Is there a contract

Is there a contract? I. Was there an offer? What constitutes an offer………………page R § 24 manifestations of willingness to enter into a bargain that justifies another person in understanding that his assent will conclude bargain……… R § 19 Manifestation of assent may be wholly or partly written, spoken or by failure to act, and conduct is manifestation if party intends to engage in conduct and has reason to know other party will believe it is assent. If one’s inner intention is at odds with his express words, the implication of the words is what counts. (Objective theory of assent)……page 22 Embry v. Hargadine, McKittrick Dry Goods – Π asked employer if his contract would be renewed for the next year, Π told him not to worry about it that he was all right; Π thought this mean contract was definitely to be renewed; Δ said he never planned to renew contract – court found for Π b/c Δ’s express words implied there was a renewal despite his inner intentions. Lucy v. Zehmer Is it just an invitation to negotiate? (written memorial contemplated) R § 26 showing willingness to enter into bargain is not an offer if other party knows that person making it doesn’t intend to conclude a bargain until he has made further manifestation of assent. …page 23 Nebraska Seed Co.  Parties who have made their agreement subject to a later definitive agreement have manifested an intent not to be bound. Empro Manufacturing Co. v. Ball-Co Manufacturing – Π (Empro) & Δ sign letter of intent containing general provisions of sale of Δ’s assets to Π; letter stated purchase subject to conditions and approval by Π’s shareholders. They had negotiation problems; Δ began negotiations with someone else; Π contends letter was intent to be bound R § 27 Manifestations that are sufficient to conclude contract will be sufficient even though parties intend to prepare and adopt a written memorial; but circumstances may show agreements are preliminary negotiations. Texaco v. Pennzoil …….page 26 R § 33 Manifestation of intention to make offer cannot be accepted to form contract unless terms of contract are reasonably certain………..page 24 Leonard v. Pepsico – commercial not an offer b/c it refers people to other sources to see other terms Leftkowitz v. Great Minneapolis Surplus Store – newspaper ad that published furs for $1 constitutes offer b/c all terms of ad were certain/specific with nothing left for negotiation and Π’s performance fulfilled all terms of ad....pg 26 UCC § 2-305 Parties can conclude a contract for sale even though the price is not settled; in such case price is reasonably set at time of delivery; if parties intend not to be bound until price is fixed there is no contract; buyer may return goods received or pay reasonable value of what items would be at time of delivery II. Is offer still valid? Has offer expired?.................page UCC § ---Is offer irrevocable?.............page R § 87(a) An offer is an option contract if it is in writing and singed by offeror, recites a purported consideration for the making of the offer, and proposes an exchange of fair terms w/in a reasonable time; an offer that should expect to induce and does induce substantial action by 1 offeree b4 acceptance is binding option contract to extent necessary to avoid injustice……..page 53 R § 45 Option contract is created by part performance or tender where the offer invites acceptance by performance and the offeree begins the invited performance ; offeror’s duty of performance is created when offeree tenders complete performance UCC § 2-205 Firm Offer is an offer by merchant to buy or sell goods in a signed writing whose terms gives assurance that it will be held open; it is irrevocable during time stated or if no time stated for no longer than 3 months...page 22 Has the offer been revoked? ………… R § 37 the power of acceptance under an option contract is not terminated by rejection or counteroffer, by revocation, or by death or incapacity of the offer, unless the requirements are met for the discharge of a contractual duty. R § 42 power of acceptance is revoked when offeree receives manifestation of an intention not to enter into contract R § 43 power of acceptance terminates when the offeror takes action inconsistent with an intention to enter into the proposed contract & offeree acquires reliable info about it. Dickinson v. Dodds – offer open til 9am; Δ sold to someone else b4 Π accepts III. Is there acceptance? Is it acceptance or a counteroffer? If offeree sends a rejection and an acceptance to the offeror -if the rejection is received first, the acceptance is considered a counteroffer -if the rejection is received last, …? Acceptance by Performance R § 50 Acceptance by performance requires that at least part of what the offer requests be performed and includes acceptance by performance which operates as a return promise. R § 54 Where offer invites acceptance by performance, no notification is needed to make acceptance unless offer requests such; if offeror has no adequate means of learning of performance w/promptness and certainty, the contractual duty of offeror is discharged unless (a) offeree exercises reasonable diligence to notify, (b) offeror learns of performance in reasonable time, (c) offer indicates notification is not required. Offer to create a bilateral contract is not accepted by performance if the performance does not give an adequate indication of an acceptance. (R § 19)……..page White v. Corlies v. Tift – real estate renovation offer; Π claims acceptance by buying lumber to start the job. Acceptance by Silence R § 69 Silence operates as acceptance if (a) offeree accepts services knowing other party expects compensation; (b) offeror has stated or given offeree reason to know that assent may be manifested by silence or inaction, and offeree remains silent and intends to accept; (c) b/c of past dealings, it is reasonable that offeree should notify the offeror if he does not intend to accept. Hobbs v. Massasoit Co. - eel skins accepted after prior dealings is acceptance of offer Acceptance by Mail R § 63 Acceptance takes effect (unless offer otherwise provides) as soon as put out of the offeree‟s possession, without regard to whether it ever reaches the offeror, but acceptance under option contract is not valid until received by offeror…page 26 (Mailbox Rule) Acceptance by Phone/Teletype R § 64 Acceptance by instantaneous communication has same rules as if parties where in each other’s presence……page 26 Acceptance by Performance R § 32 In case of doubt an offer is interpreted as inviting the offeree to accept either by promising or performing, as offeree chooses. 2 Offer and Acceptance Miscellaneous UCC § 2-206 Offer and Acceptance in Formation of Contract (p. 22) IV. Was there consideration? Promises enforceable without consideration R § 95 In the absence of a statute a promise is binding w/o consideration if (a) it is in writing and sealed; and (b) the document w/promise is delivered; and (3) the parties are named in the document as to be capable of identification when it is delivered. Is it a donative promise, gift? Is it bargained for? R § 71 To be consideration, promise or performance must be bargained for – bargained for if sought by promisor in return for his promise and vice versa – performance may consist of act other than performance, forbearance, or the creation, modification, or destruction of legal relation; promise may be given or received by third party…p. 44 Hamer v. Sidway – uncle’s promise to give money – nephew gave up legal right R § 86 Promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice; A promise is NOT binding under previous statement if promisee conferred the benefit as a gift or other reasons the promisor has not been unjustly enriched; or to the extent that its value is disproportionate to the benefit. Mills v. Wyman – Dr treated son & said father should pay – no material benefit conferred on promisor in this case so no recovery from promisor; general position that moral obligation is sufficient consideration for an express promise to pay is limited to express promises founded on pre-existing equitable obligations (e.g. debts); father had no preexisting obligation to pay for son’s care so promise does not create contract to pay…page 45 Webb v. McGowin – Π saves Δ’s life; Δ promises to pay Π each week – A moral obligation is sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit for which he subsequently and expressly promised to pay. Quasi-Contract created has to have received a benefit;  has to have known about benefitit would be unjust to retain the benefit without paying for it. Was consideration adequate? Courts will generally NOT look at the adequacy of consideration to determine whether a contract is enforceable. R § 79 If there is consideration, there is no additional requirement of (a) a gain to promisor or loss to promisee; (b) equivalence in values exchanged, or (c) “mutuality of obligation.” Comment: Disparity in value sometimes indicates that the purported consideration was not bargained for but was a formality or pretense. Such a sham or “nominal” consideration does not satisfy the requirement of § 71. If enforced at all these promises are enforced as binding by virtue of their formal characteristics under §6. Schnell v. Nell – wife promised to leave money to friends; husband agreed to give $ out of love and respect for wife; and people getting gift of $200 gave him $1 each – A contract will be vitiated for lack of consideration where the consideration given by one party is only nominal and intended to be so. R § 364 Specific performance or an injunction will be refused if such relief would be unfair b/c the exchange is grossly inadequate or the terms of the contract are otherwise unfair. Can there be MODIFICATION w/o consideration? R § 89 promise to modify a duty under a contract not fully performed on either side is binding (a) if change is fair and equitable in view of circumstances not anticipated by parties when contract made (Brian Const.), (b) to the extent provided by statute, or (c) to extent that justice requires enforcement in view of material change of position in reliance on the promise. Brian Construction v. Brighenti – Δ agreed to remove foundation and discovered remains of another building that would require much more work than contracted for, 3 court upheld that modification for more money was good because of changed circumstances. UCC § 2-209 An agreement modifying a contract needs no consideration to be binding as long as the modification is made in good faith. The effective use of bad faith to escape performance on the original contract is barred, and the extortion of a “modification” w/o legitimate commercial reason is ineffective as violation of the duty of good faith. (pg. 47) New terms to an existing contract cannot be extorted from a promisor by using the circumstance of emergency (i.e. modification is not enforceable if made under duress). There must be valid consideration to modify a contract. (pg. 46) Stilk v. Myrick - 2 crew members desert, others extort more money Alaska Packers Assn v. Domenico – fishermen stop working in middle of season V. Is contract still enforceable when there is valid offer and acceptance? Did it pass Statute of Frauds? R § 110(1) – Classes of Contracts Covered – The following contracts must have written instruments to be enforceable: (MY LEGS) (a) a contract of an Executor or administrator; (to answer for a duty of his decedent) (b) a contract to answer duty of another (the Surety ship provision) (answering for the duty of another; “third party vouches for u”unless the main purpose is for the 3rd party to obtain a benefit for himself.) (c) Marriage contract  (marriage settlement and prenuptial contracts, not promises to marry) (d) Land sale contracts (usually EXCEPT short-term leases & EXCEPT when transfer land and value drops) (e) contract not to be performed in one Year (measured by end of performance; performance must NOT be completed in a year) R § 110(2) – Following contracts are governed by the UCC Statute of Frauds: (a) contract for sale of goods over $500 (§ 2-201) (b) contract for the same of commodities (§ 8-319) (c) contract for sale of personal property not otherwise covered, to the extent of enforcement by way of action or defense beyond $5000 in amount or value of remedy (§ 1206) R § 110 (3)-(5) Further info on statute of frauds in UCC and Restatement……..page 34 UCC § 2-201 – (1) writing needed for sale of goods over $500; (2) b/n merchants if written contract received and receiving party knows contents it is enforceable against a party unless written notice of objection to its contents is given within 10 days after it is received; section……..page 35 Satisfying Requirement of a Writing Schwedes v. Romain – Montana land sale where Π accepted offer by phone and was told by Δ’s lawyer not to pay remaining amount on agreed date; Δ then turned around and sold to someone else - Absent partial performance or grounds for estoppel, the Statute of Frauds requires that a contract for the sale of real estate is invalid unless it, or some written note or memorandum, is subscribed to by the parties to be charged; there was also no consideration to hold the offer open….page 36 Is it EXCEPTED to the Statute of Frauds? R § 139 If promise should reasonably be expected to induce reliance on part of promisee or 3rd party and which does so is enforceable notwithstanding the SOF if injustice can be avoided only by enforcement of the promise. Remedy granted for breach is to be limited as justice requires. Section (2) states consideration for determining whether injustice can be avoided. 4 (fall back measure – if you can award restitution, then award it; it § 129 applies (land sale, then award specific performance.) UCC Π 2-201(3) Exceptions to statute of frauds: (a) enforceable if goods are to be specially manufactured for buyer and are not suitable for sale to others in ordinary course of seller’s business. (b) estoppel – if both parties admit contract has been made; one party has relied on this admittance (c) confirmation – if there has already been acceptance of goods or payment for goods (i.e. contract has been partially performed) Damages cannot be recovered for violation of a contract within the statute of frauds if there is no writing AND if the Δ does NOT benefit. Boone v. Coe – Boone and JT Coe filed suit against JF Coe to recover damages for breach of oral contract for one year to begin at future date; JF owned a farm in TX and Πs (farmers in KY) entered into contract to rent TX farm for 12 months beginning when they arrive on the farm. Π’s spent considerable expense moving to TX, and Δ would not allow the farm to be occupied or cultivated when they got there; Πs left to go back home and sued for damages. – no damages awarded b/c although there was reliance, Δ did not get unjust enrichment. When do prior oral agreements change a written agreement? (Integrated Agreements) Parol Evidence Rule Parol Evidence Rule – If on its face, the writing purports to be a complete expression of the entire agreement, then it is presumed that every material issue and term has been introduced and no parole ev will be admitted even when the writing is silent as to the term. Parol contemporaneous evidence is inadmissible to contradict or vary the terms of a valid written instrument. Thompson v. Libby – Π agrees to sell logs in written agreement to Δ.; Δ refused to pay after determining logs were of poor quality; at trial Δ argued there was a warranty made at the time of the sale on the quality of logs that was not contained in the written agreement; Sup Ct says that trial court erred in admitting parol evidence of warranty and the Π must be granted a retrial R § 209 An integrated agreement is a writing constituting a final expression of one or more terms of an agreement; where it looks like an integrated agreement on its face, it is taken to be integrated by the court unless other evidence establishes that the writing did not constitute a final and complete expression. Brown v. Oliver – Did furniture come with sale of hotel? Written statement did not conclusively establish whether parties intended it to be total integration; parol evidence was received from scrivener to answer this and shows that writing deals only with real estate thus not total (complete) integration. Since not total integration; Π can introduce evidence that parties agreed to sale of furniture. – Parol evidence about intent of the parties to integrate their transaction into a writing may be admitted when the writing does not conclusively establish intent. If document is not intended to include all details of the agreement then it is only partial integration and can introduce parol evidence that does not contradict a term of writing. R § 209 Whether agreement is partially or completely integrated is to be determined by the court before determination of question of interpretation or to app. of the parol ev rule. R § 213 Binding integrated agreement discharges prior agreements to extent that it is inconsistent w/them; it discharges integrated agreements that are w/in its scope; integrated agreement that is NOT binding, or is voidable or avoided does not discharge a prior agreement, but a not binding integrated agreement may be effective to render inoperative a term from a prior agreement which would have been part of the agreement if it had not been integrated. 5 R § 214 Contemporaneous evidence admissible to establish: (a) – (c) whether writing is integrated, completely or partially, and meaning of writing (d) illegality, fraud, duress, lack of consideration or other invalidating cause; (e) ground 4 rescission, reformation, specific performance, or other remedy. R § 216 If agreement partially integrated evidence of a consistent additional term is admissible to supplement; agreement is not completely integrated if it omits a consistent additional agreed term which is: (a) agreed to for separate consideration, or (b) such a term as in the circumstances might naturally be omitted from the writing. …page 40 UCC § 2-202 Terms of final written expressions can not be contradicted by evidence of prior agreements or contemporaneous oral agreements but may be explained or supplemented by: (a) by course of dealing or usage of trade or by course of performance; and (b) by evidence of consistent additional terms unless court finds agreement intended to be complete and exclusive statement of terms. Was there Promissory Estoppel?.......page 50 R § 90 Questions to ask in applying Restatement § 90: (1) was there a promise? (2) was reliance intended and foreseeable? (3) was there actual reliance? (4) is remedy necessary to prevent injustice? Promise to make a gift - when there is detrimental reliance (promise to pay for son’s education so son quits his lucrative job.) son will get damages suffered from losing the job but not the full cost of a college education Ricketts v. Scothorn – grandfather promises $2000 to granddaughter so she will never have to work (but does not explicitly ask her to quit) – if the promise (w/o consideration) leads to detrimental reliance and reliance on the statement is foreseeable promise can be enforced (p. 51) Charitable Subscriptions § 90 (2) A charitable subscription…is binding under Subsection (1) without proof that the promise induced action or forbearance. Allegheny College v. National Chautauqua Bank– Δ promises to make $5000 donation after her death if they name scholarship after her, but gives $1000 during lifetime and revokes promise. Court rules that gifts can be enforceable w/consideration (her consideration was her being memorialized w/scholarship fund) and a bi-lateral agreement may exist even though one of the mutual promises is a promise “implied-infact.” (implied acceptance b/n college never says they accept but keeping the $1000 is implicit acceptance). Gratuitous Bailments and Agencies -a person promises to take care of another’s property or - person promises to carry out an act as another person’s agent (i.e. procure insurance) Fienberg v. Pfieffer Co. – company promises employee of several years a pension of $200 a month, a year and a half later she quit her job. After different owner took over they decreased pension to $100 a month – Since the employer promised the employee a pension for the rest of her life, and she relied on that promise b/c it would allow her to quit her job, the promise is binding on the employer. 6 Offers by Subcontractors if a general contractor uses a sub’s bid in computing his own master bid, PE makes the sub’s bid temporarily irrevocable Drennan v. Star Paving – subcontractor (Star) submitted a bid to contractor and Δ used bid in formulating its bid to the school district. Δ won contract; Π refused to work for amount of bid b/c it was incorrect figure; Δ found substitute to do it and sued Δ for difference claiming reasonable reliance on Δ’s offer. Δ claimed it made a revocable offer. – Reasonable reliance on a promise binds an offeror even if there is no consideration. -Overrules Baird v. Gimbel Bros. – linoleum bid was incorrect -Ruling of case codified in Restatement § 87 Promise of a Job - as long as employee is hired for even the shortest length of time, can’t use PE b/c promise was really only for at-will employment Promissory estoppel as an alternative to breach of contract? Goodman v. Dicker – radio franchise…53 Hoffman v. Red Owl Stores – franchise grocery store…p. 54 Modern Application of Promissory Estoppel Ypsilanti v. General Motors – closing plant after getting tax abatements…p. 54 VI. What are the Terms of the Agreement? When are terms waived? Whose Meaning Prevails? R § 201(2) Where parties have attached different meanings it is interpreted in accordance with the meaning attached by one of them if: (a) that party didn’t know of any different meanings attached by the other and the other knew the meaning attached by the 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 the meaning attached by the first party….page 30 R § 201(3) Except as stated above, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent. Raffles v. Wichelhaus – two ships Peerless – different meanings were assigned; there is no contract if ambiguity relates to material term. In this case, there was no meeting of the minds and no contract. Oswald v. Allen – Δ negotiated for the sale of coins that were separated in two sets; Π meant price he offered to be for both sets when he referred to “swiss coins” and Δ meant for agreed price to be for one set – the set she called “Swiss coins” – neither party knew of ambiguity and court ruled no meeting of the minds….page 30 R § 202 Rules in Aid of Interpretation….page 31 UCC § 1-205 Course of Dealings and Usage of Trade…page 31 Ambiguity is construed strictly against the drafter seeking the agreements enforcement when the intent of the restriction is not clear. Weinberg v. Edelstein - Π sues to enforce restriction against selling “dresses”covenant to restrict sale of “dresses” was enforceable but term was too vague to prevent Δ from being able to sell matching skirt and shirt sets. 7 Frigaliment Importing Co. v. BNS – meaning of chicken – ct rules that Π’s definition of chicken was one used in contract and that contract was enforceable meaning Δ had to pay for chicken received although he claimed it was the wrong type of chicken – Π submitted info on trade usage such as FDA recognition and testimony from people in the industry 5 Types of evidence to consider when interpreting contract terms: 1. Words of the contract 2. Course of negotiations 3. Course of performance UCC § 2-208: “Where the contract for sale involved repeated occasions for performance by either party… any course of performance accepted to acquiesced in without objection shall be relevant to determine the meaning of the agreement.” 4. Course of dealing UCC § 1-205: “A course of dealing is a sequence of pervious conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.” 5. Usage of trade. § 1-205: “A usage of trade is any practice or method for dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.” Are the terms certain enough? (Agreements to Agree) A contract is invalid due to incompleteness if the agreement does not establish the length of time the terms shall apply or the price shall apply……..page 28 Sun Printing v. Remington Paper & Power R § 34 Part performance can remove uncertainty and establish enforceable contract by a bargain being formed; reliance can substitute for uncertainty b/c it makes remedy available UCC 2-204(3) Open terms don’t void contract for indefiniteness if there is a basis for remedy Are terms missing, unclear, or indefinite? Gap fillers… Implied-in-fact terms: terms that the parties actually, albeit implicitly, have agreed to Implied-in-law terms: terms that are thought to be imposed on parties w/o their consent Default rules: legal rules that the parties can avoid or vary by means of express clause that differs from term a court will otherwise supply by default. Immutable rules: rules that may not be varied by consent and will override any express clause to the contrary Was there a conflict in the writing? (The “Battle of the Forms”) Mirror Image Rule –An offer of a bargain by one person to another imposes no obligation on the former unless it is accepted by the later according to the terms on which the offer was made. Any qualifications of or departure from those terms invalidates the offer, unless the same is agreed to by the party who makes it. § 2-207 (1) Seasonable expression or written confirmation acts as acceptance even though it states terms additional to or different from terms offered or agreed upon, unless acceptance is expressly made condition to assent on terms offered; (2) Additional terms are to be construed as 8 proposals for addition to the contract. B/n merchants such terms become part of the contract unless: (a) the offer expressly limits acceptance to terms of the offer (b) they materially alter it; (c) notification of objections to them has already been given or is given w/in a reasonable time after notice of them is received. Union Carbide v. Oscar Mayer Food – Π makes sausage casing for Oscar Mayer and has form saying they will be responsible for taxes. Π finds a way to only have to pay 1 cent tax so that Oscar Meyer will deal with them; eight years later IRS sends Π letter saying they must pay back taxes; Π sues Δ for indemnity saying Oscar Meyer agreed to pay taxes- court rules that to read agreement to pay taxes at the time of the agreement as now being an indemnity clause would materially alter the agreement; thus it is unenforceable Was performance demanded in good faith? (Illusory Promises) A buyer in a requirement‟s contract may enforce the contract even if its requirements increase beyond the parties’ contemplation. So long as the buyer’s needs are genuine and he is not merely speculating in the material, the contract is enforceable. NY Central Iron Works v. US Radiator – Radiator company (Δ) contended that a requirements contract it had entered into with NY Central Iron Works should not be enforced b/c Central’s need supplies proved much greater than the parties had anticipated. While an express promise may be lacking, the whole writing may be instinct with an obligation – an implied promise – imperfectly expressed as to form a valid contract. Wood v. Lucy, Lady Duff Gordon – Wood received the exclusive right for one year to endorse designs w/Lucy’s name and to market all her fashion designs, for which she would receive ½ the profits derived. Lucy broke contract by placing her endorsement on designs w/o Wood’s knowledge. Π sued for damages for breach of a contract for an exclusive right. Δ claimed that the agreement lacked the elements of a contract as Π was not bound to anything – court found promise to act in good faith; b/c exclusivity would derive profits for Lucy which would then be passed on to Wood, there was implied promise for Lucy not to do anything that would diminish Wood’s profits. UCC 2-306 In an output or requirements contract “…no quantity unreasonably disproportionate to any stated estimate or in the absence of estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.”; agreements for exclusive dealings require the use of best efforts to supply goods (seller) and to use best efforts to promote their sale (buyer). (Implied Duty of Good Faith Performance) In every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. (R § 205 & UCC § 1-203, § 2-103) Goldberg 168-05 Corp v. Levy – Goldberg sought damages for unpaid rental payments based on a Levy’s intentional diversion of profits so as to reduce rental payments under a lease agreement and trigger provision allowing him to terminate the contract. – A covenant of good faith and fair dealings is inherent in every contract, requiring a party to a commercial lease that requires part of the rental payments be based on a percentage of gross receipts, to utilize his best efforts in order to generate earnings. Stop & Shop, Inc. v. Ganem – (1) When considering good faith, court should take into consideration the motives; is party trying to subvert contract. (2) Commercial must state terms explicitly for court to uphold a term. 9 Was there anticipatory repudiation? (page 57) The basic approach is that a clear, unequivocal, and voluntary repudiation by one of the parties is recognized as the equivalent of a material and total breach, provided that the threatened action or failure to act would be a material and total breach if it happened at the time due for performance. R § 243 and § 250-257 deal with anticipatory repudiation. Harrell v. Sea Colony, Inc. – Π contracted to purchase condo then wanted to back out of deal; he sent letter to Δ telling him that he wants to cancel but will only do so if he can keep the contract; the Δ says that he will cancel the contract but keeps the Πs money, Π sues to get money back – court says that condo must give money back b/c for repudiation there must be a clear and unequivocal manifestation of intention that the party will not perform at appointed time. UCC 2-610 When either party repudiates the other can: (a) await performance; (b) resort to any remedy for breach, even though he has notified other party that he will wait for performance; (c) suspend his own performance….page 57 Suing expectation damages -if repudiation is part of mutual rescissionrestitution damages UCC 2-611 Until repudiating party‟s next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his position or otherwise indicated that he considered the repudiation final. (2) Retraction can be any method that clearly indicates intent to perform. (3) Retraction reinstates the repudiating party’s rights under the contract w/due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation. Material Breach and Substantial Performance Doctrine of constructive conditions – condition created by court; implied condition Doctrine of substantial performance – fulfilling the condition necessary for the other party to have to perform performance of the primary, necessary, terms of an agreement Jacobs & Young v. Kent – Kent refused to make final payment on a construction contract that specified Reading pipe was to be used throughout the house b/c not all pipe that was used was Reading. Replacing pipe would requiring demolishing substantial parts of house. J & Y sued for money owed under contract – where there is substantial performance w/defects of a trivial and inappreciable importance, the measure of damages is not the cost of replacement/finishing but the difference b/n value of item w/substantial performance and value as supposed to be. (both values are expectation interests) If the seller fails to perform as promised and it is a material breach buyer can suspend performance, but seller must be permitted to cure -if seller cures then buyer would have a duty to perform and a claim for damages if any e.g. selling land to be tendered on Feb. 1 Groves v. John Wunder Co. – Groves leased a tract to Wunder; Wunder agreed to remove the sand and gravel and to leave the property at uniform grade. Wunder paid Groves lump sum rent of $105,000 and agreed that when lease expired it would restore the land to Groves at uniform grade. 7 years later having turned the property into choppy mess, Wunder refused to carry out its grading obligation. Wunder deliberately breached the contract by removing the richest and best gravel and left the premises broken, rugged, and uneven. Groves sued for breach – where a contractor willfully and fraudulently varies from the terms of a construction contract, he cannot have the benefit of the equitable doctrine of substantial performance. 10 Peevyhouse v. Garland Coal Mining Co – Where a contract provision breached is merely incidental to the main purpose, and where the economic benefit which would result to lessor by full performance of the work is grossly disproportionate to the cost of performance, the damages which lessor may recover are limited to the diminution in value resulting to the premises because of the nonperformance. R § 348 if breach causes defective/unfinished constructions damages can be: (1) diminution in the market price cause by breach or (2) reasonable cost of performance if not substantially disproportion to diminution VI. Is there a defense? Possible defenses: Incompetence and infancy Fraud, duress, undue influence, and unconscionability Failure of presumption – includes mistake, impossibility, and frustration Voidable contract – valid contract that may be legally voided Is the contract illegal/against public policy? Was there capacity to contract?.....page 61 R § 12 Capacity to contract R § 15 Mental Illness or Defect R § 16 Intoxication Webster Street Partnership, ltd v. Sheridan – Δ rents apartment to a 17 year old and 18 year old. – A contract with a minor will only be upheld when the contract is for a necessity. Policy: (1) we do not want adults taking advantage of minors; (2) we want kids to go home if they can and if no one will contract w/them they will go home Note: contracts for necessities are not enforceable but recipients can be forced to pay restitution Minors must give back what was received (physical objects); precludes recovery for services. Was there a Misrepresentation of fact?......page 63 R § 164 if manifestation is induced by fraudulent or material misrepresentation by the other party upon which recipient is justified in relying, contract is voidable by recipient. Vokes v. Arthur Murray, Inc – Vokes was continuously cajoled into purchasing thousands of hours of dancing lessons at Arthur Murray. Vokes alleged that she had attained little to no skill and employees had purposefully misrepresented her skills and ability to be a professional dancer. – (1) if recipient reasonably believes that the person giving a fraudulent opinion has special skills and relies on that opinion, the speaker is liable. (2) When one party has superior knowledge, statements made within the area of such knowledge may be treated as statements of fact. (R § 168 & illustrations…..page 64) R § 169 When reliance on an assertion of opinion is not justified…..page 64 Was it made under duress? R § 175 if party’s manifestation of assent is induced by improper threat by the other party that leaves the victim no reasonable alternative the contract is voidable by the victim. R § 176 When threat is improper…..page 65 R § 174 Duress by physical compulsion prevents formation of contract 11 Economic Duress Emphasis is shifted from the impropriety of the means of obtaining assent to the economic straits confronted by the party who has consented. Hackley v, Headley. – Π (seller) delivered logs to Δ; Δ was supposed to pay $6000 but said he would pay no more than $4000; Π needed the money immediately and was forced to give Δ receipt for $4000. Π sued for balance. – Here there is no duress because Δs merely failed to meet financial obligation promptly. That isn’t unlawful and would not have created duress except for particular circumstances of the Π. (Notes: Π should have made claim that there was no consideration to modify contract to $4000; Π actually does win on remand) Austin Instrument v. Loral Corp.. – Duress exists when one is induced by improper threat to make a contract or perform under circumstances which deprive him of the exercise of free will. Was there undue influence? 2 elements required: (1) special relationship between parties; (2) improper persuasion. Odorizzi v. Bloomfield School District – gay school teacher told to resign or school would go public with arrest – Undue influence is exerted when the injured party’s independent will is overpowered by that of a superior party, or his agents, at a time at which the victim was particularly vulnerable. R § 177 undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation b/n them is justified in assuming that the person will not act in a similar manner inconsistent with his welfare. Was the contract unconscionable? Procedural unconscionability unfairness in contract formalities ; look at circumstances of formation e.g. oral misrepresentation or disparities in bargaining power); suggests no meeting of the minds. Substantive Unconscionability Unfairness resulting from contract terms that are unduly harsh, commercially unreasonable, or grossly unfair Williams v. Walker-Thomas Furniture Co. UCC § 2-302 Unconscionable Contract of Clause R § 208 (same as section (1) of § 2-302) – if a contract or term is unconscionable at time made, court can refuse to enforce entire contract or unconscionable clause R § 211 Standardized Agreements ….page 68 Adhesion Contract – standardized form contract offered to consumers of goods and services on essentially “take it or leave it” basis w/o affording customer realistic opportunity that consumer cannot obtain desired product or services except by acquiescing in form contract. Carnival Cruise Lines v. Shute – A non-negotiated forum-selection clause in not unconscionable if it meets the requirements of fairness and is not created in bad faith. Failure of basic assumption? Conscious ignorance….page 69 Is there a Bilateral Mistake Checklist: 1) Did both parties really share the same incorrect belief? 2) Does mistake go to identity or quality? Identity lets you out, quality sticks you in. 3) Was this a “now” mistake or about the future. Future prediction mistake sticks you with K. 12 4) Econ Analysis: Who would the parties have allocated the risk to if they had thought of it 5) Inertia- Has contract been performed? Likely if it hasn’t then if won’t be enforced, but if it has, courts may enforce it. (for gross valuation mistakes) Sherwood v. Walker – Δ sold cow as barren; cow was found to be pregnant which would give it a greater value – Where the party’s to a contract for sale of personal property are mutually mistaken as to a material fact which affects the substance of the whole consideration, the contract is unenforceable. (substance v. quality) (Different from „Peerless‟ b/c there each thought different thing, here both think same thing but both are mistaken) Wood v. Boyton – uncut diamond – in absence of evidence of fraud on the part of the vendee, a mutual mistake as to the nature and value to a thing sold will not afford a basis for rescission of the contract of sale. Lewanee County Health v. Messerly – land sale contract – where both parties to a contract are mutually mistaken as to a basic supposition upon which the agreement was predicated, thereby affecting the parties’ obligations pursuant to the contract, the court may grant the equitable remedy of rescission……...page 70 R § 152 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……page 70 R § 154 Party bears the risk of mistake when risk is allocated by the agreement, by court on grounds that it is reasonable to do so, or when he is aware when contract is made that he only has limited knowledge w/respect to facts to which the mistake relates but treats his knowledge as sufficient (conscious ignorance). R § 157 Effect of fault of party seeking relief R § 158 Relief including restitution Is there a Unilateral Mistake R § 153 Mistake of one party about basic assumption that goes to material effect on agreed exchange of performances does not make party bear risk if (a) effect of mistake is such that enforcement would be unconscionable, or (b) other party had reason to know of the mistake or his fault caused the mistake. Tyra v. Cheney Laidlaw v. Organ – - buyer assumes the risk of the deal; Oregon was not bound to reveal info; if mistake is NOT about the subject of contract but about surrounding circumstances, the contract is not rescindable R § 160 When action is intended or known to be likely to prevent another from learning a fact it is equivalent to an assertion that the fact does not exist. R § 161 When non-disclosure is equivalent to an assertion….p. 72 Effect of Changed Circumstances Impossibility/Impracticability unforeseen increases in the costs of performance by one party Frustration of Purpose Reductions in the value a party attaches to performance to be received from the other party Impossibility/Impracticability v. Mistake These occur at performance stage while mistake cases usually occur at FORMATION stage. In all 3 cases (frustration, impracticability, impossibility), court seeks to determine the INTENT of the parties while negotiating and in forming the contract. (1) What risks did they foresee/could they foresee? (2) Were the risks allocated into the contract? 13 Taylor v. Caldwell – Π contracted to rent hall to perform and hall burnt down; Π sues Δ for incidental damages of performance – Ct rules existence of theater is implied condition; in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse performance. (default rule is created) Four general requirements for impossibility (1) event must have made the performance as agreed impossible (that doesn’t mean impractical. If you are losing money that isn’t enough.) (2) nonoccurrence of the event must have been a basic assumption on which the contract was made (doesn’t have to be a conscious assumption, but must be mutual to both parties) (3) impossibility must have resulted w/o the fault of the party seeking to be excused. (including negligence) (4) Parties must not have assumed a greater risk than the law imposes. (there may be express terms that allocate risk between the parties. the ct looks to things like that to see where the risk is) R § 261 Impracticability; UCC 2-613 and 2-615 consistent with the restatement  Where, after a contract is made,  A party’s performance is made impracticable  without his fault  by the occurrence of an event  the non-occurrence of which was a basic assumption on which the contract was made  his duty to render that performance is discharged  unless the language or the circumstances indicate the contrary. Is there a Frustration of Purpose Krell v. Henry – rooms for rent for coronation Lloyd v. Murphy – car salesman who claims inability to sell cars because of govt. restriction – frustration of purposes isn’t triggered unless (1) restriction is really stiff (2) no one assumed the risk Frustration is buyer‟s defense; Impossibility/Impossibility is seller‟s defense 3 part checklist for frustration: (1) what was the foundation of contract? (2) was the performance of the contract prevented? (3) was the event which prevented performance of the contract of such a character that it cannot reasonably be said to have been made in contemplation of the parties? Damages What kind of damages? Expectation: puts victim in same position he would be in if breacher had performed (i.e. had there been no breach); most common form of damages; ordinarily reliance damages built in Reliance: puts the promise in position they would have been in if the y had never entered into the contract (i.e. puts party back at 0) -also used when difficult to calculate expectation damages Restitution: put the promisor back in position they would have been in had the contract not been made; court wants to make sure promisor does not benefit from breach 14