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Contracts 1- outline
Intent to Contract: Offer and Acceptance
I. Introduction: The Principal of Mutual Assent
In determining whether there is mutual assent, courts typically ask whether there has been an offer to contract and an acceptance of that offer. If the O/r has clearly manifested a willingness to enter into a contract in such a way that the Oee knows that assent is all that is necessary to cement the deal, and the Oee accepts, the requisite mutual assent exists. Contract: A promise or promise set that the law will enforce. Informal Contracts: Have the elements been met. Unilateral- (Promise for an act) Bilateral- (Promise for a promise) Mutual Assent (Offer + Acceptance) O + A + “C” = K Offer + Acceptance + Consideration = Contract
Lucy v. Zehmer- Zehmer and Lucy were in the bar and Lucy wanted to buy some land. Zehmer thought Lucy was joking and wrote out a ―contract‖ and signed it with his wife. Lucy wasn‘t joking, but Zehmer was higher than a Gerogia Pine. A person is judged by their words and acts, objectively, and the inward emotions and intentions are immaterial; the subjective stuff doesn’t matter.
Mutual Acceptance-Each party agrees to all of the terms and conditions with the same sense and same meaning as the other.
Mutual Assent can only be determined by outward expression, the personal state of mind or secret intentions are irrelevant if their actions lead would lead a reasonable person to believe that assent had been given.
Stepp v. Freeman- Freeman didn‘t include Stepp in the lottery pool. He treated him differently than anyone who didn‘t pay the ante in the past because of a quarrel. When they actually won the lottery Freeman didn‘t want to include Stepp. The court said Stepp was included in the lottery pool. In an implied-in-fact contract, assent is demonstrated by the conduct of the parties involved.
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3 types of Contracts
1. Express- Contract expressed through words, either oral or written, can be created by the parties, not imposed by the court. Created through mutual assent. 2. Implied in Fact- Contract implied by the conduct of the parties in the contract demonstrated through their conduct and surrounding circumstances. Not court imposed, created by mutual assent. 3. Implied in Law- Not a contract, imposed by the court to prevent unjust enrichment as a remedy. Not Contracts: Professional statements (unless they cross the line and ―guarantee‖), Advertisements, and ―written K to follow‖.
II. The Offer
An offer must be: Definite as to its terms, it identifies the Oee, the price, the method and manner of acceptance, and the quantity. Communicated to the Oee, it makes the Offer and terms known in the mind of the Oee. Committed to enter into a K. It creates in the mind of the Oee a sense that a reasonable person would recognize that all that is needed is assent on the part of the Oee to cement the deal. The O/r is the “Master of The Offer” he/she dictates the terms of the proposal, and the method and manner of acceptance.
Lefkowitz v. Greater Minneapolis Surplus Stores- The advertisement for the mink stole and the guy that wanted to buy them. Hey, he was there first. Usually advertisements don‘t constitute a real offer. But an ad which is clear, definite, and explicit, and leaves nothing to negotiation is an offer, and an acceptance will create a K. Continental Labs. v. Scott Paper Co.- There were negotiations, conference calls, meetings, and drafts everywhere. But Scott Paper didn‘t want to participate to help supply the hotels of the world with little soaps, shampoos, and toilet paper. If either party intends not to be bound in the absence of a fully executed document, no binding K will be formed.
The O/R can revoke before the O/ee accepts or rejects unless there is an option contract or a Firm Merchant Offer.
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III. Acceptance
Acceptance- ―Cements the Deal‖ After acceptance both parties are bound. It is a manifestation of willingness to enter into the terms of the offer in the manner described in the offer.
The Effect of Acceptance
An Acceptance must meet three criteria:
1. Responsive to the terms of the offer. It meets the terms of the offer and is a mirror image of the offer. 2. Communicated in the method described in the offer, and the acceptance must be known in the mind of the O/r. 3. Absolute and unequivocal. Acceptance is defined as assent to the specified terms of an offer, resulting in the formation of a binding agreement. The Oee is entering the K because the terms are met with no extra or new terms.
ProCD v. Zeidenberg- buys a CD with all sorts of names and phone numbers and other marketing data that is proprietary in nature and then resells it on the NET! There was a license agreement inside that said part of the K was to not resale the information but did it anyway. A buyer accepts goods when, after an opportunity to inspect, he fail to make an effective rejection.
Manifesting Assent
RII Sec. 50 Acceptance of Offer Defined, Acceptance by Performance, Acceptance by
Promise
1. Acceptance of an offer is a manifestation of assent to the terms thereof made by the Oee in a manner invited or required by the offer. 2. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance that operates as a return promise. 3. Acceptance by a promise requires that the Oee complete every act essential to the making of the promise.
UCC Sec. 2-206 Offer and Formation of a Contract-Goods
1. Unless unambiguously indicated by the language or circumstances… a. an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable to the circumstances.
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b. an order or other offer to buy goods for prompt promise to ship or by the prompt or current shipment of conforming or nonconforming goods, but a shipment on nonconforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer. 2. Where the beginning of a requested performance is a reasonable mode of acceptance an O/R who is not notified of acceptance within a reasonable time may treat the offer as having lapsed before acceptance.
Beard Implement Co. v. Krusa- Krusa wrote a check, without a date and the bigwigs at Beard Implement didn‘t accept in time and Krusa decided to revoke. Under the UCC 2-206, if an offer contained in a purchase order is unambiguous in inviting acceptance only by the signature of the Oee, no K exists until the purchase order is signed accordingly.
UCC Sec. 2-204 Contract Formation in General
1. A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties, which recognizes the existence of such a contract. 2. An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined. 3. Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy
Fujimoto v. Rio Grande Pickle Co.- After signing the K of employment, Fujimoto and Bravo did not return the K and continued to work which proved that the assented to the K. An O/r can require notice of acceptance in any manner he chooses; however, absent of any such requirement communicated to the Oee, acceptance may be communicated in any reasonable means.
Silence as Acceptance
Generally silence is unacceptable w/3 exceptions: 1. Past dealings have indicated that silence was acceptable. 2. Course of performance on the K indicates silence as acceptable on this one K.
Day v. Canton- Day built a wall between his property and the property of the . The knew the was being built and said nothing and later refused to pay for half of the construction. Since he had ample opportunity to reject and because he took benefit of the wall, his silence formed a K.
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RII Sec. 69 Acceptance by Silence 1. Where an Oee fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: a. Where an Oee takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. b. Where the O/r has stated or given the Oee reason to understand that assent may be manifested by silence or inaction and the Oee in remaining silent and inactive intends to accept the offer. c. Where because of previous dealings or otherwise, it is reasonable that the Oee should notify the O/r if he does not intent to accept. 1. On Oee who does any act inconsistent with the O/r‘s ownership of offered property is bound in accordance with the offered terms unless the are manifestly unreasonable. But if the act is wrongful as against the O/r it is an acceptance only if ratified by him. The Postal Reorganization Act makes it illegal to just send stuff and charge for it in the mail. They can‘t send you unordered stuff and then charge you for it.
Knowledge of Offer
In order to accept a reward the Oee must know of the reward‘s existence. If a reward is to be revoked it must be published in the same way that the reward was advertised. But, with rewards by the govt. one does not need to know of the reward.
Mode of Acceptance
Unilateral K = A Promise for an Act Bilateral K = A Promise for a Promise
Davis v. Jacoby- Old guy invites the Davis‘s to his home to help him, because he was old and frail with a sick wife, run his business and promises to give them everything in the will. As they were getting ready to move out the old guy kills himself and everyone is scrambling to get his money. It all depended on whether it was a bilateral or a unilateral K. When there is doubt if the K is a bilateral or a unilateral K, a bilateral K will be presumed as it is more fair for both parties. Specific Performance: A court ordered remedy that requires precise fulfillment of a legal or contractual obligation when monetary damages are inappropriate in inadequate, as when the sale of real estate or a rare or article is involved.
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4 Communications in Contracts
1. The Offer (Except Govt. rewards, O/R‘s death) 2. The Acceptance (except Mailbox Rule, O/E‘s death) 3. Revocation- The O/R takes back the offer before acceptance. 4. Rejection- The O/E turns down the offer.
IV. Termination of the Power of Acceptance
RII Sec. 36 Methods of Termination of the Power of the Acceptance 1. An Oee‘s power of acceptance may be terminated by: a. rejection or counter-offer by the Oee, or b. lapse of time, or c. revocation by the O/r, or d. death or incapacity of the O/r or Oee. 2. In addition, an Oee‘s power of acceptance is terminated by the non-occurrence of any condition of the acceptance under the terms of the offer.
Revocation by the Offeror
Direct Revocation: The O/r recinds the offer and the Oee knows. Indirect Revocation: A reliable 3rd party informs.
Revocation and Option Contracts
As Master of the offer the O/R can revoke! Except with option K & Firm Merchant K!
1. An option contract means that the O/E has given the O/R and extra payment (or other form of value, like a promise) in return for a promise to keep the O/R open and irrevocable for a period of time. Where this is true, the O/R may not revoke during the option period. Even more important, a rejection or counteroffer by the O/E (the one who has the option) does not necessarily terminate the offer. An option means that the offer will remain open, but no monies have been given and the O/R, as master of the offer, can still revoke the offer.
Option sets time to accept, the O/r can revoke Option K = no revocation during the stated time w/reliance Reliance is the exception, perishables for instance in conjunction with rejection by O/E
A merchant is one who, through their business, past experience, or through their employment and skills holds themselves out to be knowledgeable in with the goods.
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2. Firm Merchant Offer-UCC 2-205 A firm merchant offer is a type of contract.
Elements. If elements not met, refer to common law. 1. Offer to by or sell goods. 2. Offer by a Merchant (not necessarily between merchants) 3. In a signed writing. 4. Which gives assurance (ie, this offer will remain open for 7 days) 5. Is irrevocable for the time stated, or a reasonable time, but in no case beyond 3 months.) If it is stated for 9 months it is irrevocable for 3
months, after that it remains open but O/R can revoke.
3. Direct Revocation is by the O/R, Indirect O/R is by a trusted and responsible 3rd party.
Dickinson v. Dodds- wanted to buy some land from . But, before there could be a meeting of the minds sold the land to someone else. found out from a reliable 3rd party that found out at the train station. Without an option K or a Firm Merchant Offer, the Master of the O/r can revoke the offer at anytime. An O/r can communicate a revocation through his actions or through a reliable 3 rd party. Petterson v. Pattberg- Pattberg offered to discount the mortgage on J. Patterson‘s estate if he paid before a certain date. Petterson showed up at the door, Pattberg wouldn‘t accept the cash as he had already sole the mortgage. An offer to enter into a unilateral contract may be withdrawn at any time prior to performance of the act requested to be done.
Tender: an offer to perform with the demonstrated ability to perform. A tender of money, in strict legal terms, means much more than a mere offer to pay. It must be accompanied by the current presentment of the exact amount due in official currency.
Marchiondo v. Sheck- Scheck offered to sell realty to a specified prospective buyer and agreed to pay Marchiondo a broker‘s commission. Later Scheck revoked the offer. Then, after the revocation and within the time limit set by the offer, Marchiondo obtained the Oee‘s acceptance. Where an offer invites an Oee to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the Oee begins the invited performance or tenders part of it.
An option means that the Oee has given the O/r an extra payment (or some other form of value) in return for a promise to keep the offer open and irrevocable for a period of time. Where this is true, obviously the O/r may not revoke during the option period. Even more important, a rejection or counteroffer by the Oee (the one who has the option) does not necessarily terminate the offer.
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RII Sec. 41 Lapse of Time An Oee‘s power of acceptance is terminated at the time specified in the offer, or, if no time is specified, at the end of a reasonable time. Oral negotiations and telephone negotiations: when they end, the offer ends.
Loring v. City of Boston- Loring attempted to collect on a reward for an arsonist offered years earlier, during a time of many fires. A party cannot collect on an old, stale reward, it was 6 years prior and any reasonable person would know it expired. Phillips v. Moor- All terms of sale of the hay by Phillips to Moor had been agreed upon, including pickup by Moor, when a fire destroyed the hay. When all terms of sale have been agreed upon, including receipt by the vendee, risk of loss passes to the vendee.
Termination by Death or Incapacity of the O/r or Oee
RII Sec. 48 Death or Incapacity of Offeror or Offeree An Oee power of acceptance is terminated when the Oee or O/r dies or is deprived of legal capacity to enter into the proposed contract.
Termination By Rejection
Exception #1 When Offer is kept open by an option contract. Exception to Exception- If O/R relies on the rejection. Exception #2 Unless O/R has manifested a contrary intention
Unless O/E has manifested an intention to take it under advisement.
Death does not revoke a K or an option K. RII Sec. 38 Rejection 1. Oee‘s power of acceptance is terminated by his rejection of the offer, unless the O/r has manifested a contrary intention. 2. A manifestation of intention not to accept an offer is a rejection unless the Oee manifests an intention to take it under further advisement.
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The Mailbox Rule
The mailbox rule is for when the O/r has not detailed a method or manner of acceptance. Only applies to Acceptance. Mail must be acceptable because the offer failed to state a means of acceptance or because the offer states that mail is acceptable. Always discount the partial day of arrival of the offer.
Morrison v. Thoelke- A party in Texas and a party in Florida. After mailing an acceptance to buy some land, Morrison informed that the offer was being rejected, the rejection being received before the acceptance. An acceptance is effective when it is posted even though a subsequent rejection is actually received before the acceptance. At common law the rule is that acceptance is of an offer is binding upon dispatch at which time an enforceable K is formed so long as it complies with the requirements for acceptance. 1. Acceptance valid upon dispatch 2. Offer valid upon receipt 3. Rejection valid upon receipt 4. Revocation valid upon receipt 5. Option valid upon receipt
The mailbox rule does not apply to option K or Firm Merchant Offers. If a rejection is mailed before an acceptance then it‘s a race to the O/r.
Termination and Counteroffer and the “Battle of the Forms”
Except with respect to option K, the Oee‘s power of acceptance generally terminates when, rather than accepting, the Oee makes a counteroffer. The rationale for this rule is that a counteroffer is impliedly also a rejection.
Livingstone v. Evans- Livingstone submitted a counteroffer for some property that Evans rejected. Livingstone then unsuccessfully attempted to accept the original offer. A counteroffer is a rejection of the original offer and terminates it.
A counteroffer is any change in the offer.
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Commerce & Industry v. Bayer Corp.- & were doing all sorts of business. accepted some nylon fiber from the and somehow a fire started. The big deal was that on the forms and writings exchanged were all sorts of arbitration stuff that neither party paid any attention to until the fire. Now there is the classic battle of the forms. In this particular case it was decided that paragraph 3 would rule the day. Were a contract is formed by the parties conduct, only terms which are common to both parties forms become the terms of the resulting K. Klocek v. Gateway Inc.- Klocek sued Gateway and HP because the products weren‘t compatible. A purchaser does not necessarily accept the standard terms and conditions agreement, which may include an arbitration clause, located in the package containing a mail order product.
Indefiniteness
Corbin on Contracts: The parties may not give verbal expression to such vitally important matters
as price, place and time of delivery, time of payment, amount of goods, and yet they may actually have agreed upon them. This may be shown by their antecedent expression, their past action and custom, and other circumstances.
Usage of Trade: The custom within a given industry. Course of Dealing: The parties conduct in past K with one another. Course of Performance: What parties do while performing this one K.
Walker v. Keith- Walker rented property from Keith for ten years with an additional ten-year option with a vague phrase on the future price to reflect the comparative business conditions between the parties, an agreement to agree in the future. Where essential terms such as price are not contained in an option contract and no standards are included whereby it may be judicially determined, no K exists. ―To be enforceable and valid, a K to enter into a future covenant must specify all material and essential terms and leave nothing to be agreed upon as a result of future negotiations.‖ Rego v. Decker- The case of the service station renter in Alaska where the property didn‘t get paved. A court granted specific performance of a K for the purchase of land by Decker without taking steps to ensure that Decker would also perform his obligations. A court should not grant specific performance without taking steps to ensure that the party seeking specific performance will himself perform.
In general, if there is no quantity listed then there can be no K. Place, if not detailed in the K, is the seller‘s place of business. Price, in not detailed in the K, is the reasonable or open price term at the time of delivery. Time of delivery, if not detailed in the K, is within a reasonable time.
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Acceptance is effective When… A. RII
1. Received and actually in possession of the O/R. 2. Received by a person authorized to receive the acceptance. 3. Deposited in a place where the O/R has authorized for communications, he/she doesn‘t necessarily have to read it, the burden is on the O/R.
B UCC1-201 A person receives a notice or notification when 1) it comes to his attention; or 2) it is duly delivered at the place of business through which the contract was made or at any place held by him as the place of receipt of such communications.
Consideration
I. The Basic Concept
Definition
Corbin on Contracts A contract is defined as a promise that the law will enforce. This means that a
true contract will always contain at least one promise, and in a typical commercial setting that promise will be exchanged for something else, a quid pro quo. That ―something else‖ is what the law calls consideration.
In terms of contract formation first look for traditional consideration, next look for promissory estoppel, then lastly look for a moral obligation.
Consideration is a bargained for exchange that has legal value. 1. Consideration- Quid Pro Quo, ―This for that‖ 2. Promissory Estoppel w/Reliance under RI, w/o Reliance under RII(charity) 3. Moral Obligation
Past consideration does not have legal value in the eyes of the law.
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Consideration- Quid Pro Quo 1. Is there a bargained for exchange, mutual promises? 2. Do they have legal value. a. Bargained for the benefit of the promisor. b. Bargained for the detriment of the promisee. c. Forbearance: giving up something you have a legal right to do, can be 3. Interlocking promises In common law one who seeks to enforce a promise must establish a basis for finding the promise enforceable.
consideration.
3 Possibilities.
1. The promise was made as part of a bargain for valid consideration. 2. The promise reasonably made the promisee to detrimentally rely on the promise.
2 types of legal detriment:
a) Promisee does something not legally obligated to do. b) Promisee refrains from something he is entitled to do.
3. The promise comes within a statute that makes it enforceable despite the absence of consideration. The primary basis for enforcing a promise is that it was made as part of a bargained exchange as compared to being gratuitous.
In the case of a bi-lateral contract both parties are the promisor and the promisee, and it is critical that one first identify which party‘s promise is being sought to be enforced. That party will be the promisor and for any analysis of consideration and the party seeking to enforce that promise will be the promisee.
RII Sec. 71 Requirement of Exchange; Types of Exchange 1. To constitute consideration, a performance or a return promise must be bargained for. 2. A performance or a return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange in exchange for that promise. 3. The performance may consist of a. an act other than a promise, or b. a forbearance, or c. the creation, modification, or destruction of a legal relation.
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4. The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
Hamer v. Sidway- The uncle that promised to pay his nephew $5000 to forbear all the vices we love so much- liquor, swearing, tobacco, playing cards, pool, etc. until he was 21. Here the law recognized that forbearance (he gave up a legal right to vice, buying prostitutes was not included, FYI) was valid consideration.
Sufficiency
Adequacy Consideration: refers to the quantity of the amounts exchanged. Normally courts don‘t look to the adequacy of consideration. 2 exceptions: 1. Fungible for like fungible (US dollars to US dollars, brick for brick) 2. Before decreeing specific performance Fungible: exchangeable like items Sufficient Consideration: refers to the value that the law will enforce, or recognize. Nominal Consideration- Only to keep K open. Love, affection, and conjuring spirits don‘t have legal value, not consideration.
Mutuality of Obligation: Both parties are bound, or neither are bound.
Batsakis v. Demotsis- It‘s WWII and the Nazis (called republicans nowadays) are at the backdoor of Greece. Batsakis loaned Demotsis 500,000 drachmae (which, at the time, had a total value of $25 American money) in return for Demotsis promise to pay $2,000 in American money. the Demotsis‘ learn the hard way that mere inadequacy of consideration will not void a contract. And, not to trust Texans bearing gifts… Schnell v. Nell- The dude‘s wife dies and burns all her relatives by giving them nothing out of the estate. A contract will be vitiated for lack of consideration where the consideration given by one party is only nominal and intended to be so.
RII Sec. 87 Option Contract 1. An offer is binding as an option contract if it a. is in writing and signed by the O/r, recites a purported consideration for the making of the offer, and proposed an exchange on fair terms within a reasonable time; or b. is made irrevocable by statute.
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2. An offer which the O/r should reasonably expect to induce action or forbearance of a substantial character on the part of the Oee before acceptance and which does induce such action or forbearance is binding as an option contract to the extent necessary to avoid injustice.
II. Forbearance as Consideration
Fiege v. Boehm- Fiege promised to pay Boehm child support if Boehm would refrain from pursuing bastardy proceedings. Later, after blood tests showed that Fiege was not the father and that bastardy claims were invalid he didn‘t want to pay anymore. Forbearance to assert an invalid claim may serve as consideration for a return promise if the parties at the time of the settlement reasonably believed in good faith that the claim was valid.
RII Sec. 74 Settlement of Claims 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 t 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 even though he is not asserting the claim or defense and believes that no valid claim or defense exists.
III. The Illusory Promise
.When the O/r remains in control whether or not the Oee can accept, then the promise is illusory. Words like: wish, want, desire, indicate a illusory promise.
Wood v. Lucy, Lady Duff-Gordon- The lady makes erotic ―nighties‖ and the marketeer has an exclusive right to endorse designs by the lady and sell them and get a cut of the profits. Lucy-Lady broke the K by placing her endorsement sans Wood‘s knowledge. While an express promise may be lacking, the whole writing may be instinct with an obligation-an implied promise- imperfectly expressed so as to form a valid K.
Implied Promise: A promise inferred by law from a document as a whole and the
circumstances surrounding its implementation.
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Sylvan Crest Sand & Gravel v. United States- bid on K to supply trap rock for the construction of the airport. K said the U.S. could cancel at anytime. When U.S. refused to accept anymore Sylvan sued. Although the K had the right to cancel at anytime, it is reasonable through interpretation to take the position that notice of cancellation is required, and, even though notice may be given at any time, it constitutes a detriment, hence, valid consideration.
Detriment: a loss or injury sustained by an individual personally or to his interest
in property.
Illusory Promise: A
promise that is not legally enforceable because performance of the obligation by the promisor is completely within his discretion. 1. No consideration 2. If illusory- NO CONTRACT THE CORBIN TEST- Has the promisor limited his or her action? If yes then it‘s not illusory- ―I‘ll pay you $5 if you go to Chicago.‖ If no then it‘s illusory- ―I might go to Chiccago‖ Promisor has a way ―out‖. A promise is illusory if it reserves a choice of alternate performances UNLESS If the two choices are separated by the word OR each must have value a) I‘ll pay you $50 if you 1) wash my car OR 2) paint my house. =K b) I‘ll pay you $50 if you 1) love me OR 2) paint my house.NO K (Love has no value) If the two choices are separated by the word AND only one or the other must have legal value. a) I‘ll pay you $50 if you 1) wash my car and 2) paint my house. =K b) I‘ll pay you $50 if you 1) love me and 2)paint my house .=K c) I‘ll pay you $50 if you 1) conjure spirits and 2) love me. NO K
McMichael v. Price- The sand salesman and the sand supplier who can‘t keep his records straight. Price contended that McMichael breached a requirements K. A requirements K is valid if the buyer realistically anticipates such requirements.
Mutuality of Obligation: Requires that both parties to a K are bound or else neither is bound.
Requirements K: A K where one party agrees to buy all the required goods from
another party exclusively, the detriment is that they can‘t buy from another party.
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Output K: A K where one party agrees to buy all the goods that the other party
can produce. The detriment is that they can‘t sell to anyone else.
RII Sec. 77 Illusory and Alternative Promises A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless a. each of the alternative performances would have been consideration
IV. Past Consideration
Hayes v. Plantations Steel Co.- had been employed at the mill for many years without a retirement plan. He tried to enforce a promise made to him upon announcing his retirement that he would receive a pension, he got burned. There was no bargained for exchange, he had already worked, and after the announcement of his plan to retirement he only worked for another week. No consideration, he had already performed. A promise to an employee upon the announcement of his retirement is not enforceable. Mills v. Wyman- The young man had just returned from sea and he got very sick and the doctor took care of him before he died. Mills took care of him w/o being asked and was promised compensation which the father refused. A moral obligation is insufficient as consideration for a promise. ― The rule that a mere verbal promise, without consideration, cannot be enforced by action, is universal in its application…….‖
RII sec. 82 Promise to Pay Indebtedness; Effect on the Statute of Limitations 1. A promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except for the effect of a statute of limitations. 2. The following facts operate as such a promise unless other facts indicate a different intention: a. A voluntary acknowledgement to the obligee, admitting the present existence of the antecedent indebtedness; or b. A voluntary transfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as interest on or part payment of or collateral security for the antecedent indebtedness; or c. A statement to the obligee that the stature of limitations will not be pleaded as a defense.
Webb v. McGowin- The guy, , is cleaning out a landing in a wood mill and trying to remove a 75lb. block of pine and rides it down so that it doesn‘t kill his boss and suffers grave bodily harm. The boss promises to pay him money for the rest of life. When the boss dies the payments stop. A moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit. This is the minority view, Mills v. Wyman is the MAJORITY VIEW.
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V. The Preexisting Duty Rule
The Basic Concept
RII Sec. 86 Promise For Benefit Received 1. A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent injustice. 2. A promise is not binding under subsection 1: a. if the promisee conferred the benefit as a gift or for other reasons to the promisor has not been unjustly enriched; or b. to the extent that its value is disproportionate to the benefit.
Pre-existing Duty: A common law doctrine that renders unenforceable a promise
to perform a duty, which the promisor is already legally obligated to perform, for lack of consideration. If one promises to do or does that which one was already legally obligated to do, this action is not sufficient to fulfill the consideration requirement. This concept has been labeled the pre-existing duty rule, but it is not a separate rule. It is simply the logical result of applying the basic definition of ―legal detriment.‖
How to ―Get Around‖ the PED
1. Rescind old K and inter into a new K. (Do it in the same document!) Recommend initial new and important stuff. 2. Restructure or rewrite the K and promise something new. 3. Be sure to have new consideration on both sides.
Harris v. Watson- Watson promised extra wages to Harris for labor performed while the ship was in danger. Harris sued to recover these wages. Where there is a preexisting duty to perform work for the wages agreed upon, one cannot demand more wages for the same work. Duh. Stilk v. Myrick- Due to the desertion of other sailors, Capt. Myrick offered Stilk and the other crewmen additional wages to complete the sea voyage shorthanded. In this case it was found that modifications of employment K that are occasioned by emergency or duress are unenforceable. Lingenfelder v. Wainwright Brewery- The architect that designed the brewery got angry because he didn‘t get to design one of the buildings and threatened to quit. The brewery said they would pay him more and then didn‘t. A promise made to induce compliance with a valid K is not enforceable.
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Past Due Monetary Debts
Clark v. Elza- The court settlement case where the parties were going to settle out of court but, then the decided that they could get more money in court. An executory oral agreement to settle a lawsuit may be raised as a defense to the prosecution of that suit. ―An executory accord does not discharge the underlying claim until it is performed.‖
Accord: an agreement to accept a substituted or different performance. Accord
comes after the K.
Satisfaction- The carrying out of the accord. Executory Accord- An accord that hasn‘t been carried out yet, the satisfaction has not occurred. Waiting for satisfaction of the accord.
Disputed debt- Where you have a disputed debt the debtor does not have to
prove anything until the debt is legally resolved. -Payment on a non-disputed debt is payment on account. - Payment on a disputed debt will discharge the original debt because there is no duty to pay the disputed debt until legally resolved. -The underlying debt is not discharged until satisfaction occurs! When a substitute contract is reached, the underlying debt is not discharged until the old contract is rescinded. Scenario: Owe $200K Bankruptcy Says ―I‘ll pay $20K Accord= new agreement to pay $20K Satisfaction = paid $20K If the $20K is not paid the $200K debt reinstated.
VI. Promissory Estoppel
Promissory Estoppel was a radical doctrine at the time of the first drafting of
the first Restatement, Justice Cordozo liked the idea and endorsed it in 1927 via case law brought legitimacy to the doctrine.
DROP= Detrimentally Relied Upon Promise
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Historical Development
Allegheny College v. National Chautauqua County Bank- Old lady pledged $5000 to the college for a ministry scholarship fund and then later she repudiated the pledge. The bank didn‘t want to pay the pledge after she died either. Cardozo found ‗consideration‘ in the form of promissory estoppel: ―when a thing is to be done by the , be it ever so small, this is a sufficient consideration to ground an action…When the promisee subjected itself to such a duty at the implied request of the promisor, the result was the creation of a bilateral agreement.‖
Basic Applications
RI Sec. 90 Promise Reasonably Inducing Definite and Substantial Reliance 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 of forbearance is binding if injustice can be avoided only by enforcement of the promise. RII Sec. 90 Promise Reasonable Inducing Action or Forbearance 1. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited, as justice requires. 2. A charitable subscription or a marriage settlement is binding under subsection 1 without proof that the promise induced action or forbearance
Elements are:
1. The promisor must reasonably expect that his promise will induce action or forbearance. 2. The promise does in fact induce such action or forbearance; the promisee relies on the promise to their detriment. 3. Injustice can only be avoided by the enforcement of the promise.
Universal Computer Systems v. Medical Services Assoc. of Penn-The computer company relied on the promise of the employee‘s promise to pick up the bid for a computer system at the airport. Then the employee broke his promise and the bid didn‘t show up on time and so they lost the sale. The computer system relied upon the promise of the employee do their detriment and they were able to recover because they were able to prove that they should have won the bid. Do this with every case for Promissory Estoppel: Promise, yes Reasonable to think of reliance, yes Actual reliance, yes Injustice if promise not enforced, yes, Remedy as justice requires, yes
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James Baird Co. v Gimbel Bros.- Baird was relying on the quote for linoleum in it‘s bid to construct public buildings in Pennsylvania. Baird has already submitted the bid when a telegraph arrived stating the price of the linoleum was quoted wrong and was really double the price. The construction K had not been awarded and no consideration for the construction K had been exchanged and so the court did not use promissory estoppel to enforce the promise. Branco Enterprises v. Delta Roofing- Branco relied on the roofing quote for the construction project and Delta even acknowledged the reliance. Then Delta couldn‘t get certified and backed out and Branco had to hire a different subcontractor that cost over $10,000 more. Here promissory estoppel was applied and the court found that a K may be effected between a general contractor and a subcontractor based on the reliance on the subcontractor‘s bid as a key component of the project‘s bid.
Limits of the Doctrine
Hoffman v. Red Owl Stores- was assured many times that he could get a Red Owl Franchise; he spent money, he trained hard, he relocated, but Red Owl presented too many obstacles. Finally, when Red Owl had the audacity to ask that a major cash contribution be given as a ‗gift‘, the Hoffman‘s hired a lawyer. They didn‘t get all their money back, but the court used Restatement I Sec. 90 to avoid injustice.
Moral Obligation- a subsequent promise to pay a debt barred by:
1. Statute of Limitations 2. Infancy- Under 18 years old 3. Bankruptcy------operation of the law to get rid of a debt 4. Material Benefit Is enforceable w/o consideration because of a moral obligation because you made a substantive promise and because of the pre-existing duty. Infancy- Kids under 18 lack the capacity to enter into a contract unless for food or shelter, but some states have exceptions.
Mills v. Wyman- father didn‘t have to pay for dead sons medical expenses because his son was 18, it was after the fact, after the son died. Webb v. McGowin- Guy dies cleaning a mill when he fall with a pine block. Here, moral obligation was found for the reason of material benefit, as the guy who had his life saved started payment. When payments stopped the court found that the mill had to continue until the man who suffered injuries died.
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Remedies
Assume there is a K.
Remedies have two components
1. Damages-$ 2. Equitable Remedies - Specific Performance - Injunctions----Prevent someone from doing something, like the Popeye sign. - Writ of Mandames—Force someone to do something DAMAGES WILL BE ON THE EXAM! Why care about damages? To file a complaint you must ask for relief, the prayer, the $; when the case is tried you must instruct the jury about the damages, and if only nominal damages are awarded you must be able to appeal.
3 Components to Damages
1. Expectations : Typically these are lost profits. 2. Reliance: Out of pocket expenses 3. Restitution: AKA ―Unjust Enrichment‖
KNOW THE GOAL! Expectations: The Goal----Put the plaintiff in as good as a position as he would have been
in had the defendant performed his promise. K----------------Breach------------------------Performance gets the benefit of the bargain. General damages, consequential damages, good will. If suing ―on the contract‖ this is the general goal of an award of damages. Damages
Reliance Interest: The Goal----Put the plaintiff in a good a position as he was in
before the promise was made. Damages
K-----------------Breach-------------------Performance
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Restitution Interest: The Goal----Allow on party to recover the value of a benefit
conferred upon the other party, prevent unjust enrichment.
Promisee------ Promisor “Give it back man!”
Other Types/Kinds of Damages
1. Consequential Damages- Expenses or losses beyond general damages that the Plaintiff would never have incurred but for the breach. Losses that do not flow directly from the injurous act, but that result directly from the act. Incidental Damages- A type of consequential damages incurred ascertaining and trying to prevent the breach. 2. Special Damages-Damages that arise out of a peculiar set of facts, (special for this K).
Cost of Performance Rule- How much money would it cost the nonbreacher to be put in the position he or she should have been in had the K been performed. Diminution in Value Rule- IF the cost of performance would result in unreasonable economic waste and the breach is insignificant the award is the diminution of value caused by the breach. Primary Lost Profits- Fair market price less the K price. Secondary Lost Profits- Profits lost as a result of other K that are related to the breached K, or profits lost directly related to the primary lost profits.
3 Variables to Apply to Specific Items of Damages
1. Certainty- Prove both with each damage. The fact that the breach caused the type of injury that the alleges. The extent to which the suffered from the breach, the dollar amount. Both the causation and the dollar amount.
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2. Foreseeability Naturally- The damages arise from the breach of K and Foreseeable- The damages were with in the contemplation of the parties at the time of the K formation. 3. Mitigation- The principal requiring the , after a breach of K, to use ordinary care to alleviate the effects of the breach.
Limitations on Recovery Consequential- expenses and damages incurs beyond general damages, i.e.,
secondary lost profits.
Incidental- losses incurred while trying to ascertain and prevent the breach.
These are a subset of consequential damages.
Primary Lost Profits- Profits lost directly from the non-performance of a contract. Secondary Lost Profits- Profits lost in a collateral transaction. These are
typically contracts with 3rd parties, not the party that breached the K. For instance, The might have to hire a new contractor to finish what the did not finish.
General Damages- Damages that are a direct result of the breach of this K. Uncertainty.
may be denied damages if they are proven to be too speculative. Lost secondary profits must be proven to be certain. 1. must prove a causal link between the breach and lost secondary profits. 2. must prove a extent of the profits are not too much, they must be reasonable. 3. Or a combination of both.
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I. Damages
Introduction
UCC 1-106 1. The remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed.
From Reliance Interest in Contract Damages
―First, the has in reliance on the promise of the conferred some value on the the . The interest protected may be called restitution interest. Secondly, the has in reliance on the promise of the changed his position. The interest protected in this case may be called the reliance interest.‖ Thirdly, without insisting on reliance by the promisee or enrichment of the promisor, we may seek to give the promisee the value of the expectancy, which the promise created. Here our object is to put the in as good a position as he would have occupied had the performed his promise. The interest protected in this case we may call the expectation interest.‖
RII Sec 347 Measure of Damages in General …The injured party has a right to damages based on his expectation interest as measured by: a. The loss in the value to him of the other party‘s performance caused by its failure or deficiency, plus b. Any other loss, including incidental or consequential loss, caused by the breach, less c. Any cost or other loss that he has avoided by not having to perform. loss caused by failure to perform (lost profits) + consequential + incidental - losses avoided ---------------------Total Expectation
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Measuring Expectation Damages
Hawkins v. McGee- The Doctor promised a 100% good hand after the skin grafting surgery. Instead, the got a hand with hairy palms! The court awarded expectation damages, the difference between his hairy hand what a 100% good hand would be, putting the in as good a position as he would have been had the K been fully performed. Peevyhouse v. Garland Mining Coal Co.- The Peeveyhouses leased their land for a strip-mining project with a condition of restoration in the K. The evil coal company broke their promise and the bribed judges found for the coal company. They used a rule of unreasonable economic waste to support their position where the ―cost of performance is the proper measure of damages if this is possible and does not involve unreasonable economic waste…the owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value.‖
The Reliance Interest
Sullivan v. O‘Conner- The doctor was to improve the nose of the stripper in two surgeries. Instead, it took three surgeries and it had the opposite effect. When a Dr. breaches the K he is liable to the patient for the cost of any measures or treatments by his breach and for the pain and suffering resulting. Anglia TV Ltd. v. Reed- The Brady Bunch father breaches his K with the British TV firm. In a breach of K action wasted expenditures can be recovered when it is wasted by reason of the breach of K.
RII Sec. 349 Damages Based on Reliance Interest As an alternative to the measure of damages in Sec. 347, the injured party has a right to damages based on reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the K been performed.
Limitations on the Recovery Certainty
If profits are too speculative you can‘t prove them then you can‘t collect on them. Secondary profits must be proven to be certain, foreseeable, and mitigated. Certainty 1. Causation: Fact that the breach caused the type of injury the suffered. 2. Extent: Extent to which the suffered from the breach, the amount of $. 3. Both Causation and Extent
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Freund v. Washington Square Press- Washington Square breached the K when it merged with another publisher and the couldn‘t get published. Some of the damages weren‘t certain, like how the book would sell for instance. When a breach in K happens, the law attempts to give the injured party the benefit of the bargain, subject to limitations. The remedies sought must be certain and foreseeable, measured accurately and proven. Humetrix Inc. v. Gemplus- Humetrix was doing everything right to sell medical smart cards: they had signed contracts, they got a trademark, and they were doing things that the Gemplus subsidiary couldn‘t do. Then Gemplus‘ parent company in France got bent out of shape and breach the agreements they made with Gemplus. Humetrix won 15 million because they could prove the lost profits, because they had a reputation, and because Gemplus‘ own data showed great potential. All the facts pointed to what could have been a great deal.
New Business Rule-No to Speculation, new businesses need to prove certainty.
1. Compare with other businesses of similar size, nature, and location. 2. History of the predecessor. 3. Other businesses owned by that are similar. 4. Expert witnesses
Foreseeability
Hadely v. Baxendale- The mill operator, Hadley, took the crankshaft to the shipping company owned by Baxendale and they were promised overnight shipment. The shipment didn‘t happen and Hadley‘s mill was down for days, losing profits for everyday. The injured party may recover those damages as may reasonably be considered arising naturally from the breach itself and, second, may recover those damages as may reasonably be supposed to have been in contemplation of the parties, at the time they made the K, as a probable result of a breach of it. Hadley Rule: each expense must arise naturally from the breach of K and be foreseeable at the time of K. AM/PM v. ARCO- Arco started messing with the gas that AM/PM was selling to it‘s customers and the gas was really bad for the cars. Well, people stopped coming to AM/PM and stopped buying that extra cup of coffee that they usually bought with the gas too! And, they lost customers! They were able to recover for loss of primary profits, secondary profits, and good will too. All three were considered as consequential damages.
Consequential Damages: Expenses or other losses beyond general damages that
the would not have incurred but for the breach.
RII Sec. 353 Loss Due to Emotional Disturbance Recovery for emotional disturbance will be excluded unless the breach also causes bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.
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Avoidability
Rockingham County v. Luten Bridge Co.- The county told the to stop building the bridge but they kept on building even though they were told to stop. After repudiation by one K party to perform, the other party cannot continue to perform and recover damages based on full performance. Parker v. 20th Century Fox- Parker, the actress, was to have a song and dance part in a movie that was cancelled. 20th Century offered a part, for the same money, in a western without song and dance. Parker didn‘t want to go to Australia even though she would have made $750,000! The court said the parts were too different. The general measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service, less the amount, which the employer affirmatively proves the employee has earned or with reasonable effort might have earned form other employment.
Damages by Agreement
RII Sec. 356 Liquidated Damages and Penalties Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.
Liquidated Damages: Damages set fourth in the K by the parties of the K 1. They must be reasonable at the time of the K - they must vary according to the severity and timing of the breach. 2. They cannot be interpreted as penalties or they will not stand. 3. If they are seen as penalties, they won‘t stand and damages will be determined by the common law. - Construction projects are the exception 4. Use the liquidated damages when the common law method is too difficult.
Lake River v. Carborundum- Lake River was supposed to bag the special steel making additive for Carborundum and they even bought a special bagging machine. Then the market fell out of the steel industry and the contract couldn‘t be performed because nobody was buying the special steel making stuff in the bag. Liquidated damages must be a reasonable estimation at the time of contracting of the probable damages from the breach. The court decided that the clause was more penalizing, so they reverted to the common law.
Punitive Damages
RII Sec. 355 Punitive Damages Punitive damages are not recoverable for a breach of K unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.
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These damages are rare in K law. Not recoverable unless the breach is also a tort.
1. Punitive damages recoverable fraud, malice, gross negligence. 2. Used a public policy to deter, so wealth of the is a factor, the damages must punish and deter.
Hibschman Pontiac Inc. v. Batchelor- purchased a new car from and it was a total lemon. He kept on bringing the car in for warranty repairs and they never fixed the problems. Punitive damages may be awarded in cases whenever the elements of fraud, malice, and gross negligence mingle in the controversy.
First Blush Rule: Damages are not excessive unless at first blush they appear to be
outrageous and excessive, or it‘s apparent that an improper element was taken into account by the jury in determining the amount.
Damages Under the Uniform Commercial Code Buyers Damages
If the seller fails to tender delivery in the manner promised or the quantity or the quality of the goods does not conform to the K, the buyer generally has the right to reject the goods. The right to reject is an important remedy because upon rejection the seller is in control of the goods and ultimately responsible for any decline in value that may occur after rejection. If the buyer holds on to nonconforming goods for too long or uses them without regard to the seller‘s rights, the right to reject the goods disappears-acceptance has occurred. Even after acceptance, the buyer may still be entitled to revoke acceptance of the goods depending upon the nature of the defect and exactly when the buyer attempts to revoke acceptance. It is important to know that the proper exercise of the right of rejection or revocation will affect the measure of damages for breach. If the buyer has rightfully rejected or revoked acceptance or the seller never delivered the goods at all, the buyer‘s actual damages are determined by either UCC 2-712 or UCC 2713. The buyer may also be entitled to incidental and consequential damages under UCC 7715.
If the seller breaches the buyer is supposed to Cover Cover: A good faith substitute. A good faith effort to cover satisfies UCC 2-713 to try and cover. There are no consequential damages under UCC 2-713.
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IF COVER: Cover Price – K Price = Damages (UCC 2-712) IF NO COVER: Market Price – K Price = Damages (UCC 2-713)
If party fails to cover then no secondary lost profits and no consequential damages. Market price may be hard to determine Market price is the price @ the place of tender If a buyer finally accepts goods, then the buyer‘s damages are determined by UCC 2-714 and 2-715. The basic remedy of 2-714 is the difference between the value of the goods in the condition sold and the value of the condition of the goods received. Section 2-715 allows consequential and incidental damages.
Where past dealings of the parties so indicate, a contract can be said to be implied in fact, meaning that a contract is intended by the parties even though none of it‘s terms are expressly agreed upon.
Seller’s Damages
If the buyer breaches before acceptance or wrongfully revokes the acceptance, the seller‘s right to damages is determined by UCC 2-706, 2-708(1), 2-708(2). The seller‘s right to damages under 2-706 are similar to the buyer‘s right to cover damages. Under 2-706, the seller is entitled to resell the goods under the procedure set out in that section. The measure of damages under the section is then the difference between the resale price and the contract price. The seller may add any incidental damages under 2-710 but must deduct any expenses saved.
If the buyer breaches the seller is supposed to resell. If seller resells, they must notify the buyer! If Resale occurs: K price – Resell price = damages If No Resell occurs: K price – Market price = damages
1. Cover — defined as a ―good-faith substitute;‖ doesn‘t have to be identical. 2. If a person fails to cover, no secondary lost profits nor consequential damages are recoverable. 3. Not limited to merchants. 4. Seller breaches; Buyer is supposed to ―cover‖ a. U.C.C. §2-712. If covered, Cover price - K price = damages b. U.C.C. §2-713. If not covered, Market price* - K price = damages * Market price may be hard to prove.
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5. Buyer breaches; Seller is supposed to resell a. U.C.C. §2-706. If resold, K price - resell price = damages b. U.C.C. §2-708. If not resold, K price - market price* = damages * Market price may be hard to prove.
II. Restitution
Restitution is to prevent one party from gaining at the expense of the other party, to prevent unjust enrichment. Yes, the breacher can sue for restitution! Yes, there is a maximum restitution, it‘s the value of the K! 4 areas where Restitution might be appropriate 1. Implied in Law K (quasi-K) 2. Express K Remember, a verbal contract can be written or oral. 3. Breacher sues for restitution 4 Statute of frauds
Restitution When There Is No Contract Quasi-Contract
A contract implied in law, sometimes called a quasi-contract, is a contract imposed upon parties irrespective of their actual intent. This arises in the situation where one party has the benefit of money, property, or services of another, and it would be unjust to allow that party to keep the benefit without paying for it. Where this unjust enrichment would occur, the law conclusively presumes a promise of restitution. For this reason, such as an action is also known as restitution.
Maglica v. Maglica- This is the couple that brought to us the Mag Flashlight. They weren‘t married, and she was the secretary of the company and she came up with the million-dollar idea of the mini-mag flashlight in designer colors. They lived together too, which is where the contractual problems arouse. He wanted to give all the shares to his kids, and none to her! If she can prove she had an implied in fact contract she gets millions, if not then just quantum meruit, or restitution. Quantum Meruit: the value of services rendered to another, or restitution. Feingold v. Pucello- The case of the slimy lawyer. He didn‘t even have a contract, and he was never even hired but tried to sue the accident victim for quantum meruit. The court wasn‘t impressed.A cause of action in quasi-contract, for quantum meruit, a form of restitution, is made out where one person has been unjustly enriched at the expense of another.
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Elements of Unjust Enrichment
1. Benefits conferred by the by the 2. Acceptance and retention of such benefits 3. It would be inequitable for to retain the benefit without payment of the value.
The most important element is whether the enrichment of the is unjust
Restitution for Breach of Contract
United States v. Algernon Blair, Inc.- Contract to build naval hospital. Defendant general contractor breached on cost of cranes, and subcontractor sues for restitution. Despite that subcontractor would have lost money under the contract, it was allowed to recover the benefits it conferred to general contractor defendant. K to build a naval hospital Gen. contractor breached Subcontractor sues for Restitution K would have been a losing K for the Sub Can the sub recover more than it would have been entitled to under the K? Compare reliance, w/ looser K to restitution and take the greatest. Reliance interest = $37,000 (Amt due sub. from breacher) Cost to sub to complete (more than $37000) this would be deducted from reliance which would 0 or a loss. So, GO FOR RESTITUTION! CALCULATION RELIANCE INTEREST FOR A LOSING K
Total reliance interest (w/o regard to profit or loss) - The loss ___________________ Reliance interest for a losing K NOW, COMPARE TO RESTITUTION AND GO FOR THE LARGEST!
Rosenberg v. Levin
Breaching Plaintiff
Britton v. Turner- A breacher can recover quantum meruit from the non-breacher. The damages are capped at the K price. Restitution can be conferred either way.
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Willful Breach- 3 Views 1. Majority Rule: No Restitution 2. Minority Rule: RII, Yes Restitution- most courts don‘t follow. 3. Farnsworth: No Restitution if - Breach was for convenience - Breach was for financial gain
Tension between the relational viewpoint of K and the economic viewpoint of K.
III. Equitable Remedies
3 Equitable Remedies 1. Writ of Mandamus- Uncommon, this is an order to make someone do something. 2. Injunction- Common, this is an order to stop someone from doing something. 3. Specific Performance- $ not appropriate, wants the K performed. The thing must be unique, and $ must be inadequate. Land for instance.
Posener, Economic Analysis of Law Centex Homes Corp. v. Boag- A unique case because the buyer was the breacher and the seller was sueing for specific performance. But, the seller wanted specific performance in the form of money, which is the purpose of damages. Since almost all condos are alike specific performance wouldn‘t work. City Centre One Assoc. v. Teacher‘s Insurance & Annuity Laclede Gas. Co. v. Amoco Oil Co.- Amoco tried to breach on a propane supply contract. While the propane is not unique, the K was unique and their was a social and economic advantage to enforcing the K.
Typically there is no Specific Performance for Goods w/ 3 Exceptions 1. If the goods are unique and the remedy at law of damages would be inadequate. 2. If Specific Performance would provide a benefit to the public or the public would likely be harmed if Specific Performance is not granted and damages would be inadequate.
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The Statute of Frauds
I. History and Purpose
It all started over a dispute over a fighting cock and a liar in court. A K w/in the Statute of Frauds may not be enforced unless there is a written memorandum of it signed by the party to be charged. Some things must be in writing. Sometimes it can be a good defense, it is a hurdle into court to get the case before jury. It does not prove a breach. Charged- The person who is to be enforced must have signed the memorandum, if the K falls within the Statute of Frauds.
II. Types of K Typically Covered Under Statutes of Frauds
3 Questions to be asked; 1. Does the type of K fall within the Statute of Frauds? No, then an oral K is enforceable. Yes, then #2. 2. Is the writing requirement satisfied? Yes, then K is enforceable. No, then #3. 3. Is there an exception to the Statute of Frauds that applies? Yes, K is enforceable. No, K is not enforceable. If you get through 1-3 then you can go to court. The types of K that fall under the Statute of Frauds? MYLEGS Marriage, Year or more K, Land, Executor, Goods $500 or more, Surety Promise to Pay the Debt of another 1. There must be a principal debt owed to someone else. 2. The promise must be a ―promise to pay the debt of another‖ and may not be an original promise. 3. The promise must be made to the creditor, or at least the creditor must be aware of the promise. 4. Survive the ―main-purpose rule‖- What was the main purpose
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A. Executor/Administrator K
K by and executor or an administrator to answer for the debts of the decedent out of the executor or administrator‘s own pocket.
B. Suretyship K
A surety K is the promise to pay the debt of another.
Yarbro v. Niel B. McGuinnis Equipment Co.- Yarbro contended that the statute of frauds barred enforcement of an oral suretyship agreement he had made. The statute of frauds does not bar enforcement of an oral suretyship agreement if the surety‘s principal reason for acting was his own benefit.
C. Made in Consideration of Marriage
S/F does not cover promises to marry. S/F does cover: - Child Support - Leave property to spouse - prenuptial agreements
D. The One-Year Provision
If the K cannot possibly completed within one year, it must be in writing. 1 yr. = Jan. 1 – Dec. 31 midnight Fiscal yr= July 1 – June 30 midnight Year + 1 Day= July 1- July 1 Counting Rule: Discard the partial day first day of K, and start the next day. Date of K= 9/30/02 Date of 1 yr. anniversary= 9/30/03 Counting Rule, 1 yr. = 10/01/02 – 9/30/03
Satterfield v. Missouri Dental Assn.- An oral agreement not to terminate an employee until the employee‘s date of retirement is unenforceable.
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E. Land Transactions
Land K- What is Land? Land includes: - Minerals not yet extracted - Minerals not yet extracted by the buyer - Buy/Sell land, assumption, Extensions, modifications or RE mortgages
F. Modifications of K
If the parties to an existing K modify it, the new contract must comply with the S/F if the K, as modified, falls within the S/F. Two Scenarios: - Original K = S/F modified No S/F - Original K No S/F modified = S/F
G. Sales of Goods
Goods? $500 or more, intangible personal property over $5000
Eastern Dental Corp. v. Isaac Masel Sales Corp.- An oral requirements K is not enforceable. UCC 2-201 Paragraph 1: A K for the sale of goods for the price of $500 or more must be in writing. The writing must contain:
Definitions Signed: Signed includes any symbol executed or adopted by a party with present intention to authenticate a writing. A letterhead is sufficient, an x on a line can work as well, or initials. Written, or writing: includes printing, typewriting, or any other intentional reduction to tangible form. Paragraph 2: Between Merchants Paragraph 3: Three situations that do not require a writing: 1. Part payment or part performance, but only for that part paid or for that part performed, or 2. a party admits in pleading, testimony, or otherwise in curt that the K exists, or 3. specially-manufactured good not suitable in the ordinary course of business for resale.
1. Quantity 2. An indication the K has been made 3. Signed by the party to be charged.
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III. Satisfaction of the Statute
Crabtree v. Elizabeth Arden Sales Corp.- The statute of frauds does not require the memorandum expressing the K to be in one document. It may be pieced together out of separate writings, connected with one another either expressly or by the internal evidence of subject matter and occasion.
IV. Mitigating Doctrines and Exceptions
A. Restitution
Even if the defense of the S/F is successful, a party who has conferred benefits on the other party may recover in Restitution, but may not recover Expectation or Reliance.
B. Part Performance
Wagers v. Associated Mortgage Investors- A series of letters between a buyer and a seller disagreeing over the nature of the buyer‘s deposit will not satisfy the statute of frauds.
C. Admissions
The S/F cannot be used as a defense if there has been a court-related admission of a valid K. So, if someone says in court that there was a K and the court accepts it, the S/F does not apply.
D. Confirmations
Between Merchants Within reasonable time written confirmation. Sufficient against the sender. Received has reason to know of contents. Satisfies S/F unless objection within 10 days is received.
Thomas Printing Machinery Co. v. B.F. Goodrich Co.- A failure by a party selling an item in the regular course of business to object to a memo confirming that sale may result in a waiver of the stature of frauds defense.
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E. Waiver and Estoppel
The S/F is an affirmative defense. If you want to preserve the defense, you must raise it in the pleadings, or it is waived. Equitable Estoppel (not Promissory) will prevent a person from asserting the defense of the S/F if there is misrepresentation on which the other party detrimentally relies.
McIntosh v. Murphy- While an oral employment K for more than a year violates the statute of frauds, either part performance or equitable estoppel may render the K enforceable.
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