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ENFORCEMENT OF A CONTRACT A. Consideration MUST be bargained for. i.
Consideration must be sought by promisor in exchange of his promise and is given by the promisee in exchange for that promise. 1. The object could be useless; however, valid so long as that’s what the parties wanted. a. Kirksey v. Kirksey -- ∆ brother in law; sister in law moved in and then ∆ kicked her out – ruled mere gratuitous promise b/c the promise wasn’t bargained for–she didn’t give anything up. 2. R2§71: (1) consideration must be bargained for; (2) it’s bargained for if sought by promisor in exchange of his promise and is given by the promisee in exchange for that promise; (3) performance is act, forbearance; creation/destruction of legal relation; (4) performance must be given to the promisor or to some other person. 3. R2§79: if consideration is met, no additional requirement of gain, loss, detriment, or “mutuality of obligation.” B. Consideration is needed for an enforceable agreement i.
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Promises, generally, are sufficient consideration. 1. Conditional Promises are due only if a particular condition is satisfied. 2. Implied Promises can be sufficient consideration. a. Wood v. Lucy – fashionista gave exclusive rights to marketer, but argues no consideration from marketer – court says implied contract; “promise may be lacking, but writing instinct with obligation.” 3. Illusory Promises are not sufficient consideration (uncertain terms). a. Strong v. Sheffield – Sold business to ∆ w/ wife signing promissory note while π agreed to forebear collection for indefinite amount of time. i. Ruled insufficient consideration b/c no definite terms. b. EXCEPTION: Mattei v. Hopper – Developer agreed to buy property contingent on “satisfactory” leases w/i 120 days -- ∆ refused to sell. i. Court ruled valid and not illusory b/c satisfaction was not arbitrarily up to promisor and imposed a good faith effort to obtain leases. ii. Two Types of Satisfaction: General fitness, value, standard (far too complicated for reasonable man standard) AND Satisfaction clauses (π’s judgment sufficient to support contract – good faith) Past Consideration, generally, is not valid consideration. 1. Feinberg v. Pfeiffer – gift of employee in return for years of service held to be past consideration & not valid consideration; no exchange, no bargain. 2. EXCEPTION: R§86 – past consideration IS BINDING to the extent necessary to prevent injustice; however, (2) not binding if (a) conferred as a gift; or (b) value is disproportionate. 3. EXCEPTION: N.Y. GEN. OBLG. L. §5-1105 – PAST CONSIDERATION – valid so long as (1) in writing and (2) /s/ by promisor and would have been valid consideration but for the time it was given/performed. Moral Obligation, generally, is not valid consideration. 1. Mills v. Wyman – sick adult son, father promised to pay medical bills. Court ruled promise made in recognition of moral obligation arising out of benefit previously rec’d is unenforceable. 2. EXCEPTION – Webb v. McGowin – falling lumber case; saved ∆ from certain death but π crippled. Court ruled that it’s moral obligation, but sufficient b/c ∆ rec’d material benefit.
a. EXCEPTION to EXCEPTION – Harrington v. Taylor – axe in hand – act performed voluntarily is NOT consideration – this was not a material benefit.; Also, in contrast to Webb, these payments only for a short time while Webb’s pmts last a long time i. NOTE: Court notes: moral obligation + ∆’s admission of obligation could tip scales in favor of enforcement C. Reliance on a promise can be sufficient consideration. i.
Reliance on a promise is sufficient consideration if promisee changed position for the worse upon reliance of that promise. 1. Ricketts v. Scothorn -- grandfather/daughter – promissory note and gd quits job/takes on debt in reliance of that note. ii. A promise reasonably expected to induce action and does induce action is binding if injustice can be avoided only by enforcement. 1. R2§90 (R§90 used to have “definite & substantial character”) 2. Feinberg v. Pfeiffer – gift in return for years of svc. – past consid., but held to be sufficient b/c π gave up gainful employment in reliance on pmts. 3. D&G Stout v. Bacardi – π relied on promise of continued business relationship (∆ heavily involved in selling nego.), but ∆ backed out & π had to sell for loss. No K, but π entitled to dmg b/c reliance on promise. D. Restitution can be sufficient to enforce agreement. i.
Gains through another’s loss are unjust and should be restored – doesn’t require contract – quasicontract theory. 1. Cotnam v. Wisdom – Two surgeons render aide to dying man in street. ∆ argued no contract b/c man unconscious; Court says implied contract and πs entitled to reasonable dmgs. 2. EXCEPTION – Pyeatte v. Pyeatte – wife to support husband in law school and then divorces after graduation. Restitution isn’t available for marriages, but may be appropriate when party took advantage by nonperformance of duty. 3. LIMITED – Callano v. Oakwood Park – sold house w/ shrubbery placed by prior owner w/o π having rec’d pmt for shrubbery. Π sued ∆ for unjust enrichment, but unable to get it. Only available when no other remedy exists. 4. EXCEPTION – When one acts officiously in conferring benefit, restitution isn’t applicable. ie. Officious intermeddler mowing lawn intentionally – not a mistake E. Pre Existing Duty Rule: Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not consideration. R2§73 i.
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Alaska Packers’ Ass’n v. Domenico – boatmen /s/ K w/ ∆, but midseason (out at sea) men stopped working and demanded higher pay. ∆ signed the agreement under duress, but once back to shore only paid original amount. Court said invalid for lack of consideration – can’t use same consideration for another K ***Zheng says that consideration is really unnecessary in this day and age*** 1. EXCEPTION – Agreement to change/modify terms not invalid for lack of consideration so long as it's in writing and /s/ by party against whom it's sought to enforce the change. N.Y. Gen Oblig. L. § 5—1103 2. EXCEPTION – UCC§2-209(1) – An agreement modifying a contract within this Article needs no consideration to be binding. a. Requires good faith of legitimate commercial reason to modify terms.
3. EXCEPTION – Parties may rescind an agreement and agree to new terms if there is a recession of that first agreement and both parties mutually agree on new terms. a. Watkins & Son v. Carrig – K to excavate cellar, but mutual mistake b/c neither party knew of solid rock under house. Contractor then orally quoted 9X price to remove. ∆ sued and said the K was already agreed to. Court ruled agreement to rescind was an agreement in and of itself. Court also ruled that ∆ relinquished a right to the previous price. When ∆ yielded to the demand for a higher price and then agreed to the high price, he gave up a right to the higher price. b. Case w/ employee offered more money at another firm and current employer rescinded current agreement and adopted second agreement for more money for same job -- valid. 4. EXCEPTION – performance of a legal duty CAN be new consideration if it differs from what was required by the duty previously. R2§73 – Second Part to Pre-Existing Duty Rule
CREATING CONTRACTS
A Parties must INTEND to be bound by terms of their agreement. (Mutual Assent) ii.
Assent can be shown by words or actions. 1. Lucy v. Zehmer – Parties our drinking and ∆ agrees to sell farm (jokingly), but π took it seriously. Π went out and incurred costs in reliance on agreement. a. Court ruled when words and conduct lead reasonable person to believe in intent of party, that may be enough to satisfy requisite assent.
F. An OFFER is the conveyance of the power to create contractual obligations. i. ii.
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When offer for unilateral K, acceptance by promise or performance is sufficient unless explicitly limited to performance as only mode of acceptance. The offer must indicate the desire to enter into a contract. 1. Owen v. Tunison – π offers $$ to ∆ for property in letter. ∆ writes back with general statement re: lowest ∆ would consider. Π writes back, “I accept.” a. Court rules that mere statement of minimum selling price is not an offer to sell. Offer requires conveyance of intent to be bound. Mere statement of the price is an invitation to treat and not an offer to sell. 1. Harvey v. Facey – “Will you sell B.H.? Telegraph lowest cash price.” “Lowest possible price is 900.” “Agree.” a. Court ruled NOT an offer b/c two questions asked, (∆ only answered lowest price.) 2. EXCEPTION: Fairmount Glassworks v. Cruden -- where price quote WAS shown to be offer b/c quote CONVEYED THE POWER TO CLOSE THE DEAL. Generally, ads and price quotes are NOT offers. 1. EXCEPTION: Lefkowitz v. Great Minneapolis Store – house rules case w/ fur coat ad. a. Court ruled when offer is clear, definite, and explicit and leaves no room for negotiation, it’s an offer. Offer lasts for a reasonable amount of time, unless time is specified.
1. Ever-tite Roofing Corp. v. Green – construction contract subject to credit check, took 9 days. Contractor went to site and found other company doing job. a. Court rules that no revocation was given by π and work commenced upon π loading trucks. G. ACCEPTANCE is the creation of the binding obligation of another party. i.
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Acceptance is the creation of the binding obligation on another party. 1. International Filter Co. v. Conroe Gin – ∆ tried revoking offer to sell water filter to π postacceptance, arguing acceptance was insufficient. Court ruled acceptance was sufficient b/c notice of acceptance wasn’t required in this case. Any conduct that would evidence meeting of the minds can be construed as acceptance. Acceptance must be conveyed (notice) to the offeror. 1. White v. Corlies & Tift – π started buying lumber in preparation for job prior to π receiving acceptance and ∆ sent revocation of the offer. Court said π did not act to indicate acceptance and buying lumber (with only mental determination) without notice of acceptance to ∆ wasn’t specific enough to warrant acceptance. 2. EXCEPTION: Notice of Acceptance not required in a unilateral K. – Carlill v. Carbolic Smoke Ball Co. – π used ∆’s product in advertisement, but still got sick and wanted money back. Court says if offer suggests that act would be sufficient w/o communicating acceptance, performance of act is sufficient acceptance. Acceptance is valid when sent. MAILBOX RULE – caveat – when wrongly postmarked, offeree loses mailbox power. 1. EXCEPTION – R2§63 – Acceptance under an OPTION CONTRACT is not operative until received by the offeror.
H. TERMINATION OF ACCEPTANCE i. ii.
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LAPSE OF OFFER 1. By either specified or reasonable amount of time. See Ever-Tite. REVOCATION – Revocation is effective when the offeree RECIEVES a manifestation of intention not to be bound. 1. REVOCATION must be conveyed to the offeree. 2. Exception: MAILBOX RULE – Once offeree sends acceptance, offeror cannot revoke. a. Revocation Under the Mailbox Rule: Revocation is only valid upon receipt. R§42. 3. Exception: A PROMISE TO HOLD OPEN MUST BE SUPPORTED BY CONSIDERATION. Dickinson v. Dodds – ∆ gives π until 9:00 AM Friday to accept offer to buy ∆'s house. In meantime, ∆ sells to 3rd party. Next morning, π gives ∆ acceptance, but ∆ says sorry, already sold. Court rules not binding b/c no consideration. 4. Exception: FIRM OFFER RULE – UCC §2-205 – promise for goods (BY A MERCHANT) to hold open despite absence of consideration – (1) cannot last more than 3 months; and (2) both parties must /s/. 5. Exception: SEEKING PERFORMANCE – R2§45 – Where the offer invites the offeree to accept by performance and does not invite a promissory acceptance, an option contract is created when the offeree begins performance. 6. Exception: RELIANCE – OPTION CONTRACT – R§87(2) – must be in writing for §87 to apply, offer which reasonably expects (and does) induce action before acceptance is binding as an option contract to the extent necessary to avoid injustice.
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7. Exception: RELIANCE – Promise which promisor should reasonably expect to induce action or forbearance of a definite and on part of the promisee, and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the promise. a. Drennan v. Star Paving Co. – Subcontractor refused to do work in accordance with bid to contractor when sub made error submitting his bid to π. Π relied on ∆’s bid price in calculating bid. Court held that bid was silent as to revocation and contractor relied on the bid – ∆ knew π was going to rely on the bid. 8. An offeree’s power of acceptance is terminated when the offeree receives from the offeror a manifestation of intention not to enter into the the proposed contract. – R2§42 OFFEROR’S DEATH OR INCAPACITY REJECTION – MIRROR IMAGE RULE – An acceptance must comply exactly with the requirements of the offer, omitting nothing from the promise or performance requested. R§59 – Mirror Image Rule 1. Any variation in terms constitutes a counter-offer. 2. Acceptance must be definite and unequivocal – anything that is equivocal, adds a term, etc. is NOT an offer and must be accepted by the original offeror. 3. Counter-Offer – must propose a substituted bargain, or impose some condition not implicit in the original offer. a. E.g. Adding conditions already implied in the offer (conveyance of title in a home sale) is NOT a counter-offer. R§59. 4. LAST SHOT RULE – If performance has taken place following an exchange of messages, parties believed they had a contract, but terms of contract were never an exact match. Whoever sent the last message before performance began usually prevails. 5. Exception – A mere inquiry into the possibility of different terms is usually not a rejection/counter-offer.
I. EXCEPTION TO MIRROR IMAGE UCC §2-207 – Not limited to contracts where forms are used. i.
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A definite and seasonable expression of acceptance or a written confirmation may operate as acceptance even though it states terms additional to or different from those offered and agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms. UCC §2-207(1). 1. Conduct by both parties which recognizes existence of contract is sufficient. 2. “Additional to” = not in the original offer; “Different” = conflict with the purchase order – Neither differing nor additional terms will prevent contract formation; however, THEY WILL BE TREATED DIFFERENTLY UNDER §2-207(2)!! 3. Exception: Unless acceptance is expressly made conditional on assent to additional terms. a. ACCEPTANCE UNDER THE (1) PROVISO: i. Under the proviso, unless acceptance is made pursuant to the ASSENT to the terms on the acknowledgment form, NO CONTRACT IS MADE. ii. *Caveat – The language must state “expressly made conditional” and not merely “subject to” – It has to track the §2-207 language almost identically. 4. When one party is not a merchant, additional terms are seen as proposals; however, if both merchants, additional terms are incorporated; unless: (1) offer expressly limits acceptance to the terms of the offer; (2) the terms materially alter the contract; or (3) notification of objection is given within a reasonable time after notice of them is received.
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Contract Formation Through Exchange of Forms: 1. Dorton v. Collins & Aikman Corp. – When contract is recognized under §2-207(1), additional terms are treated as “proposals for addition” under §2-207(2) when transaction is between merchants, but if not K under 2-207(1) because no definite expression of acceptance exists or because the offeree’s acceptance is expressly conditioned on the offeror’s assent to the additional or different terms, the entire transaction falls apart. When agreement formed under UCC §2-207(3), terms consists of those on which parties’ writings agree plus gap filler terms provided by UCC. 1. Itoh & Co. Inc. v. Jordan Int’l Co. – Parties contracted for steel coins, but agreement was conditioned on assent to seller’s terms. Court ruled under 2-207(3) and agreement consisted of terms with both parties agree plus gap fillers – NOT seller’s arbitration clause.
J. PRE-CONTRACTUAL LIABILITY – when negotiations break down i. ii.
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MISREPRESENTATION RESTITUTION – If party through the course of negotiations has conferred a benefit to the other party, recipient may be required to restore the benefit or its value. 1. Restitution unavailable when mutual benefit to both parties – Time, efforts, and activities expended by prospective buyers during negotiations for purchase of aircraft did not give rise to equitable claim for unjust enrichment where buyers’ efforts and services were voluntary and were designed to and had effect of protecting their own interests, even if it benefited the other party. a. Songbird Jet Ltd. V. Amax, Inc. – Court denied restitution for π when they paid for negotiating w/ a buyer to purchase a jet. Court said activities were done in regular course of business to reach mutual accommodation. 2. Party to negotiations which failed, was entitled to equitable relief for unjust enrichment arising form lengthy period of time party spent working toward other party’s goal/wishes. a. Precision Testing Labs, Inc. v. Kenyon Corp. – π provided substantial work for ∆ while negotiating. Π sought for unjust enrichment and court awarded b/c π provided services which were NOT a mutual benefit. RELIANCE – Recovery under doctrine of promissory estoppel may be available EVEN WITH NO CONTRACT when: 1. (1) clear promise; (2) reasonable and foreseeable reliance on promise; and (3) unconscionable injure would occur by non-enforcement. a. Cyberchron Corp. v. Calldata Systems –Manufacturer of military equipment (π) sought damages for broken-down negotiations w/ ∆ after ∆ pressured π to perform duties, ∆ assured “weight issues” would be solved later, and then ∆ hires another party the contract. Court rules for π – injustice would occur if not enforced. PRELIMINARY BINDING AGREEMENT – Two Types: 1. Tribune I – fully binding, formal document, binds both parties to ultimate contractual objective 2. Tribune II – parties agree to some major terms, but leaves others open for negotiation; “a mutual commitment to negotiate.” DOES NOT commit parties to ultimate contractual objectives, but rather the obligation to negotiate in good faith. If final contract is not reached, parties may abandon so long as they have made a good faith effort. 3. A letter of intent to negotiate may be binding so long as the terms are definite, consideration is exchanged, and parties intend as such.
a. Channel Home Centers v. Grossman – Parties negotiate over lease in mall. Π agrees and signs letter of intent to negotiate in good faith. ∆ tries to award lease to someone else. Court rules binding agreement to negotiate. K. DEFINITENESS i. ii. iii.
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Contracts need not specify ALL essential terms at the formation to be enforceable, there just needs to be a means to make those terms sufficiently definite by the time performance is due. “Reasonable Effort” and “Good Faith” are sufficiently definite if their content can be determined by reference to some external standard. A contract may be enforced, despite indefinite term, so long as there is a definite, ascertainable method of determining the term. 1. Toys Inc. v. F.M. Burlington Company – Lease renewal, parties agreed to renew lease; however, discrepancy over “prevailing rate”. Court rules valid option b/c there was an objective way to ascertain price. “If there’s an objective way–it’s definite enough.” 2. UCC § 2-305 OPEN PRICE TERM – (1) Parties can conclude contract even though the price is not settled. In such case, price is reasonable at the time of delivery if (a) nothing is said as to price; (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 standard. Indefiniteness and Incompleteness 1. To be enforceable, contracts don’t need to specify all essential terms at formation, just that there needs to be means to make those terms sufficiently definite by the time performance is due. 2. A contract can be incomplete in two ways: a. Relevant terms may be absent [Courts may constructively use gap fillers]; or b. Insensitive to relevant future contingencies A contract remains enforceable even if a key term becomes indefinite, as long as the parties intend to remain bound by the agreement. 1. Oglebary Norton Co. v. Armco, Inc. – iron ore shipping case. Pricing mechanisms broke down and couldn’t agree on mutual price. Court ruled there was a contract because parties intended to be bound evidenced by long term relationship of 23 years. STATUTE OF FRAUDS
A A contract, within the scope of the SOF, may not be enforced unless (1) a memorandum of it is written and (2) signed by the party against whom it will be enforced. vi.
S.O.F. goes to prove whether contract is enforceable. If you don’t pass the S.O.F. “hurdle”, the contract still exists and you can still try to go w/ promissory estoppel, restitution, quasi-contract, etc. L. First Question: Does the contract fall within the statute? i.
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Sale of Land/Interests in Property 1. Must affect title of land – long term leases, too because transfers some ownership. Also includes “right of way” Contracts impossible to be performed within one year; 1. Time starts from contract day until performance is complete. a. If oral agreement cannot be completed w/i one year, it must be in writing to be enforceable. 2. Performance must be impossible, not merely unlikely, to be performed in one year to be covered under Statute of Frauds.
a. C.R. Klewin, Inc. v. Flagship Properties, Inc. – ∆ was unhappy with π’s contracting work for first phase of construction project and hired someone else to complete second phase. Court ruled contract was silent as to time – thus not subject to SOF. 3. LIFETIME AGREEMENTS – This isn’t subject to SOF b/c while it seems to last “a lifetime”, the reality is that one of the parties could die tomorrow, ending the K. iii. Sale of Goods – only if $500 or over – SPECIAL RULES FOR SOF UNDER ARTICLE 2 1. UCC Article 2-201 a. Includes both merch/merch & merch/consumer b. “merchant” – one who regularly deals w/ goods of some kind. By his occupation, holds himself out as having knowledge for skill peculiar to goods involved. c. “goods” – things which are moveable. d. Unless specifically displaced by the Code, common law supplements the Code’s provisions. 2. SALE OF GOODS a. UCC § 2-201 Requirements: just the quantity of goods sold & that there is sufficient writing to indicate there was a sale. b. Over $500 Must be in writing, unless writing sufficient to indicate contract has been made b/w parties and /s/ by party against whom enforcement it to be sought. c. A writing is NOT insufficient because it omits or incorrectly states a term agreed upon, but the K is not enforceable beyond the quantity of goods shown in writing. d. Don’t need “essential terms” under UCC § 2-201. 3. Exception: UCC §2-201(2) Read Your Mail Exception – (1) both parties are merchants, (2) within a reasonable time of the oral contract, (3) one of the parties send written confirmation to the other, (4) which is /s/ by the sender and otherwise satisfies the SOF as against the sender, (4) the recipient has reason to know its contents and (5) does not give written notice of objection within 10 days of receipt. iv. Marriage v. Suretyship 1. Makes one person liable for the obligations of another. Con-signers, bail bondsmen. Needs the contingency element – If A fails, B will be liable. Cannot be an original agreement a. NOT SURETY – When party “jumps in” to take over another’s debt Novation. 2. Exception – Main Purpose Rule – If the surety’s Main Purpose is to his benefit, the agreement need not be in writing. Central Ceilings, Inc. v. National Amusements – where contractor orally guaranteed payment for gen contractor IF he didn’t pay [contingency] – It was in HIS benefit to get the job done, no need for writing b/c main purpose rule. vi. Executor-Admin provision. M. Second Question: Is the contract reflected in a writing that satisfies the statute? If yes, enforceable. i.
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A written memorandum – no formal requirement besides this toilet paper scribbled w/ words would be sufficient. 1. AT COMMON LAW: needs to show (1) parties that made the contract; (2) set forth the nature of the contract; (3) and state the essential terms of the k. a. Exception – For Sale of Land – Require a clear description of land b. “Essential” – depends on the terms of the K; need not state specific price so long as there is a way in the K to determine price 2. UCC § 2-201 – only thing that it MUST contain is QUANTITY of goods to be sold and the contract is not enforceable for quantity beyond that quantity. Needs to be signed by the party against whom it’s being enforced
1. A full signature not need, only a mark w/ intention of authenticating it. Letterhead could also be sufficient. – Just must show parties’ intent. Needs to be /s/ by party against who it’s being enforced. 2. Doesn’t have to be a single document, can be multiple notes that cross-reference and not every documents needs to be signed. a. Crabtree v. Elizabeth Arden Sales Corp. – employer/employee disagreement over 3 year salary, but agreement was memorized in separate memos. Court ruled meets SOF b/c they reference each other. 3. Exception: UCC §2-201(2) Read Your Mail Exception – (1) both parties are merchants, (2) within a reasonable time of the oral contract, (3) one of the parties send written confirmation to the other, (4) which is /s/ by the sender and otherwise satisfies the SOF as against the sender, (4) the recipient has reason to know its contents and does not give written notice of objection within 10 days of receipt. N. Third Question: Does the case fall within one of the exceptions to the statute that permit enforcement despite non-compliance? If yes, enforceable; if no, unenforceable. i.
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Part Performance Exception – at common law, part performance may allow enforcement of a contract that does not satisfy the statute. 1. R2§139 – If part performance, promise will be estopped from claiming S.O.F. requirement. Sale of Goods Exception – UCC § 2-201 – (3)(a) goods that are specially made for buyer; (3)(c) allows enforcement only to the extent (i) payment for the goods has been made and accepted, or (ii) goods have been delivered and accepted. 1. Goods must be made specifically for buyer, they can’t be sold in seller’s regular course of business, and seller has substantially began making or making commitments to get goods. Land Contract Provision – Seller lets buyer start improving property – requires express reliance [ie. Clear and convincing evidence standard] – only available when no other alternative. Judicial Admission Exception – UCC § 2-201(3)(b) – if existence of contract is admitted in judicial proceedings, writing not required. Reliance Exception – Parties cannot invoke Statute of Frauds if it would result in an unconscionable injury to a party that has already performed in reliance on the contract – Monarco v. Lo Greco INTERPRETING CONTRACTS
A Parole Evidence Rule i vi.
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Can apply to additional writings as well as additional oral terms – essentially, once the parties have chosen to memorialize their agreement in writing, the law presumes the parties have included the terms that make up the agreement. Two Step Process for Integration: 1. Has the writing been adopted by the parties as a final expression of one or more terms of the agreement? No? – PER doesn’t apply. Yes? It’s an integrated agreement and evidence of prior negotiations not admissible as evidence to CONTRADICT the writing. R2§209(a) a. R2§209(b) – Whether there is an integrated agreement is a matter of law to be decided by the court.
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b. R2§215 – If integrated agreement ≠ allow contradicting terms. 2. If it is an integrated agreement, did the parties determine it to be a complete and exclusive statement of terms of the agreement? Yes? – Complete Integration. No? – Partial Integration. Complete Integration 1. If the contract on its face appears to be the complete agreement, it is presumed to be the whole agreement between the parties and the only evidence admissible is the contract itself. – NO ADDITIONAL TERMS a. Gianni v. Russell tobacco/soda rights – π was a vendor renting from ∆. Prior oral agreement re: exclusive soft drink rights, but wasn’t in K. ∆ brought in another vendor who sold soft drinks. Court did not allow term in K b/c it was so interrelated that one would expect it have been included in the K at the signing. OLD WAY Partial Integration 1. If a K is only partially integrated, parol evidence may be used to prove elements not in the writing. a. Masterson v. Sine – Married couple takes possession of their in-laws ranch, but refuses to let in-laws buy it back. Court ruled that extrinsic evidence WAS allowed to find the parties’ intent. NEW WAY – LOOK AT INTENT OF THE PARTIES to see whether writing is complete.
O. Extrinsic Evidence of Intent i. ii. iii.
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Plain Meaning Rule – only applicable to Completely Integrated Contracts (under P.E.R.) – unless ambiguity in the terms can be shown within the 4 corners, then no external evidence! Two Step Process: Judge determines whether language = one plausible meaning OR ambiguous. If not ambiguous, extrinsic evidence will be excluded. 1. California Rule – if language is reasonably susceptible to alt interpretation, ext. evidence is admitted. (words have no absolute meaning, what’s important is the intention of the parties) a. Pacific Gas & Electric, Co. v. G.W. Thomas Drainage & Rigging Co. – ∆ to replace π’s cover of wind turbine & carry $50k insurance. Cover fell and injured workers/π’s property and there was disagreement over ambiguity of term whether insurance applicable to only 3rd parties. Court overturned b/c court found that extrinsic evidence to show an intent contrary to the intent construed by the trial court. 2. New York Rule – 4 Corners Approach – If the terms are unambiguous, extrinsic evidence is not admitted. a. Greenfield v. Philles Records, Inc. – Parties signed a contract re: recording artists rights to music. New technology created years after and not language not specifically stated in K. Court ruled that the plain language of the K gave the rights to ∆ and not ext. ev. Admitted. If admitted: Court determines the meaning of the evidence. Federal court must apply the the state law if where the K was formed. 1. Trident Center v. Connecticut General Life Ins., Co. – Parties have dispute over meaning of lease payment terms. Being that case was in CA, court had to apply California approach and allow ext ev. admissible b/c terms were reasonably susceptible to more than one meaning.
P. Course of Dealing, Usage of Trade, Course of Performance i. 10
UCC§1-303(d) – course of dealing, usage of trade, and court of performance can not only give meaning to ambiguous terms, but they can supplement the contract.
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Usage of Trade – a standard of practice w/i an industry that happens so often that you don’t need to include it Course of Performance – use past relationships of recurring performances and other party accepted performance w/o rejecting it. Course of Dealing – prior conduct between the parties Usage of trade and course of performance will be implied into contracts if not inconsistent to terms of agreement & trade usage is so prevalent that parties would have intended to incorporate them. 1. Nanakuli Paving & Rock, Co. – Parties agreed to provide asphalt. Π contended implied price protection term because of past dealings and usage of trade. Court agrees and enforces price protection measure because prevalent in industry. Evidence of course of performance and trade usage will be admitted to supplement unambiguous terms so long as it’s construed as consistent with terms of written agreement. 1. Columbia Nitrogen Corp. v. Royster Co. –3 year K for ∆ to buy nitrogen from π. Price falls and ∆ buys from someone else. ∆ tried showing evidence that parties deviated from stated price. Court ruled that evidence was admissible despite having merger clause in the contract!!!
Q. Objective Interpretation i.
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Where both parties are mistaken about a material term of the contract, P.E.R. doesn’t apply and the parties can introduce any evidence they want. 1. Raffles v. Wichelhaus – peerless ship case; two ships named peerless, but only parties only knew of one respectively. Mutual mistake as to on which ship cotton would be delivered. If a term is ambiguous and parties understood it differently, no contract, unless one party should have been aware of the other’s misunderstanding. 1. Oswald v. Allen – Seller thought they were selling coins in one collection while buyer thought buying coins in both collections. Court ruled no contract; when term is uncertain & parties understand it in different ways, there can be no K unless one of the parties should have been aware of the other’s understanding. **Hard to draw the line between merely ambiguous term and term that is so ambiguous that the parties never really had a K.** Where both parties are mistaken about an essential term and both parties are equally as blameless, the parties may rescind the contract. 1. Plaintiff NOT entitled to rescission because he had reason (THINK DUE DILLINGENCE) to know – Colfax Envelope Corp. v. Local No. 458-3M – π is a printer and has 2 printers; /s/ K regarding a 4 man requirement and he knew it was a typo. Court ruled that π could not get out of the contract because he had reason to know that it was a typo.
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R. Gap Filler, Warranties, Mandatory Terms Not every possibility is contained in a contract – what happens when something is not within the contract? i.
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Generally – Implication – 2 bases: 1. Courts will first look at the parties’ shared actual expectations (implied in fact terms); 2. If no expectations: a. “What would parties have done in the first place?” b. Penalty Default Rule – gives one party incentive to contract around the default term & choose which provision they prefer.
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UCC – Avoiding the Gaps 1. UCC§2-305 – Failure to agree to price? Reasonable price at time of delivery. 2. If contract is silent as to quality, no imposition of standards. “Caveat Emptor”Old Way 3. UCC Article 2 offers implied level of quality SALE OF GOODS a. Implied Warranty of Merchantability UCC §2-314 i. Implied warranty of merchantability requires that goods sold by a merchant are fit for their ordinary purpose & perform as an ordinary purchaser would expect. 1. Koken v. Black & Veatch Construction, Inc. – fire blanket case. Court ruled for ∆ b/c the standard of merchantability is whether an objective party would believe they are fit for a particular purpose, in which the fire blankets were not. 2. “merchantable” = (1) Pass w/o objection; (2) Fair, average quality; (3) Fit for ordinary purpose; (4) That the product runs; (5) Adequately packaged; and (6) Conform to the promise made on the label. 3. To Exclude the Warranty of Merchantability – UCC §2-316 – language must contain “merchantability” and be obvious b. Implied Warranty of Fitness for a Particular Purpose UCC §2-315 i. Implied warranty when seller has reason to know of specific purpose of the goods and buyer is relying on seller’s judgment to furnish suitable goods. 1. Lewis v. Mobil Oil Corp. – π relied on oil rep to furnish correct oil to use in his machine. 2. To Exclude Warranty of Fitness – UCC §2-316 – must be by a writing and be obvious – “There are no warranties that extend beyond the face thereof” c. Excluding Implied Warranties – UCC §2-316 i. All implied warranties can be excluded w/ language like: “as is” “with all faults”; ii. If seller fails to examine goods and fault could have been seen; OR iii. Implied warranties can be excluded or modified by course of dealing or course of performance or usage of trade iv. Implied warranties can be disclaimed so long as during negotiations the party became alerted that the implied warranty was being waived. 1. South Carolina Electric & Gas Co. v. Combustion Engineering – π purchased boiler from ∆, but months down the road a hose burst and caused fire @ π’s. Court found implied warranty sufficiently waived through evidence of negotiations waiving warranty. Express Warranties UCC§2-313 1. An affirmation made by the seller with respect to the goods creates a warranty that they will conform to the promise. §2-313(1)(a) 2. A description of the goods creates a warranty of conforming to description §2-313(1)(b) 3. A sample or model of goods creates warranty that the “whole of the goods” will conform to model. §2-313(1)(c) 4. HOWEVER, a mere statement of opinion doesn’t create warranty. UCC §2-313(2). 5. “Warranty” not req’d to create warranty; affirmation alone creates the warranty. UCC §2313(2). 6. No reliance by the buyer required to establish warranty. UCC 2-313(2).
PERFORMANCE AND BREACH 12
A Conditions An event, not certain to occur, which must occur, unless its nonoccurrence is excused, before a performance under a contract becomes due. R2§224 – Failure to satisfy a condition is NOT a breach. iv. v. vi. vii. viii. ix.
x.
xi.
xii.
If condition is not met, the performances will be excused and party failing to satisfy the condition is not liable. Explicit Condition – A condition that is supplied by the parties. Constructive Condition – A condition that is supplied by the court based on what is reasonable under the circumstances. Condition Precedent – condition that, until satisfied, performance is not due. Condition Subsequent – condition after duty to perform. Ie. Continuing contracts.; I will continue selling you these tickets until the Gators reach #1 in the nation. An Express Condition is satisfied only when it is complied with strictly. 1. Luttinger v. Rosen – Parties agreed to buy land conditional on buyer obtaining specific % rate. Buyer didn’t get exact % rate and court ruled only a condition, NOT a duty. Seller not required to go along w/ contract even if seller would “make up the difference”. If contract indicates that time is of the essence, strict compliance with timing of performance is required to avoid breach of the contract. 1. Internatio v. River – K to ship rice where π was to provide shipping instructions to ∆ prior to shipment, but never did. Π allowed to rescind. When condition depends on one party's subjective satisfaction, genuine dissatisfaction is sufficient for not triggering performance. – only applicable w/ art, tailoring, etc. Mechanical fitness, etc. is objective standard. 1. Gibson v. Cranage – π made K w/ ∆ for painting conditional on ∆’s satisfaction. ∆ was not satisfied and didn’t have to pay for π’s time, supplies, etc. Mitigation of Conditions 1. Prevention – Party can’t prevent a condition on their duty to perform and later claim nonperformance of condition. ie. Broker whose commission is conditioned upon closing the house is still owed his fee, even if seller prevents sale, so long as broker provided a ready, willing, and able buyer. 2. Waiver – Party, whose duty is conditional, promises to perform despite nonoccurrence of the condition or delay in occurrence – it excuses the nonoccurrence of a condition. 3. Estoppel – When a condition, previously waived, is then revoked prior to performance – party may revoke UNLESS other party has relied on waiver to an extent that would be unjust. See R§84(2); UCC§2-209(5). 4. Election – BINDING – a party that chooses to disregard the nonoccurrence of a condition is bound by an election to treat the duty as unconditional.
S. Constructive Conditions of Exchange i.
13
A court will imply a condition if the circumstances compel that the condition should exist as a matter of public policy, or if the parties addressed the issue, that they reasonably would have intended it to be part of the K.
1. Kingston v. Preston – π was to furnish security deposit in exchange for ∆’s business; however, ∆ held not required because condition not satisfied. Giving security was the condition precedent the court added. T. Mitigation i.
ii.
iii.
Substantial Performance of a contract may trigger other party’s performance if the difference is trivial. See Material Breach Section. 1. Jacob & Youngs v. Kent – reading pipe case. Court held that the difference is so tiny and insignificant that payment is still due and ∆ can due π for damages if they so choose. Divisibility – Non-performance by some terms of a severable contract will not void the other party’s duty to perform. 1. Gill v. Johnstown Lumber Co. – π agreed to ship logs to ∆, but lost some logs along the way and delivered less than “entire” order. Court ruled ∆ still had to pay for what he rec’d b/c the contract was severable b/c payment was apportioned among various logs of order, not order in its entirety (due to language in contract of $/ft). Restitution – An employee who voluntarily breaches contract for labor may still be entitled to a reasonable value of the services provided, unless contract specifically provides otherwise. 1. Britton v. Turner – Π to work for ∆ for work for one year and in return be paid $120. π started work, but voluntarily stopped prior to finishing the contract. Court ruled entitled under restitution b/c employee could be in a substantially worse position if started work than never having started at all (damages). Also, employer would be unjustly enriched w/ labor rec’d.
U. Suspending Performance and Terminating the Contract
i.
14
Material Breach – When one party material breaches a contract, the non-breaching party may repudiate its own obligations under the contract. A material breach must go to the core of the contract. 1. Walker & Co. v. Harrison – π sued ∆ for failing to pay for lease of sign after π stopped maintaining it per the terms of the contract. Court found no valid ground for ∆'s repudiation and failure to make further payments to π; ∆'s failure was deemed a material breach. If you think the other party has materially breached the contract, continue performing because if it’s deemed not to be a material breach, YOU may be liable for material breach by failing performance. 2. A material breach operates as a condition–it fails to trigger the other party’s performance; however, an immaterial breach operates as a promise & remedy for promise is damages. a. If material breach, the injured party may (i) continue forward and treat it as a partial breach; or (ii) treat it as a total breach. i. If total breach, injured party can terminate performance and collect damages for the
ii.
entire contract, not just the amount the contract was defective. 3. If a party has committed a material breach, they are not able to recovery under contract theory; however, they may be able to recover under restitution. 4. Material Breach – R§241–In determining whether a failure to render performance is material: a. The extent to which the injured party will be deprived of the benefit reasonably expected; b. The extent the injured party can be adequately compensated for the part of the benefit that he will be deprived; c. The extent to which the party failing to perform will suffer forfeiture; d. The likelihood the party failing to perform will cure his failure; e. The extent to which the conduct of the party failing to perform comports to the standards of good faith and fair dealing. Hindrance & Prevention – Conduct of of one party to a contract which prevents the other from performing his part is an excuse for nonperformance. ** If you claim prevention, it has to be obvious – courts are unwilling to grant this. 1. When one party to a contract makes a performance by the other party more difficult, it doesn’t excuse the second party’s non-performance. a. Irontrade Products v. Wilkoff Co. – ∆ to supply steel to π, but only two suppliers of steel and π bought up a ton, making it difficult for ∆ to fulfill their deal with π. Court ruled ∆ liable b/c it was still liable because it wasn’t an absolute prevention.
V. Prospective Non-Performance i.
15
Anticipatory Repudiation – if a party manifests intent to breach their duty prior to the time of performance, party repudiates the contract. 1. Manifestation must be very clear. – can be word or action 2. When one party repudiates the contract, the other party can file suit for damages immediately or wait until nonperformance. a. Hochestery v. De La Tour – patron repudiates contract with courier and Court rules that courier can sue for damages immediately in order to mitigate. 3. A party must be able to perform their obligation in order to recovery on the other party’s repudiation. a. Kanavos v. Hancock Bank & Trust Co. – ∆ (bank) gave π right to buy stock before available to anyone else; however, ∆ ended up selling it without notice to π. i. Court ruled no repudiation because π didn’t have funds to perform contract anyways. 4. Retracting Repudiation – R2§256 – you can retract your repudiation prior to the other party suffering damages of reliance (reliance doctrine) a. Exception – repudiation NOT retractable when (1) other party considers it final OR (2) nonrepudiating party materially alters their position. 5. Assurance of Due Performance – UCC §2-206(1) – when reasonable grounds for insecurity exists, Party A may in writing demand an assurance of Party B’s due performance and until Party A receives assurance, Party A can suspend performance; if no response after receiving demand, Party A can treat as repudiation. a. Reasonable Grounds = reasonable party would feel that his expectation of full performance is threatened. – not mere nervousness. Look at: amount of time until performance is due, whether other party has been unreliable in the past, whether the assurance-seeking-party has reason to believe the other party will be unable to perform, etc. b. Adequate Assurance = generally at least what Party A is requesting; anything less will generally be inadequate.
c. R2§251 – failure to give assurance may be treated as repudiation; i. (1) reasonable grounds exist for breach, obligee may give demand for adequate assurance and can suspend performance until he receives performance; (2) failure to provide adequate assurance within reasonable amount of time = repudiation. 6. A party to a contract may demand written assurance from the other party that performance will occur if there are reasonable grounds to believe that performance is not likely. a. By-Lo Oil v. Partech – Y2k case with computer software. Π freaking out about not getting update in time and spends gobs of money on other software despite receiving assurance from ∆. Court rules what ∆ gave was adequate, despite it being less than requested.
REMEDIES
Two Primary Objectives ii. iii.
Relieve aggrieved parties instead of punishing promisors; and Put promisee in as good a position had the contract been performed.
A Specific Performance iv.
v.
vi.
Specific Performance may be awarded when item is one of a kind; OR monetary damages would be impossible to calculate. 1. Campbell Soup Co. v. Wentz – Π contracted to buy from ∆ however all carrots ∆ produced on his farm @ certain price. Market price takes a climb & ∆ refuses to sell π carrots at price and instead sells carrots to neighbor who sells them to π. a. Court ruled that π entitled to specific performance because it was a commercially unavailable good – these were special carrots that their machines were specifically tuned for. Specific Performance can be awarded for the assurance a long-term contract would provide. 1. Laclede Gas Co. v. Armoco Oil Co. – Contract for ∆ to supply gas to π for sub-developments. ∆ terminates K and π sues for specific performance. a. Court rules for specific performance b/c while ∆ had other K’s for providers of propane, they had a long term contract w/ ∆ to provide propane, something that isn’t assured on the open market and thus unique to π’s position. Specific performance NOT available when monetary damages are available and adequate to remedy the breach. 1. Klein v. PepsiCo, Inc. – π to buy jet, but 2 days before jet to be sold, ∆ takes it off the market. a. Court says no specific performance b/c jet was not unique and increase in price of replacement doesn’t warrant specific performance. Also, money damages adequate because π was going to sell the plane anyways… He could have just calculated the profit he was going to make.
W. Expectation Damages Expectation damages put the injured party in a similar position had the contract been performed. – not expenses related to contract performance (ie. trade show failure to deliver – the injured party 16
would be entitled to lost sales HOWEVER, they would have incurred expenses going to the trade show in the first place – not recoverable.) Where should the injured party have ended up? Where is the injured party now? What’s going to take to put the injured party to where they would have ended up? i.
ii.
iii.
iv.
Expectation damages are available for actual losses caused by the breach, but are not available in excess to punish the breaching party. 1. United States Naval Institute v. Charter Communications, Inc. – π sues for ∆ releasing paperback copy of book early and contends hurt sales of hardcover. a. Court looks only at difference between the sales of hardcover books Pain and suffering & emotional distress that flow naturally from a breach are compensable damages under either expectancy or reliance measure. 1. Sullivan v. O’Conner – doctor messes up dancer’s nose and she wants expected increase in value from nose. She ends up waiving her claim because doctor waived his, but still entitled to pain and suffering of secondary surgeries because those weren’t originally anticipated from agreement. USE EXPECTATION DAMAGES IN COMMERCIAL SETTINGS BECAUSE SOLE GOAL OF PARTY IS TO GET PROFIT. 1. Courts generally unlikely to award opportunity cost; however, if you can prove it, you may have a shot. How to determine 1. The cost of performing contract after breach occurred. 2. The difference in market value if contract had performed. a. Jacob & Youngs v. Kent – reading pipe case. Court ruled that π owed difference in market value of having other pipe installed and NOT tearing out pipe and replacing b/c that would have been way out of proportion. 3. R§347: a. Loss of value to him of the other party’s performance by its failure; PLUS b. Any other loss, including incidental or consequential loss caused by breach; LESS c. Any cost or other loss that he has avoided by not having to perform. d. Damages = loss in value + other costs – cost and loss avoided.
X. Reliance Damages Reliance damages aim to put the injured party in position had the contract not been made. Reliance damages can be used instead of or in addition to expectancy damages. Reliance damages are losses spent in reliance on the promise. i.
The true difference between Reliance Damages and Expectancy Damages is the hypothetical increase in value.
Y. Restitution Damages Restitution Damage is the value conferred from injured party to breaching party. The goal of Restitution is to restore the injured party to their original position had the contract not been made. i. 17
A party is entitled to recovery under unjust enrichment due to a party’s breach even though the party would have stood to lose money had the contract been fully performed because the party is due just compensation for benefit conferred to breaching party.
1. United States v. Algernon Blair, Inc. – π furnished labor and equip. to ∆ who breached K w/o fully paying for them. Court switched from expectancy to restitution b/c it would be unjust for π not to recovery on ∆’s breach. Loss is irrelevant b/c restitution is based on reasonable value of performance. Z. Avoidability–Mitigation i.
When a breach occurs, the non-breaching party has duty not to increase the resulting damages. 1. Rockingham County v. Luten Bridge Co. – ∆ hired π to build bridge, but later ∆ voted to not have bridge built after π started work. Π continued working on bridge despite notice of ∆ to stop work. Court ruled π had duty to not aggravate damages.
AA. i.
Foreseeability An injured party may recover all damages reasonably foreseeable to both parties at time of making contract as well as special conditions communicated to and known by all parties at contract formation. 1. Hadley v. Baxendale – ∆ failed to timely delivery π’s machine part for repair and caused π undue financial burden. ∆ unaware of π’s special hardship (only one crankshaft) and cannot be held liable for damages that were unknown and unreasonable. ∆ didn’t charge π any extra for expedited delivery, etc. ∆ didn’t know. 2. Kenford Co. v. County of Erie – π bought land around proposed stadium site in anticipation of property appreciation. When stadium plans fell through, π sues. Court says ∆ not liable for loss of expected appreciation b/c no evidence to show parties contemplated ∆’s assumption of risk.
AB. i.
Certainty Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable certainty. R2§352. Where adequate evidence of anticipated profits is presented, damages for lost anticipated profits will be permitted even for a new business. 1. Fera v. Village Plaza, Inc. – π entered into a commercial lease for space in ∆’s shopping center and ∆ breached agreement; π’s sued and provided testimony that established reasonably certainty as to recover on anticipated profits.
ii.
AC.
Liquidated Damages
Liquidated damages are damages which the parties specify at contract formation to be paid by breaching-party if breach were to occur. i.
18
Liquidated damages are available when the parties agree when making contract to pay for stipulated amount when (1) damages would be impossible to calculate, (2) reasonable effort made by parties to fix the damages, and (3) the amount is reasonable to the damages sustained. 1. Dave Gustafon & Co. v. State – Π resurfaced road, but was late 67 days. State deducted % of pay from final pay and stated liquidated damages based on graduated scale provided in contract. a. Court says liquidated damages were appropriate because damage sustained from DELAY in construction of highway were impossible to calculate; loss from delay use form highway, inconvenience, etc. is fair amount; and amount bears reasonable relation to amount lost.
2. Lake River Corp. v. Carborundum Co. – Carborundum hires Lake river to bag and ship product. ∆ requires π to buy new machine and parties agree to add cost of machine plus minimum amount of product to be packaged @20% profit. a. Court ruled the liquidated damages were not available because they were grossly disproportionate to actual loss and penalized breach differently. VALIDITY OF CONTRACTS
A Capacity ii.
AD. i.
ii.
AE. i.
ii. 19
A contract can be declared void if a party is unable to understand the transaction and the other party knew or had reason to know of the incapacity. 1. Ortelere v. Teachers’ Retirement Bd. – Sick and mentally unstable wife took out a bunch of her retirement and left husband w/o any money upon her death. Employer KNEW of her condition and Court ruled contract was set aside due to her mental incapacity. **Zheng says court got it wrong – wife knew exactly what she was doing – it was in the best interest of her and her family. 2. Cundick v. Broadbent – Old man sold property, but wife later tried getting it set aside b/c old man’s lack of capacity. No evidence to prove anyone knew of man’s medical condition. a. Court says valid contract because no evidence for mental condition and had lawyer negotiating for him. Old man understood what he was doing. Duress Impermissible pressure extended over an individual during pre-contractual negotiations is not permissible. 1. Alaska Packers’ Ass’n v. Domenico – boatmen signed a contract with ∆, but midseason (out at sea) men stopped working and demanded higher pay. ∆ signed the agreement under duress, but once back to shore only paid original amount. a. Court said it would be unfair to hold for π b/c K was signed under duress. To permit recovery for π would legalize fraud. Limits to Duress: Law requires party to resist to the pressure and not all threats constitute duress. Threats for illegal acts (bodily harm, etc) are not okay, but as long as the party has legal right to do something (file a lawsuit), they can pretty much be okay. Unjust and inequitable right, despite it being fair may still be unlawful = threatening to fire at-will employee with discharge. Concealment Bare nondisclosure (concealment) is irrelevant – no need for seller to tell buyer everything he knows (unless legal duty exists) (Also, no duty to say anything, but if you do = DUTY TO DISCLOSE) 1. Swinton c. Whitinsville Sav. Bank. – Bank selling house knowingly infested w/ termites. Didn’t inform buyer (bare non disclosure) & condition unable to be detected visually. a. Court rules caveat emptor – no duty of bank to tell seller of everything wrong. Affirmative conduct, more than latent non-disclosure, constitutes deceptive behavior and allows other party remedy.
1. Kannavos v. Annino – Greek immigrant purchased property to rent based on fraudulent ads re: zoning restrictions. a. Court ruled ∆’s actions constituted more than mere-nondisclosure, DESPITE π’s ability to find facts about zoning restrictions through public records. AF.Misrepresentation i. ii. iii. iv.
AG. i.
ii.
AH. i.
ii.
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Nondisclosure requires the party know a statement to be false OR at least have a reckless disregard for its truth. The misrepresentation must be material. Promissory Fraud – When promissor, at the time of making promise, had no intention to perform. If misrepresentation rises to level of fraud, parties can get out of the contract. A promise that is intended merely as an aspirational, optimistic statement is not an enforceable promise. 1. Speakers of Sport v. ProServ – Sports agency told Ivan Rodriguez that they can guarantee $2 million in endorsement deals if he /s/ with them. He left Speakers and proceeded to go to ProServ, but didn’t fulfill promise. Π sued and said fraudulent promises to steal players away. a. Court ruled merely puffing because no intent to defraud – merely optimistic statement. Unfair Terms Where consideration for a bargain is so inadequate as to be unconscionable and there is great inequity between the parties, an equitable remedy cannot be used to enforce the agreement against the oppressed party. 1. McKinnon v. Benedict – π gave loan to ∆ to help start campground resort, but restricted ∆ from improving property for 25 years. a. Court ruled terms unfair because inadequate consideration, disparity in terms, π’s inability to bargain at arms length – failed to meet reasonableness requirement. Courts should look at agreement from parties’ perspective at time of agreement to determine fairness. 1. Tuckwiller v. Tuckwiller – Daughter-in-law to take care of aunt in law who has Parkinson’s. Daughter-in-law quits job and AIL wills farm to her. AIL dies shortly after before officially able to change will. a. Court rules fair and not unconscionable. Witness to agreement clear intention of aunt’s satisfaction w/ terms. Standard Form and Adhesion Contracts Contracts waiving liability are generally enforced unless it would be against public policy or if relationship of parties warranted difference. 1. O’Callaghan v. Waller & Beckwith Realty Co. – π fell in courtyard, but exculpatory clause waived any and all landlord’s liability. a. Court ruled conditions aren’t so dire as to leave π without economic leverage. She could have bargained for term change if she didn’t like it. Adhesion contracts are enforceable EXCEPT when the provisions (1) contradict adherents’ reasonable expectations or (2) are unconscionable or unduly oppressive. 1. Graham v. Scissor-Tail, Inc. – Parties signed agreement that contained arbitration clause and π sued as it was adhesive. Court ruled that not enough evidence to prove it differed from π’s expectations because he probably knew about the clause through prior dealings.
iii.
Where a party effectively manifests assent to a standardized expression of agreement, and the other party has reason to believe that he would not have done so if he had known that it contained a particular term, “the term is not part of the agreement.” R§211(3) 1. Only applies to terms that are “beyond the range of reasonable expectation.”
AI. Unconscionability There is no objective way of interpreting unconscionability – it’s always up to the judge for a judgment call. i. ii.
UCC § 2-302 – authorizes a Court to refuse to enforce or to limit the application of a K or clause that it determines to have been unconscionable at the time of making. Contract still exists, just certain parts unenforceable. A contract is unenforceable if, at the time of formation and considered in light of the circumstances, the terms are so extreme as to appear unconscionable according to prevailing business practices. 1. Williams v. Walker-Thomas Furniture Co. – π’s leasing policy allowed repossession of any prior goods after default regardless of balance owed on goods. a. Court adopts UCC§2-302. Court can’t enforce it even if both parties agreed to it as a matter of contract law.
AJ.Performing in Good Faith A good faith requirement is implied into every contract. i.
ii.
iii.
AK. i. ii.
iii.
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R§205 & UCC§1-304 – Implied Duty of Good Faith – Every contract or duty within UCC imposes an obligation of good faith in its performance and enforcement. 1. Only about enforcement and neither negotiation nor formation. A breach of an implied duty of good faith performance can result in damages for the injured party. 1. Dalton v. Education Testing Service –SAT Case; ETS failed to investigate in good faith evidence provided. Court ruled ETS failed to comply with their terms which carried implied assurance of good faith. Good faith is a reasonable standard – Best effort is a higher standard that best effort. 1. Bloor v. Falstaff Brewing Co. – Brewery failed to keep best efforts, as required in contract, to continue the sales of an acquired beer brand. “Best effort” is satisfied when “reasonable effort by prudent, comparable business person” is met; however, ∆ not required to spend himself into bankruptcy. Unenforceable as a Matter of Public Policy Illegal Contracts – An agreement that violates criminal laws. Courts cannot hear disputes about contracts which violate public policy by being illegal or tending to promote illegal activity. – inferred from statute. 1. Bovard v. American Horse Enterprises, Inc. – court held purchase of manufacturer of drug paraphernalia unenforceable because the business violated public policy inferred from the statutes. Judges can refuse to enforce agreements that (b)(i) restrict trade & (b)(ii) impair family relations. R§179.
iv.
v.
A covenant not to compete is valid and enforceable only if it is shown that the covenant is (1) in writing; (2) part of a contract of employment; (3) based on reasonable consideration; (4) reasonable in geographic limitation and duration; (5) not against public policy. 1. Hopper v. All Pet Animal Clinic – Hopper opened her own vet clinic near All Pet after All Pet fired her; All Pet claimed violation of non-compete. a. Court stated NOT against public policy because five miles is a reasonable distance and it only restricted doctor on performing on small dogs/cats. Court modified term to one year, though. Surrogacy contracts that involve the payment of money to a woman who irrevocably agrees to bear a child and turn it over to another party are illegal and invalid. 1. In the Matter of Baby M – π paid ∆ $$$ to bear child by artificial insemination and ∆ refused to relinquish child to π after child born. GETTING OUT OF CONTRACTS
A Mistakes vi.
vii.
viii.
AL. i.
ii.
AM. 22
Unilateral Mistake makes contract voidable if mistake was to a basic assumption of the contract and has a material effect upon mistaken party UNLESS: 1. Mistaken party bears risk of mistake; AND a. Enforcement of contract would be unconscionable; OR b. The other party had reason to know of the mistake or his fault caused the mistake. 2. If party tries to get out of contract because of mistake and it’s their fault, they can’t get out. 3. Remedy to unilateral mistake is normally rescission and restitution. Mutual Mistake allows parties to get out of the contract so long as they don’t bear the risk of the mistake. 1. Renner v. Kehl – both parties mistaken about water on land for π’s jojoba farming endeavor. If a mistake is mutual and one party carries the burden of that mistake, the party will not be allowed to rescind the contract. 1. Stees v. Leonard – construction on bad soil and house kept falling. Contractor was ruled have implied risk because he held a level of expertise – he should have done his research before constructing the house. Impracticability – Certain circumstances have made the contract impracticable. Where performance depends upon existence of a given thing, and such existence was assumed as the basis of the agreement, performance is excused to exist or turns out to be nonexistent. 1. Mineral Park v. Howard – Defendant held excused from performing his contract to take gravel from plaintiffs' land by the fact that it was under water and would cost 10 or 12 times more to obtain than if it were dry. If contract performance depends on the continued existence of a person or thing, and that person or thing ceases to exist, performance may be excused for impossibility of performance. 1. Taylor v. Caldwell – ∆ had a music hall that was burned down and π sued for advertising Frustration of Purpose
i.
AN. i.
23
Discharge by Supervening Frustration – R2§265 – Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the nonoccurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary. 1. Parade case Half Measures R2§272 – Relief Including Restitution – (1) In any case governed by the rules stated in this Chapter, either party may have a claim for relief including restitution under the rules stated in §§ 240 and 377. 1. (2) In any case governed by the rules stated in this Chapter, if those rules together with the rules stated in Chapter 16 will not avoid injustice, the court may grant relief on such terms as justice requires including protection of the parties' reliance interests. 2. Use this when a party breaches their contract pursuant to frustration of purpose, etc.
