law school outline

PART I: THE AUTONOMY PRINCIPLE............................................................. 2 Promises ...................................................................................................................................... 2 Intention of the Parties ................................................................................................................ 2 Offer ............................................................................................................................................ 3 Acceptance .................................................................................................................................. 4 The UCC and the Battle of the Forms ........................................................................................ 6 Incompleteness ............................................................................................................................ 6 Agreements in Negotiations ........................................................................................................ 7 The Statute of Frauds .................................................................................................................. 7 PART II. THE JUSTIFICATION PRINCIPLE...................................................... 9 Consideration .............................................................................................................................. 9 Promissory Estoppel ................................................................................................................. 13 Unjust Enrichment .................................................................................................................... 14 PART III. THE AUTONOMY PRINCIPLE, REPRISED ................................... 16 The Parol Evidence Rule .......................................................................................................... 17 Interpreting Contract Terms ...................................................................................................... 19 Implied Contract Terms ............................................................................................................ 21 Promises and Conditions........................................................................................................... 23 PART IV: THE JUSTICE PRINCIPLE ............................................................... 24 Public Policy ............................................................................................................................. 25 Mistake...................................................................................................................................... 25 Unconscionability ..................................................................................................................... 26 PART V: THE SECURITY PRINCIPLE ............................................................. 28 Expectations of the Parties ........................................................................................................ 28 Cancellation in Response to Breach ......................................................................................... 30 Excuse for Nonperformance ..................................................................................................... 33 PART VI: THE COMPENSATION PRINCIPLE ................................................ 34 Introduction ............................................................................................................................... 35 Specific Performance ................................................................................................................ 35 General Damages ...................................................................................................................... 36 Limitations on Damages ........................................................................................................... 36 Reliance Remedies .................................................................................................................... 38 Restitution ................................................................................................................................. 38 1 CONTRACTS OUTLINE Hierarchy Black Letter Rules Interests Principles: Autonomy: offer and acceptance Justification: consideration and other reasons to enforce  Justice: Public Policy, Mistake, Unconscionability Security: At this point, there is a valid , supported by consideration, with no public policy reason not to enforce. Here, people have a right to security in their s. PART I: THE AUTONOMY PRINCIPLE (Promises, and Formation of Contracts) Promises (1) Hawkins v. McGee The case of the hairy hand in which  Dr. McGee promised  Hawkins a hand that was 100% perfect Promise is different than opinion here since  is an expert  had solicited , so he had a vested interest and new trial was granted: verdict of  on breach of   According to the appellate court, it was the presence of the solicitations in conjunction with the guarantee that potentially makes the doctor liable.  The trial court and appellate court also differ on damages. The trial court considered that  was made worse off by relying on . The appellate court said you must use only expectation damages. Therefore, damages should be awarded vis a vis how you would have been if the expected  was fulfilled, vs. how you are now, NOT how you were. Intention of the Parties A. Lucy v. Zehmer Case of the farmer who promised to sell his farm after he’d been drinking  who bought the farm requests specific performance (a suit in equity)  We must look to the outward expression of a person manifesting his intention (in ), rather than to his secret unexpressed intention An objective view would be the one the court took: regardless of what the parties are thinking, judge by their actions. A subjective view would take into account the internal thoughts of the involved parties. 2 Both parties must have a mutual social context for agreements before they can enter into a  Lucy vs. Zehmer focuses on a S--><--S, or subjective meeting of the minds B. Embry v. Hargadine, McKittrick Dry Goods Co. The case of the poor  who just wanted his  renewed Embry relied on McKittrick for his job and reasonably expected there was an agreement McKittrick could have corrected the error in understanding but chose not to do so Both parties do not need to have similar and understood intentions for a sound . All that is required is that any reasonable man would take an oral agreement or written one to be valid. Intent is immaterial. Embry vs. Hargadine meanwhile focuses on S--><--O, or subjective and objective view C. Oswald v. Allen The case of the American vs. the Swiss coin collectors  When terms are ambivalent, and the parties understanding is different, there can be no , unless one is aware of the other’s understanding  In this case, Oswald and Allen each had their own, different, reasonable understandings of the deal. Since these understanding do not overlap, there is not subjective or objective intent: hence, no . Offer Offers: For an offer to be legal: You must be specific You must be committed to follow through You must offer to a specific person A. Lonergan v. Scolnick  wanted to buy land in Joshua Tree The first ad in the paper was not an offer if for not other reason than that if you do say its an offer, there is nothing to stop hundreds of people from simultaneously accepting, and having good claim R(2): If the person to whom the promise is addressed knows or has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given further assent, he has not made an offer. ’s letter wasn’t specific and ’s response was not a commitment B. Lefkowitz v. Great Minneapolis Surplus Store 3 The  who tries to buy fur from the general store for cheap cheap  The first ad does not count as an offer because it does not state the exact value of the specific coat An offer can be withdrawn before acceptance, but once acceptance, the  is consummated, so  withdrew his offer too late. Acceptance  Mailbox Rule: R(2) §63 An acceptance is ordinarily effective at the time that you have mailed it It may be effective even if it doesn’t reach the other side, the offeror, for several days In contrast, if an offeror wants to revoke an offer, the revocation is effective when it is received A unilateral offer requires performance for acceptance A bilateral offer requires two promises (one from offeror, one from offeree) for acceptance An option  requires partial performance to keep the offer open The Petterson Rule does not allow for partial performance The Marchiondo Rule does allow for partial performance (via option ) A. Akers v. J.B. Sedberry, Inc. R(2)§36: Methods of Termination and Powers of Acceptance R(2)§41: Lapse of Time s were fired/resigned from hammer mill place  The fact that  refused the resignations during the conversation is a good legal reason to say the offer is dead b/c the  reasonably expected their resignation would not be accepted. Allowing  any more time would be imposing on the autonomy of the to voluntarily obligate themselves to a . Any acceptance has to be a mirror image of the offer, otherwise it is considered a counter offer Considering all this, the ’s offer to resign did not extend beyond the meeting they had with : indeed, the offer was dead as soon as  rejected it: B. Ardente v. Horan R(2)§38: Rejection R(2)§39: Counter-Offer R(2)§59: Purported Acceptance Which Adds Qualifications  ticked off he didn’t get land in Newport  changed the terms in his response to ’s offer R(2) says that an offeree’s power of acceptance is terminated by a counter offer, unless counter offer states acceptance even if its condition are not met  letter was not an “independent, collateral request”, but a counter offer which terminates that  unless  agree with terms, which they did not 4 Any offer, when met with a counter offer which imposes new, integral conditions to the original offer, is terminated unless the offeror clearly accepts the new terms C. Petterson v. Pattberg R(2)§42: Revocation by Communication From Offeror Received by Offeree R(2)§ 43: Indirect Communicaton of Revocation R(2)§46: Revocation of General Offer Crazy case of  who retracted deal through his door as  showed up Acceptance by offeree must be via performance of the terms, which were, in this case, cash payment, and since  only stated he was about to pay, court ruled for  since  revoked before  actually could pay When a unilateral offer is made with conditions, the offeror retains the right to revoke the offer at any time before the offeree performs the terms of the conditions, no matter how brief the interval. The dissent said it is true that the decedent failed to perform conditions, but the  himself was the cause of the failure by refusing to accept payment D. Marchiondo v. Scheck R(2)§25: Option Contracts R(2)§37: Termination of Power of Acceptance Under Option Contract R(2)§45: Option Contract by Part Performance or Tender  is a broker who did his work but go no commission When a unilateral offer is made, and the buyer has begun partial performance of the terms of the , then an option has been created and cannot be revoked by the offeror, or a breach of  will have occurred Ruling for  E. Davis v. Jacoby s are the kindly couple who want the old man’s inheritance An offer of a unilateral  is accepted by performing the act that is required, but a bilateral  is accepted by a promise to perform an act at a later time If it is unclear which type of  it is, assume bilateral Due to this assumption, court says ’s promise was enough to bind old man’s inheritance: ruling for  via specific performance F. Houston Dairy Inc. v. John Hancock Mutual Life Ins. Co. R(2)§19: Conduct as Manifestation of Assent R(2)§69: Acceptance by Silence or Exercise of Dominion  is dairy co. whose response to big life insurance co.  constituted a counter offer, which they claim  never accepted  If one offeror lends an offeree money based on certain conditions (including time limits), and the offeree sends a reply that doesn’t meet those conditions, then 5 that action represents a counter offer which must be actively accepted by the offeror for a closing of the . Parties had no prior experience w/each other. Unlike Cole-McIntyre, goods here are not perishable G. Cole-McIntyre-Norfleet Co. v. Holloway  is nasty farm meal salesman who sits on his offers Parties had had prior experience w/each other If 1 party contracts to sell goods to another, and those goods could become unmarketable by a delay, then any unreasonable delay on the part of the seller in notification of acceptance of the order will amount to an acceptance.  had plenty of opportunity to inform  of the rejection, and chose not to do so: more important than the “perishable” argument H. Seaview Association of Fire Island, N.Y., Inc. v. Williams  is swank homeowners association  refuses to pay the association fees claiming they don’t use facilities R(2)§19(2) shows that in these cases, where  has knowledge of community rules, his conduct is enough to manifest assent to the  Because there is an “implied in fact” , autonomy may not take you all the way in  theory Because especially of the expectation interest, this case’s decision is consistent with decisions in the other cases The UCC and the Battle of the Forms A. Empire Machinery Co. v. Litton Business Telephone Systems UCC §2.204: Formation in General UCC §2.206: Offer and Acceptance in Formation of Contract  wants their darned interconnect system  couldn’t install the system correctly C/L would be stricter w/ the acceptance clause than the UCC, b/c the UCC tries to make formation of s easier  claims there was no  b/c it wasn’t signed as per the clause in the   says the ’s conduct constituted compliance w/the  Court uses UCC §2-206 to rule for  Incompleteness A. Sun Printing & Publishing Association v. Remington Paper & Power Co., Inc. Case where newsprint was to be bought at a specified price, but no specified time  Although parties created contingency for failing to come together on price, they had no contingency for failing to come together on the issue of time  claims this makes the  imperfect and therefore unenforceable 6 If the UCC applied, it would apply “gapfillers” to the time question, but it doesn’t so it leaves the  indefinite, hence there is only an “agreement to agree” Since this is a bilateral , not a unilateral, it cannot count as an option   If two parties attempt to contract together, with the contract involving two key elements of (1) price, and (2) time, and one of those elements is not specified sufficiently in the contract, then no agreement is reached, and neither party is bound. (NOTE: This is under the Common Law: not UCC) Agreements in Negotiations When deciding whether to enforce a , which has problems with indefiniteness, reliance, & good faith, the  and situation of the case matter a great deal A. A/S Apothekernes Laboratorium for Specialpraeparater v. I.M.C. Chemical Group Inc.  wants to buy a biochem co. from   claims that parties had a meeting of the minds, and that  did not act in good faith Court ruled that further confirmation was required after meeting of minds Look to letter of intent to see if parties acted in good faith: remember this is only an intent to negotiate, not a promise that all will work out If two parties intend to negotiate a contract, and the two sign a letter of intent, and both negotiate in good faith, but the negotiations fall through, as allowed by the terms of the preliminary agreement, there is no  B. Itek Corp. v. Chicago Aerial Industries, Inc.  tried to buy photo co., but  didn’t use every reasonable effort to complete the  in good faith Trial court ordered summary judgment for  According to Illinois law, whether a contract becomes binding during preliminary negotiations or not until signing of a formal agreement depends on the intentions of both parties  stated that parties must make “every reasonable effort to agree upon a ”: Court felt that  did not: judgment for  Ordinarily there is no legal means to sue someone over breach of  due to lack of good faith, but this case is different b/c the  included good faith in the letter of intent The Statute of Frauds The Statute of Frauds has five separate categories. For all 5, see R(2) of  §110 (1) (a)(b)(c)(d)(e) The Statute of Frauds: is to guard against fraud and perjury ; is also to prove that a  exists; creates some certainty the  won’t change; ensures deliberation and volition 7 A. Chomicky v. Buttolph  wants to buy lakeside, but now s don’t want to give up strip of land A  involving the sale of land or interests therein is controlled by the Statute of Frauds If 2 parties enter into a real estate , and the  is conditional, but an oral agreement is made to proceed with the sale in lieu of those conditions being met, then under the Statute of Frauds, the seller shall not be liable for specific performance if the oral  was not in writing. Judgment for  to not have to specifically perform B. Radke v. Brenon s want to buy a strip of land in front of their home now owned by  No formal  was signed, but just an oral agreement and a memo Oral  are permitted w/ the statute if a memo exists as evidence of the  The statute requires that the writing: (1) express the consideration, and (2) be subscribed by the seller, or his lawful agent. If the memo also states: (3) parties to the , (4) lands involved, and (5) the general terms and conditions of sale, then it will satisfy the Statute of Frauds Radke decides the case by using a spin to focus on the “truth” behind the facts. The Chomicky court is much stricter: Statute of Frauds is satisfied or it is not: end of story C. Nebraska Builders Products Co. v. Industrial Erectors, Inc. UCC §2-201: Formal Requirements ; Statute of Frauds  needs cranes, but  keeps jacking up the price Both parties stipulate to UCC §2-201 Several separate writings, pieced together, can be used to satisfy the Statute of Frauds, even though one of these alone would not have sufficed Three elements need to be satisfied: (1) The writing evidences a  for the sale of goods (2) Is signed by the party against whom enforcement is sought, and (3) Specifies a quantity Even without the writing, the oral  would be enforced since  admitted to a  in court (UCC §2-201(3)(b)) Judgment for  D. Warder & Lee Elevator, Inc. v. Britten R(2) §139: Enforcement by Virtue of Action in Reliance  grain elevator needs to sell / nasty  farmer reneged on his deal Authority to use promissory estoppel to defeat the SOF from UCC §1-103 8 In Merrifield v. Troutner, the elements of estoppel were laid out: (1) clear and definite oral agreement (2) proof that the party urging the doctrine acted to its detriment in relying on the agreement, and (3) finding that the equities support enforcement of the argument It is immaterial whether the contract was unilateral or bilateral  The concept of estoppel is that if A says something to B, and B relies on it, then A may be estopped or barred, from then saying something different Judgment for  affirmed PART II. THE JUSTIFICATION PRINCIPLE (Enforcement of Promises) The law enforces promises when prima facie there are sufficient legal reasons for a court to enforce the promise We will look at the distinction between enforceable and unenforceable promises by considering reasons recognized by the law as justification for enforcing them: (1) existence of a promise (2) sufficient legal reason to enforce (3) reason for enforcement reflects a public interest Consideration  Consideration is a right accruing to one party or detriment suffered by another The problem of mutuality is to determine if there is consideration Executory contracts most often involve mutuality. This type of contract involves two parties each promising the other something, where each promise must be supported by consideration The 3 types of contracts are: (1) Promise for Promise (executory) (2) Promise for Performance (3) Performance for Performance The UCC will restrict a party’s autonomy in conjunction with that party’s understanding of the commercial environment in which they find themselves The court wants to support and reward good faith and best efforts Parties’ conduct, when deciding good faith, must be interpreted in the context of the industry in which they’re participating Output contracts focuses on seller’s good faith Requirements contracts focuses on buyer’s good faith In either case, the good faith in question must be measured At the end of pre-existing duty, we find three main rules: (1) A pre-existing duty to perform cannot serve as consideration for promise, unless there is a bona fide good faith belief that there was no duty (§73) 9 (2) If covered by the UCC, the modification does not need consideration to be enforceable (pending good faith) (§89) (3) A modification to an existing  may be accepted if certain conditions are met (voluntary, good faith, unanticipated circumstances, etc) A. Congregation Kadimah Toras-Moshe v. DeLeo  is estate of old guy that doesn’t want to pay $$ he promised to temple  had told, but not promised to name library after old dude and had penciled in money, but had no reliance on it There was no mutual consideration and no reciprocal conventional inducement If  makes a charitable subscription, but it’s made: (1) orally, with (2) no consideration, or (3) reliance, then the promisor is not liable to perform Judgment for  to not have to perform B. Schnell v. Nell R(2) §90: Promise Reasonably Inducing Action or Forbearance R(2) §17: Requirement of a Bargain R(2) §71: Requirement of Exchange: Types of Exchange R(2) §72: Exchange of Promise for Performance R(2) §75: Exchange of Promise for Promise R(2) §79: Adequacy of Consideration; Mutuality of Obligation s want promised $600 from Amish guy’s dead wife If a party makes a promise to another, but that promise has no evidence of consideration, bargain, or reliance, then the promise is not binding The “instrument” never expressed consideration enough to make it binding: Hence Judgment for  C. Hamer v. Sidway Newly sober  who wants his dead uncle’s promised $5000  said since ’s actions were intrinsically beneficial: no consideration  says and court agrees that: (a)  had a right to do these things so giving them up was consideration, and (b) dead uncle benefited from seeing his nephew live clean There is mutual consideration / there is a binding  / judgment for  D. Batsakis v. Demotsis  loan shark war profiteer wants money from  woman who needed it then  testimony shows that she understood that in exchange for her signing the ,  would give her the 500,000 drachmae The trial court valued the drachmae at $750, so they did have value Because of this,  plea of “want of consideration” is unavailing. Also unavailing was  plea of “failure of consideration” Judgment for  E. Newman & Snell’s State Bank v. Hunter 10  bank trying to get money from  widow whose husband died in debt  parted with nothing of value (worthless note), while  parted with something valuable. This is almost the defintiion of lack of consideration If a person exchanges their own note for that of their deceased mate’s, and the decedent’s note is worthless, than there has been a lack of consideration A black letter law for Newmann could be, “If you give a promise that is worthless, then that promise does not constitute consideration” F. Dyer v. National By-Products, Inc. R(2) §74: Settlement of Claims Footless employee who claimed he had a deal for lifetime employment in exchange for forbearance of a lawsuit  argues no consideration b/c threatened lawsuit was w/o merit  argues he had good faith belief in the agreement If a  enters into a to forbear a claim in return for consideration, and that claim turns out to be invalid, then the forbearance will still constitute consideration as long as the ’s good faith belief in the validity of the forborne claim can be established.  was arguing based on form, and  was arguing based on substance From a policy stance, the Dyer would promote compromise outside of court G. Wickham & Burton Coal Co. v. Farmers’ Lumber Co.  coal company trying to buy lumber gets stiffed and sues  lumber company never specified quantities  demurrer claims there was no  b/c: (1) void for uncertainty, (2) lacks consideration, (3) lacks mutuality of obligation If, from lack of mutuality , the promise is not binding, there is no consideration  did not bind itself to either a certain quantity or even to buying only from  A  to sell personal property is void for want of mutuality if the quantity to be delivered is conditioned entirely on the will, wish, or want of the buyer If two parties enter into a  to buy and sell, but the buyer never specifies a quantity to take, then there is no mutuality and seller cannot be held liable if he decides to stop shipments. Under the , the buyer was not required to “do” anything It’s pretty much impossible to imagine a scenario where the buyer breaches the . If the buyer can’t breach the , how can he claim it was breached by another? Court says he can’t . No mutuality. H. Wood v. Lucy, Lady Duff-Gordon UCC §2-306: Output, Requirements, and Exclusive Dealings Wood, as agent, agreed to split profits and revenues  Wood didn’t explicitly promise to “do” anything There is the form of a bargain  Lucy gave something up (her name), and Wood made an implied promise to market her designs 11 By their agreement, neither party would benefit, and both would suffer detriment if  did not perform The court says that based on contextual facts, there was an implied obligation of good faith on the part of  The black letter rule of this case would be that this agreement is enforceable b/c when the promise is to give exclusive agency, the court will imply good faith on the part of the promisor. Hence, the court implies substance of an agreement I. Levine v. Blumenthal R(2) §73: Performance of Legal Duty Kindly  landlord wants back rent from starving  shopowners Part performance, as asserted by , is no good argument here, b/c payment is only what  (promisor) already agreed to do under their legal duty. Performance of a pre existing legal duty does not constitute consideration. If 2 parties make a written , and a mod is made to it, where the mod itself is not supported by new and independent consideration, then the 2nd “agreement” is not a valid . s were always going to eventually need to pay the full amount so the mod was more a postponement  has no consideration to offer for that promise. What  was paying, he already owed, so there was no new and independent consideration to support ’s promise J. Gross Valentino Printing Co. v. Clarke UCC §2-209: Modification, Recission, and Waiver  Magazine publisher who didn’t object to price and decided to do so after he got what he wanted Evidence of good faith is a pre-requisite to applying UCC 2-209(1)  never tried to impede the magazine publisher’s free will When the higher price was presented, , according to the court, did have the power to refuse the price. B/c that option was available, and  chose not to take it, they had a meaningful choice whose final result should be enforced. If 2 parties enter into a  which 1 party modifies, & the transaction is covered by the UCC, and there is no evidence of fraud or compulsion, then the  is enforceable. The modification was written down, and not disputed. Also, since it was covered by the UCC, consideration was not necessary for it to be binding. K. Angel v. Murray R(2) §89: Modification of Executory Contract  angry villagers of Newport who think they got shafted by the garbage guy No modification of a contract is valid unless it itself is supported by consideration 12 Under the pre-existing duty rule, if one person owes another a legal duty, no consideration supports him if he modified the  and does simply what he had already agreed to do As long as the parties agree voluntarily, these types of modifications should be supported, regardless of pre-existing duty, even without consideration This case established that a mod must be voluntarily accepted by both sides, must be due to unanticipated circumstances, and be fair, and if all of these are satisfied, the modification should be enforced How do you reconcile this w/ Levine? There is no “hold up” game. He isn’t refusing to finish the job unless he gets more money. In Levine, you could argue that the tenant is engaging in hostage taking by refusing to pay the extra rent. Promissory Estoppel  Comparing Feinberg and Hayes Section 90 Feinberg Hayes Promise Yes Yes Intent / Expectation Yes Maybe Reliance Yes No Injustice Yes No In Feinberg, the court says she retired in reliance on a promise of a pension. In Hayes, the court denies the existence of such reliance In Feinberg, there was no mutuality of obligation: she owed nothing for the $200 and she suffered no detriment by continued work. Also, part performance is not done in exchange for a future promise, so there is no bargained for exchange. However, Feinberg still wins. In Hayes, there is also no bargained for exchange, but Hayes loses. To get over the injustice threshold, the reliance Hayes pleads must be not only present, but also reasonable (see § 90 comments) A. Devecmon v. Shaw  boy wants the money his dead uncle promised him for a trip to Europe  trip was sufficient consideration in return for Uncle’s money  spent his $ on that trip, instead of some other mode, in reliance on ’s promise If one person induces another to take some action, and that action requires the to spend their money, where it is understood that in return for taking the action they will be reimbursed by the , and they are reliant on that reimbursement, then an enforceable  has been created. It is foreseeable that if  reneges on his promise,  will be harmed  could reasonably foresee this harm B. First National Bank of Logansport v. Logan Manufacturing Co. R(2) §90: Promise Reasonably Inducing Action or Forbearance  Pair of entrepreneurs who got radically shafted by the bank Justice required only damages for the out of pocket expenses. This is in effect saying that s are entitled to recover their reliance interest. 13 By denying s damages for lost profits (the larger chunk), the court is denying s their expectation interests Five elements need to be satisfied: (1) a promise by the promissor, (2) made with the expectation that the promise will rely thereon, (3) which induces reasonable reliance by the promisee, (4) of a definite and substantial nature, and (5) injustice can be avoided only by enforcement of the promise If 2 parties make a commitment to each other, w/o a , but that commitment must be enforced to make sure justice is done, the doctrine of promissory estoppel can be used to enforce the promise or committment. (See R(2), §90(1)) C. Feinberg v. Pfeiffer Co.  company taken over by evil son in law who wants to stiff the  old woman The only consideration, says , would be the “many years of service, “ but past consideration is not valid for a promise  counters that 2 elements show consideration: (1)  continuing to work for 2 year after hearing of resolution, and (2) her change of position, abandonment of gainful employment, made in reliance on  $200/month promise  retirement was an “action or forbearance” which was induced by the promise contained in the resolution “A promise which the promissor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” (Section 90 of the Restatement) D. Hayes v. Plantations Steel Co.  Guy who retired and was then told “he’d be taken care of” by  company There is no express , so this court must look for consideration for an implied  There is no consideration apparent from . His prior service to  is past consideration which does not validate a promise. Also, his retirement was announced before the pension discussion, so there was no reliance induced by  Basically, since there was no consideration, and citing R(2)§ 90,  was not induced by , there is (a) no , and (b) no reason to invoke promissory estoppel. (this court cites Feinberg v. Pfeiffer to show a case where there was an inducement) Unjust Enrichment Unjust enrichment is an exception to the rule that past consideration is not justification for a promise Whereas contract law is about planning your obligations in advance, unjust enrichment is an after the fact scenario Sometimes, as in Webb, a moral duty + explicit promise, even without a pre-existing bargain, is enough to enforce a promise In Sparks, even without a pre-existing bargain and without the explicit promise, a legal / moral obligation is still enforced Sparks focuses on the nature of the benefit. 14 -For the hypo on p.195, #3c, there is no pre-existing obligation or bargain, no consideration, no reliance, and no explicit promise. For this, §§82-83 don’t apply. Mills and Webb don’t apply. We’re using Sparks and §86. A. Mills v. Wyman  who took care of dying 25 year old sea voyager but  father doesn’t care The law does sometimes screen crummy people from having to fulfill their moral obligations which are nevertheless not legally binding A mere verbal promise, without consideration, cannot be legally enforced  acted well, but not at  request Even though some moral obligations can be seen as sufficient consideration for an express promise, this is not always so, and a pre-existing obligation must have existed to support this B. Webb v. McGowin R(2) §86: Promise for Benefit Received  permanently crippled himself to save  from harm  conferred a material benefit on  by saving his life  promised to pay  compensation, but his estate then cut off the spicket:  sues An agreement by 1 person to compensate another for life saving is enforceable Even if such life saving is done w/o the request of the “saved”, it is sufficient consideration b/c of the material benefit received The situation implies that  had requested the service  gave him by saving his life: this presumption secures the moral obligation as sufficient consideration  was benefited (life saved).  was injured (crippled for life). This provides sufficient legal consideration to enforce the promise to pay  received benefit while  suffered a detriment. Using R(2)§ 86 as a rule, this can also adequately explain Mills v. Wyman, C. Sparks v. Gustafson  Ingrate son who doesn’t want to pay for work  his Dad’s buddy did Unjust enrichment exists where  has received a benefit from  and it would be inequitable for  to retain the benefit without compensating  for its value Conferring a benefit on another would include: money, land, possessions, services (either beneficial to another or at their request), satisfies another’s debt, or in any way adds to the other’s advantage If it can be shown  services were then  may retain benefit w/o compensation. This is true where it can be shown work was done without expectation of payment. If 1 person does services for another w/o expressed expectation of payment, but it can be shown that these services conveyed a benefit non-gratuitously, and it would be unjust for the beneficiary of these services to retain them w/o compensation, then the benefactor shall be compensated for his services. If  hadn’t received  services for free, they would have had to pay someone else to provide them 15 D. Drennan v. Star Paving R(2) §87: Option Contracts UCC §2-205: Firm Offers  Hold up, Bait and Switch, Bastard SC who tried to cheat the GC There was no offer + acceptance = contract There was no bilateral contract or an option supported by consideration However,  should have reasonably expected that if his bid was lowest, this would induce  to use it in his bid. This would cause detriment to  if  then withdrew. R(2) §45 says that if part consideration is given for a unilateral offer, it is binding as long as full consideration is then given in the stated time or a reasonable time In comments to §45, it cites §90 and says merely acting in justifiable reliance on an offer may in some cases serve as sufficient reason for making a promise binding The subsidiary promise cited in §45 serves to preclude injustice if (a) the offer could be revoked, and (b) the offeree had acted in detrimental reliance on it  had substantial reason to know and want plaintiff to rely on his bid When a person makes either a unilateral offer, or an offer for an option with no consideration, and there is reasonable reliance on the part of the offeree so that a subsidiary promise not to revoke can be implied, but the offeror then does revoke the offer, he is liable for damages to the offeree. PART III. THE AUTONOMY PRINCIPLE, REPRISED (Identifying the Terms of the Obligation) Parties determine the contractual relations by agreeing to terms: the stated or stable propositions from which contract rights, duties, and powers flow There are 4 steps to follow: (1) Identify the express terms (2) Interpret the express terms (3) Identify and interpret the implied terms (4) Distinguish between certain kinds of terms implicitly identified: promises, conditions, and promissory conditions Relevant Sections of the Uniform Commercial Code: §2-207: Additional Terms in Acceptance or Confirmation §2-202: Final Written Expression: Parol or Extrinsic Evidence Relevant Section of the Restatement (Second) of Contracts: §209: Integrated Agreements §210: Completely and Partially Integrated Agreements §211: Standardized Agreements §212: Interpretation of Integrated Agreements §213: Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule) 16 §214: Evidence of Prior or Contemporaneous Agreements and Negotiations §215: Contradiction of Integrated Terms §216: Consistent Additional Terms §217: Integrated Agreement Subject to Oral Requirement of a Condition The Parol Evidence Rule  Parol Evidence Flowchart (1): Is the parol evidence offered to establish contract terms? If No: Evidence is admissible for any purpose (2) If Yes: Is the writing an integrated agreement? If No: Evidence is admissible to establish contract terms. (3) If Yes: Is the writing a completely integrated contract? (4) If Yes: Evidence is admissible only if beyond scope of written contract. If No: Evidence is admissible if it does not contradict the writing The parol evidence rule excludes evidence or prior agreements, regardless of whether they were oral or written. The parol evidence rule also applies to contemporaneous agreements (as long as one is written and the other is oral) Integration means that the parties intended the written agreement to be the final exclusive statement of their agreement. Remember that you don’t even get to §2-207(1) unless there is a definite and seasonable acceptance of terms. Then you turn to §2-207(2)(3) to analyze the specific obligations under that deal. Always look at the offeree’s form to analyze the expression of acceptance. §2-207(3) states that there can be a contract by virtue of conduct If the parties do not include a warranty in their document, the UCC will use a “gap filler” to imply a warranty as per §2-207(3). (in this case, the gap filler is §2-315) This Act in §2-207 (3) refers to the UCC There is a deal under §2-207(1). The remaining question is what to do with the terms (e.g., the warranty by the seller) If it’s an additional term, you look to §2-207(2), and run the three part test for that subsection Per §2-207(3) you could have a contract by virtue of conduct, even in the face of conflicting written terms Under §2-207(3), the terms of the contract are the terms on which the writings agree, plus gap fillers However, the comments suggest that for additional or different terms, the appropriate subsection to use is 2-207(2). 17 However, comment #7 seems to contradict this by saying tha where the goods have already been bought and paid for, subsection (3) is the governing rule Remember that if we had come to the same results under §2-207(2) and §2-207(3), we’d have no problem. Where there is conflict, however, you need to find a way to choose. A good way to choose is to analyze who has a reliance or expectation interest, and how strong is that interest If the “interest analysis” still doesn’t answer the question, you’d want to look at underlying policies and principals. Which conclusion is more consistent with the underlying policies and principals of the UCC? A. Gianni v. R. Russel & Co., Inc. UCC §2-207: Additional Terms in Acceptance or Confirmation UCC §2-202: Final Written Expression: Parol or Extrinsic Evidence R(2)§209: Integrated Agreements R(2)§210: Completely and Partially Integrated Agreements R(2)§211: Standardized Agreements R(2)§212: Interpretation of Integrated Agreements R(2)§213: Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule) R(2)§214: Evidence of Prior or Contemporaneous Agreements and Negotiations R(2)§215: Contradiction of Integrated Terms R(2)§216: Consistent Additional Terms R(2)§217: Integrated Agreement Subject to Oral Requirement of a Condition  who got shafted out of exclusive soda rights by  nasty building owner  has evidence of an oral agreement prior to signing of the written agreement, although  denies it  argues this case involves an independent oral agreement that does not belong in the writing, and is not germane in its provisions When there is no fraud or mistake, a written  is the only evidence of agreement. All preliminary negotiations are merged into and superseded by the written agreement, unless fraud, mistake, etc is averred. No parol evidence can modify the written agreement’s terms. If a written agreement is found to be complete parol evidence will be excluded B. Masterson v. Sine  People who received ranch and want to block ’s option, in order to keep it in the family Parol evidence cannot be used to add to or vary the terms of an integrated contract When only part of the agreement is integrated, the same rule applies to that part To determine if an agreement is integrated, the court must verify that the parties intended this agreement to exclusively embody it 18 Evidence of oral collateral agreements should be excluded only when the fact finder is likely to be misled: if it can be shown that these additional terms would not certainly have been included in the document, then they must not be excluded If two parties have made an integrated agreement, but there is evidence of a collateral agreement which would not certainly have been included in the document, then evidence of the agreement must be included. To determine whether it is completely integrated depends on the “four corners” and context. According to this court, you must look at the parties’ intentions to see if it’s completely integrated. Dissent He feels it materially lessens the reliance which can be placed on written documents affecting real estate C. Lee v. Joseph E. Seagram & Sons, Inc.  folks with DC Beer Distributing Center who want a new one from  While  contends that oral agreement was part of the subject matter of , and its failure to be included in written agreement bars proof of its existence,  contends it was a collateral agreement and not contradictory of terms of the sales agreement In the end, the court must find the limits of the integration as best it may by reading the writing in the light of surrounding circumstances This court feels there are several reasons why it would not be expected that the oral agreement would be integrated into the contract When two parties enter into a  and sign a written agreement, but one party can prove that an alleged preliminary oral agreement is a collateral one which does not alter or contradict the terms of the written agreement, and it would not be expected to be included in the integrated agreement, the jury may enforce that oral agreement. Interpreting Contract Terms Whether stated or not, all contracts include: (1) Course of dealing (2) Usage of trade (3) Course of performance Each one of these has intention of the parties as the underlying goal With those above 3 and express language, there is a hierarchy. So long as possible, construe express languarge to be consistent with them. When not possible, the hierarchy is (from most important on down): (1) Express language (2) Course of performance (3) Course of dealings (4) Usage of trade In Corenswet , the contextual evidence would have undermined the language of the contract, and the business purpose of the contract In Nanakuli, there was no such inconsistency as described in Corenswet 19 A. Dennison v. Harden  Poor guy who just wants his Pacific Gold peach trees from  If a person enters into a breach of agreement, and then tries to use parol evidence to prove existence of a collateral agreement, but the evidence would only add to or vary the terms of the written contract, then that evidence shall be excluded. The term in dispute was “fruit trees”. The possible meanings for it here are: (1) commercial peach trees , or (b) fruit trees of any type. Trial court chose the latter The court uses the “plain meaning” rule to interpret the terms, which does not take the parties’ intent into account B. Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.  wants money to fix turbine the  handyman broke  offered extrinsic evidence that the intention of the parties was to cover the injury of the property of third parties only, not  property as well. The exclusion of testimony that might contradict the linguistic background of a judge reflects an outdatedbelief in the possibility of perfect verbal expression The test of admissibility of extrinsic evidence is whether it is relevant to prove a meaning to which the language of the instrument is reasonably susceptible If under that, the evidence is not admitted, you want to return to the C/L parol evidence rule, and start by deciding if the existing  is integrated A “four corners” rule that ignores contextual intent of the parties b/c of a belief in the perfect meaning of words is the wrong approach The exclusion of relevant, extrinsic evidence to explain the meaning of a written instrument could be justified only if it were feasible to determine the meaning the parties gave to the words from the instrument alone C. Frigaliment Importing Co. v. B.N.S. International Sales Corp. UCC §1-205: Course of Dealing and Usage of Trade UCC §2-208: Course of Performance or Practical Construction  Corporation wants young broiling and frying chicken not  stewing chix If one person agrees to buy a product and another agrees to sell it, and there can be an objective definition for the product found with their trade, but one party claims that in this  another meaning was intended, but he fails to prove as such, then the  shall be supported by the objective trade definition. The “chicken” problem is one of vagueness, not ambiguity. The Lincoln Memorial / Washington Monument was a problem of an ambiguous phrase: one phrase which could have 2 separate meanings. “Chicken” is a word which could have many different meaning, and is therefore vague. Trade usage is cited by the court as important to the “chicken” definition Another element is what the parties thought the word meant Course of performance in this case is after the  has been entered into, what do the parties’ actions tell you about the definition of chicken, and what the parties understood the definition was 20 The court is trying to understand the parties’ intent by looking at their acts in context. This is in the scope of autonomy: trying to protect the parties’ expectations. D. Nanakuli Paving and Rock Co. v. Shell Oil Co.  rock paving co. got it’s costs jacked up by nasty  oil co.  argues that all material asphalt providers in HI followed the trade usage of price protection, so, under the UCC, you can assume that the parties intended to incorporate that into the 1969 agreement, regardless of express  terms  new management did not even try to understand past agreements between the parties, ignoring the commercial context required by the UCC  acted in good faith in regards to reliance on the price protection  says the relevant trade is not just asphalt, but is trade involving the broader universe of the paving industry The next issue is to make the express term (price posted at delivery) consistent with the trade usage (price protection) Since there would sometimes be no reason to invoke usage of trade, it applies in some scenarios, but not others, so since it does not negate the express term, it is consistent with it Inconsistencies exist only when the context factors would totally negate the express terms 100% of the time E. Corenswet, Inc. v. Amana Refrigeration, Inc.  fridge distributor that got cut off by their  sugar daddy supplier  argues that even “bad faith” or “arbitrary” termination are allowed by the  and applicable law This court cannot reconcile  past conduct with the express terms as the UCC requires to hold  liable;  created expectation among distributors not to terminate arbitrarily, but the express terms give it exactly that right Express terms can’t be reconciled, so those express terms control the agreement This court feels that unlike the unconscionability provision, a good faith obligation cannot override express  terms If two parties sign a , and one of the  express terms allows for arbitrary termination, then as long as course of performance, course of dealing, or trade usage cannot be reconciled with that express term, then either party will be allowed to arbitrarily terminate the relationship. Implied Contract Terms The Process (past and next steps) (1) Identify express terms of the  (2) Interpret express terms of  (3)Identify and interpret implied terms of the  The court must identify any assumed obligations 21 There are also circumstances to which the  would apply, but the parties never took it into account, so these are omitted obligations In default of the express  terms, you need “gap fillers” The legal source for gap fillers is R(2) §204 The Process is: (1)Use offer/acceptance tests from earlier to find subjective intent (2)If you can’t find subjective, try to establish objective intent (3)If you can’t find objective, go back to §204 for the court to imply a fair and reasonable term The cases below are different from Corenswet, b/c in that case, both parties have discretion A. Spaulding v. Morse R(2)§204: Supplying and Omitted Essential Term  father doesn’t want to pay  trustee while Uncle Sam’s got his son Every instrument in writing is to be interpreted with a view to the material circumstances of the parties at the time of execution If it is seen that an intent was implied but not openly expressed, then it may be supplied so long as it is sufficiently declared by the entire instrument While in the Army, the US Government and his superior officers were maintaining Richard, he was not enrolled in a college, and he was not in his mother’s custody Is the court interpreting the  in order to identify the parties’ intentions: probably not. R(2) §204 says that when an obligation is omitted, you can supply the implied intent, and that’s probably what the court is doing here B. Wood v. Lucy, Lady Duff-Gordon By implying a “best efforts” term, you are imposing an obligation. C. Greer Properties, Inc. v. LaSalle National Bank R(2)§205: Duty of Good Faith and Fair Dealing UCC §1-102(3): Purposes; Rule of Construction; Variation by Agreement UCC §1-201(19): General Definitions - “Good Faith” UCC §1-203: Obligation of Good Faith UCC §2-103(1)(b): Definitions and Index of Definitions - “Good Faith”  bait and switch land dealers selling toxic property to big  hotel chain Economic impracticability must be read with the other  language, “best business judgment” Because of that reading, District Court was correct that  had broad discretion over the economic impracticability  argues that granting that,  acted in bad faith by terminating the  as they did The good faith implied in every  acts as a limit on the parties’ discretion If discretion is exercised in bad faith, a breach of  occurs and the court must grant relief to the aggrieved party Good faith is matters of material fact 22 D. Eastern Air Lines, Inc. v. Gulf Oil Corp. UCC §2-306: Output, Requirements, and Exclusive Dealings  airline that wants its cheap gas from  oil co. being squeezed by OPEC Holding is that  has not violated the  by refusing to pay price increase The UCC makes requirements s binding  has not violated good faith by “fuel freighting”, and this practice meets courses of performance, course of dealing, and usage of trade E. Orange and Rockland Utilities, Inc. v. Amerada Hess Corp.  utility trying to make a quick $ sticking it to  oil supplier Holding is that ’s requirements not incurred in good faith A buyer in a rising market cannot use a fixed price in a requirements  for purposes of speculation If 2 parties make a requirements , but the price of the requirements unforeseeably begins to increase, then the buyer cannot take advantage of these market conditions to the detriment of the seller w/o showing an absence of good faith. Promises and Conditions Conditions qualify and limit obligations A condition is usually an “event”, and if the condition does not occur, then the obligation does not arise, and nobody is liable to anybody for anything In cases of ambiguity, interpret s as promises rather than conditions A. Luttinger v. Rosen R(2) §224: Condition Defined R(2) §225: Effects of the Non-Occurrence of a Condition R(2) §226: How an Event may be Made a Condition R(2) §229: Excuse of a Condition to Avoid Forfeiture  want their down-payment back from s from a house they can’t buy The court found that the  did use the “due diligence” specified in the  If the condition precedent is not fulfilled, the  is not enforceable The  was unambiguous as to the terms and conditions, and the s did not meet those conditions, so the  is not enforceable Any additional offer by  is irrelevant: the  had the right to accept the  counter offer, but he had no obligation to do so B. Peacock Construction Co. v. Modern Air Conditioning, Inc. GC doesn’t want to pay  SC until the owner pays him (GC) The payment provisions are not condition precedents but actually absolute promises to pay, merely using payment by owner as a reasonable time for payment 23 The intent in most cases is that payment by owner to the GC is not a condition precedent, b/c small SCs just can’t afford to assume the risk that the owner may fail to pay the GC If the parties want to shift the burden, they may do so explicitly in the  The language is ambiguous b/c the industry doesn’t work as stated literally in the  terms The parties’ intent was to interpret the  as a promise, rather than a condition When the court talks about forfeiture, they’re referring to reliance, not just sunk costs: they’re balancing the parties’ interests C. Burger King Corp. v. Family Dining Inc.  fast food kingdom victimizing  franchise owner  wasn’t opening up franchises per literal terms, but for years, was ok with  The provision was a condition, not a promise Since  had indicated for years by its conduct that literal performance was not required, it cannot now demand it from  So  is not entitled to have the condition enforced Also,  would lose real value by losing exclusivity, so would be a forfeiture  cannot now invoke the literal terms to ’s detriment  doesn’t win on a waiver theory b/c  didn’t really waive their rights: therefore,  wins on the theory of forfeiture: they relied on the territorial agreement  has reliance and expectation interests larger than ’s Also, from a restitution standpoint,  has conferred a benefit on  The court also feels that the underlying purpose of the contract, exchanging exclusivity for rapid expansion, was fulfilled: not a strict development rate D. Fry v. George Elkins Co.  trying to get back house deposit from s who are sick of ’s hedging  claims he fulfilled his obligation under the  Court rules that by not putting forth a good faith effort,  did not fulfill his obligation, and therefore breached the  This doesn’t turn out like Luttinger b/c there’s an express condition entirely w/in ’s control, but which is limited by an implied duty of good faith E. Pannone v. Grandmaison Picky s want back their $18,000 deposit from s w/ radon gas filled house s cancelled in a way that was not objectively reasonable, but in this case, due to  phobia of radon gas, it was subjectively reasonable Therefore, this was a good faith exercise of discretion PART IV: THE JUSTICE PRINCIPLE (Limits on Enforcement of Promises) 24 Freedom of contract means that people have the generally unimpeded ability to enter into contracts with each other Three conceptions of justice are: (1) Formal Justice, (2) Corrective Justice, and (3) Distributive Justice Public Policy A. Kiefer v. Fred Howe Motors, Inc. R(2) §12: Capacity to Contract R(2) §14: Infants  20 yr old married kid wants to get out of his car purchase from  used car dealer Holding is that since  was minor at time of  inception,  is voided at his option The general rule is that the  of a minor is either void or voidable at his option The rule is the same for emancipated and un-emancipated minors Any act which clearly shows an intent to disaffirm the  is sufficient Remember the hypo where if he buys when he’s 17, but then pays an installment after his 18th bday, he has ratified the  as an adult, and is now bound by it B. In the Matter of Baby M R(2) §178: When a Term is Unenforceable on Grounds of Public Policy R(2) §179: Bases of Public Policies Against Enforcement s want custody of the baby they bought from  surrogate mother Surrogacy s go against statute and public policy in NJ The entire  is utterly unenforceable in NJ so even ’s original consent is irrelevant However, regardless of the invalidity of the , the best interests of the child now lie with the s: all custody issues based solely on child’s best interests Mistake Parties make mistakes when they act on beliefs which are not in accord with the facts existing at the time of the contract Performance or lack of performance are not in and of themselves reasons for recission of a : the principle of justice can sometimes override A. Sherwood v. Walker R(2) §151: Mistake Defined R(2) §152: When Mistake of Both Parties Makes  Voidable Replevin for a cow  wants the now fertile cow he bought, even though  thought she was barren A party who has given an apparent asset to a  of sale may refuse to execute it, or he may avoid it after it has been completed, if the assent was founded, or the  made, upon the mistake of material fact No  if the thing bargained for is substantively different from what is delivered 25 The mistake here does go to the substance of the agreement since breeding cows are worth so much more than non breeders If two parties make a  to buy and sell a thing, and they are in fact mistaken in fact as to the substantial character of that thing, then when the mistake is realized, the  may be rescinded Dissent There was no mutual mistake of fact here, since the  actually thought he could get her to breed: he was simply more correct than  B. Wood v. Boynton  sold a $1000 rock to  jeweler for $1 (in 1885) Neither party honestly knew at time of sale that the rock was an uncut diamond Reasons for rescinding a sale and revesting title in the vendor are: (1) that the vendor was guilty of some fraud in procuring the sale to be made to him, or (2) that there was a mistake made by the vendor in delivering an article which was not the article sold: a mistake in fact Neither of these are met here: it was just a bad bargain for the  Either party was free to investigate the item’s identity before selling C. Elsinore Union Elementary School District v. Kastorff R(2) §155: When Mistake of Both Parties as to Written Expression Justifies Reformation  nasty school district wants  contractor to work w/his faulty clerical figures There is case history that when a contractor makes a clerical error, he may rescind Rules to follow from Kemper: (1) once open and declared, the bid is an irrevocable option of which  can’t be deprived of unless requirements for recission are satisfied, (2) the  had actual knowledge of the bid error before attempting to accept the bid, (3) relief is allowed when one party knows of the other’s mistake, (4) recission may be had for mistake of fact fi the mistake is material to the  and was not the result of neglect of a legal duty, and the party seeking relief has given prompt notice enabling the other party to return to the status quo Ruling for  contractor, reversing the trial court Unconscionability Cases concerning leases primarily concern unequal bargaining power and public policy. They involve whether tenants can sue to get damages for their injuries. Most such cases will say that commercial actors can protect themselves. In the lease cases, there’s no discretionary power being exercised, so it’s hard to say when “good faith” enters the picture 3 ways to “get” a landlord in such cases: (1) show that he breached a  term requiring he keep the property in good repair, (2) show that he breached an ordinance requiring same, (3) show he failed to exercise reasonable care in maintenance and was therefore negligent 26 It’s relatively rare for a court to declare a  unconscionable b/c the courts usually require: (1) procedurally unconscionable terms, and (2) substantively unconscionable terms A. O’Callaghan v. Waller & Beckwith Realty Co. R(2) §208: Unconscionable Contract or Term  old lady slipped on bad pavement in  apt. complex w/ exculpatory clause Exculpatory clauses are generally enforced unless: (1) it would be against the settled public policy of the state to do so, (2) there is something in the social relationship of the parties militating against upholding the agreement.  argues that even though such clauses are generally upheld with residential leases, this case should be different since there’s a housing shortage Holding is that just use of a form  doesn’t indicate disparity in bargaining power  may make a rational choice for an exculpatory clause for less money: not up to the courts to say that that decision is unconscionable B. Lloyd v. Service Corporation of Alabama, Inc.  raped by guy who got in through window which  bastard landlord never fixed Rental  included an exculpatory clause for the landlord’s negligence Factors to decide if this was an unconscionable adhesion  are: (1) whether the service provided is necessary to the public, (2) whether a significant number of people are compelled to seek the services, (3) whether the transaction places one party under the control of the other, and subject to its carelessness, (4) the relative bargaining power of the parties, and (5) whether there is stated legislative policy against judicial enforcement of unconscionable s In this case, all the factors are met, so the  is declared unconscionable Between this case and O’Callaghan, the market has changed so that people are dependant on their landlords more, tenants have very little bargaining power, and the leases are all standard forms C. Mayfair Fabrics v. Henley  fabric stored burned in fire at  building which leased space to  Landlord had an exculpatory clause that included a provision for fire damages Where they don’t adversely affect public policy, exculpatory clauses are generally enforced The parties here deliberately distributed the risks and decided who was to obtain necessary insurance:  is even a member of the NY Bar: no inequality here The  does not have to say “negligence”: just imply it Commercial leases w/exculpatory clauses are generally enforced D. Weaver v. American Oil Co.  small fry gas station guy badly burned by  oil company’s negligence The clause here was to “hold harmless and indemnify” 27  was in a weaker bargaining position than : he never read the  and if he had, would not have understood the provisions If this were a sale of goods, it would be unconscionable under UCC §2-302 To enforce the exculpatory clause,  must show that the provisions were explained to  and came to his knowledge and there was in fact a real and voluntary meeting of the minds and not merely and objective meeting Large companies, have both an economic monopoly and a monopoly of forms This decision is not the standard Dissent: Not an adhesion  b/c it was not merely “take it or leave it” and  is an adult E. Williams v. Walker-Thomas Furniture Co. UCC §1-103: Supplementary General Principles of Law Applicable UCC §2-302: Unconscionable Contract or Clause  trying to protect herself from the evil  furniture store loan sharks in DC  here lacked meaningful choice b/c of a gross disparity in bargaining power UCC §2-302 is persuasive authority to not enforce the   is simply too unfair for the court to enforce F. Toker v. Westerman  evil door to door fridge salesman wants  to pay the grossly inflated price Case history shows that a deal with a flagrantly inflated purchase price is covered by UCC §2-302 Purchase price alone may be found to make a  unconscionable Other case history has allowed the seller in such cases to recover only the reasonable price of the item In Williams, the court said there must be both: (1) procedurally unconscionable terms and (2) substantively unconscionable terms: this court only needs #2. G. Frostifresh Corporation v. Reynoso  sleazy people defrauding  welfare recipients on their fridge purchases Negotiations in Spanish,  in English, fridge was 3 times too expensive, the written  completely negated the oral agreement, etc. Normally there is freedom of  absent fraud or illegality, but UCC §2-302 gives the court the power to police unconscionable s s can only recover the actual, reasonable value of the fridge PART V: THE SECURITY PRINCIPLE (Performance and Breach) Expectations of the Parties Restatement 28 R(2) §250: When a Statement or an Act is a Repudiation R(2) §251: When a Failure to Give Assurance May be Treated as Repudiation R(2) §252: Effect of Insolvency R(2) §253: Effect of a Repudiation as a Breach and on Other Party’s Duties R(2) §254: Effect of Subsequent Events on Duty to Pay Damages R(2) §255: Effect of a Repudiation as Excusing the Non-Occurrence of a Condition R(2) §256: Nullification of Repudiation or Basis For Repudiation R(2) §257: Effects of Urging Performance in Spite of Repudiation Uniform Commercial Code UCC §2-609: Right to Adequate Assurance of Performance UCC §2-610: Anticipatory Repudiation UCC §2-611: Retraction of Anticipatory Repudiation A. Kingston v. Preston  silk apprentice in 1773 wants  master’s shop to himself, as promised The holding is that there are actually two separate dependant covenants here There are 3 types of covenants: (1) mutual and independent, (2) conditions and dependant, (3) mutual conditions to be performed simultaneously (1) may recover for the other party’s breach, regardless of any breach of his own (2) the performance of one depends on the prior performance of another (this case) (3) one party may recover from another party if one party was ready to perform, and the other party refused to do his part Regardless of written terms, look to the  to see when performance should occur In this case, unjust to force  out of his shop w/o security assurances from  B. Hochster v. De La Tour R(2) §250: When a Statement or an Act is a Repudiation R(2) §251: When a Failure to Give Assurance May be Treated as Repudiation R(2) §252: Effect of Insolvency R(2) §253: Effect of a Repudiation as a Breach and on Other Party’s Duties R(2) §254: Effect of Subsequent Events on Duty to Pay Damages R(2) §255: Effect of a Repudiation as Excusing the Non-Occurrence of a Condition R(2) §256: Nullification of Repudiation or Basis For Repudiation R(2) §257: Effects of Urging Performance in Spite of Repudiation UCC §2-609: Right to Adequate Assurance of Performance UCC §2-610: Anticipatory Repudiation UCC §2-611: Retraction of Anticipatory Repudiation  courier got gipped out of a foreign tour by  rich dude  and  were “engaged” to each other from the day of hiring to the day of employment, and it is a breach of implied  if either is to remove the engagement 29 If A hires B, with employment to start at some future date, and before that date A revokes his offer of employment, then B can both look for other employment immediately and sue A for breach of  C. United States v. Seacoast Gas Co.  nasty gas company sued by  USA for trying to cut off hot air to poor people  had hired  to supply gas to a federal housing project and  anticipatorily breached the :  then retracted its breach but not before  hired new firm If one person makes an anticipatory breach of  that they have with another person, and the other party, in good faith, sets a time limit for retraction of that breach, but the offending party does not meet the time limit, then they are liable for damages resulting from the breach of . Cancellation in Response to Breach In a bilateral , promise is exchanged for promise: and they’re usually dependant By the time you analyze the dependency of the covenants, you already assume you have a valid agreement: you’re discussing what happens as a remedy if one party doesn’t keep their side of the bargain Technically, the question of whether the covenant is dependent or independent should be considered as a matter of law. Once that’s decided, the jury is supposed to decide, on the facts, if there was a breach. If the breach is material, regardless of the kind of covenant you have, then the non breaching party may have a claim for breach of  If the promisor has substantially performed, then the promisee is not discharged and must go ahead and perform. Only when there is no substantial performance can the non-breaching party discharge his own performance and sue for damages. When there is substantial performance, you can only sue for damages. If you have a breach by anticipatory repudiation, that’s usually going to count as a material breach For a material breach, the non-breaching party has the option to treat is as a partial breach If the non-breaching party treats it as a partial breach, by which the  is still in effect and future performance is still owed, he can due for past damages If the non-breaching party treats it as a total breach, the  is discharged, and the nonbreaching party can sue for past misconduct and for probable future harm If it’s not a material breach, then there is either no breach, or there is an immaterial breach A. Jacob & Youngs v. Kent R(2) §235: Effect of Performance as Discharge and of Non-Performance as Breach R(2) §237: Effect on Other Party’s Duties of a Failure to Render Performance R(2) §238: Effect on Other Party’s Duties of a Failure to Offer Performance 30 R(2) §239: Effect on Other Party’s Duties of a Failure Justified By NonOccurrence of a Condition R(2) §241: Circumstances Significant in Determining Whether Failure is Material R(2) §242: Circumstances Significant in Determining When Remaining Duties are Discharged  house builder who used equally good pipe, but a different brand then  wanted Omission of the prescribed brand of pipe was neither fraudulent nor willful An omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damages and won’t always be the breach of a condition, followed by a forfeiture No change, however trivial, will be tolerated if it frustrated the purpose of the  To tell if literal performance is an implied in law condition, weigh: (a) the purpose to be served, (b) desire to be gratified, (c) excuse for deviation from the letter, and (d) cruelty of enforced adherence In this case, we award based on difference in value, not of replacement The court used a “totality of the circumstances” test to see if there was substantial performance B. Plante v. Jacobs  building contractor who put wall in wrong place in ’s new house Holding is that regardless of errors,  substantially performed and deserves pay Test of what amounts to substantial performance is whether the performance meets the essential purpose of the  The diminished value rule is that damages are the difference between the value of the house as it stands and the value of the house had it been built in strict accordance with the  Whether the defect falls under “diminished value” or “cost of replacement” depends on the magnitude of the defect Even if the court decided there was not substantial performance,  would still have to pay something, just not on the letter of the  This case is different from Jacob, b/c that was a custom house and this is just a stock house C. Walker & Co. v. Harrison  neon sign people won’t service their product to  store owner’s satisfaction R(2) §275 lays out factors of a material breach: (a) the extent to which the injured party will obtain the substantial benefit which he could have reasonably anticipated, (b) the extent to which the injured party may be adequately compensated in damages for lack of complete performance, (c) the extent to which the party failing to perform has already partly performed or made preparations for performance, (d) the greater or less hardship on the party failing to perform in terminating the , (e) the willful, negligent, or innocent behavior of 31 the party failing to perform, (f) the greater or less uncertainty that the party failing to perform will perform the remainder of the  Holding is that  did not materially breach the  by virtue of their slow service Therefore, ’s repudiation is now seen as a material breach: he took this risk D. Plotnick v. Pennsylvania Smelting & Refining Co.  seller of battery lead holding out for higher price from  who needs the lead Two rationales for recission by the seller: (1) Non-payment for a delivered shipment may make it impossible or unreasonably burdensome for the seller to supply future installments as promised, or (2) Buyer’s breach of his promise to pay for one installment may create such reasonable apprehension in the seller’s mind concerning payment for future installments that the seller should not be required to take the risk involved in continuing deliveries No evidence of either reason is here: indeed, evidence is just that  is trying to get out of a bad bargain due to increasing market price Today this case would have been decided under UCC §2-612. It says that for installment s for shipment of goods, when there’s a material breach for one installment, which amounts to a material breach for only that one, unless the breach for one installment substantially impairs the value of the entire . E. McCloskey & Co. v. Minweld Steel Co.  steel folks are having trouble doing their jobs in a war market, and  GC wants out of the deal with the SC ’s anticipatory breach was uncalled for b/c  acted properly in asking for assistance: they were not registering their intent to breach ’s letter asking for help was not a breach of  b/c it was not “an absolute and unequivocal refusal to perform or a distinct and positive statement of an inability to do so.” Today, this  would probably fall under UCC §2-609: Reasonable Assurances Analyze whether the GC was acting in a commercially reasonable way: in this case, the GC appears to be acting sneaky, it just smells bad. F. K & G Construction Co. v. Harris R(2) §236: Claims for Damages for Total and for Partial Breach R(2) §243: Effect of a Breach by Non-Performance as Giving Rise to a Claim for Damages for Total Breach  GC is building a house, but  SC ran over the house with a bulldozer Promises here were mutually dependant, and each party claims the other’s conduct was a material breach of  Holding is that the ’s workmanlike conduct was a condition precedent of ’s performance (i.e., ’s payment to ): so ’s conduct is ruled the material breach  was put in apprehension about the ’s future performance  has 2 options: (1) Cancel  and sue for damages, or (2) Treat breach as a partial breach so that he can continue the , but sue for damages on the partial breach 32  uses #2 G. Gill v. Johnstown Lumber Co. R(2) §240: Part Performance as Agreed Equivalents  agreed to drive logs, pending enough water, and  doesn’t want to pay for logs not received If the part to be performed by one party consists of several and distinct items, and the price to be paid by the other is apportioned to each item to be performed, such a  is severable and not entire  is to be compensated for logs delivered, but not those that went past ’s boom Excuse for Nonperformance Force majeure, impossibility, impracticability, and frustration are all doctrines for shifting risk to the party better able to bear it, either b/c he can more readily prevent the risk or reduce it’s disutility Under some circumstances, a party does not have to perform its promise under a . You are “justified” b/c: (1) a condition is not satisfied, or (2) there is a material breach Excuse, however, is where you don’t have to perform b/c of some circumstance not caused by or attributed to the other party When the risk is not explicitly allocated, the law looks to two doctrines: Impossibility Frustration of Purpose The doctrines are usually applied in similar circumstances: unforeseen contingency, gross increase in the expected burden Impossibility is usually applied to parties who are selling goods, or supplying services Frustration of purpose usually applies to the buyer’s side of things In modern law, impossibility and frustration tend to get blended into impracticability: UCC §2-615 Restatement R(2) §261: Discharge by Supervening Impracticability R(2) §262: Death or Incapacity of Person Necessary for Performance R(2) §263: Destruction, Deterioration, or Failure to Come Into Existence of Thing Necessary for Performance R(2) §264: Prevention of Governmental Regulation or Order R(2) §265: Discharge by Supervening Frustration R(2) §266: Existing Impracticability or Frustration R(2) §267: Effect on Other Party’s Duties of a Failure Justified by Impracticability or Frustration R(2) §268: Effect on Other Party’s Duties of a Prospective Failure Justified by Impracticability or Frustration R(2) §269: Temporary Impracticability or Frustration R(2) §270: Partial Impracticability R(2) §271: Impracticability as Excuse for Non-Occurrence of a Condition 33 R(2) §272: Relief Including Restitution A. Taylor v. Caldwell  wanted to use ’s music hall that got burned down before they could When a  is positive and absolute, regardless of any circumstances, foreseen or otherwise, the contractor must perform or pay damages However, that is only for s with no implied conditions From the nature of s like this one, it is implied that the  cannot be fulfilled unless when time comes due for the , a certain specified “thing” exists: in this case, the music hall Therefore, the hall ceasing to exist, at the fault of neither party, both parties excused B. Krell v. Henry  landlord wants rent from  who was to use room for King’s procession which got cancelled You need to look not just to the terms of the , but also to the circumstances surrounding the , and ask if that substantial  needs for its foundation the assumption of the existence of a particular state of things If yes, this limits strict enforcement of the precise terms of the  When the purpose of the  is frustrated, as it was here, this unforeseeable occurrence occasioned by no fault of either party will excuse performance C. Northern Indiana Public Service Co. v. Carbon County Coal Co. UCC §2-613: Casualty to Identified Goods UCC §2-614: Substituted Performance UCC §2-615: Excuse by Failure of Presupposed Conditions UCC §2-616: Procedure on Notice Claiming Excuse  electric co. trying to use courts to get out of bad deal w/  coal mine A force majeure clause is not meant to protect a party from the normal risks of a  The only way the buyer can excuse non-performance is if the performance of that which his is paying for is frustrated: the seller has more options Therefore, since in this case the risk was explicitly shifted to  in the terms of the , he cannot use the doctrine to shift the risk elsewhere now The court is trying to allocate risk based on economic efficiency and 3 factors: (1) who can predict the risk, (2) who can absorb the risk, and (3) who can protect themselves from the risk PART VI: THE COMPENSATION PRINCIPLE (Remedies for Breach) The law enforces promises mainly by compensating non-breaching parties for unavoidable, foreseeable, and reasonably certain harms caused by a breach. As a general rule, there are no punitive damages The point is to compensate the non-breaching party, not to punish the breaching party 34 Sometimes, everyone is better off if the contract is breached and compensation awarded, then if the  is actually performed (see p. 289) Introduction A liquidated damages clause is valid if it is consistent w/the compensation idea A liquidated damages clause is invalid b/c it is in the form of a penalty. To determine if the clause is valid: Damages must be difficult to ascertain in the future The fixed amount specified in the LD clause has to be a reasonable estimate that actually compensates the non-breaching party If the LD clause is deemed valid, then in the event of a breach, the damages are as the  clause says they are If the LD clause is void as a penalty, then the court decides what compensation is appropriate The law generally says, “Carrots are OK, but sticks are not” A. White v. Benkowski  bought house w/no water and s had agreed to supply water for them Jury found that ’s actions in turning off water were vindictive and malicious Jury’s nominal damages should be sustained, punitive thrown out The only exception to “no punitive for s” is breach of promise to marry Only liable for punitive damages otherwise if  can prove a tort occurred B. City of Rye v. Public Service Mutual Insurance Co. R(2) §356: Liquidated Damages and Penalties Liquidated Damages is a term of art that just means “fixed”  developers are 500 days late in project for the  city  delay was ruled by the court not to be speculative Court ruled that no statute allowed  to impose penalties on the  Specific Performance In general, specific performance is available when goods are unique, regularly in land contracts, and rarely in personal service contracts First thing the law looks to for a remedy is the expectation interest You cannot write a remedy of specific performance into your  You can write into your contract that the good is unique A. McAllister v. Patton R(2) §344: Purpose of Remedies R(2) §347: Measure of Damages in General R(2) §359(1): Effect of Adequacy of Damages UCC §2-716: Buyer’s Right to Specific Performance or Replevin  wants his favorite Ford from  double dealing auto dealer 35 The general rule that equity will not grant specific performance of a  for the sale of personal property if damages in an action at law afford a complete and adequate remedy has its exceptions where the personal property has a unique or sentimental value not measured in monetary terms Most cases involving new cars, including this one, do not regard them as “unique chattels” justifying a remedy of specific performance The court says that “unique” is not synonymous with “rare” but that unique really means “irreplaceable” B. London Bucket Co. v. Stewart  hotel getting cold b/c  workmen screwed up the heating system It is the general rule that s for building construction will not be specifically enforced b/c ordinary damages are an adequate remedy, and, in part, b/c of the incapacity of the court to superintend the performance Holding is that: (1) money damages are not inadequate as a matter of law, (2) performance of the heating  doesn’t involve a public interest: there is meaningful alternative, and (3) the court does not want to be in the business of supervising heating s General Damages A. See the UCC Exercises Limitations on Damages 2 types of damages are: (1) general, and (2) special In some situations, when one side breaches, there are general (standard) damages Special Damages are the kind that would not be ordinarily expected to result, but in this specific situation, they do result. Damages need to be “reasonably certain” as per R(2) §352 Locke is a case involving less contingencies / variables than Kenford, which is part of the reason why the Locke  recovers and the Kenford  does not Guidelines for foreseeability: If the amount of damages is huge, it’s less likely that they’re foreseeable The court is more likely to be strict when applying the foreseeability rule when the things at issue are intangible (e.g., loss profits, loss of good faith, etc) One result of foreseeability is that some breaches are allowed, even if they’re inefficient and leave one party worse off b/c: To balance efficiency and autonomy To keep  law predictable by putting limitations on damages (at the expense of fairness) A. Locke v. United States R(2) §352: Uncertainty as a Limitation on Damages  trying to do typewriter repair for  US which took him off GSA schedule 36 Requirements s do not lack mutuality, and they are enforceable By breaching,  deprived  of value of the chance of getting work The fact that it’s hard to determine how much  lost is not a bar to recovery B. Kenford Co., Inc. v. County of Erie  wanted to use the sports dome that  county was to build 2 tests for awarding damages for lost profits in NY: (1) it must be demonstrated with certainty that such damages have been caused by the breach, and (2) the alleged loss must be capable of proof with reasonable certainty Damages must have been fairly within the contemplation of the parties at the time the  was signed In this case, the damages were not reasonably certain, and were not in the contemplation of the parties at  signing, so there is no recovery Court is saying that the  cannot prove w/enough certainty that the lost profits were caused by the breach Since the fact of damage was not proven, doesn’t get to jury C. Hadley v. Baxendale R(2) §351: Unforeseeability and Related Limitations on Damages UCC §2-715(2): Buyer’s Incidental and Consequential Damages  has broken crank shaft which they entrusted to  delivery people When special circumstances are known to both parties, the damages would be that ordinarily resulting from such a breach of  If the special terms were not known to both parties, then the party in breach could not have had any concept of damages in mind In this case, special terms not clear to both parties Therefore, lost profits cannot be considered for damages in this case The rule is that the damages the  claimed were not foreseeable to both parties at the time the  was entered into by both parties D. Parker v. Twentieth Century-Fox Film Corporation R(2) §350: Avoidability as Limitation on Damages  Shirley MacClaine who wants her musical deal from  studio, not serious film The non-breaching party is not to be put into a better position, just no worse off The rule is that a non-breaching party cannot recover damages that could have been avoided If damages could have been avoided, then they were not caused by the breach, and they were not actually in the expectation of the non-breaching party To make damages avoidable, alternative must be comparable b/c that is how you’re put in as good a position as you would have been had first  been performed In personal service s like this,  bears the burden of showing that the damages were avoidable:  couldn’t accomplish that in this case 37 Reliance Remedies First look to expectation interests Next look to reliance interests Sometimes you’ll have consideration as justification for enforcing the promise, and sometimes not A. Security Store & Manufacturing Co. v. American Ry. Express Co.  whose furnace was not shipped by  to the show in time The nature of the claim is not for lost profits, but to cover expenses that were wasted since the furnace part was never delivered These expenses were the money he relied on in anticipation of  being performed In this case, the expectation damages (lost profits) are speculative, but the reliance damages (expenses) are more definite The remedy is consistent with compensating the  The reliance damages are conceivably less than the expectation damages Due to all this, reliance damages are an appropriate substitute for expectation damages B. Sullivan v. O’Connor R(2) §353: Loss Due to Emotional Disturbance  hooker / stripper needed a nose job that was botched by  surgeon The court makes references to Hawkins v. McGee In Hawkins, they went with expectation damages, but in this case, the court feels expectation damages are too speculative The expectation remedy is too big, the restitution remedy is too small, but the reliance remedy fits juuust right The holding is that the  had the right to choose between expectation damages and reliance damages, and she chose the latter: court rules this an appropriate choice Restitution Often available to prevent unjust enrichment Expectation remedies seek to place the injured party in the position it would have been in had the  been performed by compensating for both gains prevented and losses sustained Reliance remedies seek to place the injured party in the position it would have been in had the  not been performed by compensating for losses sustained, including both benefits conferred on the party in breach and expenditures made to third parties. Restitution remedies seeks to place the party in breach in the position it was in before the contract was made by disgorging any unjust enrichment. Restitution can take the form of specific relief A. Oliver v. Campbell 38  attorney wants to collect fees from decedent ’s estate which he was never paid The general rule is that one who has been injured by a breach of  has an election to pursue any of 3 remedies: (1) he may treat the  as rescinded and may recover upon a quantum meruit so far as he has performed, (2) he may keep the  alive, for the benefit of both parties, being at all times ready and able to perform, or (3) he may treat the repudiation as putting an end to the  for all purposes of performance, and sue for the profits he would have realized if he had not been prevented from performing When an attorney is working for a fixed fee, and his client wrongfully discharges him before he has completed the , the attorney may recover the reasonable value of the services performed before the time of discharge  required only to pay what was on the  ($750) and not the cost of reasonable services, which was more like $5000 B. United States v. Algernon Blair Inc. The rule is that a SC, who justifiably ceases work under a  b/c of the GC’s breach, may recover in quantum meruit the value of labor and equipment already furnished pursuant to the  irrespective of whether he would have been entitled to recover in a suit on the . In construction s, the promisee upon breach has the option to forego any suit on the  and claim only the reasonable value of his performance. The restitution interest involves a combination of unjust impoverishment with unjust gain The impact of quantum meruit is to allow a promisee to recover the value of services he gave to the  irrespective of whether he would have lost money on the  and been unable to recover in a suit on the  The measure of recovery for quantum meruit is the reasonable value of the performance, and recovery is undiminished by any loss which would have been incurred by complete performance 39