Sharon Steel v. Chase Manhattan Bank ................................................................................................. 22
Met Life v. RJR Nabisco .......................................................................................................................... 23
Katz v. Oak Industries ............................................................................................................................ 23
Morgan Stanley v. Archer Daniels .......................................................................................................... 23
Unconscionability (Limits on Enforcement)...........................................................24
Williams I & II (unconscionable furniture payments) ............................................................................. 24
Performance
R2d 237 : Effect On Other Party's Duties Of A Failure To Render Performance: Except as stated in § 240, it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time.
R2d 241 - Circumstances Significant In Determining Whether A Failure Is Material:In determining whether a failure to render or to offer performance is material, the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.
UCC § 2-601. Buyer's Rights on Improper Delivery. Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) reject the whole; or (b) accept the whole; or (c) accept any commercial unit or units and reject the rest.
Jacob & Youngs v. Kent (Reading Pipe) – Idiosyncratic partyo K says install Reading pipe only. Constructor installs non-Reading
(practically identical) pipe. Homeowner refuses to pay remaining balance, Constructor sues for the balance.
o Ct (Cardozo) says before granting specific performance we must weigh:1. Purpose to be served
Install with virtually identical pipe.2. Desire to be gratified
Follow exact terms of K.3. Excuse for deviation from the K
Oversight, figured it was the same to him.4. Cruelty of enforced adherence
Would cost a LOT of money for negligible change.5. Intentional lack of performance or negligent oversight?
Negligent Ct sides with constructor; idiosyncratic party must make their
idiosyncrasies clear.
Stees v. Leonard (Building in quicksand) – Allocating Riskso D constructing building for P, sank into wet soil twice, refused to build the
3rd time, P sues. o Ct: Where a party contracts to undertake a duty that is possible (here it
would be very difficult, but possible), short of an act of God, the law, or the other party to the contract, he must perform.
R2d § 261- Discharge By Supervening Impracticability
Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.
R2d § 263 - Destruction, Deterioration Or Failure To Come Into Existence Of Thing Necessary For PerformanceIf the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.
Taylor v. Caldwell (Music hall fire) – Excuse for nonperformanceo K agrees to rent out music hall. Fire burns down with no one at fault.
Who takes the loss for cancelling concert? o Ct: performers take loss, if performing at that specific music hall was
idiosyncratically so important, they should have negotiated for it.
R2d § 344. Purposes Of Remedies Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a promisee:(a) his “expectation interest,” which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed,(b) his “reliance interest,” which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made, or(c) his “restitution interest,” which is his interest in having restored to him any benefit that he has conferred on the other party.
R2d § 347. Measure Of Damages In General Link to Case CitationsSubject to the limitations stated in §§ 350-53, the injured party has a right to damages based on his expectation interest as measured by(a) the loss in the value to him of the other party's performance caused by its failure or deficiency, plus(b) any other loss, including incidental or consequential loss, caused by the breach, less(c) any cost or other loss that he has avoided by not having to perform.
§ 349. Damages Based On Reliance Interest As an alternative to the measure of damages stated in § 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.
§ 359. Effect Of Adequacy Of Damages (1) Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party.
(2) The adequacy of the damage remedy for failure to render one part of the performance due does not preclude specific performance or injunction as to the contract as a whole.(3) Specific performance or an injunction will not be refused merely because there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion under the rule stated in § 357.
§ 360. Factors Affecting Adequacy Of Damages Link to Case CitationsIn determining whether the remedy in damages would be adequate, the following circumstances are significant:(a) the difficulty of proving damages with reasonable certainty,(b) the difficulty of procuring a suitable substitute performance by means of money awarded as damages, and(c) the likelihood that an award of damages could not be collected.
§ 371. Measure Of Restitution Interest Link to Case CitationsIf a sum of money is awarded to protect a party's restitution interest, it may as justice requires be measured by either(a) the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant's position, or(b) the extent to which the other party's property has been increased in value or his other interests advanced.
Remedies for Nonperformance
Freund (Professor’s book publishing) -Compensationo Professor agrees K with publisher to publish his book, includes $2k
advance, royalties and agreement to print hardcover within 60 days followed by paper back. Publisher merges, reneges. P sues for specific performance, royalty lost and reputational costs.
o Ct: No evidence of royalties lost (speculative), reputational costs (intangible and unproven -- he was still eventually promoted) and no specific performance issued. Also at likely at play: If its not worth it to them to print, it's probably worth very little and thus royalties would be very little. But did he give consideration by not shopping it around to other places?
Klein v. Pepsi Co (CEO reneging plane sale) – Specific Performanceo wants to buy plane, middle man negotiates price, CEO reneges on deal, P
sues for specific performance. o Ct: money damages would make P whole, jet not that unique to require
specific performance.
§ 351. Unforeseeability And Related Limitations On Damages
(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.(2) Loss may be foreseeable as a probable result of a breach because it follows from the breach(a) in the ordinary course of events, or(b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.(3) A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.
§ 2-715. Buyer's Incidental and Consequential Damages. (1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.(2) Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) injury to person or property proximately resulting from any breach of warranty.
Hadley (Mill crank) – Limitations on Compensationo Mill's crank breaks, take it to courier, try to get it sent quickly, it is
negligently delayed, mill sues for lost profits. o Ct: crank could have been needing fixing under other circumstances (e.g.
there's a spare), mill should have revealed its idiosyncratic needs if it wanted damages, perhaps paid extra for insurance.
§ 71. Requirement Of Exchange; Types Of Exchange (1) To constitute consideration, a performance or a return promise must be bargained for.(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.(3) The performance may consist of(a) an act other than a promise, or(b) a forbearance, or(c) the creation, modification, or destruction of a legal relation.(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
§ 73. Performance Of Legal Duty Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration; but a similar performance is
consideration if it differs from what was required by the duty in a way which reflects more than a pretense of bargain.
§ 74. Settlement Of Claims 1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless(a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or(b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.(2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.
§ 79. Adequacy Of Consideration; Mutuality Of Obligation If the requirement of consideration is met, there is no additional requirement of(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or(b) equivalence in the values exchanged; or(c) “mutuality of obligation.”§ 81. Consideration As Motive Or Inducing Cause(1) The fact that what is bargained for does not of itself induce the making of a promise does not prevent it from being consideration for the promise.(2) The fact that a promise does not of itself induce a performance or return promise does not prevent the performance or return promise from being consideration for the promise.
Consideration
Hamer (Stop nephew smoking) - Bargaino Uncle promises son $5k if he stops vices until 21. He does, asks for
money, uncle says wait, uncle dies, estate has creditors, nephew sues for the 5k, creditors say no consideration was given because nephew was not harmed, only benefited. Therefore it was an unenforceable gift not a K.
o Ct.: Nephew gave up a legal right, that is consideration.
Kirksey (Widow come stay) - Gifto Widow w/ children living on public land, brother in law writes letter
offering a place to stay and raise family and keep him company. Widow abandons her APing land moves in 60 miles awa, 2 years later he tells her to move to the forest out back and the eventually to move out altogether.
o Ct: offer to stay was mere gratuity, no consideration. But didn't she give up her tacking rights on the AP land? And the hardship in moving? Yes it was detrimental reliance and she got screwed by the jerk, but its still not a K. You can't contract for "company."
St. Peter (Theatre raffle) – Illegal Lottery or Award o P go to theatre where D is doing raffle w/ no purchase necessary,
announce prize, P wins, D ducks out and P is unable to collect in time. D argues no consideration given by P or in the alternative, if there was consideration, it was a lottery and therefore illegal and unenforceable.o Ct: Consideration was showing up (which the theatre wanted), and
showing up is not the immoral behavior lotteries seek to discourage (gambling money is).
In re Greene (Mistress blackmail) – Blackmail or Ko Bankrupt guy has affair with woman, signs K after realtionship was over
agreeing to $1k/month alimony, $100k life insurance, 4 yrs rent, and sealed it with consideration of: $1 cash, release of all potential claims, and "other good and valuable consideration." He dies, creditors deny her claim saying invalid K.
o Ct: $1 too nominal, claims against him = zero, "other good and valuable consideration" = too vague à no K. Possibly what's really going on is K for blackmail and court can't enforce K for illegal activities.
Batsakis (Loan during wartime) – Adequacyo During time of great need, D agreed to pay P $2000 at 8%/yr in future for
$25 in Greek currency right then. P later sued for the money. o Ct: $25 is some consideration, not nominal. Valid K, court will look into
whether there was consideration vs. no consideration, but not whether consideration was a fair amount.
Wolford (name your kid) - Adequacyo D told P that if he would name his son Charles Lehman Wolford he “would
make the child’s welfare his chief object in life, and provide for it generously and give it a good education”. D did name his child accordingly and rendered other services to Lehman such as caring for him when he was sick. Lehman signed a promissory note in the amount of $10,000 to care for the child and passed away shortly thereafter. Creditors of estate say no consideration, not valid K.
o Ct: naming the child is valuable consideration, again does not go into whether it was "fair." consideration. Agreed though that care while he was sick was past consideration and not valid in the K.
§ 90. Promise Reasonably Inducing Action Or Forbearance (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.
Promissory Estoppel
Haase (Sister-in-laws in will) – Intrafamily Promiseso Husband agrees to give money to sisters from soon-to-be-acquired
estate. He dies before he gets the estate and what he has automatically goes to his wife. Wife agrees to give some money to sister-in-laws. On what she thought was her death/sickbed, she revealed that her husband had actually planned to give more and she would do that. She did for a few months before the recipient asked for a promissory note on the balance. At this request D refused to pay any more (likely offended at request). P then sued for the balance.
o Ct: No consideration, no reliance But may she had relied by taking out a loan
But almost any promise leads to some sort of reliance. Possibly example of intra-family promises not being enforced.
Ricketts (Don’t work granddaughter)o Grandfather promises money to grandaughter, saying he doesn’t want
any of his grandchildrent o have to work. She quits her job, then gets another a year later with his permission. He dies before finishing the gift.
o Ct: promisor intended for it to be legally binding, she did give up job for a year, promisor never changed his mind while alive even though she worked. Not intra-family dispute.
Feinberg (board offers pension) –Promises during employmento Company's board promised P to give P $200/mo pension for life. New
company takes over and reduces it to $100 saying she didn’t give any compensation.
o Ct: valid K. Fact that it was a board meeting shows legal significant of the act
and also that it probably was not meant as a mere gratuity as that would have been a violation toward shareholders.
Hayes (pension “taken care of”)o P worked for D for 25 yrs, announced retirement 6 months out, 1 week
before he talked with a manager (who didn't have the authority to approve pensions) who told him he would be "taken care of."
Ct: Promise was vague and not given by person with authority. No K.
§ 22. Mode Of Assent: Offer And Acceptance (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties.(2) A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined.
§ 24. Offer Defined An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
§ 26. Preliminary Negotiations A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.
Offer
Bailey (Sent back lame horse)o F: D sends back lame horse, seller refuses, delivery guy calls D who says
he won't pay for any upkeep, do whatever. Delivery guy takes it to stable who keeps it for 4 years and bills D for it.
o Ct: that was P's choice, no actions by D imply a contract, not a meeting of the minds.
Zehmer (Drunken land sale)o Drunk agreement to sell land as hilarious "joke."o Ct: its about what one side reasonably infers by the actions, not what the
idiosyncratic party does. If you are an idiosyncratic party, you have to let the other side know your idiosyncracies.
PepsiCo (Pepsi points Jet)o Commercial featuring sunglasses, hat and…..a harrier jet for purchase
with pepsi pointso Ct: clearly unreasonable contract that a reasonable person would know it
was not an actual offer. No real reliance, no social benefit in enforcing this K.
McWane (Faxed PO&waiver)o P prepares bid, gets quotes from sub-contractor D who faxes quote with
"Estimate" along the top and "please call." P calls to order. D fedexes materials w/ purchase order and liability release. P says purchase order never arrived and D faxes it over w/o liability release on reverse side. When was offer made? Before or after purchase order w/ liability release was sent?
o Ct: "Estimate" is a magic word showing it is an invitation to negotiate, not an offer. Also, hypothetical bargain would have been liability release...but why is necessarily the case that P would have agreed to it?
Lefkowitz ($1 women’s coats)o D posted newspaper advertisement offered fur coats for $1 to the first
three customers on two subsequent weeks. Both times, the plaintiff was the first in line, with $1, but the defendant refused to sell the coats because the “house rule” was that the offer was intended for a woman.
Newspaper ad may be construed as an offer, acceptance of which would constitute a K.
Consideration was getting people to arrive at his store early in droves.
Ad had no gender restriction. Offer may be modified before acceptance, not after.
R2d Sections 30, 32, 35, 36, 42, 50, 54, 56
Acceptance
Ever-Tite Roofing (loaded trucks) –method of acceptanceo K written up for roofing job for D. K said K was executed upon
commencing authorized signing or performance of the work. P signed by unauthorized representative. P wanted to do credit check on buyers first. Credit check goes through, they load up the trucks and got to house the next day, find other crew already working on it.
o Could you think of this case in terms of reliance (promissory estoppel, even though that is generally to be avoided -- ironically you shouldn't rely on promissory estoppel)
Ciaramella v. Reader's Digest (Settlement w/o consulting client)o P alleged employee discrimination. Settlement orally agreed to b/w D
and P's lawyer. P doesn't like settlement, P's lawyer drops out, P can't find new lawyer before it goes before trial court who rules to enforce settlement and dismiss case.
o Ct: 4-factor test for determining whether there was a K before it was signed.
Express reservation? (probably dispositive) A form of contracting around the default rule (whatever that
may be) Partial Performance? All terms agreed upon or left open for negotiation? Type of K that is usually not finalized until signed?
But does this show that they have lots of Ks that they just don't sign or rather that they don't like to obligate themselves into Ks?
Example of Hollywood studios who never like to sign things but they otherwise appear to be valid Ks.
R2d Sections 25, 36, 38, 45, 87
UCC 2-205
Pavel (sub-bidder mistake) – Revocation of offerPEI seeks sub-bids for job, Johnson gives quote, PEI submits bid, wins it, PEI asks subbidders to review their bids and separate costs, Johnson finds mistake in bid and wants to withdraw, PEI says no and accepts general contract 4 weeks later.
General contractor could have contracted for a binding K by offering payment to make the subK binding.
CL only bound gen K'ers, not subK'ers. Latter's was just an offer with could be drawn, not a unilateral K.
Restatement: both bound to higher ups. Gen K'ers reliance is consideration so that subK'er is estopped from withdrawing for a reasonable time.
Battle of the Forms
Dataserv (volatile comp equip)Dataserv wants to sell $100k worth of computer equipment to TechnologyTimeline:8/30- Proposal generally agree upon9/2 - Dataserv sends over K 10/1 - Technology doesn't agree w/ 3 terms including cause 810/later - Dataserv says we'll change 2 of those terms, but cause 8 still in controversy11/8 - Dataserv says they will remove clause 8, but Technology says "too late"Possible interpretations:Each response is a new offerAll part of negotiation, once Dataserv gets rid of clauses, K is binding
o Ct: Approach #2o Possibly because price is so volatile that we don't want to give one
side an advantage to grab hold of when the price is most to their advantage.
o UCC 2-207 seems to favor Approach 2. key must have been the price volatility.
Ionics v. Elmwood (small print thermometer waiver)o Elmwood (D) makes thermostats. Ionics (P) makes water dispensers.
Ionics, on 3 occasions, purchased thermostats from Elmwood. Each time Ionics made a purchase, they sent Elmwood a purchase order which contained some conditions. After receiving the PO, Elmwood would send a letter that looked a lot like an acceptance letter but purported to be, in the small technical writing, a "counteroffer" and limiting Elmwood’s liability (particularly for lost profits) if there were problems. Ionics then had many problems with the thermostats and is suing Elmwood.
o Competing default rules -- UCC has fairly generous liability for manufacturers
o Key issue is that form from D says both "notice of acceptance" AND "this is a counteroffer"
o ?Ionic wins battle of forms because it had the last form that was "accepted" by the other party?
Step-Saver v. Wyse (box-top waiver)o Step-saver (buyer) contacts TSL (dismissed D, producer)o P order programs over phone, discuss price, quantity & shipment terms.o Product arrives with box-top license saying "open only if you agree to
these terms..." including limited warranty (what the suit is over) and non-transferable license (when both parties knew that transferring was always the intended purpose).
o D argues: there was no "battle of the forms" there was only one, the K we put on the box.
o Ct says that the phone conversation consisting of price, quantity & shipping was a K. The box-top license was superfluous, meaningless and non-binding. Goes through UCC 2-207 each of the 3 subsections.
Hill v . Gateway 2000 (box-top K)
o List of terms inside the box saying "accept or return in 30 days."o Ct here says that price, quantity & shipping did NOT make for a K. o Ct justifies that terms in box did not solely benefit Gateway (included
warranty)Hypothetical bargain is that if you want this cheap computer in this highly competitive market, it’s a take-it-or-leave-it K.
Gateway and Step-Saver very different approaches to what we envision as a K.
Statute of Frauds
R2d Sections 131, UCC 2-201
McIntosh (job in Hawaii)o Guy from LA, orally offered a job in Hawaii for a year, moves out there,
works for a couple months, sucks at his job, fired, sues for remainder of year wages.
o Ct: TC mangled the statute of frauds, but in the interest of equity we're going to protect the employee. He incurred significant expenses. Rules K was for a year (Are they just making this figure up to fit the maximum under the statute of frauds?)
Schwedes (House phone sale)o Sent letter offering land, Schwedes agree for 60k, finalizing date keeps
getting postponed until 3 days before deadline, sold for 64k to someone else.
o Ct: No dispute that there was a K, just that it wasn't in writing. Seems unfair, purpose of fraud statute is to prevent fraudulent Ks. BUT no consideration given, no reliance, no writing, no K.
Monetti (2 unsigned memos=K)o Manufacturer (P) K'ed with distributor (D). P had 2 unsigned memoranda
from D as evidence of K. Posner rules that these do show evidence of the oral K, concerns with substantial performance by P and opportunism by D.
Preliminary Negotiations
Coley (Govt Bids using company’s name)o P sued for specific performance and damages. D wanted to purchase P
stock but really wanted P's company's name and goodwill for use in government contract bids. There was a letter agreement saying they would come to an agreement on Sept 18th.
o Ct: Agreeing to agree is NOT a K. o BUT it seems there was partial performance when D used company's
name for govt K bids. However, P provided little evidence they would have won any
bids (or even bid at all) during that time with their name.o NB: court followed 1st restatement which included words "substantial and
definite". Gulati: been largely followed the same after the 2nd restatement, but those words caused problems.
Hoffman v. Red Owl (inexperienced franchisee)o Negotiation for establishing a franchise. Frachisor tells Franchisee $18k
will be enough. Franchisor continues to drag him along, Franchisee liquidates his assets including current business, Franchisor demands he get loan from father-in-law, then demands the loan be given as a gift instead. Franchisor eventually backs out of deal. Franchisee sues and wins for promissory estoppel.
o Key differences with Coley:Damages in this case were much more specific and real. (selling business, moving)
o Huge information asymmetry and difference in sophistication of parties (Franchisor could have clearly told Hoffman they required non-borrowed money)
Indefinite Promises and Open Terms
Varney v. Ditmars (“fair share” to employee)o Employer promised employee a "fair share" of the profits. o Ct: too vague to be a K.
Curtis v. Matthews (no price in K)o P agrees to buy wheat from D but they do not agree on price. Later in the
season, P says $14, D says no and buys to someone else. o Ct: sometimes agreement to negotiate some parts later is part of the deal
(although sometimes it means no deal). Lack of specificity in price is not enough to negate a K. Ct inserts market price and P wins.
o Buying/selling goods, applies UCC which is less harsh than CL.
Mooney problem p. 297 (Miltary squash player)Mooney works for military in Germany, wants to open athletic club, talks to Norton employee of big money guy Craddock, . Based on communications, Mooney concludes he could negotiate a lease for an athletic club and retires from service (losing accrued PTO). At that point still had to resolve rental amount and erction of extra building. Mooney advised to generate 12,000/year income from the facilities. Mooney makes plan, Craddock reviews it, says "let's go." Moves kids and wife to CO, gets some loans, installs a sauna, makes brochures for potential members, etc. Only gets 3 membersCraddock backs out, imposes "minimum membership requirement" Promissory Estoppel Approach:
Foreeseable Reliance by PromisorActual reliance by PromiseeInjustice avoided only by enforcement
Doesn't tell us much, legal realist would say "when the court feels like it"
o Remedy limited as justice requires
Was it foreseeable that Mooney would move? Other parts of plan was foreseeable (after "let's go"), reliance was specific and real. Ct does find promissory estoppel. Craddock let him rely a lot on without doing a lot of work.
Binding Preliminary Agreements
Brown v. Cara (Rezoning parking lot)o Parking lot owner (Cara) and property developer (Brown). Create MOU
(Memo of Understanding --preliminary agreement). Cara provides
property at no cost, supposed to try to get financing. Brown working on the majority of stuff including getting the main issue to be resolved that the project hinges upon: getting lot rezoned for development. Brown gets that done and sends K to Cara. Cara claims to be so offended by terms of K that he refuses to negotiate any further.
o Factor Test for whether Type II agreement exists (would bind them to negotiate in good faith):
Whether the intent to be bound is revealed by the language of the agreement
The context of the negotiations The existence of open terms Partial performance The necessity of putting the agreement in final form, as indicated by
the customary form of such transactionso We want to encourage people to enter into Ks, if we let people out of
preliminary agreements too easily, making them meaningless, they won't enter into them when they serve a valuable and efficient service.
o Allowing Cara to back out like he does instead of negotiate in bad faith would allow people to back out of K's too easily by subjective (potentially fraudulent) objections to the initial offer . Even if this is just spending some time and money negotiating with no K in the end.
o Process and procedure is what courts can evaluate, not evaluating the value of a specific K.
Requirement Ks and Impracticability
UCC 2-306 -- driven by good faith. Requirement K: You sell me what I require and in exchange I'll only buy from
you
Eastern Air Lines v. Gulf Oil (single index & fuel freighting)o Oil company selling to airline, requirement K, sets price to index of
domestic crude oil reporting that it is only based on government controlled lower-than-market price. Also Eastern participating in fuel freighting where they overfill in areas with lower gas prices to take advantage of market disruption by govt.o Ct: Refuses to modify original K. Perhaps would have done if it was it
was impossible to sustain, but instead it was just expensive. o Fuel-freighting -- standard industry practice, rational practice, not
bad faith enough. Also, court may not want to open to litigation all other instances of fuel-freighting .
o Now these requirements are just done with multiple indices.
Empire Gas v. American Bakeries (zero propane purchase)Bakeries wants to convert and fuel their delivery trucks with propane to save money during the fuel crisis. Requirement K with Empire Gas for more or less 3000 units. Ends up buying zero units and Propane co. suesFits into box of "requirement contract" and "option contract." Dispositive that they used magic word? Or maybe no evidence that they paid money for an option? Or perhaps just will of judge.Without the UCC's guidance regarding requirement K's would be straightforward case for Empire Gas. Zero is not "more or less 3000"Posner is most concerned with opportunism. Interprets 2-306 "no quantity unreasonably disproportionate to any stated estimate" o 2 ways to see this Requirement K
A "right to buy" in exchange for exclusivity which means they can buy zero.Deviations allowed around the focal point estimate if they are in good faith.
o Posner interprets that rule forbids not going way above the estimate because it would allow for opportunism if market price took off a buyer could resell it and compete with seller. Hypo bargain would never agree to such a situation.
However, because American Bakeries refused to give any reason for their lack of purchase, he says it implies bad faith and rules for Empire Gas.
Exclusive Dealings
Wood v. Lucy (getting endorsement deals herself) Exclusive K to secure endorsements deals for Lucy. Lucy secures her own
endorsements deals. Lucy argues K was invalid because there was no consideration or obligation on Wood's part. Cardozo says there is an implied obligation in the K for Wood use reasonable efforts to secure endorsements and thus, consideration. Rules for existence of K and Wood exclusive rights, even from Lucy herself.
Bloor v. Falstaff Brewing Corp (“good efforts” to sell beer)Falstaff buys Ballantine brewery. Ballantine is supposed to receive $.50 per barrel of beer sold, and Falstaff agrees to use their “best effort” to sell Ballantine Beer. Falstaff has trouble selling, hires manager to fix it, decides best method is to focus on lower volume, higher prices. Ct: D clearly did not make "best effort." Perhaps threat of bankruptcy would warrant modification, but fewer profits does not. What if good efforts are unprofitable?
Different viewsYou have to keep trying to sell it unless it will send you to bankruptcyIf it’s a crap product you don't have to keep trying
Ct here is somewhat in the middle
Mistaken Beliefs about Facts
ALCOA v. Essex (Greenspan’s flawed index)Highly sophisticated party makes painstaking effort (including hiring ALAN GREENSPAN!) in K terms to protect against fluctuations in price yet still doesn't account for something. Ct seems to say that they were so sophisticated and put so much effort in making the deviation between 1 and 7 cents profit, that we will honor (force?) their purpose.o But couldn't they have just set a floor like the other party set a
ceiling? Isn't that the whole purpose of floor/ceiling prices which sophisticated parties are well aware of?
o They could also have used some vague language like "fair/reasonable" price
Atlas Corp. v. U.S. (p. 745) (govt’s radioactive land sale)Government sells land for mining that is known to be a little radioactive. Turns out to be very radioactive and radiation turns out to be very damaging to health to the point where Congress even passes legislation making them clean it up. Ct still refuses reformation of K. High level of radiation at the time of K formation was unknowable by either party. Mistake about fact must be knowable.
Modification of existing Ks
Alaska Packers (fishermen’s bad net)Bunch of guys signed to go fishing on expedition for $50 + 2 cents per salmon. Show up, claim the nets are shoddy, and demand $100 instead. Local manager on site initially says he doesn't have authority but eventually caves to $100 but company reneges when expedition finishes. TC says initial K was waived and new one was made. Ct: Cannot agree to new contract terms for same services without giving new consideration (common law rule). Ct does not believe net was shoddy since company has as much interest as fisherman in keeping net maintained.o But there was reliance on both sides, seems to only acknowledge
fishing company's side.
o UCC & restatement depart from common law rule. They do not require consideration. Instead just look to equity and fairness at stake.
Misrepresentation
Speiss v. Brandt (crappy resort)P bought resort from D. Prior to the purchase, the D informed P that they made "good money" from the resort. P claims fraud, in that D actually lost money on the resort every year for a decade prior to the sale. Elements of Fraud:
Untrue statement/representation of a material fact made with knowledge of falsity (or you don’t know but say you do) for purpose of inducing justifiable reliance by other party on statement. Ct seems to also hold the inexperience of the buyer and the friendly
relationship b/w buyer and seller important.
Danann Realty (K’ing around fraud)D made oral representations which P alleges were false. Contract VERY explicitly contracts around fraud liability.I: is fraud liability a default rule or mandatory rule?Ct: If this contract doesn't make it clear that you are contracting around fraud liability, what does? Dissent: Nothing does, its is a mandatory rule. You can't contract around fraud with a contract based on fraud.
Disclosure and Concealment
Laidlaw v. Organ (Buying tobacco after 1812)o D selling tobacco to P, P has connections that tell him War of 1812 is
about to end so prices are about to go back up. D asks if there's anything P knows which might affect the price. Unclear what his response was. Agreement made but D reneges and P sues for breach of K.
o Ct (Marshall): when information is equally accessible, no duty to disclose, P wins.
o Scholars:o Kronman , in the theory of law & economics (where law is supposed to be
the most economically productive system possible), we want to encourage people to seek information. We don't need to encourage "casually" acquired information, only information that you deliberately work or invest to obtain.
○ Problem with this interpretation of Laidlaw is that it wasn't a deliberately learned information.
o Schepple distinguishes between shallow secret and deep secret, former is okay not to disclose.
○ Problem with this is it was not a shallow secret, even President didn't know about war ending at that moment in time.
Strong v. Rapide (Selling govt land in Philippines) o Negotiation to sell land in Philippines to u.s. govt. Major
shareholder/negotiator knows U.S. will go higher in bid, gets uninformed minor shareholders to sell to him through proxy, then sells to govt at very high price.
o Ct: Duty disclose -- why? Active steps he took to conceal identity? Obligation to shareholders? Not equal access to information?
Obde (hidden termites)Building has termite problem, exterminator they higher says it will be at least a year before he can say for sure that termites are gone. Covers up signs of termites. D sells without disclosing.Duty to disclose:
Is it material? Yes, clearly. Is there therefore a duty to disclose?
Equal access by both parties? No, it was not something a regular inspection would find out.
Hypothetical bargain - would want it disclosed up front.Hypo - what if K says "might be termites" (seems clearly yes)What if K says "as is"?
Murder in the house
Is the key factor that its $10,000 Price gets you the materiality, but not the duty to disclose.
These concepts are related by not synonymous
Reed v. King (Murder House)P sold house without disclosing murder had taken place at the house. Knew it materially affected market price. Told a neighbor not to tell the buyer.Ct: Because 1) information known only to the seller 2) information is not readily found out by regular inspection, and 3) has a significant and measurable effect on market value and the seller is aware of the effect, there is a duty to disclose, even when the defect is not physical.
Jordan v. Duff (employee/shareholder)
P resigned and cashed in stocks before merger went down. Ct: D was obligated, to disclose possible merger that would greatly affect
the share price. Although no duty in publicly traded companies because it
would be impractical and injurious to shareholders, close corporations do not have those concerns..
Interpretation of Terms - Parole Evidence
Columbia Nitrogen (phosphate market tanks)K specifies minimum quantity and price for specified time (3 years). Phosphate market value falls drastically, D orders far below the min (1/10th) and wants to only pay market value, P refuses.D wants to introduce evidence that custom and trade usage shows that normally those minimums aren't followed after changes in the market.UCC 2-202 (formally adopted in the jurisdiction) - a K may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
By course of dealing or usage of trade (Section 1-205) or by course of performance (Section 2-208); andBy evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement .
Reasons why parole evidence rule not enforced this court, even for unambiguous terms (price & quantity)
1. No explicit statement in K forbidding custom evidence1. K isn't vague, it says "K expresses all terms of the agreement"2. UCC is the default, does not require it to be explicitly in the K
2. K does not specify provisions for if there is a large reduction in market value (didn't foresee it?)
3. Past practices b/w parties there were lots of adjustments1. Was it a case of one party allowing the other to renegotiate but
when the show was on the other foot...2. Or was it a case where the less powerful party was more willing
to renegotiate regardless of the side they were on in the deal?4. K does not specify damages for buyer not buying
But since when does a court need specified damages in a K? That just means they accept the default rule. Also, damages are not a difficult calculation in this case.
Southern Concrete v. Mableton Contractors (quantity not ambiguous) K provided price and approximate quantity needed. D reneges. D wants
to introduce trade usage evidence – that it was understood that the quantity was subject to renegotiation.
Court does not feel that §2-202 was meant to “invite a frontal assault on the essential terms of a clear and explicit K”Parties may decide to renegotiate, but the option to enforce contract rights is still there.Parties contemplated placing the risk of variation in quantity on the buyer.
Reasonable approach is to assume that specifications are intended to be observed as written and the unilateral right to make a major departure from those must be expressly agreed to in the writing.
(Weakly) distinguishing from Royster:o No repricing rightso No prior dealings
Applying concepts: Corporations cases
Sharon Steel v. Chase Manhattan Bank Most imp case on standard form Ks. F: UV industries borrowed money at low rate.Wanted to liquidate assets during a time where market rate is highUV wants to hold on to this debt because it's at such a great rate.UV intends to sell its company piece by piece until it can sell its debt for cash to avoid triggering the K clause about "liquidation." Clause talks about "all or substantially all" -- but what does that mean? Clause is boilerplate (UCC doesn't govern b/c not sale of "goods")No industry custom to look at because this hadn't been sued over before.
Interpretation therefore has huge implications because it is first impression.Court therefore emphasizes importance of uniformity in interpretation, nor just what the two parties at bar thought during negotiation
Furthermore it was a boilerplate so there wasn't much "negotiation"
Met Life v. RJR Nabisco Nabisco starts out with tiny bit of debt and ton of valuable assets. That means bonds issued was highly credited and valued.Propose to do a leveraged buy out (LBO) of themselves through issuing a LOT more debt, thereby making their low-interest bonds worth much less.Indenture K explicitly says no restriction on loading up with debt.
Because of this, P's move to last resort of "violation of good faith"Notable case because rare to make that case for highly sophisticated parties.
Ct. - highly sophisticated party knew of these K provisions and chose not to negotiate for those explicit K provisions. Very narrow reading of good faith.
Katz v. Oak Industries
Oak had too much debt, needed to renegotiate, modify the terms to get bondholders to take less money.
This bond required 100% of bondholders to agree to renegotiateLess important stuff can be changed by anything >50% agreement
Oak therefore needs to
Good faith argument: (must be based on not getting the existing terms of the K bargained itself, NOT just general principles of fairness)
Hypo bargained for provision in K requiring 100%, this conduct subverted that provision.Ct denies argument:
1. No fiduciary duty to bondholders, just contractual (fid duty to stockholders)
2. Relevant that these are sophisticated and few bondholders, detailed K with carefully negotiated provision.
Morgan Stanley v. Archer Danielso Company borrows at a very high rate, debtholders negotiate for provision
that you can't just refinance the debt when interest rates go down.o To get around, Archer borrows at low interest rate, makes money some
other way (issues stock) and then pays back the debt.o Ct outlines why general K principles did not help decide the case,
therefore looked at nonbinding (much-criticized) Illinois case (Franklin) as persuasive authority. Sets up incentive scheme for sophisticated companies to keep apprised of these case law developments.
Unconscionability (Limits on Enforcement)
Williams I & II (unconscionable furniture payments)o Poor person buys multiple pieces of furniture from store over years (like a
rent-to-own), each subsequent purchase & K spreads payments across all pieces of furniture so that none are paid off until all are paid off. P defaults and D repossesses everything.
o Ct: No meeting of the minds when unsophisticated party did not read or understand K. Rules unconscionability, UCC and general concepts of equity are persuasive authority. Unconscionability = you know it when you see it.
