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					                                      Contracts
                                Professor Scott Brewer
                                      Fall 2007

Contents
What is a Contract?
Rules and Rationales
The Monge Trilogy
       Monge v. Beebe Rubber Co. (Termination by bad faith, malice, or retaliation =
       breach of K)
       Howard v. Dorr Woolen Co. (Court adds public policy prong to Monge rule)
       Cloutier v. Great Atlantic (Court applies Howard rule and finds breach of K)
Consideration
       Hamer v. Sidway (Uncle and nephew; consideration by foregoing a legal right)
       Dougherty v. Salt (Aunt and nephew; recital of value not consideration)
       Baehr v. Penn-O-Tex (Detriment not bargained for; no consideration)
       Pennsy Supply v. American Ash (Promise and consideration induce each other)
       Plowman v. Indian Refining (Past action, moral obligation are not
       consideration; going to office is a condition on a gift)
Promissory Estoppel
       Kirksey v. Kirksey (Widow relied on promise, but no promissory estoppel rule)
       Wright v. Newman (Promissory estoppel enforces promise where not bio. father)
       Allegheny College v. Nat’l Chautauqua Bank (Donation to college; court found
       consideration, promoted idea of P.E.)
       Maryland Nat’l Bank v. UJA (Donation was a gift; no detrimental reliance)
       Katz v. Danny Dare (P.E. used to enforce pension)
       Shoemaker v. Commonwealth Bank (Mortgage and home insurance; P.E.)
Restitution/Unjust Enrichment/Quasi Contract
       Credit Bureau Enterprises v. Pelo (Committed man must pay restitution)
       Commerce Partnership v. Equity Contracting (Contractor might get restitution)
       Watts v. Watts (Facts suff. for unjust enrichment or other claims; good opinion!)
Promissory Restitution
       Mills v. Wyman (No K to pay for past care of son; only moral obligation)
       Webb v. McGowin (Man saved coworker’s life; K to continue paying man)
Offer and Acceptance
       Izadi v. Machado (Gus) Ford (Dealership’s ad is an offer)
       Normile v. Miller (Buying a house; “qualified acceptance” is new offer)
       Brower v. Gateway (Shrinkwrap terms enforceable, but unconscionable)
       Petterson v. Pattberg (Strict interp. of offer & acceptance in unilateral K)
       Cook v. Coldwell Banker (Offeror bound by substantial performance by offeree)
       James Baird v. Gimbel Bros. (Late acceptance; no P.E. where offer for
       exchange)
       Drennan v. Star Paving Co. (P.E. basically extended to pre-acceptance reliance)
       Pop’s Cones v. Resorts Int’l Hotel (P.E. extended to pre-offer reliance)
       Berryman v. Kmoch (No option K b/c no consideration; narrow P.E. rule)
   Uniform Commercial Code §2-207
       Poel v. Brunswick-Balke-Collendar (Mirror image rule; “battle of forms”)
       Dale Horning v. Falconer Glass Ind. (Provision of K would cause hardship)
       Brown Machine v. Hercules (Offer expressly limits acceptance to terms of offer)
       Harlow & Jones v. Advance Steel (Oral agreement before forms)
Statute of Frauds
       Crabtree v. Elizabeth Arden (Signed and unsigned writings together satisfy SoF)
       McIntosh v. Murphy (Promissory estoppel in spite of not satisfying SoF)
       Alaska Dem. Party v. Rice (Promissory estoppel in spite of not satisfying SoF)
Principles of Contract Interpretation
       Joyner v. Adams (Court uses meaning of “innocent” party; similar to R.201)
       C&J Fertilizer v. Allied (Burglary; reasonable expectations of insured honored)
Parol Evidence Rule
       Thompson v. Libby (Log sale; completely integrated, so no parol evidence)
       Hershon v. Gibraltar (Extrinsic evidence only to establish or resolve ambiguity)
       Sherrodd v. Morrison-Knudsen (Dirt-moving contractor; parol evidence can’t
       show fraud directly contradicting written contract)
Implied Terms and the Obligation of Good Faith
       Wood v. Lucy (Endorsement deal; implied promise to make reasonable efforts)
       Donahue v. FedEx (Implied duty of good faith limited in at-will employment)
Warranties
       Bayliner v. Crow (No express warranty, and no implied warranties of
       merchantability and fitness for particular purpose)
       Caceci v. DiCanio (Implied term of skillful home construction)
Duress and Undue Influence
       Totem v. Alyeska (Cargo hauling; economic duress)
       Odorizzi v. Bloomfield (Teacher; undue influence)
Fraud, Misrepresentation and Non-Disclosure
       Park 100 v. Kartes (Hastily signed lease agreement; court found fraud)
       Hill v. Jones (Termites; duty to disclose in home sales)
Unconscionability
       Williams v. Walker-Thomas (Court adopts unconscionability as a defeator)
       Higgins v. Superior Court (TV show arbitration provision unconscionable)
       Adler v. Fred Lind (Substantive unconsc. enough; no procedural unconsc.)
Mistake, Changed Circumstances, Impracticability and Frustration
       Mel Frank v. Di-Chem (Hazmat ordinance. didn’t frustrate all purposes)
       Lenawee v. Messerly (Both parties innocent; risk allocated by as-is clause)
       Wil-Fred’s v. MSD (Subcontractor estimate wrong; unilateral mistake)
Modification
       Alaska Packers v. Domenico (Performance already owed is not consideration)
Public Policy
       Derico v. Duncan (No license to make loans; loan contract void b/c statute
       designed to protect public, not just collect fees)
       Hiram Ricker v. SIMS (Lapsed licenses but court doesn’t enforce add’l penalties
       by voiding contract)
       Riggs v. Palmer (Boy kills grandfather; court doesn’t let him inherit)
Material Breach; Constructive and Express Conditions
       Jacob & Youngs (Pipe not from Reading; contractor substantially performed)
       Oppenheimer v. Oppenheim (Substantial performance not for express conditions)
       Morin v. Baysone (Aluminum walls; satisfaction of obligor as condition)
Computing Value of P’s Expectation; Restrictions on Recovery of Expectation
Damages (foreseeability and mitigation)
       Roesch v. Bray (Difference between market value and contract price awarded)
       Hadley v. Baxendale (Damages not natural or foreseeable not awarded)
       Rockingham v. Luten Bridge (Duty to mitigate; P should have stopped building)
More Damage Computation; Efficient Breach
       HCEB v. Lukaszewski (Teacher breached; school entitled to salary difference)
Nonrecoverable Damages; Reliance Damages
       Wartzman v. Hightower (Flag-pole sitting; reliance damages appropriate)
       Walser v. Toyota (§90 gives courts discretion to limit recovery to reliance costs)
Specific Performance
       City Stores v. Ammerman (Specific performance appropriate in store lease case)


Rules and Rationales

Legal Argument
Premise 1: Under a valid legal rule in this jurisdiction*, all (relevant) instances of facts
           [P] result in legal consequence [Q]
Premise 2: I can sufficiently prove facts [P]
Conclusion: I‟m entitled to legal consequence [Q]

*Requires identification of authoritative source of law and authoritative rule w/i source

Reasoning by Analogy
An analogy has a source and a target, which have at least one shared characteristic.
Hypo 1: “Do what I‟m doing.”
Source(s): Brewer‟s act.
Target: Your act.
Shared characteristic(s) (F): Standing and patting Brewer‟s head.
Inferred characteristic (G): Meaning of “do what I‟m doing” (said by Brewer)
Analogy warranting rule: An expression of the logical relationship between possessing
     the shared characteristic and possessing the inferred characteristic. “All things that
     are F are G,” or “Some F are G.”
Analogy warranting rationale: The rationale justifies why a particular shared
     characteristic is the relevant inferred characteristic.

Disanalogy
In disanalogy, you identify an unshared characteristic and argue that the unshared
      characteristic is sufficient to defeat an analogy between the source(s) and the target.
A disanalogy warranting rule justifies the result in the source(s), but gives you a
      different result in the target case.
“Classical” v. “Romantic” (or post-classical) rationales for American contract law
Two types of rationales:
Reasons for adopting a rule (fairness, economic efficiency, judicial administrability)
Reasons for following a rule (predictability, constraint of officials)

Three overlapping, overarching issues in contract law
   1.) Autonomy vs. heteronomy – whose judgment of preference, policy or principle is
       to be given effect (the parties, trial court, appellate court, legislature, etc.)?
   2.) The fact of unequal capacities – unequal access to good legal counsel, unequal
       bargaining power, etc.
   3.) Allocation of risk – who incurs the cost if a promise is not enforced?

Classical and romantic rationales for contract law are distinguished by systematically
different treatment of these three overarching issues.

Classical Rationales                       Romantic Rationales
   - Laissez faire – against                 - Communitarian – parties are part of
       government/court intervention            a community whose members
   - Anti-paternalistic; not protective of      should look out for each other
       weaker parties                        - Favors supervisory, “parental”
   - Parties are autonomous self-insurers       authority
       and self-protectors                   - Parties are heteronymous guardians
   - The judge is a neutral referee who         with (enforced) fiduciary duties
       should not intervene out of              toward one another
       sympathy                              - Obligations can arise from benefits
   - Obligation is generally a matter of        conferred (quasi contract or
       objectively provable, deliberate,        restitution), or from reliance
       clear bargained-for promises             foreseeably induced (including
   - Principal rationale for enforcing a        bargained-for exchange and
       promise is that is was a bargained-      promissory estoppel)
       for exchange                          - The judge is a roving fairness and
   - Principal rule for determining             field-leveling commissioner
       whether a putative contract is an     - Principal rationale is to do justice
       actual contract: consideration, in       in the individual case
       terms of bargain theory               - Principal rule: promissory estoppel

Classical courts: Howard, Maryland            Romantic courts: Monge, Cloutier,
National Bank, Plowman, Berryman              Allegheny, Wright, Katz, Shoemaker, C&J
                                              Fertilizer, Caceci

Formalism
   - In order for a rule to have formal efficacy, it must have a clear literal meaning.
   - Some rules have a high degree of formal efficacy (i.e. Any person driving with a
      .01% blood alcohol level is driving under the influence.) Others have a low
      degree of formal efficacy (i.e. Any person driving in an unreasonably intoxicated
      state is driving under the influence.)
   -   There are different rationales for adopting the different types of rules – for
       example, predictability and notice vs. flexibility and justice in an individual case.
   -   Strict, literal enforcement of a rule is formalism.

What is a Contract?
“… nothing less than the whole body of applicable precedents suffices to define the term
„contract.‟” Baehr, 104 N.W.2d at 664

Contract = an enforceable promise
Unilateral contract = a promise in exchange for a performance
Bilateral contract = a promise in exchange for a promise

Master Rule for Contracts
IF (there is offer and acceptance and consideration and no defeaters), OR (there is a
promise and reasonably foreseeable reliance on the promise and actual reliance and
injustice can be avoided only by enforcing the promise), THEN there is a legally
enforceable promise.

Defeators: Statute of Frauds (if it falls w/i SoF, no adequate writing, and no exception –
such as §139), Undue Influence, Duress, Economic Duress, Unconscionability, Bad Faith
(in certain situations), Mutual Mistake, Unilateral Mistake, Fraud

The Monge Trilogy: At-Will Employment
Prevailing rule of at-will employment: an employer may terminate an employee at any
     time, “for any reason or no reason.”

Olga Monge v Beebe Rubber Company
IF a termination by the employer of a contract of employment at will is motivated by bad
      faith OR malice OR based on retaliation, THEN it is not the best interest of the
      economic system or the public good and constitutes a breach of the employment
      contract.

Robert R. Howard, II, Administrator of the Estate of Franklin C. Baldwin, et al. v.
      Dorr Woolen Company
IF termination by the employer of a contract of employment at will is motivated by bad
      faith OR malice OR based on retaliation AND occurs because the employee
      “performed an act that public policy would encourage, or refused to do that
      which public policy would condemn” THEN it constitutes a breach of the
      employment contract. Where is the authority for this narrowing of Monge?

Consideration
Exchequer Chamber (1875): “A valuable consideration in the sense of the law may
    consist either in some right, interest, profit or benefit accruing to the one party, or
    some forbearance, detriment, loss or responsibility given, suffered or undertaken by
     the other.” This definition can be summed up as detriment to the promisee or
     benefit to the promisor. (Quoted in Hamer v. Sidway)

Parsons: “In general a waiver of any legal right at the request of another party is a
     sufficient consideration for a promise.” This definition moves toward bargain
     theory.

Pollock: One party “limits his legal freedom of action in the future as an inducement for
     the promise” of the other party (Pollock).

Rules relied upon by defendant in Hamer: IF the promisee is not harmed AND the
     promisor is not benefited, THEN the contract is without consideration. There is
     consideration ONLY IF there is benefit to the promisor OR detriment to the
     promisee.

Hamer: IF there is forbearance to exercise a legal right AND the forbearance to exercise
   a legal right was at the request of the other party, THEN there is consideration.

Dougherty: IF something is not regarded as consideration by both parties, THEN it is not
    consideration.

Allegheny College rule for charitable donations: IF a promisee receives some of the
     money promised by a donor, THEN the promisee by implication promises to
     behave consistently with the goals that the promise was made to advance, AND the
     second promise is consideration for the first.

Baehr v. Penn-O-Tex Oil Corporation
There is consideration ONLY IF there is a contractual promise AND that promise is the
     product of a bargain. (A bargain is a negotiation resulting in the voluntary
     assumption of an obligation by one party upon condition of an act or forbearance by
     the other.)

Pennsy Supply, Inc. v. American Ash Recycling Corp. of Pennsylvania
IF the occurrence of the condition would benefit the promisor, THEN it is probably a
      consideration. IF there is no benefit to the promisor, AND the purpose of the
      occurrence of the condition is simply to enable the promisee to receive a gift,
      THEN there is probably no consideration. (See Kirksey v. Kirksey for an example
      of a condition on a gift.)

Plowman v. Indian Refining
IF something occurred in the past, THEN it is not consideration.

Restatement (Second) of Contracts
§71. Requirement of Exchange; Types of Exchange
   (1) To constitute consideration, a performance or a return promise must be bargained
       for.
   (2) A performance or return promise is bargained for if it is sought by the promisor in
       exchange for his promise and is given by the promisee in exchange for that
       promise.
   (3) The performance may consist of
                    (a) an act other than a promise, or
                    (b) a forbearance, or
                    (c) the creation, modification, or destruction of a legal relation.
   (4) The performance or return promise may be given to the promisor or to some other
       person. It may be given by the promisee or by some other person.

§79. Adequacy of Consideration; Mutuality of Obligation
   (1) If the requirement of consideration is met, there is no additional requirement of
                     (a) a gain, advantage, or benefit to the promisor or a loss,
                         disadvantage, or detriment to the promisee; or
                     (b) equivalence in the values exchanged; or
                     (c) “mutuality of obligation.”

Promissory estoppel:

Restatement (Second) §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 enforce-
       ment 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.

(First Restatement of Contracts: “A promise which the promisor should reasonably
expect to induce action or forbearance of a definite and substantial character on the
part of the promisee and which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise.”)

Maryland National Bank v. United Jewish Appeal: (Applies the First Restatement rule,
    so that even charitable organizations must show detrimental reliance.)

Wright v. Newman
IF there is a promise AND the promisor should reasonably expect that promise to induce
      action or forbearance on the part of the promisee or a third person AND the promise
      does induce such action or forbearance on the part of the promisee or a third person
      AND injustice would result from non-enforcement of the promise, THEN there is
      contractual obligation. (Rule as applied; rule as stated has normal I prong.)

Katz v. Danny Dare, Inc.
IF there is a promise AND there is detrimental reliance on the promise AND injustice can
      be avoided only by enforcement of the promise, THEN the promise is enforceable.
      (Note: Only actual reliance is required, not reasonable reliance.)

Malaker, quoted in Pop‟s Cones, says that the promissory estoppel rule includes a “clear
    and definite” promise, expected reliance, actual reasonable reliance, and detriment
    (but no injustice prong).

Shoemaker v. Commonwealth Bank
IF the reasonableness of the promisee‟s reliance on a promise is in dispute THEN
      summary judgment on the issue of promissory estoppel is inappropriate.

Scope of Promissory Estoppel
James Baird: J. Hand uses promissory estoppel only for donative/gratuitous promises
           - Berryman also holds that PE does not apply in a bargaining context
Drennan: J. Traynor extends the rule to cases of pre-acceptance reliance
           - Restatement §87(2) extends the rule in the same way as Drennan, by
              granting an option without consideration
Pop’s Cones: The court extends PE to cases of reliance where there hasn‟t even been a
              firm offer.

Restitution/Unjust Enrichment/Quasi Contract

Express, Implied-In-Fact, and Implied-In-Law Contracts
    Express contract: oral or written agreement
    Implied-in-fact: an agreement is implied by the parties‟ actions
    Implied-in-law (a.k.a. quasi contract): a benefit conferred and accepted by one
      party, such that it would be unjust for that party to retain the benefit without
      compensation

Restitutionary claims can arise through disputes over contracts. For instance, if one party
only partially complies with his/her part of a bargain, the other party may be entitled to
restitution rather than expectation damages. Restitution is not part of contract law, but
the two overlap.

Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co. IF one
   party has given consideration for a benefit received from a second party, EVEN IF
   that consideration was given to a third party, THEN the second party cannot recover
   restitution from the first.

Credit Bureau Enterprises, Inc. v. Pelo
IF a party is not competent to refuse services AND the party benefited from the services
      THEN that party is liable under contract implied in law/quasi contract/unjust
      enrichment/restitution.

Watts v. Watts (p. 273)
Supreme Court of Wisconsin
137 Wis. 2d 506, 405 N.W.2d 303 (1987)

Facts: The Wattses had a nonmarital cohabitation relationship for 12 years, during
     which Sue Ann Evans Watts gave birth to two children, raised them, performed
     domestic work, and worked for James Watts‟s business. When the relationship
     became intolerable, she moved out and he refused to share any of their jointly
     accumulated wealth. She sued, but the circuit court dismissed her case for failure to
     state a claim upon which relief may be granted.

Plaintiff’s argument: Sue requested an accounting of James‟s assets and a share of the
     accumulated property on five grounds: (1) she is entitled to division of property
     under a statute governing division of property between married people, (2)
     “marriage by estoppel”: the defendant is estopped to assert a defense that they are
     not married against her statutory claim, (3) the defendant breached a contract, (4)
     she is entitled to restitution because the defendant has benefited from her services to
     the point of unjust enrichment, and (5) she is entitled to relief under the doctrine of
     partition, a statutory and common-law remedy for disputes over property held by
     more than one party.

Holding: The court held that (1) the statute was not intended to apply to unmarried
     cohabitants, (2) “marriage by estoppel” should not be applied because the statute
     was not intended to apply to unmarried people (thus “we‟re not married” is a valid
     defense), (3) the plaintiff has pleaded sufficient facts to state a claim for breach of
     an express or implied in fact contract, and common-law resolution of a property or
     contract dispute between unmarried cohabitants is not contrary to public policy, (4)
     the facts are sufficient to state a claim for unjust enrichment, and (5) the facts are
     sufficient to state a claim for relief through statutory or common law partition. The
     case was remanded for further proceedings.

Notes: Brewer likes this opinion!!! It is a clear example of inference to the best legal
     explanation.

Promissory Restitution: also known as the “material benefit rule.”
      Restatement (Second) §86, Promise for Benefit Received:
      (1) A promise made in recognition of a benefit previously received by the promisor
          from the promise is binding to the extent necessary to prevent injustice.
      (2) A promise is not binding under Subsection (1)
              (a) if the promise conferred the benefit as a gift or for other reasons the
                  promisor has not been unjustly enriched; or
              (b) to the extent that its value is disproportionate to the benefit.
This type of promise is unenforceable under any traditional rule of consideration, because
there is no such thing as past consideration.

Mills v. Wyman
IF there is a moral obligation to keep a promise AND there was a prior valid obligation
      that has been extinguished by the operation of positive law, THEN the promise is
      enforceable. (In Mills, there was no prior valid obligation.)

Webb v. McGowin
IF a promisee confers a material benefit on a promisor AND a promise is made in
      recognition of the benefit received, THEN moral obligation can be sufficient
      consideration for enforcement of the promise. (This is the “material benefit rule,”
      which was adopted by the Second Restatement in §86.)


Offer and Acceptance:

Restatement (Second) §24. Offer Defined
An offer is the manifestation of willingness to enter into a bargain, so made as to justify
     another person in understanding that his assent to that bargain is invited and will
     conclude it.

Restatement (Second) §50. Acceptance of Offer Defined; Acceptance by
     Performance; Acceptance by Promise
   (1) Acceptance of an offer is a manifestation of assent to the terms thereof made by
       the offeree in a manner invited or required by the offer.
   (2) Acceptance by performance requires that at least part of what the offer requests be
       performed or tendered and includes acceptance by a performance which operates
       as a return promise.
   (3) Acceptance by a promise requires that the offeree complete every act essential to
       the making of the promise.

                     bilateral contract                    unilateral contract
     offer           After engaging in preliminary         One party makes an “offer to
                     negotiation, one party makes “a       exchange his promise of a
                     direct, complete proposal that a      future performance only in
                     contract be entered into, providing   return for the offeree‟s actual
                     for an exchange of defined            rendering of performance”
                     performances” (KCP, 34).              (KCP, 51).
     acceptance      Contract comes into existence         Contract comes into existence
                     when return promise is made           upon complete performance by
                                                           the offeree of the act specified
                                                           by the offeror
     alternatives A counter-offer or conditional           Traditionally, the offeror had
     to contract acceptance terminates the initial         the right to revoke his/her
     formation    offer, constitutes a new offer, and      promise at any time before the
                  gives the original offeror a chance      offeree completed performance.
                  to accept and thus create a              (Petterson v. Pattberg)
                  different contract.
     Option contract: If the offeree/vendee gives the offeror some consideration (a
     sum of money, perhaps) to hold the offer open for a stated period of time, under the
     classical system the offer will be irrevocable during that period, as an “option
     contract” (p. 108).

     Restatement (Second) §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.

     Restatement (Second) §87. Option Contract
   (1) An offer is binding as an option contract if it
                     (a) is in writing and signed by the offeror, recites a purported
                         consideration for the making of the offer, and proposes an
                         exchange on fair terms within a reasonable time; or
                     (b) is made irrevocable by statute.
   (2) An offer which the offeror should reasonably expect to induce action or
       forbearance of a substantial character on the part of the offeree before acceptance
       and which does induce such action or forbearance is binding as an option contract
       to the extent necessary to avoid injustice.

Bilateral Contracts

Izadi v. Machado (Gus) Ford, Inc.
IF a reasonable person would interpret and ad as an offer AND it is actually viewed as an
      offer by the purported offeree, THEN it constitutes an offer.

Normile v. Miller
IF an offeree renders a “qualified acceptance” of an offer, THEN the original offer is
      terminated AND the qualified acceptance constitutes a counteroffer proposed for
      the original offeror to accept or reject.

Shrinkwrap terms (Brower v. Gateway) are inside a plastic-wrapped product a
     purchaser receives after ordering it by phone or Internet. After removing the
     wrapping, the purchaser can inspect the product and review the terms of the
     agreement inside, and can return the product within a specified time if he/she
     doesn‟t agree to the terms or isn‟t satisfied with the product.
Clickwrap terms are presented in a box the consumer must scroll through, clicking “I
     agree” before completing a sale over the Internet. If the purchaser doesn‟t click “I
     agree,” the seller will not complete the sale.
Browserwrap terms usually specify the terms of using free information on a website.
    The user is not required or even encouraged to look at the terms, but his/her
    browsing of the site constitutes agreement to the terms.

Unilateral Contracts

Petterson v. Pattberg
IF an offeree has not completed performance of the act specified by the offeror, THEN
      the offeror may revoke the offer.

Cook v. Coldwell Banker/Frank Laiben Realty Co.
IF an offeree has substantially performed, THEN that substantial performance constitutes
      consideration for an option contract AND the offeror is bound by his/her
      promise/offer.

Pre-Acceptance Reliance and Offeror’s Power to Revoke
James Baird v. Gimbel Bros.
Promissory estoppel requires P & R & D & I & ~X, where X is an offer for an exchange.
    (Parties in a bargaining context cannot benefit from PE; it is designed for gratuitous
    promises.)

Drennan v. Star Paving Co.
IF there is reasonable reliance by an offeree resulting in foreseeable prejudicial change in
      position, THEN there is an implied subsidiary promise not to revoke an offer for a
      bilateral contract, UNLESS the offer expressly provides for revocability OR the
      offeree shops around for a better offer OR the offeror made a bona fide mistake that
      the offeree should have realized was a mistake.

Pop’s Cones v. Resorts Int’l Hotel, Inc.
Restatement §90 + IF there is a statement of the probability of an offer AND injustice can
     be avoided only by the enforcement of that statement as a promise THEN the
     statement may be considered a promise.

Berryman v. Kmoch
IF there is no bargained-for consideration for an option contract THEN no option contract
      has been formed AND an offer may be revoked any time before acceptance.
IF no option contract has been formed, THEN an offeree cannot reasonably rely upon the
      offer AND no injustice will result from non-enforcement of the offer.
Also, the court uses a promissory estoppel rule that narrows the definition of injustice to
      something tantamount to fraud, and says that there are very few cases in which
      reliance could be reasonably expected. This is a classical court applying a
      romantic rule narrowly. The court believes that the actors in a bargained-for
      exchange should be aware of the classical rules and protect themselves under those
      rules.
The problem of half commitment:

Solutions for the half-committed party
Suppose you are considering entering into a contract, but you want to have the ability to
get out of it. What are your options under traditional rules of offer and acceptance (not
promissory estoppel)?
    1.) Make an offer for a unilateral contract and explicitly state that you can revoke
        your offer any time before acceptance via complete performance.
    2.) Make an invitation for an offer for a unilateral contract where you are the offeree,
        so that you are not bound to perform.
    3.) Make an offer for a bilateral contract with special conditions on the permitted
        manner of acceptance. (E.g. Brower v. Gateway, in which the computer
        purchaser must keep it for 30 days in order to accept; James Baird, in which the
        general contractor can only accept after the contract has been awarded.)

Solutions for the fully-committed party
Suppose you are certain you want to enter into a contract, but you know that the other
party isn‟t fully committed, and you want to protect yourself from any losses that might
result from the other party‟s decision not to commit. What are your options?
    1.) As the offeree, you could request an option. Try to make the consideration be
         part performance, or a down payment that can be applied to the full price of what
         you‟re buying, so that there‟s no extra cost to you to get the option.
    2.) As the offeree in a jurisdiction where substantial performance will be sufficient to
         compel enforcement of the promise (such as Cook v. Coldwell Banker), hurry to
         make substantial performance.
    3.) As the offeree in a jurisdiction that uses §45, all you have to do is begin
         performance.
    4.) As the offeror, you could withdraw your offer and make an invitation for an offer,
         suggesting that the new offeror ask for consideration that you have a good chance
         of being able to perform before the offeror is likely to revoke the offer.

“Battle of the Forms” and Uniform Commercial Code §2-207
     (original: Rules, p. 27; revised: Rules, p. 122)

Poel v. Brunswick-Balke-Collender Co. of New York
IF a purported acceptance contains different or additional terms, THEN it is a counter-
      offer, not an acceptance. (Common-law mirror image rule.)

Dale Horning – UCC rule is 1.) IF there is an additional term, without the express
     consent of the other party AND 2.) incorporation of that term would result in
     surprise or hardship, THEN the term is a material alteration. The court treats
     surprise and hardship as questions of fact.
Posner and Brewer think the rule is MA  H or S, not (H or S)  MA. The test is for
     unreasonable surprise, which if present, indicates a material alteration and therefore
     either surprise or hardship or both.
Harlow & Jones – An oral contract was created before the letters were exchanged, so the
     letters were just confirmation. IF there has been an oral agreement, THEN terms in
     agreement are part of the contract AND terms in disagreement are ignored AND
     gaps are filled in by appropriate provisions of the UCC.

Brown Machine, Inc. v. Hercules, Inc.
An expression of acceptance is expressly made conditional ONLY IF “its conditional
     nature [is] clearly expressed in a manner sufficient to notify the offeror that the
     offeree is unwilling to proceed with the transaction unless the additional or different
     terms are included in the contract.”

Original UCC §2-207
   (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.

Revised §2-207
   - Not limited to contracts between merchants.
   - Does not allow the inclusion of terms that appear only in one party‟s records,
       even when they do not materially alter the agreement.
   - Seems to capture many of the aims of the old §2-207, in a much simplified
       format. The new §2-207(b) captures all the old provisions relating to agreement
       between the parties – the old §2-207(2)(a), (2)(c), and parts of §2-207(1) and (3).

Statute of Frauds
   -   Two questions to be asked: (1) Does this contract fall within the statute of
       frauds? (2) If so, is there an adequate writing?
   -   The Statute of Frauds is a “defeater”; it can prevent the formation of a contract
       even when there is offer and acceptance and consideration.

Restatement (Second) of Contracts §110 (Rules p. 188) – paraphrased:
   (1) Subject to the Statute of Frauds:
          a. Contract of executor/administrator to answer for a duty of the decedent
          b. Contract to answer for the duty of another
          c. Contract made on consideration of marriage
          d. Contract for sale of interest in land
          e. Contract not to be performed within a year
   (2) Governed by Statute of Frauds provisions of the UCC:
          a. Contract for sale of goods for $500 or more
          b. Contract for sale of securities
          c. Contract for sale of personal property not otherwise covered for $5,000+
             (see §1-206 of the UCC)

UCC §2-201. Formal Requirements; Statute of Frauds
“… a contract for the sale of goods for the price of $500 or more is not enforceable …
unless there is some writing sufficient to indicate that a contract for sale has been made
between the parties and signed by the party against whom enforcement is sought or by his
authorized agent or broker.”

Restatement (Second) of Contracts §131. General Requisites of a Memorandum
Unless additional requirements are prescribed by the particular statute, a contract within
the Statute of Frauds is enforceable if it is evidenced by any writing, signed by or on
behalf of the party to be charged, which
    (a) reasonably identifies the subject matter of the contract,
    (b) is sufficient to indicate that a contract with respect thereto has been made between
        the parties or offered by the signer to the other party, and
    (c) states with reasonable certainty the essential terms of the unperformed promises
        in the contract.

Restatement (Second) of Contracts §132. Several Writings
The memorandum may consist of several writings if one of the writings is signed and the
     writings in the circumstances clearly indicate that they relate to the same
     transaction.

Crabtree v. Elizabeth Arden – Two rules:
   1.) IF one or more writings contain all the essential terms of a contract, THEN the
        contract satisfies the statute of frauds, and
   2.) IF some documents are signed and some are unsigned AND they all treat the same
        subject matter, THEN they can all be read together.

Restatement (Second) of Contracts §139. Enforcement by Virtue of Action in
Reliance
   (1) A promise which the promisor should reasonably expect to induce action or
       forbearance on the part of the promisee or a third person and which does induce
       the action or forbearance is enforceable notwithstanding the Statute of Frauds if
       injustice can be avoided only by enforcement of the promise. The remedy granted
       for breach is to be limited as justice requires.
   (2) [Lists factors to be considered in determining whether injustice can be avoided
       only by enforcement of the promise. Rules p. 190]
(This rule is endorsed in McIntosh v. Murphy and Alaska Dem. Party v. Rice)

Principals of Contract Interpretation
Raffles v. Wichelhaus (the Peerless case) – Two boats named Peerless sailed from
     Bombay, and one party apparently thought the goods would be on the October boat,
     while the other party believed they would be on the December boat. Because each
     party had a different understanding of one of the terms of the contract, there was no
     meeting of the minds and therefore no contract.

Restatement (Second) of Contracts §201. Whose Meaning Prevails
   (1) Where the parties have attached the same meaning to a promise or agreement or a
       term thereof; it is interpreted in accordance with that meaning.
   (2) Where the parties have attached different meanings to a promise or agreement or
       a term thereof, it is interpreted in accordance with the meaning attached by one of
       them if at the time the agreement was made:
           a. That party did not know of any different meaning attached by the other,
               and the other knew the meaning attached by the first party; or
           b. That party had no reason to know of any different meaning attached by the
               other, and the other had reason to know of the meaning attached by the
               first party.
   (3) Except as stated in this Section, neither party is bound by the meaning attached by
       the other, even though the result may be a failure of mutual assent.
*** A party may have reason to know and still be treated as innocent, if the other
party actually knows.***

Joyner v. Adams
IF one party knew OR had reason to know of the other‟s meaning of the disputed
     language, THEN the court must enforce the contract according to the “innocent”
     party‟s meaning. *** Under the Joyner rule, if both parties are at fault, neither
     one wins, even though they may be blameworthy to different degrees.***

C&J Fertilizer v. Allied Mutual Ins. Co.
The reasonable expectations of the insured will be honored even though “painstaking
      study” of the contract would negate those expectations, particularly if the insurer
      knew that the insured would not have accepted the contract if the insured knew it
      was contrary to the expectation.
(This is the reasonable expectations doctrine, which the court clearly wants to apply to
      insurance contracts of adhesion, but the overall scope of the rule is unclear.)

The Parol Evidence Rule
     -   The parol evidence rule determines whether terms neither express nor implied in
         writing, but purportedly agreed to orally, may be part of a contract.
     -   Some classical courts allow extrinsic evidence of patent or latent ambiguity, but
         more rigidly classical courts require the ambiguity to be patent.
           o Patent ambiguities can be seen on the face of the writing (as in
              disagreements over the syntactic structure of a sentence); latent
              ambiguities arise only from context in which a term is used.
     -   Classical courts want to ensure that written agreements will be reliable;
         romantic courts are willing to a certain extent to sacrifice this benefit in order to
         protect the underdog.

Corbin/Restatement approach (§§209-217): Compared to the classical approach, this
     approach is much less restricted to the four corners of the document regarding both
     integration and meaning (allowing extrinsic evidence for latent as well as patent
     ambiguities). It is much, much more interested in finding out the actual intent of
     the parties than the classical approach.

Hershon v. Gibraltar Bldg. & Loan Assoc.
IF there is facial/patent ambiguity in a term, THEN extrinsic evidence is admissible to
      resolve the ambiguity.
IF the proffered evidence of ambiguity varies, alters or contradicts the clear meaning of a
      written agreement, THEN the evidence is not admissible.
     Problem with the court‟s rule: The rule should be limited to contradiction, not
        variation or alteration. It seems impossible for evidence to simultaneously
        contradict the clear meaning and be construed consistently with the written
        agreement; however, it seems possible for evidence to vary or alter clear meaning
        and still be construed consistently.
     Contrast: Restatement (Second) §215 Contradiction of Integrated Terms.
        “… where there is a binding agreement, either completely or partially integrated,
        evidence of prior or contemporaneous agreements or negotiations is not
        admissible in evidence to contradict a term of the writing.”

Thompson v. Libby
IF a written contract expresses (1) an entire agreement (2) on its face, THEN parol
      evidence is inadmissible to contradict, vary, or supplement the terms of the
      agreement.
Sub-rule: IF the evidence is distinct from the subject matter of the contract, THEN it is
      admissible as a collateral agreement.

Sherrodd v. Morrison-Knudsen Co.
IF (1) a contract is in writing AND (2) there is no mistake AND (3) there is no challenge
      to the validity of the contract AND (4) there is no allegation of external fraud
      THEN the writing supersedes any previous or concurrent oral agreement (parol
      evidence is inadmissible).

Implied Terms and the Obligation of Good Faith

Restatement (Second) of Contracts §77: Illusory and Alternative Promises
   - There is no consideration if the promisor “reserves a choice of alternative
       performances” unless all of the alternatives would have been consideration, or
       there is, or appears to both parties to be, a substantial possibility that the promisor
       might eliminate the alternatives that would not be consideration.
   -   Ex. There‟s no contract when a promisor says, “Paint my house, and either I‟ll
       pay you or I won‟t,” unless there‟s a substantial possibility that the promisor will
       choose to pay.

UCC §2-306(2)
A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of
     goods concerned imposes unless otherwise agreed an obligation by the seller to use
     best efforts to supply the goods and by the buyer to use best efforts to promote their
     sale.
*** This rule derives from Wood v. Lucy, but that court only required “reasonable
     efforts,” rather than “best efforts.” ***

Wood v. Lucy
IF a contract is “instinct” with an obligation though imperfectly expressed, THEN a
      promise will be implied.

Donahue v. Federal Express
A contract imposes on each party an implied duty of good faith and fair dealing in its
     performance, unless it is an at-will employment contract.

Warranties

Express Warranties: UCC §2-313.
[Lists how express warranties by seller to buyer are created- basically, any affirmation of
fact, promise, or description of the goods that becomes a part of the basis of the bargain
creates an express warranty that the goods will conform to the affirmation, promise, etc.]

Implied Warranty of Merchantability: UCC §2-314.
   - Applies to sale of goods when the seller is a merchant of that type of goods.
   - Merchantability means, among other things:
         o The goods “pass without objection in the trade” [2-314(2)(a)]
         o They “are fit for the ordinary purposes for which such goods are used” [2-
            314(2)(c)]

Implied Warranty of Fitness for Particular Purpose: UCC §2-315.
Where the seller at the time of contracting has reason to know any particular purpose for
     which the goods are required and that the buyer is relying on the seller‟s skill or
     judgment to select or furnish suitable goods, there is unless excluded or modified
     under the next section an implied warranty that the goods shall be fit for such
     purpose.

Caceci v. DiCanio
There is an implied term that a house is constructed in a skillful manner, free from
     material defects, regardless of the builder‟s knowledge of the defects and regardless
     of a standard merger clause.

Bayliner Marine Corp. v. Crow
IF there is [(1a) an affirmation of fact or a promise made by the seller to the buyer, OR
      (1b) a description of the goods] AND (2) it is made part of the basis of the bargain
      AND (3) it is not an opinion, THEN there is an express warranty.

The court discusses other rules that are not part of the holding:
1.) IF goods would pass without objection in trade AND they are fit for their ordinary
      purpose, THEN there is no breach of the warranty of merchantability.
2.) IF a buyer makes known a particular purpose to the seller AND the seller knows the
      buyer is relying on the seller‟s judgment in selecting appropriate goods THEN there
      is an implied warranty of fitness for a particular purpose.

Duress and Undue Influence

Restatement (Second) §175. When Duress by Threat Makes a Contract Voidable
   (1) If a party‟s manifestation of assent is induced by an improper threat by the other
       party that leaves the victim no reasonable alternative, the contract is voidable by
       the victim.
   (2) If a party‟s manifestation of assent is induced by one who is not a party to the
       transaction, the contract is voidable by the victim unless the other party to the
       transaction in good faith and without reason to know of the duress either gives
       value or relies materially on the transaction.
§177. When Undue Influence Makes a Contract Voidable
   (1) Undue influence is unfair persuasion of a party who is under the domination of
       the person exercising the persuasion or who by virtue of the relation between
       them is justified in assuming that that person will not act in a manner inconsistent
       with his welfare.
   (2) If a party‟s manifestation of assent is induced by undue influence by the other
       party, the contract is voidable by the victim.
   (3) If a party‟s manifestation of assent is induced by one who is not a party to the
       transaction [voidable unless other party gives value or relies materially].

Alyeska: (various economic duress rules)
Rule applied by Alyeska court:
If (1) one party deliberately commits a wrongful act and (2) has knowledge that the other
party has no choice economically but to accept the offer, and (3) the other party
involuntarily accepts the offer, then the contract is voidable for economic duress.
            - There is a debate about what the wrongful act could be: either causing the
                economic duress, or taking advantage of the other party‟s vulnerability by
                making offers in unjust conditions.
Grimshaw rule:
If (1) one party involuntarily accepts the terms, and (2) there was no reasonable
alternative to accepting those terms, and (3) the circumstances are the result of coercive
acts by the other party, then the contract is voidable for economic duress.
            - The Alyeska court seems to think that it‟s following the Grimshaw rule,
                but its rule is actually different. In Grimshaw, one party‟s wrongful acts
                have to cause the other party‟s economic duress.
Williston rule:
If a party has been a victim of a wrongful threat from the other party, and the threat
deprives the party of his/her unfettered will, then the contract is voidable for economic
duress.
Restatement (Second):
If (1) one party makes a wrongful threat and (2) the threat induces the other party to enter
into a transaction without free will, and (3) the threat was intended or should reasonably
have been expected to operate as an inducement for the other party to enter into the
transaction, then the contract is voidable for economic duress. (Actual wording above.)

Odorizzi v. Bloomfield School District
Duress: IF (1) there is a threat of unlawful action, AND (2) the threat causes consent (3)
      through fear, THEN there is duress.
Fraud: IF (1) there is conscious misrepresentation or nondisclosure of a material fact,
      AND (2) it was intended to induce reliance, AND (3) it induces the innocent party
      to enter the contract, THEN there is fraud.
Undue influence (two possible rules):
IF (1) there is excessive pressure by a dominant subject AND (2) excessive pressure is
      used to persuade “one who is vulnerable to excessive pressure,” THEN there is
      undue influence.
IF (1) there is excessive pressure (objective) AND (2) there is undue susceptibility
      (subjective), THEN there is undue influence.
Several factors to be used in testing for excessive pressure: an unusual or inappropriate
      time or place for the agreement, multiple persuaders, demand to finish at once,
      absence of advisors, restricted access to counsel.

Fraud; Misrepresentation and Non-Disclosure

Restatement (Second) of Contracts §162. When a Misrepresentation Is Fraudulent
     or Material
   (1) A misrepresentation is fraudulent if the maker intends his assertion to induce a
       party to manifest his assent and the maker
           a. Knows or believes that the assertion is not in accord with the facts, or
           b. Does not have the confidence that he states or implies in the truth of the
               assertion, or
           c. Knows that he does not have the basis that he states or implies for the
               assertion.
   (2) A misrepresentation is material if it would be likely to induce a reasonable person
       to manifest his assent, or if the maker knows that it would be likely to induce the
       recipient to do so.
§163. When a Misrepresentation Prevents Formation of a Contract
If a misrepresentation as to the character or essential terms of a proposed contract induces
       conduct that appears to be a manifestation of assent by one who neither knows nor
       has reasonable opportunity to know of the character or essential terms of the
       proposed contract, his conduct is not effective as a manifestation of assent.
§164. When a Misrepresentation Makes a Contract Voidable
     (1) If a party‟s manifestation of assent is induced by either a fraudulent or a material
         misrepresentation by the other party upon which the recipient is justified in
         relying, the contract is voidable by the recipient.
     (2) [Fraud or misrepresentation by third party; contract is voidable unless the other
         party gave value or relied on it in good faith.]

Park 100
1st Rule: Duty to read: Both parties are required to know the terms of the agreement they
are signing, and they cannot avoid their obligations for failure to read it.
2nd Rule: Two different versions of exceptions to the duty to read rule
        1. If party A employs misrepresentation to induce another party B‟s obligation
             under an agreement, then party A cannot bind party B to the terms of the
             agreement.
        2. If the guarantor has been induced to enter the contract of guaranty by
             fraudulent misrepresentations or concealment on the part of the guarantee,
             then the contract of guaranty cannot be enforced by the guarantor.
3rd Rule: IF there was (1) a material misrepresentation of fact by one party AND (2) it
      was made with knowledge or reckless ignorance of the falsity of the statement AND
      (3) it was relied upon by the other party AND (4) it proximately caused the injury to
      the relying party, THEN there is fraud.

Hill v. Jones
IF the seller of a home knows of facts materially affecting the value of the property AND
      those facts are not readily observable AND the facts are not known to the buyer,
      THEN the seller is under a duty to disclose them to the buyer AND the contract is
      voidable if the seller does not disclose.
An alternative the court considered was the California rule:
IF the seller of a home knows of facts materially affecting the value of the property AND
      those facts are known or accessible only to the seller AND they are not known to
      the buyer AND they are not within the reach of the diligent attention and
      observation of the buyer, THEN the seller has a duty to disclose AND the contract
      is voidable if the seller does not disclose.

Unconscionability

Restatement (Second) of Contracts §208. Unconscionable Contract or Term
If a contract or term thereof is unconscionable at the time the contract is made a court
      may refuse to enforce the contract, or may enforce the remainder of the contract
      without the unconscionable term, or may so limit the application of any
      unconscionable term as to avoid any unconscionable result.
Williams:
If there is unconscionability at the time a contract is made, the contract should not be
      enforced.
Unconscionability includes absence of meaningful choice + contract terms that are
      unreasonably favorable to the other party.
      There are several factors to define the absence of meaningful choice.
      The rule for whether terms are unreasonable is whether they are unconscionable
        according to the mores and business practices of the time and place. (Circular
        reasoning.)

Arbitration clauses were held to be unconscionable in Higgins and Brower v. Gateway.

Williams v. Walker-Thomas
IF there is [(1a) an absence of meaningful choice by one party OR (1b) gross inequality
of bargaining power] AND (2) terms unreasonably favorable to the other party, then the
contract/term is unconscionable.
- This is an atypical approach to unconscionability, in that it doesn‟t discuss
procedural/substantive.

Higgins v. Superior Court
IF there is procedural unconscionability (surprise and oppression) AND substantive
unconscionability (one-sidedness), THEN a clause is unconscionable.
            - This is a typical approach to unconscionability.

Adler
IF there is substantive unconscionability (cost-prohibitiveness, time restrictedness, or
one-sidedness) THEN a term is unconscionable.
             - Procedural unconscionability by itself may or may not be enough (the
                court doesn‟t decide that issue).

Mistake; Changed Circumstances, Impracticability and Frustration

§152. When Mistake of Both Parties Makes a Contract Voidable
   (1) Where a mistake of both parties at the time a contract was made as to a basic
       assumption on which the contract was made has a material effect on the agreed
       exchange of performances, the contract is voidable by the adversely affected party
       unless he bears the risk of the mistake under the rule stated in §154.
   (2) In determining whether the mistake has a material effect on the agreed exchange
       of performances, account is taken of any relief by way of reformation, restitution,
       or otherwise.

§153. When Mistake of One Party Makes a Contract Voidable
Where a mistake of one party at the time a contract was made as to a basic assumption on
which he made the contract has a material effect on the agreed exchange of performances
that is adverse to him, the contract is voidable by him if he does not bear the risk of the
mistake under the rule stated in §154, and
    (a) the effect of the mistake is such that enforcement of the contract would be
         unconscionable, or
    (b) the other party had reason to know of the mistake or his fault caused the mistake.

§154. When a Party Bears the Risk of a Mistake
        - §154(a) says a party bears the risk when there is an “as is” clause or
            another provision expressly allocating the risk to that party.
        - §154(b) seems to allow a party to be unreasonably unaware of the
            limitations of his knowledge and still get the benefit of the mistake rules.
        - §154(c) allows the court to allocate the risk as the court believes is
            reasonable.

Mutual Mistake
Sherman v. Walker: IF the mistake of the parties goes to the whole substance (essence)
of the agreement, as opposed to being a mere quality (accident), THEN rescission may be
granted.
             - The judge says “the parties” would not have made the sale if they had
                known that the cow was pregnant rather than barren – this seems to be
                willful ignorance of the strategic behavior or deviance of parties.
Lenawee adopts §152.
Lenawee County Board of Health v. Messerly
IF there is a mistaken belief relating to a basic assumption of the parties upon which the
      contract is made AND that assumption materially affects the agreed performances
      of the parties, THEN the court has discretion to grant rescission, UNLESS the party
      seeking rescission has assumed the risk of loss in connection with the mistake.

Unilateral Mistake
Williston’s rule (quoted in Wil-Fred’s): “unilateral mistake may afford ground for
rescission where there is a material mistake and such mistake is so palpable that the party
not in error will be put on notice of its existence.”
Wil-Fred’s Rule:
Four jointly sufficient conditions requiring “clear and positive” evidence –
            1. The mistake relates to a material feature of the contract,
            2. The mistake occurred notwithstanding the exercise of reasonable care,
            3. The mistake is of such grave consequence that enforcement of the contract
                would be unconscionable, and
            4. The other party can be placed in status quo (the same position as before
                the contract).
In Wil-Fred’s, the court doesn‟t make the “unconscionability” requirement very strong.

Impracticability and Frustration of Purpose
       - Impracticability: It becomes too unreasonably costly for the party to perform.
       - Frustration of purpose: One of the parties substantially loses an anticipated
           value.
              There is an interesting asymmetry in that the rules do not allow one of the
               parties to get out when there is a sudden rise in value instead of a sudden
               loss.
        - These doctrines are difficult to reconcile with the concept of contract as a
           form of risk allocation.
Paradine rule: When the party by his own contract creates a duty upon himself, he is
bound to make it good, if he may, notwithstanding any accident or inevitable necessity,
because he might have provided against it by his contract.
           - Parties can pay a premium to condition their obligations to avoid certain
               unforeseen problems.
           - This is an extremely classical view.
Krell v. Henry: If a deal loses all value to a party, because of an unanticipated change in
purposes, then the contract is voidable.
           - This is a very vague rule, and it seems like it should be narrowed in order
               to maintain the viability of contracts as a system of allocating risk.
Restatement 261 and 265 are the rules on impracticability and frustration.
           - 261 (impracticability) adds a caveat that helps to alleviate the problem of
               vagueness; the duty is discharged “unless the language or the
               circumstances indicate the contrary.” There is still a lot of room for
               variation between classical and romantic judges.
           - 265 comes up in Mel Frank v. Di-Chem – the court there held that the
               party‟s principal purpose was not frustrated.

Mel Frank Tool & Supply, Inc. v. Di-Chem Co.
IF there have been changed circumstances AND a party‟s principal purpose has not been
      frustrated by those changed circumstances, THEN the party‟s non-performance is
      not justified.


Modification
Pre-existing duty rule (Restatement §73): Performance of a legal duty owed to a
   promisor which is neither doubtful nor in honest dispute is not consideration.

Alaska Packers:
One rule with two narrowings of scope:
IF party A agrees to give additional consideration to party B for B‟s performances of the
    exact services that B was already under contract to render, THEN the new promise is
    without consideration. Two “narrowings” of this rule:
        1.) IF the parties agree to modify their contract, so that each party is giving the
          other party some additional consideration, THEN K. The new contract has the
          old terms, plus additional consideration from both parties.
        2.) IF both parties agree to voluntarily rescind their promises and create a new
          contract, THEN K. The new contract can be completely different from the old.
The rationale for the pre-existing duty rule is that the court is worried about the potential
   for extortion in allowing one party to induce the other party‟s reliance up to the last
   possible moment.

Public Policy; judicial role: "cooperator vs. constrainer" of legislature
The public policy doctrine refers specifically to cases in which a contract is made in
derogation of regulations, where the regulations do not specify the effects of derogation
on a contract, but do specify another penalty.

Restatement (Second) §178. When a Term is Unenforceable on Grounds of Public
Policy.
   (1) A promise or other term of an agreement is unenforceable on grounds of public
        policy if … the interest in its enforcement is clearly outweighed … by a public
        policy against the enforcement of such terms.
   (2) In weighing the interest in the enforcement of a term, account is taken of
            a. The parties‟ justified expectations,
            b. Any forfeiture that would result if enforcement were denied, and
            c. Any special public interest in the enforcement of the particular term.
   (3) In weighing a public policy against enforcement of a term, account is taken of
            a. The strength of that policy as manifested by legislation or judicial
                decisions
            b. The likelihood that a refusal to enforce the term will further that policy,
            c. The seriousness of any misconduct involved and the extent to which it was
                deliberate, and
            d. The directness of the connection between that misconduct and the term.

Riggs v. Palmer
If voiding a particular contract would clearly have been intended by the legislature, then
      such a contract is void for public policy. (Very old rule.)

Derico v. Duncan (romantic)
If (1) there is a statute designed for the benefit of the public and (2) the statute is not
       merely for revenue raising, and (3) an agreement does not comply with the statute,
       then the agreement is void for public policy.

Ricker (classical)
If the legislature did not expressly intend for contracts to be voided by a licensing statute,
       then the failure to follow the licensing statute does not void the contract for public
       policy.

Cooperator v. Constrainer: Derico says the courts should be cooperators, expanding on
the terms of the legislature, while Ricker says the courts are constrainers.


Material Breach; Constructive and Express Conditions
Conditions
Three different mechanisms a party can impose upon another party to induce a
performance:
    1.) Duty – bargain for that performance to be part of the party‟s duties/obligations
        under the contract. Non-performance of a duty makes the non-performer liable
        for damages.
    2.) Condition something that the other party wants you to do on their doing
        something you want them to do (i.e. I will pay on the condition that you deliver)
    3.) Promissory condition – condition your obligation on the other party‟s
        performance, and make that performance a duty for the other party (i.e. I will pay
        on the condition that you deliver, and you must deliver or I can sue for damages)

Difference between duty and condition:
“I promise to buy 1000 bushels of wheat from you at $10/bushel, on condition that you
deliver to my factory in Lowell.”
            - Non-occurrence of the condition (delivery) relieves the buyer from the
               duty to perform.
“I promise to buy 1000 bushels of wheat from you at $10/bushel; you promise to sell me
1000 bushels of wheat at $10/bushel and deliver the wheat to my factory in Lowell.”
            - The seller has a duty to deliver the wheat; if the seller doesn‟t deliver, he
               has breached the contract.

Restatement (Second) §234. Order of Performances (paraphrased)
Unless the contract expresses otherwise, performances must be done simultaneously if
possible; if one performance will take more time, that one must be done first.

Jacob & Youngs:
IF the parties have not expressly conditioned their duties under the contract, AND party
      A has substantially performed, THEN A‟s substantial performance constitutes
      satisfaction of the constructive condition on his duties, UNLESS A is a willful
      transgressor.
    1. Determining whether an omission was significant to the parties or there has been
        substantial performance is a fact-intensive inquiry.
            a. Factors include the purpose to be served, the desire to be gratified, the
                excuse for deviation, and cruelty of enforced adherence.
            b. “Substitution of equivalents may not have the same significance in fields
                of art on the one side and in those of mere utility on the other. Nowhere
                will change be tolerated, however, if it is so dominant or pervasive as in
                any real or substantial measure to frustrate the purpose of the contract.”

Oppenheimer & Co. v. Oppenheim, Appel, Dixen & Co.
IF the parties have expressly conditioned their duties under a contract, THEN substantial
      performance does not satisfy the express conditions on either party‟s duties. (An
      express condition must be literally performed unless it is waived by the party
      requesting performance.)
Morin:
Restatement §228. Satisfaction of the Obligor as a Condition
When it is a condition of an obligor‟s duty that he be satisfied with respect to the
     obligee‟s performance or with respect to something else, and it is practicable to
     determine whether a reasonable person in the position of the obligor would be
     satisfied, an interpretation is preferred under which the condition occurs if such a
     reasonable person in the position of the obligor would be satisfied.

This doctrine relates to illusory promise – if the obligor can always claim not to be
satisfied, and then not be bound by his obligation, satisfaction as a condition looks like an
illusory promise.

Two ways out of the problem of illusory promise:
  1. Restatement §228 imposes an objective standard whenever it is practicable. If a
      reasonable person would be satisfied, the obligor must be satisfied.
  2. A standard of good faith is imposed when it‟s a question of aesthetics – the
      obligor must report his satisfaction or dissatisfaction in good faith.


Computing Value of ’s Expectation; Restrictions on Recovery of
   Expectation Damages (foreseeability and mitigation)
Damages occur when there is an unjustified non-performance, aka breach of contract.

Fuller‟s categories of interests served by damages:
Expectation interest: The interest an injured party has in being put in as good a position
      as she would have been in if both parties had fully performed.
Reliance interest: The interest an injured party has in being put in as good a position as
      the party was in before the contract was made.
Restitution interest: The interest a party has in preventing unjust enrichment of the
      other party.

Expectation interest:
Restatement §347 lays out the formula for computing expectation interest:
       Expectation damages = loss in value + other loss – cost avoided – loss avoided
           (See Roesch v. Bray)
Hadley/ Restatement §351
       If consequential damages arising from breach are either general damages or
           special damages then the damages are recoverable.
       General damages are damages naturally arising from the breach in the usual
           course of things.
       Special damages are those reasonably supposed to have been in the contemplation
           of both parties at the time the contract was made as a probable result of the
           breach.
Restatement §352
“Damages are not recoverable for loss beyond an amount that the evidence permits to be
     established with reasonable certainty.”
Rockingham County/ Restatement 350: “Duty” to Mitigate
“[D]amages are not recoverable for loss that the injured party could have avoided without
     undue risk, burden or humiliation,” unless the party has made “reasonable efforts”
     to avoid the loss.

Roesch v. Bray
Court‟s formula for an injured seller‟s loss in value:
Contract price – market value of property at the time of breach = damages.
       (The seller only recovers when the contract price is higher than the market value.)
Formula for an injured buyer:
Market value – contract price = damages.
       (The buyer only recovers when the contract price is lower than the market value.)

Hadley v. Baxendale
IF two parties have made a contract which one of them has broken, THEN the other
     party can recover either for (1) a loss that “flowed naturally from the breach of this
     contract… under ordinary circumstances” OR (2) a loss that was a “reasonable and
     natural consequence of such a breach of contract” under “special circumstances”
     about which the first party had reason to know.

More Damage Computation; Efficient Breach
Efficient Breach: Society shouldn‟t punish people for breaching a contract when they
      find a better deal, as long as they‟re willing to pay for the consequences of the
      breach.
            - Efficient breach is usually an argument against specific performance.
            - Lukaszewski is consistent with efficient breach in that the court requires
                the teacher to pay for the consequences of her breach of contract.

Handicapped Children’s Education Board v. Lukaszewski
IF one party breaches a contract, THEN the other party should be compensated for the
     difference between what that party expected to receive and what that party actually
     received. (Provided that the party satisfies the duty to mitigate.)

Nonrecoverable damages; Reliance damages
Walser: The discretion to award reliance or expectation damages is delegated to the trial
    judge, even when reliance is the basis for enforcing the promise. Some jurisdictions
    limit damages to reliance when the basis of liability is reliance.

Wartzman v. Hightower Productions, Ltd.
From §349: IF anticipated profits (expectation damages) are too speculative to be
     determined, THEN monies spent in part performance or in reliance are recoverable,
     LESS any loss that the breacher can prove with reasonable certainty that the injured
     party would have suffered had the contract been performed.

Specific Performance

City Stores:
IF a party has been placed under a duty to offer a lease to the other party, AND money
      damages for the lost right to enter into the lease would be incalculable and
      inadequate, THEN specific performance may be the appropriate remedy.
In many settings, especially employment settings, courts have been unwilling to enforce
      specific performance – it‟s too close to forced servitude. However, courts are
      increasingly willing to enforce specific performance, especially in land cases.

				
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