CONTRACTS
Fall 2000 - Garvey
I. THRESHOLD
A. Common Law
B. UCC
C. Statute of Frauds
II FORMATION
A. Offer
B. Acceptance
C. Consideration
D. Type of K
1.Quasi =restitution ie Kearns
2. Bilateral
3. unilateral
III TERMS
IV DEFENSES TO FORMATION AND ENFORCEMENT
V PERFORMANCE OF BREACH
VI DEFENSES TO BREACH
VII REMEDIES
A. Expectation: Out of pocket (labor + materials) + profit
1. Generals
a. Common Law
i Cost of Performance ii Market deferential
b. UCC
i buyer's remedies ii seller's remedies
2. Specials
B. Reliance
1. Substitute for Expectancy
2. Limitations of Expectancy (can't exceed expectancy)
C. Limitations on Expectancy and Reliance
D. Restitution: Prevents unjust enrichment/gain
1. For Breaching P
2. Quantum Meruit
E. Liquidated Damages:
F. Equitable Remedies: Specific Performance / Court Injunctive
G. Arbitration
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I THRESHOLD
A. Common Law & UCC
B. Statute of Frauds
In writing if:
1. sale or lease of an interest in land
2. sale of goods over $500 (if UCC)
3. to answer for the debt, default or miscarriage of another
4. not to be performed within 1 year
5. K in consideration of marriage
II FORMATION
A. MUTUAL ASSENT
1. K has mutual manifestation of assent 1) offer and 2) acceptance
2. Express: in words oral or written
3. Implied: acts or conduct alone
B. OFFER
1. Offer:
a. manifestation of willingness to enter into bargain, different than a promise
b. Terms
i. communicated to offeree
ii. manifest present intent
iii. definiteness and certainty of terms -
iv. effect of offer is to confer power on offeree ?
2. Objective Test: reasonable person in position of offeree
a. Intent: cts will not hold binding if both parties did not intend
b. also look at circumstances of the way people do business ie custom
3. Non Offers
a. Ads
i. unless made to a limited number of people and limited quantity.
ii. generally not k unless terms and quantities are definite
b. Preliminary negotiations/ to be agreed upon
i. did parties intend to k
ii. look to uncertainty of terms
iii. unless reliance by either party
c. Agreement to Agree / Invitations to Offer
i. lease agreement to terms in future -no legal obligation until future
agreement is actually made
ii. language indicative but not conclusive
iii. less definiteness less likely to be a k
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d. Shams, jest or joke
i. subjective intent relative
ii. unless if 3rd party effected than effective k
Certainty §33
(1) an intended offer can not be accepted as to form a k unless the terms of the k are
reasonably certain
(2) terms are reasonably certain if they provide a basis for determining the existence
of a breach and for giving an appropriate remedy.
(3) if one ore more terms of a proposed bargain are left open or uncertain, this may
show that manifestation of intent is not an offer or an acceptance
Writing §27
a. an agreement to oblige parties to execute memorialization to formalize can be seen
as a k.
b. factors to consider
i. detail and how important are the details
ii. size of the deal
iii. custom
iv. pre-k expenses ?
Employee Manual: jx split on whether employers bound by manual
a. Factors to consider
i. disclaimer needs to be conspicuous
ii. objectively presented / how a reasonable person would interpret
iii. handbook given b4 or after employment begins, etc.
COMMON LAW
a. DSQQPP (duration, subject, quantity, quality, payment, price)
b. must be established so that courts can award damages
c. must be expressed or implied
d. some can be given reasonable price or time etc.
Expiration §40
a. intent of offerer
b. usage in trade
c. volatility of market -stocks
d. specific language ie wire immediately
e. if no time period specified for power of acceptance, the power terminates at end of
a reasonable time.
Misunderstanding § 20
(1) NO manifestation of mutual assent if parties attach materially different meanings
to their manifestations AND
(a) neither party knows or has reason to know the meaning attached by the
other "I don't know your meaning and you don't know mine"
OR
(b) each party knows or each party has reason to know the meaning attached
by the other "I know your meaning and you know mine"
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(2) YES manifestations of the parties are operative in accordance with the meaning
attached to them by one of the parties IF:
(a) that party does not know of any different meaning attached by the other,
and the other knows the meaning attached by the first party
"I don't know of any other meaning you have and you know the meaning I have"
OR
(b) that party has no reason to know of any different meaning attached by the
other, and the other has reason to know the meaning attached by the first
party
"I don't have a reason to know you have a different meaning and you
have a reason to know my meaning"
EXCEPT
If unilateral mistake: 1 party mistake and other party not prejudiced then ct will
sometimes terminate k
Mistake §21(a)
a. offerer uses clear unambiguous language by mistake doesn't matter still binding
unless offeree knows of mistake
b. both parties mistake: k is void by either party
Where an offer invites either perf or promise § 62
(1) offer invites an offeree to choose between acceptance by promise and acceptance
by performance, the tender or beginning of the invited performance is an
acceptance by performance.
(2) such an acceptance operates as a promise to render complete performance
- bilateral protects both parties
Offeree's Interpretation § 32
-In case of doubt an offeree chooses acceptance either by promising to perform or
rendering performance
Methods of Termination § 36
(1) offeree's power of acceptance may be terminated by
(a) rejection or counter-offer by the offeree OR
(b) lapse of time OR
(c) revocation by the offeror OR
(d) death or incapacity of the offeror or offeree
(e) failure of any terms or conditions
(2) also terminated by the nonoccurrence of any condition of acceptance under the
terms of the offer
Expired §40
a. Expired when offerer specifies
i. offerer may still revoke within time specified
ii. Duration: usage in trade, language used by offerer, mode of acceptance
specified by offerer
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b. if no specification than reasonable time
c. offer starts when offeree receives offer
-unilateral terminated b4 act performed and at time of death
-bilateral terminated b4 promise to accept but not upon death
Revocation of Unilateral
a. not revocable if part performance and completed in a reasonable time
OPTION K
§45 Part Performance or Tender: Option K - Expectancy
(1) offer invites offeree to accept by rendering performance but does not invite
acceptance, option k is created when the offeree tenders or begins the invited perf.
(2) offeror's duty of performance is conditional on completion or tender of the invited
perf in accordance with terms of offer
- protects both offeror and offeree
§ 87 Option K -Reliance
(1) binding as option k if:
(a) is in writing and signed by offeror, recites a purported consideration and
proposes an exchange on fair terms within a reasonable time OR
(b) is made irrevocable by statute ?
§87(2) Reliance of an Option K
(2) offer which offeror should reasonably expect to induce action or forbearance of a
substantial character on the part of the offeree before acceptance is binding as an
option k
-preparations to perform may constitute justifiable reliance sufficient to make
the offeror's promise binding under
UCC
UCC 1-201(3) Defining an agreement:
(3) bargain of parties as found in language, implication from circumstances, usage of
trade or course of performance
UCC 1-201 (10) Conspicuous
(10) conspicuous when a reasonable person ought to have noticed it. for the ct to
decide
S/F Authentication
a. a word that includes any authentication that identifies the parties. A writing by
party against whom enforcement is sought and quantity sought. Not strict b/c
everything else can be implied.
b. Emails can be argued must have fingerprint of signer.
UCC 2-204 Basis for Breach
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(1) remedy when manifestation of intent is too indefinite. K when parties show
agreement
(3) more liberal-will apply missing terms. K won't fail if terms are indefinite
UCC 2-205 Firm Offers by Merchant
a. signed writing which gives assurance that it will be held open for up to 3 months if
none stated
b. not revocable for lack of consideration
UCC 2-206
(1) (a) offer is construed as inviting acceptance in any reasonable manner
(b) acceptance either by actual shipment or by a promise to ship the goods
(2) beginning the requested performance is a reasonable way of accepting the offer,
offeree's doing so binds the offerer
UCC 2-208
(1) where repeated occasions for performance w/ knowledge of nature of performance,
any performance accepted is relevant to determine the meaning of the agreement.
(2) express terms controls course of performance and course of performance controls
both course of dealing and usage of trade.
(3) course of performance is best way to show a waiver or modification of any term
inconsistent with such course of performance.
UCC 2-305 Open Price Term
a. if parties intended to be bound, okay to leave price open
b. market price at time of delivery when price not stated
UCC 2-306 Outputs/Requirements/Exclusive Dealings
a. reasonable expectations of both parties
b. comparable prior output
c. Exclusives: best efforts by both parties ie Lady Lucy
UCC 2-308
a. place of delivery uncertain, seller's place of business
UCC 2-309 Time Uncertain
(1) reasonable time
(2) successive performances then valid for a reasonable time and terminated at
anytime by either party
UCC 2-310 Open Time for Payment or Running of Credit
a. Pymt at time and delivery of goods
C. ACCEPTANCE
1. Defined
a. voluntary act
b. accept by manner required or authorized by offerer
2. Who may accept
a. only party being offered
b. not accepted by 3rd party
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3. Acceptance must be unequivocal and unqualified
E. CONSIDERATION
1. Test
i. bargained for exchange §71
"performance or return promise is bargained for if sought by promisor in
exchange for his promise and is given by the promisee in exchange for that
promise"
ii. benefit to promisor or detriment to promisee
2. Types
a. Bilateral
b. Unilateral
c. Forbearance §74: sufficient consideration
i. objectively valid
ii. objectively doubtful -uncertainty of the facts
iii. objectively invalid but forbearing party believes to be correct
(*only what forbearing party knows is important)
d. Gift: requires delivery and intent
e. Investment and Risk: sufficient consideration
f. Modification of K
i. Common Law
modification needs additional consideration & intent of parties
ii. UCC
modification in good faith, no additional consideration needed
g. Mixed Motives §81 and §71 (1) : still good consideration
h. § 86 Common Law ?
promise for benefit to prevent injustice ie Shoenkerman ?
3. Not Consideration
a. Love, Affection and Sex
b. gift, social promise or gratuitous promise
c. volunteer
d. pre-existing duty or former obligation to perform
e. unequal exchange for money or nominal consideration unless different time
f. Sham transactions: false pretenses, fraud, deceiving, etc
g. Disclaimers unless conspicuous
4. Moral Consideration
a. When should moral obligation constitute legal enforcement?
1. Most jx reject pure moral obligation
2. Some jx Enforce if
i. restitution
ie Material Benefit Test: benefit to defendant
ii. easier to measure, more likely court will enforce promise
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iii. promisee expectation of getting paid
iv benefit consciously appropriated by promisor
v § 86 does allow for moral obligation, but limited to benefit
conferred -restitution, but limited to balue of promise. ie can not
get more than promised.
5. Illusory Promise -does not bind the promisor
§77 not valid consideration UNLESS:
1. each would have been good consideration if each alone would've
been bargained for
2. one alternative would've been consideration and it appears to
parties that a substantial possibility that before promisor exercises
choice events may eliminate that alternative. Obering
Illusory:
I'll mow your lawn if it doesn't rain
Termination w/out notice
Not Illusory
Exclusive Dealings UCC 2-306: one person's profits are dependent on
another's best efforts. Both parties agree to use best efforts. Lady Lucy
Output Requirements UCC 2-306: Parties under good faith obligation
to continue selling or buying. Small lost profits is not a good enough
reason.
binding if business established or not
business past records or past performance
Breach When:
-standard changes ie type or time changes
-if party moves out of area or sells/buys elsewhere
-good faith breach ie bankruptcy
Written Notice of Cancellation: any amount of days notice is enough or
UCC 2-309 provides that parties agree that w/in reasonable notice can
terminate.
Conditional Promise: not illusory as long as condition is not w/in
control of promisor. ie satisfaction Omni
Personal Satisfaction: Implied duty of good faith unless unfettered
discretion then illusory. ie painting
Employment Termination: good faith termination at will EXCEPT
public policy concerns ie manager fired for complaining about unmet
health requirements.
6. Substitution for Consideration (when no mutual assent)
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a. PROMISSORY ESTOPPEL
Applies to: gratiutous promises, gifts, charitable subscriptions and promise of
employment if job never offered.
Remedy Reliance - no bargain but consequence to promise
Elements (must meet all requirements)
1. must be a promise
2. promise must induce reliance / detrment on promisee
3. reliance is reasonably foreseeable by promisor
4. reliance must be substantial
5. remedy is limited as justice so requires: guided by reliance but can give
expectancy
Equitable Estoppel: representation of fact followed by detriment reliance
- estopped to deny promise ie enforce K expectancy
PE used as
1. affirmatively (enforce reliance)
2. defense Fisher
3. protect 3rd party interest Bank (pg 280)
4. defense to a defense (pg 286)
Used in
1. Uncompleted gifts of land
a. possession + improvements
+ money
+ taxes
+ etc
2. Avoiding Statute of Frauds § 139 (pg 271); only remedy is to enforce
promise
a. Modern PE:
i. extends beyond S/F
ii. extends beyong equity
iii. extends beyond part performance
3. Charitable Subscriptions
a. Problematic b/c must show how charity relied on promise and not
in course of normal business therefore no PE
b. Social policy enforces charity promises § ?
c. Cardozo: bilateral thus enforceable b/c 2 exchanges
4. Bailment/Gratuitous Agency
a. misfeasance v nonfeasance
(? furniture case maybe no recovery ?)
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bailee (promisee) takes goods, bailor (promisor) relied
5. Franchises
a. termination at will
b. PE used to protect franchisee if relied
Emerson Radio
6. Permanent/Lifetime Employment
a. terminable at will
b. cts reluctant to apply PE, but some apply good faith meaning
terminable for good cause shown
c. generally no PE because too easy to show reliance in employment
d. EXCEPT Whistleblower: Policy Concerns with statutes then courts
will enforce
B. SEAL
III TERMS
IV DEFENSES TO FORMATION AND ENFORCEMENT 2nd semester
V PERFORMANCE OF BREACH
VI DEFENSES TO BREACH
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VII REMEDIES
A. EXPECTATION: Out of pocket (labor + materials) + profit
1. Generals: naturally flow from breach therefore are foreseeable. Hawkins
a. Common Law
Construction / Cost of Performance:
Restatement of Rule: When breach of construction contract, P gets cost
of performance unless economic gain, which then is diminished value,
unless like ugly fountain, which is non-economic waste.
Peevyhouse: cost of performance b/c non-economic gain
Ugly Fountain
Land Contracts
k - market price of land on date for delivery of deed
Groves: value of land if K performed - value of land as left
b. UCC
i buyer's remedies ii. seller's remedies 2-703, 5,
2-712 Cover 2-706 Resale
2-713 k - market at time of breach 2-708 (1) Market price at time and
place of tender - k price
2-715 Incidentals and conseq. 2-708 (2) Lost volume seller gets lost
profits
2-716 Right to specific perf 2-709 Action for price: when buyer
refuses to pay, buyer may resell
or seek jdgt to pay. If resell then
subtract from k price
2-711 2-710 Incidentals
2-610 2-609
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Acme Mills: contract P – reasonable market P at place & time of
delivery = Reliance
2. Specials: damages peculiar to specific P and only given if foreseeable
B. RELIANCE: Out of pocket expenses only = labor + materials
1. Alternative for Expectancy when expect can't be determined or when excessive due to
social policy
Security Stove v American Ry express
Anglia Television v Reed: b4 k formed but relied on k
L Albert & Son v. Armstrong Rubber
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2. Pre-K reliance not generally recoverable
3. Implied In Fact
a. intent not expressed through actions or circumstances
4. Statute of Frauds
Boone v Coe
4. Quantum Meruit
US v Algernon
Kearns v Andree
Oliver v Campbell
C. LIMITATIONS ON RESTITUTION AND RELIANCE
1. Duty To Mitigate: D burden to show non-mitigation, if none made than subtract
savings made possible by breach only.
i Common Law
a. construction
Rockingham v Luten Bridge: should've stopped erection of
bridge when K breached
b. employment: duty to seek comparable employment only
Parker v 20th Century Fox: Reasonable employment not different
Billetter v Posell: cts look at social policies and equity for employees
c. services: earnings deducted but not fixed overhead
Kearsarge Computer Inc.: burden on D to show minim. of damages
d. option to wait for performance or to sue immediately
ii UCC
a. buyer's remedies
2-715(2) duty to obtain reasonable substitute to minimize damages
seller's remedies
2-708(2) Savings not deducted by expansible seller after breach
b. party can wait a reasonable time, resort to other remedies, or
suspend jobs. 2-610
c. mitigation price - k price
Neri
Missouri Furnace Co. v Cochran: unreasonable b/c bought cover at high
market
2. Foreseeability: Usually re special damages
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i Common Law
a. services: special damages are recoverable if communicated
Hadley v. Baxendale
ii UCC (consequential)
Lamkins v International Harverster Co
Victoria Laundry v Newman insdustry
Prutch
a. Tacit Agreement Test generally not allowed ?
iii. Mental Distress not allowed b/c not foreseeable
Valenting v. General American Credit, Inc
3. Certainty -damages must be measurable
i Common Law
Fera v Village Plaza
Chicago Coliseum Club v Dempsey
Freud
ii Proof
expert testimony, past business records
4. Valuation
i Common Law
Louise Caroline Nursing Home: price to complete awarded not
diminished value
ii UCC
only get price contracted for
Resale v. wholesale
5. Causation: did any amount of damages in fact occur
D. RESTITUTION: Prevents unjust enrichment/gain
1. Prerequisites
a. P conferred services with reasonable expectancy of getting paid and
b. D allowed to retain benefit would be unjust enrichment
c. services were actually requested by D or
2. Measurement
a. D insubstantial breach (mostly performed) = value of k
b. P willful and substantial breach (partly performed) = no restitution
c. P insubstantial breach (most perf) = k-devaluation of deficiency / cost of
completion
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Britton v Turner
Thach v Durham
Pinches
Vines
DeLeon v Aldrete
3. UCC
a. 2-607 Restitution for Seller
b. 2-718 Restitution for Buyer
4. SOF: restitution will avoid a bar of SOF (reliance enforces SOF)
5. Implied In Law -not expressed in words written nor oral
a. no reference to parties intent
b. market value
c. if P expected to get paid ie plumber
E. LIQUIDATED DAMAGES CLAUSE:
1. Common Law § 356
Test to determine if Clause is valid:
a. reasonable forecast (foreseeable)
b. difficult to estimate or prove
- more difficult to prove, the more reasonable the clause is
- actual damages not necessary to recover liq clause, but relevant to see if reas.
c. social policy: fair bargain (unconsciounability)
*penalty clause if different breaches together do not satisfy test above
2. UCC 2-718
a. reasonable amount agreed to
b. buyer breach: 20% or $500 whichever less ?
c. seller breach: nothing
City of Rye
Wilt v Waterfield
Fretwell
3. Underliquidated Damages
a. public policy determines not test above
F. Equitable Remedies: SPECIFIC PERFORMANCE / Court Injunctions
1. Specific Performance §360 (p 157)
a. given when no other remedy at law - remedy of last resort
b. Test
i. difficulty in determining value
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ii. unique goods (inability to cover) 2-716
c. § 367 (1) courts will not give SP or injunction for personal services b/c obnoxious
relationship
d. Employment K: usually not b/c servitude
e. Construction K: usually not give b/c too much supervision involved
f. Exceptions: Arbitrators and Land K
2. Prohibitory Injunction
a. When ct orders party to refrain from doing something that would interfere with
his/her ability to carry out performance of k.
Van WagnerAdvertising v. S&M
Curtice Bros v Catts
Manchester Dairy v Hayward
Paloukos v Intermountain Chevrolet
Eastern Rolling Mill v Michlovitz
G. ARBITRATION
- cts tend to enforce even if SP b/c alleviates the cts
Less _______SP________Damages_________PE__________Reliance________ more
definite definite
- +
K Promissory Estoppel
Specific Damage Reliance
Performance Remedies
Expect Reliance Restitution
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