Contracts Outline

Contracts Outline

Standard v. rule

Rule is like UCC or Restatement-bright line (x is the answer), they make exceptions to them, at some point there are so many exceptions make a new rule, rule with a lot of exceptions=standard (equitable estoppel, promissory estoppel)

Cry for help

Opportunistic

Build means build

Allocating the risk

Lottery ticket

I. CONTRACTUAL RELATIONSHIPS AND CONDUCT

A. INDEFINITE CONTRACTUAL AGREEMENTS

1. EXCLUSIVE DEALINGS CONTRACTS /BEST EFFORTS

Wood v. Lucy, Lady Duff-Gordon Contract between Wood and Lucy, where Wood was to have exclusive marketing rights to her label and she would, in exchange receive half of the profits of the venture. She signed a deal with Sears Roebuck, however, and he is bringing suit for breach of contract. She claims that he has no consideration, but Cardozo infers promise of best efforts on his part that he will actually do something. He considers it unreasonable for her to have given this right as a gift and recognizes his marketing expertise to conclude that this gap should be filled by the courts. Look at 3 elements that show it is not a gift

1. she gets of profits

2. he has expertise in marketing

3. he is held accountable to her for his spending and efforts and he is to take out copyrights and patents to protect the articles under agreement.

Bloor v. Falstaff Brewing Corp.

Best efforts v. No efforts. Bloor sold Ballantine Beer to Falstaff under the condition that they would receive $.50 per barrel for 6 years and if Falstaff was to discontinue distribution of Ballentine then they were to pay portion of time remaining X $1,100,000. Kalamovitz decided to change plan after the sale to focus on profits, cutting Ballentine advertising budget from $1,000,000 to $115,000/year, closed 4 of 6 of Ballentines distribution centers, and discontinued various illegal practices that Ballentine had previously done in sales efforts, and refused offer from Guiness to distribute it. Thus Ballentines sales fell precipitously. Falstaff, in this process, made great financial headway. Court held that Falstaff was not forced to go bankrupt in maintaining its best efforts commitment to Bloor, but that it was required to make efforts even in economic hardship. Thus the court held that Falstaff breached its best efforts duty when it did not really consider the interests of Bloor in cutting the sales of Ballentine. Its obligation to Ballentine was not to depreciate sales of Falstaffs brands but simply to promote and maintain high sales of Ballentine.

Damages compare what Ballentines sales would have been if compared to Schaffer and Rheingold

Relational contracts

1. ongoing contracts for the supply of goods or services rather than agreements for

a single exchange

2. because these contracts concern several transactions, parties cannot reduce the

bargain to well defined obligations.

UCC-2-306

( result is best efforts idea; very similar to good faith. Exercise ordinary business prudence and due diligence. Courts can find that people acting out of best efforts cannot do things which are directly contradictory and obviously malicious to the plaintiff (i.e. dealing with another partner to force someone to accept lower contract terms

Result people use termination privileges, liquidated damages clauses, and covenant to not compete

To reduce these problems in relational contracts, two possibilities

1. form corporation

2. place provisions in the contract to preserve the relationship, like performance

standards, prescribed audits, incentive systems.

1. REDUCING CONFLICTS OF INTEREST BY CONTRACT

The deviation between individual and collective interests are often termed agency costs, one way to eliminate or decrease is to form a firm (either a partnership or a corporation) which has its own costs. An alternative to this solution is for the parties to agree to contractual provisions that are designed to reduce conflicts and preserve the relationship by specifying an array of monitoring provisions. As these monitoring provisions are costly to both parties, therefore each has an incentive to substitute reassurances of performances in the form of bonding provisions (capital contributions, covenants not to compete, self-imposed ethical standards, and termination clauses)

a. Termination Clauses UCC 2-309 allows both parties to terminate contracts

Wagenseller v. Scottsdale Memorial Hospital-staff nurse terminated from at will employment, appeals from judgment, general rule is that contracts for personal services where no time limit is provided, they are terminable at the pleasure of either party

3 general exceptions (Wagenseller raises all three)

1. public policy exception-permits recovery upon a finding that the employers conduct undermined some important public policy, cannot be for bad cause

2. requires proof of an impled in fact contract promise of employment for a specific duration, as found in the in the circumstances surrounding the employment relationship

3. implied in covenant of good faith and fair dealing and have held employers liable in both contract and tort for breach of that covenant

Consumers International- bad faith not evidenced by violation of terms of agreement, no cause ok, just not bad cause

Have to be reasonable in time and

b. Covenants not to compete- if dont made in , if sign later there must be separate consideration, 4 factors

1. must be related to a contract for sale of goodwill or other subject to property or contract for employment (without a change of status there would be no contract for employment)

2. the covenant must be supported by adequate consideration

3. must be limited in time and geography

4. the covenant must be necessary to protect the employer (cts are particularly likely to enforce covenants not to compete when they are based on a personal relationship between the employee and customer that were cultivated at the companys expense ex. Stockbrokers)

Gagliardi Brothers v. Caputo-plaintiff is a corp is marketing meat products, the def was employed as a controller, when hired did not sign employment contract, when a patent was denied the corp reqd Caputo and other employees to sign covenants, if he had not signed would have been fired

Fails on all 4 elements

B. MODIFICATION OF EXISTING AGREEMENTS Absent additional consideration and a renegotiation of the contract, the previous contract is binding.

Should there be a clear rule against modifying contracts without additional consideration? IF there is such a rule, good faith modifications will not be recognized in court. If not, then sometimes the court may allow some bad faith modifications to stand.

2-209 parties must exercise good faith in modifying contracts.

Restatement 89

Alaska Packers Association v. DomenicoPlaintiffs contracted to be paid $50 or $60 to fish in Alaska plus $.02 for every fish. When the arrived in Alaska, recognizing Domenicos investment in the cannery, the fishermen petitioned more money, saying that they would not fish but for $100. Under duress, the manager (who lacked authority to make this deal) agreed, but Domenico paid them according to their original contract when they returned. Court held that there was no consideration; they were contracted to fish and that is what they did. Court considered that allowing plaintiff to recover places a premium on acting in bad faith.

1. Pre-existing duty rule implications Pirates v. privateers, performance of an act which the promisee (A) is already bound by consideration for the change that the promisor (B) has apparently agreed to. The enforcement of Bs subsequent promise would accordingly be barred on the ground that a fresh consideration for that promise was lacking

3 ways to avoid it

1. do or promise to do something beyond the existing obligation (i.e.

provide addl. Consideration)

Slattery v. Wells Fargo Armored Service Corp.

Person operating polygraph cannot get the reward to turning someone in; this was

part of his duty as an employee.

NHL v. Yashin

Arbitration greedy hockey player must play out his remaining year and cannot

renegotiate contract.

2. rescind the first contract before entering into the second.

3. address changed circumstances

Angel v. Murray growth in city meant more trash to be collected allowed to change the contract (i..e addl. Consideration)

Brian Construction v. Brighenti modification of contact when the subcontractor found debris which was going to mean more work for him.

2. Terminating contract no good faith required. To terminate a contract, this is an agreet to relinquish performance obligations.

Should there be a clear rule against modifying contracts without additional consideration? IF there is such a rule, good faith modifications will not be recognized in court. If not, then sometimes the court may allow some bad faith modifications to stand.

Regulating the Bargaining Process

Promotes (1) autonomy and (2) efficient promise making (i.e. putting goods/services in their most highly-valued state.

When does it not work?

*when it is not voluntary (duress)

*when critical information is withheld (fraud)

*when the parties are not mentally competent or minors (capacity)

( These contracts are typically voidable not void; voidable by the person who was under duress, etc. 174-76

When is a contract not enforced for policy reasons?

*illegality

*immorality

*unconscionability

*not in writing statute of frauds

DURESS

Duress-Promises extorted by violence or threat of violence are obviously not enforceable

1. Restatement on duress an improper threat that reasonably induces assent

a. improper threat must be made to the promisor

*may be expressed or inferred from words or conduct

*not necessarily illegal threat Wolf, Austin

b. inducement of a promise must be made by that threat

*threat must arise enough fear that it would induce assent on the

part of a man of ordinary firmness (this is questionable either an

objective reasonable man std. or the subjective standard

incorporating the promisors characteristics)

Lewis v. Lewis Mrs. Lewis received $10,000 for settling

concerning the property in divorce; she was suing that it was done

under duress of violence by [then] husband, but on review court

found it was b/c she needed $$$

c. the inducement itself must be reasonable

*no other alternative Austin

*credibility of threat - Wolf

Restatement 174-177

Wolf v. Marlton Superior Ct. NJ 1959

The plaintiffs claimed that the def failed to let them know of the closing in and thus kept their deposit without their having an opportunity to get the money. BUT allegedly the construction co. notified the plaintiff of the closing 4X. So, should the defendant receive the 2nd payment since the lawyer was notified 4X?

The Plaintiffs lawyer threatened that he would go through with the purchase of the house (despite the marital problems of the plaintiff) but they would sell it to someone undesirable. Field (at Marlton) agreed to let them out of the K if they were able to keep $1000 of the $2450 deposit that Wolf had made. Plaintiff was willing to give $450. threatened , saying that hed ruin his business. By Rubenstein, duress is tested not by the nature of the threats, but rather by the state of mind induced thereby in the victim.

Furthermore, the pressure must be wrongful. Threat may be wrongful even though it is lawful. In this case acted wrongfully because the threat compelled the to allow the out of the contract that they'd voluntarily signed.

If the threats were in fact made and if the defendant felt they would be carried out, and Fields will was thereby overcome than the def was justified in considering the contract as breached

This case is exemplary of breach in faith in fair dealing (176(d))

Case remanded for trial court to determine the credibility of the threat and the damages sustained. How would the courts determine what damages should be awarded? Should he get $1000 or $2450 or even the addl $2450 on top of first deposit?

Hypersensitivity?

Objectivity?

Austin Instrument Inc. v. Loral Corp.UCC 2-209 Comment 2-epiminates the need for consideration , only requires that the modification be made in good faith, for a legitimate commercial reason

Loral had a contract with the Navy, which constituted a substantial portion of their business. While contracting for an additional project, Austin was bidding to subcontract on second project while fulfilling its bid on the first. Austin halted delivery on the first K until Loral agreed to use them in the second (for all 40 instead of just 23) and agreed to pay them more for both Ks. Loral complied, because there were no other subcontractors (it checked) who could fulfill their first order (fulfilling their duty to mitigate). BUT, they did not pay Austin and sought to recover the difference in the original amount to be paid to Loral and what they were coerced into paying.

Loral had a great deal to lose: it could not cover, 1/3 of its business was with the Navy and this could damage its reputation/endanger its getting future contracts, it covered its duty to mitigate.

*If damages was a sufficient remedy, wed not need the duress doctrine.

Q Court must ask Is the threat credible? If yes, then is there an option available to them that they did not take? Could the party suing for duress have avoided the situation? If the answer is conclusively no then the duress doctrine applies.

UCC if something happens which turns the subcontractors deal unprofitable, it may justify a change in the contract.

Law of Salvage

*mandatory default rule but could it act in place of duress doctrine?

Post v. Jones

Law of salvage mandatory rule concerning how to divide the cargo of the ship run aground. Tort like at the time when all people go out to sea, they are all better if the law of salvage will necessarily apply than they would be if they had to bargain with every ship going out. In a moment like that of the Richmond, the auction is meaningless and the party being salved has no bargaining power whatsoever.

What is the court to consider? The likelihood that the other ships would fill their quotas of oil and what risks they assumed in salvaging the oil. Compensation is to be more than 1/3 but less than of the good saved. In other cases, multiple variables

*danger to property

*value

*risk of life

*skill

*labor

*duration of the service

Law of salvage/duress doctrines apply when some party has a bilateral monopoly situation and is using it to extort parties. IF there is any kind of market situation, then neither doctrine applies.

Economic DuressSame as above;

Chouinard v. ChouinardFred was in a bad financial situation and, in order to make payroll, had to buy stock of two others at an unfavorable price. He sought economic duress, but was refused. This is a hard bargain and there was nothing wrongful in the sellers actions.

FRAUD

Person is liable for fraud when if he makes a false representation of a past or preexisting material fact susceptible of knowledge, knowing it to be false, or without knowing and causing the person to whom it is made to rely upon it, or where the person is justified in acting on reliance of it to his damage

A bad motive is not an essential element of fraud

Contract law only enforces contracts between competent adults

Willful and Negligent Information

Speiss v. Brandt

Plaintiffs bought a wilderness resort from the defendants, claim that the defendants had fraudently concealed the fact that they lost money every year, due to the representations that the defs had made to the plaintiffs during negotiations, not obvious as they asked to see the books and where repeatedly denied, law does not ignore the disparity of business experiencect held that

Tried to rescind the contact, due to misrepresentations made concerning the contract, def refused to let them see the book, defs state of mind was irrelevant when the plaintiffs relied

Dannan Realty Crp. v. Harris

Plaintiffs allege that they were induced to enter into a contract of sale of a lease of a building because of oral representation made by the defendants, main issue was whether the plaintiff can establish reliance on the misrepresentations, although where a complaint states a cause of action for fraud the parole evidence rule is not a bar to showing the fraud, in this case plaintiff announced that it was not relying on the representations of the defendants, the very same representations they are claiming fraud for, officers read and understood the contract (if the facts represented are not matters peculiarly within the partys knowledge, and the other party has the means available to him of knowing by the exercise of ordinary intelligence, the truth or real quality of the subject of the representation he must make use of those means or he will not be heard to complain that he was induced to enter into the transaction by representations

Def did not make any representations and the plaintiff did not rely, same commercial savvy

Dissent-all made fraudulently if some made fraudulently, brings up Bridger case allowed fraud when based on oral misrepresentations when a written contract was understood and agreed to

Duty to Read

Merit Music Service v. Sonneborn-duty to read

Merit leases vending and amusement machines, appellee was a tavern owner, who asked for a loan, agreed to install several machines, appellees later ordered the removal of the machines, Merit filed a complaint, appellees readily agree that they did not read the written document prepared for their signature (anyone having the capacity to understand a written document who reads it or signs it without reading it or having it read to them is bound by it unless the other party knows or reasonable person should know that the acceptor does not intend what his words kor acts ostensibly indicate)

Exceptions

1. not legible

2. hidden

3. fraud

4. mistake

5. unconsciouability

transaction between merchants who had worked with each other before for jukeboxes, made them abide by the contract

Birmingham Television Corp. v. Water Works

A water main broke and damaged the appellees equipment, year later filed suit, appellant argues that there was a 9 month bailment limitation, for the special provision in the contract of bailment limiting liability to be effective, it must be known to or brought to the notice of the bailor and be assented to by him, nothing on the face of the receipt give notice, appellant did not sign the purported contract of bailment on the reverse side, or acknowledged or accepted these terms and conditionsDid not make them follow, hidden

Tensions between the unconsiouability doctrine and the duty to read

Disclosure and Nondisclosure

Restatement 169, 168

Requirement of assent implies in a general way that both parties to an exchange shall have a reasonably clear conception of what they are getting and what they are getting and what they are giving up. If the identity or the character of the property or being service being bought or sold is overtly misrepresented by one of the consenting parties than the other partys assent is obviously less than meaningful and any agreement that results will be regarded as voidable, even if there is is no specific intent to defraud

162 a misrepresentation is an assertion (action or statement) that is not in accord with the facts

See also 159, 164

161 when one party knows that other party is relying on a crucial (erroneous) assumption, not telling is tantamount to an assertion, treats nondisclosure as equivalent to misrepresentation where the undisclosed fact amounts to a failure to act in good faith, the good faith assertion is meant to distinguish between sellers knowledge of hidden defects and so called market information typically the result of research and special expertise on the part of the buyer

A. Is there ever a duty to disclose?

1. if the information is dangerous and latent

Obde v. Schlemeyer fraudulently concealed termite infestation. made some efforts to remove termites, but not to have the tests done to ensure that they were eradicated. Since the condition was serious and the 's lives could have been endangered, the court finds in favor the the s.

2. when nondisclosure = assertion

161(b) where a party knows that a basic assumption of a party contracting is wrong and silent about a fact which illustrate this, then disclosure is mandatory

3. Duty of good faith

distinguishes between the information on the market and information that should be disclosed (i.e. protects information sought as an investment but releases fortuitous information that clearly makes market sale unreasonable)

4. Protection of Market Information

Court seeks to prevent information sought as a marketable good

Keaton article-if does not disclose than guilty of fraud

L&N Grove v. Chapman a real estate agent buys a grove from Chapman for 1.5 times its market value as a grove. Public info that Disney World may come there, but years before it. Chapman was an expert in real estate as well. Chapman allowed to continue using the land for grove, but Chapman, when the value had skyrocketed, brought Curtis to court on fraud charges. But there was no evidence of fraud, just speculation.

5. Kronman we should protect information that is sought as an investment. Casually acquired info ought to be shared (there will be no change in behavior in making the person tell), whereas deliberately acquired info. should be protected. Cannot lie if asked

government can require disclosure of certain things (statutory duty)

6. Duty to disclose info. that affects market for psych reasons

Stambovsky v. Ackley (NY St. Ct.) possessed house; not local, did not tell of the house and bought the house. Ct. allows them out of the K, where the seller takes adv of a buyers ignorance and is not common knowledge than contract can be revoked

7. Economic Viewpoint

Laidlaw v. Organ tobacco sale where Girault asked Organ if he knew anything that would affect the price of the tobacco he was selling. The European market had just been opened for tobacco and Girault would have found out. Supreme Court revered under the idea that it did not want to support a market for that kind of information (valuable for 10 minutes) especially when it was not intentionally sought (Kronman).

Important issues-uncertainty, availability of info, expertise

More seller is an expert the more he has to reveal info to a nonexpert buyer

PUBLIC POLICY CONSIDERATIONS (ignorance of fact making the party, unknowing insulates the party from the claim of illegality)

IMMORALITY

1. Courts will not enforce a contract that is against public policy.

Generally Immoral Acts

Watts v. Delokovsky-ct allows plaintiff to recover losses,

Dissent-statute prohibits all gambling and should not

Football player and contract with teams

a. public defrauding

Roddy-Eden v. Berle court refuses to enforce this contract where the two agree to defraud the public into thinking that Berle had written the book in exchange for them sharing the profits 50-50. This was public deceit; the victims would have been the public. In this case, Berle refused to promote the book and she is seeking damages in court. At this point, however, the contract had failed. The court failing to enforce it is more of a stamp for the parties to get out of court than it was a deterrent (because presumably if parties are doing this and the get to court the contract deal is done anyway).

No consideration and contract to defraud the general public, cannot contract to do something illegal

*court also says that there was no obligation on to do anything, but given Woods we know that this is not the case.

b. subverting marriage doctrine -

Hewitt v. Hewitt aggrieved woman lived in an unmarried, family-like relationship into which 3 children have been born, and now is seeking equal share of the profits and properties acquired in that timeframe. She alleges multiple theories including entitlement under equity, fraud that they were not married (and hed said so), implied contract, detrimental reliance, and expressed (oral) contract that theyd share their lives. Court held that it is illegal to contract for sex outside of marriage. It also held that allowing common law marriages would allow another option for marriages, and the state has an interest in the marriage relationship (taxes, etc.). Ill. Had fault based divorce; there was a pro-marriage stance here.

Marvin v. Marvin Cal. Ct. allowed common law marriage (cohabitation) to have legal affect, so long as it is not a contract for meretricious sexual services

Glasgo v. Glasgo theyd been married before (and divorced), and she returned to him with the kids. They tried to make it work. The court allowed her to recover because theyd been married formerly and were trying to raise the kids in a conventional American family. To deny damages to the woman here unjustly enriches the other party.

*They could have denied enforcement of this promise on the grounds that it was a familial promise. Could say that the underlying issue worrying courts is fraud in common law marriages, and, as it was not at issue here, the court allowed the K to be enforceable

178 of R.2d gives courts much leeway in considering public policy in their holdings.

2 reasons why courts would not enforce a contract for public policy reasons

1. deter future contracts of the same sort

2. protect the dignity of the court (i.e. court will not hear trashy contract claims

In re Baby M Rest 173 (3)

A contract for surrogacy, after birth surrogate would not release the child to father and wife, sue for performance, ct considers contract invalid as it is in conflict with the public policies of the state

How does a court know the contract violates public policy, surrogacy(looks to the specific statutory and decisional law of the state and compare it

UNCONSCIONABILITY

V. Limitations on Enforcement Unconscionability

A. Unconscionability an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction.

1. Substantive unconscionability refers to the terms of the agreement itself (an

unreasonable price or contract term which deprives party of essence of

his bargain)

2. Procedural unconscionabilty a defective bargaining process (unreasonable

failure of one party to inform the other party about important aspects of

the exchange; refers to practices which impermissibly affect the other

parties ability to make rational choices about the exchange)

B. Williams v. Walker-Thomas Furniture consider the effects of the decision to remand the case to the lower court for consideration of unconscionability

1. Ex ante or Ex post position? Do justice in this case or other cases in the future?

2. Does considering this c.c. clause unconscionable help Williams and others in her

position or hurt her in the long run?

1. Help gives her more security in goods.

- allows her to keep her goods in this case

- prevents future businesses from putting such clauses in fine print

2. Hurt ccc allows her to spend money on goods that she shouldnt buy

- disallowing ccc possibly precludes her access to credit

An absence of meaningful choice on the buyers part and the presence of contract terms unreasonably favorable to the seller

UCC-a contract entered into by competent adults is binding without regard to anyones opinion of its fairness, but where the circumstances indicate that one party did not, or could not, fully comprehend the meaning of the contract, then the court is free to use its own judgment to determine whether the contract terms are fair

Williams v. Walker Thomas Furniture Co. I & II

Walker was a welfare recipient who took advantage of the cross-collateral provision with the furniture company, it enabled them to repossess not only the item the purchaser defaulted on, but all other items purchased at the store on credit. The district ct reluctantly held for the Company, appeals ct reversed on grounds of unconscionability (criticized for parental attitudes toward poor)

However if all cross-collateral provisions are unenforceable the interest rate demanded by the lender would increase, and therefore increase plaintiffs monthly payments (low-income people would pay more for credit)

Seabrook v. Commuter Housing Co.

Standardized Forms

Standardized clauses are generally intended to minimize the sellers risks and responsibilities-for example, by narrowing the scope of the sellers warranties or by expanding its legal remedies in the event the buyer fails to make installment payment when dueand, by the same token, to impose burdens or other limitations, not negotiable

No practical alternative, thoroughly favors the seller, the broker for the seller usually has no authority to modify

Henningsen v. Bloomfield Motors, Inc.

Plaintiff bought a car from the defendant dealer, failed within 10 days and caused injury to the defendant and his wife for breach of implied warranty of merchanitbility. Defendants pointed out that purchase agreements specifically disclaimed all warranties. The Supreme Court of NJ a contractual disclaimer as it sought to imnmunize the defendants from personal injury claims was void (the need to protect the ordinary man against the loss of important rights made it appropriate to treat the warranty-disclaimer as a nullity

*need for protection exists when there are few alternatives to the buyer

STATUTE OF FRAUDS When does a contract arise? Without statute of frauds, we cannot be sure. The intent of the statute was to limit the enforceability of certain kinds of oral contracts, especially

*sale of land and goods

*surety ship contracts

*those obligations whose performance requires more than a year (this is measured

from the time the promise is made until the completion of performance

Farnsworth)

1. statute required parties to make a note (place in writing) of their agreements.

2. Part performance of an oral contract not to be performed within one year will not take the contract out of the statute unless the part performance is reliable evidence of the agreement (thus bypassing the written agreement rule)

$500+

McIntosh v. MurphyQuestion over the fact that the contract was not to be completed within a year of the promise (and it was not in writing). Murphy interviewed for mgt. position in Hawaii. He flew to Hawaii to accept an asst. mgr position which had been offered to him, demonstrating reliance by moving his things. He was dischared 2.5 months later, and he sought relief in court. Jury awarded him $12,103.40 for his reliance and said that the statute of frauds did not apply. The jury found that the job was for a years duration and that hed not been properly discharged. Did the statute of frauds make the oral contract unenforceable (since it was not to be performed within 1 year)? He did demonstrate part performance Several tests to consider: see R.2d 217A. Ct. says that the length of the contract was for the jury to decide, which it did. He demonstrated reasonable reliance and it would be inequitable to bar his recovery. Thus, it is Affirmed.

Mercer v. CA Roberts Neither side gets anything. was a company who hired to develop Dallas sales office for 3-5 years from inception. He was to receive 15% of the the Dallas contrib to the company's annual profits. The Dallas office did very well, resulting in a disproportionate amount of $$$ going to Mercer. In 1974 the company implemented a retroactive incentive payment scheme that was to reduce his incentives. He resigned and sued for $37,000. He was denied recovery due to the statute of frauds; there was no written agreement. The dissent and Mercer argued that this was inequitable, but the court said that it would overlook the statute of frauds only in egregious circumstances. (enforcement of part performance has not been recognized)

Dissent-equitable estoppel

Arguments for-

1) serves an evidentiary function-written promises proof of an agreement, limits the number of errors

Arguments for Eliminating

1) transaction costs-not effect, should be determined relation to potential damages

2) not cost effective

3) could be a trap for the unwary, statute for frauds

3. Using promissory estoppel in statute of frauds cases is very controversial

4. written agreement must be signed (Monetti)

5. primary goal of statute is evidentiary; does there exist a K that the court should enforce? (Monetti)

Schwedes v. RomainIssue over sale of land. Schwedes want specific performance or damages for land. Schwedes hired an atty to close on the Romains land; theyd accepted the offer of sale by telephone. They were told not to send the money but to bring it to the closing in Oct, but the Romains sold it to someone else before then. There was no written agreement between them. Court held that there was no contract, and even if there was, there was no estoppel between them. Oral promise of the Schwedes was not binding, and the atty did not have authority to bind them in contract. The only reliance that they claim is that they hired atty, but this is considered preparation by the court. For . Encourages negotiation, supported by autonomy theory

Standards and rules (?)

Monetti SPA and Melform USA, Inc v. Anchor Hocking Corp

Monetti in negotiations to grant Schneiders exclusive rights to distribute Monettiss products in USA. Shneiders sold importing firm to Anchor Hocking. Agreed to $27M for rights. Memo written with note on it saying we want Canada. Monetti turned over all inventory, records, physical assets, and trade secrets of Melform. Anchor Hocking fired Schneiders and then said that the agreement also gave them rights to central and south America and the Caribbean, to which Monetti brought action for breach. Statute of frauds prevents this transaction (because it occurred over a year) except for the fact that there is a memorandum or something in writing and it is signed. The memo was written before the contract, but in this case satisfies the statute of frauds. Monettis turning over the assets, etc. was evidence that the K existed, and this partial performance took the K out of the statute of frauds.

Which test to apply if either the UCC or Common Law statutes of frauds could apply?

Predominant purpose test - applies the UCC to transactions if their predominant purpose is to sell goods, but applies the common law if their predominant purpose is to sell services.

Posner argued that this test did not apply in Monetti.

*In considering statute of frauds and its applicability

strangers tend to get Ks in writing

people who conduct business together often relax the writing of Ks because the

extra-legal sanctions are so critical

*There have been several changes suggested to make the statute of frauds more useful in the modern information exchange. See end of book 1.

Mitchell v. Lath-buyer was trying to enforce the removal of an icebox, which is not included in the original contract for buying the defendants home, Defendants promise could have been expressed in a separate agreement and it did not directly contradict anything and would have materially added to the defendants costs(however the contract was deemed to be final and complete and therefore the evidence was not admissible. Prior agreements are only enforceable if they entail separate consideration of the part of the promise, that is the promise to pay additionally for some other service

1) must be collateral to the written contract

2) does not contradict the terms of the written contract

3) not something that would have already been included

natural omissions test

Materson v. Sine-sale of ranch and desire to keep it within the family, Masterson sold ranch to sister, retained an option to purchase at any time, than went bankrupt and the bank want to exercise the option to purchase, the Sines and Masterson asserted that the repurchase option was not assignable, ct found that it was admissible because they found that even when the written contract seems complete on its face, evidence of collateral oral agreement should only be excluded when the fact finder is likely to be misled (opportunism?)

* circular application in these 2 cases

Merger clauses-fraud can only negate a contract if it can negate the merger clause

Evidence is always admitted to see if the merger clause was voluntary

CONTRACT INTERPRETATION

Restatement 201(1)-where the parties attach the same meaning to the terms used in their agreement, the interpretation of the agreement should be in accordance with that meaning even if a third party, presumably viewing the matter from an objective observer might think, if the contracting parties attach different meanings to the same term, then neither is bound by the understanding of the other unless one of them knew or had reason to know what the other understood the disputed

Frigalment Importing Company v. B.N.S. International Sales Corp

(what is chicken)

an importer sent an order to the defendant for grade A chicken and received stewing chicken instead of the tender young boilers and fryers it was expecting, a 2nd shipment was aborted by the defendant when it realized that plaintiff would not accept the merchandise, sued for breach of warranty under the Judge Friendly found that chicken, not otherwise specified, could properly be taken to refer to stewing chicken or fowl Defendants subjective belief would not be significant if it did not coincide with an objective meaning, by the Dept. of Ag, the burden was on the plaintiff to show that it had used and communicated the term chicken in the narrower rather than the broader sense

*offerors generally bear a heavier obligation to be clear and specific about contract language then offerees

equivalent of UCC 2-213(1)(b)-any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description,

Parole Evidence Rule-assumes, that the formal writing reflects the parties minds at a point of maximum resolution renders unenforceable oral agreements entered into to the adoption of a written contract, hence, duties and restrictions that do not appear in the written document were bnont intended by the parties to survive

Complete integration-represents a full and final embodiment of the parties understanding

Restatement 213-completely integrated that represents a full and final embodiment of the parties understanding, discharges any prior agreement, proof of the alleged prior agreement is not admissible and cannot be placed before the trier of fact

Courts may supply the missing elements by resorting to trade usage or to any prior couse of dealing between parties which is fairly to be regarded as establishing a common basis of understanding

Objectivism and Contextualism

In re soffes estate-wife v. 2nd wife, who gets his estate, man disappears on his 1st wife, marries again-insurance policy goes to wife , which one gets itto hold for 1st-pbjective, 2nd-subjective-who it was intended to, went to 2nd wife, adopted contextualist arg

Pacific Gas and Electric

Reasonable susceptibility test

Ct found that the lower ct erroneously refused to admit extrinsic evidence about the terms used in the agreement

* should consider circumstances surrounding the makingincluding the nature and subject matter of the writing, fairly susceptible of either one of the 2 interpretations contended for than relevant extrinsic evidence should be admitted

Trident Center-buyer could not start paying until after 12 years, other said def could accelerate upon default with a 10% fee, terms have to contradict, where there is no contradiction, then no context v. objective arg

New textualism approach-adopt a four corners approach to understanding the statute instead of legislative history

essay

The goals of contractual objectivism

MISTAKE*An exception to the rule of allowing reliance

*Can be used affirmatively by a as a reason to recind contract

*example when one buys machinery for specific chore and it does not work in conditions.

Peerless

Sherwood v. Walker

Sherwood buys cow for the price of a barren cow, but she is already pregnant. They did not know it and it was not part of the price. Walker did not know it either, so Kronman analysis does not hold here, either (i.e. protecting an info. investment). If both parties made the mistake, it is easier to get the doctrine of mistake to apply. A contract cannot be enforced if the whole substance or very nature of the merchandise sold is different from what they bargained for. (best reason for allowing is that one party would receive a windfall while the other would suffer a penalty lottery ticket (Kordana)

Restatement 152 contract based on mutual mistake is voidable unless the adversely affected party bears the risk of the mistake under a reasonable view of the circumstances

Restatement 20 NO Manifestation if they attach materially different meanings

Restatement 154

Anderson Brothers Corp v. OMeara

Buys wrong type of dredge, not sufficient because didnt assume right for his purposes, mistaken about work doing with dredge

Kordana-disagrees both mistaken about suitability of dredge for buyers needs

Aluminum Co. of America v. Essex Group, Inc.

Reformation of a mistake in writing is available if where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in 154

In determining whether this mistake has a material has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise

Resolve 3 questions

1) was the mistake one of fact

2) was it fact for which relief could be granted

3) if the mistake was not one of fact is relief

Prior agreement

Agreement to put in writing

Because of the mistake, variance in the writing and the agreement

2 types of contractual intent and means, contrasted with Eastern Airlines

Atlas Corporation v. United States-parties sue government for

Kordana-If fact does not exist than cant contemplate

Clerical errors clearest case for mistake

1) the parties to the contract were mistaken in their belief regarding a fact

2) that mistaken belief constituted a basic assumption underlying the contract

3) the mistake had a material affect on the bargain

4) the contract did not put the risk of the mistake on the party seeking reformation

FRUSTRATION OF PURPOSE

Impossibility

Central question is one of intent, deals with the limitations of human foresight and with the fact that the negotiation of contract details has come to an end

*purposes of the frustration doctrine-limitations of human, the fact that the negotiation of contract details must come to an end, every future contingent state of the world cannot be predicted

defenses

1event that happened is purpose of the contract

Krell v. Henry

Henry pays Krell 25 pounds for the use of his apartment during the coronation procession of Edward VII, however due to illness the procession is postponed. Henry rescinds the contract and Krell sues, the court held that the undebatable purpose of the contract was to view the procession the foundation of the contract was eliminated, staging of the coronation on the expected date was a condition on which the parties intended Henrys rental obligation to depend

Lloyd v. Murphy

Selling cars during wartime, made plenty of allowances, must be absolute frustration

Anticipatory repudiation-whether the plaintiff or the defendant should be held to have breached by failing to render performance at the time such performance fell due, one of the contracting parties expressly repudiates her contractual obligations in advance of the time performance is due

Hocshter

Restatement 253

Plaintiff had the right to commence damages immediately, prior to the scheduled beginning of performance, any constitute a total breach

How to measure the buyers damages where a seller of goods repudiates the contract of sale prior to the delivery date

Cover under UCC 2-711 (concerning the sale of goods) by purchasing equivalent goods on the market

Under UCC 2-712 have damages equal to the difference between the cost of the cover and the contract price

Pros

-benefits of the breacher-less in damages, mitigation

nonbreaching party-receives fuller compensation

Cons

Breacher-cannt change mind

Nonbreacher-has problem showing no mitigation

Breach is signaled at the time of repudiation

Oloffson v. Coomer

Ill ct held for the defendant, found that the plaintiffs failure to cover at the time he learned of the defs repudiationinstead, waiting until the later delivery date, by which time the marlet price of corn had gone up sharplywas contrary to the established and accepted usage of trade, lack good faith

DEMAND FOR ASSURANCE

Repudiation may be inferred from the promissors conduct even though no statement is made

Restatement 251 and UCC 2-609-a promissee who has reasonable grounds for believing that te contract will be breached may demand adequate assurance of due performance from the promissory and suspend her own performance until such assurance is received

Reasonable grounds-depend on the particular facts and circumstances of the case at hand

REMEDIES/DAMAGESReliance most closely approximates the optimal level of enforcement

But reliance that includes the opportunities foregone is incredibly hard to calc.

Expectation reduces administrative costs of trying to calculate what would be the cost of breaching

Courts usually grant expectation damages. Reliance damages, when granted, do not usually account for economic reliance. In competitive market, however, in granting expectancy damages, you grant economic reliance damages in the process (how? Because in a liquid market you can measure opportunity costs easily?).

American Standard-cost of completion rule

Peevyhouse v. Garland Coal & Mining CompanyPeevyhouse made the coal company promise to restore the land to its previous condition

before allowing them to mine. The Peevyhouses, however, were receiving some money for the coal coming out of the ground. At the completion of the mining, it would have cost the Mining Co. almost $30K to restore the land, and that would only have changed the land value $300. So the Mining Co. gives the Peevyhouses $300 in expectancy damages. Peevyhouses sue for $25,000.Question is between the cost of performance and value rules. Who is being opportunistic here? Like Jacab and Youngs v. Kent. The entire value of the farm, even with the remedial work, is only $5000. Consider 348-2 and see that it could come out either way; the reasonable cost of completing performance if the cost is not disproportionate to loss in value to him. Common themes-all seen as adjusting their expectations

Considers that the breaching party got into the situation without opportunism

2-703, 2-713, 2-706, 2-708

Freund v. Washington Square Press, Inc. Contracted with to publish book. gave $2,000 as an advance upon delivery of a manuscript. could have terminated the agreement in writing within 60 days of delivery of the manuscript, but it did not do so. But it failed to publish the book, also. What damages awarded? Trial court awarded the cost to publish the book so that he could publish it himself ($10,000). He sought to show that the breach delayed his promotion and that he lost royalties. The lost royalties were dismissed, but the appellate court also granted him $10,000 to publish the book. But the Ct of Appeals said NO this puts better off than he would be if the K had been performed. did not show how much in royalties he anticipated and he failed to claim any reliance in writing the book itself. Further, he failed to show that the nonperformance delayed his promotion. Thus, since it was too speculative, he gets six cents and his lawyer fees paid by the . Spec. perf? No cannot supervise the publishing process, and spec performance is only granted for specialized goods. See R.2d 359 - if no damages will compensate, specific performance will be considered.

Sedmak v. Charlies ChevroletGood not completely unique, but Sedmak could not have found a substitute for nearly the same amount of money. If he had covered and spent $30K, then, in the off chance that there was a substitute out there for $24K, Sedmak would not be able to recover from Charlies.

Specific performance transaction costs would go down if specific performance was the default. Question is, as we discussed in Ch. 1 is the good unique? If it is unique, then it is hard to put a dollar value to it, and thus rewarding monetary damages for it will not effectively compensate the pee.

Problems with specific performance

1. under-compensate pee

2. pee may be acting opportunistically

3. Is there an actual breach here or did they contemplate this in the price? Has

someone bought the lottery ticket?

4. Damages may fully compensate

5. Courts may not be totally committed to compensation

6. Concerns of liberty

Pros of specific performance

1. pee knows value of the broken promise; they have better info than the courts

on determining the promises worth to them

2. damages are undercompensatory

3. pees have economic incentive to sue for damages when they are fully

compensatory

Cons

1. promise should be fully compensated through the breach and pay damgages

option

2. por gets more because, even after paying damages, the por gets more for

selling it the third party

3. 3rd party pee is better off because he gets a promise hed otherwise not have

(but for the breach)

You can always contract for monetary damages instead of specific performance

*Court considers uniqueness of good and likelihood of replacement. Cessna case,

*Court also not likely to grant specific performance in service contracts, due to (1) best efforts concerns and (2) issues surrounding best efforts. Some have been upheld. See p. 818.

Breach as cry for help or opportunistic (benign, cry for help) goal is to see which is more likely

How do we decide

(UCC assumes benign breach)

Sullivan v. OConnor-3 noses, plastic surgery, pain and suffering and how much it cost her

Kazas v. special agent to , expectancy damages to

Reliance damages-

Kordana-damages for the cancelled the program

Restitution-amount of unjust enrichment to the promisor until the time of the breach

2 central questions

Can breaching person get reimbursed?

How to measure?

Common law-restitution not considered damages, heard in equity court

United States v. Czara-defendants breached first, measure the value conferred by the cost of performance

Briton v. Turner-contracted for a year, stopped working for 9 months and sues for his partial performance

Restatement 374

No time when the breaching party sues will he get more than sued for

Punitive Damages

UCC specifically bars punitive damages, except for when it specifically provides for it, must include a separate suit

Hishban-

Miller

Public policy-concerned with merger of contract and tort law

Do not want to make breach more appealing to the victim

If fraud is difficult might want

Pontiac-allowed punitive damages

Miller-no punitive damages, unless fulfills an independent tort, efficient breach

Drews-certainty, new business rule, seems absurd to put future profits at zero

Lost as a natural consequences

Natural as a breach

Lost with foreseeable certainty

Debt and equity finances

Forseeability

Hadley v. Baxendale

Crooked Alley-reaffirms Hadley, common feature test

Spang-one is not required to enter into another contract with a party if they

Liquidated Damages

Parties contract to limit the consequential damages in a prescribed manner. Not always upheld, see Lake River. If the damages that are calculated are reasonable at the time of contracting, courts will usually enforce the liq damages clause. What did the parties consider to be reasonable, foreseeable damages at the time of contracting? The fuzzier the damages are at the time of contracting, the less likely the court will uphold the liq damages clause. See R.2d 348.

Lake River

Carbarundrum makes powder and sends it to Lake River to bag it and distribute it. Lake River agrees to bag the powder, but requires a minimum amount from Carb so that it can justify purchasing new bagging equipment. They get such a guarantee and Carb breaches. They had, at that time, paid Lake River for all of the bagging done to date. But they had not sent but roughly of the powder. Lake River held the powder and refused to ship it in order to coerce Carbo to pay the damages owed. The court reasoned that Carbo did not owe them the full amount because Lake River had not done any work on that remainder (i.e. they shouldnt be paid as if theyd bagged the powder when they did not). The formula for Lake Rivers damages was a penalty formula, because it always assured LR of more than its actual damages. There was no duty to mitigate in the clause (which would have made it more reasonable).

LR receives the $241,000 costs to complete the K ( expectancy damages

Carb does not get any money for sales of powder in exchange of the powder that LR was holding. Court says that it could have factored it into the price. But it may have lost profits. It would have to show this on remand.

Duty to Mitigate

Bridge case

Park v. Twenty Century Fox, found in Restatement 302, hard to determine the intent of the parties

Class Notes4.21.03

How far does Hadley reach?

Spang

Fort Pitt not paid completely; sues to recover

Counterclaim for amt they were damaged against what they owe on original K

Trial ct. agrees w/ Torrington; damage should be set off by promise on the K

App.claiming violation of foreseeability requirement in Hadley At time of King not obvious Torrington would be damaged by late delivery

In essence, FP arguing they could not foresee the special costs at time K was made

Ct.avoids applying Hadley by saying that the K term, delivery date to be mutually agreed upon, serves to incorporate as to the time of King the subsequent agreement of June, 1970 (importing alter agreement, charged w/ the knowledge as of June 1970)

KK: this is really a fiction; open question as to whether this is a good idea

Useful to think in terms of mitigation; more robust mitigation principle would encourage both parties to change their behavior to minimize the damages to each (Hochester)... however, verification problem

Counter: not such a fiction, really 2 agreements; why shouldnt both be liable for foreseeable consequences of the breach?

Forces steel co. to take into acct harms bridge co. suffers as they delay

Ct. goes in the middlerequires some adjustment but d/n go all the way (pushing foreseeability/reliability somewhat forward but not all the way)

MITIGATION CONTD.

Rockingham Even though Luten has received a fixed promise, c/n rely on that completely; as soon as breach occurs, must start to think about how to adjust their conduct in order to avoid piling up damages

Out of pocket 1900

Ignored notice from the Board, continued building bridge

Sued for completion costs

C. accepts mitigation argument; could have mitigated Countys damages cheaply by stopping the construction

They could get their expectancy at the time (1900 + lost profit); wouldnt have to pay for all the additional matls

Ct. allows recovery ONLY for (1900 + lost profits)

StraightforwardDoctrine of avoidable consequences

Obligation to mitigate damages; c/n pile up damages

Parker v. Twentieth Century-Fox Film Corp

K has a pay or play clause; not obligated to use her services in the film, but must pay her the K price of 750K

Whats the motivation for this clause?

CAPS damages studio has to pay

Contracting about the Hadley v. Baxendale rule (less than Hadley would have allowed)

d/n want to pay her from going from A-list to B-list actress

similar to FedEx ch. 1 example

offered ( lead in another movie, but due to time constraints, she d/n have same sort of veto rights

She declines the offer and sues for breach of original K

Fox, in appeal, argues that summary judgment awarded to lower ct. wrongly granted; issues of fact that should have gone to the jury about whether she had a duty to mitigate; damages should be offset by 2nd movies payment

MacLaineduty to mitigate d/n mean she had to take on inferior employment

Goldbergshe should have emphasized the pay of play cl.

No duty to mitigate b/c it only kicks in at time of breach, and d/n breach the K; they had a right not to produce the movie... owes her 750K

Big Country payment d/n offset the damages, b/c of this clause! She could have sat home, done X, and this would not be offset... obligation is to pay her no matter what

Studio purchased an option on (s time; ( what parties argue about is irrelevant

Class Notes4.22.03

Spang contd.

Does the Hadley rule govern the damages available at the time of K?

Damages arise naturally + special damages

Here, between K and date set, new special damages disclosed

What do we do about the special knowledge?

Not really a Hadley question; really an adjustment question

Where does this come up? MITIGATION doctrine

Before the breach, THEORETICALLY parties may have duty to adjust, but imposes difficulties on the parties

Spang court says yes, Ft. Pitt liable for these special knowledge damages, but give a legal fiction reason for asserting this

Spang is another exception to the rule that you d/n have to adjust

Ft. PittI contracted for foreseeable damages, these were not disclosed at time of K; now Im forced to adjust

3rd Party Rights in King

When can a 3rd party sue to enforce the rights of the victim of the contracts breach?

Generally c/n; we assume Ks create little society in which only the interests of the parties in K are effected Usually 3rd party rights regulated by other bodies of law (torts, etc.) but sometimes K law is suitable Concern: allowing 3rd party beneficiary (who has given no consideration in return) to sue the original will AFFECT THE ORIGINAL K and potential for future Ks To extent 3rd party can collect damages from 3rd party detriment, this is potential damages the or will have to charge the ee in the K Notice promisee d/n directly benefit by paying this ( in cost; promisees may not be interested in purchasing such promises in the future b/c of the huge costs involved Set of cases where cts implicitly say promisee does sufficiently internalize the 3rd party benefits such that we can create these as default rules Can K out of these; just DEFAULT RULESLawrence v. Fox (traditional case) Holly ( Fox 300, promised to pay Lawrence 300

Fox ( Lawrence 300K

Indirect benefit to Lawrence

Obviously Holly could sue Fox, but Lawrence actually sues seeking recovery for the 300

Foxs Ds:

No consideration for s promise

( d/n have privity of K to give him standing to sue

1st case to clearly set out the 3rd party beneficiary rule

Eisienberggood reasoning why we shouldnt go too far w/ this doctrine

Key question: under what circs will promisee be able to pay the implicit premium to obtain 3rd party enforcement rights?

Promisees will, as default matter, be will to pay to let their creditors recover on their behalf, thereby extinguishing the obligation Holly owes to Lawrence

Hollys interest in purchasing 3rd party rights

Traditional rulefocus on intent of King parties. Did parties intend to create right of 3rd party enforcement?

How do we discern the parties intent if it is not explicit?

Restatements 302looks for manifestation of intent AND either (1) promise to satisfy debt owed by promisor, or (2) specific intent by promisor to make a gift to a 3rd party

Relation to damages:

Expectancy damages helps limit damages to 3rd parties; other forms of law (regulatory, tort, etc.) come in and try to cut off (-) externalities that might manifest themselves to the 3rd parties

Here we have a POSITIVE externality; Lawrence more likely to get paid as a result of K1, whereas many times 3rd party creates (-) externality

Exceptions to the rule requiring privity of K

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