1. The study of contracts is the study of the legal enforcement of promises; 2. Contract rules also fill in many parts of an agreement that the parties do not expressly stipulate in their negotiations. 3. Define the outer boundaries of acceptable bargaining behavior and outcomes, and to deny enforcement to agreements that fall outside those bounds. 4. Direct the outcome in cases of changed circumstances and a contract silent on that point. Contract- a legally enforceable promise that has an exchange; set of promises; and mutuality of obligations. . Breach- promisor has not kept his promise Injury- a party must submit evidence to prove damages Elements of a Contract a. offer- promise to do something; the manifestation of the 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. b. acceptance- promise to comply w/ the offer. 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. Both parties are now bound. c. consideration- an exchange; 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. [The right that was give up] d. Must have- definiteness of terms, and intent to create a contract Two types of Contracts Unilateral- a promise for a performance; promisor can withdraw up until the beginning of performance by promisee, then promisee must be given a reasonable time to finish, once promisee begins performance, they are not bound to finish. No mutual obligations. §51, §50 Ex: reward to find my cat [if someone tries and fails, they are not in breach] Bilateral- a promise to perform for a promise to perform. Once performance has begun, treated as acceptance and it must be completed. Mutuality of obligations. Ex: paint my house, I will give you $100. Express Contracts – contracts resulting from words Implied-In-Fact Contracts- contracts whose offer, acceptance, or both are implied from conduct rather than evident from words.
Bargain v. Gift #1
Hamer v. Sidway- (App Ct. NY 1891) Bargain B: Nephew plaintiff was promised by uncle $5,000 to stop drinking alcohol, using tobacco, swearing, and playing cards or billiards for money until he became 21 years old. Executor breached and refused to pay. R: One party gives up a right because of the promise made to him by another party. The courts will not ask whether the thing which forms the consideration does in fact benefit the promissee or a third party, or is of any substantial value to anyone.
Class Notes: Good example of bargaining. If the nephew chose to stop drinking before his uncle promised, he is still entitled to ruling if uncle reneges. We are looking into the mind of the person who is asking the other to give up something not into the mind of the
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person giving it up. Bargained for means desired and does not mean a benefit. The uncle desired the nephew to refrain, but the nephew refraining did not necessarily benefit him. Once the gift has been executed, it cannot be taken back through contract law.
Kirksey v. Kirksey (Sup Ct Ala. 1845) -Gift B: Brother defendant wrote sister in law plaintiff after husband died and told her to sell her house, and move to where he lives because of the unhealthy conditions where she lived. He would provide a comfortable place for her to live and raise her family. He then made her leave. Statement of the Case: This is an example of a gift w/out consideration. The promise was not executed and no consideration. It was not bargained for.
Class Notes Gift- a gratuitous promise without valid consideration. The court does not bind these promises. There was no consideration because the brother-in-law was just being gratuitous according to the court. Her moving was a condition of the promise but if she could have been prosperous and safe where she was then the brother-in-law would have had her stay or given her property there if he owned it. He did not desire her to move, he desired her well-being which is not the same as him desiring her to give up a right. If he would have added: P.S. I am so lonesome. Then there is consideration because he desired her to give up her right and come to be w/ him. Consideration: You must give up something the other party bargained for. Abram’s Hypo’s 1. Professor: Come to my office to get the assignment. Student walks up the stairs, professor doesn’t give it to him. Walk not consideration but a condition of the promise. 2. Professor: Come to my office to get the assignment. Professor knows Dean will walk by and Prof will look good in front of the Dean. Student walks up the stairs, professor doesn’t give it him. Walk is consideration. ―That is the point of the Willst and Tramp hypothetical. Generally a promise to make a gift is not enforceable, and generally if the gift is already given it cannot be undone.‖ Abrams
Bargain v. Gift #2
In re Greene (U.S.D.C. 1930) Statement of the Case An example of the court not substantiating past actions as consideration.
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B: Defendant who was bankrupt was a married man that lived in adultery w/ plaintiff. The relationship ended then executed a written instrument under seal, which was alleged to be a binding contract. The bankrupt agreed to give payments and other monies in return for the claimant agreeing to release the bankrupt from the mortgage interest taxes, other charges on the property, and would not pursue all other claims she had against him. As consideration the claimant paid $1 and other good and valuable consideration. R: This case is decided not only because past cohabitation was the motive for the promise but also because in order for it to be valid there must be some other consideration besides past intercourse. Release from imaginary claims is not valuable consideration. The dollar consideration is nominal. The presence of the seal would have been decisive in the claimant’s favor a hundred years ago. The seal in New York is only presumptive evidence of consideration, this presumption is amply rebutted in this case.
Class Notes Past consideration is an oxymoron.
Restatement § 74-Settlement of Claims Looks into the mind of the person giving it up, did they think it was valid. The person asserting the claim must think they may be able to win. (1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless (a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law or, (b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid. (2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for when he is not asserting the claim or defense and believes that no valid claim or defense exists.
Him Y N Y Her N Consideration is in box 1 & 2. No consideration in box 3 & 4. Box 4 is: Quit claim, I know that you don’t have anything but I want you to sign a document saying you can’t sue me. Mutual rescission has consideration both sides agree to give up their legal right to sue. In re Greene is really 1 both thought there were valid claims. The court pushes it to 3. The court says this is not consideration b/c she couldn’t reasonably think that she had cause. The restatement takes an objective view about what the claimant believes. Policy Reasons Blackmail, selling secret information and illegal activities are not enforced in Contracts b/c if the parties know from the beginning they will not be enforced, it will discourage these activities. We discourage contracts that the outcome one party benefits and one doesn’t. Usually if we enforce contracts both parties will win. In general an exchange of goods benefits both parties. You can’t sell secrets b/c we know the motive is bad but if you simply say it, we don’t know if the motive is bad.
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Why can’t we sell our right to vote?-It has an immediate third party effect. We want elected persons that will represent a constituency. Usually, in contracts we are concerned w/ the two participating parties.
Adequacy of Consideration
Batsakis v. Demotisis B: Lender George Batsakis gave borrower Eugenia $25 and signed a contract stating she would pay lender back $2,000 in American money. The era was during a war torn Greece. R: Mere inadequacy of consideration will not void a contract.
Class Notes Only you know what is valuable to you. The agreement may not have been fair, but she had the freedom to choose whether to sign the contract. The courts do not ask whether the consideration is inadequate they ask whether it is nominal. In times of unusual need, court may say in extreme need people can’t drive harsh bargains. Abrams Example: If in a storm a hotel tries to charge an extreme price for the room. Contracts can be written in any country and American courts can try them. Wolford v. Powers
B:Charles Lehman wrote a promissory note for $10,000 just prior to his death. He agreed to give this money if the plaintiff named their son Charles Lehman Wolford. Lehman requested for the plaintiff and his wife cared for Lehman during some brief illnesses and also hired a carriage to take him out driving several times. Rational: Where a party contracts for the performance of an act which will afford him pleasure, gratify his ambition, please his fancy, or express his appreciation of a service another has done him, his estimate of value should be left undisturbed unless indeed, there is evidence of fraud.
Class Notes
§79 Restatement- Adequacy of Consideration; Mutuality of Obligations 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, b. equivalence in the values exchanged or c. mutuality of obligation.
Conditional promises are enforceable no matter how remote the contingency unless the condition is entirely within the promisor’s control.
Promissory Estoppel
Feinberg v. Pfeiffer Co. B:At a meeting the Board of Director of the company promised to raise her salary, and give her a lifetime retirement payment of $200 a month. She eventually retired and was paid $200 a month. As a result of death the company changed hands twice and the son-in-law ended up as Board of Director. He began sending a check for $100 after conferring w/ an attorney and an accounting firm. Plaintiff refused the decreased amount. §90 Restatement Promissory Estoppel 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 justice can be avoided only by enforcement of the promise.
Class Notes Narrow Promissory estoppel is a contract doctrine, a substitute for consideration, it protects the reliance and only that.
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Past consideration is an oxymoron, you were a wonderful worker for years so I’ll pay you a bonus. In this case, there was no consideration so the court used the substitute. There could be consideration, if she continued to work after they made her the promise. The reliance is they expected her to stop working and she did. It must be forseen reliance. They promised her if she retired and she did. If the reliance is she bought a boat, justice will rarely uphold this promise. They did because the injustice is she quit her job. It’s about preventing the injustice and not being worse off rather than the promisee benefit. Ex: If promised by someone 1000 to go and get yourself the best meal in town. The meal costs 600. The promisor doesn’t pay you the 1000. The judge may enforce the 600 but not the 1000. Injustice not benefit and an expectation by promisor for promisee to do something. Real estate improvement is often times upheld from courts via promissory estoppel. Equitable estoppel- a defense doctrine that says if somebody has said the world is a certain way and I reasonably rely on that view of the world, they may not argue in court the opposite. Ex: Neighbors agree on boundaries then one neighbor sues trying to claim another boundary. Cannot argue in court the opposite.
Intrafamilial Promises
Ricketts v. Scothorn B: Katie Scothorn sued executor of her gradfather’s last will and testament for not honoring the promissory note given to her by her grandfather for an annual payment of $2,000. He offered her this promissory note bc he state none of his grandchildren worked and neither should she. She then quit her job in expectation of the annual payment. R: The court recognizes there is no consideration present. The evidence showed it was his purpose to place the plaintiff in a position of independence, where she could work or remain idle, as she might choose. Narrow promissory estoppel, promise induced her action, she reasonably retired, by enforcing the promise is prevents the injustice.
Class Notes By paying interest the grandfather was implying he would not renege. Looking at his actions in life, shows us of his testaments in death. The family sanctions, self sanctions (arising from one’s personal ethics), external sanctions (loss of trust in promisor, foreclosure of potential future dealings) replaces the legal sanctions in intrafamilial promises so generally court will not enforce promises between family members.
Employment Promises
Hayes v. Plantations Steel co. B: Hayes sued Plantations Steel Co. for breaching a promise to pay pension. Starting from 1/73 until 1/76 Hayes received an annual sum of $5,000. Change in owners, stopped payments. R: Former owner remarked to Hayes, you’ll be taken care of is an implied contract. Contracts implied in fact require the element of consideration to support them as in required in express contracts. This agreement had no consideration. Hayes claimed promissory estoppel. One of the essential elements of promissory estoppel is it must induce the promisee’s actions, the court found that Hayes had planned to retire a year before he actually did.
Class Notes Promissory estoppel not present here. The promisor should reasonably expect to induce action—Manelli never expected to induce Hayes to quit. Consideration, he retired. The employer did not bargain for that. The only faint hint of consideration is that he stayed 1 week after the promise was made. 5
Helmick v Cincinnati Word Processing Inc. B: Holly Helmick sued for various charges including breach of her employment contract. She
was employed as a CSR and stated she was subjected to sexual abuse in the workplace. She then tried to get another job at which time, her manager approved her raise and told her she had a job there if her work continued to be satisfactory. She was then fired. R: Construing the evidence most favorably to Helmick, we note a facial showing that there were specific promises made to Helmick on which she relied to her detriment. A demonstration of detrimental reliance on specific promises of job security can create an exception to the employment at will doctrine.
Class Notes This case has consideration. She gave up the right to look for other jobs based on her evaluation. One requirement of having a promise enforced it that it is sufficiently definite that we can enforce the promise. But the court chose to enforce w/ Broad Promissory estoppel: If she won on consideration, then she would get her job back, but courts generally don’t make people work together if they don’t get along. Broad Promissory estoppel is a theory of recovery. In this case the promise is too indefinite they can enforce a broad range of recovery. Employment at will- courts have historically said you can fire someone w/out reason. To avoid this people can get contracts for set terms. This is an example of exception to the employment at will doctrine, specific promises. Gratuitous promise no substantial reliance, no business setting, almost no chance. Gratuitous promise of insurance in a business setting, almost always found for customer
Coley v. Lang B: Lang, president of IAS Corp agreed to sell Coley all outstanding shares of stock. Coley would receive the name and reputation of IAS but Lang would transfer any potential liabilities a new corporation. Both parties signed this letter and both parties agreed there were further negotiations and steps involved in order to solidify the deal. Coley backed out of the deal and Lang sued. R: Aside from the intention of the parties to reduce their agreement to writing, it is admitted that there was no full and definite agreement on terms.
Class Notes Broad Promissory estoppel: The trial court enforced the promise under broad promissory estoppel b/c the terms were still indefinite and he found there was reliance by Lang. Lang wanted equitable remedy –specific performance. To enforce specific performance there must be very definite terms within the contract. Lang couldn’t show the appellate court reliance, they reversed his award. Courts are reluctant to enforce specific performance.
Hoffman v. Red Owl Stores B: Hoffman sued Lukowitz b/c he made an agreement to open a store in Chilton and Red Owl would stock and buy building and Hoffman would run the store. Hoffman ended up selling his bakery, moving to to running a store for experience, moving again and putting up the deposit for the building $1,000, all in expectation of opening this store. During this time he received repeated promises that all he needed was $18,000. In the end, he needed more money which he agreed to borrow from his father in law, his father in law wanted partnership in return. This was the deal breaker.
Class Notes They promised to negotiate in good faith, but they kept changing the terms of the contract. The court felt they weren’t bound to the contract but that they would try to get
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there in good faith. A contract theory means you are suing either b/c there is consideration or a consideration substitute. (narrow promissory estoppel) Broad Promissory Estoppel- was used to enforce this contract because the terms were still indefinite. Employment At Will Doctrine Wagenseller v. Scottsdale Memorial Hospital (Arizona Suprm Ct. 1985) B: Plaintiff immediate supervisor Kay Smith, terminated her and there is evidence and testimony of the deterioration of their relationship based on Kay’s looseness on a trip they took, where Sue refused to participate. Scottsdale Hospital established a four-step disciplinary procedure and listed steps to be taken prior to termination. They are verbal warning, written performance warning, a letter of formal reprimand, and a notice of dismissal. R :In the event of an absence of contractual provision such an employee may be fired for good cause or for no cause, but not for ―bad‖ cause. There are exceptions to the at-will rule. The public-policy exception, which permits recovery upon a finding that the employer’s conduct undermined some important public policy. The second exception, based on contract, requires proof of an implied-in-fact promise of employment, for a specific duration, as found in the circumstances surrounding the employement relationship, including assurances of job security in company personnel manuals or memoranda. Under the third approach, courts have found in the employment contract an implied-in-law covenenant of “good-faith and fair dealing‖ and have held employers liable in both contract and tort for breach of that convenant. Wagenseller raises all three doctrines. Public Policy Exception Firing for bad cause—one against public policy articulated by constitutional, statutory, or decision law—is not a right inherent in the at-will contract, or in any contract, even if expressly provided. Implied-in-Fact Exception Such terms in an employer’s policy statements as job security and employee disciplinary procedures, these statements depending on the conduct of the parties can become part of the contract supplementing the verbalized at-will agreement, and thus limiting the employer’s absolute right to discharge an at-will employee. Leikvold: Whether any particular personnel manual modifies any particular employment-atwill relationship and becomes part of the particular employment contract is a question of fact. Evidence relavant to this factual decision includes the language used in the personnel manual as well as the employer’s course of conduct and oral representations regarding it. The court of appeals said that section 20 of the manual says clearly ―These major or minor infractions are not inclusive and are only guideline‖ but the Supreme court again quotes Leikveld: [Employers are free to issue a manual or not. If they choose to, they are free to say directly the employee’s jobs are still terminable at will regardless of this information, but then employee’s will not take the information seriously. However, if they choose to issue manuals with policy statements they cannot choose to selectively abide by it.]
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The trial court erred in granting summary judgment, because these are questions for the jury whether or not the manual became part of the contract. Good Faith and Fair dealing Thus, because we are concerned not to place undue restrictions on employers, we reject the argument that a no cause termination breaches the implied convenant of good faith and fair dealing in an employment-at-will relationship.
Material Benefit Rule
Mills v. Wyman B: Defendant’s son was sick and plaintiff took care of him on his own. Defendant promised to pay plaintiff gratuitously. R: If there was nothing paid or promised for it, the law, perhaps wisely, leaves the execution of it to the conscience of him who makes it.
Class Notes There is no instrumental effect when the promise comes after the act. Instrumental effect means changing behavior. If the person who is doing the work gets a promise after the work, it doesn’t encourage people to keep their promise. If there was a minor involved, there is a legal obligation for the parents to pay for it. He was an adult, therefore, no obligation on father.
Manwill v. Oyler B: Defendant made payments that benefited plaintiff. Defendant made promise after the statute of limitations had ended. R: Mere making of a promise creates a moral obligation to perform. There must be more than a mere moral obligation to pay, there must be solid consideration.
Class Notes Statute of limitations needs to be respected. Does the reaffirmation of a debt toll the statute of limitations? Some courts enforce a new promise if it is in writing or has been partially performed.
Webb v. McGowan I Statement of the Case: Complete lack of opportunity to bargain. Officius intermeddler- this man did not have a chance to bargain. And the man was acting and enforcing his own promise. B: Webb diverted an accident that would have injured McGowan and instead suffered severe injuries. In return, McGowan promised Webb he would care for and maintain him for the remainder of McGowan’s life. He did so until he died. Plaintiff then brought suit to estate. R: Appellant saved McGowan from death or grievous harm, this was a material benefit to him and receiving this benefit he expressly agreed to pay appellant and complied up until his death. Webb v. McGowan II R: If the benefit be material and substantial and was to the person of the promisor and not to his estate, it is within the class of material benefits which he has the privilege of recognizing and compensating either by an executed payment or an executory promise to pay.
Class Notes Implied in Law Contract- When the professional renders service and there is no opportunity to bargain. Person unconscious; doctor helps. The person is obligated to pay b/c they would have made the bargain had they had the opportunity. The professional has to be compensated the reasonable and customary amount for their expertise and the cost of the materials. In general promises w/out consideration are not upheld. When amateurs render a service, generally will not get paid. Officius intermeddler- Simply ignores the bargaining process and does the service, they do not get paid.
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Material benefits cannot be transferred to third parties.
The Offer
Bailey v. West B: Defendant bought a horse from a 3rd party and sent his trainer to pick it up. The plaintiff knew there was disagreement as to the owner and sent bills to both the seller and the defendant. R:We hold that there was no mutual agreement and ―intent to promise‖ between the plaintiff and defendant.
Class Notes Offer- creates the power of acceptance in the offeree. An offer must be definite and certain in terms (identity of offeree, subject matter, price to be paid, time of payment, delivery, or performance, quantity, and nature of work) Offeror is the master of the contract creates the means of acceptance. Mutual Assent-objective measure of a meeting of the minds. Each party is bound to the apparent intention that he manifested to the other. People have to Act as if they intend to be bound doesn’t matter what they think just what they do. Abrams : ―Expression of a hurdle true or false is a hurdle‖ Of course we don’t have a deal until we put it in writing‖ even though legally it isn’t true it is still hurdle. Ex: Painter paints the house and really has a contract w/ the neighbor, u sit there and watch. Contract theory- (§69) silence can be considered as an acceptance to the offer if the offeree takes offered benefits, especially true in prior dealings between the parties, and trade practices known to both. Quantum merit theory- in fairness, you should pay b/c you voluntarily accepted the benefit and you had the chance to deny.
Lonergan v. Scolnick B: Defendant posted an ad in the newspaper to sell land. Plaintiff then wrote a letter back requesting further info on where the land was located. Defendant then wrote back again making further arrangements but not securing the deal. Defendant ended up selling the land to someone else and plaintiff sued. R:It is clear from the correspondence that it was the intention of the defendant that the negotiations between him and the plaintiff were to be purely preliminary. For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract.
Class Notes Form letters: this letter is being sent to a lot of people. If it didn’t say it was a form letter and it was addressed for example to dear reasonable buyer then it is obvious and the reasoning still holds. Advertisements, catalogs are usually invitations for offers. He didn’t specify first come first serve for example, if it was construed as an offer he would be in breach to everyone who read the paper. Offers that don’t specify essential elements are preliminary negotiations.
Lefkowitz B:Defendant put an advertisement in the newspaper putting 3 fur coats, 2 mink skin scarfs and one lapin stole on sale for $1.00 to the first person who arrives. Plaintiff arrived and defendant decided not to sell. R: The authorities emphasize that when the offer is clear, definite, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.
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Class Notes Exception: The terms are certain and definite, and the language in the offer can be construed as containing a promise. The first time he went it was reasonable for him to believe that he could buy but when he arrived, he was told the sale wasn’t for him. But the court gave him the cost of the second day’s worth.
The Acceptance
Ever-Tite Roofing corp. v. Green B: A salesman that had no authority to accept contracts for the plaintiff signed this agreement w/ defendant. This agreement shall become binding only upon written acceptance hereof, or upon commencing performance of the work. The plaintiff needed to obtain credit reports and send the information to the lender for approval. A day after the approval came, the plaintiff dispatched workmen and materials to the defendant’s home and found other workmen in the performance of the work. Defendants then advised they had contracted w/ the workmen two days before and forbade plaintiff’s workmen to start the job. R: § 50 Restatement Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise (1) Acceptance of an offer can be made in the manner described in the offer (2) Acceptance by performance can be full or partial 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.
The general rule of law is that an offer may be withdrawn before its acceptance and that no obligation is incurred thereby. This is, however, not without exceptions. For instance,
Restatement §41 Lapse of Time: (1) The power to accept an offer terminates at the time specified in the offer, or if no time specified, at the end of a reasonable time. (2) What is a reasonable time is a question of fact depending on the nature of the contract proposed, the usage of business and other circumstances of the case which the offeree at the time of his acceptance either knows or has reason to know. The plaintiff’s acted in a reasonable amount of time, and the defendants never did notify them they had contracted others to do the job. §62 Effect of Performance by Offeree Where Offer Invites Either Performance or Promise (1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance (2) Such an acceptance operates as a promise to render complete performance.
Class Notes You actually have to begin to perform. The roofers actually have to begin to reroof. How do you accept an offer when the manner of acceptance is not designated? You can communicate it to the offerer. Section 32 and section 53 A. No matter how you accept you are bound to complete. Certain offers expire at certain points for example face to face conversations, when the conversation is over the offer has expired. Periodicals, offers expire when the next publication comes out. Offer has expired within a reasonable time, or if offeror revokes before offeree accepts. If offer is for a unilateral contract and offeror dies after offeree has begun performance, the offeror must give offeree a reasonable amount of time to complete performance despite death. 10
Restatement §27-The written contract can be argued as the actual contract, (since I have not signed it, I have not accepted) or a memorialization of the agreement which as already accepted by both parties. Accepting Unilateral contracts- To have the power to accept, the offeree must have knowledge of the offer, so if someone returns a missing wallet, w/out knowledge of the reward, there was no contract, b/c no mutual assent. If partial performance is rendered and the offeree b/c knowledgeable of the offer, he may accept by completing performance. (§51) Restatement §77 Illusory and Alternative Promises
A promise or apparent promise is not consideration if by its terms the promisor reserves a choice of alternative promises unless (a) each of the alternative performances would have been consideration it if alone had been bargained for; or (b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would have not been consideration
Ex: I will sell you my car- If I need it, I will buy it. There is no mutuality, and lack of consideration, Not binding. (a) A promises to paint B’s car. B promises to walk A’s dog, mow A’s lawn or teach A to play the piano. If, B is A’s piano teacher, no consideration pre existing duty. (b) A promises to paint B’s car, B promises by tomorrow to cook for A, or mow the lawn. The grass takes two weeks to grow and the seeds were just planted.
International Telemeter Corp. V. Teleprompter Corp B: ITC sued a group of companies for patent infringement. After a series of negotiations they made final agreements and Teleprompter advised their local council to begin procedures to settle. New management at Teleprompter disaffirmed contract. R: The district court found that the parties had reached a final agreement as to the terms of the settlement and that both had manifested objective indications of their intent to be bound.
Class Notes Sometimes offer and acceptance are communicated through email, mail, etc. When the answer to an acceptance is effective upon receipt the offeree has a period of uncertainty. Upon dispatch, the offeror has a period of uncertainty. As a general rule, communications are effective upon receipt except: Mailbox Rule (§63a)- Acceptances are valid upon deposit when properly dispatched (correct address, postage etc §66.). Exception: Unless it is an option contract and then, it is only valid upon receipt. (§63b) An acceptance is effective upon deposit the party that will be uncertain is the offeror. The offeror can change the background rule by simply stipulating accepted upon receipt. Ex: 1st offer received on the 5th ; 7th rejection sent received on the 10th; changes his mind on the 9th and sends receives on the 12th. This is an acceptance but, if the offeree sues for breach of contract the offerer says equitable estoppel. One prevents someone else from using equitable estoppel.
Revocation of Offers
James Baird Co. v. Gimbel Bros. Inc B: Learned Hand- Offerer goes to a merchant that has the specifications and the employee mistakenly gave him an incorrect estimate for the amount of linoleum needed. The offeree accepts the offer and makes a bid and wins the bid. He knew however of the mistake before he formally accepted.
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R: Unless there are circumstances to take it out of the ordinary doctrine, since the offer was withdrawn before it was accepted, the acceptance was too late. Restatement of Contracts § 35. The court says, it seems entirely clear that the contractors did not suppose that they accepted the offer merely by putting in their bids. The plaintiff says that even though no contract was made they should win w/ promissory estoppel. An offer to exchange is not meant to become a promise until a consideration has been received either a counter promise or whatever else is stipulated.
Class Notes Baird Co. could have made a counteroffer saying I accept your prices conditional on if I get the contract. Promissory estoppel does not protect an offer or keep offers open.
U.C.C. §2-205 Firm Offers An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open it not revocable for lack of consideration during the time stated, or if no time is stated for a reasonable time, but may not exceed three months, and must be signed by the offeror if the form is supplied by the offeree. Drennan v. Star Paving Co. Justice Traynor R: The theory that a unilateral offer is not accepted until after the performance is complete is now obselete. Section 45 of the Restatement says if an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract, the duty of immediate performance of which is conditional on the full consideration being given or tendered within the time started in the offer or, if no time is stated therein, within a reasonable time. Main offer includes as a subsidiary promise, necessarily implied, that if part of the requested performance is given, the offeror will not revoke his offer, and that if tender is made it will be accepted. Part performance or tender may thus furnish consideration for the subsidiary promise. Moreover, merely acting in justifiable reliance on an offer may in some cases serve as sufficient reason for making a promise binding.
Class Notes There is a gratuitous promise I will keep the offer open. You could lose the ability to revoke by selling an option or promise to keep it open just as Star Paving Co. did. Option contract- formed where the offeror receives consideration in exchange for his promise not to revoke the offer for a specified period of time. If one makes an offer for a unilateral contract, once they have started, the offeror cannot revoke until they are given a reasonable chance to finish. Restatement calls unilateral contracts option contracts. An option contract is for example paying someone to keep their option open at a fixed price. An offer can be revoked by communication (§42), publication through comparable means (§46), and indirectly (§43 taking definite action inconsistent w/ an intention to enter into a proposed contract and the offeree acquires reliable information to that effect). Common Law- an offer can be revoked even if the offeror has promised not to revoke for a certain period unless the offeree has furnished consideration for the time extension (option contract) except in certain situations: detrimental reliance (subcontractor above).
Offer and Counter-offer
Roto-Lth, LTD. V. F.P. Bartlett & Co. (U.S. ct of appeals 1962) B: Defendant ordered a product and plaintiff sent an acknowledgement which had language rejecting any warranty other than refund. Goods were shipped and defendant used them but they were defective. R: UCC § 2-207 says: (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
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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 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. The court held the warranties did not become a part of the agreement b/c they materially altered the agreement. The court however, erred in saying the plaintiff expressed assent b/c they used the product.
Class Notes Road Map : If you are before the comma in 1 and you satisfy 2(a) then all the other terms get thrown out, and this is the first shot doctrine. If you are after the comma, and the conduct of the parties are such that they act as if they have a contract, then you go to 3 this is the symmetry rule. Buyer wants to be before the comma. This gets you in 2207 2. If you propose a new term that is materially adverse to the offeror, it should not be understood as an acceptance. Courts find almost everything before the comma by rejecting Roto Lth. The Roto Lth court forgot about part 3. 3 would have compared their order form contract to the acknowledgment contract and threw out everything that didn’t match. Then the UCC conditions would have been supplemented for all the conflicts. If you are a seller you want to be in 1 after the comma. That gets all the terms of your contract are accepted. Common Law Doctrine: Mirror Image Rule- as long as the terms between the parties are identical , a contract is formed. If there is any difference in terms, there is no contract. Last Shot Doctrine- Both parties agree to the last terms given. This has been replaced by UCC. Section 2-207 Part (1) eliminates the mirror image rule (deviant acceptance)…The change in terms are truly proposals but not part of the contract…Things people sue over are always material. Rejection terminates the power to accept an offer.
Restatement §39 Counter offers (1) A counter-offer is an offer made by an offeree to his oferor relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. (2) An offeree’s power of acceptance is terminated by his making a counter-offer, unless the offeror has manifested a contrary intention or unless the counter-offer manifests a contrary intention of the offeree.
Exceptions: Counter-offer w/ a manifestation that they would like to keep the offer on the table Counter-offer w/ an exploration of additional terms (§61). I accept but can I give you a money order even though you asked for a check.
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Indefinite Contractual Agreements
Essential Elements of a Contract (Common Law)- identity of offeree, subject matter, price to be paid, time of payment, delivery, or performance, quantity, and nature of work. Essential Elements of a Contract (U.C.C) – if parties are acting like they have a contract, the U.C.C has everything to fill in the blanks.
Walker v. Keith Common Law B: The appellant agreed to a one year lease at $100 a month w/ an extention clause for an option of 10yrs. Rent was to be determined later. R: The court says the rental provision expresses two ideas, the first is that the parties agree to agree. The second is that the future agreement will be based on a comparative adjustment in the light of business conditions. Rental price is material in a lease and in no way ancillary therefore, contract law requires substantial certainty as to the material terms upon which the minds of the parties have met. Because of lack of agreement, the lessee’s option right was illusory (§77). An agreement to enter into an agreement upon terms to be afterwards settled between the parties is a contradiction in terms and amounts to nothing- Coley v. Lang
Schmeider v. Standard Oil Col of Indiana
UCC- Sale of Goods B:Schmider worked for standard oil and after her employment was terminated they called her to exercise their option in a contract she had already signed. The option was to buy her equipment at a price they could agree on minus depreciation. They could not agree upon a price. R: U.C.C §2-305 Open Price Term (1) Parties have a contract if no price is set and price is a reasonable price at the time for delivery if: (a) they fail to agree on a price (above) or (b) price is agreed upon by a 3rd party or mechanism (c) price to be fixed by seller or buyer must be done in good faith (2) When agreement is conditional on price, there is no agreement and parties must give goods back or pay a reasonable price for goods if they cannot return them. They agreed to depreciation ―as may be mutually agreed upon by them.‖ Under the facts a 331/3 percent rate of depreciation was reasonable. Typical of how the UCC works, the parties had enough of a contract to fill in the blanks.
Class Notes Common Law- The standard is much higher all essential terms are needed. UCC- are the parties acting like we have a contract. If so, we have everything to fill in the blanks. If a contract completely leaves the price out, the UCC can just conclude a reasonable price. (remember opportunity to argue contract not definite) Mechanisms in the contract: did the parties agree to a mechanism to determine the unknown element. Ex: We will agree to Sneider’s appraisers determination of the price at the time of sale. Here: the mechanism is Sneider’s appraisal Note: if the parties say an appraiser, then the mechanism itself is not clear.
Requirement Contracts
Eastern Air Lines v. Gulf Oil Corp. (U.S. Dist Ct of S.D. of Fl 1975) B: Eastern and Gulf had a long lasting relationship and agreed to a contract which, Eastern could buy all the oil they required from Gulf, at a price determined by the mechanism of an average price posted in Platts Oilgram Service. Oil crisis hit, and Platts posted only the fixed prices and not the true higher prices of oil.
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R: Gulf asserted the requirements contract was not binding b/c it lacks mutality of obligation and
it is vague and indefinite. Common law found these contracts binding since the court could determine the volume of goods provided for under the contract by reference to objective evidence of the volume of good required to operate the specified business therefore, even prior to the UCC these contracts were held as binding. UCC § 2-306 Output, Requirements and Exclusive Dealings (1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded UCC provides for these contracts to be upheld and it is based on good faith. Gulf asserts that Eastern would buy more fuel from stations where the prices were cheaper and then ―lift‖ that fuel to the stations for use where Gulf’s prices were higher. The court says this was standard practice and Gulf was aware of this behavior. The parties themselves know best what they have meant by their words of agreement and their action under that agreement is the best indication of what that meaning was. Prior Dealings- The practical interpretation given to their contracts by the parties to them while they are engaged in their performance, and before any controversy has arisen concerning them, is one of the best indications of their true intent, and courts that adopt and enforce such a construction are not likely to commit serious error. Orange & Rockland Utilities, Inc. v. Amerada Hess Corp. B: An energy company had a requirement contract but started becoming an energy broker and not using the energy as intended b/c the price skyrocketed. R:The court stepped into the fixed price situation b/c did the parties think it would shoot through the roof and secondly, would one party exploit the other by using the price to their advantage.
Class Notes Contracts requires good faith and fair dealings. UCC §1-102 (3) and Restatement § 205 ―except that the obligations of good faith, diligence, and reasonableness and care prescribed in this Act may not be disclaimed by agreement” Requirements contracts- where the seller agrees to sell whatever the buyer needs. Output contracts- where the buyer agrees to buy whatever the seller has. Want of Mutuality- There is no obligation on one of the parties. Ex: You promise to sell me wigits at a 1.00 my promise to buy all I want. This is not a contract. In this case, they gave up the right to get oil any other place regardless, if they need or not. There is consideration, they restricted their legal rights to purchase from elsewhere. In a requirements contract if the buyer, buys from someone else: the court finds it hard to find evidence on how much the buyer would have bought b/c they will say they wouldn’t have bought as many b/c the price was higher. That is why the court found it hard to give remedies. Now if the seller didn’t agree to sell we know definitely how much they needed and the remedy is easier. This is why court’s had difficulty w/ these contracts. Courts now, assume a reasonable need in order to get rid of the problem w/enforcement.
Exclusive Dealings
Exclusive dealings contracts must stipulate their duration and a detailed description of best efforts but the courts will infer best efforts if needed.
Wood v. Lucy, Lady Duff-Gordon (ct of appeals N.Y. 1917)
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B: The defendant was a stylist w/ a name brand and entered into an exclusive contract w/ plaintiff. Plaintiff yelled breach when defendant sold her own name w/out giving him half the profits and revenue stipulated in their contract. R: A promise may be lacking and yet the whole writing may be ―instinct w/ an obligation,” imperfectly expressed. The implication of a promise here finds support in many circumstances. The defendant gave an exclusive privilege. She was to have no right for at least a year to place her own endorsements or market her own designs except through the agency of the plaintiff. His promise to pay the defendant one half of the profits and revenues resulting from the exclusive agency and to render accounts monthly, was a promise to use reasonable efforts to bring profits and revenues into existence. U.C.C. §2-306 Output, Requirements and Exclusive Dealings (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.
Class Notes This is an example of lack of mutuality, she stated he didn’t promise anything. Sometimes a party doesn’t write out everything, the court says it is clear and implicit. When someone agrees to use their efforts to market something, the other party is at their mercy. It is implicit that the other party will use their ―best efforts‖. The court usually read into these contracts but it did help that she was the one who breached and he was the one that continued to carry out the promise.
Bloor v. Falstaff Brewing Corp (U.S. ct of appeals second circuit 1979) B:Bloor that brews Ballantine beer entered into a contract w/ Falstaff Brewing Corp. The contract stipulated:The buyer will use its best efforts to promote and maintain a high volume of sales under the proprietary rights and the buyer will pay royalties based on output. R:Falstaff reduced output which was breached their best efforts in the output contract.
Class Notes Good faith- you agree to not do anything that will cause the other party to loose the benefits they thought they were getting. Best effort- a certain level of activity. In this particular case, the company had to decrease volume to increase profit. It consists of due diligence- to perform at the level promised or inferred from the contract, and ordinary business prudence- prudent business conduct. Setting a mechanism is difficult; Fixed price-resource is seller’s prior behavior and they might cook the books. Tie to profit- advertising costs may be intermingled w/ their own product how to affix appropriate costs. There are problems w/ all approaches but in life, you can mix and match according to risk. Unless, the fundamental understanding has changed, even if the deal is a bad one, you signed a contract and it must be enforced. To the extent the breaching party, makes it harder to prove damage, courts will try to find a remedy.
Van Valekenbaurgh, Nooger and Neville Inc. v. Hayden Publishing Co. (NY ct of appls 72’) B: Plaintiff is copyright owner of a series of books on electronics. They entered into a contract w/ defendant to use its ―best efforts‖ and publish the books and pay 15% royalties. The books became best sellers and in re-negotiations the publisher wanted to reduce the amount of royalties. Plaintiff said no, and publisher stopped marketing books and funded replacement books to be authored. R: It is implicit in all contracts—for book publishing or house building an implied covenant of fair dealing and good faith…The court said, a ―best efforts‖ contract doesn’t close off the right to
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issue books on the same subject, to negotiate and pay other authors to write such books and to promote them. There is a line though between these actions, and violating the best efforts clause and the publisher did indeed cross that line. The court found that the publisher did narrowly violate the best efforts a clause and the plaintiff is awarded damages only on that point.
Class Notes One exception, if you form a partnership you are considered fiduciary relationship. Fiduciary relationships call for high amounts of trust and good faith for ex: Law partners cannot compete w/ their firm.
Covenants Not To Compete
Corenswet, Inc v. Amana Refrigerator (U.S. Ct of Appeals 1979 5th cir) B:The agreement between Corenswet and Amana had a termination clause ―with or without cause‖ at any time on ten days’ notice. Relations fell through between the companies after Amana asked Corenswet to jump through several hoops and ultimately Amana terminated the contract. R:Appellate court said the initial injunction was in error. Any reason means any reason and is not trumped by UCC;s good faith. Corenswet is only entitled to the failure of Amana to give proper notice b/c ten days is not reasonable notice.
Gagliardi Bros Inc. v. Caputo (U.S. distct ct. 1982) B: You further agree that in the event of termination of your employment with or w/out cause, you shall not, for a period of one year after termination, either directly or indirectly, enter into the portion controlled meat business, w/in one hundred miles of West Chester, PA. After being terminated he couldn’t find employment until finally he began working for Deault Packing Company who sells a competitive product w/ Gagliardi. Gagliardi sued wanting injunction of Caputo’s employment. R:In order for covenants to be enforced by the courts they (1) must relate to either a contract for sale of good, will, or other subject property or to a contract of employment (ancillary to an employment contract) (2) must be supported by adequate consideration (3) must be reasonably limited in time and geographic territory (4) must be necessary to protect the employer. On the surface the convenant seems ancillary to the employment contract, but there was no additional consideration exchanged for the convenant. He received no raise or job title for signing the contract. The one year or 100 mile radius doesn’t make sense b/c steak-umm marketing area is not even in the hundred mile radius and one year will not protect the employer since Caputo didn’t know important details of their business such as the technicalities of their new meat slicer.
Class Notes Non Compete Agreements-when the employers make the employee agree not to find subsequent employment that might compete with the employers market. Courts DO NOT like non-compete agreements because they conflict with the function and principles of contract law. Contract Law is to promote the trade of good and services. If the employees is skilled, they should NOT be barred from trading those skills freely.
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Modification of Existing Agreements
Alaska Packers’ Ass’n v. Domenico (U.S. Ct of appeals 9th cir 1902) B:The fishermen agreed to be paid x for every salmon caught. In the middle of this trip they all in unison refused to do the work unless they get paid more than x. The superintendant had no choice b/c they were in the middle of the expedition and although he had no power to agree to the new modification in the agreement, he acceded to their demands. R: No astute reasoning can change the plain fact that the party who refuses to perform, and thereby coerces a promise from the other party to the contract to pay him an increased compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party.
Class Notes The sailers had them over a barrel b/c they had few replacements, post contractual opportunistic behavior. Duress of goods is another term. There was no other alternative for the superintendent. Damages would have been speculative as to how many fish would have been caught. We will not honor section 74 when the party who was offered the settlement has no realistic chance of saying no. If they sued, they had no way of knowing what the damages were, and 2nd less good answer but the sailers had no money.
Ralston Purina Co. v. McNabb (U.S. District Ct. 1974) B:McNabb and Purina entered into a contract for delivery of soybeans at a fixed price an amount. McNabb only made on delivery to Purina prior to the Nov. 30th deadline. Purina then sent McNabb extension letters for the contracts in Dec, Jan, and Feb. McNabb made seven more deliveries and on Mar 17, after falling short of deliveries refused to pay damages to Purina hence the lawsuit. R:McNabb defended on two grounds: the severe weather made performance on the contract impossible and if the plaintiff is awarded damages it should be for market prices in Nov b/c that is when they breached. The court says that nothing in the contract referred to weather so that claim is dismissed. The court also said U.C.C. §2-209 “any course of performance accepted or acquiesced in without objection shall be relevant to determining the meaning of the agreement..” and “such course of performance shall be relevant to show a waiver or modification” needs no consideration to be binding. In this case the objective facts all point to valid extensions of the contracts. McNabb accepted payment according to the fixed price and delivered after Nov.
Class Notes To avoid the pre-existing duty rule- the promisee must do something in addition to the existing obligation or rescind the first contract and enter into a second, revised contract. Factual inquiry: Was there an existing contract? Was it fully or at least partially executed? Was there modification in that contract? Was it supported by independent consideration? If McNabb would have designated the field his performance may have been excused for impossibility. Pre existing duty ruleEx: the contractor says I don’t want to do the floors in two days. Homeowner says I’m not letting you out of the contract. Contractor says I will do it for $400 more than we
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agreed. Homeowner is over a barrel and reluctantly says okay. Contractor will only get the original $1000.
Restatement § 89 Modification of Executory Contract A promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made or (b) to the extent provided by statute or (c) to the extent that justice requires enforcement in view of the material change in position in reliance on the promise
(a) If the electrician you deal w/ many times and they ask you to pay more after looking at the job, and you agree to pay, you will be bound if their request is fair and equitable.
The Statute of Frauds
A statute that says certain contracts are not enforceable if they are not written and signed by the parties sought to be bound.
McIntosh v. Murphy B:This contract falls w/in the statute of fraud b/c he agreed on April 25, 1964 to take the job and he was to begin on April 27,1964. One year and one day is the length of the contract. The appellate court disagreed w/ the trial court but the defendant won on partial performance and promissory estoppel.
Class Notes Significant part performance that demonstrates the detrimental reliance; payment in whole or in party, possession, or valuable improvements. Ex: if you buy real estate and start paying the taxes on it, or start building on the land; checks do not usually satisfy on partial performance b/c someone can always pay for something w/out it really being there’s and may hope to win in court. Broad Promissory estoppel is used overcomes the statute of frauds, when d falsely and intentionally tells p that a contract is not w/in the S.O.F., or that a writing will subsequently be executed, or when his conduct foreseeably induces p to change his position in reliance on an oral agreement. The reason is big deals should be put in writing, so we don’t ask juries to decide what the facts are.
Mercer v. C.A. Roberts Co. B:Oral contract was covered w/in the statute of frauds. The court says he can sue off the contract in quantum merit, or restitution. Not for the value of what the person promised you but b/c a benefit was bestowed you should be compensated. Schwedes v. Romin The buyer cannot sue on the contract b/c contract to sell real estate must be in writing and the seller did not put the agreement in writing.
Class Notes Contracts that fall within the statute of frauds are 2. contracts for sale of land. 3. contracts that cannot be performed in one year. (starts from the date of the agreement) 4. surety contracts-one person agrees to pay the debts of another. (§131) If they fall within then, they must be written, w/ essential terms in order to be valid.
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Equal dignities rule- someone (principal) may authorize their agent to act on their behalf, if the contract the agent will offer or accept, is covered by the statute of frauds so is the agency contract (agency relationship) Ex: I hire someone to sell a car then I do not need to have a written contract w/ the agent so to…I hire someone to sell real estate, then I do have to have a written contract. A contract b/c of its substance falls in the statute of frauds. Ex: I agree to work for two years. It falls w/in the statute of fraud. I agree to work for the rest of my life. Does not fall w/in the statute. ( I could die within the year) I promise to work for you starting in 9 months, for a length of 6 months it falls w/in the statute of fraud. It does fall b/c it is outside the term of one year from the making of the promise. If you have a writing signed by one party, it can be enforced in one direction only based on statute of fraud. Seller writes a memoranda w/ essential terms of the agreement and sends the letter to the buyer. The buyer can use the letter if seller tries to breach and sue. The court will enforce the letter but the buyer will have to pay for the land. There can be a lack of mutuality. If a contract falls w/in the scope: Must have a written memoranda w/ the essential terms of the agreement w/ a signature of both parties. Courts could uphold insignia of company or initials as a signature.
Infancy
Kiefer v. Fred (Wisconsin Sup Ct 1968) B:Married and emancipated minor tried to buy a car and then disaffirm the contract. R:Kiefer bought a car from Fred Howe Motors and wanted to disaffirm the contract. The trial court found the minor did not orally misrepresent his age. Disaffirmance Any act which clearly shows an intent to disaffirm a contract or sale is sufficient for the purpose. A notice by the infant of his purpose to disaffirm, a tender, or even an offer to return the consideration or its proceeds to the vendor, is sufficient. Steven Keifer’s letter from his attorney did effectively dissafirm. Misrepresentation If a minor fraudulently misrepresents his age; he may be estopped from denying his alleged majority, or he may be allowed to disaffirm the contract but be liable in tort for damages. In Wisconsin it is the latter. The minor in this case however did not orally misrepresent his age. False representation must consist 1. of a statement of fact which is untrue; 2. that it was made with intent to defraud and for the purpose of inducing the other party to act upon it 3. that he did in fact rely on it and was induced thereby to act, to his injury or damage. The minor did sign a contract that read he was over the age of 21. however, it was not made w/ the intent to defraud. Thus, this is not a tort. The court acknowledges the appellant never took any steps to ck the minor’s id, or driver’s license.
Class Notes Most states the age of majority is 18. The minor can choose to affirm and disaffirm but the adult is bound; these contracts lack mutuality. Policy Effect: People will be less eager to contract w/ minors. Minors can buy life insurance, student loans must be repaid, and necessities (food and shelter). Some people think the minor should return the value they used, but the court thinks minors have bad judgment. There was no proof of deceit b/c they couldn’t show
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an intent to deceive. A palpable mistake- the plaintiff looked young so the dealership didn’t reasonably rely. If a minor sells a car and the buyer resells the car. Common Law used to uphold that the third party return the car, buy UCC expressly rejects that notion. Shield- Minor does not pay for good-The courts are more comfortable when it is used as a shield. Every jurisdiction lets a minor dissafirm a executory promise. Sword- Minor pays and wants money back. Not every jurisdiction lets them dissafirm the (affirmative action) executed contract to get their money back.
Halbman v. Lemke B: Halbman, a minor worked w/ Lemke and bought a car and the car broke down. No-one paid for the repairs and the car was eventually stripped and worthless. R: As a general rule, a minor who disaffirms a contract is entitled to recover all consideration he has conferred incident to the transaction. In return the minor is expected to restore as much of the consideration as, at the time of disaffirmance, remains in the minor’s possession. The minor’s right is not conditional upon the return of the property however, disaffirmance is permitted even when such return cannot be made. When the contract is disaffirmed, title to that part of the purchased property which is retained by the minor revests in the vendor; it no longer belongs to the minor. The minor will not be required to give up what he does not have. We hold that, absent misrepresentation or tortuous damage to the property, a minor who disaffirms a contract for the purchase of an item which is not a necessity may recover his purchase price w/out liability for use, depreciation, damage, or other dimunitive in value.
Class Notes If the subject of a contract is found to be a necessity, the minor’s right to disaffirm the contract no longer exists, and the minor is considered an adult for the purposes of contract liability. A minor may disaffirm a contract: 1. at any time while still a minor and 2. within a reasonable time after reaching majority. A minor may also affirm upon majority either expressly or by conduct (failing to disaffirm). Cannot disaffirm part of a contract either all or none. Reasonable time- the more the contract looks fair, the shorter the time, the more the contract looks like overreaching, the longer the time.
Faber v. Sweet Style Manufacturing Corp B: Manic-depressive entered into a reasonable business deal during his manic stage. R: Incompetence to contract also exists when a contract is entered into under the compulsion of a mental disease or disorder but for which the contract would not have been made. Whether a maniac would be held compentent depends upon: 1. the testimony of the claimed incompentent 2. the testimony of phychiatrists 3. the behavior of the claimed incompetent as detailed in the testimony of others including whether by usual business standards the transaction is normal and fair. Rule The contract of mental incompetent is voidable at the election of the incompetent and if the other party can be restored to status quo, rescission will be decreed upon a showing of incompetence without more. But, If the status quo cannot be restored and the other party to the contract was ignorant of the incompetence and the transaction was fair and reasonable, rescission will, however be denied notwithstanding incompetence.
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Burden of Proof The burden of proof is on the party alleging incompetence but if they prove incompetence the burden of proof is on the party asking for the transaction to be enforced to show lack of knowledge and fairness.
Class Notes Where a person has been adjudicated incompetent, all contracts are void. This contract was voidable, and lacked mutuality. Where one party is bound and the other is not bound. Usually the family brings the suit b/c the person is blowing their inheritance.
Restatement § 15 Mental Illness or Defect (1) A mentally ill person can void a contract if (a) He is unable to understand in a reasonable manner the nature or consequences of the transaction, or (b) He is unable to act in a reasonable manner in relation to the treansaction and the other person has reason to know of his condition (2) Where the contract is made on fair terms, and the party is w/out knowledge of the mental illness, if avoidance creates injustice, power of avoidance is terminated. Williamson v. Matthews Williamson was an alcoholic and sold her house for 1,700 when it was worth 17,000. She was in default and drank before meetings w/ the lawyer.
Class Notes
Restatement §16 Intoxicated PersonsA person can avoid a contract when intoxicated if the other person has reason to know that the party’s state (a) makes him unable to understand in a reasonable manner the nature or consequences of his transaction, or (b) he is unable to act in a reasonable manner in relation to the transaction.
If the court finds some significant proof of overreaching, then the plaintiff may be able to get out. If the terms seem unfair and plausible evidence of the defense. 1. objective evidence- the price she sold her house for was extremely less than its actual value 2. subjective evidence- her testimony of drinking, doctors testified of mental health was deteriorated The court is much more willing to hear the subjective if there is evidence of the objective.
Uribe v. Olsen B- Elderly woman and her daughter sold her farm then tried to get out of contract.
Class Notes She acted in a way that was reasonable such as bargaining. This case, defendant’s primary concern was w/ the price obtained and not the fact the property was sold. Looking for a change in motivation not this is something that could be done better. Restatement 16
Illegality and Immorality
Watts v. Malatesta In peri delecto potior est conditio defendentis-They’re both at fault, possession has the stronger claim. A party may successfully seek relief if he was not as culpable as the other. The New York statute provides if you make an illegal wager, you can get it back. This law changes the common law , which does not enforce contracts inconsistent w/ law and public policy. Ex: restraint in trade, gambling, relating to torts or crime. Equitable Principles- to get an equitable remedy you have to come to court w/ clean hands. New York Football Giants v. Los Angeles Chargers Football Club
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He might have had a binding oral agreement w/ the chargers then that would have been a violation also. The team requested a negative injunction (equitable remedy): The other team cannot treat him as they’re player, not to let them in their training camp. ―he who comes into equity must come with clean hands‖ is the doctrine the court invokes. To get equity you must do equity. They can’t sue legal remedy b/c damages are speculative. There is no way to know how much money they would have made if he played. Hewett v. Hewett Illinois doesn’t recognize common law marriages. That is why they did not uphold the relationship. Illegal contracts are not enforced. She argued express contract. He promised her his life if she gave him her services. Courts don’t recognize money for sex but do agree to enforce if there is other consideration. The court was scared of the slippery slope where couples that cohabitate will ask for implied contract. They felt the cohabitation was not good, and reprehensible but today courts do not feel that way. They don’t think it is good, but they don’t condemn it.
Limiting Negligence
Ex: Mother tells father he has no financial duty to the child if she gets pregnant, and if she carries the child to term. Not enforceable- third party effect, against public policy. If she has enough money and he is forced to pay she agrees to reimburse him, indemnification. Bargaining power- this is not a sound argument because the market fixes these problems if the product isn’t available, customers do not want it.
Mutual Marine Office Inc. V Atwell Vogel and Sterling (NY dist ct) B: Insurance company insured a business that defendant had inspected for $17.50 and plaintiff is now suing for $100,000. There was an exculpatory clause in defendant’s contract limiting liability. R: Disclaimers are enforced if the meaning is clear, unequivocal, and 1. The parties were on notice of the disclaimer prior to entering the transaction. 2. The disclaimer was not forced on one party to the bargain by the other. 3. The disclaimer was common in the type of transaction and was ordinary custom. The disclaimer did not specify if it barred negligence, willful or gross negligence. The court did concede if gross negligence or willful conduct would have been specified, they would not have upheld the disclaimer. Disclaimers absent language to the contrary bar negligence. Though the word negligence is preferred if the parties understood the meaning it is acceptable.
Class Notes The damages were widely disproportionate for the fee. Price of contract should reflect the risk. Courts are hostile to exculpatory clauses. It is much more common in business to business clauses that they are enforced than in business to person. Doctor says I will remove that gall bladder and I will do a good job, if I am negligent I don’t pay. Usually courts won’t uphold. However, what if the doctor gives two prices. 2,500 w/out liability. 12,500 w/liability. Not sure if court would uphold.
Ciofalo v. Vic Tanney Gyms (NY ct of Appeals 1961) B: Plaintiff and his wife sued for injury and medical damages b/c plaintiff slipped near the pool in the gym. The claim was for defendants negligence in lack of competent personnel and excessive slipperiness. Defendant did have an exculpatory clause (limits liability resulting from a negligent or wrongful act)
R:Court heavily scrutinize exculpatory clause and hold them invalid if 1. They are not properly expressed.
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2. The legal interest between the contracting parties and the interest of the public therein is so clear that it cannot be upheld. (An example is a telephone company or an employer as condition of employment) They can be held valid if, 1. The language was clear. 2. A reduced fare was charged. 3. A public interest was not directly involved. In this case, no public interest was involved, it was a private club and the plaintiff did not have to join. The language was clear according to the court. Class Notes If the exculpatory clause goes to the heart of the matter, it will not be upheld. Types of Property Realty-Ucc doesn’t apply, dirt and anything affixed to it. Personlty-property you can touch that is not realty UCC doesn’t apply. Intangible-UCC doesn’t apply, patents and copyrights. Court may not enforce b/c there is no determinate damages.
Duress
Ex: Buyer and seller agree to delivery for $100 they agree on May 1 for delivery on June 1. On, May 15, the seller says, I am not going to perform but if you agree to double the price I will perform. Buyer accepts the price. Pre-existing duty rule protects the buyer, no additional consideration. If seller says, I will deliver two weeks early. New terms, pre-existing duty doesn’t apply. Wrongful threat- is saying you will not perform what you said you will. Usually when someone threatens to breach, you have both market and judicial remedy so you don’t have duress in this case. The workers on the Alaska pipeline have worked, their payday is on Friday, the boss says I will pay on Thur 80% of your pay or no pay at all. Duress will lie b/c No Practical remedy and they have induced you in this situation. The original contract made them go to Alaska in the first place.
Wolf v. Marlton Corp (New Jersey App 1959) B:Buyer wanted to rescind on buying house but wanted deposit back. Threatened to buy home then sell to unwanted residents which would ruin plaintiffs business. R: When one party to a contract, prevents the other party to carry out the terms thereof, the second party may regard the contract as breached and recover damages there under from the first party. If the performance is prevented by physical threats, the threatened party may desist from performing, treat the contract as breached and recover damages. The party does not have to seek police protection to shield him in the performance of his contract. - Duress is tested not by the nature of the threats buy rather by the state of mind induced thereby in the victim, therefore doesn’t have to be physical threats the threat to ruin the seller’s business can also be duress. For duress 1. the acts or threats must be wrongful 2. even if the act or threat is lawful, it may still be wrongful 3. the second party has to believe they will be carried out In this case, the sale of a development home to an ―undesirable purchaser‖ is legal but it could be wrongful if the threat was made for purely malicious motives of injuring the builder’s business. If so, he was just in severing the contract.
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If the threats were made, if the defendant thought they would be carried out, then he was justified in treating the contract as breached and entitled to recover damages.
Class Notes 2 part Abram’s test. (wrongful act + inducement) The wrongful threat is they were going to maliciously sell the house to an undesirable person. They were threatening to perform and maliciously sell. That is the wrongful act. It was not illegal b/c they could buy and sell a house to anyone they want. There was no viable legal remedy b/c if they sell to the buyer and ignore the threat then their business will be ruined. The inducement is in this case the threat.
Austin Instrument Inc. v. Loral Corp (Ct of Appeals NY 1971) B: Subcontractor threatened to rescind on performance if contractor did not give them the second contract and increase the price they received for the first contract. R: A contract is voidable on the ground of duress when 1. the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his free will. Economic duress constitutes 1. one party threatened to breach the agreement by withholding goods unless the other party agrees to some further demand 2. the threatened party could not obtain the goods from another source of supply and 3. ordinary remedy of an action for breach of contract would not be adequate In this case, b/c of the staggered deliveries Loral had to make, they could consider themselves a victim of economic duress. Austin did indeed threaten them to stop delivery unless they were paid more. Loral proved they could not obtain goods from another source w/out being late for at least 2 delivery dates. They could not sue at that time b/c they still would have had to get someone else to do the contract and they still would have been late.
Class Notes Pre–existing duty rule doesn’t apply there, b/c Austin made another contract w/ them to perform the first contract and the second contract at a higher price. This new contract is what defeats the pre-existing duty rule. The wrongful threat is they said they would not perform, when they knew the contractor had a contract for deadlines. Inducement- the threat
Post v. Jones (U.S. Supreme Ct 1856) B: The ship, Richmond was shipwrecked and other whaling ships came upon the crew and captain and saved them. They made an agreement to salvage the whale oil which was on board and the captain took the price 1.00 per barrel and .75 per barrel from the two other ships. R: The captain was hopeless, helpless and passive and under the circumstances glad to be alive. There was no market, no competition and he was in the position to take what he was offered or get nothing. This agreement cannot be deemed valid. Outstanding circumstances. The court used the classical salvage percentage to determine the amount both parties would get.
Notes
Restatement § 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 victim. (2) If a party’s manifestation’s of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other
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party to the transaction in good faith and w/out reason to know of the duress either gives value or relies materially on the transaction. ?
Class Notes Bi-lateral monopoly (one seller one buyer) if the crew’s lives were not in jeopardy, and the oil was going down on the ship soon. The buyer wants to pay 1.00 the seller says NO!, the buyer may raise the price to 2.00. They can keep going until they’re satisfied. This case doesn’t have the inducement element b/c they didn’t sink them.
Misrepresentation
Speiss v. Brandt (Minn 1950) B: Defendants operating a resort sold it to plaintiff and told him they were making good money. R: The court said, the defendants did misrepresent past income and profits b/c when Lowell Speiss asked how long it would take to pay back $100,000 the defendant said five operating seasons. They also said the plaintiffs thought they were friends and that induced them to trust the defendant.
Class Notes
Restatement §164When 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 recipient is justified in relying, the contract is voidable. (2) If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in relying, the contract is voidable unless the other party to the transaction in good faith and w/out reason to know of the misrepresentation either gives value or relies materially on the transaction
Broken down(1) if a party’s agreement is induced by a material misrepresentation and he is justified in relying on the misrepresentation, the contract is voidable. (2) if a third party induces agreement by making a material misreprentation that the party is justified in relying on, the contract is voidable unless the other party in good faith relies materially on the transaction. Court looks at what buyer thought (subjective) reliance, only if there is a reasonable subjective reliance.
§162 When Misrepresentation is Fraudulent or Material (1) Misrepresentation is found if it is intended to induce a party to manifest assent and the maker (a) knows the statement it made is false; or does not have the confidence he states or implies or (b) knows he does not have the basis he states or implies he does (c) the other party not making the statement reasonably and justifiably relies on the misrepresentation, and acts on their reliance,
(2) that person suffers PECUNIARY damages. The misrepresentation is the one and only reason for your suffering. Must show pecuniary damages: - what you got isn’t what was promised or - what you got isn’t worth what you paid and that difference is based upon the misrepresentation alone.
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When there is objective measure to determine whether representation is false or not, then not following that objective matter shows that you can’t assert misrepresentation.
Restatement §169. When Reliance on An Assertion of an Opinion is not Justified. To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless the recipient (a) stands in such a relation of trust and confidence to the person whose opinion is asserted that the recipient is reasonable in relying on it, or (b) reasonably believes that, as compared w/ himself, the person whose opinion is asserted has special skill, judgment or objectivity with respect to the subject matter, or (c) is for some other special reason particularly susceptible to a misrepresentation of the type involved. Classic Bowl Inc, .v AMF Pinspotters Inc B: Plaintiff owned 38 bowling lanes and 18-20 yrs experience as an attorney. They rented 38 automatic pinspotters from AMF March 14, 1958 through Sept 20, 1962 when they accepted an offer from AMF to buy the automatic pinspotters for $8,450 each less 10% depreciation per year. Plaintiff claims that after the new model automatic pinspotters came on the market, the pinspotters they purchased was worth no more than $2,000 each. They also claimed they specifically asked if there were any other newer models being tested and they were told no. R: The regional vice president and the special equipments salesmen were talking to plaintiff’s president when he asked why defendant was selling their automatic pinspotters and whether AMF was coming out w/ a new machine. The AMF representatives denied they knew of any testing or plans. The evidence did show that Mueller did know of the testing.
Pg 453(top) if you know whether it is true or false. Class Notes NO RELIANCE. Classic knew about the clause in its K with AMF that said that AMF would continue to research and create better pinspotter machines. Classic could have called AMF and talked with higher level officials to protect its interests. Classic could have inserted a clause in its purchase agreement with AMF protecting himself from this very action. Also, beyond fraud issue, court finds no damages here b/c merely speculative. No hard evidence that plaintiff actually suffered any loss any revenue…the old pinspotters are probably just as good as the new ones. Abram’s Mind: Note that the remedy Classic is seeking is a legal remedy not equitable remedy. Basically, they want $$$. AMF had offered to allow them to break the leasing K and return Classic to its prior position. Ct. says it can’t determine damages so they really don’t decide misrepresentation issue b/c damages weren’t proven. Damages not proven b/c of lack of materiality, importance and significance of the retail value not clear if they were using the pinspotters not reselling them.
Duty to Read
Merit Music Service v. Sonneborn (Ct of Appeals MD 1967) B: Appellant leased a coin vending machine to plaintiffs, a clause was added to a form contract which gave appellant all proceeds to the machine, and the only enterpriser in their business. Appellees signed the contract stating they did not read it. R: There is no claim here of fraud or duress or mutual mistake, and it is well established that in absence of these features one having the capacity to understand a written document who reads it,
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or without reading it or having it read to him, signs it, is bound by his signature. A qualification of the rule is that an apparent manifestation of assent will not operate to make a contract if the other party knows, or as a reasonable person should know, that the apparent acceptor does not intend what his words or other acts ostensibly indicate.
Class Notes Exceptions to Duty to Read: - No reason to believe their entering a legal relationship (e.g. ask pop star for signature but your paper is a contract saying they’re giving you their house.) - Other party induced me not to read. - Contracts with multiple dealings (defendant and plaintiff have to maintain relationship for sake of business) - Contract is ambiguous or so written that it is hard to understand if read. (i.e. written in latin) In some instances, the party should know they are entering a legal agreement/relationship. Ex: Homeowner signing a moving receipt for shipping and delivery would not be able to sue if she didn’t read the contract. She had reason to know she was entering a legal relationship…she has reason to know that the contract is binding. The duty to read rule is valuable b/c not having this rule would allow people to enter into contracts haphazardly. If you do know or should have known there’s a contract, you’re bound. §153(unilateral mistake) – Applies if other party misrepresents document and I rely on it, other party will have the problem not me (I can say contract is not valid) b/c court will say they induced me not to read. §154(b) – Applies if she didn’t read and no representations made. When she doesn’t read, out of convenience for the other party, she’s still bound b/c her motivation is not based on their inducement. Even if you sign and give up rights to sue, etc, the court will still have to look at the terms of the contract to make sure the suit falls within its original interpretation.
Birmingham Television Corp. V. Water Works (Suprm Ct of Alabama 1974) B: Plaintiff left equipment w/ bailor and the wharehouse flooded. Plaintiff sued and warehouse stated there was an exculpatory clause on the receipt limiting liability for injury to equipment. R: In accordance w/ the foregoing principle, the general rule supported by modern authorities appears to be that the bailor, unless his attention is called to the fact that such conditions are intended as a part of the contract, is not charged w/ notice, where he has no actual knowledge, of provisions limiting liability which appear upon something not apparently related to the contract itself, or given to the bailor ostensibly for some other purpose. The bailor should add these inclusions in an unmistakeable manner.
Class Notes This case deals with bailments (giving someone your goods for storage) which is a little different b/c there’s a natural assumption of reasonable care. You put your goods in their care so they can look after them.
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Duty to Disclose
Obde v. Schlemeyer (Suprm Ct Washington 1960) B: Plaintiffs brought suit against defendant for failing to disclose the latent termite problem the house had. Defendants discovered they had bought a termite infested home and hired a specialist in pest control and he treated the house. He advised them the job was not complete and there was additional work that needed to be done. R: Where there are concealed defects in demised premises, dangerous to the property, health or life of the tenant, which defects are known to the landlord when the lease is made, but unknown to the tenant, and which a careful examination on his part would not disclose, it is the landlord’s duty to disclose them to the tenant before leasing, and his failure to do so amounts to a fraud.
Class Notes The fact that the sellers did not tell them of the problem coupled with them trying to hide it makes this case easy for fraud. They had a duty to disclose their casually acquired information.
L&N Grove v. Chapman (District Ct of Appeal of Florida, 1974) B:Curtis bought 10 acres of land from Chapman and implied he would use it for groving. The property’s value was raised extremely due to Disney using the land as an entrance from the highway to the park. Chambers stated Curtis had a duty to disclose this information on the land before it was sold. R: In order to prove the existence of a constructive trust, there needs to be clear and convincing evidence.
Class Notes Buyers do not have to disclose the reasons for their purchases. A rule that protects buyers from deliberate misrepresentations and casual lies encourages expenditure of money and energy to get information. This benefits society. Sellers are not protected from their own ignorance. Property rights must be protected, in order to encourage people to work for ownership. Fiduciary Relationships are different b/c they can’t misrepresent if they have asked for your trust. Policy reason for not having insider trading b/c people would lose confidence in the stock market. 3rd party affects.
Unconcionability
Williams v. Walker-Thomas Furniture Co. I B: Appellant bought furniture on an installment contract which gave the furniture store owner the right to reposses everything they ever sold to her b/c when she purchased another item, the balance became attached to all the merchandise. She never paid anything off until she paid her entire balance.
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R: The first claim fails b/c courts do not void a contract b/c one party that signed did not read the contract or understand. Her second claim is the contract is against public policy b/c the terms are unconscionable. The court says, there is no ground to void the contract b/c there is no legislation in D.C permitting it. Williams v. Walker-Thomas Furniture II R: If a contract be unreasonable and unconscionable, but not void for fraud, a court of law will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to. This court says even though the UCC was passed subsequently to the case, they can treat the code as persuasive law and they have grounds in common law to void the contract as unconscionable. The absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Inequality of bargaining power. Were the important terms hidden in a maze of fine print and minimized by deceptive sales practices.
Class Notes This is a case of substantive unconscionability. Substantive Unconscionability- Parties are aware of the terms but the contract is stuck down because of the term itself. Exploitive terms ex: severe price discrepancies, nonenglish speaking parties are some examples of situations. Procedural Unconscionability- Terms are difficult to comprehend, small print, legalize which results in a defect in the bargaining process. And the terms once deciphered are burdensome or surprising. In this case, there is no true substantive assent. This is much easier to prove. For example, in Hensington, the limitation of the warranty was surprising and burdensome.
Seabrook v. Commuter Housing Co. B:Plaintiff signed a lease w/ a clause stating if the construction wasn’t finished on the apt.’s when the lease was set to start the lease would begin when construction ended and the lease was not void if construction wasn’t finished when the lease was set to begin. Plaintiff had to move out of her old resident and find a new residence during the time the lease was to begin, and wanted her security deposit back. Defendant refused. R: If one is a merchant, he has a special skill or a particular knowledge, and for this reason he is held by the court to a completely different set of rules which are generally more strict than the rules that apply to nonmerchants. The UCC has a statute of unconscionability but, it doesn’t apply to leases hence the court said a statute can be extended beyond its boundaries by the court if the legislature intent would have done so. The court described the lease as a long document w/ difficult language that the plaintiff was excused from understanding.
Class Notes This is an example of procedural unconscionability. The lease was long, the words were small and the language used was difficult while the terms itself was surprising.
Parole Evidence Rule
Mitchill v. Lath B: Defendant contracted to sell their farm and wrote all the terms of the agreement down. There was also an oral agreement to remove the icehouse, which was consideration for the purchase of the farm. R ―Two entirely distinct contracts, each for separate consideration, may be made at the same time, and will be distinct legally. Where, however, one agreement is entered into wholly or partly in consideration of the simultaneous agreement to enter into another, the transactions are necessarily bound together…Then if one of the agreements is oral and the other in writing, the problem arises whether the bond is sufficiently close to prevent proof of the oral agreement. In
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this case, the majority said the removal of the icehouse was so closely related to the purchase, it should have been included into the written agreement.
Class Notes Promissory estoppel (reasonably relied on the removal of the icehouse, to buy the farm property) cannot be used in this case, because if she can bring in evidence to support the icehouse removal that would eradicate the Parole evidence rule. The term was so close to the scope of the contract, it naturally should have been within the contract. The Parole Evidence Rule only applies when there is a written instrument and other evidence extrinsic to the writing such as testimony, writing etc. It excludes some prior written, and oral and contemporaneous oral evidence within its scope. ―Four corners test‖ is applied to see if the document is fully, partially integrated. Fully integrated contracts- The entire contract; expresses all the agreements between the parties so, other prior written oral agreements are discharged. No additional terms will be accepted. Partially integrated contracts- Not the full embodiment of terms, doesn’t discharge prior agreements, but inconsistent terms are discharged and only additional terms are accepted. Inconsistent terms are also in this case, terms that are so close to the scope of the transaction it would naturally be included. Ex: The contract says the price for wheat is $10,000. Oral prior evidence: The buyer says the price for wheat is $10,000 but to be paid in 5 years. This term is so close to the scope of the price, it naturally should be in the contract therefore, it is inconsistent and will not be accepted as evidence. (§214) Evidence proving the writing is not the contract, the integrated agreement is partially or fully integrated, and the meaning are admissible. The more detailed a contract is the more the contract can be proved to be fully integrated. Also if the parties are strangers and professionals, the contract is more likely to be fully integrated. However, if the contract leaves out certain details such as the length of time of delivery or pertinent dates etc. it is more likely to be partially integrated and if it is between friends, or family members it can also be construed to be partially integrated. There are exceptions to the Parole Evidence Rule Fraud, duress, non-delivery, anything that proves ―whether you are bound at all for example consideration not tendered‖, mistake, etc. Non delivery is- the contract was signed by you and flew out the window. The other party finds it and tries to sue in court. You can prove non-delivery. ― I never gave it to you.‖ Ex: Five executives from all over the country form a partnership and contract w/ a bank to secure a loan. The term in the contract is the bank can go after one party if they default, and the parties can go after each other. That gives the burden of finding the parties to the parties and not to the bank, the bank only has to find one party. The executives are all over the country and the first one signs one week, the second in the next two weeks, the third finally signs and the fourth. The fifth executive never signs. They default and the bank sues. Can extrinsic evidence be used to invalidate the contract? Yes, because you can use extrinsic evidence to prove non-delivery. The contract wasn’t valid until all 5 sign.
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Masterson v. Sine B: Masterson, a bankrupt conveyed real estate to his sister. The bankrupt trustee brought a suit for declaratory relief to enforce the option. The parole evidence was not admitted by trial judge that Masterson did not want the property assigned b/c he wanted it to stay in the family. R: In this case, there is nothing in the record to indicate they meant the deed to be the exclusive agreement and this collateral agreement ―might naturally be made as a separate agreement‖.
Class Notes In this case, the bankrupt trustee wanted to use the option to buy back the ranch, and make a profit to be used to pay the debtors. The family refused to sell, because they had oral evidence of an agreement to keep the property in the family. The court allowed the additional evidence because they deemed the real estate agreement as partially integrated. It can be viewed as partially integrated b/c the agreement is between family members. The evidence can be argued as being both additional and inconsistent. For ex, I agree to sell back the property conditional upon it staying in the family. This is an additional term. I will not sell the property back. This is an inconsistent term. By the defendants refusing to sell the property back, this can be viewed as an inconsistent term. Background Rules In California, there are statutes that encompass all the sayings of contracts. For example, you must come w/ clean hands etc. There is also a statute that says every contract is assignable unless the contracting parties expressly write it. The dissent mentions this, but basically everyone ignores these types of statutes. This background rule, however if it wasn’t ignored could have ended the conflict by saying, the contracting parties did not expressly write the contract wasn’t assignable, therefore it is, and the bankrupt trustee can exercise the option and buy the property. Merger Clause
Connell v. Diamond T. Truck Co. B: Defendant bought a truck and stated plaintiff told him he could return it if not satisfied however, the contract had a merger clause ―There are no promises, verbal understandings, or agreements of any kind, pertaining to this contract other than specified herein.‖ R:The writing itself stipulates in specific terms that it embodies the complete agreement, therefore the plaintiff’s evidence is inadmissible
Class Notes Merger Clauses- the clauses make the contract fully integrated. If the warranty promise came after the contract, then parole evidence doesn’t apply. Parole evidence doesn’t apply to subsequent promises, oral or written. There would be a lack of consideration in this case, for the warranty. Survivor Clauses-if any term shall be struck the rest of the terms shall survive (overused in business)
Interpretation of Clauses
In re Soper’s Estate (Supreme Ct of Minn 1935) B: Man changed his identity and died leaving an insurance policy to his ―wife‖. Court decided if first or second was his meaning. R: The court says that although she is not the wife, she was the person intended to be the beneficiary under the escrow agreement. The court allowed parole evidence to be admitted to prove that wife #2, was the true wife and not #1. Plaintiffs claim the instrument is free from ambiguity therefore parole evidence should not be admitted. The court disagreed. The court
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held, words are to be construed by the intent of the writer and in this case, he meant for the woman he had been living w/ to be the benefactor and not his true legal wife.
Class Notes Generally contracts are construed w/ the ordinary meaning of words. Ambiguous Terms The object of contracts is to determine what the contracting parties meant. Legally, the court concedes #1 was his wife. But legally, he is not barred from giving his property to whomever he wants when he dies bigamist or not. One party documents- A will (insurance policy’s are essentially wills b/c the insurance company doesn’t care who they pay) is a one party document so in order to find the meaning of the word ―wife‖ we must look to the intent of the testator hence, ambiguous terms can be clarified w/ the use of extrinsic evidence. Two-party documents- contracts. There must also be extrinsic evidence used if the meaning of the contracting parties are different. Statutes- multi-party documents. The more parties involved the more you must look to an objective source b/c there can be several subjective meanings involved. Some contracting parties are in a better position to clarify the ambiguities before they contract. If a specialized worker is dealing with a novice, the burden is on the specialized to inform the novice that there are dual meaning for some terms for example, ton. Could be a long ton or a short ton. If the novice makes himself to be knowledgeable on the industry then, equitable estoppel can apply. You told me you were knowledgeable, and I relied on this, therefore you cannot testify that you are not a professional. The parties should both be held to this standard: Given what I know about you, what do I reasonably think you think the word means.
Pacific Gas and Electric Co. v. G.W. Thomas Drayage and Rigging Co. (Suprm. Ct Cal 1968) B: D entered into a contract w/ plaintiff to do labor and furnish equipment to remove and replace the upper metal cover of plaintiff’s steam turbine. Defendant agreed in a contract to indemnify plaintiff. Defendant also agreed procure $50,000 in insurance to cover liability for injury to property. During the work the coverage lapsed and the cover was injured. R: The court held the test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.
Class Notes Peerless- if both parties are unaware of the ambiguous language, then there is no contract, no objective meeting of the minds. Some forms of evidence that can be allowed is prior dealings, or trade practices. This allows a party to bring in evidence of the way the two parties have always dealt for example, I have always delivered the bricks w/in 5%. The other party suing is hurt if they allowed that behavior w/out checking it. A note saying: I see you only delivered 19,500 when you should have delivered 20,000, it is fine this time but just know, you are expected to deliver 20,000 bricks. The point in the last case is you can clarify ambiguous terms with extrinsic evidence, in this case the point is can you prove a term is ambiguous with extrinsic evidence. Judge Traynor says yes.
Trident Center v. Conn General Life Insurance Co. (U.S. Ct of Appeals 1988)
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B: A group of lawyers formed a limited partnership for the purpose of securing a loan in the from Conn General Life Insurance Co. for an office building. The terms agreed to no prepayment of the loan. Everything was fine until the interest rates started to decline and Trident wanted to refinance for a lower rate. Connecticut General refused to allow prepayment. R: The language is clear in the contract, and the fact that the contractors were highly educated business people, their intent is probably clear. However, according to the law in California, extrinsic evidence is admitted to prove a term in the contract is ambiguous
Class Notes The lawyers in this case were trying to get extrinsic evidence admitted to prove a term in the contract was ambiguous.
Ambiguity
Frigalment Importing Co. v. B.N.S. International Sales Corp. B: Plaintiff and defendant agreed for a shipment of 100,000 pounds of chicken. (The conflict came w/ the meaning of the word chicken. Buyer thought it included both stewing (old) chickens and roasting (young) chickens. Seller thought it only meant roasting (young) chickens. B: The burden of proof is on the plaintiff to prove the word ―chicken‖ meant only roasting chicken and they did not meet that burden of proof.
Class Notes free alongside ship- indicates the seller will assume expense and risk to the buyer at the buyer’s mode of transportation, in this case it was a ship. FOB-free on board, a seller will agree to assume the risk at a certain location. FOB my location. 1. the courts will look at course of dealings to see what the parties meant and this will always be conclusive 2. Trade usage is then used to try to determine what the parties meant. What would you have thought the other party meant given what you know about the other person. Amateurs are not held to the same standard that trade users are unless they lie and say they are experts then equitable estoppel applies. Also, if the lack of expertise is made known, or the assumption of their expertise is one that is not reasonably founded, they may also be treated to a lower standard than experts. Some extrinsic evidence that may prove they are experts are the amount of the shipment- In this case, they were exporting 100,000 lbs of chicken and the sellers had reason to believe they were experts in the field and new the trade usage for chicken meant all chickens. If plaintiff’s sue, the burden of proof is on them. If there is an ambiguity, the party in the best position to clarify the ambiguity is charged to do so. For example, if a bookstore sells to law students all the time, and you ask for a blue book, they are charged w/ clarifying the size b/c they should reasonably know that the law school only uses the big blue books. Quantity- if a seller, sells in bulk they are charged w/ the knowledge of knowing there is a difference. Abram’s Hypo: Tennis magazine, a magazine for novice tennis players has an ad for sneaker for $100 satisfaction guaranteed, no refund for shipping and handling. You buy and get the sneakers and are not satisfied, you find a paper in the shoe saying, shipping and handling not returned and 20% restocking fee charged w/ returns. You sue. Who wins?
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You do, b/c satisfaction guaranteed is commonly meant as the store will return all your money and they specifically addressed shipping and handling, they should have also stated, a restocking fee as well. Tennis magazine, a magazine for professionals, and everyone in the industry knows about the 20% restocking fee. Novice player buys the shoe, not satisfied. Who wins? Novice player still wins b/c it is foreseeable that all kinds of people will see the magazine.
Constructive Conditions of Exchange
A condition constructed by the courts to enforce justice which serves as a promise for one party and a condition for the other. Words of the agreement, prior practices, custom and trade are all ways the court can infer an implied condition.
Stees v. Leonard B: Defendants entered into a contract to construct a building on plaintiff’s land. The building fell twice during construction. It was found that the building was erected on quick sand. R: If a man bind himself, by a positive, express contract, to do an act in itself possible, he must perform his engagement, unless prevented by the act of God, the law, or the other party to a contract. No hardship, no unforeseen hindrance, no difficulty short of absolute impossibility, will excuse him from doing what he has expressly agreed to do. ―That where a party by his own contract creates a duty or charge upon himself he is bound to make it good if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract‖. If unexpected impediments lie in the way, and a loss ensue, it leaves the loss where the contract places it. If the parties have made no provision for dispensation, the rule of law gives none. It does not allow a contract fairly made to be annulled.
Class Notes Payment was conditional on a building being standing. They could have argued that the promise was to build according to plaintiff’s building plans, and they did perform. It is an implicit condition that all promises that a substantial performance must be rendered in return for the other party’s performance.
Restatement §224 Condition Defined A condition is an event, not certain to occur, which must occur, unless its nonoccurrence is excused, before performance under a contract becomes due.
Condition precedent- an act or event that must occur before the duty to perform a promise in the agreement arises Condition Subsequent- an act or event which discharges a duty of performance that has already arisen The old language is condition subsequent and precedent but courts now recognize that all conditions are precedent to what is conditional on them and they are all subsequent to the formation of the contract. Express Condition- it is expressly in the contract and has been agreed upon by the parties. Requires full performance. Implied Condition- it is implicit in the contract that the condition exists requires substantial performance. - Courts like convenants. They are enforceable where conditions if they are not met, are not. If it is not in a party’s control it is probably a condition. Constructive Conditions- those read into the contract by the court to uphold fairness and insure the parties get what they bargained for. Conditional Covenant- the party agrees to perform in the event of a condition. Unconditional covenant- the party agrees to perform whether or not the condition arises. 35
- Warranty is if the world doesn’t end up as I think it will, I will be held liable. Simultaneous promises- I’ll give you my horse for 100,000. Absent language to the contrary, if the promise can be performed simultaneously then the parties will be required by the courts to do so. Otherwise there is a credit risk on the part of one party. Credit Risk- I’ll give you my house and tomorrow pay me. Both parties must show an ability to perform, this is a tender to performance. Escrow- a neutral 3rd party where both parties set up instructions. They must have integrity and independence so you can sue if they screw up. Banks or law firms do this. Simultaneous performance is said to be mutual and dependent obligations. When there is an order of performance it is said to be independent obligations. Common Law, the performance that takes time goes first then the return promise. Paint my house, I’ll pay you. The house gets painted first then the painter gets paid. The risk is on the laborer unless they require periodic payments, payments in advance. This would minimize or shift the risk.
Colorado coal Furnace Distributors Inc. V. Prill Manufacturing Co. B:Prill entered into an exclusive distributorship contract w/ C.C. to sell Prill products Colorado. The furnace never got ICBO approval and no one would buy. R: A obligation may be implied when no other interpretation is reasonable. It is a general rule that rights and obligations of parties under a written agreement sometimes exist even though not expressed therein. Sometimes such rights and obligations find their genesis in facts and circumstances, which intervened after the execution of the writing, and sometimes they rest upon other footing. But it must appear w/ reasonable certainty the rights or obligations of that kind are necessary to carry into effect the intention of the contracting parties.
Class Notes Parties are bound to take the reasonable steps to get the benefit of their bargain, best efforts. Constructive Condition- a promise to provide all the furnaces Prill could sell using their best efforts, conditional on ICBO approval. There was an implicit condition to secure IBCO approval. If, the condition is implicit courts will only ask for substantial performance. If there is an explicit condition, the court could require the condition to be satisfied completely.
Stewart v. Newbury B: The defendants are in the pipe fitting business, and the plaintiff is a contractor and builder. Plaintiff wrote a letter w/ his bid stating the price and his responsibilities. Defendant agreed to the terms and when the building was erected to the first floor, the plaintiff wanted partial payment. The defendant refused. R: The court held, this was an entire contract. Where a contract is made to perform work and no agreement is made as to payment, the work must be substantially performed before payment can be demanded.
Class Notes If promise takes time, and the other doesn’t, the payment is tendered after the performance. If someone demands payment before they’re entitled and stick to their guns, if they are wrong they are in breach. If someone won’t pay when they are legally bound to do so, they’re in breach.
Restatement §234 Order of Performances 3 Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are
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4
to that extent due simultaneously, unless the language or the circumstances indicate the contrary. Except to the extent stated in Section (1), where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary.
Divisibility
Tipton v. Feitner B: Under the same contract defendant agreed to sell eight dressed hogs at 7 cents per pound live weight and certain live hogs on the way from Ohio to plaintiff for 5 ½ cents per pound live weight. The dressed hogs were to be delivered immediately after their sale and the live ones, on their arrival in a few days. The dressed hogs were delivered on the same day by defendant but were not paid for and the live hogs were slaughtered and sold to someone else. R: In sale of land payment and conveyance is conditional upon each other and neither party can sue for breach w/out having offered performance on his part. In this case, the price was different for the hogs and the delivery dates were different. The only condition of the payment for the dressed hogs, the court held was their delivery. The deliveries were under one contract but independent covenants. It also follows where one part of the contract is completed, and the other is breached, the party that did deliver should get partial payment.
Class Notes
UCC §2-307 Delivery in Single Lot of Several Lots Unless otherwise agreed all goods called for by contract for sale must be tendered in single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot. UCC §2-612 Installment Contract Breach (1) An “installment contract” is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause “each delivery is a separate contract” or its equivalent. (2) The buyer may reject any installment which is non-conforming if the nonconformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents; but if the nonconformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment. (3) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a nonconforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments.
Evidence of Divisiblity- the performance of each party is divided in two or more parts, the number of each parts due from each party is the same, and the performance of each part by one party is agreed on as equivalent of the corresponding party from the other party.
Express Conditions
In re Carter’s Claim B: Buyer agreed to purchase a company and all its subsidiaries from the seller for 2.1million. A majority of the money was placed in escrow. Buyer claims that the financial condition of the
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company is less favorable than was put forth in the financial statement issued by the company, and is suing the escrow for the difference. provisions in the contract. Want to know if we have a condition, a promise, or perhaps both. Paragraph in the agreement between the parties does state that the financial condition of the company will not be less favorable than shown in the financial statement of June 30. Sale has already gone through.
Class Notes Question: is this statement a promise or merely a condition. Sellers allege that it is a condition, which means that the buyer is free to walk away from the purchase if it is not met, but is not entitled to damages. Buyers best argument- at the time of sale, it was impossible to have known whether or not the condition of the company has worsened. Therefore it can not be a condition for sale, since the sale had already gone through before the ―condition‖ could be declared met or not. However, statement was placed under the term ―conditions‖. Court holds in favor of the seller. The statement was a condition.
Internatio-Rotterdam, Inc. v. River Brand Rice Mills, Inc. B: Buyer agreed to purchase a certain amount of rice from the plaintiff. It was to be delivered to boats in two different locations, Lake Charles and Houston, Texas, in December, two weeks after the buyer notified the seller to begin delivery. On December 10 the buyer notified the seller that he could deliver to the Lake Charles location, which the seller did. However, as of December 17, which is the last day that the buyer could have notified the seller and still had the two week time period for delivery in December, buyer still had not sent notice to deliver to Houston. Seller in turn rescinded the contract for the Houston shipments. (Market prices for rice had gone up during this time.) Buyer says that the seller did not have the right to rescind the contract. Agrees that notification to begin delivery was a condition, but claims it was a condition of the two week delivery period. If he notified after Dec. 17, should still be entitled to rice, but not delivery within 2 weeks. Seller argues that delivery in Dec. is essential condition to the contract. Therefore notification by Dec. 17 was necessary to continue the contract.
Class Notes Explicit condition must be met fully; Implicit condition must be met substantially. Dec. delivery went to the essence of the contract. How do you know if something is a condition? What did each party hope to gain, what are the credit risks each party must bear? Ex: I want 12 doz yellow roses and 12 doz red roses for $35 a doz. I will take the red now and get the yellow later. No yellow upon return buyer refuses to pay for the red. Seller wins, b/c lots are easily divisible in kind and price and taking the red was a covenant, paying for the yellow was conditional. I want 24 roses 12 red and 12 yellow for $70. You don’t have to pay b/c unk how much 12 red are worth, the contract did not apportion the the price or distribute the lot.
Inman v. Clyde Hall Drilling B: An employee is fired and attempts to sue his former employer for terminating his employment without justification. The company moved for summary judgement claiming that the employment contract signed by the employee contained the statement that a former employee must provide written notice of any claim within thirty days in order to recover from the company and could not sue until after 6 months and within a year. Is apparent that employee was aware of the contract and the thirty day provision, however he thought that actual notice would serve the same as written notice.- court does not sympathize.
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Class Notes Why didn’t court treat the filing of the complaint as written notice? Filed complaint too early, then went into court, and by the time it was decided, it was after a year- which is too late. In addition, the contract calls for performance on his part- providing noticecould argue that he was freed from any obligations of performance upon the termination of his employment couldn’t you?—Gagliardi Brothers case (325) Court holds that the written notification was a condition precedent to recovery and therefore plaintiff can not win. Company did not do anything to prevent the plaintiff from providing notice, and he was aware of his obligation Ex: Timber case- loanee gets money for planting trees and agrees to repay loan when he sells the timber. Lightning strikes, timber burns, and can not sell. Should he have to pay back the loan? Was sale of timber merely a convenient time or a condition of paying back the loan? Yes- the loaner is not getting a big enough benefit (interest) to not get paid back. Loanee gets benefit of the loan Builder agrees to construct house for a homeowner. Builder hires a subcontractor to pour foundation. Homeowner goes bankrupt and can not pay the builder. Should builder still have to pay the subcontractor? Is different from the timber case in that the Builder in this case is not benefiting from the foundation laid and should not have to pay, but the loanee in the timber case does indeed benefit from the loan and should have to pay
Waiver
Universal Builders Inc. v. Moon Motor Lodge Inc B: Builders were constructing a motor lodge and restaurant for owners. While constructing, the owners found the builders had made a minor mistake and told them they would cancel the entire contract if they didn’t agree to do additional work. The builders agreed and when they completed the work, the owners did not want to pay for the additional work claiming the contract did not provide for the work. R: UCC §2-209 (1) An agreement modifying a contract needs no consideration in sale of goods (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinding but except between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection 2 or 3 (statute of frauds) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver affecting an executory portion of the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.
The performance of a condition qualifying a promise in a contract within the Statute of Frauds may be excused by an oral agreement or permission of the promisor that the condition need not be performed, if the agreement or permission is given while the performance of the condition is possible, and in reliance on the agreement or permission, while it is unrevoked, the promisee materially changes his position. In this case, the builder agreed to pay for it and watched it being performed.
Clark v. West B: The writer agreed to write law books at $2 per page and would receive an additional $4 if he agreed to stay sober during the duration of the writing. The writer said although he did not
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remain sober, the authors knew about it and did not object to it and alleged a waiver of the abstinence provision. R: A waiver is the intentional relinquishment of a known right. The contract was to write books and the abstinence condition was in the contract to ensure the books were satisfactory. Viewed in this way the term was a condition. If the words and acts of the insurer reasonably justify the conclusion that with full knowledge of all the facts it intended to abandon or not to insist upon the particular defense afterwards relied upon, a verdict or finding to that effect establishes a waiver, which if it once exists could never be revoked.
Notes Three types of Waivers Election Waiver-when a condition or a duty of performance is broken, the beneficiary of the condition must make an election and either terminate her liability or continue under the contract, if she takes the latter she has waived her condition. Ex: Insured has not satisfied a timely notice requirement in an insurance contract and insurer w/ knowledge of the non-fulfillment of the condition, initially elects to settle but later refuses to do so, asserting the unfulfilled condition--Estoppel Waiver (seen in Universal Builders)- when a party indicates she is relinquishing a known right before it is to happen, and the person addressed detrimentally relies on such an indication. Ex: Insured is told by insurer immediately after an accident that fulfillment of a timely notice is not necessary. Insured relies on the information and files a claim late. Insurer refuses to settle citing notice of requirement for timely notice.--3rd----After plaintiff substantially performs, defendant suggests he will not assert a nonmaterial condition of a contract, but later asserts that condition in his defense---Clark v. West The condition to be waived must be ancillary or collateral to the main subject or purpose of the contract.
Warranty
Warranty- an affirmation as to the state of the world. Express Warranties-anytime a seller of goods creates an affirmation as to the state of the world with words or conduct
Sessa V. Riegle (608) B: The buyer in this case purchased a racehorse and is suing to recover for breach of warranties. When considering whether or not to purchase a race horse from seller, buyer sent over a friend, and knowledgeable horseman to look over the horse. The friend stated that after examination he liked the horse. The seller then added that the horse was a good one and that it was sound. They buyer agreed to purchase the horse and paid for it. The horse has several medical problems unknown where they came from. R: The buyer claims that the seller issued an express warranty when he stated that the horse was sound- and that the buyer relied on this. The court holds that the statement was an opinion or description of the goods, not a promise. Additionally, it was obvious that the buyer relied more, if not solely, on the word of his friend than that of the seller. The conversation with the seller was not a warranty.
Class Notes
U.C.C. §2-313 Express Warranties by Affirmation, Promise, Description or Sample (3) Express warranties by the seller are created as follows:
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(a) Any affirmation of fact or promise made by seller to buyer which relates to the goods and becomes part of the basis of the bargain (b) Any description of the goods which is made as part of the basis of the bargain (c) Any sample or model which is made part of the basis of the bargain (4) It is not necessary to the creation of an express warranty that the seller use the formal words “warrant” or “guarantee” or that he have a specific intention to make a warranty, and an affirmation merely of the value of the goods, or a statement of opinion does not create a warranty. U.C.C. § 2-315 Implied Warranty: Fitness for Particular Purpose 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.
If the buyer has an out of the ordinary purpose in mind for the goods and relies on the skill and judgment of the seller to select the goods which are suitable for the particular purpose. The seller must know about these facts. - requires proof of the sellers state of mind - must have non-ordinary purpose
2-313 (2) ―horse is sound‖ is an opinion, not a statement of fact. (1a) Also, it was not a
basis of the bargain- seller relied on advice of his friend, not on the statement by the seller. An opinion by the seller can be wrong, this is not a breach of warranty. Ex: At Sears, buy a chair, get it home. You then notice that the light bulb is out, stand on the chair, your foot goes through- can you sue?? Yes! 2-314 2c- chairs are stood on all the time- ordinary purpose. In order to disclaim implied warranties, the merchant must put in conspicuous writing ―we disclaim the warranty of Merchantability‖- language must include word merchantability. Abrams –dumb rule! No common consumer would understand that and it is explicitly in place to make consumers aware. Implied WarrantiesCoffer v. Standard Brands, Inc. (Ct of App N.C. 1976)
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B: Buyer purchased a packet of planters’ mixed nuts. One of the nuts in the package was not shelled. Buyer bit down on the unshelled nut which resulted in damage to his teeth which had to be repaired. R: Sec. 2-314 (2c) fit for ordinary purpose- the shells on the nuts are consistent with the nature of the goods. (2f)- product must conform to the promises made on the container- could argue that clear glass container showing many shelled nuts was a promise that they all be shelled, but contradicts with c. (2a) In the peanut industry there is some tolerance for unshelled nuts in a lot of shelled nuts The shells are naturally occurring, not a foreign substance, and their presence should have been anticipated by the buyer. Courts are reluctant to say that there is a warranty when it was easy to avoid by using reasonable care-plaintiff could have used his eyes to see that the nut was not shelled. U.C.C. § 2-314 Implied Warranty: Merchantability; Usage of Trade (1) Unless excluded or modified (2-316) a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant w/ respect to goods of that kind. (2) Goods to be merchantable must be at least such as (a) pass w/out objection in the trade (b) fungible goods: are of fair and average quality (c) are fit for the ordinary purposes of which such goods are used (d) run w/in the variations permitted by the agreement (e) are adequately contained, packaged and labeled (f) conform to the promises and affirmations of fact made on the label
Class Notes Ex. Burt walks in to a store and purchases oil for which he pays $6. A contract would require that one of the parties make a promise, but neither did. There was a sale, but not a contract. Burt has an implied warranty of merchantability for the oil, not a contract. - warranty theory has become a convenient method for enforcing buyers rights - breach of warranty does not require that the buyer forfeit the goods and therefore lose the benefit of the deal, can just recover damages
Weisz v. Parke-Bernet Gallaries, Inc. (Civil Ct. N.Y., 1971, rev’d) B: Buyers purchased paintings at an art Gallery, which were represented as the work of a noted artist. Later turned out that the works were forgeries and the buyers want their money back. Seller argues that there was a ―conditions of sale‖ written in the front of the pamphlet which stated that the gallery shall not be responsible for the correctness of description, genuineness, or authorship of the paintings. Therefore they should not be held responsible. One of the two defendants was not aware of the conditions, since attention was not drawn to them by the gallery, therefore he can’t be bound by the conditions of sale. The other buyer was aware. Nonetheless, it is obvious that the gallery expected bidders to rely upon the accuracy of their descriptions and even intended that they do so. They did not intend buyers to take the conditions of sale too seriously is the impression they conveyed. Therefore buyers are not bound by the conditions
Class Notes The paintings were issued with a statement of authenticity- does this make it harder, or easier to prove the case of the plaintiff. Actually harder, if the defendants knew that the paintings were authentic, and could guarantee that, then why would you also need a statement of authenticity? Fundamental mistake is the confusing language of the pamphlet- courts are sensitive about this. If it was more conspicuous, courts would probably have adhered to it. The
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court felt the gallery made a disclaimer on one hand but their behavior on many levels was making warranties.
U.C.C. 2-316 Exclusion or Modification of Warranties To exclude or modify a warranty the language must mention merchantability and must be conspicuous. Implied warranties are excluded by expressions such as “as is” or “with all faults” and when the buyer has examined or refused to examine the goods, course of dealings can modify or exclude
Substantial Performance
Jacobs & Young v. Kent B: The contract had an express condition that the contractors would use Reading pipe in the building of the home. The builder only used some pipe and the homeowner sued for the cost of having the pipe ripped out and replaced. R: The court held the cost and value of the pipe used was ―just as good‖ and therefore it would be an undue burden to make the builder rip and start all over. The architect refused to sign the certificate of completion after finding Reading pipe was not used.
Class Notes Idiosyncratic Bargainer-one who makes a special term, or special contract. He has a duty to signal adequately his beliefs to the other party. If not, the court will evaluate the purpose of the clause. Pipes cannot be seen therefore it was probably for durability hence the substitute was just as good and the court deemed substantial performance was met. 3rd party architect (mechanism) should have decided this case. The fear here was the homeowner told the architect not to issue certificate of approval. Courts will let you write your terms but not your remedy so the clause, do it right or you will rip it out and start all over didn’t stand. A material breach excuses the other party duty to perform.
O.W. Grun Roofing & Construction Co v. Cope B: Roof owner wanted ended up multi-colored. R: Although, the roof is a substantial roof for protection against the elements it is still not substantially performed in the manner the plaintiff contracted for. Substantial performance –deviations are minor and do not go to the heart, essence, or root of the contract. There are factors to be weighed: The extent of nonperformance, the deficiency will not be tolerated if it is so pervasive as to frustrate the purpose of the contract in any real or substantial sense. Another weight is the purpose to be served, the desire to be gratified, the excuse for deviating from the letter of the contract and the cruelty of enforcing strict adherence or of compelling the promisee to receive something less than for which he bargained. Also weighed is the ratio for money value tendered for performance and the promised performance. The deviations do not impair the structure as a whole, and are remediable w/out doing material damage to other parts of the building in tearing down and reconstructing. Here, the court held that when it comes to a person w/ respect to his home he should get what he contracted for and not something just as good.
Class Notes Determination: Look at the contract itself. Houses-aesthetics count more. Businesses-aesthetics count less. Satisfaction as a condition- For example, a painter paints, and if satisfied I will pay. 1. 3rd party satisfaction, for example an architect. If you agree to the third party mechanism you are bound, therefore if architect not satisfied, no payment unless you can prove the homeowner tells the architect to not be satisfied in this case, condition is waived. If architect cannot do it (drunk or dies), refuses to do it, or is made to do it –condition is waived. 43
2. Contracting party’s satisfaction for taste and fancy-you are entitled to their truthful opinion and are bound by it, so if they are dissatisfied you don’t get paid. If you can prove they lied, condition is waived. 3. Contracting party’s satisfaction for function- for example a boiler installation. If the boiler works the same, you win, if it makes noise, you lose.
Plante v. Jacobs B:House was not built to owners satisfaction and wall was misplaced making the living room smaller. R: Substantial performance as applied to the construction of a house does not mean every detail must be in strict compliance of the specifications. Something less than perfection is the test, unless all details are made the essence of the contract. In this case the plan was a stock floor plan. No detailed construction of the house was shown on the plan. There were no blueprints.
Cost of replacement rule- cost to make whole the omissions when a small number of defects or omissions can be remedied w/out reconstruction of a significant part of the building or a great sacrifice of work or material already wrought in the building, the reasonable cost of correcting the defect should be allowed. Therefore, the cost or replacement rule was correctly used when trial court used it for replacement of plaster cracks in the ceilings, mud jacking, and repairing the patio floor etc. Diminished Value Rule- the correct rule for damages due to faulty construction amounting to such incomplete construction and the value of that house if it had been constructed in strict accordance w/ specifications. The cost of replacing the wall in the living room is under diminished value b/c to tear it down and replace it would involve substantial destruction of the work. Class Notes The wall being misplaced did not change the value of the house, and terms were not explicit. Restatement 241 Circumstances Significant in Determining Whether a Failure Is Material (a) the extent to which the injured party will be deprived
Perfect Tender
T.W. Oil v. Consolidated Edison Co.
B: Oil was supposed to be .52% sulfur but was actually .92% and parties were aware it could be less than 1%. R: If seasonable notice be given, such as seller may offer to cure the defect w/in a reasonable period beyond the time when the contract was to be performed so long as it has acted in good faith and w/ a reasonable expectation that the original goods would be acceptable to the buyer. U.C.C §2-508 Cure by Seller of Improper Tender or Delivery; Replacement (5) Where any tender or delivery by the seller is rejected because nonconforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.
Class Notes Rule 2-508 (reasonable time for curing the defect) goes to the use the buyer has for the goods, for example medical equipment or medicine. It may not be reasonable to wait
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2hrs, or 2days hence if immediate replacement is not available the buyer may go elsewhere.
Perfect Tender Rule U.C.C. §2-601 If the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole (b) accept the whole; and sue for the breach (c) accept any commercial unit or units and reject the rest
Example, you get a computer w/ 10 day delivery on day 5 it comes w/out keyboard 2-508 (1). Get a computer w/10 day delivery it comes on day 10 w/ a 17’ monitor instead of 19’ monitor and a $70 reduction of the price 2-601, 2-508 (2) If goods are hard to resell for example envelopes w/ printed address. The court will do justice by saying buyer paid for printing service and not goods and then, substantial performance is the doctrine. The more customized the goods, the more they are services and not goods. The seller can argue all these:
Acceptance of Goods §2-606 Acceptance of Goods occurs (1) after a reasonable opportunity to inspect has passed and signifies to seller buyer will take the goods despite their non-conformity. (2) Buyer fails to make a rejection (silence as an acceptance) Manner of Rejection § 2-602 (1) must be within a reasonable time after their delivery, and must seasonably notify the owner. (2) Must not behave as if goods are buyer’s if they have already notified seller of rejection and you must treat goods in a reasonable manner until seller can reclaim
If you accept, you no longer have perfect tender, no you have to prove substantial impairment.
Revocation of acceptance §2-608 (1) The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it (a) on the reasonable assumption its non-conformity would be cured and it has not been seasonably cured; or (b) w/out discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances (2) Revocation must occur w/in a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the seller notifies the buyer of it. (3) Buyer that revokes the rights and duties accompanied w/ ownership as if he had rejected them. Bartus v. Riccardi B: Defendant ordered a hearing aid and seller got him the newer model, defendant was unhappy w/ the newer model and refused replacement. R: This case is a UCC §2-508, and the defendant had to give the plaintiff a chance to cure the defect. Defendant did reject the goods b/c they were model A-665 and not A-660 as he ordered.
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The plaintiff thought he would accept b/ A-665 is an improved model and impliedly better than the A-660. He also tried to cure the defect by replacing the unit or getting him the A-660.
Mistake
Sherwood v. Walker B: Buyer and seller agreed to sell the barren cow. Cow was actually pregnant and worth far more than the agreed upon $80. R: Majority says mutual mistake, therefore no contract. Dissent says unilateral mistake, and the buyer wins.
Class Notes Dissent is correct in this case, the instrumental value of having a rule that says if you buy something and end up being lucky, you aren’t. If you spend money to find information and buy something and the seller doesn’t know the value of his own property, the money spent to get that information was wasted b/c the court will unwind. Mistake of Fact Ex: Barren cow is worth $80, another type of cow is worth $800. Buyer bought for $200. The price allocation is the mechanism for risk. Both are not sure if she is barren or not which is why the buyer paid more. If the buyer buys a cow for $800 and the cow is barren. The buyer can get out if there was a warranty ―I’ll sell you breeding stock‖. If seller sells for $80, and cow is good for breeding. The buyer hopes or even knows the cow is good for breeding and is under no duty to explain.
Restatement §151 Mistakes Defined A mistake is a belief that is not in accord w/ the facts.
Abrams: Mistake is a belief of the world at the time the contract is made, looking back. “Alcoa”-It was a view of the future and mistake is about the past.
§152 Bilateral Mistake (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 upon exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.
Mutual mistake- two experts discuss an earlier period bow, before transfer they discover it is worth more. Seller does not have to transfer b/c mutual mistake. But, in court the buyer will say they were aware the bow was worth more b/c then the seller may not get out.
§153 Unilateral Mistake- 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 state in §154. 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
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If the seller doesn’t know the quality of their own goods, then it is their own fault if the buyer was reasonable. The seller never gets it back after transfer if mistake is made, but they may get it back before transfer (voiding an executory contract).
§154 When a Party Bears the risk of a mistake a. the risk is allocated to him by agreement of the parties b. the party is aware at the time the contract was made that he has only limited knowledge with respect to the facts to which the mistakes the relates but treats his limited knowledge as sufficient, or (illiterate person signing the contract) c. the risk is allocated to him by the court on the ground that is reasonable in the circumstances to do so
A gemologist buys the largest sapphire in the world for $5, the seller thinks it is a stone. Doesn’t have the $5 w/him but when he comes back, the seller has learned it is a sapphire, gemologist wins b/c he is buyer and has attained expensive information. The seller had only limited knowledge and acted upon it. Mistake in computation: Ex: Contractor adds up all the sub bills, it is 100,000. Homeowner agrees to the price. Contractor said forgot to add some and it is 110,000. Contractor may win b/c people make mistakes and it is reasonable and the mistake doesn’t go to the profession of construction. But if, the error is in the price of an element, then they will not win. Lotus or Software, if they didn’t know how to use the software, they will probably lose if it is software specialized for construction. Professional judgement. Mistake in transmission: prevailing view is the message as transmitted is operative unless the other party knew or should have known of the mistake.
Anderson Brothers v. O’Meara B: Buyer bought a dredge that was not for the particular use he needed. He sent an engine specialist that agreed upon the sale.
Class Notes This is when the buyer feels ripped off. Unilateral mistake. The dredge was transferred and they knew they had limited knowledge b/c they sent someone specialized in engines and not dredges. If the seller had known of the uses he was going to put the dredge to, the buyer may have won. §153 b. Frustration of purpose- buy the dredge and you now have no need for them. Mistake-you buy the dredge and it only digs narrow and not wide. When the promised performance is impeded by some intervening contingency—such as a fire or a blight—the obligor is likely to plead excuse. Here there is a little question that the contingency was foreseeable.
Excuse
Taylor v. Caldwell (King’s Bench 1863) B: Defendants agreed to let plaintiffs use the Surrey Gardens and Music Hall in four days for the purpose of giving a series of four grand concerts for ₤100 per day. After making the contract, the Hall was destroyed by fire w/out fault to either party. R: There was an implied condition in the contract that the Music Hall was to be a part of the rental of the Surrey Gardens and if not in the contract there would have been no contract. The parties contracted on the basis of the continued existence of the Music Hall at the time when the concerts were to be given. The Music Hall having ceased to exist, without fault to both parties excused both parties from performing.
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Notes
§263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.
Class Notes Impossibility is a defense to breach, when the risk has not been allocated to you. (1) a contingency- something unexpected must have occurred (2) the risk must not have been allocated to either party by agreement or custom (3) occurrence of contingency must have rendered performance impossible. A fire threatens the building, and there is extensive water damage inside a week before the date of performance. This is not impossibility- it is not impossible to dry out the building. It is more expensive (impracticability). This case is an example of impossibility. Implicit Condition: The failure of a condition means the performance is excused in this case b/c of impossibility. Explicit Condition: The other party doesn’t have to pay b/c a condition precedent to pay is to get the building for use. Ex: Prepay for the four nights use; the building burns- the party that is to lease the building is excused from performance. The other side gets their money back off the contract, unjust enrichment, restitution; quantum meruit. Ex: Contractors agree to construct a basement by doing anything possible to construct. Rock is harder than they thought: they are still bound, it is not impossible and they allocated the risk beforehand. Ex: There is a stream under the house: this is impossible, they may however be in breach b/c they said anything. Anything is open for interpretation; it could be anything or anything reasonable. Ex: Lease a house for one year, in the middle of the year the house burns down, do you have to continue to pay the rent. Less than one year, traditionally renters are excused. Ex: Renters may be liable for the extent that you own, then you should loose. Traditionally leases of more than a year, there is an insurable interest in the building itself as well as in your personal goods. When property burns, the owner looses. Duplex, when ownership is split, loss is split. Ownership means there is something valuable in the world, and you have claim to the value. It can be sliced in time, floors, intangibles etc.
Howell v. Coupland (Queen’s Bench 1876) B: Plaintiff is a potato merchant and defendant is a farmer. The agreement was to sell the potatoes from a particular farm and through no fault of the defendant a disease overtook his crop. R: Both parties understood and agreed, that there should be a condition implied that before the time for the performance of the contract the potatoes should be, or should have been, in existence, and should still exist when the time came for performance. It was no an absolute contract, but a contract to deliver so many potatoes, of a particular kind, grown on a specific place, if deliverable from that place.
Class Notes Did the disease come before or after the contract was made? After, this is impossibility and not mistake. The contract just said deliver potatoes from a specified farm if not, no impossibility b/c of open market (McNabb).
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Notes
UCC §2-613 Casualty to Identified Goods Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty w/out fault of either party before the risk of loss passes to the buyer, or in a proper case under a “no arrival, no sale” term (a) if the loss is total the contract is avoided; and (b) if the loss is partial or the goods have so deteriorated as no longer to conform to the contract as avoided the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity buy w/out further right against the seller.
Abrams’s: This could apply to mistake and impossibility. Mistake: I agree to sell you wigits from the A train. Unbeknownst to seller, the train has crashed both parties thought wigits were in existence.
Kelley v. Thompson Land Co.(Supreme Ct of Appeals, West VA 1932) B: Kelley agreed to find coal, Thompson agreed to create a company and give Kelley royalties. Thompson died. R: Where the acts stipulated in the agreement require exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity or other personal qualifications of one or both parties, the agreement is said to be of a personal nature. The accepted rule is the death of the performer if the performance is of a personal nature shall dissolve the contract.
Class Notes Death does not end all obligations only personal ones. Death revokes all outstanding offers.
Impossibility and Impracticality I
Carroll v. Bowersock (Supreme Ct. of Kansas 1917) B: Contractor agreed w/ warehouse owner to construct a reinforced concrete floor in the warehouse. When part of the work had been done, the warehouse was destroyed by fire through no fault of either party. The warehouse owner refused to rebuild again. R: the liability of the owner in a case like this should be measured by the amount of the contract work done which, at the time of the destruction of the structure, had become so far identified with it as that but for the destruction it would have enured to him as contemplated by the contract. So, in this case the contractor receives damages for taking up the old floor and putting in the part that was completed before the fire damaged the building. Canadian Industrial Alcohol Co. v. Dunbar Molasses Co. (Ct. of appeals NY 1932) B: Buyer sues seller for breach of a 1.5 million gallons of molasses executory contract to begin delivery after Apr 1, 1928 from time to time. The molasses co. delivered 344,083 gallons and upon its failure to deliver more plaintiff brings the suit. R:. The court holds that the duty to deliver would have been discharged if: the refinery had been destroyed, or had been curtailed by the failure of the sugar crop, or by ravages of war or in some circumstances by unavoidable strikes, or if plaintiff would not have bargained for delivery from a certain refinery but from a certain contract w/ the refinery. In this circumstance, the defendant is not excused b/c he had alternatives and he did not inform plaintiff his performance was conditioned on the performance of the manufacturer. Transatlantic Financing Corp. v. U.S. (U.S. Ct of Appeals D.C. 1966) B: Transatlantic sued U.S. for costs due to the closing of the Suez Canal. R: A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost. Three steps:
(1) a contingency- something unexpected must have occurred
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(2) the risk must not have been allocated to either party by agreement or custom (3) occurrence of contingency must have rendered performance impracticable.
The contingency did not render the voyage impracticable and the only thing that shows this is the increase in price, which could have been insured by Transatlantic, and they are in the best position to insure. They also cannot collect on the quantum meruit theory b/c they are collecting on the contract hence proving the contract was valid.
Notes
Restatement §261 Discharge by Supervening Impracticability Where, after a contract is made, a party’s performance is made impracticable w/out 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. U.C.C. §2-614 Substituted Performance (1) Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted. (2) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment, which is commercially a substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyers’s obligation unless the regulation is discriminatory, oppressive or predatory.
Under this article in the absence of specific agreement, the normal or usual facilities enter into agreement either through the circumstances, usage of trade or prior course of dealings.
U.C.C. §2-615 Excuse by Failure of Presupposed Conditions Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance: (a) Delay in delivery or non-delivery in whole or in part by a seller who complies w/ paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not among his customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner, which is fair and reasonable. (c) The seller must notify the buyer seasonably that there will be delay or nondelivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.
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Impossibility and Impracticality II
Eastern Air Lines v. Gulf Oil Corp (U.S. Dist Ct S.D. of Florida 1975) B: Eastern and Gulf shared a mutually advantageous relationship involving the sale and purchase of aviation fuel for several decades. Gulf sent a telex demanding Eastern to meet its demand for price increase or it would not supply jet fuel w/in fifteen days. R: Gulf answered that the contract lacked mutuality b/c it is a requirements contract. This is already addressed. They also argued the contract was ―commercially impracticable‖. For there to be an U.C.C. §2-2615 issue, (1) there must be a failure of a pre-supposed condition, which was the underlying assumption of the contract, (2) which failure was unforeseeable, and the risk was not specifically allocated to the complaining party. (3) The contingency must make it impracticable to perform. If, the contingency is foreseeable, then Gulf cannot get out of the contract. The court held, that through history it is well known that OPEC would do exactly what they did which is use oil as a political weapon. The two tiered system was also foreseeable b/c not only had the Gov’t been controlling prices but Gulf had been in support of the Gov’t de-controlling prices and had been in contact w/ Gov’t officials throughout the volatile situation. They could have protected themselves from any contingencies. Knowing all this, Gulf still tied there prices to Platt’s.
Class Notes Going long- anticipate prices go down on the market and you own the goods, if the market goes up and you have to sell low on the contract price you loose. Gulf. Going short- you don’t own the product, you buy and sell on the market, if the price goes up you loose and the person you sold to wins b/c what they have is more valuable than when you had it, if it goes down you win b/c you’ve sold it at a higher price than it is now worth. You can buy low and sell on the contract price for higher than the market price. Eastern In gulf, there was a risk taken by Gulf to go long and fix the price. Since the market price went up they lost money. Impracticability -Performance may be impracticable because of extreme an unreasonable difficulty, expense, injury, or loss to one of the parties. It focuses on occurrences, which greatly increase the costs, difficulty, or risk of the party’s performance. Class Notes on Alcoa There was no collar a constrained price above and below. They drew the price above; it could not be above 65% of actual aluminum but there was no floor. Each side of the collar effects the risk of the parties. You can buy today but for the market price of the day I sell but for a price no less than today’s market price minus a dime. This protects the seller’s risk. The buyer says fine, but the price can be no higher than today’s price plus a dime. The court in this case was convinced the parties were not trying to go long or short or both parties did not want to risk market fluctuations. Ex: Hire a computer maker to make small computers to power airplanes, he accepts. You agree to sell the airplanes for a certain price with a 3rd party. The airplane maker comes back and says he cannot make them that size, in the time agreed upon for the amount and it may not even be possible to make the computers that size. Who wins? UCC; Goods contract- mutual mistake that they thought he could have the goods but the goods do not exist.
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Not governed by the UCC; Design contract- unilateral mistake that goes to his expertise. Larry entered into the contract knowing it had not been done, then he is getting compensated for his skill and he has failed.
Frustration of Purpose
Frustration of purpose- both parties duties are not impossible or more expensive now.
Krell v. Henry (Ct of Appeal 1903) B: Henry agreed to rent Krell’s apartment during the day to view the coronation of the King for 75₤. The King was ill and the coronation did not occur. Krell sued Henry for 50₤ the remaining balance of the agreed price. Henry denied the claim and counterclaimed for 25₤ which was his deposit. R: You have to ascertain not necessarily from the terms of the contract, but also from surrounding circumstances recognized by both contracting parties, what is the substance of the contract. Then ascertain whether the substantial contract needs for its foundation the assumption of the existence of a particular state of things.
Class Notes Mistake- if the contract has been executed the court will try not to unwind contracts. Impossibility and Impracticabilty- usually comes up in the middle of the performances. Ex: You call to get a room for a wedding. You pay $100. The hotel doesn’t know of the reason you rented the room. If you call Mr. Hilton and explain why you need the room. He raises the amount to $250. The price reflects the risk. You call the hotel and they say they are the official Smith wedding hotel. If the wedding is cancelled you get out, the price reflects their risk. These are background rules and parties can allocate the risk however they want.
Restatement §265 Discharge by Supervening Frustration Where, after a contract is made, a party’s principle purpose is substantially frustrated 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 remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.
Abrams: Frustrated: The value of what you’re getting has decreased. This goes to the reason why you’re making the contract and not the duty. It focuses on a party’s severe disappointment, which is caused by circumstances, which frustrate his principle purpose for entering the contract.
Restatement §266 Existing Impracticability or Frustration (1) Where, at the time a contract is made, a party’s performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or the circumstances indicate the contrary. (2) Where, at the time a contract is made, a party’s principle purpose is substantially frustrated without his fault by a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty of that party to render performance arises, unless the language or circumstances indicate the contrary. This is truly mistake of fact Lloyd v. Murphy B: Defendant agreed to a five year single use lease for the sale of cars and as a gas station
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R: He did have knowledge that there were war conditions and the car industry would be affected by them. It was not impossible for defendant to continue to sell cars, and he could also sell gas. The premise was quickly leased out to other tenants which also proves the value was not lost by the Act.
Book Notes It is the common object of both parties that has to be frustrated, not merely the individual advantage which one party or the other might have achieved from the contract. Frustration of purpose, you must loose all the value, they could still sell gas and others moved in to sell cars. They were aware of the Act so the burden was already allocated.
Anticipatory Repudiation
Anticipatory Repudiation- A breach which occurs prior to the time before performance. Breach- failure to render performance when the performance is due.
Houchster v. De La Tour (Queen’s Bench 1853) B: P was to work for d as a courier and go w/ him on a tour. Before time for performance came D repudiated. He received another job to start before time of performance. R: D argues that if p did not want to dissolve the contract and to abandon remedy, he was bound to remain willing to perform until the day he was suppose to begin performance. The court held that if d renounced the contract then p could obtain other work in order to mitigate the damages that he would otherwise be entitled to.
Class Notes Common Law-If the party repudiates, you have a cause of action before the time for performance arrives, or you can wait for time of performance and sue for actual breach.
Restatement §243 Effect of a Breach by Non-Performance as Giving Rise to a Claim for Damages for Total Breach (1) A breach by non-performance gives risk to a claim for damages for total breach only if it discharges the injured party’s remaining duties to render such performance, other than a duty to render an agreed equivalent under §240 (divisible duties) (2) Except as stated in Subsection (3), a breach by non-performance accompanied or followed by a repudiation gives rise to a claim for damages of total breach. (3) Where at the time of the breach the only remaining duties of performance are those of the party in breach and are for the payment of money in installments not related to one another, his breach by non-performance as to less than the whole, whether or not accompanied or followed by a repudiation, does not give rise to a claim for damages for total breach. (4) In any case other than those stated in the preceding subsections, a breach by non-performance gives risk to a claim for total breach only if it so substantially impairs the value of the contract to the injured party at the time of the breach that it is just in the circumstances to allow him to recover damages based on all his remaining rights to performance. (must be material breach)
Broken Down 1. (not including divisible contracts (§240) if one party materially breaches, the other can sue for total damages 2. when the only duties left of both parties are payment of money in installments by the party in breach you can only sue when performance of installments comes due (over and over again)
Restatment §250 When a Statement or Act is a Repudiation: (a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach under §243 or (b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform w/out such a breach. (implied repudiation)
A is express, B is implied repudiation
Restatement §251 When a Failure to Give Assurance May Be Treated as a Repudiation
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(1) Where reasonable grounds arise to believe that the obligor will commit a breach by nonperformance that would of itself give the obligee a claim for damages for total breach under §243, the obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance. (2) The obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case.
Broken Down (1) when a prospective inability to perform arises; implied or ambiguous, the party can demand adequate assurances and may suspend performance until he receives consideration for it (2) if the other party does not respond in a reasonable time, the injured party may treat as a repudiation (time depends on circumstances)
It must be a reasonable assurance, w/ explanation not simply we’ll do it.
Ringel & Meyer, Inc v. Falstaff Brewing Corp B: Ringel and Meyer sued Falstaff for breach of a requirements contract. Falstaff began buying fibre cartons from competitors and breached the contract. Ringel and Meyer were facing imminent financial insolvency. R: There is no Louisiana law that recognizes anything but an outright repudiation to constitute anticipatory breach. No common law court has done this.
Class Notes There was a prospective inability to perform based on insolvency (§252), the party may suspend performance until he receives assurances. This is not equivalent to repudiation however courts may interpret this case differently today.
Taylor v. Johnson B: Plaintiff sought to breed his two throroughbred stallions w/ d’s stallion. D sold the horse and arranged for P’s horse to be sent away and be bred elsewhere. He was given the run around each time he tried to get the horses bred. Before the contract date, he bred the horse w/ another horse. R: D argues they never repudiated their contract. Anticipatory breach occurs when one of the parties to a bilateral contract repudiates the contract. It can be express or implied repudiation. Express repudiation is a clear, positive and unequivocal refusal to perform. An implied repudiation is when the promisor puts it out of his power to perform so as to make substantial performance of his promise impossible. The promisee has two options. He can treat the repudiation as anticipatory breach and immediately seek damages ending the contractual relationship or he can wait until time for performance and exercise his remedies at the time of actual breach. The court found the letter sent releasing p was a repudiation but since it was not accepted by p and d arranged for the horses to be sent to KY, the repudiation was retracted. When the horses were sent to KY, plaintiff had the option to wait until time of performance for an actual breach. The trial court found an implied repudiation by the actions of the defendants and their agents in putting off the breeding of the horses but the appellate court holds that the promisor must put it out of his power to perform. Performance was delayed but not impossible and the contract time had not run. The horses could have still been bred by the date of the contract.
Class Notes If a party gives a retraction before the other party has materially changes his position in reliance on the repudiation or before the other party indicates he considers the repudiation to be final, and that party accepts the retraction (§256), you must really wait until time of performance to sue for breach but you can urge a party to perform (§257) without changing the effect of the repudiation.
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Common Law Time Line
Buyer Urges seller to perform (§257) Buyer accepts retraction time for performance
____I_____________I_____________I_________I-------------------I_______
anticipatory repudiation by seller seller retracts before buyer (§256) materially changed position CANNOT SUE if breach then sue
Buyer suspends performance demands assurances (§251) implied anticipatory repudiation by seller
Buyer can sue for breach time for performance
___I____________I_____________I_________I------------------_____I_____
seller doesn’t reply
UCC §2-610 Anticipatory Repudiation When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) for a commercially reasonable time await performance by the repudiating party; or (b) resort to any remedy for breach (Section 2-703 or 2-711), even though he has notified the repudiating party that he would await the latter’s performance and has urged retraction; and (c) in either case suspend his own performance or proceed in accordance with the provisions of the Article on the seller’s right to identify goods to the contract notwithstanding breach or to salvage unfinished goods
Broken down3. if a party repudiates performance that will substantially impair the value of the contract a. the aggrieved party can await for a commercially reasonable time for performance or, b. sue for breach even though he told the other party he would wait c. in either case, suspend performance …
UCC says you don’t have to wait for the time of performance you only have to wait for a commercially reasonable time. This is different from the common law. Ambiguous repudiation; if one party gives an ambiguous repudiation, the other can stay silent and treat a breach after seeking assurances. If you try to convince them to follow through on their performance and they do not give any assurances or retract you can still treat as a breach. If the other party retracts the repudiation, then you must give them the chance to perform. Ex: Renter rents his hall to musicians. The agreement is to heat the hall at 8 so it is ready for 1pm. There is a snowstorm that cuts the phone service, and the train that the musicians are coming to town on is not running. At 8am does, the renter cut the heat on. Frustration of Purpose---- The defense might be for renter that turns the heat on, if he acts reasonable reviewing the risk- breach on his part would result in bigger consequence than, them not showing and wasting $40. There is no reasonable person rule in contracts but it could be argued that the probability that the musicians would show was high and the probability that there would be no watchers.
Installment Contracts
Pakas v. Hollingshead (Ct of Appeals NY 1906) B: Plaintiff had an installment contract w/ d to receive 50,000 pairs of bike pedals. D only delivered 2,608 out of the 19,000 he was supposed to and p treated as a breach and sued for that
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part of the contract and won. He then brought suit when the next installment was due and claimed d breached. R: The court held p could either recover all his damages in the first suit or wait until the contract matured or the time for the delivery for all the goods had arrived and then sue. There can only be one action for damages for a total breach of an entire contract to deliver goods.
Class Notes If they would have asked for damages of the entire contract they would have gotten them. They only asked for past payments at first then tried to sue again.
UCC §2-612 Installment Contract Breach (3) An “installment contract” is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause “each delivery is a separate contract” or its equivalent. (4) The buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured or if the nonconformity is a defect in the required documents; but if the nonconformity does not fall within subsection (3) and the seller gives adequate assurance of its cure the buyer must accept that installment. (5) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a non-conforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments.
2-612 Broken down4. if an installment is substantially impaired you can reject it if seller cant cure. 5. if it is a minor defect you can accept 6. if the defect of the installment w/ respect to one or more installments substantially impairs the value of the entire contract, it is a breach of the whole 7. you accept or reinstate the contract if: a. accept the goods w/out seasonably notifying seller of defects b. bring action w/ respect to only past installments c. demand performance as to future installments
Ex: Insurance company breaches on installment payments. Wrongful non-payment- will not give a lump sum, and you must sue for each one but if court says you’re entitled to it and they breach, you can get punitive damages. Equitable Remedy in this case is installment payments and Legal Remedy is the lump sum. One party has fully performed, the other party has to pay in installments and has not made the first payment. You cannot sue for perspective damages. You must sue on each and every payment that comes due. If someone has several payments left, and they don’t pay if they are sued on the contract the other party can get the damages up until that point, then the contract is over. Bad food in first delivery- with reason if you accept other deliveries then you have modified the contract. Accepting late payments could also be seen as a waiver.
Cherwell-Ralli Inc. v. Rytman Grain Co (Supreme Ct of Conn 1980) B: Seller and buyer had a contract for delivery of Cherco Meal and C-R-T Meal weekly as instructed by buyer w/ payments to be made w/ in 10 dys of delivery. The buyer quickly fell short in payments and owed a substantial amount. The seller brought this to buyer’s attention but continued to make shipments until April 23, 1975. Buyer became concerned seller would stop deliveries so buyer’s president and seller’s president discussed and assured each other the buyer would pay and the seller would not stop deliveries despite the favorable market price. The buyer
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sent a check for deliveries through Mar 31, 1975 but stopped pmt on it b/c a driver told him that would be his last delivery. Buyer requested assurances and seller demanded payment. Buyer never sent payment and seller stopped delivery. Rationale The ct held that the buyer’s cease in payment and stop payment of the check substantially impaired the value of the whole contract and constituted a breach of the whole contract. The buyer also argued that the seller must provide 2-609 (adequate assurance of performance) before it terminates a contract. The court held if the buyer’s actions are so egregious the conduct itself will present a breach of the contract as a whole. The court then ruled that the buyer’s insecurity must be reasonable and in this case it was not. Buyer always received their delivery, and received verbal assurances from the president no delivery would stop.
Common Law In an installment contract, if the first performance by party 1 has a minor defect, and party 2 does not perform, the second party has breached. If the defect is substantial, and the second party wants to sue, they must wait until the end of the contracted for performance date and sue for the entire contract or sue them at the time of breach and only get damages for what breach has occurred. Pakas. Except the exception above Ex: Bank loans- they pay the other party all of the money and the other party must pay in installments. If the party misses a payment the bank must sue at every missed payment but Banks will put in a clause: if you miss a payment, the loan is accelerated and all is due at this time, this lets the bank sue for the entire debt. UCC You are permitted to sue for back damages and treat the rest of the contract in force. You can also sue under the common law as well.
Coase Theorum
Coase Theorum- Law and Economics Adjoining houses, one person likes to smoke and the other doesn’t like smoke. Allocative Effect: One person has the right and they will determine what actually occurs The person has the right to smoke is allocated the right and they will smoke. Distributional effect: The smoker (who has the right) will smoke or, the non-smoker will pay the smoker not to smoke. The person that has the right will be richer, and may choose to exercise the right. There are only a few situations that have no allocative effect. Assumptions: 1. legal rights are well defined and marketable 2. costs of transactions are zero 3. both parties are well informed of their rights. Railroad and Farm- if the train runs next to the farm the sparks will set the wheat on fire. The wheat will grown if the train doesn’t run next to the farm. Example 1 The train owner can install a spark arrester for $100; The farmer’s wheat value is $125 after profit. Rules: The train can run regardless of the farmer, or the farmer has the right. If the train has the right, the farmer will buy the spark arrester and make a $25 profit. If the farmer has the right, the train company will buy the spark arrester and run the train. The result is the same but the parties are not indifferent. There is a distributional effect but the outcome is the same.
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Example 2 Change in numbers: Wheat $80, Spark arrester $100, The train has the right, the farmer will not grown wheat b/c he will lose $20. If the farmer has the right, the train will pay the farmer $80. The same outcome no wheat will grow and the train will run w/out an arrester. The farmer cares about which person has the right in one case he makes nothing, in the other he makes $80. Example 3 Change in numbers and adding transaction costs: Train owner spark $100 Farmer’s wheat $80 IF there is a cost of $25,000 to bargain, and the train has the right, the farmer will not pay for the transaction costs and the wheat will not grown. The right will stay where it is. Bilateral monopoly: They both have things the other wants but no-one else wants them. The farmer has the right, if the train comes they will offer him $80 he will say he wants $99. The range is between $100 and $80. Allocation of Property Rights (this is what society wants) not only may make people richer, but it makes things happen or not happen. If effects the amount of wheat or the amount of trains that run this is because transaction costs are relatively high. Coasian World- no transaction costs and no one cares. In the real world- the one who has the right is better off, but the 3rd party costs (society) may suffer or not. Keeping friction or bargaining costs down will let people who have the rights sell to those who need them. If we can’t second best is to allocate the rights so that society is better off. Negotiation Theory: The Allocation of rights effects distributive outcome. If its hard to sell, taxes, friction, licenses then its likely that things that have a more valuable use will not find it so where the right begins is more likely to be where it will end up. Background Rule will not give any party anything when there is no transaction costs. If there is expensive costs, the background rule becomes the rules the more expensive the costs b/c parties will not negotiate. If the contract is big, the more likely the parties will pay to change the rules. The allocation can change at any point, if you have the right. You can bargain in the beginning before the contract or if they start to make sparks, you can say pay me and I wont sue.
Alternative Measures
Fuller and perdue’s two issue piece for contracts.
Globe Refining Co. v. Landa Cotton Oil Co. B: Plaintiff contracted to buy cotton oil from defendant. P sent his tank cars to Louiville but picked up no oil. D notified P of its breach on Sept 14. P b/c of D’s initial breach, breached several of his contracts. R: Cost of sending tank cars to Louisville.: The defendant did not have notice of p was likely to send its car from a distance and it is not proven that d was aware of the $900 cost to p to send his car. P also does not get a loss of use of the tank cars. These were expenses p was willing to incur for performance. And if p gets the difference between the contract price and the market price, he gets the value of the oil and to make d pay for these expenses would be making d pay for it twice.
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Class Notes There should be limitations on idiosyncratic damages but courts have rejected looking into the minds of the parties at the time when they contracted and giving them what damages they contemplated. This court stands for two propositions. 1. The parties did not contemplate the damages- Rejected by courts 2. There should be a limitations on damages that are too remoteAccepted by courts
Sullivan v. Connor (Suprm Ct of Mass 1973) B: a professional entertainer, contracted to have plastic surgery to shorten the length of her prominent nose. D was a plastic surgeon and agreed to two operations to enhance her beauty. The operation was a botch, and p underwent 3 surgeries. R: If a plaintiff is successful, the damages should be the amount intended to put the plaintiff in the position he would be in if the contract had been performed, or presumably at the plaintiff’s election, restitution damages an amount corresponding to any benefit conferred by the plaintiff upon the defendant in the performance of the contract disrupted by the defendant’s breach.
Class Notes Courts protected reliance in this case. They did not give her the profit only put plaintiff back to where she was. In these cases, if a surgeon promises to do their best, and do not warranty an outcome courts find it hard to find an express promise by surgeons. The expectation is hard to find for ex, pain and suffering but they will give reliance. This case is wrong in that they should have given her pain and suffering in all 3 surgeries.
Freund v. Washington Square Press B: Plaintiff granted d exclusive rights to publish and sell his work on modern drama. D agreed to publish the work w/in 18 months and afterwards in paperback edition. P delivered the manuscript and was paid the advance however, d merged and never published the manuscript.
Class Notes Specific Performance - publish the books and pay royalties. Expectation: Giving the person the value of the contract in dollars; giving the person the benefit of the bargain in dollars. Profit is over what you will spend. Freund couldn’t prove how many copies his book would have sold, or specifically how much in royalties he would have received. Reliance- when expectation damages are too speculative, you will get the cost of your performance. The time he spent in writing the book, that is speculative also as to how much his time was worth, Default Rule- In this case, if you cannot prove how much you would have gotten you get 0. Why? This would encourage parties in the future to provide for these situation for example liquidated damages clause. Ex: you spent 10,000 to hire a painter and 1,000 for the suit you bought specific to the portrait Restitution- the benefit bestowed, the case discusses the benefit of them getting his manuscript but how much is that worth? Only as much as it would sell and again, we don’t know how much it would have sold. Ex: 10,000 given to the painter. Nominal Damages- In Freund the court awards nominal damages 6cents and costs and disbursements to plaintiff. This is awarded when damages are shown but can’t be proven.
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Any party whether they are the breaching party or not is allowed to bring a suit off the contract. If you sue on the contract, you will not get restitution, and if you are the nonbreaching party, the court will make you decide if you are suing on the contract or off. On- you will first get expectation if the court can’t figure out what that is, you will get reliance. There is no choice, the court will decide. The party’s choice is to sue ON the contract for expectation or reliance depending on what the court will reward or OFF the contract for restitution. Ex: Retile the bathroom floor they agree for $6,000 paid in advance. They stop in the middle and the other person is paid $1500. The total amount is $7500. To protect the expectation the party should be paid $1500. Retile the bathroom floor they agree for $6,000. The tiler never shows up and you must pay another person $8,000. $2,000 will protect the expectation. Damages- cover- when you buy replacement goods. Cover price-contract price= damages I contracted w/ the farmer to buy wheat for $1000. They breach and I ―cover‖ for $1400. I will sue and get $400. Pre existing duty rule Expectation: Person goes to a doctor w/ a injured hand. The doctor skin grafts and the hand develops a dense matted growth, and the hand is still injured. The value that protects his expectation is the amount of the perfect hand minus the worth of his hand. If we can fix his hand for $3500 in a second surgery. Benefit of the bargain will be $3500 plus the pain and suffering for the second surgery. Reliance: If court cannot determine the amount of a good hand, then in reliance: he would get the doctor’s fee, the pain and suffering during the procedure, the diminution between his hand before and the worsened condition now, and loss of wages while taking the surgery. He gets what he had if he never would have taken the surgery. Restitution: If he only gets restitution then he only get the cost of the operation Homeowner wants a new garage. Contractor knows well the subcontractor and gets the concrete laid for $6,000. The market price is $8,000. Homeowner repudiates contractor sues for breach. Reliance- $6,000 contractor gets what he spent. Restitution-$8,000 contractor gets what was given to the homeowner. Reliance will usually be less than restitution but the perspective change.
Expectation
Groves v. John Wunder Co. B: Owner contracts w/ company to strip mine his property and leave the ground at one level. The company does extract but does not repair the land. R: The cost of performance was $60,000. The value of the land with a level ground is $12,100. The court treated the land as they received it valued at 0 and gave them$12,100. The appellate court reversed and gave them cost of performance. This court protected their expectation. Peevyhouse v. Garland Coal & Mining co. R: This court gave them the value of the land w/out holes and not cost of performance.
Class Notes
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In Expectation of Construction cases you can either get the cost of repair (the amount to give you the outcome you expected) or dimunition (the value of what you expected – the value of what you have now) Is the land measured by an economic market value or do they care about the land for their own reasons and they don’t care about what someone else will think. The contract defines what the land is worth. Defendant will argue they will not smooth the land w/ the $60,000. If this is what would happen, the concern is if they thought of the land as an economic object, clearly 60,000 is too much. If they have some idiosyncratic use for the land, and they don’t want the market value but they want that land and nothing else will do. Both cases were wrong and should be decided opposite.
Restatement §348 Alternative to Loss in Value of Performance (1) If a breach delays the use of property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property. (2) If a breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he my recover damages based on a. The dimunition in the market price of the property caused by the breach, or b. The reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him. (3) If the breach is of a promise conditioned on a fortuitous event and it is uncertain whether the event would have occurred had there been no breach, the injured party may recover damages based on the value of the conditional right at the time of the breach.
Value to him- market value or idiosyncratic, if the contract is indicative of a special value then the courts will be more likely to consider the idiosyncratic wants of the party. Market value for the land as valued is 12,000, the excess of what the person values the property over the market value is consumer surplus. 15,000- consumer surplus 12,000- market value 3,000- consumer surplus Breach can be efficient if the non-breaching party can be made whole and be given full compensation. If there is significant consumer surplus then we want cost of performance to make the person whole. Future values affect current values. Land is not generally thought of as fungible b/c it cannot be moved, it is proximate to this lake or has this mineral so it is thought of differently than goods. What does it take to sue on the contract and win? --A contract ---A breach ----Injury arising from the breach Opportunity Costs are the forgone opportunities that a party forgoes when they agree to do something and they cannot do something else. The foregone value of the best substitute. Reliance theory is not a good basis for awarding basis b/c it is difficult for court to quantify opportunity costs b/c they never materialize.
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Specific Performance
To get an equitable remedy- must prove your legal remedy is inadequate and the equitable remedy you seek is appropriate.
Sedmak v. Charlie’s Chevrolet Inc. B: The Sedmaks contracted w/ Charlie’s for a special edition Corvette. They arranged for the dealership to order the Corvette w/ special changes and details and were assured they would be the owners. After the car was delivered, Kells told the Sedmak’s they could bid on the car. R: The trial court concluded the Sedmak’s ―had no adequate remedy at law for the reason that they cannot go on the open market and purchase an automobile of this kind w/ the same mileage, condition, ownership, and appearance as the automobile involved in the case. Except if at all, with considerable expense, trouble, great delay and inconvenience.
Class Notes Contract- yes, there is both parties agreed to the purchase for the manufacturer price Breach- seller wanted to get more money than the manufacturer’s price Injury- they wanted a car for a certain price, it was proof the bargain was a good one b/c the seller wanted more money. Legal Remedy is inadequate- a pace car to a collector is very rare and special. Equitable remedy- it is not difficult to frame a remedy, just give over the car.
American Brands Inc. v. Playgirl B: Both parties contracted to place American’s advertisement on the back cover of the magazine. There was a clause in the contract giving American the power to decide which editions they would advertise in and cancellation privileges. By June 1974, Playgirl have given American notice they would diversify their back cover. R: The trial court denied injunctive relief b/c plaintiff could not prove the injury was not compensable by an award of money damages. The appellate court did however accept American’s argument that Playgirl is unique but the burden of proof is on American to show that their damages cannot be calculated and they have not proved this.
Class Notes IN this case there is no problem w/ framing an equitable remedy but American has not proven the legal remedy is inadequate. Preliminary Injunction: The failure to protect you during litigation means you will suffer irrepairable injury. You must prove the likelihood you will win on the merits. The more extreme the injury, the more likely the court will give the preliminary injunction pending the outcome. To get an equitable remedy you must prove your legal remedy is inadequate and the equitable remedy is appropriate. Unique goods, when the damages cannot be proven w/ enough certainty - goes to the legal remedy being inadequate. The equitable remedy: must be appropriate. You contract for a builder to build a house. The builder is special and has a patented device. The court will not order them to finish the house. The court would be involved in every possible dispute. Everything that involves continuous involvement the court will not order it, the more supervision that is required of the court the less likely you are to get the equitable remedy. Negative injunction- if the singer doesn’t sing for Lumbley then she can’t sing for anyone. There is a time limit on negative injunctions. Negative injunctions durations are controlled by the terms of the contract. For ex, She cannot sing for anyone before the date she was to perform. When the purchaser wants to enforce the contract of sale of land, the courts are more eager to enforce equitable remedy and assume legal remedy is 62
inadequate. When the buyer backs out, the court will not enforce a equitable remedy, b/c they can get another buyer (if they can) and get the difference from the purchaser.
Reliance
L. Albert & Sons v. Armstrong Rubber Co B: Albert (seller) contracted to sell refiners (machines to be used to recondition old rubber) to Armstrong (buyers) for $25,500. The contract for sale was by exchange of letters for four refiners, 2 were delivered in Aug, 43 and the other two delivered Aug 31 or Sept 8, 45. B/c of the delay in delivery of the second two buyer refused to accept all four in Oct, 45 and it counterclaimed for the seller’s breach. R: If the contract had been performed, the seller argues the buyer would have lost money. The court held the seller can offset the buyer’s quasi-contract recovery (3,000) if the seller can prove the amount the buyer would have lost if the contract had been carried out.
Class Notes Restitution is off the contract and can be brought by the breaching and non-breaching party. Here, the breaching party brings the suit off the contract. The amount $118,478 is in contrast w/$25,500 and no-one would accept the risk for this much damages in return for a sale of such a low price. Restitution: there would be no damages b/c there was no benefit bestowed. Expectation: would be net profits; but speculative to prove Reliance: the non-breaching party gets the reliance but the breaching party can prove the amount the buyer would have lost and reduce the damages by that amount. Sale price $25,500 Foundation $3,000 Operating Expenses (over the life of the machine) $10,000 $38,500 but its gross receipts is $37,500. This is a loosing deal. $1,000 Damages would be $3,000-$1,000= $2,000. The court is saying if the breaching party can prove expectation, then that is what you get usually it is the non-breaching party but instead the breaching party proves expectation. Ex: Hire boxer a, rent a hall, then hire the champ and pay money to advertise. Champ repudiates. You only get your reliance after the contract is signed w/ the champ. Promoter spends attorney’s fees to seek injunctive relief after champ repudiates. Some courts will allow recovery to mitigating damages in a reasonable manner. It is unreasonable to build up damages after you learn of the breach. Negative injunctions durations are controlled by the terms of the contract. So if the champ is under a negative injunction, he can not fight again until after the day of performance. Example 3, television studio hires an actor spending a good sum of money before they sign him and nothing after. 3 wks later he repudiates. The court awarded them b/c they could not replace him in such a short time.
Restitution
Pinches v. Swedish Evangelical Lutheran Church B: P built a church for D according to certain plans and specifications. Due to errors made by p and d’s architect the building has several material defects such as the windows are shorter and narrower, the ceiling is lower and the seats are narrower. R: In cases where only some additions to the work are required to finish it according to the contract, or where the defects in it may be remedied at a reasonable expense, it seems reasonable
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to deduct from the contract price the sum which it would cost to complete it. Here, the result of the p’s work is a structure adapted to the purpose for which it was created, which the defendants use and enjoy, but which cannot be made to conform w/ the contract except by expenditure which would deprive p of any compensation for their labor.
Class Notes This case is Substantial Performance: Contract Price- Diminution. It should be Market price-value of mistake. You get the benefit bestowed: the market price.
U.S. v. Zara Contracting Co. B: P agreed to build a runway but soil made the job more difficult. Requested more money then abandoned job. D took over work w/ P’s tools. R: The plaintiffs want to recover extra money for work done on the soil conditions which made their work more difficult. The court found three theories on which they could recover 1. The excavating was extra work not covered by the contract figures and should be separately compensable. ON THE CONTRACT 2. The main contract is applicable to all the subs which allows recovery of extra money for additional work. ON THE CONTRACT 3. Quantum Meruit- In view of Zara’s default, they may waive the contract and sur for the reasonable value of the work performed. OFF THE CONTRACT. Plaintiffs were arguing for 1 and the trial court awarded them their damages on 2. This court however argues in light of Article 5: p agreed no representations have been made to the subsurface and were not induced to enter into the contract, they promised to make no claims for damages of unknown conditions. This term bars recovery on the contract so p cannot recover for 1 or 2. No such infirmity attaches to 3. The trial court found a price acceptable by the appellate court to the amount p can recover for the additional work. The additional allowance costs is not measured by the contract price however, this is a good evidence of the value of performance by defendant. B/c it was the defendant who breached the value is not determined by the benefit received by the defendant but by how much the defendant could have purchased the work for from someone in p’s position however, the defendant was benefited greatly by the work received.
Class Notes Nonbreaching party can get more than the contract price. Labor contracts reflect the average of work and there are harder parts and easier parts to excavate therefore it is hard to award a %age of the contract price for a %age of the work. Can you (the non-breaching party) ever get more than the contract price? If you partially perform, yes in some jurisdictions. If you fully perform, you will be limited to the contract price. Some jurisdictions will limit you to the contract price whether you fully perform or partially perform. You can always sue off the contract when performance was excused by impossibility, impracticability or frustration of purpose (§272)
Britton v. Turner B: Plaintiff entered into a contract to work for one year and be paid by defendant $120. For an unknown reason, plaintiff did not complete the year but did work for most of the year and then left w/ out consent from defendant. R: P did not perform for the year as he contracted to do, therefore he cannot recover on the contract. He can recover off the contract for the work performed and the benefit conferred. The court says this is because he is in a worse position partially performing than if he had breached from the beginning. The d would be in a better position having p breach when he partially performed than if p would have fully performed.
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After notes The impact of quantum meruit is to allow a promisee to recover the value of services he gave to the defendant irrespective of whether he would have lost money on the contract and been unable to recover in a suit on the contract. The measure of recovery for quantum meruit is the reasonable value of the performance, and the recovery is undiminished by any loss, which would have been incurred by complete performance. While the contract price may be evidence of reasonable value of the services, it does not measure the value of the performance or limit recovery. Rather, the standard for measuring the reasonable value of the services rendered is the amount for which such services could have been purchased from one in the plaintiff’s position at the time and place the services were rendered. In the case of a breach by non-performance, the injured party’s alternative remedy by way of restitution depends upon the extent of the non-performance by the defendant. The defendant’s breach may be nothing but a failure to perform some minor part of his contractual duty. Such a minor non-performance is a breach of contract and an action for damages can be maintained. The injured party, however, can not maintain an action for restitution of what he has given the defendant unless the defendant’s non-performance is so material that it is held to go to the ―essence‖. A minor breach by one party does not discharge the contractual duty of the other party; and the latter being still bound to perform as agreed can not be entitled to the restitution of payments already made by him or to the value of other part performances rendered. One variable in the restitution cases is who is the party that breached. Another variable is the way to measure the benefit leading to the restitution request. The benefit could be the value in the hands of its recipient, the cost of conferring the benefit, or the price that a third party would pay for the benefit. The latter two measurements are, in some sense, a market measure.
Class Notes K Price=120 Value of Work=95 Cost of Replacement=40 What does the breaching plaintiff gets=80 If value of work =65 The breaching plaintiff gets=65. You will never get more than the value of the work, and the nonbreaching party will never pay more than the contract price.
Certainty
Rombola v. Consindas (Suprme Ct of Mass 1966) B: Rombola contracted to train and race two horses for Consindas. The horse was to race in a six stake race lasting 33 days. Cosindas w/out Rombola’s knowledge, took possession of the horse and deprived Rombola of his right to race the horse. R:The horse was classified or rated according to the amount of money they won and raced against their peers. The right to recover prospective damages must in each case be decided on its own facts, and a comparatively insignificant factor, in combination with others, any lead to a conclusion in one decision apparently at variance with that reached in others. In determining the amount of damages to be awarded, mathematical accuracy of proof is not required. The likelihood of prospective profits may be proved by an established earnings record. Expert opinion may be introduced to substantiate the amount of prospective profits. Fera v. Village Plaza Inc. (Supreme Ct. of Michigan 1976) B: Plaintiffs agreed to a lease for a liquor and book store. Their lease was given away.
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R: In order to be entitled to a verdict for damages in a contract, the plaintiff must lay a basis for a reasonable estimate of the extent of his harm, measured in money. The issue becomes one of sufficiency of proof. The jury should not be allowed to speculate or guess upon this question of the amount of loss of profits. If a business is one that has already been established, a reasonable prediction can often be made as to its future on the basis of its past history. Plaintiffs cannot recover for loss of good reputations, loss of good will.
Class Notes Non-breaching party, non material breaching party, and material breaching party can sue OFF the contract for their restitution damages. Measuring expectation: you could give them their earnings, or you could give them the money to rent an equivalent space. When you want to get lost profits you must prove them w/ a reasonable certainty. For a new business loss profits are almost never awarded. Real Estate is usually thought of as unique. Industrial may be treated less rigorous than Business or Residential land. Specific Performance in this case would be to prejudice an innocent 3rd party. The person who leased the store is the innocent 3rd party. Generally, you can not get from someone more rights than they have. The landlord cannot give the space b/c he has already given up the right to it. 3rd party --Innocent and gave value. A watch left at the jewler to be cleaned and someone comes in and purchases it. (innoncent 3rd party no specific performance) Or the jewler gives the watch as a gift. Bad faith purchaser-the purchaser knew the watch was left for cleaning. (specific performance could be ordered) Given by gift-the person did not give anything up (will not be protected and specific performance could be given by court) Franchises are a new business that profits can be proven w/ a certainty. You can’t get loss of time usually in courts.
Forseeability
Hadley v. Baxendale B: P’s mill was stopped by a broken crank shaft which needed to be sent away to be a model for a new shaft. P went to D to have the crank sent away, and specified he needed it returned quickly. D delayed and P was out of business during this time. R: The damages which the other party ought to receive in respect of such breach of contract may be those either arising naturally, according to the usual course of things. If there are special circumstances, p must advise d of the circumstances to recover for the damages that arise (§351).
Class Notes If defendant has knowledge of p’s damages, they need to know the scope of their liability to adjust the price, and if they are on notice of the loss they would incur they would take more precautions. If you have information that is special, this rule encourages disclosure. The price must reflect the risk. Common Carrier/ Taxi-cab drivers-If the price is set by statute, they cannot raise the fare, and they are not liable for special damages. Install and monitor the alarm- beaten and injured: the alarm co. promised to notify and you could have still been beaten. The price did not reflect the risk. Victoria Laundry (Windsor) v. Newman Industries B: P delivered the boiler almost 4 months late.
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R: D put themselves out to be experts and in the field of boilers it is rare a boiler of that size and cost would be bought as a standby. D was aware P needed the boiler immediately and could forsee the loss of profits incurred while waiting on the boiler. Case remanded referee to award in addition to 110₤ any profits d would know or should have known would be lost to P. Class Notes When it is expensive to negotiate, the background rule becomes the only rule. When the friction, or cost of negotiation is expensive the default rule is the background rule. Conversely, when negotiation is inexpensive, the parties can change the rule. Ex: The law changes from publisher automatically having the rights to anthologies to individual authors having the rights. Presumably, the author doesn’t know the rule so the publisher could take advantage and not tell the author about the rule. Publishers are repeat players, and know the rule. Information providing might be a basis for deciding what the default rule should be. Putting default rules on the party that has the information and that prejudices them encourages information. Some authors might be amateurs however, publishers of anthology can hardly be amateurs. Bemidji Sales Barn, INC v. Chatfield B: D bought 62 heifers and it was represented to him the cows were vaccinated. The two week adjusting period had not run. Buyer took the cows and some discovered shipping fever. He did not separate the sick ones from the rest or from his old herd and some died as a result. R: Lost profits, provided they are foreseeable by the seller, are clearly recoverable under common law. The defendant did not prove that plaintiff’s breach was the cause of his loss of calf crop. He also did not prove all the cows that died were ill from shipping fever and he contributed to some of their deaths by not properly separating them. Class Notes Ex: What if defendant could not mitigate the damages, and did not have any room to put thee cows in another place, does the seller have to pay for damages. If these are special circumstances, his heard would be much more susceptible to infection, he should have disclosed.
Duty to mitigate
Rockingham County v. Luten Bridge Co. B:Builder contracted to build a bridge in a remote part of the county. The award by the board caused confusion among the members causing one to resign and the others to not attend. The reconstutited board voted to rescind the contract, at this point the loss to Builder was $1900. Builder continued work and sued Plaintiff breached, which he incurred $18,301. R: The rule is a non-breaching party can’t do anything to aggravate the damages arising from breach. If the party hears of repudiation, or breach he can not continue work and incur extra damages for breaching party. He must desist and sue for damages that would normally arise and for expended material and labor up until the time of breach. In this case, the county did not need the bridge anymore. They did not have the right to breach, but their liability would have been less than what it is when builder continues to build.
Class Notes The builder got an ambiguous repudiation and should have asked for assurances. Repudiation has to be unambiguous. Orig 20,000
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Cost and labor 17,000 Profit 3,000 EXPECTATION They get the repudiation and rightfully, they stop work. They stop and have spent 5,000. Their expectation would have been 8,000 which gives them 3,000 in profit.
Canadian Industrial Alcohol v. Dunbar B:Buyer sues seller for breach of a 1.5 million gallons of molasses executory contract made on Dec 27, 1927 to begin delivery after Apr 1, 1928 from time to time. The molasses co. delivered 344,083 gallons and upon its failure to deliver more plaintiff brings the suit. The seller offered to give buyer molasses (400,000 gallons) from another refinery for 61/2 cents per gallon about a cent less than market price. They also offered to give buyer another contract for 400,00-850,000 gallons of molasses for 71/4 cent. R: The breaching party tried to sell the buyer the object of the breach for a higher price. The court held the buyer was not under an obligation to buy the molasses from seller at a higher price than contracted for but a lower price than the market.
Class Notes Do not have to mitigate damages with the breaching party. There is a difference in the service and goods context, so it might not be the same if it were the employer and not sale of goods. Corvette- contracted for 25,000 dealership says 35,000 you buy another at 40,000 you will get 15,000. You are not obligated to mitigate w/ the breaching party. Parker v. Twentieth Century Fox Film Corp. B:The Actor had a contract for $750,000 to make a musical film in Los Angeles. The producers decided not to produce the film but offered the Actor another contract to make a western in Australia for the same price. The actor sued. R: The majority held that projected earnings from other employment opportunities not sought can be applied to mitigation but the employer must show that the other employment was comparable, or substantially similar, to that of which the employee has been deprived. The employee may reject different or inferior employment and that is what the Actor did. The differences the majority point out is one movie is a musical, and the other is a western also, one movie is shot in L.A and the other, in Australia. Her contract was inferior b/c she did not have any say so in directors or the screenplay in the second contract. Class Notes General job description and at will doctrine will protect businesses. Specific contract; (such as Shirley McClain’s ) you can not be made to be forced into a new job where it is more burdensome, or you will likely fail you are permitted to limit your choice to jobs you will succeed at. It is different if they agree to pay you for doing nothing at all. Coach’s probably will not get [(routinely fired) industry practice] speculative damages of bypassed unwon games if they are fired in the middle of a contract and paid his salary. If you are getting some 3rd party benefit, this is not generally taken into account. Coach- had a contract w/ university and separate contract w/ shoe and tv commercials. Forseeability- are the contracts too far beyond the scope that would naturally flow from the contract, or are these special and did not university know about them. Damages Coach, took a job for 1 million a year, fired, the coach took a job coaching for 200,000the university must pay 800,000
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Coach took a job teaching sports business for 250,000-750,000 any job in general will offset damages Collateral Source Rule- Coach is worth 60,000, but when fired got 10,000 from unemployment insurance. Minority-Some jurisdictions will allow the business to only pay 10,000, some will not allow employers to recover the benefit and will make them pay 60,000- Majority rule Idiosyncratic workers will probably not be protected when mitigating damages. Employer has the burden of proof, of showing the job was similar.
Liquidated Damages Clause
Vines v. Orchard Hills Inc. B: Contract to purchase a condominium. Buyers decided not to take the condo b/c they got a new job in a different state. They paid a deposit of 7880 for the condo. They sued the seller for the deposit. The contract had a liquidated damages clause. Liquidated – converted to specific dollars. R: The plaintiffs bears the burden of showing that the clause is invalid and unenforceable. If you can prove what the actual damages were, and that they were less than the liquidated damages clause, the plaintiff can get the difference.
Class Notes Ex: Another buyer calls the same day and buys the condo for the same amount, the seller is not damaged at all, and they must pay the entire amount back. If they sell the condo for 78,000, they must pay all back minus 800. Best estimate- if the seller turns the first offer down, thinking they will get a better offer, they will not be at fault necessarily for failing to mitigating their damages. They used their best estimate. To ensure the l.d.c. will be upheld use an incremental amount as time goes by to avoid the blunderbust.
Lake River Corp v. Carborundum Co. B: Minimum order requirement b/c they ordered special equipment to fufill plaintiffs demand for packaging. R: § 356 Liquidated Damages Clause and Penalties (1) Only considered legitimate if when the contract was made the parties agreed the breach and resulting damages were difficult to prove or measure damages. Good faith estimate of what the damages would likely be. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty. (2) A term in bond providing for an amount as a penalty is unenforceable to the extent the amount exceeds the loss.
Penalty clauses are not enforced b/c they are unthinking. Blunderbust- a charge for any breach disregarding value/time. Some jurisdictions will add a third requirement (Minority View) 3. and damages are in fact difficult to measure at the time of breach. If a party can prove actual damages, then they should get them. Generally don’t enforce l.d.c., and call them penalities. Penalty is the conclusion after analysis. There is change in the law, although hostility is still there, they are being enforced now.
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