Contracts Outline Spring 2012 Introduction Contract- an agreement the law will enforce Sources of Contract Law UCC-

sale of goods, which are governed by statute Common Law state made Restatements Under the UCC, a "good" is any tangible thing that is moveable. [UCC 2-105(1)] In addition to manufactured products, "goods" include: growing crops or timber, unborn young of animals and other identified things attached to land (other than minerals or the like or structures), regardless of who severs them from the land provided that they can be removed without causing material harm to the land currency exchanged as a commodity (as opposed to the medium of payment for a good) minerals or the like or a structure or its materials to be removed from realty that are to be severed by the seller The term "goods" does not encompass: intangible rights such as intellectual property investment securities money which is the medium of payment for goods minerals or the like or a structure or its materials to be removed from realty that are to be severed by the buyer UCC 2-106(1) defines "sale" as the transfer of title for a price. Contracts that involve both goods and services must be evaluated to see which constitutes the primary purpose of the contract, with the secondary purpose being treated as incidental. If the primary function of the contract is to provide a service, the UCC does not apply, even if an incidental sale of goods occurs. A "merchant" is one "who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill particular to the practices or goods involved in the transaction" or who employs an agent or broker in such occupation. [UCC 2-104(1)] Consideration- anything of value promised to another when making a contract and it is required that both parties offer to make the contract binding General rule a contract will not be enforceable unless it is supported by consideration Early test for consideration was that it must be a benefit or detriment Modern test is that it is a bargained for exchange

Restatement 71 (p. 46): (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 A promise to make a gift is generally unenforceable, because it lacks the bargain element of consideration -Even if the person promising to make a gift requires the promise to meet certain conditions in order to receive the gift, there will still be no consideration -But if the promisor imposes a condition and that will be to his benefit then its ok Dougherty v Salt
Dougherty (P) was eight years old when his aunt gave him a promissory note for $3000. The note included the words value received and she told him you have always done for me, and I have signed this note for you. P brought suit against Salt (P), the executrix of his aunts estate for payment on the note. Was there consideration? The note was merely a voluntary but unenforceable executory promise. The aunt merely conveyed a charitable gift and no consideration was asked or given in return. The writing alone was not valid consideration. A promise that is given in recognition of some act in the past is not enforceable for lack of consideration.

Hammer v Sidway
William E. Story and his nephew, William E. Story II, agreed that the uncle would pay his nephew $5000 if the nephew would refrain from drinking, using tobacco, swearing, and playing cards and billiards for money until he turned 21. When the nephew turned 21 his uncle sent him a letter that indicated that the nephew had earned the $5000 and that he would hold the money with interest until the nephew became capable of taking care of it responsibly. The nephew accepted the terms. The uncle died twelve years later without having transferred the funds to his nephew. Is forbearance from permissible legal conduct sufficient consideration to create a valid and enforceable contract? Yes. The mere abstention from a permissible legal conduct is sufficient consideration to make a promise based on that forbearance a valid contract. Consideration is not measured as a benefit to the promisor. When an offer is ambiguous regarding whether acceptance shall be in the form of performance or an exchange of promises, determining if the offeror was indifferent to whether acceptance be by performance or promise is accomplished by interpreting the language of the offer under the circumstances in which it was made. The court held that in this case, the language of the offer made it clear that the uncle sought acceptance by performance and not by a promise to perform. The court stated that consideration may consist in either a some right, interest, profit, or benefit to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other. It is immaterial whether the consideration does in fact benefit the promisee or a third party or is of substantial value to anyone. Refraining from something that one is entitled to do is a sufficient detriment to create an enforceable contract.

Baehr v Penn-O-Tex Oil company

The plaintiff Baeher who rented Kemp the filling stations is suing Penn-O-Tex-Oil who sold Kemp gasoline took control of his assets when Kemp could not pay. (accounts receivable or signed the leases) The plaintiff was trying to enforce the promise by the defendants agent that they would pay the rent due Was the plaintiff refraining from bringing suit enough for consideration even though he refrained not because of the contract but because of his own personal problems Although Defendant made a promise, the court does not find there to be an enforceable contract. Plaintiff argues that agreeing not to sue or to delay bringing suit is sufficient consideration. The Court agrees that this may be consideration, but under these facts, the Court determined that it is not consideration. The Court focuses on the fact that Defendant did not ask Plaintiff to delay in bringing the suit and that it is likely that Plaintiffs delay was motivated by personal convenience.

United States v Meadors

Meadors put signature on paper even though it was not needed and thus there was no benefit or detriment or bargained for exchange so no contract between them. Her consideration was not needed for them to establish the contract in the first place

Restatement 2nd 79(b) As long as a legal detriment has been suffered in exchange for the promise, the court does not inquire into its value in relation to the promise Batsakis v Demotisis
Demotsis asked Batsakis for money, which she needed to buy food for her family. In exchange, Demotsis promised in writing (in the form of a letter) to give Batsakis $2,000 dollars, plus 8% annual interest, after the war, or sooner, if she was able to regain access to her assets in the United States (Demotsis held property and funds in Texas but had no direct access to them as a result of the war). In the putative letter from Demotsis to Batsakis, written in the Greek language, Demotsis stated that she had received $2,000 from Batsakis. Was the consideration enough? Yes, The appellate court found the consideration legally sufficient and went on to state that the adequacy or inadequacy of the consideration did not bear on the enforceability, since mere inadequacy of consideration will not void a contract. Each side got what they bargained for Sham and nominal consideration: a court may consider that the consideration is a sham or nominal, and that it is not consideration at all. If the consideration was purely nominal and it is different values such as 5 dollars for 100 dollars there is no consideration at all, because this is just considered a gift

Schnell v Nell
Theresa Schnell, deceased, drafted a will which declared that three people would receive $200 each in exchange for one cent paid to Zachary Schnell, df, and thereafter Zach. would posthumously pay the $200 over the course of years, for Theresa his wifes love and attentions while they were married.

Whether the will represents legally sufficient consideration The consideration of one cent will not support the promise of Schnell. The mere promise to pay six hundred dollars for one cent, is an unconscionable contract. The term one cent is ambiguous and lacks even an indeterminate value. There is no way of knowing whether the meaning is a coin possessing monetary value or a family piece. The consideration of one cent is merely nominal. The will imposed no obligation upon df to discharge her bequests out of his property, and as she had none of her own, his promise to discharge them was not legally binding upon him. A moral consideration will not support a promise. The promise was simply one to make a gift. The past services of his wife, and the love and affection he had borne her are not legal considerations. One - they are past considerations. Two - the fact that he loved his wife and that she had been industrious constituted no consideration for his promise to pay money.

Dyer v National by Products

Dyer (P) worked for National (D) when he lost his right foot in a work-related accident. Dyer was given a leave of absence at full pay. After returning to work at the same position he held before the accident P was laid off. P sued D for a breach of an oral contract and asserted that he had been given lifetime employment in exchange for his forbearance from litigating his claim against D for the injury. Plaintiff could only recover under workers compensation so had no claim Yes, forbearance from asserting an unfounded legal claim may act as valuable consideration to create an enforceable contract if that claim is asserted in good faith.

74. Settlement of Claims (1) Forbearance to assert or the surrender of a claim or defense which proves tobe invalid is not consideration unless(a) the claim or defense is in fact doubtful because of uncertainty as to the facts or the law, or (b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid. (2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution of the written instrument is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists Generally the promisee must be aware of the promise, for the act performed by him to be consideration for the promise Past consideration- if the promise is made in return for detriment previously suffered by the promisee, there is no bargain and thus no consideration Pre-Existing duty rule- if a party does or promises to do what he is already legally obligated to do, he has not incurred a detriment for purposes of consideration UCC has abolished the pre existing duty rule Exceptions Restatement 89

New consideration (slight change in duties serves as consideration) UCC 2-209- repeals pre-existing duty rule for sale of goods over $500 Agreement to rescind original agreement Contract modification Common law- a modification made for the sole benefit of one party is usually unenforceable for lack of consideration Restatement 73 Performance of a Legal Duty 1) Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is NOT consideration 2) Exception: similar performance is consideration if it differs from what was required in a way that reflects more than a pretense of a bargain a) For example, if it concerns a delivery and the time is changed for bargained reason. UCC 2-209 -an agreement modifying a contract needs no consideration to be binding -subject to general good faith requirement Under common law, there is some disagreement as to whether a contract that is subject to the statute of frauds may be modified orally. Jurisdictions also differ as to whether the parties may waive a contractual requirement that modifications be in writing. Nevertheless, promissory estoppel may be invoked to enforce an oral modification that is subject to the statute of frauds if it would be unjust to reinstate the original term(s) where a party materially changes position in reliance on the agreement to modify. The UCC requires modifications to be in writing where: Required by a signed agreement between the parties (in order to give effect to any such requirement stated on a form supplied by a merchant to a consumer, the consumer must also sign the form) The contract as modified falls within the statute of frauds. [UCC 2-209(2), (3)] Alaska Packers
Alaska Packers Association (D) hired Domenico (P) for the salmon season and agreed to pay $50 dollars plus 2 cents for each salmon caught. After arriving at the location and beginning to work the workers demanded $100. Due to the remote location and brief duration of the salmon season, the company representative was compelled to agree to the terms. At the end of the salmon season Alaska Packers refused to pay more than the wage under the original contract. Domenico brought suit to recover the additional $50. He testified that the nets were defective, impairing his ability to maximize payment based on the number of salmon caught. The court found however that the evidence did not support Domenicos claim regarding the nets and entered judgment for Alaska Packers. Domenico appealed. Preexisting Duty Rule

An agreement modifying a contract is not supported by consideration if one of the parties to the agreement does or promises to do something that he is legally obligated to do or refrains or promises to refrain from doing something he is not legally privileged to do. A party cannot demand additional compensation for what he has already obligated himself to do. The real question is a question of law. Domenico agreed in writing to render services to the plaintiff for a stated compensation. Domenico demanded extra pay in remote waters where the fishing season is very short and where it would be impossible to find other workers. Consent by the defendant under such circumstances is not valid consideration. A party to a contract who refuses to perform, and coerces a promise from the other party to pay additional compensation for doing that which he is legally bound to do, takes an unjustifiable advantage of the necessities of the other party.

Angel v Murray
Maher (D1) had been providing garbage collection services to the city of Newport since 1946. In 1964 D1 and Newport agreed that D1 would receive $137,000 per year in exchange for garbage collection services for five years. The number of homes from which D1 collected increased unexpectedly by 20% and D1 requested an additional $10,000 per year for the remainder of the contract. The City Council accepted D1s modification of the contract. A group of taxpayers including Angel (P) filed a civil action against D1 and Murray (D2), the city treasurer, to compel D1 to repay $20,000 in payments that exceeded the original terms of the contract. The modern trend is for courts to enforce agreements modifying contracts when unexpected or unanticipated difficulties arise during the course of performance such as the unexpected increase in houses. Under the doctrine of unanticipated circumstances or conditions parties may increase the amount of compensation provided for in the contract even if no additional consideration is given. Under the preexisting duty rule, a modification of a contract must be supported by consideration. This rule is necessary to prevent the hold up game whereby a party to a contract will refuse performance unless additional consideration is given, under circumstances in which it would be very difficult or impossible for the other party to cover. Courts will not enforce an agreement that has been procured by coercion or duress and will hold the parties to their original agreement whether it is profitable or unprofitable. However, this rule of law has not been applied in situations in which one party encounters unanticipated difficulties and the other party, not influenced by duress or coercion, agrees to pay additional compensation for work already required to be performed.

Promises binding without consideration Most states enforce a promise to pay a past debt, even though no consideration for the promises is given A promise to pay for benefits or services one has previously received will generally be enforceable even without consideration. -Likely where services were requested, or where the services were furnished without request in an emergency

Promissory Estoppel- promises, which induce reliance on the part of the promise, will often be enforceable, without consideration -Promisor should reasonably expect to induce action or forbearance on part of the promisee - Injustice can be avoided only by enforcement of the promise -The promisee must actually rely on the promise -reasonably foreseeable to the promisor A written promise to make a charitable contribution will generally be binding without consideration under the P.E. doctrine Promissory estoppel has been (by far) the most important and influential section of the Restatement of Contracts (both 1st and 2nd), in 90 What is it? i.e., what doctrinal role does it play? PE is an alternative basis for enforcing promises Have been discussing consideration as basis for enforcing promises, and at its core consideration requires a BARGAIN By contrast, the core of PE = RELIANCE PE only matters, then, when do NOT have a traditional contract enforceable as a bargain Putting the two together, then, we only care about PE when the parties dont conclude a bargain, but one party made a promise that we think should be enforced anyway b/c the other party relied on it Even though was thus by definition a gift promise

And we likely have notions of justice that the promisees reliance should have been reasonably foreseen by the promisor when she made the promise, and the promisee should have justifiably and reasonably relied on the promise o In a setting where there is NOT a bargain, and instead was just a gift promise! E.g., should the fact of no-bargain be weighed on the justice scales of whether we want to enforce the promise? i.e., when should we enforce promises to make a gift, because party to whom promise was made relied on the promise? Have to be careful to distinguish between (i) the promisees performance of a condition to gift promise, on the one hand, and (ii) the promisees detrimental reliance on the promise, on the other Elements of promissory estoppel: 1. A promise Often courts say must be clear and definite

2. Promisor reasonably expects promise to induce reliance (action or forbearance) by promisee 1st Rest. Adds that reliance must be of a definite and substantial character 3.Promise in fact does induce actual reliance by promisee Courts also consider factors such as (i) the reasonableness and (ii) justifiability of promisees reliance, and (iii) under 2nd Rest., the definite and substantial character of the promisees reliance. In sum, the actual reliance by the promisee must be the sort expected by the promisor. Used a lot with contractors and sub contractors when making a bid 90. Promise Reasonably Inducing Action or Forbearance (1) A promise which the promisor should reasonably expect to induce action orforbearance on the part of the promisee or a third person and which does inducesuch action or forbearance is binding if injustice can be avoided only by enforcementof the promise. The remedy granted for breach may be limited as justice requires. (2) A charitable subscription or a marriage settlement is binding underSubsection (1) without proof that the promise induced action or forbearance Offer and Acceptance Kirksey v Kirskey
Kirksey (D) was the brother of Antillico Kirkseys (P) deceased husband. The defendant offered Kirksey a home on his property and Kirksey accepted. She moved sixty miles and lived in the defendants home for two years. He later forced her to relocate to a remote location on the property and eventually demanded that she leave altogether. Kirksey sued for breach of contract on the grounds that her costs in relocating to the defendants property were sufficient consideration to enforce his promise to provide her with a home. The court entered a judgment in favor of the plaintiff for $200 and defendant appealed. Contracts uses an objective theory in that it determines a parties intent by what a reasonable person in the position would think. Is a gratuitous promise enforceable where a party has reasonably relied on that promise and has suffered loss and inconvenience? The court only looked at consideration but now would be ok under promissory estoppel

Ricketts v Scothorn
In May 1891 J. C. Ricketts gave his granddaughter Katie Scothorn a promissory note for $2,000 payment on demand with 6% interest per annum. The grandfather stated that none of his other grandchildren worked and she would not have to work either. The promise was not given on condition that she stop working, nor were there any other stated conditions. Scothorn left her employment in reliance on Ricketts promise. In September 1892 she obtained a new job as a bookkeeper with Ricketts knowledge and assistance. Within the next two years he paid one years

interest on the note and told his daughter that he would like to pay the plaintiff the principal upon selling his farm in Ohio. Ricketts died in June 1894 and the executor of his estate refused payment, claiming that Ricketts promise lacked consideration and was therefore a gratuity and not an enforceable promise. The trial court found in favor of Scothorn and Ricketts estate appealed. Although a promise given without consideration ordinarily does not create a binding contract, the doctrine of promissory estoppel prevents a promisee from using lack of consideration as a defense to breach of contract. Consequently, a promise can be enforced even though it was given without consideration if the promisee has reasonably relied on the promise to her detriment. Here, the court considered the magnitude of Scothorns good faith reliance on her grandfathers promise and held that her actions were consistent with that reliance and therefore constituted a sufficient consideration.

Hayes v Plantation Steel Co

Hayes (P) worked for Plantations Steel Co. (D) from 1947 until 1972. After announcing his retirement, Hayes discussed a pension plan with an officer and stockholder of Plantations Steel one week before his retirement date. The pension was based solely on the promise by an officer of the corporation that Hayes would be taken care of and no formal contract was executed. The defendant ceased paying the pension after three years and Hayes filed a complaint for breach of contract. At trial the judge entered judgment for the plaintiff and ruled that he was entitled to receive the payments. Plantations Steel appealed. Must a promise induce reasonable reliance by the promisee in order for promissory estoppel to apply? Yes. A promise must induce reasonable reliance upon it in order for promissory estoppel to apply. The defendants promise was given as a token of appreciation and without consideration from the plaintiff. The promise did not induce reliance by Hayes because he had decided to retire from his employment before any promise that he would receive a pension was made. The promise did not induce his action or forbearance and Plantations Steels promise did not shape his thinking.

Feinburg v Pffeifer
Feinberg (P) worked for Pfeiffer Co. (D) for 37 years, attaining the positions of bookkeeper, office manager, and assistant treasurer. In 1947 the Board of Directors adopted a resolution recognizing Feinbergs long and faithful service by increasing her salary from $350 to $400 per month and offering her $200 per month for life after retirement. The Chairman stated that the resolution had been adopted to provide her with financial security. Feinberg testified that she would have continued in her position whether or not the resolution had been passed by the Board. Feinberg retired a year and a half later and received $200 per month for several years. The retirement plan was a major factor in her decision to retire. Several years later a new president of Pfeiffer Co. decided that the payments were mere gratuities and notified Feinberg that her payments would be reduced to $100 per month. Feinberg refused to accept the reduced amount and Pfeiffer terminated all payments. Feinberg sued for breach of contract. The trial court found that there was no consideration because the pension had been given for past acts; however, the trial court held that Feinberg was entitled to damages

because she had justifiably relied on Pfeiffers promise. The trial court awarded Feinberg $5,100 for the amount of pension due plus interest. Pfeiffer appealed. The appellate court held that there was ample evidence to support the trial courts findings that Feinberg would not have terminated her employment of she had not known and relied on Pfeiffers promise to pay her $200 per month for life, and that Feinberg relied on the continued receipt of the monthly pension. Consideration may be either a benefit to the promissor or a loss or detriment to the promisee. The court held that the doctrine of promissory estoppel supported Feinbergs action. The action that was induced was Feinbergs retirement from a lucrative position in reliance on Pfeiffers promise to pay her a pension. Feinberg justifiably relied on Pfeiffers promise by retiring earlier than she planned. The court held that, by retiring, Feinbergs reliance upon the promise contained in the resolution created an enforceable contract under the doctrine of promissory estoppel.

Promise for Benefit already received Look for a promise and a benefit, no unjust enrichment or disproportionate value 86. Promise for Benefit Received (1) A promise made in recognition of a benefit previously received by thep romisor from the promisee is binding to the extent necessary to prevent injustice. (2) A promise is not binding under Subsection (1)(a) if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or(b) to the extent that its value is disproportionate to the benefit Drake v Bell
Fixed the wrong house but defendant promised to pay

Mills v Wyman
The defendants son got very sick and was taken in by the plaintiff. The son was in the care of the plaintiff for 15 days until he died, and when the defendant learned of this he promised to repay the plaintiff for his help. The plaintiff sued to recover the promised money, but was nonsuited. The plaintiff appealed A moral obligation may only form consideration for an express promise in three cases: (1) debts barred by the statute of limitations, (2) debts incurred by kids, or (3) debts previously discharged by bankruptcy. The moral obligation of the defendant is not found to be of the kind that can form consideration for an express promise. Therefore, the defendants promise to pay the plaintiff was nothing more than a gift promise in the eyes of the law. In the courts view, society has chosen to leave it up to the defendants conscience whether to pay back a purely moral debt.

Webb v Mgowin
Webb (P) and McGowin (D) worked at a mill. Webb was releasing a 75-pound block of wood to the floor of the mill below when he noticed McGowin standing where the block would have fallen. Webb fell with

the block in order to save McGowins life and broke his arm and leg and ripped his heel off, leaving him permanently disabled and incapable of performing either physical or mental work. McGowin promised to pay Webb $15 every two weeks for the rest of Webbs life. Webb received the payments until McGowin died eight years later. Webb sued the executors of McGowins estate when the payments stopped. At trial, D obtained a nonsuit against P and P appealed. Can moral consideration create an enforceable promise if the promisor has received a material benefit constituting a valid consideration for his promise? Yes. In this case, the fact that P saved McGowin from death or grievous bodily harm was a material benefit to McGowin. Upon receiving this benefit, McGowin became morally bound to compensate P and as such expressly agreed to compensate P. When the promisee cares for, improves and preserves the property of the promisor, even without a request to do so, it is sufficient consideration for the subsequent agreement to pay for the service because of the material benefit received directly by the party. Once P saved McGowin from death or grievous bodily harm and McGowin subsequently agreed to pay him for the service rendered it became an enforceable contract.

A lot of places do not allow moral consideration Officious intermeddler - A needless service has led to the formulation of the officious intermeddler doctrine. It holds that where a person performs labor for another without the latters request or implied consent; he cannot recover therefor except emergency aid. Nursing Care Services v Dobos
When services were rendered by one party for another which were knowingly and voluntarily accepted, the law presumed that such services were given and received in expectation of being paid for and would imply a promise to pay what they were reasonably worth.

Estate of Cleveland v Gorden

Gorden took care of her aunt and paid the majority of her expenses, under the expectation that she would be reimbursed. Her aunt told a companion that Gorden would get everything she had, but her will left only furniture to her niece, and the rest to her church. (D was reimbursed) Holding: A person who pays anothers debt b/c of a moral obligation is not an officious intermeddler and is entitled to reimbursement unless the gift was gratuitous. The presumption that family members services are gratuitous can be rebutted by proof of an express agreement to pay for services or by proof of circumstances showing that the relative accepting the services knew or should have known that the relative performing them expected compensation or reimbursement.

- Officious intermeddler or volunteer cannot claim restitution. OFFERS AND ACCEPTANCES Offer- manifestation of willingness to enter into a bargain Rest. 24: An offer is 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.

Lucy v Zehmer
One evening in December 1952 after several drinks, Zehmer (D) wrote a contract on a restaurant bill in which he agreed to sell his farm to Lucy (P) for $50,000. Zehmer later insisted that he had been intoxicated and thought the matter was a joke, not realizing that Lucy had been serious. Lucy claimed that he was not intoxicated and believed that Zehmer was also sober. Zehmer testified that he was already high as a Georgia pine when he began drinking with Lucy. He claimed that he was merely bluffing to try to get Lucy to admit that he did not actually have $50,000. Lucy brought suit for specific performance when Zehmer refused to complete the transaction. The trial court ruled for Zehmer holding that Lucy had not established a right to specific performance. In determining whether a party has made a valid offer, the words and actions of the party are interpreted according to a reasonable person standard. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known to the other party. The court looks to the objective, outward expression of a person and not to their secret and unexpressed subjective intent. The test is whether a reasonable person would conclude that the partys words and actions constituted an offer. In this case Zehmers acts and words could be reasonably interpreted by Lucy as an offer to sell his farm. The parties discussed the matter for over forty minutes, addressed the issue of examination of title, and both Zehmer and his wife signed the agreement.

Leftowitz v Great Minn Store

An advertisement involving a transaction in goods is an offer when it invites particular action, and when it is clear, definite, and explicit and leaves nothing open for negotiation. Acceptance manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer

35 The Offeree's Power of Acceptance (1) An offer gives to the offeree a continuing power to complete the manifestation of mutual assent by acceptance of the offer. Bilateral contract- a contract in which both sides make promises Unilateral contract involves an exchange of the offerors promise for the offerees act WHEN is K formed in each case? Bilateral when the accepting promise is made (and thus before either party performs) Unilateral only when full performance has been rendered by the offeree If neither the offer itself nor the circumstances clearly requires acceptance only by either a promise or a performance, then the offeree can accept by either means Strong presumption allowing possibility of acceptance by return promise (bilateral) b/c protects offeree

Thus, must be CLEAR either from offer or circumstances if only performance is allowed 62. Effect of Performance by Offeree Where Offer Invites Either Performance or Promise (1) Where an offer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance. (2) Such an acceptance operates as a promise to render complete performance Preliminary negotiations: if a party who desires to contract solicits bids, this solicitation is not an offer, and cannot be accepted. Instead, it merely serves as a basis for preliminary negotiations Advertisements- generally not an offer to sell, but if it contains specific words or commitment, especially a promise to sell a particular number of units, then it may be an offer -Look for action by the consumer to get the deal Auction when an item is put up for auction, this is usually not an offer, but rather a solicitation An offer may be accepted only by a person in whom the offeror intended to create the power of acceptance -Offeree must know of the offer -Lets say there is a reward for an act, a person must know of it to claim it The offeror is the master of his offer. -May prescribe the method by which the offer may be accepted -If the offer does not specify the mode of acceptance, it must be given by a reasonable method -Unilateral contract is accepted by full performance of the requested act Offer invites either promise or performance- if it does not make it clear can do either -UCC 2-206(1)(b), places a purchase order with no mention of how acceptance could occur can do either -Accommodation shipment- non-conforming goods, it is a counter offer, which the buyer can accept or deny. Seller will not be found to be in breach Commmon law mirror image rule- must be an exact mirror of the offer In other words, to be effective, the purported acceptance must have two traits: 1. Definite, unconditional & unequivocal manifestation of assent to offer AND 2. Not throw in anything new or different UCC view- will often lead to ac contract being formed even though the acceptance diverges from the offer. -Battle of the forms UCC 2-207

-Does not form a contract if it is expressly made conditional on assent to additional or different terms. -additional terms- if one person is not a merchant, the additional term becomes part of the contract only if the offeror explicity assents to it. If both merchants then the additional term automatically becomes a part of the contract unless it materially alters the contract or the offeror objects to it Parties conduct can cause to the contract to occur, such as accepting the shipment and saying nothing UCC 2-207 changes the mirror image rule: 1st: under 2-207(1) Ss acknowledgment CAN = acceptance if is a definite and seasonable expression of acceptance EVEN IF it states terms additional to or different from those offered 2nd: if K formed by exchange of forms, what about Ss new terms? Look to 2-207(2) treat as a proposal to be added to K. If both parties are merchants, then the proposal becomes part of the K unless: Material alteration (2-207(2)(b)) Offeror (here, B) said no either in original offer ((2)(a)) or in response to acknowledgment ((2)(c)) A warranty disclaimer usually is considered a material alteration, so S would not get it in, unless B expressly said Ok, which of course it never would 3rd: If S wants to be certain it gets all its terms (including the disclaimer, here), then S must say in its response that its acceptance is expressly made conditional on B assenting to Ss terms And fact B went ahead and performed Bs assent to all of Ss terms In contracts where at least one party is a non-merchant, if the offeree unambiguously accepts but states additional terms, the terms are construed as mere proposals for modification and the terms of the existing contract are those set forth in the offer. Where both parties are merchants, the additional terms become part of the contract unless: the offer expressly limits acceptance to the terms of the offer; they materially alter it; or notification of objection to them has already been given or is given within a reasonable time after notice of them is received. [UCC 2-207(2)] 36. Methods of Termination of the Power of Acceptance (1) An offeree's power of acceptance may be terminated by (a) rejection or counter-offer by the offeree, or (b) lapse of time, or (c) revocation by the offeror, or

(d) death or incapacity of the offeror or offeree Rejection- must manifest intent not to stop, if the offeree rejects the offer, this will terminate his power of acceptance Counter-offer- if the offeree makes a counter offer then the power to accept the original agreement has been terminated Lapse of time- can set a time limit or the power of acceptance terminates at the end of a reasonable time period -face to face conversation on the phone the power of acceptance continues only during the conversation Face-to-face offer: power of acceptance lapses when meeting ends and parties depart; i.e., unless circumstances suggest otherwise, the presumption is that the offeror expects an answer then and there. Mail: Rest. 41(3): Unless otherwise indicated by the language or the circumstances, an offer sent by mail is seasonably accepted if an acceptance is mailed at any time before midnight on the day on which the offer is received. Revocation- the offeror is free to revoke his offer at any time before it is accepted -not effective until it is received by the offeree -manifest intent to take off the table Death or incapacity- if either parties dies or loses legal capacity to enter into the contract, the power to accept is terminated. This is so even if the oferee does not learn of the death or incapacity until after he has dispatched the acceptance Characterization issue: going back to original diagram when offeree responds to an offer with anything other than an unequivocal I accept, which of the following three possibilities is the most accurate legal characterization of that response?: 1. Acceptance = K now 2. Counter offer = no K now, no power of acceptance in original offeree, power of acceptance of counter offer in original offeror 3. Neither an acceptance nor a counter offer, but merely an inquiry = no K now, but original offeree retains power of acceptance Irrevocable offers -Standard option contract- to keep it open -common law requires consideration -restatement requires that a signed option contract be made -Firm offer rule under the UCC 2-205

-Must be by a merchant, in signed writing, gives excplicit assurance it will be held open -Three-month limit 2-205. Firm Offers An offer by a merchant to buy or sell goods in a signed writing which by its terms give assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. Past performance or detrimental reliance -Beginning of performance in a unilateral contract (must continue to diligently perform -Only applies to actual performance not the making of preparations -An offer, which the offeror should reasonably expect to induce action or forbearance of substantial character on the part of the offeree before acceptance and which does not induce such action or forbearance, is binding as an option contract to the extent necessary to avoid injustice. Restatment 2nd 87 (2) -Sub contractors bid to general contractors Mailbox rule acceptance is effective upon proper dispatch -Unless otherwise stated in the contract -If lost or delay depends on whether the communication was properly addressed -If properly addressed it is effective at the time of dispatch -If not properly received, it will be effective upon dispatch only if it is received with in the time in which a properly dispatched acceptance would normally have arrived 1st: an OFFER is only legally operative when it is received by the offeree (i.e., offeree learns of it) Makes sense b/c the legal effect of an offer is to create a power of acceptance in offeree, who then must do something to accept, in response to the offer would be nonsensical for an offeree to act in response to something he was unaware of! 2nd: an ACCEPTANCE is only valid when the offeror learns of it IF the offeror so specified in the offer (remember the master of the offer rule). 3rd: if offer does NOT specifically require that offeror learn of acceptance, then acceptance takes effect when DISPATCHED this is the so-called MAILBOX RULE Thus in above diagram, if everything is the same EXCEPT the offer was silent about requiring the offeror to learn of the acceptance, then acceptance is effective at instant it is put in the mailbox, e.g., dispatched K -- this instant Effect of mailbox rule offeror may be bound, but not know it!

A rejection of an offer by the offeree is effective when received by the offeror. If an offeree dispatches more than one response to an offer, regardless of whether the rejection is sent before or after the acceptance, if the rejection is received later than when the acceptance was dispatched, a contract is formed since an acceptance is effective upon dispatch but a rejection is effective upon receipt. Nevertheless, estoppel may operate to bar enforcement of such a contract where the offeror receives the rejection before the acceptance, and acts in reliance on such rejection. 54. Acceptance by Performance; Necessity of Notification to Offeror (1) Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification. (2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the contractual duty of the offeror is discharged unless (a) the offeree exercises reasonable diligence to notify the offeror of acceptance, or (b) the offeror learns of the performance within a reasonable time, or (c) the offer indicates that notification of acceptance is not required. The offeror is entitled to notice of the acceptance. Thus, even if the offeree effectively accepts an offer and a contract is formed, failure by the offeree to notify the offeror of the acceptance within a reasonable time may preclude the offerer from enforcing the contract. [Restatement 54 and 56] Under common law, where an offer invites acceptance by performance, no notice is required to make the acceptance effective, unless the offeror so specifies. However, if the offeree has reason to know that the offeror has no adequate means of learning of the performance with reasonable promptness and certainty, the offeror's contractual duty will be discharged unless: the offeree exercises reasonable diligence to notify the offeror of acceptance; or the offeror learns of the performance within a reasonable time; or the offer indicates that notification of the acceptance is not necessary. In transactions for the sale of goods, where commencement of performance is a reasonable mode of acceptance, if the offeror is not notified of acceptance within a reasonable time, he may treat the offer as having lapsed prior to acceptance. [UCC 2-206(2)] Where the offeree accepts by promise, the offeree must exercise reasonable diligence to notify the offeror of the acceptance or ensure that the offeror seasonably receives the acceptance. [Restatement 56] A number of approaches are applied to communications that are intended as an acceptance but sent after the offer expires: 1) the communication may qualify as a counter-offer;

2) the offeror may waive the lateness and honor the acceptance; 3) if the acceptance is nevertheless sent within a reasonable time, albeit after the offer's stated expiration, the acceptance is valid and results in the formation of a contract if the offeror does not reject it within a reasonable time; 4) in transactions governed by the CISG, if the acceptance is late because of a delay in transmission that is apparent from the circumstances, a contract is formed unless the offeror informs the offeree that the acceptance is too late.

Good faith dealing UCC 1-304- every contract or duty within this act imposes an obligation of good faith in its performance or enforcement -a party is required to behave in a way that is consistent with the other partys reasonable expectation about how the contract will work Misunderstanding prevents the meeting of the minds theory Problems in todays society 1. Uncertain commitment to the deal 2. Vague terms 3. Missing terms 4. Terms left for future resolution Raffles v Wichlehaus
Raffles (P) contracted to sell 125 bales of Surat cotton to Wichelhaus (D). The goods were to be shipped from Bombay to Liverpool, England on the ship Peerless. Neither party was aware that there were two ships names Peerless carrying cotton from Bombay to Liverpool, one arriving in October and the other in December. Wichelhaus thought he had purchased the cotton arriving on the October ship, but Raffles sent his cotton on December ship. Wichelhaus refused to accept delivery of the cotton arriving on the December ship and Raffles brought this lawsuit for breach of contract. If there is no contract there no is meeting of the minds (consensus adidem). Both parties must intend to agree on the same thing.

No contract will be formed if the parties each have a different subjective belief about a term of the contract, the term is a material one, and neither party knows or has reason to know of the misunderstanding -If one party knows or should know that he has a different understanding as to the meaning of an ambiguous term than the other, a contract will be formed on the term as understood by the other innocent party

If the offerees failure to read or understand the offer is due to his own negligence, he is bound by the terms of the contract as stated in the offer Mistake- a belief that is not in accord with the facts -Must be a basic assumption on what the contract was made -Must have material effect on the agreed exchange of performance -]The adversely-affected party must not be the on whom the contract has implicitly imposed the risk Mutual mistake mistake by both parties Unilateral if only party has the mistaken belief Existing fact- must be a present existing fact, not an erroneous belief about what will happen in the future Market conditions will generally not be basic ones, so the mistaken party will not be able to avoid the contract Seller will almost always bear the risk that valuable oil and gas deposits will be found on the land Unilateral mistake -More difficult for the mistaken party to avoid the contract than in the mutual mistake situation. The mistaken party must make the same three showings plus -Unconscionaility -The other party had reason to know of the mistake, or it was the other parties fault 20 Effect of Misunderstanding (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a) neither party knows or has reason to know the meaning attached by the other; or (b) each party knows or each party has reason to know the meaning attached by the other. (2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if (a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or (b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party

The Restatement test for relief: 152 When Mistake of Both Parties Makes a Contract Voidable (1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the

contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154. And thus also have to consult 154: 154 When a Party Bears the Risk of a Mistake A party bears the risk of a mistake when (a) the risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. Wood v Boyton
Facts: Wood (P) sold a gem for $1 to Boynton (D), a jeweler. Both parties believed the stone to be topaz at the time of the sale. Boynton later learned that the stone was a diamond worth $700. Boynton declined Woods offer to buy back the gem for $1.10 and Wood sued for its return. At trial the court directed a verdict in favor of Boynton and Wood appealed. Is a party to a contract entitled to rescission if both parties were mutually mistaken regarding the value of the items sold and the seller has not committed fraud? No. A contract made where there is mutual mistake regarding the nature and value of the items sold cannot be rescinded without fraud. The only way P can rescind the sale is by showing that there was some fraud by D in procuring the sale, or that the seller made a mistake by delivering an article that was not the article sold. The latter amounts to a mistake in fact as to the identity of the article sold. Except for these two cases, there can be no rescission of a contract for sale based on mutual mistake. In this case, both parties were ignorant of the true value of the gem. There was no mistake regarding the identity of the item sold and delivered to D. P made a bad bargain and that alone is not grounds for rescission of the contract. The court held that inadequacy of price as evidence of fraud depends upon the facts known to the parties at the time the sale was made. When this sale was made, the value of the thing sold was open to investigation by both parties. Neither party knew its intrinsic value and believed that the price paid was adequate.

Sherwood v Walker
Sherwood (P) contracted to purchase a cow from Walker (D). Walker showed Sherwood a cow, Rose 2d of Aberlone, which he believed to be barren. Sherwood agreed to purchase the cow for $80. If the cow had been fertile it would have been worth $750 to $1000. Walker later discovered that the cow was with calf and refused to complete the transaction.

Sherwood brought suit and took possession of the cow via a writ of replevin. At trial, Walker showed that at the time of the sale both parties had believed the cow to be barren and both knew that the value of a fertile cow was much higher than that of a barren cow. The judge instructed the jury that it was immaterial whether the cow was barren. The jury returned a verdict in favor of Sherwood and Walker appealed. Can a mutual mistake regarding the substance of the subject matter of a contract render a contract unenforceable? There is no contract if there is a difference or misapprehension as to the substance of the thing bargained for, or if the thing actually delivered or received is different in substance from the thing bargained for and intended to be sold. However, if there is merely a difference as to some quality or accident, even though the mistake may have been the actuating motive of either or both of the parties, the contract remains binding. The only difficulty in such a case is to determine if the mistake is as to the substance of the whole contract. Under prior law it has been held that when a horse is bought under the belief that he is sound, and both the buyer and seller have this honest belief, the purchaser must stand by his bargain and pay the full price unless there was a warranty. The court held that in this case the mistake went to the whole substance of the agreement. This mistake was not about the mere quality of the cow but to its very nature, i.e. a fertile cow as opposed to a barren cow.

Defenses and Remedies Avoidance treats the contact as if it has never been made, and attempts to return each party to the position he was in just before the contract was signed. Also restitution will be ordered where each party will return what they got Reliance damages might also be awarded Indefiniteness- no contract will be found if the terms of the parties agreement are unduly indefinite, the absence of terms makes their agreement void -Courts can supply a reasonable value for its missing terms UCC expressly allows the court to fill in terms for price, place for delivery, time for shipment, time for payment, as long as the parties have intended to make the contract UCC 2-204(3)

Supply terms in contracts if too indefinite 33. Certainty (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

(3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance UCC 2-204(3) does not fail if the parties intended to make a contract, and there is a reasonably certain basis for giving an appropriate remedy Necessary terms 1. parties to the contract 2. subject matter of the contract 3. time for performance 4. price Sun Printing and Publishing v Remington
Plaintiff is a newspaper company who contracted to buy 16,000 tons of paper from Defendant, a paper mill. The written contract stated that the price and term would be fixed for a short while, and then later to be agreed upon nlt 15 days prior the end of the term in effect, but in no case was the price to be higher than a standard market price. After the preset term had expired, and the next price and term was to be negotiated, the Defendant claimed the contract was incomplete, and refused to make any deliveries at any price. Plaintiff sued for breach of contract. The majority reasoned that the contract was expressly written to allow both price and term to be negotiable, and so the court would have been "revising" the contract if it attempted to "construe" it to a reasonable market price and some fixed term that was not negotiated by the parties (B.S.). Further, the court purposefully disregarded the motive of the D in his refusal to deliver (more B.S.), and stated that the P had not stated sufficient cause of action because he did not allege that the D "arbitrarily refused" to negotiate.

Parol Evidence Rule Limits the extent to which a party may establish that discussions or writings prior to the signed written contract should be taken as part of the agreement Integration- intended to be the final expression of the agreement -partial intended to be final but that is not intended to include all details of the parties -total includes all details of the agreement When partial integration, no evidence of prior or contemporaneous agreements or negotiations (oral or written) may be admitted which would contradict the writing When total integration, no evidence may be admitted which would either contradict or add to the writing If a supplement is signed at the same time, it is treated as part of the writing, and will not be subject to the parol evidence rule -never bars consideration of subsequent oral agreements. -unless the written document contains a no oral modification clause

What the PER does NOT do: As to each of the following WHY wouldnt the PER apply? 1. does not exclude SUBSEQUENT agreements 2. does not exclude evidence as to what the writing MEANS, i.e., goes to interpretation 3. does not exclude evidence that the writing is UNENFORCEABLE, e.g., was procured by fraud, or mistake, or duress, etc. 4. does not decide threshold question of whether the writing is integrated, and if so, whether is complete or partial 5. does not exclude IMPLIED terms e.g., course of performance, course of dealing, usage of trade UCC 2-202 very similar to the parol evidence rule 2-202. Final Written Expression: Parol or Extrinsic Evidence. Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented (a) by course of dealing or usage of trade (Section 1-205) or by course of performance (Section 2-208); and (b) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement . The judge decides whether the writing was intended as an integration, if so whether the integration is partial or total, and whether particular evidence would supplement the terms of a complete integratioin How to determine if total or partial Four corners rule- looks soley at the document Corbin view- these questions are to be answered by looking at all available evidence, including testimony, to determine the actual intention of the parties Parol evidence rule does not apply to illegality, fraud, duress, mistake, lack of consideration, or any other fact that would make the contract void or voidable If the parties orally agree on a condition to the enforceability of the of the contract, or to the duty of one of them, but this condition is then not included in the writing, courts generally allow proof of the condition

Collateral agreements- an oral agreement that is supported by separate consideration may be demonstrated, even though it occurred prior to what seems to be a total integration Lee v Seagrams
The Pl/ee, Lees owned 50% interest in a wholesale liquor distributorship. Seagram is a distiller of alcoholic beverages. The Lees carried numerous Seagram brands and a large portion of sales were generated by Seagram lines. The Lees and other owners wanted to sell their interests. Mr. Lee discussed this with Yogman VP of Seagram. Lee offered to sell but conditioned the offer on Seagrams agreement to relocate Mr. Lee and sons in a new distributorship of their own in a different city. Evidence supports this as having been done. A mo. later another representative began negotiations, the purchase of the assets was consummated pursuant to a written agreement. The promise to relocate was not reduced to writing. Whether the oral promise to provide another distributorship would be an expectable term of the contract for the sale of assets by Capital, in which the Pls only have a 50% interest, considering the history of their relationship with Seagram? In customary business practices, oral agreements can be treated as separate and independent of the written agreement. Collateral agreements such as shareholder employment, survive the closing of a corporate deal, are often set forth in separate agreements. An agreement to obtain a new distributorship for certain persons, not parties to the contract, would not ordinarily be integrated into an instrument for the sale of corporate assets. There was a close relationship of confidence and friendship between Mr. Lee and Yogman, whose authority to bind Seagram has not been questioned. The written agreement does not contain the customary integration clause. There are no contradictions of the terms of the sales agreement. The writing dealt w/ the sale of corporate assets, the oral w/ the relocation of the Lees. The oral does not vary or contradict the money consideration recited in the contract as flowing to the selling corp.

Interpretation of evidence
Extrinsic evidence- if a term is ambiguous extrinsic evidence must be allowed -done by jury -look at pre contract negotiations -expert witnesses -past dealings If the term is unambiguous as decided by the judge then he says what the term is Judge can determine existence of ambiguity by three approaches -four corners -plain meaning -liberal rule Four corners may not consult any extrinsic evidence whatsoever, can only look within the four corners itself Plain meaning- will not hear evidence about the parties preliminary negotiations, however will hear evidence about the circumstances, or context surrounding the making of that agreement

-Would hear testimony what it usually means in contracts Liberal rule- evidence of the parties statements during their pre-contract negotiations is admissible for the limited purpose of letting the trial judge determine whether the term is ambiguous An ambiguous term will be construed against the person who drafted the contract Course of performance the way the parties had conducting themselves in performing the particular contract at hand Course of dealing refers to how the parties have acted with respect to past contracts Usage of trade regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question (UCC 1-205) -Particular term in a certain region, or certain industry would be admissible Are not affected by the parol evidence rule unless they contradict the express terms of a contract UCC 1-303 e. Ranking The express terms of an agreement and any applicable course of performance, course of dealing, or usage of trade must be construed whenever reasonable as consistent with each other. If such a construction is unreasonable: (1) express terms prevail over course of performance, course of dealing, and usage of trade; (2) course of performance prevails over course of dealing and usage of trade; and (3) course of dealing prevails over usage of trade. Would it matter what KIND of extrinsic evidence was offered? Thus for example, would (should) a court deal differently with a partys argument that apparently plain K language had a different meaning due to the following?: rank them in order of importance The course of performance under this very K A prior course of dealing between the parties on similar types of Ks A usage of trade Pre-K negotiations between the parties What someone supposedly said

Chicken Case
BNS International Sales Corp. (D) entered into two contracts to sell chicken to Frigaliment (P). When the initial shipment arrived in Switzerland, Frigaliment found that the heavier birds were stewing chickens or fowl, not young chickens suitable for broiling and frying. BNS International believed that any type of chicken would meet the contract specifications regarding weight and quantity, including stewing chickens. Frigaliment on the other hand believed that chicken meant a young chicken. Frigaliment

brought this lawsuit for breach of warranty on the grounds that BNS International delivered goods that did not meet the specifications of the contract. Does a party who seeks to interpret a contracts ordinary terms in a narrower sense than is used in everyday trade have the burden of proof to establish that meaning? Is parol evidence admissible to show the meaning of an ambiguous term and its usage in a contract? The court held that the making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs not on the parties having meant the same thing but on their having said the same thing. The word chicken standing alone is an ambiguous word. The court must first turn to whether the contract itself offers any aid to its interpretation. BNS International notes that the contract called not simply for chicken but for US Fresh Frozen Chicken, Grade A, Government Inspected. It contends therefore that the contract incorporated by reference the Department of Agricultures regulations, which favor its interpretation. Regarding the parol evidence issue, the court first examined the negotiations. The communications between Frigaliment and BNS International were in German but they used the English word for chicken. When asked what kind of chickens it wanted, BNS International replied any chickens. Frigaliment claimed that this was done because it understood chicken to mean young chicken whereas the German word Huhn included both broilers and stewing chicken, and that BNS International would have understood the distinction because its officers were thoroughly conversant with German

Implied terms SOURCES of implied terms: Presumed intent of parties, based on circumstances Usage of trade / Course of dealing / Course of performance these are VERY important Will apply unless expressly negated Parties justified in assuming theyll apply to their K Gap fillers, i.e., off-the-rack default terms -Allows parties to use these default terms by doing nothing If this is what theyd want anyway, no need to mention in K -Can be changed by agreement of parties -Common examples the 2-300s in UCC Article 2 Mandatory rules -Required by statutory law or public policy -These cannot be varied by agreement

Woods v Lucy
Lady Duff-Gordon (D) contracted to give Wood (P) an exclusive right to market and license all of her designs and to endorse designs with her name. The exclusive contract required that they split all profits from Woods sales evenly but there was no express clause that stated that he would perform. Lucy placed endorsements on clothes without Woods knowledge and in violation of the contract and Wood sued. The trial court denied Lady Duff-Gordons motion for a judgment on the pleadings. The intermediate appellate court reversed on the grounds that the contract lacked mutuality because Wood never promised to do anything. Wood appealed the dismissal of the complaint. 1) May a promise to use reasonable efforts be implied from the entire circumstances of a contract? 2) Can an implied promise to use best efforts be considered valuable consideration? 3) Can the duty of good faith compensate for vagueness in an agreement to avoid invalidation of a contract clearly intended by the parties? 1) Yes. A promise to use reasonable efforts may be implied from the entire circumstances of a contract. 2) Yes. An implied promise to use best efforts in contract performance can be considered valuable consideration. 3) The duty of good faith can compensate for vagueness in an agreement to avoid invalidation of a contract clearly intended by the parties. A contract may lack an explicit promise to further its goals. The acceptance of the exclusive agency meant that Wood had accepted the duties of that agency. Because Lady Duff-Gordons sole compensation was a split of the profits, there would be no efficacy to the transaction unless there was an implied promise to use best efforts. The court held that it was clear from the terms and recitals and duties under the contract that both parties intended to do what was reasonably necessary to make it a success so that would be profits to divide. Woods promise to pay Lady Duff-Gordon one-half of the profits and revenues resulting from the exclusive agency and to render accounts monthly demonstrated that he had some obligations under the contract, and there was a promise to use reasonable efforts to bring profits and revenues into existence.

Duty of GOOD FAITH MANDATORY -- parties are not free to contract out of this duty! See, e.g., UCC 1-302. Variation by Agreement. (a) Except as otherwise provided in subsection (b) or elsewhere in the Uniform Commercial Code, the effect of provisions of the Uniform Commercial Code may be varied by agreement. (b) The obligations of good faith, diligence, reasonableness, and care prescribed by the Uniform Commercial Code may not be disclaimed by agreement. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable. Bloor v Falstaff

Investors Funding Corporation (IFC) owned Ballantine brewery. Falstaff Brewing Corp. (D) bought the rights to Ballantines trademarks and other property for $4 million, plus a royalty of fifty cents for each barrel of beer sold. Under the contract Falstaff was to use best efforts to promote and maintain a high volume of sales, and the contract contained a liquidated damages clause to take effect if Falstaff ceased to distribute Ballantine products. Falstaff lost $22 million distributing Ballantine products over three years and a new brewer (Paul Kalmanovitz) took control of the enterprise. The new management made drastic changes to the marketing strategy for Ballantine products and profit took priority over sales volume. Ballantine sales fell sharply but the operation became profitable. Bloor (P), the reorganization trustee for Ballantine, sued in diversity for breach of contract for failing to use best efforts to maintain sales volume. Bloor asserted that the liquidated damages clause had been triggered. The trial court held that Falstaff was liable for breach of contract and awarded damages, but dismissed the claim for damages under the liquidated damages clause. Both parties appealed. A best efforts clause imposes an obligation to act with good faith in light of ones own capabilities. The party meets the obligations under a best efforts contract by performing as well as the average prudent comparable business person. While the best efforts clause required Falstaff to treat the Ballantine brands as well as its own, it does not follow that it required no more. For its own brands, Falstaff was free to decide for itself how to maximize profit even if it meant a serious loss in volume. The same was not true for its obligation regarding Ballantine. The royalty of $.50 a barrel on sales was an essential part of the purchase price. Citing Wood v. Lucy, Lady Duff-Gordon, the court held that even without the best efforts clause Falstaff would have been bound to make a good faith effort to achieve substantial sales of Ballantine products. The contract imposed an added obligation to use best efforts to promote and maintain a High volume of sales. Falstaff was not required to spend itself into bankruptcy to promote the sales of Ballantine products, but the contract did prevent the company from emphasizing profit without fair consideration of the effect on volume of sales. The plaintiff was not obliged to show what Falstaff should do to maintain a high volume of sales. It was sufficient to show that it simply didnt care about Ballantines sales volume and was content to allow it to plummet as long as it was best for Falstaffs profits. The burden then shifted to Falstaff to prove there was nothing significant it could have done to promote Ballantine sales that would not have been financially disastrous. Regarding plaintiffs appeal of the trial courts denial of damages under the liquidated damages clause, the court held that changing to a system whereby beer was sold from the brewery directly to wholesalers was not a substantial discontinuance of distribution because distribution included transport of beer on the trucks of the wholesalers.

Conditions An event, which must occur before a particular performance is due, is called a condition to that performance. Express- explicity agree that a duty is conditional upon the happening of some event Constructive- condition of a duty because the court so determines

If duty to consideration is failed other party does not have to perform while if promise can sue for breach Strict compliance is ordinarily required but avoid if forfeiture would result Can have both -- a "promissory condition" The effect of a promissory condition is that if it is not satisfied, the obligor is both (1) relieved of his own duty to perform and (2) entitled to sue for breach the obligee's duty. Which is it condition or promise? Depends on intent of parties o Thus if language is clear, is given effect IF is a big word indicating a condition!

Some types of contractual situations are normally treated as conditions (e.g., financing, insurance claims) Courts reluctant to find that ambiguous language creates a condition, because the effect of nonoccurrence of a condition may cause a forfeiture - obligee gets nothing. If a contract makes one partys duty to perform expressly conditional on that partys being satisfied with the others performance, the court twill usually presume that an objective standard of reasonable satisfaction was met -If subjective then the intent of the parties controls (paintings) Constructive conditions -Where each party makes one or more promises to the other, each partys substantial performance of his promise is generally a constructive condition to the performance of any subsequent duties by the other party Order of performance -when the performance of one party requires a period of time, and the other does not the performance requiring time must ordinarily occur first (services) -when both can occur at the same time, each party must conditionally offer performance to the other UCC 2-507 Some ways to escape a condition 1. Excused disproportionate forfeiture 2. 3. Waiver Estoppel

Jacobs and Young v Kent

Jacob & Young ("Plaintiff") built a country residence for Kent ("Defendant") at a cost of upwards of $77,000, and now sues to recover a balance of $3,483.46, remaining unpaid. The work of construction ceased in June, 1914, and the Defendant then began to occupy the dwelling. There was no complaint of defective performance until March, 1915. One of the specifications for the plumbing work provides that All wrought-iron pipe must be well galvanized, lap welded pipe of the grade known as standard pipe of Reading manufacture. The Defendant learned in March, 1915, that some of the pipe, instead of being made by Reading, was the product of other factories. The Plaintiff was accordingly directed by the architect to do the work anew (start over again). Obedience to the order meant more than the substitution of other pipe. It meant the demolition at great expense of substantial parts of the completed structure. The Plaintiff left the work untouched, and asked for a certificate that the final payment was due. Refusal of the certificate was followed by this suit. Other than different brands, the pipes that Plaintiff installed and one that Defendant wanted had no other material differences in quality. Also, there was no evidence of fraud or bad faith on the part of Plaintiff. Issue: Whether Plaintiff is owned money for substantial performance? The court reasoned about what is important and trivial, when it comes to not following the exact terms of the contract. The court held in this case that the measure of the allowance is not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing. The court also made an analogy by stating Specifications call, let us say, for a foundation built of granite quarried in Vermont. On the completion of the building, the owner learns that though the blunder of a subcontractor part of the foundation has been built of granite of the same quality quarried in New Hampshire. The measure of allowances is not the cost of reconstruction. Furthermore, when the defect is insignificant, the court will find that there was substantial performance and excuse the breach of using the same type and quality of pipe which parties had agreed were the same except for the brand name. The measure of damages is not the cost to rip out the old pipe and install a new one, but the difference in value, which in this case is zero.

Substantial Performance -if one party fails to substantially perform, the other partys remaining duties are not due If they can easily be cured, the other partys duty to give a return performance is merely suspended; the defaulter then has a chance to cure his defective performance. If on the other hand, the defect is so substantial that it cannot be cured within a reasonable time, or if the defaulter fails to take advantage of a chance to cure, the other party is then completely discharged

Factors regarding materiality -The more the non breaching party is deprived of the benefit he reasonably expected the more likely the breach was material -The greater the part of the performance, which has been rendered, the less likely it is that a breach will be deemed material -Likeliness of a cure -A willful breach is more likely to be regarded as material than breach caused by negligence -The more delay the more material Apply to facts -- in the case, regarding the contractors obligation to install Reading pipe, and the relation of that promise to the owners promise to pay, how apply: 1. the purpose to be served the desire to be gratified the excuse for deviation from the letter the cruelty of enforced adherence

2.

3.

4.

A modern reformulation of the balancing test of materiality:

Restatement 2nd 241 Circumstances Significant in Determining Whether a Failure Is Material In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. PARTIAL OR TOTAL BREACH? The 2nd important question (on which we will spend less time) is whether a breach is partial or total WHY DOES IT MATTER? As we just learned, if a party commits a material breach (i.e., does not substantially perform), then in addition to having a remedy for breach, the aggrieved party can withhold its own performance But is that withholding of performance only a temporary suspension, or can the aggrieved party say forget the whole thing, CANCEL the K, and walk away? Or does the breacher still have the right to try to CURE the defective performance and thus render substantial performance (and thereby trigger the other partys duty to perform under the K)? If aggrieved party has a right to cancel the whole K due to the breach, we call that a TOTAL breach. Otherwise, if is only allowed to suspend their own performance, but not cancel the whole K yet, leaving a possibility that the breacher can cure, call that a PARTIAL breach Really just conclusory labels to justify the all-things-considered calculus of whether should allow aggrieved canceling the whole K yet. Strong presumption give the breacher a chance to cure Policy favors keeping deals alive, if possible Minimize litigation Reduce dead-weight loss to society

UCC 2-601 Perfect tender rule (as long as not multiple installments) -if the goods or tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole, accept the whole, accept any commercial units and reject the rest -Usually only is substantial Reject must be done in a reasonable time after the goods are delivered Must not be preceded by acceptance -reasonable inspection -timely rejection -buyer does any act inconsistent with the sellers ownership Revoking must make a stronger showing of non-conformity then a rejection Cure: both buyers right to reject and his right to revoke are subject to the sellers right to cure the non-conformity -Can get additional time if he reasonably thought that either: the goods, would be acceptable or the buyer would be satisfied with a money allowance Excuse of considerations Hindrance- where one partys duty is conditional on an event, and that same partys wrongfull conduct prevents the occurrence of the condition, it is excused Waiver Anticpatory repudiation Two ways to repudiate: 1. Statement: unequivocal -> wont or cant perform 2. Action: render unable to perform Right to adequate assurance of performance-if a party makes it clear, even before his performance is due, that he cannot or will not perform he is said to have anticipatorily repudiated the contract. A repudiators time to retract ends as soon as the other party: sues for breach, changes her position materially in reliance on repudiation, or states that she regards it as final (UCC 2-611) If a partys conduct or words do not constitute an out right repudiation, but merely suggest that the party may not perform, the other party may demand assurances from the first party UCC 2-609 (1) Mitigation is required- UCC 2-610 -can insist on performance for a commercially reasonable time

Unilateral obligation to pay money does not owe any performance at the time of the repudiation UCC damages for repudiation- the difference between the market price at the time when the buyer learned of the breach and the contract price, together with incidental damages and consequential damages UCC 2-713 Statute of Frauds Statute of Frauds ANALYSIS: Step 1: is the K within the Statute of Frauds? i.e., is it one of the types or classes of K that are covered by the St/F? Some contracts are unenforceable unless they are in writing -A contract to answer for the debt or duty to another (main purpose must be for other) -A contract made upon consideration of marriage (just marriage then engagement) -A contract for the sale of an interest in land -A contract that cannot be performed within one year of its making -Under UCC, a contract for the sale of goods for a price of 500 or more 2-201 Step 2: if yes to # 1, did the party against whom enforcement is sought sign a sufficient writing memorializing the K? 1st: for everything other than sale of goods Ks Myth: the contract itself has to be in writing. Reality: there just has to be some written record, signed by the party against whom enforcement is sought, that (i) identifies the subject matter of the K; (ii) shows that a K was agreed to; and (iii) has the material terms 2nd: satisfying the St/F in a Sale of Goods K Much more lenient than general St/F requirements for a memorandum: UCC 2-201(1): unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. Thus, does NOT have to state all essential terms ONLY quantity As Comment 1 states:

1. The required writing need not contain all the material terms of the contract and such material terms as are stated need not be precisely stated. All that is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction. ... The only term which must appear is the quantity term which need not be accurately stated but recovery is limited to the amount stated. The price, time and place of payment or delivery, the general quality of the goods, or any particular warranties may all be omitted. Only three definite and invariable requirements as to the memorandum are made by this subsection. First, it must evidence a contract for the sale of goods; second, it must be signed, a word which includes any authentication which identifies the party to be charged; and third, it must specify a quantity.

3rd & final step: If K IS within the St/F (step 1) AND the party charged has NOT signed a sufficient writing (step 2), Then St/F = bar UNLESS an EXCEPTION applies List of common exceptions (or ones I care about): 1. 2. 3. Part performance Merchants exception for goods Estoppel

Part performance exception Idea is that the partial performance itself objectively corroborates the evidence of actual existence of a K, beyond just a swearing match in court NOTE: part performance exception is basically useless if St/F problem is either the one-year provision or the sale of goods provision: Typically not applied at all to one-year (because the fact of partial performance tells us nothing about the term of the K) In sale of goods, only enforce K to extent have already partly performed, see 2-201(3)(c)

i.e., do not take the REST of the K out of the statute only have a K to extent is a fait accompli Merchants exception, sale of goods 2-201(2) Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to

know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received. Estoppel If St/F applies, but no writing, and no standard sufficient exception (such as part performance or merchants), is it possible for the party seeking to enforce the K to escape the St/F by showing detrimental reliance? One year period is measured from the time of execution of the contract, not the time it will take the parties to perform -only applies if the complete performance is impossible within one year -lifetime employment is not within the SOF -A promise to not compete is not within the SOF because you could die -Courts are split about whether the existence of a termination clause is in it 130 Contract Not to Be Performed Within a Year: Comment a. Possibility of performance within one year. The English Statute of Frauds applied to an action "upon any agreement that is not to be performed within the space of one year from the making thereof." The design was said to be not to trust to the memory of witnesses for a longer time than one year, but the statutory language was not appropriate to carry out that purpose. The result has been a tendency to construction narrowing the application of the statute. Under the prevailing interpretation, the enforceability of a contract under the one-year provision does not turn on the actual course of subsequent events, nor on the expectations of the parties as to the probabilities. Contracts of uncertain duration are simply excluded; the provision covers only those contracts whose performance cannot possibly be completed within a year In a contract which cannot by its terms be completed within one year, lack of a writing will not preclude enforcement once full performance has been completed. 2-201 of the Uniform Commercial Code: (1) Except as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought 500 dollar exceptions -Specially manufactured goods -Estoppel quantity of goods admitted -goods accepted and paid for A signed memorandum might be enough to meet the Statute of Frauds Must have -reasonably identifies the subject matter -indicates that a contract has been made between the parties -states with reasonable certainty the essential terms of the contract -signed by the party to be charged

A signature may include any mark or symbol with which the signer intends to authenticate a writing. The signature may be written, printed, stamped, engraved, or otherwise marked on the writing. Signatures may include initials, imprinted signatures, letterhead, and firm logos. UCC requirement- sufficient to indicate that a contract for sale has been made between the parties and is signed by the party against who enforcement is sought -Omissions might be ok (not in common law) -Will be enforceable against merchants even if party does not sign it (must object within 10 days)
In a contract for the sale of goods between merchants, the contract may be enforced even against a merchant that did not sign the writing if: 1) within a reasonable time of the making of the oral contract, one merchant sends a signed writing to the other which would satisfy the statute of frauds as against the sender; 2) the other merchant receives the writing and has reason to know of the writing's contents; and 3) the non-signatory merchant fails to send a written notice of objection within 10 days of the date of receipt of the confirmation. [UCC 2-201(2)]

When a contract is in writing it can be orally rescinded even though the original was required to be in writing because of the statute If orally modified any modification of a key term must probably be in writing (UCC) -Must be treated as if it were an original contract Misrepresentation regarding SoF- courts are likely to apply promissory estoppel where the defendant has intentionally and falsely told the plaintiff that the contract is not within the Statute, or that writing will be executed -Also can avoid SoF when a person reasonably relies to his detriment on the existence of the agreement Damages Specific performance- a decree that orders the promisor to render the promised performance Injunction- directs a party to refrain from doing a particular act Limitations on equitable remedies -will not be granted unless damages are not adequate to protect the injured party -will not give unless the terms are definite enough to enable the court to frame the order -court will not grant when there is likely to be significant difficulties in enforcing and supervising the order Mostly used in sales of land

Never use for personal services Expectation damages- put the plaintiff in the position he would have been in had the contract been performed by the defendant, should of end up with the profit he would have made had the contract been completed -promised performance minus whatever benefits P has received from not having to complete his own performance Economic waste where the defect is minor, and remdying would be crazy, such as the destruction of what has already been done Can only recover that which is reasonably certain General rule: May recover consequential damages, subject to several critical LIMITATIONS: 1. CAUSATION 2. The breach must actually & proximately cause the consequential injury Redgrave v. Boston Symphony Orchestra, Inc. (p. 973) FORESEEABLE Hadley v. Baxendale (p. 969)

Rest. 351: (1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. (2) Loss may be foreseeable as a probable result of a breach because it follows from the breach: (a) in the ordinary course of events, or (b) as a result of special circumstances, beyond the ordinary course of events, breach had reason to know. that the party in

3.

CERTAIN

Aggrieved party must be able to prove her consequential damages with sufficient specificity and certainty Redgrave; Kenford Co. v. County of Erie (p. 985)

Rest. 352: Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.

4.

UNAVOIDABLE Often called requirement of MITIGATION of damages [class 35] Sackett v. Spindler (p. 993); Parker v. Twentieth Century-Fox Film Corp. (p. 995)

Rest. 350: (1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation. (2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.

Reliance damages place plaintiff in the position he would have been in had the contract never been made -Usually amount to what the plaintiff has spent in peforming or in preparing to perform 349 Damages Based on Reliance Interest As an alternative to the measure of damages stated in 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. Comparing Reliance with Expectation: Expectation is forward-looking and gives the aggrieved party the full benefit of the bargain, i.e., it puts them in the position that performance would have; Reliance, by contrast, is backward-looking puts aggrieved party in the position that were in before entered into K Expectation damages often include consequential damages, including, importantly, lost profits; Reliance damages, by contrast, would not include lost profits, but only seek to reimburse the aggrieved party for expenses incurred in preparing for or in performing the K Why ever use reliance damages, if expectation is greater? 1. Cant prove profits a. Too speculative or uncertain (e.g., a new business, or too long a time period {e.g., Kenford case p. 985}) b. No profits contemplated by K at all (e.g., Security Stove p. 1005)

2. Theory of liability = reliance (e.g., promissory estoppel) (e.g., Goodman v. Dicker p. 1010) 3. {cousin of # 1 and 2} reluctant to impose liability, so restrict damages to reliance really a one off case Sullivan v. OConnor pp. 113-14 (allow patient recovery of her reliance expenses against a physician who gave her a bad nose job)

Useful when -Profit too speculative -Vendee in land contract -Promissory estoppel Most courts will not allow you to recover reliance damages from before the contract was signed Restitution value to defendant of the plaintiffs performance -Prevent unjust enrichment -not limited by contract price but how much the defendant may be enriched Theory of restitution (reprise) avoid unjust enrichment. Here, means that a contracting party cannot retain benefits conferred under a K without paying for (or returning) those benefits, subject perhaps to an offset for damages. Can have restitution: In kind i.e., return the specific thing provided under the K In $ -- i.e. pay back the value of what was received The basic principle of restitutionary relief holds even if: (1) Contract is avoided or is unenforceable for some defense (even including fraud, duress, etc., or statute of frauds) or performance is excused (e.g., for impracticability or frustration) (2)Rest itution is in favor of the breaching party a. See, e.g., Britton v. Turner (notes pp.1013-14) b. Lancelotti v. Thomas (p. 1014) c. Makes sense b/c recovery is not based on the K (3) Its a losing K a. So there would not be any recovery on an expectation theory benefit of the bargain does not help you when the bargain proved to be losing proposition i.e., would have lost money if both parties had fully performed

Restitution is NOT based on contractual liability. Terminology often see restitutionary claims called quasi contract or a contract implied in law

 Those are just fancy law code ways of saying you have to pay up even though it isnt really a contract You have to pay even though you dont have a contract The essence of the law of restitution is as stated in 1 of the Restatement of Restitution: 1 Unjust Enrichment: A person who has been unjustly enriched at the expense of another is required to make restitution to the other. Note that the foregoing principle has two necessary components: (1) That the person has been enriched, i.e., that person receives a benefit (2) Retention of the benefit without paying for it would be unjust As Restatement Restitution notes, The mere fact that a person benefits another is not of itself sufficient to require the other to make restitution therefor. The unjust part is where the action is yes, it is of course necessary that there be a benefit would be kind of stupid to talk about making restitution of nothing but the fighting issue is whether you can keep the benefit without paying for it

Foreseeability of damages -The damages were foreseeable by any reasonable person whether the defendant actually foresaw them -the damages were remote or unusual, but only if the defendant had actual notice of the possibility of these consequences -May always be modified by express agreement of the parties

Plaintiff has duty to avoid damages by putting forth a reasonable effort (duty to mitigate) The rule: damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation. Rest. 350 Thou shall not run up damages Thou shall not credit damages actually avoided Thou shall try to avoid losses

UCC 2-715(2) if seller either fails to deliver, or delivers defective goods which the buyer rejects, the buyer must cover for the goods if he can reasonably do so Seller does not have much duty to mitigate damages in UCC Liquidated damages clause- a provision placed in the contract itself, specifying the consequences of breach. -courts will enforce as long as its not a penalty

-the amount fixed must be reasonable relative to the anticipated or actual loss for breach -the harm caused must be uncertain or very difficult to calculate accurately the clause is a reasonable forecast when viewed as the time of the contracting Basic principle: parties are free to stipulate the damages that will be owed in the event of breach in the K itself, as long as they do so in a manner that is consistent with the fundamental remedial principle of compensation Stated otherwise, will NOT enforce if it appears that the stipulated damages clause would exact a penalty on the breacher and accord a windfall to the aggrieved party The problem is in application, i.e., in drawing the line between compensation / penalty The TEST: the agreed damages must be a reasonable estimate of compensable loss from the breach The FACTORS: the agreed damages must be reasonable in light of (1) anticipated or actual loss AND (2) difficulty of proving the loss Equitable Damages Point # 1: Specific performance & injunctions are forms of EQUITABLE relief, i.e., are forms of relief granted by a court sitting in equity (sometimes called chancery) Point # 2: What are the equitable remedies? aspecific performance (a mandatory injunction) DO your K duty --a decree from the court commanding a party to actually carry out its performance obligations under the K, in kind -- e.g., to convey Blackacre, or deliver the widgets promised, or the Rembrandt painting, or build a store, or whatever b.Injunction (negative, prohibitory) DONT do an act that violates your K duty a decree from the court commanding a party NOT to do something e.g., dont play basketball for the Heat if you promised to play for the Cavs (just kidding, Lebrons K with the Cavs was up), or dont sing for Covent Garden if you promised to sing for Her Majestys Theater (Lumley v Wagner) Point # 5: extrapolating on # 4 a common prerequisite to equitable relief is a showing that legal relief (again - money damages) is inadequate Point # 6: even proving inadequate legal remedies may not be enough aggrieved party may also have to prove that it will suffer irreparable injury in order to get equitable relief (although that might get folded in with the no-adequate-legal-remedy test) Point # 7: How tell if money damages are or are not adequate? Can you prove damages with sufficient certainty? Can you cover? (i.e., procure a substitute performance)

See, e.g., UCC 2-716(1) obtain specific performance of K for sake of goods if goods are unique (so obviously cant cover!) or in other proper circumstances (which Comments suggest may be due to an inability of buyer to cover) Can you collect damages? Point # 8: and EVEN if show irreparable injury & no adequate legal remedy, still arent guaranteed to win, b/c of possible competing interests, including: (1)Personal freedom & rights of association so no orders of specific performance of personal services K, ever! But note CAN get a negative injunction even for personal services (e.g., we cant make Johann Wagner sing for Her Majestys Theater, as promised, but we can enjoin her from singing for Covent Garden) Even though a consequence may be to put pressure on breacher to go ahead and perform voluntarily under the original K (2) Pain for the courts to supervise For example, may take a long period of time to perform, or performance may be complex (build a skyscraper), or it may be hard to tell if performance was satisfactory (go back to the singing case!) All of which is important both b/c of drain on the courts time & expertise and also b/c of fact that violation of equitable remedy is enforced by contempt (3) Violates public policy (4) Unfair In equity, courts more demanding that party seeking enforcement come in with clean hands and are more receptive to claims that the K is unfair or due to mistake, or duress, or whatever, than in actions at law

(5) Terms too uncertain to enforce specifically

EXCUSES

The basic premise of excuse here is that SOMETHING HAPPENED that the parties had not really expected to happen and which makes it really unfair to enforce the K and hold the non-performing party in breach Parties may be discharged from performing the contract if: performance is impossible, the fundamental purpose of one of the parties has been frustrated, and performance has become impracticable. If found not liable for breach -must not have the risk allocated to themselves The black letter law: see Restatement 261: 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 the language or the circumstances indicate the contrary. 1. Something happened 2. Not at fault 3. Basic assumption that it would not happen 4. Made performance impracticable or impossible 5. Not assume a greater obligation

Impossibility -destruction of subject matter -impossibility of intangible but essential mode of performance -death or illness Events that may make performance of the contract impossible include: Death or disability of a person indispensable to performance of the contract Destruction of the subject matter of the contract or other thing necessary for the performance of the contract, provided the destruction is not the fault of the party asserting impossibility Failure of a specific thing necessary for performance to come into existence Supervening governmental action that makes performance of the contract illegal Where performance would subject the party to potential harm Shortages or significant price increases in materials due to embargo or war Other circumstances that would involve "extreme or unreasonable difficulty, expenses, injury or loss."

Impracticability- performance would be infeasible from a commercial viewpoint UCC 2-615 Frustration of purpose- where a partys purpose in entering into the contract is destroyed by supervening events, most courts will discharge him from performing.

-foreseeability -totality If, after the contract is formed, circumstances arise which substantially frustrate a party's purpose in entering into the contract, the party's remaining duties are discharged, provided: 1) the party seeking discharge was not at fault; 2) the nonoccurrence of such event was a basic assumption on which the contract was made; and 3) the language or the circumstances do not prohibit excuse based on frustration of purpose. If the impracticability or frustration of purpose exists at the time the contract was made, no duty to perform arises where: 1) the party raising the excuse, without fault, had no reason to know of the facts giving rise to the impracticability or frustration; and 2) the non-existence of such facts is a basic assumption on which the contract was made. In general if a contract is found to be illegal the court will refuse to enforce it Duress- D can show that he was unfairly coerced into entering into the contract or modifying it -subjective standard is used for this Duress comes in two flavors: 1. Physical compulsion 2. Threat Type 1: Physical compulsion (Rest. 174) Much narrower than might think Literally means that one person physically forces another person to assent Example: A presents a K to B to sign. B refuses. A (who is a lot stronger than B) grabs Bs hand and manually pushes Bs hand through the signature Legal result: VOID K (not just voidable) no assent by B at all Type 2: Threat (Rest. 175-176) Almost all cases fall under this Three elements: 1. Improper threat (see 176) 2. Causation: threat actually induces victims assent

3. No reasonable alternative but to cave in to threat Legal result: K voidable Hard to obtain relief courts allow parties to bargain hard behavior really has to cross the line, BOTH in terms of the impropriety of the threat made AND the victim having no reasonable alternative 2.Much less bad than # 1, but still not very nice, AND resulting exchange is unfair note this is a close cousin of unconscionability See 176(2): A threat is improper if the resulting exchange is not on fair terms, and (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat, (b) the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or (c) what is threatened is otherwise a use of power for illegitimate ends. 1st: improper threat 2 types: 1.So shocking is improper whether or not the resulting exchange is fair. Threaten one of -a. Crime b. Tort c. Criminal prosecution d. Bad faith civil prosecution e. Breach of duty of good faith & fair dealing under a K e. Breach of contract. A threat by a party to a contract not to perform his contractual duty is not, of itself, improper. Indeed, a modification induced by such a threat may be binding, even in the absence of consideration, if it is fair and equitable in view of unanticipated circumstances. See 89. The mere fact that the modification induced by the threat fails to meet this test does not mean that the threat is necessarily improper. However, the threat is improper if it amounts to a breach of the duty of good faith and fair dealing imposed by the contract. See 205. As under the Uniform Commercial Code, the "extortion of a 'modification' without legitimate commercial reason is ineffective as a violation of the duty of good faith. . . . The test of 'good faith' between merchants or as against merchants includes 'observance of reasonable commercial standards of fair dealing in the trade' (Section 2-103), and may in some situations require an objectively demonstrable reason for seeking a modification. But such matters as a market shift which makes performance come to involve a loss may provide such a reason even though there is no such unforeseen difficulty as would make out a legal excuse from performance under Sections 2-615 and 2-616." Comment 2 to Uniform Commercial Code 2-209. However, a threat of nonperformance made for some purpose unrelated to the contract, such as to induce the recipient to make an entirely separate contract, is ordinarily improper. See Illustration 9. Furthermore, a threat may be a breach of the duty of good faith and fair dealing under the contract even though the threatened act is not itself a breach of the contract. See Illustrations 10 and 11. This is

particularly likely to be the case if the threat is effective because of power not derived from the contract itself. See Comment f. 2nd: no reasonable alternative EVEN IF one party makes an improper threat, still duress that makes K voidable unless the victimized party also had no reasonable alternative but to succumb to the threat. As a practical matter, cases tend to show that if a party makes some of the most egregious sorts of improper threats (esp. a crime, a tort, or a criminal prosecution) then courts inevitably find no reasonable alternative. If, however, the improper threat is a bit less outrageous, i.e., either the threat of a civil prosecution, or to breach a K, or those threats where you also look at the fairness of the resulting exchange to evaluate whether is even an improper threat at all, then it is often outcomedeterminative whether the victim did or did not have a reasonable alternative. In particular, a good rule of thumb is to ask whether is a reasonable alternative for the victimized party to just say no to the threat and then seek alternative recourse against the victimizer. This is especially true if the threat is to breach a K victim can sue breacher and get K remedies.

UNDUE INFLUENCE Now consider defense of undue influence, which focuses on unfair persuasion of the party now resisting enforcement of the K. In undue influence, the pressure that is brought to bear on the targeted victim is not, in and of itself, necessarily improper in the same sense as for duress. i.e., pressure alone may be less severe, and would not constitute duress. Rather, the concern is that the bargain is tainted because the pressure that is brought to bear works, and unfairly so, because the target is susceptible to being taken advantage of by the other party Can be susceptible either because: 1. Confidential relationship between the parties, or 2. Dominant / subservient status, considering all facts & circumstances Elements: (note that these are often phrased differently in various jurisdictions) 1. Susceptible victim 2. Unfair pressure

3. Causation induces assent Odorizzi v. Bloomfield School District (p. 448) What characteristics does the court identify as common to overpersuasion? Which were present in this case? Discussion of the transaction at an unusual or inappropriate time Unusual place Insistent demand that the business be finished at once Extreme emphasis on untoward consequences of delay Multiple persuaders No third party advisers Statements that there is no time to consult advisers or attorneys Misrepresentation- party can show that the other made a misrepresentation Elements of proof -Other partys state of mind (negligent or innocent misrepresentation will still work) -Justifiable reliance -Must be of fact not opinion Non disclosure- as a general rule, only affirmative statements can serve as the basis for a misrepresentation action. -If a party takes positive action to conceal the truth this will be actionable even though it is not verbal The Restatement introduces the misrepresentation defense as follows: A misrepresentation is an assertion that is not in accord with the facts ( 159). Concealment ( 160) and in some cases non-disclosure ( 161) of a fact are equivalent to such an assertion. A misrepresentation may have three distinct effects under the rules stated in this Chapter. First, in rare cases, it may prevent the formation of any contract at all ( 163). Second, it may make a contract voidable ( 164). Third, it may be the grounds for a decree reforming the contract ( 166). The most common of the three possible effects of a misrepresentation under the rules stated in this Chapter is that of making the resulting contract voidable. In order for this effect to follow, four things must be shown. First, there must have been a misrepresentation ( 159, 160, 161). Second, the misrepresentation must have been either fraudulent or material ( 162). Third, the misrepresentation must have induced the recipient to make the contract ( 167). Fourth, the recipient's reliance on the misrepresentation must have been justified. 164 When a Misrepresentation Makes a Contract Voidable

(1) If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient. Thus, elements are: 1. Misrepresentation 2. Fraudulent OR material 3. Induced assent 4. Justified reliance 1st: misrepresentation Defined: 159 Misrepresentation Defined A misrepresentation is an assertion that is not in accord with the facts. 2 things to note: (1) must make an assertion; (2) not in accord with facts at time of assertion 1st: what constitutes an assertion? 1. Obviously, a statement (either spoken or written) 2. Concealment possible 160 When Action Is Equivalent to an Assertion (Concealment) Action intended or known to be likely to prevent another from learning a fact is equivalent to an assertion that the fact does not exist. 3. Non-disclosure possible, but much more difficult usually no duty to speak 161 When Non-Disclosure Is Equivalent to an Assertion A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only: (a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material. (b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing. (c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part. (d) where the other person is entitled to know the fact because of a relation of trust and confidence between them.

2nd: Fraudulent OR material 2nd element is that the misrepresentation must be EITHER (i) fraudulent OR (ii) material Note that this means that you CAN get relief for misrepresentation EVEN IF the party who made the misrepresentation was totally innocent in doing so, if that misrepresentation was nevertheless material. But if the misrepresenting party acted with a fraudulent intent in making the misrepresentation, then there is no need for the deceived party to also show that the misrepresentation was material. Fraudulent defined: 162 When a Misrepresentation Is Fraudulent or Material (1) A misrepresentation is fraudulent if the maker intends his assertion to induce a party to manifest his assent and the maker (a) knows or believes that the assertion is not in accord with the facts, or (b) does not have the confidence that he states or implies in the truth of the assertion, or (c) knows that he does not have the basis that he states or implies for the assertion. Thus have 2 elements to fraudulent: (i) Intent to mislead other party and induce assent (ii) Scienter -- Mental state re falsity either actually knows is false, or knows he doesnt really know but doesnt let on Material defined: (2) A misrepresentation is material if it would be likely to induce a reasonable person to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so. 3rd: misrepresentation actually induced assent 167 When a Misrepresentation Is an Inducing Cause A misrepresentation induces a party's manifestation of assent if it substantially contributes to his decision to manifest his assent. Comment a: It is not necessary that this reliance have been the sole or even the predominant factor in influencing his conduct. It is not even necessary that he would not have acted as he did had he not relied on the assertion. It is enough that the manifestation substantially contributed to his decision to make the contract. It is, therefore, immaterial that he may also have been influenced by other considerations. Comment b. Criteria. Circumstantial evidence is often important in determining whether a misrepresentation has been an inducing cause. The materiality of the misrepresentation is a particularly significant factor in this determination. It is assumed, in the absence of facts showing

the contrary, that the recipient attached importance to the truth of a misrepresentation if it was material, but not if it was immaterial. The extent of a party's investigation also bears on the question of causation. If he relies solely on his investigation and not on the misrepresentation, he is not entitled to relief. 4th reliance was justified Barrers v Womens National Bank Trial court needs to decide if the misrepresentation was actually material because the facts suggest that bank might have given the loan anyway Kannavos v Annino A seller of real estate is not required to disclose defective conditions in the real estate. However, if the seller elects to make representations, he must disclose all material facts. Putting up advertisements that are misrepresentations Unconscionability -is the clause one sided, so unfair, that a court should as a matter of judicial policy refuse to enforce it. -UCC 2-302(1) Procedural- occurs where one party is induced to enter the contract without having any meaningful choice, circumstances leading up to the event Refers to the fact that one party was induced to enter the contract without having any meaningful choice, belief that one party will never fully perform the contract, knowledge that one party will be unable to receive substantial benefits from the contract, unable to protect by mental or physical infirmities inconspicuous print in the writing unintelligible legal language lack of opportunity to read the contract or seek clarification of terms illiteracy imbalanced bargaining positions (such as in adhesion contracts) Substantive occurs in the contract itself where the clause or contract itself is unduly unfair an one sided -Excessive price -Remedy meddling provisions that deprive one party of the benefit of the agreement or an adequate remedy for the other party's breach provisions that bear no reasonable relation to the risk involved

provisions that are substantially disadvantageous to one party without producing a commensurate benefit to the other party a great disparity between the cost and the selling price of the item that is the subject of the contract in absence of objective justification for such disparity Williams v Walker Furniture Appellants bought furniture from Appellee on credit and the K that they signed contained a provision which stated that the balance will remain due on every item purchased until the balance due on all items, whenever purchases, was liquidated. In case of default of payment, all the furniture on which balance is due will be taken back by the appellee. The appellants bought furniture in 1962 and defaulted on payment. They had also purchased furniture from appellee in 1957 on which they had some payment leftover. The appellee sought to replevy all the items purchased since 1957. The lower courts stated that the courts do not have the power to deny enforcement of Ks that are unconscionable. But this court ruled that the courts do enjoy this power. Congress has recently enacted the UCC 2-302 that specifically provides that a court may refuse to enforce a K which it finds to be unconscionable at the time it was made. Furthermore, courts refusing to enforce such Ks is not a novel concept. The court in Scott v. United States stated that: If a K be unreasonable and unconscionable, but not void for fraud, a court of law will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to As far as the K in this case is concerned, a new trial was ordered to determine whether the terms of the contract are so unfair that enforcement should be withheld. Mental incapacity -a person lacks the capacity to contract because of mental incompetence -he doesnt understand the contract -he understands it, but acts irrationally, and the other person knows he is acting irrationally The traditional test requires proof that the alleged incompetent not be able to understand the transaction (the cognitive test). Query whether also should allow avoidance if party understood transaction but could not control their actions (a volitional test) 1st: does the party have a mental illness which sufficiently affects their ability to give meaningful assent to the contract? 2nd: if answer to # 1 is yes, then ask whether avoidance of the K in favor of the mentally ill party would unfairly prejudice the other party? Consider, among other factors: Can other party be restored to the status quo ante? Did other party know or have reason to know of the mental illness? Is the contract fair? 15. Mental Illness or Defect

(1) A person incurs only voidable contractual duties by entering into a transactionif by reason of mental illness or defect (a) he is unable to understand in a reasonable manner the nature andconsequences of the transaction, or (b) he is unable to act in a reasonable manner in relation to the transactionand the other party has reason to know of his condition. (2) Where the contract is made on fair terms and the other party is withoutknowledge 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 inpart or the circumstances have so changed that avoidance would be unjust. In such acase a court may grant relief as justice requires. Public policy Some contracts are obviously illegal and unenforceable on public policy grounds And depending on how illegal, may not only refuse to enforce, may refuse to even order restitution. 178. When a Term Is Unenforceable on Grounds of Public Policy (1) A promise or other term of an agreement is unenforceable on grounds ofpublic policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against thee nforcement of such terms. (2) In weighing the interest in the enforcement of a term, account is taken of (a) the parties' 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) In weighing a public policy against enforcement of a term, account is taken of (a) the strength of that policy is manifested by legislation or judicial decisions (b) the likelihood that a refusal to enforce the term will further that policy, (c) the seriousness of any misconduct involved and the extent to which it was deliberate, and (d) the directness of the connection between that misconduct and the term. Plaintiff comes to UCLA to take advantage of a charitable research hospital. As a condition of admittance, signs a waiver of liability, limiting plaintiffs right to sue the hospital. Plaintiff claims the term should be void as a matter of public policy Whether a contract limiting hospital liability is enforceable Releasing liability is not okay if public interest is at stake. Factors to look at include whether or not the institution is subject to public regulation, whether the service in question is a crucial necessity, whether the hospital is performing the service on all members of the public who qualify, whether the hospital has a decisive advantage in bargaining and whether the signee is

placed in control of the negligent party. A hospital case falls into all of these categories and thus this term is against public policy. 16. Intoxicated Persons A person incurs only voidable contractual duties by entering into a transaction ifthe other party has reason to know that by reason of intoxication