Contracts Outline keyed to Fuller et al..doc

8/11/2019 Contracts Outline keyed to Fuller et al..doc

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OTLI!" #"TAILS:Author: Shi ChenSchool: niversit$ o% Southern Cali%ornia Law SchoolCourse: Contracts

&ear: 'all( )**+,ro%essor: -athesonTet: 'uller/"isenerg( 0est Group( 1th"d.

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MAKING OF AGREEMENTS (CONTRACT FORMATION)

I. ASSENT

A. Meeting of the Minds: Interpretation

R!e ": To constitute as K, there must be a mtg of the minds of both parties, and bothmust agree to the same terms in the same sense.

". #oo$ at the %anifestations the%se!&es

A. Language of commitment'. SpecificityC. Oral or written (form)

. Contet (srronding *ir*%stan*es)

A. Setting: place of businessmore liely to construe as a K. Socialconte!tless liely to be construed as a K.

'. "elationship: business or family (doctor#patient)

C. $istory#%ourse of &egotiations+. Corse of ,erfor%an*e(what they did under the K, by way of their

performance to determine how they interpreted the K, actualperformancein'ol'es repeated occasions for performance.)

E. Corse of +ea!ing: seuence of conduct prior to current agreement.rior K and what the con*d were and how they performed inpre'ious Ks.

F. -sage of Trade: what is done in this business generally, pre'ailingcustom in the trade or locale or region.

. Restate%ent S/ (0 stds of interpretation)

R!e : if words or acts, +udged by a reasonable standard, manifest an intention to agree

in regard to the matter in uestion, that agreement is established, and it is immaterialwhat may be the real, but une!pressed, state of speaer#actor*s mind on the sub+ect.

e.g. E%1r2 &. 3argadine4M*$ittri*$ +r2 Goods Co.

seeing +ob security: (a yeartoyear employee) told -go on, you*re all right can

you ha'e a K created irrespecti'e of the intention or purpose of one of the parties/ 0es,Defendant says he meant it only to get plaintiff back to work. His verbal words

constitute assent. Even though the defendant may not have subjectivelymeant it that

way.- show a course of negotiations since P repeatedly asked for a renewal of his

contract.

e.g. #*2 &. 5eh%er

loo at the outward e!pression of the person. 1t doesn*t matter that 2r. 3ehmer onlywanted to play a +oe on Lucy, his actions by writing and signing agreement wouldsuggest to a rsnble person that it was a 'alid K.1n so far as their intention is an influential element, it is only such intention as the wordsor acts of the parties indicate4 not one secretly cherished which is inconsistent w#thosewords or acts. 1ntentions under contract law are +udged, for the most part, by thereasonable person standard e!cept in a few circumstances, otherwise, sub+ecti'e intent isimmaterial.


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Rule 3: 1f neither party nows or has a reason to now of an ambiguity, then each party*s

actual meaning or understanding will be assigned to the ambiguity.Restatement 20

(1) There is no manifestation of mutual assent to an exchange if the parties attach materially

different meanings to their understandings and.

(a) neither party knows or has reason to know the meaning attached by the other; or(b) each party knows or each party has reason to know the meaning attached by the other

(2) The manifestations of the parties are operative in accordance with the meaning attached to

them by one of the parties if

(a) that party does not know of any different meaning attached by the other, and the

other knows the meaning attached by the first party; or

(b) that party has no reason to know of any different meaning attached by the other, and

the other has reason to know the meaning attached by the first party

e.g. Raff!es &. 6i*he!has5 latent ambiguity occurred when the contract did not specify which eerless wasintended (6 ships named eerless). 1n this case, the 7 meant one eerless and the

another. 1f one party now or has reason to now of the ambiguity, the meaning of theother party will be assigned, in this case, both parties were unaware of the ambiguity. 1feither party new how pple in the cotton business operate and new which was meant.

II. OFFERS

A. Offer: the manifestation of willingness to enter into a bargain, which +ustifies anotherperson in understanding that his assent can conclude the bargain. (5n offer is the firstsignificant e'ent in the formation of K).

". Considerations in finding an offer:

a. 8reedom from K

an offeris something that creates a power of acceptance.offeror must accept the fact that if offer is accepted then offeroris bound to the offer

b. 1ndefiniteness means +udicial writing of K (Specifity) %ts do not want to ha'e to infer anything from a K Terms ha'e to be clear Language of commitment must e!ist

c. 2ultiple liability (8orm Letter) mailed to numerous pple, %t reali9es puts 7 at ris for multiplesuits.

6. Ads genera!!2 do not *onstitte as offers

a.Ad&ertise%ents: 2ost advertisementsappearing in newspapers, storewindows, etc., are notoffers to sell. This is because they do not contain sufficientwords of commitment to sell. (Example: 5 circular stating, 2en*s +acets, ;6BB men*s +acets at ;6< apiece, first


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come first ser'ed starting Saturday, is so specific that it probably is anoffer.)

ii. 6ords of *o%%it%ent: Loo for words of commitmentC thesesuggest an offer. (Example: Send three bo! tops plus ;>.?D for your freecotton Tshirt, is an offer e'en though it is also an ad'ertisement4 this isbecause the ad'ertiser is committing himself to tae certain action inresponse to the consumer*s action.)

1. A*tions: Ehen an item is put up for auction, this is usually notan offer, butis rather a solicitation of offers (bids) from the audience. So unless the sale ise!pressly said to be without reser'e, the auctioneer may withdraw the goodsfrom the sale e'en after the start of bidding. See F%% G 6H6I(H).=6B@

e.g. #ef$o7it8 &. Great Minneapo!is Srp!s Store

%t couldn*t award damages to on the first ad b#c price was not clear and could possiblybe negotiated since ad said -worth to ;>BB.BB.$owe'er, the second ad was specific in that it listed the uantity, price and condition tobe fulfilled.

"FLJ: 1f the offer is clear, definite, and e!plicit, and lea'es nothing open for negotiation,it constitutes an offer, acceptance of which will complete the contract.

'. -ni!atera! &s. 1i!atera! *ontra*ts: 5n offer may propose either a bilateral or a unilateralcontract. => >D@

". 'i!atera! *ontra*t: 5 bilateralcontract is a contract in which bothsides maepromises. (Example:A says toB, 1 promise to pay you ;>,BBB on 5pril >D if youpromise now that you will wal across the Aroolyn Aridge on 5pril >. This is an offerfor a bilateral contract, sinceA is proposing to e!change his promise forB*s promise.)

4offeror e!pects a written or 'erbal response as an acceptance

4performance comes later

. -ni!atera! *ontra*t: 5 unilateralcontract is one which in'ol'es an e!change of theofferors promisefor the offerees act. That is, in a unilateral contract the offeree doesnot make a promise, but instead simply acts.

Ea%p!e:A says toB, 1f you wal across the Aroolyn Aridge, 1 promise to pay you;>,BBB as soon as you finish.A has proposed to e!change his promise forB*s actofwaling across the bridge. Therefore,A has proposed a unilateral contract.

e.g. -1f you read a boo any gi'en wee, 1*ll pay you ;>B.

4not looing for a promise if your understanding is that an act is necessary to indicateacceptance

4must complete reading the boo in order to show acceptance, can*t +ust begin reading b#c

it*s not what the offeror reuested.4offeror can re'oe offer e'en after offeree has begun reading and is half waythroughofferor can re'oe offer any time before acceptance

,art ,erfor%an*e of a ni!atera! *ontra*t *reates an option K.

. In *ase of do1t9a%1igos as to for% of a**eptan*e:

4interpret as in'iting the offeree to accept either by promising to perform or by renderingthe performance, as the offeree chooses GH6.
http://www.lexis.com/research/xlink?searchtype=lxt&search=ucc+2-328http://www.lexis.com/research/xlink?searchtype=lxt&search=ucc+2-328http://www.lexis.com/research/xlink?searchtype=lxt&search=ucc+2-328


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III. ACCE,TANCE

A**eptan*e: 5n acceptanceof an offer is a manifestation of assent to the terms thereof madeby the offeree in a manner in'ited or reuired by the offer.

#a7 of Contra*ts says that an offer is fully re&o*a1!euntil acceptance e'en if stipulated inan order form that it is not sub+ect to re'ocation.

e.g. Co!e &. 3o!!o7a2

Order plainly stated that the person who ordered the meals cannot re'oe the offer, but thecase showed that the offeror controls the terms of the offer, and can re'oe anytime beforeacceptance e'en if it was stated in the order form otherwise.

A. 6ho %a2 a**ept the offer: an offer may be accepted only by the person(s) whom theofferor intended to create the power of acceptance.

A. Method of A**eptan*e: The offeror is the "master of his offer."That is, the offerormay prescribe the methodby which the offer may be accepted (e.g., by telegram, by letter, bymailing a chec, etc.). =6< H>@

". 6here %ethod not spe*ified: 1f the offer does not specify the mode of acceptance, the

acceptance may be gi'en in any reasonablemethod. =6


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reasonable opportunity to re+ect them4 and (6) new or should ha'e nown thatthe pro'ider of the ser'ices e!pected to be compensated.

e.g. ,roC+ &. 5eider1erg

ro%7 first came up w#telephone directory and sold product for personal use instores, e'ery bo! came w#restrictions on a license enclosed in the bo! and was on

the dis as well stated copyright issues and for noncommercial use only. 7ignored those license agreements and started on web ser'ice.

"ule: One for% of si!en*e as a**eptan*e 12 fai!ing to %a$e effe*ti&e ree*tion

G


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iii. if a medium is merely suggestedother mediums may still beappropriate.

i&. if offeror prescribes medium of communicationno contract will beformed unless that medium is used. 5cceptance in any other manner willbe a *onteroffer.

*. ,roper +ispat*h:

i. ;00 -5n acceptanceis not operati'e when dispatched unless it isproperly addressed and such other precautions taen as are ordinarilyobser'ed to insure safe transmission of similar messages.

ii. if acceptance is lost or delayed due to no fault of offeree, there is stilla contract if acceptance was properly dispatched.

=. 3o7 offeror *an prote*t se!f fro% Mai!1o R!e>

Specifically state in agreement that the acceptance is not effecti'e until recei'ed.

E. ? 6a2s of Ter%inating the ,o7er of A**eptan*e:

". Ree*tion 12 offeree: "e+ection by offeree is effecti'e only when recei'ed.

a. E*eptions: Aut re+ection will not terminate the power of acceptance if either:(>) the offeror indicates that the offer still stands despite the re+ections4 or (6) theofferee states that although she is not now accepting, she wishes to consider theoffer further later.

1.Ree*tion %st 1e *o%%ni*ated 79in a reasona1!e ti%e:

i. reasonable time for unfi!ed offers:

4depends on circumstances

4sub+ect matter of the offer

4rapidity of price fluctuation4medium of offer made

4business custom

*. 3o7e&er@ 7here offeree sends ree*tion and then a**eptan*e:

mailbo! rule does not apply to re'ocations or re+ections

if re+ection arri'es firstno contract b#c offeror has to reasonably rely on thate!pectation, howe'er the latter arri'ing acceptance does act as a *onteroffer.

if acceptance arri'es firstthen there is a contract since re+ection orcounteroffer is not effecti'e until recei'ed.

. Conter4offer: 1f the offeree maes a counter-offer, her power to accept the originaloffer is terminated +ust as if she had flatly re+ected the offer. =D DD@

Ea%p!e:On Puly >,A offers to sellB>BB widgets at ;D each, the offer to be left openindefinitely. On Puly 6,Bresponds, 1*ll buy DB at ;.A declines. On Puly H, the maretprice of widgets syrocets. On Puly ,BtellsA, 1*ll accept your Puly > offer. &ocontract is formed, becauseB*s power of acceptance was terminated as soon asBmadeher counteroffer on Puly 6.


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a. %irror i%age r!e: Fnder the common law, the offeree*s response operatesas an acceptance only if it is theprecise mirror imageof the offer. 1f the responseconflicts at all with the terms of the offer, or adds new terms, the purportedacceptance is in fact a re+ection and counter offer, not an acceptance.

1. Contrar2 state%ent: Aut as with a re+ection, a counteroffer does notterminate the power of acceptance if either offeror or offeree indicates otherwise.(Example: On facts of abo'e e!ample, ifBsaid on Puly 6, 1*ll buy DB from youright now for ;4 otherwise, 1*d lie to eep considering your original offer,A*soffer would ha'e remained in force.)

. #apse of ti%e: The offeror, as master of his offer, can set a time limitforacceptance. 5t the end of this time limit, the offeree*s power of acceptance automaticallyterminates. =DD D


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?. +eath or in*apa*it2 of offeror or offeree: 1f either the offeror or offeree diesor losesthe legal capacityto enter into the contract, the power to accept is terminated. This is soe'en if the offeree does not learn of the offeror*s death or incapacity until after he hasdispatched the acceptance. =DI@

Ea%p!e: On Puly >,A sends an offer. On Puly 6,A dies. On Puly H,Btelegraphs heracceptance. On Puly ,Blearns ofA*sdeath. There is no contract.

Restatement 36. Methods of Termination by the Power of Acceptance

(1) An offerees power of acceptance may be terminated by

(a) rejection or counter-offer by the offeree; or

(b) lapse of time; or

(c) revocation by the offeror; or

(d) death or incapacitation of the offeror or offeree

(2) In addition, an offerees power of acceptance is terminated by the nonoccurrence of any condition

of acceptance under the terms of the offer.

E. Irre&o*a1!e offers: The ordinary offer is revocableat the will of the offeror. (This is true e'enif it states something lie, This offer will remain open for two wees.) $owe'er, there are somee!ceptions to this general rule of re'ocability: =D? @

". Standard option *ontra*t: 8irst, the offeror may grant the offeree an "option"toenter into the contract. The offer itself is then referred to as an option contract. =D?@

a. Co%%on !a7 re


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A. To constitute %O&S17J"5T1O& a performance or promise must bebargained for4

'. -Aargained 8orif performance or promise of offeree is gi'en ine!change for that offeror*s promise

C. erformance may consist of:I. 5n act or other promise

II. 5 forbearance=Mrandfather tells grandson that if he doesn*t drin, gamble, orsmoe at college, he will get ;D,BBB. Kid does +ust that and whengrandpa dies, estate won*t gi'e money. %T. Says -2J"J5ASTJ&T1O& 8"O2 5 J"21SS5ALJ LJM5L %O&7F%T 1SSF881%1J&T %O&S17J"5T1O& TO 25KJ 5 "O21SJ A5SJ7O& T$5T 8O"AJ5"5&%J 5 R5L17 %O&T"5%T, 3a%er &.Sid7a2

e.g. 3a7$ins &. M*Gee

if 7oc would*'e agreed to do the op for freethere is stillconsideration b#c $awins is gi'ing up the rt no to be op. on, that is a

rt he is gi'ing up in e!change.7oc*s consideration is b#c he wants to op on $awins.

+. %reation, modification, or destruction of a legal relation

e. erformance or promise of offeree may be gi'en to:

o romisor4 O"

o Some other erson

f. romise or erformance may be gi'en A0:romisee4 O"Some other erson

. E strefusal/ 0es, the 7 are promising tolease the land for < years and in return made 6 promises4 (>) lease the landfor < years4 and (6) 7 ha'e >stoption to purchase if it shall be sold.The oral agreement to sell for a certain price was a separate and independentoffer and was re'ocable before acceptance b#c there was no considerationgi'en by the lessees b#c the signing of the lease for < years was a pastconsideration.


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4. Restatement 74 - Settlement ! "laims

a. 8orbearance to assert or the surrender of a legal claim or defense whichpro'es to be in'alid is not consideration unless:

the claim or defense is in fact doubtful because of uncertainty as to the facts

or the law the forbearing or surrendering party belie'es that the claim or defense may

be fairly determined to be 'alid1. The e!ecution of a written instrument surrendering a claim or defense by one

who is under no duty to e!ecute it is consideration if the e!ecution of thewritten instrument is bargained for e'en though he is not asserting the claimor defense and belie'es that no 'alid claim or defense e!ists.

'. +onati&e ,ro%ises9Gratitos ,ro%ises: promise of a gift is not enforceable becausethere is no consideration. &o element of e!change.

". Ee*ted gift *annot 1e ta$en 1a*$.

. Conditiona! +onati&e ,ro%ises: conditions may constitute as consideration ifforebearance of a right ($amer '.Sidway)

'. The E!e%ent of For% (No%ina! Considerations): gross disparity in 'alue that maesthe agreement seem lie a donati'e promise.

1. #minal "nsideratin def. %onsideration that is so low as to bear norelationship to the 'alue of what is being con'eyed (e.g. C con'eying a piece of realestate for ;> or for no money at all)4 such consideration can be 'alid, since courts donot ordinarily e!amine the adeuacy of consideration (they will inuire into fraudand duress, though)

a.) "euirements for J!change: (G>)

i.) "JTJ&SJ O8 A5"M51& 7OJS &OT SF881%J

e.g. 8alse recital of consideration

%onsideration is merely nominal

ii.) 1llustration: 8ather nows gift promise isunenforceable. Offers to gi'e son ;>BBBfor a boo worth less than a dollar. Knowingthat the offer is a 2J"J "JTJ&SJ, there is&O %O&S17J"5T1O& for 7ad*s promise to pay.

b.) Sham or &ominal %onsideration is not enforceable (G?)

i.) 7isparity in Ralue, w# or w#o, other circumstances,sometimes indicates that the purportedconsideration was or was not in fact bargained forbut was mere formality or pretense.


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e.g.=$usband acting on wishes of dead wife agreed to pay;6BB each to three friends for the consideration of wife*spast lo'e, and a penny. %t. held that nominal sums can*t actas legal consideration, S*hne!! &. Ne!!@

ii.) Jssentially, e'en if the amount is small or nominal

1t can constitute consideration if it truly can be shown to

ha'e been bargained for4 AFT 1s ineffecti'e if +ust made to try to mae it enforceable.

iii.) Jssentially true that cts. 7O &OT LOOK tothe 57JF5%0 of %O&S17J"5T1O&. (this would tae away theability of people to bargain as they please.) $OEJRJ", nominalconsideration may 1&71%5TJ that the %O&S17J"5T1O& E5S&*TA5"M51&J7 8O". 5nd, of course, if it wasn*t A5"M51&J7 8O",there can be no %O&S17J"5T1O&. 5nd, further, w#o%O&S17J"5T1O&, there is &O %O&T"5%T.

+. The E!e%ent of Re!ian*e

". ,ro%issor2 Estoppe! ;: 5 promise which the promisor should reasonably e!pectto induce action or forebearance and does induce such action is binding if in+usticecan be a'oided only by enforcement of the promise.

e.g. =2uch the same as Owner who told secretary they would pay her ;6BB a monthfor life after retirement in return for her 5ST SJ"R1%J (which of course is not'alid consideration). She relied and retired. J'en though no consideration,she relied and promise is binding, Fein1erg &.,feiffer

a. No *onsideration *an 1e fond

1. Re!ian*e to ones detri%ent

E. Ma$ing Offers Irre&o*a1!e: Option Contra*ts (Epress and I%p!ied)

". Option Contra*ts ;/: %ontract made to eep an offer open for a specified period,so offeror cannot re'oe offer during that period.

a. Can 1e *reated in 7a2s:

i. Ay agreement of partiessome consideration must be gi'en by bothparties.e.g. e'en if no%ina!consideration paid to eep offer open, it will still be

enforceable if both parties agree.ii. GD, by law: %ts will find an option contract where there is part

performance for a unilateral contract.Once performance of a unilateral contract is began, an option

contract is formedand offeree can bac out of option AFT

offeror cannot.Offeror is only bound to terms of offer only if offeree finishesperformance.


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iii. ;H/.:offer for bilateral contract and there is s1stantia!re!ian*eon the offeror to eep the offer open. 5n offer isirre'ocable where the offeror should reasonably ha'e e!pectedthat the offer would induce reliance by the offeree prior toacceptance, and such reliance occurs.4The distin*tion 1et7een H/() and =? (option created by part

performance or tender) is between preparing to perform (I) andbeginning to perform (D).e.g. +rennan &. Star ,a&ing

47, subcontractor bid on pa'ing +ob and submitted his bid w#7as subcontractor and recei'ed the pro+ect. &e!t day, 7 said hisbid was a mistae but 7 is still liable for the add*l cost b#c 7induced reasonable reliance.4

1. Mai!1o R!e does not app!2 to option *ontra*ts: an acceptance under anoption contract is not effecti'e until recei'ed by the offeror unless partiesspecify otherwise.

e.g. Sa!%inen &. Fran$son7 agreed to eep option to purchase property open for D days in e!changefor paying ;DBB. Eritten notice must be recei'ed w#in option period, sent written notice the 'ery last day of option period and 7 didn*t recei'euntil 6 days later. 7 refused to sell and %t held for 7 stating that mailbo!rule does not apply to option contracts. G.) "eco'ery underromissory Jstoppel only e!ists where &O %O&T"5%T does

a.) e!ception may be where the contract is a type thatallows for no basis of reco'ery (atwill employment)b.) "eliance on an at will employment promise:

i.) e!ception might be allowed for reco'ery underG?B under romissory Jstoppel and damages might go for e!pectation

e.g. Grose &. Grop 3ea!th


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harmacist applied for a +ob at Mroup $ealth and was told that he hadbeen offered the position, ga'e up his current +ob and another offer inorder to wor for Mroup $ealth. Mroup $ealth then hired someone else.%t held that in an at will employment situation, if there has beensubstantial reliance G?B applies.

. 5t Eill Jmployment

a. Jither party can terminate arrangementb.) neither party is committed to performance or promisec.) therefore, promises are illusoryd.) T$FS, there is no contract

. 5 personnel handboo may become enforceable as part of the original employmentcontract if it meets the reuirements for unilateral contract.

e.g. ,ine Ri&er &. Metti!!e

".Ehy didn*t %t use promissory estoppel/

2ettille is an at will employeeand can*t pro'e that he relied on the disciplinarypro'ision in the personnel boo in order to go to wor.&o action of

forebearance by the ..Ehy not enforce bilateral contract/2ettille didn*t promise anything. $e is an at will employee, so if he didn*t go towor he hasn*t breached a contract..Fnilateral %ontract 8ormed2ettille*s continued performance despite his freedom to uit constitutes anacceptance and the necessary consideration for the offer. The disciplinarypro'isions were definite in terms and was communicated to the employee.

G. ,ast Consideration ;H0:promise for benefit conferred

Restatement $% - &rmise !r Bene!it Received

>. 5 promise made in recognition of a benefit pre'iously recei'ed by the promisor from thepromisee is binding to the e!tent necessary to pre'ent in+ustice.

6. 5 promise is not binding under Subsection (>)

if the promisee conferred the benefit as a gift or for other reasons the promisor has not been

un+ustly enriched4 or

to the e!tent that its 'alue is disproportionate to the benefit.

e.g. Mi!!s &. 62%an

5n offer to pay for an adult son*s care is not consideration, the father was not obligated topay. 5 son that is a minor, howe'er, is enforceable b#c a minor child is lie your property.

H. 2oral Obligation (Mood Samiritan)

a.) romise in "ecognition of pre'iously incurred Aenefit enforceable topre'ent in+ustice. AFT

i.) Liely would ha'e to be benefit gi'en 8"O2 "O21SO" to"O21SJJ:


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Son falls ill. Someone taes care of him. 8ather thans

them and promises to reimburse.(2ills '. Eyman) &OTJ&8O"%J5ALJ. &o direct Aenefit.

Someone*s Aull gets lose. Other person captures it and holds

it for you. J&8O"%J5ALJ. 7irect Aenefit and property.

ii.) 5s stated abo'e: romise is not binding where:

promisee conferred benefit as a gift (2ills '. Eyman)

to the e!tent that 'alue is disproportionate to the benefit.

b.) Aenefits "ecei'ed Aut not "euested #OOK on ,AGE "0

a.) "estatement holds 2inority Riew

i.) Subseuent promises to pay for unreuested ser'ices areenforceable.

=Muy +umps off a building and is caused great in+ury to a'oid hitting and illing another.&on'ictim is greatful and offers a certain amount of money each month. %t. enforces itunder restatement 'iew, Eebb '. 2cMowin@

. #i%its on the 'argain ,rin*ip!e

Se*tion ": Contra*ts that are -nenfor*ea1!e

A. Frad ;"0: misrepresentation to induce someone into a contract maes contractunenforceable.

'. +ress ;"/?: improper threat that lea'es 'ictim no reasonable alternati'e.Restatement 17' - hen uress b* +hreat ,aes a "ntract .idable2anifestations or assent made by improper threats that lea'e the 'ictim no reasonablealternati'e are 'iolable (both must occur)4 if the manifestation or assent is induced by a onewho is not a party to the transaction, the contract is 'oidable unless the other party in goodfaith and without reason to now of the duress either gi'es 'alue or relies materially on thetransaction.

;"/0:5 threat is improper if:

what is threatened is a crime or tort or would be if it resulted in obtaining property.

The threat is a criminal prosecution

the threat is the use of ci'il process and is made in bad faith the threat is a breach of the duty of good faith and fair dealing under a contract with

the recipient5 threat is improper if the resulting e!change is not on fair terms and

the threatened act would harm the recipient and would not significantly benefit the

party maing the threat

the effecti'eness of the threat inducting the manifestation of assent is significantly

increased by prior unfair dealing by the party maing the threat


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A. Mta!it2 of O1!igation ;/:bargained for e!change but does not ha'e to beeui'alent.

". I%p!ied o1!igation: Fse of reasonable effortsreasonable efforts is a fudgeterm

. Conditiona! ,ro%ise: must use reasonable efforts to satisfy condition unlessit is out of one*s control.

e.g.Scott '. 2oragues Lumber %o.5 'alid contract can be conditioned upon the happening of an e'ent, e'enthough it may depend upon the will of the party (J!. 1f 1 buy the 'essel, 1 willcharter it for you. 1 am not obligated to purchase it, howe'er, if 1 do, it is asthough the condition ne'er e!isted and 1 am now bound to charter it for you).

e.g. Eicham U Aurton %oal %o. '. 8armers* Lumber %o.5 contract to sell personal property is 'oid for want of mutuality if theuantity to be deli'ered is conditioned entirely on the will, wish, or wantof the buyer. Such a situation is merely an offer which is re'ocable atany time. To pre'ent this, one should create an option. 5 predication of

future willingness is not an e!pression of present willingness and is not apromise.

. Satisfa*tion C!ases:

a. 1n contracts where the condition calls for satisfaction as tocommercial 'alue or uality, operati'e fitness, or mechanical utility,dissatisfaction cannot be claimed unreasonably (reasonable personstandard) and the contract is binding.

1. Ehen satisfaction in'ol'es fancy, taste, or +udgment: 5 person*s goodfaith statement of dissatisfaction has been held to be a defense to anaction on the contract.

*. 1f a bargain in'ol'es a real and illusory promise4 it cannot be enforcedagainst the one who made the real promise.

=. +a%ages:generally measured by putting bac to the position would*'ebeen in if contract was not breached, the amount of money would*'e e!pected toget but must also tae appropriate measures to %itigate the *osts.

Se*tion : The ,erfor%an*e of a #ega! +t2 as Consideration: Modifi*ation of Contra*ta!

+ties

A. Modifi*ation re


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5 promise to pay a man add*l compensation for doing that which he is alreadyunder contract to do is w#out consideration. can create consideration by maing a promise in e!change to performsomething add*l, e'en if it*s a minor addition.

'. Con*ern 79the J3o!d4-p Ga%e: threat to wal off the +ob w#out gi'ing any add*l

consideration.

C. Modifi*ations %ade %id7a2 spported 12 *onsideration constitute new anddistinct contracts: rescissionVoffer, consideration, acceptance W %ontract.

I. ,ERFORMANCE ,RO'#EMS AN+ ELC-SES

A. Good Faith ,erfor%an*e: %o'enant of good faith and fair dealingsimplied promise

not to interfere or hinder performance.". ;?:J'ery contract imposes duty of good faith and fair dealing

A. Good faith %eans:faithfulness to an agreed common purpose and

consistency w#+ustified e!pectations.'. 2ere difficulty of performance will not e!cuse a breach of contract.

$owe'er, the intentional conduct of one party to a contract whichpre'ents the other from performing his part is an e!cuse fornonperformance. %ourts are reluctant to release parties from theirobligations.

C. Good faithis implied in (some) employment contract terminable atwill. Ehen good faith is absent, there is a breach of contract. This isespecially true when there is some type of commission due. Theremust be a good reason or no reason, but not a bad reason.

e.g. Fortne &. Nationa! Cash Register

'. Conditions

". Epress Conditions: must be literally performed before a promise is effecti'e. 5 contracting party*s failure to fulfill a condition e!cuses performance by the

other party (whose performance is so conditioned). 1t is not, without anindependent promise to perform the condition, a breach of contract. 2erritt $illRineyards, 1nc. '. Eindy $eights Rineyard, 1nc.

. Ehen it is doubtful whether the words create a promise or a condition, they willbe construed as creating a promise. The word condition need not be used for it tobe a condition. XThis is why one should be e!plicit and state that whether or notit is a condition.X 1nsurance policies are generally construed most stronglyagainst the insurer. $oward '. 8ederal %rop 1nsurance %orp.

=. %onditions cannot be breached, only unfulfilled. Still may recei'e restitutiondamages.

?. One must use reasonable efforts to satisfy a conditions (courts sometimes imply apromise)

0. I%p!ied Conditions:

a. Order of ,erfor%an*e:


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i. Jach party*s performance is an implied condition of the otherparty*s obligation to perform.

ii. 1f performance can be simultaneous, then this is how it shouldbe performed F&LJSS specified otherwise.

b. A1i!it2 to ,erfor%: Ehen the performance is concurrent, one party cannotput the other in default unless he is ready, able, and willing to perform andhas manifested this by some offer of performance although a tender ofperformance is not necessary if the other party has shown that he cannot orwill not perform. The party must show that there is an intention to enforcethe agreement. Kana'os '. $ancoc Aan U Trust %o.

C. Conditions@ ,ro%ises@ or 'OT3>>>>

>. Ehen it is 7oubtful as to promise or conditionconstrued as "O21SJ.

a. 0ou can draft a pro'ision as a condition and a promise-1t is both a

condition and a promise that Then, the conditions must be met and also promise to enforce, therewould be a breach of contract e'en if the conditions weren*t met.

6. Such words as -if, -pro'ided that, -when, -after, -as soon as, or -sub+ectto are indicati'e of conditions, usually

H. %ts will find implied promise of a condition to at least try to meet the

conditions-mae reasonable efforts

a. -Aest Jfforts: erson wsetting the condition will want you to gi'e it allyou got.1. -"easonable Jffort: 2iddle ground.

*. -Mood 8aith Jffort: erson ha'ing to fulfill condition will wan to relyon this fu99y language b#c it means gi'ing an honest attempt.

e.g. Ranadium %orp. '. 8idelity U 7eposit %o.Ehene'er the cooperation of the promisee is necessary for the performance ofthe condition, there is an implied promise to use reasonable efforts (cooperation)to satisfy the condition. $ere, there court implies a promise. This is notdistinguishable from 2errit $ill where the court would not imply a promise (it isunnown when a promise will#will not be implied). One should specify to whate!tent efforts should be taen to satisfy a condition.

6h2 didnt Ct interpret i%p!ied pro%ise in other *ases>

Aecause you must loo to see if:>. the satisfaction of the condition is in the control of the obligee46. the other party is restricting its freedom in some sense while waiting

for condition to be satisfied1f 0JS, then %ts are more liely to interpret as implied promise.

To safegard against Cts interpreting i%p!ied pro%ise:

Should add, if you use conditionno obligation on person who hasn*t met the

condition.


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C. Standards of Satisfa*tion

". Jreasona1!e standard(ob+ecti'e std) applied when it in'ol'es such things thatother nowledgeable persons can +udge (e.g. commercial uality, mechanical utility)and if:

a. Hrdparty is +udging something that only reuires common nowledge

1. if no clear std is set out in a contract

. JGood Faith standard (sub+ecti'e std) applied when +udging according to personalfancy or aesthetics.

a. Nor%a!!2@ Hrdparty appro'al is sub+ecti'e to good faith std according to"estatement.

. Intent is i%portant: if two parties intend to bind themsel'es to an aestheticsatisfaction clause, it is enforceable e'en if it is unreasonable (it must be done ingood faith4 honest4 reasonable). XSatisfactionX lea'es ambiguity. Xersonal,sub+ecti'e satisfactionX is a better phrase to use (howe'er, this still must be done ingood faith).

e.g. Morin '!dg ,rod*ts &. 'a2stone Constr*tion

Hrdparty +udging a siding that was made to sound lie the condition wassub+ect to personal satisfaction, %t found should still use reasonable std b#cthe performance was similar to commercial uality.

See Restatement 227 - Standards ! &re!erence ith Re/ard t "nditins

+. 6ai&er of a Condition: 1ntentional relinuishment of a nown right.

". 6ai&er of a Condition does not re


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ii.) 1t is not Fn+ust C i.e. The promisee did not rely on the wai'er.

Restatement $4 - &rmise t &er!rm a ut* in Spite ! #n-ccurrence ! a "nditin

>. J!cept as stated in Subsection 6, a promise to perform all or part of a conditional dutyunder an antecedent contract in spite of the nonoccurrence of the condition is binding,whether the promise is made before or after the time for the condition to occur, unless:

occurrence of the condition was a material part of the agreed e!change for the

performance of the duty and the promisee was under no duty that it occur or

uncertainty of the occurrence of the condition was an element of the ris assumed by

the promisor6. 1f such a promise is made before the time for the occurrence of the condition has e!pired

and the condition is within the control of the promisee or a beneficiary, the promisor canmade his duty again sub+ect to the condition by notifying the promisee or beneficiary ofhis intention to do so if

the notification is recei'ed while there is still a reasonable time to cause the condition

to occur under the antecedent terms or an e!tension gi'en by the promisor4 and

reinstatement of the reuirement of the condition is no un+ust because of a materialchange of position by the promisee or beneficiary4 and

the promise is not binding apart from the rule stated in Subsection >.

F. Conse


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. Non4Materia! 'rea*h or ,artia! 'rea*h: e'ery breach of contract gi'es rise to acause of action for breach and some remedy of the breach. $owe'er, if thebreach is nonmaterial, each party is still obligated to perform the rest of thecontract.

a. 1f performance is stopped due to belief that breach is material and courtsees it differently, the selfsupposed breachee becomes the breacher

G. Anti*ipator2 'rea*h9Repdiation: a party can be held liable e'en before the time ofperformance has arri'ed. The intention of not to perform w#in the time fi!ed.

". The words#conduct to show a refusal or inability to perform must be definite,uneui'ocal and absolute.

. 6hat are the Rights of the non4repdiating part2when the other side hasn*trepudiated yet but loos lie will be unable to perform>

a. >st

option is to rescind the contract4 let the other party now that you areconsidering repudiation to be a total breach of K.1. 5s for Ade


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=. Repdiation of Insta!!%ent ,a2%ent: 1f one party completes all acts and isawaiting a series of performance, a breach of one or two does not allow him tobring suit for all remaining acts, can only sue for defaulted payments.

?. "epudiation may be made by reuiring#demanding other party to do somethingmore than initially reuired before you will perform. (2odification reuiresconsideration)

3. E*ses or +efenses to 6h2 Contra*ts Sho!d 1e -nenfor*ea1!e

". Mista$e (7oesn*t really mean that no contract was formed)

a. Mta! Mista$e ;"?: 5 party may rescind a contract if there is amutual mistae regarding the sub+ect of a contract. $owe'er, themistae must be material and comprise the substance of the contract.("ose 6d of 5berlone C a barren or fertile cow) Sherwood '. Ealer.2istaen to the basic assumption. &o meeting of the minds.

i. 2istae '. 2isunderstanding:Mista$eW say the same thing, mean the same thing, but we arewrong. (Ehen entering into contract, both parties were wrongabout a material element and so parties did not intend tocontract).MisnderstandingW say same things, mean different things.E.g. Raff!es &. 6i*he!has, both meant different ships.

ii. Ti%ing of sing %ista$e as defense: timing is a crucial issue inmistae as opposed to changed circumstances, %ts are moreliely to grant relief due to mistae when reali9ed early.

iii. A K *annot 1e a&oided if a part2 1ears the ris$ of the

%ista$e. 7efense of mistae is only a'ailable to the party who

would be ad'ersely affected by the mistae F&LJSS that partyis the one who bears the ris of the mistae.

Restatement 1'4 - hen a &art* Bears the Ris ! a ,istae

5 party bears the ris of a mistae when:

the ris is allocated to him by agreement of the parties, or

he is aware, at the time the contract is made, that he has

only limited nowledge with respect to the facts to whichthe mistae relates but treats his limited nowledge assufficient, or

the ris is allocated to him by the court on the ground that

it is reasonable in the circumstances to do so.

,art2 7ho 1ears the ris$ of %ista$e or Cons*ios Ignoran*e:7iamond case illustrates that the bears the ris of nowingwhat the stone is. This was &OT a mutual mistae case b#c bothparties intended to sell and buy a -pretty stone and hadconscious ignorance of the 'alue.

b. -ni!atera! Mista$e ;"? (One party gets what they want, one party

doesn*t): Ehere a mistae of one party at the time a contract was made asto a basic assumption on which he made the contract has a material effect


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on the agreed e!change of performances that is ad'erse to him, the contractis 'oidable by him if he does not 1ear the ris$ of the %ista$eunder therule stated in G>D and

i. Aecause of the mistae, J&8"O%J2J&T EOFL7AJ F&%O&S%1O&5ALJ (if enforcement would really mae thecontract lopsided)

ii. Other arty had reason to now of mistae or his actscaused it.

*. Non4dis*!osre ;"0" -Auyer beware:i. 5 party should be allowed to rescind a K if nondisclosure was a

material effect.ii. it is a willful act

e.g. 3i!! &. Dones

bought house from 7 but found house had termites, wanted to rescind Kbased on failure to disclose, but in this case, can also argue that it was ani!atera! %ista$e

b#c wanted to buy house free of termites and wasmistaen to the basic assumption, and sellers had reason to now of themistae.

. Changed Cir*%stan*es: after the formation process4 situation changesMista$eBformation process is during maing of contractCTS ARE #ESS #IKE# TO A##O6 ,ARTIES O-T OF K ' C3ANGE

OF CIRC-MSTANCES '9C ,ARTIES ENTER K KNO6ING T3AT

C3ANGES ARE ,ART OF OR+INAR CO-RSE OF EENTS.

a. I%possi1i!it2: does not mean literally impossible AFT that it can onlybe performed at JYT"J2J and F&"J5SO&5ALJ %OSTS.

1. I%pra*ti*a1i!it2 (Spp!iers side):party*s performance is madeimpractical where:

i. through no fault of his ownii. the occurrence of an unanticipated changed conditioniii. maes performance impractical (commercially or otherwise)i&. parties ha'en*t allocated the riss or e!plicitly stated what

should happen if such an e'ent occurs (e.g. li3uidateddama/es: contract pro'ides what the damages will be ifbreach of contract) and therefore, performance is discharged

*. Frstration of ,rpose (Sa%e as I%pra*ti*a1i!it2 1t on '2ers

side): when an e'ent neither anticipated nor caused by either party, theris of which was not allocated by the contract, destroys the ob+ect orpurpose of the K, thus destroying the 'alue of the performance, theparties are e!cused from further performance.

i. erformance is possible, but the 'alue has been destroyed.XXXXGI? 2odification reuires consideration F&LJSS in light of changedcircumstances.

e.g. Transat!anti* Finan*ing >>>>


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one part2 tr2ing to see$ add! *o%pensation 7hen %odifi*ation 7asnt

agreed to.

II. ,RO'#EMS CONCERNING 6RITTEN CONTRACTS

A. ,aro! E&iden*e: "ule restricting the use of prior e'idence to 'ary, add to, orcontradict a written agreement.

The !ast 7ritten agree%ent is the 1est e&iden*e of the parties intent and e&iden*e of

prior ora! agree%ents 7i!! on!2 1e ad%itted in *ertain *ir*%stan*es.

". S1stanti&e R!e: when parties ha'e entered into a written agreement that isfina! and *o%p!ete, all prior or contemporaneous oral or writtenmanifestations are discharged (you can*t bring any e!trinsic priormanifestations into e'idence). arol J'idence "ule e!cludes introduction ofprior agreements not w#in writing of the agreement.

. Oral or written agreements made 58TJ" the written agreement are notsub+ect to this rule and are always admissible.

A. Trad! &ie7 is to !oo$ to the Jfor *orners: if it isn*t there, it*snot part of the K, law assumes any preliminary writings ordiscussions are ineffecti'e if you mae a written documentation,that is the law assumes that the parties will ha'e includede'erything they intended to in writing.

'. Modern ie7: %t determines if the K is F!!2 or ,artia!!2Integrated 12 !oo$ing at a!! the e&iden*e and then de*ides

7hat e&iden*e to e*!de:

I. F!!2 Integrated Ks ; are when it seems that the partiesha'e put all the terms they wanted in the K and intended it as afinal agreement.

4 Merger C!ase: can establish fully integrated K bye!plicitly pro'iding that the K contains a final andcomplete agreement.

II. Ehere the parties reduce an agreement to a writing which in'iew of its completeness and specificity reasonably appears tobe a complete agreement, it is taen to be an integrated

agreement F&LJSS it is established by other e'idence that thewriting did not constitute final e!pression.

III. ,artia!!2 Integrated Ks ;" lea'e certain terms unfinished orunmentioned and %ts may allow e!tra e'idence to clear upintent if H conditions below are met.

4if there is ambiguityagreement was only partiallyintegrated


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. Conditions for Introd*tion of prior Manifestations ON# 7hen there is a

partia!!2 integrated K:

a. Co!!atera! agree%ent: the sub+ect of the prior e'idence is not one that isthe sub+ect of the written agreement.

1. It %st not *ontradi*te!press or implied pro'isions of the writtencontract.

*. It %st 1e one that parties 7o!d not ordinari!2 1e epe*ted to

e%1od2 in the 7riting(it must not be so clearly connected with theprinciple transaction as to be part and parcel of it).

. ,aro! E&iden*e R!e does not app!2 to an2 s1se


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ii. ,ro%issor2 frad: promises are made w#intention not toperform.

1. Conditions ,re*edent: e'idence of an unwritten condition.

e.g. Mit*he!! &. #ath

can argue that it was a condition by purchasers that the sellers remo'ethe icehouse before agreement is effecti'e.e.g. if 1 buy the boat, 1 will charter the boat to you. This condition wasnot included in the agreement AFT e'idence of this condition isadmissible despite the parol e'idence rule.

*. E&iden*e of *orse of dea!ings perfor%an*e@ sage of trade areadmissible e'en when there is a written K, and are only inad%issi1!eifcontradict the written agreement.

d. Mista$e

e. #a*$ of Consideration

'. Statte of Frads ("euired to now 6 sections)7efense to Jnforcement

CONTRACTS OF T3E FO##O6ING KIN+ M-ST 'E IN 6RITING IN

OR+ER TO 'E ENFORCEA'#E:

". Contra*t for sa!e of interest in !and (leases longer than a year is alsoconsidered an interest in land)

A. no transfer of interest in land is enforceable unless signed by theparty whom enforcement is sought (seller).

. Contra*t that is NOT TO 'E ,ERFORME+ 79in the 1onds of a 2ear.

A. no action shall be brought upon an agreement that is not to beperformed w#in a year of the K unless it is in writing.

e.g. if contract specifies that the performance is not to begin until aftera year of signing the K e'en though the performance itself won*t taelonger than a yearthe K still falls w#in statute of frauds and can useas a defense of no enforcement b#c performance was not w#in a yearand therefore must be in writing.

>>>>>>>>>>>e.g. if K specifies performance to begin w#in a year butthe performance itself will tae D yearsK still w#in the statute offrauds and must be in writing.4if the K could ha'e been performed w#in a year then not w#in statuteof frauds and the K does not ha'e to be in writing.

IF K 69IN STAT-TE@ 63AT KIN+ OF 6RITING IS NECESSAR>


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". Signature of party K being enforced against. Letterhead acts as signature. 1f email can be produced in tangible form also ualifies=. Something e'idencing K*s e!istence (%hec stub w# memo note)?. arties, sub+ect matter, essential terms

+AMAGES and T3E STAT-TE OF FRA-+S

". Restittion: e'en though K is not enforceable b#c of the defense ofstatute of frauds, the party may still ualify for restitution damages.

. Re!ian*e: when K fails to meet the written reuirements of the statute offrauds, a party who acts in reasonable reliance on the K can reco'er basedon specific performance.

III. REME+IES FOR 'REAC3

A. ;==: ,rposes of Re%edies: ser'e to protect one or more of the following interest

of the promise:

". Epe*tation Interest: his interest in ha'ing the benefit of his bargain bybeing put in as good a position as he would ha'e been in had the K beenperformed.

. Re!ian*e Interest: her interest in being reimbursed for loss caused byreliance on the K by being put in as good a position as she would ha'e beenin had the K not been made.

. Restittion Interest: her interest in ha'ing restored to her any benefit thatshe has conferred on the other party.

=. Ddi*ia! Re%edies A&ai!a1!e ;=?:A. 2oney 7amages'. Specific erformanceC. "estoration of a Specific Thing to re'ent Fn+ust Jnrichment+. 5warding a sum of 2oney to re'ent Fn+ust JnrichmentE. 7eclaratory "ts of artiesF. Jnforcing an 5rbitration 5ward

e.g. 3a7$ins &. M*Gee

The instruction on p.>?D was for -pain and suffering endured. Aad for 7oc b#csome of the pain and suffering was already agreed to by $awins b#c it is part of theprice of surgeryon re'iew, the %t decided this was not reco'erable. The measure ofdamages should*'e been 7hat the differen*e is 1t7 the hand , has after op (which

is much worse than before op.) and the perfe*t hand as garanteed 12 the +. Theinstructions said 7oc only has to pay damages of difference btw a perfect hand andhand prior to op. (damages are smaller).

>>>>>>e.g. 1f 2atheson is selling car for ;>BBB, and he breaches the K and refuses tosell and you can show that the car is really worth ;>DBB, you are entitled to reco'er;DBB b#c ;>BBB is what you would*'e paid if K was performed. A#c the purpose ofe!pectation damages is to put the nonbreaching party in the position she would ha'e


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been in, which in this case means that is entitled to get a car that is worth ;>DBB.So ;>DBB;>BBB is what the is entitled to.

'. EL,ECTATION MEAS-RE

". T2pi*a! Measre for A 'rea*h 12 a ,art2 7ho CONTRACTE+ TO

3AE SERICES ,ERFORME+A. +a%ages P %ost of %ompletion C 5mounts not aid V

(1ncidental V %onseuential Losses) C amount from mitigation'. Epe*tation +a%ages In*!de: +ire*tdamages(the amount

e!tra to get someone else or the cost of completion minus amtsnot paid), In*identa!7amages(costs incurred during the processof getting someone else to do the wor e.g cost of phone calls,time e!pended), and Consestthen moneydamages in the alternati'e.

>). 2ust show credibility b#c %ts are concerned aboutgranting a windfall by ordering specific performance, aboutgranting amount much more than diminution in maret 'alue.

6). %an use fudge factors such as personal 'alue, aestheticreasons to show credibility to a&oid di%intion in &a!e r!e.

e.g. ,ee&2hose

%t only allowed (property owner) to reco'er the diminution in 'alue

b#c had the cost of completion to do the remedial wor wasenormously larger than the difference in 'alue of the property. 1twould be considered -unreasonable economic waste.In additionto money damages, ee'yhouse should*'e reuested forspecific performance.

e.g. Da*o1 &. Reding ,ipes


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. Epe*tation +a%ages for 1rea*h 12 a ,art2 7ho CONTRACTE+ TO

,ERFORM SERICES.

T7o E C Fnforeseeability and "elated Limitation on 7amagesA. 7amages are not reco'erable for loss that party in breach did not

ha'e reason to foresee as a probable result of the breach when Kwas made.

'. 7amages are reco'erable if arising naturally or occurring in theordinary course of e'ents, or


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I. in the e'ent of special circumstances, beyond the ordinarycourse of e'ents, party in breach had reason to now about thecircumstance. (terms were w#in the contemplation of the parties)

II. 1f there are spe*ia! *ir*%stan*es, must mae clear to the otherparty so that they are aware of it.

III. Fnderlying "ationale: 8reedom from K

trying to put other party on notice of special circumstancethat may result in special in+ury which may not occur inthe ordinary course of e'ents.

1f party unhappy about possibility of special in+ury, caneither not enter K or charge more in e!change.

. Sho7ing of ,roi%ate Case

A. must show that 7*s breach actually caused some harm'. 2ust show that damages were caused by the breach

=. Reasona1!e Certaint2

A. 2ust show damages are reasonable, must be capable of proofI. a -good faith effort to estimate can be reasonable calculation of

damages.

e.g. Kenford '. Jrie %ounty

no reasonable certainty b#c stadium hasn*t been built ande!perts can only mae pro+ections.

F. "JL15&%J 7525MJS

". 7amages W Lost opportunity costs V out of pocet damages. &ot so much what would*'e been earned but what you ga'e up. The amt that you are in+ured o'er and abo'e the amt of what was before K was

made

G. "JST1TFT1O& GH

". "easonable 'alue of benefit conferred to other partyA. The e!tent to which the other party*s property has been increased in

'alue or his other interests ad'anced

. can*t reco'er e'en if one party performs but the other party didn*t benefit.. Aoth parties are compensated

A. Areaching party for cost of performance'. &onbreaching party for reimbursement of un+ust enrichment

3. Liuidated 7amages GHD

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