Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
1. Contract = a promise (of a future commitment) or set of promises that the law
will enforce via assigning a remedy in the event of a breach or recognizing the
performance it entails as a duty. Two contrasting theories of contract: 1)
Objective – an obligation attached by the mere force of law to certain acts of the
parties; nothing to do with personal intent; 2) Subjective – consideration of the
actual intent of all parties is absolutely relevant.
Categories of Contracts:
Types of Contracts:
d) Implied in Fact: arises where the court finds from the surrounding facts
and circumstances that the parties intended to make a contract but failed to
articulate their promises in writing and the court merely implies what it
1
thinks both parties intended (i.e. patient visits doctor, where a reasonable
fee is implied in fact although neither party mentions payment)
Strong v. Sheffield (p. 69): D gave a note to P for an antecedent debt which was
past due, the only consideration was that P would forbear in his demand for
payment, though no time period of the forbearance was set, 2 years later P
demanded payment. Rule: A purported promise is illusory and not
consideration if by its terms the performance of the promise is entirely
optional for the promisor.
2
Implied Promise = A promise inferred by law from a document as a whole and the
circumstances surrounding its implementation.
2) Elements
A. Offer
1) an act whereby one person confers upon another the power to create
contractual relations between them; 2) the manifestation of willingness to
enter into a bargain, so made to justify another person in understanding
that his assent to that bargain is invited and will conclude that bargain; 3)
Elements are:
Lucy v. Zehmer (p.120): D claimed his offer to sell his farm to P was made in jest.
Rule: if a person’s words or acts, judged by a reasonable standard, manifest a
certain intent, it is immaterial what may be the real but unexpressed state of that
person’s mind. If the acceptor has reasonable basis to perceive the offer is real
and accepts, then the offer and therefore the K is real.
Lefkowitz v. Great Minn. Surplus Store (p. 138): P answers ad for 1 lapin stole
sold to first customer for $1.00; D refuses to perform saying the ad is only
acceptable by women. Rule: While an advertiser has the right at any time before
3
acceptance to modify his offer, he does not have the right, after acceptance to
impose new or arbitrary conditions not contained in the published offer. Because
the ad was so specific (described who could accept, when, for what, and how),
it constituted an offer.
(Note: the general rule is that an ad. Is not an offer but rather an invitation by the seller
to the buyer to make an offer to purchase the item)
B. Acceptance
International Filter Co. v. Conroe Gin, Ice & Light Co. (p. 151): P offered a water
purifier to D, stating that there would be a contract when D’s acceptance was
approved by P’s executive officer, this was done but D revoked its order claiming
4
there was no K. Rule: As the offeror is in control of his offer, he may specify the
type of acceptance which is require and can dispense with the requirement of its
communication. Acceptance was done by obtaining the signature. D didn’t
have to notify P that it had done so to create a K because K read “this
becomes a K when signature obtained’.
Ever-Tite Roofing Corp. v. Green (p.158): D hires P to re-roof their home with the
understanding that the credit approval would take some time to obtain. D gets
tired of waiting and hires another co. to do the job. P doesn’t find out until the
arrive to do the work. Rule: K was accepted by the P when he commenced
performance of the work contracted to be done. The commencement began ]
with the loading of the trucks and transporting them to the house.
Allied Steel & Conveyors Inc. v. Ford Motor Co. (p. 162): D’s employee was
injured during performance of D’s contract with P before D had formally accepted
the K as per terms of P’s offer. Rule: Where the offeror merely suggests a
permitted method of acceptance, other methods of acceptance are not precluded.
The Mirror Image Rule = An acceptance must be on the terms proposed by the offer
without the slightest variation. Anything else is a rejection of the original offer and acts as
a counter offer. The offeror ‘as master of the offer’ enjoys freedom from contract except
on the offeror’s terms - - offeror does not have to accept counter offers.
Owen v. Tunison (p. 130): D replied by letter to P’s offer to buy his property and
buildings thereon for $6K saying that he could not sell for less than $16K. P
replied with ‘Sold! Here’s your money. D says ‘I never agreed to sell it to
you’. Rule: There can be no contract, no meeting of the minds, between the
parties unless there is an offer.
Under this rule, the party that sent the last form before performance began usually
prevailed because each later form acted as a counter offer. When the recipient of the last
counter offer performed, that was taken as an acceptance o f the counter offer. This made
it advantageous to fire the ‘last shot’ (The ‘Last Shot’ Rule) before performance began.
This is the common law doctrine, which applies to non-merchants.
Battle of the Forms = The conflict between the terms of standard forms exchanged
between a buyer and a seller during contract negotiations. UCC 207 attempts to resolve
battles by abandoning the common-law requirement of mirror-image acceptance and
providing that an acceptance with additional terms is normally valid.
5
UCC 207: current law everywhere except D.C.; three treatments:
1. For merchants and non-merchants alike – if new, conditional terms are
not accepted, there is no contract but each party goes on to act as if a K
exists, then UCC states that a K does exist based on the terms in
common
2. For 2 merchants – a definite and seasonable expression 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 the acceptance is
expressly made conditional upon the assent to the additional/new
terms. The additional terms are to be construed as proposals for
addition to the contract and the offeror’s form/terms will prevail
unless
The offer expressly limits acceptance to the terms of the offer
The new terms materially alter the K
The offeree has already objected to the particular terms, or
objects within a reasonable time after notice of them is
received
3) For merchant to non-merchant – additional terms of the offeree are
treated as proposals to be added to the K and do not get added to the K
Step-Saver Data Systems, Inc. v. Wyse Technology (p. 204): P purchased software
programs from D for resale, which failed to operate properly; P sued for breach of
the warranty in the K but court held that the box-top warranty disclaimer was
incorporated into the K. Rule: An additional term will not be incorporated into
a K if the term’s addition to the K would materially alter the agreement.
(Note: The UCC is more favorable to K formations than is common law because it was
spawned by commercial trade.)
The Knock Out Rule = when there are difference between the seller’s and the buyer’s
terms and they are material, they cancel each other out and the contested term gets filled
in by a code/UCC gap filler (i.e. warranty of merchantability)
The Mailbox Rule = The dispatch of acceptance is the crucial point at which the K in
made – after which the offeror’s power to revoke is terminated. The offeree’s power to
withdraw his/her acceptance is also then terminated. In short, acceptance of an offer takes
effect as soon as it is mailed, whether or not it ever reaches the offeror as long as it is
properly addresses and safe transmission is generally assured. (Common Law)
6
4 Ways to Revoke the Power of Acceptance
1. Lapse of an offer
2. Revocation (prior to acceptance only)
3. Death or incapacity of an offeror
4. Rejection or counter offer by offeree
Ragosta v. Wilder (p. 181): D offered to sell a piece of real estate to P contingent
on P meeting D at his bank with the $ before 11/1; on 10/8 D informed P that he
had changed his mind and wasn’t going to sell. Rule: Where an offer invites an
offeree to accept by rendering a performance, an option contract is created when
the offeree tenders or begins the invited performance. D returned the
consideration and the P never began performance therefore, the option
contract was no longer binding. (Example of revocation)
Dickinson v. Dodds (p. 176): D attempted to revoke an offer to sell land to P but P
agreed to purchase the land prior to communication of the revocation got to him.
Rule: An offeree may not bind an offeror by accepting a revoked offer, even if
the revocation had not been communicated to him prior to acceptance.
(Example of revocation)
C. Consideration
7
As Long as Consideration Has Been Met, There is No Requirement of:
Gratuitous Promise = consideration that, not being founded on any detriment to the party
who gives it, will not support a K; a performance for which a party was already obligated
Hamer v. Sidway (p. 27): D promised to pay $5K to P if he would forebear booze,
tobacco, swearing, and playing cards and pool for $ until he turned 21. D later
refused to pay. Rule: Forbearance of legal freedoms is valuable consideration
therefore a K did exist.
Fiege v. Boehm (p. 34): D promised to pay $ if P would refrain from suing for
child support; D did not pay and P sued, during suit it was determined that the
child did not belong to D anyway. Rule: Forbearance to assert an invalid claim
may serve as consideration for a return promise if the parties at the time of
the settlement reasonably believed in good faith that the claim was valid.
Feinberg v. Pfeiffer Co. (p. 39): P was given a pension for life by D based upon
her past service to the company, D subsequently refused to pay for lack of
consideration. Rule: Past services are not a valid consideration for a promise.
Webb v. McGowin (p. 45): P saved the now deceased D from serious bodily
injury/death by placing himself in grave danger on the job, in return D promised
to pay $15 every 2 weeks for the rest of his life, D then refused to pay. Rule: A
moral obligation plus a material and substantial benefit to the promisor is
sufficient consideration to support a subsequent promise to pay (moral
obligation alone does not account for consideration).
Kirksey v. Kirksey (p. 50): D promised P a place to raise her family ‘if you come
down and see me’ and later tossed her out. Rule: In order to be legally
enforceable, an executory promise must be supported by sufficient,
bargained for consideration.
8
Central Adjustment Bureau, Inc. v. Ingram (p. 53): P brought suit against Ds
seeking enforcement of a non-competition clause in the former employees’ K.
Rule: A court will enforce covenants not to compete to the extent that they
are reasonably necessary to protect the employer’s interest without imposing
undue hardship on the employee when the public interest is not adversely
affected.
Illusory Ks:
Strong v. Sheffield (p. 69): D gave a note to P for an antecedent debt which was
past due, the only consideration was that P would forbear in his demand for
payment, though no time period of the forbearance was set, 2 years later P
demanded payment. Rule: A purported promise is illusory and not
consideration if by its terms the performance of the promise is entirely
optional for the promisor.
Mattei v. Hopper (p. 72): P purchased property from D, the sale was to be
completed in 120 days ‘if satisfactory leases could be obtained’, D later refused to
perform. Rule: ‘Satisfaction’ clauses do not render a contract illusory or raise
problems of mutuality of performance since good faith as per a reasonable
person is required towards fulfillment of them.
Eastern Airlines v. Gulf Oil Corp. (p. 76): D contracted with P to supply P’s fuel
requirements (spec. ‘as much fuel as they need’) at current $ rate, later D raised
the price significantly and withheld supply until new condition was met. Rule: A
promise conditional upon the parties’ requirements is not illusory since they
must act consistent with good faith and standard commercial practices.
Wood v. Lucy, Lady Duff-Gordon (p. 83): P received the exclusive right for one
year, renewable on a year-to-year basis if not terminated by 90 day notice, to
endorse designs with D’s name and to market all of her fashion designs for which
she would receive ½ of the profits derived. D broke the K by placing her
endorsement on designs without P’s knowledge. Rule: K is not illusory, because
while an express promise may be lacking, an implied promise imperfectly
expressed pervades the document so as to form a valid K.
9
Promisor should reasonably expect that the promise will induce action
or forbearance
Promise does induce such action or forbearance to P’s detriment
Injustice can only be avoided by enforcing the K
Ricketts v. Scothorn (p. 86): In reliance on D’s promise to pay her $2K, P quit her
job. Rule: A promise may be legally binding without consideration if it
reasonably induced action or forbearance and if injustice can be avoided by
its enforcement.
1. Promissory Estoppel = The principle that a promise made without consideration may
nonetheless be enforced to prevent injustice if the promisor should have reasonably
expected the promisee to rely on the promise and if the promisee did actually rely on the
promise to his/her detriment.
2. Equitable Estoppel = A defensive doctrine preventing one party from taking unfair
advantage of another when, through false language or conduct, the person to be estopped
has induced another person to act in a certain way, with the result that the other person
has been injured in some way. Elements:
10
B. Restitution = Return or restoration of some specific thing to its rightful owner or
status; compensation for benefits derived from a wrong done to another; compensation or
reparation for the loss caused to another. Courts may also enforce the K if the benefit
received by the promisor was material and no opportunity to bargain existed.
Applications:
Callano v. Oakwood Park Homes Corp. (p. 108): P, under K to a 3rd party (who
died mid-K), planted shrubbery on, and enhanced the value of, D’s property. Rule:
Where one party receives benefit from a 2nd party, the 1st party is not unjustly
enriched if there was no direct relationship between the parties and the 2nd
party did not expect recompense from the 1st party (who received the benefit)
in the first place. In short, go sue the guy you contracted with.
Webb v. McGowin (p. 45): P saved the now deceased D from serious bodily
injury/death by placing himself in grave danger on the job, in return D promised
to pay $15 every 2 weeks for the rest of his life, D then refused to pay. Rule: A
moral obligation is a sufficient consideration to support a subsequent
promise to pay where the promisor has received a material benefit.
Restatement 86:
1. A promise made in recognition of a benefit previously received by
a promisor is binding to the extent necessary to prevent injustice
2. A promise is not binding under #1 if:
i. If the promise conferred a benefit as a gift or for other
reasons the promisor has not been unjustly enriched or
ii. To the extent that its value is disproportionate to the benefit
11
C. Precontractual Liability = some circumstances in which a party may nevertheless
incur liability before that contract has been formed; crossing the Brooklyn Bridge
example; ‘an offer invites an offeree to accept by rendering a performance and does not
invite a promissory acceptance, an option contract is created when the offeree begins the
invited performance.
Hoffman v. Red Owl Stores (p. 235): P jumped through all of D’s hoops to open up
a franchise and, upon the statements of D’s employee, took certain steps such as
selling his bakery, etc. In the end, D misrepresented the amount of $ that the
franchise would cost and negotiations collapsed. Rule: The promise need not
embrace all essential details of a proposed transaction between the parties so
as to be the equivalent of an offer that would result in a binding K if the P
accepts it.
Channel Home Centers v. Grossman (p. 244): D promised that none of P’s
competitors would be rented a store in the mall and used a letter of intent to rent
to P to obtain financing, but then rented a spot to P’s competitor. Rule: A letter of
intent to rent providing that the lessor will take the unit off the market is
enforceable if the lessor uses the letter to help obtain financing =
consideration/unjust enrichment.
II. Breach
Swift Canadian Co. v. Banet (p. 834): D contracted to purchase/import lamb pelts
from P, the gov’t raised the price on imports after P had accomplished only partial
shipment, shortly thereafter D refused to accept further deliveries. Rule:
Assuming a party is ready to perform, he is not obligated to perform in vain
when the other party has given notice of refusal to accept performance.
12
Condition Precedent = an event, not certain to occur, which must occur, unless its non-
occurrence is excused, before performance under a K becomes due (2nd Restatement 224);
the happening of an uncertain occurrence, which is necessary before a particular right or
interest may be obtained or an action performed.
Example: A is to ship shoes to B, and B agrees to either return them if they don’t satisfy
her, or pay for them. The K states “B’s duty to pay for the shoes shall be conditional upon
her being satisfied with them”. Strict compliance is usually required to satisfy this.
Luttinger v. Rosen (p. 665): P signed a contract to purchase D’s premises and put
down a deposit ‘subject to and conditional upon’ their obtaining a specified
mortgage financing. Rule: A condition precedent is a fact or even which the
parties intend must exist or take place before there is a right to performance,
and if the condition precedent is not fulfilled the K is not enforceable.
Example: A contract to ship shoes to B, and B agree to either return the shoes as
unsatisfactory, or pay for them. No language of condition is used in the agreement. As a
matter of common law (or the UCC), the court will impose a constructive condition upon
her receiving them and being satisfied with them. Substantial compliance is usually
required to satisfy this.
Kingston v. Preston (p. 693): P agreed to sell his business to P, and P agreed to but
did not give security for the payments. Rule: Breach of a K by one party
relieves the other party’s obligation to perform their promise, which is
dependent thereon, the performance of the first promise being an implied
condition precedent to the duty to perform the second promise.
Substantial Performance = if one party fails to substantially perform, the other party’s
remaining duties do not fall due; where the performance meets the essential purpose of
the K
Jacob & Youngs v. Kent (p. 507): P was hired to build a $77K country home for
D. When it was completed, it was discovered that through an oversight, the wrong
13
brand of pipes (a specific brand was contracted for) were used, D refused to make
final payment until it was fixed. D refused to fix it because the cost to do so
would be enormous. Rule: An omission, both trivial and innocent, will not
amount to breach in the event that the K has been substantially performed –
all of the essential obligations pursuant to the agreement have been met.
Plante v. Jacobs (p. 702): D believed that P, whom they had contracted with to
build a home upon their lot for $26K, used faulty workmanship and incomplete
construction, they stopped further payments to D after having paid $20K. P then
refused to complete and sued. Rule: There can be no recovery on a K as
distinguished from quantum meruit unless there is substantial performance,
which is defined as where the performance meets the essential purpose of the
K.
Warranties (UCC) = a seller may make several warranties that are of importance; if the
seller breaches any of these warranties, the buyer may bring a damage action for breach
of warranty, which can be viewed as a special type of beach of K action.
(Note: If the buyer insists on a particular brand of goods, he/she is not relying on the
seller’s skill or judgment to furnish suitable goods, so no implied warranty of fitness for a
particular purpose arises.)
14
Privity = the relationship between the parties to a K, allowing them to sue each other but
preventing a 3rd party from doing so; this doctrine has been relaxed.
Divisibility = A K where both parties have divided up their performance into units or
installments, in such a way that each part performance is roughly the compensation for a
corresponding part performance by the other party; if a K is found to be divisible, and
one party partly performs, then the other will have to make only partial payment; if a K is
not found to be divisible, and one party partly performs, the other party won’t have to pay
anything as the K has been breached.
Gill v. Johnstown Lumber Co. (p. 707): P contracted to drive and deliver 4 million
feet of logs but had delivered only a part of the amount when a flood swept away
the rest. P was to be paid $1/thousand feet for the oak logs, .75 for all other logs,
and .03 for each cross tie. Rule: When consideration for work done is
apportioned in the K, that K will be interpreted as divisible in the event of
partial performance.
Britton v. Turner (p. 710): P contracted to work for D for an entire year but left
without cause after only 9.5 months (substantial performance) and sought the
reasonable value of the labor he did perform. Rule: A defaulting party, although
unable to recover on his contract, may recover under a quasi-contractual
theory the reasonable value of his services less any damages to the other
party arising out of the default.
Kirkland v. Archbold (p. 716): P contracted to repair and improve D’s property
and be paid, in scheduled progress payments, $6K but defaulted after only partial
performance. P sought to recover the value of the work he had done up to that
point. Rule: A defaulting party may recover for partial performance, on a
quasi-contractual theory the benefit received by the other party diminished
by the damages to that other party arising from the default.
15
Breach During Performance:
Often a dispute arises at a much earlier stage of performance and the question is whether
a breach justifies the injured party in exercising a right to self-help by suspending
performance or by refusing to render performance and repudiating the K; Elements:
However, the aggrieved party must give the non-performer a chance to cure the breach
and follow a specific protocol when repudiating a K.
Walker & Co. v. Harrison (p. 722): D rented a neon sign from P with expectations
based on a clause that read “repair service as deemed necessary by P to keep sign
in 1st class advertising condition”. The sign was allegedly rusty, covered in spider
webs, and covered in a rotting tomato that someone had thrown at it. D and
sought to repudiate the K when P delayed in repairing the sign. Rule: A party
attempting to repudiate a K must convince the court that the other party has
materially breached the K.
K&G Construction Co. v. Harris (p. 727): D breached his covenant to perform in
a workmanlike manner when they crashed into one of P’s buildings, P thereafter
declined to make good on its return covenant to pay (as D and D’s insurance co.
refused to pay for the damage). P withheld the amount due from D’s pay towards
the aforementioned damage. D refused to perform further until he got all of his $,
which caused further damage to P. Rule: D was in breach, P chose to treat is as
a partial performance and continue on with the K, which required only
partial payment, but the D breached again. P’s payment was conditioned on
the D’s adherence to the original K, since it did not, P did not have to pay.
16
1. Mistake must be make at the time of the K
2. Mistake must be on an essential& material term
3. P must not have assumed the risk of the mistake or been consciously ignorant
Stees v. Leonard (p. 786): P alleged that D had breached a K to build a house in
their lot when it collapsed upon reaching 3 stories in height (twice); D claimed
that the subsoil conditions were aggravated by quicksand, making it impossible
for the land to support a house. D sought rescission based on the mutual mistake
that the soil could hold it. Rule: If one binds himself by a positive, express K to
do an act in itself possible, he must perform unless prevented by act of god,
the law, or the other party to the K and will not be excused by hardship (i.e.
having to drain the property), unforeseen hindrance, or difficulty short of
absolute impossibility.
Renner v. Kehl (p. 789): P sought to rescind a K entered into with the D for the
purchase of land when several test wells failed to produce sufficient water to
cultivate jojoba. Both parties believed at the time of the K that sufficient water
could be had on the property. Rule: Mutual mistake of fact is a basis for
rescission.
(Note: These decisions hinge upon the absence of an “in case we can’t do it” clause.)
a. Mutual: both parties have the same mistaken belief; parties must show
that the mistake concerned a basic assumption on which the K was
made, that the mistake has a material effect on the agreed exchange,
and that the aggrieved party is not the one who was allocated the risk
b. Unilateral: the mistaken party must show basic assumption, material
effect, risk on the other party, AND unconscionability or that the other
party had reason to know that a mistake was being made (harder to
prove than mutual mistake)
c. Mistake in Fact: mistaken belief about an existing fact, not an
erroneous belief about what will happen in the future
d. Mistake of Law: a mistake about a legal principle, according to most
courts today, can be a grounds for avoiding the K
17
Taylor v. Caldwell (p. 801): P contracted to rent D’s place and hold some events
there for 4 days at 100lbs. per day. Through no fault of either party, the place
burned to the ground. P seeks recovery of the $ it spent on advertising/set up.
Rule: In K in which the performance depends on the continued existence of a
given person or thing, a condition is implied that the impossibility of
performance arising from the perishing of the person or thing shall excuse
the performance.
Selland Pontiac-GMC, Inc. v. King (p. 815): P sued D for failure to deliver four
school bus bodies (D went into receivership just after the K was formed and was
later dissolved). P seeks recovery for increased cost to cover. Rule: A partial
failure of a seller’s source of supply generally has been treated as a
foreseeable contingency, the risk of which is allocated to the seller absent a
specific provision to the contrary in the K.
Eastern Airlines, Inc. v. Gulf Oil Corp. (p. 823): D contended that its performance
under the K to supply petroleum products to the P was rendered commercially
impracticable due to the severe (400%) escalation in the price of the products.
Rule: Price increases will render performance of a K commercially
impracticable only where it would be fundamentally unjust to hold the
parties bound.
3. Frustration of Purpose = some turn of events has thwarted that party’s object/goal in
making the K; where, after a K is made, a party’s principal purpose is substantially
frustrated without his fault by the occurrence of the event or the non-occurrence of which
was a basic assumption on which the contract was made, he remaining duties to render
performance are discharged, unless the language or circumstances indicate otherwise.
Krell v. Henry (p. 831): D paid a deposit to P for the use of his apartment for the
purpose of watching the king’s coronation. The king fell ill and there was no
ceremony. D refused to pay the remainder of the rent. Rule: Where the object of
one of the parties is the basis upon which both parties contract, the duties of
performance are constructively conditioned upon the attainment/occurrence
of the object/event.
18
Young v. City of Chicopee (p.850): P contracted with D to repair a bridge for
which P was required to store half of the necessary materials on site before he
could start the job; after part of the work was done, the bridge burned down
through no fault of either party; P seeks recovery for the value of the work he did
and the materials stored and lost at the site. Rule: There is an implied condition
that a thing upon which work is to be done shall continue to exist, and if it is
destroyed without fault, the owner is liable for the value of the work done
(but not the materials destroyed in this case).
4. The Perfect Tender Rule = UCC 2-601; buyer is entitled to reject goods unless the
seller makes a ‘perfect tender’ in terms of quantity, quality, and details of shipment.
However, the defect must be a substantial one and there is a set protocol for rejection.
Illegality = court will not enforce K’s for illegal activities (i.e. gambling, illegal lending,
unlicensed services in exchange, and non-compete covenants when too broad) nor will it
enforce honor among thieves.
Capacity to Contract = Certain classes of people have only a limited power to contract;
most important are:
1) Infants: defined now as all those under that age of 18; when an infant lies
about their age, the courts usually let the other party escape the K
2) Mentally infirm: person must be a) unable to understand in a reasonable
manner the nature of the consequences of the transaction and b) unable to act in a
reasonable manner in relation to the transaction and c) the other party must have a
reason to know of his/her condition
Cognitive Test = (used by all states) in order to void a K the mind must be so affected as
to render him/her wholly & absolutely incompetent to comprehend and understand the
nature of the transaction.
Compulsion Test = (used in some states) in order to void a K he/she can be able to
understand what they are doing but unable to deal rationally with it
In short, these groups are not capable of giving legal acceptance. Any K these people
enter into is voidable at their option – they can enforce or escape the K as they wish.
19
Kiefer v. Fred Howe Motors, Inc. (p. 301): P sought to rescind a truck purchase he
had made while still a minor as it turned out to be a lemon. Rule: One may
rescind or disaffirm contracts made while a minor.
Ortelere v. Teacher’s Retirement Board (p. 305): P had $70K in the retirement
system and borrowed the maximum amount allowed while on leave for mental
illness. She did not tell her husband and her election made it so that he got
nothing after she died. Husband seeks revocation of her election. Rule: A person
incurs only voidable contractual duties by entering into a transaction if by
reason of mental illness or defect if he/she is a)unable to understand in a
reasonable manner the nature of the consequences of the transaction and b)
unable to act in a reasonable manner in relation to the transaction and c) the
other party must have a reason to know of his/her condition.
Cundick v. Broadbent (p. 310): P claimed that her husband did not have the
mental capacity to enter into a K to sell his land. Rule: Mental capacity to
contract depends on whether the allegedly disabled person possessed
sufficient reason to enable him to understand the nature and effect of the act
in issue. In this case, he haggled for a better price and his wife worked with him
during the entirety of the deal therefore it is not voidable.
20
Vokes v. Arthur Murray, Inc. (p.363): P was continually cajoled into purchasing
thousands of hours of dancing lessons by D when D knew she was terrible and
could never be an ‘accomplished dancer’. Rule: Where one party has superior
knowledge, statements made within the area of such knowledge may be
treated as statements of fact. Here, they misrepresented the fact that she was a
terrible dancer.
Varieties of Misrepresentation:
a) Half truth: If part of the truth is told but not the other part, so as to
create an overall misleading impression, this may constitute
misrepresentation
b) Positive concealment: If a party takes positive action to conceal the
truth, this will be actionable even though it is not verbal
c) Failure to correct past statements: If the party knows that disclosure of a
fact is needed to prevent some previous assertion from being
misleading, and doesn’t disclose it, this will be actionable
d) Fiduciary relationship: If the parties have some kind of fiduciary
relationship, so that one believes that the other is looking out for his/her
interests, there will be a duty to disclose material facts
e) Failure to correct mistake: If one party knows that the other is making a
mistake as to a basic assumption, the former’s failure to correct that
misunderstanding will be actionable if the non-disclosure amounts to a
‘failure to act in good faith’.
Duress = grieving party must exhibit some level of resistance; he/she cannot just yield to
pressure too readily/easily. A threat of lawful action cannot be wrongful/grounds for
duress; it is a subjective standard; Elements:
1. Wrongful threat (i.e. blackmail; deprivation of life, liberty, etc.)
2. Threat reasonably forces victim to act accordingly
Alaska Packers Assoc. v. Domenico (p. 327): P, who had agreed to ship from S.F.
to Alaska at a fixed pay, refused to continue working once they reached Alaska,
and demanded that the D provide a new contract with a higher rate of pay. D
agreed at the time but refused to pay once they returned to S.F. Rule: A promise
to pay a man for doing that which he is already under K to do is without
consideration and therefore an unenforceable K.
Watkins & Son v. Carrig (p.333): P encountered solid rock in the course of an
excavation, which was written in the K as “to excavate all material from D’s
cellar”; D agreed to raise the price in the K but refused to pay the new price once
the work was done. Rule: A modification made to meet the reasonable needs of
standard and ethical practices of men in their business dealings with each
21
other operates as a partial rescission of a prior K and is thus enforceable
since supported by consideration.
(Note: The usual remedy for these is to allow the victim to rescind/avoid consequences)
Unconscionability = The principle that a court may refuse to enforce a K that is unfair or
oppressive because of procedural abuses during the K formation (i.e. lack of a bargained
for exchange) or because of overreaching contractual terms, esp. terms that are
unreasonably favorable to one party while precluding meaningful choice for the other
party; K is viewed within the context of the circumstances at the time that the K was
formed (therefore things like a rise in price are irrelevant); often arises when dealing with
standard form Ks aka Adhesion Contracts; Varieties:
(Note: Courts almost never strike down a K just based on substantive without procedural
unconscionability.)
O’Callaghan v. Waller & Beckwith Realty Co. (p.370): P was injured by her
landlord’s (D) negligence under a lease, which exculpated the D from liability for
negligence. Rule: A lease clause exculpating a landlord, which potential
leasees cannot avoid, for liability for his own negligence should be upheld and
is not void as against public policy. Later abandoned.
Henningson v. Bloomfield Motors, Inc. (p. 380): P’s wife is injured when steering
failed in the new car she just purchased from D. Rule: An attempt by a car
22
dealer to disclaim an otherwise implied warranty of merchantability will be
declared void as against public policy. This was an adhesion contract because of
the gross disparity of bargaining power between the consumer and the giant and
essential car industry. P had to take the car with all of the terms or leave it.
Central Adjustment Bureau, Inc. v. Ingram (p. 53): P brought suit against D
seeking enforcement of a non-compete clause in the former employee’s Ks. Rule:
Unless circumstances indicate bad faith on the part of an employer, a court
will enforce covenants not to compete to the extent that they are reasonably
necessary to protect the employer’s interest without imposing undue
hardship on the employee when the public interest is not adversely affected.
Statute of Frauds = Most Ks are enforceable despite the fact that they are only oral. A few
types of Ks though are unenforceable unless that are in writing; Categories:
23
5. UCC: a K for the sale of goods for a price of $500 or more; exceptions to this
are:
Specially manufacturer goods – no writing is required if the
goods are to be manufactured specifically for the buyer and
are not suitable for sale to others and manufacturing is
substantially underway
Estoppel – a writing is not required if the party against
whom the enforcement is sought admits in court that a K
was made but the K is not enforceable under this provision
beyond the quantity of goods admitted
Monarco v. Lo Greco (p. 291): D had been promised the family farm by his
stepfather, if he would abandon his life and work on the farm with his family, D
did so for 20 years, increasing its value 25 times. However the stepfather changed
his will cutting D, out without telling him or his wife who also knew of and
testified to the existence of the oral agreement, and left the farm to P. Rule: The
doctrine of estoppel may be used to assert the Statute of Frauds to prevent
fraud that would result from refusal to enforce oral contracts in certain
circumstances.
UCC - a) Quantity
b) Signature of the person trying to get out of the K
c) The minimum amount of writing necessary to indicate that a K
was formed
(LESS STRICT)
Sometimes, when the court sees no contract in writing, it will imply and
enforce one. If there is a discrepancy of quantity, but both sides
acknowledge a deal, a K is enforced based on the lower number.
24
Johnson Farms v. McEnroe (p. 285): P entered into an oral option K to purchase
D’s property in exchange for like property. D jerked him around for a while trying
to wait out the new capital gains tax rate (hoping it would decrease) then reneged
and used the Statute of Frauds as a defense. Rule: Any court may compel the
specific performance of any agreement for the sale of real property in case of
part performance thereof.
Ks can be orally rescinded even though the original was required in writing under the
Statute of Frauds even if there is a ‘no oral modifications clause’ (generally) to Ks that
fall under the Statute do not have to be in writing. Modifications act as new/original Ks
and must conform to Statute requirements. However, if one party materially changes
his/her position in reliance on the oral modification, courts may enforce it.
In Re Arbitration Between Acadia Co. & Irving Edlitz (p. 279): A dispute arose
between P and D as to whether an employment contract providing for arbitration
was breached. Rule: When a written agreement providing for arbitration is
orally renewed, the parties in effect adopt it as an integral part of the new
agreement.
1. Family promises
2. Promises to convey land
3. Promises coupled with gratuitous bailments
4. Charitable Subscriptions
Novation = The act of substituting a new obligation for an old one or replacing an
original party with a new party; may substitute: 1) a new obligation between the same
parties; 2) a new debtor; 3) a new creditor; interest in this clause is most intense when
company A buys company B and assumes its debts/obligations
25
Sale of Personal Property is unenforceable past $5K in value or remedy
Parole Evidence Rule (PER) = limits the extent to which a party may establish that
discussions or writings PRIOR to the signed written K should be taken as a part of the
agreement. In some circumstances, the rule bars the fact-finder from considering any
evidence of certain preliminary agreements that are not contained in the final writing,
even though this evidence might show that the preliminary agreement did in fact take
place and that the parties intended it to remain a part of their deal despite its absence from
the writing. PER doesn’t come into the equation if: 1) there is nothing in writing and 2)
there is no addition of information/term which PRE-DATE the K. PER never bars
consideration of subsequent oral agreements – a written K may always be modified after
its execution, by an oral agreement.
Role of the Judge: Courts disagree about how the judge should make these decisions.
Two extreme positions are:
1. The Four Corners Rule: the judge decides whether there is an integration, and
whether it is total or partial, by looking solely at the document
26
Situations Where PER Does Not Apply:
Gianni v. R. Russell & Co., Inc. (p. 556): D negotiated a new lease for a 3 year
period with P on the condition that he not sell tobacco. P alleged that he only
accepted this because D orally gave him the exclusive right to sell soft drinks,
which was violated when another tenant sold soft drinks, cutting into P’s profits.
However, this oral agreement was nowhere to be found in the K. Rule: All
preliminary negotiations, conversations, and verbal agreements are merged
in and superseded by the subsequent written K, and unless fraud, accident,
or mistake is alleged, the writing constitutes the agreement between the
parties, and its terms cannot be added to or subtracted from by parole
evidence.
Masterson v. Sine (p. 560): D (husband and wife) owned a ranch as tenants in
common and conveyed it to P by grant deed reserving an option to purchase the
ranch back within 10 years for the same consideration as was paid for it plus the
depreciation value of any improvements the P might have added. When D1 went
bankrupt, D2 sought to establish her right to enforce the option. Rule: Evidence of
oral collateral agreements should be excluded only when the fact finder is
likely to be misled.
27
1. Parties prefer to rely on the terms enforced by the court
2. Parties are reluctant to raise difficult issues for fear of jeopardizing the deal
3. Parties do not foresee the problems that arise later
4. Parties prefer not to divulge info that could work for the other party’s
advantage
Interpreting Contract Language: Ks involves the expression of two parties who may
attach very different meanings to the language therein, when a dispute arises, it is up to
the court to interpret the terms under contention; most courts allow parties to introduce
extrinsic evidence to aid in the interpretation of a K, even if the writing is integrated.
Frigaliment Importing Co. v. B.N.S. Int’l Sales Corp (p. 574): Parties had a K for
‘chicken’. Later a dispute arose as to what ‘chicken’ meant – fryers, broilers,
young, or old. Rule: The party who seeks to interpret the terms of the K in a
sense narrower than their everyday use bears the burden of persuasion to so
show, and if that party fails to support its burden, it faces dismissal of its
complaint.
28
Raffles v. Wichelhaus (p. 582): P contracted to sell cotton to D, which was to be
delivered from Bombay at Liverpool on a ship named the ‘Peerless’. Unknown to
the parties was the existence of two different ships carrying cotton, each names
‘Peerless’ making the same trip, but at different times. P contends that K was for
the ship which arrived first. Rule: Where neither party knows or has reason to
know of the ambiguity, or where both know or have reason to know, the
ambiguity is given the meaning that each party intended it to have. In other
words, no meeting of the minds = no K.
Pacific Gas & Elec. v. G.W. Thomas Drayage & Rigging Co. (p. 592): D
contracted to repair P’s turbine and to perform the work at his own risk and
expense and to indemnify P against all loss and damage. D also agreed not to
procure less than $50K worth of insurance to cover liability for injury to property.
When the turbine was damaged, P claimed it was covered under that policy while
D said it was only to cover injury to third persons. Rule: The test of admissibility
of extrinsic evidence to explain the meaning of a written instrument is not
whether it appears to the court to be plain and unambiguous on its face but
whether the offered evidence is relevant to prove a meaning to which the
language of the instrument is reasonably susceptible.
Interpretation of Statutes:
Interpretation of Contract:
1. Primary Purpose – if the primary purpose of the parties in making the K can
be ascertained, that purpose is given great weight
2. All terms made reasonable, lawful, and effective so that they will have such a
meaning
3. An ambiguous term will be construed against the person who drafted the K
29
4. Negotiated terms control standard terms – handwritten/typewritten clauses
added to the K override boilerplate clauses
5. Public Interest/Policy – to protect life, liberty, and the pursuit of happiness;
policy administered by the state with respect to the health, safety, and morals
of its people in accordance with common notions of fairness and decency
Gap-Filling = the court will fill-in what appears to be a gap in a K if and when the
language therein, when interpreted, does not cover the case at hand.
Gap-Filling Terms/Measures:
1. Good faith – the court will find an implied requirement of a ‘duty of good
faith’; sometimes used to create mutuality of obligation
2. Duty to continue business – in requirement and output Ks, generally there will
not be a duty to continue the business (assuming the owner acted in good
faith when he/she closed down)
3. Termination of dealership or franchise – some but not all courts will supply a
term to prevent one party from arbitrarily terminating a franchise or dealership
arrangement. More commonly, courts will find an implied requirement of a
reasonable notice prior to termination
4. Termination of employment contract – a strong minority of courts now find
that an at-will employment K contains an implied term prohibiting the
employer from terminating the arrangement in bad faith. Here, an
employer may not terminate an at-will arrangement in order to deprive the
employee of a pension, to retaliate for the employee’s refusal to commit
wrongdoing at the employer’s urging, or for other bad faith reasons.
Dalton v. ETS (p. 605): P sued D after D informed him that they were canceling
his 2nd SAT score on the basis that they suspected him of cheating. The agreement
gave P the option to provide additional information, take a retest, authorized D to
cancel score and refund $, 3rd party review, or arbitration. D did not allow him to
choose any of these. Rule: Implicit in all Ks is a covenant of good faith and
fair dealing. In this case, ETS acting in bad faith by refusing to consider the
additional information P supplied them with.
Dickey v. Philadelphia Minit-Man Corp. (p. 617): P leased land to D for the sole
purpose of conducting a car washing business based on a percentage lease, which
fixes the rent as a stated percentage of the lessee’s receipts or profits. D
discontinued washing cars except as incidental to his new business of polishing
and waxing, which P claims is breach. Rule: D was using good faith efforts to
maximize profits and therefore rent $. When the minimum rent is set and
substantial (thus lessening the risk to the lessor), there is no implied
obligation by the lessee to continue the prescribed business.
30
Bloor v. Falstaff Brewing Corp. (p. 619):P brought suit alleging that D had
breached its contractual obligation to use its ‘best efforts to promote and maintain
a high volume of sales’ of Ballantine Beer. Rule: A party breaches the K, which
obligates him to use best efforts to maintain a high volume of sales if he
makes policy based primarily on considerations of profit instead of the effect
these policies will have on sales volumes.
Sheets v. Teddy’s Frosted Foods (p. 642): P contended that he had been terminated
in violation of public policy. P argues that he was merely a potential
whistleblower urging the Co., as Quality Control Director, to get into compliance
with statutes. Rule: An employee hired at-will may maintain an action for
wrongful discharge if he can prove that the discharge violates public policy.
Nanakuli Paving and Rock Co. v. Shell Oil Co. (p. 651): D contended it was not
obligated to price protect P, and its conduct in the past did not constitute a course
of conduct governing the K. Rule: Trade Usage and course of performance will
be read into Ks where such are so prevalent the parties would have to have
meant to incorporate them in the terms of the K.
V. Remedies
The overall purpose of remedies is compensatory and not punitive (to make the parties
whole). Deterrence is generally not the goal, in fact courts sometimes encourage
economically efficient breaches. Finally, contract law provides for damages that are the
least costly to the breaching party.
31
3 Limitations on Equitable Remedies:
Klein v. PepsiCo, Inc. (p. 453): When an agreement between P and D for the
purchase of a corporate jet fell through, P sued for breach of contract in an effort
to obtain specific performance. Rule: A specific performance is inappropriate
where damages are recoverable and adequate.
Walgreen v. Sara Creek (p. 465): Parties has a lease relationship for decades based
on the agreement that the D would not lease any space in the mall to another store
operating a pharmacy. D later did lease to such a firm and put it right next door to
the P’s store. Rule: All of the costs incurred by an injunction, and the costs of
establishing the proper amount of damages are both very costly and would
very likely be insufficient/fraught with uncertainty therefore, the injunction
is granted.
Assumpsit = to recover damages for physical injury to person or property on the basis of
a consensual undertaking (i.e. carpenter hired to build a house but does a crappy job)
32
Loss Avoided = P is able to avoid some loss by salvaging and
reallocation some of all resources that it would have spent
on/devoted to the D
Vitex Manufacturing Corp. v. Caribtex Corp. (p. 472): D contracted with P for the
latter process a large quantity of wool in its factory. P reopened a factory in order
to fulfill its side of the K but D never sent the wool to be processed. P sought lost
profits and got them. D appeals citing that overhead expenses should have
factored into the determination of damages. Rule: In a claim for lost profits,
overhead should be treated as a part of the gross profits and recoverable as
damages, and should not be considered as part of the seller’s costs. (D lost)
Laredo Hides Co., Inc. v. H&H Meat Prod. Co., Inc. (p. 476): When D refused to
continue to deliver hides under its K with P, P purchased them elsewhere and sued
to recover the price difference. Rule: When a seller wrongfully repudiates a K
or fails to make delivery of the goods, the buyer may ‘cover’ by obtaining
such goods elsewhere and sue the seller for the difference between the cost of
cover and the K price plus any incidental or consequential damages.
U.S. v. Algernon (p. 488): P brought suit against D, the prime contractor of a gov’t
project, to recover in quantum meruit the value of the labor and materials it had
furnished up to the point at which it justifiably ceased work. Rule: A promisee is
allowed to cover under quantum meruit the value of services he gave to a D
who breached the K irrespective of whether he would have lost $ had the K
been fully performed and would thus be precluded from recovering in a suit
on the K.
2. Reliance Interest – if the promisee has changed its position in reliance on the
promise, this methods attempts to put the promisee in the position it would
have been had the promise not been made (so $ = amount spent in
performing/preparing to perform)
33
a. Used mainly when it is impossible to measure the P’s expectation
interest accurately and when the P recovers on a promissory estoppel
theory (as it is then a quasi-contract, this is a half-measure)
b. Limitations:
Contract price as limit – where D’s only obligation under the K
is to pay a sum of $
Recovery limited to profits – cannot exceed expectation
damages (most courts), burden of proof on D
Expenditures prior to signing – cannot get $ for expenditures
that pre-date the formation of the K
3. Restitution Interest – if the promisee has relied on the promise AND conferred
a benefit on the promisor, this method attempts to put the promisee in the
position he/she would have been in had the promise not been made (limited
to gain at the P’s expense); designed to prevent unjust enrichment
a. Most commonly used where the non-breaching P has partly performed,
and the restitution measure is greater than the K price, and where a
breaching P has not substantially performed, but is allowed to recover
the benefit of what he/she has conferred on the D thus far
b. Based on the fair market value of the services rendered to the D,
regardless of how much it actually cost the P to provide it and how
much P was injured by D’s breach (not limited to the K price)
c. Limitation: not available when the P has fully performed
d. Partial Restitution (UCC) – breaching buyer has a right to partial
restitution with respect to any deposit made to the seller before he/she
breached. The seller can only keep 20% of the total K price or $500,
whichever amount is smaller – the balance must be returned to the
breaching buyer.
4. Half Measures = serves to compensate the party for losses incurred in reliance
on the K before the parties were excused due to frustration of purpose.
Young v. City of Chicopee (p. 850): P contracted with D to repair a bridge. After
part of the work was dong, the bridge was destroyed by fire without the fault of
either party. P sued for the value of the work done and for his lumber destroyed in
the fire. Rule: There is an implied condition that a thing upon which work is
to be done shall continue to exist, and if it is destroyed without fault, the
owner is liable for the value of the work done.
34
Substantial Performance = (approx. 85% and up) where one party substantially performs,
the other is not relieved of his/her duties. It the latter refuses to perform, the substantially
performing party has an action for breach of contract. In this case, P can seek:
Quantum Meruit = a P who has materially breached may normally bring a quasi-contract
suit, and recover his restitution interests, less the damages that the D suffers due to the
breach; based on fair market value of services (UNLESS HIS BREACH IS WILLFUL)
Rockingham County v . Luten Bridge Co. (p. 492): D had contracted to have P
build a bridge upon which the latter began construction. Due to public opposition
to the bridge, D notified P to stop work under the K but P continued having
already expended $1,900. Upon completion, P sued for full payment. Rule: After
an absolute repudiation or refusal to perform by one party to a D, the other
party cannot continue to perform and recover damages based on full
performance.
Parker v. Twentieth Century Fox (p. 500): P, an actress, was to have the lead role
in a dance film, have approval over the director, dance director, and the
screenplay and film close to home. But D later decided not to make it. In its place,
D offered her the lead role in a western without any of the aforementioned
authority, which filmed in Australia. D refused to take the second film and sought
recovery. Rule: The general measure of recovery by a wrongfully discharged
employee is the amount of salary agreed upon for the period of service, less
the amount which the employer affirmatively proves the employee has
earned or with reasonable effort might have earned from other employment.
Here the two jobs were viewed as virtually the same and she should have taken
the 2nd movie.
35
Jacob & Youngs v. Kent (p. 507): P was hired to build a $77K country home for
D. When it was completed, it was discovered that through an oversight, the wrong
brand of pipes (a specific brand was contracted for) were used, D refused to make
final payment until it was fixed. D refused to fix it because the cost to do so
would be enormous. Rule: An omission, both trivial and innocent, will not
amount to breach in the event that the K has been substantially performed –
all of the essential obligations pursuant to the agreement have been met.
Peevyhouse v. Garland Coal & Mining Co. (p.518): Rule: The measure of
damages in an action by lessor against lessee for damages for breach of K is
ordinarily the reasonable cost of performance of the work; however, where the K
provision breached was merely incidental to the main purpose in view, and where
the economic benefit which would result to lessor by full performance of the
work is grossly disproportionate to the cost of performance, the damages
which lessor may recover are limited to the dimunition in value resulting to
the premises because of the non-performance.
3. Certainty – courts will not award damages for breach unless they can be
shown by clear and satisfactory evidence to have been actually sustained and
the amount of which can be shown with certainty and not left to speculation or
conjecture
36
Measuring Damages (UCC):
Consequential Damages = include the profits which the buyer could have made by
reselling the contracted for goods had they been delivered.
2. P doesn’t cover – market price is measured at the time the P received notice of
the breach
2. Failure to cover
3. If no resale market, meaning that no one can or will buy it, seller can get the
full K price in damages/sue for performance
(Note: The seller can have a windfall but the buyer cannot. Inappropriate cover is the
same as no cover/doing nothing.)
Liquidated Damages = a provision/clause that assigns penalties ($) assessed in the event
of a breach, used to encourage timely performance/ discourage default; if interpreted to
be punitive are not enforceable; it must be an attempt to estimate actual damages, rather
than to penalize a party for breach by awarding damages that are far in excess of the ones
actually suffered. In order to be enforceable, clause must meet one, sometimes both of:
37
2. Difficult calculation – the harm caused by the breach must be uncertain or
very difficult to calculate accurately, even after the fact
1. Sentimental value
2. Value of a chance
3. Emotional distress
4. Lost volume
5. Loss of reputation
6. Loss of good will
7. Many others
38
Broad Outline for Answers
1. Was a K made?
a. Offer – Acceptance – Consideration
2. Are there any reasons to enforce the K even though one of the above is missing:
a. Consideration exceptions, Reliance, etc.
3. Are there any reasons not to enforce the K
a. Fraud, Mistake, Duress, Impracticability, Frustration of Purpose, Statute of
Frauds, etc.
4. Who has enforceable rights?
a. Minors, Mentally Incompetence, etc.
5. Are there issues of interpretation
a. 4-Corners, Corbin, trade usage, parole evidence, public policy
6. If a K has been broken, what remedies are available?
a. Reliance, Restitution, Retribution, Quantum Meruit, Half Measures
b. Liquidated Damages, Punitive Damages
c. Efficient Breach, Mitigation, Cover
7. Pick a side
39