Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Siegelman
I. Intro/Nature and History of Contracts II. Damages for Breach A. Expectance v Reliance v Restitution B. Limitations on Damages 1. Remoteness or Foresee ability of Harm 2. Certainty of Harm 3. Avoid ability of Harm C. Contracting around the Default Rules of Damages 1. Express Limitations on Consequential and Incidental Damages 2. Liquidated Damages v Penalty Clauses III. Other Remedies and Causes of Action A. Specific Performance and Injunctions 1. Contracts for Land 2. Contracts for Goods 3. Contracts for personal service B. Restitution Damage interest and Cause of action 1. Restitution and Quasi-Contract IV. Reaching an Agreement A. Intro to Offers and Acceptance B. The Objective Theory of Assent C. What is An Offer? 1. Preliminary negotiations 2. Written Memorial Contemplated D. What is Acceptance? 1. Acceptance by Correspondence The Mailbox Rule 2. Acceptance by Silence E. Acceptance by Performance and Unilateral Contracts V. Interpreting Assent A. Filling Gaps in Assent 1. Agreements to Agree 2. Illusory Promises B. Interpreting Assent Subjectively or Objectively VI. Written Manifestations of Assent A. Interpreting a Writing The Parole Evidence Rule B. Interpreting Conflicting Writings The Battle of the Forms
VII. The Doctrine of Consideration A. The Historical Origins of the Doctrine B. The Bargain Theory of Consideration 1. Distinguishing Bargains form Gratuitous Promises 2. Past Consideration 3. Moral Consideration D. Contract Modification and the Preexisting Duty Rule E. Adequacy of Consideration
VIII.
The Doctrine of Promissory Estoppel A. The Development of Promissory Estoppel as A Substitute for Consideration 1. Family Promises 2. Charitable Subscriptions 3. Promises of a Pension 4. Construction Bids B. Promissory Estoppel as an Alternative to Breach of Contract C. Some Modern Applications and Limits of Promissory Estoppel 1. Promise 2. Reasonable Reliance 3. Injustice of Nonenforcement
IX. Performance A. The Implied Duty of Good Faith Performance B. Implied and Express Warranties 1. Implied Warranties of Merchantability 2. Express Warranties 3. Express Disclaimers of Warranty X. CONDITIONS XI. Breach A. Prospective Nonperformance 1. Anticipatory Repudiation 2. Adequate Assurances of Performance B. Constructive Conditions and Material Breach 1. Constructive Conditions 2. Material Breach 3. The Perfect Tender Rule: Cure and Recission C. Cost of Completion v. Diminution in Value: The Expectation Interest Revisited XII. Obtaining Assent by Improper Means D. Unconscionability
Restatement (Second) of Contracts 251 1.Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance of due performance 2.The obligee may treat as a repudiation the obligors failure to provide within a reasonable time such assurances of due performance as is adequate in the circumstances of the particular case. Intro to Remedies: What is courts goal when it steps into a contract? Make both better off Encourage economic efficiency Clarify the commercial system that parties are operating in Primary focus of courts: to make the injured party whole Punishment? NOT REALLY o Punitive damages are usually not awarded, courts dont see that as their role o If punish all the time, run the risk that people will not enter into contracts
Assumpsit - He promised; he undertook Special assumpsit Under mature English law, actions in assumpsit for expectation damages, based on defendants breach of an express contract whose details were alleged in the complaint General assumpsit Actions in assumpsit to recover a debt SALES CONTRACT: THE UNIFORM COMMERCIAL CODE 1-103. Supplementary General Principles of Contract Law Applicable (p. 89) Unless displaced by this act the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions
2-102. Scope; Certain Security and Other Transactions Excluded From this Article (p. 89) Unless the context otherwise requires, the Article applies to transaction in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.
2-105. Definitions: Transferability; Goods (p. 89) Goods means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 9) and things in action. Goods also includes the unborn young of animals and growing crops and other identified things attached to realty as described in goods to be severed from realty (Section 2-107).
Totten v. United States (1876) An action cannot be maintained against the government in the Court of Claims upon a contract for secret services during the war made between the President and the claimant.
Shaheen v Knight - Sterile, NOT! FACTS: Shaheen (P) and his wife decided to get him sterilized b/c they couldnt afford more kids. Knight (D) agreed to perform the operation and told Shaheen it would be effective. Shaheens wife gave birth to another kid 2 years later. P sought breach of contract to cover expenses of raising child. HOLDING: A doctor and a patient may bargain for a particular result, which, if not achieved, can be the basis for an action for breach of contract. However, to allow damages for the birth of a normal child would be against public policy. Discussion: sterilization contract void because it is against public policy (not void when wifes life in danger, but otherwise void) Problem with using public policy argument is that when court decides what public policy is it has its own view court said if controversial it wont rule against it. Also, what about freedom of contract? Also, public opinion is not constant.
II. Damages for Breach In general, damages are awarded by the promisees expectation interest. The court attempts to put the promisee in the position he would have been in if the promise had been fulfilled. Sometimes, though the court will instead award damages to put promisee in the position he would have been in had the promise not been made. 1. Allan Farnsworth Contract Rest. Expectance v Reliance v Restitution
Expectation: attempts to put promisee in position theyd have been if promiser had come through Reliance: If promisee chaged position because of the promise to his detriment (built something) then restitution interest puts them back in the place theyd be in if no promise had been made. Restitution Interests: If promisee gave promisor something the court depraved the promisor of this benefit. Then recovery is calc using rest interest to put the promisor back in the place theyd be in if no promise had been made. (no promisee lost profits) Award is measured by expectation interest or benefit of bargain Hawkins v. McGee (pg 63) the hairy hand FACTS: Dr. McGee (d) was to remove scar tissue from the right hand of Hawkins (P) and then graft skin from the chest of P to the palm. D stated the hospital stay should be 3-4 days and then D could return to work with a 100% perfect hand. D argues no one would understand that to be a contract.
5)
6)
7)
FACTS: I contract w/ you to sell a machine I price at $100. Include in price is my $50 cost to produce it and $10 to deliver it. Therefore expected profit is $40. ** (a), (b) and (c) are describe above in restatement. 1) If you default preproduction expectation damage = $40 ie 100 loss (a) +0 other loss (b) -60 costs/other losses avoided =40 2) You default after production, predelivery, but disposal costs are $15. = $105
1)
2) 3) 4) 5)
What is level of expectation damages? Start at 0. pay $1 -1, make $5 ads -6, set ads for $20 +14. Thus pre ad and pre paying of $1 damages are? $14 What if market value really = $15? (-1 + -5 + 15) $9 What would reliance damages be (put me in position Id be in if I hadnt made contract so note ($1) + ads ($5) =$6 What about restitution damages Spent $1 and ads for $5 but just pay back $1. The $1 is essential reliance in that you must do it to perform on contract while the $5 is an incidental reliance in that you chose to do it.
Sullivan v OConnor (nose girl) (p. 72) Alice Sullivan (P) asked James OConner (D), a plastic surgeon, to fix her nose. It ruined her nose causing three failed surgeries to attempt to fix it. Ruling: Plantiff was not confined to recovery of out of pocket expenses, shes also entitled to recover for the worsening of her condition and for pain and suffering of third operation. Issue: Is P entitled to expectation damages? Rule: Hawkins: get difference btwn promise and received, In NY get all expenditures back Holding: For breach of Dr-Patient agreements restitution seems too meager. Expectancy recovery would be excessive. Moderation is chosen. ISSUE: Is P entitled to pain and suffering? Rule: Putting price on result would strain imagination. No precedent, but by analogy (horses and arbitration) answer is No. Holding: Breach of contract does not warrant pain and suffering Might have received Cost of first 2 operations Pain and suffering (1 & 2) Cost of 3rd operation Pain and suffering (3rd) Reliance no no yes yes Expectation yes no yes yes Actual
yes
Calculating Expectation Interest J.O. Hooker Case (pg 78) Cabinet Caper FACTS:When Hooker (D), a general contractor for renovation of public housing residences, terminated Roberts (P) subcontract due to a dispute over the disposal of old cabinets, P successfully sued for breach of contract. Issue 1: Whether Article II of Uniform Commercial Code Applies. USC doesnt apply to services so it would apply to cabinet but not to installation Issue 2: $1400 in damages for storage of cabinets in his facility. (he pays rent, but says it took up 1/10 of the space wants 1/10 of the rent). HOLDING: A party is entitled to recover damages for expenses in storing goods that it would not otherwise have incurred absent other partys breach. In this case P didnt have to rent additional space so no storage damages. However managers time spent on project is recoverable. UCC 1-103, 2-102, 2-105, 2-106 Tongish v. Thomas (pg. 86) Sunflower Seeds FACTS: D intervened in a breach of K btw P and Thomas, claiming that P (Tongish) breached its initial K with D in failing to deliver the 3rd installment under a K to sell sunflower seeds. Issue: In an action for breach of K for the sale of goods, is the proper measure of damages the difference btw the MV of the goods and the K price agreed upon by the parties? . YES HOLDING: The general rule for damages in a breach of K action is to restore the injured party to the position he would have been had the K been performed. The Crt awarded this measure of damages to D based on its actual loss of expected profits. However where the seller is in a breach of a K for the sale of goods, the injured party has available alternative remedies under state statute. The rules of statutory construction require that where two seemingly conflicting statutes apply to the particular situation, the more specific provision giverns. . The court was correct in applying the MP measure of damages. B. Limitations on Damages There are two types of contract rules:
(a)
default rules parties can contract around i. Choose default rules that people would want in order to make contracting easier or ii. Penalty default rules set up in a way people dont want them to work so they have to contract around them. This reveals information. (Ex. Hadley v. Baxendale) immutable rules cant contract around (ex. Have to act in good faith)
(b)
Shannons Limits on default rules Damages checklist Uncertainty Chicago Coliseum (Boxing) rejects some profit calc b/c uncertain -- Anglia (Mike Brady) Avoidablility/Duty to mitigate (doesnt require best decision in hindsight) -- Rockingham (cancelled bridge) -- Shirley McClaine Lost Volume exception to duty to mitigate -- Neri (boat sale)
1. Foreseeability of Harm Hadley v. Baxendale (p.93) late mill crank FACTS: The Hadleys (P) were engaged in the operation of a mill. The crank shaft broke, requiring the mill to shut down. A new crank shaft was ordered. Baxendale (D), a carrier, agreed to deliver it. A clerk at Baxendales (D) office was told that the shaft must be sent immediately. The shaft was not delivered for several days. The Hadleys (P) brought suit claiming that Baxendale (D) breached its duty to deliver the shaft, thereby requiring them to close the mill and resulting in a loss of profits. ISSUE: In an action for breach of contract, are plaintiffs entitled to recover the measure of damages both parties may reasonably foresee as the result of the breach? HOLDING: In an action for breach of contract, plaintiffs are only entitled to recover the measure of damages both parties may reasonably foresee as a result of the breach. Where special circumstances exist that would give rise to damages in excess of those reasonably foreseeable, in order for the injured party to recover such damages, the defendant must have been informed of the special circumstances. Baxendale (D) was not informed that a delay in the delivery of the shaft would close the mill, thus the Hadleys cannot recover these damages. DISCUSSION: Before we talked about damages that arose form the breech of the contract itself. In Hadely, were talking about the damages that arise as the consequence of the breech due to the specific nature. Hector Martinez and Co. v. Southern Pacific Transportation Co. (p. 104) delayed dragline FACTS: Martinez (P) shipped a dragline through Southern Pacific (D). The dragline was delayed and it was damaged in transit. Martinez (P) had to make repairs and could not use the equipment until four months later. Martinez (P) settled with South Pacific (D) regarding the cost of repairing the damage to the dragline and storage charges incurred. He sued for damages for the wrongful deprivation of the draglines use during the periods of delay in transit and of repair. A lower court dismissed the claim for delay damages because it claimed that the damages were special and Martinez (P) had failed to allege that the carrier had any notice of the possibility that such damages would accrue upon a breach of contract. Martinez (P) appealed and asserted that the loss was reasonably foreseeable when he entered in the contract. ISSUES: Are special damages awarded only if actual notice was given to the carrier or the possibility of injury? HOLDING: General damages are awarded only if injury would have been foreseeable to a reasonable man and special damages are awarded only if actual notice was given to the carrier of the possibility of injury. Marinez (P) delay claim involved two different items. Lost use during the period resulting from the delay in transit and lost use resulting from the repair of the damaged goods. The court held that the lost use from the repair of the damaged goods was part of the claim of physical damage to the dragline and had already been settled. However, the loss resulting from the delay in transportation may be measured by the rental value of the machinery. The amount of damages that was reasonably foreseeable involves a fact question that Martinez (P) is entitled to present to a jury. Case remanded. DISCUSSION: foreseeability Why does court care so much about foreseeability? Full compensation would be unfair to the defendant and hurtful to commerce The defendant in the case might have done something differently if new of special circumstances that would have resulted in higher damages would have taken higher precautions, maybe shipped for higher price (act like insurers)
What if mill employee told clerk at shipping company how much loss there would be? Would shipping company be responsible? Yes. The default rule is for the agent to be responsible. But, FedEx states explicitly that they dont care what you told us, we are still not taking responsibilityrule in Hadley is a default rule, but parties can contract around it (like FedEx does) Why shouldnt we change default rule? (since everyone seems to be trying to avoid this law) Why dont we say that we wont give you damages unless you expressly say what the damages might be? One reason why dont change default rule is because of information revelation. Its good to force FedEx to tell me that they wont take responsibility. If have the opposite defaultthe regular consumer may not know much about the law. Restatement (Second) of Contracts 351. Unforeseeability and Related Limitations on Damages (p. 108) 1. Damages are not recoverable for loss that the party in breach did not have reson to foresee as a probable result of the breach when the contract was made. 2. Loss may be foreseeable as a probable result of a breach because it follows from the breach a. In the ordinary course of events, or b. As a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know 3. A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation. Morrow v. First National Bank of Hot Springs (p. 109) (stolen coints) FACTS: Ps(Morrow and Goslee) sought damages from First NB for losses incurred by the burglary of their coin collection, as a result of Ds failure to notify them as to the availability if three safety-deposit boxes. (b/c FNB agreed to notify them, however the failed to do it although the boxes were available before the burglary. Rule: In an action for consequential damages, under the tacit agreement (zimni anlasma) test, P must demonstrate that D expressly assumed responsibility for Ps sustaining special damages as a result of the Ds breach Holding: P agreed to rent three safety deposit boxes for a total of $75. The court does not consider this K to signify FNB agreed to indemnify P in the amount of app. $ 32,000 for failure to notify him as to the availability of the boxes.
2. Certainty of Harm Chicago Coliseum Club v. Dempsey (p. 112) canceled boxing match FACTS: Dempsey (D) contracted with the Chicago Coliseum Club (P) to fight Wills in an upcoming bout. The contract provided that the Coliseum (P) would be expending large amounts in promoting the fight and that Dempsey (D) would be prohibited from engaging in any other bouts until the bout with Wills was completed. Later Dempsey (D) repudiated the contract in order to fight Tunney instead. The Coliseum (P) acquired a restraining order against Dempsey (D) and then brought suit for damages. The justification for seeking the order was that Dempsey (D) would be undercut for value if he lost his bout with Tunney. Thus, the Coliseum (P) claimed that
1. 2.
3. 4.
May a party recover special damages (lost profits) for breach of a contract if the damages are not definite and certain? May a party recover for costs incurred in preparing the contract (expenses incurred prior to signing the contract)? May a party recover attorney fees when there is no provision in the contract for such recovery? May a party recover costs incurred in preparing for the performance of a contract?
HOLDING: (1) A party may not recover special damages (lost profits) for breach of a contract unless such damages are definite and certain. In this case the profits are too speculative, so the Coliseum cannot recover. (2) Costs incurred in preparing the contract are also not recoverable. In this case, these are negotiation costs and do not naturally flow from a subsequent breach of the contract. A party can recover only on damages which naturally flow from and are the result of the act complained of. (3) Attorney fees are not recoverable unless provided for in the contract. After Ds breach of contract, P continued spending money at its own risk. (4) Court costs are not recoverable unless provided for in the contract. However, costs incurred in preparing for the performance of a contract between the signing date and the date of repudiation are recoverable. But, these expenses cannot cover officials who are on a regular salary as they would have been incurred anyway. Notes: Expenses incurred before the signing of the contract are not recoverable DISCUSSION: A party may not recover lost profits unless they are definite and certain. Who will be hurt the most by this rule? : New business, service industries, entertainment What are the alternatives to this rule? : 1. Expected value 2. Liquidated damages 1. Expected value: 25% 50% 25% 0 50 200
(0) + (50) + (200) = 75 Does this solve the problem? Maybe. But only if we understand the distribution of damages. In these types of cases courts award reliance damages. They are not particularly concerned about under compensating for lost profits because reliance damages still get the parties back to where they were before the contract. 2. Liquidated damages: The parties may agree to liquidated damagesstate in contract how much you get if contract is broken Winston Cigarette Mach. Co. v. Wells-Whitehead Tobacco Co (p. 123) This case gives a defense of the doctrine of uncertainty.
10
Restatement (Second) of Contracts 346. Availability of Damages (p. 125) 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. 349. Damages Based on Reliance Interest (p. 125) As an alternative to the measure of damages stated in 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. 352. Uncertainty as a Limitation on Damages (p. 125) Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty.
Anglia Television Ltd. V. Reed (p. 125) Brady Bunch dad breaches FACTS: Anglia Television (P) entered into a contract with Reed (D) to perform in a television play. Because of a booking error, Reed (D) repudiated the contract. Anglia (P) could not find a substitute and had to cancel the project. Anglia (P) did not claim loss of profits as damages, but instead claimed wasted expenditures. Reed (D) contended that Anglia (P) could not ask for damages for wasted expenditures incurred before the contract was concluded because these expenditures were for Anglias (P) benefit at a time when it was uncertain whether there would be any contract or not. ISSUE: In a breach of contract action, can wasted expenditure be recovered when it is wasted by reason of the defendants breach of contract? HOLDING: In a breach of contract action, wasted expenditure can be recovered when it is wasted by reason of the defendants breach of contract. A plaintiff can claim for his loss of profits or for wasted expenditure, not both. He can also claim expenditure which happened before the contract was concluded, provided that the expenditures were such as would reasonable be in the contemplation of the parties as likely to be wasted if the contract was broken. Foreseeablility issue.
3. Avoidability of Harm / Mitigation Mistletoe Express Service v. Locke (p.128) cancelled shipping service losing K FACTS: Locke (P) sought damages for exoenses she incurred in preparation for performance pursunt to a K with MES (D). Under this K, P agreed to run a pickup and delivery service for Mistletoe for one year (after month-to-month), to terminate the arrangement, thirty days written notice were required. D notified its intent to terminate three and a half months in advance of the contracts termnation date. (until that time P made app 19,500 expenditures 15,000 of it borrowing). Jury awarded Locke damages of 19,400, Mist. Appealed. Issue: When a party makes expend. In preparation for the K, does the proper measure of damages for breach include the recovery of her investment? Holding: YES. However, here the court erred in calculating. P is entitled to damages on the basis of her total expenditures LESS the property sold after the breach.
11
Shirley Maclaine Parker v. Twentieth Century-Fox Film Corp. (p. 142) canceled movie FACTS: In 1965 Shirley Maclaine singed to play in lead musical. 20th century fox decided not to produce that movie, but offered her lead in another movie. Shirley sues. 20th cent. Fox tries to lower its liability saying she didnt mitigate damage b.c didnt take the second role HOLDING: The court says that the principle is the money she should get from the contract minus what she could have earned in another movie or what she did earn. But then the court also says this role was inferior. Decided in summary judgment DISCUSSION: This issue is complicated. Court doesnt want to force people to just take any jobbut on the other hand dont want to automatically pay her the full amount. Why not? Fairness to the defendant and a question of what is really the damage to the plaintiff. If she finds another job, is she really that damaged by the breach? Duty to mitigate is a bit of a misnomer court wont force someone to take another job, but will adjust the damages
Restatement (Second) of Contracts 350. Avoidability as a Limitation on Damages (p. 153) 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. DISCUSSION: * Exception to mitigation: lost volume rule Suppose that Im selling a car, someone breaches, and then I resell. I dont really have damages. But, if Im a car dealer even if I resell I still have damages. This is the lost volume rule. My selling a car is more like an employment contract: I as a person with one car, thats all I have. There is no notion of additional things I could have sold. Same thing with employment. I can only sell my services to one employer. However, some people argue that certain jobs are not strictly 9-5 jobs, opening the possibility that they might be able to work for more than one employer at a time. Neri v. Retail Marine Corp. (p. 154) canceled boat purchase
12
b.
c. d.
It must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and If the goods are not to be within the view of those attending the sale the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and The seller may buy.
5. 6.
A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2-707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subsection (3) of Section 2-711).
2-708. Sellers Damages for non-acceptance or Repudiation (p. 158) 1. Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance 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 damages provide in this Article (Section 2-710), but less expenses saved in consequence of the buyers breach. 2. If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made form full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonable incurred and due credit for payments or proceeds of resale.
13
14
15
ANALYSIS: There are competing viewpoints in regards to enforcing stipulated damage clauses. (1) Enforcement avoids uncertainty and delay, as well as increases economic efficiency; however, (2) Enforcing damages becomes punitive or unfair under certain considerations. Restatement (Second) of Contracts (p.172) 355. Punitive Damages Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable. 356 Liquidated Damages and Penalties (1) Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on ground of public policy as penalty. (2) A term in a bond providing for an amount of money as a penalty or non-occurrence of the condition of the bond is unenforceable on grounds of public policy to the extend that the amount exceeds the loss caused by such non-occurrence. Lake River Corp. v. Carborundum Co. (pp. 173) Coal Purchase HOLDING/RULE: In order for a liquidated damages clause to be enforceable, there must be a reasonable estimation at the time of contracting of the probable damages from breach, and the need for estimation must be based on the likely difficulty of assessing the actual damages suffered in the event of breach; otherwise, such clause is void as penalty. ANALYSIS: Judge Posner (our hero) notes his disagreement with decision by explaining that while penalty clauses impute a sense of exigency into the terms therein [notes additional risk to creditors of contract breakers], this advantage is outweighed by several countervailing concerns: (1) presence of penalty clauses increases costs of contracting and (2) penalty clauses may discourage efficient breaches of contract.
III. OTHER REMEDIES and Causes of Action (specific performance) p.193 Money damages are the norm, so other damages are deemed extraordinary relief. Money damages are known as legal relief while other remedies are called equitable relief (b/c they were settled in equity courts). Equity is more flexible. Equitable remedies are coercive, restitutionary or declaratory. A P may only seek equitable relief if remedy at law is inadequate. Coercive = order commanding some specific conduct w/ punishment for noncompliance. Declaratory = Obtain a declaration of your rights Restitutionary = Restore plaintiff something which belonged to him A) SPECIFIC PERFOMANCE AND INJUNCTIONS 1) CONTRACTS FOR LAND Land is presumed to be unique. Most often solved by specific performance. Loveless v Diehl (pg 198) buying the farm FACTS: The Diehls (P) sought specific performance of an agreement for the sale of a farm they leased from the Lovelesses (D) pursuant to an option-to-buy during lease for a specific amount contract. Specifically, D leased a farm to P for 3 years w/ an option to purchase anytime during that period for $21,000. Ps improved property requiring, notably a promissory note to D for $1,440.95 for a milking system. Ps sought a buyer in order to recoup investment when they were unable to fund the purchace themselves. Hart agreed to pay the $22,000 for the property, but reneged when D refused to sell the property to P. ISSUE: In a contract for the sale of real property, may the court award the remedy of specific performance as a matter of course?
16
17
ISSUE: May specific perform. be ordered when the subject matter is of a sufficiently unique nature? Holding: Yes, Circumstances include situations where p has no legal remedies and where a substitute could not be found without substantial cost/delay. Here car was 1 of only 6,000 made and arrived tailored to the Ps needs and thus was sufficiently unique Sales Contracts: The Uniform Commercial Code: 2-716. p. 211 (1) Specific performance may be ordered where the goods are unique or in other proper circumstances. (2) The judgment (decree) for specific performance may include such terms and conditions 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 unable to effect cover for such goods or the circumstances reasonably indicate that such an effort will be unavailing or if the good have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. 3) CONTRACTS FOR PERSONAL SERVICE The Case of Mary Clark, A Woman of Color (pg 212) we didnt read FACTS: Mary Clark (P) claimed she was illegally indentured to Johnson (D). P had entered into an agreement with D whereby she voluntarily agreed to render services as a house servant for 20 years. Circuit court upheld told her to return to D. Reversed ISSUE: May the court order specific enforcement of a contract for personal services? HOLDING: No. Enforcement of a contract under such conditions is akin to slavery. As long as she performed her services pursuant to the contract, such services were presumed to have been performed voluntarily. However upon filing the petition for relief, such service was no linger voluntary and the court may not constitutionally compel her to continue to perform pursuant to the contract. Lumley v. Wagner (opera singer) pp. 216 - enjoined singer FACTS: Lumley, operates a theatre where Wagner, was to perform. D agrees not to perform at any other theatre without permission. She them made a commitment to perform at another theatre. P brought suit to refrain D from singing anywhere else. HOLDING: Court orders injunction barring the D from singing elsewhere. The court states that it cannot force her to sing, but distinguished injunction from SP by saying that D cannot complain if she is barred from singing elsewhere and thus fulfilling her contractual commitment. Dallas Cowboys v. Harris (p.232) Injunction for athletes unique ability D, Harris, contracted to play football for LA Rams for one year. Contract said Harris could not play for any other team because of his unique ability. After a year, Harris left to play with an AFL team, but Harris Rams contract was assignable, and Rams assigned it to Cowboys, P, who filed suit. HOLDING: The court orders injunction barring Harris from playing for other teams. Under a broad interpretation of unique a star football player has a unique ability. (similar to UCC and goods)
B) RESTITUTION DAMAGE INTEREST AND CAUSE OF ACTION If a D breaches, P can usually seek damages, OR bring an action in quasi-contract for restitutionary damages to recover the reasonable value of the benefit plaintiff conferred on D. Restitution damages usually measured by market value of Ps performance rather than actual enrichment of D, which could be less than the market value. . Principles of the Bush rule: i.Breaching party cant sue on the contract (in other words, the fact that his breach helped the other party doesnt allow him to recover because of that)
18
1. Restitiution and Quasi-Contract R2d. 371 Measure of Restitution Interest p 256 If a sum of $ is awarded to protect a partys restitution interest, it may as justice requires be measured by, the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimants position, OR b. the extent to which the other partys property has been increased in value or other interests advanced. R2d. 373 Restitution When other Party is in Breach p 256 (1) Subject to rule stated in Subsection (2), on a breach by nonperformance that gives ruse to a claim for damages for total breach or on a repudiation, the injured party is entitled restitution for any benefit that he has conferred on the other party by way of part performance or reliance (2) The injured party has no right to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment of a definite sum of money for that performance.
19
vi.
(Britton)
If the contract were such that breached didnt receive the benefit until completion of the term, he might not be required to pay
vii.
There is no requirement that the employer have approved the work. (Britton) HOLDING: Where labor is performed under a K for a specified price ,the party who fails to perform the whole of the labor contracted for can recover to the degree it is greater than the damage done to the other party. The settled rule was unfair which held the opposite, because one party could receive nearly all of the performance while the other party would get nothing.
Laborer Hypo: Laborer agrees to work for $30/quarter, than price immediately increases to $50/quarter. Laborer works for three quarters, then quits. viii. One approach to determining restitution is:
a. b. c.
quarter.
Start with the value employer received in market terms ($150)Court would never grant that (it would create a crazy incentive to Court then subtracts the difference between market and contract in each period worked ($20 x 3 = $60) Then, it subtracts the $20 in damages that defendant will lose in the fourth quarter by having to contract at market rate in the 4th So the court would grant $70 as time worked, less damages. Another approach for restitution: Start with the money employee wouldve earned under the contract for three quarters ($30 x 3 = $90) Subtract out the damages employer will face in the 4th quarter because of the breach ($50-$30 = $20 Court would grant $70
d.
ix.
a. b. c.
Vines v. Orchard Hills, Inc (p. 260) condo sale FACTS: Vines (P) placed a down payment of $7,880 on a $78,800 condominium that was being sold by Orchard Hills (D). The contract stipulated that Orchard Hills would retain the down payment as liquidated damages in case of default. Vines was then transferred to New Jersey and decided not to complete the transaction for the real estate. Vines explained the circumstances to Orchard Hills but Orchard Hills refused to refund the down payment. Vines brought suit and the defendant demurred to the complaint and moved for summary judgment on the issue of damages. The court denied Orchard Hills motion and entered judgment in favor of the plaintiff. Orchard Hills appealed. Issue: Does a defaulting party have the right to seek restitution? Holding and Rule: Yes. A defaulting party has the right to seek restitution. A party whose breach is not willful can bring a claim to recover moneys paid that unjustly enrich the seller. The breaching party must satisfy his burden of proof that the other party has acquired a net gain in order for a claim for unjust enrichment to be sustained.The court held that Vines had the burden of proof in showing that the liquidated damages clause was invalid and unenforceable, or that the sellers damages were substantially less than the amount of liquidated damages. The court held that the case be remanded for the plaintiff to substantiate his claim. R2d. 374 Restitution in Favor of Party to Breach Please see pg. 374 Cotnam v. Wisdom pp298 Dr. helps dying man - restitution damages for quasi contract P, surgeons (one of which was Wisdom), rendered medical aid to the decendent (Mr. Harrison) of D (administrator of estate, Cotnam) after a car accident. (obviously, the decedent didnt make it).
20
IV. REACHING AN AGREEMENT A. INTRO TO OFFERS AND ACCEPTANCE CHAPTER 4 REACHING AN AGREEMENT A. INTRO TO OFFERS AND ACCEPTANCE Legally binding contracts need 1) Offer 2) Acceptance and 3) Consideration. Battle of the forms: When there are dueling forms, and one party acts, the last form is the one that is enforceable??? Under UCC, this is not the case; instead, a court will take the two forms together and fill in the gaps, usually in favor of the offeror-purchaser. UCCs stance overthrows the mirror image rule Mirror Image Rule: an acceptance must mirror the offer exactly in order to form a binding contract. If the acceptance varies or adds to the offer, there would be no contract.
21
Lucy v. Zehmer (pg 296) - Drunken joke land deal FACTS: Lucy (P) had tried several times to buy a farm form the Zelmers (D). One evening P and D were drinking and P offered to buy the land from $50,000. D said P didnt have the money. P said Do too and that he would pay that much for the farm. D wrote out a sales draft and spent 40 mins discussing the deal with P during which time revisions were made to the contract. P offered money to seal the deal, it was refused. D also made his wife sign the sales draft. D said he didnt think P had the money and that it was a big joke. CONCISE RULE OF LAW: If his outward manifestations of assent otherwise create a contract, the claim that the assentor was not serious is not a defense to a claim on the contract. HOLDING: Mental assent of the parties is not a requisite for the formation of a contract. If the words and acts have but one reasonable meaning, his undisclosed intention is immaterial (until disclosure). Intoxication didnt count. Contract was in writing: writings provide proof of solemnity and consideration. HYPO: Sign Hole in-one wins car. Got hole in one. Dealer refused to give car b/c the sign was there for a tourney for charity 3 days before. Argue manifest offer vs too good to be true. Should have know that only happens at tourneys. Not reasonable. But in the end the judge decided guy got the car.
22
B.
An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it. UCC 2-205 : Firm Offers: An offer by a MERCHANT to buy or sell goods in a signed writing which by its terms gives assurance that it will be held open is not revocable, for lack of consideration, during the time stated or if not the time states for a reasonable time, NOT TO EXCEED 3 Months. Two Essential Elements of an Offer
1. 2.
Intent to enter into a bargain: there is no intent to enter into a bargain if by the language/communications it is clear that a statements merely reflects an intent to begin negotiation. Certainty and Definiteness of Terms: A statement will not be an offer unless it makes clear: the subject matter of the proposed bargain, the price, and the quantity involved. If one is missing but there is a clear intent to conclude a bargain, courts will often fill in the item.
Advertisements are usu. considered invitations to deal, not offers; HOWEVER, there are two exceptions: 1) definite terms clearly indicate a bargain and 2) ad invites specific action without further communications. 1. PRELIMINARY NEGOTIATIONS Nebraska Seed Co. v Harsh (pg 305) millet seeds FACTS: Harsh (D) a farmer, forwarded to Nebraska Seed Co. (P a letter stating that he had 1800 or thereabouts bushels of millet that he would sell for $2.25 per hundered-weight. P wrote back saying it accepted the offer, and stated the delivery instructions. D did not deliver and P sued for breach of contract. CONSICE RULE OF LAW: An ad of a product is not an offer if it contains general, nonspecific, terms. HOLDING: An offer must be specific as to the terms of sale, such as quantity and price. A communication that is nonspecific, even if the term offer is used, is more like an ad than an offer. D told P that it had a certain quantity to sell at a certain price, but 1800 thereabouts is not a sufficiently specific amt to constitute an offer. Leonard v. Pepsi (p.308) - Handout about the Harrier Jet p sued to enforce alleged contractual commitment of manufacturer, D, or to provide fighter jet aircraft in return for his submission of 7,000,000 product points. D moved for summary judgement and such was granted by district court. ISSUE: Has offer been made thru an Ad when the alleged offeree has an objectively reasonable belief that the offer was intended to be made? D advertisement was not an offer Court says it was a solicitation of offers? If solicitation, contract complete when Pepsi receives the order form from p
23
RESTATEMENT (SECOND) OF CONTRACTS P.316 26. Preliminary negotiations At manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addresses 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. - reason to know depends not only on words or conduct but other circumstances including previous communications of the parties and the usages of their community or line of business. - In determining whether an offer has been made or not, relevant factors include the terms of previous contracts, the completeness of the terms of the suggested bargains and the number of persons to whom a communication is addressed. 26. To whom an offer is addressed (1) The manifested intention of the offeror determines the person or persons in whom is created a power of acceptance (2) An offer may create a power of acceptance in a specified person or persons 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 promise. 33. Certainty (1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain. (2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. (3) The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer. SALES CONTRACTS: THE UNIFORM COMMERCIALL CODE 2-204. Formation in General (1) A contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties, which recognizes the existence of a contract. (2) An agreement sufficient to constitute a contact for sales may be found even though the moment of its making is undetermined. (3) Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. 2-305. Open Price Term (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery 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 standards 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 seller or by the buyer means a price for him to fix in good faith. (3) When a price left to be fixed otherwise than by agreement of the parties fails 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.
24
2. WRITTEN MEMORIAL CONTEMPLATED Empro Manufacturing Co v Ball-Co Manufacturing Inc (pg 319) FACTS: Empro (P) and Ball-Co (D) signed a letter of intent containing the general provisions of the sale of Dd assets to P, which proposed to pay $2.4 mill. W/ $650,000 to be paid on closing and a 10-year promissory note for the remainder. The letter stated, Empros purchase shall be subject to the satisfaction of certain conditions precedent to closing including, but not limited to the definitive Asset Purchase Agreement and, amoung five other conditions, the approval of the shareholders and board of directors of Empro. The sticking point for the deal turned out to be the security for Ps promissory note. When D started negotiating w/ someone else, P sued, contending letter of intent bound D. CONSICE RULE OF LAW: Parties who have made their pact subject to a later definitive agreement have manifested an intent not to be bound. HOLDING: Only openly expressed wishes count. The words subject to a definitive agreement and general terms and conditions in letter imply not binding. D had not intended to be bound by agreement. RESTATEMENT (SECOND) OF CONTRACTS P.322 27. Existence of a contract where written memorial is contemplated Manifestations of assent that are in themselves sufficient to conclude a contract will not be prevented from so operating by the fact that the parties also manifest an intention to prepare and adopt a written memorial thereof; but the circumstances may show that the agreements are preliminary negotiations. TEXACO V PENNZOIL (PG 323) - Oil Issues FACTS: Based on informal negotiations Penzoil )P) contends that a valid contract was formed btwn itself and Texaco (d), notwithstanding Ds assertion that P did not intend to be bound since a more formal document had not been executed to memorialize the event. CONSICE RULE OF LAW: The formation of a valid contract depends on the objective intent of the parties as expressed outwardly in their words and deeds, and not merely on the form that the agreement has taken.
25
R2d 17 43 Describe Requirements of a Bargain and Define Offer, Option Contract, Methods of Termination of Acceptance, Revocation, and Indirect Communication of Revocation. Please see pgs 331-332 UCC 2-206 Offer and Acceptance in Formation of Contract Dickinson v. Dodds (p.328) 9am estate sale offer can be revoked anytime before acceptance FACTS: On Wed., D, Dodds, sent a memo to P, Dickinson, stating that he would hold open an offer to sell him land until Friday morning. On Thursday, Dodds found out Dickinson has been agreeing to sell the property to someone else, so Dodds left an acceptance at Dodds house. On Friday, Dickinson and his agent told Dodds in person that Dickinson was accepting the offer. Dodds said he already sold the land and Dickinson sued. HOLDING: Court finds for D, Dickinson, as an offer can be revoked at any time before acceptance. The offer, being nothing more than a promise without consideration, was not binding. Also, an offer does not need to be expressly revoked. The court also held that there was no meeting of the minds.
D. WHAT IS ACCEPTANCE? Acceptance can be in the form of correspondence, silence, or performance. Bilateral Contract: general rule is that an offer that requires acceptance by promise can be accepted only by a promise , not an act, although the required promise may be express or implied, and in some cases, can be implied from an act.?? Unilateral Contract: An offer that calls for acceptance by performance of an act can only be accepted by performance; not be a promise to perform (offer is not revocable once performance (not prep) has begun) Ardente v. Horan (p.336) home sale Facts: Ardente (P) made a bid of $250,000 on real property owned by Horan (D). Horan notified Ardente that the offer was accepted and forwarded a formal written agreement. P signed the agreement and returned it together with a $20,000 check and a request for confirmation that certain items of furniture would be included in the transaction. D refused to sell those items or the property and did not sign the purchase and sales agreement.P sued for specific performance and D moved for summary judgment on the grounds that no contract had formed. The court held that the Ps request for confirmation regarding the additional items was a conditional acceptance and therefore a counteroffer. The court granted Ds motion for summary judgment and P appealed. Issue: Must an acceptance be definite and unequivocal to be effective? Holding and Rule: Yes. An acceptance must be definite and unequivocal to be effective. In this case the mere execution of the agreement alone would have operated as acceptance. However, the terms of the letter conditioned that acceptance upon the inclusion of the furniture. An acceptance may not impose additional conditions on the offer, nor may it add limitations. An acceptance, which is equivocal or upon condition or with a limitation, is a counteroffer and requires acceptance by the original offeror before a contractual relationship exists. However, an acceptance may be valid despite conditional language if the acceptance is clearly independent of the condition. The court held that the letter of acceptance by P was not consistent with an absolute acceptance accompanied by a request for a gratuitous benefit and therefore was a conditional acceptance or counteroffer. Affirmed. Restatement (Second) of Contracts 61 Acceptance which requests change of terms (p.338)
26
1. ACCEPTANCE BY CORRESPONDENCE MAILBOX RULE Restatement (Second) of Contracts 63. Time when acceptance takes effect (p. 341) Unless the offer provides otherwise, a) an acceptance made in a manner and by a medium invited by an offer is operative and completes the manifestation of mutual assent as soon as put out of the offerees possession, without regard to whether it ever reaches the offeror; but b) an acceptance under an option contract is not operative until received by the offeror 64. Acceptance by Telephone or Teletype (p. 341) Acceptance given by telephone or other medium of substantially instantaneous two-way communication is governed by the principles applicable to acceptances where the parties are in the presence of each other.
65. Reasonableness of Medium of Acceptance (p. 341) Unless circumstances known to the offeree indicate otherwise, a medium of acceptance is reasonable if it is the one used by the offeror or one customary in similar transactions at the time and place the offer is received. 66. Acceptance must be properly dispatched (p. 342) An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.
NOTES: A
Mailbox rule acceptance occurs at point B, when the Offeree sends the acceptance Under the Restatement 63, the mailbox rule is the default rule unless the offer otherwise provides or unless it is an option contract. According to the Restatement 66, the mailbox rule does not apply unless the acceptance is properly mailed.
Question: Can an offer be revoked once it is mailed but before it reaches the offeree? Yes. When someone sends an offer, it can be revoked before it reaches the offeree. This is because of Restatement 35. (p. 332). 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 Restatement 36. Basically, *** Offeror retains power to revoke up to the time acceptance occurs ***
27
2. ACCEPTANCE BY SILENCE Restatement (Second ) of Contracts 69. Acceptance by Silence or Exercise of Dominion 1. Where an offeree fails to reply to an offer, his silence and inaction operate as an acceptance in the following cases only: a. Where an offeree takes the benefit of offered services with reasonable opportunity to reject them and reason to know that they were offered with the expectation of compensation. b. Where the offeror has stated or given the offeree reason to understand that assent may be manifested by silence or inaction, and the offeree in remaining silent and inactive intends to accept the offer. c. Where because of previous dealings or otherwise, it is reasonable that the offeree should notify the offeror if he does not intend to accept. 2. An offeree who does any act inconsistent with the offerors ownership of offered property is bound in accordance with the offered terms unless they are manifestly unreasonable. But if the act is wrongful as against the offeror it is an acceptance only if ratified by him. E. ACCEPTANCE BY PERFORMANCE AND UNILATERAL CONTRACTS P.342 Unilateral contract Agreement that results from acceptance by performance. Bilateral contract Agreement that results from acceptance by a promise.
Carlill v. Carbolic Smoke Ball Co. (p. 343) failed flu prevention FACTS: Carbolic Smoke Ball Co. (D) placed an ad offering 100 pounds to any person who became ill after using its product. Carlill (P) tried the product, still fell ill, and tried to collect from the company. They would not pay, so she sued for breach of contract. ISSUE: May a continuing offer be accepted by performance of the condition named in the offer? HOLDING: A continuing offer may be accepted by performance of the condition named in the offer. In a normal situation, notice of acceptance is required for formation of a binding contract. However, when the offer is of a continuing nature, the better rule is that no prior notice of acceptance is necessary apart form the notice of performance. COURTS REASONING: The court explored whether the ad was intended to be a mere puff to make the product sound good. The court concluded that it was not mere puff because in the ad it says that money was deposited in the bank to back up offer. Why is this relevant? Because if there was no promise, there cannot be acceptanceyou would not have a contract The second problem was that the promise was not made to anyone in particular. The court says thats ok. The offer was made to everyone. The actual contract was made with the people who accepted the offer by performing. Note: Everyday ads in windows, Catalogs, pricelists, circulars are not offers. They are invitations for an offer. However, it is possible to make an offer by ad to general public, but there has to be something special in add that suggests that all you have to do is the act and then you have binding contract. It has to be something more precise than an everyday ad. Question: When an ad is an offer, when do you have notification of acceptance? In Carbolic, the court says that if you are concerned about notification, you can think of notification being when people show up claiming reward as long as show up before offer is revoked. Restatement (Second ) of Contracts 54. Acceptance by Performance; Necessity of Notification to Offeror (p. 356) 1. Where an offer invites an offeree to accept by rendering a performance, no notification is necessary to make such an acceptance effective unless the offer requests such a notification.
28
Restatement (Second) of Contracts, [Tentative Draft No. 1 (1964)] vs. Restatement (Second) of Contracts 45. Option Contract Created by Part Performance of Tender (pg. 367) 1. Where an offeror invited an offeree to accept by rendering a performance and does not invite a promissory acceptance, an option contract is created when the offeree [begins] tenders or begins the invited performance [and tenders part of it] or tenders a beginning of it. 2. The offerors duty of performance under any option contract so created is conditional on completion or tender of the invited performance in accordance with the terms of the offer.
50. Acceptance of Offer Defined; Acceptance by Performance; Acceptance by Promise 1. Acceptance of an offer is a manifestation of assent to the terms thereof make by the offer in a manner invited or required by the offer. 2. Acceptance by performance requires that at least part of what the offer requests be performed or tendered and includes acceptance by a performance which operates as a return promise. 3. Acceptance by a promise requires that the offeree complete every act essential to the making of the promise.
29
V. INTERPRETING ASSENT Supplying terms: gap-filling terms terms when contracts are silent on a particular issue Interpreting terms: terms there were expressly manifested between the parties
A. FILLING IN GAPS IN ASSENT Courts distinguish between implied-in-fact terms [agreed upon implicitly by parties] and implied-in-law terms [imposed on parties without their consent]. The Restatement, instead, speaks of courts supplying terms. There are two types of judicially supplied gap-fillers 1. Default rules: legal rules that parties can avoid or vary by means of an express clause that differs from the terms a court will otherwise supply by default. 2. Immutable rules: maynto be varied by consent and will override any express clause to the contrary. Since courts were traditionally and somewhat still are reluctant to fill gaps in parties agreements, question arises as to whether this incomplete manifestation if sufficient to warrant legal enforcement. Cases thus discuss: (1) When a manifestation of assent is sufficient to justify concluding that a legally enforceable contract exists. (2) How to interpret the assent that has been manifested. 1. Agreements to Argue Sun Printing & Publishing Assn v. Remington Paper & Power Co. (p. 422) newsprint FACTS: Sun (P) and Remington (D) agreement for D to sell P 16,000 tons of paper between September 1919 and December 1920 [1,000 tons per month]. First four months of the agreement had price determined by D, and subsequent months had contract call for the parties to decide price, but not to exceed price charged by Canadian Export Paper Company to its large customers. Length of time that price would hold was to be determined by parties as well. After first four months, D refused to deliver paper to P, claiming contract was incomplete there was no longer an established price or length of time for price. P sued for damages resulting from Ds refusal to deliver. ISSUE: Is a contract invalid due to incompleteness if the agreement does not establish the length of time the terms of the agreement, such as the price, will apply. HOLDING/RULE: Yes. Both the price and the length of time that price shall pertain are essential parts of this contract. Neither exists after the first four months of this contract, and so it should then be invalid. Court concedes that it can be reasoned that if only price was left open, then the P could be the holder of an option. However, length of time invalidates this theory. Also, court acknowledges argument that maximum standard for price is set by Canadian Export Paper provision in contract; however, court makes assumption that the market will fluctuate this price over time, leaving the D on a day to day whim of the market. Restatement (Second) of Contracts 34. Certainty and Choice of Terms; Effect of Performance or Reliance (p.427) 1. The terms of a contract may be reasonably certain even thought it empowers one or both parties to make a selection of terms in the course of performance. 2. Past performance under an agreement may remove uncertainty and establish that a contract enforceable as a bargain has been formed. 3. Action in reliance on an agreement may make a contractual remedy appropriate even though uncertainty is not removed. 204. Supplying an Omitted Essential Term (p.428): 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. Texaco v. Pennzoil (p.428)
30
2. ILLUSORY PROMISES A promise is illusory if it leaves complete discretion to perform or not in the hands of the purported promissory Courts usually fill gaps in the manifestation of assent by supplying an obligation to exercise the discretion in good faith. requirements contract - an agreement pursuant to which one party agrees to purchase all his required goods or services from the other party exclusively for a specified time period. New York Central Iron Works Co. v. United States Radiator Co. (p. 429) radiators in high demand FACTS: U.S. Radiator Co. (D) contended that a requirements contract it had entered into with New York Central Iron Works Co. (P) should not be enforced because Centrals (P) need supplies proved much greater than the parties had anticipated. CONCISE RULE OF LAW: A buyer in a requirements contract may enforce the contract even if its requirements increase beyond the parties contemplation. So long as the buyers needs are genuine and he is not merely speculating in the material, the contract is enforceable. [cant carry inventory] RULE A buyer in a requirements contract may enforce the contract even if its requirements increase beyond the parties contemplation. So long as the buyers needs are genuine and he is not merely speculating in the material, the contract is enforceable. [cant carry inventory] good faith and fair dealing would limit the quantity a buyer could demand. contract cant be used for the purpose of speculation. For to win needed to show that orders exceeded needs and werent justified not pleaded in the case. could show how much needed by by not letting store or sell to competitors. NOTES: According to the court, good faith and fair dealing would limit the quantity a buyer could demand. That is, the contract cannot be used for the purpose of speculation. What would defendant have to do to win? Show that orders exceeded needs and werent justified this was not pleaded in the case. How would the defendant show how much the plaintiff actually needed? One possibility is to not let them store (might be considered speculation) Another possibility is to not let them sell to competitors.
Eastern Air Lines, Inc. v. Gulf Oil Corp. (p. 431) jet fuel FACTS: Gulf Oil Corp. (D) was to furnish jet fuel to Eastern Air Lines (P) based on an alleged five-year requirements contract. On March 8, 1974, Gulf (D) demanded that Easter (P) meet its demand for a price increase or be shut off from its supply of jet fuel. Eastern (P) filed this complaint for breach of contract and requested a permanent mandatory injunction requiring Gulf (D) to perform the contract in accordance with its terms. Gulf (D) argued that the contract was not a binding requirements contract, was void for lack of mutuality, and commercially impracticable. CONCISE RULE OF LAW: A requirements contract is binding where the purchaser has an operation business. Any complaints regarding lack of mutuality or indefiniteness are easily resolved since the court may determine the volume of goods under the contract by examining objective evidence of the volume of goods required in good faith to operate the specific business. Is the seller obligated to supply what the buyer wants? Is Buyers yes Stated in yes Was Buyers yes
31
YES
market
FACTS: Wood (P), in a complicated agreement, 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 Lucys (D) name and to market all her fashion designs, for which she would receive one-half the profits derived. Lucy (D) broke the contract by placing her endorsement on designs without Woods (P) knowledge. Wood (P) sued for damages for breach of a contract for an exclusive right. Lucy claimed that the agreement lacked the elements of a contract, as Wood (P) allegedly was not bound to do anything. CONCISE RULE OF LAW: while an express promise may be lacking, the whole writing may be instinct with an obligation an implied promise imperfectly expressed so as to form a valid contract. In this case, the promise to pay Lucy (D) half the profits and make monthly accountings was a promise to use reasonable efforts to bring profits and revenues into existence. Sales Contracts: The Uniform Commercial Code 2-306. Output, Requirements and Exclusive Dealings (p.444) 1. A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a state estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. 2. A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.
B. INTERPRETING ASSENT SUBJECTIVELY OR OBJECTIVELY (Ambiguity&Vagueness) Latent ambiguity - language capable of more than one interpretation that seems clear on its face, but the introduction of extrinsic evidence proves it to have a different meaning. General rule of interpretation in contracts is that where the interpretation of words or conduct is an issue, they should be given an objective interpretation.??? This includes the reasonable person standard that the addressees shoes would put one in, rather than a subjective interpretation. Raffles v. Wichelhaus (p. 396) two ships Peerless carrying cotton FACTS: Raffles (P) contracted to sell cotton to Wichelhaus (D) to be delivered from Bombay at Liverpool on the ship Peerless. Unknown to the parties was the existence of two different ships carrying cotton, each named Peerless arriving at Liverpool from Bombay, but at different times. Wichelhaus (D) expected to get the October delivery while Raffles (P) expected the cotton to be shipped on the Peerless set to sail in December. Wichelhaus (D) refused to accept the later delivery. Raffles (P) sued to get Wichlhaus for breach of contract.
32
33
5.
SALES CONTRACTS: THE UNIFORM COMMERCIAL CODE 1-205 Course of Dealing and Usage of Trade (pg 410) (1) A course of dealing is a sequence of previous conduct btwn 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 a 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) A course of dealing btwn parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement. (4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade. (5) An applicable 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 performance. (6) Evidence of a relevant usage of trade offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise to the latter. 2-208. Course of Performance or Practical Construction (1) Where the contract for sales involves repeated occasions for performance by either party with knowledge of the nature of the performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever possible as consistent with each other; but when such construction is unreasonable, express terms shall control both course of dealing and usage of trade. (3) Subject to the provisions of the next section on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance. Vague Terms Weinburg v Edelstein (pg 411) dress seller FACTS: Weinburg (P) leased a store and contracted not to sell ladies dresses, coats or suits. (He was allowed to sell blouses, skirts, underwear) When he started selling matching skirts and shirts, P sued saying he violated. 5 Types of evidence to consider when interpreting contract terms: CONSICE RULE OF LAW: A restrictive covenant is construed strictly against the person seeking its enforcement when the intent of the restriction is not clear. Words of the contract 1. HOLDING: There has 2. Course oftrend from sportswear houses, beginning before the present leases were entered into, which been a recent negotiations 3. Course of performance P could sell ladies dresses, coats and sports clothes. D was prohibited form resulted in the manufacture of coordinates. Since UCC 2-208: Where the contract for sale involved repeated occasions for performance by either selling those items. D was not selling dresses in violation of the restrictive covenant; he was selling skirts and blouses party any course of performance accepted to acquiesced in without objection shall be relevant to originating in determine the meaning of the agreement. the sportswear industry.
4. Course of dealing UCC 1-205: A course of dealing is a sequence of pervious conduct 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. 5. Usage of trade. 1-205: A usage of trade is any practice or method for 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.
34
Whats been agreed Adhesion Ks Carnival Cruise Lines v. Shute (p. 445) forum selection clause Facts: Shutes went on a cruise. On the ticket, there was a forum selection clause that said any litigation related to the cruise must be tried in Florida. They departed for their cruise from Los Angeles and the ship sailed to Mexico and back to Los Angeles. Mrs. Shute slipped on the ship and hurt herself. The Shutes sued in Washington and Carnival moved for summary judgment due to the forum selection clause. At trial, the Shutes conceded that they had notice of the forum selection clause. Procedural Posture: The suit was first brought in the Western District of Washington. The Ninth Circuit refused to enforce the clause, and the cruise line appealed to the United States Supreme Court. Issue: Is the forum selection clause enforceable? Rule: Courts have the responsibility to determine whether forum selection clauses in form passage contracts are fair. Analysis: The Court says that the ticket contract was a routine commercial passage contract. It was not negotiated, and the parties did not have equal bargaining power. The Court enumerates several good reasons for a forum selection clause in a cruise ticket contract: 1. 2. 3. A cruise will have passengers from all over the country, and absent a forum selection clause, the cruise company could be subject to suit in all sorts of places. A forum selection clause eliminates uncertainty about the forum and avoids costly pretrial motions. Forum selection clauses mean lower fares for passengers because the cruise company passes along savings from limiting the forums where the company must defend itself.
The Court says that the key question is whether the clause is fair. In evaluating the fairness of such clauses, the Court must consider whether Carnival was, in bad faith, discouraging legitimate claims from its passengers. The Court says that because Carnival does business primarily in Florida and has a lot of cruises that depart from Florida, they didnt include the clause in bad faith. Stevens, in his dissent, refers to two strands of contract law that come into play in this case 1. Courts look closer at contracts made between parties with unequal bargaining power, especially take it or leave it contracts. 2. At least in the past, forum selection clauses have been found to be counter to public policy. In particular, they are not enforced if they (1) were not freely bargained for, (2) create additional expense for one party, or (3) deny one party a remedy.
35
2. a. b. c.
d.
3. a. A forum selection clause will only help in cases that involve a contractual relationship. Conclusion: The forum selection clause is enforceable.
VI. WRITTEN MANIFESTATIONS OF ASSENT A. INTERPRETING A WRITING THE PAROL EVIDENCE RULE Thompson v Libby (pg 488) Log Person FACTS: Thompson (P) owned a quantity of logs marked HCA. These logs were cut in the winters of 1882 and 1883 and lying in the Mississippi river. P and D entered into a written agreement that these logs would be sold to D for $10 per 1,000 feet. D refused to pay after he determined the logs were of poor quality. P brought suit for purchase price. At trial, D argued that there was a warrenty made at the time of the sales on the quality of the logs that was not contained in the written agreement. The TC admitted oral testimony to prove the warrenty over Ps objection. Ps request for a new trial was refused. CONCISE RULE OF LAW: Parol contemporaneous evidence is inadmissible to contradict or vary the terms of a valid written instrument. HOLDING: When writing is incomplete, then parol evidence may be admitted to prove the omitted part. However a party may not use parol ev using oral testimony to show that part of the agreement was in writing and then use parol ev to prove the omitted part. If on its face, the writing purports to be a complete expression of the entire afreement, then it is presumed that every material issue and term has been introduced and no parol ev will be admitted even when the writing is silent as to the term. Thus in this case parol ev of warrenty shouldnt have been admitted. Brown v Oliver (pg 489) hotel furniture FACTS: Brown (P) bought land from Oliver (D) which had a hotel on it. Possession of the hotel and its furniture was surrounded by D. 2 yrs later D was assigned a lease of the hotel and occupied it. P notifed D to quit the land, D removed the furniture at night. The original contract for the sale of the land made no mention of personal property. P contended D had verbally agreed to sell the furniture. D argued unsuccessfully that the parol ev rule applied, preventing the admissibility of the ev on the sale of the furniture. The court ordered the furnitures return to P.
36
37
i.
38
e.
.
Can get around confusion with heres what we mean by this term language
B. Interpreting Conflicting Writings The Battle of the Forms Restatement (Second ) of Contracts 155. When Mistake of both Parties as to Written Expression Justifies Reformation (p. 509) 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 contents or effect of the writing, the court may at the request of a party reform the writing to express the agreement, except to the extent that rights of third parties such as good faith purchasers for value will be unfairly affected. battle of the forms when each party sends the other its form and these forms contain different or conflicting terms mirror image rule An offer of a bargain by one person to another imposes no obligation upon the former, unless it is accepted by the latter according to the terms on which the offer was made. Any qualification of or departure from those terms invalidates the offer, unless the same is agreed to by the party who made it. parol ev all ev that comes from outside actual contract, like parties conversation.
Yes
yes
Travelers Ins. V. Bailey (p.507) mistaken ins. Policy Facts: The plaintiff insurance company sold a life insurance policy with annuity provisions to the defendant. The policy was to provided for an annuity at age 65 for $500 a year for the balance of his life, ten years certain, with only a $40.90 semi-annual premium. There was a mistake on the form used to display the terms of the contract, and instead the policy produced an annuity obligation to pay $500 a month for life, one hundred months certain. The plaintiff never had such a policy, and would never have offered such a ridiculous bargain to the defendant. Procedural History: The plaintiff sought to change the contract, but the defendant claimed it was plaintiffs own negligence and the contract should not be changed. Trial court judgment for the plaintiff to change the contract. Issues: Whether a plain written contract can be changed when there is definite evidence of a mistake in the written terms as opposed to the actual agreed terms.
39
2.
3.
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 (2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. Subject to subsection (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it state, for example, that There are no warranties which extend beyond the description on the face hereof.
2.
Signature What is a signature? UCC 2-201 requires a writing that is signed by the party against whom enforcement is sought or by his authorized agent or broker. Consider Fax machines, emails, etc.
40
no
VII. The Doctrine of Consideration (Chapter 9) CHAPTER 9 THE DOCTRINE OF CONSIDERATION (p.615) Promises and contracts lacking consideration are unenforceable unless the doctrine of promissory estoppel applies. Consideration- looks to see if a promise has been bargained for consists of promisors benefit or promisees detriment. Look for if a party seems to be getting something for nothing, then youll have a consideration problem. Definition: something of value, such as an act or forebearance, received from a promisuer from a promisee In plain English: the thing that motivates a promise. (Like what youre gonna get) ex. Talking boy offers to give Nodding boy his book in exchange for $5. Talking Boys consideration is $5. Nodding boys is the book. Examples: Ill take your child to the park. No consideration. Consideration can consist of either promisors benefit or promisees detriment BARGAIN THEORY OF CONSIDERATION This is the excepted theory today. Consideration is treated as equivalent to a bargain. A bargain is an exchange of promises, or acts, or both, in which each party views what he gives as the price of what he gets. Failure of consideration: Occurs when X and Y make mutual promises, resulting in consideration, but X and then Y each break their promise, resulting in a failure of consideration, even in an agreement that has been sealed. At one point, there was a valid contract. Want of consideration: This is the lack of consideration resulting in an invalid contract, such a contract with no condieration and seal. There never was a valid contract. A. B. C. D. A contract is an enforceable promise (1, 2); With some exceptions 17(2) to be enforceable a promise must be supported by consideration17(1) A promise is supported by consideration if it is bargained for (71(1)) A promise is bargained for Iif it is sught by the promisor in the exchange for his promise and is given by the promisee in exchange for that promise.(71(2))
17 requires consideration and 71 defines consideration in terms of a bargain (p.618) R2d. 71. Requirement of Exchange; Types of Exchange
41
1. Distinguishing Bargains from Gratuitous Promises Consideration- consists of promisors benefit or promises detriment. Look for if a party seems to be getting something for nothing, then youll have a consideration problem. In plain English: the thing that motivates a promise. (Like what youre gonna get) For ex. Talking boy offers to give Nodding boy his book in exchange for $5. Talking Boys consideration is $5. Nodding boys is the book. Hamer v Sidway (pg 622) wayward nephew FACTS: Story promised his nephew in front of witnesses that he would give him $5,000 if he refrained from smoking, drinking, swearing and gambling until he was 21. Nephew agreed and spent note after he was 21. Uncle sent note back saying he had the money in the bank for his nephew and died before giving it to him. RULE OF LAW: A waiver of a legal right at the request of another party may serve as sufficient consideration for a promise. HOLDING: A valuable consideration may consist of some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other party. Consideration doesnt mean that one party is profiting when the other party abandons some legal right or limits his freedom of action. Instead consideration is the inducement of the promise. In this case the nephew gave up his legal right to use tobacco, drink, etc on the strength of the promise that Story would give him $5,000. It is sufficient that the nephew restricted his lawful freedom of action within the agreed limits. Restatement (Second) of Contracts
42
43
44
1. 2.
Brian Construction and Development Co v. Brighenti (pp. 666) excavation subcontract FACTS: Bennett contracted to build post office and assigned contract to Brian (P), who subcontracted with Brighenti (D). Defendant agreed to provide all the foundation work for the building as well as everything requisite and necessary to finish the entire work properly. He was to receive $104, 326 in return for this work. Defendant discovered remains of another building at site, he wants additional compensation so parties agreed that this would be considerably more work, so they contract for new terms with Defendant getting extra cost plus 10%. Defendant worked for several days then quit. Brian completed work on his own incurring large damages. Trial Court found for Defendant claiming no support for consideration. RULE: Where unforeseen circumstances make the performance of a contract unduly burdensome, and the parties agree in view of the changed conditions to an adjustment in price, a new contract supported by consideration is formed. HOLDING/RATIONALE: It is an accepted principle that when a party agrees to perform an obligation which he is already obligated to perform, albeit for a different price, the second agreement does not constitute a valid contract. HOWEVER, the doctrine of unforeseen circumstances provides an exception to that general rule. So, under unforeseen circumstances result in the performance of the
45
No
Additional No Consideration?
Yes
Newman&Snells State Bank v. Hunter (p674) bankrupts IOU (I owe u) P (widow) sued on a promissory note she gave to bank in return for her husband's note to bank for $3700. Husband was insolvent at his death. Held for . Exchange of worthless note for 's note was no basis for consideration. Court felt it was unreasonable for bank to get this kind of windfall. Widow gave only nominal consideration, in an impulsive frame of mind, courts are unlikely to enforce manifestly unfair agreements like this. THE INTENTION TO BE LEGALLY BOUND (CHAPTER 10) (WE DID NOT READ) P. 681 The concept of intention to create legal relations can potentially be applied in two ways:
46
1. 2.
The presence of a manifested intention to be legally bound can justify the enforcement of commitments that lack either bargained-for consideration or detrimental reliance. The absence of such a manifestation or a manifested intention not to be legally bound might prevent the enforcement of even bargained-for commitments or those that have induced reliance.
Restatement (Second) of Contracts 21. Intention to be Legally Bound (p. 712) Neither real nor apparent intention that a promise be legally binding is essential to the formation of a contract, but a manifestation of intention that a promise shall not affect legal relations may prevent the formation of a contract. A. USING FORMALITIES TO MANIFEST AN INTENTION TO BE LEGALLY BOUND The Uniform Commercial Code 2-205. Firm Offers An offer by a merchant to buy or sell goods in signed writing which by its terms gives assurances that it will be held open is not revocable, for lack of consideration, during the time stated or if no time is stated for a reasonable time, but in no event may such a period of irrevocability exceed three months; but any such term of assurance on a form supplied by the offeree must be separately signed by the offeror. Formalities
1. 2. 3. 4.
Evidentiary function Compliance with formalities provides reliable evidence that a given transaction took place. Cautionary function The ceremony was imposing and there was ample opportunity to reflect and deliberate on the wisdom of the act. Therefore, the document can be accepted by the legal system as a serious act of volition. Channeling function The populace is made aware that the use of a given device will attain a desire result. When the device is used, the judicial task of determining the parties intentions will be facilitated. Clarification function When the parties reduce their transaction to writing they are more likely to work out details not contained in their oral agreement.
I. THE SEAL The traditional view of the seal: it imports consideration in the absence of fraud. The defense of want of consideration is not available in an action on a sealed instrument. Failure of consideration, on the other hand, is a valid defense to a sealed instrument. Want of consideration embraces transaction where none was intended to pass Failure of consideration implies that a valuable consideration, moving from obligee to obligor, was contemplated (consideration contemplated was never received)
Restatement (Second) of Contracts 95. Requirements for Sealed Contract or Written Contract or Instrument (p. 724) 1. In the absence of a statute a promise is binding without consideration if a. It is in writing and sealed; and b. The document containing the promise is delivered; and c. The promisor and promisee are named in the document or so described as to be capable of identification when it is delivered Sales Contracts: The Uniform Commercial Code 2-203. Seals Inoperative (p.724) The affixing of a seal to a writing evidencing a contract for sale or an offer to buy or sell goods does not constitute the writing a sealed instrument and the law with respect to sealed instruments does not apply to such a contract or offer.
47
2. NOMINAL CONSIDERATION
Restatement (Second) of Contracts 71. Requirement of Exchange; Types of Exchange (p. 729)
b.
Bargained for. Moreover, a mere pretense of bargain does not suffice, as where there is a false recital of consideration or where the purported consideration is merely nominal. In such cases there is no consideration and the promise is enforceable, if at all, as a promise binding withoug consideration under 82-94. See Comments b and c to 87.
ILLUSTRATION 5. A desires to make a binding promise to give $1000 to his son B. Being advised that a gratuitous promise is not binding, A offers to buy from B for $1000 a book worth less than $1. B accepts the offer knowing that the purchase of the book is a mere pretense. There is no consideration for As promise to pay $1000. 87. Option Contract 1. An offer is binding as an option contract if it a. Is in writing and signed by the offeror, recites a purported consideration for the making of the offer, and proposes an exchange on fair terms within a reasonable time.. [paragraph (2) appears in Chapter 11.]
3. RECITALS
CONCISE RULE OF LAW: The recital of a one dollar consideration for an option contract gives rise to an implied promise to pay which can be enforced by the other party.
YOU COULD ARGUE THAT THEY ARE ESTOPPED FROM PRESENTING THE ARGUMENT BECAUSE OF HER ACTS IN RELIANCE, I.E., SHE
EVILSHANI: IF NOT IN WRITING NOT ENFORCIBLE EVILSHANI: BUT THEN WHAT IF SOMEONE RELIED?
48
- AFTER THAT I'LL PAY YOU $1,000,000. WOULDN'T YOU WANT THAT IN WRITING? EVILSHANI: YES. BUT WOULD I ENFORCE IT IF IT WASN'T IN WRITING?
FOR ME FOR ONE YEAR KATHRYN H SMITH: IF ONE THE OTHER HAND, YOU ARE BABYSITTING AND WILL GET
$50 AT THE END OF THE NIGHT YOU PROBABLY DON'T NEED IT IN WRITING. THE
TIMING FOR PAYMENT IS SO CLOSE TO PERFORMANCE THAT YOU'RE NOT AS AFRAID THAT SOMEON WILL RENEGE ON THE DEAL EVILSHANI:
BUT FOR YOUR WORK EXAMPLE. THE PERSON RELIED AND WORKED A WHOLE YEAR. IF YOU WON'T PAY, SHOULDN'T THE COURT MAKE THEM PAY, EVEN IF IT $1M ISSUE. SEE I WOULD ARGUE THAT THERE WAS NO CONTRACT. I WOULD SY YOU COULDN'T COLLECT BECAUSE OF THE STATUTE
- NO WRITING I RELIED TO MY DETRIMENT? - YOU ACTED IN RELIANCE ON MY PROMISE AND I SHOULD BE ESTOPPED FROM ARGUING
EVILSHANI: EVEN IF
A. THE DEVELOPMENT OF PROMISSORY ESTOPPEL AS A SUBSTITUTE FOR CONSIDERATION It is commonly assumed that the principle underlying promissory estoppel is compensation for detrimental reliance. I. FAMILY PROMISES Ricketts v. Scothorn (pg 723) working granddaughter quits work FACTS: Katie Scothorn (P) was working as a bookkeeper when her grandfather Ricketts visited her at work and gave her a note promising to pay her $2000 at 6% interest per year. He told her that none of his grandchildren had to work and neither should she. Her right to the money was not conditioned on her not working or on anything else. Scothorn (P) later left her job at her grandfathers influence. After Ricketts death, Scothorn (P) sued the estates executor (D) for the balance due on the note. CONCISE RULE OF LAW: When the payee changes her position to her disadvantage, in reliance on a promise, a right of action on the promise arises. The expenditure of money or assumption of liability by the donee, on the faith of the promise, constitutes a valuable and sufficient consideration. In this case, there is an equitable estoppel. Essential Elements of Equitable Estoppel (Pomeroy pg 727) 1. Conduct acts lang or silence amounting to rep of fact or concealment of fact 2. these facts must be known to the party estopped at the time of his said conduct, or at least the circ must be such that such knowledge is necessarily imputed to him. 3. The truth concerning these facts must be unknown to the other party claiming the benefit of the estoppel, at the time when such conduct was done., and at the time when it was acted upon him.
4.
5. 6.
The conduct must be done with the intention, or at least with the expectation, that it will be acted upon by the other party, or under such circumstances that it is both natural and probable that it will be so acted upon. There are several farmiliar species in which it is simly impossible to ascribe any intention or even expectation to the party estopped that his conduct will be acted upon by the one who afterwards claims the benefit of the estoppel. The conduct must be relied upon by the other party, and, thus relying, he must be led to act upon it. He must in fact act upon it in such a matter as to change his position for the worse; in other words, he must so act that he would suffer a loss if he were compelled to surrender or forgo or alter what he has done by reason of the first party being permitted to repudiated his conduct and to assert rights inconsistent with it.
Equitable estoppel vs. promissory estoppel Equitable estoppel is a misrepresentation of some fact that was relied upon. Promissory estoppel is in the case of a simply gratuitous promise which the promisor knows is gratuitous.
49
Example of equitable estoppel: I call the bank to ask if I received a paycheck. The clerk at bank says yes, so I write out checks. As it turns out, the paycheck was never deposited. I get charged fees for bounced checks. Under the principles of equitable estoppel, I am not responsible for the bounced check fees. Estoppel based on a promise and not a misrepresentation of facts is now called promissory estoppel. Promissory estoppel also different because it is used in a offensive way rather than promissory estoppel. (promissory estoppel used as a sword, equitable estoppel is used as a shield) Also note that gifts in wills are treated differently than regular gifts. This is because we are much less concerned with the intention of promisor. We have to transfer the assets to someone. 2. CHARITABLE SUBSCRIPTIONS (DELETED)
Restatement (Second) of Contracts 90. Promise Reasonably Inducing Action or Forbearance (p. 811) 1. A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires. 2. A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance. Shannons test for consideration Need 1. a promise 2. (a) was reliance intended (b) was reliance forseeable 3. was there actual reliance 4. Is remedy necessary to prevent injustice 3. PROMISES OF A PENSION (DELETED)
4. CONSTRUCTION BIDS (P.742) James Baird Co. v. Gimbel Bros., Inc. (pg 742) Tile bidding contractors FACTS: Gimbel (D) offered to supply linoleum to various contractors who were bidding on a public construction contract. Baird (P), relying on Ds quoted price, submitted a bid and later that same day received a telegraphed message from D that its quoted price was in error. Ps bid was accepted. RULE: The doctrine of promissory estoppel shall not be applied in cases where there is an offer for exchange as the offer is not intended to become a promise until consideration is received. HOLDING: Gimbel did not intend to be bound upon contractors (offerees) mere reliance on its quoted price. The doctrine of promissory estoppel may not be used by the offeree to bind the offeror. Since contractor could have repudiated the contract w/o Ds right to sue for breach, no right for P either. Drennan v. Star Paving Co. (p.745) paving subcontractor FACTS: In formulating a bid to the Lancaster School District, Drennan (P), a general contractor, solicited bids for subcontracting work. Star (P), a paving company, submitted the lowest paving bid, and Drennan (P) used that bid in formulating its bid to the school district. Using this bid, Drennan (P) was awarded the general contract. Star (D) then told Drennan (P) that it could not do the work
50
51
2.
Impact? US Cts finds consideration most of the time in these cases but courts interp is different with charities. Three Elements in order for a promise to be enforceable under the Theory of Promissory Estoppel 1. promise that the promisor should reasonably have expected to induce action of a definite and substantial character on part of the promisee, 2. which in fact produced reliance or forbearance of that nature, 3. in circumstances such that the promise must be enforced if injustice is to be avoided
Three limitations of Promissory Estoppel: 1. the detriment suffered in reliance must be substantial in an economic sense; 2. the substantial loss to the promisee in acting in reliance must have been foreseeable by the promisor; the promisee must have acted reasonably in justifiable relance on the promise as made.
52
IX.
PERFORMANCE
A. THE IMPLIED DUTY OF GOOD FAITH PERFORMANCE All contracts contain an implied covenant to perform in good faith. Restatement (Second) of Contracts 205. Duty of Good Faith and Fair Dealing Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. Sales Contracts: The Uniform Commercial Code 1-203. Good Faith Performance (p.816) Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement. 2-103. Definitions and Index of Definitions (p.893) (1) In this article unless the context otherwise requires (b) Good faith in the case of a merchant means honesty in fact and the observance of reasonable standards of fair dealing in the trade.
Goldberg 168-05 Corp. v. Levy (pg. 817) percentage lease FACTS: Goldberg (P) sought damages for unpaid rental payments based on a Levys (D) intentional diversion of profits so as to reduce his rental payments under a lease agreement and trigger provision allowing him to terminate the contract. P entered into a lease agreement to rent property to D for nine years at $13,800 per year, plus 10% of the gross profits. If the business did not have profits exceeding $101,000, D had the right to terminate the lease. D entered into possession on Oct. 1929 and operated Crawford Clothes, Inc. on the premises. The business failed to make profits over $101,000 and D notified P of his intention to terminate the lease on Oct. 1937. D vacated premises and failed to pay rent under the agreement. P sought $25,000 in damages. D moved to dismiss. RULE OF CONCISE LAW: A covenant of good faith and fair dealing is inherent in every contract, requiring a party to a commercial lease that requires part of the rental payments be based on a percentage of gross receipts, to utilize his best efforts in order to generate earnings. HOLDING: Even though an explicit promise is lacking, a good faith obligation is implied in a contract. Ps obligation was to use reasonable efforts to bring profits into existence. Therefore, Ps conduct was in direct violation of the good faith and fair dealing covenant that exists in every contract. MOTION DENIED. Mutual Life Ins. Co. of New York v. Tailored Woman (p.818) FACTS: Lessor has lease that has to pay fixed amount + receipts. They divert sales to 2nd lease where they have fixed rent (rentor thought they were renting the space as a warehouse). HOLDING: Court holds no breach of good-faith - because it was joint profit maximizing, not just to save themselves money [this is Gillettes reason, not courts who justifies it just as the allocation of risk].
Stop & Shop, Inc. v. Ganem (pg. 824) supermarket lease FACTS: Ganem (D) sought to compel lessee Stop & Shop (P) to continue operating a market on premises pursuant to a commercial lease agreement providing for minimum fixed yearly payments plus a percentage of gross sales. Parties entered into a lease agreement where Stop & Shop was supposed to lease the place for 13 years and six months. The minimum rental payment was $22,000 per year, plus 1% of gross sales exceeding $1,269,230.60. The agreement provided that the percentage rate would be due only if sales exceeded $3 million. The lease was silent as to the proposed use of the premises. P was engaged in the supermarket business at the time the lease commenced (1953). In 1963, P closed supermarket, but continued minimum rent payments. P opened two other supermarkets within a mile of the premises. P filed a bill for declaratory relief. D filed a counter
53
Step-Saver Data Syst. v. Wyse Technology, (P.896) - computers purchase incompatible with system Facts: P purchased Ds computer after conducting a bench test. Computers found to be incompatible with software used by P. Issue: Was there an implied warranty of merchantability or fitness? Holding: No, seller did not know buyers particular purpose, buyer didnt rely on sellers expected knowledge of buyers purpose, buyer performed their own bench test. Product exceeded ordinary standards of the trade usage of product.
Sales Contracts: The Uniform Commercial Code 2-314 Implied Warranty: Merchantability (p. 833) (1) Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale if 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 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 fit for the ordinary purposes for which such goods are used; and (d) run, within the variations permitted by 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 affirmations of fact made on the container or label if any. (3) Unless excluded or modified other implied warranties may arise form course of dealing or usage of trade. 2-315 Implied Warranty: Fitness for Particular Purpose Where the (1) seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the (2) buyer is relying on the sellers skill or judgment to select or furnish suitable goods, there is (3) unless exluded or modified under next section and implied warranty that the goods shall be fit for such purpose.
54
2-714 Buyers Damages for Breach in Regard to Accepted Goods (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under the next section may also be recovered. 2. EXPRESS WARRANTIES (P.835) Sales Contracts: The Uniform Commercial Code - Goes beyond implied warranties. - To find an express warranty need: 1. affirmation of fact or promise 2. that affirmation has to relate to goods [not puffery] [must be really a warranty 3. and it has to become the basis for bargaining between parties. Royal Business Machines, Inc. v. Lorraine Corp. (pg. 836) (copiers) FACTS: Booher (P) and Lorraine Corp (P) entered into a series of transactions with Royal Business Machines (D) for the sale of Royals (D) copying machines. P initiated suit against D alleging breach of warranties and fraud. The disctrict court awarded P compensatory and punitive damages and attorney fees, holding that Royal (D) had breached several express warranties it made to P. These included the assurances that the goods were of high quality, few repairs would be necessary, replacement parts were easily obtainable, maintenance costs were low, the machines were marketable, P would reap substantial profits, the goods were safe, and service calls were required only every 7,000 to 9,000 copies. Royal (D) appealed. CONCISE RULE OF LAW: The determinative question in resolving whether a particular promise constitutes an express warranty is whether the sellers assertion constitutes a fact or is merely an expression of the sellers opinion. HOLDING: Statements regarding the quality of the goods are mere expressions of the sellers opinion, and do not constitute express warranties. Thus, the promises that the copiers where of high quality, that P would gain significant profits, or that the necessity of repair would be infrequent were all merely expressions of Royals (D) opinion regarding the goods. Although Royals assurances regarding the availability of parts and the copies were assurances of facts, such assurances must relate specifically to the goods tendered. However, Royals assurances that the machines were safe, tested, and marketable all constitute statement of facts relating to the goods prospective performance may also give rise to a finding that an express warranty was made. Thus, the assurances relating to the costs of maintenance and the frequency of repairs constitute express warranties as to these representations. In addition, the court must determine that the buyer relied on such warranties in entering the agreement. Reversed. 2-313. Express Warranties by Affirmation, Promise, Description, Sample (p.840) (1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which related to the goods and becomes part of the basis of the bargain creates an express warranty 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 and express warranty that the goods shall conform to that 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 creation of an express warranty that the seller use formal words such as warrant or guarantee or that he have a specific intention to make a warranty, but an affirmation merely of the value of goods or a statement purporting to be merely the sellers opinion or commendation of the goods does not create a warranty. CBS, Inc. v. Ziff-Davis Publishing Co. (p. 841) corp. acquisition Facts: Plaintiff bought a business from the defendant based on financial information released to him from the defendant. He had doubts to the validity of the information, and conducted his own research to find that the information was questionable. After presenting
55
56
4.
orris v. Macks Used Cars (p.854) FACTS: Facts not stated. This was an action alleging unfair or deceptive practices in automobile sale. CONCISE RULE OF LAW: A provision providing for the disclaimer of all implied warranties under a contract for the sale of goods does not relieve the seller from liability under alternative causes of action pertaining to commercial transactions. Notes: What if you bought shoes walked around the house and they fall apart after 10 minutes. Violates ordinary purpose. What if you went mountain climbing and they fell apart? No violation because could still be fit for house unless you told them you wanted mountain climbing shoes.
In general, the UCC provisions on warranty apply, but they may not be the only provisions out there that govern sellers liability to consumers. The UCCs provisions may be supplemented.
57
58
59
60
61
62
63
This case was not governed by UCC. There are 3 different rules the court could have applied: 1. 2. perfect tender substantial performance a. some courts go beyond and see if the beach was willful (This is an exception of the rule that courts dont usually consider the reason for breach) Kent just has to pay (independent promises) a. This is no longer the law
3.
Dissent: says this was not a minor violation because the whole shipment of pipe was installed incorrectly.
64
2. MATERIAL BREACH In absence of an expressed or constructive condition to the contrary, only if a breach is material does it relieve the non-breaching party of its duty of performance under the contract. In other words, the breach must be substantial that the party despairs of additional performance in the future. B & B Equipment Co. v. Bowen (p.907) stock purchase Facts: Plaintiff entered into a contract with Bowen under which Bowen would become an equal participant in plaintiffs business for $15,000. Defendant paid $2,500 to plaintiff and a promissory note off $12,500 with interest. When those payments totaled $12,500 plus the interest, plaintiff was to deliver to defendant 100 shares of stock in the company. Defendant Bowen was also to assume primary responsibility in the corporate record keeping of the company. Bowen became engaged in outside business activities, and spent less time working for the company. He was discharged from the company, and they tendered his money paid up until this point plus dividends from the stock. Procedural History: Plaintiff filed suit to obtain a judgment declaring its right to terminate a contract under which the defendant was to purchase 100 shares of the corporate stock. Trial court rendered declaratory judgment as prayed by plaintiff and defendant appeals. Issues: 1) Whether the breach was a substantial part of the contract or incidental to the major purposes of the contract. 2) Whether the plaintiff can reasonably anticipate breach by the defendant or should be required to allow him more time to fulfill his obligations. Holding: Judgment affirmed for the plaintiff. Reasoning: 1) The intent of the contract was for the defendant to contribute valuable services to the company, and was not based on the necessity of capital offered by Bowen. 2) Because his performance was partial but defective, and plaintiff made protest and gave fair warning concerning the unacceptability of his performance, they are not required to give him more time to fulfill his obligations. Lane Enterprises, Inc. v. L.B. Foster Co. (p.910) coated bridge components Facts: Foster agreed to sell bridge components to Hammond for use in constructing a bridge in Ohio. This Hammond Agreement required the components to be coated in accordance with ODOT specification. Since Foster wasnt equipped to coat the components, it hired Lane to do the coating. The Lane Agreement required the coating to be done in compliance with the ODOT specs and Lane
65
3. THE PERFECT TENDER RULE: CURE AND RESCISSION Buyers right to reject non-conforming Goods. Ramirez v. Autosport (pg 919) Defective Camper FACTS: P sought the recission of their contract to purchase a camper with defects from D, and the return of their trade-in van they had tendered pursuant to the sales agreement. CONCISE RULE: Under a contract for sale of goods, the seller is required to furnish a perfect tender of the subject matter of the contract, and the buyer may reject any nonconforming goods HOLDING: P rejected the nonconforming van within a reasonable time and D failed to cure the defects. Thus P properly exercised their rights to terminate the contract.
66
SALES CONTRACTS: The Uniform Commercial Code Pgs. 925-928 UCC 2-106. Definitions: Cancellation 4. Cancellation occurs when either party puts an end to the contract for breach by the other and its effect is the same as that of termination except that the canceling party also retains any remedy for breach of the whole contract of any unperformed balance. UCC 2-508. Cure by Seller of Improper Tender or Delivery; Replacement 1. Where any tender or delivery by the seller is rejected because mom-conforming and the time for performance has not yet expired, the seller may seasonable notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. 2. When the buyer rejects a non-conforming tender which the seller had reasonable grounds to believ would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender. UCC 2-601. Buyers Rights on Improper Delivery Subject to the provisions of this Article on breach in installment contracts (Section 2-612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2-718 and 2-719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may a) reject the whole; or b) accept the whole; or c) accept any commercial unit or units and reject the rest. UCC 2-602. Manner and Effect of Rightful Rejection 1. Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller 2. Subject to the provisions of the two following sections on rejected goods (Sections 2-603 and 2-604), a. After rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and b. If the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this Article (subsection (3) of Section 2-711), he is under a duty after rejection to hold them with reasonable care at the sellers disposition for a time sufficient to permit the seller to remove them; but c. The buyer has no further obligations with regard to goods rightfully rejected. 3. The sellers rights with respect to goods wrongfully rejected are governed by the provisions of this Article on Sellers remedies in general (Section 2-703). UCC 2-606. What Constitutes Acceptance of Goods 1. Acceptance of goods occurs when the buyer a. after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their non-conformity; or b. fails to make an effective rejection (subsection (1) of Section 2-602), but such acceptance does not occur until the buyer has had reasonable opportunity to inspect them; or c. does any act inconsistent with the sellers ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. 2. Acceptance of a part of any commercial unit is acceptance of that entire unit.
67
3.
4. 5.
6.
UCC 2-608. Revocation of Acceptance in Whole or in Part 1. The buyer may revoke his acceptance of a lot or commercial unit whose non-conformity substantially impairs its value to him if he has accepted it. a. On the reaoable assumption that its non-conformity would be cured and it has not been seasonably cured; or b. Without discovery of such non-conformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the sellers assurances. 2. Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. 3. A buyer who so revokes has the same rights and duties with regard to the goods as if he had accepted them. UCC 2-709. Action for the Price 1. When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price a. Of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to they buyer; and b. Of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances resoanbly indicate that such effort will be unavailing. 2. Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control excerpt that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the byer and payment of the judgment entitles him to any goods not resold. 3. After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2-610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for non-acceptance under the preceding section
68
UCC 2-711. Buyers Remedies in General; Buyers Security Interest in Rejected Goods 1. Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance than with respect ot any goods involved, and with respect ot the whole if the breach goes to the whole contract (Section 2-612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid a. cover and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or b. recover damages for non-delivery as provided in this Article (Section 2-713). 2. Where the seller fails to deliver or repudiates the buyer may also a. If the goods have been identified recover them as provided in this Article (Section 2-502); or b. In a proper case obtain specific performance or replevy the goods as provided in this Article (Section 2-716). 3. On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reaonbley incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (Section 2-706). Shannons guide to if seller delivers nonconforming goods, the buyer can (2-601) 1. Reject goods w/in reas time & w/ notification (2-602) i. If time for performance hasnt expired, seller may cure (2-508(1)) ii. If seller has reason to believe goods were acceptable, he may have reasonable time to substitute a conforming tender 2. Accept (by signifying he will retain despite non-conformity by not rejecting or by acting in a manner inconsistent w/ sellers ownership (2-606. i. The buyer can no longer reject (2-607(2) but ii. Buyer may revoke his acceptance w/in reas amt of time after discovery of non-conformity, if substantially impairs its value., But goods must have been accepted (2-668) on the reasonable assuption that its nonconformity would be cured
XII. OBTAINING ASSENT BY IMPROPER MEANS (Chapter 16) D. UNCONSCIONABILITY Courts scrutinize an exchange under the doctrine of unconscionability. In doing so, the court should examine the differences between the so-called procedural (having to do with the process of contracting, i.e. fraud and duress) and substantive (having to do with the resulting contract, i.e. illegality) conceptions of unconscionability. Look at disparity between price and cost. How much profit? Commercial content of agreement? Contracts of adhesion are not necessarily unconscionable. (especially if they have no surprising terms) Williams v. Walker-Thomas Furniture Co pp. 1131 ( FACTS: P, Walker-Thomas, sold furniture to D, Williams. The printed form contract contained a cross-collateral clause serving to keep a balance due on every item purchased until balance due on all items, whenever purchased, was liquidated. As a result, P retained by terms of the contract the right to reposses all items previously purchased in the event of every default. D made her last purchase and still owed a balance of $164 from prior purchases, even though she had already paid $1,400 toward clearing her account. So, D defaulted on payment and P sought to replevy all goods previously sold to D. The case involves Ds claim to defense for this action. ISSUE: Does the court have the power to refuse enforcement of contracts found to be unconscionable? RULE OF LAW: The defense of unconscionability to action on a contract is judicially recognized
69
70
(3)
Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular item, the term is not part of the agreement.
71