; CONSIDERATION
Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out
Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

CONSIDERATION

VIEWS: 24 PAGES: 13

  • pg 1
									J. Rothstein Contracts – Johnston ’06.


                                                                CONSIDERATION
                                                      (R. 2d §§ 17, 71, 79, 73 [pages 11-12 in supp.])
                                                     When an uncle promises to give nephew $ for forbearing from alcohol, the nephew’s
                     Hammer v. Sidway, 132           forbearance constitutes consideration: it was sought and bargained for by the uncle
                                                     and whether or not he gets the benefit is immaterial.
                                                     When one promises (housing) to another, and the other’s only action is traveling to
                     Kirksey v. Kirksey, 132         receive the gift, that traveling doesn’t constitute consideration, as it wasn’t what was
                                                     sought for as an exchange for the gift by the promisor.
                                                     When the promisor seeks an action from the promisee that the promisee isn’t
 CONSIDERATION




                     St. Peter v. Pioneer Theater,   required to do, even if that act consists of waiting around (which did give a little
                     134                             benefit to the promisor) a movie theater, than that act constitutes consideration. No
                                                     matter how insignificant the benefit to the promisor.
                                                     When a man promises his ex-consort to pay for things for her, and in consideration
                                                     she pays him $1, that’s sham consideration, and doesn’t count. Also, saying they
                     In re Green, 134
                                                     intended it to be consideration doesn’t matter. Her release of legal claims is also a
                                                     sham, as they weren’t going to get married anyway. No Sham Consideration
                                                     When, in wartime, the promisor gives $25 in exchange for $2000 in the future, as this
                     Batsakis v. Demotsis, 144       was a high risk loan, and that these amounts are exactly what the parties bargained
                                                     for, the disparate value of the amounts isn’t important.
                                                     When promisor gifts $ in exchange for promisee to name child after him,
                                                     consideration exists. R 2d §79, courts should respect the values parties placed on
                     Wolford v. Powers, 147
                                                     their requirements.
                                                     Courts don’t look into the adequacy of consideration

                                                                       ASSENT
(Objective test: Would a reasonable person in the other’s position believe that they would be bound? Look to words/actions)
                                                      Offer & Acceptance
                                      When a seller draws up a written document with formal terms and signs it and acts
                                      so that the buyer believes that the seller was intending to sell, then the parties are
        Lucy v. Zehmer, 14
                                      bound. A reasonable person in the buyer’s position would have believed that the
                                      parties assented.
                                      When a TV commercial says that it will offer a ridiculous gift in jest, but doesn’t
        Leonard v. Pepsico, 19        have it in its necessary catalogue, and intends it as a joke, then the commercial isn’t
                                      a binding offer.
                                      When McW sends a doc w/ prices and quants and the word ―estimate‖ and ―please
                                      call‖, and the K didn’t specify many terms, but the Π ―accepts‖ and further
OFFER




        Dyno Construction v.
                                      documents were sent by McW and then a signature required, and this wasn’t
        McWayne, 242
                                      accomplished until later, then there was no offer/acceptance (contract) until the later
                                      signature was obtained.
                                      When a store advertises in a newspaper all the necessary information (price,
        Leftkowitz v. Great Min.
                                      availability) about a product and there was nothing unclear, then the offer was
        Surplus Store, 246
                                      definite enough and action on it is be acceptance.
                                      When a roofing company has the option to accept an offer (which is in a K that they
        Ever-Tite Roofing v.          wrote) by signing or performance, they accepted as soon as they began to perform
        Green, 252                    by loading trucks and traveling to site of performance. The customer’s waiting to
                                      cancel the offer was too late after their acceptance.
        Dataserv v. Technology        When a company offers terms to another (Δ) and the Δ changes those terms, and the
can cancel orig. K




                                      company doesn’t agree separately to those new terms (counteroffer), then no K was
 Counter Offer:




        Finance Leasing, 281
                                      made.



                                                      ***SEE ALSO: Mirror Image Rule: if substantially similar, not a counteroffer




                                                                                                                                     1
J. Rothstein Contracts – Johnston ’06.

                                                                                                      Corthell v. Summit Thread,    When an employer gives an employee a K saying it will pay him “reasonable
                                                                                                      34                            recognition” for his inventions and says that they will fulfill the K in a reasonable
                                                                                                                                    manner, and the invention is something that can be valued easily, then the court can
                                                                                                                                    determine that the employer meant to pay the fair value of the invention. Terms
DEFINITENESS



                                                                                                                                    weren’t too indefinite. (1) they wanted to agree and (2) it’s easy to see how much.
                                                                                                      Joseph Martin Deli v.         When a landlord and lessee agreed to renew later at a price “to be agreed upon,”
                                                                                                      Schumacher 38                 the K isn’t enforceable. (1) they didn’t want to agree to any price, BUT (2) the
                                                                                                                                    general price terms makes it hard to even see what the price should be and don’t
                                                                                                                                    want the courts to decide it . FMV not appropriate for real estate.
                                                                                                      Paloukos v. Intermountain     When a worksheet with all major information is filled out and even though there are
                                                                                                      Chevy, 318                    some yet undefined terms (# of cylinders, shade of yellow) but not important ones,
                                                                                                                                    and it appears that they agreed to enough terms to show that they wanted to make a
                                                                                                                                    K, then there is enough to enforce the K. UCC emphasizes salesperson’s conduct.
                                                                                                      Ciamarella v. Reader’s        When in a settlement agreement, (1) the agreement expressed not bound until (both
COMPLEX BUSINESS NEGOTIATIONS




                                                                                                      Digest, 255                   principals) signed, (2) there was no partial performance, (3) and there were terms
                                1. Express intent to be bound? 2. partial performance; 3. any open




                                                                                                                                    that one of the parties disagreed to (Π didn’t want to agree), and (4) the type of
                                                                                                                                    agreement (settlement) is usually agreed to in writing, then it is NOT a K, even if
                                                                                                                                    Π’s agent alone said ―we have a deal.‖
                                                                                                      R.G. Group Inc., v. Horn &    When a franchisee and franchisor have negotiations and (1) the standard written
                                terms? 4. How K of this type are usually enacted.




                                                                                                      Hardart (no page)             franchise agreement had an explicit ―when duly executed clause‖ and that any
                                                                                                                                    modification had to be in writing (―merger clause‖) and the K wasn’t signed; (2)
                                                                                                                                    there was no partial performance, (3) and there was disagreement as to a major term
                                                                                                                                    (the territory of the franchisee), and (4) and franchise agreements are usually in
                                                                                                                                    writing, then there was NO agreement.
                                                                                                      TIAA v. Tribune (no page)     When a lender (Π) and Co. wanting a loan, and a commitment letter (1) agreement
                                                                                                                                    was written and signed saying ―accepted and agreed to [without a term the Δ later
                                                                                                      Further tests, too:           claimed was crucial], (2) and despite Δ had to allocate funds (even though nothing
                                                                                                                                    was really moved), and (3) the terms were all agreed upon [the major ones], and (4)
                                                                                                                                    preliminary offers of that type are usually in writing, then the parties are (5) ―bound
                                                                                                                                    to negotiate in good in faith‖

                                                                                                                                         PROMISSORY ESTOPPEL
        R. 2d §90 : 1. a promise; 2. promisor should have reasonably expected promisee to rely; 3. reliance; 4. Reliance was
      reasonable under circumstances [A- formality of the promise; B- reasonable reliance; C – Suffered substantial detriment]
                                              such that prevention of injustice requires

                                                                                                                                                   Recovery: Reliance
                                                                                                     Haase v. Cardoza, 162     When a widow (who controls her husband’s estate) promises to pay someone b/c her
                                                                                                                               husband wanted to, and there isn’t consideration, but (1) there was a promise and (3) there
                                                                                                                               was no reliance induced, so (2) couldn’t reasonably expect reliance; and (4) promise
                                                                                                                               wasn’t formal, no detriment, then the promise is NOT enforceable.
                                                                                                     Ricketts v. Scothorn,     When a grandfather (1) promises his daughter $ to quit her job, (3) and she quits her job,
                                                                                                     164                       (2) and he totally intended on her quitting her job, he said so explicitly, and (4) the
                                                                                                                               grandfather made it expecting reliance (gave her reasoning), there was a detriment (she
GENERAL




                                                                                                                               quit her job) the promise is ENFORCEABLE

                                                                                                                               This is also THE example of Promissory Estoppel.




                                                                                                                                                                                                                   2
J. Rothstein Contracts – Johnston ’06.

                     Feinberg v. Pfeiffer,   When an employer has a board meeting and the board formally makes a resolution to pay
                     174                     $ for retirement (1), and (3) the grantee retires detrimentally on that promise (as she is too
EMPLOYMENT

                                             old to get a new job), and (2) has reason to rely on it, and (4) circumstances were formal,
  CONTEXT

                                             so that reliance would be expected, then the promise IS ENFORCEABLE.
                                             PARADIGMATIC case for Promissory Estoppel.
                     Hayes v. Plantations    When employer says to employee who was already retiring that (1) they’d ―take care of
                     Steel, 178              him‖ with no board authorization, and (2) he was going to quit anyway and the gift didn’t
                                             induce any reliance and the circumstances weren’t those which indicated that the promise
                                             should be relied upon and the employee visited the employer each year to re-confirm his
                                             coming $, then there is NOT an enforceable promise.
                     Hoffman v. Red Owl      When franchisor (1) repeatedly assures and promises franchisee that he can open a store
                     Stores, 204             for $18k and (3) the franchisee relies on the promise by selling his bakery, moving and
                                             investing more $ and time, etc. and (2) franchisor should have believed that the franchisee
                                             would rely on his assurances, then the franchisor’s promise IS ENFORCEABLE.
                     McIntosh v. Murphy,     When employer (1) makes a promise to hire an employee who lives far away and (3) and
                     570                     the employee relies by moving 2200 miles to Hawaii and (2) the employer was aware that
 STATUTE of FRAUDS




                                             employee would be moving and relying on their promise, and (4) there was injustice that
                                             can only be avoided by enforcing the promise/ BUT DISSENT: This violates statute of
                                             frauds / only way around it is to not count Sunday.
                     Mercer v. CA Roberts,   When employer hires employee for a 3-5 year project (K w/in statute of Frauds) and even
                     575                     though the employee worked for (performed) a number of years, this partial performance
                                             doesn’t matter much b/c there was no egregious behavior by the Δ and no substantial loss
                                             by the Π, who got his salary, just no bonus.
                     Schwedes v. Romain,     When owner offers property to buyers, and buyers respond that they’re interested and
                     580                     owners lawyer repeatedly told the buyer over the phone not to close, and buyer gets
                                             $ ready to buy, but owner sells to another buyer, the buyer’s pre-performance (preparing
                                             to perform) isn’t enough to overcome the statute of frauds.

                                                         PAST CONSIDERATION
                                           R. 2d § 86 - Performance then Promise.
These promises should be enforced when the promisee had a reasonable expectation to receive payment (like employment
 context). Ct’s also think that if huge benefit (promisor) & huge detriment (promisee), that may also be enforced (Webb)
 Why not enforced: let’s the promisee dictate the performance (e.g. painting a house purple); we want the promisor to be
             the one who dictates the performance and be able to decide the benefit. (Bypasses the exchange)
                          When someone(’s dad) received nursing care and board from strangers who had no obligation to
Mills v. Wyman, 224 him, promised after he received services, the promisor probably couldn’t have a reasonable
                          expectation to receive payment when he was performing the act as a good Samaritan.

                                 Quasi K, K Implied in Law, Quantum Meruit, Unjust Enrichment
                                                 Performance, but no promise.
Need 1) Benefit to Δ by Π; 2) appreciation of benefit by Π; 3) acceptance by Δ [when it would be unjust to not pay for the
                                                            benefit.
          It is unjust to not pay for benefit when the promisee had a reasonable expectation to receive payment.
                                                 REMEDY - RESTITUTION
     Manwill v. Oyler, 226 When one makes payments on behalf of others who occupy a farm, but he didn’t give any
                                  indication that he excepted repayment at the time of payment, there was no implied
                                  contract and the payments can be seen as just donative gifts.
     Bailey v. West, 5            When one takes in a lame horse whose purchaser doesn’t want, and expressly says they
                                  don’t want, the taker in of the horse can’t reasonably expect repayment. There is no
                                  benefit to Δ, can’t be appreciation of benefit, and wouldn’t be unjust to not pay b/c
                                  shouldn’t be expecting compensation.
     Webb v. McGowin I,           When an employee makes a heroic sacrifice and then gets told by employer that he’d
     II, 229                      receive $, this was a reasonable for hero to expect to receive payment b/c was in
                                  employment context;




                                                                                                                                   3
J. Rothstein Contracts – Johnston ’06.



                                                       DEFENSES
                                         to legal enforcement of admitted contracts:

                                      SUBJECT MATTER LIMITATIONS
                                   When the K might have external effects on non-parties.
 Can be illegal (e.g. for drugs) or against public policy (gambling, prostitution). We don’t want a market for these things
                                When a promise that makes property like marital property, but there was no marriage, and
                                there exists a distaste for unmarried cohabitation in the legislature (as shown by a statute
Hewit v. Hewit, 532
                                intended to promote marriage), and enforcing promise K (or promissory estpl, etc.) rights
                                would encourage non-marriage, so it shouldn’t be enforced.
                                But then in Marvin v. Marvin, when non-married couple wants ―Contract‖ enforced, Court
Marvin v. Marvin, in Hewit
                                said should uphold b/c non-married relationships are common.
                                      COVENANTS NOT TO COMPETE
    Requires: 1. Must relate to K for sale of goodwill or subj. property or to a K of employment (ancillary); 2. must have
   adequate consideration; 3. Reasonably limited in Time and Geography; and 4. Must be necessary to protect employer.
                        When a controller of a company (1) signs an employment K after he was already working for 2
                        years and there was no change is his employment status (he was given $ but raises were normal
                        for him); (2) and his continued employment doesn’t count as consideration; (3) and there was no
Gagliardi Bros. Inc.    reason for a geographical/temporal restriction (b/c the new company was national in scope); and
v. Caputo, 378          (4) when there’s no way employer could be harmed b/c he was just a controller and not an
                        engineer/designer/chemist and thus isn’t a threat.
                        Johnston hates this opinion b/c while he’s a numbers person, who has good business knowledge,
                        he does have some company specific knowledge.
                                                         DURESS
                                         (See link to Procedural Unconscionability)
             Needs: (§ 175) (1)- Improper Threat and (2) leaves victim no reasonable alternative but to assent.
                          § 176 – A threat is improper if: threat is a breach of duty of good faith.
                        When one company threatens another company that they won’t fill the first K unless they are
                        given more money for a second K, and even though the threatened company assents, and (1) the
                        raise in prices for the first K has no commercially valid reason for raising prices (improper threat)
Austin Instrument v.
                        and (2) leaves the other company with no reasonable alternative b/c they couldn’t find another
Loral Corp., 410
                        subcontractor that could meet their deadline, and if they missed the deadline (which couldn’t be
                        extended), and couldn’t breach without causing irreparable harms b/c Navy is only customer, then
                        the K isn’t enforceable b/c duress.
                        When a whaling ship with barrels of oil is hopelessly and helplessly trapped in ice and no way to
                        get out but with help from other ships, to whom they offer the oil, and (1) the oil auctioned off
Post v. Jones, 413
                        without a market and (2) they’re stuck in a hopeless position, then the sale of the oil/auction is
                        unenforceable b/c the crew of the Richmond was under duress.
                                                         FRAUD
               1. False Assertion of Past/Present fact (opinion allowed, but can’t misrepresent your opinion
  2. and You know it’s false; and either (a) you intended to mislead or (b) it was material (likely to induce the assent of a
 reasonable person); and (3) there was a justifiable reliance (keeping in mind the duty to do independent investigation and
                                                     ease of verification).

 No Fraud would make transaction costs really high AND would shrink the market because you’d rely only on companies
                                                      w/ reputation.
                      When the sellers of a resort (1) said they were ―making good money‖ (false assertion) but (2)
                      knew they were actually posting losses, and (2.a) wouldn’t let buyers see their books, so maybe
Spiess v. Brandt, 426
                      intending to mislead, and (3) they relied on it b/c of their inexperience they relied (BUT J.S.J
                      thinks is bad b/c hard to show justifiable reliance when didn’t see books.
                      When sophis. sellers (1) make a prediction about future profits; (3) and the K included a specific
Danann Realty v.
                      disclaimer where (sophis.) buyer took duty for independent investigation, no way for him to say
Harris, 433
                      he justified relied. Boiler plate merger can’t K around fraud.


                                                                                                                      4
J. Rothstein Contracts – Johnston ’06.


                                     FAILURE TO DISCLOSE AS FRAUD
 Duty to disclose when: (1) concealed defect [doesn’t have to be physical (Reed); (2) defect is dangerous to property, life,
    health; (3) known to seller, unknown to buyer; (4) latent – not discoverable to buyer w/ reasonable investigation.

Why no default duty to disclose: incentivises people to get info and then constantly make improvements and move markets
                        When seller of house didn’t say anything about (1) the termites in their house; (2) which can ruin
Obde v. Schlemeyer,     the house; (3) and they should have known that termites were still there b/c they knew they didn’t
460                     totally follow the instructions of exterminator; (4) and (the court says) buyers would have known
                        to ask/investigate.
                        When a seller of a house to (1) actively concealed the fact that there was a multiple murder there
                        by asking neighbors not to tell buyer, and (2) the defect had a material impact on the house (that
Reed v. King, 464
                        counts as a danger!), (3) and known to seller, not to buyer; and (4) wouldn’t be reasonable for
                        buyer to inquire about something so unusual/difficult to find out as murders.
                        When a sophisticated seller of property makes a deal to sell land and the buyer appears to know
L&N Grove v.            something big is going to happen with the land, but doesn’t show that he has insider info, and the
Chapman, 467            seller doesn’t know, the courts will see this as both parties making a gamble and buyer has no
                        duty to disclose: No fraud when one just thought it was going to be profitable.
                                                         MISTAKE
 Mutual Mistake: R 2d § 152: (a) belief of both parties not in accord with the facts; (b) material effect; (c) adverse party
                                       can void if doesn’t bear risk under § 154

                                              Unilateral Mistake: R 2d § 153:
                            (a) belief of one party not in accord w/ facts;
                            (b) either: (i) enforcement would be unconscionable OR
                                        (ii) party seeking enforcement either…
                                                        (a) caused the mistake through fault
                                                        (b) had reason to know of the mistake
                         and (c) party seeking relief doesn’t bear risk under § 154.

 § 154 – bears risk when (a) K allocates risk to them; (b) he’s aware of limited knowledge but acts anyway; or (c) court
                                                 thinks it’s reasonable to.
                                                      (see ALCOA)
                              When a seller and buyer of cow (a) both believe that the cow is barren (and it turns out not
      Sherwood v. Walker, to be) and this mistake goes to the substance of the character traded, not its quality; and
      789                     (b) the price would have been substantially higher if they knew that it wasn’t barren; and
                              (c) seller wasn’t bearer of risk (this doesn’t count as limited knowledge);
                              When a buyer of a dredge thinks it’s going to be able to do a job that it needs it to do (but it
      Anderson Bros. v.       can’t) and seller knows it can’t (but didn’t cause the mistake), and buyer was aware of
      O’Meara, 795            limited knowledge (sent someone who knew about engines not dredges), then there is no
                              mistake because they bear the risk under § 154 (2).
                                              UNCONSCIONABILITY
                                   Must have Procedural and Substantive
           (see link to ASSENT: would anyone have assented to such a term? Did they really read it?
 DUTY TO READ: CL duty to read, except when reasonable person (seller) wouldn’t ever assume that reasonable buyer
                                              would have read)

    Procedural: defect in bargaining process (e.g., absence of meaningful choice (Hening), very fine print (Seabrook),
                                       disparity in barg. power (Hening, Williams))
                Substantive: defective term, one that’s unreasonably favorable to one party over another
                               When a seller sells goods to a stupid/poor [Disp. Barg. Power] woman with a cross-
                               collateral clause
      Williams v. Walker       (Procedural in very fine print, w/o explaining that )
      Thomas Furniture,        (she could pay for goods but not own anything unless she paid for all, knowing someone in
                               her situation wouldn’t understand Substantive), and after the 14th purchase the
                               outstanding balance was raised almost 5 fold, the K is unenforceable.



                                                                                                                      5
J. Rothstein Contracts – Johnston ’06.

                                  When a lessee gives a deposit for rent at a place being constructed and the lease:
                                  Substantive  gave no time limit, but would start whenever constr. was done, and
       Seabrook v.
                                  Procedural  1. was printed in tiny print with 54 clauses on 4 pages, 2. lots of complex
       Commuter Housing,
                                  clauses; and 3. pertinent terms are separated far apart! 4. w/ no legal advice,
                                  Then the K is unenforceable.
                                  When a Car company in a monopolistic position sells car with K saying:
                                  Substantive  no warranty except for parts, so you can’t recover for injury, and
       Henningsen v.
                                  Procedural  there’s no market/competition/bargaining for better warranties and it’s a
       Bloomfield Motors
                                  ―take-it-or-leave-it‖ clause in order to get a car,
                                  Then K isn’t enforced.
                                  NO UNCONSCIONABILITY When passengers on a cruise line have no choice but to
                                  assent to a
                                  Substantive  forum choice clause *and ship has interest in limit fora, saves costs and
       Carnival v. Shute,         passes it to customers, and not an ―ALIEN Forum‖
                                  Procedural  even though customers have to assent to it in order to take cruises, then K is
                                  still enforceable.


                                              PAROLE EVIDENCE RULE
                                                 R. 2d § 209-217, UCC 2-202
                                     P.E. = Prior/Contemporaneous Oral & Prior Written
                                (Purpose: encourage writing, limit ex post fabrication of terms)

1. Is K integrated (a final statement of terms)? 2. Fully ( no PE)? 3. Partially? 4. Partially with respect the term at issue?
                                            5. Consistent? 6. Reasonable omission

 Admissible to: a. show fraud, mistake, duress, illegality; B. Meaning; C. To show whether integration/non-integration; D.
  add to the terms of a partially integrated K [terms must be consistent, and Naturally (R2d), Ordinarily, Certainly (UCC)
                    would be omitted from writing, e.g something unusual, see Masterson’s bankruptcy]
                                  When there is a K to buy land and there was an oral side agreement to tear down an
                                  icehouse across the street, and
 4 Corners Mitchill v.            1. Partially integrated b/c icehouse term gone; 2. didn’t contradict terms there, but
 PE denied Lath, 613              something about the land across the street would ordinarily have been included in writing,
                                  then PE not admitted to go to fact-trier.
                                  Dissent: this is something that naturally would be omitted.
Traynor                           When seller sells land to family member with option to buy back (w/o any conditions) and
PE allowed                        trustee tries to enforce the option, PE about condition that land stay in family, allowed b/c
Contxtualist                      1. partially integrated (traynor lets in all to see if full/partial), 2. and is consistent (deed was
                Masterson
                                  silent on assignability), and 3. **Wouldn’t have included UNFORSEEABLE
                v. Sine,          OCCURANCE of bankruptcy, so PE is admissible. **There’s a contradiction here against
                                  the default option assignability term, but default terms aren’t necessarily known to these
                                  parties
UCC,                              When a K with SOPHISTICATED PARTIES includes an option clause but doesn’t say
Soft PER        Hunt Foods (PE)if it’s exercisable only if other bids are solicited, soft PER lets you admit it, even
                v. Doliner,       though it’s not in K. **There’s a contradiction here against the default option assignability
                                  term.
MERGER                            When one party says there’s PE  that it would be all union employees, and it’s not in the
CLAUSE                            agreement, but there’s a MERGER CLAUSE, then PE not admissible b/c it contradicts
                UAW-GM
No PE                             merger clause/K, and Δ wasn’t party to negotiations/K, and there’s no evidence of FRAUD
unless          v. KSL,           as to the merger clause itself.
Fraud                             Dissent: violates the intent of the parties




                                                                                                                             6
J. Rothstein Contracts – Johnston ’06.


                                          Contract INTERPRETATION
                                Look beyond writing to interpret terms (Allowed by PER)

  Textualist: Plain Meaning (Trident, Kozinski) - the meaning of any writing which appears to be clear, complete, and
unambiguous on its face will be determined without any extrinsic evidence—words have plain/dictionary meanings unless
                                                you include glossary.

  Contextulist/Ambiguity (Pacific Gas) - if k is ―fairly susceptible‖ to more than one interpretation, extrinsic evidence
       relevant to proving an interpretation is necessarily allowed. Traynor: always ambiguity and need context.

 Hierarchy of Sources: 1. Text; 2. Dictionary; 3. course of this performance, 4. course of dealing (prev. conduct, but don’t
                         want to be gypped b/c you were a nice guy before); 5. trade usage/price.
                        When Δ agreed to ―indemnify‖ Π against all injuries from fixing turbine, and Δ says means only
Pacific Gas v. G.W.
                        against 3rd parties, but it doesn’t really make sense if it was only on Π’s property and dictionary
Thomas, 656
                        meaning is still ambiguous, then have to go outside the K.
                        When there’s an option clause in a financing K btw. 2 sophisticated parties, and the K includes the
                        term ―maker shall not prepay principal amount in whole/part for the first 12 years,‖ and one party
Trident Center v.
                        tries to say it can prepay at once b/c it seem ambig, and takes another clause in a way which
Conn. General, 660
                        directly contradicts this, that party shouldn’t be able to hear that extrinsic evidence unless you go
                        by Pacific Gas and say everything is ambig.
                        When a K between sophisticated party and newcomer and newcomer uses ―chicken‖ when he
                        means ―broiler‖ but gets ―fowl,‖ then can look to everything to determine what Δ can interpret
Frigaliment v. BNS,     chicken as. When (1) they used different terms throughout their negotiations, (2) the price for
                        chicken was too low to be a broiler price; (3) trade usage from USDA and from witnesses who use
                        the specific terms themselves! Then the outside evidence isn’t in favor of specific term.

                                                           EXCUSE
                                From Admitted Contract for Unexpected things occurring
                                                    IMPOSSIBILITY
                     The means for performance no longer available due to unforeseen circumstances
                             Implied condition in the K that a particular thing would exist

                    Ventures into K interpretation b/c it writes in an excuse when there isn’t one there
                       When Δ books concert hall for performance and after the K is signed the hall burns down, and the
Taylor v. Caldwell,
                       burning down was (1) unforeseen, and (2) that SPECIFIC concert hall was an intended pre-
88
                       condition of the K and vital to it, then both parties are EXCUSED from performance.
                       When in a K for a restoration of a sign where the K said nothing about any specific person
                       performing, but does say something about ―acts of god/war/conditions beyond control,‖ that
Sietz v. Mark-O-Lite,
                       doesn’t include a super skilled worker getting hospitalized, b/c listed condition doesn’t include
841
                       specific type, and the worker had diabetes, so it should have been foreseeable.
                       Then performance NOT IMPOSSIBLE.
                       When one company, as middleman, assures in K w/ buyer that it will provide them with enough
Can. Idus. Alcohol     molasses, but its own provider isn’t producing enough, that doesn’t make the K impossible. As
Co. v. Dunbar          middleman, Δ should have foreseen this possibility and insured itself though a K with its supplier.
Molasses, 845          Also, unlike Taylor, nothing was destroyed, loss of $ was avoidable through sub-K, and it was
                       foreseeable. NOT IMPOSSIBLE
                                                     FRUSTRATION
                                         (see K interpretation to get at what the purpose is!)
     Performance can still happen, but something unexpected happened that significantly changes value of performing
                    (1) Must be foundation of the K, (2) outside control of parties, (3) unforeseeable
                        When one rents apartment for to see King’s coronation, but NOT EVEN IN K; b/c room perfect
Krell v. Henry, 870     for it and he can only have it for daytime hours and advert for it to see coronation, but the
                        coronation doesn’t happen, then it’s a implied condition that it must happen; Not Enforced




                                                                                                                     7
J. Rothstein Contracts – Johnston ’06.


                                                IMPRACTICABILITY
     1. unexpected contingency; 2. risk isn’t allocated by risk/custom/trade usage; 3. contingency made performance
                                          commercially impractical – huge loss!.
                       When a K was made during a period of violence, and the close of the Suez Canal made
                       performance more expensive, and (3) they were still able to perform; added costs weren’t so high
Transatlantic v. US,
                       for substitute performance ($43k on 305k K); (2) K made no mention of the need for Suez to be
849
                       open; (1) close was FORSEEABLE b/c K made in volatile time, then NO EXCUSE for
                       impracticability.
                         IMPRACTICABILITY: When in a long-term K, and fixed price turns out to be not fixed, but way
                         too high, and (1)Unexpected: OPEC raise oil prices; and (2) the expected levels risks allocated by
                         index are violated unforeseeably; and (3) stood to lose $60 mil over course of K, making long
                         term performance bad, then party is EXCUSED for Impracticability.
Alcoa v. Essex, 807,     MISTAKE: thought they agreed to an objective index (WPI-IC) that would track Alcoa’s actual
860                      non-labor expenses, but it doesn’t at all track it but goes out of whack, and (c) doesn’t bear risk
                         b/c made such great precautions (Alan Greenspan, etc), even though they could have put a floor
                         on the K, there was still a MUTUAL MISTAKE.
                         Mutual Mistake: (a) belief of both parties not in accord with the facts; (b) material effect; (c)
                         adverse party can void if doesn’t bear risk under § 154

                                                      CONDITIONS
                     An event not certain to occur, but which must occur before performance can be due
                                            Shifts the risk of the event not occurring
                 Non-Occurrence of Condition                                      Non-Occurrence of Promise
   - interpreted more literally                                     - can get damages for breach
   - can’t sue for breach (there really is none)                    - no duty for other party to perform if breach is material
   - promisor has no duty to perform                                - can be modified.
   - may be waived and waiver is irrevocable
**Look to the language to see if it’s a condition, or a promise (I promise to do X). If it’s a close call, courts tend to say it’s
a promise, b/c if it’s condition, the other person could have performed/relied and now the other person claiming condition
                                        wouldn’t have to! That makes it easy for waste!

                         When a Π signs an employment K with Δ, and (1) the K explicitly stated that notifying Δ of
                         wrongful termination suit and waiting at least 6 mos. to file suit were ―conditions precedent to any
Inman v. Clyde Hall
                         recovery‖ and Π failed to notify Δ and wait 6 mos., and (2) Π read and understood the K, and (3)
Drilling, 714
                         the company relied on the clause as being a condition (waiting to bring suit saves them money),
                         then there is no reason to treat the condition as non-existent.
                                            WAIVABILITY OF CONDITIONS
                             Conditions can be waived; implicitly like in Clark, through orally.
                                            Once waived, condition is irrevocable
                         When Π was hired to write law books for $2/page, and would get $4 per page add’l if he abstains
                         from drinking, then he was actually offered $6/page. The condition not to drink was waived when
Clark v. West, 725
                         Δ repeatedly that Π would get the full $ even after Π drank some. (if Π promised not to drink, then
                         that would be modification).

                                        SUBSTANTIAL PERFORMANCE
                      Breach must be material to excuse the duty of the other party to perform
              But even if breach doesn’t excuse performance, breacher might still be liable for damages
       ***************COST OF COMPLETION OR DIMINUTION IN VALUE*********************
                                                 Is breach material?
                                              UCC: perfect tender rule
                 Common Law: excuse from performance if they’ve already substantially performed
                Will injured party be deprived of expected benefit materially? (can’t frustrate purpose)
                                             Can’t be willful or fraudulent
             Can party failing to perform cure performance? ****Would this result in economic waste?***


                                                                                                                          8
J. Rothstein Contracts – Johnston ’06.

                        When a construction company hired to build a whole house and the K specified a type of piping
                        but puts in a different brand of piping that is basically the same except for the name, and there’s
Jacob & Youngs v.       no reason specified for this condition, and the breach wasn’t material and was made in good
Kent, 67                faith and compared to total K value, defect was small and cost of correction would result in
                        severe economic waste in having to tear apart walls, Δ should just have to diminution in market
                        value (nil).
                        When Δ auto-dealer fails to deliver motor home in reasonable time, with consistent delays and Π
Ramirez v.
                        rejected delivery several times for failure to meet specification, Π is entitled to rescission under
Autosport,
                        the UCC’s perfect tender rule. Also, Δ had ability to cure defects.

                                          ANTICIPATORY BREACH
   Repudiation: has to be a ―clear and unequivocal refusal to perform.‖ P has a right to sue for breach before time for
                                performance otherwise they’d lose time to mitigate losses.

                                     There’s some sort of repudiation-like statement



                                   Treat as repudiated                    Don’t Treat as Repudiated


        Give Notice that
        you treat it as               BUT – other party may              Rely materially
        repudiated.                   not have really                    and sue at time          Demand an
                                      repudiated!! Maybe it              of performance           assurance of
                                      was just a K modification                                   performance. This
        Duty to mitigate              proposal! So that’s why                                     must clear that they
        damages                       you should give notice!                                     will, or you can
                                                                                                  treat as breached.
      ***Repudiation can be retracted prior to acceptance of repudiation and notice of such acceptance***
              Notice must be express, or injured party must have materially relied on the repudiation
                            ***Implied repudiation if it’s impossible to perform***

                               When a Δ contracts with Π to serve as courier for trip, but before date of performance, Δ
      Hochster v. De La
                               cancelled and Π sued for breach, and Π got a new job, but the new job started later. Δ sued
      Tour,
                               for damages.
                               When a Π K’s to breed horse to Δ’s horse by the end of year, but Δ sells the horse and
                               repudiates K, but Π elected to treat as NOT breached, and then Δ attempted to make
      Taylor v. Johnston,
                               accommodations for performance, but Π couldn’t meet up on this try b/c of dates, then
                               there is no implied repudiation on this 2nd try b/c it is still possible to perform the K.
                               When Π K’d to buy Δ’s property contingent on rezoning, with option to rescind if no
                               rezoning, and when approval seemed very uncertain, Π offered a lower price, calling it a
      Truman Flatt v.          ―revision in the K,‖ which Δ rejected, calling it an ―offer.‖ Δ said failure to exercise option
      Schupf,                  and new offer voided K, but Π did not repudiate the K, but made a counteroffer, and even
                               if repudiated, Π’s 2nd letter retracted it before Δ made any notice of repudiation and made
                               no reliance on it (i.e., didn’t try to sell to anyone else).




                                                                                                                      9
J. Rothstein Contracts – Johnston ’06.



                                             DAMAGES/ REMEDIES
    Reliance                                            Status Quo                                             Expected
                                                                                                               had the K
                                                                                                               actually
                                                                                                               been done.

          Reliance damages – bring back to status quo           Expectation – where you would have ended up (v – Pk)
                    Restitution = based on unjust enrichment: get the gain that the other party received.

                                                      Expectation:
                                     Have to interpret K to see what parties intended
                    Limited to FORESEEABLE damages and those that can be certainly calculated
                                                 Have a duty to mitigate
          Right to damages based on the loss in value of performance, plus other incidental/consequential loss, less any
                                        other cost/loss avoided by not having to perform

           Reliance: Bring victim back to where he was before promise was made; generally result in PE cases

                        When a patient Π sued Δ after he botched her nose job and had to have an extra operation.
                        Expectancy: She would get: 1. what a good nose was worth; 2. P&S for op.3 (b/c some pain was
                        expected for two ops; 3. Out of pocket for Op.3 (other two planned).
Sullivan v. O’Connor, Reliance: P&S for all 3 ops., lost wages, and all out of pocket expenses
                        Restitution: All three surgeries, no P&S
                        Go with  Reliance is appropriate b/c expectancy figure too vague; (p&s is foreseeable for
                        surgery, but hard to figure out what a good nose is worth.
                               When a Π K’s to write books and was going to get royalties from hardcover books, but Δ
                               never publishes hard books, then Π NOT entitled to expectancy b/c his expectancy was
              Freund v.
Vagueness of                   based on the sales of the book, but that’s too uncertain now. Also, Π was given advance
              Washington Sq.
expectancy                     to cover any reliance. And Π couldn’t recover cost of printing himself b/c his goal wasn’t
              Press,
                               to get the books, it was the royalties. If his goal was the books, he would have had them
                               sent to him.
                          Diminution in Value vs. Cost of Completion – Remedies
                       If breach results in unfinished/defective construction, can recover on:
 Cost of Completion == cost of repairing defect, usually (but not if substantially performed), and the cost of repair can’t
                             be disproportionate to the loss in value to the injured party.
 Diminution in Value == if repair would result in substantial economic waste, give difference in market value; defects
            should have been made in good faith and not material and there was substantial performance.

                          When a Π hires a Δ to take off all structures and clear the property to a specified grade, and Π’s
                          desire to have that grade is (1) of ―central significance to Π;‖ and Δ failed to grade all the way
American Standard v.
                          down and (2) the breach was intentional (not in good faith); and there wouldn’t (3) be any
Schectman,
                          unreasonable economic waste as they would just continue their job, then cost of completion
                          (expectancy damages) are proper.
                          When Π leases his farm w/ coal deposits to big coal company for strip mining and K says that
                          coal company will restore the work, and Δ didn’t restore, b/c cost of restoring would be $29,000
Peevyhouse v.             (but value of property is much less than that) and remedial work was incidental, market value
Garland,                  should be awarded b/c of the great disparity in value.
                          Dissent: the breach was willful and not in good faith, and the cost of performing could have been
                          reasonably assumed at the time of K!
                                        FORESEEABILITY of Damages
                        Damages are typically limited to those that are foreseeable at the time of K.
  If there are damages that aren’t reasonably foreseeable at the time of K, to be able to recover those extra damages, you
                         must make unusual/remote circumstances/consequences known to the Δ.


                                                                                                                   10
J. Rothstein Contracts – Johnston ’06.

                          When Π gave broken mill shaft to shipper Δ and just said it was ―urgent,‖ and delivery was
Hadley v. Baxendale,      delayed, and  Π couldn’t reopen the mill, Δ was not liable for mill shut down as those damages
118                       were too remote/unforeseen. Possession of only one mill shaft was a special circumstance that
                          should have been communicated to Δ.

                                              DUTY TO MITIGATE
                                        A party can’t pile up damages filing breach.
                       Must seek a reasonable substitute (market cover) to avoid economic waste
**But, especially in employment, not required to accept just any substitute—only one that’s reasonably comparable to the
                                         performance that would have been gotten.
                         ***NB, The tension with the ―election‖ part of Anticipatory Breach***
                         When Π contracted with Δ to build a bridge and Δ rescinded after political dispute, but Π still
Luten Bridge, 1050       worked on the bridge anyway and later sued for full damages, Π had a duty to and failed to
                         mitigate by stopping work after notification of repudiation by Δ.
                         When Π was K’d in an option K to use/not use her in Movie, and Movie production was
                         cancelled and Δ offered her a spot in another movie that won’t grant her the same prestige, there
                         is no failure to mitigate because the job is inferior; also now she can’t have script/director
Bloomer Girl, 1053
                         approval.
                         Dissent: Π didn’t have to take an ―inferior type of job,‖ but did have a duty to take a job of the
                         same type.
                                          SPECIFIC PERFORMANCE
  Use when there is effectively no market for resale/cover/substitute performance and the damages just won’t bring you
                                                          whole
                    (when expectancy damages no longer provide the incentive for efficient breach)

                                        Old Rule: Only when the good is unique
    Restatement Rule: When the cost of covering is too costly (b/c of high transaction costs in getting a substitute [thin
                                                     market, etc.])
                         NB: This puts the burden on the seller to set the P k at the right value
                       When Π gets promised by Δ car dealer repeatedly that Δ will have limited edition car for him,
Sedmak v. Chralie’s    and Δ gets the car, but has higher offers and won’t sell, specific performance is appropriate
Chevrolet,             because the cost of trying to find a substitute or another one is considerably super expensive and
                       hard to do.
                       When Π tries to buy a plane from Δ and Δ rescinds, but Π could find another plane with low
Klein v. PepsiCo       transaction costs (and actually has found other planes as well and the market seemed thick) then
                       no specific performance.
                                            Liquidated Damage Clauses
                                            (an attempt to K out of default rules)
Attempts to allocate risk (worry that court created damages would not fully compensate victim B/C of subjective values!)

 UCC Rule: liquidated damages only if they’re reasonable in light of anticipated or actual harm, regardless of difficulty of
                        proof of loss or unavailability of an appropriate remedy made by the court
Restatement Rule: use liquidated damages if (1) they are reasonable (ex ante) in light of anticipated or actual harm and (2)
                            you think it would be difficult to prove (ex post) loss after breach.
                         When Π contracts with Δ for a barge and with Halter for a tug; and barge was supposed to be
                         delivered by one date, and both were late, and liquidated damages were set at $17,000/day late, Δ
                         argued that actual damages should be lower b/c other tug not ready either; BUT *parties were
C&H v. Sun Ship
                         sophisticated; *parties had a good idea about what damages would occur if ship was delayed and
                         K’d for them, and that the actual harm suffered is less doesn’t matter cause using UCC, then
                         liquidated damages are appropriate.
                         When the liquidated damage clause for Π to bag and distribute Δ’s material and Π had to buy
Lake River v.            new machinery, and required a minimum quantity to pay for machine, but this minimum amount
Carborundum              vastly exceed the cost of the machine, liquidated damage clause is unenforceable b/c it is not
                         reasonable and assures Π more than actual damages all the time.



                                                                                                                  11
J. Rothstein Contracts – Johnston ’06.

Enforce:
    1. Contract
           a. Consideration
           b. Assent
                   i. Offer & Acceptance
           c. Definiteness
    2. Promissory Estoppel
    3. Past Consideration
    4. Quasi Contract

Defend Against Enforcement:
   1. Subject Matter Limitations
          a. Illegal
          b. Against Public Policy
   2. Duress
   3. Fraud
          a. Failure to Disclose as Fraud
   4. Mistake
          a. Mistake v. Fraud – If mistake is one-sided, might see fraud because the other side might
               have seen that the other didn’t know and could have corrected it.
   5. Unconscionability
          a. See the link to assent: would a reasonable person have seen/read/understood that? And
               did they ever really accept something so bad?

Contract Interpretation
   1. Parole Evidence Rule
            a. Integration
            b. Merger Clauses
   2. Interpretation and Contract meaning

Excuses for getting out of an admitted K
   1. Impossibility – performance no longer avail due to unforeseen circumstances
   2. Frustration – performance can still happen, but something unexpected happens that significantly
       changes value of performing
   3. Impracticability – an unexpected and unaccounted for contingency occurs that makes
       performance commercially impracticable

Conditions v. Promises
   1. Condition
           a. Can’t sue for breach
           b. Promisor has no duty to perform
           c. May be waived and waiver is irrevocable
   2. Promise
           a. Can sue for breach
           b. No duty to perform if breach is material
           c. Can be modified




                                                                                                    12
J. Rothstein Contracts – Johnston ’06.

Substantial Performance – to excuse breach must be material, not in good faith, etc.
       Diminution in Value v. Cost of Completion

Anticipatory Breach – need repudiation “clear and unequivocal refusal to perform” then either treat as
repudiated and either mitigate with or with out notice, or don’t treat as repudiated and either rely on it or
demand assurance of performance.

Damages:
   1. Reliance – mostly for PE; brings back to ex ante status quo
   2. Expectation – default; brings you to expected ex post position
   3. Restitution – for unjust enrichment; shifts benefit back to you

Expectation Damages:
   1. Foreseeable
   2. Certain
   3. Duty to mitigate

Specific Performance
Liquidated Damages

Assent Through an Agent
Principal-Agent Relationship
• Arises when an agent agrees to act on behalf and under the control of the principal
* When third party enters into contract with agent does the agent have the authority to bind the principal?
◦ Objective test
Types of Authority
1. Actual authority: authority stemming directly from the words/actions of principal
         ◦ Would a reasonable person in the agent’s position believe, based on the words/actions of the
              principal, that he has the authority to act?
         (looks at authority from agent’s point of view)
2. Apparent authority: authority as perceived by a third person/party, still based on principal’s conduct
         ◦ Would a reasonable person in the position of a third party have perceived the agent’s authority
              based on the principal’s words/actions?
3. Inherent authority
         ◦ Similar to apparent authority, but the basis is not in anything the principal has said/done, but
              merely the fact that the agent is in a particular role/position whereby a reasonable person would
              expect him to have authority
         * Would undermine the whole purpose/value of agency if third parties couldn’t rely on the authority
              of agents in a particular position
• Ratification as a basis for authority
         ◦ If agent purported to act on principal’s authority, and principal knows this, but principal does
              something to give this idea, then principal is liable.
* Estoppel –
         when 3rd party reasonable relied on his perceived agent’s authority and principal knew of such
         reliance but made no effort to correct 3rd party’s mistaken belief.
Undisclosed Principal – agent doesn’t disclose that he has a principal; principal is strictly liable for
          ALL that agent does, even outside his authority.




                                                                                                              13

								
To top