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					                    OBLIGATIONS OUTLINE - SPRING 2002
                            PROF. LITVINOFF

                          THE BARGAINING PROCESS

                    SECTION 1: THE NATURE OF ASSENT

There are two contrasting theories of contract:

      Objective
          o This theory is contributed by HAND; it’s borrowed from the torts
             concept of the “reasonable man” and thus is subject to the same
             criticisms. This theory may have come out of a desire for legal
             symmetry, uniformity (may have been prompted by aesthetic
             impulses) see p. 139
          o In this theory, the parties’ actual intent is not relevant.
          o This theory prevailed in the drafting of the Restatement 2d.

      Subjective
          o This theory is contributed by FRANK; it pays great attention to the
             inward expectations of the parties.

In Lucy v. Zehmer, p. 140, the court didn’t deny that to Zehmer this may have been a
joke, but his and his wife’s outward acts appeared to Lucy to be intent to make a
valid contract.
     Contract was discussed for 40 minutes prior to signing.
     Delineation of what’s to be included.
     Provision for examination of the title at a later date.
     Lucy’s objection that Mrs. Zehmer sign the contract too; she then complied.
     Mrs. Zehmer told her husband he should drive the Lucys back home (she
       wouldn’t have suggested that if she thought her husband was drunk).
     The inclusion of the provision for examination of the title.
     Lucy took possession of the instrument without protest from the Zehmers.

Quotes from Lucy:

“The mental assent of the parties is not a requisite for formation of a contract.”

“If his words and acts, judged by a reasonable standard, manifest an intention to
agree, it is immaterial what may be the real but unexpressed state of his mind.” The
objective approach prevailed in the court’s rationale here.

“In the field of contracts, as generally elsewhere, we must look to the outward
expression of a person as manifesting his intention rather than to his secret and




                                          -1-
unexpressed intention. The law imputes to a person an intention corresponding to
the reasonable meaning of his words and acts.”

In Keller v. Holderman, p. 143 note, the court held that when the whole transaction
between the parties was a frolic and a banter, the plaintiff not expecting to sell nor
the defendant to buy the watch at the sum for which the check was written, the
conclusion should have been that no contract was ever made by the parties. It was
the outward expression of both of the parties that they were joking.

In the Laserage Technology Corp. (LTC) v. Laserage Laboratories, Inc. (Lab-West) case
p. 143, Mr. Byrum’s shares were being bought out by Capp & LTC. The debate was
over whether or not LTC had agreed to offer Mr. Byrum security for the sale. The
court found that LTC’s two letters indicated that the security they were offering was
for Mr. Byrum to retain his shareholder rights (save for voting) until the sale was
complete.

      At p. 145, the judge follows Illinois law – which is the objective theory – “in
       assessing LTC’s and Lab-West’s intent, their secret hopes count for nothing
       because the status of a document as a contract depends on what the parties
       express to each other and to the world, not on what they keep to themselves.”
      Again, in contemporary common law, the trend is towards the OBJECTIVE
       APPROACH.

In the Sullivan v. O’Connor case p 7, 147, the courts again use the objective approach
in evaluating a doctor’s statements to his patient. Lit says that doctors may use these
statements for a therapeutic effect; Lit also says that in these cases, evaluating
doctor’s words using the objective approach may not be fair.

      See p. 148 – Michigan statute (which Lit says is similar to a LA statute) –
       which provides that a Dr.’s guarantee of results is only valid contractually if
       made in writing. This is done to protect physicians.

                        “GENTLEMAN’S AGREEMENTS”

Can parties avoid enforceability if they expressly state they do not intend to be
bound?

Underwriters of stock usually write to the issuer a “letter of intent” which the issuer
signs. This letter of intent usually has the terms of the proposed underwriting but
also states that there is no liability or obligation of any nature created between the
parties.
     In the Dunhill Securities Corp. v. Microthermal Applications, Inc. case, p. 149,
        the stock being underwritten was valued at more than it was previously. The
        underwriter then sued the issuer because he wanted to buy at the first (lower)
        price. The court said that the letter of intent was not binding – THIS IS THE



                                          -2-
       OBJECTIVE APPROACH AGAIN – the outward expressions of the parties
       via the letter of intent was that they DID NOT intend to be bound.

      In the Mabley & Carew Co. v. Borden case p. 149, an employer gave an
       employee a certificate promising that a specified death benefit would be paid
       to her designated beneficiary if she was still employed at the time of her
       death, but stating that “it carries no legal obligation whatsoever or assurance
       or promise of future employment, and may be withdrawn or discontinued at
       any time by this Company.” The court here, as most courts would, held the
       employer bound despite the outward intention not to be held bound. THIS IS
       A MORE SUBJECTIVE APPROACH.

      In Balfour v. Balfour, p. 149 note 1, the court decided to deny an ex-wife
       promised payments from her husband on a public policy basis. The court
       ruled that promises made between husband and wife “are not contracts
       because the parties did not intend that they should be attended by legal
       consequences.”

      Compare the Morone case (which was decided same as Balfour, and the
       Marvin case, in which the court allowed the nonmarital partner to recover for
       the reasonable value of household services rendered less reasonable value of
       support received if he can show that he rendered services WITH THE
       EXPECTATION OF MONETARY REWARD. In LA, courts would agree
       with the Balfour and Morone decisions – these services are rendered
       gratuitously.

                  “FORMAL CONTRACT CONTEMPLATED”

Remember, oral contracts are enforceable, as are informal contracts; parties can
make contracts in writing if they so wish.

In complex negotiations, parties often agree on what they deem the essential terms
and leave others for their attorneys to hammer out. If one of the parties refuses to
sign the formal document, can the other enforce their agreement?

      Tension between the concepts – contract arises upon meeting of the minds, no
       binding contract absent a writing – has resulted in courts struggling to resolve
       this conflict. Two principles have come out of this:
           o That absent an expressed intent that no contract shall exist, mutual
              assent between the parties, even though oral or informal, to exchange
              acts or promises is sufficient to create a binding contract; and
           o That to avoid the obligation of a binding contract, at least one of the
              parties must express an intention not to be bound until a writing is
              executed. This is called memorialization (reducing a contract to
              writing).



                                         -3-
In Winston v. Mediafare Entertainment Corp., the court listed 4 factors that held
determine whether the parties intended to be bound in the absence of a document
executed by both sides:

   1. Is there express reservation not to be bound until there’s a writing (by either
      party?
   2. Has there been partial performance?
   3. Have all terms been agreed upon?
          a. This may be the most difficult factor to establish. This is not found
               much in civil law. In LA, if parties negotiate a sale, they bind
               themselves to what the code (Art. 2438) has to say.
          b. Some open terms are deal breakers, others not.
                    i. A/S Apothekernes Lab . IMC Chemical p. 151 – contract was
                       subject to the approval of the board – THIS WAS A DEAL
                       BREAKER
                   ii. Budget Marketing, Inc. v. Centronics Corp. p. 151 – involved a
                       letter of intent – THIS WAS ALSO A DEAL BREAKER
                  iii. Teachers Ins. And Annuity Ass’n v. Tribune Co. p. 151 – loan for
                       $ was agreed to; oral agreement to reduce to writing with
                       customary terms. Defendant refused to execute writing because
                       they couldn’t agree on the accountants to be used. The court
                       said the writing will contain the customary terms. Accountants
                       to be used is not essential to the deal. YOU ARE BOUND –
                       THIS WAS NOT A DEAL BREAKER.
                           1. When you have open terms, it is required that the parties
                               negotiate the open terms in good faith toward a final
                               contract incorporating the agreed terms.
   4. Is this the type of contract that’s usually made in writing?
***courts don’t always use these four factors (LASERAGE case)

There may be a tort action even if the contract was invalid for other reasons.
    In Texaco, Inc. v. Pennzoil Co., p. 153 note 4, Getty agreed to sell to Pennzoil
      for $750 million on a handshake; he then sold to Texaco. Pennzoil sued
      Texaco for tortuous interference with their contract. Texaco lost $10 billion
      for this interference. These are the consequences of a shake of the hand.

                            SECTION 2: THE OFFER

It is common to assume that the bargaining process involves two distinct steps:
      First, an offer by one party and
      An acceptance by the other.

Corbin’s definition of offer
    An offer is…an act whereby one person confers upon another the power to
      create contractual relations between them.
    The act of the offeror operates to create in the offeree a power….;


                                         -4-
      Thereafter the voluntary act of the offeree alone will operate to create the new
       relations called a contract
      What kind of act creates a power of acceptance and is therefore an offer?
           o It must be an expression of will or intention.
           o It must be an act that lead the offeree reasonably to believe that a
               power to create a contract is conferred upon him; it should lead the
               other party to believe they have the power/right to accept.
                   It is on this ground that we must exclude invitations to deal or
                      acts of mere preliminary negotiation, and acts evidently done in
                      jest or without intent to create legal relations.
                   All these are acts that do not lead others reasonably to believe
                      that they are empowered “to close the contract”

Offer and acceptance are important analytically.

Owen v. Tunison, p. 154.

Defendant says he did not make an offer – he only said “ it would not be possible for
me to sell it unless I was to receive $16,000 case.” Defendant here was not
expressing a will to sell – only what price hi may consider.

Is “I want” an offer – in Nebraska, no.

In general terms, courts are choosy in determining whether this constitutes/what
constitutes an offer – sometimes it goes to if words reflect parties’ intentions to
contract.

Harvey v. Facey, p. 156.

The plaintiff sent this correspondence to defendant – “will you sell Bumper Hall?
Telegraph lowest price.” Defendant answered only with the lowest price, 900
pounds.

The court said that the defendant only answered one question, therefore, no contract
because this was not an offer.

p. 155 note 2 Southworth v. Oliver

The court said this was not an offer because the letter was also sent to other people –
it was only an invitation to receive offers.

p. 157 – analysis of communication

If we redraft Facey’s words to “I will sell to you for $16,000” and “I won’t sell to you
unless you make an offer for $16,000” was his original communication closer to the
first or second? It was closer to the second, therefore not an offer.


                                          -5-
p. 158 – Fairmount Glass Works v. Crunden-Martin Woodenware Co.

Issue – was there a true offer and acceptanc here? The court says the seller should
have known the buyer was ready to purchase. The words “we quote you” should be
taken in context of other communications. Therefore, in this situation they are a
offer.

§ 33 – CERTAINTY

   1. Even though a manifestation of intention is intended to be understood as an
      offer, it cannot be accepted so as to form a contract unless the terms of the
      contract are reasonably certain.
   2. The terms of a contract are reasonably certain if they provide a basis for
      determining the existence of a breach and for giving an appropriate remedy.
   3. The fact that one or more terms of a proposed bargain are left open or
      uncertain may show that a manifestation of intention is not intended to be
      understood as an offer or as an acceptance.

Here, is the quantity term indefinite? The court says no. The buyer said with specs
to follow – they had already inquired what different sizes, etc they wanted. In
addition, the appellant had already declined to furnish the goods before it got the
letter detailing what they wanted.

The basic rule of law from this case is that the use of the words “we quote you” is an
offer if taken in a particular context (ex – we offer to sell you at a particular price)

p. 160 – Moulton v. Kershaw

The first communication from seller to buyer contained the word “offer” but this was
more of an invitation to offer because there was no fixed quantity term. In terms of §
33, this would be a legal impossibility to be considered an offer because a very
important term is left out; however, under the UCC this would be termed OK for a
reasonable amount.

                              ADDRESSEE OF OFFER

An offer can only be accepted by the person to whom it has been offered. Exception
– rewards.


§ 52 – WHO MAY ACCEPT AN OFFER

An offer can be accepted only by a person whom it invites to furnish the
consideration.

p. 163 – Boulton v. Jones


                                          -6-
Boulton didn’t tell Jones ownership had changed. Jones refused to pay for goods
after he realized ownership had changed.
     The court, in holding for Jones, said no contract “when a contract is made, in
        which the personality of the contracting party is or may be of importance, as a
        contract with a man to write a book, or the like, or where there might be a
        setoff, no other person can interpose and adopt the contract.”
     Boulton may be able to recover under quasi-contract (unjust enrichment).

p. 163 – Craft v. Elder & Johnston Co.

Newspaper ad for a sewing machine worth $175 was selling for $26. The court says
– there’s no offer in newspaper ads – only an offer to negotiate.

p. 165 – “bait & switch” – gave rise to truth in advertising legislature. Ads are still
only offers to negotiate. Statutes exist to award damages to customers in some
states.

p.165 – Lefkowitz v. Great Minneapolis Store

This is an example of when an ad may be an offer. The ad said first come first
served. The court said this was an offer, particularly because the terms were much
more definitive.
     Where the offer is clear, definite and explicit, and leaves nothing open for
        negotiation, it constitutes an offer, acceptance of which will complete the
        contract.

p. 167 – French law – in Paris, there’s an ordinance that says that displaying an
article in a store window with a price tag is an offer provided that it hasn’t already
been sold.

p.163 – competitive bidding – bidders make offers; auctioneer accepts. In general
terms, the auctioneer is not bound to take the highest bid, he’s only bound if the sale
is without reserve. *** Ask Lit***

Remember what the overstatement of the law of ads is – all ads are not offers.

                                   MISTAKEN BIDS

A general contractor usually belongs to a particular trade himself and will do part of
the job himself, but will subcontract for other areas of the job. See p. 168 – 170 for a
general discussion of the bidding process.

p. 178 – Tyra v. Cheney, note 3
     All courts agree that if the offeree knows or has reason to know of the
       offeror’s material mistake at the time of acceptance, the offeror is not bound.
     “one cannot snap up an offer or bid knowing that it was made in mistake”


                                           -7-
      An offeree may not accept an offer that they know is too good to be true.

In contracting, there are many offers involved; also, you can have many different
types of mistake made. Examples of issues that may arise:
     Owner not bound to accept lowest bid
     Lowest bid may be above the owner’s ceiling
     Lowest bid may be by a non-responsive contractor (someone the general
       doesn’t trust)

When the owner is the government, the process is regulated by state law or city
ordinance. The government IS bound to accept the lowest bid.

Elsinore Union Elementary School District v. Kastorff p. 171

Kastorff mistakenly eliminated the plumbing section from his bid and then in
addition wrote “deduct $3000” on the envelope just prior to submitting his bid. His
bid was $11,000 lower than the next bid. The board insisted on keeping his bid.
Kastorff wanted to remove it.
     Kemper case was very similar. The difference in the amount of the bids is
       called the spread. If there is a large spread, there may be a mistake on its face.
     The court said the board held an option (irrevocable for a period of time); this
       cannot be taken away unless there are grounds for rescission.
     CA Civil Code – relief is allowed for mistake, not neglect of a legal duty.
     Court said Kemper had made a clerical and therefore excusable and honest
       mistake. He was not trying to “get over.”
     In Kemper, the mistake was communicated before the bid was accepted. In
       Kastorff, the mistake was communicated after the bid was accepted.

The Kastorff court allowed him to withdraw his bid because he had made a mistake
and neglect of legal duty was not involved.

Ordinarily a general contractor’s bid on a construction contract is an offer that is
revocable before acceptance. Where, however, the owner is a state or local
government, statutes or ordinances usually provide that the general contractor may
not withdraw its bid after the bids have been opened. Where the owner is the federal
government, the same result has been reached on the basis of federal regulation (45
days).

Courts have traditionally been less willing than the CA court to grant relief to
mistaken bidders.
    Courts that have granted bidders relief fro mistake have often characterized
       the mistake as “clerical” rather than as one in “judgment.” The reasoning is
       that the former type is inexcusable because it is in computation rather than
       judgment.




                                            -8-
      All courts agree that if the offeree knows or has reason to know of the
       offeror’s material mistake at the time of acceptance, the offeror is not bound.
      P. 178 – Heifetz Metal Crafts v. Peter Kiewit. In this case the court did not allow
       the bidder relief because the general had no reason to know what the
       reasonable price for the work being done would be.

                          SECTION 3: THE ACCEPTANCE

Corbin’s definition of acceptance:
    It is a voluntary act of the offeree whereby he exercises the power conferred
      upon him by the offer, and thereby creates the set of legal relations called a
      contract.
    What acts are sufficient to serve this purpose?
          o We must look first to the terms in which the offer was expressed, either
              by words or by conduct.
    The offeror has, in the beginning, full power to determine the acts that are to
      constitute acceptance.
    One of the most important consequences of this “set of legal relations” is that
      the offeror is no longer free to change its mind and withdraw from the
      relationship without incurring liability.

International Filter Co. v. Conroe Gin, Ice, & Light Co. (1925) p. 180.

The defendant’s main argument here was that the plaintiff did not communicate his
acceptance to defendant/buyer.

      RULE OF LAW: the court says that an offeror is free to waive the right to
       have the acceptance communicated.
      The letter of 2/14 was sufficient notice of communication.

§ 56 – ACCEPTANCE BY PROMISE; NECESSITY OF NOTIFICATION TO OFFEROR

Except as stated in § 69 or where the offer manifests a contrary intention, it is essential
to an acceptance by promise either that the offeree exercise reasonable diligence to notify
the offeror of acceptance or that the offerer receive the acceptance seasonably.

Courtney Shoe Co. v. E.W. Curd & Son (1911) p. 184 note. The court held that this was
not an offer because it only promised to consider the offer.

Hill v. Kessler (1952) p. 184 footnote case

The court ruled that the suit manufacturer had accepted the offer – suits are
seasonable items and should be accepted within a reasonable time.

White v. Corlies & Tift (1871) p. 184.



                                              -9-
Here, the plaintiff wanted cabinet work done in 2 weeks. Negotiations were being
done. Defendant sent a message saying that upon an agreement you can begin at
once. Plaintiff went out and bought material and didn’t answer letter. Before he
started doing the actual work, defendant sent a revocation.

      Was the purchase of wood and materials an acceptance by performance?
          o Court says NO
          o Buying the material was not an act of performing the contract.
          o Court should have focused more on the communication which was
             AMBIGUOUS (settle in favor of NO contract when you have
             ambiguous language)
          o What should White have done?
                 Sent an acceptance
                 Went to offices and begin work
      Acceptance by promise is usually more prudent

Barker v. Allied Supermarket (1979) p. 187 note case

      Court says taking of the bottle in a supermarket with the intention to pay for it
       is acceptance by the buyer. If you return bottle to the shelf this is termination.

Ever-tite Roofing Corp. v. Green (1955) p. 187

      The job was to be done on credit; roofing co had to check the Green’s credit
       which would take a few days. The Greens knew this.
      Greens were the ones making the offer.

§ 30 – FORM OF ACCEPTANCE INVITED

   1. An offer may invite or require acceptance to be made by an affirmative answer in
      words (edit – acceptance by promise!), or by performing or refraining from
      performing a specified act, or may empower the offeree to make a selection of
      terms in his acceptance.
   2. Unless otherwise indicated by the language or the circumstances, an offer invites
      acceptance in any manner and by any medium reasonable in the circumstances.

This is a difference between common and civil law – in civil law an offer can be
revoked any time before it is accepted.

Ever Tite accepted the offer by driving over there with trucks loaded ready to
perform – the contract says that agreement shall become binding “…or upon
commencing of the work.” Ever Tite commenced the work and therefore accepted.

Be able to distinguish acts in preparation of performance and acts of performance.

                     NOTICE IN UNILATERAL CONTRACTS


                                           - 10 -
In common law, a unilateral contract is an offer that calls for performance as
acceptance.

Carlill v. Carbolic Smoke Ball (1892) p. 188.

      The offeror can waive the right/dispense with qualification of notification.
      Court said – ad was an offer inviting acceptance by performance.

§ 56 – ACCEPTANCE BY PROMISE; NECESSITY OF NOTIFICATION TO OFFEROR

Except as stated in § 69 or where the offer manifests a contrary intention, it is essential
to an acceptance by promise either that the offeree exercise reasonable diligence to notify
the offeror of acceptance or that the offerer receive the acceptance seasonably.

The exception is if the parties are at a distance – the offeree needs to communicate
that he’s performed or is about to perform.

According to the restatement, when acceptance takes place by performance the
offeree should give notice. There was a contract here by performance. What about
notice? If the offeree fails to give notice, offeror’s duty is discharged.

1. A       cut tree $50       B


2. B       cut tree


3. A       revokes


4. B       notice             A


if B fails to give notice to A within a reasonable time, A’s duty is discharged.

Performance ALONE is acceptance – notice is an additional requirement that comes
after acceptance.

Bishop v. Eaton (1894) p. 189.

Frank Eaton in Nova Scotia had written to Bishop in Illinois that if he would help
his brother Harry Eaton to get money “I will see to it that it is paid.” Bishop did help
Harry get money by signing his note as surety when he got a loan. When Harry did
not repay the loan Bishop did and sued Frank on his promise. The court thought this
was a case in which notice should have been given, since the loan was in Illinois and
Frank was in Nova Scotia. “Ordinarily there is no occasion to notify the offeror of


                                           - 11 -
the acceptance of such an offer, for the doing of th aact is a sufficient acceptance, and
the promisor knows that he is bound when he sees that action has been taken on the
faith of his offer. But if the act is of such a kind that the knowledge of it will not
quickly come to the promisor, the promisee is bound to give him notice of his
acceptance within a reasonable time after doing that which constitutes the
acceptance.” Here, the court said that Frank got notice by the letter.

Allied Steel and Conveyors, inc. v. Ford Motor Co. (1960) p. 190.

      This case involved a full indemnity clause – one party assumes liability for the
       other party’s fault.
      Allied does jobs in Ford’s plant.
      Ford places an order with Allied, # 15145 in a printed form with an attached
       flier that has a full indemnity clause. Flier #3618 (the indemnity clause) was
       marked VOID therefore no indemnity.
      A few months later, Ford amended their order and the flier was NOT marked
       void.
      Allied’s Hankins was hurt by Ford’s employees on 9/5. the amendment was
       done on 11/10. this required a particular type of acceptance. Allied received
       the order and immediately began to perform.
      Allied then says they never accepted.
      Ford let the Allied workers in – Allied could accept in any manner, therefore
       by beginning the work they had accepted and were liable for Hankins’
       injuries.

The case of the church’s counteroffer. P. 193 note 4

      Here, the church sent an uncertified check when a certified check was
       requested. Insurer cashed check but refused to issue new premium
      The court said the church was making a counter offer by cashing it, the
       insurer accepted. Insurance company should have known that the church
       wanted to buy a new policy by the amount of the check sent.

                    SHIPMENT OF GOODS AS ACCEPTANCE

§ 2-206 OFFER AND ACCEPTANCE IN FORMATION OF CONTRACT

                     (1) Unless otherwise unambiguously indicated by the language or
                         circumstances
                                  a. An offer to make a contract shall be construed as
                                     inviting acceptance in any manner and by any
                                     medium reasonable in the circumstances.
                                  b. An order or other offer to buy goods for prompt or
                                     current shipment shall be construed as inviting
                                     acceptance either by a prompt promise to ship or by
                                     the prompt or current shipment of conforming or


                                           - 12 -
                                      non-confirming goods does not constitute an
                                      acceptance if the seller seasonably notifies the
                                      buyer that the shipment is offered only as an
                                      accommodation to the buyer

Under the code, the buyer’s revocation comes too late if the seller has promptly
shipped the goods already.

The seller may have to give NOTICE that the goods have been shipped.

Again, notice is not acceptance but is an additional requirement.

What about non-conforming goods? Is this an acceptance?
   It is, but it’s a peculiar one – it’s an acceptance coupled with a BREACH –
      the offeree may avoid suit by notifying that it’s an accommodation.


                  SILENCE NOT ORDINARILY ACCEPTANCE

      The general rule is that silence alone is not acceptance.
      This rule is so fundamental that the offeror is powerless to changes it – even if
       he appends to the offer “unless I hear from you within 48 hours, you will be
       deemed to have accepted my offer” he cannot hold the offeree who fails to
       reject it.

§ 69 – ACCEPTANCE BY SILENCE OR EXERCISE OF DOMINION

    2. Where an offeree fails to reply to an offer, his silence and inaction operate as an
        acceptance in the following cases only:
            a. Where an offeree takes the benefit of offered services with reasonable
               opportunity to reject them and reason to know that they were offered
               with the expectation of compensation.
            b. Where the offeror has stated or given the offeree reason to understand
               that assent may be manifested by silence or inaction, and the offeree in
               remaining silent and inactive intends to accept the offer.
            c. Where because of previous dealings or otherwise, it is reasonable that the
               offeree should notify the offeror if he does not intend to accepty.
An offeree who does any act inconsistent with the offeror’s ownership of offered
property is bound in accordance with the offered terms unless they are manifestly
unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if
ratified by him.

Hobbs v. Massoit Whip Co. (1893) p. 196.

      The plaintiff and defendant had a previous business relationship in which
       plaintiff would send to defendant eelskins to make whips. Plaintiff sent some



                                           - 13 -
        skins and defendant did not pay, nor did he send them back. Court held that
        silence was acceptance here.
       Here, plaintiff was seller and defendant was buyer.

American Bronze Corp. v. Streamway Products (1982) p. 196.

       You have the same circumstances as above but here the buyer is the one who
        is trying to assert acceptance of his order by silence.
       The court found the same – that acceptance by silence was good.

p. 197 – note 3 – unsolicited merchandise

       States and federal governments began taking action – you can get
        merchandise in the mail and keep it without paying.
       Book of the month clubs are different – they are solicited merchandise

City of Calhoun v. Notrh GA. (1994) p. 197

       The city wanted to impose a fee of %4 on the power company.
       The power company said it would never pay the fee but it continued to supply
        power to the streets.
       When sued by the city, North GA said the city had no authority to impse a
        franchise fee on it.
       The court held that the city had no contract claim – owing to its requirement
        of an express acceptance. It could not force acceptance by silence on North
        GA.
       “The city cannot rely on its own unilateral act of continuing to allow its
        streets to be used and occupied as evidence of an enforceable implied
        promise…to pay a franchise fee which North GA has expressly rejected.”
       Again – see §69 Restatement above.

                      SECTION 4: TERMINATION OF THE
                          POWER OF ACCEPTANCE

After a party has made an offer, conferring on another the power of acceptance, that
power can be terminated in 4 ways:

   1.   lapse
   2.   revocation
   3.   rejection
   4.   offeror may die or become incapacitated

                               LAPSE OF AN OFFER




                                         - 14 -
An offer, though not revoked or rejected, is only valid for a reasonable period of
time. What is a reasonable time depends on the circumstances.

      Akers v. Sedberry (1955) p. 199. Face to face offers
           o Ordinarily, an offer made by one to another in a face to face
               conversation is deemed to continue only to the close of their
               conversation – and cannot be accepted thereafter.
      Loring v. City of Boston (1844) p. 199.
           o Reward was offered for capture of arsonist.
           o Court said plaintiff was not entitled to the reward because it was
               offered 4 years earlier and was prompted for a certain reason.
           o Although the offer was never revoked, the court said it had lapsed.

Newman v. Schiff – note 2. P. 200. Plaintiff was a tax attorney who called in the
morning after the show played. The offer was intended to be accepted only as long
as the television show was on.

                         REVOCATION AND REJECTION

§ 42 – REVOCATION BY COMMUNICATION FROM OFFEROR RECEIVED BY
OFFEREE

An offeree’s power of acceptance is terminated when the offeree receives from the offeror
a manifestation of an intention not to enter into the proposed contract.

§ 43 – INDIRECT COMMUNCIATION OF REVOCATION

An offeree’s power of acceptance is terminated when the offeror takes definite action
inconsistent with an intention to enter into the proposed contract and the offeree
acquires reliable information to that effect.

Hoover v. Clemens p. 211 – offeror’s vacillation and expressions of doubt should let
offeree know there’s no set deal yet.

                             OPTION CONTRACTS – I

A promise made by an offeror that effectively limits the offeror’s power to revoke is
called an option, or “option contract.” Usually an option contract expresses, directly
or indirectly, a fixed period within which the offeree must exercise, or “pick up” the
option.

The option itself is a contract. When someone dies, the option still exists.

Dickinson v. Dobbs (1876) p. 207

      Dobbs offered to sell his estate to Dickinson for 800 with a deadline.


                                          - 15 -
      Dickinson tried to meet the deadline – he barely did. Dobbs said too late I
       have sold to someone else.
      There was a revocation before there was an acceptance.
      Judges concluded that what Berry (Dickinson’s agent) told him had the same
       effect as an attempt by Dobbs to withdraw the offer. See §43. The suit was
       dismissed.
      Judge James said Dobbs wasn’t bound to hold bids open because this wasn’t a
       true option – Dickinson didn’t give consideration.

p. 210 – note 4. Peppercorn theory does not apply to options. I can give you $10 in
consideration of an offer to buy your plantation. An option where real estate is
concerned, the option should be in writing; the writing recites a (perhaps) $10…in
consideration of $10 paid in hand…. But what if the $10 is not paid? Three
solutions:

   1. The option is invalid because the consideration was not actually paid.
   2. The option is valid because consideration in such a situation is a mere
      formality; it’s been prescribed only to reflect the serious intention of the
      parties.
   3. The recital amounts to a promise to pay it. THIS IS THE MORE
      POPULAR APPROACH.


p. 211 note 3 problem – ask Lit.

Revocation of general offers – note 2 p. 211.

      In the case of a general offer, such as one addressed to the general public by
       an advertisement, it will ordinarily by impossible for the offeror actually to
       communicate a revocation to all of the persons who are aware of the offer.
      The offeror can be required to give a notice of revocation publicity equal (and
       usually similar) to that given the offer.
      The offeror is thus not bound by the acceptance of an offeree who was aware
       of the offer but missed the notice of revocation.

                                     FIRM OFFERS

§ 2-205 FIRM OFFERS

        An offer by a merchant to buy or sell goods in a signed writing which by its terms
gives assurance that it will be held open is not revocable, for lack of consideration, during
the time stated or if no time is stated for a reasonable time, but in no event may such
period of irrevocability exceed three months; buy any such term of assurance on a form
supplied by the offeree must be separately signed by the offeror.

Ragosta v. Wilder (1991) p. 212


                                           - 16 -
      This was the “Fork Shop” case.
      Did the offer indicate a particular form of acceptance?
          o YES – by performance – getting the money to pay.

§ 45 – OPTION CONTRACT CREATED BY PART PERFORMANCE OR TENDER

   1. Where an offer invites an offeree to accept by rendering a performance and does
      not invite a promissory acceptance, an option contract is created when the offeree
      tenders or begins the invited performance or tenders a beginning of it.
   2. The offeror’s duty of performance under any option contract so created is
      conditional on completion or tender of the invited performance in accordance
      with the terms of the offer.

THIS IS THE CREATION OF AN OPTION CONTRACT WITHOUT
CONSIDERATION.
HERE, THE OFFEREE IS NOT BOUND TO FINISH PERFORMANCE
CONTRAST:

§ 62 – EFFECT OF PERFORMANCE BY OFFEREE WHERE OFFER INVITES EITHER
PERFORMANCE OR PROMISE

   1. Where an offer invites an offeree to choose between acceptance by promise and
      acceptance by performance, the tender or beginning of the invited performance or
      a tender of a beginning of it is an acceptance by performance.
   2. Such an acceptance operates as a promise to render complete performance.

HERE, THE OFFEREE IS BOUND TO FINISH PERFORMANCE

                        ACCEPTANCE VARYING OFFER

Minneapolis Railway v. Columbus Rolling-Mill (1886) P. 215

Negotiations between railway and mill ensued. There was a difference – railway
only wanted 1200 tons; mill was offering to sell between 2000 and 5000 tons. This
was a crucial difference. The court held that it was too much of a difference to make
a contract.

      “A proposal to accept, or an acceptance, upon terms varying from those
       offered, is a rejection of the offer, and puts an end to the negotiation, unless
       the party who made the original offer renews it, or assents to the modification
       suggested. The other party having once rejected the offer, cannot afterwards
       revive it by tendering an acceptance of it.”

                          THE MIRROR IMAGE RULE




                                         - 17 -
      Traditional contract doctrine insists that an acceptance must be on the terms
       proposed by the offer without the slightest variation.
           o Anything else is a counter offer and a rejection of the original offer.
      The offeror, as master of his offer, thus enjoys freedom from contract except
       on the offeror’s own terms.

Acceptance should mirror the offer precisely.

§ 59 Restatement – a reply to an offer which purports to accept it but is conditional
on the offeror’s assent to terms additional to or different from those offered is not an
acceptance but is a counter-offer.

§61 Restatement – an acceptance which requests a change or addition to the terms of
the offer is not thereby invalidated unless the acceptance is made to depend on an
assent to the changed or added terms.

In Minneapolis Railway case - Railway could have said “Please send us 2000
tons…would you mind sending only 1200 tons…” would this have been a rejection
of the original offer? No.

p. 216 – Caldwell v. Cline note 4.

Ardente v. Horan (1976) p. 225.
   o Attorney for the buyers said that his clients were interested in drapes
       remaining. The parties had not discussed this in the negotiations. This was
       an acceptance that added something; therefore it did not mirror the offer and
       acceptance was ineffective.
   o The mirror image rule is good when shysters want to extricate themselves
       from a deal.

You were selling when the market called for $100; recent evaluations make it at
$150; sellers then try to get out of the contracts.

Sometimes the dispute of the parties concerns a term of performance; this is typical
when you have the battle of the forms.

What have courts done in the past to make the mirror image rule more realistic?

      p. 225. Fairmount case – said this was an implied term that was more like
       boiler plate and did not vary the terms of the contract.
      At other times, courts have found precatory terms – you have offered to me
       your house for sale for $100,000. I accept your offer I will be glad to buy for
       $100,000. Would you mind leaving your drapes in the house? This is a
       CLEAR acceptance. This is a suggestion to vary one or more terms of the
       contract. This depends exclusively on the interpretation of the particular
       message.


                                          - 18 -
The above are two ways the courts have made mirror image rule more realistic.

                   REJECTION OF AN IRREVOCABLE OFFER

Humble Oil v. Westside (1968) p. 217

§ 37 – TERMINATION OF POWER OF ACCEPTANCE UNDER OPTION CONTRACT

Notwithstanding §§ 38-49, the power of acceptance under an option contract is not
terminated by rejection or counter-offer, by revocation, or by death or incapacity of the
offeror, unless the requirements are met for the discharge of a contractual duty.

      Basically, this means that you can’t reject an irrevocable offer (in the case of
       option contracts).
      During the term, the option holder may reject, make a counter-offer, etc and
       STILL preserve his option to accept.
      An option is already a contract; rights and duties from this contract devolve to
       the descendants if someone dies.

§ 2-205 FIRM OFFERS

        An offer by a merchant to buy or sell goods in a signed writing which by its terms
gives assurance that it will be held open is not revocable, for lack of consideration, during
the time stated or if no time is stated for a reasonable time, but in no event may such
period of irrevocability exceed three months; but any such term of assurance on a form
supplied by the offeree must be separately signed by the offeror.

      UCC 2-205- firm offers are similar to options except there is no consideration
       in firm offers. A firm offer means that the offeror, a merchant, who made it
       may not revoke it; however, a rejection by the offeree or a counter–offer by
       the offeree would extinguish his power to accept.

                              DEATH OF AN OFFEROR

§ 48 – DEATH OR INCAPACITY OF OFFEROR OR OFFEREE

An offeree’s power of acceptance is terminated when the offeree or offeror dies or is
deprived of legal capacity to enter into the proposed contract.

Jordan v. Dobbins (1877) p. 218.
     Dobbins was a guarantor for Moore (began in February). Dobbins died in
       August. Dept store sends bill to Dobbins’ estate.
     Court said – when you have such a contract, the guarantee does not mean “I
       will pay for my cousin’s stuff.”
     Merchant should bill purchasor and give notice to the guarantor. This should
       be done with each purchase. Death of the guarantor acts as a revocation.


                                           - 19 -
Earle v. Angell (1892) p. 219
    This was a catch22 because Aunt’s offer could only be accepted after she died,
        and death of an offeror serves as a revocation.
    Court said that Aunt Mary actually wanted a promise for her peace of mind.
    Because nephew made the promise before she died and fulfilled his side, good
        contract.

Incapacity of either party – has the same effect as death. Was incorporated into § 48

       THE “MAILBOX RULE”: CONTRACTS BY CORRESPONDENCE

Adams v. Lindsell (1818) p. 220
    A contract was formed at the time the letter of acceptance was mailed.
    This has now become the American rule - §63 Restatement

§ 63 – TIME WHEN ACCEPTANCE TAKES EFFECT

Unless the offer provides otherwise,
           a. an acceptance made in a manner and by a medium invited by an offer is
               operative and completes the manifestation of mutual assent as soon as put
               out of the offeree’s possession, without regard to whether it ever reaches
               the offeror; but
           b. an acceptance under an option contract is not operative until received by
               the offeror.

      Explanations:
          o When an offeror operates by mail, he is practically appointing the
              postmaster to act as his agent.
          o When the offeree posts a letter of acceptance there’s nothing he can do
              to retrieve his letter.
                   Now, you can ask the post office to intercept the mailed letter
                      and return it to you. However, this may not be reliable.
          o If the contract were formed only when the offeror receives the
              acceptance, for the sake of fairness, the offeror should get notice that
              the offeree has received the acceptance.
      Professor Langdell:
          o Was against mailbox rule
      Professor Llewellyn:
          o Was for mailbox rule; this is a practice so that an offeror who does not
              get an answer should inquire whether his offer arrived; it’s not a
              common practice to inquire whether your acceptance arrived.
      Mailbox rule also does other things:
          o Mailing of the acceptance extinguished the offeror’s power to revoke.
          o After mailing, can the offeree still reject his acceptance? NO.
          o The risk of transmission is on the offeror.


                                         - 20 -
      Mailbox rule may be unfair to offeror because leaves him at the mercy of the
       offeree. Parties should use an option contract to avoid this issue.

Can the offeror be rescued or should the shyster offeree win?
    The offeree’s hands are not clean – he cannot invoke his own moral turpitude.

§ 40 – TIME WHEN REJECTION OR COUNTER-OFFER TERMINATES THE
POWER OF ACCEPTANCE

Rejection or counter-offer by mail or telegram does not terminate the power of
acceptance until received by the offeror, but limits the power so that a letter or telegram
of acceptance stared after the sending of an otherwise effective rejection or counter-offer
is only a counter-offer unless the acceptance is received by the offeror before he receives
the rejection or counter-offer.

§ 40 – Restatement
     You may overtake a rejection by an acceptance only if the acceptance arrives
       first.
            o If the rejection arrives first, then the acceptance is a counter-offer,
              which the original offeror is not bound to accept.

p. 222 – electronic highway note. Faxes may be more like face to face conversations.
You can get an instantaneous confirmation that your message has been received with
a fax. The face to face rule; the offeree and offeror know of acceptance immediately.
This rule is applied by analogy when parties are communicating by telephone.
     What is the rule in such a situation? When the acceptance is spoken, or
       otherwise? When it is spoken there is an assumption that it is received.
     Fax and email are new developments; instant messaging. What about all of
       these things?

§ 63 – TIME WHEN ACCEPTANCE TAKES EFFECT

Unless the offer provides otherwise,
                                a. an acceptance made in a manner and by a
                                    medium invited by an offer is operative and
                                    completes the manifestation of mutual assent as
                                    soon as put out of the offeree’s possession,
                                    without regard to whether it ever reaches the
                                    offeror; but
                                b. an acceptance under an option contract is not
                                    operative until received by the offeror.

Cushing v. Thompson. p. 220 – footnote a. Letter was not out of the person’s
possession but it was enough to make acceptance effective.




                                           - 21 -
           o For a while, the post office was the only means of sending things; now
             we have UPS and Federal Express; they are all licensed by the
             government – they are called “public carriers.”
           o Should mailbox rule be confined to the delivery of a letter to a public
             carrier? Lit says maybe.
           o If you entrusted a letter to a private mailbox company, would this
             suffice? Messengers are NOT licensed.
           o Should this trigger mailbox rule? Lit says there’s no clear answer.
      Is communicating by email more like mailing letters or speaking on the
       phone?
           o People using email expect immediacy.
           o Even though it’s not, parties assume their communications are
             instantaneous. Given this, should face-to-face rule apply or mailbox
             rule?
                  Apply §63; is acceptance valid when you READ the letter or
                     RECEIVE the letter?
                         The best an offeree can do is get the letter to the offeror;
                            this means RECEPTION and not necessarily the
                            READING of it.
                         This section created a problem rather than solving one.
                         Again, remember most of the rules in the restatement
                            are compromises.
                                o When parties resort to instrumentalities that lead
                                    them to believe that communication is
                                    instantaneous, the telephone rule should apply.
                                o What if the offeror has re-booted his computer
                                    and cannot receive his email directly?
                                         What if you get a confirmation that your
                                            message did not deliver?
                                                 Then it would be unreasonable to
                                                    assume that you have put it out of
                                                    your control.

Two alternatives:
   Electronic means rule out the mailbox rule and you would apply the face to
      face rule.
   Or you may insist on applying mailbox rule as in the Marine decision this was
      rendered in particular circumstances (one party had shut off his
      instrumentality <they were using TELEX> and thus the acceptance could not
      be put through).

               SECTION 5 – ACCEPTANCE VARYING OFFER:
                     THE “BATTLE OF THE FORMS”

Ford makes 300 orders for different things a day. Does it make sense to have an
employee/attorney writing detailed orders? If that were the case, they couldn’t place


                                        - 22 -
300 orders a day. The practice that developed was that orders were placed in printed
forms.

The order then goes to the clerk. Clerk gets an acknowledgement form, which is
usually mailed back to the purchaser or may go back with the mailed goods. Most of
the time the boiler plate didn’t match. Was there a contract?
     Until the early 50’s the “last shot” rule prevailed.
           o If you send me an acceptance that is not a mirror image, you have
              made a counter-offer; if accepted, it is a contract according to the terms
              of the last person who sent correspondence.
     Courts are now trying to do away with last shot rule and possibly re-apply
       mirror image rule.

§ 2-207 UCC – Additional Terms in Acceptance or Confirmation

§ 2-207 ADDITIONAL TERMS IN ACCEPTANCE OR CONFIRMATION

    1. A definite and seasonable expression of acceptance or a written confirmation
    which is sent within a reasonable time operates as an acceptance even though it
    states terms additional to or different from those offered or agreed upon, unless
    acceptance is expressly made conditional on assent to the additional or different
    terms.
    2. The additional terms are to be construed as proposals for addition to the
        contract. Between merchants such terms become part of the contract unless:
                                   a. The offer expressly limits acceptance to the terms
                                       of the offer;
                                   b. They materially alter it; or
                                   c. Notification of objection to them has already been
                                       given or is given within a reasonable time after
                                       notice of them is received.
3. Conduct by both parties which recognizes the existence of a contract is sufficient to
establish a contract for sale although the writings of the parties do not otherwise
establish a contract. In such case the terms of the particular contract consist of those
terms on which the writings of the parties agree, together with any supplementary terms
incorporated under any other provisions of this Act.

Of the three exceptions listed in part two above, 1 and 3 are relatively easy. #2 –
materially alter is more difficult. There are two main examples:
    1. warranty
    2. arbitration

In a contract by conduct – there are two terms on which the parties MUST agree –
quantity and price. Other terms such as periods of payment and time of delivery will
go according to the UCC.




                                         - 23 -
If the offeror accepts the proposed terms, they then become a part of the contract;
they are precatory terms.

   o UCC applies exclusively to contracts for the sale of goods; it DOES NOT
     apply to real estate at all nor to agricultural products; only goods which are
     usually industrial.
   o It applies when at least one party is a merchant; and for greater reason applies
     when the two parties are merchants.
         o Merchants are those who habitually deal with goods that are involved
             in the contract or persons who hold themselves out as experts or as
             experienced in those types of goods.

Step-Saver Data Systems, Inc. v. Wyse Technologies (1991) p. 230.

   o Plaintiff ordered 136 units from defendant.
   o Once incorporated into plaintiff’s systems, the programs began
     malfunctioning
   o Plaintiff then sued – the problem was with the warranty.
   o What should be done with this box-top warranty?
   o The trial court said last shot rule should apply and Wyse should prevail.
   o The additional term of warranty was MATERIALLYALTERING the
     contract therefore it was not a part of the original contract – other rules of
     warranty apply and defendant is liable.

Dorton v. Collins & Aikman Corp. (1972) p. 237

   o Plaintiff finds out defendant was giving him a lower grade of carpet.
   o Defendant also included an arbitration clause.
   o Lower court found basis to apply 2-207 (3) since UCC doesn’t provide for
     arbitration, did not apply the arbitration clause.
   o Court of appeal – case should be remanded to see if parties discussed
     arbitration clause over the phone.
   o In some cases, parties should know about arbitration
   o Trial court went directly to 207(3) – court of appeal said (2)(b) may first apply
   o Under 207 last shot does not apply
   o Ask LIT – when will 3 apply?
         o May be agreement on other terms but these are critical terms

“Knockout” doctrine – for terms that are different
  o Buyer wants a 1 year warranty, but seller only gives 90 day warranty. Court
     will “knock out” these terms and apply UCC 204.

In jurisdictions that have codes, what rule have they adopted? Art 2601 is similar to
207.




                                          - 24 -
                 SECTION 6: PRECONTRACTUAL LIABILITY

   o According to orthodox contract doctrine, neither party to contractual
     negotiations is bound until an offer has been accepted.
   o Until then,neither party if safe in acting in reliance on the prospect of a
     contract.
   o A party whose reliance has conferred a benefit on the other may have a claim
     to restitution to prevent unjust enrichment even though no contract has
     resulted.

Cronin v. National Shawmut Bank (1940) P. 249

   o Cronin presents several propositions to McCarthy with modifications.
     Finally, he makes a proposition that McCarthy likes a lot.
        o This was termed an offer, which McCarthy was not obligated to
            accept. The bank gave the business to another insurance agent, who
            had a connection with a superior officer at the bank.
   o Cronin then sues and wants compensation for his time and efforts in
     preparing the offer.
   o There was no proof that the other agent would have not made the exact same
     proposition.
        o Cronin may have perhaps bestowed a benefit on the bank because it
            clarified the bank’s idea of how extensive coverage should be. In this
            situation, the one who gave the benefit was not entitled to recover.

Hill v. Waxberg (1956) p. 249

   o There’s a different result here because the circumstances are different. Hill is
     a contractor; Waxberg is a sub. Hill asked Waxberg to help him with plans
     and to get the appropriate financing. Financing was obtained but Hill and
     Waxberg could not agree on the final contract.
   o Here, Waxberg used the detailed blueprints Hill had prepared. Recovery
     should be in quasi-contract, which is a fiction of the law. Court gives
     recovery as if there was a contract. Recovery cannot be the contractual rate,
     but is a smaller amount of recovery. You can recover only the value of the
     benefit.
   o Court originally awarded $11,000. Court did a remittitur – court may recall
     the parties and say I’m ready to rule but I won’t unless you agree on a sum.
     Parties here settled on $5,896, which was about half.
   o In the absence of a contract, when a party confers a benefit on another,
     recovery if any would be restitution if something was given by one party to
     another (a sum of money) or it may be a form of quasi-contract.

p. 250 – Wormser’s Brooklyn Bridge hypo
When an offer calls for performance as acceptance, a contract is fully accepted when
performance is completed.


                                        - 25 -
In 1916, Wormser’s offer may have been revoked if the other person was in the
middle of the bridge because at that time only full performance is consideration that
the offeror asked for his promise. About 36 years later, jurisprudential developments
occurred, and Wormser said that once performance started the offer could not be
revoked for the reasonable time the offeree may need to complete his performance.

§ 45 – OPTION CONTRACT CREATED BY PART PERFORMANCE OR TENDER

   3. Where an offer invites an offeree to accept by rendering a performance and does
      not invite a promissory acceptance, an option contract is created when the offeree
      tenders or begins the invited performance or tenders a beginning of it.
   4. The offeror’s duty of performance under any option contract so created is
      conditional on completion or tender of the invited performance in accordance
      with the terms of the offer.

Brackenbury v. Hodgkin (1917) p. 251

   o Mrs. Hodgkin offered for her daughter to come and live with her and take
     care of her until she died and then she would get the farm when she died.
     Brackenbury’s refused to leave.
   o Court applied § 45. Full performance wouldn’t occur until she died. When
     the Brackenbury’s arrived and began working at the farm - this was a
     beginning of the performance requested. Mrs. Hodgkin’s revocation was not
     effective.
   o Although performance was not completed, it was the old lady who was trying
     to prevent them from completing their performance.

Davis v. Jacoby (1934) p. 252

   o Mr. Jacoby wondered what was to become of his wife after he died. Mr.
     Jacoby wrote to his nephew and made a similar proposition to that of Mrs.
     Hodgkin.
   o The letter asked “if you agree, let me hear from you as soon as possible.”
     Nephew wrote a letter of acceptance. He packed up his wife and started
     moving to CA but before they got to CA, Mr. Jacoby died while the Davises
     were in transit. Is there a completed contract?
   o The letter asked for not just a performance. Mr. Jacoby wanted more than
     just performance. CA court concluded that if you take the language plus the
     circumstances which explain what Mr. Jacoby truly wanted it is clear that this
     offer truly asked for promise as acceptance. The Davises promised, therefore
     contract was good.
   o Compare this with the Hodgkin case.

In general terms, for a prudent offeror, what is a better type of acceptance? Promise
offers advantage over performance.


                                         - 26 -
In certain situations, an offeree may not be able to make a promise. (ex – an offer of
a reward). You cannot bind yourself to perform if you don’t know if you will be able
to guarantee success.

The offeror may ask for your best efforts. The offeree may promise their best efforts,
which they can guarantee. What is a reasonable way for the two parties to agree? If
you give your best efforts, I will compensate your expenses.

            RELIANCE ON AN OFFER THAT SEEKS A PROMISE

   o In White v. Corlies & Tift p. 184, contractor should have given his promise
     instead.
         o However, in some situations again, promises cannot be given.

   o Remember Kastorff case, p. 171. Kastorff submitted a bid based on the
     plumbing subcontractor’s bids. These bids are also offers.
   o Is a general contractor in a position to accept those offers? It is not clear in
     these situations that the general contractors are going to get the job.
   o This offeror is expecting acceptance by what?
         o A promise. In some situations an offer that calls for acceptance by
             promise cannot be accepted immediately.
                 Offeree is not in a position to accept.
                 Does the offeror, when it’s a subcontractor, know that the
                    general cannot accept his bid until he is awarded the contract?
                    Yes.
   o Generals typically receive many offers from subs to do work. He then selects
     a certain one to incorporate into his own offer.
   o In taking a particular bid, is the general accepting it? No, because he still does
     not have the main contract.
   o Since a bid is a revocable offer, is it revocable once the general incorporates it
     into his own bid?

Remember, we are dealing with precontractual liability. Unilateral contracts require
performance as acceptance.

§ 45 – OPTION CONTRACT CREATED BY PART PERFORMANCE OR TENDER

   1. Where an offer invites an offeree to accept by rendering a performance and does
   not invite a promissory acceptance, an option contract is created when the offeree
   tenders or begins the invited performance or tenders a beginning of it.
   2. The offeror’s duty of performance under any option contract so created is
       conditional on completion or tender of the invited performance in accordance
       with the terms of the offer.




                                        - 27 -
Is the offeree who has commenced to perform is he bound to complete his
performance?

The offeree is not bound to complete his performance but the offeror is bound not to
revoke his offer once the offeree has started to perform.

Difference between § 45 and § 62

§ 62 – EFFECT OF PERFORMANCE BY OFFEREE WHERE OFFER INVITES EITHER
PERFORMANCE OR PROMISE

   3. Where an offer invites an offeree to choose between acceptance by promise and
      acceptance by performance, the tender or beginning of the invited performance or
      a tender of a beginning of it is an acceptance by performance.
   4. Such an acceptance operates as a promise to render complete performance.

Offeree has a choice here between performance and promise. The offeree who starts
to perform is bound to complete the performance. This is a promise to complete
performance.

This section also applies when the offeror doesn’t specify he will only take
performance as acceptance.

A bid is an offer. An offeror may revoke it before it is accepted. The bid of a
subcontractor is a revocable offer.

Baird v. Gimbel. P. 252. (1933)
   o Defendant subcontractor submitted a bid but before general was awarded the
        contract, the sub revoked his offer. General was awarded the contract and
        called upon the sub to perform but the sub had already revoked. The general
        sued. Hand said the bid of the sub was as revocable as any other offer not
        involving an option; the sub was free to revoke his offer before the general
        accepts. The general was in no position to accept until he was awarded the
        main contract.
   o Hand – “in commercial transactions, it does not in the end promote justice to
        seek strained interpretations in aid of those who do not protect themselves.”

Drennan v. Star Paving Co. (1958) p. 253
   o General’s bid was for $317,385. He called for bids from subs and defendant
      bid $7,131.60 for paving. General’s bid was accepted practically on the spot.

   o p. 254 – what parties could have done but didn’t: judge said this is not a case
     where the sub promises the general not to revoke his offer; this is something
     reasonable parties will do. The general could also have protected himself as
     such:




                                         - 28 -
          I like your bid and I am going to use if I am awarded the contract. This is
           a contract that is conditioned upon the general’s being awarded the main
           contract.

   o Here, there was no promise not to revoke nor was there a contract subject to a
     condition, therefore the offer was perfectly revocable by the sub.

What if the offeror asks for a promise? What kind of acceptance does the sub want
when he makes his offer in the form of a bid? He wants a PROMISE. May the
general make such a promise before the gets the contract? HE CANNOT; he is not
in a position to do this. Parties prefer not to make the contract subject to a condition.
Judge says there should be no difference. §45 relates to §90.

§ 90 – Promise Reasonably Inducing Action or Forbearance
1. A promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee or a third person and which does induce such
action or forbearance is binding if injustice can be avoided only by enforcement of the
promise. The remedy granted for breach may be limited as justice requires.
2.A charitable subscription or a marriage settlement is binding under Subsection 1
without proof that the promise induced action or forbearance.

Remember, in §90 the reliance substitutes for consideration.

          In submitting a bid to a general, is a sub inducing the general to rely on
           him? YES.
          Is the sub perfectly aware that the general may rely on the bid? YES. This
           is all that is required to apply §90.
          Even though there is no bargained for consideration the promise becomes
           enforceable as long as it is required to avoid injustice.
          Reliance here becomes the same as consideration.
          The sub who submits a bid is bound not to revoke as if he had made an
           express promise.
          The general is then bound to perform. Has he bound himself to perform
           for the compensation in the bid? YES.
          This case, the sub cited Kemper and Lemoge cases. If the general could
           revoke is bid, why can’t the sub revoke here?
               o Court said NO WAY in the other two cases, the owner accepted
                    the bid of the general with knowledge of a mistake. Here, there’s
                    no indication that the general knew of any mistake made by the
                    sub.
               o P. 257 Piazza v. Bebek & Brkich Here the court concluded that the
                    sub was not bound. There was an estimation but not a final bid
                    here. Sub told general they were unsure of significance of
                    specifications. The general’s reliance was unjustified.




                                          - 29 -
p. 258 – CA statute enacted after the Drennan case. According to the statute, bid is
irrevocable for 10 days after the owner awards the contract to the general provided
that no more than 90 days have elapsed since the bid was given to the general. If for
more than $2500, should be made in writing.

      Jaybe v. Beco p. 258 General asked sub to reduce bid. Sub says no. General
       used bid as his own and called on sub to perform. Sub refused to perform and
       said that general had revoked his bid. Court said this was not a revocation
       ***ask LIT***

      Litterio v. Glassman p. 258. General asked sub for a bid; general sent sub a
       contract that says if I get the master contract you get the job. Sub refused to
       sign the contract. General obtained the master contract. What about the sub?
       Is he bound? If a general sends the contract and the sub refused to sign, the
       reliance is not reasonable. Sub is not bound. General cannot invoke reliance
       to his advantage.

      Holman v. Orville p. 259. A sub sued the general because the sub (Holman)
       submitted the bid to the general who used it, obtained the master contract,
       and then the general didn’t give the job to the sub.

          o Sub said the fact that the general took the bid amounted to acceptance.
            Court said no way this is not an acceptance. The true acceptance will
            take place when the general calls on the sub to do the job, which he
            cannot do until he has been awarded the main contract.
          o The general is not bound to give the job to the sub.
          o The sub is bound not to revoke.
                Court said this rule prevails all over the country.
                Why is sub bound not to revoke but general is not bound?
                        Judge said there are important reasons.
                               o General is relying on the sub’s bid. If the sub
                                   were left off the hook, consequences would be
                                   very negative. General would have to find
                                   another sub. High possibility that inferior
                                   material would be used. Generals always work
                                   under time pressure.
                               o Subs do not rely on generals in the same way that
                                   generals rely on subs. Subs submit their bids to
                                   all generals bidding on the job.
          o Judge also said Orville was bound to use minority subs.
          o Judge said that general was not bound to the sub.

                                    CIVIL LAW

ARTICLE 1927 – Consent



                                        - 30 -
       A contract is formed by the consent of the parties established through offer and
acceptance.
       Unless the law prescribes a certain formality for the intended contract, offer and
acceptance may be made orally, in writing, or by action or inaction that under the
circumstances is clearly indicative of consent.
       Unless otherwise specified in the offer, there need not be conformity between the
manner in which the offer is made and the manner in which the acceptance is made.

In most circumstances, consent may be expressed orally and be just fine as a
contract.

ARTICLE 1928 – Irrevocable Offer
        An offer that specifies a period of time for acceptance is irrevocable during that
time.
        When the offeror manifests an intent to give the offeree a delay within which to
accept, without specifying a time, the offer is irrevocable for a reasonable time.

At common law, an offer is revocable at any time before it is accepted unless the
offeree gives consideration in which case the offer is irrevocable because there’s an
option contract.

Civil law – offeror only needs to manifest an intention to leave the offer open. I will
sell my horse to you for $100 think it over and let me know. This suffices and it will
be irrevocable for a reasonable time.

Expiration of offer in civil law is called lapse in common law.

We have offers that are irrevocable and offers that are revocable.

Evertite Roofing Co – In Farnsworth text. P. 187

LA courts sometimes decide cases Nebraska-style; that is, an offer is revocable.
   Parties are free to make contracts as they wish!!
   Offeror names the time and the offer is irrevocable for that time
   Or, he manifests an intention and it is irrevocable for a reasonable time
   Or, the offer is revocable any time before it is accepted.

ARTICLE 1932 – Expiration of offer by death or incapacity of either party
       An offer expires by the death or incapacity of the offeror or the offeree before it
has been accepted.

ARTICLE 1933 – Option contracts
        An option is a contract whereby the parties agree that the offeror is bound by his
offer for a specified period of time and that the offeree may accept within that time.




                                           - 31 -
What’s the difference between an option and an irrevocable offer? There are very
important technical differences.
    An offer may be irrevocable even when the offeror does not specify a period
      of time but only manifests an intention to leave it open.
    In an option, a specified period of time is a must.
    An offer, even though irrevocable comes to an end by the death or incapacity
      of either party
    An option does not come to an end by the death or incapacity of either party.
      An option in and of itself is a contract whereby one party grants an option
      and the other party accepts the option- thus it is a contract by itself. The
      object is abstract. There’s an offer that cannot be revoked for a period of time.
      The heirs of the offeror are still bound by that contract. The obligations are
      heritable here.
    An option gives rise to rights that may be assigned.
          o Shawn – I am giving you an option to buy my horse for $100. May
              Shawn assign the option to Baba? Yes.
          o The content of the option may be assigned where if it was a plain offer
              it could only be accepted by the specified offeree.

ARTICLE 1934 – Time when acceptance of an irrevocable offer is effective
     An acceptance of an irrevocable offer is effective when received by the offeror.

ARTICLE 1935 – Time when acceptance of a revocable offer is effective
        Unless otherwise specified by the offer or the law, an acceptance of a revocable
offer, made in a manner and by a medium suggested by the offer or in a reasonable
manner and by a reasonable medium, is effective when transmitted by the offeree.
Mailbox rule.

There is a difference between the two. (1934 & 1935)

Shawn I will sell to you my horse for $100. This is revocable.
    Who is in a more fragile position? Who is subject to danger that depends on
     the will of the other.
    The offeree is because the offeror can revoke any time before acceptance.
    The law usually wants to protect the party who is in the more fragile position.
    The law has provided that the moment of transmission is acceptance.
    What if you say – “I won’t revoke for 10 days.”
    Now, the offeree is protected.
    Best way of protecting offeror in this situation is to make it so that he is not
     bound until he has received the acceptance.

Common law:

§ 63 – TIME WHEN ACCEPTANCE TAKES EFFECT

Unless the offer provides otherwise,


                                          - 32 -
           a. an acceptance made in a manner and by a medium invited by an offer is
              operative and completes the manifestation of mutual assent as soon as put
              out of the offeree’s possession, without regard to whether it ever reaches
              the offeror; but
           b. an acceptance under an option contract is not operative until received by
              the offeror.

ARTICLE 1936 – Reasonableness of manner and medium of acceptance
        A medium or a manner of acceptance is reasonable if it is the one used in making
the offer or one customary in similar transactions at the time and place the offer is
received, unless circumstances known to the offeree indicate otherwise.

Shawn made to Lit an offer to sell horse in writing. Lit can accept orally. Shawn
accepts orally but he knows Lit is deaf. Shawn has to accept in writing or by sign
language.

ARTICLE 1937 – Time when revocation is effective
       A revocation of a revocable offer is effective when received by the offeree prior to
acceptance. This is the same as in Nebraska.

ARTICLE 1938 – Reception of revocation, rejection, or acceptance
        A written revocation, or acceptance is received when it comes into the possession
of the addressee or of a person authorized by him to receive it, or when it is deposited in
a place the addressee has indicated as the place for this or similar communications to be
deposited for him.
For an acceptance to be effective it suffices for the postman to deposit it in the mailbox
of the addressee. It is not required for the addressee to open the letter and read it.
Offeree lacks the means to force the offeror to read it. If the rule were that acceptance
must be read, offerors who change their minds can easily avoid acceptance. This would
not be fair.

ARTICLE 1939 – Acceptance by performance
        When an offeror invites an offeree to accept by performance and, according to
usage or the nature or the terms of the contract it is contemplated that the performance
will be completed if commenced, a contract is formed when the offeree begins the
requested performance.

Offeror may no longer revoke offer once performance has begun. Once performance
has begun there is a contract because there is acceptance.

ARTICLE 1940 – Acceptance only by completed performance
        When, according to usage or the nature of the contract, or its own terms, an offer
made to a particular offeree can be accepted only by rendering a completed performance,
the offeror cannot revoke the offer, once the offeree has begun to perform, for the
reasonable time necessary to complete the performance. The offeree, however, is not
bound to complete the performance he has begun.



                                           - 33 -
       The offeror’s duty of performance is conditional on completion or tender of the
requested performance.

Offeree starts to perform however because of the terms of the offer or the nature it is
not a cinch that the offeree will complete the performance. The case of the vaccine
or blueprints for space navigation, etc. this may depend on how the offer is made.
This may also be expressed in some sort of verbal acceptance by the offeree. What
happens when the offeree starts to perform. There is no contract but the offeror may
no longer revoke for a reasonable time that is measured by the task the offeree is
doing; offeree is also not bound to complete performance.

1939 & 1940 are similar to § 45 & § 62. these articles are more realistic in the
situations they contemplate.

ARTICLE 1941 – Notice of commencement of performance
         When commencement of the performance either constitutes acceptance or makes
the offer irrevocable, the offeree must give prompt notice of that commencement unless
the offeror knows or should know that the offeree has begun to perform. An offeree who
fails to give the notice is liable for damages.

What does “liable for damages” mean?

Tree cutting example with David, Lit and Johnathon. Lit will owe Johnathon
expenses because Johnathon went to the land to cut the trees which David had
already cut without giving Lit notice. David will be liable to Lit for damages.

Lit still owes David $50 but David owes what Lit had to pay Johnathon. Lack of
notice does not make the contract invalid but makes offeree liable for damages in this
situation.

Common law – same as the case of the guarantee.

ARTICLE 1942 – Acceptance by silence
       When, because of special circumstances, the offeree’s silence leads the offeror
reasonably to believe that a contract has been formed, the offer is deemed accepted.

This is drafted in a good way. In common law, you can have the same result.

An offeror cannot push acceptance by silence down the throat of the offeree.

ARTICLE 1943 – Acceptance not in accordance with offer
       An acceptance not in accordance with the terms of the offer is deemed to be a
counteroffer.

ARTICLE 1944 – Offer of reward made to the public
      An offer of a reward made to the public is binding upon the offeror even if the one
who performs the requested act does not know of the offer.


                                          - 34 -
      This is different from common law.
      This is exactly the opposite – Broadnax v. Ledbetter
      Although these articles deal with consent, in a way this article takes the offer
       of reward and the liability of the offeror of the reward out of the contractual
       field and makes the offeror liable on grounds other than contract such as
       public declaration of will.

ARTICLE 1945 – Revocation of an offer of reward made to the public
        An offer of reward made to the public may be revoked before completion of the
requested act, provided the revocation is made by the same or an equally effective means
as the offer.

This is good provided that in the meantime no one has accepted the stray pet.

ARTICLE 1946 – Performance by several persons
         Unless otherwise stipulated in the offer made to the public, or otherwise implied
from the nature of the act, when several persons have performed the requested act, the
reward belongs to the first one giving notice of his completion of performance to the
offeror.

Johnson v. Capital City Ford p. 43

Loren v. City of Boston in Farnsworth text.

Information furnished by one may suffice to catch the criminal. Article 1946
furnishes a good rule.

ARTICLE 1947 – Form contemplated by parties
        When, in the absence of a legal requirement, the parties have contemplated a
certain form, it is presumed that they do not intend to be bound until the contract is
executed in that form.

At common law this is a serious problem. This article gives a clear presumption.
BUT THIS IS A REBUTTABLE PRESUMPION. You can have a different result if
actions imply otherwise.

                              CHAPTER 2 - CONSENT

                      § 1 – UNION OF THE PARTIES’ WILL

The consent of parties legally capable of contracting is the second requirement for a
valid contract.

Consent means many different things; in one way it means acquiescence to the
terms; meeting of the minds; it means little that there are two definitions.


                                          - 35 -
Belgard v. Collins (1993) p. 20

   o In this situation, court said no contract because no consent
   o Hurricane demolished home.
   o Plaintiff’s version: Belgard wanted to help Mrs. Collins with “consulting
     services” according to him. He needed to get the help of an engineer and he
     would prepare three different propositions to fix the place. For this, he would
     only ask 25% of whatever difference the insurance company offered.
   o Defendant’s version: that Belgard was walking around neighborhood making
     propositions to help.
   o At least two different engineers:
      Mr. York - used by plaintiff.
      Mr. Beard – comes alone and hands to defendant blueprints and estimates
         and according to defendant she was dealing with this engineer. At a
         certain moment she asks Beard how much does she owe – this indicates
         that she doesn’t think she has made a contract with the plaintiff.
      Court concludes that these two didn’t have the same thing in mind. One
         entered into a consulting contract; the other didn’t think she had a
         contract and had only asked for a proposition to be made that was actually
         made by Beard.
      Court concludes that plaintiff should be granted something on the basis of
         unjust enrichment. It wasn’t defendant who paid for some things but
         plaintiff; plaintiff should recover what he has invested.

p. 23 – notes

DB Orban Co. v. Lakco Pipe & Supply, Inc.

      Parties agreed on figuring the price according to weight. According to
       plaintiff, they had agreed on the theoretical weight while according to
       defendant, they would pay according to actual weight. Evidence shows that
       both parties were sincere in their position; consequently, no contract was
       reached.

      What is theoretical weight? This is more of an estimate done by measuring
       and multiplying by what they think is actual weight.

      Difference in actual amount of money was BIG – over $75,000. Court
       decided that no consent because parties didn’t have the same thing in mind.




                                            - 36 -
Yarborough v. Anderson

      Parties agreed to buy and sell a farm for $590,000, written on a napkin.
       Contract was good here


Young v. Cistac

      Cash ½, interest on remaining. Parties did not agree on the time limit for the
       credit portion of the purchase price. No contract here.

Lee v. National Box Co.

      Sale of lumber. Parties specify the quality. Quantity was to be between 1 and
       2 million feet. 1,840,000 was delivered and defendant would not accept any
       more because quantity term was not specified.

      §1973 says object MUST be determined as to kind, but need not be specific as
       to quantity.

      Seller makes the selection of quantity; this may depend on pace of their own
       business how much he may have.

Northcut v. Johnson

      I will sell to you 300 head of cattle or as many as I may round up. Here there
       is consent because the object is determinable.

                          § 2 – EXPRESSING CONSENT

Consent expressed by words –
   Consent conveyed by words, whether verbal or written, is usually called
      “express” consent.
   The context in which certain words are used may reveal a lack of serious
      intent to contract. (Objective view of interpreting contracts)

Consent expressed by conduct –
   Mere action without words may evince consent provided such action occurs
      in circumstances that, in a natural way, suggest that implication.
   Consent given in this way is usually called “implied” consent.

Consent and inaction – The case of silence –
   In some cases consent may be conveyed by, or inferred from, a party’s
      inaction or silence.




                                        - 37 -
      However, where the law does not provide a clear presumption of consent
       based on a party’s silence, the surrounding circumstances must be very clear
       in order to corroborate a presumption that a party’s silence amounts to an
       “expression” of his consent.


North Louisiana Milk Producers Assoc, Inc. v. The Southland Corporation p. 26

      Two agencies were involved in the process of establishing minimum prices for
       milk. If it’s a minimum price and not a maximum price, may parties agree on
       a higher price. They cannot agree on less than the minimum.

      Two parties had a long standing relationship. Plaintiff is a milk producer;
       defendant processes milk.

      After many years of doing business, in 1976 (at this time, there was a lot of
       inflation), plaintiff writes a letter saying that future shipments of milk will be
       priced at a price that was higher than the minimum; defendant answered that
       they wouldn’t pay more than the minimum price. Plaintiff says they must
       insist on charging the higher price. Defendant says again they won’t pay
       more. Plaintiff says again that they won’t sell for less. Defendant replies yet
       again to drop dead.

      These communications were at a high level of management. Foreman of the
       defendant’s plant did not know of the communications. Foreman keeps
       placing orders and they are filled by plaintiff in the customary way. Bill was
       then sent for the higher than minimum price; defendant sends a check for
       only the minimum price; plaintiff sues for the balance.

      Court concludes that orders were not a counter offer. Letters of plaintiff to
       sell were offers to sell at a certain price; placing of orders was an acceptance
       of that offer. To reach the conclusion that defendant’s orders were true offers,
       should have contained something that wasn’t there. They didn’t include a
       price term. Holding: for plaintiff.

Illinois Central Gulf Railroad Company v. International Harvester p. 30

      Acceptance by silence.

      Lease was for 25 years. Purpose was for defendant to service trucks.
       Superdome was built; defendant wanted to use the land for a parking garage.
       Second idea was to sublease.

      Defendant wrote to plaintiff to ask if they could change the destination of the
       land; plaintiff said no way.



                                           - 38 -
      Defendant continued to pay rent but subleased property to another company.
       Plaintiff deposited checks with court.

      What does this have to do with silence

      §2689 – Reconduction of lease of house or room by continued possession after
       expiration of term.

      By accepting the checks, this is more than silence. This is conduct on the part
       of the plaintiff.

      Plaintiff through alleged silence, consented to the change of destination. This
       is defendant’s argument.

      Court said this argument holds no water because when plaintiff was asked the
       question, they said no do not use this for parking operations.

      First time plaintiff said no, defendant offered to terminate the lease for $1
       million.

      When a party receives from another a deposit, gives a piece of paper that says
       something – as in when you park your car.

Marine Ins. Co. of London v. Rehm p. 34

      You leave your car with keys for the attendant to park. You are given a claim
       check to retrieve your car. On the back of the claim check, there are
       provisions that say they are not liable for theft, vandalism, etc.

      In accepting the claim check, was the plaintiff of the mind that he was
       entering a contract with special terms? NO. This is why the court invalidates
       this.

      §§ 2937, 2938 makes the depositary liable for whatever they hold. Especially
       so when they are compensated.

Cashio v. Amco Transmissions p. 36

Citation to a special statute enacted after the Rehm case.

There are two different kinds of parking establishments:
    Traditional valet parking
           o This is a contract of deposit
    Where you drive and park your own car
           o This is a lease of space


                                          - 39 -
                  As in any other space, a lessor is not liable for any wrongdoing
                   of a third party.
                If you lease an apt and the landlord provides reasonable means
                   of security and you have a break in the landlord is not liable.
           o Some requirements must be met:
                Display of visible signs explaining that the operator is not liable
                   for damages, etc.

      In this case, father and son drove to a place that said “parking $3.00” they
       paid the money and then the car was stolen.

      Owner of the establishment never denied that he allowed parking. Court said
       parking people were liable because there were no signs relaying release of
       liability.

      What about luggage at airports? One who receives luggage is not in a
       contract making frame of mind. This is a _________ contract - ****ask
       LIT**** consent is absent on one party’s mind.

                                    § 3 – The Offer

General remarks –
   An offer is a unilateral declaration of will that a person, the offeror, addresses
      to another, the offeree, whereby the former proposes to the latter the
      conclusion of a contract.
   Certain consequences follow from that definition:
          o The offeror’s will must be declared – projected outward – since
               otherwise the offeree could not be apprised of the offeror’s intent.
          o The declaration must be addressed to the person with whom the
               offeror intends to contract.
   To constitute a true offer, a declaration of will must be sufficiently precise and
      complete so that the intended contract can be concluded by the offeree’s
      expression of his own assent, thereby giving rise to that “mutual consent” of
      the parties which, in practical terms, is indistinguishable from the contract
      itself.
          o For example, in a contract of sale, the offer must include the thing to
               be sold and the price. These are essential terms to this kind of offer.
   An offer may be made to one person in particular or to several persons. In the
      latter situation, the offeror may incur liability if he does not make each offeree
      aware that the offer is made to others also or fails to quality his intent with
      expressions such as “subject to prior acceptance by another party” or
      “contract to be concluded with the first to accept.” An offer may be made
      also to the public at large through proper means of communication.

Offers to the public, advertisements and invitations to negotiate
Offers without words


                                         - 40 -
p. 42 – offer without words. Is it possible to make an offer without words?

      Buyer and seller have long standing business. Shipments become offers.

      There are some complications. French law.

      Taxi stands – taxis are in line waiting for passengers. Are taxi’s offering their
       services or are passengers making the offers?

      Are these offers that must be accepted? Is the taxi driver bound to accept the
       offer? NO. Same for airlines and railroads? The other party is not bound to
       accept it.

      Where public services are involved, there may be special legislation; what if
       the person has a monopoly?

      May the power company refuse your offer? Are there offers that cannot be
       refused? When there is a monopoly, there are special rules. What does
       Entergy have from the state of LA? What enables Entergy to operate in a
       certain area – this is called a CONCESSION. One of the terms is that
       services may not be refused unless there is one of the enumerated exceptions
       present.

Johnson v. Capital City Ford Company, Inc. p. 43 (1955)

      Judge Tate – concludes that an ad in a paper is actually an offer; to support
       this he cites earlier cases. These cases offers some similarity. Three of them
       are offers of reward.
      A magazine distributor offers a reward to whoever places 100 subscriptions,
       etc.

      p. 46 – cites Supremes of Ohio – “there is entirely too much disregard of law
       and truth in the business, social, and political world of today. It is time to
       hold men to their primary engagements to tell the truth and observe the law of
       common honesty and fair dealing.”

      Dissenting judge says again, ads are only invitations to negotiate and NOT
       offers per se.

      Tate is correct as a matter of outcome, but he overstates some things.

      What’s the real nature of this ad?
         o This is a reward for purchasing a 54.
         o The ad is nothing more than a reward.




                                         - 41 -
           o The true rule is the same as in common law – ads are not offers but
             only an invitation to negotiate.

North Central Utilities, Inc. v. Walker Community Water System, Inc. p. 48 (1987)

      Opening of bids is actually a catch 22 – it’s a calling for offers.

      When the party calling for bids is a public agency, in every state and
       municipality there is a special ordinance regulating bids called for by public
       agencies or instrumentalities of the state. The party is BOUND to accept the
       lowest responsive bid. This in a way creates a problem. This statute does not
       govern if the offer is being made to a private entity.

      This was the debate here – was Walker a public instrumentality or private
       entity?

      Walker was not incorporated and was thus a private entity and not bound to
       take the lowest bid.

      See discussion of Eames v. James in this case – precedent is clear that when
       private parties are concerned, no duty to accept bids. Where private parties
       are concerned you are not bound to accept any bid.

                         § 4 - DURATION OF THE OFFER

Duration
  o A proposition to enter into a contract is certainly not intended to remain open
      indefinitely or for an unreasonably long period of time.

Schulingkamp v. Aicklen (1988) p. 51

      Here, a purchaser of immovable property.

      Court concludes that 36 days is more than a reasonable time for you to
       accept an offer to either sell or buy real estate.

      Court looks at the circumstances and what the parties have actually done.

Meyers v. Burger King Corporation (1993) p. 52

      Contract involving an indemnity clause.

      Contract says “at least” 45 days. Does this offer state a maximum or a
       minimum – a minimum; this was within a reasonable time for the offer to be
       accepted.



                                          - 42 -
Heroman v. Saia (1977). P. 55

      Saia bids for electrical work. Heroman is the general.

      Heroman had to get someone else to do the work and then sued Saia. Earlier
       articles applied. (before 1984) Repealed 1809 – every offer was irrevocable for
       some time.

      How would you reach the same solution which is fair in light of the new
       articles.

      A bid by a sub is an offer. Revocable or irrevocable? 1928 – circumstances
       surrounding these situations are indicative that the offer is irrevocable for a
       certain period of time. He knows that the general cannot accept his offer right
       away. The intent is manifested by implication by the usages of a particular
       trade; therefore, Art 1928 applies.

                                OPTION CONTRACTS

       COMMUNICATION OF THE ACCEPTANCE AND THE TIME OF
                   CONTRACT FORMATION

Overtaking the acceptance with a rejection p. 76

      In Nebraska not all offers are irrevocable. Acceptance is good when sent by
       the offeree.

      Here, some are revocable others are irrevocable. In Nebraska, transmitting a
       revocation does no good because once an acceptance is sent you can’t revoke
       it.

      Here, we have irrevocable offers.

      This offer is good for 30 days. Offeree sends an acceptance and since the offer
       is irrevocable effective when received; then the offeree sends a rejection. The
       one that gets there first wins.

      When the offer is revocable, same as in Nebraska.

      Offeree first transmits an acceptance of a revocable offer but then changes his
       mind and through a faster means sends a rejection and it gets there before the
       acceptance. Offeror has both in his hands - should look at dates. If date on
       acceptance is before revocation, he can enforce the contract.




                                           - 43 -
      Can you overtake a rejection by an acceptance?

      p. 78. an acceptance that arrives before the rejection – makes sense that the
       acceptance was transmitted first.

      It’s possible to overtake rejection of a revocable offer with an acceptance but
       what if the following happens?

      Offeree first sends rejection; before it arrives he transmits an acceptance. The
       acceptance gets lost in the mail. Then what????

      An offeror in good faith is protected by a general principle ***what is it?***

                                 OPTION CONTRACT

P. 61 – Glover v. Abney (1926)

      Judge used consideration theory to say no contract.

      How should such a situation be decided now? Do you need consideration for
       an option to be valid? Not according to art 1933.

Why would you give an option?
   Because you want the other person to buy.
   Do you have a reason to give an option rather than making a simple offer?
     Yes. This reason has good cause. Cause suffices to explain this.
   An option is already a contract. But this is a unilateral contract binding the
     grantor.
        o Is this contract gratuitous or onerous?
        o Onerous because the advantage the grantor is getting is the
            consideration of the grantee considering the offer.

In Nebraska, neither rejection nor counter offer extinguishes the option.

This is different in civil law; a rejection puts an end to the option if the rejection is
clear. A counter-offer reflects an intention to continue negotiations – it does NOT
put an end to the option. These are the main differences between civil and common
law here – along with civil law’s lack of consideration.

p. 68 – Right of first refusal

This type of transaction is relatively frequent especially when dealing with
immovable property.




                                          - 44 -
      If the seller sells, he will offer first to a particular party. As in options, the
       contract is unilateral because only one party is bound.
        The grantor is the only one bound.
        There is a technical difference here between right of first refusal and
            option contracts.
               o Lit gives John Paul an option to buy his horse within 10 days. JP
                   has to accept the offer then it becomes a contract. All you need is
                   for the holder of the option to accept. This becomes a contract of
                   sale.
               o Now, he grants him a first refusal. JP I promise that if I ever
                   decide to sell the horse I will offer it first to you. What is needed to
                   ripen into the contract? Lit has to decide to sell. Then there has to
                   be an acceptance.
                         Two steps here before there is a contract:
                                 First the owner has to decide to sell – make the offer.
                                 Then it has to be accepted.
               o In the case of the option, only one condition is needed for the
                   option to ripen into a contract.
               o In the case of first refusal two conditions – grantor decides to sell
                   and holder has to decide to buy.

                CHAPTER III – CONSENT CONT’D.
       COMMUNICATION OF THE ACCEPTANCE AND THE TIME OF
                   CONTRACT FORMATION

      p. 84 – Duty to accept

      Is there such a thing as duty to accept? Generally, there’s no duty to accept
       an offer. Special circumstances may change this. Such as what? Regulated
       industries or manners of offer.

Ryder v. Frost (1848) p. 85

      Contains an example Lit has used often. Someone who lives in the city but
       has a country home want someone to cut trees.

ARTICLE 1941 – Notice of commencement of performance
       When commencement of the performance either constitutes acceptance or
makes the offer irrevocable, the offeree must give prompt notice of that
commencement unless the offeror knows or should know that the offeree has begun
to perform. An offeree who fails to give the notice is liable for damages.

      If he fails to give notice, he does not lose the right to the compensation, but
       may be liable for damages.




                                          - 45 -
      How did the plaintiff give notice to the defendant?

      ASK LIT*****

      In this case, no need for earlier notice (before suit) – it’s implied.

Cardinal Wholesale Supply, Inc. v. Chaisson p. 87

      CMD owned by Kreig and Delahoussaye.

      Store wants to buy supplies from defendant. Store agrees but says we want a
       guarantee- two partners sign a written guarantee.

      The guarantee waived communication of acceptance and also the acceptance
       itself.

      Store never sold. Placed guarantee in a safe deposit box.

      Store is still CMD but sells to not the original parties. New owner defaults in
       payment. Plaintiff gets guarantee and sues original guarantors. 8 years
       elapsed.

      Court said yes you can waive communication but you cannot waive the
       acceptance. If no acceptance, no consent, no consent, no contract.

      Any acceptance by original guarantors? NO. No acceptance by guarantors.
       Acceptance was by other parties.

      Did this offer of guarantee have a specified term? Then an offer than does not
       specify a term – is revocable. Lapses after a reasonable time. 8 years was
       longer than a reasonable time.

Ambrose v. M&M Dodge, Inc. (1987) p. 89

      Plaintiff bought a lemon truck. Made a down payment and financed the rest.
       Plaintiff was supposed to get back his down payment and the company was
       supposed to pay off the loan.

      Chrysler sends a check only for the down payment. Client signs the
       settlement agreement – attorney notices that it says nothing about paying off
       the loan. Attorney then calls Chrysler and says we have signed but something
       is wrong – I’m not sending this back. Defendant insists that by plaintiff
       having signed the writing plaintiff he had accepted it.




                                          - 46 -
      Court says no way. This is not so. Court applies reception theory. Art 1938
       – the written acceptance was never received because plaintiff never mailed it.
       This is true of irrevocable offers – here, we don’t know if it’s a revocable or
       irrevocable.

      Court is correct here – Dodge’s attorneys sent agreement and a check. The
       release was his proof to Dodge. He never received it back because Ambrose
       never sent it back.

      In general terms, any time parties execute a writing, there’s usually two
       parties. They make a copy of the original. Executed in two authentic
       versions. Each party wants to have his own.

Ever-Tite Roofing Corp v. Green (1955) p. 90

      Old Article 1809 – all offers were irrevocable.

      What do you do these days? Is this offer revocable or irrevocable?

      It’s revocable because it’s subject to financing and credit. There’s no time
       specification. Intention was manifested for it to be irrevocable for a period of
       time. Plaintiffs were diligent about getting credit, etc.

             SECTION 7 – ACCEPTANCE AND TERMS OF OFFER

Rodrigue v. Gebhardt (1982) p. 96

      Plaintiffs want to sell – credit was not easy to get at this time. Wanted
       $105,000. $5,000 cash and $5,500 demand note. Parties would share points –
       commission.

      Defendant – made a counter that differs. The acceptance did not conform to
       the offer made.

      This counter was never accepted consequently no contract.

Breaux Brothers v. Associated Contractors (1954) p. 99

ARTICLE 1947 – Form contemplated by parties
       When, in the absence of a legal requirement, the parties have contemplated a
certain from, it is presumed that they do not intend to be bound until the contract is
executed in that form.

      There’s a presumption that they do not intend to be bound.




                                           - 47 -
      Deal was for a 36 mile excavation to remove 871,000 cubic tons. Involved
       dry and wet work. Part of the land was swamp.

      Sub sues general for money he would have made.

      Dialogue on p. 101 – parties intend to execute a writing. Applying the
       present rule – parties did not intend to be bound because there’s no writing.

      Is this contract as simple as the sale of a horse? NO. Probably requires for
       one party to offer to the other a performance bond? YES. Do parties usually
       suffice for oral? NO – usually execute a contract like this in writing. No
       writing here.

      Remember – when discussed in common law – several examples – to
       conclude that there was no writing but there was performance – p. 103 Auto-
       lec v. Ouachita Camp – case of a commercial lease.

      Tenant wants to sublease – he is permitted to do this unless contract says no.

      He had a prospective sublessee says ok I’ll sublease provided that your lease is
       written and signed. Lessor refused to sign. Because of this, tenant lost the
       opportunity to sublease. Tenant now sues for damages. Court said yes you
       get damages. This is a term of the contract. There was a lease even before the
       writing was executed – the code does not require a writing – oral leases are
       ok. If they had agreed to do a writing, this is a term of the contract. Even
       after the contract starts by performance, if one party refuses to contract a
       writing, the other has available remedies.

Barchus v. Johnson (1922) p. 103.

      The sale of immovable property is one in which the code requires a formality
       – a writing.

      Oral acceptance is no good. It should also be written. If offered in writing
       and accepted in writing this is good.

                               VICES OF CONSENT

      Consent may be vitiated by error, fraud, or duress.

      Civil law has a general theory of this. At common law there is no general
       theory.




                                        - 48 -
      Vice of consent is a sort of defect or flaw. A party actually gives consent but
       an accident occurs in his mind so that the consent he expresses is not free –
       therefore it is not good as consent.

      Fraud is midway between duress and error. There’s an objective part of fraud
       there’s an error induced by the other through some sort of stratagem or trick.
       There’s also a subjective part.

A significant difference comes out of article 1949.
ARTICLE 1949 – Error vitiates consent
       Error vitiates consent only when it concerns a cause without which the
obligation would not have been incurred and that cause was known or should have
been known to the other party.

ARTICLE 1950 – Error that concerns cause
        Error may concern a cause when it bears on the nature of the contract, or the
thing that is the contractual object or a substantial quality of that thing, or the person
or the qualities of the other party, or the law, or any other circumstance that the
parties regarded, or should in good faith have regarded, as a cause of the obligation.

Significance here between civil and common law.
    Our civil law code does not say anything about whether or not it should be a
        unilateral (one party alone has error) or mutual error.
    If one party consents with error the other part does not materialize because
        the parties are not of the same mind.
    Unilateral error is full of problems in all systems.
    Common law has a particular solution.
            o Unilateral mistake is operative in Nebraska when the other party
               KNEW that the first party was mistaken.
            o For our system, knowledge of the mistake by the other party is NOT
               required; what is required is that the other party knew the cause of the
               obligation that the other party was incurring.
            o If the other party knows this mistake in civil law – this is fraud.

Mutual Error

      Error of only one party suffices to make the contract nonexistent. What
       about the other party?

      If it were very easy to get out of contract by claiming error, contracts would
       have no value. Common law handles this by saying the other party has to
       know of the mistake.

      Civil law requires that the other party knew the reason why you were
       obligating yourself. This suffices and introduces an important limitation that
       is exemplified in Oil City Realty v. Bordelon (1988) p. 236.


                                          - 49 -
      Kopickis do not communicate to the Bordelons that they want to expand the
       house to a 4 bedroom.

      Kopickis find out that the land is subject to a servitude by the city. The
       servitude does not leave enough room to add another bedroom. They claim
       rescission invoking error.

      Kopickis made an error regarding the cause. Bordelons did not know because
       the K’s didn’t tell them. Law presumes there’s always a cause. Unless you
       tell something different. Their error was not operative.

MUTUAL ERROR

Calhoun v. Teal (1901) p. 240

      Sale of a piece of land supposed to have 250 acres. Sale takes place in a
       normal LA manner. After the sale, we’ll make a survey and if there’s more
       than 250 acres, you will buy the additional at a certain price per acre. If
       there’s less than 250, I will return to you a part of the price at so much per
       acre.

      A survey was done and surveyor said no 250 acres, only 198. If seller returns
       the price paid, then buyer resells and there is another survey done. This
       survey reveals that there were indeed 250 acres. Rescission was brought by
       the court with no hesitation.

Saunders v. New Orleans Public Service, Inc. (1980) p. 243

      Release of liability was (Art 3071 calls this transaction and compromise)
       done. After plaintiff took the $100 resulting from the doctor’s faulty
       examination. Another examination was made and a more serious prognosis
       was given.

      This was mutual error on both parties in relying on the faulty doctor’s
       examination.

Wilson v. Levy (1958) p. 242.

      Civil law solution is rescission – to put things back the way they were.

      Court may not grant rescission but may grant reformation of the contract –
       the contract does not collapse through rescission but is modified to conform
       to the real intention of the parties.




                                          - 50 -
      Neither the seller intended to sell nor buyer intended to buy an additional 30
       acres. The written act described the additional 30 acres. If the court is
       convinced that the error is mutual, then rather than rescinding the whole sale
       they will reform the contract so that the additional disputed land will be
       eliminated. This is known as reformation of the contract.

      A LA court may grant reformation of an insurance policy when it’s not clear
       and whether parties don’t know if a certain risk is included or not.

Reformation is only with MUTUAL ERROR.

Misunderstanding is easy to confuse with error.

      Difference between mutual error and misunderstanding.
          o In mutual error – have same understanding but it’s incorrect.
          o Both parties think the antique is authentic but it’s not. This is mutual
              error
          o Two parties are transacting on a certain object but one party thinks
              that the other party wants a certain thing (X)while the other party
              thinks that the other party has a different thing in mind (Y). Here the
              parties are not understanding each other. They don’t have the same
              thing in mind. Misrepresentation in the mind.
          o Error is belief in the existence of something that does not exist.

Lyons v. Cusimano (1926) p. 245

      Defendant placed order for Telegram flour. Plaintiff had two mills in Kansas
       – one in Hudson and one in Lyons. Defendant wanted flour from Lyons.

      This is not a case of mutual error but defendant wants flour manufactured in
       Lyons. Plaintiff thinks defendant wants something else. This is a
       misunderstanding. Result is still rescission.

Pierce v. Ouachita (1972). P. 246

      Defendant has an a/c made by York. He calls for service by York people.
       Ballard refers him to a Lawler who used to work for them to repair
       defendant’s a/c.

      Lawler proceeds to install an Amana compressor.

      p. 247 – no scintilla of evidence that parties acted in good faith. Defendant
       wanted a York part. Plaintiff thought it didn’t matter. Each party had a
       different idea in mind. They didn’t understand each other.




                                        - 51 -
      p. 249 – note cases. Patterson v. Koops. Person wants to buy on City Park
       Row but purchases one on Park Row. Result – misunderstanding rescission is
       granted.

ARTICLE 1951 – Other party willing to perform
A party may not avail himself of his error if the other party is willing to perform the
contract as intended by the party in error.

      This article will not be in all civil codes. This is a rule of utmost fairness. The
       other party is offering to perform the contract as the party in error wants it.

UNILATERAL ERROR

Deutschmann v. Standard Fur Co. (1976) p. 249

      Ms. D. orders a mink coat. She wants horizontal strips of fur in the coat.
       The coat is ordered from NY. She takes it home and discovers that the
       horizontal strips of fur are not solid. They are patched. They are not whole
       strips of fur and she returns the coat.

      Coat goes back to NY but she has the same reaction when it comes back. She
       complains that there’s been an error.

      Abel says that a set up strip is as good as a whole strip but Ms. D. says that’s
       not what she wanted. Court holds that she made an error and grants
       rescission on the basis of her unilateral error.

      Court does not find reasons to declare this fraud.

Marcello v. Bussiere (1973) p. 251

      Plaintiff is the realtor who holds the lease. Defendants begin negotiations
       with him for the property “the joy lounge”.

      Plaintiff tells them that he sees no reason why they shouldn’t get a license to
       operate the bar.

      There’s a lease and then a purchase of the goods inside the building.

      Then they apply for a license and get rejected. Defendant does not pay rent;
       plaintiff sues.

      Court says the reason they entered into this contract was to operate a bar,
       which they couldn’t do since they couldn’t get a license.




                                          - 52 -
      Defendants could not prove that there was an intentional misrepresentation
       so therefore no ruling on fraud.

Boehmer v. Russo (1958) p. 255.

      Defendants are looking for a place to operate a gas station. The negotiated
       for this on a Saturday. They obtained an option by paying $200. Defendants
       then went to NY. They then require into the zoning regulation.

      Then find out that the area is zoned industrial non-conforming. This area
       was turned into a residential area. Whatever businesses were operating there
       when the rezoning took place would continue provided that there were no
       expansion of the premises.

      Defendants were realtors – should they be knowledgeable about zonings?
       YES but there’s no proof of a misrepresentation. Court took into account
       what the error was.

      There was another industrial enterprise across the street from the property –
       then plaintiff may have been justified in believing that it was ok to operate a
       business. Defendant should have known better. No fraud here. But error is
       clear. Court grants rescission.

Universal Iron Works v. Falgout Refrigeration (1982) p. 258

      There was only a ballpark figure given by the defendant.

      In the past defendant had submitted 75-100 bids, 15 of which had been
       accepted. These jobs were ONLY for a/c, not for ventilation or special
       heating – therefore defendant believed that he was bidding only for a/c.

      Does this error really bear on the cause of the defendant?

      People are in business to make money. Did they make an error that bears on
       the cause of the obligation? They can’t make money if they are losing it on
       the bid.

      Unilateral error that was operative that concerned the main reason why the
       party made and negotiated the contract. ART 1949.

Shreveport Broadcasting v. Chicoine (1988) p. 262

      Community club awards organized by an ad agency and the broadcasting
       corporation.




                                          - 53 -
      Defendant was a chiropractor and was new to the area so he had a good
       reason to join the club. He signs the contract. He thought he was going to get
       39 appearances but only got 14. He stopped paying. The contract says that
       the radio will broadcast the services of the contract but says nothing about the
       personal appearances.

      Chicoine says that he didn’t read the contract.

      “Signatures to obligations are not mere ornaments.” Signatures signify your
       written consent. They also mean that you understand what you have signed.
       If you fail to read it you are being negligent.

      The presumption implied by your signature is that you have read it. If you
       fail to do so, then this is your own negligence. Should the law protect you if
       you have neglected to protect yourself? NO.

Gross v. Brooks (1961) p. 266.

      vendor could not read therefore there was no presumption that he could read.
       However, before signing the contract was read in detail by the notary. The
       signature here is also not an ornament. It is binding unless there has been
       fraud or duress.

Citizen’s Bank of LA v. James (1874) p. 267.

      Someone bought a piece of property that the bank purchased in execution of a
       mortgage. After defendant purchased the property he realized that the
       property was less valuable than he thought.

      For an error in judgement the court will give you no relief. In the absence of
       any fraud by the other party unless a purchaser is stupid it behooves him to
       ascertain the value of the thing. Not shopping around is neglecting your own
       protection unless the other party has committed fraud or you have been the
       victim of duress.

CAUSE CONCERNED IN ERROR
ERROR AS TO THE PERSON

ARTICLE 1950 – Error that concerns cause
Error may concern a cause when it bears on the nature of the contract, or the thing
that is the contractual object or a substantial quality of that thing, or the person or the
qualities of the other party, or the law, or any other circumstance that the parties
regarded, or should in good faith have regarded, as a cause of the obligation.

Bischoff v. Brothers of the Sacred Heart (1982) p. 267



                                            - 54 -
      Plaintiff has lots of degrees. He has taught theology at the college level.

      The man in answering the questions in the form, lied. There was no question
       whether he was divorced. According to him he was truthful in his answer.

      School argues that there is more expected of the teacher of religion. He is
       supposed to be a role model. There’s a special way of life involved here.

      Plaintiff insists that he didn’t lie and moreover for the defendant to be right he
       should have proved that not only would his admission of divorce been an
       obstacle but defendant should have proved that this was an unsurmountable
       obstacle.

      Conversation between himself and Brother Farrell – if he had told him that he
       probably would not have hired him.

      Did the plaintiff have a duty to be candid? Yes the Catholic church has a
       position against divorce.

      Good faith required from him to make a disclosure which he did not.

      Court cites Ostrolenk case. She was asked a clear question and lied. There
       was a case of fraud here.

      This error bears on the cause of the obligation – they didn’t want a teacher of
       religion that had been divorced. Particular circumstances may contribute to
       explain a party’s reason to incur an obligation – wanted a role model.

National Crankshaft (1963) p. 271 – there was error on the person of the other party.

Delpit v. Young (1899) p. 271 – if error was to the actual identity of the person you can
have rescission.

Wise v. Prescott (1963) p. 272

      Bus accident. Old lady breaks her glasses. Insurance adjuster visits her and
       persuades her into a settlement for $105.

      She signed in the belief that it was a receipt. She was induced into an error
       concerning the nature of the contract.

      In other states there are rush release statutes – when the victim of an accident
       signs a release in a relatively short period of time. LA does NOT have this
       but quite clearly these are fertile ground for error. The court annuls the
       settlement on the ground of error.


                                         - 55 -
Davenport v. F.B. Dubach Lumber (1906) p. 276.

February 25, 2002

Error in the Substance of the Contract
Voitier v. Antique Art Gallery (1988) p. 276

Plaintiff buys a painting thinking it is an original by Inness. He buys it only because it is a
painting of this particular artist.

With works of art, the dealer/auctioneer attaches a certificate of authenticity. Upon the falling
of the hammer and the payment of price plus the auctioneer’s commission, no certificate was
delivered.

A certificate was delivered – done by someone in Chicago. Plaintiff gets someone who is a top
expert on Inness works and he concludes that the work is NOT an original.

Clearly, the plaintiff bought an object thinking it was a product of a certain person but this
wasn’t so. He now sues claiming error.

Parties do not dispute that the painting is not an original. Defendant says you bought the
painting you liked – who the painter is is an immaterial circumstance.

Court says – this is wrong – if you buy a painting by an artist this is the whole reason you buy.

Error here seems bilateral. New Orleans auction house also thought it was an original.

Defendant also says that the sale was without warranty. Court says this is not a matter of
warranty but an error in the quality of the thing sold. You may want to buy a Lexus but you get a
Toyota Corolla. The Corolla has no defect but you wanted a Lexus – you shouldn’t be satisfied
with the Toyota.

Code says a sale can be annulled when the thing has a hidden defect that makes the thing useless.

The court grants annulment.

In Europe this is a fertile ground for litigation.

ERROR OF LAW

ART 5 - nobody can avail himself of ignorance of the law.

In error of law you are claiming ignorance what the rule actually means – not that it actually
existed.

Very frequently, attorneys and parties do not know how a rule is to be applied.

Not all civil codes contemplate error of law as an operative error. This is in somewhat of a
decline in some jurisdiction.



                                                 - 56 -
Hill v. Hill (1931) p. 282

Ms. Hill married several times.

She married a second Hill and produced three children. They applied for a homestead. Federal
government allowed people to settle on the land and work it and after a while they could apply
for title of ownership of the land. When the government granted title this is called the
homestead.

The second Hill died before the homestead was granted. After the government grants title she is
married to the third Hill.

In this situation does the title belong to the community existing at the time homestead is applied
for or does it belong to the community in existence when the homestead is granted?

Mrs. Hill dies. Now the children from the second marriage and the third husband are fighting
over the homestead.

There was no clear solution – federal courts were not in agreement. Parties make a
transaction/compromise – widower gets naked ownership and children get the usufruct. Then
oil is discovered on the land. Widower attacks on error of law – he says he made the contract
that the homestead was in community in existence at time of application was correct. Now
there’s a supreme court decision that says otherwise.

You may attack a transaction or compromise on grounds of fact or fraud but NOT on error of
LAW; more often than not a settlement is made when parties are uncertain about the
interpretation of a particular rule. It was easy for the court to say the main exception – a
transaction or compromise is not susceptible to rescission on grounds of error of law. Contracts
of a different kind are so susceptible.

Succession of Williams (1929) p. 285 – there was a mistake on the part of the attorneys. Widow was
allotted more than her legal share as a widow. Court concludes that since the error was bilateral
there was no problem with granting the rescission. Widow gets only what the law allows.

ARTICLE 1952 – Rescission; liability for damages
       A party who obtains rescission on grounds of his own error is liable for the loss
thereby sustained by the other party unless the latter knew or should have known of the
error.

For unilateral error the other party only has to know of the cause of the other party. For damages
the other party may not be entitled to damages when he knows the cause but also knows that the
other party has made an error. This is a sort of limbo between error and fraud.

                                                                           The court may
refuse rescission when the effective protection of the other party’s interest requires that
the contract be upheld. In that case, a reasonable compensation for the loss he has
sustained may be granted to the party to whom rescission is refused.

This is an unusual situation. Comment e to this article – Lawrence v. Mount Zion Baptist Church
(1925)



                                               - 57 -
Mr. Lawrence owns two contiguous lots of land. One is larger than the other.

Church buys the smaller lot – but the larger lot is being conveyed for the price of the smaller one.
Congregation starts building a temple.

Plaintiff then discovers the error and seeks annulment. At this time there was no article 1952.
The court was persuaded that there was an error. The church has already been built. What
happens now? Should plaintiff get back his lot with a church on it? The court reluctantly said
the only equitable solution was to uphold the contract – plaintiff was left holding an empty bag.
Under this article could you have a different solution?

Probably – the church may have to pay the difference in the land or some sort of compensation so
that the plaintiff is not left holding the bag.

FRAUD

ARTICLE 1953 – Fraud may result from misrepresentation or from silence
Fraud is a misrepresentation or a suppression of the truth made with the intention either
to obtain an unjust advantage for one party or to cause a loss or inconvenience to the
other. Fraud may also result from silence or inaction.

ARTICLE 1954 – Confidence between the parties
       Fraud does not vitiate consent when the party against whom the fraud was
directed could have ascertained the truth without difficulty, inconvenience, or special
skill.
       This exception does not apply when a relation of confidence has reasonably
induced a party to rely on the other’s assertions or representations.

If you want to buy something you can get it appraised or shop around.

In the case of paintings or antiques – you may have a special skill involved.

In other situations you may have an extreme difficulty in establishing the value of the thing.

In commercial import/export it is a large box filled with things. If you are an importer you buy a
container and according to the seller inside the container there are 100,000 units in which you
are interested.

Someone would have to open the container and count the items. This could take a long time and
be a difficulty.

There may also be inconvenience – seller sells a particular object. The horse is not here but is in
Wyoming. If you don’t trust what the seller tells you, you have to travel to Wyoming. This is
some inconvenience.

When ascertaining the truth will require skill, difficulty or cause inconvenience fraud will be
operative even though the other party may have found out the truth aforehand.




                                               - 58 -
When the other is led to believe what the other one has held – relation of confidence exists
between parents and kids, attorneys and clients….etc.

ARTICLE 1955 – Error induced by fraud
       Error induced by fraud need not concern the cause of the obligation to vitiate
consent, but it must concern a circumstance that has substantially influenced that
consent.

Jean Paul goes to buy a house; he inspects it and likes it. He likes the price but it’s more
than he was ready to pay at the beginning of shopping. Cause is to have a place to live in.
seller noticed that he was hesitant and tells him that this was not a common house and
that the ghost of Elvis appears on Friday at midnight. JP was an Elvis buff and that
makes the decision for him to buy the house. Once he bound himself to pay the price his
consent has been influenced by the presence of the ghost.

ARTICLE 1956 – Fraud committed by a third person
       Fraud committed by a third person vitiates the consent of a contracting party if
the other party knew or should have known of the fraud.

This does not refer to the perpetrating party but the other party.

If a third party told him the ghost of Elvis appeared this article would apply.

ARTICLE 1961 – Duress by third persons
     Consent is vitiated even when duress has been exerted by a third person.

In duress this is true regardless of whether the other person knew.

ARTICLE 1957 – Proof
        Fraud need only be proved by a preponderance of the evidence and may be
established by circumstantial evidence.

Occasionally courts will demand a higher standard of evidence. In criminal law for a jury to find
a defendant guilty. Beyond a reasonable doubt. This is the highest standard of evidence. In civil
law – we have clear and persuasive evidence this is the middle ground. The lowest standard of
evidence is by a preponderance of the evidence. This means that the whole of the evidence make
the occurrence of the fact more probable than not which is less than clear and persuasive proof.

Where fraud is involved the article says the lesser standard is good. It even admits the lowest
form – circumstantial evidence – these are facts that are in the background but trigger the facts.

ARTICLE 1958 – Damages
      The party against whom rescission is granted because of fraud is liable for
damages and attorney fees.

The American rule is that each party winning or losing pays their own attorney’s fees unless
either the contract or the law says otherwise.




                                               - 59 -
Article 1958 is one of these situations in which the law prescribes attorney’s fees for the
prevailing party.

Griffing v. Atkins (1941)

This is again before the present articles on fraud.

Rules have not changed only article numbers.

Mr. Sims found a ring and gave it to his wife. Jackson saw the ring and said it may be
valuable. Jackson works at a jewelry store. This is a small jewelry store that at the time
was prestigious.

Jackson persuades Sims to bring the ring to the store to ascertain whether the ring was a
true diamond.

Jackson and Sims go directly to the back to Collins. Collins concludes that the ring is a
diamond but that it has bubbles on it.

Mr. Roumain, the owner, meets them in the middle of the store and asks what’s goingon.
Griffin remains in his office.

Collins tells Roumain that he has appraised it and it has bubbles. Court is persuaded
that Sims asked Roumain how much may the ring be worth. Roumain told him $130.
after this Roumain left the store and was absent for 15 minutes came back and told Sims
that he is not buying the ring.

Sims is on his way out and is intercepted by Griffin and offers to buy the ring for $130.
Sims consents to sell for that price.

WWII was going on. People didn’t have much money. It was discovered that when
Roumain left, he went to the bank and was denied a loan. He says he went to the police
because he suspected that the ring had been stolen.

Court was concerned with the distance Griffin was at when he heard evaluation to the
tune of $130. Evidence is not entirely clear – some say 4 feet, some say 14 feet – these are
both earshot distances. Is it more probable than not that when Roumain told Sims how
much the ring was worth Griffin heard this? YES.

Is this fraud? Defendant is the chief of police of BR because after the transaction is made
between Griffin and Sims the cops go to Griffin’s and attach the ring believing it was
stolen. It remained in the possession of the cops until he gave it to the clerk of court.

The action is brought by Griffin claiming that he was the owner of the ring because he
bought it.




                                               - 60 -
Court is concerned with a fiduciary relationship – Sims didn’t go to the store to sell the
ring but to get it appraised.

Was this an honest appraisal for Sims? It was worth actually $1250. this is a clear
misrepresentation. Griffin bought this ring relying on this misrepresentation. He made
himself complicit in these matters. On p 293 – fraud may not be presumed but courts of
law recognize the canon of concealment. Court applied 1967 even though it did not exist
at this time. “more probable than not” was the standard used.

FEBRUARY 26, 2002

GRIFFIN V. ATKINS (1941)

DISSENT: Evidence is not sufficient to conclude that there has been any sufficient
collusion between the jewelers.

This reflects a frequent trend of many judges that fraud cannot be proved by
circumstantial evidence. The majority opinion is based primarily on circumstantial
evidence.

The dissent elaborates on the "golden rule" and refers to Pothier. Pothier contemplates
the situation where the buyer with greater knowledge does not disclose the real value of
the thing to the buyer. Everybody agrees that this is not nice but is it fraud? Pothier says
that legally this is not wrong; morally probably this is somewhat of a moral obligation.

p. 296. If this were so no one would buy without disclosing to the seller the real price of
the object.

Lit says this is a matter of great debate. French - call l'obligation...
Nebraska cousins call this the duty to disclose. What are the important economic aspects
of this?

The antiques situation in Europe. According to the poor person, this is bad!!! There is a
high economic cost in acquiring detailed knowledge of certain things.

Exxon performed aerial explorations and bought the land without disclosing to the owner
and further did not buy under their own name. Realtor said his principle was
undisclosed. The case was settled. The courts did not express final opinion.

In France - 9 years ago. someone found a painting in bad shape. Bought it for 15,000
francs. Nuns were happy. The buyer was an expert restorer and sold it to the Louvre for
$25 MILLION francs. No settlement here - the court's decision: it was unfair for the
trader not to have disclosed to the nuns what was the value of the painting he was buying
and he should restore to the nuns what he collected to the museum BUT this person
worked very diligently in restoring the painting and this work deserves compensation.
Final judgment - nuns get price from the museum but he gets $10 Million francs for his
work.


                                           - 61 -
Whether or not there is an obligation to disclose to the other party the real value of what
you are buying.

Common law - only if the farmer were to ask the trader what the real market value was
and the trader LIED THEN YOU WOULD HAVE FRAUD; if the farmer did not ask the
question, NO duty to disclose. This is also the law here in LA.

Can you say that the person is not acting according in bad faith? Is the person really
taking an unfair advantage? The nuns were happy!!!

The fundamental nature of commerce is to buy low and sell high. This has been so since
the beginning of time. Boats leave for Syracuse but one is faster. Since the people in
Syracuse were starving, they bought from the merchant. Should the merchant have
disclosed that there were more boats on the way? Pothier would have said NO but Cicero
says YES he should have disclosed this information.

ORR V. WALKER (1959) p. 297

Orr and Talley are fighting over a piece of land. Court concluded that Orr was the owner.
Talley then tried to buy the land but Orr wouldn't sell. Talley then sells to Walker.
Walker goes to Orr and wants to buy the land. Walker buys the land and then transfers
the land back to Talley.

Orr then sues seeking the annulment of the sale. There's evidence that there was a
misrepresentation was beyond any doubt. Defendant raises an interesting argument: we
did this, but in spite of this Orr should not complaint because he got a price far and above
the market value and he has no material grounds to claim the nullity of the transaction.

Court says you are wrong on 2 counts:
1. Not every litigation involves a pecuniary value. (child custody)
2. For you to perpetrate fraud your intention need only be to cause INCONVENIENCE
to the other party. There was a clear inconvenience here.

Court annullled the sale on the grounds of fraud.

OVERBY V. BEACH (1951) p. 300

Plaintiffs want to invest in real estate. Bearys wanted to know how much they could get
in rent. They were told they could get $375. According to the OPA they could only get
$277.
FEBRUARY 26, 2002 II

Trial court says no fraud because they should have called the OPA.




                                           - 62 -
On rehearing - in the first place no certainty that the transaction took place on the eve of a
holiday. Plaintiffs were not in a good situation to contact the OPA.

There's no evidence that had the plaintiff gone the OPA would have released the
information. This is regarded as semi-confidential information.

Since the misrepresentation was CLEAR - defendants knew what the real rent was and
still lied. Plaintiffs did get the annullment on rehearing.

p. 305 NOTE

BRANDON V. GOTTLIEB (1931)
Here, the insurance company representing the defendant knew that there was an eye
witness but withholds from the plaintiff that there was such a witness. Plaintiff sues to
annull the settlement made. Rescission is granted.

EL PASO EXPLORATION V. OLINDE (1988)

Widow and children. When there is community the widow as partner are entitled to the
naked ownership and the children as heirs are entitled to the usufruct.

Company is interested in buying the land and get an act of sale and the widow is going to
appear as seller and asks for the children to appear as witnesses. But they are really
signing as sellers. This means that the company ended up buying the property. When the
parties realized th is annullment was sought and granted for fraud.

LACROIX V. RECKNAGEL (1956)

Mr. LaCroix was told that the theater sold x amount of tickets a day. He verified how
many tickets were sold. After that he bought the theater. He was dissatisfied and sought
annullment on grounds of fraud. There were fewer tickets sold. He didn't get
annullment. He didn't get annullment because he attempted to find out the truth. He did
NOT buy on the strength of a misrepresentation.

p. 306

Criminal code - theft by fraud. Fraud has criminal overtones.
This vice of consent has a different designation France: our article 1953 is called DOL.
This is translated as guile. This is two steps below fraud Lit says. In the translation the
translators chose FRAUD. If they had chosen a different word perhaps would not have
the same connotation.

DURESS

Duress has been incorporated into the code inn 1984. Before that time the code called it
VIOLENCE. Violence has overtones of physical exertions. 1959 - Consent is vitiated by



                                            - 63 -
duress of such a nature as to cause a reasonable fear of unjust and considerable damage to
a party's person, patrimony, or reputation.

Health age and disposition are circumstances to be taken into account. The earlier article
also listed SEX as one of these factors.

Art 1960 - duress is operative - operates when acted against a third party.

When acted against OTHER third persons - relief is granted at the discretion of the court.
Lit says this is for significant others.

Art 1961 - exerted BY third person. No requirement of the other party knowing of the
duress.

Lit says duress is the nastiest of the vices.

In 1962 - exception a threat of a lawful act does not constitute duress. There is another
exception - a threat to do a lawful ONLY in APPEARANCE may constitute duress.
Threat of going to the police when there's no grounds for you to go but may be
intimidating to someone in a prestigious position.

Art 1963
Art 1964 - you also can get attorney's fees. When there's a third party - the other two can
get from him.


Obligations March 1, 2002

Hypo with Breann.

COODER V. OTERI (1882) p. 306

Defendant lived in the same house with plaintiff. Brought his wife to live with him and plaintiff.
He was looking for trouble.

Necromancer got $5000 from the wife which defendant kept under the bed.

Defendant returns from work, noticed that the money was gone. HE thought that plaintiff had
seduced defendant's wife. Defendant holds plaintiff responsible for the remainder of the money.
He obtained several notes in the value of $3000.

Plaintiff consists that the notes were signed under duress.

Plaintiff never carried through his threats. Court discars the testimony of the women.

There was no duress here because the attorney only wanted to talk about suing. This is the
threat of a legal right.




                                                - 64 -
No duress here and the signing of the note which is its own contract, which stands and is not
rescinded on grounds of duress.

WILSON V. AETNA CASUALTY & SURETY CO. p. 309

Dr. advises plaintiff to take the $5000 to help take care of him after he gets out of the hospital.

He sues when out of the hospital. Trial judge awards 16000. Goes to the court of appeal. Judge
Tate wrote the opinion. His opinion - There is an actor required. Judge says that duress by
circumstances is not enough - not unless an actor exerts is on another; circumstances alone are
not enough.

ADAMS V. ADAMS (1987) p. 312

Married couple is getting divorced. They are dividing up the community property. Husband
claims that there was more debt than assets.

Husbands business was over $300,000 in debt.

Unless you take the offer, I will have to go into bankruptcy. She decides to accept the
proposition but shortly thereafter she changes her mind and sues for rescission.

She claims duress for going through the psychological strain of a divorce. She claims there is
duress by circumstances which is not operative. She says that he also shook her by the
shoulders.

This is not duress - it is against the societal mores of the community.

p. 316 - the traditional approach. this is the approach of the adams case.

There's also a modern approach.
Austin v. Loral. Duress in economic means. Unless you pay me more I will stop the deliveries.
This was duress of goods which Lit says is a form of duress by circumstance because there's no
physical harm. This is the more flexible approach. This may become the law in this jurisdiction.

JUNG V. GWIN p. 315.

There was a dispute subject to arbitration - plaintiff owner was correct. the award of the
arbitrator was subject to appeal and once the appeal was filed defendant who had lost the
arbitration addressed the plaintiff. He says unless you pay what you owe I will stop work. this
was a commercial project that they had invested a lot of money. This would involve a loss of
money. In this case the court sided with plaintiff and that defendant had actually exerted
duress. This was an actor proferring a threat but this is a threat that alludes to circumstances.
This is the kind of hint that also reappears in other LA cases - may be an indication that LA
courts may be ready to change perhaps in a short time to include duress by circumstances.

p. 314 - BERNSTEIN V. COMMERCIAL NATIONAL BANK

Money was missing from the bank. No evidence that bank president embezzled the money.
Depositor wants president to offer a personal guarantee for the missing funds unless the client




                                                - 65 -
will go to the cops. This was a threat of legal action that was a lawful act. Was the interest of
the defendant that justice be made and criminals wind up in jail.

according to article 1962 - this was an act lawful IN APPEARANCE ONLY.

Court granted the annullment.

PATARNO V. VACARO p. 314.

Corporation creditor addresses the primary stockholder that unless you pay me I will seize the
property. The court held that this was lawful and therefore no duress.

LEWIS V. LEWIS. p. 315

Also involved divorce and the wife claims that there was duress forced upon her. No convincing
evidence that she had been threatened. Court

Obligations March 1, 2002 II

Court says that you should also give reasonable weight to the circumstances of the other person
THIS IS A SUBJECTIVE APPROACH

Bring together both of these approaches and you reach the conclusion then.

JORDAN V. CITY OF BATON ROUGE (1988) p. 317

Plaintiff's car was impounded for evidence.

This was on 1985. Officer Wheeler put a hold on his car. This cop could not be found because he
was the only one who could remove the hold.

Dealer's had obtianed permission to sell the car - plaintiff appears and wants his car back. He
had to pay over $500 for storage and probably had to pay more money putting his car back
together.

He has his car back and nowhe sues seeking rescission of the release on grounds of duress.

The court says there are grounds for duress. The release was invalid and obtained under duress.
Grants relief against Dealers and affirms as against the police.

OBJECT OF CONTRACT

GENERAL PRINCIPLES OF CONTRACTUAL OBJECT

ARTICLE 1971 -

Concerning lawfulness this is in connection with cause.

ARTICLE 1972 - According to nature and not parties ability to perform.

Lit says you may run into problems here.



                                               - 66 -
This rule is in trouble - there are few things that are impossible now.

ARTICLE 1973 - Only need be determined as to kind not quantity

Common law often has serious problems with what they called indefiniteness.

In common law the contract with the horse would collapse because the object is indefinite. This
is becoming less and less demanding concerning definiteness.

ARTICLE 1974 - When quantity is left to a third party.

In LA - sales of standing timber.

The sale is usually contracted as a unit price - 150 per 100 feet usually.

ARTICLE 1975 - this is the same as in common law.

ARTICLE 1976 - Future things

only article that contains one prohibition.

A no no is that you may not contract on a future inheritance other than an antenuptial
agreement.

Obligations March 4, 2002

COMMERCE INSURANCE AGENCY V. HOGUE (1993) p. 322.

Hogue has been working at the insurance for a while. Owner wants to transfer the business to
his employee. Defendant buys "the book of business" for $115,000.

Defendant does not perform; plaintiff sues and defendant's argument is that object is no good
because object is not specified. He says that no one knows what a book of business is.

McAdams says that he keeps for himself the business of capital bank and trust and also the flood
insurance. What was left to be transfered? Clients were named with the amount of policies,
time of expiration, etc.

About 75% of clients renew their policies at the time of expiration. They then add up the total
premiums due and reach the sum of $115,000.

Court's conclusion is that by the peculiar and unusual designation of "book of business" plaintiff
was transferring what to the defendant? The client list. The client list has a more current list -
THE GOODWILL of the business.

The LA article says that the object must be determined at least as to its kind - 1973. The
defendant's claim that there was no specified object was rejected.

STATE V. LEWIS (1989) p. 323




                                                - 67 -
This case is here to demonstrate a plea bargain agreement. A plea bargain is the object of a
contract.

Nall case analyzed on p. 324 is also a plea bargain case.

Plea bargaining is an American tradition.

Is this lawful? Lit says it seems so.

Defendant is accused of a crime in Rapides parish. DA says there have been lots of theft of farm
equipment and also arson. If you cooperate and give us information about this, then we will
proffer you a lesser charge.

Lewis is under investigation in Avoyelles Parish also. Lewis had nothing to give. The DA says
this plea bargain is no good an I will continue the prosecution.

Bone of contention is whether what Lewis confessed to the Rapides DA could be used in the
Avoyelles investigation - conclusion is so because of the constitutional inferences involved.

In the Nall case - it was clear that Nall really committed the crime although he had denied it.
Here the DA decided to continue with the prosecution. Whatever facts had been confessed to by
the defendant after the plea bargain is not admissible evidence since the plea bargain is truly null
the prosecution can continue but information obtained on the strength of the bargain cannot be
used because of the constitution.

The courts dissolved this for failure of cause. This is not a case of a cause that exists and then
fails but this is more a case of error and in the Nall case is a case of fraud. Regardless of the
grounds, the plea bargain is no good therefore is subject to rescission which means that
prosecution may continue.

LILES V. BOURGEOIS (1987) p. 326

Article 1976 - Future things.

This is an agreement between client and attorney. Nell had an aged mother Grace who was
mentally unstable and frail.

Mrs. Bourgeois does not have money but she is Grace's heiress. The agreement is that the
attorney will procure the interdiction of Grace and when the time comes he will also take case of
Grace's succession. His compensation is to be 1/4 of whatever assets Nell gets.

The agreement also contains a minimum hourly rate that the attorney is entitled to. Attorney did
as was promised and did an excellent job. Nell got $172,746 1/4 of which would be $43,000.

Litigation ensues and the court says this is a nono. the compensation of the attorney was based
on the impending death of grace and since the compensation was made to be based on whatever
Nell would get this was clearly a contract that involved the succession of a living person and
involves article 1976.

Why this prohibition of making a contract this way? Court cites Planiol.




                                                - 68 -
Example with Don Coreleone and my uncle with $10,000.

There is an exception in the article for antenuptial agreements which can be made during the
marriage.

The article also says that the succession cannot be renounced.

Lit says once you are an heir you may

Obligations March 4, 2002 II

You cannot reject until you are an actual heir which you cannot be until the person dies.

The compensation given was below the compensation the attorney was entitled to according to
his experience and work. The court then jumps to quasi-contract and gives him $15,000 based
on the rules of unjust enrichment.

THIRD PARTY BENEFICIARY CONTRACTS - STIPULATION POUR AUTRI

1978 - a contracting party may stipulate a benefit for another called a third party and after the
third party avails himself, parties may not dissolve the contract without the beneficiary's
agreement.

Stipulation - is a direct translation from French which comes from Latin. This means to ask for a
promise.

The stipulator who asks for a promise - the one who makes the promise is called the promisor
and the one to whom the promise is made is called the promisee - this is the stipulator. The
stipulator in this case of stipulating a benefit for another although the stipulator receives the
promise he is NOT supposed to receive the PERFORMANCE. the promise consists that the
promisor is going to render the performance to the third party.

The clearest example of a stipulation pour autri is life insurance. As when a person buys
insurance on his own life; usually in a life insurance policy the insured agrees with the insurer
that when the insured kicks the bucket the named beneficiary will get the indemnity.

Lit says life insurance is handled under the Louisiana Insurance Code in Title 22 of RS. The
clearest situation is excluded from the code articles but Lit says this is the clearest example.

1981 - Rights of the beneficiary and stipulator.

The third party although she is not a party to the contract (why she is called the third party) has
an action against the promisor. A person not a party to a contract derives from a contract made
by others a very important right which is the right to receive performance from one of the
original parties to enforce that right the law gives them a personal action of his own.

Tripartite relation - p. 330

There is a relation between stipulator and beneficiary, between stipulator and promisor, and
between beneficiary and promisor.




                                               - 69 -
The juciest is the first Lit says. Why would the stipulator have reasons to prompt him to ask for
benefits for a third party? 4 hypotheses:

1. Assume that the stipulator owes money to the beneficiary. Stipulator sells property to the
promisor. Rather than paying the stipulator he will pay to the beneficiary. Why? because the
beneficiary is a creditor of the stipulator. Stipulator is the debtor. Lit says this may be the most
frequent one. This is called a creditor beneficiary.

2. Stipulator may owe other things to a beneficiary. Stipulator may be a builder and the contract
allows the builder to assign the contract to another builder if he wishes. Stipulator makes a
contract with another builder to render the performance to the beneficiary.

3. There is a relation between stipulator and beneficiary that may explain stip's intention to
make to the beneficiary a donation. Assume that the beneficiary is a niece of the stipulator and
the niece is about to get married and more often than not the uncle wants to give a significant gift
to the niece and since he has no money he sells property to the promisor and makes sure that the
promisor will give the money to the niece. In this case there is a donee beneficiary.

3. Between stipulator and beneficiary there is no legal relation but simply a factual relation out of
which a certain liability may arise for the stipulator. Stip makes a contract with a promisor
according to which if the stipulator becomes liable becasue of the happening of a future event,
the promisor will pay the damages to the victim. This is civil liability insruance which is a clear
example of this type of situation.

4. This situation in which performance by the promisor for the benefit of another party may
beneficially improve the situation of the stipulator. When would this hypo work? The beneficia


Obligations March 4, 2002 III

Beneficary lacks means to pay. Stipulator sells property to promisor and besides engaging to pay
the price to the stipulator also promises that the promisor will buy some other property from the
beneficiary.

Now the beneficiary will be able to sell to the promisor and get the funds to pay the stipulator.
This will have a beneficial effect on the stipulator.

Stipulator and promisor.

If stipulator sold property to the promisor he will owe the buyer delivery of the property to the
promisor. In case there is an error or there is fraud whatever pertains to their contract applies to
the contract between stipulator and promisor regardless of the type of contract.

Promisor and beneficiary

The most important thing to be found here is the beneficiary's action against the promisor. He is
not an original party but he has action agianst the other two. When beneficiary is the creditor he
may demand from the promisor payment of the debt.

this applies whether the beneficiary is a donee or a creditor. In the case of insurance the victim
may sue directly the insurer of the tortfeasor.



                                               - 70 -
Article 1982 - Lit says you don't find this in every civil code. The common law is evolving in the
same direction.

Promisor can raise defenses against the beneficiary the same defenses as against the stipulator.

If the stipulator has failed to perform and the original contract was that there was a horse to be
sold, the stipulator did not deliver the horse and now beneficiary sues for the price. Promisor can
raise against the beneficiary the stipulator's failure to perform - I never got the horse or what he
should have given me.

PELICAN WELL AND TOOL SUPPLY CO V. JOHNSON (1940) p. 332

Redditt and Gray own a mineral lease and negotiate with Pundt and Johnson. In the transfer of
the mineral lease the transferees before paying money for the lease want to make certain of what?
TITLE. A mineral lease is a real right. The title of the property is complicated with successions.
The transferees Johnson say they need more time for exploration of the title. Redditt and gray
say this is OK provided you pay our debts from our earlier operations. They had been drilling on
the land. Johnson and PUndt say fine we will pay this. They did not pay. Redditt and Gray
furnish to Pundt and Johnson a list of creditors but Pelican was not named among the creditors.
Plaintiff sues alleging that they are beneficiaries of the agreement between the original parties.
Pundt and Johnson promised to pay the debts of the other two. The creditors were not party to
this contract but they were due perforance - they are CREDITOR BENEFICIARIES. Main
argument is that they were not named in the agreement. Clear answer is that the beneficiary
need not be named or determined provided they are determinable at the time the beneficiary
wants the benefit for which purpose all creditors would have to prove is that they were owed
money.

Beneficiary need not be alive at the time the stipuation was made. There may be a policy to
benefit a child who has not been born yet.


Obligations March 6, 2002
Ch 9
CC Articles 1989-1993

Liles v. Bourgeios p. 326

Someone has suffered an accident; death is impending; future widow makes with the insurance
adjuster a settlement. Is this a contract that involves the succession of another person? p. 329
Schiffman case - court said no good because victim was still alive; this transaction is no good. 16
years later Supremes changed this approach; Daigle v. Clemco Industries - there was a release
involved here.

Quasi delict articles - difference between a survivial action 2315.1 and wrongful death 2315.2.

Remember the difference between survival actions and wrongful death.

In survival actions, is this an inherited right? YES. The pain and suffering of the deceased is
what the relative claims. Is this an action that can be brought when the person is alive? NO.
This is the same action that the decedent would have brought if they were alive.



                                               - 71 -
In wrongful death the relative of the victim seeks damages for thepain and deprivation she has
suffered because the husband has died. When such action is brought is the party bringing it in
their own name or in the name of the person who died? IN THEIR OWN NAME.

In the Daigle case - this was wrongful death. In the case of survival - 1976 should prevail but this
is different for wrongful death.

Lit says there are important policy considerations to be taken into account. Husband gets into
an accident and is dying but the death does not take place right after the accident. Workmen's
comp benefits are exhausted. You have a prospective widow and 11 children that have to be fed
and there's no family income left. Does it make sense to allow a settlement so that the children
can be fed? Yes.

Lit says this is a very practical problem.

ANDREPONT V. ACADIA DRILLING CO. (1969) p. 334

Plaintiff was the farmer/sharecropper and Mrs. Murphy was the landowner.She was supposed to
get %20.

Mrs. Murphy grants a second mineral lease. The mineral lessee started drilling trying to find oil.

Mineral operation seriously affected the crop of the farmer. They impeded the natural drainage
of the field.

Defendant mineral lessee did not get oil. Settle with landlady and give her money for her
damages. The mineral lease that was executed in printed form contained a clause according to
which the mineral lessee would be liable to damages to standing timber and growing crops. She
negotiated a different clause so that in the printed form the liability clause held that the lessee
was liable for all damages.

Andrepont sues claiming that he is a beneficiary of the mineral lease.

p. 336 - court announces that SPA are favored in our law. there are powerful reasons to conclude
that plaintiff should be allowed to recover. The deletion of the words in the clause - shows a
meaning to make Andrepont a beneficiary.

If there was no contract then there's an article that provides for peaceful possession of the land
you are leasing.

We also have special statutes for the protection of farmers. Title 9 LA RS.

A farm lessor that prevents the farm lessee is liable for the average price of the crop the farmer
would have obtained if there was no interference.

Court concludes that Andrepont was a thrid party beneficiary and he is allowed to recover.

Defendant says that plaintiff never accepted the benefit before




                                               - 72 -
Parties may not dissolve the contract when the third party has already availed himself of the
benefit - the word acceptance is not used here it says avail. this is to elimnatte all the intracacies
of formal acceptance. Availing means only using the benefit in some manner. Before Ms. Murphy
and lessee dissolved the contract Andrepont had already called asking for damages. When he
called on the defendant lessee for damages - he invoked rights from the other contract of which
he was claiming to be a beneficiary.

Lit says this a generous decision due to the public policy.

Is this liberal approach the prevailing one?

p. 338 - Volquardsen v.. Southern Amusement Company (1934)

Involved coll

Obligations March 6, 2002 II

collective bargaining. This is for the benefit for whoever belongs to the union.

Performance bonds given by a contractor. There is a contract between an owner and a general
contractor; general makes a contract witha sub and asks him for a performance bond. This is a
variation of insurance company.

Through this policy the sub binds himself to perform whatever the general needs to be done. If
he fails the bond will cover the damages. Is this bond in favor of the general contractor - the
residence if built is going to be owned by the owner. Is the owner a beneficiary of this bond?
YES this is the conclusion of the court in the Lichtentag case on p. 338

Lemon v. Bossier Parish School Board (1965) p. 338. children were the beneficiaries

Another situation with generals and subs - sub makes a contract with a material man for an a/c
unit - installation and servicing of an a/c unit at the home; this contract again was made for the
benefit of the owner and he has a direct action against the a/c people if he doesn't get his a/c.

McKee v. Southfield School (1993) p. 340 In the case of private school parents make the contract
but the child is the beneficiary of the contract. If the father dies may the child have a direct
action against the school? YES!!

Art 1981 - stipulator may demand performance for the beneficiary.

p. 338 - Lawson v. Shreveport Waterworks Co (1903)

City makes a contract with company to maintian a road and a small bridge that is part of the
road in a proper condition. Plaintiff falls through a hole in the bridge. Plaintiff is just a member
of the community who uses the road and the bridge. Does plaintiff have a direct action against
the contractor? YES.

1905 - same supremes had the same case Allen v. Shreveport. There was a fire and the store
burned down becaue the hydrant was dry.




                                                - 73 -
This time they lost even with the Lawson precedent. This involves a contradiction based on
policy. It would seem clear that whatever public contracts the government or its
instrumentalities makes is actually for whose benefit? Community at large. A prudent ocmpany
would not nmake a contract involving such exposure. And if they did they would not charge the
same compensation - they would charge considerably more and the taxpayers would have to pay.

All law - common law, French law, LA law are all in agreement that it stands to reason that
public is beneficiaries but they don't have direct action against the companies because if that
were so then no public contract would be entered into by prudent contractors.

You may have action in tort here. You don't have a solution in contract.

INCIDENTAL BENEFICIARIES P. 340

question - who is a true beneficiary? The counterpart of an incidental beneficary is called an
intended beneficiary.

Example with Shawn and Lit and flowers and property value - this is incidental beneficiaries -
this was not the intention of the others to stipulate a benefit for the thrid party.

WAGNER & TRUAX CO, INC. V. BARNETT ENTERPRISES INC. (1984) p. 341

Barnett owned valuable piece of commercial property in NO. For several years he wanted to
lease it. He engaged different realtors ending up with Crawford. There is a standard practice
with realtors - all properties for sale or lease are assembled in a book.

This book is important for the purchasor or lessee. Realtors seem to work in community by a
general practice because it works for general convenience.

When the other realtor brings a customer the commission is split between listing and producing
realtors. This is very common to introduce in every listing agreement between an owner and a
realtor the realtor is free to associate other realtors in pursuance of the business goal of the owner
to sell or lease.
On top of this a listing agreement that incidentially is requried to be in writing to be valid
contains the one year umbrella clause - this is another practical things. Commission is paid by
the owner. Realtors always introduce the clause - 1 year of expiration

Obligations March 6, 2002 III

iwthin one year of the expiration of the agreement the owner still owes the commission.

Mr. Fisk got no share of the commission and sue Burnett claiming they are beneficiaries of the
agreement. There is a clause that says the realtor can associate other realtors. If the realtor is free
to associate then any other associated realtors can share in the commission and if the owner does
not pay then the asso realtors can bring an action.

When the owner signs the contract he is not also consenting to become liable to the associated
realtor. the court says no way.

P. 344




                                                - 74 -
Obligations March 8, 2002

WAGNER V. TRUAX (1984) p. 341

You need an intent and the promisor must agree - this is what the court says. If you contrast this
with the Andrepont case - this appellate court does not seem to agree that the law favors thrid
party beneficiaries.

Lit says there are two approaches - a liberal one - in case of any doubt then say that there is a
third party beneficiary. According to the Wagner dicision - in case of doubt decided in the favor
of NO beneficiary - this is the restrictive approach and may have the advantage of providing more
clarity.

What if the court would have had to reach the opposite agreement? What if the agreement said
the realtor may associate other realtors the task of finding a suitable lessee and if it were to be
found by another realtor then landowner would owe half to the associate realtor.

That situation would be a third party beneficiary.
p. 344 - court knows that other decisions have taken a more liberal approach. LA Supremes
never have reevaluated this - they have never reversed what they found in the Andrepont case.
Occasionally the Supremes have made reference to the Wagner decision as if they were accepting
it.

Whenever you have two approaches you are better off - you will have some ammo for your client.

ASHLEY enterprises p. 345

Lessor operates a shopping center. He leases one store to tenant A who operates a gift shop.
After that he leases another store to tenant B who also operates a gift shop. Lessor and tenant B
agree that tenant B will not sell more than 20% of the same type of items that tenant A sells.
Tenant B exceeded the celing in the contract and now they are in direct competition. Court
concludes that the second tenant was not a beneficiary. This was done in spite of the fact that
the second tenant was named in the contract. This was the restrictive approach.

ACCEPTING THE BENEFIT

VINET V. BRES (1895)

Remember the article does NOT use the word acceptance. Only the beneficiary using whatever
the promisor is supposed to give him. This suffices for the beneficiary to avail himself of the
benefit.

Beneficiary need not be named nor in existence.

Weems sold property to Wooten. Wooten paid part cash and gave a note secured by mortgage
to pay the rest. Wooten after a while wants to sell the property.

There are two prospective buyers - Bres and Richardson. Bres says I like this the price is
reasonable but Wooten also wants from Bres a small part in cash and for the balance to pay the
notes that Wooten owes to Weems. Bres says I have cash but I cannot meet the notes. Foro me
to buy I would need an extension of time. Notes are in the Possession of Weems. Wooten calls



                                               - 75 -
Weems and says that his buyer wants an extension will you grant it. Weems dies. Wooten also
died. But a sale from Wooten and Weems before dying took place. Bres consented to pay the
notes to Weems. Plaintiff is the executive of the succession of Weems. When suit is brought
defendant says the fact is that the beneficiary never accepted the benefit. Court concludes that
there is sufficient proof that before kicking the bucket Mr. Weems consented in granting an
extension of time. This is a clear way of the beneficiary to accept the benefit.

Even if this were not so p. 348 there is a nother fact that explains beyond a doubt that the
beneficiary is availillng himself of the benefit - filing of suit claiming the benefit is a clear
indication that he availied himself of the benefit.

p. 358 - should be after the Vinet case.

Lambert v. Penn Mutual Life Insurance Co. (1898). there is a dispute as to whether she accepted
or not before the benefit was revoked. there was proof that she attempted to assign the policy to
a fourth party. The assignment was no good but her attempt is that of taking acceptance of the
benefit. Just by doing an act that is null it is valid as an acceptance.

Bullis v. Interstate Natural Gas (1937) This is th eonly case the court found that the third party
actually rejected the benefit. there is a stipulatio

Obligations March 8, 2002 II

Town made a contract on its own with the defendant and thus rejected it's third party status.

1980 - when there is a revocation or refusal - promisor renders performance to the stipulator.

RIGHTS OF THE BENEFICIARY
BRYANT V. STOUHART (1894) p. 349

sale of immovalbe propoerty.

Bryant bought property and he owed a balance to the insurance company. He sold to defendant
Stothart who paid cash and for the rest he assumed the notes. Defendant as promisor has
promised to pay not to the other party but to the bank who is a third party beneficiary.
Defendant fails to pay. So now Bryant had to pay. Bryant now wants his property back.

Plaintiff is seeking dissolution of the contract. 1978 applies. There is a clear beneficiary. Had the
company availed himself of the benefit? Court said yes they "accepted" the benefit by doing
what? They used to send notes to Bryant; once the company was advised that Stothart was
buying - they sent notes both to Bryant and Stothart - was the company availing itself of the
benefit and thus the contract could not be dissolved without Insurance Co's knowledge.

Sajare v. Esplanade (1984) p. 351

Purchasor assumed debts of the seller among which there was a debt owed to the IRS. Purchasor
paid some of the creditors but not the IRS.

WHen the stipulator wants performance he needs the beneficiary's consent; in this case the
stipulator will join the beneficiary in the suit. If the beneficiary is a grouchy one and stipulator
still needs consent can you still join him? Yes but as defendant.



                                                 - 76 -
According to the French solution stipulator will get property back and promisor is still hooked
to the beneficiary although he no longer has the object from the stipulator.

JACOBS V. CALDERWOOD (1849) p. 354

Jacobs sold property to Calderwood. Calderwood sold to Hannah who paid part cash and
promised to pay the remainder of the notes to Jacob. Jacob sued Hannah. He obtained a jugment
and now he can't pay the rest. Jacob sues Calderwood and C says no way - when you avail
yourself of the benefit you liberate me. Court says NO WAY. A SPA does NOT by itself effect a
novation. Novation - Art 1879. Lit says this may take place in SPA if the beneficiary expressly
consents in releasing the stipulator. In the absence of express consent there is no novation.
When there is a creditor beneficiary relationship the benefit is having two beneficiaries.

The parties through free will may effect a novation by expres consent but in the absence of this
consent the beneficiary has two debtors.

DEFENSES AVAILABLE TO THE PROMISOR
UNION BANK OF LA V. BOWMAN (1854) P. 356.

Gayles are members of the credit union (plaintiff union bank) With money borrowed from
plaintiff they bought a piece of property. Now they sell the property to Bowman.

Bowman pays part cash and for the balbance promises that he is going to pay their debt tot he
Union Bank. Bowman failed to do so.

He didn't pay because a several pieces of the property did not belong to the Gayles. Bowman did
not receive all that he was due from the Gayles.

Art 1982 - may a promisor raise against a beneficiary same defenses...

BONNAFE V. LANE (1850) p. 351

same situation as usual. John Lane owns a large piece of property and owes money to a bank.
Bank sued John Lane and got a judgment which Lane did not pay. Brother sells to Eddie Lane the
property and they agree that since this is a plantation that is being exploited. Eddie agrees to the
creditors of John and also Bonnafi that this debt would be paid by Eddie up to $25,000. Did he
promise to pay this out of his pocket? NO - with the proceeds of the crops. This is called
assignation of funds. Eddie did have a crop but he did not pay.

Creditor thrid party beneficiaries want money. Eddie says too bad because I have spent the
money. Since you didn't seek payment when I had it too bad. Court rules on equity matters and
says what brother should have done was put the money in a fund. The money was his but it was
already assigned. Court ha

Obligations March 8, 2002 III

Court had a trust in mind. There is judgment against the defendant.

True grounds - when the beneficiary avails himself of the benefit the effects of his accpetance are
retroactive at teh time the contract between stipulator and promisor are made. This means that



                                               - 77 -
it doesn't matter whether promisor spends the money at any time because the beneficiary already
has his right at the time the contract was made.

Article 1977 - example with horse with Lit, Christine and Me (amber)

This is called a promesse de porte fort. In some situations this works as a sort of surety as when
a stockbroker promises an investor that a certian stockholder will sell his stock to the investor.
In the stockmarket this kind of contract is not unusual. This is a sort of surety but not exactly.
Although it involves a third party it is not a SPA. In SPA the beneficiary derives a right. Rather
htan a right for the thrid party here we have an obligation for the third party.

Obligations March 11, 2002

Tucker lecture at 7:30 on Thursday 14th in the auditorium

Putting the obligor in default and right to damages.

1984 revision helped the code and jurisprudence.

Our code - "putting in default" this has been so since the first French translation.

French translation - mise en demure. demeure - means delay. Latin root - mora - delay.

Article 1994 - failure to perform is from non performance, delay in performance, or defective
performance.

Every failure is a default. Default in the sense of an obligor not doing what he was supposed to
do - delay is one of the forms of default.

1825 revision - used the expression - putting the obligor in default.

Article 1989 - anticipates 1994

Putting in default comes in anticipation of delay in performance?

What purpose does putting in default serve?

A delivery is due on March 15. Obligor fails to deliver. This is a negative fact. This needs to be
turned into an act that is susceptible of producing legal consequences such as making the obligor
liable for damages. The transition from negative fact to legal act is effected THROUGH THE
PUTTING IN DEFAULT OF THE OBLIGOR.

1990 - What is a term for the performance of an obligation - 1778.

When the term arrives and the obligor has not performed - he is automatically in default due to
the term. If there is no term for the performance of the obligation now the obligor must be put in
default by an act of the obligee.

Art 1991 - how you put in default.




                                               - 78 -
Written request of performance; an oral request of performance made before two witnesses, or
by filing suit for performance, or by a specific provision of the contract.

Lit says there is a practical function to putting in default. Now, parties rarely enter contract
without specifying terms.

Ex - mineral lease. A landowner makes a contract with a mineral lessee and the most important /
primary obligation of the oil company is to dig one well with due diligence. Why? Because of the
needs of the industry. Oil company is probably going to need financing. Lessee promises that as
soon as he is ready he will start. There's no term indicated. 8 months later there's no activity. If
the landowner thinks it's time to drill - he must put the obligor in default.

Friendly loan - you ask for $1000. There's no mention of when you are going to pay back. 5 years
later you can put the friend in default - from the time you are in default interest accrues - 2000.

Someone who owes money dies; estate is solvent; heirs don't know so Uncle needs to put them in
default to get his money.

Lit says this comes from the Roman ancestors. Dies interpellat pro homine.

Dies - de - arrival of the term makes this automatic interpolation that places the obligor in
default.

Dies no interpellat pro homine. French - a putting in default is necessary even when the term
arrived.

This was incorporated into the code napoleon.

Concept of a putting in default thus became very cloudy. This was cut in the revision of 1984.
Went back to the Roman principle.

Common law - no need to put obligor in default. Common law does not require this for recovery
of damages for delay. For certain types of business such as surety. Surety has to be addresed a
request that has the same effects as a putting in default.

Danny is supposed to deliver the horse on Mar 15 but delivers on Mar 30. Delayed performance is
STILL performance. When the term arrives does the obligee already know there will be
performance? NO.

Delayed performance is STILL performance. Contrast with another situation. Danny owes horse
on 15 and calls on 14th saying that he's already sold - this is nonperformance.

There's something in between. Danny does deliver the horse but the horse has peculiar
proclivities - Lit wanted to use it for a stallion. This is a defective performance. Lit can still use
the horse for other purposes but he won't have to pay the full price agreed upon.

Difference when you contemplate these three.

Nonperformance - absolute failure. The other two are

Obligations March 11, 2002 II



                                                 - 79 -
The other two are relative failures to perform.

Why this distinction? It reflects on the type of damages recoverable.

When there is performance these are called compensatory damages - damages that come in lieu
of compensation - as consolation or make up.

In the case of delay the damages are moratory - damages for delay because you have the latin root
of the word - mora.

FIBREBOND CORPORATION AND K-DAK INC V. AETNA CASUALTY (1991) p. 367

Utley was contracted by the State to do work.

Was to be completed in 480 days; there was a stipulated damages clause - if you exceed the days
you will pay $800 a day as stipulated damages.

They were 223 days late. The government withheld $178,400 from the last payment.

Utley says that out of the days, 197 days were caused by the government itself. The govt was
supposed to perform partial inspections and they procrastinated. Utley protested this. 15 days
of delay were due to Utley. Therefore Utley owed 15 days of work.

Utley says ain't paying because you didn't put me in default. Court says - in this situation there
was no need for the government to put Utley in default because it was a provision in the
contract. He was in default upon arrival of the term.

ELECTRODATA MANUFACTURING CORPORATION V. THE DOMED STADIUM (1978) p.
369

Defendant owns a building which had been damaged by fire. When construction was at a
certain stage they received a proposition from plaintiff who had invented a gadget called the
room starters system. This was an electrical system. This was a practical thing.

The contract provides for a price of over 11,000 and says that the price will be owed 30 days after
installation. This runs on electricity and thus could not be done until the building was wired for
electricity. Was there a term for this?

The contract was written on Dec 7, 1973. Owner wanted the hotel done for Mardi Gras. But it
couldn't be dome. Plaintiff sent a bill for the boxes and wires etc. Court says there was no
provision for payment until 30 days after installation. Plaintiff sues for his money.

Plaintiff was a Florida attorney. Plaintiff sells equipment as junk - for 400 bucks.

It is clear that defendant as obligee was also obligor of a clear obligation - did defendant wire the
building? NO if what plaintiff wanted was damages for delay what is it plaintiff should have
done? Plaintiff should have put defendant in default for wiring of electrical wiring of the
building. Because of plaintiff's failure to do this he lost the litigation. No damages of any kind.
There was also the act of the plaintiff of selling the equipment - prevented defendant from
performing.



                                                  - 80 -
Rule of law:
need for putting in default when there's no term and the obigor does not perform.

ALLEN V. STEERS (1887) p. 372

Over 30,000 bales of cotton that were supposed to be stored at 42 cents; defendant refused and
plaintiff had to pay 50 cents a bale.

No need for putting in default because this is not a question of delay this is total failure.

Court says damages are for nonperformance and are owed from the obligor's failure ot perform.

p. 373 note cases. Danny and horse delivery on March 15; Lit goes to the stables and Danny says
drop dead. Lit says this reeks of nonperformance and he is due compensatory damages - no
putting in default is necessary

Danny calls on Mar 13 and says I am not going to perform. NO need for putting in default - non
performance.

On March 14 - Danny denies the existence of the contract no putting in default necessary.

1991 - Methods of putting in default

Obligations March 13, 2002

tomorrow we have class instead of friday.

Anticipatory Breach p. 373

At common law this notion has a practical importance. You have made a contract and Lit is
supposed to deliver on March 30. On March 15 I call and tell you that I am not going to deliver.
You have announced this before the due date. At common law you can proceed immediately for
performance, damages, etc and you are also immediately under duty to "cover" (try to get
performance elsewhere) to reduce damages.

What happens in France? The other person is still required to wait until the due date and then
put the obligor in default and only then can the obligee proceed. Lit says the common law is
more realistic. see art 1989.

Methods of putting in default

MORAN V. WILSHIRE INSURANCE COMPANY (1988) p. 374

Truck is not ready when it is supposed to be. Plaintiff files suit. This suit is for damages for
delay but does not mention anything about performance. He is not asking for the return of his
truck. The mechanic is at fault and he resists by saying that he was never put in default.

Although the suit does not say we are suing for specific performance the court says that the suit
for damages due to delay was sufficient to make the defendant aware. the court also says that
you don't sue for performance or damages but for dissolution - in certain cases the court may



                                                - 81 -
grant an obligor in default an additional time to perform. Even suing for dissolution is an
indirect way of triggering performance - it is aputting in default.

Any cause of action in a suit brought by an obligee is enough to make the obligor aware that it is
time for him to perform.

Here, the court granted damages for delay.

MELANCON V. TEXAS CO. (1956) p. 375

Plaintiff is a LA farmer who leased the land for mineral purposes. He is supposed to get a
percentage. Oil was extracted and plaintiff was not paid royalties. He sues.

Defendant raises as a defense that no royalties will be paid because he was never put in default.

Before suit was filed plaintff was invited to attend a board meeting with defendant. Negotiations
were made that plaintiff was not ready to accept; plaintiff lost his patience and he said I want my
royalties - this was an oral demand made in front of witnesses - this is a sufficient method of
putting in default. It follows 1991.

What are the practical advantages of putting in default?

Jan 1 - there is a loan from one friend to another; no interest supposed to be paid.

April 1 - lendor thinks it is time for the loan to be repaid; he sends a letter demanding payment
this is a putting in default. Nothing happens

July 1 - suit is filed. Interest will be owed from when? From April - the time the defendant was
put in default. Lit says this is the most practical effect.

This is a req only when the damages sought are moratory - the technical name for damages for
delay. Is there a req of putting in default to recover compensatory damages? NO!!!

There may be a combo where a plaintiff recovers different types of damages.

Jan 1 - there is a building contract between owner and builder; the contract does not specify a
specific time for performance only that the builder will act with due diligence.

Sept 1 - as soon as the contract is made plaintiff was living in a house sold it and while he waits
for the new house he rents. He rents an apt for $500. On this date the owner says 8 months have
passed and the place is not ready; he puts the builder in default either through writing or orally.
Since the house is not ready

Dec 1 suit for performance is brought. Defendant answers the suit.

Apr 1 next year - house is almost finished but not entirely finished. He decides to have a fling
with a blonde in the new house - she sets the house on fire. Is performance still possible or was
this destruction? What sort of damages is he going to get? BOTH moratory damages - from
september until the building was destroyed and it was clear that there was not going to be
performance - when non performance takes pl




                                               - 82 -
Obligations March 13, 2002 II

At that time he is entitled to compensatory damages.

Letter of default is effective only upon reception - more like an offer Lit says.

DAMAGES

1994 - Obligor liable

Article 1994 - Obligor liable for failure to perform.
  An obligor is liable for the damages caused by his failure to perform a conventional obligation.
  A failure to perform results from onperformance, defective performance, or delay oin
performance.

Article 1995 - Measure of damages.
  Damages are measured by the loss sustained by the obligee and the profit of which he has been
deprived.

Article 1996 - Obligor in good faith.
  An obligor in good faith is liable only for the damages that were forseeable at the time the
contract was made.

Article 1997 - Obligor in bad faith.
  An obligor in bad faith is liable for all the damages, forseeable or not, that are a direct
consequence of his failure to perform.

Lit says this is a dual system.


when liable for the unforseen they must be a direct consequence of the failure to perform.

Article 1999 - Assessment of damages left to the court.
  When damages are insusceptible of precise measurement, much discretion shall be left to the
court for the reasonable asssessment of these damages.

Article 2000 - Damages for delay measured by interest; no need of proof; attorney fees.
   when the object of the performance is a sum of money, damages for delay in performance are
measured by the interest on that sum from the time it is due, at the rate agreed by the partie or, in
the absence of agreement, at the rate of legal interest as fixed by Article 2924. The obligee may
recover these damages without having to prove any loss, and whatever loss he may have suffered
he can recover no more. If the parties, by written contract, have expressly agreed that the obligor
shall also be liable for the obligee's attorney fees in a fixed or determinable amount, the obligee is
entitled to that amount as well.

An obligee to whom money is owed sustains damages exceeds the interest the article says that
even so when the performance consists in paying money the ony thing recovered is the interest?

Lit says in the revision of the article the provision for attorney's fees was put in.

Money that's not payed when owed - interest is owed period without having to prove damages.



                                                 - 83 -
Article 2001 - Interest on interest.
   Interest on accrued interest may be recovered as damages only when it is added to the
prinicipal by a new agreement of the parties made after the interest has accrued.

anatorism - this is interest on interest unless the parties agree to add this to the principle.
interest can thus accrue on the new amount which is larger than the original. Otherwise there's
no recovery of interest on interest.

Article 2002 - reasonable efforts to mitigate damages.
   An obligee must make reasonable efforts to mitigate the damage caused by the obligor's failure
to perform. When an obligee fails to make these efforts, the obligor may demand that the
damages be accordingly reduced.

He is supposed to do something to decrease his loss.

Article 2003 - Obligee in bad faith.
   An obligee may not recover damages when his own bad faith has caused the obligor's failure to
perform or when, at the time of contract, he has concealed from the obligor facts that he knew or
should have known would cause a failure.
   If the obligee's negligence contributes to the obligor's failure to perform, the damages are
reduced in proportion to that negligence.

Lit says this is a sort of contractual comparative negligence and this is fair and realistic.

Article 2004 - Clause that excludes or limits liability.
   Any clause is null that, in advance, excludes or limits the liability of one party for intentional
or gross fault that causes damage to the other party.
   Any clause is null that, in advance, excludes or limits the liability of one party for causing
physical injury to the other party.

This is because if such a clause is valid then the obligor can ge

Obligations March 13, 2002 III

away with this.

The article speaks of gross fault - may parties contract away simple negligence? Lit says yes.

Obligors in good and bad faith

An obligor in good faith (1996) is easier to understand after you see what bad faith (1997) is.

Lit contracts with Bre to sell a horse for $100 but he sells to Keel for $110.

Is Lit is good faith? NO any attitude that reflects a knowing dereliction of the contractual duty
suffices to put the obilgor in bad faith but this is not exactly fraud.

When this is not the case then the obligor may not be in bad faith.




                                                 - 84 -
Sell the horse to Bre for delivery on March 15; Lit is ready to deliver on the date but on March 13
the horse jumps over the pen and runs away until March 18. there was no intention not to
perform on Lit's part.

According to the subjective attitude of the obligor the amount of damages may vary.

Ask Lit to explain the difference between those that are foreseen and unforeseen.

What's the difference? When they are the natural ordinary consequence of the failure to perform
they are foreseeable.

The contract is just made. If Bree does not get the horse how is she going to feel? Pissed. She
may have to get a horse elsewhere and pay more for it. Does this fall within the contemplation of
the parties when they make the contract? Any party using the contract of sale people buy things
because they need them. If they don't get from someone they will buy elsewhere; if they have to
pay more or are deprived of the use of the thign they need is this also some sort of damage?
Should people understand this when they make the contract. This is is the case of damages that
are foreseen.

Damages may also be unforeseen. Whatever the parties could NOT have contemplated is
unforeseen. Since Pothier - the example of the diseased cow is a rule of law. p. 434

Two farmers and one sells to the neighbor a cow. The seller delivers a cow infected with disease.
The cow infected all the other cows. Farmer was unable to work the land and got no crop and
then he lost the resources to pay the bank note for the mortgage. He lost the farm on foreclosure
by the bank.

What damages should the seller of the sick cow be charged with? The sick cow; yes the
infection; yes; the farmer losing the farm? Could he have prevented this? YES. He could have
borrowed another horse. Could he have negotiated an extension of time with the bank.
Was losing the house a direct consequence of bying a diseased cow or is this an event that
resulted from the cow but was compounded by other factors? YES it was compounded.

What is it the buying farmer did not do in the example? He did not attempt to mitigate the
damages. Anytime that happens damages that could have been avoided but were not become
damages that are indirect.

p. 436 - example of a lease.

A house is leased and the written contract says you can use it for any lawful purpose. You start
operating a boarding house on the premises. The true owner comes and kicks the lessor out and
also the lessee. What damages does the evicted lessee claim?

You have to pay a higher rent? Now what - the difference between the rent - yes; moving
expenses - yes; lost business? NO - this was not foreseeable at the time of contract. It would be
different if you mentioned this at the time of contract.

Obligations March 14, 2002

Requisites for damage:




                                               - 85 -
First req - There should be a damage in terms of 1995

Article 1995 - Measure of damages.
  Damages are measured by the loss sustained by the obligee and the profit of which he has been
deprived.
Second req - There should be some fault on the part of the obligor.

2003 - case of fault of the obligee himself.

A more frequent excuse for the obligor not to perform is a fortuitous event - art 1873.

Third req - cause effect connection between the fault and the damage.

This is similar to tort but there is a difference Lit says:

When a conventional obligor fails to perform there is a presumption of fault; obligee is under no
duty to prove negligience but only that performance was due there is a presumption of fault.

p. 433 - one of the obligors has promised a result - this is called an obligation de resultat.

There are different types of contractual relations - doctor patient relation is a contract - is a
decent honest physician can promise a cure? no. What if he is a scientist to find a vaccine for
AIDS. He can only promise his best efforts - obligation de moyens - and not the result.

Lit says this has an effect on the presmption. Fault is presumed the obligor - it is his burden to
prove. In the case of an obligation of best efforts (obl of means) it is the obligee as in tort cases
who is going to prove fault.

cases as how in situations damages are measured:
FRIEDMAN IRON V. JB BEAIRD CO (1952) p. 438

Defendant placed an order for 500 tons of scrap steel. This was a large amount to be deliverd in
staggering amounts.

Buyer canceled the order. In canceling his order before the first order - this was anticipatory
breach.

Contract was for $41/ton. There was a market price that was declining. This is why defendant
breached.

Plaintiff sues and market changed trend again and continued going up. At the time of judgment
the market was higher than ever before. At the time of the judgment the price was 47 rather than
41.

The most elementary formula to measure damages in contracts of this kind (sale) is the difference
between the contract price and the market price.

For the contract price - this is the price at the time the contract was made.




                                                  - 86 -
Market price - how is this determined? If you have to contrast the contract price to the market
price - market price WHEN? If the contract contains a specific delivery date then market price
at the time of delivery. If plaintiff were buyer and not seller this would be fair.

The court here has a serious problem. Corut says it is important for an obligee to not jockey with
a particular date at which the market would be lowest - when he would be entitled to larger
damages. What is needed is a fixed time that won't allow any party to select arbitrarily a
particular date that is convenient.

Market price at time of breach is what is selected - there is an important reason for this. What is
a good faith duty of an aggrieved obligee facing a non performing obligor? To mitigate the
damages. If market keeps going down the seller should try to sell as soon as possible.

Time of breach and not time of suit or when judgment is rendered.

The formula is now complemented and damages are measuered by difference between contract
and market at the time of breach.

How did the plaintiff go about establishing the price? First, there is an established market - in
Pittsburgh. There was a market bulletin called The Iron Age.

Plaintiff was able to prove that on March 8/9 the kind of scrap steel they were negotiating on was
between 36.5 and 37. This is a difference between 4/ton. If you want market price and it is
located in Pittsburgh. The steel was located in Shreveport. It would have to have been shipped
at 13/ton. Now you subtract t his from the price and you get ASK LIT about these calculations.

Multiply this by number of tons and you get the value.

Hawthorne writes a dissent. Plaintiff chose to keep the steel - he took a risk a commercial risk.
Is the taking of risk rewarded wh

Obligations March 14, 2002 II

It was not unfair for plaintiff to get this boon because there was a risk involved.

Anticipatory breach is the term used when there is a breach before delivery/performance is due.

INTERSTATE ELECTRIC CO. V. FRANK ADAM ELECTRIC CO. (1931) p. 441

We have a jobber who is a middleman also known as a broker - who brings together buyers and
sellers.

Hotel Dieu is involved with restoration. Make a contract with Douglas restoration. Needs
switchboxes for electrical installation which have to be custom made.

Plaintiff is a broker. Plaintiff makes a contract with Adams who is suposed to omake the
switchboxes. Broker buys low and sells high.

Defendant failed to perform. Plaintiff was deprived of profit and he now sues for damages. What
sort of damamges should he recover in this situation?




                                               - 87 -
You also need the market price here to establish the formula. Is there a market price for things
that are custom made. NO.

The important thing here is that the plaintiff is in a very beneficial situation to prove the
damamges he has sutained becuse he can prove the contract made with the defendant; he can
also prove that he had a contract with a third party. In this situation you don't need to go into
the market price of whatever goods are involved.

FOGLE V. FEAZEL (1942) p. 443

plaintiff wanted to have company drill on the neighbor's land. There was never any drilling; he
now seeks damages.

Defendant says you cannot seek damamges because if we did find oil it would have benefited the
neighbor. The courts says you are wrong - why would the other neighbor want this? The
information - if their is oil on your neighbor's land there is oil on your land also.

It was reasonable to value how much a reasonable person would pay for that information.

p. 444 - Christine racing horses with Lit. Christine did not show up and there was no race; there
was a 50/50 chance that he would win and that's what he can recover.

When there is a lost of a chance or ahope it is possible to put a dollar value on it but it needs to
be proved with reasonable certainty.

WOMACK V. STERNBERG (1965) p. 444

This involves the exchange of two pieces of immovable property.

Plaintiff's house is worth $75,000 and he trades it for defendant's house worth $35,000 and the
difference was to be made by $40,000 in commercial paper.

Defendant does not show up at the time of the final act of sale.

Defendant's property is now worth 42 and plaintiff's was worth 65. This was the evaluation at
the time of breach.

The differences added was 17,000

Plaintiff can recover difference

FUSSEL V. LA BUSINESS COLLEGE OF MONROE (1988) p. 447

Plaintiff wants to become a legal secretary. She gets loans to pay tuition.

What she paid in case is 2,087. She starts attending class. She has peculiar dress preferences and
she was kicked out. She sues for being dismissed.

Court agrees and says that the dismissal was unjustified.




                                                - 88 -
Plalintiff say that the terms of the contract provided for 70% tuition refunding. Court says no
way she did not voluntarily leave.

Her career was delayed for 4 months.

Calls Mrs. Throckmorton - she is entitled to 4 months salary that she never got because she had
to start late.

FOLDS V. RED ARROW TOWBAR SALES (1979) P. 449

Plaintiff seeks lost profit and it was not realized from the past - from the future. Courts speak of
loss of future profits.

What is in the future is not always certain. To recover damages you have to prove this with a
reasonable degree of certainty.

Future profit is claimed this has peculiar difficulties he says.

Plaintiff was able to secure the services of a vital witness.

Obligations March 18, 2002

FOLDS V. RED ARROW TOWBAR SALES (1979) p. 449

Breach is clear Lit says. What kind of breach was this - this was a contract with no fixed term -
what kind of obligor the defendant? This was a bad faith obligor Any time the item of damages at
stake is lost profits the courts will pay great attention to whether the obligation is in good or bad
faith. If in bad faith they will be more generous with plaintiff.

Plaintiff was favored by the testimony of the other distributor. Court projected this over all of
the parishes in the state. Plaintiff says only one year is enough because after all there may no
longer be a market for that kind of thing. there was no term and the court had in mind that after
a year whether or not there would be a profit becomes conjectural because of the kind of thing
the parties were dealing on.

p. 451. Tidwell v. Meyer. (1926)

Plaintiff had rented commercial premisis on which there was a gas station to be operated. Lessor
never deliverd the premises for plaintiff to occupy - there was a problem with the title.
Defendant lessor breached the contract of lease.

It would be conjectural to estimate the damages - plaintiff did not recover.

Proof of loss is missing. That being the case there is no recovery.

p. 452 - Williston
A party who claims lost profits is usually a party of what professional status? Williston says
profits depend on the possibility of parties to make profits. These are businessmen. Williston
says this is always conjectural. There is always an element of conjecture.




                                                 - 89 -
He is making a difference in the proof of loss itself and proof of the quantum of that loss. These
are two different things. This difference has a lot to do with 1999 - discretion left to the court. If
you prove loss but cannot prove the quantum the court can help you by making a reasonable
suggestion.

p. 452 - rathbone case - a shipment of peas that should have arrived in time - plaintiff was going
to sell them at the fair; they were delivered too late.

Cothern v. Julia Lumber Co. Plaintiff leased a tract of land to extract coal. Before he took
possession of the premises he had sold all the coal he could have extracted from the land. He was
able to prove the loss as in the interstate v adams case - court contrasts two contracts; plaintiff
could not perform because of defendant's breach.

p. 453 - EXEMPLARY DAMAGES (punitive damages) These are damamges that the court may
grant not to compensat the plaintiff for a loss but rather to punish him for outrageous conduct
and to make an example that will also be able to deter others to incur in the same kind of no no.

Common law - punitive damages are awardable for breach of contract.

Civil law rejects the notion of punitive damages and they should be only compensatory. Locally,
puniitve damages may be recovered but only where the law says so. DUI's; reckless transport of
hazardous mats; insurance cos that procrastinate in settling claims. There are other ones.

NOMINAL DAMAGES

When a plaintiff is unable to prove loss the court will grant him a small amount that will not
cover what the plalintiff failed to prove but it is granted for the technical violation of the
contract. It is always a small amount of money.

General rule in LA - no nominal damages you recover what you prove. The idea of nominal
damages is not sufficiently technical for the LA courts.

SECTION 3 - MITIGATION OF DAMAGES

WEILL CONSTRUCTION CO V. THIBODEAUX (1986) p. 454

Plaintiff had built a skating rink belonging to defendant. Rink was built but because of defect
primarily in a bathroom and also the foundation there was water seepage that emerges onto the
surface of the skating rink.

there were defects in the construction but defendant could have mitigated the damages it
sustained but didn't do it. According to the proof it would have been easy to clean out the debris
from the culvert that would allow better drainage and the flooding would not have been as major
as it was. By cleaning the culverts you would have avoided fu

Obligations March 18, 2002 II

avoided further destruction. Damages were recovered but they were lessened because he failed
to mitigate his damages.

p. 456 - Quaglino v. Barr



                                                - 90 -
Defendant is usually the one who will calim the othe rparty did not mitigate the damages.

Here, defendant with the help of able counsel was able to prove that plaintiff had mitigated the
damages because shortly thereafter he found another place to put the machines. The court
reduced the recovery.

SECTION 4 - FAULT OF THE OBLIGEE

COPELAND V. DRURY (1986) p. 456

Plaintiff is involved in the restaurant business. He wants one of the kids to join him in business.
Copeland leases a piece of land from defendant. The plaintiff lessee is going to build
improvements on the land - a building is needed. Plaintiff is going ot build but defendant is
going to pay. Defendant would periodically remit money to plaintiff. Defendant gives 30,000.
Then son decides that he does not want to go into another business. Plaintiff is not interested in
the project anymore. However, since he is a shrewd businessman to get himself rid of the
contract he sues for breach. He says that defendant gave him 30K but that was all he got.
Defendant was able to prove that he didn't continue giving money because plaintiff wasn't doint
anything with the building and he no l onger had an interest in finishing the building. Defendant
obligor did not perform but the obligee Copeland was at fault. No damages were recovered.
Defendant reconvened for damages and he won.

SECTION 5 - CONTRACTUAL LIMITATION OF DAMAGES

Art 2004

ROLL-UP SHUTTERS V. SOUTH CENTRAL BELL (1981) p. 457

Plaintiff had designed a new type of shutters for windows. p. 458 - in case of error or omission
the damages would be abatement of the charge.

There was an error in the ad - it was printed upside down. n

Plaintiff sues but defendant raises the clause. Plaintiff says there was gross fault almost
intentional fault. The court says there was nothing of this sort going on.

If plaintiff was able to prove gross or intentional breach on the part of the other party then the
actual damages would supersede the limitation. COurt finds in this case that nothing of this sort
actually happened.

Ramirez v. Fair Grounds Corp.

Any clause excluding or limiting laibility for personal injury is NULL therefore the plaintiff was
able to recover becasue sucha clause will not be enforced.

SECTION 6 - PROOF OF DAMAGES p. 460

WASCO V. ECONOMIC DEVELOPMENT




                                               - 91 -
Contract is for a term of three years. Plaintiff operates a janitorial service; defendant owns an
office building. There was a fire on the premises and the fire only causes minimal damage.
Defendant uses this as an excuse to terminate the contract. Defendant calims that the contract
was terminated for cause; plaintiff says no cause ther was still lots of the building left to clean.
Plaintiff attempts to recover what he would have made if allowed to continue.

Mr. Washington is the one who operates the janitorial service. He only says waht his weekly
payroll was and margin of profit was %60. He makes a reference to his firm of accountants
which is a reputable firm of accountants. No accountant was brought as witness nor does Mr.
Washingotn bring the record books with him. Court says what plaintiff did was only an
estimate of loss. The testimony of the prestigious accountant should have been added. Trial
court says 60% was too much. Reduced the damages and allowed 25K instead of 80K. Court of
appeals says here there is no proof of loss. Wasco was incorporated - this fact does not prove
that the business is going to make a profit. Just an estimation bythe plaintiff without any
corroborative evidence is not enough either.

Contrast this with the next case - the proof by the plaintiff is clear.

SOUTHERN PLASTICS V. DIXIE BREWING CO. (1981) p. 463

Defendant ordered 300,000 plastic cups with their logo on it. Defendant say they ordered this
from a broker - anintermediary such as the plaintiff. Packer Plastics was the company sup

Obligations March 18, 2002 III

supposed to make the cups. Dixie Brewing Co should have . This was to be an exclusive
arrangement. This means that should the plaintiff make the same cups for others? NO.

Mr. DeLong says had we been told by Mr. Fell of the agreement they would have honored. They
manufactured the same cups for Miller beer. Since this contract was directly between manu and
dist the price was cheaper. Miller was able to sell cheaper than Dixie. the claim by the
defendant in reconvention because there was no exclusivity they lost the business of selling the
cups.

There were cups unsold. How can you prove that you would have sold the cups? Here,
defendant with the aid of counsel, was able to prove profit defendant made not at Mardi Gras
but at the SuperBowl. At SuperBOwl they drink less than at Mardi Gras - was defendant able to
prove the profit they made at the SuperBowl? YES.

HALL TELLS THE STANDARD OF PROOF ON P. 465 - BY A PREPONDERANCE OF THE
EVIDENCE AND NOT BY CLEAR ANLD PERSUASIVE PROOF. THIS MEANS THAT THE
EVIDENCE MAKES IT MORE PROBABLE THAN NOT THAT THE DAMAGE HAS
ACTUALLY TAKEN PLACE. Of the different standards of evidence this is the lesser one. LA
courts are somewhat lenient with plaintiffs in these predicaments.

Obligations March 20, 2002

Exam April 24 instead of May 3.

Contrast Dixie with Towbar cases. In both cases the rcovery of lost profits is allowed; in both
there was bad faith on part of the defendant.



                                                - 92 -
Lit says remember courts are usually sensitive to the contractual behavior of the defendants.

STIPULATED DAMAGES

In earlier articles the designation of this particualr kind of agreement that consists of stip in
advance the damages that one if the other fails to perform will recover by way of damages is a
practical thing.

Such a stipulation which is a clause in a contract gives rise to a secondary obligation with
regards to enforcing the principal one.

This used to be called a penal clause. This means something the parties stipulated to be
recovered as damages.

At common law - this is called liquidated damages.

Common and civil law have different approaches.

At common law stipulated damages the courts are leery that such a clause may be a penalty.
What would be the difference? If the parties were to agree on a sum that may vastly exceed the
possible actual damages a party may sustain this would be a penalty; common law abhors
penalties. At common law a court is free to tamper with a liquidated damages clause.

Civil law - courts will not tamper with this.

p. 469 Pennington v. Drews. La court tampered with the damages stipulated by the parties.
Judge says that new articles are going back to what has been the traditional approach of the civil
law.

Article 2006 - Nullity of the principal obligation

Article 2006 - Nullity of the principal obligation.
  Nullity of the principal obligation renders the stipulated damages clause null.
  Nullity of the stipulated damages clause does not render the principal pobligation null.

Article 2007 - Stipulated damages or performance.
  An obligee may demand either the stipulated damages or performance of the principal
obligation, but he may not demand both unless the damages have been stipulated for mere delay.

Article 2008 - Failure to perform justified
   An obligor whose failure to perform the principal obligation is justified by a valid excuse is
also relieved of liability for stipulated damages.

Article 2009 - Obligee not bound to prove damage
  An obligee who avails himself of a stipulated damages clause need not prove the actual damage
caused by the obligor's nonpeformance, defective performance, or delay in performance.

Lit says this is the punch article. (2009)
All he has to prove is that there was no performance.




                                                - 93 -
Article 2010 - Obligor put in default
  An obligee may not avail himself of a clause stipulating damages for delay unless the obligor
has been put in default.

Of course if there was a term for performance the obligor is put in default since the arrival of the
term. If there is no term a putting in default is necessary.

Art 2011 - Benefit from partial performance.
 Stipulated damages for nonperformance may be reduced in proportion to the benefit derived by
the obligee from any partial performance rendered by the obligor.

Art 2012 - Liit says this is the traditional civil law approach. Proviso - unless they are so
outrageous so as to be against public policy. Lit says there are not many examples of courts
modifying these clauses for this reason.

Traditional example: There is a sale and buyer is supposed to pay in installments. Contract may
say that if buyer defaults in payment of one installment then the contract will be terminated as of
right and buyer will forfeit whatever installments have already been paid. There have been many
cases in which there are 20 payments due and he paid 18 and seller wanted contract dissolved
and keep the 18 installments already paid. Court says no way we are not going to allow this.
This is an excessive stipulated damages clause and we find it against public policy. They make
reference to unlawful cause. As if a party were attempting to take unfair advantage of another.

LOMBARDO V. DESHOTEL (1994) p. 466

Connected with art 2002 - that imposes the duty t

Obligations March 20, 2002 II

to mitigate damages.

Buyer puts up deposit of $1000. If buyer were to fail to show up for the closing he will forfeit the
deposit. The court says this is stipulated damages the obligor who was supposed to show up this
is a sum he will forfeit which amounts to paying if he fials to perform therefore this is stipulated
damages.

Plaintiff says I had to mitigate my damages I sold the property for 25K less than the price
indicated in the contract.

She says that she has mitigated the damages as law requires.
Dennis p. 467 - summary of the law of obligations.

Conclusion when damages have been stipulated THERE IS NO DUTY TO MITIGATE
DAMAGES. Because regardless of the magnitude of the loss you DON"T have to prove all you
can recover is what you have stipulated in the contract. Even if your loss is less than the stip
amount you will recover the stip amount.

Lit says this is the leading case for when this occurs. If the damages are stip the obligee is under
no duty to mitigate because that is what they are do.

LAMA V. MANALE (1950) p. 471.



                                               - 94 -
This was a house lease. Lease says if you don't surrender the lease at the expiration of the term -
you will pay for each day you will pay 5 times the agreed on rate.

Tenant did not vacate. Since he did not vacate landlord started action for eviction. This was 543
days after expiration of lease. Landlord wanted to recover.

Court tells defendant to drop dead. Judge Moise. He applied the code as it read; defendant had
to pay this.

SECTION 8 - RECOVERY ON QUANTUM MERIT

Related to quasi - contract; similar to common law contract implied in law.

Stray bull - was the finder entitled to compensation? Yes. Bull finder has an action. Would this
be a contractual action? No quasi contractual. At common law this is called quantum merit.

We also have this in our code but our code is a bit more precise.

Article 2292 - management of affairs of another.

2299 - Payment of a thing not owed.

Other party can recover as if there were a contract between them.

2298 - enrichment without cause. Lit says this is the equivalent of unjust enrigchment and is at
the base of every quasi-contract situation.

2298 is more general than French doctrine because it anticipates other situations.

The action to recover is subsidiary which means it cannot be brought unless there is no other
action the plaintiff can bring.

Actio de in rem verso. This means give me back my thing.

Although they have different names they mean the same thing. This is not a contract. Nebraska -
quantum merit; French actio de in rem versio.

COurts name this as in the Makofsky case.

MORPHY, MAKOFSKY & MASSON, INC. V. CANAL PLACE 2000

It is clear that the parties made a contract; it was oral but perfectly valid.

Is the engineer volunteering to do the services? NO. The parties did not agree on the sum for
compensation.

Trial court said - since no agreement on a price then the only action left was quantum merit. In
quantum merit as in actio de in rem verso, you can recover article 2298.




                                                 - 95 -
When there is a contract they can recover the going rate of the work of a professional of that
particular standing.

Court says there was a contract here. The court indicates that this is the danger of using the
expression quantum merit.

Obligations March 22, 2002

WILLIS V. VENTRELLA (1996) p. 478

Court said this lease was no good. 2679-
Here there is a partial payment of rent but there were also other consideration - bulldozing.

It cannot be denied that defendant enjoyed the property of the plaintiff; he hunted, etc.

p. 480 - the court says this is unjust enrichment. The requirements:

                                         1. an enrichment
                                      2. an impoverishment
            3. a causal relationship between the enrichment and the impoverishment
          4. an absence of justification or cause for the enrichment or impoverishment
                             5. the absence of any other remedy at law

2298 - unjust enrichment

This is not the case of management of anoth;er's affairs or payment of the thing not owned; this is
why the court relies on 2298.

What should be plaintiff's compensation because there is no lease? Reasonable value of the land
used by the defendant.

Plaintiff's sister leased land for about 12-15$ an acre. The court evaluated the damages in quasi-
contract - plaintiff is allowed recovery of $12 an acre.

The contract as a lease was no good. Need any contract be a sale or lease or donation or
mandate? Are parties free to make contracts as they please? These are called innominate
contracts. This could be a clear cut innominate contract - plaintiff could have recovered the kind
of performance defendant had promised.

CHAPTER 13 - NON-PECUNIARY DAMAGES

SECTION 10 - GENERAL PRINCIPLES

Lit says this is an oxymoron.
If damages are measured in money how can they be nonpecuniary?

Lit says it is proper to consider damages nonpatrimonial.

French - dommages moral. Lit says since the 70's some LA courts use this term but most say
nonpecuniary damages.




                                               - 96 -
What do nonpecuniary damages consist of? Intended to reward a peculiar kind of loss? An
emotional loss.

Lit says there are different variations of pain - physical, humiliation, embarrassment, loss of
consortium, for the last 11 years LA courts have used hedonic damages - the loss of enjoyment of
life.

If there were an accident in which you lost your fingers and you can't fish anymore - this would
be a hedonic loss.

May that kind of loss result from the breach of contract?

Common law generally says NO. Contract is a business matter. This is a risk of making a
contract.

Lit says some progressive courts will grant damages where for instance heirlooms are involved or
precious objects that have emotional value involved.

French courts are more generous Lit says.

LA code has always expressly contemplated recovery of damages for nopecuniary loss occasioned
by breach of contract.

Old article 1934 - this was the old damages article that had a section saying that in some cases it
is not possible to measure damages according to loss of profit such as in a contract for
"intellectual enjoyment." - a contract in religion, morality, or taste. In such case great discretion
should be allowed to the courts to measure the damages sustained by the aggrieved parties.

Intellectual enjoyment - hard to determine in current day society. Enjoyment is a matter of
emotion primarily so that when the code was revised the terminology was changed although
some judges unaware that the code was revised may use the old nomenclature.

1998 - drafted in different terms.

 Article 1998 - Damages for nonpecuniary loss.
   Damages for nonpecuniary loss may be recovered when the contract, because of its nature, is
intended to gratify a nonpecuniary interest and, because of the circumstances surrounding the
formation or the nonperformance of the contract, the obligor knew, or should have known, that
his failure to perform would cause that kind of loss.
   Regardless of the nature of the contract, these damages may be recovered also when the
obligor intended, through his failure, to aggrieve the feelings of the obligee.

Since 1825 - the courts awarded nonpecuniary damages where breach of contract was involved.
There was moral guidance missing.

YOUNG V. FORD MOTOR COMPANY (1992) p. 486

1976 - Meader v. Toyota case p. 487. young lady had to sue

Obligations March 22, 2002 II




                                                - 97 -
The court would not allow nonpecuniary damages to be awarded here.

The court said the principle object of this contract was not the gratification of intellectual
enjoyment/nonpatrimonial interest.

Lit says this is not a matter of object but a matter of cause.

Since Meador - there was a classfication involving the object. If the principal object is physical
then no recovery for nonpatrimonial damages.

In the YOUNG case the main interest consists in a question that the court raises.

Plaintiff says car caused lots of problems. Court of appeals reversed the trial court's award of
damages.

Justice Calogero - did art 1998 effect any change of law since the Meador case? He says no
change. Even after the enactment of 1998 - guideline is the same when the principle object of a
contract is the gratification of a material interest, no recovery of nonpatrimonial damages.

p. 489 - Justice Calogero makes distinctions - antique car or custom made car is bought to show
off this is a nonpecuniary difference.

Shawn - composer to perform at your uncle's funeral. He delivers a tango. What is his loss?
Emotional one. How do you measure this loss? article 1999 - left to the discretion of the court.

Are there any other kind of material enjoyment associated with a funeral mass? NO.

To celebrte the 25 wedding anniversary - display of the wife's bust. He made it with a long nose.
What else can you use it for? Nothing.

LEWIS V. HOLMES (1903) p. 490

Wedding dress - you can still wear it. What is additional to the case of a wedding dress?

The wedding dress was ordered from DH Holmes in New Orleans.

Momma bought materials and sent them to DH Holmes. First wired telegrams.

There is a wedding dress produced. But it is 4 inches shorter in front.

DH Holmes said we cut in accordance to the measurements. It was his mistake in misreading the
specifications. She wore the wedding dress.

The other 4 dresses had to be canceled. She was marrying a man of social standing. They were to
visit Mexico. She had to cancel these visits.

The court awarded $575 in nonpecuniary damages. What is the cause why the person agrees to
pay a lot of money for their wedding dress? To look good. This was not fulfilled. The court
granted nonpecuniary damages.

VICK V. NATIONAL AIRLINES (1982) p. 493



                                                - 98 -
Man and wife wanted to go to the Caribbean.

Is there a peculair nonpecuniary interest in going to the Carribean on top of the physical interest?
YES.

Did the plaintiffs ever get to the Caribbean? No. There was a loss of expectation and pleasure
which was the main reason why they engaged in the trip. The court granted recovery. They
were not granting recovery for the delay of the flight but for the miscommunication of the airline
and also the callousness of the attendants. Does the judge have breach of contract in mind or
something else? Torts.

ROBINSON V. PROVIDENCE MAUSOLEUM INC. (1978) p. 496

The coffin was wooden covered with fabric. Mrs. Robinson feels something is wrong - Mr.
Robinson was buried in the wrong plot. The graveyard exhumed the coffin. Mrs. Robinson
comes when the coffin is lifted up after being in a state of deterioration.


There is a contractual relation with the cemetary. What was the kind of loss suffered by Mrs.
Robinson? Emotional loss nonpecuniary. The jurist has tort in mind - although the case is a
typical breach.

Obligations March 25, 2002

NOLAN V. COMMONWEALTH NATIONAL LIFE INSURANCE COMPANY (1996) p. 498

Plaintiff was an insurance salesman who would lose his commission if he enticed away
customers or dissuade policy buyers from buying from defendant.

Defendant owes a sig amount of commissions.

Trial court awarded commission, nonpecuniary damages and also attorney's fees.

Judge Caraway - in the case of a bad faith breach it is clear that def breached in bad faith. If the
breach is in bad faith does this trigger the recovery of pecuniary damages? NO!!

Judge reads the two articles separately. Bad faith breach gives the disappointed obligee the right
to recover those that are foreseen and also unforeseen. This does not include nonpecuniary
damages.

Defendant concedes that it was in bad faith. The judge says that plaintiff is not in a worse
position than if the breach was in good faith. Plaintiff claims that he was aggravated. Court says
that worry and aggravation are not grounds to recover nonpecuniary damages. This is normal is
making contracts. This is not enough to recover nonp damages.

Plaintiff could have recovered unforeseen damages because of the bad faith. Plaintiff failed to
prove such loss. Art 2000 - court applies this.

Apppellate court reverses the trial court and the 10K nonpecuniary damages are reversed.




                                                - 99 -
Attorneys' fees are not recoverable unless the statute says so or the contract says so.

If plaintiff had to use his own savings, money he would not have to use unless there was a breach
- he lost the interest on the savings account. The court does not allow this recovery as
unforeseen damages.

Court says that although the defendant was in bad faith, the defendant did not intend to aggrieve
the plaintiff.

Lit says that article 1998 may apply here. Second paragraph - becuase the defendant knew how
this would affect plaintiff.

LA courts give weight to failure to perform in form of giving money results in interest being paid.
Art 2000.

CHAPTER 11 - SPECIFIC PERFORMANCE

p. 410

Common law used to make a distinction between specific performance and specific relief.

Specifc perf was an in personam relief. This orders the defendant to do something. Specific relief
is an order that the court addresses to the sheriff. This is more of an in rem action. Lit says this
distinction is mainly procedural.

There is no practical difference.

The civil law has always shown a preference for specific performance; common law has preferred
damages over specific performance.

There are three orders of differences:

Civil law - sp perf is a right; in common law it depends on the discretion of the court.

Civil law - sp perf is ordinary relief; common law - exceptional and extraordinary

Civil law - test to decide between sp perf and damages is whether or not performance is still
possible; common law - test - are damages sufficient and reasonable compensation.

Lit says nowadays these differences are more theoretical than real.

French civil code - sp perf granted when possible. French law does not have an armory of
remedies that allows sp perf once decreed by the court to actually be effected; common law does
have such an armory of measures. For instance in France if the judge orders sp perf and defendant
says no way drop dead then there's no procedure for contempt either civil or criminal. French
court will only establish a sum of money - astreuntes - defendant pays as a fine for each day he
does not perform.

At common law and in LA civil procedure - contains a measure seldom used but effective - writ
of destringas - consists in the judge ordering the sheriff to take possession of whatever he will
find in the house and keep it until the defendant performs. This is effective. On top of that is



                                              - 100 -
contempt. This can be civil and even criminal if defendant persists in not complying with an
order of the court.

LA has the best of the two worlds Lit says. La prefers sp perf and also has a very effective armory
of measures.

Lit says that in practical terms - sp perf may not be a

Obligations March 25, 2002 II

effective as thought.

J. WEINGARTEN, INC. V. NORTHGATE MALL INC. (1981) p. 421

According to 1986 - in three situations the obligee has the right to specific performance:

1. to deliver a thing
2. not to do an act
3. to execute an instrument

When the obli is to execute an act the court may issue a judgment that stands for that act. Art
1988.

When obl. to do are concerned a principle arose that noone should be physicallly forced to do
something he does not want to do. Nemo pravise cogit ad factum potest. No one can be forced
to do something he does not want to do.

Manus injectio = placing hands on an obligor. this has always been some sort of no no Lit says.
This has always has been a problem with obligations to do.

GIRAULT V. FEUCHT (1932) p. 413

Articles at that time said sp perf when possible should be decreed. Judge read art 1926 and 1927
and said that "may" should be read as "shall." thus, sp perf became something that lies at the
discretion of the court.

Judge says plaintiff has a right to sp perf.

CELLULAR ONE V. BOYD (1995) p. 416.

This covenant was between former employer and employees.

Boyd - 90% of the clients he produced; Lemoine - 73%

This was a breach of the agreement not to do.

Court granted the injunction here. What would the sanction be? Contempt of court - first
civilly and then criminally.

TOLBERT V. HYATT MANAGEMENT (1986) p. 418




                                               - 101 -
Before trial the parties reached a settlement. Plaintiff was to get $4000 plus medical.

3071 - transaction or compromise.

Plaintiff was to sign a release before she got the check. Defendant asked judge to make her sign
the release.

When the judge was informed of the settlement - he had the dialogue on p. 418 with the plaintiff.

Court here had to grant specific performance. This was before 1984 - so he could not render
judgment that would stand for the instrument. He had to make plaintiff comply.

BONNEAU V. BLALOCK (1988) p. 420

Defendant wanted to exercise his option to buy at the end of the lease.

Bonneaus refused to receive the letter that would exercise the option.

Defendants were finally notified. Court is convinced that plaintiff had a contractual right and
the option had been correctly exercised by the plaintiff.

The court executes an act that stands for the transfer.

2620 - 2621, 2623; The option turns into a contract of sale; this contract is apt to be enforced
specifically.

This can be acted upon by the court by granting a judgment that stands for the act of sale - this is
specific performance.

WEINGARTEN V. NORTHGATE MALL (1981) p. 421

This involves a shopping mall with several stores. The contract allows the lessor to expand
improvements to 40, 000 feet. Defendant decides to expand to 100,000 feet. For this purpose
defendant had to encroach on plaintiff's parking space. Did the contract guarantee plaintiff
parking spaces for each foot. If defendant expanded plaintiff would have fewer parking spots.

Plaintiff was a supermarket. Sought a temporary restraining order when he saw that
construction had begun. Judge refused this and prompted plaintiff to appeal.

The construction continued - it was worth $4million dollars - court of appeal ordered
demolition. Supremes - conclude in this case specific performance although physically possible -
would have a negative effect on the third parties.

Both the bank and the store lessors. Both of these parties would be effected by the specific
performance of demolishing the building.

Lit says there is a third party. Is a shopping mall of a benefit to the community? YES. This is
related to the size of the mall. This would have a negative effect of the community at large.

What sort of loss is that of the plaintiff? Parking spaces - measured in profit. Should be
rewarded in damages.



                                              - 102 -
Obligations March 27, 2002

Specific Performance, cont.

SIZELER PROPERTY INVESTORS, INC. V. GORDON JEWELERS (1989)

p. 426

Leases in shopping malls often have a continuous operation clause.

The lessee who continued paying the rent closed the store and plaintiff lessor. Plaintiff wants
specific performance. This was no good because sp perf became impracticable because the courts
would have to monitor the lessee. It would take more effort than the benefit it actually produces.
The lessor will have to content himself with damages.

Another option is dissolution of contract.

Summing up: there is a general belief that at civil law specific performance is a right of the
obligee and at common law it depends on the discretion of the court. These are vague principles
but when you come down to everyday dealings the two systems go along the same lines.

1986 - First paragraph gives a right; second paragraphs - obligation to do specific performance
lies with the discretion of the court. This makes the civil law somewhat different.

At common law sp perf was originated with equity courts.

DISSOLUTION

ART 2013 - obligor may get an additional time to perform

Art 2014 -

Art 2015 - dissolution after notice to perform. If you don't perform by this date the contract will
be considered dissolved. To put someone in default this should be done in writing or in front of
two witnesses.

Art 2016 - dissolution without notice to perform

wedding cake example

Art 2017 - contract will be considered dissolved at the time the parties indicate. If there is no
date then it is dissolved when the obligee serves notice.

2018 - effects of dissolution. Parties are to be restored to their original condition

2019 - Contracts for continuous or periodic performance.

Example with jenny and david with rent. If a contract is for continuous performance the
dissolution does not affect any past performance.




                                               - 103 -
What are other examples of continuous contracts? Leases.

Periodic contracts? Output contracts.

In lessee's/tenants perspective - is this performance periodic or continuous? Periodic because the
rent is paid not on a daily basis but on a periodic/monthly basis.

Art 2020 - rock star contract.

Art 2021 - dissolution may not affect the rights of a third party in good faith. Seller has other
remedies - Christine may be left holding the bag. This is subject to the recordation of the sale.

Art 2022 - obligee must be ready to perform in order to seek dissolution.

Art 2023 - this is a new article. the jeopardy does not necessarily have to be financial.

Art 2024 - when a contract is for an indefinite term - it is terminable at will upon giving notice.

Rescission - a contract is rescinded in case of nullity. The meaning of rescission is that there was
never a contract from the beginnign because either the cause was unlawful or there was a lack of
capacity. This means nullity. If one of the requirements was missing then there was never a
contract from the beginning.

Dissolution has a different meaning. A contract is dissolved - this may be obtained through
mutual consent. article 1983. contract may also be dissolved through failure to perform.

Termination - the end of the contract. At the expiration of the term.

Common law makes no difference between rescission or dissolution.

Dissolution - it should devolve upon the other party to seek dissolution instead of letting the
contract linger.

Before 1984 the court only provided for judicial dissolution. This is important because it gives
the court control over contracts.

There are some situations in which dissolution has to be judicially dissolved - to erase the
recordation of immovable property. Judicial dissolution is practically the only other means
besides consent of the parties to dissolve the contract.

Especially important when you have other parties involved.

When you have other types of objects then judicial dissolution may not be practical.

There are exceptions to the need for dissolution to be exclusively judicial.

Th

Obligations March 27, 2002 II

This is the background of articles 2016 - for those who sell other than immovable property.



                                               - 104 -
WASECO CHEMICAL V. BAYOU STATE CORP. (1979) p. 381

In a mineral lease the operation is for the benefit of both parties.

Where leases are concerned LA courts are adament of controlling the dissolution of a lease of
immovable property. Why would this be so? There is a strong public interest in this.

Where leases are concerned - in LA the courts still want to be involved in judicial dissolution.

The court has exclusive sovereignty whether it is surface or mineral.

Defendant was a drilling co.

Scanland field was a neighboring tract of land.

Oil is found in different layers at different depths.

It gets more costly the deeper you go in the layers.

"fireflooding" the field - you build a fire on the surface of the land. The flames produce heat
which goes throught the layers of land. Once oil in the lower layers heats up it will boil and
ascend. Once closer to the surface then it will be easier to extract.

Plaintiff's complaint was that defendant who fireflooded the neighboring tract didn't do it in his.

Defendant says we could have but we didn't. We can still do this. Give us more time.

Evidence shows that plaintiff asked for this many times. The question is that was defendant
acting with diligence required by the contract - does he deserve additional time? NO.

Lessor would not still have great confidence in his lessee and should not be stuck with him. this
would not be fair. The court exercising sovereign privilege - did not grant additional time to
perform.

SIMPSON V. SIMPSON (1932) p. 384.

Defendant was only child of plaintiff's deceased husband.

transaction: wife sold to him the house on Highland ave reserving her the usufruct for life. He
paid her $260 cash and bound himself to keep the house in a good state of repair. He granted her
a usufruct of a property of his own. She would collect the rents as usufructuary. The agreement
was in 1920. Before the litigation she requested repair.




                                                - 105 -

				
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