ContractsProfessor Pike

Outline

I. Introduction to Contract LawA. The Three Dimensions of Law

i. Doctrine: rules and principles of law by which judges justify their de-cisions

ii. Facts: the actual application of doctrine by courts and its effects on contracting parties and the public at large

iii. Theory: the rationales or reasons for legal doctrine1. Principal source of theory is the “common sense” of lawyers

and judges, but these intuitions are implicitly or explicitly in-formed by other disciplines such as history, economics, or phi-losophy

2. Tells us what a new rule should be when none exists or tells us which rule should prevail in case of conflict

B. The Restatement Codei. A product of the American Law Institute (ALI), a private nonprofit se-

lect group of practicing lawyers, judges, and law professors1. Stated purpose is to “address uncertainty in the law through a

restatement of basic legal subjects that would tell judges and lawyers what the law is.”

ii. Although supposed to be a summary of law, the Restatement in-evitably helps to reshape law being summarized

iii. Sometimes the Restatement intentionally tries to reform the law in response to complaints by legal scholars or practitioners

iv. “…something less than a code and something more than a treatise. It will be invested with unique authority, not to command, but to persuade…” ~ S.C.J. Benjamin Cardozo

C. Uniform Commercial Codei. Only deals with the sale of goods

1. Lease of goods, sale of property and an employment services contract are still regulated by the common law of the state

2. In cases where there is a mixed transaction of goods and ser-vices, courts generally apply whatever is the dominant service (J.O. Hooker, 1996 (cabinets))

ii. A joint product of the ALI and the National Conference of Commis-sioners on Uniform State Laws (NCCUSL) and a product of the 19th century effort to make uniform the laws of the 50 states

1. NCCUSL describes itself as providing states with non-partisan, well-conceived and well-drafted legislation that brings clarity and stability to critical areas of law. NCCUSL’s work supports the federal system and facilitates the movement of individuals and the business of organizations with rules that are consis-tent from state to state

iii. The conference has drafted more than 200 uniform lawsiv. Not adopted by Louisiana, which still uses a form of the Napoleonic

CodeD. Authoritative Weight of the Restatement and UCC

ContractsProfessor Pike

Outline

i. UCC is a statute adopted by the legislatures of 49 states and is binding on courts., it supersedes any common law rules that are in-consistent with its provisions

ii. The Restatement is not binding, but it is good “authority” and is widely respected because of those who drafted it. Courts often adopt its provisions as law or use it when deciding what doctrine to adopt.

1. Sometimes courts adopted provisions of the first Restatement and have not revisited the issue since the second was pub-lished

E. Contract Definedi. Restate. 2d §1: A contract is a promise or a set of promises for the

breach of which the law gives a remedy, pr the performance of which the law in some way recognizes as a duty

F. Promise; Promisor; Promisee; Beneficiaryi. R.2s §2: (1) a promise is a manifestation of intention to act or re-

frain from acting in a specific was, so made as to justify a promisee in understanding that a commitment has been made (2) The person manifesting the intention is the promisor (3) The person to whom the manifestation is addressed is the promisee (4) Where perfor-mance will benefit a person other than the promisee, that person is a beneficiary

G. Agreement defined; Bargain definedi. R.2s §3: An agreement is a manifestation of mutual assent on the

part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for a performance or to ex-change performances.

H. How a promise may be madei. R.2s §4: A promise may be stated in words either oral or written, or

may be inferred wholly or partly from conduct.I. Elements of an action in contract

i. Mutual assentii. Enforceabilityiii. Breach

J. Elements of a contracti. Parties with capacityii. Manifested assentiii. Consideration

K. INTRODUCTION TO DAMAGE INTERESTS1. Occasionally a court grants a promisee specific relief by ordering the

promisor to perform the promise, but this is the exception2. Usually a court grants the promisee substitutional relief by awarding a

sum of money intended to compensate for the harm to the promisee’s in-terests caused by the promisor’s failure to perform the contract

i. The Three Damage Interests

ContractsProfessor Pike

Outline

1. Expectation Interests: court attempts to put the promisee in the position in which they would have been in if the con-tract had been fulfilled

a. This is the most common damage awardb. Hawkins v. McGee, 1929 (hairy hand): difference be-

tween perfect hand promised and hand actually re-ceived

c. R.2d §347 : Subject to limitations stated in §§350-353, the injured party has a right to damages based on his expectation interest as measured by (a) loss in the value to him of the other party’s performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss that he has avoided by not having to perform

d. (J.O. Hooker, 1996 (cabinets))2. Reliance: When the promisee acts, to their detriment, on the

reliance that the promisor will fulfill their promise, the court attempts to put the promisee back in the position they would have been in had the promise not been made (Sullivan v. O’Connor, 1973 (botched nose job))

3. Restitution: Court awards the promisee a sum of money from the promisor in an attempt to put the promisor back in the position they would have been in had the promise not been made. Usually used when a promisee has already con-ferred a benefit to the promisor.

ii. Statutory Rules of Construction: When there is a conflict between a statute dealing generally with a subject and another statute dealing specifically with a certain phase of it, the specific statute controls unless it appears that the legislature intended to make the act con-trolling (Tongish v. Thomas, 1992 (seeds))

1. UCC §2-712: “Cover”; Buyer’s procurement of Substitute Goods – (1) After a breach within the preceding section the buyer may “cover” by making in good faith and without un-reasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined, but less expenses saved in consequence of the seller’s breach (3) failure of the buyer to effect cover within the Section does not bar him from any other remedy

2. UCC §2-713: Buyer’s Damages for Non-Delivery or Repudia - tion - (1) Subject to the provisions of this Article (§2-723) with respect to proof of market price, the measure of damages for non-delivery or repudiation by the seller is the difference be-tween the market price at the time when the buyer learned of

ContractsProfessor Pike

Outline

the breach and the contract price together with any incidental and consequential damages provided in this Article (§2-715), but less expenses saved in consequence of the seller’s breach. (2) Market price is to be determined as of the place for the tender or, in cases of rejection after arrival or revoca-tion of acceptance, as of the place of arrival.

a. Despite this being a bit of a windfall for the π, it encour-ages people/farmer’s not to breach contracts

II. Reaching an AgreementA. THE OBJECTIVE THEORY OF ASSENT

i. Formation of a contract requires two basic elements:1. the mutual assent of the parties2. and some showing that this assent is the kind of assent that

the law will enforceii. Assent cannot be judged by what the unmanifested intentions of the

contracting parties was at the time of formation, but rather what an objective reasonable third party would understand by listening or seeing the agreement take place (Embry v. Hargadine, 1907 (re-newal of employment contract))

iii. The mental assent of the parties is not requisite for the formation of a contract. If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial ex-cept when an unreasonable meaning, which he attaches to his man-ifestations, is known to the other party. (Lucy v. Zehmer, 1954 (joke selling of farm))

1. R.2d §17 Requirement of a Bargain: Except as stated in Sub-section (2), the formation of a contract requires a bargain in which there is manifestation of mutual assent to the ex-change and a consideration. (2) Whether or not there is a bargain a contract may be formed under special rules appli-cable to formal contracts or under the rules stated in §§82-94.

2. §18 Manifestation of Mutual Assent : Manifestation of mutual assent to an exchange requires that each party either make a promise or begin or render a performance.

3. §19 Conduct as Manifestation of Assent: (1) The manifesta-tion of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act (2) The conduct of a party is not effective as a manifestation of his assent unless he intends to engage in the conduct and knows or has reason to know that the other party may infer from his conduct that he assents. (3) The conduct of a party may manifest assent even though he does not in fact assent. In such cases a resulting contract may be voidable because of fraud, duress, mistake or other invalidating cause.

B. WHAT IS AN OFFER?

ContractsProfessor Pike

Outline

i. R.2d §24: And offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.

ii. Preliminary Negotiations1. If a proposal is nothing more than an invitation to the person

to whom it is made to make an offer to the proposer, it is not such an offer as can be turned into an agreement by accep-tance. (Nebraska Seed Co., 1915 (offer to sell seed))

1. Must be determined by the detail of the language, time, where, when, limitations, etc.

2. Advertisements as Offers1. The general rule is that an advertisement does not con-

stitute and offer, it may be an offer if there is some lan-guage of commitment or some invitation to take action without further communication (PepsiCo, 1999)

2. Advertisement is nothing but an invitation to enter into negotiations, to accept an offer

3. The court must not consider advertiser’s subjective in-tent in making the commercial, nor the buyer’s subjec-tive intent view of what the commercial offered, but what an objective, reasonable person would have un-derstood the advertisement to mean

3. R.2d §22. Mode of Assent: Offer and Acceptance: (1) The manifestation of mutual assent to an exchange ordinarily takes the form of an offer or proposal by one party followed by an acceptance by the other party or parties. (2) A mani-festation of mutual assent may be made even though nei-ther offer nor acceptance can be identified and even though the moment of formation cannot be determined.

4. R.2d §24. Offer Defined : An offer is a manifestation of will-ingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is in-vited and will conclude it.

5. R.2d §26: Preliminary Negotiations: A manifestation of will-ingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.

6. R.2d §29. To Whom an Offer is Addressed: (1) The mani-fested intention of the offeror determines the person or the persons in whom is created a power of acceptance. (2) An offer may create a power of acceptance in a specified person or in one or more of a specified group or class of persons, acting separately or together, or in anyone or everyone who makes a specified promise or renders a specified perfor-mance.

ContractsProfessor Pike

Outline

7. R.2d §33. Certainty: (1) Even though a manifestation of in-tention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain (2) The terms of the contract are reasonably certain if they provide a basis for determin-ing the existence of a breach and for giving an appropriate remedy (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifes-tation of intention is not intended to be understood as an of-fer or as an acceptance

8. UCC §2-204. Formation in General: (1) A contract for a sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recog-nizes the existence of such a contract (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined

9. UCC §2-206. Offer and Acceptance in Formation of Contract: (1) Unless otherwise unambiguously indicated by the lan-guage or circumstances (a) an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium reasonable in the circumstances; (b) an order or other offer to buy goods for prompt or current shipment shall be construed as inviting acceptance either by a prompt promise to ship or by the prompt or current shipment of con-forming or nonconforming goods, but such a shipment of nonconforming goods does not constitute an acceptance if the seller seasonably notifies the buyer that the shipment is offered only as an accommodation to the buyer (2) Where the beginning of a requested performance is a reasonable mode of acceptance an offeror who is not notified of accep-tance within a reasonable time may treat the offer as having lapsed before acceptance.

10. A contract can still be formed even if the price, place of de-livery, time of delivery or payment of delivery are left open (UCC §§2-305, 308 – 10)

iii. Written Memorial Contemplated1. “Agreements in principle” or “letter of intent”

a. fairly far along in process, most details have been hashed out; price, consideration etc. but there are things left to be decided

b. parties who make their pact “subject to” a later defini-tive agreement have manifested an (objective) intent not to be bound; doesn’t matter what parties intended, unless the intentions are expressed openly R.2d §26 (Empro, 1989 (sale of factory))

i. if the buyer has the option to pull out of deal so should the seller

ContractsProfessor Pike

Outline

ii. Revoking an Offer1. Person who makes an offer has the right to revoke it at any

time before acceptance, may do so orally or by actions even if you have language keeping it open (Dickinson v. Dodd, 1876 (sell farm))

2. Revocation only becomes valid when the offeree hears/learns about revocation. If accepted before hears about revocation, must allow acceptance

3. R.2d §22. Mode of Assent: Offer and Acceptance 4. R.2d §35. The Offeree’s Power of Acceptance: (1) An offer

gives to the offeree a continuing power to complete the mani-festation of mutual assent by acceptance of the offer (2) A contract cannot be created by acceptance of an offer after the power of acceptance has been terminated in one of the ways listed in §36.

5. R.2d §36. Methods of Termination of the Power of Acceptance: (1) An offeree’s power of acceptance may be terminated by (a) rejection or counter-offer by the offeree, or (b) lapse of time, or (c) revocation by the offeror, or (d) death or incapac-ity of the offeror or offeree. (2) In addition, an offeree’s power of acceptance is terminated by the non-occurrence of any condition of acceptance under the terms of the offer

6. R.2d §42. Revocation by Communication from Offeror Re - ceived by Offeree: An offeree’s power of acceptance is termi-nated when the offeree receives from the offeror a manifesta-tion of an intention not to enter into the proposed contract.

7. R.2d §43. Indirect Communication of Revocation: An offeree’s power of acceptance is terminated when the offeror takes definite action inconsistent with an intention to enter into the proposed contract and the offeree acquires reliable informa-tion to that effect.

8. OPTION CONTRACT: option contract involves an extra consid-eration to allow the offer to remain open for a set period of time without being able to be revoked

a. R.2d §37. Termination of Power of Acceptance Under Option Contract: Notwithstanding §§38-49, the power of acceptance under an option contract is not terminated by rejection or counter-offer, by revocation, or by death or incapacity of the offeror, unless the requirements are met for the discharge of contractual duty.

C. WHAT IS AN ACCEPTANCE?1. Acceptance that Varies Terms

a. Mirror Image Rule: An offer imposes no obligation of the offeror unless it is accepted by the offeree exactly as it was presented originally. Acceptance must mirror the terms of the offer. Otherwise it is a counter-offer and subject to acceptance by the original offeror. (Ardente

ContractsProfessor Pike

Outline

v. Horan, 1976 (house purchase w/ new terms for furni-ture))

b. R.2d §61. Acceptance Which Requests Change of Terms: An acceptance which requests a change or addition to the terms of the offer is not thereby invalidated unless the acceptance is made to depend on an assent to the changed or added terms

2. Acceptance by Correspondencea. Mailbox Rule: An acceptance is effective upon dispatch

(into the mailbox)i. Reasoning: offeree is already relying on the deal

being on while the offeror is just holding it openii. Offeror always has the option to make the accep-

tance rely on receiptiii. Contract formed on mailing even if lost and of-

feror may no longer revoke although it may delay performance if lost

iv. Offeree may also not revoke after dispatchv. If revocation is received by offeror before accep-

tance it does not revoke contract, however, it may:

1. Be considered an offer to revoke2. May bar the offeree from suing to enforce

the contract3. May be considered a repudiation of the con-

tract which would give the original offeror the right to avoid the contract

4. May justify offeror in withholding perfor-mance and demanding adequate assurance

vi. When in the form of an option, acceptance is only operative on receipt by the offeror

vii. The letter must be properly sent, i.e. not ad-dressed wrong or a stamp forgotten

3. Acceptance by Performance or “Unilateral” Contracts?a. Involve acceptance by performance instead of accep-

tance by promise, like in bilateral contractsb. Offer v. promise

i. Offer is a commitment to do something upon ac-ceptance by another party

ii. Promise is a commitment to do somethingc. An advertisement can be an offer to do something upon

the performance of something, acceptance can be com-munication in a number of ways (by seeking out an of-fered cash amount (Carbolic Smoke Balls, 1893))

d. Notification before performance is not necessarye. Timely notification of completed performance is neces-

sary

ContractsProfessor Pike

Outline

i. R.2d §54. Acceptance by Performance; Necessity of Notification to Offeror: (1) Where an offer in-vites an offeree to accept by rendering a perfor-mance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification. (2) If an offeree who accepts by rendering a performance has reason to know that the offeror has no adequate means of learn-ing of the performance with reasonable prompt-ness and certainty, the contractual duty of the of-feror is discharged unless (a) the offeree exercises reasonable diligence to notify the offeror of accep-tance, or (b) the offeror learns of the performance within a reasonable time, or (c) the offer indicates the notification of acceptance is not required.

f. §19 Conduct as Manifestation of Assent & §54. The of-feror must be notified of performance as assent in a rea-sonable time or by reasonable means for conduct to qualify as assent (White v. Corlies, 1871 (building suites))

g. R.2d §45 Option Contract Created by Part Performance or Tender: (1) Where an offer invites an offeree to ac-cept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree tenders or begins the invited perfor-mance or tenders a beginning of it. (2) The offeror’s duty of performance under any option contract so cre-ated is conditional on completion or tender of the in-vited performance in accordance with the terms of the offer.

h. R.2d §62. Effect of Performance by Offeree Where Offer Invites Either Performance or Promise: (1) Where an of-fer invites an offeree to choose between acceptance by promise and acceptance by performance, the tender or beginning of the invited performance or a tender of a beginning of it is an acceptance by performance. (2) Such an acceptance operates as a promise to render complete performance.

4. Acceptance by Silencea. Conduct can indicate acceptanceb. In the course of regular business dealings when there is

a relationship between two parties, the act of sending a product , despite no explicit acceptance, is enough to expect payment or the product returned in rejection of the offer. (Hobbs v. Massasoit Whip, 1893 (eels > whips))

ContractsProfessor Pike

Outline

c. R.2d §69 Acceptance by Silence or Exercise of Domin - ion: (1) Where an offeree fails to reply to an offer, his si-lence and inaction operate as an acceptance in the fol-lowing cases only: (a) Where an offeree takes the bene-fit of offered services with reasonable opportunity to re-ject them and reason to know that they were offered with the expectation of compensation (b) Where the of-feror has stated or given the offeree reason to under-stand that assent may be manifested by silence or inac-tion, and the offeree in remaining silent and inactive in-tends to accept the offer (c) Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror is he does not intend to accept. (2) An offeree who does any act inconsistent with the offeror’s ownership of offered property is bound in ac-cordance with the offered terms unless they are mani-festly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him.

iii. E-COMMERCE AND MUTUAL ASSENT1. The UCC, although meant for the purchase and sale of goods,

can be applied to free software because it involves basically the same transaction process as software bought on the inter-net.

2. Like all contracts there must be mutual assent (UCC §2-204)3. Online licenses

a. “Shrink wrap licenses”: license agreement contained in-side the software package which is only able to be viewed after purchase and opening

b. “Click-wrap” licensing: Products available over the inter-net; user must manifest assent by clicking on an icon, product cannot be attained or used until clicking

c. “browse-wrap”: Notice of license agreement appears on website but user does not have to read/look at/click/as-sent to its terms before using the website or download-ing

4. Shrink and click-wrap were both found by courts to be valid as they involved an affirmative action of assent before they used the software

5. Browse wrap users have not assented to the terms because they did not usually look at them and assent to them, thus no contract was formed (Specht v. Netscape, 2001 (SmartDown-load))

a. Accepting these terms of assent would so expand it as to make it meaningless

6. Assent by conduct, seeing the terms and conditions many times, even if they appeared after submitting one’s informa-

ContractsProfessor Pike

Outline

tion, continuing to use it implies assent (Register.com v. Ve-rio, 2004)

III. Discerning the AgreementA. INTERPRETING THE MEANING OF TERMS – AMBIGUOUS TERMS

i. Ambiguous: parties have assigned different meanings to the same word or words

ii. When there is an ambiguity of words and the two parties agree to something which ends up being two different things, there can be no contract because they did not assent to the same terms (Raffles v. Wichelaus, 1864 (Peerless)) (Oswald v. Allen, 1969 (Swiss coins))

1. Not a subjective interpretation of what the parties thought, but the objective interpretation of what they actually referred to

iii. R.2d §200. Interpretation of Promise or Agreement: Interpretation of a promise or agreement or a term thereof is the ascertainment of its meaning

iv. R.2d §201: Whose Meaning Prevails : (1) Where the parties have at-tached the same meaning to a promise or agreement or a term thereof, it is interpreted in accordance with that meaning. (2) Where the parties have attached different meanings to a promise or agree-ment or a term thereof, it is interpreted in accordance with the meaning attached by one of them if at the time the agreement was made (a) that party did not know of any different meaning attached by the other, and the other knew the meaning attached by the first party; or (b) that party had 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. (3) Except as stated in this Section, neither party is bound by the meaning attached by the other, even though the result may be a failure of mutual assent.

v. UCC §1-205: (1) A course of dealing is a sequence of previous con-duct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct (2) A usage of trade is any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question. The existence and scope of such usage are to be proved as facts. If it is established that such a usage is embodied in a written trade code or similar writing the interpretation of the writing is for the court. (3)*Two parties should be aware of vocational/trade defini-tions of which they are involved (4)*Express terms of an agreement and trade definitions will be used wherever reasonable (5) An appli-cable usage of trade in the place where any part of performance is to occur shall be used in interpreting as to that part of the perfor-mance (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party

ContractsProfessor Pike

Outline

such notice as the court finds sufficient to prevent unfair surprise to the latter.

B. VAGUE TERMSi. Vague terms: disputes over whether and to what extent the words

used were meant to apply beyond their agreed core meaningii. Weinberg v. Edelstein, 1952 (what constitutes a dress?) There is no

standard, objective definition of dress. Must use trade standards.iii. Frigaliment Importing Co. v. B.N.S., 1960 (What constitutes a

chicken?)iv. R.2d §202. Rules in Aid of Interpretation : (1) Words and other con-

duct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight. (2) A writing is interpreted as a whole, and all writings that are part of the same transaction are interpreted together. (3) Unless a different intention is manifested, (a) where language has a gener-ally prevailing meaning it is interpreted in accordance with that meaning, (b) technical terms and words of art are given their tech-nical meaning when used in a transaction within their technical field (4) Where an agreement involves repeated occasions for perfor-mance by either party with knowledge of the nature of the perfor-mance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement (5) Wherever reasonable, the manifestations of intention of the parties to a prom-ise or agreement are interpreted as consistent with each other and with any relevant course of performance, course of dealing or usage of trade.

C. FILLING GAPS IN THE TERMS Supplying terms when a contract is silent on an issue “Gap-filling”

1. Implied-in-fact: terms that the parties actually, albeit implic-itly, have agreed to

2. Implied-in-law: terms that are thought to be imposed on par-ties without their consent

a. Default rules: legal rules that the parties can avoid or vary by means of an express clause that differs from the term a court will otherwise supply by default

b. Immutable rules: may not be varied by consent and will override any express clause to the contrary

Courts are traditionally reluctant to fill gaps in parties’ agree-ments, the question that then arises is whether this incomplete manifestation is sufficient to warrant legal enforcement

1. AGREEMENTS TO AGREEa. R.2d §34. Certainty and Choice of Terms; Effect of Perfor -

mance or Reliance: (1) The terms of a contract may be rea-sonably certain even though it empowers one or both parties to make a selection of terms in the course of performance

ContractsProfessor Pike

Outline

(2) Part performance under an agreement may remove un-certainty and establish that a contract enforceable as a bar-gain has been formed (3) Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed

b. UCC §2-204. Formation in General: (1) A contract for a sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recog-nizes the existence of such a contract (2) An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined

c. R.2d §204 Supplying an Omitted Essential Term: When the parties to a bargain sufficiently defined to be a contract have not agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

i. What is the difference between UCC §2-204 and R §204?

d. Open contract system: parties shouldn’t be required to stay in contracts they didn’t agree to and people shouldn’t be able to get out of contracts they did agree to (Sun Printing 1923, (delivery of paper at unspecified time)

i. If duration of term had been known it may have changed outcome because the price would have been known because plaintiff offered highest price

ii. If UCC had applied at this time, case would probably have been different

1. §2-305. Open Price Term: (1) The parties if they so intend can conclude a contract for sale even thought the price is not settled. In such a case the price is a reasonable price at the time of de-livery if (a) nothing is said as to price; or (b) the price is left to be agreed by the parties and they fail to agree; or (c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded (2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith. (3) When a price left to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price. (4) Where, however, the parties intend not to be bound un-less the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their rea-

ContractsProfessor Pike

Outline

sonable value at the time of delivery and the seller must return any portion of the price paid on the account.

2. ILLUSORY PROMISESa. Requirements contracts

i. New York Central Iron Works, 1903 – π agreed to only buy radiation from ∆ for a set price, one year ordered twice as much as usual

1. Court operated under the assumption that the π was acting in good faith in response to the market

2. Difference between this and Sun Printing -> there were risks and obligation assumed on both sides

3. Court chose to fill the gap in the contract and found that π had a right to the extra radiation

ii. Eastern Airlines v. Gulf Oil Corp., 1973 – Gulf wanted to up Eastern’s gas prices, said there had been no prior contract because it lacked mutuality

1. UCC §2-306(1): (1) A term which measures the quantity by the output of the seller or the re-quirements of the buyer means such actual out-put or requirements as may occur in good faith, except that not quantity unreasonably dispropor-tionate to any stated estimate or in absence of a stated estimate to any normal or otherwise com-parable prior output or requirements may be tendered or demanded.

2. Court concluded the document was binding and enforceable requirements contract

3. If the parties don’t talk about it, amount required will be consistent with the previous years

4. Does this provision and the other fill a gap? No, it’s imposing a new standard.

b. Exclusive Dealings Contractsi. Wood v. Lucy, Lady Duff-Gordon, 1917 - π attests there

was a contract binding ∆ to only deal through him de-spite it not being expressly written in the contract

1. A promise may be lacking but the whole docu-ment may be “instinct with an obligation.” If so, there is a contract.

2. UCC §2-306(2). Output, Requirements and Exclu - sive Dealings: A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless other-wise agreed an obligation by the seller to use

ContractsProfessor Pike

Outline

best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

3. IDENTIFYING THE TERMS OF THE AGREEMENTa. Form Contracts or “Contracts of Adhesion” Often written by one of the parties and not fully read by the

other, they challenge notions of assenti. Carnival Cruise Lines v. Shute, 1991 – received form

contract to bring all litigation in FL, after purchase1. Where a person has sufficient notice of a forum-

selection clause and the clause was not included in a contract in order to deter legitimate claims or obtained from the person through fraud or overreaching, the clause is enforceable.

a. Court upholds because it was made in good faith

2. DISSENT: (1) Contracts of adhesion, form con-tracts offered on a take-or-leave basis, are ques-tionably able to be enforced because the weaker power rarely knows what they are consenting to (2) Forum selection contracts are contrary to public policy

ii. Reasons to Enforce:1. Creates certainty in commerce2. Efficiency

a. lower litigation costs for companyb. lower prices for customers

3. Limits confusion in general4. Contracts are more comprehensive5. Courts don not have that much to interpret

iii. Problems:1. “buyer” is stuck2. buyer didn’t know terms when purchase com-

pleted3. buyer had no ability to negotiate4. transactional costs precludes day in court5. buyers may not understand terms6. terms come after basic deal was done

b. Which Terms Were Agreed To?i. Step-Saver Data Systems, Inc. v. Wyse, 1991 – Step.

sued TSL for problems w/ software. TSL said it couldn’t because Step. Accepted box-top license agreements on purchase and use.

1. Court found that box-top license was not part of the contract, but were additional terms, which Step. never accepted and which TSL did not clearly say required assent to continue contract

ContractsProfessor Pike

Outline

2. Gaps in contract could be easily filled by UCC or other statutes means contract was sufficiently definite enough without box top license

3. Their was not enough proof that the license agreement counted as a counter-offer b/c it did not say use of the product was conditional on ac-ceptance of the terms

4. UCC §2-207: Additional Terms in Acceptance or Confirmation: (1) A definite and seasonable ex-pression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. (2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms be-come part of the contract unless: (a) the offer expressly limits acceptance to the terms of the offer; (b) they materially alter it; or (c) notifica-tion of objection to them has already been given or is given within a reasonable time after notice of them is received. (3) Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale al-though the writings of the parties do not other-wise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, to-gether with any supplementary terms incorpo-rated under any other provisions of this Act.

5. Rejects “last shot rule” for merchants in which the parties are bound by the last form sent if they do not dissent

a. Still apply to common law?ii. Union Carbide v. Oscar Mayer, 1991 – Carbide moves

out of Chicago to stop paying taxes, gets caught, tries to get Oscar to pay all the back taxes “owed” from not charging them

1. Additional terms v. material changes to a con-tract

a. Contracts may still be upheld when addi-tional terms are added to which the offeror is unlikely to object and which simply flesh out the contract

ContractsProfessor Pike

Outline

b. Only acceptable if they do not materially alter the contract so as to cause surprise and possibly hazard to the offeror

i. If offeree materially alters the con-tract, there is still a contract, but only on the terms agreed to by both parties

c. Terms That Follow Lateri. ProCd v. Zeidienberg, 1996 – Zeidenberg used con-

sumer product for commercial use after receiving a li-cense agreement in software packaging and seeing it every time the program was booted up

1. Under UCC §2-204(1): A contract for a sale of goods may be made in any manner sufficient to show agreement, including conduct by both par-ties which recognizes the existence of such a contract.

2. Under UCC §2-606(1)(b) a buyer accepts goods, when after an opportunity to inspect, he fails to make a rejection under §2-602(1)

3. §2-207 does not apply because they are not both merchants and there is only one form

ii. Hill v. Gateway, 1997 – Hills bought computer over the phone, came with license agreement that said if any problems return in 30 days and arbitration clause, Hills returned after 30 days and didn’t want to follow arbi-tration clause

1. Used same theory as ProCD, by purchasing and not returning the product within the set time they submitted to the license agreement

a. When did the contract begin? At the pur-chase over the phone or after acceptance of the final terms? Does it matter? Addi-tional terms would have been accepted because they did not return items.

iii. Klocek v. Gateway, 2000 – Klocek sues Gateway for various things, had a 5 day return policy, Gateway cites to License Agreement arbitration clause and ProCD and Hill.

1. ProCD and Hill both negated the use of §2-207 because there was only one form, court in Klo-cek does not agree that that is viable

a. UCC §2-207: Additional Terms in Accep - tance or Confirmation: (1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an accep-

ContractsProfessor Pike

Outline

tance even though it states terms addi-tional to or different from those offered or agreed upon, unless acceptance is ex-pressly made conditional on assent to the additional or different terms. (2) The addi-tional terms are to be construed as pro-posals for addition to the contract [if the contract is not between merchants]

b. Gateway provided no notice that it’s sell-ing of the computer was conditional on the acceptance of the terms and therefore Klo-cek was not bound to accept them

c. Because plaintiff is not a merchant, the ad-ditional terms did not become part of the contract unless plaintiff expressly agreed to them

d. The buyer was the offeror by offering to buy the computer to which the seller was the offeree who accepted by selling or shipping the merchandise

IV. Written Manifestations of IntentA. INTERPRETING A WRITING – THE PAROL EVIDENCE RULE

Parol Evidence: Evidence of the meaning of a written contract that is extrinsic to the writing itself

1. Thompson v. Libbey, 1885 – Libbey sued Thompson because he said that the two of them had agreed to him buying “high quality logs” from Thompson, although it was not in the contract, Libbey contends that it had been guaranteed verbally.

a. “parol contemporaneous evidence is inadmissible to contra-dict or vary the terms of a valid written document”

b. Parol Evidence Rule : Where the parties have deliberately put their engagements down into writing in such terms as to im-port a legal obligation, without any uncertainty as to the ob-ject or extent of such engagement, it is conclusively pre-sumed that the whole engagement of the parties, and the manner and extent of their undertaking, was reduced to writ-ing.

c. If it imports on its face to be a complete expression of the whole agreement – that is, contain such language as imports a complete legal obligation – it is presumed that the parties introduced into it every material item and term; and parol evi-dence cannot be admitted to add another term to the agree-ment, although the writing contains nothing on the particular one to which parol evidence is directed

2. Brown v. Oliver, 1927 – Brown purchased land w/hotel and furni-ture from Oliver, who came back two years later, leased a room and when asked to leave took all the furniture with him, Brown

ContractsProfessor Pike

Outline

claims furniture was part of contract although not explicitly dis-cussed

a. If the item or function in question is not discussed at all in the written agreement it may be submitted to the jury to deter-mine whether agreement on the subject took place outside the agreement and is viable to be included

a. In this case it was decided that it did and was meant to be included

b. The general test to determine whether the writing of a con-tract was intended to cover a certain subject:

a. Whether a particular subject of negotiation is embodied by the writing depends wholly upon the intent of the parties. The parties are not obliged to embody their transaction in a single document but may if they choose. Hence it becomes a question of whether they intended to do so.

b. This intent must be sought in the conduct and language of the parties and the surrounding circumstances

c. Whether the particular element of the alleged event is covered in the writing.

c. R.2d §210. Completely and Partially Integrated Agreements: (1) A completely integrated agreement is an integrated agree-ment adopted by the parties as a complete and exclusive statement of the terms of the agreement. (2) A partially inte-grated agreement is an integrated agreement other than a completely integrated agreement. (3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evi-dence rule.

a. Thompson: completelyb. Brown: partially

d. R.2d §213. Effect of Integrated Agreement on Prior Agree - ments (Parol Evidence Rule): (1) A binding integrated agree-ment discharges prior agreements to the extent that it is in-consistent with them. (2) A binding completely integrated agreement discharges prior agreements to the extent that they are within its scope (3) An integrated agreement that is not binding or that is voidable and avoided does not discharge a prior agreement. But an integrated agreement, even though not binding, may be effective to render inoperative a term which would have been part of the agreement if it had not been integrated.

e. UCC §2-202. Final Written Expression: Parol or Extrinsic Evi - dence: Terms with respect to which the confirmatory memo-randa of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their

ContractsProfessor Pike

Outline

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 ex-plained or supplemented (a) by course of dealing or usage of trade (§1-205) or by course of performance (§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.

3. Pacific Gas v. G.W. Thomas Rigging, 1968 – Thomas was hired to fix Pacific’s turbine and agreed in contract to “indemnify” Pacific for any damage caused. Thomas damaged Pacific’s property, but claimed that contract only meant to cover third party damages.

a. 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 evidence offered is relevant to prove a meaning to which the language of the instrument is reasonably suscep-tible.

b. Taking the meaning of the words of the contract without con-sidering the extrinsic evidence would only be possible if words had absolute meanings

c. Traynor is concerned the courts will impose duties on parties that were not part of the contract if you stringently uphold parol evidence

4. Trident Center, 1988 – Intentionally breached contract because the prepayment fee and a new loan was cheaper than repayment.

a. J. Kozinski doesn’t want to allow parol evidence in for Trident to prove that it was allowed to breach, however, under Pacific Gas precedent in CA it must.

b. States that PG sets precedent that a contract is always sus-ceptible to parol evidence because no contract can ever be completely clear with its words.

a. “By giving credence to the idea that words are inade-quate to express concepts, PG undermines the basic principle that language provides a meaningful con-straint on public and private conduct.

c. Parol evidence rules keep people from forcing a party to do an agreement they didn’t agree to (people could lie)

B. REFORMING A WRITING – MISTAKES IN INTEGRATION1. Travelers Insurance v. Bailey, 1964 – Insurance company mixed up

Bailey’s form promising him more money at 65, Bailey also didn’t realize the mistake. When caught the court found that he was only entitled to the originally intended agreement.

a. R.2d §155. When the Mistake of Both Parties as to Written Ex - pression Justifies Reformation: Where a writing that evidences or embodies an agreement in whole or in part fails to express the agreement because of a mistake of both parties as to the

ContractsProfessor Pike

Outline

contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement, ex-cept to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected.

C. Requiring a Writing – THE STATUTE OF FRAUDS Overenforcement v. Underenforcement

o Overenforcement: the erroneous enforcement of an alleged exercise of assent that in fact never occurred

o Underenforcement: the failure of the legal system to enforce a legitimate exercise of assent

Law of contracts has gone ping pong between the two in an effort to strike a balance, the statute of frauds is one way in which it has at-tempted to remedy that

R.2d §110. Classes of Contracts Covered: (1) The following classes of contracts are subject to a statute, commonly called the Statute of Frauds, forbidding enforcement unless there is a written memoran-dum or an applicable exception: (a) a contract of an executor or ad-ministrator to answer for a duty of his decedent (the executor-ad-ministrator provision) (b) a contract to answer for the duty of an-other (the suretyship provision) (c) a contract made upon considera-tion of marriage (the marriage provision) (d) a contract for the sale of an interest in land (the land contract provision) (e) a contract that is not to be performed within one year from the making thereof (the one-year provision) (2) The following classes on contracts, which were traditionally subject to the Statute of Frauds, are now gov-erned by Statute of Frauds provisions of the Uniform Commercial Code: (a) a contract for the sale of goods for the price of $500 or more (UCC §2-201) (b) a contract for the sale of securities (UCC §8-319) (c) a contract for the sale of personal property not otherwise covered, to the extent of enforcement by way of action or defense beyond $5,000 in amount or value of remedy (UCC §1-206) (3) In addition the UCC requires a writing signed by the debtor for an agreement which creates to provides for a security interest in per-sonal property or fixtures not in the possession of the secured party (4) Statutes in most states provide that no acknowledgement or promise is sufficient evidence of a new or continuing contract to take a case out of the operation of a statute of limitations unless made in some writing signed by the party to be charged, but that the statute does not alter the effect of any payment of principal or interest. (5) In many states other classes of contracts are subject to a requirement of a writing.

1. The Statute and Its Exceptionsa. Boone v. Coe, 1913 – Boones moved from KY to TX to work

Coe’s farm on a verbal contract, when they arrived, Coe said that they couldn’t work it. Court found there was no contract within the statute because it was not written down and Boones could have been lying.

ContractsProfessor Pike

Outline

a. Statute of Frauds (KY): No action shall be brought to charge any person: (6) Upon on any contract for the sale of real estate, or any lease thereof, for longer term than one year; nor (7) Upon any agreement which is not to be performed within one year from the making thereof, unless the promise, contract, agreement, repre-sentation, assurance, or ratification, or some memoran-dum or note thereof, be in writing, and signed by the party to be charged therewith, or by his authorized agent; but the consideration need not be expressed in writing, it may be proved when necessary or disproved by parol or other evidence.

b. Exceptions: i. Services rendered upon a person until their death

on the promise that the person rendering the ser-vices will be left something. If falls under statute of frauds, usually can still recover something

ii. Vendee of land under a parol contract is entitled to recover any amount of purchase money and compensation for improvements

c. R.2d §125. Contract to transfer, Buy or Pay for an Inter - est in Land: (1) A promise to transfer to any person any interest in land is within the Statute of Frauds. (2) A promise to buy any interest in land is within the Statute of Frauds, irrespective of the person to whom the trans-fer is to be made (3) When a transfer of an interest in land has been made, a promise to pay the price, if origi-nally within the Statute of Frauds, ceases to be within it unless the promised price is itself whole or in part an in-terest in land (4) Statutes in most states except from the land contract and one-year provisions of the Statute of Frauds short-term leases and contracts to lease, usu-ally for a term not longer than one year.

b. Riley v. Capital Airlines, Inc., 1960 – Airline tried to get out of 5 year contract for methanol. Said it fell under AL Statute of Frauds because it was not performed in one year. However, Riley claims that it is exempt from statue because of the con-dition:

a. If the goods are to be manufactured by the seller espe-cially for the buyer and are not suitable for sale to oth-ers in the ordinary course of the sellers business, the provisions of this section shall not apply.

b. Not found applicable because batches were not made for whole five years, but rather for each individual order which were in turn a separate contract which fell out-side Statute of Frauds, but could not hold up the 5 year contract

ContractsProfessor Pike

Outline

c. π also contended that part performance removes con-tract from effects of Statute of Frauds but court found that partial performance does not remove the rest of the contract from being dissolved under Statute of Frauds

c. UCC §2-201. Formal Requirements; Statute of Frauds: (1) Ex-cept as otherwise provided in this section a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing suffi-cient to indicate that a contract for sale has been made be-tween the parties and signed by the party against whom en-forcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. (2) Between merchants if within reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received. (3) A con-tract which does not satisfy the requirements of subsection (1) but which is valid in other respects is enforceable (a) if the goods are to be specifically manufactured for the buyer and are not suitable for sale to others in the ordinary course of the seller’s business and the seller, before notice of repudiation is received and under circumstances which reasonably indicate that the goods are for the buyer, has made either a substan-tial beginning of their manufacture or commitments for their procurement; or (b) if the party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract for sale was made, but the contract is not en-forceable under this provision beyond the quantity of goods admitted, or (c) with respect to goods for which payment has been made and accepted or which have been received and accepted.

2. Satisfying the Requirement of a Writinga. Schwedes v. Romain, 1978 – wanted to buy a plot of land in

Montana but never made any performance on attorney’s in-struction and lost it because no contract.

a. Difference between partial performance and contempla-tion of eventual performance

b. The seller prepared a written offer but there was no doc-ument signed by both parties

c. Real Estate is almost governed by Statute of Fraudsd. Statute of Frauds is a rebuttable agreement

ContractsProfessor Pike

Outline

b. R.2d §131. General Requisites of a Memorandum: Unless addi-tional requirements are prescribed by the particular statute within the Statute of Frauds is enforceable if it is evidence by any writing, signed by or on behalf of the party to be charged, which (a) reasonably identifies the subject matter of the con-tract, (b) is sufficient to indicate that a contract with respect thereto has been made between the parties or offered by the signer to the other party, and (c) states with reasonable cer-tainty the essential terms of the unperformed promises in the contract

c. In re RealNetworks, 2000 – does email count as written agree-ment?

a. Email can count as written agreement if it is easily print-able and storable

3. Satisfying the Requirement of a Signaturea. Cloud Corp. v. Hasbro, 2002 – Cloud over manufactured a

product for Hasbro who refused to accept/pay for it. Corre-spondence via email. Does that count as signature?

a. Sender’s name on an email satisfies the signature re-quirement, neither common law or UCC explicitly re-quire a handwritten signature

b. Point of rule is to prevent fraud and an electronic hand-written signature could just as easily be forged as a typed one, type of signature should not be a bar to pre-venting fraud.

V. The Doctrine of ConsiderationA. THE BARGAIN THEORY OF CONSIDERATION

i. Consideration can refer to whatever circumstances render a com-mitment legally binding, in this century it came to be identified with the existence of a bargain.

ii. To constitute consideration, a performance or a return promise must be bargained for. R.2d §71(1)

1. (2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.

iii. Restatements approach to enforceability can be summarized as fol-lows

1. A contract is an enforceable promise (§1 and 2)2. With some exceptions (§17(2)), to be enforceable a promise

must be supported by a consideration (§17(1));3. A promise is supported by a consideration if it is bargained for

(§71(1));4. A promise is bargained for “if it is sought by the promisor in

exchange for his promise and is given by the promisee in ex-change for that promise (§71(2)).

B. Distinguishing Bargains from Gratuitous Promises

ContractsProfessor Pike

Outline

i. Gratuitous or “gift” promises are only effective upon actual delivery of the thing that was promised

ii. Can be revoked at any time before deliveryiii. Difference between a promise and a contract: a contract is legally

binding1. §5 of R.2d

a. Court differentiates by consideration (§71)2. Jonhson v. Otterbein University, 1885 – promised to donate

$100 to liquidate the indebtedness of the university and wanted refund if that was not the use it was put to

a. Court found that there was no difference in donating to an institution generally and donating to an institution for something specific and thus there was no consideration

3. Hamer v. Sidway, 1891 – uncle offers nephew money to not drink, smoke etc. until 21, but dies before paying him. Execu-tor contends that there was no consideration because uncle did not benefit and nephew was not detrimented.

a. Court finds that consideration means not so much that one party abandons some legal right in the present or limits his legal freedom of action in the future as an in-ducement for the promise of the first.

b. Nephew gave up a legal right and whether the uncle was considered to get any benefit out of it other than getting what he wanted doesn’t matter

4. Dahl v. Hem, 1993 – chronic fatigue test in exchange for 1 year’s worth of drugs

a. Hem argued that because they were volunteers they had no binding obligation and were free to leave when-ever they wanted

b. Court found that submission to the tests was considera-tion in exchange for the promise of drugs at completion

5. R.2d §71. Requirement of Exchange; Types of Exchange: (1) To constitute consideration, a performance or a return prom-ise must be bargained for. (2) A performance or return prom-ise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise. (3) The performance may consist of (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation. (4) The perfor-mance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.

C. PAST CONSIDERATION AND MORAL CONSIDERATIONi. Past consideration

1. Moore v. Elmer, 1901 – Clairvoyant predicts that Moore will die before 1900 and he does. Wants to collect the payoff of her mortgage that was promised if he did.

ContractsProfessor Pike

Outline

a. Court finds there was no considerationb. There was no mutual exchange of promises because

she told him as a favor or for payment, before he made the promise.

ii. Moral consideration1. Mills v. Wyman, 1825 – son is taken care of by stranger, father

promises to repay after all expenses had already been in-curred and then doesn’t pay.

a. Court finds that there is no consideration, no prior agreement for compensation

b. “The rules that a mere verbal promise, without any con-sideration, cannot be enforced by action, is universal in its application, and cannot be departed from to suit par-ticular cases in which a refusal to perform such a prom-ise may be disgraceful.”

c. The general position, that moral obligation is a sufficient consideration for an express promise, is to be limited in its application, to cases where at some time or another a good or valuable consideration has existed.

d. §86 Restatemente. The moral obligations of a parent to support a child is a

sufficient consideration for an express promise, unless the child has reached an independent age

2. Webb v. McGowin, 1935 – Webb stopped block from falling on McGowin but sustained injuries himself, McGowin agreed to pay for his care for the rest of his life, McGowin died and es-tate stopped payment

a. By McGowin saving Webb’s life, he became morally bound to compensate for services rendered

b. Where the promisee cares for, improves and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisor’s subsequent agreement to pay for the service, because of the material benefit received…

3. R.2d §86. Promise for a Benefit Received: (1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to pre-vent injustice. (2) A promise is not binding under subsection (1) (a) is the promise conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or (b) to the extent that its value is disproportionate to the bene-fit.

iii. Contract Modification and the Preexisting Duty Rule1. Attempts by parties to adjust their contractual obligations dur-

ing the performance stage of the contract2. UCC doesn’t require consideration for modification of prom-

ises but doesn’t apply when made in bad faith

ContractsProfessor Pike

Outline

3. Does a promise to modify an existing contractual obligation require additional bargained for consideration?

a. Stilk v. Myrick, 1809 – captain promised to pay the rest of the crew the salaries of the two who abandoned, but didn’t when they docked.

i. Court said there was no duty because there was no consideration

ii. Crew was already obligated to bring in ship de-spite emergencies, which loss of crew counts as

iii. Difference between this and previous cases is there was already a contract in existence

b. Alaska Packer’s Ass’n v Domenico, 1902 – once at sea a crew demanded the captain pay them more, to which he agreed and then his company denied once on shore

i. No consideration because they forced consent from captain to do exactly what they had already been contracted to do

ii. Captain had no power to change contract regard-less

VI. The Doctrine of Promissory EstoppelA. PROMISSORY ESTOPPEL AS SUBSTITUTE FOR CONSIDERATION

1. Principle underlying promissory estoppel is compensation for detrimen-tal reliance

2. Way to enforce informal commitments that have not been bargained for and therefore generally unenforceable

3. Promises do not just give rise to expectations, they induce promisees to act in reliance upon them, changing their situation or circumstances in ways they otherwise would not have done

a. In such cases it seems fair to hold promisor to promise, or at least to compensation

4. Development of Promissory Estoppel as Substitute for Considerationa. Family Promises

i. Ricketts v. Scothorn, 1898 – Grandfather offered grand-daughter money to stop working. She quit, then resumed working after awhile and tried to collect money on his death but was denied.

1. No consideration given by granddaughter or asked of my grandfather, she did not HAVE to quit work.

2. When the payee changes his position to his detri-ment, in reliance on the promise, a right of action does arise

3. Questionable whether she actually relied on the promise to her detriment as she began working again

4. Court still found in her favor5. Should have been damages of he lost employment

for year she didn’t workb. Promises to Convey Land

ContractsProfessor Pike

Outline

i. Greiner v. Greiner, 1930 – mother was going to make up for son being left out of will by giving him some land. He moved and lived on the land and improved it but no writ-ten agreement was made and then mother changed her mind.

1. Court found that son moved and took up residence on the land and improved it on the reliance that the mother was giving it to him.

c. Charitable Subscriptionsi. Allegheny College v. Bank, 1927 – woman pledges to do-

nate money to college on her death, executor didn’t follow through, so college sued.

1. charitable subscriptions have generally been held to be non-enforceable

2. Cardozo finds that the setting aside of the money al-ready received and not using it for other things was a reliance detrimental to the college and thus was promissory estoppel

a. Not a strong argumentd. Construction Bids

i. Baird v. Gimbel Bros., 1933 – mis-measured linoleum in subcontracting bid

1. Usually need acceptance to create contract but con-tractor could not accept before it received bid from gov’t

2. Sub withdrew before contr. could accept and create a contract but had already relied on bid to win major bid with gov’t

3. Court found that it couldn’t be promissory estoppel because ∆ offered to deliver the linoleum in ex-change for π’s acceptance not for its bid, offer could only become a contract when the equivalent was re-ceived; that is when the π promised to take and pay for it

ii. Drennan v. Star paving Co., 1958 – Drennan relied on the bid of sub. Star to make a bid on a construction site. Star refused to do work for price originally offered so Drennan had to higher a more expensive paver. Sued for difference.

1. §87 – if someone does something that they know an-other person will rely on, it is treated as an option contract and not revocable

2. However, when a price is way too low to be reason-able, it is on the offeree to be responsible

3. Reasonable reliance serves to hold the offeror in lieu of the consideration ordinarily required to make the offer binding

ContractsProfessor Pike

Outline

4. Defendant had reason not only to expect plaintiff to rely on bid, but wanted him to

iii. R.2d §87. Option Contract: (2) An offer which the offeror should reasonably expect to induce action or forebearance of a substantial character on the part of the offeree before acceptance and which does induce such action or forebear-ance is binding as an option contract to the extent neces-sary to avoid injustice.

5. Promissory Estoppel as an Alternative to Breach of Contracta. Up until now promissory estoppel has been used in cases where

there was a promise but no considerationb. Goodman v. Dicker, 1948 – Plaintiffs applied for radio dealer fran-

chise which they were assured was a shoe-in, so they bought a store and furnished it and then didn’t get the franchise.

i. In speaking of equitable estoppel the court said the vital principle is that he who by his language or conduct leads another to do what he would not have otherwise done, shall not subject such person to loss or injury by disap-pointing the expectation upon which he acted. Such a change of position is sternly forbidden.

c. Hoffman v. Red Owl Stores, 1965 – A rep from Red Owl said Hoff-man could have a franchise which got him to sell his store, move etc. they kept upping the price until they finally said he wasn’t getting one.

i. There was never any agreement laying out the details of where and how a store would be run so the court did not force Red Owl to give Hoffman a store, it just required them to compensate him

ii. The requirements for promissory estoppel need not meet the requirements of an offer that would lead into a contract

1. R.2d §90. Promise Reasonably Inducing Action or Forebearance: (1) A promise which the promisor should reasonably expect to induce action or fore-bearance on the part of the promisee or a third per-son and which does induce such action or forebear-ance is binding if injustice can be avoided only by en-forcement of the promise. The remedy granted for breach may be limited as justice requires. (2) A chari-table subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forebearance.

6. Establishing the Elements of Promissory Estoppela. Promise

i. Blatt v. USC, 1970 – man was not admitted to the Order of the Coif after they told him he would be eligible and he met all requirements. He claimed it was a detriment to his profession.

ContractsProfessor Pike

Outline

1. There was no consideration so if a contract existed at all it would have to be under promissory estoppel

a. The alleged promises did not induce actions from the promisee

b. The promise only said it would make him eligi-ble, not that he would get in

ii. Spooner v. Reserve Life Insurance, 1955 – Company of-fered to give its insurance agents a bonus and then re-neged on the offer. The promise held that the bonus was voluntary on the part of the company and that it could be withheld.

1. Action in reliance upon a supposed promise creates no obligation on an individual or corporation whose only promise is entirely illusory.

a. A supposed promise may be illusory because it is so indefinite that it cannot be enforced, or by reasons of provisions contained in the promise which in effect make its performance optional or entirely discretionary on the part of the promisor.

iii. Ypsilanti v. GM, 1993 – township allowed GM tax abate-ments to stay in town. An employee made a comment about continuing employment because of the continued tax abatement and then GM moved. Town claimed state-ments were a promise to stay.

1. No contract was created because it was not stated that GM had to do anything for the tax abatements

2. In terms of promissory estoppel court found that the employee’s words were a promise to stay if there was favorable market demand

a. The fundamental element of promise seems to be an expression of intention by the promisor that his future conduct shall be in accordance with his present expression, irrespective of what his will may be when the time for perfor-mance arrives.

3. Court reversed saying the point of the tax abate-ments was to tempt companies to coming to their towns and that all statements made by employee were hopes of employee but not promise

b. Reasonable Reliancei. Alden v. Vernon Presley – Elvis made a gratuitous promise

to pay off the mortgage of his girlfriend’s mother and passed away be fore he did. Mother said she got divorced and took house because relying on his contribution.

1. Court found that there was a promise but that there was no reliance because she went through with the

ContractsProfessor Pike

Outline

divorce etc. after she was informed that she wasn’t getting the house.

2. She did not prove that she incurred any detriments in her reliance

c. Injustice of NonenforcementVII. Performance

A. THE IMPLIED DUTY OF GOOD FAITH PERFORMANCEi. UCC §1-203: Every contract or duty within this Act imposes an

obligation of good faith in its performance or enforcementii. Goldberg v. Levy, 1938 – lessee intentionally did not make a lot

of money by diverting attention to another of their stores and generally running a bad business so that they could get out of their lease

1. Court held this to be acting in bad faith of the spirit of the contract

2. A promise may be lacking, and yet the whole writing may be ‘instinct with an obligation’ imperfectly expressed

3. There was a promise to use reasonable efforts to bring profits into store

iii. Mutual Life Ins. V. Tailored Woman, 1955 – 2 leases in same building with different entrances, moved all furs to floor where lessor would not get share of profits.

1. Court found that the plaintiff intentionally moved the furs to avoid giving part of the profit to lessor and that this was not in terms of lease

2. When in a contract, you can adjust your business practices, but not when you get too sleazy, like trying to avoid paying what you owe under a lease

B. IMPLIED AND EXPRESS WARRANTIESi. Implied Warranties of Merchantability and Fitness for a Particular

Purpose1. Step-Saver v. Wyse, 1990 -Step. sued TSL for problems w/

software. TSL said it couldn’t because Step. Accepted box-top license agreements on purchase and use. Also looked to see if there were implied or express warranties.

a. Step did not prove that Wyse’s terminals were not up to the merchantable standards and in fact were the best selling terminals on the market at the time

b. The terminals did not have to be outstanding under the Implied Warranty of Merchantability

c. UCC §2-314. Implied Warranty: Merchantability; Us - age of Trade: (1) Unless excluded or modified (sec-tion 2-316), a warranty that the goods shall be mer-chantable is implied in a contract for their sale id the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or

ContractsProfessor Pike

Outline

elsewhere is a sale. (2) Goods to be merchantable must be at least such as (a) pass without objection in the trade under the contract description; and (b) in the case of fungible goods, are of fair average quality within the description; and (c) are fot for the ordinary purposes for which such goods are used; and (d) run, within the varioations permitted bu the agreement, of even kind, quality and quantity within each unit and among all units involved; and (e) are adequately contained, packaged, and labeled as the agreement may require; and (f) conform to the promises or affir-mations of fact made on the container or label if any. (3) Unless excluded or modified (Section 2-316) other implied warranties may arise from course of dealing or usage of trade.

d. Wyse did not at the time of purchase know of the particular use to which the terminals were being put and Step did not relay on Wyse’s expertise to prop-erly pick out appropriate terminals.

e. UCC §2-315. Implied Warranty: Fitness for Particular Purpose: Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under next section an implied warranty that the goods shall be fit for such a purpose.

2. Express Warrantiesa. Entail a promise to make good for losses within their

scope, whether or not such losses were foreseeable uncertain or avoidable.

b. Royal Business Machines v. Lorraine Corp., 1980 – Royal sold Booher several copy machines which did not hold up to the express warranties that came with the machines.

i. Difference between the seller stating a fact of which the buyer is ignorant or merely states an opinion or judgment on a matter, and which the buyer may have an opinion or judgment on; “the best” “of good quality” etc. are opin-ion.

ii. An affirmation of fact which the buyer from his experience knows to be untrue cannot form a part of the basis of the bargain… therefore to each purchase would expand Booher’s knowl-edge and the same representations that could

ContractsProfessor Pike

Outline

have constituted an express warranty early in the series of transactions may not later on.

iii. Breach occurs only if the goods are defective on delivery and not if they become so later on.

c. UCC §2-313. Express Warranties by Affirmation, Promise, Description, Sample: (1) Express warranties by the seller are created as follows: (a) Any affirma-tion of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express war-ranty that the goods shall conform to the description. (b) any description of the goods which is made part of the basis of the bargain creates an express war-ranty that the goods shall conform to the description (c) Any sample or model which is made part of the basis of the bargain created an express warranty that the whole of the goods shall conform to the sample or model. (2) It is not necessary to the cre-ation is an express warranty that the seller use for-mal words such as “warrant” or “guarantee” or that he have specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opin-ion or commendation of the goods does not create a warranty.

3. Express Disclaimers of Warrantya. Parties may contract around the “default rules” im-

posed by the law.b. Schneider v. Miller, 1991 – man bought a used car

“as is” and tried to sue when he found out the entire undercarriage was shot.

i. Terms like “as is” mean the buyer takes the entire risk of the purchase

1. Buyer had time to look over purchase and test drive

ii. An integration clause which provides that the entire agreement between the two parties is contained in the four walls of the contract is effective to waive any implied warranty.

c. UCC §2-316. Exclusion or Modification of Warranties: (1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202) negation or limitation is in-operative to the extent that such construction is un-

ContractsProfessor Pike

Outline

reasonable. (2) Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention mer-chantability and incase of a writing must be conspic-uous, and to exclude or modify any implied warranty of fitness the exclusion must be a writing and con-spicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.” (3) Notwithstanding subsection (2) (a) unless the circumstances indicate otherwise, all implied warranties are excluded by ex-pressions like “as is” “with all faults” or other lan-guage which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implies warranty; and (b) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to de-fects which an examination ought in the circum-stances to have revealed to him; an (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. (4) Remedies for breach of warranty can be limited in accordance with the provisions of this Arti-cle on liquidation or limitation of damages and on contractual modification of remedy.

VIII. BreachA. Anticipatory Repudiation

i. One reason a party will be able to cancel a contract is if, before the time for performance arrives, the other party indicates that she does not intend to perform and thereby “repudiates” the contract. Because this repudiation happens before performance is due, it is called “anticipatory repudiation.”

ii. Reason for π’s belief that contract will get repudiated must be proven or close to make valid repudiation.

1. Albert Hochster v. Edgar de la Tour, 1853 – courier brought suit against man who was supposed to lead around Europe and breached the contract before its beginning date.

a. ∆ tried to say couldn’t bring claim until end of con-tract period but court finds otherwise and says that can bring claim as soon as ∆ repudiates the contract

2. Harrell v. Sea Colony, 1977 – Harrell agreed to buy a condo. He attempted to get out of contract properly, which condo company ignored and then tried to say that he

ContractsProfessor Pike

Outline

breached the contract after re-selling the condo and not re-turning his deposit.

a. Court found that Sea Colony unilaterally attempted to covert Harrell’s request for mutual recission into a anticipatory breach

b. Standard for anticipatory breach: In order to consti-tute an anticipatory breach of contract, there must be a definite and unequivocal manifestation of inten-tion on the part of the repudiatior that he will not render the promised performance when the time fixed for it in the contract arrives… A mere request for a change in terms of the contract is not itself enough to constitute a repudiation.

3. UCC §2-210. Anticipatory Repudiation: When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) for a commercially reasonable time await performance by the repudiating party; or (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter’s performance and has urged retraction; and (c) in either case suspend his own performance or proceed in ac-cordance with the provisions of this Article on the seller’s right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).

4. UCC §2-611. Retraction of Anticipatory Repudiation: (1) Un-til the repudiating party’s next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changed his posi-tion or otherwise indicated that he considers the repudia-tion final. (2) Retraction may be any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifi-ably demanded under the provisions of this Article (2-609). (3) Retraction reinstates the repudiating party’s rights un-der the contract with due excuse and allowance to the ag-grieved party for any delay occasioned by the repudiation.

B. ADEQUATE ASSURANCES OF PERFORMANCEi. The converse of the situation involving anticipatory repudiation

arises when one party wishes to withhold performance because he suspects, for some reason that the other party may not per-form.

1. Scott v. Crown, 1988 – Wheat seller was selling to buyer when he talked to his banker and heard that buyer was not the most reputable buyer. Seller stopped delivery on belief that buyer would not pay.

ContractsProfessor Pike

Outline

a. Is rumor enough to warrant stopping performance?b. Court determined that on these grounds there was

enough evidence for insecurity but not for breach and seller could ask for reassurance from buyer, and must before breaching contract.

c. Generally, a demand for reassurance must be in writ-ing in order to be effective, oral will suffice when there is clear understanding between the parties that if there is not assurance, performance will be halted

d. Demand for assurances cannot come with modifica-tions to the contract

2. UCC §2-609. Right to Adequate Assurance of Performance: (1) A contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. When reasonable grounds for insecu-rity arise with respect to the performance of either party the other may in writing demand adequate assurance 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 (2) Between merchants the reasonableness of grounds for in-security and the adequacy of any assurance offered shall be determined according to commercial standards. (3) Ac-ceptance of any improper delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of future performance. (4) After receipt of a jus-tified demand failure to provide within a reasonable time not exceeding thirty days such assurance of due perfor-mance as is adequate under the circumstances of the par-ticular case is repudiation of the contract.

C. MATERIAL BREACHi. In determining whether the promisee can unilaterally put an end

to the contract, instead of seeking to find a “constructive condi-tion” courts sometimes try to determine whether a particular breach by the promisor was “material.”

ii. ** Only if a breach is material does it relieve the nonbreaching party of its duty of performance under the contract.

1. Parties are free to expressly empower the victim of any breach – however small – to cancel the contract. But, in the absence of such an express condition, courts will not con-strue or imply a condition empowering the victim of a breach to cancel the contract when there has been sub-stantial performance.

iii. B & B Equipment v. Bowen, 1979 – Brought Bowen on to be third party but did not live up to expectations, wanted to buy back stocks and kick him out stating he materially breached his con-tract to perform adequately.

ContractsProfessor Pike

Outline

1. R.2d §275. Guidelines to determining a material breach: (A) The extent to which the injured party will obtain the sub-stantial benefit which he could have reasonably antici-pated. (B) The extent to which the injured party may be ad-equately compensated in damages for lack of complete performance. (C) The extent to which the party failing to perform has already partly performed or made prepara-tions for performance (D)The greater or less hardship on the party failing to perform in terminating the contract (E) The willful, negligent or innocent behavior of the party fail-ing to perform. (F) the greater or less uncertainty that the party failing to perform will perform the remainder of the contract.

iv. Lane Enterprises v. L.B. Foster, 1997 – steel bridge component makers. Couldn’t do the work properly, so subcontracted people to do it correctly at their own expense, Lane would not pay for Phase I until it had assurance of Phase II and Foster would not do Phase II because it felt that Lane materially breached Phase I contract by not finishing payment.

1. R.2d §241: Determining Materiality for purposes of breach - ing a contract: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for that part of the benefit of which he will be deprived; (c) the extent to which the party failing to per-form to offer to perform will suffer forfeiture; (d) the likeli-hood that the party failing to perform or offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or offer to perform comports with standards of good faith and fair dealing.

D. COST OF COMPLETION vs. DIMINUTION IN VALUEi. Jacob & Youngs v. Kent, 1921 – Man wanted certain type of pipes

in house and found out after completion that only about 40% of the pipes were the correct kind. Contractor sued for final pay-ment.

1. Courts have found that an omission both trivial and inno-cent will sometimes be atoned for by allowance of the re-sulting damage and will not always be a breach of a condi-tion to be allowed by forfeiture

2. Nowhere will change be tolerated, however, if it is so domi-nant or pervasive as in any real or substantial measure to frustrate the purpose of the contract.

IX. Obtaining Assent by Improper MeansA. Rebutting the Prima Facie Case of Contract

ContractsProfessor Pike

Outline

i. A person can deny ever having signed the contract or like cases, this is not a defense but rather is a denial

ii. Or the other party may allege additional facts and circumstances that deprive the prima facie case of contract (even if it is ac-cepted as true) of its normal moral significance, thereby avoiding the obligation that is normally incurred when one breaches a contract.

1. What is meant by defense is what the common law re-ferred to as a “plea in avoidance” – the setting out of addi-tional facts and circumstances that rebut or avoid the nor-mal significance of the prima facie case of contractual obli-gation, breach, and damages.

B. OBTAINING ASSENT BY IMPROPER MEANSi. Halpert v. Rosenthal, 1970 – man bought a house he was as-

sured did not have termites and then it ended up having ter-mites. Wouldn’t pay the rest of the balance on house. Seller sued.

1. Rule: Where one induces another to enter into a contract by means of a material misrepresentation, the latter may rescind the contract. It does not matter if the representa-tion was “innocent” or fraudulent.

a. It would be unjust for a person who made the misrep-resentation, innocently or no, to reap the benefits

2. R.2d §159. Misrepresentation Defined: A misrepresentation is an assertion that is not in accord with the facts.

3. R.2d §162. When a Misrepresentation is Fraudulent or Ma - terial: (1) A misrepresentation is fraudulent if the maker in-tends his assertion to induce a party to manifest his assent and the maker (a) knows or believes that the assertion is not in accord with the facts, or (b) does not have the confi-dence that he states or implies in the truth of the asser-tion, or (c) knows that he does not have the basis that he states or implies for the assertion. (2) A misrepresentation is material if it would be likely to induce a reasonable per-son to manifest his assent, or if the maker knows that it would be likely to induce the recipient to do so.

4. R.2d §164. When a Misrepresentation Makes a Contract Voidable: (1) If a party’s manifestation of assent is induced by either fraudulent or a material misrepresentation by the other party upon which the recipient is justified in relying, the contract is voidable by the recipient. (2) If a party’s manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the transaction upon which the recipient is justified in rely-ing, the contract is voidable by the recipient, unless the other party to the transaction in good faith and without

ContractsProfessor Pike

Outline

reason to know of he misrepresentation either gives value or relies materially on the transaction.

ii. Byers v. Federal Land Co., 1924 – man tried to buy land from Federal Land. Come to find that Fed. Did not own nor was in pos-session of the land as they had construed to buyer and the land was worth only half of what had been related to him.

1. Court found that the contract said it would convey the land to buyer and that the fact that it did not at the time own the land was not material

2. Court found that the opinion of how much the land was worth was an honest misrepresentation because at the time it was difficult to determine land prices and the sellers honestly believed that was the worth

3. Court found that the seller was not in possession of the land to be a material breach because it was never in pos-session, was never given to the buyer and was the would be lessee/part of Fed never offered to perform his part

a. A misrepresentation may be made by words and also by conduct

iii. Vokes v. Arthur Murray, Inc., 1968 –dance studio takes oodles of money from older widow, by telling her that she is improving.

1. General misrepresentation must be one of fact, not opin-ion.

2. However, this does not apply when there is a fiduciary rela-tionship between the parties or where there has been some artifice or trick employed by the representor or where the representee does not have the equal footing to apprise the truth or falsity of the fact represented

3. It could be reasonably supposed here that defendants had “superior knowledge” as to whether plaintiff had potential

4. R.2d §168. Reliance on Assertions of Opinion : (1) An asser-tion is one of opinion if it expresses only a belief, without certainty, as to the existence of a fact or expresses only a judgment as to quality, value, authenticity, or similar mat-ters. (2) If it is reasonable to do so, the recipient of an as-sertion of a person’s opinion as to facts not disclosed and not otherwise known to the recipient may properly inter-pret it as an assertion (a) that the facts known to the per-son are not incompatible with his opinion, or (b) that he knows facts sufficient to justify him in forming it.

5. R.2d §169. When Reliance on an Assertion of Opinion is not Justified: To the extent that an assertion is one of opinion only, the recipient is not justified in relying on it unless the recipient (a) stands in such a relation of trust and confi-dence to the person whose opinion is asserted that the re-cipient is reasonable in relying on it, or (b) reasonably be-lieves that, as compared with himself, the person whose

ContractsProfessor Pike

Outline

opinion is asserted has special skill, judgment or objectivity with respect to the subject matter, or (c) is for some other special reason particularly susceptible to a misrepresenta-tion of the type involved.

C. UNCONSCIONABILITYi. Williams v. Walker-Thomas, 1965 – Furniture store sells furniture

on payment plans, and every time you buy more furniture it adds the two prices together and then does a percentage. If you miss one payment they revoke all the furniture.

1. Unconscionability has been generally recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreason-ably favorable to the other party

ii. UCC §2-302. Unconscionable Contract or Clause : (1) If the courts as a matter of law find the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remain-der of the contract without the unconscionable clause, or it may limit the application of any unconscionable clause as to avoid any unconscionable result. (2) When it is claimed or appears to the court that the contract or any clause thereof may be uncon-scionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting.

iii. A bargain is not unconscionable merely because the parties to it are unequal in bargaining position, nor even because the in-equality results in an allocation of risks of the weaker party. But gross inequality of bargaining power, together with terms unrea-sonably favorable to the stronger party, may confirm indications that the transaction involved elements of deception or compul-sion, or may show that the weaker party had no meaningful choice, no real alternative, or did not in fact assent or appear to assent to the unfair terms.

iv. Gatton v. T-Mobile, 2007 - class action against T-Mobile for charging an early termination fee and for providing locked hand-sets that can’t be used wit other subscribers. Also had an arbitra-tion clause.

1. Court found that unconscionability has two elements: a procedural one and a substantive one

a. Procedural focuses on the existence of oppression or surprise

i. Concerns the manner in which the contract was negotiated and the circumstances of the par-ties at the time

ii. Oppression: arises from an inequality of bar-gaining power that results in no real negotia-tion and an absence of meaningful choice

ContractsProfessor Pike

Outline

iii. Surprise: the extent to which the supposedly agreed upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms

b. Substantive focuses on overly harsh or one-sided re-sults

i. No class action clauses for example2. To be unenforceable, a contract must be both procedurally

and substantively unconscionable, but the elements need not be present in equal degrees.

a. The more substantively oppressive a contract is the less evidence of procedural unconscionability is nec-essary

i. A contract of adhesion is written by the supe-rior bargainer and allows the bargainee to sim-ply accept or deny it, they are often at least minimal evidence of procedural uncon-scionability

X. Failure of Basic AssumptionA. MUTUAL MISTAKES

i. Just as a promise does not give rise to a contract, the mere fact that it as a “mistake” to enter into a contract does not provide a valid defense to its enforcement.

ii. The existence of a mistake, however, coupled with other circum-stances, can sometimes constitute a defense.

iii. R.2d §151. Mistake defined: A belief that is not in accord with the facts.

iv. Sherwood v. Walker, 1887 – Seller sold a cow that they thought was barren until they found out she was with calf and would not deliver her.

1. Court found that the cow bargained for in the contract was not the same as the cow that existed as a breeding cow and non are of completely different worth and neither party had no reason to know she could bare calves.

2. DISSENT: felt that the buyer thought she might be able to be bred and just because he was more right about the cow, shouldn’t allow seller to just back out at any time

a. The mistaken party, acting entirely upon his own judgment, without any common understanding with the other party in the premises as to the quality of the animal, is remediless if he is injured through his own mistake

v. Nester v. Michigan Land, 1888 – Buyer agreed to buy a certain amount of land of pine trees. Turned out that half the pine was bad. Wanted to pay only for the good half.

1. Court found that the two parties had entered into the con-tract for the amount on the land, not the quality and that

ContractsProfessor Pike

Outline

the buyer’s own people had checked out the product. If there had been twice as much good pine, would not be ex-pected to pay twice as much. Buyer must pay full price be-cause to do otherwise would be making a new contract not enforcing the one already in existence.

vi. Wood v. Boynton, 1885 – Woman sold a gem thinking that it was a topaz and in reality to was a diamond.

1. If there is no suppression of knowledge on the part of the buyer as to the value of the stone and there is an absence of fraud or warranty, the value of the property sold, as compared with the price paid, is no ground for rescission of a sale.

vii. Lelawee County Board of Health v. Messerly, 1982 – Buyer attempted to purchase land to turn into rentable property. After purchase discovered that it was uninhabitable, which was un-known to both buyer and purchaser.

1. Court found that cases of mutual mistake must be taken on case by case basis

2. Rescission is indicated when the mistaken belief relates to a basic assumption of the parties upon which the contract is made, and which materially affects the agreed perfor-mances of the parties

3. Purchaser agreed to contract that they had examined the property and agreed to take it in its present condition, pur-chaser assumed the risk

XI. Damages for Breach of ContractA. Limitations on Damages: Remoteness or Foreseeability of Harm

i. Hadley v. Baxendale, 1854 – Mill had to shut down because piece broke. Sent piece out to get fixed saying they wanted it within a day, ended up taking longer and so they sued for lost profits.

1. Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contem-plation of both parties, at the time they made the contract, as the probable result of the breach of it.

2. If the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract un-der these special circumstances so known and communi-cated.

ContractsProfessor Pike

Outline

3. Consequential damages: those that don’t inherently come from the breach

ii. Martinez v. Southern Pacific Transportation Co., 1979 – a piece of equipment was being transported by rail in 5 cars. The 5th car was delayed by one month and the whole machine could not be used for the month. Sued for loss profits for the month.

1. RR company could foresee that a missing piece of equip-ment would stall its use and making of profits.

2. The equipment itself had a value as a whole or in parts3. These are not consequential damages but rather parts that

have value in their own right as opposed to Hadley where the broken part did not really have its own value.

iii. Morrow v. First National Bank, 1977 – Plaintiff asked bank em-ployee to notify him when safe deposit boxes came in so that he could store his valuable coin collection. Employee did not imme-diately inform him and coins were stolen.

1. Employee’s words were not a tacit agreement and there was no consideration guaranteeing that the bank would no-tify him as soon as the safe deposit boxes came in

a. Tacit agreement test: plaintiff must prove more than the defendant’s mere knowledge that a breach of contract will entail special damages to the plaintiff. It must also appear that defendant at least tacitly agreed to assume responsibility.

b. There must be notice and tacit agreement of special circumstances

2. ** MAJORITY VIEW: there only need be notification (UCC)a. economic view: once notified they are in best posi-

tion to avoidB. CERTAINTY OF HARM

i. Chicago Coliseum v. Dempsey, 1932 – Plaintiff arranged contract with boxer to fight for them at a designated place and time and required that he not fight or train for other fights. He backed out and began training for other fight.

1. Court found that some damages were not recoverable:a. Expectation damages from the fight’s profit: not eas-

ily measurable, too many factors, not built in explic-itly to the contract’s terms

b. Can’t recover damages incurred before a contract was signed

c. Expenses after contract signed are recoverabled. Expenses in judicial matters not recoverable because

taken at own riskii. It is subject that whenever profits are rejected as an item in the

calculation of damages, it is because they are subject to too many contingencies of business to constitute a safe criterion for an estimate of damages.

ContractsProfessor Pike

Outline

1. Otherwise the amount of damages would be conjecture and could be left to an impassioned jury which could be un-fair

iii. R.2d §346 Availability of Damages: (1) The injured party has a right to damages for any breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged. (2) If the breach caused no loss or if the amount of the loss is not proved under the rules stated in this Chapter, a small sum fixed without regard to the amount of loss will be awarded as nominal damages.

iv. R.2d §349 Damages Based on Reliance Interest: As an alternative to the measure of damages stated in §347, the injured party has a right to damages based on his reliance interest, including ex-penditures made in preparation for performance or in perfor-mance, less any loss that the party in breach can prove with rea-sonable certainty the injured party would have suffered had the contract been performed.

v. Anglia Television v. Reed, 1971 – Agent committed Reed to do a TV movie and then backed out 4 days later because of another commitment. Producers were unable to find anyone else to do the movie and had to scrap the whole project. Sued Reed for ex-penses.

1. Court found that the plaintiff had the choice of suing for loss of profits or expenses paid, but not both.

a. If he cannot sue for loss of profits or cannot prove what his profits might have been must sue for ex-penses paid/expenditure that has been thrown away because of the breach.

b. If claims wasted expenditure can claim expenses in-curred both expenses after contract was concluded and before, such as would reasonably be in the con-templation of the parties as likely to be wasted if the contract was broken.

c. When breaching parties breach makes it infeasible to continue

vi. Mistletoe Express v. Locke, 1988 – Mistletoe breached contract because Locke was losing money.

1. Where the contract requires a capital investment by one of the parties in order to perform, that party’s reasonable ex-pectation of profit includes recouping the capital invest-ment.

a. To recover these expenditures they must have rea-sonably made in performance of the contract or in necessary preparation.

b. R.2d §349: As an alternative to expectation damages, the injured party has a right to damages based on his reliance interest, including expenditures made in

ContractsProfessor Pike

Outline

preparation for performance or in performance, less any loss that the party in breach can prove with rea-sonable certainty the injured party would have suf-fered had the contract been performed.

i. It is on the party in breach to prove the amount of loss the plaintiff would have incurred if there had been no breach

C. AVOIDABILITY OF HARMi. Default Rule: lost profits + amount expended (same position as if

contract had been performed, expectation)ii. Rockingham v. Luten Bridge Co., 1929 – County told bridge

builders to stop building but kept building anyways. Told them they would only pay for bridge up until breach.

1. When a party anticipatorily breaches a contract, non breaching party can,

a. Ask for assuranceb. When unsure, can proceed with workc. When sure, should stop

i. DUTY TO MITIGATE DAMAGES: make damages as less as possible, not ok to take advantage of breaching party, put innocent party in position as if contract had been performed and breach-ing party in least bad position as possible

ii. Always mean to stop work?1. Sometimes doesn’t make sense so con-

tinue work and replace (duty to a third party or if will lose value of work done [exposed wood])

iii. Shirley McLaine v. 20th Century Fox, 1970 – Canned film McLaine was supposed to work on and then she declined the other movie they offered her for same price but she wouldn’t do it. She sued for breach.

1. Duty to mitigate damages must be work that is substan-tially comparable and similar in kind

2. Duty is not absoluteiv. R.2d §350. Avoidability as a Limitation on Damages: (1) Except

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

v. Neri v. Retail Marine Corp., 1972 – Buyer ordered a boat and then wouldn’t pay for it. Seller sued for breach of contract.

1. The court found that because the seller had an unlimited supply of the boats and that the only damages incurred were that the seller could have gotten another sale.

ContractsProfessor Pike

Outline

2. Damages were the profits seller would have made from an-other sale

3. UCC §2-708: Seller’s Damages for Non-Acceptance or Re - pudiation: (1) Subject to subsection (2) and to the provi-sions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-accep-tance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental dam-ages provided in this Article (Section 2-710), but less ex-penses saved in consequence of the buyer’s breach. (2) If the measure of damages provided in subsection (1) is inad-equate to put the seller in as good a position as perfor-mance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, to-gether with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably in-curred and due credit for payments or proceeds of resale.

4. UCC §2-718: Liquidation or Limitation of Damages; De - posits: Damages for breach by either party may be liqui-dated (set at a precise #) at a reasonable price before hand limited by restrictions….

D. Contracting Around the Default Rules of Damagesi. EXPRESS LIMITATIONS ON CONSEQUENTIAL AND INCIDENTAL

DAMAGES1. Parties may seek to limit their liability under the default

rules of contract damages by including a warranty clause that is expressly intended to be the exclusive remedy for breach of contract, thereby excluding other foreseeable losses.

2. UCC § 2-719. Contractual Modification or Limitation of Rem - edy: (1) Subject to the provisions of subsections (2) and (3) of this Section and of the preceding section on liquidation and limitation of damages, (a) the agreement may provide for remedies in addition to or in substitution for those pro-vided in this Article and may limit or alter the measure of damages recoverable under this Article, as by limiting the buyer’s remedies to return of the goods and repayment of the price or to repair and replacement of non-conforming goods or parts; and (b) resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclu-sive, in which case it is the sole remedy. (2) where circum-stances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this Act. (3) Consequential damages may be limited or ex-cluded unless the limitation or exclusion is unconscionable.

ContractsProfessor Pike

Outline

Limitation of consequential damages for injury to the per-son in the case of consumer goods is prima facie uncon-scionable but limitation of damages where the loss is com-mercial is not.

ii. LIQUIDATED DAMAGES vs. PENALTY CLAUSES1. Kemble v. Farren, 1829 – Actor refused to act second sea-

son. Had a liquidation clause for 1000 pounds.a. If the two contracting parties determined reasonable

damages on their own, there is no reason not to en-force.

b. Liquidated damages are usable for:i. Efficientii. There may be no proper legal remedyiii. Allows someone to recover when damages are

uncertainiv. Allows to still recover for things like damage to

reputationc. Can be a lump sum or a formula

2. Wasenaar v. Towne Hotel, 1983 – fired employee with 21 months left in contract and didn’t want to pay liquidated damages of whole contract, employee then got a job 2.5 months later, hotel only wanted to pay 2.5

a. Court found that hotel should pay full contract be-cause it was bargained for. If you don’t enforce liqui-dation contracts then it takes away incentive to use them.

XII. Other Remedies and Causes of ActionA. SPECIFIC PERFORMANCE

i. And equitable remedy – type of extraordinary relief, defendant is subjected to enforcement of the judgment, not punishment of disobedience.

ii. Specific performance order is a form of injunction that compels the defendant to act to perform his contract with the plaintiff

iii. CONTRACTS FOR LAND1. In cases of land, specific performance is often awarded as

a matter of courseiv. CONTRACTS FOR GOODS

1. In the case of things that are functionally unique or difficult to come by, usually the remedy will be specific perfor-mance.

v. UCC §2-716. Buyer’s Right to Specific Performance or Replevin: (1) Specific performance may be ordered where the goods are unique or in other proper circumstances. (2) The judgment (de-cree) for specific performance may include such terms and con-ditions as to payment of the price, damages, or other relief as the court may deem just. (3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is un-

ContractsProfessor Pike

Outline

able to effect cover for such goods or if the goods have been shipped under reservation and satisfaction of the security inter-est in them has been made or tendered.

Questions

Can you only recover on breach of contract OR promissory estoppel? (Essay) Prom-issory estoppel is only if there was no contract, right?