Contracts Outline NEW

8/3/2019 Contracts Outline NEW

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I. Forms of Liability: K Propera. Mutual Assent: 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 ( 22)

i. Rule: in determining whether there is mutual assent, court utilizes the objective theory ofKs. Do not look to whether there is meeting of the minds, but rather look at their objective

manifestations of assent

1. Ray v. Eurice Bros: A developer signed K without reading it and later tried to get outof the demands the property owner made. Court held that the standard for evaluating

a contract is objective. Absent fraud, duress, or mutual mistake, signing is binding.

b. Bi-Lateral Contractsi. Offer: what constitutes an offer?

1. 24: The manifestation of the willingness to enter into a bargain, so made as tojustify another person in understanding that his assent to the bargain is invited and

will conclude it.

a. Contains specific terms, which are directed to a particular partyb. Next to last step

2. Lonergan v. Scholnicka. Written communication between parties: D writes that this is form letter

and P must act fastexpect a buyer soon. Ds letters did not constitute an

offer

3. Preliminary Negotiations ( 26): A manifestation of willingness to enter into abargain 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.

a. Izadi v. Gus Fordi. Car dealer put ad in the paper. Purchaser thought ad constituted an

offer

b. General Rule: Ads do NOT constitute offer; instead invite to negotiateii. Acceptance: once offer is made, offeree has power of acceptance, however, offeror is still

master of the offer

1. 50 (1): Acceptance of an offer is a manifestation of assent to the terms thereof madeby the offeree in a manner invited or required by the offer.


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2. 50 (3): Acceptance by a promise requires that the offeree complete every actessential to the making of the promise

3. Counteroffer ( 39)a. (1) A counter-offer is an offer made by an offeree to his offeror relating to the

same matter as the original offer AND proposing a substituted bargain

differed from that proposed by the original offer

b. (2) An offerees power of acceptance is terminated by his making of acounter-offer, unless the offeror has manifested a contrary intention or unless

the counter-offer manifests a contrary intention of the offeree

4. Revocation:a. Direct ( 42): Offeror directly communicates revocation to offereeb. Indirect ( 43): An offerees power of acceptance is terminated when

i. The offeror takes definite action inconsistent with an intention toenter into the proposed contract

ii. AND the offeree acquires information to that effect from a reliablesource

iii. For offer to truly be revoked, offeree must have full knowledge ofrevocation before acceptance is given

5. Normile v. Millera. D put house up for sale. P made offer, D made counteroffer. Before P accepted

CO, D indirectly revoked (you snooze you lose) and sold house to someone

else.

c. Unilateral Contractsi. Offer: Offeror offers promise in exchange for a performance of an action

ii. Acceptance1. Traditional rule: Offeror can revoke offer at any time prior to complete performance

a. Petterson v. Pattberg: revocation of offer valid b/c D revoked before Ptendered $

2. Modern Rule (45): Where an offer invites an offeree to accept by rendering aperformance and does not invite a promissory acceptance, an option K is created

when the offeree tenders or begins the invited performance or tenders a beginning of

it


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a. Cook v. Coldwell Banker: D announced a bonus sales program that wouldreward great sales with bonuses paid out at end of the program. D tried to

revoke offer when P left the company. Court held that a unilateral contract is

binding on offeror once substantial performance has occurred.

d. Considerationi. Benefit/Detriment Test: either the promisor must enjoy a benefit in relation to the promise

OR the promisee must suffer a detriment in relation to the promise.

1. Hamer v. Sidway: Uncle agrees to give nephew $ if he does not drink, smoke, gamble,etc. until he is 21. Court held that giving up a legal right with respect to the promise

constitutes consideration.

ii. Bargain Theory (71): A performance or return promise is bargained for if it is soughtbythe promisor in exchange for his promise and is given by the promisee in exchange for his

promise.

1. Pennsy Supply v. American Ash: American Ash gave Pennsy AggRite for free, butPennsy Supply assumed the responsibility of disposing of the hazardous material.

Court held that American Ash sought to get rid of AggRite, so there is sufficient

consideration.

iii. 79: If the requirement of consideration is met, there is NO additional requirement of1. A gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to

the promisee; or

2. Equivalence in the values exchanged (Batsakis v. Demotsis); or3. Mutuality of obligation

iv. There is NO consideration if the exchange falls under the following:1. Donative gift: In general, promise to give gift in the future is unenforceable; mere

recital of consideration not sufficient (Dougherty v. Salt)

2. Past Consideration: services already rendered are NOT sufficient consideration(Plowman v. Indian Refining Co.: employees were laid off and received a pension,

which they had to pick up semi-monthly)

I. Forms of Liability: Promissory Estoppela. Pre-acceptance Reliance

i. Traditional rule: Doctrine of promissory estoppel is NOT applicable where anoffer is made for an exchanged act or promise AND the offeror has not received

any consideration; court requires a promise


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1. Baird v. Gimbel Bros. (1933): D mistakenly sent out price to generalcontractors. P received price offer and made their bid based on Ds bid,

but later realized they made a mistake calculating price. Two days later, P

took the job. Court said D made offer, not a promise, therefore, no reason

to rely on it.

ii. Modern Rule: An offerees reasonable reliance on a promise binds the offeror toK even if there is no consideration.

b. Promissory Estoppel can be a proxy for considerationi. Drennan v. Star Paving (1958): P won K from school to build based in part on

quote from D. D then stated that it made an error and could not performattempt

to withdraw offer. Court held that offer by subker includes subsidiary provision

to accept if ker wins bid, despite lack of conventional consideration.

ii. 87 (2): An offer which the offeror should reasonably expect to induce action orforbearance of a substantial character on the part of the offeree before acceptance

AND which does induce such action or forbearance is binding as an option K to

the extent necessary to avoid injustice

1. Rule: Option K discussed in 87 (2) requires separate considerationB. Berryman v. Kmoch: Option K formed between P and D to

purchase land in the amount of $10. D never pays and P sells land

to another buyer. Court says that since he did not pay, no

consideration.

2. Pops Cones v. Resorts: P was involved in extended negotiations with Dto open TCBY franchise in Ds casino. When P had to made decision about

their present lease, D informally told them that their deal was as good as

complete. Relying on this assurance, P did not renew its current lease. D

withdrew its offer. Court holds D liable.

c. 90 Promise Reasonably Inducing Action or Forbearancei. A promise

ii. Which the promisor should reasonably expect to induce action OR forbearance onthe part of the promisee or a third person

iii. AND which does induce such action or forbearance is bindingiv. IF justice cries out

d. Cases


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i. Kirksey v. Kirkseyii. Greiner v. Greiner

iii. Wright v. Newmaniv. Katz v. Danny Dare

II. Forms of Liability: Restitutiona. Restitution: used to remedy situation where one party is unjustly enriched at the

expense of another

b. Elements:i. Enrichment: a party receives a good or service of which they value

ii. Unjust enrichment: conferrer intended to charge for the good/service AND didnot receive payment for it from the recipient

1. Usually professional because a professional would typically expectpayment for their service

2. Good Samaritans unable to collect restitutioniii. No request: party receiving services is incapable of accepting or refusing servicesiv. Unofficious: good/services are not forced upon the recipient without their

implied desire/value of the good/service

1. If benefit conferred officiously (rendering services that opposite partywould not want), then restitution cannot be claimed

c. Non-Promissory Restitution: no promise to pay for services rendered; impliedin-lawquasi K

i. General Rule (Restatement of Restitution 2): a person who officiouslyconfers a benefit upon another is not entitled to restitution therefore.

1. Under this rule, recover is denied so that one will not have to pay for abenefit forced upon one against ones will.

ii. Exception: In certain circumstances, however, restitution for services performedwill be required even though the recipient did not request or voluntarily consent

to receive such services (Restatement of Restitution 116)

1. Credit Bureau Enterprises v. Pelo: D has mental breakdown and he isforced to be hospitalized by police. D refuses to pay for hospital bills b/c

he was not enriched. Court says he was unjustly enriched.


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2. Rule: When services are rendered in order to prevent bodily harm thereis a promise implied-in-law to pay for them, and therefore payment is

required.

d. Promissory Restitutioni. 86 Promise for Benefit Received

1. A promise made in recognition of a benefit previously received by thepromissory from the promisee is binding to the extent necessary to

prevent injustice.

2. A promise is not binding under Subsection (1)A. If the promisee conferred the benefit as a gift OR for other reasons

the promisor has not been unjustly enriched; OR

B. To the extent that its value is disproportionate to the benefitii. General Rule: a promise may be upheld based on past consideration IF the

promisor himself received a benefit for which promisee could justly demand

compensation; does NOT apply to third party promises

1. Mills v. Wyman: P, a Good Samaritan, cared for Ds dying son. D promisedto pay P for services, but never did. Court said D was not bound by

promise to pay b/c he was not the party that was enriched.

iii. Material Benefit Rule: If a person receives a material benefit from another, otherthan gratuitously, a subsequent promise to compensate the person for rending

such benefit is enforceable.

1. Webb v. McGowin: P saved Ds life, and P was hurt in the process ofsaving D. D offered to care for P and pay him $15 every two weeks for the

rest of his life. Court held that promise to be enforced

III. Statute of Fraudsa. Purpose: evidence that agreement exists in order to avoid fraud and other legal issues

that could otherwise arise

b. Rule that identifies certain types of Ks, where you must have some kind of writing inorder for K to be enforceable

c. What kind of situations?i. Ks thatCANNOT be fully performed within one year from the time the K is made

ii. K for the transfer of landd. What kind of writing do you need in these kinds of cases?


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i. 131: Unless additional requirements are prescribed by the particular statute, aK within the SoF is enforceable IF is evidenced by any writing, signed by or on

behalf of the party to be charged, which

1. (a) Reasonably identifies the subject matter of the K,2. (b) Is sufficient to indicate that a Kwith respect thereto has been made

between the parties OR offered by the signer to the other party, AND

3. (c) States with reasonable certainty the essential terms of theunperformed promises in the K

e. Evaluating the Applicability of the SoF:i. Is this the type of K to which the SoF applies?

1. Either K that cannot be performed in less than a year or K for the transferof lands, then YES

2. If yes, then has the SoF been fulfilled (are there essential terms andwriting signed by the party against whom the enforcement is sought)?

B. Writing exists and includes:i. Signed by party to be charged

ii. Reasonably identifies subject matter of Kiii. Sufficient to indicate that a K has been madeiv. Contains essential terms

C. If YES, then K sued on is within the statuteD. If NO, then summary judgment for the D

3. Traditional Rule: the signed writing must explicitly reference theunsigned writing. If there is no reference, then the documents CANNOT be

pieced together.

4. New Rule: A sufficient connection between the documents (signed andunsigned) is established IF they refer to the same subject matter or

transaction

B. Allows for oral testimony to confirm the reference and connectionbetween the signed and unsigned documents

C. 132: The memorandum may consist of several writings IF one ofthe writings is signed AND the writings in the circumstances

clearly indicate that they relate to the same transaction.

D. Crabtree v. Elizabeth Arden: Court applies New Rule


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5. If it is the kind of K to which the statute of frauds applies and the statute offrauds is not satisfied, can you use promissory estoppel to circumvent the

SoF?

B. 139: Enforcement by Virtue of Action in Reliancei. (1) A promise (must be established by clear and

convincing evidence) 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 the action or forbearance is enforceable

notwithstanding the SoF IF injustice can be avoided only

by enforcement of the promise.

ii. (2) In determining whether injustice can be avoided onlyby enforcement of the promise, the following

circumstances are significant:

1. (a) Availability and adequacy of other remedies2. (b) Definite and substantial character of the action

or forbearance

3. (c) Extent to which action or forbearancecorroborates evidence of the making an terms of

the promise, OR the making and terms are

otherwise established by clear and convincing

evidence

4. (d) Reasonableness of action or forbearance5. (e) Extent to which the action or forbearance was

foreseeable by promisor

C. Alaska Dem. Party v. Rice: D made oral agreement to work forthe AK Dem Party, so she quits her current job and moves from

MD to AK. When she arrives, P does not give her job. Court holds

that you can use PE to enforce oral agreements that would

normally fall w/in SoF.

IV. Principles of Interpretationa. 201 Whose Meaning Prevails


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i. (1) Where the parties have attached the same meaning to a promise oragreement or a term thereof, it is interpreted in accordance with that meaning.

ii. (2) Where the parties have attached differentmeanings to a promise oragreement or a term thereof, it is interpreted in accordance with the meaning

attached by one of them IF at the time the agreement was made

1. (a) that party did NOT know of any different meaning attached by theother, and the other knew the meaning attached by the first party; OR

2. (b) that party had no reason to know of any different meaning attached bythe other, AND the other had reason to know the meaning attached by the

first party

iii. (3) Except as stated in this Section, neither party is bound by the meaningattached by the other, even though the result may be a failure of mutual assent

b. 202 Rules in Aid of Interpretationi. (1) Words AND other conduct are interpreted in light of all the circumstances, and

IF the principal purpose of the parties is ascertainable it is given great weight

ii. (2) A writing is interpreted as a whole, and all writings that are part of the sametransaction are interpreted together.

iii. (3) Unless a different intention is manifested,1. (a) where language has a generally prevailing meaning, it is interpreted

with that meaning;

2. (b) technical terms and words of art are given their technical meaningwhen used in a transaction within their technical field.

iv. (4) Where an agreement involved repeated occasions for performance by eitherparty with knowledge of the nature of performance and opportunity for objection

to it by the other, any course of performance accepted OR acquiesced in without

objection is given great weight in the interpretation of the agreement

v. (5) Wherever reasonable, the manifestations of intention of the parties to apromise or agreement are interpreted as consistent with each other and with any

relevant course of performance, course of dealing, or usage of trade.

c. 203 Standards of Preference in Interpretationi. In interpretation of a promise or agreement or a term thereof, the following

standards of preference are generally applicable:


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1. (a) An interpretation which gives a reasonable, lawful, and effectivemeaning to all terms is preferred to an interpretation which leaves a part

unreasonable, unlawful or of no effect;

2. (b) express terms are given greater weight than course of performance,course of dealing, and usage of trade, course of performance is given

greater weight than course of dealing or usage of trade, and course of

dealing is given greater weight than usage of trade;

3. (c) specific terms and exact terms are given greater weight than generallanguage

4. (d) separately negotiated or added terms are given greater weight thanstandardized terms or other terms not separately negotiated

d. Traditional Rule: K should be enforced with the meaning of the innocent party (theparty who did not have knowledge of the others interpretation.

e. New Rule: the determination of whether a party to a K had knowledge of the otherpartys interpretation is essential to properly enforce a disputed provision of an

agreement

i. Joyner v. Adams: P and D had different interpretations of what the termdeveloped meant in the context of K. Since D did not know or have reason to

know of Ps interpretation, the court held the K unenforceable

V. The Parol Evidence Rulea. Intended to honor the integrity of certain types of writings and prevent a situation

where there is oral testimony that would confuse a jury

b. Is the type of evidence that potentially triggers the application of the PER?i. Subject to Rule: Prior to the writing, oral and written agreements or

understandings AND contemporaneous oral agreements

ii. NOT Subject to Rule: Subsequently made written or oral agreementsc. Is this the kind of writing to which the PER applies (two tests)?

i. Complete v. Partial Integration1. Complete integration [ 210 (1)]: an integrated agreement adopted by

the parties as a complete an exclusive statement of the terms of the

agreement

B. Evidence of consistent additional terms INADMISSIBLE


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2. Partial integration [ 210 (2)]: an integrated agreement other than acompletely integrated agreement

ii. Methods for Determining Integration1. Four Corners Approach: Just look at the writing itself to determine

integration

B. Thompson v. Libby: Oral warranty. Court applied 4 cornersapproach, so since on its face K was complete, so testimony about

oral warranty inadmissible.

2. Contextual Approach (Corbin Approach): Look at the context of howthe writing came into existence

B. Taylor v. State Farm: D settled with victims for an amount higherthan Ps policy limits. P signed document, releasing D of any bad

faith claims. Court used Corbin Approach to analyze extrinsic

evidence to determine whether the agreement was completely

integrated. Court held that release was partially integrated and

extrinsic evidence was admissible.

d. Cash it inIs the evidence admissible?i. If writing is a complete integration, NO extrinsic evidence admissible

ii. If writing is a partial integration, contradictory evidence CANNOT be admitted,BUT evidence of a consistent additional term may be introduced

e. Qualificationsi. Parol evidence is admissible to explain language in the writing (two tests to

determine this

1. Literal Approach: requires that there be patent ambiguity (ambiguity onthe face of the writing)

2. Latent ambiguity: allows ambiguities that arise from the contextsurrounding the K

f. Exceptionsi. Evidence of an invalidating cause is admissible

ii. Fraud, duress, mistake1. All courts allow evidence of fraud in the execution; only some allow fraud

in the inducement

g. SEE COURSE OF PERFORMANCE


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VI. Supplementing the AgreementImplied Termsa. Implied-in-Fact: when a term is NOT included in a K, external circumstances, situations,

and other terms in the K can discern what the term would be if it was includedWHAT

THE PARTIES ACTUALLY INTENDED, ALTHOUGH ITS UNEXPRESSED

i. Wood v. Lucy, Lady Duff: No term directly establishing agency between P and D,but given the circumstances the parties must have intended that one term of the

agreement would be Wood making reasonable efforts to sell. If this term is not

implied, then K wouldnt make sense.

b. Implied-in-Law: good faith; when a term is NOT included in K and CANNOT bedetermined from K, the understandings of the parties, or surrounding circumstances, the

court will use a legal rule to create a meaning for the termWHAT THE PARIES WOULD

HAVE OR SHOULD HAVE MEANT

i. Locke v. Warner Bros.: Nothing in agreement that explicitly imposes obligationupon Warner Bros. to actually consider her projects. However, Court holds that

discretionary powers affecting rights of others must be exercised with good faith.

VII.Defenses to Contract Enforcementa. Minority

i. Traditional Rule ( 14):When a minor enters into a K, he can disaffirm or avoidK before the age of majority (18) or within a reasonable time thereafter

1. This is true even if there has been full performance AND the minor cannotreturn to the adult what he received in the exchange

2. Justified to protect minors from their poor judgment, and exploitation byoverreaching merchants

ii. Use Rule (EXCEPTION): requires the disaffirming minor to make restitution foreither the benefit received under the K OR the depreciation in value of the

property, at least when the minor is seeking to recover payment made to the adult

1. Shrader v. Dodson: application of the Benefit Rule. Shrader does not haveto give Dodson all of his money back. Can deduct the depreciation of the

truck from Dodsons payment.

b. Mental Incapacityi. General Rule: a person seeking rescission on grounds of mental incapacity may

rescind IF they can return everything they received from the K

ii. Exception:


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1. Hauer v. Union State Bank: Exception to the general rule that wouldsuggest that they MUST give back what they originally sought. Court

allows rescission, but does not require Hauer to give money back because

the Bank did not act in good faith.

iii. Standard for Determining Incapacity1. A person incurs ONLY voidable contractual duties by entering into a

transaction if by reason of mental illness or defect

B. Cognitive Test[ 15, 1(a)]: (a) he is unable to understand in areasonable manner the nature and consequence of the transaction

OR

C. Volitional Test [ 15, 1(b)]: he is unable to act in a reasonablemanner in relation to the transaction AND the other party has

reason to know of his condition.

c. Duress: If party makes improper threat that induced the other partys assent, where thatparty lacked a reasonable alternative, then the K is voidable

i. Improper threat1. See 1762. Selmer Additional Requirement to 176: the threatening party must

have substantially contributed to the constraining circumstances of the

other party

3. General Rule: Economic duress can be a valid reason to rescind KB. Totem v. Alyeska

d. Undue Influencei. 177(1): Unfair persuasion of a party who is under the domination of the person

exercising the persuasion OR who by virtue of the relation between them is

justified in assuming that the person will not act in a matter inconsistent with his

welfare

1. Factors of Overpersuasion:B. Discussion of the transaction at an unusual or inappropriate timeC. Consummation of the tract in an unusual placeD. Insistent demand that the business be finished at onceE. Extreme emphasis detriments of delay


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F. The use of multiple persuades by the dominant side against thesingle servient party

G. Absence of third-party advisers for servient partyH. Statements that there is no time to consult financial advisor or

attorney

2. Dont need all elements, these are just factors the court considersii. Odorizzi v. Bloomfield School District: demonstrates how a combination of a

high level of vulnerability and low level of persuasion can suffice for rescission

based on undue influence

e. Misrepresentationi. 164(1): When assent is induced by fraudulent of material misrepresentations,

then K is voidable

ii. If you find the misrepresentation, is it fraudulent or material?1. 162: A Misrepresentation is fraudulent IF the maker intends his

assertion to induce a party to manifest his assent and the maker

B. Knows OR believes that the assertion is NOT in accord with thefacts, OR

C. Does NOT have the confidence that he states or implies in thetruth of the assertion, OR

D. Knows that he does NOT have the assertioniii. General Rule: ONLYa misrepresentation of fact constitutes fraud. An opinion or

a prediction should be understood as nothing more than an expression of

personal belief, taste, or preference, so even if it is not honest, it should not be

ground for rescission under a claim of fraud. However, in some circumstances a

dishonest opinion or false promise can constitute a fraudulent misrepresentation

( 169)

1. Syester v. Banta: Crazy old woman buys lots of dance lessons and theinstructor tells her she will become a professional dancer.

B. Rule: an untruthful opinion from a professional of theirprofessional subject matter can constitute grounds for rescission

iv. Fraud in the inducement: party induced into assent by misrepresentationv. Fraud in the execution: misrepresentation as to the content to which someone is

assenting ( 166)


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1. Rule: when trying to prove fraud in the execution, PER will not bar theintroduction of new evidence

2. Park 100 Investors v. Kartes: P tricked D into signing personalguarantee, while D thought they were signing a lease agreement. Court

rescinded personal guarantee. Does NOT negate the general duty to read.

f. Non-disclosurei. 162: A persons NON-DISCLOSURE of a fact known to him is EQUIVALENT to an

assertion that the fact does not exist in the following cases:

1. Where he knows that disclosure of the fact is necessary to prevent someprevious assertion from being a misrepresentation or from being

fraudulent or material

2. Where he knows that disclosure of the fact would correct a mistake of theother party as to a basic assumption on which the party is making the K

AND if non-disclosure of the fact amounts to a failure to act in good faith

and in accordance with reasonable standards of fair dealing

3. Where he knows that disclosure of the fact would correct a mistake of theother party as to the contents or effect of a writing, evidencing or

embodying an agreement in whole or in party

4. Where the other person is entitled to know the fact because of a relationof trust and confidence between them.

ii. Duty to disclose: Modern view that a vendor has an affirmative duty to disclosematerial fact where the information affects the value of the property (differs

depending on jurisdiction)

1. Hill v. Jones: Hill was buying house from Jones. Jones knew of termitedamage to the home, but did not inform Hill. Hill seeks to rescind K.

iii. Rule: Non-disclosure can be equivalent to an assertiong. Unconscionability: provide equitable relief when standards of other defenses are not

met

i. Requires both procedural AND substantive unconscionability (can be slidingscale)

1. Procedural: absence of meaningful choiceB. Factors:

i. Boilerplate terms


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ii. Complex languageiii. Take it or leave it agreementiv. Differences in financial standing/education/bargaining

power

v. Deceptive sales practicevi. Hidden terms

vii. Lack of reasonable alternativeviii. Quasi-duress or quasi-undue influence

2. Substantive: relates to the fairness of the terms of the resulting bargainB. Factors:

i. Gut checkii. Compare with other similar kinds of transactionwhether

the terms are so extreme as to appear unconscionable

according to the mores and business practices of the time

and place.

iii. Commercial needs: Is there a legitimate commercialfunction for having a clause such as this one?

3. Williams v. Walker-Thomas Furnitureh. Public Policy

i. How public policy might void K:1. K that directly violates a statute2. K is inconsistent with another law3. K offends our deeply held values

ii. Very rare that K would be voidable based on an appeal to public policyiii. R.R. v. M.H.: Court voided surrogacy K because it was inconsistent with the state

adoption statute, which allows mothers to have 4 days before giving child up for

adoption. The K would have required the mother to give up her child before 4

days.

VIII. Justifications for Non-Performancea. Mistake: situation where one, or both parties misunderstood the basic facts at the time of

contract formation

i. Mutual Mistake1. 152: When Mistake of Both Parties Makes K Voidable


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B. Mistake at the time of KC. As to a basic assumption on which K was madeD. That has a material effect on the agreed exchange of performanceE. Unless he bears the risk of mistake under 154

ii. 154 Allocation of risk determines when party can rescind1. A party bears the risk of mistake when

B. The risk is allocated to him by agreementof the parties, ORC. He is aware, at the time the K is made, thathe has only limited

knowledge with respect to the facts to which the mistake relates

BUT treats his limited knowledge assufficient, OR

D. The risk is allocated to him by the courton the ground that it isreasonable in the circumstances to do so.

iii. Lenawee County BoH v. Messerly: K where both buyer and seller were unawareof problems with the septic tank. As is term in K allocated risk to the buyer,

therefore they cannot rescind. Court rejects Sherwood test, and adopts

Restatement Test

iv. Mutual mistake is actually about assentIf the parties are really mistaken aboutsomething fundamental about what is being bargained for, they did not assent to

what they thought they were assenting to

v. Unilateral Mistake ( 153): When Mistake of One Party Makes K Voidable1. Where a mistake of one party at the time a K was made as to a basic

assumption on which he made the K has a material effect on the agreed

exchange of performances that is adverse to him, the K is voidable by him

IF he does not bear the risk of the mistake under the rule stated in 154,

AND

B. The effect of the mistake is such that enforcement of the K wouldbe unconscionable (outrageous), OR

C. The other party had reason to know of the mistake or his faultcaused the mistake

2. Wil-Freds Inc. v. Metropolitan Sanitary: Construction companysubmitted bid on a K and then attempted to withdraw the bid when it

discovered its calculations were based on a subcontractors error. Court

granted rescission to Wil-Freds because the price differential was so


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great between their bids and other bids that D had reason to know

something was off.

3. Illinois Test:B. Mistake must relate to material feature of KC. Reasonable care must have been exercisedD. Enforcement of K is unconscionableE. And other party can be placed in the status quo

b. Impossibilityi. Objective: no one could perform the K because its physically impossible

ii. Subjective: impossible based on personal circumstancesc. Impracticability: performance of the K is still possible, but circumstances have changed

where it is really difficult to perform

i. 261: Where, after a K is made, a partys performance is made impracticablewithout his fault by the occurrence of an event the non-occurrence of which was a

basic assumption on which the K was made, his duty to render that performance

is discharged, unless the language or the circumstances indicate the contrary

ii. Rules:1. Unforeseen, out of nowhere, singular events (i.e. war, embargo, etc) that

effect the supply and therefore the price of raw materials may warrant

services/product rendered impracticable

2. A partys performance is not excused where the occurrence of aforeseeable event, such a market downturn, renders a K unprofitable

B. Karl Wendt v. International Harvester: Court does not allowInternational Harvester to use impracticability as an excuse when

market downturn renders K with Karl Wendt extremely

unprofitable

d. Frustration of Purpose: the K can actually be performed, however, due to a change incircumstances (not subject to either partys control) there would be no reason to

e. Modificationi. 89: A promise modifying a duty under a K not full performed on either side is

binding

1. If the modification is fair and equitable in view of circumstances notanticipated by the parties when the K was made; OR


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2. To the extent provided by statute; OR3. To the extent that justice requires enforcement in view of material change

of position in reliance on the promise

ii. Rule: Modification of a K requires additional consideration for that modification.Even if there is consideration, is there a defense (i.e. duress, undue influence, etc.)

1. Alaska Packers Association v. Domenico: While out at sea, fishermandemand more money and wont work until company agrees to increase

their salary. Rep for company agrees to increase salary. Court says that

consent to fisherman's demands was without consideration

IX. Conditions of Performance and Consequences of Nonperformancea. Conditions ( 224): An event NOT certain to occur, which must occur, unless its non-

occurrence is excused, before performance under a K becomes due

i. Excuses1. Forfeiture:

B. 229: To the extent that the non-occurrence of a condition wouldcause disproportionate forfeiture, a court may excuse the non-

occurrence of that condition unless its occurrence was a material

(important) part of the agreed exchange

2. Waiver: intentional relinquishment of a known right; cannotbe withrespect to a material part of the K

3. Estoppel: reasonable reliance on some statement or conduct by the otherparty; can be material or immaterial

4. Prevention: party seeking to enforce condition took steps to make itmore difficult for condition to occur

b. 235: When performance of a duty under K is due, any non-performance is a breachc. Express Conditions; K must include specific language that shows that performance is in

reliance on the opposite partys performance and therefore is conditional (requires an if,

then statement)

i. Rule: Court requires literal compliance with express conditions; substantialperformance is NOT enough

ii. Oppenheimer & Co. v. OAD: Court held that Oppenheimers substantialperformance is NOT enough, and therefore they breached the K

d. Constructive Conditions of Exchange


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i. Performance of a party relies on the opposite party to satisfy a condition, do notneed express language to satisfy (can be implied)

ii. Does breach by one party justify non-performance by the other party?iii. (1) NO explicit clause addressing this questioniv. (2) Impose constructive condition of exchangev. (3) What does it take to satisfy constructive condition or exchange?

1. No uncured material failurevi. (4) Was there a material failure?

1. 241: In determining whether a failure to render or to offer performanceis material, the following circumstances are significant:

B. The extent to which the injured party will be deprived of thebenefit which he reasonably expected

C. The extent to which the injured party can be adequatelycompensated for the part of the benefit of which he will be

deprived

D. The extend to which the party failing to perform or to offer toperform will suffer forfeiture

E. The likelihood that the party failing to perform or to offer toperform will cure his failure, taking account of all the

circumstances including any reasonable assurances

F. The extent to which the behavior of the party failing to perform orto offer to perform comports with standards of goo faith and fair

dealing

G. Cardoza Test Addition: Was the transgressor willful?vii. (5) If no material failure, what does it mean?

1. Non-breaching party is NOT discharged of its obligationsviii. (6) However, there is still a breach

ix. (7) What are the damages for that breach?1. General measure of damages is cost to complete2. Sometimes, court will use difference in value between what was promised

and what was actually received

B. Only used in cases where the cost to complete would be grosslyand unfairly out of proportion to the good to be attained


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x. (4) If there is a material failure, is it a partial breach or total breach?1. Partial breach: non-breaching party must wait around2. Total breach: non-breaching party is justified in walking away3. 242

X. Remedies for Breach of Ka. Expectation Damages

i. Expectation interest [ 344(a)]: his interest in having the benefit of his bargainby being put in as good a position as he would have been in had the K been

performed

ii. General Measure= loss in value + other losscost avoidedloss avoided1. Loss in value: the loss received from the K which was not performed2. Other loss: Consequential/incidental loss not directly related to the value

of the K

3. Cost avoided: Cost of materials4. Loss avoided: mitigating damages

iii. Restrictions to Expectation Damages1. Forseeability

B. Rule: An injured party may recover those damagesi. Reasonably considered to arise naturally from a breach of

K, OR

ii. Those damages within the reasonable contemplation of theparties at the time of contracting

C. 351D. Hadley v. Baxendale: Crankshaft breaks and they give it to

carrier to make duplicate. He promises to deliver it on time and it

arrives late. However, D did not know that the mill would shut

down because it was the only crankshaft. P CANNOT recover lost

profits.

2. Duty to mitigateB. ( 350)

i. (1) Except as stated in Subsection (2), damages are NOTrecoverable for loss that the injured party could have

avoided without undue risk, burden, or humiliation


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ii. (2) The injured party is not precluded from recovery bythe rule stated in Subsection (1) to the extent that he had

made reasonable but unsuccessful efforts to avoid loss

C. Rockingham Co. v. Luten Bridge: County informed Luten to stopconstruction on bridge. Luten completed construction anyway.

Court held that Luten should not have proceeded to build the

bridge, and therefore will not allow them to recover K price.

3. Damages Cannot Be SpeculativeB. Rule: Damages must be able to be proved with reasonable

certainty

i. Fact of injury is certain, than court usually willing tospeculate on quantity

C. Florafax v. GTE: There was evidence to establish that GTE shouldhave foreseen that a breach would have caused losses beyond that

which directly flowed from K (i.e. Lost Profit Clause). As a result,

the court was willing to award Florafax loss profits, despite the

difference in estimation between Florafax and GTE. FACT OF

INJURY REASONABLY CERTAIN

b. Non-Recoverable Damagesi. Punitive Damages are generally not available for breach of K

1. Unless the conduct constituting the breach is also a tort for which punitivedamages are recoverable ( 355)

ii. Emotional Distress1. 353: Recovery for emotional disturbance will be excluded unless the

breach also caused bodily harm OR the K OR the breach is such of a kind

that serious emotional disturbance was a particularly likely result

B. Erlich v. Menezes: D constructed dream home for P, but it had alot of errors. P sought damages for emotional distress. Court said

emotional damages not available because negligence alone is

insufficient.

c. Reliance Damages


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i. Reliance Interest [344 (b)]: His interest in being reimbursed for loss caused byreliance on the K by being put in as good a position as he would have been if the K

had not been made

ii. 349 Damages Based on Reliance Interest: As an alternative to the measure ofdamages stated in 347 (expectation damages), 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 K been performed.

1. Monies spend in part performance, preparation, or reliance on a K arerecoverable

iii. Also limited by foreseeability, causation, certainty, and mitigationiv. Rule: Reliance damages are often used as the measure of damages when

expectation damages cannot be measured with reasonable certainty although

losses have been sustained

1. Wartzman v. Hightower: Flagpole record case. Performance ofWartzman was fundamental to the success of Hightowers venture. Court

awards Hightower reliance damages.

v. Promissory Estoppel1. Both expectation and reliance damages available2. Walser v. Toyota:

d. Restitution Damagesi. Restitution interest [ 344 (c)]: His interest in having restored to him any

benefit that he has conferred on the other party

ii. Restitution is available to BOTH1. The non-breaching party ( 373):

B. (1)Subject to the rule stated in Subsection (2), on a breach by non-performance that gives rise to claim for damages for total breach

or on a repudiation, the injured partyis entitled to restitution

forany benefit that he has conferred on the other party by

way of part performance or reliance

C. (2) The injured party has NO right to restitution IF he hasperformed all of his duties under the K and no performance by the


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other party remains due other than payment of a definite sum of

money for that performance

D. Rule: Basis for recovery under restitution damages are off the K;K is an important fact in determining damages, but it does NOT

govern

i. U.S. ex rel Costal Steel v. Algernon Blair: Blair breachedthe K by refusing to pay Costal for crane rental. Coastal

sought restitution damages. Court grants Coastal

restitution damages for services they performed

regardless of the fact that it was a losing K for Coastal

(they would have lost more money if K had been

performed)

2. The breaching party ( 374):B. (1) Subject to the rules stated in Subsection (2), IF party justifiably

refuses to perform on the ground that his remaining duties of

performance have been discharged by the other partys breach,

the party in breach is entitled to restitution for any benefit

that he has conferred by way of part performance or reliance

in excess of the loss that he ahs caused by his own breach

C. (2) To the extent that, under the manifested assent of the parties, apartys performance is to be retained in the case of breach, that

party is NOT entitled to restitution if the value of performance as

liquidated damages is reasonable in the light of anticipated or

actual loss caused by the breach and the difficulties of proof of loss

D. Old Rule: if breaching party was willful and deliberate, they willNOT be able to recover restitution

E. New Rule: Breach is not immoral, it is just a choice. Therefore,breaching party should not be penalized and able to collect

restitution

F. Lancellotti v. Thomas:e. Specific Performance

i. Is the remedy at law (monetary damages) inadequate? (Threshold question)1. 359Effect of Adequacy of Damages


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B. (1) Specific performance or an injuction will NOT be ordered ifdamages would be adequate to protect the expectation interest of

the injured party

C. (2) The adequacy of damage remedy for failure to render one partof the performance dues NOT preclude specific performance or

injunction as to the K as a whole

D. (3) Specific performance or an injunction will NOT be refusedmerely because there is a remedy for breach other than damages,

BUT such remedy may be considered in exercising discretion

under the rule stated in 357

2. 360: In determining whether the remedy in damages would beadequate, the following circumstances are significant:

B. The difficulty of proving damages with reasonable certaintyC. The difficulty of procuring a suitable substitute performance by

means of money awarded as damages, AND

D. The likelihood that an award of damages could not be collectedii. Pragmatic concerns

1. Coercing someone to do something2. Supervision and monitoring

B. 366: A promise will NOT be specifically enforced IF the characterand magnitude of the performance would impose on the court

burdens in enforcement or supervision that are disproportionate

to the advantages to be gained from enforcement and to the harm

to be suffered from its denial.

3. Indefiniteness of dutiesB. 362: Specific performance or an injunction will NOT be granted

UNLESS the terms of the K are sufficiently certain to provide a

basis for an appropriate order

C. Rule: As a matter of law, the mere fact that a K, definite in materiarespects, contains some terms, which are subject to further

negotiation between P and D will NOT bar a decree for specific

performance, if in the courts discretion specific performance

should be granted


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i. City Stores v. Ammermaniii. Equitable concerns

1. Does party seeking relief have clean hands2. Evaluate good faith bargaining3. Harm to third parties

iv. Specific Performance of Personal Service Ks1. Rule [ 367 (1)]: Specific performance will NOT be granted for personal

service Ks

2. 367 (2): A promise to render personal service exclusively for oneemployer will NOT be enforced by an injunction against serving another

IF its probable result will be to compel a performance involving

personal relations the enforced continuance of which is undesirable OR

will be to leave the employee without other reasonable means of

making a living

3. Reier Broadcasting v. Kramer: Court refused to enforce Reiersinjunction against Kramer to provide his services to Clear Channel, despite

the exclusivity clause in the Reier-Kramer K

f. Agreed Remediesi. 356 Liquidating Damages and Penalties

1. (1) Damages for breach by either party may be liquidated in theagreement BUT only at an amount that is reasonable in light of the

anticipated or actual loss caused by the breach AND the difficulties of

proof of loss. A term fixing unreasonably large liquidated damages in

unenforceable on grounds of public policy as a penalty

2. Must consider:B. Whether the liquidating damage clause is intending to provide as

penalty or a legitimate way of allocating loss

C. Is the injury caused by breach difficult to estimate at the time ofcontracting?

i. If not difficult to estimate, points to penaltyD. Are the stipulated damages a reasonable forecast of the actual or

anticipated harm caused by the breach?

3. Westhaven Associates v. C.C. of Madison, Inc.

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