I. CONTRACTS IN GENERAL A. What is a contract? 1. R 2d 1 Contract Defined a.

. A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. B. T !es of Contracts 1. Express a. Parties expressly agree to certain words and terms. . !mplied in "act a. #o express agreement b. $onduct of the parties implies an agreement from which an obligation in contract can be said to exist. c. %reated the same way as express contracts . &. !mplied in 'aw ()uasi $ontracts* a. #ot a contract at all. b. +ecovery is where ,ustice so re-uires. c. #o reference to intentions or expressions of the parties. d. .uty based on concept of un,ust enrichment. /. Bilateral $ontract a. A promise is exchanged for a promise. b. 0ust be mutuality of obligation. i. Either both parties are bound or neither are bound. 1. 2nilateral $ontract a. A promise is exchanged for a performance or something else. b. 3nly one promise is present. c. Person performing is not bound to perform the act, but if she begins, the promise becomes enforceable. $. Re"#ired E$e%ents of A Contract 1. Bargain (+ d 14* a. "ormation of a contract re-uires a bargain which includes manifestation of mutual assent and consideration. 2. Mutual Assent a. %a5es place through offer and acceptance. b. +e-uires that each party ma5es a promise and6or begins to render a performance. &. Consideration (+ d 41* a. A performance or return promise must be bargained for. b. 0ay consist of act, forbearance, or changing legal relation. .. A$ternati&es To Contract 1. Promissory Estoppel a. #o contract created, but promises reasonably induce action or forbearance on the other party7s part and therefore the promise is held binding when necessary to avoid in,ustice. b. +eliance is enough to re-uire enforcement even though there was no bargain or consideration. . 2n,ust Enrichment a. Enforcement allowed in cases where it would be un,ust to let a party receive a benefit without having to pay for it. 1

II. CONSIDERATION8 Assuming that there is a sufficiently definite and sufficiently formal agreement, the plaintiff must show that the agreement was supported by ade-uate consideration. A. R#$es In&o$&ed 1. R 2d 1' Re"#ire%ent of a (ar)ain 2. R 2d '1 Re"#ire%ent of E*chan)e+ T !es of E*chan)es a. %o constitute a consideration, a performance or a return promise must be bargained for. b A performance or return promise is bargained for if it is sought by $onsideration the promisor in exchange for his promise and is given by the promisee may be act or forbearance or in exchange for that promise changing of &. R 2d ', -erfor%ance of Le)a$ D#t (If you perform a duty you already legal owe, not consideration unless that duty modified) relationship /. R 2d '. / Sett$e%ent of C$ai%s (Forbearing from asserting an in alid claim not alid unless uncertainty as to claim being alid or forbearing party belie ing claim is alid*. 1. R 2d '0 Ade"#ac of Consideration+ 1#t#a$it of O2$i)ation (!here does not ha e to be a benefit to the promisor or a loss to the promisee. !here doesn"t ha e to be e#ui alent alues e$changed.) 9. R 2d 31 Consideration as 1oti&e or Ind#cin) Ca#se (%hat is bargained for doesn"t ha e to be what induces that ma&ing of a promise and can still be consideration if it isn"t). 4. R 2d 34 -ro%ise for (enefit Recei&ed ('romise in recognition of past benefit binding to e$tent its necessary to pre ent in(ustice* a. 0aterial Benefit +ule8 A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary to prevent in,ustice b. A promise is not binding under :ubsection (1* i. !f the promisee conferred the benefit as a gift or for other reasons the promisor has not been un,ustly enriched; or ii. %o the extent that its value is disproportionate to the benefit. B. (asic E$e%ents 1. :erves to distinguish between promises that are and are not enforceable. . $ontracts that lac5 consideration are not enforced. &. .efinition8 a. A bargained for exchange. Either bilateral or unilateral i. Bilateral is a promise for a promise ii. 2nilateral is a promise for a performance. $. -ro%ises to 1a5e a Gift 1. A gratuitous promise is a promise to give a gift now or in the future. . <ratuitous promises always lac5 consideration because they fail for lac5 of bargain. &. .onative promises are unenforceable because there is lac5 of consideration. /. =amer v. :idway (p. /1* (forbearance is ade#uate e en if beneficial))benefit*detriment test* benefit is irrele ant) a. $ase where uncle promises to pay nephew if nephew refrains from drin5ing, smo5ing, etc. b. .7s estate refuses to pay saying it was to benefit to P. c. +eminds that consideration can either involve interest, profit or benefit accruing to one party, 3+ forbearance, detriment, loss or responsibility given, suffered, or underta5en by the other party. d. "orbearance is performance.

1. :t. Peter v. Pioneer %heater $orporation (p. /4* (changes rule from benefit+detriment to bargained for e$change))ade#uacy of consideration) a. $ase where ban5 lottery held and ban5 manager refuses to pay money to winner, arguing no consideration because plaintiff didn7t pay anything and if there was consideration, there was a lottery. b. %he sufficiency of consideration lies wholly within the discretion of the one who offers to pay the prize i. !t doesn7t matter how insignificant the benefit may apparently be to the promisor or how slight the inconvenience may be to the promisee. ii. >hen a promisor ma5es a promise contingent on another performing an act he is not legally obligated to perform, an affirmative act by a promisee constitutes consideration. c. Promisor must honor all unilateral contracts he initiates even if benefit arising from consideration is minimal. d. $onsideration ? signing register; waiting outside for prize. 9. @ir5sey v. @ir5sey (p. 1& * (Consideration . ,ratuitous 'romise) ),ift not binding when conditions are not bargained for) a. P writes to . ma5ing promise that if P moves from her house to .7s lot, . will give her a place to raise family. P abandons possessions, moving to .. years later, . re-uires her to move. b. $ourt holds that the original promise unenforceable. i. .7s promise was a mere gratuity and lac5ed consideration. ii. P moving her family is a necessary precondition for her to receive the gift that . offered her. c. <ifts do not carry consideration, even when acceptance re-uires the recipient to ta5e efforts and6or ma5e sacrifices. d. A necessary condition of a gift is not a detriment for a promise. 4. !n re <reene (p. 1&/* (-ominal consideration not binding )sham) a. P having an affair with ban5rupt. "ormal contract signed upon end of relationship and said in exchange for promises by ban5rupt, P would pay A1 and Bother good and valuable considerationC as well as releasing ban5rupt from any legal claims. b. +elease from Bimaginary claimsC not binding; A1 consideration is nominal. c. $an7t base consideration on past cohabitation. d. .ubstanti e goal of consideration is to not allow the enforcement of gratuitous promises e en when the parties want to be bound. .. Ade"#ac of Consideration 1. #ominal $onsideration .octrine a. !f there is a bargain in fact, courts do not in-uire into ade-uacy of consideration. b. $ourts only interfere where consideration is nominal 2. It is the e$istence of a bargain that matters, not whether the bargain is e#ual from the standpoint of the ob(ecti e obser er. )'eppercorn !heory) &. $omment . a. B.isparity in valueDsometimes indicates that the purported consideration was not in fact bargained for but was a mere formality or pretense.C /. Batsa5is v. .emotsis (p. 1//* )Ade#uacy decided by parties to contract + not courts* a. P loaned . 1EE,EEE drachmae, e-uivalent to A 1 in exchange for A EEE plus interest to be paid upon .7s return to 2:. 2pon return, . says want of consideration of A in 1F41. b. $ourt holds it will not in-uire into sufficiency of the consideration when the parties get exactly what they contract for. &

c. %he inade-uacy of agreed to consideration does not void a contract, therefore this contract is valid. 1. >olford v. Powers (p. 1/4* ('arties free to fi$ own alues to consideration + courts won"t #uestion ade#uacy) a. Powers had given promissory note that in exchange for baby being named after him, he would ta5e care of boy. "ive months after baby born, A1E,EEE promissory note signed. .7s estate doesn7t want to pay b6c lac5 of consideration b. $ourt holds estimate of value of consideration should be left undisturbed unless there is evidence of fraud. c. >here a party contracts for the performance of an act that will please him or express his appreciation for a service done on his behalf, there is consideration. d. .ecision supports Freedom of Contract !heory

III. O(6ECTI7E T8EOR9 O: ASSENT A. -#r!ose 1. 0utual assent is re-uired within a contract because it provides an o2;ecti&e standard (reasonable person standard* to determine whether a promisor intends to be bound. . %he ob,ective determinate of assent is what meaning a reasonable person would ascribe to the words and actions of the parties. &. !f an alleged promisor7s words and conduct are of the sort that normally would indicate to a reasonable recipient that the promisor intends to be bound, then the promisor will be bound notwithstanding any secret, or sub,ective intent not to be bound. B. R#$es on Assent 1. R 2d 13 1anifestation of 1#t#a$ Assent 1. B0anifestation of mutual assent to an exchange re-uires that each party either ma5e a promise or begin to render a performanceC . R 2d 2< Effect of 1is#nderstandin) (no manifestation of mutual assent to an e$change if the parties attach materially different meaning to their manifestations) &. R 2d. 22 1ode of Assent= Offer and Acce!tance (manifestation of mutual assent usually is by offer and acceptance, but can be made without either) $. Theories on Assent >1ora$ Gro#nds of ?ee!in) -ro%ises@ 1. Autonomy (>ill* %heory a. "undamental purpose of contract law is to give effect to the intentions of the parties. i. !t is the party7s free choice, which ma5es the contract binding. . +eliance %heory a. >hen a contract is made, parties rely on the promise, often changing what they would do. b. >hen promise bro5en, the reliance represents harm to the promisee caused by the breach of promise. &. !nstrumental %heory a. People enter into contracts b6c they believe they will ma5e them better off. i. $ontracts are efficient and ought to be supported. ii. Promise ma5ing benefits the parties and society by allowing them to shift the ris5 of uncertain events to the party who can bear the ris5 at the least cost. .. S#2;ecti&e &. O2;ecti&e Theor 1. :ub,ective %heory (3ld +ule* /

a. +e-uires a Bmeeting of the mindsC of parties to a contract before the contract is legally binding b. 3utward manifestations very insignificant. 2. /b(ecti e !heory )0efault 1ule) a. .oesn7t rely on actual intentions of parties. b. $ontractual obligation imposed based on what a party reasonably believes was said and done, rather than what was intended. c. Places liability on the party with the comparative advantage in minimizing the li5elihood that a misunderstanding will arise. d. !f the manifestation is at variance with the mental intent, it is the expression that is controlling. 2. 0oesn"t rely on actual intentions of parties. -ot mutual assent, but manifestation indicating such assent. ". 'ucy v. Gehmer (p. 1/* (Applies ob(ecti e theory of assent) 1. Gehmer promises to sell from to 'ucy while out at bar. Gehmer claims offer was a ,o5e, but he signed a note and had his wife sign it too. #either party was too intoxicated to not realize this was a serious transaction. . 3b,ective test ? 'ucy was reasonable when he assumed that this was a serious business transaction. &. 3utward manifestation rather than undisclosed intentions control whether a contract was made. <. 'eonard v. Pepsico (p. 1F* )/b(ecti e theory of assent) 1. Pespsico had a funny commercial advertising a ,et in exchange for Pepsi points. %he ,et was not in the catalog. Pepsico argues this was not a serious offer; 'eonard said the offer had ade-uate consideration. . $ourt must loo5 at what an ob,ective, reasonable person would have understood the commercial to convey. (ob(ecti e theory* &. $ourt found that a reasonable person would not believe this to constitute an offer. /. <eneral rule that advertisements are not valid offers. I7. Assent Thro#)h an A)ent A. (asics 1. Agency is the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and sub,ect to his control. %he relation exists if and only if the fiduciary is sub,ect to the continuous direction of the one on whose account he acts. B. T !es of A#thorit 2. Actual Authority a. Present if by the principal7s words or conduct, a reasonable person in the agent"s position would believe that the principal had so authorized him to act. 2. Apparent Authority a. %his involves a &rd party. !t is present if the words or conduct of the principal would cause a reasonable person in 3rd party"s position to believe that the principal had so authorized the agent to act. 3. 0istinction between actual and apparent authority a. Actual and apparent authority conflict where agent has not actually been given the typical degree of authority that an agent in his position usually has and a third party deals with the agent 5nowing only the agent7s position but not the special limitations placed on agent7s authority by principal. /. Inherent Authority 1

a. .erived from the characteristics of the agency relationship. b. Exists for protection of persons harmed by or dealing with an agent. c. $ustomary scope of authorityH arises because we thin5 principal should be liable. 4. 0istinction between apparent and inherent authority a. !nherent authority is a type of apparent authority, as there are many things a party can do to give the third party the belief that a principal7s agent has sufficient authority. <reatest among these is the power of position, rather than specific communication to the third party. b. In deciding what authority the agent had, the court uses the objective theory of what a 5reasonable person6 would ha e percei ed of the principal"s actions. 7. ,eneral Agents a. Agents authorized to conduct a series of transactions involving a continuity of service without receiving instructions from the principal for each and every transaction. b. 8ndisclosed 'rincipalH An undisclosed principal may be liable for acts he has forbidden a general agent to perform c. 0a5es possible modern corporations8 general agents have authority to act, but if they harm third parties, the principal from whom they act will be accountable. $. Ratification= 1. Even if the agent has no sort of authority, the principal will be bound to a third party if the agent purported to act on the principals behalf A#. the principal, with 5nowledge of the material facts either a. Affirmed the agent7s conduct by manifesting an intention to treat the agent7s conduct as authorized (EIP+E:: +A%!"!$A%!3#* b. Engaged in conduct that was ,ustifiable only if he had such an intentions (!0P'!E. +A%!"!$A%!3#* . +atification only has to be ob,ectively manifested, not communicated 7 / O::ER AND ACCE-TANCE A. There is no $e)a$$ 2indin) a)ree%ent #nti$ an offer is %ade and then acce!ted. B. Offer &. So$icitation 1. +ules dealing with offer8 1. R 2d 2. Offer Defined 1. An offer is the manifestation of willingness to enter into a bargain, so made as to ,ustify another person in understanding that his assent to that bargain is invited and will conclude it. . R 2d 24 -re$i%inar Ne)otiations (In itation to solicit an offer . offer) . %wo essential elements re-uired for a bargain8 i. !ntent to enter into a bargain. 1. 3ffer v. invitation to deal8 an offer to ma5e an offer is not an offer and an offer to enter into preliminary negotiations is not an offer. . !f the statement gives a definite sign that they are willing to do something, then it will be construed an offer. a. A form letter will generally be seen as an invitation to deal rather than an offer. b. A deal that gives the offeror the final authority to close cannot be seen as an offer. ii. $ertainty and definiteness of terms to allow offeree to 5now what is being agreed to. 1. !f essential terms (price, -uantity, sub,ect matter* are present, the court will use these as intent to determine if intent was present. 9

&. Ads and solicitations are generally not offers. i. Ads invite someone to ma5e an offer, they are not offers themselves. /. .yno $onstruction v. 0c>ane (p. / * ('rice #uotations are not offers* i. . faxed P documents with prices to enter a contract. P never got them so . sent another copy, but without the additional terms. P signed the latest version of the contract. ii. $ourt found the version signed by P was a binding contract. iii. %he original price -uotation was ,ust an invitation (an offer* to engage in future negotiations. iv. =owever, P should have 5nown about the additional terms. 1. 'ef5owitz v. <reat 0inneapolis :urplus :tore (p. /9* (Ads that are definite do constitute offers) i. . places ad in newspaper for discounted furs, saying 1st to appear at store could purchase coat for A1. P arrives, told house rules ma5e it apply only to woman. ii. %he ads in this case were clear, definite and explicit, leaving nothing open to negotiation. 1. 3nly specific actions, no further negotiations were re-uested. iii. . had right to modify offer anytime before P7s acceptance, but not after. iv. %his ad was an offer. $. Acce!tance 1. Basics a. A voluntary act of the offeree whereby he exercises the power conferred on him by the offer, and thereby creates a set of legal relations called a contract. b. 3fferor is master of his offer. . +ules .ealing with Acceptance a. + d 1E Acce!tance Defined+ Acce!tance 2 -erfor%ance+ Acce!tance 2 !ro%ise. a. Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or re-uired by the offer. b. + d 19 -re$i%inar Ne)otiations (Can"t accept solicitation for offer) c. + d &E :or% of Acce!tance In&ited (Can accept by words or actions, in any manner reasonable) i. 0efault rule is that offer can be accepted in any manner that is reasonable in the circumstances. d. + d & In&itation of -ro%ise or -erfor%ance (/fferee may choose either to accept by promise or by performance.) e. + d 9 Effect of -erfor%ance 2 Offeree Where Offer In&ites Either -erfor%ance or -ro%ise (%hen offeree has option of either, the beginning of performance is an acceptance by performance and operates as promise to complete performance) f. + d 1/ Acce!tance 2 !erfor%ance+ Necessit of Notification to Offeror (8nilateral Contracts 9 Acceptance 0oes -ot :a e !o Be Communicated) g. + d 19 Acceptance 2 -ro%ise+ Necessit of Notification To Offer (Bilateral Contracts 9 Acceptance must be communicated 1. 3fferee must exercise reasonable diligence to notify offeror 3+ 3fferor must receive acceptance seasonable. h. 1ai$2o* R#$e 1. :ome courts now b6c of postal rules re-uire receipt of acceptance by offeror . Acceptance completes manifestation of mutual assent as soon as out of offeree7s possession, without regard to whether it ever reaches offeror. i. + d /1 O!tion Contract Created ( -art -erfor%ance or Tender ( 8nilateral contract becomes option contract at commencement of performance, ma&ing offer irre ocable* ,. + d J/ Re&ocation 5. + d &1 OffereeAs !oBer of Acce!tance (Must be used before re ocation of offer* 4

l. + d J9F Acce!tance 2 Si$ence (silence typically does not constitute acceptance) m. + d &K Re;ection ('ower of acceptance terminated by re(ection* n. + d &F Co#nter/offer (terminates power of acceptance* 1. A counterHoffer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. o. + d 1F 1irror I%a)e R#$e 1. A reply to an offer which purports to accept it but is conditional on the offeror7s assent to terms additional to or different from those offered is not an acceptance but is a counter offer. . %his is opposed to $ast shot doctrine. %his maintains that both parties are bound to the last offer or counterHoffer even if there is no agreement on all the terms. .. Cases re$atin) to %ethods of acce!tance 1. Evertite +oofing $orporation v. <reen (p. 1 * (1easonable !ime to begin act) a. Agreement signed to reHroof, setting out in detail wor5 to be done and a credit plan. . told delay would occur. Evertite is offeree, <reen offeror by terms of @. @ provides that acceptance is in form of commencing performance of the wor5. .oesn7t specify a time limit. b. $ourt holds that P had begun to perform with loading of truc5s and that .7s had not given sufficient notice of withdrawal of offer. i. 3ffer became irrevocable upon commencement of performance. c. P7s acceptance came within a reasonable time period. d. An offer that does not specify a time limit remains open for reasonable time (unless revo5ed* E. Offer and Co#nteroffer 1. .ataserv v. %echnology (p. K1* (counteroffer was re(ected therefore no acceptance) a. .ataserv sent %echnology a written purchase order with wor5 to be done by &rd party. %here was controversy over the &rd party clauseH %echnology made a counteroffer which .ataserv re,ected. .ataserv then offered to accept but %echnology said it was too late and there was no contract. b. By refusing to remove some of the clause, .ataserv re,ected their counteroffer and no contract was formed. c. .ataserv7s acceptance only provided a new offer which was re,ected. ". Definiteness (needed along with consideration and assent* 1. +ules a. R 2d ,, Certaint i. 0anifestation of intention can7t be accepted for contract formation unless terms of contract are reasonable certain. 2. CCC 1/2<D Co#rse of Dea$in)s i. >hen written contract is unclear, meaning of agreement should be determined by loo5ing at se-uence of parties7 conduct previous to the agreement. c. CCC 2/2<. :or%ation in Genera$ i. $ontract for sale of goods can be made in any manner sufficient to show agreement, including conduct. ii. 0oesn"t matter if e$act moment of ma&ing deal is un&nown iii. !f missing terms, agreement still valid !"8 1. %he parties intended to enter into a binding agreement. . %here is reasonably certain basis for granting remedy. K

. <eneral a. $ommon 'aw L Any indefiniteness ma5es a contract not binding. b. 2$$ ? $ontracts must be sufficiently definite to be enforced. i. @ must be sufficiently definite. c. $ourt reluctant to enforce indefinite contract because8 i. %hey cannot set damages or remedy if the terms are too indefinite. ii. !ssue of intent and implications upon freedom of contract. iii. $an7t 5now what the expected benefit was. d. %wo most important gapHfillers which govern unless specified otherwise i. +easonableness ii. <ood "aith &. $ases a. $orthell v. :ummit %hread (p. &/* ( ague price terms do not automatically in alidate a contract) i. $orthell sold an invention to :ummit, who promised to buy future patents. $orthell did not receive Breasonable recognitionC for new patents and was fired. :ummit claims the price was too vague and there was no consideration. ii. !f parties manifest, through express words or by reasonable implications, an intent on the one hand to pay and on the other to accept a fair price, a promise to pay a Bfair priceC is not, as a matter of law, too vague for enforcement, and such damages as can be prove may be recovered. iii. %he contractual intent was for reasonable compensation. b. Moseph 0artin .eli v. :chumacher (p. &K* )renewal clause too ague) i. $ase where P rented property from . with a renewal clause permitting renewal in 1 years at a rent Bto be agreed uponC. ii. $ourt holds that an Bagreement to agreeC on future rental not enforceable. iii. .ifferent from 0ay in that there is no $ustom and the @ didn7t give a way to calculate reasonable rent. c. @oufman v. !B0 (p. &11* (no acceptance b+c alternati es) i. @oufman submitted a bid to !B0 to construct a building and included 1 alternative proposals for performance. !B0 then notified them that it was canceling b6c costs were too high. !B0 argued too vague; @oufman argued valid contract and can fill in gaps by industry standards. ii. %he BacceptanceC was not sufficient because it did not specify which of the alternatives !B0 accepted, as the proposal by @aufman was not one offer but a number of alternative offers. d. Palou5os v. !ntermountain (p. &1K* (wor&sheet not indefinite) i. Plaintiff and defendant automobile business filled out wor5sheet for purchase of car. .efendant informed plaintiff that they could not get the car. .efendant argues wor5sheet was part of negotiations and is too indefinite. ii. $ourt found that the wor5sheet was specific enough to prove their intention to enter into a binding contract. iii. Even though one or more terms are left open a contract for sale does not fail for indefiniteness if the parties have intended to ma5e a contract and there is a reasonably certain basis for giving an appropriate remedy. e. $obble =ill #ursing =ome v. =enry and >arren (+eadings* i. 3ption contract with the criminal trying to get his property bac5. ii. !mportant here is that the agreement to agree was sufficiently definite because the price term could be determined ob,ectively by a &rd party as specified in contract. E. Contract#a$ Lia2i$it in Co%!$e* (#siness Ne)otiations F

1. Basics a. #o clear offer and acceptance in sophisticated business transactions. b. 0onthsHlong negotiations culminate in Bagreement in principleC or wor5ing agreement between the principals. c. 'oo5 at intent of parties to determine when they are bound in a complex transaction. i. Either written agreement is merely a memorialization of agreed upon terms, 3+ no binding obligation exists until final written agreement executed. d. Four*Factor !est ("rom 1.,. . :ardart* i. Expression of intent 1. >hether party reserves right to be bound only by signing written contract. ii. Partial Performance 1. Acceptance of partial performance by party disclaiming contract indicates that it understands a contract is in effect. iii. 3pen %erms 1. >hether there were open terms left to negotiate, so that only signing written agreement remains. iv. %ransactional #orm 1. >hether re-uirement of written contract is norm rather than the exception. . +ules a. + d ( * L 1ode of Assent= Offer and Acce!tance i. A manifestation of mutual assent may be made even though neither offer nor acceptance can be identified and even though the moment of formation cannot be determined. b. + d 4 E*istence of Contract Bhere Britten %e%oria$ is conte%!$ated i. 0anifestations of assent that are sufficient to conclude a @ will not be prevented doing so only because parties also intend to adopt a written memorialization. ii. =owever, circumstances may show that agreements are preliminary negotiations. &. !nternational %elemeter $orp. v. %eleprompter (+eadings* a. :ettlement deal ready to be signed between P and .. b. Enforceable agreement c. Preliminary negotiations showed manifestation of intent to be bound. d. Agreement was all but formalized, so it was an enforceable agreement8 both parties with intent to be bound. i. #o issues left about which to bargain. e. #eed clear and convincing proof of intent to be bound before contract signed. f. 0efault rule i. A contract is not binding until a closing with signatures and a deli ery, but an agreement could be determined prior to that with 5clear and con incing6 e idence of an intent to be bound prior to closing. /. +.<. <roup v. =orn and =ardart $o. )Four Factor !est) (+eadings* a. #o enforceable agreement b. P claimed to have oral contract with BoMangles and ., its parent company, to own6operate fast food franchises. c. $ourt ruled that parties intended to be bound by agreement only after it was put in writing and signed. d. "our "actor %est (Expression of intent, Partial Performance, 3pen %erms, %ransactional #orm* failed when applied to this case. i. $ontract stated that the final contract had to be in writing. ii. #o partial performance by either party. iii. !ssues of territory boundary and development schedule were still sub,ect to negotiation. 1E

iv. %hese types of agreements are written usually. 1. $iaramella v. +eader7s .igest (p. 11* (settlement not binding) a. $iaramella sued former employer for violations of A.A. Before trial, they negotiated a settlement but he refused to sign. b. Application of /Hfactor testH $ourt found settlement not binding. i. 0oment of signing determined to be point of agreement. ii. #o partial performance. iii. Parties had not yet agreed on all terms. iv. %hese agreements typically written. 9. %!AA v. %ribune $orp )'reliminary Binding Agreements) (+eadings* a. Binding Preliminary Agreement b. . wanted loan from P, . wanted to use offset accounting, negotiations after commitment letter fell apart because of dispute over offset accountingH real issue was drop in interest rates. c. A preliminary binding agreement exists when mutual commitment to a contract on agreed ma,or terms exists, while open terms still remain to be negotiated. d. $ourt applies fourHfactor test e. Parties have reached a preliminary binding agreement on some terms with a promise to negotiate open terms in good faith. 4. %exaco v. Penzoil a. !s %exaco liable for tortious interference with contractual relations between <etty and PenzoilN (yes* b. >as there a binding agreement between <etty and PenzoilN c. Apply fourHfactor test. ". Re&ocationE O!tion Contracts 1. +ules of +evocation a. 3fferee is free to revo5e an offer anytime before the offeree accepts. b. 3fferee7s power of acceptance will be terminated by8 i. +e,ection (R 2d ,3@ ii. $ounterHoffer >R 2d ,0* iii. #onHmirror image response (R 2d D0@ iv. 'apse of %ime (R 2d .1@ v. +evocation by the offeror (R 2d .2E .,@ . 3ption $ontracts a. R 2d 3' O!tion Contracts i. An offer is binding as an option contract if it8 1. is in writing and signed by the offeror, recites a purported consideration for the ma5ing of the offer, and proposes an exchange on fair terms within a reasonable time; or . !s made irrevocable by statute. b. $all option i. 3ffer to sell ii. Buyer has right to buy at fixed prices. iii. !nsures against price increasing. c. Put option i. 3ffer to buy ii. :eller has right to sell at fixed prices iii. !nsures against price increasing. d. !n certain transactional context between merchants, formalism ma5es promises enforceable. 11

e. -o need for consideration to prove that promises of merchants are not gratuitous. Presumed to be executory. 7I -RO1ISSOR9 ESTO--EL A. Genera$ 1. Purpose a. %o compensate a promisee where he has reasonable relied on a promise by incurring costs in the expectation that the promise would be fulfilled. b. Promise must induce reasonable reliance and must be definite and substantial in character in relation to the remedy sought. . $ategories a. "amily promises L :eldom Enforced. b. $haritable :ubscriptions L 3ften Enforced, but would institution want it soN c. Promises to insure L 3ften Enforced. d. +etirement Benefits L 3ften Enforced. e. Preliminary #egotiations L :eldom Enforced. &. Re"#ire%ents8 R 2d 0< L -ro%ise Reasona2$e Ind#cin) Action or :or2earance a. A promise (usually clear and unambiguous* b. Promisor should reasonable have expected the promise to induce action or forbearance. c. A reliance (action or forbearance*. d. !n,ustice which could only be avoided by enforcement of the promise. i. +easonableness of reliance, reliance of a definite and substantial character, measure of detriment, formality of the promise, extent to which functions of formality are met by context, extent to which other policies are relevant. /. .amages in Promissory Estoppel a. P is usually placed in the position she would have been in had the promise never been made b. !n rare circumstances, P may be placed in position she would have been in had the contract been enforced. c. <enerally specific performance or expectation damages. $. Intrafa%i$ia$ Cases L #ot enforced b6c of lac5 of social desirability. 1. =aase v. $ardoza (p. 19 * (-o 1eliance, no enforcement* a. $ase where =usband dies and wife promises to pay sister A1E,EEE as per her husband7s wishes. :he starts a monthly payment scheme, but stops after K months. b. $ourt holds not enforceableH a mere statement of promise without any evidence is not consideration. c. !o be enforceable, an informal promise must be accompanied by some past consideration or there must be some subse#uent changes of position in reliance on the promise. . +ic5etts v. :cothorn (p. 19/* (1eliance, enforcement* a. $ase where grandfather want to ma5e granddaughter set for life. =e agrees to pay her sum, she eventually went bac5 to wor5, but is given freedom not to. =e dies, she sues to get money from estate. b. $ourt holds that e-uitable estoppel applies here. i. >here there is detrimental reliance, lac5 of consideration doesn7t prevent enforcement of contract. 1. >ith note, grandfather influenced her to alter her position in the expectation that note would be paid when due. (reliance was not wor5ing for 1 year; reasonably expected her to rely (intended for reliance*; sufficiently formal; reasonable relianceH family relationship* 1

c. Promissory estoppel is designed to insure that those who reasonably rely will not end up in worse positions for relying on the promise. ,. Re&ocation of Offers a. Pavel v. A: Mohnson (p. 4E* (subcontracting bid re o&ed) i. PE! solicited bids for subcontracting wor5. Mohnson submitted a bid and was awarded the contract. Mohnson then revo5ed their offer claiming an error. ii. PE!7s acceptance was made after Mohnson revo5ed its offer resulting in no contract. iii. %here is no detrimental reliance by PE! that binds the subHbid. .. E%!$o %ent Cases L <enerally enforced. 1. "einberg v. Pfeiffer (p. 14/* (retirement benefits enforceable) a. $ase where employer ma5es gratuitous promise to give retirement benefits to P. P retires few years later on reliance of .7s promise. #ew management at company stops payments b. $ourt holds that contract is enforceable because the plaintiff7s reliance on the promise led her to -uit her ,ob and now she is too old to get new wor5. c. "actors considered i. Promise was formal ii. :he relied on it (forbore other employment* iii. +eliance was reasonable (due to formality* d. #o considerationH continued employment is not consideration b6c no -uid pro -uo. . =ayes v. Plantation :teel (p. 14K* (no reliance on conditional promise) a. $ase where P announced intention to retire 4 months before retirement and a wee5 before retirement, then . promised to give retirement benefits to P. b. $ourt rules no promissory estoppel i. #o inducement of reliance b6c promise was made after decision to retire. ii. +eliance not reasonableH as5ed how long payments would lastH 5new it was a conditional promise. c. #o consideration either. E. -re$i%inar and Inco%!$ete Ne)otiations Cases 1. <eneral a. Promissory estoppel claims on preliminary negotiations are now commonplace, and get to ,ury more often than not. . $oley v. 'ang (p. 1FF* (no contract, no promissory estoppel) a. $oley entered into negotiations with 'ang. 'ang testified the agreement was binding and only minor details needed to be wor5ed out. 'ang claimed reliance. $oley claimed many terms were left open. b. $ourt found no contract b6c too many open terms. c. $ourt also found no promissory estoppelH no action or forbearance of a definite and substantial characterH 'ang only missed two wee5s of business and only other offers. &. =offman v. +ed 3wls :tores (p. E/* ('romissory ;stoppel applicable* a. :eries of promises that P relied on to his detriment thin5ing he would get a franchise of the food store. b. $ourt holds that preliminary negotiations are enforceable where the potential franchisee expended significant sums of personal money, moved his family and sold his business (ba5ery*. c. %his case, . foreseeably induced P7s detrimental reliance, and in,ustice would result without compensation. i. . 5new that P was ta5ing actions based on its suggestions and promises. ". Stat#te of :ra#ds and -ro%issor Esto!!e$ 1&

1. <eneral a. C.C.C. 2/2<1 is the Stat#te of :ra#ds. b. :ays certain contracts must be in writing to be enforced. i. $harges against the estate of an executor of a separate estate. ii. $harges against a person or brea5ing a promise to answer for the debt of another person. iii. $harges against a person on contracts concerning marriage. iv. :ale of 'and. v. $ontract where performance O1 year away c. Purpose i. Evidentiary 1. +educe possibility of enforcing fraudulent contracts proved by per,ured testimony ii. $autionary 1. $auses reflection by parties on importance of agreement. d. >hen no time specified in agreement, reasonable time will be implied. 2. R 2d 1,0 Enforce%ent 2 7irt#e of Action in Re$iance a. :ays promissory estoppel can circumvent the :tatute of "rauds when there is reliance and still no writing if in,ustice re-uires the enforcement of promise. &. $ases a. 0c!ntosh v. 0urphy (p. 14E* ('; o errides ./F) i. $ase where man ta5es ,ob in =awaii, said that the contract was for one yearD discrepancy as to when it started. ii. $ourt rules that he should plead promissory estoppel, not breach of @ (problem with statute of frauds*. 1. +estatement says it is enforceable notwithstanding the :tatute if in,ustice can be avoided only be enforcement. !n,ustice can only be avoided by the enforcement of the contract and granting damages. . %here was reliance and part performance. b. 0ercer v. $.A. +oberts $o (p. 141*(./F in alidates oral contract) i. $ase where P was hired to establish a .allas sales office, he does and it becomes very successful. Agreement was oral and without a definite term of duration. After / years, company unilaterally and retroactively stops deal. ii. $ourt holds that the employment @ was unenforceable under the :tatute of "rauds. 1. A promise is not enforceable unless it is in writing, signed, and performed within one year of the date of ma5ing the agreement. iii. Partial performance of employment agreements by employees have been held insufficient to render :tatute of "rauds inoperative. c. :chwedes v. +omain (p. 1KE* )./F in alidates deed ia mail) i. +omain owned land and offered :chwedes the land to buy. :chwedes communicated acceptance by mail. +omain hired lawyer to prepare deed and mailed to :chwedes. #o written document was signed by either party. +omain then sold to &rd party. ii. A mailed form of a deed and a title report does not constitute a writing sufficient to ta5e an oral contract for the sale of real property out of the :tatute of "rauds.

7II CN6CST ENRIC81ENT AS AN ALTERNATI7E GROCND :OR CONTRACT EN:ORCE1ENT A. Genera$ 1. 2n,ust enrichment means that it would be un,ust for the party receiving the benefit not to have to pay for it. 1/

a. !n promissory estoppel, loo5 to P7s detriment. !n un,ust enrichment, loo5 to .7s gain. . 2n,ust enrichment awards damages based on mar5et value of a benefit conferred. B. -ast Consideration/ performance then promise 1. <enerally, the person who performs unre-uested services for another does not thereby ac-uire a right to compensation or restitution, even though performance constituted a cost to the former and benefit to the latter. 2. 1ateria$ (enefit R#$e a. %here is consideration for a promise if any of the following occur8 i. Promisor receives something of value from promisee. ii. $ircumstances create moral obligation. iii. 2nder the circumstances, reasonable for promisee to expect to be compensated. b. 0ust have been some expectation of compensation. &. 0ills v. >yman (p. /* (A mere erbal promise, without any consideration, cannot be enforced by action* a. $ase where P brings suit against . to recover for care of son (who eventually died*. . wrote a letter to P promising to pay him for the expense of caring for his son. b. A moral obligation is not sufficient to constitute valuable consideration. c. .7s promise made out of Btransient feelings of gratitudeC d. Promise is legally enforceable only when promisor gains something or promisee loses something. /. 0anwill v. 3yler (p. 9* (By themsel es, moral obligations do not ser e as consideration necessary to form a legally binding contract* a. $ase where man paid for other man7s farm, alleges . orally agreed to pay him those sums subse-uently. b. 0oral obligations to pay bac5 are not sufficient. c. Plaintiff must have shown that there was a reasonable expectation of compensation, but didn7t. 1. >ebb v. 0c<owin (p. 4* (Material Benefit 1ule) a. Employer was about to drop heavy bloc5 when he sees employer standing below. 3ption is dropping bloc5 and 5illing employer or falling with it and severely wound self. b. !n consideration of P7s efforts, . subse-uently agreed to pay for care of P for the rest of P7s life. P sues .7s estate after . died to enforce promise. c. Material benefit rule %here promisee cares for, impro es, and preser es the property of promisor without the promisor"s re#uest, material benefit is sufficient consideration for the promisor"s subse#uent agreement to pay for the ser ice. $. F#asi >I%!$ied in LaB Contracts@/ F#ant#% 1er#it 1. #o contract at all, but an obligation imposed by law for the purpose of bringing about ,ustice without reference to intent. . . has received a benefit which would be ine-uitable for him to 5eep without compensating P. &. 3 elements necessary for reco ery under a #uasi contract for un(ust enrichment8 a. %here must be benefit conferred b. Benefit must be appreciated and accepted by defendant. c. Acceptance and retention of benefit by the .. 1. Acceptance must be such that its retention would result in un,ust enrichment of defendant and unfairness to plaintiff. . E-uity demands compensation be paid for the benefit. /. A$%: 02:% BE P3'2#%A+Q .. I%!$ied in :act Contracts 1. +e-uires mutual agreement and intent to promise that isn7t express. 11

. !mplied in fact contracts are not explicit, but they have agreement and consideration. &. =appen where circumstances of course of dealing and ordinary reasonable understanding show mutual intent to contract. Bailey v. >est (p. /* ( 1. $ase where there is a dispute of ownership about the horse, the plaintiff 5nows this, but still ta5es care of horse and then bills defendant. .efendant is not owner of horse. . #o implied in fact contract. a. !mplied in fact deals with intent, and there was no intent to enter into a contract between the parties. &. #o implied in law contract. a. P 5new of controversy of ownership, so he could not reasonably expect payment from defendant. b. . did not accept benefit. c. 'imitation to un,ust enrichment i. !f a performance is rendered by one person without any re-uest by another, it is very unli5ely that this person will be under a legal duty to pay compensation. :. R#$es >See Restit#tion@ 1. R2d ,'< Re"#ire%ent That (enefit (e Conferred 2. R2d ,'1 1eas#re of Restit#tion Interest

7III DE:ENSES TO CONTRACT A. Genera$ 1. Even when there is assent, contracts may be unenforceable because they are not in accord with substantive policies. . 2nderlying ob,ective is preservation of Bbargain ideaC and norm of expanded choice. &. Poluntary exchange is a Bgood thingC because it offers people more choices than they otherwise would en,oy. /. $hallenge for legal regulation is how to preserve 5ey elements8 free, informed, rational choice. B. I$$e)a$it and I%%ora$it = S#2;ect 1atter Li%itations on :reedo% of Contract 1. :ub,ect 0atter 'imitation a. $ourts will not enforce contracts that involve illegal activity or are void as against public policy. b. $ontracts to perform illegal or immoral activities not enforceable. c. $ontracts based on meretricious consideration are unenforceable. . R 2d 1'3 a. $an be unenforceable on grounds of public policy or if legislation prohibits it. i. $an7t enforce a contract to do something illegal. &. $ases a. =ewitt v. =ewitt (p. 1& * (cohabitants" property rights unenforceable) i. $ase where woman attempts to recover e-ual share of assets ac-uired over 11 years with cohabitation partner where they lived li5e husband and wife. ii. $ourt held that it was against public policy in a state where common law marriage is outlawed. iii. $ontract not enforceable. iv. Public policy argument is against the wea5ening of marriage. b. 0arvin v. 0arvin (p. 1&&* (nonmarital partners* alid contracts) 19

0iddle <round between 0arvin and =ewitt.

$alifornia court holds that courts should enforce express contracts between nonmarital partners except to the extent that the contract is explicitly founded on sex. ii. !n absence of contract, court should loo5 to outward expressions of parties to see if there was implied in fact marriage. c. <lasgo v. <lasgo (p. 1/E* )property rights*minded) i. $ase where husband and wife are married, she puts him through school, they have 5ids and get divorced F years later, then later get bac5 together but not married. ii. $ourt rules that institution of marriage not as important as property rights. iii. %o deny recovery on moral ground is un,ust. d. !n re Baby 0 (p. 1/ * (surrogacy contracts in alid) i. $ase where husband gives semen to surrogate mother. ii. $ourt rules surrogacy contracts invalid because they violate public policy as expressed in adoption statutes. iii. Policy involved 1. >omen cannot give effective assent without counseling. . .istribution argument L against baby selling. &. $hild7s best interest, not contract should determine custody. e. Mohnson v. $alvert (+eadings* (surrogacy contract alid) i. $ase where man and women give zygote to surrogate parent. ii. $ourt holds this enforceable because the donors are genetically related. iii. >hen women have evidence of motherHchild relationship, loo5 to intentH BbutHforC who would the child be bornN iv. Public Policy 1. <estational surrogacy not sub,ect to adoption statutes. . Payments made for gestating fetus and delivery, not for giving up parental rights.

i.

$. Co&enants Not To Co%!ete 1. <eneral a. 2sually includes length of time and geographical area. b. Problem is effect to third parties via lac5 of competition. . + d 1K4 Non Anci$$ar Restraints on Co%!etition &. + d 1KK Anci$$ar Restraints on Co%!etition <. 1e#uirements of a alid restricti e co enant= a. the covenant must relate to a contract (ancillary* b. must be supported by ade-uate consideration c. must be reasonably limited in time and location d. must be necessary to protect the employer. 1. <agliardi v. $aputo (p. &44* (co enant not to compete in alid) a. $aputo was employed at <agliardi. >hen he started wor5ing there, he did not have a contract. %hey later forced him to enter into one with a covenant not to compete. =e was fired and found wor5 with their competitor. b. $ourt found covenant not enforceable b6c did not meet above re-uirements. i. $lause not ancillaryH subse-uent to employment and did not confer any benefit. ii. #o considerationH no definite term of employment, ,ust salary increases. iii. #ot reasonably limited. iv. #ot necessary to protect employer. .. D#ress 1. <eneral H -/ 1;A./-AB>; A>!;1-A!I?; a. .uress ? coerced, BinvoluntaryC agreements not enforced. 14

2.

,. /.

1.

9.

b. !nducing someone to enter into contract by improper threat, where there is no reasonable alternative. c. +E#.E+: $3#%+A$% P3!.AB'E R2d 1'D When D#ress 2 Threat 1a5es a Contract 7oida2$e a. !f a party7s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim. b. ;lements= i. !mproper threat ii. %hreat induced assent (causation* iii. !nducement was reasonable (no reasonable alternative* R2d 1'4 When a Threat is I%!ro!er >olf v. 0arlton (p. /E/* (economic duress@ physical duress) a. >olf and 0arlton entered into contract for 0arlton to build him a house. >olf contends he never made the second payment because they didn7t receive notice; 0arlton claims they told >olf7s lawyer. >olf wanted out of contract and his lawyer economically threatened 0arlton. b. Economic duress is e-uivalent to physical duress and can ma5e a contract unenforceable. c. .efendant was not physically prevented from enforcing the contractH the impress was the same as if physical pressure had been exertedH defendant was effectively prevented from enforcing the >olfs to comply with the contract as if a more immediate form of coercion had been employed. d. Acts or threats cannot constitute duress unless they are wrongful; but a threat may be wrongful even though the act threatened is lawful. Austin !nstrument v. 'oral $orporation (p. /1E* (economic duress) a. 'oral had contract with #avy that said if delivery late, there could be li-uidated damages or cancellation. 'oral hires Austin as subcontractor. 'oral later award second deal with #avy, tells Austin it would be awarded subcontract only if it was the lowest bidder. i. Austin doesn7t li5e this, demands price increase on 1st subcontract, and says it should get all of nd contract or else it would stop delivery. ii. 'oral could not find anyone else, forced to agree. b. 18>; ? A @ is voidable on ground of duress when its established that the party ma5ing the claim was forced to agree to it by means of wrongful threat precluding the exercise of free will. c. ;C/-/MIC 081;.. ? immediate possession of needful goods is threatened. i. Prove by showing that one party to a @ has threatened to breach the agreement by withholding goods unless other party agrees to further demands. ii. 0ust also show that threatened party couldn7t obtain goods from another source of supply and that the ordinary remedy of an action for breach wouldn7t be ade-uate. d. %his case8 i. #o mar5et substitute ii. #onHcompensable damages for loss of future business. iii. 'oral deprived of its Bfree willC iv. %hreat was improper L +etroactive price increases without ob,ectively demonstrable reason. Post v. Mones (p. /1&* (duress oids sal age contract) a. $ase where boat is far from nearest port and home port when it hits bottom on an island inhabited by thieves. 3ther boats save crew and ta5e oil on BauctionC by captain. b. =ere, there was no mar5et, no money, no competition i. 6one party has absolute power over other. c. . argued that it gave up possible profits to save crew 1K

i. $ourt says that there is a liberal salvage allowance in maritime law that would ma5e up for possible chance of greater profits. d. P argues that it was in best interests of all concerned to ta5e what was offered, not suffer total loss. i. $ourt says they won7t enforce any @ where salvor ta5es advantage of situation. ii. P is as5ing court to ,ustify every sale to every salvor. e. >here it is not fixed by statute, amount of salvage must necessarily rest on an enlarged discretion according to circumstances of case, E. :RACD (0ust have misrepresentation, reasonable reliance, causation* 1. <eneral a. Policy i. Premise is that you need to enter into @ with informed volition (free will, selfH 5nowledge* ii. Assent re-uires that both parties have an idea of what they are getting and what they are giving up. b. ;lements= i. 0isrepresentation (false assertion of present6past fact* ii. "alse assertion must be fraudulent or material. 1. %hings as to future are seen as predictions, not fraudulent misrepresentation. . 0aterial if it would have induced a reasonable person to assentH false assertion of important fact &. "raudulent means it7s consciously false and intended to mislead (scienter* iii. Mustified relianceH false assertion induced assent (substantial factor test*H materiality will imply ,ustification c. %ypes of fraud i. "raud in the inducement (procedural* 1. 0isrepresentation of material fact. ii. "raud as to character of contract (substantive* 1. 0ade a false assertion about nature of instrument that embodies contract. d. :tandard (0ixture of sub,ective and ob,ective* i. :pea5er is ,udged by a sub,ective standard to determine whether he reasonably calculated to mislead a specific listener of a certain character. ii. +eceiver is ,udged by an ob,ective standard to determine the probability that a reasonable person in his position would rely on the false assertions. e. %ypes of .amages i. +estitution8 benefit conferred to P 1. restore P to former position (as good a position* as he occupied before entering @. . +estitution damages in rescission cases8 a. $alled special damages b. 'imited to those expenses which were, or should have been, contemplated as probable conse-uence of the fraud. ii. $onse-uential .amages8 'ost profits iii. Punitive .amages8 if behavior was malicious 6 rec5less. . +estatement :ections (R2d 141/140@ &. :piess v. Brandt (p. / 9* (fraudulent claims about profits) a. :ale of resort to young P7s 6 young experienced businessmen. :ellers said that they had been ma5ing money and that buyers could pay off mortgage out of future profits. Actually,
$t. uses sub,ective test in determining reasonable reliance.

1F

they hadn7t been ma5ing money. Purchasers operate resort for a time at a loss and were unable to meet payments. P7s see5 to rescind. b. $t. holds that A unenforceable b+c of 0"s fraudulent statements as to the past and present profitability of resort. .7s had in fact lost money and they 5ept boo5s from P7s when P7s re-uested to loo5 at them. Also, . had intent to deceive P (scienter*. (>hether a reasonable person in the situation would be decei edB* i. $ourt presumed that if there is a fraudulent message, there may necessarily follow reliance based on nature of fraud. c. .issent i. R1 L :ale was essentially at P7s price ii. R L :tatements made by .s about earnings related to future prospects, and not current conditions. /. .anann v. =arris (p. /&&* (disclaimer oids fraud claim) a. Plaintiff alleges that it was induced to enter into a contract of sale of a lease of a building held by defendants because of oral representations, falsely made by defendants, as to the operating expense of the building and as to the profits to be derived from the investment. Plaintiff see5s damages for fraud. b. Plaintiff cannot establish reliance of misrepresentations because he signed a specific disclaimer that defendant did not ma5e any representations. c. Plaintiff stipulated that is not relying on any representations as to the claim it was asserts was defrauded. :uch a specific disclaimer destroys plaintiff7s allegations that he relied on oral representations. 1. "+A2. A#. .2%Q %3 .!:$'3:E a. .efault +ule ? #o duty to disclose i. Basis is that we want to reward speculators that turn out to be right and if parties had to disclose, there would be no incentive to ac-uire information. b. #3%E ? If both parties ha e e#ual access to &nowledge or information, no duty to disclose 8->;.. one party is in good faith bound to disclose. c. R2d 141 When non/disc$os#re is e"#i&a$ent to an assertion i. "act must be 5nown to . A#. (one of these*. 1. where disclosure is necessary to correct an earlier assertion . where disclosure would correct mista5e as to basic assumption underlying @ and disclosure re-uired by good faith and reasonable dealing. &. disclosure would correct mista5e as to writing itself. /. relationship of trust and confidence between parties (fiduciary duty* d. 3ld $ommon 'aw +ule i. #o duty to disclose in armsHlength relationship. 1. Arms length ? 1st time doing a deal together. ii. $aveat Emptor 1. Buyer beware . 2sually, buyer has duty to investigate e. 0odern, four factor test for duty to disclose (3bde v. :chlemeyer* i. $oncealed, latent defect ii. .angerous to property, life or health iii. @nown to vendor and un5nown to vendee. iv. 2ndiscoverable by careful examination f. 3bde v. :chlemeyer (p. /91* (duty to disclose termite problem) i. :eller had previously ta5en steps to remedy a termite infestation. =owever, they did not pursue total solution because of cost and inconvenience. +esult is that premises loo5s termite free, but in fact there is termite problem. E

ii. $ourt holds duty to disclose latent defects. :eller already 5nows the defect and thus has the lower cost to discover and reveal defect. iii. / factor test given iv. .amages should be difference between actual value of property and value of property had misrepresentation been true (i.e. if there were no termite problem* L expectation remedy. g. +eed v. @ing (p. /9/* (duty to disclose site of murder) i. +eed purchased a home from @ing and @ing did not tell +eed that it was the site of a multiple murder. @ing told neighbors not to tell +eed, but she found out. ii. %his fact may foreseeably deprive a buyer of the intended use of the purchase. 1. %his will have a negative impact on mar5et value. iii. 0urder is uncommon enough that buyers should not reasonably be charged with anticipating its possibility. h. 'S# <rove v. $hapman (p. /9K* (no duty to disclose) i. P and . are land speculators 1. . purchases land. . "our years later, construction on .isney begins increased value of land. ii. $ourt rules a representee who has expert 5nowledge of general sub,ect matter, and has bac5ground sufficient to evaluate what he considers an obviously false representation does not have the right to rely on that representation. iii. .eal was among e-uals 6 e-ual bargaining power. iv. #o duty to disclose 1. speculative information . both parties have same access to information. v. !nsider %rading 1. !f one party has special 5nowledge or a special means to ac-uire this 5nowledge, nonHdisclosure of information constitutes a false assertion. ". 1ista5e 1. Policy a. Allocate ris5 to party in best position to appreciate error and correct it. 2. R2d 1D1/1D3 1ista5e a. 111 L A mista5e is a belief that is not in accord with the facts. b. 11 L 0utual 0ista5e i. 0ista5e must be made as to a basic assumption underlying contract. 0inds of both ii. 0ista5e must have material effect on agreed exchange of performances. parties must meet on iii. !f above present, so long as party adversely affected didn7t bear ris5 of mista5e, @ single sub,ect is voidable (:ee 11/* matter. c. 11& L 2nilateral 0ista5e i. 0ista5e must be made as to a basic assumption underlying the contract. ii. 0ista5e must have material effect on agreed exchange. iii. 3ther party must have had reason to 5now of your mista5e or caused your mista5e. 1. Actual 5nowledge not re-uired, ,ust reason to 5now. 3+ iv. Effect of mista5e ma5es enforcement of @ 2nconscionable. v. !f above present, so long as party adversely affected didn7t bear ris5 of mista5e, @ is voidable (:ee 11/* d. 11/ L >hen does the party bear the ris5 of mista5eN i. +is5 allocated to him by agreement of parties 3+ ii. Aware, at the time @ is made, that he has only limited 5nowledge with respect to facts to which mista5e relates B2% treats this as sufficient 3+ 1

iii. +is5 allocated to him by court on ground that it is reasona2$e under circumstances. &. :herwood v. >al5er (p. 4KF* (Mutual Mista&e* a. . tells P that cow was barren and could be purchased for AKE, her value as stea5. P accepts .7s offer. Before he could ta5e possession, . finds out that cow was Twith calf7 and refuses to hand it over. :ince it could breed, cow was worth A1EEE. b. $ourt says that at the time they entered into agreement, both parties did in fact believe that cow was barren and forever useless for breeding, so . has right to rescind and refuse delivery. c. A can"t be enforced if8 i. Bwhole substance and very natureC of merchandise sold is different than that which parties bargained for; ii. mista5en identification was mutual; iii. dollar conse-uences to disadvantaged party are significant d. $ourt7s reasoning is that parties would not have made @ except upon understanding and belief that she was incapable of breeding, and of no use as cow. substance of thing. e. .!::E#% says that parties were not mista5en in legal sense. i. :ubstance of thing bargained for was a cow supposed to be barren by one party, believed not to be by the other. /. Anderson Brothers $orp. v. 370eara (p. 4F1* ( a. Anderson sells 370eara a barge dredge, 370eara sends engineer, not barge expert, to inspect it. Anderson is in business of dredging, 370eara is in business of oil well drilling. 370eara bought a dredge which, because of its design, was incapable without modification of performing sweep dredging. b. =olding is unilateral mista&e on 370eara7s part. i. 370eara treated limited 5nowledge as complete and acted on it. :hould have conducted a better examination of dredge7s capabilities before buying it. 1. therefore he bears ris5 of mista5e. c. 0ista5e on part of Anderson in assuming that 370eara intended to use dredge within its designed capabilities not shared by 370eara. i. :eller7s mista5e is P7s intended use 6 P7s mista5e is machine7s capabilities not the same. 1. Professional :ellers a. A professional seller that 5nowingly assumes a ris5 of mista5e cannot be permitted to have a @ rescinded when that 5nown mista5e affects him adversely. 9. +eal Estate a. 'urchaser"s information should be iewed a property, which is therefore entitled to protection. <. Cnconsciona2i$it 1. .istinction between fraud and unconscionability a. "raud is affirmative misstatement about contract statement. 2nconscionability supplements fraud. .escribes @ whose process defects do not rise to level of actionable fraud or duress. b. Enforce of an unconscionable contract would Bshoc& the conscienceC because it would create oppression and undue surprise. c. 2nconscionability does not re-uire false assertion. . :ubstantive v. Procedural 2nconscionability a. :ubstantive8 +efers to terms of agreement itself i. Essence of bargain is unreasonably favorable to one party over the other. b. Procedural8 .efect in bargaining process (a2sence of %eanin)f#$ choice*

#3%E L %here must be some procedural aspect to find unconscionability.

,.

..

1. 7.

i. An unreasonable failure of one party to inform other party about important aspects of the exchange. ii. $omplete lac5 of bargaining power. iii. +educes individual7s ability to ma5e rational choices concerning the bargain. iv. Absence of meaningful choice on side of one party R 2d 2<3 Cnconsciona2$e Contract or Ter% a. B!f a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable resultC CCC 2/,<2 a. Pery similar to above +estatement b. >hat this means8 i. >here court finds contract or clause therein is unconscionable at time it was made, court may8 1. refuse to enforce @ . enforce remainder of @ without unconscionable clause &. limit application of unconscionable clause. c. $omment 1 to 2$$ i. %est is whether in light of general commercial bac5ground and commercial needs of particular trade or case, the clauses involved are so oneHsided as to be unconscionable under circumstances existing at time of ma5ing of @. 2ne-ual Bargaining Power and 2nconscionability a. 2ne-ual bargaining power alone does not lead to unconscionability. b. 0ust have that and terms unreasonably favorable to the stronger party. 0uty to 1ead a. 3ld $ommon 'aw ? duty to read negates fraud and mista5e. b. 03.E+# %+E#. ? less strict duty to read standard.

4. 2nconscionability and eHforum a. 2$$ .raft bH11E extends unconscionability to internet transactions without changing meaning of unconscionability. b. B2%, it allows for parties to choose an exclusive ,udicial forum unless the choice is unreasonable and un,ust. K. >illiams v. >al5erH%homas (p. 14* (8nconscionability 'resent) a. P, single mother on welfare, purchased several items from .. Purchases were on an installment plan allowing seller to retain title to all goods until P had paid off A'' purchases. P was unable to pay for the last good purchased and . repossessed all the items. b. +2'E ? une#ual bargaining power and absence of a meaningful choice on part on one of the parties, together with contract terms that unreasonably fa or other CstrongerD party, may constitute unconscionability. Must loo& to circumstances of particular contract. c. $t. holds agreement unconscionable. i. Procedurally 1. :eller 5new that buyer didn7t properly understand implications of a @ structured this way and she never assented to the terms. . . 5new that P had no other meaningful choice. &. :ince . 5new of P7s financial position, . should not have sold P stereo b6c no necessity for it. ii. :ubstantively 1. %he crossHcollateral clause (re-uiring her to pay for all items fully before owning any* is unreasonable. &

d. "actors $ourts consider i. <ross ine-uity of bargaining power ii. 3bvious lac5 of understanding by the purchaser. iii. :tandard form contract 6 monopoly. e. Arguments against unconscionability, .efenses i. >ithout crossHcollateral clause, it might be impossible for >illiams to ever be able to buy any of the things she needs because of her poor credit. ii. %his type of @ common to industry, we want to encourage bargaining and expanded choice. F. :eabroo5 v. $ommuter =ousing (p. 11/* (unconscionable lease clause) a. A clause in a long lease with very small print for a building under construction said that in case the building was not finished on time, then the lease would start whenever the building was finished. P claims she was unaware of the clause, and sues for return of security deposit. .ue to deal, P was forced to find housing elsewhere, so cancels lease. b. $ourt holds unconscionable. i. Procedural 1. %echnical, hidden clauses. a. 'andlord was under affirmative duty to bring clauses to attention of lessee and to explain their meanings. . 'ease agreements rarely negotiable; lessor in superior bargaining position, especially where there is a shortage of locations. ii. :ubstantive 1. #o reasonable time limit, ' has affirmative duty to set forth reasonable time. . 3ne sided L guarantees landlord full occupancy, leaves tenants hanging c. ;E';1!. )>A-0>/10. I-C>80;0) CA--/! :I0; B;:I-0 >;,A> C>A8.;. %:;- 0;A>I-, %I!: >;.;; !:A! >ACA. ;I!:;1 A-/%>;0,; /F 1;A> ;.!A!; >A% /1 >ACA. >;,A> C/8-.;>. 1E. =enningsen v. Bloomfield 0otors, !nc. (p. 11K* (8nconscionability* a. 1 page long @ for sale of a car had an express warranty limiting liability on the car. P7s steering fails 1E days after purchase causing wife to crash. P sues for breach of implied warranties. b. $ourt held term unconscionable. c. +easoning i. >arranties originated in law to safeguard buyer, not to limit liability of seller or manufacturer. ii. Effect of purchase agreement language unfair. 1. 0onopoly a. #o competition among. b. <ross ine-uality of bargaining position for consumer in automobile mar5et. c. #o place for consumer to go negotiate for better warranty protection. . $ontract of adhesion L ta&e it or lea e it L no bargaining. d. Public Policy i. Public has interest in safe manufacture of autos and protecting rights of purchasers. ii. $ourts have duty to examine purchase agreements to see if consumer and public interests are treated fairly. 11. $arnival $ruise 'ines .v :hute (+eadings* (-o unconscionability) a. P, from >A, buys cruise tix from agentDactual tix come later and had a forum selection clause saying that all litigation will be brought in "lorida. %ix also said no refunds. P slips on board off of 0exico and tries to bring suit in >A. b. Arguments /

i. :hute 1. :ubstantive unconscionability (violates constitutional right* and procedural unconscionability (small print, hard to understand, no refund* ii. $arnival 1. $onstitutional right not given up, ,ust limitation on where suit can be brought, not of liability. c. $ourt holds no unconscionability. i. P7s had notice of clause ii. $lause benefits both sides. 1. $arnival in that it spends less on litigation. . $onsumers in lower prices iii. Even though it is a form contract, some form contracts are permissible. d. #3%E ? Prevailing rule is that forum selection clauses not enforceable !" i. #ot freely bargained for 3+ ii. $reate additional expense for one party 3+ iii. .eny one party a remedy.

IG -ROCESS O: CONTRACT INTER-RETATION A. Introd#ction 1. >hat to loo5 atN a. >riting, performance (conduct*, past dealings, negotiation history, trade usage . $ontextual Approach a. Mustice %raynor (Pacific <as* i. Evidence should only be excluded when the fact finder will li5ely be misled by it. ii. 0ust loo5 at the intent of the parties to determine what they meant with the particular words. iii. Mudges would use their own opinion to determine integration (naturally be in @* &. %extual Approach a. Mustice @ozins5i (%rident* i. <reat emphasis on writing in agreement. ii. Attach BfixedC meanings to certain words. B. -aro$ E&idence R#$e 1. <eneral a. .efines the limits of the contract to be construed. b. Excludes and declares inadmissible extrinsic evidence. i. .oesn7t apply to contradicting terms inside contract. . Purpose a. %o determine the effect of a written @ on prior oral or written aspects of the parties7 agreement b. Act as an incentive for people to embody agreements in writing. c. $uts down on possibility of fraud. &. :%EP: !# APP'Q!#< PA+3' EP!.E#$E +2'E a. !s the writing integratedN (+ d 1E* b. !s it completely or partially integratedN i. $omplete integration evidence excluded ii. Partial integration N c. !s this a situation where parol evidence rule appliesN i. .oesn7t apply where8 1

1. . &. /. 1.

:ubse-uent agreement !n determining if agreement is integrated !n determining meaning of writing, whether integrated or not. Establishing defenses Establishing grounds for granting or denying rescission, reformation, specific performance, etc.

/. %ests a. :o#r Corners Test (0itchell v. 'ath* i. .ocument complete on its face is presumed to be completely integrated express of parties intent. 1. writing spea5s for itself. b. 1odernE conte*t#a$ &ieB8 +e,ects four corners test, loo5s instead to intent and evidence that offering party see5s to introduce. 1. :tandards (#3%E we are moving toward a more expansive standard* a. Co%%on LaB8 !f oral condition ordinarily would ha e been included, then e$clude extrinsic evidence. b. 214 L !f oral condition might naturally be omitted, then allow extrinsic evidence. c. 2/2<2 L !f oral condition would certainly ha e been included, then e$clude extrinsic evidence. 9. $ontradicting or Adding %ermsN (R2d 21D/214@ a. $ontradicting L #3 in partial; #3 in complete b. Adding L QE: in partial; #3 in complete. 4. R2d 2<0 L Inte)rated A)ree%ents a. A writing constituting a final expression of one or more term of @. b. %est L As58 i. !s there a written agreement which in view of its completeness and specificity reasonably appears to be a complete agreementN ii. .oes other evidence establish that the writing did not constitute a final expressionN 3. R2d 21, Effect of Inte)rated A)ree%ent on -rior A)ree%ents >-AROL E7IDENCE RCLE@ a. !" binding integrated agreement prior agreements discharged to the extent that they are inconsistent with integrated agreement. b. !" complete integration prior agreements discharged to the extent that they are within scope of completely integrated @. c. !" integrated agreements not binding or voidable doesn7t discharge prior agreement. F. 0itchill v. 'ath (p. 91&* (F/81 C/1-;1. 18>;* a. P buys farm from .. Part of agreement is that . orally promises to remove icehouse he owned on someone else7s property across the street. +elying on promise, P buys farm. . does not remove icehouse, P sues for specific performance b. $ourt rules contract is complete on its face, does not allow extrinsic evidence. Promise not included within / corners of @. c. +2'E (natural admissions test) i. Before an oral agreement is received to vary written contract, three conditions must exist 1. agreement must be collateral in form. . collateral oral agreement must not contradict express or implied provisions of written contract. &. agreement must be one that parties would not ordinarily be e$pected to be embodied in writing. d. !f presence of icehouse was so ob,ectionable to 0itchill that she would -ualify @ on its removal, such a -ualification would ordinarily e$pected to be embodied in writing. 9

1E. 0asterson v. :ine (p. 914* (parol e idence admitted) a. 0asterson sells land to :ines, his sister, with option to buy bac5 within 1E years. 0astersons go ban5rupt, creditors try to ta5e advantage. !ncluded in @ was a 1E year buybac5 period, where 0astersons could by bac5 land for same A1E,EEE sold for plus improvement costs incurred by :ines. b. !ssue is whether there was a collateral agreement that the buybac5 option only applied to familyN c. $ourt admits parol evidence, shows there is a collateral agreement regarding assignability. d. PA+3' EP!.E#$E 0AQ BE 2:E. %3 P+3PE E'E0E#%: 3" %=E A<+EE0E#% #3% +E.2$E. %3 >+!%!#<. e. %he alleged collateral agreement Bmight naturally be made as a separate agreementC i. !hey would not certainly include language about the collateral agreement in writing because they did not &now that they had to do so. f. 'oo5 to context for intent (@ between unsophisticated family members* g. .!::E#% ? decision ta5es away four corners incentive to include all intended, relevant, significant terms within the writing. 11. -aro$ E&idence #nder the CCC/ H2/2<2 a. Bterms set forth in a writing intended by parties as final expression of agreement of those termsH cannot be contradicted by evidence of prior agreement or oral agreement but may be explained or supplemented by course of dealing, trade norms, or course of performance and by evidence of consistent additional terms unless the court finds the writing to be complete and exclusive statement of terms of agreement.C b. =unt "oods v. .oliner (p. 9 9* (lenient rule for e$trinsic) i. =unt wanted to buy a corporation which .oliner owned stoc5 in. :ome issues remained unresolved and =unt demanded an option to purchase. %he parties never fully agreed and =unt exercised option. . claims it was unconditional. ii. !o be inconsistent the term must contradict or negate a term of the writing. iii. $ourt believes that the proffered evidence is inadmissible only where the writing contradicts the existence of the claimed additional term. iv. $ourt says that contradicting an implied term is not the same as contradicting an express termH can7t contradict something that7s not there expressly 1. incentive to put everything in the writing 1 . EIA0 %!P: 3# PE+ !::2E: a. .on7t want evidence to be admitted i. 'oo5 to see if writing is final expression. ii. !f not, loo5 to see if agreement would contradict terms of @ iii. !f not, loo5 to see if agreement would add to @, but would not apply anyway because the terms would naturally be included in the @. iv. 2se Mitchill and 0asterson dissent to support no evidence admitted. b. >ant evidence to be admitted i. 2se =unt and 0asterson to support the admissibility of additional supplemental terms. C. 1er)er C$a#ses 1. !ntroduction a. $lause indicating that the writing constitutes the final expression of the agreement between the parties. b. $urrent approach is to say merger clauses are factor but not determinative. c. %o get around parol evidence rule, claim an oral agreement was modification and then relied on oral promise. 4

. 0erger $lauses and "orm $ontracts a. Problem in that if merger clause is part of form contract, it may be complex and unsophisticated parties may not understand it. b. !f too much effect is given to a merger clause, it creates incentive for the more sophisticated party to write one, further exploiting its superior bargaining position. &. 2A>H<0 v. @:' +ecreation (p. 9&1* (e$trinsic e idence denied) a. P entered into contract to use property. !t contained a merger clause but did not mention union representation. P claims representative orally promised that they would be unionized. %hey sold to . and put in nonHunion employees. b. %hen the parties choose to include an integration clause, they clearly indicate that the written agreement is integratedF there is no need to resort to parol e idence. c. Extrinsic evidence is admissible to show8 1* the writing was a sham * there was fraud, illegality, or mista5e &* the parties did not integrate their agreement as the final embodiment of their understanding /* the agreement was only partially integrated because essential elements were not in writing. i. . was not present so could only rely on written contract. ii. 0erger clause made it unreasonable to rely. d. >hile parol evidence is generally admissible to prove fraud, fraud that relates solely to an oral agreement that was nullified by a valid merger clause would have no effect on the validity of the contract. D. Reso$&in) A%2i)#it in 1eanin) of Contract and -aro$ E&idence 1. <eneral a. R2d 2<1 Whose 1eanin) -re&ai$s i. >hen parties have attached same meaning to term, that meaning applies. !" #3%, term is interpreted in accordance with meaning attached by one of them if at the time Either you 5now or the agreement was made8 have reason to 5now 1. %hat party did not 5now of any different meaning attached by the other, and other parties meaning the other 5new of the meaning attached by the 1st 3+ for term. . %hat party had no reason to 5now of any different meaning attached by the other and the other had reason to 5now the meaning attached by the first. . !n re :oper7s Estate (p. 911* (e$trinsic e idence allowed for 5wife6) a. :oper was married to >estphal then left and changed his name and married >hitby. =e created a company that left life insurance to his Bwife.C >estphal protested. b. Plaintiff claims the written instrument is free from ambiguity so oral evidence is not admissible to demonstrate the intent of Bwife.C c. <ertrude was the intended beneficiary. i. >ere the court to find for the plaintiff, it would invalidate the contract. %he word BwifeC is not a fixed symbol. &. Pacific <as and Electric v. <.>.%homas .rayage and +igging (p. 919* (reasonable susceptibility test) (%raynorH contextualism* a. . enters a @ with P to furnish labor and e-uipment necessary to remove and replace the upper metal cover of P7s steam turbine. Agreement contained an indemnity clause for . to indemnify P for all loss. P7s property was damaged and P sought recovery. . argued that this was to apply only to &rd party property6people based on previous @s with indemnity clauses. b. !ssue is whether BindemnifyC refers only to compensation for liability incurred by utility company as result of in,ury to property of third persons or to company7s own lossN c. Reasona2$e S#sce!ti2i$it Test K

i. !est of admissibility of e$trinsic e idence to e$plain meaning of written instrument is whether offered e idence is rele ant to pro e meaning to which language of instrument is reasonably susceptible. 1. %wo step process a. %he language of a contract in light of all the circumstances is Bfairly susceptible of either one of the two interpretations contended forC b. %=E# admit Bextrinsic evidence relevant to prove either of such meaningsC d. +ational interpretation re-uires at least a preliminary consideration of all credible evidence to prove the intention of the parties. e. Extrinsic evidence admitted. /. %rident $enter v. $onnecticut <eneral 'ife !nsurance (p. 99E* (AoGin&si* te$tualism) a. P and . negotiated a commercial loan. @ stated that P should not have a right to repay for 1st 1 years. !n case of default in years 1H1 , . had the option of accelerating note and adding a 1EU preHpayment fee. !nterest rates fall and P wants to refinance loan. P claimed that clauses in @ contradict each other and that P could prepay at any time for the 1EU fee. b. $t. holds that according the reasonable susceptible rule, parol evidence should be used to determine if a contract is reasonable susceptible to meaning a party imputes to it. i. Extrinsic evidence admissible because one side could claim that the parties intended one thing, but wrote another giving rise to possible ambiguity. c. @azins5i says he must follow +easonably :usceptible +ule as per Erie, even though it is a BA. +2'E. i. >riting seemed ade-uately complete and understandable and completely integrated. 1. "rigaliment !mporting $o. v. B#: !nternational :ales $orp (p. 94E* (5chic&en6 used broadly) a. $hic5en case, issue is whether @ meant B:tewingC or BbroilingC chic5ens. b. P had burden of showing that Bchic5enC was used in narrower, rather than in the broader sense, doesn7t do this. c. 1st loo5ed to meaning in contract, then to trade usage. i. .7s intent coincided with the ob,ective meaning of chic5en provided by definition in the .epartment of Agriculture regulation and realities in mar5et. G. GOOD :AIT8 AND CONTRACT 1ODI:ICATION A. Genera$ ALWA9S I1-LIES 8ONEST9 IN :ACT 1. <33. "A!%= !: !0P'!E. %E+0 !# EPE+Q $3#%+A$%. (. Three Doctrina$ A!!roaches to Contract 1odification 1. %he $ommon 'aw 'ree$isting 0uty 1ule a. Performance of an act which the promisee is already bound by contract to perform is not valid consideration for modification. b. Attempts to use consideration to set up a bright line test to distinguish legitimate modifications from extortionate holdups. i. MM says this can be over inclusive and under inclusive. 1. 3ver inclusive in that it denies enforcement to modifications that were reasonable and made in good faith. . 2nder inclusive in that it does not prevent sophisticated parties from manufacturing consideration. c. $an get around this rule i. Promisee can do or promise to do something in addition to her existing obligation 3+ ii. Promisee can rescind the first contract before entering into the second, revised contract. F

d. R2d ', -erfor%ance of D#t . CCC 2/2<0 and R2d 30 Approach a. 0odifications will be enforced if they are in good faith and meet certain ob,ective criteria. 2. R2d 30 1odification of E*ec#tor Contract i. A promise modifying a duty under a contract not fully performed on either side is binding 1. !f the modification is fair and e"#ita2$e in view of circumstances not anticipated by the parties 3+ . %o the extent provided by statute 3+ &. %o the extent that ,ustice re-uires enforcement in view of material change of position in reliance. c. CCC 2/2<0 i. Modifying agreement does not need consideration. ii. prong test of good faith between merchants 1. 0erchant must be Bhonest in factC . B3bservance of reasonable commercial standards of fair dealing in the tradeC &. .uress .octrine a. 0odifications will not be enforced if they were achieved only via circumstances and pressures that constitute economic duress under duress doctrine. C. Good :aith 1. <eneral a. A party who has not actually suffered a loss on the @ may still see5 a modification if a future loss on the agreement was reasonably foreseeable. b. $oercive conduct is evidence that modification sought in bad faith, but not a prima facie case. c. :ub,ective and ob,ective test i. :ub,ective8 =onesty in fact in conduct or transition involved. (2$$ H E1(1F** ii. 3b,ective8 +easonable commercial standard of fair dealing. . Alas5a Pac5ers Association v. .omenico (p. &K/* (pre*e$isting duty rule) a. "isherman waited until they were up in Alas5a wor5ing for .7s cannery to demand more money for the same wor5. . is held up because he needs this wor5 done and there were no other available wor5ers. b. $ourt holds modification not enforceable. i. "ails under preHexisting duty rule because of lac5 of new consideration (wor5ers would receive new payment for same wor5 already obligated to perform* ii. "ails under 2$$ and + d approach because modification was result of coercion 6 hold up game* &. Angel v. 0urray (+eadings* (modification enforced b+c good faith) a. 0odification of a @ specifying that P was to collect trash in .7s town. @ stated that P could expect to have to serve approximately E more homes each year. 3ne year, /EE homes were added, causing P7s costs to rise significantly. P sought an increase in his payment that was granted. b. $ourts re,ect preHexisting duty rule and ma5e fourHprong test based on + d KF i. Parties voluntarily agree ii. Promise modifying original @ was made before @ was fully performed on either %est to use in applying + d KF side. approach. iii. 2nderlying circumstances which prompted modification were unanticipated by parties. iv. 0odification is fair and e-uitable. c. $ontract enforced. &E

/. +oth :teel Products v. :haron :teel $orporation (+eadings* (bad faith) a. 0odification of @ price when steel prices rose and there were shortages in raw materials because of increased export demand. . told P they were going to discontinue price concessions given to P. Eventually, parties agreed to stay at old price for a few months and then set a new price in between original @ price and new mar5et price, because P has nowhere else to go for steel. b. $t. holds that modification unenforceable even though the original @ had included a clause that allowed reHnegotiation of price, because . did not act in )ood faith. $t. sees this term as coerced by .7s powerful position as P7s main supplier. i. $onduct was not consistent with commercial standards of fair dealing in the trade, there was no honest desire on .7s part to see5 modification and . used coercive conduct (threatening to cut off P7s supply* and was not late to other buyers, as they were with P. c. 0odification unenforceable under 2$$ H EF8 i. 3b,ective %est met8 Price increase leading to contract modification reasonable. ii. :ub,ective %est8 $ompany was not truthful, was partially insulated from raw material price increases and used coercive conduct. D. Good :aith as Cni&ersa$ Ga! :i$$er 1. <eneral %erms a. R2d 2<D D#t of Good :aith and :air Dea$in) i. Every @ imposes upon each party a duty of good faith and fair dealing in its performance. 2. CCC 1/2<, O2$i)ation of Good :aith i. Every @ or duty within this Act imposes an obligation of good faith in its performance. . & categories where there is a duty of good faith a. $ontract formation i. :imply correct mista5e and refrain from fraud. ii. #o general duty to disclose. b. Employment at >ill i. $an fire an employee at will for good cause or no cause, but not for bad cause (i.e. retaliation, malice, sexual* c. $ontractual Performances i. 0ust use reasonable limits in exercising discretion in performance. ii. 3PP3+%2#!:%!$ BE=AP!3+ forbidden. d. %hree tests for <ood "aith in @ performance i. Common >aw Four 'rong !est 1. !s there a large degree of discretion allowed to . tantamount to depriving P of substantial proportion of agreement7s valueN . .id parties intend to ma5e a legally enforceable contractN &. .id . exceed limits of reasonableness in exercising discretionN /. !s cause of damage .7s abuse of discretionN ii. Burton !est ("rom $entronics $ase* 1. Applies ob,ective criteria to identify the #nstated econo%ic o!!ort#nities intended to 2e 2ar)ained aBa by a promisor as a cost of performance, and identifies bad faith as a promisor7s discretionary action sub,ectively intended to reca!t#re s#ch an o!!ort#nit . iii. 'osner !est ("rom 0ar5et :treet* 1. 'oo5 to intent of parties entering into @. &1

. B<ive the parties what they would have stipulated for expressly if at the time of ma5ing the @, they had complete 5nowledge of futureC &. $entronic $orporation v. <enicom $orporation (+eading* (good faith) a. $entronics and <enicom enter into agreement for business assets, price dependent on value of property as determined by arbitrator. 2ntil then, money put into escrow account until B1E days after arbitrationC :eller charged buyer with breach of implied covenant of good faith in refusing to release a portion of escrow fund while arbitration pending. b. #o bad faith found under any of the tests. c. $ommon law test i. #o discretion, can7t ta5e money out of escrow account until arbitration settled. fails first prong. d. Burton %est i. .7s refusal to consent to distribution from escrow doesn7t gain it anything b6c money still sitting there. e. %erms of @ itself i. $ome close to saying that money couldn7t be distributed until after arbitration decision. /. 0ar5et :treet Associates, 'td. Partnership v. "rey (+eading* ('osner test) a. 'easebac5 agreement L . had to finance costs and expenses of construction of additional improvements and has discretion of whether or not to do so. B2%, if they can7t reach agreement as to price and necessity of improvements after good faith negotiations, P had option to buy bac5 land. P wants outside help for financing. >hen it can7t get this b6c it doesn7t have deed for mortgage, tries to buy deed from trust. P re-uests trust to pay for construction, doesn7t mention paragraph on buybac5 option. %rust says no, P exercises buybac5 option. b. !::2E8 .id P have to mention buybac5 paragraph to .N c. =olding8 #o sufficient showing of bad faith on summary ,udgment B2% ,udge thin5s bad faith. d. $ourt says that good faith is a compact reference to an implied underta&ing not to ta&e ad antage in a way that could not ha e been contemplated at the time of drafting, and which therefore was not resol ed e$plicitly. i. %here was 3PP3+%2#!:%!$ BE=AP!3+ here. :. :r#stration and I%!ractica2i$it 1. <eneral a. %est ("rustration* i. >hat was foundation of the @N ii. >as the performance of purpose of the @ preventedN iii. >as event which prevented the performance of the @ of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contractN b. %est (!mpracticability* i. 3ccurrence of unforeseen contingency ii. %hat is outside the control of the parties. iii. +is5 not allocated either 1. Expressly 3+ . By custom. c. $ourts reluctant to excuse performance on grounds of frustration and impracticability. . Exam %ips a. .oes nonHoccurrence of event I at time of performance mean no obligation to performN &

&.

/.

1.

9.

i. >hat ris5s did parties foresee 6 contemplateN ii. .id they allocate the ris5s in the contractN 1. 'oo5 at contract, prior negotiations, agreements, trade usage. +estatement Approach a. R2d 241 Dischar)e 2 S#!er&enin) I%!ractica2i$it i. %here, after a A is made, a party"s performance is made impracticable without his fault be the occurrence of an event the non occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged unless the language or the circumstances indicate to the contrary. b. R2d 24D Dischar)e ( S#!er&enin) :r#stration i. !f purpose is s#2stantia$$ fr#strated without fault by the occurrence of an event the nonHoccurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or circumstances indicate the contrary. c. R2d 244 L Existing !mpracticability or "rustration 2$$ Approach a. CCC 21D E*c#se 2 :ai$#re of -res#!!osed Condition i. :eller is excused from timely delivery of goods contracted for, where his performance has become commercially impracticable b6c of unforeseen supervening circumstances not within the contemplation of parties at time @ was made. Problem of "oreseeability (Allocation of +is5* a. 0ust loo5 to see who is best able to manage ris5 b. >hich of the parties was intended to bear the ris5 that performance would in fact be rendered impossible by the particular eventN "rustration (@rell $ase* a. Buyer saying the value of the ob,ect is near zero. i. #o reason to perform; will no longer get benefit from performance. ii. :omething happens after contract that has decreased value of performance. iii. $ould render performance8 it7s not too expensive; however value of performance is really low.

4. !mpossibility (.unbar 0olasses, %ransatlantic, Easter Air 'ines* a. !f a court concludes that performance of the contract has been rendered BimpossibleC by events occurring after the contract was performed, the court will generally dischar)e both parties. b. All or nothing claim. c. %hree factor test ("rom %ransatlantic* i. 2nexpected $ontingency ii. "ailure to Allocate +is5 for it. iii. Co%%ercia$ i%!ractica2i$it 1. +endering performance is infeasible . %oo costly to perform. K. !mpracticability a. !f due to changed circumstances, performance would be commercially infeasible, the promisor may be excused ,ust as he would be if performance were literally impossible. 2. O:: 8OO? i. Agreed performance is impracticable because of occurrence of contingency, the nonoccurrence of which was a basic assumption of the contract >2/41D>a@@ 1. 0ust be extreme c. ON 8OO? i. 2nexpected price increases &&

1. Especially when price increase was foreseeable. F. %aylor v. $aldwell (p. KF* (Impossibility) a. Plaintiff and defendant entered into contract for the use of a music hall, which was essential to the contract. A fire, without fault of either party, destroyed the music hall. b. %he parties must from the beginning have 5nown that it could not be fulfilled unless when the time for the fulfillment of the contract arrived some particular specified thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence as the foundation of what was to be done. i. !mplied condition of continued existence is necessary. ii. $ourt found the contract was based on the continued existence of the music hall and performance is excused. 1E. =owell v. $oupland (p. K&9* (Impossibility) a. Plaintiff and defendant entered into contract for delivery of potatoes. $rop disease destroyed much of the crop. .efendant delivered some, but not all, of potatoes. b. Performance was impossible. i. %here is a condition implied before performance that the potatoes should be in existence. 11. $arroll v. Bowersoc5 (p. K&4* (Impossibility but reco ery) a. Plaintiff contracted with owner of warehouse to construct a concrete floor in warehouse. >hen part of the wor5 was done, warehouse was destroyed by fire through no fault. .efendant refused to rebuild, rendering plaintiff7s performance impossible. b. !mpossibility of performance because of destruction of the building was not contemplated by either partyH performance was prevented without fault and neither party can be held delin-uent. c. Even if performance is rendered impossible, plaintiff can still recover for some performance if defendant is un,ustly enriched. 1 . :eitz v. 0ar5HoH'ite (p. K/1* (-o Impossibility) a. Plaintiff and defendant entered into subcontract to renovate a theater. %he contract had a force ma,eure clause. .efendant7s expert got sic5 and was unable to wor5 and was the only person in their company who could perform the wor5. b. $ourt found no impossibility. i. Performance is not excused for foreseeable illness by the only employee within the company who could do the wor5 when the contract did not expressly state so and others outside the company could perform. 1&. $anadian !ndustrial Alcohol v. .unbar 0olasses (p. K/1* (-o Impossibility* a. P contracted to buy molasses from ., who ac-uired it from third party refineryDoutput of refinery goes down, . given less amount. b. . argues that duty to deliver was conditioned upon the production of the refinery. c. #o impossibility i. :hortage by refinery was unforeseen but not unforeseeable. ii. +is5 allocated to . 1. !f . would have made a timely @ with refinery, could have assured itself of sufficient supply. d. Business could not be transacted smoothly if a presumption of nonperformance were at the root of its engagements. 1/. @rell v. =enry (p. K4E* (Frustration* a. %he @ing7s coronation case. @ing gets sic5, =enry doesn7t pay balance. b. $ontract was frustrated c. %est &/

i. >hat was the fo#ndation of the contract 1. 'oo5 to surrounding circumstances . Parol Evidence used. ii. >as the !erfor%ance of the contract !re&entedN 1. !s there the absence of an assumption of the existence of a particular state of thingsN iii. >as the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the conte%!$ation of the !arties at the date of the contractN d. %he procession was an implied condition in the contract and its nonHexistence excuses performance. 11. 'loyd v. 0urphy (p. K4&* (-o frustration of purpose) a. Plaintiff leased to defendant a premises for the sole purpose of selling automobiles. "ederal government then restricted the sale of automobiles. .efendant contends that this restriction hurt his business and he vacated. b. >aws or go ernmental acts that ma&e performance unprofitable or more difficult or e$pensi e do not e$cuse performance. i. %he sale of automobiles was not made impossible but merely restricted, thereby ma5ing it less profitable. c. %his ris5 of war was foreseeable so the ris5 was assumed. 19. %ransatlantic "inancing $orporation v. 2: (p. K/F* (-o Impossibility) a. P was shipping coD:uez war leads to canal being closedDBoat has to go through $ape of <ood =ope route to get thereVan extra A//,EEE and &,EEE miles. b. P alleges an implied term of Busual and customary routeC impracticability (trying to get more money* c. %E:% "3+ !0P3::!B!'!%Q i. A contingency (something unexpected* must have occurred ii. +is5 of unexpected occurrence must not have been allocated by either agreement or custom. 1. Proof that ris5 of a contingency7s occurrence has been allocated can be EIP+E::E. 3+ !0P'!E.. a. 0ay also be found in surrounding circumstances, custom, usage of trade iii. 3ccurrence of contingency must have rendered performance commercially impracticable. 1. !ncreased cost and difficult performance doesn7t mean impracticability. d. %his case i. %ransatlantic 5new about conflict and assumed abnormal ris5 ii. #o impossibility. 14. Eastern Air 'ines v. <ulf 3il $orporation (p. K14* (-o Impossibility) a. @ for fuel, b6c of oil crisis, <ulf demands Eastern pay more for fuel. b. $ourt uses / tier test (finds no impossibility* i. "ailure of a preHsupposed condition ii. %hat was an underlying assumption of the @. iii. >hich failure was unforeseeable iv. +is5 not specifically allocated to complaining party. c. !s change in price a foreseeable contingencyN i. #eed more than unprofitability, need un,ustness. d. <ulf could have foreseen energy crisis i. !f contingency is foreseeable, it and its conse-uences are ta5en out of scope of 2$$ H911 b6c party disadvantaged by contingency could have protected himself. &1

1K. A'$3A v. Essex <roup (p. K9E* (Impracticability) a. A'$3A and Essex entered into a contract for aluminum. %he contract price was calculated by a complex formula. Eventually 3PE$ actions to increase prices and unanticipated pollution costs caused A'$3A prices to rise. >ithout ,udicial relief, they would lose more than A41 million. b. Performance should be excused based on impracticability because the additional expense was beyond the foreseeable limits of ris& in the normal range. GI (REAC8 A. Genera$ 1. R2d 2,' L Breach will end duty of in,ured party. . R2d 2,D L .efines Breach a. B>hen performance of a duty under a @ is due any nonHperformance is a breachC (. Antici!ator (reach 1. <eneral a. Anticipatory breach still re-uires you to %iti)ate o#r da%a)es i. !f you perform your side and the other party repudiates, there can be no anticipatory breach b6c you can7t mitigate your damage. . +estatement Approach a. R2d 2D< When a State%ent or an Act is a Re!#diation 2. R2d 2D, Effect of a Re!#diation as a (reach and on Other -art As D#ties i. +epudiation alone (even if before time for performance* gives rise to claim for damages for total breach. ii. Breach discharges other party7s remaining duties to perform. &. $onduct $onstituting Performance a. Common >aw i. +e-uires for anticipatory repudiation Ba positive, unconditional, une-uivocal declaration of fixed purpose not to perform the @ in any event or at any time.C ii. 0a5es promisee wait until performance date. b. Modern !rend i. >hen a party facing failure of performance by the other has ta5en reasonable action in good faith to minimize losses from the breach, the courts have been reluctant to impose additional losses upon him, even though breaching party has not une-uivocally declared his intention not to perform. ii. !mplied repudiation only if substantial performance of his promise is i%!ossi2$e. /. =ochster v. .e 'a %our (p. KKK* (Anticipatory breach) a. P hired to come on tour of Europe beginning 961, . changes his mind on 1611, P gets new ,ob on e-ually good terms beginning 461. b. +ule(s* i. %here is anticipatory breach ii. Qou can consider yourself absolved from any future performance of @ iii. $an sue either now or when breach occurs. iv. "uture employment mitigates damages. c. After the ren#nciation of the agreement by the ., P should be at liberty to consider himself a2so$&ed fro% an f#t#re !erfor%ance of it, retainin) his ri)ht to s#e for any damage he has suffered from the breach of it. d. !n,ured party has option to either sue immediately or wait till time when the act was to be done. 1. %aylor v. Mohnston (p. KFE* (repudiation then retraction) &9

a. P and . enter into @ so that P can breed his horses with .7s horse. . sells horse to people in @entuc5y. 1st repudiation is in .7s letter (not ta5en 6 repudiation retracted when . offers to service horse in @entuc5y* b. Anticipatory breach occurs when one of the parties to a bilateral @ repudiates the @. i. +epudiation can be expressed or implied. 1. Express is a clear, positive, une-uivocal refusal to perform. . !mplied results from conduct where promisor puts it out of his power to perform so as to ma5e substantial performance of his promise i%!ossi2$e. a. -o repudiation until there is conduct which remo es the power to perform. 9. %ruman "latt v. :ara 'ee :chupf (p. KF9* (repudiation then retraction) a. Plaintiff and defendant entered into a contract to sell a parcel of land. %he transaction was contingent upon the buyer obtaining a zoning license. %he public opposed the re-uest for rezoning and plaintiff withdrew the re-uest. %hey offered defendant to purchase the land at a lower price but defendant did not accept. Plaintiff later said it would fulfill original contract but defendant refused. b. Plaintiff did not repudiate the contract but, even if they did, they retracted the repudiation before defendant changed their position in response. c. An anticipatory repudiation may be retracted until the other party has commenced an action or otherwise changed its position. i. "or party to treat repudiation as breach, must give notice to other party or materially change their position in reliance. C. S#2stantia$ -erfor%ance 1. <eneral a. .efect must frustrate purpose of @, otherwise there must be substantial performance. b. $riteria i. !nadvertent Breach (<ood "aith Breach* ii. .efect was !nsignificant in relation to central purpose6ob,ective of @. iii. .efective performance must not be inconsistent with express intention of @. c. >illful Breach i. %a5es away protection of substantial performance d. :ubstantial performance is when a party breaches @ by deviating from its terms, but still nonetheless performs well enough that the breach is immaterial. i. %he other party always has a claim for damages. e. %hings %o $onsider in :ubstantial Performance i. >hen does nonperformance of a term constitute a breach entitling the in,ured party to suspend its performance and6or get a legal remedyN ii. =ow does the extent of the breach affect the remedyN . >hen is .efect 0aterialN a. R2d 2.1 :actors to Deter%ine Whether Defect is 1ateria$ &. +emedy for :ubstantial Performance L R2d H,.3>2@ a. $ost of $ompletion i. #ormally, the reasonable measure of damages for failure to perform is the mar5et value of cost of repairing the defect. b. .iminution in Palue i. !f the repair would involve substantial economic waste, the measure of damages will be the amount by which the defect diminishes the value of performance. c. Economic >aste i. >hen cost of replacement is very high relative to diminution in mar5et value of substantial performance &4

/. Macobs W Qoung v. @ent (p. 94* (substantial performance) a. P contractor built house for . without using pipe specified in @, though the pipes used were comparable in -uality. 2sing other pipes is not willful L it was a good faith breach. %here was no difference in value of house b6c other pipes were used L therefore defect was insignificant. . did not complain for F months. $ost of replacing pipes would be huge. b. $ourt he$d that contractor had s#2stantia$$ !erfor%ed even considering the @ had specifically called for +eading pipes. c. $ourt nullifies party7s intent in favor of a more economically sound policy b6c the main ob,ective of the @ was a wellHconstructed house. i. >hat is ,ust and fair e$ poste is derived from e$ ante intention of @. d. +eplacing pipes would be econo%ic Baste. e. .amages i. .iminution of value based on the use of other pipes. ii. $ost of performance is out of proportion. D. The E*!ectation -rinci!$e 1. American :tandard v. :chectman (p. F4/* (cost of completion) a. =aving decided to close its plant, plaintiff made a contract with defendant to remove the e-uipment, demolish the building, and grade the property as specified. Plaintiff filed suit for his failure to complete grading and to ta5e out certain foundations as promised. b. >hen the breach is only incidental to the main purpose of the contract and completion would be disproportionately costly, courts have applied diminution in value measure. (Macob W Qoung* c. !n this case, it cannot be said that the grading and removal were incidental to plaintiff7s purpose in the contract. i. %herefore, cost of completion is correct measure. . Peevyhouse v. <arland $oal 0ining (p. F44* ( a. P leased a farm containing coal deposits to . for 1 years for mining. . agreed to perform restorative and remedial wor5 at end of lease. Purpose of @ was to allow . to strip mine on the property L not a @ for improvements on land. . willfully breaches @. b. $ourt holds that P was only entitled to di%in#tion of &a$#e. .amages for A&EE, not cost of replacement (A F,EEE* c. !he diminution in alue measure should be applied because the breach only related to a pro ision incidental to the main ob(ecti e of the contract and the cost of performance rule would cause damages to be greater than the total alue of the property. d. !est8 0easure of .amages should be reasonable cost of performance 2#'E:: i. @ provision breached was merely incidental to main purpose in view. ii. Economic benefit by full performance of wor5 is grossly disproportionate to cost of performance.

GII CONTRACT RE1EDIES A. Genera$ 1. %ypes of .amages (As defined by ,.. -#r!oses of Re%edies* a. ;$pectation Interest i. !nterest in having the benefit of bargain by being put in as good a position as he would ha e been in had the contract been performed b. 1eliance Interest i. !nterest in being reimbursed for loss caused by reliance on the @ by being put in as good a position as he would ha e been in had the A not been made &K

1. Reasonably foreseeable consequential losses. . !nclude value of opportunities foregone as well as costs of actions ta5en. &. Benefit ? approximates optimal level of enforcement8 pay for loss of benefit of breach. /. %radeoff ? .ifficult to measure accurately, and have high administration and error costs. 1. $i%itation is foreseeability. c. 1estitution Interest i. !nterest in having restored to him any benefit that he has conferred on the other party. 1. 0easured by value of the benefits conferred upon promisor by promisee. ii. R2d ,'< L Re"#ire%ent that (enefit (e Conferred iii. R2d ,'1 1eas#re of Restit#tion Interest 1. %he reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant7s position, or . %he extent to which the other party7s property has been increased in value. i&. R2d ,', Restit#tion When Other -art Is In (reach 1. %he in,ured party has no right to restitution if he has performed all of his duties under the contract and no performance by the other party remains due other than payment for that performance. . 'imitations on .amages a. A&oida2i$it ,D< i. .amages are not recoverable for loss that the in,ured party could have avoided .uty to mitigate without undue ris5, burden, or humiliation. 2. Cnforeseea2i$it ,D1 i. .amages are not recoverable for loss that the party in breach did not ha e reason to foresee as a probable result of the breach when the @ was made. 1. in the ordinary course of events, 3+ . as a result of special circumstances that the party has reason to &now. c. Cncertaint ,D1 i. .amages are not recoverable for loss beyond an amount that the evidence establishes with reasonable certainty. 3. ;fficient Breaches a. +egret $ontingency, obligor is faced with existing obligation that he would not perform were he presently given the opportunity to recontract. 0ust ma5e a rational costHefficient choice between performing and suffer associated losses and electing breach and pay obligee7s damage bill by Bma5ing him wholeC i.e. compensatory damages. b. 0oral indifference to breach of @ is ,ustified in the law permitting a promisor to breach and compensate promisee with money. i. Promotes an efficient disposition of material resources. ii. Assuming breaching promisor has acted rationally there should be a net social gain to the parties, yet no one is left worse off as a conse-uence. /. +estitution .amages and %he Breaching Plaintiff a. A party7s right to restitution may survive his own performance deficiency. b. Breach of @ does not validate un,ust enrichment. c. R2d ,'. Restit#tion in :a&or of -art in (reach i. The !art in 2reach is entit$ed to restit#tion for an 2enefit that he has conferred 2 Ba of !art !erfor%ance or re$iance in e*cess of the $oss that he has ca#sed 2 his oBn 2reach. &F

(. Cases Re$ated to What T !e of Da%a)e to ABard 1. "reund v. >ashington :-uare Press (p. FF* (nominal e$pectancy interest) a. P7s boo5 was not published after he relied on commitment from press that it would publish boo5. P then spent A1E,EEE of his own money to publish the boo5 himself. P had been promised a percentage of royalties under original @ with .. b. P7s e$pectancy interest is the advance and the royalties. i. Advance was paid and royalties were too speculative so expectancy damages were nominal. c. 0amages are not measured by what defaulting party sa ed by breach, but by the natural and probable conse#uences of breach to '. . :ullivan v. 37$onnor (p. FF1* (1eliance damages) a. P contracted with . for a nose ,ob that . said would improve P7s appearance after operations. P was not satisfied with poor results. :he ended up having to undergo a &rd operation. :he is left with no further surgical options to improve nose. b. $ourt awards reliance damages i. -o e$pectancy damages because they were too speculative c. >hat she gets under reliance damages i. 3ut of poc5et expenses for all & operations ii. 0oney damages for worsening of condition iii. 'ost earnings of ,obs she had before surgery iv. Pain and suffering associated with all & operations. d. Pain and suffering issue i. P sued for pain and suffering which is not typically awarded in @ cases since @ remedies are generally limited to foreseeable results. !n this case, pain and suffering was foreseeable. 1. $ourt only awarded pWs for &rd operation. e. !f expectation damages awarded, would have gotten i. 'ost earnings, out of poc5et expenses for &rd op., money for pain and suffering associated with &rd operation only 1. value of @ nose L value of actual nose. f. !f court had awarded restitution damages, P would only get her out of poc5et expenses paid to . for & operations. C. S!ecific -erfor%ance 1. R2d ,D0>a@ and ,4< a. :pecific performance or an in,unction will not be ordered if damages would be ade-uate to protect the expectation interest of the in,ured party. b. !n determining whether the remedy in damages would be ade-uate, the following circumstances are significant8 i. %he difficulty of proving damages with reasonable certainty, ii. %he difficulty of procuring a suitable substitute performance by means of money awarded as damages, and iii. %he li5elihood that a damage award could not be collected. . CCC 2/'14 L (# erAs Ri)ht to S!ecific -erfor%ance a. :pecific performance may be decreed where the goods are unique or in other proper circumstances. &. MM on 0odern :pecific Performance a. $ommon law only applies to uni-ueness (family heirlooms* b. #owadays, other proper circumstances. /E

i. Expense, trouble, loss, great delay and inconvenience. c. Anything can be proper circumstancesDfurthers a more liberal attitude than some courts have shown in connection with specific performance of @ of sale. /. :edma5 v. $harlie7s $hevrolet (p. FK9* (specific performance) a. P contracted to buy a limited edition $orvette, made to P7s specifications from .. P paid a deposit. Price was to be the manufacturer7s stic5er price. >hen car arrived, . refused to sell to P, but wanted to sell car to highest bidder. b. $ourt granted specific performance i. :ays car, due to near impossibility of P7s being able to get replacement, was functionally uni#ue. c. .pecific performance is the proper remedy when the replacement good can"t be obtained elsewhere e$cept at considerable e$pense, trouble, or loss, which can"t be estimated in ad ance. 1. @lein v. Pepsico (p. 11&* (no specific performance) a. @lein entered into contract with Pepsico to purchase a <H!! ,et. Pepsico agreed to pay for repairs for defects that were found. But then they withdrew their offer. @lein demanded :P* b. Because money damages would be ade-uate and the ,et was not uni-ue, specific performance is not appropriate. D. E*!ectanc Da%a)es 1. +eliance X :) X Expectation of @ performance . .efault damage award in @ law ,. R2d ,.' 1eas#re of Da%a)es in Genera$ a. :ub,ect to the limitationsDthe in,ured party has a right to damages based on his e*!ectation interest as measured by i. %he loss in the value to him of the other party7s performance caused by its failure or deficiency P'2: ii. Any other loss, including incidental or conse-uential loss, caused by the breach, 'E:: iii. Any cost or other loss that he has avoided by not having to perform. E. Li%itations on E*!ectation Re%ed 1. Certaint a. .amages for breach are recoverable only to the extent that the in,ured party7s loss can be established with reasonable certainty. 'imits buyer7s recovery of lost profits in collateral transactions. b. ,D2 Cncertaint as a Li%itation on Da%a)es c. .rews v. 'edwithH>olfe (p. 1E&&* (no lost profits) i. .rews contracted to renovate a building owned by 'edwith. 3wner intended to covert the building into a restaurant. %he pro,ect had delays and other problems. $ontractor pulled its wor5ers off the pro,ect. 3wner alleged breach of contract and caused him to lose profits. ii. $ourts are now ta5ing the position that the Bnew businessC rule is a rule of evidentiary sufficiency and not an automatic preclusion for lost profits. iii. %he standard for entitlement of lost profits8 1* profits must have been prevented or lost as a natural conse-uence of breach of contract * foreseeableH profits may reasonably be supposed to be within the contemplation of the parties when contracting and &* lost profits are established with reasonable certainty. iv. $ourt finds that 3wner failed to satisfy the reasonable certainty re-uirementH pro,ections were based mostly on con,ecture. /1

1. %herefore, lost profits are not appropriate. . :oreseea2i$it a. "oreseeability doctrine encourages promisee to behave in an efficient cost saving manner before promisor breaches. b. R2d ,D1 Cnforeseea2i$it and Re$ated Li%itations on Da%a)es c. 0odern trend i. !nclude damages for lost profits among reasonably foreseeable damages. d. =adley v. Baxendale (p. 11K* (not foreseeable) i. P owns mill, doesn7t have spare shaft. :haft brea5s, sends it via courier to a firm. B6c of a delay, P7s mill shut down for several days. P wants to recover lost profits. ii. $ourt rules this is not foreseeable L damages limited to expectancy level, does not include lost profits. iii. +ule 1. %here 2 parties ha e made a A that one of them has bro&en the damages that the other party ought to recei e in respect of such breach of A should be such as reasonable be considered as either8 a. arising naturally, according to the usual course of things, from such breach of @ itself i. reasonable person test b. :uch as may reasonably be supposed to have been in contemplation of both parties, at time they made the @ as the probable result of the breach of it. i. More specific to current parties. iv. . had no reason to 5now that mill could not operate without shaft and that lost profits would result; price did not reflect this conse-uence. e. :pang v. "ort Pitt (p. 1E&F* (foreseeable) i. %orrington was the successful bidder for a highway construction pro,ect. %orrington received a bid from "ort Pitt for the delivery of steel to construct of a bridge. %orrington advised "ort Pitt that its re-uirements for delivery were Mune 1F4E but not enough steel was delivered to do the ,ob until :eptember. %orrington had to perform -uic5ly and it cost them overtime pay, extra e-uipment, etc. ii. If the damages suffered do not usually flow from the breach, then it must be established that the special circumstances gi ing rise to them should reasonably ha e been anticipated at the time the contract was made. 1. "ort Pitt should have reasonably anticipated this based on experience in the trade and cold climate. iii. >hen the parties entered into a contract which provides that the time of performance is to be fixed at a later date, the 5nowledge of the conse-uences of a failure to perform is to be imputed to the defaulting party as of the time the parties agreed upon the date of performance. f. $ric5et Alley v. .%: (p. 1E/&* (foreseeable) i. P agreed to purchase 1E cash registers from . to BcommunicateC with their computer. .7s e-uipment did not wor5 as advertised. ii. 'articular needs of the buyer must generally be made &nown to the seller while general needs rarely need to be made &nown for conse#uential damages. iii. $ourt found that it was implied that the computers would wor5 as advertisedH it was foreseeable that damages would result when they didn7t wor5. &. 1iti)ation >A&oida2i$it @ /

a. !n,ured party is under a legal obligation to ta5e (or else to be presumed to have ta5en* reasonable steps to avoid waste and minimize cost of breach. b. =aving become aware of promisor7s nonHperformance, in,ured party is expected to suspend or terminate his own performance and has no claim for expenditures beyond that time. c. R2d ,D< A&oida2i$it as a Li%itation on Da%a)es i. %he in,ured party is not !rec$#ded from recovery by the rule stated in subsection (1* to the e*tent that he has %ade reasona2$e 2#t #ns#ccessf#$ effort to a&oid $oss. d. +oc5ingham $ounty v. 'uten Bridge $ompany (p. 1E1E* (duty to mitigate) i. . is a county that had contracted to build bridge with P. %he @ raised controversy, and the board rescinds @. P had already incurred costs of A1FEE but continues wor5ing until completion. ii. $ourt reverses an award for P. 1. :ays P entitled to recover A1FEE plus anticipated profit only. iii. BAfter an absolute repudiation or refusal to perform by one party to a A, the other party cannot continue to perform and reco er damages based on full performance.6 1. P, so far as he can w6o loss to himself, must mitigate the damages caused by .7s wrongful act. e. Par5er v. %wentieth $enturyH"ox "ilm $ompany (p. 1E1&* (no duty to mitigate) i. :hirley 0ac'aine entered into @ with "ox to play lead in movie version of Broadway musical for A41E,EEE. "ox canceled musical and offered 0ac'aine female lead in western film. 1st @ included right of choice in who was involved with film and the film was to be filmed in 'A. nd @ had no such choice and was to be filmed in Australia. ii. $ourt held that 0ac'aine had no legal obligation to mitigate damages by accepting western. iii. 1eas#re of Reco&er 2 a Bron)f#$$ dischar)ed e%!$o ee 1. ;mployer must show that the other employment was comparable )substantially similar) to that of which the employee had been depri ed) . Employee7s re,ection of or failure to see5 other available employment of a different or inferior 5ind is not re-uired to mitigate damages. iv. .issent says this is an issue of fact that should be for ,ury. :. Re$iance and Restit#tion 1. @izas v. >ebster (p. 1EE1* (1eliance damages) a. .efendant terminated a program whereby clerical employees of the "B! received preferential consideration for ,obs as special agents with the "B!. 0oney damages were awarded on the basis of Brough ,usticeC in the trial court. b. $ourt concludes where the value of the expectancy is speculative, the reliance measure of damages is the appropriate measure. i. +eliance measures are appropriate here, even though they exceed expectancy damages. c. $ourt concludes that even though the benefit was not guaranteed, it still had value. . 2: v. Gara $ontracting (p. 1EEK* (1estitution damages) a. Plaintiffs sued Gara to recover for wor5 performed and e-uipment supplied in the performance of a contract to extend an airport. Gara entered into subcontract with plaintiff for excavation of material, etc. .uring the course of performance, plaintiffs encountered unexpected soil conditions, which made the wor5 more difficult, and they claimed this wor5 was not re-uired in the contract. Gara too5 over the completion of the contract. b. !he measure of reco ery by way of restitution should be considered with respect to the contract and the alue of the performance to the defendant, including the cost of labor and materials. )restitution based on un(ust enrichment and conferred benefit) /&

c. Because plaintiff was not in breach and performance was part of the performance bargained for, then not limited to the extent by which defendant7s total wealth increased, but also by services and materials as constituted the part performance. &. Britton v. %urner (p. 1E11* (1estitution damages) a. P agreed to wor5 for . for one year for A1 E to be paid entirely at the end of the term. P -uit after F.1 months. b. $ourt awards restit#tion da%a)es saying that P had conferred a benefit on . that could neither be re,ected nor returned. c. $ourt concludes that the party who contract for labor does so with full 5nowledge that he must accept part performance. i. If he recei es a benefit from the labor performed, o er and abo e the damage occasioned by the failure to complete, he should pay the reasonable worth of what has thus been done for this benefit. G. Li"#idated Da%a)es 1. +ule is designed to allow parties to bargain, within the @ formation process, for the amount of damages that will be paid if there is a breach. . <oal is to reduce litigation costs should a breach occur. &. %wo factors that would induce parties to negotiate li-uidated damages (whenever the costs of negotiating are less than expected costs resulting from reliance on the standard damage rule* a. ;$pected 0amages are readily calculable 3+ b. ;$pected damages uncertain or difficult to establish /. $lauses will be enforced a. !f they are reasonable and calculable. b. %=EQ >!'' #3% BE E#"3+$E. A: ';-A>!H C>A8.;.. D. CCC 2/'13 Li"#idation or Li%itation of Da%a)es a. .amages for breach by either party may be li-uidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large li-uidated damages is void as a penalty. 9. +ule from 'a5e +iver a. >i#uidated damages clause alid when i. !t is reasonable estimate at time of @ of li5ely damages from breach A#. ii. #eed for estimation at time is shown by reference to li5ely difficulty of measuring actual damages from I. 'enalty Clauses a. Basic rule is if li-uidated damages are too high relative to either actual damages or damages that would have reasonably been anticipated at time of contract, clause will be invalidated as penalizingH ta5es into account difficulty of proving damages b. >hen a @ specifies a single sum in damages for any and all breaches, EPE# %=32<= it is apparent that all are not of the same gravity, the specification is not a reasonable effort to estimate damages. K. $alifornia W =awaii :ugar $o. v. :un :hip (p. 1E9 * (li#uidated damage clause enforceable) a. $ and = decided to build a hybrid tug barge to transport sugar and contracted with :un to build the barge and =alter to build the tug. %he contract with :un included a li-uidated damages clause for delay in deliveryH if delivery of the vessel was no made by Mune &E, 1FK1 then :un would pay A14,EEE per day not as a penalty but as a reasonable measure of the damages. =alter did not complete the tug until too late and neither did :un. :un paid $ and = some its damages, but not ultimately denied liability for any damages. //

b. $ourt says loo5 at reasonableness of anticipated damagesH said this was reasonable b6c there was no reason to anticipate that both would be lateH therefore reasonable that double breach would result in big losses. i. 'i-uidated damages clause is enforceable and is not penal. c. %he court must decline to substitute the re-uirements of ,udicial proof for the parties7 own conclusion. F. 'a5e +iver v. $arborundum (p. 1E9K* (li#uidated damage unenforceable) a. @ to bag and deliver steel powder. P buys AKF,EEE bagging system. @ contains li-uidated damages clause8 . guarantees difference between -uantity bagged and minimum guaranteed times a price. b. >i#uidated damages clause improper because it is penal and superHcompensatory. i. %he damage formula is a penalty because it is designed always to assure 'a5e +iver more than its actual damages and is invariant to the gravity of the breach. c. $orrect damages here is e$pectancy damages.

EGA1 -RE-ARATION Plaintiff to establish breach of contract8 1* enforceable contract (assent, consideration* * breach (contract interpretation, default rulesH substantial performance, anticipatory repudiation, excuse for nonperformance, good faith* &* remedy (P would thin5 broadlyH default is expectation damages, but reliance or restitution or specific performance may be available* o Alternatives to breach8 promissory estoppel (possibly try for expectation damages*, -uantum meruit .efendant defenses8 1* not enforceable contractH no assent, no consideration, public policy * assent induced by fraud, duress, mista5e o .efenses are in lieu of admitting enforceable contract but there is no breachH difference between defenses (pertain to things that were done or not done at time contract was made* and breach (material breachH . could claim substantial performance therefore no breach or excuse* o !f . loses, try to limit damages 3b,ective theory of assent (reasonable person standard* and default rules shape a ma,ority of the doctrines used by courts that were mentioned above. %ension b6t default rules and notion of contract law (finding and enforcing the parties7 intentH more sub,ective*

Co%%on/LaB Reasonin) %hese default rules (doctrines, elements* are induced from cases >hat are the purposes underlying enforcing contractsN o Palue maximizing cooperative venturesH social value o %o have freedom of contract, there must be assent and no defenses. o 0o these factual differences ma&e a differenceB /1

%ould the same purposes or ob(ecti es be furthered hereB "reedom of contract, allow private parties to engage in valueHmaximizing agreementsH autonomy goals, efficiency goals, and somewhat distributional goals (ex. unconscionability*

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