Contract Outline 2014

CONTRACTS OUTLINE –HAAGEN SPRING ’14

Class 1: Jan 9, 2014 - White v. Benkowski

o P buys house with no water supply except from well on D’s property. Problem arises when D cuts off water supply even though K says will provide adequate water.

o Under K -> P has to pay $3 a month for service, ½ of maintenance, ½ of repairs to pump

o Types of damages awarded: Compensatory Punitive -> there are no punitive damages in contracts (one single

exception, wrongful denial of an insurance K)o Theory of obligation:

Expectation: there is an expectation of harm when promise was made expect to have expectations realized

Reliance: relied on promise for basis to purchase house claim Gave money for the first month the money as harm. Restitution

claim. o IN K we are most concerned with expectation in determining damages.

Class 2: 1/13/14o Compensation is limited to what can be proved consistently under-

compensation for breach - Sullivan v. O’Connor

o P agrees to pay $622 for nose job. Scheduled to have two surgeries. Cost to her ($622 + 2 operations). Cost to O’Connor (professional services in two operations).

o K: He promised a perfect nose. In K you are liable for harm you caused but you had some reason to anticipate it. (Not liable for things you cannot prove or things that the other party may not have taken into consideration).

o Party with most information is responsible to convey to other party circumstances taken into consideration

o 3rd surgery does not work to fix other two. o Calculating damages: expectancy

Puts her in position she would have been if not for the breach IN expectancy you are not entitled to your out of pocket expenses (if it

had gone well you would have spent that anyway) o Promise of a perfect nose is not enforceable there are K that are

unenforceable Reliance claim:

Difference between where she is and where she was before promise

Claim: put me back where I was before all of this Can get: measure of what she lost in that time (market value of

time, market value to the degree we can put of her recovery, of her pain, and out of pocket expenses (+ surgeons fee))

Restitution: As a result of breach you got $622, give it back.


o Entitled to what you can prove; however cannot collect on inconsistent theories. You get whatever theory you prove.

- Unless there is some very specific rule, you are entitled to any damages that you can prove

CONSIDERATION - Hardesty v. Smith

o Party autonomy. You get to decide what something is worth. So what if it is a bad deal. You get to decide the value as long as there is some consideration. Market gets to put value on things. You as a party put value on things court is not going to second-guess the value you put on something.

- Dougherty v. Salt o Case where woman wants to give 3K to her nephew said she received love

from him as consideration. o In form there was consideration; however, the mere form of consideration

does not create an agreement. There has to be an actual exchange of goods and valuable consideration.

o Would have been valuable if they said that Charles got money if he did something in the future (like get good grades) or you get this if you come here and give me a hug.

It doesn’t matter how valuable act it. Something in the past is not exchange. Past consideration is NOT consideration.

- Restatement definition of consideration: An act other than a promise, or A forbearance, or The creation, modification or destruction of a legal relation, or A return promise

o Agreement must be given in exchange, must take one of these forms. o Consideration is substantive doctrine to police boundary between gift and

bargain. Tells us if something is enforceable as K, other things are gifts/estates

Three functions: Evidentiary (small function, easy to get consideration (can be

$1)) Cautionary – small function (can make purchase on a whim) Channeling – protects a certain kind of bargaining, protects a

lot of silly bargaining - Maughs v. Porter

o Promise was that if person won automobile then they got it o Consideration: winner must go to field to watch the drawing shows

purported exchange for consideration. Coming to field was purport of exchange, thus valid consideration.

- Hamer v. Sidwayo Uncle makes promise of 5K in exchange for good behavior until 21 good

and valuable consideration on both sides. Legal, valid, enforceable contract.


- Consideration is substantive requirement. If you do something which formally looks like consideration but is substantively nothing, it is impossible/you cannot perform/it is silly, then that could be merely a form of a promise (like Helena) and not an actual promise.

- Consideration is a substantive requirement. Parties get to establish value. - If there is exchange and exchange has value, as long as it purports to a certain

form, as long as it is not an attempt to defraud the court, then you have met the substantive requirement and the parties get to establish value.

1/22/14 - UCC is binding:

o Section 1 – 304: Obligation of good faith o Section 2-306: exclusive dealing arrangement. UCC infers that duty of good

faith requires that parties use best efforts to meet requirement under an exclusive deal arrangement.

- Weiner v. McGraw Hillo Holding: it was good consideration to leave his job and to accept employment

in return for their promise to fire him only for good cause. - Mutuality of obligation in order for there to be an enforceable K there must be

mutuality of obligation o Only means SOME obligation, not the SAME obligation (doesn’t even have to

be equivalent) - Kamboj v. Eli Lilly

o Relinquishing a prior job to take a new job is insufficient consideration however, if forbearance is specifically bargained for detriment then there is an exchange and consideration is present

- Mattei v. Hoppero I agree to pay you for some service if I feel like it illusory promise, has no

content, cannot figure out if it is violated or not.

PROMISSORY ESTOPPEL - Kirskey v. Kirskey

o Kirskey moves to Alabama from TN when her husband dies brother-in-law promises her a cabin

o Debate: Is it a gift? (just came to accept gift court says); Brother attempting to get her to move, induces an action on her part

- Ryers v. Trustees of Presbyterian Congregation of Blossburgo Reliance – a change of positiono People incurred expenses, paid $100 to church, put themselves in worse

position in reliance on what Ryers said. changed position based on what he said

- Seavy v. Drake o Dad promises to deed certain real estate in favor of the child. Child makes

improvements, pays taxes, makes expenditures.


o Court says there was promise to deliver deed and actions taken in reliance upon that promise equity in consideration, have reliance, change in position.

- Modern Contract law deals with reliance and change of position:o Old approach: jam it into the world of consideration (first 3 cases) o Pg. 123 Restatement 2nd of Contracts § 90

1st restatement (pg. 100) -> must be a promise that must induce an action of a definite and substantial reliance

2nd Restatement: must be a promise that is reasonably expected to induce an action (just the sort of thing you would expect)

Critical difference: under 1st if you have made out that you have definite and substantial reliance then effectively you have a K (promise is enforced)

- Instances where you have changed your position for the worse because of reliance on a promise:

o Siegel v. Spear P goes away for a couple of months puts furniture in storage. D asks if

he has insurance, says they will take care of it for P. Furniture gets burnt down to the ground. D never got insurance.

Harm: Promise induced him to be indolent, careless, to not protect his interests

Court treats as if D became insurer. P gets whatever reasonable insurance policy would have paid out less what he would have paid.

o Wheeler v. White D promises that he will get loan and if he cannot get the loan he will

make it himself. Problem promise is too indefinite to constitute an enforceable promise. Too uncertain to be enforced at law (cannot figure out how harmed they were)

Under Restatement 1st § 90 this is binding – reasonable reliance. Court: promise too indefinite (cannot get specific performance), P gets

reliance damages (cannot get expectations because cannot determine how much money would have made), don’t know terms of loan.

- Instances where there is a promise, which the party making the promise knew or should have known caused a change of position AND it causes a change of position, then the other party is entitled to compensation for that change of position.

o Hoffman v. Red Owl Stores RULE: 1) as the promise one which the promisor should reasonably

expect to induce action or forbearance of a definite and substantial character on the part of this promise? 2) Did the promise induce such action or forbearance? 3) Can injustice be avoided only by enforcement of the promise?

Court does two things: Takes injustice element of 1st restatement and reads into the

remedy of the 2nd restatement


Recovery grounded under theory of equityo Elvin Associates v. Franklin

P tries to get D to be lead in Broadway play, incurs a lot of expenses. Theory of justified reliance, court awards damages.

D knew that P was likely to change position and that P had to change position based on that promise.

Calculation: nature and quality of relationship/promise, necessity of acting, awareness of necessity of acting

o Local 1330 US Steel Workers v. US Steel Corp. Claim: D could not abandon town, promised they wouldn’t abandon

the workers Court: not reasonable for average worker to think that people who

made promise were in a position to do so problems with promise, promisor, determining if there has actually been an induced action as a result of the promise, if there was a reasonable response to promise

- Reliance is a contract related kind of claim. It is a separate kind of claim that exists independent of a bargain claim.

UNJUST ENRICHMENT - K implied in fact: enforceable, missing certain verbal exchanges, but watching the

way in which parties have operated we can determine that there is a Ko May be implied out of past actions, nonverbal communication

- K implied in law – same as quasi-contract. Law will impose an obligation even though the parties themselves did not in fact ever reach an agreement. Why? It would be unjust and improper for someone to retain a benefit and not pay for it.

- Bloomgarden v. Coyer o No unjust enrichment claim if you are rendering a service for which you

typically get paid, then it is reasonable for parties to expect to payo Problem: P had history where he didn’t expect to get paid

- Sparks v. Gustafson o P and D own building. D does most of work. P dies. Executor doesn’t give D

anything even though he put in a lot of effort, time, work. o Q’s: What is relationship between parties? Was it type of thing that they

would do for one another without expecting compensation?o Legal test: was a benefit conferred with an expectation of compensation in a

situation in which it would be unjust to allow that person to retain it?- Gay v. Mooney

o P provides shelter and food for another relative. Intent was for P to get paid for providing shelter

o Figure out market value – fair market value of services and goods rendered - Kearns v. Andree

o P rendered services at D’s request. D was gonna buy the land but then decided not to.

o P is entitled to fair market value of work done. Doesn’t matter D changed mind.


- Kelley v. Hance and Britton v. Turner o Breaching party bringing claims breaching party cannot bring claim in K

because they repudiated K. - Clear legal test for a bargain for consideration – need an exchange of good and

valid consideration. - Clear legal test for showing a Section 90 reliance promissory estoppel – when

a person knows or should know that their promise would induce someone to do something

MORAL OBLIGATION BENEFITS RECEIVED - Mills v. Wyman

o D gets sick. P takes care of him. D’s father said he would pay, does not. o Court says no consideration for promise. Fact that you violated moral norms

does not create a contractual duty. - Webb v. McGowin

o P goes to drop pine block, D is below so he holds on, falls, gets hurt. D promises to pay $15 every two weeks for rest of P’s life. P’s kids stop paying. Court says they have to.

o Repetition of payment or promise overcomes something that the court’s get very worried about in this context that someone might rationally agree to do something decent and wouldn’t think through what they’d done

- Harrington v. Taylor o D was assaulting wife, she runs to neighbor. Fight ensues, wife takes axe, P

steps in and gets injured. D says she will pay P for injuries. D only pays small amount for damages to hand.

o Court: D realized had gotten himself in trouble and made a grandiose problem, court does not enforce.

- Restatement 2nd § 82(1) o Promise to pay all or part of an antecedent contractual or quasicontractual

indebtedness owed by the promise is binding if the indebtedness is still enforceable or would be except for the effect of the SOL

o T1 – legal obligation, T2- no obligation, SOL, T3 – reinstated by promise (why reinstate? Improve credit)

- Edison v. Poppeo D’s tenant builds well (cost $250, increased value of property), D agreed to

pay P for work. D does not pay. o Court: Benefit conferred to D. D agreed to pay. Easily measured benefit to

landowner. Increased value substantitally – disroportion between promise and value received.

o Court says D has a duty: Restatement 2nd § 86 A promise made in recognition of a benefit previously received by the

promisor from the promisee is binding to the extent necessary to prevent injustice

- Law in these cases: trying to provide a way to enforce promises that have clear social utility even though they are made after the fact. If there is a promise you get


paid the value that was promised. § 86 addresses concerns & issues when parties cannot bargain with one another in real time.

TORT - Nature and source of obligation:

o Doctor must operate at level required in the community once you have triggered that with a K

o If you buy a product, as soon as that product is purchased and sold, all owed to A comes with it if you are injured you are entitled to tort damages that result from purchase and sale.

Without K tort duty isn’t triggered o Damages in K (expectancy, reliance, restitution) -> entitled to a position that

you would have been in if the promise had not been made, or to get that part of the benefit which the other party retains unjustly.

- Mauldin v. Sheffer o P an architect hires D as a mechanical engineer. D makes blueprints that are

physically impossible, thus P incurs a ton of expenses. o Cannot sue in K because downstream losses are too attenuated, can sue in

tort (as an engineer there is a professional duty of reasonable care that D violated).

- Hargrave v. Old Nursery o P contracted D to provide vines for their winemaking business. D

represented that vines were free of disease. Turns out they were diseased and unable to bear fruit.

o Difference between promissory fraud permitting you to sue in tort and a regular contract fraud:

Depends on timing If I enter into a contract with you with the full intention of not

fulfilling the contract for the purpose of harming you, then I have committed a promissory fraud

If D knew that vines were diseased when entered into contract then tort.

If they intended to fulfill contract as is and then it turned out they were diseased, then sue in K.

- Foley v. Interactive Data Corp. o Implied covenant of good faith and fair dealing – comes from UCC o UCC only applies to sale of goods people try to apply the covenant to every

contract, has to be in the K and your rights are limited by your K- Vanlente v. University of Wyoming Research Corp.

o Court: in an employment relationship, people ought to protect themselves 0 you don’t expect your employer to be looking out for you

o Tort claim when K triggers independently created duties (someone regulated by state) -> generally the duty of a seller of products (you sell a defective product you trigger duty); however, do not transform every breach into a tort merely because you can articulate it as such. Has to be a SPECIAL


relationship, particular reason to believe mental solicitude is at core of the relationship.

CONTRACT OBLIGATION ON FORM - Purposes

o Evidence of contract use to promote claim or preclude from using it at trial

o Facilitates transaction – makes it easy if there is one form everyone useso Form is cautionary

- § 87 of Restatement 2nd: Option Contracto has to be in writing, signed, provides for future exchange on reasonable

terms, and recites a purported considerationo Don’t need consideration, merely a purported consideration

- Vast majority of American jurisdictions no situations besides option contracts or possibly firm offers in which mere form will be enough

- Obligation Arising from a Statutory Warranty o Warranty exists in UCC…but even outside the commercial code it exists

generally as a rule of interpretation in contracts law If you say something is such and such, AND it is not such and such,

THEN you have violated the warranty exists separate from K in the sense that it doesn’t have to be expressed in K, but it is attached to the K

Opinion doesn’t create warranty except when opinion is statement of fact and reflects your own judgment as an expert

o Have warranty because: 1) seller is lowest cost provider of information, 2) facilitates communication

o Puts burden on lowest cost provider to say “we didn’t really mean that” -> circumvent warranty with disclaimer

Why? Entitled to rely on words of another person unless or until you know they are wrong

o Implied warranty: UCC § 2-213 §2-214: Warranty of merchantability if it purports to be a

motorcycle it is to be a motorcycle that is acceptable to the marketplace as fair, average quality

Avoid by disclaimer: buyer beware § 2-315: because warranty is there, if you tell salesperson you are

climbing K2 and he brings out the boots, then is implied warranty unless you know he is wrong implied for intended use and purpose

o Puts burden on person speaking to speak clearly and stand by what they say unless they disclaim it.

o Kelly v. Buchanan P buys boat for 75K, all advertisements say it is seaworthy. It is not

seaworthy. (LOOK BACK TO HOLDING HERE)


STATUTE OF FRAUDS - 3 or 4 part analysis:

o Is the transaction within the statute? Oral agreement stands absolutely equal with a written contract unless

the statute of fraud applies (unless transaction is within the statute) o Is there a writing sufficient to meet the terms of the statute and has that

writing been signed by the person against whom the action is being brought o Is there a doctrine that takes the transaction out of the statute? o Is there some other reason to enforce the agreement despite the agreement

that falls within the statute, that there is no writing, and there is no other satisfaction of it Equitable determination that the agreement ought to be enforced in spite of the failure to meet the statute.

- When courts construe whether or not it falls within the statute the court construes with hostility. Generally interpreted narrowly

- Howard Schoor Associates v. Holmdel Heights Construction o A special promise to pay for the debt of another must be in writing. o Where the consideration for a promise that all or part of a previously existing

duty of a third person to the promisee shall be satisfied is desired by the promisor mainly for his own advantage, rather than in order to benefit the 3rd

person, the promise is not within the Statute of Frauds. o Writing needs to have ‘essential terms’ --> meaning the basis for the

agreement, show purpose of agreement Essential: parties, price, quantity

o If in form it is answering debts of another, but substantively it is for you; outside statute gets knocked out on main purpose rule --? Company owes him money, has big financial stake in company, pays debt to get money formatively answers debts but substantively for personal aid.

- Sterling v. Taylor o Interest in land – core type of statute of frauds conduct o Identified party, property, price (maybe) – enough? o Court determining if there is enough evidence of an agreement in writing at

least if it is supplemented by reference to external types of documents - McIntosh v. Murphy - Oral agreement and statute of frauds

o Guy got hired to work in HI, moves to HI thinking he has a 1 year contract and gets fired after 2.5 months.

o Enforceable under promissory estoppel, not under statute of frauds o Court thinks it is within the statute, but finds grounds to enforce agreement

under part 4 of analysis: equitable determination o Can assert oral promise and reliance on oral promise to defeat attempt to use

statute as a defense to a bargain. - Dumas v. Infinity Broadcasting Corp.

o Once statute of frauds is not satisfied, it is unnecessary to consider promissory estoppel as the decision would be the same.


o “reasonable reliance” – if you want 5 year agreement it better be in writing. - Statute in General

o Important in land dealings o Operates at beginning of suit to cause dismissal for failure to state a claim for

which relief can be granted o Channels parties to produce at least enough of a writing to satisfy this initial

inquiry BUT all you need to do is establish enough of a writing or writings or records

REMEDIES - Peevyhouse v. Garland Coal & Mining Co.

o D breaches, P entitled to damages o Entitled to expectancy: difference between what they were promise and

what they got o 29K was cost of completion, $300 was diminution in value of their property) o P gets $300. Policy: don’t want to give them the use of contract to get a

breach that gives them a value far exceeding what it should have been Want party to pay exactly the harm they caused, but we do not want

them to pay more (assume parties make a market agreement and are acting in a rational, market transactional way)

- Rock Island Improvement Company v. Helmerich & Payne o Cost of performance is the rule according to Rock Island.

- Groves v. John Wundero Debate over whether diminution of value or performance is the right

measure. o Q of market misvaluing property.

- Radford v. De Froberville o Court looks at particular circumstances

Uses common sense to measure in the case of individual P what was lost in breach.

o Not like Peevyhouse: In that case they think that royalties for coal mining were the common point, thus focus on that point. Here they focus on reclamation, realize that him wanting the wall built was the common point.

- Morello v. JH Hogan - Freund v. Washington Square Press

o Poetry book, WSP said they were going to publish, did not. o Court rules that royalties were speculative. Yes D breached K but P can only

recover damages only. Determination is not what D saved but what consequences were to P. P only gets nominal damages.

- Warner v. McLay o D breaches, Q as to how much P is entitled to recover o P claims if it weren’t for breach, he would have profited 10% o Rule: Breaching party is not an insurer of the profits of opposite party.


o Need to create a basis for belief that if the promise had not been breached, you would have been better off than you are now. If you cannot lay that foundation, you cannot collect

- Handicapped Children’s Education Bd. Of Sheboygan County v. Lukaszewskio Hire lady, she leaves and takes another job, P then has to pay someone 1K

extra to fill the position. P gets difference in cost. - Cooper v. Clute

o Really complex cotton case with 10 7/8 and whatnot. o Breaching party does not become the insurer of the innocent party. If the

innocent party speculates that price will go up and it does not, then that is their own problem.

o What about under UCC §2-712 comes out the same because of reasonability standard

- Neri v. Retail Marine Corp. o You have to perform if you agreed to it. (There are few exceptions which we

will discuss later, health is not one of them). o Subsection 2 explains how this came out the way it did. o P buys boat for about 12K, deposits 4K. Then gets sick and can’t make the

rest of payments. P gets damages in amount of 4K – 2K for lost profit – 674 in incidental damages.

o § 2-7908 – when dealer has an unlimited supply of standard-priced goods, the resale to replace the breaching buyer costs the dealer a sale, because if buyer hadn’t breached the seller would have made two sales.

- What are limits on recovery?o You are entitled to position you would have been had the contract been kept,

subject to a series of limitations o Series of doctrines limiting recovery:

Forseeability Mitigation Certainty Non-economic harms (punitive response)

o Hadley v. Baxendale – Forseeability NEED TO KNOW Forseeability – arising naturally = what happens most of the time

Both parties have to know most of the time Within contemplation of both parties as a natural that is

common expected occurrence Shifts burden to party that is lowest cost provider -> party that knows

of special circumstances that could arise P cannot recover because D was just a transporter, was unaware

about special industry in mills. o Armstrong v. Bangor Mill Supply Corp.

Here, D worked for mill company, had more imputed knowledge. P can recover.


Justification for forseeability rule: permits accurate pricing in a relatively cost-effective way of the transaction. Permits the party who eventually breaches to know when it makes sense to breach or whether to enter into the transaction at all.

- MITIGATION o Can breaching party sue you for failing to mitigate? Yes, it is a rule of

causation. A harm occurred, but you were in a position to limit that harm and

you did not do it, so the harm that you can collect for in K is the difference between the harm that was caused and that you could not have prevented it.

o Clark v. Marsiglia P asks D to improve two paintings. Tells D to stop working on 2nd

painting, but D continues his work. D must stop once P breached by telling him to stop. D is awarded what he got for the work before the breach Entitled to

K price – amount saved by non-performance (gets $150 – what it would have cost him to work on 2nd painting)

When you are told to stop you must stop and attempt to save the cost of completion unless in a commercially reasonable situation a party situated like you would complete the work and sell the completed work because were you to do that then everyone would be better off.

o Schiavi Mobile Homes v. Gironda D goes to buy mobile home, pays deposit, never buys the mobile

home. D’s dad says he will buy it but never does. P then sells movile home for $1028 less than original price.

P did not mitigate. When K is breached, nonbreaching party has an affirmative duty to take reasonable steps to mitigate his damages

Have to go to reasonable expense and effort. o Parker v. 20th Century-Fox Film Corp.

P gets guaranteed K to be in film. Film is never made. Is offered another film role, does not take it.

Court: Did not have to accept new K to mitigate damages -> D had to show new employment was substantially similar, comparable to what had been deprived. Employment was different and inferior.

CERTAINTY – Why can’t a new business collect if you breach?- Evergreen Amusement Corp. v. Milstead

o P cannot collect on D’s breach even though they missed entire drive-in season

o Court cannot speculate as to profits. Don’t know how well they are doing, what they would have made.

- NEW BUSINESS RULE: You have to be able to show with reasonable certainty what damages you deserve. Have to demonstrate this is why it was reasonably certain that this would make money.

- Lakota Girl Scout Council, Inc. v. Havey Fund-Raising Management


o If you can establish a reasonable basis for recovery you get your expectation of damages. Reasonable basis is a highly mutable concept.

Expectation bargain -> expectancy (also would sue for reliance maybe -> if you can prove past/present harm you can get reliance damages even if you cannot prove future damages)

Promissory estoppel -> relianceUnjust enrichment -> restitution

- Nurse v. Barns o D promises to let P use iron mills for 6 months for 10 pounds. Court gave

damages in the amount of 500 pounds by reason of loss of stocks laid in. o Bargain claimo Here, the lessor is creating waste. Lessor knows that in order to run an iron

mill you have to get in a stock and the lessor knows that that stock may be wasted.

o Waste can be way out of line of the expected benefit of the breaching party. - Chicago Coliseum Club v. Dempsey

o P contracts with D to box. There is a contract that D breaches. o P can recover any money that gave D unjust enrichment claim o Cannot sue for specific performance. o Cannot sue in expectation. o Can recover some expenses they incurred between the K and the breach=>

time after contract and before breach occurred. o K does not allow you to recover for expenses involved in enforcement.

- Anglia Television Ltd. V. Reedo P is allowed to get expenses incurred before the signing of the contract,

because D must have known that such expenditures were being made. P was making movie, hired director, etc. D backs out and movie doesn’t get made.

- Albert v. Armstrong o In reliance on this contract we change our foundation and we don’t get these

refiners foundation is useless within this time period without the refiners. Cannot recover the value of the foundation later.

o Yes he gets back that expense he is in a worse position than he would have been had the promise I’ve never been made. In mitigation I have to remove the foundation.

- Coppola v. Kraushaaro Wedding is broken off because gown wasn’t delivered on time. P gets $10 he

spent on dress, doesn’t get damages for the loss of wedding or whatever because it was “too remote”

- Autotrol Corp. v. Continental Water Systems Corp. o P and D are in joint venture. Cannot agree on product specifications by

deadline. D breaks contract and thus breaches. P gets their out of pocket expenses.


o Fixed costs v. Variable costs (variable looks like they can recover those) variable and out of pocket are essentially the same thing; directly attributable to this specific transaction

o Fixed costs are not recoverable generally, but Posner says that is not right here.

Because salary was not paid because this contract was breached, they were entitled to recover the amount they paid in salaries that were allocated to this project

Salaries are not entirely fixed – if they hadn’t breached, they would have made a different contract and would have put the work into that contract (these salaries are thus sticky, not fixed)

Given that, you can get these overhead expenses. LIMITED DAMAGES

- You cannot have a penalty in K. That is unenforceable. However, can have fixed damages.

- Limitation of damage clause about hyper-enforcement o Need reasonable apriori to figure out what our damages might be o Damages must be difficult to prove at time of breach o We have these clauses because they encourage breach when it would be

socially beneficial, calculates ahead of time exactly what harm would be, makes clear what is at stake

- HJ McGrath Co v. Wisner o D contracts with P to sell all of their tomatoes, D breaches by selling

tomatoes on open market. o Had liquidated damages provision set at $300. Court says if you know at the

time of breach what the harm would be, then you cannot enforce the liquidated damages.

o If you know at time of contracting that it will be easy to determine the harm at time of breach, then you cannot have a liquidated damage clause.

o Here, the $300 is a penalty. - UCC § 2-718(1): Damages for breach by either party may be liquidated in the

agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach

o Anticipated OR actual o Discretionary whether or not it was reasonable at time of K

- Truck Rent-A-Center v. Puritan Farms 2nd o Court awards 50% of the rental paymentso Trucks aren’t fungible o 50% changes depending on when the contract was breached, not set like in

McGrath o Because Puritan breached they lost the ability to pay 47K for the trucks

instead of 88K in damages. - Vanderbilt University v. Dinardo

o P hires D to be football coach, promises them 5 and only stays 4.


o P is entitled to liquidated damages. Said there would be damages if he went to another school or resigned early.

o Court upholds the clause -> indicates that court is relatively lenient with these clauses; part of a broader movement to accept them as long as they are reasonable.

MONETARY REMEDIES WHEN THE THEORY OF OBLIGATION IS PROMISSORY ESTOPPEL- Reliance measures of damage

o Exist to ensure that if somebody promises something knowing that you will change your position and that you are changing your position to a detriment, that is socially bad behavior. Want people to be socially responsible.

o Can protect yourself with a disclaimer if you are the promisor - Goodman v. Dicker

o P is promised a number of radios and a franchise from D. Got neither. P had hired salesmen and solicited orders for radios.

o True measure of damages is the loss sustained by expenditures made in reliance upon the assurance of a dealer franchise people in the industry reasonable make such preparations.

Theory of fair dealing o We create this obligation out of the duties that people have to one another in

common everyday intercourse and speech not to cause harm (D could have disclaimed)

- D & G Stout v. Bacardi o Rule: in IN you get your opportunity costs but not your forward looking

expectations in reliance o P had to sell company for half a million less than intended because D bailed

on promise. Lost all negotiating leverage. o Devaluation is the reliance injury. Bacardi had to have known what their

promise was going to do for General. - Walters v. Marathon Oil Co.

o Holds exact opposite of Bacardi. o P gets expectation interest in a reliance claim. Why? No uncertainty, all gas

that was there was sold (22K) o In Bacardi, the court says that if you gave up a job in

order to take another and thereby lost wages that you would have had = that we can award. But, you do not get the wages you hope to get under the agreement that was signed – that would be an expectation interest.

Marathon and Bacardi are not in conflict. They are basically applying the same measure. Seeking to put you back in the position you would have been had the promise not been made. Includes out of pocket costs and opportunities you lost as a result of the reliance on the promise. Walters measure it by looking at what the expectation would have been because it is the best measure for what opportunities would have been available to you


o In reliance we are looking at what are your out of pocket expenses, what are your lost opportunity costs, and what part of those losses are attributed to the promisor, to what degree does justice require the enforcement

In order to value the opportunity costs we may have to look at expectation

We are trying to put a value on your change of position

RESTITUTIONARY RELIEF AND THEORIES OF OBLIGATION - “We did work for you, expecting to be paid for that work. We should be paid for the

work that we have done.” - Quantum meruit becomes a construct: not actually the value of the thing you

conferred, it is a construct of what that value would be if there were any value - Susi v. Zara

o Zara is wrong. Susi was not in breach and therefore Susi is entitled to: Quantum meruit measure of their performance (benefit they have

given other party) Susi can get what they were promised under the agreement (X). Since

they have been paid .5(x) they are entitled to .5(x) – the costs saved by nonperformance

Why wouldn’t they do that? It would’ve cost them more than .5x to finish the job recovery in expectation could be negative

- City of Philadelphia v. Tripple o Contractor entered into K for $35,000. Can they demand more than that for

the partial work they have done? Yes. You are entitled in restitution for the amount that the opposite party

unjustly retained. - Johnson v. Bovee

o Minority position Puts a cap on the quantum meruit amount you can get and that is the maximum contract amount. If you have completed everything you were required to do under your agreement then you may be limited simply under your expectation measure

- Osteen v. Johnsono No expectation damages, highly speculative o Damages in restitution? She paid 2500, she gets 2500 -> work company has

already done

SPECIFIC PERFORMANCE – where you have no remedy at law to be rewarded damages. - Kitchen v. Herring

o Breach of contract for sale of land; land is unit of production value is a multiple of board feet per acre (stumpage, timber land)

o Why do they get the land? Common Law says so. proper remedy for breach of a real estate contract is specific performance

- Curtice Brothers Co. v. Catts


o When do we get specific performance for the sale of goods? In unique or other appropriate circumstances. IN this case, tomatoes are not unique, but it is another appropriate circumstance. The harm would be such that you can’t get performance of the damages. The harm would be such that it is extraordinarily difficult and uncertain to calculate.

- Curran v. Barefoot o D sells lakehouse along with furniture, boat, etc. o Do you get personalty? There is specific performance here.

- Stephan’s Machine & Tool v. D&H Machinery Consultants o ??????? Dude needs machine?

- Laclede Gas Co. v. Amoco Oil Co. o Long-term contract, there was no evidence P would be able to get another

contract o Money damages wouldn’t be enough. Appropriate circumstance for specific

performance. - Limitations on availability of specific performance:

o Will not get specific performance if you have unclean hands (unfairness, something that resembles fraud)

o Lack of mutuality of performance o Indefiniteness of the agreement o Impracticability of performance or “difficulty in enforcement or supervision”o Personal services

- Specific performance is awarded more liberally than it used to and much less liberally than the drafters of the UCC thought it would be

ASSENT- Both parties must intend to bind themselves legally to the same terms must be in

sufficiently complete terms - Objective theory of assent: did a party communicate to an objective observer that it

intended itself to be bound - Embry v. Hargardine. McKittrick Dry Goods

o Assent can be manifest in words and there is no particular formal requirement.

o Conversation between Embry and McKittrick about employment. Enforceable because conversation was “unambiguous” - Court read his comments as responsive to P’s ultimatum. There was an exchange of info constituting a mutual intent to be bound.

- Lucy v. Zehmer o P wanted D’s farm. They were out drinking and they sign agreement that D

would sell P his farm for 50K. D thinks it was a joke. o Because it looked like a K objectively and the person seeking to assert the K

believes he has bound himself and thinks that the other party intended it as well, the fact that D thought it was a joke doesn’t matter.

- Morrow v. Morrow o Court says no agreement: this would be a gift, would be gratuitous, would not

be an exchange.


- Tilbert v. Eagle Lock Co.

o Even get intent in the face of “we don’t intend to be bound.” - Raffles v. Wichelhaus

o Two ships named “Peerless” and they are both in trade between London and India

o No objectively reasonable way to determine which of the ships they meant - Assent is determined objectively, but objectively doesn’t permit us to determine

between two terms which are both objectively reasonable. o Can determine based on language, body position, body language, history,

social convention.

OFFER- An offer is an expression by one party of assent to certain definite terms, provided

that the other party involved in the bargaining transaction will likewise express assent to the same terms

- Lefkowitz v. Great Minneapolis Surplus Store o P responds to ad which offers 3 coats (first come first serve) for $1. Similar

ad next week. o Court: Cannot enforce ad for coats, worth is too speculative o Black stole is different though because it wasgiven a precise monetary

amount. It was worth $139.50, he was promised $1 so he gets $138.50 in damages.

o Cannot change rules of offer after acceptance - Ford Motor Credit Co v. Russell

o Why not enforceable? We can import into the offer other kinds of information. Here, the

buyers knew that they might not be able to qualify for this particular rate. In this situation they not only knew it but the did not get that rate.

o How to avoid problem? Limited quantities on ads. - Courteen Seed Co. v. Abraham

o Problem: telegram does not say “we offer” or “this is an offer” o Rule: if you use terms inconsistent with an offer, then you don’t have an offer o We want to look at language (is the language of offer), we look at context (is

this a situation in which both parties would have understood this to be an offer)

- UCC § 2-204 and 2-311:o Every single term does not need to be there, if there is a way to determine

the missing term is there we can still have an offer Industry standards, good faith and fair dealing If applying good faith we can supply the missing term then we can still

have an offer Only one term must be there -> Quantity

- Southworth v. Oliver


o Did D intend to make offer? No. o Why was there an offer?

Doesn’t matter what subjective understanding is. Subjective understanding of offeror does not matter. Offerees undersoot that the 1st party to except will get the property (even though 3 of these letters were sent out)

As long as letter has terms that are sufficiently definite and subjectively offers assent to terms, and the other party assents to the terms there is an agreement

ACCEPTANCE - Ardente v. Horan

o D makes offer, what is problem? P makes counter offer by placing terms on acceptance.

o If you have an offer and then you counter-offer, the effect of the counter ofer is to destroy the offer and transform the counter-offer into a new offer.

o Any time you add any language you are running the risk that you are making a counter-offer.

- Eliason v. Henshaw o Offeror is master of the offer. An offer to sell flour that contained a condition

of acceptance that it be returned by wagon. Wagon never returned so offer wasn’t accepted under offeror’s terms.

- UCC § 2-206(1)(a) o “unless otherwise unambiguously indicated”o If you successfully unambiguously indicate then because you are the master

of the offer you will successfully prevent acceptance. o Acceptance can be based on whatever conditions you want.

- Allied Steel and Conveyors, Inc. v. Ford Motor Co. o D says must be signed and returned with an acknowledgment copy before it

is accepted; D wants paper trail. o P never signs anything just signed and went and did the work.

Can accept by action. Cannot have acceptance by silence; however.

Can’t give offeree an affirmative duty to respond unless you had an arrangement from prior conduct that you had to give notice if you didn’t want delivery

prior dealing could make silence an appropriate form of acceptance

- White v. Corlies o Party that wants work done is the offeror -> the merchant o Merchant makes an offer that they will pay D X amount if they do this work

and the contractor the contractor remains silent, does not say anything o Offer was- you can do certain work, you can start upon agreement o The contractor says nothing but they start buying materials o Offeror then revokes the offer because they hadn’t heard anything Can

they revoke the offer?


At the time the offer was revoked, the offeror had no idea that it had been accepted SO here they are in a legal relationship and they did not even know.

Policy implications – if this happens over and over again you find yourself in a bunch of legally binding relationships

How could merchant get around this? Put it in writing. Say acceptance must be in writing, give a place, date and time when it is due by.

Merchant didn’t protect himself because they did not unambiguously indicate the form of acceptance, and SO the contractor is allowed to accept in any way reasonable under the circumstances.

o Notice of the acceptance must come to the attention of the other party in the normal course of business

If in the normal course of business they could just hold the stuff there for an extended period of time, then that is not acceptance.

DURATION OF OFFERS - Restatement 2nd § 36 0> Methods of termination of the power of acceptance

o An offeree’s power of acceptance may be terminated by Rejection or counter-offer by the offeree Lapse of time Revocation by the offeror Death or incapacity of the offeror or offeree

o In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer

- Bilateral contract: promise for a promise, acceptance in the form of a promise - Unilateral contract: a promise for a completed action

o When would you do this? Services Services if we have a promise for a promise, I promise

to pay you and you promise to mow my lawn; you mow ¾ of my lawn -> I can sue you for the difference between the thing you promised (mowing all my lawn) and the thing I got (3/4 of my lawn mowed) if I structure this as “I promise to pay you when you complete the job,” I have a great deal more leverage; there isn’t any time for you to pay

- Akers v. JB Deberry -> how do we see services revoked? o Ps offer D their resignation; worried that she wasn’t going to trust the, o D rejects resignation but tries to accept it at a later dateo She cannot accept the resignation later because the rejection nullified the

offer o Rule: In a face to face interaction when you are no longer face to face (when

convo ends), the offer expires by lapse of time - Vaskie v. West American Insurance Co.

o D says they would pay P 25K if he released them from all claims. Offer was made in December and he accepts in January after SOL runs out.


o Court says: mere lapse of time is not necessarily enough, but reasonable trier of fact will determine if it was a reasonable amount of time.

- Caldwell v. Clineo Offeror said offer was good for 8 days. o Offer was sent back within 8 days of receipt, but not within 8 days of the

letter being sent o Rule: Offer not officially made until offeree receives it (Offeror is lowest cost

provider, could avoid this problem) - Restatement 2nd §39(2)

o An offeree’s power of acceptance is terminated by his making of a counter-offer unless the offeror has manifeste a contrary intention or unless the counter-offer manifests a contrary inention of the offeree.

- Dickinson v. Dodds o Knew or should have known or reasonably should have known. If there is

reasonably appropriate form of communication it ends the power of acceptance. Can’t accept if you know another party has already accepted.

- What constitutes a lapse of time varies according to the circumstances. - Marsh v. Lott

o Underlying transaction is the sale and purchase of real estate worth $100,000; The seller sells him an option contract, which gives him $.25

Then the seller attempts to revokeo Marsh and Lott is about two different agreements: one of them has not been

consummated (purchase and sale), one of them has (option contract) o An option contract is an option not to revoke (second contract)o Is .25 a valid consideration? Yes, but once you have done it you cannot

revoke You are allowed to enter into consideration in exchange that seems

appropriate to youo As long as it is a reasonable amount of time, and a reasonable exchange

within the transaction, and recites a purported consideration (this tells us that the option contract is separate from the agreement of sale)

- Restatement 2nd §87(1) o An offer is binding as an option contract if it:

Is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time.

Is made irrevocable by statute - A firm offer is a specific kind of an option, but it is an option that doesn’t even

require a purported consideration o When would someone want to make a firm offer?

When you want to create an incentive for someone to come back and buy something

Make a situation where someone calls around to try to get other offers but doesn’t take it because they are sure that the initial offer is still there.


Only merchants can make firm offers (can’t last more than 3 months, don’t need consideration)

Anyone can write options - UCC §2-205

o An offer by a merchant to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form is supplied by the offeree must be separately signed by the offeror

- Davis v. Jacoby o Revocation was by death by suicide offeror dies (works as a method of

revocation)o Why doesn’t it work here? Offer was already accepted. Since the promise

was reasonable under the circumstances he had lost the power to revoke via suicide.

o Anyone reasonable to the circumstances could accept. - Brackenbury v. Hodgkin

o Mother promises to devise her property to her son an daughter-in-law under promise they take care of her

o She didn’t die so she revokes this offer. o Court says mom created an option contract -> as soon as you take any action

inconsistent with the intent fully to perform and not accept, then you can revoke

Court equitably estops the offeror from revoking as long as the other party is taking all the actions necessary to complete performance.

Option ends if the son deviated, starte doing other things, performed in a way inconsistent with the intent to accept

- Petterson v. Pattberg o Agreement: underlying mortgage and agreement to forgive mortgageo There is a legal right and there is an offer outstanding that if you do X, Y, and

Z, I will take your payment in full and complete according to satisfaction of all debts

o How can they revoke? Lapse of time, suicide, if they revoke. o Couple of pieces to the issue here:

Brackenbury style unilateral contract piece – if you make a payment then you accept

Is there a kind of reliance interest or a protected interest when you have induced someone to invest?

o The guy came with money and the lender said I don’t want it, offer withdrawn, I sold the mortgage

Can you do that? If they started to perform then they have to be given the

opportunity to perform


- GENERAL: All of the duration of offer stuff is about the circumstances under which this asymmetric relationship is or can be or is prevented from being destroyed. As a normal rule, the offeror can revoke at any time prior to acceptance. Unilateral contracts situations present certain equitable concerns – we don’t want to have oppressive behavior.

- What these cases are about are these groups of reasons under § 36 of what terminates or limits the power to revoke. Or when revocation is automatic.

UNILATERAL CONTRACTS - Garber v. Harris Trust & Savings Bank

o P claims that credit card agreements with D were binding and that D could not alter terms unilateral agreement between P and D.

o How does court come up with theory that protects credit card company? Each time they use the credit card is another contract. If they use a

credit card it is an acceptance of their offer to provide credit. Transforms an agreement into multiple agreements Bilateral agreement leads to issuance of card

1st contract remains in effect -> credit card company cannot retrospectively change terms, unless you agree to the modification by continuing to use credit

2nd agreement is quasi-unilateral – acceptance by card use Each use of card is a separate contract

Cardholders can withdraw as they plea and no one can do anything about it

o To combat this credit card company could have disclosed – “terms subject to change,” the more specificity the better

o P’s harms – hope, expectation, desire to continue to borrow at favorable rate o D’s harm – real and immediate, they will lose money o Policy concern for court: harms are real for bank, speculative for P

- James Baird Co. v. Gimbel Bros. o Deal to build a building for the satte of PA. o Is there an agreement between P and D?

P argues he accepted D’s offer by acting upon it in sending his own offer.

T1 – bid, T2 – included in general’s bid, T3 – revocation, T4 – acceptance

Offer clearly accepted at T4. Terms of the alleged contract were not explicit

o It does not look like we have a contract. Does not look like we have an option. But maybe we have a reliance.

o Issue: is there reasonable reliance before revocation?o Need to look at my brief on this one.

- Drennan v. Star Paving Co. Traynor here takes a different position:

Uses reliance and promissory estoppel


You know in course of business that by making a bid that someone will include that bid in their bid.

Included and accepted in normal course of business. The general is not bound at all, they can use any other paving

company Star Paving is bound to not revoke their offer until you accept the

offer or you tell us someone else has accepted to do the work or you deviate from the intention to accept

o What we have here is exceeding to an industry practice. The practice is to delay, delay, delay, have bids submitted at the last minute…but if your bid is wrong it screws up everything. You cannot correct your bid. Bids are final you will lose that. SO there is a harm.

There is another industry norm. General contractors is likely to partake in bid chiseling after there bid is accepted. Once they have the contract they go and ask thesubcontractor to shave a little bit off, goes to competitors and does the same. If the general does that then the general is no longer relying.

As long as the person is moving across the Brooklyn bridge at a normal, appropriate place, intending to complete, you have to leave the offer open. You have to be given a reasonable opportunity to complete. But as soon as the party attempting to accept starts wandering around lower Manhattan and starts bid chiseling, then there is no longer an intent to accept.

o Hand is saying in Baird that if you want to bind somebody you must bind yourself.

o Traynor is saying that there is a different situation: We are not gonna bind you to accept Gimble Bros. bid, but we are going to allow you to operate in accordance with that bid as long as that is what you keep doing. However, as soon as you deviate form it, you destroy the option to complete, creating the unilateral contract.

- CA rule is MAJORITY rule. flexible approach to notion of irrevocability - When we have a problem like this what do we appeal to? Consideration (turn it into

an agreement that has a certain level of flexibility, impose transaction costs OR we can recognize the way in which parties do operate - impose costs on each other do things last minute) Traynor has resorted to an emerging contract principle that if you have a unilateral contract (that is a contract formed by a completed action = acceptance) what do we do in this period? Take advantage of the development of unilateral which permits us to think about an option such as irrevocability, the option to have a reasonable time to complete performance

BARGAINING AT A DISTANCE - Mailbox Rule: default rule when negotiating at a distance, a default rule that can be

changed by the parties o “Offer effective when received” – if you don’t receive an offer you can’t

respond to one, just makes sense


o Acceptance is effective when: Offeror gets the acceptance – offeree would be stressed out that it may

not have been received by offeror Could be upon dispatch – offeree would know its acceptance was

effective when dispatched even if it is never received o The offer effective when received and the acceptance being effective upon

dispatch is 2/3 of the common law mailbox rule revocation effective upon receipt.

- Under CISG – offer cannot be revoked once it has been dispatched; however, acceptance is effective upon receipt.

o Say if we have T1 – offer sent, T2 – offer revoked, T3 – offer received, T4 – acceptance dispatched, T5 – revocation received. So we have a problem here, acceptance is good even though revocation was sent before the acceptance was dispatched.

o Because of this, jurisdictions have changed common law rule to ensure that there was some point in real time where both parties intended to bind themselves.

- Adams v. Lindsell, Morrison v. Theolke o Mailbox Rule o Acceptance is effective on dispatch; cannot repudiate acceptance once mailed

- Worms v. Burgess o Option contract – optionee dispatched notice, but optioner never received it o Court sees conflicting principles:

Optionee relied on mailbox ruleo Court rejects mailbox rule and applies restatement § 64(b) -> an acceptance

under an option contract is not operative until received by the offeror- Mailbox rule is extremely offeree friendly on the ground that you take Posner’s

analysis that the offeror is the lowest cost-avoider (burden is so minimal that if you want to establish a different rule you have to draft it in there

AGREEMENT TO AGREE - How to differentiate an agreement to agree from an agreement

o Whether the parties intended to be bound - P. 557 -> Definiteness; UCC § 2-204(3)

o Transaction won’t fail for indefiniteness if parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy just needs to be complete enough

- Arnold Palmer Golf Co. v. Fuqua Industries, Inc. o P and D agree that D would buy portion of golf company, would use P’s name

to market it, and then would split profits o There was a memo of intent -> subject to approval of board of directors of

Fuqua. Subject to preparation of the definitive agreement D did not have to go ahead with it, there was no final agreement


o When we are trying to police this line between agreement to agree and an agreement we are looking to see if the thing has gotten so close to agreement that it is in essence an agreement

Once you are in an agreement you must behave in good faith and fair dealing in the interpretation of the agreement

BUT up until you are in an agreement there is NO requirement of good faith

We have this awkward tension…could Fuqua torpedo this? Well yes if we are still in the agreement to agree stage, then he has no duty. If it has become an agreement then he has to behave in good faith and fair dealing.

o Extraordinarily difficult line to police, because you can do this even where there are open terms

- Critical line: is there an agreement or are we in a pre-agreement stage?o If you are in a pre-agreement stage you have no duty except not to act

tortuously o If you have an agreement with open terms, it is possible that you slid into a

situation where there are binding obligations We look to nature of open terms (if they are material it is a big

problem, if they involve genuine fiduciary duties it is a big problem) But if they can be determined through an appropriate reference to

something else, then there is an agreement

INTRODUCTION TO CONTRACT FORMATION IN THE FORM CONTRACT SETTING - If you do a lot of transactions of a certain type, you would want to mass-produce the

contract. You want to develop a form for your transactions. As you develop your form, you give it to your lawyers to draft for you, what are they going to do?

o Anticipate everything that could possibly go wrong and put in disclaimers, etc. Provide all kinds of outs. Give yourself rights to delay. Require payment under certain kinds of situations, etc. Load the form with protective terms -> very little cost.

- What happens when both parties are engaged in the same production of mass-produced contracts?

o Documents are never going to create an agreement. You will get an agreement on the basis of the last document sent + acceptance by action.

- 2-207 of UCC is shifting of the traditional common law rule of contract formation o 1) a definite and seasonable expression of acceptance or a written

confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

If you made the initial, your terms will apply unless the response is not an acceptance or the response expressly limits assent to its own terms


You can have an acceptance that is definite and binding but that expresses terms (cannot materially alter the terms)

If you have definite and seasonable expression then you have a contract under the first terms terms.

o 2) the additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

a) the offer expressly limits acceptance to the terms of the offer b) they materially alter it c) notification of objection to them has already been given or is given

within a reasonable time after notice of them is received o (3) Conduct by both parties which recognizes the existence of a contract is

sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.

If you do not have definite and seasonable expression, then you go to subsection 3.

Even though you cannot have an agreement based on the writings, if the parties are acting if there is an agreement then there is an agreement

o Under an agreement formed under subsection 1, what is in the agreement? If offer sales agreement says 1, 2, 3, 4 and purchaser agreement says

1, 2, 3, not 4, 5. Then the contract is for 1, 2, 3, 4 unless they are merchants. If the parties are not merchants, subsection 2 does not apply.

If they are merchants, we look at subsection 2. We are going to have an issue with (4)…what about (5)? Does 5 constitute a material alteration?

o If not material term and offeror does not object to it (whether or not it is material). If 5 is material term Subsection 2, does not apply

Does 4 stay in? If we are not in subsection 2, then the terms of the offer are the terms

of the contract.o Subsection 3 – Doesn’t matter if you were first or second, or expressly

conditioned. If you start exchanging goods and acting like you have a contract, then terms of contract are those terms on which documents agree and any terms not already part of the agreement, which would become part of the agreement (ie: warranties)

- CISG was created as a default for transactions dealing with goods where the contracting parties are from different states. It is the default, which means if you don’t want that to control you have to explicitly exclude it.

- Stemcor v. Trident o Issue: whether there should be arbitration of not.


o Response to offer (acknowledgment form) has an arbitration clause; however the offer form does not.

o If term is in offer, definite, and seasonable, term is ino If term is not in offer and you have definite and seasonable acceptance, if

both are merchants, term is in. If you do not have a merchant, term or rejection on offeror’s part.

o Arbitration clause falls out unless the response was a counter-offer- Hill v. Gateway

o Hills purchase computer, in box there is a paper with a bunch of terms saying that if there is a problem it will be arbitrated.

o Computer doesn’t work, Hills bring suit. o Court: You have to arbitrate. Finds the reason behind it in the

incompleteness of the transaction, signals that there has to be something else. You must have at least accepted that you would look at them and if you have looked, you could return it if the terms were unacceptable.

- Step-Saver Data Systems v. Wyse Technologyo TSL sent software and on the box they posted terms that TSL claimed were

bindings on the outside of the box

MISREPRESENTATION, CONCEALMENT, and DUTY TO DISCLOSE - Why have the misrepresentation doctrine:

o Market efficiency o Social concerns

- Misrepresentationo Deliberate – looks a lot like fraud, has most of the same characteristics

Fraud has to be pleaded with particularity, misrepresentation may be more general

o Reckless – this and negligent are both torts Fraud is a quasi-criminal kind of act As we get into reckless/negligent kinds of misrepresentation, we

introduce policies sounding in tort into our policing mechanisms Recklessly misrepresenting facts causes injuries that fall below

socially acceptable standards and there is a powerful reason to police those

If people act tortuously they are going to distort the market and we have inefficient transacting

o Negligent = See above o (Innocent)

- Duty to Disclose o Why? Want lowest cost avoider to give up the information (counter to most

commercial behavior where you want to protect yourself, not necessarily others)

o Don’t have to disclose things that are open and notorious


o Duty to disclose material facts going to the heart of the transaction where those facts are not reasonably discoverable by the other side because the non-disclosure would lead to a variety of inefficiencies

- The land treats buyers and sellers differently: o General presumption that you as a seller have invested as much as you think

is appropriate in information gathering o Different from a buyer who may not have access to the information

- Basically we are dealing with appropriate ways to ensure relatively appropriate markets

- Bates v. Cashman o P had negotiated that there was a right of way, which was a substantial factor

of value in the real estate representation was innocent but failed to show that the right of way was owned by someone else

o Court allows renunciation of contract because of misrepresentation Restatement 2nd § 552(c) -> gives damages between what you get and

what you paid - Holcomb v. Hoffschneider

o Double representation true representation was the property they walked on was what they were going to buy. There was a false representation though about the acreage of the lot.

o Agent could’ve protected himself by disclaiming the representation or communicating the acreage in a reasonable range, not so specific saying it was 6.6 acres when it was 4.

- Gibb v. Citicorp Mortgage o Statement in this case – “we are selling this property with its defects” o D knows there is serious termite damage, concealed the information o Citicorp sells the property “as is” when it has covered up the damage and

affirmatively represents that there is a limit to a certain kind of damage which they know to be false

- Weintraub v. Krobatsch o House is infested with roaches o Sellers kept the light on whenever they showed the buyers the house – kept

the roaches away - Any time you make an affirmative representation about something, then we are in

the world of fraud/misrepresentation Affirmative representation MUST be true - Things get harder when you make implicit representations like in Gibb when they

point out the termite damage, that was an implicit representation that that was the only termite damage

- Concealment is also a kind of representation – if you put up fresh paint and imply there is nothing behind it

- Realtor: there is an implicit representation that they checked the acreage - When we get to duty to disclose, then we are at the lowest level of certainty about

what it is that you are representing o If you are in an environment in which the other party expects you to be

selling then they may have an affirmative duty to ask the question


o Unless the disclosure is a matter where we expect what you are doing is a kind of affirmative representation, then without that disclosure we think that you are representing that there is no problem or issue that should or could have been disclosed

- Everything can be effectively disclaimed as long as you are effectively communicating that the other party is taking on the risk.

- All of these cases are about effective communication. Are you communicating that there is not a problem? If what you do is effectively communicating that you are not communicating, the duty to disclose in the interest of effective, perfect markets…disappears.

- We are shifting the burden of the communication but it is not a shift that is rendered complete, you can put it right back. It is just that the default rule on misrepresentation and duty to disclose cases is that you have disclosed unless you make it clear that you haven’t.

POLICING DOCTRINES - Default Rule:

o Duty to disclose is a default rule o You can contract around it (disclose by very effective, complete forms of

denial that you are saying anything) - Prohibition:

o Fraud (not default rule because you can’t contract around it)- Policing:

o Substance: a transaction that is substantively so wrong we are not going to bring the aid of the state to support this substantively bad activity

o Process: calls into question the entire basis of contracting Capacity could be a process problem – other party is not in a position

to enter into a contract Duress is a process problem – no voluntary assent to common terms All misrepresentation cases are process problems

INEQUALITY OF EXCHANGE - Black Industries v. Bush – Case about rubber in Korean War

o Here we had a middleman who doesn’t do shit and bills someone to do work for them, takes change between the K price and whatever it sells it for (almost makes as much as the company actually making the rubber)

o You can make contracts where someone does a little work and makes a ton of money because of freedom of contract free market claims about how to fix this problem

o The people here are experienced businessmen that are operating at arms length in a normal business relationship

o Black and Bush establishes a base-line situation: parties can set bad prices, parties can make bad deals, contract law is not here to protect you against mistakes or misjudgments you are to protect yourself at least as long as we think you are operating in a commercial situation in which there are not market fixes


o MUST FIND A DEVIATION SIGNIFICANTLY BELOW STANDARD FOR POLICING FUNCTION TO KICK IN

- Jackson v. Seymour o P owns farm, brother owns neighboring farm, P entrusts brother to sell farm.

When he gets the land it becomes apparent that there is valuable timber on land

o Court characterizes this as constructive fraud: There is no misrepresentation, there are no false statements, but

something about this transaction looks sufficiently bad to the commonwealth of Virginia that they say it has fraud-like characteristics

Brother is a businessman, she is not Gross inadequacy of the price Special relationship between brother and sister He looked after her farm, should have had knowledge? She was very dependent on him

o Rescind contract and restore the parties to the status quo. o Create a trust in the assets the brother received o What happened to the 275? She has to give the 275 back to the brother o Court says it is acting in equity – means the court is doing justice. Brother

hasn’t done anything wrong; however, justice requires he give the land back for the 275 and that he accounts for the profits from the property consistent with their understanding of what he was gonna do in the first place (protect the sister’s interests)

UNCONSCIONABILITY - Something that shocks the conscience, so unfair that we don’t think it should be

allowed to stand - In order to show incapacity you have to show that the person was one of these

classes: infants, persons lacking mental capacity.- In order to have misrepresentation you have to show that there was some form of

false statement made - In order to make out duress you have to show there was a threat that was improper - Ryan v. Weiner

o P is old man with a 9th grade education, alcoholic, late on mortgage payments. D makes him sign documents that screw him over. P did not read any of the documents because he is illiterate.

o Unconscionable because D had reason to understand that P did not understand what he was doing.

o If you can see that the other party suffers from a variety of disabilities that would lead you to believe they may not understand, then at a dead minimum you have to disclaim

o D cannot pretend to be friend and not explain. If the party does not even have the capacity to understand disclaimer, they may not be able to contract.

CAPACITY


- If you don’t have the capacity to enter into a contract, you cannot enter into a contract.

- Two classes of persons who are thought not to have capacity to contract: o Infants – anyone under 21

Person under 21 can enter only into a voidable contract such a person can disaffirm their obligations at any time up until the age of 21

Exception: Necessaries -> don’t have capacity to contract out of the need that you need the capacity to contract?

Law makes a bright-line rule here. o Mental disease or defect

Person does not have the ability to enter into a non-voidable contract. Contracts are not void, they are voidable by the protected party

fine until party who the law protects objects Individual determination when one does not have capacity based on

mental disease you can have capacity to enter into certain kinds of agreements, but not others.

Up to the degree that there has been a change in position, then the seller or the other party to the agreement will be protected and the part of the agreement that has already been completed will be enforced IF justice requires it

o Bright-line rule in case of children and highly flexible, individuated rule in the case of mental disease or defect

Individuated discussion goes to the nature of the transaction and creates the possibility of the enforcement of an agreement to the degree that the exchange was on fair terms

- Dillman & Associates v. Capitol Leasing o Lessee leases equipment which doesn’t work -> clause in agreement that the

lessor is not responsible for performance (giving you equipment that may not work and you have no recourse)

o UCC § 2-316: p. 654 – disclaimer of warranties - Intralease Automated & Scientific Equipment Corp. v. RME Enterprises

o Only thing substantively wrong is something the UCC explicitly allows – disclaimer of warranties

o Original lease disclaimed any warranties unless the lessor was the manufacturer. However, before they delivered a 3rd party said they had to sign a new lease before they delivered the incinerators disclaimer of all warranties, regardless

o Here the leasing company is violating good-faith and fair dealing. Every contract imposes a contract of good-faith and fair dealing in its interpretation an execution.

The second lease is not a good faith interpretation of the original lease this lease is no good.


By putting the lessee under that type of pressure is making them agree to something that strips them of their benefits under the agreement

o Can’t throw it in second lease as a modification and basically force guy to sign- IN order to establish unconscionability you have to show something is wrong with

both the substance and the process - Davis v. Kolb

o Substantive problem: timber is worth a lot more and they aren’t being compensated for it

Really bad price No risk to other party

o If you see a really bad substantive price it raises questions about the process by which you entered into an agreement

o Problems with process: Agent misrepresented his level of experience By hiding inexperience, agent caused the other party to rely No fraud because agent thought that amount was what the timber was

worth - Jones v. Star Credit Corp.

o Problem: price of the freezer if 3x the market price o P is on welfare, has limited financial resources o Freezer had a fair market value/max retail value of $300. P defaulted after

paying $600. o Plenary authority can fashion a remedy consistent with justice.

- Chalk v. T-Mobile o D waived class action lawsuits so neither they nor their customers could

fashion class action lawsuits. Problem with defective wireless card worth ~ 20 bucks.

o Court: if you can’t bring this as a class action then you will destroy the ability of any class actions and no one could ever bring a class action

Protects people who are vulnerable or could be taken advantage of. Protects against predatory behavior.

o You piece it together as unconscionability if that normal commercial behavior starts to produce results which look unfair and look like they are triggering one or the other concerns like duress, misrepresentation, fraud, capacity, etc. But unlike those, there is no test for unconscionability. It is a piecing together of a lot of naughtinesses court has plenary authority to fashion a remedy

POLICING THE STANDARD FORM CONTRACT - Standard form contracts save time and money; we want to police surprising clauses

o Economically and socially useful - Contract of adhesion: argument that contract suspicious if no opportunity for

negotiation -> however, the offeror is the master of the offer; can cram terms down your mouth


o These types of contracts can be used to hide terms, to cause people not to realize what they are doing, to create an asymmetrical imposition of costs

- CL approach – Restatement 2nd § 211 (page 680)o Standardized agreements o Clause 1: Default rule is that these are enforceable agreements (what you

would expect out of basic construct of contracts) if you sign on to one of these things, you are bound UNLESS

Unless there is something that you would not reasonably expect to be in there (clause 3)

o Determining when a term is surprising: If term is in bold, all caps, not buried, etc. then it is surprising

If attention is called to it No person would have signed the clause unless there was a process

problem (similar to unconscionability) Too long, too poorly written, in a surprising place, uses obscure

language, in fine print *Sort of clause they would not have signed as a matter of law

(no reasonable person would have signed it)o Court can construeambiguous terms strictly against the draftor

- Fairfield Leasing Corporation v. Techni-Graphics o Dispute over whether or not the company could waive jury trial in the

contract they signed (contract of adhesion) Any trial right can be waived if D knowingly and intentionally waives

o Here, D could not waive jury trial because term was inconspicuous. you cannot waive a constitutional guarantee without knowingly waiving it

o Court elevates the right (constitutional) and then asks why you would give up such a right finds answer in obscure way in which clause was written

- C & J Fertilizer v. Allied Mutual Insurance Co. o D insures burglary but only if there is visible evidence of burglary on exterior

of building o Why was this surprising?

Definition of burglary needs to be disclosed because definition in K conflicts with laymen and legal definition of burglary

o P said he wanted to be protected against “theft” and that he wouldn’t have signed it if he knew what D meant. P had high school education, court says diminished capacity needs to be protected

- Markline Co. v. Travelers Insurance Co. o Same fact pattern as above – P insured, but burglary requires visible marks o P stated that he had wanted “comprehensive coverage”o P is a store owner rather than a farmer o Restatement 2nd of Contracts Section 237 – p. 678

Irreconcilable with above case, other than by jurisdiction Case could go either way tension in this area of law


If you are not going to enforce the clauses, you are going to throw the actuarial assumption of the insurance co. off and they will misprice the policy

If you do what Mass does here then you are defeating the reasonable expectations of the insurers

- Caspi v. The Microsoft Network o D trying to enforce a forum selection clause o Clause: not surprising, good purpose (reduces cost of offeror) o Problem: P claims D concealed clause, was put in smaller font. o Reasonable notice – court says forum selection is a judicially protected right

- Specht v. Netscape Communications Corp. o D had arbitration clause in K. P claims there wasn’t reasonable notice

because download did not require an agreement to terms first. o We should require computer companies to produce a standard agreement

online that we can check and go to generally Suggested response because nobody reads these things The response insulates the computer companies from any challenge

under these problems o Very few of these standard agreements provide surprising clauses. They

usually don’t have oppressive, one-sided terms. Competition in marketplace – entities benefit more by having

reasonable terms Entities encouraged to stay away from line so that they do not lose

their arbitration, limitation of damage clauses, etc. by engaging in overreaching.

- Standard form contracts start with central proposition that standard form agreements are enforceable. The voluntariness does not go to the terms it goes to withdrawal – you don’t have to accept them. Because you cannot bargain over terms, there is an uneasiness about the process. So, the court imports into this area a whole series of other ideas – unconscionability (surprise).

o Q of whether there has been duress, misrepresentation, violation of duty to disclose, whether there is limited capacity, whether there is a term that is substantively shocking to the conscience (such as we have no theory for why it would be there/why it would be accepted)

- Most terms however are relatively standard (forum selection, arbitration) o Heavier weight is on process matters – has there been disclosure, are terms

presented in a way that makes it a voluntary agreement

POLICING CONTRACT MODIFICATIONS - Modification is acceptable if each party gives consideration of the modification- Modification without consideration

o CL response: Alaska Packers’ Association v. Domenico


Group of fishermen agree to employment K to go to Alaska company has lots of money invested, season is very short, Salmon fishery

K was for $60 a person base salary, after they get to AK the fishermen threaten to strike if they don’t get more money

Court rules in favor of Alaska Packers’ Association If you have an obligation under an agreement and you then

modify the agreement so you get paid more for doing the same thing, it is invalid as a modification without consideration

Preexisting duty rule if you have an agreement and them modification occurs without consideration then the modification is not enforceable can be contracted around pretty easily

o Schwartzreich v. Bauman-Basch Employee has K at $90 per week. Gets an offer to work elsewhere at

$110 per week. D then agrees that P would stay for $100 a week. Issue: P is already under contract, consideration is not clear. Company president suggested P get paid more (not like fishing case

where employee did) Two parties make an agreement to destroy the K, end previous

agreement, P wins. Common law rule: If agreement is destroyed then new contract is fine

doesn’t do much to police improperly coerced modifications o UCC § 2-209

An agreement modifying a contract within this article needs no consideration to be binding

o Modification without consideration is binding UNLESS you breach the duty of good-faith

o Was there improper duress? Was there coercion? Was there misrepresentation? Was this an unconscionable taking advantage of another party to the agreement?

HERE we police it through the duty of good-faith and fair dealing

Policy reasons for § 2-209: In your interest that other party may be happy with

relationship Creates flexibility – may not want to ad additional

considerations You are not put into the inflexibility of a consideration

negotiation, and you are not required to leave the contract and put yourself at the risk of destroying the good-faith an fair dealing that we associate with it

o Requires us to directly police all of the other policing doctrines but with the added element that it is policing them in the environment of good-faith and fair dealing

o Angel v. Murray


Waste-disposal company goes to Newport and says we want more money to dispose of waste form Newport.

Why can they get more money? A lot more trash than they expected, unanticipated difficulties.

City of Newport wants to pay the extra money to the trash company. Why? If they just tore up the contract then the city loses its leverage in good faith and fair dealing. Collector could hold city to even higher contract price in new contract.

Angel breaches because changed circumstances, fully aware of duty of good faith and fair dealing, the trash collector cannot perform.

o Flowers v. Diamond Shamrock Corp. Settlements are in essence a modification When you have an executory agreement that you want to settle, you

reach an accord, execute under accord, which is called a satisfaction ACCORD AND SATISFACTION -> completed agreement in substitute of

the original obligations Facts: P and D have a deal where D was supposed to pay P market

value for gas they extracted. D sent checks to P, checks wee cashed. Checks declared “paid in full” by cashing check. However, D

did not pay market value, but value based on K with 3rd party. P later disputes they hadn’t been paid in full.

Accord and satisfaction substitutes underlying agreement and extinguishes it for the underlying period.

Problem? D had known or had reason to know that there was a dispute.

P theoretically if they had thought there was a dispute would have gotten an accountant, etc. to protect themselves but they don’t think there is a dispute.

D has control of gas – information asymmetry. Party with info has duty to disclose, never puts P on notice that there is a dispute.

o Calls into question validity of the accord which permits P to challenge on the basis of underlying agreement

o Con Ed of New York v. Arroll D doesn’t pay bill, only pays what he thinks is fine according to service

he gets from Con Ed Accord and satisfaction can be for any amount; Con Ed cannot cash

checks and still sue with success Issue: Con Ed has a lot of customers and checks are processed in mass

Con Ed could protect itself:o Not accept checks with accord and satisfaction languageo Can put clause in agreement that requires disputes be in

writing to different address (usual course for utility companies)


Thus there is no accord by sending to wrong address and cashing check doesn’t constitute satisfaction

o CL Rule: Destroy agreement and substitute a new one o Modern approach: introduce levels of flexibility. Permit agreement absent

consideration. Police directly, using all policing doctrines. Under good faith and fair dealing.

PAROL EVIDENCE - Parol Evidence Rule:

o Never applies unless there is a written agreement o Bars evidence of an oral agreement that was made prior to, contemporary

with Also bars written agreements (all prior or contemporaneous written

agreements) o Bars negotiations, dictionaries o Substantive rule of contract to give priority not as a way of understanding

what the parties intended but in order to give priority to certain kinds of forms of the memorialization of understanding.

- Way to circumvent it:o Only certain kinds of writing create a vindication of the parol evidence rule -

> complete writings (complete understanding of the parties) and integrated writings

If the writing does not purport to be complete If the writing declares it is complete and integrated, that too is not

dispositive on the court (evidence that it could be) Partially integrated agreements -> parol evidence rule applies to part

of it and not another part (If partially, then we include prior or contemporaneous evidence to the degree that they fall within the integrated portion)

- When can you introduce parol:o If it is ambiguouso Cannot bring in evidence to contradict any term of the agreement (can use to

supplement or explain a term) o What do you introduce to establish there is an ambiguity?

Blue states permit evidence to establish that there is an ambiguity “I would like to provide evidence that there is an ambiguity” evidence can only go to the question if there is an ambiguity(accept that there is a dictionary/common or an industry definition)

Red states: where they have grave doubts about the quality of evidence that is going to be produced, they bar evidence of ambiguity

- How to determine if agreement is integrated:o Is it the sort of agreement people do in an integrated way? o Does the agreement appear complete? Look at “four corners” of doc


You can introduce evidence to show that it is not integrated (not done as often as with ambiguity)

o Why does it make sense? Channeling function encourages everyone to come to a final

conclusion, saves a lot of judicial time, it is in everybody’s interest to reach closure on every form

Permits people to sell agreement - Mitchill v. Lath

o D owns farm, wants to sell. P wants to buy farm but wants ice house taken down. Ds make K to buy land but don’t take icehouse down even they had oral agreement to do it.

o How does court decide if icehouse has to come down? Three part test:

Agreement must in form be a collateral one (collateral means not integrated, external)

Must not contradict express or implied provisions of written contract

Must be one that parties would not ordinarily be expected to embody in the writing, or, put in another way, an inspection of the written contract, read in the light of surrounding circumstances, must not indicate that the writing appears to contain the engagements of the parties and to define the object and measure the extent of such engagement

Here, Icehouse provision contradicts the price term. Similarly, it is the type of term you would expect to be in the K.

o Because of the four corners rule it looks like the ice house was a clause that should have been in there, unless the other contract had consideration.

o Classic case of the parol evidence rule under the four corners rule to prevent the enforcement of an agreement that is clearly agreed to for a substantive law, channeling reason.

If it looks like a complete, integrated agreement then we enforce the writing. You lose out on the contemporaneous, oral agreement.

- Masterson v. Sine (CA. 1968)o P sold ranch to D (family member); sale included option to repurchase. P

went into bankruptcy, creditors want to exercise option. D claims there was an oral agreement that option only applied to P (not successors in interest)

o Option is not ambiguous not the type of clause we would expect to have written in

o Judge is concerned with situations where people do not fully express every part of an agreement wants to vindicate the parties

If parties have improperly expressed themselves and they are able to introduce evidence that explains what they are trying to do, then he will let the evidence come in for what its worth

You will get in front of a judge any evidence of ambiguity Judge Traynor says it is a mistake not to listen to the evidence


Latent ambiguity here Get to introduce evidence of what you intended to say when

what you intended to say is consistent with the words. o Step1: evidence comes in for ambiguityo Step 2: it comes in for the facto Step 3: trier of fact decides – preponderance of the evidence

- Parol Evidence Rule:o Enforce the terms of the writing (subject to if the writing on its face is

integrated or not)o Unless the writing is not an agreement – where exception arises

Hield v. Thyberg If there was fraud

- Baker v. Bailey o If you had sufficiently compelling evidence in MT that there was an

ambiguity could you get it in? suggests NO. In California; however, you can always get it in at least to show an ambiguity.

- Gold Kist v. Carro Carr claims he had an exclusive agreement with Gold Kist to haul peanuts o Language of writing explicitly says there is not an exclusive agreement. o Clause appears unambiguous on its face o D still argues that negotiations indicated agreement would be exclusive

When he got the writing though, P told D that the term does not mean exclusive

Said that they have the right to hold them to certain performance standards

o Court finds it is not ambiguous. Says the term is perfectly clear. Evidence that they would introduce would contradict directly the clear understanding of the terms.

o “No obligation” means no obligation.o Carr is trying to bury or contradict a term of the agreement there is no way

to use “we have to use you” to explain “we don’t have to use you” - Greenfield v. Philles Records, Inc.

o You agree to the natural consequence of the words you used when you use comprehensive language, the language will be enforced

- Pacific Gas and Electric Co. v. GW Thomas Drayage & Rigging o Traynor is opening up the possibility that the usages of the parties that might

be eccentric and might be known only through an explication of their particular intents.

o Contention -> that you have to be open to hear at least enough to know whether it is plausible that there is an ambiguity or an uncertainty or a different usage.

Even in this world, parol evidence rule can operate Traynor hears your evidence and he says “give me a break, you are a

little bit like the Eskimo Pie crowd. Nobody thinks that except you. Then you don’t get the evidence in to interpret the contract. You get


to make the argument as to whether there is an ambiguity or an uncertainty or one of the other exceptions, but if you fail on that you don’t get it into evidence to interpret”

- Hield v. Thyberg o Claim that there is no contract, but rather it is a play prop. Can always make

a claim that the written agreement is not the agreement and that it is just something else cannot exclude evidence on that because the writing cannot declare its own validity, need clear and convincing evidence

PRINCIPLES OF INTERPRETATION - Multiple possible meanings

o Ambiguity, resolve by Definitions within contract Plain meaning or common usage (dictionary) Special meanings of the parties Context in which the word is placed Anything else that is probative

o Parties attach different meanings Where one party knows the meaning attached by the other party. The

other party does not know the first meaning attached, we use the meaning known by both parties term consistent with both understandings

Neither party knows the other party’s meaning. No agreement, a misunderstanding, unless one party should have known the other party’s meaning (based on external indicators)

One resolution: agreement construed against the drafter o Inconsistent terms:

Construe all terms as consistent if possible if you can give meaning that gives coherent meaning to the whole contract then that is what you provide

Specific prevails over general Language in one section will not be imported into another if you

cannot construe as consistent - Berke Moore Co v. Phoenix Bridge Co

o Top of bridge deck = surface, K terms are consistent with the estimate that was given

o Rule: mutual understanding at time of contracting reigns. Restatement Second Section 201 – Whose Meaning prevails (p. 778).

Section 2-208 pg. 787 Express terms prevail over course of performance – express

terms would likely indicate what they intended Course of performance prevails over course of deal - course of

performance is a good indicator over how they interpreted the terms


Course of dealing prevails over usage of the trade – course of dealing is less good but still relatively good indicator; usage of trade is good background information

o Issue with usage of trade industry/community standards: whose usage? Highly variable.

o What constitutes a legitimate usage of trade? -> of sufficient regularity and consistencies

o UCC applies to sale of goods What if it is a sale of goods mixed with services? The predominant part prevails. Thus if it is mostly goods, UCC applies. If services prevail than CL.

- Turner Holdings Inc. v. Howard Miller Clock o How does court go about determining that Howard Miller has to pay?

Howard is the least cost avoider – he could have made it clear what he meant by under consideration.

Why? Because he is arguing for a deviation from the regular, usual understanding of “under consideration”

Why does usual understanding prevail? Makes transactions easier. If you want your meaning to be weird then you need to

articulate that.- Nakuli Paving and Rock Co. v. Shell Oil

o Haagen reads Nanakuli there is a contract and a woeful party with limited understanding and limited knowability as taking the shorthand. Court looks to see if express term is entirely clear (even though it does initially on its face, there is a possibility of interpreting it and the interpretation includes what did the parties do in this contract in interpreting the term)

Dead minimum in course of performance Dead minimum in course of dealing Haagen – “the trade, you know sometimes courts do things” -> within

discretion of court to determine what the trade is one party looks like they are relatively vulnerable to changes in practice or behavior and all that royal dutch shell needed to do on the express term was to say posted price, no price protection.

GAP FILLERS - If the parties have not specified the term, is there somewhere else we can look to

specify that term?- Haynes v. City of NY

How does court resolve it?o Starts with purpose (why was K actually formed?

NY wants clean water, villages are dirtying the water, basically NY bribes them not to do it (build water treatment plant)

o Term on the contract? Doesn’t say. Seems like perpetuity.


Look for a linguistic limitation City says they will treat this, why can you drag in language about “said system”

Cannon of interpretation – interpret all terms consistently as possible

o You don’t write K forever, you don’t likely imply that people intended to do something that is totally unreasonable (enter into a contract forever)

o How does purpose come in here? The villages gave up their right to pollute

(consideration) -> cannot dump raw sewage in river. (Clean Air Act)

RULE: what a city would do if they were protecting an important interest

o Says perpetual is unreasonable. o Says until the Clean Water Act would be inconsistent to

intention of parties because they didn’t anticipated the Clean Water Act (couldn’t have been the limitation)

o Political Realism here. o NY doesn’t have to extend lines because it will overload

the system. o Tries to reach equitable rule. o Parol evidence rule -> appears to be a lack of inegration

Partial integration, evidence is coming in to deal with the nonintegrated term: length and also extended duties

o UCC deals with open terms in 2-204(3) –p. 811 Analysis:

If parties intended to contract An appropriate remedy can be supplied

“Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.”

o Output K – must have reasonable basis for determining the output if output is not within reasonable approximation with what the output would be, then it would fail in duty for good faith an fair dealing

o Open term can be filled in any way reasonable under the circumstances UCC fills the gaps -> find reasonable basis

- Keppy v. Lilienthalo Court finds term here by looking at circumstances showed that intended K

duration was about 3 years -> implied intent is the rule - Haslund v. Simon Property Group

o Haslund wins , parties intended to be bound, intended to be bound by 1% of something.


o Yes they intended to be bound. Yes they have a price term. Court looks at evidence of trade usage. Looks at testimony

GOOD FAITH - Fortune v. NCR

o NCR fires him because they owe him a lot of money. Not in good faith. - City of Midland v. O’Bryant

o Says that in certain classes of employer-employee relations, there is no duty of good faith

o Duty of good faith and fair dealing can be very, very narrow – reading of what you do in the circumstances

- Souter’s test for good faith: o Does the agreement ostensibly allow to or confer upon the D a degree of

discretion in performance tantamount to a power to deprive the plaintiff of a substantial proportion of the agreement’s value?

o If the ostensible discretion is of that requisite scope, does competent evidence indicate that the parties intended by their agreement to make a legally enforceable contract?

o Assuming an intent to be bound, has the defendant’s exercise of discretion exceeded the limits of reasonableness?

o Is the cause of the damage complained of the defendant’s abuse of discretion, or does it result from events beyond the control of the plaintiff?

- This concept is a kind of gap filler. It fills in the gap about the proper use of discretion allowed in the K and if it is a contract, then discretion must be rendered reasonably given the nature of the agreement.

CONDITIONS- A condition is an event , not certain to occur, which must occur before a duty arises

o IF condition is not met, there is no duty - A promise is a statement of an intent to be bound to enter into an enforceable legal

arrangement with regard to that promise, IF you receive some counter-promise o If you breach a promise, damages result

- If you breach a material promise, the other party has the right to cease performance. - If there is a failure of a condition -> the duty does not arise. - Condition precedent – a condition that precedes a duty. If you have a condition

precedent to any duty arising, then that condition must be met. - Condition subsequent – condition that when they occur end a duty

o Burden of proof claiming the duty is no longer due. (party alleging the duty no longer exists has the burden of proof.)

- Promissory Condition – one in which the party takes on the duty of ensuring that a condition will be met

o That means that if it isn’t met, they have breached the promise and we have no duty. Triggers damage and duty has not arisen.

- When do we use a condition: to control risk, include risk of proof don’t want to be in relationship with party that can’t complete

- Jacob & Youngs v. Kent


o Court: we interpret a provision not to trigger a disproportionate forfeiture. Condition can be trivial and have it be enforced Kent however cannot get it enforced Court says the condition was

met by substantial performance. It isn’t that the contract was substantially performed, but that the condition could be met by substantial performance of the condition.

Interpretation of the meaning of the condition. Here we interpret the condition as having been complied with

even though not precise or perfect. o We start with the principle that conditions must be strictly complied with. o Then move to disproportionate forfeiture which causes us to look at what the

parties intent was regarding the condition. If the parties intent was that it be strictly complied with, then the

intent is strict compliance. o BUT because this is an environment in which strict compliance is almost

never achieved, then there is at least an inquiry whether substantial performance of the condition is all that the parties expected and so in equity, exercising its equitable powers, the court will excuse the condition.

o Once condition is excused, then some sort of damage analysis occurs R2nd § 237 (d)

- Glaholm v. Hays o There is a condition: “vessel to sail from England on or before certain date.”

Overcomes presumption that it is a promise o Determination based on intent of parties o Factors of determining intent:

Language – Is language consistent with promise language, “promise, determination, obligation” or condition language ,”condition if”

You look at nature of the kind of thing you are dealing with is this one of those situations where it looks like one party doesn’t want to have a duty unless something is met

- Howard v. Federal Crops INS Corp. o When party knows or should know the meaning given to the agreement

given by the other party, whose meaning controls? The party that did not know controls.

D was more likely to know (insurance company knows what insurance company writes), P is a farmer would not know that.

Construed strictly against insurer. reason to believe that there was a different ability to interpret (D had better idea than P.) If interpretation is interpretation given by insurance company we would get a disproportionate forfeiture.

To the degree that the insurance company has been harmed we can compensate for it in damages. It will increase the cost of their inspection, we can deal with that in damage. And at least all together this is enough to survive SJ.

- Gibson v. Cranage


o Condition of satisfaction – must be satisfied with painting of dead daughter before he pays

- Forman v. Benson o Look at context – a contract in a certain business. Here the parties are

impliedly saying that they are operating in accordance with the standard in that industry. A party who has a condition satisfaction cannot be outside the slot of commercial standards

If outside the range they are not operating pursuant to the condition EXCUSE AND AVOIDANCE OF EXPRESS CONDITIONS

- Dupont

o P should not be held remediless for D making the test impossible P believes they won’t breach on a ground that goes to D’s own

individual interest Don’t think they will act in bad faith

o When there is an express condition, there will be an implied condition that the parties will act in good faith in an effort to have this work out. The good faith means they will act in accordance with the common purposes of both parties here in having this agreement work. If one party uses its discretion in the operation of the business to defeat the condition then we have an abuse of discretion. If one party has abused its discretion then it would be unfair to insist on the condition.

o Schlottman turns on this idea that every condition carries with it the implied condition that the party will not use its discretion unfairly to defeat the expectations of the other party.

- Hanna v. Commercial Travelers’ Mutual Accident Association o Condition cannot be met here, claim of impossibility

What is harm to insured vs. harm to insurance company in having to wait many years to investigate

Court uses balance of the equities -

Contract Outline 2014

Documents

Transcript of Contract Outline 2014