Contracts

11/15/2010 3:38:00 PM CONTRACTS I. Elements of a Breach of Contract Mutual Assent-both parties to an objective person, intended to enter into an agreement Offer Acceptance Consideration-an exchange, quid pro quo, ―something for something else‖ Breach-one party must have done something that they weren’t allowed to do Remedies or Damages-If one party didn’t do what they were supposed to do, what do you do to make them whole? What we look at: Types of Law we look at: Common Law Treatises-Restatements-are not law, not binding, just persuasive U.C.C-Not federal law, because state law governs contracts and is widely accepted. It is written by law scholars on how they believe business transactions should be done All 50 states have accepted most if not all of it, with one exception, Louisiana Governs the sale of goods, but not services A breach of contract claim cannot be in federal court unless there is diversity of citizenship Code for state will mirror U.C.C.-ex. Wis. Stat. § 402.204(1) and U.C.C.-2-204(1) Types of Contracts Explicit/Express-clearly delineated Implied Contracts-ex. Buying something from a store (Stepp v. Freeman) Implied in Fact-the parties’ ―meeting of the minds‖ is shown from the surrounding circumstances including the conduct and declaration of the parties, which makes it inferable that the contract exists as part as a ―tacit‖ understanding harder to prove than expressed contracts Implied in Law-Legal fiction used to effect an equitable result Quasi Contracts-presumption that a contract is in place MUTUAL ASSENT Objective “meeting of the minds” Does not always have to be in writing or expressed offer and acceptance Necessary for an enforceable contract To determine if there is mutual assent, courts look to see if there is offer and acceptance If the offeror has clearly manifested a willingness to enter into a contract in a way that the other party knows that assent is all that is necessary to cement the deal, the contract is created. Express Contract

Lucy v. Zehmer-sued Zehmer’s for specific performance on a contract for the purchase of Zehmer’s farm. Rule: Based on whether an outside reasonable person would believe there is a contract based on the outward expression of a person manifesting his intention. Used the waitress to determine the interaction between the two parties Mutual Assent is not Subjective: Do not care about the subjective thoughts of the parties, only care what an outside reasonable person believes that there is a contract Ex-ante-induces people not to pretend to do something if they have no intent to do so. Court: For certainty and ease of administration Implied in Fact Stepp v. Freeman-lottery case Rule: The circumstances surrounding the contract make it inferable that a contract existed as a matter of ―tacit understanding.‖ ―Meeting of the minds‖ occurred from surrounding circumstances; a series of facts will lead the court to conclude that an implied contract existed. Stepp contributed regularly. He was an intricate part of the group. He had been previously covered by Freeman in other circumstances He was never explicitly told he was out of the group Freeman never expressed to anyone else that he wanted Stepp out of the group II. The Offer PFT Roberson v. Volvo-―fleet agreement‖ Had been in negotiations, but nothing was signed Volvo sent an email with items that they agreed upon and others which they had left undecided Email was 572 words Rule: ―Usage and Custom‖-Agreements like this are usually put into writing in this industry. The deals were never closed by email By sending a 572 word email, an objective reasonable person could not construe this as an offer, only an invitation To avoid liability: Make an invitation that says, ―This is not an offer‖ Solicitations Lefkowitz Δ put an ad for fur coat in the newspaper and told customers that they could accept by being the first person at the store. Plaintiff was the first person to the store but was told by Δ that the offer was for woman only Rule: Offer must be: Clear, Definite, and Explicit Must have Quantity, Price, and Time, Location

Must have quantity or no contract ever ―Bait and Switch‖-Advertisement of an item that the person does not intend to sell to get the person in their store. The federal trade commission prohibits this kind of behavior. Written Contract to Follow Continental Laboratories v. Scott Paper Co. Plaintiff argues that they had a binding oral contract with the Δ. Δ wanted to be bound by a written contract and showed evidence thereof. When a contract involves a lot of money, usually in writing Test: Whether a Contract should be in Writing Was the contract in the class that it needed to be in writing Need it be in writing for full expression? (Something that is complex in terms and issues) Few or many details Consideration amount, large or small (large, must be in writing) Common or unusual (if unusual, needs to be in writing) All things have been agreed upon (Agreed upon, then more likely to be in writing) Negotiations show the writing was discussed or contemplated (discussed, then should be in writing) III. Acceptance ProCD-whether shrinkwrap licenses were enforceable contracts even though they are not printed on the outside of the box U.C.C §2-204(1)-―Contract for the sale of goods may be made in any manner to show agreement including conduct by both parties which recognizes the existence of the contract.‖ ―Vendor is the master of the offer..‖ Controls the offer, but has to make it clear what constitutes acceptance Zeidenberg had the opportunity to refuse the license agreement (the offer) and his bypass was the acceptance. Manifesting Assent Restatement of Contract (not law, just persuasive) of 50 Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in manner invited or required by the offer. Acceptance by performance required that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise Acceptance by a promise requires that the offeree complete every act essential to the making of the promise. Beard Implement Co. v. Krusa Because plaintiff ―dealer‖ never signed the purchase order, no contract existed. Counter check as down payment was unpersuasive.

The purchase order was an invitation from Beard Offer-signed purchase order from Krusa Acceptance-Beard’s representatives signing the p.o., which never happened Disclaimer on the p.o that it wouldn’t become binding until accepted by the dealer Court: Sites U.C.C §2-206: ―Offeror I the master of his offer.‖ Holding: Because Beard was the ―master of his offer‖ they set out the mode of acceptance in the disclaimer, and the signature was the only acceptable mode of acceptance. Ex-Post (This case)-Beard would say from now on: ―This is an offer‖ Acceptance By Conduct Fujimoto v. Rio Grande Pickle Co. Two employees demanding more compensation Company orally agreed to pay more and sent contract which they didn’t tell them how to accept (or if they needed to return the contracts) They signed the documents and kept them Offer: The contracts from the company indicating the salary and their bonuses Acceptance: by their conduct Plaintiff were considering quitting but they got the offer and changed their behavior Common Law: Services, not under U.C.C. Rule: If offeror specifies no mode of acceptance then the law requires no more than that mode that should be adopted is the mode that is in accord with the ―usage and custom of men in similar cases.‖ If the overt act clearly expresses an intention to accept there is an effective acceptance. Compare Bear and Fujimoto Krusa, unambiguous because they made it clear with disclaimer Fujimoto, ambiguity on how to accept because they didn’t indicate how to accept Silence as Acceptance Day v. Caton Payment for wall built Rule: If a party voluntarily accepts and avails himself of valuable services rendered for his benefit, when he has the option to accept or reject them, even if there is no distinct proof that they were rendered by his authority or request, a promise to pay for them may be inferred. Caton stood by silently watching Day build the wall and he knew he would end up using the wall Offer-Day offering to build the wall Acceptance-Since Caton had knowledge, he accepts by silence Mode of Acceptance Davis v. Jacoby

Whitehead invites the Davises to help him with his business affairs. They had a longstanding close relationship with the niece before Mr. Whitehead committed suicide due to stress and anxiety Rule: In cases of doubt, a bilateral contract should be assumed rather than the formation of 1 or more unilateral contracts by actual performance on the part of the offeree. Offer: If the plaintiff would come and take care of his wife and take care of his finances, Carol would ―inherit everything‖ Mode of Acceptance: he said: ―Will you let me hear from you soon?‖ Court: Says it’s a bi-lateral contract, and that the plaintiff accepted by the letter of April 14th., they accepted by the mode of acceptance that the offeror had indicated so it was sufficient. Acceptance: Sent a letter that they accepted They performed their part of the contract by managing their finances and caring for Blanche Δ was trying to argue that it was a unilateral contract, money on a condition of a promise Termination of the Power of Acceptance L-Lapse in Time(Loren v. City of Boston) I-Incapacity/Death (Davis v. Jacoby) R-Revocation R-Rejection Long Island Rail Road Revocation by Offeror Dickenson v. Dodds If a person knows that an offer has been revoked or sold to someone else, then it is too late to accept it. General Rule: If an offeror make an offer and says they will keep it open for a certain amount of time, they are not bound to do so. Exceptions: Doctrine of partial Performance-Once one party begins to perform, must give them a ―reasonable amount of time‖ to perform and you cannot revoke An Option Contract-the offeree is generally paying money as a form of accepting a promise to keep offer open for a period of time. Ie. Down payment ton an apartment, can be in original contract or separate contract U.C.C. §2-205-―Firm Offer Rule‖-Sale of Goods-If there is a written sale of goods between merchants, and offers to keep the offer open for 90 days, then the offer must remain open for that amount of time, but can never be more than 90 days. Compare to Lucy v. Zehmer-there was an offer and acceptance

In this case, there was an offer, but the plaintiff sold to a third part, a form of revocation, and then there was acceptance, which is no longer valid because there was no longer an offer. Petterson v. Pattberg Paying off a mortgage Offer: The Δ wrote the plaintiff agreeing to accept cash for the mortgage if paid by a certain time Acceptance: No acceptance because he didn’t actually perform. Rule: Williston on Contracts 60B: The offeror may see the approach of the offeree and know that acceptance is contemplated, if the offeror can say ―I revoke‖ before the offeree accepts however brief the interval of time before the acts, the offer is terminated. Revocation Partial Performance Marchiondo v. Scheck Δ offered in writing to sell real estate to a specific buyer and agreed to pay a % of the sales price as a commission to the plaintiff, with a 6 day time lint for acceptance. Δ revoked the offer in writing and plaintiff received it on the morning of the sixth day. Presumably, plaintiff had put effort into procuring a buyer. Later that day Δ received acceptance from the plaintiff. Issue: If the Δ had the ―right‖ not the ―power‖ to revoke his offer (the broker’s agency), on a unilateral contract, when the plaintiff partially performed Rule: Offeree’s partial performance before Δ received her acceptance, constitutes an acceptance of the offer and constitutes a binding contract. Restatement of Contracts §45: Where an offer invites an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree begin the invited performance or tenders part of it They have to allow a ―reasonable amount of time‖ to complete performance Lapse in Time Loring v. City of Boston The city puts out an advertisement for reward for the capture of arsonists The plaintiff waited three years and eight months to act on this reward Couldn’t collect from the city Rule: The offer of the reward was considered an ―offer‖ but he didn’t accept within a ―reasonable amount of time.‖ Court: Said that the offer had to be notorious and known by the general public and in this case 3 years and 8 months was not reasonable, because the civic crises was over. The offer ceased before the plaintiff accepted and no contract existed Risk of Loss Phillips v. Moor

Holding: They had a contract and had agreed upon the specificity, the price, and quality of the goods, and quantity, all they needed was somebody to pick it up without any further action on the part of the seller. When all terms of a sale have been agreed upon, including receipt by the vendee, risk of loss passes to the vendee If the terms asked for delivery by the vendor, risk of loss does not pass until delivery because the goods sold cannot be identified completely until receipt. Termination by Death or Incapacity of the Offeror or Offeree Davis v. Jacoby Wanted it to be a bi-lateral contract, accepted it before Whitehead died, can only revoke before acceptance Bi-lateral-promise for a promise, the contract had already been formed by the time he died Restatement: An offeree’s power of acceptance is terminated when the offeree or offeror does or is deprived of legal capacity to enter into the proposed contract. Termination by Rejection Restatment: An offeree’s power of acceptance is terminated by his rejection of the offer, unless the offeror has manifested a contrary intention. The “Mail Box” Rule Morrison v. Thoelke Revocation after mailing He accepted the contract because he mailed his acceptance An acceptance is effective when it is posted even though a subsequent rejection is actually received before the acceptance ―Right‖ v. ―Power‖ theme Power is an agency term-you can give the power to it and take it away Rights are a concept under contract law, don’t have the right to rescind acceptance Exception: When the offeree has paid money to create an option period for acceptance the mail box rule doesn’t apply. The acceptance must be received within the option period to be effective. ―Custom and Usage‖-It has always been this way, don’t want to change the mail box rule Courts: Want to maintain certainty and confidence, so they choose to continue the rule as it has always been applied. Rejection by Offeree “Mirror Image Rule” Livingstone v. Evans

The Δ wrote to the plaintiff offering to sell him land for 1800 and the plaintiff sent back a letter saying ―send lowest cash price‖ ―Will give 1600‖ (counteroffer), goes under the mirror image rule as a rejection Evans replied with: ―cannot reduce price‖ (which was a renewal of the offer) After this, replied that he would accept the original offer (acceptance here) Restatement: Accept with option contracts, if they counteroffer than it’s a rejection. Mirror Image Rule (common law): Acceptance must look like the offer and not try to change it in any way. If the acceptance tried to change terms in any way, it’s a counter offer, its rejection. The Original Battle of the Forms Commerce & Industry. Co. (Malden Mills) v. Bayer Co. Insurance company of Malden Mills sues Bayer because of faulty product Arbitration Provision: Malden Mills had the arbitration provision, and was their entire agreement none withstanding anything that the other party said, offer/proviso. But, Bayer had terms of their own saying that they weren’t going to accept additional terms. They cancelled each other out. Proviso: If they conflict, go to 2-207(2) But if the proviso is put into the accepting document, turn to 2-207(3) HOW TO READ OLD UCC: If (1) says there IS a contract, go to (2) If (1) says there is NOT a contract but there is a shipment of goods and acceptance of them, go to (3) Common Law Rule: Insisted on the "mirror image" rule: the acceptance must look exactly like the offer and must not try to change it in any way. If the "acceptance" tried to add new terms not already implied in the offer, it was no acceptance at all, but instead a counteroffer. Offer and Acceptance=Mutual Assent Original Version of U.C.C. Sec 2-207: Gets rids of the "mirror image rule". Subsection (1) tells us that acceptance need no longer match the offer exactly. As long as the acceptance is meant to be an acceptance, it may contain new or different terms. Then, regarding the new terms, subsection (2) allows them to become part of the contract unless the original offeror objects to them or they would materially alter the original offer. (subdivided one way for merchants and one way for non-merchants)

Subsection (1) creates a proviso "provided that if" language and use of it makes a dramatic result: -If the seller makes it clear that no acceptance is intended unless the buyer specifically agrees to the seller's terms, no contract is formed. The seller has thus made a counteroffer. If the buyer says nothing and the goods are shipped..then (3) Sec. 2-207, creates the contract. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale… Battle of the Forms under the 2003 Revision of Article 2: (only half the courts have accepted this revision) -Gone is mention of the proviso as well as the rules of old subsection2. Instead Sec.2-206 (3) now contains the statement that avoids the common law mirror image rule: (3) A definite and seasonable expression of acceptance in a record operates as an acceptance even if it contains terms additional to or different from the offer. The "knockout" rule under U.C.C. Sec. 2-207 cmt. 6: Advocates of the knockout rule interpret Comment 6 to require the cancellation of terms in both parties' documents that conflict with one another, whether the terms are in confirmation notices or in the offer and acceptance themselves. This is the majority favorite. What is not in here: Nothing between merchants Makes no distinction between the forms conveying offer and acceptance 122 Terms of the contract include terms that appear in the record of both parties. "Knock out" everything else if both parties have not agreed to it. -if only one form has the agreement, and they both accept it, it’s binding.

COMMON LAW MALDEN MILLS Not applicable – sale of goods

OLD UCC There was NO CONTRACT based on the forms (§2207(3))

NEW UCC §2202 (1) conduct by both parties– shipping, receiving and paying for goods establishes a

contract (2) offer/acceptance yes (3)any of the following: (a) terms of both parties records become contract – K.O. arbitration clause not in both forms (b) Terms parties agree on – K.O. didn’t agree to arbitration (c) terms incorporated under this Act - not applicable NO CONTRACT KLOCEK Not applicable – sale of goods There is a contract under §2207(1) Additional terms only ―proposals‖ and subject to acceptance §2207(2) NO CONTRACT §2202 (1) conduct – yes Gateway shipped the computer and Klocek kept it (2) offer/acceptance – yes, purchase order was offer and Gateway’s letter was acceptance (3) any of the following: (a) records of both parties – no arbitration clause in records of both parties K.O! (b) both parties did

not agree to arbitration K.O.! (c) terms incorporated under this act -not applicable K.O.! NO CONTRACT The very last thing that has to happen before it’s a done deal is OFFER to conclude MUTUAL ASSENT The biggest difference between old and new UCC is between merchants Indefiniteness General Rule: No mutual assent exists and thus no contract is formed unless the agreement of the parties is sufficiently certain. Corbin on Contracts: A transaction is complete when the parties mean it to be complete. They may not give verbal expression to price, time and place for delivery, time of payment, amount of goods, but they may have still agreed to them. UCC 1-205 and 2-208: Look at the following matters: Usage of trade, custom within any given industry Course of dealing, parties conduct and past transactions with each other Course of performance, what they do while performing this one contract (practical construction in common law) Walker v. Keith Mirror Image Rule Rule: The offer must be: Clear, Definite, Explicit Need to look at: length of the contract and, Terms Common Law Rule: Nothing in common law says what is clear, definite, explicit enough, but LEASES must require a formula for price If UCC applied then would be: Requires Mutual Assent However, it has always been more willing than common law to fill in blank terms, unlike Walker v. Keith, the UCC explicitly has provisions, only one term that is absolutely needed is quantity i.e. a number, output requirement, or seller will sell to buyer all that the buyer needs The renewal option for a lease was written with terms that left it open for future consideration Courts want certainty in agreements. You can leave it open for future consideration as long as you put a method of determining the amount. i.e. a fixed equation, $1,000 a year then goes up by $50.

The most important parts of the contract need to be explicit, or the contract is not binding. The court can fill in the gaps for small things, but the rent is material to the contract, so the equation needed to be in the contract. Specific Performance Rego v. Decker Compare to Lucy v. Zehmer, specific performance Rule: ―A contract must be reasonably definite and certain to its terms.‖ Security: Compare to Walker v. Keith, this term was only a small term in the contract. Walker, price was the essence of the contract. A greater degree of certainty is required for specific performance Consideration Quid Pro Quo-Something for something else Performance or returned promise Must be bargained for The performance may consist of: An act other than a promise Forebearance The creation, modification, or destruction of a legal relation Promise to act Forbearance Hamer v. Sidway Unilateral contract-promise for an action Nephew forbeared, gave up a legal right Giving up a legal right=consideration, if there was meeting of the minds Adequacy of Consideration Batsakis v. Demotsis Sufficiency: Offer and consideration must have value in the eyes of the law (this is the one the court looks at) Adequacy: Quantity of the amount exchanged Adequacy presumed because the parties entered into the contract Demotsis borrows money from Batsakis, $25 dollars in American money, but offers to give back $2,000 General Rule: Not looking into whether it’s a fair deal or there is adequacy, is there a good faith quid pro quo? Quid pro quo: Batsakis gave up 500,00 drachmas and Demotsis gave up $2,000 dollars at a later time so he could have the money up front (he was in financial distress) Moral Obligation for Consideration Schell v. Nell

There was an agreement between Shnell and the Δ on behalf of his wife. He offered to give money to the Δ, in return, they agreed to pay the Δ one cent, and the Δ would not sue him. The penny acts as a gift: merely nominal. It had no value in the eyes of the court. If he had offered an Indian penny, the courts may have found consideration. Wife had the intent to leave money, so husband felt he had a moral obligation. The Δ had cared for her but this was insufficient in the eyes of the court, considered past consideration. If Mr. Schnell had real liability with his ―abstain from suing my estate in the future..‖, then the court might have regarded this as consideration, since he did not, they rejected this.

Option Contracts Forbearance as Consideration Fiege v. Boehm 50/50 chance he is the father, paternity case Bonafide question between the parties Must be in good faith When there is a good faith promise not to sue a party and an objective outside person would find the party may be liable, there is consideration. However, the promise not to sue another party where the objective person knows that the person is not liable, is illusory. The Illusory Promise Wood v. Lucy, Lady Duff-Gordon Cardozo Rule: Exclusive agent has an implied obligation to use best efforts to make sales. If you presume it to be there, the contract is not illusory. The acceptance of the exclusive agency was an assumption of its duties The Δ gave exclusive privilege to the plaintiff, she forfeited the right to market her own product 2 good faith interpretations, court lead towards making a valid contract (look at the parties intent to contract) Sylvan Crest Sand & Gravel Co. v. United States Compare to Beard Implement v. Krusa Both parties were acting in good faith The acceptance said they would accept the offer and deliver within a reasonable amount of time. Takeaway: Comparison between Lady Duff and Sylvan

Quid pro quo is not based only on expressly stated terms there certain implied terms in every contract unless the contract says otherwise. Exclusive agency-use reasonable best efforts as an agent-part of consideration Implied obligation of good faith-will only be read to imply good faith-must be conducted in good faith and fair dealing-it would be absurd to read it otherwise McMichael v. Price Price was an experiences sand salesman and his anticipated future requirement was realistic Mutuality of obligation, both parties must be bound or neither party is bound Corbin on Contracts §156: A promise to buy of another person or company all of some commodity or service that the promisor may thereafter need or require in his business is not an illusory promise, there is sufficient consideration for a return promise, even though the amount to be delivered cannot be determined, if there is a sufficient objective standard to enable a court to determine the amount when the time comes. Mutuality of obligation is only in bi-lateral contracts Past Consideration Hayes v. Plantations Steel Co. Seasoned worker wants to retire with pension Promissory estoppel Plantations promise was a token of appreciation, Hayes didn’t rely on it because he had stated he was going to retire regardless. If he had initially told Plantations that he would retire on the condition that..then there would have been consideration General View: Past consideration is not consideration Mills v. Wyman Father promises to pay caretaker of son while he was ill and on leave from duty, but renegs Plaintiff argued that he provided services to the son based on the promise of the father to pay him, but he took care of the son after the promise was made, so no consideration. Moral obligation is sufficient only when there is an agreement beforehand (pre-existing obligation) Court thinks Big Wyman is morally incorrect Restatements: Promise to pay an antecedent contractual or quasi-contractual indebtedness owed by the promisor is binding if the debt is still enforceable. Webb v. McGowin General View of Moral Consideration: See Mills

Guy drops block and sees guy underneath him, so he falls with the block to help avoid an injury and sustain severe injuries, the man below offered to pay him for the rest of the injured man’s life, in return. When he died, his estate stopped making payments Mills: McGowen promised to pay him and he did, Wyman promised to pay and then didn’t, period of time between when act was done and when promise was given Past consideration + a moral duty+ promise to do something + a strong benefit=consideration Life and preservation of body have monetary value Moral obligation is sufficient consideration to support a subsequent promise when the promisor receives a material benefit Preexisting Duty Rule Harris v. Watson Seaman aboard ship Had a pre-existing duty to be on the ship and do whatever it took to defend the ship and its contents Stilk v. Myrick Seaman again Moved away from Harris But still had a pre-existing duty If you have a pre-existing duty to do something you can’t claim consideration, started as a public policy then moved to consideration Lingenfelder v. Wainwright brewery Co. Refrigerator system, man got jealous that his competitor was hired, and company offered to pay 5% more to finish his job Already under contract to do this so no consideration Compare to Fujimoto, not contracted workers (at-will workers) Past Due Monetary Debts Clark v. Elza π and ∆ came to a settlement after being hurt π tried to renege on the settlement agreement because he went to the doctor and had worse injuries Courts will err in upholding a settlement, binding settlement agreement because there was consideration Promissory Estoppel Main Consideration Substitute, Restatement §90 Claim Promissory Estoppel as Consideration Substitute Allegheny College v. National Chautauqua Bank Allegheny College gets a scholarship from Johnston, Johnston says use the grant for a memorial fund (religious reasons) and paid 1,000 (offer). They took the money

(acceptance), but she tried to renege before her death. Once she died the executor doesn’t want to pay the remaining balance. Court is looking to establish consideration. Restatement 90 (First Restatement)-Promise Reasonably Inducing Definite and Substantial Reliance A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. Promise Reasonable expectation of reliance Definite and substantial on part of promise which actually induces reliance Greatly unjust to not enforce it 2 Restatement: adds any 3rd person can bring promissory estoppel, (2) a charitable subscription/marriage settlement without proof that the promise induces reliance Every state either defines promissory estoppel for itself, or it doesn’t follow it at all Universal Computer Systems v. Medical Services Assoc. of Pennsylvania (Blue Shield) Blue Shield solicited bids for a computer and Universal responded that they could build it but they didn’t want to send it via courier and so Wilson (Universal) asked Gebert (Blue Shield) if they would pick up the bid from the airport and Gebert agreed. They sent the bid overnight and then Gebert reneged and said he wouldn’t pick it up Universal tried to get a courier and it was too late so they missed a deadline ∆ was trying to say that even if they had gotten the bid in they would not have definitely won. π said that because their bid was substantially lower they probably would have Gebert may have had apparent Test: A man of ordinary prudence diligence and discretion would have a right to believe and would actually believe that agent had authority he purported to exercise Holding: for π GENERAL RULE: No consideration because Gebert just made a promise which is not generally binding HOWEVER, Court relies on Restatement §90 (Promissory Estoppel) There were federal regulations that governed the bidding process however, Universal had no indication from the original bid (invitation) that they lacked authority Reasonably relied on Gebert’s promise to pick up the bid NOT THE GENERAL RULE: Once mutual assent is met, EXTREME reliance can be used to establish consideration even with a promise PROMISSORY ESTOPPEL SUMMARY COMMON LAW: The 2nd element of Breach of contract has long been consideration and nothing else

The 2nd element is still consideration and nothing else UNLESS: In cases like Allegheny after passing of Restatement §90 Some courts adopted dicta from Allegheny and have set out a narrow range of circumstances ELEMENTS OF PROMISSORY ESTOPPEL Even if there is NO CONSIDERATION we will still recognize a promise if: Intended to induce reliance Promise actually relied upon There would be a great injustice if the promise was not enforced Contractor/Subcontractor (No Mutual Assent) Contractor/Subcontractor relationship is unique because sub’s offer is generally not accepted until contractor gets a bid HOWEVER: Contractor prepares information based on sub’s bid and it will affect profits of contractor James Baird Co. v. Gimbel Bros. ∆ (subcontractor) sent a bid to π (contractors) likely to big on a project offering to supply all the linoleum needed. ∆ estimated wrong and the price given was underestimated by 1/2. π received the letter the same day and bid on the main contract based on the price given. ∆ later realized the figures were wrong and withdrew the offer after π bid. π won the bid and accepted the offer and ∆ refused to recognize original price GENERAL RULE: The contract was revoked prior to acceptance and so there was no mutual assent 3 WAYS OFFER CANNOT BE REVOKED: Partial Performance Option Contract Baird could have made a separate option contract ie: If you give us X amount of money we will keep the offer open for X amount of time ―Firm Offer Rule‖ (UCC) Baird could have said this is a ―firm offer‖ which is between merchants and must be signed NONE OF THESE APPLIED = NO MUTUAL ASSENT π said that even though there was no bilateral contract PROMISSORY ESTOPPEL applies Holding: for ∆ LEARNED HAND ∆ offered to deliver the linoleum to π and they never accepted the offer No mutual assent so the court stopped and said that promissory did not apply because you have to have mutual assent first No consideration either

It would be unfair to subcontractor to invoke promissory estoppel because the contractor could find another subcontractor but the subcontractor would be bound to the contractor Branco (contractor) v. Delta (sub) π sued ∆ for refusing to install a roof on a building renovated by Branco. Branco bid on a building that was going to be renovated and Delta’s was the lowest bid. Branco called Delta to confirm the bid and told Delta that they were waiting to get certification or get special roofing applied. They couldn’t get special certs or the alternative roofing and didn’t build the roof. Branco told Delta they were relying on their bid. Branco relied on Delta’s promise to build the roof The court treats the phone call between π/∆ as a Firm Offer (Mutual Assent) When there are blank areas of the UCC the court will fill in gaps based on custom and usage ONLY APPLIES IN MO Not changing Firm Offer Rule but just saying that the Contractor/Sub relationship is unique and requires a different view of offer and acceptance Holding: for π Delta gave them a promise with the intent of having Branco rely on it Branco reasonably relied to their detriment when Delta did not perform THERE IS PROMISSORY ESTOPPEL

PROMISSORY ESTOPPEL AS A SEPARATE CLAIM FARTHEST LIMITS OF PROMISSORY ESTOPPEL Hoffman v. Red Owl π wanted to expand franchise and Red Owl made him move to a new store, he sold his business and they kept giving him one more thing that he needed to do before he got his new store. They told him to get a loan from father-in-law and he had to have it in writing that it was just a gift and he finally said no. TRADITIONAL CONTRACT LAW: No mutual assent, no acceptance just a lot of promises They didn’t have it in writing and it was a big complex transaction, NO MUTUAL ASSENT They had just negotiated up until that point and Hoffman kept doing what Red Owl told him to do with the expectation that they would reach an agreement The court have discretion here and to make a promissory estoppel claim the court has to make a policy decision Court makes it clear that this is NOT A BREACH OF CONTRACT CLAIM SEPARATE CLAIM FOR PROMISSORY ESTOPPEL Holding: for π

Great injustice would be done if there was not a remedy to the π π cross claim for loss of profits: DAMAGES: In promissory estoppel, damages should only be enough to avoid injustice to the π It can be the promised amount or less but never more than that COMMON LAW (BREACH OF CONTRACT) No such thing as a claim based on Promissory Estoppel Consideration substitute CONTRACTOR/SUB RELATIONSHIP Can use promissory estoppel and maybe have to be more lenient with offer/acceptance (Baird) RESTATEMENT §90

Promissory Estoppel can be used as it’s own separate claim and supplant elements of traditional contract ONLY IF: There would be a great injustice if the promise was not enforced (Red Owl)

DAMAGES At the end of a complaint π must put a ―prayer‖ for damages 3 TYPES OF DAMAGES: Extraordinary Relief – ie: Injunction Specific Performance – ie: Lucy v. Zehmer Declaratory Judgment – Declare parties’ rights (binding) The goal of contract damages is make the aggrieved party whole 3 Principle Purposes Restitution – π has reliance on the contract and the ∆ promise infers some value on the ∆. If the ∆ fails to perform his promise the court may force the ∆ to disgorge the value received from π Want to prevent unjust enrichment Don’t want ∆ to benefit from π contribution without having to pay for it Reliance – π relied on promise and changed their position ie: Buyer under contract for land has incurred expenses in investigating title to the property or has forebeared the right to enter into other contracts Expectation – What π would have gotten if there had not been a breach v. what you got (Hawkins) Difference between WHAT YOU EXPECTED AND WHAT YOU GOT.    Having a Hairy hand- $50,000 Having a perfect hand- $100,000 Having a scarred hand- $10,000



Gets $90,000

EXPECTATION DAMAGES MEASURING EXPECTATION DAMAGES Hawkins v. McGee Hairy hand case. Doctor made a warranty that he would have a perfect or 100% good hand and he ended up with a hairy hand. Worse off than he was before. Theories you can sue on: Tort – Compensatory (to return π back to original state, difference between where he stood when he came out and where he stood when he left) Tort damages are generally higher and the preference because you can get punitive damages which are rare in contract cases Contract – Enforcing the promises the parties have made to each other Most frequent: Specific Performance Expectation Damages Contract Tort Perfect Hand-------------Burned Hand  Hairy Hand Holding: for π Because the doctor made a warranty he was liable for expectation damages If Dr. said ―there is a chance this might not work‖ he would have been ok Value Rule v. Cost of Performance Peevyhouse v. Garland Coal π had land that they had coal deposits and leased it to ∆ to mine for 5 years. The consideration was that π would get money but ∆ agreed to perform restorative work at the end of the lease. At the end of the lease period the land was only worth $25-29k. ∆ did not do it because it would be more expensive to keep their promise and the land value had depreciated. Cost of Performance Rule v. Value Rule ∆: Cost of Performance : Want them to pay for cost of performance π: Value Rule: total difference in market value before v. what it was worth after Work would only increase value of property by $100 and damages should be limited to that amount Provision for supplemental work by ∆ was incidental Since it was incidental damages were limited to what the lessor may recover in diminution of value resulting from default

GENERAL RULE: Cost of Performance theory is used but if the value of the property is disproportionately low as it was in this case, the court will use the Value Rule Holding: for π It would be a waste to make ∆ pay $2,900 when the loss of value was limited to the $300 In the contract it should have said that ―If you don’t restore it you have to pay X, irrespective of value or cost this is MATERIAL to the contract and is required‖ Diminuition of Value v. Cost of Repair Sea Colony v. Carl Freeman Assoc. ∆ designed and constructed a highrise condo and π is the HOA and is suing because there are defects in sliding glass doors and concrete balconies π: Full cost of repairs – cost of construction and completion per the contract if possible and doesn’t involve economic waste ∆: Dimunition of Value – “Useful Life Theory” ie: If an element of construction had a useful life of 20 years and after 15 it was found to be defective and ∆ had to replace it, 75% of its ―useful life‖ would have been lost and π would get a windfall Trying to prevent π from getting a windfall Used generally when there is a huge different between restorative cost and diminished value Holding: for π The π can recover full cost of repair because the components were defective from the beginning and they never had any useful life SUMMARY GENERAL VIEW: Cost of performance is what is awarded Hawkins – difference between what is promised and what is received even if it’s ridiculous EXCEPTION: Peevyhouse – Contract not fulfilled by 1 party and the value of performing is minimal and the costs are huge VALUE RULE Sea Colony – Even if the cost is more than the value some courts feel the performance theory is appropriate RELIANCE Sullivan v. O’Connor π (actress) went in for a nose job and ended up with a bulbous asymmetric nose. Doctor gave her a WARRANTY that he’d give her a beautiful nose. GENERAL RULE: Expectation damages (Hawkins) Expectation damages couldn’t be calculated because beauty is unquantifiable and uncertain

Holding: Cannot recover expectation but can recover RELIANCE (what you had v. what you got) Tort-like damages grounded in contract theory Ex Ante: Don’t want doctors to make false promises DAMAGES IN ORDER OF PREFERENCE (1) EXPECTATION What you were promised v. what you were got PREFERRED (2) RELIANCE What you had v. what you got PUBLIC POLICY: ie: statements of optimism by a Dr. Don’t want doctors to make false promises When expectation can’t be calculated (3) RESTITUTION RARE Punitive Trying to punish the breaching party

Anglia TV v. Reed π hired reed to play a lead character in a store and hired production crew and everything. Then Reed was double booked and 2 days before production was to start he reneged. π couldn’t calculate lost profits so they couldn’t get Expectation damages because they didn’t know what their profit would have been Claimed Reliance damages for wasted expenditure GENERAL RULE: Expectation Damages At the time of the contract π reasonably believed they would get profits from the TV show If π claims wasted expenditure they can claim expenditures that they incurred before they entered into the contract with ∆ Must be reasonably contemplated by the parties that the expenditures would be wasted if the contract is breached The court found that ∆ knew that if he broke it the π would lose money Has to pay for the money the TV station is out of even before they hired him THIS IS MINORITY VIEW IN THE US AMOUNT REWARDED (REGARDLESS OF THEORY) MUST BE: (1) Certain (2) Foreseeable (3) Unavoidable

ALL 3 MUST BE MET OR DAMAGES ARE LIMITED Trojan Horse Hypo H’s contracting company agreed to build a horse for Troy parade. H agreed to build the horse for $24k, and the cost to build it was $20k. After working for 3 mos and expending $15k the horse was 3/4 completed. Troy told H to stop construction on the horse. Troy had already paid her $5k but refused to pay any more. Helen can sell the horse for $2k, what is the loss of EXPECTATION DAMAGES (PROFIT = REVENUE – COST) PROMISED GET Revenue Costs Revenue Costs $24k $20k $5k (Troy) $15k $2k (Salvage) -----$7k TOTAL PROFIT: $(8,000) $4,000 PROFIT:

$4000,00 (promised) - $(8,000) (received) = $12,000 LIMITATIONS ON RECOVERY OF DAMAGES CERTAINTY Freund v. Washington Square Press π (author/professor) sued ∆ for breach of publishing contract when they did not publish his manuscript. IN CONSIDERATION: π agreed to a $2k advance ∆ could terminate within 60 days, otherwise they would publish within 18 mos in hardbound. ∆ merged with another publisher and stopped printing in hardbound and did not exercise 60 day cancellation period. Refused to print it at all and π sued for specific performance. (1) delay of academic promotion (2) making his own publishing arrangement (3) loss of royalties Holding: Royalties weren’t certain enough because the π didn’t have a pattern of sales Nominal damages ONLY Reduced damages to $.06 (nominal) GENERAL RULE: Losing party does not pay court costs unless there’s fraud or malicious conduct UNLESS: Parties agree in the original contract that the parties pay for court costs. π did not lose, he just didn’t recover that much in damages DETERMINING PROFITS FOR A NEW BUSINESS

Humetrix v. Gemplus π (healthcare consultant) ∆ (manufactures smartcard). Contracted with eachother to provide the smartcard to US healthcare market. Employee at Gemplus found out that π had registered a trademark for Vaccicard but they had a French trademark. Gemplus finds another subsidiary (replaced Humetrix) and stopped negotiations with π and ignored them. Humetrix has started getting contracts and performing. ∆ said that the lost profits was speculative and uncertain for a NEW BUSINESS Holding: If business can show reliable proof of profits there is no reason to deprive it of its profit Humetrix has actually been in business for several years Contracts were already in place that an economist could look at Compare to Freund: thought they were just making up numbers, in this case there is enough to get to a jury FORESEEABILITY Hadley v. Baxendale Mill crank case. The mill took a crank to the ∆ and asked them to fix it but did not let them know about the ―special circumstances‖ and did not deliver it to them as promised caused mill to stop working. It was not foreseeable by the ∆ that by their failure to deliver the crank to π that their entire mill would stop working π should have notified them of the special circumstances 99.9% of the time people would have a backup and the ∆ could not have foreseen it Why should damages be FORESEEABLE? PUBLIC POLICY: Economic – wouldn’t be worth it to do business if you had research all the facts and ask a ton of questions RULE: Where 2 parties have made a contract where one party has breached the damages should be limited to what can be conceived: Naturally (usual course) What was in the original contemplation of the parties at the time of the contract being made as a probable result of a breach AM/PM v. Atlantic Richfield π was given diluted gas by Atlantic causing people’s cars to breach down and lose profits, during gas crisis 3 TYPES OF LOST PROFITS (Consequential/Good Will): Primary – what he would have earned without a breach v. what he earned with the breach π could show they did not buy their gas in the time frame when they were getting diluted gas Secondary – ie: If you sell tires, hubcabs would be secondary

Foreseeable that there would be a drop in secondary profits (ripple effect) Good Will Damages – Customers are so disgruntled that they patronize a second business and future business is adversely affected PA has historically denied these in breach of warranty cases Overruled general PA rule and said they could recover all 3 AVOIDABILITY Duty to Mitigate Rockingham v. Luten Bridge Bridge builders started building a bridge and then ex-commissioner told them to keep building and board of commissioners told them to the stop and they didn’t. Kept building and then wanted full amount of costs in relation to building it Duty to Mitigate – Must do everything you can to minimize costs after breach, if you learn there is a breach you have to stop GENERAL RULE: you are going to cost the other side more money by continuing you’re supposed to stop. If you think in the long run you’ll cost them less money you continue. If it’s unclear Parker v. 20th Century Fox Actress contracts with them to appear in a musical for $750k, in Cali and she has approval rights on. ∆ stopped production and offered her a replacement job: Western, in Australia, for same amount of money. She didn’t accept and the offer lapsed Holding : for π The 2nd job was of a ―different and inferior‖ kind π was not required to accept in order to mitigate damages GENERAL RULE: Recovery by a wrongfully discharged employee is the amount of the salary v. amount the employer proves the employee earned from other employment ∆ must prove that employment was COMPARABLE She had a larger interest in playing the first part than in playing the 2 nd part so it was unequal Liquidated Damages Clause Parties would agree to this to avoid litigation; negotiate up front what the damages will be in the event of a breach rather than having a court decide later IF YOU HAVE A LIQUIDATED DAMAGES CLAUSE YOU DO NOT HAVE TO MITIGATE DAMAGES Lake River Corp. v. Carborundum POSNER ∆ (manufacturer) makes Ferro and has a contract with π (distributor) and tells ∆ to install a new bagging system to.

Quantity Requirement Clause – must ship minimum of 22,500 tons or π would bill them for the difference ∆ only shipped 1/2 of the requirement because the value of steel fell π: wanted $533k that they would have made if the requirement had been reached ∆: said the quantity clause is ―PUNITIVE‖ GENERAL RULE: Allow liquidated damages clause but if they impose a penalty Must be a reasonable estimate at the time of the contracting of the likely damages from breach and the need for estimation at that time must be shown by reference to likely difficult in measuring damages after the breach occurs IL Law is synonymous with this rule Libertarian View – 2 intelligent parties entered into the contract intending to be bound by it so maybe we should enforce the liquidated damages clause? POSNER HOLDING: Want to encourage Efficient Breach – more gain for the parties if the contract is breached than it if was full performed (ie: Peevyhouse) If we allowed punitive damages clause there would be situations where all parties would be best off financially if there was a breach gives an incentive to perform on the contract and waste resources to avoid being punished Lake River is better off with a breach because they can cut down on overhead Most of their damages were based on variable costs if Carbo breaches they won’t have to pay the variable costs (transportation costs, employees, etc) 2 Types of Costs Variable – ie: text books Fixed – ie: annual tuition UCC DAMAGES Schurtz v. BMW π bought a lemon car and BMW had a limited warranty that said they could repair or replace at their discretion. BMW had discretion and the warranty was limited to repair or replacement. Governed by UCC §2719 There’s a split between jurisdiction on whether (2) and (3) should be read together Under the UCC: When it is clear in a contract that parties generally allowed to limit remedies as long as they provide the remedy promise IF THEY DO NOT: other remedies may be allowed as well. GENERALLY: Parties are allowed to limit recovery of incidental and consequential damages UNLESS: it is unconscionable Will be upheld in COMMERCIAL but not so much with Consumers

Ex Ante: Want to encourage Efficient Breach – don’t want to encourage clauses that make it so terrible for 1 party to breach and create inefficiency PUNITIVE DAMAGES Intro: Carbo – punitive clause not enforced, Posner took us through IL law and why LD clause would not be enforced GENERAL RULE: There is a presumption that if there is a liquidated damages clause the clause will be upheld If a party wants to challenge a liquidated damages clause: Must show mathematically that at the beginning it was intended to be a penalty and not a fair appraisal If this is shown it will not be upheld Schurtz – UCC §2719 – allows parties in reaching an agreement to limit the damages the other party can ask for ie: cell phone and credit card records. They are giving a narrow warranty and disclaiming everything else Consequential Damages – valid unless ―unconscionable‖ Cannot ask for damages if you set it up in the beginning that you won’t, sometimes §2719 will be void if deemed unconscionable (contract of adhesion) Rare Case of Punitive Damages Hibschman Pontiac v. Batchelor ∆ bought a lemon and took it back over and over and told it would be repaired and it wasn’t. Multiple employees told him that if he didn’t get it fixed they would jerk him around and it would never be repaired. Punitive damages may be awarded in addition to Expectation damages (PREFERRED) if: “whenever the elements of malice gross negligence or oppression mingle in the controversy” NOT ALL TORTS THAT OVERLAP CONTRACTS GET PUNITIVE DAMAGES Very narrow set of circumstances where you get punitive damages in Contract law SELLER’S DAMAGE Volume Seller Teradyne v. Teladyne π wanted to sell a transistor to the ∆ and the ∆ cancelled but π had already found another buyer for the transistor. ∆ said that if π didn’t sue then they would buy a cheaper model. Seller said they were different because they are a volume seller and they would lose a sale Loss can’t be mitigated by selling to someone else because they would have sold that product regardless because they sell in volume

Both parties agreed the loss was less than the entire revenue MUST SUBTRACT VARIABLE COSTS (workers, shipping, etc.) To calculate lost profits: Revenues derived ($98,400) MINUS Variable Costs (what they would have had to spend to make it) Under §2708(2) damages are the contract price less ascertainable costs saved as a result of breach The variable costs be credited to the damages because they would have the benefit of both the original contract and the resale contract RESTITUTION Restitution isn’t really around but it reappears every once and awhile even though it’s not clear why it’s coming out of the woodwork It’s complicated because different courts apply in different ways Situations Restitution might be given: No contract – fairness Contract – can’t calculate damages Want to disgorge the wrongdoer Even when it’s the π who breached and not the ∆ Quasi-Contract Implied-in-Law/Quasi Contract - Imposed on the parties regardless of their intent. Arises when one party has the benefit of money property or other services and it would be unjust to allow that party to keep the benefit without paying for it. Where unjust enrichment would occur the court assumes restitution Quantum Meruit – as much as he deserves; someone should get paid for beneficial goods and services he bestows on another Comes from Assumpsit action – common law action meant to provide relief for breach of contract (implied in fact and implied in law) Value of Services/Not Growth Maglica v. Maglica Unmarried couple, woman contributed to his business and the business grew while they were together. Then she found out he was transferring stock to his kids and she sued for breach of contract. NO BREACH OF CONTRACT Trial court jury awarded $84M due to growth of business On appeal: $84M too much! measure of damages: reasonable value of services rendered, provided they were of direct benefit to the ∆; the idea that they must BENEFIT from the service/good is integral The costs to the ∆ to hire someone else to do the same job Figure out what kind of job she did

ie: If they found out that a business consultant would be $60k/yr she would be entitled to $60k for each year she did the work court trying to avoid unjust enrichment If she had a contract: Would have gotten EXPECTATION DAMAGES - $84M, worth of the company because of her services Feingold v. Pucello Pucello hurt in an accident and then he started working and wanted to charge a 50% contingency fee. Pucello hired someone else. Feingold tried to sue for Quantum Meruit Feingold secured an admission of liability and thought that he had won the case of Pucello. Tried to give the affidavit to him but he wouldn’t take it Pucello’s new attorney said he could win the case without the admission COURT: Implied-in-fact technically HOWEVER: ExAnte: Ethically discourages people from hiring other attorneys when they aren’t happy with their work product Want to encourage making contingency fees clear up front and in this case it wasn’t Didn’t owe Feingold any money because he wouldn’t accept the work product Feingold was unethical by charging so much (―unclean hands) Under Contract law: without mutual assent = NO CONTRACT Could make a Promissory Estoppel (Restatement §90) Claim based on reliance Compare to Stepp v. Freeman: No ongoing relationship or custom TO MAKE A CLAIM FOR RESTITUTION W/O A CONTRACT: Confer a benefit to ∆ ∆ must WILLFULLY accept benefit It would be REALLY inequitable to keep the benefit without paying for it Restitution for Breach of Contract (GENERAL VIEW) U.S. v. Algernon Blair Coastal (subcontractor) started performance on a naval hospital and Blair did not make payments on crane rental. They had completed 28% of the work and then Coastal terminated it’s performance. COASTAL DID NOT WANT EXPECTATION DAMAGES If they had fully performed and were paid they would have LOST $37k They made a LOSER CONTRACT – they were BETTER OFF when the ∆ breached because it was a mistake to enter into it in the first place Coastal sued to recover for labor and equipment furnished. PUBLIC POLICY: ∆ benefited by the 28% completion of work so he would be unjustly enriched (windfall) if he did not pay for their services

Don’t like that the ∆ had an obligation and they did not fulfill it so we want to take away any benefit he may have gotten WHERE THERE IS A CONTRACT AND IT IS BREACHED: Not happy one side breached and expectation damages will = loss We can still DISGORGE the breaching party Compensation for Attorney who partially performed (w/ a contract) (EXCEPTION) Rosenberg v. Levin Levin hired Rosenberg and discharged without cause but he partially performed services and there was an actual contract between the parties. Compare to Feingold: There was no contract in Feingold Not clear if there was a breach between the parties COURT: The client has a right to discharge an attorney at any time OPPOSITE OF COASTAL: Expectation damages usually traditional damages, but here it’s limited by the contract price Can’t penalize the client for changing attorney 3 DIFFERENT RULES: CONTRACT RULE Attorney discharge without cause can recover under normal contract law (1) full contract price is best measure of damages (2) charging full fee stops client from benefitting from his own breach (3) avoids difficulty of setting value on partially performed work QUANTUM MERUIT RULE (NY RULE) Attorney discharged without cause can recover only the reasonable value of services rendered prior to discharge. If fair market value was actually higher he would have to get that amount QM RULE LIMITED BY CONTRACT PRICE (FL/CA) Whichever is less desirable is what the attorney will get THIS IS THE EXCEPTION PUBLIC POLICY: Believed necessary to allow client freedom to substitute attorneys without economic penalty Attorney client privilege is one of trust and confidence. Client has to rely on good faith efforts of attorney. The client therefore has a greater freedom to change legal counsel than they might in other employment relationships. COASTAL IS THE GENERAL VIEW – you get your choice of remedies, whichever is more beneficial TAKE AWAY: First 2 cases: NO CONTRACT – with no contract there is no breach

As a matter of fairness they allow some type of legal recovery and value of services require Quantum meruit Entirely separate claim If a benefit is provided to a party, they accept, and there is great injustice if they didn’t pay for what they got they allow Quantum meruit Last 2 cases: WAS A CONTRACT Go through entire contract analysis first Instead of expectation damages there is restitution Coastal – don’t want Blair to benefit from breaching because Coastal would lose, so Blair must be disgorged of his benefit Rosenberg – It would be unfair to penalize a client for changing attorneys, therefore the attorney got the less desirable damage STATUTE OF FRAUDS DEFENSES STATUTE OF FRAUDS Intro: Statute of Frauds is the COMMON LAW requirement that certain types of contracts have to be in writing. Even if everything else is shown, if certain contracts are not in writing they are nonenforceable 6 types of contracts that fall under SOF: Acronym: MY LEGS Marriage Year Provision – if it is going to be fulfilled in longer than 1 year Land Executory- When executor pays for Goods – Sale of goods over $500.00 (Proposed UCC: maybe increase to $5k) Suretyship – guarantor relationship History: 1677-Required that certain contracts for the sale of good be in writing to be enforceable Executor/Administrator Contracts Must be in writing ie: A dies leaving a $5k debt to B. C the administrator of A’s estate promises B he will pay the debt out of his own pocket. Unless the agreement is in writing it’s invalid. SURETYSHIP CONTRACTS Yarbro v. Neil B. McGinnis Equipment Co. AZ Sup. Ct. 1966 McGinnis (equipment company/original π) brought suit to recover payment due under a conditional sales contract with Russell (buyer) for sale of Allis-Chalmers

tractor (Same as Beard v. Krusa) in Aug 1957. Called for 23 monthly installments of $574.00. Russell failed to make the first monthly payment and he suggested that McGinnis meet with Yarbro to see if he could help. Yarbo agreed to make and paid the Sept. payment. · McGinnis made an agreement with Yarbro after Russell didn’t make his payments · Yarbro didn’t make all the payments McGinnis brought suit to recover balanced owed o IN THIS CASE: Before McGinnis started negotiating with Russell, Yarbro had attempted to purchase the tractor from them but couldn’t because the financing fell through and he said he could get Russell to buy the tractor § When repairs were needed he made the first installment payment and repairmen found it on Yarbro’s land § Admitted to using the tractor for jobs around his ranch and borrowing it · It may make a difference because Yarbro had an interest in the tractor o It can be inferred from surrounding circumstances whether charged party wanted to be: § Surety for another (SOF DOES NOT APPLY) § Pecuniary benefit to himself (APPLIES) CLASS NOTES: · There was an oral express contract here o there’s a presumption that there was offer/acceptance · Consideration? o Paid Sept. installment and company did not repossess the tractor o McGinnis is forbearing a legal right to take the tractor · Breach? o Yarbro said he’d pay and he didn’t · Damages o Yes. ∆ AFFIRMATIVE DEFENSE: Statute of Frauds Even though he made an agreement to pay the SOF prevents binding him to it WHY DO WE HAVE THE STATUTE OF FRAUDS? · Don’t want people to use perjury and just say that they had a contract when there wasn’t one and just lie their way through all the elements even if none of them ever happened. · Where do we draw the line? o When things are more expensive it might be more likely to be in writing o If it’s past a year before the contract will be completed it’s more likely to be in writing § If it’s just a quick contract

· Could it cause more problems than help? o People could perpetrate more fraud if π is telling the truth and just can’t prove it BALANCING: Is this the kind of contract that you expect to be in writing v. is this the kind of contract that’s hard to prove without writing? There has been a movement not to abandon it but to reign it in Even in the 6 areas where SOF applies there are exceptions! GENERAL VIEW: Suretyship agreements must be in writing! π contends Leading Object or Primary Purpose Exception – where the leading object of a person promising to pay the debt of another is actual to protect his own interest such promise is supported by sufficient consideration and is valid even if it is oral o HOWEVER: There was substantial evidence that the “main and leading objective” of Yarbro was to serve his own interests and not serve as the guarantor for Russell § He wanted to buy the contract but couldn’t so he had Russell buy it § Wanted to use the tractor § Tractor wouldn’t be sitting on Yarbro’s property if he didn’t reach the agreement RULE: Since Yarbro got a benefit from payment of Russell’s debt, the SOF did not apply MARRIAGE This part is almost never litigated ie: A promises to support B’s child if B marries A. It’s unenforceable. LAND TRANSACTIONS 2 issues: (1) What types of ―transfers‖ are covered (2) What qualifies as ―land‖ GENERALLY: · Agreements to buy or sell land · Mortgage modifications · · Agreement affecting boundary lines EXEMPT: Leases for a short period of time (1-3 years)

ONE YEAR PROVISION Runs from the time the contract was made to the time for completion of performance. Professional Bull Riders v. Autozone Sup. Ct of CO Facts: Autozone (sponsor) sponsored PBR’s events from 2001-2002.

PBR wrote agreement providing for their sponsorship that says it starts Dec 2000 and ends Dec 2001 unless terminated earlier and that Autozone has the election to terminate by giving written notice no later than Aug 15 2001. Autozone never signed however they tacitly (implied) accepted the terms Autozone breached · Mutual assent o Not in writing but there was an oral agreement between the parties § offer – to sponsor and put their name on things § acceptance – using their name § ie: Fujimoto – there was acceptance by conduct even though the contract was never signed § Conduct of the parties = acceptance · Consideration o Money in exchange for putting the advertisement on TV · Breach · AFFIRMATIVE DEFENSE: (∆) Statute of Frauds – because they have an option to terminate within 1 year at the end of the season · π says: the contract will take more than 2 years to complete · If it COULD be completed within 1 year some courts will say that it falls under SOF o A season is less than 1 year and the option to terminate is less than 1 year PBR Sued: breach of contract (oral agreement) Speedbar (AZ’s subsidiary) counterclaimed for trademark infringement and dilution, unfair competition RULE: Col.Rev.Stat. §38-10-112 ―Except for contracts for sale of goods every following agreement is void unless in writing…all agreements not to be completed within 1 year from the creation of the contract‖ (over 1 yr = unenforceable if not in writing under SOF) PH: District Ct – General Rule: a verbal agreement to put in writing a contract that will require more than a year to be performed is unenforceable unless in writing THIS CASE: The agreement did not purport to grant Autozone an option to terminate the agreement at will or upon the occurrence of some particular event, it provided AZ with 2 alternative ways of satisfying its obligation. It expressly stated that alternative performance could be completed in less than 1 year. (by terminating) RULE: Where terms of an agreement can fairly and reasonably be interpreted to define alternative obligations one or more of which can be performed within 1 year the agreement in question can be interpreted to be performed within 1 year It was clear that they could terminate within a year therefore SOF applied

GENERAL RULE: Contract that does not specifically state a period of time more than 1 year is NOT within SOF even if it is likely that It will take more than 1 year Modification Agreements If parties of an existing contract modify it the new contract must comply with the writing requirement if the contract AS MODIFIED now falls within the SOF (UCC §2209(3)) Possible Exceptions: Waiver and Promissory Estoppel SALE OF GOODS COMMON LAW: Sale of Goods for $500.00 or more (ONLY APPLIES TO GOODS) Eastern Dental Corp. v. Isaac Masel Co. Facts: E. Dental (distributor/manufacturer of products used exclusively for orthodontics) Masel (manufacturer of dental products and instruments) From the time that EDC was incorporated Masel provided it with certain disposable products for resale to retailers. Sept 1977 Masel expressed interest in buying EDC but it never got past negotiation Aug 10 1978 Masel told EDC that they would no longer supply products to them because they were too busy to handle accounts like theirs profitably · If they couldn’t buy them then they could make them lose profits to the point where they would be forced to sell to them EDC was unable to find an alternative source for some of the products and the ones they did find were prohibitively expensive EDC sues: (1) termination was a breach of a requirement contract (2) ∆ supplied defective merchandise ∆: No enforceable contract because it wasn’t in writing under SOF = NO BREACH Writing satisfies SOF if (1) signed by the party charged (2) evidences a contract for sale of goods (3) specifies quantity (just need amount to be delivered under the contract requirements) · π is trying to say there is a requirement contract because they said they’d supply all that EDC needed Holding: SOF Burden NOT MET (1) invoices reflect only quantity of goods shipped for individual transactions and not a requirement contract · Does not meet the burden of SOF (2) Letter fails because it involves dental pliers not orthodontic supplies (requirement contract)

· The parties viewed contract for pliers as separate from other based on depo by EDC (3) Masel was not obligated to market exclusively to EDC and there was nothing in the termination letter that indicated the parties had a requirement contract. · Quantity term not mentioned in the letter and it doesn’t indicate a requirements contract ExPost: Should have gotten the quantity terms in a requirement contract in writing Only have problems when you don’t have a written agreement SATISFICATION OF THE STATUTE Restatement: Unless additional requirements are prescribed by the particular statute a contract within SOF is enforceable if it is evidenced by any writing signed by or on behalf of the party to be charged with: (1) reasonably identifies subject matter of contract (2) sufficient to indicate that a contract had been made between the parties or offered by signer to the other party (3) states with reasonable certainty the essential terms of the unperformed promises What is essential DEPENDS ON THE AGREEMENT and it’s context and also subsequent conduct of parties Crabtree v. Elizabeth Arden Sales Corp. NY Ct of App. 1953 Facts: Crabtree (entrepreneur) left a secure job and requested a 3 year employment contract with Arden (manufacturer/seller of cosmetics) for 3 yrs at $25k a year. He was a new business owner and wanted the contract to be definite. Arden instead offered a 2 year contract with ann. salary of $20k (1st 6 mos) and then $25,000 (2nd 6 mos.), $30,000 (3rd 6 mos). π thought the offer was interesting and Arden had secretary make a memo on a telephone order that was on hand. · The contract was to be completed in 2 years A few days later π accepted the offer and began working Received the first pay increase after 6 months but then did not receive subsequent increase ∆ comptroller tried to remedy the situation by signing a payroll change card but the increase was not approved and π left his employment Crabtree sued for breach of contract PH: Trial Ct – contract satisfied SOF Holding: Because the contract could not be performed within 1 year it falls under the SOF and therefore must have a sufficient memo that is signed with the intent to authenticate the terms of the contract. It does not have to be 1 document but can be several documents linked together.

In this case: Memo written on the telephone order and the payroll change for initialed by Arden’s general manager and the paper signed by the comptroller all reference the same transaction. These documents showed a contract was formed. Affirms lower courts decision. STATUTE OF FRAUDS REVIEW · Without SOF in place they could make up stories about consideration and mutual assent · Sometimes its not worth the burden of figuring out if someone is telling the truth (small amounts of money, employment for a small amount of time) · For other things we’re adverse to people making up falsities · MY LEGS Marriage One year Land Exectory Goods ($500+) Suretyship Four exceptions to the SOF: Estoppel-prevent grave injustice Multiple writings- to fulfill the writing requirement Merchant Exception
Three Components of Partial Performance to get around SOF: (1) Taking possession (2) payment of money (3) making improvements

★Normally need 2 of the 3 ★
Merchants Exception and Partial Performance Thomson Printing Machinery Co. v. B.F. Goodrich Co. Facts- Thomson Printing buys and sells used printing machinery. On Tuesday, April 10, 1979, the president of Thomson Printing, James Thomson, went to Goodrich's surplus machinery department in Akron, Ohio to look at some used printing machinery which was for sale. James Thomson discussed the sale terms, including a price of $9,000, with Goodrich's surplus equipment manager, Ingram Meyers. Four days later, on Saturday, April 14, 1979, James Thomson sent to Goodrich in Akron a purchase order for the equipment and a check for $1,000 in part payment.

Thomson Printing sued Goodrich when Goodrich refused to perform. Goodrich asserted by way of defense that no contract had been formed and that in any event the alleged oral contract was unenforceable due to the Statute of Frauds. Thomson Printing argued that a contract had been made and that the "merchants" and "partial performance" exceptions to th e Statute of Frauds were applicable and satisfied. The jury found for Thomson Printing, but the district court entered judgment for Goodrich on the grounds that the Statute of Frauds barred enforcement of the contract in Thomson's favor. The "Merchants" Exception- for confirmation A modern exception to the usual writing requirement is the "merchants" exception of the Uniform Commercial Code, OHIO REV.CODE ANN. § 1302.04(B) (Page 1979) (U.C.C. § 2-201(2)), which provides: 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 [writing requirement] against such party unless written notice of objection to its contents is given within 10 days after it is received. ★ -STILL MUST SHOW THAT THERE WAS A CONTRACT MADE ORALLY. ★ The definitional section of the U.C.C. also sets the general standard for what mailrooms "should do": An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Held- We note that the jury verdict for Thomson Printing indicates that the jury found as a fact that the contract had in fact been made and that the Statute of Frauds had been satisfied. Also, Goodrich acknowledges those facts about the handling of the purchase order which we regard as determinative of the "merchants" exception question. We think that there is ample evidence to support the jury findings both of the existence of the contract and of the satisfaction of the Statute. In holding as a matter of law that the circumstances failed to satisfy the Statute of Frauds, was impressed by James Thomson's dereliction in failing to specifically direct the purchase order and check to the attention of Ingram Meyers or the surplus equipment department. We agree that Thomson erred in this respect, but, for the reasons we have suggested, Goodrich was at least equally derelict in failing to find a "home" for the well-identified documents. Reversed and remanded.

Statute of Frauds case- One year provision McIntosh v. Murphy Facts: McIntosh (P) claims Murphy (D) made a verbal agreement to hire him to work at his auto dealership for one year but Murphy claimed it was an at will contract. The agreement was never put into writing. McIntosh later telephoned Murphy on Saturday April 25 stating that he would arrive in Honolulu the next day from Los Angeles. P began work the following Monday on April 27. D fired him two and a half months later. Procedural Posture: Trial court ruled that the contract did not come within the Staute of frauds, reasoning that Murphy bargained for acceptance by the actual commencement of performance by McIntosh, so that McIntosh was not bound by a contract until he came to work. Therefore, assuming that the contract was for a year’s employment, it was performable within a year exactly to the day and no writing was required for it to be enforceable. Jury returned a verdict for the plaintiff in the sum of 12,103.40. The defendants appeal. Holding and Rule (Levinson): An oral promise which the promissor should reasonably expect to induce either action or forbearance on the part of the promisee is enforceable when injustice can be avoided only by enforcing the contract. See Restatement (Second) of Contracts § 139. The court held that if a party has relied on an oral promise and rendered part performance the other party should be estopped from asserting the Statute of Frauds. Disposition: Affirmed. Dissent (Abe): This ruling usurps the power of the legislature to amend or repeal the Statute of Frauds. Notes: This case provides an example of the use of promissory estoppel to render enforceable a contract that would otherwise fall within the Statute of Frauds. Promissory estoppel is not being used in this case as a ―consideration substitute‖. RESTATEMENT (SECOND) OF CONTRACTS §139. ENFORCEMENT BY VIRTUE OF ACTION IN RELIANCE (1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is to be limited as justice requires. (2) In determining whether injustice can be avoided only by enforcement of the promise, the following circumstances are significant:  (a) the availability and adequacy of other remedies, particularly cancellation and restitution;

 

(b) the definite and substantial character of the action or forbearance in relation to the remedy sought; (c) the extent to which the action or forbearance corroborates evidence of the making and terms of the promise, or the making and terms are otherwise established by clear and convincing evidence; (d) the reasonableness of the action or forbearance; (e) the extent to which the action or forbearance was foreseeable by the promisor.

 

Class Wrap upIn times courts have found that despite all the advantages of the SOF, sometimes it has lead to more fraud than if it didn’t exist. Holes have been put in certain areas in the SOF to prevent greater frauds from occurring. One party offering money is not enough to show partial performance. If you come to court and admit there is a contract, you will be held accountable for it. If a confirmation letter is sent, and all the element of a breach of contract are met, if it is not challenged in ten days, the merchant may not take the benefit of the SOF.

II. Parol Evidenc Rule
Meaning of ―Parol Evidence‖- Bars the introduction of all negotiations or agreements occurring prior to the signing of the writing, whether written or oral. B. Exceptions to the Rule Restatement (Second) of Contracts §213. Effect of Integrated Agreement on Prior Agreements (Parol Evidence Rule) (1) A binding integrated agreement discharges prior agreements to the extent that it is inconsistent with them. (2) A binding completely intergrated agreement discharges prior agreements to the extent that they are within its scope.

Integration – means a written agreement that the court finds is the final agreement,
triggers the parol evidence rule, MAY NOT ADD CONTRADICTORY EVIDENCE.

Partial Integration –written and final but not complete Merger/Integration Clause – ―this is the complete and final agreement‖ Parol Evidence – words of the party or parties written or oral before integration
If there is a final written version is more reliable than anything said or written earlier   Words of one of two people making the deal Words can be oral or written



Words spoken or written BEFORE the execution of the integrated agreement

Triggered when written contract that the court finds is the final agreement AND oral statement made at the time the contract was signed OR earlier oral or written statements by the parties to the contract Regardless of whether the writing is a complete or partial integration, the PER prevents a court from considering earlier agreements as a source of terms that are inconsistent with the terms in the written contract. A court may, however, consider evidence of such terms for the limited purpose of determine whether there was a mistake in integration, i.e. a mistake in reducing the agreement to writing.

Mitchill v. Lath- ★ Seminal common law rule on parol evidence and collateral matter exception ★ Brief Fact Summary: The Mitchells (Plaintiffs) brought an action against the Laths (Defendants) to enforce an oral agreement to remove an icehouse from property purchased from the Defendants. Defendants appealed from judgment granted in favor of Plaintiffs Issue: Whether the parties’ oral agreement may be enforced? Held: No. Judgment of the Appellate Division is reversed. The parol evidence rule defines the limits of the contract to be construed. It applies to and attempts to modify a contract by parol. If one agreement is oral and the other is written a problem arises, as is here, whether the bond is sufficiently close to prevent proof of the oral agreement. ★Test one to get other terms into a contract:★WHEN UNDER COMMON LAW Collateral Matter Exception Collateral Contract- something that is not entirely different but that does not overlap. For an oral agreement to vary the written contract at least three conditions must be met: (1) the agreement must in form be a collateral one (not entirely different but (related) (2) it must not contradict express or implied provisions of the written contract, (3) it must be one that parties would not ordinarily be expected to embody in the writing. An oral agreement is not collateral to the written agreement if its subject is closely related to the subject of the written agreement. Here, the agreement to remove the icehouse was such that it would have naturally been included in the written contract for the sale of the farm. The oral agreement contradicts the written agreement. Therefore, the writing was concluded as being a complete integration and cannot be modified. Dissent: The removal of the icehouse could not be expected to be included in the writing, and therefore the writing is not a complete integration. Therefore, the oral

agreement is parol evidence and may be admitted to prove the contents of the written agreement. Discussion: There are two conflicting views on parol evidence:  The first is the Williston or Restatement view, also known as the four corner rule, which states that if a term is not found in the writing, then it cannot be offered into evidence by one of the parties if the court concludes that it would have been natural of the parties to have included it in the writing. Here, the majority adopts this approach. The second view is the Corbin view, which looks at available evidence to determine the actual intention of the parties. The dissent adopts this view.



Side Note: ★ Williston believes that if it was not in the written contract, then it should not be included. ★Corbin doesn’t agree with Williston, sometimes there are other circumstances beyond the contract. Its sometimes important to look beyond the contract. Let the jury figure out what matters. Betaco, Inc. v. Cessna Aircraft Co. Brief Fact Summary: Betaco, Inc., (Appellee) brought this suit requesting Appellant return its $150,000.00 deposit on a Citation Jet worth $2.495 million. Contained and integration or merger clause meaning ―this is the complete and final agreement A jury agreed that Appellant had made and breached its external warranty and the district court ordered the return of its deposit. Appellant appeals. Synopsis of Rule of Law: In assessing the intent of the parties in making a document a complete and exclusive statement of the terms of their agreement, the following factors should be considered:      (1) the inclusion of merger or integration clauses in the document under consideration (2) the disclaimer of warranties, (3) whether the extrinsic term is one that the parties would certainly have included in the document had it been part of their agreement, (4) the sophistication of the parties, and (5) the nature and scope of both prior negotiations between the parties and any purported extrinsic terms.

Issue: Whether the purchase order the parties signed was not fully integrated and therefore proof of an extrinsic term was therefore permissible

Discussion: Appellee is an experienced sophisticated purchaser with a professed concern about range and a staff available to crunch the numbers. It is difficult too believe that it would spend almost $2.5 million on a plane on a mere assurance that the plane had ―more range.‖ The clause is simple and straightforward and was not likely to be overlooked in an agreement that only covered two pages. Appellee acknowledged that in signing the contract, he verified that he had read it understood it and had the full authority to bind the company with his signature. ANALYSIS: 1. P relied on D’s cover letter as evidence of a consistent additional term of the agreement (2-202(b) bars that evidence if the parties intended the signed k to be the complete and exclusive statement of their agreement. 2. Warranty limitation and integration clauses of the purchase agreement (these speak directly to the completeness and exclusivity of the k): 3. The disclaimer is subject to the provisions of 2-202; thus, if the signed k is deemed fully integrated, the P is precluded from attempting to establish any express warranty outside the signed k. 4. The clause was not buried in fine print, nor was it written so as to be opaque. 5. Therefore, the clause is strong evidence that the parties intended and agreed for the signed k to be the complete embodiment of their agreement. 6. Is the term contained in the purported warranty outside the k one that the parties would have included in the k itself had they intended it to be part of the agreement?  We are not persuaded that the range of the aircraft was not something that certainly would be included in the agreement. The ―warranty‖ was more like an ad, whereas the specifications in the purchase agreement were much more specific. Finally, the court does not find it significant that the P did not consult a lawyer before signing the k because he is a knowledgeable businessman.



Held: No. The purchase agreement was fully integrated and the proof of the extrinsic term was not permissible. Not appropriate for jury to have heard the parol evidence. Furthermore, there is no evidence that the k was tainted by fraud, mutual mistake, or any other circumstance that would call into question the binding nature of the agreement. Reversed and remanded. Side note: judge should have made a determination on whether this was a fully integrated contract or not. If it was found to be fully integrated, the parol evidence should not be allowed in for the jury to hear. ★2nd test to get other terms in a contract: ★ UCC first looks to see if the contract was intended to be fully integrated, partially integrated or not integrated.



★IF IT IS NOT FULY INTEGRATED, YOU MAY NOT ADD CONTRADICTORY PAROL EVIDENCE BUT MAY ADD TERMS THAT SUPPLEMENT OR EXPLAIN. ★



LOOK TO THESE FOUR FACTORS TO SEE IF A CONTRACT IS FULLY INTEGRATED, THEN THE PER RULE DOESN’T APPLY. LOOK TO SEE: o o o o NATURE AND SCOPE OF PRIOR NEGOTIATIONS SOPHISTICATION OF PARTIES MERGER/INTEGRATION CLAUSES DISCRETION CLAUSES

Then looks for integration or merger clauses, disclaimer clauses, the nature and scope of prior negotiations and any alleged extrinsic terms.

★UCC §2-202 ★
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 by: (a) 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 . Class Wrap upCollateral matter, doesn’t contradict original contract and would not expect to find it in writing gets around the parol evidence rule. Under UCC every contract is either fully integrated, partially or not integrated. The presence of a merger or integration clause is highly probabtive that the contract was meant to be fully integrated. However it does not absolutely mean it was a fully integrated contract. If there are disclaimers, history of interaction and whether introducing those clauses would create injustice b/c the parties don’t have equally bargaining power. Luria Bros. & Co. v. Pielet Bros. Scrap Iron FACTS: Pielet’s representative Bloom discussed an opportunity to deliver scrap metal to Luria Bros with their representative Fechheimer. In that discussion Bloom testified that he was doing business with fly-by-night people and he was worried whether or not he would get a shipment of scrap intended for Luria. The parties entered into a written

agreement. The scrap was not delivered to Luria.. Trial court excluded evidence that the sales contract was expressly conditional upon Pielet obtaining the scrap at issue from a particular supplier. ISSUE: Since 2-202 (parol evidence rule) applies, the next question is whether the excluded evidence contradicts or is inconsistent with the terms of the writings. RULE: The court in Snyder used 2-202(b) to define inconsistency as ―the absence of reasonable harmony in terms of the language and respective obligations of the parties.‖ ANALYSIS/CONCLUSION: Where writings intended by the parties to be a final expression of their agreement call for unconditional sale of goods, parol evidence that the seller’s obligations are conditioned upon receiving the goods from a particular supplier is inconsistent and must be excluded. -DETERMINED TO BE A CONFLICTING TERM BC THE CONTRACT WAS SILENT ON THE ISSUE. (SOMETHING BEING CONTRDICTORY TO NOTHING). ★Sophistication of a party may be used in determining the integration of a contract. ★ Lee v. Joseph E. Seagram & SonsUses the Collateral Exception Rule (Mitchell v. Lath) Relevant Facts: The Pl/lee, 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 Seagram’s 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. Legal Issue(s): 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? Law or Rule(s): Certain oral collateral agreements are not w/i the prohibition of the parol evidence rule ―b/c if they are separate, independent, and complete contracts, although relating to the same subject, they are allowed to be proved by parol, b/c they were made parol, and no part thereof committed to writing. Court Rationale: 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 two contracts did not contain the exact same individuals, making it different enough. The oral does not vary or contradict the money consideration recited in the contract as flowing to the selling corp. -The use of the boilerplate forms show that they did not spend much time on the contract because they trusted/knew/were friends. Pym v. Campbell FACTS: The PL claims the DEF breached a contract to invest in a machine he made. The DEF claims that the contract he signed wasn’t final unless both Engineers approved the invention; they didn’t and thus said that what the DEF signed was invalidated. ISSUE: Whether a condition precedent to the agreement, the second engineer’s approval, invalidated a written agreement? RULE: Evidence to vary the terms of an agreement in writing is not admissible; but evidence to show that there is not an agreement at all is admissible. ANALYSIS: Evidence has shown that the written agreement was conditional. The jury’s finding that the writing was signed on the terms that it was to be an agreement if Abernethie approved of the invention, and not otherwise. The signed paper was never intended to be the record of the terms of the agreement. Before the paper was signed it was explained to the P that the D did not intend the paper to be an agreement until Abernethie had been consulted, and approved. The Pl assented to this and received the writing on those terms. CONCLUSION: There was no agreement. ★Parol Evidence is always admissible if it shows that there was never an agreement. ★ Class Wrap upGenerally, parol evidence is not admissible. Exceptions are the collateral matter exception. Defined differently under the U.C.C. Under common law, collateral matter applies where you can get parol evidence in. Sometimes in the absence of silence is conflicting and not conflicting (if there’s an additional term). CERTAIN FACTORS MAKE IT MORE OR LESS LIKELY THAT SOMETHING FALLS UNDER THE COLLATERAL MATTER EXCEPTION. III. Interpreatation A. Admissibility of Evidence of Surrounding Circumstances and Evidence of Intent  Eichengreen v. Rollins, Inc.- ★ Williston View: believes that if it was not in the written contract, then it should not be included.

FACTS: P brought an action alleging breach of k and negligence against D after a fire at his residence. P claims that D was to have the entire home protected. He argues that the intent of the parties was for the installation of a new security system that would provide protection for P‟s entire premises. P asked the court to consider extrinsic evidence of the parties‟ prior negotiations and to look outside the 4 corners to determine the parties intent. ISSUE: May extrinsic evidence be introduced here. RULE: A party may not introduce parol or extrinsic evidence to show additional consistent terms of a k unless the writing is incomplete or ambiguous. ANALYSIS: The court discusses the provisional admission approach which, contrasted with 4 corners and PER, looks beyond the clear language of the k to determine ambiguity. This may be used in cases where the k is facially unambiguous and contains an express integration clause.  The k here does not contain an integration clause, however it was a complete integration of the parties‟ agreement. The letter makes no mention of any outside proposal nor does it contain any references to any additional discussions. There is no reference at all to the provision of protection of P‟s entire premises. When there‟s ambiguity in a contract, you can always introduce evidence HOWEVER, the key question is “What is ambiguous”? Air Safety Test- allows parties to go to a judge with not just the contract but with evidence of previous discussions. Asks the judge if all the information shown shows ambiguity in the contract. Four Corners Test (Adopted by Williston and used by Illinois)-The way to determine whether a contract is ambiguous is by looking at the document itself. If there‟s nothing ambiguous about the contact, then no other evidence is admissible. CONCLUSION: This k was a final and complete integration of the parties‟ agreement, the letter is the only and entire agreement between the parties. This court will not add another term about which an agreement is silent. D complied with the written k terms by providing P what was outlined in the letter. Summary judgment of P‟s complaint is affirmed. Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co.(Cobin View on contracts, believes juries are competent)

Fact Summary: Defendant contracted with Plaintiff to remove and replace the upper metal cover of Plaintiff‟s steam turbine. Defendant agreed to indemnify Plaintiff against all loss resulting from injury to property. After the cover fell and injured Plaintiff‟s turbine, Plaintiff sued to recover damages, and Defendant sought to offer evidence that the indemnity clause was only to cover damages to third parties. Synopsis of Rule of Law- Extrinsic evidence is admissible to explain the meaning of a written agreement if the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. Issue-Is extrinsic evidence admissible to aid in the interpretation of an unambiguous contract term? Held- Yes. ―The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.‖ o Further, excluding parol evidence merely because the words do not appear ambiguous may lead to an interpretation of a written contract that was never intended. Extrinsic evidence may not add to, detract from, or vary the terms of a written contract, but it may be used to interpret the terms of the contract. In the present case, since the contract clause was reasonably susceptible of the meaning Defendant attaches to it, the evidence offered by Defendant is admissible.

Class Wrap up: When there is a term in the contract, when can we introduce extrinsic evidence beyond what’s in the contract? WIllistonian believers say look at the four corners of the contract. If there is no ambiguity, only the contract goes to the judge and jury. Corbin argues that when there are terms that explain, we want to know how they explain. We trust judge and juries. Lets put everything out there and figure it out.

E. Admissibility of Evidence of Usage and Trade, Course of Dealing, and Court of Performance Nanakuli Paving & Rock Co. v. Shell Oil Co. Brief Fact Summary- Plaintiff, Nanakuli Paving & Rock Co., sued Defendant, Shell Oil Co., for breach of a supply contract when Defendant failed to provide price protection on a delivery of asphalt as it had done in

the past. The jury returned a verdict in favor of the Plaintiff, which was set aside by the trial judge. Plaintiff appealed, and the Court of Appeals reversed. Synopsis of Rule of Law- Under the Uniform Commercial Code, a trade usage or course of dealing may be used to explain or supplement the express terms of a written contract. A trade usage will be binding on a person who is either a member of the trade or is a person who knows or should know of the trade usage. Held- Yes. There was sufficient evidence for the jury to find that a usage of the asphaltic trade in Hawaii required Defendant to provide price protection to Plaintiff.  The trial court did not err in defining the relevant trade as the entire asphaltic paving industry. A person will be bound by a trade usage if he/she is a member of the trade at issue or is a person who knows or should know of the trade usage. A person should know of a trade usage if he/she has regular dealings with members of the specific trade. A person should also know of a trade usage if he/she is a member of another trade that has some dealings with the relevant trade (e.g., “farmers should know something of seed selling). Although Defendant did not deal in all asphaltic materials, it regularly dealt with Plaintiff, who was a major asphaltic paving contractor. Therefore, Defendant should have known of the practice of price protection in Plaintiff‟s industry. Whether an act is ambiguous is a question for the jury. In commercial contracts, if acts are ambiguous, there is a preference to interpret them as a waiver of a contract term rather than as a course of performance if it is necessary to prevent surprise or hardship, or to protect the flexible nature of the contract. If the jury finds that an act is unambiguous, it may also decide whether an act is a course of performance or a waiver. One instance of conduct will not constitute a course of conduct, but how many more occurrences are required will depend on the circumstances. In this case, Defendant previously raised its prices under the contract with the Plaintiff only twice, and offered price protection both times. The jury could find that those two instances constituted a course of performance. Under the UCC, a commercial contract is broader in scope than its express provisions, and will also include trade usages, courses of dealing, and actual performance of the contract:





o

Whenever it is reasonable, express terms will be read as consistent with courses of dealing and trade usages;

otherwise, an express term will control. o There must be evidence of a definite trade usage in order for it to be allowed to modify an agreement. In this case, price protection was a prevalent trade usage in the asphaltic paving industry, and the jury could reasonably find that this exception was consistent with the posted price provision of the agreement.  Contracts governed by the UCC carry a duty of good faith in performance and enforcement. For merchants, this duty requires following commercially reasonable standards of fair dealing within that trade. In this case, there was evidence that advance notice of price increases for asphalt was a well-established practice in the paving industry. Therefore, a reasonable jury could find that Defendant breached its duty of fair dealing to Plaintiff when it provided only one day‟s notice. Concurrence- Juries should be allowed to add a specific term to commercial contracts on a good faith theory only when it is based on evidence of a wellestablished usage or custom, or some other objective standard. Useage-practices of similar businesses in similar areas Course of dealing-behavior of the same companies in past contracts Course of performance-conduct of the same companies in this specific contract. Order of importance under the UCC     1. Express terms 2. course of performance -- Fav besides express terms 3. course of dealing 4. usage

Zell v. American Seating Co.-Suppose should know Judge Frank-hates parole evidence rule FACTS: P offered to D to procure contracts for manufacturing products for national defense products for 1k/month if he was unsuccessful, and 3-8% of the k price if he were successful would be a bonus. Finally they got a k in writing but excluded that part. D said that they wouldn’t include it because of the possible stigma which might result from having a contingent fee contract. Then D refused to pay P the 3-8% when he got them a k.

RULE: Under the PER, a writing does not acquire that dominating position if it has been proved by extrinsic evidence that the parties did not intend for it to be an exclusive memorial of their agreement. ANALYSIS: The judge here tries to argue that because they previously agreed that the writing would not bind them that it doesn’t. he says that although the PER’s quest is for objectivity – objectivity is beyond even the powers of Satan. He says that a mechanical device like the PER cannot satisfy the longing for a rational method because the injustice of applying the rule has been riddled with exceptions. The recognized exceptions to the rule demonstrate strikingly that business can endure even when oral testimony competes with written instruments. In sum, a rule so leaky cannot fairly be described as a stout container of legal certainty. Business has changed, more things are done on the fly and orally, this shouldn’t apply anymore. CONCLUSION: Reversed and remanded – PER sucks and the oral agreement should be abided CHP 7. Conditions and Promises: Performance and Breach I. Basic Concepts  Bulk of the provisions of an agreement are designed to state positive obligations of the parties and when, if at all, they must be performed.

Promise- contractual undertaking, breach of which leads to liability for damages or equitable relief Condition Precedent-an event occurring after the making of a valid contract which must occur before a right to immediate performance arises. o ―If Prof Edelman does not teach in Ny over the summer then he gets to own Barry Law school. (Would get Barry after the summer ends-get after performance)  Intent to create a condition uses such words as:  ―provided that‖, ―on condition‖, ―when‖, ―so that‖, ―while‖



Until the condition happens there is no obligation.

Howard v. Federal Crop Insurance Corp. Relevant Facts: Df, FCIC, an agency of the U.S. issued 3 policies to the pl, Howards, insuring their tobacco crops, on six farms, against weather damage and other hazards. Pl‟s alleged that their 1973 crop was damaged by heavy rains. Pl harvested and sold the depleted crop, filed notice and proof of loss w/ FCIC, but prior to inspection they

plowed or disked under the fields in question. A portion of the policy provides that the stalks shall not be destroyed until FCIC makes an inspection. Issue: Promise or Condition Precedent? Holding: Promise, we hold that the district court erroneously held, on the motion for summary judgment, that subparagraph 5(f) established a condition precedent to plaintiffs’ recovery which forfeited the coverage Judgment: Remanded Rationale:  If subparagraph 5f creates a condition precedent, its violation caused a forfeiture of plaintiffs’ coverage. Second, if it creates an obligation upon P not to plow under the tobacco stalks, D may recover from P for whatever damage it sustained because of the elimination of the stalks but it would not forfeit the policy  There is a general legal policy opposed to forfeitures. Insurance policies are generally construed most strongly against the insurer. When it is doubtful whether words create a promise or a condition precedent, they will be construed as creating a promise. The provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such construction -Could use the price of hiring someone to determine the damage as the cost of the damage of pulling the stalks.

Jones Associates v. Eastside Properties Relevant Facts: Pl Jones, an engineering, consulting, and surveying firm; and Eastside, a real estate developer, entered into a professional services agreement. Jones was to provide a feasibility study, master plan, surveys, and short plats for Eastside‟s 180 acre parcel. The plat application was submitted to the County which gave a preliminary approval with numerous conditions attached. Eastside unsuccessfully appeal the conditions. The parties amended the original K, but incorporated the original K‟s terms. Pl was to provide updated study, and revisions for recordation. Jones claims it performed all required services as agreed, and Eastside two conditions to payment were not met: both studies were not approved by Eastside, and County final plat approval was not obtained. Legal Issue(s): Whether the provision specifying a requirement for approval is a promise or a condition precedent? Court’s Holding: Approval was intended to be Jones‟ duty, a Promise.

Procedure: Trial Ct. dismissed action against Df and awarded Df atty fees. Reversed and remand for trial. Law or Rule(s): Determination of the intent of the contracting parties is to be accomplished by viewing the K as a whole, the subject matter and objective of the K, all the circumstances surrounding the making of the K, the subsequent acts and conduct of the parties to the K , and the reasonableness of respective interpretations advocated by the parties. Court Rationale: An examination of the whole contract, circumstances surrounding the K‟s formation, the parties‟ subsequent conduct, and the reasonableness of the parties‟ respective interpretations indicates that the parties intended Jones‟ assumption of responsibility for obtaining the County‟s approval to be a duty under the K, but not a C. P to payment.  W/i the K, inserted by Eastside, “scope” there is no mention that Eastside would not be responsible for any costs if approval of the county wasn‟t obtained. Then another provides evidence of Df‟s ability clearly and unambiguously to express a C. P to payment. Ambiguous K language is strictly construed against the drafter. The change order was to revise and “file for recordation,” not obtain county approval of the short plats. Df‟s conduct subsequent to K formation supports the fact that the parties did not intend the provision to be a C. P. Rather than refuse to pay, Df tendered $15 K that was due. Df entered into a K amendment to comply w/ the county‟s conditions rather than insisting that the C. P. of obtaining approval encompassed any additional services to secure approval. Approval was not obtained and Jones may be liable for breach of its promise to obtain approval.







Plaintiff’s Argument: The K provision is not a condition precedent but merely states that Pl was to perform all necessary engineering, consulting, and surveying related to df‟s plat application. Defendant’s Argument: The K provision created a condition precedent to payment by expressly stating Pl was responsible for obtaining approval by the county for all platting. Don’t want to make bad facts bad law. Don’t like conditions cause they lead to forfeiture. If something is ambiguous, it’s deemed a promise. Don’t like precedents that are out of someone’s control Bright v. Ganas

Relevant Facts: Pl, Ganas, preceded his father then engaged in the restaurant business worked principally as a waiter. He became acquainted w/ Darden, who then engaged Pl as a servant or man of all work. Ganas continued until Darden‟s death for approx. 27 yrs. Contained in the record is a specific agreement for the payment of $20,000 out of the estate, to Ganas, if he served Darden “faithfully and continuously” until his death. Mrs. D found a letter on her bed addressed to her issued by the pl. It stated that the pl had designs on his employer‟s wife. 2 hrs after the funeral she showed the executor the letter and told him the pl must get out of the house. Pl had written on the envelope “If I lose my job by this note–at least I would gain my peace of mind.” The record does not provide any excuse or justification for the pl‟s behavior. Legal Issue(s): Whether faithfully and continuously was a condition precedent or a promise for the payment of $20,000? Procedure: Jury judgment for the Pl. Df appealed; Reversed w/o trial. Law or Rule(s): Every servant impliedly stipulates that both his words and his behavior in regard to his master and his master‟s family shall be respected and free from insolence. A breach of this stipulation is unquestionably a valid reason for dismissing the servant, especially when it is accompanied by other conduct which would of itself justify a rescission of the contract. Court Rationale: If the act of writing and delivering the letter soliciting Darden‟s wife was such that it would have caused his discharge, if his employer had known, then it is available to the executor as a defense. This is one entire contract and the pl was entitled to the full consideration of his contract or none of it.  If unfaithfulness and disloyalty was sufficient to warrant his immediate discharge by his employer, had it been known to him, then Pl‟s right to compensation has been forfeited.  What constitutes good and sufficient cause for the discharge of a servant is a question of law, and where the facts are undisputed, it is for the court to say whether the discharge was justified. There are cases . .. so flagrant and so manifestly contrary to the implied conditions arising from . . .master and servant which should exist between them that they can be decided by the court as matters of law. The violation of the agreement by the Pl was so flagrant, unjustified, and inexcusable as to justify his discharge, and, if by it he earned his discharge, then he cannot recover.



Plaintiff’s Argument: It is for the jury to decide whether the letter constituted unfaithfulness and disloyalty. Defendant’s Argument: The Pl‟s breach of a promise to remain faithful and loyal voids his recovery. Gray v. Gardner Facts: D promised to pay P on the condition that if a greater quantity of sperm oil should arrive in whaling vessels at Nantucket and New Bedford, on or between the first day of April and the first day of October of the present year, both inclusive, than arrived at said places, in whaling vessels, on or within the same term of time the last year, then this obligation to be void Issue: did the ship arrive in time to discharge the obligation? Holding: No, it doesn‟t arrive until it drops anchor. Both parties put themselves upon a nice point in this contract: it was a kind of wager as to the quantity of oil which should arrive at the ports mentioned, before a certain period. They must be held strictly to their contract, there being no equity to interfere with the terms of it. Judgment: Judgment on the verdict for P Rationale: It is like a bond with a condition; if the obligor would avoid the bond, he must shew performance of the condition. The defendants in this case promise to pay a certain sum of money, on condition that the promise shall be void on the happening of an event. It is plain that the burden of proof is upon them; and if they fail to shew that the event has happened, the promise remains good. Chodos v. West Publishing Co. (Similar to Freund v. Washington Square Press) Facts: Chodos and Bancroft-Whitney's entered in to a standard Author Agreement. West Publishing Co., Bancroft-Whitney's successor, informed Chodos that they would no longer publish his book because of concerns about its market potential. His performance was induced by an agreement that permitted rejection of the completed manuscript only for deficiencies in “form and content.” West admits that the manuscript was of high quality and that its decision was not due to any literary shortcomings in Chodos‟s work.



West (Def) removed to federal court because generally large companies tend to prefer federal courts, bc federal judges are quicker to overturn large judgments.

Issue: Whether a publisher retains the right to reject an author‟s manuscript written pursuant to a standard industry agreement, even though the manuscript is of the quality contemplated by the parties. (No). Analysis/Conclusion: Chodos argues the K is illusory because courts have held that if one of the promises leaves a party free to perform or to withdraw from the agreement at his own unrestricted pleasure, its deemed illusory b/c there is no consideration. The argument that the k is illusory fails, it is not because of the good faith and fair dealing the company had. (Lady Duff Gordon case) However, West did breach the agreement. West did not act within the discretion afforded it by the author agreement when it decided not to publish Chodos‟s manuscript. Because West concedes that it is high quality and that it declined to publish it solely for commercial reasons rather than because of any defect in its form or content, West breached its agreement with Chodos.  The “cure” clause doesn‟t coexist with the idea that the “form and content” clause includes marketing and economic deficiencies.  Chodos cannot “cure” the economic downturn or the fact that the  book may not sell because it is not a desirable topic. Even though this was a condition, it would have been unfair to deem the „Form an Content” clause as including issues out of Chodos‟ control.

Damages: Chodos‟s entitlement to 15% of the revenues from his book is not liquidated because it was not a certain or readily ascertainable figure. Entitled to restitution. Gulf Construction Co. v. Self Relevant Facts: PL Gulf, a gen contractor entered into two K with owner Good Hope to build several building at its plant site. Gulf then entered into 3 subcontracts w/ Def’s, Shaw Plumbing and Calvin Self. During the construction, the owner, Good Hope, encountered financial problems and directed that the work stop. Afterward the subs demanded payment from Gulf for the work performed, and filed liens to that effect. When Gulf refused and failed to pay the subs filed suit. Legal Issue(s): Whether the subcontract provision stating, "Under no circumstances shall the general contractor be obligated or required to advance or make payments to the subcontractor until the funds have been advanced or paid by the owner or his

representative to the general contractor," was established as a condition precedent to payment or a covenant dealing w/ the terms of payment or manner of payment? Court’s Holding: Covenant dealing with the terms of payment or manner of payment. Procedure: Bench trial ruled in favor of Self and against Gulf; Affirmed. Law or Rule(s): While no particular words are necessary for the existence of a condition, such terms as "if," "provide that," "on condition that," or some other phrase that conditions performance, usually connote an intent for a condition rather than a promise; in the absence of such a limiting clause, whether a certain contractual provision is a condition, rather than a promise, must be gathered from the contract as a whole and from the intent of the parties. Court Rationale: Where the intent of the parties is doubtful or where a condition would impose an absurd or impossible result, the K should be interpreted as creating a covenant. The first sentence of the 9th paragraph, by itself, does not set forth a condition precedent to Gulf’s obligation to make payment but sets forth only a covenant regarding the terms of payment or manner of payment. It is basic in the construction business for the General to expect to be paid in full by the owner for the labor and material he puts into the project. Insolvency of the owner does not defeat the claim of the subcontractor against the general. There is no privity between the sub and the owner. The provision requiring the subcontractor to wait to be paid for an indefinite period of time until the general contractor has been paid by the owner is to give the K provision an unreasonable construction which the parties did not intend at the time the subcontract was entered into. The Second sentence of the 9th paragraph is in the nature of a modification of the time provision which immediately proceeds it in the 1st sentence. ----“Pay if Paid” clauses in California are considered unenforceable because it prevents the subs right to a mechanic’s lien Plaintiff’s Argument: The provision is a covenant and not a condition. It would be absurd to believe that a subcontractor would enter a K believing it would not be paid by the general k. Defendant’s Argument: Gulf is under no obligation to pay, pursuant to the 9 th paragraph of the subcontract, the balance owed because the owner is unable to pay. ---Risk of nonpayment by an owner on a construction contract rests on the contractor who contracts with such owner rather than on a subcontractor who has no privity of contract with the owner; and the risk does not shift to the subcontractor unless there is a clear, unequivocal and expressed agreement between the parties to do so. When deciding if something is a condition or a covenant look at:   Overall intent, recognize as a general principle disfavoring forfeiture,



disfavoring things outside of ones control.

Kingston v. Preston Synopsis of Rule of Law-The presentation of a good security by one party is a condition precedent to the other party’s obligation to perform. Facts- An action of debt for non-performance of covenants contained in articles of an agreement between the Plaintiff and the Defendant. The articles stated that the Plaintiff covenanted with the Defendant to serve him for one year and a quarter in his trade of a silk mercer at 200 a year and in consideration of the premises the Defendant covenanted that at the end of the year and a quarter he would give up his business to the Plaintiff and give up his stock and the deeds would be executed for fourteen years. Another covenant stated that payment was to be made in installments out of the proceeds of the business by Plaintiff. Plaintiff promised to post a security bond, which guaranteed payment of the installments if the business did not generate enough proceeds before the sale. Plaintiff did not post such a bond and as a result Defendant refused to consummate the sale. Thus, Plaintiff brought suit against Defendant for breach of contract. Plaintiff alleged that Defendant’s obligation to convey the business was independent of the Plaintiff’s obligation to post a security bond and the Defendant’s remedy was a breach of contract not to refuse to sell. Issue- Whether the covenant that the Defendant had an obligation to convey the business and the covenant that the Plaintiff had an obligation to post a security bond were independent? Held- No. There are three types of covenants:  (1) those that are mutual and independent where either party may recover damages from the other for the injury he received as a result of the party’s breach and it is no excuse for the Defendant to alleged breach of a covenant on behalf of Plaintiff; (2) covenants which are conditions and dependent in which performance of one depends on the performance of another, till the prior condition is performed the other party is not liable to an action on his covenant; and (3) those that are mutual conditions to be performed at the same time and if one party readily performs and the other refused to perform and the party who was ready to perform may maintain an action for the default of the other.





The promises were not independent and the giving of a security by the Plaintiff was a condition to the Defendant’s duty to convey the business. Presenting good consideration is condition precedent to Defendant’s obligation to convey the business. It would be a great injustice to compel the Defendant to turn over his business to the Plaintiff without the security for which he bargained for and to have the only remedy an action for breach. Shaw v. Mobil Oil Corp. Relevant Facts: The parties entered into a service station lease and a retail dealer K. The K required the dealer to purchase not less than 200,000 gal of gas per year, and Mobil to sell not more than 500,000 gal per year. The lease required 1.4 cents per gal of gas delivered, but ―no less than the minimum amt specified in said schedule.‖ The schedule specified $470/mo. In order for the rent per gal to equal the minimum rental per month, Mobil was required to deliver 33,572 gal per mo. Dealer ordered 34,000, but Mobil delivered only 25,678, b/c of Federal request. The K had an excuse clause. Legal Issue(s): Whether the dealer's promise to pay minimum rental was condition dependent upon oil company's delivery of the amount of gasoline ordered by dealer even though oil company's failure to perform might be excused? Court’s Holding: Yes it was a conditioned or dependent. Procedure: Pl brought declaratory judgment proceedings; trial ct ruled for Pl (interpreted the clause to mean that Mobil has a duty to deliver to the dealer as much as the dealer ordered. This duty is partially subject to an excuse clause); Df appealed; S. Ct. Reversed. Law or Rule(s): If one of the promises becomes impossible of performance, the party who made it may be excused from legal duty. His failure to perform is not a breach of K. But the fact that the law excuses him from performance does not justify him in demanding performance by the other party. Court Rationale: Covenants are dependent or independent based on the intention of the parties as deduced from the terms of the K. If the parties intended that performance by each of them is in no way conditioned upon performance by the other, the covenants are independent. If they intend performance by one to be conditioned upon performance by the other, the covenants are mutually dependent. The dealer undertook his obligation to pay a minimum rental in reliance on Mobil’s fulfillment of its obligation to deliver the quantity of gasoline ordered by the dealer. The dealer’s promise to pay the minimum rental was conditioned or dependent upon Mobil’s delivery of the amount ordered by the dealer. A party has no obligation to perform a promise that is conditioned upon the other party’s performance when the other party failed to perform even though the other party’s failure is excused and is not a breach of K. The dealer is not obligated to pay

the minimum rental although Mobil might be excused from delivering the quantity ordered. Plaintiff’s Argument: The Pl’s promise to pay the minimum rent is a dependent promise; conditioned upon Df’s performing its obligation to deliver the quantities of gas ordered. Defendant’s Argument: Under a provision of the K Df was excused from delivering the quantity ordered b/c of a request by the Fed. Energy office to allocate its gasoline supply among its dealers. Jacob & Young, Inc. v. Kent-May use for exam last year FACTS: Plaintiff built a country residence for defendant and now sues to recover unpaid balance. One of the specifications for the plumbing work was that “all wrought iron pipe must be well galvanized, lap welded pipe of the grade known as “standard pipe” of Reading manufacturer. Plaintiff used the wrong pipes. Contract would require the tear down of the old pipes plus reconstruction of the new ones so the plaintiff would end up losing money. RULES: In circumstances of this case the measure of allowance is the difference in value of the pipes, not the cost of replacement. HOLDING/RULING: Ruling in favor of the plaintiff – the builders of the home. Rational: 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. Dissent: Disagreed with majority‟s decision by stating that the defendant specified in the contract exactly what he wanted and that he was entitled to

that. The failure to perform was either intentional or due to gross negligence. Substantial Performance-This principle is relevant when a contractor's performance is in some way deficient, through no willful act by the contractor, yet is so nearly equivalent that it would be unreasonable for the owner to deny the agreed upon payment. CLASS NOTES: A contract damages provision must provide some benefit in the relation of cost… Courts are not going to enforce damages clauses that are unreasonable. This is the first case in which a court disregards the written words of the contract. If there is a diminution in value, the court will require a replacement. Conditional promise goes first, then the dependent promise. O.W. Grun Roofing & Construction Co. v. Cope-May use for last years exam Brief Fact Summary-Mrs. Fred M. Cope (Plaintiff) sued O.W. Grun Roofing and Construction Co. (Defendant) to set aside a mechanic‟s lien filed by Defendant and for damages in the sum of $1,500.00 suffered by Plaintiff as a result of the alleged failure of Defendant to perform a contract calling for the installation of a new roof on Plaintiff‟s home. Defendant appealed from a judgment for the Plaintiff. Synopsis of Rule of Law- A contractor who tenders performance so deficient that it can only be remedied by completely redoing the work for which the contract was established has not substantially performed his duties. Held-No. Judgment affirmed. A promisor, who has substantially performed is entitled to recover although he has failed in some particular to comply with his agreement. This is known as the doctrine of substantial performance. The question of what amounts to substantial performance is a question of fact. In order to determine if there has been substantial performance, one must weigh the purpose to be served, the desire to be gratified, the excuse of deviating from the letter of the contract and the cruelty of enforcing strict adherence or of compelling the promisee to receive something less than for which he bargained. To constitute substantial performance, the contractor must have in good faith intended to comply with the contract and shall have substantially done so in the sense that the defects are not pervasive, do not constitute a deviation for the plan

and are not so essential to the object of the parties in making the contract and its purpose cannot be accomplished by remedying them. Here, there is evidence that supports the conclusion that Plaintiff can secure a roof of uniform coloring by installing a new roof. The evidence does not establish that the roof, which lacks uniformity in color, serves the same purpose as a roof of uniform color. Therefore, the court cannot say that a contractor who tenders performance so deficient that it can be remedied only by completely redoing the work for which the contract called has established that he has substantially performed his contractual obligation. Discussion- When determining if a breach is material, an important factor is the extent to which the non-breaching party is deprived of the benefit, which she reasonably expected from the contract. When determining the extent to which the non-breaching party has been injured, the principle reason for which the parties entered into the contract must be considered.

Material breach
: a breach of contract that is so substantial that it defeats the purpose of the parties in making the contract and gives the nonbreaching party the right to cancel the contract and sue for damages Carter v. Sherburne Corp. Relevant Facts: Contractor brought action against owner to recover for labor and materials furnished under written construction contracts and for further amounts on quantum meruit basis for labor and materials furnished without express agreement as to price. Df was a developer builder, Pl a contractor. The parties executed four contracts between them. The Ks called for weekly progress payments based upon work completed w/ a provision for retaining 10 % until ten days after final acceptance. Df kept shifting Pl‟s activities from 1 k to another and delaying payments to Pl. Df‟s representatives promised the Pl extensive additional Ks in return for certain work building a gondola lift line w/o compensation. Df notified Pl in April that no more progress payments would be made on the gondola K. Pl continued work but did not finish. The Ks were terminated in June. Legal Issue(s): Whether time was of the essence of the contracts and contractor's failure to perform within time specified precluded recovery, and that where parties had entered into an express, although unformalized, contract for good consideration for work in addition to that covered by contracts, contractor could recover in quantum meruit for the additional

work?Court‟s Holding: No not of essence, and Contractor‟s failure did not preclude recovery; Yes QM. Procedure: Tr. Ct. rendered judgment in favor of the contractor and the owner appealed. S. Ct Affirmed. Law or Rule(s): Where parties have not expressly declared their intention as to whether time is of the essence of a contract, determination as to whether time is of the essence depends on intention of parties, circumstances surrounding transaction and subject matter of the contract. Where time is of the essence of contract, performance on time is a constructive condition of the other party's duty, usually the duty to pay for the performance rendered. Generally time is not of the essence in a building or construction K in the absence of an express provision. Court Rationale: Time was not of the essence in any of these Ks. None of the four Ks included express language making time of the essence, and there is nothing in the circumstance surrounding these Ks. 2 Ks called for completion dates and forfeitures for noncompliance but this does not make time of the essence. Where time is not of the essence a failure to complete work on time w/i a specified time will not terminate a K, but will subject the contractor to damages for the delay. Here the Dfs actions in shifting the Pls activities and withholding payment caused the delays. Df informed Pl in April that no more progress payments would be made on the gondola K. At that time Pl had completed a substantial portion of the work, but had not invoiced it yet. Dfs notice concerned only the progress payments, and was not a termination of the K. Failure of payment does not require cessation of performance. Termination w/o legal justification entitles the Pl to recover the K price for work done before termination, or the reasonable value of the performance rendered, QM. Plaintiff’s Argument: The delays were a result of the Df, and the work was performed. Defendant’s Argument: The Pl is not entitled to recover for work done after notice, and Pl was not in substantial compliance w/ the Ks.

Class Wrap-up- Some types of promises are treated as condition and dependent promises. If there is substantial performance-not perfect performance but close enough so that we treat the conditional promise as being met, making the dependent promise having to be met.

DOES NOT APPLY TO THE UCC Time is of the essence clauses- if a contract as a conditional promise requires performance by a certain date, that condition is met unless the condition says time is of the essence. Printing Center of Texas, Inc. v. Supermind Publishing Co.-Trial court used UCC, higher court thinks that they should use other law yet no one challenged it, so the UCC is still used.  There is no room in commercial contracts for partial performance. o UCC has adopted a perfect tender rule Relevant Facts: Appellee/Pl, Supermind sued Appellant/Df, Printing for the refund of a deposit under a written K to print 5000 books. Def rejected the books b/c of off center art, crooked pages, wrinkled pages, inadequate perforation on a pullout page, and the use of gray paper when white was contracted. Legal Issue(s): Whether substantial performance applies in transactions involving K for the sale of goods, and whether the goods tendered were in conformity with the requirements under the K? Court‟s Holding: No, and the books did not conform. Procedure: Jury awarded EE refund, plus atty fees, ANT appealed, Ct of App Affirmed. Law or Rule(s): If the goods or tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole. Perfect Tender Rule. Court Rationale: If it was determined that the books failed in any respect to conform to the contract, the purchaser would not have a right to reject and to recover a refund of the purchase price, but would have a right to damages for breach of contract.  Conformity does not mean substantial performance.    There is no room in commercial contracts or sales law for the doctrine of substantial performance. If the goods fail to conform to either the express or implied terms of the K, the buyer has a right to reject them. Always look to the express terms of the contract first.

Once the K has been determined, the evidence must be reviewed to see if the right goods were tendered at the right time and place. A showing of only a minor defect would constitute bad faith. The written K covers only

essential terms such as quantity, trim size, and type of paper and cover. The type of paper specified was 30# white newsprint.  The pages of the books were gray while the sample was white. A sample which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample. Appellant knew that the books were to be sold to the public. Therefor it is implied in the K that the books be commercially acceptable and appealing to the public. They must pass w/o objection in the trade and be fit for ordinary purposes to be merchantable.



ANT failed to carry its burden of proof that EE rejected the books in bad faith. The non conformities were not minor, and there is no evidence that the primary motivation was to escape a bad bargain. Plaintiff’s Argument:(EE) The books were of a quality that they could not be sold to the public, the ANT did not conform the books to the agreement. Defendant’s Argument:(ANT) The finding that the books failed to conform to the K is so against the great weight and preponderance of evidence that it is manifestly unjust. EE acted in bad faith by rejecting the books. Capitol Dodge Sales v. Northern Concrete Pipe, Inc. Relevant Facts: An officer of Df, William, called at Pl‟s business to solicit the sale of a truck w/ a snowplow attached. Fuller took him for a test drive, but when they returned the engine overheated. Fuller stated the snowplow‟s position was the cause. William was willing to buy it if this were true, Fuller affirmed. William gave Fuller a check for the full payment w/ instructions that his employees would pick it up the next day. When the employees arrived Fuller personally showed them how to position the blade. When they arrived back w/ the truck it overheated. Fuller‟s service tech advised rechecking the position, refilling the radiator, and test driving again. It overheated, Df was told to bring the truck in for service. He did so and it again overheated. The Pl replaced the radiator cap, and after the Df picked up the truck it again overheated. Payment was stopped on the check, and instructions that the Pl should have the truck. A wrecker picked it up for the Pl. Legal Issue(s): Whether the Df‟s actions can be construed, under the UCC, as signifying, after a reasonable opportunity to inspect, that the truck

conformed or that the Df would retain the truck in spite of its nonconformity.? Court’s Holding: No and No. Procedure: Tr Ct ruled in favor of seller and manufacturer(3rd); Circuit Ct Affirmed. Ct of App Reversed and remanded. Law or Rule(s):

UCC 2-606 o Acceptance of goods occurs when:
o the buyer after reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non conformity; OR o fails to make an effective rejection but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them. o Acceptance under the UCC has nothing to do with the definition of acceptance under mutual ascent!!!!!! Court Rationale: The language of the UCC clearly contemplates an act of the buyer beyond taking delivery or possession of the goods.  Possession during the time necessary for the “reasonable opportunity” to inspect is contemplated prior to acceptance. The code allows rejection of good for non conformance “w/i a reasonable time after delivery.” Thus while transfer of possession or title may be acts bearing on acceptance, they are not in themselves determinative thereof. The buyer is dependent on the seller‟s expertise that something more than a mere visual inspection is appropriate before the buyer can be held to have accepted the machine. A “reasonable time to inspect” under the UCC must allow an opportunity to put the product to its intended use, or for testing to verify its capability to perform as intended. Under the code the buyer may reject goods which “fail in any respect to conform to the K,” which creates a “Perfect Tender Rule.” In this case there was no acceptance. Df had the absolute right to reject the truck for non conformity w/i a reasonable time, and notify the seller. Df did so. Plaintiff’s Argument: Df by physcial possession accepted delivery of the goods. Defendant’s Argument: After repeated inspections by Pl, the goods were nonconforming.

 

Before you accept the goods you can require perfect tender After acceptance you may revoke your acceptace, if there is a substantial impairment to you. (subjective).

Colonial Dodge, Inc. v. Miller Relevant Facts: Df ordered a Dodge station wagon from Pl which included a heavy-duty package w/ extra tires. Df picked up the wagon, met his wife, and exchanged cars. When she got home she noticed the spare tire was missing. The following morn Df notified Pl and insisted on having the spare tire. He was told there was no tire available, he informed the salesman that his two checks would be stopped for payment, and the wagon would be in the front of his houses for them to pick it up. He parked the car and ten days later it was towed. Pl applied for license plates, registration, and title in df‟s name, Df refused the license plates. The tire was not included b/c of a nationwide shortage. Legal Issue(s): Whether failure to include spare tire with new automobile constituted a substantial impairment in value of automobile entitling buyer to revoke his acceptance of the vehicle? Court’s Holding: Yes Procedure: Circuit ct judgment for seller, and buyer appealed. Ct App reversed and remanded. On rehearing affirmed the Circuit Court. Buyer appealed; S. Ct. Reversed. Law or Rule(s):  The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it on the reasonable assumption that its nonconformity would be cured and it has not been seasonably  cured. Revocation must occur w/i a reasonable time after discovery of the grounds for it and before alteration.

Court Rationale:  Failure to include spare tire with new automobile constituted a substantial impairment in value of that automobile entitling buyer to revoke his acceptance of the vehicle, where defendant had ordered special package which included special tires and defendant's occupation demanded that he travel extensively.



Df’s concern w/ safety is evidenced by the fact that he ordered the special package which included the special tires. W/o a spare Df would be helpless on the freeway until the morning hours. The dangers to attendant motorist are common knowledge and Df‟s fears are not unreasonable. Def notified Pl of his revocation the morning after the car was delivered to him. The Df did not discover the nonconformity before he accepted the vehicle, which does not preclude his revocation. The spare was under a fastened panel, concealed from view. Df had no duty to hold the goods other than w/ reasonable care for a time sufficient to permit the seller to remove them.



Plaintiff’s Argument: The missing spare tire did not constitute a substantial impairment in the value of the automobile and is only a trivial defect. Defendant’s Argument: The value of the car was substantially decreased to Df as a result of the nonconformity. DISSENT : The requisite impairment of the value of the goods to the buyer must be substantial. It is not sufficient that the nonconformance be worrisome, aggravating, or even potentially dangerous. It must be a nonconformity which diminishes the value of the goods to the buyer to a substantial degree. Not the mere possibility of a flat in the early hours. SUBJECTIVE TEST Class Wrap up  Under the UCC when goods arrive they have to be perfect tender due the basis of the contract. IF acceptance takes place then the buyer can still revoke, but if the buyer wants to revoke it is no longer the perfect tender rule but a substantial impairment rule. A buyer might not be allowed to cure when they exercise bad faith or when they had an opportunity to cure but failed to do so continuously or in bad faith.



Excuse -Prevention

Sullivan v Bullock
Relevant Facts: Sullivan hired Bullock to remodel her kitchen, hallway, utility room, bathroom and sewing room. The written contract set out the major aspects but lacked

detail. No design sketches were agreed upon, communications were less that adequate concerning the final product. The work was not begun, or completed on time. Pl assented to the delays. The work performed was sometimes below the industry standard, not as Pl requested, and was not performed to her satisfaction. Df incurred off K costs for bringing the electrical and plumbing to code. Pl moved back in while the remodeling continued. She stated on a certain day, in her absence, that no workmen be present w/i the home. One workman entered through a window anyway. Pl told the Df to remove his crew from the premises. Legal Issue(s): Whether it was the homeowner or the contractor who breached a written contract to remodel several rooms in a home? Court’s Holding: Contractor, but excused. Procedure: Jury returned Special verdict; Pl filed JNOV-Denied. Pl appealed, Denial affirmed, damages reversed and remanded. Law or Rule(s): Where the Pl’s performance requires the cooperation of the Df, the Df, by necessary implication, promises to give this cooperation and if Df fails to do so, Df is immediately liable although Df’s only express promise is to pay money at a future day. Court Rationale: There is generally in a K subject to either an express or implied condition an implied promise not to prevent or hinder performance of the condition. Such prevention of the condition could otherwise have been performed, is an immediate breach of K. In a construction K, the duty to cooperate encompasses allowing access to the premises to enable the contractor to perform the work. Non-performance under the contract is excused if the other party prevented the performance. To excuse a party’s nonperformance the conduct of the party preventing performance must be wrongful and in excess of their legal rights. The act of prevention must have been unreasonable and outside the contemplation of the parties as expressed in the K. When Pl denied access she acted in a manner that was outside the contemplation of the K or the parties when they executed the K. Plaintiff’s Argument: Non performance of the contract is a breach and damages should be awarded to the Pl as a matter of law. Defendant’s Argument: The work was satisfactory, any unsatisfactory work could have been fixed, but Pl prohibited Df from finishing the project or fixing the defects. Always a duty to cooperate in a contract- always a duty of good faith and fair dealing… Forfeiture as an Excuse

Burger King Corp. v. Family Dining, Inc.

Relevant Facts: PL, BK, a Fl corp was founded by McLamore, who was a college friend of Carl Ferris, owner of Df PA corp, Family Dining. The parties entered into a franchise agreement whereby BK licensed Df to operate under BK’s name. The period of 90 years and territorial exclusivity was conditioned upon Df opening, building 10 franchises in as many years, and maintaining all ten for the 90 year period. The first three went ahead on schedule, but the fourth did not. The parties entered into a Modification, where BK waived Df’s failure to comply w/ the development rate. If the 4th and 5th were nearly in compliance BK agreed to overlook the year in default. Then the opening of the 6th was given a one month extension. The 7th opened, and after BK’s exercise in discretion related to site location the 8th went ahead, but the 9th and 10th had not been opened or were under construction. Pl and Df corresponded several times in an attempt to negotiate, but BK wouldn’t budge on the exclusivity and BK then terminated their agreement. Legal Issue(s): Whether BK was entitled to have the condition protecting its promise strictly enforced; Whether giving strict effect to the termination provision which would involve divesting the Family Dining of territorial exclusivity, would amount to a forfeiture? Court’s Holding: No, Yes. Procedure: BK filed suit seeking declaration that a territorial exclusivity agreement between it and a franchisee, by its own terms, was no longer of any force and effect. TRO was granted to BK. Bench trial, on the Df's motion for involuntary dismissal; Granted. Law or Rule(s): Where the words of a K raise no duty in and of themselves, but rather modify or limit the promisees’ right to enforce the promise, such words are considered a condition. A condition may be excused w/o other reason if its requirement - a) will involve extreme forfeiture, or penalty, AND b) its existence or occurrence forms no essential part of the exchange for the promisor’s performance. Court Rationale: A careful reading of the K indicates that it raises no duties in Family Dining. Failure to comply w/ the development rate operates to defeat liability on BK’s promise of exclusivity. The hiatus in development is not fully chargeable to Df. BK is not entitled to have the condition protecting its promise strictly enforced. Early on BK was concerned w/ development of a territory than exact compliance. There was no evidence it considered literal performance to be critical. After realizing the territory could support more than 10 franchises BK’s attitude changed. If the right of exclusivity were to be extinguished by termination it would constitute a forfeiture. IF Family Dining were forced to forfeit the right of exclusivity it would lose something of incalculable value based on its investment of time and money developing the area, the significant risks assumed and the fact that there remains 76 years of exclusivity. The termination of the Territorial Agreement would result in an extreme forfeiture to Df.

Plaintiff’s Argument: Since Family Dining failed to perform its promises to construct and open 10 franchises w/i 10 years the contract should be legally terminated. DF did not earn exclusivity past the 9th year and should forfeit anything in which it has an interest. Defendant’s Argument: The Territorial Agreement should not be terminated because it would result in a forfeiture to Family Dining. Pl has not asserted any relief other than termination. Issues as presented to the court: The requirement that the Family open ten new restaurants during the first ten years of the agreement was a condition subsequent rather than a promise on the part of the Family Dining. The contract was intended to be entire rather than severable. Didn’t seem too concerned with a strict reading of the contract. The DEF had not met the time requirements before and it did not seem like a big deal to Burger King. The BK was not entitled to have the condition protecting its promise strictly enforced. Giving strict effect to the termination provision which would involve divesting the Family Dining of territorial exclusivity, would amount to a forfeiture. Development rate imposed by agreement was not promise by Family but was, rather, condition subsequent, failure of which operated to defeat liability on BK's promise of exclusivity, or to divest Family Dining of its right to enforce promise. Provision terminating agreement which granted restaurant franchisee 90 years' territorial exclusivity upon failure of condition subsequent that franchisee develop and operate ten new restaurants in first ten years of agreement would not be given strict effect where, throughout early duration of contract, franchisor was more concerned with general development of territory than with exact compliance with terms of development rate, where there was no evidence that failure to fulfill time feature of provision was result of intentional or negligent conduct on part of franchisee and where if franchisee were forced to forfeit right of exclusivity it would lose something of incalculable value in that it had developed area to point where ten restaurants were in operation; considerations of fairness and equitable principles would not permit termination of agreement which would result in extreme forfeiture to franchisee. Agreement entered May 1963 1st — Aug 1963 2nd — July 1965 3rd ----Oct 1966 4th ----July 1968 5th ----Oct 1968 6th ----Oct 1969 7th ----Feb 1970 8th ----Oct 1970

9th —Sept 1974 10th ---- Proposed Feb 1975 opened March 1975 Inman v. Clyde Hall Drilling Co. Relevant Facts: Pl, Inman worked for Df Clyde as a derrickman under a written contract of employment, signed by both parties in late 1959. Early 1960 Inman was fired by Clyde. A portion of the contract stated notice of any claim against Clyde was required w/i 30 days and no longer than 1 yr. Pl‟s only notice was the complaint under this action for wrongful termination. Legal Issue(s): Whether the notice provision in the contract, as a condition precedent to recovery, is contrary to public policy? Court’s Holding: NO Procedure: Df filed for summary; granted. Pl appealed; Affirmed. Law or Rule(s): The ct must look at the relative bargaining positions of the parties in the framework of contemporary business practices and commercial life. If one party has taken advantage of the economic necessities of the other, as a matter of public policy, the ct should refuse to enforce the transaction. Court Rationale: There is nothing in the notice provision to suggest it was designed from an unfair motive to bilk employees out of wages or other compensation. There is nothing to suggest that Inman did not have knowledge, capacity, or opportunity to read the agreement and understand it; that the terms were imposed w/o any real freedom of choice; that there was any substantial inequality in bargaining positions. Inman attached a copy of the K to his complaint, and he admitted that at the time he signed it, he read it, and had discussed it w/ a Co rep. If the danger is increased whereby workmen are disadvantaged by employers the Leg will act. Commencement of an action and service of the complaint was not an effective substitute for the kind of notice called for by the agreement. Normally, failure to give advance notice of a claim where notice is required would be a defense set forth in the answer, but here the parties agreed that the notice was a condition precedent to any recovery. The Df cannot be charged w/ waiving a defense which it was not obliged to present in its answer. Pl‟s failure to provide notice was not the fault of the Co, there is no evidence that the Co induced Pl not to give notice. Plaintiff’s Argument: Since the complaint set forth the basis of the claim which was served w/i 30 days Pl substantially complied w/ the notice requirement. Non-compliance w/ the notice requirement is an affirmative

defense that must be raised in the answer. The Co breached the contract by terminating employment which canceled all obligation under the contract. Defendant’s Argument: The provision required Pl provide notice of any claim prior to the commencement of an action in order to recover. Pl did not provide notice prior to commencement of this action. Moe v. John Deere Co. Relevant Facts: Pl, Moe bought a farm tractor from Day Equipment. In financing Moe traded two tractors for $77K and agreed to pay the difference in 5 equal installments each due Oct 1st. After the agreement was executed it was assigned to Deere. Moe was two months late with his first payment until Dec. Moe was untimely in his second, and Deere waived full payment and extended the time to make the payment. Moe made a partial 3 mos late. Deere agreed to pay a second amt March 1. Moe failed to pay so Deere sent a letter extending the due date. Moe failed to make the payment. Deere sent a rep. who agreed w/ Moe to pay the balance when he started his harvest. No due date was indicated. Deere repossessed the tractor sent Moe a certified letter which was returned. It then sent another letter which was received. Implement sold the tractor. Legal Issue(s): Whether acceptance of late payments by Deere waives their right to repossess without notice? Court’s Holding: Yes Procedure: Trial ct partial Summary for Deere (3,4); then summary on (1,2); Reversed. Law or Rule(s): A secured party who has not insisted upon strict compliance in the past, who has accepted late payments as a matter of course, must, before he may validly rely upon a clause to declare a default and effect repossession, give notice to the debtor that strict compliance with the terms will be demanded henceforth if repossession is to be avoided. Court Rationale: The basis for imposing a duty on the secured party is that they are estopped from asserting his contract rights because his conduct has induced the debtor‟s reliance in believing that late payments were acceptable. The acts which induce reliance are repeated acceptance of late payments. The reliance is evidenced by continual pattern of irregular and late payments. Adopting the rule that a creditor must give pre-possession notice upon modification of a contract results in both the debtor and the creditor being protected. The debtor is protected from surprise and from damaging repossession by being forewarned. The creditor would be

protected by preserving its remedies so that if the account continues in default, repossession could be pursued as provided w/o further notice. Plaintiff’s Argument: Df continued to accept late payments, waived certain charges, extended the periods for payments, thus modified the contract. Defendant’s Argument: Acceptance of late payments does not waive or otherwise affect the right of a creditor to repossess w/o notice after subsequent late payment defaults when a non waiver clause exists in the contract.  Estoppel- Being stopped from enforcing a condition in the contract. -Waiver and estoppel are two grounds that a court will excuse a condition. -If it is impossible a court will excuse a condition.

Anticipatory Repudiation- first time mentioned in Hochster v. De la Tour
Hochster v. De La Tour Brief Fact Summary- Plaintiff, a currier, entered into a contract with Defendant to accompany Defendant on a trip that would begin June 1. Defendant changed his mind before June 1, and refused to compensate. Synopsis of Rule of Law- If two parties enter into a contract to be performed at a designated time in the future, and one party refuses to perform the contract before the designated time the parties agreed to perform, the other party may sue before the contract was to be performed. That party need not wait until the time for performance has passed Facts- Defendant and Plaintiff entered into a contract for Plaintiff to accompany Defendant on a tour starting on June 1. Defendant contacted Plaintiff on May 11, stating that he had changed his mind. He refused to compensate Plaintiff. Plaintiff brought suit against Defendant on May 22. Plaintiff found a new job that would begin on July 1. Issue. Was the lower court correct to find for the Plaintiff even thought the time that the contract was to be performed had not come? Held. Yes. Defendant argues that if Plaintiff is not willing to accept Defendant’s cancellation of the contract, then Plaintiff should have waited, being ready and willing to perform the contract until the time that the contract was to be performed. This court does not agree. Defendant has made it clear that he will not perform the contact. Would we ask that Plaintiff still make plans to accompany Defendant and turn down other employment opportunities that would interfere with performance? It is much more rational for a person, injured by the repudiation of a contract to be able to sue for damages immediately upon repudiation. Discussion. The court laid down a rule about suing for damages on a breach of contract where the performance was to be at a future date. Instead of making the

injured party prepare to perform when that party knows it is useless to do so, the court’s ruling allows injured parties to mitigate their damages and still sue for the damages they sustained because of the breach.  In certain situations where it is reasonable to think that the 2nd party to perform is not going to perform, the 1st party may sure for damages before the breach actually takes place. The court does this so the 1st party may mitigate damages. UCC 2609 and American common law have adopted a middle ground view. o If a party makes an off the cuff comment about not performing, the 2 nd party may ask for an assurance to make sure the contract is still upheld. Hope’s Architectural Products v Lundy’s Construction Relevant Facts: Df Lundy entered into a K for the construction of an addition to an Elementary School. Df provided the statutory public works bond secured through Df Bank. Pl, Hope’s is a manufacturer of custom built windows which contracted w/ Lundy to manuf. 93 windows for the project @ $55,000. The K included a term pertaining to the time for delivery, between 12 and 14 weeks after Hope’s received the shop drawings from Df on July 18. Delivery was due no later than Oct. 24. In Sept Df wrote Pl requesting that installation of the windows begin Oct 19 and finish by the 26 th. Pl did not make any response. The windows were shipped from NY to Kansas City Oct 28 th. Pl issued a letter suspending and demanded assurances that Df would not back charge as a condition to delivery, but Df was unwilling. Pl also demanded KP before delivery. Lundy’s did not pay, Df Bank would not pay on the bond, and Pl did not deliver the windows. Legal Issue(s): Whether Pl's delay in delivering windows and Pl's excessive demands entitled Df to treat Pl as in breach of contract, and whether the Pl was entitled to demand assurances?Court’s Holding: Yes, and No. Procedure: Pl filed action to recover damages = KP; denied. Law or Rule(s): When reasonable grounds for insecurity arise w/ respect to the performance of either party, the other party may in writing demand adequate assurances of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. To suspend performance Df/Pl must have had reasonable grounds for insecurity regarding the other’s performance, and have demanded in writing adequate assurance of future performance, and not received such assurance. Court Rationale: Hope’s claim that the delay in delivery was immaterial and did not excuse Lundy’s duties are off point. Even if an immaterial delay did not excuse

 

future performance by Lundy’s no performance was due from Lundy’s until the windows were delivered to the job site, which never occurred. There was no evidence that the delay was a matter beyond Pl’s control. ―Reasonable grounds,‖ and ―adequate assurances‖ are fact based determinations. When Hope’s first demanded assurances it was already in breach. The assurances demanded were excessive. If the assurances demanded are (excessive) more than adequate, the other party refuses to accede to the demands, the ct may find the demanding party was in breach or a repudiator. Hope’s demand for blanket assurances that it would not be held responsible for any extra costs was overly broad and unreasonable. Demanding payment in full before it was due was unreasonable and amounts to anticipatory breach. Giving notice of its intention to avail itself of a legal right did not indicate that Lundy’s was unwilling or unable to perform under the K. Hope’s delay and excessive demands entitled Lundy’s to treat Hope’s as in breach and cancel the K. Plaintiff’s Argument: Lundy’s failure to provide assurances as demanded and termination of the K amounted to a total breach. Defendant’s Argument: Hope’s breached the K by withholding the delivery of the windows therefor Df was entitled to cancel the K. *Delivery the act by which the res or substance thereof is placed w/i the actual or constructive possession or control of another, depending on the intent of the parties.

Brief Fact Summary
While plaintiff was working as a brick mason, a scaffold fell from beneath him, resulting in injury. Plaintiff consulted an orthopedic surgeon, who concluded that plaintiff had a preexisting back condition known as "spondylolisthesis." Plaintiff was insured by Mutual of Omaha for accidents and United Benefit Life. Defendants made payments to plaintiff under the policies until they notified him that his ailment would be considered an "illness without confinement" and ceased payments. Plaintiff sued both insurers, contending that the accidental fall activated a latent condition and produced a total and permanent disability witihn the terms of the policies.

Rule of Law and Holding
Restatement of Contracts, Section 318, states, "In [a] unilateral contract for the payment [of money] in installments after default of one or more, no repudiation can amount to an anticipatory breach of the rest of the installments not yet due."

Held- The jury found that the defendant had repudiated the contract, and awarded the plaintiff a lump sum for future payments based upon his life expectancy. The lump sum for future installments is inappropriate for a contract with installments based solely on repudiation. If the defendant fails to pay in the future, plaintiff can bring another action and the court can create whatever remedy is appropriate. The plaintiff also might recover or die. Majority view is that the breach of a single installment payment is a beach of only that payment, not an anticipatory repudiation of the entire thing. Dissent This is not just a delay in payment but a complete repudiation of the contract, which should allow the plaintiff to recover for the whole contract. There is no need to prove continued disability, as plaintiff's disability is total and permanent. This is a suit of damages (and therefore expectancy), not a suit for specific performance. Public policy should keep the plaintiff from having to come back and relitigate future breaches. Class Wrap up- In certain situations where it is reasonable to think that the 2 nd party to perform is not going to perform, the 1st party may sure for damages before the breach actually takes place. - UCC 2609 and American common law have adopted a middle ground view. If a party makes an off the cuff comment about not performing, the 2 nd party may ask for an assurance to make sure the contract is still upheld.   Assurance must be reasonable May not ask for assurances after you are in breach yourself.

- Majority view is that the breach of a single installment payment is a beach of only that payment, not an anticipatory repudiation of the entire thing.

Chapter 9 Third Party Beneficiaries Four contracts where NY has recognized 3rd party beneficiaries: 1. Preexisting obligation- Creditor & Debtor 2. Contracts made for the benefit for a wife or child 3. Where there is a public contract with a municipality to protect its inhabitants 4. Contracts where at the request of a party to the contract, the promise runs directly to the beneficiary although he does not furnish the consideration.
Lawrence v. Fox-First case to mention 3rd party beneficiaries-Seminal Brief Fact Summary. The Plaintiff sued to recover for a promise made by the Defendant to one Holly, that the Defendant would pay the Plaintiff $300.

Synopsis of Rule of Law. A promise made for the benefit of another may be enforced by the person for the benefit of whom the promise was made. Facts. Holly owed the Plaintiff $300. The Defendant asked to borrow $300 from Holly, and Holly assented. In exchange for the loan, the Defendant promised to pay $300 to the Plaintiff the next day to satisfy Holly’s debt to the Plaintiff. The Defendant did not pay the Plaintiff and the Plaintiff sued to recover the benefit promised to him under the contract between Holly and the Defendant. Issue. Can a third party maintain an action to enforce a benefit promised to him in a contract not entered into by him directly?  Fox argues there is no consideration between himself and Lawrence; no privity, Fox isn’t getting anything from Lawrence

Held. Yes. The law is clear ―that a promise made to one for the benefit of another, he for whose benefit it is made may bring an action for its breach.‖ Here, Holly owed money to the Plaintiff and entered into a contract with the Defendant whereby Holly would loan the Defendant money if the Defendant agreed to pay the Plaintiff what Holly owed him. This agreement was not lacking in consideration, because the consideration does not have to be between the Plaintiff and the Defendant. There simply has to be consideration between the parties to the contract. Hence, the Plaintiff can maintain this action against the Defendant, Fox and Holly had consideration.     The consideration, quid qo pro, does not have to lead to the two people making the transaction the beneficiaries. In certain circumstances those who aren’t a party in the contract may se for breach of contract. If you are the intended beneficiary of the original contract, you should be able to recover. Formalistic reasoning in a narrow situation.

Dissent. The Plaintiff did not have anything to do with the promise, and no consideration was given by him. Therefore, the Plaintiff has no right to enforce the agreement for his benefit. Concurrence. Holly acted as the agent of the Plaintiff. Hence, the promise was made by the Defendant to the Plaintiff through his agent. Discussion. A third party beneficiary may sue to enforce a promise made for his benefit. Seaver v. Ransom- Instrumental Reasoning-Expanded Lawrence v. Fox

Relevant Facts: Mrs. Beman was about to die. She owned a house and a lot. Her husband drew up a will according to her instructions. Pl was her niece who sometimes lived with the Bemans. When the will was read Mrs. Beman isolated an err, she had wanted the house to go to the Pl, but it was identified as going to her husband. B/c she was failing fast her husband asked her to sign the will, and stated that he would leave enough in his will to make up the difference. After he died there was no provision to this effect. Dfs are the executors. Legal Issue(s): Whether the Pl can recover against an agreement whereby Mr. Beman induced his wife to execute the will by his promise to give Pl $6000? Court’s Holding: Yes Procedure: Judgment, after trial, for PL, and from an interlocutory judgment overruling demurrer to the complaint, Df appealed. Affirmed. Law or Rule(s): Privity between a Pl and Df is necessary to the maintenance of an action arising out of a breach of duty on the contract. The right of the beneficiary to sue on a contract made expressly for his benefit has been fully recognized. Court Rationale: Where a legatee promises the testator that he will use property given to him by the will for a particular purpose, a trust arises. Equity compels the application of property obtained, but cannot impress a trust except on property obtained by the promise. Beman was bound by his promise, but no property was bound by it. No trust in Pl’s favor can be spelled out. A general rule sustaining recovery at the suit of the 3rd party would include few classes of cases. The desire of the childless aunt to make provision for a beloved and favorite niece differs imperceptibly in law or in equity from the moral duty of the parent to make testamentary provision for a child. The contract was made for the Pl’s benefit. She alone was substantially damaged by its breach. Because the testatrix bequeathed the promise to the Pl, and not b/c close relationship or moral obligation sustained the contract, the Pl could have recovered in law against Mr. Beman for the value of the house. Plaintiff’s Argument: The promise was made for the benefit of the Pl, for consideration of the property retained by Mr. Beman which was breached. Defendant’s Argument: Pl was not in privity of contract, and the property being held was a trust where the Pl was not a part of. H. R. Moch Co. v. Rensselaer Water Co. Brief Fact Summary. The Appellate Division of the Supreme Court in the Third Judicial Department (New York) ruled in favor of Rensselaer Water Co., (Defendant) when H.R. Moch Co., (Plaintiff) in a negligence action, contended that defendant failed to provide enough water during a city fire. Plaintiff appealed. Synopsis of Rule of Law. A member of the public may not maintain an action against one contracting with the city to furnish water at the hydrants, unless there is an intention

that the defendant is to be answerable to individual members of the public as well as to the city for any loss ensuing from the failure to fulfill the promise. Facts. Defendant had entered into a long-term contract with the city to supply water for various purposes, including for fire hydrants. During the course of the contract, a building caught fire. The flames spread to a nearby warehouse, owned by Plaintiff, destroying the warehouse and all it contained. Plaintiff brought suit, seeking negligence damages, contending that Defendant breached its duty of care within the city. The trial court denied Defendant’s Motion to Dismiss. The appellate court reversed, stating that while a duty existed between Defendant and the city, Plaintiff had no legally recognized interest. Issue. Did Defendant’s duty to the city extend to Plaintiff as an individual member of the public? Held. No. The Court of Appeals of New York affirmed the lower court’s ruling, stating that pursuant to the local statute, Defendant was never intended to be held liable for incidental damages from performing its services. Discussion. The issue addressed in H.R. Moch hinges on the degree of duty owed to a third party pursuant to a public contract. This is often referred to as privity, or a party’s legally recognized interest. As the court explained with respect to the rights of individual citizens affected by public contracts, ―[f]or a member of the public to maintain a suit against one contracting with the city, the contract must be shown to give a right of action to a member of the public not formally a party. The benefit must be one that is not merely incidental and secondary. It must be primary and immediate in such a sense and to such a degree as to bespeak the assumption of a duty to make reparation directly to the individual members of the public if the benefit is lost.‖ Class Wrap upCardozo view is becoming a majority view. Old law- 3rd partys cannot bring suit bc there is no privity. Lawrence v. fox- some times 3rd parties may bring suit, 3rd party creditor may bring suit Seaver v. Ransom- Lets more individuals bring suit Cardozo-you can take all these cases together and lump them in a broad category:   Intended benefitters may bring suit Incidental benefitters may NOT

The need for Restatement 2nd Changes

Logical Extreme Blair v. Anderson Supreme Ct of DE 1974 Relevant Facts: The Pl was formerly a Federal prisoner who alleged that while incarcerated he was the victim of an assault Prisoner sues Dfs, including the State of DE, for assault.

· DE ·

He‟s a federal prisoner that was put in a state prison in

We know he was housed in a state owned prison

because there is a contract between the US government and the state of DE where DE allows some federal prisoners to be placed in a state owned prison · The tort claim was denied because sovereign

immunity (for certain tortious conduct you cannot sue the state) was a defense · Some states have sovereign immunity because they

want to limit the docket on tort lawsuits against the state and because the tax payers would end up paying the settlement · Also sued claiming he was a beneficiary of the

contract between State of DE and the US Govt. that was breached o RELEVANT CONTRACT LANGUAGE: Responsibility for Prisoner’s Custody – It is the responsibility of the sheriff, jailer or other official responsible

for the administration of the institution to keep the prisoners in safe custody and to maintain proper discipline in control
Holding: The PL is a creditor beneficiary. The U. S. owed a duty of care and subsistence to a person it caused to be committed and it owed a statutory duty of “safekeeping,‟ and protection. By K DE agreed to perform that duty. The Pl is the very subject of the agreement. He has not only a direct interest in the K but a right to enforce it as against the State if it fails to provide the requisite minimums. IN FAVOR OF THE INMATE This is the FARTHEST any court has ever expanded 3rd party beneficiary THIS IS THE ABSOLUTE FURTHEST NOT THE MAINSTREAM LAW UNDER THE RESTATEMENT: To recover you have to be an intended beneficiary Under the Restatement, could he have still recovered?

·

Because the contract said keep the inmate in “safe

custody” it could be construed that they intended the π to be an INTENDED beneficiary of the contract · Even though he rules in favor of the inmate, the

last paragraph of the opinion Duffy points out a “basic unfairness” that a STATE prisoner would not have had the same remedy as the FEDERAL prisoner had in this case. Because his claim was based on a contract between the State and the US Govt. he was able to recover but there would have been no contract for a state prisoner to base their claim on o A state prisoner and a federal would lose under tort theory because of sovereign immunity
o

He knows there’s no good faith way to get around sovereign immunity but because he thinks theres a “problem” of the officials not protecting inmates he pushed this theory about 3rd party beneficiary so that there would be a larger burden on the state to protect the inmates o INSTRUMENTAL REASONING
o

Court Limits It Bain v. Gillispie Ct of App Iowa 1984 π – referee, Bain ∆ - couple that operates a store in IA, Gillipsie Relevant Facts: During a game Bain made a call that resulted in the opposition winning by a free throw. Some fans blamed Pl for the loss. Dfs operated a novelty store for profit not associated with the University.

·

A few days after the game, Dfs began marketing a shirt

referencing PL by a figure w/ a rope around his neck and the words Jim Bain Fan Club. · When Bain saw the shirts, he sued the Gillipsies

Gillipsies filed a COUNTERCLAIM and denied liability on Bain’s lawsuit

·

Counterclaimed based on referee malpractice (TORT)

o referee malpractice doesn’t exist so this didn’t pan out for them o It might have been less ridiculous to breach a duty of care rather than calling it malpractice o The problem with claiming tort is that he didn’t breach a duty of care to the Gillipsies o Even if he breached a duty of care, the Gillipsies were not a harmed plaintiff and they were not foreseeable o No claim that he was negligent or wrongful in making the call at the game

·

Claimed they were 3rd party beneficiaries of the

employment contract between Bain and Big 10 Conference (CONTRACT THEORY) Court thinks this claim is ridiculous = “beyond credulity” NOT CREDIBLE o If Bain is under the contract with Big 10 to enforce the rules o They argue they need to see the contract o Might help Gillipsies: If there are any 3rd party beneficiaries, merchants or fans they still probably don’t have a claim but that would help o The court thinks its so ridiculous that they won’t let them look at the contract
o Law or Rule(s): To maintain an action for breach of K as a third party beneficiary, the party would have to be either privity to the K, or a direct beneficiary, not merely incidental. Court Rationale: It is beyond credulity that Bain, while refereeing a game, must make his call at all times perceiving that a wrong call will injure Df’s business or other similarly situated. Referees are in the business of applying rules, not in the work of creating a marketplace for others. The Dfs were not privity to any K, they were not direct beneficiaries. THEY ARE MERELY INCIDENTAL There are no genuine issue for trial which could result in Dfs obtaining a judgment under a K theory of recovery. The Gillipsies really wanted to get the contract because this was really about just finding something in the contract to cling onto and harass Bain Contract Written In a Way that it creates a 3rd Party beneficiary but parties change their mind ISSUE: Merely because at one point someone appeared in the contract, are they always a 3rd party beneficiary or can they just be removed? GROWING VIEW (NOT EVERY STATE) BUT THE MAJORITY OF STATES THAT ADOPT THE RESTATEMENT Restatement §311

Variation of a Duty to a Beneficiary GENERALLY: The parties to a contract can change their agreement to cut out a 3rd party beneficiary If a 3rd party beneficiary is NOT A PARTY to the contract-they don‟t have any rights so the parties can get together and remove them 2 EXCEPTIONS: (1) If the contract when written explicitly says that you cannot remove the 3rd party beneficiary then you cannot remove them (2) If the 3rd party beneficiary JUSTIFIABLY RELIES on the promise they cannot be removed Board of Ed District No. 220 v Village of Hoffman Estates
 App Ct Illinois [1984] Relevant Facts: Two owners (Pee) entered into agreements w/ Df Village providing that owners would pay Df $135 per residential unit developed, to be held in escrow for the benefit of education. The parties would attempt to annex the land into District 15 and thereafter the funds would be released to that district, but if unsuccessful after 5 years the funds would go to Pl D220. After 5 yrs the annex was unsuccessful, the agreement was modified and the time extended to 9 years where if again unsuccessful the funds would be paid to D220. Pl started this action at the end of the 5 yr period.

·

Owners and the builders had an agreement where

Village would pay them money · Owners said they would take $135/mo and set it aside

for education of people who used that · Village was going to put the $ in an escrow account for

Dist. 15 and Dist. 220 · Building a village that was part of Dist 220 which was

known as a bad school district

·

The money was going to trust because the parties were

trying to get kids out of 220 and to 15 and after 5 years if they were unable to get the kids to 15 · Shortly before the 5 year period is up they add Dist. 54-

so they could either move the kids within Dist. 15 or Dist. 54 to get them away from Dist. 220
Plaintiff’s Argument (SCHOOL): The beneficiary‟s rights vested when the owners and Df executed the agreements and therefor no amendments were possible. Defendant’s Argument (BUILDERS): Where there are two possible beneficiaries of the promise, and the ultimate beneficiary is unidentified until certain events occur, the Df and owners were free to amend the agreement b/c no TPB rights were vested at that time. FOR THE RESTATEMENT: It matters that it is vested or unvested because if Dist. 220 was expecting to get the money at the end of the period-it would not be JUSTIFIABLE RELIANCE because if it was unvested it could have gone to the other contingent interest. 220 had no reason to change their position because even if it didn‟t go to 220-could‟ve gone to 15 Holding: A TPB K may exist even if the beneficiary is identifiable or in existence when the time for performance arrives. Such beneficiaries have no vested rights UNTIL they are identified, and Ks made for their benefit may therefore be rescinded or modified by the parties thereto until such time as the beneficiaries are identified. There could only be one beneficiary of the funds held in escrow, and that beneficiary could not be identified until the time for performance arose; i.e. until the land was included w/i the boundaries of D15 or 5 years had elapsed, whichever occurred first. D220 was merely a potential beneficiary and the actual beneficiary had not yet been identified at the time Df and the owners modified their agreement. Therefore neither District had a vested

right as a TPB recipient under the K, and the parties were free to modify their agreement. Restatement : In the absence of language in the K making the rights of a TPB irrevocable, the PR and PEE retain the power to discharge or modify until such time as the Beneficiary , w/o notice of the modification/discharge, materially changes his position in reliance on the promise or brings suit on it or manifests assent to it at the request of the promisor or the promisee. [So long as there is no detriment to a third party ( who provided no consideration), the Pr and Pee are free to modify or discharge. No I/D of TPB, modification is allowed b/c there is no detriment. Assignment and Delegation Different from 3rd party beneficiaries bc there is never mutual assent with 3rd party beneficiaries. They aren’t a signatory to a contract yet they are mentioned expressly or implicitly in the contract as intended beneficiaries.  In a bilateral executory contract each party is owed a performance obligationa contract right- and each owes or will owe a performance obligation-a contract duty

 There rights are transferable to others.
Contract rights are assigned and contract duties are delegated. Assignment: When someone grants their rights or benefits to you.    Assignor (will be one of the original contracting paties)-person making the assignment. Assignee (who will be a stranger to the original contract)- the person to whom the assignment is made to. Obligor – The original contracting party to whose obligation is assigned.

Delegation: When someone grants their duties to y ou.  Same parties are known as the: o Delegator-(will be one of the original contracting paties)-person making the assignment. o Delegate- (who will be a stranger to the original contract)- the person to whom the assignment is made to. o Obligee- The original contracting party to whose obligation is assigned.

HYPO:

Chiger --- Fields Tutor --$100

HYPO:

Mr. Fields

Drive to school ------ $100 <--------

Ms. Chiger -- Zohar

The party receiving the benefit may sue the original party with the rights or duties and also the party they are assigned too. o Assignment-Chiger gives the rights to the $100 to Zohar. o Delegation-Chiger gives the duty to drive Fields to Zohar  Generally when a contract does not have a no assignment clause or a no delegation cause, when its silent on those issues, a party is allowed to assign its rights and duties, the original party still has liability if the assignee and delegate does not fulfill their responsibilities.

o Exceptions:  A personal service contract with a unique/special skill.

A novation is when all parties agree to substitute a party. Mr. Fields Drive to school Ms. Chiger

--------- -------Ms. Zohar $100  All three parties must sign the new contract and come to an agreement. A. Performance Obligations
Macke Co. v. Pizza of Gaithersburg, Inc.

Validity of Assignment/Delegation-Performance Obligations Relevant Facts: Df/ees, Pizza 4 corporations under common ownership, operated at 6 locations. They arranged to have installed at each location cold drink vending machines owned by Virginia. This arrangement was formalized at 5 by K for 1yr terms, renewable absent 30 day written notice. Later a similar K was entered into for the 6th location. Virginia‟s assets were purchased by Macke and the 6 Ks were assigned to Macke. Pizza attempted to terminate the Ks. Macke brought suit for damages on breach of K. Legal Issue(s): Whether the rights and duties under a service contract may be assigned and delegated was permissible under the terms of the agreement between Pizza and Virginia? Court’s Holding: Yes Procedure: Tr ct ruled judgment favor of Df; Pl appealed; Ct App reversed and remanded for a new trial on damages. Law or Rule(s): In the absence of contrary provision, rights and duties under an executory bilateral K may be assigned and delegated, subject to the exception that duties under a K to provide personal services may never be delegated, nor rights be assigned under a K where the choice of the person was an ingredient of the bargain. Court Rationale: The six machines were placed on the appellee‟s premises under K which identified the customer; gave its place of business, described the vending machines, and provided that the Co will install and maintain the equipment on the customer‟s premises. We cannot regard the agreements as Ks for personal services. They were either a license or concession or a lease of a portion of the premises, and assignable by Virginia UNLESS they imposed on VA duties of a personal or unique character which could not be delegated. The difference btwn VA’s service and Pl’s service did not mount up to such a material change in the performance of obligations under the agreements as would justify the appellee’s refusal to recognize the assignment. The delegation of duty by VA to Macke was entirely permissible under the terms of the agreements. Plaintiff’s Argument: Installation and maintenance of machines do not require extraordinary skill or knowledge and is not personal. Defendant’s Argument: Pizza had dealt w/ Macke previously and had chosen VA b/c the service provided was personal. Restatement : Performance or offer of performance by a person delegated has the same effect as performance or offer of by the person named in the K, UNLESS; the performance delegated varies or would vary materially from performance by person named AND there has been no assent to the delegation.

Herzog v. Irace Brief Fact Summary. This case involves an assignment of proceeds from a personal injury claim to a physician to pay for medical expenses. Synopsis of Rule of Law. Proceeds to be received from pending litigation may be validly assigned. Facts. Gary Jones (Jones) was injured in a motorcycle accident and retained the Defendant, Irace (Defendant), to represent him. Jones then injured his shoulder and went to see the Plaintiff, Dr. Herzog (Plaintiff), who determined that Jones needed surgery on his shoulder. Jones wrote a letter stating that he “request[ed] payment to be made directly from settlement of a claim currently pending for an unrelated incident to John, Herzog, D.O.” Plaintiff informed Defendant about this assignment and performed the surgery. Thereafter, Jones instructed Defendant not to disburse the proceeds to Plaintiff. Jones sent a check to Plaintiff. However, the check was returned for insufficient funds. Plaintiff sued to enforce the assignment. Issue. Can future proceeds from pending litigation be validly assigned to a third-party? Held. Yes. Judgment affirmed. The court held that this assignment was valid because Jones‟ letter gave no indication that he wished to retain control over the funds. The court also held that enforcing the assignment did not interfere with Defendants‟ ethical obligations as attorneys. Discussion. The court noted that an assignor must not retain any control over the right of the assigned funds. It found that Jones did not retain any such control when he requested that the payment be made to Plaintiff. Also, Defendant had notice of the assignment and therefore was obligated to enforce it. The court also examined the Maine Bar rules and found no ethical rule barring a lawyer from assigning his client‟s proceeds from a pending lawsuit to a third party. Class Wrap-up:  Generally when a contract does not have a no assignment clause or a no delegation cause, when its silent on those issues, a party is allowed to assign

its rights and duties, the original party still has liability if the assignee and delegate does not fulfill their responsibilities.  Exceptions: o A personal service contract with a unique/special skill or substantially changes performance. (Same with rights as well) If you are a party that knows of an assignment, you have to respect the assignment. Limitations on the Assignment Two most common ways the words assignment is used: o assignment o assignment & delegation. Also sometimes used interchangeably when speaking of delegations. Cheney v. Jemmett  Relevant Facts: Pls Cheney, entered into a real estate K w/ Dfs Jemmett. Pls agreed to sell certain property for $32,500 w/ $5K paid by 1st of the next mo. The balance plus interest to be paid per annum to bank. A non-assignment clause was added to the K, but could be overridden by written consent of Pl. Dfs wanted to sell the property and their broker requested Pls‟ consent which was refused. Dfs, after speaking with atty, drafted a separate and independent agreement, where the payments from the new owners would automatically be tendered to the escrow account of Pl/Df until paid in full, which avoided an assignment. During the final transaction w/ Dfs and new owners an encumbrance was found where Pls had assigned their interest to obtain a loan. Pl delivered a satisfaction of encumbrance and sued the Def‟s for defaulting, the PL‟s would naturally think that the Def‟s found a loophole and are  taking advantage of the situation. Legal Issue(s): Whether the Pls can unreasonably and arbitrarily withhold consent for Dfs to assign the real estate contract which has a non-assignment clause subject to written consent? o The court only looks at one of the two issues presented to the court.



The first issue that wasn‟t looked at was whether the contract between the Jemmetts and Honn‟s was an assignment. The second issues was whether consent was unreasonably withheld  This was only looked at bc, the case could go away based on this determination alone, without having to discuss whether the contract was an assignment.



 

Court’s Holding: Cheney‟s were unreasonable. Procedure: @ trial Dfs moved for involuntary dismissal, judge granted; S. Ct ID Affirmed with atty fees (concurrence opted to refused atty fees); Pet Rehearing denied but atty fee award reversed. Law or Rule(s): Where a K provides that the matter of approval of performance is reserved to a party, he must “act fairly and in good faith in exercising that right. He has no right to withhold arbitrarily his approval; there must be a reasonable justification for doing so.” When a matter in a K is left to the determination of one party alone, that party‟s determination is conclusive if he acts in good faith. Court Rationale: A lessor may not unreasonably withhold his consent, under a sublease agreement, to a prospective sub-leasee or such result would nullify the right of a lessee to sublet. When a K grants the purchaser the right to assign his interest in the K, or in the property in issue, conditioned upon obtaining the consent of the seller, the seller must act reasonably and in good faith in withholding his consent to a proposed assignment. This applies only to those cases where the K specifically conditions the proposed assignment on obtaining the seller‟s consent. Plaintiff’s Argument: The Dfs assigned their rights and interests in the property without consent of the Pl which was required per the agreement for sale. Defendant’s Argument: The Dfs and new owners entered into a separate and independent agreement and did not constitute an assignment of the rights and interests under the agreement between the Pl and Dfs.











Concurrence: Agrees with majority as to reasonableness and good faith. The language of the agreement called for an award of atty

fees if the a dispute arises and the agreement must be interpreted. While a dispute did arise, the resolution thereof did not hinge on an interpretation of the agreement.  Dissent: A contract should be carried out as the parties negotiated it, and not as the majority of this ct thinks they should have negotiated it. If a good faith or reasonability requirement was desired, it was for the parties , not this court, to make that determination. Case wrap up- Every contract has an implied duty of good faith and fair dealing. When there is a clause that asks for the consent of a party, there is an implied duty of reasonableness when denying consent. Ford Motor Credit Co. v. Morgan

 Brief Fact Summary
 The Morgan‟s purchased a vehicle, which was financed by Ford Motor Credit Co. The vehicle had mechanical problems. The Morgans made 15 payments totaling $2,056 then defaulted and Ford sued to recover $2,628 due on the installment contract and attorneys fees. The Morgans submitted a counterclaim, which tried to hold Ford Motor Credit liable for the dealer's actions. Morgan’s argument- counter-claimed in three counts most predicated on the theory that, which the court rejected, that as an assignee of the contract, Ford Credit stands fully in the same position as the assignor-dealer and thus any wrong doing by the dealership are attributable to the credit company and may provide the basis of affirmative recovery from ford credit. affirmative recovery- the Federal Trade Commission issued its rule preserving consumers‟ claims and defenses.





 Rule of Law and Holding
 An assignee will not be liable for the assignor's wrongdoing. As long as there isn’t a burden on the outside party, you can use partial assignments and partial delegations. Unless you agree to be responsible for the duties, you cannot be held liable for them. A party cannot sue on unrelated claims unless the assignee has agreed to those assignments and delegations. Otherwise, the party can sue for a set-off Class Wrap-upCheney v. Jemmett o Express clauses to a contract trump implied clauses.

o However, if an express clause can be read next to the those implied clauses, they will be. o Clause did not say may not assign to an outside party, asked for permission. If permission is needed it must be reasonable and not unreasonably upheld. o Idaho and many other jurisdictions has taken the view that you are allowed to deny permission but reasonably. Ford v. Morgan  True assignment is just the rights  True delegation is just the duties  True assignment and delegation is both   Ford never agreed to be delegated the duties of any law suit that may arise. Setoff reduced liability for Ford and Morgan had to come after the dealership.

Avoidance of the K : Misunderstanding

Flanders makes a contract with Lisa for the sale of a trumpet for $5/mo over a year. Flanders assigns the contract to Rev. Lovejoy Flanders had represented to Lisa that the trumpet was in working order but one of the keys broke and she had to pay $3 to get it fixed. She does not make her first month‟s payment. IF THERE WAS NO ASSIGNMENT:

· ·

Flanders sues for her failure to pay Lisa has a defense of breach of contract and can ask

for a setoff (because she paid $3 to fix is she only owes Flanders $2)
IF THERE WAS AN ASSIGNMENT:

·

Lovejoy sues for Lisa‟s failure to pay

·

Lisa still has the same defense against Lovejoy of a

breach of contract and can ask for a setoff · Lovejoy could then sue Flanders for the difference

PUBLIC POLICY: It‟s not fair to make Lisa the injured party under the contract because she didn‟t choose to assign the contract to Lovejoy, Flanders did. She is not in a position to protect herself from wrongdoing (similar to the bailor/bailee situation from property) IF IT ARISES OUT OF THE SAME CONTRACT, ANY CLAIM THAT THE OBLIGOR WOULD HAVE AGAINST THE ASSIGNOR, THE OBLIGOR CAN USE AS SETOFF AGAINST THE ASSIGNEE. Setoff and Recoupment Seattle-First National Bank v. Oregon Pacific Industries Sup Ct of Oregon 1972 Relevant Facts: Centralia – plywood in exchange for $$ à OPI Centralia was insolvent at the time of the contract and needed money immediately so they went to SFN to get a loan Centralia - assigned invoice from OPI à Seattle Bank The bank gave notice to Centralia that the assignment had occurred. THIS IS NOT IN DISPUTE Oregon Pacific argued they did not have to make payment to Seattle Bank because the plywood in the contracts were never delivered This argument for setoff is a little bit different from Ford v. Morgan and the Flanders/Lisa/Lovejoy hypo. They are arguing that the plywood they DID NOT receive is not part of the contract Not a setoff for something from the SAME CONTRACT They want to setoff money that was owed to them by the assignor from a different contract. ORS 79.3180(1) The rights of an assignee are subject to (limited by):

(a) All the terms of the contract between the account debtor and assignor and any defense or claim arising therefrom (b) Any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives notification of the assignment The rights of the assignee are SUBJECT TO (limited by) certain types of other rights YOU CANNOT SETOFF PURSUANT TO A CLAIM FROM A DIFFERENT CONTRACT IF THE ASSIGNEE (a) ONE WAY TO ALWAYS HAVE SETOFF: Can set off claims that you would have under the same contract (b) EVEN IF IT’S A DIFFERENT CONTRACT: The setoff must accrue before notice is given of the assignment SEATTLE BANK WINS The courts assumed there were 3 separate contracts The rights under one of the contracts were assigned OPI wanted to set off against the bank for the other 2 contracts and the court said: NO under (a) Under (b) you can only do it if the claims against the original parties accrued before the assignment OPI’s claim did not accrue prior to their notification of the assignment under (b) so they can’t get a setoff for a separate contract TAKE AWAY: In continuation of the principles we‟ve seen before: Setoff of claims arising out of the same contract can ALWAYS be used as a defense a gainst assignee just as it can be used as a claim against the original party Seattle First – not trying to set of original contract but a different one Claims coming from a DIFFERENT CONTRACT must have accrued prior to the point of notification of assignment GENERALLY: obligor can set off any claims they have against the assignee‟s claims, but more specifically that is ONLY TRUE when it is OUT OF THE SAME CONTRACT

IF THEY DO NOT: Then you got to (b) The claim has to accrue before they received notice of the assignment Delegation of Duties Langel v. Betz Ct of App NY 1928 π – Langel/selling some property ∆ - person who Hurwitz and Hollander assigned their rights to under the original K with Langel Facts: Aug 1 1925 – Langel made a contract with Hurwitz and Hollander for the sale of real property. The vendees assigned to Benedict who then assigned to Betz (∆) L (vendor/π) – original contractà Hurwitz and Hollander (vendee) Hurwitz/Hollander (assignor) – assignment à Betz (∆/assignee) COMMON LAW: Assignment means ONLY the assignment of rights

·

There may be that they are trying to flip the

property over and over to make a profit
The assignment contains no delegation to Betz of performance of the duties of Hurwitz and Hollander

·

The date of performance was originally Oct 2,

1925 and was extended to Oct 2, 1925 at Betz’s request because the title company had not completed the title search on the property. · On Oct 25, 1925 Betz refused to perform, but

Langel was ready willing and able to perform and was present ready to tender the property Betz who did not show up

Langel brought this action asking for specific performance of the contract Betz claimed that he had only been assigned the rights and not been delegated the duties and did not sign any contract with the plaintiff Holding: There has been no novation (parties did not agree to substitute Betz for H/H), no express assumption of the obligations by assignor in the assignment, and no demand for performance by the assignee. Mere assignment of a bilateral executory contract may not be interpreted as a promise by the assignee to the assignor to assume the performance of the assignor’s duties, so as to have the effect of creating a new liability The assignee of the vendee is under no personal engagement to the vendor as there is no privity between them. HOWEVER: Vendee may expressly or implicitly bind himself to perform the assignor‟s duties, either with a contract with the assignor or the other party of the original contract It has been held that where an assignee of the vendee invokes the aid of a court in equity for specific performance he implicitly binds himself to perform in an action for specific performance A judgment requiring the assignee of the vendee to perform at the suit of the vendor would operate as the imposition of a new liability on the assignee which would be “an act of oppression and injustice” GENERALLY: probable intention of the assignee is to assume duties as well as rights and the contract would be interpreted as so unless there is another intention indicated PROPOSED: Restatement § 164 Interpretation of Words Purporting to Assign a Bilateral Contract (1) Where a party to a bilateral contract which is at the time wholly or partially executory on both sides purports to assign the whole contract, in the absence of circumstances showing a contrary intent his action is interpreted as an assignment of the rights under the contract and a delegation of duties

(2) Acceptance by the assignee of such an assignment is interpreted in the absence of circumstances showing a contrary intent as both as assent to become an assignee of rights and a promise to the assignor to assume performance of duties

·

COMMON LAW DEFAULT: Assignment is only an

assignment of rights · This Restatement wants the default to be

assignment and delegation
This promise would then be available to the other party to the contract. COURT APPLIES COMMON LAW: The law remains that no promise of the assignee to assume the assignor’s duties is to be inferred from the acceptance of an assignment of a bilateral contract in absence of circumstances surrounding the assignment itself which would indicate a contract intention DISMISSED. (in favor of Betz) TAKE AWAY While COMMON LAW was Assignment = ONLY RIGHTS This is a move by the Restatement to say sometimes we have to look at circumstances Assignment should not be just rights, but the default should be Assignment and Delegation RESTATEMENT: If it makes more sense within context assignment can be interpreted not just as assignment but assignment and delegation ßTHIS IS THE MOVEMENT OF THE LAW UCC §2210(5) The default is that it is an assignment and delegation, unless language or circumstances indicate the contrary. If you want to only assign your rights and not delegate your duties you have to be more clear in the contract: ie: “I‟m only assigning my rights”

Rouse v. US (SKIPPED) US Ct of App DC Circuit 1954 Facts: Winston gave Assoc. Contractors Inc. a promissory note for $1,008.37 payable in monthly installments of $28 for a heated plant in her house. FHA guaranteed the note and the payee endorsed it to the lending bank (Union Trust Co.) Winston sold the house to Rouse and in the contract Rouse agreed to assume debts secured by deeds of trust and also “to assume payment of $850 for heating plant payable $28 per mo.” Nothing was said about the note. Winston defaulted on the note. The US paid the bank and took assignment of the note and demanded payment from Rouse. Rouse’s defenses (1) Winston fraudulently misrepresented the condition of the heating plant (TORT) (2) Assoc. Contractors did not install it satisfactorily PH: Dist Ct – struck these defenses and granted summary judgment in favor of π Holding: Since Rouse did not sign the note he is not liable under it. Not liable to the US unless his contract with Winston makes him so. The contract says the parties to it are “not bound by any terms conditions, statements, warranties or representations, oral or written” not contained in it. But this means only that the written contract contains the entire agreement. DOES NOT MEAN that graud cannot be a defense to a suit on the contract. Rouse‟s promise to pay “$850 for heating plant” made him liable to Assoc Contractors only as far as he was liable to Winston. one who makes promises to make payment to the promisee’s creditor can assert against the creditor any defense that the promisor could assert against the promise. IF ROUSE WAS SUED BY ASSOC. CONTRACTORS: Would be entitled to show fraud on Winston‟s part and is equally entitled to make this defense against an assignee of the corporations‟ claim. COURT ERRED IN STRIKING FRAUDULENT MISREPRESENTATION DEFENSE

COURT WAS CORRECT IN STRIKING THE 2nd DEFENSE If the promisor‟s agreement is to be interpreted as a promise to discharge whatever liability the promise is under, the promisor must be allowed to show that the promisee is under no liability ON THE OTHER HAND: If the promise means that the promisor agrees to pay a sum of money to A whom the promisee says he is indebted (3rd party beneficiary) it is IMMATERIAL if promise is actually indebted or not. JUDGMENT REVERSED AND REMANDED AVOIDANCE OF CONTRACT MISTAKE Misunderstanding Raffles v. Wichelhaus Court of Exchequer 1864  This isn’t a defense – it’s something different. We’ll get into defenses  This is a different type of opinion – Milward, Mellish and Cohen were attorneys not judges
 Pollock is the bench judge  This is an 1864 version of an oral argument, it‟s not really an opinion The judge questioned Milward over and over and Mellish got off easy Relevant Facts: The Pl and Df entered into a K for the sale of certain number of bales of cotton arriving by ship from India. The ship was called “Peerless,” however two ships of that name sailed from Bombay. The first Peerless arrived, and the PL arrived but DF did not, DF however was waiting on a ship due to arrive two months later. Plaintiff’s sued for breach of contract: The Dfs refused to accept the cotton or pay the Pl for the bales when they arrived. Defendant’s Argument: A material term of the K was ambiguous and therefor the Dfs‟ failure is excused. Holding: This contract was for the delivery of cotton not for the delivery by the specific ship. Pollock says that it

would be a question for the jury as to whether the parties knew of the same Peerless ship. If neither party knew of the other party’s Peerless: There was a misunderstanding and therefore the contract was not breached but the contract is void because there was NO MUTUAL ASSENT

·

If both parties only knew about the other Peerless

then there was a misunderstanding and therefore there was NO MUTUAL ASSENT = NO CONTRACT
THIS IS NOT AN AFFIRMATIVE DEFENSE Compare to Lucy v. Zehmer – Zehmer thought it was a joke and Lucy thought it was serious (Misunderstanding?)

·

An objective reasonable person would have looked

at the circumstances thought there was a binding contract · The reasonable objective person in this case

would have thought it was either Peerless – it objectively could have been either Peerless · There isn‟t a side that a reasonable objective person

could take so this mutual mistake negated the contract
 GENERALLY: Lucy v. Zehmer is the rule  THIS IS AN EXCEPTION: This type of situation where both parties would not have the opportunity to find out that there was a difference of opinion (like in Lucy) and they would not know of the same Peerless  THIS IS NOT BROAD, THIS IS ONLY FOR BIZARRE CIRCUMSTANCES  Grant Gilmore doesn‟t like this case- thinks they should have asked Mellish what a reasonable prudent cotton

merchant would know. Would they know that there were 2 ships called the Peerless?  Not only is this missing mutual assent –its not clear and definite enough so they would know which ship it was arriving on THIS IS A MUTUAL ASSENT CASE MODERN/RESTATEMENT:  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  (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  (b) OR that party has no reason to know of any different meaning attached by the other and the other had reason to know the meaning attached by the first party

Sherwood v. Walker Relevant Facts: Pl is a banker and a farmer, Dfs are farmers with property and cattle in Ontario, Canada and outside of Detroit. Dfs act as importers and breeders of Angus cattle. Pl called upon the Dfs for the purchase of a cow. After examining the cows that the Dfs stated were barren Pl selected one Rose 2d. They agreed on the price which was conditioned upon the weight of the cow. Dfs wrote a letter to Pl confirming the sale and instructed their vendor of the same in writing. When Pl attempted to pick up the cow and attempted to tender payment of $80, he was informed neither was acceptable as the cow was with calf. After securing via Writ Pl had the cow weighed =1420.    There was mutual ascent, cow for money There was consideration, money for the promise to deliver the cow. There was a breach, PL never got the cow

 

Damages, start with expectation damages Value it can breed + Value it cant 2 -Statute of Frauds defense is going to FAIL bc the agreed upon price was $80.

Legal Issue(s): Whether a contract for sale of certain specified property, may be rescinded by the Df prior to passing of title after discovering a material part of acceptance was erroneous? Court’s Holding: Depends on the intentions of the parties and therefor must be submitted to the jury. Procedure: Replevin for a cow which Pl secured via Writ. Suit commenced in justice's court; judgment for Pl; Dfs appealed to circuit court of Wayne county, and verdict and judgment for Pl in that court. Dfs moved to strike, Denied and they appealed, S. Ct MI Reversed and new trial granted Law or Rule(s): A party who has given an apparent consent to a K of sale may refuse to execute it, or he may avoid if after it has been completed, IF the assent was founded, or the K made, upon the mistake of a material fact -such as the subject matter of the sale, the price, or some collateral fact materially inducing the agreement; and this can be done when the mistake is mutual. Court Rationale: If there is a difference or misapprehension as to the substance of the thing bargained for; if the thing actually delivered or received is different in substance from the thing bargained for, and intended to be sold, then there is no K. The K maybe rescinded UNLESS there is some warranty. If the only difference is in some quality or accident, even though the mistake may have been the actuating motive to the purchaser or seller, or both, the K remains binding. A barren cow is substantially a different creature than a breeding cow. She was not the animal, or the kind of animal, the Dfs intended to sell or the Pl intended to buy. If the cow was a breeder she was worth $750 - $1000; if she was barren she was not worth over $80. The Ct should have instructed the jury that if they found that the cow was sold upon the understanding of the parties that she was barren, and she was in fact not barren, the Dfs had a right to rescind, and refuse to deliver, and the verdict should be in their favor.   Biggest identifier of the fact that the party thought they were selling a barron cow was based on the very low price of the cow. Both parties sold/paid for the cow based on the only idea that it was a barron cow.

Plaintiff’s Argument: Pl and Df entered into a K memorialized by a memorandum, for the sale of a cow at 5 ½ cents per pound. Df thought her barren, Pl thought she wasn’t. Defendant’s Argument: The material fact that the cow was not barren, which was a material condition in determining the price and for the sale of the cow should allow the Df the right to rescind. DISSENT: There is no pretense that the plaintiff bought the cow for beef, and there is nothing in the record indicating that he would have bought her at all only that he thought she might be made to breed. When a mistaken fact is relied upon as ground for rescinding, such fact must not only exist at the time the contract is made, but must have been known to one or both of the parties. Where there is no warranty, there can be no mistake of fact when no such fact exists, or, if in existence, neither party knew of it, or could know of it; and that is precisely this case. In this case neither party knew the actual quality and condition of this cow at the time of the sale. The defendants thought she would not, but the plaintiff says that he thought she could be made to breed, but believed she was not with calf. The defendants sold the cow for what they believed her to be, and the plaintiff bought her as he believed she was.

 Biggest difference between majority and dissent, majority believed both parties thought it was a barron cow.  Dissent thought that the parties thought that more probably than not the cow was barron, there was also the possibility it wasn‟t. Mutual Mistake- if both parties enter into a contract thinking that something is A and it turns out to be B, either party can try to get out of the contract.  If a mistake is mutual, the typical remedy is to permit either party to elect for recission of the contract.  Both parties need to be making a mistake.  If a mistake is unilateral, the courts are less sympathetic and typically deny relief to the erroneous party.
Wood v. Boynton Avoidance of the K : Mutual Mistake Relevant Facts: Dfs are partners in the jewelry business. Pl was the owner of a small stone of the nature and value of which she was ignorant. Pl sold the stone to the Dfs for $1. Afterward Pl learned that the stone was worth about $700 and attempted to tender the $1 plus $.10 interest to the Dfs demanding the return. Dfs refused.

Legal Issue(s): Whether the Pl could rescind the sale of the uncut diamond upon discovery that the stone was valued at nearly $1000? Court’s Holding: No Procedure: Circuit ct jury trial; judge directed jury to find for Df; Pl excepted, motion for new trial - Denied; PL appealed. S. Ct WI Affirmed. Law or Rule(s): The only reasons for rescinding a sale and revesting title for the recovery of possession against the vendee are 1) that the vendee was guilty of some fraud in procuring the sale to be made to him; 2) that there was a mistake made by the vendor in delivering an article which was not the article sold, - a mistake in fact as to the identity of the thing sold with the thing delivered. Court Rationale: The Pl’s own evidence shows that she was not induced to make the sale she did by any fraud or unfair dealings on the part of the Dfs. Both were entirely ignorant at the time of the character and nature of the stone and its intrinsic value. If she chose to sell it w/o further investigation as to its intrinsic value to a person who was guilty of no fraud or unfairness which induced her to sell it for a small sum, she cannot repudiate the sale afterwards b/c she ascertained that she made a bad bargain. There was no warranty made and unless Pl could show that Pl had been told it was a diamond or that the Df knew the stone was a diamond, there could be no rescission based on fraud. In the absence of fraud or warranty, the value of the property sold, as compared with the price paid, is no ground for a recission of a sale. Plaintiff’s Argument: B/c the stone was immensely more valuable than the parties at the time of the sale supposed it was is ground for rescission b/c that fact was evidence of fraud on the part of the Df. Defendant’s Argument: Df had no knowledge in the sale or identification of uncut diamonds and informed the Pl of that fact. Df did no know that the stone, when sold, was an uncut diamond.   The ignorance of the parties is not an excuse for mutual mistake. Both parties weren’t 100% sure what the stone was. Caveat Empton and Caveat emptor- BUYER BEWARE AND SELLER BEWARE o TO GET OUT OF THOSE RULES, GET THE ITEM SOLD IN WRITING WITH A WARRANTY. Willaims v. Glash Relevant Facts: Pls, Williams were involved in a car accident w/ no immediate injuries. The Df Ins co estimated the repair costs and provided a check in that amt. Pl completed claim form which asked if an injury existed, she put NO. There was no negot or bargaining for release, but the reverse of the check contained language purporting to release P I claims which was never explained or discussed. On its

face was a property damage code “200-1" not a P I code. Pl was later diagnosed w/ and injury attributed to the accident. Legal Issue(s): Whether execution of the RELEASE for P Injuries bars a subsequent suit for an injury unknown at the time of signing? Court’s Holding: Release may be set aside under mutual mistake doctrine. Procedure: Tr Ct Summary for Dfs; Ct of App Affirmed (both tr and app cts found suit was barred by execution of release); S. Ct Tx Reverse and remand. Law or Rule(s): A release is a K, and subject to avoidance on grounds such as fraud, mistake. When the parties have Ked under a misconception or ignorance of a material fact, the agreement will be avoided. PER does not bar extrinsic proof of mutual mistake, and mutual mistake does not preclude a person from intentionally assuming the risk of unknown injuries in a valid release. Court Rationale: If the parties intent to cover an unknown injury from the language of the release can’t be determined, then consider their conduct and the information available at the time of signing. Once a release has been plead and proven, the B o’ P is on the party seeking to avoid to establish mutual mistake. Mutual mistake is determined by circumstances surrounding execution of the release, such as knowledge of the parties, amt of consideration paid, extent of negotiations/discussion as to P I; haste or lack in obtaining release. We do not release an injured tort victim from an unfair bargain, but the law of mutual mistake applies to P I releases the same as other Ks. If it can be established that release sets out a bargain that was never made, it will be invalidated.  Company paid to the penny the prop damages, therefore they could not say they were settling any possible PI claim

Plaintiff’s Argument: The Dfs and Pl never entered into an agreement to settle or release Dfs from liability related to an injury b/c the injury was unknown at the time they signed the release. Defendant’s Argument: Texas law mandates that the parties intent may be looked at for the purpose of interpreting and applying the release, but not to alter the unambiguous language of the K. DISSENT : The law favor peaceful settlement and orderly resolution of claims and also favors just compensation of accident victims. Cts cannot legitimately cast themselves in the role of saving people from bad bargains. Any mistake as to the nature of injuries at the time of settlement is strictly a unilateral one, not mutual. If the ins co refuses to settle they are subject to bad faith claims, if they settle promptly they are not protected from later assertions of unknown injuries. CLASS WRAP UPI determining mutual mistake courts look at:

   

Both parties both have to believe what is the mutual mistake Parol evidence is used to exclude evidence with respect to breach Evidence is allowed to show lack of contract or an affirmative defense to being a contract.

Parol evidence can be used to show that there was a mutual mistake bc the parties did not have an integrated contract. If the essence of why you entered into a contract is false, you may try and rescind the contract. Cant get out when you pay $1 for a 1/1000 chance that it is more valuable

Bailey v. Ewing Relevant Facts: A representative for Mary Ellen Erhardt conducted an auction sale of decedent’s property, but decided it would sell more quickly if broken into two pieces. One was i/d as lot 5 the other 6; 6 had a 20' strip of land adjoining it on the east side, five had the house thereupon. Df Ewing bought lot five but no satisfactory bid was received for lot 6 that day. The representative had indicated that the boundary was near the lilac bushes, but in fact was unknown and that nobody knew exactly where the boundary was. A week after the auction Pl bought the remaining lot. 2 yrs later Df began constructing a fence alongside the house. Pl had a survey completed and learned the property line was located w/i a foot of the house’s foundation, the eaves were on the Pl’s property. Legal Issue(s): Whether the tr ct erred in ruling that any mistake concerning the location of the boundary line was unilateral mistake? Court’s Holding: Yes, mutual mistake. Procedure: Tr ct found for Pl to quiet title, Df appealed; Ct of App Reversed and remanded. Law or Rule(s): A mistake is an unintentional act or omission arising from ignorance, surprise, or misplaced confidence. The mistake must be material or so substantial and fundamental as to defeat the object of the parties. A unilateral mistake is not normally grounds for the mistaken party. Court Rationale: A mutual mistake occurs when both parties, at the time of signing, share a misconception about a basic assumption or vital fact upon which they based their bargain. Some cts require the parties to have the same misconception about the same vital fact or assumption. MM also includes situations in which the parties labor under differing misconceptions as to the same basic assumption or vital fact. The assumption of fact must be the same; otherwise two unilateral mistakes, instead of one, would result. Both Erhardt and Ewing mistakenly believed the boundary line was further east than it was. Neither intended that the property sold as lot 5 would fail to include the

whole house. There was an unintentional act arising from ignorance, Ewing and Erhardt made a MM regarding the location of the boundary line. The mere presence of a MM does not always afford relief. IF a party is aware that he has limited knowledge in respect to the facts related to the mistake, but treats his limited knowledge as sufficient, ~MM, but conscious ignorance and this bars relief. The extent of conscious ignorance depends upon the scope of the risk assumed. Neither party consciously assumed a risk that the line would run beneath the eaves of the house. PER may be admitted to show by reason of MM the parties’ intent was not expressed in K. PER can be used to show true intent. Plaintiff’s Argument: Df had knowledge at the time of sale that the boundary was unknown, and after Pl had a survey Df had encroached upon Pl’s property. Defendant’s Argument: Df and representative Ked under MM that the boundary was located other than where it was.    In this case, Bailey was a third party in the contract, unlike the previous cases we have seen. If Bailey is found to be a bona fide purchaser, then the contract can only be reformed to his liking. If Bailey is not a bona fide purchaser and was put on notice, Ewying can reform the contact. o Bailey gets less land but can sue the seller.

Mutual Mistake is an affirmative defense that courts find regularlyReasonable defense ★Unilateral mistake is an extreme rarity-next to never works in court. ★
First Baptist Church of Moultrie v. Barber Contracting Co. FACTS: The church invited bids for the construction of a music, education, and recreation building. The bids were to be accompanied by a bid bond. The contracting company submitted a bid and an insurer issued a bid bond. The bidding instructions said: ―negligence on the part of the bidder in preparing the bid confers no right for the withdrawal of the bid after it has been opened.‖ The contracting company submitted the lowest bid, but later informed the church that there was an error. The church then entered into a contract with the second lowest bidder, and it demanded that the construction company and insurer compensate it under the bid bond. The contracting company disclaimed such liability.

ISSUE: Whether Barber was entitled to rescind its bid upon discovering that it was based upon a miscalculation or whether Barber should forfeit its bond because it refused to execute the k following the acceptance of its bid by the church. RULE: Barber was entitled to rescind its bid. ANALYSIS: The trial court held that neither party was entitled to summary judgment, and they both appealed. The court affirmed the finding that the church was not entitled to summary judgment, but reversed as to the contracting company. That company had promptly notified the church of the mistake in calculating the amount of the bid. The church had actual knowledge of the mistake before it forwarded a contract to the contracting company. The mistake did not amount to negligence preventing equitable relief, and it was material to the contract. Thus, the church should not have been permitted to take advantage of the mistake. CONCLUSION: As for the provision in the bidding instructions: Provisions such as these have been considered many times in similar cases and have never been held effective when equitable considerations dictate otherwise. P’s motion for summary judgment properly denied, D’s motion for summary judgment should be allowed  The contract was an option contract-for $1 they would leave it open for a period of time for acceptance. That is why there was mutual ascent, couldn’t simply revoke the offer/bid. o Less concerned about nominal consideration in option contracts.

To get out of a unilateral contract:     1. It must be unconscionable to uphold the contract 2. The mistake must relate the substance of the consideration 3. The other party must be aware of the mistake 4. Mistake must have occurred regardless of the exercise of ordinary care o want to encourage due diligence  5. It must be possible to put the party back to where they were.

Class wrap-up MM-type of defense from time to time works in a contract matter.  Two parties are making the same mistake about a material fact to the contract, can allow the parties to void the contract-Sherwood v. Walker



Bona fide good faith purchaser-MM in itself cannot allow change of prop locations visa v a non party of the contract unless the other party had notice

Unilateral Mistake-Very very rare, if a party makes a mistake you should have been more careful is the typical attitude by the courts. D. Reformation  The court is asked to rewrite the contract so that it represents the “true” agreement of the parties o Most often used to correct “scrivener’s error”: the writing incorrectly reflects the parties’ agreement.

Benyon Building Corp. v. National Guardian Life Insurance Co. FACTS: The corporation executed a mortgage and note with Rockford. The mortgage and note was then assigned to National. After the corporation made the monthly payments required under the agreement, it sent the company a check with an accompanying letter requesting a release of the mortgage. The company refused to accept the check as the final payment. When further attempts to obtain a release from the mortgage failed, the corporation filed a complaint for release from the mortgage. The court entered its judgment denying the corporation’s complaint for release of mortgage and granting the company’s request for reformation of the mortgage and note. On appeal, the court determined that a mutual mistake was made on the mortgage document as to the correct amount of the monthly payments. The court also held that the company claim was not barred by the statute of limitations. The court invoked the doctrine of estoppel because the corporation obtained an amortization schedule which clearly indicated that the loan would not be amortized according to the terms shown on the note and mortgage. ISSUE: Did National meet its burden of proving that a mistake was in fact made on the mortgage and note? RULE/ANALYSIS: As the P points out, the burden of proving a reformation suit, which is on the party seeking reformation, is higher than that in an ordinary civil lawsuit. A written agreement is presumed to express the intention of the parties and will not be reformed unless the evidence of mutual mistake or other ground for reformation is strong, clear, and convincing. The mistake must be one of fact rather than law, the proof clear and convincing that a mistake was made, and the mistake mutual and common to both parties to the instrument.

CONCLUSION: In the present case, there is no question that the terms on the written doc were inconsistent and the mistake was mutual. Both parties knew that 85k with 5 ½ interest for 15 years was due, this justifies the reformation of the instruments to reflect the correct monthly payment of 694.60. Judgment Affirmed.

Avoidance of the K : Fraud
Vokes v. Arthur Murray, Inc. Relevant Facts: Pl, Vokes, 51 yof, wanted to become an accomplished dancer, and she sought the services of Df Murray and Davenport. Murray authorizes franchise operators under its name to instruct client on dance techniques. Initially, Df Davenport sold Pl 8 ½ hr lessons to be used w/i 1 month. Over a period of 16 months she was sold 14 additional dance courses under separate Ks. During that interim Df encouraged Pl to sign the subsequent Ks by assuring her that she had grace and poise; rapidly improving and developing her dance skill; she was capable of dancing w/ the most accomplished dancers. Pl soon discovered that she did not develop in her dancing ability; she had no dance aptitude; and even had difficulty hearing the musical beat.   Probably asked for a declaratory judgment since she knows she breached, she wanted to be the first one to court. She’s arguing an affirmative defense of fraud.

Legal Issue(s): Whether misrepresentations made by one party to induce the other party to enter into subsequent dance contracts are actionable when offered as an opinion rather than fact? Court’s Holding: Yes Procedure: D. Ct dismissed w/ prejudice Pl’s 4th Amended Complaint for failure to state a claim; Ct of App Reversed Law or Rule(s): A statement made by a party having superior knowledge may be regarded as a statement of fact, although it would be considered as opinion if the parties were dealing on equal terms. Court Rationale: It can be reasonably inferred that Dfs had ―superior knowledge‖ as to whether Pl had ―dance potential‖ and as to whether she was noticeably improving. The undenied averments in Pl’s complaint that the flowering eulogiums heaped upon her by Dfs proceeded more to hear the ring of the cash drawer than from any honest or realistic appraisal of her dancing prowess or a factual representation. Even in a K’ual situation where a party owes no duty to disclose facts w/i his knowledge or to answer inquiries respecting such facts, the law is if he undertakes to do so, he must disclose the whole truth.

What is plainly injurious to G F ought to be considered as a fraud sufficient to impeach a K, and an improvident agreement may be avoided b/c of surprise, or mistake, want of freedom, undue influence, the suggestion of falsehood, or the suppression of truth. Plaintiff’s Argument: The representations made to Pl by Df were in fact false and known by Df to be false and contrary to the Pl’s true ability also known by the Df, w/h by Df from Pl so as to deceive and defraud the Pl into purchasing additional hours of dance lessons. Defendant’s Argument: Ks can only be rescinded for fraud or misrepresentations when the alleged misrepresentation is as to a material fact, rather than an opinion, prediction, or expectation. Stambovsky v. Ackley Brief Fact Summary. The Plaintiff, Stambovsky (Plaintiff), brought suit to rescind a contract to buy a house after he discovered the house was purported to be haunted, thus lowering its value. Synopsis of Rule of Law. A condition that impairs the value of property, known to the seller and left undisclosed to the buyer can constitute a basis for rescission of the contract. Facts. The Plaintiff moved to a new neighborhood where he contracted to buy a house. The Defendants, Ackley and a real estate agency (Defendants), knew the house they had just sold to the Plaintiff was haunted. This was a widely known fact in the area and the house had even received national press attention. After Plaintiff discovered this, he sued for rescission. The trial court dismissed his complaint. Issue. Whether an undisclosed condition that impairs the value of the property is a basis for rescission of the contract. Held. Reversed. A house purported to be haunted, which impairs the value of the property and is left undisclosed to the buyer can constitute a basis for rescission of the purchase agreement. Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the sale, nondisclosure constitutes a basis for rescission as a matter of equity. Even an express disclaimer e.g. ―as is‖ will not be given effect where the facts are peculiarly within the knowledge of the party invoking it. Dissent. The dissent focused on the majority’s discard of the traditional doctrine of caveat emptor. The dissent believed that to discard this doctrine for the reasons cited in

the majority opinion (haunted house) was a ridiculous reason to discard the doctrine. Discussion. The court discussed that New York courts had traditionally followed the rule of caveat emptor, which did not vest a duty of disclosure on the seller for patent defects. The reason the court noted that the doctrine of caveat emptor was being discarded was that in most cases applying caveat emptor, the defect was physical and thus a prudent buyer would most likely discover it. In the case at bar, the condition was created by the seller and was a condition that could not be discovered even under the most rigorous examination of the house. Cousineau v. Walker Relevant Facts: Df Walker purchased 9.1 acres for $140 K, then listed it w/ a realtor stating that ―Engineer Report says over 1 million in Gravel on Prop,‖ and requested $245K. A sale under that listing failed. The subsequent listing stated ―minimum 80K cubic yds of gravel,‖ 580 ft of Hwy frontage, and 2.6 acres had been zoned for commercial use. The price was increased to $470K. Df specifically requested that the appraiser not mention the gravel in assessing the value of the property, and the hwy frontage was also omitted. Pl, Cousineau a contractor also engaged in gravel extraction discussed w/ Df the possibility of extracting gravel from the property(Df denies) the determined that $385K was the sale price. That price was contingent upon zoning. After zoning was approved extraction began. Only 6K cubic yds were unearthed and no more was available on the property. Pl notified Df of their intent to rescind. Legal Issue(s): Whether Buyers of property under a land sales K are entitled to rescission b/c of false statements made by the Seller? Court’s Holding: Yes Procedure: Sup Ct C: buyers did not rely on misrep; misreps were not material; and reliance by Buyers was not justified. Deed of trust foreclosure sale granted property back to Df; S. Ct AK Reversed and remanded to determine damages. Law or Rule(s): A K may be rescinded if there was a misrepresentation, which was fraudulent or material; and which induced the recipient to make the K; the recipient must have been justified in relying on the misrepresentation Court Rationale: 1st the Pl must have relied on the misrep. Pl is in the gravel business and came across the property by its listing ―1 million in gravel,‖ and the following listing ―80K cubic yds.‖ Pl purchased equipment and entered into K for the removal of the gravel. 2nd the statements must be material to the transaction such that it would cause a R P to enter into K. A R P would likely consider the existence of gravel an important piece in developing property. Df’s agent testified that the statements were placed b/c gravel was this property’s best points and a selling point.

3rd the Pl must have been justified in relying upon the material misrep. A buyer is entitled to rely on an express warranty when factual statements are provided as to specific attributes. A purchaser of Land may rely on material misreps made by the Seller and is not obligated to ascertain whether such reps are truthful. Pl may have exhibited poor judgment, he was not so unreasonable in view of Df’s description of the prop that recovery should be denied. Plaintiff’s Argument: Df’s description which Pl relied upon was a material misrep of facts known by the Df which caused the Pl to enter into a K. Defendant’s Argument: Pl’s reliance on Df’s and Df’s real estate agent’s was imprudent and unreasonable. Pl failed to obtain or review the engineer’s report, the survey or examine the plat. Pl failed to make calculations, or measure the frontage. Pl is an experienced business person who frequently bought and sold real estate. Class Wrap upAffirmative to get out of a contract based on Fraud. Not entirely different from promissory estoppel Elements of fraud False misrepresentation knowing it was false for inducement, recipient relied.

Totem Marine Tug & Barge v. Alyeska Pipeline Service Co. Avoidance of the K : Duress Relevant Facts: Pl, Totem, entered into a K w/ Df, Alyeska, to transport pipeline construction materials from TX to AK. Pl chartered a barge and a tug to accomplish this. Upon arrival Pl discovered that Df had mislead Pl about the volume of material. In waiting for assurances and an amendment to the K, Pl’s second tug was delayed getting through Panama Canal, the transport dealt w/ a hurricane, and then Df unloaded the materials at Long Beach w/o Pl’s consent which nullified Pl’s insurance. Df terminated the K w/o providing a reason and stated payment would be in either 1 day or w/i 6-8 mos. Totem received a settlement and signed a release for $97,500 when the debt amt was btwn $260K and $300K. Legal Issue(s): Whether any genuine issues of material fact relating to whether there had been economic duress which would permit avoidance of the release precluded summary judgment for defendants exist ? Court’s Holding: Yes Procedure: Sup Ct granted Summary DF; Pl appealed; S. Ct of AK Reversed and remanded Law or Rule(s): Duress under old common law:

 Party entered a contract in fear of loss of life or limb, mayhem or imprisonment. Duress under common law in Alaska (wider definition): 1) one party involuntarily accepted the terms of another; 2) circumstances permitted no other alternative; 3) such circumstances were the result of coercive acts of the other party. Economic Duress uses a RP standard to determine if Freewill was overcome. Court Rationale:  One essential element of economic duress is that: the Pl show the other party, by wrongful acts or threats, intentionally caused him to involuntarily enter into a particular transaction.  In many cases a threat to breach K, or w/h payment of debt = wrongful act. Some cts require bad faith accompany the wrongful act.  Economic D does not exist merely b/c a person has been the victim of a wrongful act, in addition the victim must have no reasonable alternative choice but to agree to the other party’s terms, or that he had no adequate remedy if the threat were to be carried out.  An available alternative or remedy may not be adequate where the delay involved in pursuing the remedy would cause immediate and irreparable loss to one’s economic or business interest. As a matter of law, and upon exam of the materials presented in opposition to Df’ M 4 Summary, Pl has made a sufficient showing as to each of the elements of economic D to w/stand that motion. Plaintiff’s Argument: Df deliberately w/h payment knowing that Pl had no choice but to accept an inadequate sum in settlement of that debt, thus b/c of necessity Pl involuntarily accepted an inadequate settlement and executed a release. Defendant’s Argument: Totem, via V.P. Stair, executed a release when Pl was represented by counsel at the negotiating settlement conference, fully aware of the legal consequences. Case Wrap up Duress is used to get out of a contract.  Under common law the use of duress was very narrow and you normally couldn’t use it to get out of a contract.

 In states like Alaska, they are expanding the use of duress, and recognizes that under some circumstances there may be economic duress and are in immediate need.  Is not a claim that works very often but it is broadening in many jurisdictions. Kase v. French Avoidance of the K : Undue Influence Relevant Facts: Adm of Mrs McWilliams estate brought action against Df French. McWilliams, in her 80's had a 4th grade edu and no business experience, but mentally competent lived on her own and was assisted by her nephew. Dfs bought a small grocery store and made deliveries. Df in delivering to Williams found that she had been injured in a fall. A mo later Dfs agreed to take care of her until she died. McWilliams later agreed to sell her house and property to Dfs for $35K. Upon consultation w/ her atty the deed was executed and she lived in an apartment w/i the house rent free for over two yrs. Legal Issue(s): Whether undue influence was shown in securing K for R Prop through deed by purchasers despite existence of confidential relation btwn the K’ing parties? Court’s Holding: NO Procedure: Tr Ct upheld the validity of the deed; Pl appealed; S. Ct S D Affirmed. Law or Rule(s):  A confidential relationship exists btwn two people when one has gained the confidence of the other AND purports to act or advise w/ the other’s interests in mind.  This requires that the Dominant party exercise good faith and to refrain from obtaining any advantage at the expense of the confiding party. Court Rationale: The B o’ P never shifts from the one claiming undue influence, but the B o’ P does transfer to the other side when evidence shows a relationship of trust and confidence. The Dfs had duty to go forward w/ evidence and in fact went forward w/ evidence showing that the transaction was free from undue influence. The indica of undue influence are : person susceptible to undue influence, opportunity to exert undue influence and effect wrongful purpose, disposition to do so for improper purpose, and result clearly showing effect of undue influence. Mrs

McWilliams was at all times mentally alert, able to care for herself, and in good health. The K shows the absence of undue influence. McWilliams lived in the home w/ Dfs rent free for over two yrs. Upon her entering a nursing home Df signed a financial responsibility agreement for her care. The presence of independent legal advice is an important factor. Mrs McWilliams engaged her atty of some yrs to draft the Deed. Plaintiff’s Argument: Mrs Williams received independent legal advice before entering into contract and that contract permitted her to live rent free in apartment w/i house for two years. Defendant’s Argument: The Dfs placed themselves in a fiduciary relationship w/ McWilliam and then abused that relationship by securing her property thereafter. DISSENT: Shortly after establishing a relationship w/ the deceased, the Dfs retained her confidence. The Dfs did not act in G. F. For the benefit of McWilliams. A transaction w/o which is fraudulent and voidable which said presumption was not overcome by the Dfs. Odorizzi v. Bloomfield School District Avoidance of the K : Undue Influence Relevant Facts: Pl, Odorizzi was employed as an elementary teacher by Df under K to teach the following yr as a permanent employee. Pl was arrested for homosexual activity. The principal and superintendent came to his apartment after his release from jail. They stated he should immediately resign, there was no time to consult an atty, and if he did not resign immediately the District would suspend and dismiss him and publish the proceedings, his arrest, and cause him ―to suffer extreme embarrassment and humiliation.‖ Legal Issue(s): Whether Pl teacher's complaint alleging that school officials came to his apartment just after he had been underwent arrest, police questioning, booking and release on bail and had gone 40 hours without sleep and told him that he should resign immediately, that there was no time to consult an attorney, and that if he did not resign immediately he would be suspended and dismissed and that resultant publicity would cause him extreme embarrassment and humiliation stated cause of action for rescission on ground of undue influence. Court’s Holding: YES Procedure: Sup Ct sustained Df’s demurrer; Pl Appealed; Ct of App Reversed

Law or Rule(s): Undue influence includes taking an unfair advantage of another’s weakness of mind; or taking a grossly oppressive and unfair advantage of another’s necessities or distress. Court Rationale: The Facts in the amended complaint are insufficient to state a COA for duress, menace, fraud, or mistake, but they do set out sufficient elements to justify rescission b/c of undue influence. Undue Influence is a shorthand legal phrase used to describe persuasion which tends to be coercive in nature, and which overcomes the will w/o convincing the judgment. In essence it involves excessive pressure to persuade one vulnerable to such pressure, pressure applied by a dominant subject to a servient subject. U I may consist of total weakness of mind, physical condition, emotional anguish/turmoil, exhaustion, or a combination. Thus weaknesses determine that a lessened capacity of the object to make a free K exists. The application of excessive strength by a dominant over a servient subject is the second element. The representatives of the Dist undertook to achieve their objective by overpersuasion and imposition to secure Pl’s signature, but not his consent to his resignation through high pressure carrot and stick technique. Plaintiff’s Argument: The Pl’s free will was overcome by the tactics used by the Dfs at a time when Pl was under severe mental and emotional strain. Defendant’s Argument: Pl freely signed the resignation w/o duress, mistake, menance or fraud. Incapacity A. Minors  Are allowed to disaffirm most of the contract they make. o Exceptions:     Bail bonds Military service Bank accounts Life’s necessities-- food, shelter, clothing

Valencia v. White FACTS: The minor sought an injunction to prohibit the sale of his truck, upon which the garage claimed an artisan’s lien, and for return of the truck. The garage filed a counterclaim alleging that the minor owed him money for

repairs to his truck and seeking a lien on the truck. The court reversed the judgment awarded in favor of the minor, finding that the trial court erroneously determined the rights between the parties. ISSUE: (1) Whether a minor who owns and successfully operates a business may disaffirm contracts for necessary expenses of that business and (2) if may so disaffirm, what are the rights between the parties? RULE: The court here follows the Worman rule that the minor must account only for property that he still has in his possession and notwithstanding that he has wasted, consumed or destroyed it, he can recover what he has paid – but this rule must be applied after determining what benefits, if any, the minor actually received from the entire transaction. ANALYSIS: The court agreed that the minor was entitled to disaffirm the contract for garage services, which were not necessities because the minor did not need to engage in business where his mother provided board, room, clothing, medical needs, and education. The court held that the minor was liable for benefits received even though they were not necessities and could not be returned in kind because there was no evidence that the garage took advantage of his minority or that the contract was disadvantageous to the minor. CONCLUSION: The garage was entitled to judgment in the amount of the benefit to the minor less the amount of payment made by the minor, and was required to return the engine and parts to the minor. B. Mental Infirmity  May also disaffirm most contract they enter into. VII. Unconscionability  Some contracts are too unfair to enforce. Adhesion contracts- “take it or leave it” contracts, that have no bargaining power for one of the parties. UCC 2-302  Court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

 When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination. Illegality  If a contract has illegal activities in it, illegality is an affirmative defense to breach that contract.  Don’t worry about surety for exam!!
 Facts:
 D purchased a number of household items form D, for which payment was to be made in installments. The titles for the purchased items would remain with D until the total of all of the monthly payments equaled the stated value of the items. There was a provision in the contract which gave P the right to repossess all items bought by their customers if the customer defaulted on a payment. In 1962, D bought items from P. Upon default, P sought to repossess all items the D had bought and paid for since 1958. Lower court found for P, contract enforceable. DC COA affirmed, found for P, contract enforceable. US COA DC found for D, remanded to trial court. Can a contract we invalidated due to unconscionability? If unconscionability is present at the time a contract is formed, the court can choose not to enforce the contract. In other jurisdictions, it has been held as a matter of common law that unconscionable contracts are not enforceable. Congress has enacted the UCC. UCC 2-302 provides that the court may refuse to enforce a contract which it finds to be unconscionable at the time it was made.





 Procedural History:
    

 Issues:  Holding/Rule:

 Reasoning:
 



When a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that consent was ever given to all the terms. Corbin suggests that the test should be whether the terms are so extreme as to appear unconscionable according to the mores and business practices of the time and place. The law has always granted parties latitude in making their own contracts. This decision will affect a great number of seemingly valid installment plan contracts. Unconscionability involves the evaluation of four factors… The relative harshness of the term in question, including the importance of the legal right that is affected The manner of presentation of the term in the agreement The relative bargaining power of the party against whom the term is asserted The commercial justification for the term



 Dissent:
 

 Notes:
    

Scott v. Cingular Wireless


 

FACTS: Ps filed a class action suit against Cingular Wireless alleging that they had overcharged customers. Cingular had an arbitration clause that contained a provision prohibiting class action litigation or arbitration. Ps contend that the class action waiver is unconscionable and unenforceable. ANALYSIS: Public Policy: An agreement that violates public policy may be void and unenforceable when consumer‟s claims are small and numerous a class-based remedy may be the only way to vindicate the public‟s rights and can also deter future similar wrongful conduct which benefits the community as a whole. CPA: The CPA is designed to protect consumers from unfair and deceptive acts and practices in commerce. Class actions are vital where the damage to any individual consumer is nominal and that vital piece is exactly what the Ps claim the class action waiver before us seeks to eviscerate. Thus, without class actions consumers would have far less ability to vindicate the CPA.





Exculpation: Is this class action waiver unconscionable for effectively exculpating its drafter from liability for a large class of wrongful conduct?
o

Yes, the ability to proceed as a class transforms a merely theoretical possibility for recovery into a real one. It is often the only meaningful type of redress available for small but widespread injuries. Plus it substantially limits the remedies of only one side.



CONCLUSION: It is unconscionable because it denies large numbers of consumers protection under Washington‟s CPA and because it effectively exculpates Cingular from liability for a whole class of wrongful conduct. It is therefore unenforceable and thus the entire clause is void and there is no basis to compel arbitration.

If a reasonable person thinks it’s a contract, the court may uphold it. (Lucy v. Zimmer) Consideration doesn’t have to be adequate, just sufficient. (Batakis case) Conditions and promises and conditional promises Parole Evidence and extrinsic evidence Damages: Expectation Reliance Restitution Defenses: SOF Mutual Mistake Unilateral mistake Fraud Duress Undue influence Illegality

Unconscionability Incapacity Mental Infirmity 3rd party beneficiaries: may bring suit sometimes, if they are the intended beneficiary. assignment and delegation: UCC: Been adopted in part by all 50 states Restatement: Not binding, but greatly probative Formal Reasoning, application of current cases Instrumental reasoning Last Semester Exam Hypo: Alpha university prof-teach seminar course again Adjunct at Baylor- $10,000 for seminar Could create own text book and sell to students and online 100 pges...15 from handwritten notes Launch website to sell the book, Copy O’s-publishes the book, Typed handwritten notes Promised to complete the book within three months and it would be industry standards Would do everything...oliver olden priced 350 for typing notes. 500 books Must do all the work at Copy O’s. 25,350 total all work by oct, 12, 2008, allow prof foote to review, Contains Merger clause 500 bucks to make website,

Delegated duties of typing notes to typographics.. Couldn’t get ahold of foote..by phone or email Got second payment Accepted the fact that they delegated the duties to typographics. Time is of the essence in the contract. Tom and anne instead of tim and ann-insignificent Marriage misspelled Statute of frauds misspelled-Not industry standard Wife’s name misspelled Wants to reject the goods