K The New One

8/3/2019 K The New One

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CONTRACT FORMATION

Contract In General:

o Bargain & Assent: ³a bargain´ to which the contracting par ties give assent and o Action or Promise: ³a consideration´ which can tak e the form of either a r eturn pr omise or an actual

per formance.o Bargain + Consideration = contract

17 - Mutual Assent Objective Mutual Assent Required

y R2d § 17 a formation of a contract r equir es(1) Bargain: a bargain in which ther e is(2) Manifest Assent: a manifestation of mutual assent to the exchange and (3) Consideration

71: Bargain For Exchange

y R2d §71 adopts the ³ bargain theory´ of consideration: (1) Performance must be Bargained for: To be classif ied as consideration, per formance or pr omise must be bargained for .(2) Sought and Given: To be bargained for means that it is sought by the pr omisor and given by the pr omisee.(4) Per formance may be given to

y The Promisor y An Agent - some other designated individual

y Given By:

o Promisee or some other person

y Did Consideration Induce? Test: Did the consideration induce the pr omise? (Not univer sal since ther e doesn¶t need to bean inducement)

Bilateral v. Unilateral Contracts:

o Bilateral Example: Seller pr omises X if buyer gives Y - Goods

y Mutual Promises: Her e the consideration for each par ty¶s pr omise is the pr omise made by theother . X= consideration for y; y= consideration for x.

o Unilateral Example: Pr omisor (x) will pay pr omisee (y) $10 if y mows x¶s lawn

y Promise v. Action:

o $10= consideration for mowing; o mowing= consideration for $10

y No promises necessary. Obligation for x to pay y star ts when y begins to mow. Im plicit pr omise.

71 Inadequacy

71 Bargain v. Gift:

o R.2d §71 Must Bargain For: Per formance on r eturn pr omise must be bargained for . Exchange: Bargained for if unilateral or bilateral K is sought by pr omisor in exchange for pr omise, and it

is given by pr omisee in exchange for pr omise, per formance:

y Consideration: act other than a pr omise, for bearance, or the cr eation, modif ication, or destr uction of a legal r elation.

K irksey v. K irksey ± Gift: There was No Consideration/Bargain ± Unilateral

Bargain must occur ± inconvenience is not enough without



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Facts: The P¶s husband and one of her childr en died. D wr ote to P on informing her that he wanted her and her childr en to come live on his pr oper ty because he wanted them to ³do well.´ P lived comfor ta ble on D¶s estate for 2year s after which time D moved her to a less comfor ta ble house in the woods, which he then evicted her f r om

> No Bargain: P did not bargain for the loss and inconvenience suffer ed when moving 60 miles.> Not Consideration: This condition to claim the gift isn¶t consideration - see Williston¶s Tramp

JJ: > Moved in for Gift: In K irk sey case, K irk sey ther e is no unilateral contract, r equir es no per formance f r om the

P. She moves to collect the gift. In Hamer, the P has to actually do something other than collect the pr omisein order to r eceive the pr omise. The K irk sey case is similar to the Hamer case in that it may a ppear that both

P¶s r eceived benef its f r om the deal, but it is much mor e subtle in the K irk sey case. At the time of K irk sey, Pr omissory Estoppel didn¶t exist other wise it would¶ve been a possi ble argument for enforcing the pr omise

W illiston¶s Tramp ± Gift: Inconvenience is not Consideration Alone: Unilateral o

Williston¶s Tramp: Man offer s a tram p a coat. Is this a gratuitous pr omise or an enforcea ble K?> Gift-Nothing Given: Even if the tram p has to incur a detriment by walking to stor e to get jack et, he has r eally given

nothing in r eturn.> No Value/Not Bargained For: The man gifting gains nothing, no bargain for an exchange, no K.

71: Consideration

§71 (3) The per formance may consist of : o Actions (other than a pr omise), o Forbearance o Creation, Modification, or Destruction of a legal relation

Must be Something of Value: r ecei pt by the pr omisor of ³something of value´ f r om the pr omisee.> SubjectiveYet what is ³valua ble´ is determined by the par ties ± subjective

y Oral or Action: R equir ement of consideration met either by pr omising or by doing.o Does not have to be in writing.

H amer v. Sidway ± Consideration: Giving up Legal Right is Enough: Not Gift ± Unilateral

Unilateral Bargain: X pr omises Y ($) if Y does A, bargain, consideration ($ for A, A for $) = contract.

Facts: D pr omised to give nephew P $5,000 stopped drinking, gam bling, and smoking until he r eached 21. Nephew did this and informed uncle, who put the money in bank account to earn inter est until nephew wasr esponsi ble enough to r eceive it. When Uncle died, nephew¶s wife demanded the Uncles estate pay the money withinter est. The executor r efused arguing that the nephew benef ited the deal, rather than incurring a detriment.

> Giving up Legal Right is Consideration: for bearing f r om doing something that you have a legal right todo is enough to constitute consideration

> Substantive Value: Value is in the eye of the beholder, the uncle could have valued nephews action

JJ:

> In mark et based economy, economic decisions ar e determined by the economy. Consideration parallelsthis economic evolution in that the contracting par ties¶ intentions/opinions ar e all that matter . Benef it-Detriment analysis doesn¶t matter: Who car es if ther e was a benef it or detriment?!

If you want to make something binding, then how do you avoid this consideration issue?

74: Forbearance of a Legal Right

R2d § 74 (1) For bearance to asser t or the surr ender of a claim or defense which pr oves to be invalid is not consideration unless:(a) Vagueness: The claim or defense is in f act doubtful because of uncer tainty as to the f acts or the law, or (b) Can be Determined as Valid: for bearing or surr endering par ty believes that the claim or defense may be f airly

determined to be valid.(2) The execution of a written instr ument surr endering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instr ument is bargained for even though he is not asser ting the claim or defense and believes that novalid claim or defense exists

79: No Benefit or Detriment Required

R2d § 79If the r equir ement of consideration is met, ther e is no additional r equir ement of : (a) a gain, advantage, or benef it to the pr omisor or a loss, disadvantage or detriment to the pr omissee; or (b) equivalence in the values exchanged; or (c) ³mutuality of obligation´

St. Peter v. Pioneer Theater ± Bargainer Decided the worth: Not Gift - Unilateral



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Facts: Pioneer Theatr e held Bank Nights and adver tised $275 cash price to be given to per son they randomly selected f r om the r egister ± Gr eat Depr ession. P¶s name was selected as he waited outside theatr e. Theatr es agent went outside toinform the P, but when pr esenting tick et manager denied her the award ± it was P¶s husband who won. Husband tried toclaim the prize but manager disa ppear ed making it im possi ble to collect within the time limit ± ended up 3min shor t. Dargues that the cash prize should be consider ed a gift.

> Promisor Decided Worth: The perceived suff iciency of the consideration is irr elevant. It¶s within thediscr etion of the pr omisor to decide its wor thiness prior to making the pr omise.

> If that¶s what the promisor bargained for, then that¶s what is required to enforce the agreement. > Unilateral Agreement: The P¶s per formed the r equested actions cr eating binding K for $275 based on

per formance.

Why do we not want to bind promises for gifts?

> Efficiency: The pur pose of the consideration doctrine is to allow/pr omote economic exchange.> Deterrence Reasoning: If we allow people to bind pr omises of gifts, it will open up gr eater conf lict since at times gifts

can¶t be fulf illed and these will end up going to cour t. As such, it may in effect deter people f r om making societal- benef iting pr omises.

> Incentivizes Fraud: Ther e is also the fear it will allow for f raud since gratuitous pr omises ar e so informal. Intra-f amily br each of gratuitous pr omises can be dealt with outside the cour ts anyway- e.g. r eputation.

CONSIDERATION PROBLEMS: SUBSTANTIVE V. FORMALIZED

Nominal (Sham) = No Good ± R aises suspicions when the exchange is nominal for one par ty Do courts ever look at the adequacy of consideration?

> Legal Formality: Only when they suspect nominal, sham, consideration. Cour ts only want to bind bargained for exchange.T

her efor e, look for exchange wher e consideration is not a pur e legal formality.o Example: An exam ple of this is wher e the par ties ar e sim ply inadequately exchanging money- I give 200k you

give $1 (has def inite value). Usually done to avoid legal obligations ± taxes> Can Still Exchange When Valued: However, exchanging $1 for something with no def inite value is consideration if

bargained for . - Batsakis

73: Per formance ± Can¶t be Sham or Legal Duty

You can¶t promise someone that you are going to do something that is already a legal duty. What are you promising here?It is already something you have to do.

y R2d § 73 Legal Duty is Not Consideration: Per formance of a clearly legal duty is not consideration

o Can¶t Be Sham: A similar per formance is consideration if it differ s enough f r om the legal duty that it doesn¶t look lik e a pr etense of bargain

In Re Greene: H iding the Gift: Legal Formality ± Sham Consideration ³Good and Valuable Considerations´?

Past per formance, nominal consideration, is not Consideration: Must R eally Exist for K

Facts: The bankr upt/married man was having an aff air with the P. D pr omised when they br ok e up: (1) To pay the P$1,000 a month their joint lives, (2) To assign to her a $100,000 life insurance policy that he would have to pay the

pr emiums for and would r esult in him paying the P $100,000 if he def aulted, (3) To pay her r ent for 4 year s. The P¶salleged consideration offer ed to the bankr upt man was to r elease all claims she had against him, payment of $1, ³and other good and valua ble consideration.´ After he def aulted she br ought a claim against the estateFormalization / Past Performance is Not Consideration:

(1) Legal Formality: Mer e formalization is not consideration. Cr eating what look s lik e a valid agr eement is notsuff icient to validate it. Par ties need to offer r eal consideration to mak e a valid agr eement:

Nominal-Sham: Gr eatly str essed the f act that the $1 is nominal. The cour t calls it ³sham´ consideration, it is sim ply trying to hide gratuitous pr omise.

No Real Exchange: ³Sham´consideration is not bargained for since ther e is no economic exchange.(2) Past performance is not consideration. The obligations wer e inferr ed to mean the pr omise he had made tomarry her during their past-coha bituation

JJ: Ther e r eally was an exchange her e. The cour t pr oba bly thought the exchange was for her silence in not exposing their aff air . The cour t doesn¶t want to enforce this since it¶s blackmail- a felony

Batsakis v. Demotsis ± Inadequate Consideration can be Adequate: Circumstances Show that it was Valued

She got exactly what she contracted for ± Mere inadequacy will not void

§79, ³if consideration is met, ther e is no additional r equir ement (b) equivalence in the values exchanged.´



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Facts: Batsakis agr eed to loan Demotsis what was the equivalent of $25 in U.S. curr ency (given in Gr eek Curr ency itwas 500k drachmae), and the D agr eed to pay $2000 in U.S. curr ency for the loan. 1942 war -strick en Gr eece wher e theP agr eed to borr ow $25 in Gr eek curr ency f r om P in exchange for note pr omising $2,000 in U.S. curr ency with 8%annual inter est. She agr eed to this because she was other wise going to starve. He lik ely demanded these terms because itwas very risky to loan money out in an economy as uncer tain as Gr eece¶s was at the time.

> Mutual Agreement: Once consideration is acknowledged, cour ts don¶t look at adequacy of consideration > Bargained for Exchange: The D r eceived exactly what they bargained for, $25, and accepted the terms of the

contract, $2,000 r epayment including 8% inter est.> Inadequacy Not Enough: Mer e inadequacy is not enough to void a contract.> D

on¶t Want toD

eter: T

he cour ts don¶t r ewrite contracts after the f act because it would other wise cr eateuncer tainty amongst potential business people and deter futur e deals f r om being cr eated, which is contrary tothe goal of contract law in making economic societal value. Those in privity ar e in the best position tounder stand the values.

JJ: Her e the circumstances of the situation wer e lik ely tak en into account by the cour t. Fir st of all, ther e is quite a bit of uncer tainty at the time. A guy lik e Batsakis has money, which he might never see again if he loans it out. In this case itseems r easona ble to demand the terms that he did. If the cour ts did not r ecognize Batsakis¶ claim, then when Demotsis¶ ar e starving in the futur e, Batsakis¶ might not be so willing to lend. It has a deterr ent effect on the social good.

a. Wolford v. Powers: Power s pr omises that if Wolford will name his son after him = 10k .i. This is a valid K , because Wolford gave consideration (naming son) and the cour ts don¶t step in to

determine value wher e ther e is no r elia ble external measur e of it.

W olford v. Powers ± Consideration has Subjective Value ± Naming Son in H onor: Consideration

Facts: The D offer ed to tak e car e of P¶s new-born son f inancially and pr ovide him a good life and education if the Pagr eed to name the boy in the D¶s honor . The D¶s estate cites inadequacy of consideration and r efuses to carry out itscontractual obligations

> Subjective Value: Unless, the par ty is induced by f raud, the consideration which com pensates the par ty thr ough pleasur e, gratitude, or other sentimentalities should r emain unchanged/sustained by the cour t

Weight of Consideration: This is obviously not ³sham´ consideration since naming the child after the old man is not a mer e formality due to its permanence.

Non-Measurable by Court: The cour t par ticularly doesn¶t inquir e within consideration when itinvolves non-measura ble value in the exchange.

79 & Peppercorn Theory (adequacy doctrine): Subjective Value

> If the Pr omisor and pr omisee want to bargain over a peppercorn, and the pr omisee ends up paying signif icantly, the value is

r eally up to them for determination. As long as ther e is actually a bargain for an exchange, this will be valid.

R2d § 79:

(1) Subjective Value: Value is determined by the par ties, ther e is no esternal standard of value in certain exchanges because of this.

(2) Parties are Better Judge of Value: Thus the cour ts usually stay out of r ewriting Ks in these circumstances AGREEMENT

Objective Theory of Assent: Mutual Assent N OT the Issue

Objective v. Subjective Intent

> Mutual Assent: Apar t f r om need for a r ecogniza ble offer and acceptance, the par ties to a K must be a ble to esta blishobjective evidence - by some discerni ble means ± that they intended to be bound by terms of K.

> Subjective test: ³actual intent´ theory i. This was dominant in the language of contracts until a bout a century agoii. R equir ed that ther e be a ³meeting of the minds´ iii. Pr oblem: hard to determine, induces f alse intent ± must con jectur e what par ties intended

Modern Policy: Objective test

o Must Manifest: Outward manifestations of par ties actual intentions must occur o Disregards Subjective: Does not r ely on the actual intentions, just what is out ther e.o Reasonable Standard: Contractual obligation is im posed based on what a r easona ble per son would have believed

was intended No Mutual Assent Required: is NOT r equir ed, just an outward manifestation. Incentivizes Responsibility: People need to be car eful a bout what they manifest.



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R2d § 18 Mutual Assent ± As Objective Assent

Outward Promise or Action: Manifestation of mutual assent to an exchange r equir es that each par ty either mak e a pr omise or begin to r ender a per formanceThis is an Objective Standard for Mutual Assent what a r easona ble per son would perceive or believe to have been the messageof the sender .

> Exception: If the pr omisee knows the pr omisor is not manifesting assent, then no assent ± Lucy ( ct. judges) > Reasonable Standard-Unforgiving:The standard ratchets up- not down. Can¶t claim that you ar e not as r easona ble as the

r easona ble per son and should be held at a lower standard. The standard does rise for those of gr eater r easona bleness or exper tise on the other hand.

Lucy v. Zehmer ± The Objective Theory of Assent ± Don¶t Get Drunk and Sell the Farm

Facts: Lucy and Zehmer wer e drinking when they wr ote agr eement for D to sell his f arm. D argued that he was dr unk, that he thought the whole thing was a jok e, and that he only accepted the P¶s offer for 50k because he thought that ther ewas no way the P was serious ± or that he could raise the money. P argued that the assent was objective, that he had witnesses to pr ove this, and that he even had the written contract ± on the back of a bar ta b. D said that he manifested his belief that it was a jok e to his wife. Lucy won out.

> Objective Assent: If your words and actions show agr eement that is good enough for the law.> Reasonable Standard: How a r easona ble per son would perceive those words and actions essentially

JJ: They negotiated for some time. Then pr oceeded to write the contract and mak e amendments/changes on the actual document as they continued to negotiate. They negotiated full details such as the title and f inancing. Also the contractwas r edrafted after ther e was an objection

Leonard v. Pepsico ± An Objective Assent has to be Reasonable: Drinking Pepsi Does Not Get You a Jet

Objective Assent Plus

Facts: Leonard argued that Pepsico¶s commercial objectively pr omised a Harrier Fighter Plane for 7,000,000 Pepsi Points. The commercial depicted all the swag that drinking Pepsi could get you. A harrier jet was then f lown in by a

boy showing up to his school, and the 7 million points offer was f lashed acr oss the scr een ± with no disclaimer . When Leonard submitted enough points for the jet, Pepsi r ejected his acceptance of their offer, claiming that clearly ³Drink Pepsi-Get Stuff ́ did not include a $23million ± it was not even in their catalog. The subjective intent was clear .

> Objective Assent+Reasonable: In order for an offer to be constr ued as serious and binding, an objective, r easona ble per son must have constr ued it in a lik e matter .

> Reasonableness: A r easona ble pr udent per son would r ealize that pepsi is not in the business of military jetsand that it was just an adver tisement.

JJ: The r eal argument being made by the P is that pepsi is misleading people in this commercial, and lets not allowthem to use the objective standard to get away with this

71 AGENTS & ASSENT

1. R2d §71 Assent can be given thr ough«some other designated per son ± were talking agents here.

2. Power to Bind: An agent has the power to enter the princi pal into a K obligation.a. Principal is Liable for Agent: The Third par ty who acted thr ough the agent can sue the princi pal.

(1) General Agent: Authority to enter into any transaction for princi pal.(2) Actual authority: If a princi pal¶s words or conduct would lead a r easona ble agent to believe that it has authorization to do

something, and the agent acts on behalf of princi ple, ther e is actual authority her e(3) Apparent Authority: If the princi pal¶s words or conduct would cause a r easona ble third par ty to believe that the agent has been

authorized to act, and the agent acts in this way, this is a ppar ent authority.> The agents authority is actually r estricted her e, but ther e is no r eason that the third par ty should know that.

(1) Inherent Authority: Power of agent is derived solely f r om the agent¶s super f icial scope of authority, which would lead the

third par ty to believe that authority actually exists. ± Job titles: pr esident, CEO, yadda yadda.(2) Ratification:The agent does not have authority her e, but the princi pal is bound because its conduct aff irmed the agents conduct(3) Estoppel: In some cases, wher e the princi pal car elessly allows a third par ty to r ely on agent and does nothing to stop the

mistak e, princi pal is lia ble thr ough estoppel.

Reason for Holding Principal Liable: A 3rd par ty could sue an agent, but the agent is lik ely judgment pr oof.> Very little or no net wor th> To sue agent, it must have some sor t of authority > The princi pal benef its f r om the r elationshi p, seems f air to hold them lia ble for the good and the bad

o Individuals/Institutions use agents so that they can get mor e accom plished ± gr ow the business while they ar e outdoing other things: golf.



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Note: lawyer s ar e agents and ty pically don¶t have authority to bind their clients in contracts

3.3 Offer and Acceptance

24, 26 O ffer versus Solicitations

R2d § 24O FFER DEFINED

An offer is the manifestation of willingness to enter into a bargain, so made as to justif y another per son in under standing that hisassent to that bargain is invited and will conclude it

R2d § 26 PRELIMINARY NEG OTIATI O NS

A manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to

know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent

Definiteness and Quote To be binding, a quote needs at least: (1) Price, (2) Quantity, (3) Pr oduct descri ption.(4) Allows Parties to Know what they have contracted for

Intent and PriorD

ealings

We also look at the par ties actions/past negotiation to see if par ties had intent to enter into an agr eement

Lefkowitz v. Great Minneapolis ± Clear and Definite/Reasonableness/ Objective Intent

Facts: The stor e offer ed 3 brand new fur coats ³wor th to $100´ for $1 on a f ir st come f ir st serve basis, and Lef k owitz showed up f ir st. He was r ejected. Later the stor e offer ed a stole ³wor th139.50´ for $1 explaining again ³f ir st comef ir st serve.´ The P again showed up f ir st willing to pay the $1 price. The f ir st day, the clerk at the stor e informed him that the offer was only for women and not for men according to a ³house r ule.´ The second day, the clerk again stated that the offer was only for women per the ³house r ule.´ ± again, ther e was no disclaimer to show this

> Clear and Definite: Wher e the offer is clear, def inite, and explicit, and leaves nothing open for negotiation, it constitutes an offer

> Definitive Value: The adver tisement for the Black La pin Stole is binding because the adver tisement stated a def initive value of $139.50 for the price of $1.

> Objective Intent: The adver tisement also did not specif y anything other than show up f ir st, which the Pdid.

> NoDisclaimer: The cour t overr uled P¶s a ppeal to the ³house r ule´ because no such r ule was included in the adver tisement and ther efor e it was not a par t of the deal.

> When Accepted, Offeror Loses Right to Revoke: The cour t fur ther explained that an offer or has the rightto r evok e or modif y an offer at any time prior to acceptance, but loses these rights upon acceptance or

per formance in this caseJJ: Ads ty pically solicit offer s, but the ad that was enforced left no details open. Stated all the k ey terms and r equested specif ic per formance (be 1st in stor e) that was per formed by pr omisee. The P was lik ely taking advantageof a situation wher e he could turn ar ound and mak e a quick sale, and thus he was also depriving the stor e of an offer that it was lik ely adver tising to bring in business.



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Dyno Construction Company v. McW ane ± Quotes: Solicitations not O ffers

Facts: P subcontracted with D to com plete a bid that it won. D f axed quantities, prices saying ³estimate´ with a notesaying ³ please call.´ P called and told D to ³order materials´. P was sent a contract with terms and conditions on ther ever se side, and among them was a pr ovision limiting D¶s lia bility for defective materials. When P said that he didn¶tget the contract, the D¶s agent sent f axed the material but forgot to send the back side of the document. When the P had

pr oblems with the pi pes that the D sent to it, the D r efused lia bility citing the r ever se side of the contract. P¶s claimed that it acceptance of terms over the phone constituted the offer, which was accepted: contract.

> Quotes Not Offers: A price quote doesn¶t count as an offer . It doesn¶t count because it¶s an invitation/solicitation for offer s rather than an offer itself.

It lacks definiteness and completeness> Indefiniteness: P¶s claim that the phone call was the agr eement did not pr evail because the price sheet sent

said ³estimate´ and ask ed for a phone call, which suggest indef initeness/ continued negotiation. Ther e wasno descri ption as to the place of delivery, time of per formance, or terms of payment, either .

> Reasonableness: In addition, the P later signed the actual contract when it was f axed showing that they knew the quote wasn¶t the actual offer

3.3.2 Acceptance, Rejection and Revocation (Including Counter-Offer)

Acceptance

Acceptance Common law default rule: offer or is the master of the offer, he work s the specif ics out for how to accept. Offer or can

always r evok e the offer at any time before acceptance.

R.2d § 30: The offeror Can empower offeree to create terms of acceptance (Ever-Tite)

Bi-Lateral Contracts Are Important to Projects: If you need to plan, you want a pr omise. Your planning cr eates r eliance, and ther efor e you need to be a ble to depend on pr omises.

Rejecting or Counteroffer are the Same:

R eject or counter offer: once you counter offer, you have lost a bility to accept the terms just pr esented.

Mirror Image Rule § 38: Terms of acceptance must mirror that of an offer, or there is a counteroffer.

Last Shot Doctrine §2-207 ± Only in Performance:

seller includes a form with conditions, when the buyer gets their pr oduct and star ts to use it, the conditions wer e the ones ³last shot´ out in the negotiations, so they stick . Usually good when buyer s have not haggled.

i. Conditions: when the buyer has haggled out the terms of agr eement and then all of a sudden they get terms that changethe agr eement in this last shot ty pe of way. This would pr oba bly not be binding, because it is changing the agr eement.

1. Can stick if they do not materially offer the agr eement (see §2-207)

R2d § 30 F O RM O F ACCEPTANCE INVITED

(1)- The offer or can specif y the manner by which the offer ee needs to accept.(2) If the offer or does not specif y as to how the offer ee need accept, then the offer ee may accept by any manner that is r easona ble

R2d § 32 INVITATI O N O F PRO MISE O R PERF O RMANCE

In case of doubt, the offer may be inter pr eted as inviting the offer ee to accept either by pr omising to per form what the offer r equestsor by r endering the per formance, as the offer ee chooses

R2d § 54 ACCEPTANCE BY ERF O RMANCE; NECESSITY O F N OTIFICATI O N T O O FFERO R

Wher e acceptance is by means of per formance, need to communicate acceptance only if r eason to know offer or won¶t learn of acceptance with pr om ptness

R2d § 56 ACCEPTANCE BY PRO MISE; NECESSITY O F N OTIFICATI O N T O O FFERO R

If acceptance by pr omise and the offer doesn¶t manifest intention to the contrary, it is essential to an acceptance by pr omise either that the offer ee exercise r easona ble diligence to notif y the offer or of acceptance or that the offer or r eceive the acceptance seasona bly



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R2d § 69 ACCEPTANCE BY SILENCE O R EXERCISE O F DO MINI O N

Usually silence is not acceptance: Pr oblem with this is I could send something to you thr ough the mail and say if you k eep you pay $, but the costs of not staying silent, ie sending back, may be mor e costly than just k eeping the damn thing = you ar e forced toaccept. ± ill gotten gains

(1) Some exceptions ar e: (a)Wher e an offer ee tak es the benef it of offer ed services with r easona ble oppor tunity to r eject them and r eason to know thatthey wer e offer ed with the expectation of com pensation (b) Wher e the offer or has stated or given the offer ee r eason to under stand that assent may be manifested by silence or inaction and the offer ee in r emaining silent and inactive intends to accept the offer

(c) Wher e because of pr evious dealing or other wise, it is r easona ble tat the offer ee should notif y the offer or if he does notintend to accept

(2) In addition, any offer ee who does any act inconsistent with the offer or¶s owner shi p of offer ed pr oper ty is bound in accordancewith the offer ed terms unless they ar e manifestly unr easona ble. But if the act is wr ongful as against the offer or it is an acceptanceonly if ratif ied by him

Revocation

R2d §42 REV OCATI O N BY C O MMUNICATI O N FRO M O FFERO R RECEIVED BY O FFEREE

An offer ee¶s power of acceptance is terminated when the offer ee r eceives f r om the offer or a manifestation of an intention not toenter into the pr oposed contract

MAILBOX R ULEaccepted upon mailing, but r evok ed upon r ecei pt

R2d §43 INDIRECT C O MMUNCATI O N O F REV OCATI O N

Effective when the offer ee gets r elia ble information that the offer or has tak en action inconsistent with the intent to contract

R2d §45O PTI O N C O NTRACT CREATED BY PART PERF O RMANCE O R TENDER

(1) wher e an offer invites an offer ee to accept by r endering a per formance and does not invite a pr omissory acceptance, an option contract is cr eated when the offer ee tender s or begins the invited per formance or tender s a beginning of itHas to be done within a r easona ble time

30: Ever-tite Roofing Corp. v. Green ± Acceptance by Performance: Once Started, Reasonable Time to Complete

Unilateral Contract: Must allow r easona ble time to com plete

Facts:T

he P drafted the terms of agr eement her e, and the D accepted.T

he im por tant term was that the P could accept by per formance, but could also accept by notif ication. The D submitted a cr edit a pplication to obtain a ppr oval f r om a lending agency for cr edit. The D knew that this pr ocess could tak e some time. When the D was a ppr oved for the needed cr edit line, the P loaded two tr uck s with his work er s and materials and went to the D¶s home to commence the job.When they got ther e, the D informed P that offer was r evok ed ± obvious to the P because of other com pany working.

> Acceptance by Peforming: Acceptance by per formance is manifested immediately upon commencement.> Reasonableness: When no time limit is specif ied in a contract for accepting the said contract, a reasonable

time must be allowed in accordance with the f acts and context of the contract. In addition, it was understood

by both parties at the time of contracting that it would tak e some time to attain cr edit a ppr oval and subsequently commence per formance of the contract

> At Time Performance Starts: The loading of tr uck s was r easoned to have been the commencement of per formance by the P.

Rejection: Counteroffer or Non Acceptance

R2d § 36 MET HO DS O F TERMINATI O N O F T H E P OW ER O F ACCEPTANCE

Reject: by communicating no acceptance or counteroffer unless the offer ee states in the counter offer that the original offer has not be necessarily r ejected (section 38)Any ty pe of qualif ication is consider ed a counter offer



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R2d § 38 REJECTI O N O F O FFER BY C OUNTER-O FFER

Counter Offer: A counter -offer by the offer ee, r elating to the same matter as the original offer, is a r ejection of the original offer, unless the offer or in his offer, or the offer ee in his counter -offer states that in spite of the counter -offer the original offer shall not beterminated Option if Not: A counter offer is a r ejection and can¶t go back because it would other wise be lik e an option. The buyer hasn¶t given the seller anything for this option, which is contrary to the princi ple that options ar e valua ble. Options ar e valua ble because they f ixterms

Dataserv Equipment Inc. v. Tech ± Counteroffer as Rejection

Demonstrates that once you counteroffer, you have lost ability to accept.

Facts: The contract was in negotiation between the two par ties, and in the pr ocess the D r equested changes to thecontractual pr ovisions stating that a third par ty would install the pr oduct. This ³Indepth Clause´ was followed with a clause that stated that all of the terms must be accepted in the contract for it to be valid. It also stated that any r equested amendments would be a counter offer and would not be binding unless agr eed to in writing by the P. The Dr equested 3 changes including the deletion of the clause 8. Two of the changes wer e accepted, but clause 8 was notdr opped. When the P f inally agr eed to all of the changes, the D r esponded that it was too late. The P continued as if the contract was valid informing the D that the featur es wer e r eady for pick up. The D again stated: no deal.

> Rejection: Once an offer is r ejected, an offer is terminated and cannot be accepted without ratif ication by the other par ty.

> Counteroffer as Rejection: By r efusing to accept all thr ee terms, the P r ejected the D¶s counter offer and the a bility for P to accept was terminated.

Common Law Provisions ± Mirror Image, Promisor Control, Last Shot Doctrine

The Mirror Image Rule indicates that until the terms of offer s mirr or ed one another, no contract was cr eated. A counter offer has the effect of extinguishing the original offer .Promisor-Master of Offer: Offer ees ar e not ty pically allowed to add conditions or limitations in their acceptance; a conditional acceptance is valid only if the acceptance is independent of the condition The Last Shot Doctrine came into play whenever performance of some contract terms occurr ed in the a bsence of an exactagr eement on all terms of the contractthat is, wher e one or both par ties per formed even though the mirr or image r ule had not been satisf ied. Essentially both par ties wer e bound by the terms of the last offer

UCC Article 2: No One Reads the Forms ± Only Details Expressly Accepted Carry the Day

UCC assumes that no one reads the forms. Ther efor e, only details expr essly accepted carry and the UCC def ault terms f ill in ther est of the ga ps. The buyer could get a seller to mention necessary assent to seller¶s terms during the bargaining pr ocess. This isoften r eferr ed to as the ³Battle of Forms.´ This varies gr eatly f r om the common law ³Last Shot Doctrine´ wher e the last terms sentwer e accepted by the other par ty¶s conduct and seeming assent. The UCC also allows for r equest of money prior to the delivery terms

UCC 2-207: General Reasonableness Standards as Contract Law

UCC drafted by Carl Luwellen. Thought law of sales needed clarif ication. Contract law should just r ef lect business practices rather than the law inf luencing business practices. Highly dependent on ³r easona bleness.´ Don¶t even need to specif y price. Can infer mark et price when not specif ied. In every contract with merchants ther e is a r elia ble standard of good f aith and commercial r easona bleness. These general ³r easona bleness´ standards. Invites litigation.When UCC 2-207 is a pplica ble, if the buyer is a non-merchant, then the additional terms would be viewed as mer e pr oposals for addition to the contract. If the buyer is a merchant, the additional terms would be par t of the contract unless they materially alter ed the contract. Thus, a contract would exist on the buyer¶s terms, supplemented by the def ault r ules of the UCC

UCC is buyer friendly

UCC 2-204 ± Conduct, Sufficient Agreement in

(1) Objective Agreement: A contract for sale of goods may be made in any manner suff icient to show agr eement, including conduct by both par ties which r ecognizes the existence of such a contract(2) Undetermined Agreement-When Does it Suffice? An agr eement suff icient to constitute a contract for sale may be found even though the moment of its making is undetermined (3) Open Agreement-Valid if Reasonable Basis: Even though one or mor e terms ar e left open a contract for sale does not f ail for indef initeness if the par ties have intended to mak e a contract and ther e is a r easona bly cer tain basis for giving an a ppr opriate r emedy



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UCC 2-104 -

Merchant: Per son who deals with goods or has knowledge of goods that the transaction involves. This knowledge or skill can beattri buted to his em ployment: agent, br ok er, intermediary involved in the mark et pr ocess.

Step-Saver v. W yse ± Battle of the Forms: Inappropriate in Complicated Dealings ± 2-207 K ills Last Shot

Facts: The P and D work ed together on a com puter system wher e the D pr ovided the softwar e for the com puter network . Ther e wer e pr oblems with the softwar e, and the P ask s for the D to com pensate ± the D stated that ther e wasa warranty during negotiations. D pointed to a box top clause that denied any r epr esentations made by itsr epr esentatives and states that ther e was no warranty for its pr oduct. The D argued that its agr eement with the P was

conditioned upon the P accepting the terms and conditions on its box-top ± last shot doctrine, wher e once P per formsthe last form is valid

> 2-207 UCC± Kills Last Shot in Negotiation: If ther e is no expr essed consent by par ty, section 2-207 saysthat the def ault r ule is that the last terms of actual agr eement will be binding.

Material Alterations-No Good: if last shot materially alter s the agr eement between the par ties.JJ: Contor ted a pplication of 2-207. Not r eally a battle of the forms case. Would r equir e seller to offer the termssubstantially earlier in the negotiations. Str ongest argument against box-top being actual terms/offer is that they had negotiated for commercial use of the pr oduct, which dir ectly conf licts with a term f r om the box-top ± Step Saver wasnot using, just selling for other s to. Ther e is no basis for a r easona ble offer or to discern how cer tain terms and conditions such as the non-transfera bility term wer e nonessential while other s such as the warranty disclaimer s wer eessential. R easona ble per son would not be a ble to constr ue this as the offer /terms also since no negotiation leading upto this point.

H ill v. Gateway ± Last Form Stands ± Customer Related Context

Facts: Hill order ed a com puter f r om Gateway thr ough a telephone r epr esentative and had it shi pped. When r eceived, ther e was a clause stating if the customer wasn¶t ha ppy, r eturn w/in 30 days for full r efund, after that they will only r epair any defects. One of the terms included within the terms and conditions in the box was an ar bitration clause. The P admits to seeing the terms and condition and choosing not to r ead them prior to the 30 day period ela psing. The P f iled suit against the D in federal cour t for violation of the R ICO statute (mail and wir e f raud)for its

pr oduct¶s shor tcomings> Implied Acceptance: The acceptance when Hill did not r eturn the com puter . The pr omisor is master of

the offer, and the terms wer e not unr easona ble in light of f act that they wer e ordinary to these pr oducts ± easy to for esee.

JJ: Could argue r easona ble per son believed it was acceptance when paid. Might have to tak e steps to get money back . Could cr eate an exception wher e costs ar e too high (called r ejection costs) such as mailing costs and timededication. Could argue r easona ble per son believed it was acceptance when paid. Might have to tak e steps to getmoney back . Could cr eate an exception wher e costs ar e too high (called r ejection costs) such as mailing costs and time dedication.

ProCD v. Zeidenberg ± Last Form is Reasonable ± Merchant Context-No Bargaining

Facts: The P is a softwar e com pany that com piles mor e than 3,000 telephone dir ectories into a com puter data base.The softwar e utilizes a copyrighted a pplication pr ogram to search the data base according to r equested criteria set by user s. The softwar e is sold in two formats: discounted consumer ver sion and the pr emium-charged commercial ver sion. Each softwar e package indicates to user s that the softwar e is subject to the terms and conditions within the

packaging. The terms and conditions limit the softwar e to non-commercial usage. This notice actually a ppear s on theuser s¶ scr een every time the softwar e r uns. The D, purchased the non-commercial ver sion f r om a r etail stor e in 1994, and began r eselling the information thr ough his online business.

> Money Now Terms Later: The UCC 2-204(1) does not for bid for the sequence of ³money now, terms

later .´ This would be bad policy, how crazy would it be to force buyer to go thr ough a long list of all termsor print them on the box ± all over the box, would cluster the adver tising, would be ineff icient.

> Only Form-That¶s Reasonable: Since ther e is only one form in this contract, UCC 2-207 is irr elevant. 2-204(1) allows for the seller to specif y the means of the buyer¶s acceptance. The P clearly specif ied that for industrial use, the buyer would have to purchase the mor e expensive copy.

JJ: Would not be good policy not to allow seller to specif y terms such as these. Not only was the D stealing, but theseller would have to jack up prices if everyone could just go and buy the general user copy of its telephone dir ectory.The general user s wer e subsidizing the softwar e for industry.

DEFINITE REQUIREMENT

Indefiniteness The cour t will not enforce a contract wher e it is too indef inite.



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(1) Hard to Determine Intent: Wher e it is too indef inite, it might mak e you think that ther e was actually noagr eement/intention to be bound in the f ir st place.

(2) Hard to Fill in Gaps: Even if ther e is no question as to the intention to be bound, the cour t will be r eluctant to f ill in thega ps assess damages.

(3) Common Law Where Vague no Intention: Wher e the par ties did not mak e their intentions clear, the common law pr esumed that the f ailur e to r each an agr eement on material terms, wher e no terms could be objectively supplied, im plied an intention not to be legally bound.

(4) Legal Rules Can Fill Gaps: Legal r ules commonly fulf ill the function of f illing a ga p in an agr eement between the par ties.Ther e ar e instances wher e the ga ps ar e so many, or have to do with terms so central to the agr eement that the cour t will not

to try and f ill the ga ps

A. Vagueness

Varney v. Ditmars ± Void W here Not Clear and Definite

Facts: D paid P $35/week and offer ed $5 extra per week and ³a f air shar e of the pr of its´ on if they continued their work and hel ped the D thr ough a r ough spot. The P had another job lined up at the time that would have paid $40, and yet hestuck with the D because of the pr omise. The terms of agr eement wer e that P hel p thr ough Jan 1, and because of an illness the P couldn¶t attend work in Nov on a day when the D said that everyone must be at work . The D dismissed Pfor the incident. P alleges that this was sim ply to avoid giving him what was agr eed to.

Void for Vagueness: Fair and r easona ble shar e of the D¶s pr of its is vague, indef inite, and uncer tain in that it cannot

be com puted f r om any evidence offer ed by the par tiesKind of Like Gift/Honor-Good Faith: Such an executor contract must depend upon the honor and good f aith of the par ties making it and consequently cannot depend on the cour ts for ad judication.Uncertainty: Don¶t r eally know what the pr omisor¶s intent was when making this offer and the cour t is r eluctant tosubject that intent to their inter pr etation.

JJ: The P has f irm specif ic skills. Tailor ed to a specif ic f irm and may not be transferra ble. Not wor th to some other com pany what he¶s wor th to this f irm, so can¶t look at other f irms with similar transactions for price indications.Essentially, we can¶t f igur e out his value added and for these r easons, the cour t has no basis to estimate a r easona ble

por tion of the pr of its

Corthell v. Summit ± Indefiniteness has Gap Filler at Law if External Measures

Facts: The P is an inventor who work s for the D. He sells the com pany all of his futur e inventions for ³r easona bler ecognition´ over his 5-year contract. 3 of the 4 pr oducts cr eated during the subsequent year s wer e patented. The D f ir esthe P at the end of his em ployment contract without com pensating the P for those inventions

External Measure to Fill in Gaps: Wher e the agr eement is indef inite as to a material term it is unenforcea ble unlessthe par ties intend some external r efer ence point to f ill the ga ps ± her e it was mark et valueCertainty Factor: Patents ar e easy to estimate as well: license fees and pr of it str eams. R eferral to ³r easona bler ecognition´ was consider ed def inite enough in this case.

JJ: Cor thell may be seen as an illustration of how cour ts can esca pe the indef initeness doctrine

UCC 2-204 O pen Terms Not Disqualifying

(3) External Measure Can Fill: does not disqualif y a contract for indef initeness wher e the price is left out if intention of par ties isnot in question and can attach a r easona ble price, which is usually the mark et price (spot contract). The cour ts need to at least beguided to some external measur e wher e the price is left out because they don¶t want to determine the terms themselves

UCC 2-305 Can Contract W here Price is Not Settled (1) The par ties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a r easona ble price at the time for delivery if

(a) nothing is said as to price; or (b) the price is left to be agr eed by the par ties and they f ail to agr ee; or (c) the price is to be f ixed in terms of some agr eed mark et or other standard as st or r ecorded by a third per son or agency and it is not so set or r ecorded

Why leave terms open? Fir st, they may think the pr oba bility of a par ticular event occurring is too r emote to dick er over itsconsequences. Second, they may f ail to for esee the event at all. Third, when the event is not cer tain to occur but dick ering over itmay block the agr eement entir ely, the par ties may leave it open. Four th, each par ty may assume that the cour ts will f ill a par ticular ga p in its f avor



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Delicatessen v. Schumacher ± Agreement to Agree is not Enforceable: Indefinite as to Intent

Facts: The D r ented a stor e to the P, a deli. They agr eed to a 5 year s lease with a r enewal clause. The r enewal clausedoes not state the r enewal clause¶s monthly r ent. The P and D shar ply disagr ee over the r enewal price when the leaseexpir es. ($544/month v. $900/month)

> Agreement to Agree-Open Term: An agr eement that leaves a material term open without a method for f illing that ga p is unenforcea ble. Including wher e ther e is an agr eement to agr ee to that open term

JJ: The cour t can¶t decide what is f air . R eal Estate is non-fungi ble and is def ined in its 2D space. No two pieces of pr oper ty ar e the same. No possi ble way to esta blish a value since ther e is no external measur e. Business can¶t easily move, so can get mor e money in r ent

D.R. Curtis Company v. Matthews ± Cooperative Engagement: Good Faith Requirement in O pen Contracts

Facts: P¶s grain br ok er contacted D to purchase r ed spring wheat cr op, D agr eed to because of attractive price offer ed.Custom informed both par ties that the price to be paid is not f ixed until the grain is deliver ed to mark et. The price is

based off thr ee elements: pr otein content, pr otein basis, and pr otein scale. The D believed that the pr otein basis f igur ewould be esta blished at some futur e date thr ough negotiation and in futur e pr oceedings the pr otein scale was r eferr ed to as to be ³esta blished.´ Pr otein basis was not mentioned, which D believed to mean that either the pr otein basis wasnot r equir ed or still needing to be mutually agr eed upon. When P informed D that 14 percent was the pr otein basis for the grain contract, D stated that he could not meet that basis, r ejected the agr eement and sold to another

EnforceableYet Open Ended: The cour t r uled that par ties may mak e a binding contract for the sale of goods wher e price is not settled is enforcea ble as long as they intend to enter into a binding contract, and the price is one that iswork ed towards ± as custom would suggest in this case.

Custom and Rules Are Clear: If the price is left open by the par ties to be esta blished by later agr eement and they f ail to r each a later agr eement, then the price will be a r easona ble price at the time of delivery Good Faith: In open ± pr eliminary ty pe II Ks - ended contracts ther e is a good f aith r equir ement because many timesther e is r eliance on the pr oceedings or a third par ty involved ± as her e, DR was to sell this grain to another .

Paradigm Lost: Common Law Application to Complex Business Negotiations

Four Factor Test: Type 1 Agreement, Fully Binding Determined under Reasonable Person Standard

(1) Expressed Reservation Not to Be Bound if not in Writing?

(2) Partial Performance of Contract?

(3) All Terms Agreed Upon? Or just Agreement to Agree?

(4) Type of Agreement Usually Committed to Writing?

5-Factor Test: Type 2 Agreement Binding Preliminary Agreement

(1) Intent to be Bound? Can it be Shown in Language of Agreement?

(2) What was Context of Negotiations?

(3) Are there Open Terms?

(4) Is there Partial Performance?

(5) Is the Customary Conduct Here one where You Would Lack Finality of Terms?

Ciaramella v. Reader¶s Digest ± 4 Factor Test / Negotiations

4 Factor Test for Fully Binding Agreements (Ciaramella Test) (1) Whether ther e is a right (expr essed r eservation) not to be bound in a bsence of signed writing (2) Whether or not ther e was par tial per formance(3) Wer e ther e open terms(4) Whether agr eement at issue is the ty pe of K that is usually committed to writing



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Facts: The P f iled suit against his former em ployer, the D, for claims arising under the Americans with Disa bilitiesAct and ER ISA. The par ties negotiated a settlement in princi ple with r egards to the pending case. The draft and subsequent copies included language indicating that settlement would not be effective until executed by all the par tiesand their attorneys. D drafted an agr eement and for warded it P¶s then attorney, Her ber t Eisen berg, for r eview.Eisen berg suggested some fur ther corr ections after which per formance, Eisen berg said ³we have a deal.´ The P took the agr eement to another attorney for a second opinion and consequently r efused the r evised document that Eisen berg alr eady orally accepted. The D f iled a motion to enforce the settlement agr eement

4 Factor Test Applied:

> (1) Reservation: Paragra ph 10 of the draft states: ³This settlement agr eement and general r elease shall not

become effective until it is signed by´ P and D and attorneys,> (2) No partial performance of the settlement agr eement, > (3) Open Terms: The par ties did not agr ee to all material terms since the execution copy of the settlement

agr eement contained a new pr ovision at paragra ph 12 (r efer ence letter ) that was not pr esent in earlier drafts.This was a material term to the P since it was par t of the P¶s consideration for dismissing the suit,

> (4) Agreement Usually Signed: Settlements of any claim ar e generally r equir ed to be in writing or at a minimum made on the r ecord in open cour t. The agr eement is com plex and spans for 11 pages in text and contains numer ous pr ovisions that will a pply into per petuity

Brown v. Cara ± Good Faith Requirement: Preliminary Agreement

5 Factor Test: Open Ended Agreement

(1) Intent to be Bound? Can it be Shown in Language of Agreement?

(2) What was Context of Negotiations?

(3) Are there Open Terms?

(4) Is there Partial Performance?

(5) Is the Customary Conduct Here one where You Would Lack Finality of Terms?

Facts: Br own and Cara enter ed into an open ended agr eement to develop Jay Str eet Pr oper ty into a r eal estatedevelopment. The P would pr ovide the f inancing, and r elied on Cara to pr ovide the pr oper ty. D sent a letter to Pstating D¶s desir e to negotiate f inal terms of the par tner shi p, design, and pr oject f inancing, which had not yet occurr ed

because the entir e outcome r ested on whether the pr oper ty could be suita bly r ezoned. D was not ha ppy with thenegotiations on this matter and, offended, he ended fur ther negotiations.

> Good Faith Rule: The par ties have an obligation to attem pt to r each agr eement by negotiating in good f aith

Reasoning: (1) Intent to be Bound the agr eement clearly states the par ties¶ agr eement to ³work together to develop, build, mark et, and manage´ pr oper ty.

(2) Context of Agreement: Par ties under stood that pr oject was subject to numer ous contingencies(3) Open Terms: The agr eement left open terms-critical to everything f r om design, to business str uctur e, toowner shi p and management/f inancing (4) Partial Performance: The cour t found that Br own pr ovided extensive and valua ble per formance ± investment into r e-zoning, development, contracts(5) Customary to Lack Finality: The cr eation of the holding cor poration, constr uction, f inancing, and management of the Pr oper ty all r equir ed mor e formal and extensive contracts both practically and as mater s of customary form. Agr eement clearly contem plated these futur e agr eements, and after r ezoning, the par tiesexpended considera ble effor t to negotiate some of these agr eements

JJ: It¶s easier to f igur e out what is bad f aith than what is good f aith. A par ty can¶t just walk away because a better oppor tunity ar ose. Another pr oblem is now r egarding trying to f igur e out what the damages ar e. It¶s possi ble that noagr eement would¶ve went thr ough, so it¶s possi ble that the P wouldn¶t have gotten any pr of its f r om the contract.Lik ely to just get back any costs incurr ed during period of par tial per formance or period of pr eparation for

per formance. R eliance expenditur es possi bly r ecover ed as well Problem w/ Broken Type 2 Agreements: Can¶t r eally say that if other par ty hadn¶t walk ed away we would have $ because K may never have been f inalized.Damage Rewards: If you invested pr eliminary moneys, you might be a ble to get that back, but will not get back what you would have earned on that investment.

Citibank v. W achovia: - Binding Preliminary Agreements: Usually Enforceable Unless Federal Law Against

Watchovia negotiated an agr eement with Citi that did not permit them to look for another deal while Citigr oup gets everything r eady to execute this open ended agr eement. This is a specif ic per formance clause wher e the cour t can order for contract to be enforced.Wellf argo steps in, offer s a better deal, Wachovia accepts.



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> Exclusivity Agreements: binding pr eliminary agr eements ar e exclusivity agr eements, aside f r om Fed Law, should have been enforcea ble.

JJ: In this case, the exclusivity agr eement was im por tant. If not ther e, then ± as ha ppened her e ± once word gets out that Citi isgoing to buy stock at low price, Watchovia can shop ar ound and drive the price up.PROMISSOR Y ESTOPPEL

Cour ts have expanded that set of enforcea ble pr omises to include those that ar e based on r eliance- that is they have r uled that pr omises may be enforced if the pr omisee has incurr ed costs, or conferr ed benef its, on the r easona ble expectation that the pr omisewould be fulf illed

R2d §90

Promise, Expecting Reliance, Reliance, Relied to Detriment (1) Pr omise(2) Pr omisor should r easona bly expect that it would induce r eliance(3) Did induce r eliance(4) Pr evention of in justice r equir es r ecovery

a. Must be definite and substantial ± Reasonable in Light of Promise b. The f ir st 3 elements ar e matter s of f act while the 4th element is a matter of lawc. Pr omise could almost be seen as tor tious: could even be damages if pr omise was def inite enoughd. PE also has similar goals as tor t law in cr eating incentives (be mor e car eful when making pr omises, corr ective

in justice/induced r eliance)e. R eliance = entir e basis of r ecovery ± much differ ent than general contract damagef. Incentive: we want people to tak e optimal car e, this incentivizes them not to lead people on and think a bout

the pr omises that ar e being made.

H aase v. Cardoza -

Facts: The Deceased and D enter ed into an inter vivos tr ust as husband and wife. Some time later, the deceased made a will leaving the P (his sister ) $2,500. Appr oximately 2 year s later deceased died. About a year and a half after the death of the D¶s husband, the D arranged thr ough her sister to have the P come to her home. The D admitted to the P that thedeceased left the a ppellant $10,000 and the P¶s sister $3,000. The D then pr omised to pay the P $50/month. The D madethe monthly payments for 8 months until the P ask ed the D for a note to cover the balance alleged to be due on the$10,000

Reliance: Ther e needs to be r eliance by the P at least for a pr omissory estoppel claim Really a Gift-No Consideration: Ther e was no consideration, so ther e is no br each of contract claim. In addition, ther eis no evidence of r eliance by the P, so can¶t bring a pr omissory estoppel claim. She was not put in a wor se position by the pr omise

1.

Ricketts v. Scotthorn (Reliance,D

etriment): Grandf ather pr omises $$$ because he says that none of his childr en should have to work . Granddaughter quits job. She never gets the money. Should she r eceive it because he induced her to r ely?a. Yes she should. Wher e one is induced to r ely to their detriment = pr omissory estoppel. She r easona bly could

assume that Gpas pr omise was to induce her r eliance.Rickets v. Scothorn (PE/Enforceable)

Facts: The deceased pr omised to pay the P, his granddaughter, $2,000 at 6% inter est/per year . The deceased, her grandf ather, stated: ³I have f ixed out something that you have not got to work anymore ± induced reliance. None of my grandchildr en work, and you don¶t have to.´ The P immediately notif ied her em ployer of her intention to quit her

job. The P later secur ed a bookk eeper position with her grandf ather¶s consent. On June 8, 1894, the grandf ather died after only paying one year¶s inter est on the note. Shor tly befor e his death, he expr essed r egr et that he had not been a ble to pay the balance, but at no time r epudiated the obligation. The estate r efused to pay the granddaughter the

balance on the noteRule:

(1) Promise: Ther e was a pr omise to pay this note, (2) Induced Reliance: She quite her job in r eliance, (3) Relied to Detriment: the grandf ather induced r eliance both by him inferring that she quit and thr ough hisr elationshi p of tr ust with his granddaughter (She tr usted her grandf ather, f amily context r easona bly expects it sinceits r easona ble to r ely upon what your f amily tells you. This is the str ongest argument for r easona ble for eseea bility)(4) Prevention of injustice pr omise was def inite and formal by it being in signed writing, r eliance was def initeand substantial in that she lost wages f r om not working, the r eliance is also measur ea ble for possi ble r emedy (lostwages)Status Quo: Need to r estor e per son who r elied back to wher e she would have been if she hadn¶t r elied.

4.1.2 Promissory Estoppel in Context I: Employment



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1. Feinberg v. Pfeiffer (Definite, Formal Promise, Induced Reliance): Wher e Fien berg had been working for the com pany as a bookk eeper for 37 year s and in a board meeting they a ppr oved a lifelong pension. New management tried to say thatther e was no consideration, but was ther e r eliance.

a. Yes ther e was. The cour t said that because the pr omise had induced her to quit her job, placing her in a position wher e she could get no other (she was 60) pr omissory estoppel.

Feinberg v. Pfeiffer Co (PE/Enforceable)

Facts: The P began working for the D, a pharmaceuticals manuf actur er, at the age of 17. She r ose the rank s over her

year s with the com pany. At the D¶sB

oard of Dir ector s annual meeting at the Com pany¶s off ices in St. Louis, thePr esident of the D announced that he would lik e to incr ease the P¶s salary and offer her a r etir ement plan, which may be executed at any time by her for her loyalty to the com pany. The D¶s pay would be incr eased f r om $350 to $400.The D would be paid $200 per month for life upon r etir ement at any time of her choosing. The D informed the P of the arrangement on the same day, and the P testif ied that she did not know of the offer prior to that communication.On June 30, 1949, After the P r etir ed, the pr esident died and was succeeded by his widow who r etir ed due to illnessand was then succeeded by her son-in-law. The son-in-law consulted an who stated the f act that the payments wer egratuitous and not contractually obligated. Following a conver sation with the D¶s attorney, D sent the P a check for only $100. The P declined to accept the lower amount opting to bring this claim against the D

Ruling: Ther e was pr omissory estoppel: (1) ther e was a pr omise, (2) ther e was r eliance in that P r etir ed younger depending on this pr omise, (3) the D induced r eliance, (4) Pr evention of in justice R easona bly expected inducement: Intended that would r ely by going to her home tocommunicate their seriousness, R eliance was def inite, substantial, and r easona ble by the P r etiring on the r elianceof this pr omised pension and not being a ble to get another job due to her older age and her cancer ous condition

JJ: Un just enrichment potentially in the sense that the P was mor e loyal to the com pany as a r esult of this gestur e and possi bly mor e diligently than pr ofessionally necessary. Finding damages is hard (200/life or differ ence of salary and pension until would¶ve left). It raises question as to when would¶ve left

1. Hayes v. Plantations Steel Co (Indefinite Promise, No Consideration, No induced Reliance): Wher e Hayes work ed for a constr uction co for decades, decides to r etir e, and befor e leaving ask s owner if he would r eceive a pension. Owner says³you¶ll be tak en car e of.´ Hayes is paid for 3 year s and then it stops when co is not doing well. Pr omissory Estoppel?

a. No, because the ³tak en car e of ́ language would not r eally induce r eliance. It¶s not r eally def inite, and Hayesmade statements indicating he knew this.

b. T

his ty pe of statement would not have induced r eliance, and in light of the f act thatHayes intended to r etir e befor e pension talk s, he did not r ely to detriment. He would have r etir ed anyway.

Hayes v. Plantations Steel Co. (No PE/Unenforceable)

Facts: The P was an em ployee of the D f r om 1947 until his r etir ement in 1972 when he was 65 year s old. The Pannounced in January 1972 that he intended to r etir e the following July. A week prior to his actual r etir ement, Hayesspok e with Hugo R . Mainelli Jr . who was then an off icer and a stock holder of Plantations; Mainelli said that the com pany ³would tak e car e´ of him. Ther e was no mention as to a sum of money or a percentage of salary that Hayes, the P, would r eceive. Ther e was also no formal authorization for pension payments by Plantation¶s shar eholder s and/or board of dir ector s. Ther e was also never any formal pr ovision for a pension plan for any em ployee other than for unionized em ployees who benef it f r om an arrangement thr ough their union (P was non-union). Hayes r eceived $5,000/month

payments star ting in January 1973 until January 1976. Hugo Mainelli Jr . testif ied that it was im plied that the check would continue on an annual basis. His f ather, the cofounder, stated that it was his per sonal intention that the payments would continue for as long as he was ar ound. Mainelli even visited Hayes after his r etir ement, and Hayes would ask Mainelli if the check s would k eep coming. The payments wer e discontinued after 1976 due to a series of bad business year s and a stock holder¶s dispute r esulting in the tak eover of the com pany by DiMar tino who cofounded the com pany the Mainelli Ruling:

(1) Not Clear or Definite: Pr omise is unclear and informal, (2) More of Gift: Most lik ely couldn¶t for esee the r eliance since was a gift and ther efor e unr easona ble to r ely, (3) No Consideration: ther e was no r eliance since the P announced r etir ement prior to the transaction and the Pcontinuously ask ed if payments would continue showing that he knew it was a mer e gift and not permanent, (4) no prevention of injustice pr omise was informal and indef inite, unr easona ble/no r eliance



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4.1.3 Promissory Estoppel in Context II: Preliminary and Incomplete Negotiations

In general, cour ts will not grant r ecovery for ³early r eliance´ during the negotiation pr ocess unless the par ties by agr eeing on something signif icant, have indicated their intention to be bound

In R.G. Group v. Horn & Hardart Co., the cour t under scor ed the baseline r equir ement that a claim for pr omissory estoppel r eliance is a ³clear and unam biguous pr omise; a r easona ble and for eseea ble r eliance by the par ty to whom the

pr omise is made; and an in jury sustained by the par ty asser ting the estoppel by r eason of his r eliance´

Coley v. Lang: Wher e Coley wanted to purchase the name of Langs com pany IAS, to gain good f avor with the government for Ks.Letter signed between two that Coley would use IAS as name in bidding until a def initive K. Things didn¶t work out, and Lang sued for per formance. Was this letter a binding K? And wer e Lang¶s accusations that he r elied on Coley to the amount of 30k r eliance?

a. No and no. The Letter was just pr eliminary negotiations, no full and def inite agr eements, and Lang did not pr oduce evidence that r eliance was in any way detrimental.

Coley v. Lang (No PE/Unenforceable)

Facts: D enter ed into discussion with P concerning the purchase of IAS cor poration mainly owned by P. D did notdesir e to purchase the assets of IAS, but only desir ed to purchase the name and good will of IAS. During negotiations, the par ties contacted D¶s attorney who drafted a pr eliminary negotiation agr eement that both par tiessigned. The agr eement stated that prior to the sale of the IAS stock to D, P would transfer all of its assets and lia bilities other than its cor porate name, the right use the name in for eign jurisdictions, and its cor porate f ranchise toa new cor poration or par tner shi p designated by P and IAS¶ other curr ent stock holder s. The agr eement also declar ed that on or prior to Septem ber 18, the pr eliminary agr eement letter would be r educed to a def initive agr eement

binding upon all of the par ties and accom plishing the sale and purchase contem plated by the pr eliminary agr eement

letter . It was subject to a ppr oval of board of dir ector s and shar eholder s. D testif ied that P had not sought a ppr oval of the IR S concerning a pension and pr of it sharing plan nor had cer tain details with the government been com pleted.Because of this, D r ealized that the sale would not work out within the contem plate time f rame and notif ied P. Theattorney who drafted the ³letter agr eement´ testif ied that he informed both par ties that the document in question wasnot binding. P denied that the attorney so informed him

Meeting of the Minds: The cour t r easoned that it is essential the enforcement of such an informal contract that theminds of the par ties should meet upon all the terms, as well as the subject matter of the contract, and if anything isleft open for futur e consideration, the informal pa per cannot form the basis of a binding contract. (It was an

³agreement to agree´)

Open Terms: The par ties agr eed to sign a written agr eement, but left all the material terms open. The P testif ied that the D had not sought a ppr oval of the IR S concerning a pension and pr of it sharing plan nor had cer tain detailswith the government been com pleted. In addition, the D needed to get the a ppr oval of the Board of Dir ector s and stock holder s, which he f ailed to do.

Failed the 4-factor test: > 1st, r eserved the right to be bound by the f inal written agr eement since both par ties knew the contract was

subject to the a ppr oval of the board of dir ector s and shar eholder s, and could not be bound until that point.> 2nd, no par tial per formance by the D. D didn¶t have to do anything. Missed two bids, but no evidence

would¶ve got it anyway. No harm ± detriment ± done.> 3rd, left several material terms open including the vital pensions and government details as well as the

shar eholder a ppr oval without which no agr eement could be cr eated.> 4th

, this is a com plex deal that r equir es a written f inal document. The cour t explained the pr omissory estoppel claim f ailed as well since the cour t ar ticulated ther e was no def inite and substantial r eliance. TheD missed two bids during the 18-day period and ther e is no indication that the D would have bid lowestand subsequently r eceived those contracts. Consequently, the cour t wouldn¶t be a ble to come up with ther eliance damages anyway due to this con jectural natur e

Hoffman v. Red Owl Stores Inc: Wher e R ed Owl stated just sell one mor e thing, or buy one mor e thing and we¶ll give you stor efor 18k . Ended up that they wanted mor e lik e 60k when f inality of K came ar ound. Estoppel on gr ounds of K misr epr esentation?

a. Yes, K misr epr esentation cr eated r eliance to Hoff man¶s detriment.Hoffman v. Red Owl Stores, Inc. (PE/Enforceable)

Facts: D constantly assur ed the D that he would set the D up in a stor e for a mer e $18,000. Along the pr ocess the Phad sold his bak ery and other assets. Also the D¶s k ept communicating that if the P did some step then the P would have his desir ed stor e. These pr omises never materialized. At the f inal meeting, the D¶s agents pr esented pr ojected f inancial statements showing that the P would need to offer $34,000 in cash. The D claimed that the $18,000 total wasthe total un borr owed and unencum ber ed cash. The P r efused to fur ther negotiateRuling:



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(1) Ther e ar e multi ple pr omises by the P ($18,000 was all that was needed, if the P sold his bak ery then would getstor e, and pr omise that another $2,000 would put the deal thr ough, (2) The D should have for esaw that the P would r ely given that he had r elied on all the prior pr omises, (3) R elied to his detriment in a substantial and def inite natur e in that he star ted out a ha ppy little bak er, but wasforced to mak e drastic changes to his life including wher e he lived and selling his business/pr oper ty. The r eliancewas r easona ble in that ther e wer e constant assurances f r om the D and was no r eason not to r ely on these assurances, (4) R easona ble r eliance in that no r eason to not tr ust them and def inite/formal pr omises as seen thr ough themeetings wher e they r eviewed f inancial statements/pr ojections

JJ: Never cited outside of Wisconsin

4.1.4 Promissory Estoppel and the Statute of Frauds

Pur poses for the continued use of the Statute of Frauds: (1) the Statute still serves an evidentiary function ther eby lessening thedanger of per jur ed testimony, (2) the r equir ement of a writing has a cautionary effect which causes r ef lection by the par ties on theim por tance of the agr eement, (3) the writing is an easy way to distinguish enforcea ble contracts f r om those which ar e not, thuschanneling cer tain transaction into written form 2. Statutes of Fraud § 2-201

b. K must be in writing anytime it is: i. marriage, pr enups.ii. K can¶t be per formed within a year iii. K for sale or transfer of land iv. Will

v. Wher e it is mor e than $500, in sale or K similar to it (3).vi. Or wher e it is a sur ety (ie you ar e a guarantor of another debt or obligation)

McIntosh v Murphy (Where Murphy Relied On Oral Promise for 1Yr K, still Valid): The one wher e McIntosh was induced tof ly to Hawaii for a job with the idea that he had a K to work for a year . Car dealer shi p f ir ed him because of stated poor per formance, and McIntosh sued. No K in writing, can McIntosh r ecover on estoppel even though stat of f raud says writing needed. In other words, can one r ecover despite stat of f raud writing sti p wher e the pr omise is oral?

c. Yes, wher e justice so r equir es, one can r ecover f r om an oral agr eement that induced the pr omisee to r ely.

McIntosh v. Murphy (PE/Enforceable)

Facts: The P moved to Hawaii and sold all his pr oper ty to go work for D ther e, but was subsequently f ir ed after only a few months. The D called the P a bout the position on Saturday, and the P moved on Monday. The em ploymentcontract was orally pr omised to be for 1 year commencing on that Monday that the P was supposed to star t work .

Reliance Negates S of F: Pr omissory Estoppel can be used to by pass the Statute of Frauds r ule wher e ther e issubstantial r elianceReasoning: The cour t dismisses the need to fettle with the f acts to get the agr eement within 1 year as to not f all into the statute of f rauds. The cour t explains that pr omissory estoppel has been used to overr ule the statute of f raudsconsistently by the cour ts of Hawaii to pr event in justice that would r esult in such unconsciona ble in jury that would r esult f r om denying enforcement of the contract after one par ty has been induced by the other seriously to changetheir position in r eliance on the contract. The cour t explains that in determining whether in justice can be avoided only by enforcement of the pr omise, the following circumstances ar e signif icant: (a) the availa bility and adequacy of other r emedies, par ticularly cancellation and r estitution; (b) the def inite and substantial character of the action or for bearance in r elation to the r emedy sought; (c) the extent to which the action or for bearance corr oborates evidence of the making and terms of the pr omise, or the making and terms ar e other wise esta blished by clear and convincing evidence; (d) the r easona bleness of the action or for bearance was for eseea ble by the pr omisor

JJ:

> Bad Policy: Par t (c) allows the cour t to infer a contract f r om r eliance. Johnston think s this is a bad r ule.> Increases Probability of Reliance: Incentivizes ³gam bling´ of getting a par ticular agr eement by r elying in

order to pr ove one¶s com petency to the counter par ty. If you can r ely and cour ts give back r eliance damages, then no downside to this risk .

> The default employment rule is typically an at-will contract, which mandates no r eason to terminate thearrangement by either par ty. The cour t r efer s to the doctrine as equita ble estoppel, but it¶s actually

pr omissory estoppel. Equita ble estoppel states that can¶t r epr esent f acts one way outside cour t, and por tray them differ ently in cour t



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Schwedes v. Romain (Oral Promise to Sell, no Performance, No Written K): Wher e the R omains wanted to sell their land to theSchwedes for 60K and the lawyer successfully k ept the R omains f r om paying, or signing a f irm K until the Schwedes wer e a ble tof ind a better seller . This ha ppened in spite of oral pr omise to sell. Estoppel?

i. No, no K in writing (as r equir ed for stat of f raud). And no par tial per formance that would indicate a K agr eementeither . Out of luck .

Schwedes v. Romain (No Partial Performance/ Unenforceable)

Facts: The D sent a letter communicating its willingness to sell its pr oper ty to the P. The P had been in the pr ocess of closing a r eal estate deal with the D. The D¶s sold the r eal estate to a 3rd par ty for a higher price in the pr ocess leading up to the closing wher e the seller and buyer exchange the title and deed for payment. Some time befor e the closing H

oover, the D¶s attorney the P¶s to indicate that the title r epor ts had been r eceived and would be sent by mail to the P. No payment was pr ocur ed in the mean time.Rule: Acts of par tial per formance may tak e a contract out of the statute of f rauds wher e they ar e unequivocally r efera ble to the contract by them esta blishing the par ties intent to enforce the contractReasoning: Not r uled suff icient to satisf y statute of f rauds since didn¶t meet the needed criteria for a r eal estatewritten contract and also not signed/evidenced to have been accepted thr ough writing by the P. The petitioner s citethem securing f inancing and offering the full purchase price toHoover as well as the r espondents withholding their

pr oper ty f r om the mark et while the par ties wer e negotiating obtaining a title r epor t and hiring an attorney to close thedeal. The cour t dismisses this argument explaining that the P f ailed to distinguish acts under tak en in contem plation of eventual per formance and acts which tr uly constitute par t per formance of a contract. The cour t overr uled P¶sargument for PE by stating that it should only be a pplied in those situations when the statute would other wiseoperate to per petrate a f raud, which is not the case her eJJ: The attorney¶s statement as to sending the titles is a statement of futur e intent, which is not binding since it¶s lik ea gratuitous pr omise. Can¶t be f alse unless ther e was a 0% chance of his intent to send the r epor ts. If ther e was

payment pr ocur ed, then ther e would have been consideration and ther efor e a br each of contract

4.2 Alternative Grounds of Enforcement: Unjust Enrichment and Quantum Meruit

R2d §86Promise for Benefit Received Pr omises made in r ecognition of a benef it pr eviously r eceived by the pr omisor f r om the pr omisee is binding to extent necessary to pr event in justiceThis has been limited to those pr omises in which ther e was an expectation of payment. Ther efor e promises based on past gifts and

moral obligations have not been enforced

Implied-in-Fact contract r equir es all of the elements of an expr ess contract: mutual agr eement or consent, intention of the par ties, and meeting of minds. These r equir ed elements ar e inferr ed in ³im plied in f act´ contracts thr ough the actions of the par ties involved.Quasi Contract (Implied-in-Law) ther e is no need for consent. The elements r equir ed ³ar e a benef it conferr ed upon the D by theP, a ppr eciation by D of such benef it, and acceptance and r etention by defendant of such benef it under such circumstances that itwould be inequita ble to r etain the benef it without payment of the value ther eof (Un just enrichmentbenef it conferr ed, a ppr eciated, and accepted and ther e is a r easona ble expectation of com pensation). If , however, the P was voluntarily conferring the benef it, then no obligation is cr eated

Recovery on Past Consideration

Quantum Meruit

Web v. McGowin (Past Consideration, Direct Benefit): The one wher e Web saved McGowin¶s life by saving a wooden block f r om f alling on him but at the same time cri ppling himself. McGowin pr omised to pay Web a sum of $15 every two week s for ther est of his life, and does so until he dies. When he dies, the estate cuts Web off. Can a past consideration suff ice for a futur e

pr omise?ii. In this case, yes. McGowin obviously intended to honor this pr omise, and the material benef it that McGowin

r eceived f r om this past consideration was gr eat enough that ther e was an obligation to pay.iii. Also, pay was f r om dir ect benef iciary to the one that gave past consideration

Web v. McGowin (Material Benefit/Enforceable)



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Facts: The P jum ped out of a window in order to pr event the 75-pound block of wood f alling upon the D f r om in juring theD. The D pr omised that they would f inancially pr ovide for the P after the P had r escued the D¶s life and sustained life-

paralyzing in juries. The D pr omised to pay the P $15 every two week s for the r est of the P¶s lifeQuantum Meruit: McGowin r eceived a benef it; McGowin r ecognized/a ppr eciated the benef it and pr omised cr eating a r easona ble expectation of com pensation (par t of which was due to the em ployee expecting to be car ed for by theem ployer in such cases of em ployee loyalty to the em ployer ).

JJ: Cour ts have limited the enforcement of promises based on past benefits to those in which the benefit was conferred with an expectation of payment.

> How Enforced: Usually 2 criterion for determining enforcea bility: Benef it conferr ed and a ppr eciated, and ther e is

a r easona ble expectation of com pensation following the pr omise

Quantum Meruit: (1) defendant was enriched; (2) the enrichment was at plaintiff's expense; and (3) the circumstances wer e suchthat equity and good conscience r equir e defendants to mak e r estitution.

Mills v. Wyman (Past Consideration, Indirect Benefit):The one wher e Wyman¶s son is sick, Mills is taking car e of him, and Wyman pr omises to pay for this past action. When Wyman¶s son dies, Wyman r efuses to pay. Mills r ecover on past consideration, moral obligation?

iv. No, and no. Moral obligation under these circumstances is a no go. Also, past consideration = no good. Servicesthat wer e given wer e not at Wymans r equest could be r eason for this.

v. Also the consideration in this was given to Wyman¶s son, not dir ectly to Wyman.

Mills v. Wyman (No Material Benefit/Unenforceable)

Facts: The P car ed for the D¶s adult son until the son died. After the D¶s son died, the D pr omised to pay for all theexpenses incurr ed for taking car e of the D¶s son. The D never actually paid the P

No Benefit Conferred-No Quantum Meruit: The cour t held a pr omise by a f ather to com pensate the P after the P had car ed for the f ather¶s adult son and the son eventually died is unenforcea ble. Not r eally a benef it conferr ed since theson was alr eady an adult and the f ather had no legal obligation toward the son. Also ther e is no general expectation for the shor t-term car e of a human in danger of dying. We tend to think of it as an obligation. We also don¶t want toincentivize people in caring for sick /in jur ed people since we want them to call for pr ofessional hel p that can pr ovideadequate car e

What gives between Web and Mills?

d. If these sor t of Ks ar e enforced, bad incentive. With people, as opposed to pets, the idea is that we don¶t want other s just taking car e of someone with the idea that they will later collect on it. We want them to tak e per son to hospital.With pets, no big deal.

Unjust EnrichmentDesney v. Wilder (Past Consideration, Ideas): Intellectual pr oper ty issue. How to handle situations wher e idea must be conveyed

befor e pr omise can be given? Desney had an idea for movie that he gave to Wilder, wher e secr etary said sur e we¶ll pay you if weuse it. Well they used idea but didn¶t pay. Can he collect on past consideration? Quasi K.

i. Yes, this is an issue wher e because the consideration must be given befor e the pr omise = he can r ecover .Desny v. Wilder (Material Benefit/Enforceable) ± Unjust Enrichment

Facts: The P, an idea man, told their movie idea to a movie pr oducer¶s secr etary telling the D that if the idea wer eused, he would be com pensated for it. The D used the movie idea and r efused to com pensate the P

Ideas-Recovery on Past Cosideration: The cour t r easoned wher e an idea has been conveyed with the expectation by the purveyor that com pensation will be paid if the idea is used, ther e is no r eason why the pr oducer who has been the

benef iciary of the conveyance of such an idea, and who f inds it valua ble and is pr of iting by it, may not then for thef ir st time, although he is not at that time under any legal obligation so to do, pr omise to pay a r easona blecom pensation for that idea- that is, for the past service of furnishing it to him- and thus cr eate a valid obligation

Warner v. Doyle (Past Consideration, Quasi K): The one wher e Warner was the middleman and he put Doyle in touch with a contractor . Warner says if it work s out, I want 3% for putting you in contact. Doyle doesn¶t pay. Can Warner collect for pastconsideration?

ii. Yes, people who put people in touch get paid. Qausi K.Worner Agency Inc. v. Doyle ± U njust Enrichment



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Facts: In Worner Agency Inc. v. Doyle, the cour t held that the defendants admitted that they had benef ited f r om the plaintiff ¶s actions and that they would not have known a bout a job they bid on and won if the plaintiff had not arranged themeeting of Novem ber 1980. The cour t r uled that ther e was adequate evidence of a benef it conferr ed upon the defendantsand of it being deemed adequate consideration for the pr omise to pay the f inder¶s fee

JJ:

MaterialBenefit: These cases illustrate how the material benef it r ule pr ovides assurance to a par ty who confer s a benef it in a bsence of a def inite agr eement for com pensation, that a subsequent pr omise to pay for the benef it r eceived will be legally enforcea bleBenefits in Advance Common in Some Situations: The cases suggest the practice of pr oviding benef its in advance of

a def inite bargained-for -exchange is common when informational barrier s mak e bargaining in advance im practica bleThe best position to be in this ty pe of scenario is to have your own r esources and connectionsEven when an agr eement, the other can launch it as their own and it will never be the same again even if the P winsTy pically when your star ting out in an industry, however, you don¶t know anyone and don¶t have the ca pital to go a boutmaterializing your idea

Quasi K: It is customarily thought that ther e is a K in these situations. Ther e is a benef it given and then the pr omise is given after words. If you don¶t have a pr omise after the benef it, you may not have quasi K. ± Bad Policy

iii. In these kind of Ks, ther e must be a r easona ble expectation of K. If f acts hint that ther e wasn¶t one (eg lik elawn mower comes by my house every week and mows lawn and I pay him, this would be one.) then no quasi K.

iv. If not, then you could get a guy that comes by and paint your house and then demands payment out of nowher e. Not good.

Bailey v. West (No History Inferring Quasi K): The one wher e West purchased a hor se f r om a guy and then it was lame. They left it on Baileys f arm wher e Bailey car ed for it not knowing who the owner r eally was. Sends bill to West, West declines, and Bailey continues caring for it. He brings suit for past consideration, enforcea ble?

v. No, in this case not only did West not r eally have a r elationshi p with Bailey wher e he could r easona bly assume that West would pay him for these services that wer e pr ovided, but West denied that the hor se washis. Ther e was no im plied in f act K as Bailey had alleged and won in lower ct. No Quasi K.

Bailey v. West (No Implied-in-Fact or Law/Unenforceable)

Facts: The D went to Belmont Park in New York to purchase race hor ses with his trainer in April 1962, which is wher eand when the D purchased ³Bascom¶s Folly´ f r om Dr . Strauss. Upon arrival, the D¶s trainer discover ed that the hor sewas lame, and so the hor se was r eshi pped to the seller by van as order ed by the D. The seller r efused to accept thehor se. The van driver contacted the D¶s trainer who told the van driver to do whatever he wanted to do with the hor se,

but that the hor se would not be car ed for at any f arm at the D¶s expense.T

he van driver subsequently br ought the hor seto the P¶s f arm, but did not inform the P of what the D¶s trainer had informed the van driver over the telephoner egarding the D¶s intention to not pay for maintaining the hor se. The P sent r egular bills to the D for the car e pr ovided to the hor se. After 2-3 months, the D r esponded to the P¶s bill by r efusing to playing on the basis that the hor se was nothis or had been instr ucted to be left in the car e of the PRule:

1) An ³implied in fact´ contract r equir es all of the elements of an expr ess contract: mutual agr eement or consent, intention of the par ties, and meeting of minds. These r equir ed elements ar e inferr ed in ³im plied in f act´ contractsthr ough the actions of the par ties involved.2) In a quasi contract (implied-in-law), ther e is no need for consent. The elements r equir ed ³ar e a benef itconferr ed upon the D by the P, a ppr eciation by D of such benef it, and acceptance and r etention by defendant of such benef it under such circumstances that it would be inequita ble to r etain the benef it without payment of thevalue ther eof > Unjust enrichment benef it conferr ed, a ppr eciated, and accepted and ther e is a r easona ble expectation of

com pensation. If , however, the P was voluntarily conferring the benef it, then no obligation is cr eated Reasoning: 1) No Mutual Agreement: The cour t r uled that the actions of the par ties do not infer mutual agreement or ³intent to

pr omise´ between the par ties: > The P knew that ther e was a dispute r elated to the owner shi p of the hor se, and his subsequent actions indicated

that he did not know with whom he had a contract with, > The cour t also r uled that the D never used the P or had esta blished a prior r elationshi p with the P, > The most im por tant f act deemed by the cour t was that the D¶s trainer informed the van driver, Kelly, that the D

would not be r esponsi ble for the hor se¶s maintenance2) Ther e is no quasi contract (implied-in-law):

> The P knew of the contr over sy surr ounding the owner shi p of the hor se.



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> The D did not r eally get a benef it f r om the P by caring for the hor se.> Essentially, the P was a volunteer since he boarded the hor se assuming the risk that no one would pay for the

service since no one was willing to own up to the f act that the hor se was indeed their pr oper ty

> Unjust enrichment o 1) benef it conferr ed, o 2) a ppr eciated, and accepted and ther e is a o 3) r easona ble expectation of com pensation.

Exeption: If , however,

y 1) the P was voluntarily conferring the benef it, then

y 2) no obligation is cr eated

5.0 Defenses to Legal Enforcement of Admitted Contracts

5.1 Subject Matter Limitations on Freedom of Contracts

In some instances, though people would lik e to K for cer tain things, sex, dr ugs, surr ogacy (in some states), or other illegal activity, the K is unenforcea ble because of the subject matter at hand.

5.1.1 The Example of Surrogacy Agreements

R2d §178 When a Term is Unenforceable on Grounds of Public Policy (1) A pr omise or other term of an agr eement isunenforcea ble on gr ounds of public policy if legislation pr ovides that it is unenforcea ble or the inter est in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such termsSurrogacy agreement Contract wher e woman agr ees to be im pr egnated and carry a ba by to bir th, give bir th, then ba by is adopted

by the counter par ty. A lot of ways surr ogacy is done com binations of sperm and egg. States r egulate it differ ently. For instance, Texas and Arkansas have statutes voiding the rights of surr ogates. Other states void surr ogacy contracts and criminalize them

In Re Baby M: The one wher e the Sterns enter into a surr ogacy K with Mr s. Whitehead, when Mr s. Whitehead r eneges, ther e is a big f ight over the custody of the ba by. Can the surr ogacy agr eement be enforced?

i. No, ther e is a statute against such Ks.In Re Baby M (Against Pub. Pol./Uneforceable) ± Surrogacy Agreement / Statutory Limits



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Facts: The P¶s executed a surr ogacy contract with the D. The D agr eed to pr ovide as the mother with the P as thef ather a child thr ough ar tif icial insemination. The agr eement ar ticulated that the D would become pr egnant, carry thechild to term, bear it, deliver it to the P, and ther eafter do whatever was necessary to terminate her maternal rights sothat the P¶s wife could ther eafter adopt the child. The P¶s wife was not a par ty pr esuma bly to avoid the a pplication of the ba by-selling statute to the agr eement. The P would pay the D $10,000 after the child¶s bir th and on its delivery tohim. The D r ealized almost f r om the time of bir th that she could not par t with the child. Concerned that the D mightcommit suicide, the P¶s agr eed to let the D car e for the ba by for the 1 week that the D r equested after which the ba by would be r eturned to the P¶s. It took the P¶s 4 months after this date to r egain the ba by since the D¶s f led to Florida with the ba by and avoided detection by staying at various locations over the time period. The P¶s f iled a com plaint

against the D seeking enforcement of the surr ogacy contract, which would grant the P possession and ultimate solecustody of the child Violates Statute = Unenforceable: Unenforcea ble due to violating state statute and public policy K Structured For Baby: P argues not payment for adoption, which is illegal. ³Payment of services.´ Pr oblem isthat payment is str uctur ed on if they get the ba by. The ma jority of the opinion is in r egards to the public policy.Custody Statutes and Parent Rights: Cour t states no par ent has gr eater right than the other par ent (P is Father v. Dis Mother ). Get this f r om custodial statutes. Doesn¶t place best interest of the child at the forefront. Get this f r om

payment-for -adoption statute. Cour t deeply concerned a bout payment of money for ba by. Might just turn over the ba by to bad par ents because adopting par ties ha ppen to pay the most without taking into account the bond with the ba by since the ba by isn¶t born yet. Don¶t want to incentivize black mark et for ba bies.

JJ: Cour t counter s the claim that the D has given consent since the D give consent befor e giving bir th and is ther efor einca pa ble of knowing the attachment. The money has clouted the mother f r om seeing this pr oblem. The D is pr oba bly less aff luent than the P¶s. Historical Fallback by Ct: Also women ar e not ca pa ble of making these decisions becausethey ar e hysterical/irrational and for legal pur poses lack ca pacity

Public Policy arguments > First question in any of these ty pe of cases (Public Policy) is if it¶s illegal. If yes, then done. Even if not, is it void f r om the

source of public policy.> Public policy needs to come f r om statute or state constitution. Not just what some judge says or believes

Johnson v. Calvert (Enforceable) ± Surrogacy Agreement

Facts: In Johnson v. Calver t, the cour t r ejected the com parison between adoption and surr ogacy agr eements, and instead based its decision on the autonomy of women to enter into surr ogacy agr eements.

> The cour t held that holding other wise would foreclose a personal and economic choice on the part of the

surrogate mother , > and to deny intending parent what may be their only means of procreating a child of their own genetic stock .>

It was also held that it could not be seriously argued that surr ogate mother, a licensed vocational nur se whohas some well in school and who pr eviously borne a child, lacked the intellectual wherewithal or lifeexperience necessary to make an informed decision to enter into the surrogacy contract.

> Adoption law not a pplica ble since the Calver ts wer e the com plete biological par ents.> Also made r egular payments thr oughout the pr egnancy. J ust paid for service- not adoption. > Also legislatur e knew a bout these agr eements since tried to pass statute r egulating this, but it was vetoed.

Cour t says it¶s the legislatur es to invalidate these contracts for solely public policy r easons.

5.2 Other Problems with the Bargaining Process

5.2.1 Duress

1. Basic Assumption of Duress:

a. All cases of equita ble r ecovery, basically: 0 ± SQ ± Expectancy b. Wher e instead of a mutually benef icial K allowing people to exercise pr efer ence, par ty changes the game and

thr eat is made to induce K c. One par ty says that I will move you towards zer o or (-) if you don¶t mak e K that I want, no benef it, just a loss

for you.i. Either you lose, or you lose mor e, what is your choice?

2. R.2d. § 175 & 176 a. If assent is induced thr ough an im pr oper thr eat that leaves no r easona ble alternative, K is voida ble.

i. Thr eat can be legal or illegal

3. 3 Elements of Duress



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a. Im pr oper thr eat made b. Inducement of pr omise by thr eatc. R easona ble to consider this thr eat induced

Exchange is better off when involves parties¶ free will/voluntariness

R2d § 175 When duress by threat makes a contract voidable (1) If a par ty¶s manifestation of assent is

(a) induced by an (b) im pr oper thr eat by the other par ty that leaves the victim

(c) no r easona ble alternative, the contract is voida ble, (2) If a par ty¶s manifestation of assent is induced by one who is not a par ty to the transaction, the contract is voida ble by thevictim unless the other par ty to the transaction in good f aith and without r eason to know of the dur ess either gives value or r elies materially on the transaction

R2d § 176 When a threat is improper

(1) A thr eat is im pr oper if :

(a) what is thr eatened is a crime or a tor t, or the thr eat itself would be a crime or a tor t if it r esulted in obtaining pr oper ty, (b) what is thr eatened is a criminal pr osecution, (c) what is thr eatened is the use of civil pr ocess and the thr eat is made in bad f aith, or (d) the thr eat is a br each of duty of good f aith and f air dealing under a contract with the r eci pient

(2) A thr eat is im pr oper if the r esulting exchange is not on f air terms, and (a) the thr eatened act would harm the r eci pient and would not signif icantly benef it the par ty making the thr eat, (b) the effectiveness of the thr eat is inducing the manifestation of assent is signif icantly incr eased by prior unf air dealing by the par ty making the thr eat, or (c) what is thr eatened is other wise a use of power for illegitimate ends

-H 0 SQ Expect.In dur ess, par ty 1 tries to mak e par ty 2¶s SQ (Status Quo) negativePar ty 2 has to choose between two alternatives both below the SQ

Wolf v. Marlton Corp (Legal Threat to Pressure Seller): The one wher e the Wolf ¶s, due to marriage pr oblems, had their lawyer thr eaten the Marlton Cor p. by stating you either let us out of K to purchase house and give us most of the down payment back, or wewill purchase the house and sell it to an ³undesira ble´ buyer to r uin your r eputation. When the seller, then, r eneges on the K and k eeps the down payment, the case goes to cour t. Can a thr eat, even if it is a legal thing for the per son to do, cr eate r ecovery under

dur ess?a. Yes, even if thr eat is legal or not, or even if it r eally mak es sense, as long as the victim is pr essur ed by the thr eat (a

question for the jury), then they can r ecover thr ough dur ess.Wolf v. Marlton Corp. (Duress/Unenforceable)



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Facts: The D enter ed into an agr eement with the P¶s for the constr uction and sale of a dwelling in the D¶s housing development. The agr eement allowed for the D to void the contract and r etain all payments paid by the P in the casethat the P f ailed to mak e payment or settlement as specif ied by the agr eement. The P missed the second payment. TheP¶s attorney spok e with the D¶s sales agent r egarding this P¶s marital pr oblems. The P¶s attorney informed the D¶ssales agent that the P¶s would go thr ough with the deal if necessary, but they would subsequently r esell the pr oper ty in such a way as to harm the D¶s business. The P¶s attorney also spok e with the D¶s pr esident a bout the P¶s want toget its money back The P¶s attorney explained that if the D did not get a specif ied amount back . The D¶s attorney sentthe P¶s attorney of a material br each of the contract by the P making the agr eement null and void assigning the causeof termination as ³among other r easons´

Physical or Psychological: T

he cour t holds that a distinction between a physical and non physical pr essur e by one par ty f r om letting the other par ty enforce the contract is of very minimal im por tance. Both consist of dur essReasoning: The pr essur e exer ted against the other par ty must be wr ongful, and that not all ty pes of pr essur e ar ewr ongful. Fur ther, a wr ongful form of pr essur e is not one determined by the legality or lawfulness of the pr essur e.Acts and thr eats ar e wr ongful in the moral or equita ble sense. If the thr eat is made for an outrageous pur pose, a mor e critical standard is a pplied to the thr eatened action in deeming it wr ongful. Ther e is no r eason why economic or moral dur ess should not be tr eated as the equivalent as that of physical dur ess. The par ty for pur ely malicious and unconsciona ble motives thr eatened to r esell such a home to a purchaser specially selected because he would beundesira ble for the sole pur pose of in juring the builder¶s business. Just thr eatening in jury- it¶s the sole pur poseJJ: Cour t doesn¶t say if ther e wer e any r easona ble alternatives. Cour t doesn¶t say that it would¶ve been a r easona blealternative for the P to give the D¶s money back and succum b to the thr eat. Would cr eate an undesira ble incentivefor thr eatner s. Thr eatner s could ther efor e get out of deals wher e no other alternative for P

Post v. Jones: 19th century whaling shi p case wher e the Ps shi p gets stuck in the Ar tic right befor e winter set in. Their only choice, if they wanted the 3 other shi ps who offer ed r escue to tak e their whale oil, was to submit to a rigged auction wher e the thr ee shi pstook oil at marginal price. Is this dur ess, or a hard bargain?

> In light of maritime law that set for th pr ocedur es for just such a thing, this was an im pr oper thr eat that was effective because of dur ess

Post v. Jones

They held a rigged auction and purchased the oil at way below mark et price. P¶s forced to choose between this and not taking any oil. Not r easona ble because we have a r easona ble value f r om the salvage law. Won¶t get anything if Pdoesn¶t agr ee. The Supr eme Cour t voided the contract holding that the D took advantage of their position to force an unr easona ble bargain.

> The cour t r uled that one par ty had a bsolute power, and the other had no choice but submission

Austin Instrument Inc, v. Loral Group (Economic Duress, Lack of Options = No Free Will): Loral had a K with the Navy, under strict time limits, to build radar sets and subcontracted the par ts out to Austin. When Loral got a second K , they again contacted Austin for par ts. Austin then demanded that they get a K for all the par ts needed, that Loral pay a higher cost for them, and that this be r etr oactively a pplied to the existing K or they would stop delivery. Loral could f ind no other who could pr oduce the

par ts in time, and so they had to go with Austin, and later ther e was a suit br ought. Can Austin¶s economic pr essur e to Loral bedur ess, or should Loral have just moved on to another supplier r egardless of their deadline?

b. Yes, this is dur ess.c. The Economic pr essur e that Austin thr eatened Loral with no other choice, a lack of f r ee will, but to succum b to their

unr easona ble demands.Austin Instrument v. Loral Corp.



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Facts: P was awarded a $6,000,000 contract by the Navy for the pr oduction of radar sets. The contract contained a schedule of deliveries and a liquidated damages clause in case of P¶s def ault. P subcontracted 23 com ponents to D. Pwas then awarded a second Navy contract for the pr oduction of mor e radar sets and again went a bout soliciting bids.The D¶s off icer told P that D would cease deliveries of the par ts due under the existing subcontract unless P consented to substantial incr eases in the prices pr ovided for by that agr eement both r etr oactively for par ts alr eady deliver ed and

pr ospectively on those not yet shi pped and additionally placed with Austin the order for all 40 par ts needed under P¶ssecond Navy contract. After f ailing to f ind another manuf actur er to subcontract to instead while still meeting the deliver schedule, P succum bed to D¶s demands

No Alternatives: Dur ess wher e the victim is left with no alternatives

Reasoning: Ty pically br each is not an excuse since can r ecover damages on a br each claim and f ind another par ty tocontract with. The P was anxious to per form well in the government¶s eyes. The P could not be sur e that it would be

a ble to obtain enough par ts f r om a substitute vendor to meet its commitments. In addition, ther e is authority thatnon per formance by a subcontractor is not an excuse for def ault in the main contract. P¶s normal legal r emedy of accepting D¶s br each of the contract and then suing for damages would have been inadequate under the circumstancesas P would still have had to obtain the par ts elsewher e

JJ:

Duty of Good Faith and Fair Dealing in K: Once you¶r e in a contract, things change. Ther e¶s a duty of good f aithand f air dealing once in a contract

Lewis v. Lewis (Reasonable Person Standard, Econ Duress): Wher e the husband thr eatened to ³tak e car e of her´ if she did notsign divorce settlement. It was found that the argument took place in public, thr eats wer e not connected to signing the document, and that she most lik ely signed the settlement because she needed money. Would a r easona ble per son have been thr eatened her e?

d. No, no dur ess her e.e. Hard Bargain: She needed the money, no wr ong in accepting a hard bargain.

Chouinard v. Chouinard (Econ Duress of Own Making, Hard Bargain): Wher e the pr esident, Fr ed, of the com pany needed a loan because of f inancial mess that he cr eated. Bank would not lend unless the co-owner s dispute was r esolved. Owner wanted to

buy them out, Ed and Al dr ove a hard bargain, Fr ed claims dur ess because he was in a hard spot, dur ess?f. No, this his poor circumstances wer e of his own making and so Al and Ed driving a hard bargain was just that, not

dur ess.

5.2.2.1 Fraud: Basic Elements

1. Ty pically wher e the buyer has purchased something for mor e than it is wor th based by the f alse r epr esentations of theseller .

a. Very subjective, which is a pr oblem.

2. Misrepresentation: a. False asser tion of pr esent or past f act

i. Generally, in this case, you have to say something ii. Sometimes ther e is a duty to speak, but in general no.

b. Statements of futur e ar e usually not f raud, no one knows the futur e.i. Pr ojections

3. R.2d. § 164 a. Assent induced by either a f raudulent or material misr epr esentation by other par ty, upon which other r easona bly

r elies, K is voida ble.i. In tor t = f raudulent and misr epr esentation, stricter r ule

Basic Remedies R escission, Defense against contractual br eachMarket Mechanism For Ridding Fraud Bad r eputation will k eep buyer s away f r om the f raudulent seller . However, this would not work for shor t-term player s. Need long-r un player s who plan on being in play for a while. A shor t-r un seller has no r eputation and doesn¶t car e a bout their r eputation since they ar en¶t going to be in the mark et for long. It¶s also not going to pr event some

people f r om getting hur t. Contract context hel ps get money back at least for the def rauded victim. This pr omotes economic transactions since buyer s willing to buy f r om less known seller s since can get money back in cour t R2d §§ 160-169 (Elements of Fraud)

(1) Misrepresentation/False assertion of a past or present fact . Futur e pr ojections ar e not f acts and ther efor e can¶t be f raud. Notsaying anything is also not a f alse asser tion except for cer tain instances such as f iduciary duty to disclose(2) Fraudulent or material in contract context.



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> Fraudulent intending to induce assent knowing its f alse.> Material lik ely to induce a r easona ble per son to assent. If you know someone is less r easona ble than a r easona ble per son

and try to tak e advantage, then its f raudulent in contract law (NOT Tor t Law)(3) Induced Reliance (§ 167) substantially (no but-for cause) contri butes to the induced per son¶s decision to manifest his assent(4) Justifiable Reliance needs to be r easona bleR2d § 168 Reliance on Assertions of Opinion

(1) An asser tion is one of opinion if it expr esses only a believed, without cer tainty, as to the existence of a f act or expr essesonly a judgment as to quality, value, authenticity, or similar matter s.

(2) If it is r easona ble to do so, the r eci pient of an asser tion of a per son¶s opinion as to f acts not disclosed and not other wise

known to the r eci pient may pr operly inter pr et it as an asser tion (a) that the f acts known to that per son ar e not incom pati ble with his opinion, or (b) that he knows f acts suff icient to justif y him in forming it

R2d § 169 When Reliance on an Assertion of Opinion is Not Justified To the extent that an asser tion is one of opinion only, ther eci pient is not justif ied in r elying on it unless the r eci pient

(a) stands in such r elation of tr ust and conf idence to the per son whose opinion is asser ted that the r eci pient is r easona ble in r elying on it, or (b) r easona bly believes that, as com par ed with himself , the per son whose opinion is asser ted has special skill, judgment or objectivity with r espect to the subject matter, or (c) is for some other special r eason par ticularly suscepti ble to a misr epr esentation of the ty pe involved

Spiess v. Brandt (Past, Present Misrepresentation): The one wher e the Ds told the Spiess that they wer e making ³good money,´ and that because of this when the Spiess bought the r esor t, they would too. Would not show book s. Is this f raud?

b. The ma jority thought Yes, c. Ther e was a f alse r epr esentation of pr esent and past f act, and a futur e pr ojection that was based on these past and

pr esent f acts, which induced the Spiess to purchased. Also, their perceived concealment of the f acts by not showing the book s played into the f raudulent act

i. Dissent: No way, the Ds did mak e money, and they r einvested into themselves. The Spiess also mademoney, and only wanted out because they made a poor choice, Ct should not have held f raud.

Spiess v. Brandt

Facts: The P¶s bought a r esor t f r om the D¶s for $95,000. The contract pr ovided for an initial down payment with a payment schedule for ther eafter . After the P¶s missed payment, the D¶s eventually served on P¶s a notice of cancellation of the contract. The P¶s br ought an action to r escind the contract on the gr ounds of f raud and misr epr esentation. The D¶s, prior to entering the agr eement and during negotiations, had r epr esented to the P¶s: The D¶s wer e making good money out of the r esor t, The P¶s could mak e good money out of it, The P¶s could mak e all futur e payments on the contract out of the pr of its

Reasoning: False Asser tion D¶s claimed they made ³good money´ when they in f act lost money.Fraudulent the D¶s knew it was f alse since they r efused to supply the book s after the P continuously r equesting them. The D knew the P would r ely because of the P¶s youth and lack of experience in businessJustif ia ble r eliance Age disparity justif ied the seller¶s to be wholly tr uthful and ³hand-holding´ almost lik e a f iduciary duty according to the ma jority. K new of age disparity and took advantage of this as well.R eliance The P¶s purchased the r esor t for $95,000JJ: P¶s had done business befor e and so wer en¶t as inexperienced as the ma jority made it seem. The P¶s also mademoney while operating the r esor t as seen by the plane and car they bought

Liability for fraud in Contract and Tort Tor t actions with r egards to f raud tend to have a higher burden of pr oof than those under contract law since contract law only r equir es a misr epr esentation need be only material or f raudulent while tor t law r equir esmisr epr esentation need be both material and f raudulent

Remedies for Fraud in Contract and Tort The ty pical r emedy for f raud in contract law is r escission wher eas it allows for punitive damages in tor t law. R escission calls for the par ties to be r eturned to the status quo ante or the position each occupied befor e the contract was made. Most cour ts will also allow r estitutionary r ecovery if necessary to r estor e a par ty to the status quo ante

5.2.2.2 Is Fraud a Default, or Mandatory, Rule?

Default rules can contract out of Mandatory rules can¶t contract out of (Cannot contract out of f raud)



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Danann Realty v. Harris (Duty to Read): The one wher e the buyer s purchased a building with the clause that ³no one r elies on any r epr esentations made.´ They then come back, upset a bout the r epr esentations that induced them into purchasing. Fraud, or did they have a duty to r ead?

a. They had a duty to r ead. b. In this case, ³as is, don¶t r ely´ clause should have been r easona bly under stood by the purchaser s, who assumed the

risk .

Fuld Dissent actually def ined the ma jority r ule in this case: can¶t K out of f raud.

c. This is boilerplate:not negotiated, general in the K.

i. T

his is against grain of ma jority opinion that this is not a general K clauseii. R eason that this is im por tant: most people tend to look over general pr ovisions because they wer e notnegotiated, this affects ones duty to r ead and under stand.

d. R ather than a specif ic clause as ma jority contended, the dissent believed that a clause of ³no r eliance´ encom passed the whole K.

e. Worried that if one could K out of f raud, then how can one r ely on r epr esentations that induced them into it?i. Under §164, K should be void when misr epr esentations induce anyway, so ³do not r ely ́clause isn¶t

valid.Danann Realty Corp. v. Harris (Specific Disclaimer/Enforceable)

Facts: The P alleges that they wer e induced to enter into a contract of a lease for a building held by the D because of oral r epr esentations f alsely made by the D¶s r egarding the operating expenses of the building and the pr of its to bederived f r om the investment. The P seek s to aff irm the contract, but r etrieve damages for f raud. The contract contained a merger and specif ic disclaimer clause stating: that the D had made no oral pr omises and the P had not r elied on any oral

pr omises.Can Contract out of K: Fraud can be contracted out of with a specif ic disclaimer clauseReasoning: When you have contract that includes those specif ic details, then can¶t argue its boiler plate and ther efor edidn¶t r ead it since it was just added in and never r elied on. They knew a bout it.Sophisticated Parties: In addition, both wer e sophisticated par ties

JJ: Johnston says that even though something is boiler plate or standardized doesn¶t mean that people don¶t know/r ely on it. In addition, this is f raud thr ough contract by this allowing for f raud itself to disclaim lia bility

Warranties (If Not True, Why Fraud?):

a. If it says a good or a service is of a cer tain quality: asser tion of pr esent and sometimes past f act. b. The mor e pr esent or past, the mor e f raud. At times: a bit gray.

CBS v. Ziff Davis Pub (Warranties): Ziff ³expr essly warranted´ that its f inancial statements wer e accurate. CBS conducted inquiry, and didn¶t believe this, but r egardless of this f act. Things didn¶t work out as CBS hoped, sued over expr ess warranty, thewarranty stood.

c. Be car eful what you asser t, warranty is r elied on as par t of K.d. Warranty is par t of what you pay for, so no need to pr ove belief

CBS v. Ziff-Davis

Expr ess warrant that f inancial information is accurate within the contract. P discover s that its not.Rule on Warranties:

> Still br each when you know it¶s f alse.> This is a warranty you paid for . Going to get damages.> Even if known, then should still be a ble to sue as an incentive to be more careful when making these

warranties

5.2.2.3 Failure to Disclose as Fraud

Common Law Rule of Caveat Emptor ³let the buyer beware.´ > No duty to disclose.> Buyer the r esponsi bility to research.> Whatever can¶t r esearch, ask the seller (Asking questions is the pr otection).> Sets up fraud this (asking questions) is the buyer¶s pr otection.> Exceptions would be things that a r easona ble per son would not know to ask

R2d § 161(a-d) When Non-Disclosure Is Equivalent to an Assertion A per son¶s non-disclosur e of a f act known to him isequivalent to an asser tion that the f act does not exist in the following cases only:

(a) wher e he knows that disclosur e of the f act is necessary to pr event some pr evious asser tion f r om being a misr epr esentation or f r om being f raudulent or material.



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(b) wher e he knows that disclosur e of the f act would corr ect a mistak e of the other par ty as to a basic assum ption on whichthat par ty is making the contract and if non-disclosur e of the f act amounts to a f ailur e to act in good f aith and in accordancewith r easona ble standards of f air dealing.(c) wher e he knows that disclosur e of the f act would corr ect a mistak e of the other par ty as to the contents or effect of a writing, evidencing or em bodying an agr eement in whole or in par t.(d) wher e the other per son is entitled to know the f act because of a r elation of tr ust and conf idence between them.

Obde v. Schlemeyer (Duty to Disclose where Buyer Cannot Easily Discover): Wher e the Schlemeyer s purchase a house f r om theObdes, and the Obdes do not disclose the f act that ther e is str uctural damage caused by termites that they did not f ix. Fraud?

a.

Yes, ther e is a duty to disclose. b. The Seller is seen as the one who can easily r eveal information, and the buyer r eally can¶t be expected to knowthings that ar e not easily seen, so the buyer has a duty to disclose these sor t of things.

c. Also, the undisclosed f act is objectively detrimental to valueObde v. Schlemeyer (Duty to Disclose & Concealment/Unenforceable)

Facts: The P¶s purchased the D¶s home. The D¶s knew of a potential active termite pr oblem and their f ailur e to fully eradicate the pr oblem in the past. The D¶s had concealed any super f icial signs of termites by hiring a pest exper t to doso. Upon learning of the infestation, the P¶s ceased per formance of a prior installment contract between the D¶s and theoriginal owner of the home, allowing for the home to r ever t back thr ough for eclosur e to that owner Duty to Disclose: Ther e is a duty to disclose defects to purchaser wher e:

> ³(1)the concealed defects in demised pr emises, danger ous to the property, health or life of the tenant, which> (2) defects ar e known to the landlord when the lease is made, but> (3) unknown to the tenant, and which> (4) a careful examination on his par t would not disclose, > (5) it is the landlords duty to disclose them to the tenant befor e leasing, and his failure to do so amounts to a

fraud ́ Reasoning:

> Par t (4) is the pr oblem since could¶ve hir ed a pest exper t of their own for minimal cost, but ther e¶s enoughactive concealment in this case to override this.

> Actively concealing the termite infestation mak es it harder for the buyer¶s to discover the pr oblem.> The cour t also dismissed the D¶s argument that by for eclosing and not fulf illing their contractual obligations,

the P¶s had for feited their right to r ecovery.> The cour t said that a vendee is entitled to maintain an action against the vendor for f raud or deceit in the

transaction even though he has not com plied with all the duties im posed upon him by the contract

Reed v. King (Concealment as Fraud): Wher e R eed purchased house that was site of multi ple murder, and K ing actively told neighbor s not to disclose this information. Did K ing have a duty to tell, and is concealment of this f raud?

d. Yes, and Yes. Active concealment is f raud.e. This is not a normal ha ppening that a buyer would think a bout either .f. It objectively and subjectively affects the value

Reed v. King (Duty to Disclose & Concealment/Unenforceable)

Facts: The D and his r eal estate agent knew a bout the murder s of a woman and her 4 childr en within the D¶s pr oper ty 10 year s prior to the sale to the P. The D sold the house to the P for $76,000. The D did not inform the P of the murder and knew that it materially affected the mark et value of the house when they listed it for sale. The D r epr esented to theP that the pr emises wer e in good condition and f it for an ³elderly lady´ living alone without disclosing the murder . Atsome time, the D even ask ed a neighbor to not inform the P of the murder s. After the P moved in, the neighbor sinformed the P of the murder and that no one was inter ested in purchasing the home due to the stigma attached to thehome f r om the murder . Due to this stigma, the house is only wor th $65,000Rule: A seller of r eal pr oper ty has a duty to disclose wher e the (1) seller knows of f acts (2) materially affecting thevalue or desira bility of the pr oper ty which (3) ar e known or accessi ble only to him and (4) also knows that such f acts

ar e not known to, or (5) within the r each of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer Reasoning: The cour t said she didn¶t know to ask a bout the murder . A r easona ble per son wouldn¶t think to ask this.The seller also told neighbor not to tell the buyer . Lik e active concealment. When the buyer found out, it was too late.Determine materiality as a matter of law to avoid jury f r om letting irrational r easons for r escinding contracts. The Palleges it did have a quantif ia ble material effect on the mark et value of the home

Stambovsk y v. Ackley (Subjectively Affects Value, but Abnormal): Wher e buyer f ind out after purchase of the home that theformer owner cr eated an aura of ³haunting´ ar ound the house. Should the seller have disclosed?

a. Yes, they should have disclosed. b. A haunted house is not normal.



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c. Seller actively cr eated this idea ar ound house.d. It at least subjectively affects the value of house, which plays into whether one would have bought it.

Stambovsk y v. Ackley (Duty to Disclose & Concealment/Unenforceable)

Facts: The P purchased a home widely r eputed within the town to be possessed by ghosts. The P did not know of thisr eputation prior to purchasing the home. Upon learning of this r eputation, the P seek s r escission, but the NY supr emecour t denies this claim due to NY¶s strict caveat em ptor policy at the timeRuling: The a ppellate cour t r ever ses this decision Reasoning: Fir st, it r ules that caveat em ptor is not so all-encom passing as to r ender every act of nondisclosur eimmune f r om r edr ess. The cour t holds that exceptions should be cr eated in cases such as this one wher e common sense

dictates that an exception should be cr eated. Secondly, the princi ple of caveat em ptor r equir es that the P act pr udently in discovering the defect prior to purchase, but no pr udent investigation could have possi bly r evealed this defect (whoar e they going to call Ghostbuster s or a psychic). To hold the purchaser lia ble of discovering this ty pe of f act as well would mak e them r esponsi ble for being omniscient. This would encourage pr edatory practices other wise. Thirdly, theseller foster ed this belief that the house was haunted in various periodicals and it consequently made the knowledgeavaila ble to those to whom he had no legal r elationshi p, so he should do similarly with the purchaser whom he has a legal r elationshi p with as a matter of equity. Cr eating this perception trigger s the disclosur e r equir ement

Material affect according to the specific perspective buyer- not market as a whole

Laidlaw v. Organ (Where the Information was in the Common Realm): Wher e the seller did not say anything when ask ed a boutthe tobacco mark et and how it was going to affect his purchase of land. Buyer went ahead with purchase anyway, lost out. Duty todisclose?

a. No, buyer should have done his r esearch. b. Both men wer e in the tobacco industry, and assumedly they both had access to this information.c. We want to incentivize buyer s to be informed.

Laidlaw v. Oregon (No Duty to Disclose/Unenforceable)

Facts: The P agr eed to buy a large quantity of tobacco f r om the D. The day befor e the sale was to be consummated, news arrived that the War of 1812 had ended and the for eign tobacco mark et was to be opened. This was publicly announced, but the D f ailed to learn of the announcement prior to executing the agr eement nonetheless.Ruling: The event was public knowledge. The D was not a special par ty. Mak es no sense to im pose a duty to discloseif they both have equal access to the information

5.2.2.4 Promissory Fraud

Promissory Fraud Generally, if you br each a pr omise not a f raud. Pr omise is pr esent statement of intent of some futur e event.Only a f alse statement of pr esent f act when actually had no intention. Other wise all contracts would be pr omissory f raud

1. Promissory Fraud: A statement of pr esent intention to do something in futur e that you never intended to do in the f ir st place.

a. Pr omises ar e not usually f raud, though, this would be bad policy. b. Usually pr omises to do futur e thing ar e a br each of K , not f raud.c. Don¶t mix this up with r egular f raud, wher e past pr esent is k ey.

Hanners v. Balfour Guthrie: Wher e Hanner sold peanuts to Balfour and r elied on term ³ Net cash, r ecei pt of invoice´ to mean thathe would be immediately paid when the invoice was r eceived by Balfour . Balfour didn¶t pay for 30 days on 2 Ks that had thiswording, and Hanner found out that it was his policy to do so in spite of the K all along. Is ther e pr omissory f raud?

d. Yes, according to the ma jority ther e is.e. You shouldn¶t say hold pr omise something in a K when you had no intention of doing it.

f.

Incentive to be car eful what you say in your Ks.

2. Adams Dissent:

a. It was standard for Balfour to pay Hanner s late, average 30 days, on all of the pr evious transactions.i. Hanner s actions accepting this ratif ied 30 day as norm ii. Also, Hanner s himself paid in similar f ashion with same clause in K

Hanners v. Balfour Guthrie



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Facts: D pr omised to pay upon r ecei pt of contracted peanuts purchased f r om the P. The P claimed f raud by the Dhaving an internal pr ocedur e to always delay payment by a bout 30 daysPromissory Fraud=Ordinary Fraud: For Pr omissory Fraud, need to show same elements as ordinary f raud claim Ruling:

> Misrepresentation had 0 intent of fulf illing pr omise as seen thr ough internal pr ocedur e in dir ectcontradiction. The k ey in this case was pr oving r eliance.

> In K,You Will Pay: The cour t said it was enough that the pr omise was in the contract in order to showr easona ble r eliance

> Breach of Promise is Fraud Where Intentional: Distinction of br each of pr omise and f raud is that br each

of pr omise cannot be f raud unless similar toHanner s wher e ther e is 0 intention to carry out the pr omise.

> If Not Intentional, Just Breach: Other wise every br each of contract case would be f raud. Once its f raud, could be tor t, which allows punitive damages

5.2.3 Mistake

MistakenBeliefs About Facts That Exist at the Time of Agreement 2 Types of Mistake

1. R.2d §151, 152, 153, 154:

a. §152, Mutual:

i. Wher e mistak e has an integral effect on the exchange, K is voida ble by adver sely affected unless par ty seeking r elieve bear s the risk §154.

1. Agr eement of par ties

2. He is awar e at time K is made that he has limited knowledge, but tr eats as suff icient3. Allocated on Cts. Beliefe that it is r easona ble to do so

b. §153, Unilateral:

i. Wher e mistak e has integral effect on exchange, K is voida ble by adver sely affected unless par ty seeking r elief bear s risk §154

R2d § 151 mistak e is a belief not in accord with the f acts. Mistak e needs to be to a basic assumption underlying the contract

R2d § 152 When a Mistake of Both Parties Makes a Contract Voidable (1) Wher e a mistak e of both par ties at the time a contract was made as to a basic assumption on which the contract was made has a

material effect on the agr eed exchange of per formances, the contract is voida ble by the adver sely affected par ty unless he bear s therisk of the mistak e under the r ule stated in §154R2d § 153 When Mistake of One Party Makes a Contract Voidable Wher e a mistak e of one par ty at time a contract was madeas to a basic assum ption on which he made the contract has a material effect on the agreed exchange of per formances that isadver se to him, the contract is voida ble by him if he does not bear the risk of the mistak e under the r ule stated in § 154, and

(a) the effect of the mistak e is such that enforcement of the contract would be unconscionable, or (b) the other party had reason to know of the mistake or his fault caused the mistake

R2d § 154 When a Party Bears the Risk of a Mistake A par ty bear s the risk of a mistak e when (a) the risk is allocated to her by agr eement of the par ties, or (b) he is aware, at the time the contract is made, that he has only limited knowledge with r espect to the f acts to which the mistak er elates but treats his limited knowledge as sufficient , or (c) the risk is allocated to him by the court on the gr ound that it is reasonable in the circumstances to do so

> JJ: Abolish it: Johnston says mistak e doctrine should be a bolished in the U.S.

MUTUAL MISTA K E

Sherwood v. Walker (Mutual Mistake/Unenforceable) - Recission



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Sherwood v. Walker (r escission)FACTS: Bank er and f armer D contracted for the sale of a cow f r om a f arm and business operations in multi ple statesP. D contracted to buy a cow, R ose 2d, for the price of $80. P sought delivery, but D order ed the cow to not bedeliver ed. D intr oduced evidence that both par ties at the time of contract believed the cow to be barr en. After thecontract of sale was signed, it was discover ed that R ose 2d was pr egnant. The price of R ose 2d under the alter ed conditions would have been over $750.HOLDING: The mistak e was mutual and material.MAJOR ITY:

> Essence of Thing Bargained For: The Cow was fer tile- not barr en as both par ties believed (³essence´ of

contract).T

he contract would not have existed other wise since the buyer got a $850 cow for $80> Both par ties supposed the cow was barr en and would not br eed, and she was sold for an insignif icant sum as

com par ed with her r eal value.> Mistake: The par ties would not have made the contract of sale except upon the under standing and belief that

she was inca pa ble of br eeding and no use as a cow.> The thing sold and bought had in f act no existence.

DISSENT: > Dissent look s at the situation as a speculation pr oblem (no evidence P wanted to br ead the cow)> Buyer believed that the cow might br eed ± belief a bout PR OBABILITY not f acts.> When ther e is no warranty ther e can be no mistak e of f act when no such f act exists.> No Mistake: Dissent said it wasn¶t a mistak e of f act. Par ties had beliefs- not knowledge. Buyer though

ther e was a good pr oba bility that cow was fer tile while the seller thought it was barr en.> Just Good Deal: This is basically behind every mark et deal.> Sellers Risk: The seller should¶ve bor e the risk since it was r easona ble: it was his cow and he¶s an exper t

in cowsJJ:

> Bad Policy, Bad Incentive: Cr eates incentive if not found that the D bear s risk: It would pr omotecar elessness. Encourages people to not do the ty pe of investigation we would lik e them to do.

> Seller Always Wins: Allows the seller to enter transactions wher e ther e is no risk at all for him. It is always a win-win for the seller if mistak e is allowed:

If the deal is good for seller, hold the buyer to it = pr of it. If the deal is not good for the seller, claim mistak e and get out = pr of it. Buyer bear s 100% of the risk in this scenario, not a good idea. Bad policy.

Lenaware County Bd. v. Messerly

The land the P¶s bought was condemned by the board of health because of the owner prior to the D having installed a septic system not up to code making the land valueless.

> Caveat Emptor: If ther e is an ³as is´ clause, then ty pically the buyer sbear s the risk . Cour t says can¶t r eally

say septic system is collateral

UNILATERAL MISTA K E

Anderson Brothers Corp. v. O¶Meara ± No Recission

Anderson Brothers v. O¶Meara (no r escission)FACTS: Ander son Br other s (D) sold a barge dr edge to an oil well driller, O¶Meara (P). P thought equi pment wasusa ble to dig a tr ench for barge-access to an oil rig, but sent someone who knew nothing a bout dr edge only a boutengines to check the barge out ± did not follow duty to tak e car e. The tr encher P bought could only dig tr enches for

pi pes. O¶Meara discover ed his mistak e; naval architect informed him it would cost $10K to r etr of it; O¶Meara ask s D¶sfor $10K contri bution; Ander son declines; O¶Meara sues under mistak e theory.

> Rule:

R

elief should be denied wher e the mistak en par ty exercised no diligence whatever in ascer taining ther eadily accessi ble f acts befor e he enter ed into a contract> No mutual mistake

o P and D wer e operating under differ ent assum ptions.o P alone believed that the dr edge was ca pa ble without modif ication to the uses he wanted to put it to.

> Even if D knew of P¶s objective, could have r easona bly believed P would r etr of it it.> The unilateral mistak e is not gr ounds for r ecovery under an unconsciona bility theory because plaintiff , under

R. 2d. 154, P f ailed to exercise due diligence in determining the use to which the dr edge might be puto Failure to Take Adequate Precautions: P sent an em ployee who had no knowledge of dr edges to

examine the dr edge = limited knowledge; o P never inquir ed as to the use of the dr edge ± something a r easona ble buyer would do.

JJ: Bought it under time constraint with hope to modif y it and when attem pt f ailed, tried to get money back



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5.2.4 U nconscionability

Ty pically, cour ts use the la bel ³unconsciona ble´ to descri be agr eements whose pr ocess defects do not rise to the level of actiona blef raud or dur essUCC § 2-302 Comment 1Unconsciona bility: ³ the basic test is whether, in the light of the general commercial backgr ound and thecommercial needs of the par ticular trade or case, the clauses involved ar e so one-sided as to be unconsciona ble under thecircumstances existing at the time of the making of the contract´ Something was wr ong with the pr ocess, but don¶t have dur ess or f raud

Common law mandates a duty to read

A. Par ties have a duty to r ead contractB. R ationale: Objective Theory of Assent: R easona bly assume the other par ty r ead the contractC. Exception: Wher e a r easona ble per son would not think the other par t would r ead the contract, then the other par ty isn¶t

bound.

Merit Music v. Sonneborn (Duty to Read/Enforceable) ± No Duty to Inform

Facts: Getting pin ball machine for their bar by borr owing money for machine by lessor . Lessor said ³ just sign this pa per´ thinking the pa per was just a formality. Actually guaranteed a cer tain str eam of pr of its. The lessee didn¶t r ead the contractDuty to Read: The buyer has duty to r ead and under stand

Reliance: By the pr ovision in question being in the contract, we assume that the par ty r ead it since that is whatr easona ble pr udent per son would do

Birmingham TV v. Water Works (Duty to Read Exception/Unenforceable)

Facts: Bailor attem pted to rid itself of lia bility by including a lia bility disclaimer in the contract. The bailee¶s pr oper ty was damaged during the bailment.

> Procedural Unconscionability: The lia bility clause was on the r ever se of the contract, which the par ty did not know existed. A r easona ble per son would not think that the other par ty would r ead the contract and sother e is not mutual assent and binding agr eement.

> Duty to Inform: Need to point out the por tion that a r easona ble per son would not know is in contract

Williams v. Walker-Thomas Furniture I (cr oss-collateral clause not unconsciona ble)

FACTS: A single mom with limited education and on welf ar e ± can¶t afford in f ir st place ± P purchased many

household items on an installment plan f r om Walk er -Thomas Furnitur e D. According to the sales contract, D r etained the title to all good sold if payments wer e in def ault (Cr oss-Collateral Clause). P def aulted on her f inal purchase, a radio set. P¶s f ir st purchase was in 1957, and her last purchase was in 1962. Ther e wer e 14 contracts, each of whichcontained a long paragra ph in extr emely f ine print. ). It was str uctur ed as if the stor e lent her these things and she hasto pay on installment. If def aults on any item, then r epossess everything. P claims that ther e was a lack of meeting of the minds.

> HOLDING and Statutory Reasoning: Cour t condemns D¶s conduct but does not step in: ³[ther e is] nogr ound upon which this cour t can declar e the contracts in question contrary to public policy.´ Ther efor e, if the K is to be condemned, the legislatur e must do it.

> Duty to Read: Common law duty to r ead.> Voluntary Agreement: The cour t f ir st explains that a pr omisee is bound by a contract that they voluntarily

don¶t r ead prior to agr eeing to if it r esults in a bad bargain.> No Fraud or Misrepresentation: The cour t also explains that ther e was no f raud or misr epr esentation

involved and ther e was a mer e unilateral mistake- not a mutual mistake.

a. Procedural v. Substantive Unconscionability

Williams v. Walker-Thomas Furniture Co. II (cr oss-collateral clause unconsciona ble)



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Williams v. Walker-Thomas Furniture II Facts: Same f acts a bove. Merged with case of one other customer

> Common Law Unconscionability is Procedural and Substantive: Common law alr eady allows for an agr eement to be str uck down for unconsciona bility. It must be both procedurally unconscionable and

substantively unconscionable.

> Procedural Unconscionability (a defective bargaining pr ocess)o Absence of a meaningful choice

Lack of bargaining power (tak e it or leave it; contracts of adhesion) Fine print and technical

o In light of the circumstances and education of the par ties, did they have a r easona ble chance tounder stand the terms of the K.

> Substantive Unconscionability

o Terms ar e one-sided (i.e., the cr oss-collateral clause)o Whether the terms ar e so extr eme as to be shocking considering the mor es and business practices of the

industry.Procedural Unconscionability lack ed education and ther efor e couldn¶t under stand the terms. In addition, the P¶slack ed bargaining power (tak e it or leave it scenario).Substantive Unconscionability took away all of the pr oper ty even after paid the individual balances on most of them.The terms wer e one sided

Common Law Must = Both Procedural and Substantive Uncioncionability

Procedural unconscionability includes the

(1) a bsence of meaningful consideration, (2) disparity in bargaining power,

(3) the method thr ough which the contract was enter ed into, (4) lack of education of one of the par ty¶s r esulting in not under standing the terms, and (5) a ³maze of terms.´

Substantive unconscionability includes(1) looking at the terms to see if they wer e so extr eme as to a ppear unconsciona ble according to the mor es and business

practices of the time and place.

Seabrook v. Commuter Housing Co. (Unconscionable)



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FACTS: P enter ed into written lease agr eement to lease an a par tment in a com plex not yet constr ucted f r om D. The building was not com pleted until 3 months after the expected com pletion date. The lease had a clause that said that if the building was not com pleted on time, the date of occupancy would commence on the day the building was com plete for thr ee year s. P claimed this clause was never explained to her .Procedural:

> Dense Verbiage: P was pr esented with a long com plex lease, printed in small, practically illegi ble print. Itcontained 54 clauses and if ty ped on normal pa per would exceed 50 pages of text.

> Complex Legal Jargon: Terms used wer e not those commonly used or under stood by the occasional lessee. Only sophisticated par ty, in the landlords shoes, could have under stood b/c they wer e drafted

thr ough a lawyer . P could not have under stood them.> Unequal Bargaining Power: Unequal bargaining power b/c P needed the a par tment and D was mor e

sophisticated, had knowledge. Thus, the P had no bargaining power . (Assumes she wouldn¶t have been a ble to negotiate ar ound clause).

> R ULE: The cour t a pplies the U.C.C. § 2-302 r egarding ³merchants´ to landlords.Substantive:

> Not Reasonable: no limit on the time delay when D would let P out of contract. While r easona bleness can be r ead into the contract, it should not have to be. Landlord under a duty to r elieve lessee of their attem ptto determine what period of time is r easona ble. Terms unr easona ble f avor ed D.

> No Place to Live: Wouldn¶t have been a ble to f ind another place to live on month-to-month basis while building was com pleted.

Ruling: Unconsciona bleReasoning: Procedural Unconscionable cour t assumes inequita ble bargaining power . Assumes she wouldn¶t have

been a ble to negotiate the clause out. Also that wouldn¶t have been a ble to f ind another place on a month-to-month basis while building was com pleted. Also she wouldn¶t be a ble to under stand the highly-technical terms. Ther e wer e10,000 words in f ine print. Substantive Unconscionability contract did not even pr ovide for a r easona ble time after which the lessee would not be bound if the building was not com plete. Essentially, the contract was a tra p onceassented to. This r easona bleness could be inferr ed by the contract, but it should¶ve been explicit. Also the terms wer eunr easona bly, expr essly tailor ed to the lessor¶s needs only

Henningsen v. Bloomfield Motors, Inc. (Warranties Disclaimer/Unconscionable)

FACTS: Henningsen P signed a purchase order form, on the back of which contained a page of f ine print ty pe including a clause which limited the warranties of Chrysler and the dealer to 90 days. Lia bility was limited to r eplacement, and all other warranties, expr ess or im plied, wer e disavowed. 10 days after purchase, a defective steering mechanism caused the vehicle to crash, seriously in juring P.HOLDING:

> Procedural Unconscionability: Unf air Bargaining Position: o Form Contracts: used in modern commercial life by enter prises with str ong bargaining position

to force f avora ble terms for them on the other par ty.o No Opportunity toBargain: Tak e it or leave it pr oposition ± the form contract is administer ed

by ALL car dealer s who serve a ministerial function and has no authority to alter terms; only manuf actur er can alter terms. Because all of the big 3 automak er s in the U.S. use the boiler plateK , ther e is no bargaining power .

> Substantive Unconscionability: Unf air Terms: o In exchange for the ³delusive r emedy of r eplacement of defective par ts at the f actory, the buyer

is said to have accepted the exclusion of the mak er¶s lia bility for per sonal in juries arising f r om the br each of warranty and to have agr eed to the elimination of any other expr ess or im plied warranty.

o Bad incentives: r elease f r om lia bility limits need to mak e vehicles safe and pr ohi bitscom pensation. The manuf actur er does not have to internalize the cost of a bad pr oduct meaning

that it has not incentive to im pr ove it.o Not Equitable: The cour t explains that an instinctive felt sense of justice cries out against such a

shar p bargain

Mutual Marine Office v. Atwell, Vogel & Sterling (Conscionable/Enforceable) ± Custom-Costs



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Facts: Try to limit tor t lia bility. Contract between two f irms (Insurance Com pany and Inspective f irm). Send inspector to pr oper ty befor e Insurance Com pany insur es 3rd par ty pr oper ty. The inspector misses the f act that ther e¶s a river near by that f loods. Inspecting com pany in contact justif ies disclaiming mistak e/tor t lia bility by including in the contractthat it ena bles them to charge lower prices

Ruling: Consciona bleClear and Definite: Language and intent of the disclaimer is clear and unequivocal. The par ties wer e on notice of the disclaimer, and it was not forced on one par ty to the bargain by the other .Customary: The disclaimer was common in the ty pe of transaction involved and was to be expected by ordinary custom. In other words, everyone knew that it would be ther e par ticularly in the business-to-business context

JJ: Since it was clear and unequivocal it would be a pplica ble to business-to-consumer context. Differ ent f r om other cases wher e it is thought that a contract being common acr oss the business eliminates choice and is thusunconsciona ble. Could be that this is differ ent because it is a service pr ovider and the costs of doing business would betoo much if not.

Ciofalo v. Vic Tarney Gyms, Inc. (Conscionable/Enforceable) ± Assum ption of R isk -Public Facility

Facts: Business to consumer (gym mem ber shi p). Lia bility disclaimer enforced.Ruling: Private organization pr oviding a public f acility and under no duty to accept the P. Accepting the P, so hasright to insist upon such terms as it deemed a ppr opriate

JJ: An exception to this r uling would be services r ender ed by a public carrier or utility, which ar e deemed necessary.Disclaimer s of r eckless and intentional tor ts by private organizations such as the gym in this case ar e not going to beenforcea ble

Carnival Cruise and the economic approach

Carnival Cruise Lines, Inc. v. Shute (Forum Selection Clause Conscionable/Enforceable)

FACTS: P bought tick ets f r om cr uise line D. Printed on the tick ets in large lettering was a r equir ement that the back of the tick et be r ead. The back of the tick et included a For um Selection Clause limiting lia bility to suits f iled in FL. Pwas in jur ed during the cr uise and f iled suit in their home state of WA.

> Procedural Unconscionability

o Easy to Understand: No pr ocedural unconsciona bility b/c large print dr ew attention to terms.o Reasonable: No r easona ble per son would think they could bargain in this deal.

> Substantive Unconscionability

o Reasonable: For um of FL a rational for um considering that is the depar ting place for most of

its cr uises and headquar ter s for the cr uise line.o Cost Benefits:R easona ble to limit transaction costs with business transactions all over the

world. Benef its passed on to those who purchase pr oduct due to fewer legal costs. Limitsfor um shopping.

o Not Intended to Limit Negligence Liability: The UCC pr ohi bits service pr ovider s such asCarnival f r om including clauses that limit its lia bility for things such as ³negligence and loss of life and lim b.´

o Clearness of Forum: The cr eates cer titude as to place wher e customer can bring suit, notunr easona ble considering that its primary place of business is in FL and the Ps ar e in the US.

JJ: This is not unconsciona bility case specif ically, but is signif icant because it involves similar analysis by SCOTUS.

Arbitration A greements

Scott v. Cingular Wireless ± Arbitration U nconscionable, Not Easy to U se, A gainst Consumer



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Facts: The P¶s purchased and signed cellular plans with the D. The contracts wer e all pr eprinted and included an ar bitration clause r equiring ar bitration. The ar bitration clause also pr ohi bited consolidation of cases, class actions, and class ar bitration. Cingular unilaterally r etained the right to r evise the agr eement, which it did in July 2008. Thear bitration clause still pr ohi bited class actions, but also explained that Cingular would not pay the ar bitration fees for any claim deemed f rivolous nor r eim bur se the claimants r easona ble attorney fees unless the sought after amount wasat least successfully r ecover ed thr ough the claim. The P¶s underlying suit is that they wer e im pr operly billed by the Dfor long distance and out-of-network r oaming of up to $45/month. P¶s tried to bring class action in cour t.

> FAA but No Fair K: Federal Ar bitration Act does not pr eem pt the unenforcea ble tr eatment of unconsciona ble terms within an ar bitration clause/agr eement. Ther efor e, unconsciona ble

> Against State Policy: Counter to the Washington State policy r equiring class action suits. Cour t cites theConsumer Pr otection Act for this state policy since it f avor s aggr egation since it incentivizes attorneys totak e small individual claim cases, deter s tor tfeasing com panies, judicially eff icient, and com pensatesvictims.

> Bad Policy in General: Also focused on the f act that without class actions, attorneys wouldn¶t tak e over cases with such small claims. The cour t back s up this second gr ound with a declaratory statement for a former division chief f r om the CPA in Washington and a declaration of an ordinary plaintiff ¶s attorney. In addition, no individual claim had been br ought in 6 year s.

> Limits Liability: This ther efor e means that it functions to excul pate the drafter f r om lia bility for a br oad range of undef ined wr ongful conduct including potentially intentional wr ongful conduct and that suchexcul pation clauses ar e substantively unconsciona ble.

> The FAA protects arbitration- not excul pation. Being a par t of an ar bitration clause would not changethe unconsciona ble character of the clause. In addition, the language of the clause pr ohi bits severa bility (if

par t is unenforcea ble then the whole is unenforcea ble) and since no par ty argued for severa bility, the entir ear bitration clause is null and void

JJ: The P doesn¶t r eally bring evidence. The declarations ar e not f r om exper ts. In addition, she just work s at the CPAand the attorney has inter est in ensuring class actions ar e bring a ble.

AT&T v. Concepcion ± Arbitration Conscionable, Ease of U se, Value for Consumer

Facts: The P¶s purchased cellular plans with the D, AT&T. The contracts wer e all pr eprinted and included an ar bitration clause r equiring ar bitration. The ar bitration clause also pr ohi bited consolidation of cases, class actions, and class ar bitration. The contract pr ovided that following to the P f iling a notice of dispute form on the D¶s website, theD may offer to settle the claim. If the D does not mak e such an offer or if the claim is not settled within 30 days, the Pmay invok e ar bitration by f iling a separate demand for ar bitration accessi ble thr ough the D¶s website. The ar bitration clause explained that the D would pay the ar bitration fees for any claim not deemed f rivolous. In addition, in theevent that a customer r eceives an ar bitration award gr eater than the D¶s last written settlement offer, the D is r equir ed to pay a $7,500 minimum r ecovery and twice the amount of the claimant¶s attorney fees. The underlying suit isr egarding f alse adver tising and f raud as to cell phones the D adver tised as f r ee, but later charged sales tax on and charged to the P¶s bill.SCOTUS: Holds that the ar bitration agr eement is not unconsciona ble, that it is f avor ed by the FAA and is notslighted towards the cor poration ± it may, actually, be slighted towards the P in that it has many consumer f riendly conditions that incentivize ar bitration.

Arbitration Never Agrees with Class Action: Cannot just strik e down ar bitration just because it¶s an ar bitration agr eement. Ar bitration never allows for class action. Defeats pur pose of class action Scalia Opinion: Class ar bitration, even, goes against the fundamental pur pose of ar bitration. Ar bitration is meantto pr ovide a speedy outcome, r educe costs, and incr ease eff iciency because it is ar bitrated by a specialist in the f ield and litigation costs ar e way down for both par ties involved.FAA: Favor s ar bitration, and cant rid state of it just by saying that we don¶t lik e ar bitration, must be something substantive lik e the f act that it unf airly limits lia bility ± not case her e.Ease of Access: Easier to bring ar bitration since you just go to the website and f ill out a form. Can choose whether

to ar bitrate in per son, phone or written if less than 10K Incentivizes Arbitration: If at any time the ar bitration pr oduces a settlement gr eater than that originally pr oposes, 7.5K mor e and twice the amount of the attorney¶s fees will be paid to the P.

Contract Interpretation

6.1.1 The Parole Evidence Rule

Analysis: Two a ppr oaches: (if merger clause step 4)

1) Four Corners Rule: if the writing a ppear s com plete on its f ace, it is.



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a. However, can have a separate collateral agr eement not cover ed by the integrated writing with its own subjectmatter and its own consideration (see Mitchill v. Laith holding that agr eement to r eview ice house was NOT a collateral agr eement)

b. If NOT com pletely integrated Step 32) Traynor approach: can consider extrinsic/contextual evidence to determine whether the par ties thought it was integrated

or not. ± Always look at par ole evidence, no other way to fully under stand K.a. If NOT com pletely integrated Step 3

3) Partially Integrated/Unintegrated

a. Unintegrated (oral communication or very very very basic writing)

i.

PER

does not a pply and extrinsic evidence always admissi bleb. Partially integrated

i. Extrinsic evidence can¶t contradict an explicit term of the writing and must be com pati ble with it.ii. Would it ordinarily have been included (naturally omission test sor t of)? (see Masterson)

4) Merger Clause

a. Four Corners Rule Judges: explicit merger clause pr oves intent to assent to only what was on pa per . Com plexIntegration (exem plif ied in UAW v. GM)

b. Traynor/Contextualist approach: par ole/extrinsic evidence availa ble to determine whether the merger clauseitself was assented to by the par ties (see dissent in UAW v. GM, and Cor bin who argued that ³Even though itcontains an expr ess statement to that effect, the assent of the par ties ther eto must still be pr oved [ by par oleevidence].´ If it was not assented to, then step 2.

Exceptions to Parole Evidence Rule:

1) Par ole Evidence R ule will never bar evidence of dealing after the written agr eement is executed f r om entering trial; 2) Par ole Evidence R ule will never bar evidence of illegality, I.e. f raud, mistak e, dur ess, unconsciona bility, or public

policy.3) Par ole Evidence is always admissi ble for inter pr etive pur poses, if ther e is r oom for inter pr etation.4) Par ole Evidence is always admissi ble for pur poses of determining if a writing is par tially or fully integrated (Jury will

not hear it; only the judge will)

R.2d § 213: (1) A binding integrated agr eement discharges prior agr eements to the extent that it is inconsistent with them.(2) A binding com pletely integrated agr eement discharges prior agr eements to the extent that they ar e within its scope.(3) An integrated agr eement that is not binding or that is voida ble and avoided does not discharge a prior agr eement. But an integrated agr eement, even though not binding, may be effective to r ender inoperative a term which would have been par t of theagr eement if it had not been integrated.

PE r ule r elated to the Statute of Frauds in that it is concerned with pr eventing f raud. Mor e specif ically it wants to deter par ties f r om making up ³oral pr omises´ extrinsic to the contractThreshold Approaches:

1. Four Corners Test look at what is in the writing. If the writing a ppear s com plete on its f ace, then it is integrated. The cour tdoesn¶t look at par ties¶ pur poses.2. Traynor approach words have no meaning in themselves. We need to look at the extrinsic evidence deci pher the par ties¶ intentions and subsequently give the words meaning. After this point, we can determine if the writing is integrated



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Mitchill v. Lath (PE Not Admissible) ± Older Approach

FACTS: D owned a f arm and orally pr omised to r emove an icehouse on ad jacent land befor e they sold the pr oper ty toP. P enter ed in to written contract to purchase f arm; this agr eement was not included in the writing. P wanted tointr oduce par ole evidence that they would not have assented without a pr omise to r emove the icehouse. No par oleevidence allowed, prior oral agr eement excluded f r om hearing.4 Corners Test (Determine if Contract is Fully or Par tially Integrated (com pletely ex ante)) - Befor e an oral agr eementcan be added to the contract thr ee conditions must exist:

(1) The agr eement must be a collateral agreement (r elationshi p to written k )(2) Collateral oral agr eement must not contradict expr ess or im plied pr ovisions of written contract(3) The agr eement must be one that par ties would not ordinarily be expected to em body in writing

y What is ordinarily?o K was in writing b/c St. of Frauds ± must be in writing o Judge Based Perspective: Looking only at writing ± as judge ± consider what would I have

included this? What would r easona ble drafting attorney have included in writing?o Objectif y the practice (if com plex biz. deal, what would r easona ble negotiator have included?)

y ³Natural Admission Test´ - Wher e the oral agr eement might naturally be omitted f r om the written agr eement, evidence of that oral agr eement is admissi ble

DISSENT: icehouse agr eement is ³separate´ ± acts as consideration for other K so they ar e r elated. Par ties would nothave thought to include it w/in the r eal estate K ; Must look at context.

Masterson v. Sine (PE Admissible) ± Rejection of Four Corners, Support of Natural Admission



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FACTS: Dallas and R ebecca Master son, TIC, conveyed a ranch to Dallas¶ sister Medora and her husband Lu Sine; Theconveyance included a r epurchase option to vest on or befor e Febr uary 25, 1968; Dallas f iled for bankr uptcy; His tr ustee in

bankr uptcy and R ebecca br ought action to esta blish their right to enforce the option; Trial Cour t r uled that par ole evidencer e: assigna bility of r epurchase option only to f amily mem ber s was inadmissi ble. Reversed: Par ole evidence r e: theassigna bility of the r epurchase option is admissi ble.

> Partially Integrated: The option clause in the deed does not explicitly say it contains the com plete agr eement, and the diff iculty of accommodating the formalized str uctur e of a deed to the inser tion of collateral agr eementsmak e it plausi ble that not all agr eements wer e included.

Natural Admissions Test: It would be natural in the FAMILY CONTEXT for them not to fully integrate the

agr eement. Test

Would extrinsic evidence be naturally included in the written agr eement? If not, then admissi ble> Credibility: whether par ole evidence is allowed hinges on evidences cr edi bility, not the written documents

a ppearance ± r ejects Four Corner¶s Test.R ULE: ³Naturally included´ test involves looking to circumstances and context. One cannot decide whether the contractis integrated or not without looking to external circumstances. R.2d § 210: A document by itself cannot pr ove its own com pleteness (r ejection of Four Corner¶s Test)

> Rationale: Family context, so it would be natural not to include it. Option clause does not say the agr eement iscom plete and is assigna ble. In addition, cannot put the oral agr eement r egarding it being non assigna ble into thewriting because of the strict form of a deed. Also nothing in their negotiation history suggests that they had warning of the disadvantages of f ailing to put the whole agr eement into the writing/deed.

DISSENT: Decision opens the door to f raud and tak es away f r om the 4 corner s¶ incentive to include all intended, r elevant, signif icant terms within the writing (Negative ex ante effects); Purchase option is pr oper ty right and def ault r ule is that it isf r eely transfera ble / assigna ble --- so ± this pr omise would contradict the terms of the written agr eement as im plied by thedef ault r ule r e: assigna bility of covenant to r epurchase.JJ: It¶s odd that they can¶t put into deed since they alr eady put the option in the deed

Hunt Foods & Industries v. Doliner ± Parole Evidence Admissible

Facts: P cor poration under took negotiations to acquir e the assets of Eastern Can Com pany. Agr eement was r eached as to the price to be paid by P, but it was found necessary to r ecess negotiations for several week s, but the P demanded an option to purchase all of the D¶s stock since it fear ed that D would use their offer as a basis for soliciting a higher bid f r om a 3rd par ty during the r ecess. The D claims he obtained an under standing f r om the P that it was only to be used in the event that hesolicited an outside offer . When the negotiations f ailed, the option was exercised, but the D declined the tender and r efused todeliver the stock

> HOLDING: The par ole evidence is im plausi ble, but must be ³im possi ble´ to be excluded f r om cour t.> UCC 2.202: Writing should be a f inal expr ession of the agr eement, all terms should be include and cannot be

contradicted by outside evidence ± prior agr eement, contem poraneous oral. Can be supplemented or explain contract if evidence of consistent additional terms is found by cour t to

have been intended as par t of com plete agr eement. UCC: If additional terms, if agr eed, would have cer tainly been included, par ole evidence excluded.

> No Contradiction of Term, Clarification is Acceptable: The term is clearly ³additional´, and to be inadmissi ble itmust contradict or negate a term of the writing. Silence does not equal contradiction.

> Reasoning: To be inconsistent the term must negate a term in the writing. Overall, the par ole evidence her e is suchthat a jury trial is needed.

JJ: Incentivizes par ties to get im plied terms into the writing

6.1.2 Merger Clauses and the Parole Evidence Rule

Merger clauses in writing is best way to declar e that the writing is a full integration Pur pose of merger clauses is to say that anything said prior to the written contract was not agr eed to.Additional f actor s:

> Was the merger clause specif ically drafted for this agr eement or was it an aspect of a form contract?> Does the merger clause r efer to prior oral agr eements«if it does this lik ely means that it doesn¶t pr ove a com plete

integration and par ole evidence will be allowed.UAW GMv. KSL (inadmissi ble)



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Facts: The P enter ed into a contract with CMC for the use of its r esor t for a convention in October 1994. The letter agr eement included a merger clause stating the agr eement was ³a merger of all pr oposals, negotiations and r epr esentationswith r efer ence to the subject matter and pr ovisions.´ The P contests that they signed the letter of agr eement on r eliance of an ³independent, collateral pr omise to pr ovide [P] with a union-r epr esented hotel. Both the P¶s agent and CMC¶s agentsubstantiated this claim in aff idavits. Later that month (Dec. 1993), the hotel was sold to the D¶s who subsequently r eplaced the r esor t¶s union em ployees with a nonunionized work force. P canceled the contract and demanded a r efund of their down

payment, which the D¶s r efused to give and r etained as a por tion of the liquidated damages allegedly owed pur suant to thecontract

> #1: explicit merger clause means that it was the intent of the par ties to limit the agr eement to words of the

agr eement. A contract with a merger clause nullif ies all antecedent claims.R EASONING #1:

> Fairness to D: they assumed obligations when they purchased the hotel but it would be unr easona ble for them to have to discuss with every par ty whether par ole agr eements existed.

> Foreseeability: No r eason for D to think that everything was not included in the K : Merger Clause.> Intent of the par ties: they included an explicit merger clause at the time of the agr eement.

ISSUE #2

(2) P Claimed Fraud: The P claimed that the CMC f raudulently did not disclose the pending sale of the hotel. The cour tsays f raud can¶t r elate to the prior agr eements since the merger clause mak es it unr easona ble to r ely on prior agr eements

R ULE:a. Par ole Evidence R ule can be used to demonstrate f raud when

i. The f raud r elates to the merger clauseii. The f raud invalidates the entir e contract

b. But f raud cannot be demonstrated by a ppealing to an oral agr eement made in spite of the merger clausei. INCENTIVE: be f raudulent in negotiations b/c merger clause wi pes it clean

REASONING:

> Fraud claims r e: union em ployees ar e based upon an oral agr eement that is nullif ied by the merger clause.> P made no contention that f raud should invalidate the contract or the merger clause itself.

DISSENT: Would consider merger clause but one piece of evidence in determining if the contract was fully integrated.1. CORBIN: The writing cannot pr ove its own com pleteness and accuracy. Even though it contains an expr ess

statement to that effect, the assent of the par ties ther eto must still be pr oved [ by oral testimony and witnesses].´ 2. HOLBR OOK : Examination of the written document alone is insuff icient to determine its com pleteness; extrinsic

evidence that is neither f limsy nor im plausi ble is admissi ble to esta blish whether the writing was in f act intended by the par ties as a com pletely integrate contract.

3. QUESTION OF MUTUAL ASSENT: Dissent argues that par ole evidence should be heard to ascer tain if the

parties assented to the merger clause and making the writing the complete agreement between them.

WAY TO LIMIT DECISION:

1) Third par ty involved 2) Sophisticated par ties3) Evidence of f raud r elates to pr evious oral agr eement: trying to get Par ole Ev. In thr ough the backdoor .

Danann Realty Corp. v. Harris (par t merger clause/par t denial of r epr esentation)

FACTS: P purchased lease of building f r om D and claimed D made oral r epr esentations r egarding the operating expenses and potential pr of its that induced to enter into the agr eement. The contract of sale contained a MER GER CLAUSE and a SPECIFIC DISCLAIMER saying: the seller has not made any r epr esentations as to the physical condition, expenses, or any other matter r elating to or affecting the pr emises, and purchaser acknowledges nor epr esentations have been made or r elied upon by P.

ISSUE: ar e the oral r epr esentations a suff icient basis for f raud?MAJOR ITY: Fraud = def ault r ule that can be contracted out of with specif ic disclaimer clause

- Clause very specif ic in addr essing elements (solidif ies intent)

- Unreasonable reliance: P sophisticated and r epr esented by council; actually r ead itDISSENT: Fraud = mandatory r ule that cannot be contracted out of

- Public Policy: allowing people to contract out of f raud would encourage f raud in negotiations- Boilerplate: clause cover s every possi ble misr epr esentation and f raud; very expansive- R easona ble people r ely on oral misr epr esentations even when agr eeing none have been made

JOH NSTON NOTE: Even a bsent f raud, the merger clause was pr oba bly too general.

6 .2 The Process of Contract Interpretation: Resolving Vagueness and Ambiguity

Two Approaches:



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1. 4 Corners Rule If the expr ess writing/words ar e clear, then need not consider anything else in inter pr eting the contract(Trident) 2. Traynor Approach Extrinsic evidence always admissi ble to determine the meaning of the contract since words lack an objective/def inite meaning. Need to look at surr ounding/extrinsic context/evidence to give the words meaning and deci pher the

par ties¶ intention R2d § 201 Whose Meaning Prevails (1) Wher e the par ties have attached the same meaning to a pr omise or agr eement or a term ther eof , it is inter pr eted in accordance with that meaning R2d § 203 Standards of Preference in Interpretation In the inter pr etation of a pr omise or agr eement or a term ther eof , thefollowing standards of pr efer ence ar e generally a pplica ble: (b) (1) expr ess terms, (2) cour se of per formance (pr evious conduct under

this contract), (3) cour se of dealing (pr evious conduct in other past transactions), and (4) usage of trade

Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.

FACTS: P and D enter ed into a written contract wher eby D would furnish the la bor and equi pment necessary to r eplacethe upper metal cover of P¶s steam tur bine. D agr eed to per form the work ³at its own risk and expense´ and to³indemnif y´ P against all lose, damages, and lia bility r esulting f r om in jury to pr oper ty arising out of per formance of thecontract. D agr eed to pr ocur e $50k in insurance to cover lia bility for in jury to pr oper ty. During work, cover fell r esulting in $25k of damages to tur bine.

> The extrinsic evidence r e: meaning of ³indemnif y´ should have been admissi bleREASONING:

> ³The test of admissi bility of extrinsic evidence to explain the meaning of a written instr ument is not whether ita ppear s to the cour t to be plain and unam biguous on its f act, but whether the offer ed evidence is r elevant to

pr ove a meaning to which the language of the instr ument is r easona bly suscepti ble.´ > Need to Find Out Parties Intention: R ational inter pr etation r equir es at least a pr eliminary consideration of all

cr edi ble evidence (including extrinsic evidence) offer ed to pr ove the intention of the par ties. If the cour t decidesthat the language is r easona bly suscepti ble to multi ple meanings, then the extrinsic evidence is admissi ble todetermine which meaning to a pply

> Traynor¶eske: Term in question her e is ³indemnif y.´ Words don¶t have one, objective meaning. Their meaning varies with the ver bal context and surr ounding circumstances and pur poses in view of the linguistic education and experience of their user s and their hear er s or r eader s. To ignor e this extrinsic evidence would either deny the r elevance of the intention of the par ties or pr esuppose an unr eal degr ee of ver bal pr ecision.

> Thus, Limiting to four-corners test ³would either deny the r elevance of the intention off the par ties or pr esuppose a degr ee of ver bal pr ecision and sta bility our language has not attained.´

Rule 1: ³rational inter pr etation r equir es at least a pr eliminary consideration of all cr edi ble evidence offer ed to pr ove theintention of the par ties.Rule 2: ³If the cour t decides that the language is f airly suscepti ble of either one of the two inter pr etations contended for, extrinsic evidence r elevant to pr ove either of such meanings is admissi ble.´

JJ: footnote 42 explains that Traynor¶s r easoning is unnecessary to decide the case b/c extrinsic evidence would have been allowed mer ely to inter pr et the meaning of ³indemnif y´ anyway. Traynor is saying a cour t in CA must alwaysadmit extrinsic evidence.

Trident Center v. Connecticut General Life Insurance Co.



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Facts: The P obtained f inancing ($56,500,000) for the constr ucting an off ice-building com plex f r om the D. The note pr ovided that the P could not pr epay the f ir st 12 year s. In the case of def ault, the D may also accelerate the loan by adding a 10% pr epayment fee. When 1987 mark et conditions led to mark et rates dr opping, Trident star ted to look for ways of r ef inancing the loan to tak e advantage of the lower rates. The D r efused to budge and r eiterated that it could not

be pr epaid until January 1996. The P br ought suit in state cour t seeking a declaration that it was entitled to pr epay theloan now subject only to a 10 percent pr epayment fee. P wanted to pr esent PE that it could pr epay

> In CA, a Party Can Never Draft a K that is PE Fullproof: Must allow extrinsic evidence because bound by Pacif ic, r e: Traynor says par ole is always good

KOZINSKI¶S REASONING:

> P¶s inter pr etation would cr eate a contradiction between two clauses of the contract.

o Clause pr ohi biting pr epayment during the f ir st 12 year so Clauses which say ³at the option of Holder´ and ³in the event Holder exercises its option to

accelerate´ > BOUND by CA LAW: suggest that PER has been obliterated by the PG&E decision since as long as 1

par ty think s a term is am biguous, it is a matter of inter pr etation and PE can be admitted to hel p inter pr etthe term (work ar ound).

JJ: > Should Have Limited P&E to Facts: Could¶ve distinguished Pacif ic by saying Pacif ic¶s (Traynor¶s)

philosophy of no meaning is just dicta. The k ey in Pacif ic was that ³indemnif y´ had multi ple meanings.Ther e is no such pr oblem her e. (In other words, could have r ead Pacif ic mor e narr owly to distinguish)

Frigaliment Importing v. BNS International Sales

FACTS: P contracted to purchased 100,000 l bs of chick en f r om D. When shi pment arrived, P found that the chick en was not the higher grade of chick en they wer e expecting. P sued for br each on the gr ound that chick en meant ³ br oiler chick en´ under trade usage.

> Party Arguing for Narrow Int. Has Burden: Moving par ty (P) has the burden of showing that ³chick en´ was used in the mor e narr ow sense. Ther e exists an objective meaning of ³chick en´ which coincides withthe dictionary def inition, some trade usage, and Depar tment of Ag. r egulations to which the contract mader efer ence.

> Established hierarchy (How to Define): (1) DictionaryMeaning: Expr ess terms, English Dictionary Meaning, (2) Haggle Def: Cour se of Per formance/Negotiations, (3) Trade Meaning: Cour se of Dealing, Trade Usage(4) USDA Regulations

TEXTUALIST:

1) Price mak es it clear ± below mark et value for high-grade chick en.

2) Contract Depar tment of Ag. Standards. CONTEXTUALIST:

1) Am biguity ± differ ence between Trade and Dictionary def initions2) Trade def inition ± new com pany and didn¶t know meanings3) Look at everything: per formance, past per formance, trade def initions, dictionary def initions4) No prior cour se of dealings wher e to look

7.1.1 Modification: Substantive Approaches

STEP ONE: Inter pr et the Contract«What is the pur pose of the contract?STEP TWO: Occurr ence of an event/thing, the nonoccurr ence of which was a basic assum ption upon which the contract was made, and the occurr ence r ender s per formance (im possi ble, im practica ble, f r ustrated), per formance is excused. (pur pose of K f r ustrated, made im possi ble/im practica ble)

(a) Must be An Unfor eseen Occurr ence or Event; i. If For eseea ble, par ties would have contracted for occurr ence or r easona bly should have contracted

for occurr ence.ii. If for eseea ble, cour t must determine which par ty is in best position to bear the risk . (best risk r educer

(knowledge))AND

(b) Occurr ed as r esult of No Fault of Either of the Par tiesi. Excuse of occurr ence b/c of par ties f ault cr eates negative incentive«par ties mor e lik ely to be at

f ault.If (a) or (b), then risk allocated to par ty satisf ying (a) or (b)



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STEP THREE: Is r easona ble alternative per formance possi ble such that not im possi ble, im practica ble, or f r ustrated?

K¶s are Strict, Don¶t Want to Incentivize Breach: Once in a contractual r elationshi p, it is possi ble to r enegotiate the contract.Ther e is a fear that par ties will em ploy their charged bargaining power s once in a contract to coerce the counter par ty to mak econcession that the counter par ty would other wise not assent to if they wer e not thr eatened by the par ty with the str engthened

bargaining power . To counter this, ther e ar e several methods/r ules to addr ess this issue:

Rescission:Can avoid this pr oblem by r escinding the original agr eement and forming a new one

PreexistingDuty Rule/R2d § 73 Per formance of a legal duty owed to a pr omisor which is neither doubtful nor the subject of

honest dispute is not consideration; but a similar per formance is consideration if it differ s f r om what was r equir ed by the duty in a way which r ef lects mor e than a pr etense of bargain R2d § 89 Modification of Executory Contract A pr omise modif ying a duty under a contract not fully per formed on either side is

binding (a) if the modif ication is f air and equita ble in view of circumstances not antici pated by the par ties when the contract was made; or (b) to the extent pr ovided by statute; or (c) to the extent that justice r equir es enforcement in view of material change of position in r eliance on the pr omise

UCC § 2-209 An agr eement modif ying a contract within this Ar ticle needs no consideration to be binding. The main r equir ement isthat the par ties use good f aith

Alaska Packers¶ Assn. v. Domenico (Preexisting Duty Rule/Unenforceable)

Facts: A gr oup of f isherman, D, agr eed to work for the P in the P¶s salmon cannery in Alaska during their f ishing season for an agr eed amount (some for $50 per season, other s for $60, both gr oup would also r eceive 2 cents per salmon caught they took par t in). When they got to Alaska, they r efused to work unless paid $100 per season and theP had no one else to hir e to work the cannery. The P ther efor e forcefully accepted the D¶s demands and made written modif ication to their contract. The P did indicate that he had no authority to mak e such changeNo New Consideration: Not enforcea ble. Ther e is no new consideration. The D¶s wer e just pr omising to fulf ill their

pr eexisting obligation to work for the P.Duress: In addition, it would be a travesty to r ule after the P after being coerced by the D¶s ³hold-up game.´ The

boss had no alternative but to modif y the K ¶s and pay f ishermen mor e or the entir e f ishing season would have been wasted.

Angel v. Murray ± U nexpected Grounds are Valid for K Modification.

Facts: Civil action br ought by the P against the D. The D had pr ovided the city of Newpor t with a r efuse collection service under a series of 5-year contracts. The D was in the 4th year of such an agr eement when the D r equested an additional $10,000 f r om the city council due to unantici pated incr eased costs accounted by an incr ease of 400 newdwelling units while the contract had been pr edicated on an outdated estimated average incr ease of 20 to 25 newdwelling units per year . The city council agr eed to the incr ease. The P claimed that the D was not entitled to extra com pensation because the original contract alr eady r equir ed him to collect all r efuse generated within the city and ther efor e included the 400 additional units

Rule: R2d § 89 (a) only enforces a modif ication if the par ties voluntarily agr ee and if (1) the pr omise modif ying the original contract was made befor e the contract was fully per formed on either side, (2) the underlying circumstances which pr om pted the modif ication wer e unantici pated by the par ties and (3) the modif ication is f air and equita bleReasoning: (1) Partial Performance: This modif ication was made at a time that the contract had not been fully per formed by either par ty; (2) Unexpected Circumstance: The contract was pr emised on the past gr owth rate of 20-25 percent per year, whichdwar fed com par ed to the 400 unit actual incr ease; ther efor e, unantici pated;

(3) Equitable: The incr ease unantici pated costs wer e substantial according to the evidence, and so the cour t said itcould not characterize the council¶s modif ication as unf air or inequita ble.Extreme Take: The cour t also explains that the pr eexisting duty r ule should never be used as the ma jor pr emise of a decision, at least without giving car eful thought to the circumstances for the par ticular case.Modern Trend: The modern tr end suppor ts this by enforcing modif ications when unexpected or unantici pated diff iculties arise during the cour se of the per formance of a contract even though ther e is no consideration for themodif ication as long as the par ties agr ee voluntarily

JJ: Sometimes only written modif ications ar e enforcea ble. But can still enforce oral modif ications wher e ther e isr eliance (§89c)



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Duress Doctrine Approach Attem pt to police modif ications thr ough dur ess ar e under inclusive, however, in that they don¶tenforce those achieved under economic dur ess7.6.1 The Traditional Approach to Impossibility and Frustration

a. Impossibility

Courts Generally Inclined to Excuse Performance Based on Impossibility:

§262: Wher e one¶s death pr events per formance.§263: Wher e one can¶t per form because of the destr uction, deterioration, or f ailur e to come into existence the thing to be per formed.

> Can¶t Be Foreseeable or H ave anything to do with Fault of Either Party.

Where they won¶t Grant Excuse:Wher e the thing that br ought a bout im possi bility is for eseea ble, or ± cour ts grant in rar e cases her e ± wher e the per formance

becomes mer ely diff icult or costly.

Taylor v. Caldwell (im possi ble) ± Destruction §26 3

FACTS: Caldwell (D) agr eed to r ent The Surr ey Gardens and Music Hall for four days to P. However, the Music Hall was destr oyed by f ir e, NOT BY FAULT OF EITHER PARTY. The contract contained no expr ess sti pulation withr efer ence to the allocation of risk .

Not Liable-Impossibility: No br each wher e im possi ble to per form in an alternative manner .Performance Relies on Existence of Thing-Implied Condition: ³The princi ple seems to us to be that, in contractsin which the per formance depends on the continued existence of a given per son or thing, a condition is im plied thatthe im possi bility of per formance arising f r om the perishing of the per son or thing shall excuse the per formance.´ Specific Think K¶ed For Not Replaceable: P contracted for that par ticular music hall; if it had contracted for any

music hall ther e could have been substitute per formance and D could be held in br each. Level of detail in contractr egarding Music Hall suggests both par ties under stood it to be this par ticular music hall.

Howell v. Coupland (im possi ble) ± Deterioration

FACTS: Potato f armer Coupland (D) contracted with to sell potato merchant (P) 200 tons of r egent potatoes gr own on land belonging to D. Though the land was suff icient in normal year s, a disease attack ed the cr op and caused it tof ail, meaning that only 79 tons of r egent potatoes wer e harvested f r om the land because the r est deteriorated.

Implications-Impossibility: par ties under stood and agr eed that ther e should be an im plied condition that befor e thetime for the per formance of the contract the potatoes should have been in existence.Specificity Precludes Substitute Performance: It was not an a bsolute contract of delivery, but a contract to deliver so many potatoes, of a par ticular kind, gr own on a specif ic place, if delivera ble f r om that place. If the contract had

just said ³ potatoes´, D would have been a bsolutely lia ble.

Seitz v. Mark-O-Lite Sign Contractors (alternative per formance/no im possi bility)FACTS: Seitz () won a bit to r estor e the Ocean County Center for the Ar ts. An element of the r enovation was ther eplacement of a sign, for which contracted with Mark -O-Lite Signs () for $12,800. Contract had a pr ovision whichsaid, ³The Com pany shall not be lia ble for any f ailur e in the per formance of its obligation under this agr eement whichmay r esult f r om strik es or acts of la bor union, f ir es, f loods, ear thquak es, or acts of God, or other conditions or contingencies beyond its contr ol.´ Within a few days of the contract, ¶s exper t sheet metal work er was r equir ed toenter the hospital and par t of his foot was am putated due to dia betes (a known condition).HOLDING: lia ble b/c r easona bly for eseea ble occurr ence and alternative per formance was possi ble.R EASONING:

> Inter pr etation: Pur pose of the contract is to r estor e a sign; nothing im plied or stated that that sheet metal work er was special; contract said that as a business would r estor e the sign. Nothing in the contractcontem plates per formance solely by Jorgenson.

> R easona bly for eseea ble: Condition was not sudden, but is a known possi bility for those with dia betes.

in best position to know and insur e against this.>

orce Mejeure clause: A pr oba bly illness not in the same category as f ir es, f loods, or acts of God. Thesesuggest sudden and unfor eseea ble.

JOH NSTON NOTE: Cour t wants to incentivize par ties to put in clause that r equir e disclosur e of such things in their contracts.

Frustration



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R.2d § 265: Wher e, after a contract is made, a par ty¶s princi pal pur pose is substantially f r ustrated without his f ault by the occurr enceof an event the nonoccurr ence of which was a basic assum ption on which the contract was made, his r emaining duties to r ender

per formance ar e discharged, unless the language or the circumstances indicate the contrary (def ault r ule).

NOTE: Differ ence between Im possi bility and Fr ustration: Per formance r emains possi ble but the expected value of per formance tothe par ty seeking to be excused has been destr oyed by a for tuitous event, which supervenes to cause an actual but no literal f ailur e of consideration.

Krell v. Henry (f r ustration) ± U nforeseen, Frustration of Purpose

FACTS: P adver tised his a par tment for lease for two days as it pr ovided a view of the cor onation pr ocession of theK ing. The king became ill and the pr ocession was cancelled. None of the letter s of sale included r efer ence to thecor onation, even though the ad did. D argued no consideration and f r ustration and r efused payment. D wins.

Purpose: Pur pose of the contract was to the cor onation pr ocess (par ole evidence made this asser tion clear ), and theK ing becoming ill f r ustrated this pur pose.R EASONING:

> Interpretation: Cour t allows par ole evidence because it is in inter pr eting the contract. The two letter sshow that the pur pose of the K was the cor onation, even though nothing in the contract said that. Ad thathotel solicited f r om also made r efer ence to this pur pose.

> Unforeseen: The king¶s illness pr oba bly would not have been for eseen.

Lloyd v. Murphy (no f r ustration) ± Evolution of Frustration ± In Extreme Hardship ± Narrows Grounds

FACTS: P leased to D for a f ive-year term pr oper ty for the pur pose of displaying and selling new automobiles,

including servicing them. Earlier that year, the federal government drastically r educed the a bility to purchaseautomobiles thr ough the National Defense Act. D estimated that 90% of his business was affected by this act.HOLDING:

> Foreseeability: Fr ustration was for eseea ble because the law had been in place for mor e than a year, thusthe risk was assumed.

> Not Impossible-Maybe Harder: The sale of automobiles was mer ely r estricted, not made im possi ble.Other businesses still survived selling gasoline and new automobiles.

> P Offered Solution: Fur thermor e, P offer ed to lower the r ent.ANALYSIS: The doctrine of f r ustration has been limited to cases of extr eme hardshi p. The risk of the f r ustrating event must not have been r easona bly for eseea ble.

A. Impracticability

7.6.2 Impracticability and Ex Ante versus Ex Post Risk Allocation

Performance is possible, but has become prohibitively expensive.

§ 2-614. Substituted Performance.

(1) Wher e without f ault of either par ty the agr eed ber thing, loading, or unloading f acilities f ail or an agr eed ty pe of carrier becomes

unavaila ble or the agr eed manner of delivery other wise becomes commercially im practica ble but a commercially reasonable

substitute is available, such substitute performance must be tendered and accepted .

(2) If the agr eed means or manner of payment f ails because of domestic or for eign governmental r egulation, the seller may withhold

or stop delivery unless the buyer pr ovides a means or manner of payment which is commercially a substantial equivalent. If delivery

has alr eady been tak en, payment by the means or in the manner pr ovided by the r egulation discharges the buyer 's obligation unless

the r egulation is discriminatory, oppr essive or pr edatory.

§ 2-615. Excuse by Failure of Presupposed Conditions.

Except so f ar as a seller may have assumed a gr eater obligation and subject to the pr eceding section on substituted per formance:



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y (a) Delay in delivery or non-delivery in whole or in par t by a seller who com plies with paragra phs (b) and (c) is not a

br each of his duty under a contract for sale if per formance as agr eed has been made im practica ble by the occurr ence of a

contingency the non-occurr ence of which was a basic assum ption on which the contract was made or by com pliance

in good f aith with any a pplica ble for eign or domestic governmental r egulation or order whether or not it later pr oves to be

invalid.

y (b) Wher e the causes mentioned in paragra ph (a) affect only a par t of the seller 's ca pacity to per form, he must allocate

pr oduction and deliveries among his customer s but may at his option include r egular customer s not then under contract as

well as his own r equir ements for fur ther manuf actur e. He may so allocate in any manner which is f air and r easona ble.

y (c) The seller must notif y the buyer seasona bly that ther e will be delay or non-delivery and, when allocation is r equir ed

under paragra ph (b), of the estimated quota thus made availa ble for the buyer .

Transatlantic Financing Corp. v. United States (not im practica ble) - Ex Post

FACTS: P contracted with D to transpor t wheat f r om the United States to Iran. Though the r oute of the voyage wasnot specif ied, industry practice was to shi p thr ough the Suez Canal. Egy pt seized Suez Canal Zone; When England and France invaded zone, the Egy ptians clogged up the canal with sunk en shi ps. As a r esult, P sailed ar ound Af rica todeliver the wheat to Iran. The additional expenses amounted to $43,000 on a $300,000 contract.

HOLDING: Transatlantic cannot r ecover damages for extra costs because: R ULE: 3 Part Test:

1) Unexpected: A contingency ± something unexpected ± must have occurr ed.2) Risk: The risk of the unexpected occurr ence must not have been allocated either by agr eement or custom.3) Price: Occurr ence of the contingency must have r ender ed per formance commercially im practica ble.

REASONING:

1) Yes Unexpected: Closing of the Suez Canal unexpected.2) P Assumed Risk: R isk im plied in contract and in price. P knew of possi bility and took no steps via

insurance or clause in contract. Ther e is also a r easona ble alternative r oute.3) Not Too Costly: About 10% incr ease in costs is not big enough.

Eastern Airlines v. Gulf Oil (not im practica ble)

FACTS: P and D wer e in a long term contract wher eby D would supply Eastern Airlines with oil. In 1970, OPEC¶sactions caused the price of oil to incr ease dramatically, in con junction with domestic der egulation. Since the indexwas tied to the old formulation of oil, it did not r ef lect the ra pid price incr eases, meant that EA was getting its gasolinefor much chea per than mark et.

Foreseeability: Both contingencies wer e for eseea ble.ANALYSIS:

> Knowledge: Der egulation: Gulf Oil knew a bout the possi bility of der egulation and was actually lobbying for der egulation of the oil mark et; not ³outside contr ol of ́ the par ties. ± not an unsophisticated par ty by any means.

> Oil crisis: Middle East known to be a volatile r egion.

Aluminum Co. (ALCOA) v. Essex Group (Im practica ble and Fr ustrated)



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FACTS: Long-term contract wher eby P purchased aluminum f r om and conver ted it for use by D. The price wasdetermined by an index, not by ALCOA¶s costs - supposedly r ef lective of both par ties¶ costs with a little wiggle r oom.Unfor eseen rise in the price of electricity due to actions by OPEC caused ALCOA¶s prices to go up, though the indexdidn¶t r ef lect this cost. The expected loss was to be ar ound $60m.

HOLDING: Im practica ble; must r enegotiate price term.ANALYSIS: R EASONING:

> UCC § 2.615: Per formance is im practical because of extreme and unreasonable diff iculty, expense, in jury, or loss to one of the par ties.

y R2d 261 Impracticable: Mer e change in degr ee of diff iculty or expense does not suff ice for

im practica bility ± this is sor t of risk that f ixed price K is intended to cover .> Focus: Occurr ences which greatly incr ease the costs, diff iculty, or risk of per formance

y R2d 265 Frustration: must be substantially f r ustrated in order to get out, not enough thatthat transaction is no less pr of ita ble or even that par ty will suffer a loss. Fr ustration must beso sever e that it cannot be r egarded as an assumed risk .

> ALCO Satisfies both: Im practica ble because too expensive, too much risk . Substantial f r ustration of K ¶s pur poses.

> Loss is Great: Cour t r easons that the loss her e is gr eat (outweighs mark et risk argument). They look tothe extr eme deviation f r om expectations, not the dollar amount.

o Counter: $60M is peanuts to a trillion dollar com pany lik e Alcoa > Unforeseeable Risks r e: OPEC and Price

o Counter: Mark et R isk; sophisticated par ty that should have for eseen these risk s and should thus bear them.

> INTERPRETATION: Pur pose of Contract was to guarantee a pr of it, instead Alcoa stands to losemoney; Goal was to eliminate risk and now it has developed.

o Counter: Alcoa made a bet on the index being corr ect and it lost; indexes ar e often, if notusually, wr ong.

> Unspoken Rationale: Essex was speculating in Aluminum as r esult of huge price incr ease; contract pur pose was not to allow speculation at com petitor¶s expense.

JJ: > This was not what the K was intended for . In essence, instead of cr eating the widgets that it was supposed to

with the aluminum that they wer e getting at a r educed price, they became a r eseller because they wer e getting the material so chea p that it was mor e pr of ita ble to just sell aluminum dir ectly ± middleman. This wasn¶t the

pur pose of the contract, and possi ble the cour t saw some kind of un just enrichment going on her e.> Could argue mutual mistak e since both par ties mistak en r egarding the validity of the index, however, this

r eally deals with a pr ojection and not a pr esent or past f act.

CONDITIONS AND BREACH

Conditions,Obligations and Constructive Conditions of Exchange

In General:

> Conditions: Inter pr eted much mor e literal and strictly than per formance obligations (pr omises).> Express Conditions: Including expr ess conditions to a par ty¶s obligation to per form shifts the risk s over to the other par ty.

Consequences of a VALID breach: (1) Other par ty discharges duty; (2) Other par ty can sue for monetary damages.

Promises and Conditions

Promise Jury to determine whether material br each and damages

Howard v. Federal Crop Insurance (pr omise)



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FACTS: Federal Cr op Insurance Cor p. issued policies to Howard. Howard¶s 1973 cr op was extensively damaged and he sought r ecovery. Clause 5(b) said that it shall be a condition pr ecedent to the payment that the insur ed esta blishthat the loss had occurr ed thr ough one of the means the policy was designed to cover . Clause 5(f) said that thetobacco stalk s on any acr eage of tobacco shall not be destr oyed until the Cor poration mak es an inspection.

Promise: Constr ued as a pr omise, summary judgment was no a ppr opriate.ANALYSIS: R2d §261: (1) Doubtful: When doubtful, obligations will be constr ued as pr omises.(2) Clarity: Since the words ar e expr ess in one paragra ph and not in the other, ther e is some r eason for this.

POLICY

JU

STIFCATIONS: most str ongly against insur er > Best Position: Insur er has power to contract in terms so they should have been included > Don¶t Want to Incentivize Unjust Enrichment: Most str ongly against risk of for feitur e (paid

something and got nothing)> Risk Distribution: Better a ble to a bsor b the risk

JJ: Incentive to be car eful a bout terms included in contract. If you include a specif ic term in one place, must beconsistent and include it in all other ar eas. If in one ar ea and not in other, shows that term doesn¶t a pply ther e.

Rhode v. Massachusetts Mutual Life - U sing Conditions for Bad Faith Enrichment

FACTS: Applicant for a life insurance policy died the day he sent in his a pplication. Contract pr ovided that he would be cover ed f r om the day that he sent the form, as long as he r eceived clearance as being an ³accepta ble risk´.Decedent would have been deemed an accepta ble risk, but insurance com pany denied him for e .

HOLDING: Insur er lia ble to widow, Cour ts f r own on par ties who oppor tunistically seek to justif y their non per formance bases on nonoccurr ence of condition.Bad Faith: Oppor tunistic Behavior on the par ty of the insur er .

JJ: Cour ts do not enforce par ties who use nitpicky, r eally irr elevant issues, to get out of their obligations. This is notgood, we do not want to incentivize.

Inman v. Clyde Hall Drilling Co. -Condition

FACTS: Inman sued his em ployer for br each of em ployment contract after he was discharged f r om working as a derrickman in Alaska without justif ication. The contract pr ovided that com pliance with its r equir ement as to giving a thir ty-day written notice of a claim prior to bringing suit ³shall be a condition pr ecedent to any r ecovery.´

Statutory Provision Not in Place: No explicit public policy for bidding enforcement of the thir ty-day notice pr ovision, even if it is oppor tunistic behavior . The legislatur e needs to step in to do this.Clear Public Policy in Case Itself to Rule: The cour t says that they decline to mak e br oad public policy, can only r ule on whether existent public policy issue a ppear ed her e ± they didn¶t think it did.

NOTE: Im plied Duty of Good Faith; have to mak e good f aith effor t to fulf ill condition of contract.NOTE: If event is a pr omise rather than a condition, the in jur ed par ty has a claim for damages, but its own per formance is notexcused unless the br each is material and the par ty mak es no effor t to attem pt to cur e it in a timely f ashion.NOTE: It must say ³condition pr ecedent´, not be against public policy, and not be oppor tunistic for it to be upheld as a conditional

pr ecedent instead of a pr omise.

R.2d § 224 Condition: A condition is an event, not cer tain to occur, which must occur, unless its non-occurr ence is excused, befor e per formance under a contract becomes due.

R.2d § 225 Condition and Performance: 1) Occurrence or Excused: Per formance of a duty subject to a condition cannot become due unless the condition occur s or

its non-occurr ence is excused.2) Non-Occurrence Discharges: Unless it has been excused, the non-occurr ence of a condition discharges the duty when the

condition can no longer occur .3) Must Have Duty: Non-occurr ence of a condition is not a br each by a par ty unless he is under a duty that the condition

occur .

R.2d § 227 Default=Perform: With r espect to uncer tainty r egarding intended effect of conditions (inter pr etation pr oblem), the³ pr eferr ed´ inter pr etation is one that will r educe the risk of ³for feitur e.´

Risk Allocation

I. Risk Shift to Other: Conditions shift the risk of an event occurring/not occurring to the other par ty II. Best Risk Acceptor: Ideally, conditions should shift risk to the par ty best ca pa ble of dealing with the risk, the best risk

r educer .



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III. Not True in Practice Always: Homeowner does not know if he can get f inancing; purchase of home is conditioned upon securing f inancing; deal will not close if homeowner f ails to fulf ill condition; Homeowner has allocated risk of his not r eceiving to the seller .

IV. Impracticability, Impossibility, and Frustration are IMPLIED BY LAW CONDITIONS:

> Condition = nonoccurr ence of the event, the occurr ence of which mak es per formance either im possi ble, pr ohi bitively expensive, or f r ustrates value of per formance.

> Occurr ence f r ees the pr omisor f r om per formance, ther eby allocating the risk of occurr ence to the pr omisee.

Common Law Approach: Gray v. Gardner: exem plif ies the old common law a ppr oach r e: order of per formance. D can defend against br each by arguing condition pr ecedent to his per formance.

Facts: The par ties enter ed a K for sperm oil with a condition that the terms, mor e money for the P, would change if another shi p with sperm oil enter ed the har bor within 30 days, mor e supply meant less money for P in this case: µIf a gr eater quantity of sperm oil should arrive in whaling vessels at Nantuck et and NewBedford, on or between the 1st day of April and the 1st day of October then this obligation is void.´ A cer tain vessel, Lady Adams, with a cargo of oil a ppear s but neither anchor s or moor s befor e the hour of midnight passes for Oct. 1st deadline.Intention of Contract: Every Contract is to be tak en according to the intention of the par ties to it, if such intention belegal, and ca pa ble of execution. The subject matter is determined in common under standing, and according to themeaning of the par ties. ³In no sense, can the oil be said to have arrived.´ Up to Party That Wants Out to Prove: It is lik e a bond with a condition; if the obligor would avoid the bond, hemust show per formance of the condition. R ejection by the cour t that the Ps must pr ove that the condition did or did notha ppen, the Ds want out, they must pr ove.Ds did Not Prove: The vessel is coming until she dr ops anchor or is moor ed.Defendant¶s Argument: The burden was on the PL, as the condition was pr ecedent. Until the shi p arrived, the pr omisedid not tak e effect. The pl must show the event occurr ed.Court Rationale: The words of the K show that ther e was a pr omise to pay, which was defeated by the ha ppening of an event, (the arrival of a cer tain quantity of oil), in a given time.

If a person enters into a contract to pay a sum of money with condition that the contract is to be void on the

happening of a certain event, the burden is on him to prove that the event has happened, if he would avoid the

payment of the money

Conditions Precedent and Conditions Subsequent

Implied or Constructive Conditions of Exchange

Default Rule: Every par ty r esponsi ble for only their own per formance and not that of the other par ty.T

her e was nothing in the plan r egarding the foundation.Straightforward Condition: I per form and ther efor e you r eturn per formance. Eg: > Monday I agr ee to sell my dog to you for $400> Thur sday, I bring dog, but you say I will pay on Saturday.> I r efuse to deliver dog.> Default Rule-Payment at Time of Delivery: Though the K didn¶t specif y when the buyer had to pay, cour t will say

that it was paya ble at the time of delivery.

y Buyer is in br each her e.> Default 2-No Duty to Deliver Until Paid: Although the K did not specif y whether I had duty to deliver dog if buyer

did not pay, cour t will say that delivery of $400 at time of delivery was conditional pr ecedent of my duty to deliver .

y No br each as the seller .> Suppose Instead: Agr eement that I pay $1000 and you train dog to be obedient.> Training will tak e 1 month, but after one week you ask for $250> I r efuse to pay until training is com plete, you r efuse to continue training > I tak e dog f r om you and go to another trainer, at higher price.> Default Rule-Substantial Performance Before Payment: Cour t will hold that I have no duty to pay until dog training

is substantially com plete, thus no duty to pay periodically.> Default Condition-Conditions Are Implied: R efusal to continue with training until substantial was im plied

condition, and you br eached contract and not me.

Stees v. Leonard - Obligation Relies on Implied Constructive Conditions



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FACTS: K for the constr uction of a building. Building was built 3 stories and then colla psed. R ebuilt to 3 storiesand then colla psed again. D alleges that the pr oblem was that the soil was quick sand and that they built according tothe plan. D must per form for what is contracted.

Act of God Rule: If a man binds himself to an act in itself possi ble, he must per form his engagement, unless pr evented by the act of God, the law, or the other par ty to the contract.Hardship Will Not Do: No hardshi p, no unfor eseen hindrance, no diff iculty shor t of a bsolute im possi bility, will excuse him f r om doing what he has expr essly agr eed to do.Clarity of K-Duty to Take Care: Whatever was necessary to be done in order to com plete the building, D was

bound by contract to do. If the building needed str onger foundations or a draining of the land then that is what D

was r equir ed to do b/c they agr eed to do everything necessary to er ect and com plete the building at the specif ic sitethat it was to be built on.Another Point: Her e the P seek s reliance damages. He the P can ask what he lost, plus damages«Wher e ther e is a unilateral mistak e (one par ty knows he may not be a ble to build but goes ahead and buildsanyways)One Bad Thing: On one hand if builder is r ealeased, the owner is not getting his building at the price which wasK ¶ed for . On other, if the builder isn¶t, the owner is getting a building for a price which he never could have K ¶ed for had the f act of the quick sand been known ± mistake, unjust enrichment.

Limit Liability: The cour t suggests that the builder s bor e the risk because they could have pr ovided other wise in the K by limiting lia bility.

Bell v. Elder - Professor J ¶s Efficiency Argument / No Breach where No One has Performed

FACTS: P (Bell) contracted to purchase ten acr es of land and form a par tner shi p with D to r ezone land. Pr oper ty

values went down, so r enegotiated wher eby D agr eed to furnish water and electrical power to the pr oper ty. At thetime of trial, the Bell¶s ad not obtained or a pplied for the pr oper building permits and had not paid the $1,000installation fee, and the Elder s had not furnished water to the pr oper ty though they wer e willing, r eady, and a ble to doso.No One Has Performed=No Default: Neither par ty can be in def ault until the other tender s their service. COURT SUPPLIES A SEQUENCE.Implied Condition: No order or time is specif ied for either per formance, so the law im plies a condition that they be

per formed concurr ently ± common law of constr uctive contractual conditions concurr ently, the Bells needed to pay the $1000 and show that they wer e going to use land, then the Elder s needed to per form.Efficiency: The r equir ement of tender pr events the waste of installing a culinary water land to serve land whichwould be unused.

Implied or Constructive Conditions of Exchange & Substantial Performance

*All depends on the interpretation of the purpose of the contract*> What is the Purpose of the K?

> Did mistake negate that purpose?

> Is the value of Performance Equivalent to what K¶ed for?

Jacob & Youngs v. Kent - Functionality as Efficiency

FACTS: P (builder ) built house for D without the pr oper R eding pi pe as specif ied in the contract. P check ed pi pe upon f ir st delivery, but later forgot to check the r est. Some of the pi pe was not R eding, though it was of equivalent quality. Psues for r emainder of the K.

> Substantial Performance: P substantially per formed the contract and was entitled to the fee; > Equivalent Functionality-Objective: Expectation value is the diminution in value between the R eding pi pes

and those installed.> Opportunistic Behavior/Economic Waste: R equiring per fect per formance leads to oppor tunistic behavior

and is economically wasteful.> Measure Mistake v. Cost: Cost of ri pping out 2500 feet of pi pe would be dispr opor tional to the mistak e, even

for an idiosyncratic bargainer (objective benchmark: Value of mistak e v. Cost of r eplacement)> Mistake Must be Reasonable: Must show that defect was ³r easona ble and in good f aith (not intentional)´ and

trivial (i.e., doesn¶t f r ustrate the pur pose of the K).JJ: May ignor e the f act that people pay a pr emium in some of these K ¶s and they expect everything to be pr ecisely asthey want it whether or not ther e is functionality. The price paid is for that specif ic r eason, and so equivalency may notalways serve the pur pose of the K in such cases.

O.W. Grun Roofing v. Cope ± Substantial Performance Must Also Meet K¶s Purpose



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FACTS: O.W. Gr un r eplaced Cope¶s r oof but installed tiles with str eaking rather than a solid br own color, making ther oof not uniform. K descri bed shingles to be used as ³r usset glow´. D acknowledges that it was his obligation to install a r oof of uniform color .

No substantial performance: ³We ar e not pr epar ed to hold that a contractor who tender s a per formance so def icientthat it can be r emedied only by com pletely r edoing and work for which the contract called has esta blished, as a matter of law, that he has substantially per formed his contractual obligation.´ Value is Really Subjective in Homes: In the matter of homes and their decoration, mer e taste or pr efer ence may becontr olling with the homeowner .Rule: Substantial per formance must also meet the pur pose of the K.

COU

NTERARGU

MENT: Pur pose was mer ely to put a r oof over their head.

Haymore v. Levinson (attem pt to contract out of substantial per formance def ault r ule) ± Opportunistic Behavior

FACTS: Builder (P) constr ucted a home for D with a contract that said ³$3,000 in escr ow until satisf actory com pletion.´ Upon com pletion, D pr esented P with a list of necessary im pr ovements and P per formed. D then pr esented another list, and P sued for the r emaining $3,000 payment. Ps argue that ³satisf actory com pletion´ has subjectivemeaning, and that until this meaning is met, they do not have to pay. Ps say must only meet r easona ble standard.> Reasonable Standard: The par ty f avor ed by such a clause cannot withhold a ppr oval unless a ppar ent r easona ble

justif ication for doing so. ± Need to meet standard of r easona ble per son.> Impossibility: The Ds also pr evented the P f r om com pleting the pr ovisions by ordering him off the pr oper ty ± this

is a lesser issue, not so sur e a bout a pplication.(1) Wher e the contract is per taining to something of such a natur e that pleasing the per sonal taste or f ancy is an

element of pr edominant per formance in the contract (i.e., subjective)(2) Wher e the contract is per taining to mechanical utility and operative f itness (i.e., objective). In the latter case, ther emust be some r easona ble justif ication for not withholding a ppr oval.

8.3 ± Anticipatory Repudiation

Policy: Ideal Allocation of Risk: When contingency or event is ID¶ed at time of K , cost of bering risk is minimized by assigning it to par ty that can better tak e cost-effective measur es to r educe the pr oba bility of risk and contractual loss that would occur if it did ± The

Least Cost Avoider.

Moral Hazard: When individual lack s the incentive to behave eff iciently because he does not fully ³internalize´ both the costs and the benef its of behavior .

Need to incentivize the least cost avoider to avoid the risk. H ard to ID exactly how to do this, which party is in best position toavoid, it¶s hard to determine.

How to: Include terms in agr eement r equiring mutual ad justment to futur e contingencies.> Problems: Incentivizes bad f aith ± each par ty can use mutual ad justment to evade contractual obligations. Incentivizes

oppor tunistic behavior ± exploit the other by deli berately over estimating its own cost of ad justment, allowing a br oader avenue for esca pe

> Hard to do: Because duty to mitigate only arises because of br each, it f alls shor t of allowing cost effective ad justmentsthr oughout the life of K

o Suggestions: When a better buyer comes along, it may be mor e economically eff icient for the seller to br each and pay the buyer the cost of transaction and the value that it was wor th to him.

(1) Efficiency for Injured: Allows in jur ed par ty to mitigate damages, thus cutting social losses and im pr oving eff iciency; (2)Justice for Injured: cr eates option in in jur ed par ty to sue or wait, but br eacher might r etract; (3) Just Makes Sense: once you enter into a contract you have a right to be f r ee f r om actions that would r easona bly beinter pr eted as an intent not to per form b/c that tak es the cer tainty or near cer tainty of per formance.

R.2d § 250: REPUDIATION: A r epudiation is(a) a statement by the obligor to the oblige indicating that the obligor will commit a br each, or (b) a voluntary affirmative act which r ender s the obligor una ble or apparently unable to perform without such a br each.

Common Law: Common law r ule r equir es that antici patory r epudiation be ³a positive, unconditional, and unequivocal

declaration of f ixed pur pose not to per form the contract in any event or at any time.´

R.2d § 253: (1) Wher e an obligor r epudiates a duty befor e he has committed a br each by non-per formance and befor e he has r eceived all of theagr eed exchange for it, his r epudiation alone gives rise to a claim for damages for total br each.(2) Wher e per formances ar e to be exchanged, one par ty¶s non-per formance will discharge the other par ty¶s duty.



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R.2d § 256: RETRACTION: (1) The effect of r epudiation«is nullified by a retraction of the statement if notif ication of the r etraction comes to the attention of the in jur ed par ty befor e he materially changes his position in r eliance on the r epudiation or indicates to the other par ty that heconsider s the r epudiation to be f inal.(2) The effect of events other than a statement constituting a r epudiation is nullified if , to the knowledge of the in jur ed par ty, thoseevents have ceased to exist befor e he materially changes his position in r eliance on the r epudiation or indicates to the other par ty that he consider s the r epudiation f inal.

Anticipatory Breach:

Hochster v. de la tour (addr esses conceptual pr oblem) ± No Need to Wait for Damage when it is Indicated

FACTS: P (courier ) engaged by D to accom pany him as a courier on a tour to a for eign country which would commenceJune 1st. On May 11th, D br eached. Pcommenced actions on May 22nd. On July 4th, P was a ble to secur e an equivalent

position elsewher e. Can Sue BeforeBreach Occurs > Repudiation as Breach: D¶s r epudiation is a br each of contract that is irr evoca ble once suit is br ought; suit can

be br ought befor e date of per formance.> R EASONING: > Impossibility: Br eacher has r ender ed it im possi ble for other par ty to per form the contract> Implied Condition=No Prejudice: Wher e ther e is a contract to do an act on a specif ic day, ³they im pliedly

pr omise that in the meantime neither will do anything to the pr ejudice of the other inconsistent with thatr elation.´

> Efficiency: It is sur ely mor e economically rational that the P should be at li ber ty to seek the service under another em ployer .

> Inequitable Balance: Asymmetry would r esult if one par ty is allowed to br each and the other is for bidden toseek an alternative until the time of per formance.

Taylor v. Johnston ± The U nequivocal Requirement

FACTS: P contracted to br eed two mar es with D¶s stallion. Contract specif ied br eeding to tak e place next year, but hor sewas sold to a syndicate. P thr eatened to sue, but D arranged for mar es to be br ed on new owner¶s f arm with same stallion.P¶s agent r epeatedly turned away f r om br eeding hor ses. Hor ses then br ed with Kentucky der by winner for $10k, but

pr egnancies unsuccessful. No Br each.(1) Repudiation: D clearly r epudiated when he sold the stallion and ³r eleased´ p f r om r eservations(2) Retraction of Repudiation: When the P didn¶t want to be r eleased, the D arranged for the contract to be

carried out at no expense to P by making sur e that the br eeding could still occur with the sir e in KY.(3) NoUnequivocal Repudiation: Once amends have been made, ther e is not ³conduce equivalent to unequivocal

r efusal to per form - which r equir es the pr omisor to put it out of his power to per form.(4) R.2d § 256: R etracted as r equir ed when statement is made and befor e material r eliance has occurr ed for P

Truman Flatt & Sons v. Schupf ± Anticipator Repudiation and U nambiguous Terms

FACTS: Landowner s (D) agr eed to sell land to for $160k . A contingency clause noted that sale was contingent on the buyer¶s r ezoning with 120 days of contract, and if that f ails ³this contract shall be voida ble at Buyer¶s option and if Buyer elects to void this contract Buyer shall r eceive a r efund«´ P¶s attorney sent a letter to landowner s informing them of substantial opposition (though no r ejection yet) to the r ezoning and that they wanted to offer $142k instead. D r esponded that they would not accept. P r esponded that they would purchase as pr ovided for in the original contract, but Dr esponded that P had r epudiated the contract.HOLDING:

> P¶s attorney¶s letter asking for a lower price was not r epudiation, but a r equest for voluntary modif ication in good f aith. (Modif ication does NOT = r epudiation)

o Ambiguity: INTER PR ETATION: The letter did not constitute a clearly im plied thr eat: at most,

the words used gave an am biguous im plication.o Unambiguous: R epudiation r equir es ³a def inite and unequivocal manifestation that he will not

r ender the pr omised per formance.´ > Even if P r epudiated, his r evocation was timely anyway.

o The r epudiating par ty has the power of r etraction (im plicit/explicit) unless the in jur ed par ty hasmaterially changed his position.

Reliance = (a) notif ication that pr omisee is tr eating r epudiation as f inal; (b) pr omisee hascommenced action for br each; (c) pr omisee has other wise changed his position.

If the r epudiation is clearly r etracted, no antici patory br each. R2d §256



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Relaxation of Unequivocal Rule: Some cour ts have r elaxed the ³unequivocal´ r ule and given the option to the in jur ed par ty to tr eatunclear communications as r epudiations.

Bonebrake v. Cox: Buyer s of bowling alley equi pment learned that seller had died. Took numer ous steps in an attem pt to contact next of kin, check war ehouse, etc. Buyer s purchased elsewher e and cour t found that ³ther e was,

beyond doubt, a r easona ble indication of a r ejection.´

Wholesale Sand & Gravel v. Decker: Homeowner wanted gravel driveway installed. Com pany began work, but they wanted to wait until gr ound dryer . R emoved all equi pment. Contacted multi ple times by homeowner and always

pr omised to ³get right on it,´ but never did. 45 days later homeowner hir ed another com pany: ³on this r ecord, it wasr easona ble for Deck er to conclude that Wholesale would never com plete its per formance under the contract.´ JJ: Could have been sim ply trying to do it right and, thus, a legitimate statement is tak en as a r etraction. If you can¶tto the job corr ectly, should your statements to this effect constitute r epudiation? The r ule, ther efor e, can be over inclusive because of these situations.

9.0 ± Remedies

Expectation, Reliance, and Restitution

Pain and Suffering: In contract law, usually no pain and suffering r emuneration UNLESS r easona bly for eseea ble consequence of br each.

Sullivan v. O¶Connor - Pain and Suffering as Restitution ( unusual)FACTS: Plastic surgeon (D) pr omised an enter tainer that he would ³enhance her beauty and im pr ove her a ppearance´ thr ough surgery on her nose. Surgery was botched and made her a ppear wor se than befor e. P wentthr ough 3 operations, but only the last one was meant to r emedy the other two and was non-scheduled. P wanted differ ence in value of noise after surgery than nose as pr omised.(1) Pain and Suffering and Mental Distress Recovery-Public Policy: Should r ecover mor e than costs because

³wher e the P by r eason of the operation was put in mor e pain than would have other wise endur ed if per formance had been as pr omised, should be com pensated´ for this as well. Fee itself is disproportionate to

putative expectancy.

(2) Br each of pr omise allowed in this case, even though doctor s do not ty pically mak e those pr omises. But doctor was a plastic surgeon who pr omised specif ic r esults.

(3) Reliance damages the corr ect measur eR EASONING:

> No Recovery on Value of Nose: Expectancy damages = def ault, but too uncer tain in this case. You can¶tattach a dollar value to a beautiful nose. The value needs to be objective.

> R estitution = too little of a r ecovery (just out of pock et expenses for all thr ee surgeries). This would not beenough to dis-incentivize im pr oper conduct in these cases, must also award for pain and suffering.

JJ: In this case, expectancy can sometimes be big. Hollywood ty pes ar e all a bout look s ± lik e that Gossi p Girl actr ess, what¶s her name, saw her in a chick f lick with wife, not bad. But this is neither her e nor ther e, what isim por tant is the expectancy is all r elated to look s ± could¶ve been a f amous singer, a movie star, etc. All based on look s. You sell your self in Hollywood, it¶s a mark et of human beings.

R estitution R eliance Expectancy

Out of Pock et Exp. Entitle to expenses f r om all 3 operations

Out of Pock et Expense for all 3 operations

Out of Pock et for 3rd operation only.

Pain and Suffering Pain and Suffering for all 3 operations

Pain and Suffering for 3rd operation only

Earning Loss Differ ence in earningsw/old nose and actual nose

Differ ence between earnings w/new nose and w/old nose

Psychic Loss Differ ence in emotional well being w/old and w/actual nose

Differ ence in emotional well being w/new ver susold nose

Freund v. Washington Square Press, Inc (expectancy damages)



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FACTS: P (academic and author ) contracted with publisher to publish his book on modern drama in hard back . Per the terms of the contract, P r eceived $2k upon delivery of the book, and if D deemed it un publisha ble he had toinform P in writing within 60 days. A had a duty to publish within 18 months, and P would r eceive a r oyalty. Dmerged with another f irm and stopped printing hardcover book s, but it was past the 60 days, though they r efused to

publish in any form. Damages r educed f r om cost of publishing $10k to $.06.No Expectancy Damage-Too Speculative: Lower cour ts wer e incorr ect in using the cost of com pletion asexpectancy damages b/c they ar e too speculative.REASONING:

> Damage measure too speculative, yet theoretically you can recover here. Needs to be more than

merely speculative, however, needs to be objective (r oyalties could not be determined b/c not well known author, etc.)i. P admitted no evidence with r espect to valueii. P only published one other book, so hard to weigh expected value on such limited data.

> Cost of Performance v. Diminution in Value:

i. The P was awarded the cost of publishing. This is not what the K was for, however, because hewould have never been on the hook for publishing costs ± just the % value of the book s sold.Had pur pose of K been to give book s to f riends, ver sus to mak e money, cour t might haver equir ed cost of com pletion, but not her e. Enriches the P at the D¶s expense.

Default Rule for Uncertainty: If you can¶t pr ove expectancy, you r ecover: Zer o.

Theory of Efficient Breach:

> Wher e seller Ks to sell 100 widgets for $1000 and ar e wor th $1500 to buyer 1, and buyer 2 comes along and offer s 10K for the same service. It would be eff icient for seller to br each the contract in this case and pay buyer 1 $1500 for the value itwas wor th and collect an additional 9.5K

ExpectationBased Damages:

> Basic Assumption: Pr omisor must either per form or if the pr omise is br eached, but the pr omisee in same position shewould have been in had pr omise been per formed.

> On Other Hand: Pr omiseee shouldn¶t be entitled to r ecovery that places in a better position than per formance would havedone.

American Standard v. Schectman

FACTS: P made a contract with D to demolish buildings on 26 acr es of manuf acturing pr oper ty for which D would pay $275k (since he could r esell objects on land). The pr oper ty was also to be graded one foot below the sur f ace. Pr esold for near mark et value, but sued D for cost of com pletion ($110,500).

Look Towards Purpose of K: Cour t said pur pose of the contract was to r estor e the land, but D claimed it was tor esell at mark et value.HOLDING: Cost of completion, not diminution in value is the pr oper measur e of damages (i.e., 90k that it would

cost now to f inish the job).R EASONING:

> No substantial performance: 90k left on the job ± not trivial to the pur pose of the contract since the pur posewas r estoring the land (not mer ely r eselling it)

i. Not incidental to the contract as was the case in Peevyhouse.> Bad Faith: D¶s br each was intentional and substantial, unlik e the br each in Jacob &Youngs.> Value of Act Not Considered For tuity that P was a ble to sell land at near mark et value. Diminission in value

is also r ejected by the cour t as a theory ± incr ease in value cannot be only basis of r ecovery when someonecontracts to im pr ove land.

> Not Economic Waste Issue: Not unr easona ble economic waste, distinguishing f r om Jacob & Youngs.CRITIQUE:

> Pur pose of the contract was to r esell the land, as shown by the f act that they r esold it> To accom plish pur pose of K and put par ty in position it would have been, damages should be differ ence in

value (3K).> Other wise, windf all for one par ty or the other .

General Rule: Cour ts will tak e the lesser of diminution in value ver sus cost of com pletion.

Peevyhouse v. Garland (law in OK ± Pr oba bly to This Day!?)



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FACTS: P owned a f arm containing coal deposits and leased the pr emises for f ive year s for stri p mining. In addition, Dagr eed to per form cer tain r estorative word at the end of the lease period, totaling a bout $29k . Contract carried out by both

par ties, except for the r emedial work . The cost of r estoration would be $29k, while the value r estoration would add tomark et value would be $300.

Uses Market Value Determination: Cour t a pplies diminution of value r ule and awards $300, rather than cost of com pletion which would be 29k ± jury awarded 5k of this. (differ ent than American: Cost of Com pletion)R EASONING:

> Purpose of K : Contract¶s pur pose was to extract coal; the r emedial work was incidental to the contract, and thus ther e was substantial per formance.

> Economic Efficiency: Unr easona ble to enforce a cost of com pletion r ule when they will r eceive a gr eater benef it f r om the br each than could be gained by per formance. Would only incr ease value by 300 and cost 29K.

CR ITIQUE: > P contracted for r estoration and ther e was consideration for that pr omise (pr oba bly for ewent 3k up f r ont in

exchange for this pr omise)i. If the pur pose was both mining and r estoration, P should r eceive expectancy costs.ii. Subjective value of the land much higher considering they for ewent this 3K

> Incentivizes Opportunistic Behavior: Encourages oppor tunist br each when cost is substantially gr eater than value added.

> Completion Issue: Not lik e Jacob & Youngs b/c no economic waste: just com pletion.JJ: Says that this was an outright bad decision ± and one that still, shockingly, hasn¶t been r epudiated in OK. Only thing hecan think is that the cour ts f avor ed industry ± the coalminer s - when weighed against the P.

Limitations on Expectation-D

amage Recovery

Certainty

Can¶t r ecover if too speculative: See Sullivan v. O¶Connor. In cases wher e it is diff icult to pr ove expectancy, one may r ecover mor e f r om r estitution or r eliance damages.

Foreseeability

General Rule: Par ty only lia ble for for eseea ble consequences unless the other par ty brings special circumstances to mind.

Hadley v. Baxendale - ForeseeablilityFACTS: P (Miller s) sent one of their work er s to esta blishment of D to f ix a br ok en crank shaft. P told D that mill wasstopped and that the shaft must be sent immediately. D said that if it was sent by 12 on any day it would be deliver ed thefollowing day. However, delivery was delayed and it took several days. P sued for loss of pr of its.

Foreseeability: D¶s not lia ble because the harm was not for eseea bleREASONING:

(1) Ps Should Have Clarified: At time contract was formed, Ps f ailed to disclose the serious damages (lost pr of its and mill shutdown) that would r esult f r om a delay:

o Carrier did not know that this millshaft was Ps only millshaft.o Special circumstances unknown to br eaching par ty and ther efor e not in his contem plation at time

of contracting (2) To Bear Risk, Price Would¶ve Been Higher: D needed to set its price for service and the price set did

not r ef lect risk of untimely delivery in this case b/c D lack ed information; D would have charged a higher

price (r eserve for contingencies) or contracted out of lia bility (waiver ).

Spang Industries v. Aetna ± Mitigation, Damages, Conditions, - Reliance Damages



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Facts: the P successfully bid on contract to build bridge for NY and subcontracted out to D for the steel supply. Thecontract had term: ³Delivery to be mutually agr eed upon.´ Eventually D did could not deliver on its June date, the Pcontacted D twice ± thr eatening to cancel if no r eturn corr espondence ± and early August was settled on. Overall, D

pr ovided the materials late causing the P to incur expenses when D did not unload materials at RR station as pr omised and when P had to pay over time and r un tests to see if cement would set pr operly in cold to com plete job on time. Dsues P for the money it r efuses to pay, P counter sues D for the extra expenses it incurr ed. Ct. awards D the balance on K offset by P¶s extra costs plus inter est - Aff irmed.

> Condition: Cour t found that the ³delivery to be mutually agr eed upon´ meant that its initial agr eement to send the materials in June, with the knowledge of what P was planning on, meant that D¶s excuse that it had not

agr eed and opted out in January cr eated a br each ± none of the excuses that D gave for opting out sat well withthe cour t. The condition had been met, and the D was lia ble for damages that ar ose f r om his late delivery ± P¶sover time and extra expenses setting concr ete during cold months.

> Mitigation: the P acted pr om ptly and unloaded the materials, and work ed with the city to go ahead and f ind a way to com plete its pr oject on time. If P had not, then the damages would have been much mor e because itwould have been forced to wait until the next spring to sue for the damage amount r esulting f r om its br eached contract to build bridge for the city ± it would have sued for expectancy pr of its of what could have been her e.

> Inter esting to note that the cour t actually whittled down r eliance damages because of P¶s f ailur e toesta blish the supervisor, over head, and equi pment costs wer e the cause of D¶s delay.

Duty to Mitigate

Rockingham County v. Luten Bridge ± When there is a Breach, Mitigate ± P Only Liable up to BreachFACTS: Luten(D) enter ed into K with county (P) to build a bridge as par t of a newly constr ucted r oad. In Febr uary, the County Board r ever sed itself and notif ied Luten of the br each. At the time of r epudiation, Luten had spent $1900.Luten tr eated the r epudiation as invalid and com pleted the pr oject for a total cost of $18000 and sued the County for

payment.Can Recover Up ToBreach: Cour t held that Luten could r ecover r eliance damages of $1900 and its lost pr of it for the whole ventur e, but could not r ecover the additional costs of $16,100.Duty to Mitigate: Victim of br each has a duty to mitigate and cease actions that incr ease the other par ty¶s lia bility.REASONING:

(3) Don¶t Want to Prohibit Breach: Work done after br each is valueless to the br eaching par ty (literally in this case)

(4) Efficiency: Work done after br each is a waste of economic r esourcesMitigat Can Be Finding Other Buyer: This duty to mitigate can tak e the form of f inding someone else who wantsa good, f inding other seller s, etc.

JJ: Was evidence that Luten had the pr evious county board in his pock et. The r oad literally led to nowher e and wasnot useful at all, the cour t pr oba bly saw an eff iciency pr oblem her e as did the new board who didn¶t want to pay

because the pr oject was useless.

Parker v. Twentieth Century Fox ± Mitigation for Work and Not Legally Obliged U nless Similar

FACTS: Fox hir ed Shirley MacLaine to play a lead r ole in a play ada ptation of a feminist Br oadway play called ³Bloomer Girls´. Fox guaranteed MacLaine¶s fee of $750K (pay-or -play clause), however, they subsequently dr opped the f ilm and offer ed MacLaine a r ole in a Australian Western movie with the same com pensation but withoutthe same scri pt a ppr oval and dir ector a ppr oval rights. MacLaine declined the offer and sued for her guaranteed fee.

Substantially Similar and Mitigation for Work: MacLaine under no legal obligation to mitigate because it wasnot substantially similar to the original and of a differ ent/inferior kind Inferior and not equivalent b/c: 1) Musical v. Dramatic R ole; 2) LA v. Australia; 3) Not something MacLaine

believed str ongly in; 4) No a ppr oval rights over dir ector /scri pt ± meaning work er s¶ rights ar e tak en away.DISSENT: Should have been a trial to determine whether they wer e substantially similar . The cour t has never held that em ployment in the same f ield counts as ³substantially differ ent´. What is im por tant is that its in the same f ield: same kind of work, same kind of pay, same job.

Specific Performance

General: (5) If thick market, the thing contracted for can be r eplaced

o Damage can be undone by com pensating the buyer to allow them to gain same thing somewher e else ± r eturned to S Q.



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(6) If thin market, the thing cannot be r eplaced and price cannot r easona bly be calculated ± f amily heirlooms-land, ar twork, high end limited items.

o Good r eason for specif ic per formance in this circumstanceo Assigning damages too high will discourage eff icient br eacho Assigning damages too low will encourage ineff icient br each.

(7) If transaction costs ar e low enough, we can allow specif ic per formance and the original buyer will then, in turn, sell tothe higher valuing buyer .

UCC § 2-716(1): Specif ic per formance may be decr eed wher e the goods ar e unique or in other pr oper circumstances.

(1) Common Law: ³Unique´ was the traditional Common Law a ppr oach: ONE-OF-A-KIND(2) Widened Approach-Expenses, Delay and Inconvenience: ³other pr oper circumstances´ widens SP to include when r eplication is diff icult to obtain without expensive delay and inconvenience.

R.2d § 360: ³In determining whether the r emedy in damages would be adequate, the following circumstances ar e signif icant: (a) Difficulty Proving: the diff iculty of pr oving damages with r easona ble cer tainty, (b) Difficulty Substituting: the diff iculty of pr ocuring a suita ble substitute per formance by means of money awarded asdamages, and (c) Damages Likely? the lik elihood that an award of damages could not be collected.

Sedmark v. Charlie¶s Chevrolet (specif ic per formance)

FACTS: Corvette collector¶s enter ed into a contract with Charlie¶s Chevr olet to purchase a limited edition (of 6,000)Corvettes styled after the Indy 500 pace car that year for a ppr oximately $15,000. P put down deposit of $500 and r eceived r equested modif ications to the car . No formal written contract was ever signed. When car was deliver ed f r om manuf actur er, D r efused to deliver the vehicle, r equiring him to bid on the car since it was argued that the price nowexceeded $15k due to mark et demand.

Specific Performance IS a proper remedy because:

(8) No Common Law: The Corvette was not unique in the traditional, common law a ppr oach.(9) But Thin Market: However, ther e was a thin mark et and high transaction costs associated with

r eplacing: o 360(a) IMPOSSIBLE TO AFFIX ADEQUATEDAMAGES b/c one cannot estimate the price

of r eplacement.o (c) Not Likely to Get Proper Damages: Can¶t put a value on transaction costs, meaning P would

be undercom pensated.o (b) Difficulty Substituting: Car of this kind with same mileage, condition owner shi p, and

a ppearance could be purchased in the mark et only with gr eat diff iculty, and at gr eat expense, delay, tr ouble, and loss.

REBUTTAL: The only additional loss is one of delay, which is mer ely a loss of some subjective value

Klein v. PepsiCo. (No Specif ic Per formance, Money Damages Will Do)

FACTS: UJS (br ok er ) contracted with PepsiCo to purchase a G-II Cor porate Jet and then was going to sell it to K lein.Trial judge r uled ther e to be a valid contract thr ough a letter agr eement, but PepsiCo r eneged on the deal and denied

ever forming a contract. K lein sued for specif ic per formance, even though he purchased a G-III instead as a substitute, and ther e wer e com para ble GIIs on the mark et.

No specific performance, b/c the jet was not unique and a r eplacement could have been acquir ed with little expenseof time and effor t.

(10) Thick Market: Pcould cover b/c the mark et was suff iciently thick: 21 such jets on the mark et, 3 of which wer e similar to the one contracted for; K lein bid on 2 such jets and ended up buying a differ entmodel; low transaction costs (just br ok er fee pr oba bly).

(11) Damages are adequate: K lein was going to purchase and r esell jet to a third par ty pr oba bly anyway.(12) Increase in Replacement Not Sufficient: An incr ease in the price of r eplacement alone does not

merit specif ic per formance - The GII that K lein had K ¶ed for was chea per at the time because the pricesfor them subsequently went up.



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Beverly Glen Music v. Warner (No Specif ic Per formanc-Involuntary Servitude-Unconstitutional)

FACTS: Anita Bak er br eached contract with P and signed with a com petitor . Ds wanted to force her to per form.Involuntary Servitude: Beverly Glen Music cannot specif ically enforce the contract or en join Anita Bak er f r om working for a rival gr oup due to the constitution¶s pr ohi bition on involuntary servitude.

JJ: Though Anita Bak er pr ovides a service that is unique and irr eplacea ble, specif ic per formance is generally notenforced by cour ts in la bor r elations because we don¶t force people to work in situations that they don¶t want to ± involuntary servitude. Can¶t enforce Ks for cer tain things.

Liquidated Damages

General: If LD ar e too high, you could pr event eff icient br eaches.

R.2d § 356(1): Damages for br each by either par ty may be liquidated in the agr eement but only at an amount that is reasonable in

the light of the anticipated or actual loss caused by the br each and the diff iculties of pr oof of loss. A term f ixing unr easona bly large liquidated damages is unenforcea ble on gr ounds of public policy as a penalty.

UCC § 2-719(1): Damages for br each may be liquidated«but only at an amount which is reasonable in the light of the

anticipated or actual harm caused by the br each, the difficulties of proof of loss, and the inconvenience or non-feasibility of

otherwise obtaining an adequate remedy. A term f ixing unr easona bly large liquidated damages is unenforcea ble on gr ounds of public policy as a penalty.

Damages can be liquidated in a contract only if

(1) Uncertain/Difficult: the in jury is either "uncer tain" or "diff icult to quantif y"; (2) Reasonable/Anticipated/Difficulty Substituting: the amount is r easona ble and consider s the actual or antici pated harm caused

by the contract br each, the diff iculty of pr oving the loss, and the diff iculty of f inding another, adequate r emedy; and (3) Damages NOT Penalty: the damages ar e str uctur ed to function as damages, not as a penalty.

> If these criteria ar e not met, a liquidated damages clause will be void.

Lake River Corp. v. Carborundum (Liquidated Damages wer e Penalty ± Not Enforcea ble) Ex Post Analysis

FACTS: Car bor undum, (D) manuf actur er of Ferr o Car bo, an a brasive powder used in making steel, contracted withLak e R iver (P) to bag and distri bute its pr oduct to costumer s in the Midwest. Contractually, Car bor undum insisted theLak e R iver install a new bagging system (89K), and in consideration for this, Lak e R iver insisted on a minimum quantity of pr oduct to be bagged and shi pped. The contract included a minimum-guarantee clause by which D agr eed toshi p at least 22,500 tons, and if it f ailed, Lak e R iver could invoice D for the differ ence. D shi pped only 10k tons, and Pinvoiced for the r est ($241k ).

Penalty notDamages: If the estimated damages f r om the clause gr eatly exceeds a r easona ble upper estimate of what

damages ar e lik ely to be, this is a penalty and not a liquidation clause ± not allowed.> The penalty would r ea p P a windf all pr of it of anywher e f r om 400% to 130% of the wor th of contract,

better off having the D br each in this case ± not efficient, unjust enrichment.

REASONING:

(13) The measur e of damages is unr easona ble because: o Super Compensatory: r elative to all possi ble antici pated damages. The f ixed sum of damages

gr eatly exceeds the actual damages r egardless of when br each occur s (400% to 130% of antici pate damages)

o Analysis:

(1) Wer e the damages uncer tain at the get go? No, the P knew that he expected to earn 107k f r om the contract and had sunk 89k into the new machine ± beginning 444k in damages ar eexcessive and 160k at end is too big as well ± clause set up to always benef it the P.

(2) Wer e the damages too much when viewed after the f act? Yes, 444k is 4 times the amount

that the contract was going to give him and too much at end to.y Don¶t want to incentivize contracts that mak e it mor e pr of ita ble for a br each to

occur for the P and deter a D f r om br eaching when it is eff icient.o The formula should have deducted P¶s savings f r om non per formance.

JJ:> IL Refuses to Enforce but in r eality wher e the par ties ar e both sophisticated, why wouldn¶t you?> Ex Post Analysis: The cour t held that the analysis determining whether the liquidated damage was too

excessive to be enforced should be one of hindsight. Thus, r egardless of whether the antici pated damageswer e seen to be mor e ± and wer e hard to determine ± at the outset, and r egardless of whether the par tiescontracting for this wer e sophisticated, the liquidated damage clause r eally served as nothing mor e than a ca p.



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> Still, though, the expected damages in this case wer e never as high as the liquidated. So would have f ailed both the Ex Ante and the Ex Post test to determine if actual damages wer e r easona ble.

> Always Good for the Breaching Party: Effectively, the liquidated damage clause in Illinois has been turned into a ca p on what the br eacher has to pay ± it is always good for the br eacher, and never so for the

pr omisor . If the actual damages ar e mor e than the liquidated, the pr omisor gets the liquidated. If in hindsight, the liquidated damages ar e higher than that of the actual, then the pr omisor gets the actual and the liquidated is void.

Super Compensatory: Damages awarded ar e bigger than actual damages, cr eates a situation wher e the br eaching par ty is lessca pa ble of br eaching when it is not economically eff icient, and a situation wher e the other par ty stands to gain mor e when thecontract is br eached than if the per formance had occurr ed.

Common Law v. Modern by JJ: At common law, liquidated damages wer e not look ed f avora bly upon and wer en¶t often enforced ± especially when super com pensatory. This has begun to change, as seen in Sun Shipping wher e mor e modern cour ts ar e enforcing these damage clauses.Judicial Economy by JJ: And why not? If liquidated damages wer e always enforce in the cases of sophisticated par ties ± wher eone is sophisticated and the other is not, ther e should be an exception ± the par ties have alr eady determined what the value of

per formance and br each mean to each other . The damage ther efor e doesn¶t need to be assessed by the cour ts and it is not necessary to pass the cost of this dispute onto the judicial system ± in f act ther e wouldn¶t be any dispute if we held sophisticated par ties to their agr eements.Sun Shipping v. Lake River by JJ: Sun Shi pping¶s Ex Ante method of determining whether to enforce liquidated damages seemslik e the mor e f air a ppr oach. Lak e R iver¶s method turns liquidated damages into nothing mor e than a ca p for damage, which may bemor e eff icient and r educe costs for the br eacher ± in that case, ther e r eally is no r eason to put a liquidated damage clause into a contract unless you ar e the par ty that would possi bly br each.Why the Courts Aren¶t Needed Even When Super Compensatory JJ: The cour ts f ail to tak e into account that sophisticated

par ties negotiated into the contract in the f ir st place, and thus if liquidated damages wer e always held, the par ties would then negotiate their way to a better settlement ± it¶s what they do. If the liquidated damages ar e too high, the par ty that stands to br eachcan always bargain out of it is the br each would be eff icient. The liquidated damage, in this sense, only stands for the maximum amount that the br eacher may end up paying.

California and Hawaiian Sugar v. Sun Ship (Liquidated Damages OK) Ex Ante Analysis



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FACTS: C&H is a sugar cooperative gr owing sugar in HI then transpor ting it to CA. The gr owing season is f r om April to October, and C&H decided to commission a boat to aid in transpor t. It accepted offer s f r om Sun Shi p to build the

barge and f r om Halter to build the tug. The agr eement with Sun Shi p specif ied a delivery date of June 30, 1981 setting LD at $17k /day, while an agr eement with Halter set LD at $10k /day. Both com panies missed their deadline by close toa year, and the cour t held that the liquidated damage clause should be upheld.

> Analysis:

(1) Ar e the Par ties sophisticated? Yes, then they under stood the terms and ther e is good r eason to hold them to it.

(2) Ex Ante: Wer e the damages r easona ble at the get go? It is hard to judge what the expectancy

damages wer e going to be if the br each occurr ed, and they wer e r easona ble at the time.B

oth par ties, with the hel p of legal counsel, thought that the terms wer e r easona ble as well.(3) Ex Post: In light of ex ante agr eement, whether the damages wer e super com pensatory in view of

hindsight does not matter .> Cour t com par es LD clause to antici pated damages (r otting sugar, ina bility to meet customer¶s demands) and

determines that it was a ³r easona ble antici pation of loss´. HIGH R ISK OF DAMAGES.> ³Wher e damages ar e r eal but diff icult to pr ove, in justice will be done the in jur ed par ty if the cour t substitutes

the r equir ements of judicial pr oof for the par ties¶ own informed agr eement as to what is a r easona ble measur eof damages.´

> The par ties ar e sophisticated and pr omised each other $17k .JJ: If they didn¶t want to pay damages if the other par ty was in def ault, they could have easily written it into the K.Why didn¶t they? Well pr oba bly because this would have set up bad incentives. If you think a bout it, if one par ty can only be in def ault if the other was, then it incentivizes them to work in coordination to mak e sur e neither def aults ± youcan imagine one par ty saying to the other, slow it down, we¶r e not r eady, in order to k eep either f r om br each.

Assignment & Delegation

General: (1) While duties can be delega ble, the original pr omisor cannot delegate out of his lia bility.(2) Assignment = transfer of right to per formance. The law pr esumes assigna bility.

R.2d § 317(2): A contractual right can be assigned unless: (a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially incr ease the burden or risk im posed on him by his contract, or materially im pair his chance of obtaining r eturn per formance, or materially r educe its value to him, or (b) the assignment isfor bidden by statute or is other wise inoperative on gr ounds of public policy, or (c) assignment is validly pr ecluded by contract.

R.2d § 322(2): A contract term pr ohi biting assignment of rights under the contract, unless a differ ent intention is manifested, (a)

does not for bid assignment of a right to damages for br each of the whole contract or a right arising out of the assignor 's due per formance of his entir e obligation; (b) gives the obligor a right to damages for br each of the terms for bidding assignment but doesnot r ender the assignment ineffective; (c) is for the benef it of the obligor, and does not pr event the assignee f r om acquiring rightsagainst the assignor or the obligor f r om discharging his duty as if ther e wer e no such pr ohi bition.

Crane Ice Cream v. Terminal Freezing

FACTS: Fr ederick enter ed into a contract with Terminal Fr eezing to deliver up to 250 tons of ice per week, and to forgo ice purchases f r om other deliver er s below the 250 ton limit. Fr ederick was bought out by Crane Ice Cr eam, who became a par ty to thecontract by assignment. Terminal Fr eezing sought to end the contract to deliver ice.HOLDING: Ice delivery contract is NOT assigna ble.R EASONING:

> The rights and duties of ar e too per sonal a natur e to assign.i. Contract allowed for Fr ederick to weigh the ice as it came in: ³on the loading platform of the said W. C.

Fr ederick .´ ii. Crane Ice Cr eam is a large operation in several states.

> could pr edict amount of ice to be used by Fr ederick, and im por tant aspect since the K is very open (up to 250 tons).> No ice may be purchased by Crane as it could have intended to supply its ice cr eam f r om a differ ent stor e.

Evening News v. Peterson

FACTS: Evening News () acquir ed another station in the District of Colum bia in June of 1978. Peter son was a newscaster for Evening News whose em ployment contract was designated to another station. claims that his contract r equir ed him to per form unique and unusual services and because of the per sonal r elationshi p he had with his pr evious em ployer the contract was notassigna ble.ISSUE: Is the contract assigna ble?



HOLDING: YesR EASONING:

> Nothing in the contract made r efer ence to his per son r elationshi p with the manager s of the former station. His K was withthe station, not individual people.

> R epor ting assignments wer e substantially the same befor e and after assignment. Peter son even won awards after theassignment.

> Peter son waited for over a year befor e bringing suit, when he hoped to move elsewher e.R ULE: ³Contract rights as a general r ule ar e assigna ble. This r ule, however, is subject to exception wher e the assignment would vary materially the duty of the obligor, incr ease materially the burden of risk im posed by the contract, or im pair materially the

obligor¶s chance of obtaining r eturn per formance.´ R

.2d.MER GER CLAUSE: The K also included a merger clause. Thus, the writing is an integration and par ole evidence may not beadmitted. However, Peter son will argue that such evidence is needed to inter pr et the language of the K. The cour t found that silencedoes not equal vague or am biguous language.

K The New One

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