Terminating Power of Acceptance ..........................................................................................................5Rejection ...........................................................................................................................................................5Revocation ....................................................................................................................................................... .5
Consideration ...............................................................................................................................................5“Firm offers” under UCC 2-205 ........................................................................................................... .......5Reliance by offeree (promissory estoppel) ...................................................................................................5
Lapse ....................................................................................................................................................... ........ .6Death ....................................................................................................................................................... ........ .6
DETERMINING TERMS OF THE CONTRACT.............................................................................................................6Common Law – Mirror-Image Rule & the “Battle of the Forms” .........................................................6
Option Contracts ...............................................................................................................................................8 Failed Negotiations ................................................................................................................................8C, Breach of Promise to Negotiate in Good Faith ..................................................................... ...... ......8
Tribune I ......................................................................................................................................................9Tribune II .....................................................................................................................................................9
DEFINITENESS OF TERMS...................................................................................................................................9
IS THE CONTRACT WITHIN THE STATUTE? .........................................................................................................10Sale of Land / Interest in Land .......................................................................................... ...... ...... ...... .10
Performance > One Year ......................................................................................................................10
Sale of Goods ≥ $500 (UCC §2-201) ...................................................................................................10UCC §2-201(1) ............................................................................................................................................. ..10UCC §2-201(2) (Merchants Only) ............................................................................................................. .....10UCC §2-201(3) ............................................................................................................................................. ..10
Consideration of Marriage (Pre-Nuptials) ...........................................................................................11DOES WRITING SATISFY R EQUIREMENTS? .............................................................................................. ...... .....11
Type of Writing .....................................................................................................................................11
EXCEPTIONS TO STATUTE OF FRAUDS................................................................................................................11 Partial Performance .............................................................................................................................11
U NFAIRNESS IN BARGAINING PROCESS............................................................................................................... 13 Duress ...................................................................................................................................................13
PUBLIC POLICY .............................................................................................................................................16Covenants Not to Compete ................................................................................................ ...... ...... ...... .16
Damages Under CISG ............................................................................................................. ...... ...... .19
SPECIFIC PERFORMANCE..................................................................................................................................19Specific Performance Under CISG .......................................................................................................20
FINDING THE LAW OF CONTRACT .............. .............. .............. .............. ............... .............. .............. ..21
PAROL EVIDENCE R ULE..................................................................................................................................21
• D&G Stout (turbulent Indiana liquor market case) – P relied on D’s promise to maintain P’s
status in negotiations, and D knew it binding promise
Unenforceable Promises
Past Consideration
• Feinberg – no consideration (P did not retire because of pension) but reliance can substitute
• R2C §86 – promise for already received benefit only binding to the extent necessary to preventinjustice
Moral Obligation
• Mills – moral obligation to care for dying man not enough for consideration with the father – also past consideration.
Material Benefit Rule (Exception – JX Split)
• Webb – Exception to Moral Obligation Rule – moral obligation is adequate when there was“material benefit”– benefit (saved life) and detriment (injury), plus evidence of past performance
(D paid P for 7 years) – court manipulates black letter law.
Gift Promise
• Nothing given in exchange
Illusory Promise
• Lucy, Lady Duff Gordon – court determined it was not illusory for D to say he would use his bestefforts because he was acting in good faith and had strong incentive to perform (if he didn’t sellher stuff he wouldn’t get his cut)
Bargaining Process
• Objective view: what would a reasonable person understand is meant by communication usually trumps
• Subjective view: what does person hearing communication actually believe
• “Meeting of the minds” – overly-subjective – not good standard
• 3 kinds of K:o Express: both parties make explicit the fact they are entering into K
o Implied-in-fact: K is implied by words or actions (e.g. longstanding relationship)
o Implied-in-law: no K exists, but courts “invent” one in order to give restitution for
unjust enrichment (Cotnam v. Wisdom – doctor can recover from estate of deceasedon basis of this – PP to encourage doctors to help dying people)
Offer • “An act whereby one person confers upon another the power to create contractual relationships
between them.”o Act must be expression of will or intention
o Act must lead offeree to reasonably believe that power to contract has been
o Specificity of language with respect to terms of offer (parties, price, quantity,
date/time)o Specificity of language with respect to intent
o Position of the statement in sequence of correspondence
o Circumstances surrounding transaction (private island Blackberry ad obviously
NOT an offer by this standard)• NOT AN OFFER:
o Invitation to deal
o Acts of mere preliminary negotiation
o Acts evidently done in jest or without intent to create legal relations
Property Sales
• Owen v. Tunison ($6k offer, “Couldn’t sell for less than $16k” response) and Harvey v. Facey(“Will you sell? What is your lowest price?”) – property sales are almost always ITBs – settingspecific price on property is not necessarily an offer to sell. However “Neighborly Buy-Out”situation could be seen as offer because neighbor couldn’t have reasonably known that the offer
was extended to other people – seemed to satisfy elements of offer
Price Quotes
• Fairmount Glass Works – price quote in this case was an offer – accompanied with language like“for immediate acceptance” (specific and offers power of acceptance)
Jokes/Bluffs
• Lucy v. Zehmer – Reasonable for P to believe D meant to sell, both objectively and subjectively
Mistakes
• Elsinore Union Elementary School District v. Kastorff – mistake was material, but enforcement
would hardly be unconscionable – it was an honest mistake, he rescinded early enough in the process that P did not rely on D, and P was in better position to bear the slight burden of mistake
Advertisements
• Ads usually not offers – only offers if:o “Language of commitment”
o Invitation to take action without further communication
• Leonard v. Pepsico – P may have subjectively believed Harrier jet ad was offer (though probablynot), but not objectively reasonable (see also Sprint/Blackberry commercial)
• Lefkowitz v. Great Minneapolis Surplus Store – this ad was clear, definite, explicit, and leftnothing open for negotiation. Court put burden on D to clearly list any limitations in the ad.
• Midas Touch case (gold commemorative coins) – P claimed ad was offer (sent only to“collectors,” time limit imposed, etc.) but court ruled it was ITB – ad went wide and indicatedthat further processing was necessary
• Transmission Problems case – statute protected buyers against purposefully misleadingadvertising, not meant for cases of honest mistakes/typos on part of car dealership. Also notunconscionable that he wouldn’t get the advertised price.
• Carbolic Smoke Ball case – ad was specific enough to constitute offer
• “A voluntary act of the offeree whereby he exercises the power conferred upon him by the offer,and thereby creates the set of legal relations called a contract.”
• Offeror is “Master of the Offer” – ways to accept:o Performance (unilateral K) – but offeror must know that performance has
commencedo Return promise (bilateral K)
• Offeror can set terms of acceptance – but up to him to set such conditions – otherwise defaultrules kick in (reasonableness)
• Silence does not equal assent – unless history of past dealings would indicate otherwise ( Hobbsv. Massasoit Whip Co.)
Unilateral Contracts
• Acceptance by performance does not require notice, unless offeror wouldn’t know you were performing otherwise (offeror must know offer has been accepted).
• Carbolic Smoke Ball case – acceptance of the offer was the use of the smoke ball. D asked for return performance rather than promise, and court found D didn’t require notification of acceptance.
Bilateral Contracts
• Acceptance by return promise requires notice (unless offeror waives – see International Filter Co. v. Conroe Gin). Acceptance must be given within reasonable time – could be after performance has commenced but must be straightaway.
• White v. Corlies & Tift – “Upon an agreement” to finish in two weeks, “you can begin at once.”Ds wanted promise to finish in two weeks, not actual performance; if P commenced performancewhere they would see it, that would have sufficed as acceptance (offeror must know offer has been accepted). Could also possibly see P’s buying lumber as merely preparing to perform.
Competitive Bidding
• Auction default rules (can be changed but must be done explicitly):
• With reserve price:o Bid is the offer
o Seller is free to reject bid until the “hammer” falls
• Without reserve price:o Bid acts as acceptance and seller must take it
• At common law, acceptance that does not “mirror” terms of offer is not acceptance, but rather rejection + counter-offer
• International Filter Co. v. Conroe Gin – default rule says P must give D notice of acceptance, but P waived this requirement in their offer, so D still on hook
• More flexible than mirror-image rule of common law – there can be acceptance by giving non-
conforming goods. Buyer then has option of treating this as a breach, or of accepting the non-conforming goods.
Accommodation
• Corinthian v. Lederle – vaccines case – sending of 50 units at lower price and offering to send950 at higher price or to cancel order – not an acceptance of P’s terms but rather rejection +counter-offer done in interest of other party and interest of time
Terminating Power of Acceptance
Rejection
• Terminates power of acceptance. Anything other than mirror-image acceptance functions as
rejection.
Revocation
• Must be done before acceptance.
• Hoover v. Clements – “We might not want to go through with it” held as revocation of offer to buy – doesn’t have to be more specific because no K established yet – courts reluctant to force parties into K (freedom to contract and freedom from contract).
• Ways to make offer irrevocable:
Consideration
• Dickinson v. Dodds – D promises to hold offer open until Friday morning – but no consideration
to support this, so not a binding K. OK for offeror to revoke indirectly (via 3rd
party) so long asofferee gets reliable information to that effect.
“Firm offers” under UCC 2-205
• Higher standard on merchants to protect consumers – can make offer to buy/sell goods signed inwriting which by its terms gives assurance it will be held open (option K) – doesn’t requireconsideration and is irrevocable for time stated (or reasonable time if none stated but never > 3months).
Reliance by offeree (promissory estoppel)
• Ragosta v. Wilder – D offers to sell Fork Shop and to keep offer open until 11/1 – but noconsideration for this (P gives $2k but D returns it, P’s detriment in obtaining financing was not bargained for). P can’t claim acceptance by performance because he only prepared to perform(getting money together).
Partial Performance (Brooklyn Bridge metaphor)
• R2C Section 45 – Creation of an option K by part performance or tender of performance:o When an offeror invites acceptance only by performance, then an offeree’s
o The offeror’s duty to perform is contingent on the offeree’s completion of
performance in accordance with the terms of the offer.
Lapse
• Offers have limited life span and lapse after reasonable time – “reasonable” seen from offeree’s
perspective and varies depending on circumstancesDeath
• Aunt promises $ to nephew if he will come to her funeral – if she wants performance, offer dieswith her. If she wants promise, then K is binding when nephew accepts and K survives her death.
Determining Terms of the Contract
Common Law – Mirror-Image Rule & the “Battle of the Forms”
• Mirror-image rule also used to determine, if there was a K, what its terms were.
• All or nothing – whichever form gets in last sets the terms completely.
Mailbox Rule
• Unless otherwise specified, acceptance happens upon dispatch (rather than receipt). Offereemust prove dispatch.
• If mail is permitted form of acceptance, act of placing acceptance in the mail constitutes themaking of a K – offeror can no longer revoke, and offeree cannot rescind acceptance.
• Limited in application – only for acceptance. Offers, revocations, rejections, and counter-offersare effective only upon receipt. Also offeree exercising option K needs to get notice of acceptance in before the expiration of option.
Sale of Goods – UCC §2-207
• Departs from common law:o No mirror-image rule (subsection 1)
o Time of K formation can differ from time terms are settled (subsection 2)
o Performance can trump writings – can indicate K even when writings do not
(subsection 3)
• Generally all roads lead to K – hard to prove there was no K under 2-207, but one way is if assent is expressly conditional on acceptance of new terms
• Implication is that boilerplate provisions are not that important – if you agree on price, etc., thendetails don’t matter as much – but sometimes they have to do with waiver of rights (e.g.arbitration) in which case they are important.
UCC §2-207(1)• Definite expression of acceptance or written confirmation, sent within a reasonable time, acts as
acceptance EVEN THOUGH it states additional or different terms from those offered or agreedon – UNLESS acceptance is made clearly conditional on assent to the additional/different terms(offeree must successfully make counter-offer – if they send counter-offer with goods, thenyou’ve performed under those terms and are in the realm of subsection 3).
• Additional terms become proposals for addition to the K – these terms become part of K UNLESS:
o Offer expressly limits acceptance to the terms of the offer; or
o New terms “materially alter” K (surprising hardship/change allocation of risk –
would party have signed anyway?) – JX SPLIT on whether arbitration provisionmaterially alters K; or o Notification of objection to the terms has already been given within a reasonable
time after notice of them has been received
• No discussion of “material alteration” unless both parties are merchants.
• Step-Saver case (box-top disclaimer) – “opening this product indicates your acceptance to theseterms” – doesn’t make P’s acceptance conditional on those terms (silence does not signifyacceptance) – if D wanted assent they should have asked for it before and expressed
unwillingness to proceed absent assent not expressly conditional, go on to subsection 2: termsmaterially altered K – substantial reallocation of risk, surprising hardship for P (no recourse
when product didn’t work).UCC §2-207(3)
• Conduct by both parties which recognizes existence of K is sufficient to establish K for salealthough the writings of the parties do not otherwise establish K. In such a case, K consists of those terms on which the writings of the parties agree, together with any necessary “gap-filler”terms.
• Dorton v. Collins & Aikman (carpet case – arbitration provision) – although D sent terms withcarpet and didn’t give P opportunity to reject, P never bothered to object to term in 55transactions, therefore K by performance under subsection 3.
Knock-Out Rule
• Terms that are contradictory get “knocked out” of K and gap-filler (default) terms take their place – treats “different” as equivalent to “additional.”
• §2-207(2) only includes “additional,” not “different” terms – no one knows why – 3 divergentapproaches to deal with this:
o “Knock-out rule:” apply §2-207(3) – treat terms as cancelling each other out –
neither side’s terms given preference (majority rule)o “Drop-out rule:” ignore different terms – terms in acceptance cannot become part
of K – offeror’s terms stay in (leading minority rule)o CA: Treat “different” as equivalent to “additional” – different terms become part
of K unless: offeror said assent must mirror terms of the offer; offeror rejected termsof offer in reasonable time; or terms materially alter the terms of agreement
• Itoh v. Jordan (steel coils – arbitration provision) – arbitration provision not something that gap-filler terms could account for, so not part of K.
• Pro-CD v. Zeidenberg – court said K was formed when he bought disc, so terms imposed after K happens (terms under shrink-wrap) are not binding. Courts don’t want to insist that buyers readall terms before purchasing – don’t want to burden commerce – Easterbrook uses “rolling” K definition.
Rolling Contracts
• Broadens definition of K formation – rolling K formed over period of time:o “Acceptance of goods” under §2-606(1) doesn’t necessarily equate to acceptance
of offer o Buyer can reject goods after detailed review (though this isn’t always the case –
try to return CD after shrink-wrap off)o Buyer has opportunity to read license and then reject product
Precontractual Liability
Irrevocable Offers• Drennan v. Star Paving – subcontractor revokes bid after contractor’s bid accepted – court said
subc’s offer was irrevocable because there was an implied subsidiary promise
Option Contracts
• With UNILATERAL K, A is bound by an option K based on implied subsidiary promise not torevoke until B has had opportunity to finish performing (Restatement 45) – power shifts to B – commencement of performance creates option K
• With BILATERAL K, K becomes binding because B gave implied promise by commencing performance – both A and B are bound
• Move to Maine case – power shifted to daughter/offeree – she gets to accept, mother can’t revoke
• Restatement §87(2) – mainly used for subcontracting: “An offer which the offeror shouldreasonably expect to induce action or forbearance of a substantial character on the part of theofferee before acceptance and which does induce such action or forbearance is binding as anoption contract to the extent necessary to avoid injustice.”
Failed Negotiations
• Hoffman v. Red Owl -
C, Breach of Promise to Negotiate in Good Faith
• At common law, no implied duty to negotiate in good faith
• “Good faith” very much dependent on context – courts have lots of leeway
•There can be agreement to negotiate in good faith, but must meet all K requisites (mutual assent,consideration)
• Channel Home Centers v. Grossman – though no implicit duty to negotiate in good faith, therecan be specific promise to do so – here there was and D breached that promise (gave definite promise, got letter of intent (bargained-for exchange), then rented to competitor)
• Potential claims arising from negotiating behavior:
• Restitution of benefits conferred during negotiations – problem is often the promisor is notunjustly enriched because of promisee’s injury, and promisee’s reliance may result in benefit tosomeone else
Misrepresentation• Can have bad faith in negotiating while intending NOT to reach agreement
• Hoffman v. Red Owl – P reasonably relied on promise that $18k was enough to buy franchise – injustice can be prevented by finding breach of promise. But impossible to award expectationdamages because we don’t know how much franchise would have cost (like Sullivan)
• Farther away parties are from K means P is more likely to get reliance; closer parties are means Pmight get restitution/expectation
Preliminary Agreements
Tribune I
•
Parties agree on all terms and their ultimate contractual objective; agreement still to bememorialized in a formal document but the agreement is still fully binding.
Tribune II
• Parties agree on some terms and agree to negotiate in good faith to reach final agreement; but parties are not yet committed to ultimate contractual objective and may never reach it.
Definiteness of Terms
• Definite enough to permit court to determine whether or not there was a breach (was there anassent and thus a K?)
• Definite enough for a court to be able to determine and award damages
•
Sources of terms:o K itself
o Preliminary negotiations
o Government regulations
o Common industry practice
o Course of dealing
o Implied terms (UCC gap-fillers)
• Oglebay Norton Co. v. Armco, Inc. – K included two pricing mechanisms and both failed – can parties be held to K? Court orders parties to agree on price or submit to mediation – unusualruling – probably ordered specific performance rather than damages because damages are toohard to calculate here
STATUTE OF FRAUDS
• Certain kinds of Ks need to be in writing (many exceptions) – serious agreements
• Ks “within” statute are those that must be in writing; Ks that don’t need to be in writing are“outside”/”without” statute
• Refers to promises “not to be performed within one year from the making thereof” – narrowlyinterpreted:
o Only covers promises that literally can’t be performed within one year (e.g. five-year
employment K; Hamer agreement for 16-year-old to abstain from vices until 21)o Can cover Ks that last < one year but that conclude > one year from making of K (e.g.
one-year employment that starts two weeks from making of agreement)o Lifetime employment falls outside the statute – P can always die within a year, so SF
would be satisfiedo Even if factual impossibility, if K doesn’t spell out then no SF
Sale of Goods ≥ $500 (UCC §2-201)UCC §2-201(1)
• Relaxation of writing requirement with respect to sale of goods:o Goods for price ≥ $500 (can be aggregated)
o Signed by party against whom enforcement is sought
o Quantity needs to be shown in writing
o Writing sufficient to indicate K for sale of goods
• Sometimes not clear if K is primarily for goods or services – which is incidental to which?
• If agreement is not between two merchants and 2-201(1) not satisfied, go on to 2-201(3)
UCC §2-201(2) (Merchants Only)
• Applies to transactions between MERCHANTS ONLY
• Written confirmation can be sufficient as against the non-signing party if:o Writing is sent within reasonable time, and
o Writing is signed by A, and
o Writing confirms agreement between A and B (sometimes difficult to determine – writing
in GPL Treatment appeared to be both confirmation and acceptance), ando Writing is enforceable against A, and
o B does not object to its contents within 10 days of receipt (silence is acceptance)
UCC §2-201(3)
• K that does not satisfy requirements of 2-201(1) may be enforceable if:o Goods are specifically manufactured (i.e. can’t be found easily on the market), OR
o Party admits K was made, OR
o Payment OR delivery of goods has been made and accepted
Suretyship
• Primary obligor (or surety in her stead) owes something to oblige
• When main purpose of “suretyship” is to get something of tangible benefit (i.e. promisor makes
agreement to benefit himself rather than 3rd party) removes agreement from SFo Adequacy of consideration can be evaluated by courts under main-purpose doctrine
o Way courts manipulate evidence to find K or not depending on what they want (court
goes out of its way to suggest SF in Power Entertainment even though party that SF protects is waiving that protection)
Executor Agreements
• When executor assumes personal liability for debt incurred by decedent prior to his death
Consideration of Marriage (Pre-Nuptials)
Does Writing Satisfy Requirements?
Type of Writing
• Writing doesn’t have to be contemporaneous with agreement–can memorialize earlier agreement
• Can be multiple writings that combine to satisfy
Content
• Common Law: Must include all essential terms (terms can appear in different documents, solong as signed doc incorporates/references others)
• UCC §2-201: Quantity only required, plus adequate info to lead one to believe the writingreflects real, agreed-upon transaction
Signature
• SF is “one-way street” – need only be signed by party to be charged (party resisting agreement) – theoretically true but in reality you may need more ( Power Entertainment ) – signature isn’talways evidence of K, sometimes just agreement.
o Still need mutual assent (probably there unless signature is forged)
o Consideration, etc.
• Any mark meant to authenticate ok – actual signature, initials/mark, letterhead, electronicsignature, etc. all ok
Exceptions to Statute of Frauds
• Principles can be invoked to limit or circumscribe operation of the statute:
Partial Performance
• Often used for sale of real property:o Taking of possession by purchaser
o Past performance of price
o Improvements to property
Reliance
• Equitable estoppel – can be used to protect reliance on false factual assertion
• Promissory estoppel – when no actual false factual assertion but one party reasonably relies onoral K as promise, thereby suffering detriment (son promised farm for 20 years work inMonarco)
Restitution
•
When party was unjustly enriched (parents received 20 years work and increased value of property in Monarco – but these damages were harder to prove than reliance)
CISG
• No writing required under CISG – still have to prove K though
• Article 11: “A K of sale need not be concluded in or evidenced by writing and is not subject toany other requirement as to form. It may be proved by any means, including witnesses,”
POLICING THE BARGAIN
• Mutual assent elements (offer, acceptance, consideration) are building blocks for K formation
• Policing Mechanisms – occasions on which K meets requirements for enforceability but is notenforced for other reasons – 3 types (sometimes these overlap – i.e. bargaining process can leadus to believe bargain was unfair):
o Status of parties
Infants
Mentally infirmo Bargaining process (party behavior)
Duress/pre-existing duty ruleo Substance of bargain
PP concerns/unconscionability – not supposed to evaluate adequacy of
consideration, but sometimes would be unconscionable not to (rent-to-own case)o (Covert ways: manipulating language construction of K, close scrutiny of K formation)
Capacity
Infants (Minors)
• Capacity issues can also extend to elderly (historically extended to married women but no more)
• PP considerations – “protection” of certain parties can be seen as patronizing
• ELEMENTS:o Ks made by infants are voidable at their option – infant may choose to disaffirm K but
other party may not
“void” = no good by either party
“voidable” = can be disaffirmed by 1 party, but nothing inherently wrong with K o Minor must restore property (what’s left of it) and gets $ back (often to seller’s detriment
if property has depreciated)
Must do so within reasonable time – reasonableness depends on circumstances
Minor can’t be put in better position because of disavowal (child actor inCabovitz tried to back out of K with agent after he got recurring role on show)
o Economic duress – but not illegal to threaten something you have right to, e.g. sue
(provided there is reasonable belief in validity of suit)
• Not duress just because one party knows something other doesn’t – this is typical negotiation
• Modifications & Rescissions – When is modification of K product of genuine assent vs.impermissible coercion?
o Rescission and modification can be rolled into one transaction (release/waiver of term,substitution of another)
• Mistakes & Assignment of Risk – Typically party who makes mistake must bear the risk, but if itappears that resulting deal would be fair, can use newer doctrine to get around, with limitations
Pre-Existing Duty & Post-K Duress
• Doctrine of pre-existing duty prevents you from changing agreement – dynamics between partiesmay have changed – but subject to many exceptions and has been mostly abandoned
o Alaska Packers – after entering into K and partially performing, Ds demanded more $
without any additional consideration (UCC says no consideration needed for K modification, but still subject to common law duress)
o Restatement §89: Modification to duty under K not fully performed on either side is binding:
If modification is fair and equitable in view of circumstances not anticipated by parties when K is made
To extent provided by statute
To extent that justice requires enforcement in view of material change of positionin reliance on promise
Undue Influence / Overpersuasion
• Less onerous standard than duress – doesn’t have to be wrongful threat – hinges on:o Relative status of parties (if person’s judgment is thwarted by nature of pressure and
relative strength of parties)o Behavior of parties
o Substance of bargain
• Person must plead both objective and subjective elements
• Test for undue influence (from Odirizzi case where teacher fired for homosexual allegations):o Discussion of transaction at unusual or inappropriate time
o Consummation of transaction at unusual place
o Insistent demand that business be finished at once
o Extreme emphasis on consequences of delay
o Use of multiple persuaders by dominant side against single servient party
o Absence of 3rd
party advisors to servient partyo Statements that there is no time to consult financial or legal advisors
Concealment & Misrepresentation
• No common law duty to negotiate in good faith, but certain things enforceable
• Two ways to examine concealment/misrepresentation:1. Affirmative duty to disclose (rarer)
Seller of termite house in Swinton had no duty to disclose
Rabbi who was convicted of fraud did have duty to disclose2. Duty to disclose only if asked (much more common)
• Latent defects: latent caveat emptor doctrine – if problem is obvious, no liabilityo Standards for old houses lower – foreseeable that things will go wrong
• Effect of expert knowledge – should experts be held to higher standard? Depends on if they’re
engaged as expert or merely as buyer – allocation of risk question
Concealment
• Incomplete disclosure amounting to fraud
• If party makes affirmative representation of partial truth, must do so for whole truth (zoning lawabout apportioning house as apartments in Kannavos; presenting paper saying currently notermites but not paper saying past termites) – like misfeasance vs. nonfeasance
Misrepresentation
• ELEMENTS:
o Party to K makes (whether knowingly or unknowingly) false statement
o False statement is material (not about something minor)o Other party justifiably relied on statement (V must exercise degree of diligence – amount
varies depending on V’s capacities, nature of transaction, plausibility of representation – car buyer should have checked A/C was working before buying)
o Misrepresentation must be of fact, not opinion
Unconscionability & Adhesion Contracts
• Other factors courts might consider in deciding whether to enforce K:
Unconscionability
• ELEMENTS:
o Absence of meaningful choice on part of one party (inequality of bargaining power/procedure); AND
o K terms which are unreasonably favorable to other party (substantive)
• UCC §2-302 (common law the same): If court as matter of law finds the K or any clause of the K to have been unconscionable at time it was made, court may:
o Refuse to enforce K, or
o Enforce remainder of K without unconscionable clause
Controversial – gives court authority to strike K up or down OR rewrite it
At issue in Jones Frostifreeze case – can price alone be unconscionable? Courtsare hesitant to strike K down since it’s hard to draw lines
•
Purpose is prevention of oppression and unfair surprise, but not disturbance of allocation of risks because of superior bargaining power.o Procedural – unfairness in bargaining process
o Substantive – unfairness in outcome
• Example of unconscionability: Williams – allocation of payments kept balance due on all itemsuntil last paid off, “Dragnet” provision permitted repossession of all items if any payment fails
One party has disproportionately strong economic power
No opportunity to bargain over terms at all – take it or leave it
One party has time and expert advice to prepare K, other has no opportunity toscrutinize or even understand
• Standard form Ks not always bad
• Reasonableness factors (The Bremen):o Freely negotiated
o Private international agreement
o Between business persons (are these two relevant for exam?)
o Unaffected by: fraud, undue influence, or overweening bargaining power • Exculpatory clauses – excuse one party from liability (landlord’s negligence in O’Callaghan) –
enforced unless:o Bad PP (competing principles: protectionism vs. paternalism, legislature or courts?)
o Something in relationship of parties militates against upholding agreement
• Disclaimers – not always enforceable (parcel room couldn’t piggyback K onto claim check) – undercuts notion of mutual assent
o Restatement §211(3): Where a party effectively manifests assent to a standardized
expression of agreement and the other party has reason to believe she would not haveassented had she known of that term, the term is not part of the agreement.
• Duty to Read & Duty to Discloseo Duty to read: In absence of fraud, party is bound by terms of written agreement whether
or not he actually read it, and whether or not he actually understood ito Duty to disclose: Must be readable, visibly (3 point font unacceptable) and substantively
(must be moderately understandable)
Public Policy
• PP is last stop for attorneys – if nothing else works, try it
• Not always clear what’s against PP – typically bribery is against PP
Covenants Not to Compete
•
Quintessential example of courts creating PP is their reluctance to enforce CNCs – reasoning:o Need to earn living, freedom to work
o Pro-competition/entrepreneurship (the market at work)
o Legislatures don’t deal with CNCs
• Party seeking enforcement needs to show:o Reasonableness
o Fair relation to business interests for which protection is sought (are they necessary for
the intended purpose & not overly-broad? Hopper court found 3-year limitation too strict)
• CNC measured against Rule of Reasonableness – Restatement §186-187:o Is the CNC no greater than is required for the protection of the employer?
o Does CNC impose undue hardship on employee? (Court would not enforce CNC saying
employee couldn’t practice dentistry AND oral surgery – can’t prohibit someone fromdoing anything they’re trained to do)
o Is CNC injurious to public?• 3 approaches to limiting CNCs (CAB v. Ingram):
o Refuse to enforce entirety of K – all or nothing (if overly-broad)
o “Blue Pencil” the agreement – cross out offending provisions while leaving in others
Silly to think you’re not rewriting K just because you’re only crossing words outo Rewrite/reform agreement according to rules of reasonableness
REMEDIES FOR BREACH
• If breach is partial, party can continue performance and sue later
•
Materiality of breach determined by:o Extent to which injured party will be deprived of benefit that was reasonably expected
o Extent to which injured party can be adequately compensated for benefit to be deprived
o Extent to which party failing to perform will suffer forfeiture
o Likelihood that party failing to perform will cure his failure
o Extent to which behavior of party failing to perform comports with standards of good
faith and fair dealing
Damages
Expectation
•
Forward-looking – make P whole according to their condition if the K had been executed .• Most common, usually highest damages P can recover – focus on redressing the breach
• Gives measure of profits provided they’re foreseeable and certain – must be able to prove what itwould be in order to recover (Sullivan couldn’t prove worth of nose job; Naval publishers could)
• Avoids difficulty of proving reliance
Measuring Expectation Damages
• Damages for total breach:o Loss in value (difference between what you thought you were going to get and what you
actually got)o + other loss (other ways you were hurt, e.g. cost of mitigation)
o – cost avoided (what didn’t you have to do because of breach)o – loss avoided (gain from mitigation)
Reliance
• Backwards-looking – make P whole according to their condition before entering into K (or before breach)
• Usually less than expectation damages – won’t include profits you would have earned – better bet if can’t prove worth of expectation damages (Sullivan)
• Backwards-looking – if D was unjustly enriched by P then that value should be returned to P
• Least P should recover
•Can be K-based or alternative to K-based damages (even if there is a K – see quantum meruit)
• Callano v. Oakwood – K existed but not between P & D – D was unjustly enriched by P plantingshrubbery that enhanced value of house
• Pyeatte v. Pyeatte – No K existed (promise made in context of marriage) – wife was first grantedexpectation damages but this was thrown out and she was given restitution damages (wasn’t a breach of K case, and expectation damages more vague than restitution)
Quantum Meruit
• When P makes mistaken bid to his detriment, then D breaches – can P get full value of servicesor only price in K? Usually based on market value of benefit
• Can be used as alternative to K-based damages even when there is a K, IF:
o Other party breaches before performance is completed (not always clear if there’s been a breach and/or who breached)
• When D breaches, P is excused from performanceo May stop performance and sue – on the K or in QM (but must be right about D’s breach
or P will be sued himself)o May continue performance and sue on the K – may NOT sue in QM if performance
complete
Can only continue performance if not aware of breach ( Luten Bridge Co. – otherwise must stop performing)
• P must decide at time of breach – not entitled to disavow K later
• JX SPLIT (argue both on exam):
o Restatement says P can get full value of performance, court should set aside K
o Many courts say no, K price is ceiling – don’t reallocate risk
Limitations on Damages
• General Damages – Arising naturally, according to ordinary course of things – don’t need any particular knowledge to know these damages would ensue (lost profits, etc.)
• Special Damages – Such as may reasonably have been within contemplation of parties at time of K (cheese maker lost out on food critic review, not just profit on cheese; carrier couldn’t haveknown Hadley mill would have to shut down)
• Emotional distress almost never recoverable for breach of K UNLESS it’s particularly
foreseeable (funeral Ks) or suit also involves tort claim Avoidability
• Difference in value is appropriate measure, even if nominal (non-inferior piping in Jacobs &Young ; 1 foot shorter pool)
o For breaching buyer, difference is K price – market value (burden on seller to show
property worth less at time of breach than K price)
o For breaching seller, difference is market value – K price (burden on buyer to show
property worth more at time of breach than K price)
• UCC and common law encourage cover – will let cover price fix measure of damages regardlessof market price, provided that cover price is in same neighborhood (won’t penalize you for covering at high price or benefit you for covering at low price – you get what you get)
• Duty to Mitigate – misnomer – not breach of K if you fail to mitigate but it will reduce your damages
o Cover must be done promptly
o Employment context – must accept employment that is comparable (not inferior)
Foreseeability
• Must be reasonably foreseeable (objective & subjective) that breacher knew injury would result
• Determined at time of K formation
• All that must be foreseeable is that loss would result if breach occurred (don’t need precise formof breach)
• Restatement §351 (encapsulates Hadley):o Damages are not recoverable for loss that breacher did not have reason to foresee as
probable result of breach when K was madeo Lost may be foreseeable as probable result of breach because it follows from breach:
In ordinary course of events
As result of special circumstances that breacher had reason to knowo *Court can limit damages for foreseeable loss in order to avoid disproportionate
compensation (*this section not widely accepted)
• Also see Hadley in UCC – seems to suggest buyers get both incidental damages (mitigationcosts) and consequential damages (what completion of K could have led to), where sellers onlyget incidental– oversight? Possibly – has been fixed since – mention both ways on exam.
Certainty• Must have “reasonable certainty” of amount of expectation damages – can be approximate but
can’t be based merely on hopes (UNIDROIT Principles)
• Harder for new businesses to recover than established ones, but if proof then ok (Book & Bottleshop case – lots of testimony)
Damages Under CISG
• Damages when party has not covered measured by market price at time of breach vs. K price(important where price of commodity fluctuates)
• Generally can get back variable costs (incurred as result of breach) but not fixed costs (those youwould have spent anyway) – both UCC and CISG ( Delchi would have incurred labor costs of A/Cs anyway)
• UCC and CISG very similar in all respects (duty to mitigate, foreseeability) EXCEPT CISG ismore liberal on foreseeability – possible result, rather than probable
Specific Performance
• Not the preferred remedy – practical difficulties:o May be impossible or undesirable (e.g. if deadlines have passed)
o May be difficult to monitor or enforce (courts aren’t always effective enforcers)
o Parties may not be interested in working together anymore – bad blood
o Other reasons courts don’t like: affects individual autonomy and might flood court with
policing Ks; threatening damages can be better mediation tool than specific performance
• Available when damages remedy is inadequate (to protect expectation interest) – usually given in
connection with land/property or other unique goods (jet wasn’t unique in Klein, plus since $ profit was end goal specific performance not necessary – damages would suffice; cowboy brokehorse, should get horse – might be different if he just wanted to sell horse)
• Restatement §360 – factors to consider:o Difficulty of proving damages with reasonable certainty
o Difficulty of securing suitable substitute performance with $ damages received – if you
can cover your losses with $, probably won’t receive specific performance
Long-term K makes this more difficult – assurance of supply over years, expensein making arrangements for distribution, fluctuation in market, etc. – Laclede Gas
o Likelihood that damages could be collected (D judgment-proof?) – this is not deciding
factor though – usually need first two factors
• Seller can’t force buyer to buy (but other way around ok)
• Not usually used for employment – too much like indentured servitude
Specific Performance Under CISG
• Civil law systems favor specific performance (unlike common law) – P has right to demand – good deterrence effect (people less likely to breach if they know they can be required to perform)
• Articles 46 and 62 permit specific performance
• Article 28 says court need not order specific performance unless it would do so under its ownlaw – can lead to forum shopping/disparate outcomes and can result in foreign companies notwanting to K with American companies since specific performance is frowned upon here
•
Specific performance required if in civil law forum; specific performance not prohibited if incommon law forum – look to how court would normally rule
Liquidated Damages & Penalties
• Liquidated damages enforceable if:o Parties intended to agree on them (though this is not determinative)
Claiming duress just because you didn’t read K will not help (cell phone Ks)o Clause is reasonable forecast of likely injury
Presumption of reasonableness – burden of proof on party challenging to showunreasonableness
One single liquidated damages clause for complex transaction not likely to be
enforced – hard to describe it as a real estimateo Actual damages would be difficult to measure
This is in conflict with previous rule – if forecast is reasonable, how can it be hardto measure?
• First Look vs. Second Look – When does one assess reasonableness of forecast?o First Look: At time K was made
• Penalty damages NOT enforceable if:o Designed to secure performance
o Designed to punish breaching party
o Designed to deter breach (but arguable that this is what damages clauses do)
Just calling something penalty clause doesn’t make it so
FINDING THE LAW OF CONTRACT
Parol Evidence Rule
• Refers to any evidence – written or oral – outside confines of written agreement
• Applies as bar to outside evidence when parties intended writing to embody entire agreement
• First must determine whether:o Integrated Writings
Completely Integrated – nothing can contradict or supplement – sometimes this
is evidenced by explicit statement, otherwise probably partially integrated K Partially Integrated (most common) – complete agreement insofar as parties
have agreed on anything, but may be terms not included in document – canadd/supplement terms but NOT contradict – up to jury to determine if discussionsreally happened
o Unintegrated Writings (rare – e.g. scraps of paper)
• Oral agreements leading up to and contemporaneous with K should be examined; writtenagreements contemporaneous with K and after are NOT relevant
• PER lets judge determine what is submitted to jury
• The more complete/explicit the terms of K, less likely outside evidence will be admitted
•
Sophistication of parties is relevant Parol Evidence Rule Under CISG
• CISG more liberal about PE – more evidence the merrier – but not all that different from US lawsince we have flexibility about evidence other than writing as long as other party knew of intent
• CISG doesn’t address PER directly, but other things suggest it doesn’t apply: no statute of frauds, oral agreements enforceable (but written document is still the best evidence)
Contract Interpretation & Ambiguity
Vagueness & Ambiguity
• Vagueness: word or phrase’s application at the margins is unclear (“all the dirt on parking lot A”
– can this include sand?)o Sometimes ok (“reasonable time”)
• Ambiguity: when same word or phrase has more than one connotation (“light feathers” – light incolor or weight?; meaning of “chicken;” misplaced modifiers)
o Plain Meaning Rule – does agreement say what it purports to say? How much evidence
is allowed to determine this?o If meaning isn’t plain, bring in evidence to explain it – look within document (intrinsic
evidence) and outside document (extrinsic evidence)
• Ks flow from intent of parties, not magic words – words are not absolute and constant
• Extrinsic Ambiguity – must look outside agreement to determine there’s an ambiguityo Latent ambiguity:
Not clear on face of K
Neither party at fault
Each party’s understanding reasonable
If material term has latent ambiguity, no agreement and no K (so no breach)
• Example: Peerless ship(s) in Raffles – neither party knew there were two
• Traynor’s Rule ( PG&E ):o Preliminary examination of all credible evidence to prove intent of parties is required
o If court determines potential for more than one interpretation, extrinsic evidence is
relevant, goes to jury; if language is clear, extrinsic evidence probably not appropriate(PER should apply)
MISTAKE & IMPRACTICABILITY
Mutual Mistake
• Mutual mistake leads to K rescission – rolling back for both parties
• Appropriate damages (hard to get relief on grounds of mutual mistake):o Restitutionary recovery
o Rescinding party returns any property he’s received
o
Rescinding party pays fair market value for use of propertyo Other party returns any money received
o Other party pays for improvements on property in reliance on K
• Mutual Mistake – Restatement §152:o At time of K, parties must have shared erroneous belief concerning fact
o Erroneous fact must have been basic assumption on which K was made
o Mistake must have material effect on agreed exchange of performances
o Adversely affected party must not have born risk of mistake (this was questionable in
Renner – why wouldn’t they check for water supply in desert?)
• Which party bears risk/cost? Restatement §154 – party bears risk when:o Risk is allocated to him by agreement of the parties, or
o He is aware, at time of K formation, that he has only limited knowledge with respect to
facts to which mistake relates but treats his limited knowledge as sufficient, or o Risk is allocated to him by court on ground that it’s reasonable to do so
Unilateral Mistake
• Hard to get relief under mutual mistake; REALLY hard to get relief for unilateral mistake (if only Renners were mistaken about water supply they probably wouldn’t have won)
o Erroneous fact must have been basic assumption on which party made K
o Mistake must have material effect on agreed exchange of performances, adverse to
mistaken party
o Adversely affected party must not have born risk of mistake, ANDo Equities must favor relief for mistake ( Elsinore was anomaly, but since D rescinded right
away, mistake was honest, and school board could bear cost better, he won)
Impracticability
• Comes into play when:o Post-K formation change in circumstances
o Serious effect on reasonable expectations
Must be more than mere inconvenience or lack of profit or better opportunityelsewhere (only thing Transatlantic could say was it had to pay more $ - this can be enough but not usually)
o Excuses performance
• ELEMENTS:
o Something unexpected occurred after K was formed (extraordinary circumstances –
suggestion of foreseeability)o Risk of unexpected occurrence was not allocated either by agreement or custom
o Occurrence rendered performance impracticable
• UCC §2-615:o Delay in delivery or non-delivery in whole or in part… is not a breach… if performance
as agreed has been made impracticable by the occurrence of a contingency, the non-occurrence of which was a basic assumption on which K was made (suggestion of
