear and intelligible so that it suggests one meaning but some extrinsic fact or evidence creates a need for interpretation or a choice among two or more possible meanings.  R2d 213: o (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them.   o Integrated Term: Term that is Written Down Prior Ax’s Discharged (ignored) to the Extent they’re Inconsistent w/ the Integrated Terms (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope  Merger Clause/Integration Clause: “This written Ax Constitutes all terms of the K”  Prior Ax’s discharged (ignored) to the extent they are w/n the scope of the completely integrated Ax  UCC 2.202: o IF a Written Ax is not intended to be a complete and exclusive statement of the terms of the Ax (202(1)), a Court may admit evidence of consistent additional terms, unless the alleged extrinsic term, if agreed upon, would certainly have been included in the writing  Inconsistent:  [Broad] “the absence of a Rx harmony in terms of the language and respective obligations of the parties”   [Narrow] As Long as the Terms Written Down Don’t Change “Would have Agreed”  Do we understand that rational parties could have left it out of written term? 38 o (71) Apex v. Sharing World  [F] A entered into Ks to sell 19k tons of cottonseed to SW. SW intended to resell to 3rd parties. A was aware of this and that SW would not ship to 3rd parties until the 3rd parties sent SW a letter of credit. 3rd parties never sent letters of credit after cottonseed dropped in price and SW asserted that the Ks were subject to the condition precedent that SW received letters of credit from 3rd parties but K didn’t state any condition for sale of goods  *Court didn’t need to determine if complete and exclusive  [Would Have Agreed]  [H] Rational Parties would have intended the condition precedent to be included in the writing [Rx] b/c (a) Amount of $$ at Stake and (b) A’s complete lack of control over SW’s customers  [Inconsistent]  [Broad]  The Written Terms of the Ks in this case called for Unconditional Sales of the Cottonseed.  Accordingly, extraneous terms placing conditions on the sales are inconsistent with the written terms and inadmissible.   [Narrow]  No Inconsistency b/c They Were no Terms of an “Unconditional Sale” in K Exceptions to the PER:  1) Evidence of Communications After Written Ax  2) Evidence of Oral Condition Precedent: o (i.e., K Modification) o Apex draws the line b/t a Clear Oral Ax; You Need to have a Real Strong Argument to Bring it in. o Rest. 2d Contr. § 217: Where the parties to a written agreement agree orally that performance of the agreement is subject to the occurrence of a stated condition, the agreement is not integrated with respect to the oral condition.  3) Evidence of Fraud/Mistake: o [Rule] [Fraud] If the Evidence Your Bringing in is Allegations of Fraud, it is admissible Parol Evidence and is an Exception to the Merger Clause.  Evidence of Fraud [in the inducement] is admissible despite the integration clause.  BUT must be alleged with particularity, and usually shown by clear & convincing evidence (instead of preponderance) o (71) Traders Bank v. Dils (2010) – Fraud [in the inducement] Exception  [F] TB entered into K to finance Ds car dealership. TB put hold after insufficient payments on loans; Ds father issue promissory note for $1.1mil to payback loan. (full reinstatement); TB verbally assured him that financing would be reinstated after Ds father paid, & didn’t.  TB said integration clause in K precluded D filing suit for fraud 39   4) Ambiguities of Terms Written in the K 1) Using PER for Ambiguities of Terms Written in the K:  If there is a Rx argument that the interpretation if Wrong -> Courts will consider PE  (72) Frigaliment Importing v. BNS Int’l Sales Corp (1960) o [F] P says “chickens” mean a young chicken for broiling. D says “chicken” means any bird that meets K o [H] Court didn’t know what to do, b/c of 2 Rx meanings, so in this regard, it wasn’t clear enough to rule o [Rule] To aid in the interpretation, courts may consider the plain meaning of the term, the negotiations b/ o Steps to Interpreting the Meaning of the word in the K specification on weight and quality, including chickens for stewing. P intended to buy Broilers. it a Breach of K. the parties, trade usage, other K provisions, market factors, an the course of dealing b/t the parties.  1) Plain Meaning of the Word – ‘Chicken’ Standing alone is ambiguous  Dictionary definition included the definitions of both parties.  **2) Course of Dealings, Course of Performance, or Usage of Trade – Was Still Ambiguous  [Rule] Need to show (1) Actual Knowledge or (2) Usage so Generally Known in the Community that his actual individual knowledge may be inferred    a) Look at Previous Ks Specifying what the Terms Mean  b) Bring in Testimony from Experts (and note how credible they are)  c) How New is Someone to the Business, or are they not even part of it? 3) Surrounding Language: Price – still unclear  Fowl = $.30/lb; Broilers = $.35  Note: Price so small that he needed to make some sort of profit 4) Conduct  Frigal took in first shipment of broilers, then allowed second shipment  What Would a Rx Business Do?  BUT - Rx Business would probably want to inquire w/ someone you have potential to have future business with, don’t want to dmg.  2) UCC §1.303: o (a) A “course of performance” is a sequence of conduct between the parties to a particular transaction that exists if (1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party; and 40 o (b) A “course of dealing” is a sequence of conduct concerning previous transactions between the parties o (c) A “usage of trade” is any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question. o Class Notes:  Don’t have to be a Merchant, but note –  Less Fair it Seems to Impute that Knowledge to a Consumer, Less Likely. Why would a person not in this business know the trade terms  But Still – Point of UCC is that it is really common, and why should merchant have to bear the risk in all aspects of practice to make sure they know it.   At least one person needs to be one You can write in K -> we are not using a Usage of Trade Terms (if you are a consumer and want to protect yourself).  Latin Maxims to Assist in Ambiguity o 1) Noscitur a sociis: a word may be affected by immediate context  The example for the next maxim may be taken to illustrate this one o 2) Ejusdem generis: A general term joined with a specific one will be deemed to include only things that are like (of the same genus as) the specific one.  This one if applied usually leads to a restrictive interpretation.   E.g., S Ks to sell R his farm together w/ the “cattle, hogs, and other animals.” This would probably not include S’s favorite house-dog, but might include a few sheep that S was raising for the market. o 3) Expressio unius exclusio alterius: If one or more specific items are listed, without any more general or inclusive terms, other items, even if similar, are excluded.  E.g., S Ks to sell R his farm together with “the cattle and hogs on the farm.”  Language would be interpreted to exclude sheep and S’s favorite house-dog o 4) Ut magis valeat quam pereat: By this maxim, an interpretation that makes a contract valid is o 5) Omnia praesumuntur contra proferentem: construe ambiguity a/g drafter. o 6) Interpret contract as a whole: A writing or writings that form part of the same transaction should be preferred to one that makes it invalid. interpreted together as a whole, that is ,every term should be interpreted as a part of the whole and not as if isolated from it. o 7) Purpose of the parties: The principal apparent purpose of the parties is given great weight in determining the meaning to be given to manifestations of intention or to any part thereof.”  *Be Cautious - can be tricky, because the parties often operate at cross purposes, & if obscure the courts will fall back on plain meaning. o 8) Specific provision is preferred and an exception to the general one. 41 o 9) Handwritten or typed provisions control printed provisions: Where a written K contains both printed provisions and handwritten or typed provisions, and the two are inconsistent, the handwritten or typed provisions are preferred.  The idea is that language inserted by handwriting or typewriter is a more recent and reliable expression of intention than a printed form. o 10) Public interest preferred: If a public interest is affected by a K, that interpretation or construction is preferred which favors the public interest.  The proper scope of application of this rule seems doubtful.  It may have some appropriate uses in construing Ks between private parties  Scope is doubtful because in government contracts it would always favor the government.  [Special Interpretative Rules for K of Adhesion (and 2 Differing approaches)]  TEST WOULD BE ABOUT USING YOUR FACTS AND DISTINGUISHING B/T THESE TWO AND THE FACT PATTERN AT HAND  Adhesion Ks – One that is drafted unilaterally by the dominant party and then presented on a ‘take-it-or-leave-it’ basis to the weaker party who has no real opportunity to bargain about its terms o Such K are usually prepared in printed form, and frequently at least some of their provisions are in o Generally recognized that insurance policies qualify as Ks of adhesion (so we shall assume that the extremely small print. policy at issue here is such a K)  [Rule] A provision in an adhesion contract will be upheld provided the provision is neither unconscionable nor ambiguous.  (73) Meyer v. State Farm Fire & Cas – Unconscionability & Constitutional Waiver o [F] P purchased hazard policy from SF and contained appraisal provision. P suffered a covered loss and a dispute arose regarding amount of the loss, and instead of going through the appraisal process via arbitration sued stating offended constitutional right to jury trial and Unconscionability. o [Rule for Unconscionability] Adhesion Ks will not be enforced if terms are unconscionable and will construe ambiguities a/g the draftsman; but it will not simply excise or ignore terms merely because they may operate to the perceived detriment of the weaker party.  [H/Rx] Provision here is by no means “buried” or enunciated in the fine print.  o Assume You Read Them; Even if Illiterate (Williams v. Walker-Thom) [Balance Rights] Weaker Party against the Equally Well Established View that Favors and Enforces Axs to Arbitrate Disputes, Including Disputes over Losses  [H/Rx] Generally seen as fair method resolving disputes over amount of loss. Usually upheld on grounds of public policy since they tend to fair dealings and the prevention of litigation. There are always ways to get around a Jury Trial, Arbitration, not a big deal, courts are backed up. o [Rule] If the Insertion of an Arbitration Clause in a K is induced by fraud, the clause will not be enforced. (not done in this case)  (74) Broemmer v. Abortion (1992) – exception to Adhesion K’s (Arbitration) 42 o [F] P went to abortion clinic and signed 3 forms, 1 was an Ax to arbitrate any disputes. During procedure, P suffered a punctured uterus, and filed a malpractice suit. Clinic staff didn’t explain what she was signing, didn’t provided her with copies; and Ax also had a qualification that any arbitrators be licensed medical doctors who specialize in obstetrics/gynecology. o [R2d 211(3)] Rx Expectation Doctrine to Arbitration Clause: Although customers typically adhere to standardized Ax’s and are bound by them w/o even appearing to know the standard terms in detail, they are not bound to unknown terms which are beyond the range of Rx expectation. o [H] ASP adhesion K requiring arbitration not w/n Rx Expectations of P o [Rx]  More Typical to talk about the avg. person, but court was really persuaded by the individual circumstances to rule a/g.  Pressured and see some facts above  Broemmer is not experienced in commercial matters, only has a high school education, was under severe emotional distress at the time, and still does not really know what arbitration is. o o   Measuring Rx Expectations in This Case:  a) Look at Similar Business Practices  b) Look at Std. Arbitration Clauses for Qualifying the Arbitrator  c) Take a Poll [Dissent] Wasn’t Hidden, Stands for Majority Approach seen in Meyer Distinguishing Meyer and Broemmer: o a) Medical v. Insurance o b) No Reasonable Expectation in Broemmer o c) Qualification of Arbitrator in Broemmer 4) Terms Added by the Courts  When there are Gaps in an Ax – problems arise not covered by the Ax.  Next cases considers the questions of  o 1) whether courts should imply terms to fill these gaps, and if so o 2) how courts should fill the gaps. a) Terms Implied by Courts to Effectuate Assumed Intent o (75) Wood v. Lucy, Lady Duff Gordon (1917) - Implied Consideration and Duty (not written into the K) to Make Rx Efforts to Fulfill the K; Implied Duty to Put in the Effort -> Implied Consideration!!!!!!  [F] Name is worth a lot, she sells exclusive rights to the guy and they will split the profits. Never promised to actually do it, just promised to split profits for any work that is done. Some the argument is an illusory promise because he didn’t promise to do anything. Signed an Exclusive Right  [H] Promise, exchanged as consideration, may be implied and enforceable, even though it is not provided in the explicit terms of the K.  [H2] Promise to use Rx efforts (to sell Lady-Duff Gordon Apparel) may be implied from entire circumstances of the K 43  “The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal It takes a broader view to-day. A promise may be lacking, and yet the whole writing may be “instinct with an obligation,” imperfectly expressed.” – if that is so, there is a K  If we were reading this really formally, yes that’s true, but we are not doing that. o (76) Billman v. Hensel (1979) – Implied a Duty (not written into the K) to make a Rx Effort to Fulfill the Condition of the K  [F] Hensels selling home to Billmans, one of the conditions was that the buyers get a mortgage for a certain amount in order for the K to become enforceable. Sellers were only able to get a mortgage less then required sum, Buyers didn’t care. Essentially Acting in Bad Faith, Sellers Changed Mind on Ax they’ve already entered into, and taking advantage of it by trying to get out of it.  [H] Court Implied the Party a Duty to Make a Rx Effort to Fulfill the Condition of the K to get a mortgage.  [Rx]  [Policy] Create a Trap Door for Ks. Need to Make some Kind of Rx Efforts.  o  People will just write them in if they end up changing their minds. *Kind of Touches on the Idea of Good Faith b) Implied Duty of Good Faith and Fair Dealings (Courts Implied Effectuate Public Policy) o Rule R2d 205:  Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement. o UCC § 1-304. Obligation of Good Faith.  Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement. o UCC § 1-201(b)(20)  “Good faith,” … means honesty in fact and the observance of reasonable commercial standards of fair dealing. o (77) Locke v. Warner Bros (1997)  Suing b/c demise of money, I want the money from you, Warner Bros set up K where you can pitch us ideas and we will consider making the project. Gets the money, but wanted opportunity to produce and direct, and really just did it on Clint Eastwood’s behalf. Wasn’t really ever going to develop ideas. Nothing in Deal says they have to actually develop it. Does not have a right in K to have something produced, Studio definitely had the power to turn them down. Had evidence from Warner Bros saying clear bad faith – were never going to do give them a job.  [Rule] In every K there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the  benefits of the K. [H] Sufficient Facts to conclude that D may have acted in bad faith by categorically rejecting P’s work and refusing to work with her, and remanded for fact finding.  [Rx] 4  Merely because D paid P the guaranteed compensation under the K does not establish good faith by D.   Had Testimony that they were acting in bad Faith. Note Distinguishing from other 2 Ks:  If you explicitly right in the K that you can do something, it provides a loophole around the possibility of violating good faith.   (landlord kicking someone else out, and had authority to do it)  (selling albums, explicitly wrote in they can not market them products) For Warner Bros to Win needed clearly state “We Reserve the Discretion to refuse the write to develop them” – never expressly said this, thus violated the implied duty of good faith, honestly evaluated. o (78) Hobin v. Coldwell Bankers Residential (2000)  [F] P was interested in becoming a franchisee of D; P discussed the terms of a franchise Ax with D, and D suggested that, per company policy and procedures, the company would not place another franchise within the same market as P. D ended up doing that, and he brought suit for implied duty of good faith.  [Rule] The express terms of a K always limit any implied covenant, and a party may not pursue a cause of action for breach of an implied covenant where the supposed covenant contradicts the express term.  Essentially Those Exception Cases in Warner Bros Above – If you Expressly Write it, an Implied Duty cannot be Overcome however:  Note: Can only imply a good faith Rxing if the K would otherwise be illusory, but there was real consideration in this Ax.  5) Terms Added by the Legislatures (Gap Fillers)  (Price) o 2-305(1): The parties if they so intend may conclude a K for sale even though the price is not settled. In such a case the price is a Rx price at the time for delivery ….  (Place for Delivery) o 2-308: Unless otherwise agreed to: (a) the place for delivery of goods is the seller’s place of business or if none, the seller’s residence; but  (Absence of Specific Terms) o 2-309(1) The time for shipment or delivery or any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.    4) Did each of the Two People Do Exactly what they Agreed to Do?  Looking at the Fact Pattern – Did they Do what they are Supposed to do  Usually in Exam, they Wont. 5) Is there any Excuse for Not Doing What You Agreed to do?   Based on Facts after K was entered into that should excuse other person from performing. 1) Law of Conditions as an Excuse for Non-Performance 45  Remember: When you have language such as "on condition that, if, provided that" these responses are rejections & counteroffers to the original offer, and there is no contract yet! o The same words of condition have a different effect when they appear in a contract, rather than in o It will affect whether there is a legal obligation to perform the contract o "the non-occurrence of an express condition in a contract can provide an excuse to any legal obligation response to an offer to perform that contract  R2d 224: A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.   R2d 225: non-occurrence of a condition excuses the performance under a K (79) Luttinger v. Rosen – Strict Compliance means that when the Express Condition in the K is not satisfied, non-performance of the K is excused. o [F] K was a home sale K, containing an express condition relating to financing a mortgage from a bank at an interest rate which does not exceed 8.5%/year. Lowest mortgage rate buyers were offered was 8.5%/year. Seller committed to fund the difference and their lawyer was quite the expert in this field of mortgages. o Rule: A Condition precedent must be met before performance by the parties is required under a contract, and the contract will not be enforced if the condition is not met  Note Implied Policy Condition to Make a Rx Effort of Good Faith and Due Dilligence o Rule: An Offer to Match the Difference does not satisfy the Express Condition in the Ax, and thus o [Rx] becomes a new offer.  Enough to Check One Place? The duty of good faith does not mean you have to go everywhere If you explained genuinely that the lawyer you had tried to help you and you   relied on him, this is sufficient Due diligence was used on behalf of the Ps via the advice of their attorney Three Consequences of an Express Condition Language in a K: o 1) Excuse of Performance: Nonoccurrence of Condition Excuses any Duty to Perform o 2) Strict Compliance: Occurrence of a Condition Requires Strict Compliance w/ the Contract Language o 3) No Breach: Nonoccurrence of a Condition is not a breach of K of Condition  (80) National Fuel Gas Distribution v. Hartford Fire Insurance - How do we recognize this express condition, how explicit does it need to be? o How To Recognize an Express Condition? -> No Need for Magic Words, look for unmistakable language of obligation/sequencing ( o An express condition precedent must be literally performed or satisfied before the other party is obliged to perform its obligations. Although there is an “interpretive preference” for construing a condition to be a constructive condition rather than an express condition, such preference may not be applied when the condition is express in unmistakable language or the occurrence of the condition is within the obligee’s control. o [Rule] Conditions are built in, not necessarily express 46  Contract stated “It provided”- How do we know it’s a condition? It’s a requirement, it’s saying you must; There are no magic words. o If condition no longer met.  Equities have a say?  D issues bond, P we want it, D says did you give us notice that X didn’t pay.  Person asking -> if a court thinks a party is trying to take advantage of a condition,  If you fail to flag that you failed to notice,  Excusing Conditions:  (1) Excuse of a Condition for Avoidance of Forfeiture (ex: Redding Pipe) o (81) Acme Markets v. Federal Armored Express (1994) o [F] Taking Bags of Money and Taking them to a Bank, Money gets stolen ($62k); Acme handed over money, but Federal never gave them a receipt. There was a condition in the K that Responsibility of Federal under the K shall began when cash has been accepted and receipted  The Condition: No Receipt, No Responsibility for Armor. o R2d 229: To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court the non-occurrence of that condition unless its occurrence was a of the agreed exchange.  May Excuse” – court has discretion, balancing of the policy of Freedom of K and Policy of Fairness o Here, R2d will not be triggered if it is a “material part of the agreed exchange” and was remanded to determine if it was.  (2) Prevention as a Reason for Eliminating an Express Condition o “If one party to a K hinders, prevents, or makes impossible performance by the other party, the latter’s failure to perform will be excused.  “Doctrine of Prevention” – Here a contracting party whose performance of its promise is prevented by the other party is not obligated to perform and is excused from any further offer of performance. o Ex Book Gives – have to wear Batman outfit trying to get a mortgage on a house. o (82) In Re Estate of Drake (2010) – 2 Step Process for Prevention  [F] P entered into settle Ax w/ Ds in ’98. Ax contained a clause dealing with Ps husbands property. Propert was 99% owned by trust, subject to IRS liens. Settlement Ax stated that the Ds would issue a deed to P for the property w/n 20 days of the release of IRS liens. In ’08, liens hadn’t been released and P brought suit for eliminating the condition.  [Rule] Doctrine of Prevention may negate the requirement to satisfy the condition precedent and non-occurrence is excused when:  1) Non-Occurrence be  ” to the promisor’s conduct  (not 100% - just fairly attributable to you the condition didn’t occur)  Here, D didn’t provide substantial evidence to the contrary.  Here, Doesn’t Set a line (and b/c not listed in K adopted Rx) but states that 10 2) has passed since the creation of the K years is definitely more than Rx. 47   *Burden of Proof Doesn’t Matter? [Rule] Lost Chance: if it can be shown that the condition would not have occurred regardless of the lack of cooperation, the failure of performance did not substantially contribute to its nonoccurrence and the rule does not apply. The burden of showing this is properly thrown on the party in breach.  Here, didn’t satisfy that.  [Connections] What does the “prevention” doctrine add to the “good faith” doctrine that good faith is implied into every K performance obligation?  (3) Waiver as a Reason for Eliminating a Condition: o [R2d 84 cmt. d+f] By language or conduct, a promisor may manifest his intention to forego the benefit of (“waive”) a condition. Here a party manifests an intention to perform his promise notwithstanding the non-occurrence of a condition to his duty the condition will be excused if it is not a material part of the agreed exchange. May Also Reinstatement the Waived Condition by giving notice before the latter has materially changed position. o Note: Can Re-Write Condition to Run in 2-Ways: Just say it in plain English – if it is not assessed at $9k, o The protected person by the condition, can give up (i.e., waive) the protection of the condition. (person either party can refuse. where it runs in his favor cannot waive it for the other party)  2) Waiver, Estoppel, and Modification as Excuses for Not Doing What You Agreed to  Issues arising when people are acting differently than what their contracts require or specify, but some parties let them do it.  Usually look to Doctrines of Waiver and Estoppel too see if conduct short of an amendment to the K can form the basis of an excuse for strict performance.  (83) Alderman v. Davidson (1998) – Waiver and Estoppel via Conduct o [F] P sold property to the D and the parties entered into a K where D would pay for the property in installments, and also had to be taxes on the property and send them to P. K provided that if the D defaulted, the P could commence foreclosure proceedings. D frequently sent installment payments to the P late. (More Material Facts in Reasoning). Note: P tried to enforce the Foreclosure Process, but ended up losing because lost Present (not Future) Rights by virtue of Waiver and Estoppel. o Waiver: voluntary act or declaration, whereby the waiver surrenders some privilege or right."  Voluntary Relinquishment of a Known Right o Estoppel:  May arise when there is no intention to mislead. o [Waiver of One Right Doesn’t Mean Waiver of Another] Waiver of the Right to Enforce One   Involves both Knowledge and Intent Depends upon what he caused his adversary to do. Provision of a K does not automatically waive the right to enforce another. Only if the waiver intends such a consequence will a court conclude that the right to enforce the second provision is waived. o Re: Prompt Installment Payments  [H] Seller Waived Right to Require Prompt Payment of Installments under the Note  [H] Seller is Estopped from Enforcing her Right to Prompt Payments 48  [Rx] Repeated Acceptance of Late Payments demonstrated an intention to Waive  [Rx] Buyer Rxly Relied, to her detriment, on Seller’s Failure to Enforce the Time Essence Clause w/ Regard to the Obligation. o Re: Prompt Tax Payments  [H] Seller Waived Right to Require Prompt Payment of Taxes  [Rx] Seller had constructive knowledge of the nonpayment by not receiving tax receipts from 1990-94.  [Why Seller Wouldn’t have Waived] Escrow Agent Accepting Late Payments Not Sufficient; Seller Immediately Began Process after sending foreclosure letter to begin foreclosure action.  [H] Seller is Estopped from Requiring Prompt Payment of Taxes   [Rx] Buyer reasonably relied to her detriment on seller's inaction over the years [Why Seller Wouldn’t have Estopped] Buyer never received seller's January 1994 letter declaring a default for nonpayment of taxes. She therefore was unaware of seller's heightened concern about the delinquent taxes. Under the circumstances, buyer was not somehow lulled into a false sense of security regarding seller's failure to enforce the timely tax payment obligation when the escrow agent cashed her installment checks in April and May 1994. o [Un-Waiving and Un-Estopping K Rights] Seller Required to:  1) Specifically Give Notice of Her Intention to Insist on Strict compliance on the Terms of the K in the Future; and   2) Allow a Rx Opportunity to Cure Past Delinquencies Here, Seller did not do that and, therefore, she is precluded from declaring a default based on late payment of installments under the note.  (84) Zwick v. Lodewijk Corp (1993) – Waiver to Non-Waiver Clause; PER Exception; and Modifications under SOF o [F] Z leased office space from L. Zs was paying rent late. Lease contained a non-waiver where Ls failure to act on any default does not waive the default and integration clause. Z stated that the Ls express and implied representations to her indicated a willingness to accept rent late. L terminated Zs lease and evicted her. L then brought suit for breach of the lease. Seeking monetary payments. o [H] While the nonwaiver clause in the lease agreement was some evidence of nonwaiver, it could itself o [Oral Modification] A contract governed by the SOF may only be orally modified in limited be waived like any other contractual provision. circumstances, such as extending time for performance. The parties to a K that is required to be in writing may orally agree to extend the time for performance, including payment, under the contract if the modification is made before the expiration of the contract. o [H] SOF Does not Bar Modification of the K  [Rx] PER Exception: Agreements Made Post-K  Z asserts that she & Ls orally modified the lease to allow her to make timely payments any time during the month in which they were due.  Such a modification would merely extend the time for Zs performance of making the lease payments.  (85) Cornerstone Equipment Leasing v. MacLeod (2011) – Process by which to get out of a Waiver 49 o [F] D borrowed $725k from P in a loan. Past Due-Date; parties agreed to extend it 2 years, and did so again multiple times. M claimed that he and CEL came to an oral Ax to set aside the loan. Later, parties agreed to another amended note. Acording to D, CEL stated the note would only be used for internal purposes and that the parties would work out the payment in some “future deal” and were “even.” D gave no consideration for this purported waiver of CEL right to payment. CEL says there was not call, and wanted the money. o o [Rule] Waiver of a K condition may be revoked if:  1) Notice Not to Waive; and  2) Rx chance to Bring Back into Conformity  Here, Here, was CEL’s letter demanding payment of any waiver and clearly did this. [Equitable Estoppel Claim] Party may not revoke a waiver if it would be unjust in view of a material change of position by the other party in reliance on the waiver  [H/Rx] Ds evidence that he materially changed his reliance is speculative at best – fails to show he was harmed by retraction of the waiver.  o Note: Angel v. Murray: UCC doesn’t require consideration for a modification of the K o Note: CL requires consideration for Modification (see ch.4) Review: o Waiver v. Modification  Waiver: 1 Person o Waiver v. Estoppel:  Waiver: Party who is due performance intends not to enforce it   Modification: 2 People Estoppel: Party who sees this waiver and benefiting from the waiver, were you relying on it and Rxly relied not to be enforcing that agreement.  Conduct by the party due performance Rxly makes the performing party Rxly think they don’t have to perform  3) Impossibility, Impracticability, Frustration of Purpose – Occurrence of Things Not Provided for in the K as an Excuse for not doing what you agreed to do  (86) Impracticability/Impossibility: Taylor v. Caldwell (1863) o [F] Parties entered K to use music hall for four days. K talks about who was to provide what for the days and showing that concert would be fit for concerts. Hall burned down, no fault by either party. P still wants D to pay. o [H] D let out of all required performance, not worried about paying the rent. Although not put in K, we all understand that this is a kind of basic premise of the K that there would be a Concert hall available to use. o [R2d 261] Parties excused from performing by an event that happens after K was made making performance impracticable (literally impossible), and nonoccurrence of event was basic assumption of K.  Extreme or UnRx Difficulty  Impossibility old way of saying modern term: Impracticability 50  Just being harder or expensive to perform doesn’t mean impracticability – it is a matter of degree – have to make an argument why it is extremely hard to perform beyond monetary or difficulty reasons. o  (1) Impracticability; (2) Non-Occurrence was a Basic Assumption of the K; (3) Wasn’t the Fault of the Party Seeking to be Excused (87) Frustration of Purpose: Krell v. Henry (1903) – o [F] Guy into Parades of King Henry, owned flat in London over where parade was going to be held. Rent flat for 3 days during parade. After K and Before Parade, King got sick. Wasn’t Dealt with in the K Still Possible to Perform K, but Mutually Understood Purpose for Parade (ads for it) o [R2d 265] Party excused from performance by a supervening event that frustrates her principal o Note: purpose in entering into K, and nonoccurrence of event was basic assumption of K  if we find frustration of purpose, parties can seek refunds (e.g., get deposit back) to get back original position (e.g., restitutions – will cover in damages)  Found evidence external to the K of the circumstances saying he had a great view of the parade, thus, this is not explicit from the K, it is from the surrounding circumstances. o (1) Supervening Event; (2) Purpose was Known when K was Made; (3) Frustrates the Principle o Where the Bargained-For Performance is still Possible, but the Purpose of the K has been totally Purpose (Fxability) or nearly destroyed by some supervening event, such frustration will excuse the party’s duty to perform.  (88) Partial Frustration: Mel Frank Tool & Supply v. Di-Chem (1998) o [F] D leased P’s warehouse to store, inter alia, hazardous chemicals. Warehouse inspected by officials, not up to code to store the chemicals, and code was changed after the lease Ax was signed. P was not aware that the purpose for which the D was leasing the warehouse included storage of hazardous chemicals. D dipped, lease still had 2 years left, P sued for breach of K, D raised some defenses o Frustration of Purpose  [Partial Frustration of Purpose] Where a lessee’s purpose in a lease is invalidated only in part, frustration of purpose will not apply as there is still some usefulness of the premises to the lessee.  [No Frustration of Purpose Here] [Rx] D used the warehouse for purposes other than storing hazardous chemicals alone; mere value doesn’t frustrate the purpose o Impracticability  Performance isn’t impossible, the facility is still there and things can still be stored in there, the o [Class Notes] What if before they go into the K, they knew that materials couldn’t be stored there? Can facility itself has not been destroyed – performance is not impractical, just worthless they get Relied?  Illegality, if it is a safety mechanism, they entered into an illegal K  The Parties make a mutual mistake, when they did not enter into the K not knowing they couldn’t store the chemicals there.  Death of Incapacity of Person Necessary for Performance: o R2d 262: Death of party only excuses if party is necessary for performance 51 o [Class Notes] o Death Does not Get You Out of Your Debts o Painting here needs to be unique and really important to the K, so the Count Dracula would lose b/c the painting here was not unique. Whereas, if he were central to the K, and dies early in production, this is more like the Madonna situation, unique and specialized performance and can only be done by one person.  4) Anticipatory Repudiation by Other Party as an Excuse for Non-Performance  Other Guy’s unambiguous indication of an unwillingness or inability to perform as an excuse for not doing what you agreed to do. o Concept: I will say I will give you $500 to scan my notes for me, and when you are halfway through, o It seems obvious you wouldn’t have to finish the job you say you are not going to pay for this  (89) Hochster v. De La Tourt (1853) o [F] P was a courier who entered into an Ax w/ D to work for him in Europe beginning June 1. On May 11, D changed his mind and told P that he wouldn’t require P’s services. D refused to make any compensation, P sued. o [Primary Rule] An Anticipatory Repudiation occurs when a party, in advance of a time set for performance, expresses the intent not to perform. An express repudiation requires an unequivocal and unambiguous indications that he or she is unable and unwilling to perform.  The statement must be sufficiently absolute and certain so as to be reasonably understood that the party will not or cannot perform. Mere expressions of doubts as to willingness or ability to perform are insufficient.  Not Clear: (“might not be able to make it” | “cannot make it”) Clear  Can be by Affirmative Words or Conduct  Conduct must be clear, unequivocal, and definite – Rx Apparent that teacher walks out and not coming back probably not good enough (may go on walk)   party that he considered the repudiation to be final.  Note: Mailbox Rule only applies for the acceptance, not for anything else (90) Norcon Power v. Niagara Mohawk Power (1998) – Grounds for Insecurity o [F] P entered into 25-year supply K with D. 1994, D sent P a letter stating that it expected P costs to exceed $610 million in the next payment period. D anticipated P would not be able to pay and demanded assurances that P would perform. P sued D, seeking declaration that D had no K-ual right to demand assurance and an injunction to stop D from anticipatorily terminating the K. o Under Norcom Power v. Niagara, a party may seek adequate assurance of performance when Rx grounds for insecurity exist. If the other party fails to give adequate assurance, the repudiation is effectively confirmed. (R2d 251)  [Rx] Increase parties’ security and free parties from unnecessary doubt, thus allowing them to perform under a K w/ confidence.  Limited here under CL to Ks involving “long-term commercial K”  Here, if the K involved the sale of tangible goods like oil instead of intangible electricity, the UCC would control. 52  o Note: The Response for the Demand of Assurance must be what the specific request is. Difference in Application b/t UCC and R2d:  UCC 2-609:  Under the UCC, a party may seek adequate assurances of performance in writing when Rx grounds for insecurity arise, but the other party has yet to unequivocally repudiate. Failure to provide such assurances w/n a Rx time not exceeding 30 days constitutes a Repudiation of the K.   R2d 251: Allowed to Call and Ask R2d 256 Nullification of Repudiation o The Repudiating Party may retract its repudiation by giving notice of retraction before the aggrieved party (a) materially changes position in reliance on the repudiation or (b) indicates to  the other party that he considered the repudiation to be final. [Can Sue Immediately upon Repudiation] When parties have K to be performed in the future, but it is repudiated in advance, this is considered a breach of K and non-breaching party may immediately bring suit for breach of K.  5) Material Breach: Other Party Improper Performance as Excuse for Non-Performance  R2d 237: It is a condition that Parties in a K continue there required performances unless there is a material breach by the other party. Only a material breach justifies the non-breaching party in suspending its own performance – if an injured party suspends its own performance in response to an immaterial breach, then that party may itself be in breach. o Immaterial Breach of K = Money Damages o Material Breach of K = Money Damages + Non-Performance o Constructive (Implied) Conditions: Courts may imply Sequential Performances to further a party’s duty to perform.  Order of Performances (Who Gets to Claim the Breach First) o R2d 234: Simultaneous Performance: Where all part of the performances to be exchanged under a promise can be rendered simultaneously, they are due simultaneously, unless the language of the K or circumstances indicate to the contrary. o Nichols v. Raynbred (1615) – In the absence of making a clear order of performance, if it is clear that the other party is not going to perform, you may sue for material breach.  [Rx] Wildly inefficient, shouldn’t have to put that burden on them o Hypo 1: I’ll pay you $400 now to make a vase. On April 30, upon delivery of the vase, I’ll pay you an additional $400  Clear Order of Performance: Pay upon Delivery.  Variation: “I’ve run out of materials, I need an additional $150 to be able to finish building this vase”   Possibly Anticipatory Repudiation – prob. Not clear enough. Request of K Modification -> oh okay, I’ll give you the additional $150, but may get into Alyeska Fisherman and Trash Man Case where we need additional consideration to Modify the K.  Hypo 2: I’ll pay you $400 now to make a vase. On April 30, upon delivery of a vase & pillow, I’ll pay you an additional $20 53  Can Repudiate Waiver, unless you relied to an extent where can’t be expected to bring it.  A Party breaches a K by failing to render a promised performance when due or rendering a defective performance  (A) What is a Material Breach? (~Substantial Performance) o R2d 241: Whether a Failure is Material Look at Following Circumstances:  (a) Deprivation of Expected Benefit – What is the extent to which the injured party will be deprived of the expected benefit from the K  (b) Adequate Compensation – What is the extent to which the injured party can be adequately compensated for the loss of that benefit.  Taking money away from the Breaching Party?  (c) Unfair Forfeiture – what is the extent to which the breaching party will suffer forfeiture?  Divisible K Possible?  (d) Likelihood of Cure – what is the likelihood that the breaching party will cure its failure?   Diminution in Value v. Cost of Completion (e) Willfulness of the Breach – what is the extent to which the breaching party meets standards of good faith and fair dealing? Was the breach intentional or willful?  (92) Walker & Co v. Harrison  [F] D’s set up a written K with P’s to lease a billboard sign. According to (d) of K – P’s were in charge of maintenance. There ended up being Rust on the Sign after a Tomato hit it, and there was some cobwebs as well. D’s kept on contacting them to clean it up, weren’t responding immediately then ended up deciding to stop making payments on the Lease.  [H] No Material Breach - Said Cobwebs can’t be material; the tomato that was there which was washed away only left a stain and couldn’t be the case that this would be a material breach. o (91) Jacob & Youngs v. Kent  [F] P, built a house for D, and sued to recover the balance due. D specified that all pipe in the house must be Reading pipe, but inadvertently, P installed pipe that was not Reading pipe. When D discovered this defect, he demanded that the work be redone, which would have required the demolition and reconstruction of substantial parts of the house, but P refused.  [H] Diminution in Value over Cost of Completion  The measure of damages for a trivial and innocent omission (not material) is not the cost of replacement but the difference in value.  The owner is entitled to the money which will permit him to complete, UNLESS the cost of completion is grossly and unfairly out of proportion, then the measure is the difference in value.  Will Weigh the purpose to be served, the desired to be gratified, the excuse for deviation from the letter, and the cruelty of enforced adherence. o *****   Takeaway: If there is a Material Breach, then there is no Substantial Performance Takeaway: If there is Substantial Performance, then there is no Material Breach. 54   That is, you’ve down mostly of what has been asked of you. [Measuring what is a Material Breach] Question of Degree – Never a Clear Line  Exam Tip: If your talking about a Material Issue – should be writing an equity kind of argument on the exam, how harsh would excusing performance be, should feel comfortable saying, court will be reluctant to excuse performance, no real harm, no real damages or small, or would be a very harsh application – don’t be afraid to dress up “it will be really unfair”  (B) Divisible Contracts (R2d 240) – one under which the whole performance is divided into two sets of partial performances, each part of each set being the agreed exchange for a corresponding part of the set of performances to be rendered by the other promisor. o A contract is divisible if the performance to be exchanged can be divided into corresponding pairs of part performances in such a way that a court will treat the parts of each pair as if the parties had agreed that they were equivalents.  Are the tasks to be performed identified individually?  o  Are the tasks to be paid identified individually?  or Were they Progressive Payments? **Material Breaches will only apply to those set of performances (C) Perfect Tender Rule (UCC 2.601): If the goods or tender of delivery fail in any respect to conform to the K, the buyer may: (a) Reject the Whole; (b) Accept the Whole; or (c) Accept Any Commercial Unit or Units and Reject the Rest o Buyer is free to reject the goods unless the seller’s tender conforms in every respect to the K o Buyer of goods who rightfully rejects the goods does not have to pay for the goods, i.e., she is excused o (93) Alaska Pacific Trading v. Eagon Forest –  Eagon is the Buyer, there was a reason why logs weren’t shipped -> log market prices had from performing. Substantiality of the Breach Does not Matter changed and representative from Eagon that ALPAC interpreted as Repudiation.  If this issue happens – ask, hey give me some assurance, if you think repudiation might be coming up (this is in a section of the opinion that we do not have)  Perfect Tender means needs to be Perfect. B/c you Breached the K in any kind of way (e.g., not there on the delivery date) Eagon can now repudiate the entire performance.  If you represented ALPAC & wanted to get some wiggle room, how could you  Build in some protections in the K specifically (pending “Rx” market conditions; or some way to back out)  Can say here’s the date we are aiming for, w/n a “Rx” time -> and if they refuse can argue what a Rx time is.   (putting words in to avoid Perfect Tender) (D) Material Breach and Election of Remedies o (94) ESPN v. Baseball – Accepting Performance Post-Material Breach o Election of Remedies: When there is a material breach, the non-breaching party has the choice to:  (1) Terminate the K and recover damages or  (2) “Accept” the Material Breach and Continue Performance of the K (i.e., still think can make profits) and sue for damages later solely for the breach. 5   Give up your right to claim Material Breach Can only recover damages for present breach, not for a cessation of all future obligations.  Past performance shows that a party accepted the performance of the breaching party, and can no longer elect to terminate the K based on that breach.   Election of Remedies is applied only in the absence of a waiver If there is another material breach, besides the one that was waived, the party can terminate the K based on the new breach.  The time between which a party learns of the material breach and terminates the K and more importantly, takes action to indicate the other party, must be reasonable.   Chapter 7: How Does the Law Enforce a Deal? 1. Specific Performance: Equitable Remedy where damages at law ($) are inadequate;  An Equitable Remedy - Courts have a lot of discretion in assessing whether this is appropriate to enforce.  Generally Disfavored: o (more favorable when there has already been part performance) o a. Personal Performance are difficult for courts to enforce, supervise, or evaluate. o b. Undesirable to require a continuing relationship where there has been such a serious dispute as to o c. May be considered a form of involuntary servitude. require court intervention.  (95) Ash Park v. Alexander & Bishop – Equity in Favor of Specific Performance for Sales of Land b/c Land is Unique and thus legal damages insufficient. o [F] P went to D to purchase land, went through the ins and outs, K had a Specific Performance Clause; o R2d 359: [Generally Need to First Prove Inadequacy] Specific Performance is unavailable and Deal ended up Falling Apart. unenforceable unless there is an showing that legal damages (liquidated or actual) is an inadequate remedy.  Exception: Specific Performance may be awarded for the Sale of Land w/o the pre-requisite of proving legal damages are inadequate. o Reasons for Enforcing Specific Performance in a Sale of Land:  a) Judicial Sale of Land and a Judgment for Deficiencies is a bad idea b/c it would collapse the two distinct remedies, inhibit the flexibility of equitable relief when necessary, and parties may need specific performance to pay off mortgage before they can sell the land to a third party.  o b) Not Doing So would benefit the Party who Breached the K Reasons for Not Creating a Duty to Mitigate Damages in a Sale of Land:  a) Would create practical difficulties because seller can’t be ready and willing to perform the K as required by specific performance, than also be ready, willing, and able to sell to another 3rd party, in addition, a prospective buyer would be walking into a legal minefield making it harder to sell the land.  (96) Reed Foundation v. Four Freedoms Park (2012) – Equity in Favor of Specific Performance via Showing (a) Legal (Money) Dmg.’s Inadequate + (b) Unique o (Court never really inquired as to why Money Dmg.’s were inadequate) 56 o Was the Subject Matter of the K Unique? (i.e., getting my name put in)  by its very nature, such a unique and precise honorary recognition is not subject to monetary valuation. o Public Policy w/ Donors:  Court upset with LLC, says no potential donor should be made to fear that its generosity will be diminished by strategically delayed artistic whims of a charity’s managers. Public Policy and the Public Interest in charitable giving require that philanthropy trump fashion.  Big Type of Performance Where There is no Specific Performance: o R2d 367: Personal Service/Supervision (e.g. Employment)  a. How are we possibly going to make people comply in a good-faith way and monitor they are complying in a good faith way   b. Slightly Unconstitutional (involuntary servitude) Reasons for Not Enforcing Specific Performance: o a. Availability of Substitutes for the Bargained-for Item (not-unique)  Things Generally Unique: Licenses, Patents, Heirlooms o b. Uncertainty of Damages o c. Difficulty of policing Injunctive Order  For Longer K really don’t wont to police it, handing over a check easier o Ex: Dog (can’t put a price on a dog, sentimental value, very clear one time transaction – don’t have to o Ex: Beanie Baby (Get the Price on Ebay, can be adequately compensated even though he refused and worry about policing the relationship) you have to wait and buy it on Ebay now)  Always Come Down to: Is Money Damages appropriate? o Also Relevant, but not determinative -> if they’ve previously discussed that money dmg.’s would be inadequate.  Liquidated Damages: Term in K where the parties agree what the dmg.’s will be in the event of a breach by one of them  *If you lose on Liquidated Damages, still able to recover actual damages  BIG TREND TOWARDS COMPARING ESTIMATED TO ACTUAL DAMAGES  [Rx for Enforcing] Eliminate the need for proof in the event of breach, provide compensation for loss which would otherwise be unavailable because incapable of proof w/ Rx certainty, limit damages to the sum stated, and save the time and expense of litigation. o However – where the agreed to amount is significantly larger than necessary to compensate the injured party for its loss, a court will consider the provision to be imposing a penalty that punishes the breaching party and not enforce it for its punitive nature.  Under the R2d 356, for a Liquidated Damages Provision to be valid, the amount fixed: o (1) Must be difficult to ascertain the Anticipated or Actual Damages  (96) Carr-Gottstein v. Benedict (didn’t finish construction in the year required): Hard to Assess o (2) Amount must be a Rx Forecast of the damages likely to occur in the event of a breach.  [really just trying to make sure not punitive] aesthetic harm caused by delays in construction – difficult to quantify, but nonetheless are there 57  (96) Carr-Gottstein v. Benedict: Seems Rx here -> not a large charge ($25) and it only imposes per diem, rather than month-to-month.   2 Different Points in Time to Look at Rxness under Modern Approach  1. Time of Breach (Actual Damages)  2. Initial Signing of the K (Time of K Formation) (97) Nohe v. Roblyn Dev’t Corp (made more money reselling house to someone else): Preference for Finding Actual Damages, they are more Rx, especially when the liquidates dmg. Provision in the K is grossly disproportionate to the actual harm sustained.  The market value substantially changed and D’s actually ended up making a good amount of money when they resold the land.  “Efficient Breach” – Times where it is actually more efficient for parties to breach K and in society’s interest as a whole – calculate the damages to see if parties would be better off. D comes out ahead by breaching the K and paying dmg.’s  UCC 2-718 (Identical to R2d): o (97) Kvassay v. Murray( ): Cant Use Previous Income as a Measure of Rxness (especially when it is a different job) when trying to measure Anticipated Or Actual harm caused by the breach o Lost Volume Seller: To assess a liquidated dmg.’s clause where a sale of goods occurs, courts will look to whether the seller qualifies as a “lost volume seller” to determine anticipated/actual harm caused by breach. ((98) ))  (a) It possessed the capacity to make an additional sale   (b) That it would have been profitable for it to make an additional sale (c) That it probably would have made an additional sale absent the buyer’s breach (e.g., got in the way of flowing production)  .  *Recall if things look like punishment it wont be enforced1  Important Factor: Marketability of the Goods (Can it be Resold Easily?)  [Default Rule] Attorney’s Fee (especially if part of Liquidated Dmg.’s) need to be written into the statute.   Judicial Determination of Money Damages  1) Expectation Interest (Receipt of the Benefit of the Bargain): what the injured party expected to receive if the K had been fully performed  *Preferred Approach = Greatest measure of recovery  Goal: Compensate Nonbreaching party for the benefit she would have received had the K been fully performed, which would include lost profits.  R2d 347: Expectation Interest is: (Damages) o Ps loss in value caused by the other party’s failure to perform or the rendering of a defective performance (subtract the K value of what the P received from what she has performed) 58 o Add other loss (add in incidental or consequential damages) caused by the breach  Incidental = related, small transaction costs (e.g., driving to work)  o  (def. of these words are on p. 846) Subtract an cost or other loss the P avoided by not having to Perform the K Diminution in Value: Non-Breaching Party may recover damages based on the difference b/t the value of the K as fully performed and the actual value of the non-breaching party’s present condition. o Diff. b/t Value of Promised Performance and Value of Actual Performance o (101) Hawkins v. McGee – difference b/t what was promised [a perfect hand] and the value of his hand in its present condition [hand after Dr. McGee’s breach of the promise]  Pain and Suffering shouldn’t be included for two reasons: o  a) Tort Claim v. Contracts  b) He Signed up for the Surgery, he consented – was part of the deal. *Note: Not about how much you lost, it is about the value you expected to get.  Note: Would be Worth much more if he needed the hand to make a living (e.g., famous piano player)  Cost of Completion (or Repair): When the performance is incomplete, but fixable, the dmg’s is the cost of completing any unfinished and remedial work + any other damages suffered by the owner, not to exceed the benefit actually received by the owner. o (102) Lewis Elec Co. v. Miller: (didn’t finish working on the shops – just note that you also have to factor in the unpaid K if the Contractor goes to finish the work) o Favorable where the cost of completion is similar to the price of the K o Preferred in defective construction cases –  Note: Can’t Profit On Damages so - BUT, if I only paid 250,000 up front, and the builder breaches, and I still have to only pay 500,000 to finish the house, there are no damages to collect from the builder because the house was finished at 750,000.  Difficult to calculate the value as delivered, especially when the builder breaches before completion of the project.  easier for the injured party to prove what it would cost to have the work completed by another contractor than prove the difference b/t the values to him of the finished and the unfinished performance.  [Issues with Application of the 2 Methods]: Limitation via Economic Waste o Economic Waste: When cost of completion is more than the value of promised K  Courts will analyze what it would cost to give full performance, and what the value of the property involved would be after that performance.  See in 2 Circumstances:  1) James & Young – cost to “undo” what has been done 59   2) Cases where deliberately breach a K b/c it wasn’t worse the cost Straight Forward Application for Going with Option 1: Normally go w/ Option to but when it is really out of proportion – go with option 1.  (104) Peevyhouse v. Garland Coal o [F] P leased land to D w/ understanding that the lessee could remove coal from the property during the lease, but would restore back to original state upon completion and they didn’t. $29k to restore the property, value increase only $300. o Rule: Damages should be measured by the Rx Cost of Completing the Performance, but when the K provision breached is incidental to its main purpose, and where the economic benefit which would result to the owner from full performance is grossly disproportionate, the damages should be limited to diminution in value.  Use Diminution in Value Test when the cost of completion/repair would result in an unfair forfeiture or economic waste for the breaching party.  (e.g., fall back to Jacob & Young’s/Hawkins)  o Followed by R2d [Rx]  Economic Waste - Not a big difference in what you get in the end, and wasted a bunch of money in getting this thing – in what seems like a relatively minimal unimportant problem   Hugely Disproportionate to what they should receive. (103) Groves v. John Wunder o [F] P leased land to D w/ understanding that the lessee could remove gravel fro the property during the lease, but would restore back to original state upon completion and they didn’t. $60k to restore the property, value increase only $12k o Rule: The proper measure of damages is the Rx cost of performing the part of the contract that the o [Rx] defendant willfully failed to complete.  Buying another house isn’t a proper remedy (Land = Unique and Different and Economic Waste should be subsidiary)   They Promised to Do It! Give them what they Bargained-For. Sometimes as in Groves, the court will award higher damages if the breach was intentional, but this is contrary to the notion that the amount of damages will not vary and should not vary depending on the intent of the breach.  FLAG: Attorney Fees and Incidental Damages o As a std. matter Attorney Fees are not included with K breaches, but can write into the K we are going to put attorney fees as part of incidental dmg.’s and will be enforced, with the exception of a few states that have it statute enforced.   Limitations on Recovery of Expectation Damages:  Expectation Dmg.’s: o Value of Perfect Performance – value of present performance or 60  o Cost of Buying Substitute Performance o (PLUS incidental dmg.’s) o MINUS  Avoided Costs  Avoidable Loss  Foreseeability  Certainty Once the potential to award consequential of special damages is recognized, then Ks damages can be greatly expanded to cover any loss that might have been caused by a breach. K law limits damages, however, in ways that require additional showing my non-parties. Damages have to be Foreseeable, Certain, and Unavoidable  1) Avoided Costs:deduct avoided costs from non-breacher’s recovery.  (105) Argentinis v. Gould – No Double Pay; Diff. b/t 1st and 2nd K o [When Builder doesn’t Complete his K, cant Recover Unpaid Balance R2d] when a builder breaches a bilateral construction contract by an unexcused failure to render substantial performance, he cannot maintain an action on the contract to recover the unpaid balance of the contract price because substantial performance, a constructive condition of the owner's duty to pay the balance, has not been satisfied  o So -> Ds cannot recover any unpaid balance. [Compensation for Breach – Be Put Back To Where You Were] the sum of damages awarded as compensation in a breach of contract action "should place the injured party in the same position as he would have been in had the contract been performed."  But Can’t Excess more than what compensates the bargain for  [Determining Actual Dmg’s] Guarding against excessive compensation, the law of contract damages limits the injured party to damages based on his actual loss caused by the breach.  In cases of Savings, have to find the middle   2) Foreseeability: Only Fx damages can be recovered; If special circumstances create higher damages, the higher damages are foreseeable only if the party in breach had reason to know of the special circumstances.  (108) Hadley v. Baxendale: (R2d 351) o [F] Crankshaft needed to operate the steam engine for Hadley’s mill broke and was sent as a pattern to the manufacturer for a new one. When the carrier delayed in getting the crank shaft to the manufacturer, the reopening of the mil was delayed for several days. Hadley sued the carrier for damages equal to the income lost by the mill during the delay (11 days) o [Foreseeability Limitation] For an injured party to recover consequential or special damages, the breaching party must have been able, at the time of K formation, to Rxly have foreseen the loss its breach could ultimately cause:  (a) Buyer Brings the Circumstances which would generate the losses expressly to the sellers attention (Written in the K or Orally Notified)  If the P had made it clear that the mill’s operation was dependent on the new crank shaft, the outcome would have been in their favor.  Written into the K with Strong Words: 61  “Seller Agrees that should it default, Buyer’s damages will include any and all lost profits under Buyer’s K with Bamco, and Seller Agrees to assume that risk and responsibility  (b) “Natural Consequences” of the Breach - General Circumstances of the Object of the K or the Parties Must have Rxly known  Such knowledge can be imputed to the parties from customary trade practice and other sources.   3) Avoidable Loss: deduct costs or losses that should have been avoided from non-breacher’s recovery.  (Post-Breach Costs that should not have been Incurred and Post-Breach Opportunities that Should have Been Pursued)  P has a duty after the Ds breach to make all Rx efforts to avoid unnecessary damages.  Duty to Mitigate = Avoidable Damages [Burden on the D (Breaching Party)] o If P fails to mitigate the damages via some type of substitute performance which could have been avoided through Rx efforts, without undue risk, burden, or expense, then the breaching party is not liable for the damages that could have been avoided.  (106) Parker v. 20th Century Fox  Difference in Dmg = Amount $$ Agreed upon for period of service, minus the amount which the employer affirmatively proves the employee has earned or w/ Rx effort might have earned from other employment.  Before this however, the employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived   California v. Australia; Western v. Feminist Film; Director v. Actor  Note: If Takes the Wester (elected the one of two remedies) –  Unexpected Incidental Dmg.’s (and possibly… opportunity cost) Avoidable Costs (“Duty to Mitigate”) o Mitigating losses is not required where breaching party lulls non-breaching party into inaction. But the assurances by the breaching party only go so far.  (107) Donnelley v. Vanguard – at what point it becomes there problem  Even if a party can’t 100% clearly assume that the other party is going to breach, party cannot be uncritically rely on them. Once this point arises, and it becomes clear the party should have done more to avoid the loss and they sit back and do nothing, they cannot recover damages.  If there is a breach before completion, the doctrine of Avoidable Costs will not allow the non-breaching party to recover dmg’s related to the buying or providing what the non-breaching party was to purchase or deliver under K  Duty to Avoidable Losses = the amount of loss that could reasonably have been avoided by stopping performance or making substitute arrangements subtracted from the amount that would otherwise have been recoverable as damages.  62  4) Certainty – this is like an exclusionary rule, Party Needs to be able to Substantiate there damages claim, if they can’t provide evidence to show what the damages are, then they wont be awarded, even though in the abstract you can see there was some sort of damages  Damages must be proven with reasonable certainty – fact of loss, amount of loss, and that loss is directly   traceable to breach The Evidence Presented must be Adequate (Rx) for the Damages Sought Under the Circumstances. (108) Manouchehri v. Heim o [F] Bought 100/100 X-Ray, only got 60/100 – only worked on skinny people and children o Just as Courts imply a Duty of Good Faith and Fair Dealings, Courts also imply a Warranty of Merchantability of Goods: Whatever the Item is Marketed as, is what it should be expected to perform.  Direct Damages for Breach of Warranty is the Diminution in Value at the time of place and acceptance (does it work the way it was marketed to work)  [Certainty Rule] The cost of repair can be an appropriate measure of direct damages so that it works the way it is supposed to, but if unfixable or irreplaceable for what was bargained for – need a different remedy.  [H] Affirm TC $1900 in direct damages as the diff. b/t the value of the x-ray machine as warranted and the value of the machine actually delivered to P. (D should counter arg. That it was still workable and could have been sold to a pediatric, court is saying its worthless)  Consequential Damages LOST OUT ON PROFITS FOR CLIENTS WHERE WE HAD A LESS FUNCTIONING X-RAY  1. Duty to Mitigate – [H] Not UnRx for P to delay seeking a replacement machine for a few months – rare machine, D promised to come repair it, limited specialists who can fix it.  2. Fxability – [H] Fx, not a mass-produced item to an anonymous user, D knew P and his business, and they communicated about the economics of the machine (“I didn’t know what he was gonna do arg. Failed)  3. [Certainty Rule] When it is possible to present accurate evidence on the amount of damages, the party upon whom the burden rests to prove damages must present such evidence."  [H] Doesn’t need to be down to the last cent, just needs to be in the ballpark court says not really sure what the number is, but we are only talking about $2500, and the court already lowered this a bit, it is close enough. (not all courts would agree)   Although was minimal, was adequate under the circumstances (109) ESPN v. Baseball o [Rule] Although it is true that "when the existence of damage is certain, and the only uncertainty is as to its amount, the plaintiff will not be denied recovery of substantial damages," but even then the plaintiff must show "a stable foundation for a reasonable estimate" of damages  . 63  [Higher Std. for Goodwill, Bus. Reputation, or Future Profits] a claim for loss of reputation, goodwill, or future profits must not only prove the fact of loss with certainty, but the “loss must be Rxly certain.” o [H] Baseball dmg.’s claim is based on nothing more that vague assertions that it was hurt – didn’t prove o NOTE: Still May Recover Nominal Damages (e.g., $1) - Be the Prevailing Party not liable for Attorneys anything during deposition, no method for calculating alleged damages, = Fees and other party may be exposed to third party liable.   Alternatives to Expectation Damages  Reliance Interest Dmg.’s: represents the injured party’s loss caused by reliance on the K and seeks to put the P in as good a position as she would have been had K not been made; alternative if can’t prove Expectancy dmg.  Victim of a breach of K should be restored to the position he would have been in had the K been performed. However, an injured party may, if he so chooses, ignore the element of profits and recover as damages his expenditures in reliance. o This is a possibility in a losing K, one where the non-breaching party would have suffered a loss rather than a profit and is actually saved from further loss by virtue of the breach. Here, the non-breaching party may recover reliance dmg.’s “less any loss that the party in breach can prove w/ Rx certainty the injured party would have suffered has the K been performed  R2d 349: Includes expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove w/ Rx certainty the injured party would have suffered had the K been performed.  (110) Hollywood Fantasy Corp v. Gabor o [Measuring Lost Profits] Lost Profits don’t require exact calculation, must be proved w/ Rx Certainty o [What are not Available as Loss Profits] Profits which are speculative as from:  An activity dependent on uncertain or changing market conditions, or based on Objective Founds, mere speculation of the amount of lost profits is insufficient.  On chancy business opportunities  Or on the success of a new and unproven enterprise, cannot be recovered.  Diff. Here b/t Kavassay and Hollywood ->  Thinking about Potential Lost Profits & New Business: At least with Baklava other people in the market are stable, whereas Hollywood Companies there are less off and harder to predict. o [Claim on Lost Investors]  Court agrees P lost money with investors, but they have sufficiently linked Ms. Gabor and their o *P was entitled to specific out-of-pocked expenses incurred (so-called direct costs): The Reliance business as the reason for going out of business. Damages for preparing for the event and putting them back to where they were:  costs for brochures, press releases, marketing costs for ads, personal expenses, air fares, staff, tshirts, expenses preparing for possible television profit.  Arguing in the Alternative -> Here is my Expectation Damages, if that isn’t Good, Here is my Reliance Damages (caveat: If expectation damages lower, that gets deducted from reliance dmg.’s)   Restitution Damages: Give party an amount equal to the benefit their performance conferred on other party 64  Measuring Damages for Damages in Breach of K (ignore equitable dmg. Measurement) o Goal – Prevention of Unjust Enrichment. o IF a party has changed position in reliance on the K and has also conferred a benefit on the other party, the court may require the other party to disgorge the benefit received by returning it to the party who conferred it.  (111) US v. Algernon Blair o [F] A SC, Coastal, starting doing work for a primary contractor, Blair. Blair refused to make certain payments and Coastal stopped work. The SC brought suit against the primary contractor to recover for the services rendered. Coastal owed $37k, and it costed $37k to finish so Trial Court incorrectly just said it’s a wash. o Measure: The measure of recovery for quantum meruit is the Rx value of the performance, and recovery is undiminished by any loss which would have been incurred by complete performance  Rx Value of the Services Rendered: the amount for which such services could have been purchased from one in the plaintiff's position at the time and place the services were rendered (Look at What Other Companies Would Have Charged.).  R2d 373: When Other Part is in Breach o Non-breaching party: injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance (R2d 373)  R2d 374: Breaching Party o The party in breach is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach.  (112) Brinon v. Turner o [F] P made a 1 yr. employment K w/ D for agriculture work from 1831-1832, and K specified that the P would be paid $120 at the end of the K period. P voluntarily left his employment 9.5 months in, D refused to pay the P. o If a K is made and a party receives or gains a benefit more than what he suffers in damages from the labor, the labor actually done furnishes a new consideration, and the law thereupon raises a promise to pay to the extent of the reasonable worth of such excess  Amount of Value Received Minus Amount of Damage  Other Person Can Still Bring Suit] If a person makes a K fairly he is entitled to have it fully performed, and if this is not done he is entitled to damages. He may maintain a suit to recover the amount of damages sustained by the non performance. o Two Concepts:  a) Restitution Damages are not tied to the K, tied to the value of the work.  b) Also relevant how the employer has been harmed (D didn’t bring any evidence in silly man!) o Today, could have just gone the Divisible K route.  Think of it as a cap on what the non-breaching party has to pay 65