Académique Documents
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Culture Documents
[1]
Enforcing Contracts: Consideration
Restatement § 71
• (1) “To constitute consideration, a performance or a return promise must be bargained for
• (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise
and is given by the promisee in exchange for that promise
• (3) The performance may consist of
○ (a) an act other than a promise, or
○ (b) a forbearance, or
○ (c) the creation, modification, or destruction of a legal relation”
• (4) can be a third party
Conditional Gift- A promise without consideration is a mere conditional gift; not enforceable by the courts. A good
feeling is not consideration. [FORK: Bargained for exchange or conditional gift]
* Test of whether it is conditional gift is if both parties could sue for breach.
Binding Gift Promises- Most courts will not recognize binding gift promises even if supported by seal. UCC 2-203
"every effect of the seal which relates to sealed instruments" as such is wiped out insofar as contracts for sale are
concerned."
○ Exceptions; some places recognize notary seal because of method of signing. Trusts are also ways to
make binding gift promises.
○ UCC 1-107- a right that comes out of breach can be waived without consideration
○ UCC 2-205- merchant firm offer; "an offer by a merchant to buy or sell goods in a signed writing which
by its terms gives assurance that it will be held open for certain time isn't revocable"
Benefit/Detriment Model- consideration can consist of either consist of a benefit accrued to one party or a legal
detriment to another party.
Bargained For Requirement - Courts set low hurdle for bargaining; does not require haggling, rather it just means
whether there is some reasoning behind what is being bargained for. Must be intended to induce action, Jara. [FORK:
Bargained for exchange or conditional gift]
Langer v. Superior Steel Corp. (Receives pension if he forgoes opportunity to work for another company)
• Enforceable on basis of consideration; induced former worker to not work for another company (this is a benefit)
• Also could be enforced on basis of promissory estoppel
Jara v. Suprema Meats, Inc. (Helps son get a line of credit; son gives a promise back to not get raise)
• To be valid consideration, contracts must be bargained for which is indicated by the phrase "as an inducement to the
promisor."
• In this case, Jara Sr. was not an inducement to change; he helped provide the credit before and then was given an
unrelated promise.
• Adequacy of Consideration -must be something of value in consideration; altruism is not enough of a consideration,
there needs to be something going both ways and it must be bargained for.
[2]
Enforcing Contracts: Adequacy of Consideration
Restatement §81. Consideration as a Motive or Inducing Case. (1) The fact that what is bargained for does
not itself induce the making of a promise does not prevent it from being consideration. (2) Fact that a promise
does not itself induce a performance or return promise does not prevent the performance or return promise from
being consideration for the promise.
• Comment a. “Bargained for.” : In most commercial bargains, the consideration is the object of the
promisor’s desire and that desire is a material motive or cause inducing the making of the promise.
BUT:
• Comment b. Immateriality of motive or cause: unless both parties know that the purported
consideration is mere pretense, it doesn’t matter if promisor’s desire for the consideration is incidental
to other objectives and even that the other party knows this to be so.
Mixed Motives- Even if other motives are present and real reason for exchange, it is irrelevant so long as
other consideration exists. Both parties must know that the purported consideration is immaterial (see
restatement clause above).
Thomas v. Thomas (Widow is given house if she maintains upkeep and pays small fee of rent each year)
• Rent & Upkeep are not nominal consideration; money indicates it is not voluntary conveyance.
• If governed by restatement, both sides would not it was pretense.
• Although real reason for contract may have been honoring wishes; consideration was still present and
ulterior motive for contract is irrelevant.
* Intention to make contract is irrelevant; cannot create a contract by simple desire to contract without
consideration.
In re Greene (Person having an affair promises lots of money in exchange for several nominal items)
• Seal is not binding consideration; $1.00 is nominal (both sides knew it was pretext)
• "Phrase good and valuable consideration" is not actual duty; too vague.
• Intention to make a contract is irrelevant if lacking consideration; won't force gift promises.
Fiege v. Boehm (Contract to forgo bastardy hearings in exchange for child support and other items)
• Promise to forgo lawsuit (even if lawsuit would have failed) is sufficient consideration so long as promise is
made in good faith. Promises to forgo lawsuits not in good faith are not valid consideration.
• Dispute in various courts and in restatement over whether good faith alone is sufficient or if there must be
some factual basis for the claim.
[3]
Enforcing Contracts: Preexisting Duty
Preexisting Duty Rule - the performance or the promise to perform a preexisting duty does not constitute
consideration
Restatement provision
§ 89. Modification of Executory Contract
A promise modifying a duty under a contract not fully performed on either side is binding:
(a) if the modification is fair and equitable in view of circumstances not anticipated by the parties when the
contract was made; or
(b) to the extent provided by statute; or
(c) to the extent that justice requires enforcement in view of material change of position in reliance on the promise.
• New consideration is generally needed, except in the above cases.
Levine v. Blumenthal (Property owner agrees to lower rent so that renter can pay)
• No detriment to the renter; sufficient consideration could be to refrain from bankruptcy.
• If person already has a duty to do something; new modifications must come with consideration.
Alaska Packer's Association v. Domenico (Workers hold out for more money and person agrees to provide it)
• No consideration exists if breached contract to coerce a benefit.
• No additional duties means it the case falls under the preexisting duty rule.
Good Faith Modifications- An exception to the preexisting duty rule; if contract is made in good faith then it is
binding even without consideration. U.C.C. indicates that good faith is all that is needed; Restatement is more
stringent.
Angel v. Murray (Trash collector asks for more money because of increase in houses)
• Generally modifications are unenforceable if there is no consideration.
• Good faith doctrine however has modified preexisting duty rule; the restatement indicates that modification
must a) be prior to completion b) have unanticipated circumstances c) modifications are fair and equitable.
* Massachusetts Exception - All modifications are binding; you are giving up the right to sue which means there is
adequate consideration for modifications.
[4]
Enforcing Contracts: Mutuality of Obligation
Mutuality of Obligation - Both sides must agree to undertake or do something; if one side can get out of it for
any reason then the promise is unenforceable (lacks consideration).
Satisfaction Clauses- Courts are usually unwilling to find satisfaction clauses lack mutuality of obligation.
Require the judgment to be made in good faith; will sometimes require an objective standard be used.
Rehm-Zeiher Co. v. F.G. Walker Co (Defendant agrees to sell whiskey for fixed price for five years, however
plaintiff was able to cease buying for "unforeseen" reasons)
• Buyer had no obligation to continue buying; thus contract was unenforceable because only seller had an
obligation to sell.
McMichael v. Price (New business person agrees to buy all sand that he can sell from sand company)
• Contract had mutuality of obligation; plaintiff intended to buy sand, only other alternative was going out of
business.
Wood v. Lucy [Lady Duff grants defendant exclusive rights to sell her products; requirement contract (?)]
• Contract has an implicit good faith requirement
Omni Group v. Seattle National Bank [Land contract is subject to feasibility reports from engineer]
• A promise given for a promise is dependent upon a condition does not necessarily render it illusory or
affect its validity as consideration.
• A satisfaction clause does not render the promise invalid unless it is so great the promise is illusory.
[5]
Enforcing Contracts: Quasi Contract-Restitution
Contracts Implied in Fact (by action) - a contract formed by the actions of the parties involved that make it
clear a contract has been formed. Contract implied in fact's recovery will be amount the parties would have
intended to contract.
Elements of a quasi-contract- a)defendant receives benefit b) knowledge of this benefit by the defendant
[an option to decline] c) it would be unjust to maintain the benefits without restitution.
○ Knowing Beneficiary- if person knowingly accepts benefit it will be enforced.
○ Forced Payment- person imposes a burden on a person without their knowledge (i.e. paints their
house without knowledge).
○ Gray Area cases.
Material Benefits Test - Is there a material benefit conferred upon the person later agreeing to the contract;
if so it might be enforceable under Webb. [FORK: Dispute in court between this and humanitarian argument
in Harrington]
Moral Obligation + Subsequent Promise- Court's split over whether moral obligation (or previous material
benefit) plus a subsequent promise is enforceable in quasi-contract.
Restatement Provision § 86
(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding
to the extent necessary to prevent injustice.
(2) A promise is not binding if; (a) it was conferred as a gift or the other was not unjustly enriched (b)
disproportionate to the benefit.
Mills v. Wyman (Son became sick; person took care of him, in gratitude father says he'll give money)
• Decided prior to theory of quasi-contract; held that people were not obliged to do the right thing.
• Law does not require people to do the right thing.
Webb v. McGowin (Worker saves bosses life; boss offers to pay money each week as compensation)
• Saving life has pecuniary benefits; promise to pay later is acceptance of the benefit
• Consideration exists because defendant was injured; McGowin benefited.
Harrington v. Taylor (Person has hand injured to save life; promised to pay)
• Court doesn't enforce the promise to pay after injury; acting as humanitarian.
[6]
Enforcing Contracts: Promissory Estoppel (Reliance)
Ricketts v. Scothorn (Person quits job on basis of promise of grandfather to pay $2,000)
• Fits all criteria of reliance; it was expected to and did induce action. Injustice could only be avoided by
enforcement.
Allegheny College v. National Chautauqua County Bank of Jamestown (Promises to give $5,000 to
college and later rescinds; this is in exchange for named fund or any use).
• Consideration is present on both sides (agreed to named fund is post humus legacy)
• Might be found under promissory estoppel because college relied on money.
Charitable Exception - Donations to charity can be enforced without consideration EVEN IF no reliance or
action.
[7]
Enforcing Contracts: Statute of Frauds
Statute of Frauds - Establishes that some contracts must be in writing to avoid fraud and must be signed by
party wishing to enforce contract. Several things generally fall under statute of frauds;
(1) land sales
(2) agreements which cannot be performed within a year
(3) marriage
(4) promise to answer the debts of another.
Reasoning for Statute of Frauds. (1) Promotes evidentiary requirement (2) cautionary purpose; indicate these
are important events (3) channeling; better to have it written down.
Uniform Commercial Code - If sale of goods is more than $500 then it must be in writing unless;
(1) custom made goods (2) existence of contract admitted in court (3) receipt and acceptance of goods or
payment is rendered (4) confirming memo (between merchants only)
UCC § 2-105(1) - Goods; goods mean all things which are movable at the time of identification to the
contract for sale other than the money in which the price is to be paid. Goods also include the unborn young
of animals and growing crops.
One Year Rule - If the contract will take longer than a year to perform then many jurisdictions hold that it
must be in writing. However, if there is the theoretical possibility that it could be performed in less than a
year,then the One Year Rule does not apply.
Professional Bull Riders, Inc. v. Autozone (Agreement for sponsorship for up to two years; can be
terminated within a year)
• "If the agreement could have been performed within one year, the statue is inapplicable."
• If any of the alternatives in the contract can be performed within a year then it does not fall under the one
year rule.
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Missing Information - Evidence can use evidence to establish ties between signed and unsigned documents;
must be a clear connection between the two.
Crabtree v. Arden (Person receives indication from company that they will hire him for $20,000 with raises
coming every six months; GM signed a payroll card and company sent a memo)
• Case falls under statute of frauds
• There is a contract (even though pay raise was unsigned) because of additional evidence that is used to
show that is the intent of the contract.
Restatement § 208 (influenced by Crabtree) - "the memo may consist of several writings, (a) if each writing
is signed by the party to be charged and the writings indicate that they relate to the same transaction, or (b)
though one writing only is signed if (i) the signed writing is physically annexed to the other writing, or (ii)
the signed writing refers to the one unsigned writing, or (iii) it appears from the examination of all the
writings that the signed writing was in reference to the unsigned."
[8]
Making a Contract: The Objective Test
Objective Test- Would a reasonable person have thought that a contract had been made based on the events.
There must be a serious intent to be bound by an offer; won't be bound by humor, expressions of opinion or
offers directed at other people.
Intent to Contract - Did both parties intend to form a contract; this is to be evaluated from an objective
approach such as outward showings; not personal or hidden feelings.
Secret Intentions - Not relevant; contracts are formed based upon outward projections.
Embry v. McKittrick (Deliberations over contract; boss says "go ahead and get your men out", contract?)
• Contracts are embodied in the words which the parties have used and is to be deduced therefrom.
• A meeting of the minds is not determined by secret intention of the parties but by their expressed intention, which
may be wholly at variance with the former.
Restatement § 16 Intoxicated Persons: Contract only voidable for this if the other party has reason to know that
because of this, he’s unable to understand and act in a reasonable manner regarding the transaction and its consequences
Lucy v. Zehmer (Land sale that defendant argues is null because he was intoxicated at the time)
• “Evidence shows he (Lucy) was warranted in believing, that the contract represented a serious business transaction
and a good faith sale and purchase of the farm.”
Directed At Test- Cannot accept offers that are directed at other persons; case of hole-in-one. Based on objective test.
[9]
Making a Contract: Offers (Definiteness)
Restatement Provisions;
§ 26 - Fixed Purpose- "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 to the person making it does not intend to conclude a bargain
until further manifestation of assent"
§ 24 - Offer - "the manifestation of willingness to enter into a bargain, so made as to justify
another person in understanding that his assent to that bargain is invited and will
conclude it.
Advertisements - Generally not considered an offer merely an invitation to make an offer; exception if the
advertisement is definite in its terms.
Reservations Requirement - In order to have a valid contract, person must simply be able to say I accept and
not have reservations about it.
Lonergan v. Scolnick (Defendant places ad in paper saying will sell land; plaintiff and defendant
communicate with understanding to act fast, defendant sells land before plaintiff responds)
• Fixed purpose test; if other side knows that additional steps must be taken to accept then it cannot be said
that an offer has been made (i.e. an advertisement).
• Other side must have reason to know more action is called for (see restatement above)
Lefkowitz v. Great Minneapolis Surplus Store (Guy wants to buy a fur coat from store for dollar based on
advertisement)
• Generally ads are not offers; however, this was an offer because it had specific terms and wrote in
method of acceptance. If an advertisement leaves nothing open for negotiation, it's an offer.
• However, if there are key terms left indefinite, such as value, it is not an offer.
Leonard v. Pepsico, Inc. (Person tries to accept commercial's offer for harrier jet)
• Jokes are not offers; objective test should govern
• Catalogue indicates that it is an invitation to make an offer
[10]
Making a Contract: Acceptance
La Salle National Bank v. Vega (Two parties sign "contract" that will be valid upon execution by trust, not
executed by the trust)
• "An offer has complete control over an offer and may condition acceptance to the terms of the offer"
Hendricks v. Beehee (Real estate contract; buyer takes out escrow to buy land and notifies agent but seller
withdraws offer before buyer communicates acceptance)
• An acceptance must be communicated to the offeror prior to withdrawal in order for contract to be formed.
• Unless promise to keep offer open is supported by consideration; offeror can withdrawal offer.
Ever-tite Roofing Corp. v. Green (Contract for painting of house; person hires other group but doesn't inform
original painters, painters show up at house)
• Work began when trucks were loaded; this is in line with how offer was worded "this agreement shall become
binding only upon written acceptance or upon commencing work"
[11]
Making a Contract: Acceptance By Performance
Difference between unilateral contracts and bilateral contracts; unilateral is a one-sided offer that can be
accepted by performance (ex. I promise to pay you if you paint my house) versus bilateral which is a promise
for a promise (I promise to pay you if you promise to paint my house).
Unilateral Acceptance- Acceptance begins when partial performance has begun. Law will not allow for
revocation in the middle of a unilateral offer. Two reasons; (1) quasi contracts (2) unilateral contract has an
implicit promise not to revoke after performance has been initiated.
Bilateral Acceptance - When promise is received.
Restatement § 45(1); once the offeree tenders the beginning of performer, it does not bind the offeree but it
does give them the free option to finish. It gives you the right but not the obligation to finish.
Modern Approach - An offeree can accept by a reasonable means, unless the offeror explicitly indicates that
the person must accept by performance.
UCC 2-206(2) "Beginning of a requested performance", if reasonable, may also create a contract.
Carlill v. Carbolic Smoke Ball Co. (Offers $ if person uses product and gets sick)
• Character of transaction invites offer by performance; lack of targeted person does not negate transaction
because it was targeted at any user.
• Acceptance by performance does not have to be communicated.
• Consideration exists; detriment to user and benefit through purchase to company
Intent to Accept - Must have an intention to accept offer; cannot find out about offer and then later accept.
Glover v. Jewish War Veterans of United States (Person supplies information; later finds out about reward
and tries to collect on reward)
• Must have knowledge of offer before you can accept the offer; no contract because person did not know
of offer.
• Private Rule and Government Rule; government is obliged to pay money ever if not known (?)
• Difference between this and Carbolic, in order to accept an offer you must know about the offer. In
Carbolic person did not disavow knowledge of ad whereas in Glover, she said that she didn't know.
[12]
Making a Contract: Acceptance by Silence
Restatement § 69(1) - Where an offeree fails to reply to an offer, her silence and inaction operate as an
acceptance in the following cases only;
a) Where an offeree takes the benefit of offered services with reasonable opportunity to reject
AND reason to know they were offered with the expectation of payment.
b) Where the offeror has stated.. that assent may be manifested by silence .. and the offeree in
remaining silent… intends to accept the offer.
c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the
offeror if he does not intend to accept
Wrench, LLC v. Taco Bell Corp. (Uses idea for "Psycho Dog" to market taco bell; inventor of "Psycho
Dog" sends over a contract but Taco Bell doesn't sign; later uses a similar idea)
• Clear understanding existed that payment was expected if idea was used.
• Should have explicitly rejected offer; continued services indicated reason to expect payment.
• Contract Implied in Fact
Customary Acceptance - If silence is a customary way to accept proposal then it may be deemed to have a
contract.
Ammons v. Wilson & Co. (Seller receives sales order, order makes it clear subject to approval by seller;
buyer orders product. Seller rejects offer after two weeks, typical time for sale is week)
• Failure to respond when silence is the custom is acceptance; this can occur even when contract explicitly
says otherwise.
• If it is customary to accept by silence then it can be held valid
• Also dealt with authority to contract (324, Alaska Packers is similar)
UCC 2-206(1)(a) - "The offer could be accepted by a prompt promise to ship or by the prompt or current
shipment of conforming goods."
Adams v. Lindsell (Letter is addressed to wrong person; takes longer for buyer to respond, seller sells before
receiving letter but after buyer had sent the letter.
• Acceptance does not have to be received for it to count.
• Reasonable amount of time must be given and response can be through similar channels as acceptance
(buyer must respond by similar manner to accept).
Mailbox Rule - When acceptance is put in mailbox; it is deemed to be acceptance at that time NOT when it
is received by offeree.
• Different for rejection/counter-offer- rejection is valid when it is received by offeree.
• If you mail a rejection; you lose protection of mailbox rule and it will be determined based upon
which letter is received first.
○ However, you can accept my another medium such as phone, ect. if you lose protection of
mailbox rule as mentioned above.
• Email has not been determined whether it falls under the mailbox rule.
Common Law - Mirror Image Rule - there must be unconditional assent to the offer (i.e. no additional terms)
Minneapolis & St. Louis Railway v. Columbus Rolling Mill (Accepts at different quantity and then later
attempts to accept at the previous price)
• "An offer to sell imposes no obligations until it is accepted according to its terms"; a "proposal to accept
upon varying terms is a rejection of the offer, puts an end to the negotiation"
Restatement Comment - Difference between acceptance with qualification (counter offer) and a genuine
acceptance with mere "inquiries"
○ § 59 - a reply which purports to be an acceptance but which adds qualifications or requires
performance of conditions is not an acceptance but a counteroffer.
○ § 61 - an acceptance which requests a change is not invalidated unless the acceptance is made to
depend on an ascent to the changed or added terms.
Pre-existing duty rule with counteroffers - If there is a conditional acceptance but the condition is something
already met in the contract it is a valid contract nonetheless (CB334).
* Last Shot Problem - Without U.C.C. § 2-207 last person with writing has controlling terms given that the
shipment of goods would be presumed to acceptance. Encourages persons to send offers right before goods
get there.
[14]
Making a Contract: U.C.C. 2-207
U.C.C. 2-207
2-207(1): In commercial transactions, an acceptance may count even if it contains some different or
additional terms.
• “A definite and seasonable expression of acceptance or written confirmation which is sent within a
reasonable time operates as an acceptance even though it states terms additional or different from those
offered or agreed upon, unlessacceptance is expressly made conditional on assent to the additional terms
or different terms.
○ Up to the comma:
Confirmation is an acceptance even if it has additional terms or different terms; not
treated as counteroffer despite the different terms or additional terms.
Rejects Last Shot Doctrine.
Reasoning. Does not want to allow party to claim contract is void based on boilerplate.
○ After the comma:
If acceptance is expressly conditional on assent to other terms, it's a counter-offer.
Non-merchants- The additional terms are proposals for addition to the contract. Must be expressly accepted.
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Different Terms - 2-207(2) only addresses additionalterms. If the terms conflict court has options;
(a) Knock-out provision. Different terms knock each other out. Only agreed terms apply
(b) Only original terms come in.
(c) Treat the term as an additional term
When does knock out matter? (1) If dispute is prior to performance,the question is whether we actually have
a contract. (2) If we have performance, the dispute over the terms.
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2-207(3). What if performance occurs and terms do not match? (Applies only if there is no writing on the subject.)
Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract although
the writings do not otherwise establish a contract. In such a case, the terms of the contract consist of the terms on
which the writings agree together with any defaults of this act.
DTE Energy v. Briggs (Sale of contractor for generator, dispute arises over whether the purchase order was
the offer and acknowledgment by seller was acceptance; OR whether the acknowledgement of purchase
order was the contract)
• Acceptances that add additional terms are valid acceptances; the additional terms are proposals. In this
case, acknowledgement was acceptance.
• Additional terms can only come in if it does not materially alter the contract; however forum selection
does materially alter contract and thus can't come in.
○ Non-material portions are generally things that are not viewed as important.
[15]
Making a Contract: Shrink Wrap Terms (2-207)
Hill v. Gateway 2000 (Terms are included in the box; buyer does not read them, one of them is arbitration
agreement which Hill's dispute, further one term says if you don't accept return within 30 days)
• Additional terms come in; Gateway is making offer, Hills accept the contract and fail to return it within
30 days and thus have accepted.
• Incorrectly argues that where there is only one form; § 2-207 doesn't apply. (It is incorrect because both
parties are not merchants?)
• Further parties have fair warning and are on inquiry notice.
U.C.C. and Downloadable Software - Court in Sprecht finds that "Downloadable software is scarcely a
tangible good"; further, "recognizing a body of law for manufactured goods ill fits transactions in computer
information."
Sprecht v. Netscape (Downloads software with arbitration condition that is difficult to find)
• An offeree is not bound by inconspicuous contractual provisions of which he is unaware or that is not
obvious. Inquiry Notice.
[16]
Making a Contract: Terminating Offer
Restatement § 36
(1) An offeree's power may be terminated by;
a) Rejection or counter-offer
b) Lapse of time
c) Revocation of offer
d) Death or incapacity of the offeror or offeree
(2) In addition, offeree's power of acceptance is terminated by the non-occurrence of any condition of
acceptance.
Conditional Timeframe - Establishing a timeframe does not require that it be left open until that period unless
supported by consideration; offeror is free to revoke at any point before acceptance.
Communication Requirement - Revocation must be communicated to the offeree; OR offeree must learn of
that the offer is no longer valid from a reliable source.
Dickinson v. Dodd (Land sale is open until Friday; buyer tries to accept but can't find seller; learns that the
land might have been sold, later accepts offer)
• If heard from reliable source; that offer is revoked.
• No consideration for timeframes means it's a naked gift promise.
Reward Revocation - If person offers general reward, offer can be revoked by publicity equal to original ad.
[17]
Making a Contract: Irrevocable Offer
Humble Oil v. Westside Investment [Consideration for option contract; sends counter-offer and later
accepts original offer]
• Option contracts are not revocable if there is consideration; offeree can counter-offer and reject offer
as much as they want.
• Negotiation doesn't terminate an option contract.
Consideration - Majority rule holds that party must actually receive consideration before it becomes
irrevocable; minority rule finds that if option wasn't paid it does not void the contract.
Right to Finish - Once performance has begun, the person has a right to finish the offer without the offer
being revoked.
Marchiondo v. Scheck [House sale contract with offer for 6 day time limit; real estate agent gets paid by
commission and begins looking, offer is revoked.]
• See right to finish.
Consideration Requirement (cont.) - Must have consideration [or possibly reliance as per Drennan] in order
to make options contract irrevocable (can be debatable what consideration is for option, as demonstrated by
following cases)
Baird v. Gimbel Brothers [Plaintiff solicits bids; defendant sends mistaken bid. Plaintiff relies on bid but
defendant informs plaintiff of the mistake]
• Offer is revocable by the defendant; a) no option purchased and b) not a merchant firm offer, not
goods.
• Reliance/Promissory Estoppel not applicable; an offer for exchange is not meant to be a promise
until consideration has been received.
Drennan v. Star Paving Co. [Plaintiff submits bid based on mistake by defendant; relies on offer and wins
bid; defendant attempts to revoke]
• Reliance theory: it was expected to induce action and it did induce such action.
• Consideration requirement: satisfied because defendant more likely to receive bid. Imposes the
plaintiff to accept the defendant's offer shortly after winning bid.
[18]
Avoidance of Contracts: Defective Formulation of Agreement
Material Requirement - The content of the mistake must be material in order to void the contract for
vagueness.
Objective Determination - must not be reasonably possible for the court to determine who is correct; or if the
contract was made in bad faith.
Possible Requirements
(1) Different understandings of their expression of agreement;
(2) does not apply when parties understanding is less reasonable;
(3) parol evidence is admissible to establish the facts necessary to apply the rule.
Raffles v. Wichelhaus [Two different ships named Peerless; no meeting of the minds]
• No meeting of the minds; the mistake was material.
[19]
Avoidance of Contracts: Indefiniteness
Fairness Clauses - Must be some meaningful way to determine what is fair in order to be definite; possible ways to
determine fairness are market price.
Material Requirement - if the term in question is a material term, the courts will err on the side of non-enforcement.
Griffith v. Clear Lake[Question over size of "market sized" fish. Does it the term change]
• Even though one or more terms are left open, a contract sale does not fail for indefiniteness if the parties have
intended to make a contract.
• Varying terms do not preclude the formation of a contract.
Incomplete Contracts
Gap Filling Measures- If parties appeared to have intended to contract; the court will not void the contract for not
agreeing on everything. Use of word reasonable can indicate gap filling.
M.G.M. v. Scheider [Agreed to all terms of contract except start date; attempts to get out of contract]
• Court's will use gap filling measures to not void the contract if both parties appeared to have intended to
contract.
Agreement to Agree - Generally not enforceable; some courts interpret these agreements as a promise to negotiate in
good faith.
Martin Jr. v. Schumacher [Parties agree to allow person to sign lease later; plaintiff claims that other party was
required to agree to agree]
• A bald agreement to agree on a future rental is unenforceable as a matter of law. Agreement in question does
not set terms such as market value, etc.
○ Some courts have found that it means to negotiate in good faith.
[20]
• If agreement is not reasonably certain then there can be no enforceable contract.
[21]
Avoidance of Contracts: Capacity to Contract
Restatement § 12(1). Minors.No one can be bound by contract who has not legal capacity to incur at least voidable
contractual duties. A natural person has the capacity to incur only voidable duties up until 18.
Necessary Exception- Minors are able to make contracts for items that are necessary such as food, lodging, medical
attendance, ect. However, contract is still voidable, minors must simply pay "fair value".
Restoration Standard - Minors must only return what he or she still has; no obligation to account for damage or
depreciation.
Ratification - If minor ratifies the contract after having become 18 contract is binding; mere silence is not ratification;
however, minor must void contract within reasonable amount of time.
Misrepresentation of Age - Three different approaches; (1) contract is voidable, not liable in tort, (2) contract is
voidable, liable in tort, (3) minor is estopped from voiding the contract.
Emancipated Minor Exception - law generally has the effect of granting minor "capacity."
Bowling v. Sperry [Minor purchases car; wrecks car and wants refund claiming lack of contract]
• Supervision is not relevant; if contract is in minor's name it is still voidable.
• Infant's are net responsible for damages; must simply return item as found.
• Necessity requirement not met; was able to get to work without car.
Alternative Approaches
Fair Use - In some jurisdictions, the minor is responsible for the fair use of the product.
Court Approach - Minors can go to court and court can stamp fair on the contract and allow it go through.
Cosigner - If you have a cosigner then you can enforce contract.
(2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the
power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in
part or the circumstances have so changed that avoidance would be unjust. In such case a court may grant injunctive
relief as justice requires.
(b) Where person has some idea of what is happening; test will be whether the transaction is one a reasonably
competent person would have made.
Drunkenness- voidable if; (a) must appear person was drunk, and (b) must have extreme impairment; not just drunk.
Restatement § 16 - Drunkenness
1) A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know
that by reason of intoxication.
A) He is unable to understand in a reasonable manner the nature and consequences of the transaction; or
B) He is unable to act in a reasonable manner in relation to the transaction
[22]
Avoidance of Contracts: Mistakes
Restatement § 152 Mutual Mistake (Both parties)
Where a mistake of both parties at the time of contractwas made the contract is voidable if (1) Present fact, not
opinion (2) Basic Assumption (3) Material impact, (4) No assumption of risk.
Restatement § 153 When mistake of one party makes contract voidable [(1) Present fact, not opinion]
Where a mistake of one party at the time a contract was made as to (2) a basic assumption on which he made the
contract has (3) a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable
by him if (4)he does not bear the risk of the mistake. AND
(a) the effect of the mistake 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.
Unilateral v. Mutual Mistake - A party is a unilateral mistake if either only one side is mistaken, or only one side cares
about the issue; and it is mutual mistake is both sides were mistaken.
No Negligence Requirement - Does not matter if bidder was negligent; only question is whether the contract was made
in good faith.
Federal Government Contracting - Any clerical mistake, apparent on the face of the bid, may be corrected by the
contracting officer before the award. If bid has been awarded, one is obliged to show that the officer knew of should
have known. Agencies can either (1) rescind, or (2) reform the contract.
Boise Junior College v. Mattefs Construction [Party makes bid bond (binding) but fails to include glass prices (14%
of contract), wants to rescind contract]
• Case of a unilateral mistake (Boise had no reason to know of mistake): contract is void because it meets court
created test (do not use this test).
• Company would lose money, this makes it unconscionable.
Beachcomber Coins, Inc. v. Boskett (Wanted to purchase specific coin; buyer has inspector look at coin but upon
inspection by coin society it is a fake, Boskett didn't know it was a fake)
• Negligent failure of a party to discover facts does not preclude rescission.
• Did not assume the risk.
Sherwood v. Walker (Mistake over pregnant cow; contract is based on assumption that cow is barren)
• Barren v. Pregnant is entirely different item; did not pertain to quality, rather it was a different thing.
• NOT Restatement Test.
Lenawee County v. Messerly [Bought apt. to rent; sewer went bad to prevent inhabitance. Neither party knew]
• Affecting price is not necessarily material; value of property not material in itself.
• A court does not need to grant rescission in every case in which mutual mistake relates to a basic assumption
and materially affects the performance.
• Allocation of Risk - As Is Clause allocated risk to buyer.
[23]
Avoidance of Contracts: Fraud/Misrepresentation
Laidlaw v. Organ (Sale of tobacco where buyer has exclusive info about end of war; seller doesn't)
• No duty to disclose unless there is circumvention or maneuver practiced by the vendee.
• Suppression of information is not fraud.
* Cannot waive Fraud or contract around it.
____________________________________________________________________________________
Misrepresentation Requirements
(1) Present fact (not an opinion)
(2) Material or intentional; if it is intentional fraud then it doesn't have to be material.
(3) Other party justifiably relies on the promise.
* Fraud in inducement versus fraud in the execution ; if person induces another to make a legitimate contract by
fraud then it is voidable; however, if it is in execution (i.e. trick person into signing) then the contract is void.
General Opinion Requirement- A misrepresentation must be one of fact and not opinion.
Vokes v. Arthur Murray, Inc. (Women was complimented and induced to buy dance lessons on basis of
compliments and Murray's standards)
• It is generally true that "generally a misrepresentation to be actionable, must be one of fact rather than of
opinion."
• Dance instructors have a superior opinion and ability to determine dancer's talents.
Remedies for Misrepresentation - Rescission is available; available for innocent misrepresentation cases to restore
person to status quo. In order for harsher remedies, courts often need showing of bad faith intent.
[24]
Avoidance of Contracts: Duty to Disclose
Duty to Disclose- General rule is that it is buyer beware; however, asking a question may make it closer to fraud.
Confidential Relationship- Generally arises in situations such as husband/wife, or brother and sister. In these
instances, there is a duty to disclose more than normal.
Material Requirement - A matter is material if it is one to which a reasonable person would attach importance in
determining his choice of action in the transaction in question.
Hill v. Jones(Buyers ask whether there was termite damage; sellers says it was water damage. Buyer asks for
report, report doesn't find damage. However, seller knew of previous infestation)
• Inquiry of the seller; the fact that person asked question indicates that it is material.
• Where the seller knows of (1) facts materially affecting the value or desirability of the property which are
(2) known or accessible only to him, and also knows that such facts are (3) not known to, or within the
reach of the diligent observation of the buyer, there is a duty to disclose.
[25]
Avoidance of Contracts: Duress
Modern test of duress- The question is whether consent was coerced; that is was the person complaining "induced by
the duress or undue influence to give his consent, and would not have done so otherwise."
• If "unlawful threats overcome the will of person threatened, and induce him to do an act which he would not
otherwise have done, and which he was not bound to do, constitute duress"
Subjective Test - Duress is measured by a subjective test; objective test is too bare bones.
Rubenstein v. Rubenstein (Husband is threatened by wife, through things such as arsenic threats, and husband
conveyed land to wife in order to support child; wife then sells it)
• Duress is established by a subjective; not an objective test. An objective test might be incorrect because with a
contract, it is bare bones.
Austin Instrument, Inc. v. Loral Corp. (Party threatens breach unless Loral agrees to future contract; Loral needed
parts to complete government contract)
• Applies test of economic duress transcribed above.
• Courts have been unwilling more recently to find economic duress. Context of this case Vietnam.
Machinery Hauling, Inc. v. Steel of West Virginia (Hauling doesn't pay $31,000; Steel of WV says that it won't ship
future steel unless it pays $31,000)
• "Duress is NOT shown because one party to a contract has driven a hard bargain.
• Future expectancy is not a legal right upon which a defendant can claim a legal duress case
Undue Influence- "Unfair" persuasion that may fall short of actual duress. Limited to situations where there is a
relationship of trust (Parent/Child, Husband/Wife, Attorney Client).
• Over-persuasion usually involves several of the following (1) unusual time or place of transaction, (2)
insistent demand business be finished at once, (3) emphasis on delay being bad, (4) multiple persuaders
on dominant side, (5) absence of third party, (6) statements that there is no time to consult with attorney.
[26]
Avoidance of Contracts: Unconscionability
U.C.C. § 2-302
(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time
it was made the court may refuse to enforce; OR it may not enforce the remainder of the contract, OR it may limit the
application of any unconscionable clause
(2) parties shall be afforded a reasonable opportunity to present evidence as to the commercial setting.
Unconscionability Test- (1) An absence of meaningful choice, together with (2) contract terms that are unreasonably
favorable to another party.
***Under the U.C.C. the basic test is whether, in light of the commercial background, the clauses are so one-sided as to
be unconscionable under the circumstances existing at the time of the making of the contract.
Williams v. Walker-Thomas Furniture Co. (Person makes 14 contracts with store; the contract says that you must pay
it all off before you own of them)
• Common law might be a notion of unconscionability.
• (1) An absence of meaningful choice, together with (2) contract terms that are unreasonably favorable to
another party.
• Test must not be mechanically applied; considered in light of the practices of the time
Jones v. Star Credit (Agrees to pay $1,234 for freezer (worth $300); Jones sues to void contract)
• Excessive Price- Can be evidence of substantive unconscionability.
Ferguson v. Countrywide Credit (Plaintiff was suing for harassment; countrywide tries to dismiss for arbitration)
• In CA, must meet both procedural AND substantive unconscionability.
• Procedural Unconscionable - (1) oppression arises from inequality of bargaining power which results in no
meaningful choice, (2) surprise involves the extent to which the hidden terms are hidden.
• Substantive Unconscionable- Terms that are so-one sided to shock the conscience.
○ Substantively unconscionable because it causes the plaintiff has to bear more costs than typically
would be required. Limited deposition process, did other things, etc.
Risk Allocation - Contract is not unconscionable if it turns out to be one sided; price drops, person dying early, etc. don't
make contract voidable.
Adhesion Contracts - Lack of negotiability of the terms alone is not sufficient to show procedural unconscionability.
[27]
Avoidance of Contracts: Illegality
Restatement § 178. Void on Public Policy
(1) A promise is unenforceable on grounds of public policy if legislation provides that it is unenforceable
(a) If there is no legislation, the contract is still unenforceable interest in its enforcement is clearly outweighed
in such circumstances by public policy against the enforcement of such terms.
(2) Weighing in the interest in the enforcement of a term, account is taken of (a) justified expectations, (b) any forfeiture
that would result if enforcement were denied, and (c) any special public interest in the enforcement of the particular
term.
(3) Weighting against enforcement; (a) the strength of that policy (b) likelihood that a refusal will further that policy, (c)
seriousness of misconduct and whether it was deliberate, and (d) directness of the connection between that misconduct
and the term.
Balancing Test - Balance public factors & private factors. See above considerations.
Extent of Illegality- Illegality if serious, doesn't need to be pled and court will deny relief on evidence. If Illegality is
not serious, and neither public policy and statute do not deny relief, courts can ignore illegal facts if it doesn't permeate
the rest of the contract.
Leave Party Where Stand - Court's will leave parties where they are; however, if it's tiny part of contract they might
balance it a bit more.
• Restitutionary Exceptions: Courts may allow restitution in situations where (1) denial causes disproportionate
forfeiture, (2) plaintiff was excusably ignorant of facts or legislation of a minor character , (3) plaintiff was not
equally wrong, and (4) plaintiff did not engage in serious misconduct and he withdraws from the transaction
before the improper purpose has been achieved.
Sinnar v. Le Roy (Sinnar attempts to secure illegal liquor license; Le Roy takes the money to get license and gives it to
go guy; Sinnar doesn't get license or money back)
• Applies extent of illegality test; finds this is a serious issue and thus illegality doesn't have to be pled.
Intent Determination - If intent is to contravene the law; the contract will not be enforced.
Facial Legality - A contract can be legal on its face; however, evidence can be introduced to show illegality.
Homami v. Iranzadi (Lends him $250,000 dollars and it was interest free; Homami claims there was an oral contract
for interest payment, on the basis of avoiding IRS)
• Attempting to collect on illegal part of the contract; court finds that it is illegal.
• Any contract which has as its object the violation of an express provision of law is unlawful.
• If something is illegal, the court will not enforce the deal.
Statutory Purpose - If statute is not meant to prohibit the contract; for example jaywalking or overloading a ship, then
this strongly indicates that the contract doesn't have to be nullified.
[28]
Avoidance of Contracts: Public Policy
Reluctance Test- Court's will narrowly construe public policy; a declaration that the contract is against public policy
should be made only after a careful balancing in the circumstances. Courts should be reluctant to frustrate a party's
reasonable expectations without a corresponding benefit to be gained in deterring 'misconduct'.
Severability - It is often possible to sever out illegal part of the contract. If part of contract is cohabitation, but other
portions relate to services then the contract can still be enforced.
Sex Contracts - A bargain between two people is not illegal merely because there is an illicit relationship between the
two so long as the bargain is independent of the illicit relationship AND the illicit relationship does not constitute any
part of the consideration bargained for.
Watts v. Watts(Cohabitation agreement; never officially married but she claims had an oral contract that he would
provide for her. They split and fake husband won't give her property, Sue wants property)
• Contract is tangential to sexual relations between the two.
• Both parties are guilty of violating public policy; it doesn't make sense in equity to enforce it when they're both
guiltless.
• Possible to show claim of unjust enrichment/quasi-contract.
Prenuptial Agreements - Majority of states hold that agreements are enforceable unless;
(1) Agreement was not voluntary.
(2) The agreement was unconscionable when it was executed and, before execution of agreement, that party;
(i) was not provided reasonable disclosure of the property of the other party.
(ii) did not waive, in writing, any right to disclosure of the other party.
(iii) did not have, or reasonably could not have had, an adequate knowledge of the property or
financial obligations of the other party.
(b) If party has to rely on public support it might not enforce prenuptial.
Baby M (Person contracts for surrogate baby; mother refuses to give it up. Court finds against public policy)
Wallis v. Smith(Person lies about being on birth control pill; gets pregnant. Alleges fraud)
• Public Policy voids contract; (1) Child support is interest of the child, (2) privacy rationale that person should
have ability to enforce private right.
Non-delegable duty - Some provisions are non-delegable such as ability to provide for a child.
Doctor-Patient Contracts - Might be upheld so long as person could prove a contract actually exists; could be
unconscionable to deter people from making decisions about surgeries based on promises.
[29]
Performance: Parol Evidence Rule
Parol Evidence Rule - Arises when a party wishes to admit prior oral testimony.
Mitchell v. Lath(Mitchell agrees to buy farm through written contract; buyers claim seller orally said they'd
tear it down. Mitchell arrives after they'd bought property, Lath hadn't tore ice down)
• Uses three part test. (1) the agreement must, in form, be a collateral one [linked to contract];
(2) it must not contradict the written contract;
(3) it must be one that parties would not normally agree to in writing.
• If there is a written agreement that appears complete, previous negotiations (parol) is not relevant.
Direct Contradiction - If there is a direct contradiction between the written and the oral contract; it is not
admissible.
Two Separate Contracts- Does not pose a parol evidence problem (i.e. if there is a person who buys a ring
from person, orally; and also buys a house from that person. Oral evidence wouldn't be excluded but it
wouldn't be relevant).
Integrated Test- If a contract is integrated (appears to be complete), then additional terms will not come in.
However, it is not integrated (doesn’t appear complete) then evidence comes. However there are a disputes
over how to determine whether the contract is integrated including;
(1) Four corners - Look at face of contract and determine if it looks complete; might pose a
problem because many contracts look complete on their face.
(2) Context- Determine the context of the evidence to see if it should be admissible.
(3) Integration Clause - Binding upon the parties; however it is subject to defenses such as fraud.
Degrees of Integration
Wholly Integration - Strike all evidence.
Partial Integration (However term at issue is clear) - no parol evidence on the question.
Partial Integration (Term is missing) - evidence is allowable if it is consistent with the writing.
Masterson v. Sine (Dispute over option clause; question whether option clause was exclusive to family.)
○ Applies integrated test, determines that it doesn't appear complete.
○ Limiting scope of contract to family might not be normally in the contract.
[30]
Performance: Interpretation
Context evidence or "Plain Meaning" - Courts must decide if contract has plain meaning or if more info is needed.
Restatement § 206. Interpreted Against Drafting Party. General rule; not absolute tiebreaker.
Pacific Gas v. G.W. Thomas(Defendant promises to indemnify plaintiff against losses to property arising out of
performance; plaintiff's property gets damaged. Question over whether indemnity covers this dispute)
• The test of admissibility of extrinsic evidence is not whether it appears that the contract is plain; rather it is
whether the offered evidence is relevant to prove a meaning to which the language of the instrument is
reasonably susceptible.
• Although extrinsic evidence is cannot alter the terms of the written contract; terms must first be determined.
Complete Contracts- If contracts are fully integrated there is no need to consider external evidence.
ConFold Pacific v. Polaris Industries(Plaintiff signed nondisclosure agreement on whether to pursue research;
Defendant then asks for bids, plaintiff submits design. Defendant rejects all designs but a year later, defendant uses
plaintiff's design)
• If contract is complete enough then extrinsic evidence doesn't need to be considered.
Trade Usage- If there is a common trade usage AND both members are a member of that trade; this can provide
evidence to the meaning of the contract. If person is not a member of the trade, then the standard is that the person had
either actual knowledge OR it is generally known.
Frigaliment Importing v. B.N.S. (Dispute over whether chicken means a broiler or a stew chicken)
• Looked at contract to see if there is an agreed upon meaning [no].
• Burden of proof is upon wishing to alter the performance.
FORK: Peerless v. Chicken Case - can limit Peerless "true equivocation," where a full exposure to object evidence in
context fails to establish that one party's understanding is more reasonable than the other's."
[31]
Performance: Good Faith Requirement
Restatement § 205. Good Faith
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.
U.C.C. 1-201(19). Good Faith. At a minimum it requires honesty in fact in the conduct or transaction involved.
Hindrance and Duty of Cooperation- An implicit understanding that neither party will intentionally do anything to
prevent the other from carrying out agreement. If cooperation is necessary, there is an implied condition of cooperation.
Patterson v. Meyerhofer (Plaintiff contracts to sell defendant land that he was going to purchase; defendant interferes
with the purchase)
• Good faith means no active prevention to the performance of the contract.
• Measure of damages could be the price that the 3rd party drops out at.
Spirit of Agreement - Might be good faith duty to uphold the spirit of the agreement; however, this would be a closer
call.
Exercise of Reserved Discretionan implied obligation to make a good faith effort to satisfy the condition. A promisor
cannot rely upon a condition to excuse the performance of a contract.
Objective Standard / Subjective Standard- if a judgment dependent upon personal state or fancy, such as design of a
dress or painting, a subjective test is appropriate. However, typically an objective test is more appropriate.
Billman v. Hensel (Agreed to house sale pending financing; couldn't get full financing without parents, parents don't
approve of house and buyers back out, most likely because they changed their mind)
• Reasoning is in line with note above titled Exercise of Reserved Discretion.
Nuemiller Farms, Inc. v. Cornett(Contract says sell potatoes pending approval; price drops. Buyer rejects potatoes.
Seller buys potatoes from another source [that buyer bought from] and tries to sell; buyer refuses)
• The law requires that a rejection to be made in good faith rather than in an effort to escape a bad bargain.
• Rejection of goods not in good faith constitutes a breach of contract. [Based on U.C.C.]
FORK: Adequacy of Consideration v. Enforceable contract - No Contract- if the apparent promise found to be illusory,
there is no consideration. Enforceable Contract - a commitment to do something and the general duty of good faith in
performance, is normally enough to provide consideration.
[32]
Performance: Good Faith Requirement (cont.)
U.C.C. § 2-306. Output Contract.
Under this article, a contract for output is not too indefinite since it is held to mean the actual good faith output of the
particular party. Nor does such a contract lack mutuality of obligation since, the party is required to act in good faith.
(1) Quantity or the requirements means such actual output may occur in good faith except that no quantify
unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or
prior output.
(2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned
imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the
buyer to use best efforts to promote sale.
Comment: Not complying with an estimate does not equate to bad faith; rather, there must be a test to determine good
faith efforts.
Feld v. Henry S. Levy (Output contract, Henryagrees to sell all bread crumbs at 6 cents. Henrycan't afford it and stops.
Termination clause meant they could cancel after certain point)
• Cancellation stipulation might be indicate that defendant was expected to maintain production.
• A bankruptcy or genuine imperiling of the very existence caused by the production of that item; the yield of
less profit from its sale than expected would not.
Summary
1. Can write a contract with discretion (output, loan financing), but good faith, usually objectively measured, has to be
used to modify that condition.
Modifying Contract - If there is no existing consideration, U.C.C. indicates good faith is used to measure whether
modification can come in.
[33]
Performance: Warranties
Warranty- a representation express or implied that certain facts relating to goods sold are true. A warranty (1) is
made by one party to another about existing or past facts that are knowable but not necessarily known and which
(2) becomes a term in the contract.
Ordinary Purpose - Merchantability extends only to the product's ordinary purpose; if a specific purpose is known
then the next section applies.
Uniform Commercial Code § 2-315. Implied warranty of fitness for particular purpose.
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are
required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there
is (unless excluded or modified) an implied warrant that the goods shall be fit for such purpose.
Disclaiming a Warranty
1. Construe words creating express warranties and disclaiming warranties as consistent with each other whenever
possible.
2. Disclaimers or implied warranties of merchantability or fitness must be conspicuous (if in writing) AND
mention "merchantability" [applies only to U.C.C. 2-314 and 2-315]
3. Sets out general rules for disclaiming implied warranties [including the implied warranties of merchantability
and fitness]
a. "as is" or "with all faults"
b. person has fully examined the goods
[34]
Performance: Conditions/Waivers
Restatement § 224. Condition.
An event not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a
contract becomes due.
Dove v. Rose Acre Farms [Person attempts to get conditional bonus system which includes a) showing up every day, on time
& b) completing construction. Person completes construction, however has to miss two days at the 8u end]
• Dove was aware of the conditions and they were clear; doesn't matter if they are harsh.
Wal-Noon v. Hill [Enter lease agreement; in contract landlord responsible for roof repairs; however, tenant repairs roof on their
own and they want landlord to pay. Landlord doesn't pay because wasn't aware or repairs and could have got better deal.]
• Performance under express covenant to repair is conditional upon notice from the tenant.
• Implicit condition - even thought it wasn't an express condition; there was an implicit condition to notify.
• Regarding quasi-contract, where there is an explicit bargain; no implied contract should be inferred. Further,
Hill doesn't have the opportunity to decline the benefit.
Waiver of Condition - If you are imposing a condition, you have the right to waive the condition. Ways to waive;
(1) Waiver by Implication - Perform on contract with knowledge that condition can't be performed;
(2) Express Waiver - tell the person.
Waiver of Material Element - If the condition is a material part of the agreed exchange then it must satisfy
the usual requirements for an enforceable modification, including upon occasion, consideration.
Clark v. West [Agrees to write a book; promises $2.00 per page if he drinks, $6.00 if he doesn't drink. Defendant
knew of his drinking and assured him he would still get $6.00]
• Waiver by Implication - if person knows that the person is not wholly fulfilling the contract but allows the
other party to continue, might be a waiver of condition.
Waiver by Public Policy- The court finds that it is a rip off (similar to unconscionability). Rare condition.
[35]
Performance: Constructive Condition of Exchange (Substantial Performance)
(2) Except to the extent stated in Subsection (1), where the performance of only one party under such an exchange
requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the
circumstances indicate the contrary.
* Comment: Neither party can be said to be in default until the other party has tendered his performance.
Constructive Condition of Exchange- Similar to implied condition in that most parties won't write it into the contract; if
other side does not do what they do, then you are not liable for doing your part. Raises questions:
(1) Question of who has to perform first? See Above for answer.
(2) How much performance is needed before the performer is entitled for payment? Substantial performance.
(3) What is the effect of material breach?
Material Requirement- In order for there to be substantial performance; non-performance must not be a material part of
the contract. Deficiency will not be tolerated if it is so pervasive as to frustrate the purpose of the contract in any real or
substantial sense. [Prevents Substantial Performance]
Jacob v. Kent [Builder uses the wrong type of pipe; buyer withholds final payment because contract specified other
type of pipe]
• An omission, both trivial and innocent, will sometime be atoned for by allowance of the resulting damage and
will not always be the breach of a condition to be followed by forfeiture.
O.W. Grun v. Cope [Puts on roof with streaks; homeowner sues for damages as a result of shoddy roof]
• A breach which goes to the root of the matter or essence of the contract defeats the promisor's claim despite his part
performance, or it may be expressed by saying that a promisor who has substantially performed is entitled to recover.
Quasi Contract - Even if substantial performance has not occurred, the party might have conferred some benefit.
[36]
Performance: Impracticability and Frustration of Purpose
Restatement § 261. Impracticability
Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the
non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is
discharged, unless language or the circumstances indicate the contrary.
Fault Standard - If person is with fault, then they are not able to assert the impracticability.
Allocation of Risk - Question whether risk was tacitly or explicitly assumed by one party.
United States v. Wegematic[Defendant promises to make a computer for set price by a date; due to technical
difficulties can't finish contract. Liquidated damages clause and a clause to go to another source]
• Risk Allocation- the risk of the revolution's occurrence does not fall on the purchaser.
Government Exception - If government provides detailed specifications and specifications are defective; risk is placed
upon the government.
FORK: Mistake v. Impracticability. Mistake is usually a condition that exists at the time of contract; impracticability
can be either. If a party is asserting one claim, it will often assert the other type as well.
Taylor v. Caldwell [Agrees to rent a music hall; music hall burns down]
• Where a contract depends upon personal skill, and the act of God renders it impossible, as for instance, in the
case of a painter employed to paint a picture who is struck blind, contract can be voided for impracticability.
• A condition is implied that the impossibility of performance arising from the perishing of the person or thing
shall excuse the performance.
Frustration of Purpose- Several factors that must be considered when examining a frustration of purpose case. (1)
Foreseeability of the event; (2) Benefit conferred absent the purpose; (3) Assumption of the risk. Courts construe the
test very narrowly.
Krell v. Henry [Rents a room to watch King's coronation; King falls ill and the coronation was postponed]
• Foundation of the Contract - if non-occurrence of the event, not within the contract, is at the heart of the
contract and frustrates the purpose of the contract; then might be able to get out of contract.
[37]
Damages: Types of Remedies
Restatement § 351.
(1) Damages are NOT recoverable for loss that party did not have reason to foresee as probable result of breach.
(2) Loss may be foreseeable if (a) it results in ordinary course of events, (b) as a result of special circumstances that
party had reason to know.
Hadley v. Baxendale[Mail delivery is slower; this causes the mill to shut down. Can sue for lost profit?]
• Foreseeability- The defendant didn't know that so must was at stake. It is a third bar to discovery, the other two
being mitigation and reasonable certainty.
• Reasons that the rule is in place is so that the other side can take precautions to prevent the breach.
• Two Classes of Damages- General damages, arising naturally in the usual course of breach. Consequential
Damages, are not recoverable unless the loss was reasonably supposed to be in the contemplation of both
parties at the time they made the contract or the parties have made alternative arrangements.
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Specific Performance
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U.C.C. 2-716. Specific Performance. Specific performance may be decreed where the goods are unique or in other
proper circumstances.
Specific Performance- Bias against specific performance; only awarded if expectation damages are inadequate.
Examples might include home sales, grapes from winery, ect.
• Personal Services - Courts are biased against forcing people to perform; sometimes courts will bar person from
performing same service to other people for certain time.
Curtice Brothers Co. v. Catts [Defendant breaches contract to sell all tomatoes; plaintiff sues for performance]
• Law typically won't force person to go through with personal services; law has bias against specific
performance AND it will only be awarded if expectation damages are inadequate.
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• Must show that goods are not available from a different source.
Choice of Damages - Court typically do not allow party to choose specific performance or damages.
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Damages: Payor Breach
New Era Homes Corp. v. Forester [Set schedule for how much builder was to get paid; payer breaches in middle]
• Convenient Time for Payment - Payment plan doesn't mean contract is divisible; instead this is one contract for
the modification and it sets out the convenient time for payment.
• Court finds that the best way to award damages was [+ Contract Price, - Payment Made, - Cost to Finish].
Non-breaching performer doesn't have to do everything that they were going to do.
Mitigation- Once person has said they're in breach; cannot continue to do work on the project.
Jobs for a Loss - If person is in a losing contract and the other side breaches, then the other party won't have to pay
anything except under restitution.
Reliance Damages- Under reliance measure of damages (in a losing contract), theoretically a person should be able to
recover [+Value of Work, +Other Expenses, - Payment made]. However, courts will limit the value of reliance by
expectation damages which means losing contracts do not gain anything.
Restitution- The calculations should be [+Value of work to person, -Payments made]. Only type of damages that
would net a positive recovery in a losing contract.
• Restatement § 373. Comment d. The question is whether the plaintiff provoked the breach in order to having
to perform upon the contract.
• Restatement § 344. Restitution and Losing Contracts. A court might require restoration to prevent unjust
enrichment; but the plaintiff is entitled to restitution only if he has conferred a benefit on other party.
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Lost Volume Profits - Damages do not have to be offset if the seller would have been able to sell another similar
product; for example if a person breaches a promise to buy a chainsaw, and the seller later sells that chainsaw, this
should not be offset if there sale would have occurred regardless of the breach.
• In order for Lost Volume Profits to kick in three things must occur, (1) Person who bought resold goods would
have bought goods without breach; (2) solicitation would be successful, and (3) plaintiff could have performed
an additional contract.
Locks v. Wade [Rents a jukebox; renter repudiated contract. Locks rents to another person. Renter says this should offset.]
• Lost Volume Profits-Even if it appears that person mitigated, one side can argue that it was not a mitigation
because sale would have occurred anyway. Do not have to offset losses in damages if there is a surplus of
goods.
• Unique Product - If the product is unique and there is only one, then mitigation offsets damages.
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Damages: Performer Breach/Putative & Emotional Damages
Cost to Performance- default rule that will occur unless there is an exception such as unreasonable economic waste that
comes in. If an alternative comes in, then the damages might be calculated based upon diminution in value.
• In theory, damages ought to measured by the subjective value the plaintiff places on the damages; however,
this is not possible to measure. Cost of performance ensures that plaintiff will be compensated for his
subjective value.
Incidental Obligation - If it is incidental, there is less of a chance that the court for will force the person from paying the
entire cost to complete.
Peevyhouse v. Garland[Coal company promises to do several things; fails to remove dirt. Defendant claims that
damages should be measured by lost to market value; plaintiff claims it should be measured by cost to perform]
• Cost of performance is the default rule;
• Courts split over when cost to performance shouldn't be the breach.
American Standard v. Schectman [Plaintiff contracts to remove structures and take land below grade to resell
contract; defendant fails to take below grade and plaintiff sells it anyway]
• Cost to complete is correct measure of damages; if he chooses to erect a monument to his folly on his premises,
it doesn't lie with a defendant to say that his performance wouldn't benefit plaintiff.
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Putative & Emotional Damages
Bohac v. Department of Agriculture [Person sues for emotional damages resulting from firing]
• Generally not able to recover from emotional damages; however, there are some exceptions such as if a person
dies or cases involving death.
• Not just an extension of Hadley. Even if you make your idiosyncrasies known, still unlikely to recover.
Boise Dodge v. Clark [Automaker rolls back the odometer; are punitive damages allowable]
• When considering whether putative damages should be used, courts should look at not only plaintiff's damages
but also likelihood that event will be discovered and wrongness of action.
• In absence of putative damages, there is an incentive for parties to continue questionable behavior because
compensatory damages ONLY return wrongly taken money. It is a no risk proposition.
• Reasonable Relation Standard - must be in a relation to the actual damages.
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Damages: Equitable Relief
General Rule - Specific performance is only available if monetary damages are inadequate
Efficient Breach- A party is better off breaching and paying damages rather than performing the contract. Benefits are
that it encourages more efficient allocation of resources.
NIPSCO v. Carbon County [NIPSCO enters into contract to buy coal; it becomes unprofitable to continue to buy coal,
NIPSO then buys coal from another source; Carbon County wants specific performance]
• Specific performance isn'tnecessary; damages are adequate. Carbon Count's suit for specific performance is
not appropriate to benefit locals; locals aren't part of the contract.
• Courts have discretion to determine whether to award injunctions; usually when money damages are
inadequate.
Walgreen v. Sara Creek [Walgreen wants to enforce a provision not to allow a new pharmaceutical store]
• Court finds that damages would be difficult to calculate. Court should consider the above benefits and
problems when determining whether to command specific performance.
Employment Contracts & Specific Performance- If party breaches long-term employment contract and signs with a
competitor it is unlikely that the courts will award specific performance. Restatement articulates three reasons for this:
(1) personal relationships would be damaged, (2) difficult to assess, (3) involuntary servitude.
• However, based upon the Lumley Doctrine, it is likely the court will impose an injunction on the person if the
services cannot easily be replaced, or if the competition will do irreparable injury to the plaintiff.
A.B.C. v. Wolf [Hired him as a sportscaster; contract required "good faith" negotiations with A.B.C. during last 90 days,
and during last 3 months after, Wolf must give a right of refusal to A.B.C.]
• Wolf breached duty of "good faith" because his option contract precluded other employment options.
• Equitable remedies ought to be limited in employment contracts; don’t want to limit freedom.
Coase Theorem- In a world of no transaction costs, then it should not matter what type of damages exist. It might affect
who has to pay and how much to pay, however, the outcome (to breach or not to breach) will be the same.
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Damages: Liquidated Damage Clauses
General Rule - Courts will not void liquidated damages if they (1) bear a reasonable proportion to probable loss and the
amount of (2) damages are difficult to estimate.
• Ex Ante Approach - Courts view the provision from the time of contract NOT after damages occurred.
U.C.C. 2-718(1)
Damages for breach may be liquidated but only at an amount which is reasonable in the light of anticipated or actual
harm caused by breach, difficulties of proof of loss, and the inconvenience of obtaining another remedy.
• U.C.C. also holds that unreasonably small amounts are the same as unreasonably large penalties.
Southwest v. United States[Liquidated damages provision for delay; performance is delayed. S.W. claims that this
shouldn't matter because there were no actual damages]
• Lack of actual damages doesn't preclude clause from being enforceable. Clause must be viewed at the time of
formation.
Leeber v. Deltona[Person puts down 15% on condo; if person does not purchase then corporation keeps money. In this
case, person fails to purchase; however Deltona resold for a higher price.]
• When analyzing whether liquidated damages are fair, it doesn’t matter about subsequent profits. It is important
to stick to Ex Ante Approach.
• Further, on breach datethere were damages.
• Even though it might be easy to estimate damages; it might be that the parties are contracting for option to
purchase.
Limitations on Damages- Some contracts attempt to limit the amount of damages that a party can recover. Some courts
uphold these even if they do not bear a reasonable estimate of damages because of a desire to limit liability. (CB 1082)
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