Contracts I - Maggs - Fall 2011_4
Content
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Contracts I – Magg –Fall 2011
Claims….Defenses…Remedies….
X may sue Y for breach of contract claiming Y made a promise to….and broke it by doing….
Y may defend on grounds of…..asserting….. X may respond….
X might seek damages equal to…..
State any denial of damages or limitations
USE FACTS!
I. BASES FOR ENFORCING PROMISES
B. CONSIDERATION AS A BASIS FOR ENFORCEMENT
1. Promise or Performance Bargained for in exchange
a. Promise or Performance does not require a detriment to promissee and
benefit to promisor for consideration. Hamer v. Sidway
b. If a promise was not made in good faith or on false pretenses knowingly
there is not consideration. If one party doesn’t make good on a settlement
the other is excused from performing §72, 74 Feige v. Boehm, Court of
Appeals, MD, 1956
2. CONDITIONAL PROMISES VS. BARGAINED FOR IN EXCHANGE
a. NEED A RETURN PROMISE: Something you are already committed to do isn’t
consideration
b. Promises to make gifts, including conditional promises to make gifts, are not
consideration. Feinberg v. Pfeiffer Co, St Louis, 1959
c. Benefit previously received is not enforceable. Mills v. Wyman, 1825
d. Not sufficient to suffer/detriment if not party of a bargain. Kirksey v. KirkseyBEFORE RELIANCE CONSIDERED: It was a conditional promise not a contract.
e. Forbearance on the part of the company from firing him is consideration.
“Employment at Will.’ Lake Land Employment v. Columber : Dissent: It constitutes
coercion since there is no consideration.
3. PROMISES AS CONSIDERATION
a. Illusory promise- statement that sounds like a promise, but makes no real
commitment
Promises must be made in a way to justify and understanding of commitment
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*Ultimately, manifestation of intent is what matters Rest § 2
b. Illusory promise cannot be consideration BUT:-Implied terms may make it nonillusory terms are implied in fact or law
c. The consideration is to be tested within the agreement not what you do
outside of it.Strong v. Sheffield 1895: hold off on collecting the money—made not real
commitment. (Cf. Feinberg, Compare Lakeland)
IMPLIED TERMS (eg duty of good faith)
1) Implied in Fact- implied based on the parties expectations, circumstances
under which bargain was made
2) Implied in law- term that is always there (good faith) whether the parties are
thinking about it or not
SECTION 205
-Every contract imposes upon each party a duty of good faith and fair
dealing in its performance and its enforcement (Implied in law) Mattei v. Hopper
(good faith to purchase on satisfaction of leases) ,Wood v. Lucy, Lady Duff-Gordon
(Without the implied promise it would not made sense to enter in agreement)
C. RELIANCE AS A BASIS FOR ENFORCEMENT
PROMISSORY ESTOPPEL (Rest 90)
Relying on the faith of the promise constitutes a valuable and sufficient
consideration under the doctrine of estoppel—Plaintiff is estopped from denying
the consideration Ricketts v. Scothorn ( SC of Nebraska) 1898
90 (2) charitable subscript or marriage settlement is binding under subsection s1
—without proof that the promise induced action or forbearance
Can also be used to overcome indefiniteness or statute of frauds (Monarcosometimes)
2. Elements of Promissory Estoppel (Rest 90)
1) Promise
2) action/forbearance by promisee
3) induced by (ie taken in reliance on) the promise
4) reasonably expected by promisor
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5) Necessary to prevent injustice (Feinberg v. Pfeiffer 2)
Equitable Estoppel
1) Fact wrong
2) Reliance
3) Injury?
*No recovery available on mutual mistake
Rules vs. Standard: Basis for enforcement
o
Consideration—more like a rule
o
Reliance—less formally realizable—takes more discretion
o
Rule-predictable, efficient, equitable, behavior to follow
o
Standard-more flexibility, allows judges to use discretion for special cases
(newspapers hiding source Cohen v. Cowles)
Waiver-voluntary relinquishment of a right
Estoppel- an involuntary bar- involuntary preclusion from asserting rights
Promissory Estoppel mostly replaces reliance—as seen in the criteria
D. RESTITUTION AS AN ALTERNATIVE BASIS FOR RECOVERY
Restitution- Liable for a benefit which you received from someone else where it would be
unjust for you to take
§1 unjust enrichment- restitution req.
§2- officious conferring of benefit- volunteered and gained without being
asked for or needed
§22-From payee not benefiting intended –beneficiary need not be aware
that its false benefit
Generalizations on those who can’t collect:
1. Officious intermeddlers- volunteering services where neither asked nor needed.
2. Volunteer- infer expressly or not that they don’t want to be compensated (Compare
Schott)
3. 3. Gift and wanting paid back later—no expectations of restitutions
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4. Gratuitousness- when you help someone in serious danger, courts assume it is
gratuitous, unless excessively burdensome or expensive or in a business or
professional capacity Cotnam v. Wisdom
a. —services were needed. Not volunteer in most complex situations.
Callano v. Oakwood Park Homes: Pendergast--contract with Callanos-Callanoes
planted shrubbery sue Oakwood Park Homes for P’s bill
To recover on the theory of quasi-contract the Ps must prove that D was
enriched, that retention of the benefit without payment therefor would be unjust.
Unless there is another remedy. You cannot substitute one promisor or
debtor for another. Callano v. Oakwood Park Homes
E. MORAL OBLIGATION AS A BASIS FOR ENFORCEMENT
1) Moral obligation is not a general basis for enforcing a promise Mills v. Wyman
2) Courts will enforce a gratuitous new promise reaffirming an old debt that is made
unenforceable because of
Special exceptions:
a) statute of limitations restatement 82 note (2) pg. 51
b) The promisor’s prior discharge in bankruptcy Restatement 83
C) The promiso’s prior infancy -under 18 can break contracts “infants” but over 18 8
makes the 2nd promise –no consideration, reliance for 2nd promise, but there is “moral
obligation” Restatement 14
3) In a few states, courts also say “moral obligation” is the basis for enforcing a promise to
pay for a material benefit if necessary to prevent injustice. Webb v. McGowin § 86. But
MOST courts disagree . Dementas,.
there must have existed a piror legal or equitable obligation which for some
reason had become unenforceable but for which the promisor was still morally
bound—McGowin was his boss.
Notorized memo not enough if no reliance or consideration. Dementas
II. CONTRACT FORMATION
General Policy that contractual liability is voluntary (subject to exceptions)
A. ASSENT—offer and acceptance
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1) A promise is not enforceable if the promisor sufficiently indicates that he/she did not
assent/intend to be bound by the promise- Section 21 (can say you do not want to be
bound or shown in context)
e.g. Gentleman’s agreementneg. that look like offer and acceptance but no assent
to be bound
2) Possible perspectives on whether the promisor assented to be bound
promisor’s intent- Subjective (what was the understanding of that party)
promisee’s understanding-Subjective
reasonable person’s understanding –Objective—IN GENERAL THIS IS WHAT MATTERS
3) Whose perspective determines whether promisor sufficiently indicated a lack of assent?
general rule= reasonable person’s understanding Lucy v. Zehmer – Lucy believed
and was warrranted
exception= subjective—if promise is aware of it
Theoretically, contracts should show intent of parties, voluntary agreement
Rule: the law imputes to a person an intention corresponding to reasonable
meaning of his words and acts
Typical Formation of a bargain
1) preliminary negotiations (questions, haggling, discuss quality)
2) offer by offeror (one person manifests the willingness--I’ll give you 20K to drive it
away today)
3) Acceptance by offerree
B. OFFERS
RESTATEMENT 24 and 26
“Manifestation of willingness to enter into a bargain…” §24 (invites acceptance)
exposes you to contractual agreement that is binding
Parties will argue whether a particular statement was a manifestation of willingness
or something less-negotiations
Courts tend to conclude that if its ambiguous that its not an offer
No meeting of the minds no offer Harvey v. Facey, Owen v. Tunison
Distinguishing offers from Preliminary Negotiations
Plaintiff and Defendant’s arguments
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Inherent ambiguity of question
Judicial reluctance to find offers (contracts should be voluntary)
Important to know what courts consider
o –precedent- Fairmont
o -comparison drafting
o -key words, context, ect- Fairmont Glass (“for acceptance”)
Objective nature of inquiry
Price Question and Advertisements
General rule= not offers Section 26
Reason= reasonable person understands that the advertiser would not want to give
everyone who sees advertisement power to conclude a bargain Harvey v. Facey agreed to
buy at listed price
ADVERTISEMENTS
Are advertisements offers?
general rule=no
usual explanation=reasonable expectations §26
exception=factors negating these expectations false advertising laws, ect
Did the offeree accept? (guiding questions)
1. What was the offer? Restatement 24-manifestation of willingness to enter a
bargain
2. How did the offeror invite the offeree to accept? Restatement 32 –offeror
determines but offeree can make a counter offer or say no
What the Offerror can ask for:
a. Complete performance: (“unilateral contract” as in Hamer) or
b. Promise to perform? (“bilateral contract” as in Fiege) (business mostly promise)
1. It is possible to make promises implicitly or explicitly –words
or conduct
2. Sometimes starting performance means acceptance
Can’t modify terms in an advertisement once accepted. Lefkowitz v. Great
Minn Surplus Store
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C. ACCEPTANCE
Is it a promise to perform or is acceptance given by complete performance?
Restatement §§ 4, 30, 32, 54(1)-notice, 56, 60
A waiver can be included in the offer so there was a contract as soon as it
was approved, but notice is required in terms too. International Filter Co. v.
Conroe Gin Ice and Light
When notice is required, must be made in a way that D could rxably find out.
White v. Corlies
Rule: Offeree may accept by promising to render a complete performance
expressly through words or explicitly by conduct. The most common way
implicitly is to start.
Ever-Tite Roofing v. Green
Rule: If an offerree invites acceptance by complete performance acceptance does not
occur until and unless the performance is completed Carbolic
Questions:
1.
2.
3.
4.
5.
6.
What was the offer?
Did the offeror invite acceptance by a promise or by complete performance?
Did the offeree promise or completely perform?
If the offeree made a promise, was the promise made in a permissible manner?
Was notice required?
Was notice provided?
Allied Steel . Ford Motor, July 1936: starting construction on the conveyor belt for
Ford showed acceptance indemnifying for worker’s injury prior to signature
acknowledgement
1. It is true that an offeror can specify a specific method of accepting the offer
2. If the offeror prescribes a certain type of acceptance and the offeree doesn’t than
the offeror is not bound
3. BUT if the permissible method is stated it doesn’t preclude other methods of
acceptance
SILENCE NOT ORDINARILY ACCEPTANCE
Restatement 69—Acceptance by Silence or Exercise of Dominion
Exceptions:
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A) offeree takes benefit of offeror services with 1) reasonable oppo to reject them
and 2)reason to know that they were offered with the expectation of compensation
(Ford never agrees to counter offer, but lets them in to do work)
B) where the offerror has 1) stated or given the offeree reason to understand that
assent may be shown by silence or inaction, 2) but in remaining silent intends to
accept the offer (offeree just has to want it if the silence clause is proposed)
C) where b/c of previous dealings or other it is reasonable that the offeree should
notify the offeror if he does not intend to accept Hobbs v. Massasoit Whip Co
(previous business, held onto products unrxably)
D. LAPSE, REVOCATION, AND REJECTION OF OFFERS
1. Termination of Offers
Lapse of time- #41 (1), (2)
Revocation by offeror-revoked and terminated when known (indirectly
Dickenson)
Death of offeror
Rejection by offeree
Revocation by Offeror #42, #43
1. Generally possible any time before acceptance
2. Effective only if offeree receives direct or indirect communication of
revolcation before acceptance-action inconsistent with intent to enter
contract
3. Not possible if offeror made an enforceable promise to keep the offer open
(an “option contract”)
Death of an Offeror #48
1. Terminate unaccepted offers (but not most contracts)
2. No communication required
3. option contract can prevent termination
-Most of the time when you die the contracts are not invalid (suing estates)
-Option contract can prevent termination
Dewitt and his auntie’s funeral --can’t argue under complete performance
If offer doesn’t state a time, the offer lasts within a reasonable time frame and what
a reasonable person would think
Option contract: If you make an offer it can be revoked unless there is a binding
promise to keep the offer open (offer on a house)
Revocation only counts if its communicated by offeree
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Dickinson v. Dodds: Promise not to keep the offer open is not a promise because there
was no consideration. Option contracts req. consideration. No reliance in this
case.
2. Possible Responses to an Offer:
Acceptance-in manner stipulated §60
Inquiry/comment/silence
Rejection (section 38-1) (also kills the offer totally, can’t accept after rejection
Counter-offer-presumed to be a rejection and a new offer Section 39 (1) (2).
Purported acceptance with qualifications-operates not as an acceptance but
as a counter offer under “mirror image rule” Sec.59
o Counter offer may be accepted by commencing performance
otherwise rejection
E. MAILBOX RULE “ an acceptance is effective upon its dispatch” $63(a) - Lindsell
Consequences- after dispatch, offeror can no longer revoke offer and offeree can no
longer reject offer
Exceptions:
Offer indicates otherwise (extremely common)
Offer subject to option contract - #63 (b)-not in effect til offerror aware
Offeree attempts to cancel/reject after dispatch of acceptance, and
a. offerror agrees to cancel (waiver)
b. offeror relies on offeree’s purported rejection (estoppel)
Scope- Mailbox rule applies
o
o
o
only to rejections, not revocations
to any dispatched acceptance, not just US mail
even if acceptance Is lost and never arrives
F. Liability, Despite Failed Negotiations: Rest §§45, 87(2) (Reliance)
§87(2): offeror should 1. reasonably expect to induce action or forbearance the part
of the offeree before acceptance and 2 which does induce such action or
forbearance is 3. binding if necessary to avoid injustice.
Drennan v. Star Paving [exception]: Courts enforce because reliance on the
promise makes offer irrevocable.
§45: Option contract created by Part Performance or Tender: when offer invites an
acceptance by performance then contract is created when offeree begins
performance.
General Rule= No liability in failed or apparently failed negotiations
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Exceptions:
Breach of implied promise not to revoke offer (Drennan)
Breach of assurances during negotiations (Hoffman)
Breach of contract to negotiate in a particular manner (Channel) promise to
act in good faith(implied contract)—shown by letter of intent
Test:
1.
Did both parties manifest an intention to be bound by the agreement?
2.
Are the terms of the agreement sufficiently definite to be enforced?
3.
Consideration (can include letter of intent) ?
E. DEFINITENESS: Rest §33
Open terms show that there was manifestation of intent at the time
The terms of the agreement must be sufficiently definite to be enforced. (rxabl
person standard)
Certainty exists if there is a reasonable basis for determining a breach and for
giving an appropriate remedy. (Varney v. Ditmars: "fair share of the profits")
Good Faith and Reasonable efforts can be quantified if they are subject to
some external standard. (market value)
III. WRITING REQUIREMENT: §§ 110, 111, 112, 124, 125, 130, Syllabus App. #4
A. Statute of Frauds: Promise must be accompanied by assigned writing.
a. Differ from State to State: Generally: MYLEGS
o
o
o
o
o
Marriage(110(1)(c)),124): a promise the consideration for which is marriage (unless
the promise is one of two mutual promises to marry each other), such as a promise by
A to pay $10k to B if B marries C.
Year(110(1)(e),130(1)+(2): A promise that cannot possibly be fully performed
(as opposed to merely terminated) w/in one year, such as a promise by A to employ
B for 5 years.
o Projects that theoretically could be completed within a year can be exempt.
C.R. Klewin v. Flagship Prop
Land(110(1)(d),125(1)-(3): A promise to buy or sell land, such as a promise by A to
sell a house to B. Provisions in statutes of frauds dealing with land contracts usually
are subject to two exceptions:
a. A promise to buy land is enforceable w/o a writing after the seller has conveyed
the property.
b. Under the “part performance” doctrine, the seller may not assert the statute of
frauds as a defense if the buyer has substantially relied on the promise to sell.
Most courts have said that merely paying the purchase price is not enough
reliance, and typically have required the buyer also to have taken possession,
made improvements, or performed substantial other actions.(129)
Executor(110(1)(a),111): A promise by an executor to pay the debts of the
decedent’s estate out of the executor’s own pocket
Goods(UCC 2-201(1): A promise to buy or sell goods for a price of $500 or more.
Suretyship(110)(1)(b),112): A promise made by a surety to a creditor to pay a debt
that a debtor owes the creditor, such as a promise by A to pay C a debt that B owes C.
o Not relief of breach of contract claim for B
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o
If guarantor receives a direct benefit then not suretyship.
B. Writing and Signing: Rest. § 131
a. Identifies subject matter
b. Reasonably sufficient that it is a contract btwn the parties
c. Reasonably certain terms
C. Exceptions to Writing Requirement: Rest. §§ 129, 139, 375, Syllabus App #5
Can enforce specific performance of transfer of land injust can only be avoided by
specific perf. Richard v. Richard
o If party can adequately demonstrate, in reliance on said agreement,
possession, improvements (permanent), OR payment of a substantial part of
the purchase price.
A party is estopped from asserting the statute of frauds to prevent the enforcement
of an oral contract where Promissory Estoppel: (§139) Monarco v. Lo Greco
1) a party has so substantially changed his position in reliance upon the
contract that he would suffer an unconscionable injury if the contract were
not enforced and
2) the party seeking to assert the statute of frauds will be unjustly enriched if
he is permitted to escape the obligations of the contract.
§375: Restitution is not barred b/c of SOF unless the statute expressly states
otherwise or it would aggravate the purpose of SOF.
IV. POLICING THE BARGAIN
A. CAPACITY
1 Infancy
Contracts §§ 7+cmt.b (Syl. App.), 14 +cmt. C (until day before turned 18)
o infancy is a defense or basis for enforcement
o but infants can enforce (ie contract is voidable, not void), but other party cannot
back out
o A promise made by a person under the age of majority (in most states, 18
years) is voidable until a reasonable time after the person reaches the age of
majority. Kiefer v. Fred Howe Motors.
Restitution (Rest. §62 +cmt.b)
Generally req’d if contract voided for infancy
Not required if subject matter unavailable (possible consequence is ______)
Required for “necessaries” if infant is emancipated
Not a duty of restitution to the transferor upon failure to pay for it if the
subject matter or its product is not avail at the time when restitution is
sought-
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Infancy also a basis for rescinding
Non- infant in contract cannot back out- Infant can enforce the contract
Have a reasonable time after the 18th birthday
Emancipated infants—those who are infants but responsible for their own
care
o
-you can still void contracts—if someone sells you a “necessary” you
must make restitution. Housing, food, clothes. Kiefer v. Fred How
Motors SC of WI 1968
3. Mental infirmity
Voiding promises based on mental illness/defect:
Traditional ground § (1) (a)
promisor was unable to understand (all states) (senile, mh, other
problem)
Modern additional ground (§15 (1)(b) (few states)
1) Cannont rxably act in regard to the transfer and the other
party knows Ortelere
2) Mere weakness of body or mind, do not constitute whether law
regards at mental incompetency Cundick
States that accept the modern ground also accept the traditional
B. DURESS, MODIFICATION, AND ATTEMPTED MODIFICATION
Restatement §§ 73, 175(1), 176(1)
1. A Promise to induced by duress is voidable §175 (1)
2. Duress is
o
o
An “improper threat”
Leaving the promisor with no reasonable alternative
3. Example of improper threats §176 (1) a)
Test:
Threat to commit crime or tort
Threat to break an existing contract in bad faith (give me 2k more for tuition after
you pd)
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1) Was there duress/improper threat?
2) Was there a rxable alternative?
-Duress is more difficult to show on the facts, easier to deal with consideration
-Not valid Defense if Duress/stress occurs after contract, but could be relevant for a new
one
Alaska Packers’ Ass’n v. Domenico US Ct Appeals 1902
Defense the court relied on: no new consideration. Defense:
1. Catching fish was a part of the original agreement
2. Duress-going to break contract in bad faith, wouldn’t be able to find substitute
workers
3. Person who made the promise had no authority to make the contract
Is a subsequent promise by one party to do more or pay more enforceable?
1. No, if induced by duress §175(1), 176 (1)(d)
2. No, if no new consideration (pre-existing duty rule) Alaska Packers
3. Yes, if original agreement cancelled Schwartzreich (hiring contract torn up before
new promise to pay $100)
4. Yes, if changed circumstances (modern modification rule) Watkins Rest. §89 (about
12 states)
If there is a material change in the circumstances that the subsequent
promise is reasonable can make a promise valid. Watkins and Son v. Carrig
NH 1941
C. MISREPRESENTATION, CONCEALMENT, NON-DISCLOSURE:
Restatement §§ 159, 160, 162, 164(1)
Misrepresentation §159 (assertion not in accord with the facts) (can be just
puffery)
Material misrepresentation §162(2) (material- it matters, likely to induce a rxable
person to manifest an assent)
Fraudulent misrepresentation §162(1) (maker intends his assertion to induce a
party to manifest his assent and the maker-voidable)
Opinion/puffing §168(1) (assertion of opinion, express belief w/o certainty as to the
existence of a fact or expresses only a judgment as to quality, value, authenticity,
or similar matters)
Active concealment §161 cmt. (element of non-disclosure, the act of preventing
another from learning of a fact that is significant and this act is always equivalent to
a misrep—voidable contract)
Bare non-disclosure Swinton
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Half-truth” (treated as misrep—misleading)
Confidential relation §161
Disclosure Rules
1. A promise is voidable if it is induced by
A material or fraudulent misrepresentation (not opinion/puffing)
An active concealment of facts, or
A half truth
2. On which the promisor was justified in relying §164(1)
bare nondisclosure of facts by the promise does not make a promise voidable,
Swinton, arms length transaction Compare Kavannos (half-truth about zoning
laws and house converted to apt)
Unless a statue requires disclosure, or
The promise has a confidential relation with the promisor requiring
disclosure §161 (d).
§89-TEST: promise modifying a duty under a contract not fully performed on either side is
binding.
a) if the modification is fair and equitable in view of circumstances not
anticipated by the parties when the contract was mde
b) to the extent provided by statute
c) to the extent the justice requires enforcement in view of material change of
position in reliance on the promise.
D. MISTAKE-promised induced by mistake
Restatement §§ 151, 152, 154
Restatement §§ 153, 161(b)
Mutual Mistake §151, 152, 154 Wood ($1 diamond), Sherwood (rose the cow)
Elements to make voidable:
1. Mistake of fact (no incorrect prediction)
2. Mutual (made by both parties)
3. “basic assumption”- (obvious and people care about)
4. material affect (b/c of the basic assumption)
5. affected party does not bear the risk of mistake §154
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Unilateral mistake—traditional rule Swinton –traditionally not enough to get you out of a
contract
-modern rule §153
1. where a mistake of one party at the time a contract was made as to a
basic assumption
2. has a material effect on the agreed exchange of performances that is
adverse to him.
3. Contract is voidable by him if he does not bear the risk of the mistake
under the rule stated in §154
§154 Bears the cost if:
1. Stated in the agreement
2. Knew he had limited knowledge and treated it as sufficient
3. Rxable under the circumstances for him to bear the risk
E. DENYING SPECIFIC PERFORMANCE
Types of remedies
o
o
“legal” =money damages
“equitable” =specific performance, injunction, rescission (Keifer, Orelierie,Kundick,
mistake cases) ect.
- Don’t get a jury when seeking an equitable remedy.
Grounds for denying specific performance/injunction (equitable remedy)
1. Damages would be an adequate remedy (could buy the perf, and it is
measurable) (land is special and can get specific performance from seller)
§359(1), §360
2. The exchange was inadequate/unfair. §364 (1)(c); cf. §79 (b) McKinnon
o
o
o
Land issues often req. specific performance: Tuckweiller
Inadequacy of consideration on McKinnon’s part not sufficient to support to permit
specific performance McKinnon v. Bennedict:
Agreement should be looked at perspectively and at the time Tuckweiller v.
Tuckweiller
F. PUBLIC POLICY Rest. §178(1)
Promises void because they violate public policy
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General principle §178 (1)
Examples: Torts §192, syl. App 8
Marriage §189
Court can discern new categories: Bush v. Black Ind. (How can we determine what is
unrxably high to pay)
§ 192: A promise to commit a tort or to induce the commission of a tort is
unenforceable on grounds of public policy. (no bldg. permit)
§ 189 A promise is unenforceable on grounds of public policy if it is unreasonably in
restraint of marriage.
Promises that violate public policy are not only voidable, they are void
Could sue for restitution though
G. EXCULPATION IN ADHESION CONTRACTS
Vocab: Standard form contracts-lease, cell phone, auto ins.
o Use one contract to serve as interpretation of all contracts (student loan contracts)
Adhesion contracts
contract that is offered on a take it or leave it basis. Stuck with the terms. Some
standard form contracts are adhesion contracts. (student loan)
NOT A DEFENSE to say this is a standard form or adhesion contract
NOT A DEFENSE to say I didn’t read the contract
Could stick an unfavorable clause in there and agreed to the term. Can you get out of a
specific term?
Exculpation terms
-I don’t have to pay damages or they are limited, even if I’m wrong
Avoiding terms in Adhesion (and other) Contracts
1. *Strict construction –§206 Galligan in SFC if there is ambiguity the court should
favor an interpretation against the party that drafted the contract (tenant slip and
fall—not on “sidewalks” used wording)
Purpose: creates incentive for clear language, levels the playing fieldfairness advantage of the drafter first, and the other person forced to take
it or leave it)
BUT: next time will just draft it differently, not a real change in practice—set
minimal decencies
2. Court’s less likely to apply strict construction to non-adhesion contracts---§206
3. Adequate notice: Klar v. H&M Parcel Room: claim ticket didn’t meet dignity of
contract
Avoiding Terms in Adhesion (and other) Contracts –important!
1. Strict construction
§206 Galligan
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2. Adequate notice
§211 Klar (assent to a writing and that these writings as terms
and agreements—don’t adopt writing if not regulary used to embody agreements –
napkin contract)
3. Public Policy
§178 O’Callaghan (traditional view), Heningsen (alternative
view)
4. Unconstitutionality
§208, UCC 2-302(1) +cmt. 1
5. Misc. other statutes regulated the substance of contracts
6. Eg note (2) pg. 392, usury laws, minimum wages ect.
Traditional View: O’Callaghan v. Waller and Beckwith:
Majority: Clause doesn’t violate PP b/c:
policy of freedom of contract (enforce those that entered willingly fair or not)
Leases concern only “private” not public interest (other cases dinsting.;
commercial lease precedent-courts concerned only if contracts freely entered affect
3rd party under PP)
Clauses may benefit both tenants and landlords--Liability raises rent!
Reduction in std. of care not impermissible (insurance contract)
No proof of overreaching in this case
Not the role of the courts to make additional laws if the leg fell short)
No monopolistic power
Need a durable moral basis to make a new rule—fleeting facts
Dissent:
Lease not just a matter between 2 parties (it’s the standard for others like
OCallaghan-thousands of tenants forced into it-hopstance choice)
Asserted public policies violated
Response to monopolistic power—even if there were thousands of landlords there
were more people seeking it it
Transitionary period—cases accepted on the Dissent’s rule Heningsen, later replace with
unconscionability rule
Reasoning
Written on the back and in small print 6pt type- not notice on the back
Warranty is standardized, no bargaining, uniform warranty of the automobile mfr
assoc. (affects thousands of ppl-not just two, dissent in O’Callaghan
There is no competition among the car maker in the area of the express warranty
PP arg: no bargaining power, overreaching power by one party, protect
the ordinary man from losing impt rights through the unilateral affect of
mfr
§208 Unconscionability –andArticle 2- Sale of Goods §2-302:
Test: in light of the general commercial background, or needs, its so one-sided you can
refuse to enforce it
finding that any clause is unconscionable (shocks) may refuse to enforce contract all or in
party
Sparing use in actual practice
18
Mostly used to invalidate attempts to exclude liability for personal injuries
Compare O’Callaghan
V. REMEDIES FOR BREACH
A. EXPECTATION, RELIANCE, AND RESTITUTION INTERESTS
Restatement §§ 344, 346, 347, 349, 359, 364, 371
1. Enforcement of Promises- Judgment for Money $$$ Damages
General availability § 346(1) “right to damages”
Possible measurements
- Expectation § 344(a), 347 “as good a position as if the contract had been
performed”
- Reliance § 344(b), 349 “as good a position as if the contract had not been
made”
Ie down payment +loss of profits while closed
- Restitution § 344(c), 370 “interest in having restored any benefit conferred
on the other party”
Ie down payment
- Nominal § 346(2)
- Liquidated § 356
Limitations
- Availability, uncertainty, etc.
Expectation interest:
Loss in value
(plus) +
What defendant
promises (minus)
what defendant
delivered
Expansion (cost of
substitute
performance) nothing
Other loss
(minus) -
Costs avoided
(minus) costs plaintiff
expected-cost
incurred
Other loss avoided
Lost profit*
Contract price –
down payment
0**
Owner calls up repudiates the contract
Contract price = 100
Builder’s expected cost = 90
Owner has already paid = 0
Builder has already spent = 60 (maybe some planning was extra cost before
improvements)
Market value of work so far = 40
Restitution interest = 40
Reliance interest = 60
Expectation interest = [(100 – 0)] + 0 ] – [(90 – 60) – 0] = 70 = expected profit + reliance
interest
19
Plaintiff typically entitled to expectation damages; but w/o reasonably certainty,
may only be able to recover reliance or restitution damages
Sullivan
Restitution Interest: Doctor’s fees
Reliance Interest: Doctor’s fees + hospital fees + pain and suffering (all 3 operations) +
disfigurement
Expectation Interest: [(enhancement – nothing) + hospital fee + 3rd surgery pain/suffering
+ disfigurement] – [Dr.’s fee – Dr.’s fee]
B. EXPECTATION DAMAGES AND INCENTIVES (“Efficient Breach”)
Efficient breach = D decides that it would be better for D to breach and pay
damages than to perform
D is better off and plaintiff is no worse off
Problems with Efficient Breach:
1. Hard to estimate the numbers and costs involved
2. “Efficient Breach” is still a breach; not a defense, liability still holds
3. Problem that the law sets the damage recovery (expectation damages) at a level
where there is an incentive to breach the contract; is it still immoral to break the
promise despite increased economic efficiency
C. LIMITATIONS ON DAMAGES
1. Avoidability §350 (1): (running a business while closed) can’t recover for
damages that could be avoidable without:
a. Undue risk
b. Burden
c. humiliation
d. ie find a new job Cf. Parker (not able to find similar enough movie)
e. not precluded from recovery w/ rxable efforts to avoid costs
§350(2)
2. Incomplete/Defective Performance
a. Loss in value to P
b. Loss in market value
3. Cost to remedy/complete §348(2) –some courts do not allow this if it exceeds
damages and is disproportionate to any value the Plaintiff has to what needs
remedied Jr Y, Peevy(strip mining: Even if subjective value at 1million 29K would
make that loss avoidable so the court wouldn’t give them more) , (But see
Groves)
4. Unforeseeabilty §351, Hadley(can only get the full extent of dam. if its FOSflour mill equip. delivery)
5. Alt to loss in value of performance: Jacob and Young §348 (2) if can’t prove
in sufficient certainty
a) dimunication of the market price b/c of breach or
20
b) rxable cost of completing performance to remedy and not clearly
disproportionate
Owner entitled to the money to complete unless its disproportionate
to the goal to be obtained Jacob and Young v. Kent: §348(b)
6. Uncertainty §352
can’t recover beyond the amount that can be calculated upon reasonable
certainty (more than prepond of evidence, less than mathematical certainty)
Questions:
1. Whether there has been a loss at all? (breach harmed P)
2. Extent of harm? (harm happened)
3. Putting a figure on the loss: Know harm happened and the extent
What May be Uncertain
Fact of Loss Collatz, cf. § 348 (2)
o Rule: compensate for what P proved to have suffered in damages.
Can just give him something b/c of breach (would be punitive). Is there
an alternate recovery? (not in Collatz)
Extent of loss Fera
Value of loss
Alternative remedies in cases of uncertainty
1. Nominal damages ($1 or 6 cnts) §346 (2): if breach caused no loss, or loss not
proved, a small amt can be given as nominal damages
2. Reliance damages §349 : including exp made in prep of perf.. when profit
uncertain, can ignore profit and just focus on expenditures on reliance
3. Specific performance §360 (a) McKinnon
4. Liquidated damages §356(1)
D. LIQUIDATED DAMAGES AND PENALTIES
Liquidated Damages
1. Liquidated damages= an amount of damages stipulated by the parties in the
contract rather than left to calculation by the court (most business contracts)
e.g. late fees, loss of deposit, etc
2. Unrxably Large D may argue liquidated damages are not enforceable because
they are a penalty §356 (1), Gustafson
3. Liquidated damages are a penalty when unreasonably large in light of:
a. Actual or anticipated loss caused by breach
b. Difficulty of proof
4. Irrelevance of characterization of liquidated damages ( disguised peanlties, prob. P.
689)
5. Policy argument for not enforcing penalties
-no economic justification for them?
-need to protect Ds from unrxably large damages
6. Criticism of prohibition on enforcing penalties
a. Litigating rxablenss reduces benefits of all stipulated damages (under cuts
purpose of liquidated damages) Gustafson
21
b. Market will regulate?
7. P may argue liquidated damages are unenforceable because that are
unconscionably small (Henningson)
Contracts I – Magg –Fall 2011
Claims….Defenses…Remedies….
X may sue Y for breach of contract claiming Y made a promise to….and broke it by doing….
Y may defend on grounds of…..asserting….. X may respond….
X might seek damages equal to…..
State any denial of damages or limitations
USE FACTS!
I. BASES FOR ENFORCING PROMISES
B. CONSIDERATION AS A BASIS FOR ENFORCEMENT
1. Promise or Performance Bargained for in exchange
a. Promise or Performance does not require a detriment to promissee and
benefit to promisor for consideration. Hamer v. Sidway
b. If a promise was not made in good faith or on false pretenses knowingly
there is not consideration. If one party doesn’t make good on a settlement
the other is excused from performing §72, 74 Feige v. Boehm, Court of
Appeals, MD, 1956
2. CONDITIONAL PROMISES VS. BARGAINED FOR IN EXCHANGE
a. NEED A RETURN PROMISE: Something you are already committed to do isn’t
consideration
b. Promises to make gifts, including conditional promises to make gifts, are not
consideration. Feinberg v. Pfeiffer Co, St Louis, 1959
c. Benefit previously received is not enforceable. Mills v. Wyman, 1825
d. Not sufficient to suffer/detriment if not party of a bargain. Kirksey v. KirkseyBEFORE RELIANCE CONSIDERED: It was a conditional promise not a contract.
e. Forbearance on the part of the company from firing him is consideration.
“Employment at Will.’ Lake Land Employment v. Columber : Dissent: It constitutes
coercion since there is no consideration.
3. PROMISES AS CONSIDERATION
a. Illusory promise- statement that sounds like a promise, but makes no real
commitment
Promises must be made in a way to justify and understanding of commitment
2
*Ultimately, manifestation of intent is what matters Rest § 2
b. Illusory promise cannot be consideration BUT:-Implied terms may make it nonillusory terms are implied in fact or law
c. The consideration is to be tested within the agreement not what you do
outside of it.Strong v. Sheffield 1895: hold off on collecting the money—made not real
commitment. (Cf. Feinberg, Compare Lakeland)
IMPLIED TERMS (eg duty of good faith)
1) Implied in Fact- implied based on the parties expectations, circumstances
under which bargain was made
2) Implied in law- term that is always there (good faith) whether the parties are
thinking about it or not
SECTION 205
-Every contract imposes upon each party a duty of good faith and fair
dealing in its performance and its enforcement (Implied in law) Mattei v. Hopper
(good faith to purchase on satisfaction of leases) ,Wood v. Lucy, Lady Duff-Gordon
(Without the implied promise it would not made sense to enter in agreement)
C. RELIANCE AS A BASIS FOR ENFORCEMENT
PROMISSORY ESTOPPEL (Rest 90)
Relying on the faith of the promise constitutes a valuable and sufficient
consideration under the doctrine of estoppel—Plaintiff is estopped from denying
the consideration Ricketts v. Scothorn ( SC of Nebraska) 1898
90 (2) charitable subscript or marriage settlement is binding under subsection s1
—without proof that the promise induced action or forbearance
Can also be used to overcome indefiniteness or statute of frauds (Monarcosometimes)
2. Elements of Promissory Estoppel (Rest 90)
1) Promise
2) action/forbearance by promisee
3) induced by (ie taken in reliance on) the promise
4) reasonably expected by promisor
3
5) Necessary to prevent injustice (Feinberg v. Pfeiffer 2)
Equitable Estoppel
1) Fact wrong
2) Reliance
3) Injury?
*No recovery available on mutual mistake
Rules vs. Standard: Basis for enforcement
o
Consideration—more like a rule
o
Reliance—less formally realizable—takes more discretion
o
Rule-predictable, efficient, equitable, behavior to follow
o
Standard-more flexibility, allows judges to use discretion for special cases
(newspapers hiding source Cohen v. Cowles)
Waiver-voluntary relinquishment of a right
Estoppel- an involuntary bar- involuntary preclusion from asserting rights
Promissory Estoppel mostly replaces reliance—as seen in the criteria
D. RESTITUTION AS AN ALTERNATIVE BASIS FOR RECOVERY
Restitution- Liable for a benefit which you received from someone else where it would be
unjust for you to take
§1 unjust enrichment- restitution req.
§2- officious conferring of benefit- volunteered and gained without being
asked for or needed
§22-From payee not benefiting intended –beneficiary need not be aware
that its false benefit
Generalizations on those who can’t collect:
1. Officious intermeddlers- volunteering services where neither asked nor needed.
2. Volunteer- infer expressly or not that they don’t want to be compensated (Compare
Schott)
3. 3. Gift and wanting paid back later—no expectations of restitutions
4
4. Gratuitousness- when you help someone in serious danger, courts assume it is
gratuitous, unless excessively burdensome or expensive or in a business or
professional capacity Cotnam v. Wisdom
a. —services were needed. Not volunteer in most complex situations.
Callano v. Oakwood Park Homes: Pendergast--contract with Callanos-Callanoes
planted shrubbery sue Oakwood Park Homes for P’s bill
To recover on the theory of quasi-contract the Ps must prove that D was
enriched, that retention of the benefit without payment therefor would be unjust.
Unless there is another remedy. You cannot substitute one promisor or
debtor for another. Callano v. Oakwood Park Homes
E. MORAL OBLIGATION AS A BASIS FOR ENFORCEMENT
1) Moral obligation is not a general basis for enforcing a promise Mills v. Wyman
2) Courts will enforce a gratuitous new promise reaffirming an old debt that is made
unenforceable because of
Special exceptions:
a) statute of limitations restatement 82 note (2) pg. 51
b) The promisor’s prior discharge in bankruptcy Restatement 83
C) The promiso’s prior infancy -under 18 can break contracts “infants” but over 18 8
makes the 2nd promise –no consideration, reliance for 2nd promise, but there is “moral
obligation” Restatement 14
3) In a few states, courts also say “moral obligation” is the basis for enforcing a promise to
pay for a material benefit if necessary to prevent injustice. Webb v. McGowin § 86. But
MOST courts disagree . Dementas,.
there must have existed a piror legal or equitable obligation which for some
reason had become unenforceable but for which the promisor was still morally
bound—McGowin was his boss.
Notorized memo not enough if no reliance or consideration. Dementas
II. CONTRACT FORMATION
General Policy that contractual liability is voluntary (subject to exceptions)
A. ASSENT—offer and acceptance
5
1) A promise is not enforceable if the promisor sufficiently indicates that he/she did not
assent/intend to be bound by the promise- Section 21 (can say you do not want to be
bound or shown in context)
e.g. Gentleman’s agreementneg. that look like offer and acceptance but no assent
to be bound
2) Possible perspectives on whether the promisor assented to be bound
promisor’s intent- Subjective (what was the understanding of that party)
promisee’s understanding-Subjective
reasonable person’s understanding –Objective—IN GENERAL THIS IS WHAT MATTERS
3) Whose perspective determines whether promisor sufficiently indicated a lack of assent?
general rule= reasonable person’s understanding Lucy v. Zehmer – Lucy believed
and was warrranted
exception= subjective—if promise is aware of it
Theoretically, contracts should show intent of parties, voluntary agreement
Rule: the law imputes to a person an intention corresponding to reasonable
meaning of his words and acts
Typical Formation of a bargain
1) preliminary negotiations (questions, haggling, discuss quality)
2) offer by offeror (one person manifests the willingness--I’ll give you 20K to drive it
away today)
3) Acceptance by offerree
B. OFFERS
RESTATEMENT 24 and 26
“Manifestation of willingness to enter into a bargain…” §24 (invites acceptance)
exposes you to contractual agreement that is binding
Parties will argue whether a particular statement was a manifestation of willingness
or something less-negotiations
Courts tend to conclude that if its ambiguous that its not an offer
No meeting of the minds no offer Harvey v. Facey, Owen v. Tunison
Distinguishing offers from Preliminary Negotiations
Plaintiff and Defendant’s arguments
6
Inherent ambiguity of question
Judicial reluctance to find offers (contracts should be voluntary)
Important to know what courts consider
o –precedent- Fairmont
o -comparison drafting
o -key words, context, ect- Fairmont Glass (“for acceptance”)
Objective nature of inquiry
Price Question and Advertisements
General rule= not offers Section 26
Reason= reasonable person understands that the advertiser would not want to give
everyone who sees advertisement power to conclude a bargain Harvey v. Facey agreed to
buy at listed price
ADVERTISEMENTS
Are advertisements offers?
general rule=no
usual explanation=reasonable expectations §26
exception=factors negating these expectations false advertising laws, ect
Did the offeree accept? (guiding questions)
1. What was the offer? Restatement 24-manifestation of willingness to enter a
bargain
2. How did the offeror invite the offeree to accept? Restatement 32 –offeror
determines but offeree can make a counter offer or say no
What the Offerror can ask for:
a. Complete performance: (“unilateral contract” as in Hamer) or
b. Promise to perform? (“bilateral contract” as in Fiege) (business mostly promise)
1. It is possible to make promises implicitly or explicitly –words
or conduct
2. Sometimes starting performance means acceptance
Can’t modify terms in an advertisement once accepted. Lefkowitz v. Great
Minn Surplus Store
7
C. ACCEPTANCE
Is it a promise to perform or is acceptance given by complete performance?
Restatement §§ 4, 30, 32, 54(1)-notice, 56, 60
A waiver can be included in the offer so there was a contract as soon as it
was approved, but notice is required in terms too. International Filter Co. v.
Conroe Gin Ice and Light
When notice is required, must be made in a way that D could rxably find out.
White v. Corlies
Rule: Offeree may accept by promising to render a complete performance
expressly through words or explicitly by conduct. The most common way
implicitly is to start.
Ever-Tite Roofing v. Green
Rule: If an offerree invites acceptance by complete performance acceptance does not
occur until and unless the performance is completed Carbolic
Questions:
1.
2.
3.
4.
5.
6.
What was the offer?
Did the offeror invite acceptance by a promise or by complete performance?
Did the offeree promise or completely perform?
If the offeree made a promise, was the promise made in a permissible manner?
Was notice required?
Was notice provided?
Allied Steel . Ford Motor, July 1936: starting construction on the conveyor belt for
Ford showed acceptance indemnifying for worker’s injury prior to signature
acknowledgement
1. It is true that an offeror can specify a specific method of accepting the offer
2. If the offeror prescribes a certain type of acceptance and the offeree doesn’t than
the offeror is not bound
3. BUT if the permissible method is stated it doesn’t preclude other methods of
acceptance
SILENCE NOT ORDINARILY ACCEPTANCE
Restatement 69—Acceptance by Silence or Exercise of Dominion
Exceptions:
8
A) offeree takes benefit of offeror services with 1) reasonable oppo to reject them
and 2)reason to know that they were offered with the expectation of compensation
(Ford never agrees to counter offer, but lets them in to do work)
B) where the offerror has 1) stated or given the offeree reason to understand that
assent may be shown by silence or inaction, 2) but in remaining silent intends to
accept the offer (offeree just has to want it if the silence clause is proposed)
C) where b/c of previous dealings or other it is reasonable that the offeree should
notify the offeror if he does not intend to accept Hobbs v. Massasoit Whip Co
(previous business, held onto products unrxably)
D. LAPSE, REVOCATION, AND REJECTION OF OFFERS
1. Termination of Offers
Lapse of time- #41 (1), (2)
Revocation by offeror-revoked and terminated when known (indirectly
Dickenson)
Death of offeror
Rejection by offeree
Revocation by Offeror #42, #43
1. Generally possible any time before acceptance
2. Effective only if offeree receives direct or indirect communication of
revolcation before acceptance-action inconsistent with intent to enter
contract
3. Not possible if offeror made an enforceable promise to keep the offer open
(an “option contract”)
Death of an Offeror #48
1. Terminate unaccepted offers (but not most contracts)
2. No communication required
3. option contract can prevent termination
-Most of the time when you die the contracts are not invalid (suing estates)
-Option contract can prevent termination
Dewitt and his auntie’s funeral --can’t argue under complete performance
If offer doesn’t state a time, the offer lasts within a reasonable time frame and what
a reasonable person would think
Option contract: If you make an offer it can be revoked unless there is a binding
promise to keep the offer open (offer on a house)
Revocation only counts if its communicated by offeree
9
Dickinson v. Dodds: Promise not to keep the offer open is not a promise because there
was no consideration. Option contracts req. consideration. No reliance in this
case.
2. Possible Responses to an Offer:
Acceptance-in manner stipulated §60
Inquiry/comment/silence
Rejection (section 38-1) (also kills the offer totally, can’t accept after rejection
Counter-offer-presumed to be a rejection and a new offer Section 39 (1) (2).
Purported acceptance with qualifications-operates not as an acceptance but
as a counter offer under “mirror image rule” Sec.59
o Counter offer may be accepted by commencing performance
otherwise rejection
E. MAILBOX RULE “ an acceptance is effective upon its dispatch” $63(a) - Lindsell
Consequences- after dispatch, offeror can no longer revoke offer and offeree can no
longer reject offer
Exceptions:
Offer indicates otherwise (extremely common)
Offer subject to option contract - #63 (b)-not in effect til offerror aware
Offeree attempts to cancel/reject after dispatch of acceptance, and
a. offerror agrees to cancel (waiver)
b. offeror relies on offeree’s purported rejection (estoppel)
Scope- Mailbox rule applies
o
o
o
only to rejections, not revocations
to any dispatched acceptance, not just US mail
even if acceptance Is lost and never arrives
F. Liability, Despite Failed Negotiations: Rest §§45, 87(2) (Reliance)
§87(2): offeror should 1. reasonably expect to induce action or forbearance the part
of the offeree before acceptance and 2 which does induce such action or
forbearance is 3. binding if necessary to avoid injustice.
Drennan v. Star Paving [exception]: Courts enforce because reliance on the
promise makes offer irrevocable.
§45: Option contract created by Part Performance or Tender: when offer invites an
acceptance by performance then contract is created when offeree begins
performance.
General Rule= No liability in failed or apparently failed negotiations
10
Exceptions:
Breach of implied promise not to revoke offer (Drennan)
Breach of assurances during negotiations (Hoffman)
Breach of contract to negotiate in a particular manner (Channel) promise to
act in good faith(implied contract)—shown by letter of intent
Test:
1.
Did both parties manifest an intention to be bound by the agreement?
2.
Are the terms of the agreement sufficiently definite to be enforced?
3.
Consideration (can include letter of intent) ?
E. DEFINITENESS: Rest §33
Open terms show that there was manifestation of intent at the time
The terms of the agreement must be sufficiently definite to be enforced. (rxabl
person standard)
Certainty exists if there is a reasonable basis for determining a breach and for
giving an appropriate remedy. (Varney v. Ditmars: "fair share of the profits")
Good Faith and Reasonable efforts can be quantified if they are subject to
some external standard. (market value)
III. WRITING REQUIREMENT: §§ 110, 111, 112, 124, 125, 130, Syllabus App. #4
A. Statute of Frauds: Promise must be accompanied by assigned writing.
a. Differ from State to State: Generally: MYLEGS
o
o
o
o
o
Marriage(110(1)(c)),124): a promise the consideration for which is marriage (unless
the promise is one of two mutual promises to marry each other), such as a promise by
A to pay $10k to B if B marries C.
Year(110(1)(e),130(1)+(2): A promise that cannot possibly be fully performed
(as opposed to merely terminated) w/in one year, such as a promise by A to employ
B for 5 years.
o Projects that theoretically could be completed within a year can be exempt.
C.R. Klewin v. Flagship Prop
Land(110(1)(d),125(1)-(3): A promise to buy or sell land, such as a promise by A to
sell a house to B. Provisions in statutes of frauds dealing with land contracts usually
are subject to two exceptions:
a. A promise to buy land is enforceable w/o a writing after the seller has conveyed
the property.
b. Under the “part performance” doctrine, the seller may not assert the statute of
frauds as a defense if the buyer has substantially relied on the promise to sell.
Most courts have said that merely paying the purchase price is not enough
reliance, and typically have required the buyer also to have taken possession,
made improvements, or performed substantial other actions.(129)
Executor(110(1)(a),111): A promise by an executor to pay the debts of the
decedent’s estate out of the executor’s own pocket
Goods(UCC 2-201(1): A promise to buy or sell goods for a price of $500 or more.
Suretyship(110)(1)(b),112): A promise made by a surety to a creditor to pay a debt
that a debtor owes the creditor, such as a promise by A to pay C a debt that B owes C.
o Not relief of breach of contract claim for B
11
o
If guarantor receives a direct benefit then not suretyship.
B. Writing and Signing: Rest. § 131
a. Identifies subject matter
b. Reasonably sufficient that it is a contract btwn the parties
c. Reasonably certain terms
C. Exceptions to Writing Requirement: Rest. §§ 129, 139, 375, Syllabus App #5
Can enforce specific performance of transfer of land injust can only be avoided by
specific perf. Richard v. Richard
o If party can adequately demonstrate, in reliance on said agreement,
possession, improvements (permanent), OR payment of a substantial part of
the purchase price.
A party is estopped from asserting the statute of frauds to prevent the enforcement
of an oral contract where Promissory Estoppel: (§139) Monarco v. Lo Greco
1) a party has so substantially changed his position in reliance upon the
contract that he would suffer an unconscionable injury if the contract were
not enforced and
2) the party seeking to assert the statute of frauds will be unjustly enriched if
he is permitted to escape the obligations of the contract.
§375: Restitution is not barred b/c of SOF unless the statute expressly states
otherwise or it would aggravate the purpose of SOF.
IV. POLICING THE BARGAIN
A. CAPACITY
1 Infancy
Contracts §§ 7+cmt.b (Syl. App.), 14 +cmt. C (until day before turned 18)
o infancy is a defense or basis for enforcement
o but infants can enforce (ie contract is voidable, not void), but other party cannot
back out
o A promise made by a person under the age of majority (in most states, 18
years) is voidable until a reasonable time after the person reaches the age of
majority. Kiefer v. Fred Howe Motors.
Restitution (Rest. §62 +cmt.b)
Generally req’d if contract voided for infancy
Not required if subject matter unavailable (possible consequence is ______)
Required for “necessaries” if infant is emancipated
Not a duty of restitution to the transferor upon failure to pay for it if the
subject matter or its product is not avail at the time when restitution is
sought-
12
Infancy also a basis for rescinding
Non- infant in contract cannot back out- Infant can enforce the contract
Have a reasonable time after the 18th birthday
Emancipated infants—those who are infants but responsible for their own
care
o
-you can still void contracts—if someone sells you a “necessary” you
must make restitution. Housing, food, clothes. Kiefer v. Fred How
Motors SC of WI 1968
3. Mental infirmity
Voiding promises based on mental illness/defect:
Traditional ground § (1) (a)
promisor was unable to understand (all states) (senile, mh, other
problem)
Modern additional ground (§15 (1)(b) (few states)
1) Cannont rxably act in regard to the transfer and the other
party knows Ortelere
2) Mere weakness of body or mind, do not constitute whether law
regards at mental incompetency Cundick
States that accept the modern ground also accept the traditional
B. DURESS, MODIFICATION, AND ATTEMPTED MODIFICATION
Restatement §§ 73, 175(1), 176(1)
1. A Promise to induced by duress is voidable §175 (1)
2. Duress is
o
o
An “improper threat”
Leaving the promisor with no reasonable alternative
3. Example of improper threats §176 (1) a)
Test:
Threat to commit crime or tort
Threat to break an existing contract in bad faith (give me 2k more for tuition after
you pd)
13
1) Was there duress/improper threat?
2) Was there a rxable alternative?
-Duress is more difficult to show on the facts, easier to deal with consideration
-Not valid Defense if Duress/stress occurs after contract, but could be relevant for a new
one
Alaska Packers’ Ass’n v. Domenico US Ct Appeals 1902
Defense the court relied on: no new consideration. Defense:
1. Catching fish was a part of the original agreement
2. Duress-going to break contract in bad faith, wouldn’t be able to find substitute
workers
3. Person who made the promise had no authority to make the contract
Is a subsequent promise by one party to do more or pay more enforceable?
1. No, if induced by duress §175(1), 176 (1)(d)
2. No, if no new consideration (pre-existing duty rule) Alaska Packers
3. Yes, if original agreement cancelled Schwartzreich (hiring contract torn up before
new promise to pay $100)
4. Yes, if changed circumstances (modern modification rule) Watkins Rest. §89 (about
12 states)
If there is a material change in the circumstances that the subsequent
promise is reasonable can make a promise valid. Watkins and Son v. Carrig
NH 1941
C. MISREPRESENTATION, CONCEALMENT, NON-DISCLOSURE:
Restatement §§ 159, 160, 162, 164(1)
Misrepresentation §159 (assertion not in accord with the facts) (can be just
puffery)
Material misrepresentation §162(2) (material- it matters, likely to induce a rxable
person to manifest an assent)
Fraudulent misrepresentation §162(1) (maker intends his assertion to induce a
party to manifest his assent and the maker-voidable)
Opinion/puffing §168(1) (assertion of opinion, express belief w/o certainty as to the
existence of a fact or expresses only a judgment as to quality, value, authenticity,
or similar matters)
Active concealment §161 cmt. (element of non-disclosure, the act of preventing
another from learning of a fact that is significant and this act is always equivalent to
a misrep—voidable contract)
Bare non-disclosure Swinton
14
Half-truth” (treated as misrep—misleading)
Confidential relation §161
Disclosure Rules
1. A promise is voidable if it is induced by
A material or fraudulent misrepresentation (not opinion/puffing)
An active concealment of facts, or
A half truth
2. On which the promisor was justified in relying §164(1)
bare nondisclosure of facts by the promise does not make a promise voidable,
Swinton, arms length transaction Compare Kavannos (half-truth about zoning
laws and house converted to apt)
Unless a statue requires disclosure, or
The promise has a confidential relation with the promisor requiring
disclosure §161 (d).
§89-TEST: promise modifying a duty under a contract not fully performed on either side is
binding.
a) if the modification is fair and equitable in view of circumstances not
anticipated by the parties when the contract was mde
b) to the extent provided by statute
c) to the extent the justice requires enforcement in view of material change of
position in reliance on the promise.
D. MISTAKE-promised induced by mistake
Restatement §§ 151, 152, 154
Restatement §§ 153, 161(b)
Mutual Mistake §151, 152, 154 Wood ($1 diamond), Sherwood (rose the cow)
Elements to make voidable:
1. Mistake of fact (no incorrect prediction)
2. Mutual (made by both parties)
3. “basic assumption”- (obvious and people care about)
4. material affect (b/c of the basic assumption)
5. affected party does not bear the risk of mistake §154
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Unilateral mistake—traditional rule Swinton –traditionally not enough to get you out of a
contract
-modern rule §153
1. where a mistake of one party at the time a contract was made as to a
basic assumption
2. has a material effect on the agreed exchange of performances that is
adverse to him.
3. Contract is voidable by him if he does not bear the risk of the mistake
under the rule stated in §154
§154 Bears the cost if:
1. Stated in the agreement
2. Knew he had limited knowledge and treated it as sufficient
3. Rxable under the circumstances for him to bear the risk
E. DENYING SPECIFIC PERFORMANCE
Types of remedies
o
o
“legal” =money damages
“equitable” =specific performance, injunction, rescission (Keifer, Orelierie,Kundick,
mistake cases) ect.
- Don’t get a jury when seeking an equitable remedy.
Grounds for denying specific performance/injunction (equitable remedy)
1. Damages would be an adequate remedy (could buy the perf, and it is
measurable) (land is special and can get specific performance from seller)
§359(1), §360
2. The exchange was inadequate/unfair. §364 (1)(c); cf. §79 (b) McKinnon
o
o
o
Land issues often req. specific performance: Tuckweiller
Inadequacy of consideration on McKinnon’s part not sufficient to support to permit
specific performance McKinnon v. Bennedict:
Agreement should be looked at perspectively and at the time Tuckweiller v.
Tuckweiller
F. PUBLIC POLICY Rest. §178(1)
Promises void because they violate public policy
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General principle §178 (1)
Examples: Torts §192, syl. App 8
Marriage §189
Court can discern new categories: Bush v. Black Ind. (How can we determine what is
unrxably high to pay)
§ 192: A promise to commit a tort or to induce the commission of a tort is
unenforceable on grounds of public policy. (no bldg. permit)
§ 189 A promise is unenforceable on grounds of public policy if it is unreasonably in
restraint of marriage.
Promises that violate public policy are not only voidable, they are void
Could sue for restitution though
G. EXCULPATION IN ADHESION CONTRACTS
Vocab: Standard form contracts-lease, cell phone, auto ins.
o Use one contract to serve as interpretation of all contracts (student loan contracts)
Adhesion contracts
contract that is offered on a take it or leave it basis. Stuck with the terms. Some
standard form contracts are adhesion contracts. (student loan)
NOT A DEFENSE to say this is a standard form or adhesion contract
NOT A DEFENSE to say I didn’t read the contract
Could stick an unfavorable clause in there and agreed to the term. Can you get out of a
specific term?
Exculpation terms
-I don’t have to pay damages or they are limited, even if I’m wrong
Avoiding terms in Adhesion (and other) Contracts
1. *Strict construction –§206 Galligan in SFC if there is ambiguity the court should
favor an interpretation against the party that drafted the contract (tenant slip and
fall—not on “sidewalks” used wording)
Purpose: creates incentive for clear language, levels the playing fieldfairness advantage of the drafter first, and the other person forced to take
it or leave it)
BUT: next time will just draft it differently, not a real change in practice—set
minimal decencies
2. Court’s less likely to apply strict construction to non-adhesion contracts---§206
3. Adequate notice: Klar v. H&M Parcel Room: claim ticket didn’t meet dignity of
contract
Avoiding Terms in Adhesion (and other) Contracts –important!
1. Strict construction
§206 Galligan
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2. Adequate notice
§211 Klar (assent to a writing and that these writings as terms
and agreements—don’t adopt writing if not regulary used to embody agreements –
napkin contract)
3. Public Policy
§178 O’Callaghan (traditional view), Heningsen (alternative
view)
4. Unconstitutionality
§208, UCC 2-302(1) +cmt. 1
5. Misc. other statutes regulated the substance of contracts
6. Eg note (2) pg. 392, usury laws, minimum wages ect.
Traditional View: O’Callaghan v. Waller and Beckwith:
Majority: Clause doesn’t violate PP b/c:
policy of freedom of contract (enforce those that entered willingly fair or not)
Leases concern only “private” not public interest (other cases dinsting.;
commercial lease precedent-courts concerned only if contracts freely entered affect
3rd party under PP)
Clauses may benefit both tenants and landlords--Liability raises rent!
Reduction in std. of care not impermissible (insurance contract)
No proof of overreaching in this case
Not the role of the courts to make additional laws if the leg fell short)
No monopolistic power
Need a durable moral basis to make a new rule—fleeting facts
Dissent:
Lease not just a matter between 2 parties (it’s the standard for others like
OCallaghan-thousands of tenants forced into it-hopstance choice)
Asserted public policies violated
Response to monopolistic power—even if there were thousands of landlords there
were more people seeking it it
Transitionary period—cases accepted on the Dissent’s rule Heningsen, later replace with
unconscionability rule
Reasoning
Written on the back and in small print 6pt type- not notice on the back
Warranty is standardized, no bargaining, uniform warranty of the automobile mfr
assoc. (affects thousands of ppl-not just two, dissent in O’Callaghan
There is no competition among the car maker in the area of the express warranty
PP arg: no bargaining power, overreaching power by one party, protect
the ordinary man from losing impt rights through the unilateral affect of
mfr
§208 Unconscionability –andArticle 2- Sale of Goods §2-302:
Test: in light of the general commercial background, or needs, its so one-sided you can
refuse to enforce it
finding that any clause is unconscionable (shocks) may refuse to enforce contract all or in
party
Sparing use in actual practice
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Mostly used to invalidate attempts to exclude liability for personal injuries
Compare O’Callaghan
V. REMEDIES FOR BREACH
A. EXPECTATION, RELIANCE, AND RESTITUTION INTERESTS
Restatement §§ 344, 346, 347, 349, 359, 364, 371
1. Enforcement of Promises- Judgment for Money $$$ Damages
General availability § 346(1) “right to damages”
Possible measurements
- Expectation § 344(a), 347 “as good a position as if the contract had been
performed”
- Reliance § 344(b), 349 “as good a position as if the contract had not been
made”
Ie down payment +loss of profits while closed
- Restitution § 344(c), 370 “interest in having restored any benefit conferred
on the other party”
Ie down payment
- Nominal § 346(2)
- Liquidated § 356
Limitations
- Availability, uncertainty, etc.
Expectation interest:
Loss in value
(plus) +
What defendant
promises (minus)
what defendant
delivered
Expansion (cost of
substitute
performance) nothing
Other loss
(minus) -
Costs avoided
(minus) costs plaintiff
expected-cost
incurred
Other loss avoided
Lost profit*
Contract price –
down payment
0**
Owner calls up repudiates the contract
Contract price = 100
Builder’s expected cost = 90
Owner has already paid = 0
Builder has already spent = 60 (maybe some planning was extra cost before
improvements)
Market value of work so far = 40
Restitution interest = 40
Reliance interest = 60
Expectation interest = [(100 – 0)] + 0 ] – [(90 – 60) – 0] = 70 = expected profit + reliance
interest
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Plaintiff typically entitled to expectation damages; but w/o reasonably certainty,
may only be able to recover reliance or restitution damages
Sullivan
Restitution Interest: Doctor’s fees
Reliance Interest: Doctor’s fees + hospital fees + pain and suffering (all 3 operations) +
disfigurement
Expectation Interest: [(enhancement – nothing) + hospital fee + 3rd surgery pain/suffering
+ disfigurement] – [Dr.’s fee – Dr.’s fee]
B. EXPECTATION DAMAGES AND INCENTIVES (“Efficient Breach”)
Efficient breach = D decides that it would be better for D to breach and pay
damages than to perform
D is better off and plaintiff is no worse off
Problems with Efficient Breach:
1. Hard to estimate the numbers and costs involved
2. “Efficient Breach” is still a breach; not a defense, liability still holds
3. Problem that the law sets the damage recovery (expectation damages) at a level
where there is an incentive to breach the contract; is it still immoral to break the
promise despite increased economic efficiency
C. LIMITATIONS ON DAMAGES
1. Avoidability §350 (1): (running a business while closed) can’t recover for
damages that could be avoidable without:
a. Undue risk
b. Burden
c. humiliation
d. ie find a new job Cf. Parker (not able to find similar enough movie)
e. not precluded from recovery w/ rxable efforts to avoid costs
§350(2)
2. Incomplete/Defective Performance
a. Loss in value to P
b. Loss in market value
3. Cost to remedy/complete §348(2) –some courts do not allow this if it exceeds
damages and is disproportionate to any value the Plaintiff has to what needs
remedied Jr Y, Peevy(strip mining: Even if subjective value at 1million 29K would
make that loss avoidable so the court wouldn’t give them more) , (But see
Groves)
4. Unforeseeabilty §351, Hadley(can only get the full extent of dam. if its FOSflour mill equip. delivery)
5. Alt to loss in value of performance: Jacob and Young §348 (2) if can’t prove
in sufficient certainty
a) dimunication of the market price b/c of breach or
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b) rxable cost of completing performance to remedy and not clearly
disproportionate
Owner entitled to the money to complete unless its disproportionate
to the goal to be obtained Jacob and Young v. Kent: §348(b)
6. Uncertainty §352
can’t recover beyond the amount that can be calculated upon reasonable
certainty (more than prepond of evidence, less than mathematical certainty)
Questions:
1. Whether there has been a loss at all? (breach harmed P)
2. Extent of harm? (harm happened)
3. Putting a figure on the loss: Know harm happened and the extent
What May be Uncertain
Fact of Loss Collatz, cf. § 348 (2)
o Rule: compensate for what P proved to have suffered in damages.
Can just give him something b/c of breach (would be punitive). Is there
an alternate recovery? (not in Collatz)
Extent of loss Fera
Value of loss
Alternative remedies in cases of uncertainty
1. Nominal damages ($1 or 6 cnts) §346 (2): if breach caused no loss, or loss not
proved, a small amt can be given as nominal damages
2. Reliance damages §349 : including exp made in prep of perf.. when profit
uncertain, can ignore profit and just focus on expenditures on reliance
3. Specific performance §360 (a) McKinnon
4. Liquidated damages §356(1)
D. LIQUIDATED DAMAGES AND PENALTIES
Liquidated Damages
1. Liquidated damages= an amount of damages stipulated by the parties in the
contract rather than left to calculation by the court (most business contracts)
e.g. late fees, loss of deposit, etc
2. Unrxably Large D may argue liquidated damages are not enforceable because
they are a penalty §356 (1), Gustafson
3. Liquidated damages are a penalty when unreasonably large in light of:
a. Actual or anticipated loss caused by breach
b. Difficulty of proof
4. Irrelevance of characterization of liquidated damages ( disguised peanlties, prob. P.
689)
5. Policy argument for not enforcing penalties
-no economic justification for them?
-need to protect Ds from unrxably large damages
6. Criticism of prohibition on enforcing penalties
a. Litigating rxablenss reduces benefits of all stipulated damages (under cuts
purpose of liquidated damages) Gustafson
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b. Market will regulate?
7. P may argue liquidated damages are unenforceable because that are
unconscionably small (Henningson)
